History of microfinance in Bangladesh: A life cycle theory approach

Abstract

This study aims to conceptualise and document the historical evolution of microfinance in Bangladesh using the life cycle theory (LCT). Based on the LCT nomenclature, the microfinance sector in Bangladesh shows characteristics broadly consistent with the saturation phase (2006-2015)-which potentially has adverse impacts on both microfinance clients and institutions. The maturity phase (1996-2005) of microfinance has corresponded with competition and several innovations (financial and non-financial). However, the saturation phase sees increasing presence of uncoordinated microfinance institutions and expansion of multiple borrowing, as well as commercialisation and 'mission drift' , which constitute important challenges for the regulatory authority and management of microfinance institutions.

Full text

BUSINESS HISTORY, 2017
https://doi.org/10.1080/00076791.2017.1413096
History of micronance in Bangladesh: A life cycle theory
approach
Md AslamMiaa,b, Hwok-AunLeec, VGRChandrana, RajahRasiaha and
MahfuzurRahmand,b
aDepartment of Development Studies, Faculty of Economics and Administration, University of Malaya,
Kuala Lumpur, Malaysia; bThe Centre for Poverty and Development Studies, Faculty of Economics and
Administration, University of Malaya, Kuala Lumpur, Malaysia; cISEAS Yusuf Ishak Institute, Singapore 119614,
Singapore; dDepartment of Banking and Finance, Faculty of Business and Accountancy, University of Malaya,
Kuala Lumpur, Malaysia
ABSTRACT
This study aims to conceptualise and document the historical
evolution of micronance in Bangladesh using the life cycle theory
(LCT). Based on the LCT nomenclature, the micronance sector
in Bangladesh shows characteristics broadly consistent with the
saturation phase (2006–2015) – which potentially has adverse impacts
on both micronance clients and institutions. The maturity phase
(1996–2005) of micronance has corresponded with competition
and several innovations (nancial and non-nancial). However,
the saturation phase sees increasing presence of uncoordinated
micronance institutions and expansion of multiple borrowing,
as well as commercialisation and ‘mission drift’, which constitute
important challenges for the regulatory authority and management
of micronance institutions.
1. Introduction
Formal and informal nancial institutions targeted at providing services to the masses have
evolved signicantly over the years. However, most formal nancial instruments are prof-
it-driven. It is for this reason that they tend to neglect the poorest segment of society who
have little means of meeting their collateral requirements. Informal instruments, such as
borrowing from friends, family members and neighbours are quite common. Both formal
and informal moneylending exist, but the poor are either discouraged by exorbitant interest
rates or often become victims of such high and poorly regulated rates. Also, the absence of
commercial banks in the rural areas of poor countries leaves the poor vulnerable to the
activities of lightly regulated moneylenders. In light of these shortcomings, microcredit
became a major breakthrough. Developed by Professor Muhammad Yunus in 1976, micro-
credit oers the poor in Bangladesh a vital means to access credit. The success of microcredit
© 2017 Informa UK Limited, trading as Taylor & Francis Group
KEYWORDS
Microcredit and
microfinance; microfinance
institutions; multiple
borrowing; life cycle theory;
Bangladesh
CONTACT Md Aslam Mia mdaslam.mia@siswa.um.edu.my
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