& çâÌæÚUæð´ ·¤è ¥ôÚU Îð¹Ùæ ÁæÚUè ÚU¹ð´ ¥ÍæüÌ ¥ÂÙð ÜÿØ ÂÚU ŠØæÙ ÚU¹ð´Ð ãæÚU Ù ×æÙð´, €UØô´ç·¤ ·¤æ× ·¤ÚUÙð âð ¥æÂ·¤ô ©gðàØ ·¤è Âýæç# ãôÌè ãñ ¥õÚU ÁèßÙ ·¤æ ¹æÜèÂÙ ÎêÚU ãôÌæ ãñÐ ÖÜð ãè ÁèßÙ ×ð´ ç·¤ÌÙè Öè ·¤çÆÙæ§ü €UØô´ Ù ¥æ°, çÁ™ææâæ ¥õÚU ©ˆâæã ÕÙæ° ÚU¹ð´Ð ŠØæÙ ÚU¹ð´, ÜÿØ ã×ðàææ ¥æÂ·Ô¤ Âæâ ãôÌð ãñ´ çÁ‹ãð´ ÂæÙð ·Ô¤ çÜ° ÂýØæâ ¥æÂ ·¤Öè Öè àæéM¤ ·¤ÚU â·¤Ìð ãñ´Ð

msaoHT

Grameen Bank: Some Basic Issues

The institution like the Grameen Bank is not in the business of maximising profit as such, but is in the maximisation of productive employment of the assetless poor making sure that it makes some profit for its longterm survived. The objectives of the two types of institutions are very different and hence need differen t analytical framework.

by Kabir U Ahmad
EURAL development tn the Third World countries attracted the spe-tention of development practitioners and theorists from about the beginning of 1970s onwards since the vast development efforts of the previous two decades left the rural sector in many countries in a state of lacklustre growth or almost stagnation. Since the vital demand for drastic land reform growing out of the antiimperialist movement could not be implemented due to changing politico-economic power balance Inside many developing countries, the next best strategy for this sector was to provide a package deal with subsidised Inputs like water, fertiliser, seeds and credits to the growers. Countries like Japan. South Korea and mainland China etc. which had started with effective land reforms and used the same inputs have certainly done better than those which tried to avoid it and depended mainly on these input supplies.
However, as time passed, development economists, practitioners and policy makers have realised that the package deal of subsidised inputs was benefiting mainly the large — and medium-sized land owners and rich farmers leaving the vast number of small landowners, marginal farmers and landless Eeople in a state of dire poverty, overty alleviation, therefore, became the principal slogan of the development practitioners and economists over the last quarter of a century. Nevertheless. in spite of trillions of dollars of expenditures on the supply of subsidised inputs and cheap credit, rural poverty has remained an almost ineradicable problem in many countries. What is worse, most of the rural financial institutions, whether commercial or cooperative type, have either gone bankrupt or lost substantial amount of their portfolios in the process. It has presented economists and practical policy makers with a formidable challenge.
Some Theoretical Concerns
It is in the above background that both theoretical and empirical analyses of rural credit supply became an urgent issue. Some foremost economist theorists like Joseph Stiglitz (1981, 1993) and Hall Varian (1990) joined the development economists in trying to provide theoretical underpinnings to the successful operation of rural credit institutions. Joe Stiglitz emphasised the role of asymmetric information and lack of enforcement of financial laws in the failure or the ineffectiveness of most of the
rural banking institutions while Hall Varian has attempted to analyse the importance of peer pressure in a principal-agent framework for the success of the Grameen Banktype institution. However, it is argued here in this short article that these provide inadequate analytical framework to explain the problems that rural credit institutions face in their attempt at alleviation poverty.
Take the role of asymmetric information first. (Incidentally. it is this concept and the related phenomenon of moral hazard and their consequences on economic behaviour that have been extensively analysed in various contexts by Professor James Mirrlees of Cambridge University who won 1996 Nobel Prize in economics). Asymmetric information implies that one party in a contract or. in this case, the business of lending and borrowing has more or less information than the other party which ultimately results in the failure of loan contracts and thereby inefficient resource allocation. If the lender knows that some borrowers are going to misuse or abuse the money they borrow. then he would either not Sve them any loan or charge em higher interest rate along with collateral rather than the lower interest rate charged for the well-behaved borrowers. This would prevent the defaulter from misusing or abusing the loan.
In such a situation, (that is. the lenders know who the potential defaulters are) the market would be segmented with multi-tiered interest rates having high Interest rates for the potential defaulters or abusers and low rates for the well-behaved users of credit. But if the lender does not know who the potential defaulters are but suspects that all borrowers would be defaulters, then he would raise the interest rate for all borrowers which would lead to less amount of borrowing and thereby inefficient resource allocations in the sector. Neither of these approaches which result in inefficient resource allocation would go very far in eradicating rural poverty because these will not touch the hardcore assetless poverty group.
Suppose next that all information about bank loans, interest rates, terms of repayment, nature of security against loans or collateral, and punishment for non-repayment
etc., are freely provided to all potential rural borrowers and financial institutions. Suppose also that there are many banks ojperatlng in the rural areas so that if one bank behaves somewhat unsympathetically to the borrowers (a monopolistically competitive characteristics), then there will be other banks with the same terms and conditions but with better attitudes to the clients to which borrowers can easily turn to.
In such a competitive market environment with full information to all participants will the assetless poor in the rural areas get loans to start productive enterprises? The answer simply is 'no', because the lending institutions will have to cover their risk against the borrowers' full or partial failure to repay. Risk coverage for the capital calls for collateral. Since the assetless poor cannot provide any, they will be left outside of the entire network of the credit mechanism.
Next, even if the traditional banking Institutions run a programme of lending small amounts to the poor with no asset. their management costs will be very high. It is easy to see that the management costs, apart from risk, of lending Tk. 10,000 to 100 borrowers will be much greater than the cost of lending the same Tk. 1,000.000 to only one or two borrowers. The fundamental point that it draws attention to is that the traditional commercial banks are profit maximising institutions and. therefore, have to minimise their costs of operations in order to maximise profits. This principle will drive them to look for a few borrowers of large amounts and not large number of borrowers of small amounts. (Any reasonably well-trained economist will be able to draw two graphs showing that a profit maximising firm/instltution will sell smaller amount of goods or services compared to another firm/institution with the objective of employment maximisation subject to making some fixed level of profits). The instl-tutton like Die Grameen Bank is
not in the business of maximising profit as such, but is in the maximisation of productive employment of the assetless poor making sure that it makes some profit for its longterm survival. The objectives of the two types of institutions are very different and hence need different analytical framework.
Following this line of argument. one can easily visualise that the enforcement of laws to realise the loans, through the law courts in case of need, does not minimise rather increases the costs of recovery. It does not add anything new to the argument presented above. Now, one can easily conclude from the above analysis that the genuinely profit maximising commercial banks will not be able to make a dent in the alleviation of hard core poverty in the rural sector.
However, Hall Varian's point of monitoring of one borrower's activity by other borrowers is
somewhat like the Grameen Bank's Institution of Group responsibility in realising the amount borrowed. But in the context of commercial banking based on the principle of individual utility maximisation, why should an individual borrower have the incentive to monitor the use or abuse of credits by other borrowers? Why should the other borrowers tolerate such Interference from the first borrower? In the individualistic case, there is no incentive for such monitoring. But in the case of a group formed for achieving larger gains, there will be incentive for monitoring others' use or abuse of the loans if the members surrender such authority to their group. But such larger gains from acting collectively will have to be identified compared to the gains If they acted individually. Suppose such a Soup Is formed by a number of ardcore poor people. Will a profit maximising commercial bank give loans to such a group without any collateral? The answer again is clearly no'. Some provision for Initial, supply of capital will have to be made for
the group to qualify for bank loans.
How Has the Grameen
Bank Tackled the
Problem?
There is no doubt that it has tackled the problem in a very skillful way. Before analysing these issues, it would be useful to clear theperspective at the beginning. The Grameen Bank is neither a traditional profit maximising commercial bank nor a charity organisation. It has curved out a niche for itself by combining some selected elements of banking, pre-capitalist political economy, modern behavioural-organisation theory and risk analysis under a strong creative leadership to promote the welfare of only the poor sections of the society. It has nothing to do with the middle-class or the rich whose default culture is crippling the entire banking sector. However, its objective is to make the assetless rural poor economically productive and integrate them into the mainstream of the society with a better work and payment ethics by using the elements of the above disciplines. A whole new behavioural and organisational culture has been developed by using the tools of these disciplines to pull the poor out of their historically condemned socio-economic trap.
To make someone productive. there is the need for initial capital. The first step, therefore, is to lend these poor people an initial amount of capital (about Si00 or so) purely on trust without any collateral or security. This is behaving like a risk lover. In order to minimise this risk, the Grameen Bank has required its members to form a group of five persons who would exercise collective supervision and responsibility in repaying the loans every member has taken. The individual members have agreed to surrender some of their rights to this body and thereby obligated themselves to abide by their collective decisions. Why should they do it? Because if the individual members want to move out of their current poverty-stricken life pattern and take up a respectable productive life, they have to take the responsibility of repaying their loans. Couldn't they do it individually? Here comes the use of the theory of group behaviour. Small group dynamics is more effective in achieving small objectives than that of the' larger groups which often times become unmanageable and collapse. Group pressure or discipline or answerability 1 hangs like a sword over their head, as it were. Carrots and sticks seem to be evenly balanced. Further, from the point of view of the individuals, who could not even thought of approaching the traditional commercial banks for loans, it is to their best interests to create their credibility among the group members as well as in the society at large by fulfilling their obligations in the form of repaying their loans. These organisational-behavioural and group-psychological moorings minimise the risk of collateral-free lending substantially.
This is not all. The Grameen Bank officials regularly monitor the activities of group members every week. Further, they also train the members in doing what they want to do. Monitoring plus training keep the members under close watch so that there is hardly any room for absconding. What about collective absconding? It is possible, but it will cost them substantial part of their group deposits built up over the years, which is discussed below.
One can see the capitalist process emerging among these people who are now in the primitive pre-capitalist stage. They have no capital except their physical ability to work with their bare hands. They have been supplied with a small capital and training to begin their work to earn income. They have to pay back their capital from their weekly earnings, save a fraction of their income and make deposits Into Group Accounts and Emergency Accounts. All these are compulsory payments. It may sound harsh, but it injects in them a
habit of regular accumulation through savings, which is key to their future growth of income and financial safety during their retirement period. Deposits to the other funds provides safety against various natural and other hazards of life. The Code of Conduct for members embracing all these aspects are creating a culture which is conducive to hard work, acquisition of new skills and learning, working in a group of similarly placed people with self-respect and collective responsibility, and the promotion of mutual benefits. All the basic aspects of the classical political economy — production, consumption, accumulation through savings and future growth — are embedded in this culture.
Long-term Prospects
What is the long-term prospects of Grameen Bank? There are two aspects of this question: what happens If competing Institutions develop in the same sector to perform the same functions? Will it be viable in the long run? To answer the first question, one doesn't see the traditional commercial banks becoming a competitor with the Grameen Bank because the objective functions of the two types of institutions, as explained above, are different. For commercial viability, the traditional commercial banks will not be able to develop elaborate monitoring and training apparatus for such a large number of small poor borrowers even if the problem of collateral is Ignored. It will raise their operating costs too high. If other new Grameen-type institutions come up in this rural sector, there will be some competition but the Grameen Bank will have some built-In advantage as the Sioneer In the field. If the rameen Bank manages its range of activities efficiently with a proper-sense of scale of operation, it will be able to reduce its long-run costs and be more competitive. Competition from suppliers will not be a problem.
As for long-run viability, one does not see much problem in the area of work that It has been doing. The recent World Bank study on Grameen Bank (Grameen Bank, Performance and Sustainability. 1995) has pointed out that long-run sustainability depends on Grameen's financial and economic sustainability as well as its members' sustainability. As for Grameen's own financial and economic sustainability Is concerned, there doesn't seem to be any problem since its present dependence on outside grants and soft loans have been diminishing substantially. Its foreign funds as a share of totgljunqa,; was only 3.73, per cent in 1994 and has been decreasing further subsequently. Interestingly enough, in recent years it has been raising funds from the market by floating bonds which have been bought by the commercial banks. It doesn’t have to depend on foreign funds at all.
As for borrowers' sustainability in the long run one doesn't see any problem either. As the borrowers graduate from poverty level, they will have savings in their own individual accounts in the Grameen Bank with which they can further develop their new enterprises with Grameen's technical and entrepreneurial assistance. Further, Grameen has been launching into a number new fields like Grameen Check. Grameen Cybernetics, digital telephones, and fisheries etc. If Grameen keeps launching into newer areas gradually and can manage them efficiently, there will be no dearth of opportunities for its members to participate in these ventures and profit from them. The new doors of investment opportunities seem to be opening up rather than closing down. But the Grameen should be careful about the professional management of its wide range of activities. the risk of too rapid development in various areas without trained management personnel and optimal size of its organisation. It must not sink into a vast and amorphous organisational structure losing its drive and initiative. Finally, if It can spread its behavioural and payment culture to the mainstream of the society, it will not only remove poverty from the country but also will re orient the entire society in the most healthy and productive direction.