Necessity of Capacity Building before Taking Microcredit: Poor Women Perspective of Bangladesh

Necessity of Capacity Building before Taking Microcredit: Poor Women Perspective of Bangladesh Mohammad Helal Uddin Ahmed, Associate Professor, Department of Management Information Systems, Faculty of Business Studies, University of Dhaka, Bangladesh Abu Naser Mohammad Saif, Lecturer, Department of Management Information Systems, Faculty of Business Studies, University of Dhaka, Bangladesh Abstract This study is to assess the necessity of capacity building of borrower before taking the microcredit. The common agents for human capacity building are training, coaching, consulting, academic education, referrals, research etc. The impact of training has been assessed in this research. This study has been conducted on the basis of primary and secondary data. Some questionnaires have been developed for the borrower. Main hypothesis was that trained borrowers might have higher income level than non-trained borrowers. To test this hypothesis it has been interviewed some trained and nontrained borrowers. From the collected data it has been found that there is no significant relationship between the income level of trained and non-trained borrowers. But it has been found that there is significant relationship between the creation of employment opportunity of trained and non-trained borrowers. This study shows that the pre-trained borrowers are hiring more people from outside of their family members than the non-trained borrowers. This study also reveals that the trained borrowers are involved in those activities that contribute directly to the GDP. It has been concluded that there is no significant impact of training on income level but it increases the employment opportunity Keywords:. Capacity building, Borrower, Microcredit, GDP, Employment Introduction Microcredit has emerged as a movement in Bangladesh and in the larger part of the world. As the pioneering country of microcredit, Bangladesh has been drawing great attention of knowledge seekers, academics, development practitioners, and policy makers at home and abroad. It has created positive impacts on two vital areas of national development, viz., alleviation of poverty and women s empowerment. Microfinance programs in Bangladesh are targeted to the poor who make up nearly half of the total population. Focus on women is another important characteristic of these programs. Women constitute around 90 percent of the total participants enrolled in microfinance programs. So the success of microfinance can be ascertained by two significant indicators -- alleviation of poverty and empowerment of women. Removing gender inequity and empowering of the women has been a cherished goal of the NGOs and many other development organizations in Bangladesh. Microfinance has definitely created an impact on the women borrowers. Objectives of the Study a) To assess the impact of capacity building (training) of borrowers before taking the microcredit b) To determine the difference of income level between trained and non-trained borrowers of microcredit. Methodology of the Study Once the research objectives are set the next logical step to achieve those objectives is to decide the methodology to be followed. In this research both primary and secondary data have been used. Primary data have been collected from different borrowers of different NGOs like The Association for Social Advancement (ASA), Bangladesh Rural Advancement Committee (BRAC) and Thengamara Mohila Sobuj Sangha (TMSS). We used structured questionnaire, and interview method to collect the primary data. The secondary data have been collected from different NGOs and organizations like Proshika, Grameen Bank, Credit and Development Forum (CDF), Pally Karma Sahayak Foundation (PKSF) etc. Research Design A specifically designed questionnaire was used as a tool for conducting the research. Different branches of ASA, BRAC, and TMSS situated at Shakhipur thana, Tangail district, and sub-urban area of Dhaka district were visited and the members of aforementioned NGOs were interviewed. Since training is one of the most powerful catalysts of capacity building, so in this research samples are classified into two categories: trained borrower and non-trained borrower. This research paper mainly focuses on the impact of capacity building of borrower before taking the microcredit. So samples are selected in such a way that some of the borrowers have had training and some of the www.borjournals.com Blue Ocean Research Journals 27

borrowers have had no training before taking the credit. Primary data have been collected in August 2006 and in the first quarter of 2013 from the aforesaid areas of Bangladesh. Statistical Package for Social Sciences (SPSS) 17 was used as a statistical analysis tool. The questionnaire was self-administered and distributed among the respondents. Before giving the questionnaires, all the questions were explained to the participants so that they can easily complete the whole questionnaire. Literature Review Eugene O'Neil once said that "Poverty is the most deadly and prevalent of all diseases, and worldwide 1.3 billion people live on less than a dollar a day, and more than 10 million children die each year from malnutrition and hunger. Out of those people living in severe poverty 70 percent of those people are women (Socio-Economic Integration, 2005). From a study it has been found that the sex ratio between male to female is 105:100 (Statistical Pocket Book of Bangladesh, 2012). Almost half of the total population of Bangladesh is women. Most of the poor women of developing countries and under developed countries are illiterate and have potential capacity but no scope to apply the capacity or to raise the latent capacity and they have lack of fund. Microcredit may be a powerful tool to fulfill the demand of fund. Microfinance has proved its value in many countries as a weapon against poverty and hunger (CIDA, 2012). But major problem for the developing countries is that most of the women are illiterate, they don t know how to finance, how to produce a product, where to sell the product etc. Since they don t know how to utilize their money properly so they are always afraid of borrow money. This is why they have no significant contribution to developing and under developed countries on GDP. At first they need to build up their capacity. Capacity building refers to the activities that improve one s ability to realize his/her goals or to do his/her job more effectively (Linnell, D., 2003 and Philbin, A., 1996). A World Bank study has produced evidences of wideranging impacts of microfinance on the condition of the borrowers (Khandker, 1999). The study examined programs of BRAC, Grameen Bank, and Bangladesh Rural Development Board (BRDB), a public sector organization. The findings revealed that per capita expenditure has increased due to microfinance among the borrowers of all these programs. Household s net worth has increased too. A BRAC research examined the impact of poverty in wider dimension. The results showed that 52% of the BRAC member households were below the poverty line while a higher number (69%) of the comparison households was lying below the line. The overall findings showed that among the BRAC members there have been gradual improvements in the indicators such as wealth, revenue earning assets, value of house structures, the level of cash earned, per capita expenditure on food and total household expenditure (Zaman, 1999). Some observers have raised questions as to who actually uses the loans issued to the women borrowers. It has been asserted that Microcredit programs have worked further to incapacitate and subordinate women (Obayedullah, 2000). There are two extreme viewpoints. Women are highly disadvantaged in our male dominated society. They have long been living in extreme poverty, massive health problems, ignorance and illiteracy. Bringing about basic changes in their situation will depend on multi-sectoral interventions. A majority of them either depend on their male household members for utiilization of their loan money or even hand over the loan to them for investment (Zaman, 1999). Management is a common problem and also a challenge for business. Management skills include product marketing, financing, servicing, employee management etc. (Hulme, 1996). As a poor woman of a developing country like Bangladesh, she might have poor skill in management because she hasn t any training on product marketing, financing, servicing, employee management etc. Leadership plays an important role on small business (Woods, 1997). According to a survey, 73% cited a positive impact on business planning skill and 61% cited on financial management skills (Hashemi, 2002). Future studies should take the limitations of this research paper into consideration at the design stage, so that research can be improved and accuracy further increased. www.borjournals.com Blue Ocean Research Journals 28

Data Analysis and Findings Monthly income (Taka) Table 1: Income level of trained and non-trained borrowers Percent of Percent of respondents respondents Having training Percent of respondents Having no training below 4000 20 0 20 4000- below 7000 30 20 10 7000-below 10000 25 15 10 above 10,000 25 10 15 From table 1, it is found that 20% of the respondents monthly income range is below Taka 4000 after taking the credit, 30% of them are stay within the range Taka 4000 to below taka 7000. 25% of the respondents income range is taka 7000 to below taka7000 and rest of the respondents stay above Taka 10,000. The borrowers whose income range is taka 7000 to below taka 10,000,. Table 2: Cross Tabulation Count Training status Total Income Group Yes No Below Tk 4000 1 4 5 Tk 4000 below 7000 3 2 5 7000- below 10000 3 2 5 Above 10000 2 3 5 Total 9 11 20 Table 3: Impact of training and non-training on income 60% of them had training and 40% of them had no training before taking the credit. On the other hand the borrowers whose income is above taka10000, 40% of them had training and 60% had no training before taking the credit. It means, the borrowers whose income is above taka 7000, 50% of them had training and 50% of them had no training before taking the credit Value df Asymp. Sig. (2-sided) Pearson Chi-Square 2.222(a) 3.528 Likelihood Ratio 2.331 3.507 Linear-by-Linear Association.345 1.557 N of Valid Cases 20 A 8 cells (100.0%) have expected count less than 5. Theminimum expected count is 2.25. From table 3, P value is 0.528 for the freedom of degree 3. So there is no significant relationship of income level between trained borrowers and non-trained borrowers. Recently another study found no significant difference between the income of the members who received quality training as against those who did not receive such training (Naser, A., et al., 2002). It is found that 10% of the borrowers had hired employee before taking the credit and 90% of them work by themselves or family members and didn t hire any employee from outside of their family. After taking the credit, 40% of the total respondent hire employee from outside of their family beside their family members and 60% of the total respondents not hire employee from outside rather worked out by their family members. But it is noticeable that the borrowers having pre-credit training, more than 66% of them are hiring employee from outside of the family. On the other hand, the www.borjournals.com Blue Ocean Research Journals 29

borrowers having no pre-credit training, less than 18% of them are hiring employee from outside of their family. Rest of the borrowers has created employment. Table 4: Impact of training on creating employment opportunity Training Status Hired employed status opportunity only for themselves or for their family members Yes No Total Yes 6 2 8 No 3 9 12 Total 9 11 20 Table 5: Chi-Square Test Asymp. Sig. (2- Exact Sig. (2- Exact Sig. (1- Value df sided) sided) sided) Pearson Chi-Square 4.848(b) 1.028 Continuity Correction(a) 3.039 1.081 Likelihood Ratio 5.032 1.025 Fisher's Exact Test.065.040 Linear-by-Linear Association 4.606 1.032 N of Valid Cases 20 a) Computed only for a 2x2 table b) 2 cells (50.0%) have expected count less than 5. The minimum expected count is 3.60. c) From the Chi-square test, P value is 0.028 so there is a significant relationship between training status and hired people status. Impact of Economic Activities on Income Level Percent of respondent on the basis of IGA 20% 35% 25% 10% 10% Tailoring Poultry Food processing Trade Agree worker Among the respondents 25% were involved with tailoring (dress maker), 10% with poultry, 10% percent with food processing, 35% with small trade and 20% with agriculture. The respondents who are involved with Figure-1: Respondent on the basis of IGA tailoring activities, 34% of them income level were Taka 4000 to below 7000, 33% of them income level were Taka 7000 to below 10,000 and 33% of them were above Taka 10,000. None of them income level was below www.borjournals.com Blue Ocean Research Journals 30

Taka 4000. The respondent who are involved with small trade, 42% of them income were above Taka 10,000, 29% of the respondents stay in range of Taka 4000 to below 7000 and 29% of them stay in the range Taka 7000 to below 10,000. But it noticeable that the respondent who are involve with agriculture all of them income level were below Taka 4000. Some Practical Examples from Field Study One Interviewee, a 30 year old woman, was a house wife in a sub-urban area. Once her husband turned into disable and lost his earning capability. They have two children. In this situation, it was too difficult to maintain their family. With the help of one NGO, Shahnaz Akter trained on tailoring. After being trained she took loan from one NGO and set up a tailoring shop. Now her earning is more than Taka 15,000 per month and hired two people from outside of her family. Her economic health has developed within two years after getting the training. Another Interviewee, a 26 year old woman, was only a house wife in a rural area. Her family had been suffering from the tremendous economic crisis. She got informal training from her relatives on food processing. After getting the training she took loan from BRAC and set up a small restaurant. Now her earning is more than Taka 10,000 and she hired two employees also. She has been continuing her restaurant for four years. A primary school teacher of 25 years of age was earning only Taka 4,000 per month. She had extra time besides her teaching profession. To utilize this time she has taken training from BRAC on poultry. After getting required training she started a small poultry firm beside her house. Now, her earning is more than Taka 10,000. Findings In this study respondents are selected randomly, 45% of the respondents had pre-credit formal or informal training and 55% had no training. The borrowers whose income range is taka 7000 to below taka 10,000, 60% of them had training and 40% of them had no training before taking the credit. On the other hand, the borrowers whose income is above taka10000, 40% of them had training and 60% had no training before taking the credit. Combining both group, the borrowers whose income is above taka 7000, 50% of them had training and 50% of them had no training before taking the credit. Moreover chi square test shows that there is no significant difference in income level between pre-credit training and non-trained borrowers. Before going to do research the hypothesis was that capacity building might be increased the household s income. This hypothesis has been proved wrong. In this research, the borrowers having pre-credit training, more than 66% of them are hiring employee from outside of the family. On the other hand, the borrowers having no pre-credit training, less than 18% of them are hiring employee from outside of their family. So there is a significant level of impact of training on creating employment opportunity. The borrowers having training almost all of them are involved in those income generating activities which are directly related to GDP. As for example, pre-credit trained group is involved with poultry, tailoring, fishing, food processing etc. On the other hand the borrowers having no training are involved with small trade and agriculture. Although, agriculture is directly involve with GDP but their income level is poor. Their average monthly income is below Taka 4000. Since, trading is more profitable and less risky so borrowers are more interested on trading. The borrowers who are living in the village, more than 63% of them average income is below Taka 7000. On the other hand, the borrowers who are living in the sub urban area, more than 63% of them average income is above Taka 7000. Recommendations The hypothesis was the trained borrowers might have higher income than non-trained borrowers. Although the hypothesis has been proved negative yet there is a lot of scope to further study to find out behind this reason. In true sense the term capacity building is used increasing ones skill to produce particular product and to know how to market that product, to know how to finance to produce that product, to know how to lead ones employee and how to diversify ones business. For the proposed project so call samples have collected among them pre-credit trained borrowers had training only on how to produce the product. They didn t have any lessons on marketing, financing, diversifying the business etc. Their awareness level is also very poor. More than 80% of the total respondents don t know the interest rate of their loan. The poor women are illiterate, they are risk averse. They have poor level of leading and motivating capability. Interaction with other men and authorized people gives the women more confidence and helps them to learn to talk in public. Developing awareness level might be helpful increasing the leading and motivating capability. Awareness level may be increased from short training on micro or small entrepreneurship, weekly or monthly interaction with group members or branch managers. Training may also be increased the institutional operating cost. Although from the study it is found that there is no significant difference of monthly income between trained group and non-trained group, but there is significant impact of www.borjournals.com Blue Ocean Research Journals 31

training on creating employment opportunity. The borrowers who had pre credit training more than 66% of them are hiring people from outside of their family. On the other hand less than 18% of the non-trained borrowers are hiring people from outside of their family. More over most of the trained borrowers are involved with poultry, tailoring, food processing, fishing etc. income generating activities which are directly involved with GDP. But most of the non-trained sub-urban borrowers are involved with small trading, and rural borrowers are involved with conventional agriculture. So training as well as capacity building in true sense is very essential before the credit. So that one can increase ones skill not only on how produce the product, but also on how to market, finance, diversify, motivate, lead etc. It may increase the sustainability of the micro entrepreneur as well as income of the borrowers. Since loan size is very small, weekly monitoring is mandatory so more employee is required for the microfinance institutions. Due to this reason interest rate is higher than other conventional banking interest. Besides these, training for borrower before credit might be further increased significantly the operating cost of NGOs. To reduce institutional operating cost, NGOs might accept micro-entrepreneurship or small entrepreneurship concept. Training would be provided only to the selective potential borrowers and loan size should be increased significantly according to one s potentiality. Potentiality might be assessed by ones preeducation, pre-economic activities, pre-experience, utilization of past loan etc. This concept might be increased the borrowers income level, employment opportunity, sustainability and economic activities which are directly involve with GDP. For example, if training is provided to dress maker on how to sell, where to sell, how to expand business etc. then the potential borrower can make more employment opportunity for the poor and the poorest of the poor people. Conclusion This study it is found that there is no significant difference of income between pre credit trained borrowers and non-trained borrowers. There is a significant level of relationship of training on creating employment opportunity. The borrowers who had pre credit training are hiring more people from outside of their family compare to non-trained borrowers who usually employ family members. Most of the trained borrowers are involved in income generating activities which are directly contributes to GDP. However, most of the non-trained borrowers are involved in trading or agriculture. Disbursement cost per loan is increasing number of borrowers. In brief it may be conclusion that capacity building for the borrower is essential for increasing employment opportunity, income and GDP. Financial institutions should increase the size of loan according to the borrower s potentials so that one can employ ones full potentials and can make employment opportunity for the poor people. Limitations and Future Research The present study is conducted on some selected NGOs, organizations, and rural people. So, the sample size was small. The present study directs future researchers to increase sample size and conduct longitudinal study that could provide a better insight. References [1] Association for Social Advancement (ASA), Annual Report 2012. [2] BRAC, Annual Report 2012. [3] Canadian International Development Agency (CIDA), Annual Report 2011-2012. [4] Credit and Development Forum (CDF), CDF Statistics: Microfinance Statistics of NGOs and other MFIs, Vol. 18, 2010. [5] Grameen Bank, Annual Report 2012. [6] Hashemi, S. M., and Schuler, Rural Credit Programme, and Women s Empowerment in Bangladesh, World Development State, Vol. 24, No. 4, 2002. [7] Hulme, D. and Mosle, P., Finance Against Poverty, London:Routledge, pp. 120-122, 1996. [8] Khandker, Shahidur R., Fighting Poverty with Micro-credit: Experience in Bangladesh, New York: Oxford University Press, 1998. [9] Linnell, D., Evaluation of Capacity Building: Lessons from the Field, The Alliance for Nonprofit Management, 2003. [10] Obaydullah, M. A. Measuring the Success of Micro-credit, Bangladesh Observer, Dhaka, 7 Aug. 2000. [11] Philbin, A., Capacity Building in Social Justice Organizations, Ford Foundation, 1996. [12] Statistical Pocket Book of Bangladesh, 2012. [13] Woods, Geoffrey, and Iffat, A Sharif, Who Needs Credit? Poverty and Finance in Bangladesh, Bangladesh, Dhaka: The University Press Limited, 1997. [14]Zaman, Hassan, Assessing the Impact of Micro-credit on Poverty and Vulnerability in Bangladesh, Policy Research Working Paper, The World Bank, Washington D.C., USA, 1999. www.borjournals.com Blue Ocean Research Journals 32