Microcredit in Bangladesh

Melissa Johnson Colleen Hill Rebecca Moore Laura Mulvey ♦ ♦ Misty Funk Jill Mueller♦ ♦

Millennium Development Goals

People’s Republic of Bangladesh• Population – 150 million

– 7th Largest population in the world

– Has one of the highest population densities in the world

• 57,000 sq. mi. about the size of Iowa

• 82% Muslim, 13% Hindu, 5% Buddhist, Christian & Other

• Prone to droughts & cyclones as well as flooding during monsoon season

Mural at Dhaka University, in honor of students and faculty who fought and died for liberation

• Formerly East Bengal then East Pakistan

• Gained independence from Pakistan in Liberation War of 1971

• Result of continued struggle to retain Bangla language

• Current Prime Minister Sheikh Hasina Wajed of Awami League

2009 Swearing-In Ceremony of Sheihk Hasina

New Bangladeshi Travel Logo and Slogan • Avg. temperature in

February - 70°F• Longest stretch of

uninterrupted sea beach in the world at Cox’s Bazaar

• Major industries – jute, cotton textiles, food processing & steel

Major Issues

Water• Most wide spread arsenic

pollution of water in the world

• Between 20 and 60 million people exposed to arsenic above EPA regulatory limit

Poverty Reduction• Poverty has fallen over 20%

since early 1990’s• Extreme poverty has

declined but disparity has increased

• Population living on $1/day about 40% (9% decrease since 2000)

MicrocreditMicrocredit (mI-[*]Kro'kre-dit); noun; programs extend small loans to very poor people for self-employment projects that generate income, allowing them to care for themselves and their families.

Loans are “micro” or very small in size for target users, for income generation and enterprise development, but also for community use (health/education) etc. terms and conditions

Most terms and conditions for microcredit loans are flexible and easy to understand, and tailored to the local conditions of the community.

In Bangladesh, we observed three varying models: two NGO’s and one for-profit enterprise

Source : The Virtual Library on Microcredit, Grameen Bank website

Millennium Development GoalsEradicate extreme poverty and hunger

Bangladesh

• 48% of the poorest households with access to microcredit loans rose above the poverty line (World Bank).

• 5% of the Grameen Bank’s clients graduated out of poverty each year by participating in microfinance programs and, households were able to sustain these gains over time (Shahidur Khandker, economist for World Bank).

• Microcredit accounted for 40% of the entire reduction of moderate poverty in rural Bangladesh and that microcredit’s spillover effects among non-participants reduced poverty among this group by some 1% annually for moderate poverty and 1.3% annually for extreme poverty (Shahidur Khandker).

ASA

Forbes magazine ranked ASA #1 in a comparison of “641 microcredit providers across the globe.” Considerations included scale, efficiency, risk and returns. (The Top 50 Micro-Finance Institutions, prepared by the Microfinance Information Exchange, Forbes Magazine, December 20, 2007.)

ASA – Brief History

ASA was founded in 1978 by Md. Shafiqual Haque Chouhury.

Target: “Reduce poverty from society gradually”

Early services: Programs in health, education, social action, journalism, etc.

Transition: From 1978 to 2000, ASA gradually reduced the scope of its field to focus almost exclusively on microfinance.

In 2001, ASA launched the “ASA Cost-Effective and Sustainable Microfinance Model”

ASASmall Loan Program for Women

• Small loans to women account for 78% of ASA’s loan portfolio

• Loans are provided for investment in income-generating activities

• Loans are collateral-free• No group liability; must

be co-signed by a male relative

• Interest: 12.5% (ASA); 23% (Spiegel online)

ASAKey Indicators of Success, December 2008• More than 7 million members, nearly 6 million

borrowers• 3,300 branches serving 72,000 villages• 27,000 ASA staff• Almost $400,000,000 loaned• Rate of recovery: 99%

ASABottom line

ASA:• Emphasizes self-sufficiency

and cost reduction• Operates branches using

funds culled from branch collections

• Involves no donors or foundation funds

• Is well-recognized for its business-model approach to microfinance (i.e., efficiency, expansion, and management)

BRAC

the BRAC philosophy & approach

• micro-credit in an NGO model accountable to government and donors

• Holistic approach to poverty alleviation through social and economic programs– Economic development– Education– Health– Social development– Human rights and legal services

Micro-finance• 1st tier: economically active

poor, targeted towards women

• 4,000 tk ($60) min. loan• 15% flat interest rate• 20 tk annual compulsory

savings earns 5%• 2nd tier: better-off group,

10,000 tk min ($150)• 3rd tier: businessmen,

60,000 tk - 500,000 tk max. ($925 - $7,690 max)

Education

Health & Social Development

BRAC social enterprise:business solutions to poverty alleviation and social welfare

• Aarong fashion• BRAC dairy

Grameen Bank• Founded by Muhammad Yunis

from a project started in 1976, from a project designed to look at the effect of giving credit to the poor “uncreditworthy “

• One of the first micro-lending institutions

• Grameen means "rural" or "village" in Bangla language

• Grameen now has programs set up in many countries, including the USA

• The expansion on the bank continued and now 94% of the stock is owned by its borrowers, while 16% is owned by the government.

Borrowing with Grameen• 97% of borrowers are

women• Small groups of

borrowers are formed as support and “social collateral”

• Borrowing program includes a savings account and insurance account

• Values based on the 16 Decisions (Discipline, Unity, Courage and Hard work)

How is Grameen Different?• Grameen is a bank, not

an NGO• Grameen does not

provide or require training to receive loan

• More than half of borrowers in Bangladesh have risen out of acute poverty (education, sanitation housing, nutrition, repayment)

Other Grameen Programs• Grameen Phone, largest

mobile company in Bangladesh

• Struggling members program (‘beggars program’) in 2003

• Student educational loans• Grameen Danone Foods• Other ventures include

programs focusing on, livestock, renewable energy, clean water, business development

Nobel Prize and Muhammad Yunus• In 2006 the Nobel Peace

Prize was jointly awarded to the Grameen Bank and Muhammad Yunus for “their efforts to create economic and social development from below.”

GRAMEEN BANK

Many Stories of Great

SUCCESS

Typical Microfinance Group Meeting

Even though it is more

expensive, concrete is the desired

building material for houses in

Bangladesh

HOW TO GIVE BACK

• Donate online– ASA Foundation

rmsanden@asafdn.org – BRAC

http://www.brac.net/usa/donate_now.php– Grameen Foundation

http://www.grameenfoundation.org/

• UNICEF Tap Project

Bangladeshis are very hospitable people