Kalam wants India to adopt Bangladesh's Grameen Bank model

I-G

Tihar Jail
Banned
Joined
Jun 16, 2009
Messages
2,736
Likes
55
Kalam wants India to adopt Bangladesh's Grameen Bank model

Dhaka (IANS): Inspired by Bangladesh's Grameen Bank endeavour, former Indian president A.P.J. Abdul Kalam has mooted a separate Indian law for micro credit in rural areas, a media report here said Monday.

Responding to Dr. Kalam, who is on a three-day visit here, Nobel Laureate Muhammad Yunus Sunday said that Grameen Bank would be delighted to help in any effort to set up micro credit programmes in India and is already involved in such an effort in Kerala.

Yunus presented Dr. Kalam the Hindi translation of his book Banker of the Poorduring his visit to the Grameen Bank, the Daily Star reported.

India's first technocrat president, who held office from 2002 to 2007, also mooted joint research and development, using modern technology, of jute -- the “golden fibre” common to Bangladesh and India. Its production has steadily declined in recent years.

On Sunday, Prime Minister Sheikh Hasina on Sunday hosted a dinner in Kalam's honour.

Dr. Kalam's itinerary here includes visiting Dhaka University and the historic Viqarunnisa Noon School and College.

Dr. Kalam, along with President Zillur Rahman, will Monday attend the first convocation of the University of Information Technology and Sciences (UITS).

The Hindu News Update Service
 

F-14

Global Defence Moderator
Senior Member
Joined
Apr 20, 2009
Messages
1,563
Likes
25
that is a good news we need to get capital in the rural sector to help the strugling famer
 

leonblack08

Respected Member
Regular Member
Joined
Jun 18, 2009
Messages
309
Likes
9
He will be giving a speech in Dhaka university today afternoon.
 

Antimony

Regular Member
Joined
Mar 30, 2009
Messages
487
Likes
10
that is a good news we need to get capital in the rural sector to help the strugling famer

I wouldn't call this good news till there is some policy announcement by the GOI. Kalam is not part of that any more.

By the way, I think India already has microcredit schemes in India, but that is primarily by private parties. Unfortunately, some lenders in this space have charged "exorbitant" rates and have clashed with borrowers and public officials.

Some new regulation may change the problems facing microcredit today range from very high rates (around 20%) to misutilization of funds - women take money for launching business and instead end up giving the money to their husbands or spending it for family needs.
 

advaita

Regular Member
Joined
Jul 19, 2009
Messages
150
Likes
2
I wouldn't call this good news till there is some policy announcement by the GOI. Kalam is not part of that any more.

By the way, I think India already has microcredit schemes in India, but that is primarily by private parties. Unfortunately, some lenders in this space have charged "exorbitant" rates and have clashed with borrowers and public officials.

Some new regulation may change the problems facing microcredit today range from very high rates (around 20%) to misutilization of funds - women take money for launching business and instead end up giving the money to their husbands or spending it for family needs.
The micro credit is actually available only at high rates even in Grameen Bank model.
The Grameen Bank works in Bangladesh because of many reasons like:
  1. Loan is actually given to a group - helps in recovery
  2. Loans are of rather small values and sanctioned amounts increase on yearly performance basis- meant only to meat exigency
  3. The BD Government cannot hope to forgo loans en mass like in India so they are supportive of the idea, not levying it with extra procedures.

Even in India self help groups (usually refered to as committees) indulge in pretty much the same thing but the effect has not gone down to the level of the small and marginal farmers primarily because the financial balance in running such small and unconsolidated holdings is difficult to maintain because of low productivity. I think getting any part of Government into the business of launching or running or even regulating Grameen banks which can spring own there own would only make new avenues of corruption. Instead the government should just open up the agricultural sector to GM crops and raise research efforts and attract FDI esp. Cheaper and more conservative Japanese money in setting up cold chains and industrial scale farming with appropriate regulation (we may have to make major changes in property laws and even Cooperatives & Corporate laws).
We have large number of farmers that live in approximately the same conditions as the farmers in BD but the solutions required for our economy will be different simply because of the different dynamics of the society and national economy.
Merely Grameen Bank though a good idea may be too little, too late.
 

Energon

DFI stars
Ambassador
Joined
Jun 3, 2009
Messages
1,199
Likes
764
History and research have clearly shown that access to capital on fair terms is critical to promoting sustained and healthy development in a society, obviously something that hasn't happened in rural India (actually it has increasingly worsened after the economic liberalization of 1991). Yunus has achieved this to a great extent through his Grameen model, and it would be a shame for India not to follow suit. I do however think that in India's case a whole lot more could be done by combining this effort with other resources and technical know how that Yunus does not have at his disposal in Bangladesh.

For instance young men and women could be imparted with technical training in areas related to infrastructure or para agricultural industry and then given access to loans to start business ventures (either production based or service based) in these areas so as to create self sustaining rural economies.
 

Antimony

Regular Member
Joined
Mar 30, 2009
Messages
487
Likes
10
The micro credit is actually available only at high rates even in Grameen Bank model.
I don't disagree. Although I do not access to the actual data for Grameen Bank I can see that the interest would be oushed up by the higher cost of funds, the administrative cost of managing multiple small accounts and the inherently higher risk.

In India, this sort of lending is done by NBFCs (unregulated by normal banking laws) who would not have the same access to capital as an ordinary scheduled commercial bank would.

The Grameen Bank works in Bangladesh because of many reasons like:
  1. Loan is actually given to a group - helps in recovery
  2. Loans are of rather small values and sanctioned amounts increase on yearly performance basis- meant only to meat exigency
  3. The BD Government cannot hope to forgo loans en mass like in India so they are supportive of the idea, not levying it with extra procedures.

Even in India self help groups (usually refered to as committees) indulge in pretty much the same thing but the effect has not gone down to the level of the small and marginal farmers primarily because the financial balance in running such small and unconsolidated holdings is difficult to maintain because of low productivity.
Even if there is an attempt at mitigating risk by the abovementioned factors, I still see a key stumbling block: the viability of the business models that the loans are supposed to help launch and the expertise of the borrowers in managing such ventures. I think that is one key area where the indian examples are breaking down.

This article highlights this particular aspect
Microcredit: Why India is failing

Extract
The women have borrowed $330 and meet weekly to make repayments. The loans were meant to serve as capital for them to start small businesses and, eventually, lift themselves out of poverty. But the women say the loans haven't turned into new income.

One woman has started selling firewood, but others haven't started businesses at all. Instead, they say, the money helped them pay for urgent expenses, such as their children's school fees.

Boosted by a government mandate to keep the startup funds flowing, lenders making these small, or microcredit, loans are dutifully throwing cash at shantytown borrowers.

And the funds-- $1.3 billion was lent during the year ended Mar 31, up from $4 million in 1996--are often being used not as seed money for a new enterprise, such as buying a cow to sell the milk or setting up a fruit stand, but as handouts spent on consumption.
By the way, here is an interesting set of articles on microfinance, hosted at IFMR Chennai
Microfinance in India | *

I think getting any part of Government into the business of launching or running or even regulating Grameen banks which can spring own there own would only make new avenues of corruption.
I share your suspicion of the government, but I do think that the GOI has the duty to educate and regulate. However, any attempt at actually acting as a provider may result in the corrupt mess we see elsewhere

I also agree that the concept of small business is sort of self contradictory, since the type of businesses such borrowers will launch may not be very efficient. That is why I think the cooperative model (see AMUL) is a very good bet for India. The ventures (say, for e.g., fruit plantations) might be large enough to be economically viable and there would be a sense of ownership among the members
 

advaita

Regular Member
Joined
Jul 19, 2009
Messages
150
Likes
2
History and research have clearly shown that access to capital on fair terms is critical to promoting sustained and healthy development in a society, obviously something that hasn't happened in rural India (actually it has increasingly worsened after the economic liberalization of 1991). Yunus has achieved this to a great extent through his Grameen model, and it would be a shame for India not to follow suit. I do however think that in India's case a whole lot more could be done by combining this effort with other resources and technical know how that Yunus does not have at his disposal in Bangladesh.
Seems like you are from US. See in most localities in India small groups of people come together to contribute to capital of a small savings and loans institution, varieties being both close ended or open ended, male dominated or women dominated, business related or consumption related and the interest rates charged are not very different from Grameen Bank. Absolutely none of this is government regulated and the defaults are very well managed. These self help institutions are colloquially called Committees. These can be found every nook and corner in India (my mother and wife are members in one such institution). These already huge efforts are not recognised internationally because there is no poster boy to be feted. These are entirely naturally created groups. Infact Yunus may have been what we in India say "a one eyed man amongst blinds" since muslims consider interest earnings and interest payments bad per there religious beliefs. No such problems here in India. Also when in my various posts i express my enthusiasm for India's development story it is in part because of these democratic structures.

For instance young men and women could be imparted with technical training in areas related to infrastructure or para agricultural industry and then given access to loans to start business ventures (either production based or service based) in these areas so as to create self sustaining rural economies.
Ok lets assume we train them, then what after that???
Why push the rope.
Instead lets get the economic investments & exports led growth started and the middle class with some of the strongest training and apprentiseship backgrounds in the world can take part in this growth and in turn kick up the local economies into higher gear. This is entirely doable with the basic twin ideas of FDI with strong monitering (to which most MNCs and other investors are already quite amenable since they are here for the long haul) and libralisation and rationalisation of regulation of local businesses. This can set the whole virtuous cycle rolling. In fact the only real challenge as i see it would be cheap energy resources.
 

advaita

Regular Member
Joined
Jul 19, 2009
Messages
150
Likes
2
I don't disagree. Although I do not access to the actual data for Grameen Bank I can see that the interest would be oushed up by the higher cost of funds, the administrative cost of managing multiple small accounts and the inherently higher risk.
I am more concerned about nepotism. India is too diverse not to fall prey to that. See what nepotism did to Japan in last 20 years and to South Korea in 1999 crisis, or even the libralised US during Savings and Loans crisis, Junk bonds crisis, Subprime crisis.

In India, this sort of lending is done by NBFCs (unregulated by normal banking laws) who would not have the same access to capital as an ordinary scheduled commercial bank would.

Even if there is an attempt at mitigating risk by the abovementioned factors, I still see a key stumbling block: the viability of the business models that the loans are supposed to help launch and the expertise of the borrowers in managing such ventures. I think that is one key area where the indian examples are breaking down.
This article highlights this particular aspect
Microcredit: Why India is failing
Extract
By the way, here is an interesting set of articles on microfinance, hosted at IFMR Chennai
Microfinance in India | *
I admit i have not read the links you are providing, but I have read just too many in last 15 years to know that indian economic thinkers are a lot more left leaning then we care to admit and hence act like taliban of economics, studying threadbare every small idea without taking into account the bigger picture. See supply of good ideas, of good products, of good money will be able to create demands for these only if they provide some novel and significant value. Unfortunately good ideas dont come every so often, good products dont get designed every so often, good money is not able to find good investment opportunities every so often.
Instead unshackle demand by allowing trade and business the full measure of freedom, just short of putting our security in danger. Whatever Indian government can do is only small change for our poor and a big moral escape route for our left leaning intelligencia that dominate our economic policies (Unfortunately BJP has only a Hindutva agenda and no real economic agenda). Nothing more then that.

I share your suspicion of the government, but I do think that the GOI has the duty to educate and regulate. However, any attempt at actually acting as a provider may result in the corrupt mess we see elsewhere
GOI has duty only to stop restricting businesses. Look at it this way. Our Brahmins (largely left of centre) are restricting our Vaishyas from serving the society.

I also agree that the concept of small business is sort of self contradictory, since the type of businesses such borrowers will launch may not be very efficient. That is why I think the cooperative model (see AMUL) is a very good bet for India. The ventures (say, for e.g., fruit plantations) might be large enough to be economically viable and there would be a sense of ownership among the members
Concept of small business is not self contradictory, inefficient business is.
Most businesses usually start small.
Small loans models like Grameen bank are not successful in launching businesses even in BD. There counterpart institutions in India (Savings and loans groups) are also not into launching of businesses. However they do help, at times during cash shortages (1-3 months usually - as gathered from my interactions from a lot of beneficiaries of such groups).
Cooperatives - You mentioned Amul. Well you can stop at that or you can trying finding another coop that is even half as successful.
Life is about competitioin and cooperative action is good only if it provides you with a competitive edge.
Sense of ownership in Coops. Forget it.
 

Antimony

Regular Member
Joined
Mar 30, 2009
Messages
487
Likes
10
I am more concerned about nepotism. India is too diverse not to fall prey to that. See what nepotism did to Japan in last 20 years and to South Korea in 1999 crisis, or even the libralised US during Savings and Loans crisis, Junk bonds crisis, Subprime crisis.
US subprime crisis is probably the wrong example for this.
One thing that quickly does away with most such flaws based on prejudice (such as nepotism or its opposite) is tying performance directly to the pays of the officials. Capitalism based compensation usually does away with such iefficiencies in a hurry. Of course, there is also the danger of overreaching in the lending/ financing game. The current US case is a good example of that. And that is where regulation kicks in.

I admit i have not read the links you are providing, but I have read just too many in last 15 years to know that indian economic thinkers are a lot more left leaning then we care to admit and hence act like taliban of economics, studying threadbare every small idea without taking into account the bigger picture. See supply of good ideas, of good products, of good money will be able to create demands for these only if they provide some novel and significant value. Unfortunately good ideas dont come every so often, good products dont get designed every so often, good money is not able to find good investment opportunities every so often.
What I was trying to show was the microcredit in the absence of good ideas does not work. If loan given to buy, say a rickshaw is instead used to pay for liquor, the model collapses

Instead unshackle demand by allowing trade and business the full measure of freedom, just short of putting our security in danger. Whatever Indian government can do is only small change for our poor and a big moral escape route for our left leaning intelligencia that dominate our economic policies (Unfortunately BJP has only a Hindutva agenda and no real economic agenda). Nothing more then that.

GOI has duty only to stop restricting businesses. Look at it this way. Our Brahmins (largely left of centre) are restricting our Vaishyas from serving the society.
Not sure about the point of brahmins and stuff but I absolutely agree about unshacking the economy. However, I would recommend a well regulated banking and financial industry. If things start tumbling there, the overall economy get beaten down.

Concept of small business is not self contradictory, inefficient business is.
Most businesses usually start small.
Maybe, but let me give you an example. When I was a corporate banker, one of my clients told me this story. He said that company management had been thinking about establishing a plant for, say, widget X. The problem was that mfg. of widget X was restricted to the SSI, which had a limit of investment upto Rs. 3 crore, wherehas a fairly efficient plant for manufacturing widget X needed a minimum investment of Rs. 10 crore.

See where I am going?

Small loans models like Grameen bank are not successful in launching businesses even in BD. There counterpart institutions in India (Savings and loans groups) are also not into launching of businesses. However they do help, at times during cash shortages (1-3 months usually - as gathered from my interactions from a lot of beneficiaries of such groups).
But does that not sort of defeat the whole intent of microcredit? The original intent of microcredit, IIRC, is to allow the borrower to invest the money into some avenue of future income. Someone may buy a rickshaw while someone else may set up a groceryshop. If the intent and purpose of loan is to tide over cash crunches, then does that not, by default, result in a risky situation especially in a low incomes group where there is no regularity if income?

Cooperatives - You mentioned Amul. Well you can stop at that or you can trying finding another coop that is even half as successful.
Life is about competitioin and cooperative action is good only if it provides you with a competitive edge.
Sense of ownership in Coops. Forget it.
I would say Lijjat and the Bombay Dabbawallahs are valid examples. The point is that this model is valid, especially in a situation where the minimum investment for an efficient business cannot be put together by a single person.
 

VayuSena1

Professional
Joined
Mar 30, 2009
Messages
200
Likes
14
Kalam wants India to adopt Bangladesh's Grameen Bank model

Dhaka (IANS): Inspired by Bangladesh's Grameen Bank endeavour, former Indian president A.P.J. Abdul Kalam has mooted a separate Indian law for micro credit in rural areas, a media report here said Monday.

Responding to Dr. Kalam, who is on a three-day visit here, Nobel Laureate Muhammad Yunus Sunday said that Grameen Bank would be delighted to help in any effort to set up micro credit programmes in India and is already involved in such an effort in Kerala.

Yunus presented Dr. Kalam the Hindi translation of his book Banker of the Poorduring his visit to the Grameen Bank, the Daily Star reported.

India's first technocrat president, who held office from 2002 to 2007, also mooted joint research and development, using modern technology, of jute -- the “golden fibre” common to Bangladesh and India. Its production has steadily declined in recent years.

On Sunday, Prime Minister Sheikh Hasina on Sunday hosted a dinner in Kalam's honour.

Dr. Kalam's itinerary here includes visiting Dhaka University and the historic Viqarunnisa Noon School and College.

Dr. Kalam, along with President Zillur Rahman, will Monday attend the first convocation of the University of Information Technology and Sciences (UITS).

The Hindu News Update Service
Its a tragedy that nobody in India's current political structure ever listens to people like Dr. Kalam.
 

Global Defence

New threads

Articles

Top