Research Project

On
“Economic Development Through Microcredit in
Bangladesh”.

1
 Supervised By :
Shituma Zaman
Assistant Professor
Faculty of Business Studies
University of Information Technology & Sciences

Submitted By:
MD: Saddam Hossain
Program: MBA
(Major in Finance & Banking)
ID: 1814202013
Session: 2018-2019
Faculty of Business Studies
University of Information Technology & Sciences
Date of submission: 10 /03 /2019

2
 Table of Contents

Titles Chapter. No pages

Title page ……………………………………………………………..……………………...……….…..5

Acknowledgement…………………………………………………………………..………………......8-9

Executive Summery………………………………………………….....………………………...........10-11

Chapter: 01 Introduction …………………………………...(13-16)

Origin of the report…………………………………………………………………..………………..….14

Purpose of the study………………………………………………………………..…………....….…14-15

Significance of the study ………………………………………………………................................……15

Objective of the report……………………………………………………………………….…..…….15-16

Methodology of the study……………………………………………………….…….…………..............16

Limitations of the study…………………………………………….………………….…..………….......16

Chapter: 02 Prefatory part …………………………………..(17-29)

What is Microcredit…………………………………………………………........................................….18

Background of Microcredit ……………………………………………………………………………18-20

Economic principle ………………………………………………………….………………..……….20-21

Group leading………………………………………………………………….…………………..….…..21

Microcredit service providers in Bangladesh …………….……………………………………….…..21-29

Chapter: 03 Impact of Microcredit ………………………....(30-38)

Several specific conclusions about the impact of microcredit……………….……………………..…31-34

Reaching the poorest ……………………………………………………………………………....….34-35

Targeting ………………………….…………………………………………………………….…….35-36

Savings vs. Credit:………………………………………………………………………………....….36-37

Synergies between microcredit and other programs …………………..………………….……….…37-38

3
Cost-effectiveness and financial sustainability………………………..………….…................................38

Chapter: 04 Microcredit operation in Bangladesh ………….(39-55)

History ………………………………………….…………………………………………….……….40-42

Overview of the Micro credit in the economy of our country………………..……………………….42-51

Contribution of micro- credit in the Economy………………………….....…………………………..51-52

Current status of micro-credit in Bangladesh …………………………………………………………52-53

Social & other impact …………………………….………………………….………………………..53-55

Chapter: 05 Prospects of Microcredit in Bangladesh …….....(56-67)

A story of self confident youth…………………………………………………………………..…....58-59

A loan that gave parvenu Begum dignity…………………………………..………………………….59-62

Microcredit has changed the life of Mania Chandra ……………………..……………………………62-64

Firoza Begum – An Inspirational community leader Rasheda Begum’ rise from rages to riches……..64-66

Rasheda Begum’s rise from rages to riches ………………………………………………………...….66-67

Chapter: 06 Findings , Recommendations & Conclusion …..(68-73)

Findings ………………………………………………………………………………..........................69-70

Recommendations …………………………………………………………………..…...……………..70-71

Bibliography……………………………………………………………………………………………72-73

4
 Research project
On
“Economic Development Through Microcredit in Bangladesh”.

Supervised By:
Shituma Zaman
Assistant Professor
Faculty of Business Studies
University of Information Technology & Sciences

5
 Submitted By:
MD: Saddam Hossain
Program: MBA
(Major in Finance & Banking)
ID: 1814202013
Session: 2018-2019
Faculty of Business Studies
University of Information Technology & Sciences (UITS)
Date of Submission: 10 /03/2019

6
To

Shituma Zaman
School of Business

University of Information Technology and Sciences.

Subject: Research project on “Economic Development Through Microcredit In

Bangladesh”.

Dear Madam,

With due respect I am very pleased to enclose herewith the Research Project on
“Research project on Economic Development Through Microcredit in Bangladesh”.
I have tried my best to prepare a good Project with providing all of my effort and to
cover all aspects regarding the matter. I think that the project contains the
information that you need to get an idea about financial performance evaluation
aspects. If you need any clarification or any further information, I would be glad to
provide it to you.

I, therefore hope that you would be kind enough to accept my Research Project and
oblige thereby.

Regards,

____________________

MD: Saddam Hossain

ID: 1814202013

University of Information Technology & sciences (UITS).

7
Acknowledgement

At first I desire to express my deepest sense of gratitude of almighty

Allah.
Research project is the most valuable and vital experience for any student
who wishes to attain a MBA degree. Furthermore, Research project is the
first step that is taken towards building the career of a business graduate
as it provides with a great deal of prospects to apply the theoretical
knowledge in the real working world. My project voyage has given me a
handful amount of knowledge, commemorations and a lot of love and
support from my colleagues, supervisors and also department heads. I
know in the near future; all the knowledge I have grained will come in
handy in my professional life. This wonderful knowledgeable trip of
professional experience would not have been possible without the mercy
of almighty Allah and few great individuals who have helped me
throughout my report and made my journey of internship possible. It’s
my pleasure to acknowledge the effort of the Research Project on
“Economic Development Through Micro Credit in Bangladesh” I owe an
enormous debt to many different people for helping me write the project
by providing data, information, and statistics when required and make me
understand different concepts clearly. I am also grateful to my supervisor,
shituma Zaman, Assistant Professor, Department of Business
Administration; University of Information Technology and Sciences for
giving his valuable time, support and guidance in preparing the project on
this particular topic. Without his help I could not have done the project
accurately.

8
This project is not free from limitations.Their might still be some mistakes
including typing errors despite my utmost care. I apologize for these.
I would like to give many special thanks and inexpressible greets to
Inmates both deniers and fellow MBA students and others for giving me
good advice, suggestion and support.
Thanks for all from the core of my heart.

Finally, I also acknowledge my family and friends for their support

throughout while preparing this Research project.

9
Executive Summary

The Research project title is “Economic Development Through Micro

Credit in Bangladesh” Micro-credit playing a significant role for the
development of our economy. Opportunity and producing important
alternative work facility and increasing social value for saving huge social
crisis for our country. So as a part of the development strategy, we should
intensify our efforts to develop this sector to grow industrial base. For
meeting the situation of micro-credit need to upgrade their workforce
capabilities and social facilities in order to implement social and
economic stability at a competitive situation. The main of incentives of
any NGOs which were normally involved in many social programs such
as education, health, relief and rehabilitation to move quickly into
microcredit were demand from the members, opportunity to become self-
reliant (income covers expenses), and creating sustainable permanent
institution, and career for staff members. The variations were in interest
rate, savings and loan ceiling, size of groups etc. not much on the
fundamental structure of the model.
Microcredit mentioned that their economic condition improved to some
extent due to the involvement in micro-credit program. Micro-credit had
also positive impact on changing the housing condition. The relationship
between access to micro-credit and incidence of poverty was not
statistically significant at 5 percent level of significance. Improvement of
economic condition assessed though self-assessment was
positively related with the duration of membership in micro-credit
program, number of times received credit and amount of credit received
and these were statistically significant. Impact of micro-credit on human

10
poverty related indicators was relatively less compared to the income
poverty related indicators. For accelerating poverty reduction and woman
development through micro-credit the study recommended establishing
the effective monitoring and evaluation systems on utilization of micro-
credit by the beneficiaries, appropriate training to the beneficiaries,
increase credit size and increase full time employment opportunity

11
Introduction of the Research project :
Dissertation of MBA under the Faculty of Business
Administration of University of Information Technology
and Sciences (UITS) Research project is an obligatory part
for all students. The project includes the practical
knowledge and information observed and obtained during
the program.

12
Chapter # 01
Introduction

13
Introduction

Origin of the project:

Now a day’s education is not just limited to books and classrooms. In
today’s world, education is the tool to understand the real world and apply
knowledge for the betterment of the society as well as business. From
education the theoretical knowledge is obtained from courses of study,
which is only the half way of the subject matter. Practical knowledge has
no alternative. The perfect coordination between theory and practice is of
paramount importance in the context of the modern business world in
order to resolve the dichotomy between these two areas. Therefore, for
the (RMBA) program we are assigned to prepare a project on “Economic
Development Through Microcredit In Bangladesh”.

Purpose of the study:

Now a day’s Micro credit programs are the most concentration programs.
Microfinance has proven to be an effective and powerful tool for
economic development. Like many other development tools, it works
effectively for the poorer strata of society. The fundamental purpose of
the study is to point out the role of microcredit for the social development
Program. Because microcredit programs give a better, chance to alleviate
poverty in Bangladesh. In addition, it gives a good source of income for
the rural women view to economic development. Therefore, we will go
through on different issues, such as-
Q. How microcredit programs works in Bangladesh view to economic
development?

14
Q. How it can be used as a poverty alleviation program from the
society?
Q. How women are helped by the microcredit programs?

Significance of the study:

The study is designated to indicate the importance of microcredit to
countries overall economics. It tries to provide information regarding how
microcredit helps us to alleviate poverty. It also shows how microcredit
can be a beneficial form for the poor women in our rural areas. This study
develops awareness about the current problems that the microcredit
sectors are facing and what is recommend also pointed out in this report.
Some graphical representation will also help to general reader to
understand the report and gather knowledge from it.

Objective of the project:

The overall objective of the paper is to show a status of microcredit sector
of Bangladesh. The central objectives of the study were: -
 To identify the most possible available use of microcredit
 To identify the process how microcredit sector, help to shape the
countries industrialization process.
 To identify the opportunities in microcredit sector especially for the
rural women.
 To identify the problems and their possible solution in microcredit
sector

15
 To find out the present and future role of the government and NGO’S
regarding microcredit sector.
 To relate the theoretical view with the practical view of microcredit
activities.
To increase our experience in data collection and analysis.
 To know the actual picture of microcredit activities in Bangladesh.
 To know the role of microcredit in poverty eradication and in national
economy.
 To suggest of the findings.

Methodology of the Study:

Here I used qualitative method to complete the project. To prepare this
report I mainly depend on secondary data. But also take some help from
our course instructor.
Secondary data: Records and documents, Books, texts and publications,
Wikipedia, Related Websites.

Limitations of the Study:

In performing this report my lack of proper practical knowledge greatly
influenced in this performance. Beside this, some limitations in
performing this study and preparing this report have been faced. The main
limitations are as follows:
 Lack of available up-to-date information.
 Due to limited access of the data, this study may not be perfect to
the cent percent.
 Lack of experience in analyzing of data.

16
Chapter#02
Prefatory part

17
Prefatory part

What is Microcredit:
A type of banking service that is provided to unemployed or low-income
individuals or groups who would otherwise have no other means of
gaining financial services. Ultimately, the goal of microcredit is to give
low income people an opportunity to become self-sufficient by providing
a means of borrowing money.

Background of Microcredit :
 Early Beginnings Ideas: Relating to microcredit can be found at
various times in modern history. Jonathan Swift inspired the Irish Loan
Funds of the 18th and 19th centuries. In the mid-19th century,
Individualist anarchist Lysander Spooner wrote about the benefits of
numerous small loans for entrepreneurial activities to the poor as a way
to alleviate poverty. At about the same time, but independently to
Spooner, Friedrich Wilhelm Raiffeisen founded the first cooperative
lending banks to support farmers in rural Germany. In the 1950s,
Akhtar Hameed Khan began distributing group-oriented credit in East
Pakistan. Khan used the Cumilla Model, in which credit is distributed
through community-based initiatives. The project failed due to the
over-involvement of the Pakistani government, and the hierarchies
created within communities as certain members began to exert more
control over loans than others.
 Modern microcredit: Nobel laureate Muhammad Yunus, the founder
of Grameen Bank, which is generally considered the first modern
microcredit institution. The origins of microcredit in its current

18
practical incarnation can be linked to several organizations founded in
Bangladesh, especially the Grameen Bank. The Grameen Bank, which
is generally considered the first modern microcredit institution, was
founded in 1983 by Muhammad Yunus. Yunus began the project in a
small town called Jobra, using his own money to deliver small loans at
low-interest rates to the rural poor. Grameen Bank was followed by
organizations such as BRAC in 1972 and ASA in 1978. Microcredit
reached Latin America with the establishment of PRODEM in Bolivia
in 1986; a bank that later transformed into the for-profit BancoSol.
Microcredit quickly became a popular tool for economic development,
with hundreds of institutions emerging throughout the third world.
Though the Grameen Bank was formed initially as a non-profit
organization dependent upon government subsidies, it later became a
corporate entity and was renamed Grameen II in 2002. Muhammad
Yunus was awarded the Nobel Peace Prize in 2006 for his work
providing microcredit services to the poor.

Missions and Vision Microcredit:

 Vision
Microcredit will create a conducive and healthy environment in the
microfinance sector which will ultimately contribute to eradicate
poverty as well as foster sustainable development of the country.

 Mission:

19
 1. To formulate as well as implementing the policies to ensure good
governance and transparent financial systems of microcredit.
2. To conduct in-depth research on critical microfinance issues and
provide policy inputs to the government consistent with the national
strategy for poverty eradication.
3. To provide training and linking them with the broader financial
market to facilitate sustainable resources and efficient management.
4. To assist the government to build up an inclusive financial market
for economic development of the country.
5. To identify the priority issues of microfinance sector for policy
guidance and dissemination of information to attain the social
responsibility.

Economic principle:
Principles of Microcredit Micro credit is ideally based on a unique set of
principles that are readily distinguished from trends in the wider credit
market. Microcredit organizations were initially created as alternatives to
the "loan-sharks" known to take advantage of clients. Indeed, many micro
lenders began as non-profit organizations and operated with government
funds or private subsidies. By the 1980s, however the "financial systems
approach," influenced by neoliberalism and propagated by the Harvard
Institute for International Development, became the dominant ideology
among microcredit organizations. Ironically, many microcredit
organizations now function as independent banks. This has led to their
charging higher interest rates on loans and placing more emphasis on
savings programs. The application of neoliberal economics to microcredit
has generated much debate among scholars and development

20
practitioners, with some claiming that microcredit bank directors, such as
Muhammad Yunus, apply the practices of loan sharks for their personal
enrichment.

Group leading:
Though lending to groups has long been a key part of microcredit.
Microcredit initially began with the principle of lending to individuals.
Despite the use of solidarity circles in 1970s Jobra, Grameen Bank and
other early microcredit institutions initially focused on individual lending.
Indeed, Muhammad Yunus propagated the notion that every person has
the potential to become an entrepreneur. The use of group-lending was
motivated by economics of scale, as the costs associated with monitoring
loans and enforcing repayment are significantly lower when credit is
distributed to groups rather than individuals. Many times the loan to one
participant in grouplending depends upon the successful repayment from
another member, thus transferring repayment responsibility off of
microcredit institutions to loan recipients.

Users and Suppliers of Microcredit The principal

microcredit service providers in Bangladesh :

Are usually categorized into four major groups: NGOs, specialized

institutions, commercial banks with microcredit programs and
administrative ministries or divisions . Although there are thousands of
NGOs throughout the country offering micro credits, many of them are

21
very small in loan portfolio or number of borrowers, and the majority of
micro credit clients are being served by four huge Microcredit institutions
, namely Grameen Bank, BRAC, ASA and Govt. agencies & BRDB. The
World Bank estimates that in 2005 the four institutions combined account
for 86% of all active borrowers and over 90% of all outstanding loans in
the Bangladesh Microcredit sector.

 Grameen Bank: The Grameen Bank was established in 1983 under a

special law with the initial support from the Bangladesh Bank. It is the
only MFI that has been awarded a license to operate as a special bank
for microcredit. Grameen‘s poor borrowers own 95% of the bank‘s
total equity . The remaining 5% is owned by the government.
According to the MIX Market, a leading microfinance platform, as of
December 2008 Grameen Bank was the second largest MFI in
Bangladesh with an outstanding loan portfolio of 642 million Dollars
and 6.2 million active borrowers, of which almost all of them (97%)
are women .Grameen claims to be fully financially sustainable. It takes
no donor funds, nor does it take any loans from local or external
sources, and finances its credit program solely through its clients
deposits, which amount to 142% of its outstanding loans. The bank,
which operates with 2560 Branches in nearly 85000 villages, has a loan
recovery rate of 98%. In 2006 Grameen Bank and its founder, Dr.
Mohammed Yunus, were awarded the Nobel Peace Prize for their
efforts to create economic and social development from below.
Dr.MuhammadYunus Founder of Grameen Bank .

 BRAC : BRAC was founded as a relief organization in 1972 after the

liberation of Bangladesh . It initially helped refugees returning from
India and soon broadened its focus to long term sustainable poverty

22
 reduction. Its holistic approach to poverty alleviation and
empowerment of the poor include a range of core programs in
economic and social development, health, education, and human rights
and legal services. BRAC had 6.3 million active borrowers and an
outstanding loan portfolio of 648 million Dollars in 2008 and was listed
as the biggest MFI at the Mix Market both in terms of borrowers as of
loan portfolio size.

 ASA : ASA was founded in 1978 and received formal registration from
the government in 1979. Its primary objective was to help the poor
organize & empower themselves so that they would establish their
political and social rights for a just society. During this time, the
members of ASA conducted a series of social actions to fight against
social injustices, gain their rightful access to institutional and public
resources, obtain just wages, enter into the local power structures and
have access to land . In the mid-80‘s ASA realized that in order to be
able to assist the poor more effectively, it would have to get into the
business of microcredit. By 1992 it focused solely on microfinance.
ASA is registered as a non-profit social-welfare organization under the
Societies Act and remained an NGO throughout its existence .

 BURO: Bangladesh is a national non-government social development

organization was established in 1990 intended to work for the poor and
rural people to reduce both income and human poverty. Over the
period, the organization emerges as a front ranking specialized
microfinance institution. It provides high quality flexible financial and
social services to one million low-income people, particularly the poor
women. BURO Bangladesh currently serves 1.44 million poor women
through its 748 branch offices which are managed by 6,721 full time
work forces. BURO Bangladesh is one of the first MFIs in the country

23
 to articulate a clear, unequivocal commitment to achieve financial
sustainability by using commercial capital, and established itself as an
independent institution. Since then it has been achieving milestones of
success and eventually has attained financial sustainability.

 ThengamaraMahilaSabujSangha: (TMSS) is a national level NGO,

which is working for poverty alleviation, socioeconomic development
and empowerment of women. It has developed from a very
insignificant organization to one of the largest women NGOs in
Bangladesh. It was initially formed in 1964 by a group of begging
women organized by FatemaBewa and JomelaBewa, two regular
beggars of the village Then gamer in the district of Bogra. In addition
to begging, FatemaBewa used to render domestic services to Abdul
Mazid, the local social welfare officer, who convinced her to give up
begging. She organized the beggars of the locality and started to
regularly save a 'handful of rice' out of what they gathered by begging
from door to door. The saved rice was sold in the market and the sale
proceeds were accumulated to make a common fund. To collect the
savings, the beggars formed several groups, each containing 10 to 20
of them. The members of these groups developed a practice of meeting
together, when their husbands were away, to discuss their affairs. The
news about their activities spread over the surrounding localities. Soon
after the liberation of Bangladesh, 14 such women groups were formed
in 6 villages. Initially, the members of these groups used to deposit
their collection with someone reliable and trustworthy. Soon they
found a leader Professor Hosne-Ara Begum of BograMahila College
to organize them. A 21-member committee was formed for managing
the organization consisting of 226 general members. They collected
about 8 tons of rice. Gradually, they registered their groups as
a committed to the development of the safety net of the poor and

24
 distressed women. Under the leadership of Professor Hosne-Ara
Begum, it became one of the largest women NGOs in Bangladesh
within a short period of time. Belief in human potential and human
dignity, achieving self-reliance with community support guide the
activities of the TehengamaraMahilaSabujSangha. It is the first
organization in the country to initiate development from the bottom of
the society.In 1999, the TMSS operated in 342 unions of 88 upazilas
in 17 districts. Its programmer has been operative in 2,475 villages.
The number of beneficiaries had been 268,200 families in target group
approach and 3,200,000 families in community approach. Its head
office is 6 km north of Bagura city on the Bagura-Rangpur highway. It
has 12 training centers. Its field activities are managed by 18 area
offices and 88 branch offices. It members are mostly illiterate and
economically highly marginal women who are either entirely landless
or marginally landed, owning below 0.05 acres of land. The TMSS is
mainly involved in activities such as training, empowerment of
women, women institution building, human resource development,
environment development, human rights establishment,
entrepreneurship development, education, health and family planning,
gender relation and development of agriculture, fisheries and forestry.
The TMSS's objective is to restore social and economic balance in the
society and place women in equal partnership with men. [M Wazed
Ali]

 Proshika: Non-Government Organization. Immediately after

the WAR OF LIBERATION in 1971, some visionary people could realize
the inadequacy of the conventional development practices, began to
plan development activities with an alternative approach. With an
objective to contribute to rebuilding the war-ravaged country, they
formed ProshikaManobikUnnayan Kendra (Proshikacentre for human
development) and started working in a few villages of Dhaka and

25
Cumilla districts in 1976. Proshika is an acronym of three Bangla
words, proshikkhan (training), shikkha (education) and kaj
(action).Proshika envisages a society which is economically productive
and equitable, socially just, environmentally sound, and genuinely
democratic. The organization’s mission is to conduct an extensive,
intensive, and participatory process of sustainable development
through empowerment of the poor. Through empowerment, the poor
are organized and made aware of the real causes of their
impoverishment, a leadership is developed among themselves, their
material resources are mobilized, income and employment are
increased, and capacities are developed to cope with natural disasters.
Empowerment makes the poor functionally literate, enables them to
take better care of their health, to get involved in environmental
protection and regeneration, get elected in local government bodies and
community institutions, and provides the poor with better access to
public and common property resources. Prosaic aerogrammes include
building organizations of the poor, training in skill development,
universal education, promotion of self-reliance through employment
and income generating activities and provision of credit, small
enterprise development, natural resource protection and environmental
regeneration, development support to communication, health education
and infrastructure building, integrated women's development,
development policy analysis and advocacy, patronage to indigenous
culture and its use in mobilization of the mass people in social
movements, disaster preparedness and management, and assistance to
other organizations.The top management structure of Proshika includes
a general body consisting of 30 members drawn from a cross-section
of people. This general body appoints auditors, approves the annual
report and budget, fixes audit fees and elects a 9-member governing
body for the organization. The governing body is elected each year
from amongst the members of the general body and it formulates policy
and reviews progress. The president of the governing body is the chief
executive and he is assisted by a senior vice-president, a vice-president,
directors and deputy directors. At present, Proshika operates through
200 Area Development Centers (ADCs) spread in 24,213 villages and

26
 2,110 urban slums in 59 districts. It works with 9,26 thousand women
and about 5,30 thousand men drawn from poor rural and urban
households organized into 1,10,920 primary groups. From the
inception of prosaic to till now, over 12 million poor people both male
and female have so far been rehabilitated in various income generating
activities. More than 1.14 million people have attained literacy, 168
thousand got Medicare services and 717 thousand children received
primary education during the period with the active support of Porsha.
It also extended support to plant over 10 million saplings under the
country's Social Afforestation programmer. [Shamsul Huda]

 Swanirvar Movement: A ‘basic need' centered approach to rural

upliftment and community development which attempted to include
various groups within the village structure. The swanirvar (self-
reliance) movement constitutes a milestone in the history of rural
development in Bangladesh. Pioneered by a high public official and
social worker MahbubAlamChashi, the movement was formally
launched on 24 September 1975 under the patronage of the Bangladesh
government. The main thrust of its activities was geared towards
increasing food production and income generation. The need and
importance of moral and ethical values and qualities were also
emphasized. The idea and visions of the movement drew substantially
from a number of earlier rural development initiatives. In 1967, similar
ideas were explored in a participatory project at Gummi in Rangunia,
Chittagong. In August 1974, during the aftermath of the devastating
flood and the resultant famine, BANGLADESH ACADEMY FOR RURAL
DEVELOPMENT (BARD) launched an experimental project called the
Action Programmed for Flood Recovery Operation (APFRO) to search
for a suitable organizational model for bringing together varied social
classes and forces in order to face natural calamities and encourage
collective activities. The experimental activities of AFPRO spread over
as many as thirteen districts within a short time. The institutional
structure of the movement consisted of six tiers at the village, union,
thane, sub-division, district and national levels. The village assembly
or Gram Paris had was made the basic unit. The Gram Paris had was

27
headed by an elected Gram Sarahi (village pilot) and had four
specialized (elected) committees responsible for such activities as law
and order, agriculture, education, health and family planning. At the
union level, the Union Training and Development Centers acted as a
platform for meeting and coordinating various development partners
including farmers, extension agents, public service providers,
volunteers and social workers. The national committee of Swanirvar
Bangladesh was the central apex body to coordinate and maintain the
network of its institutions at the sub-national levels. The major
achievements of the Swanirvar Movement include establishment of a
substantial number of rural institutions and infrastructure especially in
the fields of communications, informal education and healthcare,
hybrid agricultural crops, voluntary labour, employment opportunities
especially through infrastructure projects and micro credit, collective
action and group mobilisation. One of the most talked about schemes,
carried out under the banner of the movement was known as the Ulashi-
Jadunathpur Canal Digging Project implemented during 1976-77. The
project, which mobilised considerable voluntary labour, provided
drainage and irrigation facilities to 18000 acres of water logged area
by excavating a 4.26 km long canal. The project covered up 138 thanes
in 40 districts and until 1989 disbursed taka 82,96,11,951 as loan to
49,19,137 beneficiaries. The institution of Swanirvar Gram Sarkar or
self-reliant village government conceptualized and propagated by the
government of Ziaur Rahman was modeled on the image of the
Movement. Notwithstanding the state patronage and support, the
movement only partially succeeded in augmenting food production,
people's participation, and voluntary labour. Its performance, on many
occasions, was constrained or frustrated by factors such as the sharp
and rigid social stratification in rural Bangladesh, sabotage by local
elites, bureaucratic formalities and dominance in decision making,
limited capacity of the rural institutions, limited incentive for popular
participation, and scarcity of fund and logistic services. Despite the
above limitations, the movement left a lasting impression on the
principles and practices of rural development in Bangladesh in the
sense that subsequent reforms and development activities gave

28
 emphasis on village level organizations, basic needs of common
people, idealistic orientation and populist values, integrated approach
to rural reconstruction, and involvement of all sections of the villagers
in development activities. [Niaz Ahmed Khan]

 Govt. agencies & BRDB Bangladesh Rural Development Board :

(BRDB) is the largest microcredit provider of the government. It

works in rural areas and provides microfinance services mostly to
cooperatives with the support the financial and technical support of the
Government of Bangladesh and its development partners. The interest
rates charged by the BRDB and other government programs are too
low because they don‘t have to meet the full costs of their operations.
Nevertheless, BRDB has disbursed US$ 520 million to cooperative
societies and groups and reached about 3.6 million members now-a
days.

29
Chapter#03
Impact of Microcredit

30
Impact of Microcredit

Throughout the world, poor people are excluded from formal financial
systems. Exclusion ranges from partial exclusion in developed countries
to full or nearly full exclusion in lesser-developed countries (LDCs).
Absent access to formal financial services, the poor have developed a
wide variety of informal, community-based financial arrangements to
meet their financial needs. In addition, over the last two decades, an
increasing number of formal sector organizations (non-government,
government, and private) have been created for the purpose of meeting
those same needs. Microcredit is the term that has come to refer generally
to such informal and formal arrangements offering financial services to
the poor. Microfinance has existed, although mostly in the shadows and
unseen by casual observers, since the rise of formal financial systems, and
indeed probably predates them. It has only been within the last four
decades, however, that serious global efforts have been made to formalize
financial service provision to the poor. This process began in earnest
around the early to mid-1980s and has since gathered an impressive
momentum. Today there are thousands of Microcredit providing financial
services to an estimated 100 – 200 million of the world’s poor (Christen
et al., (1995)). What began as a grass-roots “movement” motivated largely
by a development paradigm is evolving into a global industry informed
increasingly by a commercial/finance paradigm. The rise of the micro
credit industry represents a remarkable accomplishment taken within
historical context. It has overturned established ideas of the poor as
consumers. A common type of informal financial arrangement found
throughout the world is the Rotating Credit and Savings Association
(ROSCA). A ROSCA consists of a group of community members who
meet regularly to pool their savings. The pool is then lent out to one

31
member of the group, who repays it, at which time it is lent out to another
group member, and so on until each group member takes a turn borrowing
and repaying the pool of savings. Financial services, shattered stereotypes
of the poor as not bankable, spawned a variety of lending methodologies
demonstrating that it is possible to provide cost-effective financial
services to the poor, and mobilized millions of dollars of “social
investment” for the poor (Mutual, et al. (1996)). It must be emphasized
too that the animating motivation behind the microfinance movement was
poverty alleviation. Not only that, but microfinance offered the potential
to alleviate poverty while paying for itself and perhaps even turning a
profit—“doing well by doing good.” This potential, perhaps more than
anything, accounts for the emergence of microfinance onto the global
stage. Scholarly interest in microfinance has lagged behind industry
development, but it too is now growing rapidly. Before 1997, academic
journals published only an occasional article on microfinance, but since
that time, academic journals have published hundreds of peer-reviewed
articles on the topic. Nonetheless, microfinance has yet to break into
finance journals. This despite the term finance in microfinance and the
fact that the basic products offered by microfinance institutions micro
credit —namely investing (savings), lending (credit services), and
insurance (risk management)—are all well-established topics of
mainstream finance research. The purpose of this paper, therefore, is to
introduce microfinance to the academic finance community and to
provide an outline for future research. There exists a large body of non-
critically-reviewed microfinance literature. The quality of this literature
runs the gamut, although it does include a significant number of high
quality and highly informative essays and studies. Microcredit has been
extensively examined over the past 10 to 15 years, and the resulting
literature is now very large. A focused review of the literature was
conducted to evaluate recent publications regarding the impact of

32
microfinance on poverty reduction. The number of rigorous studies of
client outreach and impact has grown considerably, especially in the past
few years, spurred in part by the development of monitoring tools like
CGAP’s Poverty Assessment Tool, Cash poor Housing index, SEF’s
Participatory Wealth Ranking, and USAID’s AIMS Tools. The resulting
studies show that:
 The tools are relatively inexpensive and practical to use, and they
yield useful data for both programs and donors.
 Average loan size is an easy indicator to collect but proves to be
unreliable when measuring depth of outreach. Minimal extra effort
in data collection can yield much richer information for marketing
and evaluation.
 Microcredit show considerable diversity in their ability to reach
poor populations.
 Excellent financial performance does not imply excellence in
outreach to poorhouse holds.
 At the same time, reaching the poor is not at odds with maintaining
excellent financial performance and professional business practices.
 Programs that make poverty reduction an explicit goal and make it
a part of their organizational culture are far more effective at
reaching poor households than those that value finance above all
else.
 These lessons point to natural evolutions in the microfinance sector.
Many micro credit have tended to focus foremost on their own
financial survival, and have generally been reluctant to invest
substantially in evaluations (World Bank 1998). Currently, the
majority of Micro Credit Is neither determines the composition of
their clientele upon intake nor evaluates the effectiveness of their
program in terms of poverty reduction. The development and use of
the new tools for market analysis and evaluation suggests that failure

33
 to monitor and evaluate can cut costs in the short-run at the expense
of achieving long-term social and economic goals.

The review of the literature also points to several specific conclusions

about the impact of microfinance on poverty reduction:

 Evidence shows the positive impact of microfinance on poverty

reduction · While the quality of many studies could be improved, there
is an overwhelming amount of evidence substantiating a beneficial
affect on: zero Increases in income (Wright 2000; UNICEF 1997;
Khandker 2001, 1998) zero Reductions in vulnerability (Wright 2000,
Zaman 2000; McCulloch and Baulch 2000).
 There are fewer studies with evidence on health, nutritional status and
primary schooling attendance, but the existing evidence is largely
conclusive and positive (Wright 2000

Reaching the poorest :

Despite disagreement on specific definitions of levels of poverty, there is
a consensus that:
 Microcredit is not for everyone. Most importantly, entrepreneurial
skills and ability are necessary to run a successful microenterprise and
not all potential customers are equally able to take on debt. While these
points will be true across all strata of poverty, it is assumed that they
will have a greater effect on the very poorest. · The sick, mentally ill,

34
 destitute etc. who form a minority of those living below the poverty
line are typically not good candidates for microfinance. Most
researchers agree that this group of people would be better candidates
for direct basic assistance.4 · More optimistically, microfinance can be
effective for a broad group of clients, including those who are living in
the bottom half of those below a country’s poverty line (to use a
categorization proposed by CGAP). We will call this strata the
“poorest” and note that they constitute the group that generally
intersects the various definitions of extreme poverty: landlessness,
limited access to basic social services, average per capita income of
less than $1 a day, and bottom third of a relative poverty ranking.
 Specifically, various studies show: o There is no evidence of an inverse
relationship between a client’s level of poverty and their
entrepreneurial ability (Garson). o Borrowing patterns and the
inclination to save have been found to be similaracross clients at
different levels of poverty (Zaman 2000) o Financial performance of
MFIs targeted to the poorest clients can be comparable to those of MFIs
that do not reach the poorest (Khandker 1998; Gibbons and Meehan
2000; Churchill 2000) · There is little evidence that clients with
existing microenterprises or employment (often defined as “the
economically active”) are the only ones that can benefit from
microfinance (Robinson 2001; Hulme and Mosley 1997; Zaman 2000),
and the little evidence that exists here is subject to debate about
methodology.

35
Targeting :
While it has been demonstrated in a number of studies that the poorest can
improve their socioeconomic conditions, researchers have pointed to
several general issues that:-
 Make microcredit work for the poorest:

 Even a well-designed microfinance programmer is unlikely to have a

positive impact on the poorest unless it specifically seeks to reach them
through appropriate product design and targeting (Wright 2000).
Experience shows that unless there is a targeting tool, the poorest will
either be missed or they will tend to exclude themselves because they
do not see the programs as being for them, do not have the “correct”
clothes, etc. (Navajas et al 2000; Simanowitz, FFH).

 Mission:

There is a strong tendency to move to the top of the clientele group,

and to give little attention to the needs of the poorest, with the end result
that their proportion diminishes over time (Navajas et al 2000). Only
MFIs that design programs around the needs of the poorest are likely
to retain them as clients.

Savings vs. Credit :

There is general consensus that facilitating savings is important, because
there is a high demand for it among the poorest and because savings play
a role in protecting against the seasonality of cash-flows and fulfilling an
insurance function. In addition, building up deposits reinforces financial
discipline for customers and can eventually yield collateral and serve as

36
source of funding for Microcredit. · Savings alone, however, have only a
minor developmental impact: the protection against shocks might allow
children to remain in school or income-earners to get medical treatment
and minimize time away from work, but it is slow to create any significant
wealth in itself unless credit is also available. · Micro credit that focus on
savings more than credit tend to reach a smaller proportion of the poorest,
have a lower and slower impact on poverty reduction, and are therefore
less conducive to reaching the Millennium Goals by the target dates.
While the savings-first institutions are easier to finance by donor agencies
(far less start-up capital required), the few comparative studies available
show that borrowers fare better than non borrowers (Chen and Snodgrass
1999; Fruman 1998).

Synergies between microcredit and other programs :

It is clear from the evidence that there are strong potential synergies
between microfinance and the provision of basic social services for
clients. The benefits derived from microfinance, basic education, and
primary health are interconnected, and programs have found that the
impact of each can increase when they are delivered together.Overview4
· The marginal cost of providing education or basic health information
can be substantially reduced when the infrastructure for microfinance is
already in place · Services provided need to be relevant to the needs of
the target group and not just an add-on that is of poor quality (UNICEF
1997; Mk Nelly and Dun ford 1999, 1998; Marcus 1999) Very few studies
directly compare alternative interventions. Most researchers conclude that
it is difficult to isolate the impact of a specific development tool as each
contributes to the others. While the question of which development tool
gives the “biggest bang for the buck” is legitimate in principle, in practice
it is difficult to compare the benefits achieved by different interventions.

37
With this in mind, it should be noted that .Microcredit has the potential
to have an immediate impact on a wide range of poverty reduction targets:
income, health, nutrition, and education. · Basic health is likely the most
crucial intervention, but should be combined with microfinance in order
to strengthen the impact on the , Millennium Goal of reducing those living
on less than $1/day. · Expanding primary education for children has a
wide-ranging impact on the poverty reduction targets (income, health,
nutrition, fertility) but any benefits will be delayed, (thus reducing its
effectiveness for reaching the targets by 2015).
Cost-effectiveness and financial sustainability :
Microcredit compares favorably to other interventions particularly with
regard to cost effectiveness and prospects for sustainability:

 Cost-effectiveness: An advantage of microfinance is that donor

investment is recycled and reused (Wright 2000). Direct comparisons
done by Khandker (1998) show that microfinance can be a more cost-
effective developmental tool than alternatives including formal rural
financial intermediation, targeted food interventions, and rural
infrastructure development projects. More over, unlike many other
interventions, costs for microfinance tend to diminish with the scale of
outreach (Rhyne 1997; Christen et al 1996) · Sustainability: Few, if
any, other development tools have the potential to become sustainable
such that, after initial start-up grants, new inputs are not required for
every future client. o There need not be a trade-off between reaching
the poorest and attaining financial sustainability. Although there are no
rigorous econometric models to substantiate it, there is ample evidence
that MFIs targeting the poorest can fare as well financially as those that
don’t (Gibbons and Meehan 2000; Necessity of Microcredit

38
Chapter#04
Necessity of Microcredit in Bangladesh

39
Necessity of Microcredit in Bangladesh

History:

Economic condition of Bangladesh:

The incessant battle against poverty and famine is long observed in our
country. People like day laborer, rickshaw puller, weavers, fisherman,
small businessman, shop owners, smith, and landless people, farmer and
marginal farmer live in abject poverty. According to World Bank, poverty
rate in Bangladesh is around 36%-40% with 40% ultra poor living in the
rural area and 15% in the urban area. Poverty at the rural area is considered
one of our most important and increasing tribulations.
Eradication of poverty in Bangladesh is an enormous and multi-
dimensional challenge. Almost 42.5% of the people living in villages are
poor while 18.7% are termed ultra-poor. In the last three decades the
government has undertaken extensive activities. The main objective of
first five-year plan (1973-1978) was poverty eradication. This trend is still
continued in all subsequent five-year plans. But to handle multifaceted
and inter-related problems like rural poverty, the government also has
limitations if the matter is to be managed single handedly due to
inadequate assets, capability and sometimes lack of willingness. In this
case overall cooperation between government and different development
agencies can play significant role in poverty eradication.
The developing agencies in Bangladesh can engage themselves in
developing activities and at the same time can bring in a positive change
in the life of the poor through social changes and development. The NGOs

40
of Bangladesh think that development is a process through which the
members of a society build their organizations as well as themselves in
such a way, which increases their capability to manage required assets to
match expectations with a well distributed, stable corresponding living
standard. The ideologies of NGOs to eradicate rural poverty are the
empowerment of poor, developing their institution and creating ability
through appropriate distribution of assets and capacity. NGOs give
importance on the causes of poverty to eradicate poverty instead of
changing the attributes of poverty.

Purpose of microcredit operation in Bangladesh:

Traditional financial institutions have failed to provide financial services

to the poor. Providing the poor with access to financial services is one of
many ways to help increase their incomes and productivity. “Micro-credit
and cooperative programs have been developed to fill this gap. Their
purpose is to help the poor to become self-employed and thus to escape
from poverty. Many of these programs provide credit using social
mechanisms, such as group-based lending, to reach the poor and other
clients including women, who lack access to formal financial institutions.
With increasing assistance from the World Bank and other donors,
microfinance is emerging as an instrument for reducing poverty and
improving the poor’s access to financial services in low-income countries.
Poverty is often the result of low economic growth, high population
growth, and extremely unequal distribution of resources. The proximate
determinants of poverty are unemployment and the low productivity of

41
the poor. When poverty results from unemployment, reducing poverty
requires creating jobs; when poverty results from low productivity and
low income, reducing poverty requires investment in human and physical
capital to increase workers’ productivity. In many countries, such as
Bangladesh, poverty is caused by lack of both physical and human capital.
Consequently, the best way to reduce poverty is to deal with problems:
increasing productivity by creating employment and developing human
capital. Lack of savings and capital make it difficult for many poor people
who want jobs in the farm and non-farm sectors to become self-employed
and to undertake productive employment-generating activities. Providing
credit seems to be a way to generate self- employment opportunities for
the poor. But because the poor lacks physical collateral, they have almost
no access to institutional credit. Informal lenders play an important role
in many low-income countries, but they often charge high interest rates,
inhibiting poor rural households from investing in productive income-
increasing activities. Moreover, although informal groups, such as
rotating savings and credit associates, can meet the occasional financial
needs of rural households in many societies, they are not reliable sources
of finance for income-generating activities. Micro-credit programs are
able to reach the poor at affordable cost and thus help the poor become
self-employed. Proponents of micro-credit consider increasing the poor’s
access to institutional credit is an important means of ending poverty.
They argue that by virtue of their design such programs can reach the poor
and overcome problems of credit market imperfections. In their view
improved access to credit smoothest consumption and eases constraints in
productions, raising the incomes and productivity of the poor. Empirical
studies support this view to some extent: credit market interventions
improve both the consumption and production of the poor who otherwise
lack access to credit. According to proponents of micro-credit, when
traditional banks and financial institutions fail to meet the needs of women

42
and the poor, alternative institutions should be developed to meet these
groups’ demand for financial services” (Khandker, 1999). Yunus (2003)
states, “Independent studies show that micro-credit has a host of positive
impacts on families that receive it. A study by Khandker (1998) of the
World Bank reported that 5 percent of Grameen Bank families move out
poverty each year. A World Bank study by Khandker (2003) shows that
micro-credit programs have a greater impact on extreme poverty than on
moderate poverty. The results of this study strongly support the view that
micro-credit not only affects the welfare of participants and non-
participants but also the aggregate welfare at village level. The role of
micro-credit in disaster situation and post conflict areas has been well
documented, enabling families in those areas to rebuild economic
activities and livelihoods when these services are flexible, convenient and
easily accessible. Studies have also shown that micro-credit programs
improve the coping mechanisms of the poor. This is demonstrated very
clearly during times of disaster, such as during the floods in Bangladesh
in 1998. A large number of impact studies have been made on Grameen
Bank from different perspectives. They all came up with findings showing
significant
impact on its members across a wide range of economic and social
indicators, including increased income, improved nutrition, better food
intake, better consumption of clothing, better housing, lower child
mortality, lower birth rate, higher adoption of family-planning practices,
better healthcare, better access to education for the children,
empowerment of women, participation in social and political activities,
etc.” Salehuddin (2003) has opined that in recent years, micro-credit, or
microfinance in its wider dimension, has become a much favored
intervention for poverty alleviation in the developing countries and least
developed countries. There is scarcely a poor country and develop-
oriented donor agency (multilateral, bilateral and private) not involved in

43
promotion (in one form or another) of a microfinance program. Many
achievements are claimed about the impact of microfinance programs,
and an outside observer cannot but wonder at the range of diversity of the
benefits claimed. With an estimated 1.3 billion people of the world
(approximately one third of the world’s population) living on incomes of
less than $1 a day, the governments of the poor countries face an
enormous challenge to reduce poverty. This is particularly so in the
countries of South and East Asia where the majority of the world’s poor
live. Various studies demonstrated that rapid and sustainable poverty
reduction depends on the interaction of a wide range of policy measures
and interventions at macro, mesa and micro levels. The availability of
microfinance, broadly defined as the provision of financial services such
as savings and credit to the poor households, is necessary but not a
sufficient condition for rapid poverty reduction. Nevertheless,
microfinance can play an important role. One element of an effective
strategy for poverty reduction is to promote the productive use of poor’s
labor. This can be done by creating opportunities for wage employment,
by raising agricultural productivity among small and marginal farmers
and by increasing opportunities for self- employment. Microfinance is
particularly relevant for increasing the productivity of self- employment
in the informal sector of the economy. In an environment where economic
growth is occurring, microfinance also has the capacity to transmit the
benefits of growth more rapidly and more equitably through the informal
sector. It is well documented that for many micro-entrepreneurs, lack of
access to financial services is a critical constraint to the establishment or
expansion of viable micro-enterprises. Microfinance may also enable
small and marginal farmers to purchase the inputs they need to increase
their productivity, as well as finance a range of activities adding value to
agricultural output and in the rural off-farm economy. Access to savings
facilities also plays a key part in enabling the poor to smooth their

44
consumption expenditures and to finance investments, which improves
productivity in agriculture and other economic activities.” It is mentioned
in PRSP (2004), “Micro-credit is an effective and powerful tool for rural
development, income generation, food security, human resource
development and ultimately poverty alleviation. The main constraints and
barriers that prevent the very poor benefiting from the current micro-
credit system are (i) lack of multiple income generating sources and hence
the problem in repayment of a loan, (ii) acute seasonal shortfalls in
income, (iii) group members’ screening out of perceived “higher-risk”
members, (iv) adverse households demographics and (v) a higher
incidence of ill health.
To facilitate the operation of micro- credit programs and disbursement of
public sector funds for these programs, the Government has adapted an
“Integrated policy paper” on utilization of a Revolving Loan Fund (RLF)
under micro-credit programs. Providing microcredit to the poor has
become an important antipoverty scheme in many countries. Micro-credit
helps become self-employed and reduces poverty. But microcredit
programs are just one of many ways of reducing poverty.” Microcredit to
agriculture especially for landless, marginal and small farmers is now
burning issue.

Poverty and Economic Indicators:

The most important objective of MC programs is to alleviate poverty.
Therefore, the essential element of impact assessment studies (IAS) of
microcredit consists of an analysis of changes in the situation of poverty.
Recent research on poverty emphasizes that poverty is a multi-
dimensional concept. Therefore, to estimate poverty a number of other
indices are being proposed. These are:

45
Poverty Related Indicators
a) Food security
b) Adequacy of clothing
c) Condition of housing
d) Self assessment
e) Incidence of crisis
Economic Indicators
a) Employment
b) Income
c) Savings and/ or investment
d) Assets ownership

Social, health and demographic indicators:

a) Literacy
b) Child-women ratio
c) Chronic illness
d) Type of health care services used
e) Whether uses family planning
f) Type of toilet used
g) Source of water for dinking and other

46
h) Prevalence of dowry
i) Provision of free labor services
3. Women’s Empowerment

To identify the impact of MC on women’s empowerment, the

following indicators are
commonly used.

a) Control over loan use

b) Involvement in income generation activity
c) Divorce and dowry
d) Control over household decisions
e) Mobility

Different Types of Loans and Other Financial Products through

microcredit:

i) Different Types of Loans:

General Loan: The main thrust of the urban credit program of Shakti
Foundation is focused on the general loan scheme. Microcredit ranging
from Taka 5,000 to Taka 16,000 is called General Loan. General loan is
given for financing of income generating activities (IGA) by project
members. A member is entitled to repeat loan after the repayment of all

47
installments and earlier loan. The loan term is 50 weeks and the interest
payable is 12 percent per annum (flat rate).
Business Loan: Business loan was introduced by Shakti Foundation in
December 1995 to help members scale up their businesses. A member
after completing 2 loan cycles is able to access a business loan ranging
from Taka 1601 up to Taka 50,000. Group guarantee is a condition for all
loans. The loan term is 50 weeks and the interest payable is 15 percent per
annum (flat rate). The repayment is made in monthly installment.
 Housing Loan: Recently Shakti Foundation has introduced housing
loan for their members. Housing loan is provided only to members of
Shakti Foundation who have land in her own name or jointly owned
with their husbands or other family members. The amount of Housing
Loan ranges from Taka 70,000 to Taka 500,000. Interest rate is 14%
per year.

 Seasonal Loan: This product was introduced in 1996 in order to meet

seasonal financial requirements of the members. The loan amount
ranges from Taka 1000-5000, term is 25 weeks and the interest rate is
15% per annum. Seasonal loan helps women to inject additional
working capital in the business when demand for the commodity or
product is high. This loan is given during festivals particularly during
EID and Puja.

 Health Loan: This is an interest free loan given to all project members
and their children since 1994, so that they can meet expenses related to
the treatment of serious illness. The amount of loan and terms of
payment of the health loan is flexible and is decided upon by the

48
 members themselves in consultation with other members of their
center.

 Emergency Loan/ Durjogkalin Loan:

Emergency loan was launched in 1998.This loan is also an interest free

loan given to all project members affected by disaster, both natural and
manmade. A maximum of Taka 1,000 is given to the members as
emergency loan in order to mitigate the immediate suffering of
members caused by fire in slums, eviction and flood. The loan is used
for buying food, clothing and household assets. The term and
repayment method of the emergency loan is decided upon by the
members themselves in consultation with other members of their
center. Consumption Loan Consumption loan is given to purchase
household items and any other things that is needed to establish social
status of Shakti's members. Members who have been in the
organization for three years can get access to this loan. Consumption
Loan is given not in cash but in kind with 15% interest. The term of
this loan is maximum of 3 years. Loan amount ranges from Taka 5000
to Taka 25,000. Repayment is on monthly basis.

 Ramzan Special Loan:

 Members may borrow up to Taka one thousand to earn quick money

by selling snacks during the time of Ramzan. This is a short-term loan
with a very low interest rate.

49
Other Financial Products:

 Leasing Loan:

 This innovative product was introduced in 1999 to give equipment

support to expanding enterprises. It enables entrepreneurs to acquire
necessary working equipment through leasing and use their loans as
working capital. The lease period ranges from 50 weeks to 150 weeks.
The interest payable is 15 percent per annum.

 Life Insurance:

 This financial product was introduced in January 1999. Upon the death
of any member, her nominee receives up to Taka 5000.
 Savings Schemes: Shakti Foundation offers a number of savings
schemes to its members. The small weekly savings deposits over time
and create a resource base which poor members can use as social
security or old age insurance.
 Savings: Personal Savings (NijerTohobil): Members save Taka 20
every week at the center meetings. Members can withdraw their entire
savings with interest when they decide to leave the organization.
 Business Saving: All members save at the rate of 5 % of their total
loan amount at the time of receiving General and Business Loan. The
fund promotes financial security among the peer groups. Members can
take back their savings (with interest) in the group fund when they
decide to leave the organization.

50
 Health Loan Fund: One fourth of the centre savings and donors grant
comprise the health loan fund. This fund acts as a revolving loan fund
for the health loan.
.
Contribution of micro-credit in the Economy:

In view of present economic development effort in Bangladesh the micro

credit sector plays an important role. These are reflected in the following
performance /activities of this sector: million clients in the country with
total outstanding loans of BDT 278 billion (USD 3.6 billion) and total
deposits of BDT 113 billion (USD 1.4 billion).
 During the Fourth Five year plan, a total of 0.35 million jobs were
created against the
target of 0.4 million.
 Contribution of micro credit sector to GDP remained above 4.5%
during the period from 2009-10 to 2011-2012 despite decline in the
amount of advances to this sector.
 Micro-credit sector employs 35% of the total labour force. As a result,
this sector is
the present available sector for creation jobs.
 Micro-credit sector help alleviate poverty, increase income level of
rural people and
promote agro-industrial linkage in Bangladesh.
 Microcredit sector requires lower energy supply, lower infrastructure
facilities

51
 They contribute towards better utilization of local ‘resources and skills.
From the above discussion, we can say that micro-credit is playing an
important role in our
economy in various ways.
Current Status of micro-credit in Bangladesh:

The micro finance along with micro-credit worldwide is recognized as

engines of economic growth. The commonly perceived merits often
emphasized for their promotion especially in the developing countries like
Bangladesh include their relatively high labor intensity, dependence on
indigenous skills and technology, contributions to entrepreneurship
development and innovativeness and growth of industrial linkages.
 During the Fourth Five year plan, a total of 0.35 million jobs were
created against the
target of 0.4 million.
 Contribution of micro credit sector to GDP remained above 4.5%
during the period
from 2015-16 to 2016-2017 despite decline in the amount of advances to
this sector.
 Micro-credit sector employs 35% of the total labour force. As a result,
this sector is the present available sector for creation jobs.
 Micro-credit sector help alleviate poverty, increase income level of
rural people and promote agro-industrial linkage in Bangladesh.
 Microcredit sector requires lower energy supply, lower infrastructure
facilities and

52
this sector imposes less environmental risk.
 They contribute towards better utilization of local ‘resources and skills
that might
otherwise remain unutilized.
From the above discussion, we can say that micro-credit is playing an
important role in our
economy in various ways.

Economic impacts of Microcredit :

Impacts of Microcredit Micro credit has a very important role to play in

development according to proponents of microcredit. UNCDF (2004)
states that studies have shown that microcredit plays three key roles in
development.

 To helps very poor households meet basic needs and protects against
risks,
 It is associated with improvements in household economic welfare,
 It helps to empower women by supporting women’s economic
participation and so promotes gender equity.
 Income: The 1998 survey found the average annual income of
participant households to be higher than that of the non-participants.
Self-employment activities had more than 50% contribution to total
income for the participants as against 43 percent in case of non-
participants. Compared to non-participants the participant households

53
 were better able to cope with flood, sustain their income, achieve
higher purchasing power and consumption level.
 Food Security: The BIDS study finds the program participants, due to
greater access to sharecropping, had better food security and about 26
percent of rice consumption out of own production.
 Wage: Wage earning contributed about 23 percent of total annual
income for the land-poor households. Microcredit helped participant
households to earn about 8 percent higher income than that of the non-
participants.
 Employment: The participant households are better able to ensure
more employment on own farms due to their better access to the land
rental market. Wage and self-employment in non-agricultural sector is
also higher for the participant households due to their access to
microcredit program.

Social and other development impacts of Microcredit:

 Sanitation and Drinking water: The BIDS study finds small positive
influence of participation on waste disposal and use of sanitary toilets
among the land-poor households with no clear evidence of program
impact on handwashing. The use of pure drinking water from hand
tumble well was found universal.
 Literacy and school enrollment of children: Adult literacy rate is
significantly higher among the eligible participants. The BIDS study
also found that program participation increases the chance of both
boys and girls to be enrolled in schools.
 Empowering women: Microcredit programs' main target is women.
There are strong evidences that, microcredit programs contribute to

54
women's empowerment. One consistent finding is the increased self-
confidence and increased self-esteem. Another is women's increased
in decision making in the areas of family planning, children's
marriage, buying and selling of properties and sending daughters to
school.

55
Chapter#05
Some Successful Story of Microcredit
Perspective of Economic Development Bangladesh.

56
Prospects of Microcredit in Bangladesh:

In present years micro-finance has become a potential sources of

innovations and experiments, from leveraging the vast popular mobile
banking sector, by which mobile phones are used to receive and send
money, for the objectives of micro-finance; to the introduction of new
loan products converted to local contexts, like as harvest stock spaces,
cattle fattening loans and machinery loans, Loan systems have also
diversified, and the original model of supportive group loans pioneered
by the Grameen Bank, which have become more ambiguous and adapted
to local prospective. Currently, products such as micro-insurance and
micro-savings, which earlier took the back-seat to micro-credit, are
observing their popularity increase. The prospect of micro-finance is
complex to assume, but several estimates recommend that 500 million to
1,5 billion people still lack enter to financial services that could strengthen
their economic position and enhance their standard of life. After ten to
twenty years 2.5 billion young people will become older, and it seems
uncertain whether the conventional working market will be able to pick
such demographic boom. The contribution of micro-finance and other
alternatives ways to foster and assist auto-entrepreneurship are likely to
remain crucial in the world market economy. Blue Orchard or Oak credit
as well as public institutions such as the European Commission, the World
Bank are the financial backers of micro-finance institution.
Microcredit has greatly contributed to the economy of a developing
country like Bangladesh. Poverty eradication, unemployment reductions,
self-employment prospects together with self confidence and belief
among poorest that they can also survive and contribute to the economy
to build a nation. Micro credit financing to a lot extent have empowered

57
women and at different villages in Bangladesh it is observed that the
women are contributing a major portion of their income in their family.
This not only increasing their social standings but a commitment to do
even better in future. Smallest scale micro financing have enhanced in self
realization and belief that one day these people can claim to have a SME
(Small and Medium Enterprises) and thus coming forward in business
supply chain position and contributing to the GDP (Gross Domestic
Product) in Bangladesh. The concept of micro credit financing is a role
model these days and proven to act as catalyst for poverty alienations
together with employment growth and development of a sector of self
employment work force who are motivated to do something.

A story of self confident youth :

Md. Rafiqul Islam was born in a poor family. The name of his village
is ChakKagoil, U.P. Sonar Rai, Upazila-Gabtali, under the district of
Bogra. Because of financial problem, he studied up to Class 8. He led
his life with hardship with his wife and two little children. So, he was
very anxious to find out the way of handsome income to maintain his
family.
At that moment, he came to know about the Integrated Poverty
Alleviation Programmes (IPAP) of BRDB. He with other 20 members
of his village formed a team named landless male on 21 August in 2004
under the IPAP with the help of Md. Kamruzzman, field assistant of
that programme. Md. Rafiqul Islam was appointed manager of that
team. Other members including Rafiqul began to save wekly 10.000
taka as deposit. In 2004 Rafiqul Islam opened a small grocer shop at
Pirgasa Bazar taking 5000/- (Tk. five Thousand) as loan from the IPAP.
He deposited savings and paid the installments of the loan from the
benefit of his business.

58
In 2005, he took loan of Tk. 8,000/- as second installment and brought
a local cow. That cow gives him 3.5 liters of milk every day. He earns
two thousand taka per month selling milk. He paid the previous loan in
due time. He accepted loan of Tk. 10,000/- in 2006. He has bought
another cow by that money. At present, he earns six thousand taka per
month from that two cows and small shop of Piragua. Under the
Integrated Poverty Alleviation Programmer to BRDB he has brought
prosperity by hard labour and devotion. He has set up tube-well and a
sanitary latrine in his house. He has got his ten years old son admitted
in to a school. Besides his own development, he is contributing to the
socio economic development of his area .MRafiqul Islam by his hard
labour and the assistance of the Integrated poverty Alleviation
programmed of BRDB has established him self a confident worker.

59
A loan that gave Previn Begum dignity:

A fair lady is selling many other educational materials along with Tiffin
among the female students at a small shop at the very south-east corner
of the renowned Gobindapur High School at the village Gobindapur.
She is very popular to her young customers. They call her "ParvinApa"
with great respect.

Parvin Begum is a married woman. She has four children. But her
husband is unemployed. He could hardly earn for his family. They were
passing their days with difficulties. Parvin Begum and her husband
Badal Mia had ability to do something but in want of they could not
engage themselves into any income generating activities for better
earnings.
At that moment she came to know the project named
'PalliProgotiProkolpa' of Palashtali Union. Parvin Begum met Mariam
Begum the field organizer of the project. Mariam Begum informed her
that the BRDB has taken a poverty alleviation project in Palashtali
Union named 'PalliProgatiProkolpa'. The landless, the small farmers
and the distressed or helpless woman are to be organized in a separate
informal groups to improve their socio-economic condition. They will
be given training for skill development. After training they will be
issued loan for income generating activities. Mariam Begum also
explained the rules and regulations of the project. Parvin Begum, being
very much inspired, formed 'GobindapurKandaparaMahila Group' at
the village GobindapurKandapra. By forming this group, Parvin Begum
began to dream to build a good fortune in her frustrated life.

60
In the year 2003, under this project, she has got Tk. 5,000/- as loan for
small trade. With this amount of money she formed a small shop at the
corner of Gobidapur High school. In her shop she kept all the
educational materials and tiffin. In the way she began to earn much. She
paid the installment of loan in due time from her good income. Again
she has taken Tk. 7,000/- in 2005 and Tk. 10,000/- in 2006 repaying the
previous loan. With this money she enriched her shop. Now a day she
keeps not only tiffin and educational materials but also various kinds of
cosmetics and necessaries for the female students.
Her husband Badal Mia had a small piece of land, which remained
unused for want of capital. But now at the inspiration of his wife, he
started to cultivate vegetables at the plot of land. After family

61
consumption, he sells the vegetables at the market. He is also helping
his wife at his leisure time at her shop.
Parvin Begum's family is now a family without hardship. She is now
leading a fine life. She is now having her two full meals a day. Her
children are now going to school regularly.
A family of daily crying and hardship is now smiling in joy and
happiness. She has got a social status and also dignity in the society.

Micro credit has changed the life of Maniq Chandra:

Manik Chandra poor, village of Aditmariupazilla of Lalmonirhat

District. his family consists of his parents, younger sister, wife, a son
and a daughter. He used to pass his days through farming and herd day
labour. But the problem raised when he settled the marriage of his
younger sister. He had to self twobighas of land out of four, which he
got by inheritance, Later he had to pledge another bigha to provide the
expenditure of the marriage. Losing the main source of income, the
cultivable land, Manik Chandra became hopeless. All the time the
thought "How will he maintain the large family? How will he make his
pledged land free/ where will he get the money?"
At that time he came to know about the "Revolving loan" of BRDB. He
was formerly a member of "KishamattChandrapoor KSS. A small
amount of credit of Aditmari UCCA was due to society. Manik Chandra
then took the initiative and made understand the other members of the
society and was able to repay the previous loan and become eligible for
the next one. In 2005. Manik Chandra along with the other members of
his society took a loan of 7000/- (Seven thousand) for the first time.
With the loan money he at first made free his pledged land. Then
following the counsel of his Upazila Rural Development Officer
(URDO) he cultivated paddy in one bigha of land and in another bigha
he produced various seasonal vegetables. One day, while visiting the
society URDO visited the vegetable plot of Manik Chandra and was

62
satisfied and advised him to preserve seeds of some vegetables rather
selling. Since then he divided his vegetable plot in small parts and
cultivated several vegetables in each plot. He used to preserve the
mature vegetables for seed production and sell the surplus in every Hat
day and earn 200/- to 300/- each day.

Instead of spending his little earning, he used to save them and repay
the loan in monthly installment . His wife helped him most in this
respect. At the end of the season Manik once again seek advice of
URDO about what to do with the seeds. URDO acquainted him with an
officer of a private seed-processing agency. Then Manik kept contact
with the officer and sold his seeds at Tk4000/-. By this time his first
loan was also repaid fully.

In the same year, Manik Chandra took 5000/- as loan for 2nd time. He
took pledge one bigha of land accumulating the loan money and the

63
money he got by selling seeds. Finding that producing vegetable seed
is more profitable than cultivating paddy, he began to produce seeds as
the demand of the agency. Then he widely cultivated bean, cucumber,
ladies finger etc. in two bighas of land. Besides he produced onion,
garlic, zinger, pepper, spinach etc. Besides producing seeds he sold
surplus vegetables as before. In every halt as before and saving the
money he repaid the loan and maintained family. One year passed in
this way 2nd time Manik Chandra got a profit of Tk. 14,000/- selling
seeds.
Manig Chandra took a loan of 10,000/- for the third time in 2006. In
this time accumulating all the money he bought a power tiller at the
advice of URDO. Now besides tilling his own land he earns some extra
money tilling other's land. He produced vegetables in two bighas of land
this year, too. Now financial solvency has returned in his family. His
position in the society has become more firm than before. And for all
these he is owe and great full to the Rural Development Officer and
Bangladesh Rural Development Board.

Firoza Begum – An inspirational community leader:

Many poor women have changed their socio-economic condition

through co-operative societies. Mrs. Firoza Begum is such a woman.
She lives at SultanpurMondol Para village of Naogaonsadarupazila.
She has three children. She lived from hand to mouth. She worked in a
rice mill. She got a little amount from the rice mill. Her husband was a
day laborer. But with their low income, they could not manage the total
expenditure of their family. Very often, they had to take meals for one
time in a day. They had only a hut for living and during the rainy season
water used to fall through their roof and their sufferings knew no
bounds.

64
In 1996, ' SultanpurMondolparaMohilaBittoheen Cooperative society'
of RLP of BRDB was established in that village. The co-operative
activity started with 27 members. Firoza Begum was elected manager
among the members. She started to save from her income in the society.
At first she received 5000/- taka as loan and invested the money in a
small business. She made profit in her business. This encouraged her to
do her duty in the society more successfully. Then she got training in
skill development and took loan from cow raring trade. This time she
got benefit by selling milk. In this way, she has become well to do. She
received Tk. 1,32,000/- in 10 steps and is still paying the loan
successfully. Now she has two cows, which have given birth. Everyday
she sells 20 liter of milk. Her hut has now changed into a brick built
house, which has 3 rooms. Now one of her sons earns through paintings.
At present her capital in the society is 8780/-. Besides she has 6 mango
and jackfruit trees, 7 ducks and 8 hens. She gets 10-12 eggs everyday
from her poultry. After family using, she sells the surplus eggs. She has
also learned about social consciousness from the society. She possesses

65
a tube-will and a sanitary latrine in her house now. She inspires other
members to use it. Now Firoza Begum is a symbol of a successful and
self-supported woman. Now she has no problem to fulfill the basic
needs of her family. She has won the poverty through the co-operative
society. Because of her honesty, integrity and dutifulness, the
SultanpurMondolparaMohilaBittoheen co-operative society has
become a ideal co-operative society. In support of others, she is still
performing the duty of the manager. She has expressed her gratitude to
the field organizer and UBCCA of Naogaonsadar. Many members of
the society are now following her.

Rasheda Begum's rise from rags to riches:

Rasheda Begum is a member of SonakatiaBittahinMahila Group. Her

husband is a carpenter. Her family consists of six members.
She has two sons and two daughters. Rasheda Begum became a member
of SonakatiaBittahinMahiladall in 2000 under a Poverty Alleviation
Program conducted by BRDB named PADABIC. She took a loan of
four thousand Taka for the first time. She added some of her money
with this amount and bought a milk cow. By selling milk she managed
to repay the loan timely. Later she took a ten thousand Taka loan and
bought another cow and a calf. Then sold milk and looked after the calf.
When the calf is grown up, she sold it on the occasion of EidulAzha. In
this way she sold three calves and brought solvency within six years.
Now Rasheda lives in a house, which is made of corrugated iron sheet
instead of a straw house in which she lived six years ago. Her children
are now admitted into a school. She has set up a sanitary latrine and a
tube well in her house. She is trained up now. She knows the rules and
regulations of health. Once, Rasheda was in want of food but now she

66
takes nutritious food with her family. At present she plays an important
role in the society as a development worker.

67
Chapter#06
Findings & Recommendation.

68
Findings

Microcredit, which has steadily grown over the past two decades, is now in a state
of transition. The Credit and Development Forum Which is tracking the sectoral
trends of microfinance in Bangladesh has identified transitions in several aspects of
the sector. These are: (a) membership in the sector is increasing by 15% while
capitalization (loans, grants, etc.) is increasing by 40% per year; (b) savings is
growing by 30% while capitalization from various sources is declining; and (c) loan
sizes in real terms are increasing by a few percentage point every year.
The sector has also surfaced some challenges. Some of these are:
A. Inadequate credit fund and growing demand of credit. How fund can be mobilize
internally to meet the growing demand ?
B. Governance and transparency. Critical questions are being asked about
governance and transparency of microfinance NGOs. How to retain and enhance the
reputation of these organizations?
C. Wider impact. Can microfinance make wider impact by bringing larger number
of the ultra-poor in the programmer, provide, quality services, lead to enterprise and
technology development, and capacity development of the NGOs?
Bangladesh has achieved scale in micro-credit in an unprecedented manner and one
of the reasons it has managed to do so relates to the relatively light touch regulations
that the industry faces. We are striving to maintain the right balance of ensuring that
microfinance institutions have the space to innovate while maintaining oversight of
poor people’s money.
We have set up the MRA to achieve this balance and we aim to strengthen its
capacity to achieve these goals. However, the MRA also needs to focus and as the
regulator of the overall financial system and as chair of the MRA board, my priority
is that the MRA focuses on regulating the large and medium MFIs first as problems
with these MFIs could impact the whole system. Yet small NGOs are also an
important part of the micro-finance scene and often they offer innovative products.
A key issue for all types of MFIs is the need to improve corporate governance. It is
essential that board members meet ‘fit and proper’ criteria and that strong and
independent boards scrutinize audited accounts and can take strategic decisions
about the MFIs.

69
Another regulatory issue which we are dealing with now relates to mobile phone
banking. We have allowed various initiatives and partnerships to take shape and we
have observed how these are playing out. Now we have developed guidelines to
ensure a level playing field for bank-led mobile phone banking which we are sure
will be a key component of achieving our financial inclusion targets. It will be
interesting to see, for example, how MFIs and banks licensed to do mobile phone
banking might begin to interact and change the landscape of financial inclusion. For
example, collecting loans repayments over the mobile phone or cooperating to
deliver bank based deposit services.
So broadly the first message I would like to leave behind today is that we remain
committed to a regulatory environment which safeguards people’s money while
Bureau. There has been a lot of talk about this for the last ten years but sadly little
concrete action. I urge the industry to get together to make this happen a s it is even
more urgent than before. The reason is that the size of the industry has grown so
much that it is important to know credit histories and we must strive to avoid over-
indebting our clients. Multiple borrowing is often beneficial for the borrowers, but
it can also be dangerous.

70
Recommendations

1. The collateral is needed to be flexible for getting fund from the govt. 2. Training
program should be expanded for every sphere of BRDB.

3. The interest rate should be reasonable for the loan borrower.

4. The Grace period of repaying credit for any project, needs a minimum time to be
in a

stable position to generate profit.

5. Micro-credit needs proper guideline for conducting their business operation.

6. Processing time for loan need to be minimized.

7. The micro-credits need to be encouraged to follow basic formal infrastructure to

conduct their business.

8. The loan seekers need to know the required information for getting loan.

9. If various notice declaration is assured against loan in proper period, the loan
recovery

will be easy.

10. For urgent certificate case solution, there should have kindly governmental order
so

that the certificate officers play an important role.

11. Effective supervision system in useful to avoided the misuse of loan.

12. Classified borrower need to provide required counseling.

13. To utilize the fund properly.

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Bibliography

Books:

The Economics of Microfinance by Jonathan Murdoch and Beatriz. Armendariz

Mainstreaming Microfinance: How Lending Began, Grew, and Came of Age in

Bolivia by Elisabeth Rhyne.

Montgomery, R., et al., (1996). “Credit for the Poor in Bangladesh”. In David
Hulme et al,(eds.) Finance against Poverty. New York: Routledge.

Woods, Geoffrey, and Iffat, A Sharif. (1997). Who Needs Credit? Poverty and
Finance in Bangladesh. Bangladesh, Dhaka : The University Press Limited

Articles:

Mortoza, Sylvia. (2000). “Microcredit : Living in Eternal Penury”. In Bangladesh

Observer, Dhaka, 15 May 2000.

Obaydullah, M. A. (2000). “Measuring the Success of Micro-credit.” In

Bangladesh Observer, Dhaka, 7 August 2000.

Proshika. (1999). Proshika’s Impact Assessment Study 1998-99. Dhaka : Proshika.

Rahman, S. M. (2000). “Microcredit in transition and Forthcoming Challenges”.

In Holiday, 15 June 2000. Dhaka.

Reyes, Alejandro. (1999). “Inside Asia’s New Bank for the Poor”. In Asiaweek,
November 19, 1999.

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Websites:

www.bangladesh-bank.org.

www.microf.org.bd

http://www.mra.gov.bd

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