How Microfinance Improves Living Standards: Grameen Bank in Bangladesh

This dissertation investigates the impact of microfinance institutions, with a specific focus on Grameen Bank, on improving the living standards of impoverished individuals in Bangladesh. The study begins with an introduction to microfinance, its significance, and the background of Grameen Bank, highlighting its role in providing small loans to the poor without collateral. It explores the research aims, objectives, and questions, including definitions, classifications, and the importance of microfinance. The literature review delves into the definitions of microfinance institutions and their functions, citing various sources. The research aims to analyze how microfinance initiatives contribute to poverty reduction and economic development. The dissertation provides an overview of the Grameen Bank's organizational background, its significance in addressing poverty, and the research's purpose, problem statement, and objectives. The research questions explore the definitions, classifications, importance, and theoretical models of microfinance. The literature review provides an in-depth analysis of the impact of microfinance institutions on improving the living standards of poor people in Bangladesh, including the importance of microfinance and its role in providing loans to the needy.

Dissertation

1

TITLE: “How does the development of micro-finance institutions help to
improve the living standard of poor people in Bangladesh. A case study of
Grameen Bank."
CHAPTER 1: INTRODUCTION
1.1 Background to the research
Micro finance is the concept of business work targeted at individuals and small business
concern who need approach to conventional banking and associated facilities. It includes micro
credit which gain attention of large number of poor people towards Grameen bank and reach
with desired goals. An organisation used this method in order to fulfil all needs and requirements
effectively. For long time period, various researchers have been used micro finance activities
which alleviate poverty by developing income and jobs. Micro finance has been increasing
quickly which main goal is to assist group out of poorness and boost economic development
(Bondinuba and et. al., 2016). Its main function and importance has been amplify the global
financial situation when trust into formal banking system. Despite from this, global identification
and quality of micro finance where there is integrated grounds of their net profits and it is very
work on their contributions to financial intermediation and gaining economic growth. Micro
finance refers as a large number of different financial products which includes micro credits,
micro saving, micro insurance and remittance management. For example, UK country micro-
finance institutions helps in making the economic status of development nations effectively. A
micro finance institutions is an organisation which offers business services and facilities to low
income group. This will play an essential part in bridging the space between the conventional
financial organisation and the rural poor (Jose and Chacko, 2017).
The micro finance is directly influence on entrepreneurship and it emphasis the current
research which does not provide sufficient justification for the connection between micro finance
and entrepreneurship development in various developing countries. This is mainly concerned on
gaining financial growth and success in order to reach with desired goals and objectives
effectively. There are various micro finance which are provide loans on increasing entrepreneurs
income and innovation. It is associated with accurate business skills, technologies, information to
be offered by micro finance with careful screening and monitoring in make sure about effective
utilitarian of loan capital. This is based on an assumption which combines the poor into
2

economic circuit, the micro finance was helpful in promoting development and growth. The
origin of Micro-finance has started in the year of 1976 by Muhammad Yunus in Bangladesh. It
has positively effect on poor people as well as societies. Grameen Bank (GB) provides micro-
finance services and facilities for people in the rural areas so that they can use capital for
productive activity and it will being financially stable and independent. The report is based on
Grameen Bank which is micro-finance administration and people improvement bank which is
based in Bangladesh (Najmi, Bashir and Zia, 2015). This makes small loans to impoverished
without any collateral. Along with this, an investigator will understand research aims and
objectives which assist in finishing the study. Literature review describes different writer and
scholarly person views or opinions regarding research topic. It is used for describing and
evaluating investigation project which assist researcher in order to conduct appropriate research
report. In this, data analysis is helpful in examining various respondents views and reviews
regarding bank services and facilities which are offered by them.
1.2 Organisational Background
Grameen Bank is a micro-finance organisation and society evolution bank which was
founded in Bangladesh. This will provide small loans to make improvement without requiring
collateral. Grameen Bank regulated and originated in 1976, who establish a investigation work to
survey how to plan a assets transfer scheme for rendering banking facilities or work to the
agricultural poor. The bank was authorised by national government for modulate and run as an
self-directed bank in Bangladesh. The total number of creditors are around 8.4 million and 97%
are only for women. In the year of 1998, the Bank's “Low cost Housing Program” won a World
Habitat Award. In addition to this, in the year of 2006, the founder of bank who is Muhammad
Yunus were collectively honour the Nobel Peace Price. It was discovered that the bank has
increase its finance from various types of methods and these sources are also changing from time
to time. When this bank was opened, the donor agencies used to give the capital to them in bulk
at low rates (Fofana And et. al., 2015). This bank was basically founded on the principle that
instead of giving charity, taking loans is a better option in order to promote business or
agriculture. Therefore, this bank provides opportunities to people who belong to lower class,
illiterate, unemployed etc. so as to motivate them to do business.
3

1.3 Significance of the Problem
The main issue in this research report is that living standard of poor people which is
situated in Bangladesh. Grameen Bank is micro-finance organisation which assist in developing
and make improvement in living standard of poor individuals. The situation present in that
country needs to be improves otherwise the people living their might face severe issues in near
future. The respective bank require to identify standard of living of people where they need to
develop effective strategies and policies (Garikipati, 2017). It will assist in reducing poverty,
income distribution and achievement of millennium development goals (MDGs). Micro-finance
is reasoned as one of the most essential and effectual execution for poorness alleviation. Once,
the problem is identified then it will become easy for the institution to motivate the individuals to
do business so as to improve their standard of living. For doing business, loans will be provided
to then by the bank.
1.4 Statement of the Purpose
The primary aim of this study is to examine detailed information about people who
required money for living their life along with basic needs. Grameen bank provide capital for
those people who does not survive their life in better manner or who are in the need of money or
who have no hopes of getting money from anywhere to do their business. In Bangladesh, there
are around 26.4 percent people who are living in rural areas and approximately 18.5 percent are
survived in urban areas (Islam, 2016). The current rate of intense poverty is 12.9% as compared
to 17.6% in six years ago. For make improvement in living standard of people, Grameen bank
should provide small loans to the needy people who live in Bangladesh without any basis
requirement. Along with this, such investigation is conducted for analyse rate of poor people and
provide them necessary services or facilities in Bangladesh. This initiative of bank will help
them in raising the living conditions of people who are situated in that country.
1.5 Statement of Problem
The main issue in this research report is that there are number of poor people who are
below the poverty line. Also they does not survive or endure their life with required facilities and
services so that Grameen bank provide them small amount of loans. With this, country people
can easily change their standard of living by taken loan from Grameen bank. This will assist in
evaluating and determining their strategies or policies which are helpful for make improvement
in standard of living of poor people.
4

1.6 Research Aim
This is considered as one of the essential section of an enquiry because there is not any
purpose where way are conducted and continue effectual. It will discuss as an issue and problem
which is faced by organisation and it is required solution that can assist in easy to reach with
higher development and financial gain level effectively (Jamal, Raihana and Sultana, 2016). This
part of dissertation helps in studying the entire research in correct direction so as to make sure
that accurate results are achieved.
Aim: “How does the development of micro-finance institutions help to improve the living
standard of poor people in Bangladesh. A case study of Grameen Bank."
1.7 Research Objective
In this section, it is termed as vital part through which this define goals of an organisation
in order to reach with desired customers. This is helpful for researcher because through this they
are capable for determining or evaluating entire investigation project in better manner. Such
objectives are developing strong connection with customers as well as organisation which help
investigator for conducting research process. The research objectives are described as follows:
 To describe the meaning of micro-finance institutions.
 To provide classification of micro-finance institutions.
 To preview importance of micro-finance.
 To evaluate theories and models of micro- finance.
1.8 Research Questions
In this part, questions are formulated and developed by researcher as per the objectives so
that they have created such things for themselves. It can be examined that it is most essential part
of research report by which they are easily able to understand and evaluate an investigation in
better way (Cervelló-Royo, Moya-Clemente and Ribes-Giner, 2015). It is more essential and
important part of research which will help an investigator to address all objectives of study
systematically and successfully. The research questions are explained as follows:
 What is the definition of micro-finance institutions ?
 What are the classification of micro-finance institutions ?
 What is the importance of micro-finance ?
 What are the theories and models of micro-finance ?
5

CHAPTER 2: LITERATURE REVIEW
2.1 Introduction
Literature review is academic paper which provide in-depth knowledge of specific topic.
In this part, an investigator gather and collect data and information from various sources and
represent it in an effective way in front of reader. In this, researcher express knowledge on
respective topic from author's view and opinions (Porter and Kramer, 2019). This section
provides in depth knowledge to scholars regarding current study or research on same topic.
Therefore, it has been identified that literature review is the best way in order to evaluate
particular topic effectively.
In literature review, researcher evaluate the impact of development of micro-finance
institutions help to improve the living standard of poor people in Bangladesh. The literature
review portion covers the specific research topic along with sub sections which evaluate the
overall impact. In the beginning, it will reflect knowledge importance of free movement for
recruitment sector. A literature review is simple summary of sources but it is generally has an
organisational structure and integrate both summary and synthesis. In this, summary is the recap
of important information of source but a synthesis is a re-organisation, or a reshuffling of such
information. It will gives a new interpretation of old material and it combine new with old
interpretation. This will provide a brief summary of literature review which assist in analysing
and examining different authors views and opinions regarding specific research topic.
2.2 Definition of Micro finance institution
As per the view of Songbae Lee, Micro means small and finance is related to money. So,
Micro finance is a short term banking service which facilitates loan to an individual or group
who have low-income or unemployed. Micro finance can also be called as microcredit, which
directly refers to small loans to every needy person, who can start at ground level work for the
growth of a living standard. Grameen Bank plays a vital role in providing loan to small workers
or a needy person who get something of the ground to maintain standard of life. In a nutshell,
Grameen Bank facilitates micro finance to an individual or a group which help in the beginning
of ground level of work (Islam, 2016). The Micro finance institution which takes part in
providing lending and give an additional services to maintain an institution which scatter loans to
all needy people, as to give growth in the economy. Grameen Bank is one of the institution
6

which provide loan to thousand of people who are unable to invest a lump-sum amount in
building better agriculture or a small business. Lump-sum payment is amount in bulk, which can
invest in any investing activity or in growing a business in an appropriate manner.
Grameen Bank, which started in Bangladesh to promote the lower section of society. It is
a community development bank to maintain a balance between the economy as to provide
Microcredit or Grameencredit (Etuk, Etuk and Michael, 2014). The word Grameen denotes to
gram which directly linked to villages and showcase a welfare of villagers, which is known as
community development bank. The system of the bank comes from an idea to maintain a
standard life in villages as villagers have skill to fulfil dream, but have no money to invest into it.
Business like fabric, telephone and companies of energy are controlled by Grameen Bank.
Micro-finance is mainly considered as one of the effective and appropriate tool for
reducing poverty by enabling micro credit to the financial poor. It is play an important role in
developing the space between formal financial association and the rural poor individuals in the
country. The Micro finance Institutions (MFI) which considered as the financial resources from
banks and various other important funding organisation which help in giving services to the poor
people (Dhaoui, 2015). It is the pivotal overseas organisation in every nation which develop an
individual micro credit debt immediately to small town, micro-entrepreneurs, demanding women
and poor social unit. MFI is like a small bank along with similar issue and capital requirements
which confronting any expanding small venture but along with added responsibility of serving
economical marginalised populations. There are various types of institutions which offers micro-
finance such as credit unions, commercial banks, NGOs (Non Government Organisation),
cooperatives and sectors of government banks (Khatun and Hasan, 2015). In other words,
microfinance sector is mainly focus on understanding and evaluating actual needs of poor and
developing better ways in order to deliver effective services in line with their requirements. They
are processing most economic and effectual tool to supply funds to the miserable people. It is the
provision of saving accounts, insurance, loans, money transfers and various banking services to
the desired customers which lack in access the traditional financial services or facilities.
According to the view of Caleb Levell, micro finance is the term which is used in variety
of context among banking and non profit aid practitioners, an investigators from varying
academic disciplines and organisation in both private and public sectors. Microfinance define as
delivering financial services to the low level income people, specially in relation to poor and
7

needy individuals in order to develop regions all over the world (Boateng, Boateng and Bampoe,
2015). In current time period, microfinance services include with advanced spectrum of financial
method which assist in low income individuals and families in order to make improvement their
quality of life and financial reliability. With the help of microfinance, Grameen bank can easily
provide services and loans to the needy and poor people who are not able to live their life in the
nation. Microfinance is a type of baking service which provided unemployed or low income
individual and groups which have no access to manage financial services. At the time, when
institutions are taken part in this region of microfinance which mainly provide lending and some
banks are offers extra services that includes checking and saving accounts. Along with this, they
are also provide financial and business education. The main goal of microfinance is to give
opportunity to needy people which help in being self sufficient.
Micro finance institutions are offer services to unemployed and lower income people
because most of them are cornered in poverty and those who have small financial resources, does
not have adequate income to do business with traditional financial organisation (Ihugba,
Bankong and Ebomuche, 2014). In addition to this, microfinance allows people in order to take
affordable loans and do their business in better manner whatever they want. Grameen bank
support number of activities and functions that range from providing basics such as bank
checking and saving accounts to start up the business. Such program are mainly focus on such
skills such as bookkeeping, cash flow management and technical or professional skills such as
accounting (Hulme and Maitrot, 2014). It can be analysed as one of the most accomplished and
well known microfinance institutions is Grameen bank. They are provide required services and
facilities to the country people who are willing to acquired.
2.3 Classification of Micro-finance institution
Microfinance refers as the financial services for poor and low income customers. They
are giving their most attention on the condition of small debt, microfinance includes other
primary business services which involves savings, money transfer and security for poor group
(Quinones and Remenyi, 2014). In this, rising access to such services and facilities allows poor
and low financial gain group to finance income creating activities, create assets, stabilise
consumption and security against danger. Microfinance play an essential role in improving
standard of needy people.
Classification of Microfinance Institution:
8

According to the view of Priya Chetty, The microfinance models was developed in order
to cope up with the financial challenges and issues in financially backward areas. There are
various types of microfinance institutions which are described as under: Joint Liability Group (JLG) – It can be defined as the informal group which consist with
four to ten individuals who are try to avail loans against mutual guarantee from banks for
the purpose of agricultural and related activities. This is generally consist with tenants,
rural employees and farmers (Akotey and Adjasi, 2016). They are work for lending
purposes, although they are offer saving facility and services. In this type of institution,
an individual of borrowing group is equally responsible for credit. Along with this, it is
that type of institution which is simple in nature and need small and no financial
management. Self Help Group (SHG) – It is the kind of formal and informal group which consist with
small entrepreneurs along with same type of socio economic backgrounds. In this, some
person are temporarily come together and generate common funds in order to met with
emergency needs of their business (Kapoor, 2014). Such groups are considered as non
profit organisation. The main advantage of this micro lending system is that there is no
need for collateral. In this, interest rate is low and fixed particularly for women.
 Rural cooperatives – It was set up with the time of independence by the government.
They are used mechanism to pool various resources of people which are comparatively
small define and it provide financial services (Ravi and Engler, 2015). In addition to this,
system are catered to the credit worthy individuals of rural areas, which is not cover a
large part of nation's financially backward parts.
2.4 Importance of micro-finance
Microfinance is the provision which has brad range of financial services such as loans,
deposits, payment facilities, money transfers and insurance to poor and needy people.
Microfinance defined to include such services which are provided by both formal and
semiformal institutions. Along with this, poor and low income families and their microenterprise
has different groups. The demand for microfinance services reflects their diversity. The main aim
of microfinance is to supply business services to group which is broadly excluded from
conventional finance service sources because of their low, improper and unpredictable outgo.
However, microfinance is providing loans, credit, access to saving accounts even insurance
9

policies and money transfer to small business owners (Arouri, Nguyen and Youssef, 2015). The
term microfinance consist with micro-loans, micro-savings and micro-insurance. It is important
because this will provide resources and access to capital financially underserved such as those
who are unable to get checking accounts, line of credit and loans from traditional banks. Without
microfinance, some of the groups are resort to use loans advances with extremely high interest
rates and also borrow money from their family and friends.
Microfinance is the bringing of financial status of poor and low level funds with
restricted approach to ceremonial business organisation. It can be described as the banking for
underprivileged. It can be analysed that microfinance is the best way to help people in became
entrepreneurs. This will provide underprivileged with maintainable income by low interest loans.
The organisation businessman fancy personalized saving and credits from cooperative societies
to microfinance banks and commercial banks fund which are stated with high interest rate.
Microfinance is the condition of wide scope of financial services such as debt, deposits, cost
service, wealth transportation and security to poor and low income family. The demand for other
financial services among poor and low income households and their microenterprise can be
significant. A microfinance institutions provide account service and facilities to their customers
who are not able to survive their life in better manner. Microfinance advised as one of the most
effectual instrument and tool which assist in reduction of poverty and accelerative living
standard of people. MFIs is important for reaching with desired and needy people who are
required funds and capital for living their life in the respective country. There are various types
of microfinance such as credit unions, commercial banks, NGOs (Non government
organisations), cooperatives and sectors of government banks. Grameen bank mainly focus on
understanding and evaluating the need of poor people and making amended ways of delivering
services in form with their necessitate, processing most prompt and effectual performance to
render finances to poor.
The Grameen bank is a microfinance organisation and community development bank
which are make small loans to the needy people to the impoverished without required collateral.
Microfinance institution is the financial institutions which is specialised in banking services for
low income groups and an individuals (Banerjee and Jackson, 2017). This will provide
accounting services and facilities to Grameen bank which is not normally accepted by traditional
banks, and also offers transaction services for money. According to the view of Sayed Samer,
10