Microfinanciers: Here for Good

Entrepreneurial ecosystems
Microfinance programmes in Bangladesh first appeared in the mid-1980s and gained traction in subsequent decades. The concept and modality of microfinance soon spread overseas. However, like many good things, the fervent expansion of microfinance largely bypassed the remote chars (riverine land, susceptible to erosion and soil deposition, which remain disconnected from the mainland either seasonally or throughout the year) of northern Bangladesh. 

The goliaths of rural microfinance, including the likes of BRAC, National Development Programme (NDP), and the SKS Foundation, were daunted by how remote and geologically unstable the chars were, considering river-erosion is a constant fact of life in chars. Every other year, the mighty Jamuna, Brahmaputra, Padma and Teesta rivers burst their banks, submerging many chars. Disadvantaged char-dwellers adapt to these harsh conditions by having to relocate frequently. 

This unfortunately means that they can seldom provide collaterals or even permanent addresses to potential lenders. On the other hand, factors like the lack of security while staff travel to chars and higher staff turnover also added to the already higher transaction cost of reaching and serving char-dwellers for Microfinance Institutions (MFIs).

It is not surprising that for many decades only exploitative moneylenders (Dadon, Mahajan) would offer loans to char farmers. They often charged interest rates as high as 10% a month.

MFI officials now say that they are pleasantly surprised by the market response and results. Demand for agricultural loans in chars is robust, hence, many other MFIs are following suit. For instance, Eco-Social Development Organisation (ESDO) has already started their operation in Chars. 

Recently an MFI branch manager from a char has won the ‘Best Performer’ award in his organisation, and with it several performance bonuses as well. Serving char-dwellers is becoming a strategic priority for some MFIs, and it sure looks like they are here for good. 

M4C worked with trailblazing MFIs - National Development Programme (NDP), BRAC, Gram Unnayan Karma (GUK), United Finance (UF) and the SKS Foundation to setup branches on chars and to develop Seasonal Loan Products (SLP). These loan schedules run parallel with seasonal farming activity on the chars. For example, loans become available just when farmers start making input payments or other farm investments. Repayment schedules (monthly/semesterly) consider the fact that farmers will pay with cash from selling harvests/livestock from that production cycle. 

Initially, char-dwellers were excited by the prospect of receiving credit, just when they needed it the most. Batch after batch of borrowers availed the facility to cover input and labor-cost during high-season. So far 15,000 households have received SLP. Char farmers have proven themselves as a reliable borrower-base since loan recovery-rates are comparatively higher than that of the mainland with almost zero cases of default.

However, only disbursing seasonal loans was not enough. Unlike predatory lenders, M4C wanted borrowers to be able to pay back the loans on time. As a result, MFI char branches also conducted market facilitation activities (engaging value chain actors to ensure agro-input/output products and services) thereby improving borrowers’ capacity to repay the loans. Sonia Begum (30), one of the early borrowers in the scheme, still recalls her first introduction to the facility. She received not only credit, but also business advice and training. With training and access to information, Sonia’s livestock business has now flourished. In fact, she and her husband are in the process of acquiring a residential plot on the mainland. 

Mr Ibrahim Hossain

“I was very skeptical when I was assigned to a char branch. To my surprise, the branch has been maintaining ‘zero default rate’ since inception.”

Mr Ibrahim Hossain, Branch Manager (Monsurnagar Char), NDP, Sirajganj 

Making Markets Work for the Chars (M4C) aimed to reduce poverty and vulnerability of northern char households, by facilitating market systems for enhancing opportunities of income generation.

M4C promoted 20 business models and supported 1 500+ service providers e.g. agro-input companies, distributors, retailers, traders, microfinance institutions, etc. to promote 60 services e.g. distribution and promotion of quality agro-inputs, post-harvest/processing information and services, seasonal loans for crops and livestock, etc. 20 of these services targeted women. M4C addressed cross-cutting themes like women's economic empowerment (WEE).


M4C is mandated by the Swiss Agency for Development and Cooperation (SDC) and Ministry of Local Government, Rural Development and Cooperatives and the Government of Bangladesh.