We have been hearing and reading about Micro credit and collateral free loans and entrepreneurship since the independence of Bangladesh. BRAC and Grameen are well reputed in this line of duty and earned name & fame all around the globe. Even the greatest media like CNN and BBC, or great personality like Bill Gates and Bill Clinton had had praises for the programs, not to mention the foreign dignitaries whenever paid there goodwill visit to the country had never forgotten to attend the shows presented to them by the innocent villagers or another words the ‘Neo-entrepreneurs’. But before the collapse of the Soviet Union the picturesque of NGOs were never as same as now. The NGOs were stamped as a foreign collaborators who are acting in the country against socialist movements and communism by rendering economic helps to the have-nots so that they could not resist and fight to the social injustice, in other words to block the influence of the Soviet blocks. After collapsing of the Soviet Union, the mood and concepts of the NGOs and the critics of NGOs changed dramatically. In the newspaper of media the success stories or case stories began to erupt as evidence of success of the NGOs, which were termed as a direct outcome of collateral free micro credits.
When the essence of NGOs were well established globally, in other words NGOs established as a prescription for ‘poverty alleviation’ or ‘savior of the poor’ in the 90s, we had an ample opportunity to visit a NGO Micro Finance Institutions (MFIs) as a part of Master of Development Studies. We had experience the practice of Micro credit program providing collateral free small and medium loans to the hardcore poor women and female entrepreneurs of rural area. The basic idea that developed in the backdrop of the visit implicates that the Success of the micro credit lies on the success of business. After conducting a focused study with the limitation of small sample size we are exposing some findings followed by some recommendations.
Micro credit: Micro Credit (MC) is a socioeconomic tool to alleviate poverty by providing loan to the underprivileged peoples without any collateral to recognize their productive potentiality.
Micro enterprise: Micro Finance institutions who are providing loans to the hardcore poor with a view to developing their entrepreneurship.
Hardcore poor: People who are earning less than a dollar per day.
Enterprise development services: four categories of services that could be provided to the poor are given below:
Financial Intermediation: – The provision of financial products and services, such as savings, credit, insurance, credit cards and payment systems. But in practice Bangladeshi MFIs provides small loans, savings services in general.
Social Intermediation: The societal process of forming the humans as social capital and also leading to economic capital for financial sustainability.
Enterprise development Services: Non-financial services package depending on the type of business of the micro entrepreneurs, includes professional training, market analysis, technology services, competence development and business analysis.
Social Services: Covering the human development stage through providing free education, sanitation, health, non-financial services to improve the standard of living and building consciousness about reproductive health.
Sustainability of Micro Finance Institutions (MFI) and Beneficiaries:
Successful financial intermediation is often accompanied by social intermediation. Social intermediation prepares marginalized groups or individuals to enter into solid business relationships with MFIs.
Evidence has shown that it is easier to establish sustainable financial intermediation systems with the poor in societies that encourage cooperative efforts through local clubs, temple associations, or work groups-in other words, societies with high levels of social capital.
Perhaps more than any other economic transaction, financial intermediation depends on social capital, because it depends on trust between the borrower and the lender. Where neither traditional systems nor modern institutions provide a basis for trust, financial intermediation systems are difficult to establish.
Social intermediation can thus be understood as the process of building the human and social capital required for sustainable financial intermediation with the poor.
Ultimately, it is the groups cohesiveness and self-management capacity that enables them to lower the costs of financial intermediation by reducing default through peer pressure- and consequently to lower the transaction costs the MFIs incur in dealing with many small borrowers and savers (Bennett, Hunte, and Goldberg 1995).
1. The hardcore target groups are uneducated and unskilled to initiate a venture of their own, leading to women empowerment.
2. The poor women’s are just utilized as media to transfer the loan amount to their male members of the family.
3. The resultant factors of the failure of the target groups are their physical unfitness and over-age that impact adversely on productive potentialities.
4. Commonly loans are invested for short-term gain with a tiny and irregular turnover.
5. A number of women are in an explicit state of confusion to make a right choice to identify the lucrative areas to invest the money borrowed.
6. Investments are not current market- oriented and irregularities and anomalies in the business are causing an unwarranted additional tension in their life.
7. 98% of the beneficiaries repay the installment on a regular basis. Sometime they borrow money from their relatives and neighbors to deny bankruptcy.
8. Lack of knowledge pertaining to modern production, marketing and investment.
9. The Small & Medium Enterprise development scheme does not complete the business cycle because it is only production oriented and other essential functions like marketing, operation management is found missing.
From the above findings we have highlighted the following problems:
1. Lack of education and Technical skill.
2. Lack of Business conceptual knowledge.
3. Missing the enterprise development services of integrated approach.
4. Weak empowerment.
5. Productive potentials of the poor are not successfully achieved.
Theoretically the NGO MFIs balancing the sustainability.
is trying to follow the integrated approach of micro finance management to become a sustainable organization. But the question is to determine whose sustainability should be preferred in the first place, the organization’s or the target groups? What type of sustainability should be given preference? If financial sustainability is important to both the parties, then how they balance and share the notion of sustainability? If contemplated then we can easily realize the presence of a common element in both the parties and that is business. MFIs business is to develop different micro credit schemes to cover cost, expansion and financial independents and the target group must generate income by doing profitable venture. If the business is not profitable or successful both the party will die out of loss and if business is successful then both the party gains. Here, sharing and caring the business activities by both the parties may balance the sustainability and a combined effort is needed to overcome the challenges in business. The NGO MFIs must follow the integrated approach as a whole and mainly on the elements of enterprise development services concentrating on market driven business development.
The recommendation will trail the following steps:
1. To increase the rate of literacy and productive skills among the hardcore poor.
2. To organize the women into small business groups to exploit group investment and group labor. The idea is to develop community enterprise to gain more productive strength, competitive advantage and integrated investment.
3. The small groups will be again divided in to micro operational groups like production group, administrative group, marketing group etc and also given with specialized training in the respective discipline.
4. Conducting marketing research by the MFIs and establishing an international trade house (buying house) to market goods in international arena.
Providing adequate group loan by the MFIs to the business groups to generate enough funds for business through unified/group investment.
5. Engaging the business groups to create intermediary free distribution channel to ensure fair and faster national and international business.
6. NGO MFIs must act as a common partner of the business groups in balancing the sustainability of both the MFI and beneficiaries. Must follow participative business approach to over come the barriers of enterprise development and business.
7. Must promote and develop the labor-intensive product to generate employment in the rural area.
Micro credit is an economic endeavor to alleviate poverty through income generation activities (IGA) in initial stage. IGA is to engage poor in productive activity leading to independent business enterprise, and success of the micro credit program and the beneficiaries fully depends on the success of the business. So the MFIs and the beneficiaries must concentrate on the enterprise development services for excellence in business development leading to the success of micro credit scheme. a successful one so that the beneficiaries will become more strengthened with modern production and marketing skill to complete the total business circle
And it will also provide the beneficiaries with expertise and knowledge to groom them as successful and sustainable rural entrepreneurs in creating innovative market-driven business.