Pro-Poor Infrastructure But there is also a version of microfinance that is concerned with the large-scale, nonprofit delivery of financial

services to the poor. The most successful versions of such programs seem to exist in Bangladesh. But there is another side to microfinance, an untold story that must be told in times of persistent and extreme poverty. The global headlines continue to be about two oversimplified stories: one of a profit-making microfinance industry that is haunted by the specter of financial predation and the other of dispersed, dogood microfinance that is haunted by the specter of failed poverty panaceas. But there is also a version of microfinance that is concerned with the large-scale, nonprofit delivery of financial services to the poor. The most successful versions of such programs seem to exist in Bangladesh and it is important to take a closer look at them. For this it is necessary to give some thought to what is being called the Bangladesh paradox. In the last decade, Bangladesh, often dismissed as a basket case, and plagued by both natural disasters and political instability, has seen significant improvements in human development and drops in income poverty. Hailed as the Bangladesh paradox, such successes have been partly attributed to an ensemble of microfinance NGOs, the largest of which are the Grameen Bank, BRAC, and ASA. Taken together these massive organizations overshadow the Bangladeshi state and also render irrelevant the work of traditional foreign donors such as the World Bank. There is a history waiting to be written about the emergence of such institutional forms. We know, for example, that each of these homegrown organizations emerged in the 1970s, during a unique historical conjuncture of postcolonial nation-building. Some like BRAC started out as relief and rehabilitation organizations; others like ASA were committed to direct, radical action. All three were eventually transformed into what is best conceptualized as pro-poor service delivery organizations. It would be a mistake to interpret such institutional forms as examples of grassroots development or as community-based organizations. Although homegrown, these are top-down, hierarchical bureaucracies committed to building scale and size. It is thus that Fazle Abed, the founder of BRAC notes: If you want to do significant work, you have to be large. Otherwise wed be tinkering around on the periphery (Armstrong 2008). Together they serve hundreds of millions of Bangladeshs rural poor. The traditional vocabulary of NGOs, civil society, nonprofits, community development fails us here. What seems to be at hand is a novel institutional form of pro-poor service delivery that is taking place outside the gambit of both the state and donor-led development. Well known for their microfinance programs, these organizations also deserve recognition for their innovations in building pro-poor services and infrastructure.

Bangladeshs microfinance organizations explicitly reject the commercial impulses of the global microfinance industry. But there is much more to them than microfinance. From Grameens emphasis on credit as a human right to ASAs pride in its hyper-efficient delivery of microfinance products, microfinance is the public transcript of development in Bangladesh. However, I argue that a hidden transcript is at work and that the explanation for the Bangladesh paradox may not lie in microfinance but rather in a set of social protection programs that build assets for the poor and build infrastructure for the rural economy. One of these is compulsory savings.

While much of the hype in microfinance has been focused on microloans, it turns out that one of the most vital financial services for the poor is savings.

While much of the hype in microfinance has been focused on microloans, it turns out that one of the most vital financial services for the poor is savings. In Bangladesh, the Grameen Bank and other microfinance organizations not only give out microloans but also attach such loans to obligatory savings. Anthropologist Arjun Appadurai (2001) has described poverty as the tyranny of emergency. If this is the case, then the crucial role of savings in helping the poor cushion risk and vulnerability and manage lean seasons of hunger and deprivation is obvious. Savings also help microfinance organizations manage risk. Indeed, compulsory savings rather than joint liability may explain the forms of financial engineering that lie behind the Grameen Bank mantra, the poor always pay back.

However, Bangladeshs pro-poor service delivery organizations do much more than simply provide financial services. In most cases their microfinance programs, be it loans or savings, are embedded in the creation of human development infrastructure. For example, BRAC actively initiates and manages value chain projects. These include pro-poor infrastructure such as health clinics and schools at the village level. The numbers are staggering, with BRAC covering an estimated 110 million people with services in microfinance, health, education, social development, human rights and legal services, and microenterprise support (Microfinance Gateway 2008). In addition, BRAC runs value chain projects related to economic development. From poultry hatcheries to dairy plants, these projects link the microenterprises of the poor to national and global markets. They seek to transform subsistence economies into those that can generate economic value. Such an approach is worth highlighting for it flies in the face of the much-touted microfinance doctrines of self-help. BRACs value chain interventions pose the question: what good can it do to enable the poor to launch microenterprises if the entire economy is decidedly anti-poor? Persistent and extreme poverty is a structural condition, shaped by long histories of disenfranchisement, dispossession, and disempowerment. It is rooted in hierarchies of class, gender, race, and ethnicity. There is much talk in the world of microfinance of the entrepreneurial poor. It is a magical idea: of the worlds bottom billion populated by micro-entrepreneurs who are able to, with just the touch of a microloan, miraculously launch a billion enterprises. But is this really the world of poverty? After all, persistent and extreme poverty is a structural condition, shaped by long histories of disenfranchisement, dispossession, and disempowerment. It is rooted in hierarchies of class, gender, race, and ethnicity. In the parts of South Asia where I do research, it is marked by back-breaking labor undertaken under conditions that approximate feudalism. No magical capitalism of bottom billion entrepreneurs is available here. Amidst this sobering reality, in Bangladesh, the microfinance organizations have once again stepped far beyond the public transcript of microfinance to take up the task of asset-ing the poor. I borrow that phrase from the important work of Imran Matin, director of BRACs Research and Evaluation Division, who draws attention to strategies of poverty alleviation that ensure social protection rather than those that promote economic entrepreneurship (Matin and Begum 2002). The latter may be possible, but in contexts of dire poverty it is the former that requires urgent attention. Innovative asset-building programs abound in Bangladesh, such as the Grameen Banks housing loans, notable for the fact that through such loans women borrowers come to hold rights to homestead land. Assets are of course not only economic but also political. Fazle Abed and Imran Matin (2007) thus argue that the greatest power of microfinance lies in the process through which it is provided, in new forms of engagements, relations, and capacities that they call process

capital. One radical interpretation of microfinance in Bangladesh then is that it is a process of the political organization of the landless poor to build power and mitigate structures of feudal inequality. Such an approach is a far cry from the aspirations of the global microfinance industry and its conceptualization of the bottom billion as a lucrative, emergent market of financial consumers. Concluding Thoughts In conclusion let me make two general points about microfinance. The first is to state that no generalizations are possible about microfinance, about its capacity to yield profit, about its capacity to fight poverty, or to fight terrorism. Paradoxes abound. As a counterpoint to the contrast that Nicholas Kristof is eager to draw between militancy and microfinance, it is worth noting that in the Middle East, Hezbollah is the regions largest provider of microloans. It is necessary to study diverse models of microfinance and to look beyond the public transcripts to understand actual practices. Second, the subprime crisis serves as a cautionary note for the aspirations of the global microfinance industry. Will the efforts to transform microfinance into an asset class fuel a whirl of financial speculation, predatory lending, and everexpanding debt? But even more troubling is the myopia of this industry. By relying on the rules and norms of commercial banking, it threatens to strip microfinance of its pro-poor innovations. The lesson to be learned from Bangladesh is that finance for the poor cannot be conflated with high finance. One crucial piece of pro-poor models of finance is subsidies. In the world of development, the term subsidies has come to be a dirty word. This, I believe, is a mistake. Against the Grameen Banks protestations, various scholars have shown that its microfinance programs rely on soft money procured at concessional rates. Jonathan Morduch (1999) estimates that without such subsidies the Grameen Bank would charge much higher interest rates. According to his calculations, in the late 1990s, such subsidies worked out to $15 per member per year. Similarly, BRACs asset-building and value chain projects also rely on subsidies. One of its most widely celebrated programs, opportunity ladders, which serves the ultra poor and combines government food aid with skills training and compulsory savings, require subsidies of about $135 per beneficiary per year (Hashemi and Rosenberg 2006). Such is the nature of propoor finance. I end on this note of subsidies because it points to the deep misconceptions that shape current debates about microfinance. CGAP, for example, has written off the early pioneer organizations of microfinance the nonprofit socially motivated nongovernmental organizations as outmoded and outflanked by financially sound, professional organizations that are a fully integrated part of mainstream financial systems (Littlefield and Rosenberg 2004). Similarly, Pierre

Omidyar, founder of eBay and now microfinance enthusiast, insists that there is a difference between undemanding capital contributed by donors who expect nothing in return and demanding capital, which requires transparency of financial reporting and an appropriate reward for risk (Bruck 2006). Demanding capital, it is implied will ultimately serve the poor well. But will such forms of demanding capital demand services and infrastructure for the poor? Not necessarily. And of course, high finance, lauded as a model for sustainable microfinance, is itself highly dependent on subsidies. This too is a lesson from the recent financial crisis. Robert Reich (2008) has rightly called the Wall Street bailouts socialized capitalism socialism for Wall Street, free markets for the rest of us. I leave readers then with a question: why are we so willing to extend generous forms of state help to the richest segments of our global society while leaving the poorest to fend with miserly extensions of self help? The story of the Bangladesh paradox reminds us of the urgent need to build robust systems of pro-poor services and infrastructure for the worlds poor. Whether or not we call this microfinance may matter little.