1. PhD Dissertation July 30, 2010 The Microfinance Initiatives for Poverty Alleviation: Rhetoric and Reality in Bangladesh Proposed by Muhammad Sayeedul Haque D075936 Supervised by Dr. Masahiro Yamao Professor Food Production Management Graduate School of Biosphere Science

2. Literature review, conceptual framework and research design 2 : Title Chapter 1 : Introduction 3 : Poverty alleviation approaches in Bangladesh 4 : Rural financial markets and microfinance programs in Bangladesh 5 : Basic information on respondents and study areas 6 : Impact of microfinance program on poverty and vulnerability 7 : Microcredit interest rate: Institutional sustainability Vs borrowers’ graduation 8 : Women’s empowerment and microfinance programs 9 : Prospects and challenges of Islamic microfinance programs 10 : Summary, conclusion and recommendations

6. In March 20, 2000 Momena with President Clinton (left) and memory of Clinton’s gift to her (right) ( Photo: William Vasta ) Momena’s house made by Grameen Bank to show as her success in poverty alleviation In May 2008 Interview with Momena & her husband Successful and Empowered

7. Successful or Empowered ? April 2008 Her Toilet (!!) Her Kitchen cum living room (!!) Her Property (!!)

10. The main target of the study is to investigate into the effectiveness of the microfinance programs addressing dimensional issues of poverty in the agrarian economy of Bangladesh.

11. 1. To assess the basic information of the members and non-members of the MFPs in study areas; 2. To investigate into the poverty alleviation capacity of MFPs; 3. To measure institutional sustainability of the MFIs and graduation of their beneficiaries under current interest rate; 4. To evaluate the level of women’s empowerment with and without participation in the MFPs; and 5. To asses the prospects and challenges of Islamic MFPs in Bangladesh.

13. Microfinance Loan Misuse No investment No Savings No income High population Donor grants Interest earning Membrs’ saving Govt. Grant ☆ Relief Works ☆ Training ☆ Health&Sanitation ☆ Nutrition ☆ Education ☆ Microcredit ☆ Micro Savings ☆ Micro Insurance ☆ Housing Loan Financial Intermediation Social Intermediation Women’s Empowerment Awareness Loan Repayment Income creation Savings & Insurance HH Maintaining Improved Living Standard Social wellbeing No Poverty Proper loan use Research Questions 1. Can microfinance alleviate poverty? 2. Is interest rate justifiable? 3. Can it empower women beneficiaries? 4. Is Islamic MFP an alternative to conv. one? ?? Islamic Microfinance ☆ Low Interest ☆ Loan in kind ☆ Profit & loss sharing ☆ Easy loan repayment Sustainability Utilization Indebtedness Problems ☆ No Training ☆ Loan misuse ☆ High interest rate ☆ Insufficient loan ☆ Hard repayment policy Borrowers’ Graduation Outcomes NGO-MFI Intervention Financial Help Requirements Assumption Assumption In Practice In Practice Vicious circle of poverty Poor Health No income No Investment No Savings No income Figure 2.1: Conceptual Research Framework

15. Data collection: Respondents selection & interview : May-June 2008 Teleconference : Whenever necessary throughout the year Instruments: Structured and semi-structured pre-tested questionnaire Data collection methods : Direct interview, phone & teleconference Sample size: 600 women members with 6 years membership; : 100 non-members with same socio-economic status. Target population: Women members, branch managers/field officers of Grameen Bank, BRAC, ASA & RDS and non-member women Study area: Rural & sub-urban areas of Dhaka, Mymensingh, Sherpur, and Habiganj Districts in Bangladesh

17. Bangladesh in South Asia Mymensingh Dhaka Sherpur Habiganj Source: Banglapedia, 2006

19. Photos: Group discussion with the Members of NGO-MFIs

21. (ii) Inactive members group (n= 150) Respondents, already left or dropped out from the MFI successfully or failing after the same time period involvement. (i) Active members group (n= 450) Respondents, currently participating an MFI and had been involved in the MFPs for at least 6 years. (iii) Non-members group (n= 100) Respondents who lived in the same villages but did not participate in any MFPs even though they would have qualified to join. Category of Respondents

22. Trying to raise income CHAPTER 3: POVERTY ALLEVIATION APPROACHES IN BANGLADESH Poor sitting roadside for alms

25. Fig: Bangladesh Poverty Map showing spatial poverty level Present study covers spatial variation of poverty

27. Pro-poor Social Safety-Net Programs under Government Sectors Author’s observation, 2010 Poor Fund for rehab of the acid-burnt & the physically handicapped Microcredit for self employment Allowance for the Fully Retarded Vulnerable Group Feeding Honorarium for Insolvent Freedom Fighters Allowance for Poor Lactating Mothers Allowances for widowed, deserted & destitute women Cash Food Cash, food & training Small loan Old-age Allowance Program Test Relief Training & Self-emplo yment for Insolvent freedom-fighters & their dependants Vulnerable Group Development Food for Work

28. As of March, 2010 Source: Haque, 2010; Grameen Bank, 2010; BRAC, 2010 and ASA 2010 BRAC represents 1/3 of total micro-borrowers Grameen provides maximum loans Loan recovery rate is highest for BRAC Highest deposit collection by Grameen Bank 19.19 99.00 47.1 0.60 1995 RDS 162.52 96.10 437.76 6.42 1978 ASA Areas of Performance Grameen Bank BRAC Year of establishment 1983 1972 Current Members (million) 7.87 8.15 Outstanding (million US$) 2724.04 670.26 Rate of Recovery (%) 97.86 99.29 Members’ Savings (million US$) 989.98 238.91

29. CHAPTER 4: RURAL FINANCIAL MARKETS AND MICROFINANCE PROGRAMS IN BANGLADESH

35. CHAPTER 5: BASIC INFORMATION OF THE RESPONDENTS AND STUDY AREAS Men paying weekly payments instead of women Photo: Arranged meeting for interview

37. Socioeconomic Profile of the Respondents (1/2) Source: Field Survey, 2008 (June 2008, US$1= BDT 68.52) ʘ All of the respondents can sign their names ʘ Average schooling years: 2.411 yrs ʘ Literacy rate :12.57%. Education ʘ Average annual family income: BDT46465.00 ʘ Average expenditure : BDT45054.00 Income & Expenditure ʘ Respondents’ average age : 35.79 yrs ʘ Family members varied from : 2 to 15 ʘ Male: Female :: 3.10::3.30 ʘ Average family size : 6.40 persons ʘ Dependency ratio : 1: 5.32 Family Composition

38. Socioeconomic Profile of the Respondents (2/2) ʘ Majority of the respondents were housewives ʘ Main occupations of the HH head: small business (80%), and farm labor (16%) Occupation ʘ All respondents have at least homestead ʘ Average land holding per household : 0.19 ha Landholding ʘ 98% of households are male headed ʘ Borrowed money was operated by husband or sons ʘ Self-operation was a rarity. Gender Issues

39. Average Loan Requirements, and Received by the Respondents (Amount in BDT) 1/3 of loan requirements are met by institutional sources Figures within parentheses indicates Standard Deviation Loan Received 31.63 42.29 12095.00 (7975.92) 28601.39 (9361.68) 38240 (8918.545) All (Active & Inactive) 24.04 31.04 10466.67 (6737.922) 33720.00 (8285.81) 43540.00 (9474.369) Inactive Members 41.66 58.44 13723.33 (9213.92) 23482.77 (10437.55) 32940.00 (8362.72) Active Members 46.28 100.00 19680.00 (5399.32) 19680.00 (5399.32) 42520.00 (14996.92) Top 81 Members % of applied amount % of requirements Amount Received Amount Applied for Amount Required Groups

40. Distribution of the respondents by the amount of money currently borrowed Only 18% Active members borrowed ≧ than BDT30,000 About 62% members borrowed ≤ BDT20,000 100 600 100 150 100 450 Total 2.67 16 0 0 3.56 16 50,001 & above 3.67 22 1.33 2 4.44 20 40,001 - 50,000 10.00 60 10.00 15 10.00 45 30,001 - 40,000 21.05 129 23.33 35 20.89 94 20,001 - 30,000 23.50 141 27.33 41 22.22 100 15,001 - 20,000 25.50 153 25.33 38 25.56 115 10,001 - 15,000 13.17 79 12.67 19 13.33 60 5,001 - 10,000 % Freq % Freq % Freq All Inactive Member Active Member Amount (BDT)

41. Categories of Respondents according to different types of Poverty Destitute and extreme poor have been excluded 86% members are Non-poor 700 100 150 450 Total 0 0 0 0 Destitute 95 12 73 10 Extreme Poor 244 37 46 161 Moderate Poor 280 40 26 214 Vulnerable non-poor 81 11 5 65 Non-poor / Better of poor / Rich All Non-members Inactive Members Active members Category

42. Photos: Women engaged in income generating activities CHAPTER 6 : IMPACT OF MICROFINANCE ON POVERTY AND VULNERABILITY

44. Activities undertaken with Microfinance Majority of the members spent borrowed money on unproductive purposes 2/3 respondents spent money for consumption purposes MFPs facilitates money lending 100 1660 100 499 100 1161 Total 2.00 12 0 0 2.67 12 Lend money on interest 3.83 23 1.33 2 4.67 21 Purchasing rickshaw 4.00 24 0 0 5.33 24 Fish culture 4.67 28 0 0 6.22 28 Renting/mortgaged in farm land 5.83 35 8.00 12 5.11 23 Meet marriage expenses 12.50 75 2.67 4 15.78 71 Livestock rearing 15.67 94 24.00 36 12.89 58 Meet medical expenses 24.00 144 64.00 96 10.67 48 Consumption 29.67 178 26.67 40 30.67 138 House building and repairing 30.83 185 28.67 43 31.56 142 Poultry rearing 33.33 200 26.67 40 35.56 160 Small trading 37.00 222 54.67 82 31.11 140 Agro-support/based activities 72.00 432 94.67 142 64.44 290 Repayment of old debts % Freq % Freq % Freq All Inactive Members Active Member Purpose

45. Factors Affecting Timely Loan Repayment For getting bigger loan repayment rate increases Supervision and monitoring do not work IGAs taken with MFPs have contribution ? 15.33 92 1.33 2 20.00 90 Sufficient earning from MCPs for loan payment 14.83 89 1.33 2 19.33 87 Ease of payment through installments 25.17 151 72.00 108 9.56 43 Pressure of filed officers 17.50 105 31.33 47 12.89 58 Pressure of group members 7.00 42 0.00 0 9.33 42 Supervision and monitoring by field officers 12.50 75 2.00 3 16.00 72 Self consciousness 95.33 572 100.00 150 93.78 422 To get further loan in big amount Percent Frequency Percent Frequency Percent Frequency All (N=600) Inactive members (n=150) Active members (n=450) Factors

47. Figure: Types of Housing Enjoyed by the Respondents Semi-pucca House Jhupri Katcha House Tin Shed house

50. Non-members’ economic status is better than inactive members Inactive members cannot repay their indebtedness by selling all their properties they made

51. Low skilled Low Productivity No Investment Poor No Income Inadequate Diet No Employment No Saving Poor Health Moneylenders Consumption Microfinance Fig : Microfinance Failed to break Vicious Circle of Poverty (Source: Author’s Observation)

54. Women engaged in extra IGAs Poor waiting for relief CHAPTER 7 : MICROCREDIT INTEREST RATES: INSTITUTIONAL SUSTAINABILITY Vs BORROWERS’ GRADUATION

56. Terms and Conditions of Microcredit Source : Field Survey, 2008 Much difference between interest receiving & paying Lowest number of weekly installments by ASA Lowest interest charged by RDS Particulars Grameen Bank BRAC ASA RDS Admission fee (BDT) 0 0 20 0 Loan size in first cycle 6000 4000 5000 5000 Initial deduction/BDT1000 (as forced savings) 0 50 0 0 Flat Interest rate (%) 11.00 12.50 12.50 7.50 Repayment mode (weekly installment) 46 46 37 44 Installment amount / BDT1000 25 28 30 25 Weekly savings (BDT) 20 25 20 25 Interest on savings (%) 8.50 5.00 4.00 6.00

59. Comparison of Interest Rates of Lending Sources in Bangladesh Source: Authors’ Calculation (See Annex 1) Annual percentage rate (%) Any difference between interest rate of formal and informal sources? Highest interest charged by BRAC Lowest interest charged by RDS 50-150 50-150 33-120 Informal sources 27.76 23.83 7.50 RDS 36.68 30.68 12.50 ASA 51.31 46.38 12.50 BRAC 36.59 33.56 11.00 Grameen Bank Effective Interest Rate Incl. Costs Effective Interest Rate Announced Interest Rate Lending Sources

61. Encountering Arguments Sir Fazle Hasan Abed Conferred Knighthood Dr. Younus got Nobel Prize Grameen Bank HQ BRAC Center Poor waiting for Relief Photo source: URLs of Respective MFIs

62. Case of ASA Service charge is at least 10 times higher than cost involved

63. MFIs already achieved Operational sufficiency Financial sufficiency suggests for reducing interest rates

64. Annual Profit of Leading MFIs Note. MFIs are Non-profit Motive

65. 93 Borrowers Repayment Capability

68. “ We want affordable credit” - Center Leader (elected Union Council member) CHAPTER 8: WOMEN’S EMPOWERMENT AND MICROFINANCE PROGRAMS

70. Control over Loan Utilization & Funded Enterprises Except widowed, separated or divorced and younger married few has full control over loan

72. Scores Obtained by the Respondent Women in Six Dimensions of Empowerment Score range: 0-24 Score range: 0-24 Score range: 0-30 Score range: 0-18 Score range: 0-15 Score range: 0-30 Non-members achieved more than Active and inactive members Active members improved than Non-members

73. Categories of women according to their status of overall empowerment with and without participation t-statistics for Active, Inactive and Non-members were 43.740**, 20.191** and 16.512** respectively where **P<0.01 Obtained scores 9 to 137 (Possible 0 to 141) Non-members - 11 to 137 Active members 17 to123 Inactive members 9 to 85 Non-members improved or at least sustained their empowerment status MFPs fail to empower their women beneficiaries Categories and score range Percentage Mean and std. dev. Active (n=450) Inactive (n=150) Non- membrs (n=100) Active (SD) Inactive (SD) Non-membrs (SD) Very low empowerment (up to 47) 66.00 69.30 62.00 Low empowerment (48 to 71) 13.78 22.70 14.00 Medium empowerment (up to 72 to 94) 17.11 8.00 21.00 45.75 (22.188) 34.55 (20.959) 45.54 (27.580) High Empowerment (Above 94) 3.11 0.00 3.00 Total 450 150 100

75. Relationship between rural women’s empowerment and selected characteristics Nine variables had significant positive relationships. 1 based on active and Inactive members Variables like duration of participation, training received and purdah use, did not in fact show any significant relationship 0.634** Status of Natal property 0.648 ** Husband’s attitude towards empowerment 0.752 ** Control over credit 1 - 0.008 Purdah use - 0.41 Duration of participation 1 0.071 Marrying age - 0.041 Training received - 0.116 ** Family size 0.696 ** Contribution to household 0.232 ** Annual household income 0.848 ** Education of husband 0.753 ** Education - 0.178 ** Age Correlation Coefficient (r) Independent Variables

76. Stepwise Multiple Regression Analysis Showing Variation of Women’s Empowerment Score Explained by Different Factors Education and attitude of HH head are most important for women empowerment Model Variable entered Multiple R Coefficient of determination R 2 % of variation expressed 1 Education of husband / household head 0.848 0.719 71.9 2 Attitude of male partner towards empowerment 0.872 0.760 4.1 3 Education 0.882 0.779 1.9 4 Contribution to household 0.890 0.792 1.3 5 Age 0.896 0.803 1.1 6 Training received 0.897 0.805 0.2 7 Yearly annual income 0.913 0.834 2.9 Source: Results of authors’ analysis (2010)

77. Photo source: Islamic foundation Bangladesh CHAPTER 9 : PROSPECTS AND CHALLENGES OF ISLAMIC MICROFINANCE PROGRAMS

79. Difference between Conventional and Islamic Microfinance On full repayment of loan At the time of loan handover Ownership transfer In kind In cash Mode of investment Applicable Not applicable Profit and loss sharing Applicable Not applicable Risk sharing Profit based Interest based Principle Islamic economics General economics Source Islamic Microfinance Conventional Microfinance Criteria

82. Borrowers’ Perception towards Islamic MFPs (1/2) Scale: 1=strongly disagree; 2=disagree; 3=no opinion; 4=agree; 5=strongly agree. 0.853 2.00 1.032 3.83 No barriers in practicing Purdah 0.778 2.67 1.209 3.30 No scope of mixing unknown male persons in unknown places 0.732 4.02 0.753 4.375 Borrowing from bank is preferable than NGOs 0.739 4.00 0.955 4.03 Good behavior of the RDS field officers to their clients 0.996 3.91 0.709 4.08 Flexibility in weekly installment payment system of RDS 1.073 3.67 1.323 3.18 RDS is nearer to our dwelling houses 0.835 4.17 0.731 4.23 RDS charges lower profit (interest) compare to conventional NGO-MFIs 0.953 2.00 0.516 4.31 Islamic in character and it does not deal with interest SD Mean SD Mean Non-muslim (N=12) Muslim (N=70) Opinions

83. Respondents’ Perception towards Islamic MFPs (2/2) Scale: 1=strongly disagree; 2=disagree; 3=no opinion; 4=agree; 5=strongly agree. NA = Not applicable 0.693 4.64 NA NA If it is available, I shall join IMFIs NA NA 0.858 4.15 If it is available, I shall join IMFIs leaving current membership 0.954 4.22 1.341 3.02 No barriers in practicing Purdah 0.842 3.84 0.753 4.38 Borrowing from bank is preferable than MFIs 1.361 3.06 NA NA No chance of mixing unknown male persons in unknown places NA NA 0.879 3.99 Undue pressure by conventional MFIs on weekly payments 1.015 4.30 0.692 4.45 RDS charges lower profit than conventional MFIs 0.573 4.72 1.064 4.21 Islamic in character and it does not deal with interest SD Mean SD Mean Non-members Members of MFIs Opinions

85. CHAPTER 10 : SUMMARY, CONCLUSION AND RECOMMENDATIONS

90. The End

91. Annex 1 1150 150 1000 505.3244917 Total 25 25 0 0 46 25 25 0 0 45 25 25 0 0 44 25 25 0 0 43 0.002115385 25 4.079162 20.92083757 20.92083757 42 0.002115385 25 0.096935 24.90306482 45.82390239 41 0.002115385 25 0.149504 24.85049646 70.67439885 40 --- --- --- --- --- --- --- --- --- --- --- … . 0.002115385 25 1.92113 23.07886974 908.17067 5 0.002115385 25 1.969848 23.03015211 931.2008222 4 0.002115385 25 2.018463 22.98153732 954.1823595 3 0.002115385 25 2.066975 22.93302515 (A2) 977.1153846 2 (E1) 0.002115385 (D1) 25 ( C1 ) 2.115385 (B1) 22.88461538 (A1) 1000 1 Received E D C1= B1xE1 B1= D1-C1 A2 = A1-B1 Interest Principal Interest Rate Weekly PMT Amount of Installment payments Outstanding balance Week # Calculation of Effective Interest Using Flat Method Consider, loan amount = Tk. 1000; Loan term = 46 weeks; Amount of installment (PMT) = Tk.25 /Tk. Thousand ; Loan repayment period = weekly; Annual interest rate (flat) = 11% , So, weekly interest rate (11/52 weeks) = 0.212%