Macro story of micro-credit

If Bangladesh is known for anything other than the natural calamities that regularly strike this impoverished deltaic country, it is for its microcredit programmes. Initiated some 25 years ago, micro-credit has often been described as a panacea for poverty and its profile has risen in recent years with the interest shown in it by the likes of Bill Clinton and many other national and state leaders..International development agencies such as the UN affiliates as well as the World Bank are now pushing this as a strategy to reduce poverty. At a time when the Bangladeshi experience is being increasingly sought to be replicated in other destitute areas of the world, Afsan Chowdhury studies the situation of micro-credit in his country and comes up with a number of conclusions, some noted before, some previously unknown and a few altogether unexpected..We are travelling by car towards Tangail, a district little over two hours from Dhaka. It's an ancient habitat and to get there one passes through some of the sparse forest cover still left in Bangladesh. It is also a place which has the long fingers of international development dug deep inside its belly, evident from the signs bearing names of various organisations suggesting 'development' and 'empowerment' and so on. The signboards stand on both sides of the road, advertising myriad missions of faith, hope and charity. Tangail's a place where NGOs come to breathe..I am going there to research a radio series on working children for the BBC. The network of child rights NGOs has told us that Tangail has a number of groups with whose help working children have been able to escape child labour and make it to school. I am looking for happy children. Tangail is not too far from Dhaka, is rural enough and, of course, poor. One can visit a development centre, relish local food and be back in the capital before bedtime. Good for development visits if you hate spending nights in non air-conditioned bedrooms..Our transport rushes through Banglaffsh's schizophrenic countryside where e modern and the eternal get together in a strange dance. Unfed peasants stand listlessly on the road watching the huge modern buses —imported from countries with better road systems — lumber across a highway that is annually washed away by angry rains and inundated by floods. People are at work, and small fires belch dirty thick smoke as pitch is melted and bricks are chipped to repair the roads in one of the perennial rituals of poverty and development which haunts this land..It's on these roads that one sees the proverbial hyper-poor of Bangladesh, naked and unhidden. Those who provide good copy for the Western media and whose bodies and faces win photo competitions. But then as you delve deeper, you find out that there is no such thing as simply The Poor. There are hierarchies, the rich poor and the poor poor. We have much to learn..The people by the roadside are the poorest of the poor, so poor that they do not even qualify for micro-credit loans. They are a world unto themselves, a world kept alive by custom-designed charity programmes which keep the roads going, canals dug, and rice and wheat bags doled out. The programmes are meant for Vulnerable Groups, for Vulnerable Group sounds better than Extreme Poor..Wholesale and retailIn Dhaka, while following up on the microcredit story, we visited Hussain Zillur Rahman of the Bangladesh Institute of Development Studies (BIDS), who has been tracking poverty in Bangladesh for the last decade or so. The regular political ritual of hartal has kept him home and he has time to explain a number of issues. "Let's say that micro-credit has met a very important need. There is no question that it is a necessary and reliable instrument for poverty alleviation. But the point is how much can it do and how. And what should be done next.".According to his research, the poor can be split into Extreme Poor, Middle Poor and Tomorrow's Poor. Micro-credit is primarily for the Middle Poor. But access to it doesn't automatically ensure graduation from poverty. Many lapse back into poverty over a period of time and that is why Tomorrow's Poor has become a depressing reminder of the enormous task of eradicating poverty in a devastatingly impoverished land like Bangladesh..So, is micro-credit doing enough to ease poverty in Bangladesh? Zillur Rahman answers: "Micro-credit is a very significant weapon in the fight to become less poor. Poverty has declined for the last few years by 1 percent annually. That is a decline but not enough of a decline. And while playing a major role, micro-credit is not solely responsible for it. And not all who experience a decline in poverty can sustain it." Again, a reference to Tomorrow's Poor..Salehuddin Ahmed sounds no different. "Micro-credit isn't an Aladdin's lamp. It's not the only strategy or even the principal strategy. It's one of the strategies because poverty alleviation is a multiple approach to a complex problem. Micro-credit is reaching a large number of people and under proper supervision can alleviate poverty to a considerable extent. But it's a tool, not a miracle." Ahmed is CEO of the government•upported Polli Karmo Shahyak Foundaion (PKSF —Rural Employment Assistance Foundation), which is set to become the largest wholesale supplier of credit to NGOs Ivhich retail out the money as loans to the poor)..We also learn that the micro-credit sector is not a monolithic one. There are variations and clusters within the broad frame. We know that there are: a) NGOs that get grants from donors, often directly, to work as micro-finance institutions (MFIs); b) wholesalers like PKSF that conduit loans to borrowers through NGOs; large organisations like BRAC, ASA, PROSHIKA, etc, which have in the meantime moved from credit retailing to wholesaling as well; c) Grameen Trust, a subsidiary of Grameen Bank (GB) that has lent money to NGOs in 20 countries of the world to initiate the GB model; d) the government which loans through its channels, especially the Bangladesh Rural Development Board; and e) nationalised commercial banks. Thus, for the large players, «es change and re-change as they flow th the market and there are differences regarding interest rates and conditionalities as well..As we talk to more people, we hear that the world of development in Bangladesh is divided into pro-micro-credit and anti-micro-credit partisans. Yet, interestingly, not all seem to know enough to like or hate it..Hard-sell backlashFor long, micro-credit has more or less been presented as the universal cure for economic ills. If it wasn't, nobody among the micro-credit pioneers protested either. But in a land or a region where poverty is considered as inevitable as floods and death, it can suddenly start sounding like peddling a 'miracle medicine' sold by roadside charlatans to gullible people suffering from incurable ailments..But as poverty didn't visibly decline over the years even as micro-credit went to work and Bangladesh continued to gain a reputation as the land that mothered the most poor people on earth, negative reactions began to be heard. The local press reacted too. If micro-credit was so good, how come it had not eradicated poverty? Why didn't the cricket team win the World Cup either? It was backlash time..Was this backlash for all the good press micro-credit got when it began its rise in the mid-70s? The hard over-sell. In fact, one of the best PR jobs ever. One feeling is that the underlying reason for the Western press's love towards Grameen Bank and microcredit in general is that they link rural Bangladesh to international markets. Bill Gates' parents, Bill Clinton's wife and many others have come and gone. Last February was the turn of Queen Sophia of Belgium. Enough interest to arouse suspicion as to intent, perhaps?.The questions keep coming up. Why should micro-credit be considered any different from any other kind of money lending? Why (and, true, unbeknownest to most of the world) are the interest rates so high? Are we less poor after the introduction of micro-credit? Can you change the life of the poor with donor money? Do you really know how they make people repay loans? Is it not true that women take loans and men use them?.The level of scepticism about what micro-credit can or cannot do is as high as the confidence about the power of development initiatives to change lives is low. It has much to do with the fact that micro-credit, positioned as a development activity, began its advocacy amongst other things, not just with performance reports, but also with ambitiously titled books such as the one called Chasing the Miracle. Obviously, Bangladesh needed a miracle and that probably caused so many to see one in microcredit as well..The fact is that the miracle never appeared. It turned out to be a chimera. That is why the resentment level appears so high. Having sold the idea of a 'miracle chase', many can't climb down from the horse of promise they ride..No hype in reality timeAs people increasingly question the miracle, the time has come to get realistic. "It's still an experiment," says Shafiqul Haq Chowdhury, chairman of ASA, talking cautiously about what micro-credit has achieved. "Ask me a decade later and I will be in a more definite position to say what the situation is. Let's just say that it's rolling on. Even an organisation like ASA, which has a capital reserve of over 25 million dollars, is still not there. We are miles away from reaching the goal.".ASA runs one of the largest micro-credit agencies in the world and is widely respected as a highly organised and strictly supervised credit-retailing agency. Its repayment rate is around 98 percent or more. Its field staff are known to practically sleep outside the door of loanees to make sure that the money is repaid on time. Some accuse ASA of being so tough about repayment that loanees borrow from the local moneylender to repay the first few installments..In a refreshing tone of transparency, Chowdhury also drops the bombshell that credit doesn't have to be gender sensitive. What?! No women borrowers in microcredit? If that is true, there must be some other givens too that have to be questioned..And so, time to shatter some micro-credit myths..Myth 1. More than 90 percent borrowers (and by implication, users) are women.This was the great selling point of microcredit when it was born. Micro-credit's gender factor melted the hardened hearts of the Western development world and media. Critics now say that although loans are indeed extended to women, it is the men who use the money. A year back, Mohammed Yunus had admitted as much when he said that loans are given to women as representatives of the household and not as loan users..Says Zillur Rahman, "This became known during the initial poverty study and is now accepted as a problem which needs addressing. At some time, the ratio of users versus borrowers may have been at 80-20 but the number of female borrowers who are also credit users is increasing. Maybe 30 to 40 percent of the total loanees are now users too. This is not so much due to intervention by ageincies. It happened naturally as women have become more able to handle credit That itself means that education, social awareness and actions for social equitability have also increased due to micro-credit.".Myth 2. Micro-credit helps the poorest.It does not seem to. And micro-credit mandarins have never explained the either. As early as when the first research on micro-credit was done, it must have 6een obvious that the poorest were always outsiders. In fact, the poorest poor don't want to take loans except in extreme cases. Neither do loan officers want to provide them with loans, because of their incapacity to repay .The general hype about micro-credit hii lis fact till it became an open secret..Because it is realisation hour now, it is time to come to terms with the limits of micro-credit, and also to do something about reaching the poorest. Special schemes have therefore been put in place by numerous agencies. Loan wholesaler PKSF is providing assistance and courtselling in this connection to NGOs.It is a fact that the extreme poor can't attend meetings regularly, can't ke contact with loan officers, and can't pay on time. In some ways, NGOs were happy running their credit retail business in this fashion until criticism of not reaching the extreme poor forced them into examining what could be done for this section. But there are experts who think that micro-credit may not be the most appropriate instrument to help the poorest and that a separate model is needed altogether..Myth 3. Micro-credit loans are collateral free.This is not an absolute fact. Most borrowers have to make a compulsory deposit with the micro-finance NGO for membership and this deposit can not be withdrawn as long as a person is a member of that organisation. The rate of savings varies, but the amount is also a financial link between the borrower and the NGO. So, in a way, part of the loan lies with the agency. Some point out that trust is also collateral..Myth 4. No conflict between borrowers and MFls.This is not true. It is simply a craving for good news that makes people think that both are in a permanent state of embrace. Micro-credit retailing is a business like any other, although it may have social and development sides. Unless strictly supervised, payment delinquency does occur, and this does generate tension. During the 1998 floods, MFIs tried to sustain a high repayment level which even led to violence in some cases, and suspension of collection. MFI leaders argued that the repayment culture has not yet been established and it would have created a crisis for the sector if the loans had been written off. Instead they went for staggering repayment and providing extra loans..Myth 5. Micro-credit sector is minimally vulnerable.MFI NGOs run on the recycling of repayment money. If the level of repayment falls below 90 percent, the institution immediately becomes vulnerable. During the 1998 floods, this vulnerability increased dramatically and exposed the weakness of the credit retailing system as a whole. It meant organisations had to be very successful or otherwise perish, the only way supervised credit can work. Since loan officers are held responsible for recovery, they put pressure on loanees for repayment and thus pressure is recycled all the while. This means that both borrowers and NGOs are vulnerable at any point in time. An attempt to set up a Disaster Fund to overcome such situations did not meet with any positive donor response but NGOs, working in clusters or individually, did set up such disaster funds..These are comments heard all the time, but the reality is perhaps not as bleak. From the very beginning, this sector has been largely donor-funded, but the signals arriving now indicate a different scenario. The perspective on micro-credit is undergoing its most dramatic change, both in terms of process and operational objective. For example, just as foreign aid to this sector is declining, the propensity towards savings is increasing heavily in the population, which makes many think that this can be an alternative source of funding for development..The Credit and Development Forum (CDF), the network of micro-credit NGOs, has been tracking sectoral trends and their findings show that a major transition is certainly on in all aspects of the micro-credit sector: a) membership in the sector is increasing by 15 percent while capitalisation (loans, grants, etc) is increasing by 40 percent per year; b) savings is growing by 30 percent while capitalisation from various sources, although still active, is declining; borrowers from GB have saved over BDT 8 billion (USD 1=BDT 51) while those borrowing from NGOs have saved around BDT 6 billion; and c) loan sizes are increasing in real terms by a few percentage points every year..David Cracknell, who watches trends in the micro-credit sector on behalf of the British aid agency DFID, has written a well-analysed monograph on the situation called "Signposts towards a more professional micro-finance industry". He says that the micro-credit sector should be treated as any other industry, and rules that regulate an industry should apply. In which case out goes charity and in comes the market. This means analysing the cost of lending and ensuring repayment. It means doing what any other normal fiscal outfit like a bank would do. It means being a bank in the conventional sense of the term with only slightly modified objectives. Writes Cracknell: "Although the dominant methodology is that popularised by Grameen Bank, there is increasing evidence of a maturing market with liberalisation and product development within the industry.".Cracknell cites nine major examples to support his argument, such as the establishment of BRAC Bank under a commercial credit licence; the offer by BURO, Tangail and ASA to open access savings to members and non-members as well as a range of fixedWerm deposits; the meteoric expansion of ^private sector insurance products targetted at the poor like Delta Life's "Gono Bima" rival product "Jon Bima"; and BRAC d PROSIHKA reviewing their savings products while considering the introduction of fixed-term savings deposits..CDF has done a study on the foreign grant situation and alternatives, and the trend is clear (see table). In fact, capital gathering or fund sourcing, whether from donors or the people in the form of savings, is beginning to depend on how well an MFI runs. They now stand exposed to market rules. People will seek loans or save money if you manage the money well. But for that you need management skills. CDF Executive Director Khandeker Zakir Hussain lays it clearly: "The first phase is over and performance will determine the future path of micro-credit.".Many believe that ensuring performance is the CDF's job. However, if the need for increasing management skills is obvious, failure to pool resources and empower network to do the job is equally obvious. In fact, most NGOs admit they hadn't networked because they had been busy looking after their own outfits. The result has been a lack of capacity to manage funds and less-than-optimal accountability. The donors who have till date kept the sector going by pumping in grants are more blunt. "Shape up or ship out," as one influential member of the donor community put it. Obviously, far too many had chased the miracle. And we are not talking about borrowers, but of agencies that found access to easy money but lacked the skills to operate a credit retail agency efficiently..Life after grantsThe pressure to raise performance levels is on. Big NGOs that have an active management system, proper training and monitoring, have emerged winners in this process. Less than 20 NGOs now handle more than 90 percent of the micro-credit and this concentration may increase. As a donor official said, "If a few NGOs fall in the process, so be it. Transparency and accountability are critical." They are concerned about performance in managing loans, and the emphasis is on efficiency, not numbers, but this is affecting the industry..The times, it appears, are changing. From a welfare outlook, it's now a more professional approach where the bottomline of showing profit, or at least not loss, is increasingly important. The philosophy is efficiency, not charity. And grants are being phased out and big lending agencies like the World Bank and the Asian Development Bank are getting into the act. This transtion in the micro-credit world is rather rapid and some NGOs appear a little shell-shocked at the prospect of managing their credit life in the post-grant-driven world..The common refrain of donors and users is the difficulty in proving that grants had been spent wisely and that they had made a difference. The shift to loans from grants will also determine the loan culture. Savings will probably be another factor. The need to look for alternative sources of funding has now become an urgent issue. The total savings in the sector made by borrowers, including Grameen Bank, would be around USD 250 million, which itself has the potential of being a major source of capital for micro-credit.Many sector leaders feel that savings should supplement capital formation. The increased number of savings options for people has been generally welcomed and the response has been unexpected. Sukhen Sarker, a board member of CDF and senior BRAC official, said that NGOs can offer investment products better than others because they are close to the community they serve. "They can tap into a potential never reached before for capital formation and also provide a boost to the local economy.".In fact, the response to savings schemes has been exceptionally encouraging wherever they have been tried. But the savings aspect needs to be well regulated if it is to play any major role in capitalisation. As is known, maintenance of savings records at the MFI level is weak. There is also the question of security of the micro-savings arising out of the ambiguity in the legal and ownership structure of the MFIs. Since MFIs are not registered under the Banking Companies Act or any other financial act, their performance is not subject to supervision by the central bank of the country. On the other hand, the government's registration document is mostly silent on the issue of savings and credit dealings of the MFIs. The micro-savers and their small savings are therefore at risk in case of defalcation or mismanagement by MFIs. At yet another level, some agencies have backed down because savings involve paying a market rate interest..We were also told that NGOs could actually tap into banks and insurance companies looking for places to invest. Since NGOs are investing in productive enterprises of the borrowers and have a better record of loan recovery than commercial banks themselves, they are a much better bet for major and minor investors. Sukhen Sarker even suggests that a credit rating agency should be set up for NGOs, so that people know where to invest. This, he believes, will put pressure on the retailers to perform..There are those who also feel that the authorities pay much less attention to the opportunities of capital accessing. There is also strong resentment about the pressure on micro-credit retailers for realising small loans, compared to the lack of initiative from the government to realise bad loans which are humongous in size. The commercial banks have bad debts amounting at least to BDT 200 billion and more, lent out to the top 20 loan defaulters in the country, which is an amount higher than the total disbursement of the entire micro-credit sector (BDT 180 billion – BDT 110 billion by GB and BDT 70 billion by NGOs)..MFI leaders also recognise that governance and developing management standards are critical for survival. Many NGOs will not pass the governance test. And unless there is greater appreciation of financial, legal and audit management, the market will be pushed to close them down. There is donor pressure on that issue. wholesale credit supplier like PKSF (which has by now disbursed over USD 100 million) has gained an excellent reputation, what with top-notch academic, regulatory and administrative representation in its board. (The board has the much-respected Wahiduddin Mahmud of Dhaka University as its chief, and the governor of the Bangladesh Bank and Grameen's Yunus are among its members, while CEO Salehuddin Ahmed is perceived as the modern face of development ideas, mixing administration with technical skills.) Its professional level is good. The board operates independently, which helps PKSF as a whole to retain a professional flair. However, this respect has been won through performance as a wholesaler while others will have to win it as retailers, which doesn't always happen. NGOs like BRAC, PROSHIKA and Grameen Bank, too, have a well-regarded management staff, which is why they have been able to act both as retailers and wholesalers of credit..Auditing a concept?"Micro-credit provides the first step towards freedom from poverty. It has not been dramatic, but has gradually been able to bring about some changes in the life of the poor." Salehuddin Ahmed is not exuberant but cautiously optimistic. Khandekar Zakir Hussain of CDF is equally realistic. "The rules of market will dominate the sector. The recovery rate will have to be 95 percent for survival alone of retailers. Many NGOs will not survive because there will be increased demand for better and more professional services. It will require higher investment in training and management. The small ones will begin to drop out. I think we shall see an entirely new situation within the next three or four years.".This information itself is a myth crusher. An extremely high recovery rate —90 percent and above —is actually a necessity, not a matter of choice or an indication of good performance. It is either that or perish. Unlike banks, they still are not selling anything except loans. Yunus has said that they charge 20 percent interest because that is the service charge for the loan and, like Cracknell earlier, insists that instead of subsidising the credit, MFIs should be run on cost-benefit lines like any commercial outfit. In the case of MFIs, the profits are ploughed back and don't become profit..Salehuddin Ahmed, on the other hand, tes the interest rate as a still-unresolved issue. This high rate of interest and tough repayment regimen is dependent upon an extraordinary level of diligence. Is this a practical arrangement, or is it possible only with a high rate of supervision? Or even coercion, the critics question. Says Ahmed, "Given the environment and the market in the areas this is possible. That's why it has been happening. It's true that a high level of supervision is needed but that is to prevent leakage. The poor will often consume a portion of the loan before putting it into a venture. That becomes unreturnable. And that can build into a crisis. But had there been systemic and systematic coercion, it couldn't have survived for so long.".Salehuddin is more focussed on the qualitative and not just on the quantitative. He says that a certain level of poverty has been abolished but the change is found much more in the mindset of the loanees. The fact that they can change their lives to some degree is a profound discovery. He says that for the first time in a very long time, poverty is declining. Almost reiterating what Zillur Rahman earlier noted, he says: "Instead of just talking about empowering the poor, we are trying to do something about it. We know that the change is at the social and household level. We know that despite the fact that the men in the family use the loan listed against a woman's name, the status of the women borrower has improved. The number of women who are borrowers and users is increasing every day.".There are also research figures showing that out of those who have taken micro-credit loans for 10 years, about 50 percent have graduated above the poverty line. When Yunus was asked if that meant micro-credit was 50 percent successful, he cited World Bank data showing that where Grameen Bank is operating, there has been a 30 percent poverty decline. There is no decline across the board but decline there is. Microcredit alone is not responsible, but it can be credited with a pretty good share. And that is as close to reality that we can get to using quantitative figures.The macro pictureMicro-credit is a process and not just an independent poverty alleviation delivery package. By calling it an industry, one may try to shape it more professionally and make it more market sensitive, but that would be a matter of strategy rather than vision. It is probably not only about retailing credit or even removing poverty, but of improving the quality of life. Maybe there is a difference, maybe not. But it is not about a simple banking operation..That is why it is necessary to look at a feature that is not always discussed but has a great impact on the sector — the quality of manpower in the field. The salary level is low and even if it sounds odd, the pressure is mounting on organisations to make it professionally consonant with other salary scales operating in the country. Many, including Grameen Bank, are facing problems in retaining staff and maintaining staff morale, which has a direct bearing on selecting loanees and ensuring recovery. This is reflected in the top tier of the micro-credit business as well. As Cracknell puts it: "[L]eading Bangladeshi micro-finance practitioners, who have limited time to perform consultancies, are able to command greater consulting rates overseas than in Bangladesh.".But MFIs have a small amount of surplus to play with. Many are stretched beyond capacity. This is part of the sectoral reality and affects performance in many cases. Whether these organisations can afford to pay well and survive is another matter. But there can be no doubt that the best way to remain in business is that they operate like proper banking services..That would, however, mean again treading into the debate about whether microcredit is purely welfare or a financial service sector. Zillur Rahman says, "We have to move from a safety net approach to a growth approach." Which basically means generation of wealth, creation of jobs. If the present incarnation is about self-employment, the next one will be about borrowers in activities that create jobs.."About 30 to 40 percent of the poor are still outside the credit net even though they qualify, so growth in the present form of micro-credit is possible and will happen. The other growth is horizontal, increasing the size of loans. You may call it micro-enterprise or deepening of existing loans but it's basically about analysing capacity and increasing the size of the loan of the individual borrower," says Salehuddin of PKSF. Monique Angers of the Canadian International Development Agency (CIDA), who heads the donors' group on micro-credit operating in Bangladesh, is keen about what she calls micro-enterprise. "That's why we are interested in BRAC's 'MELA' project. It will lead to increased growth." The message is clear. If there have been arguments about the past, the present is about consensus..The truth, however, remains: microcredit can go only so far if the overall or macro economy doesn't grow at a healthier pace. Unless the economy starts getting bigger, credit retailing will reach its limits because the national consumption capacity will remain the same. This means formulating a national credit policy with recovey as a key factor. Present growth rates are unsatisfactory and the banking system is all but washed out with the defaulting on loans by the high and mighty. It means microcredit will not end national poverty, or even the bulk of local or rural poverty. That can only happen when the country adopts macro-credit policies for national poverty alleviation and economic growth.Bidis and booksWe reach Tangail and the office of an NGO called Social Services Society (SSS). There is not enough data available about the impact of micro-credit on the life of children. We talk to Abdul Hamid Bhuiyan, the chief of the group, about female borrowers and male users. He says the presence of users and not just borrowers should be made compulsory. The myth women in micro-credit has lost the power even to shock.We visit a bidi factory on the outskirts of the Tangail town. These factories need children to roll the tobacco with their small, deft fingers. All over Bangladesh, children are employed in thousands in this work. SSS has been working with the mothers who also are labourers in these factories. The credit given to these workers is conditional. A portion of whatever is earned will have be spent on the children's education. One of the loanees tells us that her husband and son have set up a meat shop with the money she borrowed. A young boy approaches us with books under his arm. His mother pushes him forward. The boy used to be a full-time worker in the bidi factory but the SSS scheme has allowed him to attend school. He still works part time, but school allows him to dream of being something more than a rural industrial worker. We ask him to recite a poem. He stands up and delivers. Then he leans forward and eagerly asks, "Shall I recite another?" It is the best advertisement of micro-credit that I have seen in Bangladesh..A world bank today?After a decade of praise for Mohammed Yunus's efforts with Grameen Bank, critics began doubting its sincerity and saw a hidden agenda. Among those who attack Grameen are Marxists who consider Mohammed Yunus to be a World Bank toady, who has promoted a Western model of development by establishing the micro-system which ensures market linkages deep within the belly of Bangladesh. They cite the positive press he gets in the West as proof of their accusation. These left-leaning economists have long argued that micro-credit doesn't touch the extreme poor and, in bypassing them, addresses only a particular rural class..Farida Akhter, a leading feminist, anti-WTO crusader and promoter of women's empowerment through work, says that wherever there is micro-credit, there is Coke and other "Western junk". She cites anecdotal evidence to back her claim that Grameen Bank and the rest of the micro-credit agencies are basically serving the interests of Western market economy..There are mainstream economists, too, who have found fault with the system. They are the ones who brought the miracle down to earth, their critique led to position shifts of the Grameen Bank but within the system. For most of them, micro-credit is an effective poverty eradication tool, but only one of many. Qazi Khaliquzzaman of Bangladesh Unnayan Parishad has stressed that credit is only one of the tools to reduce poverty, and asks for the demystification of the micro-credit process. Others have said that it can't bring about economic change and have long called for larger, growth-driven, loanbased models..Although the criticism levelled is well-founded, the sector has displayed its resilience by adjusting to each crisis that has hit it. This was particularly true during the 1998 floods when sceptics believed that Grameen Bank and BRAC in particular, and micro-credit in general, would not survive. But they did, and the micro-credit system has since gained credibility and strength. Less than claimed by the sector leaders and more than what critics state..Farhad Mazhar of UBINIG runs the outfit with Farida Akhter. A pedigreed radical, he has a long history of activities, ranging from development activism and revival of traditional cultural practices to protecting the rights of minorities and tribals. Mazhar is also a renowned litterateur and musician. He had once asked Mohammed Yunus a number of questions through a newspaper to which the Grameen Bank CEO responded through the same. We excerpt a couple:.Mazhar: Grameen Bank is providing credit to the poor for poverty alleviation but when the total economic frame is making the poor more poor, how can GB change the situation by working within that frame?Yunus: We are certainly working for poverty alleviation. Maybe the success rate is not high but it would be higher if the economic system was in our favour. But some boats sail against the tide and we are doing that. I agree with you on one point. That the poor did not create poverty, it is the institutions which create poverty. Without repairing those institutions, we can't end poverty…I am for changing the policies and principles. Just see the difference between GB and others. And because we could change the policies, we could implement micro-credit..Mazhar: You talk about the rights of the poor but in the same breath you talk about loans to the poor which put them in debt. Through this way you are destroying even the basic rights guaranteed in a capitalist society?.Yunus: I will not stand in your way if you can establish the rights of the poor over resources and property without the assistance of credit..Credit of the poorMicro -credit, defined as credit for the poor without collateral, started in 1976, when Mohammed Yunus, the founder of Grameen Bank, began an experimental project in rural Chittagong, which later in 1983 was established as a specialised bank, providing an organised credit access system to the poor. Before Grameen Bank, Akhter Hamid Khan, the pioneer of the Comilla Model, had initiated a rural credit programme but it did not work well for various reasons. The Dheke Loan Scheme (Paddy Husking Programme), was also launched by the Bangladesh Bank in 1978. Meanwhile, NGOs also moved into this sector. However, it was with the advent of the Grameen model of micro-credit, with its focus on group responsibility for loans, and strict supervision, that it became a model to follow. Today, there are around a thousand international, national and local MFIs that run micro-credit programmes in Bangladesh.How micro-credit worksTo launch a micro-credit programme in any area, an MFI first conducts a survey to assess the need (and demand) for micro-credit and explores probable obstacles. Where conditions are favourable, the MFI organises people (mostly women) in groups of 30-40 which are called Samity (Bangla for "committee"). The Samity itself is split into six to eight smaller groups, which on average have five members. (Eligibility is strictly limited to people who don't own more than half an acre of land, are not members of the same household, enjoy similar social status and economic resources and therefore equal bargaining strength, enjoy mutual trust and confidence, and belong to the same locality.) This is followed almost universally both by the NGOs and the GB..Every group elects a secretary and a chairperson who is responsible for the discipline of group members. Each member of the group has to get a chance to be elected. Groups can continue as long as they wish to be active or can remain so. At the end of one loan period, mostly one year, a new person is elected chief..Group members make a small savings deposit and are trained for two to three weeks after group formation. If members conform to the discipline of the MFI, credit is issued to individual members. Initially, two members of the group are given credit, to be repaid within a year in equal weekly installments, and observed for one or two months. (Loan amounts start from BDT 3000-4000 and go up to BDT 20,000. In the case of what are called microenterprises, the loans are bigger in size. BRAC's MELA programme provides loans up to BDT 100,000.).If they can pay their weekly instalments and maintain group discipline, new loans are given to the next two members. The group leader is customarily the last one to receive credit. If any member defaults, the whole group is ineligible for additional loans. This rule forces group members to pressurise one another to keep up with regular payments. In this way, although credit is given to an individual member, the group is ultimately responsible for loan repayment and maintaining financial and social discipline. Group members can also take multiple loans which actually show up as new loans..The place where the Samity meets is called a Kendro (centre), which is the core of all activities. All transactioi are openly conducted at the centre meetings. Each centre has an elected chief and a secretary, and is assisted by an MFI worker, who visits the centre several times a week. Members are required to attend all meetings. The agenda and monitoring of transactions is done by consensus. The centre chief conducts the meeting and enforces member attendance, weekly payments and discipline. Each centre chief holds office for one year and a new chief is elected each year. The centre chief and group chairpersons jointly monitor loan utilisation on a daily basis. The elected office bearers don't receive any remuneration for this extra work. The MFI staff also monitor loan use. Such close monitoring is believed to improve the performance of the borrowers..MFIs also mobilise savings and consider it an integral part of lending. Each member has to save BDT 5-15 per week and deposit it at the weekly group meeting. Members are also required to contribute 1-2 percent of his or her borrowed amount to an emergency fund. This fund is used as insurance against potential defaults due to death, disability or any other misfortune..Urban MFI"Grameen" means "rural" and the name reflects the concentration of the poor as it stood in the mid-70s when Grameen Bank started operations. But the cities have since swelled with the poor migrating there in a desperate survival bid. Many programmes have an urban component now and micro-credit has spawned its urban clones. Given the social structure in an urban setting, the tested concept of group responsibility for loans is undergoing a change. An example of this is Safe-save, a cooperative run in a Dhaka slum which has successfully demonstrated that with proper safeguards it is possible to run a small, largely self-capitalised, non-group based micro-credit initiative. In fact, individual relationship, as opposed to the almost hallowed group concept, is emerging strongly as an alternative in both urban and rural areas, particularly in the case of savings.