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Chapter one: Introduction

1.1

Introduction

This Study focuses on the role of financial markets in the credit disbursement programs and the state of microfinance sector in Bangladesh. Although financial markets are the key source of funds, poor people hardly have access to these markets because of their poor creditworthiness. To serve these people, microfinance sector is doing its best. The sector has undergone tremendous transformation in all aspects over the last more than three decades following pioneering works of the Grameen Bank. The very visible changes are outreach and portfolio size, proliferation of microfinance through a large number of microfinance institutions, diversification of services, new regulatory regime, contribution in rural development, and recognition of microfinance and as a major contributor in poverty reduction. The methodology of Bangladeshi microfinance model has been replicated with or without variations in many countries and recognized as an excellent tool for poverty reduction. That has also brought international recognition in the form of Nobel Prize for Peace for Professor Mohammed Yunus and the Grameen Bank.

However, the sector is facing many challenges regarding institutional capacity, quality and diversity of services, fallout from political and macroeconomic factors and so forth. Above all, Bangladesh still remains a poor country with millions of her population living below the poverty line and facing many related challenges of livelihood and vulnerability. The country report discusses on all these issues to give an opportunity to the readers interested in microfinance, poverty reduction and development in general to reflect upon the status and future direction of the sector.

The overall savings performance of Bangladesh is promising compared to the developed and most of the developing countries. In 2008 the gross domestic savings of Bangladesh in percentage of GDP was reached to 35.9% when it was 37.8% for Malaysia, 34.1% for Thailand, 18.4% for Indonesia, 25.7% for Japan, 37.9% for India and 16.9% for Sri Lanka (source: www.tradingeconomics.com ). Bangladesh has improved in this period in terms of

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savings compared to the other countries. This increase in savings can be highly attributable to the increase awareness created by the Micro Finance Institutions (MFI’s), commercial banks, co-operative societies and other specialized financing institutes.

1.2

Economy of Bangladesh

The economy of Bangladesh is a rapidly developing market-based economy. Its per capita income in 2010 was est. US$1,700 (adjusted by purchasing power parity). According to the International Monetary Fund, Bangladesh ranked as the 43rd largest economy in the world in 2010 in PPP terms and 57th largest in nominal terms, among the Next Eleven or N-11 of Goldman Sachs and D-8 economies, with a gross domestic product of US$269.3 billion in PPP terms and US$104.9 billion in nominal terms. The economy has grown at the rate of 67% per annum over the past few years. More than half of the GDP is generated by the service sector; while nearly half of Bangladeshis are employed in the agriculture sector. Other goods produced are textiles, jute, fish, vegetables, fruit, leather and leather goods, ceramics, readymade goods.

This is a chart of trend of gross domestic product of Bangladesh at market prices estimated by the International Monetary Fund with figures in millions of Bangladeshi Taka. However, this reflects only the formal sector of the economy.

Year

Gross Domestic Product US Dollar Exchange Inflation Index Per Capita Income (2000=100) (as % of USA) 1.79 1.19 1.16 1.12 0.97 0.95

1980 250,300 1985 597,318 1990 1,054,234 1995 1,594,210 2000 2,453,160 2005 3,913,334 2008 5,003,438

16.10 Taka 31.00 Taka 35.79 Taka 40.27 Taka 52.14 Taka 63.92 Taka 68.65 Taka

20 36 58 78 100 126 147

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Moneylenders susu association) 1. to meet large expenditures.4 Access to finance for poor people in Bangladesh: Poor people need financial services for the same reasons as everyone else . poor people throughout the world and across many cultures and economies save in many ways and for a variety of 3 . to invest in their home or business.1. In fact. but not Credit licensed as financial institution Microfinance NGOs by central bank Informal Not legally registered at Savings (susu) & collectors Self-employed credit Poor groups national level (though may Savings belong to a registered associations.3 Sources of Credit in Bangladesh: Financial support may be provided by a variety of financial intermediaries. to insure against risk and to transfer money. which is based primarily on whether there is a legal infrastructure that provides recourse to lenders and protection to depositor. A distinction is made between formal and informal providers of financial services.to save small amounts of money in a secure manner. The following table gives an overview of this distinction Tier Formal banks Definition Institutions Principal clients businesses Commercial & development Large banks Government banks Large Bank enterprises workers & medium rural Specialized nonbank financial Licensed by central bank Rural Post institutions (NBFIs) Savings & loan companies Salaried Deposit-taking microfinance Small banks enterprises unions Microenterprises Entrepreneurial poor Semi-formal Legally registered.

to manage irregular income streams. confidence in the financial system is generally lacking because of low stability and high inflation figures. Moreover. identify an economic opportunity and are in a position to capitalize on that opportunity. The demand for financial services in this part of the society is huge. for social and religious obligations and for long-term investment opportunities. They need investment and working capital to start or expand their business activity. as well as smes.5 Microfinance as Poverty Reducing Tool The success of microcredit Bangladesh has led to using it as a major tool in national poverty reduction strategy by both the government and non-governmental organizations. The popularity of microfinance has made it the core activities of hundreds of microfinance institutions in Bangladesh The case of microfinance in Bangladesh is a good example of nongovernment organization led operations where the government directly and indirectly provided major policy and material support to make it probably the largest microfinance sector in the world. Micro-enterprises. 4 . 1.purposes. They save for household emergencies.

especially women. The management system of microfinance programs has evolved over time but commonly have the following features: • Women are the main recipients of microfinance services though many MFIs now have male members/clients. Indeed the microfinance management system has solved many of the structural problems of targeting and delivering financial services to millions of poor people. The Grameen methodology has enjoyed explosive growth and given hope to millions of poor women and men seeking to generate income in order to rise out of poverty. A more popular and practical term has been microcredit. in response to demand. insurance (life and non-life) and remittance services have been developed or being piloted and are now being bundled together under the term microfinance. and reducing the dependency on informal money lenders. the scope and target beneficiaries have evolved over time since the establishment of the Grameen Bank in 1983. bringing the rural poor into an institutional service network.Chapter Two: Microfinance and Poverty Alleviation 2. although small savings has always been a part of microcredit operations. which emphasizes the main focus of the various financial institutions involved. 5 . The microcredit program in Bangladesh rightly began by targeting the rural poor. Therefore. Another important feature has been the focus on the poor. other services such as savings. These focuses very much remain but the MFIs offer services to non-poor such as small farmers and microentrepreneurs. In 2009 the term microfinance includes many financial products for both the poor and the near-poor. Microcredit serves not only to meet financial needs but also contributes to other social and institutional development issues such as women’s empowerment. as a development intervention strategy.1 Definition: Microcredit versus Microfinance The term microfinance is relatively new in Bangladesh. Gradually.

non-bank government departments and agencies. In case of loan default by a member. The analysis and discussion below covers all three categories although the last category. Three categories of institutions offer micro-financial services: banks. • MFIs are diversifying into other target segments. as a filter for screening individuals for membership. The schematic table below gives the target market for each type of institutions: 6 . However. • The microfinance sector in Bangladesh is now dominated by NGOs offering microfinance services. is the most dynamic and flourishing. groups not only meant a collection of members for administrative purposes but also meant group liability. including near-poor groups. This diversification strategy is not only helping portfolio growth and outreach but also transforming NGO-MFIs as permanent financial service providers for both the poor and the near-poor. collectively known as NGO-MFIs. and non-profit NGO-MFIs (in addition to Grameen Bank). the group would take responsibility for the repayment of the defaulted loan.• Group-based lending methodology is the main system of delivery of microfinance services. amongst both the rural and urban populations. especially in Grameen Bank. the focus of this report. But now the group-based system provides just a low-cost management structure. without any responsibility of repayment. NGO-MFIs have now become a new class of financial institution in Bangladesh financial markets. that is the responsibility of the individual borrower. although commercial banks and a number of MFIs offer loans to individual clients. groups do serve another practical purpose. In early 1980s. by developing new financial products along with the traditional management system. which offer financial services as ‘private not-forprofit businesses’ but strive to achieve institutional and financial viability as soon as possible.

Figure: the vicious cycle of poverty To address this issue one question arise that how microfinance reduce poverty or developed the economy in developing and least developed countries. But poor people need to access capital to alleviate the poverty.4 Role of Microfinance in poverty alleviation in Bangladesh Almost 90 percent of the population of developing countries lack access to capital from formal financial institution. After that the member of microfinance get loan on the basis of savings to set up small enterprise or any other productive investment that increase the productivity. Income 7 . In this case microfinance promotes savings by forming group of people that result in capital accumulation.1. Generally poor people exist in poverty because of low savings result in low capital accumulation that is needed for production that ultimately fall in low per capital income. The vicious cycle of poverty is shown below.

basket making. Jalilian and Kirkpatrick. Banerjee and Newman (1993). leasing firm. among others. dairy cow rising. Jeanneney and Kpodar (2005). Second. which eventually leads to wider access to financial services. 2002). The trickle-down theory has been widely supported by studies such as Ravallion and Datt (2002). (2000) and among others.. Those studies include Odhiambo (2009). In addition to this loans are provided for a variety of non-crop activities such as weaving. 1998. Arestis and Caner (2009). (2007) and Honohan and Beck (2007). higher employment and higher incomes. Arestis and Caner (2005). Odhiambo. financial sector development enables the poor to draw down accumulated savings or to borrow money to start microenterprises. Clarke et al. education or family development that ultimately reduce poverty and develop economy. Quartey (2005). Mellor (1999). fertilizers etc. Some studies have attempted to test empirically the inter-temporal causal relationship between financial development and poverty reduction but the findings have been largely inconclusive. cattle fattening. agricultural tools. financial development can improve opportunities for the poor to access formal finance by addressing the causes of financial market failures. The borrowers then can create their own life to maintain the family nutrition. First. pottery manufacture etc. poultry farming. Honohan (2004). Loan provided by microfinance institution in developing countries for a variety of purpose. These loans actually provided various activities that differ villages and countries. Dollar and Kraay (2002). Dollar and Kraay (2002). Honohan (2004). Empirical evidence on the interaction between financial development and poverty reduction has been inconclusive due to mixed findings. This is because of the implied positive relationship between financial development and economic growth. Beck et al.has been rise and when the income rise families can improve their nutrition and send their children to school (Robinson. Some earlier studies have shown that financial development can contribute to poverty reduction in a number of ways (eg. (2002). and thereby reduces poverty (DFID 2004). These loans that are not possible to get from formal financial institution provide a source of income for diverse activities by the borrower of low income group. 2001). 8 . Third. Fan et al. this is the fundamental of economic development. Stiglitz (2000). 2009). Loans are provided for buying agricultural production such seeds. financial development may trickle down to the poor through its influence on economic growth. such as information asymmetry and the high fixed cost of lending to small borrowers (Stiglitze.

Clark et al. it induces poverty reduction. Jalilian and Kirkpatrick (2001) test econometrically the relationship between financial development and poverty through the growth channel. Some studies have also examined the inverse association between financial sector development and headcount poverty (Honohan 2004). so that deep financial systems also seem to have a lower incidence of poverty than others at the same level of national income. According to these studies. (2004). Odhiambo (2009) examines the causal relationship between finance. and finds that although financial sector development does not Granger-cause savings mobilization in Ghana.Financial development supports economic growth and so has an indirect impact on the living standards of the poor. The same authors. Quartey (2005) examines the relationship between financial development.percentage point increase in the ratio of private credit to GDP should reduce poverty rations by 2. In a related study. find that the income of the poorest 20% of the population grows faster than the average GDP per capita in countries with higher financial development.5-3 percentage points. Honohan and Beck (2007) suggest that financial depth is indeed conducive to poverty reduction. Even more recently. Arestis and Caner (2005) report that the growth channel is not the only channel through which financial development can affect poverty. while examining the causal relationship between financial development and poverty reduction in developing countries. while using data on 52 developing and developed countries to assess the relationship between financial development and income distribution. A more recent study by Jeanneney and Kpodar (2008) is concerned with standard financial liberalization being directly effective 9 . Arestis and Caner (2009) suggest a further channel – the income share of labor channel. namely the financial crises channel and the access to credit and financial services channel. growth and poverty reduction in South Africa using a tri-variate causality model and finds that both financial development and economic growth Granger cause poverty reduction. (2002) support that there is a negative relationship between financial sector development and income inequality rather than an inverted u-shaped relationship. Beck et al. Jalilian and Kirkpatrick (2005). They conclude that a one-unit change in financial development leads to a 0. a 10. and poverty reduction in Ghana. find that financial sector development contributes to poverty reduction through a growth-enhancing effect up to a certain threshold level of economic development. savings mobilization.4% change in the growth rate of the incomes of the poor. but that there are two further channels.

although no real explanation is provided. though. the authors argue that the benefits outweigh the cost for the poor. Ultimately. 10 . Financial development promotes financial instability. as is the more indirect effect via economic growth. moreover the poor do not benefit from the greater availability of credit.in reducing poverty.

11 below provides summary of borrower and loan outstanding information classified in terms of size of loans. two of them (Sonali and Agrani Banks) and also one of the specialised banks. Currently NCBs have largely abandoned lending to group-based small loan programs but have maintained their original individual loan operations. Following the success of Grameen Bank the four NCBs and BDBL started to offer retail microcredit by replicating group-based management technology. have opted for wholesale lending to NGO-MFIs. with the exception of Islami Bank Bangladesh Ltd (IBBL) which has a large and profitable retail Grameen styled loan operations with more than 589. Foreign banks offer small loans to individual borrowers mainly in urban centres. opted for wholesale lending to MFIs. BDBL. a lot higher than PKSF loans to NGO-MFIs. Table 3. Interest rates vary between 10. Before the emergence of the vibrant MFI sector. and Rupali Banks. these banks were the main sources of small loans.1 Formal Financial Institutions (Banks) The formal banking sector comprises four categories of organizations: the state-owned banks (nationalized commercial banks (NCBs)) namely Sonali. Invariably all such group-based programs managed directly by the bank staff members have collapsed with huge default of loans.000 clients in addition to its normal individual banking operations. Agrani.15%. Recently a number of private commercial banks have also entered in this segment in urban centers. private banks. Small loans (up to BDT 500. Janata. 11 .000) are available from two types of formal financial institutions: commercial banks and two specialized banks. and foreign (commercial) banks. BASIC Bank. In addition. The following paragraphs provide information on the status of small loan programs of banks. Private Banks. especially for agriculture and trade. in addition to their individual small loans for agricultural as well as other purposes.Chapter Three: Financial Market Approach in providing credit 3. six specialized banks including BASIC and Bangladesh Development Bank Limited (BDBL). BKB and RAKUB follow individual lending techniques for their own operations and lend to groups organized by NGOs/projects.

This has been due to their wide branch networks in rural areas and mandate for disbursing agricultural credit to small holders. BSBL and BRDB (state-owned). There are two other formal institutions. d) All formal banks require collateral to receive loans. trends. especially for loans more than BDT 50. limiting themselves in urban centers to serve large clients. b) Of the total small clients. Although the total number of clients is high (8. and performance of small loans (farm and non-farm) from banks: a) The highest number of clients belongs to BDT 5.000 to 50. 91% comes from NCBs and the specialized banks. BKB and RAKUB to reach the poor who need small loans but cannot offer physical collateral. c) Agricultural credits top the list of outstanding loans followed by trade. 12 .The following key inferences may be drawn from the status.000 category representing 88% of borrowers and 55% of loan outstanding.3 million). are believed to be inactive due to high loan default. a significant number of them. which are also active in this sector.000. But the disturbing issue is the very low rate of recovery of agricultural credits. Private Banks are insignificant operators in this small business segment. One of the main reasons for emergence of MFIs in Bangladesh is the dismal failure of NCBs. especially those from the NCBs and specialized banks.

888.60% 2.673 302.979.971 321.735 225.65 8 8 7.79% 4.573.20 193430 204930 215.70% 4% 8.90 56. In the aggregate data chart we include information of this parameter of overall economy that is both rural and urban transaction.70% 7.30 64.01 Inflation Rate 8% 8.80% 1.868.70% 3.25 6.66% 7.5 5.30% 8.65 5.01 6.10 68.94% 2.90 58.75 5 5.75 7 7.261 237.5 6.244. Bank Branches. By analyzing these parameters we can easily get scenario about overall situation of economy and more specifically the contribution of the rural area in those economic parameters.20% 9.68 6.29 5.60 71.10% 2. 13 .618.31% In the above table aggregate data and especially rural data are mentioned regarding deposit.047 Bank Branches 5539 5621 5698 5740 5780 5713 5755 5952 5983 6016 6056 6156 6278 6159 6236 6318 6425 6596 6747 6936 7246 Interest Rate 6.40 75.968 266.5 6.20 53.62 6.95 7.03 6.020.384.2 Bank Performance in terms of deposit mobilization: amount in crore Year Jun-90 Jun-91 Jun-92 Jun-93 Jun-94 Jun-95 Jun-96 Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Deposit 22780 24650 26570 29750 33930 39240 41930 46640 51890 59240 70200 81610 92020 106570 121230 142580 168990 165119 196640 225934 278250 GDP 51.3.16% 7.30% 4. GDP.74 6.85 6.38% 5.83% 6.101 251.00 60.197 360.94% 6. On the other hand in rural chart we consider only rural area information.726 340.48% 7. interest rate and inflation.022.974 284.90% 6.

65% 4.72 17290.54 21845.7 5712.24 core tk deposits which is about 21% of total deposit.48 Bank Branches (Rural) 3621 3669 3710 3616 3626 3609 3602 3610 3622 3620 3623 3594 3665 3596 3641 3688 3751 3851 3939 4049 4230 Interest Rate 6.75 5 5.81 13210.95% 3.5 6.16% In aggregate data chart we experienced 22780 core tk deposit and 51.888.08% 7.20 core tk GDP in June1990 in which rural area contribute 4738.55 6485.90% 3.11 10587.95 7.56% 4.03 6.68 6.20 core tk where rural area contribution was 4738.74 18911. 3.47 34409.25 6.83% 7.65 5.85 6.62% 7.01 Inflation Rate (Rural) 7.52 14180.5 5.24 5373.77% 6.45% 6.17 22999.62 6.65 8 8 7.5 6.16% 2.29 5.8 9518.75 42377.5% and inflation rate was 8% and number of bank branch was 5539.3 Rural Banking Performance Year Jun-90 Jun-91 Jun-92 Jun-93 Jun-94 Jun-95 Jun-96 Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Deposit (Rural) 4738.00% 4.88 20346.99% 6.3.4 Deposits Mobilized by Bank Branches 14 .24 core tk with 7246 bank branches. interest rate and inflation rate.47% 5.30% 2. In that time interest was 6.24 26015.36% 7. It indicates that in June 1990 rural area contribution was about 21% of total deposit with 6.74 6.53 8632.28% 9.20% 8.888.56 17189.5% interest rate and 8% inflation rate.5 7498.74% 5.28 11882.00% 4.99% 3.4 16003.01 6.75 7 7. On the other hand if we consider June 2010 we experienced aggregate deposit 278250 core tk and GDP 51.

The number of bank branches in the rural areas increased from 694 (or 46% of total bank branches) at the end of June.38 core taka.24 core taka and it increased to 42377. The scheduled commercial banks were required to open two rural branches for every urban branch. The growth of deposits will be larger if there are more bank branches in the country. 1974 to 2457 (or 64%) at the end of June.88 core taka which rose to 234036.48 core taka in 2010. Deposit Mobilization 300000 200000 100000 0 Deposit Deposit (Urban) Deposit (Rural) Deposit mobilized by 1918 urban bank branches in 1990 was 18132.10 core taka. The average deposit mobilization in this period was 96464.9 core. 1999.Deposits are largely mobilized by the ncbs because of their wide network and their predominance in the total banking sector. Total deposit mobilized by 5539 bank branches of all sorts of banks in 1990 was 22780 core taka and the amount increased in to 278250 core taka in 2010 by 7246 bank branches countrywide. The average deposit was 15962.08 core taka in 2010 by 3016 bank branches in urban area.5 umber of Bank Branches The availability of banking services in a country can be measured by the total number of bank branches. The rural deposit in 1990 was only 4738. In 2008 approximately 15 . 1980 and further to 3626 at the end of December. Conveniently located bank branches can reduce transaction costs significantly and thereby increases the net return earned on deposits. As a result expansion of bank branches in the rural areas was much faster than the overall expansion in bank branches. The average deposit mobilized in this period was 80353. 3.

The growth rate was almost .32%. The amount of urban bank branches in 1990 was 1918 and in 2010 it rose to 3016.36%. 8000 7000 6000 Axis Title 5000 4000 3000 2000 1000 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Bank Branches Bank Branches (Urban) Bank Branches (Rural) The number or urban and rural bank branches also increased.79%. The growth rate was almost 2. 16 . The total number of bank branches of all sorts was 5539 in 1990 and it increased into 7246 in 2010. On the other hand the number of rural bank branches in total in 1990 was 3621 and it increased to 4230 in 2010.58% of total bank branches were located in rural areas and most of them were branches of state-owned commercial banks and specialized banks 3. The number of bank branches in Bangladesh has been increasing indicating the economic opportunity and development. The average growth of last 21 years was 1. Private commercial banks have few rural branches and foreign commercial banks have no rural bank branches. Most of the rural bank branches were set by nationalized commercial banks and specialized banks.6 Bank Branches and the Expansion of Rural Finance Number of bank branches is a very important variable for deposit mobilization.

In 1990 the GDP was 51888.0 200.0 350. 17 .42% .000.46%.000. The average growth rate of GDP for this period was 5. The growth rate that is given below is shown from 1990 to 2010. In 1991 the growth rate of deposit was 8.9 core taka.000.0 100.000.0 150. The average growth rate of deposit for this period was 13.0 - GDP The growth rate of GDP & deposit is an important factor. GDP 400.83% for the year 2010. In 1991 the growth rate of GDP was 3.000.000. GDP of Bangladesh has increased constantly for last couple of years. Deposit Mobilization and Economic growth: Gross Domestic Production (GDP) is used here as a proxy of peoples’ income as income data is not available.34% and the rate is 5.000. The average GDP for this period was 179314.Chapter Four: Growth 4.21% and the rate is 23.2 core taka and the amount is 360047 core taka for the year 2010.1 Microfinance and Economic GDP.0 250. The graph given below admits this.16% for the year 2010.0 50.000.0 300.

2 Sector-wise contribution to GDP growth: The Agriculture. Value added is the net output of a sector after adding up all outputs and subtracting intermediate inputs. Agriculture corresponds to ISIC divisions 1-5 and includes forestry. Note: For VAB countries. three quarters of exports revenues come from garment industry. and fishing.00% 0. according to a World Bank report published in 2012.00% 5. It is calculated without making deductions for depreciation of fabricated assets or depletion and degradation of natural resources.00% 10. 18 . value added (% of GDP) in Bangladesh was last reported at 18. political instability and a slow implementation of economic reforms.43 in 2011. revision 3. The origin of value added is determined by the International Standard Industrial Classification (ISIC). as well as cultivation of crops and livestock production. gross value added at factor cost is used as the denominator.00% -5. poor infrastructure.Growth rate of GDP & Deposit 25. corruption. Microcredit has been a major driver of economic development in Bangladesh and although three fifths of Bangladeshis are employed in the agriculture sector. Bangladesh is considered as a developing economy which has recorded GDP growth above 5% during the last few years.00% 20.00% 15. hunting. The biggest obstacles to sustainable development in Bangladesh are overpopulation.00% Deposit growth rate GDP Growth rate 4.

The origin of value added is determined by the International Standard Industrial Classification (ISIC). 19 . Bangladesh is considered as a developing economy which has recorded GDP growth above 5% during the last few years. corruption.Figure: Contribution of Agriculture on GDP over time The Industry.55 in 2011. water. electricity. revision 3. Value added is the net output of a sector after adding up all outputs and subtracting intermediate inputs. Microcredit has been a major driver of economic development in Bangladesh and although three fifths of Bangladeshis are employed in the agriculture sector. construction. according to a World Bank report published in 2012. three quarters of exports revenues come from garment industry. gross value added at factor cost is used as the denominator. Note: For VAB countries. political instability and a slow implementation of economic reforms. and gas. It comprises value added in mining. Industry corresponds to ISIC divisions 10-45 and includes manufacturing (ISIC divisions 15-37). value added (% of GDP) in Bangladesh was last reported at 28. It is calculated without making deductions for depreciation of fabricated assets or depletion and degradation of natural resources. poor infrastructure. The biggest obstacles to sustainable development in Bangladesh are overpopulation. manufacturing (also reported as a separate subgroup).

4 core. 30000 Amount core in tk. The average recovery during this period was 8805. The percentage of agricultural loan collection during this period was 77.Figure: Contribution of Industry on GDP over time Agricultural loan is basically provided to the rural economy. The average disbursement during this period was 11393. 20 .28%. On the other hand industrial loan is basically provided to the commercial area. 25000 20000 15000 10000 5000 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Actual disbursement of industrialloan Recovery of industrial loan Actual disbursement of agriculturalloan Recovery of agricultural loan The actual disbursement of industrial loan was 3057 core in 2001 and it was 25870 core in 2010. The recovery of agricultural loan was 2795 core in 2001 and it was 18980 core in 2010.3 core.

deposit. payment. These banks include BRAC Bank. approach to these microfinance institutions to get credit. Finally we can say that financial market approach is not alone strong enough to handle the credit disbursement program. The commercial banks of Bangladesh are playing very important role in providing finance to the Small and Medium Enterprises. These people constitute the SME sector of Bangladesh. and leather. In this study. The services sector is primarily composed of SMEs. 21 . insurance. The SME share in manufacturing value added to GDP varies at 28%– 30%. and other risk management services. jute. microfinance institutions are playing back to back role in providing credit. There are many sources of finance like informal credit market. Prime Bank etc. which is responsible for the bulk of employment growth. SME contribution to national exports is significant through different industries such as ready-made garments. Dhaka Bank. about 20 commercial banks are providing easy and wide access to finance for SMEs.Conclusion Access to finance refers to the possibility that individuals or enterprises can access financial services. formal market. we have focused on both the financial markets and microfinance sector in contributing to the alleviation of poverty from Bangladesh. Poor people who do not have access to the financial markets. Trust Bank. banks etc. According to SME Foundation. This sector needs the support of micro finance sector to contribute to economic growth and poverty alleviation. Along with the financial markets. including credit.

com  www.documents  International Journal of Business And Management: Performance evaluation of SMEs in Bangladesh  Microcredit Regulatory Authority Bangladesh  Asian Development Bank 22 .wikipedia.BIBLIOGRAPHY  www.bd  www.edu.org.smef.academia.