Microfinance has gotten some flack in recent years. Randomized Controlled Trials (RCTs) have provided some empirical basis for skepticism regarding its transformative impact on the poor. The development fad focused on microfinance appears to be waning.
For those who aren’t familiar with BRAC, an organization I have been working with on and off since 2014, it is the world’s largest NGO, has programs serving a large portion of the population of Bangladesh, and is arguably one of the greatest success stories of the international development community. Its reach is mind boggling, such that I often compare it to an alternate socialist government. It has programs in health, education, industry, and of course microfinance. The BRAC family includes a bank, cash transfer company and what will soon become one of the largest universities in South Asia. It has programs in 12 countries as well.
Some months back, I read “Freedom from Want” by Ian Smilie, which presents a history of BRAC. It’s a very interesting read, and I highly recommend it, particularly given the importance of BRAC in the development world. Even though much of it reads like a ‘great men’ version of history, with some role for particular women involved, it touches on a number of interesting organizational themes.
One idea, which requires greater scrutiny, is the importance of microfinance in the financial and organization health and evolution of BRAC. Today, the importance of microfinance to fund BRAC activities is undeniable. According to its annual report of 2014, BRAC earned over $270 million from service charges for microfinance; expenditure for the program was just over $171 million. The net earnings create a huge fund that is then used to cross subsidize other programs and costs. Own source revenue also reduces the vulnerability of the organization to the fickle behavior of international development partners.
Microfinance allowed for direct linkages, both upstream and downstream, with other initiatives. As the book describes, providing microfinance services was not enough to have an impact; instead, BRAC had to present and develop business opportunities for women. This led to work in a wide variety of programs. For example, the book describes the poultry business, where BRAC developed both a chicken feed company as well as a vaccination program and an egg selling business. Feed, chickens and vaccines were often bought using microfinance funds.
For me, even more interesting is the organization that is fostered by micro finance. It provides an economic need for BRAC field offices, which can be used for other purposes. Similarly, microfinance requires the creation of women’s groups in communities, which one might refer to as social capital. BRAC therefore develops both a network of individuals affiliated with the organization, and a familiarity with the community. I am still unclear just how much of a role these offices, staff and volunteers involved in microfinance played in the history of BRAC, but I suspect it was an important one. In recent history, the book observes that BRAC International has taken this approach, describing that “the health program [piggybacks] on the microfinance program” employing staff in the field offices and pulling health volunteers from among the microfinance groups.
All in all, I wonder if studies of microfinance take these linkages into account. So far, I haven’t seen much written about these topics and obviously feel they deserve further inquiry.