The Scaling-Up of Microfinance in Bangladesh: Determinants, Impact, and Lessons

This paper describes the factors that led to the scaling-up of micro credit in Bangladesh, the impact this had on the poor, the future challenges in Bangladesh, and the possible lessons for other countries.

The paper lists the following factors that helped scale-up microfinance:

• Institution building Leadership, staff incentives and learning by doing;
• A constructive donor-client relationship;
• An enabling macro-economic and regulatory environment;
• Population density, ethnic homogeneity and religious tolerance;
• A professional apex body for microfinance.

The author argues that micro credit plays a significant role in reducing household vulnerability to a number of risks and also contributes to improving social indicators, especially the empowerment of women.

The paper concludes by proposing six lessons from Bangladesh that could be relevant to microfinance growth and impact in other countries. They are:

• It is important to have an enabling environment;
• If micro credit is complemented by other interventions, it would be a more effective remedy against poverty and vulnerability;
• There is a role for donor financial assistance in expanding the capital base in emerging microfinance institutions as well as in developing technical capacity that leads to sustainability;
• While visionary leadership cannot be simply franchised, the systems and rules that govern the successful microfinance industry in Bangladesh can be replicated;
• The creation of a microfinance wholesaler has the potential to play an important role in expanding access, developing professional standards and in advocating microfinance;
• It is not a sound strategy to support many institutions and risk spreading resources thinly in order to each large numbers of poor people.