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Microfinance Sector of Bangladesh: Combating the pandemic wave
Private commercial banks in Bangladesh have been historically shying away from micro lending. Since 2009, banks’ share of microcredit lending never crossed the threshold of 15%. Micro Finance Institutions (MFIs) have always been the shelter of the marginal people who don’t have access to formal credit. High repayment rate is the prime moving factor of microfinance business. However, COVID-19 pandemic has impacted the repayment from customers significantly and reduced the loan portfolio by 20% worldwide.
The impact of this pandemic on the MFI sector of Bangladesh is also severe. Even the large MFIs are facing liquidity crisis following very poor collection in the 2nd quarter of 2020. To manage liquidity and business continuity, MFIs of Bangladesh are undertaking measures like persuading the good customers to make regular payment, restructuring bank debt with grace period, availing Government declared financial packages and disbursing new loans with allowing grace period of 2-3 months based on the flow of collection and specific sectors based disbursement (e.g. agricultural sector). To protect the interest of the customers, many MFIs have suspended installments from March to June, 2020 and a number of MFIs have introduced emergency Loan or New COVID-19 business loan with new features as 3-month grace period and reduced pricing. Rescheduling and restructuring of loans are also undertaken by international MFIs to protect the business as well as the customers.
Like all other lending verticals, MFI sector of Bangladesh, is going through rough patch during the pandemic. In the wake of the pandemic, digitization will be the key change MFI sector will encounter. BRAC and few other MFIs already introduced Digital Field Application (DFA) where the field officers can directly input client data in tab, instead of manually writing down on the sales sheet and then again input in their software. For the increasing popularity of Mobile Financial Service (MFS), large MFIs will operate with their customers through MFS despite of having establishment cost of disaster recovery center along with high agency cost.
Sushmita Saha
Assistant Manager
IDLC Finance Limited
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