Group name:Black and white

Welcome to our presentation

Our topic is

micro-credit system

What is Microcredit?

A programme that extend small loans to very poor people for self-employment projects that generate income, allowing them to care for themselves and their families.

Part of microfinance which provides numerous financial services to the poor

How does it work?

Why is Microcredit important?

Why is Microcredit important? Four billion poor people need access to financial services Social justice Only philanthropy is not enough Women suffering the most Development of informal sector farmers, tailors… Need to remove poverty in society ↑ Demand $50 billion per year for Microcredit ↑ 15-30% growth annually Moral responsibility of businesses

How MicrocreditDifferent from Conventional Banks

5 features Loan size is small b/w $100-$500 average $100

Customers are rural poor, particularly women

Income activities Self-employment, non-formal sector

No collateral required

Must have saving account linked to Microcredit

History of Microcredit: Muhammad Yunus

Founded by Muhammad Yunus Grew up in the village of Bathua in Hathazari, Chittagong Attended Dhaka University and has a BA and MA in

economics Ph.D. in economics from Vanderbilt University

Returned to Bangladesh and became head of the Economics Department at Chittagong University

History of Microcredit: Women of Jobra

In 1976 Yunus visited the village of Jobra

A Jobra woman was selling bamboo furniture for 2 cents a day A trader loaned her money so

that she could buy the bamboo Indebted to the trader and could

only sell her products to him Yunus found 42 women with

similar debts Total debt for the women = $27

Yunus lent the women the money Idea of microcredit is born

History of Microcredit:Struggle for Support

Yunus attempted to convince the banks of Bangladesh to loan to the poor people

Every bank denied his request Tried different banks for over 6 months “poor people are not credit worthy”

Became a guarantor for a bank Successful lending in 5 different villages But banks continued to deny his requests

Yunus realized he had to form his own bank to lend to the poor

History of Microcredit: Grameen Bank is Formed

Success in the district of Tangail and two other districts

Established a new law so that his bank would be different than others

Seven years after meeting the women of Jobra, the Grameen bank was established October 1, 1983

History of Microcredit:Grameen Bank Today

As of July 2007 Grameen Bank has loaned $6.38 billion to 7.4 million people

More than 94% of loans have gone to women More likely to devote money to their family

In 2006 Yunus received the Nobel Peace Prize $1.4 million prize

Company to make low-cost, high-nutrition food for poor Eye hospital for the poor in Bangladesh

History of Microcredit:Microcredit Today

Today there are more than 7,000 microfinance institutions

Microcredit is offered in more than 100 countries

More than 13 million people have been given microcredit loans

Loan repayment is at 97% Microcredit banks are now finding more

ways to help borrowers through agriculture, health, and other programs

Assumptions of Microcredit

Credit is a human right Need a dollar to get a dollar Most banks create poverty Governments must enable people Lending to women empowers communities Credit creates self-employment Credit makes other human rights attainable

How Microcredit Works

Major players: All of these groups must work together to enable microcredit programs to exist and eliminate fraudulent practices which may harm the poor. Borrowers Government Banks Donors Wholesale Funds

Top 25 Microcredit Institutions

The success of Grameen lead to the development of similar banks in other underdeveloped countries

Most also lend mainly to women

Requirements to Borrow Willing to take part in a “solidarity group” Money used only for improvements of

village life Agree to the codes of conduct for members

of microcredit programs Grameen Bank’s16 Decisions BRAC’s 17 Promises RD-12’s 21 Oaths

Requirements to Borrow (cont…)

Land ownership of the household: For example, landless and marginal farmers owning or cultivating less than 1.50 acre (0.6ha) of land on share-cropping including homestead can become members of ADIP credit program.

Age of the individuals : For example, in case of BRAC, individuals applying for credit must be aged between 18-54 years.

Income of the households: For example, household having a maximum monthly income of up to 3000 taka (equivalent to 44.44 USD) can become members of marginal and landless group of ADIP.

Residence of the individuals: The individual should be a permanent resident of the village.

Requirements to Borrow (cont…)

Marital Status of the individuals. For example, married people were encouraged in ADIP rather than singles.

Affiliation: The individual cannot be affiliated with other NGOs or any other microcredit program at the same time.

Health status of the individuals: Individuals must be physically active having no serious diseases like cancer or disabled.

Focus on poor and destitute women. For instance, BRAC gives priority on widowed or divorced women with children

Qualifications for Traditional Credit

Assets

Income

Debts

Repayment History

Qualifications for Microcredit

Activity will generate employment Little or no collateral Part of a support group Women preferred Agree to Codes of Conduct Previous borrowers can get a loan as

long as previous loans are paid off

B . Non -Agricultural Loan:

Rickshaw-Pulling Small-scale non- agricultural trade

Handy-crafts

More Focus on Agricultural

Activities

A. Agricultural Loan:

Crop production Poultry

Livestock

Fisheries Small sell agribusiness

Nursery raising

Social forestry

Types of LoanTypes of Loan

Impact of micro-credit program on poverty reduction

Impact of micro-credit program on poverty reduction was measured by considering four dimensions.

those area are change in income, change in farm and household assets, change in living standard and change in poverty situations.

Resent study shows the number of new businesses increased by one third.

microcredit in Bangladesh had a "positive impact on enterprise and household income and asset accumulation

Impact of micro-credit program on poverty reduction (cont…)

Impact of micro-credit program on poverty reduction (cont…)

 Microloans in the US have allowed small business owners to make their businesses their primary source of income with 67% of the borrowers showing a significant increase in their income as a result of their participation in certain micro-loan programs

Impact of micro-credit program on poverty reduction (cont…)

Micro-credit also give good result on enhancing living standard and change in poverty situations.

Critiques of Microcredit

Grameen Bank's high repayment rate does not reflect the number of women who are repeat borrowers Women become dependent on loans

Women act as collection agents for their husbands Men spend the money Women fall into debt

Over dependence on external capital Too much power given to field officers

Sometimes violence is used to collect repayments Loan recipients could get into a cycle of debt

Loans from other microcredit institutions to repay previous microcredit loans

High interest rates

Any question ?

Thank you