Microfinance institutions fall into the trap of non-performing loans

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| Updated:
Aug 16, 2021 9:14:07 AM


The amount of loans classified in microfinance institutions (MFIs) jumped 25% in fiscal year 2019-2020, mainly due to the Covid-19 pandemic, officials said.

Nonperforming loans (NPL) increased from Tk 5.9 billion to Tk 29.5 billion in FY20, compared to Tk 23.6 billion in the previous fiscal year, according to the latest statistics from the Microcredit Regulatory Authority (MRA).

Market operators expressed concern that the upward trend in NPLs in MFIs will also continue in FY’21 on the same ground.

The share of non-performing loans also increased by 0.30 percentage points to 3.30 percent of total loans outstanding in FY20, from 3.0 percent in the previous fiscal year. , according to official figures calculated by the Bangladesh Bank (BB).

Meanwhile, the total outstanding loans in MFIs increased by almost 13 percent to reach Tk 889.0 billion in FY’20 from Tk 787.6 billion in FY’19.

“If the selection of borrowers and their credit needs are not carefully assessed, borrower loan overlap can create long-term credit traps, which can further increase the sector’s non-performing loan ratio,” he said. the central bank said in its latest Financial Stability Report (FSR) 2020.

He also said that a structured Credit Information Bureau (CIB) for MFIs and a technology-based monitoring system could be helpful in reducing these problems.

The MRA has already prepared to put in place an CIB to control loan overlap in MFIs, a senior MRA official told FE on Sunday.

“We will establish the CIB with central bank support shortly to mitigate the credit risk of MFIs,” the MRA official said in answering a question.

Speaking to FE, Md. Jamal Hossain, director (administration) of Bastob, a non-governmental organization (NGO), said that loan recovery has declined significantly, especially in the last quarter of fiscal 2020, mainly due to the pandemic.

Bangladesh’s overall economic activities had almost come to a halt during the 66-day coronavirus shutdown that began on March 26 last year.

During the period of closure, people were confined to their homes, which had almost stopped all economic activity.

“The upward trend in non-performing loans in MFIs may continue in FY21 due to the pandemic situation in Bangladesh,” Hossain predicted.

On the other hand, the central bank found that the microfinance sector was highly concentrated in terms of loans, savings and membership in a small number of institutions.

The top 10 MFIs mobilized 71.97 percent of total members’ savings, while 71.96 percent of outstanding MFI sector loans belonged to them at the end of FY2020, the report said. FSR.

He added that MFIs provide financial services to 73.3 percent of all of their members.

“The high degree of market dominance by the major MFIs indicates that their financing activities need to be closely monitored. Otherwise, the deterioration in their performance may pose a threat to the stability of this sector,” the BB warned.

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