Kampala — THE Bangladesh central bank governor has said micro-finance institutions (MFIs) should be regulated to protect the vulnerable poor from being cheated of their money.

Dr. Atiur Rahman, drawing experiences from Bangladesh noted that ill-informed and gullible people in the rural areas have fallen prey to financial scams like pyramid schemes promising quick returns.

"To prevent any such deception on MFI activities and to ensure that these are run with integrity and soundness, the government of Bangladesh has constituted a micro-credit regulatory authority chaired by the governor," said Rahman recently.

He was delivering the 17th Joseph Mubiru memorial lecture on the topic; "Financial inclusion as a tool for combating poverty" organised by the Bank of Uganda.

He said it was important for the central bank to have a deliberate policy for commercial banks to expand to the rural areas so that more people access financial services.

"In issuing new branch licences to banks, Bangladesh Bank has been following a policy of requiring atleast one in every five branches to be in rural locations with a view to pushing banking services physically closer to the rural population."

He said approaches adopted in Bangladesh towards expanding and deepening financial inclusion could be replicated and adapted to Uganda's local environment.

"The lack of spontaneity of banks in financing small holder farming in Uganda arises from much the same main reason as in Bangladesh, the high default risk in the absence of crop insurance protecting farmers from output risks and price risks.

He called for closer collaboration between the Central banks of the two countries to exchange information to foster financial inclusion.

His lecture touched on the obstacles that prevent the rural poor from accessing financial services, including cooperatives only channeling funds to rural elite, banks focusing on crop loans to the farmers and lack of micro insurance.

"Lending models for rural branches of banks were not geared towards reaching out to the poor landless illiterate unable to handle the paperwork involved in bank borrowing," he noted.

He said key among the developments that allowed a break-through for financial inclusion of rural folk in Bangladesh was the setting up of Grameen Bank and the MFIs. "Their lending models specifically included imparting the necessary minimal literacy and numeracy to aspiring member borrowers."

Rahman said many MFIs have collaborated with insurance companies in extending micro insurance to the poor and offered modest sized covers such as credit life insurance, health and accident insurance, property insurance to the poor at affordable rates.