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Source-This post on Bangladesh’s Development Model has been created based on the article “What microfinance can teach economists” published in “Business Standard” on 31 August 2024.
UPSC Syllabus-GS Paper-2- the Role of NGOs, SHGs, various groups and associations, donors, charities, institutional and other stakeholders.
Context– Muhammad Yunus, the Nobel Prize-winning microfinance expert, recently called economics a “meaningless subject.” His statement drew attention when he was appointed to lead Bangladesh’s caretaker government after the removal of Prime Minister Sheikh Hasina.
By the 1990s, Bangladesh was a development success story, largely due to Yunus and BRAC founder Fazle Hasan Abed. They effectively used civil society alongside traditional state and market methods to drive progress.
With Yunus in a key role, Bangladesh’s development model will face close scrutiny. The main question is whether the civil-society-driven approach is a genuine alternative to traditional economic theories or just a short-term shift.
What is the Significance of The Microfinance Model?
1) Community-Based Model– Yunus’s microfinance model was innovative. By lending to groups of women instead of individuals, it built a supportive community where borrowers held each other accountable and encouraged repayment.
2) Culturally Tailored Group– Research shows that Grameen Bank’s success stems from its group-based social support, unlike Western models that use external systems. Designed for the Global South’s cultural context, Yunus’s model is more effective and relevant.
A detailed article on Microfinance: Status, Benefits, Challenges and Solutions can be read here.
What are the Critiques and Challenges of Microfinance model?
1) High Interest Rate-Microcredit commercialization has caused high interest rates and excessive debt for borrowers.
2) Misuse of Microcredit –Some organizations misuse the system for profit, raising concerns about its sustainability and ethics.
Question for practice
What is the Importance of the Microfinance Model? What Are the Criticisms and Issues Facing the Microfinance Model?
