THE FOUNDATION OF MICROFINANCE TO EMPOWERING THE CITIZENRY

INTRODUCTION

There are about three billion people, half of the world’s population, living on the income of less than two dollars a day. Among these poor communities, one child in five does not live to see his or her fifth birthday One study in 2006 showed that the ratio of the income between the 5% richest and 5% poorest of the population is 74 to 1 as compared to the ratio in 1960, which was 30 to 12 To enhance international development, the United Nations Organization (UNO) announced the millennium development goals, aimed to eradicate poverty by 20153. In this regard, microfinance is the form of financial development that has its primary aim to alleviate the poverty4. Governments, donors and NGOs around the world responded enthusiastically with plans and promised to work together towards the realization of these goals. In the recognition of microfinance, the UNO celebrated the year 2005 as a year of micro-credit as a result this financing instrument is perceived worldwide as a very effective mean against hunger and poverty, mainly in developing countries. Microfinance is a credit methodology, which employs effective collateral substitute for short-term and working capital loans to micro-entrepreneurs. The level of a country’s poverty has long been linked with measures of its economic development. Littleconsideration was given to the social reorganization of the natural resources (e.g.empowerment vs. alienation of people, sustainable use vs. depletion of the environment)

TABLE OF CONTENTS

1.0       BACKGROUND TO STUDY 

1.1       LIMITATIONS OF THE STUDY

1.2       RESEARCH QUESTION

1.3      OBJECTIVES OF THE STUDY

1.0      BACKGROUND TO STUDY

Microfinance is the provision of financial services to the very active poor or mainly members of the main stream sector of the economy. Apart from small loan it includes savings micro insurance and other financial innovation micro credit which is an integral part of micro finance provides access for the “active poor” to borrow, save, invest and insure family against risk. The economic status may not have ordinarily qualified them to access traditional credit provisions (CBN, 2005).

Micro credit is an innovation of the United Nations Organization a declared in 2005. While our erstwhile President Chief Olusegun Obasanjo on Thursday 15thDecember 2005 inaugurated the National Empowerment Development Strategy both at the federal, state and the local government levels (National Orientation Agency, 2005).

This and other facts on its successes in Asia (Bangladesh Prof Yunus) has successfully enable extremely impoverished people especially women to engage in self employment projects that allows them to generate an income and in many cases began to build wealth and exit poverty.

The topic is so chosen as a way of adding to word of knowledge the required recipe to kick starting the small and medium scale enterprise (mainstream sector) of our economy as such enhance economic development. Enhanced individual economic empowerment self sufficiency, lifting above poverty and of course community development.

The failure of community banks, both structurally and operationally could be traceable to weak corporate governance, inadequate internal control, poor deposit mobilization, unacceptable risk management practice, tax credit administration and lack of seriousness attached to its formation. This is why community banks did not record an improved performance in the years of its existence. Consequently, a micro finance policy which recognizes the existing informal institutions and brings them within the supervisory preview of the Central Bank of Nigeria (CBN) was launched on 15th December 2005. The policy is expected to compliment the emerging banking sector reforms, to build strong pillars for the financial sector and significant outreach in services provision to the un-served segment of the Nigerian economy especially the poor, low income earners, small and medium scale enterprises etc. It is meant to enhance monetary stability and expand financial infrastructure of the country to meet the financial requirement of the lower segment of the market.

1.1      LIMITATIONS OF THE STUDY

There are number of limitations in this study. Firstly, the respondents were limited (109 respondents or samples) in terms of size and composition. Secondly, the data collection was restricted only within the Chittagong district of Bangladesh, which may fail to represent the actual scenario of the whole country. While interviewing the people, we have faced problems in explaining the questions as most of the people, who are involved in microfinance program, are illiterate and living in villages. Therefore, it was too difficult to make them understand some of the technical terms: like capital, income etc. Moreover, theories were other problem when we wrote the theoretical framework. Because, no established theories were particularly defined in microfinance field yet. Grameen model has been used as an ideal theory for microfinance. Besides this, some other related things to microfinance like, saving mobilizations, solidarity, etc.

1.2      RESEARCH QUESTION

In the light of problem, background leads to the following problem statement, which will also be the overarching question/statement for this investigation: What is the impact of Microfinance on living standards, Empowerment and poverty alleviation of the poor people in Bangladesh?

1.3      OBJECTIVES OF THE STUDY

To be meaningful, every work must have to formulate the objectives of the study. Furthermore, objectives are more generally suitable to the research community as evidence of the researcher’s clear sense of purpose and direction14. So in the light of the research topic, the objective of this study is to show how microfinance works, by using group lending methodology for reducing poverty and how it effects the living standard (income, saving access to health and education, etc.) of the poor people in Bangladesh.