LAW 200

Micro level banking may have strong forces to

reduce poverty status in a given society

Prepared For:
Barrister Arife Billah
Prepared By:
Noshin Shormily
ID 121 0221 030
Section 5

North South University

Declaration
I hereby declare that all the material presented in the paper titled Micro level banking may
have strong forces to reduce poverty status in a given society is my own work, except where
information is rephrased from other sources. Any information obtained from other sources,
which are published or unpublished has been acknowledged and referenced at the end of the
paper.

___________________________
Noshin Shormily

Topic: Micro level banking may have strong forces to reduce poverty status in a given
society- give a broad explanation of this issue

Abstract
The purpose of this paper is to get an understanding on poverty and what the current situation
is. There are many financial institutions such as banks and instruments of micro finance and
micro credit. The paper discuss on how micro level banking aids in alleviating poverty in
detail. Furthermore, the emphasis is on the people who are below the poverty line and their
struggle; the circumstances, under which they live and the role of micro credit in their lives.
The overall situation of poor poverty around the world is highlighted. It also includes the
conditions that vary from rural to urban areas and why they do so. In addition the paper
includes data from various sources that clearly depicts how the past and current poverty state
is. Finally, the paper ends with the advantages of micro level banking and some of the
challenges that are faced while operating these projects.

Keywords: Micro level banking; Poverty; Poverty Alleviation; Society;

ii

Table of Content

Content

Page no.

Introduction

Financial Institution

Bank

Micro Finance

Micro Credit

Poverty in the World

11

Poverty in Bangladesh

12

Rural Poverty

18

Urban Poverty

20

Poverty Reduction

21

Benefits and Challenges of Micro level banking

24

Conclusion

26

References

27

iii

Introduction

One way of defining micro level banking could be a channel of giving out small loans to the
people who are unable to attain funds through the commercial banking medium. Poverty is a
factor which is not easily measurable. A country which is having good economic growth may
also be poor in terms of social advancement. Inability to consume the minimum amount of
calorie intake, lack of basic necessities needed to maintain proper lives are all examples of
poverty in a society. The number of people who are below the poverty line shows the extent
to how much poor a society is.
There might be a strong possibility of micro finance to reduce poverty status in a given
society. This however may vary depending on how large the micro level banking operations
are carried out. There may not be an immediate result but seeing how successful Bangladesh
has been, it would serve as a means for many more underprivileged people to come to an end
of their struggle. The important thing is to sustain the programs and help9ing these people
become financially independent. It cannot be confirmed that poverty will be totally
eliminated but could possibly reduced to significant amount. Hence there is a strong prospect
of reducing poverty status in the society.

Financial Institution
A financial institution is an organization that offers various types of monetary service for
customers.1 They act as a mediator between lender and borrowers along with fulfilling other
services. The supervisory body of most such institutions is the government since it is very
risky and deals with the fund of the general public. Therefore to continue and increase public
confidence they are closely monitored. Financial institutions are comprised of associations
such as all types of banks, insurance firms, trust companies etc. all forms of monetary
transaction such as deposits and withdrawal is carried out by these organizations2 and since it
is the legal form of channeling money or transactions, it is a regular phenomena.
Commercial banks are one type of financial institution where the people can carry out their
normal transactions of deposit and withdrawal. Along with that they also offer loans like
personal and consumer loans. Another form of short term loan is the credit cards which gives
instant checking service to the client. Following are some of the other category of
organizations like investments firms, insurance companies, trusts, brokerages; amongst
nonbank are credit unions and savings and loans.3 For any country the financial sector is of
great significance for both development and growth. Having a strong segment allow the
nation to prosper and grow on.

Financial Institution. (n.d.). In Wikipedia. Retrieved February 28, 2015, from

http://en.wikipedia.org/wiki/Financial_institution
2

Financial Institution. (n.d.). In Investopedia. Retrieved February 28, 2015, from

http://www.investopedia.com/terms/f/financialinstitution.asp
3

Complete guide to Corporate Finance. (n.d.). In Investopedia. Retrieved March 1, 2015, from
http://www.investopedia.com/walkthrough/corporate-finance/1/financial-institutions.aspx

Bank
A bank is a business where people keep their money, borrow money, etc., or the building
where such a business operates.4 It is a mediator between people who are able to provide
funds and those who are in need of support. Linking the parties and thus carrying out the
process if money creation. To define again the purpose of a bank is to maintain bank account
of the client, disburse and accumulate their transactions5 from several parties in contact.
Every country has their own central bank, but it may vary in names. They regulate, monitor
all commercial and public banks and also carry out the necessary policies.
One of the most important roles of the central bank (Bangladesh Bank for Bangladesh) is to
implement the monetary policy. By carrying out the essential aspects of strategy the growth
rate of the country can be tailored to suit the desired growth.6 Therefore banks happen to be
one of the most regulated institutions. Since they deal with the fund of public, it is implied
that utmost security must be provided.
Banks present a variety of services from cash deposit and withdrawal, demand for payment,
credit, loans, savings and current account, acts as a trustee, exchanges foreign currency and
also trades in securities services.7 While banks are revenue earning entities there are another
category of banks whose roles are somewhat more customized.

Bank. (n.d.). In Learners Dictionary.com, Retrieved March 1, 2015, from

http://www.learnersdictionary.com/definition/bank
5

Bank. (n.d.). In Wikipedia. Retrieved March 1, 2015, from http://en.wikipedia.org/wiki/Bank

What is the difference between fiscal and monetary policy? (March, 2002). Retrieved March 1, 2015 from
Federal Reserve Bank of San Francisco. http://www.frbsf.org/education/publications/doctorecon/2002/march/fiscal-monetary-policy
7

Jamal, M. (n.d.). Functions of Bank Primary and Secondary. Retrieved March 1, 2015 from
http://www.business-science-articles.com/articles/business/76-functions-of-banks-i-primary-and-secondary

Like Central banks which is the final option at an emergency for all commercial banks. They
do not perform the basic functions of normal commercial banks. Next is the Islamic Banks
whose whole operations are followed on the foundation of Islamic philosophies.8 Not only do
they evade the interest on funds but the proceeds produced are raised from carrying out the
financial services to clients. Today the world has become increasingly globalized with rising
competition in the industry. However not all have been fully global. The fact that local banks
exist is a benefit for small business enterprises and individuals to carry out their fringe
activities.

Micro Finance
Microfinance refers to giving out small loans to people, firms and association primary which
is concerned with the development of poor socioeconomic group.9 Microfinance is a type of
means to provide fringe resources for those who are economically not very affluent. In fact,
they do not have an alternative option of raising funds. Mostly, it is seen in under-developed
nations. Since any form of job creation or employment helps hugely in those states.
With the presence of large commercially viable banks there are also some establishments
whose sole operations is based on microfinance.

Bank. (n.d.). In Wikipedia. Retrieved March 1, 2015, from http://en.wikipedia.org/wiki/Bank

What Is a Microfinance Bank? (n.d.). Retrieved March 2, 2015 from

http://www.wisegeek.org/what-is-a-microfinance-bank.htm

They work to provide means of development strategy for the underprivileged by supplying
them, with small loans at a low interest rate. In turn, these loans encourage the progress of
firms and bestow the unfortunate people a path from overcoming poverty. In doing so many
people are given a chance to live a life with at least the basic minimum standard. Finally, the
objective is to present people of low income faction a prospect at becoming independent and
self contained.

The failure to return the loan has been seen to very low, mostly in nations which are at the
developing stage. According to World Bank the evaluation is found that around 0.5 billion
individuals have enjoyed the rewards from microfinance-related operations.10 Not only are
such projects helping out the lower income earning group but entrepreneurs are given
opportunity to start their own venture. By doing so, a support system is created where
families are indirectly benefitting.

Not only are these associations garnering proceeds but also participating actively in the
welfare of the citizens of the country. In many cases, the financial institute grants knowledge,
know how, resources and support to sustain the program. Professor Dr. Muhammad Yunus
was the man who began the journey of microfinance. The first microfinance bank was
initiated by him which is Grameen Bank.11

10

Microfinance. (n.d.). In Investopedia. Retrieved March 2, 2015, from

http://www.investopedia.com/terms/m/microfinance.asp
11

What Is a Microfinance Bank? (n.d.). Retrieved March 2, 2015 from

http://www.wisegeek.org/what-is-a-microfinance-bank.htm

The reason why he started this proposition was the fact that small company owners had to
give up a large amount of their proceeds to loan issuers. In the year 1976, Professor Dr.
Muhammad Yunus started to give loan to women with the intent of empowering them. He
did so from his own personal fund to supply them with logical provisions that would support
them monetarily.

The sole objective to engage in micro finance activities is to alleviate the underprivileged
public from poverty. There are many countries which were poor and had no means of fringe
supply. Why Professor Dr. Muhammad Yunus thought of giving authority to women was the
reason that most are suffering through extreme harsh conditions. They are undermined, not
given primary schooling facilities as well as formal technical training.

The position of women in the social world has remained trivial. Therefore in order to gain a
significant place they must become financially independent. Many people express
microfinance as a means to supply the people of small earnings or who range in borderline of
to almost poor a way of having financial services. The services may range from savings,
insurance, and fund transfers,12 along with normal credit lending. Some others define
microfinance as an approach to encourage economic expansion, employment and growth by
empowering people with new business ventures and firms.

12

Microfinance. (n.d.). In Wikipedia. Retrieved March 2, 2015, from http://en.wikipedia.org/wiki/Microfinance

Microfinance is a large group of services under which falls microcredit. The terms
microfinance and microcredit are often mixed together. Microcredit happens to be a form of
credit services to underprivileged people whereas microfinance is said to raise public above
the poverty line. Human beings have a variety of requirements; their basic needs are of
lifecycle, personal emergencies and disasters and also of investment opportunities.13

The universal fact is that often when people are in deficit they lend from others to manage
their budget. But at the end the money must be returned along with an added interest.
Therefore it is imperative that savings must be done. So microcredit must emerge in both the
credit and savings functions. Large organizations discovered that the loan given by Grameen
bank is actually from the savings account from other clients.14 To make certain that
underprivileged citizens are getting access to financial services the quantity financial
institutions should be increased.

One of the progressive practices that were sanctioned by G8 summit were to ensure peoples
need have credit, savings and transferable transactions to be met. Microfinance is not a
charitable trust facility but a means of alleviating poverty. Families who are impoverished,
deprived of earning to fulfill basic human needs are the receiver of charity. Others who are a
bit better are supported by the financial services.

13

Rutherford, Stuart; Arora, Sukhwinder (2009). The poor and their money: microfinance from a twenty-first
century consumer's perspective. Warwickshire, UK: Practical Action. ISBN 9781853396885.
14

Khandker, Shahidur R. (1999). Fighting poverty with microcredit: experience in Bangladesh. Dhaka,
Bangladesh: The University Press Ltd. ISBN 9789840514687.

Grameen America happens to be an initiative by Professor Dr. Muhammed Yunus which is

situated in New York and supplies micro-loans, savings programs, financial education, and
credit establishment to low-income entrepreneurs.15 The low income group is usually faced
with challenges by the bank in terms of their cost of giving loans and security. However, the
solitary reason of developing the concept of microfinance is to make credit available to poor
people and create impartiality.

There are some specific aspects of microfinance. They are the condition to supply credit
without security and given to people who are well below the poverty line. There has been
disparity amongst whether it is a good or poor choice. The fact that level of interest rates is
flexible and also the risk of being in high obligation could be a drawback on the organization.
Microcredit lessens poverty by bringing forth higher level of employment in the society and
higher wages. As a result health and education will in turn be positively affected. Better diet
and superior learning of the citizens is possible.

There are people who might suggest that microcredit specifically empowers women but in
countries like the US and Canada, microcredit facilitate recipients to graduate from welfare
programs.16 There are circumstances where microcredit has made it possible to generate
favorable growth of firms and also created self-employment opportunities. However, great
portion of the earnings goes to the interest and often the borrower is in high liability.

15

Microfinance. (n.d.). In Wikipedia. Retrieved March 2, 2015, from http://en.wikipedia.org/wiki/Microfinance

16

Microfinance. (n.d.). In Wikipedia. Retrieved March 2, 2015, from http://en.wikipedia.org/wiki/Microfinance

To many it seems that, microcredit has accomplished far a lesser amount of what its advocate
says. The unconstructive effects have not been mentioned along with the detail that
microcredit is only an aspect of the triumph of small firms.

Micro Credit
Microcredit can be defined as more or less the extension of small loans for people who are
underprivileged, without a job and have not enough even to support themselves.17 It gives
authority to women and financial stability along with raising entrepreneurial opportunity and
reducing poverty. It is an element of microfinance dealing with variety of propositions
mainly savings.

In the year 1983, the first microcredit bank known as Grameen bank was established in
Bangladesh by Professor Dr. Muhammed Yunus. It was known as modern microcredit.

18

The beginning of microloans has been revised and associated to many institutes in
Bangladesh, like Grameen Bank; usually considered to be the original modern microcredit
institution. Professor Dr. Muhammed Yunus commenced this initiative of microcredit in a
town named Jobra.

17

Microcredit. (n.d.). In Wikipedia. Retrieved March 2, 2015, from http://en.wikipedia.org/wiki/Microcredit

18

Bateman, M. 'Why Doesn't Microfinance Work? The Destructive Rise of Local Neoliberalism'. Zed Books,
London, 2010.

He used his personal account in distributing micro loans at low rates to the people of lower
income. BRAC and ASA went in the same path as Professor Dr. Muhammed Yunus in 1972
and 1978 respectively.19 Initially Grameen Bank was a non-profit making organization which
was dependent on government subsidies. In 2002 it was Grameen II. Professor Dr.
Muhammed Yunus was awarded the Nobel Peace Prize for his par excellence work in
serving microcredit facilities to the poor socioeconomic class, in 2006.

Today many small business owners are enjoying the benefits of microcredit and are living a
better quality life. According to a survey, it is seen that people who belong to low
socioeconomic class are secured borrowers in terms of maintaining a more valuable bond
with the bank.20 There is an ongoing debate on whether microcredit is as effective as
advocated.

19

Drake, Deborah, and Elizabeth Rhyne (eds.). The Commercialization of Microfinance: Balancing Business
and Development. Kumarian Press, 2002.
20

Kowalik, M. and Martinez-Miera, D. (2010). The Creditworthiness of the Poor: A Model of the Grameen
Bank. Retrieved from http://www.kansascityfed.org/PUBLICAT/RESWKPAP/PDF/rwp10-11.pdf

10

Poverty in the World

Poverty is the state of one who lacks a usual or socially acceptable amount of money or
material possessions.21 It is a global phenomenon, where every country suffers from some
form of poverty. Almost three thousand million people live in poverty where one third is in
extreme conditions.22 They do not have the basic means of survival. A large number of the
population faces challenges in the form of minimum standard of living. Almost 750 million
of people do not have the ability to get pure drinking water.23 Women and children suffer
from malnutrition and hunger. They are even deprived from fresh water. Failure to intake
adequate amount of food leads to many diseases. Lack of proper maternal care is the cause of
many infants not surviving as well as the mother during delivery.

Social advancement is an indicator of how developed a country is. Globally every country
has some phase where the social advancement needs to be strengthened. About eighty
percent of the population in the world lives on less than $10 a day.24 Though we cannot
eliminate it instantly but initiatives are taken to tackle the problem.

21

Poverty. (n.d.). In Merriam Webstar, Retrieved March 13, 2015, http://www.merriamwebster.com/dictionary/poverty

22

United Nations Development Programme. "Sustaining Human Progress: Reducing Vulnerabilities and
Building Resilience." Human Development Report, 2014.
23

World Health Organization and UNICEF Joint Monitoring Programme (JMP). "Progress on Drinking Water
and Sanitation, 2014 Update." 2014.
24

Shah, A. "Poverty Facts and Stats." Global Issues. Retrieved March 13, 2015 from
http://www.globalissues.org/article/26/poverty-facts-and-stats.

11

Poverty in Bangladesh
Bangladesh has been seen an increase in the economic growth after its independence in 1971.
The real capita per income grew up to greater than 130 per cent. As a result the poverty level
was reduced significantly. However, Bangladesh still remains a low income country, which
fails to provide the basic needs for many people. According to a source almost a third of the
people in Bangladesh live below the poverty line.25 It is more critical in the rural areas
compared to the urban zones. Inadequate food intake leads to malnutrition along with lack of
health centers to ensure long life. Although Bangladesh has shown its accomplishments but
there are some discontent as well.
According to the US Secretary Henry Kissinger, Bangladesh was defines as an international
basket case.26 The reason for this statement was the lack of resources, high population
count, a negative impact after separating from Pakistan, scarcity of food and a high
requirement for foreign aid. After the independence the whole infrastructure of Bangladesh
was shaken up and the growth took a slow pace. However in the last two decade it has shown
a great jump. The GDP growth in Bangladesh in 1990-2000 was 4.8 and in 2000-209 were
5.927 the rate of economic growth depends on the volume and level of investments which in
turns depends on the domestic savings.

25

Rural poverty in Bangladesh. (n.d.). retrieved March 3, 2015 from

http://www.ruralpovertyportal.org/country/home/tags/bangladesh
26

Bari, M. R. (2008). The Basket Case. The Daily Star. Retrieved March 7, 2015 from
http://archive.thedailystar.net/forum/2008/march/basket.htm
27

World Bank. (2011). World Development Indicators., Washington D.C.

12

To increase growth, resources are required. In the period 1973-1998 there has been an
average growth rate of 2.6%, from 1975-2005 there has been an average growth rate of
3.33% and from 2005-2011 there has been an average growth rate of 4.2%.28 The continuous
increase in the per capita income reflects a positive performance. Two main reasons for this
were the increasing rate of investments and the lowering of population using effective family
planning plans. In improving the situation Bangladesh has shown a great strength in being
constant and flexibility in confronting political and natural uncertainties.

Social advancement is one of the indicators of progress for a developing country. They are
life expectancy at birth, infant mortality rate29 and gross primary enrollment. The life
expectancy was 42 years in 1960, 47 years in 1977 and 67 years in 2009.30 The infant
mortality rate was 145 per thousand live births in 1970 and fell to 41 in 2009.31 The
percentage of students getting primary education has increased from 54 percent in 1970 to
95% in 2009.32 Therefore the overall social progress was huge, which was a good
accomplishment for Bangladesh but yet there is more progress needed.

28

Khan, A. A. (2013, October 31). Bangladesh Conundrum: A tapestry of light and shadow. The Financial
Express. Retrieved March 7, 2015 from http://www.thefinancialexpressbd.com/old/index.php?ref=MjBfMTJfMjFfMTFfMF8xNDFfOTgxNTY=&feature=c3BlY2lhbHNOZXdz&na=
QW5uaXZlcnNhcnkgSXNzdWUgMjAxMSAoUGFydCBUd28p
29

Poverty. (n.d.). In Wikipedia. Retrieved March 7, 2015, from http://en.wikipedia.org/wiki/Poverty

30

World Bank. (1979). World Development Report. New York: Oxford University Press.

31

World Bank. (1979). World Development Report. New York: Oxford University Press.

32

World Bank. (1979). World Development Report. New York: Oxford University Press.

13

According to Thomas Robert Malthus the rate of growth of population would be in geometric
progression but the average annual rate of growth of food supply even under the best possible
circumstances would be in an arithmetic progression.33 The population growth rate has been
declining since 1970-1982 with 2.6 percent to 1.8 percent during 1990-2009. It is predicted
that by the 2009-2015 period the population growth rate would sand to 1.4 percent.34

On the other hand the food production has also increased significantly during the years
following independence. The overall increase in the population growth rate during 19491950 and 2008-2009 was 275 percent compared to the average annual rate of growth of food
supply was 340 percent.35 This showed that Bangladesh was well off in maintaining itself.
However the question on dependency on foreign aid does play a role. Initially after the break
off from Pakistan the whole infrastructure was shaken. It took some time for Bangladesh to
recover from that shock.

According to the record of World Bank 59 percent of the total imports were financed by
foreign aid in 1984. The ratio declined to 50 percent in 1990, 15 percent in 2003 and 6
percent in 2009. There was an accelerated decline in the past two decades.36 Not only the
foreign assistance but the overall aid available per capita also decreased.

33

Malthusian Catastrophe. (n.d.) Retrieved March 7, 2015 from

http://en.wikipedia.org/wiki/Malthusian_catastrophe
34

Khan, A. A. (2013, October 31). Bangladesh Conundrum: A tapestry of light and shadow. The Financial
Express. Retrieved March 7, 2015 from http://www.thefinancialexpressbd.com/old/index.php?ref=MjBfMTJfMjFfMTFfMF8xNDFfOTgxNTY=&feature=c3BlY2lhbHNOZXdz&na=
QW5uaXZlcnNhcnkgSXNzdWUgMjAxMSAoUGFydCBUd28p
35

Bangladesh Bureau of Statistics (various years). Statistical Yearbook of Bangladesh. Dhaka

36

World Bank. (2011). World Development Indicators., Washington D.C.

14

For all countries which are labeled as poor has a per capita aid of $47, but in 2009 for
Bangladesh it was $8.37 On an average all the countries which are assisted by donor have a
per capita aid of $19. By virtue of good performance the critics were proved wrong, and
Bangladesh came on as a survivor country. The quantity of growth has shown tremendous
improvement but the question arises as to how much quality has been achieved. A
sustainable growth is needed which will be continued or be maintained.

To measure the worth of actual growth we calculate the Poverty Count Index or the
Incidence of Poverty. It determines the amount of poverty in a nation; calculated by the
number of people living below the poverty line over the total population. The poverty line is
nothing but an imaginary line that divides the poor people from the non poor people. It is the
minimum amount of income or expenditure that is imperative for a person to receive for the
smallest amount of nutrition. The Bangladesh Bureau of Statistics (BBS) carries out the
Household Income and Expenditure Survey (HIES) to find out the level of poverty.

In the fiscal year (FY) 1992 the national poverty rate in Bangladesh was 58.5 percent, in FY
2000 it was 48.9 percent and in FY 2010 it was 31.5 percent. 38 We can conclude from the
following data that the level of poverty has been declining and it is decreasing at an
increasing rate. However there is doubtfulness as to whether it is as good as it seems.

37

World Bank. (2011). World Development Indicators., Washington D.C.

38

Planning Commission, Government of Peoples Republic of Bangladesh. (2011). Sixth Year Plan, Dhaka.

15

A better method would be to match the approximate development of children for getting
more information on the poverty aspect.39 A better representative would be the Global
hunger Index (GHI) which measures the depth of hunger existing in a country.

The three criteria on which the index is calculated are the percentage of people who are
malnourished (27 percent), the percentage of young children who are underweight (41.3
percent) and the rate of death of children below the age of five (5.2 percent); giving an
overall GHI of 24.2 percent.40

Next there is a debate as to how accurate the data are? The figures based on the international
poverty line and the national poverty line varies immensely. The international poverty line is
based on the $2 per day condition. For the last forty years Bangladesh has not changes their
Poverty line. The fact that poverty estimate figures are actually hugely underestimated is
establishes. The poverty head count for national line is 40 compared to the international line
which is a striking 81.3.

Another factor that is to be considered is the people who are just above the poverty line. They
are vulnerable group. Any major macroeconomic changes can cause them to become in the
poor group. These are the people who are barely surviving on the minimal of support.
According to the international poverty line Bangladesh happens to be one of the poorest
countries in the world.

39

Svedberg, P. (2000). Poverty and Undernutrition. New York: Oxford University Press.

40

IFPRI. (2011) Global Hunger Index. Washington DC.

16

The Gini coefficient measures how the income in a country is distributed amongst all the
people.41 The higher the value the greater is the difference. It is named after Corrado Gini (42)
(43)

It has a range of zero to one, where zero means perfect equality and one mean perfect

inequality.44 From the period 1983-1984 to 1991-1992 the gini coefficient was fairly low
ranging around 0.36 to 0.388. But from 1995-1996 onward the value increased to 0.432 and
continued to rise to 0.458 in 2010.45 It shows that the condition is not well.

From a poor human development category Bangladesh rose to medium level in 2010 but
sadly, in 2011 was listed in the poorest group.46 To maintain and develop a country good
governance is imperative. If power is not correctly used, if the citizens become voiceless and
the decisions made for public concern dismiss democracy, a nation is said to have poor
governance. It is very difficult to measure governance but some of its indicators are voice
and accountability, political stability and no violence, government efficiency, control, rule of
law and curbing corruption.47

41

Gini Coefficient. (n.d.). In Wikipedia. Retrieved March 7, 2015, from

http://en.wikipedia.org/wiki/Gini_coefficient
42

Gini, Corrado (1912). "Variabilit e mutabilit" Reprinted in Memorie di metodologica statistica (Ed. Pizetti
E, Salvemini, T). Rome: Libreria Eredi Virgilio Veschi (1955).
43

Gini, Corrado (1921). "Measurement of Inequality of Incomes". The Economic Journal (Blackwell
Publishing) 31 (121): 124126. doi:10.2307/2223319. JSTOR 2223319.
44

Gini Index. (n.d.). In Investopedia. Retrieved March 7, 2015, from

http://www.investopedia.com/terms/g/gini-index.asp
45

Bangladesh Bureau of Statistics (2008). Statistical Yearbook of Bangladesh. Dhaka

46

UNDP. (2010). Human Development Report. New York.

47

Kauffmann, Daniel, et al. (various issues, 1998-2010). Governance Matters. World Bank: Washington DC.

17

It can be concluded that all of the issues have performed below standard. Five of the features
have shown significant decline (except rule of law). Overall globally Bangladesh can be said
t have a very poor governance. Though there should a direct link to economic growth and
governance but it is a mystery how in case of Bangladesh it is contrast. Though quality has
fallen but growth is increasing, however, it is only possible in the short run. In the long run
this might prove to be a hurdle.

In particular part of the northern section and south coastal area, are more prone to poverty
because of the challenges of climate change; such as drought, flood, erosion of soil, cyclones.
Usually, it is the poor people who are most affected by such natural calamities. Poverty
strikes both in the small towns and in large cities. However, the conditions vary greatly

Rural poverty
Over the years Bangladesh has achieved their goal in trying to reduce poverty rate despite
having such a huge population. A decreasing trend has been seen which proves to be a
positive indication. The majority of the people in Bangladesh live in rural areas where they
are deprived of proper facilities and the basic necessities for maintaining a normal standard
of living. They are faced with challenges from shortage of food, illiteracy leading to
unemployment and mainly many ailments without the facility of proper medical treatment
available.

18

Only a handful number of people have just enough means to cover their daily expenditure
and that too is very meager in amount. Therefore they are constantly at danger of succumbing
to poverty due to any kind of global or major economic changes. Women are example of one
of the main victims of poverty. From being looked down upon they also face prejudice, low
working prospect and lack of adequate amount of calorie intake. Rural poverty is caused by
the attributes of the geographic position and demography48.

Regions of Bangladesh are low-lying which puts a constant threat of flooding. Every year the
rainy season brings about flood which results in loss of homes and damage to harvest.
Agriculture being one of the most important sources of living brings despair to the poor
people. The already poor people are then faced with even more misery. Trying to restore
their broken lives becomes extremely difficult.

48

Poverty in Bangladesh. (n.d.). In Wikipedia. Retrieved March 3, 2015, from

http://en.wikipedia.org/wiki/Poverty_in_Bangladesh

19

Urban poverty
Capital cities are the dream city of many individuals. It holds the key to better life and
prosperity. Unfortunately, it usually is the case. Urban poverty does exist, and it refers to
those people who although reside in these huge city; still face the wrath of poverty. The
people living in cities are also not relieved from poverty. Though the big cities like, Dhaka,
Chittagong, Khulna and Rajshahi,49 provides the citizens with good quality lifestyle, but still
faced with many challenges.

Quite a lot of the inhabitants are migrants from the rural areas in search for jobs and better
opportunity in life. Failure to fulfill their motives causes them to dwell in slums and face the
harsh realities. Neither do they have proper work nor can they maintain a good standard of
living. The town laborers have difficult jobs which has a harmful impact on their health
condition. Therefore, it becomes quite tough to rise above their socioeconomic standing
under such circumstances.

49

Poverty in Bangladesh. (n.d.). In Wikipedia. Retrieved March 3, 2015, from

http://en.wikipedia.org/wiki/Poverty_in_Bangladesh

20

Poverty Reduction
Reducing Poverty happens to be one of the main objectives for many organizations.
Particularly World Bank has been keen in looking out for development in countries and how
they are managing the level of poverty. It is a universal challenge that is seen in all parts of
the world. There are different poverty declining strategies, amongst them one is the micro
credit or micro making facility.
Bangladesh happens to be one of the cases where micro credit has given a new prospect in
reducing poverty. With micro banking facilities and innovative social business the situation
of the poor inhabitants of Bangladesh have gradually improved.50 Accumulating income
through financial services is a wonderful concept. Grameen Bank, a bank where loans are
given out in small amounts, mainly to women and farmers in order for them to earn a
satisfactory living. These micro loans are given out at a very low interest rate so that it
becomes easier for the borrower to return them and also gain maximum benefit.
Micro savings facilities are also provided for the people who require a secured place to keep
their funds. In this way, by making people self sufficient poverty can be reduced, even
though it is very gradual. Poverty is an immense crisis in Bangladesh where one is not able to
meet up the fundamental requirements of life; where most of the people are living below the
poverty line. This can be lessened to some degree if not totally eliminated.

50

Yunus, M. (n.d.). The Problem of Poverty in Bangladesh. Retrieved from March 11, 2015 from
http://www.muhammadyunus.org/index.php/media/articles-by-professor-yunus/219-the-problem-of-poverty-inbangladesh

21

According to UNDP local economic development requires social group to approach a way
for income and employment generation and social protection.51 To make it possible
financial flexibility is an important tool. Large commercial banks are not really their source
of relieve. Micro credit programs are what these people need. Decline of poverty can be
attributed to the commitment of governments poverty reduction interventions by direct and
indirect services.52 It is intended to create a superior focus on programs which would provide
and suit the poor best.
UKAID finances many projects, one of them being the Urban Partnerships for Poverty
Reduction Project (UPPR), which along with other community in Bangladesh helps in the
progress of enhancing lives and living conditions. According to UNDP these groups knows
exactly how to recognize their main concern. Basically the plan is to empower poor women
and provide assistance in making their own judgments.
It does not simply provide empowerment but also take account of humanizing their living
conditions and support in savings and credit making. Till now facilities such as community
development committees,

53

availability of pure drinking water and sanitation has been

given. Women have been given the chance to go for entrepreneurial activities and make
themselves independent.

51

Poverty Reduction. (n.d.). UNDP. Retrieved March 12, 2015 from

http://www.bd.undp.org/content/bangladesh/en/home/ourwork/povertyreduction/overview.html
52

5 Years of Remarkable Achievement in Reducing Poverty. (2014, June 24). Bangladesh Awami League.
Retrieved March 12, 2015 from https://www.albd.org/index.php/resources/special-reports/1300-5-years-ofremarkable-achievement-in-reducing-poverty
53

Urban Partnerships for Poverty Reduction. (n.d.) UNDP. Retrieved March 12, 2015 from
http://www.bd.undp.org/content/bangladesh/en/home/operations/projects/poverty_reduction/urban-partnershipsfor-poverty-reduction--uppr-.html

22

Millions of people have been part of the Microcredit Program and it is sought to be a superior
form of expense than social services. The program is intended to serve the underprivileged
and finance with credit to them as they are abandoned by the official commercial banking
system.54 Helping with financial aid alone is not sufficient to the deprived.
Microcredit organizations generally offer funds to women in a family because of their low
power. Becoming financially independent would allow them more authority along with self
esteem. People who deliver microcredit only do so to lend money and create prospect of
investment. Organizations such as BRAC commenced on projects that are for the benefit of
the rural people.

54

Uddin, M. H. (2012, March 2). Microcredit for poverty alleviation. The Daily Star. Retrieved March 12, 2015
from http://archive.thedailystar.net/newDesign/news-details.php?nid=224551

23

Benefits and Challenges of Micro level banking

Micro level banking has sought out many advantages in the alleviation of poverty. Though
there has been much dispute as to how effective the term micro credit has actually been.
Advocators suggest that though poverty has lessened to some degree by decreasing the level
underemployment and higher incomes.
The concept of giving out loans may have led many debtors to default and in response fall
into despair. However, it cannot be denied that the impact of micro level banking was also
improvement in nutrition, better education of underprivileged children. Proper monitoring is
also needed because the loan must be for the venture rather than consumption.
Then the purpose would no longer be served of micro level banking. Many projects of
microcredit have assisted in the formation of businesses; in the process they have made self
employment in mass audience. To some extent it does help in reducing poverty but it is only
one criterion.
There are still other factors that play vital parts in the overall poverty situation. To improve
the concept, of micro level banking, entrepreneurs who have a fairly good amount of
experience can be sanctioned for a relatively high loan to further develop their initiatives.
Cost of providing loans is also a factor that makes the transfer of loans difficult, therefore if
interest rates can be reduced it can help the notion better.55

55

Microcredit. (n.d.). In Wikipedia. Retrieved March 13, 2015, from http://en.wikipedia.org/wiki/Microcredit

24

Although there are advantages but, the elevated price of loans reduces the effectiveness of
the notion. It is recognized that empowering people is imperative for making them self
sufficient. That is by increasing the means to all resources along with credit.
Not only public but even private institutions are playing a great role in this development
plans. The micro loans have a different effect on both rural areas and urban areas. Poor
people who were not able to survive has risen above their past conditions and started to begin
a new life.
Though it is a time consuming process and the impact is not instantaneous, but still it is a
small step toward a bigger goal. Sometimes it becomes complicated as to who would be
classified as poor; as in people who are below the poverty line or people who are in such a
vulnerable group that any time they may fall beyond the poverty line.
The people who are very poor do not have the means or the experience to encounter or
partake in any kind of entrepreneurial activities. Their lack of education and skills become a
barrier to finance them. Often the funds are given away in groups which make the chances of
rate of default pretty low.
The method of micro level banking proved to be a success and worked well in Bangladesh
and is followed all over the world. The sole purpose micro level banking greatly helped in
alleviating poverty.

25

Conclusion
Micro level banking can be defined as a way to give out loans of small amount to the people
who are unable to attain funds through the commercial banking channel. There might be a
strong possibility of micro finance to reduce poverty status in a given society. To what extent
this may be victorious depends on the degree of involvement and depth of proper
governance. This arrangement may not be perfect or an instantaneous form of poverty
reduction but if conformed to the ground concept, there is a good chance that it will be more
successful than what it has been. Bangladesh is a developing country, where micro credit has
seen success along with many other countries around the globe. Micro credit programs
provide small loans to people and help them fight poverty. It is a means for those
underprivileged people to come to an end to their struggle and hardships. The significant
thing is to support them on becoming independent. Though it cannot be said that poverty will
be completely eliminated but using this tool of micro level banking, there could be possible
substantial reduction in poverty status in the society.

26

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