The Idea of Microcredit and its Impact
By: Bikal Dhungel
What is Microcredit?
“Innovation
will be born out of problems”. Fritz Henkel, a man in his late twenties in a
place called Düsseldorf, Germany was tired to see the long washing days of
women. Lots of time and energy was invested to wash. He invented washing
detergent powder which made it easier to wash cloths, to wash without much
effort. His family business expanded through that and today Henkel is a global
player. In the meantime, there is washing machine and we do not need to wash
cloths ourselves today. The problem of long washing days do not exist today due
to the innovative idea of Fritz Henkel.
A similar story of a Bangladeshi man, Mohammad Yunus changed
the world for better. A man, who went to the United States with a Fulbright
Scholarship to study Economics, came back to his country Bangladesh after the
completion of studies. Soon, he discovered people suffering in poverty. While
collecting data about the poor, he discovered that village women have been
exploited by the Mahajans (Village lenders). The women bought Bamboo from the
Mahajans with 5 Takas, work out the Bamboos and sell the finished products back
to them with 5.5 Takas. By this way, the poor women had a daily income of 0.5
Takas which was barely enough to survive. Additionally, these women had
children. They needed cloths, enough foods and shelter. Yunus was told that the
Mahajans were misusing the women and those who work for Mahajans become poorer
in fact and were in a debt trap. Yunus collected data about such women in the
village and found out that there were 42 of them who owned altogether $ 27 to
the Mahajans. Paying this $ 27 would eventually free them from the debt trap.
He lent the $ 27 from his own pocket. An
idea arises in his mind. If he could lend like this to poorest of the poor,
their life could be improved. Especially in Bangladesh there was no scarcity of
poor people who were in need of such credits. By this way, the revolution of
Microcredit started.
Grameen
Bank was launched (Grameen means rural in Bengali too), a bank created by
Mohammad Yunus, provides credit to the poorest of the poor in rural Bangladesh,
without any collateral. In the year 1976, as mentioned in the official website
of Grameen Bank, Professor Yunus launched an action research project to examine
the possibility of designing a credit delivery system to provide banking
services to the rural poor. In June, 2011, it had 8.37 million borrowers, 97
percent of whom are women. It had 2,565 branches that provide services in
81,379 villages, covering more than 97 percent of the total villages in
Bangladesh23. Grameen Bank is owned by the poor. Its objectives were (1):
i)
To extend banking facilities to poor men and women
ii)
To eliminate the exploitation of the poor by money lenders
iii)
To create opportunities for self-employed for the vast multitude of unemployed
people in rural Bangladesh
iv)
To bring the disadvantaged, mostly the women from the poorest households,
within the fold of an organizational format which they can understand and
manage by themselves
v)
To reverse the age-old vicious circle of “low income, low saving and low
investment”, into virtuous circle of “low income, injection of credit,
investment, more income, more savings, more investment, more income”.
Grameen Bank, through its variety of programs, is contributing
a lot to eradicate poverty. It is actively working in various sectors through a
vast range of Grameen branches like Grameen Shakti, Grameen Trust, Grameen Communications etc
and its collaborating with famous international corporations like German
Chemical Company BASF, French DANONE etc.
Grameen Bank and Mohammad Yunus were awarded with a Noble
Peace Prize in 2006 because poverty is a great threat to peace and they both
were committed to end it. Though a bank, but also a philanthropic institution
in some degree, Grameen Bank accepts no donor money and loans.
Grameen Bank regards education as the strongest tool capable
of eradicating poverty. Hence, Grameen has a reputation of a grantor of
education to the most vulnerable in the country by its scholarship scheme and student
loan. Outstanding children of Grameen borrowers, especially girls are granted
scholarship. Up to October 2011, scholarships amounting to $ 3 Million have
been awarded to 1, 33,031 children25.
Additionally, 49,000 students got educational loan for higher education.
Furthermore, there are over 30 Grameen networks that provide different services
as independent companies and contribute a lot to generate gains for the people.
The most wonderful part of Grameen Bank is the features exclusively provided for
beggars. No bank in the history ever did that. Traditional banking system
regarded this as a fallacy, giving loan to somebody with no collateral. Some
unidentified sources claim that there are over 25 Million beggars in South
Asia, as much as the combined population of Denmark, Sweden, Norway and
Finland. This presents a huge picture of the degree of extreme poverty. Hence,
helping them to stand of their own is not only an act of humanity but also a
great deed that no one ever did in the history of universe. Most of the beggars
in Bangladesh are disabled, blind, retarded people and old people. This group
is called ‘struggling members’. Over 111,398 beggars have joined the program
and today over 20,000 have already stopped begging.
This program has provided the beggars an opportunity to
improve their lives. It has indeed improved. It helped the poorest of the poor
people to live in their own, without begging. There is no popular word than
‘Grameen’ in Bangladesh today. This name made Bangladesh known in the whole
world through the Noble Prize. The four basic principles Discipline, Courage,
Unity and Hard Work have shaped people’s life for better. The famous sixteen
principles of Grameen Bank became a role model for the whole South Asia which
has a strong bias of culture which is hindering their economical development. Hence, teaching them how to start a small business was the good idea instead of distributing them foods to eat for a day.
Microcredit in Developed Countries:
Microcredit is not only the story of developing countries. It
has reached the developed countries as well. This scheme is helping small scale
enterprises. The ‘La Caixa’ bank, based in Barcelona, Spain was the first
‘Microbank’ in Europe with a start capital of 51 million Euros in 2007 (2).
The trend was followed by other banks of Eastern Europe mainly Bulgaria and
Croatia. Also the German ‘Sparkassen’ are helping Small and Middle class
Enterprises (SMEs).
The
saving banks in Europe, with a strong commitment, have helped or contributed to
set up various schemes that assist young people, women, and migrants, to
integrate, or re-integrate, in the social and economic life of their
communities (3).
Lloyds
TSB of the UK has over has 600,000 SME customers and helps in the start-ups of
100,000 businesses every year, 60% of whom are one person, self-employed
business (4).
In this Microcredit scheme, Lloyds TSB is supported by the British Government.
It is aimed to those start-ups which cannot raise capitals in the financial
markets. The loan amount is as little as 5000 British Pounds or more.
One
can claim that a similar form of Micro-credit existed in Europe before, like
that of German KfW Banks (Kreditanstalt für Wiederaufbau) but the form as it
works now is what makes Microcredit of today different than from the past i.e.
lending money even without collateral.
Microcredit
in Africa
In Africa, Microcredit is a huge success too. But experts
still claim that the degree of success as that of South Asia cannot be reached
in Africa or has not been realized yet due to various reasons. Africa is
diverse and this makes development complicated. Microcredit has helped it to
better its conditions but significant changes cannot be seen in the overall
situation of poverty. ‘Microfinance is not a panacea for poverty and related
development challenges, but rather an important tool in the mission of poverty
eradication. Poverty is a multi-dimensional problem embedded in a complex and
interconnected political, economical, cultural and ecological system. While
microfinance alone does not improve roads, housing, water supply, education,
and health services, it can play an important role in making these and other
sustainable contributions to the community' (5).
Research reveals that there is a need of change in operational efficiency in
the Microfinance in Africa like targeting more number of women, mobilizing
people in rural areas, strengthening the campaign of Microfinance etc. These
are also some policy advices to the responsible authorities. However, change
cannot be visible in a short time. We need to wait to see how Microcredit has
changes Africa from the time during the absence of such schemes. Nevertheless,
in a wide range of countries, it has indeed brought some positive changes in
the increase in income, reduction in vulnerability etc (Wright, 2000: UNICEF).
Final
Remarks
The idea of
distributing Ration Card in Nepal is good in short term but in long term, it will worsen
the problem we face today. It makes people lazy by giving them more intention
not to work. Governmental efforts should focus on teaching them how to fish
instead of giving a fish. For the group of people who are mentally or physically
unable to stand on their own, should be given such cards so that their life is
secured. For the remaining, the idea of Microcredit will be the most effective
way forward. We should learn from Bangladesh.
It
has been over three decades now since Microcredit was launched for the first
time. Since 13th October 2006, the date when Muhammad Yunus and Grameen
Bank were jointly awarded the Nobel Peace prize, it is known to most of the
world (6).
Since that day the scheme has been embraced by Banks and Institutions around
the world. In fact, Microcredit has changed the lives of millions of people in
the whole world and it is continuing to change their daily lives. Looking back
to the history of economic development, it is the ‘western world’ that took a
giant leap towards prosperity. However, the poorest parts remained the same.
Microcredit played as an important tool to take the developing world in the
path of progress. The first step to enter this process of progress is to
involve in this movement. By making oneself independent, even the poorest among
the poor could be lifted from the current level. Microcredit has given them a
chance, first of all to be independent, then to learn skills, then make their
living and finally to better the lives of their children by educating them. The
second generation of Micro borrowers is already the story of miracles. From the
country of its origin, to the countries that embraced this idea, the progress
is still continuing. The most important achievement Microcredit reached is the
empowerment of women in countries where human rights especially women’s right
are dire. Giving so much independence through entrepreneurship is one of the
greatest achievements towards equality of sexes. It has also contributed in the
welfare of countries. A big question goes if the vast amount of poor people is
the result of policies of the individual countries or the countries are poor
due to the vast amount of poor people. Microcredit, in the short term enabled
the poor people to stand up of their own and helped them to step in the ladder
of development ignoring the situation of the particular country. In the long
term, the big role should be played by the local governments by building
infra-structures, providing a room for education, improving demographical
factors as well as human development. In the absence of this, due to various
reasons like political instability, climate changes, the long path created by
Microcredit schemes will find no sustainability. Governments have the bigger
part to play in sustainable development. It should strengthen its advantages
like Tourism or Trade which will create places for Microcredit to thrive when
the citizens can involve in business practices that best suit them. The
revolution of Microcredit has been the revolution of the century. It has
improved the lives of hundreds of millions beyond the national boundaries.
Grameen Banks collaboration with every sector like IT, tele-communication,
consumer goods, education etc shows that the program is not only about lending,
it is much more than just lending. Microcredit in the other hand is another
slap in the face of the doubters of capitalism. The so-called ‘greedy
transnational companies’ lined up to provide funds to the Microcredit
institutions, like DANONE, BASF etc in the form of social business which does
not generate any profit or re-use the profit for the goodness of poor. By this
way, the transnational companies presented themselves as ethical companies.
Consequently, people in developed world rewarded such companies by choosing to
buy their products because they were ethical, they were caring about the
vulnerable and they were helping the poor to stand up on their own. In the
other hand, the firms which were not considering such facts and embrace the
practices like child labor, environmental harms etc are being punished by the
consumers who reject their products. So, the firms that are doing social
businesses are being able to raise their profit. This created further
incentives to the firms to be ethical. As a result of these successful models,
microcredit internationalized in a fast pace. Even though in other parts of the
world, there are not always positive effects of Microcredit, it has indeed
improved the situation which could not have been there in its absence. Even wealthy
countries embraced the idea and widened the small scale lending. Hence,
Microcredit has become international and touched the people all over the world
virtually. It is now important to consider how the scheme can be made long
lasting and credible in every country. The future challenges that it is going
to face should be stopped by any means. Developing countries are more
vulnerable to it than developed countries. Global challenges continue to exist.
The rising price of Food has endangered the very survival of farmers in
developing countries who are the main borrowers of Microcredit. It can have
disastrous effects if the farmers cannot pay back the debts due to the high
food prices. They will be pushed further into the debt traps. The ones who will
be affected by this are the already vulnerable farmers who might face miserable
conditions. Another factor is climate change. Due to floods, it can result in
crops-shortfalls, or it can simply destroy the farms which are the lifelines of
farmers. Somewhere in the world, we are regularly observing the damages caused
by climate change that have devastating effects. Such things should be
forecasted in time in order to stop the worst things happen. There is a high
danger of micro borrowers default in their debt in a large number if the
responsible authorities do not act in time. Microcredit is important, it should
remain and it should be supported. Its vast effects in many phases of human
life are priceless. Microcredit is the weapon of mass prosperity as Kofi Annan
puts it, “Where once the poor were commonly seen as passive victims,
microfinance recognizes that poor people are remarkable reservoirs of energy
and knowledge. And while the lack of financial services is a sign of poverty,
today it is also understood as an untapped opportunity to create markets, bring
people in from the margins and give them the tools with which to help
themselves.” This enlightening story of our generation, the story of
Microcredit, first started by Professor Yunus then embraced by others is the
symbol of our age, that, for the first time in human history, we have paved the
way of prosperity, for all. We cannot be responsible for all the problems we
face today but we can say proudly that we have lifted billions of people from
poverty, we have helped them to grow, we have given them a chance, we have
heard their voices, we have taken care of them and we have made their world
better. A model that aims to create a world without poverty has changed a lot
in a short time. This model is going to be remembered by the generations that
come, generation of our children, our grand children and their children. They
will be thankful for our generation and will thank for our courage for
achieving these phenomenal deeds. Muhammad Yunus aimed to put poverty into the
museum, and this will be fulfilled if our generational story keeps on going
like it is today.
Distributors of Ration Card should take a lesson that it is not sustainable. The time and energy that is spent on it should be spent on discovering entrepreneurship instead if they are really concerned with putting poverty in the Museum as Professor Yunus campaigns.
Sources:
(3)
http://www.esbg.eu/uploadedFiles/Publications_and_Research_%28ESBG_only%29/brochure%20screen%20view.pdf , Page 4
(4)
http://www.wsbi.org/uploadedFiles/Publications_and_Research_%28ESBG_only%29/Perspectives%2050%281%29.pdf
Page 20 , Page 20
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