Thursday, October 19, 2006

Another skeptic reviews micro credit

Counter arguments are good. It helps you clarify your views better. So we welcome Daniel Davies, commenting in Guardian Unlimited, where he says "Microcredit is a good thing, but it is nowhere near a panacea for global poverty." The strap line may be similar to that of Walden Bello, but the arguments are somewhat different.

Davies says
The main effect of the microfinance revolution has been the rebranding of agricultural development banks as "Microlenders". This has happened because although a loan to buy a tractor or provide working capital for a harvest season isn't microcredit, calling it microcredit will bring in a lot more grant money. That's probably good news, because agricultural development banks usually do good work.
This is not true. True micro credit institutions do not give tractor loans. Tractor loans are in lakhs of rupees (or millions of rupees) - that is about USD 5,000-8,000. The micro credit amounts are rarely more than ten thousand or twenty thousand rupees (or takas), and mostly in thousands of Rs/Tk - which in dollar terms is USD 200-500 at best. Agricultural banks are not renamed as micro lenders. In places like India and Bangladesh, all agricultural banks are owned by the Government, and it is a known fact that the Government messes with the banks, gives loans to party sympathisers and keep writing off loans. In any case, most such loans are never paid back. Yunus, right through his autobiography, disapproves of the Governement owned agricultural banks and their practices.

If the agri banks rename themselves as micro lenders for getting better access to grants, that is someone else's problem. Aid agencies beware!

Back to Davies. He says micro credit cannot help the poorest, and says micro credit organizations themselves know this. Quite true. It can only help those who can repay the money back, because for the banks' own survival, they need to get the money back, to relend, and to pay for the administrative costs. Until Yunus (and a few others elsewhere) started micro lending institutions, this particular segment of poor got nothing. Yunus is not providing a solution for every poor person out there, but most poor. For solving the real bottom poor, Governments have to step in, even if it means there is a lot of corruption and wastage. Or, someone else may have to come up with even more interesting models.

Yunus has never said anywhere that microfinance is a replacement for development policies. Grameen Bank's impact is real for all of us to see, even if the impact is not what some of the western writers want it to be - that is conversion of Bangladesh into France. That will take perhaps another 200 years and Grameen has been there only for 30 years or so.

Davies gives a neat introduction to JK Galbraith's (least-known but best book) The Nature Of Mass Poverty. I will note that down to read it.

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