Micro-Credit Programs Ride a Wave of Success

Micro-enterprises offer an alternative strategy for socio-economic uplift of the poor. Large project-oriented development has come under growing criticism from the grassroot people who claim that the projects often benefit large contractors more than they help local people. The critics argue that more investments in small or local enterprises could bring socio-economic benefits more equitably and efficiently. This view is reflected in the old Chinese saying, “many little things done in many little places by many little people will change the face of the earth.”

Micro-credit programs extend small loans to the poor for self-employment projects that generate income, which allows them to care for themselves and their families. In most cases, micro-credit programs offer a combination of services and resources to their clients in addition to credit. These often are in the shape of savings, training, networking and peer support. Micro-credit is a powerful anti-poverty tool that has demonstrated relevance for the people of six continents and nearly every country. It is estimated that micro-credit programs now reach around 50 million people in developing countries alone.

The success of the micro-credit programs in Bangladesh is largely due to the resilience of the hardworking women of Bangladesh. They can do wonders if provided with training, motivation, organization and marketing outlets along with micro-credit facilities. The assured availability of credit can radically transform the life of a poor person from one of misery and despair to one of hope and creativity.

The people of Bangladesh are proud of the outstanding work done in the field of micro-credit by Professor Muhammad Yunus and the Grameen Bank, which he founded. Started as an action-research project in 1976 and given formal shape in 1983, the bank has been able to offer to the world a distinct micro-lending approach in the field of rural development, more specifically poverty alleviation through micro-enterprises.

The Grameen Bank inherited a rich heritage of rural development experiments in Bangladesh. The first significant experiment on rural development was initiated by Dr. Akhter Hamid Khan in the sixties, which was popularly known as the ‘Cornilla Model’. Grameen Bank has skillfully avoided many pitfalls of that experiment. The member-clients of Grameen Bank obtain small loans to fund self-employment in primarily home-based small businesses, which generate enough income to repay the loans and improve the economic condition of their families.

In addition to the loans, Grameen Bank provides a package of services for social empowerment of its clients, 96 percent of whom are women. Credit is extended without collateral, but remarkably, a steady loan-recovery rate of 98.9 percent is maintained. Targeting the poor and credit discipline in all phases of lending operation are given maximum emphasis, which partly account for the success of the Grameen program. Other praiseworthy attributes are: Flexible management, transparency in operations and stringent and hard-hitting measures against corrupt and dishonest officials. As of April 2005, an estimated 22 million men, women and children (4.35 million families) in over 51,000 villages (of 433 upazilas under 63 districts) all over Bangladesh derived benefit from Grameen’s credit and other socio-promotional programs through its 1,456 branches.

The bank promotes a practice of micro-capitalism that serves the poor and thrives on their entrepreneurial potentials. As of March 2005, 225.17 billion taka had been disbursed as loans and 203.81 billion taka were recovered. The amount of cumulative savings by the Grameen Bank members stood at 13.79 billion taka. Around 55 percent members of Grameen Bank have already graduated from poverty.

The Grameen model has inspired numerous national and international organizations to assist the subaltern poor to help themselves by organizing micro-enterprises. Grameen inspired credit-based micro-enterprises have now spread to over 70 countries in Asia, Africa and the Americas. Currently, there are over 500 programs directly or indirectly modeled on the Grameen Bank in the US alone. As of Dec. 31, 2003, a total of 2,931 micro-credit institutions allover the world reported reaching 80.86 million clients, over 54 million of whom were among the poorest when they took their first loan.

Around 15 million poor families in Bangladesh have already been brought under the micro-credit network through NGOs like Bangladesh Rural Advancement Committee (BRAC), PROSHlKA Manobik Unnayan Kendra and Association for Social Advancement (ASA) alongside the Grameen Bank (GB). Grameen Trust, a sister organization of Grameen Bank, caters to the worldwide replication of the Grameen model through funding and technical assistance.

In fact, the worldwide adoption of the Grameen Model represents a rare case of technology transfer from the South to the North -- a case of reversing the more prevalent diffusion process in which the Western industrialized world has always been the innovator and the subaltern third world the adopter.

The government of Bangladesh established a micro-finance institution called Palli Karmashayak Foundation (PKSF) in 1990 as an apex not-for-profit organization to meet the market demand and institutional development needs of NGOs involved micro-credit programs. With the establishment of PKSF, the involvement of NGOs in micro-credit programs in Bangladesh marked a sharp rise. According to Credit and Development Forum (CDF), around 1,000 NGOs were implementing micro-credit programs in Bangladesh during the year 2005.

The government of Bangladesh also distributes micro-credit through various ministries, departments and agencies. These include: Prime Minister’s Office, Finance Division, Cabinet Division, the Ministries of Social Welfare, Women and Children Affairs, Labor and Employment, Fisheries and Livestock, Industries, Textile, Agriculture, Land, Youth and Sports, and Local Government, Rural Development and Cooperatives. Up to December 2004, cumulative credit disbursement by government agencies stood at 60.67 billion taka while loans worth 50.04 billion taka were recovered. The amount of cumulative loans disbursed by state-owned banks as micro-credit stood at 114.51 billion taka in March 2005.

The United Nations had declared 2005 as the International Year of Micro-Credit to give impetus to micro-credit programs throughout the world and invited governments, the UN system, relevant non-government organizations, the civil society, private sector and the media to highlight and accord enhanced recognition to the role of micro-credit in eradicating poverty. The year was observed across the globe including Bangladesh in a befitting manner. It is expected that micro-credit programs would make a significant contribution in the realization of Millennium Development Goals, as declared by the United Nations, by the year 2015.

The Wizard of Grameen, Professor Muhammad Yunus, has other exciting and innovative ideas for emancipation of the poor. For example, he is an advocate of Social Consciousness-Driven (SCD) organizations -- where enterprises are run on a commercial basis keeping in mind the social priorities such as equity and empowerment of the marginalized. Examples include Grameen Telecom (major shareholder of Grameen Phone), Grameen Shakti (working in the field of renewable energy) and Grameen Shamogree (produces products like the famous Grameen Check fabrics). In his Utopian world-view, Professor Yunus even calls for rewriting economics text books in order to reorient our mind-set in favor of the poor and the disadvantaged.

He also calls for removing the road-blocks which stand in the way of human creativity and fulfillment. For the long-term success of initiatives like Dr. Yunus, removal of these road-blocks coupled with the reduction of all-pervasive social vices like corruption appear to be the greatest challenge.

(Helal Uddin Ahmed is former editor of Bangladesh Quarterly)