How Microfinance works

Microfinance is the provision of financial services to those who are excluded from conventional commerical financial services since most are too poor to offer much - or anything - in the way of collateral. It presents a series of exciting possibilities for extending markets, reducing poverty and fostering social change.

The concept of microfinance originated in the mid-1970s in Bangladesh through a pioneering experiment by Dr Muhammad Yunus, then a Professor of Economics. His aim was to offer poor people:




* financial services
* entrepreneurship opportunities
* an end to mistreatment by money lenders
* a system where they could produce, manage and maintain their own finances

Microfinance – Important Role in Economic Growth

In a world where almost half the population lives on less than $2.50 a day, microfinance is perhaps the best tool for poverty alleviation and economic growth and development in emerging economies as well as in major world economies that face growth problems. Of course, microfinance is not impervious to impact of the global financial crisis. Instead, we realize that this helps the poorest of people setup and grow the smallest of businesses, so by generating income and employment, microfinance helps them, their communities and their economies.

This fact is recognized in theory as well as in practice.

Mobile banking Challenges and Risks

Like every new technological solution, mobile banking services face a few problems and risks too. Some common impediments identified by CGAP and Microfinance Focus are:

* Difficulty in maintaining cash float: mobile money franchise operators (agents) often find it difficult to maintain enough cash to serve customers in rural areas who withdraw money after receiving electronic funds.
* Consumer-related issues: fraudulent activities as well as hidden charges are emerging concerns for mobile banking and you can read an informative article by CGAP about this. On the other hand, because of the simplified process of registering for mobile banking services, it is often difficult to establish the authenticity of customers.
* Regulatory hurdles: Central Banks are often wearing of allowing non-bank entities (mobile money telecom franchise operators) to receive or make payments on behalf of banks. This limits the service offering where a non-bank microfinance model is followed for mobile banking, such as Western Union’s partnership with mChek.
* Trust issues: consumers in less developed countries take time to get used to new mobile technology, especially since it involves trusting someone else with their money.

These are similar to the challenges faced by microfinance today.

Mobile Banking Extends the Mission of Microfinance

A recent revolution, mobile banking is the provision of banking services through mobile phones using the SMS facility or a downloadable mobile money application. This collaboration between the financial and telecom sector is an ideal solution for microfinance because ‘there are about 1 billion people across Asia, Africa and Latin America who do not have a bank account but do have a cell phone’ (CNN).

Mobile banking (also known as M-Banking, SMS Banking, branchless banking) is quickly gaining momentum in

* Brazil (mobile banking through Banco de Brasil)
* India (mobile banking through FINO’s MITRA:
* Pakistan (mobile banking through Telenor’s Easy Paisa)
* Kenya (mobile banking through Safaricom’s M-Pesa)
* Philippines (mobile banking through Smart Telecom’s SmartMoney),and
* South Africa (mobile banking through South African Bank of Athens’ Wizzit).

The following basic microfinance services are offered to meet every day needs of micro entrepreneurs and other clients:

* Cash deposits and withdrawal, through microfinance bank branches and other agents (mobile service franchise stores)
* Micro loans provision and collection through mobile phones
* Payment services for utility or other bills through mobile phones
* Money transfers between accounts, specifically remittances through mobile technology

Convenience, savings on transport costs, and security are the biggest advantages offered to consumers by mobile banking, while MFIs would be pleased with reduced transaction costs and improved rural market penetration rates, which are difficult to access as it is.

Mobile Banking in Microfinance

Can you imagine having to carry all your money around with you, or having to hide it under your pillow each night to keep it safe, or being unable to transfer funds to your loved ones back home when the nearest money transfer facility is closed or 200 kilometers away? Without access to financial services, this is how billions of poor people live; their lives are marked by financial weakness and instability, which prevents them from planning ahead and taking risks to grow and move above the poverty line. And the economic crisis makes matters worse.

Microfinance clients aren’t free from these troubles. As a result of their remote locations, they often live hundreds of kilometers from the nearest branch of microfinance banks, and bear in mind that not all microfinance providers are banks either, so they cannot accept deposits. Is it possible to offer financial services anywhere, anytime? Thankfully, yes.

Microfinance and Bangladeshi Women’s Empowerment

The practices of microfinance as development policy in several countries have shown the positive effects in two vital areas of national development; namely, the alleviation of poverty and the empowerment of women. Despite this positive evidence, some critics question the impact of microcredit for women’s empowerment. While microcredit has contributed positively to the well-being of women in general, it has not necessarily led to the comprehensive improvement of women. Also, the inclusion of gender mainstreaming in development policy, including microfinance, has invoked questions on its impact on a progressive gender and development policy. By using the findings of several microfinance practices in Bangladesh, I will examine critically their impacts for women’s empowerment, particularly at the individual level. Therefore, it will lead to a big question on the ways microfinance can be considered a “progressive” gender and development in policy-making.

The experiences of microfinance in Bangladesh have been unique. Traditionally, women in Bangladesh have very little contact with the labor market and generally do not have significant cash incomes of their own. This reflects on customary and religious restrictions on women’s mobility outside the home. This condition is also supported by the marriage traditions of patrilocal residence and village exogamy in Bangladeshi society. When a woman marries, she leaves her home, family, and village, and moves into the household of her new husband, in a new village. As a result, wives may not have many relationships outside the household and their empowerment has less attention. Therefore, the country has been the “laboratory” for some of the most challenging gender and developmental experiments in the contemporary world, including microfinance policy.

Microfinance, also known as microcredit, has rapidly grown in Bangladesh during the 1990s and it has enjoyed correspondingly growing prominence. The program was actually born in the aftermath of the country’s war of independence in the 1970s. The extreme poverty and hunger in that period led an Economics professor at the University of Chittagong, Muhammad Yunus, to begin an experimental project providing credit to the rural poor of Bangladesh. He established the Grameen Bank in 1983, as a microfinance institution that gives collateral-free income-generating loans to poor families. The success of the Bank to alleviate poverty and to empower women has spread and has inspired other villages in Bangladesh and around the world.

Therefore, analyzing the experience of microfinance practices on women empowerment at the individual level is useful to capture its complexities. The cognitive change that occurs within the individual may lead to further action in their relationships with others. Further, Riger argues that the individual approach of empowerment understates the political dimension and the power relationship that exists in human relations. It also helps build a base for social change. Since empowerment is a multi-dimensional concept, the analysis will be based on the definition of empowerment by Kabeer, which emphasized the notion of power as determining choice and the ability to choose.

It is acknowledged that studies which used the individual and the household approaches to examine the implications of microfinance on women’s empowerment most often resulted in conflicting findings. In one hand, microfinance has impacted on progress of women’s empowerment in several aspects of development. Their progress in the economic domain is obvious when the credits can reduce poverty, provide continuous funds to their home, and strengthen economic conditions of the household. Also, the profits from their enterprise can increase their assets and purchasing power. Through income-generating activities in the program, women can enhance entrepreneurial skills for a sustaining empowerment.

In the social and political domain, progress can be seen in their capability to negotiate gender-relations with their husband. The enhanced role of the women may even generate a much-needed expanded area of communication between wife and husband, including shared decision-making in domestic matters and control of the use of loans. This ability also can help to empower husbands and children. Ultimately, progress may lead to gender-equality between women and men, at least within the household. Social and political progress can be seen practically at the level of the collective dimension of empowerment such as in groups and in society. In terms of identity, women have freedom in self-actualization and self-determination. The activities in the group also bring benefits to building confidence, knowledge and self-esteem. The domain of identity cannot be separated from culture and religion. In the case of Bangladesh, it suggests that in some instances cultural tradition undermines the progress of women’s empowerment. However, it cannot be ignored that many women in Bangladesh still believe and hold their culture sincerely, such as the respect of their husband.

In the case of Bangladesh, on the other hand, I argue that microfinance cannot fully be considered as a progressive gender and development policy. There are two main reasons for that.

First, microfinance has not been a policy that shows comprehensive and intact progress for women. The progress in women’s empowerment always contains risks on the other side. For example, a woman may, herself, eat better and feel better able to provide more income for her family, but at the same time may have extended the length of her work day or increased the intensity of her work. Also, it is true that microfinance cannot eliminate the likelihood of domestic violence, however, their participation in microfinance and economic contribution generally may reduce violence. A finding by Hashemi, Schuler, Riley, and Akhter, for example, noticed that access to credit appeared to be associated with an overall reduction of the incidence of violence against women. The loans and social dimensions of credit programs may help to inhibit violence against women. Bringing home a resource that benefits men can protect women from violence. It is also supported by another study by Reza which compares the likelihood before and after involvement in the credit program. Women reported an overall decrease in normative violent behavior by their husbands.

Secondly, microfinance practices have not adapted to a systematic approach to enabling both women and men to contribute together in the program. Microfinance practices have not reflected gender mainstreaming in the gender and development policy which emphasizes men’s role. Men or husbands have not contributed positively in advancing gender equality and gender relations. Women’s economic progress from microfinance policy does not necessarily lead to their welfare. For instance, husbands still pay less attention to women’s health and vulnerability, including nutrition issues. Also, women who participated in microfinance did not have any problems in terms of their access to credit because they directly accepted the money. The problems appeared to be in the control and the use of the credits. Study by Goetz and Gupta found that married women exercised little or no control over their loans and their husband controlled those loans.

The discussion shows that the impact of microfinance on women’s empowerment at the individual level shows mixed results. While access to microfinance can and does make vital contributions to the economic productivity and social well-being of poor women and their households, it does not automatically empower women who seek to bring about a radical structural transformation. On one hand, microfinance is still promising as one of the strategies of development. Women’s empowerment through microfinance might lead to gender equality through enhanced self-confidence, resources, coping abilities, freedom of choice and power-relations. It also contributes substantially to the well-being of women, reduces women’s vulnerability and poverty, and provides stable and continuous income for family. In this context, microfinance can be considered as a progressive gender and development policy. However, the achievements of microfinance on women’s empowerment contain risks for women’s and the family’s security. There are also several quantitative and qualitative factors which could contribute to women’s empowerment, particularly qualitative ones, for instance, religious beliefs, household type, and husbands’ attitudes.

Micro Finance in Bangladesh

The introduction of micro finance in Bangladesh is being thought of as a useful way to alleviate the financial problems of the common people, as most of them are not well off economically. However the micro finance in Bangladesh works in the form of an organized industry.

There is a proper market form of the micro finance industry in Bangladesh, which consists of the non-government organizations, programs for the public sector cooperatives and perhaps the most important name in South East Asian micro finance, Grameen Bank.

The micro finance service providers in Bangladesh were not really attentive with regard to their financial statistics and updating them. These companies used to emphasize more on the social aspects of their work more rather than the financial one. The situation has improved significantly over the passage of time.

It is imperative for the well being of the micro finance industry in Bangladesh that the companies should be giving more emphasis on the financial aspect of their transactions. The term commercialization happens to be an emerging idea in the context of the micro finance in Bangladesh.
The unique feature of commercialization is that according to this aspect of micro finance, the poor are regarded as clients and not beneficiaries and the micro finance market is integrated into the total financial industry of a country. The micro finance is now regarded in Bangladesh as a proper industry and not a charitable institution as it may be in some other countries across the world.

The current scenario of micro finance in Bangladesh has shown that the industry is at the juncture of evolution. The following factors or phenomena could be regarded as indicators to the same:

* Highest Frequency of Prevailing Interest Rates.
* Evolving Microcredit Theme
* Individual Loans
* Product Diversification
* Enterprise Loans
* Overlapping
* Savings Collection from Non-Members
* Huge Uncalled For Consumption Loans

Small Loans, Significant Impact

They are part of a nascent lending program created by Muhammad Yunus, a Bangladeshi economist who won the 2006 Nobel Peace Prize for developing the Grameen Bank, which uses micro-loans to help eradicate poverty in developing nations.

But these women are not in Bangladesh, they are in Queens. They are among the first 100 borrowers of Grameen America, which began disbursing loans in January. This is the first time Grameen has run its program in a developed country.

"I just want to live a little better, and one day own a little house or something," said Socorro Diaz, 54, a borrower who sells women's lingerie and jewelry. "I'm trying to change my life. Bit by bit."

Grameen America, which offers loans from $500 to $3,000, hopes to reach people like her, part of the large segment of poor Americans without access to credit, said Ritu Chattree, the vice president for finance and development.

They are bakers who can only buy enough eggs and milk for a day's work because they cannot afford a restaurant refrigerator to store ingredients. They are vendors who borrow money daily to rent a cart. They are hair salon owners who take out loans every time they need to buy shampoo.

They often use pawn shops, or fall prey to check-cashing stores, loan sharks, and payday lenders, which can charge interest rates of 200 or 300 percent, Chattree said.

"You think this is normal, because you grew up with it," said Yunus of such high-interest lending in a recent interview with the Financial Times. "This is an abnormal situation, because of the problem with the financial system, so we have to adjust the financial system."

His adjustment begins with this experiment in the immigrant neighborhood of Jackson Heights, Queens.

Three groups of five borrowers attend the meeting in the apartment of Jenny Guante, 40, who makes silver and gold jewelry and runs a home day care. Some are making weekly loan payments; the largest payment is $66 on a $3,000 loan. Guante, the group's chairwoman, counts the money carefully before passing it to Alethia Mendez, the Grameen staff member who serves as community banker and center director.

"I've known these people forever," said one borrower in the roomful of immigrants from the Dominican Republic. "We grew up together. We went to school together around the corner."

That bond helps people make payments, said Chattree. If one woman is having trouble repaying a loan because, say, her husband is sick and she has to care for him and the children, another of her group might pitch in to help with child care. Loan disbursements for the whole group are slowed if one person defaults, she said.

After the meeting, as several women drift off into the kitchen with a calculator to discuss their plans, 10 new prospective borrowers stop by the apartment.

The program began in 1974, when Yunus lent $27 to a group of poor villagers and realized that even small amounts could make transformative differences. He set up the Grameen Bank, which has since disbursed about $6 billion in tiny loans to about 7.4 million Bangladeshi micro-entrepreneurs, mostly women in businesses such as street vending and farming.

In Bangladesh, Grameen also functions as a savings bank, makes college and housing loans, and operates projects in areas such as telecommunications, yogurt production and solar energy.

The problem with capitalism, Yunus says, is its distinction between companies pursuing profit and charities pursuing good. His bank model operates with corporate efficiency, but pumps profits back into social objectives.

The borrowers in Queens are following Grameen's self-sufficient model in the developing world.

But Yunus acknowledges that the United States is different from the seven countries where Grameen operates its loan programs, or the dozens of others where Grameen has offered technical advice.

Here, there is more regulation, so a person cannot just set up a cart and sell cakes without a permit.

The welfare system discourages income-generating activities, Yunus says. "If you earn a dollar, that dollar is to be deducted from your welfare check. If you want to quit welfare, then you lose your health benefits," he told the Financial Times.

Rules for setting up a bank are cumbersome for a micro-operation, and Yunus has met with the head of the Federal Reserve and members of Congress to discuss creating more flexible legal frameworks.

Grameen America will break even when it has 20,000 borrowers, Chattree said, a scale she expects to achieve in three to five years.

That is something that no American micro-lender has achieved, said Michael Chu, a specialist in micro-finance at Harvard. "In general, the feeling is that micro-finance doesn't work in the States," said Chattree, even though many groups, including some aided by the Grameen Trust, have followed the Grameen model.

Other micro-lenders and academics say that if anyone can spark discussion on the issue, Grameen can.

Commercialization of Microfinance in Bangladesh

In view of the foregoing, strategic emphasis should be given on commercialization by the NGO-MFIs . In fact, the article attempts to focus on the issues of microfinance NGOs. The term "commercialization" in the microfinance industry of Bangladesh is relatively a nascent idea and has understandably wide ramifications. This concept is also gradually gaining ground in some other developing countries of the world. Chiefly, it tends to treat the poor as clients rather than as beneficiaries. It conceives the microfinance market not as segmented markets but as the integral of part of the country's total monetary system. It takes into view of healthy competition through product differentiation that encompasses the practice of marketing by launching new products. On the other hand, grant money that has zero cost, is not perceived favorably by many small potential organizations in the country as it distorts market competition. Anyway, microfinance is considered as a business and there is every justification to look at it from commercial angle. Notably, forty percent of a large sample of 533 NGO-MFIs surveyed recently shows that they have received grants from various donors for operating microfinance programs. Of the aforesaid figure, about thirty five percent has also received concessionary loans. There may be a commonality, however, between the grants and soft loans recipients. This advantage of grants and soft loans received by a segment of organizations may put the majority NGOs in a precarious position in pricing their loans. As a result, maximum number of NGOs will enjoy a very thin spread, if the grants and soft loan culture continues. Under the circumstances, the donors should ponder to review their policy of providing grants. The donors may rather come up with alternative ways of financing. This will consequently invigorate commercialization and help expand the microfinance market. This commercial approach also argues for the delivery of services at a scale and cost commensurate with the needs and ability of the market for which it is intended. People are indeed willing to pay full cost for a service they value. This is the universal text of value in market-based economy.

Microfinance, the ultimate solution against poverty?

Microfinance, the concept

The concept of microfinance is to reach a large portion of the poor people who do not have access to regular banks either because such banks do not exist in their territory or even if they did they would not lend money to them as no suitable collateral assets exist.

A suitable collateral has to have a market value but also be easily trappable. Nobody can imagine your next-door banker going around trying to rescue a cow or farming tools to recover their investment, it would just be let die or stolen and then written off.

In absence of finance would be entrepreneurs turn to the family or friends, but often the entourage is poor as well or reluctant to put at risk what they have. Here is why unofficial or, worse, illegal channels, including usury, have so much success and can dictate their terms

Managing microfinance loans is expensive

The interest rate charged by microfinance institutions, usually around 25% above inflation, is higher than regular banks, but still much better than unofficial channels. The reason for that is not the default rate, as one would think – it is in fact quite low -, but because managing the loan is expensive. First of all, the principal is low and therefore the management relative importance is high. Besides, in order to increase the chances of success, the control is quite strict and frequent. Sometimes basic management education courses are involved. For instance, in many uneducated populations the concept of saving for future bad times is rather blur or non-existent. Income volatility has a direct impact on their life. Another concept hard to break is that power and income is directly proportional to the number of children. It is here that microfinance is believed to be more effective than simple donations or subsidies. A principle that could be valid for tackling Western unemployment as well, perhaps?

How microfinance works

The way it is managed is rather interesting: the loan is usually granted to the main female member of the family because she has a stronger motivation to spend the profit of her business to feed the rest of the family and make them survive long-term. Sadly, an uneducated man is more likely to waste principal and revenues onto drinks, playing or betting. More importantly, the loan is organised around a ‘self-help’ group (moderated by a representative of the lender organisation) which shares the responsibility for the loan and its repayment. The group meets regularly and ensures that each one contributes to the success of the ‘venture’ and has a vested interest on it. A strong group usually succeeds more frequently than individuals also in this area. This might remind you some job design concepts like self-autonomous workgroups applied to quite a different environment. Finally, I would like to mention an interested development which tries to address an aspect of the cost of finance in microfinance and that is money raising and transaction cost. An organisation like www.kiva.org collects money directly from lenders on behalf of lending institutions on the field, thus bypassing a number of passages and associated costs. In that ‘marketplace’ the not-for-profit money provider provides funds directly and even chooses the target borrower by analysing profiles, projects and situations; bear in mind that the lender individual shall expect the payback of the principal only, which can then be granted again to another entrepreneur. Involved sums are capped.

Conclusion?

Statistics show that this approach is working better than other instruments in lifting poverty and raising education levels in certain areas of the world, but it cannot be the only mean for such an extremely large problem. I welcome views and experiences that readers might have on microfinance.

Concept of Joint Liability Group in Microfinance

Microfinance sector caters to the need of poor people and the loans given by microfinance institutions are unsecured i.e. they are not backed by any security. Poor people utilise this money by setting up some small business to earn their livelihood and for various other purposes. You must be thinking that it is very risky to give loans to poor as if they don’t repay the loan you can’t do anything about it. To concur this challenge microfinance industry has adopted the concept of Joint Liability Group. Though it doesnt solve all the problems but it reduces them to some extent.

In Joint Liability Group, The borrowers make a group among themselves and the microfinance institutions give loan to that group. One person in that group is appointed as leader of the group and each person is resposible for the loan taken by any member of the group. If any one person in the group defaults then other group members will have to pay for that.

This Group concept is helpful because eveyone is being monitored by other people in the group and the borrower utilise his money properly. If any one defaults, other group members will make all possible efforts to take money back and he will not find any place in any group next time. So, he will not be able to take loan in future. This thing motivates the borrowers to maintain discipline while asking for loan and utilising it appropriately.

Though sometimes the groups also defaults however it is uncommon. The joint liability group concept helps the microfinance institutions in reducing the default risk and at the same time inculcate the habit of disciplined management of finance among the poor.

Celebrating the contributions of MicroLoan Foundation clients on International Women’s Day

To mark International Women’s Day MicroLoan Foundation held a discussion group of four clients from Nkhamenya town to talk about issues that are important to them as businesswomen. The attendees are all on their sixth loan cycle. They are:
• Febbie Chaponda who sells second hand clothes and bakes and sells samosas.
• Magret Msimuko who runs a small restaurant selling rice or nsima with meat and vegetables.
• Witness Banda who runs a grocery selling soap, oil, rice, flour and sugar.
• Sella Mkwewe who is a tailor.

When it comes to the differences that MicroLoan Foundation has made to their lives, the women are clear: the profits from their businesses have helped them pay for their children’s school fees, buy better clothes for their family and make improvements to their homes. In fact, Febbie says that it was through seeing a MicroLoan client’s success in her community that she herself first joined as a client. Now, the women agree, it is up to them as MicroLoan clients to act as mentors to others ‘who don’t know business so that they learn to do business to help their families’. The contributions they have been able to make in their homes and communities give the women great pride. Febbie says she was able to pay for her children’s school books recently as her husband’s salary had not yet come through. Witness adds, ‘although it is the hungry period [i.e. before the harvest, when people struggle the most to feed their families] I have been able to buy maize and a big pot for cooking nsima!’.

Although women in their communities look up to them as MicroLoan clients, the clients also continue to aspire to be like other successful businesswomen in their communities. Sella explains, ‘there is a woman in Nkhamenya who owns a wholesale business. I admire her very much because her business is expanding and she owns a number of houses that she rents out. She is a leader. When there is a funeral she helps people by giving them food and money’.

These are just a snapshot of a few of the women who work hard to run their small businesses in order to improve their lives, and those of their families and communities. We celebrate their contributions and achievements this International Women’s Da

Putting the Microsavings in Microfinance

It has become increasingly clear that the most important element of microfinance isn’t lending, but savings. That lesson was taught to me by SEWA in India, Kashf in Pakistan and Grameen in Bangladesh. Only some poor people will benefit from the chance to borrow, but almost all will benefit from the chance to save.

That’s also a lesson of a fascinating new book, “Portfolios of the Poor: How the World’s Poor Live on $2 a Day.” It looks at the financial activities of very poor families, and I was struck in particular from the surveys by how often poor families lost everything from crime. If you don’t have a bank account (because you can’t open one), and all your money is in a coffee can under the bed — well, you can be wiped out in an hour. In South Africa, 11 percent of the sample faced a financial emergency in any one year from theft or violent crime. In Bangladesh, 7 percent were cheated or lost cash, and 19 percent lost their home or property through fire or other means. To be poor truly is to live precariously.

Likewise, the book notes that many poor people must pay to save. That’s right — instead of receiving interest for depositing their savings with someone, they have to pay interest on their own money. One common scheme in West Africa, for example, charges an annual interest of 40 percent for accepting savings. If you struggle to save $100, a year later you have $60. But at least it’s safer than it would be under the bed. If we develop banks that actually serve the poor and accept savings, even if they paid zero interest, that would be a huge step forward and a big incentive to start saving.

How Successful is Microfinance in Africa?

The discussion earlier in this blog about microsavings vs. microlending made me think that I should borrow from the expertise of you readers out there.

I have a general sense that microfinance has been very successful in South Asia, but that in Africa it has had more of a mixed record. Do others share that view? And, if it’s true, why hasn’t it been as successful in Africa as in Asia? I can imagine that lower population density means higher operating costs, and that lower economic growth rates mean fewer opportunities to invest successfully. Or is it, as Muhammad Yunus once told me, that the models in Africa sometimes haven’t been quite right, but that when they are introduced properly they work as well in Africa as in South Asia?

Microfinance Programs and Social Capital Formation: The Present Scenario in a Rural Village of Bangladesh

Saharia Kanak and Yoshiaki Iiguni


Microfinance has been regarded as one of the most viable tools for poverty alleviation and socioeconomic development with developing countries in recent years. Many of the Non-Governmental Organizations (NGOs) in Bangladesh, currently working as Microfinance Organizations (MFOs) - including the Grameen Bank, Bangladesh Rural Advancement Committee (BRAC) and PROSHIKA-have established innovative microfinance programs that have provided financial services to millions of poor people in the country. Although the main focus of all microfinance programs is income-generation for the poor, one of the important outcomes is believed to be the creation of social capital. In this qualitative study, we investigated the present scenario of social capital formation mainly through the microfinance program of BRAC in a rural village of Bangladesh. The study results suggest that a microfinance program does not essentially create effective social capital unless enforced by the microfinance organization. Social capital formation through microfinance programs largely depends on well-designed social capital building strategy of the respective microfinance organization and its actual implementation in the grass-root level.

ASA has been working relentlessly to reduce poverty since its inception in 1978

The formal banking sector in developing countries, like Bangladesh, does not typically provide financial services to the poor. This sector concentrates on large loans to the upper class, thereby completely excluding low income groups.

The microfinance movement, however, has shown that there is a thriving market among the poor when financial products cater to their specific needs. The poor are a quite active group in any economy. ASA has shown that their needs can be met while at the same time making the providing institution profitable as well.

Up to June 2009 ASA's cumulative Loan disbursement has been TK. 345,161 million (US$ 5,002 million) while loan outstanding (principal) is TK. 23,687 million (US$ 343 million) among almost 4,573,222 borrowers.