The ‘cooperative wave’ of microfinance gave way to the ‘microcredit’ wave in the 1970s. ‘Elite capture’ severely damaged the cooperative wave in the South. The story of the transition from the Comilla model to Grameen Bank, at the inflection point between the movements, is exemplary.
The ‘Comilla Model’ was initiated in East Pakistan by Dr. Akhter Hameed Khan in 1959. Khan drew inspiration from the Raiffeisen credit unions of rural Germany. He envisioned ‘vigorous local institutions’ that could provide credit and access to markets for the farmers of Comilla district. The cooperatives were also to be an outlet for agricultural extension services, and were tasked with maintaining roads, irrigation systems and embankments under government contract.
The Comilla cooperatives failed, and Dr. Khan’s frank testimonial in his own writings offers telling lessons for the present. The project had particular troubles with government relations and efforts to build strong cooperative institutions.
“… [I]n actual practice, the four programs [in the Comilla project] suffered from distortion, mismanagement, corruption and subversion.” (Akhter Hameed Khan, Vol II, pp. 190-91).
Escalating loan defaults became a particularly important concern, undermining the hope that the co-operatives would become self-reliant and develop into strong institutions. After the independence of Bangladesh in 1971, influential local people secured management positions in the cooperatives. “They are powerful and well informed. They know that the old sanctions (certificates, notices, pressure by officers) are now dead, and they can repudiate their obligations with impunity” (Khan, p. 135).
In addition, the new government annulled loans issued by its predecessor.