Business Daily from THE HINDU group of publications
Friday, Oct 20, 2006
Money & Banking - Regional Rural Banks
A Nobel model that links peace and economics
This year's Nobel Peace Laureate, Prof Muhammed Yunus of Grameen Bank, was quick to concede that sharing the Prize with him were 6.5 million poor, rural women of Bangladesh. To stretch that a bit, one can say that a small part of credit is also shared by millions of women outside Bangladesh who have become part of the micro-finance movement in several countries. It is well known that Prof Yunus' Grameen Bank model has been replicated even in some of the most developed nations , including the US, and Europe, especially the Scandinavian countries.
China has also evolved its own micro-credit model for alleviating poverty and assisting rural households; finance is made available at low rates of interest, sometimes less than 5 per cent. It has been keenly following the Grameen model and Prof Yunus will be in China later this week in association with a micro-credit programme.
Prof Yunus himself feels that in India micro-credit "models have worked very successfully in each and every part of the country." But while several NGOs and institutions had proved that micro-credit is an effective instrument to lift millions out of poverty, "the programme has become very, very slow in India". In an interview carried in these columns on October 15, he had suggested official mechanisms to hasten this programme.
While diverse multilateral organisations and institutions, particularly the World Bank, have welcomed Prof Yunus and the Grameen Bank receiving the Peace Nobel, lauding the recognition given to micro-credit as an alleviator of poverty, critics of micro-credit per se, and of Grameen Bank, in particular, have questioned the manner in which micro-credit programmes work.
The most common charge is that while the richest of the world top-notch corporates can get loans at interest rates as low as 2-3 per cent, poor rural women can only access finance at 12-24 per cent.
Even in 1998, when this correspondent had studied the Grameen Bank model at close quarters, the Bank's detractors in Dhaka had said that it charges "phenomenally high rates of interest" and coerces its borrowers to repay the instalments, come what may. That criticism, it appears, continues.
In a widely-circulated "opinion" piece carried on several Web sites, Mr Taj Hashmi from Canada, who says he was once a colleague of Prof Yunus at Chittagong University, is scathing in his criticism of the Grameen model.
Stating that he had received the news of the Nobel Peace with "mixed feelings," he says that while, on the one hand, he felt happy for his country, on the other, he was appalled at the manner in which the Grameen institutions functioned.
He charges that "contrary to what Dr Yunus has been telling us, the poorest of the poor simply do not/cannot get Grameen loan(s) as they simply cannot service any loan at 30 per cent payable in 52 instalments in one year. There is no remission, exemption or leniency. Defaulters part with tin-sheds, utensils, goats and cattle. This came out in so many newspapers in Bangladesh and researchers (even admirers of Grameen) found out on the field.
"So, the Grameen borrowers are mainly middle-class peasants, who had access to micro-credit throughout our history. Even the wretched Kabuli (actually Pathan) money-lenders in Bengal during the British period used to advance micro-credit, collateral-free, at 24 per cent interest. None of those money-lenders ever got any appreciation from us."
In this context, it may be of interest to reproduce extracts from an interview Prof Yunus gave Business Line in April 1998, dealing with the alleged coercion in recovering loans.
"How do you deal with defaulters? I've heard that Grameen uses inhuman means of recovery. Are you very strict?
Well, if we had been inhuman, Grameen couldn't carry on this business. Grameen works in a personalised way. It is not a heavy office in Downtown Dhaka with somebody standing with a gun. It is not like that. We walk around the villages.
It works more on trust?
Not only that. If people hated us, our staff would be beaten everywhere. Please look around and see whether our staff are hated or admired. You will find out. People are not stupid. If you are inhuman, you can get away with it once, but not twice and certainly not two million times.
What is the secret behind no default on loans that have no collateral?
The system we have developed is that in a group you can take care of each other and there is close contact between the borrower and the lender. So you see everything happening all the time... you don't wait for the end of the year and get a big surprise.
If one member is in trouble, do others help out?
That is the idea of the group. Help does not mean you have to pay the money. It means that you get her out of trouble."
That was Prof Yunus' response in 1998.
On Thursday, while he was not available to respond to renewed criticism on the exorbitant interest rests charged by Grameen Bank, being away in South Korea to receive yet another award, Mr Khalid Shams, Managing Director of GrameenPhone and a former Managing Director of Grameen Bank, gave this response.
"The Bangladesh Bank itself has carried out empirical research in this field and at Grameen Bank we say that for accounting purposes the interest rate is 20 per cent. But it is charged on a declining balance and the real burden is only 10 per cent, probably the lowest institutional rate in the country. In any case, if Grameen Bank charges exorbitant rates, it will be out of business very soon, since there are now other big micro-finance institutions in the country."
On Mr Hashmi's charge that "giving tax-free privilege to a Norwegian telephone company (Nortel) to rip off Bangladesh" was an unfair advantage in a poor country like Bangladesh, Mr Shams said: "He also has his facts wrong on GrameenPhone, which is recognised by the National Board of Revenue as the largest tax-payer in the country. Moreover, GrameenPhone's major shareholder is not Nortel, but Telenor."
Peace and poverty
But while organisations like Grameen Bank, and its counterparts elsewhere in the world, will always be vulnerable to mudslinging, the important thing is to keep in mind the interesting implication of the Nobel Foundation selecting Prof Yunus for the Peace, and not the Economics Nobel.
The argument is that lifting millions out of poverty will lead to a more peaceful world. And there are sufficient grounds to support this line of thinking.
Poverty is a major, if not the only, factor that causes and accelerates most conflicts in the world. Islamic terrorism has found a fertile recruiting ground in regions and countries where Muslims are abysmally poor or discriminated against in terms of economic opportunities.
Chronic hunger can unleash the worst in the best of us. In Iraq, for instance, much of the present violence is because the economic plight of the average Iraqi is much worse than it used to be in the Saddam Hussein regime; Iraqis might not have enjoyed too may civic rights then, but they did not starve, as many of them do today.
Poverty not only causes violence and conflicts but there is also a vicious relationship between the two, in that violence ends up increasing poverty. This is not to say that the poor are violent, but that abject poverty often leaves people with no other choice.
In Tamil Nadu, for instance, while investigating why there were not so many farmer suicides as in Karnataka or Andhra Pradesh, one was told that in many villages the money brought home by a Self-Help Group (SHG) member had saved the family from utter despair.
The best part of the micro credit-model is that it operates through groups.
As Dr Yunus had pointed out in the 1998 interview, if a group member's husband discarded her in favour of another woman a familiar story in this country too group dynamics come into play and the members collectively confront the absconding man, often managing to put sense into his head so that he returned to the family.
It is not only money that the poor require, they also need handholding, somebody to talk to and, above all, the assurance that there is someone interested in their welfare.
As the 6.5-million-strong Grameen Bank network has proved, such women's groups not only foster a sense of belonging but are also powerful drivers of change in society.
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