Assessing the Performance of Conventional and Islamic Microfinance Institutions in Bangladesh: A Comparative Study

Abstract

Microfinance institutions (MFIs) have been well organizations that help poor people in many developing countries (Meisami, et al., 2011; Fernando, 2008). These have boosted the lives of its clients, increased the poor's ability to improve their situation, and provided income to assist them to raise their living standards. As a result, microfinance institutions have a bright future in many emerging Latin American, African, and Asian markets. Moreover, several major international organizations, including the Asian Development Bank, World Bank, European Union, United Nations, and American Development Bank, provide financial support to organizations dedicated to providing microfinance to the poor (Miled, and Rejeb, 2015). Microfinance Institutions (MFIs) make small loans to low-income people (particularly those who are typically excluded from economic assistance) through courses tailored to their specific needs (Khan, 2008). Microfinance institutions create a comfortable environment in which self-sufficiency can thrive (Adams, et al., 1983; Buss, 1999). Non-financial programs and creative reward schemes were also launched by MFIs. These have used group lending methods, and most of the money recipients are women. These create job opportunities for women, improve repayment rates, and increase long-term economic viability (Hashemi, 1996; Godquin, 2004). The microcredit movement is said to have originated in Bangladesh. The sector, however, faces several challenges, including operational capability, service quality, and diversity, as well as political and macroeconomic factors. Despite research into the effects of microcredit on beneficiaries, the performance of microfinance organizations in Bangladesh has received less attention. The study examined the performance/achievement of Conventional and Islamic microfinance organizations to demonstrate the challenges they face in providing banking services to Bangladesh's rural and urban households. Microfinance is a substantial aspect of the Bangladeshi economy, and the development of the financial sector is heavily influenced by the country's socioeconomic, macroeconomic, and financial stability. Microfinance has been recognized as a poverty-reduction and accessible financial program because it focuses on and serves the poor, particularly women, as well as microenterprises and businesspeople who frequently have limited access to official financial institutions.

According

to the World Economic Forum, Bangladesh's economy has outperformed the rest of Asia over the last decade. Microfinance now plays a much larger role in Bangladesh than it did in 1990 when its primary objectives were funded utilization and loan distribution. The importance of microfinance as a vehicle for job creation is increasingly recognized, even more than its traditional role of assisting businesses that lack access to formal finance and encouraging impoverished people to save. Microfinance has become more appealing to policymakers as a vehicle for allowing widespread financing, rather than just microfinance services for economic development and poverty alleviation, as its purpose has broadened over time. Even after accounting for various program memberships, there are over 30 million MFI members in total, indicating a significant improvement in Bangladesh's access to institutional economic services. MFI represents the lowerincome

community better. This means that 65 percent of Bangladesh's rural population of 110 million has access to established financial institutions.