Addressing the problems of hardcore poor through micro-credit

Microfinance does positive change in poor women’s life, revealed by various empirical studies. It is well accepted as a poverty reduction tool by many countries all over the world, but it is not a panacea for poverty reduction. Moreover, it is not adequately suitable for all kinds of poor. The extreme poor have not been adequately reached by existing microfinance institutions. It is not only because of their incapability but also for the nature of financial products that are offered for them. It is also related to the perception of extreme poor about microfinance. The objectives of this article are to illustrate the facts and figures about the targeting methodologies used in Bangladesh by the Microfinance Institutes (MFIs) and other development organizations, analyze the financial product that is offered, narrate cultural clientele relationship of MFIs, and finally, articulate some challenges which need to be reviewed for designing any further financial products for the extreme poor. However, the impact studies of existing microfinance programs revealed that the extreme poor that participate in MFIs are better off than those who never participated and that they also borrow more from informal sources. The intensity of microcredit borrowing is lower among the extreme poor who participate in MFIs compared to participants coming from other poverty groups. Given that reaching the extreme poor remains an important challenge for the global microfinance industry, a better understanding of the overall financial market participation of the extreme poor is important for guiding policy and practice. Data used in this article are mostly from secondary sources, but to test the authenticity rigorous fieldwork has been done since 1998 and continuously monitor the dynamics of the programs designed for the extreme poor in Bangladesh. Ten Focus group discussions have also been done in different parts of Bangladesh and interviewed the officials involved with extremely poor financing programs. Preliminary findings suggested that it requires addressing the twin challenges: MFIs need to be prepared for the extremely poor and again, the extremely poor need to be prepared for microfinance.

The paper was presented jointly with Dr. MA Hakim in the conference on Prospects and Limitations of Income Generation Activities as an instrument for Food Security for the Poor in 2001. The conference was held at Islamic Development Bank (IDB) Bhaban, Dhaka, Bangladesh from 27-28 March 2001. It was organized by RESAL Bangladesh, European Food Security Network.