Dr Mahabub Hossain, an eminent economist of the country, has succinctly summarised the growth of microfinance industry in Bangladesh in a working paper. The Grameen Bank - winner of a Nobel prize, is widely known for microcredit expansion for the poor. It was set up in 1984 as a specialised financial institution for providing credit and mobilisation of savings for poverty-stricken landless and marginal landowning households. The bank has made a huge success in rapidly expanding financial services to its members who are mostly women from the asset-poor households.
  The success of the Grameen Bank model in generating self-employment for unemployed or underemployed workers in poverty-stricken households with excellent recovery of loans encouraged many NGOs engaged in community empowerment to include microfinance in their activity portfolio. Some of them made further innovation in credit delivery to reduce the cost of servicing of loans and generate surplus from the business. As a result, the NGO microfinance institutions (MFIs) proliferated over the last decade. The government supported financing of these MFIs by establishing the Palli Karma Sahayak Foundation (foundation for supporting employment generation or PKSF) by providing them low-cost loan fund.
 In 2006, the government established the Microcredit Regulatory Authority (MRA) under the auspices of the central bank to regulate the MFIs and safeguard the interest of their members. Microfinance has grown as an industry in Bangladesh. By June 2011, the NGO MFIs provided loans to about 20.7 million borrowers (Bangladesh has about 33 million households). If we include another 6.7 million covered by the Grameen Bank, the coverage is about 27.4 million (compared to 58 million labour force). It is estimated that over 40 per cent of households take loans from multiple MFIs. Because of overlapping, the coverage would be about 16.4 million households.
Another contribution of the microfinance industry in Bangladesh is the employment generated for the educated labour force. In 2011, the NGO MFIs provided jobs to 112,000 workers, and the Grameen Bank alone provided jobs to 22.3 thousand workers for transaction of its businesses.
A recent review of the microfinance industry conducted for 10 largest MFIs (with a membership of over 200,000) revealed the following:
* There is a high concentration in the microfinance market. Three largest MFIs, Grameen Bank, BRAC and ASA accounted for about 70 per cent of the microfinance portfolio, and the 10 largest accounted for 87 per cent.
* The average loan balance per borrower has increased from US$71 in 2005 to US$ 115 in 2009, about 20 per cent of the per capita gross national income.
* The products include not only credit but also savings and micro-insurance. About 40 per cent of the MFIs provide insurance for various purposes, including exemption of outstanding loan when the borrower accidentally passes away, the funeral expenses, and for major health hazards such as accident and death of livestock.
* The efficiency in loan operation is very low. The cost of operation was about 14.6 per cent of the outstanding loan, compared with 17 per cent in Asia and 20 per cent at the global level.
* The average yield (income from service charge) was about 23 per cent compared to a 27 per cent interest rate cap introduced by the Micro-credit Regulatory Authority. With a cost of loan fund of about 9.4 per cent, and a provision for bad debt of about 3.0 per cent, the MFIs were able to make some surplus in the business. The surplus is accumulated as retained earnings which is an important source of loan fund.
* The portfolio quality is not so impressive compared to the international standard. The portfolio at risk (over loans for over a month) was about 6.6 per cent for the top three MFIs and about 4.9 per cent for others.
The average size of the loan has increased over time, but at a rate lower than the rate of inflation. So the real value of the loan has declined. As a result, about 40 per cent borrowers now access loans from a number of MFIs and also take large-size loans from the informal market for financing lumpy expenditures.
A particular point in this context is the BRAC. The BRAC microfinance programme has diversified its portfolio over time by providing relatively large-size loans to small entrepreneurs, mostly men, the so-called 'missing middle' who do not have access to credit from formal financial institutions but disqualified to receive poverty reduction loan. Small enterprise loan now accounts for more than 40 per cent of the loan portfolio. The BRAC has also introduced a scheme for loans to tenant farmers at a lower rate of interest supported by a low-cost loan fund from the central bank. The scheme targets marginal farmers who are bypassed by the commercial banks and specialised financial institutions. The BRAC has also started financing overseas migration and has introduced a 'top-up loan' for those who have good repayment records and have the capacity to utilise large-size loans.
By and large, we can deduce the following:
* NGOs have extensive infrastructure and outlets at the grassroots level, which are conducive to taking technologies to the doorsteps of farmers,
* Many NGOs develop community-based organisations as platforms for sharing information and experiences that generate social capital,
* The regulations and service rules for the NGOs are flexible, particularly for mobilisation of additional resources when opportunities arise,
* They can organise farmers' participatory validation of innovative technologies,
* Many NGOs are engaged in agricultural and rural development and have developed seed systems,
* The partnership in the 'last mile' in the research-extension-development continuum can help fast-tracking technology diffusion and faster growth in agricultural productivity.
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