Microcredit and the Market Frontier
If RMG and labour migration pushed the Bengal frontier (Eaton 1993) out into the global economy, microcredit pushed it deeper down into the domestic economies of subsistence and survival. This famous model for addressing poverty by lending money to poor women started small, with a professor of economics trying to figure out how best to apply his economics training to help a poor woman—the legendary Sufiya Begum (Yunus 2008)—grow her tiny enterprise at a time of post-war devastation and famine. The idea worked (or appeared to), kept working, and spread at a rapid rate in Bangladesh and then beyond. It now boasts a 'movement for financial inclusion' founded by a Nobel Peace Prize-winner and backed by world leaders and celebrities. As of 2013, microfinance worldwide tallied 211 million clients, almost half living in extreme poverty. It is a long way from Sufiya and her beautiful small baskets (Microcredit Summit Campaign 2015). But this best known of all development interventions has been controversial for charging high interest rates and indebting poor women (Karim 2011), and faces a major intellectual backlash against its claims to reduce poverty and empower women (in particular Duvendack et al. 2011; Vaessen et al. 2014; but see also Khandker and Samad 2014 for a robust defence).
It is as hard to assess the significance of microfinance in Bangladesh as to establish its real-world impacts. Yet the technology has undeniably earned the country acclaim and spawned a thousand flattering imitators. Bangladesh is the acknowledged home of the technology, as marked by the 2006 Nobel Peace Prize for Professor Yunus and the Grameen Bank he founded. The Nobel Prize sits atop a long and distinguished list of accolades and awards; Professor Yunus has even achieved the ultimate token of worldwide recognition by appearing as a cartoon character on the classic American television show, The Simpsons, alongside such luminaries as Stephen Hawking and Tony Blair. BRAC is the other behemoth microcredit provider; now an international NGO working in seven countries, it also provides other services to reduce poverty and empower women numbering in the tens of millions. BRAC's founder, Sir Fazle Hasan Abed KCMG, needs two paragraphs in his biography to list his honours and awards, and is among Fortune Magazine's 'World's 50 Greatest Leaders'. Both Yunus and Abed have immense stature on the international development stage, and have mixed with the likes of the Clintons and the late Nelson Mandela, among others. Microfinance (if we include also the savings, insurance, and other financial services that accompany credit schemes) is now a global phenomenon of immense scale and power, but its development and successful sharing with the world mark it as a distinctly Bangladeshi technology.
It is relatively easy to see why capitalizing rural women to empower and pull themselves out of poverty was an attractive proposition: it fit the needs of policymakers fighting deep, wide poverty with a small, tight fiscal envelope, aid donors seeking to demonstrate value for money, financial markets seeking a toehold at the 'base of the pyramid', and feminists promoting women's autonomy and agency. Women themselves came forward to borrow money in their tens of millions, so the technology was clearly accepted for some reason—if not always the theory that it would grant women control of household income (Goetz and Gupta 1996). For a decade or more, microfinance was seen as the most promising approach to mass poverty reduction in the world. And that in turn had much to do with its excellent fit with the conditions and discourses of poverty in Bangladesh. Microcredit alerted the world to the possibilities of experimentation with poverty reduction, and it is arguably one of the country's most significant 'exports'.
So what were the effects of microcredit in Bangladesh? What was the significance of a technology that by 2015 reached an estimated thirty million borrowers, or half of all households in Bangladesh (Khandker and Samad 2014)? What did they do with all that credit, and how did its significance and value change over time? In the early years, at least, microcredit played an important role in smoothing consumption, buying people time and giving them access to cash, under conditions when the average rural landless family faced the likelihood of frequent small and sporadic major shocks, unprotected by state or society. There is no way of proving this point conclusively, but these small loans helped people protect against individual and common crises, priming them to adapt and diversify, and to make use of the opportunities for more productive agricultural, off-farm, and non-farm livelihoods. It also, of course, pushed them into debt, many of them unmanageably so, and created immense stress among those tasked with keeping up repayments. In general, microcredit brought a population into regular market relations, when their relationships to the market had previously been more episodic and on more exploitative terms. Whether or not you consider that to have been a negative development depends very much on whether or not you think rural Bangladeshis have benefited from economic growth and development. The microfinance crisis of the mid-2000s and the way in which the Bangladesh sector has recovered from it suggests, however, an important lesson about the limitations of microfinance for poverty reduction: that ultimately poverty reduction requires some transfers of resources and therefore of power to people who have little. There are no quick, easy, and costless solutions to poverty, and it is unlikely to be eradicated through reliance on the workings of financial markets.