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The Other Side of Micro-credit

What Bangladesh needs is the convergence with the international markets The capital needed for investment are readily available in the market provided that Bangladesh and the Bangladeshis are willing to compete in the market.

by K B Ahmed
Bangladesh has certainly made an impact on the donors with her success in implementing some micro credit programmes over the last decade. Success deservedly was accredited to Grameen Bank and BRAC for their initiatives in developing a rural network of credit-retailing. The philosophical perceptions of these initiatives may appear to be charity-kind, but from the beneficiaries point of view, they served very practical need to bring a vast rural unemployables to some skills and production. The impact of these additional productivity, however, is marginal on the mainstay economic activl-. ties and therefore, remained a peripheral activity in the national context. This determination is not to undermine the relevance or importance of Micro-credit but to put it in the right perspective.
Internationally, however, micro-credit has a history of ups and downs. In the early fifties when Bretton Wood institutions were gradually coming to shape, many prominent economic philosophers were convinced that the locomotive theory of pulling up the less well-off by the better-off could not be sustained due to scarce resources and over-consumption by the developed nations. Instead they all suggested that fragmented, and development of specialized skill in medium and small scale will bring more people in the economic activity than it would in the mega-projects, as the mega-projects would require more efficient technology which would depend more on mechanical productivity to achieve larger scale of production to become economi-
cally viable. Perhaps from the hind side some would still wish that the world's economic growth and technological experience could have been better paced for human benefit if the philosophers of small is beautiful’ had prevailed.
There had been a large scale criticism by the economists, politicians, philosophers and social thinkers against the mega-systems and they defended their arguments on the basis of scarce resources, over consumption by the wealthier people arid dis-advantage caused to the poor who could not participate in the system. While pne would definitely accept these arguments, one would be better off to also accept that during the last fifty years two-thirds of the world's growing population were pulled out of the depression of the thirties, from the bondage of slavery and hunger and from the shackles of feudal oppression; freed from disease and now poised to eliminate poverty All these were achieved within a span of fifty human years and due mainly to a massive reconstruction programme initiated soon after the Second World War. No one can discount the pains of the victims of poverty but if would be unnatural to fie so impatient as to wish remedy of all ills of this planet with a magic wand. In the context of Bangladesh perhaps one can understand that donor-fatigue may have caused to divert some resources to al-
ternative development programmes in order to hedge the bets and to put a brake on the unbridled demands for investment assistance and for technology. Bangladesh unfortu-nately has gone through a series of tragic experiences which consistently hindered her natural growth; and now to put the central thrust on micro-credit instead of mainstay economic propulsion will have catastrophic consequences and perhaps will dwarf the nation for good.
Micro-credit by nature is a credit which is available to small investor who has no access to any other form of credit. The units of input are very small and therefore, operate under punitive charges. The investor having left with no other alternative commits him/herself to the rigor only to move out of the social cul-de-sac. The skill initially depends on poor and rural demands of the produce and in most cases do not take-off until marketing is arranged by the credit managers which in turn make the investor (user) vulnerable. The credit default has no room and therefore the defaulter is ostracized by the other investors as the collective moral form of liability is applied to avert any wholesale losses. This restricts the creative investors as natural expansion of production and marketing needs sanctions of the collective investors and
the credit managers.
It is no doubt that in any economy there will always be some pockets where development momentum and dynamics will not operate which will give room to alternative programmes like micro-credit to initiate those into the mainstay economic activities, who are otherwise left out of the loop and in desperation or despair. In such conditions micro-credit as it propagated now can at best complement the mainstay economic activity Micro-credit inherently operates contrary to free market system as it is usually managed by the credit managers under central command structures.
As it is not possible to introduce technology as means of production, microcredit offers to develop skills in rudimentary form and management of skills remain on the basis of instinctive reaction of experiences than any systematic approach. Wages are treated as profits and therefore, cost of production is not calculated in strict economic units and its return; and therefore, no incentive is given to investor to employ any one other than nim/herself or to develop any one else's skill. The principles which are used in planning micro-credit programmes nave more relevance to moral obligations of the conscious citizens than any economic purpose in terms of profits and markets.
However, it will be callous
on any one’s part to accept that all citizens' social and economic well-being can only be served by the forces of the market. This has also some relevance to the obligations of the politicians in or out of power who caused to build a consensus to establish welfare states to guarantee some social and economic protection by levying the able to assist those who are not. Over the years experience has shown that in addition to requiring to build huge monolith of bureaucracy in serving the less able citizens, it has also caused to create a social stigma for the recipients of the service as the public borrowing exceeded the limits of management and inflation became a factor in cost of production. The natural reaction of the investors was to introduce more efficient technology and replace the human factor to save wages to become competitive in the market. Market therefore has caused expansion of the recipients of assistance from the welfare State. This scenario, however, is more prevalent in the industrialized nations than in the agrarian rural backdrop of Bangladesh. Where the market efficiency in less obvious way expanding the vulnerable rural unemployables in moving them out of their own habitat and converting them into floating and expanding population bound mostly to urban and industrial sites — like 'fire-flies' attracted by 'fire'.
What Bangladesh needs is the convergence with the international markets. The capital needed for investment are readily available in the market provided that Bangladesh and the Bangladeshis are willing to compete in the market. The state needs to understand the rules and dynamics of the market and must bring about the changes in the structures, particularly changes in the legal frameworks, to assure the investor and to protect consumers as well. Politicians and social leaders and trade unionists are needed to establish clarity of their purpose where national interest is considered as the common objective. The politicians have also an additional task to tame the bureaucracy to implement the national consensus.
Bangladesh needs massive capital investments, introduction of efficient technology as means of production and political and social cohesion to galvanize a national aspiration to achieve an economic miracle.
Models fo« such achievements are plentiful in our region of South-East Asia. This miracle is possible if we as a nation can trust each other and commit ourselves to strive to converge with the international markets. Our destiny can be guided by those business and political leaderships who are willing to compete in that market.
The author, a graduate of London School of Economics, is an industrial consultant. He was a partner of PCL. a London based group of consultants and had worked tn Central America, West Africa. Middle East and tn the South-east Asia.