state of micro finance in bangladesh

7/28/2019 State of Micro finance in Bangladesh

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WELCOME TO THEPRESENTATION


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State of Microfinance in Bangladesh


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Micro Financ

Microfinance provides financial services for poor andlow income people by offering smaller loans anflexible savings services where permitted, whilaccepting a wider variety of assets as collateral.

Micro finance belongs to the group of financial servicinnovations under the term of microfinance, otheservices according to microfinance is micro savings

money transfer vehicles and micro insurance.


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Importance of Microfina

Fostering economic growth

Improving living standard

Poverty alleviation

Eliminating income inequality

Reducing Unemployment

Women empowerment

Facilitate mobilization of savings

Facilitating financial intermediation

Encourage savings of rural people

Making credit available specially to rural people

Boosting socio-economic development

Making insurance available to rural people

Overall development of rural finance


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Microfinance Sector in Banglad

Bangladesh has been known as the birthplace of microfinanc

and competition has markedly increased during the last deca

The development of the microfinance sector in Bangladesh cabe divided into four phases, these are:

1) Action research phase in the 1970s2) Microfinance development phase in the 1980s3) Expansion phase in the 1990s4) Increased competition and formalization from onwards.


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Traditional Diversification of Microfina


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Poverty Outreach of Microfinance in Banglad

Compared to the global records, microfinance in Bangladesh isprobably the most poverty focussed in its operations and discour

Due to high population density, relatively easily accessible terrai

and solid institution builders, the trade-off between financialsustainability and serving poor people is less polarized and moreconsensual.

Increasing depth of poverty outreach and enhancing poverty imare the two fundamental challenges that dominate the microfina

discourses in Bangladesh.


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The Key Actors in the Microfinance Sector Coverage and Involvem

Microfinance has emerged as small-scale financial services offered to the poor in order reduce their vulnerabilities and not only the NGOs and Grameen Bank, the public sectoragencies have also been giving priority to microfinance program as an effective tool tocombat poverty.

In fact, the magnitude of growth of the microfinance program undertaken by various agehas brought Bangladesh at global focal point.

Over time, the microfinance sector has grown to an industry and is unofficially treated asthird sector in the country.

Basically, the microfinance program in Bangladesh has turned into product diversificatioterms of flexibility in savings and credit operations during the last couple of years.


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Grameen Bank

This is the pioneer of the microcredit concept.

It is one of the largest microfinance institutions in the world, whichprimarily started as a project in 1976 and formally began functionas a bank since 1983 in Bangladesh.

Grameen has an outreach of 2.36 million members of which morethan 2.3 million are women. These members mobilized savingsamounting to BDT 8,142.7 million.


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The NGOs

Although the exact number of NGOs operating microfinance is not known accuratreports from different sources reflect that more than 1000 NGOs are operatingmicrofinance program in Bangladesh who can be called as microfinance NGOs (MNGOs).

These include some of the largest NGOs in the world like BRAC, ASA, Proshika etc.

These NGOs mobilized a total savings of Taka 6,922 million and these NGOs alsodistributed a cumulative amount of Taka 92,436 million.


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Palli Karmo-Shahayak Foundation (PKSF)

This is another organization in the sector playing an important role sin1990. PKSF is widely known as a second tier organization that lends tomicrofinance NGOs for on-lending to the borrowers.

It is mainly a government-initiated organization to promote and facilmicrofinance program in the country through the potential microfinaNGOs.

PKSF's contribution is 24% to the total amount of Revolving Loan Fundof the microfinance NGOs in Bangladesh. It is now acknowledged asmost potential source of fund for the microfinance NGOs.


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Nationalized Commercial Banks (NCBs)

All the nationalized commercial and some specialized banks havmicrofinance program of their own.

In general, these banks channel capital for microcredit through MNGOs as well as other agencies.

But, some like Islamic Bank Bangladesh Limited are participating poverty alleviation program by directly providing microcredit to tlandless and small farmers.


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Funding of Microfinance Instituti

Financing strategy of the MFIs in Bangladesh has changed ov

the year. In the early 1980s it used to depend heavily on Granaids and foreign subsidies but in recent time MIs have emergeas more self dependent organizations.

Again from another perspective it can be argued that

Microfinance institutions (MFIs) have three main sources to funtheir growth: donor fund, debt, equity, and deposits .

In Bangladesh Member savings has been the most crucial souof fund for the micro finance institutions along with interestincome and commercial bank lending.


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Funding of Microfinance Instituti


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Funding strategy of MFIs 2008 onwa


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Impact Assessm

Impact assessment is the systematic process of identifying the identifying the

anticipated or actual impacts of a development intervention, on those social,economic and environmental factors which the intervention is designed to aff

Possible stages for producing an impact assessment

Developme

nt

Option

Consultatio

n

Final

Proposal

Implement

ation

Review


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Common problems of impact assessm

Unobservable attributes

Fungibility

Selection Bias

Program Placement Bias

Spillover Effect


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Practice of Impact Assessment

Microfinance instituti

IMPACT ASSESSMENT: OBJECTIVES- Impact assessment studhave become increasingly popular with donor agenciesand, in consequence, have become an increasinglysignificant activity for recipient agencies. In part this outpu

Assessing impact: the choice of conceptual frameworks-

A model ofthe impact

chain

Thespecification

of the unitsor levels

Thespecification

of the typesof impact


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Problems of Impact Analysis from

perspective of Microfinan

Fungibility-Fungibility of cash within households, whether from loansavings, insurance or pensions.

Program Placement- In implementinga group lending program it wbe difficult to go into a rural village and randomlyidentify individuainvite to join the group lending program and others who are notinvProblems of attribution- The major methodological problems thatconfront the IA of microfinance relate to attribution. At the heart ofimpact assessment is the attribution of specific effects to specificcauses.


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Leadership of the Organisations- Organisatioleading by female CEO are creating moreimpact and more efficient. It is also globallyapproved.

Selection Biasness- In particular problems ofsample selection bias, mis-specification of

underlying causal relationships and respondmotivation must be overcome.


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Selection biasmay occur because of-Difficulties in finding a location at which the control groups economic, physical and socialenvironment matches that of the treatment group.

The treatment group systematically possessing an invisible attribute which the control group

Receiving any form of intervention may result in a short-term positive response from the tregroup.

The control group becoming contaminated by contact with the treatment group

The fungibility of the treatment.


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Solution to the problems of Impact Anal

Quasi-experiments-

Multiple regression has rarely been used in microfinance because of its enormous demands for data on other posscausal factors and its assumptions.

control group method requires a before and aftercomparison of a population that received a specifictreatment and an identical population that did not receiv

the treatment.


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The Humanities Tradition- This tradition does not try to prove imwithin statistically definable limits of probability.The validity of specific IAs adopting this approach has to be judgethe basis of

The logical consistency of the arguments and materials presente

The strength and quality of the evidence provided.

The quality of the methodology.

The reputation of the researchers.


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Participatory Learning and Action (PLA)-

In the last five years participatory approaches todevelopment planning and management have

moved from being a fringe activity to centre sta

Participatory approaches challenge the validityand utility of the scientific method as applied todevelopmental problems.


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Global Debate on MFI (Same Ga

Different Leag

The financial crisis has given rise to a heated debate about tcorporate governance of large banks, and has emphasizedfundamental role in the management of change, the resolutof conflicts of interest and the prevention of crises.

Whether the micro finance institutions would be wise to focusthe corporate governance issue.


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Different Leag

Role and Responsibilities of the Board- Large banks main duties are settstrategy, risk profile and appetite. While MFI focusing on a transition to a

deposit taking for profit entity.

Board Size, Composition and Qualifications- Banks have always been aof the trade-off between appropriate representation of all relevantstakeholders and a manageable size of the Board. Some commentatosuggest that a size of 7 to 9 members is optimal for micro finance.

The Board of Directors


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Different Leag

The debate has focused on institutional shareholders, for example pensfunds, large asset managers, private equity funds and hedge funds.

This analysis is highly relevant for MFIs. NGOs transforming into for-profit

companies acquire owners for the first time.

The Role of Institutional Shareholders: Rights and Engagement

The Governance of Risk

An already vast literature exists on the shortcomings of riskmanagement in the lead-up to the banking crisis.

Microfinance institutions have been characterised by extremely tigrisk management.


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History of Regulatory Attem

Creation of NGO Affairs Bureau

Microfinance Research and Reference Unit

(MRRU)

Establishment of Microcredit Regulatory Authority(MRA)


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Triggering factors of new regulati

Decline in foreign donation: Foreign donation for this NGO sector declined fralmost 100% to 50% at the beginning of nineties.

Emerging of huge microfinance institutions: A notable growth in terms of numof Institutions was observed after that period.

Creation of wholesale funding agency: PKSF has been playing the role of a qregulator for the NGO-MFIs who have been receiving its funds.

Requirement of sound legal basis: With the gradual difficulties to attract foredonation many NGO-MFIs attempted to tap funds from local sources includi

commercial banks, PKSF, international investment


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Establishment of Microcredit RegulatAuthority (M

Microcredit Regulatory Authority Act, 2006 was passed bthe Parliament in July 2006.

Microcredit Regulatory Authority (MRA) has been establisin August 2006.

Grameen Bank as a bank remained out of the supervisorysystem of the MRA.

Draft rules has been finalized after thorough consultation w

the sector at different levels.


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MRA Act 2

Chapter One (Opening)

Chapter Two (Establishment of the Authority)

Chapter Three (Financial Matters of the Authority)

Chapter Four (Certificate)

Chapter Five (Matter Related To Micro Credit Institutions)

Chapter Six (Offense, Punishment etc.)

Chapter Seven (Miscellaneous)


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MRA Act 2

The first chapter of the law describes various definitions of the numerous subjects the perspective of micro finance.

Micro credit means loan facilities offered by micro credit organisations certified uthis act for poverty alleviation, employment generation and facilitate a smallentrepreneur.

Chapter One (Opening)

Chapter Two (Establishment of the Authority)

This authority shall be a statutory organisation which will have a permanent continuity.

The general management of the authority shall be selected by a board of directors.

Which shall be comprises ofGovernor of Bangladesh Bank (Chairman), Six governmeofficials and Executive Vice President (Member Secretary).


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MRA Act 2

The authority shall have a fund and it will be constituted through different types of finansources.

The auditor and controller general of Bangladesh shall examine every year the accounthe authority and submit a copy of the report to the government and to the authority.

The authority shall submit an annual budget to the government within a time frame to bby the government ahead of the end of every fiscal year.

Chapter Three (Financial Matters of the Authority)

Chapter Four (Certificate)

Every micro credit organisation has to take the certificates from the authority to run theorganisation in Bangladesh.

Until the authority accept or reject the application the micro credit organisation can coit activities.

Scrapping and temporary suspension of the certificate, return of the certificate andadequacy of the capital of the micro credit organisation, income feasibility etc.


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MRA Act 2

The authority shall form and maintain a fund in order to secure the depositors of Micro Cinstitutions to be called Depositor security fund.

No Micro Credit Institution can change, amend and scrap its constitutions without theapproval of the authority.

All micro credit institutions shall maintain their accounts in prescribed manner to be dirby the authority

Chapter Five (Matter Related To Micro Credit Institutions)

Chapter Six (Offense, Punishment etc.)

If any person convicted any offense that person shall be punishable with imprisonment more than one year, or penulty not exceeding Taka five lakh.

Imposition of administrative fine for non-cooperation.

Authority of imposing administrative fine.


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MRA Act 2

The authority has to submit an annual report containing the descriptions of itactivities within the year to the government within three months after the endevery year.

The government shall take measures to the table at parliament as soon aspossible.

Microfinance institutions may unable to pay the liabilities it owe to the clientconcerned institution shall appraise this to the authority in writing.

The authority shall issue necessary directives to the concerned micro credit

institution and it shall obliged to carry out the directives.

Chapter Seven (Miscellaneous)


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Experiences of the Microcre

Regulatory Autho

More than 4000 active NGO-MFIs have applied for licensethe authority, over 60% of them are very small organizatio

503 licenses have been issued by February 2010, MRA is sprocessing applications.

The market size of microfinance in Bangladesh is not at alcomparable with the situation of other countries.

There are lots of arguments regarding taking this huge

responsibility by a new organization like MRA.


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state of micro finance in bangladesh

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