Tuesday, February 16, 2010

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.