Rahfin in Bangladesh

Rahfin is a sophomore President’s Scholar and member of the University Honors Program who is majoring in economics, political science and public policy in Dedman College of Humanities and Sciences, with minors in religious studies and Arabic. He was named an SMU Maguire and Irby Family Public Service Intern for summer 2012. He is interning at Grameen Bank in Bangladesh, a Nobel Laureate organization that has pioneered microfinance for the poor. He plans to work on the administrative and financial side of microfinance and also visit rural banks in an effort to understand microfinance from a grassroots level.

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Selected topics

At a center meeting early in the morning.

When many people learn that I am at Grameen Bank for the summer, they ask simple questions like “What is the interest rate on a loan?” or “How many borrowers pay back the loans?” But, when they begin to learn more and more about the bank and about Bangladesh’s society and economy, the questions become more complex. I have selected a few topics that I will shortly discuss. Most of the answers come from my five-day village visit.

Eventual competition

This question goes something like this: “If Grameen Bank continuously has more and more borrowers and if borrowers in a certain area all specialize in a certain business, won’t they crowd out the marketplace eventually? What happens then?”

Outside the rice mill of a borrower who took a loan of 300,000 taka.

When I asked the borrowers this question directly, their answers varied, but they always came back to one point: competition is usually good, and they have not experienced overcrowding. There are a few reasons for this: locational variety, aggregate demand, product diversification, high margin goods and cross subsidization. Per example, product diversification might help differentiate a store that sells snacks. One store may carry cold drinks while another store may carry ice cream (only relatively rich businesses can have both).

Proliferation of microfinance

Before coming to Bangladesh, I thought Grameen Bank had a virtual hold over the microfinance landscape. However, I was surprised to learn that in Nowga, the district I visited, about 75% of borrowers belong to Grameen Bank while 25% of borrowers borrow from other NGOs — namely BRAC and TMSS. When people learn this, their eventual question is: “Why would people not prefer Grameen Bank, a long-established institution?”

While Grameen Bank offers highly competitive interest rates in conjunction with a communal-based lending system, many people go to NGOs because of less lax regulations. The branch manager at the Kiratpur Nowga branch said, “It is usually easier to get a loan from an NGO. Borrowers do not have to go to weekly meetings. There is less technical assistance and support. For people that have don’t have time to come to Grameen’s weekly meetings or simply don’t want to, an NGO is often their choice.”

Understanding

A borrower's motorcycle repair shop. Motorcycles are fairly common throughout Bangladesh.

Many doubt that Bangladesh’s microcredit model can be adopted in other places. They ask, “Aren’t the cultural and social barriers very different in other countries, especially in the West?” To a large extent it is true that cultures are different. But, Muhammad Yunus, the founder of Grameen Bank, believes that institutions must adapt to the cultural economy of the borrowers. He says in To Catch a Dollar, “If the borrowers fail, it is the bank’s fault.”

Grameen Bank has a deep understanding of what its borrowers need. The bank usually operates on a weekly repayment system. But, when borrowers buy cows to “fatten up,” they are given bridge loans, which allow borrowers to pay back loans at one given point — usually six to twelve months later. This works for a Muslim nation like Bangladesh because the supermajority of the population celebrates Eid-ul-Adha, which requires families to slaughter livestock. Thus, villagers can buy a cow and raise it for six to twelve months and then make a profit when demand for cows is at its peak.

If you, my loyal readers, would like to pose any more questions, please email me directly at rfaruk@smu.edu, and I will answer the questions (to the best of my ability) in one of my following blogs! Dhonobad amar “blog” porar jhono! (Thank you for reading my blog!)

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