BRAC Microfinance Program in Bangladesh and its International

BRAC Microfinance Program in Bangladesh and its International Replications A BRAC Presentation July 9, 2007 Building Resources Across Communities

BRAC’s Vision Just, enlightened, healthy and democratic societies free from hunger, poverty, environmental degradation and all forms of exploitation based on sex, religion and ethnicity.

Overview of BRAC - BRAC started in 1972 as a small relief and rehabilitation effort to support Bangladeshi refugees returning home after declaration of independence in December 1971. It then stood for Bangladesh Rural Assistance Committee. - By mid 70 s, BRAC realized that more long term, sustained effort was needed for change the lives of the poor. The focus shifted from rehabilitation to development, and BRAC was renamed to stand for Bangladesh Rural Advancement Committee

Overview of BRAC (Cont. ) - BRAC today provides microfinance to over 6 million clients, offers primary education to over 1. 52 million students through its 52, 168 nonformal schools, and delivers essential health care to over 31 million people through a strong cadre of 68, 000 health volunteers. It has full-time staff of over 42, 000 in Bangladesh. - BRAC’s budget in year 2006 was USD 339 million, over 70% of which was self-financed.

Overview of BRAC - BRAC is committed towards using its experience and expertise to work together to fight poverty around the world - BRAC aims to do so by empowering the poor so that they can build sustainable capacities to fight poverty - Today, BRAC stands for Building Resources Across Communities.

BRAC’s Main Programs - BRAC Development Program (BDP) - BRAC Education Program (BEP) - Health, Nutrition & Population Program (HNPP) - BRAC Training Division (BTD) - Research and Evaluation Division (RED) - Support Programs and Enterprises - Other related institutions: BRAC University, BRAC Bank

BRAC Development Programs - Microfinance - Employment and Income Generation ( e. g. poultry & livestock, fisheries, social forestry) - Social Development, Human Rights & Legal Services - Health - Education

The BRAC Approach BRAC believes in holistic development approach and sees microfinance as a powerful entry point that emerges from: √ The social capital built by organizing the poor to form their own groups through which they engage with BRAC and other formal institutions. √ The organizational/institutional capital that accrue in building its ability to manage large scale microfinance. √ The network capital built through large scale outreach of microfinance constituting a network of producers and consumers throughout the country.

Components of BRAC Microfinance Program Group Based Products: Poverty Alleviation (MF 1) Employment and Livelihood for Adolescents (MF 1) Economic Development (MF 2) Individual Products: Micro Enterprise Loans (MF 3) Women Entrepreneur Development Program (MF 3) Microfinance for the Extreme Poor: Challenging the Frontiers of Poverty Reduction – Targeting the Ultra Poor (CFPR-TUP) Income Generation for Vulnerable Group Development (IGVGD) – Collaborating with the government and WFP

BRAC Microfinance Services Urban (20%) Better-off Vulnerable Non-poor Moderate Poor Extreme Poor Destitute Rural (80%) MF 3 MF 2 MF 1 IGVGD CFPRP-TUP

Group Dynamics and The Credit Ladder √ Formation of Client Groups - Typically known as Village Organizations (VO)s √ Capacity development, healthcare services and social awareness √ Asset transfer, subsistence allowance for CFPR-TUP members √ Input support for IGVGD members √ Savings and credit activities √ Graduation onto MF 2 √ Enterprise loans (Individual)

Financial Services for MF Clients 1. 2. 3. Credit √ General Loan √ Loan for income generating projects √ Housing Loan √ Enterprise Loan Savings Death Benefit

Key Features of Loan Product - Micro Loans √ Lending through group formation, namely Village Organizations (VO) √ Loan Range: Tk. 1, 000 to 50, 000 (US$15 to $700 ) √ Repayment through equal weekly installments - Micro Enterprise Loans √ Individual Lending between Tk 50, 000 to Tk 300, 000 (US$700 to $4, 500) √ Repayment through monthly installments √ Service charge: 12. 5% (Flat) √ Emergency loans are also given at the time of disaster

2. Savings Products BRAC has four types of saving products: √ Weekly personal savings for the VO members √ Compulsory savings deposit for VO members √ Monthly savings deposits √ Term deposits

3. Death Benefit policy for BRAC Microfinance group members: √ Any poor village woman when she becomes a group member is eligible to get this benefit √ The group member does not need to pay any premium for this

BRAC Micro Finance Program in Bangladesh: At-A-Glance (May- 2007) Inception of Micro Finance Program : 1974 Districts Covered : 64 out of 64 Total No. of Branch Offices : 3028 Total No. of Village Organizations : 206, 820 Total Number of Members : 6. 2 million Outstanding Borrowers : 5. 3 million Outstanding Loan Amount : US$ 438. 14 million Members’ Savings Balance : US$ 163. 71 million Loan Recovery Rate : 99% Cost per Unit of Dollar Lent : US$ 0. 10

Credit Delivery Model √ BRAC uses Village Organization (VO) as a platform for launching and implementing its various activities √ VO is an association of poor, landless people that come together with the assistance of BRAC and try to improve their socio-economic position √ Credit decisions are taken in weekly VO meetings √ BRAC considers three things before considering a loan application: - Capacity of utilizing the loan money - Types of business - Profitability of the business

Loan Application, Processing and Disbursement Procedure Loan Processing Loan Proposal - Loan is proposed in a weekly VO meeting - Formal Loan proposal is prepared by the respective program organizer (PO) - The accountant checks and verifies savings and credit records of the applicant by using a computer - Loan proposal is forwarded to the manager at the same office - Verified and approved by the manager Disbursement At the branch office, the accountant disburses the loan after the manager interviews the borrower

Installments and Savings Collection, Documentation and Reporting Procedure Collection -Savings and loan installments are collected in weekly VO meetings - PO makes entries in the collection sheet and updates the passbook, which is kept by the members Documentation and Record Keeping -PO compiles and submits the collection sheets to the accountant -The accountant gives computer posting - Computer printouts are generated for the managers while required Reporting - Daily back-ups are kept at the branch office - Reports are sent to the branch and regional office on weekly basis - Diskettes are sent to the Head office at the end of the month - Data is entered into the central MIS system

International Initiatives of BRAC - In late 2001, after the fall of Taliban regime, the new Afghan Government invited BRAC to work in Afghanistan. - BRAC Afghanistan was set up in 2002 and today works in 24 out of 34 provinces in Afghanistan in the major fields of microfinance, health and education - In 2005, BRAC responded to the Tsunami victims in Sri Lanka with relief and livelihood reconstruction support.

BRAC International Initiatives - With the aim of attaining the MDGs by working together with governments, civil society organizations in Africa, BRAC started its operations in Uganda and Tanzania in second half of 2006. BRAC also initiated microfinance program in Southern Sudan in early 2007. - In late 2006, replications of TUP program through partnership in Haiti and in India (West Bengal) were launched.

BRAC Micro Finance Program in Afghanistan: At-A-Glance (May- 2007) Micro Finance Program Launched : 2002 Provinces Covered : 22 out of 34 Total No. of Branch Offices : 203 Total No. of Village Organizations : 10, 332 Total Number of Members : 176, 594 Outstanding Borrowers : 143, 651 Outstanding Loan Amount : US$ 69, 169, 612 Members’ Savings Balance : US$ 5, 266, 444 Loan Recovery Rate : 94. 93%

BRAC Micro Finance Program in Uganda: At-A-Glance (December - 2006) Micro Finance Program Launched : 2006 Districts Covered : 8 Total No. of Branch Offices : 10 Total No. of Village Organizations : 460 Total Number of Members : 11, 912 Outstanding Borrowers : 5, 808 Outstanding Loan Amount : US$ 540, 748 Loan Recovery Rate : 100%

BRAC Micro Finance Program in Tanzania: At-A-Glance (May- 2007) Micro Finance Program Launched : 2006 Districts Covered : 5 Total No. of Branch Offices : 10 Total No. of Village Organizations : 307 Total Number of Members : 8, 033 Outstanding Borrowers : 5, 131 Outstanding Loan Amount : US$ 558, 419 Loan Recovery Rate : 100%

Some Challenges - Understanding the local context - Different regulatory structures - Inadequate banking network - Gaining trust of local institutions and people - Cultural differences and management of national staff - Competition and competitors’ response to BRAC intervention - Ensuring continuous flow of funding, high cost of fund and the issue of self-sufficiency and sustainability

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