Sunday, October 02, 2005

Assumed competence in microcredit and beyond

The most important point in Banker to the Poor, the history of the world's largest microcredit organization, the Grameen Bank, is the idea of assuming competence in people in general and specifically in microcredit loan borrowers. All humans are resourceful and can make appropriately self-interested and creative decisions to improve their situations, both in the developing and developed world. Many people and institutions have the fallacy of thinking that step one in any anti-poverty program is providing training to the participants, which is completely incorrect and in particular assumes people do not know what to do. In fact, the opposite is true, people know exactly what to do, and the focus should be on removing the structural barriers they face such as inadequate access to credit and welfare disincentives.

Grameen Bank founder, economist and author Muhammed Yunus suggests that one reason international aid programs have not made a difference in world poverty levels is because they have had the wrong objective. The aid objective should be the eradication of poverty (which has quantitative measures), not the amorphous development goal which has largely played out in the form of building dams and bridges. Yunus argues that credit should be a basic human right.

The result is that the Grameen Bank has been quite successful, lending over $5 billion to more than 4 million borrowers (95% women) with a 99% repayment rate and serving as the best-practices example for microlending. There are many innovative aspects to the structure of the Grameen Bank and its loans including continuous feedback loops, repayment beginning in the week following the granting of the loan and mini-syndication groups. Probably the strongest reason for the high repayment comes from the 5-member borrower team structure in which each member takes out a loan per the recommendation of the group and the group essentially co-guarantees the loans of the others. Stronger than the power and threat of the bank is the social and cultural threat of letting down the business partners in the loan group.

Some critics claim that the high loan repayment can also be ascribed to the lack of welfare or any other support system to fall back upon in developing countries, but the Grameen system has been proven to work in locations such as Europe and the US where welfare systems exist.

The mindset of assuming competence extends beyond the microcredit arena and can pervade any and all personal and professional dealings and even how you think of yourself. Instead of handicapping incompetence, gauging levels of competence, talking down to people and assuming ignorance, why not act with the dignity of assuming competence.