a) What is Service Charge and why

Under the microcredit, process service is provided to the poor. Such as their Awareness, Education, Health, Capacity building, etc. side by side to disburse the loan. In the microcredit process not only the loan money is distributed to the loan recipient, but service is also provided at the door step to the members. To ensure proper investment and earning of the loan recipient service is provided regularly. In the case of conventional Bank management, a definite percentage of interest on the loan amount is to pay up, the borrower does not get any service and he is to move to Bank. In the microcredit process, the investment capacity of the poor borrower is build up through other necessary services and he is provided loan on condition of repaying the same in installments of a small amount or some convenient installments. The borrowers need not spend conveyance for this loan as the staff visits the borrowers regularly to collect installment and to provide other facilities. As such the borrower need not waste working hours and he is not to pay supervision charge as well as consultation fees. He pays only the prefixed service charge at a definite percentage on the loan amount.

b) Fixation of Service Charge

In the microcredit process, service charge on loan received is to pay up. Service charge is fixed in two ways shows below:
  1. Simple System
  2. Continuous Reducing System
Simple System: Service charge is fixed on the disbursed loan amount for certain period at definite rate of interest. Such as if 1000.00 Taka is disbursed @Tk. 15% interest, the service charge will be (1000.00 x 15 ÷ 100) = Tk. 150.00.
Declining Process : The paid up installment amount is to be subtracted from the disbursed amount and the service charge is calculated daily on the remaining amount @ prefixed interest. Such as – if 1000.00 taka is disbursed @ Tk. 15% interest and 15 days counting as grace period, if the loan is repaid @ Tk. 20.00 as weekly installment the service charge will be (1000.00 + 20.00 ÷ 2 x 15.00 x 365 ÷ 36500) = Tk. 78.00.