ABSTRACT
The main features of the classic microcredit model pioneered by Grameen Bank in Bangladesh and replicated worldwide are well-known from the literature. It is a system of group-lending under which clients from poor families, predominantly women, form groups to receive collateral-free small loans that are repaid in regular weekly or frequent instalments, usually within a one-year loan cycle, and for which the group bears joint responsibility. While, in theory, the model can be shown to solve a number of problems that historically plagued government efforts of providing credit to the poor, the relative importance of the various features of the model remains largely conjectural. The empirical studies on this subject based on worldwide experience, which will be discussed in Chapter 6, often suffer from the limitation that there may not be enough variations in the basic features of the existing lending modalities among the MFIs in a country so as to provide data for econometric tests (Morduch, 1999, p.1586). The other possibility is to undertake randomised controlled trials (RCTs) regarding the effectiveness of various features of the lending modalities, but such experimental studies are liable to be limited in scope for practical reasons. Yet another possible way is to look at the process of evolution of the system as the practitioners tried to overcome the limitations of the model and responded to the changing and varied needs of the borrowers. Bangladesh has now got a long enough history of experimentation with microcredit programmes for allowing such a Darwinian approach to analysing how the system has evolved through numerous innovations, mutations and adaptations. In this chapter, we shall look at the various aspects of this evolutionary process in the Bangladesh context before proceeding on to reviewing the theories of microcredit and their empirical tests based on worldwide experience – the subject matter of the next three chapters.
