Ananya Roy
In 2006, Muhammad Yunus and the Grameen Bank were awarded the Nobel Peace Prize. The prize brought new attention to the role of the Grameen Bank as a pioneer of microfinance. Those opposed to the Grameen model of microfinance had to acknowledge its contributions to development. “Yunus was one of the early visionaries who believed in the idea of poor people as viable, worthy, attractive clients for loans,” said Elizabeth Littlefield, CEO of CGAP [Consultative Group to Assist the Poor], a donor forum based in the World Bank that advocates a market‐based approach to development. And “that simple notion has put in motion a huge range of imitators and innovators who have taken that idea and run with it, improved on it, expanded it.” For a moment, the Washington consensus on poverty, anchored by institutions such as CGAP, seemed shaky.
The most elaborate celebrations unfolded at the Microcredit Summit held in Halifax, Canada, in November 2006. From the speeches to the imagery, the summit sought to promote the Grameen Bank’s model of microfinance, showcasing an unyielding focus on human development and the role of microfinance in achieving such goals. Each session was inaugurated by a videomontage, the “Faces of Microcredit,” usually of a poor woman and how her life has been transformed by microfinance. “We are here because of the women,” announced Sam Daley Harris, director of the Microcredit Summit Campaign, at the opening ceremony. Behind him played a song, “Hear Me Now,” by the international band, The Green Children, the video featuring Yunus with a Grameen borrower. Milla Sunde, the lead singer, celebrated the changes in the life of this poor woman: “A smiling face that tells the story of a changing place … a tone in her voice wields the power of choice.” Queen Sofia of Spain was on stage in her signature Grameen gamcha, the “royal shoulder,” as Yunus noted, carrying this 20 cent humble cloth made by poor women as a “symbol of dignity and enterprise.” Peter Mackay, now a Cabinet minister in Canada, hailed “microcredit as the vaccine for the pandemic of poverty,” one that could address the important issues of “human rights, freedom, democracy, and private sector development.” Even in Afghanistan, Mackay noted, microfinance could put “financial power in the hands of poor women.”
When Yunus, the Nobel laureate, took the stage, the nearly 2,000 delegates from 100 countries erupted in standing ovations. In a sharply worded speech, Yunus declared victory:
We are no longer a footnote in the financial system of the world. So those who doubted us, I hope that they will now be with us … The era of showing profits is over. The focus on the poorest is back … We will measure our success not on the rate of return on investment but by the number of people coming out of poverty.
It is thus that John Hatch, founder of Finca International, could insist that microfinance was a “movement, not an industry,” and that this summit was the “biggest self‐help event in history.” “We have created globalization from the bottom up and it is bigger than globalization from top down.”
The representatives of the Washington consensus on poverty were also present at the Halifax Summit. They spoke the words of caution, outlining the limits of microfinance, and seeking to temper the eager enthusiasm of the delegates. Kate McKee, formerly head of USAID’s microenterprise division and now a senior advisor at CGAP, asked the summit to reflect on the “audacious” nature of the Microcredit Summit’s goals and argued that we need to know much more about how microfinance impacts poverty. But the summit was to have little of this. In a bold announcement, Iftikhar Chowdhury, Bangladesh’s ambassador to the UN, cited a World Bank report indicating massive improvements in human development in Bangladesh and attributing such achievements to microfinance organizations. Chowdhury went further, arguing that such forms of development also engendered peace and that microcredit thus “drained the marshes of terrorism.” The Nobel Prize seems to have reinforced “microfinance evangelism,” the “hard‐selling” of an “anti‐poverty formula” with “destitute women” featured prominently. […]
What followed on the heels of the Nobel Peace Prize was not simply celebration and adulation but equally a sharp critique of microfinance. For example, an essay in The New Yorker argued that while “microloans make poor borrowers better off … they often don’t do much to make poor countries richer.” Rejecting Yunus’s argument that the poor are entrepreneurs, the author notes that microloans are more often used to smooth consumption and that they rarely generate new jobs for others. A “missing middle” – small‐ to medium‐sized enterprises – was seen to be the “real engine of macromagic.” In a bold articulation of this position, one published the week after the Nobel Prize was granted to Yunus and the Grameen Bank, New York Times columnist John Tierney argued that “the Grameen Bank is both an inspiration and a lesson in limits.” Wal‐Mart, according to Tierney, has done more than any other organization to “alleviate third world poverty,” for it provides factory jobs to poor villagers, jobs that may seem to be “sweatshop” jobs but that allow workers to work their way out of poverty. In a similar vein, an essay in the Wall Street Journal presented Yunus’s ideas as an “ameliorative” rather than “transformative” entrepreneurship. “Can turning more beggars into basket weavers make Bangladesh less of a, well, basket case?” “The poverty of countries like Bangladesh derives from their comprehensive backwardness,” the authors concluded. Such critiques frame the Grameen Bank as an outdated native economy, a primitive life form to be soon superseded by forms of economic organization more conducive to global capitalism.
Microfinance’s fall from grace had been underway for a while, well prior to the granting of the Nobel Peace Prize to Yunus and the Grameen Bank. As the Washington consensus on poverty sought to remake microfinance into a new financial industry, so the old‐type microfinance, focused on poverty, came under attack. In a series of editorials and articles that were published in May 2004, the New York Times warned that “no one should be lulled by this microfinance boom into believing that it is a cure‐all for global poverty” (New York Times, May 5, 2004). Yet, about ten years ago, it was the very same editorial page that had lauded microcredit as a virtual “cure‐all,” “a much‐needed revolution in anti‐poverty programs” (New York Times, February 16, 1997). […]
This battle of ideas cannot be read as a struggle between a Bangladesh perspective on development and a Washington‐centered apparatus of development. For in Bangladesh itself, Yunus has faced severe critique. While the Nobel Prize generated an outpouring of support, Yunus’s subsequent decision to run for political office generated controversy. Shortly after the launch of his party, Nagarik Shakti (Citizens’ Power), in February 2007, a group of Bangladeshi academics publicly challenged Yunus, arguing that microfinance was a tool for the “protection and expansion of capitalism.” Microfinance loans, they noted, simply “indebted people” rather than freeing them from poverty (Daily Star, February 22 and 25, 2007). In a cruel irony, Yunus’s ideas were now equated with the market fundamentalism of Washington‐based institutions such as the World Bank and the IMF. In Bangladesh, the critiques of microfinance are not new. The Bangladesh press and academic establishment have often fiercely exposed the power wielded by microfinance organizations in collecting loans. This too seems to be a crucial part of the Bangladesh model: a vigorous auto‐critique about development and its instruments. But this time the criticism was explicitly directed at Yunus, a national figure who until now had enjoyed unquestioned moral legitimacy. […]
The landscape of microfinance in Bangladesh is dominated by a few large players, notably the Grameen Bank, BRAC [Bangladesh Rural Advancement Committee], and ASA [Association for Social Advancement], each of which commands a vast hinterland of clients and also has a global presence. More recently, it is ASA that is often lauded by the microfinance industry as the Bangladesh success story, making it to the top of the “MIX Global 100” lists and Forbes ranking, and hailed by the Asian Development Bank as the “Ford” of microfinance for its “efficiency” and “productivity.” In 2008, ASA received the “Banking at the Bottom of the Pyramid” award of the International Finance Corporation and The Financial Times. In these global rankings, the Grameen Bank is recognized primarily for its “outreach,” in other words for the millions of borrowers that it serves, but it is rarely presented as a model of innovative microfinance. Instead, such praise is reserved for BRAC, whose innovations have been circulated by CGAP and its experts. BRAC’s founder Fazle Abed has received substantial global recognition – from the Conrad N. Hilton Foundation Humanitarian Prize to the first Global Citizen Award of the Clinton Global Initiative. In presenting BRAC with the Gates Award for Global Health, Bill Gates noted that “BRAC has done what few others have – they have achieved success on a massive scale, bringing lifesaving health programs to millions of the world’s poorest people.” A recent book on BRAC makes note of its “remarkable success,” a message endorsed by the who’s who of millennial development: from Bill Clinton to George Soros to James Wolfensohn.
Since its modest inception as a small‐scale relief rehabilitation project in 1972, BRAC has grown into one of the world’s largest non‐profit organizations with over 40,000 full‐time staff and over 160,000 para‐professionals, 72 percent of whom are women. BRAC’s annual budget is over $430 million, 78 percent of which is self‐financed. BRAC’s microfinance program, with 6 million borrowers, has cumulatively disbursed $4 billion. More than 1.5 million children are currently enrolled in 52,000 BRAC schools and over 3 million have already graduated. BRAC’s health program reaches over 100 million people in Bangladesh with basic healthcare services and programs for tuberculosis, malaria, and HIV/AIDS. ASA too is of substantial size, serving 5.7 million borrowers through its microfinance program.
These global rankings and statistics tell us little about how these institutions function and how together they are part of what may be understood as a “Bangladesh consensus on poverty.” As development organizations, the Grameen Bank, BRAC, and ASA are indeed impressive in their sheer size and scale serving millions of households. Established in the 1970s, in the wake of Bangladesh’s struggle for national independence, these civil society institutions represent an apparatus of development that far outpaces and exceeds the reach of the state. In the skyline of Dhaka, the Grameen and BRAC buildings loom large, as if to declare, as does Abed: “If you want to do significant work, you have to be large. Otherwise we’d be tinkering around on the periphery.”
Size and scale are only elements of a distinctive ensemble of development ideas and practices. Led by charismatic men, these are “homegrown institutions” that while different in methodology are united in an ideology of poverty alleviation and institutional practice. I call this ideology the “Bangladesh consensus on poverty.” Its hallmark is the non‐profit delivery of a wide range of services, including microfinance, to the poor. It is explicitly opposed to the CGAP consensus and its emphasis on market infrastructure, rejecting it as a “commercialization” that distorts “values” and “governance structures.” Such critiques emanate not only from the Grameen Bank, but also from ASA. In a set of interviews (July 2004), the program director of ASA insisted that ASA is a “grassroots” organization that serves the poor and that it cannot accept the types of commercialization that are being imposed in top‐down fashion by CGAP. This, he argued, has a focus on “profits” rather than poverty; it is a “banking” model rather than a “NGO” model.
[…]
Best‐practice microfinance, as defined by the Washington consensus on poverty, is meant to be both more and less than the Bangladesh model. On the one hand, the terminology of “microfinance,” and now “financial services for the poor,” suggests a range of inputs that exceed credit and include services such as savings and insurance. On the other hand, CGAP principles call for a minimalist microfinance, one that draws a clear line between social development and finance and between NGOs and financial institutions. The Bangladesh consensus rejects this idea of minimalist microfinance, instead asserting the norms and values of poverty‐focused development. But, while it stubbornly holds on to the term “microcredit,” and while the Grameen Bank showcases “credit as a human right,” the Bangladesh model in fact provides a range of financial services of which credit is only one among many. These microfinance – rather than microcredit – innovations deserve a closer look.
The Grameen Bank is often associated with a lending orthodoxy: lending groups, weekly meetings, rigid repayment schedules, and joint liability. Yet, nearly a decade ago, the Grameen Bank implemented a lending system that breaks with many elements of this orthodoxy. Known as the Grameen Generalized System, or Grameen II, this recalibration of the Grameen Bank allows borrowers considerable repayment flexibility with loan rescheduling, customized loans, and even a “flexi‐loan detour,” a way of “exiting the loan highway” and returning several months later in the case of repayment difficulties. While the lending group is still maintained, Grameen II dismantles the “group fund” and other instruments of joint liability. Instead, it relies on “obligatory savings,” a deposit equal to 2.5 percent of the loan value that is deducted from the loan, placed in a special savings account, and that cannot be withdrawn for three years. Another 2.5 percent of the loan value is placed in a personal savings account. For loans over 8,000 taka there is also a mandatory pension deposit. While the Grameen Bank continues to state that it “does not, cannot, and will not accept physical collateral of any kind,” the obligatory savings scheme in effect acts as a form of loan security. It is not surprising then that Dowla and Barua title their account of Grameen II with the microfinance cliché: “the poor always pay back.”
Grameen II marks an important moment of auto‐critique and reflexivity within the Grameen Bank. While the devastating floods of 1998 are often blamed for high default rates in Bangladesh – and thus the formulation of flexible repayment schemes – Yunus himself notes that the floods only revealed long‐standing, structural problems with repayment:
In 1995, a large number of our borrowers stayed away from centre meetings and stopped paying loan installments. Husbands of the borrowers, inspired and supported by local politicians, organized this, demanding a change in Grameen Bank rules to allow withdrawal of “group tax” component of “group fund” at the time of leaving the bank … At the end we resolved the problem by creating some opening in our rules, but Grameen’s repayment rate had gone down in the meantime … When the repayment situation did not improve as desired, we thought this would be a good opportunity to be bold, and to dare to design a new Grameen methodology.
Grameen II can be credited for having resolved these issues of repayment and default. But these problems had already garnered the Grameen Bank a certain amount of international notoriety. A 2001 Wall Street Journal article presented microcredit as a “great idea with a problem.” That problem was the Grameen Bank, its high default rates, increasingly rebellious borrowers, and lack of financial transparency. The article reported:
In two northern districts of Bangladesh that have been used to highlight Grameen’s success, half the loan portfolio is overdue by at least a year, according to monthly figures supplied by Grameen. For the whole bank, 19% of loans are one year overdue.
The article was not sympathetic to the Grameen II overhaul, arguing that since the “bank is converting many overdue loans into new ‘flexible’ loans … the situation may be worse than it appears.” […]
The critics of the Bangladesh model have argued that its “public transcript” of poverty alleviation and gender empowerment is at odds with a “hidden transcript,” which is the patriarchal exploitation of poor women. I suggest that a quite different “hidden transcript” is at work. The “public transcript” of microfinance in Bangladesh, especially that advanced by the Grameen Bank, has exalted credit, insisting that credit is a human right. It has also exalted the entrepreneurial talents and capacities of the poor, especially poor women. However, a closer look at the Grameen Bank, as well as at BRAC and ASA, suggests a logic of development to which neither credit nor entrepreneurship are key. It is my contention that the poverty truths of the Bangladesh consensus fit much more comfortably in the “social protection” family of programs and policies than in the “micro‐enterprises” family. Such forms of social protection are greatly enhanced and deepened by the human development infrastructure and value chains created by these institutions.
[…]
The “hidden transcript” of the Bangladesh model is a far cry from the mythologies of microfinance. It is the story of a unique and ambitious model of development about which we need to learn much more. However, it is the “public transcript” of the Bangladesh model that has come to be globalized, the “hard sell” of “microfinance evangelism.” A recent Financial Times article thus sought to expose microfinance by showing that “fewer than half of microcredit borrowers invest the money in the grassroots businesses that such loans are intended to foster” and that “microcredit loans are used to buy food.” The critique is misplaced, for it is in fact proof of the social protection effects of microfinance that the poor use microfinance loans to smooth dips in consumption and manage vulnerability. This is an effective anti‐poverty strategy, not a failure of development. […]