[Assam] Microbanking and Grameen

[Rajib Das]

The suicides related to farmer loans in India
(Maharashtra and Andhra) does not happen because of
microbanking. It happens - in addition to higher risks
related to farming - because the interest rates
charged by traditional money lenders is very high.
Microbanking is when these traditional money lenders
are replaced by institutional lending at manageable
rates.

The difference between the local seth and a private
modern bank, if you may.



--- "Roy, Santanu" <sroy at mail.smu.edu> wrote:

> Dilip-da: 
> I am not very familiar with the details but it is my
> impression that the Grameen bank's traditional focus
> group was the class of landless rural poor and that
> of course means that the key activities they were
> targeting were of a non-farming nature (these people
> may work as wage laborers in agricultural farms but
> they do not need credit to carry out that activity).
> But I also understand they have aided in providing
> capital for irrigation & fishery projects. 
> I also have the impression that you are also right
> about them only lending to groups (and not
> individuals) - the social monitoring aspect can only
> work in such group based lending. 
> Regards,
> Santanu. 
> 
> 
> -----Original Message-----
> From: Dilip/Dil Deka [mailto:dilipdeka at yahoo.com]
> Sent: Fri 10/13/2006 10:47 PM
> To: Roy, Santanu; ASSAMNET
> Subject: Re: [Assam] Microbanking and Grameen
>  
> Santanu,
> Thanks.
> Another importance difference I perceive is that
> Grameen makes loans in the manufacturing and service
> sectors whereas microcredit in Indian villages as
> reported is in farming. I'd think manufacturing
> (tailoring, carpentry, welding etc.) and services
> (auto repair, bicycle repair, grocery shop) are good
> risks as opposed to cotton farming that is dependent
> on amount and timeliness of rain, and price of
> cotton in the global market among other things.Am I
> right?
> Also I read that the loan approval through Grameen
> involves guidance to the borrowers in forming
> borrower groups so that there will be social
> pressure (as you said) to pay the loan back. For
> example, an application from a single borrower or
> from one family may be rejected. Is it true?
> Dilipda
> 
> 
> ----- Original Message ----
> From: "Roy, Santanu" <sroy at mail.smu.edu>
> To: Dilip/Dil Deka <dilipdeka at yahoo.com>; ASSAMNET
> <assam at assamnet.org>
> Sent: Friday, October 13, 2006 9:58:21 PM
> Subject: Re: [Assam] Microbanking and Grameen
> 
> 
> 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
> 
> 
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