Microfinance, also known as microcredit, has rapidly grown in Bangladesh during the 1990s and it has enjoyed correspondingly growing prominence. It was actually born in the aftermath of the country’s war of independence in the 1970s. The extreme poverty and hunger in that period led an Economics professor at the University of Chittagong, Muhammad Yunus, to begin an experimental project providing credit to the rural poor of Bangladesh. He established the Grameen Bank in 1983, as a microfinance institution that gives collateral-free income-generating loans to poor families. The success of the Bank to alleviate poverty and to empower women has spread and has inspired other villages in Bangladesh and around the world.
Microcredit in Bangladesh has deviated from traditional credit paradigms and provided an innovative banking model with extensive outreach towards the poor and disadvantaged communities both in urban and rural areas.
Micro-credit programs allow women to invest in income-generating projects, intended to help women and their families work their way out of poverty. During 1995, roughly 3 million women in Bangladesh took small loans from such programs. Similar programs for extending collateral-free credit are being replicated around the world, in both developing and industrialised countries.
To get a loan, women join financial groups that meet weekly. The groups guarantee the loans. The required weekly meetings provide opportunities for socialising and sharing information.
The practices of microfinance as development policy in several countries have shown the positive effects in two vital areas of national development; namely, the alleviation of poverty and the empowerment of women. Despite this positive evidence, some critics question the impact of microcredit for women’s empowerment. While microcredit has contributed positively to the well being of women in general, it has not necessarily led to the comprehensive improvement of women.
The experiences of microfinance in Bangladesh have been unique. Traditionally, women in Bangladesh have very little contact with the labour market and generally do not have significant cash incomes of their own. This reflects on customary and religious restrictions on women’s mobility outside the home. This condition is also supported by the marriage traditions of patrilocal residence and village exogamy in Bangladeshi society. When a woman marries, she leaves her home, family, and village, and moves into the household of her new husband, in a new village. As a result, wives may not have many relationships outside the household and their empowerment has less attention. Therefore, the country has been the “laboratory” for some of the most challenging gender and developmental experiments in the contemporary world, including microfinance policy.
Rising above cultural stigma, increasingly women in Bangladesh are becoming entrepreneurs, bucking the trend of consumer led small scale rural business, increasingly running developmental businesses requiring professional skills such marketing, sales and product development.
The Bangladesh government has implemented changes in favour of women in business with its National Action Plan, which improves trading conditions for women and introduces incentives such as tax breaks as well as new laws that focus on gender equality.
This story is part of Microcredit.