Micro-credit and the poor

Conventional banks never showed interest to provide loan to poor people and did not lend them. So, they had to borrow money from moneylenders with high interest rates. As a result, they ended up more or less permanently in debt. Noble Laureate Dr Yunus became conscious at that moment about the problems of the poor. He started helping the poor, giving loans to the poor so that they can pull themselves out of poverty through entrepreneurship.
There is allegation against Dr Yunus's Grameen bank that it charges annual rates of interest in excess of 30 per cent. Besides, almost $100 million donated to the Grameen Bank by Norway was instead siphoned off to a for-profit subsidiary for other purposes by Dr Yunus. Some think tanks of our country opines that giving money to vulnerable women often only puts them at greater risk of violence. The entire movement of micro-credit has come under question as revelations emerge that rates of debt-related suicide have increased following the opening of micro-credit facilities in Uttar Pradesh province in India. Micro-credit is a big cause for domestic violence against women in Bangladesh and in other countries with similar social structures. Micro-credit has been hailed for giving much-needed seeds and working capital to the unbanked, but on the other hand it has ironically become the very reason why men scold, control and even beat up women, studies reveal.
On the contrary, it is also true that the Grameen Bank in Bangladesh has been doing a lot of work for poverty reduction alongside the government. He arranged loans for the poor in order to be independent, to start their own business and to finally get out of crippling poverty. The success of the Grameen model of micro-financing has inspired similar efforts in a hundred countries throughout the developing world and even in industrialised nations, including the United States.
What has driven reduction in poverty rate by half over the last twenty years in Bangladesh? Declining population growth rates, improved human capital, higher agricultural productivity, better infrastructure, and increased foreign remittance have been put forth as factors declining poverty. Study shows micro-finance contributes to income gains and asset build-up of the poor. Even without the income gains, the poor may still benefit from micro-credit services. It helps them withstand income and non-income shocks, such as an economic disaster resulting from the sudden death of a productive family member, loss of an economic asset or other natural disasters. Several studies confirm that micro-credit programmes help households partially insure against shocks so that they effectively play an important 'safety net' role. Micro-credit borrowers are about 50 per cent less prone to consumption fluctuation than the non-borrowing poor in Bangladesh. So, micro-finance can be used to limit the vulnerability the poor face due to shocks.
MFIs in Bangladesh provide non-credit services and they typically include training, related business development services and social messages on education, health and civic rights. These non-credit interventions raise self-employment profits in rural Bangladesh by 125 per cent while the combined impact of credit and non-credit interventions on self-employment profits is 175 percent.
In addition, most published papers show that access to micro-credit leads to women taking a greater role in household decision-making, greater access to financial and social resources and having greater mobility in Bangladesh. But not everyone utilises loans productively and there is a risk of falling into over indebtedness. So, the role of microfinance should be strengthened through further innovations which take into account these pitfalls although the Bangladesh Bank is obliged to carry out annual inspections of the Grameen Bank and it has not found anything that requires a major change in how the bank operates.
[email protected]