COVID 19 Shock wave to Microfinance Industry in Bangladesh.

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MICROFINANCE INDUSTRY IN BANGLADESH IS FACING ECONOMIC SHOCK WAVE THAT NEEDS SPECIAL CARE. ———- Sheikh Moinur Rahman, Livelihood Development and Microfinance & SME Management Expert

Reference: Based on my direct field visit.

The world is now on a mode of reformation since last six months. The economic dotard caused by the COVID 19 pandemic has resulted in massive disruption in the world economy. Likewise many other developing countries around the globe Bangladesh is bracing itself for an economic shock wave whose scale, duration and long-term ramifications are difficult to predict. Above 700 licensed Microfinance institutions in the country directly serve the needs of 3.3 crore missing middle population which is indirectly 85% of the total population those have very limited access to formal financial institutions. Approximately 15 lakh educated employees are working to keep alive their families where 6-7 million people are surviving. The total portfolio is about BDT 1,58,000 crore (approx.) and clients savings is about BDT 50,000 crore (aaprox). Unfortunately these group of people including the so-called middle and lower middle classes of the society is typically proven as the least resilient when confronting financial shocks in this pandemic. It is now important to all stakeholders to find a sustainable solutions to overcome the crisis.

 As a microfinance practitioners point of view we should find some way forward to get rid of the crisis.

First of all this has to bear in mind that the present economic depression is neither like what the world has faced in 2008-9 which was commonly a financial depression nor this is a natural disaster like cyclone or earthquake that could hit and go away with some destructions in a particular land or area. But this time the COVID 19 pandemic is different type of health related disaster that has hit every corner of the country and impacting everyone across the board. Thereby this crisis has demolished the trade and business in rural and urban micro, SMEs and macro level due to lockdown in the society.

The virus social contamination rate is accelerating day by day to an uncertain trends. MFIs are operating loan program with a moratorium of installment repayment. The average installment collection rate is 60% caused the new loan disbursement is slow down. Moreover the clients are incapable to deposit weekly savings rather withdrawal rate is high. This situation has fall the MFIs in shortage of fund. In another way the MFIs earnings has failed to meet the staff salary and benefits thereby staff upset is increasing and many of them are switching to other jobs or lost their job. So the MFIs, employees and client relationship is becoming unpleasant to some extent that will likely destroy much of the “high touch” capacity that many beneficiaries want and need. It may also lead to an overall destruction of capacity, setting the sector back for years or permanently, unless the recapitalization and consolidation process is handled well.

Many MFIs, particularly smaller ones in rural areas, with a larger proportion of small, informal and women borrowers, are in danger of being overlooked as the govt declared incentive will likely focus on big institutions with greater linkages to the financial institutions. The role that MFIs play in normal times, i.e. smoothing income through loans and savings, providing emergency funds, disseminating relevant information and guidance, etc. now mean the difference between life and death for many families.

There are some unusual aspects to this crisis too. One is that while we do not know how much health suffering the virus will inflict, we already have seen the public health response inflicting economic suffering. What we are experiencing about the financial resilience of low and middle income people around the country that the majority of families who lost their livelihoods are spending their deposit since the pandemic caused months after months of lock-down. So it is nothing wonder that there is already a rising backlash against the trade-off governments are making: economic pain now versus uncertain physical suffering later. As of now, the country is still looking for an end up like the whole world are expecting but not a single country is really out of danger yet, so in Bangladesh we could be experienced in for months and months of restrictions on normal activities as countries open up and then close down again.

 At present the promoters of microfinance industry has urged a flexible regulations along with adequate fund supply by the govt. Though the govt has declared BDT 3.000 crore incentive fund by Commercial banks, BDT 500 crore through PKSF, whereas the industry demand is for BDT 25,000 crore in the budget to setting up the sector back.

 The following steps can help the Country’s MFIs industry to hold back on the steering:

1. A joint operation committee can be formed by the MRA, PKSF, CDF and multi-level MFI representative.

2. MRA can set the rules and regulations flexible for next one year.

3. Adequate fund supply need to be ensured. The foreign investment framework can be introduced to welcome foreign investment to the industry.

4. Pandemic resilient special loan and savings product design.

5. Introducing social business.

6. Undue interference and propaganda by the local govt and others should be stopped immediately.

7. Employee salary and benefit will need to be ensured accordingly.

8. Employee health and safety measures should be ensured by the MFIs.

9. Loan restructuring and rescheduling.

10. The rate of service charge for two category loan products (regular loan rate 13% and incentive loan rate 9%) need to be rethink. Because the past experience of disaster loan product was not happy so far.

11. The declared incentive should be sanctioned without delay.

Finally, the supply of adequate fund and regulators support to MFIs will offer Microfinance industry to breathing room in exchange for their efforts to reach out to customers and help them survive this crisis.

Data Source: inter net and participation note from wbinar.

S.M.Moinur Rahman Moin
Livelihood Development and Microfinance & SME
Management Expert at Development Consultant and Global Compliance Initiative (DCGCI)Bangladesh.

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