microcredit_financing - PAPER TO BE PRESENTED AT THE ASIAN REGIONAL CONFERENCE jointly organized by INASIA and CDF on The Potential and Limitations of

PAPER TO BE PRESENTED AT THE ASIAN REGIONAL CONFERENCE jointly organized by INASIA and CDF on “The Potential and Limitations of Economic Initiatives in Grassroots Development – Current Issues and Asian Experiences” from 27 th - 30 th November 2000 at the BRAC Centre for Development Management (BCDM), Rajendrapur, Bangladesh. Paper 1 Microfinance NGOs in Bangladesh Growth, impact and challenges Country: Bangladesh NGO: BRAC Author of Workshop Paper: Fazle Hasan Abed, Founder Executive Director, BRAC Person Presenting the Paper at the Workshop: Fazle Hasan Abed, Founder Executive Director, BRAC 1

I. MICROFINANCE Microfinance, also known as microcredit, has emerged as a movement in Bangladesh and in the larger part of the world. There has been unprecedented growth of Microfinance NGOs in this country over the past two and a half decades. Bangladesh can be considered birth place of the current concept of Microfinance. This country provides models of recognised global significance in several aspects of Microfinance, viz., scale of operation, modes and practices of Microfinance, wider financial services, and poverty alleviation. The experience of Bangladesh is increasingly being replicated in many developing countries. The sector is now in transition in terms of process and operational strategies. At the same time, it is encountering some challenges which need to be addressed. This paper discusses growth of the sector, its impact and some upcoming issues including the challenges. The discussion is focused on the Microfinance NGOs which are the major actors in this field. The experiences of BRAC are reflected in the discussion. Microfinance -- main features Microfinance, in simple terms, can be described as small loans offered to poor households to foster self-employment and income generations. The loans largely go to rural landless, disadvantaged women and marginal farmers who depend largely on selling their labour. The terminology of Microcredit has undergone a change in recent time. Practitioners in many countries call it microfinance for its wider dimension. microfinance generally involves the following features:  Small loans, for both working capital and assets  Collateral free, substituted by group guarantees or compensatory savings  Access to repeat and larger loans  Intensive supervision and close monitoring  Secure savings products  Loan period generally for one year, may go up to 3 years  Options available for weekly/monthly installment payment  Can combine social development with financial intermediation. Around 60 million people in Bangladesh, nearly half of the country’s population, live below the poverty line. But the poor did not practically have any access to institutional credit, primarily because they are not considered credit worthy. So they could not borrow from the banks or other financial institutions. The informal money market including the traditional moneylenders provide loans but charge exorbitant rate of interest. microfinance thus found a space to operate for the poor.