villagefinance

By 1979 only 61 of the 400 Comilla cooperatives were still functioning.  One observer attributes this result to four factors:  fraud/lack of internal controls, stagnation, diversion of funds, and ineffective external supervision. The central problem of fraud and weak controls “was possible not only because of individual dishonesty, but because the people were not made aware of their rights, and were not in a position to voice their rights (Aditee Nag Chowdhury, Let Grassroots Speak, p. 54).

Partly as a result of Dr. Khan’s experience, later Bangladeshi practitioners in microfinance, such as Dr. Muhammad Yunus and Fazle Hasan Abed, directly targeted the poorest people, attempting to exclude those who were less poor from village organizations. A few years ago, two of Grameen Bank’s senior staff commented that:

“A major reason for the prior failure of credit cooperatives in Bangladesh was that the groups were too big and consisted of people with varied economic backgrounds. These large groups did not work because the more affluent members captured the organizations.” Asif Dowla & Dipal Barua. The Poor Always Pay Back:  The Grameen II Story, p. 18).

The structural implication of this observation for Grameen, BRAC and other microcredit institutions from the 1970s to the present has been profound:  branch-based administrative systems controlled out of an urban head office through an urban, educated workforce. This has worked well in cities and very densely populated places like Bangladesh, but is too expensive to reach more thinly populated rural areas.

It is said that history never repeats, but it rhymes. The take-over of Grameen Bank by the state in 2011 seems far less strange with this history placed in its proper context. Elite capture is a serious threat not just to cooperatives, but to the larger microfinance world. The next blog will look at how Raiffeisen, the original microfinance pioneer, innoculated German ‘people’s banks’ from the same threat.