Handling Default Risks in Microfinance: The Case of Bangladesh

Despite the current enthusiasms in applying the concept of microfinance as a poverty alleviation tool in many countries, the risk management aspects of microfinancing should not be overlooked. This paper highlights several incidences of default risks in microfinance and subsequently, provides a comprehensive exploratory study on the various ways to handle the default risks in microfinance. While there are social and religious objectives embedded in extending microfinancing, fact is that the financiers are business entities having the objectives of maximizing returns and minimizing losses. In this regard, this paper contributes towards a more effective recovery process, so that more people can benefit from the microfinancing facilities. Several suggestions are highlighted to maximize the benefits of microfinance to both the creditors and borrowers with the objective of realizing a win-win situation for both parties.