Docu.. Micro Finance

7/30/2019 Docu.. Micro Finance

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Pro-Poor InfrastructureBut there is also a version of microfinance that is concerned with thelarge-scale, nonprofit delivery of financial services to the poor. The mostsuccessful versions of such programs seem to exist in Bangladesh.

But there is another side to microfinance, an untold story that must be told intimes of persistent and extreme poverty. The global headlines continue to beabout two oversimplified stories: one of a profit-making microfinance industry thatis haunted by the specter of financial predation and the other of dispersed, do-good microfinance that is haunted by the specter of failed poverty panaceas. Butthere is also a version of microfinance that is concerned with the large-scale,nonprofit delivery of financial services to the poor. The most successful versionsof such programs seem to exist in Bangladesh and it is important to take a closerlook at them. For this it is necessary to give some thought to what is being calledthe Bangladesh paradox.

In the last decade, Bangladesh, often dismissed as a basket case, and plaguedby both natural disasters and political instability, has seen significantimprovements in human development and drops in income poverty. Hailed as theBangladesh paradox, such successes have been partly attributed to anensemble of microfinance NGOs, the largest of which are the Grameen Bank,BRAC, and ASA. Taken together these massive organizations overshadow theBangladeshi state and also render irrelevant the work of traditional foreigndonors such as the World Bank.

There is a history waiting to be written about the emergence of such institutional

forms. We know, for example, that each of these homegrown organizationsemerged in the 1970s, during a unique historical conjuncture of postcolonialnation-building. Some like BRAC started out as relief and rehabilitationorganizations; others like ASA were committed to direct, radical action. All threewere eventually transformed into what is best conceptualized as pro-poor servicedelivery organizations. It would be a mistake to interpret such institutional formsas examples of grassroots development or as community-based organizations.

Although homegrown, these are top-down, hierarchical bureaucracies committedto building scale and size. It is thus that Fazle Abed, the founder of BRAC notes:If you want to do significant work, you have to be large. Otherwise wed be

tinkering around on the periphery (Armstrong 2008). Together they servehundreds of millions of Bangladeshs rural poor. The traditional vocabulary ofNGOs, civil society, nonprofits, community development fails us here. Whatseems to be at hand is a novel institutional form of pro-poor service delivery thatis taking place outside the gambit of both the state and donor-led development.Well known for their microfinance programs, these organizations also deserverecognition for their innovations in building pro-poor services and infrastructure.
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Bangladeshs microfinance organizations explicitly reject the commercialimpulses of the global microfinance industry. But there is much more to themthan microfinance. From Grameens emphasis on credit as a human right to

ASAs pride in its hyper-efficient delivery of microfinance products, microfinanceis the public transcript of development in Bangladesh. However, I argue that a

hidden transcript is at work and that the explanation for the Bangladeshparadox may not lie in microfinance but rather in a set of social protectionprograms that build assets for the poor and build infrastructure for the ruraleconomy. One of these is compulsory savings.

While much of the hype in microfinance has been focused on microloans,it turns out that one of the most vital financial services for the poor is

savings.

While much of the hype in microfinance has been focused on microloans, it turnsout that one of the most vital financial services for the poor is savings. InBangladesh, the Grameen Bank and other microfinance organizations not onlygive out microloans but also attach such loans to obligatory savings.

Anthropologist Arjun Appadurai (2001) has described poverty as the tyranny of

emergency. If this is the case, then the crucial role of savings in helping the poorcushion risk and vulnerability and manage lean seasons of hunger anddeprivation is obvious. Savings also help microfinance organizations managerisk. Indeed, compulsory savings rather than joint liability may explain the formsof financial engineering that lie behind the Grameen Bank mantra, the pooralways pay back.
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However, Bangladeshs pro-poor service delivery organizations do much morethan simply provide financial services. In most cases their microfinanceprograms, be it loans or savings, are embedded in the creation of humandevelopment infrastructure. For example, BRAC actively initiates and managesvalue chain projects. These include pro-poor infrastructure such as health

clinics and schools at the village level. The numbers are staggering, with BRACcovering an estimated 110 million people with services in microfinance, health,education, social development, human rights and legal services, andmicroenterprise support (Microfinance Gateway 2008). In addition, BRAC runsvalue chain projects related to economic development. From poultry hatcheriesto dairy plants, these projects link the microenterprises of the poor to nationaland global markets. They seek to transform subsistence economies into thosethat can generate economic value. Such an approach is worth highlighting for itflies in the face of the much-touted microfinance doctrines of self-help. BRACsvalue chain interventions pose the question: what good can it do to enable the

poor to launch microenterprises if the entire economy is decidedly anti-poor?

Persistent and extreme poverty is a structural condition, shaped by longhistories of disenfranchisement, dispossession, and disempowerment. It isrooted in hierarchies of class, gender, race, and ethnicity.There is much talk in the world of microfinance of the entrepreneurial poor. It is amagical idea: of the worlds bottom billion populated by micro-entrepreneurswho are able to, with just the touch of a microloan, miraculously launch a billionenterprises. But is this really the world of poverty? After all, persistent andextreme poverty is a structural condition, shaped by long histories ofdisenfranchisement, dispossession, and disempowerment. It is rooted inhierarchies of class, gender, race, and ethnicity. In the parts of South Asia whereI do research, it is marked by back-breaking labor undertaken under conditionsthat approximate feudalism. No magical capitalism of bottom billionentrepreneurs is available here. Amidst this sobering reality, in Bangladesh, themicrofinance organizations have once again stepped far beyond the publictranscript of microfinance to take up the task of asset-ing the poor. I borrowthat phrase from the important work of Imran Matin, director of BRACs Researchand Evaluation Division, who draws attention to strategies of poverty alleviationthat ensure social protection rather than those that promote economicentrepreneurship (Matin and Begum 2002). The latter may be possible, but in

contexts of dire poverty it is the former that requires urgent attention. Innovativeasset-building programs abound in Bangladesh, such as the Grameen Bankshousing loans, notable for the fact that through such loans women borrowerscome to hold rights to homestead land. Assets are of course not only economicbut also political. Fazle Abed and Imran Matin (2007) thus argue that thegreatest power of microfinance lies in the process through which it is provided,in new forms of engagements, relations, and capacities that they call process


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capital. One radical interpretation of microfinance in Bangladesh then is that it isa process of the political organization of the landless poor to build power andmitigate structures of feudal inequality. Such an approach is a far cry from theaspirations of the global microfinance industry and its conceptualization of thebottom billion as a lucrative, emergent market of financial consumers.

Concluding Thoughts

In conclusion let me make two general points about microfinance. The first is tostate that no generalizations are possible about microfinance, about its capacityto yield profit, about its capacity to fight poverty, or to fight terrorism. Paradoxesabound. As a counterpoint to the contrast that Nicholas Kristof is eager to drawbetween militancy and microfinance, it is worth noting that in the Middle East,Hezbollah is the regions largest provider of microloans. It is necessary to studydiverse models of microfinance and to look beyond the public transcripts tounderstand actual practices.

Second, the subprime crisis serves as a cautionary note for the aspirations of theglobal microfinance industry. Will the efforts to transform microfinance into anasset class fuel a whirl of financial speculation, predatory lending, and ever-expanding debt? But even more troubling is the myopia of this industry. Byrelying on the rules and norms of commercial banking, it threatens to stripmicrofinance of its pro-poor innovations. The lesson to be learned fromBangladesh is that finance for the poor cannot be conflated with high finance.

One crucial piece of pro-poor models of finance is subsidies. In the world ofdevelopment, the term subsidies has come to be a dirty word. This, I believe, is

a mistake. Against the Grameen Banks protestations, various scholars haveshown that its microfinance programs rely on soft money procured atconcessional rates. Jonathan Morduch (1999) estimates that without suchsubsidies the Grameen Bank would charge much higher interest rates. Accordingto his calculations, in the late 1990s, such subsidies worked out to $15 permember per year. Similarly, BRACs asset-building and value chain projects alsorely on subsidies. One of its most widely celebrated programs, opportunityladders, which serves the ultra poor and combines government food aid withskills training and compulsory savings, require subsidies of about $135 perbeneficiary per year (Hashemi and Rosenberg 2006). Such is the nature of pro-

poor finance.I end on this note of subsidies because it points to the deep misconceptions thatshape current debates about microfinance. CGAP, for example, has written offthe early pioneer organizations of microfinance the nonprofit sociallymotivated nongovernmental organizations as outmoded and outflanked byfinanciallysound, professional organizations that are a fully integrated part ofmainstream financial systems (Littlefield and Rosenberg 2004). Similarly, Pierre


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Omidyar, founder of eBay and now microfinance enthusiast, insists that there isa difference between undemanding capital contributed by donors who expectnothing in return and demanding capital, which requires transparency offinancial reporting and an appropriate reward for risk (Bruck 2006). Demandingcapital, it is implied will ultimately serve the poor well. But will such forms of

demanding capital demand services and infrastructure for the poor? Notnecessarily. And of course, high finance, lauded as a model for sustainablemicrofinance, is itself highly dependent on subsidies. This too is a lesson fromthe recent financial crisis. Robert Reich (2008) has rightly called the Wall Streetbailouts socialized capitalism socialism for Wall Street, free markets for therest of us.

I leave readers then with a question: why are we so willing to extend generousforms of state help to the richest segments of our global society while leaving thepoorest to fend with miserly extensions of self help? The story of the Bangladesh

paradox reminds us of the urgent need to build robust systems of pro-poorservices and infrastructure for the worlds poor. Whether or not we call thismicrofinance may matter little.

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