Socio-Economic and Indebtedness-Related Impact of Micro-Credit in Bangladesh

Edited byQazi Kholiquzzaman Ahmad

Conducted byBangladesh Unnayan Parishad (BUP)Phones: 8853958-60 <bup@citech-bd.com>

ActionAid Bangladesh (AAB)Phones: 8815991-2 <email@actionaid-bd.org>

Published byThe University Press Limited (UPL), Dhaka

January 2007

Socio-Economic and Indebtedness-Related Impact of Micro-Credit in Bangladesh

Study Advisor and Coordinating AuthorQazi Kholiquzzaman Ahmad

Study Team MembersJadab Chandra SahaMd. Humayun Kabir MajumderNilufar BanuSyed Shah Habib UllahMirza Manbira Sultana

Support StaffJyotirmay DevnathNazma BanuMd. Daudul Islam

Bangladesh Unnayan Parishad (BUP)Phones: 8853958-60 <bup@citech-bd.com>

ActionAid Bangladesh (AAB)Phones: 8815991-2 <email@actionaid-bd.org>

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To the struggling, exploited, downtrodden multitudes in Bangladesh and everywhere else.

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Contents

Contents

Foreword

Preface

Chapter 1: Introduction1

Chapter 2: Basic Information on Respondents and Micro-Credit as Received by Them5

Chapter 3: Impact of Micro-Credit: Selected Socio-Economic Variables13

Chapter 4: Rate of Interest, Cost of Borrowing, Loan Repayment and Velocity of Credit Creation

Chapter 5: Micro-Credit and Women Empowerment

Executive Summary and Conclusion

Bibliography

Annex 1: Expansion of Micro-Credit Programmes of Selected Leading MCIs

Annex 2: Distribution of Respondents by District

Annex 3: Background Information on Respondents

Annex 4: Computation of Effective Rate of Interest

and Effective Cost of Credit

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Contributors

Qazi Kholiquzzaman Ahmad PhD is an economist and the Chairman of the Bangladesh Unnayan Parishad (BUP), Dhaka.

Jadab Chandra Saha PhD is Director, Centre for Economic Policy Research, BUP

Md. Humayun Kabir Majumder PhD has been a Consultant to BUP

Nilufar Banu is Director, Centre for Social Weather Analysis, BUP

Syed Shah Habib Ullah is Senior Fellow, BUP

Mirza Manbira Sultana is Senior Research Associate, BUP

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Foreword

Micro-credit is a popular instrument used by many development and financial agencies in many parts of the world for serving low-income people, and is becoming more so after the Nobel Peace Award in 2006. How this instrument works naturally depends on the setting in which it is applied, and the manner of applying it. This very important study by Dr. Qazi Kholiquzzaman Ahmad and his colleagues of the working of micro-credit by the Grameen Bank and NGOs in Bangladesh reveals serious shortcomings in the operation of this instrument in this country given the general structure of the terms of its operation and the socio-economic context in which this instrument is being applied.

The terms of micro-credit in Bangladesh are stiff, and generally too restrictive by way of weekly repayment and saving commitments to allow free choice of avenues for utilisation of such credit. Even in the restrictive economic space permitted by its terms the borrowers often face hardships by way of need to sacrifice essential consumption or borrowing from other money lenders or diversion of resources from other activities to service the debt, and get into seemingly perpetual debt cycles. Very importantly, the desired women's empowerment in the preference to women as clients of micro-credit as an important social objective is more often than not unfulfilled because of the grip of the male-dominated culture in Bangladesh which the operation of micro-credit fails to address. Taken together, the study gives the stern warning that in the majority of cases the operation of micro-credit in Bangladesh is not yielding the desired improvements in the lives of its clients. On the other hand, it is working as a rather lucrative profit-yielding business to external agencies engaged in such operation.

This should enlighten all friends of disadvantaged people as to the proper place of micro-credit in poverty alleviation and women's empowerment. We know that there are many instances all over the world, including Bangladesh, of low-income women's groups moving forward without micro-credit from external sources. Some operate saving and micro-credit schemes through their own organizations by the strength of which they are already empowered to start with (an outstanding example is the renowned self-employed women's organisation - SEWA - in India). Some of them may be getting only technical assistance from friendly quarters to embark on productive activities. On the other hand some low-income persons, as individuals or as groups, are even taking bigger amounts of credit and embarking upon big-scale productive activities, thereby contributing not only to reduction of their own poverty but also to overall growth of the economy, showing thereby that they have the capability to contribute to the nation's growth process as a productive force and thus serve the dual objective of growth with equity.

An important lesson that emerges from this study is that, while micro-credit extended by external agencies may in specific circumstances and under appropriately favourable terms help advance the economic condition of low-income people, a careful prior examination of the totality of the socio-economic condition of the client(s) is needed in order to assess this potential. This seems all the more imperative for micro-credit to be extended to women of low-income families in oppressive male-dominated societies with the additional objective of promoting women's empowerment. As the study concludes, poverty is a "comprehensive" (systemic) concept and may not be overcome by monetary instruments alone.

This objective study by Dr. Ahmad and his team is a very timely and important word of caution and contribution to understanding the pitfalls of micro-credit for poverty alleviation and empowerment of women of disadvantaged groups, unless it is tempered with softer and

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flexible terms and associated with other relevant socio-cultural policies, measures and social movements as circumstances may warrant. Poverty alleviation thinking in the world is naturally dazzled today by the Nobel Prize, which has been a reward for sustained dedicated work over many years and in many countries that can justifiably make the Bangladesh nation proud. The same dedication warrants that lessons from experiments with micro-credit in a country like Bangladesh are acknowledged, and corrective steps are taken in working with this instrument in such a country.

The final warning in this important study is not to be complacent of the possibilities offered by free market systems toward poverty alleviation, insofar as such systems intrinsically strengthen existing power relations that "condemn the large majority to a lowly and subservient state of living" - in fact, power relations that create and recreate poverty. In this context the study also draws attention to the question of equity, and it should not need arguing that people's perception of poverty and misery from a sense of poverty - and hence also their willing co-operation with the system that causes them such misery - is a relative notion varying with the lifestyle of the elite in society. Together, this makes the effort of poverty alleviation in such systems like a kitten chasing its own tail - a question of macro structural change which should never be lost sight of at the peril of inviting rise of anti-social or fundamentalist forces in the society.

January 2007 Md. Anisur Rahman Former Professor of EconomicsUniversity of Dhaka

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Preface

The focus of this study is on micro-credit operations in rural Bangladesh. A combined

purposive and multistage random sampling procedure was used to select a country-wide

representative sample of 2,501 rural micro-credit receivers for four years or more at the time of

the survey. It was felt that in order to assess the impact meaningfully, micro-borrowing for four

years or more would be necessary. Virtually all the respondents are female micro-borrowers;

only less than one per cent are males. The larger enterprise credits provided by some micro

finance institutions (MCIs) on a very limited scale are not included in this study.

The sample survey was conducted during January-February 2006 and the report was finalized

in August 2006. It is now brought out between covers for wider circulation. Concerned

ActionAid-Bangladesh officials, particularly the Interim Country Director Mr. Shoaib

Siddiqui and the Acting Head of Livelihood Security & Risk Reduction Mr. AFM Shahidur

Rahman, have shown keen interest in this regard.

The key questions which have been sought to be answered through this study relate to socio-

economic and indebtedness-related impact of micro-credit on the households of micro-

borrowers as well as empowerment of women as a result of micro-borrowing by them. While

some micro-borrowers and their families have benefited in certain ways, in general the results

are discouraging and in some ways even disparaging. This does not mean that credit is not

useful to the poor and powerless. But poverty and powerlessness have to do with all aspects

of life and living, involving in the main the essential material and human needs including

socio-cultural aspirations; and the poor and powerless, identified accordingly, are under

multiple economic, social, and political stresses. For sustained reduction of poverty in this

sense, therefore, a comprehensive approach is essential. To be sure, human dignity for the

poor and disadvantaged must be the cornerstone of comprehensive approaches to poverty

eradication. Within the framework of such an approach, micro-credit with less stringent

terms should be a useful key element.

The growth of micro-credit into a country-wide programme in Bangladesh and its adoption in

various other countries has occurred given the fillips provided by the unflinchingly dedicated

work of Dr. Muhammad Yunus over the past three decades and more in promoting it as a tool

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for poverty alleviation, with his Grameen Bank leading the way. In recognition, Dr. Yunus

and the Grameen Bank were jointly awarded Nobel Peace Prize in October 2006, which has

made the whole nation proud.

However, it is now even more important that pitfalls of the ongoing micro-credit operations

are properly recognized and lessons learnt therefrom to take corrective steps. But, two

stumbling blocks to meaningful and sustained poverty reduction are the glaring socio-

economic disparity and highly iniquitous power relations in the country, which are being

accentuated further by the free market system in vogue; but neither is addressed, even

recognized in so far as the micro-credit operations are concerned. Arising from these two and

other sources, multiple stresses combine to produce, reproduce and perpetuate poverty which

is multifaceted. The existing exploitative elitism is a sure recipe for an eventual social

implosion. It needs to be replaced by inclusiveness, equity, participation, and human dignity

for all as guiding principles for creating an economically vibrant and socially and

environmentally sustainable society.

We are thankful to Professor Md. Anisur Rahman for writing a thoughtful foreword to this

book.

Dhaka, January 2007 Q. K. AhmadEditor

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Acknowledgements

Thanks are due to:

at Bangladesh Unnayan Parishad (BUP): all who have contributed to this study one way or another, including study team members, support staff, and field supervisors and field investigators; at ActionAid Bangladesh (AAB): all associated with the study, in particular Shihab Uddin Ahamed and Monisha Biswas; and the respondents who gave their time and energy to provide the information sought from them.

Special thanks are due to Professor Md. Anisur Rahman for his comments on an earlier draft.

The funding support provided by the AAB for this study is acknowledged with thanks.

Pictures on the cover from: http://images.google.com.bd/images

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Chapter 1

INTRODUCTION

Background of the Study

Bangladesh economy is characterized by unfavourable per capita land, low per capita income,

glaring and accentuating income disparity, high level of unemployment, low productivity,

and persisting high levels of poverty and deprivation. Under the circumstances, micro-credit

has been promoted to help the poor to take up self-employment on tiny/micro scales with a

view to improving their living conditions.

As the public sector banks (there were no private commercial banks until the 1990s and,

when established, these banks have been catering only to the rich people and organized

sectors) failed to come forward with easily accessible credit for the poor people who,

therefore, remained dependent on money lenders charging exorbitant rates of interest. There

was, therefore, a huge gap between the need for credit among the rural population,

particularly the poor (rural and also urban) and the availability of affordable credit lines for

them. In fact, only Krishi bank has been providing agricultural loans to farmers, but on a very

limited scale so that, in this case also, unmet demand has always been huge.

Micro-credit was conceived as a means of enabling the poor to have easy access to small

amounts (few thousand Taka) of credit for undertaking economic activities. Given that the

poor have little or no property or assets to offer as collateral which is required by formal

banking system, micro-credit has responded to the predicament by offering collateral-free

loans. The Grameen Bank led the way, starting in the mid-1970s. Now, there are hundreds of

micro-credit providers of different operational sizes throughout the country, mostly in rural

areas but also some in urban areas. The large ones include Grameen Bank, BRAC, ASA and

PROSHIKA. In addition, there are also public sector micro-credit programmes. Annex 1

shows the expansion in terms of the number of borrowers and total credit disbursed by the

large four and some other major micro-credit providers up to 2005 or early 2006, as

available.

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Micro-credit has by now reached a total of over 60 percent of all poor households of the

country, and 37 percent of all households (see in Bibliography: World Bank 2005, p.25). In

fact, the people can and do take micro-credit from multiple sources. Over the years evaluative

studies of the micro-credit regime have been conducted with different purposes. A list of a

number of such studies will be found in the bibliography appended.

However, there are lingering questions relating to the indebtedness of the micro-credit

receivers and the contribution of micro-credit to improvement in their socio-economic

conditions. To what extent the poor have benefited from micro-credit or are they getting ‘debt

trapped’ at poverty, even below poverty level as some observers suggest? Data generated on

relevant aspects are analyzed in the following chapters. This study was, therefore, designed to

address these questions and create a knowledge base for future policy and operational

guidance. The study has mainly used field survey data, both quantitative and qualitative, and

also relevant secondary information when available.

This study focuses on micro-credit operations in rural Bangladesh. To ensure country-wide

rural representation, a total of 2,501 rural micro-credit receivers, selected on the basis of a

combined purposive and multistage random sampling procedure, have been interviewed

using a pre-designed questionnaire. The sampling procedure followed was to select 16

districts from he six divisions and two upazilas from each district randomly but two unions

from each upazila purposefully considering concentration of micro-credit programmes.

Villages from those unions and respondents from those villages were then selected randomly.

The study has been conducted with financial support from the ActionAid Bangladesh and is a

joint activity of the Bangladesh Unnayan Parishad (BUP) and ActionAid Bangladesh.

Data Collection

A total of 2,501 rural respondents (henceforth respondents or micro-borrowers or borrowers)

who have been borrowing funds from a variety of micro-credit institutions (MCIs), but

mostly from Grameen Bank, BRAC, and ASA, have been selected using a purposive-cum-

random sampling procedure form all the six administrative divisions of Bangladesh, as

explained earlier. The study districts and district-wise distribution of the sampled borrowers

are shown in Annex 2.

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Primary data have been collected over a period of 35 days from 19 January 2006 to 22

February 2006. The randomly selected micro-borrowers of different MCIs have been

interviewed in their homes, using a pre-designed questionnaire. The questionnaire was pre-

tested in a few villages in Dhaka district. The field investigators and supervisors were

thoroughly trained and six teams consisting of three investigators and one supervisor each

were fielded.

It was felt that to make a judgment as to the impact of micro-credit, at least four years of

micro-borrowing may be needed so that the borrowers interviewed were at the time of the

interview had been micro-credit receivers for at least four years. In the process of random

selection, any borrower who had been micro-borrowing for less than four years was passed

over and the next one in sequence who had been borrowing for at least four years was

interviewed. The data collection process was strictly supervised by field supervisors and field

visits by core research team members.

The secondary data sources used include publications/annual reports of different MCIs,

Credit and Development Forum (CDF), Bangladesh Bureau of Statistics, Palli Karma-

Sahayak Foundation (PKSF), and Bangladesh Bank (BB).

Concepts and Definitions (as used in this study)

i. Micro-Credit Institution (MCI). Specialized financial institutions and registered NGOs (mainly local) which are providing group-based small loans to the poor with a declared aim of poverty alleviation.

ii. Borrower or Micro-Borrower. A rural person who borrows money from any MCI.

iii. Borrower Household. The household in which a borrower lives with her or his spouse and other relatives, all of whom eat from the same kitchen.

iv. Women Empowerment. The freedom of women to undertake economic activities by taking micro-credit and spending the income thus generated according to their own choice, leading to their active participation in various household decisions and beyond.

v. Flat or Base Rate of Interest. The nominal rate of interest charged to the borrowers by an MCI at the time of granting loans and fixing the installations of loan repayment. For example,

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Grameen Bank charges 10% (Tk.100 for a loan of Tk.1,000), BRAC and ASA 15% (Tk.150 for a loan of Tk.1,000).

vi. Effective Rate of Interest. The rate of interest the borrowers actually bear.

vii. Methods of Interest Calculation. In the present study three formulae have been used to compute the rate of interest, as follows:

Flat rate method:

where, RI= rate of interest, TAI= total amount of interest, TAL= total amount of loan.

The average balance method:

where, IRAB=interest rate on average balance, TAI= total amount of interest paid against a loan, ABL= average balance of loan, FBL= first balance of loan, LBL= last balance of loan.

Effective rate of interest:

where, ERI=effective rate of interest, P=number of annual installments, C=total interest payment, A= amount of loan, n= total number of installments.

viii. Effective Cost of Borrowing. It is the total of interest payment plus transaction cost plus opportunity cost of working days lost of the borrower and her/his family member(s).

ix. Velocity of Credit Creation of MCIs. The velocity of credit creation is defined as the amount by which an MCI increases its initial fund through its short term and weekly recovery process. The working formula of the velocity of credit creation is

V= velocity of credit creation, X= amount of credit created per week IC =amount of initial credit

x. Obligatory Saving. The amount of money deducted by an MCI in terms of the obligation imposed by it on the borrower.

Chapter 2

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BASIC INFORMATION ON RESPONDENTS AND MICRO-CREDIT AS RECEIVED BY THEM

Background Information on the Respondents

Over 99% of the borrowers interviewed are females and less than one per cent males as per

random selection of the respondents explained in chapter 1. Most of the borrowers are in the

age group of 21-50 years; and most of the borrowers (84%) are primarily housewives. Only

5% have business as the main profession. The majority (65%) of the respondents are also

illiterate, while 17% have studied up to Class-V and another 21% between Class-V and

Class-VIII. Three of the respondents are graduates. The overwhelming majority (92%) are

married. (Annex 3, Tables A1 to A5).

Sources of Micro-Credit and Amounts Borrowed

Main sources of micro-credit of the respondents. Main sources of micro-credit used by the

randomly selected respondents included in the study are shown in Table 2.1 and the number

of sources used is shown in Table 2.2.

Table 2.1Distribution of respondents by main source of micro-credit

Sources No. of Responses %Grameen Bank 1,200 33.9ASA 851 24.1BRAC 743 21.0Buro Tangail 133 3.8RDRS 86 2.4Palli Daridra Bimonchon Pratisthan 66 1.9TMSS 54 1.5Proshika 49 1.4BRDB 44 1.2Popi 41 1.2Society for social service 37 1.0EC Bangladesh 19 0.5Others (37 sources) 214 6.1Total 3,537 100.0

Table 2.2

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Number of MCIs used by the respondents

No. of sources Frequency %One 1,701 68.1Two 605 24.2Three 161 6.4Three+ 27 1.1Total 2,494 100.0

The 2,501 respondents received a total of 3,537 micro-credits in the loan period, as

appropriate for particular respondents, during which the survey was conducted. It is seen that

24% took loans from two sources, 6% from three sources, and 1% from more than three

sources. About 68% used only one source. (Tables 2.1 and 2.2).

The three leading sources of micro-credit from which the respondents have mainly borrowed

are Grameen Bank (34%), ASA (24%) and BRAC (21%). All other sources account for about

21% of the loans taken. (Table 2.1).

Amounts Borrowed by the Respondents and other Members of their Households

The amounts of loan taken by the respondents’ households from MCIs in the loan period (as

appropriate for particular respondents) during which the interview took place are shown in

Table 2.3.

Table 2.3Distribution of the respondents by the amount of money currently borrowed

Amount Frequency %Up to 5,000 469 18.85,001—10,000 933 37.310,001—15,000 550 22.015,001—20,000 283 11.320,001—30,000 193 7.730,001—40,000 57 2.340,001—50,000 9 0.450,001 and above 7 0.3Total 2,501 100.0

From Table 2.3, it is seen that about 56% of the respondents were at the time of survey in the

category of up to Tk.10,000 micro-credit takers, while 22% in the Tk.10,000-15,000

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category, and 11% in the Tk.15,000-20,000 category. That is, 87% belong to less than

Tk.20,000 loan category. The figures are inclusive of loans taken from more than one source

by about one third of the respondents.

Utilization of Micro-Credit

Economic activities undertaken by the borrowers using the money received from MCIs are

shown in Table 2.4. There are some cases of more than one activity undertaken by the same

borrower. It is clear from the Table that the largest number of activities undertaken (37%)

relate to trading including in paddy, rice, stationery, grocery, fish, and other ordinary goods

and services (in some cases with some processing). The next two important categories are

renting in of agricultural land and agriculture related activities (each about 13%). The next

three activities mentioned are purchase and pulling of rickshaw (9%), using the credit money

to defray the costs of education and marriage of children (8%), and purchase and rearing of

cows (7%). Another noteworthy activity is the payment of previous loan (6.4%).The other

activities include poultry and goat rearing, preparation and sale of puffed rice, fish culture,

and similar other ordinary economic activities. Further, there are few borrowers who in fact

have lent the money borrowed from MCIs to others on interest or used it to defray medical

and other costs.

Clearly, the respondents taking micro-credit have generally remained tied to rudimentary

economic activities, many of which do not have much prospect of expanding into sustainable

growth because of either market saturation (most of the products and services are directed to

local markets) and/or limited scope of productivity improvement.

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Table 2.4

Economic activities undertaken by using micro-credit

Activity* Frequency of responsesNo. %

Poultry 25 0.9Goat rearing 23 0.8Cow rearing 238 8.7Puffed rice 15 0.5Agro-support and agro-based activities 341 12.5Fish culture 37 1.4Trading (in some cases with some processing)** 1,008 36.9Rickshaw pulling 241 8.8Pay up previous loan 176 6.4Rent in agricultural land 351 12.9Lend money on interest 19 0.7Meet medical expenses 28 1.0Meet educational and marriage expenses 215 7.9Others 14 0.5Total 2,731 100.0* The larger enterprise credits provided by some MCIs on a very limited scale are not included in this study.** includes a range of goods and services such as paddy, rice, grocery, fish, mobile phone, bullock cart, and others. Note: Table shows economic activity distribution in respect of 2,493 respondents. The other eight have not responded to this question.

Source of Inspiration for Taking Micro-Credit

For almost two-thirds of the respondents (73%), the source of inspiration for taking micro-

credit has been family members. In the case of about 16%, self-initiative has been the main

reason, while about 9% were persuaded by the MCIs (Table 2.5)

The most influential family member has usually been the husband in the case of female

borrowers usually for establishing a source of income but also at times for securing money to

serve other purposes such as educational and marriage related expenses of children and

paying up of outstanding debts.

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Table 2.5Source of inspiration for taking micro-credit

Source of inspiration Frequency of responsesNo. %

Self 392 15.7Family 1828 73.1MCIs 235 9.4Others 46 1.8Total 2,501 100.0

Number of Family Members Taking Micro-Credit

Most of the respondents (96%) reported that only one member received micro-credit, while in

the case of 3.4% of the cases two members, and in the case of 0.2% three or more members

were micro-credit receivers. (Table 2.6).

Table 2.6Number of members of the same family receiving micro-credit

No. of loanees in the family Frequency %1 member 2,401 96.02 members 85 3.43 or more 6 0.2Non-response 9 0.4Total 2,501 100.0

Any Training Imparted before a Loan is Granted

About three-fourths of the respondents have received training from the respective MCIs,

while one-fourth did not. It is very interesting to note that the training given was mostly in

respect of how to receive micro-credit and how to pay the installments and related matters.

Very few received training relating to the work they would undertake with micro-credit.

(Tables 2.7 and 2.8).

Table 2.7Training, if any, provided by the MCIs to the clients

Training Frequency %Provided 1,863 74.5Not provided 628 25.1Non-response 10 0.4Total 2,501 100.0

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Table 2.8Type of training provided by the MCIs to the clients

Type of training Frequency of responses % of all respondentsNo. %

Loan taking, repayment and related matters

1,920 88.1 103.1

Work to be undertaken with the credit received

260 11.9 14.0

2,180 100.0 117.1Note: A total of 2,180 responses have been provided by 1,863 respondents who received some kind of training from the MCIs. Multiple responses were admissible due to the fact that some of the respondents have taken loans and, hence, training from more than one source.

Use of Non-Institutional Sources in Addition to MCIs

About 14% of the respondents have also been borrowing from non-institutional or informal

sources in addition to MCIs. Mostly they do so to supplement the availability of funds to tide

over difficulties such as meeting urgent medical or social needs or pay the installments of the

loans taken from MCIs. (Table 2.9). It will be seen from Table 2.10 that the mahajans are the

most important non-institutional source, used by 46.5% of those who took loans from such

sources, followed by neighbours ( 42.7%) and relatives (10.8%).

Table 2.9Loans taken from non-institutional sources

Whether or not loans are taken from non-institutional sources

Frequency %

Yes 349 14.0No 2,145 85.8Non-response 7 0.2Total 2,501 100.0

Table 2.10Non-institutional sources used

Non-institutional source % of the respondents who used such sourcesMahajan 46.5Neighbours 42.7Relative 10.8Total 100.0

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How is(are) the Product(s)/Service(s) Produced/Purchased Using Micro-Credit Sold

Given that multiple responses are admissible, a total of 2,278 responses were received from

2,238 respondents. No response was made to this question by 263 respondents.

The few male borrowers in the sample sell their products/services themselves. Other

responses shown in table 2.8 relate to women borrowers. In the case of the largest proportion

of responses (27%), the husband or son(s) of the borrower runs(run) the businesses and all

related activities, followed by a category of nothing to sell (21%). Twenty per cent of the

responses indicate that sale of the products are effected by self or husband in market places

(this category includes the male borrowers). The next important method of sale is another

member other than husband or son selling the products in the market (10%). About 6% of the

responses indicate that rickshaws have been bought which are plied by husband or son.

(Table 2.11).

Table 2.11Method of selling of products/services produced/purchased using micro-credit

Method of sale of products/services

Frequency of responses As % of respondents answering this questionNo. %

Credit providers buy up the products

240 10.5 10.7

Sale by self/husband in market places

463 20.3 20.7

Traders buy from my residence

40 1.8 1.8

Rickshaw bought, plied by husband/son

129 5.7 5.8

Business run by husband/son

612 26.9 27.4

Given as interest on loan taken

30 1.3 1.3

Another member (other than husband/son) sell product in markets

222 9.7 9.9

Brought land/built house 69 3.0 3.1Nothing much to sell 473 20.8 21.2Total 2,278 100.0 101.9Note. Multiple responses allowed due to multiple sources used by some borrowers. Total responses made by 2,236 respondents is 2,278; 263 respondents have not answered this question.

Notes. The few male borrowers included conduct sales by themselves. Hence, all the other categories apply to female borrowers.

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Recapitulating the Major Findings

The randomly selected respondents include less than one percent males and over 99%

females. They have taken micro-credit from a host of MCIs, the most important being

Grameen Bank (about 34% of the loans), followed by ASA (24%) and BRAC (21%).

About 24% of the respondents took micro-credit from two sources at the same time and

7.5% from three or more sources.

The majority (59%) of the respondents’ households (respondents themselves only

and, in some cases, also other family members receiving micro-credit) were currently in

the category of micro-credit receivers in the amounts between Tk.5,000 and Tk.15,000.

About 18% received Tk.5,000 or less and about 8% between Tk.20,000 and Tk.30,000.

Very few received loans above Tk.30,000.

Micro-credit is mostly being used by the receiving households in rudimentary trade,

service, and manufacturing activities. Most of these activities do not have much prospect

of expanding into sustainable growth because of either local market saturation (as these

products/services are usually aimed at local markets) and/or limited scope of productivity

improvement.

In the case of 96% of the respondents, only one member of the family received micro-

credit. About 14% of the respondents in fact also took loans from non-institutional

sources.

Only a handful (14%) of micro-credit receivers were imparted any training in the

economic activities they were planning to undertake with micro-credit. About three-

fourths, however, received training on how to secure micro-credit and how to pay the

installments and related matters.

About 21% of the respondents had nothing to sell because either they used the money

for purposes (e.g. for social, medical purposes etc. in which no products/services are

produced to be sold) other than in stated economic pursuits or their economic ventures

failed. As for female borrowers, sale of products or running of businesses and other

economic activities undertaken with micro-credit are conducted by husbands or sons or

other members of the family in large majority of the cases.

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Chapter 3

IMPACT OF MICRO-CREDIT:SELECTED SOCIO-ECONOMIC VARIABLES

In order to assess the changes in the socio-economic conditions of the borrowers, their status

before enrollment and now, i.e. at the time of the survey (the two dates are separated by at

least four years, as micro-creditors of at least four years standing are included in this study)

with respect to such aspects as homestead, cultivable land, livestock, poultry, sanitary

latrines, food intake, health condition, and overall socio-economic situation are considered

here in this chapter.

Homestead Owned

The homestead ownership pattern of the borrowers’ households before enrollment and now is

shown in Table 3.1. It is seen from the Table that there has been virtually no change in the

pattern of homestead size owned by the respondents since their becoming micro-credit

clients, with about 92% owning homestead of less than 25 decimals, both before and now.

Table 3.1

Homesteads owned by the borrowers’ households

Homestead land owned(in decimal )

At present Before enrollment1

No. of respondents % No. of respondents %

Up to 0-25 2296 91.8 2291 91.626-50 162 6.5 167 6.751-75 26 1.0 27 1.176-100 7 0.3 6 0.2100 and above 6 0.2 6 0.2Non response 4 0.2 4 0.2Total 2,501 100.0 2,501 100.0

1. Enrollment as used in this study refers to, unless otherwise specified, a person who has just started to take micro-credit.

Cultivable Land Ownership

Table 3.2 shows the cultivable land ownership pattern of the borrowers’ households. The data

show that there has also been virtually no change in the pattern of cultivable landownership

of the micro-credit receiving households. If landlessness is defined with reference to 50

23

decimals, about the same proportion of the micro-credit receiving households (76-77%) are

landless both before and now. The proportion, again about the same before and now, owning

50-100 decimals is 13-14%, while just over 9%, both before and now, own above 100

decimals.

Table 3.2

Cultivable land owned by the borrowers’ households

Amount of cultivable land owned(in decimal )

At present Before enrollment

No. of respondents % No. of respondents %

Up to 25 1,644 65.7 1,675 67.026-50 261 10.4 257 10.351-75 223 8.9 204 8.176-100 137 5.5 130 5.2101 and above 236 9.4 235 9.4Total 2,501 100.0 2,501 100.0

Large Livestock Ownership

The number of large livestock owned may be considered as one of the indicators of the

economic strength of the rural households. Table 3.3 presents data on large livestock

ownership of the respondents’ households. The Table shows that about two-thirds (65%) of

the households do not own large livestock at present. The proportion was slightly lower

(62.9%) before. Also, no significant changes have occurred since enrollment in the

ownership of one, two, three or more heads of large livestock.

Table 3.3Large livestock owned by the borrowers’ households

Number of large livestock

At present Before enrollmentNo. of respondents % No. of respondents %

0 1625 65.0 1574 62.91 275 11.0 333 13.32 294 11.7 341 13.63 and above 307 12.3 253 10.1Total 2,501 100.0 2,501 100.0

24

Food Intake

Relevant data on food intake status are presented in Table 3.4. Asked about their present food

intake status compared to that before joining micro-credit programmes, about 40% of the

respondents could not be sure about improvement or otherwise in their access to food and

have also declined to indicate their present food intake status. The rest have indicated their

current food intake status. About 20% of all respondents still suffer from shortages of rice or

other basic food items from time to time, while about 34% of all respondents have access to

basic foods with occasional meat, eggs, and fish. About 7% can afford to include meat, fish,

eggs, etc. in their diet as they please. Clearly, food insecurity, particularly relating to quality

foods, remains a major problem for about half of all respondent households as has been

clearly indicated by them and maybe many more out of those who have not provided

information on their present food intake status as well.

Table 3.4Current food intake by borrowers’ household members

Food intake No. of respondents

%

Unsure about improvement or otherwise since micro-credit enrollment and no comment on the present food intake status

992 39.7

Quantity deficiency: shortages of rice and/or other basic food items

497 19.9

Quality (but not quantity) deficiency: access to sufficient cereal foods and vegetables etc. but only occasionally to meat, fish, eggs etc.

844 33.7

Quantity and quality sufficiency: access to sufficient foods including meat, fish, eggs, etc. as required

168 6.7

Total 2,501 100.0

Of the 1,341 respondents (54% of all respondents) who have indicated that they suffer from

quantitative or qualitative food shortages, 1,048 have indicated why this is so. Some 48% of

these respondents have indicated that overall household incomes, from various sources

including micro-credit-based activities, remain low while the other 52% have directly blamed

the weekly loan repayment requirement starting just one week after the taking of the loan as a

major reason constraining their ability to improve their access to food (quantity and/or

quality). The second answer is in reality subsumed is the first, the implication being that

micro-credit based activities have not been of much help in the enhancement of their incomes

25

sufficiently to enable them to improve their food intake after meeting repayment obligations.

(Table 3.5). A small number of respondents (168 or 7% of all respondents) who eat well,

including meat, fish, eggs etc. as they please have mentioned micro-credit-based activities as

being a contributory factor in this regard.

Table 3.5Reasons for failure to improve access to food in terms of quantity and/or quality

(the respondents here include those who have stated that they suffer froma lack of access to sufficient food in terms quantity and/or quality)

Reason for quantity and/or quality food deficiency suffered

RespondentsNo. %

Low household income from various sources 499 47.6Weekly loan repayment requirement 549 52.4Total 1,048 100.0

Access to Health Services

Access to health services of the respondents at present and before enrollment is shown in

Table 3.6.

Table 3.6Access of the borrowers’ households to health services

Access to health care At present Before enrollment

No. of respondents

% No. of respondents

%

Cannot/could not afford to go to doctors; don’t/did not go to quacks 1,056 42.2 1,504 60.1

Treatment taken from quacks 722 28.8 892 35.7Treatment taken from qualified doctors 589 23.6 68 2.7Treatment taken from qualified doctors and health centres 122 4.9 32 1.3No comment 12 0.5 5 0.2Total 2,501 100.0 2,501 100.0

The Table shows that there has been significant improvement in access to health services of

the households since enrollment. The proportion of the respondents who could not afford to

26

go to qualified doctors or went to quacks for treatment has declined from 96% to 71%. Also,

the proportion receiving treatment from qualified doctors and health centres was about 4%

before enrollment, which is now about 29%. The reasons for the improvements in the access

to health services since enrollment as reported by 771 respondents are shown in Table 3.7.

Table 3.7Reasons for the improvement in access to health services

Reason No. of respondents

%

Mainly influence of micro-credit 244 31.6Largely influence of awareness raising by health NGOs and increased availability of health facilities 527 68.4Total 771 100.0

Some 32% of those who now have access to improved health services have said that the

improvement has been possible mainly as a result of borrowing from MCIs. The other 68%

have indicated that the improvements have been more due to awareness raising by health

NGOs and increased access to health services provided by government health facilities and

NGOs. But still 71% of all respondents either do not receive proper treatment or take

recourse to treatment by quacks. This indeed is a clear testimony to the persisting extremely

poor availability of health services in the rural areas of Bangladesh.

Sanitation

From Table 3.8 it will be seen that about 28% of the borrowers’ households now have

sanitary latrines but they did not before enrollment. In the case of others status-quo remains

such that no sanitary latrines before and now for 35% of the households, sanitary latrines

before and now for 19% of the households, and no latrines of any type before and now for

about 8% of the households.

The reasons for the switch, as given by those who use sanitary latrines now but did not

before, are reported in Table 3.5. It may be seen from this Table that only about one-third of

those who are now using sanitary latrines but not before enrollment have indicated that the

change over has been mainly due to micro-credit-inspired and facilitated. But two-thirds say

27

that the improvement they have achieved in this regard is mainly because of persuasion and

support from other organizations including both governmental and non-governmental and the

taking of micro-credit has not been directly influential in this regard.

Table 3.8Status of latrines in the borrowers’ households

Status of sanitary latrine Frequency %Sanitary latrine before and also now enrollment 884 35.3Non-sanitary latrine before but sanitary latrine now 707 28.3Sanitary latrine before and now 476 19.0No latrine of any type before and now 193 7.7Non-response 241 9.6Total 2,501 100.0

Table 3.9Reasons for improvement in the conditions of latrines used

Reason No. of respondents %Mainly due to micro-credit 232 32.8Mainly due to reasons other than micro-credit1

467 66.1

No response 8 1.1Total 707 100.01. Awareness raising by and support from other organizations, both government and non governmental.

Impact on Education

Table 3.10 presents data on the impact of micro-credit on education in the borrowers’

households. In the case of 26% of the respondents, children do not go to school on a regular

basis now as they did not before enrollment. In the case of 18% of the respondents, no child

went to school before enrollment but now all the children do go regularly. In the case of 7%

of the respondents, only boys went to school but now girls also go to school. In the single

largest proportion of the households (38%), all the children used to go to school before and

they do so now.

Clearly, therefore, only in about one-fourth of the borrowers’ households, there has been an

improvement either in terms of all children or girls going to school now, while they did not

before. Moreover, it appears that micro-credit is not the main factor behind the positive

28

changes in the education of children. More important reasons include awareness raising and

grants provided to girls if enrolled in schools. (Tables 3.11 and 3.12).

Table 3.10Children’s education in the borrowers’ households

as of now compared to that before enrollment

Status of children’s education Frequency %No children go to school now, did not do so before

642 25.7

Only son(s) used to go to school before enrollment but girls also go now

162 6.5

No child went to school before enrolment, all children go now

455 18.2

All children used to go to school before and the same is true now

953 38.1

Non-response 289 11.5Total 2,501 100.0

Table 3.11Reasons why girls also go to school now, while they did not before enrollment

Reason Frequency %Micro-credit 45 27.8Other reasons* 102 62.9Non-response 15 9.3Total 162 100.0*Include awareness raising through campaign by concerned NGOs and government agencies and grants given to girls if enrolled in schools.

Table 3.12The reasons why no children went to school before but all the children go to school now

Reason Frequency %Micro-credit 71 16.0Other reasons* 374 84.0Total 445 100.0*Include awareness raising through campaign by concerned NGOs and government agencies and grants given to girls if enrolled in schools.

Family Income

29

It will be seen from the Table 3.13 that the total monthly income per family of about a quarter

of the respondents is less than Tk.3,000. Assuming that there are, on average, five members

in a family, the per capita income is Tk.600 per month. Thus, given that the per capita income

of the rural poor in the country, as of 2004, is Tk.562 (see in Bibliography: MoF 2006, p.

142), one quarter of the respondent households are generally at or below the per capita

income of the rural poor. About 41% of the households have monthly income of between

Tk.3,000 and Tk.5,000, while that of about 28% between Tk.5,000 and Tk.10,000.

Table 3.13Distribution of respondents by monthly family income categories

Monthly family income category No. %

<3,000 641 25.63,000-<5,000 1,022 40.95,000-<10,000 689 27.510,000-<15,000 108 4.315,000-<20,000 19 0.820,000 or more 22 0.9Total 2,501 100.0

Overall Conditions of Living

The relevant data are shown in Table 3.14. It will seen from the Table that 35% of the

respondents are somewhat better off while 26% are somewhat worse off with 24%

experiencing no changes to report. But, while 14% of the respondents have reported as being

much worse off, only 1.5% indicated that they are much better off. In general, therefore,

micro-credit does not appear to have made much of a difference to the living conditions of

the borrowers’ households.

Table 3.14Overall living conditions at present compared to before enrollment

Living conditions at present compared to before enrollment

Frequency %

Much better 37 1.5Somewhat better 865 34.6No change 596 23.8Somewhat worse 648 25.9Much worse 349 14.0Non-response 6 0.2Total 2,501 100.0

30

In terms of reasons given by those who are somewhat better off include in addition to micro-

credit, employment of one or another of the formerly unemployed family members and

increased income from sources other than micro-credit. On the other hand, those who are

worse off have indicated that the increase in incomes from micro-credit related activities have

not been significant. Also they have had increases in their family sizes as well as health

problems of family members disabling them to earn incomes.

Asked as to whether they are satisfied or not about their present living conditions, the

distribution of the respondents is quite similar to that reported in the above paragraph. About

23% are indifferent, i.e. they are neither satisfied nor dissatisfied, while 27% are satisfied and

a much larger proportion (50%) are dissatisfied or highly dissatisfied. (Table 3.15).

Table 3.15Taking everything into consideration are the respondents satisfied

or not with their present living conditions?

Satisfaction level Frequency %Very satisfied 18 0.7Satisfied 658 26.3Neither satisfied nor dissatisfied 568 22.7Dissatisfied 883 35.3Very dissatisfied 372 14.9Non-response 2 0.1Total 2,501 100.0

It is indicated by the responses relating to the present living conditions compared to that

before enrollment and the level of satisfaction with the present living conditions that micro-

credit has not contributed much to poverty alleviation, much less on a sustained basis.

Future Socio-economic Perspectives Primarily Depending on Micro-Credit

Asked as to how they see their future socio-economic prospects if they rely primarily on

micro-credit, i.e. if the micro-credit is the main vehicle for socio-economic improvement,

only about 36% of the respondents have expressed the opinion that they see good future

prospects, while about 19% are not sure and 34% foresee that their socio-economic

conditions will deteriorate. Clearly, the perception of the majority of the respondents is that

they do not foresee improvements or that there will be a deterioration. (Table 3.16).

31

Table 3.16Future socio-economic prospects relying primarily on micro-credit

Perceived prospect Frequency %Very good 16 0.6 Good 875 35.0Neither good nor bad 472 18.9Bad 618 24.7Very bad 241 9.6Non-response 279 11.2Total 2,501 100.0

A further question was asked as to whether there had been any change in their social position

following enrollment. Only about 4.6% of the respondents have said that they are now more

respected, while another 23% have said that their social interaction have increased. About

56% have reported no change in their social position, and about 13% have said that their

social position has deteriorated. (Table 3.17). Given these outcomes, the comments made by

the respondents about future prospects seem to be based on how things have evolved for them

in the past, from socio-economic point of view.

Table 3.17Changes, if any, in the social position of the borrowers since enrollment

Change is social position Frequency %Socially more respected now 116 4.6No change 1412 56.4Social interactions have increased 567 22.7Deterioration in social position 330 13.2Others 76 3.1Total 2,501 100.0

Recapitulating the Major Findings In the context of socio-economic impact of micro-credit, several socio-economic

variables have been taken into consideration and the situation at the time of the survey

has been compared with that before enrollment in possible cases. The following key

findings may be noted.

There is virtually no change in the pattern of ownership of homestead land, with about

92% owning less than 25 decimals, both now and before enrollment.

32

In the case of cultivable land ownership also the pattern is about the same now as was

before enrollment. Some 76-77% of the micro-credit receiving households own less than

50 decimals and may, therefore, be categorized as technically landless, both before

enrollment and now. The proportions owning 50-75 decimals and above are just about the

same before and now (13-14% and 9% in the two categories respectively).

In the ownership of large livestock, again there is not much change to report. About two-

thirds of the respondents own no large livestock, while of the other third own one or two,

both before and now.

In the case of food intake, about 40% of the respondents are unsure about a change one

way or the other and also have not reported on their present food intake status. It is

important to note that about 20% still suffer from shortages of rice and/or other basic food

items and another 34% suffer from inadequate access to sufficient quality foods (which

may include meat, fish, egg, etc.) although they have, perhaps, sufficient access to cereal

food and vegetables. Only about 7% have access to balanced food. Clearly, therefore,

there has not been a significant improvement in relation to access to food in terms of

quantity, quality, or both since enrollment. Those who have indicated that they suffer

from qualitative or quantitative food shortages have identified the reasons as being

persisting low household incomes from various sources including micro-credit related

activities and high levels of weekly loan repayment requirement.

There has been a notable improvement in terms of access to health services. In fact, the

proportion of respondents’ household members receiving treatment from qualified

doctors and health centres has increased from about 4% before enrollment to about 29%

now. On the other hand, there has been a decline in the proportion of respondents not

going to doctors and receiving treatment from quacks, from about 96% before to about

71% now. That 71% still do not receive proper treatment or go to quacks is a testimony to

the extremely limited health services in rural Bangladesh. Of the respondents who are

now receiving improved medical services, about a third have said that this has been

mainly due to micro-credit, while two-thirds have indicated that this has been more due to

awareness raising by concerned government agencies, health NGOs and others and

33

increased availability of health services from government health facilities and also from

NGOs.

In the case of sanitary latrines, of about 28% of the respondents who now use sanitary

latrines but did not before enrollment, about one-third have indicated that the

improvement has been mainly inspired and facilitated by micro-credit while two-thirds

are of the opinion that the more important reasons include awareness raising by

concerned government and nongovernmental organizations and others and availability of

advice and cheap latrines from concerned government agencies and NGOs.

An improvement relating to education of children including girls has been reported by

only about 25% of the respondents. However, 64% of those respondents, in whose case

girls go to school now but not before, have pointed out that the main reasons behind this

development include campaigns by concerned government agencies and NGOs and grants

given to girls through government programmes when they enroll in schools. Only about

28% have suggested that micro-credit has been the main facilitating factor. Of those

respondents in whose case no children went to school before but all do so now, 84%

attribute it to educational campaigns by government and nongovernmental agencies and

grants to girl students. In the case of about 26% and about 38%, respectively, no children

go to school now and also did not go before and all children used to go before and they do

so now.

The data provided by survey respondents on family income are not always of very good

quality. However, the data provided show that in the case of about two-thirds of the

respondents, the monthly family income lies between Tk.5,000 and Tk.10,000, or

assuming an average family size of five, between Tk.1,000 and Tk.2,000 per head per

month. About a quarter of the respondents have indicated that their family incomes are

Tk.3,000 or less per month, or Tk.600 or less per head per month. Thus, given that the per

capita income of the rural poor in the country as of 2004 is Tk.562, one quarter of the

respondent households are generally at or below the average incomes of the rural poor.

Monthly household income is more than Tk.10,000 for only about 6% of the respondents.

34

While 34.6% of the respondents have indicated that their present overall living

conditions are somewhat better and another 1.5% much better, about 26% have indicated

that their present overall living conditions are somewhat worse and another 14% much

worse, compared to before enrollment. About 24% have experienced no change. These

data indicate that micro-credit receivers have mostly remained marginal in relation to

their living conditions as was the case before enrollment.

In response to a further question as to whether they are satisfied with the present

living conditions, some of those who indicated that their present living conditions are

somewhat better off than before enrollment are still not satisfied with their present living

conditions. Thus, only 26% of the respondents are satisfied with their present living

conditions and only another 0.7% highly satisfied. Dissatisfaction has been indicated by

about 50% (35.3% dissatisfied and 14.9% very dissatisfied). About 23% are neither

satisfied nor dissatisfied with their present living conditions. All this information

(presented in this and the previous paragraph) relating to living conditions of the

respondents suggests that micro-credit has not contributed much to poverty alleviation,

must less on a sustained basis.

As to the future prospects of socio-economic improvement relying primarily on

micro-credit, about 35% of the respondents believe there are good prospects and a similar

proportion believe the future prospects are bad (24.7%) or very bad (9.6%). About 19%

are not sure whether the future prospects are good or not. In response of a further question

relating to the social position since enrollment, 56% have reported no change, while in the

case of 13% the social position has in fact deteriorated. Only 4.6% of the respondents

have said that they are now socially more respected and in the case of another 23% social

interactions have increased. Once again, it is seen that micro-credit, in majority of the

cases, has not led to an improvement in the social standing of the borrowers.

35

Chapter 4

RATE OF INTEREST, COST OFBORROWING, LOAN REPAYMENT

AND VELOCITY OF CREDIT CREATION

Rate of Interest and Cost of Borrowing

The rate of interest charged by different MCIs to the borrowers at the time of sanctioning

loans and for fixating of installments is shown in Table 4.1. It will be seen from the Table

that the nominal rate of interest charged by the leading MCIs vary from 10% to 15%, while

there are other MCIs which charge interest rates ranging from 10% to 18%.

Table 4.1Base rates of interest charged by different MCIs

Name of MCI Rate of interest charged (%)Grameen Bank 10BRAC 15ASA 15PROSHIKA 14RDRS 12Palli Daridra Bimochon Pratisthan 15Others (generally) 10-18

The effective interest rate (IRAB), which is based on average balance of loan, and the rate of

effective cost of credit (RECC) for a loan of Tk.5,000 have been computed for Grameen

Bank, BRAC, ASA and PROSHIKA and are shown in Table 4.2. Detailed computations are

shown in Annex 4.

Table 4.2Interest rate based on average balance (IRAB) of loan and rate of effective cost of

borrowing (RECC) for four large MCIs

MCI IRAB (%) RECC (%)Grameen Bank 26.6 30.5BRAC 40.8 44.8ASA 40.8 44.8PROSHIKA 38.6 42.3

36

While IRAB and RECC in the case of Grameen Bank are as high as 27% and 31%

respectively, these rates are much higher at 39-41% and 42-45% respectively in the case of

BRAC, ASA and PROSHIKA.

The Amount of Loan Granted vis-à-vis the Amount Received by the Borrowers

Grameen Bank and many other MCIs deduct an amount, usually 5% of the loan granted, at

the source as obligatory savings. ASA, BRAC and PROSHIKA do not make such a

deduction, though. The amount received by the borrower out of a loan granted is net of such a

deduction when made. Thus, for example, if a loan of Tk.5,000 is granted and a deduction of

5% is made as obligatory savings, the amount that will be given to the borrower is Tk.4,750.

Of course, the obligatory savings belong to the borrowers but they do not have access to this

money as long as they remain clients of the MCIs concerned. On leaving the MCIs they are

paid the amount with interest, the rate of interest being determined by the respective MCIs.

Also, a weekly saving is usually required by the MCIs to be deposited to the respective MCIs,

which is also refunded to the borrowers with interest, again the rate is determined by the

concerned MCIs if they discontinue their enrollment. A very recent development is that some

MCIs now release part of the total amount so saved by each particular borrower along with

the interest accrued on request during the time she/he remains a client. This is not, it has been

understood, applicable to a running loan, i.e. in respect of savings arising from a loan which

is still being repaid.

When to Pay the First Installment

There are 3,240 responses from 2,493 respondents in this regard, given that multiple sources

of credit have been used by some of the respondents and one response relates to one loan.

About three-fourths of the cases, the 1st installment had to be paid after one week following

the disbursement of the loan, while about a quarter have said that they are required to pay the

1st installment after two weeks. In the case of less than one per cent of the respondents, three

weeks or more are allowed. (Table 4.3)

37

Table 4.3Time allowed before the first installment is to be paid

Time allowed in week(s) Frequency of responses % of respondents (2,493)No. %

One week 2,379 73.5 95.4Two weeks 837 25.8 33.6Three weeks and more 24 0.7 1.0Total 3,240 100.0 130.0Note: 2,493 respondents provided answers, some multiple, to this question. Eight have not responded to this question.

How the First Installment was Paid

As some of the borrowers have taken loans from two or more sources at the same time, there

are multiple responses regarding this question also, totaling 3,144 offered by 2,471

respondents. Some 30 respondents have not provided an answer to this question.

Table 4.4Sources of money for paying the first installment

Source Frequency of responsesNo. %

Trade using micro-credit taken 797 25.3Money put aside out of the particular loan 546 17.4Sale of labour 65 2.1Out of previous savings 601 19.1Out of earnings of husband or son from work not related to micro-credit taken

1,120 35.6

Money received as loan has been given to another person who pays the installments

15 0.5

Total 3,144 100.0

It will be seen from Table 4.4 that the relatively more important source of money used (37%)

to pay the 1st installment is the earnings of husband or son from activities which are not

related to micro-credit taken. In 19% of the cases, the source of money for the 1 st installment

has been mentioned to be previous savings and in another 17% of the cases the source has

been money kept aside from the particular loan taken. In 25% of the cases, the 1 st installment

was paid from income generated through trade using the particular micro-credit. Clearly,

therefore, in three-fourths of the cases, there had to be another source for the borrowers to be

able to pay the 1st installment. Obviously, except from some quick trading activities, it is not

possible to generate any income in a week.

38

Timely Payment of and Difficulties Faced in Paying Installments

About 52% of the respondents have said that they are able to pay the installments regularly

without having to take hardship measures, while about 48% face difficulties in paying

installments (Table 4.5).

Table 4.5Are difficulties faced by the borrowers in paying installments?

Difficulties faced or not Frequency of responsesNo. %

Face difficulties, and take hardship measures to manage the payment

1,189 47.5

Able to pay without having to take recourse to hardship measures

1,309 52.3

Non-response 3 0.2Total 2,501 100.0

Those borrowers (52.3%) who are able to pay the installments without having to take

hardship measures can do so out of incomes generated from economic activities run using

micro-credit or from other sources or by cutting down on food and other essential

expenditures. But for many of the respondents the payment of weekly installments constrains

their financial ability to improve their living conditions. In fact, about 96% of the respondents

have said that after paying a particular installment they always feel the pressure that the next

installment is just one week away and money has to be found to pay it or unpalatable

consequences may follow. They, therefore, have to watch out constantly and a large number

of them cannot but take recourse to whatever means possible for securing funds to pay the

installments, which make the concerned borrowers more vulnerable.

It will be seen from Table 4.6 that of the 47.5% of the respondents who face difficulties and

have to take hardship measures to manage the payment of installments some 42 respondents

or 3.5% have said that on occasions they have failed to pay the installments. As a

consequence, they were threatened with expulsion and confiscation of their assets. This threat

is in effect implicit collateral. In some cases, confiscation in fact did happen. The large

majority (72%) of those who face difficulties, in fact, managed to pay the installments by

borrowing money from money lenders and others at high rates of interest, while another

about 8% have borrowed from other MCIs to pay the installments of a loan taken from an

39

MCI. About 10% have sold goats or household effects at times of difficulties faced in paying

installments.

Table 4.6When in difficulty, how is installment managed to be paid?

How managed? Frequency of responsesNo. %

Borrow money from money lenders and others at high rates of interest

871 72.3

Sale of goats or household effects 114 9.6Borrow money from other MCls 91 7.7Face punishment in case of failure to pay up—no further loans; threat of taking away of assets, which is sometimes executed

42 3.5

Non-response 82 6.9Total 1,189 100.0

Velocity of Credit Creation by MCIs

Assumptions and explanations

The working formula for velocity of credit creation is:

where, VC = velocity of credit creation; X = amount of credit created per weak; IC = initial credit; n=51

Initial credit of Tk.5,000 and an obligatory saving of 5% are assumed.

10% flat or base rate of interest, as charged by Grameen Bank, i.e. Tk.120 against Tk.5,000 recovery per week, is assumed; a higher base rate of interest, other things being equal, will lead to a higher amount of additional credit creation.

Grameen Bank and MCIs generally deduct an obligatory saving of 5% although BRAC, ASA, and PROSHIKA now do not. So (and also because a 10% base rate of interest as charged by Grameen Bank is assumed) the velocity of loan creation estimated below applies to Grammen Bank and other MCIs which fulfill these two conditions, not to BRAC, ASA, PROSHIKA and other MCIs which do not require an initial obligatory saving and charge different rates of interest such as 14-15%.

Weekly savings deposited by the borrowers to the MCIs are not taken into account in the present exercise. (It may be pointed out, however, MCIs generally require the borrowers to deposit weekly savings of Tk.10 or Tk.20 or more. If weekly savings were also taken into consideration, the credit creation would be higher than has been computed below. In the case of MCIs, which

40

do not require an initial obligatory saving, the credit creation is also very substantial, being based on the revolving funds generated through installments and weekly savings received and the base interest rates charged.)

Perfectly elastic demand for loan is assumed.

Two loanees on the first day of first week (W0) is assumed.

√ Additional loan disbursement in W0 is Tk.262.50:

Sanctioned loan for 1st loanee is 5,000, but the 1st loanee gets Tk.4,750 + (Tk.250 is deposited with the MCI). The 2nd loanee gets Tk.237.50 + (Tk. 12.50 deposited with the MCI)

So, the initial total loan fund = Tk.5,000 + Tk.250 + Tk.12.50=Tk.5,262.50; and, hence, the additional disbursement for W0 = Tk.5,262.50 – Tk.5,000.00 or Tk.262.50

√ Additional credit creation in W1 is Tk.126.30, composed of: Tk.120 [i.e. recovery from the initial credit of Tk.5,000) + Tk.6.30 (i.e. recovery from Tk.262.50 at the end of W0, which is: Tk.{262.50 x (120÷5,000)} or Tk. (262.50 x 0.024) or Tk.6.30]

√ Every week, in addition to the recovery of Tk.120 from the initial loan of Tk.5,000, Tk.6.30 will newly come on stream in terms of recovery from the loan of Tk.262.50 granted at the beginning of W0 and a further amount from the new loan granted at the beginning of every week. So, in W2, the new credit creation is Tk.{(120+6.30)+3.03}=Tk.126.3+3.03=Tk.129.33. Tk.3.03 is the recovery from the newly disbursed credit of 126.30 in W1 and is available for disbursement in W2.

√ This procedure applies for the computation of additional credit created in W3, and so on.

100% rate of recovery is assumed.

41

Table 4.7 MCI’s credit creation over one year under the assumptions stated above

Week(W0...W51)

Weekly credit

creation(Tk.)

Additional weekly credit

creation in terms of recovery

from newly disbursed credit

(Tk.)

Week(W0....W51)

Weekly credit

creation(Tk.)

Additional weekly credit

creation in terms of recovery

from newly disbursed

credit (Tk.)W 0 262.50 .. W27 233.99 5.62W 1 126.30 3.03 W 28 239.61 5.75W 2 129.33 3.10 W 29 245.36 5.89W 3 132.44 3.18 W 30 251.25 6.03W 4 135.61 3.25 W 31 257.28 6.17W 5 138.87 3.33 W 32 263.45 6.32W 6 142.20 3.41 W 33 269.78 6.47W 7 145.61 3.49 W 34 276.25 6.63W 8 149.11 3.58 W 35 282.88 6.79W 9 152.69 3.66 W 36 289.67 6.95W 10 156.35 3.75 W 37 296.62 7.12W 11 160.10 3.84 W 38 303.74 7.29W 12 163.95 3.93 W 39 311.03 7.46W 13 167.88 4.03 W 40 318.49 7.64W 14 171.91 4.13 W 41 326.14 7.83W 15 176.04 4.22 W 42 333.97 8.02W 16 180.26 4.33 W 43 341.98 8.21W 17 184.59 4.43 W 44 350.19 8.40W 18 189.02 4.54 W 45 358.59 8.61W 19 193.55 4.65 W 46 367.20 8.81W 20 198.20 4.76 W 47 376.01 9.02W 21 202.96 4.87 W 48 385.04 9.24W 22 207.83 4.99 W 49 394.28 9.46W 23 212.82 5.11 W 50 403.74 9.69W 24 217.92 5.23 W 51 413.43 9.92W25 223.15 5.36 Total 12,649.57W 26 228.51 5.48

Table 4.7 shows that starting with a credit of Tk. 5,000 granted to a borrower, an MCI

generates, under the assumptions specified above, a total credit of Tk.12,649.57 over one

year, which is 253% of the initial credit provided (i.e Tk. 5,000). The velocity of credit

creation is:

42

VC = = = 353%

where, VC=Velocity of credit creationIC= Initial capitalAC=Additional credit generated during one year

Micro-credit is now a huge operation in Bangladesh involving a large number of MCIs. It has

been suggested by officials of some of the MCIs and other knowledgeable persons that the

main attraction of micro-credit operation in Bangladesh is that credit creation to such large

extents as indicated above is possible, which helps the MCIs not only to sustain themselves

but also prosper. But micro-borrowing does not usually, as has been seen earlier in this book,

provide the borrowers with an economic base to break out of income poverty and move on to

significantly higher levels of income and living standard. Moreover, many get caught up in an

increasing debt-burden syndrome and slide further into poverty.

Recapitulating the Major Findings

While the base rate of interest charged by large MCIs varies from 10-15%, the

effective rate of interest has been found to be between 2.66 to 2.76 times the respective

base rate. The cost of credit borne by the borrowers are even higher, around three times

the base rates. The high effective rate of interest and cost of credit adversely impact on

the borrower’s income and socio-economic prospects.

Also, the first installment has usually to be paid just one week after a loan is received.

One week is too short a time to generate income from economic activities other than

perhaps petty trade. In fact, three-fourths of the responses (i.e. loans) indicate that money

had to be found from other sources such as setting aside an amount out of the particular

loan, sale of labour, previous savings, and earnings of husband or son for work not related

to micro-credit taken.

About 48% of the respondents have indicated that they face serious difficulties and

have, frequently, to take hardship measures such as borrowing money from money

lenders and others at high interest rates, borrowing money from other MCIs, and sale of

goods and other household effects to manage to pay the installments. Some of the

respondents have mentioned having faced punishment for failure to pay up. In fact, most

43

of the respondents (96%) have said that they are always under pressure to manage money

to pay the next installment which has to be paid just one week after the last payment. The

pressure is often intense because unpalatable consequences follow the non-payment of an

installment on time. In many cases they, therefore, feel quite vulnerable and cut down

expenditure on food and other essentials to be able to pay installments on time, a category

which includes many from among the 52% of the respondents who have said that they

were able to pay installments regularly.

An exercise on how much credit an MCI creates over a year building on a loan given

to a person at the beginning of the year has been carried out under certain assumptions. It

has been found that, at a 10% base rate of interest and taking into account an initial

obligatory savings deduction of 5% but not taking into account weekly savings, the credit

creation over a year is 253%, the a velocity of credit creation being 353%. In Taka terms,

based on an initial credit of Tk.5,000 and the other specified assumptions, credit creation

over one year is Tk.12,650. Credit creation will be larger when the base rate of interest is

larger and weekly savings are taken into account. When no initial obligatory saving is

required, the credit creation, based on weekly installments and savings received and the

rate of interest charged, will be very substantial.

It has been found that one of the main attractions of micro-credit is the quick

generation of funds at such high rates as indicated above. In reality, therefore, micro-

credit is a very good business for the MCIs. The quick generation of large credit funds

helps the MCIs to sustain and enlarge their operations and prosper. The borrowers, on the

other hand, as has been found in this study, continue to remain at low, even below

poverty, level income. They are constantly under pressure because of the need to find

money to pay the installments on time. Clearly, therefore, micro-credit is good business

for the MCIs; but, unfortunately, not so for the borrowers. Many micro-borrowers, in fact,

get deeper into debt and poverty in the process.

44

Chapter 5

MICRO-CREDIT AND WOMEN EMPOWERMENT

Management of Micro-Credit Received by Women

Of the 2,482 female borrowers interviewed in the present survey, only about 10% have said

that they run with full authority the economic activities undertaken using micro-credits they

receive. But, almost 90% have said that they either manage the activities in consultation or

partnership with their husbands or other members of the family or husbands/other members

manage the activities and they do not participate at all. It has not been possible to get, from

the data collected, a breakdown between those female borrowers who participate (with

husband or another member of the family) in managing the use of credit and those who do

not at all participate. This issue remains grey and needs further probing. However, there is

definitely a large question mark relating to the women borrowers being in control of the

management of micro-credit they receive from MCIs. (Table 5.1).

Table 5.1Management of the use of micro-credits received by women

Who manages? Frequency %Borrowers in full control 253 10.2Borrowers in consultation/partnership with husbands or other members of the family 2,221 89.5Non-response 8 0.3Total 2,482 100.0

Participation of Female Borrowers in Family Decision Making

In so far as family decision marking is concerned, about 36% of the female borrowers are

now given due importance but not so before enrollment. Another 36% are now occasionally

given more importance than before. No improvement in this regard has been reported by

about 28%.

It is indicated by these findings that since women are the borrowers of micro-credit and the

money so received is available to the family, women are now given more importance in

45

making family decisions, as about two-thirds of the female respondents have said that they

are always or occasionally taken more seriously now than before enrollment. (Table 5.2).

They are valued more when they are micro-credit receivers as a conduit for some money

coming into the family but not so much in terms of human dignity for human beings, as

indicated by many respondents. Notwithstanding this view, it is good that women micro-

borrowers are given more importance in making family decisions; this beginning may lead,

once its benefits are seen and understood, to male-female balanced roles in family decision-

making.

Table 5.2Importance of the views of female borrowers

of micro-credit in family decision making

Importance Frequency %Given due importance now, not before 888 35.8No importance, no change from before 694 28.0Occasionally given more importance than before 895 36.0Non-response 5 0.2Total 2,482 100.0

Physical/Mental Torture Inflicted on the Female Borrowers

Asked as to whether any member of a female borrower’s family inflicts physical or mental

torture on her, about 28% have replied in the affirmative and about 72% in the negative. It

appears that a notable proportion of the female borrowers are subjected to family torture,

physical or mental. (Table 5.3).

Table 5.3

Is physical or mental torture meted out to female borrowers from one or another member of their families?

Physical or mental torture Frequency %Yes 692 27.8No 1,778 71.7Non-response 12 0.5Total 2,482 100.0

The 692 female borrowers, who said that they were subjected to physical or mental torture by

one member or another of her family, were further asked as to who was the main culprit. The

usual response is the husband. Demand for dowry and his ego and perceived superiority in

46

the case differences of opinion relating to family matters have been suggested to be among

the triggers of torture inflicted by the husband. Asked further whether or not torture has

increased or decreased since enrollment, about 60% of them have said that the intensity of

torture has increased since enrollment, while for about 27% it is about the same as before.

Only 13% have said that it is somewhat less than before. (Table 5.4).

Table 5.4Has the intensity of torture increased or decreased since enrollment? (This question was asked to those who still face torture in the family)

Intensity of torture since enrollment

Frequency %

Increased since enrollment 412 59.5About the same as before 91 13.2Somewhat less than before 189 27.3Total 692 100.0

Dowry

Finally, about 82% of the female respondents have said that exchange of dowry has increased

in the families of micro-credit receivers since enrollment. This is indeed unfortunate that such

a social menace has increased so much in the families of micro-credit receivers. (Table 5.5).

This has been so it would seem that micro-credit receiving families are perceived to be able

to pay dowry more than others.

Table 5.5 Exchange of dowry in the families of

Micro-credit receivers since enrollment

Dowry status Frequency %Increased since enrollment 2,036 82.0Decreased since enrollment 60 2.4Same as before 374 15.1Non-response 12 0.5Total 2,482 100.0

Recapitulating the Major Findings

Only about 10% of all female respondents (numbering 2,482) have said that they are in

full control of running the economic activities undertaken using micro-credits they

received. The other 90% run them either in consultation/partnership with their husbands

47

and other members of their respective families or they do not participate at all. A

breakdown between the two categories could not be obtained from the data generated.

About 72% of the female respondents are now always or occasionally given more

importance in family decision-making compared to the situation before enrollment.

Obviously, whether or not the female borrowers are in control of the use of micro-credits

they received, their importance in the family has gone up as they can now bring in money

to the family through micro-credits from MCIs. This certainly is an improvement but a lot

more needs to happen regarding their empowerment including in relation to decision-

making concerning and management of economic activities undertaken with micro-

credits received.

About 28% of the female respondents still face physical or mental torture from one or

another member of the family, usually the husband. The intensity of torture has increased

in the case of 60% of these respondents, while in the case of 40% it’s about the same or

somewhat less than before.

It is very unfortunate that exchange of dowry has increased in the micro-credit

receiving households as reported by 82% of the female respondents. This is a social

menace against which there is strong opinion among the social reformers. But, it seems

that since women are now able to secure some money though micro-credit, their families

are more pressured than before to pay dowry to marry off women from their families.

48

EXECUTIVE SUMMARY AND CONCLUSION

Executive Summary

This study is based on data generated through face to face interviews with a country-wide (rural) representative sample of rural micro-borrowers numbering 2,501 (over 99% female). The field work was conducted during January-February 2006.

It has emerged from this study that micro-borrowers have generally remained tied to rudimentary trading, manufacturing, and other economic activities regardless of the length of time they have been micro-borrowing.1 It also appears that micro-credit taken year after year repeatedly is the life line for the micro-borrowers to remain in business once they got involved.

The study results show that some of the micro-borrowers have benefited in terms of reasonable increases in income but in majority of the cases there has not been a significant increase in income and about a quarter earn from micro-credit related-activities and other sources taken together only about or below the average income of the rural poor.

It has also been found that access to adequate food even in quantitative terms remains insecure for about one-fifth of the respondents interviewed, while this is so for about another third in qualitative terms if not in quantitative terms. About 39% are unsure of any change in their access to food since enrollment and only about 7% have access to sufficient food in both qualitative and quantitative terms. Also, there has not been any improvement worth noting in terms of ownership of land (both homestead and agricultural) and large livestock since enrollment.

The finding that 71% of the respondents still cannot secure proper treatment or go to quacks is a testimony to the extremely poor health services in rural Bangladesh. However, as that figure is down from 96% before enrollment, there has been some improvement in access to health services. But it has been indicated by the large majority of those who have now access to better health services that the more important reasons for the improvement are awareness building by concerned government and nongovernmental organizations and availability of health services from them.

1 The larger enterprise credits provided by some MCIs on a very limited scale are not included in this study.

49

Regarding sanitation, only about 28% of the respondents have switched over to sanitary latrines since enrollment. But, once again, majority of them have suggested that the more important reasons are awareness building by concerned government and nongovernmental organizations and availability of advice of cheap latrines from them. Others were using sanitary latrines before and do so now or do not use such latrines now nor did they do so before.

In the case of children’s education also the more important reasons cited for whatever improvement took place since enrollment in relation to children’s’ education in general and girls’ education in particular include campaigns by government and nongovernmental organizations and also facilities and assistance provided by them.

In terms of overall living conditions, only about one-third of the respondents have indicated some improvement, while the rest have experienced no change or deterioration since enrollment. Clearly, therefore, the majority of the respondents have remained marginal in relation to their living conditions now as was the case before enrollment.

On the satisfaction scale, just over a quarter of the respondents are satisfied, while about 50% are dissatisfied and just under a quarter are neither satisfied nor dissatisfied with their present living conditions. As to the future prospects relying primarily on micro-credit, just over a third believe that the prospects are good but a third are apprehensive of bad prospects. In relation to social position, well over half of the respondents have reported no change and another 13% have reported deterioration, while about 28% have experienced an improvement. For the majority, therefore, there has been no improvement in social standing since enrollment.

Overall, therefore, socio-economic impact of micro-credit, as indicated by this study, is marginal. Obviously, some micro-borrowers have benefited to an extent but many have experienced no improvement. There are also those who have experienced even deterioration in certain respects.

Now, regarding debt burden, the micro-borrowing process seems to continue endlessly for most of the clients of the MCIs. It has been found that while they pay base interest rates between 10% and 15% (in some cases up to 18%), the effective rate of interest and the effective rate of cost of borrowing are as high as 27% and 31% respectively for Grameen

50

Bank and even higher at 39% and 41% for PROSHIKA and 42% and 45% for both BRAC and ASA.

The first installment has to be paid in most cases after one week following the receipt of the credit. It is not possible to generate income within one week except, perhaps, through petty trading. About three-fourths of the respondents have paid the 1st installment by talking recourse to such measures as putting aside money out of the particular loan, sale of labour, previous savings, and earnings of husbands or sons from sources not related to micro-credit. Only about a quarter were able to generate funds within the week by undertaking some trading activity.

Regarding the payment of installments, about 48% of the respondents have indicted that they face difficulties in paying installments and are often obliged to take hardship measures such as borrowing from money lenders and others at high interest rates, borrowing from other MCIs, and sale of goats and other household effects. Of the 52% who have indicated that they are able to pay installments regularly do so out of incomes generated not only from economic activities run by using micro-credit but also from other sources and, not infrequently, they have to cut down on food and other essentials. In fact, most of the respondents (96%) have said that they are under pressure on a continuous basis as the next installment falls due just one week after a particular installment has been paid, knowing that unpalatable consequences will follow their inability to pay up. Generally, therefore, the micro-borrowers appear to remain vulnerable in the context of payment of installments and many become obliged to take such measures which increase their indebtedness and adversely impact on their economic prospects.

The MCIs can generate, as has been shown, huge credit funds (e.g. starting with an initial loan of Tk.5,000, the creation of credit under certain assumptions—including assumptions of 5% initial obligatory savings and 10% base interest rate, but weekly savings ignored—amounts to an additional credit of Tk.12,650 over a period of one year) through their credit supply and repayment collection activities. This is the reason why micro-credit is an attractive business for MCIs, leading to the establishment of hundreds of MCIs in the country, large and small. Such quick multiplication of credit funds helps the MCIs to sustain and enlarge their operations and prosper. But, as seen in this study, micro-borrowers often fail to break out of income poverty and many even get caught up in an increasing debt-burden syndrome and slide further into poverty, let alone moving on to significantly higher levels of income and living standards.

51

As indicated by the results of the study, not much has happened in relation to women’s empowerment through micro-credit. Only about 10% of the respondents have said that they are in full control of the economic activities run by using the micro-credit they take. The other 90% include those who either do not have anything to do about the use of micro-credits they take or they manage them in consultation or partnership with their husbands or other family members. The data generated has not allowed a decomposition of these two categories.

In family decision making, however, about three-quarters of the respondents are either given due importance regularly or at least occasionally now, but not so before enrollment. It appears that since women are now conduits of securing funds for the family through micro-credit, they are allowed to play a greater role in family decision-making. However, about a quarter of the female borrowers currently face physical or mental torture from one member or another of her family, usually the husband. About 60% of them have said that the intensity of torture has increased since enrollment. Another ominous finding is that in the families of some 82% of the female borrowers, exchange of dowry has increased since their enrollment. The pressure for dowry has mounted as it seems to be perceived that micro-borrowing enables the families to pay dowry more than otherwise.

Conclusion

The generally discouraging and in some ways disparaging results thrown up by this study eloquently testify to the severe limitations of such a simplistic approach to poverty alleviation, but do not mean that credit is not useful to the poor people. The problem lies in the approach taken. To start with, poverty is conceptualized extremely narrowly in this approach—in terms of income only. Once income is the only focus, the view taken is that small amounts of credit funds provided to poor people would help them raise their incomes, leading to poverty alleviation and improved living conditions. But, poverty is a comprehensive concept, which has to do with all aspects of life and living, involving both the basic material needs (food, clothing, housing, etc.) and the basic human needs (human dignity, human rights, human capability through education and health, finer values of life, socio-economic equity, moral values, participation in all processes of social transformation, etc.).

If poverty is defined and its alleviation approached from a comprehensive human development perspective underpinned by equity, morality, and participation, then micro-

52

credit could be a useful element within the framework of that comprehensive approach. However, the terms of such credit should be less stringent in terms of both the repayment schedule and the effective rate of interest. It may be recalled here that the rich have access to credit at much more favourable terms.

The basic constraints on the proposed comprehensive approach2 are the existing power relations in society, which enable a small minority to prosper and control the affairs of the state and the economy and condemn the large majority to a lowly and subservient state of living. The ongoing neo-liberalism-based free market paradigm sustains and strengthens the excising power relations.

Towards promoting social transformation that is sustainable and worthwhile from the point of view of all citizens, actions and programmes undertaken must be so formulated as would directly contribute to the empowerment of the poor and excluded multitudes and restructuring of power relations and ensure equity for and promote social solidarity among all citizens.

2 For an elaborate discourse on multifaceted poverty and approaches to its alleviation see [Rahman 2006 in the Bibliography appended].

53

BIBLIOGRAPY

Government of Bangladesh (1998), Fifth Five Year Plan, 1997-2002, PlanningCommission, Ministry of Planning, Dhaka.

Gujarati, D. N. (1995), Basic Econometrics, Third Edition, McGraw-Hill, Inc.

Hashemi, S. M. (1996), “Rural Credit Programs and Women’s Empowerment inBangladesh”, World Development, Vol. 24, No. 4, pp. 635-653, Elsevier Science Ltd., United Kingdom.

Hossain, M. (1984), Palli Daridra Niroshonae Grameen Bank Eaar Proyash,Grameen Bank, Dhaka, April, 1984.

Hossain, M. (1988), “Credit for Alleviation of Rural Poverty: The GrameenBank in Bangladesh”, Research Report no-65, International Food PolicyResearch Institute, Washington, D. C.

Khandker, S. R., M.A.B Khalily, and H. K. Zahid, eds. (1996), Credit Programsfor the Poor: Household and Intrahouesehold Impacts and ProgramSustainability, Vol. I, The Bangladesh Institute of Development Studies (BIDS)and the World Bank, Dhaka.

Jahan, Kuurshed and Mosharaff Hossain (1998), “Nature and Extent of Malnutritionin Bangladesh: Bangladesh National Nutrition Survey, 1995-1996”,Parts 1&2, Dhaka, Institute of Nutrition and Food Science, University of Dhaka.

Majumder, Md. Humayun Kabir (2002), “The Role of Grameen Bank as a Micro-credit

Institution: A Critical Evaluation of Some Selected Areas in Rajshahi Zone.” Ph.D Thesis (unpublished), Rajshahi University.

Majumder, Md. Humayan Kabir (2002), “What does Grameen do to Women Empowerment”? Bank Parikrama, Vol. xxvii, No. 4, BIBM, Dhaka.

Majumder, Md. Humayan Kabir (2005), “The Nature and Extent of Income Generation by the Barrower Households of Grameen Bank: A Quantitative Estimation” presented at Biennial Conference of Bangladesh Economic Association (BEA), 2005, Dhaka.

MoF (2006), Bangladesh Economic Review 2006 (Bangla Version), Finance Division, Ministry of Finance (MoF), Government of Bangladesh, Dhaka, June 2006.

Maloney, C. and A.B.S. Ahamed (1998), Rural Savings and Credit inBangladesh, UPL, Dhaka.

Matin, I. (1998), “Mis-Targeting by the Grameen Bank: A Possible Explanation”,IDS Bulletin, Vol. 29, No. 4, Institute of Development Studies (IDS), United Kingdom.

Osmani, S. R. (1989), “Limits to the Alleviation of Poverty through Non-farmCredit”, The Bangladesh Development Studies, Vol. 17. No.1, pp.1-19, BIDS, Dhaka.

Osmani, S. R. (1990), “Notes on Some Recent Estimates of Rural Poverty inBangladesh”, The Bangladesh Development Studies, Vol. 18, No.4, BIDS, Dhaka.

54

Rahman A. and S. M. Hossain (1986), “Impact of Grameen Bank on the Incomeand Expenditure Pattern of Rural Poor”, Evaluation Project Working Paper, Grameen Bank, Dhaka.

Rahman, A. (1986), Demand and Marketing Aspects of Grameen Bank:A Closer look, UPL, Dhaka.

Rahman, A. (1987), Impact of Grameen Bank Intervention on the RuralPower Structure, BIDS, Dhaka.

Rahman, Md. Anisur (2006), “The Challenge of Human Self-realization - Insights for Poverty and Development Discourse from Grass-roots Experience of Bangladesh”, presented at a seminar on “Poverty, Initiatives of the Disadvantaged and Development”, organized by Research Initiatives, Bangladesh (RIB), Dhaka, 2 December 2006.

Rahman, R. I. (1996), Impact of Credit for Rural Poor: An Evaluation of PalliKarma-Sahayak Foundation’s Credit Programme, BIDS, Dhaka.

Rahman, R. I. (1998), Rural Households Attitude Towards Savings and Demandfor Savings Services, Save the Children, USA.

Rahman, R. I. (2000), “Micro-finance in Bangladesh: Sustained Progress orEmerging Problems?”, Bangladesh Journal of Political Economy, Vol. 15, No. 1, BEA, Dhaka.

Rahman, S. and S. M. Hossain (1988), “Demand Constraints and theFuture Viability of Grameen Bank Credit Programme: An EconometricStudy on the Expenditure Pattern in Rural Households”, The BangladeshDevelopment Studies, Vol. 6, No. 2, BIDS, Dhaka.

World Bank (2005), Bangladesh PRSP Forum Economic Update: Recent Developments and Future Perspectives, Bangladesh Development Series, Paper No. 1, World Bank Office, Dhaka.

World Bank (1995), Micro-credit for Poverty Alleviation—Report of theWB Task Force on Poverty, Micro-finance Program, Washington, D.C.

World Bank (2001), Contents of World Development Report 2000/2001:Attacking Poverty—Overview, World Bank, Washington, D.C.

World Food Programme (1997), Successful Micro-Entrepreneurs: Case Study OfEx-VGD Women, Bangladesh, Dhaka.

Yunus, M. (1987), “Credit for Self Employment: A Fundamental Human Right”,Grameen Bank, Dhaka.

Yunus, M. (1999), “The Grameen Bank—A Small Experiment Begun inBangladesh has Turned into a Major New Concept in Eradicating Poverty”, Scientific American, pp. 114-119, USA.

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Annex 1

EXPANSION OF MIRCO CREDIT PROGRAMMESOF SELECTED LEADING MCIs

Grameen Bank. As of February 2006, Grameen Bank disbursed a cumulative total of Tk.263,837.10 million among 5.77 million borrowers covering 62,089 villages under 64 Districts of Bangladesh. (in Bibliography: MoF 2006, p.158). GB’s portfolio growth rate was 25% according to GB Annual Report, 2004.

ASA. ASA claims itself as the most successful and cost-effective micro-finance institution in the world. It is mentioned that ASA has been implementing its credit activities since 1991 to materialize the dream of poverty free Bangladesh. It is also claimed that till December 2005, ASA has covered 63,226 villages under 511 Thanas of 64 Districts of Bangladesh. (ASA Annual Report 2005). ASA disbursed a cumulative total of Tk.148,200 million among 5.99 million borrowers as of December 2005. (MoF 2006, p.156). BRAC. As of December 2005, BRAC disbursed a cumulative total of Tk.148,643 million among 508 million borrowers (MoF 2006, p.156).

PROSHIKA. As of December 2005, PROSHIKA disbursed a cumulative total of Tk.31,873.00 million among 2.77 million borrowers (MoF 2006, p.156).

Swanirvar Bangladesh. Up to December 2005, it disbursed a cumulative total of Tk.4,706.40 million in credit among 1.02 million borrowers (MoF 2006, p.156).

PKSF. Up to December 2005, PKSF disbursed a cumulative total credit of Tk.20,665.30 million among 5.86 million borrowers through its partner organizations (POs) (MoF 2006, p.158).

BRDB. Up to December 2005, BRDB disbursed a cumulative total credit of Tk.39,617.9 million credits among 2.45 million borrowers (MoF 2006, p.160).

Commercial, Scheduled Specialized Banks. Up to December 2005 Commercial, Scheduled Specialized Banks disbursed a cumulative total of Tk.110,792 million among 9.17 million as micro-credit (MoF 2006, p.160).

Ministries and Divisions. Up to December 2005, Ministries and Divisions disbursed Tk.67,260.02 million (cumulative) among 4.68 million as micro-credit (MoF 2006, p.162).

CDF Statistics (2004). According to CDF, till December 2004 a total of 721 registered NGOs disbursed TK.338,630.56 million (cumulative) among 16.20 million member-borrowers. The overall recovery rate has been shown as 98.79%.

56

Annex 2

DISTRIBUTION OF RESPONDENTS BY DISTRICT

Dhaka DivisionName of Districts Number of respondents PercentageNetrokona 225 9.0Tangail 224 9.0Munsiganj 227 9.1

Total 676 27.1Khulna Division

Name of Districts Number of respondents Percentage Sathkira 102 4.1 Jessore 103 4.1 Narail 102 4.1

Total 307 12.3Barishal Division

Name of Districts Number of respondents Percentage Jalokathi 91 3.6 Bhola 92 3.7

Total 183 7.3

Rajshahi Division Name of Districts Number of respondents PercentageNaoga 224 9.0 Lalmonirhat 226 9.0 Kurigram 224 9.0

Total 674 27.0Sylhet Division

Name of Districts Number of respondents Percentage Habiganj 136 5.4 Sunamganj 45 1.8

Total 181 7.2Chittagong Division

Name of Districts Number of respondents Percentage Chandpur 160 6.4 Brahmanbariya 160 6.4 Chittagong 160 6.4

Total 480 19.2 Grand Total 2,501 100.0

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Annex 3

BACKGROUND INFORMATION ON RESPONDENTS

Table A3.1Distribution of respondents (borrowers) by sex

Respondents No. %Male 19 0.8Female 2,482 99.2Total 2,501 100.0

Table A3.2Distribution of respondents by age

Age (years) No. %Up to 20 58 2.321-30 722 28.831-40 958 38.341-50 594 23.851 and above 169 6.8Total 2,501 100.0

Table A3.3Distribution of respondents by primary occupation

Occupation No. %Public sector teacher 7 0.3Private sector teacher 2 0.1Business 124 5.0Farmer 9 0.4Agri-labour 32 1.3Industrial labour 20 0.8Richshaw/van puller 3 0.1NGO worker 5 0.2Housewife 2,104 84.1Student 7 0.3Others 188 7.5Total 2,501 100.0

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Table A3.4Distribution of respondents by level of education

Educational level No. %Illiterate 1,501 60.0Below class V 425 17.0Class V-below class X 516 20.6SSC to below HSC 48 1.9HSC to below BA 8 0.3BA and above 3 0.1Total 2,501 100.0

Table A3.5Distribution of respondents by marital status

Marital status No. %Married 2,307 92.2Unmarried 13 0.5Divorced 9 0.4Widow/widower 159 6.4Separated 13 0.5Total 2,501 100.0

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Annex 4

COMPUTATION OF EFFECTIVE RATE OF INTEREST AND EFFECTIVE COST OF CREDIT

Grameen Bank

Against a sanctioned loan of Tk.5000, GB gives Tk.4,750 to the borrower after an obligatory

savings deduction of 5% and charges a nominal interest rate of 10% on Tk.5,000. Thus, over

46 weeks GB recovers a total of Tk.5,520 through weekly installments of Tk.120 each. GB

pays back to the borrower when she/he discontinues her/his GB membership the deducted

obligatory savings (Tk. 250) with interest (currently at 12%). Over one year, the amount of

interest payable on Tk.250 is Tk.30, which is an income of the borrower and should be

deducted from the interest paid to GB. The borrower also deposits Tk.20 as a minimum per

week to GB. This is also paid back with interest (currently at 8.5%). However, the borrower

could have deposited these amounts elsewhere and usually at a higher rate of interest so that

the borrower may be getting a lower interest income by making weekly savings deposits to

GB. For the purpose at hand, we may ignore these weekly savings and returns to avoid

complications.

The GB thus collects an amount of Tk.520 as interest over 46 weeks on a loan of Tk. 5,000,

which when annualized works out at Tk.587. The net amount of interest collected, thus, is Tk.

(587-30) or Tk.557.

Rate of interest on average balance of loan

First balance of loan is Tk.4,750 and the last balance is a negative amount of Tk.557 i.e this

amount is payable to GB after adjustment of interest receivable on obligatory savings. The

average balance of loan is then:

ABL = = Tk.

Hence, IRAB = = 26.6%

Where, ABL= Average balance of loanFBL= First balance of loanLBL= Last balance of loanIRAB= Interest Rate on average balance of loan TAI= Total amount of interest payment.

The effective interest rate actually collected by GB is 26.6%.

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Effective cost of Credit

The effective cost of credit is interest payment plus transaction cost. The transaction cost may

vary from borrower to borrower depending on the distance of the relevant GB branch office

from their respective homes, from which money is to be received; cost of rickshaw and other

means of transportation; and costs incurred in terms of passbook, other stationery, revenue

stamp, etc. On an average the transaction cost covering these and any other heads of

expenditure has been found to be Tk.83 up to the time money granted is received. The total

cost of credit (TCC) is, then, total transaction cost (TTC) plus total interest payment: Tk. (83

+ 557) or Tk. 640.

Now, RECC = = 30.5%

where, RECC= Rate of effective cost of credit, and other variables are as defined above.

The RECC in respect of Grameen Bank works out to be 30.5%.

BRAC

BRAC now gives to the borrower the full amount sanctioned as micro-credit as it does not

now deduct any amount on account of obligatory savings. Against a sanctioned micro-credit

of Tk.5,000, BRAC recovers a total of Tk.5,750 over 46 weeks through weekly installments

of Tk.125 each. The weekly savings and insurance payment are not, however, taken into

account for effective interest rate computation, in light of the explanation given above in the

case of Grameen Bank. The BRAC, thus, collects an amount of Tk.750 as interest over 46

weeks, which when annualized works out to be Tk.848, which is the net annual amount of

interest collected.

The average balance of loan is then:

ABL = Tk. = Tk.2,076

Hence, IRAB= = 40.8%

The effective interest rate in the case of BRAC is found to be 40.8%.

The estimated transaction cost is the same as that for Grameen Bank i.e. Tk. 83

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Thus,

RECC = Tk. = 44.8%

The effective cost of credit in the case of BRAC is found to be 44.8%.

ASA

As charges 15% normal interest and makes no deduction now as obligatory savings. Hence, it

gives Tk. 5,000 to the borrower, when Tk. 5,000 is granted as micro-credit. It requires weekly

savings to be made, which are ignored in the context of effective interest and cost of

borrowing, as explained in the case of GB. Also, the transaction cost used is the same as that

used in the case of GB and BRAC i.e. Tk. 83. Hence, for ASA, the IRAB and RECC are the

same as those computed for BRAC. That is,

IRAB = = 40.8%

RECC = = 44.8%

PROSHIKA

No obligatory savings are now deducted by PROSHIKA i.e. it gives Tk. 5,000 to the

borrower when Tk. 5,000 is granted as loan. It charges an interest rate of 14%. The

transaction cost for getting a loan is Tk. 83, the same as in other cases.

At an interest rate of 14%, PROSHIKA collects over 45 weeks Tk.5,700 in weekly

installments of Tk. 126.67 each. The annualized (i.e. over 52 weeks) amount of interest

works out to be Tk.809 (based on Tk.700 over 45 weeks).

Thus, ABL= Tk. = Tk. 2,096

Hence, IRAB = = 38.6%

RECC = =42.3%

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Editor

Qazi Kholiquzzaman Ahmad is currently Chairman of the multidisciplinary research

organization Bangladesh Unnayan Parishad (BUP) and President of the Bangladesh

Economic Association (BEA). He is also the chair of the Dhoritri Foundation, which is

devoted to the causes of the most disadvantaged people of Bangladesh. He has been president

(1979-83) of the Kuala Lumpur-based Association of Development Research and Training

Institutes of Asia and the Pacific (ADIPA).

Q K Ahmad has to his credit a wide range of research works and publications (books and

articles), including on policy planning, industrial economics, food and agriculture, rural

development, poverty alleviation, human development, technology, employment, gender

issues, regional cooperation, environment, water resources, and climate change. He received

his MA (Economics) from Dhaka University and PhD (Economics) from the London School

of Economics and Political Science (LSE), London University.

About the book

Some of the micro-borrowers in Bangladesh have benefited in certain respects. Others have

been struggling under the stringent terms of credit including high costs of borrowing and a

weekly repayment schedule starting just one after a credit is taken. Still others have gone

further into indebtedness and face bleaker future prospects. The micro-borrowers face the

threat of expulsion and confiscation of their assets if they fail to pay up weekly installments;

and some of them, it has been found, have in fact had their meagre assets confiscated when

they could not manage to pay up. This threat is in effect collateral. Very little empowerment

has been achieved by the women micro-borrowers. Often, they are simply the conduit for

some money coming into the family in terms of micro-credits received. Only about 10% of

the female respondents have indicated that they are in full control of and manage the

economic activities undertaken with micro-credit. A large majority of the micro-borrowers

and their families have remained condemned to a lowly and subservient state of living. The

main culprits for this state of affairs include the glaring and accentuating socio-economic

disparity and highly iniquitous and further worsening iniquitous power relations in the

country, neither of which is addressed, even recognized in so far the micro-credit operations

are concerned.

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These are some of the major findings thrown up by this study which is based on a country-

wide rurally representative sample survey conducted during January-February 2006. It is now

even more important, since Muhammad Yunus and Grameen Bank have jointly been awarded

2006 Nobel Peace Prize, that the pitfalls of micro-credit operations are properly recognized

and addressed. The findings of this study strongly suggest that for meaningful, sustained

poverty reduction, a comprehensive approach, commensurate with the complex nature of

poverty and the prevailing social dynamics including the glaring and accentuating disparity

and highly iniquitous and further worsening power relations is needed. Micro-credit with less

stringent terms should be a key element within the framework of such a comprehensive

approach.

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