Bad loan writing off norms set for micro lenders
The microcredit regulator has for the first time formulated a guideline on writing off bad loans for micro-finance institutions.
Presently, there is no specific guideline on writing off classified or bad loan for MFIs having loan recovery record of around 90%.
The Microcredit Regulatory Authority (MRA) recently formulated a uniform guideline to bring discipline in the credit disbursement system.
Under the new guideline, classified loans that remain as bad loans for two years and are kept as 100% provisioning will be eligible for writing off.
The oldest classified loan will have to be written off first and, if any fake or unidentified loan is found, the concerned institutions must inform the regulator before writing it off.
Approval of the board of directors of the institution requires before writing off the loan, and such writing off will have to be made either on June 30 or December 31 each year.
Even after writing off a loan, the MFIs will have to continue making efforts to realise the loan and after such loan realisation, they have to be shown as earnings.
Md Shazzad Hossain, a director of MRA, said microcredit institutions have a recovery record of more than 90% in Bangladesh. “From this point of view, that’s not important to make a write off guideline.”
What the MRA has been trying to do is to put the industry on the right track since its inception, he said.
“New rules and regulations is a step forward to develop the industry in accordance with the international standards.”
Since its inception in 2006, the MRA has been continuously making efforts for creating an enabling environment in the microfinance industry for its sustainable development by formulating new rules and regulations.
Bangladesh has become the first country in the world to establish a separate entity, MRA, under a separate act to license, monitor and oversee the MFIs, as microfinance had been a private sector initiative all along and flourished without any formal regulatory entity from the government in most parts of the world.
Though Bangladesh has been the pioneer of microcredit, it lagged behind some countries in enacting a regulatory framework for this sector. Over the years, it has brought a number of changes in its rules and regulations.
Presently, there are 732 MFIs or NGOs under MRA operating in the country. Of the MFIs, only five are very large, 21 large, 115 medium, and rest are small ones.
The country’s first microfinance institution Bangladesh Rural Advancement Committee (BRAC) was established in 1972 through which microfinance activities had started in Bangladesh.