Microfinance institutions face cash crisis amid pandemic

The microfinance institutions (MFIs) in Bangladesh are facing a cash flow crisis amid the deadly Covid-19 pandemic.

The MFIs did not collect loan installments from their clients for the last one and half months as the government halted nationwide operations.

Besides, the rural people – who make up majority of the clientele of these institutions – did not get loans during that period despite a huge demand, said insider sources.

Most of the mid and small levels NGO-MFIs are already facing hardships and difficulties in paying full salaries to their staff last month.

Under the situation, the Microcredit Regulatory Authority (MRA) issued a circular on Saturday instructing MFIs to operate on a limited scale until further notice.

During the limited operation, microfinance institutions can distribute relief, pay back deposits, and provide loans from the stimulus package of Tk3,000 crore following proper health safety measures.

But the MFIs' representatives said some conditions mentioned in the MRA circular would be a hurdle against smooth operation.

Presently, there are 758 MRA certified MFIs across the country.

Brac, which is one of the leading microfinance institutions, has around 60 lakhs members and 32,000 staff. The organisation disbursed $5.09 billion in loans across Bangladesh last year – an increase of 21 percent from 2018.

Tanvir Dhaly, programme head of Brac microfinance, told The Business Standard, "The current disbursed loans of Brac is around Tk28,000 crore. We could not collect our disbursed money from clients from March 26 to May 9 this year. That is why we are having a crisis of cash flow.

"We now have only Tk500-600 crore of cash remaining. If we could operate in the last one and half months, we would have been able to disburse Tk4,800 crore to our clients. We could have collected 98 percent of the total disbursement, but that did not happen."

Asa is another pioneer MFI which has around 3,045 branches and 35,000 staff members.

Toufiqul Islam Chowdhury, executive vice president of Asa, said, "The current disbursed amount of Asa is around Tk16,000 crore. In the last two months, we should have been able to collect a minimum 10 percent of total disbursement, but we could not do it as our operation was stopped.

"Our clients have a demand for loans. We could have disbursed Tk6,000 crore in March and April, but that did not happen because of the virus outbreak."

Coast Trust, a moderately sized MFI working in the coastal areas of the country, is also suffering from a shortage cash flow as it also could not collect money from its clients.

Rezaul Karim Chowdhury, executive director of Coast Trust, said, "We have Tk250 crore of credit flow. Of the money, around Tk238 crore have been credited to the clients. We could not collect the money from our clients due to the Covid-19 outbreak.

"We have given only 47 percent of the salary to our 1,800 staff members because of the monetary crisis. Low-range job holders have received 100 percent, while others got lesser amounts."

He also mentioned that if the situation continues, approximately 630 local NGO-MFIs (who usually have 1 to 5 branches) could possibly face extinction due to the ongoing crisis.

According to the Credit and Development Forum (CDF), a network of MFIs, microfinance institutions are directly supporting three crore families in Bangladesh, and it is contributing significantly to the GDP by employing 2.5 lakh staff members.

All these NGO-MFIs roll around Tk1.5 lakh crore in the rural economy, which is almost one-third of the country's annual budget.

Murshed Alam Sarker, chairman of the CDF, said, "Almost all mid and small level MFIs are suffering severely due to the Covid-19 situation. Although the MRA instructed them to work on a limited scale, the opportunity will not bring any bigger change until normalcy returns.

"We have also demanded an incentive of Tk22,500 crore from the government for investing in the microfinance sector."

The MFIs leaders also raised questions over MRA conditions that instructed them to operate on a limited scale.

Responding to queries, MRA's Executive Vice Chairman Amalendu Mukherjee said, "The MFIs have been suggested to avoid yard meetings and use digital platforms for making transactions.

"The condition of conducting activities in locked down areas by consulting local administration was included in the instruction to maintain public health safety."