Microfinance in Bangladesh has evolved significantly since the 1970s. Pioneering organizations like Grameen Bank and BRAC began providing collateral-free loans and other financial services to the poor. Over time, the microfinance sector has expanded greatly, with over 35 million active borrowers by 2009. Quantitative studies have found that microfinance generally increases household incomes and expenditures, with impact estimates ranging from 10-50% increases compared to non-participant households. However, some criticisms argue that microfinance has not alleviated poverty and even led to over-indebtedness in some cases. Overall, microfinance has made important contributions but also faces ongoing challenges in achieving social and financial sustainability.

1. Microfinance in Bangladesh
Red & Green Lights
S. Badruddoza
Research Associate
Institute of Microfinance (InM)
October 31, 2011
University of Dhaka
Citation:
S. Badruddoza, “Microfinance in Bangladesh: Red and Green Lights” (paper presented at the
Department of International Relations, University of Dhaka, Dhaka, October 31, 2011).

2. Contents
By the end of this presentation you will know-
1. What is microfinance
2. Evolution & trends of microfinance in Bangladesh
3. Impact of microfinance programs
4. Future directions
Microfinance in Bangladesh | Badruddoza 2

3. 1. What is microfinance?
• Microfinance services are retail financial services that are relatively
small in relation to the income of a typical individual. Specifically,
the average outstanding balance of microfinance products is no
greater than 250% of the average income per person. (MixMarket)
• The provision of financial services to low-income clients
or solidarity lending groups including consumers and the self-
employed, who traditionally lack access to banking and related
services. (Wikipedia)
• Microfinance is the provision of financial services such
as loans, savings, insurance, and training to people living in poverty.
(Opportunity International)
• microfinance is which low-income households have access to a
affordable financial services offered by retail providers to finance
income-producing activities, build assets, stabilize consumption, and
protect against risks. These services include savings, credit,
insurance, remittances, and payments others. (Microfinance
Gateway)
Microfinance in Bangladesh | Badruddoza 3

4. 2. Evolution & Trends
• Microfinance existed in this country in one form or another
for a long time. Collaterals for the poor were mainly social
status/essential assets
• Prof. Muhammad Yunus made the breakthrough with his
action research in Jobra village of Chittagong in 1976 and then
in Tangail in 1979
• Established Grameen Bank in 1983
• “Grameencredit” is collateral-free, pro-women credit system
• Today Grameen Bank is predominantly (90%) owned by the
rural poor whom it serves with 2,565 branches (July, 2011)
• Prof. Yunus & the bank received Nobel peace prize in 2006
Microfinance in Bangladesh | Badruddoza 4

5. 2. Evolution & Trends (contd.)
• Sir Fazle Hasan Abed established BRAC in 1972 for relief &
rehabilitation operations following liberation war. It began
community development in 1973 & microfinance in 1974.
BRAC has many “credit-plus” programs on
health, education, legal services and skill development. It has
2,648 branches.
• ASA was founded by Md. Shafiqual Haque Choudhury in 1978
& was registered in 1979. It has 3,183 branches. ASA is the
most efficient in operation. All these 3 MFIs perform
international operations and occupy three fourth of the
industry.
• Some other large MFIs are
Proshika, BURO, TMSS, SSS, Shakti, Uddipan, PMUK, JCF.
Specialized institutions, Government & commercial banks also5
Microfinance in Bangladesh | Badruddoza

6. 2. Evolution & Trends (contd.)
• Major players in the field:
1. Palli Karma-Sahayak Foundation (PKSF) was established in
1990. It implements its programs through its 250 member
institutions with whole-sale microfinance & training.
2. Microcredit Regulatory Authority (MRA) was established in
2006 for licensing & monitoring microfinance institutions. It
has given licenses to about 550 MFIs so far.
3. Institute of Microfinance (InM) was also established in 2006
as an independent research & training organization. It does
not have microfinance program.
Microfinance in Bangladesh | Badruddoza 6

7. 2. Evolution & Trends (contd.)
Source: Khandker & Badruddoza 2011
Microfinance in Bangladesh | Badruddoza 7

8. 2. Evolution & Trends (Current Scenario)
Source: Khandker & Badruddoza 2011
Microfinance in Bangladesh | Badruddoza 8

9. 2. Evolution & Trends (current scenario)
Source: Sinha 2011
OER: Operating Expense Ratio, FCR: Financial Cost Ratio
Microfinance in Bangladesh | Badruddoza 9

10. 2. Evolution & Trends (contd.)
Reported Trends of Bangladeshi Microfinance Sector (1996-2009)
Outstanding Cumulative
Year Reported MFIs Active members Net savings
borrowers disbursement*
1996 351 6,006,419 3,120,555 27,837.24 2,390.72
2000 585 11,021,663 7,988,831 125,607.61 8,866.02
2005 690 18,793,990 13,941,823 431,230.50 20,343.67
2009 745 35,707,896 27,053,663 1,731,465.46 131,306.45
* Figures under cumulative disbursement and net savings are in Million BDT
Source: Bangladesh Microfinance Statistics (CDF, 1996-2006; InM & CDF, 2007-2009)
Microfinance in Bangladesh | Badruddoza 10

11. 2. Evolution & Trends (contd.)
Source: Khandker & Badruddoza 2011
Microfinance in Bangladesh | Badruddoza 11

12. 2. Evolution & Trends (contd.)
Source: Khandker & Badruddoza 2011
Microfinance in Bangladesh | Badruddoza 12

13. 2. Evolution & Trends (contd.)
Source: Khandker & Badruddoza 2011
Microfinance in Bangladesh | Badruddoza 13

14. 2. Evolution & Trends (contd.)
Source: Khandker & Badruddoza 2011
Microfinance in Bangladesh | Badruddoza 14

15. 2. Evolution & Trends (contd.)
Microfinance in Bangladesh | Badruddoza 15

16. 2. Evolution & Trends (contd.)
Source: Khandker & Badruddoza 2011
Microfinance in Bangladesh | Badruddoza 16

17. 3. Impact of Microfinance Program
• To some, microfinance seems not pro-poor because it does
not help them go out of poverty. Moreover, it leads to over-
indebtedness. Thus the poor demotes to ultra-poor and some
of them even commit suicide. Political leaders and media have
immensely focused on the failures of microfinance in recent
times.
• People who support microfinance show numerous points
where microfinance has succeeded. To say the
least, microfinance has positive impact on women
empowerment, consumption smoothing, and to some
extent, in building assets.
• The following table summarizes all major quantitative impact
studies [Faruqee & Badruddoza, 2011].
Microfinance in Bangladesh | Badruddoza 17

18. Impact of microfinance on household income/expenditure
Name of organization Income or expenditure per Control (non-
Source Participants % difference
studied annum (BDT) participants)
Hossain 1984 GB Income, per capita 1762 1346 30.9
Hossain 1988 GB Income, per capita 3524 2523 39.7
BIDS 1990 BRDB Income, per household 6204 4260 45.6
BIDS 1990 BRAC-RDP Income, per household 2844 1560 82.3
IMEC 1995 Proshika Income, per household 22,244 17,482 27.2
Rahman 1996 PKSF Expenditure, per household 26,390 23,802 10.9
Khandker 1998 BRAC Expenditure, per capita 5180 4202 23.8
Khandker 1998 GB Expenditure, per capita 5050 4335 16.5
Khandker 1998 RD-12 Expenditure, per capita 4931 4279 15.2
Halder 1998 BRAC Expenditure, per capita 8244 6480 27.2
BIDS 1999 PKSF Expenditure, per capita 36,528 33,732 8.3
IMEC 1999 Proshika Income, per household 48,635 43,584 11.6
Zohir 2001 PKSF Wage income, per capita 5858 5559 5.3
Hossain 2002 GB Income, per household 18134 14204 27.7
Khandker 2003 GB, BRAC, RD-12 Expenditure, per capita 3923 3838 2.2
Rahman, Atiur 2005 PKSF Annual Income, per household 58109 38968 49.1
Khalily 2010 PRIME-2 of PKSF Annual income, per household 53394 48505 10.1
Rabbani 2011 PRIME-3 of PKSF Annual Income, per household 61530 45680 (benchmark) 34.7
Khalily 2011 FSVGD & UP of PKSF Monthly Income, per household 5224 4463 (early dropouts) 17.0

19. 3. Impact of Microfinance Program (contd.)
• Poverty impact of microfinance has been studied several
times.
• Khandker et. al. (1998): 5% of Grameen participants lifted out
of poverty, the figure is 1% per annum in rural areas.
• Zohir et. al. (2001): 4.7% in 3 years among borrowers of PKSF
Partner Organizations.
• Hossain & Bayes (2009): 7% in 1987-2007
• Bangladesh has 10 percentages point decrease in poverty rate
in last decade. Osmani et. al. (2011) estimated the
contribution of microfinance into this reduction as 4%;
remittance, education of the household head & employment
opportunity were estimated 4.8%, 20.3% & 16.2% respectively
Microfinance in Bangladesh | Badruddoza 19

20. 3. Impact of Microfinance Program (contd.)
Other Socio-economic impact of microfinance
• Access to finance & breaking mahajans’ circles (Khalily, 2011)
• Helps mitigating seasonal hunger & shocks (Rabbani, 2010)
• Promotes employment & productivity (Rahman & Khandker
1994)
• Facilitates savings & builds up asset (Khandker, 2000)
• Empowers women (Pitt, Khandker & Cartwright, 2006)
• Fertility transition & contraceptive use (Hashemi, Schuler &
Riley, 1997)
• Self-employment, favorable agricultural contract (Pitt, 2000)
• Migration (Ahsan, 2007)
• Rural power structure (Rahman, 2002)
Microfinance in Bangladesh | Badruddoza 20

21. 3. Impact of Microfinance Program (contd.)
Adverse effect of microfinance program:
• Little or no impact (Morduch, 1998)
but reestablished by Pitt (1999)
• Works mainly on moderate poor, no long run impact
(Zaman, 1999)
• Some borrowers benefitted but a lot struggling, over-
indebtedness and asset loss (Ahmad, 2011)
Microfinance in Bangladesh | Badruddoza 21

22. 4. Future Directions
Problems (Solutions): Red (Green) Lights
• High interest rate (MRA set a ceiling of 27% declining)
• Overlapping (not leading to over-indebtedness, Khalily et. al.
2010)
• Strict repayment schedule (MRA’s 50 weeks, technology?)
• Diversion of credit use (skill development needed)
• Product diversion & credit-plus programs (who will provide?)
• Social or commercial (increase efficiency?)
• Exogenous factors: Infrastructure, information & insecurity
issues
• What if there is no microfinance?
Microfinance in Bangladesh | Badruddoza 22

23. To know more…
Institute of Microfinance (InM)
2/1, block-D, Lalmatia, Dhaka. (Head Office)
PKSF building, Agargaon, Dhaka. (Project Office)
badruddoza@inm.org.bd
www.inm.org.bd
Microfinance in Bangladesh | Badruddoza 23

24. Thank you!
Microfinance in Bangladesh | Badruddoza 24

25. References:
1. Alamgir, D. (2010). State of Microfinance in Bangladesh. Dhaka: Institute of Microfinance.
2. CDF. (1996-2006). Bangladesh Microfinance Statistics. Dhaka: Credit & Development Forum.
3. CGAP. (2011). About Microfinance. Retrieved October 2011, from Consultative Group to Assist the Poor: www.cgap.org
4. Charitonenko, S., & Rahman, S. M. (2002). Bangladesh: Commercialization of Microfinance. Manilla: Asian Development Bank (ADB).
5. Elahi, Moudood K. and Iffat Ara. 2008. Understanding the Monga in Northern Bangladesh, Academic Press and Publishers Library. Dhaka
6. Faruqee, R., & Badruddoza, S. (2011). InM Occasional Paper. Microfinance in Bangladesh: Past, Present and Future . Dhaka: Institute of
Microfinance.
7. Ghate PB. 1988. Informal credit markets in Asian developing countries. Asian Development Review 6(1).
8. Grameen Bank. (2011, August 23). A Short History of Grameen Bank. Retrieved October 02, 2011, from Grameen-info: http://www.grameen-
info.org/index.php?option=com_content&task=view&id=19&Itemid=114
9. Hasan, T. (2011). Governance of MFIs in Bangladesh. Dhaka: Institute of Microfinance (InM).
10. Hashemi, Syed. 1997. Those Left Behind: A Note on Targeting the Hardcore Poor, chapter 11 in Geoffrey Wood and Iffath Sharif, eds., Who Needs
Credit? Poverty and Finance in Bangladesh. Dhaka: University Press Limited.
11. Hossain, M. (2002). Credit for Alleviation of Rural Poverty: The Experience of Grameen bank in Bangladesh. In A. Rahman, R. I. Rahman, M.
Hossain, & S. M. Hossain(eds.), Early Impact of Grameen: A Multi-DImensional Analysis: Outcome of a BIDS Research Study. Dhaka: Grameen Trust.
12. Hossain, Mahbub. 2002. Credit for Alleviation of Rural Poverty: The Experience of Grameen Bank in Bangladesh”, in A. Rahman, R. I. Rahman, M.
Hossain and S. M. Hossain (eds.) Early Impact of Grameen: A Multi-Dimensional Analysis: Outcome of a BIDS Research Study. Grameen Trust, Dhaka.
13. http://www.bbs.gov.bd/Home.aspx retrived 17 November 2011
14. InM & CDF. (2007-2009). Bangladesh Microfinance Statistics. Dhaka: Institute of Microfinance, Credit & Development Forum.
15. Iqbal, K. (2010). Strategic Behavior of NGO-MFIs in Bangladesh. Dhaka: Institute of Microfinance (InM).
16. Jalil, Mohammad Muaz and Kayenat Kabir. (2008). Forecasting Demand for Urea TSP and MP Fertilizer for Vegetable and Rice Production in
Bangladesh (Draft). http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1313585
17. Khalily, B., & Faridi, R. (2011). Multiple Memberships (Overlapping) in Microcredit Markets of Bangladesh. Dhaka: Institute of Microfinance.
18. Khalily, M. A. Baqui; M. A. Khaleque, S. H. Bidisha and Mehrun Ahmed. 2011. Access to Financial Services in Bangladesh. Dhaka. Institute of
Microfinance (InM).
19. Khalily, M. A. Baqui; M. A. Latif; A. Rabbani; K. Iqbal; M. Ahmed; M. M. Hasan; M. A. Khaleque; M. M. Hasan; P. K. Roy; J. Sayeed. 2010b. Impact of
Prime Program for Monga Mitigation: An Analysis of Panel and Cross Sectional Data (PRIME-II). Dhaka: Institute of Microfinance.
20. Khalily, M. A. Baqui; M. A. Latif; M. M. Hasan; M. A. Khaleque; B. N. Ahmed; R. Hashmi; M. N. U. Sarwar; M. T. F. Khan. 2010a. Impact of Prime
Interventions on Monga Mitigation in Greater Rangpur Region in Bangladesh (PRIME-I). Dhaka: Institute of Microfinance.
21. Khalily, M. A. Baqui; M. A. Latif; Tariq M. Shahriar; Md. Z. Iqbal; Md. Nasir Uddin Sarwar; and Claudia Berg. 2008. Monga in Greater Rangpur:
Intensity, Coping, Vulnerability, and the Impact of Mitigating Strategies. Dhaka: Institute of Microfinance.
22. Khalily, M. A., & Imam, O. (2001). Behavior of Microfinance Institutions and the Case for Regulation and Supervision. In I. Sharif, & G.
Wood(eds.), Challenges for Second Generation Microfinance--Regulation, Supervision and Resource Mobilization. Dhaka: University Press Limited.
Microfinance in Bangladesh | Badruddoza 25

26. References (contd.)
23. Khalily, M. A., Imam, M. O., & Khan, S. A. (2000). Efficiency and Sustainability of Formal and Quasi-formal Microfinance Programs--An analysis of
Grameen Bank and ASA. The Bangladesh Development Studies , XXVI, 103-146.
24. Khalily, M. A., Khaleque, M. A., Bidisha, S. H., & Ahmed, M. (2011). Access to Financial Services in Bangladesh. Dhaka: Institute of Microfinance.
25. Khandker, S. R., Khan, Z. H., & Khalily, M. A. (1995). World Bank Discussion Paper No. 306. Grameen Bank: Performance and Sustainability .
Washington DC: World Bank.
26. Khandker, S. R., Khan, Z. H., & Khalily, M. A. (1996). World Bank Discussion Paper No. 316. Sustainability of Government Targeted Credit Program:
Evidence from Bangladesh . Washington DC: World Bank.
27. Khandker, Shahidur R. & S. Badruddoza. (2011). Growth and Performance of MFIs in Bangladesh. Institute of Microfinance (InM), Dhaka. (Draft)
28. Khandker, Shahidur R. 1998. Fighting Poverty with Microcredit: Experience in Bangladesh. Oxford University Press, Inc. New York.
29. Khandker, Shahidur R. 2000. Savings, Informal Borrowing and Microfinance. The Bangladesh Development Studies, Vol. XXVI Nos. 2 & 3, June-
Sept, Special issue on Microfinance and Development: Emerging Issues. Dhaka.
30. Khandker, Shahidur R. and Wahiduddin Mahmud. 2010. Seasonal Hunger and Public Policies: Evidence from Northwest Bangladesh, Book
Manuscript, Dhaka: Institute of Microfinance.
31. Khandker, Shahidur R.; M. A. Baqui Khalily; and Hussain A. Samad. 2010. Vulnerability to Seasonal Hunger and Its Mitigation in Northwest
Bangladesh. InM Working Paper No. 4, Institute of Microfinance (InM), Dhaka.
32. Marcus, Rachel; Beth Porter and Caroline Harper. 1999. Money Matters: Understanding Microfinance. Save the Children. London.
33. Matin, I. et. al. 2002. Finance for the Poor: from Microcredit to Microfinance Services, Journal of International Development, Vol. 14.
34. MIX Market. (2010). Bangladesh Country Profile. Retrieved September 23, 2011, from MIX Market: www.mixmarket.org
35. Montgomerry, R. 1996. Disciplining or protecting the poor?: Avoiding the social costs of peer pressure in micro-credit schemes. Journal of
International Development, 8(2), 289-305.
36. Morduch J. 1998. Does Microfinance Really Help the Poor? Evidence from Flagship Programs in Bangladesh, Harvard University, mimeo.
37. Morduch, Jonathan. 1999. The Microfinance Promise. Journal of Economic Literature, 37(4): 1569–1614.
38. Mustafa, S. et al. 1996. Beacon of hope: An impact assessment study of BRAC's Rural Development Programme. Dhaka: BRAC.
39. Nteziyaremye, Anastase. Kathleen E. Stack and Barbara MkNelly. 2001. Impact of Credit with Education on Recruitment of New Members to the
Credit Unions of the Kafo Jiginew and Nyèsigiso Federations in Mali. Freedom from Hunger Research Paper 7. Freedom from Hunger. Davis, CA.
40. NWE (New World Encyclopedia). 2011. Bangladesh. New World Encyclopedia Website. accessed December 4, 2011.
http://www.newworldencyclopedia.org/entry/Bangladesh?oldid=953478 .
41. Pitt, M. M. and S. R. Khandker. 1998. The Impact of Group-Based Credit Programs on Poor Households in Bangladesh: Does the Gender of
Participants Matter?” Journal of Political Economy, October, Vol. 106. No. 5, pp. 958-996.
42. Pitt, M. M. and S. R. Khandker. 2002. Credit Programs for the Poor and Seasonality in Rural Bangladesh. The Journal of Development Studies, Taylor
and Francis Journals, Vol. 39(2), pages 1-24, January.
43. Pitt, Mark M. 1999. Reply to Jonathan Morduch’s ‘Does Microfinance Really Help the Poor? New Evidence from Flagship Programs in Bangladesh’.
October 1999. Brown University
44. PKSF (Palli Karma Sahayak Foundation). 2011. Annual Reports 2005-10, direct interview and website. www.pksf-bd.org. retrieved on April 2011.
Microfinance in Bangladesh | Badruddoza 26

27. References (contd.)
45. PKSF. (2010). PKSF Annual Report. Dhaka: Palli Karma-Sahayak Foundation, Dhaka.
46. Quayes, S., & Khalily, M. A. (2010). Efficiency of Microfinance Institutions in Bangladesh. (Draft) .
47. Rabbani, A., Hasan, M. M., Hasan, M., Mithun, T. C., & Howlader, A. (2011). Effectiveness of PRIME Interventions in Greater Rangpur at the
Household level and Institutional level:A Longitudinal Approach. Dhaka: Institute of Microfinance (InM).
48. Rahman, H. Z. 1995. Mora Kartik: Seasonal Deficits and the Vulnerability of the Rural Poor, in Rahman, H. Z. and Mahbub Hossain (eds.), Rethinking
Rural Poverty: Bangladesh as a Case Study, Sage Publications, New Delhi, India.
49. Rahman, H.Z., Hossain, M. 1991. The Anatomy of Mora Kartik: an Enquiry into the Economic Health of the Countryside. Technical Report. Bangladesh
Institute of Development Studies.
50. Rahman, R. I. and S. R. Khandker. 1994. Role of Targeted Credit Programmes in Promoting Empoyment andProductivity of the Poor in Bangladesh.
The Bangladesh Development Studies, Vol. XXII Nos. 2 & 3 June-Sept.
51. Ravallion, Martin. 1991. The challenging arithmetic of poverty in Bangladesh, Policy Research Working Paper Series 586, The World Bank.
52. Schuler, S. R.; S. M. Hashemi and A. P. Riley. 1997. The influence of women’s changing roles and status in Bangladesh’s Fertility Transition: Evidence
from a Study of Credit Programs and Contraceptive Use. World Development, 25(4), 563-575.
53. Sharif, I. 2001. Microfinance and Growth: Is There a Link?, pp.47-59, in Sharif, I. and G. Wood (eds.) Challenges for Second Generation Microfinance:
Regulation, Supervision and Resource Mobilization. The University Press Ltd., Dhaka.
54. Sinha, S. (2011). Bangladesh Microfinance Review. Dhaka: BRAC Development Institute.
55. Uddin, M. J. (2003). Current Interest Rate and Financial Sustainability of PKSF's Partner Organizations. Dhaka: Palli Karma-Sahayak Foundation.
56. Yunus, M. (1982). Experiences in Organising Grass Root Initiatives and Mobilising Peoples' Participation. The Case of Grameen Bank Project in
Bangladesh. (mimeo), Dhaka: Grameen Bank.
57. Zaman, H. 1999. Assessing the Impact of Micro-credit on Poverty and Vulnerability in Bangladesh. The World Bank Policy Research Working Paper
Series, no. 2145.
58. Zug, Sebastian. 2006. Monga- Seasonal Food Insecurity in Bangladesh- Bringing the Information Together. The Journal of Social Studies, No.
111, July-Sept. Centre for Social Studies, Dhaka.
Microfinance in Bangladesh | Badruddoza 27