Bangladesh sets new microfinance rule for NGOs

DHAKA, Oct 2 (Reuters) Bangladesh is tightening its supervision of non-government organisations (NGOs) that offer micro credit finance, aiming to monitor the flow of cash more closely, a senior central bank official said on Monday.

There are more than 2000 NGOs in Bangladesh and most of them are involved in micro credit financing. But the government really had no means of keeping a track of the ultimate use of the money, officials said.

Under new rules issued by Bangladesh Bank, the central bank, the ''NGOs have to obtain a licence from the Microcredit Regulatory Authority (MRA) within six months to continue offering small credit to borrowers,'' Mohammad Asaduzzaman, a joint director, said.

''This is mandatory,'' he said.

Currently, NGOs don't have to apply for a licence dealing specifically with microfinance. Instead, they have to apply for a general licence covering their broad range of activities.

The eight-member MRA, headed by central bank governor Salehuddin Ahmed, started functioning on Sunday, Asaduzzaman said.

''The government has formed the authority to ensure security of savings of the depositors and accountability of the customers of microfinance institutions,'' he said.

NGOs have until Feb. 26, 2007 to apply for a microfinance licence.

''The MRA will examine the source of funds, ownership, internal governance and the real financial position of the NGOs before giving the licence,'' Asaduzzaman said.

The government approved a micro credit regulatory act on Aug. 27.

The authorities felt the need to monitor non-government financing after Bangladesh was swept by bomb attacks last year by outlawed Islamist groups, said an official, who asked not to be identified.

The Islamists -- who killed at least 30 people and wounded 150 in these attacks -- are seeking the introduction of sharia law in Bangladesh, a mainly Muslim democracy.

Security sources said militant Islamists may have received funds from the Middle East and other Muslim countries through some NGOs or Muslim charity organisations.

REUTERS CS PM1424