MICROFINANCE IN BANGLADESH: EVALUATING THE INSTITUTION
- Area of Honors:
- Bachelor of Science
- Document Type:
- Thesis Supervisors:
- Bee Yan Roberts, Thesis Supervisor
- David Shapiro, Honors Advisor
- The objective of my thesis project is to evaluate the different aspects of the microfinance sector and determine whether this strategy is effective in alleviating poverty. I chose to focus on Bangladesh because of its rapidly growing microfinance sector which is considered to be one of the fastest and most efficient in the world. However, there is evidence that people remain excluded even with the presence of microfinance institutions (MFIs). MFIs provide small loans to impoverished people to help them start businesses and escape poverty. Certain aspects of the microfinance model make it difficult to reach the very poorest of the poor. My research addresses several key facets of the microfinance model like group lending, frequent repayment installments, and an emphasis on women. While these features can hinder the full effect of microfinance loans, they are necessary for MFIs to remain self sufficient. Loans granted to poor people are considered to be more risky and expensive. In order to achieve profitability, microfinance institutions must account for this and take measures to reduce the risk of default. I also focus on several key debates in the microfinance sector like the use of subsidies, emphasis on saving, and competing incentives. Ultimately, I concluded that, while there are suggestions for improvement, microfinance is an effective method for alleviating poverty. While traditional microfinance may not reach the very poorest of the poor, MFIs consistently reach individuals with a severe credit constraint. Microfinance is not the solution to poverty but it is certainly an effective tool for poverty alleviation.