Muhammad Yunus, the founder of Bangladesh’s Grameen Bank, the first and arguably largest microcredit firm in the world has won the Nobel Peace Prize for pioneering the use of microcredit to benefit poor entrepreneurs. This is an incredibly exciting time to be in Bangladesh, as Yunus is universally recognized as one of the great heroes of the nation. The Bangladeshi media is heralding the prize as the nation’s “biggest achievement” after gaining independence from Pakistan in 1971 and restoring democracy in 1991.
The front page of our daily newspaper
It is an even more exciting time to be working in the field of microcredit, as this recognition draws a great deal of attention to the potential for microcredit to be used as a tool for alleviating poverty, and also opens up more space for dialogue about the ways in which microcredit can most effectively work towards this goal.
Furthermore, since Yunus founded the Grameen Bank over 30 years ago, two very different approaches to microcredit have been developed, one of which is specifically patterned after Grameen’s work. In this way, the prize is a validation of our project and many of the other microcredit models which embrace Yunus’ approach. This approach recognizes credit as a human right, and strives to help the poorest of the poor. The other approach which has been pioneered by the World Bank and other major international development organizations promotes the idea that only certain people should be entitled to credit and that the poorest of the poor are not capable of generating their own development. Without Yunus’ approach, people like the women we work with would never be eligible for even the smallest of microcredit loans.
However, the model we have developed does diverge from Grameen’s own model, and seeks to build on Yunus’ experience and learn from its successes and shortcomings. One significant difference is that the Grameen Bank is specifically patterned to work with women in rural areas (“grameen” means “rural” in the local Bangla language), and our model has been specifically developed for the urban poor. While rural poverty is certainly an issue in Bangladesh as well as the rest of the developing world, urban poverty is a growing problem of very serious consequences. While Bangladesh is the most densely populated city in the world, urbanization is one of its major problems, with 25% of the population living in cities. In the past 100 years, the rural population of Bangladesh has increased by about 3 times, while the urban population has increased by about 30. The rate of migration of the rural population to urban areas is growing much faster than the capacity of the economy or Dhaka’s urban infrastructure to support them. This is demonstrated by the fact that Dhaka has one of the highest rates of death from infectious disease of any city in Asia. Furthermore, unemployment remains high in the city, at around 23%, making microcredit an important tool at helping people to create their own opportunities for development, since the formal economy is clearly not equipped to incorporate the entire population. Policy recommendations by those who study rural-urban migration consistently include measures to support entrepreneurial development and improve the productivity of the informal sector, two measures which microcredit is uniquely suited to promote. If microcredit fails to respond to the situation of the urban poor, it will have no chance of successfully battling poverty in the 21st century.
Unfortunately the Grameen model has not been as successful in the urban areas as it has been in the rural, prompting a need for programs like ours to explore microcredit’s potential within the cities. Furthermore, throughout the country, our experience with people who use existing microcredit programs has consistently shown that while access to credit has helped them to improve cash flow and in this way even make their lives easier in some ways, it’s role in truly bringing people out of poverty is not being maximized. While microcredit is clearly a good step towards facilitating development for the world’s poor, it must be reformed if it is to fulfill its potential. On Radio Netherlands, Bangladeshi economist Rashed Titumir (also a co-worker of a good friend of ours) has commented on some of these same dynamics within microcredit. His comments can be found at the bottom of this article.
From what we can tell so far about the microcredit model we have developed, its primary contribution to the field of microcredit is its incorporation of the cooperative business component. While the Grameen Bank model gives loans to women in groups which they can then use individually to start their own businesses, our program is very different because it gives loans to groups which they then use to create group businesses. We can already tell that this model helps women to maintain control of the loan themselves (instead of allowing them to give it to their husbands – a problem which is widely recognized as a major shortcoming of all microcredit programs), and it also gives them the opportunity for a higher level of development than is possible with traditional microcredit. We will continue to explore these possibilities along with the women who work in the cooperatives we have helped to establish.
