The model that contributed most to social capital

Solidarity lending is a cornerstone of micro-credit. It starts with the process of building social capital. Each borrower must belong to a five-member group; the group is not required to give any guarantee for a loan to its members. Repayment responsibility solely rests on the individual borrower, while the group and the centre oversee that everyone behaves in a responsible way and none gets into a repayment problem, writes M S Siddiqui Values and beliefs that are embodied and culture play an important role in political and social development of a country. Culture can be defined as the ways of life including arts, beliefs and institutions of a population that is passed down from generation to generation. The individual's beliefs, attitudes, values, self-respect, compliance of laws, and rules of the society indicate how a citizen thinks about what things are, or ought to be. Nations are poor because their attitude are poor and do not feel themselves the need to change. Poverty makes people uneasy, leading to their loss of trustworthiness and engendering mutual disbelief. Economic inequalities also lead to isolation and mistrust. Economic development and fair distribution of wealth are the answer to revive the values. In order to promote economic development, we need to restructure our social values and it is through economic development, we can bring about social change for nourishing culture values and creating a distinctive identity. Development needs investments of three forms of capital -- economic, cultural and social capital. One scholar defined social capital as 'the aggregate of the actual or potential resources which are linked to possession of a durable network of more or less institutionalised relationships of mutual acquaintance and recognition'. Social capital is important for efficient functioning of modern economies and democracy. It is a precondition for economic reform but unlike economic policies or even economic institutions, it cannot be so easily created or shaped by public policy. It is a combination of social, cultural and economic processes that can gradually build social capital. Social capital is an instantiated informal norm that promotes cooperation between two or more individuals and reciprocity between members of the society. Individuals must be instantiated in an actual human relationship by way of trust, networks and co-operation. Members need to cooperate in groups and do, in the process, embrace the traditional virtues like honesty, the keeping of commitments, reliable performance of duties, demonstration of reciprocity, and the like. Since cooperation is necessary for most individuals as one of the means for achieving their selfish ends, it stands to reason that they are in one way or other involved in process that help develop it in society. Virtually all forms of traditional socio-cultural groups like tribes, clans, associations, religious sects, etc. are based on shared norms and they use such norms to achieve cooperative ends. The economic function of social capital is to reduce the transaction costs associated with formal coordination mechanisms like contracts, hierarchies, bureaucratic rules, and the like. It reduces transaction costs of monitoring, negotiating, litigating, and enforcing formal agreements. The fact of the matter is that coordination, based on informal norms, remains an important part of modern economies. The existing political and administrative system has failed to achieve the goals. The existing system is not wrong by itself but some of the nations have failed to achieve the cherished goals since they have tended to modify the system as per the desire of their policy-makers. The democracy is accepted as a good political system but some of the society tries to re-design to make it suitable to 'requirement' of any given society. It is about not only rule of law but also a whole political and social system and associated structure of norms and beliefs. Some societies have not been taking tolerance, mutual respect, convention, tradition and co-operation into considerations for running the system properly. Such values are critical for a smooth functioning of democracy. Social capital as instantiated, helps fostering of informal norms that produce cooperation. If individuals interact with each other repeatedly over time, they develop a stake in a reputation for honesty and reliability. Market interaction in a commercial society leads, as Adam Smith observed, to the development of bourgeois social virtues like honesty, industriousness, and prudence. A society, composed entirely of Kant's "rational devils," will develop social capital over time, simply as a matter of the devil's long-term self-interest. According to a philosopher, 'a modern democracy tends to wipe away most forms of social class or inherited status that bind people together in aristocratic societies'. Men are left equally free, but weak in their equality since they are born with no conventional attachments. Modern democracy promotes excessive individualism which is a preoccupation with one's private life and family, and an unwillingness to engage in public affairs. The result of excessive individualism, however, is not freedom. Americans combated this tendency towards excessive individualism by their propensity for voluntary association. That led them to form groups, both trivial and important, for all aspects of their lives. The political function of social capital in a modern democracy is called the "art of association". The weaker classes are vulnerable due to unfettered free economy and democracy without substance. The association of people can protect them through combined actions. They can learn it and gain strength through co-operation in social and professional activities. Religion continues to be a factor in economic development and social relations but it is blurred in the present societies since religion is not changing with the change of societies. Apart from religion, the shared historical experience can shape informal norms and produce social capital. Social capital is frequently a byproduct of religion, tradition and shared historical experience. Despite the possibility that a society can have too much social capital, it is, doubtless, worse to have too little. For in addition to being a source of spontaneously-organised groups, social capital is vital to the proper functioning of formal public institutions. The policy-makers should know where social capital comes from and how to increase the stock of social capital in their respective countries. States can both do some positive things to create social capital and forebear from doing others that deplete a society's stock. The states do not have many obvious levers for creating many forms of social capital. The governments can generate social capital through education by educating the norm of social rules and practices and building trust and respect for individuals. Policy-makers consider social capital as one of the factors that may contribute to a wide range of beneficial economic and social outcomes for a society. Such outcomes include: high levels of welfare and growth in gross domestic product (GDP), more efficiently functioning labour markets, higher educational attainment, low level of crime, better health and more effective governance institutions. And these expected outcomes provide the main logic for public authorities and the government to intervene and promote accumulation of social capital. The policy-makers do need to consider pro-active measures in order to strengthen social network, build social organisations, strengthen community ties and the civil society, increased community access to services by citizens. But there are limitations on the part of governmental agencies for properly encouraging the creation of social organisations. Here comes the role of non-governmental organisations (NGOs). Grameen Bank, Bangladesh Rural Advancement Committee (BRAC) etc., are such NGOs that have been promoting the growth of social capital in the fitness of their organisational functioning. The GB has reversed conventional banking practice by removing the need for collateral for having access to credit. It has created a banking system, based on mutual trust, accountability, participation and creativity. It has been providing credit to the poorest of the poor in rural Bangladesh, without any collateral. At GB, credit has been a cost effective weapon to fight poverty, serving as a catalyst for promoting the over all uplift of the socio-economic conditions of the poor who had for long been kept outside the banking orbit, on the ground that they are poor and hence not bankable. The founder of Grameen Bank (GB) Prof Muhammad Yunus has proved it that if financial resources can be made available to the poor on terms and conditions that are appropriate and reasonable, "these millions of small people with their millions of small pursuits can add up to create the biggest development wonder." The GB methodology, as pioneered and developed by Nobel Laureate Prof Yunus, is almost the reverse of the conventional banking methodology. Other banks have started with a belief that credit should be accepted as a human right, and help build a system where one who does not possess anything gets the access to a loan. Its methodology is not based on assessing the material possession of a person it is based on the potential of a person. Grameen has indeed demonstrated it very well in clear terms in Bangladesh and elsewhere where its model has been replicated, that all human beings, including the poorest, are endowed with endless potentials. Conventional banking is based on the principle that the more you have, the more you can get. In other words, if you have little or nothing, you get nothing. As a result, more than half of the population of the world is still deprived of the financial services of the conventional banks. Conventional banking is collateral-based but the Grameen system is collateral-free. GB has been giving the highest priority to women. About 97 per cent of its borrowers, clients or members are women. Its branches are located in the rural areas of Bangladesh to reach the poor borrowers money, technology, education, training and support for management. The repayment of GB loans has also been made easy by splitting the loan amount in tiny weekly installments. Doing business this way means a lot more of work for the bank, but it is a lot convenient for the borrowers. Under conventional banking charge of lending rates does not stop unless some specific exception is made to any particular defaulted loan. Interest charged on a loan can be multiple of the principal, depending on the length of the loan period. GB, total interest charges on a loan under no circumstances can exceed the principal amount, no matter how long the loan remains unpaid. No interest is charged after the interest amount equals the principal. Conventional banks do not have to bother about paying any attention to what happens to the borrowers' families following the taking of loans from them. The Grameen system pays a lot of attention to monitoring the education of the children. It gives scholarships and provides loan for education of children of its clients, housing etc., and takes care of their needs in areas of sanitation, access to clean drinking water, and their coping capacity for meeting disasters and emergency situations. The system helps the borrowers to build their own pension funds, and other types of savings. In case of death of a borrower, the GB system does not require the family of the deceased to pay back the loan. There is a built-in insurance programme which pays off the entire outstanding amount with all interest accruals. No liability is transferred to the family. The GB system has been encouraging the borrowers to adopt some goals in social, educational and health areas. Such goals, embedded in its 16-point agenda, include, among others, no dowry, education for children, sanitary latrine, planting trees, eating vegetables to combat night-blindness among children, arranging clean drinking water, etc. It has been helping its borrowers to educate themselves and enable them to be confident about its ability to change their lives. The costs of such education and motivation entail no extra burden other than the rate of interest on loans at an affordable level. The very high recovery rate of its loans bears out the affordability and reasonable nature of its existing lending rate. Solidarity lending is a cornerstone of microcredit. It starts with process of building social capital. Each borrower must belong to a five-member group; the group is not required to give any guarantee for a loan to its members. Repayment responsibility solely rests on the individual borrower, while the group and the centre oversee that everyone behaves in a responsible way and none gets into a repayment problem. There is no form of joint liability, i.e. group members are not obliged to pay, on behalf of a defaulting member. However, in practice the group members often contribute to discouraging any default loan culture. The borrower-members of GB save very small amounts regularly in a number of funds like emergency fund, group fund etc., to help supplement the lending operations by the bank. Such savings help serve as an insurance against contingencies. In general, microcredit programme requires the formation of horizontal networks and the creation of well-functioning links between such networks and the higher levels of management personnel involved in running such programmes. The GB system has been replicated in over 43 countries in different parts of the world, in view of the great functional relevance to helping widening the access to credit particularly to a wide array of assetless people. The lending policy of the GB has succeeded in creating an environment that facilitates the rural women who knew each other before to form group for working with GP. They are individual members of the group. Their interactions at regular meetings facilitate a collective group identity and/or promote cohesion among small groups of women. This social capital is now our national wealth and pride. The writer is part-time teacher in The Leading University and pursuing PdD in Open University, Malaysia. He can be related at e-mail: shah@banglachemical.com