Mr. Shafiqual Haque Choudhury is the founder and managing director of Association for Social Advancement (ASA), a highly specialized financial institution that covers 1.2 million borrowers through 800 branch offices, and employs 5,760 staff members. ASA is highly regarded for its innovations in the management of micro-finance operations.
The Asia Society spoke with Mr. Choudhury while he was in New York about the importance of micro-lending and micro-finance institutions.
Read the proceedings of a conference on micro-credit at the Asia Society: Micro-Credit Gone Global: An ASIP Panel Discussion.
Could you explain if and why micro-credit is different from any other kind of money lending?
The non institutional kind of micro-credit which money lenders are operating charge exorbitant interest which ranges from 120-200% p.a. Poor can not make profit after paying such high-interest. Ultimately poor borrower must sell their assets for repaying moneylender's loan.
Formal financial institutions do not lend money without collateral. Poor are not able to provide collateral.
Microfinance institutions around the world charge 60-120% interest which is also not conducive for the poor. Traditional operation in Microfinance is costly hence ASA innovated a management and bookkeeping system which is simple and low cost hence ASA can charge low interest as 15% p.a. and make credit operation profitable for the institution as well as poor can afford to pay from the profit.
Do you seek collateral in micro-credit?
No, we don't take any collateral, because people that come couldn't give collateral. Really, you don't need collateral if you work in a system where people see that you are providing them assistance or help for 10-15 years. This is collateral faith. Mutual faith between you and me. This works. No collateral is needed.
And what is your rate of recovery?
Our rate of recovery is 99.7% on time. Usually within a week.
So what advice would you give to other countries in South Asia but also elsewhere in Asia who want to replicate the model that you have in Bangladesh?
If they're willing to replicate the model, they should number one reduce their cost by innovative ways. Secondly, they should lend money not by group guarantee methodology. Group guarantee methodology is very much detrimental to those who are good payers. Bad payers' money is repaid by the good borrowers. Individual liability in micro-finance is best. Thirdly, they should find an innovative way for covering their costs. The rate of interest charged should be very much affordable so that people can borrow. Number four, the complete amount of loan. Number five is micro-finance should be a sustainable way. If they don't have any sufficient money in hand, or in the pipeline, someone should not start micro-credit. It will end up in disaster or with a bad reputation.
Where do you get funding for the loans that you give out?
We get from appex micro-finance organisation named PKSF in Bangladesh who is channeling World Bank/IDA credit fund to ASA. ASA members whose number is 1.5 million are depositing small weekly savings to ASA which constituted good size of loanable fund.
How long is that sustainable for the World Bank loan?
World Bank Loan is initially for eight years with refinancing facilities. Ten to fifteen years time is needed to capitalize the loan. Capitalization means own fund which is sustainable.
Do you have any other comments?
Firstly Microfinance should be done in a innovative way so that MFI can charge affordable interest from the poor from which organisation can cover its cost and at the same time poor can pay also.
Secondly, there should be courageous people to start.
Thirdly, MFIs should adopt right methodology.
Interview conducted by Nermeen Shaikh of The Asia Society.