In order to fulfill the Microcredit Summit’s goal of reaching 100 million families with microcredit by the year 2005, we must ensure not only that more resources are dedicated to promoting microcredit, but also that resources are provided to institutions in cost-effective ways.Donor agencies generally provide funds as grants or low-interest loans to microcredit programmes, often with government involved as a guarantor. The administrative cost of providing these funds is often unacceptably high, and the amount that actually reaches the poor as loans is likely to be quite low. Donors should increase the percentage of microcredit funds that reach the poorest to 70%.Several limitations exist in current methods of fund distribution by donor agencies. One significant limitation is an over-reliance on consultants, many of whom do not have the skills necessary to successfully advise and assist microcredit donors and practitioners. In order to strengthen their capacity to reach the poorest, donor agencies should declare a target percentage of funds going to the microfinance sector which will be committed as loans to the poorest, and then require each local office to produce annual reports on its contribution to achieving the country goal. A clear policy should be established to CGAP members and to local Microcredit Capital Programmes (MCPs), Microcredit Funds (MCFs) and NGOs. Moreover, agencies should create a country-level CGAP mechanism and hold at least one meeting each year to review progress and discuss upcoming plans.The Microcredit Summit estimated that US$11.6 billion would be needed as grants and soft loans to reach 100 million families. This additional US$11.6 billion could be mobilized if the percentage of Official Development Assistance (ODA) going to microcredit for the poorest is raised to 5%. Initiatives must be taken to build non-governmental, sustainable, wholesaler MCFs at the local level and channel donor funds to these institutions in order to initiate and support MCPs.

This paper examines the effect of group-based credit for the poor in Bangladesh, by gender of participant, on participating household’s mix of agricultural contracts (quantities of land sharecropped and rented), and the supply of agricultural labour which takes the form of own-cultivation as opposed to agricultural wage labour. The group-based microcredit programmes examined provide production credit for non-agricultural activities to essentially landless and assetless rural households. Landless cultivators are more likely to have their contractual choices shaped by credit market constraints than others. On a priori grounds it is important to distinguish credit effects by gender of participant. Male programme credit, if properly monitored, should induce men to substitute away from supplying agricultural labour and contracting for agricultural land to supplying the non-agricultural labour required by the non-agricultural self-employment activity financed by the microcredit programme. Programme participation by women, who are otherwise much less involved in income-generating activities, diversifies the sources of household income not merely by the type of activity undertaken but also across individuals within the household. These outcomes that permit households to choose higher return but riskier agricultural contracts.Econometric analysis of a 1991/92 household survey provides strong evidence that participation in these group-based microcredit programmes substantially alters the mix of agricultural contracts chosen by participating households. In particular, both female and male participation induces a significant increase in own-cultivation through sharecropping, coupled with a complementary increase in male hours in field crop self-employment and a reduction in male hours in the wage agricultural labour market, consistent with its presumed effects in diversifying income and smoothing consumption. Female credit effects are larger than male credit effects in increasing sharecropping and in reducing male wage labour and increasing agricultural self-employment, as predicted.

Microfinance provides an alternative source of finance to the poor and women, who, if without access to formal banks, have access to a variety of informal lenders. As microfinance is relatively cheaper than informal finance, access to microfinance is expected to reduce household borrowing from informal sources. Microfinance is also expected to increase household savings by providing an alternative facility for savings mobilization from the poor. An econometric analysis of household survey data from Bangladesh shows that micro-borrowing has indeed reduced borrowing from informal sources, thereby demonstrating microfinance as an effective alternative source of finance to the poor. Micro-borrowing is also found to increase voluntary savings, thus assuring that an appropriate facility can raise household savings even in a poor country such as Bangladesh. Of course, impacts of microfinance vary by the gender of borrowers. The savings impact of micro-borrowing is more pronounced for women than for men. In contrast, the informal finance impact is more pronounced for men than for women.

The overriding policy and research attention on the measurement of the impact of microcredit programme participation has meant that the process of participation has remained relatively unexplored. In fact, the ways in which households arrive at the decision to participate may bear importantly on programme effects since participation is essentially part of a household’s livelihood strategy. Programme impact will depend not only on programme inputs, but also more importantly on how closely desired programme outputs are integrated into specific household and individual strategies. This paper examines the household participation decision on the premise that programme impact hinges crucially on who joins a microcredit programme and why. The paper finds that the household decision to join a programme is determined by the interplay of the households demand for microcredit, the opportunity costs of membership activities for individual family members and the nature of the intra-household gender relationship. Such a household strategy carries new and important implications for the interpretation of programme effects on both women’s empowerment and poverty reduction.

The Bangladesh microcredit market comprises of formal and quasi-formal microfinance institutions. The present paper examines and evaluates efficiency and sustainability of two microfinance programmes-formal and quasi-formal. Grameen Bank is formal and ASA is quasi-formal in nature, status and programme. The Efficiency and Subsidy Intensity Index (ESII), as developed by the authors, was used to examine the sustainability and efficiency of the two programmes. The analysis shows that both Grameen Bank and ASA have been operating with high degree of cost and financial efficiency. ASA being a quasi-formal organization is more cost-effective and sustainable than Grameen Bank, a formal organization. This is attributed to low salary base and high lending interest rate. GB is relatively costly because of higher salary, based on national pay scale, and relatively low lending interest rate. If ASA had to operate with the average salary of Grameen, given the present level of operation, it would be very worse-off. This was evident from a simulation of increase in wage rate. In contrary, Grameen Bank would be much better-off at a low salary base of ASA. During the period 1993-97, the degree of ESII has declined for both GB and ASA. The positive subsidy intensity of ASA is contrary to the traditional belief that it is a self-sufficient organization with no subsidy dependency. Consequently, social costs are associated with these two programmes. Grameen Bank will be able to reduce social cost and improve sustainability by improving cost efficiency, increasing loan size and lending interest rate, and changing portfolio mix without incurring any operating cost. Grameen Bank is close to achieving sustainability after its fifteen years of experience. Similarly, ASA has attained higher degree of sustainability within seven years of its microcredit operation. This implies that it takes longer time for a formal organization like Grameen Bank to be sustainable than quasi-formal organizations like ASA. However, some proxy measures suggest positive net social gains of both the programmes. The findings have implications for developing microcredit market and designing regulatory framework for MFIs in Bangladesh.

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