Comilla University

Term paper on
“Impact of Micro-finance program on Empowerment of poor people in
Bangladesh: A study on Grameen Bank”

Course Name: Management of NGOs & Social Entrepreneurship

Course Code: PA-313

Submitted to: Submitted by:

Dr. Md. Ruhul Amin Md. Sohel
Associate Professor Class ID: 11803022
Department of Public Administration Session: 2017-18
Comilla University Dept. of Public Administration
Comilla University

Date of Submission: 31/03/2021

 Acknowledgement
At first, we are grateful to Almighty Allah for creating us in such a beautiful country like
Bangladesh and also for controlling our life. For the mercy of him, we got such courage to start
this term paper on "Grameen Bank".

Many thanks to the librarian of the university for their help in various ways.

We would like to thank our honorable course teacher Md. Ruhul Amin Sir for his support and a
clear idea about this term paper.

It would have been quite impossible to prepare such a term paper without the help of my friends
and classmates. They gave me some necessary information about Grameen Bank which was
unknown to me. So, I thank them all.

Abstract
The Grameen Bank (GB) in Bangladesh have developed a successful model of reaching credit to
resource poor households that are generally bypassed by Government financial institutions.
Microfinance is one of the fastest growing sectors in Bangladesh and in many parts of the world.
Over the last few decades, this sector has been supportive in achieving various socio-economic
goals in Bangladesh. The country has made remarkable progress in sectors like education and
health, and most importantly it has contributed significantly in poverty alleviation. A forefront
Microfinance provider like Grameen Bank has been playing a key role for the socio-economic
wellbeing of the people living in the rural areas as well as for the economic development of rural
economy. The impact of GB microcredit on standard of living of rural women in study area
whom have already involved in its loan. This study aims to investigate the long run dynamic
relationship among its loan financing and clients’ deposit and economic growth in Bangladesh.
The result shows that both financing and depositing aspects of Grameen Bank have positive
effect on economic growth of Bangladesh in the long run. It is recommended that Grameen Bank
should allow its operations without any external pressure for the sake of sound economic growth
of the country.
Table of Contents
Introduction.................................................................................................................................................2
Microfinance...............................................................................................................................................2
The short information about microfinance program of GB:..............................................................3
Features of Microfinance............................................................................................................................3
Microcredit................................................................................................................................................4
Poverty:.......................................................................................................................................................5
Empowerment:............................................................................................................................................5
Women Empowerment:.............................................................................................................................5
Economic empowerment............................................................................................................................5
Social Empowerment:..................................................................................................................................6
Grameen Bank.............................................................................................................................................6
History of GB...........................................................................................................................................6
Grameen bank group-based microcredit model:................................................................................6
Grameen's Success in Poverty Reduction:...........................................................................................7
Types of Loans Received by GB Members...................................................................................................7
Age condition to get loan:.......................................................................................................................7
Structure of Grameen Bank.................................................................................................................7
Impact of Microfinance Program on Empowerment of Poor People in Bangladesh...................................8
Impact of microfinance for empowerment women................................................................................8
The positive result of microfinance on poor people...............................................................................8
Influence of microcredit on children’s education..................................................................................8
Impact on employment generation.........................................................................................................9
Recommendations:....................................................................................................................................9
Conclusion.................................................................................................................................................10
Reference..................................................................................................................................................10
Introduction
“Microfinance refers to an array of financial services, including loans, savings, and insurance,
available to poor entrepreneurs and small business owners who have no collateral and wouldn't
otherwise qualify for a standard bank loan”. Bangladesh is the pioneer adopter of modern
concept number of Non-government Organizations (NGOs) and of microfinance in the world.
Micro-finance program plays an important role in socio-economic development of rural poor
people. The concept of microfinance Microfinance Institutes (MFIs) have been promoting is not
only provision of micro-credit but also the financial inclusion to the poor alongside government
in provision of savings, insurance, remittance, health, the globe. The Nobel idea has been started
by Professor Dr. Mohammad Yunus in 1970s through as a pilot project in Jobra village in the
district of Chittagong, Bangladesh. Dr. Mohammad Younus’s Grameen Bank (GB) is the pioneer
organization of microcredit in Bangladesh. GB group base microcredit model has replicated in
the many countries in the world for its success in providing credit to the poor (Yunus, 1999 as
cited in [ CITATION Abu13 \l 1033 ].

Micro-finance has a huge impact on the lives of millions of poor people. Numerous
scholars and NGOs have been working to take microfinance within the reach of poor people,
who are still not benefited by the conventional financial system. It was believed that
microfinance is not important for all people but most groups can benefit from this idea. Grameen
Bank has the potential to affect the income and non-income preconditions for development.
Participants of the Grameen Bank are the residual claimants of the income generated from their
loans.

Microfinance
Microfinance is a form of financial development that has primarily focused on alleviating
poverty through providing financial services to the poor. Most people think of microfinance, if at
all, as being about micro-credit i.e., lending small amounts of money to the poor. Microfinance is
not only this, but it also has a broader perspective which also includes insurance, transactional
services, and importantly, savings. According to James Roth, “Microfinance is a bit of a catch
all-term.
Very broadly, it refers to the provision of financial products targeted at low-income groups.
These financial services include credit, savings and insurance products. A series of neologisms
has emerged from the provision of these services, name micro-credit, micro-savings and micro-
insurance”. The Canadian International Development Agency (CIDA) defines microfinance as,
“the provision of a broad range of financial services to poor, low-income households and micro-
enterprises usually lacking access to formal financial institutions”

The short information about microfinance program of GB:

Number of members 5,579,399

Percentage of Women members 96%

Number of Centers 99,502

Number of Village covered 59,912

Number of Branches 1,735

Number of Zones 21

Cumulative amount Disbursed since Inception 256,497,40 million Tk.

Amount of Loan outstanding 27,970,31 million Tk

Portfolio Growth Rate 39.66%

source: Grameen Bank annual report 2018

Features of Microfinance
Microfinance gives access to financial and non-financial services to low-income people, who
wish to access money for starting or developing an income generation activity? The individual
loans and savings of the poor clients are small. Microfinance came into being from the
appreciation that micro-entrepreneurs and some poorer clients can be ‘bankable’,that is, they can
repay, both the principal and interest, on time and also make savings, provided financial services
are tailored to suit their needs.

Microfinance as a discipline has created financial products and services that together have
enabled low-income people to become clients of a banking intermediary. The characteristics of
microfinance products include: Little amounts of loans and savings.
 Short- terms loan (usually up to the term of one year).
 Payment schedules attribute frequent installments (or frequent deposits).
  Installments made up from both principal and interest, which amortized in course of time.
 Higher interest rates on credit (higher than commercial bank rates but lower than loan-
shark rates), which reflect the labor-intensive work associated with making small loans
and allowing the microfinance intermediary to become sustainable over time.
 Easy entrance to the microfinance intermediary saves the time and money of the client
and permits the intermediary to have a better idea about the clients’ financial and social
status.
 Application procedures are simple.
 Short processing periods (between the completion of the application and the
disbursement of the loan).
 The clients who pay on time become eligible for repeat loans with higher amounts.
 The use of tapered interest rates (decreasing interest rates over several loan cycles) as an
incentive to repay on time. Large size loans are less costly to the MFI, so some lenders
provide large size loans on relatively lower rates.
 No collateral is required contrary to formal banking practices. Instead of collateral,
microfinance intermediaries use alternative methods, like, the assessments of clients’
repayment potential by running cash flow analyses, which is based on the stream of cash
flows, generated by the activities for which loans are taken.

Microcredit
The word credit’ derives from Latin word’ credo’ meaning ‘to trust’ so “credit” entails the
lender, to believe someone [ CITATION Dha13 \l 1033 ]. It is well known and popular as the crucial
component of microfinance and called small loans which are providing rural poor and especially
rural women to be self-sufficient and increase self-efforts to bring positive change in their lives
through development of society and making contribution on economic growth. Microcredit is a
process of delivering loans to poor individuals. Microfinance institutions like GB provide
microcredit to individuals or a group of poor people via their microcredit programs in order to
reduce poverty and generate income. Besides, microfinance institutions normally provide saving
and insurance services [ CITATION Nom19 \l 1033 ].
Poverty:
Poverty is a condition in which a person of community is deprived of the basic essentials and
necessities for a minimum standard of living. Since poverty is understood in many senses, the
basic essentials may be material resources such as food, safe drinking water and shelter, or they
may be social resources such as access to information, education, health care, social status,
political power, or the opportunity to develop meaningful connections with other people in
society.According to the World Bank’s (1980) definition of poverty, “A condition of life so
characterized by malnutrition, illiteracy, and disease as to be beneath any reasonable definition
of human decency”.

Empowerment:
Empowerment refers to increasing the spiritual, political, social and economic strength of
individuals and communities. It often involves in developing confidence of the individual in
his/her own capacities. It has different meanings in different social, cultural and political
contexts. It indicates the expression of self-strength, control, self-power, self-reliance, freedom
of choice and life of dignity, in accordance with one’s values, capable of fighting for one’s
rights, independence, own decision making, being free, awakening, and capability.
Empowerment is relevant at the individual and collective level, and can be economic, social, or
political.

Women Empowerment:
According to the World Bank (2009), suggests that empowerment as “the way of increasing
one’s ability, preferences and the capacity of individuals or groups to make choices and take
decision to transform those choices as per one’s desired strategy and outcomes [ CITATION
Nom19 \l 1033 ]. A person’s capability depends on the change of factors, including social
arrangements and personal characteristics. For example, when a person is able to exercise his
fundamental rights and capable of meeting basic needs actually, he can do what he prefers with
due respect to social values and norms. Empowerment also relates to the influence of an
individual on social and cultural norms in society. In contrast to many other terms, women's
empowerment narrates to a process, a movement from one state to another and equal
participation in decision making.

Economic empowerment:
In our research, we have also emphasized on economic empowerment. As a consequence of
economic empowerment, income, savings, employment and self-employment increases and thus
reducing unemployment and indebtedness. As a result of this distress, sale of commodities and
land also decreases, resulting in the increase of assets and productive investment.

Social Empowerment:
Social empowerment refers mainly to the literacy rate and social awareness, especially of women
who are much oppressed in many parts of the developing countries. We can say, in general, that
is related to the participation of people in different community and political institutions, mobility
and decision-making power, access to safe drinking water and sanitation coverage. The other
factors which result as the increase in social empowerment are increase in contraceptive
prevalence rate and access to public and common property resources, and decrease in child and
maternal mortality.

Grameen Bank
History of GB

Grameen Bank has a miracle story as traditional financial institutions for paying financial
support to the helpless and hopeless hard core poor people except physical collateral security.
The meaning of Grameen means ‘rural or Village ‘The history of origin of Grameen Bank can be
traced back to 1976, when Professor Muhammad Yunus, head of the Rural Economics Program
at the University of Chittagong, launched an action research project to examine the possibility of
designing accredit delivery system to provide banking services targeted at the rural poor. The
initial activities started from Jobra village (adjacent to Chittagong University) and some in the
neighboring villages in the following years.

Later in 1979, with the sponsorship of central bank and support of the nationalized commercial
banks, the project was extended to Tangail, a district north of Dhaka. Later the Grameen Bank
became an autonomous organization through the government legislation of October 1983.
Today, Grameen Bank is mainly owned by the people whom it serves and they own 90% of its
shares and remaining 10% are owned by the government.

Grameen bank group-based microcredit model: It is most popular and has a great
achievement for taking rational initiatives as both name and fame in all over the world. This
model was by product of experiment project. Grameen bank group-based microcredit model is
method of opportunity for peer lending, peer monitoring, homogenous matching and collectively
accountable with credit risk between the group members [ CITATION Rez12 \l 1033 ]. The Group
based Microcredit is formed by group based. Each group consists of five members, on the other
hand, a center is formed by five to eight groups. All members in the center meet with a loan
officer weekly. The provided loan must repay through 50 installments within a year.

Grameen's Success in Poverty Reduction: Preliminary analysis suggests that Grameen Bank
has generated a number of benefits both at the household and village level. The benefits from
program participation include changes in income, employment, assets accumulation, and other
household welfare indicators such as school enrollment of children [ CITATION Sha94 \l 1033 ].

Types of Loans Received by GB Members

The Grameen Bank started its work as a specialized financial institution in 1983. The Bank has
disbursed loans to the landless people, provided microcredit without any collateral and
encouraged activities including both agriculture and non-agricultural. Over the past five years,
the members received mainly five kinds of loans: 41% general loans, 39% seasonal loans, 10%
housing loans, 5% group fund loans, 3% technology loans, and only 2% sanitary loans [ CITATION
Nas12 \l 1033 ].

Age condition to get loan: Most of the members of GB are much energetic and it prefer
women members most because of their socio-economic background and also vulnerable group.
The age rage 20-40 is the ideal age to women for their capabilities [ CITATION MdR11 \l 1033 ] in
order to increase productivity for contribution their family’s well-being and children’s education.

Structure of Grameen Bank:

Impact of Microfinance Program on Empowerment of Poor People in
Bangladesh
Funding initial years, donor agencies used to provide the bulk of capital at low rates. By the mid-
1990s, the bank started to get most of its funding from the central bank of Bangladesh. More
recently, Grameen has started bond sales as a source of finance. The bonds are implicitly
subsidized, as they are guaranteed by the Government of Bangladesh, and still they are sold
above the bank rate. In 2013, Bangladesh parliament passed 'Grameen Bank Act' which replaces
the Grameen Bank Ordinance, 1983, authorizing the government to make rules for any aspect of
the running of the bank.

Impact of microfinance for empowerment women

Grameen Bank through microfinance works to raise the status of poor women in their families
and communities by giving them ownership of assets. The several studies have exhibited the
positive impact of microfinance while thinking women empowerment as narrowly. The GB by
microfinance is looking at exact potential empowerment of women indicators such as engaged in
productive activities, self-reliance, betterment at all levels, increased self-efforts, decrease in
violence experienced and prospects of moving out of poverty.

The positive result of microfinance on poor people

The microfinance is the methodology of micro-credit, savings, deposits and insurance. It acts to
help poor people to overcome their extreme hardship situation to say above the poverty line. It
keeps effective role to improve their economic condition through agricultural activities, income
generation activities, small business, cottage and in productivity sectors by using small loans
significantly. GB exclusively focus on rural poor and strictly maintained credit discipline.
Influence of microcredit on children’s education
GB and its microfinance programs can also have influence on education of children. This may
lead to increase of schooling for children and to help in the business set up by their mothers
requiring them to perform child Labouré [ CITATION Aly14 \l 1033 ]. The effects of
microfinance on the education of the children on control groups (clients) measured how many
children aged 5-17 (in%) went to school. where GB was in particular area very active, 62% of
the sons of members went to school and on the other hand, 41% daughters of GB’s members
[ CITATION Aly14 \l 1033 ]. According to Littlefield et al. (2003) as cited in Bie (2014) outlined
that impact of MFIs entails that the children of recipients of loan are more likely to go to school,
stay in school longer, and less drop-out of school as well as health issues are correlated to
education which are sufficient performance influenced by Micro-Finance (MF) remarkably.

Impact on employment generation

68% households totally were depended upon one earner and only 24%, 8% households depended
upon 2 or 3 earners respectively. Newly 54% employment are created consequences of GB
microfinance operation.

Impact on poverty
In the literature concerning economic impact assessment not everybody agrees with the opinion
of researchers such as Khandker and Hossain, who believe that microcredit programmers can
increase income and consumption and therefore reduce poverty.
Impact of Microcredit on Control over Mobility
After obtaining microcredit, women are involved in various income generating activities for
weekly repayment of the loan, which may generate a double workload for women, resulting in
less time to visit the bank/market.
Impact on employment and productivity
Besides income and consumption, the employment, generated by micro-credit programmers’,
can indicate a reduction of the poverty rate. Rahman and Khandker show that Grameen Bank has
been successful in expanding the opportunities of self-employment for their members. Self-
employment generates a higher return than wages. Still, the average returns are higher in non-
agriculture activities compared to those in livestock and agriculture.
Impact of Microcredit on Participation in Decision Making:
The probabilities of rural women involvement in deciding family expenditure, family planning,
child education, and social development activities were higher for borrowers than non-
borrowers. The results of our study imply that the women who have access to microcredit have
more involvement in the family decision making process compared to non-borrowers. Similarly
found a positive and significant influence of microcredit in deciding child education and
necessary durable family expenditure. Some authors indicated that microcredit has a positive
impact on purchasing daily necessities, taking care of children, child education, and participating
in social activities.

Recommendations:
 Ensuring Participation in Microcredit Program: Impacts of microcredit program
participation in order to poverty reduction are likely to be sustainable with micro
credit programs. Microfinance program is such a weapon that attacks poverty at
its sources by increasing the households‟ consumption expenditure of
participants.
 Selecting Target Group: Both men and women should be targeted equally
especially in family planning programs in order to obtain maximum impact from
microfinance.
 Develop New Foreign Policy: The government should develop new foreign
policy and assigned a professional person at each diplomatic mission office
abroad to explore the potentials of manpower export in that country.
 Utilization of Remittances in Productive Investment: The Government and GB
should work together for optimum utilization of remittances. The government as
well as GB can provide Business Development Services to the remittances
recipient families to start and operate an enterprise. The Government can also
establish Investment Company to channel more capital through MFIs/NGOs to
the remittance recipient families which are operating enterprise.

Conclusion
Microfinance is one of the ways of building the capacities of the poor and developing them to
self-employment, microfinance brought knowledge and social empowerment and economic
empowerment. Impact on micro finance is appreciable in bringing confidence and courage, skill
development and empowerment. for the micro finance women are getting more advantage in the
society. Microfinance activities have altered the living condition of the poor people in the
society, these activities have also contributed to social empowerment of the women.

Reference
Amin, M. R., & Sheikh, M. R. (2011). The impact of Micro-finance program on the poor: A
Comparative study on Grameen Bank, BRAC and ASA in some selected areas in
Bangladesh. European Journal of Business and Management, 03(04), 348.
Bhuiyan, A. B., Siwar, C., Ismail, A. G., & Hossain, T. B. (2013). Microcredit Impact on
Children’s Education and Women Empowerment: A Review Experience of Grameen Bank
schemes in Bangladesh. Research Journal of Applied Sciences, Engineering and Technology,
05(01), 66.

Bie, A. d. (2014). Understanding the effects of microfinance on female empowerment in

Bangladesh . Wageningen University and Research centre. USA: Wageningen UR.
Hasan, N., Shetu, S. H., & Chakraborty, B. (2019). Impact of Microcredit Programs on Women
Empowerment in Bangladesh: A Comparative Study on Grameen Bank and BRAC.
Global Journal of Management and Business Research, 19(10), 3.
Jamadar, N. (2012). Role of Grameen Bank Microcredit Programme in Poverty Reduction. 〈金
沢星稜大学論集　第 48 巻　第 1 号　平成 26 年 8 月〉, 91.

Khandker, S. R. (1994, February 23). Poverty Reduction Strategy: The Grameen Bank
Experience. Retrieved from https://www.gdrc.org/icm/grameenbank.html:
https://www.gdrc.org/icm/grameenbank.html