Micro Finance

Over the past two decades micro credit programs have emerged as one of the leading strategies in the overall movement to end poverty. The idea began when Bangladeshi economist Professor Mohammad Yunus first demonstrated that poor people, especially poor women, could produce near-perfect repayment rates. Since then, his innovative scheme has attracted a range of non-governmental and state-sponsored institutions that today reach over 16 million people in developing countries and have a total portfolio of $US 2.5 billion!

According to Oxfam, micro credit consists of "very small scale financial services, including savings, loans for emergencies, day-to-day living, and investment in productive activities" Credit is usually provided to groups of individuals or village organizations that use joint-liability (a.k.a. peer pressure!) to enforce loan repayment. Through group savings and loans, poor people very often increase their economic security and well being.

Grameen Bank (GB) has reversed conventional banking practice by removing the need for collateral, thus creating a banking system based on mutual trust, accountability, participation and creativity. GB provides credit to the poorest of the poor in Bangladesh without any collateral requirements. Professor Muhammad Yunus, the founder and managing director of Grameen Bank, reasoned that if financial resources can be made available to poor people on terms that are appropriate and reasonable, "these millions of small people with their millions of small pursuits can add up to the biggest development wonder."

The origin of Grameen Bank, chronicled in Give Us Credit, by Alex Counts (Times Books, 1996) and The Price of a Dream by David Bornstein (Simon and Shuster, 1996), can be traced back to 1976 when Professor Yunus, then director of the Rural Economics Program at Chittagong University, launched an action-research program aimed at examining the possibility of designing a credit delivery system capable of providing banking services to the rural poor. The "Grameen Bank Project" (Grameen means "village" or "rural" in Bengali) came into operation with the following objectives:

• To extend banking facilities to poor men and women;
• To eliminate the exploitation of the poor by money-lenders;
• To create opportunities for self-employment for the vast number of unemployed people in rural Bangladesh;
• To bring the disadvantaged, mostly women from the poorest households, within the fold of an organizational format that they can understand and operate; and
• To reverse the age-old vicious cycle of "low income, low savings, low investment" into an expanding cycle of "low income, credit, investment, more income, more investment, more income."

The project demonstrated its strength in Jobra (a village adjacent to the University) and some of the neighboring villages during the period spanning 1976 to 1979. In October 1983, the Grameen Bank project was transformed into an independent bank by a government ordinance. Today, Grameen Bank is owned by the poor (and formerly poor) borrowers themselves. Borrowers (also called members) of the Bank own more than 90% of the shares, while the government owns the remaining shares.

Currently, GB is the largest rural credit institution in Bangladesh. It has approximately 2.3 million borrowers, 94% of whom are women. With more than 1,100 branches; GB provides services in 37,352 villages-more than half of all the villages in Bangladesh.

More than 4,000 people form 100 countries have gone through Grameen's training and exposure programs over the last ten years. Some of these people have returned to their countries and replicated the Grameen Bank model to benefit their country's poor people. More than 200 Grameen Bank replication programs in more than 50 countries have been established since the mid-1980s. Taken together, they have reached several hundred thousand poor borrowers with credit.

The conception and implementation if poverty alleviation credit programmes are often based on the broad principles of social banking, in several developing countries including India.

In the process of pursuing the broader objectives of banking, however, certain weaknesses crept into the system of banking in general and rural banking in particular.

• Although efforts were aimed at distributing formal credit to the landless and near landless, credit largely remained concentrated on the landed population.
• Lack of provision of consumption credit
• Creation of non-profit making assets on account pf poor repayment of loans.

Small business at the market place or small enterprises such as home based poultry farming, carpentry, etc. Initial loan for them Tk. 12,000 (US$ 226) and yearly increase amount Tk. 2,000 - 3,000 (US$ 38-57). Loan Term-1 year and Service Charge-15%.

From the beginning of the microcredit program, up to December 2000, the total disbursed amount and service charges were about Tk. 29,638 million. Total loan realized was Tk. 25,055 million and the amount of outstanding was Tk. 4,583 million among 1,128,693 group members. From January 2000 to December 2000, Tk. 8,487 million was realized including Tk. 996 million as service charges.

NGO’s Small Business credit product is one of the important components for poverty alleviation and effective entrepreneurship development program. All the group members of NGO’s are involved in various types of income generating activities and providing its members with consistently high quality services specially loaning to the small business including farming, poultry, livestock, handicrafts, grocery shop etc. NGO’s feels that conducting small business needs experience, discipline, proper planning, manpower, financial management skill, marketing etc. Because in small business capital is limited and risk is more. NGO’s have disbursed Tk. 3,491,637,050(cumulated) up to December 31, 2000 to the small business members but also helped them providing technical supports to avoid the risks.