MICROFINANCE AND NGOS

Microfinance in Bangladesh

Microfinance service providers (commonly known as microfinance institutions or MFIs), are a amalgam non-governmental organizations (NGOs) & government-sponsored MFIs, as well as statutory banks involved in micro-lending, and institutions which acts as intermediaries between banks and borrowers. Microcredit programs (MCP) in Bangladesh are implemented by various formal financial banking institutions, specialized GOs and (NGOs).

MFIs in Bangladesh have continually sought to make a noteworthy difference in clients' lives. This drive appears in the broader array of financial products like - savings, insurance, and specialized loans (starting from energy, education, housing to small business and ultra-poor loans).

Major MFIs of Bangladesh

As of December 2008, 402 MFIs possess a license from the Microcredit Regulatory Authority (MRA) and 4,236 MFIs have applied for a license. Among them, the two major MFIs in Bangladesh are:

Grameen Bank: The Grameen Bank provided service at the door-step of the poor based on the principle that the people should not go to the bank, bank should go to the people. Therefore, the demand for credit grew rapidly and repayment rates were good, so the project was able to secure loans for on lending from the central bank and commercial banks. In 1984, Grameen Bank became a government-regulated bank through a special government ordinance, and remains the only body regulated in this way. In March 2005, Grameen Bank was working in almost 51,000 villages. It claimed over 4.3 million members, over 95% women BRAC: Originally known as the Bangladesh Rural Advancement Committee, is a (finance-plus) NGO established in 1972. Over the past decade in particular, BRAC also developed its range of financial services to include a greater variety of savings products, and credit for small business. As of September 2005, BRAC was working in over 68,000 villages and over 4,000 urban slums in every district of Bangladesh. It claimed over 5 million members, almost entirely women,

Goal of Microfinance Institutions

Poverty Alleviation

Poverty alleviation/ reduction is an ultimate goal of most MFIs, with either direct or indirect links to immediate objectives. Objectives are in turn determined by the organizations ideological outlook, of how it perceives the relationship between poverty alleviation and access to credit. The ease with which a poverty-focused intervention can be carried out and the efficacy and/or efficiency with which it can be monitored and evaluated, are important factors.

Micro finance and role of NGOs

Micro finance has emerged as an economic development approach to benefit low income people in both rural and urban areas. Bangladesh, for a matter of fact has one of the longest histories with microfinance.

While MFIs included the market-oriented private sector and the public sector, it also envisaged an expanded role for civil society organizations and their most visible representatives, the NGOs.
One of the areas in which NGOs stood out from other institutions that provided credit, namely savings banks (including national and postal savings schemes), credit unions and national and commercial banks, was their ability to reach poor trustworthy women. Contrary to popular perception, a significant number of the poorest Bangladeshis are micro-credit group members, though the scaling up of successful experiments targeting sustainable financial services to the extreme poor will lead to even increased participation.

Coverage and Beneficiaries of MFIs

Bangladeshi MFIs have adapted combinations of direct targeting, using an effective indicator-based means test (e.g. a combination of effective landlessness and involvement in manual labor combined with being female), and indirect targeting, through self- and peer-selection. MFIs in Bangladesh have led the way in experiments involving small amounts of credit aimed at very poor people and demonstrated that poor, vulnerable and marginalized people (including men, women and children), but especially poor women, were highly reliable borrowers and beneficiaries of the services of MFIs As of June 2008, there were approximately 24 million active microfinance borrowers and 28 million members in Bangladesh. This is indicative of how deeply rooted microfinance has become for the economy of Bangladesh. . It should be noted that a large number of poor people in Bangladesh rely on these major MFIs for their livelihood.

Helping the clients: Key Findings

Impact on alleviating poverty: The BIDS has been tracking poverty in Bangladesh for over last one decade. The BIDS surveillance reveals that poverty has been declining by 1 percent annually. The number of people living below the poverty line has now come down to 47 from the previous level of 80 in the early 1980s. While microfinance is not the only factor that has contributed to this achievement, it is recognized to have played a major role. Impact on womens empowerment & gender equity: Experience and evidences indicate that microfinance has created quite a positive impact on the economic condition of the borrowers and status of women in their households and local community. Removing gender inequity and empowering of the women has been a cherished goal of the NGOs and many other development organizations in Bangladesh. Results of one study suggest that microfinances largest impact has been on the set of indicators relating to female control over assets and knowledge of social issues relating to dowry, family and inheritance laws, family planning, and education of their children etc.

Key Challenges

Lack of sustainability Inadequate credit fund and growing demand of credit Risks of bankruptcy Overlapping loan problems Lack of long term impacts on poverty alleviation Government and Transparency

Recommendations

Finding out an alternative internal source of funding for greater sustainability.

Nationalization Bank can be seen as visionary and revolutionary alternative however, it is inaccessible by poor whereas MFIs are easily reaching grass root level using their wide network.
Inclusion of small farmers and linking Microfinance with modern technology for improving the farmers productivity as well as economic solvency. Microfinance will always differ from national and commercial bank ventures in one respectthe loans go almost entirely to women. Even if microfinance does not create instant poverty reduction, it can create profound social and gender equality .

Recommendations

Modern production technology and enterprise development can increase productivity and ensure better returns out of the credit investment. Technological development is expensive, but it will ensure sustainability of microfinance interventions. With combined efforts from the Government, MFIs, Donor agencies and greater participation of the people through a multi sectorial approach poverty can be reduced by a large extent and thus welfare in its true sense will be restored in the society.