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Chapter 1 1.

Acknowledgement
The completion of this dissertation would not have been possible without the able guidance, constructive suggestions and painstaking efforts of my research supervisor Md. Zafor Iqbal, former student of Dhaka University, Sociology Dept, Employee as a research program officer in Bangladesh Institute of Development Study (BIDS). He was never tired of assisting me for any length of time. Whenever I was facing any problem, he appeared in the scene as a rescuer. His untiring efforts for assisting and guiding me were of immense help for accomplishment of this study. To him my debts are unlimited and I express my deepest gratitude. It was a pleasing experience to work under his supervision. I express my thanks and gratitude to the authority of Grameen Bank for giving me permission to collect data from three branches, head office and library of Grameen Bank. I am greatly indebted to Mr. Shamsul A1am Khan Chowdhury, Head of the Department of Administration, Grameen Bank for his excellent guidance and support. His suggestions and comments have greatly inspired me to prepare the thesis successfully. I remain grateful to the following persons of different levels and branches of Grameen Bank, namely, Mr. Ranokul Khan, Principal Officer, Head Office, Mr. Md. Aktar Hossain, Zonal Manager, Pabna, Mr. Md. Abul Kalam, Branch Manager, Rajandrapur, Gazipur branch, Mr. Zafar Ahamed, Branch Manager, Shibbadi branch, and Mr. Md. Billal Ahamed, Branch Manager, Kapasia branch of Grameen Bank. I express my thanks to the Centre Managers of those three branches for
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their help and co-operation. I used the facilities of the Grameen Trust Library. I am indebted to the librarian and other staff of Grameen Trust Library. I also wish to record my gratitude to the hundreds of my respondents who provided information with sincerity, knowing fully that no material reward could be gained in return. I am also thankful to Md. Zafor Iqbal to help me in surveying questionnaires for members. I am a student of Dhaka University, dept. of Peace and Conflict Studies. Our Chairman Dr. Dil Rawshan Zinnat Ara Nazneen always encourages us to go for higher studies. I was inspired by our Chairman to pursue this study. My special debts of gratitude are to our Chairman for her encouragement, invaluable advice and cooperation during the entire period of this study. My teacher Dr. Dalim Chandra Barman made me pain to go through the entire dissertation and made valuable suggestions for improving the quality of the dissertation. I express my gratitude to him. I would like to take this opportunity to express my gratitude to my elder brother Mr. Saiful Islam, dept of Journalism, Dhaka University , who have been a constant source of inspiration and encouragement to me and to whom I have been indebted in all respects. Finally, my uncle Motiur Rahman and aunt Sabera yiesmin deserve special thanks for their sacrifice during the time of this research.

2. Abbreviations and Explanatory Notes


The following symbols have been used in the tables throughout the publication: Two dots (..) indicate that data are not available or are not separately reported. A dash () indicates that the amount is nil or negligible.

A hyphen (-) indicates that the item is not applicable. Parentheses ( ) indicate a deficit of decrease, except as otherwise stated. A slash (/) indicates a school year or a financial year (e.g., 1981/82). Use of a hyphen (-) between dates representing years ($) indicate United States dollars, unless otherwise stated. Bibliographical and other references have, wherever possible, been verified. The following abbreviations have been used: ASA Association for Social Advancement BIDS Bangladesh Institute of Development Study CNEWA Catholic Near East Welfare Association CRS Catholic Relief Services EC European Commission ESCWA Economic and Social Commission for Western Asia EU European Union FAO Food and Agriculture Organization of the United Nations FINCA Foundation for International Community Assistance GDP gross domestic product ha hectare ICU Institute for University Cooperation (Rome) IFAD International Fund for Agricultural Development IFC International Finance Corporation LIBOR London interbank offered rate LL Lebanese pounds MIS management information system NGO non-governmental organization SMEs small and medium-sized enterprises UNDP United Nations Development Programme UNICEF United Nations Childrens Fund UNIRDP United Nations Integrated Rural Development Programme UNRWA United Nations Relief and Works Agency for Palestine Refugees in the Near East USAID United States Agency for International Development WOCCU World Council of Credit Unions

3. Introduction
This monograph looks at the spiritual dimension of microcredit. It may at first sight seem inappropriate to discuss spiritual concerns in the context of the application of finance to resourcehungry economic agents. However, this short paper argues that there is room for such an approach and that spiritual considerations should be used not only to guide the elaboration and implementation of microcredit schemes but also to measure their success. Microcredit is an

instrument at the service of development. Broadly defined, development may be considered as any process that will positively impact or satisfy the long term well-being of individuals, their families and the society/collectivity to which they belong. Human needs can be classified as physical, intellectual, social and spiritual. For development to endure, it must simultaneously address these different dimensions of human existence. When one of these facets is left uncared for, both the balance of the individual and the collective evolution of the community are disrupted. This emphasis on a holistic vision of development implies a renewed focus on the spiritual aspiration of individuals and communities. The spiritual dimension of development was acknowledged by the international community at the 1995 United Nations Social Summit in Copenhagen in the Declaration and Programme of Action: We, the Heads of States and Governments are committed to a political, economic, ethical and spiritual vision for social development . . . We acknowledge that our societ-ies must respond more effectively to the material and spiritual needs of individuals, their families and communities in which they live throughout our diverse countries and regions. We will first review the case for microcredit, briefly describe its contribution to economic and social development and finally discuss the spiritual dimension of microcredit.

4. Methodology
a. Area Surveyed
The study was confined to three branches of Grameen Bank which are located at Gazipur and Shibbadi of Gazipur district and Pabna District. The branches are Rajandrapur, Gazipur, Shibbadi, Kapasia and pabna branch. The authority of Grameen Bank has permitted to the researcher to collect data from those branches.

b. Statistical framework of the study:


The researcher has analyzed the information based on various statements (scull as books, journals, magazines, periodicals bulletins etc.) of Grameen Bank' head office, specially Grameen Bank library, Grameen trust library and three of the branch offices to find quantitative data which was later used to evaluate the Grameen Bank's credit disbursement and recovery performance Interviews, verbal communication and discussion with the senior principa officers, zonal manager, branch managers, branch workers and the borrower. gave the researcher insights to the problem and issue of the report. For questionnaire survey, Grameen Bank head office has permitted to the researcher to collect data from Pabna and Rajandrapur, Shibbadi, Kapasia, branches under Gazipur and pabna zone which are located at Gazipur and Pabna district A sample size of 150 borrowers, 12 centre managers and 3 branch manager were selected from those branches, Borrowers and centre managers were selected randomly by using Random Numbers Table (Appendix-3). The researcher also surveyed the records, documents, manuals etc. available in head office and those branch offices of Grameen Bank.

Distribution of samples Name of the branches Total no. of borrowers, branch manager, centre managers and centres of branches. Branch manager Borrowers Centre managers Centres No. of borrowers, branch managers, centre managers and centres surveyed. Branch manager Borrowers Centre managers Centres 04 04 04 12

Rajandrapur Gazipur Shibbadi Kapasia Total

2311 2226 1945 6482

01 01 01 03

07 08 08 23

64 61 61 184

50 50 50 150

01 01 01 03

04 04 04 12

Primary data were collected on the basis of a structural questionnaire. As primary sources of data the researcher directly talked with the respondents and filled up the questionnaire. He talked with both male and female members. 95 percent of the respondents were female. The questionnaire was structured on respondents credit information, number-, of credit terms, purpose, average installment, borrowers satisfaction, borrowers assets, personal savings and debt position. The whole questionnaire sets are annexed with the report.

c. Sampling design:
This report is based on empirical data collected through sample survey. The data concentrates on Grameen Bank Borrowers, Centre Managers and Branc Managers of three of the Grameen Bank branches located in Gazipur and Pabna district. The researcher used Random sampling to acquire data. I also tried to assure that sample is representative of the population from which was drawn. 150 samples of borrowers, 12 of centre managers and 3 branch managers were selected from field level. Samples of borrowers and centre managers were selected randomly. The researcher selected information above fifty borrowers, from centre no 06(MA), 08(MA) I S (MA) and 25 (MA) Rajandrapur, Gazipur Branch, fifty from centre no. 08(MA), 12, 37(MA) and 39 Kapasia branch and the rest were collected from Shibbadi branch [51(MA), 55(MA), 63(MA) and 72(MA)]. Information about Centre Manual and Branch Managers were collected from those branches equally. Information was collected on the basis of a structured questionnaire, which was checked by the research supervisor. The questionnaire was also designed on the basis of PACS Department of Dhaka University given. The study has been done on the basis of both secondary and primary data that were collected from Grameen Bank head office, Rajandrapur, Gazipur, Kapasia, Shibbadi Branches under

Gazipur Zone. The primary data were collected by direct interview with 150 borrowers, 12 centre manager and 3 branch managers in branch level and the secondary data were extracted from. Various published reports like annual reports of Grameen Bank, research reports of World Bank. BIDS and BIBM on Grameen Bank, by going through the banking documents, brochures of the bank and from Grameen Bank web sites (http://www/grameen.net and http://www.grameen.org).

d. Survey instruments
The survey methodology used to fulfill the objectives of the study. These are as follows; Information was sought by direct observation: Several times the researcher visited at Rajandrapur, Gazipur, Shibbadi, Kapasia and Pabna Branches to evaluate the socio-economic status of, the population by direct observation and also to ascertain the impact of micro-credit offering by the bank. Field investigation: After developing the preliminary questionnaires, the same was given to the branch managers, centre managers, and to the borrowers. To collect primary data that is required far the study the answers given in response and against pre-formatted questionnaire provided by the researcher. Data analysis: The main focus of this study is to evaluate the credit management of Grameen Bank, that is evaluation of category of loan and advances, average" disbursement and collection, effective interest rate: repayment rate, trend in recovery, repayment factors, procedure for obtaining credit, installment procedure, efficiency of bank workers, expectations of the borrower, dropout rate, etc. Prior to analysis, data collected from primary and secondary sources that were processed further for making them suitable to the need of the present study, Different measures of descriptive statistics such as mean, dispersion and rang ( were developed. Trend values indicating the absolute changes and the direction of changes of the major performance indicators were obtained through the above-mentioned methods, correlation analysis was contracted in order to ascertain the interrelationship of the interested variables. Determination coefficients were obtained for judging the significance of the independent variables in explaining the variations of the criterion variables. Using Microsoft Excel and Microsoft Word Data were processed.

5. Statement of the issues


The word `Grameen' comes from Bangla word gram. Gram means "village" or "rural". So Grameen Bank is village or rural bank. Grameen Bank works only in villages. It is a rural bank for the rural poor people in Bangladesh. Bangladesh is one of the most densely populated countries in the world. Over 80 percent of the people live in the rural areas'. Economic and social conditions for most of the people are extremely miserable. Per capita income of

population is only around US$ 340. The rural people who are depurate in need credit generally remain out side of the banking facilities. Grarneen Bank was established with the objectives of developing the living standard of the rural poor people. A basic principle of the Grameen Bank is that the bank should go to the poor people, since it is difficult for the poor people to come to the bank 2. The principal activities of the bank are to provide credit without collateral securities in cash or in kind to landless persons for all types of economic activities. It also accepts money for deposit. Credit can help the poor to get out of the economic grip of the economically stronger segment of the society; 3Credit is an entitlement to resources. More than 95 percent borrowers of Grameen Bank are women who lived an idle life beforehand. With the help of Grameen Bank they have changed their economic condition by taking up various activities, such as bamboo works, cane works, pottery products, shopping, farming etc. ' Anu Mahmud, Inside Bangladesh Economy, Dhaka: BIAM, 1998, P-35.
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Grameen Bank, Annual Report 2000, Dhaka : 2001, P-7. Professor Muhammad Yunus, Grameen Bank Experiences and reflections, Dhaka:

Grameen Bank, 1997, p-12. The World Bank has estimated that 1.2 million people around the world live on less than $ 1 a day, 75 percent of them are women4. The researcher tried to address the following study issues relating to credit management of Grameen Bank: i) To understand the concept of micro-credit and its impact on poverty in Bangladesh. ii) To understand the nature of Grameen Bank's credit delivery model. iii) To have an idea about Grameen approach to poverty alleviation. iv) To represent credit disbursement structure of Grameen Bank. v) To represent the factors which contributes high recovery rate of Grameen Bank comparing to that of other lending institutions i.e. supervision approach of Grameen Bank. vi) To find the nature of Grameen Bank's group lending contract and their peer selection effect. vii) To find reasons behind Grameen Bank's repayment crisis. viii) To understand the impact of Grameen Bank's lending model on borrowers. ix) To find the relation between Grameen Bank's high recovery rate and borrowers dropout rate.

6. Limitations of The Study


This study on. The role of microcredit in peace development of institutionalization in Bangladesh, is mainly based on primary data. The following factors seem to the researcher the main points of weaknesses of this study: (a) The study is limited by the size of the sample that do not represent the total Grameen Bank clientele Parameters. (b) The respondents limitation of expressing themselves, the situational factors and the instruments used to analyze the data could be the probable error sources. Some of the data collected through interview may have the problems like errors of leniency, central tendency and information concealment.

(c) There was not much scope to analyze the impact of NGOs Credit Delivery Model and its impact on its borrowers, as the researcher did not perform any comprehensive field survey on Grameen borrowers and as a result no quantitative data about respondents economic condition and performance could be collected. (d) It was very difficult to collect recent data that is very essential for interpretation, because central accounts department and investment division head office of Grameen Bank was not able to supply such type of data. (e) Although most of the personnel of the bank are adept cooperative and friendly, they could not provide the researcher with sufficient information, as they were busy with their official works. (f) Sufficient books, publications, facts and Figures are not available. These constrains narrowed the scope of accurate analysis. And if those limitations not been there, the report would have been more useful and attractive

7. The Study Process


The first part of the study involved a survey of secondary sources. A literature survey of concepts and theories of credit management system of NGOs and various studies conducted on Grameen Bank in Bangladesh and' abroad with a view to develop specific issues and objectives of the study. The study was based on primary empirical research. An extensive survey was conducted on selected branches of Grameen Bank, located in Gazipur and Pabna district. The methodology for the empirical study applied in this study was an interwoven approach of questionnaire, and informal interview. A structured questionnaire survey was used to collect information from the branches. Other relevant information was collected from secondary sources to supplement the primary data. Questionnaire survey, informal interview, and secondary sources thus became integral parts of the study. Information collected from primary sources were processed and analyzed and interpretations were based on the primary and secondary data.

Flow diagram of the process: Literature review of concepts and theories of credit management system of Grameen Bank Literature review of various studies conducted on Grameen Bank

Develop study issues and objectives of the study

Data collection from Primary sources

Data collection from secondary sources

Processing and analyzing data on the basis of available data and information from primary and secondary sources Extract finding of the study Drive conclusions of the study

8. Objectives of The Study


The purpose of this research is to contribute to a greater understanding of the nature of microcredit management system of Grameen Bank. The study specifically aims at; - To evaluate branch level activities of Grameen Bank on the basis of loan recovery objective. - To understand credit disbursement and recovery mechanism of NGOs on centre level. - To represent borrowers activities and their viability. Ginger Thompson, Small Loans Help Millions of World's Poorest, Coalition Says, The New York Times, NewYork, October 8, 2001. - To identify problems that NGOs borrowers face. - To find reasons behind borrowers dropout. - To make recommendation, if any, for further improvement.

9. Rationale of the study


Although the success of any credit program depends on its recovery performance, repayment crisis and loan default culture has vitiated most rural credit programs in Bangladesh. It is not uncommon to find a quarter or more loans outstanding with payment overdue and at present it is observing a declining trend of loan recovery. In this prevailing condition it observes an opposite performance by Grameen Bank and other micro credit institutions, which makes it v-pious about the reasons behind this. Grameen Bank is the only institution, which has been giving loans without collateral to the rural poor. Grameen Bank prefers female members to male members to

give loans. Because female members are near about 94% among the real landless poor through out the country. Further, females are very active at works and to repay the loans than the male members. As the credit receiving system is sound the activities of Grameen Bank are expanding day by day. Grameen Bank helps to develop socio-economic conditions, it is important to know the credit management system for evaluating the role of Grameen Bank in the development of the country. The rationale of the study on credit management of Grameen Sank is to find the policies, organizational structure and supervision that ensure such recovery performance. Besides, one of the main reasons of doing such paper is also to understand the relationship amongst recovery performance and its impact on the borrowers.

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Chapter 2
1. Briefing about Microcredit
Microcredit is the name given to extremely small loans made to poor borrowers. A typical microcredit scheme involves the extension of an unsecured, commercial-type loan at interest to a poverty stricken borrower. The definition of poverty stricken varies with the situation, but in Bangladesh the typical definition is a borrower who owns less than 0.5 acres of land and relies on wages for all income. Loans are disbursed in a group setting to poor borrowers, with some amount of non-credit assistance also being made available. The non-credit assistance typically ranges from skills training to marketing assistance to lessons in social empowerment.
Most microcredit programs are set up in the following way (description taken from New Study Confirms Benefits of Bangladeshs Microcredit Programs, 1998). Credit services are targeted to landless or assetless borrowers, the moderately to extremely poor. Borrowers are placed into groups of 10-20 people which meet regularly with the loan officer of the microcredit program. These groups of borrowers substitute for collateral and take over the role of securing the loans dispersed. Each borrower in a group agrees to be held liable for all debts incurred by any member of the group. In the event that a borrower defaults, the other members of the group are required to make up the amount in default. Borrowers are encouraged or even required to monitor the behavior of one another to make sure that no one is danger of default. This process has led to extremely low rates of default, especially for first time borrowers. Repayment rates are usually above 95%. Extremely small business ventures, such as those financed with microcredit loans, are known as microenterprises. Microenterprise clusters are simply groups of microenterprises located in close proximity to one another and engaging in similar business activities. The beenfits of clustering will be outlined in a later section of this essy. Clustering can either arise spontaneously, or as a result of outside encouragement from government or NGOs. Microcredit is the term most often used to describe financial services for poor people in developing countries. Microcredit includes microcredit or micro loans (small amounts of money lent to poor people to finance self-employment activities or for other purposes); savings; payment transfers (services which enable breadwinners living elsewhere to send small amounts of money regularly to family members back home, a major revenue stream in many developing countries); micro insurance, and other financial services.

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a. Definition and classification by Dr. Yunus


The word "microcredit" did not exist before the seventies. Now it has become a buzzword among the development practitioners. In the process, the word has been imputed to mean everything to everybody. No one now gets shocked if somebody uses the term "microcredit" to mean agricultural credit, or rural credit, or cooperative credit, or consumer credit, credit from the savings and loan associations, or from credit unions, or from money lenders. When someone claims microcredit has a thousand year history, or a hundred year history, nobody finds it as an exciting piece of historical information. I think
this is creating a lot of misunderstanding and confusion in the discussion about microcredit. We really don't know who is talking about what. I am proposing that we put labels to various types of microcredit so that we can clarify at the beginning of our discussion which microcredit we are talking about. This is very important for arriving at clear conclusions, formulating right policies, designing appropriate institutions and methodologies. Instead of just saying "microcredit" we should specify which category of microcredit. A broad classification of microcredit: A) B) C) D) E) F) G) H) I) J) Traditional informal microcredit (such as, moneylender's credit, pawn shops, loans from friends and relatives, consumer credit in informal market, etc.) Microcredit based on traditional informal groups (such as, tontin, su su, ROSCA, etc.) Activity-based microcredit through conventional or specialised banks (such as, agricultural credit, livestock credit, fisheries credit, handloom credit, etc.) Rural credit through specialised banks. Cooperative microcredit (cooperative credit, credit union, savings and loan associations, savings banks, etc.) Consumer microcredit. Bank-NGO partnership based microcredit. Grameen type microcredit or Grameencredit. Other types of NGO microcredit. Other types of non-NGO non-collateralized microcredit.

This is a very quick attempt at classification of microcredit just to make a point. The point is, every time we use the word "microcredit" we should make it clear which type (or cluster of types) of microcredit we are talking about. Otherwise we'll continue to create endless confusion in our discussion. Needless to say that the classification I have suggested is only tentative. We can refine this to allow better understanding and better policy decisions. Classification can also be made in the context of the issue under discussion. I am arguing that we must discontinue using the term "microcredit" or "microfinance" without identifying its category.

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Microcredit data are compiled and published by different organizations. We find them useful. I propose that while publishing these data we identify the category or categories of microcredit each organization provides. Then we can prepare another set of important information, number of poor borrowers, and their gender composition, loan disbursed, loan outstanding, balance of savings, etc. under each of these categories, countrywise, regionwise, and globally. These sets of information will tell us which category of microcredit is serving how many poor borrowers, their gender break-up, their growth during a year or a period, loans disbursed, loans outstanding, savings, etc. The categories which are doing better, more support can go in their direction. The categories which are doing poorly may be helped to improve their performance. For policy-maters this will be enormously helpful. For analysis purpose this will make a world of difference. I urge Microcredit Summit Campaign secretariat to present the information that they already collect on number of clients, number of the poorest among them, number of poorest clients that are women, number of clients that have crossed the poverty line, broken down for each of the categories of microcredit. This will help donors to select the categories they would like to support. This sorting out is very important for the donors, as well as the policymakers.

b. Definition by Microcredit summit


Much of the current interest in microcredit stems from the Microcredit Summit (2-4 February 1997), and the activities that went into organizing the event. The definition of microcredit that was adopted there was: Microcredit (mI-[*]Kro'kre-dit); noun; programmes extend small loans to very poor people for self-employment projects that generate income, allowing them to care for themselves and their families. Definitions deffer, of course, from country to country. Some of the defining criteria used includesize - loans are micro, or very small in size target users - microenterpreneurs and low-income households utilization - the use of funds - for income generation, and enterprise development, but also for community use (health/education) etc. terms and conditions - most terms and conditions for microcredit loans are flexible and easy to understand, and suited to the local conditions of the community.

1.

Historical background of Microcredit


MICROCREDIT emerged in the 1970s as social innovators began to offer financial services to the working poor those who were previously considered un-bankable because of their lack of

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collateral. Once given the opportunity, not only did clients of MFIs expand their businesses and increase their incomes, but their high repayment rates demonstrated that the poor are capable of transforming their own lives given the chance. This model of lending disproved all conventional thinking. MICROCREDIT was born. Since then, MICROCREDIT has become one of the most sustainable and effective tools in the fight against global poverty. Most microcredit programs target women as the most desirable borrowers. This is partly a result of a policy of social empowerment and partly as a result of the perception that women have higher rates of repayment than men. As noted above, loans are usually collateral free. Maturity is normally 50 weeks with repayment in weekly installments. All financial transactions are conducted in the presence of the entire borrowing group and all transactions are recorded in individual passbooks. Most microcredit programs begin with small loans, but allow borrowers to take more and more as they repay each previous loan and thus prove themselves good credit risks. Finally, borrowers have full freedom to choose the activities to be financed. Loans need not be spent only on investment; spending for consumption is equally acceptable.

In broad terms all microcredit programs are working towards the goal of decreasing income poverty and decreasing the vulnerability of the poor. Microenterprise clusters claim to enhance these effects by improving on the microcredit strategies. According to the supporters of microenterprise clusters, clustering can solve many of the problems associated with microcredit financed enterprises such as distance from markets and inefficiency. The origin of the microcredit movement is usually attributed to the work of Muhammad Yunus Grameen Bank which was founded more than 20 years ago in Bangladesh (Jolis, 1996). Today microcredit and microenterprise programs can be found throughout South and Southeast Asia, many parts of Africa and Latin America and even in the US and other Western countries. Support for such programs has been on the increase in recent years and there is a lot of optimism about the capacity of microcredit to reduce poverty. To quote from The Independent again (5 May 1996), Muhammad Yunus believes that he can eradicate world poverty, all by the use of one simple idea. Now the worlds leaders are starting to take him seriously. This essay will try to determine whether such belief and optimism is warranted. Lastly, it should be noted that despite the spread of microcredit programs and their growing popularity with policy-makers, hard data is somewhat lacking. There is little standardization across studies as to how to define critical processes and measures of success. The definition of poverty, and especially reductions in poverty, tends to vary from study to study. Womens empowerment is another very nebulous term. Many terms and processes are redefined on an ad hoc basis each time a new study is conducted. Much of the literature on the subject of microcredit

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appears to be in the stage of empirical observation and anecdotal evidence. However, after 20 years the preliminary results are in. There is plenty of information on the positive and negative aspects of microcredit programs, as well as some early information on the long-term effects and prospects of microcredit and microculstering schemes. This information should be more than enough for the purposes of this essay.

2.

Grameen credit by Dr. Yunus


Whenever I use the word "microcredit" I actually have in mind Grameen type microcredit or Grameencredit. But if the person I am talking to understands it as some other category of microcredit my arguments will not make any sense to him. Let me list below the distinguishing features of Grameencredit. This is an exhaustive list of such features. Not every Grameen type programme has all these features present in the programme. Some programmes are strong in some of the features, while others are strong in some other features. But on the whole they display a general convergence to some basic features on the basis of which they introduce themselves as Grameen replication programmes or Grameen type programmes.

General features of Grameencredit are : a) b) c) d) e) It promotes credit as a human right. Its mission is to help the poor families to help themselves to overcome poverty. It is targeted to the poor, particularly poor women. Most distinctive feature of Grameencredit is that it is not based on any collateral, or legally enforceable contracts. It is based on "trust", not on legal procedures and system. It is offered for creating self-employment for income-generating activities and housing for the poor, as opposed to consumption. It was initiated as a challenge to the conventional banking which rejected the poor by classifying them to be "not creditworthy". As a result it rejected the basic methodology of the conventional banking and created its own methodology. It provides service at the door-step of the poor based on the principle that the people should not go to the bank, bank should go to the people. In order to obtain loans a borrower must join a group of borrowers. Loans can be received in a continuous sequence. New loan becomes available to a borrower if her previous loan is repaid. All loans are to be paid back in instalments (weekly, or bi-weekly). Simultaneously more than one loan can be received by a borrower It comes with both obligatory and voluntary savings programmes for the borrowers. Generally these loans are given through non-profit organizations or through institutions owned primarily by the borrowers. If it is done through for-profit institutions not owned by the borrowers, efforts are made to keep the interest rate at a level which is close to a level commensurate with sustainability of the programme rather than bringing attractive

f) g) h) i) j) k) l)

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return for the investors. Grameencredit's thumb-rule is to keep the interest rate as close to the market rate, prevailing in the commercial banking sector, as possible, without sacrificing sustainability. In fixing the interest rate market interest rate is taken as the reference rate, rather than the moneylenders' rate. Reaching the poor is its non-negotiable mission. Reaching sustainability is a directional goal. It must reach sustainability as soon as possible, so that it can expand its outreach without fund constraints. m) Grameencredit gives high priority on building social capital. It is promoted through formation of groups and centres, developing leadership quality through annual election of group and centre leaders, electing board members when the institution is owned by the borrowers. To develop a social agenda owned by the borrowers, something similar to the "sixteen decisions", it undertakes a process of intensive discussion among the borrowers, and encourage them to take these decisions seriously and implement them. It gives special emphasis on the formation of human capital and concern for protecting environment. It monitors children's education, provides scholarships and student loans for higher education. For formation of human capital it makes efforts to bring technology, like mobile phones, solar power, and promote mechanical power to replace manual power.

Grameen credit is based on the premise that the poor have skills which remain unutilised or underutilised. It is definitely not the lack of skills which make poor people poor. Grameen believes that the poverty is not created by the poor, it is created by the institutions and policies which surround them. In order to eliminate poverty all we need to do is to make appropriate changes in the institutions and policies, and/or create new ones. Grameen believes that charity is not an answer to poverty. It only helps poverty to continue. It creates dependency and takes away individual's initiative to break through the wall of poverty. Unleashing of energy and creativity in each human being is the answer to poverty.

a. How microcredit works?


The most common micro credit product is a microcredit loan usually less than 10,000 tk. These tiny loans are enough for hardworking micro-entrepreneurs to start or expand small businesses such as weaving baskets, raising chickens, or buying wholesale products to sell in a market. Income from these businesses provides better food, housing, health care and education for entire families, and most important, additional income provides hope for a better future. In addition, the poor, like all of us, need a secure place to save their money and access to insurance for their homes, businesses and health. Micro credit institutions (MFIs) are now innovating to help meet these needs, empowering the worlds poor to improve their own lives. The global repayment rate for microcredit loans is higher than 95 percent, which allows MFIs to re-lend these funds to even more clients. By giving the worlds poor a hand up, not a handout, micro credit can help break the cycle of poverty in as little as a single generation.

b. Why Is Microcredit So Popular?

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In spite of criticism and concerns over whether or not microcredit is an effective means to eliminate poverty, support for microcredit has grown significantly in the last decade. World leaders, international institutions and high profile celebrities like Hilary Clinton and Jennifer Lopez have publicly endorsed microcredit. The United Nations even named 2005 the "International Year of Microcredit" and sponsored a multitude of global events to help microcredit gain attention and support. This has also coincided with an ideological shift in development programs and policy. In the United States support has moved toward programs that emphasize self-help rather than dependency on government. Microcredit has been sold worldwide as a "free-market" kind of development approach. This rests well with those who believe market-based approaches to development are superior to state-based initiatives in which the state becomes responsible for providing economic opportunities and social services.

4.

Historical background of Grameen Bank


Muhammad Yunus began his career as an economist. Yunus came to the U.S. in 1969 in order to study. He obtained his PhD in Economics from Vanderbilt University and returned to Bangladesh where he joined the Economics Department of Chittagong University as a professor. In 1974, a great famine hit Bangladesh and motivated Yunus to become involved in assisting the poor in his country. He began by lending small sums of money to women who made bamboo furniture in a village near Chittagong University who made bamboo furniture. These women used the credit to buy bamboo and were able to successfully repay the money they borrowed by selling their furniture. According to the Grameen Bank's website, Yunus then launched a research project to examine if a system could be designed to lend money to the poor on a larger scale. In 1983 the Grameen Bank Project officially became an independent bank and was called the Grameen Bank. Grameen, which means "rural" or "village" in Bangla, the language spoken in Bangladesh, designated the bank as an institution for the rural poor. Today, the rural poor who are clients of Grameen Bank own 90% of its shares. The Bangladeshi government owns the remaining 10%. According to the TimesOnline based in London, the Grameen Bank has lent over $5 billion to 6.6 million people. Most of that amount that has been repaid and 96% of clients are women.
Some critics have expressed concern that microlending is not the most effective means to eradicate poverty and that the Nobel Peace Prize award to Yunus and the Grameen Bank will inflate enthusiasm for microcredit.

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a. Beginning of Grameen bank The Grameen Bank's model has been replicated in over 100 countries worldwide. In Bangladesh alone, Grameen Bank provides banking services in over 72,000 villages, which covers about 86% of the total villages in Bangladesh. The Grameen Bank's website boasts that it has substantially improved the lives of the poor and that this is documented by such organizations as the World Bank, the International Food Research Policy Institute (IFPRI) and the Bangladesh Institute of Development Studies (BIDS). b. Grameen approach to poverty alleviation
The credit based poverty alleviation model introduced by Grameen Bank for the rural poor has become successful by creating self-employment and human capital development opportunities. The Grameen Bank evolved from a model that targeted the poor, incorporating the notion that the poor, the rich, must have access to formal credit. Although the initial program was to alleviate poverty through micro-credit, it soon realized that credit alone was not enough. The poor lacked social and financial discipline and thus the bank also introduced social and community development programs to boost-up the poor to become more productive. The micro-credit program introduced by Grameen bank also aims to organize the unemployed rural poor for boosting-up their moral, integrity, self-esteem and to become part of self-employed productive labor force of the country. The Grameen approach to poverty alleviation has become an effective tool for rural poverty reduction and human resources development.

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Chapter 3
1. Global picture and microcredit movement
Worldwide, approximately three billion people half the planet survive on $2 a day. More than one billion of them survive on half that amount or less, the World Banks definition of the severest poverty.
Regular salaried or wage-paying jobs are scarce in many developing countries. Most of their citizens instead make their living through self-employment in the informal sector. The Economist and the International Labour Office estimate that nearly 60% of Latin Americas and two-thirds of Africas nonagricultural employment is in the informal sector. In India, nine out of ten workers are in the informal sector, contributing 60% of net domestic product and 70% of income. The story is the same throughout the developing world. But without access to the quality, affordable financial services they need to fuel their productivity and reduce their vulnerabilities to external shocks, the poor majority can never grow their microenterprises into businesses that can help them escape poverty. They can never escape survival mode. The reasons for this lack of access vary from country to country but there are certain common elements. Many of the worlds poor live in rural areas, scattered across geographically isolated regions that are difficult to serve. Many are illiterate, and thus cannot read or sign their names to standard loan agreements. Some come from cultures without consumer protection policies, leaving poor people routinely exploited by predatory lenders. Virtually all lack credit histories, business track records, and assets to pledge as collateral. The modern microcredit movement was born to ease the human suffering caused by poverty, and to waken the global economy's sleeping giant: the almost completely uncapitalized productivity of the worlds overwhelming majority of economically active people. It has scored impressive gains, developed consensus about best practices, and improved the lives of tens of millions of people. But most of microcredits work remains to be done. Best estimates indicate that there are hundreds of millions of self-employed poor worldwide who could benefit from, but do not yet have, access to financial services. Microcredit institutions are currently reaching only an estimated four percent of them.

2.

Microcredit Missionary
Bangladeshs Muhammad Yunus and the bank he founded, Grameen Bank, which created a new category of banking by granting millions of small loans to poor people with no collateral helping to establish the microcredit movement across the developing worldwon the Nobel Peace Prize on Friday. On its Web site, the Norwegian Nobel Committee said it awarded the

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prize to Yunus, 65, and the bank "for their efforts to create economic and social benefit from below." As a young economics professor at Chittagong University in Bangladesh in 1976, Muhammad Yunus lent $27 out of his own pocket to a group of poor craftsmen in the nearby town of Jobra. To boost the impact of that small sum, Yunus volunteered to serve as guarantor on a larger loan from a traditional bank, kindling the idea for a village-based enterprise called the Grameen Project. It never occurred to the professor that his gesture would inspire a whole category of lending and propel him to the top of a powerful financial institution. Today, Yunus runs Bangladesh's Grameen Bank, a leading advocate for the world's poor that has lent more than $5.1 billion to 5.3 million people. The bank is built on Yunus' conviction that poor people can be both reliable borrowers and avid entrepreneurs. It even includes a project called Struggling Members Program that serves 55,000 beggars. Under Yunus, Grameen has spread the idea of microcredit throughout Bangladesh, Southern Asia, and the rest of the developing world. "At first I didn't think that what I did had any significance in a broader context," he explains. But the mission keeps expanding in scale, and in the meantime, Yunus has grown intimately familiar with the unbearable dimensions of global poverty. As many as 1.2 billion people around the planet lack access to basic necessities, he explains, and microfinance could be their pathway out of despair. "Yunus and Grameen have taken a first step, which has inspired others to take a look at [microfinance] as a business," says John Tucker, deputy director of the microfinance unit at the U.N. Capital Development Fund. Yunus' innovation has broad appeal. In 1997 only about 7.6 million families had been served by microcredit worldwide, according to the 2005 State of the Microcredit Summit Campaign Report. As of Dec. 31, 2004, some 3,200 microcredit institutions reported reaching more than 92 million clients, according to the report. Almost 73% of them were living in dire poverty at the time of their first loan. When Yunus started Grameen, he wanted to turn traditional banking on its head. One of his first moves was to focus on women because they are most likely to think of the family's needs. This was a radical step in a traditional Muslim society, and it took Yunus six years to reach his initial goal of a 50-50 gender distribution among borrowers. Today, 96% of Grameen's borrowers are women. "If banks made large loans, he made small loans. If banks required paperwork, his loans were for the illiterate. Whatever banks did, he did the opposite," marvels Sam Daley-Harris, director of the Microcredit Summit Campaign. "He's a genius." In some cases, Yunus has been able to attract private capital to fund socially driven businesses. GrameenPhone, a for-profit telecom outfit, is 51% owned by Norway's Telenor (TELN ). It works with the not-forprofit Grameen Telecom to provide bulk airtime for so-called village phones. Funded by loans to individual women, these systems -- built from simple handsets and solar chargers -- function as pay phones in many rural areas. Now the idea of a "village phone lady" is catching on, along with other low-cost, high-tech systems, in other parts of Asia and Africa. An energy enterprise, Grameen Shakti, sells around 1,500 home solar-panel systems per month throughout rural Bangladesh and is growing 15% a year without subsidies, says Yunus.

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The professor's most recent innovation is still an experiment: Grameen Danone Food Co. is a proposed partnership between Grameen and France's Group Danone (DA ) to make a nutritious and inexpensive baby formula. Next on his list are low-cost eye care and rural hospitals with video-conferencing between villagers and doctors in Dhaka. "In Bangladesh, where nothing works and there's no electricity," Yunus says, "microcredit works like clockwork."

3.

Notable Quotes from Dr. Muhammad Yunus


One day our grandchildren will go to museums to see what poverty was like. News interview The poor themselves can create a poverty-free world all we have to do is to free them from the chains that we have put around them. Eliminating poverty through market-based social entrepreneurship To me this [Microcredit] Summit is a grand celebration. We are celebrating the freeing of credit from the bondage of collateral. This Summit is to pronounce goodbye to the era of financial apartheid. This Summit declares that credit is more than business, credit is a human right. This Summit is about setting the stage to unleash human creativity and the endeavor of the poor. This Summit is to guarantee every poor person the chance to undertake responsibility to establish his or her own human dignity. This Summit is about creating opportunities for 100 million of the poorest families to follow the footprints left behind by these successful, brave women. With the energy I feel in this room, I feel more confident than ever that we will make it. 1997 Microcredit Summit In teaching economics I learned about money, and now as the head of a bank I lend money, and the success of our venture lies in how many crumpled bank bills our once starving members now have in their hands. Bu the microcredit movement which is built around and for and with money, ironically, is at its heart, at its deepest root, not about money at all. It is about helping each person achieve his or her fullest potential. It is not about cash capital, but about human capital. Money is merely a tool that helps unlock human dreams and helps even the poorest and most unfortunate people on this planet achieve dignity, respect and meaning in their lives. Banker to the Poor by Muhammad Yunus Why is it only now at the beginning of the third millennium that anything is being done to get rid of the age-old scourge of poverty? Why does such concrete action as a world microcredit summit have to rely on the efforts of a high-school music teacher like Sam Daley-Harris, and on his individual volunteers? Why do we not elect officials and support political parties who will put this at the top of their agenda?

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Banker to the Poor by Muhammad Yunus It all depends what development means to people. To me, building a road, building a dam or a huge building doesnt mean a thing...The question that Ill be asking [is] does it increase the income of a poor person? If it does, it is development. If it doesnt, its not development.

Reclaiming our Democracy by Sam Daley-Harris

4.

Famous People Talking about Muhammad Yunus


a. Bill Clinton: I think Muhammad Yunus should be given a Nobel Prize . . . he made enterprise work. He promoted independence, not dependence . . . I just loved it. 1992 interview with Rolling Stone b. Senator Hillary Clinton

By giving poor people the power to help themselves, Dr. Yunus has offered them something far more valuable than a plate of food. He has offered them security in its most fundamental form. c. UN Secretary-General Kofi Annan

Thanks to Professor Yunus and the Grameen Bank, microfinance has proved its value as a way for low-income families to break the vicious circle of poverty, for productive enterprises to grow, and for communities to prosper. They have provided a powerful weapon to help the world reach the Millennium Development Goals, by helping people change their lives for the better especially those who need it most. d. World Bank President Paul Wolfowitz

t was with great joy that I learned today that the Nobel Peace Prize has been awarded to you [Yunus] and the Grameen Bank. Your commitment to micro-credit and poverty reduction in Bangladesh has had an enormous impact. Likewise, Grameens strong support for the role of women and poor people in the economy and society over the past 30 years is now global best practice.

5.

Most recent comments about microcredit and Dr. Yunus


Nickname: Awal shah Review: Muhammad Yunus has acheive many things in many ways. Without him the world woundn't be the world we know today. Date reviewed: Dec 18, 2006 2:04 AM Nickname: Bapi

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Review: Kudos to Professor Yunus for what he has achieved so far in tackling poverty. He is a true genius who has redefined ECONOMIC SCIENCE to mean COMMONSENSE. He has laid a blueprint for the so-called world leaders to follow and on BBC Hard Talk 11/12/06 he was distinct. May GOD Almighty continue to increase is wisdom (Amen). Date reviewed: Dec 12, 2006 1:20 PM Nickname: Rafiqul Islam Review: I am a junior student in Rajshahi University, and I'm sick of economics. However, my opinion was changed when I knew about Doctor Yunus. I see economics and even this world in a new way. Date reviewed: Dec 8, 2006 3:13 PM Nickname: Shawn Review: Dr Muhammad Yunus's contribution to alleviate world poverty is remarkable. He has done something that people can see real life results. I congratulate him and the people of Bangladesh on this great accomplishment. Our encouragement should be there to help him help the world's poor. Shawan, Pabna. Date reviewed: Oct 24, 2006 5:59 PM Nickname: Masum Review: First of all I would like to congratulate Dr yunus, Grameen bank and the people of Bangladesh for winning the Nobel peace prize. I am a final year student at Jahangir Nagar University and studying BA (Hons) Business Studies with Marketing. My final year dissertation was on 'Poverty reduction and the Role of microfinance' because 2005 was the year of Microcredit on UN's calender. And also LiveAid for africa took place that time as well. But my inspiration was Dr Yunus's book 'Banker to the poor'. Many people critisied me for doing such an odd topic, because my background was not in finance. But it turns that i scored the highest mark on my dissertation and was very proud and happy after the announcement of Nobel peace prize to Dr Yunus and Grameen Bank, because my hard work and dedication has paid off and I could also confront my critics with zeal. So I like to thank Dr Yunus, Grameen Bank and the poeple of Bangladesh and wish them well in future. Date reviewed: Oct 20, 2006 10:42 AM Nickname: Asean Review: I congratulate Dr. Yunus on winning the Nobel Peace Prize. He has brought honour to my country Bangladesh. I am so grateful to God from the bottom of my heart for letting a dignified Bangldeshi professor/social worker win a prestigious prize. Dr. Yunus winning the Nobel Peace Prize acknowledges the suffering of the poor and desperate in third world countries. Dr. Yunus brings honor to every Bangladeshi that crosses international borders with a Bangladeshi

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passport. Immigration officers in "rich" countries think low of Bangladeshis, we are 2nd class citizens. So he has brought all Bangladeshi passport holders HONOR. I thank Dr. Yunus so very much. May God bless him and all his loved ones in this life and in the eternal hereafter. Respectfully submitted, ASEAN Date reviewed: Oct 19, 2006 10:17 PM Nickname: Hasan Review: I wonder why Muhammad Yunnus has been awarded with the Nobel Peace Price instead the Nobel Economics Price. Nobel Memorial Prize in Economic Sciences, is a prize awarded each year for outstanding intellectual contributions in the field of economics. It is his contribution to development economy less signifiant than Phelps' contribution to macroeconomic policy? The main difference does not only lies on global poverty reduction, but on the real implications that may have for world banking and financial system. Date reviewed: Oct 19, 2006 9:46 AM Nickname: "Didi" from America Review: Congratulations, Professor Yunus. You have set an example for all of the world that given respect and opportunity, poor people will honor their commitment and bring themselves out of poverty. Hooray for you, for Shonar Bangla and all of the world. May your example shine for all of the world's people. Date reviewed: Oct 17, 2006 4:08 PM Nickname: Lily Review: What Mr. Yunus has done is very inspiring. It makes me think that I should be able to do something to help the poor. Congratulations on the Nobel Prize! Well deserved. Date reviewed: Oct 17, 2006 12:46 PM Nickname: femoje Review: I salute the courage of Dr. Yunus to challenge the status quo and his patience & committment since 1976. How I wish that every poor community has a type of Dr. Yunus. I wish you many more years of service to humanity. Date reviewed: Oct 17, 2006 12:18 PM

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Chapter 4
1. Microcredit and Peace
When Yunus was asked why he received the Nobel Prize for Peace he responded that microcredit eradicates poverty and this provides real peace. Sverre Lodgaard, Director of the Norwegian Institute of International Affairs and first deputy member of the Norwegian Nobel Committee, told the BBC that the Nobel's choice for the Peace Prize was right on. He explained, "More people die each year from poverty than from war, so a fight against the violence which is perpetrated through the extreme division in our world's resources is very welcome." Elizabeth Littlefield, head of a pro micro lending think tank sponsored by the World Bank, concurred, "It is simplistic to draw a direct connection between poor people improving their lives and peace, but microfinance helps alleviate poverty, creating the pre-conditions for a more stable and democratic society." According to the Nobel Committee, "Lasting peace can not be achieved unless large population groups find ways in which to break out of poverty. Microcredit is one such means."
Since the terrorist attacks in New York City and Washington DC on September 11th, 2001 and the bombings in London that occurred in July 2005, many political leaders have suggested that poverty in the developing world may precipitate terrorist attacks on the West, namely the United States and Europe. Patricia Hewitt, the former Secretary of State for Trade and Industry of the British government, stated during an interview with the New Statesman journal in 2003, that there is a clear connection between terrorism and poverty. She warned that if the West did not do more to assist poverty suffered in developing countries then the West would "pay a price in increased terrorism and increased insecurity all around the world." According to the Nobel Committee, "Lasting peace can not be achieved unless large population groups find ways in which to break out of poverty. Microcredit is one such means". On the first day of the 2005 G8 Summit, an annual political meeting between the heads of state of eight of the most politically and economically powerful countries in the world (Canada, France, Germany, Italy, Japan, Russia, the U.K. and the U.S.), a series of explosions struck the London underground transportation system. In the aftermath, British Prime Minister Tony Blair alluded to the connection between poverty and terrorism and stated that the G8 commitment to improving the destitution suffered in developing countries was an act of defiance against terrorism.

2. Peace building in Development Literature


Most broadly, this research is about the nexus between economic developments and conflict resolution, a nexus that has gained prominence and attention over the last decade as post ColdWar intra-state violent conflicts have become progressively more destructive and widespread.

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Increasingly, the international community has shifted from crisis response to crisis prevention mode, as seen in such publications as Boutros Boutros-Ghalis 1995 An Agenda for Peace and the 1997 Carnegie Commission report Preventing Deadly Conflict. Indeed, Edward Luck argues that [s]ince 1990, much of the United Nations community has taken to the challenge of conflict prevention like a duck to water.11 Mary Anderson is one of the leading proponents of the connection between development aid and conflict. In her 1996 book Do No Harm: How Aid Can Support Peaceor War, Anderson argues persuasively that aid projects need to consider the conflict impacts of their work and offers a connector/divider analytical framework to assess a given development projects impact on conflict. Anderson and Heinrich further advocate the need for local capacities for peace, an approach that seeks potential entry points for conflict transformation through development aid.12 In the Berghof Handbook for Conflict Transformation, Bigdon and Korf write on the role of development aid in conflict transformation, citing its potential for facilitating empowerment. However, most of these writers focus on development during conflict, not in a pre-conflict context as exists in the current research inquiry.13 Anderson and Bocks 1999 article Dynamite Under the Intercommunal Bridge: How Can Aid Agencies Help Defuse It? addresses this gap in the literature. In considering communal conflicts, they argue that the difficult question facing aid agencies is how to combine what they have done traditionally and often, well...with strategies that effectively foster harmonious relations among groups with differing identities who are prone to conflict. Using two case studies, they describe two organizations promotive and pre-emptive approaches to conflict prevention. Promotive approaches are longer-term in nature and are aimed at creating a foundation of trust between people of varying identities and engendering an appreciation for communal harmony. These approaches are used before, during, and after violent conflict to lay a foundation for the prevention of further violence or to reduce the likelihood of escalation of an existing conflict.15 Pre-emptive approaches are designed to prepare people to dispel communal passion when it flares up.16 The latter strategy seeks to avoid or ameliorate the effects of triggering events or flashpoints that often generate violence. With respect to the current research project, promotive approaches are more closely descriptive of the Bangladesh context and longer-term nature of microcredit programming in Gazipur. However, this approach does not specifically address the use of microcredit programming as a promotive tool. We thus turn to the literature on microcredit programming as a conflict mitigation tool.

a. The Hope and Hype of Microcredit


The United Nations declared 2005 the official year of microcredit, and the Philippine government has announced that microcredit will form the cornerstone of its antipoverty policies. But after 30 years, it is still unclear if microcredit fulfills some of its proponents' loftier claims of poverty reduction. The point of contention hinges on the effectiveness of the neo-liberal market

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model, with some researchers questioning whether increases in income through self-employment can solve the structural problems of poverty. Microcredit programmes extend small loans, often of just 75 or 100 dollars, to very poor people, especially women, for starting or augmenting businesses in the hopes of increasing profit. The loan is usually paid back over a period of six months to a year. Microcredit began in the 1970s in Bangladesh when the Grameen Bank began giving small loans to those too poor to be eligible for credit from other banks. Grameen has a particularly high repayment rate, due, in large part to its weekly meetings and peer monitoring group. The most effective microcredit programs follow this model and are complimented by health and education classes that assist loan recipients in their small businesses, ideally slowly raising themselves out of poverty by providing capital and training. Dominic Sasia Malusi, a loan recipient and supermarket owner in Kenya, recounts his success story: Since I was 11 years old, I have wanted to be an entrepreneur. With the loans provided by K-Rep Bank I have been able to realise my business plans. It is clear that microcredit works for some. However, it is unclear to what extent it works and for whom. Some researchers argue that microcredit is only applicable to the well-off poor and those with some access to education, as loan recipients need verbal math skills and a sense of entrepreneurialism to succeed. Poverty eradication is not a simple, linear process. And microfinance is not a simple solution. It is a long-term proposition and only a component of poverty eradication, Christina Barrineau of the U.N. Development Programme told IPS. The statistics on microcredit's ability to reduce poverty are unclear. The Grameen Bank, for example, conducted a study on its own programme and found that it lifted as many as five percent of participants out of poverty each year, making it a fairly successful antipoverty tool. However, another researcher contextualised these findings. In Bangladesh, where the bank operates, microcredit programmes reach about 20 percent of the population -- probably one of the largest percentages in the world. But this still means that only one percent of the total population in Bangladesh can rise from poverty each year through microcredit. While this one percent rises from poverty, the population is increasing by 1.8 percent. The overall effect of microcredit programmes is then to hold poverty at bay rather than defeat it. This has led some academics, like Khandakar Q. Elahi and Constantine Danopolous, to suggest that microcredit only helps populations live with poverty instead of freeing them from it. Helping people live in and with poverty is not sustainable poverty alleviation, they argued in a 2004 article in the International Journal of Social Economics, titled Microcredit in the Third World. Microcredit's expansion is another source of contention. If microcredit programmes reached a higher percentage of the population, it would seem that they would have more of an effect on poverty elimination. But a 2004 U.N. report on microcredit notes that populations that are geographically dispersed or have a high incidence of disease may not be suitable microfinance clients. Areas that often have the most severe poverty, such as rural areas or countries severely affected by the AIDS epidemic would, therefore, not benefit from microcredit.

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Many in microfinance institutions claim that microcredit does not work for the severely poor. Anne Hastings, a director of a microcredit agency in Haiti, comments on the limits of microcredit, We're really reaching primarily the upper half of those who are in poverty, she says. For the poorest of the poor, which is a majority in Haiti, we now know that microcredit alone is not the solution. Instead, it ends up being a burden. In other words, microcredit can make poor people even poorer by giving them a loan they can't repay. If microcredit cannot reach the very poor, it may serve to increase inequality, lifting some segments of the population while others fall farther behind. The popularity of microcredit among development professionals represents a greater faith in market-based development projects rather than state-led development programmes. However, a World Bank study by Shahidur R. Khandker suggests that both are necessary to battle poverty. The study found that investment in infrastructure improvements in Bangladesh was at least as cost-effective as microcredit in increasing consumption among the rural poor. Programmes like land reform have been statistically as successful as, or more successful than microcredit. A report on agrarian land reform from the Philippine Institute for Development Studies found that land reform in the Philippines was statically twice as effective in combating poverty as microcredit (using the Grameen Bank statistics for comparison.) Still, Barrineau believes that microcredit is powerful tool in overcoming poverty. Without strong and efficient financial services, poor people have little chance of growing their wealth, but it is certainly not the only thing that is important -- and in some cases microfinance may be the last tool needed, she said. For example, in times of serious crisis, a loan or a savings account may not be very helpful. Microfinance should be part of a long-term national strategy to grow and develop, strengthen and stabilise its financial sector and economy. (END/2005)

b. Microfinance: An Innovative Solution


There are many reasons why women have become the primary target of microfinance services. At a macro level, it is because 70 percent of the worlds poor are women. Women have a higher unemployment rate than men in virtually every country and make up the majority of the informal sector of most economies. They constitute the bulk of those who need microfinance services.Targeting women has also proved to be a successful, efficient economic development tool. Research performed by the United Nations Development Programme (UNDP) and the World Bank, among others, indicates that gender inequalities inhibit overall economic growth and development. A recent World Bank report confirms that societies that discriminate on the basis of gender pay the cost of greater poverty, slower economic growth, weaker governance, and a lower living standard for all people. Women are usually the primary or sole family caretakers in many developing countries. Helping them gain additional daily income improves the condition of their entire household. Putting extra income in womens hands is often the most efficient way to affect an entire family, as women typically put their childrens needs before their own. Children are more likely to complete their education and escape the poverty trap than their parents are. Giving

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women access to microcredit loans therefore generates a multiplier effect that increases the impact of a microfinance institutions activities, benefiting multiple generations.

3. A spiritual approach to microcredit projects


In order to grasp fully the magnitude of the potential benefits of any project or strategy, we first need to understand the context in which it is applied; indeed, the benefits of a given project can be very significantly reduced if by design or nature it focuses on a small fraction of the population or on a group whose contribution to development is marginal. However, if applied to the appropriate economic and social agent, a project can stimulate a strong and healthy development process. In this sense, microcredit schemes will generate maximum benefits if they are applied to the informal sector at the individual and family level. The monograph looks at the spiritual dimension of microcredit. It may at first sight seem inappropriate to discuss spiritual concerns in the context of the application of finance to resource-hungry economic agents. However, this short paper argues that there is room for such an approach and that spiritual considerations should be used not only to guide the elaboration and implementation of microcredit schemes but also to measure their success. Microcredit is an instrument at the service of development. Broadly defined, development may be considered as any process that will positively impact or satisfy the long term well-being of individuals, their families and the society/collectivity to which they belong. Human needs can be classified as physical, intellectual, social and spiritual. For development to endure, it must simultaneously address these different dimensions of human existence. When one of these facets is left uncared for, both the balance of the individual and the collective evolution of the community are disrupted. This emphasis on a holistic vision of development implies a renewed focus on the spiritual aspiration of individuals and communities. The spiritual dimension of development was acknowledged by the international community at the 1995 United Nations Social Summit in Copenhagen in the Declaration and Programme of Action: We, the Heads of States and Governments are committed to a political, economic, ethical and spiritual vision for social development. We acknowledge that our societies must respond more effectively to the material and spiritual needs of individuals, their families and communities in which they live throughout our diverse countries and regions.1 We will first review the case for microcredit, briefly describe its contribution to economic and social development and finally discuss the spiritual dimension of microcredit.

a. The Informal Sector


The informal sector in most of the third world economies accounts for the vast majority of the rural and urban population and employs some 30 to 70 per cent of the labour force in the developing world and much more if we include the small holding peasant sector which, for lack of access to formal sources of assistance, is locked into subsistence agriculture. This is the fastest growing sector of third world economies and this trend is being reinforced every day by the dramatic changes occurring in the countryside. Indeed, the progressive transition

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towards more capital-intensive forms of agriculture and the replacement of traditional social relationships with capitalist individualistic values is leading, on one side, to a growing concentration of wealth and resources in the hands of a few and, on the other, to the displacement of growing numbers of rural families from their traditional means of subsistence. Thus vast numbers of peasant families have been compelled to migrate to urban areas to scratch a living or to look for off-farm employment to complement their dwindling agricultural income. In the cities, the formal urban economy is unable to absorb this expanding labour force which has thus developed its own mechanisms for housing, employment, social services and finance based on patronclient relationships. Instead of recognizing the entrepreneurial drive and dynamism of this informal sector, governments have most often ignored it and concentrated their efforts on the more 'modern' and capital-intensive segments of the economy. In this sense, the informal sector population is, characteristically, caught in the web of poverty as well as largely marginalized from the main flow of development resources dispensed by the public sector. The informal sector would thus benefit most from any measures buttressing its efforts to break this spiral.

b. The Family Level


The feature of microcredit is to focus on the individual or on a group of individuals sufficiently small to secure the responsible participation and involvement of all its members. Since the livelihood of individuals is intimately linked to their immediate families, microcredit indirectly enhances the resource base at the family level. Most people recognize that the family, in its diverse forms, is the basic unit of society and acknowledge that it plays a key role in development. It has and always will be the foundation of civilization.

4. Peace and development


While peace and development appear on the surface to be mutually reinforcing, at times there may be a tension between development and peace-building objectives, requiring development practitioners to make difficult choices about their approaches in fragile, conflictridden societies. In particular, the role of economic development in sustaining peace and transforming conflict is poorly understood. However, the somewhat formulaic approach that has been applied to many post-conflict recovery programs typically involving elements for macroeconomic stabilization, livelihood support and income generationmay not fully engage the private sector in preventive action and may even miss critical opportunities to promote broader stabilization goals. To be effective, economic interventions must be located within broader peacebuilding frameworks embracing political, sociocultural and security dimensions. Rehabilitation of conflict-affected societies demands integrated approaches rather than more traditional silo approaches. But what does this mean in practice? Post-conflict recovery programs that focus primarily on the issues without seeking to promote attitudinal and behavioral changes are unlikely to achieve durable outcomes. Tangible measures to address inequity and inequality, to

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improve access to services/resources, to generate employment and to provide other peace dividends must be infused with measures to inculcate peace into the mind-sets of those in conflict. The importance of attitudinal and behavioural modifications was succinctly captured by a Solomon Islander during the February 2004 UNDP Peace and Conflict Development related Analysis (PCDA): We have taken the guns out of the hands of the youth but we have not yet taken the guns out of the minds of youth. Removal of weapons gets rid of the means but not the reasons for waging conflict. Within the economic sphere, the attitudinal changes and behavioural modifications necessary for conflict transformation are captured, on one hand, by preventive actions encapsulated in concepts such as corporate governance, corporate social responsibility, and within employer-labour relations, and on the other hand by reductive actions such as the Kimberley Certification Process and the Peace Diamond Alliance.4 Finally, it is worth considering the question that perhaps should have been asked at the outset: What is peace? It was readily apparent during the PCDA mission to the Solomon Islands, for example, that there are very different concepts of peace existing in parallel and therefore benchmarks for achievement of peace will vary accordingly. For the Regional Assistance Mission to the Solomon Islands (RAMSI), peace has (to date, at least) largely been measured in terms of security, in a law-andorder sense. For the Solomon Islands government, peace appears to be defined in terms of governance practices, while within the business community peace is perceived in terms of the investment environment. On the other hand, traditional leaders have spoken in terms of traditional reconciliation processes while church leaders have referred to peace in spiritual terms. Pointedly, some individuals have spoken of an external security provided by RAMSI but have also said that they do not yet feel an inner peace. Inevitably different understandings of peace will lead to different programming responses. However, the conceptualisation of peace as a more deep-seated sense of wellbeing reflects the imperative to tackle root causes of the tensions, not just the more proximate causes such as weapons, criminality and graft. This action must be founded on a comprehensive understanding of peace-conflict dynamics. Critically, ownership of the construction of structures of peace and the de-construction of structures of violence (Bush 2003:4) must be vested in those that are most affected by violent conflict. In Solomon Islands, as elsewhere in societies emerging from violent conflict, this is likely to involve capacity building in all three spheresthe public sector, the private sector and civil society. At the same time it will require fundamental contradictions arising during the transition from a society embedded in traditional culture to a society that is able to accommodate the challenges of an increasingly globalised world, to be acknowledged and addressed. The role of business in supporting or subverting peace has become an area of emerging interest for aid workers. On the whole, the private sector sustains negative impacts by violent conflict and therefore has a keen interest in efforts to reduce and eliminate its incidence. However, the private sector itself can exercise significant influence on peace-conflict dynamics and can play an important role in conflict transformation processes. This will require not only a new level of partnership between the private

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sector and other elements of societies in conflict but also a shift in the relationship between the private sector (both offshore companies and local businesses) and more traditional peace-building actors. In March 2004 the international nongovernmental organization, International Alert, called for an extension of conflict-sensitivity mainstreaming to address development policy that affects the private sectorincluding macroeconomic reforms, private sector development, support to SMEs and micro-credit as well as engagement of local actors in peace-building activities (International Alert 2004:5). Conflict sensitivity calls for attitudinal change and behavioural modification as well as capacity building and infrastructure inputs. For the private sector and economists tasked with economic revival of conflict affected societies this will involve a shift in traditional mindsets from development economics to peace-building economics.

5.

Microcredit: A Weapon In Fighting Extremism


Microcredit was invented 20 years ago in Bangladesh by Muhammad Yunus. Today, Professor Yunus's Grameen Bank and copycat organizations have 3.5 million women borrowers; adding their dependents, that amounts to about 20 percent of Bangladesh's population. In the latest elections, held on June 12, 1996, these newly enfranchised flexed their muscle. The Islamic Society, the fundamentalist party antagonistic to the West that wants to keep women at home, lost 14 of its 17 seats in Parliament. Immediately after the vote, Mr. Yunus began getting angry phone calls from people blaming him for the results. But Mr. Yunus assured them that fundamentalists had only themselves to blame. It was their supporters who burned down microcredit banks, attacked borrowers and condemned microcredit as un- Islamic because it helps women become self-employed. Every woman borrower I interviewed in Pabna and Gazopur had suffered enormously at the hands of fundamentalists. Some were beaten; others were told they would be denied proper Islamic burial; still others that Grameen would sell them into slavery, feed them to tigers, take them out to sea and drown them, or tattoo their arms with a number and secretly turn them into Christians. Having braved physical and mental abuse and used microcredit to build decent housing, freshwater wells and sanitary toilets for their families - it's not surprising that these women went to the polls and voted against the mullahs. The exact number of women who voted is not known, but observers across Bangladesh estimated that for the first time, more women voted than men. At a meeting of the Council of the Americas in New York, geo-strategists astonished by how microcredit worked to combat fundamentalism peppered Mr. Yunus with questions. He explained that microcredit was not at war with anyone, certainly not with Islam; it avoids all use of force and relies on future borrowers to convince village patriarchs to invite banks in. Giving those whom society treats as less than human access to personal profit and self- esteem unlocks a static hierarchy. It allows social mobility. Suddenly, the old repressive, patriarchal ways become less relevant.

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Microcredit does what billions of dollars worth of AWACS and Patriot missiles cannot. For decades, the West has tried to defeat fanatical extremists militarily; this has been bloody, costly and highly unsuccessful. But quietly, every day, the attraction of militant Islam is being blunted, at the ballot box and in people's hearts and minds, thanks to the economic development of the poor. We have known that micro-credit helps solve a host of in-tractable, long-term social ills related to poverty: In Norway's arctic circle, it is helping repopulate the Lofoten Islands. In Oklahoma, thanks to Chief Wilma Mankiller of the Cherokee Nation, microcredit is helping reduce alcoholism. In Chicago, it is helping get unwed mothers off welfare. But we should not overlook microcredit's political dividends. If the West is truly concerned about pariah states exporting terrorism, it should get behind microcredit and support it with more than just lip service. What is needed is patient start-up capital: 99 percent of the loans are repaid. After 20 years, Grameen is a commercially profitable bank. But more important, it saves its borrowers' lives - and it can save ours, too. The writer, a novelist, is writing a biography of Muhammad Yunus. He contributed this comment to the Herald Tribune.

6. The Benefits of Microcredit


The benefits of microcredit can be divided into three categories: economic, social and spiritual. Since the aim of this paper is to focusmore closely on the spiritual contribution, we will only briefly list the main economic and social contributions of microcredit. The main benefits of microcredit claimed by proponents are
1. A reduction in vulnerability to adverse circumstances on the part of the poor, 2. An increase in consumption in the same group, and 3. a reduction in income-poverty. The supporters of micro enterprise clusters further claim that clustering increases the chances of success and prosperity for poor loan recipients.

a.

Economic Benefits

Microcredit stimulates the informal sector of third world economies, both urban and rural. This sector, which encompasses most of the population and its poorest people, is usually the most dynamic sector of the economy. Application of resources to this sector will have the greatest multiplier effect on the local economy. The establishment of a petty trade sector creates linkages between rural and urban areas which thus stimulate each other. It enables a closer integration and a more effective matching of supply and demand between them. Microcredit stimulates the small holder agricultural sector by incrementing its productive potential and enabling it to grow progressively out of subsistence farming and to market its surplus production. A thriving trade sector will further stimulate this process. The economic rewards from the type of activities

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supported by microcredit have an immediate impact at the family level in the fight against poverty by increasing income and consumption capacity. The latter will in turn stimulate the surrounding economy by providing additional opportunities for micro businesses. Success in the informal sector is often a prerequisite for a small business to enter the formal economic sector and tap its benefits, that is, access to many services such as banks, government schemes, exports, selected social coverage and so on. On a macroeconomic basis, transition to the formal sector will also link the activity to fiscal mechanisms thus increasing the government's capacity to play a growing social role. Indeed, the public sector, which has traditionally been one of the main sources of urban employment and assistance to the poor, in the form of subsidies, education or health, is under growing pressure since its resources are limited both by deficient fiscal levies and by structural adjustment programmes which require governments to disengage from many areas of economic and social life.

b.

Social Benefits of Microcredit

By supporting and sustaining productive activities, microcredit is a good antidote against unemployment and poverty. Indeed, poverty and idleness are the main cause of many social problems that plague cities in emerging economies. Family breakdown, crime and violence, and child delinquency exacerbate the process of social marginalization which creates a context whereby opportunities of social and economic improvement are difficult to seize and benefit from. Microcredit can ease tensions inherent in the chaotic urbanization process experienced in the third world by: - reducing the flow of rural-urban migration by improving economic opportunities in rural areas. Indeed, - restoring dynamism and pride in rural life will provide urban areas with some breathing space to better absorb its poor and alienated population, - increasing the number of viable economic opportunities in urban areas. Microcredit allows marginalized social groups who do not have access to formal or traditional sources of finance to take on a productive role in society. In many countries, traditional social relations have left population groups on the fringes of society, denying them the possibility to improve their well-being and/or assume a more participative role in society. Microcredit strengthens the fabric of the family by enabling this fundamental unit of society to sustain itself on an economic basis and by reinforcing the quality and strength of family relationships. The family circle is the main dispenser and upholder of constructive social values. The quality of community relationships is a direct reflection of the nature of family relationships. Economic activities sustained by microcredit in the rural areas, be they agricultural or service-oriented, enable the 'village' to re-establish its image as a viable and even desirable living alternative with a future. Indeed, the village is still a very important factor in determining identity patterns in expanding urban areas and village dynamics have a strong and subtle influence on the behaviour as well as pride, confidence and ambition of villagers presently living in urban areas. The increased returns of economic activity at the individual family level will generate the need and capacity to sustain constantly improving social services such as

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infrastructure, education and health, as well as the propensity to invest in housing. Progressive access to and use of these improvements is a basic benchmark of development.

c.

Spiritual Benefits of Microcredit

The concept of spirituality is difficult to grasp in the context of our discussion because of its abstract nature. However, it plays a profound role in defining and guiding individual and collective behaviours and attitudes. Spirituality is thus linked to the set of values that individuals and communities will turn to when deciding and implementing any action. The rise of capitalism and scientific determinism on the one hand, and the progressive alienation of religion and ideology as sources of moral values on the other, has led to the domination of a materialistic and individualistic vision of life at the expense of traditional value systems that have maintained the cohesion and survival of communities for generations. The inability to respond to this dominant materialistic vision of existence with the human and spiritual values that generate attitudes of solidarity, cooperation and justice is the main reason for the crisis that our planet is witnessing and the inability of the world community to cope with it. This realization is slowly emerging among decision- and policy-makers. For example, on the specific theme of the environmental crisis, Al Gore Jr, the United States vice president writes, 'The more deeply I search for the roots of the global environmental crisis, the more I am convinced that it is an outer manifestation of an inner crisis that is, for lack of a better word, spiritual.'3 This realization about the ecology can easily be transposed to the other challenges facing humanity and thus we can read in religious literature that 'the universal crisis affecting mankind is essentially spiritual in its causes'.4 If it is the lack of spiritual qualities that is at the root of the crisis facing humanity then those qualities must be emphasized in devising and implementing practical solutions. Indeed, spiritual principles or human values are at the core of the motivation that will generate within the individual and the community the will and aspiration to uphold solidarity, service, cooperation and justice without which unity, development and peace for humanity cannot ever be achieved. Among the vast array of practical solutions, microcredit schemes stand out as having a great potential to contribute to this objective because they provide the individual, the family and the community with the possibility to develop their full potential while at the same time enabling them to contribute this potential to the wider context to which each belongs.

d.

Promotion of the Role of Women in Society

Very often in the developing world, women are, by tradition, in men's shadow. However, they are often the main factor in the stability and unity of the family unit. On an economic side, the proceeds of any economic activity led by women are usually invested in the well-being of the family members; this is not always the case for those produced by men. Because of this tendency, women are often more sensitive to the responsibilities involved in taking a loan and will more readily make good use of it. Since women are the main educators of children and spend much of

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their time with them, any improvement in their level of knowledge and confidence will immediately influence favourably the character of their children. Further, harmonious and sustained development of society at large cannot be achieved while the blatant injustice prevails which prevents half the population from realizing its potential and from fully contributing to that society.

e.

Empowerment of the Individual

Since microcredit schemes are aimed at giving an individual and his family the possibility of transforming an idea or wish into a viable economic activity, they enable the individual to attend (partially or totally) to his own or his family's basic needs. Indeed, as James Gustave Speth, the administrator of UNDP, writes, 'After all, it is empowerment of people, not welfare, that is a key to eradicating poverty.' In addition, the empowerment process which enables the family to satisfy its basic needs autonomously is a prerequisite for the development of human dignity without which no long term progress can be achieved or sustained. The opportunities for action that microcredit can help materialize will generate within the individual an awareness of his potential and a means to express it. Microcredit thus gives the individual and the family the capacity and confidence to take its future into its own hands and to give a direction to its life. Empowerment is thus a vital aspect in bringing individuals and families to a position where they can take full part in the life of the social environment to which they belong.

f.

Reduction of Vulnerability

One of the most important benefits of microcredit programs is its ability to reduce vulnerability among the poor. This reduction occurs through a number of different channels (Zaman, pp.1,18). Microcredit programs help borrowers to insure themselves against crises by building up household assets. Such assets can be sold if needed. They can also be used as security or proof of credit worthiness when dealing with businessmen or more traditional lending agencies. Finally, the diversification of assets can reduce the risks of catastrophic loss. For example, a family which relies on share-cropping could easily be bankrupted by a single crop loss, whereas a family with a diversified base of crops and livestock or handicraft income could survive until the next harvest. Other aspects of microcredit programs such as skills training and female empowerment also contribute to a familys ability to cope with crises by increasing the variety of responses a family can make to a challenging situation. These reductions in vulnerability are important because they allow poor people to begin to hold their own in society. Gains made in prosperous times are partially protected during bad times, and the cycle of poverty is arrested. This is really a vital benefit for the great numbers of poor people who live in rural, agricultural areas. To quote Zaman (2000), seasonal deficits play a key part in the poverty process in Bangladesh. The same is true in many other parts of the world as well. The relative abundance at harvest time, which derives both from the sale of crops and the increased demand for labor is usually more than matched by

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the poverty of rest of the year. The introduction of natural disasters into the equation tends to make the situation even bleaker for the poorest members of a society. So the beneficial effects of microcredit on vulnerability are quite pronounced.

g.

Increased Consumption
Another benefit of microcredit programs is the increase in household consumption. One researcher in Bangladesh (Khandker, pg.148) has found that for every 100 taka (the unit of currency in Bangladesh) lent to a female borrower, household consumption rises by 18 taka. Other researchers (Zaman, pg. 4) have found that income smoothing, which is the result of lessened vulnerability, also leads to consumption smoothing. These are both important effects for people who typically live on the edge of disaster. Even small increases in consumption and increased regularity in consumption can lead to better health and nutrition, and enhance the ability to make long range plans for the family. Combined with the investment possibilities opened up via additional loans from the microcredit program, such stability can have a far reaching positive effects on participating households.

h.

Reduced Income Poverty


Microcredit programs also reduce income poverty. That is, borrowers actually tend to make more money over time. Once the cycle of poverty has been arrested and some stability provided, many borrowers go on to make profitable investments and even lift themselves out of poverty all together. Members of the Bangladesh Rural Advancement Committee (BRAC) can expect to see their poverty fall by an average of 15% after three years of participation. The so-called ultrapoor experience poverty reductions of 25%. 21% of the members of the Grameen Bank (GB) microcredit program lift themselves from poverty within four years of joining the program. About 5% of the GBs members rise from poverty each year. (Khander, pp. 2,69). Although there is a great deal of variability among microcredit programs, these results are not unusual. A rate of reduction of poverty of 5% per year is very good, and certainly seems to warrant optimism. But, it will be shown that this indicator of success is somewhat misleading.

i.

Micro clusters
Finally, there is the question of microenterprise clusters. The main selling point for clustering is the collective efficiency which it produces. Microcredit funded business ventures are frequently plagued by the problems of small size and isolation. It is not worth the time of itinerant traders to work with such ventures. Consequently, the ventures can only rely on local patronage, which may or may not be enough to support long term growth. With microcredit clusters however, these problems are partly overcome. Traders are attracted by the possibility of making cheap, bulk purchases. Vendors of raw materials are also attracted by the possibility of making bulk sales. The close proximity of a number of businesses in the same line of work also allows for labor sharing,

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order sharing, and subcontracting within a cluster. Successful clustered enterprises may also go on to specialize, with the resulting benefits that come from division of labor. It should also be noted that microenterprise clusters still tend to be more successful when they are located near roads or crossroads, even given the increased attraction associated with clustering. (Weijland, pp. 18-19) Supporters also point to the ease of sharing information and technological innovations within clusters as other major advantages. Finally, rural microenterprise clusters have been found to have certain competitive advantages over more centrally located industries that do not have the benefit of clustering. Rural clusters usually have flexible to non-existent rules for land use and environmental impact. Labor is also cheap, flexible, and unregulated. Finally, certain raw materials such as wood or bamboo are also frequently available either for extremely low prices or for free. (Weijland, pg. 17) To sum up, both straight microcredit programs and clustered microenterprise programs offer a number of benefits to participants. They have been successful in lifting some people out of poverty, and arresting the slide into further poverty for others. Based on the facts given above, there seems to be ample reason for optimism. However, as the next section will show, microcredit programs have a number of drawbacks which can reduce and even negate their positive impact.

j.

Family Stability and Autonomy


It is clear that in times of economic hardship, families become vulnerable to disintegration and breakdown. However, the family unit is the most fundamental component of society; all successful civilizations have been built on the firm foundation of strong and stable families. Not only are they the cradle of the quantitative growth of the human population but they are also the locus of its qualitative development, the place where people learn the values and behaviours that determine their future. Society is often the reflection of the state of its component families. If dignity, justice and love are present in a given family, it will provide an adequate soil in which the next generation can grow and mature while at the same time reflecting these qualities into the environment to which it belongs. However, a family experiencing economic hardship or unemployment will find it very difficult to have the confidence required to take life in its own hands and plan its own future. Thus any measure such as a loan from a microcredit scheme that will enable a family to secure employment, overcome its economic difficulties and enable it to take control of its future will reinforce the fabric of the family and help it release its unlimited potential for the benefit of society both in the present and in the future.

6.

Problems of Microcredit
This section will first address the effectiveness of microcredit in alleviating poverty and improving the status of women in existing programs (since women are the target population). It will then look at the question of whether implementation of microcredit programs on a wider scale could have a significant impact on overall

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global poverty. Finally, it will conclude by suggesting that microcredit programs do have some value, but can not have a significant effect by themselves owing to the multiple causes of poverty around the world.
a. Turning a Profit on the Loan

One of the most fundamental problems with microcredit programs is the difficulty involved in actually turning a profit on the loans. In the first place, borrowers must bear not just the cost of the loan and interest payments. They must invest a significant part of their time in group activities mandated by their programs. In addition, women in many traditional societies must bear the stigma of being under the authority of a male (the loan officer) who is not a family member, and of engaging in work outside the home. Also, the loans usually finance some type of womens work which is not seen as fit for men to do. This leads women to rely on their female children for supplemental labor, and thus female children are under increased pressure to stay out of school so that they can help contribute to the family income. (Khander, pp. 57, 59)
Investments may not turn a profit. In this event the money to repay the loan must come from reduced consumption or borrowing from some other source, usually on worse terms. Another problem is capture of the loans by male relatives. In some cases, male relatives use female borrowers as fronts to get relatively low interest loans. These loans may or may not be used to benefit the family, and the female borrowers rarely see any benefit at all. And yet, the women are still held responsible for repayment of the loans. (Mayoux, 1997) Indeed the chances of a female-headed enterprise succeeding at all are often quite small. The experience of microentrepreneurs in Botswana is illustrative. Seventy-five percent of the people engaged in informal sector business activities are women. A majority of their microenterprises never grow. They either fail completely or remain at the initial stage of street vending. In Bangladesh and most enterprises that started with 1-4 workers never expanded. (Ntseane, 2000) Women are legally perceived as minors. They are not allowed to take out ordinary bank loans without the signature of absent, migrant laborer husbands. And even when women do manage to start small businesses they must continually fight against a repressive patriarchal social structure, and make do with what little schooling they may have received before going into business. So it is plain that making use of a microcredit loan is not as easy as some supporters would make it sound. One final obstacle to turning a profit is the fact that as microcredit programs become more successful and hand out more loans, more people enter the local marketplace as micro entrepreneurs. Nan Dawkins Scully (2000) writes that the cumulative effect of rising costs, declining demand, and competition from both cheap imports and increased entrants into the sector

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leads to shrinking profits in informal-sector trade. In Zimbabwe for example, women traders in the informal sector experienced significant declines in income following the implementation of structural adjustment, and new entrants into the sector reported earning less than they had previously earned in their formal sector jobs. In other words, the initial success of micro enterprises can lead to subsequent over competition problems, especially when international trade liberalization is factored into the equation. A few micro entrepreneurs in a given area may be able to turn a profit. A large number probably can not. b. Inability to reach the poorest of the poor A second important drawback to microcredit programs is that they dont reach the poorest members of the society. To quote Assessing the Poverty and Vulnerability Impact of Microcredit in Bangladesh (pg 4), the poorest have a number of constraints (fewer income sources, worse health and education, etc) which prevent them from investing the loan in high-return activity The same report also writes that there appears to be a growing consensus that moderatepoor micro-credit borrowers benefit more than extremely poor borrowers. The reasons for this are clear. The poorest need tiny loans which are not cost effective even for microcredit programs. The poorest also place the greatest demands on microcredit training programs, which makes the cost of lending even higher. As microcredit programs are pressured to become more selfsufficient, the incentive to lend to such desperately poor borrowers evaporates. (Mayoux, 1997) This is a major problem for microcredit programs. Although they are raising some people out of poverty and keeping some people from further poverty, they do not appear to be reaching the people who need assistance the most. In fact, such programs may even be increasing the chasm between the poorest and the rest of society. This is clearly a failure for programs whose avowed purpose is to narrow the gap between rich and poor, and raise up the poorest members of society. c. Microcredit dependency Another possible failure of microcredit programs lies behind seemingly benign statistics. Some researchers have proposed the idea that the high repayment rates, repeated borrowing, and low drop-out rates indicate a dependency on microcredit programs rather than an attraction to successful microcredit programs on the part of poor borrowers. Many borrowers have no alternative to borrowing from microcredit programs, and consequently can not afford to default. Neither can they afford to stop borrowing or drop-out of the programs. There is nowhere else for them to go. (Khandker, pp.160,166) In order to stay in good standing with the microcredit program, borrowers may even be forced to resort to pawnbrokers or other alternate sources of funding. Furthermore, unless borrowers can increase their incomes they may become permanently dependent on microcredit lending (Khandker, pg.166). This a very real possibility as was noted above. Again this is a significant failure, as many microcredit programs tout themselves as more progressive alternatives to the existing systems of informal credit which have caused so many problems in poverty stricken areas (systems such as share cropping, debt bondage, and so on). The

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chances of microcredit programs becoming just another form of debt-based oppression is real and must be addressed before microcredit programs can progress much further. And yet it has hardly been discussed up to this point.

d.

Durability of poverty reduction A related problem is the durability of poverty reduction. Infusions of cash in almost any amount are bound to have some effect on the poverty stricken borrowers. But this does not necessarily mean that the effect will be permanent. The poverty reductions may be rolled back in two ways. First of all, borrowers may use loans for consumption purposes which result in a momentary increase in living standards, but which must be paid for by cuts in future consumption. (Zaman, pg. 23). Secondly, borrowers must make a net profit on their investments. Otherwise, as noted above, they may become dependent on the creditor programs. Even if they do not become dependent on microcredit lenders, they will still have failed to improve their economic position. Again, this would be a failure of microcredit lenders to achieve their goals.

8. Peace, conflict and development policy


Many institutional donors, have become increasingly aware of the pervasive threats that conflict represents to achievement of core development goals. NGOs approach to conflict prevention and peace-building is guided by the Peace, Conflict and Development Policy (AusAID 2002), which draws in turn on directions outlined in the OECD Guidelines on Conflict, Peace and Development Cooperation (OECD 2001). Both documents promote a significant shift in approaches to disbursement of aid in conflict-prone settings, that is, from approaches that principally work around or in conflict to approaches that seek to work with conflict. They recognise the adverse ripple effects of protracted (or even brief) conflicts on hard-won development gains and the enormous drain on resources involved in reconstructing societies emerging from conflict. Both policy documents seek to institutionalise peaceconflict considerations into development practice by mainstreaming conflict prevention/peace-building approaches within more traditional development approaches. The peace, conflict and development policy highlights the imperative for enhanced analysis of the underlying and proximate causes of conflict, flexible mechanisms for disbursement of aid, and a focus on preventive programming in situations of rising tension and in the aftermath of violent conflict. Crucially, however, peace-building frameworks must be informed by a comprehensive understanding of political, sociocultural and security drivers of conflict as well as the economic triggers. In other words, despite (or perhaps because of) their inherent complexity, it is essential to map conflicts including various stakeholder interests. NGOs and other donors are working to develop appropriate methodologies and suitable tools to improve our analytical capacities. The toolbox attempts to unpack the inherent complexity of

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violent conflict, in order to identify opportunities to support conflict-transformation processes and to avoid conflict-creating impacts of donor activities. Violent conflict is a multi-faceted phenomenon underpinned by a multilayered, multi-dimensional history of interwoven grievances, discrimination and inequity involving multiple and often fluid formations of actors with diverse agendas and goals. Under these circumstances, it follows that conflict prevention and peacebuilding initiatives must also be multitracked in their approach. The first lesson for economists, then, is that strategies for addressing economic drivers of conflict must be embedded within a holistic peacebuilding framework and not be conceived as stand-alone interventions. Political, socioeconomic, security and developmental strategies must be merged into an overarching strategy with spatial and temporal characteristics that address grievances and incentivise peaceful transformations. Development practice has also taught us that single layer interventions that rely on the trickle-down effect have, at best, a chequered history. The second lesson is that peace-building strategies must involve multilayered interventions that define The position of the state within the increasingly globalised world (macrolevel) Internal relationships between government and the rest of society, civil- military relationships, and so on (mesolevel), and individual and community relationships (micro-level).

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Chapter 5
1. Developments of international institutions
One of the outcomes of recent discussion has indicated that a more coodinated and concerted international effort is required if microcredit is to spread and succeed on the scale that expectations now require. It is with that perspective in mind that the World Bank has led the process of international coordination primarily by establishing the Consultative Group to Assist the Poorest (CGAP), which brings together a number of western donor countries and international agencies. The group has ancillary structures which ensure that government organizations and borrowers in general are consulted.
CGAP, which comprises 25 members, including United Nations bodies, is a multi-donor effort to address the problems facing microfinancing. The most important of these are lack of access to information, the measurement of loan delinquency, setting of interest rates, designing lending procedures and developing business projects. The objective of CGAP is to foster good donor practices, including performance standards An important positive development from the CGAP process is that success stories and their characteristics are now much better known. To spread these best microcredit practices to different parts of the world - often under vastly varying conditions - is now the central challenge facing the international community and the developing countries. 2. Empowering NGOs through microcredit The provision of credit, particularly credit targeted at rural populations, has been a long-standing strategy in national development efforts' in the world South. In Bangladesh, the birthplace of micro-credit through the now-famous and globally influential Grameen Bank, rural credit was touted as central to development efforts in the 1970s. (1) However, neoclassical economists, who argued that such practices resulted in a distortion of the market for scarce investment funds, identified targeted and subsidized credit as a failure from the mid-1970s. (2) During this same period, a number of nongovernment organizations (NGOs) were experimenting with mechanisms for the alternative delivery of credit. Termed microcredit, these mechanisms involve the provision of collateral-free small loans to jointly liable people for the purposes of income generation and self-employment. The recipients of loans are typically not eligible for credit from commercial lenders, and they are predominantly women. In development circles, microcredit has generated a wave of enthusiasm with the Microcredit Summit Secretariat (MCS) launching a "global movement to reach 100 million of the world's poorest families, especially the women of those families, with credit for self-employment and other financial and business services, by the year 20O5." (3) Amid the enthusiasm for microcredit, there has been limited critical response from

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development studies. This is in part a corollary of the "impasse" of the 1980s (4) and the fact that development studies is still coming to terms with the rise of NGOs and the proliferation of associated notions such as self-empowerment in the shifting development project. As development studies is informed by both a strong economic orientation and attempts to address the realities of poverty, microcredit is further insulated from critical inquiry as an initiative that promises both a commonsense good such as "empowerment" and a better standard of living for the poor. This article begins to address this lacuna by developing one framework for a critical response to initiatives such as microcredit. I first suggest that the critical tools for understanding the shifts in the development project need to be extended beyond those approaches that center on economic relations. To begin to address this need, I develop one aspect of postdevelopment literature by drawing on Michel Foucault's notion of dispositif--a task that requires some adjustments to the ways in which this concept has been used so far. The dispositif is particularly useful for engaging with the fluidity and heterogeneity of the development project and for consideration of relations of knowledge, power, and subjectivity alongside the economic. To address the question of the rise of NGOs and associated notions of autonomy and empowerment specifically, I make use of Foucault's concept of governmentality. Considering recent shifts in the development project through this lens highlights ways in which phenomena such as the rise of NGOs are not necessarily emancipatory. To the contrary, it suggests a basis for the emergence of initiatives and practic es that increase the penetration of power into the social body of the Third World through the development dispositif. To demonstrate these issues and my approach I examine the Grameen Bank and microcredit movement, arguing that it is only a business. a. The Social Impact of Grameen Bank and BRAC Impact assessment is all too frequently discussed in a purely economic sense. In recent years, more researchers are concentrating on the social impact of microcredit institutions. Since Grameen Bank and BRAC prefer female members to male members, we first assess the social impact on the lives of women. Later, the broader impact of these institutions on the society will be examined. With patriarchal norms being strictly observed in Bangladesh, it is not easy for a microcredit institution to reach women. Purdah female seclusionconfines women to the homestead and makes contact with men outside the family unacceptable.47 Education for girls is considered unnecessary.48 Dowries are paid, and women have to make sure that their husbands do not leave them.49 Women are not supposed to have any income independent of their husbands. It is obvious that under these conditions, females attending meetings with male leaders and being in control of finances are aspects of microcredit programs that violate patriarchal values. Develtere and Huybrechts Although female members are difficult to reach, it is important to involve them in development projects. Because a woman has to stay at home, she is confronted with poverty more than a man. She has to feed the children, and if there is a lack of food, she eats less. Further, Sen, using the term womens agency, indicates that women cannot merely be passive recipients of aid:

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They have to be actively involved in improving their lives. Sen is convinced that women can take part in household decision making and improve their status considerably if they contribute to family income. It is in this field that the microcredit program of Grameen Bank and BRAC can contribute to womens emancipation. Combined with a social program of skills training, education, and social awareness, microcredit not only improves the situation of women but may also positively affect the entire family. Thus, in order to measure the impact of microcredit provision on the situation of poor women, we now concentrate on the contribution to family support as the intermediate variable between credit and empowerment. Hashemi, Schuler, and Riley indicate that these contributions to family income are often rather small.52 While 72 percent of the Grameen Bank members and 40 percent of the BRAC members were classified as contributing to family support, only 26 percent of the former and 12 percent of the latter declared to be responsible for more than half of the family budget. These low figures are due to the fact that Grameen Bank members often invest in traditional activities like stock breeding. These can be practiced at home, but do not bring in a lot of money. Further, the loans are not merely used for the womens own activities. They also have to cover the husbands undertakings. This problem of control of resources is discussed below. When we compare Grameen Bank and BRAC, Grameen Bank members on average seem to add more to the households income than their BRAC counterparts. A faster, more frequent loan provision, and greater discipline among Grameen members, may explain the different outcome. The available evidence supports the hypothesis that, through the provision of credit, both microcredit organizations enable their members to contribute to family support. Whether this will lead to emancipation of women is discussed later, when positive and negative opinions are considered. The Impact of Credit on Emancipation of Women:

b. The social impact of ASA movement


The micro credit programs of ASA are implemented for the poor segment of population with a view to alleviating their poverty. The landless poor people get together and form groups with 15 - 30 members. That is, each group of ASA has around 25 members on an average. ASA provides loans to individuals hence there are no group liability in the ASA lending. The loans are collateral free. Members get their first loan after one week of admission in the group. Repayments are made in installments. The first installment of the loan with service charge is deposited after 15 days of loan disbursement. Service charge is calculated flat on the principal of the loan. The operational procedure of the ASA credit programs is simple and transparent. Loan application, size of loan, repayment procedures etc. are standardized and devoid of any complications. Small Loan Program is the basic loan program of ASA. Through this program ASA provides small loans to its poor landless women members selected as per predetermined criteria. Women from poor families having a monthly income of less than Tk. 5,000 and owning less than 0.5 acres

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of cultivatable land are eligible for receiving the small loan of ASA. The main objective of the program is to provide poor women with small amount of loan as a capital for conducting income generating activities (IGAs) with a view to alleviate their poverty. On receiving loan the poor women generally take up the traditional IGAs such as paddy husking, poultry and cattle rearing, handicraft manufacturing, rickshaw pulling etc. Through implementation of the IGAs they can generate income, which is added to the household income to bring financial solvency to the family. Moreover, involving in the income generating activities women acquire a better status through making financial contribution to the family. The size of small loan is from Tk. 4,000 to Tk. 6,000 and in some cases from Tk. 8,000 to Tk. 20,000 in urban areas. The small loan is provided for a term of 1 year. Repayment of the loan is made in 46 equal installments. A grace period of 6 weeks is allowed to the small borrowers. The service charge is 15% flat on the principal. The subsequent loans are increased by Tk. 1,000 to Tk. 3,000 every year. Women form groups with 15-30 members and attend weekly meetings where they make repayments of installments and deposit savings. At the end of 2004, ASA had 129,230 groups with 2.87 million members. Total loans disbursed under this program were with service charge Tk. 99,012 million with Tk. 86,628 realized and Tk. 12,384 million outstanding among 2.65 borrowers. ASA's recovery rate for the small loan program was 99.92%. 3. Empowering the poor through microcredit:
The article presents a comparative overview of the most relevant findings from studies of the impact of microcredit institutions like the Grameen Bank and BRAC in Bangladesh. It first evaluates the evidence on economic impacts, which suggests that the vulnerability of bank members has been reduced even if there is no consensus about whether the two institutions also reduce poverty. It then considers the social impact, especially in relation to the situation of poor women and to various spill-over effects in different spheres of social and economic life. Keywords: microcredit, development, Bangladesh, Grameen Bank, BRAC. Since the 1990s, alleviating poverty has been the top priority in international development. Within this framework, various initiatives have already been taken. One particular strategy in tackling poverty that has caught the attention of many aid donors and nongovernmental organizations (NGOs) is the provision of small loans through microcredit programs. Bangladesh, one of the poorest countries in the world, is the cradle of this microcredit movement. Grameen Bank in Bangladesh enjoys international fame, and its model has been replicated in countries all over the world. Likewise, the Bangladesh Rural Advancement Committee (BRAC) is showing success as one of the largest NGOs in the world. Both have generated an international wave of interest and have been the main

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source of inspiration for the Microcredit Movement, which was launched in 1997 as a global movement to reach 100 million of the worlds poorest families, especially the women of those families, with credit for self-employment and other financial and business services, by the year 2005.1 Grameen Bank and BRAC have received a lot of attention not only from development agents but also from academics. They have been criticized for their neoliberal developmentalism,2 their social *Higher Institute for Labour Studies, Katholieke Universiteit, Leuven, Belgium. control and disciplinary imperatives,3 and the subsidized system of lending that they apply.4 Others look at them from the perspectives of a growing space for civil society,5 or the emergence of a social economy, or a third sector.6 The question of whether these two organizations truly improve the situation of their members in a sustainable way has also been discussed intensively. This article gives an overview of the research findings on this issue. More specifically, it deals with the impact of Grameen Bank and BRAC on the economic and social situation of the poor. These two topics have been discussed in many studies. Most studies focus on the results and impact of microcredit institutions at the level of the individuals concerned (the members, clients, or customers), their immediate environment (the household or the village), or their region or district. Very few studies compare their findings with those gathered by others. This article gives a comparative overview of the most relevant findings. The wider impact of these microcredit institutions on society at large has been subject to some debate, but so far no comprehensive research has been done on this matter. We nevertheless present some of the existing findings that give us an idea of what might be the effect of microcredit institutions on society. Before examining the main findings of impact analyses, we briefly outline the organizational structure of both Grameen Bank and BRAC. The roots of Grameen Bank and BRAC go back to the early 1970s, when, after the independence of Bangladesh from Pakistan, a huge influx of refugees caused a severe famine. It is in this context that Grameen Bank and BRAC started their programs. Table 1 sets out briefly the main similarities and differences between the two institutions and their programs. BRAC started as a relief organization, but gradually extended its services to include education, skills training, and, eventually, microcredit. Today, BRAC is still refining this holistic credit plus approach. Grameen Bank, on the other hand, started from a rather minimalist philosophy in which microcredit is considered to be the main tool for combating poverty. Through the years, Grameen Bank has added training and education to its program, but its approach is still not as comprehensive as that of BRAC. Typical of both institutions is the provision of small loans to poor people who are deprived of access to credit offered by regular private banks. The cause of this problem, lack of material collateral, has been dealt with through the introduction of social collateral. Grameen and BRAC give individual loans to villagers in groups of five and

holds the group jointly liable for repayment. If any group member defaults, the entire group is punished (denied future loans). This group mechanism creates peer pressure and solidarity, which seems to work well in a society where social networks are often of vital importance. The repayment success rate has never dropped below 90 percent. The group

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mechanism is often presented as the key factor of Grameen Banks success, but not everybody shares this view. Jain sees strong decentralization, combined with an extensive information and communication system, as the source of success for both Grameen Bank and BRAC.7 The specific organizational structure makes good management and transparency possible. Rai et al. emphasize the combination of joint liability with cross reports as vital to high repayment rates. In recent years, impact assessment of programs has gained momentum. Aid donors in particular want to make sure that their money is well spent. Nevertheless, measuring impact remains a controversial issue. It is difficult, as well as costly, and the results are susceptible to various interpretations, depending on how concepts are defined. This may result in contradictions and discrepancies among findings on microcredit programs. The contradictory results in microcredit literature are discussed below. Research results of optimists are confronted with those of more cautious writers who are skeptical of such optimism. We also try to clarify another controversy: whether or not microcredit programs manage to reach the bottom poor. 3. Microcredit as a Tool for Women Empowerment
Microcredit has come a long way. Professor Yunus, Managing Director of Grameen Bank, promoted it in 1974 in Jobra, a village in Pabna of Bangladesh, and it has spread all over the world. The strength of microcredit lie in its ability to organize idle women into a productive workforce with their proven creditworthiness. It is believed that 25 million people worldwide are now using microcredit to undertake income-generating or self-employment activities; of these, 90% are women. Microcredit has not only made women more productive, it has also empowered them. As a result women are now integrated into socio-economic activities, contributing to family income and decision making and exercising more control over their fertility, which allows them to take better care of their children. Microcredit is an important financial instrument to generate economic activity. About 1,200 microfinance institutions (MFIs) are now operating in Bangladesh. They are extending credit to about 8 million people, of whom 90% are women. The borrowers are mostly self-employed, and they are involved in numerous income generating activities. In addition, these MFIs have created employment for about 70,000 people, about 20% of who are female. The industry has so far extended a total credit of Tk. 66,566 million (US$1.4 billion), of which Tk. 18,164 million remains outstanding in the field. Microfinance has been very effective in mobilizing savings from the poor borrowers. The net savings of the borrowers is Tk. 5,216 million. Currently the members savings meet about 20% of the total revolving fund. Microcredit claims a high recovery rate from the borrowers, over 95%. Overall, the impact of microcredit has been very positive. The main benefits of microcredit can be enumerated as follows: (a) it has increased family income and quality of life, and as women

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represent 90% of the borrowers, their contribution is noteworthy; (b) it has promoted saving habits among poor women borrowers; (c) it has raised awareness and empowered women to contribute to various socio-economic activities; and (d) it has motivated women to take an active role in the political sphere of Bangladesh. The household expenditure survey of Bangladesh (1994/1995) shows that the overall incidence of poverty in Bangladesh during 1984 to 1992 decreased from 52% to 50%. The off-farm activities in rural areas have made a large contribution to this. A World Bank survey conducted for the mid term review of the Poverty Alleviation and Microfinance Project among 675 microcredit borrowers shows that there has been positive change in the economic and social status of the surveyed borrowers. The survey showed that income has increased for 98% of borrowers; 89% of the borrowers accumulated new assets and 29% of borrowers have purchased new lands either for homestead or for agriculture; food intake, clothing and housing conditions have improved for 89%, 88% and 75% borrowers respectively; sanitation conditions have improved for 69% of borrowers; and child education has improved for 75% of borrowers. These improvements have mainly been accomplished due to an increased level of self-employment of women. A paper written by Bangladesh Institute of Development Studies (BIDS), entitled The Allocation of Womens Time in Rural Areas: The Role of Microcredit (1999) for the Polli Karma Shahayak Foundation (PKSF), sponsored by the World Bank, reveals that membership in MFIs has a significant influence on womens time allocation decisions in poor households to the extent that womens labor time in self-employment has increased. Hence, participation in a microcredit program has a beneficial effect on household welfare by increasing womens income contribution to the household. Microcredits contribution in terms of capacity building, awareness raising and empowerment is notable. A World Bank paper of South Asia External Affairs cites an example from BRAC (a large NGO with over 2 million microcredit borrowers) regarding a female borrower on child marriage and dowry issues: Dont marry off your child until she is 18, says Arjuna. Child marriage can be fatal for her health. She can die from it. Childhood is for education and growing. Arjuna further said, I myself was a victim of child marriage. I am an 18 year old but looking much older. When I was married off to my 30 years old husband, I was only a child of 11. My parents also had to pay a Tk. 10,000 dowry to my father-in-law. I know very well what torment can mean to be a wife when you yearn for love of your parents. I wept the whole day before I was sent off to my father-in-laws home. My own parents had to sell their everything to pay the dowry. Arjuna has four daughters; she thinks paying a dowry is a crime and will not marry her daughters until they are 18 years old. A survey conducted by ASA (a large MFI with 1.5 million borrowers) among 1200 women microcredit borrowers in 1998 conclusively shows that the borrowers capacity has increased; their awareness has improved and the women are now empowered in economic and social matters (Diagram below).

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Women have become aware about their political rights and microcredit has helped build their awareness. Increasingly, female microcredit borrowers are participating in local politics and development activities. In the 1997 Union Parishad (the grass-roots level administrative unit of the country) election, about 4,483 women participated in the election of 4,283 Unions. Out of this, 110 women were elected as members, and, of these, 20 women were elected Union Parishad Chairmen. Microcredit is not merely an instrument for credit extension to the poor borrowers. It is a movement to emancipate the poor--especially women--to alleviate their poverty, improve their quality of life, and build their capacity and awareness and to integrate them economically and socially into the mainstream of the economy. The benefits of microcredit go beyond the quantifiable ones, there are other benefits, which are not seen, but are evident in the socioeconomic transformation of rural Bangladesh.

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Chapter-6
1. Poverty alleviation and microcredit movement
"Poverty is a Threat to Peace" - Muhammad Yunus

Bangladeshi economist Muhammad Yunus accepted the Nobel Peace Prize on Sunday for his pioneering program of giving microcredit loans to the poor. Yunus is the first Nobel winner from Bangladesh. The prize committee said the award also was intended to build bridges between the West and Islamic countries. We plan excerpt of his acceptance speech in Oslo. [includes rush transcript]

Bangladeshi economist Muhammad Yunus accepted the Nobel Peace Prize on Sunday for his pioneering program of giving microcredit loans to the poor. Yunus shared the award with Grameen Bank which he founded thirty years ago. The bank has helped hundreds of thousands of impoverished Bangladeshis - mostly women - by providing small, unsecured loans known as microcredit which are then repaid. Grameen Bank is an interest-charging, profit-making business that is almost entirely owned by the very women who borrow from it. Yunus is the first Nobel winner from Bangladesh. The prize committee said the award also was intended to build bridges between the West and Islamic countries.
In a few minutes, we are going to discuss the significance of naming Muhammad Yunus for the award and look at the concept of microcredit with the chair of the Grameeen Foundation, Susan Davis. But first, let's hear Muhammad Yunus in his own words. The co-called "Banker to the Poor" delivered his acceptance speech on Sunday in Oslo. In his address, Yunus spoke about poverty and peace. Muhammad Yunus, 2006 Nobel Peace Prize Winner, speaking December 3, 2006 in Oslo, Norway

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a. Impact on Income and Consumption


There are different ways to measure the impact of microcredit on income and consumption. First there is the borrowers recall of the before-after situation. Using this method in the early 1980s, Hossain concluded that both per capita income and household income were positively associated with the amount of credit obtained from Grameen Bank. The impact can also be gauged through member perception. On the basis of a survey of 1986 measuring borrower perception, Hossain found that 91 percent of Grameen Bank members improved their economic conditions after joining Grameen Bank. More recent research uses income and consumption as dependent variables for the measurement of microcredit programs impact. Using this technique, most authors conclude that microcredit institutions can have a positive impact on combating poverty. Khandker takes the lead in this positive evaluation. Together with Chowdbury, he examines the impact of Grameen Bank and BRAC. They find for both institutions that a greater number of loans means a lower incidence of poverty for all program participants. In the Grameen Bank villages, for instance, percent of participants who have taken no loans or only one loan are below the poverty line, compared with only 57 percent of those who have taken five or more loans. Based on his 1998 research, Khandker comes to the same conclusions. He estimates that for every 100 taka lent to a female member of BRAC, household consumption increases by 18 taka. For men, this figure is 11 taka. These results indicate that poverty decreases as the borrowed amount (possibly in different instalments) increases. The study further shows that the poverty rate of BRAC members falls by around 15 percent for the moderate poor and by 25 percent for the ultrapoor when borrowers have a loan for up to three years. Khandker points out, however, that this rate of poverty reduction appears to decline with duration of membership. For instance, for households that have been members for more than five years, moderate poverty fell by 9 percent and ultrapoverty by 18 percent. These figures are considerably lower than for households that had been members for three years or fewer. Moreover, since the less than three years category has a lower average cumulative loan size (3,348 taka) compared with the five years plus category (6,567 taka), these results suggest that the poverty reduction impact of credit declines with cumulative loan size for BRAC. Khandker and Chowdbury observe the same outcome for Grameen Bank.13 Thus, the reduction of the level of poverty is variable and declines with the passage of time. Khandker goes further in this comparative analysis.14 His 1998 study reveals that for both Grameen Bank and BRAC, the per capita spending and net worth (assets plus savings/loans outstanding) of the members has increased. Women, however, seem to score better than their male counterparts when it comes to per capita spending,15 while men generally have a higher net worth. Female members of Grameen Bank show better results on this criterion than those of BRAC. It should be noted that many households working in the agricultural sector have to deal with seasonality in consumption. At harvest time, their income reaches a peak. In other periods they have almost nothing. The programs of Grameen Bank and BRAC help to smooth their consumption pattern. Finally, for a program to be successful, it is not only important to

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alleviate the poverty of its clients but also to achieve a long-term sustainability of the benefits. Khandker and Chowdbury point out that it takes approximately five years for a poor member to work up to above the poverty line,16 and it generally takes eight years before the member is able to function independently from the microcredit institution. Consequently, Khandker is convinced that providing microcredit is an effective instrument to reduce poverty and even to overcome it.

b. Impact on Employment and Productivity


. Besides income and consumption, the employment generated by microcredit programs can

indicate a reduction of the poverty rate. Rahman and Khandker show that Grameen Bank and BRAC have been successful in expanding the opportunities of self-employment for their members.17 Selfemployment generates a higher return than wages.18 Still, the average returns are higher in nonagriculture activities compared with those in livestock and agriculture. This finding is strongly correlated with the fallacy of composition in the sense that the more people who specialize in the same activities, the lower the return will be. Further, Rahman and Khandkers paper shows that labor-force participation rates among women have increased compared with those of nonmembers living in control villages. The latter often do not have the necessary credits and other inputs to start up their own enterprises. Finally, Hossain states that the members careful choice of projects, cooperation with the staff, and peer pressure also contribute to the two microcredit institutions successful fight against poverty.

c. Controversy on Assessing the Impact on Poverty


Not everyone shares the optimism described above. The research of Hulme and Mosley shows that the impact of credit on BRAC members monthly incomes has been limited.20 Particularly when inflation is taken into account, income increases of members are negligible. Hulme and Mosley, however, nuance their statement by acknowledging some success among the wealthier poor. Zaman recognizes that microcredits can contribute to poverty reduction, but only if the poor have achieved a certain economic level.21 Morduch is even more radical in his conclusions.22 He explicitly attacks Khandkers impact study (1998). He demonstrates that positive results are to a

large extent attributable to Khandkers measuring of the income of members who do not belong to the specific target group of Grameen Bank and BRAC. According to Morduch, 30 percent of them would be too rich to be part of the target group. Consequently, with the same data, but after adjustments, he cannot find any proof of an increase in income. The economic- impact assessment seems to remain a controversial issue on which no consensus has yet been reached. Reducing Vulnerability Opinions are not entirely divided on
all issues, however. Although researchers cannot take a unanimous stand on whether or not microcredits increase incomes and therefore contribute to the fight against poverty, authors do agree that microcredit institutions are helping to reduce the vulnerability of their clients. In other

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words, microcredit programs do assure that the situation of their poor members does not deteriorate any further. Morduch points out that consumption variability from season to season indicates a reduction of 47 percent for eligible Grameen Bank households and of 54 percent for eligible BRAC households, compared with a control group.23 Like Khandker, Morduch concludes that the pattern of consumption is smoothed over the year. There also seems to be a greater stability of labor supply in the program villages compared with the control groups, and nonagricultural activities practiced by Grameen Bank and BRAC members reduce families vulnerability. Furthermore, during crisis, microcredit institutions play an important role in reducing members vulnerability. Zaman examined this matter for the floods in 1998 and came to the conclusion that Grameen Bank and BRAC buildings had successfully been converted into relief and rehabilitation centers, which their members highly appreciated. A third way to reduce vulnerability is to increase members net worth. For instance, assets can be sold in case of dire need. They can also increase the creditworthiness of clients. Khandker and Chowdbury find that despite high indebtedness among program participants, their net worth is still greater than among nonparticipants in all program areas.25 Zaman also sees the importance of net worth.26 He concludes that the oldest members of BRAC have, on average, the highest value of nonland assets. The latter demonstrates that BRAC members invest particularly in productive capital (e.g., rickshaws, poultry, grocery shops) and in nonagricultural activities. Hulme and Mosleys study confirms these findings. 27 Hulme, however, also warns of the dangers this may involve when investments are unprofitable.28 He agrees with Zaman29 that savings can be very important to hedge against such failures. In recent years, BRAC and Grameen Bank have come to realize that savings are necessary in reducing vulnerability and have made their saving institutions much more accessible to their members.

2. Role of Microcredit In The Eradication Of Poverty


There is an on going debate whether credit alone or credit plus is needed for poverty reduction. There are views that credit alone on its own is inadequate to fight poverty. The need for other services is also important in this respect. Such views, although, do not negate the role of credit, fail to appreciate the role of credit on its own merit. Nobody says that credit alone is cure for all. Most of the practitioners believe that credit plays a vital role as an instrument of intervention for a poor person to discover her potential and to stride for better living. Muhammad Yunus advocates that Credit is a human right. Once this right is established, the entitlement to other rights for leading a dignified life becomes easier. It empowers to break the vicious cycle of poverty by instantaneously creating self-employment and generating income. When in the ultimate analysis nothing can be said to be panacea, by overemphasising that micro-

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credit is not a panacea is in a sense overreacting and underestimating the role of credit as an instrument to combat poverty. Micro-credit is itself a very powerful tool. But if it is combined with others, it is definitely more empowering. How micro-credit can reduce poverty may better be understood by understanding conceptually the mechanisms by which financial services can affect the lives of the poor. It is important to consider the fulfillment of basic needs (food, clothing, shelter, health, education and psychological well-being), the means to achieve welfare at present and in the future, social networks and empowerment and vulnerability to risk. It is known that poor people live in a high risk and vulnerable conditions. Their ability to take advantage of opportunities that will lead to increasing their income or economic status, to protect themselves against risks of crises, and to cope with these when they occur is very important. Reduction of poverty is partly a process of increasing income and economic stability which enables fulfillment of basic needs and access to different kinds of services. This may also be understood in the form of developing a range of assets that will reduce the vulnerability of the poor to physical, economic and social shocks. These assets may be defined as financial (income size, regularity and security, savings, loans or gifts), human (skills and knowledge, ability to work, good health, self-esteem, bargaining power, autonomy and control over decisions), physical (housing, land, productive and nonproductive possessions etc.) and social (networks, group and centre membership, trust based relationship, freedom from violence and wider access to society and social institutions. Poverty reduction may also be considered from both short term and long term perspectives. In the short term it can be understood with reference to individual borrowers, their households and also the
society at large. Different studies conducted in Bangladesh and elsewhere show that there is positive correlation between micro-credit programs and their accrued benefits in terms of employment, income generation and promotion of social indicators. The present

report has been prepared in response to a request contained in General Assembly resolution 52/194 of 18 December 1997. This is the first time the Secretary-General has been requested to prepare a report on the question of microcredit and the eradication of poverty. The prominence given to the matter reflects the recent success of small-scale lending programmes such as the Grameen Bank of Bangladesh. These rely on lending (usually a few hundred dollars) to small enterprises in agriculture, distribution, crafts, trading and similar activities. The participatory nature of these projects, together with the emphasis on women entrepreneurs and employment
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creation, have raised hopes of reducing poverty through this approach. The present report surveys current experience and highlights the strengths and weakness of the microcredit approach, including the administrative difficulties and limited linkages with other services for the poor. The report also contains suggestions for strengthening operations, and makes a particular plea for ensuring that microcredit projects are established in a broader context of support to the small enterprise sector. Responsibilities of donor countries in this regard are emphazised. Finally, the report
highlights the activities of the United Nations system and non-governmental organizations in support of microcredit, giving special emphasis to the World Bank-led Consultative Group to Assist the Poores.

a. Microcredit and poverty eradication Since the World Summit for Social Development the priority given to poverty eradication has grown. As stated in the previous report of the Secretary-General on the eradication of poverty (A/52/573), it is now broadly accepted that robust economic growth that is labour-intensive and equitable, combined with larger outlays of social expenditures, especially directed towards the poor (now estimated at 1,3 billion people), are a winning combination in the fight against poverty. Several factors have led to increased interest in microcredit in promoting growth with greater equity. There has been a growth in the recognition of the importance of empowering all people by increasing their access to all the factors of. production, including credit. In addition, the value of the role of nongovernmental organizations in development is receiving more attention. It is in that context that microcredit has recently assumed a certain degree of prominence. It is based on the recognition that the latent capacity of the poor for entrepreneurship would be encouraged with the availability of small-scale loans and would introduce them to the small-enterprise sector. This could allow them to be more self-reliant, create employment opportunities, and, not least, engage women in economically productive activities. Currently, there are estimated to be about 3,000 microfinance institutions in developing countries. These institution also help create deeper and more widespread financial markets in those countries.

b. Characteristics and recent successes of microcredit programmes


Informal and small-scale lending arrangements have long existed in many parts of the world, especially in the rural areas, and they still survive. Good examples are schemes in Ghana, Kenya, Malawi and Nigeria ("merry-go-rounds", "esusus" etc.). They provide the

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rural population with access to savings within the local area and with a certain cushion against economic fluctuations, and they encourage a cooperative and community feeling. The groups formed provide joint collateral and serve as instruments for spreading valuable information that is useful for economic and social progress.
These schemes are characterized by relatively small loans, a few hundred dollars at most. The repayment period is relatively short, about a year or so. Women are a major beneficiary of their activities, and the destination of the funds primarily includes agriculture, distribution, trading, small craft and processing industries. The administrative structure is generally light and the entire process is participatory in nature. The impact of microcredit lending varies widely between rural areas and urban areas. Furthermore, it is not clear if the extent to which microcredit has spread, or can potentially spread, can make a major dent in global poverty. The actual use of this kind of lending, so far at least, is rather modest: the overall portfolio of the World Bank, for example, is only $218 million. In recent international meetings, it has been stated that a target to reach 100 million families by the year 2005 would require an additional annual outlay of about $2,5 billion. This should be compared to the total gross domestic product (GDP) of all developing countries, which is now about $6 trillion. A certain sense of proportion regarding microcredit would seem to be in order.

Moreover, in the proliferation of microlending institutions, non-governmental organizations and foreign donors have played an increasing role. Non-governmental organizations vary in quality and strength. The best results are produced, research shows, when developing country Governments and non-governmental organizations work hand in hand. While donor participation

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can be positive, it should be noted that total official development assistance (ODA) has declined in recent years.

c. Recent development
Over the past decade, microfinance institutions have adopted innovative ways of providing credit and savings services to the entrepreneurial poor. Two approaches have been advocated on the role of credit in poverty reduction. While supporters of the income-generation approach maintain that credit should be provided mainly to the entrepreneurial poor to enable them to finance specific private income-generating activities to increase their revenues, proponents of the so-called new minimalist approach argue that credit progammes would still be helping the poor fight poverty by giving credit to any poor person who is able to repay a loan without dictating to that person how and on what the loan should be used. Some studies have pointed out that the problem of the nonproductive use of credit, as advocated by the minimalist approach, lies in the fact that by consuming rather than investing their loans, the actions of such borrowers, if imitated by other poor people, could produce a negative impact on the future growth of microcredit Several microfinance institutions have succeeded in reaching the poorest of the poor by devising innovative strategies. These include the provision of small loans to poor people, especially in rural areas, at full-cost interest rates, without collateral, that are repayable in frequent installments. Borrowers are organized into groups, which reduces the risk of default. These are also effective mechanisms through which to disseminate valuable information on ways to improve the health, legal rights, sanitation and other relevant concerns of the poor. Above all, many microcredit programmes have targeted one of the most vulnerable groups in society - women who live in households that own little or no assets. By providing opportunities for self-employment, many studies have concluded that these programmes have significantly increased women's security, autonomy, self-confidence and status within the household.

3. Poverty and Women in Current Microcredit Programs


Poverty has a womans face. There are more women then men who suffer from abject poverty. They live in severe deprivation and despair. In fact, hunger and poverty are more female issues than male issues. According to an estimate, of about 1.2 billion people in absolute poverty in the world, the majority are women. Traditionally they 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. In the words of Muhammad Yunus, Mother has to go through the traumatic experience of not being able to feed her children during the days of famine and scarcity. Despite progress in some areas like life expectancy, education, fertility rates, maternal mortality rates etc. in different countries, women still face many barriers to economic, social and political opportunities. In many countries, women are facing continuing legal discrimination. They are not treated as equal to men- .whether in property rights, rights of inheritance, laws related to marriage and divorce, or the rights to

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acquire nationality, manage property or seek employment. For many women, life is shadowed by a threat of violence both physical and psychological. For all these reasons, credit is much more significant for women than men. With credit, poor women turn out to be better fighters. They have immense potential to move up. They are hard working. They are concerned about their human dignity, and about the future of their children. They are ready to make personal sacrifices to increase benefits to their family and for building a brighter future for their children. They do not like to see their children suffer form poverty as they have suffered through out their own lives. Once they have access to credit they are better equipped to maneuver the forces around them to their best advantage. They try their best to earn more, to build and expand their capital base and improve their quality of life. They are empowered. They are able to enjoy their human right which is definitely a difficult and challenging task but which is achievable. As was stated above (section II. C), microcredit programs can lift as many as 5% of program participants out of poverty every year. Unfortunately, this figure fails to mention that, in Bangladesh for example, microcredit programs only reach about 20% of the population. Therefore, only about 1% of the population can rise from poverty each year under microcredit programs. (Khandker, pg. 73) And at the same time that this 1% is rising from poverty, the population is increasing by 1.8% per year, predominantly in the poorer classes. So the net effect is to hold poverty at bay rather than to roll it back. There is also a further concern. Either an increase in the rate of population growth or a decrease in the success rate of existing programs could erase the poverty alleviation progress that has been made to date. Similar situations exist in most areas where microcredit programs are active, so the tenuous nature of microcredit-based economic improvements can not be ignored. Microcredits track record in the area of female empowerment is equally mixed. Some studies have found a strong correlation between participation in microcredit schemes and female empowerment. They attribute this to the self-confidence women gain from handling money, operating independent businesses, and earning money for the family. Others point to the paternalism of lenders and tendency for loans to be captured by men as factors which tend to negate any empowerment which might be going on. They also point to the selectivity problem. This is the problem of determining whether women who appear to be empowered joined a lending scheme because they were empowered, or became empowered as a result of their participation. These questions have yet to be resolved either way. Microcredit is also a mixed blessing for women in the sense that even when women do increase their incomes, the increase comes at the expense of their time and that of their female children, as mentioned earlier (section III.A.1). So in some cases microcredit may be doing nothing more than pioneering new routes to the same old destination of female subordination. Microcredit may even worsen the situation if women must work harder to maintain the same low social status and lack of education they have always had. The prevailing wisdom in microcredit circles holds that women

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are more helped than harmed by microcredit, but this wisdom is increasingly being challenged as programs are examined more closely.

4. A Positive Evaluation of the Impact on Poverty


There are different ways to measure the impact of microcredit on income and consumption. First there is the borrowers recall of the before-after situation. Using this method in the early 1980s, Hossain concluded that both per capita income and household income were positively associated with the amount of credit obtained from Grameen Bank. The impact can also be gauged through member perception. On the basis of a survey of 1986 measuring borrower perception, Hossain found that 91 percent of Grameen Bank members improved their economic conditions after joining Grameen Bank. More recent research uses income and consumption as dependent variables for the measurement of microcredit programs impact. Using this technique, most authors conclude that microcredit institutions can have a positive impact on combating poverty. Khandker takes the lead in this positive evaluation. Together with Chowdbury, he examines the impact of Grameen Bank and BRAC. They find for both institutions that a greater number of loans means a lower incidence of poverty for all program participants. In the Grameen Bank villages, for instance, 76 percent of participants who have taken no loans or only one loan are below the poverty line, compared with only 57 percent of those who have taken five or more loans. Based on his 1998 research, Khandker comes to the same conclusions. He estimates that for every 100 taka lent to a female member of BRAC, household consumption increases by 18 taka. For men, this figure is 11 taka. These results indicate that poverty decreases as the borrowed amount (possibly in different instalments) increases. The study further shows that the poverty rate of BRAC members falls by around 15 percent for the moderate poor and by 25 percent for the ultrapoor when borrowers have a loan for up to three years. Khandker points out, however, that this rate of poverty reduction appears to decline with duration of membership. For instance, for households that have been members for more than five years, moderate poverty fell by 9 percent and ultrapoverty by 18 percent. These figures are considerably lower than for households that had been members for three years or fewer. Moreover, since the less than three years category has a lower average cumulative loan size (3,348 taka) compared with the five years plus category (6,567 taka), these results suggest that the poverty reduction impact of credit declines with cumulative loan size for BRAC. Khandker and Chowdbury observe the same outcome for Grameen Bank.13 Thus, the reduction of the level of poverty is variable and declines with the passage of time. Khandker goes further in this comparative analysis.14 His 1998 study reveals that for both Grameen Bank and BRAC, the per capita spending and net worth (assets plus savings/loans outstanding) of the members has increased. Women, however, seem to score better than their male counterparts when it comes to per capita spending,15 while men generally have a higher net worth. Female members of Grameen Bank show better results on this criterion than those of BRAC. It should be noted that many households working in the agricultural sector have

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to deal with seasonality in consumption. At harvest time, their income reaches a peak. In other periods they have almost nothing. The programs of Grameen Bank and BRAC help to smooth their consumption pattern. Finally, for a program to be successful, it is not only important to alleviate the poverty of its clients but also to achieve a long-term sustainability of the benefits. Khandker and Chowdbury point out that it takes approximately five years for a poor member to work up to above the poverty line,16 and it generally takes eight years before the member is able to function independently from the microcredit institution. Consequently, Khandker is convinced that providing microcredit is an effective instrument to reduce poverty and even to overcome it.

5. Negative impact for the poor by microcredit


It is difficult to draw unequivocal conclusions out of these contradictory findings. A few researchers, however, have dared to try. Kabeer and Zaman came to the conclusion that the diversified opinions are due to a difference in methodology. Also, Hashemi, Schuler, and Riley give some interesting remarks. Kabeer indicates that while some studies rely largely on statistical data and significance tests for their findings, others are based on more qualitative, sometimes anecdotal, evidence; consequently, some figures refer to average and others to nonaverage outcomes. In this way, the general finding of Hashemi et al., that violence against women decreases when they join a microcredit institution, can be consistent with Rahmans statement that the violence in some households increases. Further, Kabeer contends that an accurate definition of the terminology used in the research is indispensable. Goetz and Sen Gupta, for instance, conflate control and management of a loan, whereas making decisions about loan use and decisions about implementation are two different things; consequently, they do not indicate the extent to which the wife was involved in the decision-making process of allocating the loan. It is even possible, although unlikely, that 78 percent of the women out of their sample (22 percent of them did not have a clue as to what happened with their loan) actually did participate in the decisionmaking process. We should not draw conclusions too quickly. Hashemi et al. notice that a loss of

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control over loan use does not necessarily exclude emancipation of women. Even if a wife entirely lacks control, the membership of the microcredit institution can offer her a lot by bringing her in contact with other people and ideas. Without the prospect of getting access to credit, most women probably would not be permitted to join the programs and get the educational and social benefits. In this way, participation actually stimulates womens emancipation. Mahmud holds a similar opinion, finding that, while microcredit program participation has only a limited direct effect in increasing womens access to choiceenhancing resources, it nevertheless has a much stronger effect in increasing womens ability to exercise agency in intrahousehold processes. The expansion of womens access to household resources, even when these are used by men in familybased enterprises, is therefore to be encouraged. Finally, according to Zaman and Kabeer, researchers often interpret the same results in a different way. Zaman uses the study of Goetz and Sen Gupta to enforce his argument. The study indicates that 63 percent of the women have partial control, very limited control, or no control over the credits. It is, however, possible to add up the figures in a different way and thereby conclude that 61.3 percent of the women have full control, significant control, or partial control over their loans and, therefore, a fair degree of control over their credit. Kabeer concludes that these contrasting opinions are due to differences in the notions that researchers have in use of the word control. By and large, the negative evaluations consider only the wifes individual control over loan use as emancipating; the more positive studies value it as highly progressive for a patriarchal society if a wife and husband decide together. Zaman concludes that the positive approach is the most realistic one. Rahman concludes that despite the mixed results within and across studies, authors do agree that microcredit has some positive impact on womens lives. The main benefits women derive from participating in microcredit programs are: Greater involvement in income-earning activities Increase in awareness about social, economic, and health related issues Increase in the adoption of family-planning methods Increase in girls education and school-enrollment rates

a. Problems in Reaching the Poorest: Valid Criticism?

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Although not all researchers agree that microcredit helps in combating poverty, most are convinced that it reduces the vulnerability of the poor. These results, however, need to be considered with some caution. People talk too easily about the poor as one homogeneous group, when in fact there are gradations of poverty. And an oft-heard criticism against microcredit institutions is that they do not reach the bottom poor. In their targeted approach, both BRAC and Grameen Bank have defined their target group as being comprised of those who have less than half an acre of land. Nevertheless, the research of Mustafa et al. (1996), Montgomery et al. (1996), and Khandker (1998)30 has indicated that this official criterion is often neglected; 15 to 30 percent of BRAC members do not belong to the target group. For Grameen Bank, similar figures were found.31 Also Amin, Rai, and Topa find that while microcredit is successful at reaching the poor, it is less successful at reaching the vulnerable poor.32 Khandker (1998) and Husain (1998), however, do point out that a large part of BRAC and Grameen Bank members consists of bottom poor. In Khandkers research, 65 percent of BRAC members and percent of Grameen Bank members did not have any land at all at their disposal.34 Evans, Adams, Mohammed, and Norris came to the same conclusion. In their study, they classify 24,234 families coming from thirty-two areas where BRACs Rural Development Programme (RDP) was executed in three wealth groups according to their income. Only groups two and three met the eligibility criteria for participation in BRACs program. Table 2b gives the percentage of each of the groups in the samples total population. Of the total population, 24 percent are not eligible for participation. Table 2c shows how BRACs members are spread over the three groups. Table 2c indicates that only 11 percent of all BRAC members do not belong to BRACs target group. From the 89 percent who do meet the eligibility criteria for participation in BRACs program, no fewer than 61 percent are part of wealth group 3. These results confirm that, contrary to what some may believe, BRAC does succeed in reaching the poorest. Nevertheless, there is room for improvement. As we see in Table 2d, a large group of the bottom poor has not yet been reached: 60 percent of the poorest people of the samples population still do not participate in BRACs program.

b. The Influence of Microcredits on Society


We have seen how thoroughly Grameen Bank and BRAC intervene in the lives of their female members. The latter, however, are not the only people to be affected by the two microcredit institutions. In one way or another, nonmember groups in the villages can be touched by the microcredit institutions. Further, state and elite networks are confronted with these constantly expanding organizations. Although there is not much research on the topic. it is interesting to discuss the impact of Grameen Bank and BRAC on the society as a whole, even though the following has to be rather hypothetical in character.

c. Effects on Nonmember Villagers

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The effect of microcredit programs on nonmembers has received little attention by researchers. Studying this effect is complicated by the fact that microcredit has become a standard ingredient in the vast majority of development projects initiated by nongovernmental agencies: it is estimated that around percent of the nearly sixty thousand villages in the country are covered by the NGO community. The probability that more than one microcredit program is operating in a village therefore is extremely high. It is still worth looking at what we know about the indirect effects and impacts of the microcredit programs of Grameen Bank and BRAC. Rahman points out that the impact of microfinance institutions on the nonprogram households may be routed through various channels. He believes that the social inputs in the form of knowledge, awareness, and better practices of health, sanitation, and family planning are spread to nonmembers. Such a spillover effect is expected to be positive. A more direct effect of microcredit will be felt in the credit market since the supply of total credit available will increase, leading to a decline in the interest rate. A similar effect can potentially be observed when it comes to rural wages. Khandker, Khalily, and Khan, for example, suggest that the Grameen Bank has a significant positive effect on the wages of men and children in the program villages. The average mans wage in Grameen Bank villages (Tk 29.8 per day) was higher than in the villages without a Grameen Bank program (Tk 24.2), implying that the Grameen Banks services increased the wage rate by about percent. This increase would be due to the Grameen Banks enabling of selfemployment, which reduces labor supply and consequently raises the wage rate. Wages remain at this higher level if the program increases members income and induces a larger demand for food and other local products. However, the same survey did not find similar wage impacts in villages with BRAC program placements.Khandker, Khalily, and Khans study of Grameen Bank projects shows that the nonparticipant target group members in program villages are employed for a larger number of days when compared with target groups in control villages. The studys authors suggest that this finding is likely to be associated with the spillover effect of the microcredit program. Rahman says that the land-tenure market is also contaminated by the microcredit programs. Since the program participants have access to cash and are thus in a better position to make investment on land, they may be preferred as sharecroppers. Thus, the microcredit recipients may displace the other poor households from the land-tenure market. This hypothesis remains to be tested.

d. Barriers to Reaching the Poorest: Possible Solutions


Table 2e gives an overview of the program-related and clientrelated barriers to participation in microcredit programs. Concerning the program-related difficulties, the exponential growth of 0Grameen Bank and BRAC indicates that they have been doing their utmost to reach as many clients as possible. Only time will tell, however, whether this exponential expansion does not also lead to a loss in efficiency. Furthermore, Evans et al. see the membership requirements as major obstacles for the very poor. Timeconsuming activities such as paying registration fees, saving, attending group meetings, and participating in training sessions are often impossible for poor

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members. They need to spend all of their time and assets in surviving the day. Another factor is that the group mechanism does not make things easier for the poor. Evans et al., Hashemi, and Hulme and Mosley say that would-be members of Grameen Bank and BRAC often do not want to take the bottom poor into their group. They regard them as too risky. Microcredit institutions themselves often prefer the richer poor as clients since they are more likely to assure the sustainability of the organizations. When we focus on the client-related barriers, self-selection or self-exclusion is regarded as one of the major obstacles. Hashemi, Morduch, Evans et al. and Hulme and Mosley agree that the bottom poor often consider a loan to be too risky. Having few assets and fearing an even greater burden of debt, they do not want to take part in a microcredit scheme. Even when they take a loan, they can get into trouble if the returns from investment fall short of the cost of borrowing. This gap is then filled by one (or more) of five options, depending on the preloan endowment of the borrower: borrowing from moneylenders, using savings or selling assets, reducing existing consumption levels, negotiating to reshedule the loans, or simply defaulting. As Banerjee says, some defaults, in turn, energize a demonstration spiral, and many households practice self-exclusion.The net result is that the poorest fall through the net. This may also be the reason for high numbers of dropouts from microcredit programs stimated at 15 percent per year for Grameen Bank and 10 to 15 percent per year for BRAC. The research of Evans et al. sees lack of education as an important obstacle in reaching the bottom poor.Ill health or vulnerability to a crisis and female head of household are not significant factors in the research, yet they contribute to the poverty rate of these people and often reinforce one another. The foregoing findings show that, although a significant number of very poor is reached, Grameen and BRAC do not succeed in covering the majority. Still, Hashemi sees this not so much as a failure but as an indicator that microcredit is not necessarily the way out for all the poor. Poor people who do not have the needed assets, social relations, or self-confidence have to be reached in different ways. Grameen Bank is trying to meet the specific needs of the hardcore poor by investing in local economic activities. Grameens initiatives in textiles (the setting up of a textile factory), in agriculture and fisheries (the Krishi and Motso Foundations), in solar and wind energy (Grameen Shakti), and in telecommunications indicate that Grameen Bank wants to make special efforts to improve the situation of the bottom poor. BRAC has also understood this need and, with its Income Generation for Vulnerable Group Development program, it has concerned itself with the destiny of the poorest women in Bangladesh.

e. Not Everyone Is Convinced Some scholars, however, question the extent to which microcredit can significantly reduce poverty let alone contribute to world peace. They argue that microcredit helps poor people to cope with living in poverty rather than helping to lift them out of it. According to the economic journalist, Gina Neff, "After eight years of borrowing, 55% of Grameen households still aren't able to meet their basic nutritional needs - so many 65

women are using their loans to buy food rather than invest in business." This was also the case in Niger where I worked with a microlending project. I observed the difficulty women had repaying their loans. They were in a state of such extreme poverty that many could not afford to invest the loan and instead used it as cash to purchase food and medicine. Once we realized this, we began providing free health and nutrition education to reduce incidences of malnutrition and diarrhea. Women were able to improve their children's health and did not use the loans as often to pay for medicine. As a result a slight difference in loan repayment rates began to show. For much of the developing world, however, where debilitating illnesses prevent people from using their loans to generate income, either because they need the cash to pay for treatment or because they are too ill to work, the extent to which microcredit can help is limited. This is especially true in SubSaharan Africa, for example, where 300 to 500 million people suffer from malaria. f. The End of Poverty, a Long Journey Ahead

Yunus has championed microcredit as "free-market" development that empowers the poor by encouraging and enabling them to participate and grow their own economies. By "free market," Yunus means one in which even the poor can participate. However, this is a misleading statement because it fails to address the other factors that contribute to global impoverishment besides a lack of access to financial services. First, microcredit is relatively insignificant when it comes to the billions spent each year by the U.S. and Europe to subsidize domestic agriculture and other industries. Protective trade barriers like subsidies, quotas and tariffs imposed by rich countries make certain that domestic producers dominate the global market. A microloan will do nothing to enable a small sugar farmer in Mozambique, for example, to compete with the heavily subsidized sugar beet industry in Europe. In spite of criticism and
concerns over whether or not microcredit is an effective means to eliminate poverty, support for microcredit has grown significantly in the last decade. Microcredit should not be oversold. Poor people in many parts of the world need more than small loans and it will take more than microcredit to lift these people to an acceptable and humane standard of living. It seems logical that financial services should be made available to the poor if it can help alleviate the poverty they suffer, however, it is also important to be mindful that microcredit is not a panacea and has its limitations. For example, where there are highly vulnerable groups of people because of humanitarian crises like the 2004 tsunami that struck countries in southeast and south Asia or in parts of Sub-Saharan Africa where there are high rates of disease like malaria, tuberculosis or HIV/ AIDS, microcredit may not be the best means of

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assistance. In these instances microcredit can even exacerbate the situation by placing additional burdens of debt on groups who are already struggling to survive. The Nobel committee's choice for this year's peace prize should not mean that other means of assistance that are equally if not more effective than microcredit are ignored. Studies conducted by the World Bank and the Philippine Development Institute, suggest that investment in infrastructure like roads and bridges and agrarian land reform were as good and sometimes even better at lifting people out of poverty than microcredit. John Tierney of the New York Times wrote that Wal-Mart has done more for the poor than microcredit. Tierney refers to a study conducted in 10 Asian and Latin American countries that found that the average apparel worker in Honduras, for example, makes about $13 per day, significantly more than the average micro entrepreneur. Despite some criticism, microcredit has made a difference. It has brought unprecedented global attention to the issue of poverty and access to financial services around the world. Yunus's work with the Grameen Bank is also significant because it has illustrated the industriousness and persistence of the poor and that given the means, the poor for the most part are able to improve their livelihoods. Microcredit initiatives should continue, however, resources that support other types of development programs should not be diverted or sacrificed to support microcredit programs. Hopefully this year's Nobel Peace Prize celebrating microcredit will not inflate expectations of microcredit's capacity to reduce global poverty. The trade barriers imposed by rich countries also play a key role. Microcredit should not divert attention away from this issue and allow rich countries to avoid having to address the subsidies, tariffs and quotas they use to protect domestic industries and which penalize poor countries. More than microcredit has to happen if the world is serious about eradicating poverty. Christina Barrineau, Chief Technical Advisor to the International Year of Microcredit 2005, said, "Poverty eradication is not a simple, linear process. And microfinance is not a simple solution. It is a long-term proposition and only a component of poverty eradication."

g. Economic Effects
Grameen has been widely researched and recognized for making a difference in the lives of its members. Studies show that the borrowers of Grameen Bank are steadily moving out of poverty. One such study shows that it is at the rate of 5% a year. According to another study based on a household survey in an area where Grameen has been operating for more than a decade, about 50% of the Grameen households have crossed the poverty line. Another 25% were about to cross it and the rest was struggling mainly because of health reasons. A study examining the economic effects of Grameen on the life of its borrowers, compared the situations .before and .after, .with and .without Grameen. It considered the effects of Grameen operation on capital

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accumulation, employment, income and poverty alleviation. The study found that without any capital base at the beginning, the Grameen borrowers started accumulating capital as they joined Grameen which has not been possible by others. Grameen loan is required to be paid back in small installments as per agreement. The borrowers pay the installment from generated income, leaving the original capital intact. Their capital base usually increases in large amounts as they go for subsequent loans that enable them to go for medium and long-term investments. The study also found that 31 percent of the borrowers reported themselves as unemployed before joining Grameen. Grameen created new employment for them and especially for the female members who were earning nothing before. The effect of Grameen loans on reducing unemployment is impressive. The borrowers were found less underemployed than before. More than percent of the borrowers in the survey area reported that Grameen had made a positive contribution to their standard of living. The bank has been able to lift a significant proportion of its borrowers and their household members out of poverty. A World Bank study found that profits from Grameen-financed businesses were increasing borrowers consumption by 18% per year, and that the percentage of Grameen borrowers living in extreme poverty was reduced by 70% within 4.2 years of joining. According to a recent survey conducted by Grameen Bank the cumulative percentage of borrowers who have crossed the poverty line until 2002 is over 46%. Such findings of the above mentioned studies are corroborated by many other studies conducted in different areas and at different points of time. Grameen is contributing directly and indirectly to the gross domestic product of Bangladesh. During the period 1994-1996, its net contribution to GDP as a percentage of total GDP in current prices has been more than one percent. Grameen borrowers have been found to improve their conditions in terms of housing and clothing too. They can afford more and warm clothes during winter seasons. Till the end of April 2003, they have built 566333 houses with housing loans from Grameen.Women are the owners of 95% of these houses. They hold the title for the land of these houses. This was unthinkable for them before they joined Grameen.

h. Social Effects:
The poor have little access to education, health, sanitation and other social services. They are socially condemned, rejected and powerless. In the case of poor women the situation is more deplorable. In many societies including Bangladesh, women are generally confined to their homes. They are not supposed to be seen by other than their family members. Their sphere of work is largely restricted. Under these circumstances, Grameen provides them a forum, a network where they are organized into groups and federated into centers. They become decision makers, leaders and a social force. They become group and center leaders and also members of the Board of Directors of Grameen Bank, which they own. In the Board of Directors they are nine out of twelve members in total. The Grameen borrowers go for implementation of social development programs

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under the "16 Decisions" that they have taken. The Grameen borrowers who became village phone ladies by leasing cellular phones for providing village pay phone (VPP) services to the neighborhood do not only earn more, but also enjoy a gracious social status. These women have brought the world closer for themselves as well as for their communities. Grameen women have become mobile. They are exposed to the outside world and are active participants in social networking and commercialisation process by attending center meetings, workshops, interacting with national and international dignitaries, producing, selling and buying products. Grameen borrowers become more conscious about their family size and family welfare and are determined to improve their quality of life. Studies show that infant mortality among Grameen families has decreased by 34%, and the adoption of family planning among them is double the national average for Bangladesh. In terms of education, Grameen borrowers families are also ahead of others. In Grameen families, all school-age children are going to school. After the introduction of the Higher Education Loan (HEL) there are no case of children being deprived access to higher education due to financial constraints. Whatever indicators such as respect from neighbors and spouses, selfesteem, selfconfidence, self-expression, ability to protest social injustice, capacity to solve social issues are applied to measure changes in social conditions of poor women, Grameen borrowers are found better off than others. The process is continuing and progress is visible. This has all been possible because of their access to credit.

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Chapter 7
1. The Role of Microcredit in Conflict and Displacement Mitigation:
Karen Doyle writes in her 1998 report Microfinance in the Wake of Conflict: Challenges and Opportunities that microfinance is being viewed as a tool that can serve multiple goals. Predominantly, it remains an economic development strategy that focuses on rebuilding and restarting local economies by providing needed financial services for enterprise creation. But there is also consideration of its use as a relief and survival strategy in the immediate wake of disaster, and as a tool for peace and reconciliation. (emphasis added) The bulk of Doyles report focuses on post-conflict issues that practitioners face in continuing or initiating microfinance services. Essential preconditions to the continuation of microfinance services are discussed, including such things as a low intensity of conflict and reopened markets.18 Considerable attention is also given to the market for financial services in post-conflict settings, as well as the need to target special populations such as returnees, internally displaced persons, refugees, demobilized soldiers, women, rural residents, and the like.19 These issues, however, are not currently in play in the Bangladesh context. Of more direct interest is the Program Characteristics section of the report, in which the goals and strategies of microfinance institutions are revisited in the post-conflict context. Doyle notes that secondary goals...of social and political development...are viewed as highly complementary to primary economic goals though she notes that no practitioner thought it wise to place a priority on secondary goals over economic ones. Practitioners adaptations to original microfinance strategies in post-conflict environments were wide-ranging and included: changing the required size of solidarity groups in the face of extreme degrees of mistrust; targeting rural communities where levels of trust may be higher; lowering interest rates in the early stages of reconstruction; providing an interest-only grace period; halting deposits in post-conflict areas; adding new loan products such as agriculture loans; creating and training local partners; and offering more training to identify, assess, and select self-employment activities.

a.

Involvement in Family Decisions

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A first indicator of womens empowerment is a larger involvement of women in important family decisions. The research of Amin and Pebley shows that female BRAC members have a larger role in decision making within the household than control group members.53 Khandker and Pitt54 as well as Rahman (1986)55 confirm this finding for both Grameen Bank and BRAC. As the wife is now seen as a source of income rather than as a burden, her status will rise, and with it also her decision-making power. Hashemi, Schuler, and Riley agree, but they nuance their findings by stating that for more important decisions, such as those related to finances, only Grameen Bank members have significantly better scores compared with the control group.56 The larger contribution of Grameen Bank members to family support can be an explanation, although a selection bias may also be involved.

b.

Womens Exposure to Violence


Domestic violence against women is a serious problem in Bangladesh. In the patriarchal Bengali society, this violence is not strongly condemned. Women put up with it because they lack alternatives. In their study, Schuler et al. explore the possible role of Grameen Bank and BRAC in reducing womens vulnerability to male violence. A regression analysis indeed shows that Grameen and BRAC members are better treated by their husbands. Although we would assume that this positive result can be attributed to the strengthening of the womens economic role within the household, the researchers come up with a more significant factor: the entrance of women in public life when joining a microcredit institution. This generates new social-control mechanisms that make husbands more prudent since they fear disapproval of their acts by village people. Thus, although indirectly, credit plays a role in improving the situation of women. However, if we really want to stop the violence against women, more specific measures will be needed.

c.

Impact of Credit on Emancipation of Women


Above we have put forward a lot of positive effects of microcredit programs on the situation of women; however, opinions are more diverse when it comes to womens control over loan use and domestic violence. Goetz and Sen Gupta have investigated whether female members of Grameen Bank, BRAC, TMSS, and RD-12 actually control their credit. As Table 3 shows, about 63 percent of the women involved in these programs have only partial, very limited, or no control. Goetz and Sen Gupta further indicate that the results are confirmed by the research of Rahman, White, and Ackerly. Also Hulme and Mosley agree on womens minor control over loan use, even stating that credit does not encourage emancipation at all. Female members better status can be observed only when it is compared with other womens status, not when it is compared with that of men. Further, Goetz and Sen Gupta show that single women have more control over their credit. This finding also counts for women who invest in traditional activities. These traditional activities, such as livestock and agriculture, are often considered as female activities and do not generate much extra income. The higher the amount of money that can be made, the faster men

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take over control. This finding can also explain the diminishing level of female control over credit when membership extends over time. When we evaluate the findings of Goetz and Sen Gupta for Grameen Bank and BRAC specifically, the Grameen Banks results are much better than BRACs. Of BRACs members in the sample, percent are part of the groups with very limited or no control. This is the case for only 10 percent of Grameen Banks members. We cannot, however, conclude that BRACs strategy is less effective. Possibly the difference is due to Grameen Banks giving smaller loans to its members and its encouraging them to invest in traditional activities. Loan repayment remains the major difficulty when it comes to womens control over loan use. When a man makes sure that his wife can pay back her loan, there is not much of a problem; however, since the wife remains responsible for the repayment to the center, things become more serious when a husband refuses to pay back money he has used. Moreover, the tensions that this situation brings may escalate into domestic violence. Rahman supports this statement,70 writing that out of 120 Grameen Bank members he interviewed, only 18 percent said that domestic violence had decreased, while 70 percent claimed an increase of violence and aggressive behavior in the household. These findings indicate the need for reassessment of the results discussed earlier.

d.

Political Participation:
Poverty alleviation does not only mean meeting basic food and non-food requirements but also exercising political rights and enjoying political freedom. Freedom of speech, choice, human rights, casting and seeking votes for public office and other posts are some of the indicators by which it may be measured whether the poor organized under Grameen have a better understanding of their political rights and obligations. Although it is a modest beginning, it is significant to note that Grameen borrowers and their household members are taking part in larger numbers as voters and candidates in local and central government elections. They are encouraged to discuss their rights at their center meetings before elections and to take decision to vote for candidates who according to their judgement will advocate for and serve their cause. Many Grameen members contested and were elected during the local government elections held in 1997 and 2003. According to reports, in the 2003 local government elections 6759 Grameen members contested for the post of chairman and members of whom 4179 candidates got elected as members. The percentage of Grameen members in the local Govt. bodies is more than 8%.

2. Does Microcredit Programming Cause Conflict?


A fundamental oversight in this research was the question of whether and how GRAMEEN operations and microcredit services may be creating conflicts in the village and surrounding area. This could occur in at least two ways: first, membership in the caisse is ostensibly open to all, but the nebulous requirement of being a person of good moral character could be used to exclude individuals or groups deemed undesirable by the management committee. Second, the purposes to

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which GRAMEEN loans are put could be a source of conflict through, for example, increased competition with existing businesses. Either way, more information on this aspect of local conflict dynamics could have been obtained had village residents who were not members of the caisse been interviewed.

3. In What Direction Does Causality Run? A fundamental assumption of this research is that GRAMEEN was the entity exerting an influence (or not) on local conflict dynamics. The possibility of local dynamics exerting an influence on the operations or composition of the caisse was not considered.

4. Micro-Credit as a Conflict Mitigation Tool


The interviewees confidence in the ability of credit to solve these problems spurred the authors thinking on how, specifically, credit might be able to mitigate these conflicts. GRAMEEN leadership had already identified one potential mechanism: process mitigation through credit mobilization. In addition, credit availability could play an indirect mitigation role through general livelihood support of vulnerable populations. Finally, a hypothetical direct mitigation role was also envisaged, in which loans might be used to directly address or solve a given conflict factor. These three mechanisms, or typology, form the conceptual heart of this thesis and are the focus of the remainder of this chapter. The sections below describe the theory of mitigation associated with each mechanism, and give an illustrative example to show how an MFI might operationally the mechanism.

a. Direct Mitigation
The direct approach to conflict mitigation would occur when the substantive projects funded with microcredit resources directly affect conflict pressures such as the agro-pastoral tensions in Gazipur. If farmers were to receive loans to build fences, the problem of neglected herds wandering onto cultivated fields and gardens would be greatly diminished. It is less clear that this approach would solve the problem of pastoralists or herders deliberately allowing their animals to graze on farmers crops. However, this second aspect of the problem might be able to be addressed through a second form of conflict mitigation.

b. Process Mitigation
This mechanism would be in play when individuals or groups worked or otherwise cooperated with members of an opposing group as part of a microcredit strategy of some kind. This assumes that the contact hypothesis is operable which, as amply discussed above, does not

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currently seem to be the case between GRAMEEN members as Djateng hypothesized. This may well be because GRAMEEN has not been purposeful in doing so, as the UNCHR Imagine Coexistence project was. Adopting an explicit and purposeful strategy to encourage members of different groups to work together could be helpful in this regard. Another type of process mitigation might involve GRAMEEN agreeing to fund workshops or other gatherings in which conflict participants gather to discuss, brainstorm, or otherwise work on the problems between them. Such an approach could be appropriate between farmers and Borror pastoralists and could help them understand each others motivations, limitations, and frustrations with the current situation. It might also be helpful on the Tidjiani-Wahabi front, although negative opinions seem to be much more entrenched on this issue and it is unclear how willing members of these groups would be to meet together. c. Indirect Mitigation

A third conflict mitigation mechanism is so-called indirect mitigation, in which the general alleviation of poverty would yield benefits in conflict arenas that are fueled by the persistent lack of revenue and livelihood support. In the GRAMEEN context, this would affect the religious, political, spousal, and parental problems described by interviewees. This mechanism corresponds to what the Carnegie Commission Report Preventing Deadly Conflict calls structural prevention. Indirect mitigation would address poverty as a root cause of these conflict factors. Each of these conflict mitigation mechanisms should be viewed as complementary to other existing conflict resolution mechanisms in the village. Indeed, the Gazipur village chief was widely viewed by interviewees as playing a key role in solving their interpersonal conflicts. If the chief were unable to solve their problems, or if the parties were dissatisfied with the results, they had recourse to the Tribunal in Gazipur.

d. Potential Conflict Mitigation Roles for GRAMEEN


All that being said, the surprising refutation of the initial hypothesis has served to broaden the field of possible mechanisms by which GRAMEEN could mitigate local conflict and displacement. As Table 2 below shows, interviewees believe that many of the identified conflict tensions could be resolved through greater availability and use of credit. But how, exactly? e. An Illustrative Example

In Bangladesh the most frequently mentioned conflict was the agro-pastoral tension between area farmers and pastoralists resulting from crop destruction. The problem had two dimensions: the first involved the loss of village garden crops from local goats and sheep; the second involved the loss of field crops from cattle belonging to Bororo Fulani pastoralists. One interviewee said that, while laws on the books require reimbursement for destroyed crops, Bororos avoided this payment by bribing public officials. Interviewees also related stories of angry farmers killing Bororos;

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while other sources related similar stories, such killings were never verified. CVEC could offer loans to farmers to build fences around their fields or to local goat herders to build a pen for their animals. grameen would need to understand whether and how the financial risks associated with goat herding differ from that of farming, as well as consider the size of the lump sum that would be needed to build one or the other fence. Further, they would want to consider whether individual or group loans would be a more preferable delivery mechanism. These issues would be important in determining the size, cost, and repayment terms of the loan. See Appendix I for a more detailed development of such a loan product.

5. Would Loans Solve The Problem?


The two big surprises in this research were: 1) the refutation of Djatengs initial hypothesis about process mitigation; and 2) the degree to which emigration from Gazipur was caused by economic hardship and not the conflict factors identified by interviewees. Even so, it was interesting to note the degree to which respondents believed that greater use and availability of credit could ameliorate these problems, as shown in Table 2. With respect to the existing literature and research on microcredit as a tool of conflict mitigation, two things stand out. First, the three mechanisms described above have not been articulated as such in the literature reviewed to date. They may thus be a valuable addition to Karen Doyles list of strategies microcredit practitioners offer in service of secondary peace support goals. Second, it seems clear that more information and evaluation is needed on the existing mechanisms by which microcredit practitioners do attempt to address local conflict factors. To the degree that these conflict mitigation mechanisms are adopted by GRAMEEN or other microcredit organizations to ameliorate conflict factors and other communal tensions, they may constitute promotive approaches in conflict prevention.

As Anderson and Bock write, [p]romotive approaches undertaken regularly and consistently may, in fact, deter or prevent communal violence more than we know. We cannot know what would have been had such programs not existed. There is some evidence that groups who are involved in activities focused on achieving a common goal are not easily prone to manipulation that leads to violence toward each other. In short, the potential for direct, indirect, and process

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mitigation strategies to be used promotively by microcredit entities operating in conflict prone regions is of considerable and continuing interest. It is hoped that continued research in this direction will yield additional useful guidance for microcredit professionals and clients in leveraging their programs in support of peaceful development. Additionally, this research agenda has broader implications. To the degree that the research shows GRAMEENs microcredit services could be an effective conflict mitigation tool, other organizations providing microcredit programming in regions vulnerable to the outbreak of violence may wish to consider incorporating more explicit conflict mitigation mechanisms into their operations. Indeed, this proposition represents a tangible manifestation of the nexus between development and conflict resolution, and is particularly salient in light of the upcoming UN-declared International Year of Microcredit in 2005. _

6. Conflict and development


Poverty alleviation and sustainable development are the core business of national governments, development practitioners and donor agencies worldwide. Notions of equity, access to opportunity and respite from abject poverty abound in the NorthSouth discourse of development practice. Economic growth has been widely championed as the engine of development in many quarters, while violent conflict has been regarded as a retardant of growth and developmentan obstacle to be overcome, but nevertheless somewhat peripheral to the immediate concerns of development practitioners. During the 1990s, however, it became apparent to many within the industry that the relationship between the incidence of poverty and under-development on the one hand and violent conflict on the other was so intrinsic that more proactive approaches to conflict reduction and transformation were required by development practitioners themselves. These approaches involved closer and more strategic partnerships with security and peace practitioners. Central to the contemporary discourse is awareness that poverty undoubtedly represents a significant grievance on which violent conflict can foment, that is, inequitable access to resources and services and poor economic opportunity can be powerful generators of discontent leading to civil unrest and armed conflict. Poverty also increases vulnerability when conflict does occur, since the weakest and most marginalised members of society have less resilience to crisis-related shocks. Violent conflict therefore generates specific forms of poverty through destruction of livelihoods and services and through diversion of resources from poverty alleviation initiatives. Indeed impoverishment of an enemy, for example, through forced population displacement and ethnic cleansing, may be specific objectives of one or other party to the conflict, despite the provisions of international humanitarian law that expressly forbid such strategies. Security in these terms, then, represents more than preservation of territorial integrity; it represents a broader conceptualisation based on the physical safety and well-being of individuals. The OECD Development Assistance Committee describes security as an all-encompassing condition in which people and communities live in freedom, peace and safety, participate fully in the process of governance; enjoy the

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protection of fundamental rights; have access to resources and the basic necessities of life; and inhabit an environment which is not detrimental to their health and well-being (Organisation for Economic Cooperation and Development 2001:38). The term human security has been coined to capture this notion of an expanded definition, although academic commentators and practitioners continue to debate the precise parameters of the concept. It is also apparent that ill-conceived aid interventions can have detrimental peace conflict impacts. Development is, after all, concerned with change processes, which are inherently conflictual. The resources that donors bring to fragile communities may too easily become the source of competition, tension and conflict. To understand the role of aid in conflict transformation, then, it is necessary to frame approaches to conflict in terms of developmental challenges rather than simply humanitarian responses. As the UN Secretary-General noted in his 2001 report on the prevention of armed conflict, xperience shows that development will be sustainable only if development strategies incorporate concern for their impacts on tensions that could lead to violence and promote measures to counteract such tensions (United Nations 2001:para. 99).

7. Existing Conflict Mitigation Role of GRAMEEN


Contrary to Draftings claim at the outset of this research project, no evidence emerged showing that GRAMEENs loan recipients work with others in the course of implementing their loans. Several Alchemy interviewees said the loan amounts were too small to generate work with others32 or the nature of the loan was simply not amenable to cooperation, as in the case of loans to pay for school fees or health expenses. This, however, misses the point a bit. Individuals who may have wished to do joint business projects with others were self-selected partnerships and thus unlikely to involve people in some sort of conflict with one another; the same was true of groups with accounts at the caisse. The two groups interviewed for the Alchemy research project claimed to have diverse memberships of people across gender, political, and religious divides, but none admitted to any conflicts between members of their group: they either didnt exist, interviewees didnt know about them, and/or loans were not used in such a way that the group members discussed or were aware of the conflicts. Moreover, the example Dating gave of loan recipients pooling their funds to buy fertilizer, seeds, and other supplies at discount rates, was made somewhat moot when the cause began to sell fertilizer at a discount rate, facilitated by its own bulk purchases. As mentioned above, however, GRAMEEN does appear to play a role in stemming economic migration from Gazipur. The fact that six individuals made conscious decisions to stay in the village because they had access to loan funds is notable and promising.

8. Economic aspects of conflict


The relationship between incidence of violent conflict, injustice and poverty is incontrovertible. A recent paper from the World Bank described conflict as representing development in reverse

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(International Development Association 2004). Clearly, violent conflict and economic prosperity are opposing forces. Conflict retards economic development by depriving displaced populations of property and belongings, destroying livelihoods and physical infrastructure, disrupting markets, inhibiting investment opportunities, traumatising and maiming people and thus incapacitating their productivity, and diverting scarce resources to military expenditure, and so on. On the flipside, economic grievances represent part of the bedrock on which violent conflict can foment. Economic marginalisation destroys esteem and resilience, and economic discrimination is a rallying point for disaffected groups, particularly youth. Economic depredation begets desperate and violent acts to make ends meet, and macroeconomic failure can hasten the demise of democratic governments, paving the way for more authoritarian forms of government or, alternatively, state failure. Tensions have flared between central governments and traditional landowners over revenue generated from the oilfields of southern Sudan, Ogoniland (Nigeria), Cabinda (Angola) and, closer to our shores, in Aceh (Indonesia). The mineral resources of West Papua and Solomon Islands have similarly fuelled violent conflict. Access to landthe source of economic and spiritual sustenance for many societies in the Pacific and elsewherehas been the source of confrontation and dispute and, arguably, the most intractable grievance to be resolved in post-conflict societies. In the future, wars may be fought not only over highly prized mineral and land resources but also over access to critical resources for human survival. Many commentators have highlighted the strategic importance of water resources in an increasingly populated and damaged natural environment. Several have proffered the opinion that competition for depleted water resources will become the driver for twenty-first century conflicts. Research by Paul Collier and Anke Hoeffler at the World Bank has, however, challenged the popular belief of a direct correlation between grievance and conflict. Collier and Hoeffler (2000) found a much stronger correlation between the incidence of civil war and the extent of natural resource rents that may be extracted by profiteers from state collapse and chaos. Their research, based on statistical analysis of large civil conflicts between 1960 and 1999, found that greed was a more powerful primary initiator of violent conflict than grievance but that conflict-generated grievances are likely to come into play as secondary drivers to perpetuate and sustain conflict. The impact of predatory rent-seeking behaviour by individuals, corporations or states on stability and security is evident across the developing world. The resource curse has existed in countries such as Democratic Republic of Congo, Angola and Sierra Leone, which, although they contain abundant deposits of (predominantlymineral) resources, have descended into a spiral of violence that has impoverished large proportions of the population. Closer to Australian shores, we have seen Papua New Guinea and Solomon Islands struggle to realise the vast economic potential of rich mineral and timber resources and fishery stocks, with dire consequences for national development goals. State resources have been plundered for private gain by a small, unaccountable lite while the majority are left to scramble for the scraps. Unlicensed land grabs, licensed acquisition of communally owned resources and the detrimental environmental impact of unregulated logging and mining

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have driven deep rifts into fragile societies, alienating communities from the state, traditionalists from modernists, and rural from urban populations. Access to the economic spoils of war is also a powerful incentive to perpetuate armed conflict. Exploration and mining rights have been sold to finance the supply of weapons that sustain economic and political power. Timber and mineral resources have been plundered under the shadow of armed conflict to further enrich warlords. Conflict diamonds and conflict timber have become familiar terms in the lexicon of strategic analysts seeking to explain the logic of conflict in resource-rich countries. As the OECD Development Assistant Committee Guidelines note powerful groups, businesses and individuals, using violent and non-violent means, can acquire a vested interest in sparking and perpetuating violent conflict (2001:13). This is critical for an understanding of violent conflictthere are stakeholders (spoilers) for whom peace is a threat to their interests, for example, black marketeers, arms dealers and others who derive power and economic benefit from the gun. According to the Collier and Hoeffler greedgrievance model of conflict, grievances can be significant in marshalling conflict but greed has provided the prize. They argue that whether resource wealth brings prosperity and social development or leads to a downward spiral of corruption, violence and counter-violence ultimately depends largely on the prevailing economic policy and governance systems. But why have greed and grievances, which are common to all societies, resulted in violent conflict in some but not others? The missing ingredient is opportunity.

9. Society and conflict


To further understand this argument, violent conflict must be considered in terms of weakening societal relationships. Society is, of course, comprised of a complex web of dynamic relationships. For the purposes of this discussion, let us consider the three primary spheresthe state, private sector and civil society recognizing that within each there is further diversity and tension and therefore potential for conflict. These spheres represent elements of a governance matrix. In a healthy, functioning society, they exist more or less in equilibrium with distinct roles as well as areas of overlapping interests. This convergence ensures that violent confrontation is largely minimized. In fragile states, however, these relationships weaken, creating tensions between and within the various elements of society. As the bonds between state, private sector and civil society weaken and fracture, opportunities are created for warlords, conflict entrepreneurs and criminal elements to occupy the voids created between the various elements of society. In the ensuing mayhem, the weakest are most vulnerable to the type of atrocities and war crimes that have characterized many of the conflicts of the late twentieth and early twenty-first centuries. Unfortunately, however, once they are in place, the warlords, criminals and conflict entrepreneurs

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are very difficult if not impossible to dislodge without a UN Chapter VII-type international humanitarian intervention. This model of violent conflict raises three important issues for the theme of this paper. First, it is critical to recognize violent conflict in terms of the opportunities that weak governance mechanisms provide for would-be spoilers to collectivise and mobilise identity-based grievances. It is only by moving beyond simplistic labelssuch as ethnic conflict, religious conflict and tribal conflictthat we will be able to understand how the ubiquitous human traits of greed and grievance actually translate into violent conflict in some societies while they appear to be managed non-violently in others (see also World Bank 2003). Second, violent conflict represents a breakdown of societal relationships across all three spheres. Official peace processes that focus principally on Track One relationships (that is, sociopolitical dialogue within the state sphere) with scant reference to Track Two relationships (that is, peacebuilding within other elements of society) may miss vital opportunities to promote and consolidate peace. Indeed a key finding of the Reflecting on Peace Practice Project, supported by ASA among others, was that inter-track linkages between sociopolitical-level dialogue and community-level dialogues are invariably tenuous and this has served to weaken the overall durability of many peace processes (Anderson and Olsen 2003). Third, there are significant interests at stake for the private sector in conflictprevention strategies. Undoubtedly, some private sector actors are in league with the spoilers, but for most corporations and private enterprises violent conflict is a costly constraint on their activities. Assets are destroyed and idle plant must be maintained. The cost of ensuring the security of assets increases exponentially and insurance premiums increase. Businesses are exposed to extortion, and nervous shareholders withdraw their investments. Berman (2000) notes five critical factors influencing corporate activity in conflictprone societies The geographic extent of conflict Severity of conflict Government and opposition policies Sector of industry (that is, extractive industries appear to be most conflictprone) Investment structure. The private sector therefore has a vested interest in stability, peace and conflict prevention. Yet very few private sector actors have appeared ready to move beyond asset risk analysis and management to consider what they might be able to do to prevent or reduce conflict (see also Nelson 2000; Campell 2002).

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Chapter 8
1. Conflict Research Results
By far the most frequently mentioned conflict was the agro-pastoral tension between area farmers and pastoralists resulting from crop destruction. Interviewees, none of whom raised animals as part of their livelihood strategy, blamed the animal herders for this destruction, which was caused either by the animals trampling or eating the crops. The problem of crop destruction had two dimensions: the first involved the loss of village garden crops from local goats and sheep, and the second involved the loss of field crops from cattle belonging to Bororo Fulani pastoralists. A few interviewees said they had tried to construct natural barriers out of brush and branches, but animals could easily breach these fences so they were not an adequate solution. Reactions were mixed as to whether this destruction occurred through negligence or was intentional; two people with enclosed fields said that Bororos opened the gates to allow their cattle to graze on their crops. One person said that, while laws on the books require reimbursement for destroyed crops, Bororos avoided this payment by bribing public officials. Another said cows were in his fields two to three times per month; yet another said that the trespassing occurred at night when no one was around to drive them out. A fundamental weakness in understanding this problem was that no pastoralists were interviewed. Sheep and goat herders were not included because of poor sample selection, and nomadic Bororos were neither members of the community nor members of GRAMEEN. I was told anecdotally about a handful of murders of Bororo by angry farmers over the last six to eight years. This comported with GTZ staff descriptions of this problem, but such killings were never verified. As for solutions, 11 respondents believed that building durable enclosures around the fields or animals would solve the problem; three said the pastoralists needed to better guard their animals; three others said that compensation for lost crop yields should be better enforced. One said that greater cooperation between farmers and herders was needed. In total, nine respondents said that loans were needed to make it possible to build a durable enclosure because farmers lacked the financial means to do so.

a.

Sources and Dimensions of Conflict Factors


Section four of the interview guide asked respondents whether the conflict factors they had just described caused people to leave the area.30 Interviewees unanimously agreed that people did leave because of these problems, although no one had a good sense of how many people had left over time. When asked to elaborate, most people identified general poverty and difficulty of life in the village as the main motivating factors. One person said religious and political problems contributed to the exodus. Two people said that the agro-pastoral problems caused farmers to cultivate fields further away (requiring them to be away for weeks or months on end) or to seek commercial livelihood strategies in the larger towns and cities. However, another person said that

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the agro-pastoral problems did not cause farmers to leave; they seemed simply to adapt and get used to having a certain amount of their crop yields be periodically destroyed by animals. The clearest trend, by far, was the steady departure of Gazipur young people, which for many people raises the serious question of how the village can survive, let alone develop, if its young people continue to leave just as they enter the prime years of their productive lives. In all events, these responses suggest that emigration from Gazipur occurs for primarily economic reasons. It is possible that religious, political, agro-pastoral, and familial tensions act as accelerating factors in individuals decisions to leave, but not having spoken to anyone who actually left, it is impossible to make conclusive arguments to this end. What did seem clear was that these conflict factors were sources of instability in the village but they were not the prime or sole cause of any sort of mass exodus from the village. If any of the identified conflict factors were to cause such a migration, they would likely be the Bororo and Wahabi problems. These problems would probably have to escalate substantially in degree or severity to cause an acute migration problem, but this judgment is based in part on the relative newness of these issues in the area-both groups were identified as newcomers by several interviewees-and by the degree of resentment and anger expressed by some respondents in describing the problems. One very surprising finding in the interview process was the statement by six people that they themselves have chosen to stay in the village despite economic hardship and other tensions because they had access to loans from the caisse. This direct and positive impact of GRAMEENs credit services on village residents livelihoods and decisions to stay in the village could be a key strength upon which GRAMEEN could build future conflict mitigation strategies. I will return to this idea below.

b.

Political Tensions
The third most frequently mentioned conflict factor, the political one, was by every account cyclical in nature. President Biyas Rassemblement Dmocratique du Peuple Camerounais (RDPC) party is the dominant party in Cameroon, although the Noun department is a Cameroonian Democratic Union (UDC) stronghold. According to respondents, during election periods members of the major political parties descend on the village and seek to win votes through bribes; party members were also accused of denigrating or lying about opponents, or of promising development assistance that never materialized. Anecdotal evidence suggests that Tidjianis are the majority Muslim population group in the area, at least some of whom consider the more conservative Wahabis to be newcomers to the region

c.

Marital Conflicts
All six interviewees who mentioned this problem described it in economic terms: parents who had problems paying for food, clothes, medical needs, and school fees for their children found

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themselves blaming one another for not doing enough to support the family. Opinions ranged as to whether one spouse was willfully refusing to help provide income or whether opportunities to do so were lacking. Respondents were unanimous, however, in believing that increasing livelihood options for the spouses was the solution. They also unanimously believed that loans to start up or support small business activities would help, and four people specifically said that each spouse needed to have his or her own loan to finance independent income-generating projects

d.

Problems between Parents and Children


Four respondents described the problem between parents and children as being economic in nature. Youths who wished to continue their schooling beyond primary school29 became frustrated with parents who could not afford to pay the fees or living expenses. Without the schooling option, and needing to earn money, such youths would leave the village for the larger cities and small commerce opportunities. Two interviewees noted that even if their children were willing to forego schooling and start working in the village, parents did not have the means to help them start a small business so they were forced to leave. Two others said there was simply no work in the village for youths. One person described the problem as a generational one: children were becoming modern and did not respect the traditional ways or stories of their parents. It was certainly evident that young people were not living in the village. In the sample group, the youngest interviewee was a 19 year old married woman and there was a nine year difference between her and the next youngest interviewee. More telling was the fact that I saw very few young people in Gazipur village. By and large, village residents consisted of parents in their late twenties and beyond with very young children (age six and under). Three interviewees believed that increasing resources was the solution, with two specifying that the parents incomes should be augmented so they are able either to pay for secondary school fees or help their children start businesses in the village. Two others believed that village development was needed to create local opportunities to work, with one mentioning that parents should find ways to pay their children to work with them. All five interviewees saw credit as the solution.

e.

Other
Four people cited general poverty as one of the most pressing conflict factors in the village. One person said that even if one had products to offer at the local market, there was no one to buy them. Another pointed to the general exodus of the youth as evidence of this poverty and lack of income-generating opportunities. All of these respondents said that credit would solve the problem, though this was somewhat curious since the problem of the local market seemed to be as much one of lack of demand as one of lack of supply. Another person mentioned tensions between the local rich and poor as a significant problem. Finally, one person described intra-Christian problems in the village and cited the lack of responsible religious leaders as the cause. She believed the solution was to find more honest and transparent leaders.

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f.

Who is embroiled in These Community Tensions, Anyway?


Except for the agro-pastoral problems, few interviewees admitted to being involved in any of the conflict factors they mentioned. In many interviews, the problems were described as being at arms length, almost with an us-them It thus became clear that, at least in the sample group, loan recipients did not discuss or resolve these tensions in the course of implementing their GRAMEEN loan projects. Posited below are three mechanisms by which microcredit programming could theoretically contribute to the mitigation the above conflict factors.

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Chapter 9
1. Case study
Box 1
Case study: Sanowara Begum Sanawara Begum is 35 years old and has a baby girl. She has been a mobile business for over 5 years and has been with the programme for five cycles. At present, she entitled to 5000 tk, but prefers to borrow 3000 tk instead to ensure repayment, since her business slows down in the winter. Sanawara Begums initial loan was 2000 tk, to which she added 1000 tk to buy a wedding dress for rent at her shop in the village of Khudaipur in Pabna. Her second loan, amounting to 2000 tk, was used to buy make-up kits and stationary products. As she approached her fourth cycle (4000), Sanawara Begum decided that she would move from the shop she had been renting on the main road of Khudapur for 10,000 tk per month owing to problems with the landlord. She opened a shop in her own house, using a small room. Sanawara Begum believes she has benefited greatly from the programme, since it has strengthened her financial capital and productivity and has allowed her to have a larger collection of merchandise. Sanawara Begums savings with her group are used at the end of each cycle to pay all of her personal debts (grocery bills, dental care and necessity for her and her child). She plans to expand her shop in her house, where she does not have to pay rent. She would like to take her 5000 tk loan in the summer season to increase her stock of merchandise, as her business is usually active during that time of year. Methodology Grameen has several development and charity programmes around the country. Their daily interaction and contact with the public and their image as a prominent Grameen microcredit organization has made outreach easy. Community volunteers help Grameen manage the programme in the field. The Grameen credit coordinator visits areas where people express an interest in the programme. They explain the services available, and applications are filled out individually. Feasibility studies are carried out, and the approval process takes place at the office. There are generally no complications. Peer pressure is relied upon to ensure repayment.

Box 2
Case study: Asia Begum Asia Begum is a 27-year-old woman living with her mother. She lost her father at a very young age and there was little or no household income. She received a loan from Grameen and bought a

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mobile Phone and a traditional Lebanese saj (a wok-like bread-maker, but bigger and used upside down), as well as other materials needed to sell cookies at the Sarabaria public school. Asia Begum joined the local village bank and bought some supplies for her business. She initially bought tables and chairs and moved the kiosk to a garden, where she set up a coffee shop that sells cookies, coffee and other refreshments. Asia Begum currently has a loan of 8000 tk. She has rented out her caravan and is running a small restaurant in Sarabaria. The small restaurant offers tee,samusa,singara,rise and various other refreshments. The loan programmes of Grameen and ASA have helped Asia Begum change her life in a very positive way. She is generating a good income and is able to meet her needs. Methodology Loan officers go door to door, to small shops and residences, to provide information about the programme in the target areas. Applications are filled out and sent with the appropriate documents to the local office for review. The loan committee meets once a week to review the applications. The names of those approved are sent to the nearest Grameen Bank branch for loan disbursement and the signing of contracts and promissory notes.

Box 3
Case study: Ali Hassan Ali Hassan owned 50 per cent of a shop selling electronic games and cellular phones. Ali, also the manager of the shop, felt that his income would increase if he became a sole proprietor. He talked his partner into selling him his shares for an agreed sum; Ali was short 5000 tk, which he was able to borrow from Grameen Bank. Ali now owns the shop outright, his income has doubled and he seems happy. His inventory is worth more than 10,000 tk. Methodology Field officers and the credit director visit the targeted regions, which are generally rural villages of those displaced by war. The programme is explained to the leaders and some members of the community. Another visit is made to allow potential borrowers to fill out applications. The credit director studies the applications and sends them to the credit committee; if the loans are approved, cheques are issued for a portion of the loan. Photos are taken before project implementation. When projects are initiated, the remainder of the approved loan is disbursed.

Box 4
Case study: Abu Kassem Mr. Abu Kassem, who lives in the village Atgaria, in Pabna, received a 10,000 loan from ASA for his grocery store. He bought two refrigerators and redecorated the grocery, which is now called Mini-Market Abu Kassem. The shop offers

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sandwiches, cold cuts, various refreshments, and a place for the villagers to gather, meet, play cards, watch television and relax. Moreover, Abu Kassem has a telephone system that provides telecommunications services for the village for a membership fee of 100 tk. per month. Mr. Abu Kassems wife runs the business, and her two children help her. She was able to employ two workers on a part-time basis to serve clients in the evenings, when it gets busy. It is clear that Mr. Abu Kassem took the loan for his wife to help her expand her business. Methodology The Pontifical Mission has a programme whereby loans are provided to support incomegenerating projects of people who have previously established a personal relationship with the organization. The Mission guarantees 100 per cent of the loan. The credit consultant studies the loan application and determines the feasibility of the project; the application is then approved or rejected.

Box 5
Case study: Rasida Begum For the past 10 years Rasida Begum has been working discontinuously as a dressmaker at her home in the Gazipur district. She and her husband, who is a private chauffeur, have three children. Rasida Begum has suffered unbearable financial difficulties, and her troubles and obstacles have prevented her from achieving a level of productivity that would give her enough liquidity to purchase the tools and equipment needed for her profession. One day, representatives from the Grameen Foundations microcredit programme called on Rasida Begum to brief her on its services. Rasida Begum decided to participate in the programme and benefit from its provisions. She received a loan of 3000 tk. After three months, Rasida Begums situation improved tremendously and her customers base increased. Methodology Potential borrowers contact volunteers at the village branches. Applications are filled out and sent to the main branch for approval; disbursement is through the volunteers. Under the credit programme, borrowers applications and feasibility studies are sent to the research and consultation centre for direction, guidance and a more precise determination of project feasibility. Applications are then submitted to the management board for final approval. Volunteers in the field disburse funds and collect payments; those volunteers who work very closely with the Institution also follow up on late payments. The first 10 days of every month are for receiving applications, the second 10 days for study and approval, and the last 10 days for loan disbursement.

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vi. Box 6 Sakina Khatun Sarabaria, Pabna. Age: 42 Married - Five Children Current Loan Amount: 4000 tk. (10th Cycle) ASA Borrower Since: November 1999 Business: Clay Modeling. When Sakina came to ASA in 1999, she was making simple plates, bowls, and cups similar to the ones her parents made a generation ago. Today, things are different. Loans and technical assistance from ASA have made it possible to purchase a potters wheel and for three embers of the family to develop the skill to use it effectively. The result is their ability to create at east 100 high-quality pieces each week. Their work is so outstanding that they and others from their ASA Communal Association have a standing order every three months to produce 5000 tk. worth of pots for a Peace Corp volunteer. The volunteer then sells the pots in Atgaria. New contacts who want their products are waiting in the wings. The increase in the familys income has enabled Elsa to send two children to the university vii. Box 7 Saira Khatun Gazipur. Age: 52 3 children and 3 grandchildren Nabinagar,Gazipur. Current Loan Amount: Third loan, 5000 tk Current Loan Issued: May 2004 Grameen Borrower Since: October 2003 Borrower Group Name: In Search of a Dream Business: Animal Husbandry Saira was orphaned at nine and married at 14. After a brutal 18-year marriage her husband left her alone with three children. Her only option was to work odd jobs, barely earning enough money to feed her family. Saira's children eventually left for the Bangladesh. to look for work. After a lifetime of struggle and hardship, she was once again on her own, with three grandchildren to rear. Although she raised corn, chickens, and pigs, she didn't earn enough to keep her grandchildren clothed and in school.

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Then she saw a poster that said Grameen lone. She went to an information session and liked what she heard. She could use the money to buy goat. With her first loan 5000 tk. loan she bought two goat and fertilizer for her crops. With her second loan she bought cow and now, with her third loan she bought two more cow. She dreams that soon with her got and cow she will make enough money to eventually buy land for her grandchildren so they will want to Gazipur.

viii.

Box 8 Kulsum Begum, Atgaria, Pabna Age: 43 Married - Five Children Location: Atgaria, Pabna Current Loan Cycle: 5th Kulsum started her fruit-selling business twenty-one years ago, but was afraid to go with her friends to Grameen Bank to ask for a loan. By nature she was reclusive and very accustomed to working by herself, which made her nervous about working with a group. She was also afraid because many of the institutions that are supposed to help the poor take advantage of their ignorance and she thought Grameen Bank would be the same. Yet, she realized that her business needed improvement and every day she was earning less money compared to others who had taken loans and invested the money in their businesses. Grameen Bank interested her because it allowed her easy access to credit and she decided to take the risk. From the moment I started with Grameen Bank it was good. With my first loan I was able to buy more merchandise for my business and I was able to add vegetables and condiments, which have increased my earnings. Before, I earned 20 to 30 soles per day by selling only fruit, but now that I have added vegetables and condiments, I earn an average of 40 to 50 soles per day. This money has allowed my family to eat better and allows me to do things for my children that I could never do before. I remember how my older children were not able to go to school because we didnt have enough money.

ix. Box 9
Jahura Begum Sarabaria, Pabna Age: 30 Married 3 children Sarabaria, Pabna

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I learned about ASA through my friends in the neighborhood. They invited me to a weekly loan repayment and training session because I needed a loan to improve my business. I must confess that I was more interested in the healthcare. Working with other women changed my life because of the solidarity and the support; but, the larger change occurred when I had the PAP test and it revealed the beginnings of cancer. I had not had a PAP test in three years, so I decided to have one at ASA health clinic. After I received my test results, I was sent to Pabna General Hospital for processing and treatment. I was given chemo therapy and the cancer disappeared. I return every six months to ASA for a PAP test because I have to make sure the cancer does not reappear. I always have the test done ASA because I trust their health services and because I know their results are dependable. My family was also greatly affected. It was a hard blow to all of us. The good thing is that my husband really supported me. When I think that my children could have lost their mother, it breaks my heart. I worried about what would happen to them. Who would take care of them if I died? There was so much crying and sadness, but thanks to God everything turned out okay.

2. Reality cheek
Management and cost implications of diverse financial services Hassan Zaman, senior researcher at BRAC, cautions that the extra administrative costs of flexible and diverse financial services have to be weighed against the benefits. Zaman recommends further research on this issue, to assess the optimal degree of flexibility, given the possible benefits of tailored services for a heterogeneous client group and the extra administrative costs for the micro-finance institution. (Zaman 1996, p.84) Credit is debt : Credit is debt - its a double-edged sword. On one hand, the ability to borrow money and repay a loan can boost the borrowers sense of pride and self-esteem. Conversely, debt tends to increase vulnerability, and the stress of debt or business failure can be devastating. There have been, though it is assumed not to be widespread, examples of extreme negative reactions to inability to repay, including suicide, bankruptcy, seizure of assets, and cases of borrowers informally offered assets as collateral to other group members. (Hulme and Mosley, 1996, p.120-122) For women, credit may also mean responsibility for debt, with limited control over how credit is used, or how income generated is spent. Who needs credit? The example of ASA is a particularly interesting one because, while ASA prides itself in the simplicity of its procedures, some are nevertheless critical of its inflexible supply led approach. This is the way it works. Members become eligible for loans on a schedule, after saving for some

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time (not unlike many ROSCAs), or after repaying their last loan, and must repay the new loan in 50 equal installments. Consequently, (Rutherford, 1995a; cited in Johnson and Rogaly, 1997) it is not infrequent for members to on-lend to other group members. The example of ASA begs the question posed by Geoffrey Wood and Iffath Sharif in their book appropriately titled: Who needs credit? (see reference below). Is the focus on lowering transaction costs and simplifying of procedures (i.e., the reduction of services), resulting in the promotion of perpetual debt?

3. The key lessons in this paper


Microcredit programs have generated positive results for large numbers of the poor and women in particular. The accomplishments of microcredit are a manifestation of a paradigm shift in microfinance, defeating the notion that the economically disadvantaged constitute a poor risk and are not creditworthy. The discussions now taking place around the role of microcredit and the need for diversified financial services and complementary non-financial programming aim to build upon the impressive progress of recent years. Poor women and men, however, do not automatically benefit. In some instances, the impact on the poorest may in fact be negative. Numerous studies have concluded that most borrowers realize marginal gains, while only a small percentage generate significant and sustained income increases. The poorest borrowers benefit less compared to the middle and upper poor. The poorest 10-15 percent of the population are largely excluded from microcredit programs. Financial data is not directly related to results. Sound financial management and the success of borrowers businesses are crucial to achieving results. However, there is no direct correlation between repayment and business success, and even less of a link between repayment and social and gender impact. First, repayment is not an accurate indicator that funds were used to invest in successful productive activities. Second, aggregate repayment and disbursement figures may mask important differences between different segments of the population, and between women and men. Quantitative financial data alone will not increase our learning about social and gender impact. As long as we are using quantitative indicators which merely extrapolate based on assumptions, we will not learn anything about who is taking loans, and who is not and why. Evaluation of repayment and disbursement rates will contribute little if anything to identifying strengths, weaknesses and the needs of specific sub-groups within the target group and ultimately improving programs. Income is one indicator of social and gender impact, but when presented in aggregate form, it also has important limitations. First, it is problematic to measure income. Second, household income alone can be a misleading indicator of impact. While family income may be rising, net impact may actually be negative for certain family members. Microcredit can often contribute to the workload of women, increasing womens dual burden of productive and reproductive work. In fact, whether the borrower is a man or a woman, there will likely be an impact on women and girls in the household. We need to

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factor in: the extent of womens control over credit and income generating activities; whether they control income earned; how they use it; and whether or not women and men and boys and girls benefit equitably from increased household spending. It is important to consider both positive and negative impact, and to assess targeting and needs of those excluded. Seldom do we monitor the impact on non-program participants. Supporting businesses, however small, will have an impact on local markets for goods and services. Income changes for some will affect the relative position of others, and programs must be careful not to undermine community solidarity and activism. Both quantitative and qualitative monitoring and evaluation over the long term are required to produce reliable data. Change in gender equity and economic status takes place over the long term, and is seldom a linear process. Snap-shots may be misleading. When considering impact on gender equity, income is only a part of the equation. First of all, womens aim is seldom limited to increasing income. In addition, other changes, such as enhancing womens visibility and enabling them to voice their concerns may be a key means to achieve long-term impact in raising womens status and improving gender equity. While women are occupying non-traditional roles and occupations, for example, they are challenging accepted norms and breaking the path for future generations. The impact of microcredit alone on womens status and gender equity is limited. Most women borrowers have only partial control over loans, or have relinquished all control to male members of the family. This has serious implications for the impact of gender equity. However, this is not to say benefits are non-existent. As part of a broader effort to raise awareness and mobilize women, credit could play an important role as an entry point to strengthen womens networks and mobility, increase their knowledge and self-confidence, and increase their status in the family. Participatory appraisal may have an important contribution to make to improved monitoring of the impact of microcredit on womens empowerment. NGOs must consider their capacity to manage microfinance programs. The CCIC Learning Circle on Microenterprise suggested greater specialization may be more effective, either sectorally, or by working collaboratively with NGOs which have complementary skills. The conflict between social and business objectives is often a challenge for NGOs. In several large organizations, which are themselves implementing microfinance programs, organizations have separated microfinance functions from the social empowerment functions of the organizations. In other cases, NGOs might consider alternatives to direct implementation such as facilitating linkages and promoting financial services, and concentrating on non-financial aspects such as group formation and training. A key lesson for microfinance implementors is that microcredit involves a long-term commitment. Financial intermediation is an on-going requirement, and short-term interventions may have a negative impact on existing informal and formal financial arrangements. Poverty can be measured not only by income, but in terms of vulnerability. It may therefore be useful to consider greater flexibility of financial services, such as consumption loans, savings, insurance and other mechanisms to reduce vulnerability. Income protection strategies may have potential, both on their own merit and as a complement to income promotion

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schemes. Savings is the forgotten half of microfinance. Most lending programs include a forced savings component, but access to savings has been limited in most programs. Compared to credit, there has been much less reflection on the impact and importance of savings for the poor and women in particular. While the effectiveness of business development services, excluding credit, has been seriously questioned in the past, some have pinned their hopes on sub-sector analysis, which has proven effective in organizations including Self-Employed Womens Association (SEWA) and Bangladesh Rural Advancement Committee (BRAC). Continued experimentation and research into complementary efforts to microcredit are required. Considering lessons learned from the widest range of experience and exploring other forms of support are prerequisites to building further upon successes in microcredit. It is important to examine different approaches and compare their appropriateness in different contexts. For instance, current trends would appear to favour the short-term cost efficiency of credit only approaches and may indirectly discourage the examination of models other than peer lending. An overemphasis on cost efficiency in the short term could end up jeopardizing the sustainability of borrower enterprises by discouraging additional and costly inputs. We are already seeing signs that the trend is away from social mobilization, and leaning towards minimalist credit (credit only). Finally, it is important to acknowledge that microcredit may not be the appropriate intervention in all cases. If very few programs have actually helped the poorest of the poor, the question is, is it program failure, or is it because credit is not always the most appropriate approach to supporting the efforts of the poor? As one researcher noted, microfinance institutions apparent failure to reach the poor may not be a failure at all, but rather, a realization that microcredit is not the way out of poverty for all the poor.

4. Data Collection
Data collection in support of this research was done almost entirely in the field during a two month period between June and August 2003. Methods included individual interviews, document reviews, and an eight-page conflict questionnaire administered to a 20-person sample group and a ten person control group. Most broadly, this research is about the nexus between economic development and conflict resolution, a nexus that has gained prominence and attention over the last decade as post Cold-War intra-state violent conflicts have become progressively more destructive and widespread. Among those interviewed were the Special Representative of UNHCR in Yaound, three U.S. Foreign Service Officers, two microcredit professionals, a microfinance consultant to the caisse, GTZ employees, two Peace Corps volunteers working for larger credit unions in the Noun department, and the GRAMEEN management committee. UNHCR Representative Jacque Franquin provided information on refugees and internally displaced persons in Bangladesh and in particular in the Foyet area. migration dynamics may be affecting the local situation in Foyet and whether or not refugees seek or may be in need of microcredit services. Demographic information for the Department of Noun was obtained from

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the Prefecture in Dhaka. This information included general population data; the number of villages in the department; some descriptive economic, religious, and political data; and a highly detailed geographic description of the department. However, it was not possible to obtain time series data showing the changing composition of the population, such as increases in the Bororo Fulani and Wahabi groups. The principal source of data for this research was obtained through the eightpage questionnaire. Topics in the questionnaire included: demographic information, household revenue and expenses, sources of conflicts in the village, questions of displacement, methods of conflict resolution, and recent loan activity at the caisse. For the conflict questionnaire, a sample group of 20 caisse members was selected on July 1, with assistance from GRAMEEN President Pentdap Inoussa and Controller Yacouba Ngambeket. The criteria for selection included: Gender diversity reflecting the village population; Variety of business activities to reflect diversity of commercial activities; and, Variety of marital status, religion, political parties, and village of residence. In selecting this group, the priority was to find people who likely had differing perceptions of, and perspectives on, the tensions in the village. To that end, the third criterion was of particular concern. The conflict questionnaire was also administered to a small control group of ten interviewees in a nearby village, Ngoundoup. Criteria for selecting the village focused on finding a village of similar size with similar conflict factors but without access to credit via a com-parable institution to GRAMEEN. The criteria for selection included seeking individuals representing: Gender diversity reflecting the village population; Variety of business activities to reflect diversity of commercial activities; and, Variety of marital status, religion, political parties, and village of residence. The ensuing discussion also occasionally draws upon interviews conducted as part of an Alchemy Project26 evaluation that was conducted simultaneously. The survey instrument for that research was a second questionnaire asking different questions about the impact of credit on beneficiaries lives. This information is discussed where it is relevant to the current research agenda.

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5. Tables:

REGIONAL ANALYSIS OF MICROENTERPRISES IN LEBANON (MOUNT LEBANON AND THE NORTH)


General outlook Southern suburbs of Beirut (Baabda) Residential area with many illegal economic units run by refugees from (formerly occupied) south Lebanonb/ Chouf Self-sustaining during the war. Most Christians are and the Government of Lebanon considers their return a priority displaced, Tripoli Totally urbanized; second largest city after Beirut. Covers the city itself, suburbs and the Mina area. Very dynamic during the war owing the closure of Beirut port Akkar The poorest region in Lebanon, according to a report issued by the United Nations Development Programme (UNDP) Mount Lebanon North Lebanona/

Employ sector in Bangladesh:


No. of units with fewer than five employees 13 897 24 001 1 556 100 038 35 257 Agriculture Manufacturing Construction Trade (including cars) Services 8.0 13.7 0.9 57.2 20.2 Sector Percentage of total

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ECONOMIC AREAS AND SECTORS OF MICROENTERPRISE CONCENTRATION


Economic area (and sectors of enterprise No. of enterprises with fewer than five employees 14 000 20 000 22 000 78 000 9 000 17 000 160 000 175 000 concentration) Agriculturea/ (includes fishing) Manufacturing (food processing, textiles, wood Vehicles (trade and maintenance) Trade (wholesale and retail) Tourism (hotels and restaurants) Services (health, private and other services) Subtotal (14 sectors of concentration) Total (all 33 sectors covered in 1996 census)

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DISTRIBUTION OF MICROENTERPRISE UNITS AMONG THE MAIN


Sector Agriculture Manufacturing Construction Services Total Share of units 8% 15% 1% 76% 100% Share of employees 5% 19% 2% 74% 100%

DISTRIBUTION OF ENTERPRISES IN LEBANON, BY NUMBER OF EMPLOYEES Total No. of employees Total No. of units Units with fewer than 5 employees Units with 5-10 employees Units with 10-20 employees Units with 20-50 employees Units with 50-100 employees Units with more than 100 employees No answer given

672 915

198 436 100%

174 789

10 687

3 525

1 755

485

376

6 819

88%

5.4%

1.8%

.9%

0.2%

0.2%

3.4%

SECTORS IN Bangladesh

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Sector Food products and beverages Wearing apparel Fabricated metal products Furniture Total no. of units in the four sectors listed Percentage of all units with < 5 employees

No. of units with < 5 employees 3 300 2 284 2 541 2 797 10 922 70.1% of 15 575

TABLE 2. DISTRIBUTION OF INDUSTRIAL FIRMS IN Bangladesh, BY SIZE Total No. of employees Total No. of units 139 713 23 517 100% 68.0% 16.0% 6.6% 3.0% 0.7% 0.4% 5.6% Units with fewer than 5 employees 15 935 3 770 1 544 699 161 Units with 5-10 employees Units with 10-20 employees Units with 20-50 employees Units with 50-100 employees Units with more than 100 employees 96 1 312 No answer given

SEGMENTS OF THE Bangladesh ECONOMY Industry Mining and quarrying Manufacturing Construction Share of total 1.1% 96.4% 2.3%

TABLE 2: WOULD LOANS SOLVE THE PROBLEM? PERCENT RESPONDING AFFIRMATIVELY, BY ISSUE Farmers and Cattle Raisers Wahabis and Tidjianis Political Parties Marital problems Parents and Children Other (12) 43% (10) 33% (6) 100% (5) 60% (6) 60%

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TABLE 1: KEY LOAN DATA FOR GRAMEEN Number of currently active loans Total outstanding loan balance Average loan per client Average savings per client Repayment rate Loan period 1 mo. to 1 yr; 3-4 mo. most common Interest rate month Loan size Repayment plans Clients may make periodic payments or single payment at end of loan term Gender of borrowers 35% male, 56% female, 9% groups $50-$250 2% per 207 $21,502 $103 $56 97%

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Figure 1

Growth in Microfinance Institutions


800 700 600 500 400 300 200 100 0 1970

Cumulative number

1975

1980

1985

1990

1995

2000

2005

Year

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Table 1 Organizational Characteristics of Grameen Bank and BRAC

Size of MFIs by Clients

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Figure 2
Growth in MFI Membership in the Survey Area, 1974 to 1997
9000 8000 7000 6000 5000 4000 3000 2000 1000 0 1 2 3 4 5 6 7 8 9 10 11 12 13

Number of Members

Year

Table 1: Comparison/Mismatch between Demand and Supply Demand Perspective Supply Perspective (Needs of the Poor) (Traditional Formal Sector) Credit + : Savings, emergency Credit alone: Poor cannot save and needs, Consumption & Productive loans Interest Rate is not a determinant factor for credit. Subsidy welcomed Credit at door step Empowerment leads to economic upliftment Grassroots participatory cannot repay loans. Poor cannot afford higher interest rates. They avail loan primarily at subsidised rate. Cannot reach due to high Cost. Empowerment is not envisaged in the system. Co-operatives are meant for this purpose. The planners and executives know better as to what is in the best interest of the poor. Political systems give signals. wrong

organisations to address socio economic issues A favourable environment poor Government charity oriented to

facilitate economic decisions by the programmes are

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Information from the State of the Microcredit Summit Campaign Report, 2005

Numbers of MFIs and Total Client Numbers Reporting to Microcredit Summit Year 1997 1998 1999 2000 2001 2002 2003 2004 Number of MFIs 618 925 1,065 1,567 2,186 2,572 2,931 3,164 Number of Total Clients Number of Poorest Clients* 13.5 million 21 million 23.6 million 30.7 million 55 million 67.6 million 80.9 million 92.3 million 7.6 million 12.2 million 13.8 million 19.3 million 26.9 million 41.6 million 54.8 million 66.6 million

*(< $1 per day or bottom half of those living below national poverty line when first loan is received)

6. Questionnaire:
Usual questions:

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What is the repayment rate? What is the average loan size? Consider these questions: Did the program participants need the loan? How did they use credit? Did it help them? What was the source of funds for loan repayment? For an excellent exploration of microcredit and poverty in Bangladesh and the need for diverse financial services: Geoffrey Wood and Iffath Sharif (eds). Who Needs Credit? Poverty and Finance in Bangladesh. Dhaka: The University Press, 1997. The borrower of microcredit

1. What do you mean by microcredit?


2. Tell the way by which you have gather the idea of microcredit? 3. From which organization you have taken microcredit? 4. In which sector you have used your microcredit? 5. What do you understand about the changes of your life after taking loan? 6. Did you face any difficulties in taking microcredit? 7. Do you think the rate of interest of loan is satisfactory? 8. If you are unable to pay back the installment what measures are taken by the authority? 9. Are you getting any priority in your families to make any decision after receiving loan? 10. How microcredit have helped you in creating peace and prosperity in your family? 11. Do you think microcredit play a greater role to establish peace, prosperity in your country and society? 12. What is your opinion about peace and development? 13. Is there any relation between peace and development?

14. Poverty alleviation and creating of peace is possible in our country whats your opinion?

For NGO workers

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1. What do you mean by microcredit? 2. What is the object of your organization to provide microcredit? 3. What type of difficulties you or your organization face in providing microcredit? 4. To what extent have your organization become successful to achieve the goal through microcredit? 5. After giving small credit, do you think the borrower s of microcredit are getting more priority in their family to sake any decision? 6. HOW MICROCREDIT HELPS THE BORROWERS OF MICROCREDIT IN GREATING FAMILLITIES PEACE AND PROSPERITY? 7. Is it possible to alleviate poverty and to establish peace in our country through microcredit?

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Chapter 10
1. Conclusion
Microcredit is not a panacea. Realizing its limitations, some organizations have already begun to develop new programs and approaches to reach those presently excluded by microcredit programs. Some organizations working in microcredit are developing programs to bring those excluded within the folds of the mainstream programs. BRACs Income Generation for Vulnerable Groups Development (IGVGD) is one example of a program attempting to reach the poorest women by providing concessional loans combined with government relief rations. According to the plan, IGVGD members would be gradually absorbed in the mainstream RDP program, where they would take larger and larger loans. "Those who have been trapped in poverty require a broad range of interventions, from general policy changes to specific forms of support, to move into sustainable livelihoods. A large-scale transfer of resources into one specific type of intervention -- micro-credit as the World Bank's CGAP has done, and is being proposed at the Micro-Credit Summit, may actually divert resources away from those in greatest need." The Learning Circle also underlined the limitations of micro-enterprise support in isolation as a strategy to promote sustainable human development. It concluded that micro-enterprise support is more likely to have a sustainable impact when accompanied by improvements in other sectors, such as health, education, sanitation, and peace and safety. Striking a balance between a realistic and well-considered program and the perceived need to generate enthusiasm, remains a challenge for the organizers of the Summit. The danger is that generating dramatic effect (through a proposed "quick fix" to poverty) to encourage broad-based (and especially private sector) involvement will generate unrealistic expectations and an excessive focus on credit alone. As we have seen, spiritual principles and considerations have an important place in the discussion of the practical solutions needed to face the challenge of sustainable development. Indeed, an understanding of such principles enables us to view development holistically, as a harmonious process focused on the individual and his environment where the fulfilment of economic, social and spiritual aspirations go hand in hand. Spiritual or moral principles determine the value system that is the basis for devising and validating any action or endeavour. Thus spiritual principles are a part of both the means and the end. When looked at from this perspective, microcredit is an important instrument in the arsenal of practical measures needed to make development sustainable since it is aimed at the poorest, which form the majority of the population in the third world, and focuses on the family unit. For microcredit projects to realize the vast potential described above,

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both decision-makers and loan beneficiaries will need to shift their thinking and attitudes away from the dominant individualist, self-centred vision of life towards a perception of the individual's responsibility to society. a. Results Achieved: Beyond Our Expectations Credit has power. Weve heard the anecdotes, about how a loan of $20 turned life around for a person, for a family. And weve learned the lesson that credit can transform self-image, unlock potential, and boost the productivity and well-being of the poor. Huguette Labelle, CIDA President Plenary Address, Microcredit Summit, Washington, D.C., February 1997 Q: Have microcredit programs generated positive results for the poor, and poor women in particular? A: Numerous studies and evaluations have demonstrated a rise in incomes and other indicators of standard of living from microcredit programs. A large number of these programs have focused on supporting women, who bear the brunt of poverty and have been left out of most poverty reduction programs in the past. In many programs, women make up as many as 90 per cent of borrowers. Lending to women is also assumed to result in a greater multiplier effect because women pass on the benefits to children, through increased spending on the household, education and nutrition. In many cases, microcredit has contributed to changes in attitude about womens contribution to and role in economic and social development. Specifically, microcredit has resulted in increased recognition of womens productive role. Earning our own money allows us to do what we want with it. It also brings us izzat (honour or respect) because the money proves our contribution. Otherwise, we work like animals, we are never given credit for our contribution and even our own men say that we do not work. When we have our own money we are no longer mohtaj (dependen to the point of being at the other persons mercy. The word is often used for the physically disabled). (quote from a Pakistani entrepreneur, in Nighat Said Khan, 1984) Whether or not they are poor, women may take advantage of their newfound financial independence to assert themselves, stand up to abusive spouses or serve as role models in the community. Microcredit programs have also, in many cases, increased mobility and strengthened networks among women who were previously confined to the home (Carr et al., 1996). Borrowers build solidarity through their participation in lending circles and village organizations. This is especially important in Bangladesh, for example, where womens mobility is limited, and weekly meetings can be an opportunity for women to meet outside the home and discuss their problems. There are also studies that suggest even more far-reaching social impact, including decreases in fertility rates, assumed to be linked to increased financial self-reliance (Ruhul, 1994) and more say for women in family matters, including family finances (Hashemi et al., 1996). The growth and expansion of microcredit programs over the last ten years has been impressive. In Bangladesh in

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particular, many districts are served by the Grameen Bank, BRAC, ASA (Association for Social Advancement), Proshika, RD-12 or some other microcredit provider. There are over 4 million microborrowers in Bangladesh alone. The repayment rates in well managed programs tend to be very high, around 95 per cent. Finally, the success of microcredit runs deeper than program expansion. It is the manifestation of a paradigm shift in microfinance, defeating the notion that the economically disadvantaged constitute a poor risk and are not creditworthy. It has opened our eyes to possibilities once con- sidered illusory in the field of microfinance. The discussions now taking place around the role of microcredit and the need for diversified financial services and complementary non-financial programming aim to build upon the impressive progress of recent years.

b. Measuring Results
The quest for reliable indicators of social and gender impact The evidence on performance of these schemes in reducing poverty is still fragmentary. (...) Even the better microfinance schemes have had limited impact on the poorest who are often risk averse, and often lack the capability (in education or health) to take advantage of credi for self-employment activities. (...) Sound program design can often enhance an interventions effect on poverty. But this type of intervention (credit) seems unlikely to be the main route out of poverty. (Martin Ravaillon, World Bank 1996, cited in Jacob Yaron et al., 1997, p.50) Q: How effective are repayment and disbursements as indicators of social and gender impact? A: Most studies evaluate microcredit based on the indicators of repayment and disbursements. These indicators, are often referred to as proxies, because they are not directly related to the success of borrowers, or to the impact on social or gender relations. The assumption is that efficient RFIs (rural financial institutions) should lead to the desired development impact (Yaron et al.,1997, p.102). However, there is no direct correlation between repayment and business success, and even less so between repayment and impacts on social and gender relations. First, repayment is not an accurate indicator that funds were used to invest in successful productive activities. Even when a borrower repays a loan on time, the source of income is not necessarily from revenues generated by investing the loan in productive activities. In most peer lending microcredit programs, for instance, borrowers must commence weekly installments almost immediately after the investment is made. Hence, borrowers will either be forced to choose activities that generate almost immediate revenue (and these activities tend to generate the lowest returns), or they will have to repay the loan from other sources. In practice, repayment is often derived from general family income rather than the income-generating activity

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itself. Hence, repayment may be good, due to discipline or peer pressure, regardless of business performance. Furthermore, while repayment might remain high, drop-out rates may also be high. Hence, high repayment rates do not necessarily suggest borrowers, especially the poorest women who are more likely to drop out, are able to borrow repeatedly. Repayment and disbursement figures only reflect the ability to repay of those who remain in the program. Some borrowers may in fact be facing difficulties, repaying from other sources of income, or be unable to identify other investment opportunities. Research has shown drop-out rates in the 10-15 per cent range annually in Bangladesh (see next section for more on drop-outs). Use and repayment of loans The poor will often use loans to meet their needs as they see them, regardless of the intent of lending programs. Loans may be used for a wide variety of purposes, including: to invest in an income-generating activity, of the borrower herself or another family member to use as collateral to obtain a larger loan from a moneylender to engage in moneylending (a female borrower) to hand over to a male family member for either investment or nonproductive purposes to pay off debts with moneylenders for consumption or emergency purposes Repayment may be derived from sources other than microenterprise earnings. These might include, for instance: savings, other earnings, borrowings from a moneylender; a loan from a spouse or relative; or the wage earnings of the borrower or another family member. (MacIsaac, 1996A) In addition, aggregate repayment and disbursement figures may mask important differences between men and women, and the poorest and other borrowers. For example, consider not only the percentage of women borrowers, but the relative size of loans and total portfolio size for women and men. Given mens preferential access to markets and information, they tend to have better opportunities to invest, and capture larger loans (Kabeer, 1996). Hence, the numbers of borrowers may not accurately indicate the gender division of financial resources. Borrowing charges: biased against poor women? Some programs charge a flat interest rate (e.g., BRAC, Bangladesh Rural Development Bank in 1996) or calculate interest charges at the outset regardless of early payments. However, some borrowers pay off their loans early. Because they do not benefit from a reduction in the lending charge, they pay a higher effective rate of interest than others. The question that remains is: which groups are paying off loans in advance? Are the poor and the poorest women in particular, who tend to be the most debt averse and have few additional sources of income for repayment, the most likely to pay early? Answers to questions such as this one improve our ability to strengthen impact and improve services for those most in need.

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Q: Are data on changes in income an accurate measure of impact? A: Income is one indicator of social and gender impact, but when presented in aggregate form, it also has serious limitations. Nor should income be seen as the only measure of poverty reduction and gender equity. Equally important are indicators that demonstrate impact on the vulnerability of the poor (see Section 3.2) and social impact and empowerment (see Section 2.7). First, it is problematic to measure income. Income has often been confused with cash flow. An incomegenerating activity may produce more cash, but associated costs may also be high. Especially because microentrepreneurs often mix business and family finances, certain costs may remain hidden, leaving an impression that income has increased more than it actually has (MacIsaac, 1996A, p.8). Furthermore, seldom factored in are the respective opportunity cost and return on labour for both women and men in the household. In some cases, women may be increasing their workload significantly in exchange for marginal increases in income. Second, aggregate figures on income changes may mask significant differences among borrowers. The best programs have proven the ability to bring about short-term increases in borrowers income. But a closer look at results shows a big difference between impact on the poor, and impact on the poorest. The poor are not homogeneous, so impact will vary significantly between different segments of the population according to socio-economic status, gender, class, caste and other factors such as family composition. In some instances, the impact on the poorest may in fact be negative. Paul Mosley and David Hulme surveyed successful microcredit programs in seven different countries. In all microcredit programs, the average earnings of borrowers increased. They also discovered that, the wealthier the borrower, the greater the income increases derived from credit. However, borrowers below the poverty line actually had lower incomes than before joining the programs, i.e., the poor actually became poorer through microcredit. The reasons for this are not clear. According to Mosley and Hulme, the poor may use the loans differently, for consumption or to invest in lower risk (and generally less remunerative) activities. Meanwhile, the better-off borrowers tend to invest in riskier and more productive ventures, including technological improvements. The study concluded that while credit may be an effective vehicle for boosting the incomes of the poor, it may be less effective, or even counter-productive, in helping the poorest of the poor raise their living standards. Alternative poverty reduction mechanisms are probably advisable for this group. (Mosley, in Yaron 1997; Hulme and Mosley 1996). Third, not only do the poorest borrowers benefit least, but most evidence also indicates the poorest 10-15 per cent of the population are being altogether excluded from microcredit programs, and the poorest women face more barriers than men (see p.10). Why dont the poorest women and men participate in microcredit programs? There are several reasons why the poor do not participate in microcredit programs: The leading cause is self-exclusion.

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The poorest, especially the poorest women, often lack confidence, skills, and market contacts. They deem themselves unable to repay debt. This may be particularly relevant for women, who may have limited control over the revenues used for repayment. Some analysts refer to the poorest as debt-averse. One might also say they have more to lose if their investment doesnt pan out. Some women do not join due to social sanctions which restrict their mobility (Hashemi in Wood and Sharif, 1997). Even where targeting is highly effective, self-selection appears to be the leading reason why the ultra-poor are excluded from microcredit programs. Another reason is shortage of time. Borrowers must incur the opportunity cost of weekly meetings and other program demands on time. These activities, however valuable, take time away from important domestic tasks as well as other remunerative activities. Some of the poorest people, such as destitute single mothers with sick children, as well as mothers with young children, may not participate because they cannot afford the time demands of weekly meetings. Unfortunately, this tends to be a stronger barrier for the poorest women who often have the heaviest workloads. Yet another explanation is peer group exclusion. Peer groups (as well as staff) may have a tendency to exclude those most likely to experience repayment difficulties. While donors tend to view the poor as homogeneous, during the process of self-selection, group members will filter out those who represent the greatest risk for the group (Montgomery 1996, Hulme and Mosley, 1996; Noponen, 1990) and may also include wealthier individuals for social reasons. (Hassan 1997). High loan floors can also make credit inaccessible for the poorest. As little as $50 can be too much for many first-time borrowers. Yet microcredit programs often have official or unofficial minimum loan sizes (R.I. Rahman, 1997). Some caution the propensity to impose minimum loan amounts may rise with increased emphasis on financial performance. A stronger emphasis on financial viability could lead to greater pressure to give larger loans, as opposed to smaller loans where administrative costs are proportionally much higher. The exclusion of the poor may also be related to supply-side factors (i.e., inability to identify remunerative income-generating opportunities). In the absence of technical support, microentrepreneurs may face problems of market saturation, limiting income earning opportunities, as well as oversupply, forcing prices down and squeezing some microentrepreneurs out of the market (see, for example, Geoffrey Woods essay in which he presents the notion of ghetto credit in Wood and Sharif, 1996). Supply factors are especially important for female borrowers who face additional discrimination in the marketplace due to gender bias (Kabeer, 1996). Gender bias, combined with limitations on mobility, will limit

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womens options compared to mens. It should also be noted that, borrowers generally include a percentage of non target group members as well. A study of BRAC, for example, (Mustafa et al. 1996) demonstrated that about 10 per cent of members in the program were not from the target group. Fourth, A percentage of the poorest borrowers drop out of the program each year. Drop-out rates around 15 per cent (annually) are commonplace in microcredit programs (Montgomery 1996). Unfortunately, only a few studies have examined which borrowers are dropping out and why, and, what changes take place after drop-out. However, available studies suggest that, when the poorest do join a program, they tend to drop out earlier than relatively wealthier borrowers. (Osmani, 1991; Rutherford, 1994). Another study of BRAC pointed to lack of savings to deal with emergencies as the main reason why members dropped out (Khan and Chowdury, 1995). Under the stress of death in the family, disaster, or seasonal difficulties, many of the poorest borrowers may be forced to drop out, either because they are unable to repay their loan, or because they are unable to take other loans (Hulme and Mosley, 1996). These factors are assumed to be especially relevant for women because of their additional domestic responsibilities. For instance, single mothers with sick children would be particularly susceptible. However, more research is required on the reasons why women and men are dropping out. Q: Are changes in household income an effective indicator of poverty reduction and gender equity? A: Changes in household income alone can be a misleading indicator of impact. First, there will be social costs, incurred by all, but which tend to affect women and children disproportionately. These costs, which are seldom factored in to evaluations, may be in terms of: the environment (e.g., a brick kiln damaging the environment) health and safety (e.g., a fire-cracker business jeopardizing personal safety) increased workload for little or no additional revenue (e.g., increased workload of children or women with limited control over income) the opportunity cost of neglected activities (e.g., decreased time parents allocate to child care, hygiene or other socially beneficial activities) Second, while family income may be rising, net impact may actually be negative for certain family members. Income increases may actually mask unequal and even worsening gaps in the gender division of labour and control of income within the household. In the worst case scenario, credit may result in increased work for women in exchange for increased revenues controlled by men. As one practitioner in Bangladesh stated: Before women worked like cows. Now they work like horses! In other cases, men have taken on more of the housework (Bhowmik and Jhabvala, 1996). One lesson is clear in income generation promotion: Unless men are sharing domestic work more equitably, microcredit for income generation will likely increase womens, and in some cases childrens, workload, especially girls who share domestic responsibilities and are less likely

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to be attending school. Moreover, as families seek to increase incomes with labour-intensive activities, given their limited time, children are often asked to contribute their labour to the family business. Hence, there is also a danger microcredit (unless it is accompanied by technological improvements) will increase the incidence of child labour. The division of the domestic workload within the family unit would be a useful indicator of impact. Q: How much do women actually control the businesses started with their loans? A: Studies on womens control of credit in Bangladesh indicate that most women borrowers have only partial control over loans, or have relinquished all control to male members of the family. Depending on the individual study, it would appear that about 20 - 50 per cent of Bangladeshi women hand over the entire loan to males in the family. And even when women do respond (in surveys) that they have at least partial control over income, this is often confined by their own definitions of what degree of control women or men can expect over different aspects of the family budget. Moreover, women with greater control over loans tend to be those engaged in traditional home-based activities (Goetz and Gupta, 1994). Nevertheless, while it is important, lack of control over credit does not negate all benefits for womens role and status in the community. As part of a broader effort to raise awareness and mobilize women, credit could play an important role as an entry point to empowerment (MacIsaac, 1995). First, women increase their interaction and strengthen their networks with other women through meetings. Second, womens ability to take loans, repay them and accumulate savings can increase their selfconfidence and sense of self-worth. Third, studies in Bangladesh demonstrate participation in credit programs can result in increased status for women in the household and the community (Hashemi et al., 1996). However, credit alone is unlikely to have significant and sustained impact on womens status. As an Oxfam study of the gender impact of income-generating activities concluded: Experience has shown that too many factors militate against relying solely on increasing womens income as a way of increasing their status (Lopez and March, 1990, p.12). If they are to control credit, more will have to be invested in enhancing womens managerial control, skills development, social development, opening market access for women, and changing women and mens attitudes to issues of womens financial independence.( Anne Marie Goetz, 1994 p.4). In addition to the distribution of labour, the distribution of benefits by gender should also be examined. There are three levels of control: control over funds borrowed control over the business/income-generating activity control over spending/utilization of earnings Questions about distribution of benefits might include, for example: Do the benefits go to women? Are benefits spent equitably among female and male family members? (For instance, some studies indicate girls may still benefit less than male offspring from increased expenditure).

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How have family spending patterns changed? For example, is increased female income resulting in a decrease in mens contribution to certain family expenditures (as has been observed in some cases)? In mixed credit programs, how does womens expenditure for re-investment in their businesses compare to mens? Q: What is the impact on income levels at the community level? A: The impact of microcredit, because it affects the market for goods and services, will extend beyond the borrowers themselves. For example, flooding the market with goods for which there is a finite demand will cause prices to fall. Inversely, in some cases, the growth of microenterprises may shrink the supply of landless labourers, and have a positive effect on wages. Business, macro or micro, is about competition, so supporting the success of some microentrepreneurs may have a negative impact on other entrepreneurs. While microcredit has shown improvement in household level wages, there is little evidence of any significant change in the macro-economic figures (R.I. Rahman, quoted in Hashemi, 1997). This begs the question of whether the income increases of some households are taking place to the detriment of others, and whether the situation of those who are excluded is worsening. Some research has indicated that some income increases may be gained at the expense of the incomes of existing traders (Osmani 1990; Quasem 1991). Q: Microcredit programs have been able to lend to the poor without collateral, and incomes may rise in the short term. But are income rises sustainable? A: Numerous studies have concluded that most borrowers realize marginal gains, while only a small percentage generate significant and sustained income increases. Studies indicate that when incomes increase, they tend to level off after some time and only a small percentage of borrowers will realize sustained increases in income. Moreover, the use of loans for productive pur- poses also has a propensity to decrease over time (ORegan 1983; Goetz and Gupta, 1994; Noponen, 1990). A detailed study of program impact on borrower incomes revealed that only 11 per cent of long-term borrowers had sustained rises in income (Hulme and Mosley, 1996). The majority of microcredit is used to finance livelihood (survival) activities such as trading (e.g., vegetable vending) and food processing (e.g., paddy husking). These activities are more opportunistic than entrepreneurial and carry a lower risk of generating negative results (such as increased indebtedness, increased vulnerability). However, returns on labour tend to be low, and possibilities to expand income beyond marginal increases (i.e. in the medium and long term) are minimal. Survival activities offer only limited potential for significant and sustained increases in income. There is little evidence of improvements to fixed capital or investment in technology among most microborrowers. Borrowers seldom use credit for technological improvements. Rather, repeat loans are used either to expand the scope of activities (husking more paddy) or to embark upon

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separate income-generating activities (e.g., cow fattening, in addition to paddy husking). Opportunities to continue increasing wages are limited by: market constraints (overcrowding in certain sectors) available time for working (especially given womens double burden and when activities are labour intensive) the overall economic climate. There is a qualitative difference in the entrepreneurial businesses. There may be opportunities for increased income and higher returns, as well as sustained increases in income in the medium and long term. However, the entrepreneur also generally incurs larger risks and invests in fixed capital over more than the short term. These entrepreneurs may require increasingly large loans and usually require technical assistance. Two important indicators of business sustainability include: accumulation of business assets and technological improvements. Womens businesses may not be accumulating fixed capital as rapidly as men. Women may be spending the surplus generated, rather than reinvesting it. Alternatively, the return may be too low, making significant capital improvements unaffordable. Women will also focus on different economic sectors than men, and may not be adopting new technologies. Q: Is it possible to capture the impacts of microcredit on poverty and gender equity using short-term quantitative data? A: Impacts on social and gender relations is complex; seldom is short-term quantitative data sufficient to demonstrate impact. Assessment of poverty and inequity require more than relative changes in income levels - and assessing results in terms of empowerment require more creative approaches to quantitative information, as well as qualitative data (see Annex). Monitoring over the long term is required, given the dynamic and complex processes involved in social change.

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2. Reference (1) Ahmed, Salehuddin; 2000 : State of the Microcredit Program in Bangladesh, Palli Karma-Sahayak Foundation (PKSF), Dhaka. (2) Ahmed, Salehuddin; 2000 : Creating Autonomous National and Sub-Regional Microcredit Funds, Microcredit Summit Campaign paper (English, French, Spanish), Washington D.C. (3) Ahmed, Salehuddin; 2002 : Emerging and Strategic Issues and Concerns of Microfinance, Paper presented at the INAFI Asia Regional Workshop, Bangkok, January 16-18, 2002. (4) Asif Ud Dowla and L.K. Mahmud; 1998 : Future Issues in Microcredit : An Overview, paper at PRPA Workshop, Dhaka, June. (5) Bangladesh Institute of Development Studies (BIDS) : Census Report, Survey Reports and other Reports on PKSF-MES Study, Dhaka. (6) Bangladesh Institute of Development Studies (BIDS); 2001 : Final Report on BIDS Study on PKSFs Monitoring and Evaluation System (MES), October, Dhaka. (7) (8) Credit Development Forum (CDF); CDF Statistics : Various Volumes, Dhaka. Microcredit Summit Campaign; 2002; State of the Microcredit Summit Campaign Report 2002, November, Washington D.C. (9) Palli Karma-Sahayak Foundation (PKSF); Annual Reports of various years, Dhaka.

(10) Sharif, Iffath and Geof Wood; 1998 : Towards New Frontiers of Finance : Summary and Findings, Paper for final Session of the Workshop, Dhaka, July. (11) Smith, Adam; 1937; An Inquiry into the Nature and Causes of the Wealth of Nations, Edwin Cannan (Ed.), The Modern Library/Random House Inc., New York. (12) Yunus, Muhammad; 1999; How Donor Funds Could Better Reach and Support Grassroots Microcredit Programs Working Towards the Microcredit Summits Goal and Core Themes, Abidjan, June. 3. About The author Faisal Ahmad M.S.S -Dept. of Peace And Conflict (PACS) Dhaka University.

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