Loan Repayment Pressure in the Practice of Microfinance in Bangladesh: An Empirical Study on Grameen Bank, BRAC and ASA

Authors

  • Reazul Islam Research Scholar, Asia Europe Institute, University of Malaya, Kuala Lumpur
  • Mohd. Aminul Karim Senior Research Fellow, Asia Europe Institute, University of Malaya, Kuala Lumpur
  • Rubi Ahmad Associate Prof., Faculty of Business and Accountancy, University of Malaya, Kuala Lumpur
  • Alex Nittoli Master of Arts, Faculty of Languages and Linguistics, University of Malaya, Kuala Lumpur

DOI:

https://doi.org/10.25175/jrd/2018/v37/i4/112814

Keywords:

Microfinance, Repayment Pressure, Loan Default, Loan Trap, Poverty

Abstract

This paper shades light on the ‘loan repayment pressure’, which is allegedly exerted by the Micro-Finance Institutions (MFIs) on their borrowers in Bangladesh. A qualitative study was carried out to assess the experiences of the borrowers, who are engaged with Building Resources Across Communities (BRAC), Grameen Bank (GB) and Association for Social Advancement (ASA). The observations and findings from the in-depth interviews highlight the effects of repayment pressure imposed on the borrowers. This pressure pushes the borrowers into a vulnerable economic condition, while disharmonising their social and family lives.Thus, this study provides a deeper understanding of the repayment issues. So far, very few studies have been carried out in Bangladesh on this particular topic. Findings of this study can add value to the current literature by providing insights on the forced loan recovery technique and its negative effects.

Downloads

Download data is not yet available.

Downloads

Published

2018-12-01

How to Cite

Islam, R., Karim, M. A., Ahmad, R., & Nittoli, A. (2018). Loan Repayment Pressure in the Practice of Microfinance in Bangladesh: An Empirical Study on Grameen Bank, BRAC and ASA. Journal of Rural Development, 37(4), 697–718. https://doi.org/10.25175/jrd/2018/v37/i4/112814

Issue

Volume 37, Issue 4, October-December 2018

Section

Articles
Crossref
Scopus
Google Scholar
Europe PMC

References

Agarwal, Sumit, Brent W. Ambrose, Souphala Chomsisengphet, and Chunlin Liu, (2016), “Joint Liability Lending and Credit Risk: Evidence from the Home Equity Market,†Journal of Housing Economics, 32:4766.

Ahlin, Christian, Jocelyn Lin, and Michael Maio, (2011), (“Where does microfinance flourish? Microfinance institution performance in macroeconomic context.â€) Journal of Development Economics, 95 (2):105-120.

Ahmad, Sohel (2002), (“Service Failures and Customer Defection: A Closer Look at Online Shopping Experiences.â€) Managing Service Quality, 12 (1):19 - 29.

Allen, Treb. 2016. (Optimal (Partial) Group Liability in Microfinance Lending,â€) Journal of Development Economics, 121:201-216.

Ali, Isahaque, Zulkarnanin A Hatta, Azlinda Azman, and Shariful Islam, 2017 “Microfinance as a Development and Poverty Alleviation Tool in Rural Bangladesh: A Critical Assessment.†Asian Social Work and Policy Review 11(1): 4-15.

Argandoña, Antonio (2009), (“Antonio Argandona Ethical Dimention Microfinance.â€) Pathos for Ethics, IESE Business School, Athens, September 10-12.

Aryeetey, Ernest (1998), Informal Finance for Private Sector: Development in Africa, Paper presented at the African Development Report.

ASA. (2016.), “Sustainable Microfinance: ASA Sustainability,†Association for Social Advancement (ASA) Accessed 27 February. http://asa.org.bd/sustainable-microfinance/.

ASA. (2018). “At a Glance: As on March 2018†. Association for Social Advancement (ASA) Accessed 2 May Retrieved from http://www.asa.org.bd/at-a-glance/

Batabyal, Amitrajeet A. , and Hamid Beladi. (2009), “A Model of Microfinance with Adverse Selection, Loan Default, and Self-Financing,†Social Science Research Network, (09-08).

Besley, Timothy, and Stephen Coate. (1995), “Group Lending, Repayment Incentives and Social Collateral,†Journal of Development Economics, 46:1 -1 8.

Bhatt, Nitin , and Shui-Yan Tang. (1998), “The Problem of Transaction Costs in Group-based Micro-lending: An Institutional Perspective,†World Development, 26 (4):623-637.

BRAC. (2015), “BRAC at a Glance,†BRAC Accessed 27 February http://www.brac.net/partnership.

BRAC. (2018). Annual Report and Pubilications Retrieved from BRAC: Accessed 30 April, http://www.brac.net/ images/reports/2016/Bangladesh-Annual-Report-2016.pdf

Breza, Emily (2010), “Peer Pressure and Loan Repayment: Evidence from a Natural Experiment (2010) “.

CiteSeerX Accessed 5 June.

Cambridge-Advanced-Learner’s-Dictionary. (2009), Pressure Singapore: Cambridge University Press.

Churchill, Craig F. (1999), Client Focused Lending - The Art of Individual Lending, Toronto: Calmeadow.

D’Espallier, Bert, Isabelle Guérin, and Roy Mersland. (2011), “Women and Repayment in Microfinance: A Global Analysis,†World Development, 39 (5):758-772.de Quidt, Jonathan, Thiemo Fetzer, and Maitreesh Ghatak. (2016), (“Group lending without joint liability,â€) Journal of Development Economics, 121:217-236.

Dehejia, Rajeev H., Heather Montgomery, and Jonathan Morduch. (2011),“Do Interest Rates Matter? Credit Demand in the Dhaka Slums,†Journal of Development Economics On Press.

Diop, Amadou , Isabella Hillenkamp, and Jean-Michel Servet. (2007) Poverty Versus Inequity- Microfinance and Public Policy, New York, Palgrave Macmillan.

Dixon, Rob, John Ritchie, and Juliana Siwale. (2007), (“Loan Officers and Loan ‘Elinquency’ in Microfinance: A Zambian case,†) Accounting Forum, 31 (1):47-71.

Dorfleitner, G., S. Just-Marx, and C. Priberny. (“What Drives the Repayment of Agricultural Micro Loans?

Evidence from Nicaragua,â€) The Quarterly Review of Economics and Finance.

Dowla, Asif (2001), “Grameen Bank and Women’s Empowerment in Bangladesh: A Review Essay,†Journal of Microfinance, 3 (1):159-169.

Dulal, Hari Bansha , Chris D Gingrich, and Roger R Stough. (2008.),“Do Microfinance Programmes Really Serve the Poor? Evidence from Rural Southeast Nepal,†Journal of South Asian Development, 3 (2):253– 268.

Feigenberg, Benjamin , Erica M. Field, and Rohini Pande. (2010),â€Buiding Social Capital Through Micro Finance†Massachusetts Avenue, Cambridge.

Fenton, Adrian, Jouni Paavola, and Anne Tallontire, 2017. “ The Role of Microfinance in Household Livelihood Adaption in Satkhira district, Southwest Bangladesh.†World Development 92, no. Supplement c (2017/04/ 01/2017): 192-202.

GB. (2014a), “10 Million Bangladeshis Move Above $1.25 A Day “, Grameen Bank Accessed 27 February. http:/ /www.grameen.com/index.php?option=com_content&task=view&id=841&Itemid=.

GB. (2014b), “Grameen Bank: Introduction,†Grameen Bank, Accessed 27 February. http://www.grameen.com/ index.php?option=com_content&task=view&id=16&Itemid=112.

GB. 2018. Grameen Bank: Introduction. Accessed 30 April, retrieved from http://www.grameen.com/ introduction.

Ghatak, Maitreesh (1999), (“Group lending, local information and peer selection,â€) Journal of Development Economics, 60 (27–50).

Ghatak, Maitreesh , and Timothy W. Guinnane. (1999), “The Economics of Lending with Joint Liability: Theory and Practice,†Journal of Development Economics, 60:195–228.

Given, Lisa(2018). “The Sage Encyclopedia of Qualitative Research Methods: Triangulation.†Sage Publications.

Gobo, Giampietro (2004), 26 Sampling, Representativeness And Generalizability. In Qualitative Research Practice edited by Clive Seale, Giampietro Gobo, Jaber F. Gubrium and David Silverman.

Goetz, Anne Marie, and Rina Sen Gufta. (1996) “Who Takes the Credit? Gender, Power, and Control Over Loan Use in Rural Credit Programs in Bangladesh,†World Development, 24 (1):45-63.

Gokhale, Ketaki (2009), “Group Borrowing Leads to Pressure,†The Wall Street Journal.

Gonzalez, Adrian M.A. (2008), “Microfinance, Incentives to Repay, and Overindebtedness: Evidence from a Household Survey in Bolivia,†Doctor of Philosophy, Graduate School of The Ohio State University, The Ohio State University.

Goodwin-Groen, Ruth P. (2002), “Making Sense of Microcredit Interest Rates,†Consultative Group to Assist the Poor (CGAP) Accessed 3-02-2012.

Hashemi, Syed M., Sidney Ruth Schuler, and Ann P. Riley. (1996), “Rural Credit Programmes and Women’s Empowerment in Bangladesh,†World Development, 24 (4):635-653.

Hermes, Niels, and Robert Lensink. (2011), “Microfinance: Its Impact, Outreach, and Sustainability,†World Development, 39 (6):875-881.

Imai, Katsushi S., and Md Shafiul Azam. (2012), “Does Microfinance Reduce Poverty in Bangladesh? New Evidence from Household Panel Data,†Journal of Development Studies, 48 (5):633-653.

Jain, Sanjay, and Ghazala Mansuri. (2003), “A Little at a Time: The Use of Regularly Scheduled Repayments in Microfinance Programs,†Journal of Development Economics, 72 (1):253-279.

Johnson, Susan. (2004), “Gender Norms in Financial Markets:Evidence from Kenya,†World Development, 32 (8):1355–1374.

Karim, L. (2011), Microfinance and Its Discontents: Women in Debt in Bangladesh, University of Minnesota Press.

Kassim, Salina and Md Mahfuzur Rahman. (2008) “Handling Default Risks in Microfinance: The Case of Bangladeshâ€, Munich Personal RePEc Archive (MPRA).

Khan, S. R. and S. R. Khan. (2016), “Microcredit in South Asia: Privileging Women’s Perceptions and Voices,†Progress in Development Studies 16 (1):65-80.

Lahkar, Ratul, and Viswanath Pingali. (2016), “Expansion and Welfare in Microfinance: A Screening Model.†Economic Modelling, 53:1-7.

Li, Xia, Christopher Gan, and Baiding Hu. (2011), (“The Welfare impact of Microcredit on Rural households in China,â€) The Journal of Socio-Economics, 40 (4):404-411.

Mallick, Debdulal. (2012), “Microfinance and Moneylender Interest Rate: Evidence from Bangladesh,†World Development, 40 (6):1181-1189.

Marconatto, Diego, Luciano Barin Cruz, and Eugenio Avila Pedrozo. (2016), “Going Beyond Microfinance Fuzzinessâ€, Journal of Cleaner Production, 115:5-22.

Maykut, Pamela S. , Richard Morehouse, and Richard E. Morehouse. (1994), Beginning Qualitative Research: A Philosophic and Practical Guide, USA, The Female Press, Taylor and Francis Inc.

McKernan, Signe-Mary, Mark M. Pitt, and David Moskowitz. (2005) “Use of the Formal and Informal Financial Sectors: Does Gender Matter? Empirical Evidence from Rural Bangladesh,†World Bank Policy Research Working.

Morgan, D. L. (2008), Snowball Sampling. In The SAGE Encyclopedia of Qualitative Research Methods.

Thousand Oaks, CA: SAGE Publications, Inc.: SAGE Publications, Inc.

Mujeri, Mustafa K. (2015), “Improving Access of the Poor to Financial Servicesâ€, In 7th Five Year Plan (20162020) of Bangladesh, General Economics Division of the Planning Commission.

Naveen, Kumar K. (2012), “Dynamic Incentives in Microfinance Group Lending: An Empirical Analysis of Progressive Lending Mechanism,†SAGE Open:1–9.

Norell, Dan. (2001), “How To Reduce Arrears In Microûnance Institutions’,†Journal of Microfinance, 3(1): 115130. 3 (1):115-130.

Oxford-English-Dictionary. (2012), Pressure Oxford Dictionaries Online: Oxford, UK.: Oxford University Press.

Pretes, Michael. (2002), “Microequity and Microfinance,†World Development, 30 ( 8):1341–1353.

Rahman, A. (2001), Women And Microcredit In Rural Bangladesh: An Anthropological Study Of Grameen Bank Lending, Westview Press.

Rahman, Rafiqur, and Qiang Nie. (2011), “The Synthesis of Grameen Bank Microfinance Approaches in Bangladesh.†International Journal of Economics and Finance, 3 (6).

Serrano-Cinca, Carlos, Begoña Gutiérrez-Nieto, and Nydia M. Reyes. (2016), “A Social and Environmental Approach to Microfinance Credit Scoring.â€) Journal of Cleaner Production, 112, Part 4:3504-3513.

Shankar, Savita (2007), “Transaction Costs in Group Microcredit in India,†Management Decision, 45 (8):1331 - 1342.

Shoji, Masahiro. (2012), “Evaluation of Contingent Repayments in Microfinance: Evidence from a Natural Disaster in Bangladesh,†Developing Economies, 50 (2):116-140.

Siwale, Juliana N. , and John Ritchie. (2012), “Disclosing the Loan Officer’s Role in Microfinance Development,†International Small Business Journal, 30 (4):432–450.

Swain, Ranjula Bali. (2007), “Can Microfinance Empower Women? Self-Help Groups in India,†edited by ADA Dialogue.

Velasco, Carmen, and Reynaldo Marconi. (2004), “Group Dynamics, Gender and Microfinance in Bolivia.†Journal of International Development; ProQuest Education Journals, 16 (3):519-528. doi: 10.1002/jid.1089.

World Bank(2018), Poverty Headcount Ratio at National Poverty Lines (% of population).

Yunus, Muhammad. (2007), Banker to the Poor: Micro-Lending and the Battle Against World Poverty, New York, Public Affairs.

Yunus, Muhammad, (2010), Building Social Business: The New Kind of Capitalism that Serves Humanity’s Most Pressing Needs, New York, PublicAffairs.