The concept of microfinance started to get popularity as a successful poverty alleviation method since 1904. More than 100 years later, it is now being used as an effective mechanism to reduce poverty of poor, ultra-poor and marginalised people. Bangladesh has made commendable progress in alleviating poverty and hunger in the country as it is maintaining satisfactory economic growth over the last more than two decades since 1991. It needs to ensure equal economic opportunities for all to ensure sustainable development of this poor country.
Experts on Wednesday August 19, 2015, opined in Dhaka in a seminar entitled “Dynamics of overlapping in microfinance market of Bangladesh” which was part of a two-day conference on “Inclusive Finance in Bangladesh” that the microfinance market matured in Bangladesh in recent years increasing competition among major Microfinance Institutions (MFIs) and adding to overlapping of microfinance. Overlapping of microfinance has increased sharply creating a new dimension for financial services sector as microfinance has evolved as an economic development approach to benefit low-income people in rural and urban areas of the country.
The keynote paper on “Dynamic of overlapping in microfinance market of Bangladesh,” noted that many borrowers are being involved in overlapping of loans in case of repayment. Many of them are investing in their business enterprises, which foster economic progress in the country. Economists and bankers at the seminar stressed the need for improving financial literacy aiming to educate and make aware the low-income people on financial activities. Most of the poor people in rural and urban areas do not have adequate knowledge on financial services, which eventually discourage them to involve in economic activities. Addressing the seminar the Governor of Bangladesh Bank (BB) stressed the need for expanding the financial inclusion and financial literacy programmes, saying these two programmes can play a vital role in building a sustainable financial system by bringing all people under the mainstream of the economy. The Bangladesh Bank Governor said, “BB has long been laying emphasis on the financial inclusion and financial literacy programmes to involve the majority population in financial services to help achieve national goal of poverty alleviation and inclusive development of the country”. Institute of Microfinance opined that, “Most people in our country cannot utilise their talent and capabilities due to their financial hardship. Microfinance can help these people to make themselves more self-sufficient, who will eventually contribute to the economic progress of the country”. It is to be remembered that poverty is a multi-dimensional problem. As a result we have to address poverty considering its multi-dimensional aspects. People must be given health, sanitation, education and training facilities for their human development, which will ultimately help eliminate the poverty situation of the country. We should impart financial literacy among the poor people in rural and urban areas, which will encourage them to involve in various financial activities. A large number of low-income people in rural and urban areas still have remained un-banked because of their insufficient knowledge on financial activities. Microfinance has been introduced to ensure access of un-banked rural and urban people to financial services to eliminate their poverty. This is the main purpose for emerging microfinance in the country. But the overlapping problem of loans is hampering and harming smooth access of poor people in the financial services.
Financial literacy can play an important role in mobilising economic activities. Insignificant number of rural and urban men and women has access to financial services because of their inadequate knowledge on banking and economic activities. Both rural and urban low-income men and women should be helped to attain financial literacy to eliminate their poverty. Some maintain that overlapping of loan in some cases is helping borrowers to repay their loans and it also is boosting their economic activities, which help them to become self-reliant economically. On the other hand some experts are concerned about overlapping of loans for loan repayment as it may perpetuate the poverty situation of the borrowers.
While poor people have more choices from which MFIs to borrow money, the number of people who use multiple loans from various MFIs has been increasing. In the case of enterprise loans, the practice of overlapping is gradually increasing. As a result, there are even more heavily indebted people in Bangladesh, and this is beginning to pose a threat to MFIs and the microfinance industry as well. The concept of financial literacy spread across the world following the global financial crisis to ensure financial stability. Developing and developed nations have been working on financial literacy since then.
Finally, financial literacy on the part of the rural and urban low-income people is essential for them to be conscious about the perpetual debt-trap that may harm them to the extent of losing whatever resources they have in their possession in repaying loans. It is alleged that micro-credit receivers often have to sell their resources to repay loans or become fugitives out of the fear of the micro-credit givers when they fail to repay loans. Financial literacy may help the rural and urban poor to come out of facing such a miserable consequence while taking micro-credit loans from MFIs.
The writer is a retired Professor of Economics, BCS General Education Cadre