- "So as the money supply decreases, the interest rate initially increases, meaning a higher level of savings," said my Econ professor
- "And what if people don't have access to saving accounts?" I asked.
- "We assume savings accounts are readily available"
- "...what if they say saving interferes with their basic spending?"
- "We assume that the general level of spending is well above autonomous spending"
- "...And what about developing countries?"
- "Yeah... this model makes assumptions about level of income as well."
I was not satisfied. Through personal experiences from back home and my Shepherd internship last summer, I knew this is not always how the poor behave. Heck, I actually wasn't even sure this is how anyone behaves. This didn't catch my attention from a mere academic standpoint: Access to financial services is not a luxury but close to a need for expanding businesses. In poor countries, where the poor derive their income from highly entrepreneurial activities, being able to take a loan or have a savings account can make all the difference.
I chose to intern at Grameen Bank because it allowed me see in practice all the blank spots in the model taught in class. Grameen is indisputably one of the world's leaders and pioneers in microfinance. Its methodology has been replicated in many countries after its great success in Bangladesh. They have been able to empower some of the planet's poorest people through a fair inclusion in the financial markets in a way that is respectful of the culture but also willing to challenge norms to improve people's well-being. In 2006, Grameen won the Nobel Peace Prize jointly with its founder, Muhammad Yunus, for its efforts towards poverty eradication through their innovative financial services.
During my four weeks in Dhaka, Bangladesh, I was able to explore Grameen's services, organizational structure and idiosyncrasies in depth. Specifically, I learned about the connection between their mission and the type of loans they give, and all of the background work that this involves. For instance, Grameen's vision is that microfinance is an incredible tool for development, but not a magic bullet. They believe that in order to avoid the perpetuation of intergenerational poverty, education must be made available to the children of the borrowers, especially women. Therefore, they have higher education loans at rates that are cross-subsidized by their regular loans, making university loans highly accessible. I quickly learned that there is a huge gender gap in terms of human capital due to a highly conservative Muslim culture, especially in rural areas. In order to tackle this issue, half of these college loans are reserved for women, and the other half is distributed between both genders. In this sense, my internship allowed me to connect the business model of Grameen to the social and cultural context of Bangladesh, and gain a better understanding of how they now endogenously affect each other.
I also got the chance to visit Grameen's field operations several times and actually stay in a rural village for a week. This gave me the chance to see their methodology for myself and dig a little deeper, with the help of a translator, into the lives of the borrowers. I was truly surprised to see how most borrowers, without much formal education, were able to run businesses successfully. Some even expand them in rather ambitious manners. I doubt that without access to affordable credit, these businesses would have even started, much less grown.
On the other hand, I am not trying to say that I fully agree with the Grameen methodology and approach. I think that there are several areas where it could definitely improve: the productivity of some workers, the red tape that hinders the speed of response, the stubbornness against investing in a research division, and the reluctance to digitalize a larger share of their operations. However, I do fully believe that Grameen's heart is in the right place and that the impact they have had on Bangladesh's development has been enormous. I am truly grateful for the opportunity I got to learn in depth about how a devoted institution can use access to financial services as a means to improve people's well-being.
More importantly, the fact that models are simply approximations of reality became much more tangible. Towards the end of my internship, I was not as frustrated as I was when I was told about all the assumptions that the economics model made. I finally understood that these models are simply a type of tool to understand the complexity of reality, and that the real world has many more complications than what is feasible to model. Ultimately, I learned that in order to understand a broad and complex issue like financial services for the poor, one needs a balance between the simplifying models and the overwhelming real-life experience, like the one Grameen gave me.