Write a summery on MICRO-CREDIT AND POVERTY REDUCTION OF BANGLADESH

Poverty is a complex phenomenon and its causes and effects are more complex process (Ismail, 2000). In every developing nation, the ongoing crucial issue is socio-economic development and poverty alleviation. As a developing country, Bangladesh has been putting vigorous attempts towards achieving this goal. Micro-credit is considered as one of the vital tools for poverty alleviation in Bangladesh (The Role of Micro-Credit in Poverty Alleviation, 2009). Micro-credit, according to Otero (1999), is considered to be the provision of fi nancial services to low-income poor and very poor self-employed people. These fi nancial services generally include savings and credit, but can also include other services such as insurance and payment services as revealed by Ledgerwood (1999). On the other hand, Schreiner and Colombet (2001) defi ne micro-credit as an attempt to improve access to small deposits and small loans for poor households neglected by banks. This implies that micro-credit involves the poor people in getting fi nancial services like savings, loans, insurance etc. enabling them to lead a descent living in both urban and rural settings who are unable to obtain such services from the formal fi nancial sector. According to Human Development Index (HDI), Bangladesh ranked 140 out of 177 countries in the world in 2007 (UNDP, 2007). Per capita annual income was USD520 in 2006-07 (Socio-Economic Indicator of Bangladesh, 2007). At present about 40% people live in below poverty line in Bangladesh (BBS, 2007). Three years after liberation war in 1974, there was a famine in Bangladesh which made majority of its people near starvation. In the late 1970s, to overcome and improve this situation Nobel laureate Dr. Muhammed Yunus, a pioneer of micro-credit in Bangladesh, initiated a micro-credit program, primarily targeting the poorest of the society, especially for women. It is now a widespread program in Bangladesh and a household name. Micro-credit thus becomes a revolutionary concept in Bangladesh from the eighties onward (The Bangladesh Development Studies, 2004). From the last three decades it emerges a unique innovation of credit delivery system as an income generating activities of Bangladeshi poor. At present, according to NGO Affairs Bureau, about 2,116 NGOs have been operating micro-credit program in Bangladesh and number of clients increased sharply (Assessment of MicroCredit Program in Bangladesh, 2010). Mentioned all of NGOs along with 13 Ministries/ Divisions of the Bangladesh Government covered about 23 per cent households around the world (World Bank, 2005).

It is very diffi cult for the poor to get small working capital from formal banking system for various reasons. Money makes money and when you got a little, it is often easy to get more. The great hardship is to get the little(Adam Smith, 1976). Rodenbeck (1998) observed that it is an emerging agenda for development in the Middle East and North Africa to have access to credit. In Bangladesh, government sector served about 10 million poor and NGOs sector served 20 million poor (Assessment of Micro-Credit Program in Bangladesh, 2010). An increasing trend was observed in outstanding loans over the period 2006 to 2009 (Bangladesh Microfi nance Statistics 2009). Both GOs and NGOs together in Bangladesh, total loan outstanding is around Tk 200 billion and savings Tk140 billion. In spite of such fact, the unmet demand of micro-credit remains enormously unattended although Bangladesh government and NGOs have disbursed huge amount of money so far since micro-credit ordained to poverty alleviation (Assessment of MicroCredit Program in Bangladesh, 2010).

The average loan size per borrower is about USD60 and the typical size of loan per person ranges from USD46 to USD80 only. In case of RDRS, it was less than average amount (USD40 in 1998, USD25 in 1999 and USD30 in 2000), respectively. The lending rates of micro-credit among NGOs have been rising in recent years by changing the method of interest calculation and incorporating service charges. The PKSF study provides current data about the interest rates charged by various GOB programs. It varies from 10% to 20% at varying circumstances. They manipulate such rate of interest artificially and nowhere they allow borrowers to meet the full costs of their operations (especially given their poor recovery of loans, hardly better than 90% and sometimes less than 80%). In Bangladesh, 80% of micro-credit NGOs charge annual interest rates of 1115% (on a fl at basis), RDRS is one of them, and 14% of them charge 1620% (fl at). With regard to savings, 53% NGOs including RDRS provide annual interest on savings of 67% while 22% provides interest rates of 810% (Assessment of MicroCredit Program in Bangladesh, 2010).

Since the 1970s, especially during the new wave of microfi nance in the 1990s, microcredit has come to be seen as an important development policy and a poverty reduction tool. Some suggest (Littlefi eld et al., 2003; World Savings Bank Institute, 2010) that micro-credit is a key tool to achieve the Millennium Development Goals (MDGs). It is the most sensational anti-poverty tool for the poorest, especially for women (The Microcredit Summit 1997), because only less than 10% of the adult populations in many Asian and African countries have bank account. The success of micro-credit has captured the interest of many researchers in broad areas, for example, in the fi eld of womens empowerment (Hashemi and Schuler, 1996; Sen, 1997; Goetz, Marie & Sengupta, 1996), sustainability and outreach, (McNamara and Morse, 1998; Sharma and Zeller, 1999), group based lending, (Ghatak, 1999; Stiglitz, 1990; Varian, 1990) and poverty alleviation. The assumption is that if one gives more micro-credit to poor people, poverty will be reduced, but evidence regarding such impact is challenging and controversial. Based on the success stories (Montgomery et al. 1996) it is assumed that micro-credit is pioneer in improving standard of living and well-being of the borrowers by way of their level of consumption. Questions regarding impact of micro-credit on the welfare and income of the poor have therefore been raised many times (Copestake, 2002; Khandker, 2003; Rogaly, 1996). Despite various studies, the effectiveness and impact of microcredit programs on the poor is still highly in question (Westover, 2008). Roodman and Morduch (2009) reviewed study on micro-credit in Bangladesh, and concluded that 30 years in the micro-credit movement we have little solid evidence that it has improved the lives of clients in measurable terms.

All these studies, however, did not find a strong causal link between access to microcredit and poverty reduction for the poor. At the moment, we neither have very strong evidence that this particular proposition is true, nor we can put out public relations material that fudges the issue or suggest that we do have such evidence. In this situation, researchers attempted to conduct related study for getting specific findings with extended clarification.