Channeling commercial fund to NGO-MFIs: a case study of Bank-NGO linkage programme of Sonali Bank

Abstract

Bangladesh has the largest and most vibrant micro finance industry in the world, which is greatly appreciated for its contribution in the reduction of poverty in the country. This industry, however, is encountering funding problem, because low cost funds and donations from abroad are declining. In this situation, strong suggestions have been made to finance this operation on commercial basis through statutory banks.

Sonali Bank has such a programme called SB-NGO Linkage programme for several years. This study analyzes the performance of this programme and concludes that by using comparative advantages, both the bank and the NGO-MFI can benefit through forging an effective linkage programme. Commercial banks can substantially increase their profitability through this kind of linkage, because the cost of lending is very low while the rate of recovery is very high. On the other hand, such programme significantly increases the sustainability and outreach of NGO¬MFIs.

Therefore, the study strongly recommends to formulate a workable mechanism, which would facilitate mutual trust between commercial banks and NGO-MFIs, working towards an effective and sustainable linkage with necessary government and NGO collaboration. Under such a framework, both GO and NGO can work together on the basis of their comparative advantages through coordination and cooperation to effectively serve the cause of poverty reduction.