With a population of almost 170 million people, Bangladesh is often overlooked when thinking of the most populous nations in the world. Over the past decade, massive urbanization has occurred across the country, expediting poverty reduction in rural areas, according to the World Bank. Overall, the World Bank states that 39.6 million citizens are below the national poverty line as of 2016. 

This number, although high, has been gradually decreasing in both rural and urban areas for different reasons. Urbanization has led to technological advancement in rural regions that allows for improvements in agricultural development, rapidly increasing economic output and decreasing poverty in these regions. In fact, rural poverty reduction accounts for 90% of all poverty reduction in Bangladesh, according to the World Bank. On the other hand, urban areas relied on manufacturing welfare gains. Low job creation in this industry has stunted the reduction of poverty in urban areas. 

Bridging this unequal reduction, unique techniques of microfinancing in Bangladesh have become a surprising strategy to fight poverty. 

What are Microfinance Institutions?

Microfinancing is a form of ethical loan for low-income citizens of a country. These loans are simple to repay and are intended to stimulate economic innovation and growth or help sustain a low-income household. 

Providing assistance in rural Bangladesh, these microfinance loans are distributed by many national and specialized banks, NGOs and government agencies. This form of financing is available from many institutions but has been collectivized and streamlined most effectively by 10 microfinance institutions (MFIs) and the Grameen Bank. These total 87% of all microfinance providers. Nobel Peace Prize winner and founder of Grameen Bank, Dr. Mohammad Yunus, has led his foundation in financing almost 9 million borrowers, with 97% being women.

Microfinancing generally funds six categories: 

• Small-scale self-employment
• Enterprises
• Extreme-poverty prevention
• Agriculture
• Seasonal loans
• Natural disasters

All of these target various forms of poverty in Bangladesh and are reflective of poverty across the world. By financing and targeting these areas, anti-poverty efforts can receive the funding needed to stabilize lower-income households and national economic growth. 

How MFIs Fight Poverty in Bangladesh

These institutions drastically help those in rural Bangladesh. By opening access to financial credit assistance for lower classes in the country, economic stimulation helps bring down regional poverty. 

According to the International Food Policy Research Institute, “Bangladesh’s MFIs cover some 32 million members and give out more than $7.2 billion annually.” Furthermore, these institutions have eliminated 10% of poverty in rural regions, collectively eliminating poverty for 2.5 million citizens.

Beyond simple credit, these institutions need to develop marketing techniques and skills for those receiving aid. A large criticism of MFIs is their potential lack of long-term stability and effectiveness. With the addition of skill education, impoverished populations will receive aid and learn to grow it. 

Another criticism is the limited accessibility caused by high interest rates. As of 2011, Bangladesh’s Microcredit Regulatory Authority (MRA) limited MFI interest rates to 27%. Nonetheless, this should and could be capped lower to increase accessibility for Bangladeshi families. 

With the continued expansion of MFIs in Bangladesh, companies are progressing, advancing and consolidating into more organized institutions that better serve the general public. 

The Unique Effect of MFIs on Women

Microcredit institutions have specific positive externalities for women. According to the Global Gender Gap Index of 2020, Bangladesh’s gender disparity was significantly higher than any other South Asian country, ranking 50th out of 144 countries worldwide. Once again, it is the non-economic policies of MFIs that benefit women the most. Currently, only 36% of working-age women are part of the nation’s labor force. 

The education and financial literacy provided by these institutions provide women more opportunities to become financially independent and break down the stigma against women in the workforce. This social assistance adds value to the benefits of microfinance in Bangladesh. 

– Sahib Singh
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