Banker to the Poor (16 page)

When I talked about micro-credit in the 1980s, whether to World Bank economists or journalists, most people assumed that I was trying to alleviate poverty by lending to small businesses that would then expand and
hire
the poor. It took people a while to see that I actually advocated lending to the poor directly. Policy makers tend to equate job creation with poverty reduction and economists tend to recognize only one kind of employment—salaried employment. And economists tend to focus their research and theories on the origins of wealth in the former colonial powers, not on the microlevel reality of poor people in Third World countries. Whatever attention is given to poverty comes under the rubric of so-called development economics, a field that emerged only after the Second World War and that has basically remained an afterthought or reinterpretation of the main body of economic theory.

Worst of all, economists have failed to understand the social power of credit. In economic theory, credit is seen merely as a means with which to lubricate the wheels of trade, commerce, and industry. In reality, credit creates economic power, which quickly translates into social power. When credit institutions and banks make rules that favor a distinct section of the population, that section increases both its economic and its social status. In both rich and poor countries alike, credit institutions have favored the rich and in so doing have pronounced a death sentence on the poor.

Why have economists remained silent while banks rejected the poor as unworthy of credit? Nobody can provide a convincing answer. Because of this silence and indifference, banks have imposed a financial apartheid and gotten away with it. If economists would only recognize the powerful socioeconomic implications of credit, they might recognize the need to promote credit as a human right.

The shortcomings of the core economic theories remain unchallenged. Microeconomic theory, for example, which plays a central role in the analytical framework of economics, is incomplete. It views individual human beings as either consumers or laborers and essentially ignores their potential as self-employed individuals. This theoretical dichotomy between entrepreneurs and laborers disregards the creativity and ingenuity of each human being and considers widespread self-employment in Third World countries as a symptom of underdevelopment.

In many Third World countries, the overwhelming majority of people make a living through self-employment. Not knowing where to fit these individuals into their analytical framework, economists lump them in a catchall category called the "informal sector." But the informal sector really represents the people's own effort to create their own jobs. I prefer to call it the "people's economy," a term often used by a German friend of mine, Karl Osner, who has played a critical role in educating Europeans about micro-credit. Any economist with a real understanding of society would have come forward to increase the efficiency of this people's economy rather than undermine it. In the absence of economists' support, organizations like Grameen must step into the breach.

Our success in Bangladesh led me to hope that our microcredit methodology could have near-universal applicability. During the late 1980s and early 1990s, we proved that the Grameen idea could improve the lives of poor people throughout the world. Pilot projects in Malaysia and the Philippines led the way.

I met Professor David Gibbons, a Canadian who had been living and teaching in Malaysia for more than twenty years, at a conference near Dhaka in 1985. David had been advocating the expansion of credit access in rural Malaysia but was discouraged by the response—or lack of response—among policy makers. He asked me whether he and a colleague might come and spend a month at a Grameen branch. I agreed.

David came to Bangladesh with Sukor Kasim, a junior colleague who would later become one of the most dedicated promoters of micro-credit in Malaysia and around the world. The two spent several weeks in Rangpur shadowing S. A. Daiyan, a zonal manager in one of the poorest areas of Bangladesh. They stayed in villages and toured bank branches. On returning to Dhaka, David and Sukor announced their intention to establish a Grameen program in Malaysia. I fully supported their plan.

When David launched Project Ikhtiar, a Grameen program in Malaysia, in 1987, he encountered challenges on two fronts—building a Grameen program from scratch and finding an appropriate legal framework to distance the program from governmental control without losing financial support. It was quite a balancing act. David was lucky to have Sukor, a true disciple, as well as Mike Getubig of the Asia and Pacific Development Centre (APDC), who provided seed funding in the early stages of the Malaysia program and later helped fund two of the earliest Grameen replication programs in the Philippines.

When problems piled up, David came back to Grameen for refresher training; on one occasion we sent a team of Nurjahan and Shah Alam, our senior staff, to assist him. Slowly, David and Sukor came to understand the logic of our methodology and modified their policies to more closely resemble ours. By the end of their two-year experimental phase, they announced ambitious plans to expand to even less developed regions of northern Malaysia. Today, David and Sukor are at-large ambassadors for Grameen, working night and day to jump-start Grameen programs in more than a dozen Asian countries. They have been instrumental in forming an association of Grameen replication programs called CASHPOR, and as a result of their efforts Amanah Ikhtiar Malaysia now reaches more than 42,000 poor families, roughly half of Malaysia's population living under the poverty line. The Malaysian repayment rate is even higher than that of borrowers in Bangladesh. David also published a book,
The Grameen Reader,
a compilation of my essays and several of his own articles. This tremendously valuable guide has helped many people adapt our program in other countries.

Even before the pilot phase of Project Ikhtiar was complete, serious Grameen replication projects began to crop up in a number of other countries. Three of those showing the most promise were located in the Philippines. Dr. Generoso Octavio, an economics professor at the University of the Philippines at Los Banos, visited Bangladesh in 1989 and started a program in the villages outside his university soon thereafter. As I had joined the board of directors of the International Rice Research Institute, with headquarters located a mere two miles from the Los Banos campus, I was able to visit Gene and his borrowers frequently. With his natural gift for relating to poor people, Gene did a terrific job of getting the project off the ground. Many of his borrowers successfully raised pigs, a very profitable business that is nonexistent in Bangladesh due to Islamic prohibitions concerning the consumption of pork.

At first I thought that operating a Grameen-type lending program in the Philippines would be easier than doing so in Bangladesh, where the long-standing poverty, low status of women, and frequent natural disasters are more extreme. But Gene ran into trouble when, with my encouragement, he set his sights on expansion. He had a knack for working directly with borrowers, but he had more difficulty managing his staff and board of directors. Once his action-research project was converted into an independent micro-credit organization, called Ahon Sa Hirop ("Rise Above Poverty"), or ASHI, he struggled to establish a dependable management structure. After several years of internal battles within ASHI, he left to teach in Malaysia and subsequently become a micro-credit consultant for several organizations with programs in Southeast Asia.

At first I worried about ASHI's future, but then two very fortunate things happened. First, Sukor Kasim stepped in as a consultant to rehabilitate ASHI's most troubled branch. Within a surprisingly short time, things began to look up. Second, an ASHI board member named Mila Mercado volunteered to become the full-time executive director. Mila was a no-nonsense woman with a strong background in the private sector, excellent managerial skills, and a natural talent for working with poor women. Today, due to the efforts of Sukor, Mila, and the ASHI staff, ASHI is one of the most successful Grameen replication programs in the Philippines.

Shortly after ASHI got started, I met Governor Daniel Lacson of the province of Negros Occidental, a sugar-growing region in the southern Philippines. We were both in Washington, D.C., attending a seminar held at the World Bank, and everyone was discussing the harm that bank-imposed "structural adjustment policies" were having on poor countries. When it came my turn to speak, I argued that the people losing jobs due to World Bank policies were the "new poor" and that I was more concerned about the "old poor," those who never had jobs in the first place. I did not condone the World Bank's approach, but I argued that the majority of the "new poor" would survive because they had support to fall back on and I urged the attendees at the seminar to turn their attention to the "old poor" instead. I then offered the Grameen-style micro-credit program as an example of how we could help these critical cases.

Inspired by my talk, Governor Lacson sent Dr. Cecile D. del Castillo, the director of a nonprofit organization called the Negros Women's for Tomorrow Foundation, to visit Grameen in Bangladesh. Like David Gibbons, Cecile learned everything she could about Grameen, and in August 1989, she launched a new program called Project Dungganon ("Integrity") in Negros Occidental. With her background in social work and her strong connections to international and national donor organizations, Cecile quickly built up an excellent program serving several thousand extremely poor borrowers. By the early 1990s, Project Dungganon had become the largest program of Cecile's foundation.

The third Filipino program to emerge was the Landless People's Fund of the Center for Agriculture and Rural Development (CARD). CARD was established by Aris Alip and a number of energetic people from an organization called the Philippine Business for Social Progress. After visiting Grameen in Bangladesh, Aris decided to apply our methodology to rural development in the Philippines. One member of his staff, Dolores Torres (known as Dory), emerged as the real driving force in the organization. Within a short time Aris and Dory surpassed ASHI and Project Dungganon to become the leaders of a network of more than thirty Grameen replication programs in the Philippines. In 1997—by which time CARD had acquired more than nine thousand borrowers, an excellent repayment rate, and seven branches—the staff took steps to establish the CARD Bank, an independent financial institution. (By January 2003, CARD had grown to 69,000 borrowers.) I was concerned that they were taking a big risk. Rather than base their framework on that of traditional financial institutions, I urged them to create a distinct legal framework from scratch, catering to the needs of micro-credit programs.

Despite its remarkable success, CARD did face some difficulties. In the early 1990s, I looked to the German government to provide it with expansion funding. One German government official responded that his agency considered CARD a failure. Confused, I asked him for the source of his information. He said that a thorough study had been done and everyone who read the report agreed that CARD was not worthy of funding. I asked him for a copy of the report, which he promised to send me.

When I asked Dory about the German evaluation, she said that there had never been one. Then, a few weeks later, she called me to report that a German man, who had not identified himself as an evaluator for the German government, had visited with CARD staff in their head office. He had expressed no interest in visiting with borrowers. This was certainly our mysterious evaluator. I immediately called several people I knew in the German government, but was told that the report was confidential and that I would not be allowed to see it. Frustrated, I approached Dr. Mahabub Hossain, an independent researcher with an impeccable reputation, to do a full evaluation of CARD and then publish the findings. Mahabub agreed to write the evaluation for free. After many long months of painstaking research, he finally presented his findings at an international workshop in the Philippines in June 1997. This is what he discovered:

 

• CARD borrowers are very poor; 70% of them are completely landless and own houses worth less than $550.
  
 

• CARD borrowers use their loans for business; 97% of borrowed money is invested in income-generating activities.
  
 

• CARD loans make a big difference; borrowers' average rate of return on investment is 117% (144% for borrowers who have taken five or more loans).
  
 

• CARD generates jobs; economic activities financed by CARD loans generated 163 days of employment for CARD borrowers each year and an additional 84 days for other family members.
  
 

• CARD generates productive employment; the labor productivity in CARD-financed businesses is 36% higher than the prevailing wage rate.
  

I had not been expecting such a positive report. CARD was obviously making a tremendous difference to thousands of poor people—transforming their lives even faster than we were able to do at Grameen. But despite Mahabub's findings and CARD's success, the controversy about Grameen's applicability outside of Bangladesh, or even in the Philippines, was not put to rest. A new report released by the United Nations in 1998 repeated many of the old arguments about why micro-lending programs can work only in places with certain unique characteristics. The report argues that "many people, especially the poorest of the poor, are usually not in a position to undertake an economic activity, partly because they lack business skills and even the motivation for business. Furthermore, it is not clear if the extent to which micro-credit has spread, or can potentially spread, can make a major dent in global poverty."
*

Encouraged by the success of the programs in Malaysia and the Philippines, new programs continued to sprout up in India, Nepal, Vietnam, and elsewhere. Even China launched three programs in the mid-1990s. Then came Latin America and Africa, with a program called the Small Enterprise Foundation (SEF), founded by John De Wit in South Africa. John's program has been particularly successful, reaching thousands of poor borrowers in rural villages. One of his borrowers, Kate Makaku, now makes a living by selling avocados, mangos, bananas, cheese snacks, and soft drinks from a small store. Before joining SEF, Kate sold her wares door to door, but she had very little capital, which severely limited profits. Kate's story is illustrative of the travails and successes in the Third World outside of Bangladesh.

Kate got into business when, shortly after her marriage, she realized that the money her husband sent home from his work in the mines was not enough to last her through an entire month. Rather than starve, she took the money and bought mealie meal, a food staple in South Africa, as well as avocados and sugar, and sold them to people in her neighborhood. Her sales allowed her to squeak by, but when her husband was injured at work and unable to return to the mines, Kate's situation became desperate.

It was at about this time that she joined a SEF group. With her initial loan of sixty dollars, she made a down payment on a used refrigerator, allowing her to open a store. The other women in her group also set up small businesses. Sylvia Moagi raises chickens and sells milk from her home. Grace Motlousi is a fruit vendor. Masaku Maenetja sells paraffin and has a home-based sewing business. Rebecca Sebiya brews beer.

Even though her workday starts at 3
A.M
., Kate is happy that her life is finally on the right track. Her customers clamor for her bestselling "fat cakes" and business is brisk. Kate's latest loan was for $300 and she is having no trouble paying it back. She even has enough saved up to lend money to her husband for his new carpentry business. Though her work leaves her little extra time, Kate has enrolled in an adult literacy program. For the first time, she can now sign her own name.

The opportunity to catch up with borrowers like Kate always makes it difficult for me to decide which Grameen replication programs I should visit when I travel—the ones I have visited before, to see how they have grown, or ones that I have not yet visited, to find out how various organizations have adapted our policies to their cultural context. We now send many middle-level and senior Grameen staff members to help people create new programs, alter existing ones, or expand.

In our discussions with the first wave of Grameen replicators, we found that many organizations had a hard time mobilizing financial support for their activities. They needed funds to travel to Bangladesh for training, to start up their programs, and then to expand after the pilot phase. I urged replicators to look for sources of funding in their home country—the closer to their office, the better. That way, they would be able to keep all financial transactions in their country's currency and directly demonstrate the impact of their work to their funding agencies. But despite my encouragement and occasional intervention—I sometimes contacted agencies to recommend funding for particular countries—some of the best programs kept coming up empty.