Microcredit now play a great role in proverty alleviation efforts of many developing countries. Over the years, there has been phenomenal growth in activities of microcredit across the developing world with a transition in the paradigm and modalities of microcredit.
Microcredit, in meaning, is the name given to extremely small loans made to poor borrowers. A typical microcredit scheme involves the extension of unsecured, commercial-type loan at interest to a poverty stricken borrower. Loan are disbursed in a group setting to poor borrowers, with some amount of non-credit assistance also being made available.
It is 1980 when microcredit initialized it's activities. In Bangladesh, institutional credit providers mushroomed when many non-profit organizations recognizing the importance of stable income and capital accumulation in reducing poverty started target savings and credit programs for income generating self-employment.
Microcredit programs target those without land or assets, and 90% of the recipients are women. Loans are collateral-free, and usually have a maturity of 50 weeks with weekly repayments. Borrowers are part of a 15-20 person group that works regularly. Savings is a integral part of the program and financial transaction are recorded in individual passbooks in the presence of the entire group to enhance transperancy and self-monitoring.
Microfinance institutions start with a small loan and provide repeated loans of increasing amounts as long as repayment of the earlier loan is satisfactory. Most microfinance institutions have loan repayment rate in excess of 95%. They usually have upper loan limits, but few have a policy of graduating a borrower from the program, since borrowers of large loans are low risky after being in the system for several years and are also financially more efficient. Borrowers can choose the activity to be financed by the loan, such as poulty farming, petty trade and shopkeeping, cattle raising, or handicrafts.
The strength of microcrdit lies in its ability to organize idle women into a productive workforce with their proven creditworthiness. It is believed that 25 million people worldwide are now using microcredit to undertake income generating or self-employment activities; of those, 90% are women. It has not only made women more productive but also empowered them. As a result, women are now integrated into socio-economic activities, contributing to family income and dicision making and exercising more control over their fertility, which allows them to take better care of their children.
About 1200 microfinance institions (MFIs) are now operating in Bangladesh. They are extending credit to about 8 million people (90% women). The borrowers are mostly self-employed, and are involved in numerous income generating activities. MFIs have been very effective in mobilizing savings from the poor borrowers. They also clam a high recovery rate from the borrowers, over 95%.
Microcrdit, in Bangladesh proved very fruitful. The main benefits of it can be enumerated as as follows:
Ø It has increase family income and quality of life, and as women represent 90% of the borrowers, their contribution is noteworthy.
Ø It has promoted savings habit among ther poor.
Ø It has raised awereness and empowered women to contribute to various socio-economic activities.
Ø It has motivated women to take an active role in the socio-economic and polical affairs in Bangladesh.
Microcredit is a movement to emancipate the poor, especially women, to alleviate their poverty, to improve the quality of life, to build the capacity and awareness and to integrate them economically and socially into the mainstream of the economy.
