Research / Study Report  duration of 2000-2004 Name of the Research / Study: Flexible Services for Developing Microenterprise Research/Study Location: Manikgonj, Faridpur, Tangail Name of the Researcher/s:      Syed Azim, Lead Researcher                                                Shamimuzzaman, Research Assistant                                                Azmal Hossain, Research Assistant Funded By :   CORDAID, Netherlands Brief Description of the study: Microfinance service, a key intervention for poverty reduction has reached almost thirty years of operation in Bangladesh. The growth in income generating activities with microfinance is well founded; however, the country is yet to experience similar growth in microenterprise (ME) sector. While micro credit is characterized by credit rationing, it is widely held that microenterprise development require flexible services because ME is a specific form of enterprise. Flexible services may be expressed as the quality and quantity of service that ensures development of microfinance clients to micro enterprises. Given the prospect of micro enterprise in achieving an observable and visible change in the livelihood of the poor, this study is an attempt at finding the methodologies to get MFIs engage themselves in micro enterprise promotion by hosting flexible services. The specific objectives of the study are: ·         Understanding the factors responsible for inhibiting the promotion of micro-enterprises. ·         Exploring the services (financial and other) required for promoting micro enterprises both in the NGOs and other sectors. ·         Determining the size of the loan appropriate for the clients for developing micro-enterprises. The study employed both literature review and survey. Within survey it made use of door to door enterprise survey, held focus group discussions (FGD) and conducted case studies. Because of the qualitative nature of the study, sampling did not play an important role. However, all measures were taken to maintain representative characteristics. Micro enterprise promotion need to take into consideration 4 key factors: (a) motivation and commitment to set up and sustain business, (b) the ability – technical, managerial and personal; (c) the idea, and its validity and acceptability in the market place; and (d) the resource requirement-physical and financial. The field work was carried out with view to finding out information at each of these process cycle stages. The FGD and case studies provided a number of lessons on how microenterprise promotion may trigger large scale microenterprise creation. It has included some failure cases reflecting things that need to be avoided. The study concluded that 5 factors have been largely responsible for deterring micro enterprise promotion. They are: equating IGAs with microenterprise, absence of subsectoral information, need for service orientation, collateral still matters, and skill deficiency at professional level. Exploring the services required for microenterprise promotion the study suggested the following: MFIs need separate policy for ME promotion; continuous research to identify potential subsectors, entrepreneur identification and selection process and capacity building measures. The study observed that MFIs need to apply business plan approach to loan sizing, offer equipment leasing and business development and sustenance services. The study finally observed that “As a policyloan ceiling approach may sound good but its field level application failed to meet borrowers’ satisfaction. Many of these borrowers felt that they were forced to take a loan size that they didn’t require for their business types. Thus the loan ceiling approach by some NGOs did not work either. The real challenge lies in the ability of the institutions to assess the risk involved in each loan case and the ability to disburse and monitor a variety of loan sizes according to the individual clients’ need and back up the effort by a variety of services.”   Name of the Research / Study: A Review of Impact Studies on Microfinance Programs in Bangladesh Name of the Researcher/s:     Mr. Faruque Ahmed Funded By :  Credit and Development Forum (CDF) Brief Description of the study The study reviewed the impact studies on microfinance program highlighting methodological review, employment opportunity creating, wage laborer, farm production, implementation of other development programs, confidence building, empowerment and gender balance, poverty situation, weakness of the impact assessment, limitations of microfinancial services in achieving expected result, future role of government, donors and MF-NGOs and some recommendations. Impact assessment studies on microfinance programs are limited to the big MF-NGOs, donors, Grameen Bank and some other government agencies like Bangladesh Rural Development Board (BRDB). They normally conduct study for their own requirement. A very few common studies could be found, which is not enough to assess the real overall impact of the microfinance program. About 45% of eligible households of Bangladesh participated in microfinance program and the positive effect of borrowing by the women is significant than by the men. Khandker (1999) found that microfinance program could reduce poverty in Bangladesh by 1 percent a year. But positive effect does not necessarily mean the positive impact of microfinance. So the process of transformation of effect into impact may be important for lasting benefit of microfinance program.  Methodologies followed in various studies have similarity in many cases like sampling techniques, comparison with control group and single survey. Some studies conducted repeat survey for panel data, household survey for measuring nutritional impact, data collection in different seasons and quantitative and qualitative data collection. A few organizations like BRAC, Proshika and ASA conduct impact assessment survey on their own program regularly and compare impact with the previous survey. However, most studies used the technique of comparison between participant and targeted non-participant. There was found no use of benchmark survey and repeat survey for absolute comparison. Most of them also experienced difficulties in finding out control groups/villages for comparison. There is also wide range of variation in drawing sample size. A very few studies (Proshika) followed the validation survey for verifying the findings from analysis of earlier survey.  The dependency of poor people on the moneylender or richer people has been reduced substantially in the society and people are getting access to institutional sources for credit. Even the formal sectors have been showing confidence on the poor people for lending money, which is the radical change in the rural society due to microfinanc intervention. Employment opportunities for the poor people have increased to a great extent in terms of both longer working hours and new employment. Not only that, the targeted households that are eligible for participation in microfinance programs have a higher probability of being self-employed than their counterparts in non-program villages. The labor force participation rate (LFPR) for more employment opportunity for the participants was found higher in case of male than the non-participants. Wage rate was pushed up not only in the program areas but also increased in the non-program areas. So non-participants were indirectly benefited through the program placement. There was also a radical change in the occupation of male members of Grameen Bank away from agriculture wage laborer to petty trader and they have created employment in livestock farming. An employment opportunity for other members of the participating household of Grameen Bank was created by 2.6 hours a day per household. Wage Laborers have achieved better bargaining power. In this context, the women most benefited from microfinance program. The poor people have the ability to influence the rural and urban wage rate (IMEC, Proshika 1995) and can also influence the wage settlement process.  The farm production activities are getting priority in microfinance program as about 37% of total disbursement of MF-NGOs goes to the farm-operations like crop, fisheries and livestock (CDF 1999). But the marginal return on non-agricultural activities was found highest (Latiff, Khandker & Khan 1996). Potato cultivation, chick rearing, and fishing activities (net making) made the most substantial contribution to the household income of BRAC borrowers. Also there was found a shift in occupation of the heads of the BRAC households from non-farm to farm sector over time. In case of BRDB program, program placement impact of credit on agricultural productivity was more than non-agricultural productivity. Microfinance program has the mixed impact on the development programs of MF-NGOs. Because of heavy pressure on the credit staff (293 members per credit staff of which 241 are borrowers) many MF-NGOs have reduced their other development programs. As the foreign funds/grants are squeezing they have even stopped many programs. Certainly, microfinance programs have helped in capitalizing other social programs like education, training etc. But social agenda influence the good performance of microfinance. Perhaps for this reason MF-NGOs are thinking to mobilize fund from the earnings as service charge from microfinance to other development activities and are planning to start commercial ventures for more revenue. Financial ability can make the poor more confident than any other factors in their life. Almost all studies found that the poor people are doing economic activities very well with the help of small financial assistance from the microfinance program. They are taking more loans from formal sector and utilizing properly and registered the best example of regular repayment. For this reason they have become bankable even in the eyes of both formal and non- formal financial sector. They can assess the market of products and can select their enterprise confidently. Experienced borrowers are taking more risk in investment for more profit and managing their own business efficiently. They have become the best investment decision maker by maintaining balance allocation of loan fund between income earning activities and consumption.  Empowering women and gender balance was one of the major challenges for microfinance program. This is a difficult task because it depends on overall soci-economic progress. As providers of capital by taking loan, women play a greater role in family affairs and have been able to improve their status within the household (Husain 1998). About 49% of female members of Proshika control the loan (IMEC Proshika 1998-99), 47% of women borrowers invest their loan money by themselves in BRAC program (Husain 1998) and about 44% representatives of Union Parisad were elected from Proshika member in 1997. Another study (BRAC 1990) shows that in 60% household, only wife made the decision of taking (or not taking) loan from BRAC and in 62% household, only wife made the decision of purchasing inputs and judging the quality of the scheme. Their mobility has also increased substantially as 46% to 60% member of Proshika can move to the market without a male companion. As a main tool for poverty alleviation, microfinance program has increased per capita calorie intake of participants of BRAC 10% higher than the non-participants (Halder and Husain 1998). About 70% CODEC member reported that they had better housing conditions by generating additional income from utilizing loan money (Alamgir 1997b). The microfinance programs of Grameen Bank, BRAC and BRDB have increased the total per capita consumption of the poor and also have increased the asset holding of the women (Pitt Mark M and S R Khandker 1996).  Although microfinance program has achieved to a great extent in changing the life of poor people it has some limitations, which create problems in achieving expected result. Hard core poor are not covered significantly due to group approach, where provision of regular savings and strict repayment norms is followed in microfinance program. Some factors like failure of business or irregular flow of income, vagaries of weather and health related crisis also lead to repayment problems. A real positive impact of microfinance program can be measured if and only if the recipients pay the full cost of services received, pay back the loan amount timely, come back for more loans, receive adequate amount of loan and utilize and repay timely. But we don't have any calculated interest rate based on which we can understand that the borrowers are covering full cost of operation. Right selection of borrowers is not possible for various reasons. With these limitations it is not confirmed that the impact studies had assessed properly the real positive impact of microfinance program. For meeting the future challenges and reaping the desired goal, government, donors and MF-NGOs should play specific role collectively in creating infrastructural opportunities and their proper utilization.    Name of the Research / Study: Understanding Default Practices in Bangladesh’s Microfinance Name of the Researcher/s: Sajjad Zohir, Senior Research Fellow, Bangladesh Institute of Development Studies Funded By: Credit and Development Forum (CDF) Brief Description of the study: The author has been a keen observer of the development of the non-governmental sector in Bangladesh. Of late, an association with a survey on monitoring and evaluation of microfinance in Bangladesh, had fuelled further interest on the subject. Thus, there was little hesitation when Mr. Faruque Ahmed of the Credit and Development Forum had approached to take up an assignment on default practices in microfinance. A comprehensive analysis of default was not attempted in the paper due to limitation on several dimensions. It reviews existing sources – published and unpublished. The staff of the CDF, especially, Mr. Ahmed, had availed all means to access the right kind of data. Mr. Ahmed had also administered a mail questionnaire to provide input to the study; the author expresses his deep thanks to him. Mr. Enamul Haque, Geenral Manager of ASA and sitting Chairman of CDF, had taken special interest to ensure that the output is relevant to the practitioners. In doing so, Mr. Haque had also provided several case studies, undertaken by ASA’s divisional managers. It may not have been possible to keep up to his expectation – yet, he deserves the author’s gratitude for all the support. Finally, the author expresses his debt to Ful Kumar Modak and Shaheen Sultan, who had laboriously undertaken fieldwork in connection with this study.   Name of the Research / Study: Consolidate Report on Studies Related to Gender and Microfinance in Bangladesh Name of the Researcher/s:      Rushidan Islam Rahman Funded By:   Nova Consultancy Bangladesh (NCB), Credit and Development Forum (CDF) Brief Description of the study: A large majority of the microcredit (MC) recipients in Bangladesh are women. It is expected that women’s access to MC will reduce gender inequality and will empower women. Many microfinance institutions (MFIs) extend other inputs in addition to credit, these are expected to reinforce the impact of MC on empowerment of women. The present study has specially focused on the effectiveness of microfinance program (MFP) in empowering women. The various aspects of changes in women’s status associated with microfinance (MF) have been highlighted. A large number of researches on MC and women’s role has already been conducted. A comprehensive review of both the positive and negative impact of MC on women’s situation as obtained by these studies is required. The present study has examined the existing analysis of women’s empowerment and has highlighted the important results from these studies. The concluding chapter includes suggestions of the unresolved questions and issues for further research and policy suggestions for MFIs and the donors. To understand the interface between gender relationship and MFP, the following issues are relevant, which have also be been examined. The framework for analysis of the interaction between microfinance (MF) and gender relationship has included both economic and social issues and has involved discussions of both outcomes and processes. Women’s ‘agency’ role must be recognized in the framework including both qualitative and quantitative indicators. A list of indicators has also been provided in the study.  The role of microfinance in terms of the importance attached to women has changed over time. During the mid-eighties, the percentage of women among the borrowers increased rapidly, and it was established that women are the integral part of microfinance programs (MFPs). During the early nineties the number of female borrowers exceeded the number of male borrowers and by mid nineties, female borrowers were more than 80 per cent of total borrowers. To understand the factors, which influence women’s empowerment through microfinance, one must also look at the factors, which influence women’s participation in microfinance (MF). There is a demand shortage problem, which keeps the poorest households outside the MFPs, in addition, to the supply side constraint. During the last two decades of activities of MFIs, there has been a large number of indepth studies on the impact of microcredit (MC) on women's empowerment. However, the studies do not provide us with a uniform set of conclusions. The summary of findings presented in the study show that there are both positive and negative findings and across the studies the findings are rather diverse. Within each study, a large number of indicators have been used and all indicators do not show similar results (Rahman 2000). Even if impact assessment studies (IASs) of MC obtained mixed results within and across studies, there is an agreement on some positive impact of MC on women's lives.  The main benefits derived by women from participation in MC programs are: a.       Greater involvement in income earning activities b.       Increase in women’s employment and labor force participation ratio c.       Increase in awareness about social, economic and health related issues and the adoption of family planning methods d.       Increase in girl's education & school enrolment rate As has been discussed above, the sequence of development of microfinance programs (MFPs) is one of the most important factors affecting gender relationship in microfinance (MF) related activity. In addition, other social, economic and cultural forces will interact to mediate the impact of MF. An important role will be played by the various rules regarding the loan itself. For example: a.       The size of loan, (male members will not be enthusiastic if the loan size is too small) b.       Other related disciplines to be followed: e.g. group meeting, saluting the bank workers, training etc. c.       Repayment period MC recipient women’s situation in the overall rural society, their mobility across social hierarchy and the non-members’ attitude towards these women should be examined. Such mobility will provide a strong rationale for channeling MF to women. Analysis of this issue has been excluded because most survey-based studies do not look at the village society as a whole. A comprehensive analysis of the impact of MC on empowerment should take into account the impact of MC on the situation of the women who do not participate in the MC programs, within the participant and other households. There may be positive spillover effect of MC through the opportunities of sharing the experience of MFI membership. There should be more guidance and supervision of the use of loans. The use of loan for payment of dowry should be discouraged to the extent possible. Policy suggestions for donors: ·         Donors must recognize that they need to adopt flexible policies on the following issues to enable the MFIs to adopt policies for the greater benefit to women. ·         Terms of lending and interest rates charged to men and women (size of loan and ate of interest may be adjusted to suit the changing economic environment). ·         Share of resources going to non-credit inputs ·         Rate of expansion of credit ·         Rate of progress toward financial sustainability ·         Women’s empowerment should be explicitly emphasized and progress in this respect must be used as a criterion of success of an MFI. Policy suggestions for Credit and Development Forum (CDF): a.       CDF can conduct research on issues related to gender and MF in areas suggested above. b.       Initiation of discussion among MFIs on how to include direct monitoring and supervision of violence against women and to come up with suggestions about the role of MFIs in mitigating such violence. CDF statistics should publish more gender disaggregated data. For example:          i.            Amount borrowed        ii.            Savings       iii.            Number of current borrowers iv.             Recovery rate   Name of the Research / Study: Effects of Declining Trend of Foreign Donations on Micro Finance Programs of MF-NGOs  Name of the Researcher/s:     Afsan Chowdhury Funded By : Credit and Development Forum (CDF) Brief Description of the study:  The  foreign aid to the micro-finance sector has declined but there is no crisis as such as a result of that. Most involved people and experts feel that the number of NGOs seeking foreign funds have increased as well and the per capita resources for the credit retailers have declined.  Dependence on the donors for funding micro credit activities will be a non-sustainable strategy as most donors feel that the demand for micro credit is rising but fund allocation is either static or showing a declining trend. Obviously the sector has to look for other sources of funds. Other sources of funds will be in diversified savings and investment products both on offer to members as well as those addressing the credit retailers as a financial institution.  Savings in particular needs to be encourage and numerous NGOs are already investing their time and efforts in this sector. A number of outfits are maintaining savings as high as 30 % and many went up to 40 % but as there is no uniform policy for interest rate and products offered, there are variations which may need standardization.  The sector in general remains vulnerable to a number of factors including natural disasters. There is no strategic policy to counter disasters and other calamities. Since NGOs are wholly dependent upon foreign aid, the crisis is high and during the floods of 1998, many of them had to be closed down because the situation was physically and organizationally untenable. The most important crisis that has been identified both by donors and mangers of MFIs is the management practices and capacitating of the credit retailers. It is universally accepted that without a higher level of management capacity, the sector will be under threat of decline. Networking and level of support for capacitationis also not adequate. There is a general feeling that a greater number of consultants are required to carry out mentoring and training which will be a sustainable asset of the MFIs. Alternative source of funding is not beyond the capacity of the sector to generate. Apart from savings and investment instruments, the sector can withdraw major investment from the financial houses such as banks and insurance companies who have surplus but not many opportunities. But MFIs will have to undertake confidence-building measures including a rating system based on performance. Innovations are significant but not the only criteria of measuring success. Institution building for the sector is a significant need. For that to happen, a set of regulations, which will help the MFIs to be accountable, and transparent are required.  The focus on quality performance will be putting increasing pressure on the small and medium level MFIs. Donors are gravitating naturally towards the better performing ones, which also happen to be the big ones.  There is also a feeling that micro credit can alleviate poverty but upto a point. There is no scope to dramatically alter the situation given the present strategy. That is why most involved persons feel that the overall sectoral strategy should shift from savings net approach to a growth driven approach.  Though this strategy enjoys across the board support, some people also feel that there should be a two pronged approach. One meant for growth achievement and the other for providing subsidized credit to the very poor.  The MFIs should also focus on creating a positive environment for credit retailing so that the repayment culture is established rather than “forced repayment" which has been noted as negative. During disasters, this becomes an even serious problem. CDF has been mentioned as a key player in the entire micro credit set up but it must capacitate itself to play that role. There is a feeling amongst the donors that the CDF needs a higher profile to be more effective. They should a vision and a leadership able to realize that vision. However, this is not necessarily the position of all other who feel that CDF should be able to play its part in phases. Its role in the initial stage of establishing credit-retailing outfits is well recognized.  Its felt that micro credit is essential and critical for poverty alleviation but for that to happen, the performance of MFIs have to be enhanced and innovations for creative management and savings generation, both for capitalization and innovation is necessary. Credit is therefore identified as crucial but not sufficient: and credit is needed to support technology access for the poor to enable them to make a wider contribution to employment generation and economic growth through forward and backward linkage (Chowdhury and Alam, 1997). MFIs are using savings as a source of capital for loans (indeed functioning as collateral for lending). NGOs, generally, want to reduce members access to savings in order to develop it’s own capital base. On the other hand, open access to savings and other flexible savings facilities may well increase the net savings deposited. Voluntary savings will contribute to both borrower and, ultimately, MFIs sustainability.