Across the world, Bangladesh is believed to be the birthplace of microcredit. Over time, innumerable books, articles and research papers poured into this 45-year-old financial route to rural poverty eradication. While microcredit encouraged new theorizing about how it works, in the hindsight, the practice of microcredit itself seems to have often evolved in an unpredictable way outpacing the development of theory.
The Theory and Practice of Microcredit is a newly released book - perhaps one of the most recent publications of Routledge (2017). Under the aegis of Routledge Studies on Development Economics, the book is authored by Professors Wahid Uddin Mahmud and S.R Osmani who are widely known for their rich researches on poverty and public policies. The beauty of the book seems to be that it embodies both history and economics. They appear as historians engaged in an attempt to unfold the history of microcredit in Bangladesh. However, the idea of the book mainly owes to the lack of a proper analysis of the evolution of microcredit itself and evolving theorizing about how microcredit works. "…we have often wondered whether this extremely rich literature has missed anything of the ground-level reality or whether the microcredit practitioners have had to learn the hard way lessons that could have been predicted from theory". And thus "a proper understanding of the evolution of practice is essential both for developing theories that are relevant for the real world and for adopting policies that can better the full potential of microcredit". En passant, it may be mentioned that the book contains 300 pages in 10 chapters of innovative issues and, given time and space constraints, a full-scale review of the book becomes very difficult. But instead, we can possibly draw upon a few takeaway observations as food for thought.
An interesting aspect is repayment behaviour of credit recipients. An avalanche of research papers adduces repayment of loan to peer pressure along with permissible degree of coercion. Professor Wahid Uddin Mahmud and S.R.Osmani, however, provide an alternative hypothesis to the repayment behaviour based mainly on the costs of non-compliance. The costs of non-compliance or non-repayment of the borrowed fund is the forgone future loans and the psychological cost of social stigma, especially in the case of rural women (shomaje shorom or lok-lojjar voy). Although not specifically mentioned by the authors, in rural Bangladesh context, females are more prone to public shame than males. Besides that, regular repayment is also attributed to a sense of guilt for breaking a trust-based relationship. "In particular, we look at the plausible hypothesis that loan repayment can be habit-forming and can become ingrained in the social psyche, making the system driven more by social behaviour norms rather than by the threat of coercion, and how this can have profound implications for both theory and practice".
Another contemporary concern has been critically discussed in the book. Since long, microcredit has been characterized by 'extremely polarized views which frequently end up shedding more heat than light'. While proponents of microcredit point only to positive contribution, the opponents opine that microcredit makes poor poorer! The two leading development economists of the country tend to discover a compromise stance presenting credible empirics from a vast pool of dataset. The authors observe positive impacts of microcredit against the popular negative perceptions of higher interest rate, inefficiency, etc. They unequivocally argue that microcredit has helped rural poor in a significant way as revealed by cumulative empirical evidence. But having said so, they have also cautioned cheery proponents about sky-high claims about potency of microcredit that it could be a panacea of poverty reduction. How could that be when microcredit is just one of the innumerable ingredients that change or transform people's lives? How can a mini part of the hill be the mountain? Even a staunch supporter of microcredit should suggest that the tool of microcredit should be made more pro-poor in the ways of, say, flexibility in installment payments, improved efficiency of the organization, etc.
In the impact evaluation, microcredit researchers, with a bit of euphemism, like to rely on Random Experiments. Known as RCT, it provides intervention in a group while keeping another group similar to it as controlled to arrive at credible comparison in terms of selected indicators. The authors apparently suspect the prudence of this kind of impact evaluation, especially as far as impacts of microcredit on livelihood change is concerned. There are many reasons behind this but we shall mention a few. First, a look at ability to transform livelihoods cannot be glanced from experiments over a short period. As mentioned earlier, many ingredients -where microcredit is just one of them - play tune behind the transformation; more importantly, some of them take relatively longer time to make an impact. Second, taking a long-term lens is also fraught with the problem of implementation resulting from practical difficulties. Third, keeping a group called 'group starved of credit' while feeding the target group for a long time may not turn out to be tenable, even ethical. Thus, according to the authors, Randomized Experiments face serious dilemma that may necessitate observational data - even with limitations.
We have discussed just three observations out of a panoply of premises contained in the book. The book merits a reading only because the issues have rarely been addressed in earlier researches. The authors have pushed the frontiers of current knowledge on microcredit through a rich blend of theoretical and empirical analysis breaking new grounds on a wide range of topics with prospects of linking microentreneurship with economic development. It will serve the purpose of all kinds of readers - students, teachers, researchers and policymakers - with newer dimensions, among other things, to resolve the ongoing debate about the role of microcredit.
The writer, a former Professor of Economics at Jahangirnagar University, is Chair of the Economics and Social Science Department (ESS),