Overview
The Bangladesh Rural Advancement Committee (BRAC) administers the Micro Enterprise Lending and Assistance (MELA) program, which offers loans with favorable terms to small businesses that would not normally be able to secure funds, on the condition that they agree not to use child labor.
The lending program provides credit to new or existing small businesses that show entrepreneurial promise, including enterprises in the textile, food processing, service and transport sectors. Borrowers are often eager for the loans, which range from US$300 to US$3500 with a 15 percent service charge. The average loan size is approximately $1,000. Borrowers agree to their terms because regular banks are unwilling to lend to rural people and require repayment in lump sums, rather than in equal monthly installments. Borrowers repay their loans over a period of one to two years.
BRAC also monitors the activities of its borrowers to ensure that they comply with the terms of their loans and field staff are prepared to take immediate action upon finding any human rights violations, regardless of whether they involve BRAC borrowers.
Since its inception in 1996, the program has lent to over 45,000 borrowers in Bangladesh, all in enterprises that do not use child labor. The program simultaneously generates employment by injecting new capital into local businesses, creates awareness of the problem of child labor and reduces the use of the practice.
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A group in Bangladesh gives communities an alternative to using child labor, providing loans with favorable terms to businesses that agree not to hire children.
The incentive here is clear: BRAC has identified a need and fills it, while spelling out its requirements for respecting human rights. This tactic could also be used in other situations where there is a connection between financial activity and human rights, such as in guarding against discrimination, in guaranteeing fair wages or in providing safe working conditions. The loans themselves have to be attractive enough to provide an incentive, perhaps by having lower interest rates or better repayment terms than those provided by ordinary banks.