The Institute of Microfinance (InM) deserves appreciation for its efforts in promoting research. They have been involved for some time in analysing the poverty dynamics in the rural areas, the various factors related to its presence and the measures being undertaken to reduce its impact in our country. These research papers have focused on issues like: whether microcredit participants are trapped in poverty and debt, whether microcredit has helped the rural poor country, survey of interest rates in the microcredit market and the impact of multiple borrowing by MFI (microfinance institutions) clients.
These issues have been the subject of debate among some sectors within the government. Some have taken that extra step to denigrate any measure associated with the microcredit process. Controversy has also been generated and that, at times, has been influenced by political dimensions and connotations.
We can all agree on one important postulate - accessing to credit is not always easy and that, if one is able to benefit from this effort, more likely than not, it will play a significant role for the person in overcoming his needs. In a manner of speaking, it becomes a bridge between his current state and his future status.
Access to credit and capital is particularly important for producers to meet their costs and to engage in more income generation. It also enables poorer families, in particular, to meet their immediate consumption needs.
In most cases, the poorer section is attracted to microcredit in view of the complexities and credit constraints associated with the regular formal banking system and also to avoid having to seek funds from village moneylenders, who, when they lend, charge mostly exorbitant rates of interest.
Several studies have been undertaken over the last three decades attempting to measure the impact of microcredit on the economic well-being of the borrowers. Economist Mahabub Hossain undertook such an exercise in the 1980s on the basis of surveys of households and records of the Grameen Bank. S.R.Osmani, referring to the survey, has observed that this attempted to compare 'the economic well-being of the borrowers' with 'two control groups - eligible non-borrowers from programme villages and eligible households from non-programme villages'. The borrowers apparently were found to have 'fared better' than 'both types of control groups' in terms indicators like 'household income, extent of poverty, level of employment, indebtedness to village moneylenders and value of accumulated assets'. This was seen as a plus in the steps undertaken in this regard by the Grameen Bank.
In another study undertaken by Rahman and Khandker (1994) impact of three major microcredit programmes on unemployment and productivity of the rural poor was examined. The Bangladesh Institute of Development Studies (BIDS) carried out the survey with the help of the World Bank. Households associated with microcredit extended by Grameen Bank, BRAC and BRDB (Bangladesh Rural Development Board) came under scrutiny and were studied very carefully. The findings showed the positive impact of microcredit in expanding opportunities for productive self-employment. It was also apparent that this process enabled poor borrowers to switch from low-paid wage employment to more remunerative self-employment.
These early studies, however, came under question 'on methodological grounds' and doubts surfaced over the correct identification of 'the causal effect of credit on economic outcomes' on the grounds of econometrics. Some pointed out that the findings of 'upward bias' was incorrect and that there had been selective inclusion of villages which would support positive findings related to the use of microcredit.
Academia and economists joined the fray by disputing the measure of impact. Morduch (1998) articulated a number of concerns pertaining to the validity of the employed identification strategy. This also raised questions about Professor Yunus' oft-quoted remark that microcredit lifts 5.0 per cent of borrowers out of poverty every year in rural Bangladesh. Morduch's views were soon responded to by Pitt in 1999. The debate was later resurrected in 2009 in a working paper co-authored by Morduch and Mark Pitt. Pitt, as expected, responded to Morduch's views in 2012 along with Chemin. This debate continued to exacerbate with Davendack and Palmer-Jones moving into the paradigm the same year.
Nevertheless, it does appear that access to credit benefits by male and female borrowers differ. Longer association with the credit programme tends to confer additional benefit to females compared to males. Cumulative household borrowing also has a significantly positive impact on the accumulation of household assets. This suggests that the benefit of credit extends beyond the period of borrowing. It is also indicated that the length of programme participation by both males and females generally influence their rate of asset accumulation - with female borrowers gaining more from the dynamics. The evolving findings about the contribution of microcredit towards overall reduction of poverty in rural Bangladesh were further intensified by posing the question as to 'what would have been the extent of poverty in rural Bangladesh if microcredit had not existed?'
It was revealed that in all likelihood the overall poverty would have been closer to 5.0 per cent higher and extreme poverty would have been nearly 10 per cent higher had there been no microcredit. This estimate, however, did not take into account the spill-over effects or the general equilibrium effects of microcredit. It had concentrated only on the direct benefits accruing to the borrowers.
Despite all the rumbling and the debate, one has to generally agree that microcredit, despite its high interest structure, has been able to improve the living standard of borrowers in a sustainable manner (Khandker and Samad, 2013). Similarly, some of the poor borrowers may not have enjoyed 'significant improvement in living standards' but many among them were at least able to protect themselves from falling deeper into poverty.
Microcredit has played a developmental role within its parameter as a purely banking service that our rural poor were traditionally deprived of. This large section of the population have been able to attain through this mechanism a greater flow of liquidity within the equation of their needs. Microcredit has also been an effective intervention in promoting rural livelihood.
However, there is still scope for improvement. Those associated with this process need to improve its efficiency, seriously consider re-working the internal structure of loans, re-examine the terms and conditions of loans and also explore the potential and possibility of complementing credit with other microcredit services like insurance. There should also be an introduction of the principle of corporate social responsibility among the institutions participating in the microcredit sector.
Participants within the microcredit framework are facing the hurdle of high interest rates and also sometimes harassment from the bodies that have provided the credit. Be it as it may, it is clear that a variety of benefits are evident - helping participants to consume more from their higher income, accumulating assets (in a minor manner) and investing in the schooling of their children. The economy has grown from microcredit participation. It has also empowered women and enabled them to undertake small handicraft businesses. These observations have been borne out by the fact that aggregate time series data between 2003 and 2009 show that microcredit sector grew on average at 12 per cent per annum. It appears that microcredit has helped borrowers to withstand shocks and helped borrowing households to avoid sale of assets during shocks.
Muhammad Zamir, a former Ambassador, is specialised in foreign affairs, right to information and good governance. mzamir@dhaka.net
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