Financial consultant makes money work for Pakistani slum-dwellers

A GENTLE smile on his weather-beaten face, Stuart Rutherford hoists an umbrella and sets off through the foot-wide lanes of Dhaka's worst slum in search of people to invest in his bank.

A Londoner by birth, Mr Rutherford is a pioneer on the outer edge of microfinance. Beri Bad, as this slum is aptly named, does not have the look of a place awash in surplus liquidity. Until recently it was awash in the waters of Bangladesh's worst flood in 100 years.

Tiny shacks of cane and plastic sheeting cling to the steep slopes of an embankment that was built after the catastrophic floods of 1988, with the intention of providing a refuge. Most of the people squatting here are from even worse-flooded regions further south around the town of Bhola.

But for Mr Rutherford, all these people are potential savers, borrowers and investors. Two years ago he set up SafeSave with a Bangladeshi partner to help them to do those things. Mr Rutherford's secret weapon in Beri Bad is a grave young lady in a deep crimson sari called Lipi Nurunaka. Lipi, who lives in a slightly more affluent quarter a few hundred yards away, is SafeSave's representative in the slum.

Every day she patrols the slum and knocks on the door of every one of SafeSave's clients - 93 households and growing.

Every day without fail, she turns up, with her plastic file, pen, electronic calculator and leather shoulder bag, her oiled hair gathered in a bun, and offers SafeSave's clients the opportunity to do four things: to save (as little as 2 taka, about 3p); to withdraw money; to borrow (within strict limits); or to repay what they have previously borrowed. Each day they may do any of these things, or all of them, or none. The only thing they must do, if they have taken a loan, is to pay the monthly interest on it.

SafeSave is working: since its launch it has been selecting poorer and poorer slums, until in Beri Bad it hit rock bottom. Yet despite the poverty of its clients, nearly all repay what they owe. At the end of August, fewer than 2 per cent of loans were more than one month in arrears in interest payments, and no loan had yet been written off. The co-operative is now covering its operational costs each month, and Mr Rutherford expects it to become self- supporting in time.

At 11am Lipi calls on SafeSave client number 6,583, whose name is Salma. Salma lives with her aged, and unwell, husband and her son and daughter- in-law in a one-room shack about eight feet by six feet, a few feet above the flood waters. Salma's husband salvages discarded wood, cleans it and sells it to be made into furniture. Her daughter-in-law works shifts in a glass factory. Her son operates a bicycle rickshaw, for which he must pay rent to the owner.

Salma opened her account with SafeSave last month. Almost every day she saves a little - today she hands 10 taka, 12p, over to Lipi, who writes the transaction in Salma's passbook. She has already saved more than pounds 6. "This is a way to make sure that I don't waste the little money I have," she explains.

"When I've saved enough I can use it for things we need." She has already taken money out to buy medicine for her husband's stomach ailment. She looks forward to being able to buy her son his own rickshaw.

Bangladesh is where the notion of microfinance was invented. It was the idea of Dr Mohammed Yunnus. His Grameen Bank is now the largest in the field, with nearly two million borrowers. SafeSave is the smallest of tiddlers, with 2,000-plus clients in six Dhaka slums.

But size is not the point. "Financial providers for the poor have grown bigger and faster here than in any other country," Mr Rutherford says. "Micro- financiers have perhaps nine million clients in Bangladesh, and there are over 1,000 microfinance organisations here." Mr Rutherford has been involved in the field since arriving in Bangladesh 14 years ago as country director of the charity, Action Aid.

"I stand in awe of Grameen Bank," he says, "but I am also a critic. We need to go forward. The idea of SafeSave is to foster innovation." Mr Rutherford has been an important innovator in micro- finance for years.

Grameen Bank has always been centred on the countryside ("grameen" means "village"). Mr Rutherford was the first to set up replications of the bank in the city slums, his success paving the way for many imitators.

Now he is breaking new ground in other ways. Grameen has a built-in rigidity: clients borrow, then must repay in fixed weekly instalments. They are supposed to borrow only for business activities, and must declare the reason for wanting the money for (which results in many fictional declarations). Mr Rutherford, by contrast, aims to give his clients the greatest possible degree of freedom: to save, to withdraw, to borrow, to repay or to do none of the above. In place of the peer group pressure that Grameen Bank relies on, SafeSave depends on Lipi, and dozens like her, knocking on doors every day.

Clients can spend the money they withdraw or borrow in any way they like - to fix a hole in the roof, provide a daughter with dowry or buy a field of growing rice as a investment. SafeSave aims to treat its clients as grown ups. The poor are no different from you or me, is the message. They just have less money.

The recent flood crippled the ability of many microbank clients to keep up repayments on their loans. Now the Government and press are attacking the banks for soaking the poor when they are wet enough already.

Last week Dr Yunnus admitted: "This is the biggest crisis we've had to face in 20-odd years of mircocredit." Grameen Bank alone, he said, would need $100m (pounds 61m) of extra funding to survive.

If Stuart Rutherford is correct, there is nothing wrong with the microfinance concept, only with the rigidity of its application. Where SafeSave leads, others will follow.