Dhaka, Bangladesh (BBN)- The state-run micro-credit regulatory authority (MRA) on Wednesday capped the interest rate on micro finance at maximum 27 percent initially, which would be slashed gradually through improving efficiency of the micro-finance institutions (MFIs).

Under the new measures, the MFIs will not be able to charge more than BDT 15 for loan processing and passbooks while the grace period between the issuance of a loan and the repayment of first instalment will be at least 15 days.

“We’ve fixed the interest rate for the MFIs to protect the interest of the country’s millions of small borrowers,” a MRA senior official said, adding that the MFIs would be able to reduce the interest rate on such credit through slashing administrative costs.

“The MFIs can borrow from the Palli Karma Sahayak Foundation (PKSF) that will charge low interest which in turn will allow the MFIs to cut interest to be taken from the micro-credit receivers”, the MRA official added.

The MRA issued a directive in this connection on Wednesday and asked all MFIs to implement the instructions fully by June 30, 2011.

The government earlier formed the eight-member MRA, headed by the Bangladesh Bank Governor, to issue licences to all private micro-finance institutions in the country.

An act was passed in Parliament in early 2006 for bringing all operating micro-finance institutions under a regulatory body for ensuring their transparency and accountability.

BBN/SSR/AD-11Nov10-12:19 am (BST)