The member-based Microfinance Institutions (MFIs) constitute a rapidly growing segment of the Rural Financial Market (RFM) in Bangladesh. Microcredit programs (MCP) in Bangladesh are implemented by various formal financial institutions (nationalized commercial banks and specialized banks), specialized government organizations and Non-Government Organizations (NGOs). The growth in the MFI sector, in terms of the number of MFI as well as total membership, was phenomenal during the 1990s and continues till today. Over the period of June 2003 to June 2006 the growth rate was over 70% in terms of horizontal expansion of microcredit borrower. The total coverage of MCP in Bangladesh is approximately 30.09 million borrowers without considering overlapping figures. Table-1 shows the coverage of major institutions in the formal and semi-formal sectors.

It is estimated that after considering the overlapping problem, which is expected to be over 40%, the effective coverage would be around 18.05 million borrowers. Out of 18.05 million borrowers covered by microcredit program, about 62% are below poverty line and so over 11.19 million poor borrowers are covered by microcredit program by 2006.

Microcredit programs of NGOs (known as NGO-Microfinance Institutions or NGO-MFIs) and Grameen Bank play dominant role in this financial market, NGO-MFIs serve more than 61 percent and Grameen Bank alone serves 24 percent of the total borrowers. Among NGO-MFIs more than 80 percent of the outstanding loan disbursed by the top 20 NGOs, three of them are very large and have coverage all over the country. Service charge on credit varies from 10% to 20% at flat method of collection, all partners of Palli Karma-Sahayak Foundation (PKSF) charge 12.5%. Average interest offered by NGO-MFIs on savings to the members is 5%. Near about 90% of the clients of this sector are female. Loan recovery rate is generally very high compare to the banking sector, which is over 90%. Average loan size of NGO-MFIs was found around Taka 4,000.

Microcredit Regulatory Authority

Microfinance is now a nation-wide activity in Bangladesh. The issue of a regulatory framework has come to the forefront because NGO-MFIs, the major provider of this service, are providing financial services to the poor outside the formal banking system. The government of Bangladesh enacted 'Microcredit Regulatory Authority Act 2006' (act number 32 of the year 2006) on July 16, 2006 with effect from August 27, 2006 with a view to ensuring transparency and accountability of microcredit activities of the Microfinance Institutions (MFIs) in the country. Microcredit Regulatory Authority (MRA) has been established under the act which is now empowered and responsible to implement the said act and to bring the microcredit sector of the country under a full-fledged regulatory framework. According to the Act, no MFI can carry out microcredit activities without obtaining licence from MRA. Section 15(2) of 'Microcredit Regulatory Authority Act 2006' has made it mandatory for MFIs who had microcredit activities before the effective date (August 27,2006) of the act to apply for licence to MRA within six months (February 26, 2007) from the effective date of the act.

Accordingly 4236 NGO-MFIs have applied to MRA for licence by February 26, 2007. It was decided by the Authority that among these organizations, only those organizations will be considered for licence who can fulfill minimum criteria (have equal to or more than 1000 borrowers or equal to or more than taka 40 lakhs loan outstanding). Rest of the organizations already applied to the Authority will be allowed time till June 2009 to reach the above mentioned minimum criteria. If they are unable to meet those criteria within specified time they will have to close their microcredit operation after that given time. Accordingly applications from 705 institutions are being considered for license. After evaluating their application and real operations at field level they are being considered finally as eligible to get license. Upto May 20, 2008 the authority has issued 250 licence to different NGO-MFIs and licensing procedure of other selected NGO-MFIs are under process.

MRA is also working to prepare details rules and policies to monitor and supervise licensed NGO-MFIs that will cover governance issues, financial transparency, mode of operations and other related issues to ensure transparency and accountability in operation.