Micro Credit in Bangladesh.
Micro credit is a small size of loans that are given to the poor for self-employment. Today Bangladesh is called the land of micro credit revolution. The poverty of the world can be rooted out through an effective micro credit program that was originated in a poor country like Bangladesh.
Micro Credit in Bangladesh
Conceptually, microcredit can be described as collateral-free small loans offered to the poor to create self-employment in income-generating activities based on group lending methodology. Microcredit can be broadly defined as a program that provides credit for self-employment and other financial.
Characteristics of Micro credit
In the micro credit system, service providers go to the doorsteps of the poor based on the principle that the people should not go to the bank rather than the bank should go to the people.
The other important features of micro credit are –
Micro credit is given with minimum paperwork. Workers have to make regular visits to the borrowers’ premises to offer advice and supervision.
- Micro credit is collateral-free. The small size of loans. All loans are to be paid back in installments on a weekly or bi-weekly basis.
-Micro credit is demand-driven. 95 percent of borrowers are poor women.
-Recovery rate is above 90 percent.
Historical Background of Micro credit
The Micro credit is not a new thing in this country. The birth and evolution of micro credit have been enumerated below –
Traditional Money Lenders –
At the early stage, people would borrow from conventional money lenders. Then the minnows of the Zemindars used to lend money to the subjects only to grasp their lands. Then the kabuliwalas were more interested in getting the interest than the capital.
Camilla Model –
The Camilla Model was developed by the Bangladesh Academy for Rural Development (BARB) in 1960 under the guardianship of principal Akter Hamid khan. This model was also based on a group approach and provided microcredit to the co-operators. It was expanded throughout the country in 1970 as the Integrated Rural Development Programme (IRDP). Under IRDP farmers were organized into two-tier cooperative groups, credits and other development inputs were mobilized through these cooperative groups.
Grameen Model –
Prof. Dr. Mohammad Yunus conducted an experiment in 1976 distributing small loans in Zobra village of Chittagong. It was expanded into a project entitled Grameen Bank Prakalpa with the financial aid of Bangladesh Bank. After the success of this project, the government declared Grameen Bank Ordinance 1983. Dr. Mohammad Yunus transformed the micro-credit practice into systematic, institutionalized, rationalized and innovative which is known to the whole world as the Grameen Model.
Besides these, different approaches of microcredit have been developed by BRAC, ASA, PROSHIKA and other NGOs. Today Bangladesh is called the Laboratory of Microcredit and the land of Microcredit Revolution. Micro Credit in Bangladesh.
Microcredit Campaign –
The first Microcredit Summit was held in Washington DC, the USA in 1997. The Microcredit Summit launched a global movement to reach 100 million of the world’s poorest families with credit for self-employment and other financial and business services by the year 2005. In that Summit prof. Yunus said. ‘We believe that poverty does not belong to the civilized human society. It belongs to museums.’ The Microcredit campaign has successfully organized three regional meetings: in October 2000 in Harare of Zimbabwe, in February 2001 in New Delhi of India, in October 2001 in Puebla of Mexico and in February 2004 in Dhaka of Bangladesh.Micro Credit in Bangladesh.
Microcredit and Poverty Alleviation –
The Secretary-General of the then UN Kofi Anan opines that eradicating poverty is perhaps the greatest global challenge. Out of 6 billion population in the world 2.8 billion live on less than two dollars income a day. Of the 1.2 billion people 50 million live in Asia and 300 million in Africa. Microcredit programs in these regions show that microcredit is a strong poverty alleviating weapon. The major objective of micro credit is to create income among poor households and thereby to alleviate poverty. Microcredit leads to an improvement in income and the increase in income lifts the poor above the poverty line. Micro Credit in Bangladesh.
Women Empowerment –
Microcredit has played a significant positive role in empowering rural Munch during the past two decades. The direct effect of a microcredit program on women’s position has been through the expansion of women‘s mobility in public spheres like the bank, Thane quasars’ hospitals, etc. Besides these, the women credit borrowers can take part in the decision-making Prism which is a strong indicator of empowerment.
When women generate and control their own income, women gain a level of power; so they can make decisions negligently and demand more respect.
Objectives of the Government –
The main objectives of the government to patronize the microcredit sector were:
a) the unbanked poor with financial service;
b) Starting easy cash flow in the rural financial market;
c) Empowering women.
Failure of the Government –
The failure of government involvement in the micro-credit activities was due to
(i) poor service delivery mechanism,
(ii) lack of adequate monitoring,
(iii) improper client selection and
(iv) low recovery rate.
Microcredit Act –
On 16 July 2006 “Microcredit Regulatory Authority Act, 2006” was enacted which came into force from 27 August 2006. Microcredit Regulatory Authority (MRA) was established under this act to bring this sector under a regulatory framework. In fact, the establishment of MRA is an endeavor of the government to create an enabling environment for sustainable growth and development of the microfinance sector in Bangladesh. Micro Credit in Bangladesh.
Microfinance in Bangladesh at a glance –
More than a thousand microfinance institutions are working in Bangladesh of which 503 institutions have been licensed by Microcredit Regulatory Authority. Microfinance institutions are offering various savings, credit and insurance services to their clients. Savings products include regular savings, voluntary savings and term savings; while the credit products include rural noncredit, urban noncredit, micro-enterprise credit, hardcore poor credit, seasonal credit, etc.
The number of beneficiaries of the sector would be around 30 million and the amount of savings and credit would be (including Grameen Bank) around US$ 1.67 billion and US$ 2.86 billion respectively. The average savings and credit per client are around US$ 22.46 and US$ 89 respectively. The amount of savings and credit of this sector is increasing by around 30% every year, However, Grameen Bank and 3 large NCO-WIS hold around 80% of the total market share. Micro Credit in Bangladesh.
Micro Credit in Bangladesh