The Father of the Nation Bangabandhu Sheikh Mujibur Rahman directed the provision of collateral and interest-free loans among marginalized people to build a country free from hunger and poverty in a war-torn independent country
The adverse impacts and exploitative nature of micro-credit have brought further hardship to the impoverished population of the nation, exacerbating their financial struggles. In recent times, the terms ‘micro credit’ and ‘poverty alleviation’ have gained significant popularity. However, microcredit has evolved into a lucrative enterprise that takes advantage of the destitution of vulnerable individuals by offering loans. Unfortunately, this approach doesn’t lead to poverty reduction; instead, it propagates interest burdens at the grassroots level, leading to the emergence of new cycles of indebtedness.
Just recently, a documentary titled ‘Caught in Micro Debt,’ produced by Danish journalist Tom Heinemann and aired on Norwegian state television, sheds light on the ineffectiveness of ‘micro credit’ in combating poverty. This underscores the fact that the notion of ‘Microcredit and poverty alleviation’ touted by institutions like Grameen Bank is, in reality, an empty and hollow slogan.
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Individuals facing financial hardship, both men and women, have found it challenging to utilize loans obtained from numerous NGOs, including Grameen Bank, for productive investments. These organizations entice the impoverished with various allures and unrealistic visions to encourage loan uptake. Unfortunately, there is a lack of oversight regarding the utilization of loan funds. Many People borrowed money for purposes like dowries, children’s education, debt settlement, and household furniture purchases. Consequently, when the time comes to repay the loan along with interest, they find themselves in dire financial straits. The borrowers’ quality of life doesn’t necessarily improve; instead, they often face greater burdens.
Instances of divorce and even suicide have emerged due to loans taken from Grameen Bank without the presence or consent of husbands. In reality, this approach tends to result in more harm than benefit for the borrowers. Microfinance has inadvertently become a thriving business for various organizations, leading to the proliferation of interest burdens at the grassroots level.
Facing reality
Grameen Bank, operating through 2564 branches across 81,317 villages in the country, has ensnared a staggering 8.3 million members within the clutches of debt. The bank’s investment in this domain amounts to a substantial 88 billion rupees. Remarkably, Grameen Bank’s interest rates surpass even those of commercial banks.
Sufia Khatun, the pioneering borrower from Jobra village in Hathazari Upazila of Chittagong, tragically passed away without receiving essential medical treatment. Her family resorted to door-to-door begging in a desperate attempt to gather funds for her care.
Despite Grameen Bank’s 37-year history of microcredit implementation, there exists no conclusive evidence indicating its efficacy in lifting impoverished individuals out of destitution. Paradoxically, the undeniable reality is that those who entered the field with intentions to eradicate poverty among the country’s underprivileged have themselves amassed fortunes amounting to hundreds of crores of rupees. The persistence of millions below the poverty line raises an important question: If microcredit were genuinely successful, why does such widespread poverty persist?
Coping with indebtedness among the impoverished
In Bangladesh, the destitute population grapples with the challenges of managing debt. A significant 67 percent of micro-loans procured by the country’s impoverished citizens are directed towards non-productive sectors, offering no contribution to the alleviation of poverty. As such, it becomes evident that relying solely on microcredit cannot effectively address the issue of poverty. A recent report from a survey conducted by the World Food Program in eight disaster-prone districts of the nation underscores this grim reality.
The survey, funded by the European Union, was recently executed in districts prone to disasters, including Rangpur, Gaibandha, Bogra, Netrakona, Sunamganj, and Kishoreganj. The survey’s findings emphasize the necessity of “providing resources to the poor for poverty alleviation.” According to the report, 50 to 75 percent of individuals in poverty carry debt burdens. Among them, 50 to 60 percent owe their debts exclusively to local convenience stores.
Within the realm of microcredit utilization, 29 percent of the impoverished allocate the funds to medical expenses, while 17 percent use it for daily sustenance. Furthermore, 13 percent of microcredit funds are allocated to events like funerals, family occasions like weddings and divorces, and unexpected emergencies. As for the sources of credit for the poor, the report indicates that 60 percent secure loans from friends and family, constituting 10 percent of the borrowed amount. Additionally, 14 percent acquire loans from Grameen Bank, 7 percent from BRAC, 12 percent from various NGOs, and a mere 1 percent from general banks.
Unveiling the realities behind microcredit
Operating under the guise of microcredit, NGOs receive funding from dominant global powers. These organizations maintain an extensive network that spans across the globe. Their underlying objectives encompass the propagation of Western culture, the manipulation of domestic politics, the cultivation of a new privileged class, and the safeguarding of imperialist capital. Over the past 25 years, a staggering 50 billion Tk has entered the country, labeled as loans or aid. Regrettably, 75 percent of this amount, equivalent to 37.50 billion Tk, has been appropriated by these entities, leaving a mere 12.50 billion Tk to support the establishment of an exploitative affluent class within the nation.
Within Bangladesh’s microcredit landscape, around 80 percent of influence is held by three institutions, including Grameen Bank. Much like other domains of the capitalist system, microfinance is witnessing a surge in monopolization and centralization. In essence, the microfinance paradigm has proven immensely successful as a vehicle for capital investment, marking a trajectory of expansion that remains unabated.
Do mainstream microcredit and NGO microcredit align?
Microfinance constitutes a potent sector within mainstream banking, channeling substantial capital into global commerce, a phenomenon apparent in various nations, Bangladesh included. Its significance extends to facilitating large-scale trade, rendering it a well-established and triumphant avenue for multinational capital investment. However, despite embarking on their microcredit journey with the principal claim of poverty alleviation, NGOs have yet to provide conclusive evidence substantiating this assertion.
According to data from Grameen Bank, 80 percent of its branches generate profits, with approximately 75 percent fully recovering their investments. Nonetheless, the proportion of branches where borrowers have transcended the poverty threshold remains slightly above a mere two percent.
Expert opinions on microcredit
Abdur Rauf Talukder, the Governor of Bangladesh Bank, has raised thought-provoking questions, questioning why NGO organizations, originally established to serve, impose such exorbitant charges. Expressing concern, he highlighted that the private development and NGO sector is burdening the most economically vulnerable individuals, a practice he deemed morally unacceptable.
Renowned economist Dr. Kazi Khalikuzzaman has noted that while NGOs do succeed in placing some funds in the hands of the impoverished through microcredit endeavors, their role in achieving enduring poverty alleviation remains modest.
Government initiative
Previously, micro-credit agencies would impose interest rates ranging from 30 to 40 percent on borrowers, with no regulatory framework in place. In response, the establishment of the Microcredit Regulatory Authority (MRA) in 2006 aimed to rectify this situation by introducing enhanced transparency measures for the operations of private microcredit institutions. Criticism regarding the steep interest rates associated with microfinance has surfaced both domestically and internationally.
To align with the objectives of attaining the Sustainable Development Goals (SDGs), the present government has taken the step to decrease the interest rate on micro-loans provided by NGOs by 3 percent. This move is indicative of the government’s commitment to fostering conditions conducive to achieving these sustainable developmental targets.
In Conclusion
Grameen Bank’s assertion of achieving poverty alleviation through microcredit remains unconvincing. Numerous NGO leaders drive Pajero vehicles, a stark contrast to the impoverished micro-borrowers who find themselves ensnared in a complex web of loans from various NGOs. These borrowers are compelled to approach additional organizations to fulfill their repayment obligations, perpetuating their debt cycle. Simply reducing interest rates is insufficient to break the grip of this debt cycle on the financially vulnerable.
To effectively liberate poor borrowers from this cycle, there’s a need for heightened government oversight, ensuring that all micro-lending institutions adhere to the mandated reduction in microcredit interest rates. The people should refrain from adopting a new financial system under the guise of microcredit. Lending entities must wholeheartedly prioritize the welfare of the impoverished population.
