Shameran Abed, a top manager at BRAC and son of the founder, has contributed the latest post to CGAP's series on overindebtedness:
Like most microfinance practitioners, particularly in the sub-continent, I have thought a lot about the issue of over-indebtedness in the last few months. It’s not that it was any less of an issue before, but the Andhra Pradesh meltdown really made me question seriously whether we in Bangladesh have also been cavalier to the point of being reckless about the amount of credit we have sold to our clients.Milford Bateman in an earlier post in this series seemed to suggest that it was the ‘commercialization’ of microfinance and alleged tendency of senior managers to enrich themselves that are to blame for borrower over-indebtedness. Maybe he is right with regard to some other countries, but this is not the case as far as Bangladesh is concerned. Sure, MFIs in Bangladesh have “commercialized” insofar as they have moved away from donor funded microfinance in the 1990s to a self-sustaining microfinance model in the 2000s. But almost all microfinance players here are non-profits that re-invest surpluses back into their portfolio and there is little or no evidence of abnormally high salaries or private enrichment of senior managers.Yet, though due to the absence of any credit profile I have no way to know the exact percentage of borrowers who fall in the over-indebted category, I have a hunch that the percentage is high enough, particularly in certain regions of the country, for us to be concerned about it. While I don’t agree with Mr. Bateman that it is commercialization that is solely to blame, I do agree that almost all the microfinance players bought into the idea propagated by some advocates that microcredit is the silver bullet to eradicate poverty and all that the poor people need is more and more microcredit....(I strongly believe though that the vast majority of microfinance borrowers in Bangladesh have economically benefitted from having access to institutional financial services.)
The discussion of solutions is a bit less convincing---do we really have evidence that financial literacy programs work? is a credit bureau practical?---but I appreciate the frank, open-minded tenor. And what has made BRAC great is its pragmatic, hands-on, experimental approach to perplexing problems.
