Human Capital and Development

Final Paper
Submitted By: Syeda Raiyan Rahman
ID: 18105047
Submitted to: Dr.Rubana Ahmed

Submission Date: 6th May, 2021

 Cutting down the poverty as a policy maker through
Microfinance.
Poverty in Bangladesh has been a very critical social issue for quite a period of time similarly
like many other developing countries. In the rural areas of Bangladesh most of the population are
in the poverty line or even below the poverty line. According to the Bangladesh Bureau of
Statistics, almost 57 million people which is basically 40% are living under the poverty line and
among them 30 million people are in extreme poverty. Along with the facts that they have low
literacy rate and inadequate schooling, unemployment and underemployment are some
significant reason of poverty. Along with that slow urbanization, inadequate physical
infrastructure are also some reason of the poverty. The financial sectors in the developing
countries or low income countries often can’t reach the appropriate or sufficient service to the
poor. The poor tend to have constrained access to these financial sectors because of the
insufficiency of the physical collateral, the lumbering method to begin exchanges with formal
banks, which would debilitate those without instruction from drawing closer the banks and the
undersupply of credit in the rural areas from the urban based banking and credit management
allocations. For this reason, the people in rural area often fail to start their entrepreneurship or
fail to do something to earn their livelihood. For the ease of rural area people and helping them
with credit and helping to reducing poverty Microfinance was introduced. The idea of
microfinance is to help poor people to start their own business in the crop sector as well as in the
non-crop sector like: Trading, poultry and livestock etc. for increasing their income and better
livelihood which helps in the poverty reduction. In the Microfinance sector the poor people are
allowed to take loan with minimum repayment rate and with no such collateral. Microcredit also
helped to diversify borrowers’ economic activities, boosting incomes in the process. Household
income grew over the study period, driven by rising non-farm income. For households
diversifying into non-farm activities, income growth was almost 29 percent higher than that of
their counterparts who stuck exclusively to farming. The reduction in moderate and extreme
poverty for this group was almost 8 percent higher. Better access to credit was found to be a key
factor in promoting this shift. (Gustafson and Khandker, 2016)
In the next step of my life I want to see myself in the Microfinance sector. I want to work in one
of the NGOs of our country in the policy making team of the microfinance sector. After being an
Economics graduate I would like to contribute in the reduction of poverty of the country for a
sustainable economic growth and betterment.
When I read articles about Microfinance and Dr. Muhammad Yunus about how he started the
concept of Micro-Credit and how it worked in the reduction of the poverty. He came up with
very successful and influential ways to reduce the poverty. Not only had he come up with
schemes which would help rural area people to reduce poverty but he also made schemes to help
the women to start their own business and then pay back the loan. Which empowered women
along with helping the country in reducing the poverty.
Bangladesh is a hub of Microfinance Institution and many countries across the globe have
replicated the model to extend financial inclusion in their respective countries (Hossain and
Bayes, 2015). Bangladesh being a developing country the demand of microfinance is quite
outrageous. Over the time it became one of the most effective strength for the financial inclusion
for the people who are below the poverty line. Today, Bangladesh’s MFIs cover some 32 million
members and give out more than $7.2 billion annually (Gustafson and Khandker, 2016). In the
recent times, the demand of Microfinance in our country is extortionate as it is playing a
substantial role in reducing poverty. With the growing demand of microfinance the demand of
the policy makers are also in a favorable position. For ensuring the sustainable growth of the
microfinance analyzing the policies and working on them and changing them when needed is
very important. In the recent years because of Pandemic the demand of microfinance has
increased along with the increasing poverty rate. The Microfinance institutions are also facing
difficulties because of facing difficulties in collecting the loan repayment. For the loan recovery
and for giving loans to the people who are in need the Microfinance institutions need to work on
their policies. For recovering the pandemic situation the demand of policy makers of
microfinance would be higher. Apart from that in normal times the demand of policy makers in
quite good because of the constant change of the policies to cope up with the regular changes of
the economy.

There is a famous quote by John Ruskin, “Skill is the unified force of experience, intellect and
passion in their operation.” Without proper skills and knowledge people are incapable of doing
well and contribute in any certain sector even if they are passionate about it. For better
knowledge and flourishing my skills I want to pursue my Master's abroad and do my thesis on
the economic growth and stock market development because of microfinance and then later have
a qualitative and quantitative research on Microfinance. I also want to learn and know better
about the advocacy and the policies of microfinance which would help to recreate better policies
and take better decisions in the working sector. For doing my research more efficiently I want to
upskill myself with the advance knowledge of Linear Regression, Econometrics. Besides, system
analysis is very important because it helps to provide a solution for the system. By pursuing this
skill and knowing better about it will be easier to improve and reform any situation which will
also help to minimize mistakes and errors. Proper training course on Linear Regression Data and
Econometrics apart from the Master’s degree in higher education can help in becoming more
upskilled. Along with a master’s in economics I wish to do a second master’s on development
studies.
After pursuing my Master’s degree and coming back to the country I want to join an Ngo or any
Microfinance Institutions where I want to work as a policy maker. In the recent times there are
many Microfinance Institutions who are more likely to be commercialized for their own benefits.
Many domestic Microfinance stakeholders use the commercialization of microfinance by
exploiting the right of the poor. I want to work on the policies which will make the microfinance
beneficial for the poor people. Also, even if there is no collateral issue in the microfinance loan
but the interest or repayment loan are often quite high. The actual MFI interest rates doesn't
match with those that are asked by the unofficial moneylenders. But they still can make a
significant decrease in it losing none of the meaningful returns. MFI's can charge a highest of
27% this was declared by Bangladesh’s Microcredit Regulatory Authority (MRA) back in 2011.
Still, poverty stricken families even then cannot afford to get money borrowed at that rate. This
cap needs to be lowered even more and that will result in the increment of people in poverty
taking the full benefits of the microfinance programs. Besides, in this era Technology is a very
important part of our lives. Technological training is as substantial as monetary fund in
microfinance for the maximum utilization because except the proper knowledge of application
every aid is worthless. For instance, without the practical knowledge of technology farmers
cannot invest the fund in equipment like tractors or water pump which will help them to make
better profit. They cannot directly invest the money, without training the fund is of no use. For
the long term hold in rising income, removing poverty and increasing productivity, credit falls
short of being sufficient. The end result of diminishing returns can be reached only due to the
presence of some market saturation. The people living under the poverty line, we consider poor.
For them to fight against poverty, they need to acquire better skills, get training, and most of all,
they need to expand their non-farm works and activities through the means of better marketing
networks. This expansion will eventually be more appealing overall and that will be the poor
people's ultimate goal. Also, the inadequate technology in the use of information is also being
practiced at the microfinance institutions. Bring new software and to upgrade the financial
accounting system to internet accounting system is also very necessary. The borrowers should be
trained to use mobile banking and for efficient management and reporting the authority it is
important to bring new management software. Along with these changes in the policy, the
changes in the Microfinance institutions are also required according to me which will be
beneficial for both the Institutions and the people who tale loan. As there are many microfinance
institutions now, the smaller MFI's present in Bangladesh are getting breathed on their necks by
the notable expansion of the greater Microfinancing Institutions. This pressure might result in
either the smaller MFI's merging with the larger ones, or the smaller MFI's closing down forever.
The competition would become eventually less. It is prescribed or more like suggested by the
authors that the proper thing to be done by the MRA is create policies that somewhat protects the
smaller MFIs and pushes back the monopolization of this sector. Along with this I work with the
policy of giving loan to the women for their empowerment, which will make the women of rural
area independent and help them in economic solvency which will also help in the poverty
alleviation. By working in these policies I hope to contribute in this sector and in the reduction of
the poverty of the country.
Microfinance already plays a very efficient role in the process of alleviation of the poverty. It
aims to create a sustainable development in the poor household so they can create some wealth.
It must have a long-run impact for permanently reducing the poverty. For this constant
sustainable growth and reduction on poverty with along proper use of policies and implying them
are very important. For the income equality gap to be shorten and in the progress of the poor
there are still time in our country. Although microfinance market in Bangladesh and the
world has attained impressive progress in providing financial services to rural poor, the real
impact of microfinance is somewhat questionable. This is mainly because of methodological
issues (Bunting, 2011). This is often said because the people who gets loans from the
microfinance institutions are often self-selected by the institutions which does not give the
proper and fair chance to every poor people. By working in this sector I want to do something for
every poor people by which every one of them have a fair chance and can get a chance. In future,
if I get a chance that I would like to introduce some policies in the microfinance sector for the
transgender people. Which will help them to start their own. Chances should be given to develop
one own their own only then development of a country happens which Dr. Muhammad Yunus
also said and with the quote I would conclude my paper.
“Th direct elimination of elimination of poverty should be the objective of all development
aid. Development should be viewed as a human rights issue, not as a question of simply
increasing the gross national product (GNP).” – Muhammad Yunus
 Reference
Hasan, Mohammad & Malek, Mohammad. (2017). Microfinance Market in Bangladesh.
https://www.researchgate.net/publication/314243671_Microfinance_Market_in_Bangladesh

Chowdhury MJA, Ghosh D, Wright RE. (2005). The impact of micro-credit on poverty:
evidence from Bangladesh. Progress in Development Studies.
https://journals.sagepub.com/doi/10.1191/1464993405ps116oa
Gustafson, khandker. (2016). How microfinance has reduced poverty in Bangladesh.
https://www.ifpri.org/blog/how-microfinance-has-reduced-rural-poverty-
bangladesh#:~:text=Microcredit%20accounted%20for%20a%2010,the%20ranks%20of%20the
%20poor.&text=Microcredit%20also%20helped%20to%20diversify,boosting%20incomes%20in
%20the%20process.