1. Lecture- 6: Micro credit & NGOs to Alleviate Poverty Presented by MD.MAHBUBUR RAHMAN Lecturer in GED Northern University Bangladesh

2. Introduction ‘Poverty alleviation’ has recently been a catchphrase in today’s Bangladesh since the degree of poverty in our country is so alarming (see the next slide). No doubt, GO & more than 100 NGOs, at present, are trying to triumph over poverty and vulnerability by many ways. Micro credit program is one of the significant method. Let’s define micro credit and discuss the role of NGOs to alleviate poverty in Bangladesh.

3. Low Savings & Investment Low Productivity Low press of Capital Accumulation Low Average Income Fig: Vicious Cycle of Poverty

4. Definition of Microcredit 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.' Micro credit is a small size of loan that is given to the poor for self employment. Today, Bangladesh is called the land of Micro credit revolution which started among rural women in 1970s. Conceptually, micro credit can be described as collateral free small loan offered to the poor to create small employment in income generating activities based on group lending methodology.

5. Micro credit can broadly be defined as a program that provides credit for self employment and other financial and business services including savings and technical assistance to the poor people. This is provided mainly by micro-finance institutions and also banks and conventional financial institutions to poor people. 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, housing, self reliance, sustainability all are addressed by microfinance.

6. 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 than bank should go to the people. The other important features of microcredit are: 1.Microcredit is given with minimum paperwork. 2.Workers regularly visit to the borrower's grounds to offer advises and supervision 3.Small size of loan. 4.It is collateral free. 5.Recovery rate is above 90 percent. 6.All loans to be paid back in installments on weekly or bi-weekly basis.

7. Difference between microcredit and Bank credit Microcredit Bank credit Loan procedure is simple Loan procedure is complicated Poor can easily access to microcredit Poor has very limited access to bank credit Loan utilization rate is up to 85 % Loan utilization rate is 40-60 % Highly supervised credit, so recovery rate is about 99 % Less supervised credit, so recovery rate is 40-60 % NGO staff are very friendly and helpful to the poor borrowers Bank staff are not usually so friendly with the poor borrowers

8. Microcredit Bank credit Repeat borrowing is easier within 2 - 3 days of previous loan repayment Repeat borrowing is difficult No certificates/ documents are required to receive loan These are required to receive loan. Legal action against default borrowers is not taken Legal actions is taken 95 % borrowers are women addressing gender issues. Poor women have very limited access Landless and illiterate have access to NGO loans. They have no access to banks Borrowers are empowered through provision of education on development issues There is no such scope in a bank.

9. Evolution of Microcredit 1. Traditional money Lending System in High interest Rate under Zamindari System. 2. Comilla Model developed by BARD in 1960 under the leadership of Aktar Hamid Khan & expanded throughout the country in 1970 as IRDP (Integrated Rural Develop- ment Program). 3. Grameen Model developed by Dr. Mohammad Yunus in Zobra village of Chittagong in 1976. Birth and Evolution of Microcredit

10. Grameen Microcredit Model Prof. Dr. Mohammad Yunus conducted an experiment in 1976 by lending $28 out of his own pocket to a few village women in Zobra village of Chittagong. The objectives of Grameen Bank were: 1.To extend banking facilities to the poor people 2.To eliminate the exploitation of the money- lenders 3.To create opportunities for self-employment for manpower resources 4.To bring the disadvantaged people within the folds of some organizational format to ensure socio-political and economic strength of them 5.To divert the old circle of "low income, low savings and low investment into more income, more credit, more savings & more investment.

11. Role of Microcredit to Alleviate Poverty A. H. M. Kamrul Ahsan gave a conceptual framework of poverty alleviation through microcredit Independent Variable: Microcredit Dependent Variable: Poverty Alleviation Small Size of Loan, which is found to be an amount of Tk. 1000 to 10,000 distributed with the condition of weekly repayment at cheaper interest rate 1.To ensure better economic condition; 2.To ensure opportunity for the involvement with income generating activities; 3.To ensure more income through income generating activities.

12. Dilemma of Interest Rate about Microcredit It is alleged that Microcredit distributors of Bangladesh 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.

13. A. Interest Rate Is Not High At All 15% flat interest is necessary for its long term sustainability Microcredit reduces borrowers transportation costs and time This can never be sustainable if fails to cover the full costs of its operation, particularly staff salary costs, annual costs of funds, annual costs of bad debt and cost of inflation None cannot deny the positive impact of intensive supervision and monitoring of NGO workers on the household incomes of poor borrowers Microcredit is not charity. So let the market determine the rate

14. B. Interest Rate Is Really High NGOs are charging high rate of interest on microcredit. They are doing business in the name of poverty alleviation. According to a study, the microcredit system charges interest as high as 30- 40%. Other Criticisms: Grameen microcredit model though claims it as collateral free, before receiving loan borrowers must save a fixed amount, for 6 months to the lenders, which they can invest for profit. Interest rate in each installment is in accordance with the 1 st installment.

15. This model sustains the poverty of rural people. This model makes rural people dependent on further credit. This model really exploits rural poor women who are not conscious of critical calculation and aftermath of receiving credit. Grameen microcredit program can not alleviate poverty but accelerate poverty. In this situation, credit receivers take the opportunity of taking fresh loans from which they give the installments. The reality is that microcredit perpetuate poverty of the borrowers.

16. Definition of NGO Non-government Organization (NGO) generally means any organization not established by government. The term refers to social organizations, mostly of voluntary and non-profit character, that are engaged in development work. NGOs have the following characteristics: Informal associations and formal corporations limited Engaged in broad socio-economic uplift of the poor Private voluntary development organizations (PVDO) Socio-economic program of development, Advocacy, Legal aid, Environment and relief program

17. Role of NGOs in Poverty Alleviation Social service 1.Shelter, education and food to the helpless orphans; 2.health services to helpless elderly poor; 3.training and rehabilitation for the distressed, vagrants and homeless; 4.training and rehabilitation for handicapped and distressed poor women; 5.Skill training to rehabilitate orphans, the disable and the elderly people; 6.Credit to the poor asset less, unemployed and the landless families etc. WomenDevelopment 1.Skill development; 2.development of women entrepreneurship; 3.credit payment among women; 4.strengthening of policy leadership; 5.poverty alleviation for women; 6.development of asset less women; 7.advocacy for gender equity etc.

18. Youth development 1.Skill development programs for youth; 2.Self-employment for the unemployed youth; 3.Youth leadership and human relations development; 4.Involvement of youth organizations in community development activities; 5.Participation of youth in population control and welfare activities; 6.Participation of youth in national social service programs; 7.Supply of equipment to trained youth for self- employment etc. AgriculturalDevelopment 1.Production and productivity of agricultural sector through crop diversification including livestock, fisheries and poultry; 2.Farmer’s access to better technology; 3.Crop yields by shifting from local varieties to High Yielding Varieties and hybrid varieties; 4.Coverage of the irrigation network for greater application of HYV in rice and wheat; 5.Small and marginal farmer’s development for higher productive intensity

19. Other Roles of NGOs 1.In the field of education 2.In the field of sanitation 3.In the field of development project 4.In the field of population control 5.In the field of removing superstition 6.In the field of political instability

20. Exaggeration of NGOs: NGOs sometimes like to fish in the dirty water by captivating our ordinary people. They exaggerate in some matters. Sometimes, they display their excessiveness in our internal matter which is intolerable. They try to give wrong interpretation of religion and try to establish their dominance. Evaluation of NGOs' function: If NGOs neutrally perform their functions in the country, they will be highly appreciated. It is explained that NGOs must be strict to their principle and shouldn't be guided by evils.

21. Conclusion In spite of great limitations, microcredit has been accepted as an effective tool for poverty alleviation and as approach to development. It is a 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 of Microfinance'. The poverty of the world can be rooted out through effective microcredit program that originated in a poor country like Bangladesh.