Bangladesh: Is Microfinance the Solution to Informal Employment?

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May 2019
Bangladesh, May, 02 2019 - Microfinance can work as a controller to the growing “push” factors of rural-urban migration. Microfinance can create new sectors of business in the rural area which can ultimately create decentralization, reducing the unemployment level and motivating self-employment.

The rapid growth of urban-rural migration has been a topic warranting resolute attention for a while in the context of Bangladesh. The inherent rural-urban wage differential, primarily, has led to a massive influx of rural migrants to the city -- in hopes of better employment opportunities over the years.

However, due to the constraints in the absorptive capacity of the rural job sector, a rural informal sector that hosts the excess labour has formed over time. Although estimated to be about 89% of the total number of jobs in the labour market, the informal sector makes a rather insignificant contribution to the process of economic growth and national development. This sector still has untapped potential which can be capitalized with the proper tools, making it a driver of progress.

Rural-urban migration is characterized by environmental, economic, or demographic crises. Owing to the huge rural-urban wage differential, rural workers migrate to major cities in search of better work opportunities and a higher wage, or during environmental crises.

The rural labour market of Bangladeshi cities constitutes of two types of the market -- formal and informal. The formal market operates under a legal framework and protective labour regulations and unions. The informal sectors, however, are not characterized by these benefits, and lead to underutilization of the workers.

The rural to urban migration causes overcrowding and unemployment in cities, as migration rates exceed urban job creation rates, with many people ending up in unproductive or underproductive employment in the informal sector. Although the informal sectors dominate the labour market in Bangladesh, they are more vulnerable to economic and social shocks.

The size of the urban informal sector is, unfortunately, getting bigger with passing days. Although the prospects seem promising, the reality is that there is no guarantee that people migrating to the urban sector will definitely get a job. There aren’t enough jobs to absorb the influx of migrant rural workers and moreover, there is already an existing unemployed group living in the urban area competing for jobs.

According to Michael Todaro, one urban job creation leads to three urban unemployment. This leads to a major conundrum. Most of the people migrating belong to the group have a poor economic background with a relatively lower level of skill. In order to utilize their untapped potential to the fullest, microfinance can be an effective vehicle.

Microfinance can work as a controller to the growing “push” factors of rural-urban migration. Microfinance can create new sectors of business in the rural area which can ultimately create decentralization, reducing the unemployment level and motivating self-employment.

The success and recognition of Grameen Bank, both nationally and internationally, further reiterates the role of microfinance towards employment creation and ultimately, poverty alleviation. Microfinance is visible in rural and semi-urban areas.

In Bangladesh, the number of female borrowers of microfinance is much higher than male borrowers. These women use this money for small home startups which falls under the informal sector. In this region, microfinance plays a huge role, and it matters a lot to the poor for increasing per head consumption. There is an increasing tendency that the people accessing microfinance in Bangladesh eventually lead a better life by involving themselves in self-employment in small scale.

Microfinance, in Bangladesh, has helped to reduce extreme poverty. It has helped include a lot of female in the informal workforce. The overall informal sector gained a lot from the microfinance assistance as it helped a lot of people to start a new life.

However, microfinance provision could not limit the rural to urban migration in Bangladesh but microfinance did assist a lot of people during the time of environmental crisis. Moreover, the provision of microfinance does not motivate small scale decentralization in this region.



Source : Dhaka Tribune
 

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