Micro-credit Reja_13
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Title: Theoretical and Operational Aspects of Micro Credit System in Rural Area of Bangladesh.
030413 1.Introduction: Micro-credit was invented 35 years ago in Bangladesh by Proof Dr. Muhammad Yunus. Now it is most important and powerful to reduce poverty in rural area actively. So we need to know the Theoretical and Operatical aspect of Microcredit system . 2. What is Micro Created? The word “Micro” means small and the word “Credit “ means loan, So we can say that MicroCredit mean small loan. The idea began when Bangladeshi economist Professor Mohammad Yunus first demonstrated that poor people, especially poor women, could produce near-perfect repayment rates. According to Oxfam, micro credit consists of "very small scale financial services, including savings, loans for emergencies, day-to-day living, and investment in productive activities" 3. Micro Created background: In the world many institution give microcredit, as, Associations, Bank Guarantees, Community Banking, Cooperatives, Credit Unions, Group, Individual, Intermediatories, Non-Governmental Organizations, Peer Pressure, Rotating Savings and Credit Associations, Small Business, Village Banking ,Grameen Bank. (Source : The Virtual Library on Microcredit)
No one now gets shocked if somebody uses the term "microcredit" to mean agricultural credit, or rural credit, or cooperative credit, or consumer credit, credit from the savings and loan associations, or from credit unions, or from money lenders. Acording to Proof Dr. Muhammad Yunus ,Microcredit are classified into some types. Those are: Microcredit Traditional informal microcredit (as, moneylender's credit, pawn shops, loans from friends and relatives, consumer credit in informal market, etc.) Microcredit based on traditional informal groups (as, tontin, su su, ROSCA, etc.) Activity-based microcredit through conventional or specialised banks (as, agricultural credit, livestock credit, fisheries credit, handloom credit, etc.) Rural credit through specialised banks. Cooperative microcredit (cooperative credit, credit union, savings and loan associations, savings banks, etc.) Consumer microcredit. Bank-NGO partnership based microcredit. Grameen type microcredit or Grameencredit. Other types of NGO microcredit. Other types of non-NGO non-collateralized microcredit.
As of July, 2004, it has 3.7 million borrowers, 96 percent of whom are women. With 1267 branches, Grameen Bank provides services in 46,000 villages, covering more than 68 percent of the total villages in Bangladesh. (Web site of Grameen Bank http://www.grameen-info.org, Date: 07/04/2005) 4. Micro Credit process and theory For getting microcredit at first we need a membership of that institution or NGOs. After that make a group and then apply for loan and approve that. Lastly distribution loan by that institution orNGOs. Membership
Apply for loan
Approve for loan
Loan collect
Distribution loan
Fig: Process of Microcredit Objectives of the micro credit system: 1. To extend economic facilities to poor men and wome n; 2. To eliminate the exploitation of the poor by money- lenders; 3. To create opportunities for self-employment for the vast number of unemployed people in rural Bangladesh; 4. To bring the disadvantaged, mostly women from the poorest households, within the fold of an organizational format that they can understand and operate; and 5. To reverse the age-old vicious cycle of "low income, low savings, low investment" into an expanding cycle of "low income, credit, investment, more income, more investment, more income." 6. Its mission is to help the poor families to help themselves to overcome poverty. It is targeted to the poor, particularly poor women. Loans are small, but sufficient to finance the micro-enterprises undertaken by borrowers: rice- husking, machine repairing, purchase of rickshaws, buying of milk cows, goats, cloth, pottery etc. The interest rate on all loans is 16 percent. The repayment rate on loans is currently - 95 per cent - due to group pressure and selfinterest, as well as the motivation of borrowers. 5. Micro Created Operational Aspect Working system of microcredit come from the idea of circle of poverty.
Low productio n
Low Income
Low capital
Low savings
Fig1: Vicious Circle of poverty
Fig2: Effect of micro-credit
In the fig 1 we can see that low income cant change with out external help. For external help microcredit provide for poor rural people. 6.1 GOs and NGOs In Bangladesh microcredit provides: GOs:Bangladesh Krishi Bank, Rajshahi Krishi Unnayon Bank, Sonali Bank, Janota Bank, Aggroni Bank. NGOs: Grameen Bank, BRAC, ASA etc are provide microcredit in our country. 6.2 Positives and Negatives : Every thing has some positive and negative side. 6.2.1. Positive sides: • It reduces the poverty in rural area. • Microcredit programmes and institutions have generated a positive impact on number of days of employment. • Very small loans given without any collateral. • Loans repayable in weekly instalments spread over a year. • Eligibility for a subsequent loan depends upon repayment of first loan. • Individual, self chosen, quick income generating activities which employ the skills that borrowers already posses. • Close supervision of credit by the group as well as the bank staff. • Stress on credit discipline and collective borrower responsibility or peer pressure. • Special safeguards through compulsory and voluntary savings to minimize the risks that the poor confront. • Transparency in all bank transactions most of which take place at centre meetings. • Provides credit to the poorest of the poor in rural Bangladesh without any security 6.2.2. Negative sides: • Exact targeting. • Screening problem of distinguishing the creditworthy from the non creditworthy. • No legal action can be taken for non-repayment of loans. • Institutions have generated a positive change in the incomes of beneficiaries but this change has been marginal. • Monitoring productive usage of loans. 7. Critical evaluation: All of those it is so hard to evaluate of microcredit. Now it is granted in broad and abroad. For this microcredit system Proof Dr. Muhammad Yunus is world famous person. This system is granted by UN for developing and under developing country. I think we must be appreciating it. And we should best use of our time and using labor and provide the maximum output, reduce our poverty as soon as possible. 6. Conclusion: In conclusion we want to say with Proof Dr. Muhammad Yunus(1994), “If we can come up with a system which allows everybody access to credit while ensuring excellent repayment-I can give us a guarantee that poverty will not last long” Refarence: Web site of Grameen Bank - http://www.grameen-info.org, Date: 07/04/2005
Title: Theoretical and Operational Aspects of Micro Credit System in Rural Area of Bangladesh.
030413 1.Introduction: Micro-credit was invented 35 years ago in Bangladesh by Proof Dr. Muhammad Yunus. Now it is most important and powerful to reduce poverty in rural area actively. So we need to know the Theoretical and Operatical aspect of Microcredit system . 2. What is Micro Created? The word “Micro” means small and the word “Credit “ means loan, So we can say that MicroCredit mean small loan. The idea began when Bangladeshi economist Professor Mohammad Yunus first demonstrated that poor people, especially poor women, could produce near-perfect repayment rates. According to Oxfam, micro credit consists of "very small scale financial services, including savings, loans for emergencies, day-to-day living, and investment in productive activities" 3. Micro Created background: In the world many institution give microcredit, as, Associations, Bank Guarantees, Community Banking, Cooperatives, Credit Unions, Group, Individual, Intermediatories, Non-Governmental Organizations, Peer Pressure, Rotating Savings and Credit Associations, Small Business, Village Banking ,Grameen Bank. (Source : The Virtual Library on Microcredit)
No one now gets shocked if somebody uses the term "microcredit" to mean agricultural credit, or rural credit, or cooperative credit, or consumer credit, credit from the savings and loan associations, or from credit unions, or from money lenders. Acording to Proof Dr. Muhammad Yunus ,Microcredit are classified into some types. Those are: Microcredit Traditional informal microcredit (as, moneylender's credit, pawn shops, loans from friends and relatives, consumer credit in informal market, etc.) Microcredit based on traditional informal groups (as, tontin, su su, ROSCA, etc.) Activity-based microcredit through conventional or specialised banks (as, agricultural credit, livestock credit, fisheries credit, handloom credit, etc.) Rural credit through specialised banks. Cooperative microcredit (cooperative credit, credit union, savings and loan associations, savings banks, etc.) Consumer microcredit. Bank-NGO partnership based microcredit. Grameen type microcredit or Grameencredit. Other types of NGO microcredit. Other types of non-NGO non-collateralized microcredit.
As of July, 2004, it has 3.7 million borrowers, 96 percent of whom are women. With 1267 branches, Grameen Bank provides services in 46,000 villages, covering more than 68 percent of the total villages in Bangladesh. (Web site of Grameen Bank http://www.grameen-info.org, Date: 07/04/2005) 4. Micro Credit process and theory For getting microcredit at first we need a membership of that institution or NGOs. After that make a group and then apply for loan and approve that. Lastly distribution loan by that institution orNGOs. Membership
Apply for loan
Approve for loan
Loan collect
Distribution loan
Fig: Process of Microcredit Objectives of the micro credit system: 1. To extend economic facilities to poor men and wome n; 2. To eliminate the exploitation of the poor by money- lenders; 3. To create opportunities for self-employment for the vast number of unemployed people in rural Bangladesh; 4. To bring the disadvantaged, mostly women from the poorest households, within the fold of an organizational format that they can understand and operate; and 5. To reverse the age-old vicious cycle of "low income, low savings, low investment" into an expanding cycle of "low income, credit, investment, more income, more investment, more income." 6. Its mission is to help the poor families to help themselves to overcome poverty. It is targeted to the poor, particularly poor women. Loans are small, but sufficient to finance the micro-enterprises undertaken by borrowers: rice- husking, machine repairing, purchase of rickshaws, buying of milk cows, goats, cloth, pottery etc. The interest rate on all loans is 16 percent. The repayment rate on loans is currently - 95 per cent - due to group pressure and selfinterest, as well as the motivation of borrowers. 5. Micro Created Operational Aspect Working system of microcredit come from the idea of circle of poverty.
Low productio n
Low Income
Low capital
Low savings
Fig1: Vicious Circle of poverty
Fig2: Effect of micro-credit
In the fig 1 we can see that low income cant change with out external help. For external help microcredit provide for poor rural people. 6.1 GOs and NGOs In Bangladesh microcredit provides: GOs:Bangladesh Krishi Bank, Rajshahi Krishi Unnayon Bank, Sonali Bank, Janota Bank, Aggroni Bank. NGOs: Grameen Bank, BRAC, ASA etc are provide microcredit in our country. 6.2 Positives and Negatives : Every thing has some positive and negative side. 6.2.1. Positive sides: • It reduces the poverty in rural area. • Microcredit programmes and institutions have generated a positive impact on number of days of employment. • Very small loans given without any collateral. • Loans repayable in weekly instalments spread over a year. • Eligibility for a subsequent loan depends upon repayment of first loan. • Individual, self chosen, quick income generating activities which employ the skills that borrowers already posses. • Close supervision of credit by the group as well as the bank staff. • Stress on credit discipline and collective borrower responsibility or peer pressure. • Special safeguards through compulsory and voluntary savings to minimize the risks that the poor confront. • Transparency in all bank transactions most of which take place at centre meetings. • Provides credit to the poorest of the poor in rural Bangladesh without any security 6.2.2. Negative sides: • Exact targeting. • Screening problem of distinguishing the creditworthy from the non creditworthy. • No legal action can be taken for non-repayment of loans. • Institutions have generated a positive change in the incomes of beneficiaries but this change has been marginal. • Monitoring productive usage of loans. 7. Critical evaluation: All of those it is so hard to evaluate of microcredit. Now it is granted in broad and abroad. For this microcredit system Proof Dr. Muhammad Yunus is world famous person. This system is granted by UN for developing and under developing country. I think we must be appreciating it. And we should best use of our time and using labor and provide the maximum output, reduce our poverty as soon as possible. 6. Conclusion: In conclusion we want to say with Proof Dr. Muhammad Yunus(1994), “If we can come up with a system which allows everybody access to credit while ensuring excellent repayment-I can give us a guarantee that poverty will not last long” Refarence: Web site of Grameen Bank - http://www.grameen-info.org, Date: 07/04/2005
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