Future Challenges Facing the MFIs of Bangladesh: Choice of Target Groups, Loan Sizes and Rate of Interest

This paper recognizes the importance of microcredit as an instrument for achieving poverty alleviation in Bangladesh. It also examines whether the microfinance institutions (MFI) in Bangladesh are making a continuous progress in achieving this objective and identifies the emerging challenges.

The paper analyzes three main questions to gauge the future of microfinance in Bangladesh:

• What are the ideal loan size and the rate of interest that MFIs should decide for profitable investment by the borrowers?
• Should MFIs target the borderline poor or the 'poorest', and is such a practice sustainable?
• Should MFIs continue to mainly target women as their clients/borrowers?

Finally, the paper evaluates the impact of microcredit on poverty and household income and identifies a number of emerging problems of MFIs, such as:

• Increase in interest rates may discourage the poorest clients and encourage the borderline poor;
• Limited resources may lead to inequitable fulfillment of the credit needs of men and women;
• Increase in the loan size by MFIs, in order to increase the degree of financial sustainability, may lead to worsening repayment performance and exclusion of the poorest;
• Investment in less profitable activities by the MFIs, may reduce the impact on poverty alleviation and the demand for loan.