Micro-credit borrowers spending major portion of loan to buy food
FHM Humayan Kabir | Monday, 18 August 2008
Micro-credit borrowers are spending a major portion of their loan in purchasing foods instead of investing in the earmarked projects, which has been affecting the poverty alleviation activities in the country, insiders said.
Borrowers have no option but to spend the credits to purchase foods as their wages and incomes have not increased compared to the inflation in food prices, some borrowers and micro-credit activists said.
"We disburse credit to small borrowers to invest in different income generating activities like poultry, dairy, agriculture and small business. But they are spending a major portion of their loan to purchase rice over the last few months," said a field officer of BRAC in Dohar area in Dhaka.
He said loan recovery has also faced a setback over the last few months as the borrowers are not investing the credit in the earmarked sectors, which is making them defaulters.
The food prices in the country increased by nearly 60 per cent since the beginning of the last year (2007) putting the poor and lower income groups into hardships.
"I have borrowed Tk7,000 from the BRAC to set up a small poultry farm at my home. But I have spent Tk1500 from the credit to purchase rice as I had no money to procure food before getting the loan," Selima Akhter, a micro-credit borrower in Mohanpur upazila of Rajshahi, told the FE.
She said, "over the last six months we (family members) did not have regular income, which forced us to borrow money from the NGO to purchase food. We do not know how we would repay the loan".
Humayan Kabir, a senior official of a local NGO at Mohanpur-Shataphul Bangladesh-said their loan disbursement and recovery rate have fallen over the last few months due to higher food prices.
"The borrowers are most of the time spending the credit to procure rice which has been affecting the main vision of our micro-credit programmes," he said.
"The food price shock is seriously affecting the micro-credit activities. Borrowers often spend credit to purchase food due to their very low income compared to very high expenditure for daily meals," Executive Director of the Institute of Micro-Finance Baqui Khalili told the FE.
The price shock is ultimately affecting the core groups, which could have a negative impact on poverty alleviation programme through the micro-credit in the country, he said.
"The food price shocks are affecting the micro-credit programmes in the poverty-prone areas like 'monga'-affected northern districts and disaster-prone coastal districts over the last few months," Dr Mahbub Hossain, Executive Director of the world's largest non-governmental organisation (NGO) -- BRAC -- said.
He said BRAC's overall micro-credit operation in the first quarter of the current year (2008) was affected severely, which improved to some extent since the second quarter.
Dr. Khalil urged the government, country's apex micro-credit funding and capacity building agency-- Palli Karma-Sahayak Foundation (PKSF) and the operating micro-finance institutions to design new products (loan) which will directly help the poor to generate more income to offset their losses for higher food price shocks and inflationary pressure.
He advised the NGOs to scrap their traditional loan operation and come forward for diversified and medium-to-long-term credit programme like 'disaster loan' and seasonal loan.
Borrowers have no option but to spend the credits to purchase foods as their wages and incomes have not increased compared to the inflation in food prices, some borrowers and micro-credit activists said.
"We disburse credit to small borrowers to invest in different income generating activities like poultry, dairy, agriculture and small business. But they are spending a major portion of their loan to purchase rice over the last few months," said a field officer of BRAC in Dohar area in Dhaka.
He said loan recovery has also faced a setback over the last few months as the borrowers are not investing the credit in the earmarked sectors, which is making them defaulters.
The food prices in the country increased by nearly 60 per cent since the beginning of the last year (2007) putting the poor and lower income groups into hardships.
"I have borrowed Tk7,000 from the BRAC to set up a small poultry farm at my home. But I have spent Tk1500 from the credit to purchase rice as I had no money to procure food before getting the loan," Selima Akhter, a micro-credit borrower in Mohanpur upazila of Rajshahi, told the FE.
She said, "over the last six months we (family members) did not have regular income, which forced us to borrow money from the NGO to purchase food. We do not know how we would repay the loan".
Humayan Kabir, a senior official of a local NGO at Mohanpur-Shataphul Bangladesh-said their loan disbursement and recovery rate have fallen over the last few months due to higher food prices.
"The borrowers are most of the time spending the credit to procure rice which has been affecting the main vision of our micro-credit programmes," he said.
"The food price shock is seriously affecting the micro-credit activities. Borrowers often spend credit to purchase food due to their very low income compared to very high expenditure for daily meals," Executive Director of the Institute of Micro-Finance Baqui Khalili told the FE.
The price shock is ultimately affecting the core groups, which could have a negative impact on poverty alleviation programme through the micro-credit in the country, he said.
"The food price shocks are affecting the micro-credit programmes in the poverty-prone areas like 'monga'-affected northern districts and disaster-prone coastal districts over the last few months," Dr Mahbub Hossain, Executive Director of the world's largest non-governmental organisation (NGO) -- BRAC -- said.
He said BRAC's overall micro-credit operation in the first quarter of the current year (2008) was affected severely, which improved to some extent since the second quarter.
Dr. Khalil urged the government, country's apex micro-credit funding and capacity building agency-- Palli Karma-Sahayak Foundation (PKSF) and the operating micro-finance institutions to design new products (loan) which will directly help the poor to generate more income to offset their losses for higher food price shocks and inflationary pressure.
He advised the NGOs to scrap their traditional loan operation and come forward for diversified and medium-to-long-term credit programme like 'disaster loan' and seasonal loan.