Rural entrepreneurs still reliant on microcredit

Dhaka,  Fri,  26 May 2017
Published : 12 May 2017, 21:36:20
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Rural entrepreneurs still reliant on microcredit

Lack of formal institutions' credit
Kamrun Nahar


Formal institutions are still reluctant to expand their credit operations to the country's rural areas despite emergence of new economic opportunities there. It is making many poor entrepreneurs solely dependent on microcredit institutions, experts and industry insiders said.

They also said regardless of widespread criticisms about microcredit from various quarters, the sector is growing due to the credit demand in the rural areas. It is happening, as the rural economy is experiencing a paradigm shift, economic activities are getting diversified and new entrepreneurs are coming out.

However, access to credit is still limited in the rural areas, largely due to bureaucratic and complex system of operations of the formal institutions and channeling their available credit to big players.

Economists suggested that time has come to develop new policy guidelines for microfinance sector to better position itself to fulfill the financial requirements of the new economic opportunities.

Power and Participation Research Centre (PPRC) Executive Chairman Hossain Zillur Rahman told the FE that the growth of microcredit sector is a clear indication that a strong demand exists for it at the base of the economy. When it started, there were lots of demands to develop a system, which is now well-established.

"Microcredit was originally designed to address poverty when the basic level of our economy was under-developed. Now it is working in an environment where lots of changes have happened."

Earlier, poverty level was high, investment opportunities were limited, and connectivity was not so developed. Now the overall economy has flourished, rural non-farm sector and service sector have developed to a great extent, pushing the demand for credit, he added. According to the annual report 2015 on the microfinance sector, the number of borrowers has jumped to 29.5 million from 27.2 million in 2014. The credit disbursement also rose to Tk 827.76 billion from Tk 647.21 billion. The outstanding loan amount was Tk 521.82 billion against Tk 409.65 billion.

The disbursement for micro enterprises (ME) sector in 2015 was 231.40 billion by 226 microfinance institutions (MFIs) out of the total 700 permanent license-holder MFIs. The amount was 176.95 billion in 2014.

Top 50 MFIs cover 90 per cent of the total market. The number of ME borrowers was 2.62 million in 2015 against 2.69 million in 2014.

The credit ceiling has now been increased to Tk 50,000, raising the credit demand, as geographical area, diversity and ability to utilize the credit have increased, said Credit and Development Forum (CDF) Chairman Emranul Haque Chowdhury.

He said the trend of borrowing from the NGOs on easy terms is much higher in the rural areas due to the complexities in getting credit from the formal institutions.

Besides, the operation of MFIs is more client-friendly, which has increased the demand for credit and the number of borrowers.

"NGOs not only give loans but also provide trainings for skill development as well as help in technology transfer, market promotion and marketing. More small size loans increase cost and big amount of loans reduce cost," he also said. At present the number of small loan (Tk 5,000-10,000) borrowers will not be more than 10 per cent.

CDF Managing Director Abdul Awal said the contribution of microcredit in the country's GDP is 15 per cent. The sector has been growing both vertically and horizontally, as the population has been increasing. But overlapping in the sector has reached all time high of 30 per cent.

The contribution of micro enterprises is more than microcredit, as the former generates employment outside the family, he added.

Hossain Zillur Rahman said rise in microcredit ceiling is a natural development, which will facilitate the emergence of its next level of borrowers, who will be potential micro enterprise borrowers.  

The sector is well established, so the efficiency gain should be shared both by lenders and borrowers, he also said. "There was an explanation regarding the high cost of loans to develop a system. The system has developed, and the MF sector should now reduce some costs, like - interest rate, charges or hidden costs etc," he added.

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