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Micro Finance
Microfinance provides financial services for poor and low income people by offering smaller loans and flexible savings services where permitted, while accepting a wider variety of assets as collateral.
Micro finance belongs to the group of financial service innovations under the term of microfinance, other services according to microfinance is micro savings, money transfer vehicles and micro insurance.
Importance of Microfinance
Fostering economic growth Improving living standard Poverty alleviation Eliminating income inequality Reducing Unemployment Women empowerment Facilitate mobilization of savings Facilitating financial intermediation Encourage savings of rural people Making credit available specially to rural people
Boosting socio-economic development Making insurance available to rural people Overall development of rural finance
1) Action research phase in the 1970s 2) Microfinance development phase in the 1980s 3) Expansion phase in the 1990s 4) Increased competition and formalization from 2000 onwards.
The Key Actors in the Microfinance Sector with Coverage and Involvement
Microfinance has emerged as small-scale financial services offered to the poor in order to reduce their vulnerabilities and not only the NGOs and Grameen Bank, the public sector agencies have also been giving priority to microfinance program as an effective tool to combat poverty. In fact, the magnitude of growth of the microfinance program undertaken by various agencies has brought Bangladesh at global focal point.
Over time, the microfinance sector has grown to an industry and is unofficially treated as the third sector in the country.
Basically, the microfinance program in Bangladesh has turned into product diversification in terms of flexibility in savings and credit operations during the last couple of years.
The Key Actors in the Microfinance Sector with Coverage and Involvement
Grameen Bank
This is the pioneer of the microcredit concept.
It is one of the largest microfinance institutions in the world, which was primarily started as a project in 1976 and formally began functioning as a bank since 1983 in Bangladesh. Grameen has an outreach of 2.36 million members of which more than 2.3 million are women. These members mobilized savings amounting to BDT 8,142.7 million.
The Key Actors in the Microfinance Sector with Coverage and Involvement
The NGOs
Although the exact number of NGOs operating microfinance is not known accurately, reports from different sources reflect that more than 1000 NGOs are operating microfinance program in Bangladesh who can be called as microfinance NGOs (MFNGOs).
These include some of the largest NGOs in the world like BRAC, ASA, Proshika etc.
These NGOs mobilized a total savings of Taka 6,922 million and these NGOs also distributed a cumulative amount of Taka 92,436 million.
The Key Actors in the Microfinance Sector with Coverage and Involvement
Palli Karmo-Shahayak Foundation (PKSF)
This is another organization in the sector playing an important role since 1990. PKSF is widely known as a second tier organization that lends to the microfinance NGOs for on-lending to the borrowers.
It is mainly a government-initiated organization to promote and facilitate microfinance program in the country through the potential microfinance NGOs.
PKSF's contribution is 24% to the total amount of Revolving Loan Fund (RLF) of the microfinance NGOs in Bangladesh. It is now acknowledged as the most potential source of fund for the microfinance NGOs.
The Key Actors in the Microfinance Sector with Coverage and Involvement
Nationalized Commercial Banks (NCBs)
All the nationalized commercial and some specialized banks have microfinance program of their own. In general, these banks channel capital for microcredit through MFNGOs as well as other agencies. But, some like Islamic Bank Bangladesh Limited are participating in poverty alleviation program by directly providing microcredit to the landless and small farmers.
In Bangladesh Member savings has been the most crucial source of fund for the micro finance institutions along with interest income and commercial bank lending.
Impact Assessment
Impact assessment is the systematic process of identifying the identifying the anticipated or actual impacts of a development intervention, on those social, economic and environmental factors which the intervention is designed to affect.
Consultatio n
Spillover Effect
Program Placement- In implementing a group lending program it would be difficult to go into a rural village and randomly identify individuals to invite to join the group lending program and others who are not invited. Problems of attribution- The major methodological problems that confront the IA of microfinance relate to attribution. At the heart of impact assessment is the attribution of specific effects to specific causes.
Multiple regression has rarely been used in microfinance IA because of its enormous demands for data on other possible causal factors and its assumptions.
control group method requires a before and after comparison of a population that received a specific treatment and an identical population that did not receive the treatment.
The logical consistency of the arguments and materials presented. The strength and quality of the evidence provided. The quality of the methodology. The reputation of the researchers.
In the last five years participatory approaches to development planning and management have moved from being a fringe activity to centre stage.
Participatory approaches challenge the validity and utility of the scientific method as applied to developmental problems.
Whether the micro finance institutions would be wise to focus on the corporate governance issue.
Role and Responsibilities of the Board- Large banks main duties are setting strategy, risk profile and appetite. While MFI focusing on a transition to a deposit taking for profit entity. Board Size, Composition and Qualifications- Banks have always been aware of the trade-off between appropriate representation of all relevant stakeholders and a manageable size of the Board. Some commentators suggest that a size of 7 to 9 members is optimal for micro finance.
The Governance of Risk An already vast literature exists on the shortcomings of risk management in the lead-up to the banking crisis. Microfinance institutions have been characterised by extremely tight risk management.