Final Micro Credit

8/3/2019 Final Micro Credit

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1.Introduction:

Bangladesh is a developing country having a very poor financial market. In such type of marketthe introduction of the micro credit was a financial innovation. In Bangladesh micro credit wasintroduced late seventies. Micro credit is the provision of small loans for the income generating

self employment activities. It can be define as Micro credit, or microfinance, is banking theunbankables, bringing credit, savings and other essential financial services within the reach of.millions of people who are too poor to be served by regular banks, in most cases because theyare unable to offer sufficient collateral. In general, banks are for people with money, not forpeople without." (Gert van Maanen, Micro credit: Sound Business or Development Instrument,Oikocredit , 2004) Grameen bank was the first organization which introduced such type of loan.The main objective of the micro credit is to reduce the poverty and make stable the income of thepoor people. Since most of the people in Bangladesh live below the poverty line, the micro creditplays an important role. The initiative taken by the Grameen bank was supported by all thepeople and organizations in Bangladesh. Micro credit programmes target those without landlessand the poor ladies. 90 percent of the micro credit recipients are women. The loans provided by

the organizations is collateral free and usually have a maturity of 50 weeks with weeklyrepayment. There is no special sector for the micro credit. It can be given as the agriculture creditor rural credit or cooperative credit or consumer credit from the saving and loan associations orfrom the credit unions or from the money lenders. After the great success of the Grameen bank inthe field of micro credit different kind of organizations come forward to provide micro credit tothe poor people of Bangladesh. The mentionable organizations are Bangladesh ruraladvancement committee ( BRAC), Association for social advancement (ASA), PROSIKA etc.These organizations introduced micro credit for eradicate poverty from the society, empower thewomen , give free education to the children, family planning, women health care. Theseorganizations support the government`s poverty reduction efforts through the above mentionedpolicy. In every case women have been able to gain some access to land, they have also taken

loans for firming activities, including beef fattening, vegetable growing, fish culturing and betelleaf cultivation.

2. History of Microcredit:

The history of micro financing can be traced back as long to the middle of the 1800s when thetheorist Lysander Spooner was writing over the benefits from small credits to entrepreneurs andfarmers as a way getting the people out of poverty. But it was at the end of World War II with

the Marshall plan the concept had a big impact.

The today use of the expression micro financing has its roots in the 1970s when organizations,such as Grameen Bank of Bangladesh with the microfinance pioneer Mohammad Yunus,where starting and shaping the modern industry of micro financing. Another pioneer in thissector is Akhtar Hameed Khan. At that time a new wave of microfinance initiatives introducedmany new innovations into the sector. Many pioneering enterprises began experimenting withloaning to the underserved people. The main reason why microfinance is dated to the 1970s is


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that the programs could show that people can be relied on to repay their loans and that itspossible to provide financial services to poor people through market based enterprises withoutsubsidy. Shore bank was the first microfinance and community development bank founded1974 in Chicago.

An economical historian at Yale named Timothy Guinnane has been doing some research onFriedrich Wilhelm Raiffeisens village bank movement in Germany which started in 1864 and bythe year 1901 the bank had reached 2million rural farmers. Timothy Guinnane means thatalready then it was proved that microcredit could pass the two tests concerning peoples paybackmoral and the possibility to provide the financial service to poor people.

Another organization, The caisse populaire movement grounded by Alphone and DorimneDesjardins in Quebec , was also concerned about the poverty, and passed those two tests.Between 1900 to 1906 when they founded the first caisse, they passed a law governing them inthe Quebec assembly , they risked their private assets and must have been very sure about theidea about microcredit.

Today the World Bank estimates that more than 16 million people are served by some 7000

microfinance institutions all over the world. CGAP experts mean that about 500 millionfamilies benefits from these small loans making new business possible. In a gathering at aMicrocredit Summit in Washington DC the goal was reaching 100 million of the worlds

poorest people by credits from the world leaders and major financial institutions.

3. Definition Microcredit

Microcredit is the extension of very small loans (microloans) to the unemployed, to poor

entrepreneurs and to others living in poverty that is not considered bankable. These individuals

lack collateral, steady employment and a verifiable credit history and therefore cannot meet even

the most minimal qualifications to gain access to traditional credit. Microcredit is a part of

microfinance, which is the provision of a wider range of financial services to the very poor.

Microcredit is a critical anti-poverty tool -- a wise investment in human capital. When the

poorest, especially women, receive the credit, they become economic actors with power. Power

to improve not only their own lives but, in a widening circle of impact, the lives of their families,

their communities, and their nations.

-Kofi Annan, Secretary General, UN


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Social objectives of micro credit

In development rhetoric, micro-credit is the extension of small loans to women for income-generating projects and has been eulogized as a magic bullet of poverty alleviation. However,according to Professor Yunus, the Grameen Bank model of micro-credit is not solely a matter of

the extension of credit; it has a unique set of social objectives that it aims to implement throughmicro-credit policies.

It promotes credit as a human right. It is aimed towards the poor, particularly poor women. It is based on trust, not on legal procedures and system. It is offered to create self-employment, income-generating activities and housing for the

poor, as opposed to consumption. It was initiated as a challenge to conventional banking which rejected the poor by

classifying them as not creditworthy. It provides service on the door-step of the poor based on the principle that the people

should not go to the bank, the bank should go to the people. It gives high priority to building social capital.8

4. Classification of Microcredit

Instead of just saying microcredit we should specify which category of microcredit. Broadclassification of microcredit:

1) Traditional informal microcredit (such as, moneylenders credit, pawn shops, loans fromfriends and relatives, consumer credit in informal market, etc.)

2) Microcredit based on traditional informal groups (such as, tontin, su su, ROSCA, etc.)

3) Activity-based microcredit through conventional or specialized banks (such as, agriculturalcredit, livestock credit, fisheries credit, handloom credit, etc.)

4) Rural credit through specialized banks.

5) Cooperative microcredit (cooperative credit, credit union, savings and loan associations,

savings banks, etc.)

6) Consumer microcredit.

7) Bank-NGO partnership based microcredit.

8) Grameen type microcredit or Grameencredit.


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9) Other types of NGO microcredit.

10) Other types of non-NGO non-collateralized microcredit.

5. Macro level economy:

5.1 Definition:

Macroeconomists study aggregated indicators such as GDP, unemployment rates, and priceindices to understand how the whole economy functions. Macroeconomists develop models thatexplain the relationship between such factors as national income, output, consumption,unemployment, inflation, savings, investment, international trade and international finance. Incontrast, microeconomics is primarily focused on the actions of individual agents, such as firmsand consumers, and how their behavior determinesprices and quantities in specific markets.

While macroeconomics is a broad field of study, there are two areas of research that areemblematic of the discipline: the attempt to understand the causes and consequences ofshort-runfluctuations in national income (the business cycle), and the attempt to understand thedeterminants oflong-run economic growth (increases in national income)

5.2 The Impact of Microfinance

In the 1970s, three out of four Bangladeshis lived in poverty and the country was considered atest case for development. Rapid population growth, frequent natural disasters, and loweconomic growth throughout the 1980s suggested that a large number of households would

remain trapped in chronic poverty.

Defying this outlook, Bangladesh began experiencing more sustained economic growth since the1990s, which was accompanied by impressive poverty reduction. For example, in 1991-92, about60% of the population was below the poverty line and around 50% was below the extremepoverty line. By 2005, those figures had gone down to 40% and 25% respectively.

The Bangladesh economy began experiencing structural changes in the 1990s following tradeliberalization and domestic market reforms. In urban areas, private sector growth andemployment were spurred by rapid growth in garments exports while rural areas benefited fromthe deregulation of agriculture markets, boosting agricultural production. At the same time,

relatively higher paying rural non-farm opportunities increased and the labor force slowly beganto shift away from agriculture.

All in all, declining population growth rates, improved human capital, improved infrastructure,mainly in the form of more extensive road communications networks, and increased foreignremittance have been put forth as factors explaining Bangladesh's enhanced growth and decliningpoverty.
http://en.wikipedia.org/wiki/GDPhttp://en.wikipedia.org/wiki/Unemployment#Measurementhttp://en.wikipedia.org/wiki/Price_indexhttp://en.wikipedia.org/wiki/Price_indexhttp://en.wikipedia.org/wiki/National_incomehttp://en.wikipedia.org/wiki/Output_(economics)http://en.wikipedia.org/wiki/Consumption_(economics)http://en.wikipedia.org/wiki/Unemploymenthttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Savingshttp://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/International_tradehttp://en.wikipedia.org/wiki/International_financehttp://en.wikipedia.org/wiki/Microeconomicshttp://en.wikipedia.org/wiki/Business_entityhttp://en.wikipedia.org/wiki/Priceshttp://en.wikipedia.org/wiki/Short-runhttp://en.wikipedia.org/wiki/Business_cyclehttp://en.wikipedia.org/wiki/Long-runhttp://en.wikipedia.org/wiki/Economic_growthhttp://en.wikipedia.org/wiki/GDPhttp://en.wikipedia.org/wiki/Unemployment#Measurementhttp://en.wikipedia.org/wiki/Price_indexhttp://en.wikipedia.org/wiki/Price_indexhttp://en.wikipedia.org/wiki/National_incomehttp://en.wikipedia.org/wiki/Output_(economics)http://en.wikipedia.org/wiki/Consumption_(economics)http://en.wikipedia.org/wiki/Unemploymenthttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Savingshttp://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/International_tradehttp://en.wikipedia.org/wiki/International_financehttp://en.wikipedia.org/wiki/Microeconomicshttp://en.wikipedia.org/wiki/Business_entityhttp://en.wikipedia.org/wiki/Priceshttp://en.wikipedia.org/wiki/Short-runhttp://en.wikipedia.org/wiki/Business_cyclehttp://en.wikipedia.org/wiki/Long-runhttp://en.wikipedia.org/wiki/Economic_growth


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Contribution of Micro Finance:

Two well known studies assess short and medium-term microfinance impacts fromthe borrowers' point of view, using repeated household surveys carried out in ruralBangladesh. Using nationally representative data, their findings suggest thatpoverty reduction among the borrowers due to microfinance is 1.6 percentage

points per year. Moreover, microfinance programmes have spillover effects onthe non-borrowers -- their poverty level goes down by 0.3 percentage point ayear.

Even without the income gains, the poor may still benefit from microcreditservices if it helps them withstand income and non-income shocks such as aneconomic disaster resulting from the sudden death of a productive family member,the loss of an economic asset, or natural disasters. Without some form of insurance

(either public or private), the poor may not be able to smooth consumption duringthose disasters, which may lead to sharp cut-backs in essential food and non-foodexpenditures.

Several studies confirm that micro-credit programmes help households partiallyinsure against shocks so that they effectively play an important "safety net" role.One carefully designed study finds that microcredit borrowers are about 50% lessprone to consumption fluctuation than their counterpart non-member poor

households in Bangladesh.

Clearly, further innovations are required to strengthen this crucial risk-reductionrole, and in general to offer flexible financial services catering to different types of

poor households, in particular for the extreme-poor. One example is a micro-finance programme known as PRIME, implemented by PKSF, which offers a

flexible repayment schedule and consumption smoothing, as well as

production loans. As a result, a recent evaluation shows that PRIME is moreeffective than regular microfinance in reaching the ultra-poor, as well as the

seasonal-poor.

MFIs in Bangladesh vary significantly in terms of their noncredit services thoughthey typically include training, related business development services and socialmessages on education, health and civic rights. These noncredit interventionsraise self-employment profits in rural Bangladesh by 125% while the

combined impact of credit and noncredit interventions on self-employment

profits is 175%.


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The impact evaluation literature on micro-finance in Bangladesh also containssome cautionary notes. For example, it is clear that not all borrowers benefitequally as it depends on theirlocal economic environment, theirentrepreneurialability and the extent their income sources is diversified. A few studies alsoshow that microcredit does little to change gender inequities by limiting femalecontrol over loans.

However, on balance there is more evidence suggesting that microcredit doesinfluence gender relations positively. Access to microcredit leads to women takinga greater role in household decision making, having a greater access to financial,economic and social resources and having greater mobility in Bangladesh. .

It is clear that microfinance can protect households from shocks, contribute tochanging societal norms about the role of women in society and lead to some

households moving out of poverty. Overall, it has played its part in the impressiveprogress Bangladesh has made in poverty reduction over the past two decades.Clearly, not everyone utilizes loans productively, and there is a risk of falling intoover-indebtedness. So, the role of microfinance should be strengthened throughfurther innovations which take into account these pitfalls.

Finally, microfinance is not a panacea and will clearly not eliminate all poverty inany country. Thus, the potential of microfinance can be best exploited byrecognizing the lessons from careful impact evaluation studies, strengthening

programmes on the basis of this research and field experience, and by

incorporating micro-finance programmess into Bangladesh's overall poverty-reduction strategy.

The Components of the Macro economy: The Three Market Arenas

This complex interaction occurs within three basic types of markets: goods and services, thelabor market, and the financial market. In essence, the circular flow diagram tracks the flows ofthese three components of the economy.

Goods-and-Services Market

Firms, both foreign and domestic, produce goods and services that are consumed by householdsand the government in return for revenue.


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Labor Market

Households supply labor to firms and the government in return for wages.

Money Market

Financial assets flow between firms, households, and foreigners. When households or foreigners purchase government bonds, such as Treasury bonds, notes, and bills, they receive interestpayments. When households or foreigners purchase corporate bonds and shares of stock, theyreceive interest and dividend payments. When households or foreigners purchase real estate, theyreceive rents.

Economic activity in a market economy consists of the flow of money for products, labor, andfinancial assets.

6.The organizations which provide micro credit:

In Bangladesh there are several types of organizations provide micro credit. All of theorganizations are non governmental organizations (NGO). These organizations play an importantrole for the economic development of Bangladesh. Grameen bank ,Bangladesh ruraladvancement committee ( BRAC), Association for social advancement (ASA), PROSIKA arethe important micro credit providing organizations in Bangladesh.

1. Grameen bank:

Grameen bank is one of the largest non governmental organization in Bangladesh. The founder ofthis bank was the famous economist Dr. Mohammad Yunus. Grameen bank was first introduced themicro credit to the rural people. This bank always prefer women rather then men to provide microcredit. Because it is found that women are more conscious then men about the savings childrensdiet, family health and nuitrition. However the most important objective of the bank is to provideloan to the poorest first. Women represent the group which is the poorest of the poor. Grameen bankhas some social commitment. The bank encourages all of its borrowers to save 5 percent of the loanamount plus one taka per week. As soon as a borrower accumulates sufficient saving, she buys one(and only one) share in the Bank, which costs $3.Only the borrowers of the bank can buy the share.One of the important strategy of the bank is that after taking the interest from the borrowers it make amodest profit and then it gives the profit to the share holder as dividend. The current rate of intereston workink capita is 20 percent and on home loan is 8 percent. Last year the bank has made a profitof US$ 680,000. In a developing country such type of organization plays an important role.
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16 Decisions of Grameen Bank:

1. We shall follow and advance the four principles of Grameen Bank:Discipline, Unity, Courage and Hard work in all walks of our lives.

2. Prosperity we shall bring to our families.3. We shall not live in dilapidated houses. We shall repair our houses and work

towards constructing new houses at the earliest.4. We shall grow vegetables all the year round. We shall eat plenty of them and

sell the surplus.5. During the plantation seasons, we shall plant as many seedlings as possible.6. We shall plan to keep our families small. We shall minimize our

expenditures. We shall look after our health.7. We shall educate our children and ensure that they can earn to pay for their

education.

8. We shall always keep our children and the environment clean.9. We shall build and use pit-latrines.10.We shall drink water from tube wells. If it is not available, we shall boil

water or use alum.11.We shall not take any dowry at our sons' weddings, neither shall we give any

dowry at our daughter's wedding. We shall keep our centre free from thecurse of dowry. We shall not practice child marriage.

12.We shall not inflict any injustice on anyone, neither shall we allow anyoneto do so.

13.We shall collectively undertake bigger investments for higher incomes.14.We shall always be ready to help each other. If anyone is in difficulty, weshall all help him or her.

15.If we come to know of any breach of discipline in any centre, we shall all gothere and help restore discipline.

16.We shall take part in all social activities collectively.

2. Bangladesh rural advancement committee ( BRAC ) :.

BRAC was introduced after the liberation war in Bangladesh. It was started its work to provide reliefto the war effected people. After some years this organization has taken some importantcommitment. It provided support to the people who were deprived from the social opportunity suchas rural women fisher men and the landless. BRAC's initial experience with credit dates back to theearly 1970s. In 1974, BRAC provided credit to the villagers in its Sulla Project in Sylhetdistrictthrough the Sulla Thana Central Co-operative Association. In the following year, credit wasadvanced without interest to several landless groups; in 1976, BRAC started providing credit tolandless through its Manikganj project. BRAC had taken some of the rural Development


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programme(RDP) which was started in 1979. The Rural Development Programme (RDP) is one ofthe major programmes of BRAC. Started in 1979, RDP had grown by December 1989 into a largeprogramme providing credit to target groups from 81 branches in 45 sub-districts of 22 districts. Themajor objective of the RDP was to change the socio economic and political circumstances throughthe micro credit. BRAC has introduced the micro credit to the borrowers to use the loan according tothe purpose for which it was given. This organization does not provide any loan for the consumptionpurpose. All the loans are given on the basis of the recommendation from the village organizations.The amount of the loan varies depending on the nature of the scheme. The smallest was for Tk. 500and the largest for Tk. 4 million. Large loans are given for collective enterprises, such as deeptubewells, power tillers and so on, organized by several village organizations, whereas individualloans vary from Tk. 500 to Tk. 8,000.There are three lengths of duration for which credit is advanced to group members -

short-term for a period of 12 months or less

medium-term credit for a period greater than 1 year but less than 3years

Long-term credit for 3 years or more.

In every cases BRAC has charged 16 percent interest for all loans. The main target group

of the BRAC is those people who want to be self dependent through their manual labour.

3. Association for the social advancement (ASA):ASA is one of the biggest international micro finance organization in the world. It started work in1978 and introduced its micro finance programme in 1991. This organization has a special featurethat it is an innovative firm. So the feature of this organization is not same to the others. ASA uses amicro finance model cost effective sustainable microfinance model.. This model is followed by themany countries like Asia, Africa, South America and the Middle East.Applying this model all thecountries are trying to eradicate the curse of the poverty. ASA works for those people who are poorbut enable to reduce their poverty. In the June 2005 ASA has launched credit programme whichreached 5.47 million people. ASA has introduced voluntary savings along with mandatory weekly

savings of taka10 per week. After introducing the Income generation activities the poor women getloans from ASA. The poor women in the rural area are taken the main benefit of the creditprogramme. Initially it provides 4000tk. to 6000 tk. Loans. The duration is one year and 15% servicecharge should be paid. ASA mobilized 1.78 million taka from its member in 2005. In the past yearsaving returned and withdrawn were tk. 1.941 million. In the 2004 the borrower of the ASA was 2.77million but at the end of the year it increased by 3.55 million. The total amount of the disbursed loanwas 16.365 million in 2005 and the loan out standing increased to 3.717 million tk . ASA alsoprovides the small business loan. The minimum amount of the small loan is 20000 TK. The totalamount of loans disbursed during January to June 2005 was Tk 1,232 million and loans out standingat the end of June 2005 were Tk 1,179 million.

.

4. ProshikaProshika was established in 1976. Which is also one of the important micro credit providerorganization in Bangladesh. It provides the technical and the marketing assistance where needed. Atthe end of 2003 Prishika had over 1.2 million active borrowers , of whom over 0.8 million were poorwomen (Micro credit Summit 2004)


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Sources of Micro-Credit and Amounts Borrowed

Over 99% of the borrowers interviewed are females and less than one per cent males as per random

selection of the respondents explained in chapter 1. Most of the borrowers are in the age group of 21-50

years; and most of the borrowers (84%) are primarily housewives. Only 5% have business as the main

profession. The majority (65%) of the respondents are also illiterate, while 17% have studied up to Class-

V and another 21% between Class-V and Class-VIII. Three of the respondents are graduates. The

overwhelming majority (92%) are married.

Main sources of micro-credit of the respondents:

Distribution of respondents by main source of micro-credit

Organization Number

of

members

Number

of

borrowers

Savings

Cumulative

disbursement

Out

standing

loan

amount

Grameen

Bank

3.6 3.5 194.1 3372.5 295

BRAC 4.5 3.8 114.4 2014.2 219.9

ASA 2.7 4 47.3 1900 234

Prosika 2.8 1.5 24.3 464.4 61.3


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Sources No. of Responses %

Grameen Bank 1,200 33.9

ASA 851 24.1

BRAC 743 21.0

Buro Tangail 133 3.8

RDRS 86 2.4

Palli Daridra Bimonchon Pratisthan 66 1.9

TMSS 54 1.5

Proshika 49 1.4

BRDB 44 1.2

Popi 41 1.2

Society for social service 37 1.0

EC Bangladesh 19 0.5

Others (37 sources) 214 6.1

Total 3,537 100.0

Number of MCIs used by the respondents

No. of sources Frequency %

One 1,701 68.1

Two 605 24.2

Three 161 6.4

Three+ 27 1.1

Total 2,494 100.0

The 2,501 respondents received a total of 3,537 micro-credits in the loan period, as

appropriate for particular respondents, during which the survey was conducted. It

is seen that 24% took loans from two sources, 6% from three sources, and 1% from

more than three sources. About 68% used only one source.


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The three leading sources of micro-credit from which the respondents have mainly

borrowed are Grameen Bank (34%), ASA (24%) and BRAC (21%). All other

sources account for about 21% of the loans taken.

Rate of Interest and Cost of Borrowing

The rate of interest charged by different MCIs to the borrowers at the time of sanctioning loans and for

fixating of installments is shown in Table 4.1. It will be seen from the Table that the nominal rate of

interest charged by the leading MCIs vary from 10% to 15%, while there are other MCIs which charge

interest rates ranging from 10% to 18%.

Base rates of interest charged by different MCIs

Name of MCI Rate of interest charged (%)

Grameen Bank 10

BRAC 15

ASA 15

PROSHIKA 14

RDRS 12

Palli Daridra Bimochon Pratisthan 15

Others (generally) 10-18

Interest rate based on average balance (IRAB) of loan and rate of effective cost of

borrowing (RECC) for four large MCIs

MCI IRAB (%) RECC (%)

Grameen Bank 26.6 30.5

BRAC 40.8 44.8


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ASA 40.8 44.8

PROSHIKA 38.6 42.3

While IRAB and RECC in the case of Grameen Bank are as high as 27% and 31% respectively, theserates are much higher at 39-41% and 42-45% respectively in the case of BRAC, ASA and PROSHIKA.

Source of Inspiration for Taking Micro-Credit

For almost two-thirds of the respondents (73%), the source of inspiration for taking micro-credit has been

family members. In the case of about 16%, self-initiative has been the main reason, while about 9% were

persuaded by the MCIs (Table 2.5)

The most influential family member has usually been the husband in the case of female borrowers usually

for establishing a source of income but also at times for securing money to serve other purposes such as

educational and marriage related expenses of children and paying up of outstanding debts.


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Table 2.5Source of inspiration for taking micro-credit

Source of inspiration Frequency of responses

No. %

Self 392 15.7

Family 1828 73.1

MCIs 235 9.4

Others 46 1.8

Total 2,501 100.0

Utilization of Micro-Credit

Economic activities undertaken by the borrowers using the money received from

MCIs are shown in Table 2.4. There are some cases of more than one activity

undertaken by the same borrower. It is clear from the Table that the largest number

of activities undertaken (37%) relate to trading including in paddy, rice, stationery,

grocery, fish, and other ordinary goods and services (in some cases with some

processing). The next two important categories are renting in of agricultural land

and agriculture related activities (each about 13%). The next three activities

mentioned are purchase and pulling of rickshaw (9%), using the credit money to

defray the costs of education and marriage of children (8%), and purchase and

rearing of cows (7%). Another noteworthy activity is the payment of previous loan

(6.4%).The other activities include poultry and goat rearing, preparation and sale

of puffed rice, fish culture, and similar other ordinary economic activities. Further,

there are few borrowers who in fact have lent the money borrowed from MCIs to

others on interest or used it to defray medical and other costs.


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Clearly, the respondents taking micro-credit have generally remained tied to

rudimentary economic activities, many of which do not have much prospect of

expanding into sustainable growth because of either market saturation (most of the

products and services are directed to local markets) and/or limited scope of

productivity improvement.

Economic activities undertaken by using micro-credit

Activity* Frequency of responsesNo. %

Poultry 25 0.9

Goat rearing 23 0.8

Cow rearing 238 8.7

Puffed rice 15 0.5

Agro-support and agro-based activities 341 12.5

Fish culture 37 1.4

Trading (in some cases with some

processing)**

1,008 36.9

Rickshaw pulling 241 8.8

Pay up previous loan 176 6.4

Rent in agricultural land 351 12.9

Lend money on interest 19 0.7

Meet medical expenses 28 1.0

Meet educational and marriage expenses 215 7.9

Others 14 0.5

Total 2,731 100.0

8. Impact of microcredit in macro level economy:


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i. Economical Impact

NGOs of Bangladesh has been widely researched and recognized for making a difference inthe lives of its members. Studies show that the borrowers of these NGOs are steadily movingout of poverty. One such study shows that it is at the rate of 5% a year. According to another

study based on a household survey in an area where these NGOs has been operating for morethan a decade, about 50% of the households have crossed the poverty line. Another 25%were about to cross it and the rest was struggling mainly because of health reasons.

A study found that without any capital base at the beginning, the borrowers startedaccumulating capital as they joined NGOs which has not been possible by others. The loan isrequired to be paid back in small installments as per agreement. The borrowers pay theinstallment from generated income, leaving the original capital intact. Their capital baseusually increases in large amounts as they go for subsequent loans that enable them to go formedium and long-term investments. The study also found that 31 percent of the borrowersreported themselves as unemployed before joining NGO. NGOs of Bangladesh have created

new employment for them and especially for the female members who were earning nothingbefore. The effect of the loans on reducing unemployment is impressive. The borrowers werefound less underemployed than before. More than 91 percent of the borrowers in thesurvey area reported that NGOs had made a positive contribution to their standard of

living. The bank has been able to lift a significant proportion of its borrowers and theirhousehold members out of poverty. A World Bank study found that profits from NGO-financed businesses were increasing borrowers consumption by 18% per year, and thatthe percentage of borrowers living in extreme poverty was reduced by 70% within 4.2

years of joining. According to a recent survey conducted by Grameen Bank the cumulativepercentage ofborrowers who have crossed the poverty line until 2002 is over46%.

NGOs of Bangladesh are contributing directly and indirectly to the gross domestic product ofBangladesh. During the period 1994-1996, its net contribution to GDP as a percentage oftotal GDP in current prices has been more thanone percent.

The borrowers have been found to improve their conditions in terms of housing and clothing

too. They can afford more and warm clothes during winter seasons. Till the end of April 2003,

they have built 566333 houses with housing loans from NGOs. Women are the owners of

95% of these houses. They hold the title for the land of these houses. This was unthinkable

for them before they joined NGO.

ii. Social Impact


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The poor have little access to education, health, sanitation and other social services. Underthese circumstances, NGOs provided them a forum, a network where they are organized intogroups and federated into centers. They become decision makers, leaders and a social force.They become group and center leaders and also members of the Board of Directors of some

NGO, which they own.

In the Board of Directors of Grameen there are nine borrowers out of twelve members in

total. The Grameen borrowers go for implementation of social development programs under

the 16 Decisions that they have taken. The Grameen borrowers who became village phone

ladies by leasing cellular phones for providing village pay phone (VPP) services to the

neighborhood do not only earn more, but also enjoy a gracious social status. These women

have brought the world closer for themselves as well as for their communities. Grameen

women have become mobile. They are exposed to the outside world and are active

participants in social networking and commercialization process by attending center

meetings, workshops, interacting with national and international dignitaries, producing,selling and buying products. Grameen borrowers become more conscious about their family

size and family welfare and are determined to improve their quality of life. Studies show that

infant mortality among Grameen families has decreased by 34%, and the adoption of

family planning among them is double the national average for Bangladesh. In terms of

education, Grameen borrowers families are also ahead of others. In Grameen families, all

school-age children are going to school. After the introduction of the Higher Education

Loan (HEL) there are no cases of children being deprived access to higher education due to

financial constraints. Whatever indicators such as respect from neighbors and spouses, self-

esteem, self-confidence, self-expression, ability to protest social injustice, capacity to solve

social issues are applied to measure changes in social conditions of poor women, Grameen

borrowers are found better off than others. The process is continuing and progress is visible.

This has all been possible because of their access to credit.

iii. Impact on Political Participation:

Poverty alleviation does not only mean meeting basic food and non-food requirements but alsoexercising political rights and enjoying political freedom. Freedom of speech, choice, humanrights, casting and seeking votes for public office and other posts are some of the indicators by

which it may be measured whether the poor organized under NGOs of Bangladesh have a betterunderstanding of their political rights and obligations. Although it is a modest beginning, it issignificant to note that NGO borrowers and their household members are taking part in largernumbers as voters and candidates in local and central government elections. They are encouragedto discuss their rights at their center meetings before elections and to take decision to vote forcandidates who according to their judgment will advocate for and serve their cause. Many NGOmembers contested and were elected during the local government elections held in 1997 and2003. According to reports, in the 2003 local government elections 6759 NGO members


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contested for the post of chairman and members of whom 4179 candidates got elected asmembers. The percentage of NGO members in the local Govt. bodies is more than 8%.

iv. Impact on Governmental activity

Now a days Government of Bangladesh has also influenced by the success of microcredit programme and wants to help this sector. With the success of the Grameen Banksprogramme many large NGOs of Bangladesh introduced microcredit programme for theirtarget groups. Smaller NGOs followed the same path. But the smaller NGOs lackedadequate financial support for their microcredit programme. However, there were not manydonors ready to come up with the funds for microcredit programme for these small NGOs.At the same time, for those which received some support there was no guarantee about thecontinuity of donor funds. However, NGOs had gradually acquired some skill and

organisational strength to organize local poor people and to extend financial services to them.In this context, Government of Bangladesh set up the Palli Karma Sahayak Foundation(PKSF) in may 1990 as an apex organization to provide loans to the NGOs which is turnwould provide collateral free credit to their poor members and to provide advisory servicesand training to NGOs for enhancing their institutional capacity. PKSF, set up as acompany not for profit by the Government is unique in its character and operations.

v. Impact on Health Sector:

Microcredit programme has important contribution in raising health knowledge among poorwomen in rural Bangladesh. Credit programme helps them in many ways such as now

they know the correct age of marriage, uses sanitary latrine, contraceptive use, reducefertility and occupation of husband had no association with the prevalence of maternal

knowledge. The knowledge is much greater among credit forum participants than non-participants. Exposure to the media and the education of women had also played asignificant role in raising the level of knowledge. Several researches Findings reflected thatthe duration of credit programme participation and exposure to the media weresignificantly more likely to raise the health knowledge among women when theinfluences of demographic and socio-economic factors were controlled. In conclusion we cansay that the micro-credit programmer can be an effective tool in promoting health amongpoor people in Bangladesh.

vi. Women empowerment


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Most microcredit financers lend only to or give priority to women, and women make upover 80 percent of the total borrowers in Bangladesh.Lots of studies have shown that when the women have decision-making power overhousehold expenditures, they spend more on education and health of the children. As such,whole families, and society at large, benefit.

Microcredit helps women to start businesses by granted small, collateral-free loans. It

can increase womens empowerment. Micro-credit programs allow women to invest inincome-generating projects. Only the poorest women can join. These schemes are intendedto help women and their families work their way out of poverty. During 1995, roughly 3million women in Bangladesh took small loans from such programs. Similar programsfor extending collateral-free credit are being replicated around the world, in both developingand industrialized countries.

To get a loan, women join financial groups that meet weekly. The groups guarantee theloans. The required weekly meetings provide opportunities for socializing and sharing

information. Studies have shown that such gatherings can promote the spread of novelbehaviors and attitudes, such as using modern contraceptives or wanting fewer children.Furthermore, agencies administering the programs also provide information on and access tomodern contraceptives or wanting fewer children. Finally, because the programs improve theeconomic status of women within their families and circulate cash into village economies, theprograms might also lead to fundamental changes in the status of women. Women whojoined the groups were more likely than others to be educated, married to educated

men, and to have worked for money in the past. They are very much interested about theirchildrens education and specially education for their daughters.

Forming groups for women to meet regularly discuss new ideas, and share information may

be a potent factor in bringing about broad-based social change, especially in a setting likeBangladesh where women are otherwise isolated.

vii. Impact on the Household

Microcredit has great impact on the house hold. After taking loan from MFIs and use thatmoney a family can lives in a house worth at least Tk. 25,000 or a house with a tin roof,and each member of the family is able to sleep on bed instead of on the floor. Familymembers can drink pure water of tube-wells, boiled water or water purified by usingalum, arsenic-free, purifying tablets or pitcher filters. All children in the family over sixyears of age are all going to school or finished primary school. Family members haveadequate clothing for everyday use, warm clothing for winter, such as shawls, sweaters,blankets, etc, and mosquito-nets to protect themselves from mosquitoes. Family has sourcesof additional income, such as vegetable garden, fruit-bearing trees, etc, so that they are ableto fall back on these sources of income when they need additional money. The borrowermaintains an average annual balance of Tk. 5,000 in her savings accounts. Familyexperiences no difficulty in having three square meals a day throughout the year, i.e. nomember of the family goes hungry any time of the year. Family can take care of the health. If


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any member of the family falls ill, family can afford to take all necessary steps to seekadequate healthcare.

SELECTED SOCIO-ECONOMIC VARIABLES

Cultivable Land Ownership

Table 3.2 shows the cultivable land ownership pattern of the borrowers households. The data

show that there has also been virtually no change in the pattern of cultivable landownership of

the micro-credit receiving households. If landlessness is defined with reference to 50 decimals,

about the same proportion of the micro-credit receiving households (76-77%) are landless both

before and now. The proportion, again about the same before and now, owning 50-100 decimals

is 13-14%, while just over 9%, both before and now, own above 100 decimals.

Cultivable land owned by the borrowers households

Amount ofcultivable landowned(in decimal )

At present Before enrollment

No. of respondents % No. of respondents %

Up to 25 1,644 65.7 1,675 67.0

26-50 261 10.4 257 10.3

51-75 223 8.9 204 8.1

76-100 137 5.5 130 5.2101 and above 236 9.4 235 9.4

Total 2,501 100.0 2,501 100.0

Access to Health Service


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Access of the borrowers households to health services

Access to health care At present Before enrollment

No. ofrespondents

% No. of respondents

%

Cannot/could notafford to go todoctors; dont/did notgo to quacks

1,056 42.2 1,504 60.1

Treatment taken fromquacks

722 28.8 892 35.7

Treatment taken fromqualified doctors

589 23.6 68 2.7

Treatment taken fromqualified doctors andhealth centres

122 4.9 32 1.3

No comment 12 0.5 5 0.2

Total 2,501 100.0 2,501 100.0

The Table shows that there has been significant improvement in access to health services of the

households since enrollment. The proportion of the respondents who could not afford to go to

qualified doctors or went to quacks for treatment has declined from 96% to 71%. Also, the

proportion receiving treatment from qualified doctors and health centres was about 4% before

enrollment, which is now about 29%. The reasons for the improvements in the access to health

services since enrollment as reported by 771 respondents are shown in Table

Reasons for the improvement in access to health services

Reason No. of respondents %


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Mainly influence of micro-credit 244 31.6

Largely influence of awareness raising by

health NGOs and increased availability of

health facilities

527 68.4

Total 771 100.0

Some 32% of those who now have access to improved health services have said that the

improvement has been possible mainly as a result of borrowing from MCIs. The other 68% have

indicated that the improvements have been more due to awareness raising by health NGOs and

increased access to health services provided by government health facilities and NGOs. But still71% of all respondents either do not receive proper treatment or take recourse to treatment by

quacks. This indeed is a clear testimony to the persisting extremely poor availability of health

services in the rural areas of Bangladesh.

Sanitation

From Table 3.8 it will be seen that about 28% of the borrowers households now have sanitary

latrines but they did not before enrollment. In the case of others status-quo remains such that no

sanitary latrines before and now for 35% of the households, sanitary latrines before and now for

19% of the households, and no latrines of any type before and now for about 8% of the

households.

The reasons for the switch, as given by those who use sanitary latrines now but did not before,

are reported in Table 3.5. It may be seen from this Table that only about one-third of those who

are now using sanitary latrines but not before enrollment have indicated that the change over has

been mainly due to micro-credit-inspired and facilitated. But two-thirds say that the

improvement they have achieved in this regard is mainly because of persuasion and support from

other organizations including both governmental and non-governmental and the taking of micro-

credit has not been directly influential in this regard.


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Status of latrines in the borrowers households

Status of sanitary latrine Frequency %

Sanitary latrine before and also nowenrollment 884 35.3

Non-sanitary latrine before but sanitarylatrine now

707 28.3

Sanitary latrine before and now 476 19.0

No latrine of any type before and now 193 7.7

Non-response 241 9.6

Total 2,501 100.0

Reasons for improvement in the conditions of latrines used

Reason No. of respondents %Mainly due to micro-credit

232 32.8

Mainly due to reasonsother than micro-credit1

467 66.1

No response 8 1.1

Total 707 100.0

Impact on Education

This Table presents data on the impact of micro-credit on education in the borrowers households. In the

case of 26% of the respondents, children do not go to school on a regular basis now as they did not before

enrollment. In the case of 18% of the respondents, no child went to school before enrollment but now all

the children do go regularly. In the case of 7% of the respondents, only boys went to school but now girls

also go to school. In the single largest proportion of the households (38%), all the children used to go to

school before and they do so now.

Clearly, therefore, only in about one-fourth of the borrowers households, there has been an improvement

either in terms of all children or girls going to school now, while they did not before. Moreover, it appears

that micro-credit is not the main factor behind the positive changes in the education of children. More

important reasons include awareness raising and grants provided to girls if enrolled in schools.

Childrens education in the borrowers households

as of now compared to that before enrollment


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Status of childrens education Frequency %

No children go to school now, did not do

so before

642 25.7

Only son(s) used to go to school before

enrollment but girls also go now

162 6.5

No child went to school before enrolment,

all children go now

455 18.2

All children used to go to school before

and the same is true now

953 38.1


Total 2,501 100.0

Reasons why girls also go to school now, while they did not before enrollment

Reason Frequency %

Micro-credit 45 27.8

Other reasons* 102 62.9

Non-response 15 9.3

Total 162 100.0

The reasons why no children went to school before but all the children go to school now

Reason Frequency %


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Micro-credit 71 16.0

Other reasons* 374 84.0

Total 445 100.0

Family Income

It will be seen from the Table 3.13 that the total monthly income per family of about a quarter of

the respondents is less than Tk.3,000. Assuming that there are, on average, five members in a

family, the per capita income is Tk.600 per month. Thus, given that the per capita income of the

rural poor in the country, as of 2004, is Tk.562 (see in Bibliography: MoF 2006, p. 142), one

quarter of the respondent households are generally at or below the per capita income of the rural

poor. About 41% of the households have monthly income of between Tk.3,000 and Tk.5,000,

while that of about 28% between Tk.5,000 and Tk.10,000.

Distribution of respondents by monthly family income categories

Monthly family incomecategory

No. %


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no changes to report. But, while 14% of the respondents have reported as being much worse off,

only 1.5% indicated that they are much better off. In general, therefore, micro-credit does not

appear to have made much of a difference to the living conditions of the borrowers households.

Overall living conditions at present compared to before enrollment

Living conditions at presentcompared to before

enrollment

Frequency %

Much better 37 1.5

Somewhat better 865 34.6

No change 596 23.8

Somewhat worse 648 25.9

Much worse 349 14.0

Non-response 6 0.2

Total 2,501 100.0

In terms of reasons given by those who are somewhat better off include in addition to micro-

credit, employment of one or another of the formerly unemployed family members and increased

income from sources other than micro-credit. On the other hand, those who are worse off have

indicated that the increase in incomes from micro-credit related activities have not been

significant. Also they have had increases in their family sizes as well as health problems of

family members disabling them to earn incomes.

Asked as to whether they are satisfied or not about their present living conditions, the

distribution of the respondents is quite similar to that reported in the above paragraph. About

23% are indifferent, i.e. they are neither satisfied nor dissatisfied, while 27% are satisfied and a

much larger proportion (50%) are dissatisfied or highly dissatisfied.

Taking everything into consideration are the respondents satisfied

or not with their present living conditions


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Satisfaction level Frequency %

Very satisfied 18 0.7

Satisfied 658 26.3

Neither satisfied nordissatisfied

568 22.7

Dissatisfied 883 35.3Very dissatisfied 372 14.9

Non-response 2 0.1

Total 2,501 100.0

It is indicated by the responses relating to the present living conditions compared to that before

enrollment and the level of satisfaction with the present living conditions that micro-credit has

not contributed much to poverty alleviation, much less on a sustained basis .

Future Socio-economic Perspectives Primarily Depending on Micro-Credit

Asked as to how they see their future socio-economic prospects if they rely primarily on micro-credit, i.e.

if the micro-credit is the main vehicle for socio-economic improvement, only about 36% of the

respondents have expressed the opinion that they see good future prospects, while about 19% are not sure

and 34% foresee that their socio-economic conditions will deteriorate. Clearly, the perception of the

majority of the respondents is that they do not foresee improvements or that there will be a deterioration.

(Table 3.16).

Future socio-economic prospects relying primarily on micro-credit

Perceived prospect Frequency %

Very good 16 0.6

Good 875 35.0

Neither good nor bad 472 18.9

Bad 618 24.7

Very bad 241 9.6



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Total 2,501 100.0

A further question was asked as to whether there had been any change in their social position following

enrollment. Only about 4.6% of the respondents have said that they are now more respected, while

another 23% have said that their social interaction have increased. About 56% have reported no change in

their social position, and about 13% have said that their social position has deteriorated. (Table 3.17).

Given these outcomes, the comments made by the respondents about future prospects seem to be based on

how things have evolved for them in the past, from socio-economic point of view.

Management of Micro-Credit Received by Women

Of the 2,482 female borrowers interviewed in the present survey, only about 10% have said that they run

with full authority the economic activities undertaken using micro-credits they receive. But, almost 90%

have said that they either manage the activities in consultation or partnership with their husbands or other

members of the family or husbands/other members manage the activities and they do not participate at all.

It has not been possible to get, from the data collected, a breakdown between those female borrowers who

participate (with husband or another member of the family) in managing the use of credit and those who

do not at all participate. This issue remains grey and needs further probing. However, there is definitely a

large question mark relating to the women borrowers being in control of the management of micro-credit

they receive from MCIs.

Negative Impact

Physical/Mental Torture Inflicted on the Female Borrowers


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Asked as to whether any member of a female borrowers family inflicts physical or mental torture on her,

about 28% have replied in the affirmative and about 72% in the negative. It appears that a notable

proportion of the female borrowers are subjected to family torture, physical or mental.

Is physical or mental torture meted out to female borrowers

from one or another member of their families?

Physical or mental

torture

Frequency %

Yes 692 27.8

No 1,778 71.7

Non-response 12 0.5

Total 2,482 100.0

The 692 female borrowers, who said that they were subjected to physical or mental torture by one

member or another of her family, were further asked as to who was the main culprit. The usual response

is the husband. Demand for dowry and his ego and perceived superiority in the case differences of

opinion relating to family matters have been suggested to be among the triggers of torture inflicted by the

husband. Asked further whether or not torture has increased or decreased since enrollment, about 60% of

them have said that the intensity of torture has increased since enrollment, while for about 27% it is about

the same as before. Only 13% have said that it is somewhat less than before.

Has the intensity of torture increased or decreased since enrollment

Intensity of torture since Frequency %


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enrollment

Increased since

enrollment

412 59.5

About the same as before 91 13.2

Somewhat less than

before

189 27.3

Total 692 100.0

Dowry

Finally, about 82% of the female respondents have said that exchange of dowry has increased in the

families of micro-credit receivers since enrollment. This is indeed unfortunate that such a social menace

has increased so much in the families of micro-credit receivers. This has been so it would seem that

micro-credit receiving families are perceived to be able to pay dowry more than others.

Exchange of dowry in the families of

Micro-credit receivers since enrollment

Dowry status Frequency %

Increased since

enrollment

2,036 82.0

Decreased since

enrollment

60 2.4

Same as before 374 15.1

Non-response 12 0.5

Total 2,482 100.0

Recapitulating the Major Findings


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Only about 10% of all female respondents (numbering 2,482) have said that they are in full

control of running the economic activities undertaken using micro-credits they received. The other

90% run them either in consultation/partnership with their husbands and other members of their

respective families or they do not participate at all. A breakdown between the two categories could

not be obtained from the data generated.

About 72% of the female respondents are now always or occasionally given more importance in

family decision-making compared to the situation before enrollment. Obviously, whether or not the

female borrowers are in control of the use of micro-credits they received, their importance in the

family has gone up as they can now bring in money to the family through micro-credits from MCIs.

This certainly is an improvement but a lot more needs to happen regarding their empowerment

including in relation to decision-making concerning and management of economic activities

undertaken with micro-credits received.

About 28% of the female respondents still face physical or mental torture from one or another

member of the family, usually the husband. The intensity of torture has increased in the case of 60%

of these respondents, while in the case of 40% its about the same or somewhat less than before.

It is very unfortunate that exchange of dowry has increased in the micro-credit receivinghouseholds as reported by 82% of the female respondents. This is a social menace against which there

is strong opinion among the social reformers. But, it seems that since women are now able to secure

some money though micro-credit, their families are more pressured than before to pay dowry to

marry off women from their families.

Evaluation of the Micro credit for the Economic development:

From the different point view micro credit plays a vital role in the socio economic development inBangladesh .Since micro credit is related with the root level of an economy, so it is so important forthe financial market of any country.


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Micro credit helps to remove the poverty. It always helps the poor and increase their income level.When the poor people get micro credit they can create the business opportunity which results theeconomic solvency of the poor.

They can pay for their all basic needs. Which is the first step to break the poverty cycle.Microfinance helps to take initiative for the parents to send their children to school. When they getmoney as credit they can spend money behind their basicneeds.

In order to work skillfully workers should be fit physically. The micro credit clients are more

solvent than the non- micro credit client. The micro credit client can take nutritious foods and can goto doctor if they feel sick. Overall they can take proper health care. Some of the micro financeinstitute also provide health education .The institutes give advice to the rural people to drink safewater , pre natal and post natal care, sanitation and housing. In Bangladesh, a study of BRAC clientsfound that fewer members suffered from severe malnutrition than non-clients and that the extent ofsevere malnutrition declined the longer clients stayed with BRAC.

Some of the micro credit institutes have partnership with the insurance to the clients. By thisway the clients may get the insurance facility.

In Bangladesh most of the organizations are giving emphasis on the rural poor women. All ofthe organizations think that women are more responsible than the men to repay their loans. Itis also found that women are more interested to increase the house hold income and familywell being. Such type of thinking make the micro finance institutes interested to provide loanto the women rather than men. By this way women become more confident more assertivemore likely to participate in family decision. Eventually financial support makes the women powerful. But we should not think this as gender discrimination. Positive programmedesigned for the women owing more assets having a more active role for the family decision

and increasing investment in the family welfare.

Micro credit programme success in Bangladesh

The Millennium Development Goals includes that more than 1.2 billion people live behind thepoverty line in Bangladesh. After then some of the micro credit programmes are successful in thesense that poor clients take smaller loans. For that reason the credit size becomes smaller. Then costsseem to be harder to achieve .Then some of the institutes design programme to reduce the cost


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pressure. By the cost effective banking system some of the organizations reach to the root level andstill try to eradicate the costs. In Bangladesh ASA is one of the organizations which provides suchtypes of opportunity. By the dint of micro credit policy all most the poverty problem in Bangladeshhas been solved. Before the availability of the micro credit the people in Bangladesh should dependfor their capital on the rich people. In every system they must pay a high interest against their loan.After the introduction of the micro credit such type of problem has been solved . The micro creditsystem was supported by all class of the people. The poor people can do business with the money.After earning profit they can return their loan to the micro finance providing organizations.

problems of the micro credit:

Though micro credit is a wellbeing for our hole society but it has some problems.We canorganize the problem as follow:

1. The important problem of the micro credit is to turn the profit in to the loans. In this case the

borrowers should bear the cost of the loan as well as the interest .Some time investment doesnot bear the profit then the borrower should reduced consumption and loan money from othersource to pay the installment.

2. Another problem is that all most all the micro credit providing organizations give lone to thewomen with a less interest rate. For that reason the male relatives use the female borrowers infront to get the low interest bearing loan. These types of loan may or may not be useful to thefamily. Most often the women should bear the responsibilities.

3. Some of the micro finance providing organizations impose high interest for the short term

loan.Since the poor people have no alternative they have to dependent on that organizations.Consequently they are not able to pay the high interest and supposed to be a loan defaulter.Unless increase their income they are permanently dependent on the micro credit

Recommendations for Success

Focusing support on MFIs: First of all, microfinance donors should focus their support on (andencourage) MFIs who operate in countries who are making consistent efforts to improveregulation, institutions, and legal systems. If governments of developing countries are looking to


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lead their countries out of poverty, perhaps this might create incentives for governments toincrease transparency and regulatory systems.

Rethink their target recipients: Secondly, MFIs need torethink their target recipients this is amore difficult way of handling microfinance. At first glance it may seem unfair to stop lending to

poorest people who need it the most, but at a closer look it becomes clear that these people arenot benefiting from their loans long term, or making business ventures that are sustainable. Themore well off, who can still benefit from a microcredit loan to expand their business, buy moreequipment, and employ more people, should be the main recipients of loans. These types ofenterprises have the capacity for self-sustainability and revenues. Businesses under this categoryinclude (but is not limited to) those that have steady markets, some kind of office to operate outof, and room for expansion. More formal sector businesses such as these will create more growthand development than loans to informal sector businesses will.

Increment of Accessibility: Thirdly, using microfinance to increase access to public goods is aninnovative and new way of improving quality of life for people. For instance, MFIs could offer

low interest rates on village loans that will be used to build a well or a small school. While theseloans would be larger and probably riskier, the condition of group lending makes it feasible.Arrangements could be made for urban districts interested in public good improvements. Defaultwould cause the village or district to forego monies for future improvements. With this incentive,members of the group are keen on monitoring their fellow members and ensuring that everyoneinvolved makes their repayments. While, such projects would certainly be more complicatedthan basic microfinance loans, perhaps that is the key to paving the way toward growth.

Conclusion

Before seventies Bangladesh was suffering from the curse of poverty. People were not conscious forthe education and health. After the liberation war when the micro credit was introduced by some non


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government organizations then the poverty level was reduced successfully. The Grameen bank wasin the leading role. Following the path of Grameen bank some of the NGO started to provide microcredit. As a developing country micro credit plays an important role. Micro credit still fightingagainst poverty. Though there is no single intervention against poverty. By the help of the microcredit people become more solvent. The unemployment problem in Bangladesh has been decreased.It has multiple effects. As the micro credit program approach financial sustainability, theycan reach far beyond the limits of the scarce donor resources.

Final Micro Credit

Documents

Transcript of Final Micro Credit