MFIs still a major source of loans for rural economy: Study

Business Desk :
A study revealed that microfinance institutions (MFIs) were still the major sources of loans for predominantly rural households and enterprises despite their high interest rates.
According to the study, of the 37% rural households that took loans from the financial system, some 66.9% households took loans from MFIs, while the rest took loans from banks, NBFIs, cooperatives and other sources.

The study titled “Use of DFS among Households and Firms” also said 41% enterprises mentioned MFIs as their preferred source for loans.
Policy Research Institute (PRI) Director Bazlul Haque Khondker conducted the study, which was presented in a training session for journalists at the PRI office in the city.
Khondker revealed some of the results from the study, which seeks to assess the economic impact of financial inclusion in Bangladesh from a macroeconomic perspective.
The study aims to estimate the impact of financial inclusion on growth, poverty, inequality, rural investment, and major macro-economic variables by using Financial Social Accounting Matrix (FSAM).

To collect data on households and firms, a survey was conducted on 1,000 households and 400 cottage, micro and small firms.
The survey collected sample data from eight divisions of the country to obtain a picture on the access to formal financial services, use of digital financial services (DFS) and associated challenges, savings and borrowing behaviour, and sources of financing for both households and firms.

“From our analysis, we can see that the rural households along with cottage, micro and small firms are mostly dependent on microfinance loans, which they can avail without much hassle – but at very high interest rates of around 23-24% or above,” said Khondker.

On the other hand, the other formal financial institutions, such as banks, NBFIs, and recently some mobile financial services (MFS), are providing loans at much lower interest rates. Therefore, there is a potential for digital financial services to replace MFIs as the sources of financing in the rural economy, he noted.

The preliminary analysis of the survey data shows that around 60% household respondents had MFS accounts, while only 18% had accounts with banks or NBFIs.
It said more men (68.03%) had MFS accounts than women (49.9%).