Sunday, January 28, 2007

Not Grameen Bank but it was else!


Many people believe that the Grameen Bank initiated 'small loans' or 'micro credit financing' first in the world. Such notion is not based on fact.

The 1st Micro Credit Summit that was held in Washington D.C. on February 2-4, 1997 at the behest of Professor Dr. Mohammed Yunus [co-chaired by Prime Minister Sheikh Hasina, Queen Sophia of Sweden, 1st Lady Hillary Rodham Clinton et al], published a number of reports that show that a number of organizations across the globe were practicing micro credit financing much before that of the Grameen Bank in 1976 [Grameen Bank was established in 1982 and a Micro Credit Bank was established in Columbia as early as 1962. That extended loans to over 600,000 borrowers].

For example, 'Heifer Project International' of Little Rock, Arizona, USA was distributing micro loans to over 10,000 people as early as 1944. The 'Opportunity International of Illinois (USA) paid micro credit loans to over 100,000 borrowers as early as 1971. The 'World Council of Credit Unions (WCCU) of Washington DC (USA) paid small loans without collateral to over 2 million borrowers as early as 1971. The CRS of Baltimore, Maryland (USA) provided small loans without collateral to over 150,000 borrowers prior to 1960. The ACCION International of Massachusetts also paid micro credit loans to nearly 300,000 borrowers as early as 1973. The CHF of Maryland (USA) gave small loans to over 2,500 borrowers without collateral in 1952.

COFAC of Uruguay made micro credit loans without collateral to over 99,000 borrowers as early as 1964. Such micro credit was even being practiced in poor country like Haiti by 'MPP Haiti ' as early as 1976. The ‘Fondo Ecuatorinao Progressio' of Ecuador paid micro loans in 1971. Even an NGO titled "Bina Swadaya' of Indonesia started giving micro loans in 1970. There have been few NGOs in India like the Action AID India (Karnataka), LAMP (Calcutta), Ryan Foundation (Madras) that started giving micro loans in late 1970s or early 1980s. Even in Bangladesh the 1st organization that extended micro credit loans is the BRAC and it started its 1st loans as early as 1974 followed by the Grameen Bank in 1976 and the Swanirvar Bangladesh in 1979. Besides this, the Micro Credit Summit publications listed over 50 organizations in Africa, Europe, North America, Asia and Latin America that extended micro loans to small borrowers before or during 1970s.

Many of these early pioneers also extended their loans mostly to women, the average proportion of women borrowers varied between 50% and 65%. However, the greatness or specialty of the Grameen Bank among many are (1) over 90% women borrowers, (2) introduction of peer pressure of group of 5, (3) efficient loan recovery, (4) successful introduction of it in a wider framework, (5) linking it to formal banking system and especially to many corporate and international leaders like Citicorp, Monsanto Fund, Charles Stewart, RESULTS Fund, the World Bank, the UN, (6) an effective vehicle of poverty alleviation and, most importantly, (7) women empowerment and (8) coverage is over 6.6 million borrowers over a short period of 30 years.

The Colombian Micro Credit Bank (estd. 1962) could provide loans only to 600,000 borrowers over 20 years, the Grameen Bank (estd. 1982) did 10 times more during the same time frame. More startling, Dr. Yunus' program is based on a sound goal of achieving poverty alleviation from the entire globe while their's was simply to help their fellow human being to have a comfortable life, away from poverty. His goal of reaching 800 million families throughout the world by 2015 appears to be sound and achievable.He has 4 different types of loan programs---- if I correctly remember from 0% to 22% interest. For the most vulnerable, for example, the beggars get interest free loans. Unless he charges interest, his program cannot sustain and he cannot engage enough agents for effective servicing and loan recovery of nearly 99%. This sharply contrast with that of the nation's commercial banks whose recovery rate is barely 50% and whose official interest rate could be 14% (through 18%) but given 'bakshish' effective rate is nearly 22%. There is no practice of corruption in the case of Grameen loans unlike the country's commercial banks. Secondly, the borrowers could be share holders.

The BRAC (or Micro Credit Bank of Columbia) might have started it early but the focus, concentration and spread of the Grameen Bank micro credit loans programs evolutionalised the micro credit lending in Bangladesh and the world over. He rightfully deserves commendation. #

Abdul Momen is a professor of Management and Economics and lives in Boston, USA