From paddy fields to tropical islands – Microfinance moves away from its traditional roots

July 5, 2015

Reading Time: 3 minutes

Jannat is not your typical microfinance client. Like an increasing number of BRAC’s microfinance clients, she is not a member of a women-only savings and borrowing group, and did not take a loan to set up a micro-enterprise. Instead, her and her husband are part of new sphere of microfinance clients that is starting to catch on – migrant workers.

Jannat is not your typical microfinance client. Like an increasing number of BRAC’s microfinance clients, she is not a member of a women-only savings and borrowing group, and did not take a loan to set up a micro-enterprise. Instead, her and her husband are part of new sphere of microfinance clients that is starting to catch on – migrant workers.

Jannat happily shows us around her home where she has been living since she married her husband, Nazrul Ali. Nazrul Ali used to work as an autorickshaw driver, but decided to seek work abroad earlier this year when political unrest in Bangladesh began to affect his livelihood.

With the help of a migration loan from BRAC, Nazrul Ali now lives in the Maldives, where he works at a hotel. He sends most of his monthly salary (USD 240) home every month, part of which is used to pay their loan instalments. A co-borrower of the loan, Jannat runs the house and looks after their daughter who will start school very soon. She says that if they did not take the loan from BRAC, they would have either sold their land or gone to a local high-interest moneylender, known to charge rates as high as 200 per cent.

BRAC’s expansion into migration loans came as part of a natural evolution of the microfinance sector that took place in tandem with the evolution of the Bangladesh economy. According to the Bangladesh Bureau of Statistics, there are 8.6 million migrant workers living abroad. Furthermore, remittances from international migrants, which stood at USD 1.3 billion in March 2015, is the second-highest contributor to the country’s GDP. Migration and microfinance support the economy in similar ways whereby they both address high supplies of labour and unemployment. It made sense to synergise them.

Migrant workers wait outside the Hazrat Shahjalal International Airport.

Migrant workers wait outside the Hazrat Shahjalal International Airport. Photo: The Daily Star

Acknowledging the growing demographic dividend that Bangladesh cannot support with domestic employment, alongside the vital role that remittances play in the country’s development, BRAC designed credit products to specifically target workers seeking employment overseas, but who were unable to meet the costs. Migration loans help to cover visa fees, airfare, agent fees as well as smooth household spending of family members who remain in Bangladesh. On average, BRAC provides loans worth USD 2,300 to a client. As of May 2015, BRAC helped fund 127,876 people going overseas, disbursing USD 280 million with a 99 per cent recovery rate.

Drawing positive lessons from supplying credit to migrants themselves, BRAC also learnt there was demand for credit from the migrant households remaining in Bangladesh, too. For them, the main utility of credit was to provide flexibility with how they managed their finances, as they waited to receive and accumulate remittances. A separate cash injection from BRAC could help maintain levels of consumption, or provide the capital then and there to make investments that they knew they’d be able to afford in the long term, due to incoming remittances. Knowing that instalments can be paid with the remittances families receive each month, also make this a safe investment for BRAC. Launched in June 2014, ‘remittance loans’ have reached almost 8,000 households so far.

While credit for migrant households provides opportunity to access work abroad, they do not address vulnerability. The horrors of many migrant workers’ experiences catching global headlines reveal that their desperation for livelihoods, along with low levels of literacy for many, can make them perfect targets for extortion and fraud by unscrupulous recruiting agents and sub-agents.

Besides providing finance, BRAC also educates aspiring workers on how to avoid exploitation of workers by aggressive middlemen. Additionally, BRAC helps to check that documents issued to clients are legitimate, verifying approximately 8,000 visas each month. By designing financial products specifically targeting migrant workers that integrate other essential services, BRAC is able to go even further to ensure clients are linked with employment opportunities, and guarded against risks that would threaten both the client and the organisation.

BRAC’s expansion into migration loans is a case in point of the utility of microfinance well beyond setting up local village enterprises. While BRAC’s experience clearly shows that financial services are necessary tools for any financially excluded group to access economic opportunity, targeted design according to specific demographics remains vital to ensuring credit products work as intended.

BRAC serves over 5 million microfinance clients in Bangladesh, with a range of products designed to reach different groups. You can read more about our approach here.

 

Isabel Whisson is communications and knowledge management officer at BRAC’s microfinance programme. Sameeha Suraiya is a deputy manager at BRAC Communications.

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