Microfinance: History, Issues, and Case Study of Bandhan Bank

Running head: MICROFINANCE
Microfinance
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MICROFINANCE1
Table of Contents
Introduction................................................................................................................................2
History of Microfinance.............................................................................................................3
Issues in Microfinance lending by banks and Financial Institutions.........................................3
About Bandhan Bank.................................................................................................................6
Issues in the Bank.......................................................................................................................7
Microfinance products and services provided in the bank.........................................................8
Conclusion..................................................................................................................................9
Recommendation......................................................................................................................10
Reference..................................................................................................................................11

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Introduction
Financial sector is one of the most important part of an economy and act as pillar that
supports the economy by providing various financial benefits to the players of an economy.
The major financial help that business get are the loans that help them to run their operations
smoothly and expansion of business. However, the big business houses with good financial
health, better loan repayment record and considerably large amount of net worth and the high
net worth and moderately high income individuals get the opportunity to have loans from
banks and non-banking financial institutions (Sheppard 2013). The primary objective of the
banks and non-banking financial institutions is to make profits by lending; hence, they refrain
from providing loans to less promising business projects and poor sections because getting
repayment from these sections is less probable. Therefore, the poorer section that means
micro, small and medium enterprises in the business sector and poor individuals are not able
to get loans easily and suffer from unavailability of sufficient funds. Considering the issue of
unavailability of sufficient funds for the poor section, the concept of microfinance was
formulated and introduced in the economy (Berisha and Pula 2015). The major two banks
that provide microfinance loan in developing countries are Grameen bank and Bandhan bank,
the former is based in Bangladesh, and the latter is based in India. In this report, the
discussion is made on the background of microfinance that is a brief history of the
microfinance along with its lending issues. The case of Bandhan Bank has been considered
here to discuss the background and function of the bank with emphasis on the issues of the
bank and the microfinance packages it offers. Therefore, after the details study analysis of
microfinance the report suggest the suitable recommendation that might possibly solve the
problem of the issues of the microfinance.

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History of Microfinance
The concept of microfinance has emerged in Bangladesh in 1970’s. After the war of
independence of Bangladesh in 1971, 80% of the total population of the country went below
poverty line and the economic condition of the country suffered a lot (Mia et al. 2019). Thus,
to address the issue of poverty in Bangladesh Mohammad Yunus introduced the concept of
microfinance to boost the economy of the country. Mohammad Yunus formed an institution
that provided micro credit to the poor section of the country, that institution be later named as
Grameen bank. The concept of microfinance has spread in the world in the 1980’s. Bancasol
was established in 1986 by a Bolivian NGO to provide the microfinance or microcredit to the
poor sections of the country (DRISSI and ANGADE 2019). The above history of the
microfinance sector is of the modern day microfinance. However, the concept of
microfinance can be found in the 1800’s in the writings of Lysander Spooner, and where he
mentioned about Friedrich Wilhelm Raiffeisen founded the cooperative bank in Germany to
provide loans to the farmers in the country, which is the first bank of its kind. Microfinance
has been found to be extremely beneficial to the poorer section of the economy so far. From
the beginning of the 21st century, the number of microfinance providing institutions and
banks has increased significantly all over the world. 121 million people out of 150 million,
who were provided with microfinance loans, got benefitted from in between 1997 and 2006
(DRISSI and ANGADE 2019). Out of the total number of beneficiaries, 84 per cent were
women. There are now more than 10000 microfinance banks and institutions in the world.
Thus, it is quite evident from the performance of the microfinance loans that it has significant
impact on the society especially on the poor section of the economy.
Issues in Microfinance lending by banks and Financial Institutions
Microfinance has brought fortune for many poor individuals and micro, small and
medium enterprises, but with the benefits it does to the society, it attracted many difficulties