11 April by Abul Kalam Azad , Nathan Legrand , Eric Toussaint , Sushovan Dhar
Abul Kalam Azad works with Action Aid in Dhaka, Bangladesh and is also a member of the CADTM. He researches the impacts of microcredit and has conducted Participatory Action Research with the victims of such loans.
How does microcredit work in Bangladesh?
Of course, it would be most appropriate to directly interview people who have taken loans from microcredit agencies. They will be the ideal persons to tell their own stories. That being said, my activities led me to meet villagers to collect their testimonies on microcredit. I shall try to share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. their stories here.
The general history of microcredit in Bangladesh is well known. It began in the 1980s. Before that, people took loans -small or relatively big- from local usurers. To some extent, this is practiced still today. In 1976 Muhammad Yunus founded the Grameen Bank which introduced the first microcredit loans. Other agencies, including the BRAC Bank (created in 2001), joined the initiative later.
Microcredit, in its “classical” sense, implies the grant of small loans to a single group of several borrowers. A debtor group is made up of about 25-30 people committed to 16 principles (intended to ensure that the borrowers act collectively and inclusively as a group). Members of a group first form a joint savings fund and then apply to a microcredit agency for a loan on the strength of that fund. More recently, microcredit agencies have begun lending to individuals. For an individual loan, the borrower must provide a guarantee to the agency amounting to 30% of the amount contracted.
What are the problems faced by people borrowing from microcredit agencies?
Starting in 2008-2009, as part of my work with The Hunger Project, I met villagers for collecting testimonies on their lifestyle. The idea behind this project was to help communities find solutions to their main problems through a participatory action research (PAR) approach in which I played the role of the facilitator. We began to identify local problems, and we realized that the main problem was microcredit. Until then, I had never thought of it as a source of problem. We discussed microcredit and all the related issues in depth. The villagers showed great interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. in telling us their adverse experiences with microcredit.
Interest rate is definitely one of the main problems associated with microcredit. Officially, the rate is around 15%, but actually, if we include all the contractual clauses in the calculation, the real interest rate easily turns out to be 50% p.a. Of course, local usurers charge higher rates, but they are somewhat flexible in the event of repayment snags. Microcredit agencies are not so.
Difficulties regarding repayments have brought huge stress within the borrowers’ families. Employment prospects for the members of the debtor’s family have been microcredit’s only positive effects to some extent. However, job prospects are constrained by the dues, and microcredit has led to the disruption and the disappearance of social harmony within families.
Moreover, microcredit has spawned another type of small usurers in the villages. Indebted people borrow from them so that they can repay their dues to the microcredit agencies.
This type of loan engenders overconsumption, which is the main source of Microcredit’s debt trap. For example, if a family receives 5000 Taka (about 60 euros), most probably it will spend most of it after “expensive” clothes that would otherwise be beyond its reach. Therefore, this family risks falling into the debt trap: the debtor will have to borrow from another agency or from different moneylenders to repay the first loan. A household can thus borrow from three or four different creditors. When one has three creditors, it is impossible to repay them: often, these families have to cut ties with their communities and run away from their villages to settle in town.
Who are the borrowers?
In rural areas, borrowers are mainly small and medium-sized farmers and landless peasants. The classification of rich, middle and small peasants depends on the size of their own land. According to the criteria put forth by the Bangladesh Bureau of Statistics, a rich peasant owns more than 3 hectares, a medium-sized peasant owns between 1 and 3 hectares, a farmer with less than 1 hectare is a small peasant or a landless peasant. The rich peasants are virtually absent from the villages nowadays. These are the “absentee land-owners” who settle in town and rent their land to small and medium-sized farmers or landless peasants. Ten years ago, 50% of the rich peasants lived in the city, thus “absent”. Today, this number has increased to 80%. It poses a challenge for any plan for agrarian reforms. These rich peasants work in different sectors in the urban areas. For small peasants, or landless peasants tilling the lands of rich émigré farmers, farming does not fetch enough to survive: they must explore another employment, for example by becoming drivers while their wives till the land.
Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.
Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).
IMF : http://www.worldbank.org/ programmes (SAPs) of the World Bank World Bank
WB The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.
It consists of several closely associated institutions, among which :
1. The International Bank for Reconstruction and Development (IBRD, 180 members in 1997), which provides loans in productive sectors such as farming or energy ;
2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;
3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.
As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.
http://worldbank.org and the International Monetary Fund IMF
International Monetary Fund Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.
When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.
As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).
The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
http://imf.org led to the abolition of agricultural subsidies. In the 1970s, rich peasants who borrowed from banks owned most of the land. Starting from the 1990s, they started leaving their land and thus lent it to small and landless peasants who started borrowing from microcredit agencies (since banks do not lend to these small peasants). SAPs have commodified agriculture. In the past, the Bangladesh Agricultural Development Corporation (BADC) bought crops at fixed and guaranteed prices. This system gave security to the farmers as prices were not market-dependent. SAPs have abolished this mode of operation, as well as subsidies for seeds and inputs. The “green revolution” of 1980s’ Bangladesh forced farmers to resort to microcredit.
Please share with us some of the remarkable testaments on the microcredit experience.
In July-August 2015, I was involved with a “participatory action research” group in a village called Morka Daspara (Sat Gambuj Union, Bagerhat district). Two or three women from the village’s microcredit group were unable to repay the microcredit agency. The group was supportive and made payments on these women’s behalf. To them, this felt like a second liberation (an allusion to the 1971 liberation war setting Bangladesh free from Pakistani domination). This group then set up an alternative to microcredit by creating a cooperative.
There was visible anxiety on the faces and in the body language of the victims of the microcredit scam. They were obviously stressed by the process of regular short-term repayments.
Microcredit has had significant negative cultural effects. I have already mentioned overconsumption. Furthermore, there has been the culture of lying, loss of self-esteem, or waste.
When people are asked about microcredit, only 5-10% affirm they were successful. Muhammad Yunus and the microfinance institutions publicize this unrepresentative minority.
Éric Toussaint, Sushovan Dhar and Nathan Legrand took this interview of Abul Kalam Azad, Action Aid, Bangladesh.
Translated by Suchandra De Sarkar
5 April, by Renaud Vivien , Nathan Legrand , Sushovan Dhar
is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France. He is the author of Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012 (see here), etc. See his bibliography: https://en.wikipedia.org/wiki/%C3%89ric_Toussaint He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. Since the 4th April 2015 he is the scientific coordinator of the Greek Truth Commission on Public Debt.
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