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Title: Theoretical and Operational Aspects of Micro Credit System in Rural Area
of Bangladesh.
030413
1.Introduction:
Micro-credit was invented 35 years ago in Bangladesh by Proof Dr. Muhammad Yunus.
Now it is most important and powerful to reduce poverty in rural area actively. So we
need to know the Theoretical and Operatical aspect of Microcredit system .
2. What is Micro Created?
The word “Micro” means small and the word “Credit “ means loan, So we can
say that MicroCredit mean small loan.
The idea began when Bangladeshi economist Professor Mohammad Yunus first
demonstrated that poor people, especially poor women, could produce near-perfect
repayment rates.
According to Oxfam, micro credit consists of "very small scale financial
services, including savings, loans for emergencies, day-to-day living, and investment in
productive activities"
3. Micro Created background:
In the world many institution give microcredit, as, Associations, Bank
Guarantees, Community Banking, Cooperatives, Credit Unions, Group, Individual,
Intermediatories, Non-Governmental Organizations, Peer Pressure, Rotating Savings
and Credit Associations, Small Business, Village Banking ,Grameen Bank.
(Source : The Virtual Library on Microcredit)
No one now gets shocked if somebody uses the term "microcredit" to mean
agricultural credit, or rural credit, or cooperative credit, or consumer credit, credit from
the savings and loan associations, or from credit unions, or from money lenders.
Acording to Proof Dr. Muhammad Yunus ,Microcredit are classified into some
types. Those are:
Microcredit
Traditional informal microcredit (as, moneylender's credit, pawn shops, loans from friends and
relatives, consumer credit in informal market, etc.)
Microcredit based on traditional informal groups (as, tontin, su su, ROSCA, etc.)
Cooperative microcredit (cooperative credit, credit union, savings and loan associations,
savings banks, etc.)
Consumer microcredit.
Loans are small, but sufficient to finance the microenterprises undertaken by
borrowers: ricehusking, machine repairing, purchase of rickshaws, buying of milk
cows, goats, cloth, pottery etc. The interest rate on all loans is 16 percent. The repayment
rate on loans is currently 95 per cent due to group pressure and selfinterest, as well
as the motivation of borrowers.
Low Low
productio Income
n
Low Low
capital savings
Fig1: Vicious Circle of poverty Fig2: Effect of micro-credit
In the fig 1 we can see that low income cant change with out external help. For external
help microcredit provide for poor rural people.
6.1 GOs and NGOs
In Bangladesh microcredit provides:
GOs:Bangladesh Krishi Bank, Rajshahi Krishi Unnayon Bank, Sonali Bank, Janota
Bank, Aggroni Bank.
NGOs: Grameen Bank, BRAC, ASA etc are provide microcredit in our country.
6.2 Positives and Negatives :
Every thing has some positive and negative side.
6.2.1. Positive sides:
• It reduces the poverty in rural area.
• Microcredit programmes and institutions have generated a positive impact on
number of days of employment.
• Very small loans given without any collateral.
• Loans repayable in weekly instalments spread over a year.
• Eligibility for a subsequent loan depends upon repayment of first loan.
• Individual, self chosen, quick income generating activities which employ the
skills that borrowers already posses.
• Close supervision of credit by the group as well as the bank staff.
• Stress on credit discipline and collective borrower responsibility or peer pressure.
• Special safeguards through compulsory and voluntary savings to minimize the
risks that the poor confront.
• Transparency in all bank transactions most of which take place at centre
meetings.
• Provides credit to the poorest of the poor in rural Bangladesh without any
security
Refarence:
Web site of Grameen Bank - http://www.grameen-info.org, Date: 07/04/2005