The Nobel Peace Prize is the culmination of several international awards that Prof Muhammad Yunus has received for decades of service to the underprivileged women of Bangladesh. I have met with him on several occasions, and his zeal, fervour, and most of all, his compassion for the poor comes through every time. He believes that the poor are always honest; that they return debts in time and in full; and that their short-term needs often overwhelm them in their efforts to survive. He advanced his own funds to a group of women in Chittagong where he was professor, and the rest—including the success of Grameen Bank—is history.
At the core is the formation of small groups (consisting of around 20 to 30 women) in villages that meet regularly, pool together their own and, increasingly, the bank’s resources, and administer these funds, their use, and their return. These microfinance groups start out with small, short-term loans (in the initial years, even as small as 10 taka), and their performance in utilisation and return makes them eligible for progressively higher amounts.
The group is responsible for members’ behaviour, and the bank supports, monitors and enlarges access to credit. The initiative covers over two million poor women in Bangladesh. They are now a sophisticated organisation, even running mobile telephony services. The members own the bank, and the self-actualisation of these women is heartening to see in their meetings.
In the initial years, there were murmurs, even from World Bank consultants, that there was tremendous pressure on members to repay loans, that interest rates were excessive, and that short-term loans did not help lift members out of poverty, but only helped them continue with their subsistence livelihoods. Other experiments (such as for self-employment) like the Bangladesh Rural Advancement Committee (BRAC) provided skill upgradation, employment and education services. The best practices of both programmes have merged over the years.
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| Administrative regulation would only increase supervisory costs for the government without adding value. Instead, a self-imposed code of conduct would help |
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There was enthusiastic copying of Yunus’ experiment by India’s state governments, starting around 1989 in Tamil Nadu. Quite sensibly, the initial years were spent in getting the groups to become cohesive and the ‘animators’ appointed by the state helped. Parallel efforts in Gujarat, Andhra Pradesh and Karnataka have grown in number to over five million.
It was only around 2003 that other states and the Centre started taking notice, for which there were several reasons. For the first time in Tamil Nadu, for instance, there was an effort to appeal to these groups as an electorate. This caught the attention of all the political parties. The self-confidence of group leaders (seen on regional-language television programmes) was, in fact, a notice to the local elected representatives to deliver.
At another level, the significant presence of NGOs, with varying levels of dedication, is eroding the effectiveness of the district administration in running state-sponsored rural development programmes.
Finally, as seen recently in Andhra Pradesh, the local administrations accused self-help groups as being the cause of rural indebtedness because of high interest rates. The preference of institutions, including ICICI Bank, to work with these groups rather than state-sponsored programmes, has aggravated the problem. Banks consider them reliable borrowers, and attempt to channel rural credit through these groups. There is a danger that the banks look upon the groups as a product in their own value chain, rather than as people who need help.
The finance minister and the RBI are now keen on regulation to bring these groups under a supervisory umbrella, with the carrot of access to institutional funds. The groups have are substantial deposits (over Rs 1,000 crore in one state) that should be put to better use. The growing initiative also underscores the need for transparent management practices.
A group chaired by Ms Ela Bhatt has come out with a model code of conduct for self-help groups. As an effort at self-regulation, the group must be congratulated. The note emphasises on transparency, fair lending and fair recovery practices. It provides for disclosure of details of financial services offered, the methodology of calculating interest, and provision of periodical account statements to clients. Above all, it promises to take the responsibility of the client over indebtedness.
The value of this effort must be recognised. Any bureaucratic attempt at administrative regulation would only increase supervisory costs for the government without adding value. However, it should be noted that the activities of several microfinance management groups need to be monitored. A self-imposed code accepted by all, and supervised jointly by government and the organisations, would help solve the problem.
The issue is that microfinance groups and village level governments have not been working in collaboration. In Bangladesh, this was not an issue, as the government was not active in rural development. Here, it is vital to bring about cohesion, especially as there is a dovetailing of objectives: focusing on poor rural women and providing them a livelihood.
—The writer is a former finance secretary and economic advisor to the Prime Minister
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