Microcredit Does This Truly Reduce Poverty in Bangladesh or Is It Kind of Oppression or Exploitation.

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  • Topic: Microfinance, Poverty, Microcredit
  • Pages : 25 (6277 words )
  • Download(s) : 503
  • Published : June 15, 2012
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Chapter 1
Introduction
|Economic Principle of Microcredit | |Concept & Definition | |Microcredit or Microfinance Institution in Bangladesh | |Operational way |

Bangladesh economy is characterized by unfavorable per capita land, low per capita income, glaring and accentuating income disparity, high level of unemployment, low productivity, and persisting high levels of poverty and deprivation. Under the circumstances, micro-credit has been promoted to help the poor to take up self-employment on tiny micro scales with a view to improving their living conditions. The appropriateness of microcredit as a tool for reducing poverty depends on local circumstances. Poverty is often the result of low economic growth, high population growth, and extremely unequal distribution of resources. The proximate determinants of poverty are unemployment and the low productivity of the poor. When poverty results from unemployment, reducing poverty requires creating jobs; when poverty results from low productivity and low income, reducing poverty requires investing in human and physical capital to increase workers' productivity. In many countries, such as Bangladesh, poverty is caused by lack of both physical and human capital. Consequently, the best way to reduce poverty is to deal with both problems: increasing productivity by creating employment and developing human capital. One way to increase the productivity of the poor is through broad based economic growth. Such growth ensures more inclusive participation in development by providing widespread employment.

Microcredit is the extension of very small loans (microloans) to poor borrowers who typically lack collateral, steady employment and a verifiable credit history. It is designed to spur entrepreneurship, increase incomes, alleviate poverty and often also to empower women. Microcredit is a part of microfinance, which is the provision of a wider range of financial services, in particular savings, to the poor. As of 2009 it was estimated that there were 74 million recipients of microcredit’s with a total of $38 billion in outstanding loans. Modern microcredit is generally considered to have originated with the Grameen Bank founded in Bangladesh in 1976. Many traditional banks subsequently introduced microcredit, even though they had earlier on discounted its likelihood of success. As of 2012, microcredit is widely used in developing countries and it is presented as having "enormous potential as a tool for poverty alleviation." The United Nations had declared 2005 the International Year of Microcredit. Economic Principles of Microcredit

Microcredit is based on a separate set of principles, which are distinguished from general financing or credit. Microcredit organizations were created to serve in the place of loan-sharks known to take advantage of clients. Many microcredit organizations began as non-profit organizations, running off of government or private subsidies. By the 1980s, the ‘financial systems approach,’ influenced by neoliberalism and propagated by the Harvard Institute for International Development became the dominant ideology among microcredit organizations. The commercialization of microcredit began with the formation of Unit Desa (BRI-UD) within the Bank Rakyat Indonesia in 1984, which offered ‘kupedes’ microloans based on market interest rates. Most microcredit organizations now function as independent banks, leading to high interest rates and a greater emphasis on savings programs. The application of neoliberal economics to microcredit has generated much debate among scholars and development practitioners, with...
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