M.M. Akash
All about microcredit
Rural villagers queue with their ledger books to repay loans to a micro-credit group in northern Lalmonirhat, Bangladesh. Photo: Reuters
1. I shall begin with an old saying: "If a drop of water falls on a lake, it loses identity, if it falls on lotus it shines, if on a shell it becomes a pearl. The drop is same but company matters."
2. Microcredit is neither a panacea nor a devil; it all depends on the context! Taken simply, "Microcredit" is a very old thing — it is a micro sized credit. So it must be financing at least initially only micro activity satisfying micro needs. But human nature is such that as soon as a micro activity and/or micro need is fulfilled he/she will aspire for a larger credit and will try to fulfil richer human needs. The question of graduation from micro to macro is an inherent necessity attached to each microcredit borrower. A constant vulnerability is another essential problem of the microcredit borrower.
3. There is therefore an important failure or limitation of microcredit — it ensures only limited mobility and that mobility is generally non sustainable.
4. The supporters of microcredit claim that micro-macro graduation is possible by reinvestment of the surplus by the micro borrowers. The savings of poor borrowers and interest paid, savings accumulated, etc. actually prove that they do generate surplus.
5. And here lies the bone of contention. It is beyond doubt that the ability to move upward will depend upon how effectively the surplus is used to generate additional income and how that additional income is distributed. This obviously will depend on how the surplus is distributed as well as on the internal capacity of the micro borrower and the external constraints within which he/she has to operate.
6. One school of economists claim that MC manager/social entrepreneurs have taken away the lion's share of the surplus, enjoying high income, fame and luxury and also maintaining status quo or managing poverty to ensure political stability. At least they fail to stop the increasing relative gap between rich and poor based on unjustified distribution of surplus/income.
7. Another school claims the MC entrepreneurs have saved the poor from further deterioration, from the clutches of the so-called bloodsucker Mohajons. It not only prevented deterioration and maintained status quo, but also increased their income, smoothened their consumption, increased their social capital, human capital, physical capital, and finally made it possible for them to graduate above poverty line. This debate has to be solved on the basis of objective facts.
8. Even if somebody accepts the above positive claims, the question remains "How Much" and more importantly "How much more can be done by proper institutional changes and through proper regulation of the micro credit entrepreneurs." Then only one begins a proper search for a more effective model of microcredit!
9. Indian model of self help group is naturally the most preferred model for the poor if a minimum management capacity exists among the poor members of the group and also if external political intervention can be checked.. And that is better because by that they become the subject of their life and no more remain a target object in need of so called safety nets! It is ideally a self-owned, self-managed and self-appropriated collective model of "Micro Credit".
10. NGO models and GB model of micro-credit in our country deals with the micro man but they have generally failed to turn him/her into an independent macro/meso subject. Perhaps the degree of failure in case of GB model is lesser because at least it has legally given De jure ownership of the bank to the micro man!
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M. M. Akash is a professor, economist, researcher.
This entry was posted on March 23, 2011 at 1:19 am and is filed under Economy. You can follow any responses to this entry through the RSS 2.0 feed.
7 Responses to " All about microcredit "
- Matiur Rahman on March 24, 2011 at 10:51 pm
The same perspectives could be presented in simpler and convincing ways than in confusing ways. However, the kernel of the write-up is on right track. Over all these years, we just eulogised microcredit, based on data released by GB. These data could be manipulated. We should have had critical view of its performance and inside modes of operations in the past.
- Humayun Kabir on March 24, 2011 at 10:08 pm
Prof. Akash has clearly taken the position that microcredit actually has done very little to change the overall status quo of the poor.
Plenty of studies and evaluations done by national and international professionals have ''established'' the fact that microcredit, in the Grameen Bank model, have improved real assets, access to basic health services, education, and savings of the poor, that would not have been possible without such an intervention. Just because these poor are not still, middle income or rich does not prove that their economic status have not improved. Prof. Akash could have also subscribed to this basic fact.
- sajjad on March 24, 2011 at 7:49 am
It is good to see Professor Akash spelling out his thoughts on the subject. Here are few observations:
1. Between (6) and (7), a third perspective is missed out – accumulation of capital at the agency level, belittling the history of capital accumulation in Bangladesh and elsewhere. If this was accounted for, he could use the same argument as (5) to suggest ways to guide allocation/use of this institutional capital for promoting pro-poor activities. I am sure Professor Akash recognises the need for capital accumulation and is not suggesting that all resources be used for current consumption of the poor!2. His obs (9) and (10) make strong assertions without much empirical basis. Have individual MC borrowers in Bangladesh succeeded? There are ample evidence on YES and NO; as one would expect in cases of 'macro' borrowers. Have self help groups (SHG) in India emancipated the poor? I would only request the Professor to revisit the basic statistics; and the evidence on their use for promoting political patronage and buying electorates.
- Towfique on March 23, 2011 at 6:24 pm
In this write-up, there's too little about microcredit, and too much to discredit microcredit.
- Qazi Nazrul Huque on March 23, 2011 at 6:00 pm
At micro level, I will put more emphasis on the internal capacity of the micro borrowers as they progress toward utilising bigger loans; I don't think supply, anyway, is a big problem. The bigger the enterprise, the bigger the loan, and the bigger the magnitude of 'fall!'
Supply of nature's resources to fulfil more and more of human needs is a big factor. But there is a limit to such supply; the inevitable result is inflation, if increase in supply of nature's resources cannot cope with the supply of credit/investment.
An economic system based on competition can maintain a win-win situation as long as nature's supply is abundant. Only technology is not enough to ensure such a situation.
Market economy has a natural tendency toward wastage of both natural and human resources.
According to Parkinson's third law 'expansion means complexity and complexity decay.' Our economic, administrative and political systems have become too big, clumsy, inefficient and captive to the interests of a few. We are at the threshold of a watershed and need drastic reorganisation of our systems.
Finally, every one on earth — not only human beings, but also members of other species – should have equal right to natural resources.
- Mozammel on March 23, 2011 at 1:52 pm
I personally take the issue of microcredit with benefit for those who deserve and it is not so for those who had a tendency of making anything controversial for the sake of negative intention.
This system saved so many poor families from doom though it was so in lieu of heavy economic stress but even then they received the support from it. Because in most of the cases, near ones could not extend any help.
Religion says charity begins at home, but that remains a saying only due to modernisation. These days, the philosophy of religion is regarded as the practice of the illiterate.
But is it really so?
This issue of microcredit and its demerits are the result of this modernisation leaving aside its actual motto — charity begins at home.
- Babu on March 23, 2011 at 1:20 pm
Excellent write up. Expected something more on the so-called microcredit effect on poor.
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