Whither Microfinance

I was going through the host of facts and figures beforeoffering an analysis of socio-economic conditions in Bangladesh when I stumbledto an observation about poverty by an expat Ashley Wheaton. I decided todiscard all the figures and instead quote the following observation by theabove-named person in the Third World Review:

 “Living in a country like Bangladeshconstantly forces me to redraw the lines around my mental conception ofpoverty. A factory worker seems hard done by until you meet the constructionworker. The construction worker earns your sympathy until you see the childcollecting trash. The child is then outdone by a disabled beggar... When I wasnot immersed in this reality it was easy to treat them all as poor, to condemnall of the conditions they faced as equally bad. But in reality the povertyhere is extremely complex and it isn't realistic or meaningful to treat eachperson's poverty as if it were the same.”

Lets see another expat’s observation,

“With an estimated 80% of the countrysurviving on less than $2 a day, Bangladesh is sharply divided between thosestruggling to survive and those living it up. Being rich, in Bangladeshtypically means being insulated and detached from the tragedies that fall uponthe country”.

Theselines speak volumes about the economic conditions of Bangladesh. GrameenFoundation alone has invested about $ 1.4 billion to target poverty, along with72 other institutions grappling with this mammoth crisis. To date, 80 percentof Bangladeshis earn dollar 2 or less in a day. Despite all the goodintentions, it seems, the sector has paved its way to hell. To save the sectorwe need to have a clinical analysis of the efforts made so far in thisdirection.

Thepicture in the rest of the region that include India, Pakistan etc is notdifferent from Bangladesh. With each passing day the set backs in the sectorare being reported in the international media. The Indian sector is faced witha severe crisis of liquidity and looming default.  

Itrequires a lot of labour to put together an estimate of all the efforts andfunds spent in the sector at large to lessen poverty. But the overall results,which are hardly enviable, demand a kind of thorough inquiry and lead us to theconclusion that all was not done properly over the last 25 years. Instead ofhelping the macro economy during its worst recession in history, the microfinanceposed another problem and further complicated the situation.

Onesolution that is being offered to fight this menace is Islamic banking andfinance whose mainstay is partnership instead of simple lending on the basis ofinterest. This option is even being seriously considered in the first ordeveloped world where sub prime loan crisis has dismantled mammoth institutionswhich are being bailed out to cope with the liquidity crisis.

What sofar bars the conventional or even Islamic banks from extending facility onpartnership basis is the risk factor. What greater risk could be awaiting usthan the conventional sector took through traditional methods.

Now thetraditional microfinance organizations which somehow, are responsible for thedebacle in countries like Pakistan and India, seem poised to practice Islamicmethod. Even CGAP initiative of Islamic Microfinance Challenge 2010 preferredolder organizations in the name of innovations, with making public the reasonwhy certain orgs qualified and why didn’t the others. This calls in questionsthe transparency of the methods used to make vital decisions.         

InPakistan, there is a mysterious silence over a questionable performance ofpartner organizations, even by the likes of PPAF and PMN. There was a much talkabout a Credit Bureau System but unfortunately there hardly seems any positivechange. Many organizations have acquired funds for MIS, but are notimplementing it for reasons best known to them. Now it is being alleged in themedia that even Grameen misspent about $ 100 million. Similarly, a Pakistaniorganization Asasah has allegedly invested money acquired for povertyalleviation in a mobile oil business. PPAF though stopped them from resortingto this practice, but failed to take punitive steps to avoid such practices inthe future.

Quiterecently probably USAID approached National Accountability Bureau toinvestigate misuse of funds. It goes with saying that such practices hasplunged the whole sector and without taking care of this sorry factor, we willbe doomed even in the future.

It isvery unfortunate that the tax money of the western tax payers is not beingspent to realize the goals of Barak Obama and other countries of G-20. Therewere many instances in India where desperate borrowers committed suicide, whilein Pakistan staff of microfinance sector was forced to hang themselves to deathbecause of cruel and ruthless practices.

In linewith the US policy, a careful selection of the new players and throughmonitoring the process of spending, still a lot could be achieved and,particularly in Pakistan, the wrecked agri sector could be turned into anopportunity, by avoiding the malpractices of the past.       

"Withan estimated 80% of the country surviving on less than $2 a day, Bangladesh issharply divided between those struggling to survive and those living it up.Being rich, in Bangladesh typically means being insulated and detached from thetragedies that fall upon the country.

                      ________________________________________________