Establishing the first Microfinance Credit Information Bureau in Bangladesh

The Business Finance for the Poor in Bangladesh programme is assisting the Bangladesh Microcredit Regulatory Authority to set up the country's first Microfinance Credit Information Bureau. This blog post highlights the value that the Bureau will bring to the microfinance sector. 

Bangladesh has one of the biggest and fastest-growing microfinance sectors in the world. In the last decade, the industry has become more dynamic in terms of focusing on credit-plus services such as insurance, savings, and mobile financial services. In such a fast growing and dynamic industry, where government is emphasizing such financial inclusion, regulatory measures are crucial to stabilize the market.

Challenges in the Bangladesh microfinance sector

Though there is structure and discipline among the players in the microfinance sector, there is still a need for the industry to become more effective and overcome challenges they face now. These challenges include:

  • Over indebtedness

  • No credit registry

  • Substandard information sharing and technology transfer

  • No linkages between Microfinance Institutions (MFIs) and banks

  • Unmet credit potential of clients

Microfinance statistics in Bangladesh based on MRA 2016 (excluding Grameen Bank)

 Statistics taken from MRA Annual Report 2016 (excluding Grameen Bank)

Statistics taken from MRA Annual Report 2016 (excluding Grameen Bank)

Divisional representation of MFI branches

 Statistics taken from MRA Annual Report 2016.

Statistics taken from MRA Annual Report 2016.

WHY Credit information bureaus?

Credit information bureaus play a critical role in the functioning of a modern financial system. They also facilitate a broad reach of the financial sector system, consequently supporting financial inclusion. The Microfinance Credit Information Bureau (MF-CIB) will:  

  • Provide data and information on market segment and clients

  • House credit histories of clients

  • Act as repository of client identifying attribute

Improved credit histories can enhance the credit worthiness of borrowers, improve the loan portfolio, help businesses grow and create better scope for investors to expand their lending to small businesses.

By 2020, it is expected that an additional £58.88m will be made available for financing to small businesses as a result of enhancements in their credit worthiness.

Process for establishing MF-CIB

The key stakeholders in the sector and came together in 2010 to initiate the process to establish the CIB. A lot of studies and research went into determining an appropriate model. The finalized model will be jointly implemented by Bangladesh Bank and MRA. The software server will be housed in the server room, the data center will be managed by MRA and once established, and the CIB will be operated by MRA.

Potential services to be offered by MF-CIB

  • Credit reports with borrowers’ credit obligations details

  • Detailed credit reports with record of inquiry searches of the particular borrower

  • Once implemented, the bureau will generate credit reports for microfinance borrowers, atleast 30% of which are classified as small businesses.

 Implementation: activity plan for key players

Implementation: activity plan for key players

Anticipated Impact of MF-CIB establishment

An efficiently managed MF-CIB will lead to

  • Higher credit disbursement

  • A validated client (credit worthiness)

  • Reduced portfolio risks

  • Microentrepreneurs to access commercial banks

  • MFIs securing additional capital

This will also enhance coordination and dialogues between key microfinance sector actors, and it is anticipated to facilitate partnerships between banks and microfinance institutions. Overall, the MF-CIB will play a vital role in adding an accurate, informed understanding of what is happening in the microfinance sector. This includes communicating authentic and verified information about the industry to stakeholders.

By 2020, it is expected that an additional £58.88m will be made available for financing to small businesses as a result of enhancements in their credit worthiness.

About the BFP-P project

The Business Finance for the Poor in Bangladesh project is a £25m strategic partnership between the UK and Bangladesh governments to boost access to financial services for small businesses. We are improving the policy and regulatory environment for financial institutions, inducing private sector investment in expanding the frontiers of finance, and enhancing the credit worthiness of small businesses.

BFP-B MF-CIB 2-pager visuals 3.png

For more information, visit the Microfinance Credit Information Bureau page on our website -> https://www.bfp-b.org/mf-cib

Read our blog post, Why does the Bangladesh microfinance sector need a Credit Information Bureau? -> http://bit.ly/2MCx0PS