The Benefits of Microcredit to Bangladesh Essay Example for Free

The Benefits of Micro credence to Bangladesh EssayBangladesh, with a population of more than 140 million, is one of the most densely populated countries in the world. Almost one-half of the total population is still living below the poverty line earning less than $1 a day. The various dimensions of the hoidenishs poverty argon manifested in terms of inequality in income distri thation (in favor of urban beas), wage differentials between the formal and informal sectors, dramatic increases in the cost of living, unemployment and home(a) migration.However, progress on a range of social indicators in Bangladesh over the last fifteen years has been striking in certain argonas, and these shit been endorsed largely to the mix of public and private service provision, including the pioneering approach of microfinance institutions (MFIs). The government of Bangladesh faces an enormous challenge in reducing its poverty. However, the government can non act alone as it cannot drop all the resources and personnel to maintain progress in poverty alleviation. The MFIs have taken a key role in poverty improvement efforts and have been providing credit to these pathetic people who lack savings and capital but want jobs in the farm and non-farm sectors. The banking sector in Bangladesh is dominated by the quaternary state- owned commercial banks, but in addition there atomic number 18 five government owned specialized banks, 30 domestic private banks, and 12 foreign banks.A few of these banks do lend extensively to rural argonas most dont even look at the rural areas of the res publica for lending money. But the curt people do not get access to formal pecuniary institutions due to the lack of physical collateral. Unlike another(prenominal) countries, Bangladesh does not a have a proper sub building of small banks operating at a topical anaesthetic level, and thus a strong structure NGO microfinance sector had been developed in Bangladesh. These MFIs have been able to reach the poor with collateral-free loans at affordable costs and can thus help the poor become self-employed. The micro-finance sector in Bangladesh is one of the worlds largest. Bangladeshi MFIs are best known for their groundbreaking, large-scale provision of microfinance services, principally tiny collateral-free loans to poor women.Microcredit programs in Bangladesh are implemented by NGOs, Grameen Bank, state-owned commercial banks, private commercial banks, and specialized programs of some ministries of Bangladesh government. In the microfinance sector total loan outstanding is around TK 200 jillion and savings TK140 billion that have been rendering among 30 poor people which help them to be self-employed that accelerates overall economic learning process of the republic. through and through the financial services of microcredit, these poor people are engaging themselves in various income-generating activities and around 30 million poor people are presently benef ited from microcredit programs.Credit services of this sector can be categorized into six broad groups1. General microcredit for small-scale self employment base activities,2. Microenterprise loans,3. Loans for ultra poor,4. inelegant loans,5. Seasonal loans, and6. Loans for disaster management.Loan amounts up to BDT 30,000 are generally considered as microcredit loans above this amount are considered as microenterprise loans.The Microcredit Regulatory Authority (MRA), established by the government in August 2006, received applications from more than 5000 private institutions (NGO-MFIs). But, around 1000 applications of them were found to be very small organizations that had fewer than 1000 borrowers or less than the USD 58,000 in outstanding loans that is generally considered as the minimum initial operating portfolio of a single branched MFI to be sustainable. However, till June 2010 the MRA had approved licenses in favor of 552 NGOs and 2910 have been rejected due to not meetin g licensing criteria, such as non-existence of operations at field, inappropriate registration as an NGO, inadequate financial information, and so on.Size and growthAccording to the size of institutions in terms of the number of borrowers served, MRA categorizes MFIs into five major types very large, large, medium, small and very small. There are wholly two very large MFIs, viz., BRAC ASA, each serving over four million borrowers. Table-2 shows year-wise number and percentage of the total number of institutions under these five categories for the last four years. Currently there are only 21 medium, 16 large and 2 very large MFIs operating in Bangladesh, in concert they constitute only 8 percent of the total. 92 percent NGO-MFIs are still either small or very small covering not more than 17 percent share of the securities industry in terms of outreach and operations.ChallengesDespite certain success in reaching the poorer groups of households, it has been estimated that certain gr oups of extreme poor households do not take part in microcredit program. Geographical coverage of microcredit operation varies, with coverage thinnest in the poorer, more remote and less populous districts of the countrys north and southwest. Considering the geographical coverage of the MFIs in Bangladesh, more than 80 percent of the MF-NGOs have less than 5 branch offices and about half of them do not have any branch office at all.In recent years, there have been some efforts in reaching these households by offering more flexible repayment schedules with a smaller loan sizes. Several studies also show that 15-30 percent of microcredit members are from non-target groups as also measured by householders land size.The success of microcredit programs depends on the following challenges1. Enhancing the Resources versus Reaching the Poor Client2. Smaller versus Larger loan sizes3. Increase in client-base versus Sustainability of MFIsAchievementsWomen authorizationWomen are given equal access to the Grameen schemes as a result they have raised their status, lessened their dependency on their husbands and improved their homes and nutritional standards of their children. 90% of women who used begging as a means of survival now have roof over their heads and can support themselves. assembly SavingsGroup Savings have proven successful as group lending. Group savings have reached 698 million taka (US $ 23 Million approx), out of which 570 million taka 9US 419 million) are saved by women. The bank requires its borrowers to save. Each borrower saves one taka (2-5 cents) each week. As of today Grameen bank has collected so much money that they can jointly buy the largest enterprise in the country. The poorest of the poor in the country are entering the coterie of the elites.Shift in the occupational patternThere has been a shift in the occupational graph from agricultural waged labor considered socially inferior to self- employed petty trader. Micro-credit has succeeded in graduating the poor from poverty level to a self sustained position.Builds Trust among PoorGrameen has put trust back into the picture. The working of the Grameen is largely through trust. It believes in the enormous potential of each and both clement being given enabling environment, even the poorest of the poor can peel off doubts and start exploring their abilities to find a life with full humanity dignity.Spurs social changeMicro credit had done what billions of dollars worth of AWACS (Air Borne Warnings and Control System) and Patriot missiles cannot, for decades the west has tried to defeat fanatical extremists militarily, this has been bloody, costly and highly unsuccessful, but quietly every day, the attraction of the militant Islam is being blunted at the ballot box and in the peoples hearts and minds, than to the economic development of the poor. Micro credit helps solve a host of intractable, long-term social ills related to poverty. In Bangladesh the use of contr aception is one of the first behaviors to change. In incident formation of groups of women to meet regularly helps in discussing new ideas and sharing information, this serves as a potent factor in manner of speaking about broad based social change, otherwise women are isolated. In Bangladesh micro-credit has led to an increase in participation of people in the mainstream economic and political process of society, and overall human development.Very low default rateThe default rate is astonishingly low compared to what Bangladesh commercial banks suffer. It is about 2% as compared to about 70% for agricultural loans and 90% for industrial loans. Yunus Says The difference lies in the psychology of the borrowers. The rich can evade the consequences of non- payment, the poor cannot. They value loan sharks so much that they are only too grateful for once aims a lifetime opportunity to improve them. Micro credit has graduated the rural poor from the informal capital market controlled by the moneylender and local elite to institutionalized banking.Positive impact on the familiesIndependent studies show that micro credit has a host of dogmatic impacts on the families that receive it. A recent world bank study by Shahid Khondkar (2003) show that micro-credit programs operating in Bangladesh over a long item of time have produced a greater impact on extreme poverty than on moderate poverty. The results of this study indicate that micro credit not only affects the welfare of participants and non-participants, but also the aggregate welfare at the village level. In fact even in disaster situations and post booking areas, it has helped rebuild economic activities and livelihoods. Hence acting as the coping mechanisms of the poor. This was successfully demonstrated during the floods in Bangladesh in 1998Problems and constraints1. How to expand the outreach of micro credit.2. Lack of funds.3. Lack of chess opening in creating financing institutions.4. Absence of legal framework for creating micro credit institutions.5. Lack of conceptual clarity6. Absence of regulatory frameworkUnited Nations replyUnited Nations General Assembly Resolution 52/194. The report of the Secretary-General on the International Year for the obliteration of Poverty (1996) and the First United Nations Decade for the Eradication of Poverty (1997-2006), recognizes that people living in poverty are innately capable of working their way out of poverty with dignity, and they demonstrate creative potential to improve their situation when an enabling environment and the right opportunities exist. Noting that in many countries of the world, micro credit programmes, by providing access to small loans to people living in poverty, have succeeded in generating productive self-employment. Freeing the people from the bondage of poverty leading to their increasing participation in the mainstream economic and political processes of the society.The UN recognizes that micro credit program mers, in addition to their role in the eradication of poverty, have also been a contributing factor to the social and human development.ConclusionStrengthening local government is one of the most desired institutional changes considered for poverty reduction. Decentralization and participation are the buzzwords.SHARE and ASA and GBUP in India, Nirdhan and SBP in Nepal, KASHF in Pakistan-All these are the leading replicas of Grameen Bank of Bangladesh. The question to be asked is why is it that the success rate of these institutions is not the same as that of its model i.e. the Grameen Bank? This needs to be looked into. The need of the hour is greater awareness and consciousness among the populace of the third world about the feasibility and the importance of the use of micro credit in their single countries.GRAMEEN BANKThe system of this bank is based on the idea that the poor have skills that are under-utilized. A group-based credit approach is applied which utilizes the peer s hove within the group to ensure the borrowers follow through and use caution in conducting their financial affairs with strict discipline, ensuring repayment eventually and allowing the borrowers to develop nigh(a) credit standing. The bank also accepts deposits, provides other services, and runs several development-oriented businesses including fabric, telephone and energy companies. Another distinctive feature of the banks credit program is that the overwhelming majority (98%) of its borrowers are women.Grameen Bank continued to expand its outreach in Bangladesh in 2009 to bring new areas and new members within its operational fold. During the year, the bank opened 23 new branches bringing the total number of branches to 2,562 that dot the length and breadth of rural Bangladesh. Banks network40 Zonal, 268 Area and 2,562 branch level officesnow encompasses 83,458 or over 99% of the countrys nearly 84,000 villages located in 479 upazilas or sub-districts in all 64 districts of Bang ladesh. A fresh batch of 300,413 people joined the Grameen family in 2009, pomposity the aggregate number to a staggering 7.97 million members.