Bullish on Bangladesh

Funds critical to the nation's development often come from an unconventional source--broad-based microcredit schemes targeting the poor. Pioneered by Grameen Bank after Bangladesh's killer famine of the early 1970s, the strategy is to promote grass-roots development with collateral-free loans to poor households for investment in seeds, livestock, irrigation or village-level businesses. Today, an estimated 80 percent of households participate in some form of microcredit from Grameen or nongovernmental organizations.

That makes Bangladesh the test case in a new development-financing model. Experts laud microlending for a string of positive side effects. By targeting women (who have proved more reliable borrowers than men), lending schemes have pushed female participation in the labor force to among the highest in the developing world. As a result, Bangladesh's birthrate has plummeted, poor families have opted to put their girls as well as boys in school and women have taken a large role in local government--all in a predominantly Muslim country. "At the grass roots things have worked quite well," says Ifzal Ali, chief economist for the Asian Development Bank in Manila. "Rural literacy, basic health, provision of water [are] beginning to pay dividends. Compared to 3 to 4 percent growth earlier, there is now 6 to 7 percent. They're doing something right, no doubt about it."

But a concerted clean-hands campaign is needed to kick the economy into high gear. Corruption largely explains the endless red tape, crumbling ports and barriers to foreign investment that keep the country from achieving its full potential. "It's a barrier to every step we need to take," says Yunus, who adds without irony: "If we can bring down our corruption to the prevailing level in South Asia, our growth rate would be 9 to 10 percent."

Should Bangladesh experience destabilizing political turmoil in the coming weeks or months, its economy would certainly suffer. Tension in the garment industry remains high. Abdus Salam Murshedy, vice president of the Garments Manufacturers and Exporters Assocation, warns that the government "must protect our factories [from protesters], or else our achievements will be reduced to zero."

Yet even now, foreign investors have multibillion-dollar projects on the drawing board in Dhaka. The Indian conglomerate Tata has proposed building a steel mill and a power plant worth $2.5 billion in the area. And the government remains upbeat. "We could accelerate the growth momentum remarkably without destabilizing macroeconomic fundamentals," says Rahman, the Finance minister. Then, perhaps, Bangladesh would make headlines for something other than killer cyclones or riots in Dhaka's streets.

© 2006