Microfinance in Bangladesh

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There are a lot of speculations regarding micro-finance. It has been tested in a lot of countries but failed miserably. There are a lot of people who scrutinize this sort of loan arrangement for the poor. A lot of people believe that this model is not correct for sustainable development. Well, the people choosing micro finance will reap a few benefits in the short term but in the long term they will not be benefited. It has also been stated by renowned researchers that short term loans will only influence the poor to consume more. Only savings can lead to sustainable development.

There is a significant difference between poverty reduction and poverty alleviation. Poverty alleviation means to create a way for the poor to come out of poverty and stay out of it. In Bangladesh, micro-finance has made significant changes. The Grameen Bank founded by Muhammad Yunus is responsible for providing small loans to the poverty-stricken people in Bangladesh. The Grameen Bank was established back in the year 1983 formally. Mohammed Yunus helped the poor long before that. He was doing what others were not.

The poor have no assets. Either they can work in farms and earn a living or they are jobless. Even if they wish to start a small project, they require capital. Poor people lack capital. They need someone who can trust them and lend them some money. Banks do not lend to the poor. This is because the poor do not have any collateral. As a result, the poor do not get any help from the banks. This is where Mohammad Yunus stepped in. He started to lend small amounts of money to the poor. He was specially lending to women. He believed that women could make a difference. The women of Bangladesh are usually neglected. They are only expected to cook and clean. On the other hand, Mohammad Yunus was specifically lending only to women!

He began to give loans to a group of women. The women would form a group of five or six. These women did not need any collateral to apply for the loan. The Grameen Bank provided a seven-hour course which taught these women how the bank works. The women applying for loans learned to sign their names and had to take an oral test. The two of the poorest women in the group got the first loans. If they were able to make regular installments during a period of six weeks then the next two women of the group were given loans. This is how the bank worked.

Women were doing different sorts of things with this loan. Some women bought cows and sold milk to nearby stores. Others bought chicken and sold eggs. There were women who sold clothes and crafts. Micro-finance truly changed the lives of these women. With a little money of their hands, these women were able to send their children to schools. They were able to feed bread to their children. Yes, these women were still poor but they were able to satisfy their basic needs.

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