By Garvin Karunaratne, Ph,.D.(Michigan State University)

Though it was once thought that the Grameen Bank was the silver bullet for poverty alleviation, grave doubts have emerged in recent years.

Initially the Grameen Bank was accepted as an acclaimed success.

From very small beginnings in 1976 in a village in Bangladesh, began this micro credit system of giving credit to the poor- mainly womenfolk. Today there are over 6.5 million borrowers, 96% of whom are women. The Peer Lending Programme as it is called has 2,226 branches in 71,371 villages. In addition the Programme has spread to many countries including the USA The key method used is that in any village community a loan is given to a selected poor person without any collateral security on the condition that the members of the community stand as voluntary unofficial guarantors. Their task is to apply social pressure on the loanee to keep up the repayment installments. If they succeed and if the payments are regular then another member of the community is selected by the Bank officials for another loan and with success in repayment another poor person is selected for a loan. The bank manager is in charge of the total process of interviewing the applicants, judging the best applicant, giving the loan and monitoring the repayments.

In the words of the International Fund for Agricultural Development of the UN Food & Agricultural Organization:

The Grameen Bank now stands as a model of lending to the poor with a very real possibility of being reproduced not only in the poorest countries but also in the heart of the richest as witnessed by a project of a similar scheme targeted at low income women in Chicago.

This Programme has also provided a great impetus to the minimalist microcredit programmes which has been pursued by the World Bank in many countries.

The founder Muhammed Yunus truly hoped to help the worldƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s poorest out of destitution. While the system of non collateral micro credit that is pursued under the Grameen Bank Model is truly commendable it has to be stated that there are certain limitations in this model which preclude the achievement of such a noble aim.

It is possible to achieve success in terms of loans granted and recovered and money poured into the rural scene,. A sustainable system of lending has been achieved. However there are limitations in terms of what the loanees can attend to in the form of enterprise creation, aimed at income generation. In a research study by Yunus himself,-it is documented that in the case of a loanee, with money come anxieties. Her main worry was how to use the money in the best possible way. ((Joriman of Beltoil Village & Others in Search of a Future:1984) As far back as 1984 Dharam Ghai said that It is possible that with a large expansion in the size of operations of the Bank, particularly if this expansion is concentrated in limited areas there could develop a surplus of specific goods and hence returns from such activities could decline sharply.

This defect is due to the basic fact that though village folk can attend to their occupations with ease, when they approach the task of investment and the march from subsistence farming to commercial farming they require a technical knowledge. This training is an essential element for success in investment and was understood by certain researchers like Rahaman & Hossain as far back as 1988:” A very careful review of technical institutional and organizational matters must precede loan disbursement.”

In addition the training and loan disbursement has to be a part of development planning. Unfortunately up to today the Grameen Bank has not adopted training in vocations or national planning as a criteria.

The Grameen Bank Programme has truly provided more cash flow to the villages. But it is important to find out what happens when more money is injected into an economy without a matching increase in the commercial activities. What happens can be illustrated from real situations in India when under the IRDP (Integrated Rural Development

Programme) when loans were given to poor people to purchase an income generating asset like a cow. The loan was given on the strict condition that a cow was purchased. More money was available but the supply of cows was not increased. This led to a situation where the prices of cows increased. The increased supply of money did not create production of cows- instead the prices of cows were bid upwards- it created inflation. We get down to one of the basic theories of economics: The Quantity of Money Theory of Prices in action; this theory as Galbraith says- holds that prices, the volume of trade being equal, will vary in direct proportion to the supply of money.

Thus it cannot be ruled out that the effort of pouring in money into the rural economy without planning for the proper utilization through training and by enterprise guidance can actually lead to the creation of inflation. Perhaps this is why the rapid expansion of the Grameen Bank lending to the poor has not enabled Bangladesh to emerge out of the quagmire of poverty.

Further major flaws of the Grameen Model which deserve to be corrected if poverty eradication is to be achieved are:

1. The fact that the loanees are not required to keep records, with the result that no one can actually be certain of the achievement. Thus many researchers have had to interview the people who had drawn loans and accept their word as gospel truth. This has meant that no tangible research has ever been done. It also casts extreme doubt over claims of success.

2.. Another major problem lies in the tasks performed by the Bank staff- they have to select a village area, attend to publicity, interview and select villages, organize peer pressure for repayment, obtain repayment and continue the loans to the next in the peer group.

This is all done in the village and the role of the villagers is simply to apply peer pressure on the loanee to repay. In this we tend to forget that people develop their abilities only when they use them and if the selection of the loanees, the vetting of their business proposals, the disbursement of the loans, their recovery, the supervision of the use of the loan etc had been done by the people themselves through discussion and deliberation in village groups then the people would have been able to develop their abilities. Then the task of the bank manager is taken over by the people. This is the concept of Power to the People and the concept that was successfully tried out by Akhter Hammed Khan in the Comilla Programme of Rural Development which really transformed the Kotwali Thana, a poor destitute area to become a granary for the area- and is today a paradise within an ocean of poverty. Here it was cooperatives managed by the people themselves that did the tasks of the bank manager in the Grameen Bank Professor Jeffery Ashe, one of the pioneers in initiating the Grameen Model in the USA has now, after two decades of experimenting, has ridiculed the role played by the bank staff in the Grameen Bank- it requires 625 full time workers to serve 100,000 clients. Ashe compares his WomenƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s Empowerment Program in Nepal where a staff of only 85 field workers was able to deliver literacy training and lending groups with 130,000 poor women in only sixty days of becoming operational.

3. It has now been found that the Grameen Bank has been writing off unpaid loans regularly. This leads to hiding the non payments and shows an increase in repayments . David Roodman who found this states that:

In 2004 Grameen wrote off nearly 750 million taka, about 4% of its portfolio. In the monthly reports the Bank is embedding write offsƒÆ’‚¢ƒ¢-¡‚¬ƒ”š‚¦ as negative disbursements. (David RoodmanƒÆ’‚¢ƒ¢-¡‚¬ƒ¢-¾‚¢s Microfinance Opedn Blog, May 28,2010)

This makes it clear that the high repayments statistics claimed by the Grameen Bank cannot be relied upon.

4. Further it has been held that the Grameen Bank using funds received as grants and at low interest gives loans at high interest, though slightly below the bank rates to women. Sheik Haseena the Prime

Minister of Bangladesh has sneered at Yunus saying: Those who lend money at a high rate of interest can never fight against poverty. She has even said that the Grameen Bank has been sucking money out of the people after giving them loans. There has been no improvement in the life styles of the people so far. They were just used as pawns to get more Aid.(Guardian Co UK. Feb 07,2011) Thus there are serious doubts about the achievement of the Grameen Bank in the national interest.

Conclusion

It is hoped that these ideas may help the Grameen Bank in achieving its lofty ideal of poverty alleviation. I have worked in Bangladesh for two years as a consultant and have been struck with the fertility of the land and the sincerity, ability and dexterity of the farmers.

The achievement of the lofty ideals of the IRDP of India too is held up due to the same factor that loanees and people who receive grants and loans are not trained and therefore not equipped to make use of the funds they receive. Poverty is endemic in India and the lofty ideals of the IRDP have so far failed to make a dent in society.

Perhaps both Programmes can also learn a great deal from the Youth Self Employment Programme of Bangladesh, designed and established by me, run by the Ministry of Youth Development which concentrates on training and guidance in enterprise creation at the very doorstep of the projects, where since its inception in 1982, over two million have succeeded in becoming self employed on a commercially viable basis.

Garvin Karunaratne, Ph.D.

December 7, 2011

Author of : Success in Development, Godages, 2010

How the IMF Ruined Sri Lanka, Godages, 2060