Making micro credits truly user-friendly
Tuesday, 9 October 2007
Nurul Huda
MICRO credit was identified long ago as a powerful tool for the purpose of poverty alleviation in Bangladesh. This realisation also led to a major expansion of micro credit operations in the country during the last two decades. A number of ministries and divisions of the government are presently engaged in public micro credit operations under different projects . Numerous non governmental organisations (NGOs) have been also playing a part in extending micro credits to the poor. All of these activities should have led to some substantial improvements in reduction of poverty. But the same has not happened, though some progress in alleviating poverty has been noted over the years, particularly because of the expanded operations of some of the NGOs which have been operating their programmes with relatively better supervision. However, the overall poverty situation, as of now, in the country does call for putting into focus the issue of running micro credit operations with greater effectiveness.
One main reason for less than the desired impact of micro credit on the poor is the high lending rate on such credits. Borrowers of micro credit in the first place should be the poor or the very poor. But studies conducted by responsible developmental agencies from time to time showed a notable number of the recipients of micro credits to be well above the poor category. The poor or extreme poor who take micro credit should be allowed to do so at bearable or nominal rate of interest . But even the interest rates charged on publicly run micro credit programmes continue to be rather oppressive for their poor receivers.
The government did earlier make some efforts to reduce interest rates on official micro credit operations. The interest rates then, in some cases, dropped to 11 per cent as a result from 15 per cent. But even this lowering of interest rate did not create the much-needed relief among poor micro credit users. What they need is credit at nominal rates of interest to make good use of them and to repay the loans smoothly.
No great difficulty is otherwise seen in the way of the government lending to the poor at rates that are affordable by the poor. The government should not be in the business of squeezing out undue interest from the poor. Disbursing credit to the poor to make big financial gains out of the same cannot be the aim of government which claims to be on the side of reducing poverty. Therefore, the lending rate for micro credits should meet both the needs of viably running the official micro credit operations and the intended objectives of these programmes. The NGOs, in many cases, also charge high interest on micro credits provided by them. They also need to be persuaded to significantly decrease the lending rate they charge and ought to base their credit operations truly for the benefit and advantage of the poor and not for only making good profits out of such operations.
Notwithstanding the increase in opportunities for the poor to be the beneficiary of small credits from institutional sources, they remain still the victims of private money lenders or 'mahajans' in many parts of the country. Such mahajans, as a number of related studies have shown, continue to be a big factor in the micro credit scene exploiting the gaps in institutional availability of credits. This indicates the importance of increasing the networks of institutional credit both by the government and NGOs. The expansion of networks by them does also need to be accompanied by adequate lowering of the interest charged on the credits. It is also imperative to introduce laws and enforce them strictly to curb the activities of 'mahajans' who in many cases charge very high rate of interest on funds that they loan out to the poor.
MICRO credit was identified long ago as a powerful tool for the purpose of poverty alleviation in Bangladesh. This realisation also led to a major expansion of micro credit operations in the country during the last two decades. A number of ministries and divisions of the government are presently engaged in public micro credit operations under different projects . Numerous non governmental organisations (NGOs) have been also playing a part in extending micro credits to the poor. All of these activities should have led to some substantial improvements in reduction of poverty. But the same has not happened, though some progress in alleviating poverty has been noted over the years, particularly because of the expanded operations of some of the NGOs which have been operating their programmes with relatively better supervision. However, the overall poverty situation, as of now, in the country does call for putting into focus the issue of running micro credit operations with greater effectiveness.
One main reason for less than the desired impact of micro credit on the poor is the high lending rate on such credits. Borrowers of micro credit in the first place should be the poor or the very poor. But studies conducted by responsible developmental agencies from time to time showed a notable number of the recipients of micro credits to be well above the poor category. The poor or extreme poor who take micro credit should be allowed to do so at bearable or nominal rate of interest . But even the interest rates charged on publicly run micro credit programmes continue to be rather oppressive for their poor receivers.
The government did earlier make some efforts to reduce interest rates on official micro credit operations. The interest rates then, in some cases, dropped to 11 per cent as a result from 15 per cent. But even this lowering of interest rate did not create the much-needed relief among poor micro credit users. What they need is credit at nominal rates of interest to make good use of them and to repay the loans smoothly.
No great difficulty is otherwise seen in the way of the government lending to the poor at rates that are affordable by the poor. The government should not be in the business of squeezing out undue interest from the poor. Disbursing credit to the poor to make big financial gains out of the same cannot be the aim of government which claims to be on the side of reducing poverty. Therefore, the lending rate for micro credits should meet both the needs of viably running the official micro credit operations and the intended objectives of these programmes. The NGOs, in many cases, also charge high interest on micro credits provided by them. They also need to be persuaded to significantly decrease the lending rate they charge and ought to base their credit operations truly for the benefit and advantage of the poor and not for only making good profits out of such operations.
Notwithstanding the increase in opportunities for the poor to be the beneficiary of small credits from institutional sources, they remain still the victims of private money lenders or 'mahajans' in many parts of the country. Such mahajans, as a number of related studies have shown, continue to be a big factor in the micro credit scene exploiting the gaps in institutional availability of credits. This indicates the importance of increasing the networks of institutional credit both by the government and NGOs. The expansion of networks by them does also need to be accompanied by adequate lowering of the interest charged on the credits. It is also imperative to introduce laws and enforce them strictly to curb the activities of 'mahajans' who in many cases charge very high rate of interest on funds that they loan out to the poor.