Microfinance and the Poor - an overview of the sector in Bangladesh

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1 Microfinance and the Poor - an overview of the sector in Bangladesh Harun Rashid - Care INCOME Frank Matsaert - DFID Bangladesh

2 MICROFINANCE SECTOR OF BANGLADESH CONTENTS OF THE PRESENTATION Background Strengths and Weaknesses Challenges Positive and Negative Impacts Innovations

3 10.2 million 3.2 million.87 million.63 million.10 million > NGOs & COOPs GRAMEN & PRIVATE SECTOR GOVT. COMMERCIAL BANKs GOVT. MINISTRIES & PROJECTS INTERNATIONA L NGOs KEY PLAYERS (Numbers of clients, institutions)

4 BACKGROUND Total RLF (Capital base) Tk. 27,460 million Cumulative Disbursement Tk. 109,120 million Loan Outstanding Tk. 20,812 million Average loan size Tk. 3,000-4,000 Net Savings Tk. 8,088 million Total Active Borrowers 7,574,269 Ave. Repayment Rate 95% Interest rate on loans 8-30% PORTFOLIO STATUS

5 Total Outreach 15 million Grameen/Individual/ Flexible Methodology ME & SE BACKGROUND Moderate poor / Extreme poor Borrower / Non-Borrower Rural / Urban Female / Male DISTRIBUTION OF OUTREACH

6 BACKGROUND 42.13% 10.19% 17.94% 12.19% 4.18% 4.33% 3.39% 2.83% 1.49% MAJOR SECTORS OF INVESTMENT

7 Mandatory Voluntary Flexible Daily Time Deposit Fixed Deposits Term Deposit Term loans Entrepreneurs loans Housing loans Health & Sanitary loans Seasonal loans Disaster loans Special loans Consumption loans Health insurance Life insurance Credit insurance Property insurance Crop insurance Business planning & management Entrepreneurship Development Basic Accounting & Cash Management Product diversification Innovation Research Marketing outlay Production centre Promotional activities Infrastructure support Group formation Awareness raising Leadership Development Linking/Networki ng Information sharing SAVINGS CREDIT INSURANCE TRAINING/ COUNSELING MARKETING INSTITUTION BUILDING TYPES OF SERVICES OFFER BY MF-NGOs

8 Foreign 17% Service Charge 14% PKSF 24% Others 20% Members Savings 25% RLF SOURCES OF MF-NGOs

9 STRENGTHS Social recognition of NGO- MFIs contribution Serving the poor, specially the women Development of a credit culture Commitment for impact and sustainability Scale, experience and efficiency Diversification of income opportunities Research & knowledge generation

10 WEAKNESSES Limited sources of RLF Weak financial management systems Restricted pool of experience MF Staff Subsidy mentality of NGO-MFI leaders Low skills levels and illiteracy of poor Weak coordination amongst NGO-MFIs High client transaction costs

11 Current Issues Regulatory status of MF-NGOs Protection of members savings MFI management & systems Weak governance structures Sources of capital Overlapping and duplication

12 Current Issues Sustainability versus impact - multiple objectives Lack of diversity - focus on Grameen Model Absence of performance standards Urbanization Response to natural disasters Impact maximisation for the poorest Need for innovation

13 CHALLENGES Reaching poorest of the poor - mismatch between micro-success and macro-failure Develop new and better financial products and services Improve MFI management and systems Resolve regulatory issues Credit Rating - greater co-operation Serving the urban poor Offsetting impact of disaster Threat of oligopoly

14 IMPACT ON HOUSEHOLDS LIVING BELOW THE POVERTY LINE Increased income, employment and asset formation Increase in skills base and production activities Diversification of livelihood strategies, reduction in vulnerability Reduced dependency on informal money market / money lender

15 IMPACT ON HOUSEHOLDS LIVE BELOW THE POVERTY LINE Increased participation of women in HH decision making and better understanding of their rights Reduced men s violence against women Increase of social capital Improvement in HH nutrition, sanitation and education Better practices of health and family planning

16 SOME NEGATIVE IMPACTS Increased burden on women Increased indebtedness of borrowers Marginal profitability of some MEs Enterprise de-capitalization Social conflict Saturation of traditional markets - squeezing profits

17 INNOVATION Flexible savings and credit Shift towards Enterprise loans Micro-insurance Linking MFIs with formal financial markets Private sector involvement Individual financial products

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