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Microfinance and Poverty in the contest of

Bangladesh
What is Microfnance?
Microfnance is often defned as fnancial services for poor and low-
income clients. In practice, the term is often used more narrowly to refer
to loans and other services from providers that identify themselves as
microfnance institutions (MFIs). hese institutions commonly tend to
use new methods developed over the last !" years to deliver very small
loans to unsalaried #orrowers, ta$in% little or no collateral. hese methods
include %roup lendin% and lia#ility, pre-loan savin%s re&uirements,
%radually increasin% loan si'es, and an implicit %uarantee of ready access
to future loans if present loans are repaid fully and promptly.
More #roadly, microfnance refers to a movement that envisions a
world in which low-income households have permanent access to a ran%e
of hi%h &uality fnancial services to fnance their income-producin%
activities, #uild assets, sta#ili'e consumption, and protect a%ainst ris$s.
hese services are not limited to credit, #ut include savin%s, insurance,
and money transfers.
Details of Microfinance:
Microfnance is the provision of fnancial services such as loans,
savin%s, insurance, and trainin% to people livin% in poverty. It is one of
the %reat success stories in the developin% world in the last !" years
and is widely reco%ni'ed as a (ust and sustaina#le solution in
alleviatin% %lo#al poverty.
he industry #e%an #y providin% small loans to emer%in%
entrepreneurs to start or e)pand #usinesses. *pportunity International
was one of the frst nonproft or%ani'ations to reco%ni'e the #enefts of
providin% capital to people stru%%lin% to wor$ their way out of poverty.
*ver the years, with *pportunity leadin% the way, the microfnance
sector has e)panded its fnancial service o+erin%s to #etter meet client
needs. ,lon% with providin% more -e)i#le loan products and #usiness
and personal development trainin%, *pportunity o+ers savin%s and
insurance to help clients e+ectively navi%ate the daily hardships they
face. .ithout these services, clients are continually at ris$ of slippin%
#ac$ into poverty #ecause of unforeseen circumstances.
Microfnance or%ani'ations ma$e it a priority to serve the
particular needs of women, since a sta%%erin% /" percent of all those
livin% in e)treme poverty are female. .omen are often e)cluded from
education, the wor$place, ownin% property and e&ual participation in
politics. hey produce one half of the world0s food, #ut own (ust one
percent of its farmland. 1early 23 percent of *pportunity0s loan clients
are women. .hile *pportunity %ladly e)tends loans to men, the
or%ani'ation #elieves the %reatest opportunity for interruptin% cycles of
e)treme poverty come from microfnance pro%rams that tar%et female
entrepreneurs. .hen women improve their circumstances, they also
improve the lives of their children. 4y investin% in nutrition and
education, they help to create a #etter future for their children and
their communities.
5espite the success of life-transformin% microfnance services,
the .orld 4an$ says that the industry is not close to meetin% the
demand. Five hundred million people livin% in poverty could #eneft
from a small #usiness loan and only one-third of the world0s population
has access to any $ind of #an$ account. he lac$ of access is
particularly severe in su#-6aharan ,frica where the .orld 4an$
estimates that microfnance is reachin% only a small percenta%e of the
economically active population. In su#-6aharan ,frica0s poorest
countries, less than 7" percent of the population has an account with a
fnancial institution. In response, *pportunity has committed to
#uildin% scala#le, sustaina#le and accessi#le #an$s throu%hout the
developin% world to provide loans, trainin%, savin%s and insurance
products tailored to the specifc needs of each re%ion.
,s the microfnance industry continues to mature, there is a
dan%er that it will drift toward a more secure client #ase. It is critical
that microfnance or%ani'ations continue to focus on those with the
%reatest needs8those who have #een displaced, those in rural areas,
those who traditional institutions consider un#an$a#le8the most
mar%inali'ed people. Maintainin% that focus, microfnance can help
create a world in which the underserved have fair access to economic
opportunities and the hope to move #eyond poverty.
What is the difference between microfinance and micro credit?
Micro credit refers to very small loans for unsalaried #orrowers with
little or no collateral, provided #y le%ally re%istered institutions. 9urrently,
consumer credit provided to salaried wor$ers #ased on automated credit
scorin% is usually not included in the defnition of microcredit, althou%h
this may chan%e.
Microfnance typically refers to microcredit, savin%s, insurance,
money transfers, and other fnancial products tar%eted at poor and low-
income people.
What kinds of institutions deliver microfinance?
Most MFIs started as not-for-proft or%ani'ations li$e 1:*s (non-
%overnmental or%ani'ations), credit unions and other fnancial
cooperatives, and state-owned development and postal savin%s #an$s. ,n
increasin% num#er of MFIs are now or%ani'ed as for-proft entities, often
#ecause it is a re&uirement to o#tainin% a license from #an$in% authorities
to o+er savin%s services. For-proft MFIs may #e or%ani'ed as non-#an$
fnancial institutions (14FIs), commercial #an$s that speciali'e in
microfnance, or microfnance departments of full-service #an$s.
How does microfinance help the poor?
he impact of microcredit has #een studied more than the impact of
other forms of microfnance. Microcredit can provide a ran%e of #enefts
that poor households hi%hly value includin% lon%-term increases in income
and consumption. , harsh aspect of poverty is that income is often
irre%ular and undependa#le. ,ccess to credit helps the poor to smooth
cash -ows and avoid periods where access to food, clothin%, shelter, or
education is lost. 9redit can ma$e it easier to mana%e shoc$s li$e sic$ness
of a wa%e earner, theft, or natural disasters. he poor use credit to #uild
assets such as #uyin% land, which %ives them future security. .omen
participants in microcredit pro%rams often e)perience important self-
empowerment.
;mpirical studies on the impact of credit are di<cult and e)pensive
to conduct and pose special methodolo%ical pro#lems. Most impact
studies to date have found si%nifcant #enefts from microcredit. =owever,
only a few studies have made serious e+orts to compensate for the
methodolo%ical challen%es. In fact, many studies would not #e re%arded
as meanin%ful #y most professional econometricians. , new wave of
randomi'ed trial studies is now in process, which should yield a more
defnitive picture.
;ven so, there is a stron% indication from #orrowers that microcredit
improves their lives. hey faithfully repay their loans even when the only
compellin% reason is to ensure continued access to the service in the
future.
*ther microfnance services li$e savin%s, insurance, and money
transfers have developed more recently, and there is less empirical
research on their impact. 9lient demand indicates that poor people value
such services. MFIs that o+er %ood voluntary savin%s services typically
attract far more savers than #orrowers.
When is microfinance NOT an appropriate tool?
Financial services, particularly credit, are not appropriate for all
people at all times. For loans that will #e used for #usiness purposes,
microcredit #est serves those who have identifed an economic
opportunity and can capitali'e on it if they have access to a small amount
of ready cash. >e%ardless of how loans are used, MFIs can provide lon%-
term, sta#le credit access only when clients have #oth the willin%ness and
a#ility to meet scheduled loan repayments.
Microfnance is particularly inappropriate for the destitute, who may
need %rants or other pu#lic resources to improve their economic situation.
:rants are a more e<cient way to transfer resources to the destitute than
are loans that many will not #e una#le to repay. oo much ris$ is placed on
the MFI and client, when the only way a client can repay a loan is #y
startin% a successful #usiness. 4asic re&uirements li$e food, shelter, and
employment are often more ur%ently needed than fnancial services and
should #e appropriately funded #y %overnment and donor su#sidies.
:overnments and development a%encies often use microfnance as
a tool to address socio-economic pro#lems such as relocation of refu%ees
from civil strife, %eneratin% employment amon% demilitari'ed soldiers, or
assistance followin% a natural disaster. Microfnance may or may not #e
a#le to respond to these situations e+ectively, and certainly not as a
stand-alone intervention. Implementin% a successful microfnance
pro%ram to address these types of situations depends upon a num#er of
factors, the most important of which is a client #ase capa#le of ma$in%
re%ular repayments.
Why do M!s char"e hi"h interest rates to poor people?
9oncerns often arise as to why microcredit interest rates are hi%her
than the #an$ interest rates that wealthier people pay. he issue is cost?
the administrative cost of ma$in% tiny loans is much hi%her in percenta%e
terms than the cost of ma$in% a lar%e loan. It ta$es a lot less sta+ time to
ma$e a sin%le loan of @7"",""" than 7,""" loans of @7"" each. 4esides
loan si'e, other factors can ma$e microcredit more e)pensive to deliver.
9redit decisions for #orrowers who have neither collateral nor a salary
cannot #e #ased on automated scorin%. hese decisions re&uire
su#stantial intervention of a loan o<cer in (ud%in% the ris$ of each loan.
MFIs may operate in areas that are remote or have low population density,
ma$in% lendin% more e)pensive. his is often why traditional #an$s tend
to stay away from such areas. If an MFI wants to operate sustaina#ly, it
has to price its loans hi%h enou%h to cover all its costs.
,lthou%h microcredit interest rates can #e le%itimately hi%h,
ine<cient operations can ma$e them hi%her than necessary. ,s the
microcredit mar$et matures in a %iven country, administrative costs
usually drop as mana%ers learn from e)perience and in some cases
#ecause competition forces lower pricin% and %reater e<ciency.
Why does the microfinance industry place so much emphasis on
sustainability?
From a development perspective, fnancial sustaina#ility is not an
end in itself. >ather, it is a tool for reachin% the ma)imum num#er of
clients. MFIs may only operate for a limited time, reach a limited num#er
of clients, or #e driven more #y political %oals than #y client needs if
services are not priced at sustaina#le levels.
5onors and %overnments cannot li$ely provide enou%h su#sidi'ed
funds to meet the hu%e demand for microfnance. ;ven if there were
enou%h donor and %overnment money, it would #e #etter spent on other
development priorities that, unli$e microfnance, cannot #e delivered
without continuin% su#sidies. 6ustaina#le MFIs have the potential to
attract non-su#sidi'ed resources to fnance e)pansion of outreach.
;)perience has even shown that #orrowers are more li$ely to repay
lenders who operate without su#sidies at they are more confdent the
institution will #e around to %ive them future loans.
he trade-o+ #etween fnancial via#ility and reachin% very poor
people is much less acute than many once thou%ht. , num#er of fnancial
providers have mana%ed to o+er hi%h-&uality fnancial services to very
poor people while also coverin% their costs. Moreover, correlation #etween
MFI profta#ility and client poverty level has proven to #e a statistically
wea$ one. his may #e more driven #y the vision of particular MFIs than
#y any inherent unprofta#ility of low-end microcredit.
!s the microfinance industry sustainable?
Is the microfnance industry fnancially sustaina#leAis it profta#le
after ma$in% ad(ustments for su#sidies not li$ely to continue in the futureB
Most MFIs are still unprofta#le, especially if one includes the many small
MFIs that do not report to the international data#ases descri#ed in. , more
meanin%ful way to loo$ at profta#ility is to consider the overall num#er of
overall clients served #y profta#le MFIs, rather than the num#er of
profta#le MFIs themselves. In C""D, EEF of all micro #orrowers captured
#y the MIG data#ase are #ein% served #y profta#le institutions. If one
narrows the focus to private MFIs such as 1:*s and licensed institutions,
then more than !H3 of the #orrowers are already #ein% served profta#ly,
and the lon%- term trend is upward.
,re MFIs as profta#le as #an$sB Measured #y return on assets, MFIs
are on avera%e more profta#le than the commercial #an$s in their
countries. his does not show that microfnance is inherently more
profta#le than commercial #an$in%. >ather, the di+erential is li$ely due to
microfnance #ein% an immature industry in most countries where
providers0 profts have not yet #een s&uee'ed down. Measured #y return
on the e&uity invested #y shareholders, MFIs are on the avera%e less
profta#le than #an$s, #ut this is mainly #ecause MFIs are not yet as fully
levera%ed as #an$sAi.e., MFIs fund their assets with more of their own
money and less of the money deposited #y savers. ;ven so, well-mana%ed
microfnance have already shown to #e profta#le enou%h to inte%rate into
mainstream fnancial sectors.
Do "overnments do a "ood #ob of deliverin" microcredit?
here are several hi%hly successful %overnment MFIs, such as 4an$
>a$yat Indonesia0s microfnance department. =owever, the vast ma(ority
%overnment microfnance pro%rams do a poor (o# of deliverin% retail
credit. 6uch pro%rams are usually su#(ect to political in-uence, hi%h
default, continuin% drain on national treasuries, and sometimes lendin%
#ased more on the #orrowers0 in-uence than their actual &ualifcations.
,mon% %overnment pro%rams reportin% to international data#ases, only
7H2 of clients are #ein% served sustaina#ly. here are structural dynamics
that ma$e it hard for %overnments to deliver %ood retail credit. 6ound
credit administration re&uires screenin% out #orrowers who are not li$ely
to repay, char%in% interest rates hi%h enou%h to cover costs, and
respondin% vi%orously to late payments. hese re&uirements usually run
counter to the practical incentives and imperatives of even the sincerest
wor$in% politician. he %overnment-run MFIs that deliver %ood microcredit
tend to #e insulated from politics, mana%ed #y technocrats, and stron%ly
and e)plicitly focus on sustaina#ility.
It is important to remem#er that these incentive pro#lems for
%overnment providers pertain more to credit than to other services. For
instance, %ood %overnment savin%s #an$s are considera#ly easier to fnd
than %ood %overnment retail loan pro%rams.
What is the "overnment$s role in supportin" microfinance?
:overnment0s most important role is not provision of retail credit
services, for reasons mentioned in. :overnment can contri#ute most
e+ectively #y?
6ettin% sound macroeconomic policy that provides sta#ility and
low in-ation
,voidin% interest rate ceilin%s - when %overnments set interest
rate limits, political factors usually result in limits that are too low to
permit sustaina#le delivery of credit that involves hi%h administrative
costsAsuch as tiny loans for poor people. 6uch ceilin%s often have the
announced intention of protectin% the poor, #ut are more li$ely to
cho$e o+ the supply of credit
,d(ustin% #an$ re%ulation to facilitate deposit ta$in% #y solid
MFIs, once the country has e)perience with sustaina#le microfnance
delivery,
9reatin% %overnment wholesale funds to support retail MFIs if
funds can #e insulated from politics, and they can hire and protect
stron% technical mana%ement and avoid dis#ursement pressure that
force fund to support unpromisin% MFIs.
How do savin"s services help poor people?
6avin%s has #een called the for%otten half of microfnance.
Most poor people now use informal mechanisms to save #ecause they
lac$ access to %ood formal deposit services,. hey may tuc$ cash under
the mattress, #uy animals or (ewelry that can #e sold o+ later, or
stoc$pile inventory or #uildin% materials. hese savin%s methods tend
to #e ris$yAcash can #e stolen, animals can %et sic$, and nei%h#ors
can run o+. *ften they are illi&uid as well 8 one cannot sell (ust the
cow0s le% when one needs a small amount of cash. Ioor people want
secure, convenient deposit services that allow for small #alances and
easy access to funds. MFIs that o+er %ood savin%s services usually
attract far more savers than #orrowers.
What is the microfinance industry doin" to ensure that the poor
do not fall prey to predatory lenders?
Many countries are concerned a#out the impact of e)cessive
interest rates, a#usive lendin% practices, and over-inde#tedness on
poor #orrowers. Juite a few players in the industry are now focusin% on
consumer protection issues. ypical consumer protection measures
include disclosure re&uirements, rules and prohi#itions related to
lendin% practices, mechanisms for handlin% complaints or disputes,
and consumer education.
he ,99I*1 InternationalH Microfnance 1etwor$ Iro-9onsumer
Iled%e, FI19,0s 9onsumer-*riented ;thical 6tatement and Freedom
from =un%er0s 6tatement on ;thical reatment of 9lients are
e)amples of networ$ or%ani'ations articulatin% pro-consumer
principles. he 6;;I 1etwor$, throu%h its Iro-9lient .or$in% :roup, has
resources on the su#(ect.
;ven in countries where consumer a#use is not yet a pro#lem,
promotin% voluntary consumer protection codes and practices may
reduce future pressure to over-re%ulate. ,n increasin% num#er of
individual MFIs are adoptin% voluntary pled%es or codes that promote
e+ective consumer protection and a consumer-oriented culture. For
instance, the 4osnian MFI Iri'ma has wor$ed with Freedom from
=un%er to articulate *ur 9ommitment to 9lients.
Investors are in the process of si%nin% on to 9:,IKs Investor
Initiative for 9lient Irotection in Microfnance. Finally, the slow #ut
steady inroads of social performance measurement and mana%ement
into the feld of microfnance is focusin% more attention on protection
and transparency dimensions, as well as potential unintended ne%ative
conse&uences for clients.
What is social performance measurement and why is it important
for financial institutions?
he 6ocial Ierformance as$ Force defnes social performance as?
Lhe e+ective translation of an institutionKs social mission into practice in
line with accepted social values that relate to servin% lar%er num#ers of
poor and e)cluded peopleM improvin% the &uality and appropriateness of
fnancial servicesM creatin% #enefts for clientsM and improvin% social
responsi#ility of an MFI.L
Most MFIs have a social mission that they see as more #asic than
their fnancial o#(ective, or at least co-e&ual with it. here is a %reat deal
of truth in the ada%e that institutions mana%e what they measure. 6ocial
performance measurement helps MFIs and their sta$eholders focus on
their social %oals and (ud%e how well they are meetin% them. 6ocial
indicators are often less strai%htforward to measure, and less commonly
used than fnancial indicators that have #een developed over centuries.
oday0s increasin% use of social measures re-ects an awareness that %ood
fnancial performance #y an MFI does not automatically %uarantee client
interests are #ein% appropriately advanced.
Microfnance situation in Bangladesh:
he introduction of micro fnance in 4an%ladesh is #ein% thou%ht of
as a useful way to alleviate the fnancial pro#lems of the common people,
as most of them are not well o+ economically. =owever the micro fnance
in 4an%ladesh wor$s in the form of an or%ani'ed industry.
here is a proper mar$et form of the micro fnance industry in
4an%ladesh, which consists of the non-%overnment or%ani'ations,
pro%rams for the pu#lic sector cooperatives and perhaps the most
important name in 6outh ;ast ,sian micro fnance, :rameen 4an$.
he micro fnance service providers in 4an%ladesh were not really
attentive with re%ard to their fnancial statistics and updatin% them. hese
companies used to emphasi'e more on the social aspects of their wor$
more rather than the fnancial one. he situation has improved
si%nifcantly over the passa%e of time.
It is imperative for the well #ein% of the micro fnance industry in
4an%ladesh that the companies should #e %ivin% more emphasis on the
fnancial aspect of their transactions. he term commerciali'ation happens
to #e an emer%in% idea in the conte)t of the micro fnance in 4an%ladesh.
he uni&ue feature of commerciali'ation is that accordin% to this
aspect of micro fnance, the poor are re%arded as clients and not
#enefciaries and the micro fnance mar$et is inte%rated into the total
fnancial industry of a country. he micro fnance is now re%arded in
4an%ladesh as a proper industry and not a charita#le institution as it may
#e in some other countries across the world.
he current scenario of micro fnance in 4an%ladesh has shown that
the industry is at the (uncture of evolution. he followin% factors or
phenomena could #e re%arded as indicators to the same?
=i%hest Fre&uency of Irevailin% Interest >ates.
;volvin% Microcredit heme
Individual Noans
Iroduct 5iversifcation
;nterprise Noans
*verlappin%
6avin%s 9ollection from 1on-Mem#ers
=u%e Oncalled For 9onsumption Noans
Poverty in Bangladesh
4an%ladesh is one of the world0s poorest countries, ran$in% third
after India and 9hina in the e)tent of poverty. he population is
predominantly rural, with a#out 23 per cent of its 7!3 million people
livin% in rural areas. For their livelihoods rural people depend mainly on
the land, which is #oth fertile and e)tremely vulnera#le. Most of the
country is made up of -ood plain, and while the alluvial soil provides
%ood ara#le land, lar%e areas are at ris$ #ecause of fre&uent -oods and
cyclones, which ta$e lives and destroy crops, livestoc$ and property.
6ince the 7PP"s the country has made %ood pro%ress towards
reducin% the incidence of poverty, achievin% a 7 per cent drop in the
proportion of people livin% #elow the poverty line every year. ;stimates
of rural poverty rates now stand #etween 3! per cent and E!.D per
cent. In %eneral the depth and severity of poverty has #een reduced
more successfully in rural 'ones than in ur#an areas, althou%h rural
'ones still la% far #ehind ur#an areas in terms of development.
Who are the rural poor?
,#out C" per cent of rural households live in e)treme poverty.
9hronically poor people su+er persistent food insecurity, own no
cultiva#le land or assets, are often illiterate and may also su+er serious
illnesses or disa#ilities. ,nother CP per cent of the rural population is
considered moderately poor. hey may own a small plot of land and
some livestoc$, #ut while they %enerally have enou%h to eat, their diets
lac$ protein and other nutritional elements. his se%ment of the rural
population is at ris$ of slidin% deeper into poverty as a result of health
pro#lems or natural disasters. In(ury or crop failure caused #y
une)pected and severe weather conditions fre&uently ruins the
livelihoods and the hopes of many 4an%ladeshis.
6mall-scale farmers may su#sist at either of these levels of
poverty. heir livelihoods are precarious, #oth #ecause of the seasonal
nature of farm income and #ecause natural disasters such as -oods
and drou%ht may periodically destroy their crops and animals.
.omen are amon% the poorest of the rural poor, especially when
they are the sole heads of their households, such as widows or wives of
men who have mi%rated in search of employment. hey su+er
discrimination #ecause of their %ender, they have scarce income-
earnin% opportunities and their nutritional inta$e is often inade&uate.
,mon% e)tremely poor people, there is a disproportionate num#er of
households headed #y women.
Fishin% communities are also amon% the poorest and most
disadvanta%ed %roups in the country.
Where are they?
,side from hilly areas in the e)treme north-east and south-east,
4an%ladesh is made up entirely of low-lyin% deltaic -ood plain. Ioverty
is concentrated in three areas? the north-west, which is prone to
drou%ht and river erosionM the centre-north, which is su#(ect to severe
seasonal -oodin% that limits crop productionM and the southern coastal
'ones, which are a+ected #y soil salinity. he direct lin$ #etween
chronic poverty and unfavora#le a%ricultural environments is #ecomin%
increasin%ly apparent, partly as the result of di<cult climatic conditions
and partly as a conse&uence of mismana%ement of natural resources
and the enormous population pressure on the land.
Why are they poor?
*ne of the main causes of rural poverty in 4an%ladesh is the
erratic and e)treme climate and the fact that a lar%e proportion of the
country is low-lyin% and vulnera#le to -oodin%. Many of 4an%ladesh0s
rural poor people live in areas su#(ect to e)treme annual -oodin%,
which can destroy their crops, homes and livelihoods. hey often have
to resort to moneylenders in order to re#uild their lives, which pushes
them deeper into poverty. For the lar%e num#ers of rural poor people
whose su#sistence depends on a%riculture, income and food security
are hi%hly precarious. Many farmers e$e out a livelihood on small and
fra%mented plots. For those who are landless or almost landless, the
situation is even more severe. ,lmost half of the population falls into
this cate%ory.
,nother root cause of rural poverty has #een the enormous
population %rowth and the pressure this has placed on the
environmentM unleashin% pro#lems such as erosion and -oodin% that in
turn a%%ravate the situation of rural poor people.
4an%ladesh has made pro%ress in developin% rural infrastructure,
#ut much remains to #e done. Many poor people livin% in remote areas
lac$ services such as education, health clinics and ade&uate roads,
particularly road lin$s to mar$ets. *nly 7P per cent of rural households
have electricity.
What are the terms used
Many words concernin% poverty and social e)clusion are used
interchan%ea#ly. =owever, they do have di+erent meanin%s, as defned
#elow?
Deprivation is defned as unmet basic human needs;
Poverty is deprivation due to a lack of resources, both material
and non-material, e.g. income, housing, health, education,
knowledge and culture. It reuires a threshold to measure it;
!ocial e"clusion is being unable to participate in society
because of a lack of resources that are normally available to
the general population. It can refer to both individuals, and
communities in a broader framework, with linked problems
such as low incomes, poor housing, high crime environments
and family problems;
Ineuality is a comparative or relative concept. It does not
measure deprivation or poverty and does not reuire a
threshold. It is possible for ineuality to e"ist with or without
poverty. !imilarly, poverty can e"ist with or without ineuality;
#esources can be personal, within the family, or within the
society.
How can we measure poverty?
here is no one measure that %ives a complete picture of the
situation re%ardin% deprivation, poverty and social e)clusion. his is
particularly true for a country li$e Ireland that has e)perienced rapid
economic %rowth over the last ten years. herefore, a num#er of
indicators are used to measure pro%ress in achievin% social inclusion
coverin% areas such as income, levels of deprivation, early school
leavin%, (o#less households, lon%-term unemployment, and life
e)pectancy.
Indicators such as these are also used at ;O level to o#tain a
picture of the situation re%ardin% poverty and social e)clusion across
Mem#er 6tates. In Qune C""D ;O Mem#er 6tates adopted a revised set
of common indicators of social protection and social inclusion. he
main social inclusion indicators are as follows?
Income
At risk of poverty rate
At risk of poverty rate anchored at a fixed moment in time
Persistent at risk of poverty rate
At risk of poverty gap
At risk of poverty rate before social transfers
Dispersion around the at risk of poverty threshold
In-work poverty risk
S8!S" income ratio
#ini co-efficient
Employment
$ong-term unemployment rate
%egional &ohesion 'dispersions of regional employment rates(
)obless *ouseholds
+mployment gap of immigrants
,aking work pay indicators 'unemployment trap- inactivity trap- low-wage trap(
Education
+arly school leavers
Persons with low educational attainment
$ow reading literacy performance of pupils
Health
*ealthy life expectancy
&hild well-being 'to be developed(
Housing
*ousing 'to be developed(
Deprivation
,aterial deprivation 'to be developed(
Self reported limitations in daily activities
How Microfinance helping Bangladesh to reduce
poverty:
Bangladesh is preparing for the first visit by a US president since 1971,
hoping it will attract more western investment to the country.
During his ninehour visit, !resident Bill "linton will find out about the micro
credit system of small loans aimed at helping poor people, for e#ample to buy a cow
so they can sell mil$.
%t is a system supported by the president and much heralded across the world
by countries $een to copy the Bangladesh model.
But in his short visit, the president will not see the whole picture. &he scheme
has proved very popular but there are criticisms that it fails to help the people who
most need it.
%oans for the poor
&he system of microcredit started in the late 197's when Dr (ohammad
)unus an economics lecturer at the University of "hittagong became aware of the
poverty of the people living in the nearby village of *obra.
&he villagers told him if only they had a bit of money they could invest in a
cow or some chic$ens. Ban$s would not lend them money, so Dr )unus started
loaning money from his own poc$et and borrowing money in his own name.
+fter a great deal of lobbying he got sponsorship from the central ban$ of the
country and support from the nationali,ed commercial ban$s. &he pro-ect was
e#tended and in .ctober 19/0 became an independent ban$, the 1rameen Ban$
23illage Ban$4.
5ow, with 6orld Ban$ funding, it has more than 7.0 million borrowers, 989 of
whom are women.
1rameen Ban$ says there has been a sharp reduction in the number of its
members living below the poverty line and a shift from agricultural wor$ to self
employment in petty trading.
"ontrary to the fears of the ban$s that poor people would be a credit ris$,
1rameen:s repayment rates have been as high as 979.
Drawbacks
But the scheme is not without problems. !rofessor 1eoff 6ood, of the
University of Bath, says critical ;uestions were potentially overloo$ed in the rush to
repeat the success of microcredit in other countries.
<e says such programmes do not always reach the really poor and do not
solve the reasons for poverty.
=&he microcredit system relies on group peer pressure to police repayment,=
he says. =%t:s a way of reducing transaction costs.
=But it also means there:s a screening out of the poorest people.
=&he people who come together are assessing each other:s reliability so it
leads to the e#clusion of the very poorest.=

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