What can India learn from Bangladesh?

What the hell, you might ask. After all, Bangladesh is a failing democracy, run by a government which cannot guarantee safety to the opposition leaders, madrassas corrupting young minds possibly with funds from ISI and Al Qaida, a government whose allies are Muslim fundamentalists who profess hatred against India and the west, what can India possibly learn from Bangladesh?

The recent UN human development report, which ranks countries based on infant mortality rates(IMR), female literacy, freedom and a host of other factors, has ranked India 127 out of 170 countries, way below Bangladesh. How a country which is economically weaker than India has managed to do so well socially? The answer partly lies in Grameen Bank, which is the first implementation of micro-credit in the world.

Mohammed Yunus, the Harward educated economist tried in vain to get the nationalized banks to lend money to the poorest of poor, and decided to start his own bank in 1983. Today Grameen bank has branches in 46000 villages and has lent over $4.5 billion, mind you, against no collateral, but has good debt recovery rates. It has stressed on women empowerment in a predominantly patriarchal society.

The results are for everyone to see. Empowered women tend to have fewer children, educate them, and are more responsible than their male counterparts when it comes to repaying debts. Bangladesh spends much less than India on education but boasts of higher literacy rate and lower IMR.

Does it mean there aren’t any micro-credit schemes in India? There are, but nowhere near the scale of grameen bank. Lending to women SHGs(self help groups) has proliferated, but the focus is still on trickle-down approach, like the much touted Bharat Nirman scheme with a cost of, hold your breath, Rs.174000 crore. There have been such schemes in the past (every time a PM visits NE region, announces a multi-crore deal). The premise is simple. Investment generates employment and other benefits like literacy and social benefits accrue due to money multiplier effect, the basis of Keynesian economics. But it has failed miserably. Why?

The potential for corruption associated with such expensive schemes is not the reason, but the very fact that our systems are so inefficient that the money allocated for spending on such projects are returned to the exchequer. ET ran a story of how Rs.5000 crore money collected for sarva shiksha abhiyan, by imposing a 2% education cess on goods and services, remained unspent even after one year of announcement. So is the case of Bimaru states returning the money allocated by planning commission. With such a history, Chidambaram need not worry about raising money. They are rarely spent anyway.

Lending tiny amounts is not cost effective and the government should do more than exhorting public sector banks to lend without offering sufficient incentives (to my knowledge) to do so. Putting money is alright, but the government should put money where the mouth is.