Microfinance

Maoism to Microfinance – Something to read for India's Maoists

While our very own RBI Governor D. Subbarao is making hearts flutter with his public display of admiration for Chairman Mao Read Chairman Mao and Governor Subbarao not too far away in Bangladesh a few decades ago some angry young men started a Maoist frontal organisation called ASA only to see it transform into Bangladesh’s most dynamic and efficient microfinance institution.This is the story of ASA.

While India’s Maoists intesify their Peoples War in the heart of India they could learn a lesson or two from their Bangladeshi counterparts on how to bring about social change.

Asa: Maoism to microfinance: a journey of hope

One night in March 1978, seven fervent young men brimming with radical ideology swore an oath in a village west of the Bangladeshi capital Dhaka.

Kneeling, each touched the soil with one hand, holding the other to their breast. They pledged to educate groups of villagers in the hope that they would take power and turn Bangladesh into a Maoist-style state run by the rural poor.

That ceremony marked the birth of the Association for Social Advancement, better known by its acronym ASA, which means hope in Bengali.

ASAchairmanMd. Shafiqual Haque Choudhury – Former Maoist Leader and ASA Founder

It was an unlikely beginning for an organisation that was eventually to mutate into one of the world’s most successful microfinance institutions, acclaimed for cost-efficiency and a capacity for rapid growth.

The initial change came at the start of the 1980s. ASA’s founders decided that they should educate the rural poor and provide them with services.

At that time they distrusted lenders such as microcredit pioneer Grameen Bank run by Muhammad Yunus, who won the Nobel peace prize in 2006, because they thought such organisations were feeding off the rural poor. But they changed their minds after villagers repeatedly asked for small loans, such as those Mr Yunus had been providing since 1976, to help them buy cows or invest in other farm activities.

ASA’s president, Shafiqual Haque Choudhury, masterminded a swift transition, says Stuart Rutherford, an expert on microcredit and the author of a recently published book about ASA. “In 1989 Mr Choudhury flipped his organisation from a service-providing organisation with mostly male members to a microcredit organisation with women members, like Grameen,” says Mr Rutherford, himself a former ASA board member.

But Mr Choudhury says his approach was not like that of Grameen or other microlenders.

“We invented a new way of doing microfinance,” he says. “Ours is a highly decentralised system which is lean and low-cost.”

Vijay Mahajan, chief executive of Basix, an Indian rural finance institution, says ASA is a “no-frills version of Grameen which looked at the Grameen model, improved on it significantly in terms of cost efficiency and scaled it up.”

Professor Jonathan Morduch of New York University says: “No other microfinance organisation has so deeply tackled cost reduction.” Mr Choudhury wrote a manual for his branch managers to guide them in almost every detail of their work.

“Branch managers can make most decisions on loans themselves,” he says. “Decision-making takes less time.”

The manual even specifies the lay-out and furnishings of branch offices. Each office is allowed just one table with one ceiling fan hung centrally above it – no unimportant detail in Bangladesh’s humid climate.

ASA also simplified the paperwork. “We don’t keep or gather unnecessary information,” Mr Choudhury says. But he stresses that ASA screens loan applicants carefully to make sure they do not borrow from several microcredit institutions, a practice that has caused problems in the past.

Unlike Grameen during its early years, ASA never asked each group of borrowers collectively to guarantee the loans made to each individual member.

Grameen itself has dropped the system, which sometimes led to animosity among villagers and tended to penalise good clients for defaults by others.

ASA also has a flatter hierarchy than most other microlenders. “ASA has always had just two levels: the branch and the head office, without regional offices requiring more buildings, furniture and staff,” Mr Rutherford explains.

ASA also made it compulsory for borrowers to deposit savings so they would have something to fall back on and there would be fewer defaults.

This made ASA less vulnerable to the natural disasters to which Bangladesh is prone.

After unusually severe floods in 1998, Grameen repayments declined and it had to borrow more than $60m.

It was a Financial Times article written by this journalist while based in Dhaka that helped to alert the wider donor community to Grameen’s difficulties.

Grameen from 2001 made a number of significant changes, including encouraging savings more actively. Today deposits at the bank exceed the value of loans outstanding and Grameen is self-sustaining.

“ASA figured out how to do things on a commercial basis and they avoided making the same claim as Grameen that microcredit was ridding the world of poverty,” Prof Morduch says. “The hype has not been useful.”

Mr Mahajan of Basix agrees. “Microcredit has value but it’s been over-hyped. Grameen was criticised for overstating its self-sufficiency when in fact it absorbed a lot of donor money. Now it has learned from the criticism and from newcomers.”

ASA of Bangladesh stopped accepting donor funding in 2001 and it now serves more than 6m borrowers from more than 3,000 branches around the country.

ASA International also works in a number of other Asian countries and in Africa.

Last year it secured $125m in capital commitments from institutional and private investors, including major funds in the US and Europe – the largest-ever collective equity capital commitment to microfinance.

Financial Times

Abhay N

Author : 

Abhay is the founder and managing editor of India Microfinance. He is passionate about microfinance, financial inclusion and social entrepreneurship in India.

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