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The transformative power of microcredit
SHAMS A MUHAIMIN
In the picturesque countryside of Bangladesh, where lush fields stretch endlessly and rural communities thrive, a silent revolution is brewing. Microcredit has emerged as a beacon of hope, offering rural and suburban populations the financial tools to break free from the shackles of poverty and underdevelopment.
Bangladesh boasts a predominantly rural demographic. According to national surveys, 60.29 percent of Bangladesh’s population resided in rural areas, with the majority of the population reliant on agriculture for their livelihoods.
The rural sector faces a multitude of challenges that hinder its progress. A significant portion of rural households lacks access to formal financial services, pushing them into the hands of informal lenders who often charge usurious interest rates.
Rural poverty remains a pressing issue. Bangladesh’s agriculture sector is susceptible to climate change-induced disasters, such as flooding and cyclones, leading to crop losses and income instability for farmers.
The rural economy is heavily dependent on agriculture, limiting livelihood diversification and making communities vulnerable to economic shocks. Rural areas often lack quality educational institutions, posing a barrier to human capital development.
Microcredit offers a compelling solution to address many of these challenges. It enables rural households to invest in income-generating activities such as small-scale farming, livestock rearing, and micro-enterprises. By connecting rural populations to formal financial services, microcredit fosters financial literacy and encourages savings, reducing dependency on exploitative informal sources of credit. Microcredit enables rural communities to diversify their income sources, reducing their vulnerability to agricultural shocks and enhancing overall economic stability.
In 2022, around 20.5 percent of Bangladesh’s rural population lived below the national poverty line. Microcredit has the potential to significantly alleviate this poverty by enabling income-generating activities.
According to the World Bank, only about 40 percent of the adult population in Bangladesh had access to formal financial services. Microcredit can substantially increase this figure.
Microcredit institutions have been at the forefront of women’s empowerment. According to the Bangladesh Institute of Development Studies, female participation in microcredit programmes positively correlates with household income and improved living conditions.
A study by the International Food Policy Research Institute found that access to microcredit significantly enhances agricultural productivity among rural farmers in Bangladesh.
An analysis of rural consumption patterns reveals that increased income resulting from microcredit often translates into higher spending on education, healthcare, and nutrition, contributing to human capital development.
However, it is essential that microcredit initiatives are well-designed, properly regulated, and tailored to the specific needs and challenges of rural communities.
It is pertinent that financial institutions, mainly banks, should come forward in association with non-governmental organisations and institutions by helping them raise funds or providing them financial consultation advice. Many organisations focus on the development of rural entrepreneurs and sectors.
As we move forward, it is crucial to continue monitoring the progress of microcredit initiatives in rural Bangladesh and adapt them to evolving circumstances. By harnessing the transformative power of microcredit, Bangladesh can unlock the immense potential of its rural areas, bridging the urban-rural divide and fostering inclusive development for all its citizens.
The author is deputy managing director at Prime Bank Ltd