Microfinance
28 BRAC Annual Report 2011
Progoti loans, which range from USD 1,000-10,000 are given to both male and female entrepreneurs to support and help expand existing small enterprises which are too small to qualify for credit from mainstream banks. Borrowers generally use these loans to finance shops and small scale manufacturing activities.
2011 Highlights In 2011, we worked to further tighten internal controls and improve borrower screening. In the absence of a credit bureau in this increasingly mature microfinance market, we felt that there was an ever greater onus on us, the providers of microfinance, to ensure that our borrowers were not becoming exposed to too much credit or risking over indebtedness. We also placed significant emphasis on improving customer service and enhancing the quality of staff-client interface. These efforts have not only further strengthened our relationship with our clients and increased their trust in us; they have also positively affected the quality of our loan portfolio. We have successfully transitioned from a weekly to monthly loan repayment system for our Dabi clients in roughly 40 per cent of branches in areas with comparatively better socioeconomic conditions. This provides more flexibility to our borrowers and helps to reduce operating costs of our programme. We have also scaled up in 2011 our ‘topup’ loan facility for both our Dabi and Progoti borrowers and have introduced a migration loan scheme to facilitate overseas migration of Bangladesh workers. In 2011, we disbursed over 86.2 billion taka (USD 1.18 billion) and by year end total outstanding loans amounted to over 52.8 billion taka (USD 734 million) and total member deposits with BRAC amounted 22.3 billion taka (USD 306 million).
Scaling up and adaptation Microfinance is a long standing BRAC programme, affecting people in all 64 districts of Bangladesh. This initiative has proven successful in improving the socio economic conditions of many people, particularly women, the landless poor, marginal farmers and vulnerable small entrepreneurs by helping them engage in diverse income generating activities. This approach to development paves the way for BRAC to become a delivery platform for health care, education and other livelihood activities. This has a multiplier effect that helps the overall community pull itself out of poverty. The success of this programme has led to replication and similar innovations in other poverty stricken countries. Over the last 10 years BRAC’s microfinance operations have spread in tandem with its international growth, with programmes in Afghanistan, Pakistan, Sri Lanka, Sierra Leone, South Sudan, Uganda, Liberia and Tanzania.
Lessons learnt Learning from our past experiences, we realised that those at the bottom 10 per cent of the economic pyramid often remain impervious to microfinance based solutions. This understanding contributed to the founding of BRAC’s Targeting the Ultra-Poor programme, which focuses on asset transfers, consumption stipends, savings, social support, financial education and coaching to bolster self confidence. BRAC’s research showed that 80 per cent of the ultra poor members have graduated and have been able to maintain their progress after about five years. The majority then proceed to graduate into our mainstream microfinance programme. Many organisations have replicated BRAC’s holistic approach, which amplifies the impact of microfinance services by using its networks of self employed entrepreneurs to provide health, legal and livelihood development services to the community. Also, though the emergence of so many microfinance institutions in Bangladesh over the course of the last two decades has resulted in greater choice for borrowers, this phenomenon has also given rise to the risk of borrower
over indebtedness. In order to mitigate this risk, BRAC’s microfinance progamme introduced several initiatives including establishment of loan review units in regions with heavy microfinance institution (MFI) concentration, slowing down the rate of programme expansion and investing more in the clients with small enterprises. We are collaborating with other major MFIs to establish a microfinance bureau which will help in reducing the tendency to borrow from multiple sources.
Meeting evolving needs Having already created a very large borrower base over the last four decades, our focus in the years ahead will be on continuing to innovate on products which cater to the evolving needs of our clients as well as improving delivery mechanisms and service quality to provide them with greater flexibility and ease. We have already started working on these fronts, with recent product innovations including a ‘top-up’ loan for our Dabi and Progoti clients, and a specialised loan product for Bangladesh’s large segment of migrant workers who often have to sell their assets at home to finance their travel abroad in search of work. We will continue to work with our clients to ensure that their financial and non financial needs are met so that they are able to fully leverage BRAC’s holistic approach to support their livelihoods.