Microfinance in Bangladesh has started with funding from the donor agencies in the form of grants. Gradually, with the growth of the sector, the funding sources also experienced diversification. The primary sources of refinancing for MFIs are equity, deposits and PKSF funding. Other funding sources include loans from local NGOs or international organization such as Anukul, Stromme, Plan etc. International financial institutions currently represent only a small source of funding for MFIs. The sector has successfully reduced its dependence on donor funding and is steadily accessing commercial fund sources.
Bangladeshi MFIs mobilize a significant amount of compulsory member savings, however, the debt financing in Bangladesh’s microfinance industry is constantly growing.
PKSF had played a key role in facilitating low-cost funds to the MFIs for the last 15 years. It now lends to almost all prominent MFIs in the country through its two lending windows: Bipool (window for large MFIs) and Pushpo & Usha (window for medium & small MFIs).
At the end of 2008, PKSF has 197 active partner MFIs which have mobilized 11.35 mn (PKSF-funded part) members, that is, about one third of the whole sector. Loans outstanding from its partner MFIs is Tk 44,231 mn. PKSF puts an interest cap of 12.5% flat per annum on all loans the partner MFIs may charge from the end-users.
“The commercial banks came up vibrantly as an alternative financing source, reducing the monopoly of PKSF as the only wholesale funding agency. A recent deal signed by BURO Bangladesh with Citibank N. A. can be sought as an example. Under this deal, BURO mobilized BDT 1,500 mn through a syndicated loan. A total of 13 commercial banks formed the syndicate, with Citibank N. A. as the arranger, agent bank, security bank and account bank. This is the country’s first ever syndicated agricultural term financing, to be used by BURO for agricultural lending to its clients. The loan term is for 5 years, with the first year as a grace period. The launching interest rate was 13% with floor rate at 12.5%. The repayment would be done through quarterly installments through a mechanism known by the bankers as ‘quarterly rest’. The portfolio generated by using this fund would work as collateral against the loan.”
Among the locally available sources of funding, besides PKSF, the commercial banks are significantly gaining their market share by down-scaling interest rates and bringing in flexibility in the terms and conditions. As many as 15 commercial banks are currently providing funds directly to roughly 100 MFIs. Currently more than 20 commercial banks are involved in financing microcredit operations. Commercial banks have been providing loans to MFIs in mainly three different modes:
- individual bank develops its own policies and programs and lends to individual MFIs
- syndicated loan where a number of commercial banks band together led by one bank to finance microcredit operations in one MFI
All three modes have been applied in Bangladesh market. The total amount of investment approximately is Tk 25 bn (USD 360 mn) The typical terms and conditions include no collateral. MFIs are required to submit corporate guarantee, sign promissory notes, guarantee forms and get clearance from the Credit Information Bureau (CIB) of the Central Bank. In some isolated cases, however, MFIs are required to give collateral.