Giant Steps Against Poverty

Bangladesh is characterised by a high level of poverty accompanied by low productivity activities. Because they cannot provide collateral and typically deal in small denominations of money, the poor are denied access to the formal banking system, and are thus deprived of the facilities to borrow, save and invest in productive activities. In addition, moneylenders from the informal credit markets charge very high interest rates restricting poor people’s access to credit earnings.

Making credit available, especially to the rural poor is therefore, considered an essential strategy in reducing income poverty. Launched in 1974, BRAC’s Microfinance Programme aims to:

• Make credit available to poor women, especially in rural areas
• Provide credit at a reasonable price

• Involve poor women in income generating activities through credit provision
• Promote the economic development of the country by increasing the income level of the rural poor
• Operate self-sustaining credit activities.

Credit operations are carried out through a Revolving Loan Fund (RLF). This RLF consists of retained earnings, Donors’ funds, group savings, loans from banks and PKSF. Loans realised are credited to and form a part of the RLF for extending further credit. This process of lending, recovery, and further lending ensures that the credit facilities are eventually available to all VO members. A 2% loan loss reserve is kept in order to cover the risk of default loans. Frequent borrowing and payments allow the borrower to take higher loans.

Microfinance Coverage

The Microfinance Programme in total covers all 64 districts of Bangladesh with its 142,117 Village Organisations.

Savings

Savings are a part of income not consumed immediately in favour of the future. An important part of the credit operation is the collection of savings. BRAC’s experience shows that the regular savings of a VO indicates a better discipline in VO credit operations. From the member’s point of view, savings represent an opportunity to earn interest, which they cannot enjoy from the formal market or regular financial institutions. Savings opportunities with BRAC provide members with funds for consumption, children’s education and other investments. It also provides security for old age and serves as a contingency fund during natural disasters.

A VO member can save in three ways:

Own Savings: On average, they are required to save a minimum of US 10 cents (Taka 5) every week.

Compulsory Savings: When they take loans, it is mandatory that they deposit 5% of the loan amount into their savings account. The interest rate for the savings is 6%. Normally borrowers can withdraw their savings anytime.

Current Account Savings: BRAC has recently introduced Current Account Savings that bear no interest but allow the group members to make unlimited withdrawals. This has the following features:

• Convenience: BRAC Area office is convenient to all members for depositing into their current accounts.
• Liquidity: Members can withdraw any amount of savings from these accounts at any time.
• Safekeeping: BRAC Area Office is a safe place for keeping savings instead of in their houses.

UNNOTI

UNNOTI members are those who have more than one acre of land and are involved in farm and non-farm enterprises. UNNOTI borrowers are required to attended weekly meeting with BRAC. Loan sizes range between US$ 166-833 with an interest rate of 15% flat. 12 and 18 monthly loan products must be repaid in equal monthly installments. Through UNNOTI BRAC provides support mostly the marginal farmers who own more than one acre of land.

PROGOTI

This programme aims to provide larger loans to the BRAC and non-BRAC micro entrepreneurs to develop and finance their own business. PROGOTI borrowers are required to open a bank account in order to receive the loan. Loan sizes range from US$ 20,000-300,000 with interest rate of 15% flat. 12, 118 and 24 monthly loan products must be repaid in equal monthly installments.

DABI

DABI members are those who own up to one acre of land (including homestead) and sell their manual labor earn their living. Any BRAC Village Organisation member is eligible for DABI loan. Loan range from US$. 50-500 with 15% interest flat. Loans are payable over one year through 46 weekly installments.

Microfinance for STUP Members

In addition to the IGA trainings provided to the Specially Targeted Ultra Poor (STUP) members, at the end of 24 months’ close supervision of the STUP model, they are brought under the microfinance scheme so that they can get continuous access to financial assistance for their businesses. This is a crucial part of their graduation to the mainstream development programme.