Actual overview of a microcredit program in Bangladesh -Md. Tajul Islam

Nowadays microcredit approach is famous in third-world countries to reduce poverty and bring economical stability. Bangladesh is no exception from this perception. A proponent of micro-credit theory is a Bangladeshi professor and researcher. Dr. Mohammad Yunus is universally acknowledged ‘father of microcredit’. He was jointly awarded the Nobel Prize in 2006 for his and Grameen Bank contributions.
This micro-credit theory was not created without incident. Basically, it is the result of action research. The initial concept of the microfinance model stems from Dr. Muhammad Yunus’ initial experience in the village of Jobra, near Chittagong, Bangladesh. Jobra, under the pilot project of the Department of Economics at the University of Chittagong, paid $ 27 out of his own pocket to lend to 42 people in the village. He was pleasantly surprised when he was given a full refund. He decided to work on a larger scale. So he decided to arrange without collateral loans to improve the condition of poor people. Dr. Mohammad Yunus Said about getting loans “Less you have, more attractive you are if you have nothing you will get the highest priority.”

Eventually, the word ‘microcredit’ was not special before the seventies. It is becoming an amazing term among development practitioners. Now, no one is shocked if one uses the term “microcredit” to refer to loans from agricultural loans, rural loans, cooperative loans, consumer loans, savings and credit associations, loans from credit unions, or lenders. But some years ago it was an unfamiliar term in the world.

Microcredit is part of microfinance, which provides a wide range of financial services to the rural poor, especially savings accounts and collateral-free loans. Modern microcredit is generally considered to have originated through Grameen Bank, established in 1983 in Bangladesh. Many national and international banks later introduced microfinance despite the initial misconceptions. In 2005, the United Nations declared the International Year of Microfinance. According to a report, in 2012, the concept of microfinance spread widely in developing countries and was presented as “a potential tool for poverty alleviation.”

Internationally, microcredit began operations in Latin America in 1986 with the establishment of PRODEM in Bolivia. That bank was later transformed into BancoSo. In the United States, microcredit is generally defined as a loan of less than $ 50,000 for most entrepreneurs who, for various reasons, cannot borrow from a bank. Moreover, micro-credit has been introduced in Israel, Russia, Ukraine, and other countries. Where microcredit helps small business entrepreneurs overcome cultural barriers in the mainstream business community. The Israel Free Loan Association (IFLA) has lent more than 100 million to Israeli citizens of all backgrounds over the past two decades.

Special motives of microcredit programs are the same for all third-world countries. Dr. Mohammad Yunus generated thought about the microcredit programs for third world countries is to help poverty reduction, bring economical stability, bring social-economical change, women empowerment increased, and create self-dependency of women in a poor families.
In fact, the purpose of Micro Finance Institutions (MFIs) is completely different from that of commercial banks. MFI extends financing to the poor without collateral. Commercial banks lend to merchants who have the security to lend. Arguably, MFIs only work for poverty alleviation. MFIs provide loans in six categories such as general microcredit for small-scale self-employment activities, micro-enterprise loans, loans for the extremely poor, agricultural loans, seasonal loans, and loans for disaster management.

According to the Microcredit Regulatory Authority (MRA), the total number of MFI borrowers stood at 25.40 million as of June 2018. Whereas in June 2014 it was only 19.42 million. As of June 2018, the total disbursement of loans was 1201.91 billion takas, savings were 926 crore taka and the number of branches was 18,196. 1, 53,919 including employees.
As of June 2014, the disbursement amount was 462 billion takas. Savings 106.99 billion takas. The number of branches was 14,730 with 109 and 628 employees. In 2013-14, all MFIs disbursed 462 billion as against 634 billion in 2014-15. Distribution increased by 37.23 percent. Whereas 95 percent of borrowers were women and more than 70 percent of employees were women.

Nevertheless, a founder institution of microcredit is Grameen Bank but in recent, more than 2000 NGOs work in microcredit programs. One of the familiar NGO is BRAC, ASA, SIDA, and so on.
Bangladesh Rural Development Academy (BARD) introduced on their website talks about the success of a marginalized woman named Khuki with microcredit. Just as the macro credit loan authority thinks. Khuki Begum was born in a poor family in the South Jhenaigati village of Jhenaigati Upazila. At the age of 18 she got married to Nurul Islam of the same village. It goes without saying that the husband has no land. Besides working as a tailor, Nurul Islam also worked as a day laborer. It was difficult for him to make ends meet on his meager income. 3 children come into the family.

Deficiency continues to increase. One day in 2012, he met Chinu Rani Roy, the field organizer of the Palli Pragati Project, when he was suffering from poverty. After hearing his sad story, Chinu Rani advised him to become a member of the project. According to the advice, Jhenaigati became a member of Dakshin Mahila Dal in 2012, and in the same year, she took a loan of taka. 7000 – in the small business sector. With some part of this money, he bought a piece of cloth and invested it in his shop, and with the rest of the money, he bought chickens and kept them. His children are all studying differently.
While the success of the micro-credit program in alleviating poverty is largely true, there is a different picture. Which I call reality. Critics say microfinance has not boosted incomes, leaving poor families in a debt trap. In some cases, it has even led to suicide. That loan money is often used for other purposes instead of being used for sustainable consumer goods or productive investments. In the name of women’s empowerment, in the name of improving education, they are doing business.

Others, unlike mainstream financial banks, microfinance companies offer a small amount of credit. Their interest rate is so high, most borrowers faced this problem. The interest rate is more than 50%. Although they say they take interest of 15-20%. Since these banks do not require collateral against credit, it is virtually impossible for them to disburse large amounts of credit.

Now is the time to reduce the gap between the microfinance theory and the reality of poverty alleviation and economic development. The difference between theory and reality needs to be bridged as soon as possible. Moreover, the development of rural people will remain only on the pages of books, in reality, they will never improve.

The writer is a student at the Department of Public Administration, Comilla University, and Email: tntajulislam251@gmail.com