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Micro-finance needs effective policy support, participants tell PRI seminar

News Published: Friday, Apr 06, 2012

Micro-finance needs effective policy support, participants tell PRI seminar

Friday, April 6, 2012
FE Report

Economists, policymakers, academicians and microfinance experts called

upon the national planners to formulate a public policy on microfinance to dispel confusion about microcredit and to safeguard the sector from political influence.

They also observed that had there been a public policy, the sector could be kept above the influence of individuals or organizations.

They were speaking at a seminar on "Towards a Public Policy on Microfinance in Bangladesh" at the auditorium of Policy Research Institute (PRI) of Bangladesh in the city. The programme was jointly organized by PRI and the Institute of Microfinance (InM).

Bangladesh Bank (BB) governor Dr. Atiur Rahman was present at the seminar as the chief guest. It was addressed, among others, by PRI chairman Dr Zaidi Sattar, BB representative Dr Hassan Zaman, BRAC Development Institute (BDI) director Dr Syed Hashemi, Dhaka University professor Baqui Khalily, founder chairman of Palli Karma Sahayak Foundation (PKSF) M Syeduzzaman and InM managing director Dr Moslehuddin Sadeque.
Dr MA Khan, team leader, coordination unit of PROSPER Programme, presented the keynote paper on the topic while PRI vice-chairman Dr Sadiq Ahmed moderated the seminar.

In his paper MA Khan said microfinance started on a remarkably simple concept -- to provide working capital loans to the poor - who have little or no collateral, has expanded from group loans to individual lending; and from loans to insurance, savings and fund transfers.
"From the very onset, MFIs expanded in an unplanned way, without any definite policy from the government. Nevertheless, several rules, regulations and institutions have emerged that tried to guide MFIs for consolidation and sustainability of the sector," he observed.

He noted public policy on microfinance will reflect government's clear position on microfinance-related issues such as acceptance level of microfinance as a tool of poverty alleviation, modality of its operation, future strategy for its expansion or contraction, target group, regulatory framework covering issues like efficiency, interest rate, welfare, transparency, sustainability and so on.

He said there was a rise in microcredit operations in the country after passing of the Grameen Bank Ordinance, 1983 and it was at its peak in 1993, while adding that putting rules and regulations before the policy was like putting cart before the horse.

In his address as the chief guest, BB governor Dr Atiur Rahman said the most important role the central bank or the government can play is to create a conducive environment for non-government organisations (NGOs) and private sector initiatives for financial inclusion to launch. For ensuring this environment, providing macroeconomic fundamentals is the first requisite, he added.

He said economic growth is essential to generate demand for enterprises developed by micro-finance (MF) and stable inclusion is necessary to ensure that the poor people make progress about having access to savings, insurance and loans and that such progress must not erode away.

"While the macroeconomic policy may seem miles away from that of MF, they are in fact highly interlinked," he said.

The central bank chief observed that the MF industry in the country achieved its current scale of operations because of the light-touch policy of the government while a regulatory environment is needed to reflect commitment to protect people's money.

In his observation, Dr Zaidi Sattar, chairman of PRI, said there are structural difference between countries.

"In Bangladesh if you open one MFI, you may get 6,000 clients in an area of five kilometers whereas in Africa the client number may be 60 within the same area," he said.

He said Bangladesh happens to be the birthplace of microfinance and the principle that was introduced through this concept was an anti-thesis to traditional banking activities.

"We all are aware that banks normally do not lend to the poor and it is the question of total exclusion of them from the banking system," he added

Prof Baqui Khalily said the size of total credit from informal sector in rural areas is 45 per cent of the total credit disbursements at the national level whereas the share of MFIs is 40 per cent.

"Two major reasons for expansion of MFIs in this country are: failure of the government to create opportunity for the poor in the rural areas to have access to financial services and the failure of formal financial institutions," he said.

Prof Khalily said public policy is needed to help remove some of the confusions about MF, the role of MF and MFIs and definition of microcredit. "MFIs should be transformed into rural banks by next few decades as microfinance contributes positively to poverty alleviation as the research shows, he added."

Syeduzzaman said public policy works as the structure of governance for a sector.

"I think a public policy on MF is needed to ensure coordination of cost among its several aspects like finance, appropriate use of donors' fund in MF, ensuring accountability and undertaking impact studies. It should be ensured public policy is not overwhelmed by political decisions," he said.

The former finance minister cautioned the structure of governance of MFIs should not be a Hosni Mobarak- or Gaddafi-model; rather, it should be a Nelson Mandela-model which the PKSF has.

"Mobarak- and Gaddafi-models have destroyed Grameen Bank and Proshika", he added. More news