Banking with
p. 57 · Read in the full issue
the Poor
ABSOLUTE poverty is the lot of more than a billion people in the Third World, including some 800 million in Asia. But, says the Brisbane based Foundation for Development Co operation, many have the capacity to improve their own lives through access to credit that is now denied them.
Poor people in developing countries survive on self-employment in trade, services, crafts and petty manufactures as well as agriculture, but because they have no assets and live a hand-to-mouth existence, commercial loaans are not available to them. Yet only tiny amounts of money can change their lives. There is the example of Sophia, a stool-maker in a Bangladesh village whose lack of working capital trapped her in an inexorable cycle of working for a few cents a day.
A sympathetic outsider broke the
cycle by lending her the equivalent of $6. She was then able to buy raw materials herself, instead of getting them under a standing arrangement with the village trader who bought the finished articles at his price. With her new bargaining power she was able to sell her products at the market rate rather than at the enforced price, and her earnings rose to $1.50 a day. Eventually she was earning an annual income three times the national average. Although the loan was only $6, it was the kind of money she needed to help herself.
It is also common for the poor to be ripped off by loan sharks, from whom they may borrow at interest rates 10 or more times those of commercial lending institutions. Under the commonly found “five/six” arrangement, a woman who borrows 50 rupees each morning to buy market vegetables for resale in her own neighbourhood will repay the lender 60 rupees at the end of the day. This is a daily interest rate of 20 per cent, amounting to an annual interest cost of several thousand per cent.
The loan to the stool-maker led to the formation in Bangladesh of the non-government Grameen (or village) Bank, which now has more than a million borrowers (86 per cent of whom are women) and $5O million in assets. Its average loan is about $67, although it can be as low as $lO and 98 per cent of borrowers repay their loans.
The Bangladesh concept has now been spread through Asia by the Foundation for Development Cooperation as “Banking with the Poor”, and recently the Foundation took the first steps to interest the Forum countries in it.
The FDC began its work in Asia with a series of case studies and workshops in eight countries, involving leading commercial bankers and leaders of prominent private
organisations. (The work was supported financially by the Australian Interna tional Development Assistance Bureau, the World Bank and the Australian Bankers Association). The bankers got their first real exposure to working with people beyond the reach of the formal financial sector and saw the potential for providing commercial credit for the poor.
What the case studies have showed are that the poor are good credit risks they demonstrate good savings performance. Women borrowers, es pecially women organised in groups, have proved to be the most reliable and effective borrowers. The studies show that banks can meet the credit needs of the poor on a commercially sound basis by using non-government organisations and self-help (savings) groups in India, which dealt with the request by a
member for 300 rupees for medicine for her sick child.
After questioning the woman, the other members decided she could borrow 200 rupees, and if she found the medicine did cost 300, she could get the other 100 if she brought the receipt to the group. A banker attending the same meeting as an observer wanted to know whether members would be able to obtain larger loans to buy a cow for example if his bank extended a line of credit to the group, and what would happen if a member who bought a cow defaulted on the loan.
The reply was instant. They would go and get the cow, sell it immediately and repay the money to the common fund.
The banker commented that he wished some of his more affluent city borrowers were as business-like! That group got its line of credit, with the bank accepting a group guarantee in the absence of conventional collateral.
The FDC people have already had a wide sweep around the islands, talking to bankers, officials and organisations about Banking with the Poor. In Suva, they made a presentation to the South Pacific Forum’s committee of the smaller island states.
Almost everybody everywhere expressed interest, and the FDC expects more solid development later this year. The FDC noted that the nature of poverty in the South Pacific was not as acute as in some parts of Asia, but that poverty existed, and population pressures would result in a growing need for small credit for small enterprises. I reckon we are going to hear more about Banking with the Poor. • Bill McCabe is senior commissioner of the South Pacific Trade Commission, Sydney an arm of the South Pacific Forum. □