The crack in the microloan myth

Lawrence Solomon
National Post
December 5, 2000

Scheme to empower poor women doesn’t stand up to scrutiny

We’ve all read heartwarming stories like this one, set in Madi, Kyrgyzstan and reported in Sunday’s New York Times:

“A year ago, Minavar Salijanova and her family were close to starving. They lived in a three-room house of mud brick inherited from her parents and the seven children had few clothes. Mrs. Salijanova could not even dream of owning a new green dress, let alone putting on a feast like the one she had now spread for neighbours and the visiting United Nations officials who helped her toward previously unimagined prosperity.

“Sixty chickens roam the yard, vying for feed with five prized goats bought with money earned selling eggs for about six cents apiece in the nearby market. The children have new clothes, too, and Mrs. Salijanova hopes to buy a milk cow and a calf next month …

“Mrs. Salijanova and her family are among the beneficiaries of a United Nations program that, for the first time, is bringing microcredit — already widespread in parts of Asia and Africa — to the former Soviet lands of Central Asia.”

Countless articles have appeared in the Western media, extolling the many virtues of microcredit — loans as small as $100, $50 or even $10, typically to women in poor countries. Transformed through these loans — which miraculously are almost always repaid — women become entrepreneurial, financially secure and empowered, even liberated, in their tradition-bound, male-dominated societies. Not one media report in a thousand questions these claims.

Here’s a story you haven’t heard. It comes from Hamidul Huq, a doctoral candidate at the Wageningen University in the Netherlands, who has written a sobering report about the effects of microlending in his home country of Bangladesh. Bangladesh is also home to the Grameen Bank, which began the microlending revolution two decades ago.

In one of Mr. Huq’s case studies, he quotes Kalpana, a woman who returned to her family home after her husband abandoned her and her baby daughter, and feared being a burden on her father, a landless peasant too poor to support his household.

“An officer of the bank called a meeting for the village women, which I went to. The officer told us that if we became members of the Grameen Bank, they would give us a loan … I thought, I have here a chance of survival. That same evening I asked my father’s permission to become a member of the Grameen Bank, mentioning to him loan possibilities. My brothers supported me, maybe because of their interest in the loan money, and my father agreed to my becoming a member of the bank. After some days the officer came again and formed eight women’s groups.”

The money that Kalpana borrowed — Grameen lends only to women, whom it considers superior credit risks — she immediately turned over to her father, who used it to start a small rice-husking operation. It succeeded well enough to put some food on the table, make the weekly loan repayments to Grameen, and qualify her for a larger loan, which she turned over to her father and two brothers. The treadmill never ended. Kalpana worked day and night to stay ahead of the bank payments, and in the end, her father took all her assets to pay for her younger sister’s marriage, leaving her in debt with no savings, not even enough to pay the nominal registration fee to qualify for free medical treatment at a local clinic when she became ill.

“If I had had money of my own, then I would have gone to the clinic in the early stage of the illness. I am now very weak and cannot even work now.” Yet after 12 years of this bleak experience, Kalpana said she would “continue with Grameen Bank because they will always give me loans.” Indeed, from the bank’s perspective, Kalpana is a model client, always making her repayments, the model of an empowered woman.

Then there’s Rabeya, daughter of a rickshaw puller, who hanged herself when she couldn’t make the payments on her second loan, even with help from her father, who lent her part of the repayment. Her Grameen Bank officer, insisting she pay the full amount, had given her one hour, suggesting she sell the sari she was wearing. The bank then threatened to stop the funeral if the family didn’t pay, according to Banglabazar Patrika, a national Bangladeshi daily. Elsewhere in Bangladesh, the press, suspecting a systemic problem, has described thousands of desperate, placard- carrying Bangladeshis demonstrating to pressure Grameen Bank to grant them interest rate relief.

No one has ever broadly surveyed recipients of microlending to ask how often women become borrowing fronts for male family members and whether the borrowers’ miraculous repayment rates stem from their ever-greater indebtedness and the microlenders’ willingness to use shame — a powerful weapon on women in traditional societies — as a repayment technique. Mr. Huq argues the Grameen structure, rather than empowering rural women, amounts to no more than another instrument of oppression. An uncritical Western press — participating in feel-good photo ops arranged for their benefit by the UN and other foreign aid agencies that back microlenders — neglects to give these agencies due scrutiny.

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