----- Micro-finance require new strategy: Present Strategy Can Not Help
Despite a wide range of development programmes, including the trail-blazing micro-credit scheme, more than half the population are still trapped in the shackles of poverty — a situation that reflects ‘serious flaws’ in the country’s poverty alleviation strategy. Acknowledging such reality, the finance minister, AMA Muhith, said on Tuesday that the nation’s long fight against poverty should enter a final stage within the next 20 years and micro-credit would be used as one of the weapons to overcome the plight of the poor. ‘The pace of poverty reduction has not matched that of the human development in our country. There are some serious flaws in the [poverty reduction] strategy,’ he observed while inaugurating a two-day seminar on ‘Microfinance Interest Rate and Transparency’ at Palli Karma Shahayak Foundation.
He defended the microfinance institutions for criticism against them about excessive interest rates and blamed ‘half-educated pundits’ for making sweeping remarks about interest rate.
‘Some people castigate them as Shudkhor [hedge-financiers] for charging excessively high interest. That is not true,’ Muhith told the function presided over by senior economist and chairman of the institute Wahiduddin Mahmud. However, the prime minister, Sheikh Hasina, vehemently criticised micro-credit lenders in 2007 when Nobel Laureate Muhammad Yunus attempted to float a political party. ‘There is no difference between those who take bribe and those who charge high interests,’ she was quoted to have said. Describing the huge micro-credit operations in
The seminar’s opening also highlighted the 25 percent or more interest rate which should be reduced. Most of them however said the rate must be market based .If this is the position taken we feel that micro-finance can not help in reduction of poverty. We remember that micro-credit in
Micro finance can be based on Qardul Hasan principle where the client will be paid fund for business or self employment to be returned after a period in installments ( essentially because they are hard core poor and the objective is to remove poverty ) and the administrative cost will be borne by the NGO out of charity fund or cash-waqf fund or Zakat fund. This would necessitate establishment of Charity fund based on donations from various donors, foreign or national . Simultaneously Zakat fund and Cash-Waqf fund can be established. The Non –Muslim NGOs can also work on the same basis except that they have to depend on charity fund. Micro-Finance has to be low cost. Otherwise it will not serve the purpose. It should not be made a profit making venture and it should not be made a capitalist venture. Micro-finance can be based on Mudarabah, Murabahah or Bai Muazzal basis also but it will be more practical at this stage to organize on Bai Muazzal basis ( supplying appliances, goods for self employment or small business on deferred payment basis )The NGOs will receive back the principal and a profit ( difference between the buying and selling price of the goods and appliances given.).
It can also be totally Zakat based. In that case Zakat collected should be given free to the clients , an amount which is sufficient for self-employment or small business .There should be supervision so that they use it for getting out of poverty. The administrative cost also should be met from Zakat. Grameen model has some weaknesses. The amount of loan is too small, the payment cycle is short , the gestation period is non-existent. We suggest that the finance amount to clients should be moderately increased to make the finance a viable proposition, realization should start after three months and the re-payment cycle should be longer to make it more easy for the poor. NGO’s should also have arrangement for short term loan for clients who face disaster or serious sickness (in the form of Qardul Hasan as the matter relates to poor or hard-core poor).We should make Micro – finance movement as a way out from poor-unfriendly , profit conscious, value-free capitalism ...
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