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Chapter-1

Introduction

1.1. Background:
This report was done as the part of the requirement for successful completion of the Internship program. Exposure to the business world and acquiring practical work experience was the primary objective of this assignment. The report focuses on the lending tools used in the MicroCredit Sector, the pre-conditions of customers for lending, the target customers, the supervision systems. The topic for this report was decided upon after approval by my Faculty Advisor Prof. Dr. Md. Nazmul Karim Chowdhury.

1.2. Problem Statement:

The emergence of the Micro-Credit industry in Bangladesh presents a tremendous opportunity to extend financial services to the vast majority of the poor people. Indeed, about 50% of a 140.26 million population are reckoned to live below the poverty line. Ironically, commercial banks in the country typically serve no more than sixteen percent of the population. The remaining populace historically does not have access to formal financial services banking services. So they are rushing towers different kinds of non-traditional organizational organizations. Formal banking services do not go to them due to their some formal procedures like minimum amount for loan, guarantees, service charge and so on. They do not provide loans to poor or landless. Because they demand guarantee which is impossible for these kind of people. On the other hand Micro-Credit organizations have overcome this all problems. They provide loans for any amount, do not think for guarantee, and go to the doors of customers doors. Thee organizations are financing from their own fund or donors fund. In Bangladesh BRAC in Seylet after our liberation war, started this service. Then Grameen Bank has made a tremendous revolution in this sector and its activities have been rewarded worldwide. .

In fact in the last twenty years or so, the NGO-MFIs have greatly modified the Grameen Bank's methodology and devised appropriate financial service technologies to serve the poor people. Among them, a few organizations demonstrated splendid success and have become known worldwide. The Micro-Credit industry in Bangladesh consists of NGOs, cooperatives, public sector programs. The country is now teeming with more than 1000 Micro-Credit NGOs. Each and every NGO has taken up Micro-Credit as a core activity The present chemistry of Micro-Credit technology reveals that it is poised for a transformation. The fact is amply manifest in the evolving Micro-Credit theme, product diversification, overlapping, huge uncalled for consumption loans, individual loans, enterprise loans, savings collection from non-members and highest frequency of prevailing interest rates. All these are clear syndromes, which tell us that the situation is moving somewhere. The system does not any longer like to follow the traditional discipline. On the contrary, Micro-Credit practitioners are not seemingly prepared for commercialization but the situation is pushing them towards it, beyond their knowledge. There is no alternative to commercialization as it is the crux of competition. The poor people who are the customers are treated well and perceived as king. By designing products to the evolving needs of clients, an organization can build client loyalty through customer service and thereby increase its profit. In a competitive environment, customer satisfaction and commercialization should be the driving force for survival and growth. The Micro-Credit regulation in the country is now underway, which will provide a legal basis and streamline the current and future MFI activities. All these made me more interested for working on the title Lending Procedure in the MicroCredit Sector

1.3. Objective

The present study, title Study on Lending Procedure in the Micro-Credit Sector endeavors to analyze and evaluate the procedure(s) of lending in the Micro-Credit Sector. In this regard, the followings are the objects, both broad and specific, that are taken into consideration: 1.3.1. Broad Objective: In terms of a broad perspective, the present study focuses on exploring various features of lending procedure(s) in the Micro-Credit Sector.

1.3.2. Specific Objectives

The study offers some specific objectives, too; besides the broad objective. The specific objectives are: To identify and explore the pre-conditions of customers of lending.

To evaluate the lending procedure in the Micro-Credit Sector..

To identify the target customers. To identify and evaluate the supervision systems before lending.

1.4. Sources of data:

1.4.1. Primary Sources:
Primarily, data will be collected through Key Information Interview from relevant personnel of local and multinational banks, and from personnel of Micro-Credit organizations. Personal and informal information will also be taken under consideration.

1.4.2. Secondary Sources:

The secondary sources for data collection mainly will be Circulars, different Procedure Manuals, annual reports and publication

1.5. Scope of the study:

This report covers the background of InM, current economic scenario of Bangladesh, elevation of Micro-Credit organizations, their functions, contribution to national economy, and lending procedure. This report also covers the customers, monitoring system, and funding.

1.6. Limitations of the Study

The following limitations are apparent in the report

Limited access to all kinds of information regarding success for some organizations.
Some information are sensitive and confidential. Each and every step of the lending procedure could not be observed due to time constrain. Some organizations did not give an accession to the interview.

Chapter 2 Methodology

2.1. Variables and Indicators

For the project paper, the independent variable for lending procedure of Micro-Credit sectors, are amount of loan, sectors of lending, length of lending, borrowers. The dependent variable is the lending procedure.

Variables

Indicators

Data 6

Approaches

DCI

Amount of loan

1. Education 2. Economic condition 3. Previous record

Sources Individual Manager/ Employee

Interview

Interview Schedule

Sectors of lending

4. Age 1. Purposes of loan.

Individual Manager/ Employee

Interview

Questionnaire

Length of lending

1. Education 2. Economic condition. 3.Previous record

Individual Manager/ Employee Individual Manager/ Employee

Interview

Questionnaire

Borrowers

4.Age 1. Education 2. Economic condition. 3.Previous record 4.Age

Interview

Questionnaire

2.2. Sampling Design:

The target populations of this project paper are employees of Micro-Credit organizations international, national and local. The sample size will be selected randomly.

2.3. Sampling Plan

2.3.1 Target Population
For this research, the employees especially managers or top level employees at different MicroCredit organizations will be treated as the target population.

2.3.2 Sample Size

For survey related to lending procedure in Micro-Credit sectors total sample size will be 10 employees (managers) of ten Micro-Credit organizations.

2.3.3

Samples Selected

Following random sampling, the members in the sample will be randomly selected for the project purpose.

4 Development of Questionnaire
In order to conduct this study one questionnaire was designed. It wasQuestionnaires for employee (managers of Micro-Credit organizations): 1. What is the minimum age for getting loan? 2. What is the minimum educational qualification for getting loan? 3. What is the minimum and maximum amount as loan? 4. How many days in a month they meet their clients for monitoring? 5. Does they lend in group or individual? 6. How many members are in a group? 7. How do they make group leader? 8. What are the characteristics of the group members? 9. How do they maintain their loan recovery? 10. What are the benefits feeling by the employees about the new changes?

5. Data Collection Method 5.1. Primary Sources:

Primarily, data has been collected through Key Information Interview from relevant personnel of local, national and multinational Micro-Credit organizations or NGOs. Both formal and informal information has been taken under consideration.

5.2. Secondary Sources:

The secondary sources for data collection mainly were Circulars, different Procedure Manuals, annual reports and publication.

6. Data Analysis Plan

Tabulating the data collecting from the primary sources and analyzing those data Ill be able to determine.

To identify and evaluate the lending tools used in the Micro-Credit Sector. To identify and explore the pre-conditions of customers of lending. To identify the target customers. To identify and evaluate the supervision systems before lending.

Chapter-3

Organization Profile

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3.

Organization profile

3.1. Background of Institution of Microfijnance (InM)

The Institute of Micro-Credit (InM) is an independent organization with focus on research, training, academics and knowledge management. The establishment of InM is a milestone in the history of Micro-Credit movement in Bangladesh. The Institute will facilitate the exchange of ideas relating to the best practice methods and appropriate techniques for managing Micro-Credit and for achieving social development goals. It is also committed to enhance support, and strengthen local and international efforts in Micro-Credit development. The Institute started its journey officially from November 1, 2006. The Palli Karma-Sahayak Foundation (PKSF) has promoted the Institute. InM is registered as a non-profit institution under the Societies Registration Act 1860.

3.1.1. Vision
The vision of the Institute is to see 'an efficient and sustainable Micro-Credit sector' that will reach all poor households and provide them with their required amount of micro credit and other financial services for the purpose of alleviation of poverty.

3.1.2. Mission
he mission of the Institute is to establish 'an academic and institutional setup' to develop the capabilities of Micro-Credit institutions and other stake holders for an efficient and sustainable Micro-Credit sector in Bangladesh and other countries through training and research and to provide a platform for advocacy. The

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Institute seeks to provide these services in an efficient, socially responsive, transparent and sustainable manner that encourages experience, resource sharing and the promotion of the industrys best practices.

3.2. OBJECTIVES & ACTIVITIES To conduct research on Micro-Credit and its effect on the economy, poverty alleviation,
lessening of inequality and vulnerability, To collaborate with national and international agencies and universities in research/other professional activities like training, experimentation, and academic degree programs in Bangladesh and other countries,

To design, develop and manage the activities of Micro-Credit institutions (MFIs) in

Bangladesh,

To develop and maintain database on the global Micro-Credit operations,

To organize seminars, workshops and conferences independently and/or jointly with other institutions in Bangladesh and other countries,

To initiate, undertake and arrange training programs for Micro-Credit professionals and
practitioners from home and abroad,

To set standards, prepare guidelines, and formulate policy documents for the Micro-Credit
sector, and

To offer an academic degree program in Micro-Credit jointly with leading universities of the
country.

3.3. GOVERNANCE

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The Institute is governed by a two-tier governance structure Governing Body and General Body. The basic governance lies with the Governing Body, which comprises of seven members including the Executive Director of the Institute as an ex-officio member. The Executive Director (ED) is the Chief Executive Officer (CEO) of the Institute. Professor M.A. Baqui Khalily, Department of Finance, University of Dhaka, is the first and current Executive Director of the Institute. Dr. Wahiduddin Mahmud, Professor, Department of Economics, University of Dhaka, and Chairman, PKSF, is the current Chairman of the Governing Body of the Institute. The other members are: Dr. Muhammad Yunus, Managing Director, Grameen Bank and Nobel Laureate for Peace 2006; Dr. Mahabub Hossain, Executive Director, BRAC; Mrs. Tahrunnesa Abdullah, Adviser, Democracy Watch Dr. Quazi Mesbahuddin Ahmed, Managing Director, PKSF; and Dr. Nasreen Khundker, Director, CIRDAP. The seven members of the Governing Body are also the members of the General Body. There are two other members in the General Body. They are Dr. M.A. Hakim, General Manager, PKSF and Dr. M.A. Latif, Director, Research and Knowledge Management, InM.

4.3 Current Staff of InM:

Name

Designation

Professor M.A. Baqui Khalily Dr. Muhammad Abdul Latif Touhid Uz Zaman

Executive Director Director (Research & Knowledge Management) DeputyDirector (Research & Knowledge Management)

Dr. Md. Mosleh Uddin Sadeque Director (Training & Administration)

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Md. Abdul Hye Mridha

DeputyDirector (Training & Administration)

Ashok Kumer Das

DeputyDirector (Finance & Accounts)

Kazi Shaila Sharmin

AssistantDirector (Finance & Accounts)

Ifrat Jahan

AssistantDirector (Admin)

Mohammad Monirul Hasan

AssistantDirector (Research)

Rubayyat Hashmi

AssistantDirector (Research)

Md. Abdul Khaleque

AssistantDirector (Research)

Badrun Nessa Ahmed

AssistantDirector (Research)

Mohammad Sarwar

Nasir

Uddin AssistantDirector (Research) AssistantDirector

Md. Tareq Ferdous Khan (Research) Sk. Jabeer Al Sherazy Shahadat Hossain Tahmina Rahman Officer (MIS & Knowledge Management) Officer Officer (Executive Secretary to the ED)

3.4.4. Governing Body

Chairman

Prof. Dr. Wahiduddin Mahmud

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Executive Director

Prof. M. A. Baqui Khalily

Members 1. Prof. Dr.

Muhammad Yunus

Grameen Bank 2. Dr. Quazi

Mesbahuddin Ahmed

Managing Director Pali karma-Sahayak Foundation (PKSF) 3. Begum

Tahrunnessa Abdullah

4. Dr. Mahabub Hossain Executive Director BRAC 4. Dr. Nasreen Professor

Khundker

Department of Economics
University of Dhaka

3.5. MANAGEMENT
InM is managed and run by dedicated workforces, led by the Executive Director at the helm. For executing and conducting its various activities it recruits staff, researcher, experts, trainers and others permanently or for a specific period on contract. There is a pyramid hierarchy in running its day to day activities. Dr M A Baqui Khalily, Professor of the Department of Finance, the University of Dhaka, is the first and current Executive Director of InM. An International Advisory Board will be constituted to support the development and growth of InM. Distinguished

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professionals, development practitioners, and academic and research scholars will contribute to designing and implementing the academic and research programs of the Institute.

3.6. MAJOR ACTIVITIES

During the brief period since its inception in November 2008, InM has been involved in research, training, and seminar/workshop, despite its limited capacity. InM disseminates findings of research and studies through seminar and symposia, and reviews and creates knowledge through dialogue, exchange of views and workshop involving cross-section of people, including the stakeholders in Micro-Credit and poverty alleviation process. As a part of developing and managing Micro-Credit knowledge, InM is building a specialized archive on Micro-Credit, a data bank on national and global Micro-Credit programs, and publishing books. In less than three years, it has established its own library and documentation center, and launched its own website featuring latest developments of the institute and the sector. 3.6.1. Research: The major focus of researches is on Micro-Credit, poverty and development issues. InM conducts research studies independently and/or jointly with distinguished researchers and institutions from home and abroad. The research activities conducted at InM are of following types in relation to finance of this research/ studies: Research studies financed by InM, Research studies financed by jointly by InM & others, and Research studies financed external sources.

The research initiatives of InM may be put as follows: 3.6.1.1.Completed research: 3.6.1.1.Completed

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Monga in Greater Rangpur: Intensity, Coping, Vulnerability, and the Impact of Mitigating Strategies, Overlapping in Micro credit Programs in Patrail Union, Tangail, Impact of PRIME Interventions at the Household Level, and Micro insurance, Poverty and Vulnerability.

3.6.1.2.On-going research: 3.6.1.2.On-going

Is Lending Interest in Micro-Credit Sector Really High? , Baseline Survey of FSVGD & UP Beneficiaries Project of PKSF, Promoting Micro enterprise through Micro-Credit, Urban Micro-Credit in Bangladesh, Access to Financial Services, Micro-Credit and Poverty, Internal Female Migration in Rural Bangladesh: An Effective Household Coping Strategy,

Health and Nutrition among the Beneficiaries of Micro-Credit Institutions (MFIs) in Rural Bangladesh,

Searching for an Explanation of Differences in Poverty Levels and Trends at Subnational Levels,

Governance of Micro-Credit Institutions in Bangladesh, Understanding the Poverty & Resource Dichotomy: An Enquiry into the Livelihood of any Backward Community in Resource Rich Areas of Bangladesh, and

Micro-Credit and Agriculture in Bangladesh.

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Besides a number of research proposals submitted by scholars and think tanks to InM. The proposals are reviewed by independent think tanks or individual scholars. InM except on reject the proposals on the basic of review comments of the independent reviewers. 3.6.2. Dissemination: Dialogue, Seminar & WorkshopThe dialogues/ seminars/workshops so far organized by InM may be listed as follows: 3.6.2.1. Dialogue Discussion with Top MFIs, Dialogue on Micro-Credit, Education and Research, and Dialogue with the Training Service Providers on Building Capacity of the MFIs.

3.6.2.2. Seminar Impact of PRIME Interventions, Global Food Crisis: Causes, Consequences and Policy Choices, State of Micro-Credit in Bangladesh: What Do We Know? , Micro insurance, Poverty and Vulnerability: A Concept Paper operationalizing Pro-poor Growth, and Toward an Efficient and Sustainable Micro insurance Market: The Regulatory Perspective. 3.6.2.3. Workshop Micro insurance and Poverty, Regulation of Micro-Credit Institutions: Dialogue for Better Understanding, Subjective Well-being and Poverty in Rural Bangladesh, Understanding Growth and Poverty: Is there a South Asian Model?, and

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The Growth and Development of Micro-enterprise in Bangladesh.

3.6.3. Publications: The institute has started publishing different publications, such, as (1) Bangladesh Micro-Credit Statistics. (2) Annotated bibliographies- Compiled by InM are as follows:

Annotated Bibliography Series No. 1: Micro-Credit in Bangladesh, Annotated Bibliography Series No.2:Vulnerability, Poverty Seasonality, Food Security
and Micro-Credit, Annotated Bibliography Series No. 3: Rural Finance, Annotated Bibliography Series No. 4: Micro enterprise Development, Annotated Bibliography Series No. 5: Micro-insurance, and Annotated Bibliography Series No. 6: Social Protection. (3) State of Micro-Credit in SAARC Countries1. Bangladesh, 2. Nepal, 3. India, 4. Srilanka, 5. Pakistan, and 6. Afghanistan. 3.6.4. Knowledge Management: As part of knowledge management activities, InM has been using Internet and Internet-based different utilities, managing MFI data base, physical library, and publications and documentations; such as:

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Local network: To provide access to the resources available in the network a fast Ethernet based Local Area Network (LAN) has been set up in the institute,

Internet facilities: At present by using a 512 KBPS dedicated bandwidth internet connectivity radio link services has been achieved,

Website: A 1000 MB web space has been allocated and people are able to browse the site globally and get updates from it,

Intranet: As one of the objectives of the institute is to reduce the use of paper significantly an Intranet site is under construction in the institute,

Database: Statistical Database of NGO/MFIs (400 NGO/MFIs) data of member/borrower/income/expenditure etc. (time series 2000-2007),

Library NGO/MFIs: Constituted with printed materials of NGO/MFIs (2000-2008), annual reports, financial reports, brochure and other printed documents,

Physical Library: Toward developing a resourceful physical library at present about 400 books, journals, and periodicals have been made available in the library, and

Access to Resources on Line: Access to the resources online has been set up through IP verification, allowing users within institutions to be authenticated automatically for easy access to full-text services from any terminal on their local area network.

3.6.5. Training: Inadequacy of knowledge and skills at all levels of the Micro-Credit sector is seen essential for the proper growth of the sector. Enhancing skills through imparting training help builds human resources needed in the sector. Alongside the Micro-Credit personnel InM provides training to the development practitioners, journalists, senior executives of different MFIs, policymakers, regulators, government officials and international agencies. In addition, it acts as a facilitator in

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capacity building of the existing training institutions. InM has a plan to organize training programs for the participants even from outside Bangladesh. The major areas of training InM embanks upon include: TOT for training service providers, 1. Training for MFIs to building their capacity (advocacy), and 2. Training for others (journalist, civil society, Govt., Semi Govt.). Some initial steps are taken before precede the training activities are as follows: Need assessment; Constituted a high power committee (Training Expert Committee) and ;

Module development (Micro-Credit operation and management)

-Basic book keeping for NGOs, -Participatory managerial skills and management style, -Monitoring & evaluation for NGOs, and -Legal & regulatory system and governance. 3.6.6. Academic Program: InM will offer M.S. or M.B.A. degree in Micro-Credit and MIS jointly with the University of Dhaka and/or selected number of private universities. It will also give certified professional training to MFI professionals and any person interested in the field of Micro-Credit. The aim of this program is to provide students with a broad overview of the main issues in Micro-Credit theory and policy to introduce them to the analytical approaches and tools necessary to understand the problems of the institutions in the Micro-Credit sector. These programs will produce competent graduates able to continue, through planning and management, to the development and better management of the Micro-Credit institutions.

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3.6.7. Intern Services: InM has an internship program under which interns from the leading local, national and also from international universities are allowed to work with InM. InM allowed the intern who has the granted academic qualification, such as, undergraduate, graduate & post graduate student from reputed university. The internship basically exists for three months, more or less, depends on the type of the internship. 3.6.8. Internal & External Collaboration: The Institute will establish a collaborative relationship with leading national and international institutions. It seeks to collaborate with international organizations/ agencies with a view to participating in global poverty reduction movement. The objective of such collaboration will be to learn from others, exchange views, and for joint work with others. As such, InM has been collaborating with Micro credit Summit Campaign (MSC).

3.6.9. Collaboration
One of the major objectives of the Institute of Micro-Credit (InM) is to disseminate the past, present and future information and knowledge available in the Micro-Credit sector to the general population of Bangladesh. In order to do that, InM will have to collaborate with many national and international organizations and academic institutions. With this view, InM has already collaborated with the following organizations:

3.6.9.1. Collaboration with National Institutions

3.6.9.1.1. Collaboration with PKSF

Institute of Micro-Credit is to implement its goals and objectives for the Micro-Credit sector of Bangladesh, has built a strong relationship with Palli Karma-Sahayak Foundation (PKSF), the leading wholesale credit lending organization of Bangladesh. InM intends to continue its collaboration with PKSF in the long-run in terms of research, training and knowledge

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dissemination for the development of the Micro-Credit sector. As a part of this collaboration InM has been involved in three separate research studies with PKSF. The studies include: Identification of monga affected households in greater Rangpur, Overlapping of Micro-Credit programs, and Assessment of the Impact of PKSF interventions on Sustainability of Partner Organizations (POs).

3.6.9.1.2 Collaboration with Grameen Bank and Grameen Trust

InM has been collaborating with Grameen Bank and Grameen Trust from the beginning of its inception. The organizations have been contributing to the resource development of InM and generously gave complementary copies of all of their publications. Beside this, Grameen Trust has sponsored a research study on Lending Interest Rate of the Micro-Credit Sector in Bangladesh.
3.6.9.1.3.

Students of Independent University Bangladesh (IUB) and United International

University (UIU) went to 12 districts across Bangladesh to collect data on a research project titled Is Lending Interest Rate of Micro-Credit Organization High? An In-depth Examination' a joint project initiated by Institute of Micro-Credit and Grameen Trust.

3.6.9.2. Collaboration with International Institutions

Institute of Micro-Credit wants to be the precursor of Micro-Credit sector of Bangladesh all over the world. In that view, InM has already been collaborating with Micro-Credit Summit, through exchange of information and data on the Micro-Credit sector of Bangladesh. InM will also participate in the Regional Micro-Credit Summit, to be held in Islamabad, Pakistan in March, 2008.

3.7. Recourses

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3.7.1. Data Bank: InM is currently in the process of collecting annual financial and organizational data from over 800 MFIs all over Bangladesh. With these data InM wants to build the most comprehensive data bank on MFIs of Bangladesh. The bank will expand both horizontally and vertically. Data will be available for selected users subject to prior approval from web manager. 3.7.2. Library: In its effort of knowledge management in the Micro-Credit sector, InM will build a comprehensive library containing text books, journals, reports, working papers of foreign and Bangladeshi researchers, practitioners and academicians. To provide a free flow of knowledge, InM will operate an e-library on Micro-Credit and poverty, so that young researchers from home and abroad can access research materials with minimum of effort.

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Chapter-4

Project Part (Analysis and Findings):

Lending Procedure of Micro-Credit Institutes in Bangladesh

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The term "Micro-Credit institution" refers to those organizations that are characterized by their commitment to assist poor families, micro entrepreneurs and impoverished women in gaining access to financial services. Micro-Credit institutions differ from traditional banks since they developed innovative lending techniques in order to overcome all the obstacles that low-income borrowers are facing such as lack of collateral and no credit history. Those techniques include: group lending, small loans with progressive lending and frequent repayment installments. In particular, group lending is an enforcement mechanism widely used in Micro-Credit and it reduces adverse selection and moral hazard trough peer pressure and the threat of group sanctions against the individual borrower. The fear of loosing eligibility to further loans improves discipline inside the group, reduces strategic default, and it ensures loan repayments. In Bangladesh women constitute about half of the population, the majority of them are underprivileged, under-nourished, illiterate and poor. In their lifetime, they experience two fold realities: one determined by a culture and tradition that tends to keep them inside family homesteads and the other shaped by increasing poverty that forces them outside into wage employment for economic survival. According to the 1999/00 labour force survey (LFS) the labour force of Bangladesh was estimated at 60m. More than 20m are women. There are not enough employment opportunities for women. Therefore, economic activities through selfemployment became essential for potential working women. There has arisen a new class: the women micro-entrepreneurs. Though there has been substantial participation of women in the off-house activities, yet Bangladesh women still have not been able to impose a controlling authority in mainstream production.

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Conceptually, Micro-Credit can be described as collateral-free small loans offered to poor households to generate self-employment in income generating activities based on group lending methodology. The loan term is usually for one year. Saving programs play an integral part of the credit program. Micro-Credit , broadly known as Micro-Credit has evolved in Bangladesh over the past 20 years as an important sector of development. In wider terms it includes micro insurance, microenterprise etc. Delivering Micro-Credit to the poor and poorest still is basically a Non Government Organization- Micro-Credit Institution's ( NGO-MFIs) activity. More than 90 per cent of borrowers are women. About 13m poor people are under Micro-Credit program (MCP) coverage. Besides NGO-MFI, Government initiatives through formal sector banks, are providing services to target poor people. On the other hand, a range of support groups spawned. Growth of NGO-MFIs has led to the establishment of two new institutions in Bangladesh: Palli Karma-Sayahak Foundation (PKSF), and the Credit and Development Forum (CDF). The two institutions are extending very useful support to MFIs MCP. PKSF is an apex financing organization providing credit and institutional development funding to NGO-MFIs, while CDF is a network of NGO-MFIs. It provides need-based training and customised service to its member NGO-MFIs.

4.1. Socio-Economic Status of the Members

In most cases, socio economic status of the members is very poor. Most of them live under poverty level. Their family members vary from three to five and the average is three. That is they are not aware of family planning. Monthly average income is between 20000-2500 tk but in most cases it is 2200tk. So, they lead a miserable life and unable manage balanced diet for themselves and their family members. For want of money and managing their family, they send their

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children to works instead of going school. So, most of the children can not take free primary education. Sometimes very few of them may cross the primary school boarder but a very few of them may pass higher secondary school level. But now a days, with the bless of Micro-Credit organizations, these poor people can solve their monetary problem by taking credit and for that some poor boys and girls are keeping foot in higher study. As they can not take balanced diet, they suffer from malnutrition diseases regularly. But they prefer to go to quack for treatment for want of money and unconsciousness regarding health. In average, earning members of these families varies from one to three most of who are engaged in agriculture, small business or works as a day labor. Usually they have no own capital and sometimes they borrow money from their relatives and Mohazon at a high rate and lead their family selling labor. In villages the members have a permanent resident but in urban areas members do not have own resident. As they are the owner of only 50 decimal land so, they take lease others land to lead their family. Their houses are made Tin or straw or mud. As their average income is very low and market price is very high so, their all earnings is spent to buy daily commodities and they can not save for future and future generations. Most of the family rear goats or cows and poultry for getting milk, meat or egg and cow dung. However, they can not consume it rather they sell these products for financial solvency. They plant vegetables and fruit trees also on their yard. They use tub well water for both drinking and cooking purpose but wash their cloths in pond or canal water.

4.2. Pre-conditions to be a customer.

1. A person who has land of not more than 50 decimal except home stead can be a member. But it may be 100 decimal in barren areas.

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2. Members average income will be maximum tk 4500 in rural area and tk 5500 in urban area. 3. These members have no own capital and sometimes they borrow money from their relatives and money lender at a high rate. 4. Members lead their family selling labor. 5. Numbers of members a team will be 20-30. But at starting it may be 10 and it may vary from 25 to 35. More than one team may be formed in a village. 6. It is ensured that any one is a member just of one team or an organization. 7. Age limitation of members is 18-55 years. If any one is above 55 years, his physical health is considered. Usually an unmarried woman is not made a member. However, if any one takes responsibility of the unmarried woman, she become able to be a member and the unmarried is made a member. But in this case, it is ensured that she will pay all her borrowed money before she gets marry or any one will pay it in favor of her. 8. Members not interested in using money at any productive purpose, are discoursed. Physically enabled husband and wife get priority. 9. Physically disabled, mad or abnormal are not made member.

4.2. Team formation

4.3. Team management

The success of Micro-Credit depends on Selection of perfect members. o Lending to profitable projects. Regular follow-up.

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And discipline.

Good relationship among team members and discipline in the team is an important matter of a team management. The root of Micro-Credit program is discipline. For proper management, there is a president, a secretary and a cashier in a team. They are selected or elected by the participation of members and indirect participation of LO. Every after two years, they are selected or elected and it is mandatory. Their duration of duty is two years. But if it is necessary, they may be changed before this time. None can be a president or a secretary or a cashier in a team for more than two terms. All the decisions off all meeting are necessary to be written in the resolution book and at the same time the signature of all presence should also be necessary. Side by side of their signatures, the regulation regarding all types of collections, withdrawn or refunds and loans must be written as per rules.

4.4. Team / Meeting Conducting

1. A weekly meeting is arranged at a fixed place at a certain day. This place is called collection center. 2. At all meetings, presence of all members is expected. But it is taken positively if 80% of all members are present in the meeting. 3. In case of an old team, members can change their meeting place. 4. Meeting is conducted by the president and LO. 5. Every member compulsorily deposits at least ten taka (it is prefixed by organizations). But members can deposit more. 6. All types of cost (ex. regulation book, rubber sill, sign board, mat etc.) is borne by members. 7. If any disorder arises in the team, it is the duty of members to bring discipline. 8. If any member falls into any trouble, all members try to solve that.

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9. If any one makes problem in backing money, LO gives responsibility on the president of the team. 10. LOs must interchange their teams in every six months.

4.5. Process of loan approving

1. At first a person becomes a member of a Micro-Credit organization. Then he may apply
for loan on that day in a printed form of the organization and it is submitted to LO. 2. LO will submit it to the BM of the concern area before four weeks for approving the loan. 3. BM supervises the house of the applicant. 4. Both LO and BM speak to neighborers of the applicant and judge the physsibility of his proposed loan. 5. Finally according to the principal of loans and advances BM approves for loan or cancels it. 6. Usually team leader (ic.president) puts his signature on the application form. If he does not agree to do it, any family member of the member can put signature. 7. In case of town, most of the members are nonresident. In this case a signature of land lord is taken as certainty. However it is not a must.

4.6. Determination of amount of Credit Limit 4.6.1. First Phase:

In most Micro-Credit organizations, the highest limit of credit for new members is around tk.10000.00 at villages, tk.15000.00 at Upa-zillas and tk. 20000.00 at districts level. This limit is

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not crossed but any amount below this limit may be approved. This limit depends on some conditions like attitude, behavior and purpose of loan.

4.6.2. Second and further phases

Repaying the first phase, considering socio-economic and communication condition, capability of member, saving rate and amount of past credit and credit limit usually second and further credit limit is determined. In general in this stage credit limit increases than past from tk.10003000. Competent use of loan and ability to back are considered more and usually every year credit limit is increased. Here it is ensured so that no member takes loans from different organizations.

4.7. Procedure of determining credit limit:.

There are two ways of determining credit limit.

4.7.1. Based on deposit Without any deposit none can get any loan. So deposits that are considered for determining
credit limit are termed as considerable deposit. The followings are considerable deposit. GPS APS Fixed deposits Deposits that are doubled in seven years. Monthly profit based deposits.

Based on the considerable deposits, credit limits usually stands to 150% of total considerable deposit. At the same time, one's normal credit limit (tk.10000.00 at villages, tk.15000.00 at Upa-

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zillas and tk. 20000.00 at districts level) is determined. Based on the two, one may get the higher of the two. For example, Mrs. Korimon's normal credit limit is tk.15000.00. On the other hand her considerable deposit is tk.12000.00.Besed on considerable deposit her credit limit stands tk.12000.00*150%=tk.18000.00. As tk.18000.00 is higher than that she would get tk.18000.00 or any amount below it as credit. On the other hand, if her considerable deposit is tk.5000.00 or less she would get tk.15000.00.

4.7.2. Based on past credit limit

In this system one will take her first loan and pay all with service charge within 37 or 45 weeks. After that if she wishes to take loan for second time, AM can increase credit limit up to tk.2500.00 more or ZM can increase credit limit up to tk.5000.00. For example, Mrs. Korimon took Tk.20000.00 as first loan and she has finished her loan in due time. Then she would get tk.(2000000+2500.00)=22500.00 or (20000.00+5000.00)=25000.00 as loan 4.8. Interest Rate on Credit This report does not contain any detailed information on interest rate on loan. However, the results by a questionnaire served to some licensed and non-licensed MFIs it is observed that NGO-MFIs usually charge 11-15% flat interest on loans for a term of one year, which would be around 24-30% per year if calculated on a declining balance method. Under the flat interest method, MFIs charge a flat rate of interest for the total amount of loan at the beginning of the loan disbursement and prepare a repayment schedule of equal installments. However, the real effective rate turns out to be higher depending on the terms and conditions of loan such as upfront deductions on loan, number of installments, mode of payment etc. Usually, loans for oneyear term are paid back by 45-46 weekly installments. Some loans are repaid by monthly

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installments and some are just by a single installment. The survey shows that if other terms and conditions are not considered, effective rate of interest on general loan ranges from 25-33%. Among them, 75% institutions range falls under 28-30% and modal value is 29%. If deductions for savings and insurance during loan disbursement are considered, the effective interest rates would be even higher.
TABLE -1: Interest Rate of Micro-Credit

Effective Interest Rate (Usual Range) Considering Sl. No. 01 02 03 04 05 06 loan disbursement. General Micro-Credit (Rural 28-70% & Urban 2 Micro-enterprise Loan Ultra poor Loan Agricultural Loan Seasonal Loan Disaster Management Loan 28-65% 22-28% 28-65% 28-55% 2.46-21% disbursement 25-33% 26-40% 22% 22-33% 26-33% 2.56-21% Types of Loan savings and insurance during deduction during loan deduction for Without considering any

A concrete policy guideline on interest rate for loans is felt to be a serious need, preparation of which is ongoing now. Defining a standardized way to calculate interest rates, standardization of loan contracts and repayment schedules, proper disclosure of information are major concerns.

4.9. Loan Repayment/Installment Collection Method (Principal and Service charge together)
4.9.1. Determination of amount per installment

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First total payable amount is determined adding principal with service charge. That is payable amount=Principal+ Service charge. Interest is calculated on a Declining Balance Method and such calculation is disclosed to all concerned. For example let, Mrs. Korimon has taken 1000 taka loan. Then her service charge will be 110 (11% of principal). So her total payable amount will be tk.(1000+110)=tk.1100. She will have to pay all with in 37 weeks. Taka per installment is (1100/37) tk. = 37.

4.9.2. Time of first installment

In most cases, first installment is received on the next week of loan allocation. A few organizations collect installment from second week i.c. after fourteen day of loan allocation. ASA's view is that if a loaner gets fourteen days he/she can invest it in any business and earns profit. From profit he/she will pay his/her loan. Off course, vary recently MRA has circulated that first installment will be not before fourteen days after allocation of loan. However, MicroCredit organization can allow any time more than fourteen days.

4.9.3. Grace Period

Usually most of the Micro-Credit organization would give a grace period of only seven days which was harmful for the loaner to start his/her income generating activity. So MRA has circulated that there will be a grace period of a minimum of 15 (fifteen) days between the date of loan disbursement and the repayment of the first installment. The MFIs may, however, decide on a longer grace period depending upon the nature of business of the client. The minimum number of installments for an average loan (of one year tenure) would be 50 (fifty). If the repayment date is a holiday, the client will be able to make payment of the outstanding installment along with the next installment. But till today the organizations calculate their grace period in the following way: First installment on 14th day=2 weeks

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Two holidays in to Eids =2 weeks Others (Govt. holiday, delivery, sickness) =2 weeks So, total no of grace period is 6(six) weeks. Though MRA has circulated that the minimum number of installments for an average loan (of one year tenure) would be 50 (fifty), Micro-Credit organizations allow 37 week as installment. So a member get (6+37)=43 weeks for repayment.

4.9.4. Method of Installment

At the of loan disbursement a deed is made called credit deed in which method of installment is mentioned. Installment methods are of two types. In general, a credit deed is made that the loaner will Pay installment every week and the amount of taka will be equal in every installment. In another type of deed, it is mentioned that a loaner can back all credit with service charge any time of the year or he/she can back it by any installment in any amount. But he/she will have to pay it with in the year.

4.10. Bad debit:

It is an unexpected and bitter experience. It starts by one or two member, later it increases gradually in a group and affects on all activities. In particular, group lending is an enforcement mechanism widely used in Micro-Credit and it reduces adverse selection and moral hazard trough peer pressure and the threat of group sanctions against the individual borrower The fear of loosing eligibility to further loans improves discipline inside the group, reduces strategic default, and it ensures loan repayments. However, some bad debit is occluded.

4.10.1. Causes of bad debit:

In mecrocredit bad debit is almost impossible. It has some causes. We have found the following are the major causes. 1. Fault in team formation:

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Making member beyond targeted group. Collecting members from far place. Influence of big gun in team formation. Making a woman a member whose husband is characterless. Old aged membership.

2. Fault in team conducting and management. Nepotism Less control loan

4.11. Evolution of MFIs industry

Within the Micro-Credit industry, the majority of MFIs are subsidized, either by governments or by NGOs. According to the MRA, although there are over 254 Micro-Credit institutions (MFIs), serving over 160 million poor people in our developing country, but they only reached 4 percent of total potential market. In the recent years there has been a tremendous growth in the number of Micro-Credit borrowers, growing over the past five years, between 25 and 30 percent annually and it is expected a similar growth in the coming years. Micro-Credit industry is segmented, ranging from very small NGOs with few clients to large institutions with millions of clients and it is a highly concentrated industry. One need only consider that the median share of the largest MFI in a country is one third of the entire market and the median share of the top ten MFIs is about 95 percent of the all industry. The Micro-Credit investment market is also growing in size and maturity and it is increasing the need of investors for transparency through market research, data provider and analysis of MIFs.

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4.5. Findings:
After completion of this project paper, there are few findings I want to mention below.

Micro-Credit institutions have developed innovative lending techniques which includes group lending is an enforcement mechanism widely used in Micro-Credit and it reduces adverse selection and moral hazard trough peer pressure and the threat of group sanctions against the individual borrower. The fear of loosing eligibility to further loans improves discipline inside the group, reduces strategic default, and it ensures loan repayments.

Micro-Credit is a collateral-free small loan offered to the poor for one year. Saving programs play an integral part of the credit program.

Generally, socio economic status of the members are very poor, live under poverty level, large family, average income is between 20000-2500 tk, lead a miserable life

A person having not more than 50 decimal (100 decimal in barren areas) except home stead, average income maximum tk 4500 in rural area and tk 5500 in urban area, may be a member. Age limitation of members is 18-55 years.

A team is formed with 20-30 members. But at starting it may be 10 and it may vary from 25 to 35. Usually one team is formed in a village.However,more than one team may be formed in a villag.

For team management, a president, a secretary and a cashier is selected/elected by the participation of members and indirect participation of LO for two years. None can be a president or a secretary or a cashier in a team for more than two terms.

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A weekly meeting at collection center is conducted by the president and LO. All types of cost (ex. regulation book, rubber sill, sign board, mat etc.) is borne by members and any disorder in the meeting is managed by the members.

After being a member one may apply for loan to the BM through LO with a signature of the team leader. Than BM supervises the house of the applicant and approve or reject the application.

In most Micro-Credit organizations, limit of credit for new members is around tk.10000.00 to tk.15000.00. For the old members credit limit increase every year from tk.1000-3000 considering socio-economic and communication condition, capability of member, saving rate and amount of past credit and credit limit.

Based on the considerable deposits, credit limits usually stands to 150% of total considerable deposit.

Hwever, the results by a questionnaire served to some licensed and non-licensed MFIs it is observed that NGO-MFIs usually charge 11-15% flat interest on loans for a term of one year, which would be around 24-30% per year if calculated on a declining balance method.

Total payable amount is determined adding principal with service charge. In most cases, first installment is received on the next week of loan allocation. However, Micro-Credit organization can allow any time more than fourteen days.

At disbursement a deed is prepared called credit deed in which method of installment is mentioned. Installment methods are of two types: weekly basis and one installment in a year

Bad debit starts by one or two member and increases gradually. But, group lending, an enforcement mechanism widely used, reduces it. The fear of loosing eligibility to further

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loans improves discipline inside the group, reduces strategic default, and it ensures loan repayments.

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CHAPTER-5

Conclusion and Recommendation

Conclusion
Access to credit and other financial services is important for growth, investment and development, yet few small businesses or individuals are able to get the access they need. Poverty reduction through growth requires a focus on the indigenous private sector, composed of a myriad of micro, small and medium enterprises are the primary source of jobs and economic

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opportunities. Micro-finance institutions (MFIs) have grown under the pioneering work of nongovernment organizations. Basically MFIs have two basic functions: financial intermediation and working as a development agents. . In most cases MFIs provide credit to marginal farmers or marginal beneficiaries. But it is not enough for development because now mid size beneficiaries are suffering from capital. So moving from financing marginal farmers to mid size or even large farmers would require how we meet this basic challenge for MFIs in the future. The foregoing points suggest that real customer service through commercialization should be the bottom line for moving forward. In a competitive environment, customer satisfaction and commercialization should be the driving force for survival and growth. The Micro-Credit regulation in the country is now underway, which will provide a legal basis and streamline the current and future MFI activities. To reap the benefits of commercialization, the clients should be allowed to exercise their free choices. They should be granted liberty to do their own financial management in order to increase their net worth. While, the financial intermediaries will require mandate for providing a wide range of financial operations. It is expected that the ensuing regulation will promote good governance and prudential management in NGO-MFIs, help protect depositors, improve access to finance, preserve the innovations and variety, integrate MicroCredit with formal financial system.

Recommendation
Micro-Credit organizations provide loan to poor people. In exchange of it they take interest or service charge but it is enough high for the poor. It must be reduced to a notable point. Initially they provide a very small amount of highest tk. 10000.00 or any amount below it which

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sometimes can not help the poor enough to start a business or any income generating activities. This limit should be high and it should be up to the ability of the beneficiary that he can repay. Some Micro-Credit organizations work with just credit disbursement. But they dont give any idea of income generating activities. Not only that but also they have on follow up that does he/she do any income generating activity or not. They are satisfied with their repayment installment. They should give up this way. Because is polluting the objective of Micro-Credit program. So they must go after their members for their survival and sustainable development of members. Precondition to be a member is to have not more than 50 decimal (in rural) or 100 decimal (in barren) areas except home stead. But at present this first condition should not be longer as present day demand has increased Bachelor women do not get credit without the consent of guardian. It is a great draw back of Micro-Credit lending procedure which is against the empowerment of them. Micro-Credit Regulatory Authority should impose rules so that Micro-Credit organizations be bound to give loan to bachelor women. According to the provision of the Micro-Credit Regulatory Authority(MRA)Act 2006, no private organization (NGO-MFIs) is permitted to operate Micro-Credit activities in Bangladesh without obtaining license from Micro-Credit Regulatory Authority (MRA). But only 540 Micro-Credit organization has got license. On the other hand more than 3000 Micro-Credit organization is running their Micro-Credit operation. So MRA should be strong in implementing its rules and regulations. Otherwise poor people may be cheated in savings. They may have to pay more interest or service charge. Micro-Credit has enormous potential as a tool for poverty alleviation. However there is significant risk in Micro-Credits often uncritical adoption. This risk is compounded by the

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systematic failure of many Micro-Credit institutions (MFIs) to engage the communities where they work in the process of designing and evaluating Micro-Credit programs. Credit disbursement is a target oriented job for credit worker. This is one of the greatest causes of bad loan. So they should give a flexible time limit. Some credit program should be run without or with low interest to encourage the poor meritorious as MIF should make some examples of social responsibilities. Otherwise people or next generation will know them just an interest taking institute. Different Micro-Credit institutes of a locality should share information of their members so that one can not take credit from more than one institute. To promote agriculture lending through MFIs would require understanding of the peculiarities of rural and agriculture sector namely-Geographic dispersion, Heterogeneity of the people, Covariant risk, Lack of risk reducing institutions ( no insurance market),Insecure property rights. The poor people who are the customers should be treated well and perceived as king. Financial services offered by an MFI must be designed in response to the needs and capacities of the clientele. Terms and conditions of loan, savings and other products should respond to the particular needs of the client group. More importantly, products should be tested before launching in the market to gauze the perception of the customers on the suitability of the new products.

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Appendix

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Appendix-1: Questionnaire
I, the student of EMBA program (Dept. of Management Studies) of 11 th batch, am doing a report on the changing IT platform in Trade Service Division of Eastern Bank Ltd. I would be grateful if you help us by filling this questionnaire. Questionnaire to identify the socio-economic of the borrowers:

1. How much is the monthly income of the members of your organization? a) Max.tk.4500 b) Max.tk.4000 c) Less than tk.5000 d) Less than tk.4000

2. How much is the monthly expense of the members of your organization? a) Max.tk.4000 b) b) Max.tk.3500 c) Less than tk.4500 d) Less than tk.4000

3. How much is the monthly savings of the members of your organization? a). Max.tk.500 b). Less than tk.500 c) Less than tk.1000 d). No saving

4. How much save their social right? a) Bad b) Good c) Batter d) Not saved

5. What percentage of your members is permanent in their residence? a) >50% b) >70% ac) >80% d) 100%

6. How many members of a family are earning member? a) 1 b) 2 c) At least 1 d) At least 2

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7. Most of members live on . a) Agriculture b) Small business c) Service holder a) Agriculture

. 8. No. of houses of yours members is/are? a) Max.2 b) Max.3 c). Not more than 3 d) 1

9. How many live stocks do the members have (on an average)? a) Max.5 b) Max.10 c) Less 10 d) Less than 5

11. How many of the live stocks are developed? a) Max.2 b) Max.1 c) 1 or 2 d) No

12. How many of the members follow scientific method for the live stocks? a) Max.500 family b) Max.100 family c) Less than 500 family d) No family

13. If members are attracted by disease they usually go Vill. Doctor b) Govt. hospital c) Private doctors chamber 14. What percent of the members use save water in all house hold works? Osza

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a) >80%

b) >90%

c) >70%

d) 100%

Questionnaire to identify the characteristics of an area to start a new branch

1. To open a new branch which of the followings does you consider? Number of.. a). Poor people b). Poor family c). Service family d).Businessman

2. Which type of organization do you consider? Number of a).Govt. organization b). Private organization c). NGO d). Social organization

3. In case of servicing bank which of the followings do you consider? a).No. of banks . 4. Do you consider the facilities and position of hat and bazaar? a). Yes b). No b). Distance of the bank from the projected area c). No. of private bank d). No. of govt. bank

5. Do you consider the no. of educated people in the projected area? a).Yes b). No

6. Which of the business size do you consider? a). Big b). Small c). Medium d). All

7. We rush there, where --------types of business are available? a). Only big b). only small c). Only medium d). Both small and medium

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8. Which of the following educational qualifications do you consider in case of business people? a). Primary school pass b).Secondary school pass c). Higher secondary schools pass d). Educational qualification is not mandatory.

9. You go where, there is__________ type of communication. a). Paka road b). Semi paka road c). Mud road d). Any one

10. Area of a branch depends on________. a). No. poor people b).No. of business man c). Both d).Others

Questionnaire to find out the path of recovering loan.

1. After how many days of allocation of the loan first installment is collected? a).7 days b).14 days c). 15 days d). 1 month

2. Installment is collected on_________ day. a). Any day b). Meeting day c). Any day in the week 3. Number of installment is. d). Any day in the month

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4. If any member fails to pay his installment on due day what he does?

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