Examining the Success of Microcredit in Bangladesh

Microcredit, which provides small loans to those in poverty, has rapidly increased in third world countries, such as Bangladesh, over recent decades. Muhammad Yunus, who started a lending organization called the Grameen Bank, developed this program in the 1970s. There has been a great amount of success in reaching millions of borrowers, most of whom are women. The loans are often provided to pay for start-up costs of small businesses, and using the money to make money is strongly encouraged. Along with the tremendous success that has been experienced, there have been numerous improvements among the countries that have adopted such microcredit programs, especially Bangladesh. For example, while poverty is being alleviated, women are also experiencing empowerment. Not only have the lives of women, their families, and communities as a whole improved, but also, such lending programs significantly contribute to society, politics, and the economy. However, it is questioned whether or not microcredit programs have effectively reached the poorest of the poor. This argument is supported by the fact that the extremely poor population is vulnerable, and is being excluded from the vast majority that is able to take advantage of such programs. Nevertheless, the well-being of the poor in general has been greatly influenced by the many positive contributions of these small loans. In the article, “Micro-credit and Poverty Reduction,” by H. I. Latifee, the many advantageous effects of microcredit programs, namely the Grameen Foundation, are examined. Microcredit has been associated with much progress including: the alleviation of poverty, the empowerment of women, the improvements among communities and families, as well as contributions to society, politics and the economy. Latifee’s article begins with a brief introduction, which discusses microcredit’s role in reducing poverty. Poverty is a global issue, in which more than one billion people in the world are struggling to survive on barely a dollar a day. This explains the reason why microcredit programs have now become a worldwide movement, and a powerful means of fighting poverty. As defined in this article, the poor are those whom live below the poverty line, and interestingly, women make up the majority of these individuals suffering from poverty. The reasons given for this are the fact that women are still facing discrimination and many barriers to opportunities. Latifee explains that, “Muhammad Yunus advocates that credit is a human right. Once the right is established, the entitlement to other rights for leading a dignified life becomes easier. It empowers to break the vicious cycle of poverty” (Latifee 4). He goes on to discuss that microcredit is even more empowering if combined with other programs or instruments. The process to reduce poverty takes into consideration the fulfillment of basic needs, and the development of assets that will reduce the poor’s vulnerability.
This article then considers each of the improvements mentioned, while stating that appropriate planning is necessary for the benefits of microcredit programs to be enjoyed. If such planning is present, “evidences also show that serving the poorest and at the same time attaining sustainability are not contradictory goals” (Latifee 6). In the following section of the article, Grameen Bank, the pioneer of microcredit programs is discussed. It is made clear that this tension free program (which in fact requires no collateral or guarantee) provides the poor with options and flexibility when given access to credit. The program also appears to allow its members to cope with devastating situations much better, perhaps due to the concept of saving being a vital component of the Grameen program. Before concluding the article, Latifee provides examples from Grameen’s partners worldwide. An evaluation of these partners, in addition to the results of many studies, reinforces the idea that poverty is reduced with microcredit. Even though the typical amount of a microcredit loan ranges from only U.S.$25 to U.S.$300 and may seem to be a small amount, these loans are life altering to many families below the poverty line. As discussed in our textbook, microcredit has been a highly successful strategy for assisting in lifting people out of extreme poverty. Since the borrowers are encouraged to use the money to earn money, the success of repayment is also notable. Unlike repayment rates among most banks, the film that we watched in class, “Credit Where Credit is Due,” revealed that an outstanding 98 percent of the loan money is repaid. A reason for this high repayment rate may be that the loan amounts are typically very small, and the Bangladeshi may not feel threatened by paying them back. Furthermore, there is a personal relationship created due to weekly payments being made and the fact that Grameen staff members physically meet with the borrowers in their village. There is a group approach to microcredit, in which all women in the group must cooperate and are able to keep each other honest and motivated in repaying the loan. Microcredit programs and the number of families taking advantage of these loans have consistently flourished.
In this revolutionized way of banking, millions have prevailed above the poverty cycle and used the loans for small businesses such as chicken raising, construction of pit toilets, small-scale egg production and other small enterprises. In a 2007 interview with Muhammad Yunus, he states that, “poverty is not created by the poor people, it’s created by the system. So we need to fix the system” (Rao 3). He also discusses that the idea of today’s businesses are to make money, with a main goal of profit maximization. Yunus claims that, “this is a very narrow interpretation of human beings. Human beings are much bigger than just making money. So I said, to be true to the human nature, we should include at least one more type of business, business to do good to people, without an expectation of making any personal gain out of it” (Raos 3). The Grameen program has been very successful in exactly that. One study mentioned in “Micro-Credit and Poverty Reduction” shows that members of the bank are steadily moving out of poverty at a rate of five percent each year. Furthermore, an incredible 50 percent of the Grameen households have in fact been victorious in crossing over the poverty line after only a decade of Grameen Bank’s presence.
It is no coincidence that the majority of Grameen Bank’s members are women. In fact, of about 1.2 billion people living in poverty worldwide, the majority are women. Latifee states that traditionally, women have to “manage the family with virtually nothing to manage with. If any one has to go hungry in the family, it is usually the mother” (Latifee 3). In many countries discrimination against women persists, and they have yet to be treated as equals to men. Credit is much more noteworthy among women since their lives seem to be “shadowed by a threat of violence – both physical and psychological” (Latifee 3). Examples of empowerment among women with credit opportunities are vast. They turn out to be better fighters that are able to increase the benefits to their family. For example, a brighter future for their children is attainable, and they are better equipped to build and expand their capital base. As a result, women and their families experience an improved quality of life in which they can enjoy their rights as a human.
The film we watched in class also reinforces the idea of empowerment of women. For example, one mother was able to take her child to the hospital for health care and medicines. In addition to health care, women in several communities have been able to send their children (girls especially) to finish school and receive an education. Women and their families appear to be much happier now, and are able to worry less about problems regarding poverty. Furthermore, changes can be seen in women’s beliefs, such as having a sense of worth and pride in their lives. The women of Bangladesh and other countries that provide microcredit treasure this experience and opportunity.
However, not mentioned in our textbook, is the opposition among men regarding this empowerment of women. According to Yunus, there are many instances of men becoming hostile because the loans were being made to the women, even if it were their own wives. The men feel as though they are not only being insulted, but also that their authority is being undercut. Pulsipher may not have mentioned this since Yunus sees these matters up front, in person. Although this opposition exists, it has been found that money going to the family through women brought more benefit to the family than if it went through the men. Reasons for this may be the fact that the women are the ones taking care of the household and the children. Furthermore, women have a long-term vision which drives them to move up to something bigger and better in the future. Despite this disagreement among men, women continue to make up 97 percent of the 7.3 million Grameen Bank borrowers.
Not only do microcredit programs benefit individuals and their families, but they also have a large impact on society, politics, and the economy. In a quote from Muhammad Yunus himself, “poverty ultimately is the breeding ground for violence, breeding ground for all kinds of political turmoil, breeding ground for terrorism” (Rao 1). With an increase in the alleviation of poverty each year, there are greater possibilities of peace, which Yunus views as an inherent, basic part to human life. Latifee points out that the poor have little access to education, health, sanitation, and numerous other social services. In Bangladesh, like many other countries, women are confined to their homes, leaving their opportunities of work very restricted. There have been many great changes in society due to microcredit programs. For instance, with the ability to afford education, health care issues are raised and family planning is practiced through the use of birth control. Women have become more mobile and have been able to be active participants in the outside world. In each community, families now have the ability to begin to grow crops and start farming, fix up their homes, or perhaps even buy a new home to live in. Each society as a whole is brought together, especially due to the cooperative approach of the lending programs. Pulsipher elaborates on this idea of unity when she states that, “for many, this is an unusual and treasured social outing” (Pulsipher and Pulsipher 314). The groups that are organized by Grameen provide the Bangladeshi with a network in which they become decision makers, leaders and a social force.
Regarding microcredit programs’ effect on politics, Latifee’s article mentions something not included in our textbook. The ability to enjoy political freedoms and exercise political rights is slowly becoming greater. Grameen borrowers and their families are taking part in elections. In addition to a larger number of voters and candidates, the percentage of Grameen members in local government bodies has reached more than eight percent. I believe the reason it was not mentioned by Pulsipher is simply due to the fact that she mentioned many other details about the program itself, instead of focusing on each of its impacts in this small section of the textbook’s chapter.
While microcredit has benefitted the lives of many, it is important to note the economic contributions that the microcredit programs have made as well. Since the borrowers are generating income, they are able to pay back the loan with that same generated income. This, in turn, leaves the original capital, while allowing them to also accumulate additional capital. Once this amount of capital increases enough, investments are pursued. When these small loans are used for farming or for crops, exports may become more abundant, helping the region’s economy. An additional key factor to the improvement of the economy has been the creation of jobs. About 31 percent of borrowers were unemployed before joining the Grameen Bank. The loans, even as small as they are, allow many to create jobs for themselves and/or family members. As a result, it is evident that the more jobs there are, there is more income being made. Meanwhile, there is an overall increase in the standard of living, as well as the rates of consumption among the Grameen members.
With improved cash flow, many conditions have the ability to also be improved. For example, borrowers can afford to make improvements to their homes. This not only means that they are buying certain materials and products to do so, but they may even be able to hire someone and pay them to do the work for them. This money from the microcredit programs is now creating jobs for others as well. An additional example is of the improvements in clothing. Many can now afford to purchase warmer and more clothes during the winter seasons. In regards to the increase in health care and education among villages such as in Bangladesh, economic benefits can be seen as well. With improved health care, life expectancy increases, and many more people can be treated when they are sick. Keeping individuals healthy makes it possible for them to keep working, providing for their families, all while continuing to spend, boosting the economy. While more children begin to attend schools and receive an education, the future is promising for many, and the economy benefits due to the jobs that these educations will create. Therefore, benefits are not just specific to individuals, but they are evident in regards to the region’s economy and future as well.
Over the years, there have been several programs developed that are similar to the microcredit program of Grameen Bank. Yunus states in the interview that he believes that “almost every single country in the world has a microcredit program in one shape or another, including the rich countries” (Rao 3). Worldwide, there are at least 120 million borrowers of microcredit programs. Latifee shares a similar position in the article “Micro-credit and Poverty Reduction.” Grameen has partners such as, Integrated Development Foundation (IDF), and Activists for Social Alternative (ASA), both of whom have provided in-depth studies and assessments of micro-finance services. The results are tremendous, with reports of many borrowers who have already crossed the poverty line.
Despite the huge success of many microcredit programs, there appears to be quite the debate regarding whether or not these programs in fact reach the poorest of the poor. It is an issue that has caused some to speculate the true benefits of such programs. As the level of outreach is increased, more credit is provided, and more poverty is reduced. However, perhaps this assumption is true solely of the general poor as a whole. While there is not mention of this by Pulsipher in the textbook, it is portrayed both in the film from class, as well as in Latifee’s article. Many argue that the extreme poor benefit very little from such programs, and are mostly excluded. These same individuals would argue that the loans have been diverted from the vulnerable. However, on the other side, microcredit programs have also shown to reduce the numbers of families that in fact are, or become, extremely poor. Varying beliefs are most likely due to the fact that there is difficulty in distinguishing the poor from the ‘extremely poor.’ Where the line is drawn is unknown, and each village has its own implementation, procedures, and successes regarding microcredit programs. Additionally, microcredit programs are undoubtedly successful if there are a few requirements present. The availability of required funds, professional and motivated staff members, and the minimization of communication gaps are necessary. Without such elements incorporated into a lending program, poverty will not be reduced, and the poor will not benefit.
Overall, microcredit has made a tremendously beneficial impact on South Asian countries, such as Bangladesh. Not only have these small loans changed the lives of many, but poverty has been alleviated in many instances as well. Women, whom are the majority of Grameen Bank’s borrowers, have experienced a sense of empowerment, while also benefitting the lives of their families and communities. Furthermore, many aspects of society, politics, and the economy have improved along with the microcredit loans being provided. Although there is controversy as to how well it reaches the small population of the extreme poor, many have focused on the advantages that outweigh this drawback.

Works Cited
Latifee, H. I. Micro-Credit and Poverty Reduction. Proc. of International Poverty Reduction through Micro-Credit Conference, Ceylan Inter-Continental Hotel, Taksim-Istanbul, Turkey. Grameen Trust, 10 Sept. 2003. Web. Nov. 2010. <http://www.grameentrust.org/Microcredit%20and%20Poverty%20Reduction%20June%202003%20in%20TurkeyF.pdf>.
Pulsipher, Lydia M., Alex Pulsipher, and Conrad M. Goodwin. "Microcredit: A South Asian Innovation for the Poor." World Regional Geography Concepts. 1st ed. New York: W.H. Freeman and, 2009. 313-14. Print.
Rao, Anjali. "Interview with Muhammad Yunus - CNN." Featured Articles From The CNN. Cable News Network, 05 Nov. 2007. Web. Nov. 2010. <http://articles.cnn.com/2007-11-05/world/talkasia.yunus_1_grameen-bank-muhammad-yunus-poverty?_s=PM:WORLD>.