Page last updated at 00:03 GMT, Thursday, 3 December 2009

Pioneering money management in Bangladesh's slums

By Caroline Bayley
Producer, In Business, Radio 4

'SafeSave' collector Ishrat Jahan talks to her client Rani in Geneva Camp, a Dhaka slum

Ishrat Jahan picks her way deftly through Geneva Camp, a Dhaka slum housing former refugees from the war of independence - supporters of Pakistan who were left behind when Bangladesh gained its freedom in 1971.

Avoiding festering open sewers and impatient rickshaw drivers, she leads the way along the path between rows of tiny shops, selling eye-catching fabric, garish decorations and fried food.

Ishrat Jahan is a collector for SafeSave, a small microfinance organisation offering savings and loans to people in Dhaka's slums.

For the last 10 years, she has visited her 240-odd clients every day except Fridays. She turns into a small alley, festooned with washing strung between the one-roomed huts, and pulls back a tatty pink curtain.

Rani has lived here for 20 years, and today is paying the equivalent of just under 10p into her savings account.

So far, she has saved about £25 in Bangladeshi taka, and will use the money to buy new clothes for the Eid religious festival.

The transaction is entered into a handheld computer and Rani's passbook updated.


SafeSave was started by Stuart Rutherford 13 years ago.

A former British aid worker, he had watched the emergence of pioneering microfinance organisations such as Grameen Bank, founded by Nobel Prize winner Professor Muhammad Yunus.

SafeSave founder Stuart Rutherford
In Business Radio 4, Thursday 3 December at 2030 GMT and Sunday 6 December at 2130 GMT.
Or download the podcast.

Its priority has always been to lend small amounts of money to poor women in rural villages who wanted to set up small businesses.

This is the concept on which microlending has been built and imitated around the world.

However, Mr Rutherford believes that the very poor should not be forced to borrow solely to set up a business.

"We're perfectly happy if people use their loans to deal with health problems, to deal with other kinds of emergencies, to invest in education, to buy a sack of rice to keep eating," he says.

"Because we recognise that if you are poor, you have severe money management problems."

He wants to encourage savings, as well as loans, and says the way to do this is to visit clients daily because their incomes are so irregular.

"Unless you have a frequent opportunity to set aside a sum of money, no matter how small, you won't be able to maximise the amount you save," he argues.

Likewise, the daily collector's visit encourages clients to make regular small repayments on their loans.


The interest rate on SafeSave's loans is high by Western standards - 36% - and slightly above the Bangladeshi Grameen Bank rates. Daily visits add to administration costs, although labour is cheap in Bangladesh, and, like Ishrat Jahan, most collectors live and work alongside their clients.

Microfinance client Mamata Rani
Mamata Rani has saved 230 to help support her business

But 70km north-east of Dhaka, across the river from the town of Kaparcia, SafeSave's management team is pioneering a new product at its rural equivalent, known as "Shohoz Shonchoy", or "easy saving".

Here, they offer clients an interest-free loan with built-in savings. It may sound too good to be true, but in the village of Hrishipara, loans are paid back more quickly than in the city.

Mr Rutherford says they found people in the slums still struggled to build up large sums for emergencies, so with the interest-free loan, they insist that the client immediately sets aside one-third of the amount in a savings account.

"If your main constraint to saving is lack of liquidity," he says, "then we will give you the liquidity out of which you can save."

The loan provides money to cover immediate spending needs and a lump sum to start saving. As long as the client has an outstanding loan, no interest will be paid on the savings.


Once the loan has been paid off, interest is paid on the savings balance.

"The problem if you are very poor is finding big sums," says Mr Rutherford.

"So we give them a big sum which they put into savings as a big sum, and they pay off the loan in tiny sums - two taka, five, ten, 20 taka until the loan is paid off and then they take another one."

Bangladeshi women who have benefitted from Grameen Bank loans
Millions of Bangladeshi women have benefited from microfinance loans

Mamata Rani has a Grameen Bank loan and savings account.

Two years ago, she also took out an interest-free loan with savings from Shohoz Shonchoy.

She has used the money to build up her business making cardboard boxes to sell to local sweet shops.

Cartons dry on the green flood-plain below her mud hut, while inside, finished boxes are stacked ready to be taken to the town. She has now paid off the loan and accumulated savings of almost 23,000 taka, about £230.

There are millions of Mamata Ranis, poor Bangladeshi women benefiting from microfinance projects.

And within Bangladesh, there are hundreds of microfinance organisations, from the giants such as Grameen to minnows like SafeSave, which has just 15,000 clients.

SafeSave started with donor money, but can now finance its loan book from its deposits. Others have copied its model in the slums, but Stuart intends to keep the organisation small.

His interest-free loan and savings product will soon be piloted by another organisation in Kenya.


Micro-lending has grown sharply since its inception in Bangladesh in the 1970s, and with so many organisations offering poor people loans, some fear it could lead to over-indebtedness.

Grameen Bank founder Professor Muhammad Yunus
Muhammad Yunus says microfinance has benefited the wider economy

Another microlending pioneer, Fazle Hasan Abed - who runs BRAC, the biggest microlender in Bangladesh with eight-and-a-half million borrowers - worries about the multitude of lenders.

"You will find the same person is probably borrowing from three organisations and getting themselves into over-borrowing," he says.

He compares it to the credit card debt problems faced in the West, and wants microfinance organisations to set up credit bureaux, so they know exactly how much clients are borrowing from other lenders.

"It could become problematic - the kind of problems you have faced in your societies with credit cards," he adds, "so this can happen in Bangladesh too."

But Grameen Bank founder Prof Yunus is confident that the benefits of growing access to microfinance outweigh the risks:

"You can say they're hooked. At the same time, you say you have reached them for financial services," he says.

"So if financial services are something they need, they keep coming back so that they can change their world, change their life, change their children's lives."

He argues that the microlending boom has had positive benefits for the wider economy.

"In Bangladesh, it is the bottom people who are bringing dynamism into the economy.

"It is a dramatic change in Bangladeshi society in the last 25 years."

In Business will be broadcast on BBC Radio 4 on Thursday, 3 December at 2030 GMT and repeated on Sunday, 6 December at 2130 GMT. Or download the podcast.

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