chapter iii development of microfinance in bangladesh...
TRANSCRIPT
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CHAPTER III
DEVELOPMENT OF MICROFINANCE IN
BANGLADESH AND ITS RELEVANCE TO INDIA
Even at the turn of the century when advancement of science and
technology has been commendable and the human beings are boasting
of eradicating dreaded diseases, making the habitable world a small
place through advanced communication system and distances are being
spanned in unimaginable short duration. To be sure capital is thriving,
business continues to grow, global trade is booming, multinational
corporations are spreading into markets in the developing world and
the former Soviet block, and technological advancements continue to
multiply. But not everyone is benefiting. Global income distributions
tell the story: 94 percent of world income goes to 40 percent of the
people, while the other 60% percent must live on only with 6 percent of
world income. Half of the world lives on two dollars a day or less,
while almost a billion people live on less than one dollar a day. Poverty
is not distributed evenly around the world; specific regions suffer its
worst effects. In sub-Saharan Africa, South Asia, and Latin America,
hundreds of millions of poor people struggle for survival.1 The World
Bank’s World Development Report 2000/2001 data found 1.2 billion
people living on less than US$1 a day and the 2007 Report counts 986
million below the US$1 a day threshold in the Developing World.2
Poverty eradication programmes have been launched with much
fanfare over the years with the support of the governments in the
various underdeveloped and developing countries in various forms.
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The main aim of these programmes is to provide self employment or
wage employment opportunities to the poor people. The intention of
most of these programmes is to provide the poor the access to the
financial resources in terms of credit to acquire productive assets in
order to secure income and employment and this will ultimately result
in a better standard of living for them. Generally the assumption is that
with these interventions, the economically marginalized could be
mainstreamed. While all these noble interventions were targeted and
intended to lessen the burden of the poor something else was
happening in reality.
The formal financial system rarely provides access to financial
services for poor households in developing economies. As Mohammad
Yunus (2007) has pointed out that a huge gap is there between the high-
faultin words of the governments and the realities on the ground. The
Universal Declaration of the Human Rights states that:
Everyone has the right to a standard of living adequate for the
health and well-being of himself and his family, including food,
clothing, housing and medical care, and necessary social services, and
the right to security in the event of unemployment, sickness, disability,
widowhood, old age, or other lack of livelihood in circumstances
beyond his control.
The Declaration also demands that member nation secure the
recognition and observance of these rights.
According to Yunus poverty has created a social condition which
negates all human rights, not just a select few. A poor person has no
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rights at all, no matter what his or her government signs on paper or
what officials put in their big books.3
The Banking system of most of the developing and
underdeveloped countries which were supposed to be a major supplier
to poverty eradication programmes by way of credit, were distancing
themselves from these programmes over the years. Because generally
the perception about the poor is that they are not “bankable” nor they
were credit worthy as they cannot offer adequate security in respect of
the money lent. Because of this the bonding between the resource
holders and the poor could not take place and as a result, most of the
government initiated development interventions were failed to provide
the desired results. People are not poor because they are stupid or lazy.
They worked all the day doing complex physical tasks. They were poor
because the financial structures which could help them widen their
economic base simply did not exist in their country. It was a structural
problem not a personal problem. Unfortunately, no formal financial
institution was available to cater for the credit needs of the poor. This
credit market, by default of the formal institutions, had been taken over
by local money lenders.4
3.1 Emergence of Microfinance in Bangladesh: An Introduction
Like most of the developing countries, Bangladesh since its
liberation in the year 1971 was predated with many problems like low
literacy rate, malnutrition, low life expectancy, unemployment etc.
Poverty was visible but the poor were unable to access the financial
services from the formal credit system. The task is so vast that the
government alone cannot handle the situation. This led to the
emergence of microfinance movement in Bangladesh, the basic
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philosophy behind this movement is that the poor people had
investment opportunities and necessary management capacity but
could not avail these due to the lack of capital, which could be met by
micro loans, and the funds can be generated from the poor themselves
as their savings.
The importance of microfinance lies in the fact that the
formal/institutional banking sector has not lives up to its social
responsibility of meeting the financial needs of the poor due to various
reasons such as (a) lack of adequate branch network in the rural areas,
(b) the inability of the poor to offer satisfactory collaterals for the loans
and (c) lack of education and awareness among the poor.5 Whenever we
recall the microfinance movement, naturally the name of Professor
Mohammad Yunus comes to our mind who triggered the then micro
credit movement through the establishment of Grameen Bank in the
late 1970s. The microfinance movement has worked well in Bangladesh,
with a good management set-up and dedicated staff support. The micro
credit program in Bangladesh began its journey in the late 1970s and
assumed maturity by the mid-1990s. The following decade has seen
replications of the program in different parts of the country so
numerously that any village without such interventions can hardly be
found. The awarding of the Nobel Prize to Dr. Muhammad Yunus and
Grameen Bank has rekindled interest in this form of banking services to
the extent that the UN and even the multi-lateral funding institutions
are considering it as an effective tool for poverty reduction.
Microfinance is now accepted worldwide as one of the potent tools of
poverty alleviation. Microfinance movement continued growing rapidly
worldwide towards the objective of financial inclusion extending
outreach to a growing share of poor households. According to the,
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“State of the Microcredit Summit Campaign Report 2009” as of
December 31, 2007, 3,552 microcredit institutions reported reaching
154,825,825 clients, 106,584,679 of whom were among the poorest when
they took their first loan. Of these poorest clients, 83.4 percent, or
88,726,893, are women. Institutional Action Plans (IAPs) were
submitted by 861 microfinance institutions (MFIs) in 2008. Together
these 861 institutions account for 86 percent of the poorest clients
reported. Assuming five persons per family, the 106.6 million poorest
clients reached by the end of 2007 affected some 533 million family
members.6
3.2 Country Profile of Bangladesh
In order to understand and appreciate the development of
microfinance movement in Bangladesh, creation and growth of
Microfinance Institutions (MFIs) in Bangladesh, it would be worthwhile
to study the profile of Bangladesh including its history, economy,
financial systems its mechanism and other demographic factors.
Bangladesh lies between 20034' and 26038' north latitude and
between 88001' and 92041 east longitude. Cover in the north and west by
India, in the south by the Bay of Bengal and in the east by the India and
Myanmar. It is one of the largest deltas of the world with a total area of
1,47,570 sq. km. Located in one of the wettest regions of the world,
Bangladesh has a tropical monsoon climate characterized by rain-
bearing winds, warm temperatures, and high humidity. According to
the Bangladesh bureau of statistics as per the 2001 census the total
population of Bangladesh is 13,05,22,598 with rural population of
9,94,44,696 and urban population of 3,10,77,952. The majorities (about
89%) of the people are Muslim & about 9 % are Hindus, over 98% of the
people speak Bangla.
Source: www.bbs.gov.bd
The country has multi
country is divided into six administrative divisions further divided into
64 districts. Nearly 75 percent of the country’s population is rural and
engaged in agricultural and other related activ
accounts for about 21.37 percent of Gross Domestic Product (GDP) and
accommodates around 48.1 percent of the labour force. Almost half of
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89%) of the people are Muslim & about 9 % are Hindus, over 98% of the
people speak Bangla.7
The country has multi-parliamentary form of democracy and the
country is divided into six administrative divisions further divided into
64 districts. Nearly 75 percent of the country’s population is rural and
engaged in agricultural and other related activities. Agriculture
accounts for about 21.37 percent of Gross Domestic Product (GDP) and
accommodates around 48.1 percent of the labour force. Almost half of
89%) of the people are Muslim & about 9 % are Hindus, over 98% of the
parliamentary form of democracy and the
country is divided into six administrative divisions further divided into
64 districts. Nearly 75 percent of the country’s population is rural and
ities. Agriculture
accounts for about 21.37 percent of Gross Domestic Product (GDP) and
accommodates around 48.1 percent of the labour force. Almost half of
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the total population is still living below the poverty line - earning less
than $1 a day. Per capita Gross National Income (GNI) in 2006-07
(provisional official statistics) was $520 compared to the world average
of $10,200 which is only 5.09 per cent of the world average.8 Bangladesh
has a glorious history and rich heritage. The territory now constituting
Bangladesh was under Muslim rule for over five and a half centuries
from 1201 to 1757 AD. Subsequently, it came under British rule, who
ruled over the Indian sub-continent including this territory for nearly
190 years from 1757 to 1947. During that period, Bangladesh was a part
of the British Indian provinces of Bengal and Assam. With the
termination of British rule in August 1947, the sub-continent was
partitioned into India and Pakistan. Bangladesh became a part of
Pakistan and was called ‘East Pakistan’. It remained so for about 24
years from August 14, 1947 to March 25, 1971. Bangladesh was liberated
on December 16, 1971 following its victory in the War of Liberation and
appeared on the world map as an independent and sovereign country.9
The early years after independence were devoted to rebuilding
the country, developing a governance structure and integrating into the
international economy. Bangladesh received billions of dollars of donor
aid from a number of international aid agencies. Aid supported the
birth of a number of local Non-Governmental Organisation’s (NGOs)
and International Non-Governmental Organisation’s (INGOs) programs
focused on rehabilitation and reconstruction efforts. The interventions
of local and international development agencies over the past four
decades have made significant contributions to the improvement of
lives and livelihoods at the household and community levels.
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As Bangladesh makes the transition from a predominantly
agrarian economy to an industrial and service economy, industrial
policy reform has contributed to opening up the economy resulting in
trade liberalisation and development, with the industrial sector
focusing beyond the domestic market through a more open investment
climate and continuing development of regional industrial centers,
parks and special economic zones. In the last five years, the country has
achieved a remarkable growth rate of more than 5 percent and is
striving to upscale the economy to a mid level developed country. The
promotion of certain sectors such as the garment and porcelain
manufacturing sectors offer employment opportunities for millions of
men and women who cannot be absorbed into the traditional sectors. In
spite of these efforts, various factors including dramatic increases in the
cost of living, low income levels resulting in low nutrition, poor health,
underemployment and unemployment and internal migration have
contributed to the persistence of poverty.10 Obstacles to growth include
frequent cyclones and floods, inefficient state-owned enterprises,
mismanaged port facilities, a growth in the labour force that has
outpaced jobs, inefficient use of energy resources (such as natural gas),
insufficient power supplies, slow implementation of economic reforms,
political infighting and corruption. According to the World Bank,
among Bangladesh’s most significant obstacles to growth are poor
governance and weak public institutions.11
3.3 Growth and Development of Microfinance in Bangladesh
Modern microfinance movement was born in Bangladesh as a
response to the prevailing poverty conditions among its vast rural
population. Astonishing growth rates in Bangladesh particularly during
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the 1990’s, created a new dimensions for microfinance worldwide as
microfinance institutions grew to include million of clients. For the first
time, a substantial proportion of the low income families of major
developing country were served by the activity. The start of the twenty
first century reinforced this trend as the Bangladesh numbers continued
to grow rapidly.12 Bangladesh is a developing (poor) country having a
very poor financial market. In such type of market the introduction of
the micro credit was a financial innovation. Micro credit, or
microfinance, is banking with the unbankables, 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 they are unable to offer sufficient collateral.
Microfinance is the rare antipoverty approach based on the poor’s
strength rather than their deficiencies. In third world countries, there is
barely a fraction of the jobs required to employ those who want to
work, and there is little, if any, social safety net. Many of them are
forced to turn to loan sharks for their capital, and pay rates anywhere
from 10 percent per month to 20 percent per day. These enterprises,
which range from raising livestock and running a grocery shop to
processing food and weaving bamboo mats (and other crafts), are rarely
enough to allow the owner to get ahead, or put three meals on the table
per day, but they can keep slow starvation at bay most of the time.13
Back during late 1970s, when the Jobra experiment was
underway under Professor M. Yunus, the Dheki Rin Prokolpa was
initiated by the Bangladesh Bank in collaboration with the Swanirvar
Bangladesh, and several other pilot schemes were initiated by a handful
of the NGOs who were active then. At that time, it was difficult then to
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conceive that these initiatives would lead to a major micro-credit
movement, which would make Bangladesh known to the rest of the
world. Even during the 1980s, in spite of Grameen Bank’s success, the
main discourse amongst development practitioners in Bangladesh
centred around the desirability of micro-credit program as opposed to
concientization. By 1990, unhindered experimentation in the fields led
to a quiet resolution of the debate and the country experienced a
massive expansion of micro-finance activities during the 1990s.14
In 2002, about 13 million poor households had access to credit
and other financial services through the 1,200 MFIs. This figure
excludes over three million Grameen Bank borrowers, but also is likely
to overestimate the total number of poor households with access to
microcredit due to the practice of individuals and households
borrowing from more than one source. On its website, PKSF notes that
there is debate on the extent of overlap. But the general consensus is
that a national average would be that 15% of all borrowers are
borrowing from more than one MFI. In this case, the effective coverage
is about 11 million households. Out of 11 million households covered
by microcredit programmes, about 80% are below poverty line and so
about 8.8 million poor households are covered by microcredit
programmes. With an estimated number of households of 26 million,
out of which about 46% are poor households, the total number of poor
households is approximately 11.96 million. From this estimate, it seems
that at least 80% of poor households are covered by microfinance
services. While the figure is certainly substantial, the assumptions
around the proportion of MFI clients who are among the poorest are
questionable and up for redefinition and debate. According to data
69
gathered by the Microcredit Summit Campaign, by the end of 2004, 330
verified Bangladeshi MFIs (which include the Grameen Bank, NGOs,
MFI networks, government bodies, and commercial banks offering
some form of microfinance) had 24.4 million active clients, three-
quarters of whom were poor and two-thirds of whom were poor
women. The majority of borrowers are clients of the handful of very
large organizations: the Grameen Bank, BRAC (Bangladesh Rural
Advancement Committee), ASA (Association for Social Advancement)
and Proshika. Of the remaining organisations, only twelve have over
100,000 borrowers, but many of the smaller MFIs join ASA, BURO
Tangail and TMSS (Thengamara Mohila Sabuj Sangha) as the most
profitable MFIs in South Asia.15
The report published by the Microcredit Regulatory Authority
(MRA) of Bangladesh, titled “NGO-MFIs in Bangladesh, Volume 3, June
2006, pointed out that microfinance sector of Bangladesh is growing
very fast in respect of branch expansion, employment generation,
number of members and borrowers, loan disbursement, savings
mobilization etc. The data is based on the information provided by the
MFIs cover under the Microcredit Regulatory Authority (MRA). It is
expected that the information of these institutions will cover almost
whole of the market. 641 NGO-MFIs of Bangladesh have been
considered in volume-3 but they comprise most of the major players of
this sector. It can be observed from table 3.1 given below that 57.20%
growth of branch expansion and 116.41 % growth of number of
employees do not match with the growth rate of number of members
and borrowers of the sector. Unusual growth rate of branch network
overnight just before the enactment of the law could be the result of
70
some MFI's inclination to avoid any probable regulatory restrictions
regarding branch expansion. On the other hand, inclusion of total staff
of the organization without segregating credit-staff and noncredit-staff
has inflated the number of employees of the sector.16
Table: 3.1
Growth of MFIs in Bangladesh
Sl. No. Particulars
December 2004
(352 MFIs)
December 2005
(469 MFIs)
June 2006
(641 MFIs)
% Change from 2005
1 Number of Branches 6,106.00 7,733.00 12,156.00 57.20
2 Employees Involved 48,081.00 76,104.00 164,700.00 116.41
3 Number of Members (million)
14.40 18.82 22.89 21.62
4 Number of Borrowers (million)
11.14 13.98 17.18 22.86
5 Loan
Outstanding (in million taka)
43,406.36 56,058.80 75,198.71 34.14
6 Total Savings (in million taka) 17,293.71 21,005.35 27,636.12 31.57
Source: NGO-MFIs in Bangladesh, Vol 3, June 2006, Report published by the Microcredit Regulatory Authority (MRA) of Bangladesh, Published in March 2008
As pointed out by Prabhu Ghate in Bangladesh the bulk of
borrowers and loans outstanding are concentrated in a few larger MFIs.
As much as 95 per cent of the loans may be concentrated in the top 20
MFIs.17 Bangladeshi MFIs lead both regional and global outreach in
credit. Three leading MFIs, Grameen Bank, ASA, and BRAC, count for
nearly 75 percent of total borrowers served in South Asia. Their scale
and national coverage rival those of any other microfinance service
provider within the subcontinent or around the globe. No other
microfinance sector in South Asia achieves this coverage. Even after the
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boom in Indian microfinance, large institutions such as Share Microfin
Ltd., Spandana or the BASIX Group together serve as many borrowers
as just one of the three largest Bangladeshi MFIs (Grameen Bank, ASA,
and BRAC).18
Table: 3.2
Microcredit Summit-verified Bangladeshi MFIs, Based on Number of Poorest Client
Source: Daley-Harris Sam 2009
Institution
Poorest Clients as of 31 Dec. 2007
Percentage of Poorest Clients that are Women
Total Active Clients as of 31 Dec. 2007
Percentage Total Women
1. Grameen Bank 7,410,000 97 7,410,000 97
2.
Association for Social
Advancement (ASA)
4,615,500 90 5,430,000 83
3. Bangladesh Rural Advancement
Committee (BRAC) 4,560,000 99.3 6,400,000 99.2
4. Bangladesh Rural Development Board
(BRDB) 4,488,463 70 4,724,698 70
5. Proshika Manobik Unnayan Kendra 1,392,100 65 1,740,126 65
6. Swanirvar Bangladesh 413,157 96 1,087,255 86
7. BURO Bangladesh 376,710 100 376,710 100
8. Thengamara Mohila Sabuj Sangha (TMSS)
374,604 99 535,148 99
9. Bangladesh Krishi Bank 365,123 59 521,419 57
10. Islamic Bank Bangladesh Limited 347,325 92 350,278 92
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3.4 Major MFIs in Bangladesh
In the decade of 1970 Professor Yunus through his action research
came up with a new alternative model of collateral free, group based,
peer monitored system of micro lending. Later he established a new
type of social bank owned by the poor borrower shareholders
themselves. In Bangladesh this “Grameen Bank Model of Micro Credit”
was replicated in various forms by many NGO-MFIs, initially with the
help of donor money. Now Bangladesh has got some of the largest
NGO-MFIs in the world. In course of time the more successful NGO-
MFIs in Bangladesh as well as Grameen Bank have become as rich as
international large corporations with a diversified portfolio of activities
e.g. micro credit to poor borrowers, social services to so called target
groups and sister business concerns.
3.4.1 Grameen Bank
Bangladesh is one of the poorest countries in the world; and
women in that country are among the poorest of the poor. In the late
1970s, a man performed a miracle there. With a few loans out of his own
pocket in 1976, Professor Yunus proved to himself that even the most
downtrodden are able to pull themselves out of dire poverty. By
planting a vegetable garden, buying a cow or opening a small store,
these women are able to make a profit, feed their family and repay their
loan with interest. He then took his message to Rome where the
International Fund for Agricultural Development (IFAD) had just been
established, with the mandate of poverty alleviation in the poorest
countries. With his enthusiasm, he convinced IFAD that a loan to the
Grameen Bank, as he called his venture, would be a good investment
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and greatly help to reduce poverty in Bangladesh. IFAD’s loan turned
out to be a door- for many other donors, including the World Bank.19
The history of Grameen goes back to the 1970s when professor
Muhammad Yunus started the Grameen bank project in Bangladesh in
response to a devastating famine in 1974. His aim was to provide
financial services, mainly loans and advise to the poor. The story of
Sophia Khatoon and Jobra village mentioned by Professor Yunus in his
umpteen literatures sowed the idea in the mind of the professor to
move out of the classrooms of the University of Chittagong and do
something for the poor. This gave birth to an action research Project in
1976, the aim is to demonstrate that poor can be given collateral free
loans at market driven interest rates and that poor are bankable. Later
on this demonstrative action research project was mainstreamed with
the formal financial system of Bangladesh which gave birth to Grameen
Bank (GB) of Bangladesh, formally launched in June 1979, with only a
meager amount of takas equivalent to 27 dollars toward the loan
amount. Today Grameen Bank is widely considered as one of the
world’s most successful financial institutions banking with the poor.
Grameen Bank (GB) has reversed conventional banking practice
by removing the need for collateral and created a banking system based
on mutual trust, accountability, participation and creativity. Grameen
Bank provides credit to the poorest of the poor in rural Bangladesh,
without any collateral. At Grameen Bank, credit is a cost effective
weapon to fight poverty and it serves as a catalyst in the overall
development of socio-economic conditions of the poor who have been
kept outside the banking orbit on the ground that they are poor and
hence not bankable. Professor Muhammad Yunus, the founder of
"Grameen Bank" reasoned that if financial resources can be made
74
available to the poor people on terms and conditions that are
appropriate and reasonable, "these millions of small people with their
millions of small pursuits can add up to create the biggest development
wonder." In late 2003, Grameen Bank embarked on a new programme,
exclusively targeted for the poor beggars in Bangladesh. This
Programme is a new initiative taken by the Grameen Bank to confront a
sustained campaign that microcredit cannot be used by the people
belonging to the lowest run of the poverty, as well to reinforce the bank
campaign that credit should be accepted as the human right.20
According to the information available on the Grameen Bank’s website,
as of July, 2009, Grameen Bank has 7.93 million borrowers, 97 percent of
whom are women. With 2,558 branches, Grameen Bank provides
services in 84,573 villages, covering more than 100 percent of the total
villages in Bangladesh. The table 3.3 given below shows the growth of
Grameen Bank over the last few years.
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Table: 3.3
Key Information of Grameen Bank (GB) in USD
for the Years 1995 to 2007 (Amount in Million US$)
Source: www.grameen-info.org
Sl. N
o.
Part
icul
ars
1995
20
01
2002
20
03
2004
20
05
2006
20
07
1.0
GB'
s O
utst
andi
ng
Loan
Am
ount
29
4.77
22
3.37
21
8.04
27
4.04
33
1.76
42
7.25
47
5.74
52
9.54
2.0
Dep
osit
as
% o
f O
utst
andi
ng L
oan
32%
57
%
75%
83
%
104%
11
3%
133%
14
3%
3.0
Tota
l Dis
burs
emen
t fo
r th
e ye
ar
333.
17
286.
96
271.
99
369.
32
435.
10
611.
74
726.
97
731.
49
4.0
Cum
ulat
ive
Dis
burs
emen
t 14
04.6
0 33
93.4
5 36
67.5
2 41
80.2
1 46
15.3
1 52
27.0
5 59
54.0
2 66
85.5
1
5.0
Mem
bers
(Mill
ion)
2.
07
2.38
2.
48
3.12
4.
06
5.58
6.
91
7.41
6.0
No.
of V
illag
es
cove
red
35,5
33
40,4
77
41,6
36
43,6
81
48,4
72
59,9
12
74,4
62
80,6
78
7.0
Empl
oyee
s 12
,420
11
,841
11
,709
11
,855
13
,049
16
,142
20
,885
25
,283
8.0
No.
of B
ranc
hes
1,05
5 1,
173
1,17
8 1,
195
1,35
8 1,
735
2,31
9 2,
481
76
The table above shows the overall performance of the Grameen
Bank between 1995 and 2007. It is clear from the table that in all areas
the performance of the Grameen Bank is going upward in every
successive year. According to Muhammad Yunus, the founder of
Grameen Bank, development should mean the development of the
bottom 50% of population, especially bottom 50% of those who live
below the poverty line. A poor person, like anyone else, has a potential
for growth. Given the access to credit, the poor can build the future and
overcome poverty.
Grameen always considers and guards the following basic principles
The bank would lend only to the poorest of the poor in the rural areas.
The bank would remain women-focused. More than 90% of its
customers are women.
These loans would be without collateral or security.
The borrower - and not the bank - would decide the business activity
the loan will be utilized for.
The bank would help and support the borrower in succeeding.
Borrowers will pay as little or as much interest as required to keep the
bank self reliant (that is, not dependent on grants or donations).21
Grameen Bank's positive impact on its poor and formerly poor
borrowers has been documented in many independent studies carried
out by external agencies including the World Bank, the International
Food Research Policy Institute (IFPRI) and the Bangladesh Institute of
Development Studies (BIDS).
3.4.2 Association for Social Advancement (ASA)
ASA Bangladesh is one of the most prominent NGO in
Bangladesh which is directly involved with the development of women
77
by giving trainings, micro credit, education, health service etc. It was
established in 1978 by Shafiqual Haque Choudhury and microfinance
lending began in 1991. Since then it has become one of the largest fully
self-sufficient microfinance institutions in the world. ASA is also one of
the most innovative organization, having introduced systems and
policies of credit management that aim at minimizing the cost and
maximizing the income by disbursing loan to all the members within a
short time. This organization has a special feature that it is an
innovative firm. So the feature of this organization is not same to the
others. ASA uses a micro finance model ‘cost effective sustainable
microfinance model’. This model is followed by the many countries like
Asia, Africa, South America and the Middle East. By applying this
model all the countries are trying to eradicate the curse of the poverty.
ASA works for those people who are poor but enable to reduce their
poverty. The Association for Social Advancement (ASA) was set up in
1978 as an NGO, with the aim of helping the poor organize & empower
themselves so that they might establish their political and social rights
for a just society. In 1991, ASA decided to specialize itself in
microfinance activities and recreates itself as Microfinance Institution
(MFI), providing credit plus programs. Different activities were
undertaken by ASA for awareness building, group development and
training program among the rural poor. It is now the second largest
MFI in Bangladesh.22 ASA has topped the list of microfinance
institutions (out of 641) MFIs issued by Forbes in 2007. ASA now
provides a range of credit, saving and insurance services. ASA within
its portfolio has a number of multi dimensional products example small
loan (females), small business loan, small entrepreneur-lending,
supplementary loan, loan for hardcore poor, short term loan, IT loan,
78
agri-business loan, education loan, monga (famine) loan, interest free
flood and rehabilitation loan, etc.
At the end of 2009, ASA is providing services to around six
million borrowers through its 3326 branches spread in all the 64
districts of the country.23 ASA stopped accepting donor funding in 2001
and it now serves more than 6 million borrowers from more than 3,000
branches around the country. ASA International also works in a
number of other Asian countries and in Africa. Up to December 2009
ASA's cumulative Loan disbursement has US$ 5,418 million while loan
outstanding (principal) is US$ 457 million among 4 million borrowers.
The table given below gives the performance of ASA in the last few
years.
Table: 3.4 Growth of ASA over the Last Few Years
(Amount in BD Taka) Year 2006 2007 2008 2009
Particulars No of Branches 2,931 3,333 3,033 3,326 Total no of groups 204,938 239,695 271,976 271,059 No of members ( in millions) 6.46 6.66 7.28 5.50 No. of active borrowers ( in millions) 5.16 5.42 5.88 4.00
No of loans officers (end of year) 11,564 14,788 14,266 13,266 Average no. of members per Loan Officers 558 451 504 407
Average no. of borrowers per Loan Officers 446 367 412 302
Average no. of members per branch 2,203 2,002 2,177 1,699
*Note 2009 figures are provisional Effective exchange rate for 2009: USD 1 = BDT 68.5 Upto December 2009 Source: ASA Annual Report 2009
79
3.4.3 Bangladesh Rural Advancement Committee (BRAC)
BRAC, a development organisation founded by Fazle Hasan
Abed was set up in February 1972. BRAC work for poverty alleviation
and empowerment of the poor encompasses a range of core
programmes in economic and social development, health, education,
human rights and legal services as well as disaster management. BRAC
has been following the credit plus approach to Micro Finance and
providing social intermediation services clubbed with its Micro Finance
Program viz., elementary education, essential health services, business
development services (BDS) marketing link-ups etc. BRAC also
promotes direct involvement of the poor as entrepreneurs in farm and
off-farm sectors including horticulture, sericulture, fisheries, poultry,
livestock etc. BRAC’s approach is a holistic one, as women need
support services in terms of capacity building, and marketing inputs to
sustain their ventures. In 1973, BRAC focused on long term sustainable
poverty reduction. Over the course of its evolution, BRAC has
established itself as a pioneer in recognizing and tackling the different
dimensions of poverty. Their approach to poverty alleviation and
empowerment of the poor encompasses a range of core programmes in
economic and social development, health, education, human rights and
legal services as well as disaster management. Today, BRAC is the
largest southern NGO employing 120,000 people, the majority of which
are women, and reaches more than 110 million people with
development interventions in Asia and Africa.24 BRAC started their
microfinance programme in 1974 to encourage the increase of income
for the poor through the setting up and expansion of income generating
activities and microenterprises. They work to provide collateral-free
financing to the poor, especially women, in both rural and urban areas,
80
in a simple, efficient and affordable manner. BRAC utilise a credit-plus
approach where loans are accompanied by various forms of assistance
for the borrowers, such as skills-training, provision of higher quality
inputs and technical assistance as well as marketing for finished
goods.25
Table: 3.5
BRAC Microfinance Programmes- Key Statistics for the Last Few Years
Year Dec-2006 Dec-2007 Dec-2008 Particulars Districts Covered 64 64 64 Total no. of Branch Offices
1,383 2,867 2,700
Village Organizations 170,277 260,785 293,016 Number of Group Members (in millions)
5.31 7.37 8.09
Active Borrowers (in millions)
4.55 6.4 6.36
Members Savings (millions)
BDT 10,595 (USD 156)
BDT 13,467 (USD 198)
BDT 15,765 (USD 231)
Loan Outstanding (millions)
BDT 24,355 (USD 358)
BDT 36,344 (USD 534)
BDT 44,903 (USD 658)
Average monthly disbursement (millions)
BDT 3,551 (USD 52)
BDT 5,194 (USD 76)
BDT 7,024 (USD 103)
Loan Recovery rate 99.52% 99.54% 99.30% Total number of staff 17,271 34,841 26,749 Source: BRAC Annual Report 2008
BRAC argues that micro credit is a central tool in reducing
poverty, but training its members in income generating activities,
education and awareness is essential. Indifference to Grameen Bank’s
focus on micro credits, BRAC has four core pillars for the organisation
and its members. These are economic development, education, health
and social development, human rights and legal services. These four
pillars are equally important to reach the goals of poverty alleviation
according to BRAC’s ideology. Within the first core pillar of BRAC,
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economic development, the microfinance programme exists, including
micro credit lending, founded in 1994. This programme relay upon five
key concerns;
1. Make credit available to poor women, especially in rural areas.
2. Provide credit at a reasonable price.
3. Involve poor women in income generating activities through credit
provision.
4. Promote the economic development of the country by increasing the
income level of the rural poor.
5. Operate self-sustaining credit activities.
Many independent studies have been carried out about BRAC's positive
impact on its poor and formerly poor borrowers.
3.4.4 Bangladesh Rural Development Board (BRDB)
BRDB is the largest institutional set-up of the GOB (Government
of Bangladesh) which is directly engaged in organizing and managing
rural development and poverty alleviation program in Bangladesh. The
Bangladesh Rural Development Board (BRDB) under the Ministry of
Local Government, Rural Development and Cooperatives (LGRD & C)
is the largest service oriented institutional setup of the Government of
Bangladesh is directly engaged in rural development and poverty
alleviation activities in Bangladesh. BRDB has been undertaking group-
based loan operations through cooperatives. Initially set up for the
agricultural sector, BRDB later diversified its services to incorporate the
asset less men and women as well. With a two-tier cooperative
structure, there are primary societies at the field level which have three-
fold divisions: Bittahin Samabay Samity (BSS), for the landless and
poorest of the poor, Krishak Samabay Samity (KSS) for the farmers, and
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Mahila Bittahin Samabay Samity (MBSS) for the destitute women. The
coordination of activities of the above three types of societies in an area
is done at the Sub-District (Upazila) level by the respective Sub-District
level central cooperative society. Starting with only 33 Sub-District in
1971-72, BRDB now has practically covered whole Bangladesh. Its head
office is based in Dhaka the capital city of Bangladesh. With 57 out of 64
District offices and over 476 Sub-District (Upazila) offices across the
country, BRDB boasts coverage unmatched by any other Governmental
or non-Governmental organization working in rural development and
poverty alleviation in Bangladesh. BRDB closely follows reflects,
supports and reinforces the GOB goal, vision and policies for socio-
economic development vis-à-vis rural development and poverty
reduction in particular.
It operates by organizing small and marginal farmers, asset less
men, women and destitute freedom fighters into cooperative societies
and/or informal groups and provide them with short and long-term
credit, technology for their socio-economic wellbeing and training. In its
provision of services and support, the BRDB seeks to promote self-
sufficient, fully sustainable income-generating activities amongst the
landless, the rural poor and the marginalized. BRDB since its
establishment has successfully mobilized 4.9 million beneficiaries into
cooperative societies. It pioneered the two-tier cooperative system and
continues to successfully implement it to alleviate the endemic poverty
of Bangladesh's rural populace. 26
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Table: 3.6 Information about BRDB (Upto July 2010)
1. District Covered 64 2. Sub-District (Upazila) Covered : 476 3. Sub-District (Upazila) Central Cooperative Association
(UCCA) 459
4. Sub-District (Upazila) Bittaheen Central Cooperative Association (UBCCA)
169
5. Sub-District (Upazila) Mohila Bittaheen Central Cooperative Association (UMBCCA)
20
6. Mohila Bittaheen Kendriyo Unnayan Samity (MOBIKUS)
21
7. Upazila Kendriyo Mohila Unnayan Samity 01
8. Cooperatives & Groups (Numbers). Cooperatives ( Farmers) 70777 Cooperatives ( Asset less Male) 10009 Cooperatives ( Asset less Female) 20975 Cooperatives ( Women) 8621 Informal Groups ( Male) 25931 Informal Groups (Female) 37168 9. Members (Numbers) Cooperatives ( Farmers) 2525711 Cooperatives ( Asset less Male) 292252 Cooperatives ( Asset less Female) 677247 Cooperatives ( Women) 304598 Informal Groups ( Male) 651401 Informal Groups (Female) 993128 10. Capital formation in the form of share & savings (Taka
in million)
Cooperatives ( Farmers) 1690.56 Cooperatives ( Asset less Male) 282.43 Cooperatives ( Asset less Female) 1368.03 Cooperatives ( Women) 444.23 Informal Groups ( Male) 720.35 Informal Groups (Female) 1444.80 11. Micro- Credit Disbursement 79110.76 (
million taka)
12. Credit recovery (%): 92% Source: www.brdb.gov.
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3.5 The Impact of Microfinance in Bangladesh
Several studies in Bangladesh have shown that micro finance has
had a positive impact on improving standard of living of the borrowers
and thus contributing to poverty alleviation. The literature broadly
supports the hypothesis that access to microcredit contributes to
poverty reduction in Bangladesh. There is one major study of
microfinance impact on poverty that stands out, in terms of its
methodological sophistication, the sample sizes involved, and the large-
scale, deep outreach of the microfinance institutions studied: Grameen
Bank, BRAC and RD-12 in Bangladesh. Khandker analyzed data from a
massive survey of households participating in one of these programs
and households in comparison villages. The survey work was
conducted in 1991/92 and repeated in 1998/99 to provide panel data
(longitudinal data, from two or more time periods) that allows what is
very likely the most reliable, large-scale impact evaluation of
microfinance to date. The study examines the effects of microfinance on
poverty reduction at both the participant and the aggregate levels,
comparing participant households to those which were ineligible to
participate (because their assets were just over the cutoff of the value of
one-half acre of land) as well as to households which would have been
eligible but resided in non-program villages. Khandker calculated that
each additional 100 taka of credit to women increased total annual
household expenditures by more than 20 taka: 11.3 taka in food
expenditures and 9.2 taka in nonfood expenditures. In stark contrast,
Khandker found no appreciable returns to male borrowing. Moderate
poverty in all villages declined by 17 percentage points-18 points in
program villages and 13 points in non-program villages. Among
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program participants who had been members since 1991/92, poverty
rates declined by more than 20 percentage points-about 3 points per
year. More than one-half of this reduction is directly attributable to
microfinance, and impact is greater for those starting in extreme
poverty than in moderate poverty-2.2 percentage points per year and
1.6 points per year, respectively. Khandker further calculated that
microfinance reduced poverty among non participants as well-
moderate poverty by about 1.0 percentage point and extreme poverty
by 1.3 percentage points per year-through spillover effects in which
non-participants benefit from the increase in economic activity. Based
on this data, he concluded that microfinance accounted for 40 percent of
the entire reduction of moderate poverty in rural Bangladesh. The
results suggest that access to microfinance contributes to poverty
reduction, especially for female participants, and to overall poverty
reduction at the village level, thus helping not only poor participants
but also the local economy. Khandker’s study provides compelling
evidence of microfinance impact on poverty, drawing from the
experience of three of the world’s largest microfinance programs with
massive outreach to the poor in one of the world’s poorest countries.
Similarly several other studies have shown that micro finance has had a
positive impact on improving standard of living of the borrowers and
thus contributing to poverty alleviation.27 Similarly several other
studies conducted for Grameen Bank and Bangladesh Rural
Development Board (BRDB) have found the same result.
A rapid impact assessment of micro-credit programme created by
International Development Association (IDA) of the World Bank in 1999
shows that the poor have benefited from the programme of Palli Karma
Sahayak Foundation (PKSF) in several ways. It was found that
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borrowers income increased by 97.93 per cent, quantity and quality of
food intake improved by 88.59 per cent, clothing reported improvement
by 87.85 per cent, housing condition improved by 75.26 per cent,
children’s education improved by 75.41 per cent, sanitation condition
improved by 68.74 per cent and overall quality of life improved by 94.96
per cent.28
A study conducted by Nigar Nargis (2008) titled “A Welfare Economic
Analysis of the Impact of Microfinance in Bangladesh” tries to find
about the impact of microcredit on the participants. The study is based
on data from a panel of approximately 2500 households tracked under
the monitoring and evaluation study (MES) of Microfinance Institutions
in 1997-98, 1999, and 2000 and the follow-up monitoring and evaluation
study (FMES) of Microfinance Institutions in 2004 under the auspices of
the Pally Karma Sahayak Foundation, an umbrella organization of the
microfinance institutions (MFIs) in Bangladesh. The study concluded
that average annual household income of the sample households,
inclusive of value added by households in crop production, livestock,
fishery, and earnings from wage employment, self-employment, and
other exogenous sources, grew at an annual compound rate of 5.66% to
rise from Tk. 35,927 in 1998 to Tk. 49,988 in 2004. The growth in
employment from 1998 to 2004 consists an increase in the number of
persons employed from 2, 652 to 2,978 in sample and the growth in
their annual average working hours from 1,747 to 1,836. The study
further concluded that poverty by all measures has decreased from 1998
to 2004. Based on this, the study summaries that, microcredit has
proved its merits in overall welfare improvement by stimulating
income and employment growth and reducing poverty and inequality
87
among program participants.29 Asset creation is important to reduce
household vulnerability to various livelihood risks. The findings of an
impact assessment of ASA borrowers conducted in 2003 suggests that
the average value of physical assets increased by 127 percent in rural
areas and grew by about 150 percent in urban areas over a five year
period. Moreover the average increase in cash savings rose by 133
percent and 111 percent in rural and urban areas respectively over this
same five year period. Similar evidence is found in studies of BRAC,
Grameen and PKSF’s partner organizations.30
Amin R., S. Becker, & A. Bayes (1998), in their study “NGO-
Promoted Microcredit Programs and Women’s Empowerment in Rural
Bangladesh: Quantitative and Qualitative Evidence” has tried to
explore the relationship between poor women’s participation in the
microcredit programmes and their empowerment by using empirical
data from rural Bangladesh. The study is done by examining qualitative
data collected from a representative sample of the female loanees as
well as qualitative data from selected female loanees in five NGO’s in
rural Bangladesh. These five NGO’s are Association for Rural
Development (ASA), Rangpur Dinajpur Rural Service (RDRS),
Development Centre International (DCI), Community Development
Association (CDA), and Village and Education Centre (VERC). The
study suggested that women’s membership in NGO promoted credit
programs, their residence in an NGO program area and in non-southern
and non-eastern regions, their higher economic socioeconomic status,
and their age tend to be associated with women’s empowerment. In the
last the study summaries that while other factors such as higher socio
economic status, region and non agricultural occupation also positively
affect women’s empowerment. NGO credit membership seems to have
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the strongest effect in explaining the variation in women’s
empowerment.31
Thus it can be summarises that access to microfinance in
Bangladesh contributes to poverty reduction (Khandker, 2005), the poor
have been benefited from the microcredit programmes of Palli Karma
Sahayak Foundation (PKSF) in several ways (World Bank 1999),
microcredit has proved its merits in overall welfare improvement by
stimulating income and employment growth and reducing poverty and
inequality among program participants (Nargis Nigar 2008),
membership of ASA (one of the major NGO-MFI in Bangladesh) results
in increase of assets and this further helps in reducing household
vulnerability (A Study on Impact Assessment of ASA Borrowers, 2003)
and that NGO-MFI credit membership seems to have the strongest
effect in women’s empowerment (Amin R., S. Becker, & A. Bayes, 1998).
In addition to these studies there are number of other studies which
have shown that micro-credit programmes helped in number of ways
like increasing the income level, creation of employment opportunities,
increasing the assets, setting up of acceleration of agricultural
production and infrastructural development etc.
Findings differ from study to study because of the underlying
impact assessment methodologies, but impact assessments indicate that
these programs help the poor, although all participants may not benefit
equally. Hossain’s early study of Grameen Bank shows how Grameen
Bank has supported the poor, especially women, in terms of
employment, income generation, and social indicators (Hossain, 1988).
Other Bangladesh Institute of Development Studies (BIDS) and non-
BIDS studies also indicate the beneficial aspects of micro-finance in
89
Bangladesh (Rahman 1996 Hashemi, Schuler, and Riley 1996; Schuler
and Hashemi 1994). All the above noted and several other studies
shows a positive correlation between micro-finance and the accrued
benefits of program participation.32 Bangladesh has also shown a
remarkable improvement in human development indicators,
particularly since the early 1990s (table given below). From being a
laggard, Bangladesh now outperforms most Indian states and South
Asia as a whole in such indicators as female school enrollment, child
mortality, and contraceptive adoption rates.
Table: 3.7 Improvements in Some Human Development Indicators since 1990,
Bangladesh and South Asia Indicators 1990 2002–04
Gross primary enrollment rate (%)
Bangladesh 80 109
South Asia 95 103
Ratio of girls to boys in primary and secondary education (%)
Bangladesh 77 107
South Asia 71 89
Under-5 mortality rate (per 1,000 live births)
Bangladesh 144 69
South Asia 130 89
Population with access to improved sanitation (%)
Bangladesh 23 48
South Asia 20 37
Source: Mahmud Wahiduddin et al (2008), based on UNDP’s Human Development Report 2005; World Bank’s World Development Indicators as reported in World Bank (2006) and World Bank (2006a).
How could these achievements be made in spite of still
widespread poverty, relatively low though increasing public social
spending, and the poor governance of service delivery systems in
Bangladesh? The improvements in the human development indicators
90
reflect a process of social transformation that is of a much broader scale
and dates back to earlier decades. Much of this progress has resulted
from adoption of low-cost solutions like the use of oral rehydration
saline (ORS) for diarrhea treatment, leading to a decrease in child
mortality. More progress has come from increased awareness created
by effective social mobilization campaigns such as for child
immunization or contraceptives or female child enrollment. The scaling
up of programs through the spread of new ideas is helped in
Bangladesh by a strong presence of non-governmental organizations
(NGOs) (MFIs) and also by the density of settlements and their lack of
remoteness.33 In the recent past, Bangladesh’s GDP growth rate has
been showing impressive improvements, reaching 6.6% in 2006 which
decline to 6.4% in 2007. The table 3.8 given below gives the growth rate
of GDP in Bangladesh over the last few years. According to the data
available on the website of World Bank the poverty situation has also
improved together with the economy. In a period of a little more than a
decade, from 1992 to 2005, poverty declined from 58% to 40%, the same
period when income growth and performance in key human
development indicators as discussed above have been remarkable.
Various reasons are cited for the strong performance in poverty
reduction including the accelerated growth rate, the rising access of the
poor to microcredit, rapid expansion in overseas worker’s remittances,
and improvements in physical and social infrastructure.
91
Table: 3.8
Growth Rate (annual %) of GDP in Bangladesh
Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Growth
Rate of
GDP
5.9 5.3 4.4 5.3 6.3 6.0 6.6 6.4 6.2 5.9
Source: World Bank, http://data.worldbank.org/indicator.
Such is the case with overpopulation in Bangladesh, which is one
of the world’s most densely populated countries, with 145 million
people in a land area the size of Wisconsin. Or, to put it another way, if
the entire population of the world were squeezed into the area of the
United States of America, the resulting population density would be
slightly less than exits in Bangladesh today! However, Bangladesh has
made genuine progress in alleviating population pressure. In the last
three decades the average number of children per mother has fallen
from 6.3 in 1975 to 3.3 in 1999 and the decline continues. This
remarkable improvement is largely due to government efforts,
including the provision of family planning products, information, and
services through clinics around the country. Developmental and
poverty alleviation efforts by non-governmental organizations, or
NGOs, as well as Grameen Bank have also played an important role.34
In his book, Banker to the Poor, Yunus also cites several stories on how
Grameen broke formal barriers in politics to let in more women in
political positions. The table below also shows how Bangladesh has
progressively included women in its parliament.
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Table: 3.9
Proportion of Seats Held by Women in Parliament (percent)
1990 2000 2007
Bangladesh 10.3 9.1 15.1
India 5 9 8.3
Philippines 9.1 12.4 15.3
Source: Asian Development Bank. Key Indicators in Asia and the Pacific, 2008.
Microfinance in Bangladesh, thus, gives the unemployed and the
poor some opportunities, hope and self-esteem. Being employed
(whether self-employed or by an employer) gives a person a significant
boost to his/her sense of self-respect and dignity. Furthermore,
microcredit allows people to signal their creditworthiness. If their
success makes banks more willing to lend them larger sums and leads
to even more economic activity, then that should help reduce poverty in
the long run. Unlike their formal counterpart, micro-finance
organizations in Bangladesh have made great strides in delivering
financial services (savings and credit) to the poor, especially women, at
a low loan default cost. Strategies such as collateral-free, group-based
lending and mobilization of savings (even in small amounts) have
mitigated their formal counterpart’s problems of poor outreach and
high loan default costs. The micro amounts enabled the poor to make
ends meet, build their own micro businesses, fund emergency gaps,
send children to school and participate in politics.
Thus there are ample evidences to support the positive impact of
microfinance on poverty and several issues resulting from it in
Bangladesh. Also there is overwhelming evidence substantiating a
beneficial effect on income smoothing and increases to income. Thus in
93
short it can be said that microfinance is an instrument that, under the
right conditions, fits the needs of a broad range of the population.
Empirical indications are that the poorest can benefit from microfinance
from both an economic and social well-being point-of-view as explain
above. Finally we have to remember that microcredit programme is a
strong tool towards poverty alleviation and it can be make further
effective if it works in tandem with other micro interventions in the
form of 'programmes' in health, education and nutrition sectors and in
the form of 'processes' in social mobilisation and rights-based
education.
3.6 Problems with Microfinance in Bangladesh and Challenges
Ahead
The use of micro-credit became a major poverty alleviation
strategy in Bangladesh under both Governmental programmes as well
as through institutions such as the Grameen Bank and local NGOs for
much of the 1980s and 1990s. However, despite the widespread
adoption of micro-credit as a poverty alleviation strategy, it is
acknowledged that credit programmes have not reached the poorest of
the poor for a variety of reasons including self-exclusion and location.
This is due to a number of different factors including the fact that most
beneficiaries are home-based or cooperatives-based entities whose
impact on the rural economy in terms of employment and resource
generation is quite limited. There also appears to be a lack of active
interest among those institutions to provide necessary seed money for
start up of rural SMEs. Thus the essential link between potential
entrepreneurs and these institutions is missing in the rural economy for
which the focus was more on providing micro credit to small
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borrowers, mostly women. The agricultural credit systems remain weak
with little more than 38 percent of rural households receiving some
form of credit support. The Agricultural Census of 1995 (of Bangladesh)
finds that nearly 78 percent of the farmers - i.e., those who have had any
cultivable land under own operation- did not receive credit from any
source and the use of credit to buy agricultural inputs as well as to
invest in processing and other value enhancing activities remained
low.35Although the microfinance movement in south Asia has
permanently changed the face of the financial sector through innovation
and challenges to conventional thinking, the limits of the microfinance
model become evident when it comes to serving many more people
who are still excluded and to capturing a large share of the financial
service business of the existing clientele. Recent research shows that the
formal financing channels meet only 15 per cent of the poor in South
Asia, with the proportion ranging from 2 per cent in Afghanistan to 55
per cent in Bangladesh.36
Micro-credit programmes in Bangladesh need to be integrate
human poverty related indicators like health, sanitation, population,
nutrition, etc. with their credit programmes. In order to generate
effective income, proper utilisation of micro- credit as per approved
plan by the beneficiaries should be ensured. An effective monitoring
and evaluation system in this regard need to be established by micro-
credit organizations on proper utilization of micro-credit by the
beneficiaries. Appropriate training to the beneficiaries on concerned
income generating activities should be the essential part of micro-credit
disbursement. Micro-credit size should be decided based on demand
and credit utilization ability of the member. Studies in Bangladesh
suggests that micro-credit helped in generating self-employment for the
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time being, more emphasis should be given to generate fulltime
employment through micro-credit especially for women.
But we have to remember that microfinance alone cannot do the
job. Sam Daley-Harris, Director of the Microcredit Summit Campaign,
suggests that, “Microfinance is not the solution to global poverty, but
neither is health, or education, or economic growth. There is no one
single solution to global poverty. The solution must include a broad
array of empowering interventions and microfinance, when targeted to
the very poor and effectively run, is one powerful tool.”37 Similarly in
the words of Professor Yunus, “Micro-credit is not a miracle cure that
can eliminate poverty in one fell swoop. But it can end poverty for
many and reduce its severity for others. Combined with other
innovative programs that unleash people’s potential, micro-credit is an
essential tool in our search for a poverty-free world”.
3.7 What India can Learn from Bangladesh
India and Bangladesh are closely intertwined with 2,400
kilometers of border, common river systems, and numerous
transborder cultural and economic contacts. Indeed, relations between
Bangladesh and India have been diplomatically proper, with a trend
toward increasing cordiality and cooperation over time. The rural poor
in India are not so different from their counterparts in Bangladesh.
Indeed the differences between northern and southern India are
certainly more pronounced than those between poor rural communities
in the Indian States of West Bengal, Uttar Pradesh, Bihar or Orissa and
their neighbours in Bangladesh.38
Taking a cue from Grameen Bank the microfinance movement
started in India in the 1980s. The tipping point came after Bangladesh’s
96
Mohammed Yunus, through his Grameen Bank, proved that lending to
those with neither adequate income nor collateral can be profitable and
lift people out of poverty. But unlike India the microfinance movement
is much more developed in Bangladesh and has produced significant
results as discussed above. Even after the boom in Indian microfinance,
large institutions such as Share Microfin Ltd., Spandana or the BASIX
Group together serve as many borrowers as just one of three largest
Bangladeshi MFIs (Grameen Bank, ASA, and BRAC). So India has to
take a number of lessons from Bangladesh in order to further
strengthen the microfinance movement in India. So that ultimately,
microfinance will help in providing the benefits of rapid economic
growth to each and every section of the society. Though India is
heading towards being superpowers, social indicators of our country
are far behind Bangladesh, mainly because they have a responsible civil
society unlike us who wait for the government to act.
Yunus in his book “Creating a World Without Poverty” illustrate some
important themes that many of the world’s developing countries like
India can share:
The need to think strategically about development, analyzing a
country’s potential role in its region and the world in search of
opportunities for growth;
The need to get past myths, stereotypes, and assumption about poor
countries and theirs relations to their neighbors;
The need to find fresh approach positive approaches to development
that emphasize the potential strengths of a country and its people, not
just their problem; and
97
The need to think about how social business can address social and
economic problems that are usually left to be resolved to governments;
These ideas offer hope for alleviating the worst effects of poverty both
in Bangladesh and in many other poor countries around the world.39
Poverty is not created by the poor, it is created by the structure of
the society, and policies persuaded by the society. So the need is to
change the structure and so that poor can change their lives. Grameen’s
experience (in Bangladesh) shows that, given the support of financial
capital, however small, the poor are capable of bringing about a
incredible change in their lives.
N. Jeyaseelan40 (2007) has highlighted some of the important
issues which India must learn from Bangladesh. According to him the
Indian micro-finance sector has many lessons to learn from the
Bangladesh experience as the micro-finance market in Bangladesh is
mature in comparison to India and there is intense competition among
MFIs there. According to him following are the important issues which
Indian microfinance sector has to look upon to further enhance the
growth of microfinance in India.
Risk mitigation: Most of the MFIs offer a package of insurance
services covering different risks— death, accident, loss of business
assets and fire. As their insurance programmes are community-
managed on the basis of mutuality, they do not extend cover for risks of
a co-variant nature, such as flood cover and crop failure. The insurance
premium collection is done by deducting one per cent of the loan
amount at the time of disbursement on a compulsory basis and the
coverage is for the outstanding loan amount.
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Flexible Savings: In Bangladesh, most poor people face food
insecurity for two months, so they require a flexible savings service on a
priority basis to see them through the lean season. Some NGOs
addressed this need by making slight modifications in the manner of
accounting.
Agricultural finance: Commercial banks do not always prefer
lending to the farm sector. Traditional micro-credit terms are not
suitable for seasonal agricultural loans; while micro-credit involves
weekly repayment, most agricultural activities bring income at the end
of the season. Hence, farmers continue to depend on informal sources
for their farming operations. In Bangladesh, IFAD (International Fund
for Agricultural Development) is experimenting with an innovative
project-micro-finance for marginal farmers and small farmers- where
seasonal agricultural loans are offered with flexible options for
repayment.
Larger individual enterprise loans: In Bangladesh, many micro-
finance beneficiaries have graduated after several cycles of loans to take
larger individual enterprise loans. NGOs prefer promoting individual
enterprises by group members rather than group enterprises. As the
risk appetite and the entrepreneurial spirit of the individual members
vary, the members also prefer to opt for the individual enterprises and
select loan sizes according to their risk-bearing capacity.
If the stakeholders take concerted action to implement the above
measures in India, it will take the micro-finance sector forward and the
more vulnerable sections, now left out of the formal institutional
finance system, will benefit.
99
An important lesson from Bangladesh is the importance of
creating professional institutions (irrespective of their being subsidized
or profit-making) in which staff clearly understands rules and in which
incentives are aligned from the top of the organization to the bottom.
Some, like the main microfinance institutions in Bangladesh, maintain
appropriate incentives for staff mainly through the promise of security
of employment, reliable if modest salaries, and of advancement within
the institution– very attractive characteristics in a country with severe
underemployment and weak labor laws. Organizations have also been
successful in making staff feels that they belong to a special kind of
culture, peculiarly committed to serving the poor, and in this they both
reflect and are helped by microfinance’s historic evolution out of
socially-committed private development agencies. Their staff training
programs encourages this commitment: an applicant for a job at
Grameen Bank, for example, is required to interview and write up a
case history of a poor rural woman. Similarly, pushing for strong
management information systems and timely reporting has aided
oversight and the ability to quickly identify problems in time to avoid
larger ones.41
In contrast to this in a study titled “A Report on the Success and
Failure of SHG’s in India– Impediments and Paradigm of Success”,
submitted to the Planning Commission Government of India, it is
observed that few people even at the state headquarters or at the district
level have really understood the funding pattern for the SGSY scheme.
For example, at least in some places, the subsidy part of the money
given for the revolving fund is being treated as a non-refundable one-
time gift to the participants. However, the guidelines have mentioned
100
that the subsidy is to the group as a whole, the individuals who borrow
from the revolving fund, must return the entire borrowed amount to the
group. They are merely exempt from paying interest on the part
represented by the subsidy. However, in the districts in which the study
is conducted the researchers came across instances when the
beneficiaries were not required to return even the full principle.42
This highlights the need for the proper training and orientation of
the staff of the organizations which are involved in the microfinance
activities. They must feel that their main achievement is to serve the
poor and not just to make money. As Yunus suggested that there is no
one secret for the success of Grameen Bank, but surely the hard work
and dedication of the bank workers. To build this level of motivation
and commitment, the supposed workers for the Grameen Bank have to
go through a specialized sort of training as described by Yunus in detail
in his book titled “Banker to the Poor”. The basic objective for the
workers as describe by the Yunus must be people, not rules and
procedures. Working in a bank for the poor is and must be recognized
as, highly specialized work. This is true from the planning and
designing down to the person-to-person contact in the field.43 Those
organizations who are involved in the microfinance programmers must
also try to instill in their borrower’s mind that each and every person
can create his or her own job. Thus an important lesson from
Bangladesh is the importance of creating professional institutions.
There is a need to have change in the attitude of the people working in
the microfinance field i.e.to look beyond money and to work with an
objective of bringing a change in people's lives.
101
In Bangladesh the Grameen takes deposits from poor people,
predominantly women and lends to the poor. All shareholders are the
very same poor borrowers. Therefore, it is like a closed user group. The
maximum rate of interest for loans in Grameen is 20 per cent, education
loans are at 5 per cent and loans to the poorest segment are often
interest free. Whatever shareholder value Grameen creates goes to the
shareholders– not to any wealthy private investor. Grameen does not
borrow money from government-owned banks and the society outside
the closed group is not exposed to the risks of Grameen.
Contrary to this, the current model of MFIs in India of borrowing
cheap from government-owned banks and lending dear to poor
customers and creating exceptional shareholder value for private
investors is fundamentally flawed. The current mainstream thinking in
India is to regulate the MFIs sensibly and expand the reach of
commercial banks to the rural areas through banking correspondents.
While executing more of the mainstream strategies faster, it could be
worthwhile to issue retail, rural banking licenses to MFIs and others
and allow them to charge interests higher than commercial loans. After
all, today’s MFIs are providing retail lending services to people at the
bottom of the pyramid. That way they will be able to garner savings
from the poor like Grameen Bank and reduce their cost of borrowings
further. They will be prevented from contaminating our banking system
with their risks. And they will be regulated by the Reserve Bank of
India. There should be no one complaining about more competition in
this under-served customer segment.44
Another important lesson to be learnt from Bangladesh is that, to
reduce poverty, people had to be given:
102
• Area wise analysis of market opportunities to find out what
production is to be encouraged in different areas.
• To provide required skills for activities to generate those products;
these are to be modern professionally imparted skills.
• Technical knowledge must also be provided to acquire the required
tools.
Again, all these requirements in India have been completely
ignored. Grameen Bank in Bangladesh has been providing there
borrowers with a full range of services which includes helping them to
market their products or to enter into large-scale joint ventures.
Grameen Bank is involved into a number of successful ventures and the
list is ever-growing. Like they are running Grameen Knitwear Limited
where the focus is to link up the traditional handloom weavers with the
export oriented garment industry. Similarly number of successful
ventures have been started by the Grameen Bank which now have
become independent companies like Grameen Telecom (providing
cellular phone and telecom services in rural areas), Grameen Fisheries
Foundation (to bring idle ponds into high yielding pisiculture),
Grameen Shakti (for research and marketing of solar and wind energy
on a commercial basis), Grameen Communication (national network for
Internet, data processing services), Grameen Securities Management
Ltd etc. Changes in regulations are also needed to create an
environment that is conducive to tap the huge domestic resources that
are available. In India, the history of rural finance is typified by the
image of a nationalized banking system which has failed to deliver
credit and, if it has, not been able to recover it. Microfinance, by
contrast, is increasingly being seen as an innovation in lending and the
103
panacea for rural India’s indebtedness to money lenders. Greater clarity
on regulation is needed for the further growth of microfinance in India.
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