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Flexible lending boosts income, savings

Finds research on microfinance programmes

Star Business Report
Flexible microfinance programmes contributed to positive growth in income, savings and consumption of the extreme poor, according to the findings of a research by Institute of Microfinance.
The number of participants in the research was 600 who borrowed money from two organisations — Come To Save and People Oriented Program Implementation, associate partners of Plan Bangladesh. Another 150 samples were taken for 'control group' who did not participate in the microfinance programme of the organisations.
MA Baqui Khalily, professor of finance at Dhaka University, conducted the research with three fellows in the remote villages of the north of the country.
During a presentation on the research findings at PKSF office yesterday, the researchers said that tradi-
tional microfinance firms follow more rigid ways to disburse and collect the loans. The borrowers have to collect and pay the instalments on due date and sit for group meeting.
The research addressed the microfinance programme of Plan where the borrowers can deposit or repay any time within the certain timeframe. It also has the provision of 4 percent rebate if the borrower pay the loan within six months. If borrowers fail to pay the loan in six months, 14 percent interest is slapped for full year.
Flexibility is considered the key to success of microfinance programmes, according to the research. Baqui Khalily said: "The extreme poor like this flexibility in loan repayment and deposit of Plan and it positively affects the earnings of this bottom line segment."
Using the benefits of flexible loan, a good number of people have upgraded
their earnings that ultimately increased their savings, he added.
In the research, the total 600 samples were clustered into five categories from rich to the extreme poor and the status was assigned on the basis of land, houses, occupation and livestock occupied by the group.
Another 150 samples of the control group were taken for comparison who were not operative under the microfinance programme of the Plan partners.
Using the flexible model of Plan, about 79 percent of the extreme poor upgraded their status and this change was nominal for the rich.
Quazi Mesbahuddin Ahmed, managing director of Palli Karma-Sahayak Foundation (PKSF), and Edward Thomas Espey, country director of Plan International Bangladesh, also spoke.