Table of Contents
Definition of Rural Development
Definition of Micro-credit
Microcredit programs in Bangladesh
CAPITAL MARKETS AND THE POOR
The neo-liberal response - walking barefoot where bankers fear to tread
Licensing Status of the NGO-MFIs in Bangladesh
Impact of micro-credit
Development as economic growth and equity
Role of the Government and the NGOs
Steps for Rural Development
The Limitations of Micro Credit as a Rural Development
Assessing the success of micro credit as rural development
This assignment takes issue with claims made by range of development agencies and practitioners that micro credit is, or could be, a panacea for rural development. Three options for the provision of micro credit to the rural poor are presented. In some developing countries the state has provided micro credit. These schemes have frequently collapsed because they were often motivated by political, rather than financial considerations. Over the last few decades, neo-liberal theorists have re-examined the role of the much-maligned money lender. They have argued that the ostensibly exorbitant rates of interest charged, are actually legitimate reflections of the opportunity cost of the loans. They suggest that the work of the money lender be facilitated through the removal of legislative and other restrictions. In recent years innovative Development Finance Institutions (DFIs) have begun to provide micro loans to the rural poor. They have introduced a range of novel mechanisms to provide micro credit. Although there is variety in the workings of the DFIs, they commonly: supervise their loan recipients intensively; lend to groups who are jointly and severally liable for the debts of individual members, and require proof of savings before they provide loans.
The putative success of many of these DFIs, in combination with the rise to prominence of neo-liberal thought, has lead to the vigorous promotion of micro credit as a rural development intervention. On closer examination, micro credit is quite limited as a rural development intervention.
Credit is only one ingredient in the mix of factors necessary for a successful enterprise. To respond to a potential demand for a good or service, a rural micro entrepreneur may need access to one or more of the following: transport, communications, power, water, storage facilities, a legal system for enforcing contracts and settling disputes, etc. Apart from infrastructure, micro entrepreneurs need access to information about market trends and skills to run their micro enterprises. Capitalist enterprises require a specific set of social relationships. In some rural societies such a culture may be absent, or the existing set of social relationships may hinder the development of rural micro enterprises.
If one of the aims of rural development is to assist the ‘poorest of the poor’, then micro credit is not always the most appropriate intervention. A comprehensive study of micro credit schemes indicates unanimously that the benefits of the micro credit schemes under study were not scale neutral - the upper and middle income poor tended to benefit more than the poorest of the poor (Hulme et al: 1996).
Micro credit schemes often treat the symptoms and not the causes of poverty. Poverty is frequently the result of powerlessness. Those who promote micro credit schemes as a panacea for rural poverty ignore the complex matrix of power relations that circumscribe the capacities of the rural poor to run micro enterprises. This assignment concludes that lack of recognition of the limitations of micro credit schemes may have unfortunate consequences. On a micro level, it may...
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