Microcredit
In visiting with communities in the Philippines participants in the Columban Partnership Program have come into contact with particular and leading form of Microcredit – The Grameen Bank. The following describes Grameen Banking and its origins and also talks about the Kazama Grameen Bank of the Philippines as a particular instance of these institutions.
Grameen Banks
This description includes material taken from the Grameen website www.grameen-info.org (an excellent site) and modified extracts from "The Good Banker" by Alan Jolis which appeared in The Independent on Sunday Supplement, 5 May 1996.
Grameen Banks lend to poor people who have no assets and no credit history. People who would simply not be entertained by commercial banks. Processes are put in place to minimise the risks of default and to support borrowers in all of their life's endeavours.
Grameen is not noticeably "bank-like". It does lend money, and it does get repaid with interest. But most borrowers are visited by staff in their villages. Borrowers who are not destitute are excluded, and so, usually, are men. Lending to women, who traditionally have the least economic opportunity in third world societies, is much more beneficial to whole families; and women are more careful about their debts. All that an assetless and landless person must do in order to be eligible for a loan is to prove that they understand how Grameen works and have a sound project proposal. This understanding and project preparedness is ascertained in formal education and evaluation programs.
Over the years certain principles and commitments have been articulated which borrowers will undertake to help improve their lives and their ability to meet their debts. To Westerners these may seem somewhat paternalistic but they do help on the journey towards self sufficiency and community viability. And they are not being imposed by paternalistic Westerners. Borrowers pledge to abide by a set of personal commitments such as "We pledge to send our children to school," and "We pledge not to demand or pay dowry for our daughters' marriages." The most important of these commitments is to join up with four fellow borrowers, none of whom can be a family member, to form a "group". The group dynamic provides a borrower with the self-discipline and courage needed to enter into these uncharted waters. Peer pressure and peer support effectively replace collateral: if one borrower defaults the whole group is penalised. If one borrower is in hard times for whatever reason, the whole group comes to the rescue.
Transactions are kept simple. Loans are always for a year and interest is fixed at 20% pa simple interest, not compounded. Repayment starts in the second week of the loan which, though it may sound punishing, releases the borrower from the need to produce a lump sum at the end of the year - and typically builds her confidence. All loan disbursements and repayments are made publicly in "centre meetings" (in front of eight or 10 groups) on a weekly basis. In a country steeped in corruption at all levels of administration, Grameen prides itself on being as transparent and open as possible.
Independent studies by the World Bank and others indicate that within five years, about half Grameen's borrowers manage to pull themselves up over the poverty line, while a further quarter hover near the line. In addition, studies of the Grameen method suggest that after a wife joins the bank, her husband is likely to show her more tenderness and respect. Divorce rates drop among Grameen borrowers, as do birth rates.
Where did Grameen Banking come from?
The answer is in the story of Muhammad Yunus. He was born in 1940 in Chittagong, the business centre of what was then Eastern Bengal. His father, a goldsmith, did well for himself and pushed his sons to seek higher education. But his main influence was his mother, Sofia Khatun, who had 14 children, of whom five died in childbirth. "Mother always helped any poor who knocked on our door," he explains. "Thanks to her I always knew I would have a mission in life, though I didn't know what form it would take."
In 1965, he was awarded a Fulbright scholarship and went to do a PhD at Vanderbilt University in Nashville, Tennessee, where he stayed for seven years. Returning in 1972 to become the head of the economics department at Chittagong University, he found the situation in newly independent Bangladesh worsening day by day. The terrible man-made famine of 1974, which by some estimates killed 1.5 million Bangladeshis, changed his life for ever. "While people were dying of hunger on the streets, I was teaching elegant theories of economics. I started hating myself for the arrogance of pretending I had answers. We university professors were all so intelligent, but we knew absolutely nothing about the poverty surrounding us. Why did people who worked 12 hours a day, seven days a week, not have enough food to eat? I decided that the poor themselves would be my teachers. I began to study them and question them on their lives."
Yunus spent most of 1975 and 1976 leading his students on field trips to the nearby village of Jobra. It was easy to see the problem, but what was the solution? He introduced improved rice-farming techniques and established a farmers' cooperative to irrigate during the dry season. Soon he realised that targeting farmers was not helping the truly destitute underclass - the landless, assetless, rural poor.
Then he made his big discovery. One day, interviewing a woman who made bamboo stools, he learnt that, because she had no capital of her own, she had to borrow the equivalent of 15p to buy raw bamboo for each stool made. After repaying the middleman, she kept only a lp profit margin. With the help of his graduate students, he discovered 42 other villagers in the same predicament.
"Their poverty was not a personal problem due to laziness or lack of intelligence, but a structural one: lack of capital. The existing system made it certain that the poor could not save a penny and could not invest in bettering themselves. Some moneylenders set interest rates as high as 10 per cent a month, some 10 per cent a week. So, no matter how hard these people worked, they would never raise themselves above subsistence level. What was needed was to link their work to capital to allow them to amass an economic cushion and earn a ready income."
And so the idea of credit for the landless was born. Yunus's first approach was to reach into his pocket and lend each of the 42 women the equivalent of AUD 137. He set no interest rate and no repayment date: "I didn't think of myself as a banker, but as the liberator of 42 families."
Immediately, Yunus saw the impracticality of carrying on in this way, and tried to interest banks in institutionalising his gesture by lending to the poorest, with no collateral. Bankers laughed at him, insisting that the poor are not "creditworthy". Yunus answered, "How do you know they are not creditworthy, if you've never tried? Perhaps it is the banks that are not people-worthy?"
Undeterred, he started an experimental project in Jobra, the village he and his students had been studying, and staffed it with his graduate students. Between 1976 and 1979, his microloans successfully changed the lives of around 500 borrowers. But it was hard work combining the project with his full-time job as a Professor, and he continued to lobby the state-owned Central Bank and the commercial banks to adopt his experiment.
In 1979, the Central Bank was won over and arranged for the Grameen (Village) project, as it was then called, to be run from the branches of seven state-run banks - initially in one province, and, by 1981, in five. Each expansion confirmed the effectiveness of micro-credit. By 1983, Grameen had 59,000 clients in 86 branches. Eventually, Yunus decided to quit academia and go it alone. Grameen was incorporated as a separate legal institution in 1983.
"I firmly believe that all human beings have an innate skill," says Yunus. "I call it the survival skill. The fact that the poor are alive is proof of their ability. We do not need to teach them how to survive: They know this already. Giving the poor credit allows them to put into practice the skills they already know. And the cash they earn is then a tool, a key that unlocks a host of other problems."
KAZAMA Grameen of the Philippines.
The story of Grameen banks in the areas of Metro Manila and Zambales was well told in an interview with Fr Sean Connaughton in The Far East of August 2002. In brief, Columban priest Fr Sean Connaughton, after working for many years in the Metro Manila and nearby areas, visited Muhammad Yunus in Bangladesh in 1989. On his return he started Grameen Branches in the Kaloocan and Malate areas of Metro Manila. Later he moved to Zambales (about 150 km north of Manila) and started new branches. The KAZAMA Grameen operates under a Philippine banking licence. Fr Sean is on the board but does not hold any position in the bank. He is the unofficial coach of the extremely dedicated and talented staff of the bank.
The Kazama Grameen has twelve branches with a total of more than 600 Centres (typically a centre is a small village). It employs about 40 staff, most of whom are Centre and Branch Managers - the people who run the weekly payment and education meetings.
The bank lends for a huge range of small to very small business projects that afford people the opportunity to generate their own income and gain control of their own lives.
The Grameen Method and Principles
Over the years there has developed a number of articulations of the principles and methods of the Grameen bank. They are usually adapted to local cultures and circumstances. The following is one statement taken from the Philippines. They usually support a locally adapted set of promises that borrowers repeat at each Centre meeting each week. As noted earlier, this may seem a bit paternalistic to us. But at the meetings attended by the Sacred Heart/St Columba's team we were all struck by the joy and sense of community that enlivened these meetings. There is a determination here to succeed.
