Microfinance Country Information

Resource Links:

GDRC's special focus on
Grameen Bank

Statistics on Informal/Traditional Credit Markets

ICM References for Bangladesh

Informal suppliers provide 63% of credit. Money lenders covered 77% of farmers credit needs (50% by friends and relatives, 13% by rural "well-to-do", and 13% by professional lenders).

Germidis et al. (1991)

Share of Informal Credit in Bangladesh
(per cent)
     1. Proportion of Households/
        adult individuals who
        borrowed from: 
        - either/both sectors                        n.a.
        - formal sector                              8.5
        - informal sector                           36.5

     2. Proportion of borrowings

        - informal sector                            36
        - formal sector                             64 
     3. Proportion of outstanding
        household debt owed to
        informal sector                             39.4 (1982)

Ghate, 1990

Charactor of Bangladesh ICM:

A variety of lenders emerge from case studies of Bangladesh ICMs, including some unusual ones not found elsewhere, such as "recovery agents" (individuals who helped banks roll over loans for a fee ranging from 10 to 20 percent of the loan amount) and jolas or poor beggar women. As is to be expected given the variety of areas and activities studied, differences exist on the relative importance of various lender types such as professional money lenders, friends, and relatives and dadon lenders. ROSCAs are conspicuous by their absencein Bangladesh. However, there are a large number of non-rotating savings and credit groups, some of them set up by NGOs, but most of them formed spontaneously.

Some of the segments that emerge are (i) dadon, or forward sales of crops such as paddy, sugarcane and jute as a means of financing crop production, although there are differences in the major source (traders using credit but operating on their own account, dadon brokers merely representing distant wholesalers, surplus farmers, professionalmoney lenders etc.), (ii) trade credit, extended not at an explicit interest rate but on a profit sharing basis, or against tied sales or purchases, (iii) small loans for consumption (such as paddy loans and credit extended by petty retailers) or for petty trading, processing etc. A high proportion of these are interest free and come from friends and relatives. However, interest free loans are well ditributed across all loan sizes. A fourth segment consists of longer tem and larger loans for both consumption and production but collateralized commonly by usufructuary land mortgages which have the advantage of transferring cultivation rights to the lender in lieu of interest and usually principal.

Thus th eIslamic prohibition of interest seems to have had at least four identifiable influences on rural informal finance in Bangladesh: the relatively high proportion, as compared to other Asian countries, of dadon as a means of financing crop production, in which the price discount on the forward sale substitutes for interest, the relative frequency of profit sharing in lieu of interest, the extremely high share of interest-free credit, and the frequency of usufructuary land mortgages

Many small industries and services, such as leather products, small engineering,construction, handlooms, gold and jewelry etc. are located in rural areas, leading to the observation that agricultural/non-agricultural dichotomy is more meaningful in Bangladesh than rural/urban. The major sources of non-agricultural credit are trade credit and credit from friends and relatives. manufacturing and trade boundaries constitute the most important basis for segmentation of the ICM.

Ghate, 1990

Hari Srinivas - hsrinivas@gdrc.org
Return to the Case Studies page
Return to the Virtual Library on Microcredit