Microfinance Institutions Inclusions Alleviate Poverty and Create Job Market in Bangladesh

• Author(s): Mehedi Hassan
• Paper ID: 1703234
• Page: 79-98
• Published Date: 09-03-2022
• Published In: Iconic Research And Engineering Journals
• Publisher: IRE Journals
• e-ISSN: 2456-8880
• Volume/Issue: Volume 5 Issue 9 March-2022

Abstract

The member-based Microfinance Institutions (MFIs) constitute a rapidly growing segment of the Rural Financial Market (RFM) in Bangladesh. Microcredit programs (MCP) in Bangladesh are implemented by various formal financial institutions (nationalized commercial banks and specialized banks), specialized government organizations and Non- Government Organizations (NGOs). The growth in the MFI sector, in terms of the number of MFI as well as total membership, was phenomenal during the 1990s and continues till today. Despite the fact that more than a thousand of institutions are operating microcredit programs, but only 10 large Microcredit Institutions (MFIs) and Grameen Bank represent 87% of total savings of the sector and 81% of total outstanding loan of the sector. Through the financial services of microcredit, the 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 groups: i) general microcredit for small-scale self-employment based activities, ii) microenterprise loans, iii) loans for ultra- poor, iv) agricultural loans, v) seasonal loans, and vi) loans for disaster management. Currently, 599 institutions (as of October 10 2011) have been licensed by MRA to operate Micro Credit Programs. But, Grameen Bank is out of the jurisdiction of MRA as it is operated under a distinct legislation- Grameen Bank Ordinance, 1983. This paper gives an overview (evolution and present status of the market, supply and demand side stories, opportunities for further researches and innovations, and policy recommendations) on the micro-finance market in Bangladesh, often called as the hub of microfinance institutions (MFIs) in the globe. The development of microfinance was based on the principle of financial inclusion of the poor on one hand and the sustainability of the institute on the other hand. The outreach-sustainability trade off could successfully be achieved by proper targeting and better designing of the microfinance products. Earlier several lending methodologies were applied and later on the group based approach was mostly successful- it is mainly due to the risk reduction from the adverse selection of the households and the moral hazard problem of the incumbent borrowers. Despite the impressive progress in providing financial services, the real impact of microfinance is somewhat questionable mainly due to methodological reason. Some randomized control trial (RCT) experiment could find no impact or little impact on poverty in the short run but inconclusive results in the long run. However, the positive impact of microcredit was widely accepted and it produced a momentum in the rural economy which could have been lost if there were no microcredit operations. Microfinance sector should address some key concerns for its expansion, such as high interest rates, multiple borrowing and indebtedness. More specifically, the following issues should be given more emphasis, namely, creating socio- political environment, easing loan repayment using ICT, flexibility in loan recovery, ensuring sustainability of MFIs, scaling up microfinance, adding-on remittance services and micro insurance, linking with formal financial system and strengthening the regulation and supervision.

Citations

IRE Journals:
Mehedi Hassan "Microfinance Institutions Inclusions Alleviate Poverty and Create Job Market in Bangladesh" Iconic Research And Engineering Journals Volume 5 Issue 9 2022 Page 79-98

IEEE:
Mehedi Hassan "Microfinance Institutions Inclusions Alleviate Poverty and Create Job Market in Bangladesh" Iconic Research And Engineering Journals, 5(9)