ABSTRACT
The avowed primary objective of microcredit programmes is to promote self-employment for the poor by supporting their income-generating activities (IGAs). The impact of microcredit on poverty alleviation, therefore, depends mainly on the profitability of microcredit-financed IGAs, their sustainability, and their prospects for scaling up. A question commonly asked is: how can the IGAs be profitable at the interest rates charged by MFIs? It is important to understand in this context how the borrower households undertake IGAs as part of their livelihood strategies, and thereby supplement their household income, along with creating self-employment opportunities for the household members. Another puzzle is that, in spite of repeated loans, only a few microcredit-financed businesses grow beyond subsistence entrepreneurship. The problems of providing large-sized loans can only partly explain this, since capital can be accumulated from repeated loans over a long time. Another hypothesis is that the rigid loan modalities prevent borrowers from undertaking profitable but risky and larger-scale enterprises. The number of the so-called ‘entrepreneurial poor’ among the numerous MFI clients is cited as another limiting factor. There can also be a problem of market saturation faced by the proliferation of IGAs, all producing and supplying similar kinds of products and services. The MFI leaders in Bangladesh also point to the increasing importance of the availability of suitable production and marketing technologies that can facilitate the scaling up of the IGAs into microenterprises.
