Home Today's Paper Most Popular Video Gallery Photo Gallery
Subscription Blog Signin Register
Logo
Saturday, January 19, 2019 05:13:32 AM
Follow Us On: Facebook Twitter Twitter Twitter Twitter

How low-income Bangladeshis use loans

By
12th-Jan-2018       
Comments
Share your thought
Post a comment »
Read all () »

Stuart Rutherford  :
Bangladeshis have a long tradition of borrowing from family, neighbors and other informal sources. Microfinance institutions (MFIs) have proliferated over the past three decades and offer a more formal loan service that has been taken up with enthusiasm, and today some 25 million Bangladeshis borrow from MFIs.
Rickshaw driver Ram Babu took MFI loans so that he'd have cash on hand to pay medical bills for his sick mother. Credit: Stuart Rutherford But how are these MFI loans used? Do people take them for the same reasons they borrow from informal sources, or do they use MFI loans differently? To help answer questions like these, the Hrishipara daily diaries project tracks all the daily money transactions of a group of poor respondents in central Bangladesh. For 40 of our diarists, we have data for more than two years.
We recorded them borrowing between them 954 times from both MFIs and informal sources, for a total value of 6.7 million Bangladesh taka (about PPP$210,000). Then we watched what happened next. Here are two key observations from the exercise. MFI loans are rarely less than $300 in value, whereas informal loans range from a few dollars up to several thousand. To make sure we compared like with like, we took 50 loans of each kind with a value of at least $300 and for which we have records of the borrower's subsequent transactions.
Perhaps the most striking difference between MFI and informal loans is how soon they are used. Informal loans are spent quickly: Our data show a major expenditure of at least 80 percent of the value of the loan on the same day that an informal loan was taken in almost half the cases, and within one week in all but 18 percent of cases. Two-thirds of MFI loans, by contrast, show no clear corresponding expenditure in the week following receipt of the loan.
When were loan proceeds spent? (%)
To understand why informal loans are used faster, it helps to look at the uses to which the loans are put. Informal loans are most often used for a single purpose, like paying for a ceremony, setting up a business, buying land, dealing with an emergency or paying for work migration. Some MFI loans are taken for these purposes, of course, but they also have other uses. Here are some of them:
· On-lending to others. Seven of the 50 MFI loans, but only one informal loan, were on-lent to others. MFIs usually disburse loans on an annual cycle, so borrowers may get a loan at a time when they have no immediate use for it, leading them to on-lend. It may take time to find a good borrower. The pressure MFI fieldworkers put on clients to accept loans may also lead borrowers to lend them out to others, for lack of other profitable uses for them. This was observed in two of the seven cases. · Repaying debt. Twelve of the MFI loans were used to repay other private or MFI debt, but only six informal loans were used that way (and then only in part). This is often because of the annual loan disbursement rhythm of MFIs. Clients borrow privately for some urgent need at the time it arises, and then, when they are next eligible for an MFI loan, they take it to "refinance" the private loan. MFI loans are cheaper than some private on-interest loans, and some borrowers find it easier to repay MFI loans week-by-week than to find a large lump sum to repay a private loan in full.
· Held in reserve. We were surprised to find how often MFI loans are held at home (or in a shop) as a liquidity reserve, rather than spent. At least 18 of the 50 MFI loans were used in this way, as opposed to two informal loans. For example, Ram Babu is an extreme-poor rickshaw driver with three daughters, a wife and a sick mother to support. He kept taking MFI loans to ensure he would have cash on hand should his mother's health take a turn for the worse. After his mother died, he stopped taking MFI loans. The MFI repayment schedule - small weekly amounts over many months - makes this behavior possible and may well encourage it. It imitates the "little and often" set-asides of regular savings accounts or of informal deposit-takers like the susu collectors of West Africa.
Informal loans are usually taken for a single purpose and used quickly. Some MFI loans are used in the same way, but MFI loans serve other purposes, like refinancing private debt and ensuring that cash reserves are always available. As such, they offer an expensive but attractive substitute for a savings regime. Our findings show how Bangladeshis have learned to use MFI and informal loans in tandem, exploiting the best features of each. Far from consigning informal borrowing to the history books, formal innovations like MFI lending tend to strengthen informal practices.

(Stuart Rutherford, Consultative Group to Assist the Poor (CGAP), a global partnership of more than 30 leading organizations that seek to advance financial inclusion).

Tariff
Add Rate

News Archive

Inside The New Nation

City »

Information Minister Dr. Hasan Mahmud speaking at the extended meeting of Awami League at the party office in the city's Bangabandhu Avenue on Friday.


.

International »

Modi's pre-election handouts to cost India billions, breach fiscal targets


Reuters, New Delhi :A series of vote-catching measures planned by Indian Prime Minister Narendra Modi as he braces for a difficult general election may cost more than 1 trillion rupees ($14 billion), two sources with direct knowledge of the matter said.Much of the cost of the extra spending or revenue ...

Cricket »

Dhoni, Jadhav power India to ODI series victory


Agency :MS Dhoni and Kedhar Jadhav scored half-centuries as India won the third and final ODI against Australia by seven wickets at Melbourne on Friday to seal the series 2-1.Chasing 231 to win, Dhoni (87*) and Jadhav (61*) put together a 121-run partnership to take India home after the bowlers, ...

Entertainment »

Achol returns acting slowly


Sheikh Arif Bulbon :Popular film actress of present time Achol has returned to acting but with the appearance of anger. Her elder sister Moonmoon is attached with the underworld. When she knows the matter she becomes anger. Achol will be seen by this way in Mizanur Rahman Mizan’s movie Ragi. ...

Entertainment »

Zahid, Mim, Ferdous after a decade


Sheikh Arif Bulbon :Zahid Hasan, Ferdous and Bidya Sinha Saha Mim worked together in late writer, novelist and filmmaker Humayun Ahmed directed in a movie titled Aamar Achhey Jol 10 years ago. Though Zahid Hasan and Ferdous worked under Humayun Ahmed directed movies and dramas but Mim for the first ...

Editorial »

Corrupt practice should be stopped in Chattogram Port


THE fraud syndicates in connivance with some dishonest clearing and forwarding (C&F) agents in the last two years released 4,000 consignments from Chattogram Port using forged documents and other illegal ways. News media reported that these gangs stole and misused the identities of two former Customs Officials of the Chattogram ...

Cricket »

Warner to return to Australia from BPL with elbow injury


After Steven Smith, David Warner, too, will make an early exit from the Bangladesh Premier League(BPL). The 32-year-old will return to Australia for medical assessment after having reporting pain in his elbow, Cricket Australia confirmed."David has reported some pain in his right elbow. He will return to Australia on January ...

Sports »

Pliskova fires up to reach Aussie Open third round


AFP, Melbourne :Seventh seed Karolina Pliskova recovered from a slow start to storm home against unseeded American Madison Brengle and grab a spot in the Australian Open third round Thursday.The 26-year-old Czech went down a set before unleashing a devastating flurry of aces and winners in her 4-6, 6-1, 6-0 ...

International »

Vietnam prepares for Kim Jong Un visit amid talks of second summit with Trump


Reuters, Hanoi  :Hanoi is preparing to receive North Korean leader Kim Jong Un for a state visit, two sources told Reuters, while officials and diplomats said Vietnam is keen to host a second summit between Kim and U.S. President Donald Trump.A source familiar with the matter said Kim will travel ...

Editorial »

Ensure ideal working atmosphere for women


THE bike of Shahanaj Akhter, who became a social media sensation recently for her struggle to maintain her family by offering ridesharing services, was recovered from Raghunathpur area in Narayanganj on early Wednesday hours after it was reportedly stolen. Police arrested a Masters student in English Department of Tejgaon College ...

Football »

Struggling Fulham sign Babel from Besiktas


Fulham signed former Liverpool forward Ryan Babel from Besiktas on Tuesday as the Premier League strugglers bid to bolster their spluttering attack and avoid relegation.Netherlands international Babel has joined Claudio Ranieri's side, who sit 19th and five points from safety, until the end of the season and could make his ...

Football »

Awami League President and Prime Minister Sheikh Hasina receiving a football ( as a souvenir) from Senior Vice-President of Bangladesh Football Federation (BFF) Abdus Salam Murshedy, MP, when a delegation of BFF led by its President Kazi Md Salahuddin met her at the Gono Bhaban on Tuesday night.


International »

Brexit deadline could be pushed back on UK request: French minister


AFP, Paris :The European Union could push back the looming March 29 Brexit deadline if London made such a request, France's Europe Minister Nathalie Loiseau said on Wednesday."At the time of speaking, it's just a theory because Mrs May has never asked for it and neither has anyone in her ...

International »

Australian towns among hottest spots on Earth as heatwave sizzles


Australian towns were among the hottest places on Earth this week as a severe heatwave hit the continent's southeast, with forecasters warning of more record-breaking temperatures before the weekend.The past four days were among the country's top 10 warmest on record, with temperatures nearing 50 degrees Celsius (122 degrees Fahrenheit) ...

Entertainment »

Katrina Kaif disagrees with the term ‘item song’


Katrina Kaif has come a long way in the 16 years she has been a Hindi film actor - from being known mainly for her dancing ability, to her acting talent being proved by films such as New York, Rajneeti and Zero. On how this journey has been so far, ...

 
Items that you save may be read at any time on your computer, iPad, iPhone or Android devices.
 
Are you new to our website? Do you have already an account at our website?
Create An Account Log in here
Email this news to a friend or like someone
Email:
Write a comment to this news