Ultra-poor graduation programs
We are pleased to bring you this #ThursdayThrowback blog post, which was originally published in The State of the Microcredit Summit Campaign Report 2011. It documents an interview conducted with Sir Fazle Abed, founder and chair of BRAC in Bangladesh.
Interview with Sir Fazle Abed of BRAC
What excites you about microfinance today?
Microfinance is the most exciting thing that has happened to poor people over the last 30 years. We have worked with the poor in a way that honors their dignity, and we have shown that poverty alleviation is not a give-away thing.
What concerns you about microfinance today?
There is a lot of greed coming into microfinance. A lot of people wish to make a lot of money out of it, and that worries me a little bit. I also [understand] the other side of it – when return on investment is high, more money will flow into the sector … I just don’t think that people should make money out of poverty.
I think we still have a long way to go in reaching people, particularly poor people in remote areas, rural areas, and so on. That remains a great challenge.
You came into microfinance as a poverty alleviation tool …
[Yes], we came to microfinance by looking first at integrated rural development, looking at people for their health, education, employment [and] savings. We actually started a savings program before we started giving credit.
I have always felt that poor people have very short time horizons to think about – daily bread, daily needs. They can’t think more than 24 hours at a time. I thought the thing to do was to start savings because that would give a person a longer time frame to think about, not just one day.
What about the randomized control trials (RCTs) that have been done to measure the impact of microfinance? Largely they have shown very limited impact, sort of mixed results, and yet in BRAC you have millions of people coming back for loans year after year. How do you reconcile your experience with the results of these studies?
I understand that RCTs may be scientifically quite good to have, but microfinance works best when you have done it for a number of years. With the first microcredit taken by a woman, she has immediate consumption needs, so she buys those things which she needs most [but] doesn’t show a great deal of improvement in either nutrition or health or welfare. But we found in a longitudinal impact study [from] 1999 to 2005 that you can see significant results in somebody’s income and welfare if somebody has taken three loans and the quantum of the loans is more than US$400.
Does microfinance help a poor person lift herself out of poverty, or is it microfinance combined with other things that does that?
Microfinance has to be combined with other things like health and education. When going into a new area, [get] microfinance … working right and then you can provide education and health care and other things.The unique thing about microfinance is that it creates…capital that can be leveraged to supply other development services. We have eight million women meeting together every week in 300,000 Village Organizations. They know how to invest money, pay it back and save for the future. They know how to work together. Because of their work with us, they now know how to interact with formal institutions. So that forms the base for addressing the other constraints that they [face], and it also provides the scale you need to develop [viable] programs.
That sounds complicated. Shouldn’t a microfinance organization focus on what it does best, financial services, and let others focus on the other needs?
I think that is too limited a way to think about what we do best. The basic spirit of microfinance is to search for possibilities based on knowledge, understanding and perspectives that start at the ground level. We understand our clients and their needs. We know how to select clients, enforce contracts, manage money, develop systems and deploy people and resources on a very large scale. There is no reason why we cannot use those same skills to address the other constraints our clients face.
In BRAC, we saw that many women were stuck in low-return activities. We saw that many were involved in poultry but were not making much money because of diseases, so we trained a person in each Village Organization to do vaccinations, treat basic diseases, and train in proper feed and hygiene. These people get paid for the services they provide to the women who raise chickens. Between the growers, advisers and sellers, they have created almost two million poultry jobs.
We did something similar with basic health care. We trained a person from each Village Organization … to provide basic health information and advice. They each cover 300 households and sell nonprescription medication, bring pregnant mothers in for check-ups and help mothers bring their children in for immunization. We have 80,000 volunteers covering 64 districts and a population of 92 million.
We’ve added other things, too. Economic development for adolescents, training in legal rights, programs for commercial sex workers, primary schools that have trained four million students, and programs aimed at those too poor to make good use of our financial services.
How can someone be too poor for microfinance?
Our Research Division looked at those who dropped out of our program and found that most of them were among the poorest. This group tended to borrow far smaller amounts, do so less frequently and have more problems with repayments. We worked with donors to develop a program that targeted the ultra-poor.
It starts with a ration card for food, plus training in business skills and money management. Over time, we provide them with a small loan and then seek to graduate them to our microfinance program. So far, about three quarters of them have graduated. CGAP did a study on this program and found that the average subsidy per woman was US$135. As more and more of these women graduate into the microfinance program, we hope to recoup these subsidies.
What is BRAC doing with small and medium businesses?
You need to create jobs for poor people [in addition to making] them social entrepreneurs. [For this reason], I asked a group of donors [for] money to start a small and medium enterprise lending program, and this has been very successful in creating new jobs for people. We set up a bank in Bangladesh and it is creating jobs on a fairly large scale, $1.2 billion now for small enterprises.
Are you able to use technology in a way that lowers your costs and helps you get out to more rural areas?
This is my hope. In the next three to five years in Bangladesh, almost everybody, including our poorest clients, will have access to a cell phone. BRAC has already got a license from the Central Bank to set up a mobile cash management system. In other words, all these 30 million Bangladeshi microfinance borrowers will have access to mobile payments, and then we will be able to cut down the costs of delivering financial services to the poorest people in the remotest areas.
Do you think this will create a push to more individual lending, or will the group programs continue?
The group programs will still continue, but face-to-face time with people will diminish a bit and we will have to find another way of meeting them. Right now, 8.2 million people in Bangladesh meet BRAC staff every week. That is too costly. I would rather meet these 8.2 million people once a month and cut down [their] travel. We can collect their money and stay connected to them through cell phones. They will be able to transact business among themselves through their cell phones. I think tremendous efficiency comes out of this, on their side as well as our side.
It sounds like you are looking forward to what comes next.
I just hope I live long enough to see this happen. It is wonderful to see all the changes that are happening and in the right direction. Some people have said that as you grow older you get more and more pessimistic, but I get more optimistic the older I get.