Challenging days are ahead for MFIs: BB governor
Microfinance institutions (MFIs) are set to face significant challenges in the days to come as they have to compete with the fast-growing agent banking services, mobile financial service (MFS) providers and the emerging digital banks, Bangladesh Bank Governor Ahsan H Mansur said today.
"The microfinance institutions must prepare to face these challenges. This will not be easy because competitors are equipped with advanced technology, such as computers and tablets, and benefit from lower funding costs," he said.
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Mansur added: "You [MFIs] must tackle the technological advancements and lower cost structures of these competitors in a competitive way because the government will not provide a bailout."
The central bank governor made the comments while speaking at a national workshop on microfinance in Bangladesh, held at the CIRDAP auditorium in the capital.
The workshop, titled "Annual Statistical Publication on Microfinance in Bangladesh," was organised by the Microcredit Regulatory Authority (MRA).
While MFIs have 26,000 branches nationwide, the number of agent banking outlets has reached 16,000 and is expected to grow to 60,000 in the near future, Mansur said.
He noted that donor agency grants have dwindled to almost zero, emphasising the need for MFIs to become self-reliant and compete with banks, which are now more aggressive in offering financial services.
"If customers can obtain loans at interest rates of just 10 to 12 percent, we will not restrict banks. Ultimately, we want customers to benefit, and you [MFIs] must operate more efficiently," he said.
The governor also pointed out the need for regulatory reforms and improved governance within the microfinance sector, which he identified as a major challenge.
"There is no logic in having thousands of MFIs in the country. This is not sustainable, and some institutions will collapse due to market forces. Those that adopt IT and technology-driven operations will survive in the long run," he said.
The Bangladesh Bank governor predicted that the number of MFIs will decrease while access to credit will increase in the future.
He also acknowledged certain advantages for MFIs, including strong capital bases as they are legally prohibited from distributing dividends. Additionally, MFIs do not have to pay taxes.
However, he criticised the trend of MFIs investing in land, saying, "This is unwise because MFIs are not land-based institutions."
During the workshop, some MFI officials raised concerns about not being able to recover their deposits from financially weak banks.
In response, Mansur assured them, saying, "I guarantee that you will get your money or bonds back in phases, but it will take time."
He noted that he had been warning against depositing funds in certain banks for over a decade.
"I have personally advised people not to park deposits in the S Alam-owned banks for the past 10 years, but you did not listen. Now, you are facing trouble as a result."
The MRA disclosed during the workshop that MFIs disbursed loans worth Tk 3 lakh crore in the 2023-24 fiscal year, which marks a 5.26 percent increase compared to the previous fiscal year.
As of 2024, there are 724 MRA-certified MFIs in the country, operating through over 26,000 branches.
The workshop was also attended by Nazma Mobarek, secretary of the Financial Institutions Division under the finance ministry, and Professor Mohammed Helal Uddin, executive vice chairman of MRA.
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