MICROFINANCE: A PERSONAL VIEW (overestimated solutions for underestimated problems) - Part one

Ten Things to know before to read this post
1- Finding “Microcredit”, “Grameen Bank” and "Muhammad Yunus” on Wikipedia
2- “One day our grandchildren will go to museums to see what poverty was like” M.Yunus, 1996
3- Grameen methodology: 5 poor women join in a group, each of them presents a proposal to obtain a loan (business/i=20%, housing/i=8%, education/i=15%, beggars/i=0%) and attends a training program about rules and advices. If the borrower gets the loan, she will start with a basic loan, little weekly repayments, little weekly compulsory savings. Now, if the borrower is able to repay and save the first weeks of the program, she will obtain other money till reaching gradually the final amount of the loan. The 5 members receive the loan individually, but they attend the weekly center meeting as a group. The low amounts and the social responsibility’s method work as commitments for the borrowers to re-pay and save, every week;
4- Grameen offers also other voluntary savings devices and a pension scheme (GPS), but only if you are a member of a loan-group. Thus, you can save but only if you borrow;
5- “Not all the poor are budding entrepreneurs” Johonson and Kidder, 1999;
6- For the poor –and their financial culture- borrowing is easier than saving;
7- YOU CANNOT SAVE ALONE: ROSCA’s is one of the most popular informal mechanism of savings. Imagine 10 women in a village, and everyone wants to buy the same good, a basic cooking stove. The cost for a cooking stove is 1000 BDT, too much for the monthly saving of each. Month 1 – every member saves 100 BDT and with the total pot one of the member could buy the stove. Month 2 – every member saves other 100 BDT and the second one buys the stove. Month 10 – finally, also the 10th member can buy the pot. After 10 month, 10 women -that couldn’t save 1000 BDT for a cooking stove- have bought the good: 9 of them have received a benefit buying the good in advance (the first one, 9 months in advance; the second one, 8 month in advance; etc…) and only the last woman has not received a benefit from the ROSCA’s membership (but the next time, she could become the first member to receive the money and buy the good with an advance of 9 months);
8- Weakness of informal savings clubs (ex: ROSCA): 1/lack of safety (there is no safe place to keep the money), 2/hard to replicate the model in urban area (lack of social responsibility), 3/a formal savings device could offer the chance to invest in a business opportunity or to face an emergency (withdrawing money from the saving account);
9- SafeSAVE, a cooperative working in the slums of Dhaka collects daily saving with a sixty-four staff members. Every day, customers are visited in their house or business, without the “logic of social responsibility”: they are saving and building assets for the future, for future business opportunities, for future emergency.
10- Anyway, the Grameen Family is bigger than one bank that works for the poor. Not only money, but a solid system of sister-companies get involved in health services, environmental projects, green energy, food and water and social business.

Beyond Grameen
I have no doubts to say: Yunus is one of the most important innovators of the last century, he deliberately did the opposite of what a conventional bank would do. And it worked, and it is still working. Okkey, 1/ it is not completely clear “how”; 2/ we cannot yet evaluate the real impact of microcredit; and 3/ we are really far from getting tickets for the museum “Once Upon a Time the Poverty”, dreamed by Yunus: but, despite that, microcredit works. Because when you try the magic green of rural village, when you seat in front of twenty-three-colored-saari-women, when you speak with them, when you visit their house, when you drink the tea that they made for you, when you note that tube-well, sanitary and electricity have arrived in their house only after Grameen Bank, when you reject the lunch that they offered you, when you play marbles with their sons, when you smile with them…you cannot misunderstand that something in their eyes has really changed. And if it is true that the eyes are the mirror of soul, the eyes of a micro-borrowers show the evidence that microcredit works.

In the same breath, I have no doubts that the phenomenon of microcredit is overestimated. Not only in Bangladesh, but everywhere. I am sure that this overconfidence is naturally inside every utopia, thus the idea to help the poor with a bank –that usually it’s only for the rich- makes the dreamers enthusiastic, too much enthusiastic. I think that the microcredit programs lack of a Plan-B. For more than 30-years, a lot of NGO’s and Microfinance Institutions have provided loans to borrowers that would like to change their destiny starting or improving a business. These institutions have always offered more than a simple loan: financial assistance, training programs, collateral projects about health-education-women empowerment opportunely created for the borrowers. But, it's not enough, they are still forgetting the hidden side of Microfinance: saving!

Borrowing VS Saving
Borrowing is the only way to start the escape from the poverty, if you lack of everything: food, job, house, health. For this reason Prof. Yunus, and other after him, started to lend micro-amount of money -asking an interest, because the charity has not ever worked and the poor need to build an own financial culture. Borrowing money is the first step, could be the second one, …but should not be the third one. This way could make the borrower a microcredit’s addicted (Debts Spiral).

But, incredibly, a lot of poor don’t need money and they don’t ask loan. They live with 2$ -or less- per day and they can save, or better, they need to save but they lack of devices to save. Portofolio of the Poor reported stories of poor like Himid and Khadeja: a couple that -though living in a Dhaka slum with an average earning of $70 per month- generates a total turnover of $965, larger than their annual income of $840. So each dollar of income earned is subjected to $1.14 of intermediation – of being pushed and pulled through financial instruments of one sort or another. The Himid and Khadeja story is the same story of other millions of poor and expresses a need for savings to sustain their financial structure, made of smoothing consumption, loans payment, insurances.

Borrowing is extremely easier than saving, because the self-control that you need to put money into a voluntary savings account –reducing your consumption- is weaker than the one that pushes you to pay every week an instalment because all the other members pay the instalments.

But, borrowing is extremely more dangerous than saving. […to be continued]