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Microfinance, as an essential financial resource in emerging countries as well as a developing country also referred to as micro-credit. The term corresponds to a low amount of credit destined to people with little or even no income and provides entrepreneurs and small business owners access to capital. Capital is often lacking in these countries which means accessing loans, insurance, and other investments is rather difficult. Microfinance institutions, to respond to the dire needs of such atypical clients have put in place important tools such as financial and non-financial products and services to combat poverty. Successively, microfinance stands for reaching self-sufficiency.
The entirety of financial services deriving from microcredit has generated improved living conditions particularly by increasing banking system access from certain countries. The services essentially provide loans, credit, and money transfers with access to savings accounts with insurance policies. To the small and starting enterprises of the developing world. Those services favor and increase entrepreneurship primarily as one of the success factors of universal calls such as Sustainable Development Goals.
What is the Origin of Microfinance in Bangladesh?
Microfinance as a significant development tool of today has been generalized by Muhammad Yunus, the Nobel Peace Prize winner of 2006. Dr. Yunus, the ‘banker of the poor’, is the founder of the first micro-credit institution in Bangladesh named the Grameen Bank in 1976. Other bodies had formally existed before Grameen Bank even in Europe. The novelty of microfinance includes stimulating development for alleviating poverty, empowering women, and promoting entrepreneurship in the developing world. The target is met through meeting the financial and non-financial needs of commercially excluded people having financial inclusion.
During the mid-1970s, microfinance started in parts of Latin America as well as in Bangladesh in order to provide credit to the generally excluded poor from formal financial services. The model has since been simulated as it gained popularity for financial needs in low- and high-income countries. These needs of low-income people in both rural and urban areas might include asset building, irregular income flow management, and crisis (conflict, sickness, death, and natural disasters) dealing. Continuation of creating opportunities with the help of new technologies for broadening the availability whereas lowering the cost of financial service deliverances to poor people. All the financial services are hugely available with innovation driving improved product design in addition to its delivery to anyone with a mobile phone in the market.
Today, microfinance is envisioned as a single component of the broader system of financial inclusion. It is increasingly comprised of numerous participants- private financial sectors that were averse towards helping low-income clients have developed to showing interest in the market of microfinance, especially in the insurance providers and other underserved segments with the aim of high-quality financial service deliverance to low or no-income people.
The Changing Micro-financial Landscape in Bangladesh
The rapid outgrowth of the microfinance sector underpinned the landscape in Bangladesh to undergo some substantial transformations especially during the 1990s. It has led to an increasingly concentrated market. According to a recent study from Bangladesh Institute of Development Studies (BIDS), microfinance institutions (MFIs) registered unprecedented growth in Bangladesh during the time from 1991 to 1997. Microfinance institutions (MFIs) have been growing worldwide, and hence the debate continues over the true benefit of the poor through the programs. It is emphasized that innovative ways are always required to provide access to financial services. Indeed, in the villages more than one MFI is found to operate that was unlikely even a few years ago. The inadequate outreach hence leads to the creation of the Palli Karma Sahayak Foundation (PKSF), the wholesale lender.
Critics argue successes tend to be temporary as microfinance programs demand training and entrepreneurship skills that are unlikely to poor populations. In addition to that, higher interest rates and dependence on MFIs of the beneficiaries may trap them if they borrow more than their payback limits further in poverty. In the 1970s, the microfinance sector was first established in Bangladesh with the main goal of reducing rural poverty with the help of microcredit loans for activities such as trading, and largely, raising livestock and poultry. The government of Bangladesh and some bilateral donors funded these loans from group-based savings with lending programs mainly. Today, MFIs cover some 32 million members in Bangladesh and annually hand out more than 7.2 billion dollars. MFIs now have access to institutional funds that include commercial banks instead of relying on the savings of borrowers including. MFIs have an immense advantage over other participants in that they innate customer awareness along with local understanding and own customer data. Over time, they got complacent in developing ahead and so re-inventing will keep them competitive and help serve their client base better in a changing landscape and context. Improved IT infrastructure will improve their efficiency when it comes to microfinance operations and managing huge human resources with other support functions. New financial instruments based on mobile banking have altered the landscape of financial services.
The participation dynamics of the clients along with rapid increment in outreach due to new expansion by both the old providers and the entrance of new participants have become much more complex. Categorizing households is becoming impossible due to the multiple participation raise. On the contrary, switching from one MFI to another one is on the rise. The patterns and trends point out toward increasingly competitive pressure and developing maturity of the industry and clients of microfinance landscape in Bangladesh which is indeed happening. In short, the converting microfinance landscape of Bangladesh is marked by market crowding, incrementing outreach, and innovation challenges- a challenge of stepping up from doing more of what exists to doing it new and better.