In 2006 Mohammad Yunnus won the Nobel Peace Prize for his proposal from the Bank of the Poor. However, at the end of 2018, the economist acknowledged that his work has not had the impact he always expected
In an interview with the portal Quartz, he admitted: "After 42 years, our work continues to be on the margins, microcredit is still a matter for NGOs, a footnote for the financial sector." And to close with a controversy, he launched a proposal to create a bank for the poor and another for the rich.
I met Professor Yunnus many years ago in Spain at a conference on microcredit. After his talk, I had the audacity to suggest that I thought that saving and not credit, was the fundamental need of the most vulnerable families. In this sense I invited him to make an effort to promote savings as a key element to reduce poverty.
But the micro-credit was the "star of the dance" and neither the professor nor the personalities around him at that time, dared to question what was the fashion trend.
Those who have followed my career on this subject know that I have pointed out for a long time that "microcredit is a historical error". A costly mistake, which led to directing billions of dollars for its promotion for almost 40 years.
Already some studies have pointed out that microcredit has had little or no effect on poverty reduction and now Yunnus himself openly recognizes the marginal nature of its impact.
In order to amend this historic mess, the Nobel Prize winner now proposes "a financial system for the rich and another for the poor." However, I think the origin of the problem remains the same: to believe that credit is the fundamental financial need of poor families.
Sometimes I tried to explain the error by saying that when Yunnus offered credit to the people of Jobra (Bangladesh, where he started his program), if he would have walked a few more blocks down the road, he would had found that people gathered to use a universally common savings and credit mechanism in vulnerable communities. To put it symbolically, "Yunnus stayed on credit and did not walk towards saving."
These mechanisms are known by many names: Tandas in Mexico, Susuo or Tontines in some African and European countries, Pasanakus in Bolivia, Juntas in Paraguay, SAN in the Caribbean, Mutuelles in France, Chit Funds in Asia, etc. In the academic world they are known as Rotating Credit and Savings Associations (ROSCAs).
If we had invested only a fraction of what has already been invested in promoting microcredit, in generating efficient savings mechanisms, surely the impact on poverty would have been much greater.
Behind this new proposal of Yunnus, another painful and costly mistake is hiding: banking as an inclusion strategy.
In the article we quoted, Yunnus says that "the word inclusion is suspicious", because it refers to the practice of incorporating the poor into traditional banks and that has been a mistake, since you can’t use the same rich people’s banks on the poor people.
Confusing “formal banking” (Bankarization) with inclusion remains a very common mistake, especially among academics and technocrats. To financially include people, it is not necessary to have them use a bank.
In our book "The Other Microfinance"[1] published in 2011, we proposed "A different and complementary strategy to massify financial services to the poorest", not based on banking, but on a much simpler idea: "improve a universally used informal mechanisms"
Some studies in Latin America show that, despite the years of “formal banking strategy” 2 out of 3 people save through informality and around 100 million people still use the informal associative mechanisms (ROSCAs) to access savings and credit.
Not all informal mechanisms are "perverse" and exploit users. In Latin America, for example, only 3% of loans come from so-called "money lenders" (loan-sharks), while more than 12% of the population uses informal associative savings and credit mechanisms.
As we pointed out in "The Other Microfinance", many of these informal associative mechanisms have bad design and are highly risk, but if we improve them, they can be a very suitable strategy for inclusion and financial education.
The effort of to impose formal banking strategy has been long and costly, and although there have been advances, this has been marginal, as Yunnus recognizes.
Formalizing (which is not the same as banking) should be a progressive strategy, which involves recognizing and understanding the cultural and emotional elements of the excluded population. In this process, different strategies must be used. One of them must be to improve, formalize and massify these traditional informal financial practices that respond, not only to the real needs of that excluded population, but respect and value those cultural and emotional elements that, in some way, explain why they are so massively used.
Salomon Raydan