In 1993, I was a member of the Phase IV evaluation mission of Grameen Bank. This evaluation was financed by NORAD, CIDA, USAID and a few other donors. I was approached by Mr. Muzammel Huq, then general manager of Grameen Bank, to be part of this mission. I agreed. At that time, I had not met Prof. Yunus. I just remember that he requested that I and another Swedish mission member should spend two weeks in a Grameen Bank branch to familiarise ourselves with the Bank operations, before the mission started. I readily agreed.
I have pleasant memories of this time. We stayed at the bank manager's residence on top of the office of a Grameen Bank branch in Suruj Tangail, one of the oldest branches, sleeping in a simple bed, eating lunch sitting on a bamboo mat, chatting with bank employees and visiting the houses of Grameen Bank borrowers, mostly women.
Once the mission started, my task was to evaluate the socioeconomic impact of Grameen Bank on its members. Throughout the six weeks, I and other mission members visited various locations all over Bangladesh. I had the chance to talk to many borrowers and look at the pattern of loan utilisation and socioeconomic impact on borrowers.
Most of the loans were taken to buy livestock and poultry and as working capital for various trading activities and small shops. Thus, the poor could expand their meager resource base and the scale of their activities. There were some defaulters who could not use the loans effectively, but these were few in numbers.
The Grameen model is a unique model which uses social mobilisation of the poor into groups of 5 women and then 8 groups to a centre (40 women) to give them access to credit and motivate them to improve their economic condition. The motivation is incorporated into the sixteen decisions of Grameen Bank. Group formation was important both from the social mobilization aspect and also to use peer pressure to realize the loans.
The groups met at the "Kendra" (centre) where they did simple exercises, received advice on family planning, maternity welfare, and other social issues, besides receiving and paying back the loans. They also discussed amongst themselves many of the social issues of concern.
I also participated in several of these centre meetings as part of the evaluation. Grameen was then a social movement. It later took institutional form and according to some reports the behaviour of members has become routinised, losing some of the zeal of earlier years.
On submission of our evaluation report, we met Prof. Yunus at the Grameen Bank headquarters. What was remarkable about this meeting was that at the end all donor representatives mentioned that should he need further financing, he knew where to find it. Yunus politely declined their offer.
I was impressed by his honesty and straightforward manner and his unbowing attitude to donors. This was remarkable in a country which constantly solicited aid and bowed to donor conditionalities in return for the loans they gave. I later learned that Prof. Yunus refused a $100 million loan from the World Bank about the same time.
This donor dependence could be reduced because of the structure of the Grameen model. The group formation involved social mobilisation and thus the setting up of a revolving fund for the loans which could perpetuate itself, without need for further injection of money. Before the groups were officially recognised by the Bank, the members also had to be able to at least sign their names. Thus a small dent was made in terms of adult literacy.
What has been the contribution of Grameen Bank or microcredit to the rural economy? It has given access to credit to many who did not have this access to formal institutions and banks because they required collateral for their loans which poor people did not have. As a result, many activities in the informal sector -- small-scale manufacturing and trading --could be financed through micro credit.
By targeting women, it encouraged them to gain confidence and break out of the system of purdah and household oppression. True, not all loans went to women. Some went to other male members of the household. But the entire household benefited. Subsequently, the loan portfolio of Grameen expanded to include housing loans, sanitary loans, tube well loans, etc. The straw houses were replaced by tin ones and sanitation and access to safe drinking water was achieved. This has changed the landscape of rural Bangladesh.
What should be emphasised is that the poor could improve their resource base and also the size of their working capital, and to use a Marxist terminology, move from Simple to Expanded reproduction. Poverty was reduced for a great number of people.
The Grameen model has been replicated in many countries, including China and Vietnam in the East and Scotland in the West, because it was felt that the state could not take all responsibilities. Interestingly, some critics in the West may feel threatened that it would lead to a further withdrawal of the welfare state. Of course, this may not be the case.
Without such interventions, a great number of people would simply be excluded to fend for themselves.
For developing countries on the other hand, this is not something of too much concern, since the reach of the Welfare State has not been very wide in these countries. The problem in these countries has been how to generate incomes for the vast majority, not to tax and transfer incomes. As one astute observer commented, there is not much income to be taxed.
What about the debt trap argument? The fact that Grameen or other borrowers take repeated loans does not imply that they are in a debt trap. For most poor women, taking the first loan is a milestone. They are allowed subsequent loans of larger size, once they have gained confidence and experience as to how to utilise these loans. This process allows loanees to increase their icomes and diversify their assets. The entire process has to be understood before making sweeping comments. True, not everybody can use the loans effectively. This is the group which needs attention by the state through various welfare programmes.
I may add that without Grameen and micro credit, the only source of credit for the poor are money lenders who have always charged usurious rates of interest (nearly 100% or more compared to around 30% in micro credit) or the tied credit from landlords who reduce the wage rate through interlocked transactions. A good example is from North Bengal where landowners give dadan during the lean season, in return for which the labourers contract out their labour at a much lower wage rate for the ensuing peak season.
It should also be recognised that the need for credit has always been there in a poor rural economy such as ours, either as consumption credit (witness the role of kabuliwallahs or of dadan) or as producer credit, financed through various institutional means from mohajans (big traders). Grameen and micro credit could break into this practice.
However, as Prof. Yunus has himself pointed out, the need for regulation remains. One should also watch out for the practices of international financial capital, which sees small borrowers as a source of making huge profits. The argument is also there for continued research on the various aspects of micro credit and also corporate entities which have become part of the Grameen structure.
Some of these, such as Gonoshastho textiles, is an intervention in the product market for making available cheap blankets/textiles. Others, such as mobile phones, have revolutionised the communications sector in favour of the poor. One particular area of research is the interface of macro policies and successful grassroots interventions such as Grameen or Brac. One cannot think of micro credit as a panacea for the unemployment problem created by state policies.
In conclusion, I would like to state that all these various dimensions need to be considered in evaluating Grameen Bank or Prof. Yunus. Any action cannot be based simply on prejudice. Otherwise, the worst sufferers will be the millions of Grameen borrowers and micro credit beneficiaries, who until now have simply not had the voice they deserved.
Nasreen Khundker is Professor of Economics at the University of Dhaka. She is also a Board member of the Institute of Micro Finance, an institute for research into micro finance and other issues.