Presented To Prof.

Amit Trivedi

Presented By Shashank Gupta Shubhang Chaturvedi Pushpinder Singh Puri

Introduction
Microfinancing is very beneficial; it is a combination of financial

and non-financial education.

Microfinancing used to be unknown, but it is now worldwide World Bank estimates that there are 7,000 microfinance institutions

worldwide. Bangladesh is the worlds most densely populated country - 38% of population live below poverty line - 18.7% are hardcore poor - 90% of their income spend on food. Poor had no or little access to the institutional credit. Microfinance institutions (MFIs) emerged to provide affordable credit for the poor

Microfinancing Say No To Poverty

Supply of capital loans, consumer credit, savings, insurance & other

basic financial services to low income households.

People need to run their businesses, build assets, stabilize

consumption & shield themselves against risks.

Its a service in which the poor people desire & are willing to pay for. Loans are typically less than $125 made to the rural poor who

normally do not qualify for traditionally banking credit.

Microfinance Statistics in Bangladesh

Number of NGO-MFIs working in Bangladesh ( April 21, 2010) NGO Affairs Bureau : 2418 NGOs Department of Social Welfare : 55,000 Department of Cooperatives : 152,000 Office of the Registrar, Joint Stock Companies & Firms : 10,000 Microcredit Regulatory Authority : 494 Department of Women and Children Affairs : 16,030 Department of Youth Development : 100,000 Not only NGOs but also government agencies providing microcredit services. Up to June 2009, Active MFI members was 25.8 million of which 85% women Cumulative disbursement of microcredit was US$125.57billion.

Achievements of microfinance in Bangladesh the numbers

About 1,500 MFIs currently operate, with another 500 soon to join;

90% are clients of 4 big MFIs. Most MFIs consistently report repayment rates of 98%+. Microfinance reaches significant population of otherwise disadvantaged people (low/unstable incomes, little/no land/assets, low social status, few/no alternative sources of financial services):
20+ million active clients ( 86% women) (under)estimate: 15% are members of more than 1 MFI (over)estimate: 75% of clients are poor between 10 and 14 million poor households have access to

microfinance

Achievements of microfinance in Bangladesh economic and social effects

Evidence is mixed, but on balance suggests tangible enhancement

of their capabilities, through asset enhancement and positive effects on socio-economic environment:
On average, positive economic effect on clients (e.g. building non-

land assets, consumption smoothing), though effects are often small, and all may not benefit equally
On average, microfinance and associated MFI activity have had

positive social effects (e.g. womens empowerment; education; health; fertility)

Studies suggest significant village-level spillover effects

Achievements of microfinance in Bangladesh national level effects

National pride - Bangladesh now renowned for invention of

microfinance; commitment and insight of Yunus+; vast cadre of competent, honest field staff not just poverty, floods etc.; now exports model of microfinance globally (including developed countries) Employment creation - at least 50,000 credit officer-type positions across the country whose households derive their livelihood from provision of microfinance Next generation of social entrepreneurs

Background of Microcredit Regulatory Authority (MRA)

Bangladesh Bank, commissioned a study in December 1997 to

examine "the Regulatory Aspects of Microfinance Institutions (MFIs) and Linking it with the Formal Financial Sector". government formed a Committee under the chairmanship of the Governor of Bangladesh Bank in October 1999 to
a) recommend an effective credit and savings policy for this

sector, b) ensure transparency and accountability into their activities and c) make some recommendations regarding a regulatory framework and to propose a body to regulate and supervise these institutions

On the basis of recommendations a Unit namely "Microfinance

Research and Reference Unit (MRRU)" was established in Bangladesh Bank under the supervision of a National Steering Committee in June 2000

Microfinance Regulatory Authorities in Bangladesh

Palli Karma Sahayak Foundation (PKSF) http://www.pksf-bd.org/ Apex microcredit funding and capacity building organization Provide microcredit to the poor through its partner organizations NGO Affairs Bureau (NGOAB) http://www.ngoab.gov.bd/ Works under the Prime Minister office Provides one-stop service to the NGOs operating with foreign assistance Ensures their accountability to the state and to the people of the country Microcredit Regulatory Authority (MRA) http://www.mra.gov.bd/ Works under the central bank Central body to monitor and supervise NGOs and MFIs Ensure transparency & accountability of MFIs microcredit activities

Activities undertaken with Microfinance

Purpose Active Member
Freq %

Inactive Members
Freq % Freq

All
%

Repayment of old debts

Agro-support/based activities Small trading Poultry rearing

290
140

64.44
31.11

142
82

94.67
54.67 26.67 28.67

432
222 200 185

72.00
37.00 33.33 30.83

House building and repairing

Consumption Meet medical expenses Livestock rearing

160 35.56 40 Majority of the members spent on 142 borrowed 31.56 money 43 unproductive purposes

138
48 58

30.67
10.67 12.89

40
96 36

26.67
64.00 24.00 2.67

178
144 94 75

29.67
24.00 15.67 12.50

Meet marriage expenses

Renting/mortgaged in farm land Fish culture Purchasing rickshaw

money for consumption 23 5.11 12 purposes

2/3 respondents spent 71 15.78 4

8.00
0 0 1.33

35
28 24 23

5.83
4.67 4.00 3.83

28 24 21

6.22 5.33

0 0

MFPs 4.67 facilitates 2 money lending

Lend money on interest

Total

12
1161

2.67
100

0
499

0
100

12
1660

2.00
10 100

Microfinancing Services

11

Web Based Microfinancing

CELLPHONES
In poorer nations phones have help open up microfinancing.
In Dev. Countries few/nonexistent, where bank branches and ATM are

cell phones make the financial services practical. Cell phones have the potential to take financial markets outside the urban areas.

INTERNET

With $$$$ transfer one can do anything to help the poor and support the economy.

12

Web Based Microfinancing (continued)

_________________________________________________________________ KIVA.ORG ______

Connects people to make chance

San Francisco based nonprofit that has taken a step further w/just few clicks of the mouse, & now everyone can become a microfinancier.
Includes photos of loan recipients & stories about borrowers, lenders can choose aspiring small-business owner and make their own loans. Kiva has worked w/more than 20 microfinance institutions around the world & enabled more than $1 million in loans for more than 2000 businesses.

13

Borrowers & Lenders

Microfinance is provided by non-governmental organizations (NGOs), cooperatives, non-bank financial intermediaries and commercial banks. More than 10,000 microfinance institutions are in existence with a loan portfolio exceeding $7 billion. most of them are very small w/ clients base of less than 2,500 Some 1000 million people access microfinance services globally. Clients are typically self-employed and w/a relatively stable source of income. While most borrowers are women, studies indicated that many loans awarded to women and paid back by them are in fact used by men.
14

Why Targeting Women?

One billion people in the world are illiterate and two thirds of those people are women.

- Muhammed Yunus

Why Targeting Women? (continued)

Microfinancing is a step towards uplifting women. The Grameen Bank has lend $$$$ especially to women so that they can launch their own businesses. Women gaining control over their lives. Women achieving economic and political empowerment w/in their homes About 90% of the people that are on micro-credit are women. Women are more reliable in paying back the money. Reducing domestic violence by giving women independence.

16

Microfinance failed to empower women why and how?

Loan defaults enhance social isolation Loan delinquency & defaults are very common which creates serious social isolation that enhances social deprivation pressures from peer-group members, and MFI officials mental depression, serious stress, and social hardship.

MFPs increase household conflicts Quarrel with husbands, who mainly used the borrowed money. these quarrels turned into common HH conflicts and such conflicts lead to divorce, abandonment and serious physical abuse.
Borrowing microcredit is discouraged by rural society Borrowing from MFIs is sometimes considered as loss of prestige and dignity in the rural society.

Micro-Finance players in Bangladesh

Organizations
NGO-MFIs Grameen Bank Govt. Program Sub Total Nationalized Commercial Banks

No. of Borrowers
18,415,878 69,08,704 19,97,240 27,621,573 23,11,150

Outstanding Loans (BDT millions) 78,931

33,236 7,710 1,20,494 32,784

Private Banks
Sub Total Grand Total

1,64,113
24,75,263 3,00,96,836

1,107
33,890 1,54,383

The four main players in Bangladesh in terms of MFI members and market share are Grameen Bank, BRAC, ASA, and Proshika.
1- Grameen Bank (Grameen) Is an MFI that is 95 percent owned by its members, who are primarily women, and 5 percent by the Bangladesh government. As of July 2008, Grameen borrowers totaled 7.5 million, 97 percent of whom were women. According to recent estimates, the bank alone serves 24 percent of all microfinance borrowers.89 At year-end 2007, Grameen Banks assets totaled BDT 60 billion and its deposits stood at 44 billion. The bank has a network of 2,521 branches that spans the country, covering more than 98 percent of the villages in Bangladesh The Grameen Bank group of companies comprises a range of diversified companies, including mutual funds; a trust company; and telecommunication , rural power, communications, education, textiles, and Internet services companies

2- BRAC (Bangladesh Rural Advancement Committee)

It was founded in 1972 and initially focused on resettling refugees returning From India. Today, BRAC is one of the worlds largest NGOs, with over 5 million borrowers in 170,277 village organizations whose microfinance programs serve 69,421 villages and 1,716 urban slums in all 64 district of Bangladesh. More than 20,000 out of 95,898 total BRAC personnel (72 percent of whom are women) work for the microfinance program in its 3,054 offices, which provide coverage to an estimated 110 million people. BRAC offers a broad range of services to its clients with a special focus on its core programs, which as of late 2008 included economic development; health, education, and social development; and human rights and legal services.

3- ASA

It has began in 1979 with an initial mission to empower the oppressed through "peoples organizations" mobilized for social action against exploitation, as well as through legal aid to fight social injustice. In 1984, ASA operations shifted focus to the basic social unitthe familya shift that recognized the critical role that women must play in development. In the late 1980s, ASA began to incorporate training in management skills for Income generating projects and to stress the importance of savings in development education efforts. At this point, microcredit delivery became a natural extension of its successful development education for poor rural women in Bangladesh.

4- Proshika It officially started operations in 1976. Its name is an acronym of three Bangla words that stand for training, education, and action. Its mission is to create self-employment opportunities for the poor in order to both bring households out of poverty and increase literacy. Initially it fulfilled its social intermediation objectives through group formation and consciousness raising, rather than service provision. Among its activities today are skills and management development training, hands-on technical advice, and marketing assistance. According to data from 2006, PROSHIKA was active in 23,475 villages and 2,101 urban slums in 57 districts of Bangladesh. The organization now works with nearly 2.75 million members

Muhhamed Yunus
If society was structured for self-employment, there would be no reason to fear being poor. - Dr. Muhammad Yunus

Yunus is the 1st Nobel Prize winner from Bangladesh

_________________________ Founder of Grameen (Rural) Bank in 1976

_________________________

Started microfinancing by giving out a loan of $27 to 42 women in a village in Bangladesh.

Worlds Banker to the Poor
24

History
He was inspired during the terrible Bangladesh Famine of 1974 to make a

small loan of US$27.00 to a group of 42 families so that they could create small items for sale believed that making such loans available to a wide population would have a positive impact on the rampant rural poverty in Bangladesh.
The Grameen Bank (literally, "Bank of the Villages", in Bengali) is the

outgrowth of Yunus' ideas. The bank began as a research project by Yunus and the Rural Economics Project at Bangladesh's University of Chittagong to test his method for providing credit and banking services to the rural poor. In 1976, the village of Jobra and other villages surrounding the University of Chittagong became the first areas eligible for service from Grameen Bank.[

Continued
The Bank was immensely successful and the project, with support from

the Central Bangladesh Bank, was introduced in 1979 to the Tangail District (to the north of the capital, Dhaka). By the beginning of 2005, the bank had loaned over USD 4.7 billion and by the end of 2008, USD 7.6 billion to the poor. The Bank today continues to expand across the nation and still provides small loans to the rural poor. By 2006, Grameen Bank branches numbered over 2,100. Its success has inspired similar projects in more than 40 countries around the world and has made World Bank to take an initiative to finance Grameen-type schemes.[

Background
Microfinance organization and community development bank

started in Bangladesh Makes small loans (known as microcredit or "grameencredit") to the impoverished without requiring collateral gram which means "rural" or "village the poor have skills that are under-utilized

Background
Group-based credit approach
Accepts deposits, provides other services, and runs several

development-oriented businesses including fabric, telephone and energy companies Majority (98%) of its borrowers are women

What is Grameen Bank ?

Grameen bank, means the rural or the village bank
It provides credit and financial services :

Exclusively to the rural poor in Bangladesh.

Without any collateral for creating self employment opportunities to quickly increase their income and empower

the poor.
Banking system based on mutual trust, ,participation and

Creativity.
Serves as a catalyst in the over all development of socio-economic conditions of the poor

Objectives
Extend banking facilities to poor men and women Eliminate the exploitation of the poor by money lenders Create opportunities for self-employment for the vast multitude of unemployed people in rural Bangladesh Bring the disadvantaged, mostly the women from the poorest households, within the fold of an organizational format which they can understand and manage by themselves Reverse the age-old vicious circle of "low income, low saving & low investment", into virtuous circle of "low income, injection of credit, investment, more income, more savings, more investment, more income

GRAMEEN BANK

Covers almost the

Whole Country

History
In the initial years, donor agencies used to provide the bulk of

capital at very cheap rates Mid-1990s, the bank started to get most of its funding from the central bank of Bangladesh Grameen has started bond sales as a source of finance

Micro-Credit Strategy
Charity is not an answer to poverty It creates dependency and takes away individual's initiative to break

through the cycle of poverty Loans offer people the opportunity to take initiatives in business or agriculture Human beings, including the poorest has endless potential Offered credit to many poor, women, illiterate and unemployed people Access to credit on reasonable terms such as the group lending system and weekly-installment payment

Micro-Credit Strategy
Objective: To promote financial independence among the poor Encourages all borrowers to eventually become savers The bank also set a new goal: Making each of its branches free of

poverty, as defined by benchmarks such as having adequate food and access to clean water . Known for Solidarity Lending (over 43 countries) each borrower must belong to a five-member group not required to give any guarantee for a loan to its member repayment responsibility solely rests on the individual borrower no form of joint liability

Micro-Credit Strategy
No legal instrument (no written contract) between Grameen Bank

and its borrowers High payback ratesover 98 percent More than half of its borrowers in Bangladesh (close to 50 million) have risen out of acute poverty

Micro-Credit Programs
Village Phone Program Women entrepreneurs can start a business providing wireless payphone service in rural areas of Bangladesh 2004 Petersburg Prize worth of EUR100,000

Micro-Credit Programs
Struggling Members Program 2003, started a new program exclusively targeted the beggars of Bangladesh distributing small loans to beggars existing rules of banking are not applied, the loans are completely interest-free, the repayment period can be arbitrarily long

Operational Statistics
Borrowers own 94%, and the remaining 6% is owned by the

Government of Bangladesh Grown significantly between 2003-2007 o October 2007, the total borrowers of the bank number 7.34 million, and 97% of those are women o 2003, the bank had only 3.12 million members The bank has distributed Tk 347.75 billion (USD 6.55 billion) in loans Tk 313.11 billion (USD 5.87 billion) has been repaid Loan recovery rate of 98.35%, up from the 95% recovery rate claimed in 1998

BGB Model Strengths

Strengths of BGB model

- No need for literacy - Poorer are included - savings are safe - members are forced to accumulate reserves, which can be used in emergencies

BGB Model Weaknesses

Weaknesses of BGB model

- Interest on credit product is around 20% more than other traditional banks. - group composition not in members control. - Created credit on reasonable terms such as group credit and weekly installment payments with reasonably long term loans.

SHG Model Suitable Conditions

Existing bank network in rural areas Communities are fragmented, with various different groups based

on caste, or wealth level There are credible NGOs or other community development institutions to promote the groups Peoples opportunities and financial service needs are diverse

Nobel Peace Prize

October 13, 2006 ~ The Nobel Committee awarded Grameen Bank

and its founder, Muhammad Yunus, the 2006 Nobel Peace Prize, for their efforts to create economic and social development from below. From modest beginnings three decades ago, Yunus has, first and foremost through Grameen Bank, developed micro-credit into an ever more important instrument in the struggle against poverty. Grameen Bank has been a source of ideas and models for the many institutions in the field of microcredit that have sprung up around the world. Only business corporation to have won a Nobel Prize

Related Ventures
Grameen Family of Enterprises: o Grameen Trust, Grameen Fund, Grameen Communications,

July 11, 2005 the Grameen Mutual Fund One (GMFO), listed as an

Grameen Shakti (Grameen Energy), Grameen Telecom, Grameen Shikkha (Grameen Education), Grameen Motsho (Grameen Fisheries), Grameen Baybosa Bikash (Grameen Business Development), Grameen Phone,Grameen Software Limited, Grameen CyberNet Limited, Grameen Knitwear Limited

Initial Public Offering GMFO will allow the over four million Grameen bank members, as well as non-members, to buy into Bangladesh's capital markets Grameen Foundation
o Share the Grameen philosophy and accelerate the impact of

microfinance on the worlds poorest people o Asia Pacific, America, Africa

Criticism
Analysts have suggested that microcredit can bring communities into debt

from which they cannot escape, citing situations where microloans from the Grameen Bank were linked to exploitation and pressures on poor families to sell their belongings, leading in extreme cases to humiliation and ultimately suicides. Maulana Ibrahim, a reactionary imam in Bangladesh, spoke out against the Grameen Bank in 1993 for fostering "un-Islamic ways", alleging (referring to the lenders' pledge) that women were taking a vow not to obey their husbands and not to live in poverty anymore.