First Draft - Shantanu

Introduction:
The latest trend in the developing countries is urbanization. Urbanization actually means development in the urban areas of the country and migration of the people from rural areas to those developed urban areas. It is good for a country to develop but on the other hand it is not good for the rural areas, which remains undeveloped. Moreover this kind of migration also creates a lot of pollution and economic imbalance. This is harmful for sustainable development. Sustainable development means development that will sustain or remain for a long time period considering factors in mind that can be responsible for future development like environment. There can be some other factors like empowerment of the poor people, which can be a big consideration for future development. If the poorest populations get their empowerment in the rural areas then it will be nothing but a proper sustainable development for a developing country and those poor people will not try to go to the urban areas for living. One of the most popular steps is microcredit for the sustainable development in Bangladesh. People can borrow money from the bank but they need to show some property to the bank against that loan. They call it collateral in the language of business. But no bank is going to give loan to a poor man who doesn’t have anything as a collateral. May be if that person could get the loan he could have done a business for living and crossed the poverty line. For this reason microcredit has been introduced in Bangladesh. Microcredit is a very small amount of loan for the poor people that they can give back in very small installments through a long period of time. For small weekly installments it became very easy for them to repay back the money. As they didn’t show any kind of collateral, staffs from bank needed to know about their full information like where they live, about their neighbours and many more. This microcredit program was taken by some non-profit organizations (NGO) and later some governmental projects were also included. But the question is how far this was a real help for the poor people. There are many questions about the efficiency of the microcredit like microcredit is not reaching the vulnerable areas of the country, their interest rate is so high that they are making poor people even poorer or they are making gender conflict even worst. Microcredit was good when it was first introduced but now it is not a real help for the poor people of the rural areas of Bangladesh, it became like a burden for them. In my essay I want to analyze both positive and negative issues of microcredit and how efficient is its role for the sustainable development.
What is Microcredit?
Most of the population in Bangladesh lives below the poverty line. There are some rural areas in Bangladesh the people from there can’t do anything for living just because they don’t have the money to start with. No commercial bank will give them loan because they have nothing as guarantee which is called collateral. Keeping this situation in mind one process of lending money has been introduced which is called microcredit. Microcredit means small amount of loan that can be distributed to those people who live below the poverty line and who don’t have anything as collateral. With help of government and some donor agencies from various part of the world, some non-profit organization has started microcredit in the rural areas of Bangladesh. Grameen bank, BRAC and Bangladesh Rural Development Board's (BRDB) RD-12 project are the most popular organizations who are devoted to microcredit. Microcredit can be agriculture credit, rural credit, cooperative credit, consumer credit, credit from savings and loan associations.
There are a lot of methods of running microcredit in the world. In Bangladesh there is a slightly different method for microcredit program. The organization has to choose an area where they will run the microcredit program and then they will employ field manager and other field workers for that particular area. During the first few days field manager and other field worker will just visit the area and be familiar with the local community. Then they will find those people who need credit to begin a new way of living. They will make group of five people from the same neighborhood. In that group of five people only two people will be responsible for taking the loans and repay the loans with interest every week. This is being done because it is easier to track two people instead of five if there is any occurrence of non-repayment. After fifty successful weeks other group members will also be eligible to get the loan. These groups are formed with only the women to empower the female population of the rural areas. With the help of the group system organizations can borrow money without any collateral. So in this way microcredit is playing an active role for the sustainable development in Bangladesh because in a country when the poor people become independent then they can take play a proper role for the country’s economy.
Microcredit organizations got a very warm welcome and recognition among the rest of the world. Apart from many well-recognized prizes, Grameen Bank and its founder Dr. Yunus got the highest prestigious prize: The Nobel Peace Prize. Moreover many donor agencies and banks like World Bank, UNDP are helping microcredit in Bangladesh with loans and grant loans.
Though microcredit is very popular in the world, there are some very crucial problems which can raise a question for the existence of the microcredit. First of all is the profit. Every organization needs profit to survive. In the case of the non-profit organizations they earn service charge as a profit or it can be a subsidiary program for the government. But Grameen Bank is not a subsidiary program. Its 25% shareholder is government and the rest 75% ownership is for the poor people because while they take the loan they have to open a saving account in the bank. That savings account is their ownership in the bank. So to survive Grameen Bank has to charge interest rate and that interest rate is 20% per year which is far more (12%-15%) than any commercial conventional banks(www.standardchartered.com.bd). But this is not the end, because of their increased expense they need to charge up to 33%, 40% or 46%. If that happens then there will be increased rate of loan default (J.Morduch, 1999).
The target of microcredit is reaching the poorest population in the country and to help them with loan. But it has been proved that microcredit is now reaching the poor but not the most vulnerable poor. In the villages of Bangladesh there are many rural households don’t have the insurance against the risks of floods, sickness, crop damage, fluctuation of price, political problems and other natural calamities. These households can be counted as the vulnerable population. Both rich and the poor people can be counted as the vulnerable in the research. But it has been found that generally poor people are more vulnerable than the rich. The research was done by comparing 1991-1992 to 1995 that if people were poorer and more vulnerable or not. Comparing the average consumption and average vulnerability between the members and the non-members did this. It was clear those households joined microcredit in 1995 were poorer than the population who didn’t join at that time. But it was not clear for the case of vulnerable. The research was done between two villages, and the average result is vulnerable people have been avoided. Subsidized loan cannot be encouraged because there is high risk of default (S.Amin, A.S.Rai, G.Topa, 2003). Even one officer has mentioned that they are looking for members who are “not hopeless”(Todd, 1996, p.173). So it is very clear that microcredit is not reaching the vulnerable poor.
The next issue is using the woman population as the member. In Bangladesh the two most popular microcredit organization (Grameen bank and BRAC) works in the same way. They take only woman as their member and those women had to be present in the center meetings each week where they had to repay their loans. Grameen go through this procedure because they say that this procedure is appropriate to empower women in Bangladesh. But the reality is they do this because they don’t want to take male members because they can be arrogant, they can threaten the bank officers and can cause high default rate. Bank officers are instructed to do so from their superior though they don’t have any written document for it. It become easier for them to pressure and manipulates the woman if they failed to repay the loan in time. Moreover they keep the center meeting running until each and everyone repays the loan. This is done because if any one failed to bring the money then because of the meeting they would be late to go home and prepare the meal and later their husband would physically abuse them. On top of that other members would blame on that member and it causes her a bad reputation in the society. Sometimes bank officers take the defaulter women member to the branch office with them and lock her up. If it was a male member than it is not a matter for the society but now it is not a male member. If a woman member doesn’t come home for a few days and stay locked up in the bank office than it means a huge shame in the society of the rural Bangladesh. Incident happened like woman member has committed suicide by hanging herself with her cloth from the ceiling of the bank office (Rahman 1999a: 70).
Another reason to use woman is to attract the donor agencies. Donor agencies always encourage empowering woman in a male dominating country like Bangladesh. So that Grameen always show the poor woman from the rural areas and get grant loan from donor agencies, which they don’t have to pay back. It is kind of selling the “poverty” for own profit. But if Grameen really wanted to do so they should have tried to recruit woman in their bank instead of just using them to only get their profit from them. In a book on Grameen Bank, David Bornstein noticed that the founder of Grameen Bank doesn’t want to talk about this issue where as he always talks about his challenging ability. When this question was brought up Yunus replied:
‘There’s tremendous pressure for women to quit their jobs. It’s very difficult to take them on. We still try but we have not succeeded. This is one area where we have failed miserably. We didn’t do it.’ (Bornstein 1996:187–188)
He replied quickly and wanted to go for the next question. ). This is not acceptable from a noble laureate. Bornstein called this a blind spot for them. But this shouldn’t be a blind spot. The save the children fund in Bangladesh (SCF) has 43 percent of female staffs whether Grameen and BRAC has only 10 to 9 percent (Ackerly 1995:66). So there are many things that could have been done for sustainable development instead of attracting donor agencies by selling poverty and encouraging the gender conflict.
Microcredit, itself a very powerful tool to reduce poverty. But it has to be well organized. Without the financial help from the government and other donor agencies the interest rate would be so high to bear the program feasibly. Organizations those do the microcredit program have to be more honest and not selfish at all. If microcredit in Bangladesh keeps going on like now then it would be a very shameful situation for the whole nation in the near future. Many improvements are necessary. NGOs should follow some main code of conducts by the government where as now they don’t. Organizational structure is not appropriate because there is no accountability. Government should take responsibility about the expenses of million of dollars that organizations like Grameen get from donor agencies. To what extent the poor members are benefitted from those grant loans. Moreover government should be responsible about the hierarchy of the organization, retirement policy, salary scale, other facilities and everything of the employees and the board of those organizations. These organizations should be accountable more than any other organizations because they are literally running on poor people’s money. Ethics should be the most important issue there. For the microcredit there also many things can be changed. First thing should be the interest rate. Interest rate should be lower. Organizations should also help the members with their way of earning money, not just giving them the loan. Because if they don’t know what they will do with the money than they will waste the money on something else and will be a defaulter and as a result will be abused by the bank officers. So they cannot ever get out of the circle of poverty. Microcredit organizations should also do some thing to help the vulnerable to help to fight unavoidable circumstances like natural calamities. There should be some other special program for them. Actually if microcredit is being run properly then it would be really a weapon to fight poverty and that will result a sustainable development. So organizations who are doing microcredit program should overcome their shortcomings and offer the rural Bangladesh a sustainable development.
Ref:
Mallick, Ross(2002) 'Implementing and evaluating microcredit in Bangladesh', Development in Practice, 12: 2, 153 — 163
S.Amin, A.S.Rai, G.Topa (2003), “Does Microcredit reach the and vulnerable? Evidence from northern Bangladesh”, Journal of Development Economics, Vol 70, issue 1, pg 59-82
J.Morduch (1999), “The role of subsidies in microfinance: evidence from the Grameen Bank”, journal of development economics, vol: 60, issue 1, pg 229-248
Todd, H., 1996. Women at the Center. Westview Press, Boulder
Bornstein, David (1996) The Price of a Dream, New York: Simon & Schuster.
Ackerly, Brooke A. (1995) ‘Testing the tools of development: credit programmes, loan involvement, and women’s empowerment’, IDS Bulletin 26(3):56–68.