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UNITED NATIONS CAPITAL DEVELOPMENT FUND Microfinance |
Issue 2 / March - April 2004 |
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Featured Guest | H. E. Dr. Iftekhar Ahmed Chowdhury
Q&A with Ambassador and Permanent Representative of Bangladesh to the United Nations H. E. Dr. Iftekhar Ahmed Chowdhury is the Permanent Representative of Bangladesh to the United Nations and was elected Chairman of the Second Committee (Economic and Financial) on 6 June 2003. He has also served as Special Advisor to the Secretary-General for the UN Conference on Trade and Development and as Ambassador and Permanent Representative of Bangladesh to the UN in Geneva. He holds a PhD in International Relations from Australia National University in Canberra. Q1. Bangladesh is repeatedly referred to as the birthplace of microcredit. With the success stories of microcredit in Bangladesh, specifically those of Grameen Bank, BRAC, and the Association for Social Advancement (ASA), why are microcredit and microfinance so important for a country like Bangladesh? Bangladesh emerged as a
war ravaged independent state in 1971. We had no physical, financial, industrial
infrastructure to build upon. We started from scratch. Roughly 80 percent of
the population then lived in extreme poverty then. Our food production was insufficient
for our people. Indeed there was a famine in 1974. It was against this backdrop
that the microcredit movement started in Bangladesh, three decades back in the
regions of Sylhet and Chittagong. Our successes are perceived as being owed to prudent macroeconomic management, appropriate use of external support, pro-market policies, a culture of pluralism, democratic institutions, a burgeoning and strong middle class, the emergence of a vibrant civil society and most importantly, the efflorescence of innovative, home-grown ideas like microcredit and non-formal education which are products of our indigenous intellectual and cultural resources. Today many see Bangladesh as a development paradigm worth emulating. The concept of microcredit has been replicated in more than one hundred countries. We do take a modicum of pride for this intellectual contribution of ours to the global community. We have proven that while our means may have been limited, our minds are not. The concept of microcredit developed opposing the conventional theories of banking and finance. The poor have always been left out of the service net of the banking sector as they do not have the material collateral to qualify for an advance and also because their income is not sufficient to cover for the repayments. The experiment of microcredit started involving such destitute people who neither had any income, nor any collateral. The result today is an astounding 98 percent recovery rate of all the micro-loans extended to this population. The economic impact of microcredit was examined by a World Bank study by Shahidur Khandhkar. It concluded that, in Bangladesh, borrowing from a microcredit programme is estimated to reduce moderate poverty among participants by as much as 20 percent and extreme poverty by up to 22 percent. This means that as much as five percent of program-participating households should be able to lift their families out of poverty every year by borrowing from such programmes. The efficacy of Microcredit as an anti-poverty tool is well documented today. Our experiences point that providing the poor with microcredit results in asset creation, employment generation, economic security and empowerment of the poor, particularly the women. We have reaped enormous benefits from microcredit in improving our social sector indicators. Microcredit was innovated in a post conflict situation, after our War of Independence. It has proven to be effective in other such areas as well. The Security Council in a recent meeting recognized and underscored the role of microcredit in the betterment of the quality of life of the poor, including women and children in post-conflict societies. Our deep involvement in Afghanistan in this regard evoked plaudits. In Bangladesh where most people do not qualify for a loan from the conventional financial system, microcredit is the answer. There are many more millions in the comparable milieu spread all over the globe. In regions where access to credit restricts human enterprise, microcredit can set them free. Q2. You have said before that microcredit stands out among other development interventions because they give people choices – what kind of choices does microcredit give people? The poor have very limited options. In most cases the best they can do is work as a wage-labourer. Given the resources, human beings combine their ingenuity to improve their lot. By ensuring financial services to the poorest, microcredit is widening the concept of employment. Microcredit provides the borrower with choices to engage in an economic activity which she/he deems to be yielding highest return given her/his situation. Such initiatives have the highest possibility of success. On the other hand, in the conventional development interventions, the benefits trickle down to the lowest economic echelons of the society and that may not be the case always. It must be borne in mind that expansion of options in the key to poverty alleviation. Q3. The Secretary General during the last few years has repeatedly emphasized the importance of bringing the private sector into partnership with UN system. This sentiment was also recently articulated in the Secretary General’s Report on the Implementation of the First United Nations Decade for the Eradication of Poverty. How do you see microcredit supporting the role of private sector in the context of sustainable development? The success stories of NGOs with microcredit have set the stage for private sector to enter the market. A huge market for microfinance services has already been identified. About 1.2 billion people live on less than a-dollar-a-day. The outreach of the microcredit movement only covers a fraction of this population. Most of them should qualify as potential clients for micro-loans. With grant and aid flows are drying out, the existing microfinance institutions and NGOs will reel to cover the entire population. The private sector can engage this market that has already proven to be credible borrowers. The private sector operators in a recent panel discussion organized by UNCDF on February 9th underscored the fact that the recovery rate for microcredit is around 98 percent. The return on investment in microcredit is also high compared to the traditional banking system. The private sector can also develop new financial products based on the concept of microcredit to suit local and particular conditions as well as for the borrowers of the second and subsequent loans. This will not only be beneficial for the investors, but also contributes significantly in achieving the Millennium Development Goal of halving the number of people living in poverty by 2015. Q4. As we sharpen the picture of what it will take to build financial systems to meet the huge demand and contribute to the alleviation of poverty, what do you see as the major government policy obstacles? Poverty is mostly a phenomenon of developing countries where the money and capital markets are inadequate to provide for the people, particularly those living in extreme poverty. In such situations, measures need to be taken to create an operating environment conducive to the private sector and NGOs extending microfinance services. These may include allowing such institutions to receive deposits and providing access to bank finances. The governments can also encourage productive activity of micro-entrepreneurs and micro-enterprises through fiscal measures. However, there need to be a regulatory framework in place, which should ensure that the services reach the target group. Q5. In addition to making the operating environment and regulatory framework in a state more favourable to microfinance, perceptions of poor people also need to be transformed so that they are accurately viewed as savers and investors, and good clients that repay their loans on time. What can the UN and more specifically the Year of Microcredit 2005 do to alter these myths and misperceptions? The UN recognizes microcredit as an effective anti-poverty tool. The UN can project the success stories of microcredit to all the Member States, international financial institutions, private sector and other providers of funds to make them better aware of the economic behavioral patterns of the clients of microcredit. Most donors have experience of working with NGOs and they receive regular reports on the recovery of loans. The private sector is also becoming increasingly aware of the business opportunities. However, in the target areas, UN can work with the host Governments to create greater awareness amongst local actors. The observance of the International Year of Microcredit at the country level will be a useful opportunity in this regard. Q6. From your viewpoint as Chair of the Second Committee and with your years of distinguished service in many parts of the world, what should be the most successful action that the International Year of Microcredit 2005 could accomplish? The International Year of Microcredit in 2005 will present us with an excellent opportunity to highlight the efficacy of microcredit in combating poverty. The best practices and development of the concept can be showcased. As the Chair of the Second Committee I had the privilege of presiding over a panel and a discussion on microcredit. I also listened carefully to the deliberations made in the Committee. I am certain that the global community is convinced of the effectiveness of microcredit in combating poverty. We now need to bring on board all the actors in this process. In the International Year of Microcredit we need to spread the message across all corners of the world that to break away from the clap-trap of the vicious circle of poverty we need to construct a virtuous circle based on the concept of microcredit where Member States, UN, MFIs, civil society, NGOs and private sector all have a crucial role to play. This would be an important step towards achieving the Millennium Development Goal of halving poverty by 2015.
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