Grameen and Microcredit:
A Tale of Corporate Success
by Anu Muhammad
‘It is essentially a glorified form of subsistence’1
‘Women bank workers cannot be as rigid as men workers when it comes to collection of installments’2
Grameen Bank’s microcredit programme has been recognized internationally as a model of big success. This model has become an integral part of development thinking, and earned global attention as a new form of banking and business. But it has been hailed more as an effective tool for alleviating poverty and empowering women. This article is aimed at examining the model. In order to do that the Grameen Bank’s own publications and studies are analysed, its declared objectives are brought to scrutiny with the help of several studies and field works. International experiments of the model were also studied. The findings derived from independent studies, discussions and analysis in and outside Bangladesh contradict the current myth around the model. The model created a good opportunity for expanding market for finance capital; it also played an instrumental role to ensure huge corporate success. However, it failed to show its effectiveness as a tool for poverty alleviation and women’s empowerment.
Although Microcredit (MC), in one form or another, has been practiced in different parts of the world for a long time, the Grameen Bank (GB) has instutionalised it and has brought it in formal, and mainstream global financial system. From a project initiated in 1976, Grameen Bank emerged as a bank in 1983. It expanded thereafter in Bangladesh rapidly and suceeded in capturing development thinking in and outside the country. Many countries endorsed the model as a part of their ‘poverty alleviation’ programme. Things got momentum after Bill Clinton, the then US president, extended his support to the GB. By then the global financiers found the model as an effective way to expand their finance market.
It is true that, microcredit mechanism has already earned confidence as mainstream window of finance. But that was not its declared objective. Microcredit has always been placed as an ‘alternative’ to the dominant development paradigm for alleviating poverty. Still its effectiveness as a tool to alleviate poverty, the main argument behind this ‘alternative’, has not been well established. This article makes an attempt to understand the nature and extent of corporate success of Grameen Bank and microcredit enterprises as well as to examine its claim about poverty reduction and women empowerment.
NGO: Growth, Polarization and Retreat
World Bank et al started focusing on poverty alleviation programmes since the early 1970s when rising poverty and inequality, resulting from the trickle down modernization process in the peripheral world, were creating widespread discontent. Growth of development NGOs became a new phenomenon and soon Bangladesh appeared as a breeding ground for NGOs. Born in the early 1970s, the number of foreign funded NGOs reached 382 by 1990. After that within 5 years it increased three times, and nearly five times further in next 10 years.
During the same period, alongwith quantitative multiplication, the foreign funded NGO sector underwent some fundamental shift within its own body dynamics. In the beginning, NGOs started working with clear commitment to address social issues like inequality, health care, mobilizing poor to stand against exploitation, deprivation
and dominant power structure. Later most of them made retreat from initial promises and concentrated mainly on microcredit operations. During the same period, the NGO sector became highly polarized3. Very few NGOs including Grameen Bank gained command over more than 80 per cent of resources, workforce in the sector and also network while most of other NGOs settled with the status of their sub-contractors. Moreover, this polarization took place alongwith corporatization of few NGOs. Grameen and BRAC became global and made joint ventures with multinationals and the World Bank, and gradually turned into a new form of ‘group of companies’. This is certainly a new phenomenon not only in the NGO sector but also in the corporate world. A new form of private ownership also emerged from the NGOs leadership.
For policymakers, from home and abroad, NGO model has become an obvious choice for poverty alleviation or reduction, because it gives them a convenient way out to avoid structural causes of poverty. Global agencies who represent global capitalism, started pushing peripheral countries to implement their agenda of Washington consensus since the early 1980s. During the same period, NGOs were made an integral part of major policy making processes, and also resource and service delivery system of the peripheral state, as a conditionality of ‘aid’ from ‘donor’ countries and agencies. Therefore, although definite type of NGO is certainly a non government organization, it is no more a non state organization (NSO).
With retreat from earlier promises the NGO model soon develops its partnership with dominant form of ‘trickle down’ process and ‘laissez faire approach’. It is also possible to find NGO model as a tool of privatization process. (Lewis, 1994; Osmany, 1989)
During the 1980s and the 1990s Microcredit programmes expanded very fast in Bangladesh. This was the same period when (i) structural adjustment programmes, i.e., dismantling public institutions alongwith privatization, trade liberalization, became the main spirit of economic policies, (ii) export oriented garments industry and service sector had a high rate of growth while old manufacturing units experienced negative growth or closure, (iii) different poor targeted programmes evolved as ‘safety net’ programmes to rescue victims of the ‘reforms’ or ‘restructuring’, (iv) ‘land reform’, lost its place in development agenda, and (v) over all NGO activities expanded and were being glorified as poverty alleviating tools.
Growth of Microcredit and Corporatization of GB Projects
‘A strong semiformal NGO microfinance system has emerged in the country during the 1980s’, as the then governor of Bangladesh Bank described, ‘the Grameen Bank and hundreds of NGO-MFIs operate in rural areas, small towns, semi-urban areas, and increasingly, urban neighborhoods as well. Grameen Bank project was transformed into Grameen Bank by a separate Ordinance in 1983’4. The combined coverage of MC programs of Grameen Bank, and more than a thousand non-government ‘microfinance institutions’ and of government financed projects was approximately 15 million households. ‘By considering overlapping problems, which is about 33 percent, the effective coverage would be around 10 million households.’ (BB, 2006)
In another article, (Haque, 2006), it was also noted that in Bangladesh, ‘number of borrower members were 20.26 million at the end of 2004, of which 14.30 million were active. Out of which total borrowers 70.36 per cent and active borrowers 85.66 per cent were with big four Grameen Bank, BRAC, ASA and Proshika’ (ibid) . And there are only ten NGOs who have more than 50 thousand borrowers, forty more have between 10 to 50 thousand. The rest, the overwhelming majority of the NGO-MFIs are small, having less than 10000 members. (ibid)
Table 2 shows increase and distribution of microcredit for four largest MC agencies.
According to the Grameen Bank, (website updated in January 2009) it has 2,535 branches spread over ‘83,343 villages’ and a total staff of 24,325 persons. Total amount of loan disbursed by Grameen Bank, since inception, is Tk 407.68 billion (US $ 7.43 billion). Out of this, Tk 365.39 billion (US $ 6.63 billion) has been repaid. Current outstanding loans stand at TK 42.29 billion (US$ 617.25 million). Monthly average loan disbursement from November’07 to October’08 was Tk 4.99 billion (US $ 72.83 million). (GB, 2009)
In addition to this huge network, more than 20 companies have been born with Grameeen’s plan, goodwill, connections and initiative5. According to the Grameen Bank, ‘these are all independent companies, registered under Companies Act of Bangladesh, with obligation to pay all taxes and duties, just like any other company in the country’ (ibid).
Grameen Phone is now the largest mobile company in the country with more than 62 per cent share with Telenore, Norwegian telecompany. Grameen telecom (another company closely linked with GB) owns rest of the share6. In the beginning, Grameen phone (GP) started its operation through grameen microcredit network, loans were provided by the GB to its members to come to the GP market. Initially 348,733 borrowers recieved loans from GB to buy mobile phones, that played an important role in creating foundation for Grameen Phone and also its expansion. GP, in the name of poor, also recieved financial and infrastructural support from public resources. In this process, GP expanded very fast7.
Grameen Phone has now become the highest revenue earning company in the country8. Grameen Danone Food and Grameen Veolia Water Ltd have also been formed as joint initiatives with global companies, and popularised in the name of the poor and Grameen network, but these are also not owned by grameen borrowers.
There are other companies those were created by Grameen establishment as ‘separate legal entities’, to ‘spin off some projects within Grameen Bank funded by donors’. ‘Donor’ and GB funds transferred to Grameen Fund and it provides loans or guarantee to different companies in its fold9. According to Grameen Bank, these companies have the following loan liability to Grameen Bank : Grameen Fund : Tk 373.2 million, Grameen Krishi Foundation: Tk 19 million, Grameen Motsho (Fisheries) Foundation: Tk 15 million. Moreover, Grameen Bank provides guarantees in favour of organizations while they receive loans from the government and the financial organizations. (GB 2009)
Globalization and ‘Commercialization’ of Micro credit
Globalization of Finance and Financialization of Global Capitalism
‘In the latest phase of global capitalism, financial sector has become dominant over production sectors. In the last few years investment in speculation multiplied much faster than investment in other sectors. Banks, insurances, share markets, all became centre of global investment. Financial capital, as a whole, took the lead of global capitalism. The unprecedented growth of ‘money for money’ activities helped many rich to become richer at a rate that is unprecedented in history. These may not bring good moment for the majority. Because, these activities have fraudulent elements and often create disastrous effects for many. Some of it became visible in the recent past in many countries including Argentina and several countries in East Asia. Other countries including the US had the heat of it. The force of uncertainty and collapsing experiences prompted James Tobin, leading economist of the US, to ask for imposing taxes on this speculative investments and transfer of money. George Soros, the guru of speculation and financial investments cautioned global leadership to take actions, extend state control over uncontrolled money movement, to save capitalism.’ Since this author wrote this (Muhammad, 2006), the global uncertainty has turned into global turmoil. Once a super profit making financial sector now exposes its total fragility and creates an unprecedented disaster for the whole global economic foundation. The neo liberal model based on Washington consensus and market growth reveals disastrous nature of late capitalism where speculative capital becomes dominant.
In the last few decades, finance capital has become globalized in the process of capitalist expansion and revolutionaztion of communication technology. During the same period, on the other hand, global capitalism experiences increasing finanancialization as a response to over accumulation of capital as well as higher return on speculative investment. By taking opportunity of technological progress and unregulated movement of capital, new forms of speculative investment emerged.
But this growth of capitalism could not solve the basic contradiction of capitalism. The majority of world population remains outside market creating a deep tension within the system itself. Safety net programmes, evolved to solve this, showed little success. Micrecredit in this phase, appeared as ‘God sent’ potential way out for capital to get a vast virgin market as well as to link a huge population to the market by increasing their market oriented activities.
Microcredit: A new way out
In 1995, the World Bank (WB) opened new window on micro credit. In 1996, WB in Bangladesh made recommendations regarding NGO and micro credit. It categorically stated: ‘Integrate NGOs with commercial finance markets by: a) developing an appropriate regulatory framework for the financial operations of the NGO sector; (b) encouraging large NGOs to establish themselves as banks; (c) encouraging ‘wholesaling’ of credit to established NGOs; and (d) using smaller NGOs as brokers to mobilize self-help savings groups.’ (WB, 1996)
This shift to commercialization of NGO programmes, therefore, had blessings from global capitalist centre and was a response to the inner necessity of finance capital. In 1997 first international micro credit summit was held in Washington. In the conference, WB, USAID, Inter-American Development Bank, UNDP and Citibank among others declared about their special fund for micro credit. In the last decade, not only Grameen Bank model started spreading in other countries, mainstream Banks also have started introducing micro credit in its operation.
In 1998, on the eve of the tripartite meeting on Micro-finance in Lyon, France, UNCTAD pointed out, ‘The micro credit phenomenon has revealed the existence of a huge potential market, profitable yet largely untapped: an estimated 500 million micro entrepreneurs and their families, until now largely excluded from a financial system… These 500 million micro-enterprises represent a potential credit market of US$ 100 billion and an even larger market for savings and insurance. ....Institutions such as Bancosol in Bolivia and K-Rep in Kenya boast better profitability rates than some of the world’s biggest and best bank. A movement initiated about 20 years ago … micro-finance is becoming an industry, making its way into the mainstream financial system’. (Chowdhury, 2007)
In 2005, the UN names the year 2005 as the ‘International Year of Microcredit’. In the same year, Citibank opened ‘Citi Microfinance’ initially based in London, New York, India and Colombia. The second micro credit summit held in 2006 assembled many big corporates together. This is important to note that Monsanto, Citigroup were among the sponsors. This Summit Campaign Report estimated that ‘there are more than 3,000 microfinance institutions serving 100 million poor people in developing countries. The total cash turnover of these institutions worldwide is estimated at $2.5bn’ (Harford 2008)10.
Barclays Launches Ghanaian Microfinance, tapping into one of Africa’s most ancient forms of banking, “Susu collection”. International Finance Corporation, part of the World Bank, announced a ‘$45m investment in credit-linked notes to be issued via Standard Chartered bank to facilitate microfinance lending in Africa and Asia. In 2007 JP Morgan launches a microfinance unit as part of its emerging markets strategy’. (Harford 2008)
Financial Times in a recent investigative report focused on ‘commercialisation’ of microcredit and evolution of microcredit to microfinance . The investigation revealed that, ‘The Citigroups of the world are not the only commercial players to get involved in what was once a purely philanthropic endeavour. Sequoia Capital, the venture capital fund that backed Google, Apple and Cisco, has taken an $11m stake in SKS Microfinance, a large Indian lender. Private equity groups such as Helios Capital are making similar moves.’
It also gave instances of many microfinance institutions that have been ‘transformed from charities to profitable companies through hugely successful initial public offerings’. It called Mexico’s Compartamos (“Let’s Share”), as ‘the most notorious’, that used a $6m investment to turn itself into a billion-dollar company in less than a decade, expanding rapidly while charging very high rates to borrowers and in the process, ‘what was once an idealistic movement is now a fast-growing industry, and one that is rapidly losing its innocence’. (Harford 2008)
Report further stated, ‘Compartamos was founded in 1990 as a non-profit, but after a decade converted itself into a profit-making company, with investors including Acción International, which is part-funded by the United States Agency for International Development (USAID) and the International Finance Corporation, which is the World Bank’s private sector lending arm.
..... The initial investments of about $6m, between 1998 and 2000, were worth about $1.5bn at the time of the public offering in 2007. That valuation was justified by a combination of fast
growth and high interest rates’.
The ‘Consultative Group to Assist the Poor’, an independent microfinance think-tank housed by the World Bank, estimated that Compartamos ‘charged interest rates of more than 100 per cent APR (or annual percentage rate), after tax.’ In South Africa ZaFinCo, established only in 2004, became a good profitable business by ‘charging 11.75 per cent per month on a four-month loan, or 200 per cent APR, much more than Compartamos was generally judged to have been charging.’ (Harford 2008) Country experiences: not the same
Multiplication of Grameen Bank model or ‘cloning Grameen bank’ (Todd, 1996) shows its wider acceptance by different countries with varied forms of government and socioeconomic priorities. Spread of micro credit institutions within and outside Bangladesh also reveals it economic viability and profitability from the investors’ perspective.
Todd (1996) investigated the experience in Vietnam. The study pinpointed special features of MC operations in Vietnam where land reform and state planning played important roles. The study noted, ‘The Grameen Bank model presupposes, at least implicitly, an exploitative landlord-moneylender class which dominates opportunity and the political structure in the rural village’. However, she continued, ‘in Vietnam, land reform eliminated the landlord class....The idea of using an NGO to sidestep the government structure and reach the poor directly is entirely foreign in Vietnam...Everything that reaches the rural people is mediated through the people’s committees and their closely-related mass organization.’ It analysed experiences of mass organizations, women organization in particular, ‘the credit programme as it was implemented by the Women’s Union was seen simply as a method that the existing political structure could adopt to reduce rural poverty.....The Women’s Union, which was founded in 1930, is the mass organization for mobilizing women throughout Vietnam....With a membership of 11 million women it now plays a powerful role in development, particularly in the social welfare areas of health, family planning and mother and child care. ....cadres were chosen as field assistants’.
Bateman (2008) found different scenario of MC in Serbia while he worked there as a consultant. ‘The foreign-owned commercial banks since 2001 have massively discovered microfinance. From almost zero in 2001, the commercial banks now channel 22 per cent of their total loan portfolio through highly profitable microfinance (household microloans) programmes amounting to almost 12 per cent of gross domestic product.... so the country is now chock-full of traders, kiosks, shops, street-traders and subsistence farms. The base of the economy is quite simply being destroyed.’ This disproportionate growth of service sector is also happening in Bangladesh11.
Bateman also discussed situations in Bosnia. He argued, ‘the situation is even worse in Bosnia which is serving as the international donor community’s “test-bed” for post-conflict microfinance. Many locals call it the “Africanisation” (Africanizacija) of their economy, meaning its planned descent into unsustainability.’ (Bateman 2008)
Microcredit and Poverty Grameen Bank claim
Grameen Bank claims its loan recovery rate to be 98.24 per cent. Ever since Grameen Bank came into being, it has made profit every year except in 1983, 1991, and 1992. However, since Grameen Bank and peer organizations like to emphasize their activities as a tool for poverty alleviation, therefore, mere success as bank, accumulating huge capital and playing instrumental role for opening new profit making big corporate houses should not be considered as sufficient conditions to establish their claim. Therefore, we need to look at its impact upon poverty scenario, women empowerment and its form of operation regarding borrowers.
Karim (2008) summarizes the declared objectives of Grameen Bank from its own documents. These are: it promotes credit as a human right; it is aimed towards the poor, particularly poor women; it is based on ‘trust’, not on legal procedures and system; it is offered to create self-employment, income-generating activities and housing for the poor, as opposed to consumption; it was initiated as a challenge to conventional banking which rejected the poor by classifying them as ‘not creditworthy’; it provides service on the door-step of the poor based on the principle that the people should not go to the bank, the bank should go to the people; it gives high priority to building social capital.
It is claimed that, in Bangladesh, ‘according to Grameen Bank’s own internal survey, 56% of its borrower families have crossed the poverty line by 2005, judging this on the basis of ten indicators (size of loan, amount of savings, housing condition, furniture in the house, provision of pure drinking water, sanitation and warm clothing, education of the children, etc.) set by Grameen Bank to track impact of its program on the poor families that it serves....Bangladesh is still the only country where microcredit outreach is over 75% of the poor families.’ (BB, 2006)
The updated GB website refers to its recent internal survey (2008) to show that 65 per cent of Grameen borrowers’ families have crossed the poverty line. However, the same source indicates different trend elsewhere. Table 3 is compiled from internal survey data of Grameen Bank. It shows that, GB’s success got the highest score in earning profit (81.40%), 100 per cent repayment success is also clearly very high (74.37%), but when it comes to peoples lives and economic scenario the success rate drops to 13.74 (education) and for poverty reduction to only 2.26%. Yet the GB authority does not seem to be very sure about the claim on the success rate from reports delivered by local bodies. It, therefore, said ‘this claim needs to be verified’12.
Microcredit operations of Grameen and other agencies have been extensively studied by other researchers. In the latest study (Ahmed 2007), 2,501 respondents were covered who received a total of 3,537 micro-credits in the loan period during which the survey was conducted. It was seen that 24 per cent took loans from two sources, 6 per cent from three sources, and 1 per cent from more than three sources. About 68 per cent used only one source. The three leading sources of micro-credit were Grameen Bank (34%), ASA (24%) and BRAC (21%). All other sources account for about 21% of the loans. Over 99% of the borrowers interviewed were females. Most of the borrowers were in the age group of 21-50 years; and most of the borrowers (84%) were primarily housewives. The majority (65%) of the respondents were also illiterate, while 17% have studied up to class V and another 21% between class V and VIII.
The largest number of activities undertaken (37%) by the borrowers were related to trading including in paddy, rice, stationery, grocery, fish, and other ordinary goods and services (‘in some cases with some processing’). The next two important categories were renting in of agricultural land and agriculture related activities (each about 13%). The next three activities mentioned were purchase and pulling of rickshaw (9%), using the credit money to defray the costs of education and marriage of children (8%), and purchase and rearing of cows (7%), Another noteworthy activities was the payment of previous loan (6.4%).
The study also collected data from the study villages to calculate ‘interest rate based on average balance’(IRAB) of loan and ‘rate of effective cost of borrowing’(RECC) for four large organizations, Grameen Bank, BRAC, ASA and PROSHIKA. It was found that while IRAB ranges from 26.6 percent (GB) to 40.8 per cent (BRAC and ASA), the RECC reached higher range from 30.5 (GB) to 44.8 (BRAC and ASA).
The study revealed that although the large majority of borrowers were women, that did not establish their authority over the resources. Only 10 per cent of borrowers could be sure about their control over their loans. The rest 90 per cent had to share it or hand it over to husband, brother or any other male member of the family. Other studies also have similar findings, for example, ‘108 informants out of 120 women borrowers reported that male guardians in the household either sent them or influenced them to become members of the Grameen Bank loan group.’ (Rahman 1999)
Dowry, an amount of money or goods to be given from girls’ side to the marrying man as a precondition for marriage, is known to be a curse for poor people in general and women in particular. Extent of dowry, its rise or fall can be used as yardstick to measure women’s empowerment as well as their social security. In contrast to GB claim, according to the study (Ahmed, 2007), 2036 (82%) respondent borrowers inform that dowry pressure increased since enrollment, only 2.4 per cent or 60 borrowers found the problem decreased, while for 374 cases or 15.1 per cent, it remained as before.
Although there are plenty of literature on the successful repayment rate of GB and other MC agencies, there are very few who look at the repayment from the borrowers perspective, how they manage to do it, how they suffer from this load. Ahmed (2007) found 1189 out of total 2,501 respondents who could not repay on time. 72.3 per cent of them had to borrow money from money lenders and others at high rates of interest, while about 10 per cent had to sale goats or something.
Findings from other studies have not been much different (EconJU 1996, 2004, 2007). From a total sample of 1489 families from 15 villages, only 5 to 9 per cent of the borrowers were found to use micro credit for their economic improvement, many of them had other sources of income as well. The borrowers who used their money into lending business with higher interest rate got the highest return. The second best was the service sector, like small shops, rickshaw-van or retailing. Nearly 50 per cent of the borrowers could retain the position but had to take further loans from other sources. About 43 per cent could not manage loans from many sources and therefore their position deteriorated.
Another study carried out jointly by the Bangladesh Institute of Development Studies (BIDS) and the World Bank in 1997, found that less than 5 per cent borrowers could lift themselves out of poverty each year by borrowing from a ‘microfinance programme’ (Khandker,1998). It was also estimated later that, ‘that 5 per cent of the microfinance borrowers actually represents only about 1 per cent of the population’. And therefore ‘the long history of micro finance movement in Bangladesh and the incidence of high aggregate poverty situation seems to remind policymakers about the limitations of microfinance in alleviating poverty.’ (Rahman and Khandker, 2000).
In another study conducted in the mid 90s, a resurvey of 17 villages under Poverty study of 62 villages, only 19 per cent respondents informed that their conditions had improved, out of which only 5 per cent gave credit for this improvement to NGO intervention, 24 per cent informed that their situation has deteriorated, while no change was observed in 58 per cent cases (Rahman,1995).
These quantitative findings contradict the myth of Grameen Bank and Microcredit. Still it gives a partial picture of social relations that affect MC activities and influence shaping the inherent repressive unequal relations including patriarchy in lending and repayment of MC activities. We need to look into qualitative studies to understand more.
Women’s Empowerment: ‘Public and Hidden Transcripts’
The MC borrowers are mostly women not only in Grameen Bank, but also in many other MC agencies. On the contrary, we find officials as male in all of the same agencies. Why is that? Aminur Rahman, through an ethnographic field research in Pas Elashin village, tried to understand this. He conducted this study ‘based on thirteen months of ethnographic field research on Grameen lending to women in a rural community of Bangladesh’ (Rahman, 1999). He used the concepts of ‘public and hidden transcripts’ developed by James Scott13 (Scott, 1990), to understand rhetoric and reality of the operation of microcredit in general and Grameen Bank in particular.
Rahman (1999) observed that, ‘in the study village, both the Grameen Bank workers and the borrowers acknowledge that accepting women in the program is done because of the “positional vulnerability” of rural women in society. The positional vulnerability of rural women is understood and often explained by informants in relation to women’s limited physical mobility and to their culturally patterned behavior (shy, passive, and submissive). The informants of this study rarely mentioned women’s self-employment and empowerment as the objective of lending to poor women’ He quoted Mafiz, a bank worker who said to him earlier that, ‘Women in the village are easily traceable. They regularly attend more group meetings than men. Women are more reliable and are more disciplined (passive/submissive) than men. Working with women is easier than working with men’ (Rahman,1999)
Rahman further noted that the male bank workers were 91 per cent of the total workers involved in the field level operation of the bank. At the time of his research all the eight managers under the area office were men, the area manager and program officers were also men. He also found nine of the twelve bank workers were male in the study branch. Female bank workers were accused of being ‘less effective in collecting installments’. The manager of the branch stated to him, ‘women bank workers cannot be as rigid as men workers when it comes to collection of installments’. (Rahman, 1999)
In many studies, it is found that the actual utilization of the loans has not been in the same areas those were approved. For example, in Pas Elashin village, highest number of loans were approved for rice husking (39%), but nobody used any loan for that purpose. The second highest number of approved loans were in agriculture (23%), actual use was 3%. The highest number of actual use of loan (42%) was in business including money lending. No loans were approved for money lending, and it was only for 19% for business. There was no approved loans for household expenses, but 29% of loans were used for family necessities including dowry, sponsoring migrant worker and medical expenses. (Rahman, 1999)
In another anthropological study Karim (2008) looked into the causes behind this and also the process of loan delivery. She found, ‘because of the pressure on loan officers to recover money, officers seldom have the time to monitor what the borrowers do with the loans. As one borrower’s husband said to me with a smile: We took a cow loan. Fifty percent will be spent to pay off old debts, and another fifty percent will be invested in money lending. If the manager comes to see our cow, we can easily borrow one from the neighbors.’ The study further found, ‘the availability of NGO money has encouraged many rich clients to enter the micro-credit market. In many instances, richer clients used poorer women as proxy members. That is, the rich client used the loan while the poor woman joined the NGO as a proxy member in exchange for a fee. If the rich client defaulted, it was still the poor proxy member who was held accountable by the NGO’.
Microcredit Defaulters and Coercive Measures
It is true that, the borrower of micro credit does not have to show any collateral, but s/he has to be accountable to the group s/he belongs. This group belonging works as collateral. The borrower receives the amount minus some savings, about 10 per cent, and has to repay the loan in weekly installments with interest of around 20 to 40 per cent of the total on average. Since more than 20 per cent return on the loan amount is essential to keep repayment regularly for every week, every month and every year without any break, if anything happens to break the payment or if the borrower cannot earn more or at least equal to the repayment amount, s/he becomes defaulter, which has chain effect. It is assumed that, ceteris paribus, as standard practice in economics, other things remain the same, meaning everything would be favourable for weeks, months and years. No natural disaster, no accident, no sickness. But the reality does not approve these assumptions. If anything much less than above happens, the repayment becomes impossible. That happens for the majority. Further hidden assumption is that the property relations, power structure, market process all favour the poor, which is proved completely wrong. For every breakdown of the model with wrong assumptions the borrower faces helpless uncertain and burdened situation. Defaulters therefore are on the rise among the poor who are compelled to take new loans from other sources at higher interest rates.
In Bangladesh, the reality is often different and bitter. Living in the lowest strata of a society that is based on class, gender and regional discrimination, very few borrowers can pass the difficult examination, most of them either face market hostility or natural disaster or sickness or social odds. While other structural factors are kept intact or are worsening, one need to be enough cruel or naive, to expect these poor people to become efficient entrepreneures.
In 2007, people in the coastal areas suffered from deadly attack of one of the worst natural disaster Sidr. That incident further exposed coercive face of microcredit operations. One recent study was conducted in twelve Sidr affected south and south-western districts in Bangladesh, where pre-Sidr outstanding loan to around 1.5 million people amounted to some 12 billion taka from 42 microcredit organizations. The study (Pasha, 2008) observed, ‘Sidr victims who lost almost everything in the cyclone, experienced pressure and harassment from Non-Governmental Organizations (NGOs) for repayment of micro-credit installments. Such intense pressure led some of the Sidr affected borrowers to sell out the relief materials they received from different sources. Such pressure for loan recovery came from large organizations such as BRAC, ASA and even the Nobel Prize winning organization Grameen Bank.’
That study also found that, ‘Even the most severely affected people are expected to pay back in a weekly basis, with the prevailing interest rate. No system of ‘break’ or ‘holiday’ period is available in the banks’ current charter. No exceptions are made during a time of natural calamity. The harsh rules practiced by the micro credit lender organizations led the disaster affected people even selling their relief assistance. Some even had to sell their left over belongings to pay back their weekly installments.’
The study compiled the following facts from a focus group discussion with a group of micro credit holders at an affected area on October 21, 2008:
In many cases relief materials had to be sold off to pay for credit installments.
Many were forced to spend the government provided housing compensation package of Taka 5000 to repay their loans.
Many have received fresh loans from some NGOs, however, used a significant portion of it to pay for their previous loans owed to some other NGOs.
Some NGOs launched cash for work programs for the Sidr affected people... many complained that they were forced to hand over the money to some micro credit lending organizations to which they owed in the pre-disaster period.
In some cases the women borrowers had to face systematic harassment by the field staff of the lending organizations. Some complained that they were forced to give out their left over possessions, even their small ornaments, to pay off the credit.
Karim (2008), in her study, also observed the process of loan repayment and helplessness of rural women in MC operation. She noted, ‘in circumstances when the woman failed to pay the sum, which happened several times a month in the NGOs I studied, the group members would repossess the capital that the woman had built with her loans. This ranged from taking away her gold nose-ring (a symbol of marital status for rural women, and removing it symbolically marks the ‘divorcing/widowing’ of a woman) to cows and chicks to trees that had been planted to be sold as timber to collecting rice and grains that the family had accumulated as food, very often leaving the family with no food whatsoever. The women who committed these acts did so at the exhortations of NGO officers, but they also considered these acts to be ‘protecting their investments’, and the defaulting woman as someone who had ‘broken faith with the community’. These acts were committed with the full knowledge of NGO officers, but the officers did not participate in these collective acts of aggression. Instead, they threatened to withhold future loans unless the defaulted money was recovered’.
The study conducted in Sidr affected area narrated the story of Bilkis, who ‘survived the cyclone-powered tidal wave that engulfed the village by climbing a tree and is now struggling to find food for her family. With nothing left but the clothes she stands up in, she knows she will be unable to keep up the payments of her outstanding debt of Tk 80,000’. Despite the severe condition faced by cyclone survivors, GB officials, who toured the area around Bilkis’s village told the news agency that canceling outstanding debt was impossible. (Pasha, 2008).
Grammen Bank founder chief Muhammad Yunus once stated, ‘As a thumb rule I would say that an MCB should try to keep the interest rate within 5 to 10 percentage points above the commercial rate. If it goes above this limit, it would be entering money-lenders’ world, leaving the microcredit world behind.’ (BB, 2006). But in reality that is happening not only in other countries but also in Bangladesh too.
We understand that, Muhammad Yunus argues in favour of social business and defines it by three requirements: (1) social objectives: it needs to have positive social objectives e.g. health, education, poverty, environment or climate urgency. (2) community ownership: it needs to be owned by the poor or disadvantaged (dividends and financial growth return to the poor and (3) non-profit distribution: investors may not, after having had their investments paid back, take profits out of the enterprise as dividends (Yunus, 2008). However, the list of joint ventures and other businesses linked with Gramen network show us that, most of these enterprises fail on all of these requirements. Grameen Phone has become the largest source of capital outflow not only from the subscribers but also from the country. Other two joint ventures are taking the same path.
Financial Times (6 December 2008) pointed out recent controversy within Micro credit world where Muhammad Yunus, opposed ‘microfinance lenders’ such as Compartamos ‘as indistinguishable from the
moneylenders’. However, it has now been clear that the increasing commercialization of microcredit, polarization of MC agencies, coercive nature of extraction all have been grown as an obvious outcome of the process itself and the dynamics of the logic of capital. And in the same process, GB itself gave birth to most profitable business enterprises and Yunus himself was awarded as one most successful businesspersons in the world14, while number of poor people remain struggling to face natural calamity and social onslaught. Their number and vulneribility have increased.
Grameen Bank’s spectacular success as a Bank in new form must be acknowledged15.
But where should we locate its success? Certainly not in poverty alleviation, but in creating big business not for the poor but by integrating them into the market. Yunus (2003) himself cleared his position elsewhere: ‘I believe that ‘government’, as we know it today, should pull out of most things except for law enforcement and justice, national defense and foreign policy, and let the private sector, a ‘Grameenised private sector’, a social-consciousness-driven private sector, take over their other functions.’
But we already know that the grameenised private sector has not brought anything different except misleading people with some rhetoric like ‘social business’. This position goes well with neo-liberal ideology and the dominat development paradigm that produce and reproduce poverty for many, and affluence for the few, that destroy nature and peoples lives to ensure and maximize corporate profit. Bangladesh, the pioneer of microcredit, itself stands as a clear proof of this nature and direction of ‘development’16. Therefore, in the name of alternative, the micro credit machine in fact has taken the role of a supplementary to the dominant development paradigm.