Microcredit Evangelism
The Microcredit Summit held in Washington DC on 2-4 February was the first privately organised development summit. It succeeded in attracting a herd of presidents and prime ministers, queens and first ladies. Because they were there because they wanted to be, their participation may have done more for the cause than an official global summit. Hillary Clinton was the biggest draw. But perhaps by his presence while the hostage crisis continued over in Peru, it was President Fujimori of Peru who lent the most credibility to the summit and its Declaration that microcredit—small loans made to the poorest families, especially women, for self-employment—was a powerful antidote to poverty and its consequences.
The summit was very much a Grameen Bank affair and Sheikh Hasina Wajed had an opportunity to play a prominent role because of Bangladesh´s status as a world leader in microcredit. Muhammad Yunus, the founder of Grameen Bank, was eulogised by speaker after speaker. Official participation from other South Asian countries, however, was at a very low key, although this was made up by the many "practitioner participants" from the region.
Consciousness-raising among decision makers in donor countries was clearly the main purpose of the summit, and in this it succeeded splendidly, with all the media attention it received and the strong lobbying links to the US Congress of the convening organisation, Results Educational Foundation, and Ms Clinton´s involvement. The latter gave a long slide show of visits to Grameen and SEWA, and explained how the Clintons had known Mr Yunus since their Arkansas days, when they set up a Grameen-type community banking operation. Citicorp, Chase Manhattan and American Express were among the conference sponsors, strengthening the message of the summit that the "poor are bankable".
However, the price that had to be paid for this broad-based and high-profile consciousness raising strategy was a certain over-simplification of the message and occasional degeneration into hype. The summit Plan of Action document was itself guilty in this respect. Although the preamble recognised that microcredit is just part of a broad antipoverty strategy, the Plan of Action went on to say it is the "greatest single intervention known" for reducing the gap between the rich and poor. Too many "feel-good" speakers and every UN agency head had to be given a platform in four long plenary sessions, leaving time for only two technical sessions. In each of these sessions, participants were forced to choose between 15 panel discussions being held simultaneously.
One issue had already been settled by the drafting committee, which had refused to budge from the use of the term "microcredit" rather than "microfinance". The latter term seeks to give equal importance to encouraging savings by the poor along with extending them credit. While the summit documents placed considerable emphasis on the ability of even very poor borrowers to save, the declaration of support signed by all participants states its goal ´ in terms of reaching 100 million of the world´s poorest families by 2005 with "credit for employment and other financial and business services". Thus, savings is subsumed under "other financial" services.
The issue is more than a semantic one. The basic difference between micro-enterprise programmes can be characterised as those which extend credit as an advance against savings, which come later out of the income generated by the activity financed, and those programmes which insist on "no credit without prior savings". Grameen represents the former approach, and the self-help group movement, first popularised by the German aid agency, GTZ, the latter. Under it, groups have to establish a track record of regular savings and lending to each other before they become entitled to outside funding. It is no coincidence perhaps that the Germans, along with other important bilateral donors, stayed away from the summit.
The Grameen Bank approach is being replicated in a number of countries, including India and Nepal in South Asia. In Nepal, there are now two NGOs and four government-sponsored regional rural banks modeled on Grameen in the tarai plains. The high population density, relatively well-developed road network and availability of market outlets in the tarai makes it a suitable area for Grameen-type lending (where borrowers are formed into groups clustered into centres so that the field-worker can reach a large number of workers and cover her costs).
The Grameen model has only recently started to be replicated by a few NGOs in India, which is surprising, given similar population densities and levels of poverty as in Bangladesh in large parts of the country. The Grameen Trust has for long had a training programme for foreign replicators, so if knowledge of Grameen Bank lending technology has been slow in coming to India it may be because Indian NGOs are as affected as other parts of society by traditional attitudes of "we know it all". Indeed, it is remarkable how little sharing of experience there is between the microfinance sectors in the various countries of South Asia. Interestingly, it was government through the NABARD and the Reserve Bank of India that was largely responsible for popularising the second (now dominant) model in India, which seeks to link the banks to self-help savings and credit groups, a programme being assisted by the Rome-based International Fund for Agricultural Development (IFAD) and now the World Bank.
Back at the summit, the two other issues that engaged practitioners but not the keynote speakers were the "minimalist" approach to micro enterprise development represented not only by Grameen but also by many other prominent NGOs (with the marked exception of SEWA), and the dangers inherent in the microcredit evangelism much in evidence at the conference.
Credit "minimalism" seeks to provide only or mainly credit to micro enterprises, seeing it as their most crucial need, whereas more "holistic" approaches attempt to assist with some or most of the other requirements such as market development and information, technology and product upgradation, technical and business skills training, assistance in procuring raw materials, and so on. The organisation SEWA, for instance, focuses on two vital non-credit ingredients—organising its members along trade lines so as to develop leadership skills and putting pressure on the system to remove distortions and biases in the regulatory and policy environment. Second, it provides its members with social security services such as medical and life insurance without which credit intended for productive purposes unavoidably get diverted to consumption emergencies. (See to previous story)
The dangers of a single-factor view held by micro finance evangelists of poverty as the simple lack of liquidity were strongly brought out in an exciting panel discussion jointly organised by Oxfam, ActionAid and other British NGOs. (The UK aid agency, ODA, was one of the bilateral donors that stayed away from the conference.) The panel was not listed officially, and was the equivalent of the "counter summit" that official summits often attract. Speakers pointed out that recent research suggests that microcredit brings far more benefit to people just below the poverty line than to those far below it. Moreover, "the jury is still out on whether poor women in Bangladesh have in general been empowered by women-only loans".
Panelists stressed there was a danger that enthusiasm for this new panacea in development would divert resources away from existing anti-poverty budgets, particularly for primary health and education. Rather than focus on micro-finance as a stand alone anti-poverty formula, the summit should have focused on learning how it can be integrated into broader anti-poverty strategies.
As Ben Rogaly, one of the panelists, stated, "Several of the members of the Steering Committee…stand to gain in the reflected glory from the perpetuation of their models. The problem is that in switching focus from strengths in innovation to strengths in public relations, organisations can lose sight of the impact of their work in reducing poverty… Part of the problem lies in the presentation of information. Experiences such as those of Grameen Bank and Bancosol in Bolivia are hailed (often by outsiders) as solutions rather than as dynamic processes of learning and institutional change."