Revisiting micro-credit

Many, including most donors, have recognized the important role that microcredit plays in poverty alleviation. In 2006, Prof. Muhammad Yunus, the champion of the microcredit concept, and the Grameen Bank, the pioneering microcredit institution, were jointly awarded the Nobel Peace Prize "for their efforts … to create economic and social development from below". According to the Nobel Committee, “Yunus and Grameen Bank have shown that even the poorest of the poor can work to bring about their own development".

Yet others, and among these some from Bangladesh, the birthplace of the concept, have derided microcredit as “a debt trap”, “usury” and “blood sucking”.

It is against the backdrop of these contradictory claims that the principal author of this article, Dr. Jahiruddin of Khulna University undertook his doctoral research on microcredit, exploring  - does microcredit whose main objective is to alleviate poverty, actually target the poor; does it alleviate poverty and empower its main beneficiaries, women (approximately 95% of the borrowers); and, in line with the claims of its critics, instead of alleviating poverty, does microcredit exacerbate it?

The research took a little more than three years and included a systematic random sample of 640 borrowers of Grameen Bank and Bangladesh Rural Advancement Committee (BRAC), Bangladesh's two leading microcredit institutions.

Our findings are that 91% of the borrowers targeted by these two institutions are poor, of which46.0% are' absolute poor' (below the absolute poverty line);18.5% 'moderate poor' (above the 'absolute' but below the poverty line set by the BBS- Bangladesh Bureau of Statistics);and about 27%  are 'less poor' (those that lived on incomes just above the poverty line but remained vulnerable to poverty).We also found that 9.0% of the borrowers were from households with 'high' incomes (more than double the official poverty line set by BBS), those that  should not have had any entitlement to microcredit

In terms of microcredit' s impact on poverty, we found that most borrowers from all income groups gained economically, but in a varied manner. 'Less poor' borrowers (27% of the total) benefited most; absolute poor (46%) gained only marginally and for some of the extremely poor (8% of all borrowers) conditions actually got worse after borrowing from microcredit. This group failed to recover from the initial losses that they incurred in their businesses and in some cases, their consumption needs were typically of such urgent nature that they often used microcredit money to meet everyday contingencies, and in both these circumstances, this group of borrowers fell deeper into debt. However, in spite of these setbacks, even the poorest of the poor reported that thanks to its advocacy interventions, participation in microcredit programmes has helped boosting their self-esteem and in some cases, raised their awareness about legal rights and motivated them to educate children and observe basic health and hygiene norms etc. For many, microcredit has been a “life changing” facility.

Microcredit' s contributions to gender empowerment have been mixed- 'less poor'(those just above 'poverty line) borrowers for whom microcredit induced income constituted a sizable proportion of household income, experienced significant improvements in household decision-making and reduction of domestic violence. Whereas 'absolute' or extremely poor women borrowers whose earnings from microcredit made up almost all of their household income, experienced little or no change in empowerment at the household level and this is mainly in some of the cases, it was their husbands that influenced them to borrow from a source that gave preference to the women. In these cases, husbands had become the de facto owners of the loan money and controlled every aspect of the loan making their wives simply follow the dominant command/obedience gender norm that pervades patriarchal society of Bangladesh. In case of the 'rich' borrowers, who were also encouraged by their husbands to borrow and contributed only marginally to the total household income, the control of microcredit money was retained by their husbands. These women also experienced little or no change in domestic level empowerment. From the above we concluded that so long as women are unable to retain sufficient control on the microcredit loan money and make substantial contribution to household income from microcredit sources, the power dynamics at the household level that are deeply culturally embedded will remain largely unaltered and that microcredit alone will not be able to much, much wider and greater efforts by the society as whole are required.

We did not, however, limit our study of empowerment to the household level only. We believed that for poor women living in a highly conservative society such as Bangladesh, the issue of empowerment should be viewed more widely, beyond the realm of the household. In this sense we did observe microcredit' s ground breaking contributions in connecting women to self-operated income earning opportunities, and to the local markets that helped them not only to gain economically but also politically as well as socially. They became aware of their legal rights and they also gained freedom of movement including gaining noticeable respect and dignity in the community and in the society as a whole. These are monumental albeit less cited accomplishments of microcredit.

We also observed that like most development initiatives microcredit is also not without its challenges. Fortunately, these challenges are more operational rather than conceptual in nature and the good news is that these operational deficits– rapid expansion  of the programme through multiple providers, inadequate pre-loan appraisal, insufficient capacity building and weak monitoring and supervision etc. - are daunting but rectifiable.

Finally, we are aware that in recent times Bangladesh government has introduced or intending to introduce several changes to the Grameen Bank to (in the words of the government) “improve” its governance. As we completed our research prior to these (intended) changes, we were unable to examine neither the details nor the ramifications of these 'reforms' but stress that whatever these are, care must be taken to see that these interventions, that have not been asked for neither by the Bank nor its clients, do not compromise the basic principles namely, sense of ownership, mutual trust and autonomy etc. that make microcredit credit operations successful. These core values that act as glue to all microcredit operations including Grameen Bank's are crucial and that tempering of any of these would not only shake the confidence of the borrowers and harm the institution and it smission but also do a great disservice to the outside world that looks to Bangladesh and especially the Grameen Bank for inspiration and guidance in microcredit and poverty alleviation.

The writers are Head of Business Administration Department, Khulna University, Adjunct Professor at the School of Social Science, University of Queensland, Australia and Head of School of Social Science, University of Queensland , respectively.