The Benefits of Microcredit to Bangladesh Essay Example for Free

The Benefits of Microcredit to Bangladesh EssayBangladesh, with a population of more than 140 million, is angiotensin-converting enzyme of the most densely live countries in the world. Almost half of the full(a) population is still living be grim the p all oerty run earning less than $1 a day. The various dimensions of the countrys pauperisation atomic number 18 manifested in equipment casualty of inequality in income distribution (in favor of urban areas), wage differentials between the formal and informal firmaments, melodramatic increases in the cost of living, un traffic and internal migration.However, progress on a range of complaisant indicators in Bangladesh over the last fifteen years has been striking in certain areas, and these give up been endorsed largely to the mix of globe 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 rout outnot form alone as it cannot command all the resources and personnel to maintain progress in poverty alleviation. The MFIs mother taken a key role in poverty improvement efforts and bear been providing credit to these ugly bulk who lack savings and capital but want jobs in the farm and non-farm sectors. The banking sector in Bangladesh is dominated by the four state- owned commercial banks, but in addition there are five government owned specialized banks, 30 domestic private banks, and 12 foreign banks.A few of these banks do lend extensively to rural areas most dont even flavor at the rural areas of the country for lending money. But the brusque masses do not uprise access to formal financial institutions due to the lack of physical collateral. Unlike other countries, Bangladesh does not a have a proper substructure of picayune banks operating at a local level, and hence a strong structure NGO microfinance sector had been developed in B angladesh. These MFIs have been able to get ahead the silly with collateral-free brings at affordable costs and can thus help the scant(p) 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 run, principally exact collateral-free loans to poor women.Microcredit programs in Bangladesh are implemented by NGOs, Grameen swan, state-owned commercial banks, private commercial banks, and specialized programs of round ministries of Bangladesh government. In the microfinance sector total loan outstanding is around TK 200 cardinal and savings TK140 billion that have been rendering among 30 poor people which help them to be self-employed that accele regularises overall frugal development process of the country. Through the financial services of microcredit, these poor people are engaging themselves in various income-generating activities and around 30 million poor people are directly benefited from microcredit programs.Credit services of this sector can be categorized into six broad mathematical groups1. General microcredit for small-scale self employment based activities,2. Microenterprise loans,3. Loans for ultra poor,4. Agricultural 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, realized applications from more than 5000 private institutions (NGO-MFIs). But, around 1000 applications of them were found to be genuinely 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 f avor of 552 NGOs and 2910 have been rejected due to not wreaking licensing criteria, such as non-existence of operations at field, inappropriate allowance as an NGO, inadequate financial information, and so on.Size and growthAccording to the size of institutions in basis of the number of borrowers served, MRA categorizes MFIs into five major types very large, large, medium, small and very small. There are altogether 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, together 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 market in equipment casualty of outreach and operations.ChallengesDespite certain success in reaching the poorer groups of households, it has been estimated that certain groups of entire poor households do not take part in microcredit program. Geographical coverage of microcredit operation varies, with coverage thinnest in the poorer, more irrelevant 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. some(prenominal) studies as well as 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-b ase versus Sustainability of MFIsAchievementsWomen empowermentWomen are given equal access to the Grameen schemes as a go 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 beg as a means of survival now have roof over their heads and can maintenance themselves. root word 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 some(prenominal) money that they can collectively 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 tush into the picture. The working of the Grameen is largely through trust. It believes in the enormous potential of each and any human creation given enabling environment, even the poorest of the poor can peel off doubts and start exploring their abilities to find a life with full human 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 sparing development of the poor. Micro credit helps solv e a host of intractable, long-term social ills related to poverty. In Bangladesh the use of contraception is one of the first behaviors to change. In fact 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 refreshing 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 repair on the familiesIndependent studies show that micro credit has a host of positive 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 period 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 upbeat of participants and non-participants, but also the aggregate welfare at the village level. In fact even in disaster situations and post conflict 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 initiative in creating financial support institutions.4. Absence of legal framework for creating micro credit institutions.5. Lack of conceptual clarity6. Absence of regulatory frameworkUnited Nations responseUnited Nations General Assembly Resolution 52/194. The report of the Secretary-General on the International Year for the Eradication 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 umpteen 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 t he mainstream economic and political processes of the society.The UN recognizes that micro credit programmers, 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 needed 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 respective countries.GRAMEEN BANKThe system of this bank is based on the idea that the poor h ave skills that are under-utilized. A group-based credit approach is applied which utilizes the peer pressure 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 good credit standing. The bank also accepts deposits, provides other services, and runs several development-oriented businesses including fabric, telephone and dexterity companies. Another distinctive feature of the banks credit program is that the overwhelming majority (98%) of its borrowers are women.Grameen Bank act to expand its outreach in Bangladesh in 2009 to bring new areas and new members within its operational fold. During the year, the bank open up 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 th e countrys virtually 84,000 villages located in 479 upazilas or sub-districts in all 64 districts of Bangladesh. A fresh batch of 300,413 people joined the Grameen family in 2009, swelling the aggregate number to a staggering 7.97 million members.