DIL’s Caravan of Hope

sac #35 It is indeed surprising how many ways there are for enterprising albeit poorly educated people for income generation. In Bangladesh, Grameen introduced a scheme whereby women would invest in a telephone which they would then make available for a price to others in the village. Proved to be booming business, being used by villagers to keep in touch with family and business associates in the cities. Such communication also helps make the markets less imperfect by spreading news of prevailing prices to farmers.

tAhmed321:

Thanks for your clarifications. I am not sure if we need a whole new microlending behemoth to improve the life of the poor. Last year I happened to run into a distant relative of mine at a wedding in Lahore. The guy was a lending officer in a small bank in the inner city of Lahore. He explained to me how their bank will survive the onslaught of the citibanks of this world. He related a very interesting story. An old lady came to him a couple of years back and asked for a loan to buy a godown full of wool in the month of June. The lady had no collateral to put up but she her premise was that the price of wool dropped sharply in the summer time and it was a good time to hoard it for sale in the winter. In Pakistan where woollen garments are still very expensive, a lot of women tend to knit for their families hence the great demand for wool yarn. The lady had been turned down for a loan at a number of other banks. But the lending officer liked the idea and decided to sanction the loan. Not only did the lady return the loan but she made more than a decent return on her idea. Go figure!!

later

-sac

sac #32 you ask ``how do you account for the fact that Grameen has never shown a profit despite these exorbitant rates as well as their claim of only a 2% delinquency rate on their loans?``

Another good question (I just finished answering your first question in post below): The answer is the high cost of loan supervision. Field worker has to visit borrower`s groups every week to conduct meetings where financial transactions (lending and repayments, but also borrower savings) are conducted; Loans are very small amounts, and so involve large number of financial transactions relative to volumes lent; costs of training borrowers; and costs of accounting system (very robust with cross checks, but requires lots of entries in lots of registers for transactions as small as a couple of takas). There may be room for efficiencies, but the system does one thing that nothing else has managed to do: get the poor started in income generating activities.

sac #32 you write ``I would be very interested in knowing the methodology you followed in doing your cashflow analysis e.g. time horizon,interest rate etc. ``

The methodology (I am writing from memory) was calculation of the Internal Rate of Return. Took cost of purchase of cow and calf, then projected cash inflows from sale of milk for each year for next 3 years. Assumed calf sold at end of the period. Used this basic numbers to calculate returns to capital. Calculations were done by asking simple questions from the investor (i.e. the middle aged Bangladeshi lady) with the help of a translator. Questions concerned prices of cows, calves, milk and volume produced.

This was not a formal study, and indeed was conducted at the spur of the moment and for my own satisfaction. Tools used were a calculator and paper and pencil, and location was a rickety chair on a dirt floor in a village in central Bangladesh, with investment in question (cow) making presence known through appropriate smells and sounds.

re tAhmed321 #31:

I would be very interested in knowing the methodology you followed in doing your cashflow analysis e.g. time horizon,interest rate etc.

If the return is indeed higher than 30%, how do you account for the fact that Grameen has never shown a profit despite these exorbitant rates as well as their claim of only a 2% delinquency rate on their loans?

Personally I think the Grameen model implies a common sense approach to banking. The bankers have to know their clients. The citibanks and Standard Chartereds will remain as conduits for money-laundering in the developing countries and nothing more. Their banksrs don`t have a clue about the belly of the beast. Thats a major reason why the Punjab banks of this world still thrive. It takes more a smiling intern to get the job done.

The Grameen concept has lost its significance becuase now the NGO begums and the beauracracy has gotten onto the bandwagon. It is nothing but a feel good exercise for the expats as well the donor agencies.

later

-sac

Zeemax #29

On your point #1 on microfinance: It is true as you say that microfinance is given at high interest rates (30% or more in Bangladesh, lower in Pakistan). I will go further and say that it is often a revolving fund (with new loans replacing old loans), and it is quite possible that many borrowers would not be able to pay back if new loans were not given. HOWEVER, the returns to capital are high enough in capital scarce places like rural Bangladesh to make this profitable - I myself did not understand how you borrowers could borrow at 30%, so I sat down with a borrowers group in Bangladesh once and (with the help of a translator) I did a cash flow for a milk cow (earnings from milk, earnings from sale of calf) and it was clear that returns to capital were indeed higher than 30%.

The other point you need to understand is that that while NGOs (and Grameen) charge the borrowers high rates, they themselves are receiving cash infusion at very low rates or as outright grants. E.g. IDA credits are at a mere half percent or so service charge to the country.

The entire scheme rests, to put it bluntly, on the generosity of people in western countries (either throught their taxes or through direct charitable contributions).

On 2) you write ``...For example, Grameen rules insist that its borrowers own their homes - not unlike the assumption that shoeless women have bootstraps. Evidently Bangladeshi homeless women don`t count as the poorest of the poor. Further, job creation, education, or training are not the focus.``

You are factually wrong on both points. Grameen does not require collateral of any kind, and it stresses education (of themselves adn their children) as well as other things (clean environment etc.) - these are enshrined in the well known ``16 decisions`` (educate children, maintain cleanliness and so forth) that borrowers often repeat together before a weekly meeting.

On your point 3) where you write ``Instead of collateral, these ``microloans`` are secured by the honor and credit lines of a peer group: If one woman defaults, no one in her lending circle will receive another loan.`` Peer pressure plays a big role, that is true. The loan is to the individual borrower though, not to the group (in Pakistan it is to the Village Organization in many cases).

4) It is true that at times the males control the investments. But you are wrong in concluding ``so much for the empowerment of women``. I have, as I mentioned, talked to over a hundred of these women borrowers and seen for myself the investments and I know that you are dead wrong here.

I would contine, but I have to go. All I can say is that you dont have a clue about what you are talking about, and you should be ashamed of yourself for putting down one of the most effective ways we have seen to date of improving the lives of the poor.

Bangladeshi Women and the Grameen Bank

Jennifer Pepall

Romena * returned home from her village loan centre to find her husband enraged because she had not prepared his morning meal. At the centre, she had been forced to wait for hours until all members of her lending group had paid their weekly installments. Even though she had borrowed money for his brown sugar business, he gave her a beating before storming out of the house.

Romena is a member of the Grameen Bank, a world-renowned microcredit institution in Bangladesh. Her story was recorded by Aminur Rahman, a doctoral student in anthropology at the University of Manitoba who, in 1994, set out to examine how the Bank has improved the lives of women. Instead, he uncovered some disturbing findings: out of the 120 female borrowers in his study, 70% reported an increase in verbal and physical aggression from male relatives after taking out loans. And while their loans were intended to help them earn income, most of these women were reduced to ``middle men,`` borrowing money on behalf of their spouses or male relatives.

Unexpected results

These results were ``totally the opposite of what I expected. It was a shock,`` says Rahman, who was partly funded by the International Research Development Centre under the Young Canadian Researcher Award program. Although the Grameen Bank is hailed as a Bangladeshi success story for extending loans to poor rural women, he notes that ``there are still many borrowers who become vulnerable and trapped by the system. They are unable to succeed.``

As of 1994, the Grameen Bank had loaned more than US$1 billion to 2.02 million members, 94% of whom were women. Today, its 1,046 rural branches serve more than half of the villages in the country. Besides providing credit to those who lack physical collateral, the Bank`s programs are designed to achieve social goals such as raising living standards and improving women`s status in society.

Empowerment

Rahman credits his thesis advisor, Professor Raymond Wiest, for stimulating his interest in the Grameen Bank. Rahman developed the idea for his research while writing a paper for an economics course. He became convinced that access to credit translates into more power and influence for women in their households and in the community. ``I accepted research findings that the process of empowerment is going on. I wanted to see whether this empowerment would be sustainable for the long run,`` he explains.

During his study, Rahman lived for eleven months in a village that hosts one of the oldest Grameen programs. Women`s loan centres had operated there since 1980. He soon found that, far from being empowered, village women were being exploited as a link to capital. Of his 120 informants, 108 said that men had encouraged or influenced them to join the Bank as a way to acquire funds for their own use. In one case, a man threatened to send his wife back to her birthplace and remarry unless she took out a loan. Overall, more than 60% of the loans were used by men.

Debt burden

In addition, Rahman found that 78% of the total micro-loans in the village were used for different purposes than those approved by the Bank. About 30% were used to meet household needs, such as paying a dowry, buying medicine, or paying fees to broker agencies that arrange overseas employment for household members. These expenses create a debt burden for women, forcing them to borrow money from other lenders, appeal to men to pay off the loan installments, or sell household produce that their families would otherwise consume. For example, Rahman met several Bank members who sold hens with hatching eggs, or rice and fruit on the strength of future harvests, to collect enough money to pay their installments.

The pressure to pay these installments also creates household tensions. Under the Grameen Bank`s system of peer group lending, a group of borrowers is collectively responsible for each individual loan. Like Romena, women may encounter verbal and physical aggression from male relatives because of the forced delays at village banks. Violence can also erupt if a woman does not get a loan or receives a smaller loan than expected. Rahman cites the example of Yuri *, whose application for a second loan was effectively vetoed by another member, Rani *. Yuri`s husband beat her and then confronted Rani, which brought Rani`s husband into the dispute. In the end, both families suffered physical injury.

Victims of violence

``The examples of Romena and Yuri suggest that women become victims of violence primarily because of their powerlessness in society,`` says Rahman. ``In the household they are powerless in relation to their husbands and in the loan centres they are powerless before influential members and bank workers who are mostly men.``

Despite his findings, Rahman does not count himself among the Bank`s critics, noting that it has proved responsive to recent demands for change. He believes that micro-credit is an effective tool for development, if used properly. In the Grameen Bank`s case, he recommends that women only be allowed to borrow an amount of money that they themselves can manage. The Bank should also ensure, through closer supervision, that they use the money themselves. ``The Bank has a really good objective but there is a gulf between its philosophy and its field realities,`` he concludes.

Central elements

Micro-credit and micro-enterprise are becoming central elements of development initiatives and Rahman hopes that his research findings will help improve project planning while stimulating discussion and generating new research on the impact of micro-credit programs. Rahman presented his paper, Poor Women in the Micro-Credit Program of the Grameen Bank: Rhetoric and Realities, at the 1998 Western Social Science Association meeting in Denver, Colorado, where he was awarded the Graduate Student Paper prize.

Jennifer Pepall is an Ottawa-based writer and editor.

[ * not her real name]

Faisal Siddiqui, tahmed321, Romair, roohi and others.

Microfinance appears to have evoked interest, certainly due to the nobility of Ras Siddiqui and his associates` efforts, and the burning desire amongst us fortunate ones to share our good fortune in some way with those less fortunate. I`ll therefore try to share my knowledge of the subject. I do reiterate that I do not wish to debunk widely held theories, or myths, but as far as the Grameen model is concerned as an example of microfinance, it just doesn`t work.

1) There are several problems with the Micro-Finance concept and particularly with Grameen Bank. First, Microfinance is NOT a non-profit motive for poverty alleviation. It rather means exactly as it sounds i.e. microfinance. Any kind of finance is for profit while non-profit funding is aid or grants. Microfinance has to be repaid with interest while aid does not, and here lies the problem. According to Muhammad Yunus ``If we can come up with a system which allows everybody access to credit while ensuring excellent repayment - I can give you a guarantee that poverty will not last long,`` Yunus vigorously defends his vision of for-profit lending to the poor. In his words, capitalism doesn`t have to be the ``handmaiden of the rich``; even poor people can benefit from the system if they are only given the chance to use their innate business savvy. But even though part of his mission is to graduate lenders into commercial banking, and the World Bank sees lenders` graduation a sign of the program`s viability, that`s just not happening.

2) In the Grameen model, ``landless women in Bangladesh, the poorest of the poor`` are miraculously transformed into businesswomen - with enterprises so small they are tagged with the prefix ``micro.`` Rather than job creation, education, or training, the Yunus solution focuses on jump-starting self-employment, providing the capital for poor women to use their innate ``survival skills`` to pull themselves out of poverty, women lifting themselves up by their bootstraps. But, the miracle dissolves on closer inspection. For example, Grameen rules insist that its borrowers own their homes - not unlike the assumption that shoeless women have bootstraps. Evidently Bangladeshi homeless women don`t count as the poorest of the poor. Further, job creation, education, or training are not the focus.

3) Instead of collateral, these ``microloans`` are secured by the honor and credit lines of a peer group: If one woman defaults, no one in her lending circle will receive another loan. This model has sparked a movement to dismantle development initiatives and decentralize antipoverty programs with the ultimate `privatization of welfare`.

4) According to the press churned out of the Grameen`s Dhaka headquarters, it seems to be working. After all, what other bank lending solely to poor people can claim a 97% repayment rate, and a borrowing clientele that is 94% female? But in a published study, researchers found that while women are getting the loans from Grameen Bank and similar organizations, a ``significant portion`` of those loans are directly invested by male relatives (although women bear the liability for repayment), and in only 37% of the cases had women retained full or significant control over the businesses that were in their names. In comparison, 22% of those they surveyed didn`t know how their husbands, sons, fathers or brothers had used the loan and had not even been involved in ``their`` enterprises. At Grameen, daughters of women borrowers are not eligible for a loan because the bank has a policy against making two loans to a family, even though a borrower can take out additional loans for her son`s business. So much for the ``empowerment`` of women.

5) It looks like Grameen is using women as collection agents. As a Bangladeshi government field worker explained to researchers: ``We are much better at getting our loan money back now that we are using women as middle-men.`` Grameen`s high repayment rate is commonly explained by saying that men gamble the money away while women are more responsible, trustworthy, and concerned about the family. These explanations do not take into account the pressure that poor, illiterate women must feel from Grameen`s highly educated, primarily male staff. Under the banner of liberation, Grameen ironically reinforces women`s traditional roles; while capitalizing household activities, women are kept out of waged work - which, whatever its limitations, can offer women some degree of independence. Using women as ``conduits for credit for the family`` keeps women as the ``policers of recalcitrant men,`` dubious progress in gender relations.

Several outside studies of Grameen confirm that the control women have over their microloans decreases over time - just the opposite effect one would expect from programs meant to promote women as entrepreneurs. Grameen`s social interventions have less to do with empowering women than with making them good repeat borrowers. At every meeting women are made to cultishly recite the ``16 decisions`` that they must adhere to in order to be Grameen borrowers including, ``We shall reduce our expenses to a minimum`` and ``If we learn that discipline is not respected . . . we go along to help and restore order.``

6) unfortunately, Grameen borrowers are staying poor. After 10 years of borrowing, 55% of Grameen households still aren`t able to meet their basic nutritional needs - so many women are using their loans to buy food rather than invest in business. That`s a figure that the press fails to mention. As does the World Bank, which in its studies of Grameen, focuses mainly on the bank`s financial viability, determining if the program was breaking even or, better yet, turning a profit. It`s not; unfortunately, only foreign grants are keeping it afloat. According to the same World Bank report, ``The [Grameen] Bank may have a market niche because its borrowers are dependent on the program, but over the long run this relationship could render the Grameen Bank vulnerable. Unless borrowers` graduation from low-level incomes to higher levels (if not from the program entirely) is encouraged or achieved many members will become permanently dependent on Grameen Bank credit and services.``

A very descriptive article follows this post. Although I don`t usually cut & paste, I believe this will be useful in gaining an understanding of the do`s and don`ts of microcredit. I look forward to comments.

I`ll take up the SME issue subsequently.

Regards

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Zeemax #23: Very interesting and informative comment. Hoping to hear more.

Zeemax #23 I agree where you write ``Grameen is not in fact a bank at all but a conduit for channeling donor funds i.e. an NGO. The borrowers are the only depositors so it doesn`t matter if they`re repaid or not. The whole thing is actually a house of cards.`` And that is why it does not matter if they are not making a profit. The goal is poverty alleviation of the poor, not wealth enhancement of the shareholders. And Grameen (along with other similar organizations, notably BRAC and Proshika) is clearly making a huge difference in the lives of millions of families in Bangladesh.

I am familiar with a couple of the Pakistani organizations that you mention (Khushali Bank, PPAF), and you are right in that the pattern is different in Pakistan. This reflects differing conditions between Pakisatan and Bangladesh in terms of population density and poverty levels and role of women in rural areas. So, while micro-credit makes sense in Bangladesh, slightly larger loans (SMEs) that come packaged with with investments in rural roads and infrastructure as well as human development activities make sense in Pakistan. Nevertheless, these Pakistani organizations were founded by people who had seen the success of these organizations in Bangladesh.

I should add that the microcredit movement in Bangladesh started well before what you seem to think - indeed, it is a transformation of the NGOs that came into existence after 1971 to help people dislocated by the war; once the immediate tasks were done, they switched to longer term poverty alleviation efforts. Another root goes back to the early 1960`s with the Commilla experiment by Hameed Khan, a man whose name is still spoken with affection in Bangladesh.

I should add that it is the spirit of this movement that is more important than anything else - a concern for the poorest members of society. A spirit that is badly needed, even as it is overshadowed by the mischief of the mullahs, corrupt elites and military tensions. And for this we owe our thanks to the Bangladeshis, and to Younus in particular. The microcredit idea in fact is now popular the world over, including India, the far east, Africa, Latin America and even North America. The implementation differs per local conditionns, but the idea is the same: put your faith in the ability of the poor people to better themselves, remove a few hurdles in their way (like credit, marketing, training, infrastructure etc.), and you have a better chance of getting rid of poverty than any other solution. And Younus is recognized the world over as the man who started this great movement.

Check out an indian success story on the (somewhat)lines of the Grameen Bank - the Self Employed Womens Association (www.sewabank.org and www.sewa.org).

Their microloans, coops, savings plans apparently do work. Sad to hear that Grameen Bank is floundering ...

Zeemax,

Thanks, that was quite informative. On the subject of SME, didn`t Nawaz and Co. start a similar venture some years back? I vaguely remember a ministry that was later dissolved by PM.

What is the source of your information, I would like to read up on this subject?

Cheers,

Faisal

Faisal # 20 and others

You`re obviously not aware that Muhammad Yunus (Not Younis Ahmed incidentally)is on record as having admitted the Grameen Bank failed in it`s original aim of promoting small individual enterprise into supporting communities. As it turned out most borrowers ended up having their roofs thatched and their daughters married-off with the loans. Maybe a cow for the milk for consumption. The ones who tried small commercial ventures failed miserably. With an average of Taka 5,500 on a 25% interest rate spread over 2.4 million borrowers you can`t expect a family to generate enough to support itself. Grameen Bank actually is a sort of social lender, as in the neighborhood `committee` system popular in the sub-continent, rather than anything else where families take loans by turn and the community guarantees the installment repayment.

In another post a while ago I had given a complete balance sheet analysis of Grameen Bank, its loan growth, cost & sources/utilization/return on funds, and things like that. If you like I can dig it up for you. Grameen Bank still has to turn a profit by the way, as do it`s borrowers, although they show a small book profit every year. A quarter of the loans are classified as bad debts. The loans actually exceed the deposits by 84 % funded by external borrowing. In other words they have lent out almost double the amount of their deposits. What kind of a bank is that ? In all prudential normalcy the loans are no more than 60-70% of the deposits held to be able to pay off depositors on demand.

Thus, Grameen is not in fact a bank at all but a conduit for channeling donor funds i.e. an NGO. The borrowers are the only depositors so it doesn`t matter if they`re repaid or not. The whole thing is actually a house of cards.

Again, no doubts on the nobility of the intention even though the viability is questionable.

Micro-credit is not a new idea and neither was Muhammad Yunus the first one to launch such an enterprise. He was the first one though to see it through to a sizable operation and that shows commitment. Such an experiment is now underway in Pakistan as well under the name of `Khushali Bank` which will probably go the same way. Another one recently launched is the Micro-Credit Bank sponsored by Agha Khan Foundation and International Finance Corporation of the World Bank. I suspect the latter one will succeed as their focus is to complement their Rural Development Programme with Micro-Credit, contained within the small target communities as I pointed out in my earlier post. Indeed to provide the grown kids an opportunity other than becoming english-speaking taxi drivers, and they have the experience and the expertise of the target community. The definition of micro-credit here starts with Rs 25,000 upwards.

A better model however to be followed is the SME (Small & Medium Enterprise) example on the lines of Taiwan and Korea. This is the major focus in Pakistan at the moment rather than micro-finance. This is basically financing growth for home-based and unregistered industrial units you may have seen profilerated in Gujranwala/Gujrat etc with no bank support. SME has the potential to actually make a difference.

Regards

ras

thanks for the introduction .... we will do our best ........

Faisal Siddiqui #20 Your response to Zeemax is exactly right. Your point about microcredit (the Grameen Bank work) I have seen for myself the impact of the poverty alleviation efforts in Bangladesh. In fact four years ago I spent a couple of weeks going around the Bangladesh rural areas to see for myself the impact of microcredit. That was an experience I will never forget. We met with about ``shawmities`` as they call them (groups of about 20 women borrowers) and did an informal check on the impact of these efforts - while themselves uneducated in most cases, these women almost invariably had their children in school, had no more than 3 or so children. What was striking was the confidence these women seemed to have gained, their interest in their enterprises (simple things, sometimes comprising one milk-giving cow), in their childrens education. Lives are being changed thanks to the efforts of people like Mohammed Younos. And he is only one of many dedicated people in Bangladesh and in Pakistan, albeit the man who came up with perhaps the most original idea to come out of the third world in the 20th century - namely that poor people can make a life for themselves, given the chance. As a Pakistani, this visit was almost a spiritual one for me (my hosts later told me they were a bit concerned for my safety to the extent of alerting the local police in case of trouble since some places had seen bitter fighting in 1971), and those two weeks were more rewarding and educational than any seminar or meeting I have ever attended. Presidents and prime ministers come and go, international politics will never end, but what is quietly happening in the meantime is that the darkness of poverty and illiteracy is being quietly but surely lifted thanks to the efforts of ordinary people.