Socio-Economic and Indebtedness-Related
Impact of Micro-Credit in Bangladesh
Edited by
Qazi Kholiquzzaman Ahmad
Conducted by
Bangladesh Unnayan Parishad (BUP)
Phones: 8853958-60 <bup@citech-bd.com>
ActionAid Bangladesh (AAB)
Phones: 8815991-2 <email@actionaid-bd.org>
Published by
The University Press Limited (UPL), Dhaka
January 2007
Socio-Economic and Indebtedness-Related
Impact of Micro-Credit in Bangladesh
Study Advisor and Coordinating Author
Qazi Kholiquzzaman Ahmad
Study Team Members
Jadab Chandra Saha
Md. Humayun Kabir Majumder
Nilufar Banu
Syed Shah Habib Ullah
Mirza Manbira Sultana
Support Staff
Jyotirmay Devnath
Nazma Banu
Md. Daudul Islam
Bangladesh Unnayan Parishad (BUP)
Phones: 8853958-60 <bup@citech-bd.com>
ActionAid Bangladesh (AAB)
Phones: 8815991-2 <email@actionaid-bd.org>
2
To the struggling, exploited,
downtrodden multitudes in Bangladesh
and everywhere else.
3
Contents
Contents
Foreword
Preface
Chapter 1: Introduction1
Chapter 2: Basic Information on Respondents
and Micro-Credit as Received by Them5
Chapter 3: Impact of Micro-Credit: Selected Socio-Economic Variables13
Chapter 4: Rate of Interest, Cost of Borrowing, Loan Repayment
and Velocity of Credit Creation
Chapter 5: Micro-Credit and Women Empowerment
Executive Summary and Conclusion
Bibliography
Annex 1: Expansion of Micro-Credit Programmes of Selected Leading MCIs
Annex 2: Distribution of Respondents by District
Annex 3: Background Information on Respondents
Annex 4: Computation of Effective Rate of Interest
and Effective Cost of Credit
4
Contributors
Qazi Kholiquzzaman Ahmad PhD is an economist and the Chairman of the Bangladesh
Unnayan Parishad (BUP), Dhaka.
Jadab Chandra Saha PhD is Director, Centre for Economic Policy Research, BUP
Md. Humayun Kabir Majumder PhD has been a Consultant to BUP
Nilufar Banu is Director, Centre for Social Weather Analysis, BUP
Syed Shah Habib Ullah is Senior Fellow, BUP
Mirza Manbira Sultana is Senior Research Associate, BUP
5
Foreword
Micro-credit is a popular instrument used by many development and financial agencies in
many parts of the world for serving low-income people, and is becoming more so after the
Nobel Peace Award in 2006. How this instrument works naturally depends on the setting in
which it is applied, and the manner of applying it. This very important study by Dr. Qazi
Kholiquzzaman Ahmad and his colleagues of the working of micro-credit by the Grameen
Bank and NGOs in Bangladesh reveals serious shortcomings in the operation of this
instrument in this country given the general structure of the terms of its operation and the
socio-economic context in which this instrument is being applied.
The terms of micro-credit in Bangladesh are stiff, and generally too restrictive by way of
weekly repayment and saving commitments to allow free choice of avenues for utilisation of
such credit. Even in the restrictive economic space permitted by its terms the borrowers often
face hardships by way of need to sacrifice essential consumption or borrowing from other
money lenders or diversion of resources from other activities to service the debt, and get into
seemingly perpetual debt cycles. Very importantly, the desired women's empowerment in the
preference to women as clients of micro-credit as an important social objective is more often
than not unfulfilled because of the grip of the male-dominated culture in Bangladesh which
the operation of micro-credit fails to address. Taken together, the study gives the stern
warning that in the majority of cases the operation of micro-credit in Bangladesh is not
yielding the desired improvements in the lives of its clients. On the other hand, it is working
as a rather lucrative profit-yielding business to external agencies engaged in such operation.
This should enlighten all friends of disadvantaged people as to the proper place of microcredit in poverty alleviation and women's empowerment. We know that there are many
instances all over the world, including Bangladesh, of low-income women's groups moving
forward without micro-credit from external sources. Some operate saving and micro-credit
schemes through their own organizations by the strength of which they are already
empowered to start with (an outstanding example is the renowned self-employed women's
organisation - SEWA - in India). Some of them may be getting only technical assistance from
friendly quarters to embark on productive activities. On the other hand some low-income
persons, as individuals or as groups, are even taking bigger amounts of credit and embarking
upon big-scale productive activities, thereby contributing not only to reduction of their own
poverty but also to overall growth of the economy, showing thereby that they have the
capability to contribute to the nation's growth process as a productive force and thus serve the
dual objective of growth with equity.
An important lesson that emerges from this study is that, while micro-credit extended by
external agencies may in specific circumstances and under appropriately favourable terms
help advance the economic condition of low-income people, a careful prior examination of
the totality of the socio-economic condition of the client(s) is needed in order to assess this
potential. This seems all the more imperative for micro-credit to be extended to women of
low-income families in oppressive male-dominated societies with the additional objective of
promoting women's empowerment. As the study concludes, poverty is a "comprehensive"
(systemic) concept and may not be overcome by monetary instruments alone.
This objective study by Dr. Ahmad and his team is a very timely and important word of
caution and contribution to understanding the pitfalls of micro-credit for poverty alleviation
and empowerment of women of disadvantaged groups, unless it is tempered with softer and
6
flexible terms and associated with other relevant socio-cultural policies, measures and social
movements as circumstances may warrant. Poverty alleviation thinking in the world is
naturally dazzled today by the Nobel Prize, which has been a reward for sustained dedicated
work over many years and in many countries that can justifiably make the Bangladesh nation
proud. The same dedication warrants that lessons from experiments with micro-credit in a
country like Bangladesh are acknowledged, and corrective steps are taken in working with
this instrument in such a country.
The final warning in this important study is not to be complacent of the possibilities offered
by free market systems toward poverty alleviation, insofar as such systems intrinsically
strengthen existing power relations that "condemn the large majority to a lowly and
subservient state of living" - in fact, power relations that create and recreate poverty. In this
context the study also draws attention to the question of equity, and it should not need
arguing that people's perception of poverty and misery from a sense of poverty - and hence
also their willing co-operation with the system that causes them such misery - is a relative
notion varying with the lifestyle of the elite in society. Together, this makes the effort of
poverty alleviation in such systems like a kitten chasing its own tail - a question of macro
structural change which should never be lost sight of at the peril of inviting rise of anti-social
or fundamentalist forces in the society.
January 2007
Md. Anisur Rahman
Former Professor of Economics
University of Dhaka
7
Preface
The focus of this study is on micro-credit operations in rural Bangladesh. A combined
purposive and multistage random sampling procedure was used to select a country-wide
representative sample of 2,501 rural micro-credit receivers for four years or more at the time of
the survey. It was felt that in order to assess the impact meaningfully, micro-borrowing for four
years or more would be necessary. Virtually all the respondents are female micro-borrowers;
only less than one per cent are males. The larger enterprise credits provided by some micro
finance institutions (MCIs) on a very limited scale are not included in this study.
The sample survey was conducted during January-February 2006 and the report was finalized
in August 2006. It is now brought out between covers for wider circulation. Concerned
ActionAid-Bangladesh officials, particularly the Interim Country Director Mr. Shoaib
Siddiqui and the Acting Head of Livelihood Security & Risk Reduction Mr. AFM Shahidur
Rahman, have shown keen interest in this regard.
The key questions which have been sought to be answered through this study relate to socioeconomic and indebtedness-related impact of micro-credit on the households of microborrowers as well as empowerment of women as a result of micro-borrowing by them. While
some micro-borrowers and their families have benefited in certain ways, in general the results
are discouraging and in some ways even disparaging. This does not mean that credit is not
useful to the poor and powerless. But poverty and powerlessness have to do with all aspects
of life and living, involving in the main the essential material and human needs including
socio-cultural aspirations; and the poor and powerless, identified accordingly, are under
multiple economic, social, and political stresses. For sustained reduction of poverty in this
sense, therefore, a comprehensive approach is essential. To be sure, human dignity for the
poor and disadvantaged must be the cornerstone of comprehensive approaches to poverty
eradication. Within the framework of such an approach, micro-credit with less stringent
terms should be a useful key element.
The growth of micro-credit into a country-wide programme in Bangladesh and its adoption in
various other countries has occurred given the fillips provided by the unflinchingly dedicated
work of Dr. Muhammad Yunus over the past three decades and more in promoting it as a tool
8
for poverty alleviation, with his Grameen Bank leading the way. In recognition, Dr. Yunus
and the Grameen Bank were jointly awarded Nobel Peace Prize in October 2006, which has
made the whole nation proud.
However, it is now even more important that pitfalls of the ongoing micro-credit operations
are properly recognized and lessons learnt therefrom to take corrective steps. But, two
stumbling blocks to meaningful and sustained poverty reduction are the glaring socioeconomic disparity and highly iniquitous power relations in the country, which are being
accentuated further by the free market system in vogue; but neither is addressed, even
recognized in so far as the micro-credit operations are concerned. Arising from these two and
other sources, multiple stresses combine to produce, reproduce and perpetuate poverty which
is multifaceted. The existing exploitative elitism is a sure recipe for an eventual social
implosion. It needs to be replaced by inclusiveness, equity, participation, and human dignity
for all as guiding principles for creating an economically vibrant and socially and
environmentally sustainable society.
We are thankful to Professor Md. Anisur Rahman for writing a thoughtful foreword to this
book.
Dhaka, January 2007
Q. K. Ahmad
Editor
9
Acknowledgements
Thanks are due to:
at Bangladesh Unnayan Parishad (BUP): all who have contributed to this study one way or
another, including study team members, support staff, and field supervisors and field
investigators; at ActionAid Bangladesh (AAB): all associated with the study, in particular
Shihab Uddin Ahamed and Monisha Biswas; and the respondents who gave their time and
energy to provide the information sought from them.
Special thanks are due to Professor Md. Anisur Rahman for his comments on an earlier draft.
The funding support provided by the AAB for this study is acknowledged with thanks.
Pictures on the cover from: http://images.google.com.bd/images
10
Chapter 1
INTRODUCTION
Background of the Study
Bangladesh economy is characterized by unfavourable per capita land, low per capita income,
glaring and accentuating income disparity, high level of unemployment, low productivity,
and persisting high levels of poverty and deprivation. Under the circumstances, micro-credit
has been promoted to help the poor to take up self-employment on tiny/micro scales with a
view to improving their living conditions.
As the public sector banks (there were no private commercial banks until the 1990s and,
when established, these banks have been catering only to the rich people and organized
sectors) failed to come forward with easily accessible credit for the poor people who,
therefore, remained dependent on money lenders charging exorbitant rates of interest. There
was, therefore, a huge gap between the need for credit among the rural population,
particularly the poor (rural and also urban) and the availability of affordable credit lines for
them. In fact, only Krishi bank has been providing agricultural loans to farmers, but on a very
limited scale so that, in this case also, unmet demand has always been huge.
Micro-credit was conceived as a means of enabling the poor to have easy access to small
amounts (few thousand Taka) of credit for undertaking economic activities. Given that the
poor have little or no property or assets to offer as collateral which is required by formal
banking system, micro-credit has responded to the predicament by offering collateral-free
loans. The Grameen Bank led the way, starting in the mid-1970s. Now, there are hundreds of
micro-credit providers of different operational sizes throughout the country, mostly in rural
areas but also some in urban areas. The large ones include Grameen Bank, BRAC, ASA and
PROSHIKA. In addition, there are also public sector micro-credit programmes. Annex 1
shows the expansion in terms of the number of borrowers and total credit disbursed by the
large four and some other major micro-credit providers up to 2005 or early 2006, as
available.
11
Micro-credit has by now reached a total of over 60 percent of all poor households of the
country, and 37 percent of all households (see in Bibliography: World Bank 2005, p.25). In
fact, the people can and do take micro-credit from multiple sources. Over the years evaluative
studies of the micro-credit regime have been conducted with different purposes. A list of a
number of such studies will be found in the bibliography appended.
However, there are lingering questions relating to the indebtedness of the micro-credit
receivers and the contribution of micro-credit to improvement in their socio-economic
conditions. To what extent the poor have benefited from micro-credit or are they getting ‘debt
trapped’ at poverty, even below poverty level as some observers suggest? Data generated on
relevant aspects are analyzed in the following chapters. This study was, therefore, designed to
address these questions and create a knowledge base for future policy and operational
guidance. The study has mainly used field survey data, both quantitative and qualitative, and
also relevant secondary information when available.
This study focuses on micro-credit operations in rural Bangladesh. To ensure country-wide
rural representation, a total of 2,501 rural micro-credit receivers, selected on the basis of a
combined purposive and multistage random sampling procedure, have been interviewed
using a pre-designed questionnaire. The sampling procedure followed was to select 16
districts from he six divisions and two upazilas from each district randomly but two unions
from each upazila purposefully considering concentration of micro-credit programmes.
Villages from those unions and respondents from those villages were then selected randomly.
The study has been conducted with financial support from the ActionAid Bangladesh and is a
joint activity of the Bangladesh Unnayan Parishad (BUP) and ActionAid Bangladesh.
Data Collection
A total of 2,501 rural respondents (henceforth respondents or micro-borrowers or borrowers)
who have been borrowing funds from a variety of micro-credit institutions (MCIs), but
mostly from Grameen Bank, BRAC, and ASA, have been selected using a purposive-cumrandom sampling procedure form all the six administrative divisions of Bangladesh, as
explained earlier. The study districts and district-wise distribution of the sampled borrowers
are shown in Annex 2.
12
Primary data have been collected over a period of 35 days from 19 January 2006 to 22
February 2006. The randomly selected micro-borrowers of different MCIs have been
interviewed in their homes, using a pre-designed questionnaire. The questionnaire was pretested in a few villages in Dhaka district. The field investigators and supervisors were
thoroughly trained and six teams consisting of three investigators and one supervisor each
were fielded.
It was felt that to make a judgment as to the impact of micro-credit, at least four years of
micro-borrowing may be needed so that the borrowers interviewed were at the time of the
interview had been micro-credit receivers for at least four years. In the process of random
selection, any borrower who had been micro-borrowing for less than four years was passed
over and the next one in sequence who had been borrowing for at least four years was
interviewed. The data collection process was strictly supervised by field supervisors and field
visits by core research team members.
The secondary data sources used include publications/annual reports of different MCIs,
Credit and Development Forum (CDF), Bangladesh Bureau of Statistics, Palli KarmaSahayak Foundation (PKSF), and Bangladesh Bank (BB).
Concepts and Definitions
(as used in this study)
i. Micro-Credit Institution (MCI). Specialized financial institutions and registered NGOs
(mainly local) which are providing group-based small loans to the poor with a declared aim
of poverty alleviation.
ii. Borrower or Micro-Borrower. A rural person who borrows money from any MCI.
iii. Borrower Household. The household in which a borrower lives with her or his spouse and
other relatives, all of whom eat from the same kitchen.
iv. Women Empowerment. The freedom of women to undertake economic activities by taking
micro-credit and spending the income thus generated according to their own choice, leading
to their active participation in various household decisions and beyond.
v. Flat or Base Rate of Interest. The nominal rate of interest charged to the borrowers by an
MCI at the time of granting loans and fixing the installations of loan repayment. For example,
13
Grameen Bank charges 10% (Tk.100 for a loan of Tk.1,000), BRAC and ASA 15% (Tk.150
for a loan of Tk.1,000).
vi. Effective Rate of Interest. The rate of interest the borrowers actually bear.
vii. Methods of Interest Calculation. In the present study three formulae have been used to
compute the rate of interest, as follows:

Flat rate method:
TAI
 100
TAL
where, RI= rate of interest, TAI= total amount of interest, TAL= total amount of loan.
RI 

The average balance method:
IRAB 
TAI
 100;
ABL
ABL 
FBL  LBL
2
where, IRAB=interest rate on average balance, TAI= total amount of interest paid against a
loan, ABL= average balance of loan, FBL= first balance of loan, LBL= last balance of loan.

Effective rate of interest:
2PC
 100
A(n  1)
where, ERI=effective rate of interest, P=number of annual installments, C=total interest
payment, A= amount of loan, n= total number of installments.
ERI 
viii. Effective Cost of Borrowing. It is the total of interest payment plus transaction cost plus
opportunity cost of working days lost of the borrower and her/his family member(s).
ix. Velocity of Credit Creation of MCIs. The velocity of credit creation is defined as the
amount by which an MCI increases its initial fund through its short term and weekly recovery
process. The working formula of the velocity of credit creation is
n
V
IC   Xi
i 0
IC
 100
V= velocity of credit creation,
X= amount of credit created per week
IC =amount of initial credit
x. Obligatory Saving. The amount of money deducted by an MCI in terms of the obligation
imposed by it on the borrower.
14
Chapter 2
BASIC INFORMATION ON RESPONDENTS
AND MICRO-CREDIT AS RECEIVED BY THEM
Background Information on the Respondents
Over 99% of the borrowers interviewed are females and less than one per cent males as per
random selection of the respondents explained in chapter 1. Most of the borrowers are in the
age group of 21-50 years; and most of the borrowers (84%) are primarily housewives. Only
5% have business as the main profession. The majority (65%) of the respondents are also
illiterate, while 17% have studied up to Class-V and another 21% between Class-V and
Class-VIII. Three of the respondents are graduates. The overwhelming majority (92%) are
married. (Annex 3, Tables A1 to A5).
Sources of Micro-Credit and Amounts Borrowed
Main sources of micro-credit of the respondents. Main sources of micro-credit used by the
randomly selected respondents included in the study are shown in Table 2.1 and the number
of sources used is shown in Table 2.2.
Table 2.1
Distribution of respondents by main source of micro-credit
Sources
Grameen Bank
ASA
BRAC
Buro Tangail
RDRS
Palli Daridra Bimonchon Pratisthan
TMSS
Proshika
BRDB
Popi
Society for social service
EC Bangladesh
Others (37 sources)
Total
No. of Responses
1,200
851
743
133
86
66
54
49
44
41
37
19
214
3,537
15
%
33.9
24.1
21.0
3.8
2.4
1.9
1.5
1.4
1.2
1.2
1.0
0.5
6.1
100.0
Table 2.2
Number of MCIs used by the respondents
No. of sources
One
Two
Three
Three+
Total
Frequency
1,701
605
161
27
2,494
%
68.1
24.2
6.4
1.1
100.0
The 2,501 respondents received a total of 3,537 micro-credits in the loan period, as
appropriate for particular respondents, during which the survey was conducted. It is seen that
24% took loans from two sources, 6% from three sources, and 1% from more than three
sources. About 68% used only one source. (Tables 2.1 and 2.2).
The three leading sources of micro-credit from which the respondents have mainly borrowed
are Grameen Bank (34%), ASA (24%) and BRAC (21%). All other sources account for about
21% of the loans taken. (Table 2.1).
Amounts Borrowed by the Respondents and other Members of their Households
The amounts of loan taken by the respondents’ households from MCIs in the loan period (as
appropriate for particular respondents) during which the interview took place are shown in
Table 2.3.
Table 2.3
Distribution of the respondents by the amount of money currently borrowed
Amount
Up to 5,000
5,001—10,000
10,001—15,000
15,001—20,000
20,001—30,000
30,001—40,000
40,001—50,000
50,001 and above
Total
Frequency
469
933
550
283
193
57
9
7
2,501
16
%
18.8
37.3
22.0
11.3
7.7
2.3
0.4
0.3
100.0
From Table 2.3, it is seen that about 56% of the respondents were at the time of survey in the
category of up to Tk.10,000 micro-credit takers, while 22% in the Tk.10,000-15,000
category, and 11% in the Tk.15,000-20,000 category. That is, 87% belong to less than
Tk.20,000 loan category. The figures are inclusive of loans taken from more than one source
by about one third of the respondents.
Utilization of Micro-Credit
Economic activities undertaken by the borrowers using the money received from MCIs are
shown in Table 2.4. There are some cases of more than one activity undertaken by the same
borrower. It is clear from the Table that the largest number of activities undertaken (37%)
relate to trading including in paddy, rice, stationery, grocery, fish, and other ordinary goods
and services (in some cases with some processing). The next two important categories are
renting in of agricultural land and agriculture related activities (each about 13%). The next
three activities mentioned are purchase and pulling of rickshaw (9%), using the credit money
to defray the costs of education and marriage of children (8%), and purchase and rearing of
cows (7%). Another noteworthy activity is the payment of previous loan (6.4%).The other
activities include poultry and goat rearing, preparation and sale of puffed rice, fish culture,
and similar other ordinary economic activities. Further, there are few borrowers who in fact
have lent the money borrowed from MCIs to others on interest or used it to defray medical
and other costs.
Clearly, the respondents taking micro-credit have generally remained tied to rudimentary
economic activities, many of which do not have much prospect of expanding into sustainable
growth because of either market saturation (most of the products and services are directed to
local markets) and/or limited scope of productivity improvement.
17
Table 2.4
Economic activities undertaken by using micro-credit
Activity*
Frequency of responses
No.
%
25
0.9
23
0.8
238
8.7
15
0.5
341
12.5
37
1.4
1,008
36.9
241
8.8
176
6.4
351
12.9
19
0.7
28
1.0
215
7.9
14
0.5
2,731
100.0
Poultry
Goat rearing
Cow rearing
Puffed rice
Agro-support and agro-based activities
Fish culture
Trading (in some cases with some processing)**
Rickshaw pulling
Pay up previous loan
Rent in agricultural land
Lend money on interest
Meet medical expenses
Meet educational and marriage expenses
Others
Total
* The larger enterprise credits provided by some MCIs on a very limited scale are not included in this study.
** includes a range of goods and services such as paddy, rice, grocery, fish, mobile phone, bullock cart, and
others.
Note: Table shows economic activity distribution in respect of 2,493 respondents. The other eight have not
responded to this question.
Source of Inspiration for Taking Micro-Credit
For almost two-thirds of the respondents (73%), the source of inspiration for taking microcredit has been family members. In the case of about 16%, self-initiative has been the main
reason, while about 9% were persuaded by the MCIs (Table 2.5)
The most influential family member has usually been the husband in the case of female
borrowers usually for establishing a source of income but also at times for securing money to
serve other purposes such as educational and marriage related expenses of children and
paying up of outstanding debts.
18
Table 2.5
Source of inspiration for taking micro-credit
Source of inspiration
Frequency of responses
No.
392
1828
235
46
2,501
Self
Family
MCIs
Others
Total
%
15.7
73.1
9.4
1.8
100.0
Number of Family Members Taking Micro-Credit
Most of the respondents (96%) reported that only one member received micro-credit, while in
the case of 3.4% of the cases two members, and in the case of 0.2% three or more members
were micro-credit receivers. (Table 2.6).
Table 2.6
Number of members of the same family receiving micro-credit
No. of loanees in the family
1 member
2 members
3 or more
Non-response
Total
Frequency
2,401
85
6
9
2,501
%
96.0
3.4
0.2
0.4
100.0
Any Training Imparted before a Loan is Granted
About three-fourths of the respondents have received training from the respective MCIs,
while one-fourth did not. It is very interesting to note that the training given was mostly in
respect of how to receive micro-credit and how to pay the installments and related matters.
Very few received training relating to the work they would undertake with micro-credit.
(Tables 2.7 and 2.8).
Table 2.7
Training, if any, provided by the MCIs to the clients
Training
Provided
Not provided
Non-response
Total
Frequency
1,863
628
10
2,501
19
%
74.5
25.1
0.4
100.0
Table 2.8
Type of training provided by the MCIs to the clients
Type of training
Frequency of responses
No.
%
1,920
88.1
Loan taking,
repayment and
related matters
Work to be
undertaken with the
credit received
% of all respondents
103.1
260
11.9
14.0
2,180
100.0
117.1
Note: A total of 2,180 responses have been provided by 1,863 respondents who received some kind of training
from the MCIs. Multiple responses were admissible due to the fact that some of the respondents have taken
loans and, hence, training from more than one source.
Use of Non-Institutional Sources in Addition to MCIs
About 14% of the respondents have also been borrowing from non-institutional or informal
sources in addition to MCIs. Mostly they do so to supplement the availability of funds to tide
over difficulties such as meeting urgent medical or social needs or pay the installments of the
loans taken from MCIs. (Table 2.9). It will be seen from Table 2.10 that the mahajans are the
most important non-institutional source, used by 46.5% of those who took loans from such
sources, followed by neighbours ( 42.7%) and relatives (10.8%).
Table 2.9
Loans taken from non-institutional sources
Whether or not loans are taken
from non-institutional sources
Yes
No
Non-response
Total
Frequency
349
2,145
7
2,501
%
14.0
85.8
0.2
100.0
Table 2.10
Non-institutional sources used
Non-institutional source
Mahajan
Neighbours
Relative
Total
% of the respondents who used such sources
46.5
42.7
10.8
100.0
20
How is(are) the Product(s)/Service(s) Produced/Purchased Using Micro-Credit Sold
Given that multiple responses are admissible, a total of 2,278 responses were received from
2,238 respondents. No response was made to this question by 263 respondents.
The few male borrowers in the sample sell their products/services themselves. Other
responses shown in table 2.8 relate to women borrowers. In the case of the largest proportion
of responses (27%), the husband or son(s) of the borrower runs(run) the businesses and all
related activities, followed by a category of nothing to sell (21%). Twenty per cent of the
responses indicate that sale of the products are effected by self or husband in market places
(this category includes the male borrowers). The next important method of sale is another
member other than husband or son selling the products in the market (10%). About 6% of the
responses indicate that rickshaws have been bought which are plied by husband or son.
(Table 2.11).
Table 2.11
Method of selling of products/services produced/purchased using micro-credit
Method of sale of
products/services
Credit providers buy up the
products
Sale by self/husband in
market places
Traders buy from my
residence
Rickshaw bought, plied by
husband/son
Business run by
husband/son
Given as interest on loan
taken
Another member (other than
husband/son) sell product in
markets
Brought land/built house
Nothing much to sell
Total
Frequency of responses
No.
%
240
10.5
As % of respondents
answering this question
10.7
463
20.3
20.7
40
1.8
1.8
129
5.7
5.8
612
26.9
27.4
30
1.3
1.3
222
9.7
9.9
69
473
2,278
3.0
20.8
100.0
3.1
21.2
101.9
Note. Multiple responses allowed due to multiple sources used by some borrowers. Total responses made by
2,236 respondents is 2,278; 263 respondents have not answered this question.
Notes. The few male borrowers included conduct sales by themselves. Hence, all the other categories apply to
female borrowers.
21
Recapitulating the Major Findings

The randomly selected respondents include less than one percent males and over 99%
females. They have taken micro-credit from a host of MCIs, the most important being
Grameen Bank (about 34% of the loans), followed by ASA (24%) and BRAC (21%).
About 24% of the respondents took micro-credit from two sources at the same time and
7.5% from three or more sources.

The majority (59%) of the respondents’ households (respondents themselves only and, in
some cases, also other family members receiving micro-credit) were currently in the
category of micro-credit receivers in the amounts between Tk.5,000 and Tk.15,000.
About 18% received Tk.5,000 or less and about 8% between Tk.20,000 and Tk.30,000.
Very few received loans above Tk.30,000.

Micro-credit is mostly being used by the receiving households in rudimentary trade,
service, and manufacturing activities. Most of these activities do not have much prospect
of expanding into sustainable growth because of either local market saturation (as these
products/services are usually aimed at local markets) and/or limited scope of productivity
improvement.

In the case of 96% of the respondents, only one member of the family received microcredit. About 14% of the respondents in fact also took loans from non-institutional
sources.

Only a handful (14%) of micro-credit receivers were imparted any training in the
economic activities they were planning to undertake with micro-credit. About threefourths, however, received training on how to secure micro-credit and how to pay the
installments and related matters.

About 21% of the respondents had nothing to sell because either they used the money for
purposes (e.g. for social, medical purposes etc. in which no products/services are
produced to be sold) other than in stated economic pursuits or their economic ventures
failed. As for female borrowers, sale of products or running of businesses and other
economic activities undertaken with micro-credit are conducted by husbands or sons or
other members of the family in large majority of the cases.
22
Chapter 3
IMPACT OF MICRO-CREDIT:
SELECTED SOCIO-ECONOMIC VARIABLES
In order to assess the changes in the socio-economic conditions of the borrowers, their status
before enrollment and now, i.e. at the time of the survey (the two dates are separated by at
least four years, as micro-creditors of at least four years standing are included in this study)
with respect to such aspects as homestead, cultivable land, livestock, poultry, sanitary
latrines, food intake, health condition, and overall socio-economic situation are considered
here in this chapter.
Homestead Owned
The homestead ownership pattern of the borrowers’ households before enrollment and now is
shown in Table 3.1. It is seen from the Table that there has been virtually no change in the
pattern of homestead size owned by the respondents since their becoming micro-credit
clients, with about 92% owning homestead of less than 25 decimals, both before and now.
Table 3.1
Homesteads owned by the borrowers’ households
Homestead land At present
owned
No. of respondents
(in decimal )
Up to 0-25
2296
26-50
162
51-75
26
76-100
7
100 and above
6
Non response
4
Total
2,501
%
91.8
6.5
1.0
0.3
0.2
0.2
100.0
Before enrollment1
No. of respondents
2291
167
27
6
6
4
2,501
%
91.6
6.7
1.1
0.2
0.2
0.2
100.0
1. Enrollment as used in this study refers to, unless otherwise specified, a person who has just started to take
micro-credit.
Cultivable Land Ownership
Table 3.2 shows the cultivable land ownership pattern of the borrowers’ households. The data
show that there has also been virtually no change in the pattern of cultivable landownership
of the micro-credit receiving households. If landlessness is defined with reference to 50
23
decimals, about the same proportion of the micro-credit receiving households (76-77%) are
landless both before and now. The proportion, again about the same before and now, owning
50-100 decimals is 13-14%, while just over 9%, both before and now, own above 100
decimals.
Table 3.2
Cultivable land owned by the borrowers’ households
Amount of
cultivable land
owned
(in decimal )
Up to 25
26-50
51-75
76-100
101 and above
Total
At present
Before enrollment
No. of respondents
1,644
261
223
137
236
2,501
%
No. of respondents
65.7
10.4
8.9
5.5
9.4
100.0
1,675
257
204
130
235
2,501
%
67.0
10.3
8.1
5.2
9.4
100.0
Large Livestock Ownership
The number of large livestock owned may be considered as one of the indicators of the
economic strength of the rural households. Table 3.3 presents data on large livestock
ownership of the respondents’ households. The Table shows that about two-thirds (65%) of
the households do not own large livestock at present. The proportion was slightly lower
(62.9%) before.
Also, no significant changes have occurred since enrollment in the
ownership of one, two, three or more heads of large livestock.
Table 3.3
Large livestock owned by the borrowers’ households
Number
of At present
Before enrollment
large livestock No. of respondents
%
No. of respondents
0
1625
65.0
1574
1
275
11.0
333
2
294
11.7
341
3 and above
307
12.3
253
Total
2,501
100.0
2,501
24
%
62.9
13.3
13.6
10.1
100.0
Food Intake
Relevant data on food intake status are presented in Table 3.4. Asked about their present food
intake status compared to that before joining micro-credit programmes, about 40% of the
respondents could not be sure about improvement or otherwise in their access to food and
have also declined to indicate their present food intake status. The rest have indicated their
current food intake status. About 20% of all respondents still suffer from shortages of rice or
other basic food items from time to time, while about 34% of all respondents have access to
basic foods with occasional meat, eggs, and fish. About 7% can afford to include meat, fish,
eggs, etc. in their diet as they please. Clearly, food insecurity, particularly relating to quality
foods, remains a major problem for about half of all respondent households as has been
clearly indicated by them and maybe many more out of those who have not provided
information on their present food intake status as well.
Table 3.4
Current food intake by borrowers’ household members
Food intake
Unsure about improvement or otherwise since microcredit enrollment and no comment on the present food
intake status
Quantity deficiency: shortages of rice and/or other basic
food items
Quality (but not quantity) deficiency: access to sufficient
cereal foods and vegetables etc. but only occasionally to
meat, fish, eggs etc.
Quantity and quality sufficiency: access to sufficient
foods including meat, fish, eggs, etc. as required
Total
No. of
respondents
992
%
39.7
497
19.9
844
33.7
168
6.7
2,501
100.0
Of the 1,341 respondents (54% of all respondents) who have indicated that they suffer from
quantitative or qualitative food shortages, 1,048 have indicated why this is so. Some 48% of
these respondents have indicated that overall household incomes, from various sources
including micro-credit-based activities, remain low while the other 52% have directly blamed
the weekly loan repayment requirement starting just one week after the taking of the loan as a
major reason constraining their ability to improve their access to food (quantity and/or
quality). The second answer is in reality subsumed is the first, the implication being that
25
micro-credit based activities have not been of much help in the enhancement of their incomes
sufficiently to enable them to improve their food intake after meeting repayment obligations.
(Table 3.5). A small number of respondents (168 or 7% of all respondents) who eat well,
including meat, fish, eggs etc. as they please have mentioned micro-credit-based activities as
being a contributory factor in this regard.
Table 3.5
Reasons for failure to improve access to food in terms of quantity and/or quality
(the respondents here include those who have stated that they suffer from
a lack of access to sufficient food in terms quantity and/or quality)
Reason for quantity and/or quality food
deficiency suffered
Low household income from various sources
Weekly loan repayment requirement
Total
Respondents
No.
499
549
1,048
%
47.6
52.4
100.0
Access to Health Services
Access to health services of the respondents at present and before enrollment is shown in
Table 3.6.
Table 3.6
Access of the borrowers’ households to health services
Access to health care
At present
No. of
respondents
Cannot/could
not
afford to go to
doctors; don’t/did not
go to quacks
Treatment taken from
quacks
Treatment taken from
qualified doctors
Treatment taken from
qualified doctors and
health centres
No comment
Total
1,056
Before enrollment
%
42.2
No. of
respondents
1,504
%
60.1
722
28.8
892
35.7
589
23.6
68
2.7
122
12
2,501
4.9
0.5
100.0
32
5
2,501
1.3
0.2
100.0
26
The Table shows that there has been significant improvement in access to health services of
the households since enrollment. The proportion of the respondents who could not afford to
go to qualified doctors or went to quacks for treatment has declined from 96% to 71%. Also,
the proportion receiving treatment from qualified doctors and health centres was about 4%
before enrollment, which is now about 29%. The reasons for the improvements in the access
to health services since enrollment as reported by 771 respondents are shown in Table 3.7.
Table 3.7
Reasons for the improvement in access to health services
Reason
No. of
respondents
244
Mainly influence of micro-credit
Largely influence of awareness raising
by health NGOs and increased
availability of health facilities
Total
527
771
%
31.6
68.4
100.0
Some 32% of those who now have access to improved health services have said that the
improvement has been possible mainly as a result of borrowing from MCIs. The other 68%
have indicated that the improvements have been more due to awareness raising by health
NGOs and increased access to health services provided by government health facilities and
NGOs. But still 71% of all respondents either do not receive proper treatment or take
recourse to treatment by quacks. This indeed is a clear testimony to the persisting extremely
poor availability of health services in the rural areas of Bangladesh.
Sanitation
From Table 3.8 it will be seen that about 28% of the borrowers’ households now have
sanitary latrines but they did not before enrollment. In the case of others status-quo remains
such that no sanitary latrines before and now for 35% of the households, sanitary latrines
before and now for 19% of the households, and no latrines of any type before and now for
about 8% of the households.
The reasons for the switch, as given by those who use sanitary latrines now but did not
before, are reported in Table 3.5. It may be seen from this Table that only about one-third of
27
those who are now using sanitary latrines but not before enrollment have indicated that the
change over has been mainly due to micro-credit-inspired and facilitated. But two-thirds say
that the improvement they have achieved in this regard is mainly because of persuasion and
support from other organizations including both governmental and non-governmental and the
taking of micro-credit has not been directly influential in this regard.
Table 3.8
Status of latrines in the borrowers’ households
Status of sanitary latrine
Sanitary latrine before and also now enrollment
Non-sanitary latrine before but sanitary latrine now
Sanitary latrine before and now
No latrine of any type before and now
Non-response
Total
Frequency
884
707
476
193
241
2,501
%
35.3
28.3
19.0
7.7
9.6
100.0
Table 3.9
Reasons for improvement in the conditions of latrines used
Reason
Mainly due to micro-credit
Mainly due to reasons other
than micro-credit1
No response
Total
No. of respondents
232
467
8
707
%
32.8
66.1
1.1
100.0
1. Awareness raising by and support from other organizations, both government and non governmental.
Impact on Education
Table 3.10 presents data on the impact of micro-credit on education in the borrowers’
households. In the case of 26% of the respondents, children do not go to school on a regular
basis now as they did not before enrollment. In the case of 18% of the respondents, no child
went to school before enrollment but now all the children do go regularly. In the case of 7%
of the respondents, only boys went to school but now girls also go to school. In the single
largest proportion of the households (38%), all the children used to go to school before and
they do so now.
Clearly, therefore, only in about one-fourth of the borrowers’ households, there has been an
improvement either in terms of all children or girls going to school now, while they did not
28
before. Moreover, it appears that micro-credit is not the main factor behind the positive
changes in the education of children. More important reasons include awareness raising and
grants provided to girls if enrolled in schools. (Tables 3.11 and 3.12).
Table 3.10
Children’s education in the borrowers’ households
as of now compared to that before enrollment
Status of children’s education
No children go to school now, did not do so
before
Only son(s) used to go to school before
enrollment but girls also go now
No child went to school before enrolment, all
children go now
All children used to go to school before and the
same is true now
Non-response
Total
Frequency
642
%
25.7
162
6.5
455
18.2
953
38.1
289
2,501
11.5
100.0
Table 3.11
Reasons why girls also go to school now, while they did not before enrollment
Reason
Micro-credit
Other reasons*
Non-response
Total
Frequency
45
102
15
162
%
27.8
62.9
9.3
100.0
*Include awareness raising through campaign by concerned NGOs and government agencies and grants given to
girls if enrolled in schools.
Table 3.12
The reasons why no children went to school before but all the children go to school now
Reason
Micro-credit
Other reasons*
Total
Frequency
71
374
445
%
16.0
84.0
100.0
*Include awareness raising through campaign by concerned NGOs and government agencies and grants given to
girls if enrolled in schools.
29
Family Income
It will be seen from the Table 3.13 that the total monthly income per family of about a quarter
of the respondents is less than Tk.3,000. Assuming that there are, on average, five members
in a family, the per capita income is Tk.600 per month. Thus, given that the per capita income
of the rural poor in the country, as of 2004, is Tk.562 (see in Bibliography: MoF 2006, p.
142), one quarter of the respondent households are generally at or below the per capita
income of the rural poor. About 41% of the households have monthly income of between
Tk.3,000 and Tk.5,000, while that of about 28% between Tk.5,000 and Tk.10,000.
Table 3.13
Distribution of respondents by monthly family income categories
Monthly family income category
No.
%
<3,000
3,000-<5,000
5,000-<10,000
10,000-<15,000
15,000-<20,000
20,000 or more
Total
641
1,022
689
108
19
22
2,501
25.6
40.9
27.5
4.3
0.8
0.9
100.0
Overall Conditions of Living
The relevant data are shown in Table 3.14. It will seen from the Table that 35% of the
respondents are somewhat better off while 26% are somewhat worse off with 24%
experiencing no changes to report. But, while 14% of the respondents have reported as being
much worse off, only 1.5% indicated that they are much better off. In general, therefore,
micro-credit does not appear to have made much of a difference to the living conditions of
the borrowers’ households.
Table 3.14
Overall living conditions at present compared to before enrollment
Living conditions at present
compared to before enrollment
Much better
Somewhat better
No change
Somewhat worse
Much worse
Non-response
Total
Frequency
37
865
596
648
349
6
2,501
30
%
1.5
34.6
23.8
25.9
14.0
0.2
100.0
In terms of reasons given by those who are somewhat better off include in addition to microcredit, employment of one or another of the formerly unemployed family members and
increased income from sources other than micro-credit. On the other hand, those who are
worse off have indicated that the increase in incomes from micro-credit related activities have
not been significant. Also they have had increases in their family sizes as well as health
problems of family members disabling them to earn incomes.
Asked as to whether they are satisfied or not about their present living conditions, the
distribution of the respondents is quite similar to that reported in the above paragraph. About
23% are indifferent, i.e. they are neither satisfied nor dissatisfied, while 27% are satisfied and
a much larger proportion (50%) are dissatisfied or highly dissatisfied. (Table 3.15).
Table 3.15
Taking everything into consideration are the respondents satisfied
or not with their present living conditions?
Satisfaction level
Very satisfied
Satisfied
Neither satisfied nor dissatisfied
Dissatisfied
Very dissatisfied
Non-response
Total
Frequency
18
658
568
883
372
2
2,501
%
0.7
26.3
22.7
35.3
14.9
0.1
100.0
It is indicated by the responses relating to the present living conditions compared to that
before enrollment and the level of satisfaction with the present living conditions that microcredit has not contributed much to poverty alleviation, much less on a sustained basis.
Future Socio-economic Perspectives Primarily Depending on Micro-Credit
Asked as to how they see their future socio-economic prospects if they rely primarily on
micro-credit, i.e. if the micro-credit is the main vehicle for socio-economic improvement,
only about 36% of the respondents have expressed the opinion that they see good future
prospects, while about 19% are not sure and 34% foresee that their socio-economic
conditions will deteriorate. Clearly, the perception of the majority of the respondents is that
they do not foresee improvements or that there will be a deterioration. (Table 3.16).
31
Table 3.16
Future socio-economic prospects relying primarily on micro-credit
Perceived prospect
Very good
Good
Neither good nor bad
Bad
Very bad
Non-response
Total
Frequency
16
875
472
618
241
279
2,501
%
0.6
35.0
18.9
24.7
9.6
11.2
100.0
A further question was asked as to whether there had been any change in their social position
following enrollment. Only about 4.6% of the respondents have said that they are now more
respected, while another 23% have said that their social interaction have increased. About
56% have reported no change in their social position, and about 13% have said that their
social position has deteriorated. (Table 3.17). Given these outcomes, the comments made by
the respondents about future prospects seem to be based on how things have evolved for them
in the past, from socio-economic point of view.
Table 3.17
Changes, if any, in the social position of the borrowers since enrollment
Change is social position
Socially more respected now
No change
Social interactions have increased
Deterioration in social position
Others
Total
Frequency
116
1412
567
330
76
2,501
%
4.6
56.4
22.7
13.2
3.1
100.0
Recapitulating the Major Findings
 In the context of socio-economic impact of micro-credit, several socio-economic
variables have been taken into consideration and the situation at the time of the survey
has been compared with that before enrollment in possible cases. The following key
findings may be noted.

There is virtually no change in the pattern of ownership of homestead land, with about
92% owning less than 25 decimals, both now and before enrollment.
32

In the case of cultivable land ownership also the pattern is about the same now as was
before enrollment. Some 76-77% of the micro-credit receiving households own less than
50 decimals and may, therefore, be categorized as technically landless, both before
enrollment and now. The proportions owning 50-75 decimals and above are just about the
same before and now (13-14% and 9% in the two categories respectively).

In the ownership of large livestock, again there is not much change to report. About twothirds of the respondents own no large livestock, while of the other third own one or two,
both before and now.

In the case of food intake, about 40% of the respondents are unsure about a change one
way or the other and also have not reported on their present food intake status. It is
important to note that about 20% still suffer from shortages of rice and/or other basic food
items and another 34% suffer from inadequate access to sufficient quality foods (which
may include meat, fish, egg, etc.) although they have, perhaps, sufficient access to cereal
food and vegetables. Only about 7% have access to balanced food. Clearly, therefore,
there has not been a significant improvement in relation to access to food in terms of
quantity, quality, or both since enrollment. Those who have indicated that they suffer
from qualitative or quantitative food shortages have identified the reasons as being
persisting low household incomes from various sources including micro-credit related
activities and high levels of weekly loan repayment requirement.

There has been a notable improvement in terms of access to health services. In fact, the
proportion of respondents’ household members receiving treatment from qualified
doctors and health centres has increased from about 4% before enrollment to about 29%
now. On the other hand, there has been a decline in the proportion of respondents not
going to doctors and receiving treatment from quacks, from about 96% before to about
71% now. That 71% still do not receive proper treatment or go to quacks is a testimony to
the extremely limited health services in rural Bangladesh. Of the respondents who are
now receiving improved medical services, about a third have said that this has been
mainly due to micro-credit, while two-thirds have indicated that this has been more due to
awareness raising by concerned government agencies, health NGOs and others and
33
increased availability of health services from government health facilities and also from
NGOs.

In the case of sanitary latrines, of about 28% of the respondents who now use sanitary
latrines but did not before enrollment, about one-third have indicated that the
improvement has been mainly inspired and facilitated by micro-credit while two-thirds
are of the opinion that the more important reasons include awareness raising by
concerned government and nongovernmental organizations and others and availability of
advice and cheap latrines from concerned government agencies and NGOs.

An improvement relating to education of children including girls has been reported by
only about 25% of the respondents. However, 64% of those respondents, in whose case
girls go to school now but not before, have pointed out that the main reasons behind this
development include campaigns by concerned government agencies and NGOs and grants
given to girls through government programmes when they enroll in schools. Only about
28% have suggested that micro-credit has been the main facilitating factor. Of those
respondents in whose case no children went to school before but all do so now, 84%
attribute it to educational campaigns by government and nongovernmental agencies and
grants to girl students. In the case of about 26% and about 38%, respectively, no children
go to school now and also did not go before and all children used to go before and they do
so now.

The data provided by survey respondents on family income are not always of very good
quality. However, the data provided show that in the case of about two-thirds of the
respondents, the monthly family income lies between Tk.5,000 and Tk.10,000, or
assuming an average family size of five, between Tk.1,000 and Tk.2,000 per head per
month. About a quarter of the respondents have indicated that their family incomes are
Tk.3,000 or less per month, or Tk.600 or less per head per month. Thus, given that the per
capita income of the rural poor in the country as of 2004 is Tk.562, one quarter of the
respondent households are generally at or below the average incomes of the rural poor.
Monthly household income is more than Tk.10,000 for only about 6% of the respondents.
34

While 34.6% of the respondents have indicated that their present overall living conditions
are somewhat better and another 1.5% much better, about 26% have indicated that their
present overall living conditions are somewhat worse and another 14% much worse,
compared to before enrollment. About 24% have experienced no change. These data
indicate that micro-credit receivers have mostly remained marginal in relation to their
living conditions as was the case before enrollment.

In response to a further question as to whether they are satisfied with the present living
conditions, some of those who indicated that their present living conditions are somewhat
better off than before enrollment are still not satisfied with their present living conditions.
Thus, only 26% of the respondents are satisfied with their present living conditions and
only another 0.7% highly satisfied. Dissatisfaction has been indicated by about 50%
(35.3% dissatisfied and 14.9% very dissatisfied). About 23% are neither satisfied nor
dissatisfied with their present living conditions. All this information (presented in this and
the previous paragraph) relating to living conditions of the respondents suggests that
micro-credit has not contributed much to poverty alleviation, must less on a sustained
basis.

As to the future prospects of socio-economic improvement relying primarily on microcredit, about 35% of the respondents believe there are good prospects and a similar
proportion believe the future prospects are bad (24.7%) or very bad (9.6%). About 19%
are not sure whether the future prospects are good or not. In response of a further question
relating to the social position since enrollment, 56% have reported no change, while in the
case of 13% the social position has in fact deteriorated. Only 4.6% of the respondents
have said that they are now socially more respected and in the case of another 23% social
interactions have increased. Once again, it is seen that micro-credit, in majority of the
cases, has not led to an improvement in the social standing of the borrowers.
35
Chapter 4
RATE OF INTEREST, COST OF
BORROWING, LOAN REPAYMENT
AND VELOCITY OF CREDIT CREATION
Rate of Interest and Cost of Borrowing
The rate of interest charged by different MCIs to the borrowers at the time of sanctioning
loans and for fixating of installments is shown in Table 4.1. It will be seen from the Table
that the nominal rate of interest charged by the leading MCIs vary from 10% to 15%, while
there are other MCIs which charge interest rates ranging from 10% to 18%.
Table 4.1
Base rates of interest charged by different MCIs
Name of MCI
Grameen Bank
BRAC
ASA
PROSHIKA
RDRS
Palli Daridra Bimochon Pratisthan
Others (generally)
Rate of interest charged (%)
10
15
15
14
12
15
10-18
The effective interest rate (IRAB), which is based on average balance of loan, and the rate of
effective cost of credit (RECC) for a loan of Tk.5,000 have been computed for Grameen
Bank, BRAC, ASA and PROSHIKA and are shown in Table 4.2. Detailed computations are
shown in Annex 4.
Table 4.2
Interest rate based on average balance (IRAB) of loan and rate of effective cost of
borrowing (RECC) for four large MCIs
MCI
Grameen Bank
BRAC
ASA
PROSHIKA
IRAB (%)
26.6
40.8
40.8
38.6
36
RECC (%)
30.5
44.8
44.8
42.3
While IRAB and RECC in the case of Grameen Bank are as high as 27% and 31%
respectively, these rates are much higher at 39-41% and 42-45% respectively in the case of
BRAC, ASA and PROSHIKA.
The Amount of Loan Granted vis-à-vis the Amount Received by the Borrowers
Grameen Bank and many other MCIs deduct an amount, usually 5% of the loan granted, at
the source as obligatory savings. ASA, BRAC and PROSHIKA do not make such a
deduction, though. The amount received by the borrower out of a loan granted is net of such a
deduction when made. Thus, for example, if a loan of Tk.5,000 is granted and a deduction of
5% is made as obligatory savings, the amount that will be given to the borrower is Tk.4,750.
Of course, the obligatory savings belong to the borrowers but they do not have access to this
money as long as they remain clients of the MCIs concerned. On leaving the MCIs they are
paid the amount with interest, the rate of interest being determined by the respective MCIs.
Also, a weekly saving is usually required by the MCIs to be deposited to the respective MCIs,
which is also refunded to the borrowers with interest, again the rate is determined by the
concerned MCIs if they discontinue their enrollment. A very recent development is that some
MCIs now release part of the total amount so saved by each particular borrower along with
the interest accrued on request during the time she/he remains a client. This is not, it has been
understood, applicable to a running loan, i.e. in respect of savings arising from a loan which
is still being repaid.
When to Pay the First Installment
There are 3,240 responses from 2,493 respondents in this regard, given that multiple sources
of credit have been used by some of the respondents and one response relates to one loan.
About three-fourths of the cases, the 1st installment had to be paid after one week following
the disbursement of the loan, while about a quarter have said that they are required to pay the
1st installment after two weeks. In the case of less than one per cent of the respondents, three
weeks or more are allowed. (Table 4.3)
37
Table 4.3
Time allowed before the first installment is to be paid
Time allowed in week(s)
One week
Two weeks
Three weeks and more
Total
Frequency of responses
No.
%
2,379
73.5
837
25.8
24
0.7
3,240
100.0
% of respondents
(2,493)
95.4
33.6
1.0
130.0
Note: 2,493 respondents provided answers, some multiple, to this question. Eight have not responded to this
question.
How the First Installment was Paid
As some of the borrowers have taken loans from two or more sources at the same time, there
are multiple responses regarding this question also, totaling 3,144 offered by 2,471
respondents. Some 30 respondents have not provided an answer to this question.
Table 4.4
Sources of money for paying the first installment
Source
Frequency of responses
No.
%
797
25.3
546
17.4
65
2.1
601
19.1
1,120
35.6
Trade using micro-credit taken
Money put aside out of the particular loan
Sale of labour
Out of previous savings
Out of earnings of husband or son from work
not related to micro-credit taken
Money received as loan has been given to
another person who pays the installments
Total
15
0.5
3,144
100.0
It will be seen from Table 4.4 that the relatively more important source of money used (37%)
to pay the 1st installment is the earnings of husband or son from activities which are not
related to micro-credit taken. In 19% of the cases, the source of money for the 1 st installment
has been mentioned to be previous savings and in another 17% of the cases the source has
been money kept aside from the particular loan taken. In 25% of the cases, the 1st installment
was paid from income generated through trade using the particular micro-credit. Clearly,
therefore, in three-fourths of the cases, there had to be another source for the borrowers to be
able to pay the 1st installment. Obviously, except from some quick trading activities, it is not
possible to generate any income in a week.
38
Timely Payment of and Difficulties Faced in Paying Installments
About 52% of the respondents have said that they are able to pay the installments regularly
without having to take hardship measures, while about 48% face difficulties in paying
installments (Table 4.5).
Table 4.5
Are difficulties faced by the borrowers in paying installments?
Difficulties faced or not
Frequency of responses
No.
%
1,189
47.5
Face difficulties, and take hardship
measures to manage the payment
Able to pay without having to take
recourse to hardship measures
Non-response
Total
1,309
52.3
3
2,501
0.2
100.0
Those borrowers (52.3%) who are able to pay the installments without having to take
hardship measures can do so out of incomes generated from economic activities run using
micro-credit or from other sources or by cutting down on food and other essential
expenditures. But for many of the respondents the payment of weekly installments constrains
their financial ability to improve their living conditions. In fact, about 96% of the respondents
have said that after paying a particular installment they always feel the pressure that the next
installment is just one week away and money has to be found to pay it or unpalatable
consequences may follow. They, therefore, have to watch out constantly and a large number
of them cannot but take recourse to whatever means possible for securing funds to pay the
installments, which make the concerned borrowers more vulnerable.
It will be seen from Table 4.6 that of the 47.5% of the respondents who face difficulties and
have to take hardship measures to manage the payment of installments some 42 respondents
or 3.5% have said that on occasions they have failed to pay the installments. As a
consequence, they were threatened with expulsion and confiscation of their assets. This threat
is in effect implicit collateral. In some cases, confiscation in fact did happen. The large
majority (72%) of those who face difficulties, in fact, managed to pay the installments by
borrowing money from money lenders and others at high rates of interest, while another
about 8% have borrowed from other MCIs to pay the installments of a loan taken from an
39
MCI. About 10% have sold goats or household effects at times of difficulties faced in paying
installments.
Table 4.6
When in difficulty, how is installment managed to be paid?
How managed?
Borrow money from money lenders and others at high
rates of interest
Sale of goats or household effects
Borrow money from other MCls
Face punishment in case of failure to pay up—no further
loans; threat of taking away of assets, which is sometimes
executed
Non-response
Total
Frequency of responses
No.
%
871
72.3
114
91
42
9.6
7.7
3.5
82
1,189
6.9
100.0
Velocity of Credit Creation by MCIs
Assumptions and explanations

The working formula for velocity of credit creation is:
n
VC 
IC   Xi
i 0
 100
IC
where, VC = velocity of credit creation; X = amount of credit created per weak; IC = initial
credit; n=51

Initial credit of Tk.5,000 and an obligatory saving of 5% are assumed.

10% flat or base rate of interest, as charged by Grameen Bank, i.e. Tk.120 against Tk.5,000
recovery per week, is assumed; a higher base rate of interest, other things being equal, will lead
to a higher amount of additional credit creation.

Grameen Bank and MCIs generally deduct an obligatory saving of 5% although BRAC, ASA,
and PROSHIKA now do not. So (and also because a 10% base rate of interest as charged by
Grameen Bank is assumed) the velocity of loan creation estimated below applies to Grammen
Bank and other MCIs which fulfill these two conditions, not to BRAC, ASA, PROSHIKA and
other MCIs which do not require an initial obligatory saving and charge different rates of interest
such as 14-15%.

Weekly savings deposited by the borrowers to the MCIs are not taken into account in the present
exercise. (It may be pointed out, however, MCIs generally require the borrowers to deposit
weekly savings of Tk.10 or Tk.20 or more. If weekly savings were also taken into consideration,
40
the credit creation would be higher than has been computed below. In the case of MCIs, which
do not require an initial obligatory saving, the credit creation is also very substantial, being based
on the revolving funds generated through installments and weekly savings received and the base
interest rates charged.)

Perfectly elastic demand for loan is assumed.

Two loanees on the first day of first week (W0) is assumed.
√ Additional loan disbursement in W0 is Tk.262.50:
Sanctioned loan for 1st loanee is 5,000, but the 1st loanee gets Tk.4,750 + (Tk.250 is
deposited with the MCI). The 2nd loanee gets Tk.237.50 + (Tk. 12.50 deposited with the
MCI)
So, the initial total loan fund = Tk.5,000 + Tk.250 + Tk.12.50=Tk.5,262.50; and, hence, the
additional disbursement for W0 = Tk.5,262.50 – Tk.5,000.00 or Tk.262.50
√ Additional credit creation in W1 is Tk.126.30, composed of: Tk.120 [i.e. recovery from the
initial credit of Tk.5,000) + Tk.6.30 (i.e. recovery from Tk.262.50 at the end of W0, which is:
Tk.{262.50 x (120÷5,000)} or Tk. (262.50 x 0.024) or Tk.6.30]
√ Every week, in addition to the recovery of Tk.120 from the initial loan of Tk.5,000, Tk.6.30
will newly come on stream in terms of recovery from the loan of Tk.262.50 granted at the
beginning of W0 and a further amount from the new loan granted at the beginning of every
week.
So,
in
W2,
the
new
credit
creation
is
Tk.{(120+6.30)+3.03}=Tk.126.3+3.03=Tk.129.33. Tk.3.03 is the recovery from the newly
disbursed credit of 126.30 in W1 and is available for disbursement in W2.
√ This procedure applies for the computation of additional credit created in W3, and so on.

100% rate of recovery is assumed.
41
Table 4.7
MCI’s credit creation over one year under the assumptions stated above
Week
(W0...W51)
W0
W1
W2
W3
W4
W5
W6
W7
W8
W9
W 10
W 11
W 12
W 13
W 14
W 15
W 16
W 17
W 18
W 19
W 20
W 21
W 22
W 23
W 24
W25
W 26
Weekly
credit
creation
(Tk.)
262.50
126.30
129.33
132.44
135.61
138.87
142.20
145.61
149.11
152.69
156.35
160.10
163.95
167.88
171.91
176.04
180.26
184.59
189.02
193.55
198.20
202.96
207.83
212.82
217.92
223.15
228.51
Additional
weekly credit
creation in
terms of
recovery
from newly
disbursed credit
(Tk.)
..
3.03
3.10
3.18
3.25
3.33
3.41
3.49
3.58
3.66
3.75
3.84
3.93
4.03
4.13
4.22
4.33
4.43
4.54
4.65
4.76
4.87
4.99
5.11
5.23
5.36
5.48
Week
(W0....W51)
Weekly
credit
creation
(Tk.)
W27
W 28
W 29
W 30
W 31
W 32
W 33
W 34
W 35
W 36
W 37
W 38
W 39
W 40
W 41
W 42
W 43
W 44
W 45
W 46
W 47
W 48
W 49
W 50
W 51
Total
233.99
239.61
245.36
251.25
257.28
263.45
269.78
276.25
282.88
289.67
296.62
303.74
311.03
318.49
326.14
333.97
341.98
350.19
358.59
367.20
376.01
385.04
394.28
403.74
413.43
12,649.57
Additional
weekly credit
creation in
terms of
recovery
from newly
disbursed
credit (Tk.)
5.62
5.75
5.89
6.03
6.17
6.32
6.47
6.63
6.79
6.95
7.12
7.29
7.46
7.64
7.83
8.02
8.21
8.40
8.61
8.81
9.02
9.24
9.46
9.69
9.92
Table 4.7 shows that starting with a credit of Tk. 5,000 granted to a borrower, an MCI
generates, under the assumptions specified above, a total credit of Tk.12,649.57 over one
year, which is 253% of the initial credit provided (i.e Tk. 5,000). The velocity of credit
creation is:
42
VC =
where,
Tk.(5,000  12,649.57)
IC  AC
 100 =
 100 = 353%
IC
Tk .5,000
VC=Velocity of credit creation
IC= Initial capital
AC=Additional credit generated during one year
Micro-credit is now a huge operation in Bangladesh involving a large number of MCIs. It has
been suggested by officials of some of the MCIs and other knowledgeable persons that the
main attraction of micro-credit operation in Bangladesh is that credit creation to such large
extents as indicated above is possible, which helps the MCIs not only to sustain themselves
but also prosper. But micro-borrowing does not usually, as has been seen earlier in this book,
provide the borrowers with an economic base to break out of income poverty and move on to
significantly higher levels of income and living standard. Moreover, many get caught up in an
increasing debt-burden syndrome and slide further into poverty.
Recapitulating the Major Findings

While the base rate of interest charged by large MCIs varies from 10-15%, the effective
rate of interest has been found to be between 2.66 to 2.76 times the respective base rate.
The cost of credit borne by the borrowers are even higher, around three times the base
rates. The high effective rate of interest and cost of credit adversely impact on the
borrower’s income and socio-economic prospects.

Also, the first installment has usually to be paid just one week after a loan is received.
One week is too short a time to generate income from economic activities other than
perhaps petty trade. In fact, three-fourths of the responses (i.e. loans) indicate that money
had to be found from other sources such as setting aside an amount out of the particular
loan, sale of labour, previous savings, and earnings of husband or son for work not related
to micro-credit taken.

About 48% of the respondents have indicated that they face serious difficulties and have,
frequently, to take hardship measures such as borrowing money from money lenders and
others at high interest rates, borrowing money from other MCIs, and sale of goods and
other household effects to manage to pay the installments. Some of the respondents have
mentioned having faced punishment for failure to pay up. In fact, most of the respondents
43
(96%) have said that they are always under pressure to manage money to pay the next
installment which has to be paid just one week after the last payment. The pressure is
often intense because unpalatable consequences follow the non-payment of an installment
on time. In many cases they, therefore, feel quite vulnerable and cut down expenditure on
food and other essentials to be able to pay installments on time, a category which includes
many from among the 52% of the respondents who have said that they were able to pay
installments regularly.

An exercise on how much credit an MCI creates over a year building on a loan given to a
person at the beginning of the year has been carried out under certain assumptions. It has
been found that, at a 10% base rate of interest and taking into account an initial obligatory
savings deduction of 5% but not taking into account weekly savings, the credit creation
over a year is 253%, the a velocity of credit creation being 353%. In Taka terms, based on
an initial credit of Tk.5,000 and the other specified assumptions, credit creation over one
year is Tk.12,650. Credit creation will be larger when the base rate of interest is larger
and weekly savings are taken into account. When no initial obligatory saving is required,
the credit creation, based on weekly installments and savings received and the rate of
interest charged, will be very substantial.

It has been found that one of the main attractions of micro-credit is the quick generation
of funds at such high rates as indicated above. In reality, therefore, micro-credit is a very
good business for the MCIs. The quick generation of large credit funds helps the MCIs to
sustain and enlarge their operations and prosper. The borrowers, on the other hand, as has
been found in this study, continue to remain at low, even below poverty, level income.
They are constantly under pressure because of the need to find money to pay the
installments on time. Clearly, therefore, micro-credit is good business for the MCIs; but,
unfortunately, not so for the borrowers. Many micro-borrowers, in fact, get deeper into
debt and poverty in the process.
44
Chapter 5
MICRO-CREDIT AND WOMEN EMPOWERMENT
Management of Micro-Credit Received by Women
Of the 2,482 female borrowers interviewed in the present survey, only about 10% have said
that they run with full authority the economic activities undertaken using micro-credits they
receive. But, almost 90% have said that they either manage the activities in consultation or
partnership with their husbands or other members of the family or husbands/other members
manage the activities and they do not participate at all. It has not been possible to get, from
the data collected, a breakdown between those female borrowers who participate (with
husband or another member of the family) in managing the use of credit and those who do
not at all participate. This issue remains grey and needs further probing. However, there is
definitely a large question mark relating to the women borrowers being in control of the
management of micro-credit they receive from MCIs. (Table 5.1).
Table 5.1
Management of the use of micro-credits received by women
Who manages?
Borrowers in full control
Borrowers in consultation/partnership with
husbands or other members of the family
Non-response
Total
Frequency
253
2,221
8
2,482
%
10.2
89.5
0.3
100.0
Participation of Female Borrowers in Family Decision Making
In so far as family decision marking is concerned, about 36% of the female borrowers are
now given due importance but not so before enrollment. Another 36% are now occasionally
given more importance than before. No improvement in this regard has been reported by
about 28%.
It is indicated by these findings that since women are the borrowers of micro-credit and the
money so received is available to the family, women are now given more importance in
making family decisions, as about two-thirds of the female respondents have said that they
45
are always or occasionally taken more seriously now than before enrollment. (Table 5.2).
They are valued more when they are micro-credit receivers as a conduit for some money
coming into the family but not so much in terms of human dignity for human beings, as
indicated by many respondents. Notwithstanding this view, it is good that women microborrowers are given more importance in making family decisions; this beginning may lead,
once its benefits are seen and understood, to male-female balanced roles in family decisionmaking.
Table 5.2
Importance of the views of female borrowers
of micro-credit in family decision making
Importance
Given due importance now, not before
No importance, no change from before
Occasionally given more importance than before
Non-response
Total
Frequency
888
694
895
5
2,482
%
35.8
28.0
36.0
0.2
100.0
Physical/Mental Torture Inflicted on the Female Borrowers
Asked as to whether any member of a female borrower’s family inflicts physical or mental
torture on her, about 28% have replied in the affirmative and about 72% in the negative. It
appears that a notable proportion of the female borrowers are subjected to family torture,
physical or mental. (Table 5.3).
Table 5.3
Is physical or mental torture meted out to female borrowers
from one or another member of their families?
Physical or mental torture
Yes
No
Non-response
Total
Frequency
692
1,778
12
2,482
%
27.8
71.7
0.5
100.0
The 692 female borrowers, who said that they were subjected to physical or mental torture by
one member or another of her family, were further asked as to who was the main culprit. The
usual response is the husband. Demand for dowry and his ego and perceived superiority in
the case differences of opinion relating to family matters have been suggested to be among
46
the triggers of torture inflicted by the husband. Asked further whether or not torture has
increased or decreased since enrollment, about 60% of them have said that the intensity of
torture has increased since enrollment, while for about 27% it is about the same as before.
Only 13% have said that it is somewhat less than before. (Table 5.4).
Table 5.4
Has the intensity of torture increased or decreased since enrollment?
(This question was asked to those who still face torture in the family)
Intensity of torture since
enrollment
Increased since enrollment
About the same as before
Somewhat less than before
Total
Frequency
412
91
189
692
%
59.5
13.2
27.3
100.0
Dowry
Finally, about 82% of the female respondents have said that exchange of dowry has increased
in the families of micro-credit receivers since enrollment. This is indeed unfortunate that such
a social menace has increased so much in the families of micro-credit receivers. (Table 5.5).
This has been so it would seem that micro-credit receiving families are perceived to be able
to pay dowry more than others.
Table 5.5
Exchange of dowry in the families of
Micro-credit receivers since enrollment
Dowry status
Increased since enrollment
Decreased since enrollment
Same as before
Non-response
Total
Frequency
2,036
60
374
12
2,482
%
82.0
2.4
15.1
0.5
100.0
Recapitulating the Major Findings

Only about 10% of all female respondents (numbering 2,482) have said that they are in
full control of running the economic activities undertaken using micro-credits they
received. The other 90% run them either in consultation/partnership with their husbands
47
and other members of their respective families or they do not participate at all. A
breakdown between the two categories could not be obtained from the data generated.

About 72% of the female respondents are now always or occasionally given more
importance in family decision-making compared to the situation before enrollment.
Obviously, whether or not the female borrowers are in control of the use of micro-credits
they received, their importance in the family has gone up as they can now bring in money
to the family through micro-credits from MCIs. This certainly is an improvement but a lot
more needs to happen regarding their empowerment including in relation to decisionmaking concerning and management of economic activities undertaken with microcredits received.

About 28% of the female respondents still face physical or mental torture from one or
another member of the family, usually the husband. The intensity of torture has increased
in the case of 60% of these respondents, while in the case of 40% it’s about the same or
somewhat less than before.

It is very unfortunate that exchange of dowry has increased in the micro-credit receiving
households as reported by 82% of the female respondents. This is a social menace against
which there is strong opinion among the social reformers. But, it seems that since women
are now able to secure some money though micro-credit, their families are more
pressured than before to pay dowry to marry off women from their families.
48
EXECUTIVE SUMMARY AND CONCLUSION
Executive Summary
This study is based on data generated through face to face interviews with a country-wide
(rural) representative sample of rural micro-borrowers numbering 2,501 (over 99% female).
The field work was conducted during January-February 2006.
It has emerged from this study that micro-borrowers have generally remained tied to
rudimentary trading, manufacturing, and other economic activities regardless of the length of
time they have been micro-borrowing.1 It also appears that micro-credit taken year after year
repeatedly is the life line for the micro-borrowers to remain in business once they got
involved.
The study results show that some of the micro-borrowers have benefited in terms of
reasonable increases in income but in majority of the cases there has not been a significant
increase in income and about a quarter earn from micro-credit related-activities and other
sources taken together only about or below the average income of the rural poor.
It has also been found that access to adequate food even in quantitative terms remains
insecure for about one-fifth of the respondents interviewed, while this is so for about another
third in qualitative terms if not in quantitative terms. About 39% are unsure of any change in
their access to food since enrollment and only about 7% have access to sufficient food in both
qualitative and quantitative terms. Also, there has not been any improvement worth noting in
terms of ownership of land (both homestead and agricultural) and large livestock since
enrollment.
The finding that 71% of the respondents still cannot secure proper treatment or go to quacks
is a testimony to the extremely poor health services in rural Bangladesh. However, as that
figure is down from 96% before enrollment, there has been some improvement in access to
health services. But it has been indicated by the large majority of those who have now access
to better health services that the more important reasons for the improvement are awareness
building by concerned government and nongovernmental organizations and availability of
health services from them.
1
The larger enterprise credits provided by some MCIs on a very limited scale are not included in this study.
49
Regarding sanitation, only about 28% of the respondents have switched over to sanitary
latrines since enrollment. But, once again, majority of them have suggested that the more
important reasons are awareness building by concerned government and nongovernmental
organizations and availability of advice of cheap latrines from them. Others were using
sanitary latrines before and do so now or do not use such latrines now nor did they do so
before.
In the case of children’s education also the more important reasons cited for whatever
improvement took place since enrollment in relation to children’s’ education in general and
girls’ education in particular include campaigns by government and nongovernmental
organizations and also facilities and assistance provided by them.
In terms of overall living conditions, only about one-third of the respondents have indicated
some improvement, while the rest have experienced no change or deterioration since
enrollment. Clearly, therefore, the majority of the respondents have remained marginal in
relation to their living conditions now as was the case before enrollment.
On the satisfaction scale, just over a quarter of the respondents are satisfied, while about 50%
are dissatisfied and just under a quarter are neither satisfied nor dissatisfied with their present
living conditions. As to the future prospects relying primarily on micro-credit, just over a
third believe that the prospects are good but a third are apprehensive of bad prospects. In
relation to social position, well over half of the respondents have reported no change and
another 13% have reported deterioration, while about 28% have experienced an
improvement. For the majority, therefore, there has been no improvement in social standing
since enrollment.
Overall, therefore, socio-economic impact of micro-credit, as indicated by this study, is
marginal. Obviously, some micro-borrowers have benefited to an extent but many have
experienced no improvement. There are also those who have experienced even deterioration
in certain respects.
Now, regarding debt burden, the micro-borrowing process seems to continue endlessly for
most of the clients of the MCIs. It has been found that while they pay base interest rates
between 10% and 15% (in some cases up to 18%), the effective rate of interest and the
effective rate of cost of borrowing are as high as 27% and 31% respectively for Grameen
50
Bank and even higher at 39% and 41% for PROSHIKA and 42% and 45% for both BRAC
and ASA.
The first installment has to be paid in most cases after one week following the receipt of the
credit. It is not possible to generate income within one week except, perhaps, through petty
trading. About three-fourths of the respondents have paid the 1st installment by talking
recourse to such measures as putting aside money out of the particular loan, sale of labour,
previous savings, and earnings of husbands or sons from sources not related to micro-credit.
Only about a quarter were able to generate funds within the week by undertaking some
trading activity.
Regarding the payment of installments, about 48% of the respondents have indicted that they
face difficulties in paying installments and are often obliged to take hardship measures such
as borrowing from money lenders and others at high interest rates, borrowing from other
MCIs, and sale of goats and other household effects. Of the 52% who have indicated that they
are able to pay installments regularly do so out of incomes generated not only from economic
activities run by using micro-credit but also from other sources and, not infrequently, they
have to cut down on food and other essentials. In fact, most of the respondents (96%) have
said that they are under pressure on a continuous basis as the next installment falls due just
one week after a particular installment has been paid, knowing that unpalatable consequences
will follow their inability to pay up. Generally, therefore, the micro-borrowers appear to
remain vulnerable in the context of payment of installments and many become obliged to take
such measures which increase their indebtedness and adversely impact on their economic
prospects.
The MCIs can generate, as has been shown, huge credit funds (e.g. starting with an initial
loan of Tk.5,000, the creation of credit under certain assumptions—including assumptions of
5% initial obligatory savings and 10% base interest rate, but weekly savings ignored—
amounts to an additional credit of Tk.12,650 over a period of one year) through their credit
supply and repayment collection activities. This is the reason why micro-credit is an
attractive business for MCIs, leading to the establishment of hundreds of MCIs in the
country, large and small. Such quick multiplication of credit funds helps the MCIs to sustain
and enlarge their operations and prosper. But, as seen in this study, micro-borrowers often
fail to break out of income poverty and many even get caught up in an increasing debt-burden
syndrome and slide further into poverty, let alone moving on to significantly higher levels of
income and living standards.
51
As indicated by the results of the study, not much has happened in relation to women’s
empowerment through micro-credit. Only about 10% of the respondents have said that they
are in full control of the economic activities run by using the micro-credit they take. The
other 90% include those who either do not have anything to do about the use of micro-credits
they take or they manage them in consultation or partnership with their husbands or other
family members. The data generated has not allowed a decomposition of these two
categories.
In family decision making, however, about three-quarters of the respondents are either given
due importance regularly or at least occasionally now, but not so before enrollment. It
appears that since women are now conduits of securing funds for the family through microcredit, they are allowed to play a greater role in family decision-making. However, about a
quarter of the female borrowers currently face physical or mental torture from one member or
another of her family, usually the husband. About 60% of them have said that the intensity of
torture has increased since enrollment. Another ominous finding is that in the families of
some 82% of the female borrowers, exchange of dowry has increased since their enrollment.
The pressure for dowry has mounted as it seems to be perceived that micro-borrowing
enables the families to pay dowry more than otherwise.
Conclusion
The generally discouraging and in some ways disparaging results thrown up by this study
eloquently testify to the severe limitations of such a simplistic approach to poverty
alleviation, but do not mean that credit is not useful to the poor people. The problem lies in
the approach taken. To start with, poverty is conceptualized extremely narrowly in this
approach—in terms of income only. Once income is the only focus, the view taken is that
small amounts of credit funds provided to poor people would help them raise their incomes,
leading to poverty alleviation and improved living conditions. But, poverty is a
comprehensive concept, which has to do with all aspects of life and living, involving both the
basic material needs (food, clothing, housing, etc.) and the basic human needs (human
dignity, human rights, human capability through education and health, finer values of life,
socio-economic equity, moral values, participation in all processes of social transformation,
etc.).
If poverty is defined and its alleviation approached from a comprehensive human
development perspective underpinned by equity, morality, and participation, then micro52
credit could be a useful element within the framework of that comprehensive approach.
However, the terms of such credit should be less stringent in terms of both the repayment
schedule and the effective rate of interest. It may be recalled here that the rich have access to
credit at much more favourable terms.
The basic constraints on the proposed comprehensive approach2 are the existing power
relations in society, which enable a small minority to prosper and control the affairs of the
state and the economy and condemn the large majority to a lowly and subservient state of
living. The ongoing neo-liberalism-based free market paradigm sustains and strengthens the
excising power relations.
Towards promoting social transformation that is sustainable and worthwhile from the point of
view of all citizens, actions and programmes undertaken must be so formulated as would
directly contribute to the empowerment of the poor and excluded multitudes and restructuring
of power relations and ensure equity for and promote social solidarity among all citizens.
2
For an elaborate discourse on multifaceted poverty and approaches to its alleviation see [Rahman 2006 in the
Bibliography appended].
53
BIBLIOGRAPY
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Commission, Ministry of Planning, Dhaka.
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Bangladesh”, World Development, Vol. 24, No. 4, pp. 635-653, Elsevier Science Ltd.,
United Kingdom.
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Bank
Eaar
Proyash,
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Bank in Bangladesh”, Research Report no-65, International Food Policy
Research Institute, Washington, D. C.
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for the Poor: Household and Intrahouesehold Impacts and Program
Sustainability, Vol. I, The Bangladesh Institute of Development Studies (BIDS)
and the World Bank, Dhaka.
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in
Bangladesh:
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National
Nutrition
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Parts 1&2, Dhaka, Institute of Nutrition and Food Science, University of Dhaka.
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Institution: A Critical Evaluation of Some Selected Areas in Rajshahi Zone.” Ph.D
Thesis (unpublished), Rajshahi University.
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Bank Parikrama, Vol. xxvii, No. 4, BIBM, Dhaka.
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Barrower Households of Grameen Bank: A Quantitative Estimation” presented at
Biennial Conference of Bangladesh Economic Association (BEA), 2005, Dhaka.
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of Finance (MoF), Government of Bangladesh, Dhaka, June 2006.
Maloney, C. and A.B.S. Ahamed
Bangladesh, UPL, Dhaka.
(1998),
Rural
Savings
and
Credit
in
Matin, I. (1998), “Mis-Targeting by the Grameen Bank: A Possible Explanation”,
IDS Bulletin, Vol. 29, No. 4, Institute of Development Studies (IDS), United
Kingdom.
Osmani, S. R. (1989), “Limits to the Alleviation of Poverty through Non-farm
Credit”, The Bangladesh Development Studies, Vol. 17. No.1, pp.1-19, BIDS, Dhaka.
Osmani, S. R. (1990), “Notes on Some Recent Estimates of Rural Poverty in
Bangladesh”, The Bangladesh Development Studies, Vol. 18, No.4, BIDS, Dhaka.
54
Rahman A. and S. M. Hossain (1986), “Impact of Grameen Bank on the Income
and Expenditure Pattern of Rural Poor”, Evaluation Project Working
Paper, Grameen Bank, Dhaka.
Rahman, A. (1986), Demand
A Closer look, UPL, Dhaka.
Rahman, A. (1987), Impact of
Power Structure, BIDS, Dhaka.
and
Marketing
Grameen
Bank
Aspects
of
Intervention
Grameen
on
Bank:
the
Rural
Rahman, Md. Anisur (2006), “The Challenge of Human Self-realization - Insights for Poverty
and Development Discourse from Grass-roots Experience of Bangladesh”, presented
at a seminar on “Poverty, Initiatives of the Disadvantaged and Development”,
organized by Research Initiatives, Bangladesh (RIB), Dhaka, 2 December 2006.
Rahman, R. I. (1996), Impact of Credit for Rural Poor: An Evaluation of Palli
Karma-Sahayak Foundation’s Credit Programme, BIDS, Dhaka.
Rahman, R. I. (1998), Rural Households Attitude Towards Savings and Demand
for Savings Services, Save the Children, USA.
Rahman,
R. I. (2000), “Micro-finance in Bangladesh: Sustained Progress or
Emerging Problems?”, Bangladesh Journal of Political Economy, Vol. 15, No. 1,
BEA, Dhaka.
Rahman, S. and S. M. Hossain (1988), “Demand Constraints and the
Future Viability of Grameen Bank Credit Programme: An Econometric
Study on the Expenditure Pattern in Rural Households”, The Bangladesh
Development Studies, Vol. 6, No. 2, BIDS, Dhaka.
World Bank (2005), Bangladesh PRSP Forum Economic Update: Recent Developments and
Future Perspectives, Bangladesh Development Series, Paper No. 1, World Bank
Office, Dhaka.
World
Bank (1995), Micro-credit for Poverty Alleviation—Report
WB Task Force on Poverty, Micro-finance Program, Washington, D.C.
World
Bank (2001), Contents of World Development
Attacking Poverty—Overview, World Bank, Washington, D.C.
Report
of
the
2000/2001:
World Food Programme (1997), Successful Micro-Entrepreneurs: Case Study Of
Ex-VGD Women, Bangladesh, Dhaka.
Yunus, M. (1987), “Credit for Self Employment: A Fundamental Human Right”,
Grameen Bank, Dhaka.
Yunus,
M. (1999), “The Grameen Bank—A Small Experiment Begun in
Bangladesh has Turned into a Major New Concept in Eradicating Poverty”, Scientific
American, pp. 114-119, USA.
55
Annex 1
EXPANSION OF MIRCO CREDIT PROGRAMMES
OF SELECTED LEADING MCIs
Grameen Bank. As of February 2006, Grameen Bank disbursed a cumulative total of
Tk.263,837.10 million among 5.77 million borrowers covering 62,089 villages under 64
Districts of Bangladesh. (in Bibliography: MoF 2006, p.158). GB’s portfolio growth rate was
25% according to GB Annual Report, 2004.
ASA. ASA claims itself as the most successful and cost-effective micro-finance institution in
the world. It is mentioned that ASA has been implementing its credit activities since 1991 to
materialize the dream of poverty free Bangladesh. It is also claimed that till December 2005,
ASA has covered 63,226 villages under 511 Thanas of 64 Districts of Bangladesh. (ASA
Annual Report 2005). ASA disbursed a cumulative total of Tk.148,200 million among 5.99
million borrowers as of December 2005. (MoF 2006, p.156).
BRAC. As of December 2005, BRAC disbursed a cumulative total of Tk.148,643 million
among 508 million borrowers (MoF 2006, p.156).
PROSHIKA. As of December 2005, PROSHIKA disbursed a cumulative total of
Tk.31,873.00 million among 2.77 million borrowers (MoF 2006, p.156).
Swanirvar Bangladesh. Up to December 2005, it disbursed a cumulative total of Tk.4,706.40
million in credit among 1.02 million borrowers (MoF 2006, p.156).
PKSF. Up to December 2005, PKSF disbursed a cumulative total credit of Tk.20,665.30
million among 5.86 million borrowers through its partner organizations (POs) (MoF 2006,
p.158).
BRDB. Up to December 2005, BRDB disbursed a cumulative total credit of Tk.39,617.9
million credits among 2.45 million borrowers (MoF 2006, p.160).
Commercial, Scheduled Specialized Banks. Up to December 2005 Commercial, Scheduled
Specialized Banks disbursed a cumulative total of Tk.110,792 million among 9.17 million as
micro-credit (MoF 2006, p.160).
Ministries and Divisions. Up to December 2005, Ministries and Divisions disbursed
Tk.67,260.02 million (cumulative) among 4.68 million as micro-credit (MoF 2006, p.162).
CDF Statistics (2004). According to CDF, till December 2004 a total of 721 registered NGOs
disbursed TK.338,630.56 million (cumulative) among 16.20 million member-borrowers. The
overall recovery rate has been shown as 98.79%.
56
Annex 2
DISTRIBUTION OF RESPONDENTS BY DISTRICT
Name of Districts
Netrokona
Tangail
Munsiganj
Total
Name of Districts
Sathkira
Jessore
Narail
Total
Name of Districts
Jalokathi
Bhola
Total
Name of Districts
Naoga
Lalmonirhat
Kurigram
Total
Dhaka Division
Number of respondents
225
224
227
676
Khulna Division
Number of respondents
102
103
102
307
Barishal Division
Number of respondents
91
92
183
Rajshahi Division
Number of respondents
224
226
224
674
Sylhet Division
Name of Districts
Habiganj
Sunamganj
Number of respondents
136
45
Total
181
Chittagong Division
Name of Districts
Number of respondents
Chandpur
160
Brahmanbariya
160
Chittagong
160
Total
480
Grand Total
2,501
57
Percentage
9.0
9.0
9.1
27.1
Percentage
4.1
4.1
4.1
12.3
Percentage
3.6
3.7
7.3
Percentage
9.0
9.0
9.0
27.0
Percentage
5.4
1.8
7.2
Percentage
6.4
6.4
6.4
19.2
100.0
Annex 3
BACKGROUND INFORMATION ON RESPONDENTS
Table A3.1
Distribution of respondents (borrowers) by sex
Respondents
Male
Female
Total
No.
19
2,482
2,501
%
0.8
99.2
100.0
Table A3.2
Distribution of respondents by age
Age (years)
Up to 20
21-30
31-40
41-50
51 and above
Total
No.
58
722
958
594
169
2,501
%
2.3
28.8
38.3
23.8
6.8
100.0
Table A3.3
Distribution of respondents by primary occupation
Occupation
Public sector teacher
Private sector teacher
Business
Farmer
Agri-labour
Industrial labour
Richshaw/van puller
NGO worker
Housewife
Student
Others
Total
No.
7
2
124
9
32
20
3
5
2,104
7
188
2,501
58
%
0.3
0.1
5.0
0.4
1.3
0.8
0.1
0.2
84.1
0.3
7.5
100.0
Table A3.4
Distribution of respondents by level of education
Educational level
Illiterate
Below class V
Class V-below class X
SSC to below HSC
HSC to below BA
BA and above
Total
No.
1,501
425
516
48
8
3
2,501
%
60.0
17.0
20.6
1.9
0.3
0.1
100.0
Table A3.5
Distribution of respondents by marital status
Marital status
Married
Unmarried
Divorced
Widow/widower
Separated
Total
No.
2,307
13
9
159
13
2,501
59
%
92.2
0.5
0.4
6.4
0.5
100.0
Annex 4
COMPUTATION OF EFFECTIVE RATE OF INTEREST
AND EFFECTIVE COST OF CREDIT
Grameen Bank
Against a sanctioned loan of Tk.5000, GB gives Tk.4,750 to the borrower after an obligatory
savings deduction of 5% and charges a nominal interest rate of 10% on Tk.5,000. Thus, over
46 weeks GB recovers a total of Tk.5,520 through weekly installments of Tk.120 each. GB
pays back to the borrower when she/he discontinues her/his GB membership the deducted
obligatory savings (Tk. 250) with interest (currently at 12%). Over one year, the amount of
interest payable on Tk.250 is Tk.30, which is an income of the borrower and should be
deducted from the interest paid to GB. The borrower also deposits Tk.20 as a minimum per
week to GB. This is also paid back with interest (currently at 8.5%). However, the borrower
could have deposited these amounts elsewhere and usually at a higher rate of interest so that
the borrower may be getting a lower interest income by making weekly savings deposits to
GB. For the purpose at hand, we may ignore these weekly savings and returns to avoid
complications.
The GB thus collects an amount of Tk.520 as interest over 46 weeks on a loan of Tk. 5,000,
which when annualized works out at Tk.587. The net amount of interest collected, thus, is
Tk.(587-30) or Tk.557.
Rate of interest on average balance of loan
First balance of loan is Tk.4,750 and the last balance is a negative amount of Tk.557 i.e this
amount is payable to GB after adjustment of interest receivable on obligatory savings. The
average balance of loan is then:
ABL =

FBL  LBL
 4,750  (557 ) 
= Tk. 
  Tk .2,097
2
2


Hence, IRAB =
TAI
Tk. 557
 100 =
100  26.6%
ABL
Tk. 2,097
Where, ABL= Average balance of loan
FBL= First balance of loan
LBL= Last balance of loan
IRAB= Interest Rate on average balance of loan
TAI= Total amount of interest payment.

The effective interest rate actually collected by GB is 26.6%.
60
Effective cost of Credit
The effective cost of credit is interest payment plus transaction cost. The transaction cost may
vary from borrower to borrower depending on the distance of the relevant GB branch office
from their respective homes, from which money is to be received; cost of rickshaw and other
means of transportation; and costs incurred in terms of passbook, other stationery, revenue
stamp, etc. On an average the transaction cost covering these and any other heads of
expenditure has been found to be Tk.83 up to the time money granted is received. The total
cost of credit (TCC) is, then, total transaction cost (TTC) plus total interest payment: Tk. (83
+ 557) or Tk. 640.
Now, RECC =
TCC
Tk.640
 100 =
100  30.5%
ABL
Tk. 2,097
where, RECC= Rate of effective cost of credit, and other variables are as defined above.

The RECC in respect of Grameen Bank works out to be 30.5%.
BRAC
BRAC now gives to the borrower the full amount sanctioned as micro-credit as it does not
now deduct any amount on account of obligatory savings. Against a sanctioned micro-credit
of Tk.5,000, BRAC recovers a total of Tk.5,750 over 46 weeks through weekly installments
of Tk.125 each. The weekly savings and insurance payment are not, however, taken into
account for effective interest rate computation, in light of the explanation given above in the
case of Grameen Bank. The BRAC, thus, collects an amount of Tk.750 as interest over 46
weeks, which when annualized works out to be Tk.848, which is the net annual amount of
interest collected.
The average balance of loan is then:
 5,000  (848) 
ABL = Tk. 
 = Tk.2,076
2


Tk.848
 100 = 40.8%
Hence, IRAB=
Tk.2,076

The effective interest rate in the case of BRAC is found to be 40.8%.
The estimated transaction cost is the same as that for Grameen Bank i.e. Tk. 83
61
Thus,
 848  83 
RECC = Tk. 
  100 = 44.8%
 Tk 2,076 

The effective cost of credit in the case of BRAC is found to be 44.8%.
ASA
As charges 15% normal interest and makes no deduction now as obligatory savings. Hence, it
gives Tk. 5,000 to the borrower, when Tk. 5,000 is granted as micro-credit. It requires weekly
savings to be made, which are ignored in the context of effective interest and cost of
borrowing, as explained in the case of GB. Also, the transaction cost used is the same as that
used in the case of GB and BRAC i.e. Tk. 83. Hence, for ASA, the IRAB and RECC are the
same as those computed for BRAC. That is,

IRAB =
Tk. 848
 100 = 40.8%
Tk 2,076

RECC =
Tk. (848  83)
 100 = 44.8%
Tk. 2,076
PROSHIKA
No obligatory savings are now deducted by PROSHIKA i.e. it gives Tk. 5,000 to the
borrower when Tk. 5,000 is granted as loan. It charges an interest rate of 14%. The
transaction cost for getting a loan is Tk. 83, the same as in other cases.
At an interest rate of 14%, PROSHIKA collects over 45 weeks Tk.5,700 in weekly
installments of Tk. 126.67 each. The annualized (i.e. over 52 weeks) amount of interest
works out to be Tk.809 (based on Tk.700 over 45 weeks).
 5,000 - 809 
Thus, ABL= Tk. 
 = Tk. 2,096
2


Tk 809
 Hence, IRAB =
 100 = 38.6%
Tk 2,096
Tk.(809  83)
 100 =42.3%
 RECC =
Tk 2,096
62
Editor
Qazi Kholiquzzaman Ahmad is currently Chairman of the multidisciplinary research
organization Bangladesh Unnayan Parishad (BUP) and President of the Bangladesh
Economic Association (BEA). He is also the chair of the Dhoritri Foundation, which is
devoted to the causes of the most disadvantaged people of Bangladesh. He has been president
(1979-83) of the Kuala Lumpur-based Association of Development Research and Training
Institutes of Asia and the Pacific (ADIPA).
Q K Ahmad has to his credit a wide range of research works and publications (books and
articles), including on policy planning, industrial economics, food and agriculture, rural
development, poverty alleviation, human development, technology, employment, gender
issues, regional cooperation, environment, water resources, and climate change. He received
his MA (Economics) from Dhaka University and PhD (Economics) from the London School
of Economics and Political Science (LSE), London University.
About the book
Some of the micro-borrowers in Bangladesh have benefited in certain respects. Others have
been struggling under the stringent terms of credit including high costs of borrowing and a
weekly repayment schedule starting just one after a credit is taken. Still others have gone
further into indebtedness and face bleaker future prospects. The micro-borrowers face the
threat of expulsion and confiscation of their assets if they fail to pay up weekly installments;
and some of them, it has been found, have in fact had their meagre assets confiscated when
they could not manage to pay up. This threat is in effect collateral. Very little empowerment
has been achieved by the women micro-borrowers. Often, they are simply the conduit for
some money coming into the family in terms of micro-credits received. Only about 10% of
the female respondents have indicated that they are in full control of and manage the
economic activities undertaken with micro-credit. A large majority of the micro-borrowers
and their families have remained condemned to a lowly and subservient state of living. The
main culprits for this state of affairs include the glaring and accentuating socio-economic
disparity and highly iniquitous and further worsening iniquitous power relations in the
country, neither of which is addressed, even recognized in so far the micro-credit operations
are concerned.
63
These are some of the major findings thrown up by this study which is based on a countrywide rurally representative sample survey conducted during January-February 2006. It is now
even more important, since Muhammad Yunus and Grameen Bank have jointly been awarded
2006 Nobel Peace Prize, that the pitfalls of micro-credit operations are properly recognized
and addressed. The findings of this study strongly suggest that for meaningful, sustained
poverty reduction, a comprehensive approach, commensurate with the complex nature of
poverty and the prevailing social dynamics including the glaring and accentuating disparity
and highly iniquitous and further worsening power relations is needed. Micro-credit with less
stringent terms should be a key element within the framework of such a comprehensive
approach.
64