Grameen Bank can't reduce poverty: Economist

MISSING TARGETS: Nearly 80% of women beneficiaries had got themselves into debt traps.

At a time when the NGOs are trashing the proposed micro-finance regulation Bill, a leading economist from Bangladesh has cautioned India against adopting the Grameen Bank model for alleviating poverty.

Abul Barkat of the University of Dhaka says the micro credit system with unrealistic interest rates will not lead to any human development. He, however, says the idea was wonderful for the urban slums in the metros. "The slum people should be given credit for projects and not to individuals with no great idea of how to grow the money,'' he said.

Barkat's criticism of the Grameen Bank model, for which his Guru Mohammad Yunus was awarded the Nobel Peace Prize, is based on his research on human development through Grameen Bank in Bangladesh in last 15 years.

The facts were stunning as he found that nearly 80 per cent of women beneficiaries of the bank had got themselves into debt traps. "In any Bangladesh village you will find three to four NGOs running the micro-credit scheme. Over the years, instead of defaulting the payment, these women have been borrowing from one to repay other.''

Development should ensure freedom "" political, economic and social, and also, the model should be transparent and ensure security, says Barkat.

According to him, none of these are fulfilled in Bangladesh. "There is no surge of women in local leadership positions, no jobs are being created due to this, nor are women getting any social security benefit like health, education under this," he says.

The key reason for the failure, he says, are the high interest rates ""25 to 65 per cent "" something proposed in the Indian Bill too, and high costs of operation of the Grameen Bank model.

Barkat's research also finds that the beneficiaries of the Grameen Bank are not the poorest of the poor but those nearer to the poverty line. "The rates of interests are too high for the people who need the funds most," he said.

The economist warns that many NGOs in Bangladesh following this model may attract a socio-political backlash.

Bangladesh is soon going to receive $ 4 billion from donor countries for micro finance. "This time we are already working on bringing in reforms and this micro-credit would be called a second generation micro-credit," he said.

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Grameen Bank fact file
(as of February, 2007)

7 million borrowers, 97% of whom are women

2,381 branches, covering 75,950 villages or 90% of the total villages in Bangladesh

More than two dozen organisations within the Grameen family of enterprises