Conclusion

The BIDS Study was undertaken with a view to monitor the beneficiaries of MFI programs and MFI activities at the field level, assess the impact of the programs, and in the process, generate a data set, which could be of use for future monitoring. Over a three years period, a computerized data base on more than 2900 rural households and more than 1500 MFI members has been generated. The present report drew upon this data to highlight on the dynamics of the market, what is now widely known as microcredit. In certain social and economic spheres, the report assessed the household and member-level impacts of program participation. Some of the institutional issues have also been addressed in the last chapter. We summarize some of the important findings of the study in this concluding chapter and discuss some of the emerging issues that are perceived relevant for the development of the industry.

10.1 On Impacts

Economic

On the whole, the study finds positive impacts of program participation, if it is regular (i.e., continuous). More importantly, such positive impact is more visible in case of land-poor households, who are alleged to be the target population. Multivariate analyses show that there is significant positive effect of regular program participation on income and on average consumption of poor households. There is also some indication that average consumption tends to rise with increase in the length of membership. Analysis on the determinants of income changes, however, suggests that the impact is less visible in case of the non-target population.

The study finds, with no surprise, very close association between program participation and engagement in non-farm self-employed activities. There is, however, no difference in returns from such activities due to participation. In spite of it, MFI lending provides important support in sustenance of these activities, especially for the land-poor households. The program failure lies in the inability to involve rural women in these economic activities. Rather, there has been a net decline in the size of female employment in both wage and non-farm self-employed activities over the survey period.

Increased access to the credit market due to provisioning of MFI loans, rural poor now have greater access to other markets for economic sustenance. This gets reflected in greater involvement of program participants in the land (rental or mortgage) market, and a greater access to the informal credit market (such as, neighbors) for the regular participants among the poor households. Their dependence on moneylenders also declined, while it had increased for the non-participants. There is however a darker side to such access – a part of the benefit due to MFI credit is positively being transferred to the asset owners through these markets. No estimate on such transfer was made in this report.

Poverty and graduation

Both head-count and poverty-gap measures show that regular participants registered a faster rate of poverty reduction than occasional participants and non-participants and estimated rate of poverty reduction was higher for occasional participants than non-participants. The study has highlighted on the problems of defining graduation. Adhering to the process view, it is shown by cohort comparison that a larger percentage of program participants tend to invest on both human and physical capital.

Social well-being and women empowerment

Participation in MFI programs in general, and regular participation in particular, had positive effect on household resource allocation on house repair, schooling and health care. All these had improved the social well-being of the participant households more than the non-participants. More importantly, participation had led to reduced gender gap in access to schooling and access to modern health care.

Increase in access to credit has generally benefited rural women through increased access to markets, financial institutions, service providers and to information and knowledge. However, participation had little effect on women’s access to labor market, which reflects inflexibility in certain social and cultural norms, which are yet to be removed from the rural society. The most visible positive effect of participation on women’s relative position has been with respect to decision making on household expenditure and fertility regulation. Since women’s access to household income has increased and their status in the family has improved, participation effect was not separately visible.

Vulnerability and crises coping

Improved economic well-being due to program participation may have contributed to reduction of household-level vulnerability. The participant households were less vulnerable with regards to health crises, large expenses and violence. This was more so for the regular participants. However, among the target population (i.e., households owning less than 50 decimals of land), there is no significant difference in the incidence of some other important crises faced by program participants and non-participants. In spite of it, participation makes a difference in the manner in which such crises are being coped with by the poorer households. Program participants tend to resort to soft options, such as, borrowing at zero or low interest rates, and through mobilizing material and moral support from patrons and kinship network. In contrast, the non-participants tend to resort to the hard options, such as, asset sale, dis-saving and mortgaging-out land. The incidence of inability to cope with a crisis is also higher among non-participants.

An important source of economic crisis faced by the rural households is rooted in the seasonal variation of employment and income. The study finds that program participation among poor households leads to mixing of non-farm self-employed activities, which reduces seasonal variation in total employment and income.

Institutional

Some of the institutional aspects, raised in this report, were primarily for expositional purpose. It is hoped that the rich diversity in the emergence of NGO/IMFs in Bangladesh will receive greater attention in future research. While cost-effectiveness of different programs has not been addressed in strict numerical terms, based on changes at the beneficiary level, it in concluded that small MFIs have performed better than the large ones in reaching the poor and in achieving a faster rate of poverty reduction.

10.2 Outcome of Monitoring

Conventionally, people resort to MFI-provided data to monitor the industry. In this context, the BIDS study got a rare opportunity to monitor the market through administering repeat questionnaire on a matched sample of households and MFI members. This enabled recasting of a number of issues from a different perspective. Some of these are discussed below.⁵¹

Nature of Participation

The study revealed that for a sizeable proportion of ever participant, current participation status is not stable. For the same reason, it argued that current drop-outs are not drop-dead! Given that this group of, what we have termed, occasional participants is increasing in size and has not performed as well as the regular participants, there is need to look more closely into their status and decision process.

Growth in Membership

While net entry of new MFIs in the market continues to be positive, there has been a net dropout in membership during the recent past, in the study areas. This does reflect some kind of market saturation, given the current package of financial instruments offered. The study, however, does find a sizeable proportion of non-participant households, who would be willing to join the program if offered. At the same time, thee are others who do not find the current offer lucrative for them and are unwilling to participate. Thus, future effort towards widening the market lies in product innovation. It may however be noted that ensuring market segmentation to sell two different products to two different markets within a single community is rather difficult at the field level. It may only be ensured if the packages have built-in criteria so that the two groups willingly choose the respective products, designed for them.

Competition leading to Overlapping – or, should we say, Multiple Membership?

Coverage by MFI programs in Bangladesh has reached a point where it is now difficult to fid a control village. This has also meant that there has been increase in competition among MFIs to bring the same set of clients to their net. From the perspective of an individual MFI, the concern is phrased in terms of overlapping – that is, their member participating in (or, borrowing from) another MFI group simultaneously. This report has noted that such overlapping is a special case of multiple membership that household adopt as a strategy. It is important to understand households’ decision making in this regard before one can appropriately design its remedies.

Use of MFI Loans

That there is wide discrepancy between stated purpose of loan and actual use of the loan has been clearly shown. Revealed allocation of borrowed money by the rural households provides enough inputs to rethink the roles played by the MFIs.

On defaults

While there are irregularities in weekly repayments, the increasing trend in long-term delinquency has possibly been checked during the recent years.

10.3 Looking ahead

The microfinance industry in Bangladesh has grown to a size that even the worst of the autocrats may find difficult to control. Yet, the industry’s ability to continuously innovate and create ripples in public imagination never seems to die down. We briefly raise some issues for future attention – for researchers, practitioners and policymakers.

It is no new idea that relaxing credit constraint will lead to welfare gain. The only caveat may lie in delinquent behavior on the part of a borrower, which is often termed as default culture. If there is no dispute with such assertion, there is a serious need to rethink on the need for undertaking costly impact assessment studies at the household level. This is not to undermine the need for assessing wider impacts through multi-dimentional/market linkages. Most practitioners would agree that the more important need is to monitor the market (which includes the MFIs, other credit wholesaling and retailing agencies and the potential beneficiaries) so that such delinquent behavior is not on rise. The report also raises enough rationale for special monitoring of the occasional participants

The study has only hinted on the increasing competition among MFIs, market saturation and increase in the incidence of multiple-membership. There are good and bad outcomes of such a process. Given that smaller MFIs are better able to reach the target group and raise the latter’s well-being at a faster pace, it is of utmost importance that ways be sought to ensure their existence in the face of competition, which is often not played on fair ground. The industry is currently in a transition, and if unregulated, there may be greater losses at the end of the transition period!

The need to innovate new product with appropriate design to ensure market segmentation has already been emphasized. The MFI lending is found to have served dual purpose – financing income-generating activities for a group, and smoothing consumption irregularities (as a result of seasonal variation in employment and income), thus providing a safety net during bad times. There is however a large segment of the rural population, often termed as hardcore poor, who are unwilling to borrow since they are unable to find suitable opportunity to invest and are not sure of repaying the debt on time. This group wants wage employment, more than they want credit.⁵² Thus, the big question remains: how to reach this poor so that their living condition improve. This takes us to the final issue on "graduation", discussed below.

There was a time when we talked about graduating the poor to a non-poor (or, not so poor) status. There is no denial that MFIs have been able to change the fate of many rural households in Bangladesh. But, by all measures, stating on the basis of strict statistical ground, the size of poverty remains stagnant. There emerged a second line of hope – may be, the individual borrowers would, after some degree of entrepreneurial experience, get together to undertake ventures at a group level! That also appears to remain an illusion, except for some remote outliers. In a large majority of the cases, groups (primarily of women) and group meetings have fulfilled their role in enabling women to get a wider exposure. Otherwise, they facilitate financial transactions. The only viable institutions that have emerged in the course of the long experience with microcredit are some of the MFIs themselves. This positive gain to the society, as a result of microfinance, has for long been overlooked. This study has only hinted at some of the dynamics of accumulation under the umbrella of such institutions. It is urgent that we refocus our future effort on graduation of these institutions, so that they are better able to undertake activities, which will enable them to reach the poor in more substantive way!

Appendix A: Summary of Description of the Services (Terms of Reference)

The main objective of M&E is to monitor and evaluate poverty reduction effects as well as the cost effectiveness of targeted micro-finance programs financed by PKSF. Since poverty reduction is the stated objective of PKSF’s financing, it’s impact on borrowers as well as non-borrowers needs to be monitored and evaluated on continued basis in order to quantify whether the project has desirable development impacts. In particular, the M&E study will have the following objectives:

1. review previous and on going impact studies on micro-credit financed programs in Bangladesh and critically examine the methodologies of the studies to identify their strength and weaknesses;
2. determine and define income and non-income indicators for monitoring and evaluating the performance of micro-credit financed poverty alleviation programs and projects;
3. assess economic (income generated from self-employment and other activities, wage, employment, savings, assets, net worth, investment, wage and employment by types and gender) effects of micro-finance;
4. determine other development impacts of other different alternative programs of PO’s on such indicators as fertility, contraceptive use, health and nutrition, literacy, school enrollment of children, etc.;
5. ascertain if exposures of target population to contingencies, insecurities and risks have been reduced; their ability to adapt, cope and to choose has increased; and their dependence on the traditional patrons and the rural powerful has diminished;
6. assess and quantify the costs including subsidy of alternative micro-credit program intervention (e.g. Credit and credit plus) and their role for poverty reduction;
7. compare poverty reduction and cost-effectiveness of micro-finance to alternative programs for poverty alleviation undertaken by the selected POs;
8. determine a mechanism to study the process of graduation of targeted groups out of poverty resulting from the micro-credit operations;
9. administer case studies on 3 POs of ‘Oosha’ category with a view to assessing issues relating to strategic and financial management, and organizational and incentive structures of the selected POs;

10. recommend measures to further improve and sustain the performance of micro-credit financed program and to indicate development interventions including those for generating income;
11. Document the process of implementation of the M&E study and prepare a manual containing a composite M&E methodology to be used by PKSF and its POs.

Appendix B: Key Personnel

Appendix C: List of Support Staffs

Appendix D: List of Reports

51 Some of the issues noted below may not have been dealt with in this report. They did, however, come up in other reports and workshop presentations made from the study team.

52 Note that we are not disputing with the fact that everyone may like to get easy money. However, when effective demand is at issue, a potential borrower is often more aware about his/her limitations than even an MFI staff trying to increase disbursement.