This is a continuation of my earlier blog-post about Prof. Muhammad Yunus winning this year’s Nobel Peace Prize. The prize is actually for both Prof. Yunus and the Grameen Bank, the all-encompassing grassroots institution he has created.
Predictably, many newspaper columns filled in with the groundbreaking news, each accompanying an analysis of Grameen Bank’s activities. To a lay reader like me, nearly all those analyses seemed to lack clearly understandable narration. Until I chanced upon Abhiroop Sarkar’s essay in 19 October’s Anandabazar Patrika (ABP).
Prof. Sarkar teaches Economics in Kolkata’s Indian Statistical Institute. Having seen him several times on Star Ananda and read his columns in both ABP and The Telegraph, I was eager to have no doubt that his essay on Grameen Bank would be succinct and easy to follow. I was not disappointed. Here is elucidation of his main points (translated by me from Bengali):
The basis of micro-credit
The Grameen Bank’s model of providing micro-credit is based on ‘collective responsibility’. While a loan-giving agency rarely extends loan without a matching mortgage, and since poor people in the villages usually have nothing worthwhile to offer as mortgages, the Grameen Bank offers loan to teams of 5 loan-takers. The loan condition is this. All 5 in a team will not get loan together, one of them will get first. After she repays, the second person will get, and then the third and thus the cycle continues.
The second condition is that if any loan-taker defaults in repayment, no one from that team will qualify for any more loan. These 2 conditions have meant that the loan-takers are very diligent in selecting team members, which is a clever step to ensure that the loan-taking teams are cohesive and capable to service loans that the individual team members take.
The loan-takers are mainly women, who, as Prof. Yunus found, are more dependable and responsible than their men-folk in paying back loans in time. Loan payback rate is as high as 97%, which is an obvious proof of the success of Grameen Bank model.
Small loans cost more
Small loans mean large number of loan-takers, which in turn translates to high administrative cost for operating the whole affair smoothly. According to a calculation, though Grameen Bank charges interest on loans at market rates, and receives large amount of indigenous and foreign grants at little or no interest, yet for each 1-rupee loan it carries a subsidy of 22 paisa.
At the hands of loan-takers, every 1-rupee loan earns a return of 17 paisa on an average. This means that for each 1-rupee loan, there is no return for 5 paisa. This however can be considered as the cost of taking loan to doorsteps of needy people. In India, going by the perception that every rupee from government coffer translates to just about 14 paisa in the hands of poor people, Grameen Bank’s ‘spending’ of just 5 paisa pales in comparison.
Micro-credit doesn’t alleviate poverty
According to 2006 World Development Report, 55.2% of village population in 1995-96 lived below poverty level, improving to 53% in 2000. The inevitable question arises: Why, even after 30 years of Grameen Bank’s working, is half the village population still below poverty level?
The answer is that the tiny loans that Grameen Bank provides are just about sufficient to start small enterprises, like hand-making cane sit-ons, starting small roadside eateries, making earthen khullars for serving tea, and so on. Efforts such as these can never be able to remove poverty over long term, which at current times is possible only through massive investments in favor of big industries.
This is particularly true in West Bengal, where after a long time large investments are coming in. If Grameen Bank’s 30-year record and the prevailing scenario in Bangladesh’s villages are anything to go by, there is just no alternative to big industries if the intention is to improve people’s living standard over long term. Those who feel big industries are a drag on the overall good of society, need to revisit their understanding of this basic truth.
Hasn’t Grameen Bank served any good?
But yes, it definitely has. More than the micro-credit for poverty alleviation, it has shown that even the poorest woman is able to earn her bread, no matter what the male-dominated society feels. Grameen Bank plays an important role in uplifting the morale of poor women, in making them believe that like others even they can contribute by offering saleable goods and services, in helping them realize that they too have a place of their own under the Sun, in affirming their potential to hope for a better future.
Since Grameen Bank’s loan conditions emphasize on such societal aspects like keeping a family small, boiling water before drinking, not accepting dowry in marriages, having to repair houses in time, and so on, it goes without saying that it has indeed been able to inculcate an inclination for healthy living among poor people. One may argue that no amount of government-sponsored health education can be imagined to achieve what Grameen Bank has for larger interests of society through its micro-credit system.
That perhaps is the reason why the Nobel committee has chosen Prof. Yunus and Grameen Bank as co-winners of Peace Prize instead of a Nobel Economics for him, even though he is a renowned economist in the first place.
Read the Nobel Committee’s statement on awarding Peace Prize to Prof. Yunus and Grameen Bank.