Features of microfinance in india

features of microfinance in india

The Misinterpretation: Microfinance, NGOs And Neoliberalism In Bangladesh [Part 1]

By Farooque Chowdhury

01 September, 2015


B angladesh, the country with geostrategic importance in the current imperialist chess board, is rich with experiences of microcredit/microfinance and non-governmental organizations. So-called neoliberalism’s onslaught also has “enriched” the mainly alluvial land. The issues – microcredit/microfinance, non-governmental organizations, neoliberalism – require debate as sometimes misinterpretations and/or confusing statements/observations are made on the issues. Debate on the issues gain importance as responsible quarters misinterpret/make confusing statements, and dignified progressive journal entertain those. Wrong analysis increases confusion. Mainstream characteristically has already manufactured myths and confusion on the issues.

Moreover, the issues are related to the lives of millions of people. The number of microcredit (MC)/microfinance (MF) debtors, and the exploitation they experience and the suffering they go through are enough to overwhelm any person with pain. The total population dependent on MC/MF, the silence with the exploitation, and ignoring, misinterpreting and/or confusing the issue by the camp claiming pro-people perplexes anyone concerned with humanity and progress. Defining programs for people’s democratic struggle in Bangladesh, identifying contradictions, allies and adversaries – essential prerequisite for defining the programs – are related to these issues. Anyone can ask: Is there scope for superfluous “analysis while striving to move forward with people’s cause? Does superfluous and wrong analysis help people’s struggle for survival? Or, doesn’t wrong analysis harm the people suffering under the yoke of MC/MF? The number of people under the yoke of MC/MF in Bangladesh is larger than the total population of a number of countries with which progressives, analysts and journals are concerned. Shall the quarters take moral responsibility for misinterpretation/wrong analysis? Shall anyone with the sense of fairness come forward to take moral responsibility for creating confusion?

Significance of the role of neoliberalism, freewheeling capitalism with a neoname, now-a-days needs no mention as it is aptly exposed. The non-governmental organization (NGO)-issue in Bangladesh needs scientific analysis as confusion with the issue is created by serious analysts. The issue – NGO – is related to the questions of status quo, imperialist subjugation and changing of these, and to people’s space, initiative and politics. It’s also related to a few functional questions being faced by the organizations trying to move at the front of democratic struggle. Any grain of trust on the tool – NGO – hides imperialist tact, harms people’s struggle.

Moreover, these – MC/MF, neoliberalism and NGOs – help assess a part of the state of the dominating classes/segments and their masters in Bangladesh, their tact, and limitations being faced by these. Possibilities also get indicated within these. A few seeds are there. A proper account of these issues is required to organize and carry forward people’s struggle for democracy in Bangladesh.

Grameen & neoliberal model

It is said: Grameen Bank was born and brought up as a necessary supplement to the World Bank-pushed neoliberal economic model. (Professor Anu Muhammad, “Bangladesh – a model of neoliberalism, the case of microfinance and NGOs”, Monthly Review, vol. 66, issue 10, March 2015, henceforth NMN)

Grameen Bank (GB) was not born and brought up as a necessary supplement to the World Bank-pushed neoliberal economic model. The history of GB or a timeline of GB’s birth and the implementation of neoliberalism in Bangladesh show the fact. Why Doesn’t Microfinance Work? The destructive rise of local neoliberalism, Millford Bateman’s book, presents a history of GB and other related activities. It was initiated before the World Bank-pushed neoliberal economic model was put into implementation.

The purpose of MC/MF, or of GB, which can be taken as a symbol of MC/MF, was to handle a contradiction, the contradiction between the poor peasantry/rural debtors and money lenders, to maintain status quo, appropriate surplus labor of the poor that had not entered into manufacturing units, and to work as a safety valve in cases of possible social discontent. Neoliberal measures later joined in with MC/MF in Bangladesh, and a number of MC/MF providing organizations were reshaped following the neoliberal line. The rural poor and the landless, as MC/MF operators define, the primary target of MC/MF, was beyond reach of loan capital in formal institutions before the MC/MF was initiated in the country.

Status quo was failing to dissolve the debtor-creditor contradiction. These, the contradiction and the failure, forced status quo to reach the poor, the rural poor, the landless or near-landless peasantry – the main actors in a possible future rising – with MC/MF. The contradiction, efforts by status quo to handle the contradiction, and failure in handling the contradiction were there even before implementation of neoliberal measures in Bangladesh.

The reality of the contradiction, the failure, and the MC/MF signifies a condition in the society:

(1) Status quo’s failure to cease deteriorating condition of the poor at alarming rate.

(2) Failure in providing succor to the poor.

(3) Failure of the system.

(4) Possibilities of social explosion.

The initiative – MC/MF – also signifies status quo’s strength: Its capacity to

(1) assess the situation;

(2) design a program with the hope, a false hope it is, of stalling forces for change;

(3) market a program as pro-poor while the program is pro-status quo and anti-poor; and

(4) create confusion, to silence its opponents, by propagating a rosy picture.

The capacity appears stronger when one finds that the tool – MC/MF – is also operating to tap the poor beyond the reach of manufacturing capital and/or its kin, and appropriating their surplus labor, and expanding market. In the “endeavor”, loan capital is engaged. And, to put it exactly, “money” from MC/MF debtors is turned into a part of the loan capital, a cruel game no doubt, and is invested to appropriate surplus labor of the debtors. And, to put it more exactly as it exposes a cruel face, dispossessed human souls are mortgaged to loan capital to advance the loan capital.

The failures and the possibility mentioned above show condition of the poor, especially of the rural poor, condition of the society, especially of the rural society. It helps perceive a contradiction: the contradiction between the rural moneylenders – mahaajan [also spelled mahajan/mohajan; however, it’s not the Mahajan, the non-official local council in Karnataka, India during the period usually identified as the middle-age] – and the poor peasantry/rural poor. One can recall a slogan, copied from the Naxalbari uprising in India, a part of the far-left raised in the late-1960s-early-’70s in Bangladesh (at that time, East Pakistan): “Annihilate the mahaajans”. A part of the Bangladesh far-left during the period tried to organize, in a petty-bourgeois-hurry and in cases, mechanically and anarchically, the poor peasantry along the line.

A correct timeline of incidents is required to identify players and the path of development of status quo. It helps perceive failures in people’s camp. Moreover, it’s part of people’s history that includes exploitation of people, people’s suffering, and people’s struggle. There’s no space for playing with facts.

To perceive MC/MF as a necessary supplement to the World Bank-pushed neoliberal economic model, as said in the NMN, is either a failure to find out or to ignore the contradiction, which is equal to ignoring the debtors’ interest. It’s also denying of facts, which is not a scientific approach.

The poor peasantry-debtor-story in Bangladesh is an old one, an old contradiction. Microcredit was in Bangladesh as in other parts of the sub-continent since long time. There were microcreditors also. Were not mahaajans lending microcredit? These are part of the process of exploitation in rural life. History supports the claim.

The British colonial period found rise in indebtedness of small and poor peasants. “In 1880 the Famine Commission reported that ‘one-third of the landholding classes are deeply and inextricably in debt, and at least an equal proportion are in debt, though not beyond the power of recovering themselves.’” (Report of the Famine Commission, 1880, referred in Edward Thompson and G T Garratt, History of British Rule in India, Atlantic Publishers and Distributors, New Delhi, 1999) In Bengal, during the period of 1895-1909, “agricultural indebtedness […] increased in the case of cultivators with small holdings, while another section, the larger tenants, […] improved, and instead of borrowing money they often lend it to their fellows.” (K L Datta, Report on Rise of Prices and Wages, 1914, quoted in Bangladesh Institute of Development Studies, Anti-Poverty Measures from Colonial Periods to Post-Colonial Period, a report prepared for a workshop in Bangkok from January 28-February 8, 1979; the original title of the report in short: Report on the Enquiry into the Rise of Prices in India, vol. III, Statistics of Wages, Population, Agriculture, Rainfall, Rents, Communications and Freights) In East Bengal, Sugata Bose writes, “indebtedness was widespread and that its volume steadily increased during the first three decades of the [last] century.” (Agrarian Bengal: Economy, Social Structure and Politics 1919-1947, Orient Longman Limited, Hyderabad, 1987) The Bengal Provincial Banking Enquiry Committee, the Central Banking Enquiry Committee, 1931, the survey of all the districts of Bengal by the Board of Economic Enquiry in 1934, and other studies/enquiries found widespread indebtedness in rural society, especially among the peasantry in this land.

Debt burden on the peasantry was compelling. The Royal Commission on Agriculture in India had to mention:

(1) “crushing burden of debt” of “the rural masses”,

(2) “The question of rural indebtedness is so old that its problems have become as customary as the debt itself […]”,

(3) “[I]nnumerable people are born in debt, live in debt and die in debt, passing their burden to those who follow.” [emphasis added]


Commission had to say: “That there are a large number of hopelessly insolvent debtors in rural areas, is generally admitted, and we can not regard it a making for health in the body politic that they should be allowed to remain without hope and without help.” (The Commission’s report, 1928) It was not possible to ignore the contradiction as it was threatening to the system. “The vast majority of peasants live in debt […]”, said Simon Report (vol. I) in 1930. “Writing in 1911, Sir Edward Maclagan observed: ‘It has long been recognised that indebtedness is no new thing in India. […] But it is also acknowledged that the indebtedness has risen considerably during our rule, and more especially during the last half century. The reports received from time to time and the evidence of annual sale and mortgage data show clearly there has been a very considerable increase of debt during the last half century.’” (Sir Edward Maclagan in 1911, quoted in the Report of the Central Banking Enquiry Committee, 1931, p.55. and referred in Ram Krishna Mukherjee, The Dynamics of a Rural Society: A Study of the Economic Structure in Bengal Village, Akademie-Verlag, Berlin, 1957) In India Today (Manisha, Calcutta, 1970) Rajani Palme Dutt mentions the issue, and observes: “The moneylender and debt are not new phenomena in Indian society. But the role of the moneylender has taken on new proportions and a new significance under capitalist exploitation, and especially in the period of imperialism.”

The post-1947-partition-’71 period – the neo-colonial Pakistan-phase – did not significantly change the status in Bangladesh (at that time part of Pakistan). M N Huda and others found in 1956: Between 66% and 87% families surveyed were in debt. (Rural Credit and Unemployment in East Pakistan 1956, Dhaka University, Socio-Economic Survey Board, 1958) The Credit Enquiry Commission Report (Government of Pakistan, 1959) told similar tale. A few years later, another survey found indebtedness at about 54% of the rural families surveyed. (Government of East Pakistan, Cooperative Statistics and Research Organization, Agriculture Credit in East Pakistan, A Survey Report, 1967)

The Bangladesh phase is also experiencing the same. Indebtedness of the poor, a part of the mahaajan-market, is an old and big market in Bangladesh. The rural poor in pre- and post-independent Bangladesh, studies found, experienced widespread rural indebtedness. Khandaker M Rahman’s “Providing Credit Facilities to Small Farmers with Special Reference to IRDP” (1979) and Bangladesh Bank’s (by its Agricultural Credit Dept.) Problems and Issues of Agricultural Credit and Rural Finance show widespread indebtedness among the rural poor.

Microcreditors’ relevant data – the number of debtors, the number of households in MC/MF net, the amount of money credited, etc. – provide a picture of the current widespread debt situation, although mainstream carefully avoids the issue – indebtedness of the poor. The increasing indebtedness-situation is easily perceived if one looks at MC/MF operation among the urban poor, especially the slum dwellers. It has “invaded” the urban poor-life, a very powerful source of contradiction, also a very powerful source of revolt, within the system of “peaceful” status quo. Considering MC/MF as a supplement to neoliberalism is, again to say, ignoring these relevant facts, ignoring an important contradiction hurting millions of the poor.

The author’s claim – necessary supplement to the World Bank-pushed neoliberal economic model (NMN) – is not based on reality. Answer to the following two questions help find out the fact: When were (1) GB or MC, and (2) neoliberal economic measures introduced in Bangladesh?

The MC was there in Bangladesh even before Bangladesh emerged as an independent country although the fact is ignored by a part of proponents of MC/MF. “Perhaps the most important of the credit-based projects under way in the early 1970s was a form of microcredit directed towards the poor. This project had been pioneered in the 1950s in East Pakistan (later to become Bangladesh) by Akhter Hameed Khan. In Khan’s ‘Comilla Model’, microcredit was disbursed to poor rural communities through village- and sector-based cooperatives.” (Millford Bateman, Why Doesn’t Microfinance Work? The destructive rise of local neoliberalism, Zed Books, 2010) Credit without “collateral” was delivered by others also even in pre-independent Bangladesh. [The MC/MF “without collateral” is another deceptive publicity, which is not discussed in this essay. Micro Credit: Myth Manufactured (Farooque Chowdhury, ed.) discusses the issue.]

Rural moneylenders lent microcredit to the poor peasantry during the colonial period, and those were also without “collateral”. The poor persons borrowing the microcredit entered into virtual bondage, had no power to negotiate/bargain rate, conditions, period, installments, had no power to move beyond the creditors’ authority, had no power to disown the borrowed money after repaying more than the borrowed amount. It was the same story of today with a bit of modification, with a better mechanism to ensure paying back of the borrowed “money”. The recovery rate was also “excellent”; otherwise the moneylenders would not have survived, continued with their lending “mission”, thrived and could not play politics formally and informally. During that time – the colonial period – there was no so-called neoliberalism. So, MC had no scope to turn supplement to that measure termed neoliberalism.

Referring moneylenders as villains in rural economy and raising the point of globally honoring a moneylender Susan Wolcott writes in “Microfinance in colonial India”:

“[M]oneylenders have been indispensable in village India at least as long as records have been kept. The first to make this point to a Western audience was Malcolm Darling in his important book The Punjab Peasant in Prosperity and Debt. Darling was a British colonial administrator as well as a scholar. He wrote:

Financing the village, marketing its produce, and supplying its necessities, the moneylender in India frequently stood between the cultivator and death. Whenever, therefore, we are tempted to revile him, we should remember that by his assistance to agriculture for 2,500 years he has made life possible for millions who must otherwise have perished or never been born.”

Susan Wolcott adds further:

“Moneylenders, at least in colonial India, followed many of the same practices which have been praised in the Grameen Bank. They loaned without collateral based purely on their personal knowledge of the borrower. They lent very small amounts. They were, most historical and even modern descriptions agree, reasonably flexible with regard to repayment. Colonial moneylender rates were similar to the rates charged by the Grameen Bank today. I will argue that there was a fully understood, if somewhat implicit, system of collective liability. Less heralded, but according to Armendáriz and Morduch (2007) [Armendáriz, Beatriz and Jonathan Morduch, The Economics of Microfinance, MIT Press, Cambridge, Massachusetts, 2007] equally important, features of microfinance such as weekly repayment and ‘dynamic incentives’ created by repeated and increasing loans were also common features of colonial money lending. In short, what is now labeled ‘microfinance’ was ubiquitous in colonial India.”

In a note [note 2] in the paper, Susan Wolcott mentions:

“The 1930 Provincial Bank Enquiry Committee of the United Provinces of Agra and Oud described in detail the ‘qist’ business, in which loans were repaid in equal installments, either by the month or day. The authors of the report write, ‘This kind of investment is prevalent almost all over the provinces [of Agra and Oud] in different forms and is showing a great tendency towards increase. as it is found attractive in view of the easy installments in which repayments are made,’ (United Provinces (1931), pp. 297.) … [M]oneylenders commonly offer the ‘kist’ form of credit, involving equal monthly or daily repayments, in the modern period (DasGupta (1988), p. 603)”.

Findings from recent studies on MC/MF by a part of mainstream, and discussions on the issue show an increasing tendency of the stream: critical of and skeptic about MC/MF instead of unequivocal support once extended to the mechanism, and gradually shrinking support to and decreasing enthusiasm with it. A few are highly critical, and at least a major study with dependable methodology fundamentally questions MC/MF. But is neoliberal economic model, the necessary supplement to the World Bank-pushed neoliberal economic model as has been claimed in the article, being questioned, being left by mainstream now? What shall happen to the model if its necessary support is not supported by mainstream and, one day in future, if the necessary support is abandoned? A riddle indeed to the author of the assertion!

Neoliberal measures target entire economy, entire society, entire population, all the public properties and natural resources while MC/MF targets the poor, the landless, although, in cases, MC/MF deviates and lends its hands to the rural rich. That’s, the rural rich tapping the MC/MF money, another narration of operation of the capital involved there. However, it should be mentioned that the rural rich tapping the MC/MF money is not the general or major part of the business.

Ways/methods of dealing, and class(es)/social force(s) involved with the contradictions related to MC/MF and neoliberalism are different. One is the contradiction between creditor (MC/MF) and debtor while the other is between forces of neoliberalism and the population falling victims to neoliberalism. Should not contradictions be identified properly? Doesn’t a scientific approach demand a proper identification of contradictions? Who shall take the responsibility of a wrongly identified contradiction? Should it be a proponent of the wrong assertion or a publicist?

[Farooque Chowdhury is Dhaka-based freelancer.

This 4-part-essay, originally composed in March-April 2015 and was shorter than the present version, is modified subsequently over the following months after it failed to find the place appropriate for the differing opinion. To have the appropriate place, the original article was once shortened to a few hundred words which formed just a few statements. However, the place was not available.]

Source: www.countercurrents.org

Category: Payday loans

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