Bangladesh: Humane and Innovative Microcredit Assistance

Nov 2016
Bangladesh , November, 20 2016 - Any micro-credit scheme should work for alleviation of poverty permanently so that while trying to get emancipation from this curse the poor might not fall into a vicious cycle of debt.

The origin of micro-credit or micro-finance is in Bangladesh. Micro-credit, contrary to conventional banking practice, does away  with the need for collateral to develop a banking system based on mutual trust, accountability, participation and creativity. The Grameen Bank (GB) translated this concept, first of its kind in the modern world, into reality in Bangladesh. As of December, 2015, the Grameen Bank had 8.81 million borrowers, 97 per cent of whom are women. With 2,568 branches, the GB provides services to 81,392 villages, covering more than 97 per cent of the total villages in Bangladesh. Currently hundreds of NGOs like BRAC, Proshika are conducting various micro-credit schemes in the country.

Under this programme, credit or investment facilities are provided to the poorest of the poor without any collateral in order to alleviate hardcore poverty. This is really a cost effective weapon to fight poverty serving as a catalyst in the overall development of socio-economic conditions of the poor who have been kept outside the banking facility on the ground that they are poor, cannot provide any collateral and therefore, not bankable. But it has now been established that if financial resources can be made available to the poor people on terms and conditions that are appropriate and reasonable, millions of such people with little or no income with their collective small efforts could contribute to create the biggest avenue to sustainable development.

Then how much pro-poor and humane are the micro-credit facilities providers to those poorest of the poor? Considering the historical judgment of their habit these extreme poor are very much loyal, honest and repay their debt regularly at any cost and do not wilfully default. Therefore, micro-credit providers should also consider their personal, social and financial problems on humanitarian grounds and solve those with collective efforts. Their mutual relationship should not be confined simply to the realm of a lender and a borrower.

There has been a micro-credit scheme in our country which is very much humane in customer care and at the same time more innovative in product mechanism than those of typical micro-credit assistance. This is a silent revolution in micro-credit assistance and fighting extreme poverty in the country. Welfare-oriented Islamic economy is always dedicated to balanced economic growth by ensuring reduction of rural-urban disparity and equitable distribution of income. On the basis of this principle Islami Bank Bangladesh Limited (IBBL) introduced "Rural Development Scheme (RDS)" in 1995 which is a micro-credit scheme based on Islamic Shariah. Here investment facilities are based on Shariah principles, that is buying and selling, profit and loss sharing and ijarah or leasing. With that major objective, branches of the bank have been encouraged to invest their deposits in their respective areas and in particular for the financial uplift of the rural people. Consequently RDS has been introduced to provide for agriculture and rural sector with the investment facilities. This helps in generating employment and raising income of rural people and alleviate extreme poverty.

Currently 252 branches of the bank have been operating the activities of the scheme in their respective areas. These branches are working among the poor in 19,025 villages of 64 districts of the country, covering more than 25 per cent of the total villages in Bangladesh and 83 per cent of those are women.  Now the number of members is 973,006. The members are provided with investment facilities amounting to BDT 152,938.32 million against which the outstanding credit was 21,780.88 million. The rate of recovery of the scheme is more than 99.22 per cent. This scheme is growing by double digit each year.

The distinction of the RDS is that here the members are treated not as  borrowers but as  development partners. The lender here not only provides the borrower with financial solutions but also render motivational counselling. In case of proper sanitation and pure drinking water members are given Quard (lending without profit) to meet up the cost. Gift voucher for Tk 1000 is presented for any new-born among members. For the treatment of ailing members funds are collected from members, which is non-refundable. Scholarship is awarded to children of the members for their outstanding results in various public examinations. Above all, in case of failure in payment of instalment the authority do not put extra mental pressure on the members. Moreover, waiver is given in case of genuine loss in investment. 

In this Shariah-based micro-credit scheme no commission or charges are realised for services and necessary papers or documents are provided with free of cost. Only the profit is charged against investment facilities. In a word, no processing fees or other hidden charges are claimed. In the conventional micro-credit scheme a certain portion of fund is deducted from the amount to be disbursed to the client. But in RDS there is no such type of deduction. Free training programme is arranged for members related to agriculture with specialist resource person. Unemployed sons or daughters of members are given free vocational training for self-employment. In this way this scheme tries hard and soul to eradicate poverty permanently, but not keeping poverty persistent for making further business. Moreover, for regular repayment of investment, at least one instalment is waived as a reward and incentive. Above all, lessons are also given for upholding moral and ethical values in the family, society as well as in personal life.

Regular monitoring, supervision and counselling are very much strict in RDS. After providing investment facilities the designated officers monitor and supervise the proper utilisation and progress of the investment facilities availed by clients. Regular counselling is given to members so that they could get maximum benefit utilising the fund. The central fund collected from members is kept deposited by opening a Mudaraba Savings Account in the name of the respective centre. This fund is utilised for the welfare of members by way of 'Quard' as per decision of the centre in the weekly meeting.

The entire scheme has been drawn, taking into account the social welfare objective of the bank in order to upgrade the status of the socially unsecured, underprivileged and economically backward or weaker section of the population of society. However, group discipline is strictly followed and complied with so that only the right persons are selected and included as members of a group. Besides, each member of a group gives personal guarantee for other members of the same group and the members are jointly and severally liable and responsible for payment of investment.

As the part of innovation a new special scheme, called "Micro Enterprise Investment Scheme (MEIS)" has been introduced in 2005 from the same bank in order to satisfy the graduated clients who have already availed of the highest limit of investment under the scheme. The ceiling of MEIS investment is BDT 50,000- to BDT 300,000 and local small traders and entrepreneurs may also be provided with this facilities under the limit. In 2012 another scheme, titled "Urban Poor Development Scheme (UPDS)"  was introduced in order to alleviate urban poverty through investment in income generating activities. The Scheme activities started formally from 14.05.2012 through its Gandaria branch, Dhaka.

Any micro-credit scheme should work for alleviation of poverty permanently so that while trying to get emancipation from this curse the poor might not fall into a vicious cycle of debt. The extreme poor should be treated from the humanitarian point of view. Most of the NGOs are getting fund from various donors or welfare foundations all over the world with very soft terms and conditions giving undertaking for utilisation of fund just for the welfare of the poor. But in many cases they become 'Shylock' of 'The Merchant of Venice' where welfare is extremely a trivial matter. A significant portion of fund is spent on setting up luxury office, buying latest model cars, providing big salaries to managers and on management. But the poor should be given financial assistance with flexible, soft and bearable terms and conditions. Because, it is proven that the repayment habit is much better than those of so-called rich industrialists. If the maximum population is uplifted above the poverty line, the economic cycle shall get faster pace and only then consistency in the growth of GDP is possible and SDG must be achievable.


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