Paper

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

For what challenges should Bangladeshi microfinance institutions prepare?
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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.

About this Publication

By Rahman, R.
Published