The Benefits of Microcredit to Bangladesh

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Micro credit – Bangladesh

     

Bangladesh, with a population of more than 140 million, is one of the most densely populated countries in the world. Almost half of the total population is still living below the poverty line earning less than $1 a day. The various dimensions of the country’s poverty are manifested in terms of inequality in income distribution (in favor of urban areas), wage differentials between the formal and informal sectors, dramatic increases in the cost of living, unemployment and internal migration.

       However, progress on a range of social indicators in Bangladesh over the last fifteen years has been striking in certain areas, and these have 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 cannot act alone as it cannot command 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 poor 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 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 don’t even look at the rural areas of the country for lending money. But the poor people do not get access to formal financial institutions due to the lack of physical collateral. Unlike other countries, Bangladesh does not a have a proper substructure of small banks operating at a local 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 billion and savings TK140 billion that have been rendering among 30 poor people which help them to be self-employed that accelerates overall economic 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.

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Credit services of this sector can be categorized into six broad groups:

  1. General microcredit for small-scale self employment based activities,
  2. Microenterprise loans,
  3. Loans for ultra poor,
  4. Agricultural loans,
  5. Seasonal loans, and
  6. 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 ...

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