Impact of Microfinance on Living Standards, Empowerment and Poverty Alleviation of Poor People: A Case Study on Microfinance in the Chittagong District of Bangladesh

University essay from Umeå universitet/Handelshögskolan vid Umeå universitet; Umeå universitet/Handelshögskolan vid Umeå universitet


Microfinance is not a new development. Its origin can be traced back to 1976, when Muhammad Yunus set up the Grameen Bank, as experiment, on the outskirts of Chittagong University campus in the village of Jobra, Bangladesh. Since then several microfinance institutions came up and have succeeded in reaching the poorest of the poor, and have devised new ground-breaking strategies with time for the fulfillment of their vision. These included the provision of collateral free loans to poor people, especially in rural areas, at full-cost interest rates that are repayable in frequent installments. Borrowers are organized into groups and peer pressure among them, which reduced the risk of default. Microfinance is now being considered as one of the most important and an effective mechanism for poverty alleviation. These are also effective mechanisms through which to disseminate precious information on ways to improve the health, education, legal rights, sanitation and other living standards, which are of relevant concerns for the poor. Above all, many micro-credit programs have targeted one of the most vulnerable groups in society – women, who live in households with little or almost no assets. By providing opportunities for self-employment, many studies have concluded that these programs have significantly improved women's security, autonomy, self-confidence and status within the household.

Our thesis is about microfinance and to investigate the impact of microfinance on the poor people of the society with the main focus on Bangladesh. We mainly concise our thesis through client’s (the poor people, who borrowed loan from microfinance institutions) perspective and build up our research based on it. Therefore, the objective of this study is to show how microfinance works, by using group lending methodology for reducing poverty and how it affects the living standard (income, saving etc.) of the poor people in Bangladesh. So on the light of our research objective; we have developed our research question, which is:

What is the impact of Microfinance on living standards, Empowerment and poverty alleviation of the poor people in Bangladesh?

We consider ourselves between the Positivist and Interpretivist researchers. Because, our main goal is not only to find out the mechanism of microfinance in Bangladesh, but also to find out that how this mechanism helps poor people to improve their living standards as: income, savings etc. By doing so, we believe that it will give us an upper hand, specially when it comes to finding answers to the questions raised in the problem statement.

One of the most important aspects of microfinance is savings mobilization, which is discussed in the theory part. Besides these, microfinance methodology, solidarity, human development and liquidity are also discussed in the theoretical framework.

Several microfinance institutions are working in Bangladesh for the last few decades. Grameen Bank, BRAC, ASA and PROSHIKA are some of the prominent MFIs in Bangladesh. These institutions are working tremendously to the empowerment, poverty reduction and improvement of living standards for the poor people in Bangladesh. Now, they are not only working in Bangladesh but also providing help and support, and are the source of motivation to other MFIs around the world.

We have chosen our sample based on the random sampling technique, from one district (Chittagong) in Bangladesh and we interviewed the people who are already involved in microfinance activities. Therefore, the accuracy of the analysis heavily relies on the data provided by the people, we interviewed.

From the analysis of data, we found that microfinance has the positive impact on the standard of living of the poor people and on their life style. It has not only helped the poor people to come over the poverty line, but has also helped them to empower themselves. There is an argument that the interest rate of MFIs is high, but we traced that most of the respondents of our interview, did not agree on this issue and found it to be reasonable. Inspite of the debate about higher interest rate, MFIs are contributing not only in alleviating the poverty and improving the living standards of the poor people, but also in offering extensive human development programs in Bangladesh.

  AT THIS PAGE YOU CAN DOWNLOAD THE WHOLE ESSAY. (follow the link to the next page)