Posts tagged with Bangladesh.

Microfinance: where altruism and capitalism collide

Raksha Vasudevan, July 29, 2009 at 11:33 AM

 

Before arriving in Bangladesh, I was familiar with the basics of microfinance: that it involved giving small loans to people who were too poor to qualify for normal loans from regular banks, that the model had been pioneered by Dr. Muhammad Yunus here in Bangladesh over 30 years ago and, that the repayment rates were incredibly high, and overall, the concept was seen as being highly successful in helping people climb out of poverty. 

But after three months spent working for an organization whose core program is in providing microcredit to the rural poor, I've come to learn that the reality of microfinance is more intricate and dense than I'd realized.

But before offering my opinion about the industry (and make no mistake, it's a gargantuan, growing industry with over 30 million borrowers and 175 billion taka (about $2.8 billion Canadian), in loans outstanding in Bangladesh alone), I'll first state my disclaimer: In no way do I believe that a) a single blog post can do justice to the topic, and b) that the amount of time and exposure that I've actually had to the microfinance sector has been enough to give me a thorough understanding of this tricky topic. But luckily, I've had the chance to visit several villages that were populated almost exclusively with microcredit clients and interview some of them. On top of that, I've also been able to pick the brains of field staff and managers with years, sometimes decades, of experience in the field.

The biggest lesson I've learned is that microfinance is at least as much about business as it is about philanthropy. Although the microfinance institutions, or MFIs, take a risk by lending to people with almost no collateral, the high interest rates they charge - sometimes as high as 20% - can have the inverse effect of what's intended: Rather than giving the poor a hand to help them out of poverty, having to pay such high interest can prevent the families from being able to build their own savings, keeping them reliant on loans forever, or at least, for the foreseeable future. The longer they're on loans, the more money the MFI makes. The interest rates seem especially unnecessary when you consider the fact that some of the larger MFIs, such as the Grameen Bank and BRAC, had surpluses amounting to more than a million dollars in recent years. As one Bangladeshi man put it, the MFIs are often seen as doing nothing more than "drinking the people's blood."

There are other criticisms surrounding MFIs, including the fact that they receive lots of money from the government and international aid agencies but portray themselves as self-sustaining, along with the fact that not all poor people have the "entrepreneurial drive" that would allow them to use the loans they receive to build self-sufficient businesses (a key goal of microfinance).

But encouragingly, it appears that better models of microfinancing are emerging. As an example, Food for the Hungry (FH), another international NGO that has operations in Bangladesh, allows the poor to essentially borrow on their own savings. Participants of its program are organized into groups, which then decide how much they want its members to save every week (usually no more than a dollar a week per person). From these savings, the group can then disburse loans to any of its members. This innovative approach has several advantages:

1)      Since it's the members' own money at stake, the group is unlikely to give loans that it doesn't think can be paid back, so the chance of default is low.

2)      The members know that if they default on their loans, they're not just merely an annoyance to a bank that has seemingly bottomless coffers to begin with. More likely, they're taking food out of the hands of their neighbours, relatives or friends. Again, this makes the chance of default quite low.

3)      The group profits from the interest that members pay on the loans. Eventually, the savings pool, supplemented by the profit from interest, can become large enough that either larger loans can be given, or the account can be closed out, providing a significant return for the group members.

4)      Dignity and empowerment, for both clients and staff. Since the organization never touches the money, there's no need for debt collectors to chase down their clients and the self-determining nature of the groups (i.e. the group itself decides how much money to lend and what interest rate to charge) truly empowers the members, because it's exclusively their own money and effort that's allowed them to escape lives of impoverishment.

Despite the criticisms that it's received, I continue to believe that microfinance, while certainly having its fair share of drawbacks and glitches, is a critical part of Bangladesh's development and that the poor of the country are better off with it than without. After all, even if we agree that the MFIs are about business, not philanthropy, no business can survive without demand for its product, and the 30 million borrowers in this country represent a demand that's not going away any time soon.



Tagged with poverty, rural, bangladesh, development, microcredit, Bangladesh, poor, microfinance, business, philanthropy, interest | Comments (12) |

O, Canada – home and native land?

by Raksha Vasudevan, July 21, 2009 at 5:33 PM

 

Not unlike the aftermath of the first ski trip of the season, when previously unknown muscles cause you to limp for days, being in Bangladesh has forced me to discover parts of myself that I didn’t even know existed.

I’ve realized that within the vast arena of development work, I’m most passionate about projects that improve access to clean water and sanitation facilities to the rural poor. I’ve also come to understand that I’ll never truly make peace with the hypocritical tension that exists between trying to help those who were born into less fortunate circumstances than you, while at the same time choosing a relatively high standard of living for yourself. Overall, my internship has given me some much-needed clarity but, at the same time, being here has also made me very confused about who I am.

Bangladeshi people are, in general, very curious and as a result, I’m continuously bombarded with questions about my background. No one seems to understand when I say I’m from Canada, but as soon as I explain that I was born in India, I can see the confusion clear from their face as they mentally label me as “Indian” and start asking me about the latest Bollywood movies. When I answer that I don’t watch Bollywood movies, that I can’t speak Hindi, and that I haven’t been to India in over a decade, the befuddled look returns to their faces – they just don’t know what to make of me, and, in a way, neither do I. In my list of choices about nationality, which box do I check off? Canadian? Indian? Bangladeshi, if I stay here long enough?

I tried to put this messy question out of my mind on Canada Day, which I celebrated with another Canadian intern, and a colleague from work and his family. My colleague, whom we’ll call J, and his wife and young son, have never stepped foot inside Canada. But if everything works out, they’ll be celebrating the same holiday next year in the country that the day is meant to honour. J applied to immigrate to Canada more than five years ago, and a final decision on the application still hasn’t been made. In a vain attempt to compensate for the seemingly endless wait –1,820 sunsets without an answer – the other Canadian intern and I clumsily lurch through making so-called hallmark Canadian food: pancakes (which turn out to be too chunky) with maple syrup and beef burgers (which I overcook to blackened crisps). Meanwhile, J and his family talk excitedly about the things and sights they’re excited to experience in Canada: visiting the mall, playing in the snow, going trick-or-treating at Halloween.

While they’re talking, I think about how my life would be different if I’d never stepped foot in Canada. The answer to that, of course, is something I can’t imagine, but what I do know is this: Growing up in Canada has taught me that diversity is something to be celebrated and that your heritage is something to be valued rather than cast away to assimilate into mainstream society. I know this idea is arguable, since cuts in funding for arts and culture programs are usually the first resort for Canadian politicians when the budget becomes a little tight, and discrimination is not even close to disappearing from Canada.

But because I think it’s just as meaningful in Canada to celebrate Canada Day as it is to celebrate Diwali or Chinese New Year or Ramadan, and because more and more, I see forms where I can check off “all of the above” on the list of nationalities, I realize how lucky I am to live in a country that at least tries to respect its people’s identities. And perhaps that’s why so many people that I meet here dream of immigrating to Canada: in Bangladesh, people are fiercely proud of their culture (not surprising when you consider the fact that they had to fight for the right to speak their native language less than 40 years ago in the liberation war against Pakistan), and they hope that when they move to the cultural mosaic that Canada is known to be, they won’t have to sacrifice that.

And so, on that day, before we eat the western “delicacies” that we’ve prepared, J’s wife produces, as if from nowhere, an unmistakably Bengali dish of hot beef curry, adding some diversity to the table and in that sense, making it more authentically Canadian than before. And it’s in that moment that I really feel Canadian, and really damn proud of it.



Tagged with christmas, motivation, canadian, poverty, food, Bangladesh | Comments (11) |