January, 2001
More People to Gain Access to Micro-Credit:
New project aims to reach larger numbers and the poorest of the population

Contact Person:
In Dhaka: Ismet Zerin Khan 880-2-966-9301
E-mail: ikhan1@worldbank.org
In Washington: Zita Lichtenberg (202) 458-7953
E-mail: zlichtenberg@worldbank.org
www.worldbank.org/developmentnews

DHAKA, January 19, 2001--The World Bank has approved a US$151 million credit for a project to improve and expand micro-lending in Bangladesh. The Second Poverty Alleviation Micro-finance Project aims to increase access to credit and ensure sustainability of the country's micro-lending programs. The credit is provided by the International Development Association (IDA), the World Bank's concessionary lending affiliate.

"Providing micro-credit is one of the most effective means Bangladesh has of directly improving the lives of its poorest people, especially women," said Reazul Islam, the World Bank's team leader for the project. "Since it began around 20 years ago, micro-lending has provided a path out of dire poverty for millions of people in this country. With this project we hope to reach more of those who have been left out or under-served so far, and to ensure that micro-lending is sustainable into the future."

The project follows an earlier $105 million IDA credit provided in 1996. The first micro-finance project helped provide micro-credit to about 2.2 million borrowers by the time it closed on December 31, 2000. The project has had a strong impact on poverty by helping to stabilize income and consumption, improving quality of life (through increased access to clean water, and better health and hygienic conditions), increasing school enrollment rates, and enhancing family assets. It has improved financially the viability of partner NGOs who retail microcredit, enabling them to seek part of their funding needs from the financial market as well as allowing their gradual integration into the formal financial sector.

The project aims to:

Expand rural micro-credit, responding to unmet demand and the need for larger loans per borrower.

Extend access to credit for the poorest of the population, including providing smaller loan sizes, flexible repayment plans and possibly linking micro-credit to safety net programs such as skills training and food aid.

Expand micro-lending in urban areas where current micro-credit is limited to less than 15 percent of urban poor people, as compared to over 60 percent of rural poor people. The potential for growing out of poverty through micro-credit is high in urban areas because of proximity to large markets.

Provide micro-enterprise loans to entrepreneurs to help them scale up their activities and in turn create employment for the poorest people.

Strengthen institutions providing loans, including the Palli Karma-Sahayak Foundation (PKSF), the organization set up by the government to administer funds, and its partner organizations (NGOs and micro-finance institutions) who on-lend the funds to individuals.

The project will also help the government design a regulatory and supervisory framework which will improve credit-worthiness of NGOs and micro-finance institutions and accelerate their integration into the formal financial market.

Partner organizations have estimated an expansion of around 4.5 million borrowers in the next five years. The Bank-sponsored project is projected to reach an estimated 1.2 million new borrowers and support 19,500 micro-entrepreneurs.

The US$151 million credit to the Government of Bangladesh is made on standard IDA terms with 40 years' maturity. The government will on-lend the IDA funds to PKSF at 1 percent for 20 years, with five years' grace. PKSF then re-lends to its partner organizations-eligible micro-finance institutions-at interest rates ranging from 4.5 to 7 percent. The partner organizations will be free to set the final lending rates to the beneficiaries (expected to be in the 25-30 percent range--which reflects administrative costs). Total project costs are US$181 million with the Government providing US$ 30 million.