The Microcredit Regulatory Authority (MRA) plans to form a fund to minimise the risk of losses of small savers in the event of failure of a microfinance institution (MFI).

The Tk 30 crore fund, known as the Depositors Safety Fund, will be raised in six years. The government will provide Tk 5 crore to the fund and the rest will come from premiums paid by licensed MFIs.

Under the fund, a poor saver is likely to get up to Tk 3,500 in coverage if an MFI goes out of business. The amount of coverage will provide security to 80 percent of depositors in the MFI sector, the regulator said yesterday.

"It's a very good initiative. I expect the Depositors Safety Fund will be effective soon and become a support for small savers," Finance Minister AMA Muhith said at a seminar on the fund, organised by MRA at the CIRDAP auditorium yesterday.

Bangladesh Bank Governor and MRA Chairman Atiur Rahman and Palli Karma-Sahayak Foundation (PKSF) Chairman Qazi Kholiquzzaman Ahmad also spoke at the occasion that was chaired by MRA Executive Vice Chairman Khandakar Muzharul Haque.

This is the first time MRA plans to open a fund to secure the deposits of poor savers in MFIs in line with the Deposit Insurance Scheme opened by Bangladesh Bank (BB) in 1984 to provide cushioning to depositors in banks.

The idea of floating a fund to cushion micro-savers, mostly poor, comes after the fraud at Jubok, which began operations in 1994 by providing microcredit to its members and raised deposits.

MRA says the fund will protect customers. It will also build public confidence in depositing money with the institutions and reduce the risk of systematic crisis such as panic withdrawal of deposits from sound MFIs, it adds.

Under the fund, an MFI will have to pay premiums to MRA semi-annually. The premium will be determined based on the risk based rankings of MFIs.

An MFI with low risk will require paying low premiums and an MFI with high risk will have to pay higher premium, said Fahim Anwar, chief executive of Index Capital Group, consultant of MRA for DSF.

Muhith said the proposed threshold (support to depositors) should not remain static forever.

"It may be necessary to revise the threshold from time to time," he said.

Currently, nearly 600 MFIs operate on licences from MRA. The total outstanding loans of authorised MFIs and Grameen Bank have exceeded Tk 40,000 crore and total savings stand at nearly Tk 30,000 crore, said Governor Atiur Rahman.

The number of depositors in licensed MFIs stands at 2.6 crore, according to MRA.

However, still a majority of the MFIs, the number of which would be over 3,500, do not have licences from the regulator, according to MRA data.

Muhith said MRA has done good job in fixing the interest rate or service charges on loans by MFIs.

The Daily Star/Bangladesh/ 23th July 2012