| The word "microcredit" did not exist before the seventies.
Now it has become a buzz-word among the development
practitioners. In the process, the word has been imputed
to mean everything to everybody. No one now gets shocked
if somebody uses the term "microcredit" to mean agricultural
credit, or rural credit, or cooperative credit, or consumer
credit, credit from the savings and loan associations,
or from credit unions, or from money lenders. When someone
claims microcredit has a thousand year history, or a
hundred year history, nobody finds it as an exciting
piece of historical information.
I
think this is creating a lot of misunderstanding and
confusion in the discussion about microcredit. We really
don't know who is talking about what. I am proposing
that we put labels to various types of microcredit so
that we can clarify at the beginning of our discussion
which microcredit we are talking about. This is very
important for arriving at clear conclusions, formulating
right policies, designing appropriate institutions and
methodologies. Instead of just saying "microcredit"
we should specify which category of microcredit.
| Let me suggest a broad classification of microcredit
: |
| A) |
Traditional informal microcredit (such as, moneylender's
credit, pawn shops, loans from friends and relatives,
consumer credit in informal market, etc.) |
| B) |
Microcredit based on traditional informal groups (such
as, tontin, su su, ROSCA, etc.) |
| C) |
Activity-based microcredit through conventional or specialised
banks (such as, agricultural credit, livestock
credit, fisheries credit, handloom credit, etc.) |
| D) |
Rural
credit through specialised banks. |
| E) |
Cooperative microcredit (cooperative credit, credit union,
savings and loan associations, savings banks,
etc.) |
| F) |
Consumer
microcredit. |
| G) |
Bank-NGO
partnership based microcredit. |
| H) |
Grameen
type microcredit or Grameencredit. |
| I) |
Other types of NGO microcredit. |
| J) |
Other
types of non-NGO non-collateralized microcredit.
|
This is a very quick attempt at classification of microcredit
just to make a point. The point is ? every time we use
the word "microcredit" we should make it clear which
type (or cluster of types) of microcredit we are talking
about. Otherwise we'll continue to create endless confusion
in our discussion. Needless to say that the classification
I have suggested is only tentative. We can refine this
to allow better understanding and better policy decisions.
Classification can also be made in the context of the
issue under discussion. I am arguing that we must discontinue
using the term "microcredit" or "microfinance" without
identifying its category.
Microcredit data are compiled and published by different organizations.
We find them useful. I propose that while publishing
these data we identify the category or categories of
microcredit each organization provides. Then we can
prepare another set of important information ? number
of poor borrowers, and their gender composition, loan
disbursed, loan outstanding, balance of savings, etc.
under each of these categories, countrywise, regionwise,
and globally.
These sets of information will tell us which category of microcredit
is serving how many poor borrowers, their gender break-up,
their growth during a year or a period, loans disbursed,
loans outstanding, savings, etc. The categories which
are doing better, more support can go in their direction.
The categories which are doing poorly may be helped
to improve their performance. For policy-maters this
will be enormously helpful. For analysis purpose this
will make a world of difference.
I
urge Microcredit Summit Campaign secretariat to present
the information that they already collect on number
of clients, number of the poorest among them, number
of poorest clients that are women, number of clients
that have crossed the poverty line ? broken down for
each of the categories of microcredit. This will help
donors to select the categories they would like to support.
This sorting out is very important for the donors, as
well as the policymakers.
Grameencredit |
|
Whenever I use the word "microcredit" I actually
have in mind Grameen type microcredit or Grameencredit.
But if the person I am talking to understands
it as some other category of microcredit my
arguments will not make any sense to him. Let
me list below the distinguishing features of
Grameencredit. This is an exhaustive list of
such features. Not every Grameen type programme
has all these features present in the programme.
Some programmes are strong in some of the features,
while others are strong in some other features.
But on the whole they display a general convergence
to some basic features on the basis of which
they introduce themselves as Grameen replication
programmes or Grameen type programmes.
|
General features of Grameencredit are :
|
| a) |
It promotes credit as a human right. |
| b) |
Its mission is to help the poor families to help themselves
to overcome poverty. It is targeted to the poor,
particularly poor women. |
| c) |
Most distinctive feature of Grameencredit is that it
is not based on any collateral, or legally enforceable
contracts. It is based on "trust", not on legal
procedures and system. |
| d) |
It is offered for creating self-employment for income-generating
activities and housing for the poor, as opposed
to consumption. |
| e) |
It was initiated as a challenge to the conventional banking
which rejected the poor by classifying them
to be "not creditworthy". As a result it rejected
the basic methodology of the conventional banking
and created its own methodology. |
| f) |
It provides service at the door-step of the poor based
on the principle that the people should not
go to the bank, bank should go to the people. |
| g) |
In order to obtain loans a borrower must join a group
of borrowers. |
| h) |
Loans can be received in a continuous sequence. New loan
becomes available to a borrower if her previous
loan is repaid. |
| i) |
All loans are to be paid back in instalments (weekly,
or bi-weekly). |
| j) |
Simultaneously more than one loan can be received by
a borrower |
| k) |
It comes with both obligatory and voluntary savings programmes
for the borrowers. |
| l) |
Generally these loans are given through non-profit organizations
or through institutions owned primarily by the
borrowers. If it is done through for-profit
institutions not owned by the borrowers, efforts
are made to keep the interest rate at a level
which is close to a level commensurate with
sustainability of the programme rather than
bringing attractive return for the investors.
Grameencredit's thumb-rule is to keep the interest
rate as close to the market rate, prevailing
in the commercial banking sector, as possible,
without sacrificing sustainability. In fixing
the interest rate market interest rate is taken
as the reference rate, rather than the moneylenders'
rate. Reaching the poor is its non-negotiable
mission. Reaching sustainability is a directional
goal. It must reach sustainability as soon as
possible, so that it can expand its outreach
without fund constraints. |
| m) |
Grameencredit gives high priority on building social
capital. It is promoted through formation of
groups and centres, developing leadership quality
through annual election of group and centre
leaders, electing board members when the institution
is owned by the borrowers. To develop a social
agenda owned by the borrowers, something similar
to the "sixteen decisions", it undertakes a
process of intensive discussion among the borrowers,
and encourage them to take these decisions seriously
and implement them. It gives special emphasis
on the formation of human capital and concern
for protecting environment. It monitors children's
education, provides scholarships and student
loans for higher education. For formation of
human capital it makes efforts to bring technology,
like mobile phones, solar power, and promote
mechanical power to replace manual power.
|
Grameencredit is based on the premise that the poor have skills
which remain unutilised or under-utilised. It is definitely
not the lack of skills which make poor people poor.
Grameen believes that the poverty is not created by
the poor, it is created by the institutions and policies
which surround them. In order to eliminate poverty all
we need to do is to make appropriate changes in the
institutions and policies, and/or create new ones. Grameen
believes that charity is not an answer to poverty. It
only helps poverty to continue. It creates dependency
and takes away individual's initiative to break through
the wall of poverty. Unleashing of energy and creativity
in each human being is the answer to poverty.
Grameen brought credit to the poor, women, the illiterate,
the people who pleaded that they did not know how to
invest money and earn an income. Grameen created a methodology
and an institution around the financial needs of the
poor, and created access to credit on reasonable term
enabling the poor to build on their existing skill to
earn a better income in each cycle of loans.
If
donors can frame categorywise microcredit policies they
may overcome some of their discomforts. General policy
for microcredit in its wider sense, is bound to be devoid
of focus and sharpness.
|