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Monga, Micro credit
And The Nobel Prize

By Anu Muhammad

04 December, 2006

'We link the poor to the market...'

NGO official in Bangladesh

"When I feed the poor they called me a saint but when I asked, 'why are they poor?' they called me a communist."

Archbishop Helder Camara in Brazil

Every year we have monga in Bangladesh. Monga is a local Bangla word that means a famine like situation, which appears specially in September through November or in Bangla months Aswin and Kartic. People usually call the period as mora Kartic, meaning the months of death and disaster. These two months give rural people more hard time than usual because of extremely shrinking job opportunities. A large number of rural poor try to survive by migrating into towns, in addition to those who migrate for good. Not everyone can do it. There are many who are pushed to worse situation, compelled to eat not-eatable things and get sick, if not worse.

This year is not an exception. However, one thing is very special in this year. Dr. Muhammad Yunus and the Grameen Bank have achieved the highest award, the Nobel Peace Prize, for their contribution in poverty alleviation. According to the Nobel Committee, the model of 'Micro-credit has proved to be an important liberating force' meaning instrumental in poverty alleviation. Despite whole Bangladesh, specially the urban middle class and upper income people, overwhelmed with joy and pride, the reports on monga found its way, got comparatively shorter space this year, to create an embarrassment to the mood. In fact, it is not only in the monga period that people suffer from hunger. Despite self-sufficiency in food production in the country, majority people, over the year, suffer from food intake that goes below the poverty line calorie level, half of them live in hardcore poverty meaning they live with regular hunger. A monga situation is a permanent experience for them.

What macro data speak about poverty in Bangladesh after decades of innovative and successful poverty alleviation programmes in Bangladesh? The latest figure on poverty delivered by research organization Bangladesh Institute of Development Studies showed in recent overview (October 2006) that nearly 40 million people in Bangladesh are living in extreme income poverty and about 30 million are in chronic poverty. According to the government document, nearly 70 million people are still living below the income poverty line.

In this poverty friendly scenario, the two months become so severe that it is difficult to hide the wound as well as the vulgarity of never ending poverty alleviation programmes, studies and festivity. Monga sustains and are renewed every year. Therefore, it is necessary to look at coexistence of sustained monga situation and huge success of micro credit in perspective.

The mobility of Global Capital

Dr. Muhammad Yunus became world famous personality along with the Grameen Bank much before the Nobel recognition. The world gurus have been talking about the Bank as a model to alleviate poverty for years, and its success is also measured by its spread in many more countries. Establishment of an institution like Grameen Bank with own initiative and develop it into a global level is really a great achievement of Muhammad Yunus and others in the Bank. Moreover, Yunus and his colleagues have helped micro credit to integrate into mainstream banking operations. That is obviously a brilliant achievement for him and this is also very crucial contribution of him to the 'late capitalism' of the present world.

In the present phase of global capitalism financial sector has become dominant over production sectors. Investment in speculation multiplied much faster than investment in other sectors. Banks, Insurances, share markets, all have become much more crucial. Financial capital, as a whole, has taken the lead of global capitalism. The unprecedented growth of 'money for money' activities helped many rich to become richer at a rate that is unprecedented in history. These may not bring good moment for the majority. Because, these activities have fraudulent elements and often create disastrous affects for many. Some of it became visible in the recent past in many countries including Argentina and many countries in East Asia. Other countries including the US had the heat of it. The force of uncertainty and collapsing experiences prompted James Tobin, leading economist of the US, to ask for imposing taxes on this speculative investments and transfer of money. George Soros, the guru of speculation and financial investments cautioned global leadership to take actions, extend state control over uncontrolled money movement, to save capitalism.

Capitalism in its stunning horizontal and vertical growth, borrowing Marx's words, revolutionized everything, touched everything, moulded everything and spread fast to become a global system. Now we are witnessing a real global capitalism. Nevertheless, despite its success in revolutionizing many things and radically opening up global opportunities for capital, capitalism could not resolve its inherent dynamics that creates contradictions in itself. Therefore, development and destruction go hand in hand, with growing resources and increased deprivation, with increasing potential and increased vulnerability of the people, increasing command over knowledge and horrible level of mass destruction. Therefore, the world with unprecedented growth of resources witnesses high level of poverty and insecurity. Uneven development in global scale as well as within country is an integral part of that. Bangladesh, located in the periphery, has been a victim of both.

In the last few decades, finance and banking operations around the world have grown in an unmatched proportion in both size and area of network. There are two reasons behind this. One, this gives high return to capital, therefore flow of capital gets the direction to have that. Two, production of consumer items in the world economy has been piled up at a much faster rate than the increase of aggregate income of the people as a whole. Therefore, rapid credit expansion has been a response to both demand and supply needs.

Nevertheless, size of credit market amongst urban high and middle-income group becomes too little with respect to the high rate of accumulation of Bank capital. In this context Grameen Bank model has in fact opened up a vast market for finance capital. The poor, until today, the majority of world population, are being kept outside banking net by collateral conditions. Although there have been many initiatives around the world to build for collateral free credit net, BRAC in Bangladesh or SEWA in India have started similar programmes around same time, Grameen Bank has been probably the first one that could attract world attention.

While Muhammad Yunus must be credited highly for his contribution in innovation in banking and opening up vast sea of market for the huge accumulated finance capital, linking of poverty alleviation with this corporate success is ridiculous and may not very innocent one.

Poverty 'alleviation' agencies and the old ideology Poverty 'alleviation' became an agenda of 'development' in the early 70s after poverty-friendly growth exercises reached its peak in the 1950s and 60s. After finishing the job of Defense Secretary of the US Robert McNamara, the war manager in Vietnam, took the charge of global development as President of the World Bank! During his tenure in the World Bank, he initiated new file, the poverty. His speech in 1973 reflected the new inclusion in policy package of the World Bank. It was followed by increasing flow of fund 'targeting' poor for carrying out research in measuring poverty and establishing poverty 'alleviating' programmes.

The growth of new breed of Non Government Organizations (NGO) s in the peripheral countries, wholly depended on western fund, had a link of this policy emphasis in capitalist centre. It should be noted here that the development NGOs were not the first organizations assigned to address rural poverty in Bangladesh. The rural development efforts, since 1960s, e.g.Comilla model, IRDP or Swanirvar can be safely mentioned as the predecessor of NGO experiment. The failure of these attempts to alleviate poverty and to attain other goals is well documented in Akhter Hamid Khan's memoirs, who was one of the pioneers. In the 70s, after non-sustainable performances of earlier models, the viability of the dominant models faced challenges. Growth of NGOs in global scale as well as in Bangladesh is an outcome of searching of improvised version or an alternative.

The growth of Non-Government Organizations (NGOs) in Bangladesh has been spectacular since mid 70s. NGO model of development in Bangladesh, which includes group formation, the target group approach, participatory development, and micro credit, has added a new dimension to development thinking. The model is treated by global institutions (wrongly called donors) as a safety net for the people (actually for themselves?), who are the victims of other development measures prescribed by the same institutions. Horizontal expansion as well as qualitative changes in its composition characterized the last thirty years of their activities. Initially, NGOs appeared with a promise to work on social issues, struggle against exploitation and discrimination, work outside the domain or influence of local or national power structure. Since early 1980s, micro credit operations started getting priority among some NGOs and by early 90s, it became main focus of most of the sectors. Moreover, NGOs with polarization in itself gradually have found their proper place as part of corporate world.

In the process over two decades, NGOs became polarized between few very big NGOs and many small, where the small ones were reduced to subcontractors of the big. The big NGOs have become corporate groups as well. Big NGOs are also in the process of forming alliances with multinational corporations. To give a few examples: BRAC work with UNOCAL and Monsanto; the Grameen Bank, the Bank in NGO model, initially intended to work with Monsanto but failed due to resistance, has now been intensely working with multinational telecommunication company. Recently it has started a project with Denom, the French food company. All in the name of 'poverty alleviation'! It is therefore not surprising to find Muhammad Yunus always advocating for
privatization of public institution or services and liberalization of the economy in favour of global corporates.

One of the major promises of the NGOs was also to initiate a new development paradigm in contrast to poverty- friendly dominant development paradigm. Soon NGOs became largely concentrated in credit operation and export-oriented activities. It is correct to observe that, "The potential irony is that NGOs originally challenged the concept of 'trickle down' to help create the target group based approach. But in so doing, they have unwittingly contributed toward its reinstatement, as credit delivery has increased in importance as a key rural development input."

NGO model has been successfully captured development ideology. Its hegemony has become so absolute that media, research and academic world take the model as an obvious choice in a country like Bangladesh. Poverty alleviation became buzzword of this model. Micro credit is considered as the most important means of that. The World Bank as well as USAID in different official documents expressed high opinion about these NGOs and gave much more emphasis on the role of NGOs as delivering agencies of the International bodies. It is now also clear that, increasingly they are preferring NGOs to the Government. One can also have valid reasons to believe that the "stress on NGOs can be seen as part of the privatization strategy of the World Bank and most donors". It may be also argued that, "The role of donors in bringing NGOs and government together under their own agendas of privatization is clearly an important one in Bangladesh in shaping NGO activities."

It seems that during mid 90s the World Bank realised long run significance of micro credit in finance capital's global operation. In 1995, the Bank opened new window on micro credit. In 1996 World Bank's recommendations regarding NGO and micro credit in Bangladesh are noteworthy here. Recommendations categorically stated: "Integrate NGOs with commercial finance markets by: a) developing an appropriate regulatory framework for the financial operations of the NGO sector; (b) encouraging large NGOs to establish themselves as banks; (c) encouraging 'wholesaling' of credit to established NGOs; and (d) using smaller NGOs as brokers to mobilize self-help savings groups." In 1997 first international micro credit summit was held in Washington. In the conference, World Bank, USAID, UNDP and Citibank among others declared about their special fund for micro credit. In the last decade, not only Grameen Bank model started spreading in other countries, mainstream Banks also have started introducing micro credit in its operation. The second micro credit summit held this year assembled many big corporates together. Monsanto, Citigroup were among the sponsors.

Some findings on Micro credit at micro level

In the last few years, I had the opportunities to be involved in field studies on micro credit in fifteen villages in different parts of the country. Let me summarize some very important features of micro credit revealed in these studies. These are as follows: (a) its tiny amount keeps its use in limited areas mostly in retail trade or reinvest in credit market with higher interest. (b) The borrower of micro credit does not have to show any collateral but s/he has to be accountable to the group s/he belongs. (c) The borrower receives the amount minus some savings, about 10 per cent, and has to repay the loan in weekly installments with interest of around 20 per cent of the total. (d) Since more than 20 per cent return on the loan amount is essential to keep repayment regularly for every week, every month and every year without any break, if anything happens to break the payment or if the borrower cannot earn more or at least equal to the repayment amount, she /he becomes defaulter, which has chain effect. (e) It is assumed that, cateris paribus, as standard practice in economics, other things remain same, meaning everything will be favourable for weeks, months and years. No natural disaster, no accident, no sickness. Reality does not follow this. If anything much less than above happens, the repayment gets stuck. That happens for the majority. (f) Further hidden assumption is that the property relations, power structure, market process all favour the poor, which is proved completely wrong. (g) For every breakdown of the wrong assumptions the borrower faces helpless uncertain and burdened situation. Defaulters therefore are on the rise among the poor who are compelled to take new loans from other sources at higher interest rates.

Studies reveal that only 5 per cent of the borrowers showed improvement of their situation with the help of micro credit, those have other sources of income as well. The best investment area is found to further engaged in credit business with higher interest rate. The second best is the service sector, like small shops, rickshaw-van or retailing. I found 50 per cent of the borrower who could not improve but could retain the position but by taking loans from multiple sources. About 45 per cent could not do it at all, their position deteriorated. Many of them could not bear the burden and fled or on the way to leave the village with many liabilities on the head. If anybody looks for micro credit defaulters it is possible to find many of them amongst urban poor migrated from villages.

Other studies also have found similar scenario. In the findings of a resurvey of 17 villages under Poverty study of 62 villages a decade ago, Hossain Zillur reported that, only 19 per cent respondents informed that their conditions had improved, out of which only 5 per cent gave credit for this improvement to NGO intervention, 24 per cent informed that their situation has deteriorated while no change was observed in 58 per cent cases.

Women empowerment is an area that deserves special attention in discussing NGO process in Bangladesh. Bringing 'target group' women into credit market is specifically a success for credit-giving NGOs and Grameen Bank. This was also proved to be much more profitable as women borrowers seem more serious and consistent about repayment. The Grameen Bank and other NGOs also developed an alternative to collateral that is group responsibility; this is also an innovative success in expanding banking into rural poor. Expanding the credit net into rural areas, specially into women has also significant impact into those women's 'private' and 'public' life.

Women's overwhelming majority in micro credit receivers is considered as one of the biggest achievement of the endeavour. However, due to patriarchal setting the net user of micro credit has been male in most of cases, as high about 80 per cent in our study areas. In many areas, Grameen Bank and other micro credit institutions deal unofficially with real users, the male. Rate of defaulting among borrowers also have been increased. According to a study, rate of repayment will come down to 40 percent, against 98 per cent as claimed, if rescheduling considered. This may be the reason that makes Grameen to gradually shift its attention to other investments and other income groups including better off amongst poor.

Bringing credit to the poor as a major, sometime lone, determinant of development and poverty alleviation echoes the dominant development strategy of the 50s, which singled out capital scarcity as the major determinant of underdevelopment of the post-colonial countries. It emphasized that capital was the "missing component" of those countries. Needless to say, that theory has been used to rationalize export of capital and flow of foreign 'aid' from the centre capitalist countries to the peripheries.

The new myth

Even with contradictions within the system and limits to a great extent, one cannot deny substantial role that micro credit has played in some areas in the last two decades. That has developed alternative credit institution, brought women as worthy borrower, that has weakened the assertive power of traditional mohajons (money lenders) in some places.

However, one could be skeptical to equate 'access to credit' with 'empowerment'. Despite credit's role in giving women member more space into private life and her relative mobility into social life, one could raise questions about its limit. Credit programme offers women the jobs that she is already accustomed to, in that sense it cannot create that mobility of women to go beyond that limit. Secondly, many male members of the family take the opportunity to use female member to get access to the money. The credit here becomes another dowry. Shamim Hamid rightly pointed out that, "amongst the NGOs, Grameen Bank, BRAC and Proshika have gained international reputation for involving large numbers of women. However, none have achieved significant breakthrough in helping women to move to higher productivity or to activities with higher economic returns."

One NGO official has told rightly that the main objective of micro credit has been to 'link poor to the market'. The more marketization of rural economy today certainly has got momentum from micro credit. But the questions remain, why this link fails to make any significant impact on poverty at macro level? Why despite huge success of micro credit people in distress keep migrating to urban centres? Why monga type situation persists? Moreover why number of people under poverty line keep rising with rising micro credit and allocation in poverty alleviation programmes? One must look at potential of micro credit keeping these facts in mind.

Poverty has its roots and causes, expanding credit net without addressing the causes may satisfy Pareto optimality but not affect poverty situation. Experiences show that if countries like Bangladesh rely on micro credit for alleviating poverty, poverty will certainly remain to keep the programmes alive.

Along with scenario of sustained poverty, these success and failure, achievements and limits of micro credit also proved that, poverty, deprivation, illiteracy, environment, malnutrition, insecurity, gender subordination, unexplored productive potentials need much more than mere money flow in various forms. Intervention into present condition and change it significantly demand structural change, national initiative and social mobilization. These certainly call for a radically different development paradigm.

Grameen Bank or micro credit is no more a Bangladesh phenomenon, it has gone global. Inspired by neo liberal ideology World Bank literatures and Economics textbooks now refer micro credit experience as a success story of market fundamentalism. A new myth has been created in this regard. For people really want to address poverty, it is naive to feel happy about Nobel Peace Prize for micro credit by seeing it as a victory for alternative. This is not alternative but supplementary to the dominant development paradigm. With awarding Muhammad Yunus with Nobel Prize, the whole neo-liberal regime has now got a new impetus to push for more corporate grabbing, a machine for poverty reproduction, by showing the victims micro credit as their Aladdin's lamp.

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