Chapter 11 Interest-Free Microcredit to Microentrepreneurs: An Institutional Network Approach

With a population of over 1501million, Bangladesh provides a large consumer market for potential industries. Moreover, it holds one of the lowest wage structures in the world. The comparative advantage of Bangladesh lies primarily in its agro-processing industries. But besides agriculture, the rural-based microenterprise (MEs) sector in Bangladesh is a potentially lucrative field of investment (IPPF, 2001). In spite of its major contributions toward economic development, the rural-based microentrepreneurs in Bangladesh suffer from lack in working capital, institutional credit facilities, and poor management. There are many formal and informal financing organizations that are functioning in the money market of Bangladesh. Formal financing institutions like government and privately owned commercial banks normally give loans to large- and medium-scale industries (Alam, 2009). Cooperative banks in the country, although giving loans to the rural-based microenterprises, confine their credit giving activities mainly to the members of the bank (BIDS, 1981, 1988, 1989, 1990). One of the specialized and well-known microcredit giving organizations in Bangladesh called “Grameen Bank” (Yunus, 1993; Nabi, 1990) also gives microcredit to the rural-based microentrepreneurs, especially to the rural poor women. Besides many NGOs, moneylenders in rural Bangladesh are also an important source of lending funds to the rural-based microentrepreneurs.