Research on Humanities and Social Sciences www.iiste.org ISSN (Paper)2224-5766 ISSN (Online)2225-0484 (Online) Vol.4, No.16, 2014 21 Fragility of Microfinance Institutions (MFIs) in Bangladesh and Its Implications for Poverty-Focused Paradigm-Shift: An Exploratory Study Mohammad A. Ashraf College of Business at University Utara Malaysia (UUM) and Assistant Professor (on leave) of United International University (UIU), Dhaka, Bangladesh Email: mashraf@monisys.ca . Abstract Microfinance initiative is widely acclaimed as a new approach to alleviate poverty and bring about development, but recently the effectiveness of the MFIs has been appeared to be a focus of debate in finance and economics literature. The controversy surrounds mainly on the impact of these MFIs on poverty, ultra-poverty and further overall socioeconomic development. Specific factors, among others, are mainly under scrutiny such as income and living standard, costs of credit, risk of loans, disciplinary imperatives, loan repayment policy, religious restrictions, loan using opportunity etc. An exploratory survey was conducted to analyze the microfinance members’ evaluation about the microfinance schemes adopted by different MFIs in Bangladesh. This study covered only three MFIs such as Grameen Bank (GB), BRAC (Bangladesh Rural Advancement Committee) and ASA (Association for Social Advancement). The sample was taken on random basis from the Districts of Gazipur, Savar and Narayanganj. The respondents (clients of those three MFIs) were asked to evaluate their judgments on different objects selected in the questionnaire. Respondents ranked the attributes on a number of itemized five-point scale ratings bounded at each end by one of two bipolar adjectives. The result of this study indicated that overall poverty was not alleviated and the factors such as disciplinary criteria, costs of credit, income and living standard, religious restrictions and risk of loans are not on a satisfactory level which underscores the necessity of alternative paradigm. Otherwise, ineffectiveness of the MFIs would persist and poverty alleviation objective would remain futile. Keywords: Microfinance customers, Safety Net, MFIs, Islamic MFIs INTRODUCTION ‘Microcredit’ or its wider term ‘Microfinance’(Hashemi and Rosenberg, 2006; Rutherford, 2003; Hulme, 2000) has become a buzzword since at the latest of early 1980s when Grameen Bank (GB) was licensed as a full- fledged specialized rural finance development model in Bangladesh. The extension of small amounts of collateral-free institutional loans to jointly liable poor group members for their self-employment and income generation is a GB innovation. The failure of commercial banking to provide financial services to the poor coupled with disadvantages of using informal markets are major rationales for intervention in the market for financial services at the micro level. Consequently, microfinance emerged as an economic development approach intended to address the financial needs of the deprived groups in the society. The term microfinance refers to ‘‘the provision of financial services to low-income clients, including self-employed, low-income entrepreneurs in both urban and rural areas’’ (Ledgerwood, 1999). The emergence of this new paradigm was encouraged by the successful story of microfinance innovations serving the poor throughout 1970s and 1980s. The other most quoted examples except Grameen Bank in Bangladesh, are the unit desa system of Bank Rakyat Indonesia, ACCION International in United States and Latin America and PRODEM, BancoSol’s predecessor in Bolivia. The microfinance adopts market-oriented and enterprise development approach. It emphasizes institutional and program innovations to reduce costs and risks and has greater potential to expand the financial frontier to the poor in sustainable manner (Littlefield et al., 2003). The scheme of Microfinance is, thus basically, the provision of a broad range of financial services such as deposits, loans, payment services, money transfers and insurance to a poor and low income household and the microenterprises (ADB, 2008). MFIs thus analyze staff as the best fit from an occupational perspective and are now looking at clients of credit borrowers as to their best fit for financial products and what is in the borrowers’ best emotional interest (Latham, 2008). This transformation of microcredit has graduated the poorest from merely the status of borrowers to full-fledged microfinance clients linking safety nets and financial services (Hashemi and Rosenberg, 2006). Here is the clue for considering the present study for customer-experience or satisfaction evaluation of MFIs for rating their credit help as well as other financial services provided to the poor clients of Bangladesh. This approach is, however, new to the case of credibility evaluation of microfinance services provided by the MFIs located inside and outside Bangladesh. Yet, here in the study customer experience and customer satisfaction are used interchangeably.