Poverty, Vulnerability and
Microfinance:
Experiences from Bangladesh
Imran Matin
BRAC
Presentation Structure
l
Comments on ‘Poverty and Vulnerability in South Asia’
document
l
The role of microfinance in social protection against
vulnerability
l
Some BRAC programmatic experiences
l
Way forward in better use of microfinance as a social
protection tool
Comments on the Document
l
A comprehensive document covering the range of aspects that
need addressing for an effective social protection strategy.
l
Focus on the ‘social’ and innovative arrangements that
capitalize on the ‘social’.
l
Honest with respect to knowledge gaps.
l
Emphasizes the importance of contextual analysis to underpin
‘optimal mix’.
l
A useful typology of risk sources and policy instruments for risk
reduction.
Comments on the Document
l
Need a better understanding of how the various
risk sources act on each other and how these
interactions differ across poverty groups.
l
Need a matrix that shows the various ‘actors’ in
various types of risk reduction.
l
This can get us closer to understanding the multi
agent complex of the problem and thinking of
strategic alliances for action.
Microfinance, Poverty and Vulnerability
l
The role of microfinance in reducing vulnerability stems from three
fundamentals—one we know, the other two we need to understand better:
–
A contract premised on social collateral and incentive mechanisms that are pro
poor. This allows the poor to manage their money better for taking advantage of
opportunity, better manage crisis and life cycle events.
–
Emphasis on a ‘repeat chances’. These ‘repeat chances’ are based on local
information, context, and adherence to basic rules of transparency.
–
Frequent and intensive interactions between the institutional agents and the poor
through platforms of the poor (groups, centres, etc.). This allows good knowledge
of various risk types, their interactions and can often act as a powerful source for
new mechanisms.
Microfinance, Poverty and Vulnerability
l
A recent PKSF-BIDS (Zohir, 2001) study found that regular
microfinance households:
–
–
Fared better in terms of vulnerability during the 1988 floods.
Generally make lesser use of ‘hard options’ for crisis coping.
l
Sinha and Matin (1998) find that microfinance members access
to informal financial sources improve (both quantity and quality)
over time.
l
However, for some microcredit can also create new forms of
vulnerabilities and crowding out of informal support.
BRAC and the many faces of microfinance:
Overview
l
Poor access to good financial instruments reproduce poverty
and make transitory bad time turn into permanent destitution.
l
BRAC’s microfinance canvass is predicated on perceiving the
poor as a heterogeneous and dynamic group with changing
situations, needs and opportunities.
l
The microfinance groups known as ‘Village Organizations’ act
as the primary institutional platform of contact and exchange
between BRAC and our members.
BRAC and the many faces of
microfinance: Overview
l
We offer microfinancial services for various categories of the poor
(including the extreme poor) along with other non financial
development services, such as health, education, and enterprise
support through training and extension services provided by
community voluntary workers (health, agriculture, legal aid, poultry).
l
Our programmes are ‘operationally separate’, but ‘conceptually joint’.
l
The ‘operational separateness’ ensures transparency, effective
incentives and good programming and the ‘conceptual jointness’
allows us to leverage impact.
BRAC and the many faces of
microfinance: IGVGD
l
The extreme poor need a ‘window of opportunity’ in
their lives that can be provided by well targeted
safety net programmes.
l
However, deliberate strategic linkages will need to
be created to link safety nets to mainstream
development programmes such as microfinance.
l
BRAC’s IGVGD programme provides a good
example of such strategic linkages.
BRAC and the many faces of
microfinance: IGVGD
Partners
Main Role
World Food Programme (UN Agency)
Provides food aid
Directorate of Relief and Rehabilitation
(DRR), Govt. of Bangladesh
Allocates food for the VGD Programme
Directorate of Livestock Services (DLS),
Govt. of Bangladesh
Supplies vaccines and day-old chicks, facilitates training
Union Parishad (Local council body)
Identifies vulnerable women, Issues VG cards,
Distributes monthly food ration (in cooperation with
BRAC)
PKSF and other banking institutions
Provide credit fund to BRAC
BRAC
Arranges training, provides credit and other inputs,
monitors and supervises programme activities
BRAC and the many faces of
microfinance: IGVGD
l
Lessons from IGVGD
–
The extreme poor CAN be microfinanced. More than 70% of those who
enter BRAC’s microfinance programme through the IGVGD route manage
to stay on and benefit.
–
However, this requires major rethinking of the dominant ‘microfinance
discourse’ which creates a conceptual separation between ‘protection
oriented’ programmes, such as food aid and ‘promotional ones’, such as
microfinance.
–
The subsidy involved can be recouped through microcredit interest
charges, but this may take long as the average loan size taken by the
extreme poor tend to be low and a significant minority fail to stay on.
BRAC and the many faces of
microfinance: IGVGD
l
Challenges from IGVGD experiences:
–
Type I errors: Kinship and patronage based targeting.
Repeat targeting. Many left unreached.
–
Rent seeking leading to reduced impact of programme.
–
More intensive and systematic support needed to increase
quantity and quality of graduation.
BRAC and the many faces of
microfinance: CFPR
l
From 2001, BRAC has started a new experimental programme that
uses the basic principles of strategic linkages underlying the IGVGD.
l
However, CFPR is much more systematic and multi-dimensional
approach to attacking extreme poverty.
l
Targeting is done by BRAC using a mix of methods (geographical,
community based, and indicator based) and knowledge streams
(formal poverty profile studies, and programme knowledge).
BRAC and the many faces of
microfinance: CFPR
l
Main programme components include:
–
Careful targeting
–
Enterprise development training using visual pedagogy
–
Asset transfer based on area profile and intensive consultation
with members (poultry, livestock, vegetable cultivation,
horticulture, non farm self employment and wage employment)
–
Intensive support and technical supervision for enterprises (1 PO
supports 50 ultra poor members)
BRAC and the many faces of
microfinance: CFPR
–
Social development through:
l
l
l
l
–
Once a week, one to one discussion on legal and human rights issues
Pictorial diary for participatory planning and consultative assessment of progress
made, challenges faced, etc.
Building community support and ownership through Village Support Committees.
Influencing local resource allocation decision
Health services through:
l
l
l
l
l
l
Once a week, one to one discussion on health issues
Creating new health networks
Using Village Support Committees to influence local health service providers
Liaising with tertiary support providers for complicated cases
Health cards
Influencing allocation of local health resources
BRAC and the many faces of
microfinance: CFPR
l
5,000 ultra poor women from three very poor Northern districts have
been in this programme for a year.
l
Plan to target 70,000 ultra poor women over the next 5 years.
l
IGVGD members from the new round on wards will be brought under
the CFPR programme minus the asset transfer.
l
Ultra poor members from the existing microfinance programme will
also so be brought under the CFPR, minus the asset transfer.
BRAC and the many faces of
microfinance: CFPR
l
Early Lessons:
–
Careful targeting very important. Use of combination of methods and knowledge
stream very powerful for good targeting.
–
Building community support and ownership over such programmes very
challenging and important.
–
Advocacy at various levels for influencing resource allocation is crucial and can
work.
–
Consultative but disciplined savings product probably better than open ended,
flexible ones for the extreme poor.
–
Financial product innovations will be needed to strengthen graduation into
microfinance.
Way Forward:
Using Microfinance for Social Protection
l
Analytical, conceptual and ideological challenges in advancing the microfinance
imagination from its current orthodoxies. The vulnerability reducing role of microfinance
is important for developing a more poverty focused microfinance discourse.
l
Financial product innovations that allow the poor to manage risk better is clearly
important. More good research on this is needed.
l
Also important is the agenda of strategic linkages that create a ladder between
protection oriented programmes and largely promotion oriented ones, like microfinance.
l
This is relatively unexplored area and potentially the most impactful in using
microfinance as a social protection tool. Yet, the greatest discourse contestation will lie
here.