Poverty Alleviation in Bangladesh through Micro Finance: An Analytical View from the Perspective of Its Problems and Prospect

Amir Mohammad Nasrullah Assistant Professor Department of Public Administration, University of Chittagong, Chittagong-4331, Bangladesh And Surajit Sarbabiddya Assistant Professor Department of Business Administration Southern University Bangladesh Contact E-mail: nasrullahctg@yahoo.com

Abstract Having a good financial support is considered as the greatest strength almost in every affair of todays materialistic world. In other words, finance is the most valuable resource for the smooth living standard of an individual and development of a country as a whole. Micro-finance is such an innovative financial weapon that incorporates both credit and savings in the same package in order to improve the well being of poor people of developing countries. This is such an important tool of modern societal development program that assists in alleviating poverty through the creation of income and jobs for the poor people, which automatically accelerates the speed of the wheels of economic development and promotes overall development of a nation by integrating the poor into the economic circuit. In Bangladesh, many Non Government Organizations (NGOs) in particular Grameen Bank, BRAC, etc., have been implementing micro-finance program towards poverty alleviation successfully from the last couple of years. The direct impact of their significant performance is found in the growing levels of health care, nutrition and education expenditures, better income and above all true empowerment of poor people by increasing their confidence, independence and willingness capability to take decisions. The main objective of this study is to explore how micro-finance is used in poverty alleviation of Bangladesh. The detailed objectives of the study are to assess the role of micro-finance in poverty alleviation, highlight and evaluate the contributions of NGOs in implementing micro-finance program towards poverty alleviation, identify the problems in implementing the micro-finance program towards poverty alleviation and explore the prospect of the program towards poverty alleviation in the form of findings and recommendations.

Introduction It is widely recognized that finance is the lifeblood of any development program. It is thus considered as the most valuable resource for the smooth living standard of an individual and development of a country as a whole. But most of the developing countries of the third world like Bangladesh are severely trapped with acute poverty. In this part of the world poverty is considered as a multifaceted problem. This is the reason; alleviation of poverty is given the top most priority in the national development plans and a range of programs are also being implemented on a continuous basis. Micro finance is such an innovative financial program that incorporates both credit and savings in the same package in order to improve the well being of poor people of a country. As a result micro finance programs and institutions have become an increasingly important component of strategies to create employment, reduce poverty or promote micro and small enterprises development. (Berger, 1989, Hulme, 1999, See Poverty and Micro Finance Program: ASA Experience) So it is expected that the world, which has committed itself to reduce number of poor people by half by 2015, will find micro credit a powerful tool in its toolbox. (Muhammad Yunus, 2001, See Poverty and Micro Finance Program: ASA Experience) Bangladesh in this regard is a pioneer country that initiated micro finance program for poverty alleviation purpose. Presently various types of institutions like NGOs, specialized institutions, scheduled banks and some administrative ministries or divisions are implementing the micro finance programs with a view to alleviating poverty through the creation of income and jobs for the poor so that they can be integrated into the main circuit of economy of the country. Statement of the Problem In the present context of new millennium many developing countries of the world now view micro-finance as an important tool to their economic development due to its multifarious advantages. Bangladesh, too, being a poor country of the third world is going through a good number of problems like high rate of illiteracy and as a result unskilled or under skilled population that make them bound to be poor. Moreover, the micro-finance program that has been initiated to ensure their welfare is also coping with some serious problems such as the credit that the women get under this program is often taken by their husbands, parents under pressure to repay a loan withdraw their child from school to work for wages, etc. In such a situation, an effective administration of micro-finance program can be a feasible solution to ease the prevailing problems and contribute to the countrys poverty alleviation as a whole. The present paper, thus, aims at highlighting the efforts of NGOs of Bangladesh in implementing micro-finance program towards alleviating poverty in order to meet the prospect challenges. Objectives of the Study Keeping the income poverty relationship into consideration the present study highlights the following objectives: a) To know the role of micro-finance programs in poverty alleviation b) To highlight and evaluate the contributions of NGOs in implementing the micro-finance programs c) To identify the problems and explore the prospects of the micro-finance programs d) To draw the findings and place some recommendations.

Sampling Design Since the present study concentrates on the implementation of microfinance program towards poverty alleviation in Bangladesh, altogether 100 individual respondents have been chosen from rural areas that are somehow concerned with the micro-finance usage in improving their financial and employment opportunities. Oh them 41 were male and 59 were female respondents. Methodology of the Study This study is the product of data collection from both the primary and secondary sources. Primary data have been collected through a recent survey on 100 sample respondents on the basis of random sampling and also by a set of questionnaire and through direct interview. Later on an in depth analysis on problems and prospects of micro-finance program towards poverty alleviation in Bangladesh has been conducted based on their opinions. To collect the secondary data different books, journals, magazines and web sites relevant to the issue have been studied and browsed to reveal the fact. Key Concepts Defined Since the study mainly concentrates on the four correlated terms namely the poor, poverty, poverty alleviation and micro finance, they have been defined here under with the purpose of a clear understanding of the subject matter. Poor There is currently a worldwide debate on poverty yardsticks to identify the poor. Generally a poor is a person who is unable to enjoy a minimum standard of living. In other words one, whose income or consumption is below a certain minimum level of buying the basic necessities of life, can be termed as a poor. This level is usually called the poverty line, which can vary in time, according to the geographical context, social norms and values. According to the World Bank the poor are those who have a level of consumption of at least $2 per day and the poorest are those who have a level of consumption of at least $1 (World Bank, 2002). According to the Micro Credit Summit, the poorest are those people belonging to the bottom fifty per cent of the group of people living below a country's nationally defined poverty line. The latest Bangladesh Governments estimate is that about 45 percent of the population, or some 12.2 million families are poor, of a population total of 130.2 million with 27.1 million families, using an average of 4.8 persons as per family (BBS, August 2001). In the context of Bangladesh, being poor means being unable to afford basic dietary requirement of 2,122 calories per day. More than half of the rural poor consume less than 1,805 calories per day. They are referred to as hard-core poor; they belong to primary wage labor households and have little or no cultivated land (less than 0.2 hectares).

The poor is categorized in terms of three distinct groups on the basis of APT data of 1994 in Bangladesh. These are as follows: Tomorrows Poor: This group is mostly marginal peasants owning up to 1.5 decimals of land and an annual income of taka 8368. They comprised 21 percent of the total rural population. The Moderate Poor: This group more or less corresponds with the upper poverty line of BBS. It made up 29.2 percent of villagers. The Extreme Poor: It corresponds to the lower poverty line of BBS. This category made up 22.7 percent of rural people. Poverty Poverty is an economic condition in which one does not have sufficient earnings or money to buy the basic necessities of life. More specifically by the term poverty a situation is connoted when minimum requirement of basic needs like food, shelter, fuel, and clothing etc. remains unfulfilled. (Bangladesh Economic Review, 2003) The World Bank Report (1990) defines poverty as the inability to attain a minimal standard of living. Household income and expenditures per capita are adequate yardsticks for the standard of living as long as they include own production, which is very important for most of the poor. Due to the difficulties in defining poverty, different methods of poverty measurement have been used. The most common approach is based on income or consumption levels. Nevertheless, poverty has other dimensions besides income or consumption. It is necessary to include nonincome poverty dimensions like education, health, and access to infrastructure, vulnerability, social exclusion and excess to social capital. Poverty Alleviation Poverty Alleviation is a cardinal goal of all economic development activities pursued by the Government of a country. Such goal aims at eliminating malnutrition, ill health, poor housing conditions and illiteracy from the suffering nation. Micro-finance To most, micro-finance means providing very poor families with very small loans (micro credit) to help them engage in productive activities or grow their tiny businesses. Over time, micro-finance has come to include a broader range of services (credit, savings, insurance, etc.) as we have come to realize that the poor and the very poor that lack access to traditional formal financial institutions require a variety of financial products. The term micro-finance refers to small loans and savings facilities provided by the specialized institutions to those who are excluded from commercial financial services for the purpose of reducing poverty. It is an economic opportunity for those who work in stable or growing economics and are in a position to capitalize on that opportunity with entrepreneurial ability if they are provided with a small amount of ready cash.

ADB defines micro-finance as the provision of a broad range of financial services such as deposits, loans, payment services, money transfers, and insurance to the poor and low-income households and their micro enterprises. (Stephanie and Rahman, 2002) NGOs and Poverty Alleviation in Bangladesh Non-Governmental Organizations (NGOs) have emerged as an integral part of the institutional structure for addressing economic development in the third world countries. But poverty often acts as a great barrier behind such development initiatives. This is the reason due to which poor countries like Bangladesh needs poverty alleviation program and its implementation for the longterm sustainable development. In respect of poverty alleviation, principal instruments of NGO programs involve micro finance, which offers opportunities like self-employment and income generating ways. According to CDF statistics up to June, 2002 a total of 681 NGOs have been operating micro finance programs in which the total numbers of beneficiaries are 1.27 crore with male and female 0.18 crore and 1.09 crore respectively. During the period the cumulative disbursement among members was Tk. 18733.92 crore and the rate of recovery was 97.17 percent, while the total net savings at the same time was Tk. 1197.80 crore. Of the total disbursement 41.79 percent was invested in small, business, 17.64 percent in livestock, 12.31 percent in agriculture and 7.39 percent in fisheries. The table 1 shows micro credit disbursement program of three major NGOs in Bangladesh up to June 2002.
Table 1: Micro credit disbursement program of three major NGOs up to June, 2002 in Bangladesh

Name of the NGOs BRAC Proshika ASA

Member up to June, 2002(thousand) 3505 2636 1981

% Of Cumulative Total disbursement (in Crore) 27.03 7759.38 20.33 2061.19 15.28 4370.42

% Of Savings Total (in (In Crore) Crore) 41.41 461.46 11.00 164 23.33 201.01

% Of Total (in Crore) 38.53 13.69 16.78

Source: CDF Statistics, Volume 14, 2002. * Thangamara Mohila Sabuj Sangha (TMSS)

Bangladesh Rural Advancement Committee (BRAC) Bangladesh Rural Advancement Committee (BRAC) is a Bangladeshi non-governmental organization, which was born in 1972 as a response to a humanitarian need. More details are found in Chen, 1983, Lovell, 1992, Chowdhury and Cash, 1996. It is now one of the largest NGOs in this country with nearly 50000 full and part time staffs (BRAC, December 1995). With the twin objectives of poverty alleviation and empowerment of the poor BRAC works particularly with the women from poorer families whose lives are dominated by extreme poverty, illiteracy, diseases, and malnutrition. (BRACs Mission Statement, 1994) Under the credit and savings oriented micro finance program for poverty alleviation BRAC has done an excellent job in transferring the lives of the poor in rural Bangladesh. With the BRACs micro finance support the lives of the participants have been changed in terms of improved material well being, moreover, their education levels health and nutritional statuses have been improved and the women have gained an improved status within their own families and in the 5

society they live in. Studies show that women and men participating in BRAC sponsored activities have more income, both in terms of amount and source, more assets ownership and are more often employed than non participants (Chowdhury, Mahmud and Abed, 1991). Further more the available evidence suggests that BRAC members have better coping capabilities than nonmembers and that such capacities increased with the length of membership and amount of credit received (the so called credit mass of BRAC membership) (Mustafa et.al. 1996) Under savings the members participates in compulsory savings of at least Tk. 5 per week. Savings are considered (by BRAC and group members) as security for old age. In case of taking loans the members must deposit 5% of the loan amount into their savings account and members are allowed to withdraw 50% of their net savings at any time of the year. By the end of 2002 the total savings stood at Tk. 498 crore. In order to initiate income generating activities credit ranges from Tk. 1000 to Tk. 20000 with 15% service charge is provided to BRAC members under equal weekly installment based on repayment mechanism. Table3 exhibits the status of micro finance programs of BRAC with other major NGOs. Association for Social Advancement (ASA) Association for Social Advancement (ASA) started as a development NGO in the early 1978 now specializes from 1992 in micro finance programs and is committed to empowering landless and disadvantaged poor villages especially women in both urban and rural areas through promoting income generating activities. ASA is basically a two tier organization that monitors its branches all over the Bangladesh from its central office located in Dhaka through two mid level field supervisory positions. Up to Septembers 2002 ASA has covered 466 thanas under 64 districts of Bangladesh, the number of branches is now 1148 and the total number of group members has risen to 2.09 million from 1.58 million in December 2001. (ASA Updates, 2002) ASAs micro finance model attracts the poorest by its special product design means allowing them initially only flexible savings facilities and withdrawal. ADSA has been able to promote savings among their members encouraging a small weekly savings deposit of Tk. 15 to Tk. 30. Now-a-days the members of ASA are no longer indebted to outside moneylenders who share exorbitant rates of interest. Moreover lower credit ceiling exists in ASA and avoiding compulsory repayment from other members. As a result even in an emergency they are able to withdraw their savings from ASA or receive informal help from other members. In some cases ASA also introduces non-group concept for the poorest members wherever it feels obligatory. The present sources of ASAs Micro finance fuel are its own funds, members savings loans and grants from donors and other contributions. Table2 exhibits the status of micro finance programs of ASA with other major NGOs. Proshika Proshika is another largest national non-governmental development organizations in Bangladesh. Since its inception in 1976 it has been carrying out a range of development activities through the empowerment of the poor. With an innovated process of group formation and both formal and informal training among landless laborers, peasants, rural workers of different trades and women from the households of these socio economic groups proshika has instituted a system of

Revolving Loan Funds. The funds will provide needed initial invested with necessary technical support to those groups deemed ready to undertake employment and income generating projects. Table 2 exhibits the status of micro finance programs of Proshika with other major NGOs.
Table 2: Status of Micro-Finance Programs of three major NGOs in Bangladesh Cumulative Disbursement In Crore Taka (Up to Rate of Recovery % 2002) No Of Villages

Name of the NGOs

Recovery

No Of Beneficiaries

Female

Male

BRAC Proshika ASA

8661.02 2259.45 5936.16

7743.67 2037.85 5010.98

99.27 93 99.96

64212 25275 32344

3531513 2902423 2136158

3516338 1760819 2055621

14675 1141613 80537

Source: Concerned NGOs

Grameen Bank (GB) and Micro-finance program and Poverty Alleviation program Being started as an experimented project in rural Chittagong in 1976 Grameen Bank, a pioneer institution of micro finance was established in 1983 by an ordinance. The project was initiated by Muhammad Yunus, a professor at the University of Chittagong, to provide affordable credit to the poor as a means of combating poverty in rural Bangladesh. To ensure successful micro-finance program Grameen Bank provides collateral free credit facilities in cash or in kind to landless persons for various types of income generating and livelihood activities. To give a success to the program GB also provided professional counsel to landless persons regarding investment in small business and cottage industries, and carries out survey and research. GBs credit delivery mechanism and the mode of repayment of the loans has become a model in poverty alleviation efforts in Bangladesh, other developing countries and in some developed countries such as the USA, Canada, Germany and France etc. GB offers credit facilities for the broad activities like processing and manufacturing, agriculture and forestry, service sector enterprises, trading, shop keeping etc. It also provides leasing loan services under which it introduced village phone to provide easy telecommunication services to the rural poor in Bangladesh. GB accumulates savings of its members in the form of direct deposits in savings accounts as well as through mandatory deductions from the loans sanctioned to create group funds. Then from such accounts and funds GB sanctions loans to individuals and groups for their projects as wells as for social and household expenditures, health and medical expenses, loan repayment, maintenances, repairing and addition of capital. According to Bangladesh Economic Review 2003 an amount of Tk. 18020.93 crore has been disbursed as credit by June 2003 to about 27.87 Lakh members in 390 Upazillas of 64 districts in the country. GB members had saved more than Tk 843.84 crore in their savings accounts. A total of Tk 778.97 crore for housing loan has been disbursed up to June 2003. With these housing loans GB borrowers have built 569690 houses.

Key Findings This study found that the implementation of micro finance program towards poverty alleviation in Bangladesh already gained a commendable success. But its implementation is also not completely out of some shortcomings or drawbacks. The following section enlists the survey results regarding some problems and prospects of micro finance usages towards poverty alleviation in Bangladesh. Problems To utilize Micro-Finance (MF) in employment and Income Generation Activities (EIGAs) such as promotion and distribution of produced crops, the country needs a well-trained and skilled population. But untrained, illiterate and unskilled mass is a great barrier behind the effective usage of such micro credit. It has been found in the study that the credit amount that is obtained by the women often forcefully taken away by the husband or other dominated members of the family. It is mainly due to the poor decision-making power and status of the women in the family and the society. The study discovered a number of poor families, which took credit from the NGOs for selfemployment, and IGAs have spent the amount for other purposes. As a result they have withdrawn their children from school and sent them to work for wages so that the earned amount can be used in repaying the loan. This effort ultimately does not bring any productive usage of micro finance. The families or young rural people that take credit often cannot utilize the amount properly due to their lack of proper knowledge regarding business planning, market analysis, accounting or bookkeeping. Though the credit facilities under micro finance program have become available their utilization often becomes a dream due to the lack of timely and appropriate market information provider institutions. The credit is often offered to the poorest class of the society, which though produces the product with this fund, it finally relies on intermediary for the disbursement and selling to the ultimate user. As a result a greater portion of the profit goes to the intermediaries and the poorest class or producer lacks profitability. To be successful in any business or employment effort public relation is a must. But restriction on womens mobility and other conservative social outlook of this society hinder the success of micro finance based enterprises. Prospects From the current trend of micro finance usage it is expected that it will be very good alternative to formal bank loan. Since micro finance is a collateral free credit, it encourages many people to take loan under this program. This in turns leads to more employment, which respectively results in more income, savings, investment, asset and therefore more production.

The proper implementation of micro finance programs enhances reduced indebtedness and economic well being of the members in the long run. From the study on 100 sample respondents who have taken loans from BRAC, GB, ASA, Proshika, it has been found that most of them have improved their financial condition and become self reliant by setting up their own poultry or dairy firm and by purchasing cultivable land. They also have created employment opportunities for the other people in the society. The following table 3 depicts the improvement trend of employment condition of the 100 respondents after their micro finance usage.
Table 3: Change in employment status after Micro-Finance usage

Micro finance Usage Before After

Employed Agriculture/Farming 39 62 Business 3 13 Job 9 16

Unemployed

Total

49 9

100 100

Source: Authors

It has been discovered from the study that the micro finance based credit facility is mainly used either in farming or manufacturing industry. But the supply source and intermediary transportation from the production plant/farms to consumers also offer new business and thereby employment opportunities for a large mass. Micro-finance program has a very good prospect in these phases. For example one can utilize micro fianc in chicken feed and supply business and or transportation of chicken/hens from poultry farm to the market. Prospects in social activities From the study on the sample respondents it is evident that the utilization of micro finance has brought a positive change in the macro level of the society. It is found that the last couple of years, which helped them to avoid, better health care, latrines, good family planning, lower infant mortality rate, clean and good drinking water, decision-making power and a moderate social status. The families which could not avail a meal once in a day are now enjoying ruti (bread) for breakfast and two rice meals a day with the help of micro finance based employment.

Conclusion From the above detailed study on poverty alleviation in Bangladesh through Micro-Finance it can be concluded that it has brought a significant change in the overall economic and social condition of the country. But at the same time it should be borne in mind that if technical assistance in the form of small business planning, market analysis, accounting or book keeping etc. cannot be 9

ensured, traditional mentality and gender based discrimination cannot be changed and stopped, coordination and guidelines for Micro-Finance cannot be given to the user, than generous purpose of the program will altogether go in vain. References ASA Updates, up to September 2002 Bangladesh Economic Review, 2003 BRACs Mission Statement, BRAC, 1994 Bangladesh Bureau of Statistics, August 2001 CDF Statistics up to June 2002 Chowdhury, AMR, Mahmud, M and Abed, F H, 1991, Impact of credit for the rural poor: the case of RBAC small enterprise development, BRAC Website GOB, 2002, Bangladesh: A National Strategy for Economic Growth and Poverty Reduction, Dhaka, Ministry of Finance Hashemi, S. M. and Morshed, L. Grameen Bank: A Case Study in Georgy D. Wood and Iffath A Sharif edited, Who Needs Credit? Poverty and Finance in Bangladesh, 2001, UPL, Dhaka Islam, S. A. Overcoming Poverty in Bangladesh: Search for s new paradigm, Bangladesh ejournal of sociology, Vol 1, No 2, July, 2004, Internet Lovell, C. H. Breaking the Cycle of Poverty, The BRAC Strategy, 1992, UPL, Dhaka Mujeri, MK, 1995, Poverty Alleviation Strategies in Bangladesh: An Overview, in Poverty focused Rural Development edited by Md. Abdul Quddus, Comilla, BARD Mustafa, S. A. et. al. 1996, Beacon of Hope: An Impact of assessment study of BRACs rural development program, Research and Evaluation Division, BRAC, Dhaka). Malony, C. 1988, Behavior and poverty in Bangladesh, UPL, Dhaka Mahmud, M. S. Poverty and Micro Finance Program-ASA Experience, 2002, found in the Internet, Rahman, H. Z. 2000, Poverty in Bangladesh: An Overview of trends and Issues, Dhaka, BIDS, mimeo Sen, B, and Rahman. A. 1999, Face of Human Poverty: South Asia Monitor, Dhaka, BIDS, mimeo

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Siddiqqui, K. 1982, Political Economy of Rural Poverty of Bangladesh, Dhaka, NILG UNDP, 2000, Overcoming Human Poverty: Poverty Report, NY, UNDP World Bank, 2000, World Development Report, NY, Oxford University Press,

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