Bangladesh caps microcredit interest rates

Microfinance lending pioneer Bangladesh plans to cap the industry's interest rates amid criticism that for-profit groups are demanding excessive payments from poor borrowers, an official said Tuesday. Muhammad Yunus, who created the microfinance concept and built up specialist lender Grameen Bank, won a Nobel prize for his work but the sector has since grown into an unregulated, multi-billion-dollar commercial industry.
The government's Microcredit Regulatory Authority (MRA) has approved new rules banning microfinance lenders from charging more than 27 percent interest on loans, MRA director Sazzad Hossain said. "Many microlenders have earned a bad name for charging high interest rates. There are also isolated incidents in which lenders have used force to compel borrowers to repay loans," Hossain told AFP. Bangladesh's new regulations, to come into force in July 2011, also ban unofficial deductions by lenders for so-called saving schemes, limit charges for administration fees and set a 15-day mandatory grace period for repayment.