POOR: CREDIT WORTHY?

Are the poor credit worthy?by M. S. M. Liyawdeen

The writer is a former Deputy General Manager of the Bank of Ceylon and Chairman of Merci Lanka Foundation.

A few years ago I read of an amazing story where a colony of 25 slum dwellers in Ahmedgarh, India, was transformed into a useful community through the pioneering efforts of officers attached to the Ahmedgarh branch of Syndicate Bank. It was reported that persuasion and tact adopted by the bank officials enabled them to stifle the initial reluctance. Small advances to purchase mule carts, manufacturing of winnows and a few diary units, were granted. The bank reported that the slum dwellers were now gainfully occupied and led a life of self- respect and self- reliance.

This a rare experiment undertaken by an Indian bank in their shift from "Class Banking" to "Mass Banking". The bank contended that the focus was on "Production Orientedness" and not on "Security Orientedness".

This extraordinary experience evidenced the fact that with a determined and tireless effort on the part of those who are involved, micro-credit even to beggars, can be a success. The Prince of Wales underscored the importance of effort and vigour in his foreword to Dr. Muhammad Yunus’s autobiography, "Banker to the Poor" (London 1999), where he wrote, "I also found an inspiring, entertaining and confident interlocutor who sent me away with a new and invigorating sense of what can be achieved with energy and determination."

That the poor are creditworthy was championed by the pioneer of micro-finance and founder of Grameen Bank, Bangladesh, Dr. Muhammad Yunus. He contends that conventional banks have designated a class of people as not creditworthy, meaning, "we can’t touch you", thereby wittingly or unwittingly the conventional banks have created a kind of financial apartheid. According to him a conventional bank’s basic operative principle is that "the more you have it, the more you get" and conversely that "if you don’t have it, you don’t get it". However, Grameen Bank has turned this basic principle on its head in that it does not operate on the premise of collateral. "To my amazement and surprise the repayment of loans by people who borrow without collateral is much better than those whose borrowings are secured by enormous assets. Indeed more than ninety eight percent of our loans are repaid because the poor know this is the only opportunity they have to break out of poverty." exclaimed Dr. Yunus.

Operating on the basis of this unconventional banking principle that the poor are creditworthy, Dr. Yunus founded the Grameen Bank with a meagre loan of US$ 27.00 and in doing so pioneered a system of micro-credit which lends small amounts of money (sometimes very tiny) to the very poor and needy to whom no conventional banks would lend and discovered to his utter surprise that with such small amounts it was possible for the poor and the needy to extricate themselves out of the vicious cycle of absolute poverty and deprivation, and boost their morale confidence and self esteem.

International organisations and leading economists having taken the cue from Dr. Yunus, now recognize micro-finance as the most pragmatic approach towards poverty alleviation.

Sri Lanka’s poverty rate is alarmingly high. According to recent statistics around five percent of the population live in extreme poverty, on US$ 1.00 (i.e. approx. Rs. 100/-) per day, while 40 percent eke out an existence with a meagre US$ 2.00 (i.e. approx. Rs. 200/-) per day. Hence the challenge before the government and organisations involved in tackling poverty is daunting. It is encouraging to learn that the government plans to lift everyone out of extreme poverty and halve the population subsisting on US$ 2.00 per day to twenty percent by 2015. On the part of the private sector, a few organisations such as

Ceylinco Grameen have made some inroads into the field of poverty alleviation. More needs to be done on an urgent and priority basis. Commercial banks which are raking in substantial profits should take upon themselves this social responsibility and allocate even a small portfolio to micro-finance, to the poor at a nominal rate of interest.

Inspired by the prophetic tradition that granting of a loan is eight times more meritious than charity and the pioneering work of Dr. Yunus, I with a few friends set up the Merci Lanka Foundation in November 2005. This pioneer interest-free loan scheme inaugurated under the distinguished patronage of Madam Shiranthi Rajapaksa has transformed into a vibrant organisation. Merci stands for Micro Enterprise Relief Credit Initiative. Our basic premise was that charity is not the answer to poverty. We strongly believed that energizing creativity and skills inherent in the poor was the best way forward.

Our vision is "Creating a stepping stone to prosperity, harmony & fraternity through facilitating entrepreneurial initiative of the less cared for." In pursuant of our mission of awakening the industrious spirit of the down- trodden by removing the financial barriers to produce, invent & become self reliant, we have assisted nearly 300 poor families from among all communities. The overwhelming majority of our borrowers are women bread-winners. Some loans have been granted on a group basis, while others are on an individual basis. Co-ordinators have been appointed in all areas who voluntarily assist and guide borrowers. The recovery rate is at a satisfactory 80 percent. The biggest impediment to progress entailed by our borrowers is the lack of adequate marketing channels. Wherever possible Merci Lanka offers a helping hand through a process of networking. A number of our loan recipients have transformed themselves into successful entrepreneurs.

Dr. Yunus wrote, "Economists spend all their talents detailing the process of development and prosperity. I feel very strongly that if the world recognizes poverty alleviation as an important and serious agenda, we can create a world that we can be proud of rather than feel ashamed of as we do now." However Dr. Yunus opines that absolute poverty cannot be eradicated completely unless the global economic powers are prepared to tackle the main causes of global inequalities and injustices, that is, unless the world powers are willing to scrap the existing international trade policies which are clearly tilted in favour of the wealthy and powerful western nations, it is unrealistic to anticipate elimination of absolute poverty.

Nevertheless Dr. Yunus proved to the world that financial untouchables are touchable, even huggable.

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