Poverty alleviation thru\\\' micro-credit

Sustainable poverty alleviation requires elimination of the causes of structural poverty, along with access to property, well-functioning socio-economic institutions such as education, market, health and sanitation as well as facilities for finance.
Now the question is how micro-credit is contributing to alleviating poverty. The country's poverty reduction programmes have so far made good progress. A total of 330 out of 400 million poor people are thus getting micro-credit facilities over the last couple of years.
Addressing a national convention on micro-credit in the city this week, economists have commended the role of micro-credit in eliminating poverty from Bangladesh. Borrowers of such credits have proved that they are trustworthy in taking loans and repaying the same in time, they said.
Indeed, the micro-credit sector has kept its steady growth rate, in spite of some difficulties in recent times. It has come a long way since it began its journey some 30 years ago. About 43.21 per cent of the poor segment of the country's population have access to micro-credit facilities and one-third, to banking services.
The number of loan defaulters with the micro-credit institutions was quite high during the seventies. After Professor Yunus stepped in with his Grameen Bank idea, the scenario changed rapidly. The poor could pay back their loans and later other micro-credit lenders followed suit.
This is also true that by riding largely on the contributions of the micro-finance institutions (MFIs), Bangladesh did achieve its Millennium Development Goal on poverty, much ahead of the UN-set deadline.
However, micro-credit alone can not help alleviate poverty on a sustained basis as only the borrowers with enterprising ability and related skills can take advantage of it. In recent times, critics have otherwise painted micro-credit lenders as criminals while its proponents, on the other side, termed it as the panacea. However, the fact remains that micro-credit has been playing an important role in alleviating poverty in the country, despite its limitations.
In Bangladesh, there is a growing pressure for commercialisation of MFIs. Micro-credits, as many analysts do rightly note, will not succeed in combating poverty if the micro-lenders are run purely on commercial basis. Commercialisation of the MFIs has, for example, failed in many countries such as India and Bolivia in recent times.
The most worrying fact is that many MFIs are charging lending rates, varying between 40 and 60 per cent. Many MFI field staffs do also allegedly treat the clients badly. They encourage their clients to take bigger loans, but if the debtors miss repayment schedule, they disgrace them in public and threaten them psychologically and physically.
In this respect, Bangladesh, as some forward-looking analysts suggest, should start a new form of micro-credit programme that will not only help alleviate poverty but also focus on job creation and meeting their healthcare and education-related needs to ensure sustainable development. The days of first generation micro-credit lending operations are over. It is time to focus on the second generation ones, they observe.
Needless to say, micro-credit should be used as a tool to eradicate poverty and not as a weapon for any fraudulent purpose. It has provided the country's poor, particularly the women, a way to survive with. Yet the nation has not yet been able to free itself of poverty, as the number of its extreme poor is still very high.
The most positive aspect of the micro-credit programme is that it has not been infected by the bad influence of loan-default culture. Micro-credit is an important part of the current monetised economy and is also expected to remain so in future. Default loans in the banking sector stand at 11 per cent, but the rate of such loans in the micro-credit sector is below 1.0 per cent.
For sustainable development, the micro-credit programme should incorporate a number of elements such as arrangements for heath- and education-related facilities and creation of income-generating activities. Drawing lessons from Bangladesh, the UNDP, according to a report, is endeavouring to replicate a number of similar projects globally.
Until today, around 66 per cent of the households in Bangladesh have access to credit, savings facilities and insurance coverage from banks or micro-finance institutions and cooperatives. Access to credit contributes to higher productivity -- by more than 176 per cent in terms of total productivity and by 13 per cent in average productivity of labour and sales than those of credit-constrained enterprises.
On their part, the regulator and government authorities should encourage and support MFIs in minimising supervisory costs as much as possible, by adopting a remote loan delivery and recovery mechanism in partnership with mobile phone companies and IT firms offering card-based financial service delivery.
The MFIs need also to go beyond the domain of their usual financial services and adopt more human and social visions for the greater benefit of society. They have to be more transparent about their charges, terms and conditions. In fact, there is a need for introducing low-cost systems to reduce the scope for any client abuse and improve social performance.
The micro-finance is undeniably a part -- a small one, though -- of a national strategy for poverty reduction. As such, there is a need to incorporate it into the national perspective plan and facilitate it to work effectively. The MFIs have to be efficient and competitive to survive. On the other hand, the government should conduct a study to know how the potential of micro-credits can be harnessed to an optimum level.
Most importantly, the MFIs need to adopt more down-to-earth and honest approach to their products and their impacts. For becoming more transparent about their charges, terms and conditions, they can put them on the door of all their branches in an easy-to-understand form or print them in the borrowers' passbook.
However, the government has to decide whether it would like to see MFIs operate like commercial organisations or social entities. Policies can then be formulated accordingly. It is also time to reassess the relationship between MFIs and the government. The government's role has to be strengthened and its involvement, enhanced, in this respect.

szkhan@dhaka.net