Microfinance in Bangladesh

Chapter one: Introduction

1.1 Introduction

This Study focuses on the role of financial markets in the credit disbursement programs and the state of microfinance sector in Bangladesh. Although financial markets are the key source of funds, poor people hardly have access to these markets because of their poor creditworthiness. To serve these people, microfinance sector is doing its best. The sector has undergone tremendous transformation in all aspects over the last more than three decades following pioneering works of the Grameen Bank. The very visible changes are outreach and portfolio size, proliferation of microfinance through a large number of microfinance institutions, diversification of services, new regulatory regime, contribution in rural development, and recognition of microfinance and as a major contributor in poverty reduction. The methodology of Bangladeshi microfinance model has been replicated with or without variations in many countries and recognized as an excellent tool for poverty reduction. That has also brought international recognition in the form of Nobel Prize for Peace for Professor Mohammed Yunus and the Grameen Bank.

However, the sector is facing many challenges regarding institutional capacity, quality and diversity of services, fallout from political and macroeconomic factors and so forth. Above all, Bangladesh still remains a poor country with millions of her population living below the poverty line and facing many related challenges of livelihood and vulnerability. The country report discusses on all these issues to give an opportunity to the readers interested in microfinance, poverty reduction and development in general to reflect upon the status and future direction of the sector.

The overall savings performance of Bangladesh is promising compared to the developed and most of the developing countries. In 2008 the gross domestic savings of Bangladesh in percentage of GDP was reached to 35.9% when it was 37.8% for Malaysia, 34.1%...