Theoretical Framework :

The current point discusses the theoretical framework of microfinance where it provides a
debate on microfinance, poverty alleviation and poverty reduction. Poverty still haunts
millions of people all over the world even in this twenty first century. Eradication of poverty
from every corner of the world has become a major challenge for the global community.

In order to reducing poverty MFIs in Bangladesh take much steps. The microfinance sector has
flourished as a private initiative all around the world and in Bangladesh in particular. Initially,
the sector was not regulated, and there was neither a stratagem nor an independent
regulatory authority to control and supervise microfinance in Bangladesh. Before 2006, MFIs
were registered under different acts. Following remarkable success and spectacular growth,
the microfinance sector worldwide has gradually come under regulations.

Understanding how to alleviate poverty is a central concern of development economies.

Bruno, Squire and Ravallion (1995) indicated that there are ample evidences that policies
designed to foster economic growth significantly reduce poverty, but that policies aimed
specifically at alleviating poverty are also important. The microcredit approach to poverty
reduction is premised notion of poverty. Modern poverty is not seen as a consequence of a
particular way in which is organized through relations of power and domination. Rather, the
advocates of microfinance as an approach to poverty reduction view conditions of poverty
(material insecurity and livelihood struggles) as the consequences of unfulfilled market
potentials . The response from this latter perspective then becomes one of creating the
appropriate market conditions, which ,according to the theory theory at least ,ought to
empower all, and the poor in particular.

In this study it is given how to reducing poverty by microfinance. In this theoretical framework
it will show how MFIs work in Bangladesh to reducing poverty. Here it is locate that how MFIs
work about. In our study we referred Grameen Bank. We include a MFIs named Grameen Bank
which has identified some microfinance models of which the reviewer will focus on the
common ones used in most research studies. The details are as under:

 Individual lending model: These are the loans given on individual basis: Individual
lending is more flexible, but minimum loan sizes are given to always by larger members
of credit groups. Within broad limits, loan sizes are negotiable, tailored to the
borrower’s activity and the ability to pay. Loan amounts and maturities increase as the
borrower demonstrates prompt repayment and acceptable loan use.
 Self-selection model: Before the group lending contract is signed, those people who
share a similar attitude towards risks and are familiar with each other’s credit level
 would form a group through peer selection. The high-risk borrowers are excluded
because no one will want them in his or her group. “A group has to be formed very
carefully by the individuals to weeds out bad borrowers who could jeopardize the
creditworthiness of the group as a whole” (Ray, 1998).
 Village Banking Model: Village banks are community managed credit and savings
associations established by NGOs to provide access to financial services, build
community self-help groups, and help members to accumulate savings (Holt, 1994).
They have been in existence since the mid-1980s. They usually have 25 to 50 members
who are low income individuals seeking to improve their lives through self-employment
activities
 The poverty lending model: It concentrates on reducing poverty through credit, often
provided together with complementary services such as skills training and the teaching
of literacy and numeracy, health, nutrition, family planning, and the like. Under this
model donor and government funded credit is provided to poor borrowers, typically at
below market interest rates. The goal is to reach the poor, especially the extremely
poor, the poorest of the poor with credit to help overcome poverty and gain
empowerment (Robinson, 2001).

It has been seen that as like as Grameen bank, other MFIs also work as above model.

It was known to all that the study of poverty and its alleviation are not new. Rather what are
revised are the spatial differences in levels of poverty among real units. Here some basic
variables work which given below:

Independent Variables:

Microfinance: “Microfinance refers to provision of financial services to low income earners

and the poor in general to raise their income levels thus promoting their standard of life.
These include the following:

 Micro-credit: These are the provision of small loans to clients for business purposes.
 Savings: They are small amounts of money, the clients are encouraged to save in the
financial institutions.
 Insurance: All entrepreneurs face risks in their businesses and therefore it becomes
necessary for financial institutions to insure various businesses by the use of different
policies to reduce the risks involved in running businesses.
 Training & skills: Financial institutions offer various training programs to equip the
clients with the required knowledge and skills necessary to run their business
efficiently.
  Dependent variables:

Poverty reduction: The major objective of microfinance services is to empower the poor and
this is done by giving various financial services to their clients. The following are the factors
that contributes to the fulfilment of the above objective:

Increase in income levels: It is obvious that as employment opportunities comes up, the
unemployed will be able to get jobs which have been created and those who had temporary
jobs may now get permanent jobs and this will obviously lead to an increase in individual as
well as national income.

Creation of employment opportunities: Better utilization of the loans given to clients of

MFIs in most cases leads to expansion of businesses and this in turn will also lead to creation
of employment opportunities to the society.

Higher living standard: As the income of the people increases, individuals are able to purchase
goods and services which in return leads to increase in the standard of living. Increase in the
National income enables the nation to inject more money for the development of
infrastructural development which also will see the standard of the people increasing.

Self-confidence: When people have high incomes and their standard of living goes up, this
builds in them self-confidence, people psychologically feel recognized and self-worth.

So, from the theoretical grounds, Micro financial institutions could directly contribute to
poverty reduction and also help to increase income of the poor in developing country in many
ways.
  Analysis:

Microfinance is considered as an effective tool of poverty alleviation as stated above.

Microfinance institutions work and their initiative towards removing the darkness of poverty,
is growing up a noticeable rate especially in rural and remote areas of Bangladesh. Various
data and information are collected and analyzed. In data analysis part it is shown that various
activities of microfinance have gradually decreasing the poverty rate in Bangladesh. In spite of
that, the various activities of Microfinance Institutions (MFIs) shown in the data analysis part
can lead poverty reduction. Data analysis part shows that MFIs have been working in the rural
areas of Bangladesh since inception %0f People in .Poverty % of Ultra poor addressing the
poor, very poor and near poor people under their different programs both financial and social
development includes remote areas and difficult terrains. Disbursement, outstanding loan and
net savings of the borrowers of MFIs are satisfactory. The contribution of MFI‟s in remote
areas is going in a rapid increase as well it reduces the condition of borrowers. From various
analysis and calculation it is found that poverty is decreased around 6.2% in total by various
activities of MFI‟s and others.
 The Importance of Microfinance on Poverty Reduction:

Here we notice some important fact those show the importance of microfinance on
poverty reduction.

 Job creation: Employment opportunities had increased at a moderate rate. The clients
started their own business and earn more profit. The Living standard is very important
issue in all developing countries. In many developing countries like Bangladesh,
Pakistan and India, microfinance is now being used as a tool to increase the living
standard of poor societies. There is a positive impact of micro financing on income level
and better services of microfinance institutes on increase in satisfaction level of
customer (Akram & Hussain, 2011). Microfinance gives the unemployed and the poor
some opportunities, hope and self-esteem. Being employed whether self-employed or
by an employer gives a person a significant boost to his/her sense of self-respect and
dignity. Furthermore, microcredit allows people to signal their creditworthiness.

 Increase in consumption: Unproductive use of human resources, financial and other

resource are root cause of poverty. Poverty has multi dimensions and persists due to
this reason. Major hurdles in improving living standard are lack of finance. So the poor
do not take any part in the economic development activities due to the lack of credit
for improving their standard of living. Microfinance services such as: savings and micro-
loans have direct impact on GDP (Gross Domestic product). An organized support to
the microfinance is necessary to start smooth trend for poverty alleviation and
economic growth (Awojobi & Bein, 2011). Five basic reason which cause poverty are
low profit, high prices of commodities, hard economic times, lack of finance to start or
expend their business, and lack of entrepreneur skills.

 Increase in per capita income: As more micro-credit flow to the economy, enterprises
starts to flourish and productivity increases which leads to increase in profits thus
increase in per capita income, thus micro finance has positive impact on the economy.
 After taking loan borrower’s income and their expenditure on family had also increased
extensively. Customer’s income had increased which shows that they become able to
cross only the extreme poverty line while they remain near poverty line.

 Increase in skills: Microfinance Institutions tends to offer some training to its clients,
more especially on entrepreneurs’ skills, this is basically to impart knowledge to enable
their clients to utilize the loans efficiently so as to be able to expand their businesses
and be able to pay back their loans. Microfinance sector required innovative ideas
beyond traditional financial system. Social intermediation increase human capability
and group based lending schemes reduce processing cost and decrease financial risk in
relation to providing credit to poor.

 Increase in productivity: Dr.Yunus explains that microcredit in Bangladesh had a

"positive impact on enterprise and household income and asset accumulation".
Microloans in the US have allowed small business owners to make their businesses
their primary source of income with 67% of the borrowers showing a significant
increase in their income as a result of their participation in certain micro-loan programs
thus increasing the demand for goods and services which leads to high productivity in
an economy.

 win-win proposition: Microfinance appears to be a situation, where both financial

institutions and poor clients profit. The “win-win” appearance of microfinance creates
an equal excitement in the world of economic development. In this case the researcher
means that the poor benefit by getting micro loans which they invest in businesses
creating self-employment thus an increase in revenue while the financial institutions
also makes profits which enables them to sustain themselves.
 Introduction :

poverty alleviation has been a perpetual challenge to the contemporary world.

Bangladesh is one of the world's poorest countries and about 31.5% of the total
population living in the poverty line. Microfinance is a tool to enable poor to start their
own business to survive in the society, lift out themselves from poverty. and save
something to fulfill their basic needs. The provision of microfinance products enables
poor people to set up income generating activities that ultimately provide them with
income for their domestic consumption. Therefore, the intervention through micro
finance has a substantial positive impact on their lives of the society in general and the
poor people in particular. "Microfinance refers to an array of financial services, including
loans, savings, and insurance, available to poor entrepreneurs and small business
owners who have no collateral and wouldn't otherwise qualify for a standard bank
loan". Poverty means the complete lack of the means necessary to meet basic personal
need such as food,clothing,and shelter. Microfinance is a broad term for financial
services for people with low income, or who they do not have access to traditional
banking services. Microfinance is the realization that people with the low income they
can escape poverty if they have access to financial services. Second Canadian
International Development Agency (CIDA). Microfinance is a distribution of a wide range
of financial services for the poor Family, poor micro- enterprises. who usually do not
have access to formal financial institutions. The term micro credit and micro finance
belong to the continuation of small loans to entrepreneurs too poor to get traditional
bank loans.Lowering interest rates to an optimum level;Increasing loan grace periods
and reducing frequency of repayment;Improving infrastructure and introducing trade
exhibitions for micro and small enterprises;Restructuring MFIs’' training content
to include improving their clients ’& apos; business skills;Making small base loans
flexible to reflect changes in value of money.
Background of the study:

Modern microfinance was born in Bangladesh in the 1970s, in the repercussion of the
country’s war of independence, when Muhammad Yunus, an economics professor at the
University of Chittagong, where he began an experimental research project providing credit to
the rural poor, that experiment, driven by a strong sense of developmental idealism,
developed into what is now the world’s most famous microfinance institution, the Grameen
Bank, and institutions that replicate its pioneering methodology worldwide.

Definitions of Poverty

“Fundamentally, poverty is a denial of choices and opportunities, a violation of human

dignity. It means lack of basic capacity to participate effectively in society. It means not having
enough to feed and cloth a family, not having a school or clinic to go to, not having the land on
which to grow one’s food or a job to earn one’s living, not having access to credit. It means
insecurity, powerlessness and exclusion of individuals, households and communities. It means
susceptibility to violence, and it often implies living in marginal or fragile environments,
without access to clean water or sanitation”. — (Cited in Gordon, 2005)

“Poverty is pronounced deprivation in well-being, and comprises many dimensions. It includes

low incomes and the inability to acquire the basic goods and services necessary for survival
with dignity. Poverty also encompasses low levels of health and education, poor access to
clean water and sanitation, inadequate physical security, lack of voice, and insufficient capacity
and opportunity to better one’s life”. —(World Bank, 2001) .

Poverty and microfinance:

Here, we define poverty as an income (or more broadly welfare) level below a socially
acceptable minimum, and microfinance as one of a range of innovative financial arrangements
designed to attract the poor as either borrowers or savers. In terms of understanding poverty,
a simple distinction can be drawn within ‘the poor’ between the long-term or ‘chronic poor’
and those who temporarily fall into poverty as a result of adverse shocks (‘transitory poor’).
Within the chronic poor, one can further distinguish between those who are either so
physically or socially disadvantaged that without welfare support they will always remain in
poverty (the ‘destitute’) and the larger group who are poor because of a lack of assets and
opportunities. Furthermore within the non destitute category, one may distinguish by the
depth of poverty (that is how far households are below the poverty line) with those
significantly below it representing the ‘core poor’, sometimes categorized by the irregularity of
their income. In principle, microfinance can relate to the chronic (non-destitute) poor and to
the transitory poor in different ways. The condition of poverty has been interpreted
conventionally as one of lack of access by poor households to the assets necessary for a higher
standard of income or welfare, whether assets are thought of as human (access to education),
natural (access to land), physical (access to infrastructure), social (access to networks of
obligations) or financial (access to credit) (World Bank 2000:34). Lack of access to credit is
readily understandable in terms of the absence of collateral that the poor can offer
conventional financial institutions, in addition to the various complexities and high costs
involved in dealing with large numbers of small, often illiterate, borrowers. The poor have thus
to rely on loans from either moneylenders at high interest rates or friends and family, whose
supply of funds is limited. MFIs attempt to overcome these barriers through innovative
measures such as group lending and regular savings schemes, as well as the establishment of
close links between poor clients and staff of the institutions concerned. The range of possible
relationships and the mechanisms employed are very wide. The case for microfinance as a
mechanism for poverty reduction is simple. If access to credit can be improved, it is argued,
the poor can finance productive activities that will allow income growth, provided there are no
other binding constraints. This is a route out of poverty for the non-destitute chronic poor.
  Literature Review :

Dr. Ajit Kumar Bansal,Ms. Anu Bansal (2012) Microcredit and Microfinance have received
extensive recognition as a strategy for proverty reduction and for economic empowerment .
Microfinance is a way for fighting poverty , particularly in rural areas, where most of the
would,s poorest people live. Accessing small amounts of credit of reasonable interest rates
give poor people on opportunity to set up their own small business. It shows that access and
efficient provision of microcredit can enable the poor smooth their consumption , Manage
their risks better , gradually build their assests, develop their micro enter price,

enhance their income earning capacity and enjoy an improved quality of life.Chirtamani
Prasad Patraik (march 2012) has examined that microfinance seems to have generated a view
that microfinance development could provide an answer to the problems os natural financial
market development. While the development of microfinance is undoubtedly critical is
improving access to finance for the unscrvel and underserved poor and low income
households financial market development. It is inadequate to address issues of rural will play a
vital rule in such strategy. But ther5e is a need for structural orientation of the group to suit
the requirements of new business. Microfinance movement has to be viewed from a long
term perspective under SHG Framework ,which underline the need for a deliberate policy
implication in favour of assunamce in terms of technology back-up ,product market and
human resource development.

Hiderink and kok (2009)

the unmillennium goal to poverty by the year 2015 is for from fetch deposit the enormous
weeks that microfinance institution are doing to contribute in this domain .

Cnabb p,(2008) has examined that the relationship between the success of their host countries
.many microfinance institution are currently not self-sustaining and research suggests that the
economic environment in which the institution to operates is an important factor in the ability
of outreach to reach this goal , furthering its mission of outreach to the poor. The
sustainability of the micro lending institution is analyzed here using a large crocs-section of
institution and countries . the result show that microfinance institution operate primarily in
countries with a relatively low degree of overall economic freedom and that various economic
policy factors are important for sustainability.
Helmas,(2006) Although microfinance has been much advantage to reduce poverty and
vulnerability to it in same regional of the would . It is estimate that there are still three billion
people in the would country who do not have access to any from of financial services.

 A variety of studies have found a few key strengths and positive impacts produced by
the implementation of microfinance programmes in poor and impoverished areas of
the world. Some studies have found positive impact on living standards. For example,
microfinance programmes can be an effective way to provide low-cost financial
services to poor individuals and families (Miller and Martinez, 2006; Stephens and Tazi,
2006). Some studies have directly assessed the impact of micro-credit on poverty such
as Hossain (1984), Hossain (1988) and Khandker and Chowdhury (1996).

Some others studies found that poverty is not reduced through micro-credit. Poor household
become poorer through the additional burden of debt. For example, some studies have shown
the microfinance programmes benefit the moderately poor more than the destitute, and their
impact can vary by income group (Copestake et al., 2001, Morduch, 1998; Dugger, 2004). The
empirical evidence on the impact of micro-credit on poverty is very mixed which is reflected
from many studies conducted by Bruntrup et al. (1997), Copestake et al. (2001), Edgecomb
and Barton (1998), Mustafa et al. (1996), Proshika (1995), Khandker and Chowdhury (1996),
Morduch (1999), Schrieder and Sharma (1999), Sebstad and Chen (1996) etc. Some studies like
Bruntrup et al. (1997) have only used descriptive statistics for analysis. They have not used
multivariate technique to determine the impact of micro-credit on poverty and poverty
related aspects of borrowing households. The study like Mustafa et al. (1996) was biased in
selecting the sample household. Khandker and Chowdhury (1996) and Pitt and Khandker
(1996) were found to be more sound from the methodological perspective.

Imai and Azam (2010) used nationally representative household panel data covering four
rounds from 1997-2005. In this study, treatment effects model and propensity score matching
(PSM) for the participants and non-participants of microfinance programs were applied. The
application of treatment effects model and PSM to each cross-sectional component of the
panel data showed that (i) the policy effect of household access to MFI general loans on per
capita household income turned from positive and significant in 1997-1998 to negative and
significant in 2004-2005; and (ii) the effect of household access to MFI loans for productive
purposes on per capita household income also turned from positive and significant in 1997-
1998, 1998-1999, and 1999-2000 to negative and significant (in case of treatment effect
model) or non-significant (in case of PSM) in 2004-2005.
 Islam (2009) examined the credit and non-credit services of selected NGOs (ASA, RDS and
POPI) in a selected area of Mymensingh district. This study reveas that, for the betterment of
the destitute, the helpless and the untended population of the society, NGOs are much
acknowledged. It has been proven that the active presences of NGOs are born for the overall
and social development of Bangladesh. The NGOs have proven themselves as the true
associates or partner of the government in poverty eradication and sociocultural
development.

Parveen and Chaudhury (2009) analyzed that rural women’s economic empowerment as the
outcome of micro-credit interventions. The study was conducted in Jamalpur District. They
found significant differences between BRAC and non-BRAC women in their levels of economic
empowerment. This study provides that economic empowerment of women can be improved
through increasing their income, savings and assets. In this study, it was concluded that there
were some positive contributions of micro-credit interventions on rural women’s economic
autonomy.

Westover (2008) provided evidence from the existing literatures on microfinance showing the
effectiveness or ineffectiveness of such programmes on poverty alleviation. He discussed some
criticisms and advantages of microfinance approach to eradicating poverty. He found many
findings some of which showed positive impact, some exhibited negative impact and others
had no direct link between microfinance programme involvement and poverty reduction. He
pointed out that NGO leaders and government policy makers must exercise caution and
restraint in applying the microfinance approach universally as a means of alleviating poverty.

Madhura (2007) in his study on India concluded that micro-credit had been receiving a
significant amount of attention all over the world, especially in developing countries. It was
felt that by providing micro-credit to the “poorest of the poor”, the gap in the formal rural
credit sector can be filled up. A majority of such projects are now being controlled by non-
government organizations in the hope that they will be able to overcome the weaknesses in
the banking system. However, while small-scale rural credit is necessary, it is argued that
overall credit policy must build on the strengths of the banking system in India as its mainstay.

Alam (2005) conducted a study on rural women in micro-credit programme of BRAC in sadar
upazila of Netrokona district. He found that the proportion of total loan utilization in the form
of capital and current expenditure on farming and non-farming activities was almost the same
indicating the borrowers’ positive attitudes towards productive credit use. Family expenditure
seemed to be minimized. Small borrowers were the good payers followed by the medium and
large borrowers. The receivers have increased their income and production by using BRAC
credit. After joining the BRAC, there was a remarkable improvement in the living standard of
the participant households. It was apparent that the farm families irrespective of the loan
categories had positive savings at the end of the year, which was definitely an encouraging
phenomenon.

Chowdhury et al. (2005) empirically examined the impact of micro-credit on poverty

alleviation in Bangladesh. The focus of the study was on both objective and subjective poverty
and particular attention was paid to the length of time programme participants have had
access to micro-credit. A household-level survey (N = 954) was carried out, collecting
information about micro-credit recipients from Grameen Bank, the Bangladesh Rural
Advancement Committee and the Association of Social Advancement. The main findings were,
firstly, micro-credit was associated with both lower objective and subjective poverty and,
secondly, the impact of micro-credit on poverty was particularly strong for about six years with
some levelling off after that point.

Jalil (2005) undertook a study on the impact of micro-credit programme of RDRS on rural
women in some selected areas of Kurigram district. The study revealed that both annual
income and expenditure of the selected households increased after joining the micro-credit
programme of RDRS. The study also showed that there was an improvement in the living
standard of the participants. It was evident that the respondents had a positive savings at the
end of the year during the study. The findings also showed that the participation of women in
micro-credit programme encouraged them to other social development activities.

Elahi and Danopoulos (2004) found several key features of microfinance that differentiate it
from commercial banking procedures. They mentioned five characteristics of poverty
alleviation tool. These were: 1) small loan size, which was determined by micro lending
institutions and dependent on the country’s socioeconomic development, 2) focus on women
borrowers, who had little access to credit, 3) emphasis on the utilization of loans to start
micro-enterprises as they provided employment opportunities to clients, 4) absence of
tangible collateral, and formation of joint-liability groups to enforce payment and 5) savings
mobilization programmes, which required borrowers to open savings accounts and
accumulate financial assets.

Khandker (2003) followed the work by employing panel data. He used the BIDS - World Bank
survey conducted in 1998-99 that traced the same households from the 199192 survey.

He found apparently strong and positive results. While borrowing by males appeared to have
no significant impact on consumption, which by females, who were the dominant client group,
got a positive impact. From this analysis, a 100-taka loan to a female client leads to a 10.5-taka
increase in consumption. Allowing for the impact of higher consumption on poverty gave
estimate of poverty impact. It was estimated that due to participation in micro finance
programmes moderate poverty among programme participants decreased 8.5 percentage
points over the period of seven years and extreme poverty dropped about 18 points over the
same period.

He also found evidence of positive spillovers on non-programme participants in the villages

with the impact greater for those in extreme poverty. Microfinance helped to reduce extreme
poverty much more than moderate poverty.

Pitt et al. (2003) found that credit going to females has a large and significant impact in two
out of three health measures for children. In case of males, borrowing had no such effect. For
example, a 10 percent increase in credit to females increases the arm circumference of
daughters by 6.3 percent. A 10 percent increase in female credit on average increases the
height of girls by 0.36 cm annually and of boys by 0.50 cm. The relations were stronger for
daughters than sons. Hence in Bangladesh micro credit and improved family health appear to
be related.

Meyer (2002) identified some reason of dropout. These were small amount of loan, many
meeting, expensive loan, lengthy meeting etc. A sample of dropouts was asked to report their
reason for living. The largest number (33 percent) reported that the loan amount was too
small, followed by too many meetings (28 percent), meeting are too long (25 percent), did not
want to pay for a defaulting member (25 percent), and loans were too expensive (22 percent).

Pallavi and Ramakumar (2002) claimed that non-government organization (NGO)-led micro-
credit was an effective and financially viable alterative to the existing methods of addressing
rural poverty through the provision of state-led credit by the Indian Govt. The study revealed
that micro-credit programmes had been able to bring about a marginal improvement in the
beneficiaries’ income. However, the beneficiaries have not gained much by way of
technological improvements given the emphasis on ‘survival’. Repayment of Grameen Bank
loan through having fresh loans from the moneylenders in Bangladesh also had resulted in the
creation of ‘debt cycle’

 Preface:
 Poverty exists through the world as a curse and a big trouble in the way of development.
When people deprived of their basic needs such as food, cloth, shelter, education, treatment
and so on is termed as poverty .This paper is to examine empirically the impact of micro-
finance on poverty alleviation and poverty reduction in Bangladesh. The regular growth of the
micro finance concerned parties has been promoted not only by market forces but also by
conscious actions of national governments,Non-Governmental Organizations (NGOs) and the
donors who view microfinance as an effective tool for eradicating poverty. Since 1983, when
Grameen Bank was established in Bangladesh as a model of microfinance banking,
microfinance has grown at an exponential rate worldwide; today, more than 200 million
people are direct or indirect beneficiaries. The recent past has witnessed phenomenal growth
in MFIs around the world. Today as many as 200 million people are beneficiaries of
microfinance. This paper represents that microfinance can be considered as an important
element for an effective poverty reduction strategy in Bangladesh. This study is developed by
descriptive analysis based on secondary data. After the analysis of collected data and
information, it shows evidence that practically microcredit can be considered as an effective
tool for poverty reduction in Bangladesh.

Keywords: Microfinance, poverty, MFI’s, NGO,Credit.

  Result and Recommendation:
Improve skills and marketing opportunities for the poor: Credit alone is not enough
to boost productivity, sustain rising incomes and reduce poverty. Some market
saturation exists in the microfinance sector, which could also lead to diminishing
returns. So in addition to credit, poor populations need skills training and better
marketing networks to expand their non-farm activities into more lucrative sectors.
Lower interest rates: Even though MFI interest rates are much lower than those
charged by informal moneylenders, they still have room to reduce rates further while
realizing sufficient returns. In 2011, Bangladesh’s Microcredit Regulatory Authority
(MRA) capped the interest rate that MFIs can charge as high as 27 percent; however,
many poor households still cannot afford to borrow at this rate. Lowering this cap on
MFI interest rates will increase the number of poor households who are able to take
advantage of the benefits of microfinance programs.
Encourage more competition among MFIs: Finally, Bangladesh’s large MFIs have
expanded significantly in recent years, placing pressure on smaller institutions. This
could lead to the closing of smaller MFIs or their merging with larger MFIs, thus
reducing competition in the sector. The authors recommend that the MRA put policies
in place to protect smaller MFIs and prevent monopolization of the sector.

Role of NGOs Services in Bangladesh:

 Non-Government Organizations (NGOs) are launched with various purposes. Based on the
region or local demand and problems, divergence in each NGO targets and objectives can be
observed. But everywhere the main purpose of NGO is the much-desired development of
poverty among deprived people. The missions and goals with which the NGOs are established
and conducting their operations in Bangladesh are (Islam, 2009):

• Assisting the poor and suffering people as well as exercising self-control through utilization
of own resources

• Identifying native assets, local leadership and ensuring effective utilization of these for
welfare and development

• Coordinating the poor and deprived ones through formation of cooperatives and thus
facilitate the socio-economic progress

• Health and Nutrition development

• Acting as the associate of the government, not as a competitor

• Generating alternatives to overcome special social problems

• Creating positive attitude of the society, annihilation of superstition and belief against
development and bringing in the deprived ones in the main stream of development.

• Giving priority to women in loan scheme by involving them directly in productive process
and thus creating scope of additional income in the family, which gradually leads to self-
sufficiency

• Continuing the assistance towards poor so that they can create own investment by saving at
a growing rate from upward income

• Creating awareness and developing leadership for the landless and relatively less facilitated
ones.

GO and NGO in Poverty Reduction:

The Government of Bangladesh (GoB) has undertaken different programmes to alleviate

poverty. Recently the government has prepared Poverty Reduction Strategy Paper (PRSP) to
alleviate poverty within 2015. But sometime the government programme could not reach the
target group or have had limited success. Realizing this, some non-government organizations
(NGOs) on approval of the GoB have started taking rural development programmes to help the
distressed people and to alleviate poverty from rural areas. The NGOs are working
independently of course within the legal framework of the GoB with a view to helping the
deprive rural mass through facilitating self-employment generation, education, health care,
nutritional status, family planning, approaches often called target group approach, to improve
rural livelihood in the country. The NGOs are trying to explore the rural problems and render
possible solution through providing collateral free credit to them who have usually least access
to credit facilities from banking institutions because of their inability for satisfying the
collateral requirement of the banks.

Current situation of poverty in Bangladesh:

Poverty exists in Bangladesh at a lower rate compared to before. The percentage of

poverty has gradually decreasing day by day through various activities. The yearly
average rate of poverty reduction has dropped from 1.7 percent, between 2005 and
2010 to 1.2 percent, between 2010 and 2016. The average poverty reduction rate has
been calculated from the data to be revealed through a flagship of BBS (Bangladesh
Bureau of Statistics). According to BBS‟ preliminary household income and
expenditure survey report 2016, 24.3 percent of the population is now living in
poverty, down from 31.5 percent in 2010. And the percentage of ultra-poor also
dropped from 17.6 in 2010 to 12.9 now.

 Methodology:
 The principal purpose of this chapter is to present the theoretical and practical research
methods, which also represents the choices we have made in order to make the right option
of your thesis. The preconceptions that many have been influenced are how we have written
this thesis, the choice of subject is interesting to study .Moreover, we explain our perspective,
scientific ideal, scientific approach, research method in this section. There are three important
elements that mainly build the preconception of researchers social background, education,
and practical experience . Therefore, no one can pretend to analysis or study a new scientific
topic or field without being influenced by once prior knowledge . Thus perception are the
theoretical knowledge the researcher possesses on the particular subject and practical
experiences in the field of interest . They might have given researcher an idea about how he or
she believes that the investigated appears is reality.

We, Rahman and khan, have the same origin and have the common social, cultural education
background Rahman has born Chittagong, the 2nd largest city is Bangladesh and khan has born
in Dhaka, the capital of Bangladesh is a developing country and has been facing many political ,
economic and social problem for the last few decade. Since our childhood ,the desire to do
something for our country got impacted in our heart and mind. An microfinance is one of the
best poverty eradication techniques in the world, our Preconception were naturally directed
towards it.

Choice of subject :

After the post war period, many NGO’s and microfinance institution like BRAC, Proshika
, ASA and grameen Bank have risen in Bangladesh. The have been playing a significant role in
the development of the country. Twenty years ago, it was nearly impossible for a farmer to get
the loan in Bangladesh from the traditional financial sectors like bans. Now it is possible due to
the microfinance on socio economic environment in rural areas. On December 18,2007,
General Assembly of united nations passed a resolution (resolution No, 52/194) which
emphasized on reducing the poverty through national and international co-operation. It focus
was on the impact of microfinance throughout the developing countries of the world. Thare
are country that have succeeded in generating dynamic and productive self-employment
through microfinance programs. They have put emphasis on the improving empowerment of
the women, who live in absolute poverty and experience the constant hindrances to grow.
Generally, n the developing countries, the small- scale firms based on agriculture poultry and
fisheries need to have there own land, which few of the lack of collaterals. In these cases,
microfinance organizations help them to spend out their business by offering them different
kinds of small loans. Which is a common feature of microfinance institution.
 When dr. Mohammad yunus got the nobel peace price in 2006. This idea got strength
and become deep rooted when we both visited our country in 2006. Because, the research
needs to be supported by some primary data and it was early to collect when we had been to
our home country . Further more, Rahman has grown up in micro-credit Zone Chittagong of
Bangladesh. A small village of chittagong, named jobra which is extremely important for the
reason the Md yunus started his microfinance activities in this areas. In this way that village
become an idea not only in Bangladesh but also allover the developing world for improving the
village economy. We think the outcome of the study will evaluat the MFIs role and it could be
helpful for generating future research in the field of microfinance sector in Bangladesh.

Scientific Ideals:

While conducting Researchers have to take into mind what research philosophy they
have to undertake. In fact ,the research Philosophy is also called scientific Ideals, which has
influence over the study’s methodology. There are two foremost scientific ideals deal with
objectively, which points towards social world properties that should not be inferred
subjective but measured through objective methods.

 On the other hand, Interpretive is an epistemology that advocates the necessity for the
Researcher to understand differences between humans, in the role as a social action.
Interpretivism views the world and human beings in different ways than just how one
can observe, but the fact is that they are not being observed objectively but
subjectively. Interpretivism can be defined as:”A theoretical point of view that
advocates the study of direct experience taken at face value, and one who seen
behavior as determined by the phenomena of experience rather than by external,
objective and physically describe reality. From the above discussion, we think, we
standing between the positivist and interpretive researchers. Our main goal is not only
to find out the mechanism of microfinance in Bangladesh , but also to find out that how
this mechanism helps the poor people to come over the poverty and to improve their
living standards like as well as economical and social Empowerment.

Scientific Approach

There are usually two approaches used in conducting a scientific research. One is
deductive approach and another is inductive. All scientific theories involve both induction and
deduction and they sometimes differ in the degree to which they emphasize one over the
other. In the deductive approach is used, the research generate hypothesis from theory. After
that, they use empirical research and data collection to test the hypothesis. In a deductive
approach, conclusion come from the evidence.

Creswell (1994) has suggested number of practical criteria to distinguish between the
deductive and the inductive approach. Perhaps the most significant of these criteria, is the
nature of topic of research. That is a topic an which there is a wealth of literature from which
one can define a theoretical framework, and a hypothesis lend on research question and
scientific ideal, we chose to follow the deductive approach.

Research Methods:

There are mainly two kinds of research methods quantitative method and qualitative
method. Quantitative methods is predominantly used as a synonym for any data collection
technique (such as a questionnaire) or data analysis procedure, such as: graphs or statistics
that generates or uses numerical data.

On the other hand, qualitative method is predominantly used as a synonym for any data
collection technique (such as an interview) or data analysis procedure ( such as categorizing
data)that generates or uses non-numerical data. In the questions as well as some non-
numerical questions. Hence, this study will also focus on the numerical data and perform the
statistical tents. Thus, the result of our research depends on numerical and non-numerical
analysis, using both quantitative and quantitative method.

Sample selection and data collection procedure

We have used structured questionnaire for collecting the data by interviewing the
clients attached to the MFIs. The people for the interview were selected randomly. To get the
address and particulars of the interviewees in different areas, we took help from the local
people of the particular areas. The data collection procedure started from village of jibra, from
where the microfinance activities started in Bangladesh, and continued to Bashkhali,
Halishohor, Hatazari, Potenge, Anowara and Patiya.

Questionnaire Design:

The questionnaire comprised of background questions about gender, age, education,

number of family members and living standards , and questions related to income , saving ,
capital etc. The same context of questions was given to all interview and they received exactly
the same interview stimulus. Question were very specific with a fixed range of answer. We
also used ‘ Likert scale’(considered on 1-5 points scale) to measures the respondents
Perceptions based on few statements to perceive the impact of microfinance on their overall
living standards. The points of the scale indicate the degree of satisfaction or agreement level
of the household or a person after he or she has received loan from a MFI ‘1’ Represents the
lowest level of satisfaction or high disagreement, whereas ‘5’ Represents the highest level of
satisfaction or high agreement.

Secondary sources collection:

Inrernate sources were also used as a secondary source for our thesis. Since the internet
source are less reliable, we have limited the use of those sources to the web pages of
prominent organizations like Grameen Bank, moist of the sources, we tried to use, are reliable
and are acceptable almost everywhere. Further, we have also used the handbooks and annual
reports of some of the MFIs in Bangladesh.

Criticism of secondary sources:

It is important that the secondary source, we have used, should be of relevance and
should be of good source of inspiration. It is necessary to ensure that the sources used in the
thesis were up-to-date due to the fact that microfinance is rapidly growing and developing
methodology while getting ourselves acquainted with the facts about the origin and working
of MFIs is to spread their idea over many other developing countries. Starting from the small
village in Bangladesh, its impact has been recognized even at the highest international body,
UNO. To give the idea of this impact we have referred to many recent economic and social
reports from UNO and other important institutions as, UNESCO, CIDA, World Bank etc. The
most important thing, which we like to point out, is the problem involved in the collection of
secondary data. There are some books and articles used as reference in the theoretical
framework are quite practically oriented rather than based on pure theory. We have already
mentioned in our limitation part that there are no particular established theories in
microfinance.

Primary data: is collected through

Making a formal questionnaire for the concerned branch

Questionnaire has been prepared are filed through individual interviews.
Discussion with high officials.
Practical experience gained by studying and visiting.

Secondary data: is collected through.

 Books, Journals, Newsletters, Research, Report, Budget of fiscal year etc.
Annual report of Gashful.
Bangladesh economics Review.
Websites.

The major portions of data source used in this report are from secondary sources. Finally, the
collected data are classified, tabulated, analyzed, interpreted and presented in the form of
report there after.

Analysis method

Demographic Information

Based on the extensive studies of Grameen Bank, Bangladesh, the biggest NGO, MFIs
mainly deal with female clients, due to their management, accountability, good business skills
and high repayment records. Majority of our respondents are female (97 percent). As evident
from table II ,the overwhelming martial status is considered an indicator of stability and
responsibility at the individual or formally level, most of our respondents (92 percent) are
married and hence indicate stable family. The age in another factor in materializing the goal of
economic productivity, MFIs selected those who are physically capable of working hard. The
majority of respondents (71 percent belong to the economically most active age group ranging
between 15 and 44 years.

Table-I

District Upazila Survey Sampling

Administrative distribution/size

Dhaka Narsingdi 2 110

sdarupazila palanb
upazila

Rajshahi Mohonpur 5 147

Khulna Dumuria, Dighalia, 12 124

Koyra

Total 6 12 N=381
Table-II: demography of the Respondents

Variable Category Frequency (%)

Gender male 13 3.4
female 368 96.6
Marital status Single 7 1.8
Married 351 92.1
Widow 20 5.2
Single Parent 30 0.8
Age 15-29 years 101 26.6
30-44 years 168 44.1
45-59 years 101 26.5
60-64 years 10 2.6
65- above 1 0.3
Family size Below 5 244 64
5-7 118 31
8-10 14 3.7
Above 10 5 1.3
Levee of Informal education 103 27
education Islamic Education 6 1.6
Primary School 105 27.6
Secondary School 123 32.3
Diploma/college 11 2.9
Tertiary Institution 4 1.0
Others 29 7.6
Years of schooling 5 and below 235 61.7
6-10 128 33.6
10 and above 18 4.7

On the other hand, family size always does matter particularly in upholding the economic
status and well being of households with a limited household income. The Relatively bigger
family size comprising 95 percent having members including children bellow 7 does speak for
higher dependency ratio and lower standard of living. Given the bigger family size and higher
dependency ratio, it is quite likely that the female members including, particularly, the wives
get directly involved in income generating activities and assist their partners in sharing the cost
of living.

Statistics Data :

The following table displays the mean, standard deviation and standard error mean for
four variables, procedure of loan taking, operational assistance employment opportunity and
responsibility of interest rate of micro credit. All the variables show the satisfaction level to be
more than average level of satisfaction.

Variables N Mean Standard Standard

Deviation error
Reasonability of 109 2.96 1.009 0.009
Interest Rate of
Microcredit
Procedure of Loan 109 4.01 0.726 0.070
Taking
Operational Assistance 109 3.39 0.891 0.085
Employment 109 2.86 0.938 0.090
Opportunity
Table: General Descriptive Statistics

To examine the statement, interest rate of micro-credit is reasonable or not , we developed

hypothesis and agreed upon the level of significance for rejecting/accepting the strongly agree
and 1= strongly disagree. We took the null hypothesis to be , borrowers are less satisfied than
the average level of satisfaction , in terms of the interest rate of micro –credit. Therefore, the
alternative hypothesis is the borrowers are satisfied more than the average satisfaction level.
The analysis is the table above demonstrates that the null hypothesis is rejected and it is
strongly significant. So our results are in favor of alternative hypothesis. This means that the
satisfaction level of the respondents, about the interest rate of micro-credit, is more than
average satisfaction level. From this study, we can conclude that level of average satisfaction is
quite high.
Characteristic Test t- Degree Signific Mean 95%conflidence
s valu statisti of ance Difference Interval
e cs Freedom Level
Reasonability 2 9.972 0.000 0.000 0.963 0.77 1.15
of Interest
Rate of
Microcredit
Procedure of 3 14.504 108 0.000 1.009 1.009 1.15
Loan Taking
Operational 3 4.513 108 0.000 0.385 0.385 0.55
Assistance
Employment 2 9.603 108 0.000 0.862 0.862 1.04
Opportunity
Table: One Sample t-test

To examine the statement “ The procedure of obtaining loan from MFIs is easer or not than
conventional banking”. We developed statistical test to check the comfort level of the people
in obtaining the loans from MFIs in comparison to the traditional banking. We took null
hypothesis considering the procedure of obtaining loans from MFIs, is not easier than
conventional banking. From the above table we can draw conclusion that our null hypothesis
will be rejected because the mean level of obtaining loan procedure compared to conventional
banking is above 4 and it is statistically strongly significant. Son our decision will go in favor of
alternative hypothesis which indicates that people think loan procedure from MFIs is more
easier than traditional banking.

However, the mean level of operational assistance from respondents according to

degree of satisfaction with five-scale ranking is 3.39. We assumed that our null hypothesis is
the mean response to operational assistance is 3. The t-test statistics for operational
assistance is 4.513 and the significance level is 0.000. This means that the null hypothesis is
rejected and the alternative hypothesis accepted with a high level of confidence . From a
practical standpoint, the result of the univariate hypothesis test indicates that respondents felt
operational assistance from MFIs was helpful to run the business.

 SCOPE OF THE STUDY

The study consists of the writer’s observation and on the job experience and service life in the
micro finance department .The study focuses upon the role of micro finance on poverty
alleviation of clients which financial services .This report covers overall impact of micro
finance program on poverty alleviation of the poor and unprivileged people.

It has been prepared through extensive discussion with organization’s employees and with the
clients. While preparing the study , we had a great opportunity to have an in depth knowledge
of all the activities of clients and micro finance program. It also helped me to acquire a fast
hand perspective of a leading micro finance institute in Bangladesh.

 LIMITATIONS OF THE STUDY

The study has been conducted subject to certain limitations. In addition to the above, our
sample branch does not provide all sophisticated information. Another important reason is as
follows:

Most of the ours was so much busy to provide me enough time.

lack of proper communication in the earlier stage.
lacks of information is prevailed in this report.
The success rate of this study may be limited due to lake of our experience in collecting
data.

In spite of these limitations, we have tried our best.

While interviewing the people, we have faced problems in explaining the questions as most of
the people, who are involved in microfinance program, are illiterate and living in villages.
Therefore, it was too difficult to make them understand some of the technical terms: like
capital, income etc. Moreover, theories were other problem when we wrote the theoretical
framework. Because, no established theories were particularly defined in microfinance field
yet. Grameen model has been used as an ideal theory for microfinance. Besides this, some
other related things to microfinance like, saving mobilizations, solidarity, etc. were also used in
theoretical framework. Finally, the accuracy of the analysis heavily relied on the data provided
by the people involved in microfinance program in Bangladesh.