Small Enterprise Finance MF-small-enterprise

A significant segment of society is not reached with financial services by either the formal banking sector or microfinance programmes targeted for poor households. This ‘missing middle’ can be a critical engine for economic growth and employment if equipped with the right tools.

BRAC developed a separate service that provides loans to entrepreneurs, to help grow micro and small sized businesses that help drive local economies. These tend to be in agriculture and small trade e.g. dairy and poultry farms, fisheries, auto-rickshaw mechanics, beauty parlours, and clothes retailers. BRAC’s impact from this service extends well beyond the number of borrowers, by promoting local employment and market development.

In Bangladesh, the project is called progoti, which means ‘progress’. Progoti clients are additionally supported with access to a range of savings products, options for refinancing and rescheduling. BRAC is also currently testing loyalty schemes and microinsurance products tailored to small entrepreneurs. In addition, clients are able to benefit from market linkages through BRAC’s network of social enterprises

Small enterprise loans are available to both men and women, from all 2,000+ of its branches spread across Bangladesh.

Progoti
Borrowers	342,000
Total savings	USD 59 million
Total outstanding	USD 556 million
Average loan amount	USD 2,200

Microfinance in Bangladesh

The model of microfinance in Bangladesh, as it originated at Grameen Bank, involved tiny loans to women with fixed terms and amounts, group liability, weekly meetings, forced payments into a group savings account, and a set of 16 social pledges chanted each week while standing at attention. The Grameen model spawned imitators around the world, involving a large share of microfinance clients in India, the Philippines and East Africa, among other places.
But while many in the microfinance industry and outside it equate microfinance with the Grameen model, Grameen itself, as well as the other microfinance institutions in Bangladesh, have quietly re-engineered their models to pursue an expanded vision. The most dramatic shift occurred in 2002, with the introduction of Grameen II, a thorough re-tooling of Grameen Bank's operations. Throughout the past decade, most of the hundreds of microfinance institutions (MFIs) in Bangladesh have followed suit, experimenting with new lending methodologies, products and support services.
Loans to women? Many MFIs now serve men, too, though loans to women still dominate.
Forced group savings? Most MFIs now offer flexible, individual deposit services to their members. MFIs have become largely self-funded from deposits. (The sector has $2.6 billion in total loans, financed by $2.2 billion in total savings, a a microfinance data aggregator.) And unlike the original forced savings, savers can deposit and withdraw their money whenever they wish.
Pre-set loan amounts and terms? Borrowers can often select the length of loan they need, and loans are now available for small businesses (up to about $15,000). At the same time, many MFIs have developed loan and support programs for the "ultra poor."

Story of Microfinance

Microfinance in Bangladesh

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How Microfinance works

Microfinance is the provision of financial services to those who are excluded from conventional commerical financial services since most are too poor to offer much - or anything - in the way of collateral. It presents a series of exciting possibilities for extending markets, reducing poverty and fostering social change.

The concept of microfinance originated in the mid-1970s in Bangladesh through a pioneering experiment by Dr Muhammad Yunus, then a Professor of Economics. His aim was to offer poor people:




* financial services
* entrepreneurship opportunities
* an end to mistreatment by money lenders
* a system where they could produce, manage and maintain their own finances

Microfinance – Important Role in Economic Growth

In a world where almost half the population lives on less than $2.50 a day, microfinance is perhaps the best tool for poverty alleviation and economic growth and development in emerging economies as well as in major world economies that face growth problems. Of course, microfinance is not impervious to impact of the global financial crisis. Instead, we realize that this helps the poorest of people setup and grow the smallest of businesses, so by generating income and employment, microfinance helps them, their communities and their economies.

This fact is recognized in theory as well as in practice.

Mobile banking Challenges and Risks

Like every new technological solution, mobile banking services face a few problems and risks too. Some common impediments identified by CGAP and Microfinance Focus are:

* Difficulty in maintaining cash float: mobile money franchise operators (agents) often find it difficult to maintain enough cash to serve customers in rural areas who withdraw money after receiving electronic funds.
* Consumer-related issues: fraudulent activities as well as hidden charges are emerging concerns for mobile banking and you can read an informative article by CGAP about this. On the other hand, because of the simplified process of registering for mobile banking services, it is often difficult to establish the authenticity of customers.
* Regulatory hurdles: Central Banks are often wearing of allowing non-bank entities (mobile money telecom franchise operators) to receive or make payments on behalf of banks. This limits the service offering where a non-bank microfinance model is followed for mobile banking, such as Western Union’s partnership with mChek.
* Trust issues: consumers in less developed countries take time to get used to new mobile technology, especially since it involves trusting someone else with their money.

These are similar to the challenges faced by microfinance today.