Micro credit was identified long ago as a powerful tool for the purpose of poverty alleviation in Bangladesh . This realisation also led to a major expansion of micro credit operations in the country during the last two decades. 13 ministries and divisions of the government are presently engaged in public micro credit operations under 37 projects . Numerous non governmental organisations (NGOs) have been also playing a part in extending micro credits to the poor. All of these activities should have caused a near complete reduction in poverty. But the same has not happened which puts into focus the issue of running micro credit operations with greater effectiveness.
One main reason for the much less than the desired impact of micro credit on the poor is the high interest rates on such credits. Borrowers of micro credit in the first place should be the poor or the very poor. But studies conducted by responsible developmental agencies from time to time showed a notable number of the recipients of micro credits to be well above the poor category.
The poor or extreme poor who take micro credit should be allowed to do so at bearable or nominal rates of interest . But even the interest rates charged on publicly run micro credit programmes continue to be rather oppressive for their poor receivers.
It was decided–sometime ago– to reduce interest rates on micro credits provided by the government run Palli Karma Sahayak Foundation (PKSF)l by 4 per cent. The interest rates dropped to 11 per cent as a result from 15 per cent. But even this four per cent decrease did not create the expected relief among poor micro credit users. What they need is credit at nominal rates or at no more than 4 or 5 per cent to make good use of them and to repay the loans smoothly.
No great difficulty is seen in the way of the government lending to the poor at these rates because the government should not be in the business of squeezing out undue interest from the poor. Disbursing credit to the poor to make financial gains out of the same cannot be the aim of a government with a stake in reducing poverty . Therefore, the recommended lower rates of interest on micro credit should meet both the needs of viably running the official micro credit operations while also meeting the intended objectives of these programmes.
The NGOs , in many cases, also charge high interest on micro credits provided by them. They also need to be persuaded to significantly decrease the interests they charge and ought to base their credit operations truly for the benefit and advantage of the poor and not for only making good profits out of such operations.
Notwithstanding the increase in opportunities for the poor to be the beneficiary of small credits from institutional sources, they remain still the victims of private money lenders or ‘ mahajans’ in many cases. Studies on micro credit showed that mahajans continue to be still a big factor in the micro credit scene exploiting the gaps in institutional availability of credits.
This indicates the importance of increasing the networks of institutional credit both by the government and NGOs. But such expansion of networks by them needs to be accompanied also by adequate lowering of the interest charged on the credits. It is also imperative to introduce laws and enforce them strictly to curb the activities of mahajans who in many cases take interest as high as 200 per cent or something near that figure.
The importance of lowering interest burdens on all types of institutional micro credit is all the more relevant now that all institutional credit sources such as banks and financial institutions are now obliged to charge no more than 9 per cent from borrowers of their funds. Any violation of this rule from Bangladesh Bank is a penal offence.
Besides, the government is sincerely and rightly wanting that the best way to economic recovery under the on going pandemic is to ensure that the millions of small producers of goods and services are enabled to achieve a turnaround in their businesses by much more access to micro credit and more importantly access under lenient terms and conditions. In other words they should be enabled to access micro credit under substantially lowered rates of interest. A fixed lowered rate of interest on all micro credits must be declared and enforced. A law should be urgently enacted and unsparingly enforced to regulate the exploitation by private money lenders.
