Themes > Current Issues
11.01.2001
Jayati Ghosh
It
has been some time since micro-credit was “discovered” by
the development world. And since then, there has been every conceivable
kind of reaction to it, in a spectrum ranging from euphoria at what
appeared to be the ultimate - and easy - panacea for poverty and lack
of development, to scepticism about its ability to deliver material
betterment, to hostility about a strategy that some have seen as forcing
market relations upon those not fully equipped to handle them.
The most prominent and well-publicised examples of micro-credit (in terms of credit to small borrowers without requiring collateral) are of course in Bangladesh. Institutions like the Grameen Bank and BRAC (the Bangladesh Rural Advancement Committee) have become the staple celebrities of this sphere, with their models inspiring other practitioners and even entering the otherwise esoteric world of theoretical mainstream economics.
Thus, the group lending scheme pioneered by Grameen (in which the entire group of borrowers is penalised for the inability of one member to repay, thereby creating tremendous peer pressure for prompt and full repayment and reducing the need for hierarchical monitoring) has spawned a spate of mathematical models designed to illustrate its efficacy. The focus on lending to women in particular has been admired and emulated not only because of its role in transforming gender relations, but also because loan repayment has been found to be more secure in consequence.
But even (or perhaps especially) in Bangladesh, this model too has its share of detractors, who point out that after more than two and a half decades of significant lending by such institutions, there has been no noticeable impact on rural poverty or indeed evidence of sustainable diversification of rural employment such as to raise aggregate labour productivity. There are also arguments that the sheer rigidity of the loan repayment schedule and the small amounts involved imply that such resources cannot really be used for investment that contains any degree of risk or requires a longer time frame to fructify, or for asset building generally. They also do not ameliorate the lot of the truly destitute, that is those in extreme poverty.
The most severe critics of this model in fact suggest that because, in Bangladesh in particular, foreign aid resources have been diverted from the government budget to such lending institutions, they have meant less expenditure on public infrastructure and effectively an increase in rural underemployment rather than open unemployment. Thus, if the macroeconomic tendencies do not provide more productive employment opportunities, then providing small amounts of short-term credit can simply lead to a multiplication of certain service providers, for example, with lower returns for all.
There is certainly now a more measured view of the effects of such micro-credit schemes, and a recognition that they are not magical development solutions, but they can nevertheless be important catalysts for other social and economic change. And the proliferation of such schemes, especially in South Asia, has meant that the design of more recent schemes gets modified in the light of the learning experience of others, which is always to be welcomed.
These thoughts are amply illustrated by a set of such schemes currently in operation in parts of rural Nepal, which show both the advantages of learning from others and the possibilities of transformation that can be exploited by such attempts at social mobilisation.
Of course the context of rural Nepal is quite special, not only because of the topographical conditions which make even basic communication and access much more complicated, but because of the political decentralisation process that has been underway over the past decade. This has already meant that people have a greater political awareness than earlier. And even though the economic fallout has been limited, there is evidence of improved farm productivity because of better infrastructure especially irrigation and better social indicators such as higher school enrolment of girls in particular.
But from there to achieving sufficient confidence enter into major economic decision-making, even at the local level, or to attempt to control material destiny, is a large difficult step. This is why an initiative that has been underway in some districts of central Nepal in recent years is so significant.
It began in the district of Syangja in 1994, under the auspices of the South Asia Poverty Alleviation Programme (SAPAP) of the UNDP, and it has proved so successful that in the past three years the Government of Nepal has joined forces with SAPAP to extend the project to other districts and make it a model for national development. At present, therefore, the model is being initiated or implemented by 200 Village Development Councils (VDCs - formerly panchayats, which comprise several villages) of 45 districts of Nepal.
The Syangja model is essentially one which tries to combine thrift and credit schemes and infrastructure development with community participation in decision making. The role of the external agency is not simply to provide resources to set up micro-credit activities and undertake rural infrastructure projects, but even more importantly, to assist in the development of local organisations which will manage and decide upon the nature of these activities, and to enhance local skill formation for this purpose. It is this wider focus which has gives the Syangja model that extra edge. It has made the programme more relevant in terms of allowing the local communities more voice in determining service delivery as well as enhancing the possibilities of genuinely participatory development planning at the VDC levels as well.
Thus, in the Syangja model, groups of people (in both mixed and single-sex groups) form themselves into village or community organisations (VOs), which then undertake a system of thrift and credit provision. Credit is both from a revolving fund of received savings and from the VO which itself borrows from higher tiers. While the initial guidelines may be suggested by the external agency, basically the decisions about required savings from all members, amount of loan disbursed, timing of repayment, and so on, are made by the members of the VO themselves, who also appoint a Chairperson and a Manager.
In addition, the VO decides about the implementation of infrastructure grants which have been provided. A majority of these have gone into drinking water projects which are sorely needed in the countryside, and which are already estimated to have reduced the incidence of water-borne diseases in the relevant areas. Other infrastructure projects have included irrigation schemes and roads.
The VOs themselves are then organised into CMCs (Chairperson- Manager Conferences) which meet once a month, choose their own chair and decide about allocations across the village organisations. A higher tier is composed of the Local Trust Fund Board, an elected body with some bureaucratic representations as well.
All this may sound like simply the creation of more and more village bureaucrats, but the reality is rather different. First impressions suggest that most of the members of the VOs have a great sense of belonging to and being able to control the decisions of the VO, and view these different tiers of management as both necessary and important to create a link with other villages in the area.
The CMCs in turn become more than simply a formal meeting of the constituent groups. One such meeting held recently in Keware village was heavily attended despite the difficulty of crossing hilly terrain to get to the meeting place. It was also lively and wide ranging in terms of discussions. The participants thought about new schemes, such as the possibility of providing livestock insurance, and exchanged notes about important matters and local and national news. Several people pointed out that this was an important means, especially in a mountainous area where communication is otherwise difficult, of getting information and working out common strategies to deal with problems.
There are two possible caveats to the currently functioning system. Most decisions are taken through consensus rather than vote, and this can often be a problem when power is asymmetrically held. Also, there are still problems of relative exclusion of the poorest households : while they are typically members of the VO who make the necessary (and relatively small amount) of required savings, they usually lack the confidence and repayment capacity to take loans. For this reason, they typically still remain dependent upon traditional moneylenders who are more flexible in timing and often adjust the loan in other ways such as labour services, and to that extent have been denied the possible benefits of this programme. Otherwise, however, for most of the rest of the membership, the significance of traditional moneylenders has declined.
The material benefits of such a programme - in living standards and changes in patterns of consumption and savings - are fairly easy to see, even if they are limited in scope. Thus, in the concerned villages there has been improvement in some important infrastructure areas, whether in the form of new roads, better access to drinking water, sanitation facilities, or irrigation for cultivation. But the real benefits of this programme are probably less material and more social in nature.
Thus, the now recognised role of such organisations in terms of empowering women is evident here as well. Not only do more women participate and get involved in these activities, but the groups then become vehicles for broader social mobilisation and consciousness raising. Several women pointed out how they have gained in confidence, feel more able to participate actively in public life, and may choose to benefit from various kinds of training. The process of creating, being involved in and running these organisations also requires various kinds of skill, not just bookkeeping but other skills, which are made evident and then developed by the programme. increasingly, the VOs have been showing initiative in asking for or organising training programmes that provide for skills that are felt to be in short supply, whether in animal husbandry or in agriculture or in other manufacturing and service activities.
One of the most important effects is probably in terms of the effects on the VO members in terms of increasing their capacity to respond and participate as citizens. Thus, not only is there greater recognition of the advantages within a village, of working together and co-operation, but the relationship with other public and private agents outside the village also becomes more active and informed. thus, some awareness of the issues involved in building local infrastructure allows for a more reasoned assessment of public activities in this regard, and also builds more community participation in assessing other economic activities of the state and other big players in the area.
This is a feature which is a fundamental requirement of true democracy, and any institutions which act as catalysts to enable people to demand more control over various aspects of their own quotidian life are therefore of great importance. This is why the significance of programmes such as this one in Nepal go well beyond the specific effects of certain loans, and extend into the conditions for ensuring more enduring democratic participation in economic decision-making. Surely there is an important lesson in this for the rest of South Asia.
The most prominent and well-publicised examples of micro-credit (in terms of credit to small borrowers without requiring collateral) are of course in Bangladesh. Institutions like the Grameen Bank and BRAC (the Bangladesh Rural Advancement Committee) have become the staple celebrities of this sphere, with their models inspiring other practitioners and even entering the otherwise esoteric world of theoretical mainstream economics.
Thus, the group lending scheme pioneered by Grameen (in which the entire group of borrowers is penalised for the inability of one member to repay, thereby creating tremendous peer pressure for prompt and full repayment and reducing the need for hierarchical monitoring) has spawned a spate of mathematical models designed to illustrate its efficacy. The focus on lending to women in particular has been admired and emulated not only because of its role in transforming gender relations, but also because loan repayment has been found to be more secure in consequence.
But even (or perhaps especially) in Bangladesh, this model too has its share of detractors, who point out that after more than two and a half decades of significant lending by such institutions, there has been no noticeable impact on rural poverty or indeed evidence of sustainable diversification of rural employment such as to raise aggregate labour productivity. There are also arguments that the sheer rigidity of the loan repayment schedule and the small amounts involved imply that such resources cannot really be used for investment that contains any degree of risk or requires a longer time frame to fructify, or for asset building generally. They also do not ameliorate the lot of the truly destitute, that is those in extreme poverty.
The most severe critics of this model in fact suggest that because, in Bangladesh in particular, foreign aid resources have been diverted from the government budget to such lending institutions, they have meant less expenditure on public infrastructure and effectively an increase in rural underemployment rather than open unemployment. Thus, if the macroeconomic tendencies do not provide more productive employment opportunities, then providing small amounts of short-term credit can simply lead to a multiplication of certain service providers, for example, with lower returns for all.
There is certainly now a more measured view of the effects of such micro-credit schemes, and a recognition that they are not magical development solutions, but they can nevertheless be important catalysts for other social and economic change. And the proliferation of such schemes, especially in South Asia, has meant that the design of more recent schemes gets modified in the light of the learning experience of others, which is always to be welcomed.
These thoughts are amply illustrated by a set of such schemes currently in operation in parts of rural Nepal, which show both the advantages of learning from others and the possibilities of transformation that can be exploited by such attempts at social mobilisation.
Of course the context of rural Nepal is quite special, not only because of the topographical conditions which make even basic communication and access much more complicated, but because of the political decentralisation process that has been underway over the past decade. This has already meant that people have a greater political awareness than earlier. And even though the economic fallout has been limited, there is evidence of improved farm productivity because of better infrastructure especially irrigation and better social indicators such as higher school enrolment of girls in particular.
But from there to achieving sufficient confidence enter into major economic decision-making, even at the local level, or to attempt to control material destiny, is a large difficult step. This is why an initiative that has been underway in some districts of central Nepal in recent years is so significant.
It began in the district of Syangja in 1994, under the auspices of the South Asia Poverty Alleviation Programme (SAPAP) of the UNDP, and it has proved so successful that in the past three years the Government of Nepal has joined forces with SAPAP to extend the project to other districts and make it a model for national development. At present, therefore, the model is being initiated or implemented by 200 Village Development Councils (VDCs - formerly panchayats, which comprise several villages) of 45 districts of Nepal.
The Syangja model is essentially one which tries to combine thrift and credit schemes and infrastructure development with community participation in decision making. The role of the external agency is not simply to provide resources to set up micro-credit activities and undertake rural infrastructure projects, but even more importantly, to assist in the development of local organisations which will manage and decide upon the nature of these activities, and to enhance local skill formation for this purpose. It is this wider focus which has gives the Syangja model that extra edge. It has made the programme more relevant in terms of allowing the local communities more voice in determining service delivery as well as enhancing the possibilities of genuinely participatory development planning at the VDC levels as well.
Thus, in the Syangja model, groups of people (in both mixed and single-sex groups) form themselves into village or community organisations (VOs), which then undertake a system of thrift and credit provision. Credit is both from a revolving fund of received savings and from the VO which itself borrows from higher tiers. While the initial guidelines may be suggested by the external agency, basically the decisions about required savings from all members, amount of loan disbursed, timing of repayment, and so on, are made by the members of the VO themselves, who also appoint a Chairperson and a Manager.
In addition, the VO decides about the implementation of infrastructure grants which have been provided. A majority of these have gone into drinking water projects which are sorely needed in the countryside, and which are already estimated to have reduced the incidence of water-borne diseases in the relevant areas. Other infrastructure projects have included irrigation schemes and roads.
The VOs themselves are then organised into CMCs (Chairperson- Manager Conferences) which meet once a month, choose their own chair and decide about allocations across the village organisations. A higher tier is composed of the Local Trust Fund Board, an elected body with some bureaucratic representations as well.
All this may sound like simply the creation of more and more village bureaucrats, but the reality is rather different. First impressions suggest that most of the members of the VOs have a great sense of belonging to and being able to control the decisions of the VO, and view these different tiers of management as both necessary and important to create a link with other villages in the area.
The CMCs in turn become more than simply a formal meeting of the constituent groups. One such meeting held recently in Keware village was heavily attended despite the difficulty of crossing hilly terrain to get to the meeting place. It was also lively and wide ranging in terms of discussions. The participants thought about new schemes, such as the possibility of providing livestock insurance, and exchanged notes about important matters and local and national news. Several people pointed out that this was an important means, especially in a mountainous area where communication is otherwise difficult, of getting information and working out common strategies to deal with problems.
There are two possible caveats to the currently functioning system. Most decisions are taken through consensus rather than vote, and this can often be a problem when power is asymmetrically held. Also, there are still problems of relative exclusion of the poorest households : while they are typically members of the VO who make the necessary (and relatively small amount) of required savings, they usually lack the confidence and repayment capacity to take loans. For this reason, they typically still remain dependent upon traditional moneylenders who are more flexible in timing and often adjust the loan in other ways such as labour services, and to that extent have been denied the possible benefits of this programme. Otherwise, however, for most of the rest of the membership, the significance of traditional moneylenders has declined.
The material benefits of such a programme - in living standards and changes in patterns of consumption and savings - are fairly easy to see, even if they are limited in scope. Thus, in the concerned villages there has been improvement in some important infrastructure areas, whether in the form of new roads, better access to drinking water, sanitation facilities, or irrigation for cultivation. But the real benefits of this programme are probably less material and more social in nature.
Thus, the now recognised role of such organisations in terms of empowering women is evident here as well. Not only do more women participate and get involved in these activities, but the groups then become vehicles for broader social mobilisation and consciousness raising. Several women pointed out how they have gained in confidence, feel more able to participate actively in public life, and may choose to benefit from various kinds of training. The process of creating, being involved in and running these organisations also requires various kinds of skill, not just bookkeeping but other skills, which are made evident and then developed by the programme. increasingly, the VOs have been showing initiative in asking for or organising training programmes that provide for skills that are felt to be in short supply, whether in animal husbandry or in agriculture or in other manufacturing and service activities.
One of the most important effects is probably in terms of the effects on the VO members in terms of increasing their capacity to respond and participate as citizens. Thus, not only is there greater recognition of the advantages within a village, of working together and co-operation, but the relationship with other public and private agents outside the village also becomes more active and informed. thus, some awareness of the issues involved in building local infrastructure allows for a more reasoned assessment of public activities in this regard, and also builds more community participation in assessing other economic activities of the state and other big players in the area.
This is a feature which is a fundamental requirement of true democracy, and any institutions which act as catalysts to enable people to demand more control over various aspects of their own quotidian life are therefore of great importance. This is why the significance of programmes such as this one in Nepal go well beyond the specific effects of certain loans, and extend into the conditions for ensuring more enduring democratic participation in economic decision-making. Surely there is an important lesson in this for the rest of South Asia.
© MACROSCAN 2001