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Microfinance challenges: empowerment or disempowerment of the poor?

Isabelle Guérin
Jane Palier

Part II - Microfinance in its environment

11. Emerging women micro-entrepreneurs in Bangladesh: the “missing middle”

Parveen Mahmud

Texte intégral

1Bangladesh is one of the poorest, most densely populated countries in the world with a population of about 130 million. According to the latest statistics, 23.39% of the population is concentrated in urban areas, while 76.61% live in rural areas. The 1999/00 labor force survey (LFS) states that Bangladesh’s labour force of was estimated at 60 million. Of these, more than 20 million are women. Women constitute about half of the total population, and the majority of them are underprivileged, undernourished, illiterate and poor. They face conflicting realities: one, determined by a culture and tradition that keeps them homebound and the other, shaped by increasing poverty that forces them out into the world seeking wage employment for economic survival. However, since employment opportunities for women are rare, opportunities for self-employment are essential for their economic well-being; collateral-free microcredit, or microfinance, based on the Grameen methodology, aims to serve this purpose.

2Delivering microcredit to the poor and the poorest is basically a Non-Government Organisation-Microfinance Institution (NGO-MFI) activity. Donors, government initiatives through formal sector banks and government Ministries also provide services to poor people, either directly through a project or in partnership with NGO-MFIs. The growth of NGO-MFIs has led to the establishment of the Palli Karma-Sahayak Foundation (PKSF), an apex financing organisation that provides credit and institutional development funding to NGO-MFIs, which in turn provide microcredit to the poor. Savings and credit as a package has steadily been promoted for over 20 years in the semi-informal sector of the economy, especially in the rural areas. Microcredit also includes a large range of services such as micro-insurance and micro-enterprise support.

  • 143 The rate of exchange is U.S.$1 = Tk. 58.

3Over the last two decades, access to microcredit has encouraged and created scope for self-employment in rural, non-farm, activities. In 2000, an estimated 16.5 billon Takas143 in loans was disbursed by 582 NGO-MFIs to be invested in various sectors of the rural economy including small business (14%), livestock (21%), crop production (13%) and food processing (7%) (Credit and Development Forum 2003). With more than 90% of microcredit borrowers being women, there is no doubt that microfinance has helped the emergence of a new class: women micro-entrepreneurs.

4However, in spite of the success and efficiency of Bangladeshi microfinance, which is recognised worldwide, one category of clients still has limited access to financial services; the “missing middle” between microcredit and formal banking services constitute the most credit starved part of the country. This paper concentrates on the progressive microcredit borrowers, and the marginally poor “missing middle”, who have the potential to be micro-entrepreneurs, provided they receive appropriate support from NGO-MFIs, the government and donors.

1. Who are the missing middle?

5Generally, micro-enterprises under microcredit programmes of NGO-MFIs are the expansion of income generative activities (IGAs) of graduate or progressive borrowers. Graduate borrowers, who are left in a vacuum, with neither the MFIs nor the commercial banks showing any interest in financing them for collateral, cost and risk considerations are the “missing middle”. The financial sector in Bangladesh is highly segmented, with the formal banking system providing services mainly to the relatively affluent, and MFIs targeting the poor (typically those with less than 0.5 acres of land). Small and middle farmers and enterprise owners–those who are “relatively better off” to avail of MFI credit but not well to do enough to access the formal banking system–face a dearth of options in obtaining credit services. Consequently, although informal financial intermediaries (local moneylenders, friends and relatives) have declined in importance, they continue to account for nearly 20 percent of the total amount of loans disbursed (World Bank and Asian Development Bank 2003: 32).

1.1. Features of the “missing middle” micro-enterprises

6A distinguished feature of micro-enterprise for the “missing middle” is relative ease of entry. Most of the micro-entrepreneurs go into business on their own after having worked in the same sector for someone else for a number of years, building their technical, managerial and marketing skills to the point where they are prepared to strike out on their own. In addition, during their preparatory years, they save funds to launch small businesses, which may start as a part-time activity. Later on, they may join targeted micro-enterprise programmes of NGO-MFIs, for example, ASA’s small business programme or BRAC’s MELA Programme. Thus, demand for credit of the “missing middle” is also taken care of in a limited way under the microcredit programmes.

7For a regular credit programme, the range of collateral-free credit is from between Tk.2,000-Tk.20,000 for one year. As graduate borrowers move on and gain confidence in handling loans, their average loan amount increases. Loans for micro-enterprise range between Tk.20,000 and Tk.2,00,000.

Box 1. ASA’s microcredit programme

ASA introduced a small business programme in 1998 for progressive borrowers and the “missing middle”, mainly at the local marketplace, and focused mainly on men and competent women who needed access to capital for expansion of their businesses. The initial loan is Tk. 15,000 with a yearly increase of Tk. 4,000-6,000. The term of loan is one year and the service charge is 15% of the total loan. Recently, for graduate borrowers of the small business programme, ASA introduced an experimental, small-enterprise lending (SEL) programme with a loan range of Tk.50,000-Tk.1,50,000 for a period of 12-18 months. The objective is to capture progressive borrowers of small business programmes and cater to the under-served demands of the “missing middles”. The criteria for selection under SEL is to provide employment for a minimum of 1-15 persons in the economic activity, preferably for the hardcore poor in the micro-enterprise.

Source: ASA Brochure.

8At the initial stage of micro-enterprise, there is likely to be very little investment in inventory as well as in fixed assets, and it is operated on a cash basis only. Revenue earnings from micro-enterprise are no different from any other kind of income earned by an individual or household. With scaling-up, micro-enterprise emerges distinctly as an entity separate from that of the owner. Business finances are gradually separated from the finances of the owner and his or her family. Experience from the field shows that as IGAs, the family income is supplemented by other means, while with gradual scaling-up micro-enterprise becomes the main source of family income. But, for quite a substantial time during the scaling-up, it is difficult to distinguish this. The business may be incorporated or conducted as a sole proprietorship, and some level of investment and continuity is anticipated. Successful entrepreneurs can move along towards small and medium enterprise (SME) with greater loan size.

9The types of micro-enterprises operated by women are of the following categories:

  • “Traditional”: Traditional crafts and cottage type activities such as handicrafts (jute, grass, cane and bamboo works), weaving, sewing, knitting, poultry and cattle-raising, making of coir mats and ropes, making “chira” and “muri” (puffed rice), and post-harvest agricultural operations.
  • “Non-traditional”: Rural and informal non-farm activities such as trade and commerce, services, transport and construction.
  • Household or family trade: Food processing, tailoring, hot gram (“chanachur”) production, grocery stores, poultry farm, cow rearing, sweetmeat shops and restaurants. The skills required for this kind of micro-enterprise can be picked up through observation, being associated with on the job training by an older family member or craftsmen in the trade. These skills can also be acquired through informal apprenticeships, school training or special courses. In times of family crisis, the female head can move on with the existing business, even without any formal education or training.

10Micro-enterprises can be individual or family based, and supported by one or two family members. A micro-enterprise becomes full-time employment for graduate borrowers over a period of time. With scaling-up, non-family members might also be employed. Microenterprises tend to generate employment for up to 10 people, including the owner, and help to stimulate a growth-oriented economy. It has been found that at the initial level, when the female spouse was involved in microcredit programmes, a portion of the loan was invested in her husband’s small business. With the increase in loan size, the small business scales up and provides full-time employment for the family or household.

11At present, with higher loan sizes, there is greater interest by MFIs in forming male groups. Also with scaling-up, loan disbursement is drifting towards an individual, rather than a group-based lending approach. There is flexibility in the terms of the loan, with the repayment term extending from the conventional one year to three years. A flexible repayment period adjusted with cash flows has been introduced. Installment repayment periods have been extended from weekly to fortnightly, monthly, and quarterly payments. There is also a trend to de-link the savings programme from the credit programme. As social and rural infrastructures are not favourable towards women’s mobility, with expansion, the involvement of the son or husband in the handling and marketing side of the businesses are observed. Usually, minimum equity participation is required, i.e. 10%-20% of total investment in the expanded IGAs or micro-enterprises might be needed. With scaling-up of loans, collateral-free credit disappears and a security against the loan is required, which can be in the form of a guarantee bond by the borrower or by an acceptable guarantor on behalf of the borrower. In some NGO-MFIs it is customary, if the trade license is under the husband’s name, for the loan to be transferred in his name as well. But, the wife or the whole family takes an active role in the business. An example of this is the BRAC’s MELA programme.

Box 2. BRAC’s MELA Programme

“BRAC launched the micro-enterprise lending and assistance (MELA) programme in December 1996 with a view to providing loans to existing micro-enterprises with high potential for growth. This section of the market, usually referred to as the “missing middle”, remains typically un-served both by microfinance and commercial banks. Yet, the growth of such enterprises can have important poverty alleviation effects though direct employment generation and/or consumption linkages. A MELA loan is between Tk. 20,000-2,00,000. As of December 2000, the programme had 7,665 borrowers and a total of Tk720 million has been disbursed to them. The outstanding stands at Tk. 290 million.

Source: BRAC Annual Report 2000.

1.2. A mix of push and pull factors

12The initial driving force to join microcredit programmes for the majority of female microcredit borrowers is to supplement their existing, insufficient, family income to afford the bare necessities of life.

13PKSF’s experience from the field revealed that among the marginal poor women involved in the family businesses, the percentage of “forced women entrepreneurs”, those compelled by circumstances, is quite high. The prolonged illness or death of the head of the family, and abandonment or divorce by the husband are the main causes for women’s involvement in existing family businesses.

Box 3. Case Study

Firoza Begum, of BRAC’s Rajpara in Rajshahi district, a regular microcredit borrower, had partly invested in the family owned “chanachur” production factory, which has existed for about 25 years. Two years ago, when her husband became mentally ill and was incapacitated, Firoza took up the reins of the family business, learning the techniques of production from her husband. She decided to scale up the IGA and borrowed Tk.50,000-1,00,000 under BRAC’s MELA programme. Apart from her son and herself, five employees are engaged in this micro-enterprise.

Source: Observation during field trip.

14Apart from push factors, some driving and motivational factors for scaling up micro-enterprise loans include education, self-confidence, the involvement of male counterparts, use of larger loans and low household income. Traditionally and culturally, women are not counted as breadwinners and parents do not consider it important to educate girls beyond informal education at home. Early marriage also stops their education. But, now in Bangladesh, especially in rural areas, indications are that this scenario is likely to change for the better, albeit slowly. According to records of the Bangladesh Bureau of Educational Information and Statistics (BANBEIS), as well as survey-based estimates from the latest Household Expenditure Survey (HES) and household surveys by Education Watch, the gender gap in enrollment at the primary and secondary level has been virtually eliminated, notwithstanding problems of enrollment and quality (World Bank and Asian Development Bank 2003).

Box 4. Profile of the micro-enterprises

The World Bank mission visited four of the six small partner organisations of PKSF that are currently involved in micro-enterprise lending (World Bank 2002). They were Bandhu Kalyan Sangstha, Noapara, Jessore, Padakkhep Manabik Unnayan Kendra, Pirojpur, Palli Mangal Karmashuchi, Savar and Participatory Development Initiatives of the Masses, Gazipur. It was found that a little over half the borrowers (58%) were female and the average age of the borrowers is 34 years. The majority of the borrowers had completed primary school (62%) and just under 20% had attended, but not completed, secondary school. Borrowers who have attended secondary school are more likely to have borrowed more than Tk.30,000 compared to those who have not. The average loan size is around Tk. 30,000, the range in the sample being between 20,000-50,000. Land distribution also reflects the fact that microenterprise borrowers are somewhat better off than regular microcredit borrowers. Micro-entrepreneurs are indeed those who have “graduated” from the microcredit programme – the average length of microcredit membership in the sample is four years. Around half the businesses had five individuals providing family labour or employed, while around 10% of the businesses had more than eight individuals involved. The main use of the loan among the 50 sampled micro-enterprises can be grouped into three enterprise categories:
(i) Agricultural activities, specifically poultry, livestock and fisheries: 40%
(ii) Home-based production activities: handicrafts, carpentry, tailoring, blacksmithing, jewelry making, food processing: 38%
(iii) Retail activities, small shop, trading: 22%
The loan typically finances the expansion of a business or contributes to the overall cash flow of the enterprises and in only 5% of cases was it used to start up a new business.

2. Focal issues for micro-enterprise

15Until recently, the objective of micro-enterprise centred on graduation of microcredit borrowers from poor to non-poor status. But presently, many programme women are moving up the scale and they need an environment to flourish. “Poor people are like bonsai trees. They could have grown into giant trees if they had been supported by the right environment for growth” (Yunus 2003). If remedial measures are taken to remove impediments, micro-enterprises may trigger an economic breakthrough and maintain economic growth, especially in rural areas.

2.1. Business Development Service (BDS)

16Derived demand for business development services (BDS) are emerging and in response, service providers are progressing slowly from felt needs. Broadly speaking, the major needs of these services are credit, training, information, technology, marketing and consultancy. Access to adequate funds for credit operations from the informal and the formal sector is a must for micro-entrepreneurs. The scope of the rural non-farm sector should, of course, go well beyond the NGO-MFI-led micro-enterprise sector, for a vibrant economy. The government should also fulfill the credit needs of the land-owning rural classes under the “missing middle”, who are often excluded by the target criteria of the NGO-MFIs. Besides access to capital, technology can help to increase income. But it should be technically simple, adaptable and cost-effective so that less-educated rural women can easily handle it. Intermediate technology can be beneficial. The Intermediate Technology Development Group (ITDG), Bangladesh, for example, is working with this motive. They have developed a simple machine, which is not expensive but increases “chanachur” productivity. The existing training arrangements for female micro-entrepreneurship development are inadequate and have much scope for quantitative and qualitative improvement. Governmental organisations, NGOs, donors and international agencies, through financial, technical and marketing assistance, currently support quite a large number of micro-enterprises. At the micro-enterprise level, demand for BDS services varies according to the size of the enterprise and by sector. NGOs, donors, governments and the private sector are coming forward to provide these services.

2.2. Product Innovation

  • 144 Editor’s note: some MFI have already started such programmes, for instance BRAC.

17The real challenge for the future of women micro-enterprises lies in meeting the need for innovation and diversification in delivery methods and the introduction of new innovative products. For example, with micro-insurance, crop insurance can safeguard microcredit borrowers against unforeseen catastrophes caused by floods, cyclones, tornadoes and droughts, which occur regularly in Bangladesh. To discourage dropouts the microcredit industry needs to try and develop new approaches to help the poorest with appropriate products combining social protection, loan, savings, training, grants of food and micro-insurance144.

2.3. Government / MFI Policy Measures

18As we have seen, MFIs so far targeted mostly the landless poor and nonfarm activities. It is undeniable that MFIs have a key role to play in increasing the outreach of microcredit. However, public policies, both at the local and at the national level, also have a great responsibility. Progress has already been made in some areas, such as the government’s initiative in adopting national policies to facilitate a development process involving women in all spheres, including education facilities for girl children. While by no means claiming to be an exhaustive one, let us list a number of measures that can be undertaken:

  • Training facilities and access to capital funds under various programmes of the government focusing mainly on micro-entrepreneurship development should be reinforced; an example being the Ministry of Industries initiated and USAID-funded Women Entrepreneurship Development Project (WEDP).
  • Enabling policies should help in developing small and medium enterprises out of the current micro-enterprises. To increase outreach, marginal farmers or the “missing middle” should be given flexible loans for crop production, and storage facilities should be available under the BDS scheme.
  • Local government should be strengthened to provide proper administrative support to micro-enterprises, which are active in local markets in rural areas.
  • Finally, at a macroeconomic level, there is a real need to improve the infrastructure: whatever the efficiency of microfinance, infrastructure such as delivery, roads, electricity and telecommunications, especially mobile phones, play a key role in helping to activate small trade and businesses through linkages to domestic urban centres as well as export markets abroad.

2.4. Corporate Social Responsibility (CSR)

19For sustainable development within a country, shared responsibilities between the government and big corporate houses, along with NGO partnerships, can supplement government efforts to fight against poverty. Of late, multinational companies as well as local business enterprises exercised their CSR in varying degrees in local business operations to address different social, need-based programmes on education, health and reproduction. Such efforts are promising and this gives us hope for development at a larger scale in the future.


20Numerous studies have shown that the qualities needed to succeed as an entrepreneur are the same for men and women. The economic and social environment, the educational process, the family background and the priorities of the community, all play a role in the success of the entrepreneur. Women in Bangladesh are socially exploited by restrictions and superstition of various kinds. As a result, they have to put in more labour and combat social obstacles to succeed and continue with their ventures, all the while maintaining a personal, family and social life.

21Microfinance organisations have played a great role in the fight against poverty of women in Bangladesh. However, if we really want to promote women entrepreneurship, a number of additional measures need to be taken. Derived demand for business development services needs to be addressed. The growth of small and medium enterprises out of today’s micro-enterprises can only occur with proper policy measures, innovative financial products, strengthening the macro economic situation, building awareness and a positive attitude among the micro-entrepreneurs about quality and environment, and increasing the supportive role of the local government.


143 The rate of exchange is U.S.$1 = Tk. 58.

144 Editor’s note: some MFI have already started such programmes, for instance BRAC.


Fellow Member of the Institute of Chartered Accountants of Bangladesh (ICAB) and Deputy Managing Director, Palli Karma-Sahayak Foundation (PKSF), (Bangladesh)

© Institut Français de Pondichéry, 2005

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