Muhammed Yunus, the Founder Director of the Bangladesh Grameen Bank has been awarded the Nobel Peace Prize in 2006.
From very small beginnings in 1976 in a village in Bangladesh- with an initial loan of pounds fifteen, began this micro credit system of giving credit to the poor- mainly womenfolk. Today there are 6.5 million borrowers, 96% of whom are women. The Peer Lending Programme as it is called has 2,226 branches in 71,371 villages. In addition the Programme has spread to many countries including the USA.
The key method is that in any village community a loan is given to a selected poor person without any collateral security on the condition that the members of the community stand as voluntary unofficial guarantors. Their task is to apply social pressure on the loanee to keep up the repayment installments. If they succeed and if the payments are regular then another member of the community is selected by the Bank officials for another loan and with success in repayment another poor person is selected for a loan. The bank manager is in charge of the total process of interviewing the applicants, judging the best applicant, giving the loan and monitoring the repayments.
In the words of the International Fund for Agricultural Development of the UN Food & Agricultural Organization,
The Grameen Bank now stands as a model of lending to the poor with a very real possibility of being reproduced not only in the poorest countries but also in the heart of the richest as witnessed by a project of a similar scheme targeted at low income women in Chicago.
This Programme has also provided a great impetus to the minimalist microcredit programmes which has been pursued by the World Bank in many countries.
The founder Muhammed Yunus truly hopes to help the world’s poorest out of destitution. While the system of non collateral micro credit that is pursued under the Grameen Bank Model is truly commendable it has to be stated that there are certain limitations in this model which preclude the achievement of such a noble aim.
It is possible to achieve success in terms of loans granted and recovered and money poured into the rural scene,. A sustainable system of lending has been achieved. However there are limitations in terms of what the loanees can attend to in the form of enterprise creation, aimed at income generation. In a research study by Yunus himself,-it is documented that in the case of a loanee, “ with money come anxieties. Her main worry was how to use the money in the best possible way”(Joriman of Beltoil Village & Others in Search of a Future:1984) As far back as 1984 Dharam Ghai said that It is possible that with a large expansion in the size of operations of the Bank, particularly if this expansion is concentrated in limited areas there could develop a surplus of specific goods and hence returns from such activities could decline sharply.
This defect is due to the basic fact that though village folk can attend to their occupations with ease, when they approach the task of investment and the march from subsistence farming to commercial farming they require a technical knowledge. This training is an essential element for success in investment and was understood by certain researchers like Rahaman & Hossain as far back as 1988:” A very careful review of technical institutional and organizational matters must precede loan disbursement.”
In addition the training and loan disbursement has to be a part of development planning.
When the Grameen Model was introduced in the USA the US Senate Committee on Small Business was sharp to pin point this defect. They decided that “It is important that the Small Business Administration maintain the program’s emphasis on quality business training which must be provided by the intermediaries to all micro-loan borrowers if the program is to fulfill its intended purposes of economic opportunity for people who have little opportunity or access to credit otherwise.”
The decision was for the USA Small Business Administration to provide funds for training for the loanees to emerge from subsistence to commerce. Connie E. Evans in her evidence before the US Senate Committee stated that To insist that people borrow money before they are eligible for Small Business Administration supported technical assistance is actually a counter productive policy in that it is better to put some technical support in first and then make the loan and not vice versa.
The Grammen Bank Programme has truly provided more cash flow to the villages. But it is important to find out what happens when more money is injected into an economy without a matching increase in the commercial activities. What happens can be illustrated from real situations in India when under the IRDP (Integrated Rural Development Programme) when loans were given to poor people to purchase an income generating asset like a cow. The loan was given on the strict condition that a cow was purchased. More money was available but the supply of cows was not increased. This led to a situation where the prices of cows increased. The increased supply of money did not create production of cows- instead the prices of cows were bid upwards- it created inflation. We get down to one of the basic theories of economics: The Quantity of Money Theory of Prices in action; this theory as Galbraith says- holds that prices, the volume of trade being equal, will vary in direct proportion to the supply of money.
Thus it cannot be ruled out that the effort of pouring in money into the rural economy without planning for the proper utilization through training and by enterprise guidance can actually lead to the creation of inflation. Perhaps this is why the rapid expansion of the Grameen Bank lending to the poor has not enabled Bangladesh to emerge out of the quagmire of poverty.
Further major flaws of the Grameen Model which deserve to be corrected if poverty eradication is to be achieved are:
1. The fact that the loanees are not required to keep records, with the result that no one can actually be certain of the achievement. Thus many researchers have had to interview the people who had drawn loans and accept their word as gospel truth. This has meant that no tangible research has ever been done.
2.. Another major problem lies in the tasks performed by the Bank staff- they have to select a village area, attend to publicity, interview and select villages, organize peer pressure for repayment, obtain repayment and continue the loans to the next in the peer group. This is all done in the village and the role of the villagers is simply to apply peer pressure on the loanee to repay. In this we tend to forget that people develop their abilities only when they use them and if the selection of the loanees, the vetting of their business proposals, the disbursement of the loans, their recovery, the supervision of the use of the loan etc had been done by the people themselves through discussion and deliberation in village groups then the people would have been able to develop their abilities. Then the task of the bank manager is taken over by the people. This is the concept of Power to the People and the concept that was successfully tried out by Akhter Hammed Khan in the Comilla Programme of Rural Development which really transformed the Kotwali Thana, a poor destitute area to become a granary for the area- and is today a paradise within an ocean of poverty. Here it was cooperatives managed by the people themselves that did the tasks of the bank manager.
Professor Jeffery Ashe, one of the pioneers in initiating the Grameen Model in the USA has now, after two decades of experimenting, has ridiculed the role played by the bank staff in the Grameen Bank- it requires 625 full time workers to serve 100,000 clients. Ashe compares his Women’s Empowerment Program in Nepal where a staff of only 85 field workers was able to deliver literacy training and lending groups with 130,000 poor women in only sixty days of becoming operational.
It is hoped that these ideas may help the Grameen Bank in achieving its lofty ideal of poverty alleviation. I have worked in Bangladesh for two years as a consultant and have been struck with the fertility of the land and the sincerity, ability and dexterity of the farmers.
The achievement of the lofty ideals of the IRDP of India too is held up due to the same factor that loanees and people who receive grants and loans are not trained and therefore not equipped to make use of the funds they receive. Poverty is endemic in India and the lofty ideals of the IRDP have so far failed to make a dent in society. Perhaps both Programmes can also learn a great deal from the Youth Self Employment Programme of Bangladesh, run by the Ministy of Youth which concentrates on training and guidance in enterprise creation at the very doorstep of the projects, where since its inception in 1982, over a million have succeeded in becoming self employed on a commercially viable basis.
– Asian Tribune –