> Posted by Center Staff
Elisabeth Rhyne recently contributed a blog to the Huffington Post that explores the state of the microfinance industry in Bangladesh. The piece begins:
Ask a casual observer to describe microfinance, and most likely he or she will mention Bangladesh and tiny group-guaranteed loans for women. But on a recent trip to Bangladesh, I learned that the Bangladeshi microfinance sector has moved on. Way on.
The model of microfinance in Bangladesh, as it originated at Grameen Bank, involved tiny loans to women with fixed terms and amounts, group liability, weekly meetings, forced payments into a group savings account, and a set of 16 social pledges chanted each week while standing at attention. The Grameen model spawned imitators around the world, involving a large share of microfinance clients in India, the Philippines and East Africa, among other places.
But while many in the microfinance industry and outside it equate microfinance with the Grameen model, Grameen itself, as well as the other microfinance institutions in Bangladesh, have quietly re-engineered their models to pursue an expanded vision. The most dramatic shift occurred in 2002, with the introduction of Grameen II, a thorough re-tooling of Grameen Bank’s operations. Throughout the past decade, most of the hundreds of microfinance institutions (MFIs) in Bangladesh have followed suit, experimenting with new lending methodologies, products and support services.
Click here to read the whole piece on Huffington Post.
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February 14, 2012 at 11:56 am
Rich Rosenberg
Beth, you may be right that Bangladesh hasn’t experienced a repayment crisis (yet at least) because the growth rates leading up toward market saturation were lower there than in some other places. On the other hand, Adrian Gonzalez couldn’t find any correlation between growth rates and repayment problems in the MIX data, except at extreme and very unusual growth rates.
February 14, 2012 at 6:35 pm
Beth Rhyne
Rich — I have heard Adrian describe those results of this research, and I almost believe him, but still have a hard time letting go of the sense that rapid growth and market crises are related. The conventional wisdom I heard in Bangladesh seemed to say that because their growth spurts were longer ago and more moderate that the industry was now sort of inoculated against crisis.
My reflections were based on a brief visit. I would love to have more authoritative views from those who know or participate in the sector. (On that note, thanks to Greg Chen for his comments on the Huff Post site.)
Beth
February 15, 2012 at 10:39 am
Daniel Rozas
Beth — this is an excellent and much needed post. Perhaps because the linkages between Bangladesh and the international microfinance community are more limited than elsewhere, or maybe because of a lot less active microfinance writing/blogging community in Bangladesh, we don’t seem to pick up nearly as many lessons from that country as we do from elsewhere. It may have been true in the past, but doesn’t seem as true now. Whatever the reasons, I think there’s a great deal to learn from Bangladesh and Indonesia (an equally mature market that is even less discussed).
Rich — I wouldn’t lean on Adrian’s finding quite so much. While I don’t have concerns about the methodology, we really don’t have very much data to go on. As I’d shared with Adrian when the study was published, my personal hypothesis is that a crisis of this type is brought on by the combination of fast growth and a high degree of saturation. And there just aren’t that many markets that meet both criteria for a sufficient statistical sample. What I do know is that nearly every country that experienced a crisis during the past few years, featured both significant saturation and fast growth.
While this alone isn’t sufficient to conclude that Bangladesh is immune to crisis, it may well be that a moderate pace of growth increases even a saturated market’s ability to readjust to a more sustainable level without having to go through crisis. There’s much we still don’t know on this topic.
BTW, another important element in my mind is whether the market had already gone through a crisis period previously. Both Bolivia and Bangladesh (via Grameen’s troubles in 2000) had done so. The risk awareness such experience creates among the current crop of senior staff shouldn’t be underestimated.
February 15, 2012 at 11:27 am
Adrian Gonzalez
Dear Beth, Daniel and Rich,
If the market is saturated, think of a glass of water almost full, it doesn’t matter how fast or slow you pour the water, once the glass is full, if you keep pouring water, you will have a mess. However, as long as you don’t pour that last drop of water that make the glass full, the speed of the flow of water doesn’t matter.
I agree that the recent crisis (Nicaragua, Bosnia, Morocco, India, etc) have been the result of a combination of factors, and there has been an exaggerated attention to “uncontrolled growth” without paying attention to other relevant factors including market size and saturation, political risk, good match between credit products and borrowers needs, good lending methodologies, evaluation of repayment capacity, etc.
I also agree with Daniel that a combination of high growth and high penetration will be more risky, however growth rates tend to be negatively correlated with market saturation, so it will be very hard to test whether this combination of factors is more explosive.
Adrian
February 15, 2012 at 12:08 pm
Daniel Rozas
Hi Adrian — great analogy, though perhaps I can offer a somewhat modified version. Consider credit markets as a balloon. As the balloon expands, there’s no specific point where it becomes unsustainable, but the larger it gets, the more sensitive it will become to outside forces that can cause it to explode. So I don’t quite see this as a “last drop” problem, but rather, an increasing instability problem.
Slower growth allows the system doing the inflating to better adjust to feedback it receives from the balloon. You may, for example, notice that a weaker section of a balloon is beginning to bulge, and deflate slightly in response. That gives the balloon time to readjust (market capacity, unlike balloons, expands over time). However, when a balloon is being inflated very rapidly, it is less able to pick up and react to such feedback. But as you point out, this happens in rare cases, so it is hard to test. Until we can, I guess we’ll just have to rely on analogies!
February 15, 2012 at 12:39 pm
Adrian Gonzalez
Hi Daniel,
From the financial access perspective, our goal is to fill up all the balloons ASAP, and keep them from exploding due to internal or external sources. This includes reducing the pressure in some of them.
The emphasis on growth make sense for balloons reaching high pressure levels, but most market are well below that level. Then, I hope the industry keeps filling fast the almost-empty balloons, as they are just in the early stages of development and in most cases, it will take many years until the pressure goes up.
Regards