|
Frequently Asked Questions
|
| Question 1 |
: |
What does microfinance mean? |
| Question 2 |
: |
What is microcredit? |
| Question 3 |
: |
What does Monga mean? |
| Question 4 |
: |
What do PRIME and LIFT stand for? |
| Question 5 |
: |
How can I share our lessons with PROSPER? |
| Question 6 |
: |
Where can I get microfinance related information of Bangladesh? |
| Question 7 |
: |
What are the basic regulatory obligations for the MFIs in Bangladesh? |
| Question 8 |
: |
What kind of institutions deliver microfinance in the country? |
| Question 9 |
: |
How do savings services help poor people? |
| Question 10 |
: |
Where can I find financial performance data on MFIs worldwide? |
|
| Question 1 : What does microfinance mean? |
Answer : “Microfinance” is often defined as financial services for poor and low-income clients. In practice, the term is often used more narrowly to refer to loans and other services from providers that identify themselves as “microfinance institutions” (MFIs). These institutions commonly tend to use new methods developed over the last 30 years to deliver very small loans to unsalaried borrowers, taking little or no collateral. These methods include group lending and liability, pre-loan savings requirements, gradually increasing loan sizes, and an implicit guarantee of ready access to future loans if present loans are repaid fully and promptly.
More broadly, microfinance refers to a movement that envisions a world in which low-income households have permanent access to a range of high quality financial services to finance their income-producing activities, build assets, stabilize consumption, and protect against risks. These services are not limited to credit, but include savings, insurance, and money transfers. (Source: Microfinance Gateway)
|
| Question 2 : What is microcredit? |
Answer : The Microcredit Summit of 1997 adopted a definition for microcredit which is regarded as an acceptable definition of microcredit. Microcredit programmes extend small loans to very poor people for self-employment projects that generate income, allowing them to care for themselves and their families. However, definitions differ, of course, from country to country. Some of the defining criteria used in the above definition include-
- size - loans are micro, or very small in size
- target users - microenterpreneurs and low-income households
- utilization - the use of funds - for income generation, and enterprise development, but also for community use (health/education) etc.
- terms and conditions - most terms and conditions for microcredit loans are flexible and easy to understand, and suited to the local conditions of the community.
Microcredit is the extension of small loans to enterpreneurs too poor to qualify for traditional bank loans. It has proven an effective and popular measure in the ongoing struggle against poverty, enabling those without access to lending institutions to borrow at bank rates, and start small business.
The key implications of microcredit are in its name itself: 'micro'. A number of issues come to mind when 'micro' is considered: The small size of the loans made, small size of savings made, the smaller frequency of loans, shorter repayment periods and amounts, the micro/local level of activities, the community-based immidiacy of microcredit etc. Hence microcredit is not the solution, but is a menu of options and enablements, that has to be put together, a la carte, based on local conditions and needs.
With the current explosion of interest on microcredit issues, several developmental objectives have come to be associated with it, besides that of only "credit". Of particular importance is savings - as an end in itself, and as a guarantee for loans. Microcredit has been used as an 'inducer' in many other community development activities, used as an entry point in a community organizing programme and as an ingredient in larger education/training exercises.
|
| Question 3 : What does Monga mean? |
Answer : As an agrarian country, the livelihood of majority of the population of Bangladesh is dependent on agricultural production, especially of paddy. So, the income and consumption of the poor people varies seasonally with the seasonal nature of paddy production. As a result, the whole country faces seasonal variations in income, consumption, employment, and poverty. But these seasonal dimensions are more pronounced in some parts, especially in the north-western region (Rangpur, Dinajpur), where topographic and climatic extremities make the people most vulnerable to chronic, seasonal and transient poverty. The period spans the Bangla calendar months of Aswin and Kartik (September- November) people go on without a meal for even a week. This severe situation is popularly referred to as ‘Monga’ – a cyclical phenomenon of poverty and hunger (CARE 2005). It is the absence of work when people resort to money lenders as last resort, or sell their labour in advance at a much cheaper rate.
|
| Question 4 : What do PRIME and LIFT stand for? |
Answer : PRIME is the abbreviation of Programmed Initiatives for Monga Eradication. This is a component of PROSPER Programme. PRIME is being implemented by PKSF through its partner organizations. PKSF is scaling up financial and other support services to Monga affected families. A variety of flexible savings and loans along with non-financial services are being delivered by PKSF partners under PRIME.
LIFT means Learning and Innovation Fund to Test New Ideas. This also a component of PROSPER Programme and is being implemented by PKSF. Realizing the fact that certain poor friendly, creative and innovative products and initiatives can bring significant changes in the microfinance services provided to the poor, LIFT is intended to trigger innovations in the microfinance sector to make the microcredit programme more dynamic and diversified. Innovative enterprises are defined as those creative, technological and social activities that are intended to benefit the poor clients and/or to broaden opportunities for wage employment and enhance their socio-economic condition as a whole.
|
| Question 5 : How can I share our lessons with PROSPER? |
Answer : Sharing experiences and lessons are welcome by PROSPER Programme. PROSPER website (www. prosperprogram.org) could be used to post articles, stories, best practices, etc for wider dissemination. PROSPER Finance and Administration Unit (PFU) also brings out a newsletter every four months. Information could be sent to the editor of the newsletter by email at newsletter@prosperprogram.org or info@prosperprogram.org.
|
| Question 6 : Where can I get microfinance related information of Bangladesh? |
Answer : All individual MFIs in Bangladesh maintain their own information (i.e. BRAC, Grameen Bank, ASA, etc.). However, the Credit and Development Forum (CDF) and Microcredit Credit Regulatory Authority (MRA) regularly publish statistics of MFIs working in Bangladesh. Besides, the Institute of Microfinance (www.inm.org.bd), the knowledge management partner of PROSPER Programme has obtained publications of different research and study on microfinance issues. Palli Karma-Sahayak Foundation (www.pksf-bd.org), the major wholesale microfinance organisation in the country that has funded more than 200 NGO-MFIs, also have many important information in the microfinance field. Various NGOs, and academic institutions will also have information, reports and statistics on microfinance. PROSPER-PFU is working on a central information centre , albeit on a small scale that may serve the needs of academics, students, and practitioners.
|
| Question 7 : What are the basic regulatory obligations for the MFIs in Bangladesh? |
Answer : Microcredit Regulatory Authority (MRA) is the regulatory authority in Bangladesh which provides licence under the Microcredit Act, 2006, to the MFIs to operate in the country. All the MFIs interested to work in the microcredit sector in Bangladesh must obtain licence from MRA. To obtain the licence, MFIs must fulfil the conditions mentioned in the Microcredit Act 2006.
|
| Question 8 : What kind of institutions delivers microfinance in the country? |
Answer : Most NGOs are engaged as not-for-profit organizations in carrying on microfinance operations in Bangladesh. Besides, many cooperatives are also operating microfinance in the private sector. The Government is also implementing microfinance through projects, programs and establishing organizations by enactment. Bulk of the microfinance delivery is undertaken by a group of specialised and focussed institutions which are called Microfinance Institutions (MFIs). By definition, these are organizations providing financial services to the poor. This is somewhat a broad definition of MFIs. The member-based Microfinance Institutions (MFIs) constitute a rapidly growing segment of the Rural Financial Market (RFM) in Bangladesh. Microcredit programs (MCP) in Bangladesh are implemented by various formal financial institutions (nationalized commercial banks and specialized banks), specialized government organizations and Non-Government Organizations (NGOs). The growth in the MFI sector, in terms of the number of MFI as well as total membership, was phenomenal during the 1990s and continues till today. Over the period of June 2003 to June 2006 the growth rate was over 70% in terms of horizontal expansion of microcredit borrower. The total coverage of MCP in Bangladesh is approximately 30.09 million borrowers without considering overlapping figures (Source: Bangladesh Bank. www.bangladesh-bank.org)
|
| Question 9 : How do savings services help poor people? |
Answer : Savings has been called the “forgotten half of microfinance.” Most poor people now use informal mechanisms to save because they lack access to good formal deposit services. They may tuck cash under the mattress; buy animals or jewellery that can be sold off later, or stockpile inventory or building materials. These savings methods tend to be risky - cash can be stolen, animals can get sick, and neighbors can run off. Often they are illiquid as well – one cannot sell just the cow’s leg when one needs a small amount of cash. Poor people want secure, convenient deposit services that allow for small balances and easy access to funds. MFIs that offer good savings services usually attract far more savers than borrowers. (Source: Microfinance Gateway)
|
| Question 10 : Where can I find financial performance data on MFIs worldwide? |
Answer : Increasing numbers of MFIs in developing economies are reporting their performance to international databases in recent years. The databases with the highest participation are:The MIX Market (MM) database contains financial and other performance information from over 1,300 MFIs collected and processed by the Microfinance Information eXchange (MIX). Data for participating MFIs, including client outreach measures, simplified financial statements, and a number of standard financial performance indicators, is publicly available online at http://www.mixmarket.org/.
The MicroBanking Bulletin (MBB) database has the smallest number of participating MFIs but excellent information quality. It contains information on more than 350 MFIs. The participating MFIs are identified and peer-group averages are reported in periodic updates of the Bulletin (www.mixmbb.org/en/index.html). However, individual company information is confidential. The MBB tracks a full range of financial information and indicators, and adjusts the financial statements that it receives to compensate for the impact of subsidies that will probably not be repeated if and when the MFI grows to important scale.
The Microcredit Summit (MCS) database contains limited information on a large number of MFIs (more than 2,000 MFIs). Summary information is published annually; and the annual reports can be found at. (Source: Microfinance Gateway. www.microcreditsummit.org)
|
|
