May 3, 2005—Imagine people that are so poor they don’t even qualify for microcredit loans. These are the people that the Financial Services for the Poorest project, or FSP, tries to help in Bangladesh. The poorest of the poor, the so-called “hard core” poor, often earn too little even to get into some of the more successful microcredit programs.  | A visit to the homes of FSP beneficiaries by Bank staff (l. to r.): Suraiya Zannath, Sr Financial Management Specialist; M. A. Mojid, Project Coordinator of Financial Services to the Poor project; Arif Ahamed, Project Analyst. |
"This project has proven for the first time, that those that live on less than a dollar-a-day can wisely invest small amounts of funds to start with and earn a return that allows him/her not only to pay back the loan but also reinvest the surplus,” says Shamsuddin Ahmad, the team leader for the FSP. The FSP Project is distinct from conventional microcredit programs in Bangladesh, reaching out to some of the country’s most downtrodden people. Many beneficiaries used to be beggars, sex workers, or household help. After becoming part of the FSP, some have even saved enough money to take land leases. Suraiya Zannath works in the Bangladesh office of the World Bank as a Senior Financial Management Specialist. Recently she visited the Hobaribari village north of Dhaka, where the Bank program is reaching out to some of Bangladesh’s poorest families.  | FSP project site in Hobaribari, Bangladesh |
“It was quite a moving experience to see the abject poverty of the extremely poor families at Hobaribari Village under Bhaluka Pourashava,” says Zannath. “The extreme poverty did not preclude these families from knowing the best business options for themselves. The cheerful, sparkling faces of the women spoke a lot about how a better living is possible if the Bishow Bank (Bangla for World Bank) continues its assistance in the form of tiny loans to Bangladesh’s poorest people.”
Normally, Bangladeshi NGOs would not extend a credit that is less thanUS$80. This meant that the hard-core poor were inadvertently left out of these programs for fear of not being able to repay. After identifying this problem, FSP began in October 2002 as a pilot project and was immediately embraced by the community. The key components of the FSP project are: - credit for the poorest;
- capacity building for local groups;
- institutional development of partner organizations and the PKSF.
 | A typical shop built and maintained from credit
provided by the FSP project. |
Raising awareness and social development are also part of the project. As this is a pilot, there is room for learning and innovation. The FSP project is currently in its third and final year of implementation. The project mobilized 55,909 hard-core poor families by January 2005 against the project target of 57,000 beneficiaries. Among them, 50,845 members got awareness training, of whom a total number of 47,540 members received credit totaling US$ 2.4 million as of January, 2005. The credit is being used for innovative Income Generating Activities (IGA) covering small business (26%), goat rearing (17%), cow rearing and cow fattening (18%), rickshaw/van (11%), poultry (7%), agriculture (12%), handicraft (3%), food processing (2%), tailoring/embroidery (2%) and other activities (3%). The pool of beneficiaries mobilized consists of beggars, maid-servants, widows, parents of child labour, separated and divorced women, disabled persons, day labors and former sex workers. FSP is unique because it covers a wide spectrum of poor people – some of whom have been ostracized by their society. The project also offers flexibility in savings and repayment schedule. In addition there is also flexibility in the grace period and the program offers seasonal loan options.  | Some of the beneficiaries of the FSP project. |
The people getting loans through FSP are managing their loans efficiently. That’s evident from the work they are doing. They have formulated diverse investment plans for quick returns. They have also applied the working capital concept, understanding the need to keep some cash on hand and not just reinvest it all. IDA funds under FSP had to travela lengthy and sometimes complicated path. The money nonetheless has managed to reach them, as well as conveying the immense value of microcredit to these poor borrowers. We often associate a greater fiduciary risk with too many intermediaries – yet this project proved that assumption to be wrong. Similarly, common sense says that the larger the number of contracts with small value, the higher the financial risk. Once again this concept has been proven wrong in FSP – the project enjoys a 99 percent repayment rate. Record-keeping has been part of the success. ''My mental math is good enough to keep track of the inflow and outflow of my investment funds, and the PKSF is responsible for reporting and monitoring of my loan, look at my savings book, “said Saleha, a woman who is a tailor. Saleha has become a financial manager, making price comparisons and purchasing the best product for the best value to be used in her business. With loans of less than US$65, not only did these poor people pay back the loans with interest but also have savings in their accounts. They now have the potential to borrow greater amounts, becoming part of the mainstream micro credit programs in Bangladesh. “These tiny microcredits set in motion a virtuous cycle of borrowing and investing which helps the poorest of the poor to climb out of poverty," said Ahmed.
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