The announcement that Dr Muhammad Yanus, an economist from Bangladesh and president of the Grameen Bank, has won the Nobel Peace Price for economics made me ecstatic. The cause of the poor and deprived has always been dear to my heart. Note that, this story is yet another change effort aimed at cultural values and taboos. It has always been my contention that until we identify the causes of poverty, dealing with it effectively will be a mirage. As far as I am concerned, the attack on poverty should start mainly in the rural areas. I am tickled that we get a chance to go at poverty one more time.
To build a bank from ground up in a dirt-poor country like Bangladesh, with close to very little capital and strong cultural taboos to boot, is a remarkable feat. After all, Bangladesh is the poorest country in the world. I did notice some obvious and some not too obvious lessons about the Grameen experience that I care to share and hear some comments on. Before we examine the lessons, let me say a line or two about the Grameen (which means village) system and how works. Groups of five are formed to access a loan. An amount is initially given to 2 of the 5 members, and the rest can access a loan only if the first 2 repay their loan. In principle, the loan scheme works on peer-pressure and group liability. I don’t know if this brand will work in Ghana or not but I am sure we can adapt a well crafted system to suit our culture and needs without missing the key lessons of success and indeed challenges.
Lesson 1: Social Responsibility or Social Capital: What is social responsibility and how did it help the Bangladeshi folks to pull this off? Simply put, it is a form of peer pressure or honor system aimed at getting folks within a particular group to adopt or engage in behaviors that addle efforts towards the attainment of individual and group goals. To start with, there has to be individual goals, aims and aspirations feeding into an agreed social good to make social responsibility mordant or tart. Will this concept work in Ghana? I don’t know and time will surely tell. How well do we know and understand the psyche of Ghanaian women?
Lesson 2: Business Management: To be socially responsible by paying back one’s loan, one has to understand the basic principles of running a successful business. The first step is to develop a plan, because if you fail to plan, then you are planning to fail. I admit that the word successful is relative and could be interpreted differently. Here, I imply success to be a business that generates beyond survival profits. With micro lending, there is little room for breaking even. To manage a business, especially a small one, in a communal culture like ours is tough. Family demands on the owner are many. Also, family and friends can even frown upon success. This is why mental discipline and tenacity, besides business skills are critical. Understanding how the market works and employing creative initiatives to take advantage of shifting situations must be a constant feature. Above all, a mindset shift will be helpful. When you look at the cultural barriers that the women of Bangladesh overcame, you can’t help but to notice that we will need such changes in Ghana to make any micro-lending initiative work. Will the men, especially the hardcore traditionalist mend their ways to help make this effort successful?
Lesson 3: Training, Guidance and Hard Work: The 98% payback rate of the women in Bangladesh did not happen by chance. It happened because these women worked hard knowing that they have a responsibility to meet. Perhaps, they even worked harder because they wanted to make a point that society was wrong in bottling their hopes and aspiration. Hard work does not necessarily mean brawn. What it definitely means working smartly. It means changing constantly to the shifting sands of business. If your clients want their wares at dawn, then that is what you have to do. You can’t be sleeping and expecting your clients to continue to patronize your insensitive business practices. Most Ghanaian women work very hard to start with so I worry not too much about this lesson. I think working smart and hard on customer service and other subtle aspect of business is where the worry ought to be. Let me add that hard work is not limited only to the borrower. For this scheme to work, the lenders must all work hard and be responsive. They must listen and indeed hear their clients. If these bureaucrats go in there with an attitude, assuming that they know it all, the program will collapse. However, if they work with the women and share constructive ideas, incorporating new ideas and feedback at every turn, the program may succeed. It is for this reason that I believe strongly that the success of micro financing will require training programs and guidance for all parties.
Lesson 4: Hand Up not Hand Out: The micro lending effort in Bangladesh was not a handout but a hand up. It was not an entitlement program and no one was forced into it. To help the poor, we must enable them instead of creating crippling dependencies. We also have to create a fair system devoid of partisan flavor and tribal manipulation. Nowhere in the Bangladesh experiment do we hear of tribal manipulation. People are given their loans on merit. If they don’t pay, they get booted out. Playing partisan and tribal games with a program like this can only influence the behavior of the recipients negatively. If and when people become aware that they are getting something because of their tribe and/or party, do you think they will pay back? Notice that previous micro lending experiments in Ghana, particularly in the public sector failed miserably. I won’t be surprise if this scheme is used to feed the party faithful. According to the NPP a similar program was initiated in 2001, and over 45% of the loans were never paid back. I am in fact shocked that recently the minister of local government gleefully talked about the new stream of revenue for micro financing without mentioning an audit for the failed system, let alone penalties for those that defaulted. Wan warnings about the need to pay back without vigorous prosecution will, for all intents and purposes not work.
Lesson 5: Working It From Within: All along, some of us have been saying that our development efforts must start from inside out and not outside in. This success story makes the point. No matter what funding you pour into any country or community, if you don’t focus on the people in the setting, it will fail. This lesson, I hope, will not be lost on our current government that seem to focus inordinately on outside help without making any efforts to manage our resources from within. They have failed to focus on local initiatives like micro-financing, and rural industries. And this is the party of Busia? Begging for funds from our colonial masters in one thing, but using the funds locally in well laid out programs and initiatives is really where action is lacking. In the end, it boils down to effective leadership and management. As long as we continue to mismanage our affairs, no amount of begging will change our situation. We can obtain all the loans we want, if we don’t find a way to manage and grow these funds, our national anthem will be titled, debt forgiveness.
Lesson 6: Respect the Women: Most successful countries have managed to carve a role for women. Change and how to manage it is a concept we must embrace or fail. If we find a way to unleash the potential of our women, Ghana will be well on its way. These cultural practices that tends to marginalize women must stop. We stymie our own development by disrespecting, segmenting, fettering and marginalizing the role of women. When you look at leadership roles in Ghana, a male oligarch is what comes to mind. Where are all the women? I know we continue to talk but more needs to be done to make this dream a reality. We should endeavor to move women into leadership roles and empower them to be self-sufficient. The situation where women depend on men for their livelihood and stipends must be challenged and changed. This should be the golden age of women in business. The Bangladeshi women did it so why not Ghanaian women? Now is the time to take the fetters off and let our women come into their own by creating an enabling environment for them.
Lesson 7: Go To The Ground And Follow Your Dreams: To make real change or contribute to Ghana’s development, one must not only have a dream, but be voluntarily willing to go there and actualize it. Secondly the people living there have just as much opportunity to lift the country up, by following their dreams. This idea that help must come from outside is totally a defeatist one. Dr Yanus, saw the opportunities in his country and tapped into it. He did not board a plane to go beg or seek permission before putting his idea to work. The idea hit him while he was on the ground. If there was ever a problem that found a local solution, this is one. This must invigorate our leaders to find local solutions to local problems. Begging all the time is not the answer. We should not write our people off, or seek to create debilitating dependencies that assume that nothing good can come out of Ghana. We should also be imbued with the abiding faith that it takes time to attain sustainable results. It took him 22 years to get to where he is. Can we be patient and committed to this extent? Sustainable is the word!
Let me add that, the ability and willingness of the diasporan to move back home depends a lot on our brothers and sisters plus government efforts. Of course, some diasporan cockiness and disrespect has not helped. However, if and when Ghanaians at home continue to be hostile and unresponsive towards the efforts of diasporans, we will continue to miss all the Grameen opportunities that await. We must find a way to come together to build this beautiful country of ours. Currently for example, the government has very unfriendly policies towards relocation to Ghana. It is so expensive to get a single car for personal use through customs let alone personal effects. The government must cut down the cost and make it more appealing for those who intend to resettle to Ghana. We cannot be strangers in our own country. The notion that the diasporan is always primed for milking must end.
Developing Micro-finance: The situation in Ghana: The market for micro-credit (and micro-savings) in Ghana has grown tremendously over the last 15 years. This is mainly due to the fact the major banks (about 17 in all) serve only 5% of the population, thus leaving out a large swathe of both borrowers and savers untapped. Majority of traders and entrepreneurs are not only denied credit (due to lack of proper ID and collateral), but continue to be shut-out of the savings market due to restrictive minimum deposit requirements. That has all changed with the explosion of microfinance institutions (MFIs) that provide group-liability loans to mostly women; and mobilize funds through small savings with the assistance of ‘susu’ collectors.
Public sector attempt at micro-credit or finance in Ghana include but not limited to efforts by the Bank of Housing and construction, National Investment Bank, the Afife Rice Project and the 31st Dec. women’s movement. These attempts faced daunting challenges and indeed did collapse eventually. The demise of these organizations can be pinned on the following factors: mismanagement, dishonesty-refusal to pay back loans, diversion of funds into activities not related to micro-financing, interference by government officials, everyone engaging in the same activities, shareholder abuse through demand of privileges that did not exist and a change in the political landscape.
A couple of months ago, the NPP government launched a $50 million small credit facility to be administered by the Microfinance and Small Loans Centre (MASLOC). The challenge for the center is to adopt good procedures that will ensure a high repayment rate, and hence the sustainability of the program. The President knows these challenges very well. In his speech, he reiterated the importance of repayment, by clearly stating “that a loan from the fund must not be viewed as a gift from government; neither must it be seen as a compensation due to any community for disparities in urban and rural economic development”. He added that the “government expects prompt and full repayment so that others can enjoy the facility.” A similar program initiated about 5 years ago posted a recovery rate of less that 60%.
Caution: (1) Although poverty continues to be impacted positively by micro-credit, we are not even close to eradication of poverty through this scheme. Indeed, in an article titled Micro credit, Macro Problems, Walden Bello, a professor of sociology notes that, “as economic journalist Gina Neff notes, after eight years of borrowing, 55% of Grameen households still aren’t able to meet their basic nutritional needs –so many women are using their loans to buy food rather than invest in business.” And by design, group lending has its own problems. In most places, over-indebtedness has led to suicide, appropriation of assets, and social tensions. Remaining members of groups with high number of defaulters are saddled with huge financial burdens. Over all, some see micro lending as a coping mechanism or survival strategy. It is not that which pushes one from one class—poverty to another—middle class. Bello maintains that it is not the key to ending poverty.
Not every one is cut for business. We therefore hope there will be adequate processes in place to meritoriously select qualified applicants to move out of micro lending into macro-investments. We believe that one of the best steps that can be taken is to make micro lending or financing a first step training field for the very poor. In this regard, graduates coming out of the micro lending program ought to be tapped for much more serious funding and well-designed business initiatives. Any person who is able to grow $50 for example, under very tough conditions, can more than likely grow $10,000. In so doing, we will also have a crop of well-trained results-oriented local folks who not only have management skills and experience but can help create jobs that will absorb some of those who failed at the micro level. Also, this will provide incentive for most of the folks to take their micro-borrowing attempt seriously. Anytime you give people something to look forward to, they strive to achieve. It is also my hope that whatever training programs and policies are developed by lenders do not remain stale or cast in time. Hopefully, it will reflect real life experiences and genuine concerns of all parties. It will take active involvement and engagement of all parties to make this work!
Since most government efforts on micro lending has failed and it requires a level of granularity that government bureaucrats don’t care for or are not equipped to handle, we may want to get the government totally out of administering these programs. In other words, the government can and must provide the funds but must not be an obstacle in running a successful program. Leave management of the programs to the private sector. Those bringing resources from outside should find ways to bypass the government. This does not mean that they must not consult or inform government of their plans. All it means is that don’t involve the government in administering the programs. Go directly to the people.
(Aka Da Double-The double edge sword)
Credit: This article was written with contributions from and in consultation with James Atsu Amegashie and Edward Kutsoati both professors of economics. Way to go buddies!
Views expressed by the author(s) do not necessarily reflect those of GhanaHomePage.
