Assignment on States of Microfinance in Bangladesh

The objectives of this report are:

•  To fulfill the partial requirement of MBA degree.
• To be able to use theoretical knowledge into practice.
• To develop our skill in using analytical tools and techniques.
• To develop our interpersonal views and concept through sharing among every member of the group that is reflected in this report.

The information for the report was collected from secondary sources that are from the case and also from different published articles, books, prospectus and journals. The basic method that is used to analyze the data is qualitative analysis based on these data.
This study may provide substantial benefits to the financial analysts of any country, managers of any organization, academician, business students, regulatory bodies, decision makers, economists, and many other people having concerned on financial markets.
Although efforts made to make the report was as comprehensive as possible, nevertheless, the following limitations are identified at the time of preparing the report:

• We had put our optimum effort to formulize the available information.
• Inefficiency in some field of analysis.
• Non-availability of up-to-date information for more relevant analysis.
• Needed to apply to get appropriate result but due to our lack of practical knowledge our analysis may not be a highly efficient one

Microfinance refers to a range of financial services such as savings, credit and insurance for the poor. In 1980s and early 1990s, a more popular term was microcredit to emphasize the main service, i.e. credit to the poor though small savings has always been an integral part of microcredit programs. Although the practice of borrowing small amount of money for investment and consumption purposes has been common in Bangladesh but the modern organized, systematic, group-based and institutionalized microcredit operation is pioneered by the Grameen Bank and replicated all over the world with local modifications and adaptations.

The program has enjoyed explosive growth here and elsewhere and given hope to millions of poor women and men to generate income to rid of poverty. The microfinance management system has solved structural problems of targeting and delivering financial services to millions of poor people. It will be useful and important to briefly trace back the history of informal lending and other forms of small loans available mostly in rural areas to appreciate context and impressive changes that occurred due to micro-financial services offered by institutions.

Commercial banks, agricultural banks, cooperative societies were the principal sources of small loans for various types of clients: farmers, traders and ‘cottage industries’ before the advent of the Grameen Bank and other MFIs. These institutions continue to provide some small loans to selected clients but not normally to the poor. The limitations of commercial bank loans were well-known: banks ask for collateral for disbursing loans and their branch networks were limited to urban centers. This was true before the independence of Bangladesh. After the independence the Nationalized Commercial Banks (NCBs) greatly expanded their branch networks in small towns and bazaars but their lending policies remained the same: they target the traders/businesses who could offer collateral. Although there have been many projects for NCBs for providing agricultural loans to the farmers the

banks normally failed due to many institutional weaknesses. But the major issue remained that the expansion of branch did not help to bring the poor under financial services. NCBs tried to imitate Grameen Bank model to lend to the poor but did not succeed and changed strategy to become wholesale lenders to the MFIs working as retailers. The private banks have never been interested in small loans or poor people and the culture remains the same even today with the exception of Islami Bank Bangladesh Limited which has a large retail microcredit operations. Some private commercial banks have lately gone into wholesale lending (see Section 5 on wholesale microcredit operations of commercial banks). Agricultural Development Bank (later become Bangladesh Krishi Bank – BKB and Rajshahi Krishi Unnayan Bank- RAKUB) was the principal institutional intervention for supporting agriculture and farmers. BKB and RAKUB mainly targeted and still target the small, medium and large farmers who could offer land as mortgage. The performance of these two specialized banks has always been underperformed.

Microcredit is a financial innovation that is generally considered to have originated with Grameen Bank in Bangladesh. Muhammad Yunus was awarded the Nobel Peace Prize in 2006 for his work providing microcredit services to the poor. It has successfully enabled extremely impoverished people to engage in self-employment projects that allow them to generate an income and, in many cases, begin to build wealth and exit poverty. It is the wing of very small loans to those in poverty designed to encourage entrepreneurship. It is a part of microfinance, which is the provision of a wider range of financial services to the very poor.
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