Case Study
Case Study Bangladesh: Financial Linkages in Bangladesh
What are the advantages of credit linkages to banks and microfinance institutions?
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This paper explores MFI bank credit linkages in Bangladesh. It states that:
- Inadequate funds prevent MFIs from reaching a large number of their potential clientele in Bangladesh;
- Existing clients, who want to expand their businesses, require larger loans;
- Formal financial institutions have excess liquidity, but find providing services directly to microcredit clients is a non-viable proposition;
- In such a situation, linkages between MFIs with financial constraints, and banks with excess liquidity, are a simple and effective solution.
The paper studies poverty in Bangladesh, looking at:
- Alternative sources of financing for the poor;
- Wholesale finance to NGO-MFIs;
- Performance of commercial banks - MFIs linkage wholesale funding.
The paper states that:
- Banks and MFIs can benefit from each others comparative advantages by establishing linkages;
- The bank-MFI linkage program aims to:
- Provide performance-based credit support to qualified MFIs for on-lending to their clients;
- Complement the Government's efforts for poverty-reduction;
- Develop effective and mutually beneficial business-partnerships with NGO-MFIs free of collateral.
The paper describes in detail the work of the Credit and Development Forum (CDF), Bangladesh's central microfinance networking organization, that provides support to the MFI-NGOs.
It concludes that bank-MFI credit linkages benefit:
- Banks, in terms of profitability and business expansion;
- MFIs, in terms of sustainability, outreach and providing larger loan amounts;
- Borrowers in their socio-economic development.
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