Policy Wise

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M Bukri Musa explains why micro credit, so sucessful in Bangladesh, has failed to deliver the same results elsewhere.

But these well-intentioned endeavors will fail — as with the Malaysian experience — if they focus only on lending, and not on changing underlying attitudes and behavior. The Malaysian initiative could be enhanced by not linking the program to the political establishment, the main reason for its degeneration into political patronage. Lenders could also have taught their borrowers the fundamentals of running a small enterprise and used their clout to negotiate discounts on behalf of their borrowers. In one effort to help poor fishermen mechanize their boats, the bank simply provided the money. Local suppliers, on hearing of the fishermen’s sudden bounty, hiked their prices, jeopardizing the economic viability of the project.The most important lesson from Grameen is that cultural values, even those long entrenched, can be successfully modified. Bangladesh is a Muslim country, where concepts such as charging interest or using contraception are considered “un-Islamic.” Yet, by using micro-loans as a cultural stimulus as well as an economic instrument, Yunus changes the attitudes of his fellow citizens at the grass-roots level. How many Bangladeshi families have been doomed to poverty because of large families and extortionate dowries?[link]

I partially agree with Musa. I think the real lessons from the success of Grameen bank might lie elsewhere. First, it’s pursuit of profits-it prides itself as a bank which consistently delivers profits. Second, it has created entrepreneurs by ensuring that the loan amounts are exactly matched to the needs of the borrowers. It has disbursed loans not as charity or even as an attempt to address poverty but it has simply created a new market segment.

In that sense it should be seen along with companies in India (and elsewhere) which are willing to bet more on the rural market. That it has halped achieved reduce poverty should be seen as incidental and not an end in itself. Poverty frequently is treated as an exotic creature which requires an entirely different prescription.

Grameen bank showed how wrong is that notion.

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