Introduction : Money begets money. Adam Smith in his famous book Wealth of Nations said, 'When you have got a little, it is often easy to get more. The great difficult thing is to get that little.1 Microcredit is a small size of loan that is given to the poor for self employment. Microcredit through institutional arrangement is a recent innovation for poverty reduction among the poor. Today, Bangladesh is called the Sand of Microcredit revolution. The Microcredit revolution started among rural women in 1970s. The revolution had its root in the recognition that poor people needed credit and more importantly they could use credit more efficiently and responsibly.
Definition of Microcredit : Conceptually, microcredit can be described as collateral free small loan offered to the poor to create small employment in income generating activities based on group Sending methodology.
Microcredit can broadly be defined as a programme that provide credit for
self-employment and other financial and business services including savings and technical assistance to the poor people.
Definition of Microfinance : Microfinance is a combination of savings, loans, investment opportunities, insurance options and other financial services. Poverty, women's empowerment, nutrition, health, family planning, education, reusing, self-reliance, susiainability all are addressed by microfinance.
Features of Microcredit : In the microcredit system, service providers go to the door steps of the poor based on the principle that the people should not go to the bank rather T.an bank should go to the people. The other important features of mcrocredit are.
- Microcredit is given with minimum paperwork.
- Workers have to make regular visits to the borrower's premises to offer advises and supervision.
- Small size of loan.
- It is collateral free.
- Recovery rate is above 90 percent.
- All loans to be paid back in installments on weekly or bi-weekly basis.
Microcredit and Government Initiatives : The Government of Bangladesh j is involved in Microcredit in two ways :
a. Funding to the NGOS : The PKSF (Palli Karma Sahayak Foundation) is an apex public organization providing credit and institutional services lo NGOs. Government set up PKSF in 1990. Since then PKSF has not Icon about US$ 252 to 250 NGOs covering more than 3.8 million borrowers, As the biggest microcredit funding organization in the world PKSF standards, guidelines and modalities are being studied by different countries in order to develop their microcredit sectors.
b. Delivering Microcredits : At present, thirteen ministries and division of the Government of Bangladesh and their attached departments have been
distributing Microcredit. Government departments and organigations havo so far disbursed approximately Tk. 15,000 million to 10 million pour people through microcredit.
Microcredit and Poverty Alleviation : The main objective of microcredit in to create income poor households and thereby alleviate poverty. Microcredit leads to improvement in income and the increase in income -lift the poor above the poverty line.
The former secretary general of UN Kofi Anan opines that eradicating poverty is perhaps the greatest global challenge. Out of 6 billion population in the world 2.8 billion live on less than two dollars income a day. Of the 1 billion people 50 million live in Asia and 30 million in Africa. Microcredit programs in these regions show that microcredit is a strong poverty alleviating weapon. More than 64 million of the worlds poorest people have taken part in the past seven years in microfinance projects with the purpose of' coming out of the vicious circle of poverty.
Microcredit and Women Empowerment: Microcredit plays a significant positive role in empowering rural women. Through their involvement in microcredit, many women have become leaders, instigating change in social practices and relationships and mobilizing social action. Women's status, both in their homes and communities is improved when they are responsible for loans and for managing savings. When they generate and control their own income, women gain a level of power that means they can make decisions independently and command more respect. Poor women have the best credit ratings. In Bangladesh, for example women default on loans less often than man and credit extended to women has a much greater impact on household consumption and quality of life for children. The direct effect of microcredit programs on womens position in the community has been through the expansion of women's mobility in the public spheres like bank, thana headquarters, hospitals etc.
High Interest Rate- A Dilemma : It is alleged that Microcredit distributors of are charging high interest rate on credit. As a result, borrowers are becoming poorer. The critics say that NGO credit is much costlier for a poor borrower than that of a commercial bank. But the microcredit providers say that the existing
Interest rate is rational. Let us focus on the both sides of this controversial issue.
- Interest Rate is not high at all:
15% flat interest rate on NGO credit is necessary for its long term sustauiabuity. NGOs bring services to the doorsteps of (he borrowers which reduces to mowers transportation costs and time.
An NGO credit programme can never be sustainable if it fails to cover the ftillrusls of its operation, particularly the following: * Staff salary costs * Annual costs of funds *Annual costs of bad debt* and cost of inflation
We cannot deny the positive impact of intensive supervision and monitoring 0f NGOs operated credit on the household incomes of poor borrowers. Cost of supervision and monitoring make the present interest rate rational.
Microcredit is not charity. The interest rates must match the cost of microlenders. Qtherwise, these bodies would cease to exist. So let the market determine the rate.
Interest rate on Microcredit is really high : NGOs are charging high rate of interest on microcredit. They are doing business in the name of poverty ltilion. According lo a study, the microcredit system charges interest as high as 30% to 40%. In this situation, credit receivers take the opportunity of taking fresh loans from which they give the installments. The reality is that microcredit prepetuate poverty of the borrowers. Incidentally the people who administer programs are better off and have turned even rich.
Other Criticism:
The pros and cons of Microcredit system, its efficacy are a matter of debate.
The cost of microcredit is very high. Microcredit operations can be labeled Kabuliwalah's business.
- Microcredit has serious procedural problems and do more harms than good. "- There is no good governance and transparency in the microcredit providing orgonisations.
- The weekly recovery system creates pressure on the borrowers.
- There is no legal framework to control and oversea the operation of the microcredit providing organisation. As a result, many unauthorised NGOs are cheating the poor people.
- Many unregistered local NGOs are doing business in the name of microcredit and poverty alleviation.
Recommended Policies : Microcredit system has some procedural and functioiml problems. Some recommendations have been placed to overcome these problems.
- Micmcredit practitioners should concentrate on reducing poverty rather than using it as business.
- They should cut interest rate on credit. In doing this they should reduce operational costs.
- The size of loans should be enlarged so that the poor people can come out from the poverty cycle.
- Microcredit banks under Government initiatives can be established in nird areas to streamline microfinancing.
- Every financial institutions needs supervision and monitoring. A regulatory commission should be set up to oversea the functioning of microcredit program:,
- Good governance and transparency are crucial factors that should In ensured in the microcredit operation.
- In Bangladesh, most of the people are Muslims. We can see the Island economic system and Islamic banking system in Islam. So microcredit system should be in line with the principles of the ideals of Islam.
Conclusion : In spite of some limitations, microcredit has been accepted us. effective too! for poverty alleviation and as approach to development. It in | matter of pride that Bangladesh is a global centre of excellence in microcredit and home to many successful microfinance providing institutions. Madam Mbeki, the first lady of South Africa has rightly termed Bangladesh as the 'University Microfinance. The poverty of the world can be rooted out through effect] microcredit program that originated in a poor country tike Bangladesh.
