Critics of microcredit chastised

Experts hail role of microcredit in poverty reduction
Experts and politicians yesterday came down heavily on the critics of microcredit for being too ruthless about the economic concept, which is credited to contributing to pulling out millions out of poverty.
They said there are both positives and negatives of the theory championed by Bangladesh’s lone Nobel Peace Prize Winner Professor Muhammad Yunus, and the authorities should act to fix the anomalies.
Their call came at a dialogue — Microfinance for poverty alleviation: What’s right and what’s wrong — at the CIRDAP auditorium in Dhaka.
The Centre for Policy Dialogue (CPD), a think-tank, organised the event with Khushi Kabir, coordinator of Nijera Kori, in the chair.
Bangladesh Bank Governor Atiur Rahman said microfinance has over the years grown in profile globally as a major financial tool to combat poverty.
“The relatively higher interest rates and charges or fees remain a persistent, biting criticism of microfinance, albeit more from populist political authorities rather than from actual borrowers.”
“Regulators and government authorities can however encourage and support MFIs in minimising supervision costs, to the extent possible adopting remote loan delivery and recovery mechanisms in partnership with mobile phone companies and IT platforms offering card based financial service delivery,” said Rahman.
He said authorities would use anti-money laundering regulations to check anomalies in the microfinance sector.
Rahman also said the country’s microfinance institutions should go beyond their financial services and adopt more human and social visions for the greater benefit of society.
Prof David Hulme, head of Institute of Development Policy and Management at the University of Manchester, UK, said MFIs need to be more honest and humble about their products to overcome the current impasse.
“They should be more transparent about their charges, terms and conditions.”
He urged the MFIs to introduce low cost systems to reduce the likelihood of client abuse and improve social performance.
He also said microfinance is one small part of a national strategy for poverty reduction. “So we need to get it into perspective and keep it working effectively.”
Prof Syed M Hashemi, executive director of BRAC Development Institute, said the MFIs in the country have both positive and negative sides. “But we should not look at it as a financial tool only.”
He said both academics and politicians have labelled MFIs as blood-suckers, without understanding the financial lives of the poor people.
“It is quite difficult for banks to go and operate in the rural areas with such a low interest rate,” said Hashemi.
Prof MA Baqui Khalily said MFIs have to be efficient and competitive to survive.
The finance professor of Dhaka University also ruled out claims that micro-loans are only used for unintended purposes. “We have found that two-third of the loans are used to expand economic activities.”
He urged the government to sit with the MFIs regularly to sort out differences and fix anomalies.
Former Education Minister Osman Faruque said the government should conduct a study to know whether microcredit has any impact on alleviating poverty.
He came down heavily on the critics of microcredit. “In Bangladesh, the critics were more severe, ruthless and heartless and were for personal or political reasons. But they came from politicians not from the real borrowers.”
“There is also no scope to brand MFIs as blood-suckers when the break even is 23 percent,” said Faruque.
He called for effective regulation. “But we cannot forget that in Bangladesh, many regulatory bodies have killed the baby.”
Lawmaker Hasanul Haque Inu urged political and social activists in Bangladesh not to say ‘no’ to microcredit. “Rather, they should cheer them up to perform better.”
Qazi Kholiquzzaman Ahmad, chairman of Palli Karma Sahayak Foundation, said: “We need to get answers on how do we can isolate the impacts of microcredit. What is the borrowers’ employment status, although MFIs have created huge jobs within themselves? How long will the borrowers remain borrowers?”
“We need answers. Otherwise, the MFIs will not be sustainable, and we will not be able to measure the impact,” he said.
The economist said there are many MFIs who are charging 40 to 60 percent as interest. “We have to address it.”
CPD Executive Director Professor Mustafizur Rahman also spoke.

-With The Daily Star input 

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