Rural households in Bangladesh are resource poor. They are mainly engaged in agricultural activities whereas many of them are either marginal farmers or day labourers. With less income and resources, they rarely manage standard livelihoods. Therefore, the respectable welfare situation is still not possible. In direct word, it can be said that this situation is graphed by the finance institutions in Bangladesh and target the rural women to disburse loans with the view of desired ‘good life’. The institutions are figuring their commercial purpose whereas women are performing and conforming to moral expectations of the men from the point of view of successfully running their families. There are many both government and non-government (NGOs) finance organizations in the country. The advertised novelty of their financing system to rural poor is that providing small and short-term loan for long-term benefits by poverty reduction. The pioneers of microfinance service providers in Bangladesh are the Grameen Bank (GB), and the Bangladesh Rural Advancement Committee (Rahman 2010). Although there are evidences of increasing income and consumption with the development of small businesses through microfinance in Bangladesh (Chowdhury & Mukhopadhaya 2012), the novelty at individual level is rare when after taking microcredit, the poorer being more poor and falling into the trap of debt and further inequality.
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It is widely talked about the recent GDP growth of Bangladesh and is recognized as an emerging economy of the world. Although the country is doing great good in economic growth, it is further marginalizing its poorer communities. The Govt. recently undertakes megaprojects like construction of bridge, roads and highways etc. by cutting down the annual budget for rural areas in terms of less subsidies and high inflation. So, the regional disparity is climbing day-by-day. Thereby, according to the utilitarian view of welfare the total utility is maximised but the individual utilities differ from one to other as inequality is rising and less-income groups cannot able to sustain themselves on the sufficient consumption frontier.
Moreover, due to frequent extreme climatic events such as drought, floods and cyclone many marginally non-poor people are becoming new poor. The both old and new poor qualify for the loans from microfinance programmes (Sarker & Islam, 2014). But Banerjee et al. (2015) proved the common consensus of microfinance does not reduce poverty by using randomised control trial (RCT). In case of Bangladesh, it is a matter of open discussion that if the borrowers are falling into the trap of dependency on microfinance institutions (MFIs), does it mean that these financing programmes to rural poor are not benefiting any group at all or if there is any positive welfare impact, who are the beneficiaries among the participants?
Financial inclusion and sustainability are two principle characteristics of microfinance institutions (MFIs) in Bangladesh. It brings a momentum in the rural economy of Bangladesh by lots of positive impacts on the recipients of microcredit in some cases (Hasan and Malek, 2017). Among the major microfinance institutions (MFIs) in Bangladesh the Grameen Bank (GB) and the Bangladesh Rural Advancement Committee (BRAC) are the pioneers of microfinance service providers. There are both government and non-government microfinance institutions continuing their activities specifically in rural Bangladesh. But non-government microfinance institutions bring greater livelihood benefits for the recipients than government (Mazumder, 2022).
According to Lila (2002), there are four types of MFIs in Bangladesh who are providing microfinance. For example, about 38% of microfinance recipients is borrowing from non-government organizations (NGOs), 35% is borrowing from member-owned specialized institutions, specialized banks providing microfinance to 9% of the recipients and 18% of recipients has been taken loan from government-sponsored microfinance projects/programs (BB, 2002). It is generally considered that women are the main clients of microfinance in rural Bangladesh. About 65% of borrowers from the Grameen Bank of its starting period were female in mid-1980s, which increased to 95% by 1995 (Khandker et al. 1995). There are still female biases in selection of microfinance clients and it is evident that at present 80-90% of MFI members are women in Bangladesh (CDF, 2017 and MRA 2018). But the actual end-users of microfinance are men (Karim, 2011) by gender discrimination at root level and exploitation of women (Parmer, 2011; Shakya and Rankin, 2008).
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It is found that there are some evidences of positive impacts of microfinance on health and nutritional status, child education and overall poverty reduction in rural areas of Bangladesh (Littlefield et al. 2003; Brannen, 2010; Adjei et al. 2009; Nanor, 2008). It is also reported that microfinance reduces rural poverty in Bangladesh by 10% over the last two decades (Khandker et al. 2016). Using data from 20 villages in Bangladesh, Bhuiya et al. (2016) found that although there are some positive impacts of microfinance, microfinance members remain poorer than non-members. However, Khandker et al. (2015) found that heterogeneous impacts of microfinance on the rural households in Bangladesh. The heterogeneity in effects may arise from differences in households’ land holding, education, employment and skill characteristics.
In explaining the welfare impacts of microfinance on the rural households in Bangladesh, it is found that there are conflicting and heterogeneous views about the real impacts of microfinance. Women are the main clients of microfinance institutions in rural Bangladesh. The majority of the issued loans from MFIs are not invested in productive businesses, but rather consumed or used for other purposes. There are some evidences of positive impacts of microfinance on health and nutritional status, child education in Bangladesh but there are little evidences of poverty reduction in rural Bangladesh by MFIs and in some cases it reduces poverty moderately without sufficient improvement in the quality of livelihoods. It is also found the heterogeneity in effects may arise from differences in households’ land holding, education, and employment and skill characteristics. It is often argued that successful borrowers by repaying within short first instalment dates, they can enjoy multiple loans but ultimately defaulted due to the pressure of having to repay multiple instalments at the same time and misuse of the loan.