To What Extent Can Microcredit Be Effective in Alleviation of Poverty. the Case Study of the Grameen Bank in Bangladesh
To What Extent Can Microcredit Be Effective in the Alleviation of Poverty?
The Case of The Grameen Bank in Bangladesh.
1. Introduction Bangladesh is one of the poorest countries in the world. As many as 86% of people who live in rural areas in Bangladesh live under the poverty line (Rahman, 1996). Quality of health care services is very poor in Bangladesh. The percentage of available health service is 20 %. The percentage of access to safe water is 43 %. Infant mortality rate is 120 out of 1000 (ibid.). Also, there is lack of education in Bangladesh. The proportion of adult literacy rate is only 33 % (ibid.). Microfinance has played an important role to fight poverty in Bangladesh. Nevertheless, microfinance might be criticised because small credit does not change poor society. Moreover, it fails to solve some gender issues.
However, this essay argues that microfinance has been successful in alleviation of poverty, bringing positive effects in terms of economic and social aspects in developing countries. Firstly, this essay begins with social backgrounds of Bangladesh and the Grameen Bank. Then, this essay will examine economic and social impacts of microfinance on the developing countries, using case study of the Grameen Bank in Bangladesh.
2. What Is Microfinance and The Grameen Bank?
Microfinance can be defined as small loans for low-income earners in order to encourage them to be independent financially (Schreiner, 2003:357). The idea of microfinance originated from the Grameen Bank which was established by Muhammad Yunus in Bangladesh. “Grameen” means village in Beng language (Schicks, 2007). Usually, commercial banks require physical collateral for loans, such as houses or land, in order to avoid the risk of repayment. Since the poor do not possess these assets, they cannot borrow money from formal financial institutions. As a result, they have no other choice other than borrowing money from moneylenders with undue interest rates of
The Case of The Grameen Bank in Bangladesh.
1. Introduction Bangladesh is one of the poorest countries in the world. As many as 86% of people who live in rural areas in Bangladesh live under the poverty line (Rahman, 1996). Quality of health care services is very poor in Bangladesh. The percentage of available health service is 20 %. The percentage of access to safe water is 43 %. Infant mortality rate is 120 out of 1000 (ibid.). Also, there is lack of education in Bangladesh. The proportion of adult literacy rate is only 33 % (ibid.). Microfinance has played an important role to fight poverty in Bangladesh. Nevertheless, microfinance might be criticised because small credit does not change poor society. Moreover, it fails to solve some gender issues.
However, this essay argues that microfinance has been successful in alleviation of poverty, bringing positive effects in terms of economic and social aspects in developing countries. Firstly, this essay begins with social backgrounds of Bangladesh and the Grameen Bank. Then, this essay will examine economic and social impacts of microfinance on the developing countries, using case study of the Grameen Bank in Bangladesh.
2. What Is Microfinance and The Grameen Bank?
Microfinance can be defined as small loans for low-income earners in order to encourage them to be independent financially (Schreiner, 2003:357). The idea of microfinance originated from the Grameen Bank which was established by Muhammad Yunus in Bangladesh. “Grameen” means village in Beng language (Schicks, 2007). Usually, commercial banks require physical collateral for loans, such as houses or land, in order to avoid the risk of repayment. Since the poor do not possess these assets, they cannot borrow money from formal financial institutions. As a result, they have no other choice other than borrowing money from moneylenders with undue interest rates of