Microcredit: Success stories and criticisms

Like all other innovations, microcredit is not flawless. But it seems controversy over microcredit is exaggerated. A survey was undertaken on impact and client satisfaction of microcredit by the BRAC this year. It was found that the only demand of the clients was to prolong the tenure period of credit and lower the interest rate a little. So, unlike many other earthly innovations, we have got remedies for the flaws of microcredit. The responses suggest that just addressing these two issues - tenure and interest rate - could make microcredit scheme a far better option. Now the question arises: why aren't we doing so? And the answer is: we are. The competitive NGOs (non-governmental organisations) are in the process of addressing such complaints. Development of the microinsurance project provides evidence to this.
Microinsurance is an insurance product that offers coverage to low-income households with little savings and is projected specifically towards lower valued assets and compensation for illness, injury or death.  It is a part of microfinance and looks to aid poor families by offering insurance plans tailored to their needs. The coverage value is lower than a usual insurance plan and the insured people pay considerably smaller premiums.
This addition in quality of microfinance helps mitigate the complaints associated with high interest rate of microcredit and lets the mechanism perform better. When one is insured for the loan taken, he is more capable of taking risk and paying back the amount in due time.
Microcredit is also extending its operation to Medical Treatment Loan, Loan for Disabled People, Dabi Kishori Loan, etc. All counterparts are interrelated in making the other perform more effectively. A good health service from Medical Treatment Loan (MTL) procedure will enable a growing entrepreneur to remain fit and work hard towards enlarging the business and thus he can afford to return loan within the tenure.
As for impact of microcredit on women, the study shows that women in Bangladesh and India often act merely as collection agents for their husbands and sons. Once the loan is obtained, the dominating men spend the money themselves while women are suppressed with the credit risk. The bigger the size of the loan, the lesser right a woman has to it. For example, a study in Bangladesh showed that women have 100 per cent control over loans that are smaller than Tk 1,000 but only 46 per cent of control if the loan is bigger than Tk 4,000.
In a country where norms are violated every hour, where the distressed poor people including women, aged population and children are deprived of their rights, where the law and order situation is  vulnerable, how can we blame a simple mechanism 'microcredit' for not being effective?
That microcredit does not reach the poorest of the poor is another criticism often made. And once again it's time to question our country format. Do we have enough financial and infrastructural support from the government to stretch out microcredit services to its full extent? No. Foreign grants are there. But those are never enough if the MFIs are not having the internal infrastructural, communicative and law and order support.
As for Bangladesh, there are around 1,410 microfinance institutions (MFIs) like Grameen, BRAC, ASA, and PROSHIKA currently operating. These prominent NGOs account for 60 per cent of the outstanding loans made by all MFIs of the country. Bangladesh is considered as a pioneer in microcredit, first experimented in 1970s by a team of researchers at Chittagong University, led by Nobel laureate Professor Muhammad Yunus. Then onwards, the NGOs competed on being major sources of funds in the country's corporate world. Statistics suggest that in the US, microcredit has created jobs directly and indirectly, as 60 per cent of borrowers were able to hire others. Business owners in Haiti were able to improve their housing situation after their income improved due to business expansion facilitated by microloans. According to reports, every domestic microcredit loan creates 2.4 jobs and these entrepreneurs provide wages that are, on average, 25 per cent higher than minimum wage.
When such is the prospect and enthusiasm, one ought to have a second thought before criticising microcredit. The MFIs are endeavouring to develop the process worldwide and we hope to see a brighter future with microcredit having all its reproaches met. Whatever the case is, we must admit that even with high interest rate, microcredit has recorded development in many households and there is no alternative to the process till date.
The writer is Lecturer in Economics, Hurdco International School, Dhaka.
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