What does BRAC stand for?
When BRAC started in rural Bangladesh as a small-scale relief and rehabilitation project, it was called the Bangladesh Rehabilitation Assistance Committee, which was later changed to Bangladesh Rural Advancement Committee. Since then we have expanded across the country into not only rural but also urban areas. We have also recently taken our programmes to other countries in Asia and Africa. Therefore, at this time, the name of our organisation has been changed to simply BRAC, which is no longer an acronym.
Why is BRAC’s approach to microfinance unique from other approaches?
One of BRAC’s economic development interventions is microfinance. BRAC launched microfinance activities in 1974 to encourage the increase of income for the poor through the setting up and expansion of income generating activities and micro-enterprises. Like some of the other microfinance institutions (MFIs) operating in Bangladesh, BRAC’s microfinance programme provides collateral-free financing and door-to-door service to collect loan instalments from its members.
However, BRAC’s microfinance programme differs from other microfinance programmes in several ways, which include:
Access to comprehensive package of development programmes – BRAC’s holistic approach to development encompasses a range of programmes in economic, social and human rights development, education and health. Clients of any of BRAC’s interventions, including microfinance, can easily access all other BRAC programmes and services. It must be mentioned here, however, that participation in any BRAC programme is not restricted to BRAC microfinance members, but is open to all eligible members of the community.
The credit ladder - Recognising that there are different degrees of poverty, BRAC’s microfinance programme offers various types of loans, targeted towards different poverty groups. Its largest credit programme, called Dabi, gives loans to poor borrowers. Dabi borrowers can graduate to the next level of the programme, called Unnoti, which provides a higher range of micro-credit facilities. A third credit programme, Progoti, provides larger loans to micro-entrepreneurs to finance and develop existing businesses. The ladder also extends to reach the extreme poor with non-credit programmes, such as the Targeting the Ultra Poor (TUP) programme.
Backward and forward linkages - With its credit-plus-plus approach, BRAC has developed an integrated set of services that work to strengthen the supply chains for each of the enterprises that its members invest in. These include backward linkage services, such as training on improved techniques, provision of improved breeds and technology, supply of technical assistance and inputs, as well as forward linkages, such as storage facilities for produce and marketing of finished goods. BRAC has set up and trained extensive networks of extension workers and volunteers, who provide key services, such as technical assistance, conservation and maintenance. Examples include BRAC’s cadres of poultry and livestock vaccinators. In addition, BRAC has also established a number of commercial ventures, which are strategically linked to its development programmes and act as safety nets, protecting BRAC members from facing market failures. An example of such a linkage is the BRAC Dairy and Food Project, which provides a market for BRAC’s Village Organisation members who have invested their loans in cows. By buying milk from these women at a fair price, the Dairy and Food Project ensures that there is a constant and steady demand for the output of these rural entrepreneurs. Backward linkages on the dairy chain would include BRAC’s artificial insemination programme, which provides farmers with hybrid cows that yield more milk, as well as BRAC’s livestock feed mills, which provide high-quality feed to ensure proper growth of livestock. Members taking loans to buy cows receive training on proper care and maintenance of livestock.
Continued innovation – BRAC’s programmes are dynamic interventions, which are continuously monitored and their processes and impacts evaluated. BRAC is one of the only development organisations in the region with its own Research and Evaluation Division (established in 1975), which works to help us improve our existing programmes and develop new interventions, such as the groundbreaking Targeting the Ultra Poor Programme.
Is microfinance the only thing that BRAC does?
No, microfinance is not the only thing that BRAC does. BRAC’s unique, holistic approach encompasses a range of activities in health, education, human rights and legal services, as well as social and economic development. Today, BRAC has emerged as the largest NGO in the world, employing more than 100,000 people and reaching 126 million people worldwide through its development interventions.
What is the difference between microcredit and microfinance?
Microcredit refers specifically to loans and the credit needs of clients, while microfinance covers a broader range of financial services that create a wider range of opportunities for success. Examples of these additional financial services include savings, insurance, housing loans and remittance transfers. The local MFI might also offer microfinance plus activities like entrepreneurial and life skills training, and advice on topics such as health and nutrition, sanitation, improving living conditions, and the importance of educating children.
Can very poor people actually start and run a successful business?
Absolutely. Many poor people have skills that can quickly become an income producing activity. With small sums of money, they are able to purchase the inventory, supplies and tools needed to start or expand micro-businesses that range from weaving, sewing, grinding grain, reselling produce, growing and selling vegetables, to catching and selling fish, raising chickens to sell eggs, and breeding livestock. We also help the rural poor start technology oriented micro-businesses, such as selling cell phone time to other villagers, which also provides valuable means of communications and access to vital information. These small ventures can grow into vibrant community businesses.
Do very poor people repay their loans?
Yes, microfinance clients are excellent credit risks. The repayment rate is 99.31 percent. In fact, it is higher than the repayment rate of student loans and credit card debts in the United States. They value the opportunity to improve their lives.
Do people really get out of poverty?
Microfinance is not a silver bullet. It will not defeat global poverty by itself. But, it is an important part of the solution. Microfinance provides a stable and sustainable source of income that enables clients to climb steadily out of poverty, while providing better living conditions and opportunities for their families. For some, that progress means moving from a house made of mud to one made of wood. For others, it means better nutrition and the money to finally send their children to school.
I’ve heard that MFIs charge a high rate of interest for the loans. Is that so?
Like other financial institutions, microfinance institutions (MFIs) charge interest for the loans they make to their clients. The interest covers the high cost of making very small loans and personally servicing each client each week. It also covers the cost of managing the “centre meetings”, the peer support group process, and providing information on social services, personal development, health and other important topics that help clients improve their lives and the future of their families. The rates are also largely influenced by the rates MFIs themselves pay for borrowing the funds, which they in turn lend to their clients. MFI interest rates can range from 18 to 60 percent, depending on the conditions in each MFI’s service area. Without microfinance programmes, the most common alternative for very poor people is the local “money lender,” who usually charge interest between 120 and 300 percent.
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