3. Adaptability of the Grameen Model in the Context of the UK

Friday, 3 July 2015: 2:15 PM-3:45 PM
CLM.2.05 (Clement House)
Asif Aftab Kalam, Birkbeck, University of London, London, United Kingdom
Microfinance has received worldwide recognition in the global battle against poverty. The microfinance movement, pioneered by Dr Muhammad Yunus, who founded the Grameen Bank (GB), has earned fame as a model in the alleviation of poverty by means of providing credit to micro-entrepreneurs. The GB experience has inspired similar operations in many countries, including the UK where four micro-lending initiatives emerged around the same time to adopt the GB model.

The paper considers the environment in which the Grameen model emerged in UK and seeks to deduce its adaptability in the UK. To this end it uses a comparative analysis of the UK initiatives, keeping in perspective the GB features of peer group-lending that enabled it to overcome the problems faced by mainstream banks in Bangladesh.

The findings suggest that all UK initiatives confronted numerous operational challenges in implementing the model. Such challenges include poor recovery rates, low demand for loans and an increasingly difficult funding environment. There were also factors that led to problems of sustainability and institutional complexities, which reflected the difficulties in balancing competing institutional logics of adopting the Grameen model in the context of a high income economy. These logics include the community logic these organizations have to provide their services to the financially excluded in a fair and responsible way and the market logic of providing such services in a sustainable manner.

Based on their strategic actions the UK projects adopting the Grameen can be divided into two broad categories. Some projects have followed a financial systems approach, with a significant focus on achieving long-term sustainability and implemented a strategic shift focusing on providing personal loans which has now become their main source of revenue. This is in sharp contrast to the Grameen model which was previously being used by these projects to provide only entrepreneurial loans. This strategic shift can be attributed to the meteoric rise in abusive lending during the period of operation for such projects, which in turn led to a realisation by the management that microfinance can be used as a tool for displacing such lenders, offering clients increased protection from being charged extortionary rates. The second brand of approach adopted a developmental model relied entirely on external funding for sustaining operations and had no clear focus on operational sustainability. As a result, such projects struggled and faced an increasingly competitive funding environment where larger more corporate providers were increasingly favoured at the expense of smaller localized providers.

Notwithstanding the difficulties in replicating the GB model, it cannot be construed to have effectively failed in the UK context. This is because some of the key elements that have contributed towards the success of the Grameen model in Bangladesh have been missing in operations of most of the UK initiatives. These missing elements can be viewed both from a strategic and environmental perspective and caused frictions between the competing institutional logics to be more intense compared to the country in which the model originated and still thrives.