Introduction:

Microfinance as an alternate loan mechanisum has gained wide attention over the past few decades
following the huge success of the Grameen Bank and Brac in Bangladesh. The distinguishing feature of
micro-finance is that it is a collateral-free loan. It becomes an easy loan option for poor people who are
otherwise forced to remain out of the formal credit market due to lack of collateral. Micro-finance as
ameans of instrumental freedom brings the fredoom of acess to credit to poor people who do not
possess physical collateral. Therefore, it can be used as an effective means of poverty reduction.

Microfinance Service Provider

Selection of Borrowers:
Selection of borrowers is to be considered as per lending principles and Bangladesh Bank Guidelines.
Borrower Selection Criteria: The following points should be taken into consideration:
1. The borrower must be a real entrepreneur
2. He must be resident of the project area
3. He should have at least 20% of the total project value as his equity
4. He should have the ability to offer collateral security acceptable to the lending bank
Methods of Selection:
In selecting the borrower, the following aspects should be considered
1. Past behavior of the borrower requires to be studied. Enquiry should be made whether the
applicant has availed of any loan previously from other bank and whether his dealings with that
bank are regular or not.
2. Work experiences of the intending borrowerwhat are the activities undertaken by himhis
successes and failures along with analysis of the underlying factors.
3. Whether the work area has any relevance to the project proposed to be undertaken y him.
On investigation and inquiry the banker reaches his conclusion to select a borrower that
qualifies the 5(five) essentials, which may be termed as five Cs:
1. Character
2. Capacity
3. Capital
4. Condition
5. Collateral
Character: Character denotes integrity of the borrower i.e. he should have willingness to repay the
money borrowed. The banker should investigate every aspect of the character factor and should
convince himself that despite adverse conditions, the applicant will make every effort to discharge his
deb.