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The Financial Express

Effective tool for poverty alleviation


Effective tool for poverty alleviation

The unbanked population, especially villagers, would be highly benefited if the mobile financial service (MFS) providers get the right to provide microcredits.

The marginalised people will be able to start small businesses if they get small capital. MFSs in Bangladesh are providing that kind of capital.

This new window is providing banking services to the unbanked population, giving a boost to the economy.

Nagad, the digital financial service of Bangladesh Postal Department, has recently crossed a major milestone as its daily transaction went past Tk 200 crore. Nagad,s transformation as a microfinance institution is inevitable considering rural economic growth and financial inclusion requirements of Bangladesh where some 50 per cent of the adult population remain unbanked.

Microfinance institutions in Bangladesh for decades have positively impacted financial inclusion, savings and lending, especially in remote areas.

A study conducted in this regard was aimed at understanding whether the transformation of microfinance institutions can deepen financial inclusion in Bangladesh. It recommended that microfinance institutions could continue widening access to finance if new rules and acts are enacted and existing ones amended.

It also showed that large microfinance institutions might create pathways for a gradual transformation to specialised banks, resulting in an improved customer base and growth.

Bangladesh Bank and Microcredit Regulatory Authority are implementing the 6.5-year project, funded by DFID Bangladesh, while Financial Institutions Division is acting as the executing agency.

The project aims to improve access to finance for micro and small enterprises and create economic opportunities for small business.

This would be brought about by improvements in policy and regulation of financial services, innovations in the nature and scope of financial services targeting the poor and strengthening of information systems supporting microfinance and bank lending.

Bangladesh has, in fact, won global recognition for innovating the idea of microfinance. It is also a powerful tool for poverty reduction.

The microcredit sector, experts say, should be linked to the mainstream economy. It should no longer be part of the informal economy.

Experts say the microlenders should expand the microfinance operations to the farm sector in view of food shortage. The diversified use of microcredit and public-private initiatives could prove effective for the anti-poverty efforts.

Large companies should sub-contract some of their manufacturing work to small enterprises to give a boost to the small and medium enterprises (SME) sector. For example, Toyota contracts out to thousands of smaller firms in manufacturing spare parts of its branded cars.

  Although micro-credit programs were expanded to sectors like agriculture, livestock and fisheries, they should be scaled up to make a dent in poverty. As the poor's isolation from the market system unleashed poverty, the poor people should be brought into the mainstream to improve their lives.

The microfinance industry is still a part of the informal sector as it is yet to be governed by proper regulations. As the people are living in the grey area of law, the microcredit regulatory authority should play the role of a facilitator rather than a harsh regulator.

Some NGOs with their microcredit programmes have succeeded in building a positive image of Bangladesh in the international arena. That microcredit is playing an effective role in alleviating poverty in Bangladesh is undeniable. Microcredit of Bangladesh is really helpful in containing poverty and it has been recognised by the world community now.

The United Nations has recognised microcredit as an effective tool in eradicating poverty and has been extending assistance and support toward spreading this programme for alleviating poverty in other countries of the world.

Microcredit is not the panacea for poverty eradication. There is no panacea as such. But microcredit is an effective tool for poverty alleviation. And of course there are also other tools. But microcredit perhaps has proven itself more effective by now.

Bangladesh is a country of 160 million and majority of them are poor. The population growth could not yet be brought  under control. But the rate of coverage of the poor by microcredit activities has been estimated to be much higher than the rate of population growth. And this is indeed a reason for optimism.

Today, Bangladesh's micro-credit programme is the largest in the world, and the government has made micro-credit a significant component of its plan for halving the number of people living in poverty in Bangladesh. The World Bank is the largest provider of global micro-credit assistance to Bangladesh, with more than 5.5 million people having received loans through World Bank-supported Poverty Alleviation Micro-credit Projects.

While micro-credit leaves a significant impact on the lives of millions of Bangladeshis, millions more are yet to be reached, and studies show that approximately 12 million individuals, or 2.5 million households in Bangladesh, who are considered to be the poorest of the poor, are regularly shut out of traditional micro-credit programmes.

Disadvantaged people in Bangladesh, like elsewhere in the world, are easily trapped in a cycle of poverty. Those without land and little to no education or income face tougher obstacles in finding adequate employment, bringing up healthy families, and weathering economic downturns.

Markets exist throughout the country for enterprises such as poultry farming, milk production, petty trade, shop keeping, cow fattening, pottery, and small hotels, but without start-up money, it is nearly impossible for poor people to establish small businesses to capitalize on the demand.

A lack of collateral and an ability to borrow only small amounts at a time render most of Bangladesh's poorest people ineligible for loans from major national and private banks. In their desperation to get out of poverty and to create opportunity for themselves, many turn to village "Mahajans" (unofficial money lenders), who offer loans at exorbitant interest rates, often exceeding 120 per cent per annum.

Micro-credit has allowed millions of poor people to overcome these obstacles and improve their lives. Through such programmes, loans and training are provided to individuals, who have never been involved in the economy, and to small entrepreneurs to help them scale up their activities and create employment for the poorest people. Most borrowers are women.

  Bangladesh is known and acclaimed globally for its success in micro-credit. The world is appreciative of Bangladesh for its success in micro-credit as the poor are benefited through their access to credit from the non-banking financial institutions.

Micro-credit Regulatory Authority (MRA), which regulates the activities of the NGOs, is poorly equipped to deal with hundreds of unlicensed micro-finance institutions (MFIs). Even the authority has nothing to do with thousands of NGOs registered under different authorities offering micro-financing services.

Against this backdrop, there is the vital need to continue micro-credit programme throughout the country brushing aside the criticism whatsoever coming from any quarters.

Millions of people are in dire need of subsistence only. They need micro-credit for their survival. The programme can be diversified, but cannot be stopped putting blame on the lending institutions alone.

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