Towards “Exhausting all other Possibilities”
South Asian microfinance has had a major influence on Fonkoze and its work in Haiti. BRAC’s models and people have had especially large impacts, but Grameen Bank has also been studied and its people brought to Haiti for input. Today, as South Asian microfinance faces crises that some say are existential, it is worth asking what the lessons are for Fonkoze. I have just wrapped up a trip here and below is part one of my reflections. As I sit down to compose this I am reminded of these words of a Middle Eastern diplomat: “You can always count on government to do the right thing. But only after it has exhausted all other possibilities.”
One of the things that spurred me to write a book on Fonkoze was that while the organization was little known outside Haiti and a small community of social investors, microfinance professionals, and Haiti solidarity activists, it represented a shining example of what was right about microfinance at a time when the industry was coming under some intense criticism (some of which was justified, even though much of it was exaggerated) and attack.
I have taken some time off again this summer from my “day job” at Grameen Foundation to work on this project. Instead of going straight to Haiti (which I will do in a few weeks), I travelled first to Bangladesh and India. These two South Asian countries have been “ground zero” for microfinance controversy and crisis over the past 24 months (and for achievement over the last two decades). I wanted to probe deeper into what was going on even as I contemplated the example of Fonkoze.
For those of you who have not been following these stories, here are the basics. Since late November 2011, the current elected government of Bangladesh and its allies in the media have been consistently hostile to the Grameen Bank, the Grameen family of companies, and Professor Muhammad Yunus. (Grameen Bank and Prof. Yunus shared the Nobel Peace Prize in 2006.) While the government’s attempts to convince people that Dr. Yunus and the organizations he created are in some way corrupt have failed, they did succeed in having Dr. Yunus removed from his post as Managing Director in May 2011 on a technicality of dubious legality. Furthermore, they have been laying the groundwork for taking over control of Grameen Bank and the most successful of the other Grameen companies, despite the recent plea made by Professor Yunus to forsake this path. The government has been far from supportive of the other microfinance institutions in the country, but Grameen has been singled out. Friends of Grameen, an international solidarity group working to preserve Grameen Bank’s independence, has written a short summary of these issues.
In India, the southern state of Andhra Pradesh (AP) has been the hotbed of microfinance controversy. The local government basically outlawed microfinance provided by private organizations in late 2010, which led to the collapse of both nongovernmental and (in time) public sector microfinance – leading clients inevitably back to moneylenders. It also caused funds to dry up for microfinance across the country, as investors and lenders feared contagion. What prompted this draconian law? As best I could tell before I arrived here a few days ago, there were several factors:
- The state government was looking for a scapegoat for the failings of its public sector microfinance initiatives and also the alarming number of farmer suicides (though some politicians were probably well-intentioned, thinking that by reigning in private sector microfinance they were in fact protecting the poor from unacceptably high interest rates).
- The public offering of the giant MFI SKS, which initially created a lot of wealth for the senior staff and investors in that MFI (but none for its clients), inflamed opposition to microfinance in general.
- There were some legitimate cases of abuse by MFIs in terms of their collection practices, mainly committed by undertrained staff who were under pressure to recover loans in an increasingly competitive landscape. (The fact that these abuses were exaggerated and sensationalized does not excuse them.)
As a result, microfinance in AP ground to a halt – one could say it basically vanished overnight – and in the rest of the country, it survived but had to contract significantly. As one might expect, the poor were the primary victims of this political confrontation.
Well, what did I see and learn on my trip to South Asia? In Bangladesh, these were my main take-aways:
- The government’s troubles extend far beyond its confrontation with Grameen. While I was there, the World Bank cancelled at $1.2 billion loan to help finance the Padma Bridge project. They cited credible evidence of high level corruption which they had given the government many months to address before finally cancelling the financing. The government called the Bank’s review process flawed and asked incoming World Bank president Jim Kim to rescind the decision, which he immediately said he would not do.
- The elected representatives of the borrowers of Grameen, who make up 9 of the 12 voting members of the bank’s board of directors, are passionate and articulate defenders of the organization. They, and the immediate past directors whose terms ended in February, spoke up at Social Business Day that I attended. Many voiced their commitment to Grameen’s independence through tears as they spoke, one by one, in front of about 700 attendees. They warned the government that elections were coming and that the 8.3 million women of Grameen were not a force to be ignored.
- International solidarity does help. While I was there, a letter from all 17 female members of the U.S. Senate was delivered to the Prime Minister and covered extensively in the local media including the Daily Star. It put the issue of Grameen’s independence in the context of women’s rights, noting that Grameen was the largest organization in the world owned by poor women and that its take-over by the government would represent a major blow to women’s rights worldwide.
- Despite all the difficulties, Grameen Bank is hanging on. I visited a branch that had historically been relatively weak but was located in a stronger performing zone – the branch that was the focus of my book Small Loans, Big Dreams. (I had been told that weak zones were deteriorating quickly and stronger zones much more slowly during this uncertain period – so this branch seemed a good litmus test.) While I could see how the crisis had negatively impacted the branch in many ways, there was surprising resilience. The branch was due to show a modest profit of about Tk. 610,000 (US$ 7,500) for the first half of the year. Loan disbursements and collections were taking place more or less normally. When asked, Shandha Rani Halder, a borrower featured in my book whom I have known for almost 20 years, said, “It will take more than any government can do to ruin Grameen Bank. We are much stronger than that.” The local branch manager bravely (if not entirely convincingly) said, “These controversies impact our head office. But they do not affect what happens in the zones and the branches at all. We keep on with our mission.”
Some key questions are:
- Will the Haitian government, which is finalizing a bill to regulate microfinance that it hopes to introduce in Parliament, ever assume a confrontational posture with respect to Fonkoze? (The legislation itself, if passed, could have positive or negative impacts on Fonkoze – most likely a combination.)
- If a confrontation ever comes to pass, how will the women clients of Fonkoze stand up for their institution? Will they be as bold as the women of Grameen? Or even bolder?
- What could Fonkoze’s international friends do in such a situation? Would U.S. Senators take the same kind of initiative as they did in defense of Grameen? Would it matter?
These are the kinds of things that keep microfinance leaders up at night in these turbulent times, and the top executives at Fonkoze are probably no exception. Being able to plan and act for maximizing client benefit while worrying about these issues is no mean feat. But it is what Fonkoze’s leaders do every day.
To be continued…