This paper aimed to understand the dynamics of participation of the TUP (Targeting the Ultra Poor) members of CFPR (Challenging the Frontiers of Poverty Reduction) phase I in the financial market since their graduation from the CFPR programme. The analysis was done using the longitudinal panel data (2002, 2005 and 2008). It has been found that after two years of programme support and provision of some flexibility in borrowing from BRAC microfinance, the ultra poor can meaningfully participate in the formal credit markets. Their active participation can help them achieve long-term benefits in the form of increased per capita income. Participation in the programme has brought about significant positive impacts in the rate of borrowing as well as lending and saving behaviours of the participant households.

More than two-thirds of the sampled members had ended up participating at least once in BRAC microfinance. Those who had participated more than once tended to use the loans more for productive purposes like to run their small business enterprises than for consumption. Participation in BRAC microfinance has mostly been influenced by demographic profiles like marital status and level of awareness of the participants, number of male working aged members and self-perceived economic status before participation in the CFPR programme and later after graduation whether they were in a separate village organization (VO) or in a VO merged with the general microfinance borrowers. Being in separate VOs was one of the strong determinants of BRAC microfinance participation. This has been one of the flexibilities along with the provision of considerably smaller loans at each loan cycle compared to general microfinance borrowers which clearly helped borrowing from BRAC microfinance.

Participation in BRAC microfinance was not an automatic process. Some distinctions have been found between those who participated in BRAC microfinance early (within one year of graduation from grant phase) and those who participated much later. Level of awareness on various social, legal and political issues of the women, outstanding loans from informal sources and self-perceived economic status were the underlying factors in determining early adoption of microfinance.