Home ›› 26 Jan 2023 ›› Opinion
The economy of Bangladesh is agriculture-dominated and 67 per cent of the population is directly or indirectly dependent on agricultural activities. However, the country is moving towards industrialization. Thus, the agriculture sector plays a significant role in the overall economic growth of Bangladesh. It is an important tool of Bangladesh’s economy. It is essential to food and nutrition security, poverty reduction, and income generation. And small credit plays a significant role in developing this agricultural sector. The most challenging banking sector is rural and agricultural finance, which needs to catch up to the overall development of the financial system.
Within rural finance, financial and informal financial institutions provide multiple economic benefits to the rural poor. It also provides more substantial financial services to other small and medium rural and agro-processing enterprises. Microcredit extends credit in the form of small loans without collateral to the poor or farmers, usually in rural or underdeveloped areas.
The Millennium Development Goals cannot be achieved without addressing the needs of the world’s poor. Most of the poor people still live in rural areas. BRAC is one of the leading microcredit service providers in Bangladesh. One of its studies found a link between microcredit and poverty reduction. The main point of this study is that microcredit can help to alleviate many of the problems that contribute to the economic development of a populous country. When a household borrows more than they can afford to pay back, it further affects their ability to escape poverty.
According to the International Fund for Agricultural Development (IFAD), global poverty can only be reduced by focusing primarily on rural development. Grameen Bank has been at the forefront of the microfinance movement in Bangladesh. They are demonstrating the feasibility of lending to the poor to eradicate poverty. This reduces the cost and risk of lending to low-income individuals. Bangladesh Grameen Bank’s micro-loan programme is now well-known all over the world. Several models of Grameen Bank have been launched globally. Although the programmes attempt to provide social and economic benefits to clients, more effort must be made to scientifically evaluate such benefits.
Analysts increasingly recognize that microcredit can help poor people reduce poverty and ensure their food security in several ways. Microcredit programmes, though considered for financial stability or poverty alleviation, are not automatically considered to result in empowerment in all cases.
Microfinance is now generally included as an essential component of development initiatives aimed at poverty alleviation. Microfinance is expanding rapidly due to increasing attention and resources. However, microcredit services contribute significantly to human welfare in all geographical and economic conditions. The government needs to be more vigilant and take initiatives regarding these microloans. Recently, the Asian Development Bank (ADB) has been lending 200 million dollars to strengthen the country’s microfinance sector under the government’s initiative, which is an outstanding initiative and commendable. Small entrepreneurs will be supported with this loan money. Besides, those in danger due to climate change in the coastal areas will be useful in making entrepreneurs.
These small enterprises will create employment in the country and eliminate rural poverty. This project will play an influential role in reducing urban-rural disparity. Financing small entrepreneurs are essential post-Corona and during the Ukraine-Russia war. Suppose PKSF can provide more funding to microfinance institutions under such schemes. In that case, the institutions’ dependence on banks will be reduced, this will be useful for the country’s sustainable economic development. Poverty rates in rural areas have been declining over the past decade.
However, employment opportunities are limited in rural areas. Microcredit is one of the avenues for the growth of micro-entrepreneurial enterprises and the creation of employment opportunities through their effective initiatives. So, the government has to adopt new plans with micro-loans so that the number of poor people will decrease.
I saw in the news of print media that in 2018, Shahinoor founded the ‘Ultra Poor Graduation’ programme under the small loan scheme of the private organization BRAC. From there, she took a loan of Tk 18,000 on the advice of a BRAC worker. This small loan has changed her life in a big way. Her financial situation has changed a lot. She opened a vegetable shop with this loan. Later her business expanded further. Now she has bought land in Ashulia. The child is educated in a school with a salary of Tk 8000 per month. That means small loans have a positive impact on people’s lives. A loan and a person’s hard work can change the course of their life. An example of which is Shahinur. If people look for a way, they will get rid of their predicament. Therefore, a comprehensive programme should encourage people to take small loans. The government can inform people about such incidents in rural areas through various institutions, which can motivate people.
The development of rural and microfinance has brought considerable progress over the years. But millions of people around the world still need access to financial services. It was determined that the impact of micro-finance services provided by micro-finance institutions on poverty alleviation was positive.
A study found that microfinance services had a statistically positive effect on the asset relief index and increased the borrower’s income level. Ultimately, which improves the quality of life of people? Its impact is reasonably high, especially in Bangladesh. The study also presents some drawbacks of microcredit programmes, such as high-interest rates and weekly repayments. Research has also identified that the impact of microcredit programmes could be more significant if monitoring mechanisms are strengthened. The government should increase supervision over these. Also, well-trained workers can make an outstanding contribution through microcredit.
Bangladesh Bank Digital Micro Loan is a good initiative launched this year. In this system, a customer can take a loan from a minimum of Tk 500 to a maximum of Tk 50 thousand. Monitoring should be to implement this matter well, and the people of rural areas should be informed about it so that the overall development of this project takes place and can play a role in the country’s socioeconomic development. Microcredit can make more sustainable through creating awareness more among the farmers as well as rural people. Moreover, rural finance can make sustainable also through providing insurance facilities in the rural people.
The writer is Associate Professor, Dept. of Accounting & Information Systems, Jatiya Kabi Kazi Nazrul Islam University, Mymensingh
