Micro Credit Financing License in Bangladesh
To ensure transparency and accountability in the operations of microcredit institutions in Bangladesh and to efficiently regulate microcredit activities, the government enacted the Microcredit Regulatory Authority Act, 2006, and established the Microcredit Regulatory Authority (MRA). According to section 15(1) of this Act, it is illegal for any private institution to operate microcredit activities without the MRA’s certification, and any ongoing illegal activities will disqualify the institution from applying for certification. The rules and conditions for certification for institutions interested and eligible to operate microcredit activities are as follows:
- Applications for certification must be submitted online in the prescribed form
- To apply for certification, an institution must be registered under one of the following laws:
- As a Society or Foundation: Register under the Societies Registration Act, of 1860, suitable for organizations focused on social, cultural, and educational activities. See detail guide>
- A Charitable Trust: Established under the Trust Act, of 1882, appropriate for entities aiming to provide financial assistance, healthcare, and educational support. See detail guide>
- As a Social Welfare Organization: Register under Voluntary Social Welfare Agencies (Registration and Control) Ordinance, 1961 (Ord. No. XLVI of 1961). See detail guide>
- A Non-profit Trade Association:: Incorporated under the Companies Act, 1994, suitable for non-profit organizations intending to operate on a larger scale without issuing shares. See detail guide>
- Applications will be evaluated on a scale of 100 points. Applications scoring below 49 points will be rejected. Institutions scoring 49 points or above will be given 3 (three) months to provide or correct necessary information/documents. If the application is satisfactory after providing or correcting the information/documents, the institution will be instructed to deposit funds in a bank account as capital.
- The initial funds deposited in the bank can only be withdrawn/used for operating microcredit activities. If funds are withdrawn from the bank without the prior approval of the MRA before receiving provisional approval, the application will be rejected.
- Loans/grants received from any person or institution must be consistent with the assets shown in the income tax return of the relevant person or institution.
- Operating microcredit activities without the approval of the MRA will result in the rejection of the application.
- If an institution is deemed satisfactory overall and has a minimum of 1 crore taka as initial loanable funds in the bank, provisional approval for operating microcredit activities for 3 years will be granted, subject to achieving the following targets:
Time Frame Targets End of 1st Year A minimum of 600 borrowers and a loan balance of 1.5 crore taka End of 2nd Year A minimum of 1000 borrowers and a loan balance of 2.5 crore taka End of 3rd Year A minimum of 1200 borrowers and a loan balance of 3 crore taka (a) At least 70% of the total customers must be borrowers; (b) Deposit balance must not exceed 30% of the loan balance; (c) Weekly compulsory deposits cannot exceed 30/- taka per customer, and continuous deposits cannot be taken from any customer for more than 8 weeks unless for loan purposes. Voluntary or term deposits cannot be accepted before certification. (d) Failure to achieve the targets within the stipulated time or being deemed risky from a technical standpoint will result in the cancellation of provisional approval and rejection of the certification application.
- The same rules and conditions will apply to institutions registered under the Companies Act but operating as non-profit/voluntary organizations for microcredit activities.
- The application form must be properly filled out, and mandatory attachments must be included as PDF files.
- A fee of 1,000/- taka (one thousand only) must be deposited into the Microcredit Regulatory Authority’s bank account (Sonali Bank Limited, Moghbazar Branch, Account No. 0119803000029, Routing No. 200274186) from any scheduled bank in the country. The deposit slip/proof must be attached to the application, and the name of the depositing institution must be mentioned on the bank slip.
- If the institution is deemed satisfactory overall, including compliance with the rules and regulations of the MRA, certification for operating microcredit activities will be granted as per the prescribed method.
- The Microcredit Regulatory Authority reserves the right to amend or cancel any conditions related to this matter.
Responsibilities of Microcredit Regulatory Authority (MRA)
As per the existing Microcredit Regulatory Authority Act, 2006 and Microcredit Regulatory Authority Rules, 2010, MRA has some core responsibilities in the microfinance sector in Bangladesh. Some of these are:
Issuing licenses for operating microfinance activities.
- Formulating policies for the microfinance sector.
- Inspecting the microfinance institutions.
- Disposal of irregularities unveiled during inspections.
- Taking necessary actions against the organizations in case of failing to protect the clients’ interests
- Analyzing the financial and management reports submitted by microfinance institutions (MFIs).
- Approving various policies of the MFIs including changing names and addresses, and conducting social developmental activities.
- Providing eligibility certificates to MFIs for taking loans from domestic and foreign lending agencies/Banks. Providing the required non-objection certificate for raising funds from the capital market.
- Providing training to the human resources of the microfinance sector.
- Publishing research and publications related to the microfinance sector.
- Disclosure of the information related to the Right to information and self-motivated information.
- Introducing ease of doing business and online-based services.
- Conducting innovative activities
- Implementing the Government’s Fifth-year plan, Visions and Sustainable Development Goals (SDGs);
- Implementing the Annual Performance Agreement (APA), Innovation and Integrity policy.
- Providing no objection certificate (NOC) for bank linkage loan services, remittance services, mobile financial services, agent banking etc.
- Giving approval for collecting term deposits.
- Giving permission for conducting various types of income-generating/profitable activities other than microcredit.
- Coordinating the activities among Microfinance Institutions (MFIs), Palli Karma-sahayak Foundation (PKSF), Public-Private Banks, Bangladesh Bank, Ministries, and other stakeholders.
- Rendering required responsibilities regarding the development works of the sector.
Recent Regulatory Development in the Micro Financing Service in Bangladesh
- Maximum Service Charge Rate: The service charge (interest) imposed on microfinance services shall not exceed 24% per annum, as stipulated by circular 50.
- Minimum Interest on Deposits: A minimum interest rate of 6% must be paid on deposits held by microfinance institutions, in accordance with Circular 5.
- Loan Repayment Terms: For loans repaid on a weekly basis over a one-year period, there shall be a grace period of at least 15 days, and the loan must be repaid in a minimum of 46 installments, as specified by circulars 5 and 8.
- Miscellaneous Costs: The total miscellaneous costs, including fees for forms, passbooks, and entry fees, shall not exceed BDT 25, as outlined in Circular 23.
- Bad Debt Write-Off: Debts classified as bad debts may be written off after a period of two years, provided that 100% Loan Loss Provisioning (LLP) has been made, pursuant to circular 21.
- Use of Cumulative Surplus: A maximum of 35% of the cumulative surplus of a microfinance institution may be allocated for the purchase of immovable property, in accordance with circulars 33 and 47. Additionally, funds such as the Disaster Management Fund (DMF) and similar funds cannot be formed using microfinance service charges, as per Circular 34.
- Liaison Office Restrictions: Microfinance institutions are prohibited from maintaining a liaison office using their microfinance surplus. Furthermore, the Chief Executive Officer (CEO) is required to perform their duties from the Head Office, as stated in Circular 35.
- Compliance with Money Laundering Prevention Act: Microfinance institutions must ensure the implementation of the provisions of the Money Laundering Prevention Act, 2012, along with the relevant rules and regulations.
- Notification of CEO’s Leave Substitute: The Microcredit Regulatory Authority (MRA) must be informed about the substitute for the CEO during any foreign tours. Expenses related to foreign tours for microfinance operations must comply with government rules and regulations, as indicated in Circular 46.
- Approval for Asset Purchases: Prior approval from the MRA must be obtained for the purchase of land, flats, and vehicles, as required by circular 47.
- Approval for Social Work Expenditure: Approval must be sought in advance for the expenditure of accumulated surplus on social work, following the format provided in circular 48.
- Maintenance of Financial Records: Upon the completion of each financial year, microfinance institutions must maintain hard copies (printed copies) of both the General Ledger and Cash Book, generated from their accounting software, as mandated by circular 52.
- Capital Market Fundraising: MRA-licensed microfinance institutions are permitted to raise funds from capital markets, in accordance with circular 61.
- Inter-MFI Financing: Microfinance institutions are authorized to receive financing from other microfinance institutions, as specified in Circular 73.
These detailed provisions ensure the transparent and regulated operation of microfinance institutions, adhering to the standards and guidelines established by the relevant regulatory authorities.
Important Initiatives and Achievements of MRA
MRA has some significant achievements that have paved the way for forging robust accountability in Bangladesh’s microfinance ecosystem. The important achievements of MRA include:
- Microcredit Regulatory Authority Rules, 2010
- Microcredit Regulatory Authority Staff Regulations, 2009
- Amendment of MRA Rules, 2010
- Depositors’ Safety Fund Rules, 2014
- Microfinance information Rules’ 2020
- Rationalize the rate of Service Charge (interest) regarding loan & savings
- Capital Raising by issuing Bond
- Ensuring Grace Period and reducing Loan Processing cost
- Introduction of KYC & Inspection Manual
- Significant growth of Microfinance Sector
- Human Resources Development of both MRA & MFIs through training
- Membership of International Organizations such as AFI (Alliance for Financial Inclusion) & APRACA (Asia Pacific Rural and Agricultural Credit Association)
How LegalSeba Can Help with Microcredit Licensing
At LegalSeba, we provide a robust suite of services to facilitate your microcredit licensing process in Bangladesh. Our offerings include:
Expert Consultation: We assess your business requirements and guide you through the eligibility criteria set by the Microcredit Regulatory Authority (MRA).
Document Preparation: Our team assists in collecting and preparing all necessary documentation to ensure compliance with MRA regulations.
Application Management: We handle the entire application process, from submission to approval, ensuring all steps are meticulously followed.
Continuous Follow-up: We maintain regular communication with the MRA to track your application status and address any queries or additional requirements promptly.
Inspection Preparation: We help you prepare for MRA inspections to ensure your infrastructure and operations meet all regulatory standards.
Lobbying with Authorities: We facilitate effective communication with government authorities to smoothen the licensing process.
By choosing LegalSeba, you can navigate the complex regulatory environment with confidence, allowing you to focus on expanding your microcredit operations.
Conclusion
Securing a microcredit license in Bangladesh involves multiple steps and stringent regulatory compliance. LegalSeba is committed to guiding you through each phase, ensuring a seamless and successful application process. Contact us today to begin your journey towards becoming a licensed microcredit provider in Bangladesh.
Contact Us
For personalized assistance and more information on obtaining your microcredit license, book a consultation with our experts by visiting LegalSeba.com/book-now or contact us at:
Phone/WhatsApp: +8801753718223
Email: support@legalseba.com
