Welcome to my Presentation synthesis...Welcome to my Presentation. Comparative synthesis of GB, BRAC...

12 November, 2010

Welcome to my Presentation

Comparative synthesis of GB, BRAC and ASA microfinance approaches in Bangladesh

Presented by-

M. Wakilur Rahman

Intern

IPRCC, China

PhD Research Student

NWSUAF, China

Faculty Member

Bangladesh Agricultural University,

Bangladesh

Presentation Outline

Background information

Major service providers

Outreach- selected MSP Product diversity

Operational mechanism

Financial sustainability

Regulatory environment

Reason for successes

Challenges

Concluding remarks

Background Information

Development process

Background Information

Development process

Inclusive finance

ProductsClients

Distribution

• 150 million borrowers with 39 billion USD has been disbursed globally

Background Information

Microfinance coverage

Percentages of borrowers by region

South Asia

52%

Africa

9%

Latin

America

16%

East Asia

14%

Middle

East

5%Eastern

Europe

4%

Source: MIX, 2010,

Remaining

20%Coverage

80%

Background Information

Microfinance coverage in BD and China

Bangladesh China

Source: Micro-credit world, 2009

Coverage,

36%Remaining

64%

World recognition and achievement

• UN declared Micro-credit year in 2005

• Noble peace prize in 2006 awarded to Dr. Yunus and Grameen Bank

• “Entrepreneur for the world” in 2009 and “Knighthood” in 2010 awarded to Sir Fazle Hasan Abed founder of BRAC

• ASA won the award- “Banking at the Bottom of the Pyramid” in 2008- by IFC and Financial Times

Microfinance service providers

Four types

• Grameen Bank (special kind of Bank)

• Commercial and Agricultural Banks

• NGO-MFIs- BRAC, ASA etc

• Govt. sponsored microfinance program

BRAC- Development OrganizationASA- Microfinance Institution

Market domination and Outreach

BRAC GBASAProshikaTMSSBKB & commercial banksOutreach of GB, BRAC and ASA

GB

28%

BRAC

28%

ASA

18%

Others

26%

• GB: Whole country through 2,564 branches

• BRAC: Whole country through over 3000 branches

• ASA: Whole country through 3,236 branches

Area coverage

Organizational Structure

Character GB BRAC ASA

BOD 13 m; 9 from

borrowers

16 m. executives

(2) non-exc. (13)

7 members

Structure Decentralized;

lending units-centers-

branches-area offices-

zonal offices-head

office

Decentralized;

Head office-

regional offices-

zonal offices-

branches

Two-tier system;

Central office-

branches

District office

Function Branch- center of all

activities, competition

for 5 stars; Area offices

-supervision and loan

approval -head office

become a secretariat

Branch: center of

all activities -zonal

office monitors the

programs;

regional office –

monitor 15 zonal

offices

Branch: center of

all activities

maintaining the

ceiling

District office-

supervise &

monitor field act.

Microfinance Products

Microfinance Micro-credit savings insurance Remittance others

Product Diversity

• GB: Micro-credit (7), savings (5), insurance, training,

education and health

• BRAC: Micro-credit (3), savings (3), insurance, training

(members and non-members), remittance and extensive

social development programs

• ASA: micro-credit (7), savings (3), insurance and

education

Distinct: ASA does not have any training programs

Product Diversity

BRAC- Distinct

Extensive education, health, training and legal

aid services

Research Division

RemittanceServices

Operational mechanism

GB BRAC ASA

Group 5 mebrs.

Gathering and

discussions in the

center meeting

30-40 mebrs.

Platform of

information, legal aid

and health issues

20-40 mebrs

Loans Group and individual Group and individual Individual

Lending

decision

Area office Branch office-

capacity, business

type and profitability of

IGAs

Branch office upto

certain level based

on manual

Approval

criteria

Familiarity with16

decisions-application

accepted and

approved in the

center meeting

Must be a VO member

and save regularly

After saving 3

months a

prescribed amount

Operational mechanism

GB BRAC ASA

Liability Group &

individual

Group & individual Individual

Collateral Free, no group

members are

resp. to pay on

behalf of others

Collateral free, no

legal documents

needed

Collateral free

Service Door steps Door steps Door steps

Repayment Usually weekly Usually weekly Usually weekly

Interest

rate

Varies (10-15%)

flat rate

Varies (10-15%) flat

rate

Varies (10-15%) flat

rate

Enterprise

dev.

Trained how to

use the loans

and knowing 16

GB’s decisions

Extensive training on

occupational skill dev.

Almost absent but

provision of 9 days

experience gathering

after new recruitment

Financial Strength

• GB: stopped receiving grants since 1998; client savings

(54%)

• BRAC: Microfinance program is self-sustaining;

receive grants for extensive development programs (i.

e, education, health etc)

• ASA: Stopped receiving grants 2001, PKSF, Banks and

client savings- ASA cost effective approach is well known

ASA cost effective approach: ordinary infrastructure, minimum staffs

(no accountants, no guards), no investment on staffs, simple

accounting, written manual and low cost programs

Regulatory environment

Why regulation?

• Regulation concept emerged in 1990s as to ensure-

• Uniform & transparent services

• Settling reasonable interest rate

• Transparency of donor funds

• Legalization and

• Building a sustainable sector

• Client protection

College of Economics and Management

Regulatory environment

• 50 countries have formulated special microfinance regulations

• NGO affairs Bureau (NGOAB) was estb. in 1991

• Microfinance Regulatory Authority established after consultation with NGO and Bank leaders

• Licensing criteria: 1000 clients or balance of outstanding loan 4 m. BDTk.

• 503 NGO-MFIs have licensed out of 4240 applied for

• MRA Act 2006 was formed and it is in the way of amend

College of Economics and Management

Regulatory environment

MRA circular on 10 Nov. 2010

• Effective interest rate maximum 27 %

• Banning deductions at the time of issuing loans

• 15-day gap between the dates of loan issuance and first repayment instalment

Self regulation: GB, BRAC and ASA have strongly been followed

self-regulatory mechanism beside government regulations

• Lending Mechanism (door steps and collateral free)

• Responsible borrowers particularly the women

• Active community participation esp. the clients

• Learning from clients especially women

• Trust on MSPs

• Friendly relations (borrowers, loan officers, MSPs and govt.)

• Demand pushed

Reasons for success !!

• Greater homogeneity- making solidarity group is easy

• Product diversity

• Fund availability

• Decentralization and efficient management

Reasons of success !!

• Need more comprehensive (holistic) approach

• Proper recognition to the clients (client protection!)

• Continuous innovation and adaptation

• Adjusting with changing demand

• MSP distribution

• Educative/supervisory credit

• Unique delivery mechanism

• Effective interest rate

• Political instability

Challenges !!!

Concluding remarks

• MSPs have demonstrated the effectiveness of

microfinance towards sustainable development for the

rural poor in Bangladesh; the effective and efficiency

management skills, innovative approach and

decentralised institutional patterns are remerkable

However,

• It has been achieved due to active participation of the

Bangladeshi people particularly the women

and

• The credit culture, discipline, and commitment towards

maintaining regular repayment and compliance with

microfinance provider norms are creditable

Last but not Least….

• It is the outcome of the combined efforts of

different stakeholders- Clients, MSPs and the

Government

So,

Thanks