Despite massive success in terms of outreach, employment generation and empowerment of millions of poor, a large number of low-income poor people have remained excluded from the network of the financial services. The article examines achievements of micromanage industry in Bangladesh, its present challenges and prescribes policy measures to bring more unbaked poor people in the fold of financial services. Introduction Micromanage has evolved as a potent driver of financial inclusion in Bangladesh with much positive impact on poverty alleviation and other social development indicators.
The micromanage industry in Bangladesh started its operations with purport from Bangladesh bank and donors’ grants during late sass with the objectives of delivering micro financial services among the poor people for poverty alleviation. The industry has evolved from its initial focus on credit, disbursing standardized loan products and collecting obligatory savings to the development of diversified loan, flexible savings and other micro financial products. This sector has now attained maturity and entered into dynamic phase in terms of financial inclusion, positive impacts and sustainability.
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In the micromanage sector, total loan outstanding is around TX 210 billion (USED 3. Billion) in December 2010 disbursed among 30 million poor and savings worth TX 160 billion (USED 3. 2 billion). This sector accounts for around 3 percent of GAP in 2010. The existing theoretical literature attributes the high success of micro finance programs in Bangladesh to peer group micro lending, high density of population, macroeconomic stability and liberal socio- political environment etc.
There are four main types of institutions involved in micromanage activities in Bangladesh: (a) Grahame Bank; (b) MONGO-Miffs that have received licenses from Microcircuit Regularly Authority (MR..); (c) Commercial and peccadillo banks; (d) Government sponsored micromanage programs (e. G. Through Bangladesh Rural Development Board-BIRD, cooperative societies and programs under different ministries of the Government). However, Grahame Bank and 10 large Microcircuit Institutions (Miff) represent near 90% market share of micromanage industry.
Although micro finance has positive impact on the living standard of the poor (nearly 30 million), a large portion of poor people, hardcore poor in particular are yet out of micro finance’s network. According to recent survey of Institute of Micromanage-limn (Access to Financial Services, Funded by I-J Aid, 2011), about 41% of poor H do not have access to any type of credit. Given this background, the paper will attempt to assess the present performances and challenges of micromanage programs in Bangladesh.
The objectives of the paper are two fold: first, to review present achievements and challenges of micro finance programs in Bangladesh, and second, to put forward policy options to build a strong micro finance industry capable to meet financial services of the poor people for alleviation of poverty. The rest of the paper is organized into the following ways. Review of literature is made in Section 2. Section 3 reviews the salient features of micro finance programs in Bangladesh. Section 4 analyses the achievements of micro finance programs. Section 5 analyses 6 contains policy implications and conclusions. 2.
Most studies show positive impacts on income, saving and employment of the poor, women in particular. Sustainability is vital for survival of micro finance institutions but only a few studies are undertaken to address the issue (Shakily 1991, Kankakee, Shakily and Khan, 1995; Conning, 1999 and Shakily, Imam and Khan, 2000). 3. Salient Features of Micro Finance Programs in Bangladesh ; Micromanage is a broader concept than microcircuit. The former includes microcircuit, micro savings, micro insurance, pension and other financial products provided mainly by Nags/ Miff among the low-income poor people.
However, microcircuit is the main product offered in Bangladesh. Credit services of this sector can be categorized into six broad groups: I) general microcircuit for small-scale self employment based activities, it) misinterprets loans, iii) loans for ultra poor, ‘v) agricultural loans, v) seasonal loans, and vi) loans for disaster management. Loan amounts up to BET 30,000 are generally considered as microcircuit; loans above this amount are considered as misinterprets loans. In delivery of financial services among the poor, Miff in Bangladesh address the problems of targeting, screening, monitoring and enforcement innovative. The problem of screening I. E. Distinguishing the good (creditworthy) from the bad (not creditworthy) borrowers is solved by Miff through formation of groups. Since all borrowers of a group are Jointly liable for each other’s loan and they know each other in almost all respects, a bad borrower has a little chance to enter into a group.
The problem of monitoring is also resolved through joint liability of all members of a group as well as close supervision of Miff’s staff. Borrowers under Joint liability lose right to future credit in case of a default member implying that group members monitor each other and compel debt repayments by threatening to impose social sanctions upon peers who default strategically. Though the poor have no useful physical collateral, peer pressure works as social collateral that make group members to repay loans regularly.
Now Miff conducts individual based model biz-a-biz group based model in delivery credit. Microcircuit is used mainly in off-farm income generating activities (Annexed-II). Small business accounts for the highest share (43. 02%) followed by livestock (18. 11%), agriculture (12. 23%), fisheries (4. 91 food processing (3. 78%) and cottage industries (3. 03%). ; The geographical concentration of MONGO-Miffs in Bangladesh is high in economically district has shown the highest concentration as usual where more than 60 licensed MONGO-Miffs have been operating while Zipper has the second highest concentration.
The lowest concentrations are observed in the four districts I. E. Arrears, Shirtwaist, Bandanna and Reanimating where less than 5 MONGO-Miffs licensed from MR.. Have been operating. ; According to the size of institutions in terms of the number of borrowers served, Miff are grouped into four major types: very large, large, medium and small (Annexed-III). Two of the largest Miff, biz. , BRACE & AS, are each serving over four million borrowers. Currently there are only 5 very large, 21 large, 115 medium and 341 small Miff operating in Bangladesh.
Institutional concentration ratio is highly skewed in favor of large Miff: Just 10 of the institutions are in control f 70 percent of the market share while two largest organizations have control of over 55 percent in terms of both clients and total financial portfolios. Only 5 MONGO-Miffs who are very large have 63% of total loan outstanding and client’s savings while 341 small MONGO-Miffs have only a share of 4% in loan outstanding and 5% in client’s savings. ; Although the fund composition of MONGO-Miffs is shifting, total fund has increased over time.
Previously donor driven Nags are now increasingly trying to become more dependent on local fund with the decline of foreign fund, which stood only at 2. Percent in June 2010 (Annexed-BIB). Savings from the clients (31. 15 percent) and surplus income from microcircuit operations (27. 8 percent) appeared as two major sources of fund in 2010. Funds from Pallid Karma Shaky Foundation (P.S.), Government owned Wholesale Fund and the commercial banks accounts for 16. 08 percent and 15. 11 percent ; Both loan outstanding per borrower and savings per member are increasing gradually (Annexed-VIA).
The loan outstanding per borrower has increased over the years and average growth rate of loan outstanding per borrower is around 75 percent (from TX. 4377. 11 in 2006 to TX. 558. 92 in 2010). Savings per member has also been increasing over the years. In 2006 savings per member was TX. 1,207. 34 and in 2010, it stands at TX. 2,097. 83, which is 73. 7 percent higher. ; Most of the MONGO-Miffs’ capital adequacy ratios are generally high as their repayment rate is very high, but for few of them the ratios are very low which could be a cause of concern for the sustainability of these Nags (Annexed-IV) . Average borrowing cost and financial cost ratio of top ten MONGO-Miffs are TX. 4. 46 and TX. 6. 14 which are much higher compared to average of all Miff but savings cost ratio s lower (Annexed-VA). The average savings cost ratio of 482 Miff is TX. 1. 80 and top ten Miff’ savings cost ratio is TX. 1. 68 which is much lower. The highest savings cost ratio is TX 2. 86 for CARACAS Bangladesh but its borrowing cost ratio is zero which indicates that CARACAS does not have any commercial borrowings; all of their funds are grant received from donor.
The cost structure of BRACE and BURRO Bangladesh are much higher compared to average cost scenarios of the top ten as well as cost scenarios of all Miff. ; Top ten Miff have higher portfolio yield, interest rate parade, return on assets and operational self-sufficiency, which indicates that these top MONGO-Miffs have better financial performance (Annexed-VI). The average portfolio yield of 482 Nags is 22. 71 percent whereas average portfolio yield of top ten Nags is 25. 02 percent which is higher as they are bigger Miff ; A total of 62 (12. Percent) MONGO-Miffs have negative net surplus (MR.., 2010). There are different (it) Low repayment rate (iii) Low service charge realization (iv) High loan loss provision (ALP) (v) High depreciation charge and (v’) Poor fund management. ; Microcircuit Regulatory Authority (MR..) is the watchdog of micromanage industry in Bangladesh established by the Government of the Peoples’ Republic of Bangladesh under the “Microcircuit Regulatory Authority Act -2006” to promote and foster sustainable development of micromanage sector through creating an enabling environment for MONGO-Miffs in Bangladesh.
As the statutory body, MR.. Monitors and supervises micromanage operations of MONGO-Miffs. License from the Authority is mandatory to carry out micromanage operations in Bangladesh. The number of MONGO-Miffs licensed from MR.. Stood at 610 as on February 2012. 4. Achievements There is a close nexus between finance and growth as many seminal imperial works reveal (Levine, Rose, 1997). Providing easy access to financial services among poor by Miff and other institutions brings myriads benefit in Bangladesh, the birthplace of modern micromanage of the world.
The assessment of key impact studies also show positive impact of micro finance on the lives of the poor people. (Annexed-IA & B). 4. 1 Potent Driver of Financial Inclusion for the Poor: In Bangladesh, Miff are the most powerful diver of financial inclusion that leads to greater asset accumulation by the or, their ability to smooth consumption and cope with external shocks. The Bangladesh Household Income and Expenditure Survey, 2010 reveals that Miff including Grahame Bank are the dominant sources of loans for the poor (72. 38%).
Now about 30 million poor, more than half of the poor are in the financial folds of Miff. No other institution either public or private has been as successful as Miff to reach the poor with finance that help them promote income, employment and alleviate poverty. The amount of micromanage disbursed by Miff is increasing fast with high recovery rate (more than 90%) in Bangladesh. Not only that the amount of annual microcircuit (around BET 250 billion) disbursed by MONGO-Miffs has already outpaced the amount of annual agricultural credit (BET 120 billion) by state owned and private banks.
Obviously, micro credit has evolved the most powerful tool of financial inclusion in rural areas where more than 70% people live. Obviously, Miff have emerged as the most strong part of rural finance creating momentum toward broadening and deepening of rural financial markets. 4. 2 Micro credit for Poverty Alleviation via Promotion of Self-Employment: Miff have proved that micro borrowers are creditworthy who pay regularly with recovery rate more than 90 percent.
In a fact, the key success of micromanage lies in addressing lack of finance faced by the poor in generation of self-employment for poverty alleviation. Micromanage provides small funds for income generating activities and thus it creates self-employment, promotes income and helps the poor to get rid out of the poverty trap. Micromanage also makes consumption smooth for the poor and helps them cope with the vulnerability stemming either from temporary lack of work or natural disasters.. Micromanage programs have been able to generate self-employment for near 30 million poor (Annexed-II).
Some studies show that the generation of self-employment is the main mechanism through which micromanage has been effective in accelerating growth of income/expenditure and alleviating poverty which is reflected in the higher labor force participation ratio among participants in micromanage programs as compared to non-participants. It is also revealed that poverty situation has been improved among recipients of micromanage (Hosing, 1984, 1988: Raman 1996; BIDS 1990, 1999 & 2001; Morocco 1998, Kandahar S.
R 1998, 2003 and Samara H 1999 & 2004). A resent paper by S. R. Samoan (2012) upholds the role of microcircuit in poverty Hyannis in the rural areas of Bangladesh. The paper was based on the findings from the first phase survey of long-term panel surveys covering 6500 rural households in 63 districts, and it examined the factors, including the role of micromanage, that have a causal influence on poverty dynamics. The study used the dynamic adaptation of the entitlement approach for determination of contribution of micro credit.
A conservative estimate was about 5 per cent – in the sense that if microcircuit had not existed rural poverty would have been almost 5 per cent higher than what it was in 2010. The contribution to the reduction of extreme poverty was mound to be considerably higher – about 9 per cent. Though poverty remained stubborn in Bangladesh for nearly two decades since Independence 1971, it began to decline appreciably since 1990 (Table-IA). S. R Samoan (2012) rightly recognized the key players involved in poverty reduction in Bangladesh e. G. Sustainable annual growth of GAP, strong inflows of external remittances and massive expansion of micromanage (Table-I B). Table-IA: Trends in Poverty Reduction in Rural Bangladesh: 2000 to 2010 | poverty Indices | 2000 12010 133. 1 16. 5 11. 8 I I Headcount index I I Poverty gap I Squared poverty gap 12005 52. 6 117. 7 14. 9 143. 8 19. 8 13. 1 source: S. R. Sonant (2012) Table-I B: Performance of the Bangladesh Economy: 1990 to 2010 | | 1990-2000 12000-2005 GAP per capita (%) 12005-2010 I Annual Growth of Agricultural GAP (%) 14. 13. 2 I Annual Growth of 14. 8 12. 5 4. 2 15. 5 Len. A I I Flow of Remittances as % of GAP 19. 7 I I Microcircuit disbursement as % of GAP 4. 3 Promotion of Savings and Investment: Miff have been able to defy the perception that the poor do not save. Miff in Bangladesh initially embroiled compulsory savings savings. The outstanding of savings of Miff stood at BET 160 billion in December, 010. Miff influence the rural informal credit market through its impact on poor household’s savings and investment.
Miff help reduce the dependency of poor on the informal money market directly through the provision of micromanage and also indirectly through the scope for increased savings by poor households. Loans from Miff supplement their own investment and bridge the consumption need in slack season. In addition to cash savings, poor household’s savings take various forms of direct investment. The value of such investment may be substantial and it may even be higher than cash savings. Miff are expected to contribute to accumulation of both working and fixed capital of the poor. Hosing, 1984; Mustang et al, 1996; Chandler and Chowder 1996; Raman 1996; AS borrowers 2003, Zamia 2004). S. R. Samoan (2012) also upholds the positive contribution of microcircuit in asset accumulation by the poor. Access to microcircuit was found to enhance the probability of moving up the asset ladder and to reduce the probability of falling. While this is true for both poor and non-poor households, the effect is much stronger for the poor. Most of the poor borrowers started their Journey in life with fewer assets compared to poor non- rowers.
But over time they have been able to accumulate assets at a faster pace in comparison with poor non-borrowers, thereby narrowing the original gap in endowments, and access to microcircuit is found to have made a positive contribution in this regard. Furthermore, faster pace of asset accumulation has not remained confined only to those borrowers who have utilized the loan productively; it has also extended to those who have used the loans mainly for consumption purposes. For the latter group, access to microcircuit has helped by reducing the need for asset depletion at times of crises.
The study has also found that microcircuit’s contribution to asset accumulation has translated itself into contribution to poverty reduction. Access to microcircuit reduces the probability of being poor by 2. 5 per cent. 4. 4 Empowerment of women: In Bangladesh, recipients of micromanage are above 90% women who have been able to raise their empowerment through involvement in income generating activities. Empowerment of women includes both material and non-material benefits achieved through participation in micro credit programs. Material benefits means increase in income, nutrition, food security, health care acclivities etc.
Non- material benefits includes increase in power of decision-making, self-sense of honor, respect and recognition from family members and others of the society and higher mobility. Though Goethe and Guppy (1996) reveal minimal impact of micromanage on empowerment of woman, many studies like Raman (1986), Ray (1987), sooth (1990), Raman (1996), Mustang et al (1996); scholar and Hashish (1995), Hashes’, Scholar and Riley (1996), Zamia (1998), Muhammad S (2000, 2004) show positive correlation between participation in micromanage and empowerment of woman. 4. 5 Impacts on Human Capital Formation.
Presently some Miff are providing only foreign remittances; other mobile financial services such as deposits, person to person’s payments may be launched. (2) Adequacy of Fund: Miff need more funds to serve graduated clients and unbaked poor people. Enhanced supply of funds for graduated clients can be made possible by (a) raising commercial banks (c) increasing size of wholesale funds (P.S.);(d) introducing loan guarantee services (e) raising fund from capital markets (f) serialization of income receivables of Miff.
Soft funds for hard core poor may be increased through greater involvement of large Miff and donor agencies. The present allocations for different ministries/departments of the Government in serving hard core poor must be enhanced. The fund for CARS allocated by private companies must be increased to meet various needs of hard core poor. 3) Strengthening Supervisory Framework: The overall strength and capacity of MR.. Needs to be enhanced significantly in terms of manpower, resource base, geographical outreach and rule making authority in order to make it capable of meeting all of its operational targets.
Supervisory works must be streamlined towards ensuring good governance of Miff, which is vital for financial and operational sustainability. Days are gone for soft loans funds; good governance is a must for commercial funds which needs for maintained continued growth. (4) Broadening Ownership: To make Miff more transparent, accountable and people- oriented new measures may be taken to include representative from micro borrowers and non-political highly honored professionals having good grounding on micromanage and its mission. 5) Diversification of Products: Miff must diversify financial products and innovate suitable products for extending horizontal and vertical outreach of micromanage with a view to addressing the financial needs of the poor. Such diversification will ensure viability of Miff as well as its programs designed for poverty alleviation. All groups of the poor are likely to need financial services relating to savings, credit and insurance. 6) Rational interest rate: A crucial factor to attain sustainability is the application of rational interest rate.
Some one argue that Miff set high interest rate in the name of poverty alleviation and the poor people would not be able to break the vicious circle of poverty if interest rate is not lowered. This is not Justified. Miff in Bangladesh charge between 11-15 percent flat interests which is much lower than that of money lender (more than 100%) and BRI (27%) – a successful commercial MFC in Indonesia. The interest rate of Miff is high as compared to that of commercial bank since transactions costs are higher in dealing mall loans and taking financial intermediary directly to the Poor’s doorstep.
Surplus generated from this operation is revealed back through the revolving fund in order to be able to serve more clients and enhance loan size. Miff should charge such interest rate to cover operational cost with a view to achieving sustainability and attracting huge commercial funds into micromanage industry. (7) Programs for Hard core poor: They need supports beyond subsidized funds which includes food relief, training and health facilities. Already Grahame Bank and large Miff have taken special programs to address the problems of hardcore poor.
But well coordinated area based sufficient programs are required. Each large MFC can be given the lead role in particular economically backward area avoiding overlapping. Government support must also be continued for hardcore poor through enhanced investment in physical and social infrastructures under different Government ministries/ departments, and social safety nets. (8) National Data Base: There must have a national data base covering major data of all institutions providing micromanage. This needs concerted efforts to be taken by MR.., P.S. and large Miff. This database will