1. Introduction

In recent years, microcredit, in its wider dimension known as microfinance, has become a much favoured intervention for poverty alleviation in the developing countries and least development countries. There is scarcely a poor country and development oriented donor agency (multilateral, bilateral and private) not involved in the promotion (in one form or other) of a microfinance program. Many achievements are claimed about the impact of microfinance programs, and an outside observer can not but wonder at the range of diversity of the benefits claimed.

Although Bangladesh has huge potential for development, it is, for various socio-economic reasons, among the poorest countries in the world. About half of the country's population live below the poverty line with 80% in the rural areas. The burden of poverty falls disproportionately on women, who constitute half of the total population. Logically, therefore, poverty alleviation and creation of rural employment are top priorities in the development agenda of the government of Bangladesh (GOB) which has adopted a broad-based approach to poverty alleviation, emphasizing macroeconomic stability, economic liberalization, and support for a number of government agencies and non-government organizations (NGOs). Substantial progress has been made in implementing the microcredit program (MCP), and the scope for its efficient expansion is enormous.

Money begets money. Adam Smith said “Money, says the proverb, makes money. When you have got a little, it is often easy to get more. The great difficulty is to get that little” (“The Wealth of Nations” 1937, p. 93). It is very difficult for the poor to get small working capital from formal banking system for various reasons. A collateral free working capital loan is the requirement at the door steps of the poor at the right time to help them facilitate and start feasible intended income generating activities (IGAs). It is with this background that, microfinance is seen as one of the significant approaches to poverty alleviation.

2. Evolution of Microfinance Institutions in Bangladesh

During the late 1970s, when the 'Jobra' experiment was underway under Professor M. Yunus, the Dheki Rin Prokolpa was initiated by the Bangladesh Bank in collaboration with the Swanirvar Bangladesh, and several other pilot schemes were initiated by a handful of the NGOs which were active then. At that time, it was difficult to conceive that these initiatives would lead to a major microcredit movement, which would make Bangladesh known to the rest of the world. Even during the 1980s, in spite of Grameen Bank’s success, the main discourse amongst development practitioners in Bangladesh centered around the desirability of microcredit program as opposed to conscientization. By 1990, unhindered experimentation in the fields led to a quiet resolution of the debate and the country experienced a massive expansion of microfinance activities during the 1990s. PKSF contributed significantly to the expansion of microcredit programs in Bangladesh. This is borne out by the figures on the time path of NGO-microfinance institutions (NGO-MFIs) expansion (see Figure 1), as well as, by the expansion in membership in these MFIs (see Figure 2).

This rapid expansion drew attention from all important quarters–policymakers, academia and development practitioners–each trying to grapple with the unfolding stream of issues and trying to shape the course of the social and economic dynamics initiated due to introduction of microcredit. With a view to meet the demand for fund for re-lending by the development partners (NGO-MFIs), and due to an urge to coordinate the flow of such funds to appropriate use, the Palli Karma-Sahayak Foundation (acronym PKSF and the full Bengali name can be translated in English as "Rural Employment Support Foundation") came into being in late 1990. Over the years, its share in the revolving loan fund of the MFIs increased– from 9 percent in 1996 to 24 percent in 2002 (see Table 2). In recent years MFIs have moved from the margins of the financial system towards the mainstream. It is now more widely accepted that populations traditionally excluded by the formal financial sector can, in fact, be a profitable market niche for innovative banking services. The 1997 Microcredit Summit held in Washington D.C., launched a global movement to reach 100 million of the world's poorest families with credit for self-employment and other financial and business services by the year 2005. Much remains to be done, however, to integrate microfinancial systems, and for orthodox financial institutions, notably commercial banks, to recognize its full potential.

Figure 1

Note: This captures only those MFIs which responded to CDF query during their bi-annual surveys.

Source: Compiled from CDF data.

Figure 2

Note: Each unit along the horizontal axes is two years, except for the last unit (between 12 & 13), which captures the difference between 1996 and 1997.

Source: BIDS Census of 91 villages, October-December 1997.

3. Coverage Under Microcredit Programs

Microcredit programs (MCP) in Bangladesh are implemented by various formal financial institutions (nationalized commercial banks and specialized banks), specialized government organizations and semi-formal financial institutions (nearly 700 NGO-MFIs). The growth in the MFI sector, in terms of the number of MFI as well as total membership, was phenomenal during the 1990s and continues till today. The total coverage of MCP in Bangladesh is approximately 13 million households. Table-1 gives the coverage of major institutions in the formal and semi-formal sectors.

There is debate, however, on the extent of overlap- one borrower taking loan from more than one microfinance institution. The general consensus is that a national average would be that 15% of all borrowers are borrowing from more than one MFI. In that case the effective coverage is about 11 million households. Out of 11 million households covered by MCP, about 80% are below poverty line and so about 8.8 million poor households are covered by MCP. With an estimated households of 26 million, out of which about 46% are poor households, the total number of poor households is approximately 11.96 million. Therefore, there is still scope of extending the coverage of microcredit programs to an approximate 3.16 million households.

Table - 1: Coverage of Microcredit Program as of June 2002

Sources : PKSF Statistics, CDF Statistics

NGO-MFIs are the major providers of microcredit in Bangladesh. Table 2 depicts the sources of fund of NGO-MFIs in Bangladesh.

Table- 2 : Sources of Microcredit and Revolving Loan Fund of NGOs.(Fund : Taka in million)

4. Microcredit Programs of Two Specialised Institutions

Grameen Bank: Though this bank was established in 1983 by an ordinance, it started its activities in 1976 as an experimental project. Later it expanded the operation by organizing the assetless people and providing them credit support for income generation and capital and asset building. An amount of Tk. 180209.3 million has been disbursed as credit by June, 2003 to about 2.8 million members in 390 upazilas of 60 districts through 1,182 branches. The amount of recovery is Tk. 165955.8 million during this period. The bank's operation reached 42,611 villages in the country. Grameen Bank members had saved more than Tk. 8438.4 million in their savings accounts. A total of Tk. 7789.7 million for housing loan has been disbursed up to June 2003. With these housing loans Grameen borrowers have built 5,69,690 houses. Grameen model has been replicated in several countries around the globe.

Bangladesh Rural Development Board (BRDB): BRDB has been working in the field of rural development, especially, towards poverty alleviation through cooperatives and non-formal group network throughout the country with the financial and technical support of the Government of Bangladesh and development partners. The target groups of the program include small farmers (holding up to 0.50 acre of land), and assetless women and men. Family planning, health and education programs are also included in the credit and training activities. During the period from 1990-91 to 2002-03 (up to June, 2003), 1.6 million members under 58,389 societies of 449 upazilas have borrowed Tk. 24302.9 million, of which, Tk. 21710.8 million has been recovered under the projects implemented for poverty alleviation (with microcredit component) notably: Rural Development-5 in 27 upazilas, Self-employment Project for Women in 21 upazilas of Jessore district, Integrated Women Development Project in 200 upazilas, Social Development Project : through the Participation of Local People for Poverty Alleviation in 7 upazilas of Sylhet, Rajshahi and Patuakhali districts aided by UNDP.

5. Palli Karma-Sahayak Foundation (PKSF) : Apex Funding Organization

Palli Karma-Sahayak Foundation (PKSF), since its establishment in May 1990 by the Government, has been working as an apex microcredit and capacity building organization for eradicating poverty initially in the rural areas and subsequently in urban areas. The basic operational strategies of PKSF (Rural Employment Support Foundation) are the following:

* It does not directly lend money to the landless and the assetless people rather reaches its target groups through its Partner Organizations (POs);

* It provides greater thrust to institutional development, both its own capacity as an apex organization as well as the capacities of POs;

* It favours no particular model; instead, innovations and different approaches based on experience are encouraged;

* It acts as an advocate for appropriate policies and regulations useful for the microcredit sector.

Though instituted by the Government, legally PKSF is a "company limited by guarantee" meaning "company not for profit" and is registered under the Companies Act of 1913/1994 with the Registrar of Joint Stock Companies. The legal structure of PKSF allows flexibility, authority and power to take programs and implement them throughout the country and managing its affairs as an independent organization.

PKSF currently provides loanable funds to 192 POs- 3 big and 189 small and medium- under its four mainstream credit programs: Rural Microcredit; Urban Microcredit; Microenterprise credit and Microcredit for the Hardcore Poor. It charges differential service charges for its two categories of POs: 7% for the big POs and 4.5% for the small and medium POs. It also operates a loan program for capacity enhancement of POs at a subsidized rate of 1% service. It provides customized training courses and has a well-developed training strategy including outsourcing to private and public sector institutes. On-site technical assistance is also offered during the intensive schedule of field visits undertaken by PKSF personnel. As of February 2004, PKSF has disbursed a total amount of about US$ 276.87 million among 4.55 million poor borrowers about 90% of whom are women. PKSF's loan recovery rate is over 98%. Independent evaluation studies have shown that PKSF's microcredit program implemented through its POs has helped alleviation of poverty.

Some of the best practice lessons evident in the PKSF experience include:

* PKSF has been established and funded by the government, but it has been kept as an independent organization outside government bureaucracy. This has enabled PKSF to form .its own policies and develop its own management practices suitable for its activities.

* The outstanding quality of the Governing Body has contributed most in guiding the management and forming and revising policies whenever necessary.

* The policy of recruiting officials of above average quality has contributed greatly to the growth and performance of PKSF.

* PKSF has been successful in utilizing the capacities of local NGOs in quickly reaching the poor and developing the POs to deliver the financial services to the poor. Selection of the .right POs was the most crucial factor for PKSF's success.

* PKSF has created a congenial "microcredit culture" in Bangladesh by introducing several standards, norms and guidelines for operation of microcredit programs.

* PKSF's pragmatic policies and practices have made it the world's largest and most successful autonomous apex funding agency (wholesale fund) for microcredit and PKSF model is now being replicated in different countries of the world.

6. Microcredit Programs of Three Big NGO-MFIs

Bangladesh Rural Advancement Committee (BRAC): Established mainly for relief and rehabilitation activities in 1972, BRAC is, at present, operating in a range of areas such as credit disbursement, non-formal education for both children and adults, primary health care, legal counselling on women rights and so on. Up to December 2002, a total amount of Tk. 88610.2 million has been disbursed as microcredit to about 3.5 million beneficiaries (female 99 percent) in 460 upazilas of 64 districts, and the recovery rate is 99.27 percent. The amount of savings of the beneficiary groups is Tk. 5294 million up to December 2002.

ASA (Association for Social Advancement): ASA has been operating microcredit program since 1992. The cumulative credit disbursement and recovery are Tk. 59361.6 million and Tk. 50109.8 million respectively up to December 2002. The recovery rate is 99.96 percent. The number of beneficiaries is 2.1 million of which 95.71 percent are women. In 2002 the average loan disbursed per member was Tk. 7507.00.

PROSHIKA: Established in 1976, PROSHIKA has been carrying out a range of activities like, credit support, fisheries and livestock development, sericulture development, irrigation, health and nutrition, installation and distribution of tube wells, eco-friendly agriculture, social forestry, housing program etc.

7. Microcredit Programs of Government Agencies

The Government distributes microcredit through different ministries, departments and agencies. These include the following ministries and their agencies: Finance Division; Ministry of Social Welfare; Ministry of Women and Children Affairs; Prime Minister's Office; Ministry of Labour and Employment; Ministry of Fisheries and Livestock; Ministry of Industries; Ministry of Textile; Ministry of Agriculture; Ministry of Local Government, Rural Development and Co-operatives; Ministry of Land; Ministry of Youth and Sports; and Cabinet Division. Upto 1999/2000, disbursement was estimated at Tk. 20,350 (US$ 407) million. Some of the major programs are discussed below.

Ministry of Women and Children Affairs
The poverty alleviation programs of the ministry aim to reach the poorest segments e.g. the assetless women and female-headed households, develop their capacity and create self-employment opportunities through microcredit. During 1999/00, 10 microcredit programs were implemented by different agencies of the Ministry with distinct target groups e.g. rural and urban poor women, adolescent drop out school girls, Vulnerable Group Development (VGD) cardholders, rural destitute women in reproductive age, poor women earning less than Tk. 10 (US$ 0.20) per day or owning less than 0.5 acre of land, female headed households, and educated but unemployed and abandoned women. The total credit disbursement was Tk. 1,064.3 (US$ 21.28) million and the numbers of poor women who received credit and training were 0.16 million and 0.24 million respectively.

Department of Youth Development
The Department of Youth Development (DYD) trained 21,14,939 young men and women during 1991-92 to FY 2002-03 under different programs. Of the total trained youth 11,80,798 have got self-employed. A program is being implemented for reducing poverty of rural landless and poor people under the title "Family Based Employment Program" in 82 upazilas. Since the commencement of the program up to June, 2003 a total number of 5,00,293 youths has been trained for the purpose of self-employment. Since the inception of the credit program of the DYD till June, 2003 Tk. 5158.6 million has been disbursed to 5,91,638 beneficiaries as credit.

Department of Social Services
The Department of Social Services (DSS) has been implementing poverty reduction programs through Rural Social Services (RSS), Urban Community Development (UCD) program and Rural Maternity Center (RMC) in all upzilas and towns. Under these programs revolving funds are used for initial investment and reinvestment. The initial total investment for these three programs amounted to Tk. 1524 million. The cumulative disbursement of these three programs stood at Tk. 5207.8 million up to June, 2003. The total number of beneficiary families through these three programs was 23,58,003.

Poverty alleviation and Goat Development Project
Local Black Bengal goat is one of the most important animal resources. Eighty percent of the total goat population in the country are reared by the rural poor. Government has taken a national program on "poverty alleviation by goat rearing" in consideration of its economic and social importance for poverty alleviation, self-employment, enhancing supply of nutritions and expanding export industries on leather and meat processing. A Five-Year (2002-03 to 2006-07) Action Plan has been formulated by a task force comprising representatives from both government and non-government organizations for implementation of this program all over the country. It is noteworthy that the contribution of this animal resource to our national economy is about Tk. 5000 million per year. Consequently, the existing number of 14.8 million goat population is expected to increase to 53.33 million during next 5 years according to the Action Plan target.

Ministry of Industries
Bangladesh Small and Cottage Industries Corporation (BSCIC), under the Ministry of Industries, implements a microcredit program targeting small and woman entrepreneurs. As of June, 1998 the cumulative disbursement amounts to Tk. 633.40 (US$12.67) million.

Ministry of Labour and Employment
As of June 1998, cumulative disbursement of microcredit by Bureau of Manpower Employment and Training (BMET) stood at Tk. 196.00 (US$ 3.92) million.

Microcredit Programs of Nationalised Commercial Banks
The Nationalized Commercial Banks (NCBs) also participate in poverty alleviation through providing microcredit to small farmers and the landless poor. Along with own programs, the credit is channelled through the NGOs and other organizations.

8. Activities of Borrowers Financed by Microcredit Institutions in Bangladesh

Of the various employment activities (mainly self-employment), small-scale business/trade is the most important, accounting for more than 40% of fund disbursed by the MFIs. On the other hand agriculture, food processing, transport, housing and livestock sectors were getting relatively small portions of fund. This is shown in Table-3.

Table 3 : Sub-sector-wise microfinance disbursement of NGO-MFIs

The table shows that a transformation is taking place in the economic activities of the poor households in the rural areas. In the initial years of microcredit operation during eighties, the traditional sector including fisheries and poultry accounted for a larger segment of self-employment activities of the poor. BIDS surveys conducted during 1997 to 2000 on PKSF funded MFIs, show the predominance of small-scale trade and lately medium and large-scale trading has assumed prominence.
There are, however, some weaknesses of the non-farm sector; many of its activities are unable to accommodate a workforce round-the-year and also over a period of two or more years (BIDS, 2001). This aspect combined with the market constraints to the expansion of self-employment has prompted the efforts of MFIs to finance microenterprises for the borrowers graduating form income generating activities (IGAs).

9. Impact of Microcredit Program on Poverty
The main objectives of micocredit programs are to increase employment opportunities and to enhance income adequate to lift the poor above the poverty line on a sustainable basis. A summary of the findings of some impact assessment studies is presented in table- 4.

Table – 4: A summary of the findings of IAS (Impact Assessment Studies)

9.1 Findings of Study by BIDS

Palli Karma-Sahayak Foundation (PKSF) commissioned a survey (1997-2001) through the Bangladesh Institute of Development Studies (BIDS) covering 3026 sample households from 91 villages under 13 POs of PKSF. A census was administered in late 1997, covering 19151 households in 91 villages. Some of the major findings are given below:

9.1.1 Economic Impacts of Microfinance :

(a) Income
The 1998 survey found the average annual income of participant households to be higher than that of the non-participants. Self-employment activities had more than 50% contribution to total income for the participants as against 43 percent in case of non-participants. The second BIDS survey suggests that nominal household income increased by 19 percent in program villages and by only 13.5 percent in control villages. Compared to non-participants the participant households were better able to cope with flood, sustain their income, achieve higher purchasing power and consumption level

(b) Food Security
The BIDS study finds the program participants, due to greater access to sharecropping, had better food security and about 26 percent of rice consumption out of own production (after sale), which was also marginally higher than the non-participants.

(c) Wage
Wage earning contributed about 23 percent of total annual income for the land-poor households. Microcredit helped participant households to earn about 8 percent higher income than that of the non-participants.

(d) Employment
The participant households are better able to ensure more employment on own farms due to their better access to the land rental market. Wage and self-employment in non-agricultural sector is also higher for the participant households due to their access to microcredit program

(e) Assets : land and non-land
Average size of land owned by participant households is lower than the non-participants; 91 decimals compared to 149 decimals. The BIDS study however suggests that the eligible participants mortgage or rent-in more land than the non-participants, and therefore, have larger operational holding.
Higher percentage of program participants own poultry, goat/sheep and cows compared to non-participants.
A higher percentage of the participants own bicycles (12.5% compared to 8%), boat (3.7% compared to 1.6%), irrigation equipment (1.23% compared to 0.23%), radio (17.9% compared to 12.6%) and rickshaw/van (8% compared to 2%) thus showing higher asset ownership of the participants.

9.1.2 Social and Other Development Impacts

(a) Health and Nutrition
There is positive program placement effect on nutrition status.

(b) Sanitation and Drinking Water
The BIDS study finds small positive influence of participation on waste disposal and use of sanitary toilets among the land-poor households with no clear evidence of program impact on hand-washing. The use of pure drinking water from hand tublewell was found universal.

(c) Literacy and School Enrollment of Children
Adult literacy rate is significantly higher among the eligible participants. The BIDS study also found that program participation increases the chance of both boys and girls to be enrolled in schools.

(d) Empowering Women
Microcredit programs' main target is women. There are strong evidences that, microcredit programs contribute to women's empowerment. One consistent finding is the increased self-confidence and increased self-esteem. Another is women's increased in decision making in the areas of family planning, children's marriage, buying and selling of properties and sending daughters to school. There have been some evidences that members of microfinance institutions are able to stop domestic violence due to personal empowerment and through group action.

In Bangladesh, microcredit programs have also increased women's participation in the activities of local government. Some women microcredit clients have been elected as Chairpersons and Members of various Union Parishads, the lowest and most vibrant tier of local government. Now women microcredit clients take greater roles in community activities and organizing for social change.

The summary of the Study by BIDS is shown in the Table-5.

Table- 5 : Impacts of Microfinance (compared to non-participants)

10. Major Issues

(a) Targeting the Poorest Versus Achieving Financial Sustainability: The Dilemma in Microcredit

Studies of microcredit programs show that these have been successful in improving the economic condition of the members. Macro studies, however, show that there has not been any significant decline in the overall levels of poverty. This apparent contradiction may be partially due to the fact that the microcredit programs have not been very successful in including the hard core poor, who constitute about half of the poor in Bangladesh. The poorest may have been left out because quite often the destitute themselves feel they are not credit worthy and the microcredit programs also do not judge them to have the entrepreneurial ability necessary to handle money properly. Perhaps microcredit, especially in the form that is currently in practice, is not the answer for the hard core poor.

Normally, the MFIs have been successful in expanding their outreach by providing microcredit to increasing numbers of borrowers who are near the poverty line, not well below that. The MFIs adopt this approach to reach financial viability within a reasonable time frame. If the MFIs are to borrow (from PKSF and other sources) at a rate close to market rate of interest, the effort to reach financial viability may become difficult and delayed. The partner organizations (POs) of PKSF have achieved financial viability at the present (subsidized) rate of service charge of PKSF. Therefore, in the context of Bangladesh there seems to be a trade-off between outreach and sustainability of MFIs and they should strike a judicious balance between the two which may enable them to achieve financial sustainability.

Experiences suggest that the financial needs of the poor are best served by encouraging a broad range of institutions to provide efficient and responsive lending, savings, insurance, and other financial services that poor people need to build their business, increase income and assets, and reduce risks. Poor people need sustained access to an evolving set of financial products and services. These can only be provided by financially sustainable institutions, dealing with diverse segments and products, each in the position to increase outreach and grow with their clients.

(b) Widening the Target Group: New Products and New financial Technologies

The MFIs have some scope to expand horizontally-devising ways to include more people from the target group. More important is, as older borrowers graduate to higher income brackets, new products need to be devised to meet their changing needs. These new products may also help the MFIs to expand vertically by tapping borrowers outside the target group. A possible way to expand horizontally is to include more men. Research in Bangladesh and elsewhere show that men usually borrow larger amount. However, their repayment record is not as good as women. Including more men will allow MFIs to attain sustainability quickly, but it will also mean that the repayment performance of an institution will suffer as well. As the microcredit movement matures it faces the varied requirements of the borrowers and the need to offer a larger package of products.

(c) Accessing Non-Donor Source of Financing

It is fair to say that donor funding and enthusiasm for microcredit will diminish in the future. This means that MFIs have to look for new avenues to fund their activities, potential source of fund will be to mobilize saving deposits of members and non-members. Another alternative is to try to tap commercial source of funding such as commercial banks, the local stock market and financial market. This option might be open only to large and well-established MFIs and may not be feasible for small MFIs.

(d) Internal and External Governance Issues

Research in Bangladesh and other places show that a crucial element for the success of a credit granting NGO-MFI is the quality of leadership and management.
The governance of NGOs is increasingly being discussed nowadays. Research findings indicate that governance and financial sustainability are closely interrelated. Weak governance and management characterize many microfinance NGOs in Bangladesh. It is commonplace to find friends, close relatives, retired bureaucrats, and such other persons in the governing bodies. They are mere onlookers and remain uninvolved with the board's business. The chief executives are said to overpower the boards. If this is the situation, good governance will not occur by just inducting good people in the governing body. The essence of governance is to ensure an overall system of structuring accountability and transparency in an organization. The problems of governance are mostly due to the inadequacy of the existing laws and regulations and lack of reporting, supervision and monitoring. The MFIs are not to blame fully for this.

(e) Sustainability of Microcredit Borrowers

An individual member may be considered as sustainable when he/she is capable of meeting the basic needs of his/her family without borrowing money/capital from the project or any other sources like banks etc. for consumption purposes. However, loans can be taken for IGAs.
Most people are of the opinion that a member's sustainability should be judged by two separate but inter-dependent criteria, viz, (i) social development and (ii) economic development. Controversies, however, exit as to which of the two criteria should go first. Some people argue that economic development is a pre-condition for social development while some others consider social development as a prerequisite for economic development. Most people, however, are of the opinion that the two interactive and therefore be pursued simultaneously.

(f) Service Charge of MFIs

The MFIs in Bangladesh usually charge flat rate of 12 to 15% per annum from the microcredit borrowers. The effective rate becomes about 20 to 28% at the borrowers’ level. Recently, there has debate whether this rate is too high or not. The critics of service charges of MFIs compare, somewhat erroneously, with interest rates of the conventional formal banking system. Microcredit is “banking at the doorstep” of the poor borrowers. The monitoring and supervision are quite intensive and costly. Therefore, the comparison with formal banks is not proper. There are several other factors like risks associated with collateral free loan, provisioning for doubtful and bad loans, compulsion to build up MFI’s equity and attaining financial sustainability also are determinants of service charge of microcredit programs, Bangladesh microcredit sector has relatively lower rate of service charge compared to many other countries. However, social obligations, political realities and credit at a competitive rate may require consideration of reducing the rate by MFIs. But that should not be done by resorting to capping the rate. The actions to increase efficiency in the credit operation of MFIs, information flow at grassroots level regarding charges of various MFIs, increasing the loan size for the borrowers and healthy competition among MFIs may lead to competitive rates acceptable to all concerned.

(g) Regulatory Framework

This issues has come to the forefront because MFIs are providing financial services and products to the poor, outside the formal banking system.
In view of the history of MFIs (most of which are NGOs), it can be argued that the conventional regulatory framework such as that of formal banks and financial institutions is not appropriate and hence not required under the circumstances prevailing in many countries. This is particularly in view of the fact that many MFIs are not accepting deposits with checking facilities. The unique features of MFIs in the field of social and financial services with the core objectives of poverty alleviation differentiate the industry from the formal

financial sector and further justify this proposition. However, that does not in any way downplay the importance of having some strategic monitoring measures that are compatible and appropriate to MFIs’ objectives, institutional operation and development culture. The measures should incorporate user-friendly prudential norms/indicative guidelines in the form of a concrete ‘Code of Norms/Conduct’ which would ensure sound and organized growth of MFIs on a sustainable basis.

A set of financial standards, reporting formats and performance standards may be an effective way to keep the MFIs on the right track. There is a broad range of experiences to draw from in establishing appropriate standards, including the work being done by PKSF in Bangladesh (See Box 4). An independent autonomous apex body outside the government’s control is the best option to ensure that the ‘code of conduct’ and the microcredit standards are complied with by the MFIs. Non-compliance by the MFIs may ultimately result in canceling the permission/registration of a defaulting MFI. The government has recently decided to give the responsibility to devise a regulatory framework to a Committee headed by the Governor of the central bank of Bangladesh.

11. Conclusion
Microcredit, originated in Bangladesh has spread all over the globe. Today within the global coverage of microcredit Bangladesh's achievement stands out prominently. According to the Microcredit Summit Campaign Report, 67.6 million families have been reached by microcredit in 2002 around the world. Out of that 59.6 million clients are in Asia and Bangladesh alone covered 13 million clients (22.6%). The world community has appreciated the contributions of Bangladesh in the field of microcredit, which was evident in the recently held Asia Pacific Region Microcredit Summit (APRMS) Meeting of Councils in Dhaka, Bangladesh from 16-19th February, 2004 arranged by Palli Karma-Sahayak Foundation (PKSF), in association with the Microcredit Summit Campaign based in Washington D.C. More than 1200 participants from 47 countries from different parts of the globe pledged their firm commitment to take forward the microcredit movement. Bangladesh government has also placed adequate emphasis on microcredit programs. The Interim Poverty Reduction Strategy Paper (IPRSP) of the government of Bangladesh has outlined some important roles for microcredit. The policy makers have recognized the importance of microcredit in Bangladesh and the present government has pledged its support to this program. In Annex 1 the summary of the speech of the Prime Minister of Bangladesh at APRMS demonstrates the government’s support.

Recognizing the importance of microcredit in poverty alleviation, the major challenge now, the UN has declared 2005 as the UN International Year of Microcredit. With combined efforts of the governments, MFIs, donor agencies and above all the peoples of the nations through a multipronged approach poverty will be removed form the face of the earth and thus peace in its true sense will be restored around the world.

References :

* Ahmed, Salehuddin 2003; "Microcredit and Poverty New Realities and Issues", Journal of Bangladesh Studies, USA.

* Ahmed, Salehuddin and M.A. Hakim (Ed.), 2004; "Attacking Poverty with Microcredit", Palli Karma-Sahayak Foundation (PKSF)/The University Press Ltd. (UPL), Dhaka.

*Bangladesh Institute of Development Studies (BIDS), 2001; "Final Report on BIDS Study on PKSF's Monitoring and Evaluation System (MES)", October, Dhaka.

* Credit and Development Forum (CDF), "Microfinance Statistics, Various Volumes", Dhaka.

* Grameen Bank, "Annual Reports of Various Years", Dhaka.

*Khandker, Shahidur, 1998; "Fighting Poverty with Microcredit- Experiences in Bangladesh", The University Press Ltd. (UPL), Dhaka.

*Microcredit Summit Campaign, 2003; "State of the Microcredit Summit Campaign Report 2003", Washington D.C.

* Ministry of Finance, "Bangladesh Economic Review", Various Years, Dhaka.

* Palli Karma-Sahayak Foundation (PKSF), "Annual Reports of Various Years", Dhaka.

* Palli Karma-Sahayak Foundation (PKSF), 2003; "Report of the International Seminar on Attacking Poverty with Microcredit", Dhaka.

Annex-1

Summary of the Address by the Chief Guest Begum Khaleda Zia,
Hon'ble Prime Minister, Government of the People’s Republic of Bangladesh at the
Opening Ceremony of the Asia Pacific Region Microcredit Summit Meeting of
Councils (APRMS), Dhaka, Bangladesh, Monday, 16th February, 2004

The Hon’ble Prime Minister Begum Khaleda Zia said, "Microcredit has originated in Bangladesh. Today it has crossed our national boundary and has become a global program for poverty alleviation". She said Bangladesh was able to innovate some new poverty alleviation models, of which the most outstanding was microcredit. The microcredit program in Bangladesh got an institutional shape when the government established Grameen Bank. Later, PKSF, also set up by the government, further expanded microcredit programs through many NGOs. These organizations also offer relevant training to the microcredit borrowers. All these have had a positive impact on poverty alleviation, she added.

About her government's policy, the Prime Minister mentioned that the highest importance has been given to poverty alleviation, for which 50 per cent of the annual development budget has been allocated. The government's Interim Poverty Reduction Strategy Paper (IPRSP) has also highlighted the importance of microcredit in poverty alleviation.

Begum Khaleda Zia said about 68 million poor families around the world today benefit from microcredit and the target is to reach 100 million by 2005. The world today has a major task of reducing poverty. Of the world's 6 billion people, 2.8 billion live on less than 2 dollar a day and 1.2 billion people live on less than 1 dollar a day. Of the 1.2 billion people, 500 million live in South Asia and 300 million in Africa.

The Prime Minister mentioned that many more poor are yet to be covered by t he microcredit programs. "Most importantly, many microcredit poor borrowers are yet to graduate out of poverty. The empowerment of women is yet to attain a high level,” she said. Microfinance initiatives all around the world including Bangladesh need to attain sustainability, Begum Zia emphasised.

The Prime Minister said, "I am glad to know that the Dhaka Summit will look into these aspects and address the emerging concerns. I hope the Summit will deliberate on how to bring all the poor under microcredit programs, free the poor from the curse of poverty and hasten the process of empowering the women.”

The Prime Minister urged the participants to devise ways and means to ensure that the poor can be self-reliant by utilizing microcredit in a proper and planned manner, to ensure that the savings of borrowers are properly utilized for improving their standard of living, to think whether the present interest rate can be brought down. In order to address such issues and promote smooth operation of microcredit, the Prime Minister spoke about the initiatives of her government to set up a facilitating regulatory framework.

The Prime Minister said that, in Bangladesh the government agencies and PKSF were now trying to encourage microcredit borrowers to become dynamic entrepreneurs. She said, “For that reason we are promoting micro and small enterprises."

While concluding her speech, the Prime Minister assured her government's full support to the microcredit movement in Bangladesh and around the globe and hoped that the recommendations of the Summit would greatly help in meeting the challenges of the microcredit movement.
She also expressed her firm belief that microcredit would play a significant role in eradicating poverty, consistent with the Millennium Development Goals of reducing the poverty by half by the year 2015.