Wednesday, February 15, 2006

[Bangladesh] microcredit fights poverty best

from The Daily Star

Says symposium of Saarc central bank governors

A symposium of Saarc central bank governors yesterday termed the microcredit operations run by NGOs in Bangladesh as the most effective model in the region for poverty reduction.

An expert committee with representations of the central banks and finance ministries of the South Asian countries would sit soon in Nepal to design the mode of operations of the Saarc Development Fund, decided the SaarcFinance Governors' Symposium on Microcredit. The committee will also look into whether microcredit would be a component of the fund.

"South Asian countries are following different models of microcredit operations. But a number of countries have been able to improve their efficiency in microcredit operations and reach the poor following the Bangladesh model," eminent economist Wahiduddin Mahmud told newsmen after presiding over the concluding session of the daylong symposium.

He suggested bringing the large non-government microcredit organisations under a regulatory framework and allowing them to operate as banks to help reduce the interest rates.

Wahiduddin said in India specialised banks operate the microcredit programmes, while in Sri Lanka and Nepal public institutions run most of them. Resource wastage and low rate of loan recovery are two major weaknesses of the microcredit programmes of these countries, he explained.

In his inaugural speech as the chief guest of the conference, Finance Minister M Saifur Rahman expressed 'discomfort' at the 'high interest rates' charged by the freewheeling microcredit operators in the country. He emphasised introducing a regulatory framework considering the increasing microcredit operations in the region.

The current level of microcredits will not help reduce poverty, Saifur said, adding the quantum would have to be increased if "we have to make an impact on poverty reduction".

SaarcFinance, a forum of the central bank governors of the South Asian Association for Regional Cooperation member countries, organised the event at Dhaka Sheraton Hotel. The governors and top executives of the Saarc central banks participating in the brainstorming exchanged views and discussed ways to take microcredit programmes another step forward.

In his keynote speech at the inaugural session, Grameen Bank Managing Director Prof Muhammad Yunus argued that the poor remain poor not because of any fault of their own but "because we have designed institutions and policies that keep them poor".

"No matter how hard they try or how hard they work, they remain trapped in poverty because of these institutions and policies," he maintained.

Referring to a Grameen Bank programme, Yunus said even beggars get special attention from the bank, which runs a campaign to persuade them to join the programme.

Reserve Bank of India Executive Director Das Vishwavir Saran said India is committed to the philosophy of financial inclusion of the poor and the disadvantaged. In the fast-changing socio-economic scenario, care is being taken to shape policies and adopt options based on continuous learning and feedback, which is critical to equitable development, he noted.

State Bank of Pakistan Deputy Governor Tawfiq A Husain said the sector faces many challenges ahead. The fact is, even in a conducive policy environment, the outreach remains low, he noted.

He said there is still a need for the existing retail microfinance institutions, both regulated and self-regulated, to rigorously work for capacity building.

They have to improve efficiency and utilise better management information systems, which can help them increase the outreach and quality of service, Husain said, adding they also need to innovate pro-poor financial products to address the needs of the target population.

Nepal Rastra Bank Deputy Governor Bir Bikram Rayamajhi said poor governance and management are two major issues of concern in most of the microfinance institutions.

"They lack professionalism in their approaches. Most of their boards or executive committees comprise family members and relatives, and they are not clearly aware of their roles and responsibilities," Rayamajhi said, adding the chief executive officers formulate all policies and guidelines alone, using the committees or the boards as mere rubber stamps.

Bangladesh Bank Governor Salehuddin Ahmed said the specialised banks and nationalised commercial banks in Bangladesh with large branch networks have lent extensively even in rural areas, but yet a sizeable number of the poor do not have access to their services.

"The microfinance industry in Bangladesh has the potential of further expansion by increasing the outreach, by expanding areas of services and types of products. Time has come for scaling up the microfinance into micro and small enterprises," he added.

Salehuddin said he expects that in future a new law for the semiformal microfinance sector will change the scenario of rural financial market in Bangladesh.

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