Improving micro credit operations

The poor or extreme poor who take micro credit should be allowed to do so at bearable or nominal rates of interest

Micro credit was identified long ago as a powerful tool for the purpose of poverty alleviation in Bangladesh .  This realisation also led to a major expansion of micro credit operations in the country during the last two decades. 13 ministries and divisions of the government are  presently engaged in public micro credit operations under 37 projects . Numerous  non governmental organisations (NGOs)  have been also playing a part in extending micro credits to the poor. Then, there is the vast countrywide network of the Grameen Bank which is the  single biggest NGO in this field.  All of their  activities should have caused a near complete reduction in poverty. But the same has not happened which puts into focus the issue of running micro credit operations with greater effectiveness.
    One main reason for the much less than the desired impact of micro credit on  the poor is the high  interest rate on such credits. The poor or extreme poor who take micro credit should be allowed to do so at bearable or nominal rates of interest. But  even the interest rates charged on publicly run micro credit programmes continue to be not so easily affordable by  their poor receivers.
    After the reduction in the interest rates on official micro credit operations by 4 per cent the  same dropped to 11 per cent as a result from 15 per cent. But even this four per cent decrease did not create the expected relief among poor micro credit users. What they need is credit at nominal rates or at no more than 4 or 5 per cent interest rate to make good use of them and to repay the loans  relatively smoothly. Ideally,  the  recommended lower rates of interest on micro credit should meet both the needs of viably running the official micro credit operations while also meeting the intended objectives of these programmes.
   The NGOs , in many cases,  still charge high interest on micro credits provided by them.  The Grammen Bank is specially known for charging interest rates as high as 15 per cent. Thus, these bodies  need to be persuaded to substantially decrease the interests they charge and they should be required  to base their credit operations truly for the benefit and advantage of the poor and not for only making good profits out of such operations.

Improving micro credit operations

The poor or extreme poor who take micro credit should be allowed to do so at bearable or nominal rates of interest

Micro credit was identified long ago as a powerful tool for the purpose of poverty alleviation in Bangladesh . This realisation also led to a major expansion of micro credit operations in the country during the last two decades. 13 ministries and divisions of the government are presently engaged in public micro credit operations under 37 projects . Numerous non governmental organisations (NGOs) have been also playing a part in extending micro credits to the poor. Then, there is the vast countrywide network of the Grameen Bank which is the single biggest NGO in this field. All of their activities should have caused a near complete reduction in poverty. But the same has not happened which puts into focus the issue of running micro credit operations with greater effectiveness. One main reason for the much less than the desired impact of micro credit on the poor is the high interest rate on such credits. The poor or extreme poor who take micro credit should be allowed to do so at bearable or nominal rates of interest. But even the interest rates charged on publicly run micro credit programmes continue to be not so easily affordable by their poor receivers. After the reduction in the interest rates on official micro credit operations by 4 per cent the same dropped to 11 per cent as a result from 15 per cent. But even this four per cent decrease did not create the expected relief among poor micro credit users. What they need is credit at nominal rates or at no more than 4 or 5 per cent interest rate to make good use of them and to repay the loans relatively smoothly. Ideally, the recommended lower rates of interest on micro credit should meet both the needs of viably running the official micro credit operations while also meeting the intended objectives of these programmes. The NGOs , in many cases, still charge high interest on micro credits provided by them. The Grammen Bank is specially known for charging interest rates as high as 15 per cent. Thus, these bodies need to be persuaded to substantially decrease the interests they charge and they should be required to base their credit operations truly for the benefit and advantage of the poor and not for only making good profits out of such operations.