Microfinance • One-third of the world’s population lives
• Micro-finance has been defined as a
provision of financial services that's
available to low-income people.
• This type of loan helps aspiring
entrepreneurs generate income, build
assets, manage risks and meet their
household needs.
• Microfinance has been around for
centuries in some form or another, and
even longer in Asia as a form of informal
lending. What we know as microfinance
today was born sometime in the '70s in the
country of Bangladesh.
Microfinancing
• In the midst of a famine, Dr. Muhammad
Yunus, professor of economics at the
University of Chittagong, was becoming
disappointed with the abstract theories of
economics
(A theory in which a system is described w
ithout specifying a structure) that failed to
explain why so many poor people were
starving in Bangladesh.
• In the village of Jobra, the professor
discovered that a group of 42 females
made bamboo stools but did not have the
money to purchase the raw materials for
the stools.
• As a result, the women fell into a cycle of
debt among the local community's traders.
Micro-finance
• The traders would lend the women the
funds they needed with one condition:
They would sell the stools at a price just
hardly higher than what the raw materials
cost.
The $27 came from the entire borrowing
needs of the 42 women combined. Yunus
lent them his own money, allowed them to
sell their stools and got them out of their
debt cycle.
on less than $3.10 per day.
Microcredit and Microfinance
Microfinance refers to savings, insurance,
loans, transfer services, microcredit and other
financial products to customers who have low
incomes.
• Microcredit is a small amount of money
provided to the client by the Bank or other
institutions.
• The poor people have no physical
collateral and have a higher risk in return
payments of the borrowing money.
• The term MF includes many financial
products for both the poor and the near-
poor.
Microfinance Begins
• In 1973 an antipoverty organization in
Brazil called Accion noticed a high
prevalence of small, informal enterprises
that often needed funds to expand their
business. It was in this context that the first
microfinance loan was granted.
• Within a few years, other institutions and
individuals across the globe were also
beginning to experiment with microcredit
and with other microfinance services.
• The Bangladesh Rural Advancement
Committee (BRAC), a nonprofit
organization in Bangladesh, was also an
early micro-lender.
• In 1976, similarly in Bangladesh, in the
village of Jobra, economist Muhammad
Yunus observed that if the poor were given
access to credit they could pull themselves
out of poverty.
• His first loan, a total of $27 to a group of
villagers, was an early experiment in group
lending.
• By 1983 he had established the Grameen
Bank, one of the most prominent
 microfinance institutions today with one of
the strongest socially driven missions.
• Around the same time, the Indonesian
state-owned bank, Bank Rakyat Indonesia
(BRI), also began to experiment with not
only microloans but also micro savings.
• Accion, BRAC, BRI, and Grameen Bank
soon discovered something remarkable:
the poor could save money, and they could
borrow money and reliably repay with
interest.
• These institutions found ways to expand to
serve very large numbers of the poor
without subsidies.
• They treated financial services for the poor
like a business that could sustain itself, and
in some cases even turn a profit.
• Their initial successes proved that the poor
often have the skills and drive to enhance
their incomes and the well-being of their
families if they have access to finance or
ways to save.
• The idea that the poor can lift themselves
out of poverty is at the heart of
microfinance.
• Initially, many MFIs financed their
operations through donors and grants, and
many today still rely on charitable
contributions.
• However, in the decades since the 1970s,
hundreds of MFIs have matured to become
fully commercial enterprises that by
charging interest and service fees cover
their costs and earn profits.
• MFIs that can fully cover their operational
costs (and therefore do not need donations)
are called self-sufficient or sustainable,
suggesting that if run properly they can
serve the poor in perpetuity.
• Microfinance reaches more than 200
million clients through the branches of
many thousands of institutions
• Microfinance has matured from funding
exclusively micro business loans to
providing savings, insurance, mortgages,
mobile banking, healthcare, and education.
• The public has become increasingly aware
of the industry, in part due to the success
of Yunus, who received the Nobel Peace
Prize in 2006.
• More recently, in 2009 American
President Barack Obama awarded him the
Medal of Freedom, the highest American
civilian honor.
Microcredit and Microfinance
• The Grameen methodology has enjoyed
explosive growth and given hope to
millions of poor women and men seeking
to generate income in order to rise out of
poverty. Indeed the microfinance
management system has solved many of
the structural problems of targeting and
delivering financial services to poor
people.
• The microcredit program in Bangladesh
rightly began by targeting the rural poor,
especially women, as a development
intervention strategy.
• MC serves not only to meet financial
needs but also contributes to other social
and institutional development issues such
as women’s empowerment, bringing the
rural poor into an institutional service
network, and reducing the dependency on
informal money lenders.
• The management system of microfinance
programs has evolved over time but
commonly have the following features:
• Women are the main recipients of
microfinance services though many MFIs now
have male members/clients;
• Group-based lending methodology is the
main system of delivery of microfinance services,
although commercial banks and a number of
MFIs offer loans to individual clients.
 Groups not only meant a collection of
members for administrative purposes but also
meant group liability. In case of loan default by a
member, the group would take responsibility for
the repayment of the defaulted loan.
 But now the group-based system provides
just a low-cost management structure,
without any responsibility of repayment;
that is the responsibility of the individual
borrower.
• However, groups do serve another
practical purpose, as a filter for screening
individuals for membership;
• The microfinance sector in Bangladesh is
now dominated by NGOs offering
microfinance services, collectively known
as NGO-MFIs, which offer financial
services as ‘private not-for-profit
businesses’ but try hard to achieve
institutional and financial viability as soon
as possible;
• Group lending is one approach to
combating all three problems: insufficient
client information, lack of collateral, and
high operating costs per transaction.
• The MFI lends funds to a group of people,
often about five or six, though the groups
can grow quite large to even 20 or 30
individuals.
• The total amount loaned to the group is the
account figure on the MFI’s books, all
disbursed and repaid at the same time.
• By pooling several clients into one loan
agreement, MFIs keep their costs per client
in check.
• It also helps the MFIs feel more
comfortable about potential risks, because
the groups self-select. In this way the
group behaves as collateral.
• MFIs are diversifying into other target
segments, including near-poor groups, by
developing new financial products along
with the traditional management system.
• This diversification strategy is not only
helping portfolio growth and outreach but
also transforming NGO-MFIs as
permanent financial service providers for
both the poor and the near-poor (above
poverty threshold), amongst both the rural
and urban populations.
• NGO-MFIs have now become a new class
of financial institution in Bangladesh
financial markets.
• "Hard-core poor" describes one who does
not have a sufficient income to meet even
an energy intake of 1,805 calories (WFP,
1997).
• Persons defined as extremely poor if
living in households with a per capita
income under US$1.90 PPP per day,
• Moderately poor if the household daily
per capita income is US$1.90 PPP or
higher but under US$3.10 PPP and
• Not poor if living on more than US$3.10
PPP per day.
• 'Marginal Farmer' means
a farmer cultivating (as owner or tenant or
share cropper) agricultural land up to 1
hectare (2.5 acres).
• ‘Small Farmer' means
a farmer cultivating (as owner or tenant or
share cropper) agricultural land of more
than 1 hectare.
• People living in ultra-poverty are
confronted by a multitude of
interconnected and cyclical problems.
• They have little or no land or productive
assets and simultaneously struggle to cope
with food shortages, poor health, social
stigma, and a lack of basic services like
clean water and sanitation.
• They are mostly excluded from social
services and healthcare, generally live in
remote areas disconnected from markets,
and are often unable to work due to
 prolonged illnesses or disability in the
family.
• Conventional development programmes
have not been able to cope with these
complex, interrelated needs.
• 12.9% of the population in Bangladesh
live below the global poverty line of
USD 1.90 per day.
• Four types of institutions involved in
micro-finance activities.
1) Grameen Bank (GB), a member owned
specialized institution,
2) Around 1500 Non- Governmental
Organizations (NGO) like BRAC, Proshika,
ASA, BURO-Tangail, BEES, CODEC, SUS,
TMSS, Action- Aid etc.
3) Commercial and Specialized banks like
Bangladesh Krishi Bank (BKB), Rajshahi Krishi
Unnayan Bank (RAKUB) and
4) Government sponsored micro finance projects/
Programs like BRDB, Swanirvar Bangladesh,
RD-12 and others which are run through several
ministries viz., Ministry of Women & Children
Affairs, Ministry of Youth & Sports, Ministry of
Social Welfare etc.
• The Grameen approach broke barriers of
availing credit for the poor by pioneering
the joint-liability lending model, offering
collateral-free loans.
• Grameen mainly served women as it found
that they generally repay loans on time,
invest their money for productive
purposes, and make expenditures to
improve the quality of life of family
members.
• Grameen also believed that this increased
women’s agency over resources by
enhancing their traditional role as
household budget managers.
• BRAC rapidly evolved into the world’s
largest, most renowned and diverse not for
profit organization, offering holist
development solutions to millions of poor
people across the globe. Microcredit was
but one strand of BRAC’s multi-faceted
interventions to address poverty. BRAC
operating in seven countries including
Bangladesh, Pakistan, Tanzania, Uganda,
Sierra Leone, Liberia, and Myanmar.
• ASA pivoted to a sole focus on
microcredit lending. The objective of this
shift was to overcome a dependence on
international donor agencies and become a
specialized microfinance organization that
was financially self-sufficient. ASA soon
became the most profitable MFI in
Bangladesh, generating annual net
surpluses since 1992.
• BURO introduced partial savings
withdrawal in 1990, and moved to
completely open access saving system
unaffected by loan outstanding in 1998.
This led to a substantial increase in
deposits and net savings.
• BURO revolutionized the microcredit
landscape of Bangladesh by overcoming
the industry’s obsession with credit alone
and integrating savings into the range of
offerings for the clients.
• BURO continues to lead much of the
innovation and broadening of the range of
 financial services offered by MFIs in the
country.
Influence and global expansion of
microfinance models of Bangladesh
• The biggest impact that came as a result
of Grameen Bank’s early success was
convincing the banks and other people that
the poor are bankable, they utilize their
loan and repay on time, performing better
in contrast to the wealthy borrowers of the
bank.
• The simple effectiveness of the model
conceived by GB has inspired many NGOs
to emulate the model and offer similar
financial services to the poor.
• Since its inception, Grameen Trust has
provided assistance to 151 organizations in
41 countries.
• By 2020, BRAC had already been ranked
the #1 NGO in the world for the fifth
consecutive time by NGO Advisor, an
independent Geneva-based media
organization.
• BRAC ranked as the top NGO for the first
time in the Global Journal’s list of the 100
Best NGOs in the world in 2013.
• ASA International currently has 1,961
branches, over 2.4 million clients, and an
outstanding loan portfolio of USD 418.5
million in thirteen countries outside
Bangladesh.
Categories of Microcredit Institutions
• All the programs are targeted at the
functionally landless rural poor.
• All the MFIs provide mostly small, un-
collateralized one-year term loans to
individuals belonging to jointly liable peer
groups, and they use similar on-site loan
disbursement and weekly collection
methods by forming village organizations
or centers.
• Nationalized Commercial Banks (NCBs),
and Specialized Banks like BKB and
RAKUB have been encouraged to provide
a considerable amount of their rural credit
to the poor without security.
• Private Commercial Banks (PCBs) have
also started direct and linkage programs
with NGOs.
• More than a thousand of institutions are
operating microcredit programs, but only
10 large Microcredit Institutions (MFIs)
and Grameen Bank represent 87% of total
savings of the sector and 81% of total
outstanding loan of the sector.
• Through the financial services of
microcredit, the poor people are engaging
themselves in various income generating
activities and around 30 million poor
people are directly benefited from
microcredit programs.
• Credit services of this sector can be
categorized into six broad groups: i)
general microcredit for small-scale self
employment based activities, ii)
microenterprise loans, iii) loans for ultra
poor, iv) agricultural loans, v) seasonal
loans, and vi) loans for disaster
management.
• At the end of June 2018, 805 licensed
MFIs and 128 provisional licensed MFIs
provided microfinance services to 30.5
million people But, Grameen Bank is out
of the jurisdiction of MRA as it is operated
under a distinct legislation- Grameen Bank
Ordinance, ‘83.
• The market scenario of NGO-MFIs in
Bangladesh: The top two MFIs contribute
a more than 50 percent of total loan
outstanding as well as savings of the
microfinance sector in Bangladesh.
• Two of the largest MFIs, viz., BRAC &
ASA, are each serving over four million
borrowers. Two largest organizations have
 control of over 50 percent in terms of both
clients and total financial portfolios.
Institution-wise Cumulative Loan Disbursement
Financial Services by MFIs
• Sector Structure
• In terms of memberships / clients (and
consequently portfolio size) the structure
of the microfinance sector is as follows:
• Three very large MFIs: Three very large
organizations – ASA, BRAC and Grameen
Bank- dominate the microfinance sector,
each having more than 7 million
members/clients (ASA 7.28 million,
BRAC 8.15 and Grameen Bank 7.67
million) all products combined.
• These three MFIs have achieved
spectacular lateral expansion, that is, to
include new clients in same or new
geographical areas by enhanced
management efficiency, standardized
management practices, products and
policies, and mobilizing financial
resources.
• The three combined has 8,547 branches,
19.16 million borrowers and loan
outstanding of Taka 125,87 million at the
end of December 2015 (ASA Taka
176,832 million (21.36%), BRAC Taka
192,983 million (23.31%) and Grameen
Taka 149,227 million (18.03%).
• All 3 organizations have branch networks
throughout the country except in a few
remote char and coastal areas.
• Large MFIs: The sector has got a group of
large MFIs whose memberships vary
between 50,000 to one million.
• All of them are PKSF partner MFIs except
BURO Bangladesh. Even within the group
two organizations, TMSS and BURO-B
separate them from the others and have
expanded into more than 40 districts with
their networks.
• Medium Size MFIs: Above two groups are
followed by organizations with 5-50,000
members (3 to 30 branches) which are
local or regional organizations mostly
financed by PKSF.
• Small MFIs: MRA has a cut-off point of
1000 memberships, and Taka 4 million in
loans outstanding for receiving license.
Several hundred such MFIs operate in the
country although the exact number is not
known.
• Very small MFIs: Smaller NGOs with very
limited resources for loan disbursement,
use mostly savings; are still operating,
which may face extinction for not
qualifying for license.
• ASA has 2,932 branches, BRAC has 2,083
branches, BURO Bangladesh has 790
branches and TMSS has 578 branches.
• G. Bank has more than 8.81 mn members
constituting over 24% in 2015. ASA has more
than 6.90 mn members and BRAC’s number
of members is 5.38 mn.
• Of the total loan amount disbursed, the
MF-NGOs disbursed 37% followed by BRAC
(23%), ASA (21%) and GB (18%).
• The recovery rate of MF-NGOs in 2015 is
98%, which is equal to ASA (98%) and
BRAC (98%). In this year, GB has the
highest rate of recover of 100%.
• The total net savings, GB has mobilized
44%, ASA: 16%, BRAC: 15% and the rest
MF-NGOs: 25%.
 • GB is the single largest savings mobilizing
MFI as it has a good number of savings
products. Besides, as a bank it can collect
deposits from the general public.
• Sources of loan funds: The major
contributors have been found to be the
members’ savings, own fund, PKSF,
banks, and surplus income. The other
sources were reserve fund, emergency
fund, insurance fund, grants by donors,
international NGOs, local NGOs and
others.
Commercial Banks in Retail Microcredit
Micro-insurance practices of MFIs
• MFIs have 5 kinds of insurance practices
for their clients, which are very short-term
in nature. These practices have been
devised by individual MFIs to ensure the
welfare and wellbeing of the clients in
their distress situation.
•These insurance practices are loan
insurance, life insurance, live-stock
insurance, accidental & health insurance
and members’ welfare fund.
• The MFI insurance practice is approved by
the MRA law, which was enacted in the
Parliament and is very much legal.
• The insurers have to pay a nominal fee.
There are organizations that do not even
charge any fee at all. Such organizations
have developed a welfare fund from their
own earnings.
• Most common insurance practice is called
loan insurance. Most MFIs have loan
insurance. This insurance is applicable
generally for the duration of the loan.
• In most cases of loan insurance, the
spouses are covered.
• Currently NCBs have largely abandoned
lending to group-based small loan
programs but have maintained their
original individual loan operations. In
addition, two of them (Sonali and Agrani)
and also one of the specialized banks,
BASIC Bank, have opted for wholesale
lending to NGO-MFIs.
• BKB and RAKUB follow individual
lending techniques for their own
operations and lend to groups organized by
NGOs/projects.
• Private Banks, with the exception of IBBL
which has a large and profitable retail
Grameen styled loan operations with more
than 589,000 clients in addition to its
normal individual banking operations,
opted for wholesale lending to MFIs.
• Foreign banks offer small loans to
individual borrowers mainly in urban
centers.
• Small loans (up to BDT 500,000) are
available from two types of formal
 financial institutions: commercial banks
and two specialized banks, BKB and
RAKUB. Before the emergence of the
vibrant MFI sector, these banks were the
main sources of small loans, especially for
agriculture and trade.
• Recently a number of PCBs have also
entered in this segment in urban centers.
• The highest number of clients belongs to
BDT 5,000 to 50,000 category
representing 88% of borrowers and 55% of
loan outstanding. Although the total
number of clients is high (8.3 million), a
significant number of them, especially
those from the NCBs and specialized
banks, are believed to be inactive due to
high loan default. [Source: Bangladesh
Bank]
• Of the total small clients, 91% comes from
NCBs and the specialized banks. This has
been due to their wide branch networks in
rural areas and mandate for disbursing
agricultural credit to small holders.
• Private Banks are insignificant operators in
this small business segment, limiting
themselves in urban centers to serve large
clients.
• Agricultural credits top the list of
outstanding loans followed by trade. There
are two other formal institutions, BSBL
and BRDB (state-owned), which are also
active in this sector. But the disturbing
issue is the very low rate of recovery of
agricultural credits.
• All formal banks require collateral to
receive loans, especially for loans more
than BDT 50,000.
• One of the main reasons for emergence of
MFIs in Bangladesh is the dismal failure
of NCBs, BKB and RAKUB to reach the
poor who need small loans but cannot
offer physical collateral.
Rural Development Scheme (RDS) of IBBL
• Launched in 1995 as pilot program styled
after the Grameen Bank model except that
the scheme used Islamic modes of
investment. The program runs side by side
with the commercial banking operation of
the bank and forms groups of women to
provide small loans.
• As a bank it collects savings. But it shows
lot more flexibility than MFIs in terms of
duration of loans: one to five years
depending on the type of investments.
• For example, housing loan is given for five
years. The rate of interest is 10% which is
half of BRAC and ASA.
• Similar to MFIs, 92% of the members are
women. Loan outstanding was Taka
3,204.13 million ($47.12 million) and
repayment rate was 99%.
• Although RDS is offered from its 136
branches in 61 district IBBL has recruited
a separate cadre of officials to run the
program.
• While NCBs left retail microcredit
operations and other PCBs opted for
wholesale lending IBBL shows that a PCB
with proper management and motivation
can profitably run microcredit operations
as well.
GOB Owned MF programs and cooperative
societies
Non-Bank Government Departments and
Institutions
• 17 GOB ministries and departments were
engaged in either retail or wholesale
microcredit operations for diverse groups
of poor people. However, most of the
projects collapsed or closed when donor
funds (CIDA) ended.
• CDF reports that 13 GOB ministries and
departments were still running microcredit
program.
 • Bangladesh Rural Development Board
(BRDB) manages the largest of such
operations as ‘projects’.
• Consequently the portfolio quality, loan
recovery rates and financial viability are
very poor.
LGED – Cooperative Approach
• Several other government departments
such Local Government Engineering
Department and Water Development
Board construct water control, irrigation
and drainage projects in different parts of
the country.
• Both agencies, mostly LGED, have formed
hundreds of cooperative societies by
people living in the project command areas
to take over the maintenance of water
infrastructure.
• These cooperatives have undertaken
savings and credit operation and even
borrowed from a fund created by LGED.
• However, an assessment of sample
cooperatives shows that the microcredit
operations are either not functioning
because of many management problems or
not viable due to tiny portfolio size.
• In few cases where the cooperatives run
irrigation projects (sell water for boro
cultivation) and provide seasonal
agricultural loan have shown success in
loan recovery.
Cooperative Societies in Microfinance
• No comprehensive study is available on
microfinance programs run by cooperative
societies within their shareholders or for
outside borrowers.
• Although the cooperative law clearly
permits savings and lending programs
within the members (shareholders) of the
societies but not clear about whether they
can accept savings from and lend to non-
members.
• But many market-based cooperatives
reportedly are doing (should it not be
extending in place of doing) microcredit to
non-shareholders. But the quality and
sustainability of such operations are not
known.
Interest Rate
• The rate of interest of microcredit
programs is expected to be higher than
commercial bank’s lending rate due to
small size of loan and high delivery cost
but there is general public perception that
MFIs charge ‘excessive’ interest on loan.
• Grameen Bank used to charge 16%
(effective rate) same as commercial banks’
lending rate.
• But it then increased to 18% then to 20%
to reflect its cost of operations and cost of
fund.
• Incidentally Grameen’s rate of interest on
loan is the second lowest and interest paid
on savings is highest in the sector. That
has been possible due its economies of
scale and higher average loan size due to
long microcredit operations, longer than
any other organizations (Grameen Bank
began as bank in 1983 and ASA started in
1990-91).
Factors determine the rate of interest
• Cost of funds: This is the weighted average
rate of cost of different sources of capital
such as grants, savings, concessional loan,
and commercial loans.
• In early 1990s many small NGOs used to
run their microcredit with savings by
paying no or small interest and grants from
donors.
• But now payment of interest on savings
has become universal, grants have dried
up, most small MFIs borrow from PKSF
and many MFIs borrow from commercial
banks at the rate of 12-15% interest.
• Grameen Bank fully depends on members
and public deposits and pay competitive
interests.
• Unfortunately, administrative and
processing costs are typically much higher
than at traditional commercial banks.
• It is much more time consuming and
expensive to lend 5,000 small $200
transactions than to lend out just one
commercial business loan worth the same
$1 million.
• That is because processing and
administrative costs are not directly
dependent on the size of the loan.
• It costs essentially the same to process a
$100 loan as a $1000 one. Suppose a
transaction costs the bank $25 either way.
• The interest rate would need to be 25%
just to break even on the $100 loan but
only 2.5% for the $1000 loan.
Furthermore, MFI staff may need to travel
to the borrowers, adding costs in terms of
fuel and hourly wages.
• According to the Consultative Group to
Assist the Poor (CGAP), an independent
policy and research center that focuses on
the spread of financial services to the poor,
globally the average annual interest rate
charged by an MFI in 2011 was 27%.
• Sounds high compared to loans like
mortgages in developed countries, it is
comparable to many credit card rates.
• Operating cost is the biggest component of
MFI’s expenditure item comprising mainly
of salary expenses. In general the average
salary in microfinance sector has gone up
and the salary gap at the field level
between large and medium/small MFIs has
also reduced due to increase in income,
recently due to inflationary pressure, and
demand for skilled staff members.
• Cost of risk or loan losses is covered by
keeping provision, which is, creating a
reserve for future loss. PKSF ensures that
loan-loss provisions are kept and MRA
recommends also creating such reserve.
Savings and Beyond
• The income of poor people could not cover
traditional large costs, such as weddings
and funerals, school fees for their children,
or investment opportunities like acquiring
a dairy cow to sell milk.
• Many poor also often suffer significant
unpredictable day-to-day fluctuations in
income and might go without any income
for days or weeks.
• Furthermore, the poor need savings in case
of emergencies, such as illness or natural
disasters.
• The poor lack access to savings accounts
that allow for tiny, frequent deposits, are
physically accessible, and easy to
withdraw funds from when needed.
• Innovative MFIs like BRI have found
ways to provide accessible savings
accounts that are also financially viable
from an institutional perspective.
• In recent years a substantial number of
MFIs are changing from being NGOs
(which lack legal status to take deposits) to
being formally licensed banks.
 • BRI by 2015 had grown to 43 million
microsavings client accounts and boasted a
microsavings deposit portfolio of $14
billion.
• Its own borrowers’ savings have become
the bank’s primary source of funding,
allowing it to become completely self-
sufficient and independent.
• BRI has taken microsavings to the next
level by also providing more than 22,000
ATMs—including some mobile ones on
boats to reach remote areas—and more
than 10,000 accessible branches
throughout the many islands that make up
Indonesia.
Market, Product and Delivery System
• The distinctive market segments in today’s
Bangladesh microfinance sector are as
follows:
(a) Mainstream microcredit (BDT 5,000-
30,000, approx USD 70-425): available
financial service for the ‘moderately’ poor
following the Grameen model of group-
based lending.
• This category includes the common
programs of NGO-MFIs serving the poor
and moderately poor.
• The amount then invested in petty trades,
poultry and livestock, fisheries, numerous
small agro-processing activities and
horticulture.
• The main focus remains on poor women.
• (b) Programs for the hardcore poor (BDT
500-5,000): Have been adopted to redress
the problem of meeting the needs of the
poorest for financial services.
• (c) Microenterprise program (BDT
25,000-500,000): One relatively new
frontier for the MFIs is loans for the
development of microenterprises managed
by ‘graduates’ from microfinance
programs as well as millions of informal
businesses operating throughout the
country, which so far have been outside
the MFIs traditional lending programs.
(d) Microfinance for marginal and small farmers
(BDT 10,000-50,000): So far only a small
number of MFIs has ventured into this segment
by following group-based lending techniques
with limited outreach.
• Seasonal loans with shorter duration (3-9
months) are disbursed and collected in one
installment, for example after harvest.
• MFIs cater mostly to women groups.
Savings Products
• Mandatory weekly savings with or without
withdrawal facilities: All microcredit
programs collect mandatory weekly
savings as a condition for microcredit
provisions.
• Additional savings account: BRAC allows
opening up savings bank account where
members may transact according to their
will.
• Time deposit: An amount of money kept for a
fixed time for higher interest for example by ASA
and GB.
• Small regular savings to get a lump-sum
after a fixed period: This type of savings
has been most successfully introduced by
Grameen Bank.
Credit Products Offered by MFIs
Microenterprise Loan Program
• Another distinctive market segment being
served by the MFIs. This has been due to
several factors:
• Demand from better performing
(‘graduating’) borrowers for larger loans
compared to loans normally given under
‘mainstream microcredit’;
• Demand from small enterprises throughout
the country, which are not the members of
microcredit groups but willing to take
loans for running or expanding businesses;
 • Small enterprises that do not qualify for
receiving loans from commercial banks
but need capital;
• MFIs are also actively seeking to expand
portfolio (and income) by serving this
group.
• Another reason for devising loan product
for this group is that microenterprises
create wage employment for poor people
in addition to self-employment for the
owners.
Definition of Microenterprise
• In Bangladeshi context, there is no
uniformly understood definition for
microenterprise. The term is used to
indicate that they are larger than income
generating activities financed by
microcredit programs.
Microenterprise
• These are bigger than the millions of
family-managed income generating
activities financed by microfinance
programs all over the country.
• Although there is no acceptable uniform
definition, the following characteristics
may be used to develop a profile of such
ventures:
• Employ less than 10 persons; employ
capital machineries in case of
manufacturing units; capital is between
Taka 20,000 to 1,000,000; sells within the
local as well as distant markets.
Brief Descriptions of Prominent Programs
• Grameen Bank: Grameen Bank provides
larger loan amount to microenterprises for
1 to 3 years.
• BRAC- Progoti: The Progoti program
(formally known as MELA) currently
serves two types of clients both in rural
and urban areas: ‘graduates’ of
microfinance program, and the non-poor
micro-entrepreneurs.
• Small Enterprise Loan (SEL) of ASA is
targeting microenterprises for ‘productive
purposes’ (for example, manufacturing and
processing), that is, ASA under this
program avoids traders.
• Small Business Loan program ASA lends
to shop owners in rural market places to
finance inventory.
• ME-PKSF funded NGOs: PKSF under a
separate lending window provides loans to
its partner organizations to finance
microenterprises of ‘graduates’ of
microcredit programs.
• The Micro Enterprise Development
Initiative (MIDI) is a special credit
program of MIDAS Financing Limited,
non-bank financial institution provides
loans to small entrepreneurs, especially
among women.
• Commercial banks: There has been a
visible trend in the private and
nationalized banks to try to reach out the
microenterprises.
• Leasing companies: Although leasing
companies are not in a big way in this
segment but increasingly some leasing
companies are getting involved in small
leases. They are the biggest borrowers of
Bangladesh Bank managed SME Fund.