[Assam] Microbanking and Grameen

[Roy, Santanu]

Dilip-da: 

Indeed there are major differences. The grameen bank micro-credit movement is about empowering the poor to take care of their credit needs by pooling their meager resources (and using that to attract outside credit to the group). It is about local self-monitoring which allows the group to exert social pressure on borrowers to pay back so that others can get their loan when their turn comes. Thus, the risk of default on repayment is automatically reduced - something formal sector financial institutions could never secure. This is not to deny it has also had its share of major problems. But the fact that over a million families are now covered by this scheme is a tremendous achievement. It goes to show us that transforming the lot of the poor does not necessarily require huge amount of resource input; it requires institutional change and institutional innovations - something at the decentralized grassroot level, not something built by and for the babus. 

As for the so called micro-credit led farmers suicides in India, I am rather appalled by the nature of arguments being made here. Everybody seems to believe that the problem is one of indebtedness caused by lack of cheap credit and that the solution is to pump cheap money into the hands of farmers. As I see it, this "solution" will make the situation far worse. The reason why we have such a sharp increase in suicides among farmers has to do with the fact that the degree of risk faced by these farmers has become substantially higher. This comes from two sources. One, they have switched to newer cash crops that are inherently more sensitive to fluctuations in weather and quality of other inputs so that the yield fluctuates much more. Two, they are integrated much more into the world market and therefore subject to much higher degree of price fluctuation because the global prices are sensitive to changing supply conditions in other parts of the world as well as global demand conditions. There is little by way of insurance against the cumulative risk faced by these farmers. 

Further, many of these farmers feel the need to earn a certain minimum threshold income to meet their subsistence need and to service past debt. Therefore, they prefer high risk alternatives. 
To see it simply - suppose you need 100 rupees to survive or pay interest on past debt (or meet your aspiration level). You have two options, one that gives you Rs. 80. The other gives with you Rs. 200 with 10% chance and Rs 20 with 90% chance. The latter is a terrible risk to take but you may take it in desperation because with 10% chance you will be out of the debt/survival trap, while the low risk alternative is certain to not meet your aspiration level. That of course means that 90% of farmers will perish badly. 

So, what does cheaper sarkari subsidized credit do in these circumstances? It simply makes you borrow and invest more heavily in the high risk crops. The government subsidies go towards subsidizing bad risk taking. And suicides.

 
Santanu. 


-----Original Message-----
From: assam-bounces at assamnet.org on behalf of Dilip/Dil Deka
Sent: Fri 10/13/2006 9:24 PM
To: ASSAMNET
Subject: [Assam] Microbanking and Grameen
 
There is microbanking in India and many suicides were ascribed to it because farmers couldn't pay back. Then there is Grameen bank in Bangladesh, one form of microbanking, that has been widely successful and finally has won a Nobel prize.
I was interested in learning the differences in approach in the two countries and have been reading up on the subject. The following site gives one a good account of Grameen and its successes.
It looks to me, in India they are just reducing the loan amount and calling it a microloan/microbanking, whereas in Bangladesh there is a total new approach to it, to make sure that the borrowers can pay back and will, by using social entrepreneurship.
Thus the words "Grameen bank" and microbanking are not synonymous. There is a little know-how involved.
Dilip Deka

[PDF] Grameen Bank - Microleasing File Format: PDF/Adobe Acrobat - View as HTML
payment of the leased amount any time without any penalty. ... as well as access to other Grameen loan products induces the lessee to make timely. payments. ...
www.gdrc.org/icm/a-dowla.pdf