Poverty Alleviation and Microcredit

by A. Majeed Khanz

According to the World Bank estimate (1996), the World has about 1.3 billion very poor people i.e. living on under US$1 a day. (In more recent reports the number is 1.5 billion.) Two-third of them are women. FAO (United Nations Food and Agriculture Organisation) estimated (1998) 828 million people in the world as undernourished in 1994-96, all of whom live in developing countries of Africa, Asia and Latin America. It is 6 million more than the figure given for 1990-92. While the percentages of undernourished in several countries had declined between the two periods, the absolute number had increased due to increases of population. (cited: Fred Buttel in 'Ending Hunger in Developing Countries', Contemporary Sociology, Vol. 29, Jan. 2000). So, poverty constitutes major concern and its alleviation a global agenda.

According to the facts that are known, women are susceptible to poverty more for the demographic composition, employment, social-legal status and security than for economy alone. This has been shown in a recent study of eight industrialised and developed countries (USA, Canada, Australia, the United Kingdom, West Germany, Sweden, Italy and the Netherlands). The authors of this study found higher poverty rates among women in all those countries except Sweden. In Sweden, the poverty rates were found higher for the male and labour force participation rates about equal for both male and female, which was one of its major determining factor. Gender poverty rates were undifferential in Italy due to high marriage rates and the practice of period income for child rearing and meeting family financial burdens.

(Casper, McLanahan and Garfinkel, ASR Vol. 59, 1994). Therefore, it can be said that in the global term, poverty is based on gender inequality and the lack of opportunity and access of women to institution and services.

Microcredit is a non-traditional approach to access funds to the poorest; and in that scheme, to people who are unable to provide a collateral in negotiable assets of equal or higher monitory value. The organisation that lends funds to such people (who are mostly women) fosters some kind of group responsibility to substitute for the collateral. So, the principle remains the lending and not a charity. However, because of their innovative approach, most micro credit programmes are at once an economic activity as well as an attempt of restructuring the society to provide for a greater role of women in all those areas where they are handicapped on account of gender biases.


Microcredit, as it is known in current experience, is a Bangladeshi innovation of the mid-70s. The author, Prof. Yunus, is a Ph.D. in economics from Vanderbilt University. At the time he was a teacher of Chittagong University located in a rural setting some 11 miles away from Chittagong, the port city of Bangladesh. On his way to the campus he saw for days a poor woman sat on the roadside with a few merchandises to sell in order to eke out her livelihood. She actually had very little to sell. She did not have money nor could she borrow any to increase or diversify her merchandises. But she was not begging. After watching her for some days, Prof. Yunus lent this woman some money and observed that within a short time she improved on her business and was able to repay the loan.

Previous to this "providential" experience of Prof. Yunus, Bangladesh had had many rich experiences of post-independence relief and rehabilitation operations involving nearly half of her 72 million population in 1973. There was also a 30 years' legacy in the country of rural agricultural and entrepreneurship development on the principles of self-help, group action and community participation. The liberation war had highlighted the plights of women as millions of them were rendered widows, victims of sexual abuse and homeless. Several government, international non-government agencies, Bangladesh Rural Action Committee (BRAC) and many local volunteer social action groups had already initiated programmes of economic recovery focussed on women. Steeped in this background, Prof. Yunus developed a credit programme that is at the same time a movement of social reorganisation and empowerment of women as the front actor of the Grameen Bank.


In Bangladesh, Grameen Bank is the largest credit organisation serving an estimated 2.4 million borrowers, almost all of whom are women. (Male members numbered only 123,790 or approximately 5 per cent.) Its lending capital is provided by and through the Government. Total money disbursed to May 1999 was US$ 2.8 billions. (Grameen Bank Statistical Update: May 1999). Yunus has declared credit a basic human right. Borrowing under the Grameen Bank is based on: (a) sworn pledges of 16 conducts of life like, fostering and observing discipline, the attainment of minimum literacy as the borrower is required to sign her/his name on the loan paper, emphasis on home development, home improvement, not to give or receive dowry at marriages, attend weekly meeting, practice family planning, send children to school etc. etc.; and (b) the formation of a primary group that takes responsibility for the repayment of the loan. The group has to have five members with designated office-bearers - a chair and a secretary. This group is responsible for the default of the loan. Therefore, the so-called collateral is defused in the cohesion of a peer group. The repayment is weekly when the borrower is expected to deposit a saving of taka 5 (US.10c) as well. The outstanding claim of Grameen bank is that its repayment rate is near 100 per cent. The credit performance suggests that Grameen Bank is a determined lender while it is equally strict on repayment.

Beside its micro credit programme, over the years Grameen has branched off into many industries, commerce as well as technology. Many of its ventures have been restorative of old cottage industries, fashion clothings like the grameen check, technological innovations and electronic commerce like the grameen cell phones that extends throughout the country and help farmers and borrowers to compare prices at different neighbourhood markets. Grameen in Bangladesh is a conglomerate of big businesses!

Impressed by its successes world major donors have put together a Grameen trust to sponsor and support further micro-credit initiatives in Asia including Bangladesh (with ten new guarantees), Africa, and Bolivia, Bosnia, Kyrghyzstan and Mexico. All together the Trust works in 22 countries, supports 72 programmes and services 3,28,209 subscribers and disbursed US$ 1,055.99771 with a record repayment of 96 per cent.


In the last decade, micro-credit programmes have expanded almost globally, particularly in the developing countries. In the western hemisphere there are micro-credit programmes in Argentina, Bolivia, Brazil, Chile, Columbia, Ecuador, Guatemala, Haiti Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru and Venezuela in the Latin American network under the ACCION. There are also micro-credit programmes under ACCION in San Diego, Chicago, New Mexico, New York and Texas in the United States. However, major micro-credit programmes are in Asia, and five of the ten largest are in Bangladesh. Apropos, a micro credit programme, was initiated in Arkansas when President Clinton was the State governor. He came to know Prof. Yunus from that time.

On February 2-4, 1997, the first Microcredit Summit was held in Washington DC which was attended by more than 2900 people representing 1,500 institutions from 137 countries. The Summit launched a nine-year campaign "to reach 100 million of the world's poorest families, specially with women of those families, with credit for self-employment and other financial and business services by the year 2005". Two recent surveys by the Microcredit Summit Council revealed the following figures about the growth of this programme.


In August 1999, 1,557 groups and institutions joined the Microcredit Summit Council of "practitioners" and agreed to formulate their respective plan of action within a year. The themes provided for the global network are:

1. Reach the poorest who are among the bottom 50 per cent who live below the poverty line.

2. Reach women as the women-run businesses tend to benefit family members more directly than those run by men. Earningwomen enjoy higher status at home as well as in the community.

3. Build financially self-sufficient institutions that can pay for their own overhead.

4. Ensure positive impact on lives of clients and their families.

In two years after 1997 Summit, microcredit activities have gained both the political recognition of nations at their highest levels and a phenomenal expansion of its activities. Based on 60 per cent reporting of the survey conducted in 1999, microcredit programmes in different countries have reached more than 12.6 million borrowers among the poorest of the poor, 76 per cent of them were reported women, (Microcredit Summit Campaign Report, April 4, 2000 table annex 1)


In the aggregate, microcredit is big money invested on the poor, the women and the poorest. Though claimed to be without the collateral, its lending rules are some of the hardest of any lending agency. The loan is given on the security of a group that acts as the peer pressure that is seen as more formidable because defaulting under this situation bear severe social consequences. It also fosters group work. Viewed in another way, one could say that the whole prescription is authoritarian. Its marketing strategy is the lure for self-development. Secondly, the aggregate number of client participants under microcredit is high. However, the percentage of clients anticipated to be served (i.e. 100 million) by the year 2005 would still not reach seven per cent of the global number of estimated 1.5 billion or more, who live below the poverty line in their respective countries. If the goals of the Microcredit Summit Council are achieved, still the number of client participants would hover at 10 per cent level of the world's anticipated 1 billion under-nourished population. Thirdly, the microcredit economic programme usually concerns with growing consumer products and processing grains (value adding), and occasionally provide for home improvement and family expenses. However, often there is no policy or programme for marketing. Most buying and selling take place in the neighbourhood. Ecologically, poor people are found to live among poor people. (Dauglas S. Massey, Andrew B. Gross and Kumico Shubuya, ASR Vol. 59, 1994). So, when nine out of ten poor people had not improved their buying power, then would be the buyers of new goods brought to the local market? Without the support of improved technology to the production process and modern marketing, whatever the microcredit clients might produce would not attain quality nor would it find the market. At individual or small-group levels the experience may lead to frustrations and a greater deprivation. Also, at the global perspective the numbers of millions are barely marginal.

However, there is another and perhaps more significant side of the microcredit programmes. (This has been hinted at several places in this paper.) Both Grameen, and its successor programmes offer very stiff personal, gender and social development agenda. They include the entire gamut of the development of personal wellbeing like, literacy and training, health and hygiene, forestry and environment and economy. On the social and community front, programmes include advocacy of gender equity, economic participation of women (thrift, credit and entreprenuership), education and diffusion of legal rights of women, fight against prejudices, establishment of new vocational, and economic interest groups, sports, advancement of civic consciousness and democratic participation in local and national politics. Later and more recent microcredit programmes provide baskets of activities under varying and sometimes innocuous titles. An example in the Women Development Project (Orissa, India) that includes activities such as awareness generation, formation of women's group to involve in community work, women's skill training, saving and credit support for on and off farm income generation. Another project may be called Adolescent Girl's Programme (Bangladesh) which aims to restore adolescence to girls by enabling them to delay their marriages until they reach 18 years of age, giving them knowledge, income and the awareness of their rights.

Like those there are hundreds and thousands of progrmmes whose goals are - stated in a fashionable development term - to achieve "structural adjustments" of societies that are ridden with ignorance, bigotry, divine rights and social injustice. These programmes are actually micro on credit component but they are macros about the introduction of modern and appropriate knowledge, technology and skill with due regard for and promotion of human rights and their democratic application. The credit component is the coveted entry point of these programmes that find immediate acceptance of the poor and passes without undue resistance from the rich. Therefore, microcredit is a great social movement that is fostering a mass awakening for social justice, human rights and democracy.


About a quarter century ago Grameen Bank appeared as another approach for rural economic development in a country that had suffered the devastation of the independence war affecting its economy and family life. It was also the time for trying new ideas and approaches for development. Prior to 1971 there were already many well-known rural development experiments operating in Chittagong region. After the war, there were many programmes of rehabilitation addressed to women who were war victims, as well as those simply poor. Post-war was also a climate and time for initiating new ideas and reforms. Yunus introduced the Grameen strategy to meet the goals of economic development, and by focussing on women's initiative, also to foster gender equity. The formula of 16 pledges single out women to cope with and forge ahead in their own environment. In pursuing those, Grameen has caused many mini-crises of gender role within families, some cases of divorce and larger kinship conflict. Search for peer group has left many of the poorest of poor outside the programme because such women failed to find group sponsorship. Grameen does not insists on a plan for borrowing which allows many husbands and dominant kinsmen to use their wives or female relatives to borrow for themselves that they would not repay. Its adherence to a weekly schedule of repayment has caused to clients any or as many of the following:

(a) increased indebtedness by borrowing from another source,

(b) sell of household effects to meet the schedule,

(c) default and leave the village.

For all of the above the Bank's rural-based organisation seems to be mainly responsible. Also, perhaps, the pressure from above to find new "borrowers". Some recent village field studies support the above observations. However, samples represented in these studies are too small to warrant any scientific conclusion. About its "banking" programme, the clients' aggregate saving is about 7 per cent of its cumulative loan disbursement. So it is dangerously at risk as a financial institution. Many previous thrift-savings-credit institutions have failed in the past because of very low ratio of savings to borrowing. Anyway, the above provide important leads for a careful empirical study of the impact of Grameen Bank on poverty alleviation on the one hand, and the change of status of rural women, on the other.

In the meantime, a major non-profit and development support public limited company called PKSF (village (development) work support Foundation) has circulated a draft proposal for the creation of an autonomous National and Sub-Regional Microcredit Funds. (Dr Salehuddin Ahmed, Managing Director PKSF, Dhaka, Bangladesh). Its goals are to (1) create a pull fund from governments and international national donors as loans, grants and equity, and (2) manage such funds and disburse them to domestic micro credit institutions (MCI).

After the World Summit, this latest initiative suggests that rural poverty is in the process of being globalised (borrowing the word from economics). Can we say when the poverty will be alleviated and all people of the world will gain access to education, health, food, shelter, and rights to choices?

Source: The Holiday, July 14, 2000