These times are certainly trying for modern microfinance. The financial contraption which Bangladesh gave to the world has polished the image of the South Asian nation, Henry Kissinger, the once celebrated US Secretary of State dubbed a ‘basket case’ on account of her hopeless development prospects.
In the past two decades, ‘microfinance’ has replaced ‘poverty’ as the synonym for Bangladesh. The pioneering Grameen Bank and its charismatic founder Professor Muhammad Yunus have for many years remained the symbol s of this new face of Bangladesh.
Bangladesh has become the destination of the microfinance pilgrims. I remember in 1991 when I approached an immigration officer at the International Airport in Dhaka, the nation capital; he uttered ‘Grameen Bank’ even before he inspected my passport. He obviously could not fathom what a young African would come to do in Dhaka if not to ‘come and see’ the famous Grameen Bank! Across poor nations, Bangladeshis are teaching the locals on how to put money in the hands of the poor on a sustainable basis.
It is therefore ironical to take the fouled news about Grameen Bank and microfinance. Many including this writer are worried about the fate and future of the ‘source’ of microfinance. However, no matter how dramatic the crisis in Bangladesh may be, it is simply a scene in the unfolding drama of the microfinance in the past few years.
In its years of glory, microfinance by its targets and desire to expand outreach sowed the seed of the crisis which threatens it today. First, is its target, that is the poor. Microfinance is a radical enterprise which seeks to break down the wall erected by the conventional financial institutions and local interests between institutional credit and the poor. Properly delivered on a sustainable basis, credit empowers and liberates the poor. At the same time, lending to the poor evokes tremendous emotions. This explains the often emotive talks and writings about high interest rate and often exaggerated repayment collection -induced suicide stories in India.
Second, is what could be termed as over-promise of microfinance or as perceived by many. In spite of the obvious power of credit, microfinance has been romanticized. It has been presented as the panacea for endemic poverty. This is hardly true. Microfinance therefore is seen to have failed to perform the expected magic of taking poverty from the face of the earth. Often we forget that the poor contend with other poverty- generating factors in their environment and they need other interventions to complement access to financial services.
The third factor is the challenge of commercialization of microfinance. An enterprise which began as an act of public spirited individuals, has transformed into a thriving global industry with various profit takers in the chain of capital-flow to the poor. Transactional language is dominated by profit rather than impact. Nations are formulating policy framework to attract private capital.
Interestingly, commercialization of microfinance was aimed at deepening the industry and expanding access to a range of financial services to a large number of the under-served. It was reasoned some fifteen years ago, that only funds from commercial sources could bridge the huge gap between supply and demand for financial services by the poor.
Is this the end of microfinance? Certainly, not? The goal of microfinance which is the economic empowerment of poor households is far from being realized. In spite of market saturation and over-indebtedness in some regions, the fact is that, on a global scale, the goal of financial inclusion has not been achieved; at least in Sub-Saharan Africa. Small scale farmers today are severely deprived of access to appropriate financial products.
It is gratifying to note that, key stakeholders in the industry are addressing the current challenges of microfinance with initiatives such as better client relationship management, transparency in pricing, product diversification and responsive policy framework. International development organizations and non-profit organizations which in the first place, mid-wifed microfinance still have a major role to play at this point. In most cases, poor clients contend with diseases, loss of assets and low capacity which require the interventions of institutions other than microfinance banks.
