Previous studies on the impact assessment of microcredit programmes in Bangladesh have been narrow in their focus. PKSF (2005) studied the impact of micro-credit on the members of partner organizations of PKSF and found that absolute poverty was reduced by 9% during 1991 to 2000; moderate poverty declined by 5% during 2000 to 2004. Chowdhury and Bhuiya (2004) examined the impact of credit programme on the Bangladeshi borrowers under the BRAC projects and found positive impacts on human well-being, survival rate and schooling of children. Amin, Rai and Ropa (2003) conducted a study on the microcredit clients of Grameen Bank, BRAC and ASA. They observed that the micro-credit programme was more successful to reach the poor, but less successful to reach the vulnerable poor. Zaman (2001) assessed the impact of microcredit on poverty alleviation and women empowerment. He found positive impact on income, decision making ability and in reducing gender disparity. Bangladesh Institute of Development Studies (BIDS) conducted impact study on the microcredit borrowers under the partner organizations of PKSF. This study showed positive impact on the income of microcredit participants in comparison to non-program participants (BIDS, 2001). Khandker (2000) assessed the impact of microcredit on saving and found that microcredit increased voluntary saving, which was more pronounced in the cases of women than men. However, all of these studies simply assessed the impact of interest- based microcredit programmes which did not consider shari’ah (Islami rules and regulations) related lending in investment and none of them assessed moral and ethical development of the clients. This study assessed these aspects of microfinance undertaken by the clients of rural development scheme functioning across the country. Unlike other microcredit programmes, this scheme emphasised clients’ ethical and moral development activities in its microcredit programme. Therefore, this study assessed a different type of microcredit programme than the conventional ones, using modern econometric techniques. Another point is that the size of the rural households in Bangladesh is generally large and they have a low level of literacy. Rural development is hampered due to lack of credits, lack of training, weak infrastructure and poor transport systems. The weak resource base coupled with a faster growing population is aggravating the poverty level of the country. Determination of the above factors which are most relevant in explaining poverty alleviation will have important implications for refining microfinance policy. This will also help to locate appropriate clients for the RDS-microfinance. Therefore, the other objective was to examine the linkage between clients moral and ethical behavioural changes as well as their income and demographic and investment factors.
A. Conceptual Framework
In this study, it was observed that the beneficiaries are mainly rural poor having very limited access to education and institutional credit and they also have low command over productive resources Due to their inability to meet the collateral requirement, the rural poor cannot start up productive activities even though they may have the adequate skills for pursuing income-generating activities. Because of their low level of income, they cannot even fulfill their consumption needs properly and ultimately they have to lead a lower quality of life. In such circumstances, microcredit programme may support the poor in reducing their poverty by creating both direct and indirect benefits.
Under microcredit programmes, borrowers can take investment without providing collateral from the microcredit providers. The amount of investment they receive from the providers increases their financial ability to invest more into income generating activities. Microcredit programmes also provides opportunity to generate employment for the poor in the locality. By participating in income generating activities under microcredit, rural poor may have more earnings from activities that directly add to their income.
Factors influences income- Microfinance generating activities (IGAs):
1. Age IGAs 2. Education
4. Land size Household income
5. Family labor Purchasing ability 6. Rural infrastructure
7. Skill building Training Expenditure on food 8. Morality and Ethics
Improvement of livelihood
| Statements | Regular | Very often | Very rare | Not at | |
|---|---|---|---|---|---|
| all | |||||
| Score (no.) 10 (0) 6 (4) 4 (6) 0 (10) | |||||
| Saying prayer | 405 204 170 215 Know how to recite Holy Quran 643 - - 351 Reciting Holly Quran 139 164 136 655 | ||||
| Fasting | 807 79 21 87 Inviting towards Islamic activities 324 289 311 70 Involvement with dowry 033 - - 961 Maintain Parda 596 191 109 98 Involve with interest 111 71 29 783 Misunderstanding with husband 049 29 11 905 Involvement with social activities 007 305 372 310 Note: Figure in the parentheses are the score for dowry, interest and misunderstanding | ||||
| with husband. | |||||
| G. | Justification of Retaining Variables in the Study The factors which are responsible for the impact of microcredit on the rural poor have been reviewed. Girish and Mehta (2003) and Asanoy (2004) observed that age of the family head and family size were an important factor for economic decision such as production and consumption. Latif (2002) also observed that family size had influence on consumption and calorie intake of rural Bangladeshi households. Shrestha and Shivakoti (2003) mentioned that family labour was one of the important human capitals. Therefore, rural farmers are largely depended on their family labour for pursuing economic activities. Khandker (2000) reported that microcredit programmes had increased production, consumption, and employment opportunity and reduced informal borrowing among the borrowers and it had also increased the ability of the poor borrowers to save regularly for building financial and physical capital. Asanoy (2004) indicated that educated borrowers had higher level of knowledge and skills as compared to less educated borrowers in case of performing their economic activities. Latif (2002) observed that the establishment of rural infrastructure had reduced production cost, transportation cost and it had created easy access to markets for inputs and outputs. Shrestha and Shivakoti (2003) mentioned that physical infrastructure facilities helped in distributing inputs and output, adding value and enhancing production. It is hypothesized that all of these variables would influence households’ livelihood, therefore, age, education, family size, financial capital, savings and asset base has been considered in this study as important factors of livelihood. | ||||
| H. | Sources of data The primary data were directly collected from the field, during December 2006 to April 2007, through interviewing 1020 clients across the country. The impact of investment on ethics and moral of the RDS client’s were our major interest therefore assessment was made comparing the clients’ present position (31 December 2006) with their base (information at the time of becoming member). Using the stratified sampling approach, the selection procedure for the RDS clients considers several factors, and involves multiple stages. The first step involves dividing the RDS executing branches of IBBL into seven administrative zones defined by IBBL. In order to capture diversity, the 34 branches were randomly selected from seven administrative zones following the probability proportionate to size (PPS) method (Appendix-1; Bangladesh Map). Two subsequent stratifications were made within each branch on the basis of time of becoming client of RDS. Of the selected branches, 30 RDS investment clients from each branch, was randomly selected. So, the total clients for the study were 34 x 30 = 1020 (Table 2). |
| Sample | Sample per | |
|---|---|---|
| Sl. No. | No of Branch | Total Sample |
| Types | Branch | |
| Dhaka north 4 Dhaka south 3 Chittagong 3 Comilla 5 | ||
| 1 Clients | 30 1020 Bogra 9 Khulna 8 Sylhet 2 Total branch 34 The data were collected from the clients using a set of semi-structured pre-tested questionnaire prepared for the purpose. A total of 34 well trained enumerators (one for each branch), have collected the data under the supervision of the researcher. The data were coded and entered in to the SPSS (Statistical | |
| Package for Social Scientists), Version 12. | ||
| I. Analytical Frame Work | The major concern of this study was to assess the impact of RDS investment client. So, comparison was made between the status at present (up to December 2006) and at joining (joining time of the individual clients) on a cross sectional basis. In total 1020 clients were interviewed. Of them, the interview of 26 clients were incomplete and hence were dropped from the analysis. The rest of the sample (994) were analysed and the conventional tabular method was used in describing and comparing the performance of the RDS clients. The responses were expressed in terms of percentage/frequencies. Besides, in order to meet up the objectives the collected data were analysed economically, statistically and | |
| econometrically. | ||
The study was intended to explore the true picture of ethical and moral development of the clients’ livelihood and its impact on poverty alleviation through micro-investment of the RDS. The results are presented below:
A. Behavioural and Ethical Information of the Respondents
Religious behaviour and ethical development of the clients was one of the important objectives of RDS programme. Therefore, clients’ present religious performances were plotted in Figure 2. Result shows that most of the clients do fasting, while almost 85% clients maintained parda. Although, 85% clients avoid taking interest, this information is dubious as 15% clients have involvement with other interest based NGO’s. The reason of providing misinformation could be that some of the clients are not still clear about the difference between interest and profit.
B. Changes in Family Income
Effort was taken under this microinvestment programme to increase clients’ family income by investing their borrowed money to different income generating activities. Table 3 shows that on average clients’ income has increased by more than 33% from joining in the RDS up until 2006. The highest income change (6763 Tk. /year) was observed for small business which was followed by income from services (4615 Tk. /year). The crop sector income has also significantly increased but highest change was observed for small business which implied that clients preferred investing money into the business sector. Islamic micro-finance programme and its impact on rural poverty alleviation: 119-138 129
Percent 60 Yes No
Recitation
Dawah
Hizab Pray
Interest Fasting
Quran
Avoid Religious Activities
| Household income | Level of | |||||
|---|---|---|---|---|---|---|
| Change of Income | ||||||
| Source of Income | (Tk / year) | Significance | ||||
| Present | Joining | Taka | Per cent | t-value | Sig. | |
| Crops | 13118 | 10993 | 2125 | 19.33 | 3.188 | 0.001 |
| Fruits selling | 1629 | 977 | 652 | 66.73 | 3.641 | 0.000 |
| Vegetable | 2109 | 1464 | 645 | 44.06 | 3.865 | 0.000 |
| Livestock | 4070 | 2841 | 1229 | 43.26 | 5.463 | 0.000 |
| Poultry | 1669 | 1195 | 474 | 39.67 | 2.507 | 0.012 |
| Small Business | 32061 | 25298 | 6763 | 26.73 | 4.015 | 0.000 |
| Labour Selling | 13617 | 11003 | 2614 | 23.76 | 6.509 | 0.000 |
| Service Income | 14827 | 10212 | 4615 | 45.19 | 5.564 | 0.000 |
| Others | 9927 | 5751 | 4176 | 72.61 | 2.222 | 0.038 |
| Total | 93027 | 69734 | 23293 | 33.4 | ||
| C. | Impact of RDS on Clients Religious Activities In addition to the poverty alleviation the microinvestment program has taken initiative to increase the clients’ awareness on religious activities. Therefore, in this study attempt was made to assess the influence of RDS on clients’ awareness on religious activities. Table 4 shows that a significant number of clients (21%) have started praying after joining RDS programme. Besides, a significant number of clients have started practicing some other religious activities like, reciting Holly Quran, inviting others to follow Islamic activities and avoid | |||||
| taking interest. | ||||||
| At Present | At Joining | Change Status | ||
|---|---|---|---|---|
| Indicators | ||||
| Frequency | Frequency | Frequency | Percent | |
| Regular prayer | 779 | 643 | 136 | 21.15 |
| Know how to recite Holy Quran | 643 | 600 | 43 | 7.17 |
| Reciting Holy Quran | 339 | 273 | 66 | 24.18 |
| Fasting Regularly | 907 | 880 | 27 | 3.07 |
| Inviting towards Islamic activities | 924 | 870 | 54 | 6.21 |
| Involvement with dowry | 033 | - | - | - |
| Wearing Hizab | 896 | 885 | 11 | 1.24 |
| Not involve with interest | 883 | 814 | 69 | 8.48 |
| Misunderstanding with Husband | 089 | - | - | - |
| Involvement with any local crime | 007 | - | - | - |
| Variables | Co-efficient | t-value | Sig |
|---|---|---|---|
| Constant | 4.079 | 38.384 | 0.000** |
| Log of Investment taken in 2006 | 1.210 | 2.612 | 0.019** |
| Log of total land size | 0.101 | 0.408 | 0.684 |
| Log Number of earning family members | 1.160 | 1.990 | 0.024** |
| Distance of branch dummy (up to 10 km is 1 and 11 | -0.030 | -0.115 | 0.108 |
| to 16 km is 0) | |||
| Borrower’s age dummy (above 40 years) | 0.201 | 2.646 | 0.018** |
| Education dummy (up to 5 years schooling is 1 and | 0.120 | 0.738 | 0.460 |
| 0 otherwise) | |||
| Ethics and Moral (Dummy) | 0.090 | 1.847 | 0.055* |
| R-squared: 0.603 |
| Standard | Wald | Odd ratio | |||
|---|---|---|---|---|---|
| Variable | (B) | Sig. | |||
| error | statistics | EXP (B) | |||
| Constant | -0.954 | 0.823 | 1.344 | 0.246 | 0.385 |
| Duration of membership | 0.238 | 0.062 | 14.64 | 0.000 | ** 0.788 |
| Education dummy (up to 5 yrs of | 0.014 | 0.251 | 0.201 | 0.986 | 0.996 |
| schooling is 1 and 0 otherwise) | |||||
| Income generating family members | 0.208 | 0.073 | 13.67 | 0.00** | 0.768 |
| Age of the clients dummy (up to 40 | -0.060 | 0.556 | 0.011 | 0.916 | 0.942 |
| yrs of age is 1 and 0 otherwise) | |||||
| Share of food expenditure to the | 0.014 | 0.006 | 5.746 | 0.017** | 1.014 |
| total expenditure (%) | |||||
| Health expenditure (taka) | 0.017 | 0.020 | 3.031 | 0.054* | 1.010 |
| Ethics and morals | 0.164 | 0.243 | 3.476 | 0.050 | * 0.846 |
| Cox and Snell R square: 0.198 | |||||
| -2log likelihood: 667.280 | |||||
| Overall accuracy: 82.8 | |||||
| Standard | Wald | Odd ratio | |||
|---|---|---|---|---|---|
| Variable | (B) | Sig | |||
| error | statistics | EXP (B) | |||
| Constant | 1.101 | 0.447 | 6.070 | 0.014** | 3.008 |
| Education dummy (up to 5 yrs of | 0.633 | 0.165 | 14.076 | 0.000** | 0.531 |
| schooling is 1 and 0 otherwise) | |||||
| Age of the Clients dummy (up to | 1.424 | 0.366 | 15.136 | 0.000** | 0.241 |
| 40 yrs of age is 1 and 0 otherwise) | |||||
| Membership Duration (years) | 0.102 | 0.032 | 10.028 | 0.002** | 1.108 |
| Distance of branch (up to10 km | -0.402 | 0.246 | 2.665 | 0.103 | 0.669 |
| distance is 1 and 0 otherwise) | |||||
| Cox and Snell R square: 0.178 | |||||
| -2log likelihood: 1241.76 | |||||
| Overall accuracy: 72.8 | |||||
| Note: ** Significant at 1% level and * significant at 5% level. | Based on the borrowers’ perceptions, the dependent variable coded as one if the borrowers were morally and ethically well-off under the microinvestment program and otherwise it was coded as zero. The logit model was used in order to find out the probability level that the borrowers would be morally and ethically | ||||
| well-off due to the influence of a particular independent variable. | Table 6 shows that the educational level, age and membership duration had positive and significant contribution on clients’ ethics and moral development. This result implies that elderly and educated clients who have several years’ | ||||
| Increased | No change | ||||
|---|---|---|---|---|---|
| Serial | Types of change | ||||
| Frequency | Per cent | Frequency | Per cent | ||
| 1 | Economic solvency | 775 | 77.97 | 219 | 22.03 |
| 2 | Islamic practice | 240 | 24.14 | 754 | 75.86 |
| 3 | Social dignity / Status | 211 | 21.23 | 783 | 78.77 |
| 4 | Self confidence | 800 | 80.48 | 194 | 19.52 |
| 5 | Business knowledge | 720 | 72.43 | 274 | 27.57 |
| 6 | Communication skills | 785 | 78.97 | 209 | 21.03 |
| 7 | Knowledge on business computation | 755 | 75.96 | 239 | 24.04 |
| 8 | Confidence on education | 596 | 59.96 | 398 | 40.04 |
| Serial | Problems | Per cent |
|---|---|---|
| 1 | Amount of investment is very small | 90.65 |
| 2 | Do not have any training programme | 85.60 |
| 3 | Investment getting period is very long | 84.70 |
| 4 | Gestation period for repaying investment is too short | 78.55 |
| 5 | Insufficient time for meeting | 72.00 |
| 6 | There is no place for organizing meeting | 70.65 |
| 7 | Need to produce fake buying and selling voucher | 33.65 |
| 8 | Tenants are ignored for getting investment | 26.08 |
| 9 | No Islamic school for their children | 23.26 |
| 10 | Woman has no control on their borrowed money Lack of training facilities to upgrade their skills and technical and Islamic knowledge is also an important problem mentioned by 86% clients. About 85% respondents mentioned that a delay in receiving investment is also a problem which was followed by very short gestation period for repaying investment. Some respondents (78 %) mentioned that some times they needed to start repaying their borrowed money even before investing the money. Some clients (33.65 %) had to produce false voucher which is a clear violation of shariah. Besides, there is no Islamic school under this scheme which can teach Islamic | 15.66 |
| knowledge to the children. |
Microcredit is now a well established poverty alleviating programme which is being implemented across the world. All these institutions working in Bangladesh provide interest based credit which is straightway a violation of shari’ah. These institutions also do not care about the ethical aspects of the rural poor, although it is obligatory, not only in business sector but also in all aspects of life. Business and ethics should be interrelated. However, the microinvestment programme is to uplift the overall socioeconomic plight of the rural poor, which, in this case, cares about developing ethics and morals development of the clients as it can play a crucial role in alleviating poverty. This assessment highlighted the achievement of ethics and morals of the clients and its contribution on poor people’s livelihood and summary of the study findings, conclusion and policy implications are presented below:
• Although, level of participation in religious activities by the clients has greatly been improved after joining RDS programme, there is still room to improve these activities, especially knowledge about interest, its consequence, and how to get rid of it. Therefore, a weekly meeting or frequent lectures may be organized regarding this issue. • Results showed that most of the clients utilized their borrowed money but the reality is that not all clients invested their borrowed money to income generating activities. Instead, some of them utilised their investment in house repairing, children’s marriage ceremony and furniture purchase etc. Therefore, proper monitoring and supervision should be done to develop their morals and ethics so that they use their money in income generating activities. • It was observed that some field supervisors do not properly practice the Bai-muajjal mode; which is a clear violation of shari'ah so, necessary measures have to be taken to develop their moral and ethics so that they do not violate shari'ah. • Mudaraba mode of investment may be practised with some selective good clients, even if in some cases this mode does not bring any profit for the scheme so that the clients and person concerned would find the difference between conventional (interest based) and Islamic microfinance. Incorporating this mode in place of Bai-muajjal mode would reduce shari'ah violation.
• Poor borrowers are not aware of the modern technology. They depend much on the traditional method of farming resulting in low production. Therefore, provision should be made to provide demand-led and effective training on different aspects of on-farm and off-farm activities, credit management, environmental pollution, nutrition, health care and ethical development. • It was observed that field supervisors are not well trained up and hence they found it difficult to motivate the rural people toward RDS and also to manage the RDS centres. Frequent training should therefore, be organised for improving the field supervisors’ knowledge, skill, moral and ethical values. • RDS organises weekly meetings in each centre but effectiveness of the meetings cannot be maintained due to shortage of time. Therefore, duration of centre meeting time has to be increased so as to make those meetings effective. • Model estimation results showed that branch distance from RDS clients place (11 to 16 km) has a negative impact on clients’ income and well- being. Although this result is not significant, it is alarming. Therefore, branch command area for RDS programme should not be expanded beyond the 16 kilometre range. • The number of RDS clients is sharply increasing higher although the average rate of dropout (11%) is also alarming. The reason for dropout is not yet known therefore, proper selection of clients is very important and monitoring should be increased to reduce the rate of dropout.
Author information: Dr. M. Miazur Rahman is the Director of the Islami Bank, Bangladesh Limited (IBBL).