Mr. Shafiqual Haque Choudhury, the founder of ASA, passed away on 12th February 2021. Taking this opportunity, I read a book about ASA, Association for Social Advancement. The book eloquently described the history of the best MFI in the world.
1960–1980 was an era where the communist dream still prevailed. Many young people who were passionate about social change resonated with its vision. A youth in a very turbulent period of Bangladesh, Mr. Choudhury was one of the communism sympathizers, especially influenced by Maoism which claimed revolution carried out by peasants.
When establishing ASA, Mr. Choudhury and the other founders made a pledge, committing themselves to brotherhood and to a new form of organization to fight rural poverty. Mr. Choudhury wanted to “create an enabling environment to establish a just society.”
They wanted to make the organizational structure as flat as possible, having its base in the countryside and cutting unnecessary HQ costs. We can see the organizational design philosophy of ASA from the early days of its operation. However, there was a big difference from today — ASA initially hated credit, thinking that it is a tool to oppress people as many moneylenders do. From its inception in 1978 until mid-1980s, they had conducted education and enlightenment programs for the poor in the rural areas. The purpose was to let the peasants wake up and fight politically for their rights.
The change started in 1985. When a deadly cyclone hit the country in the year, ASA provided some emergency loans to the poor, expecting them to not come back. To their surprise, many borrowers repaid the money. Still at that point, ASA was skeptical about credit. However, the 1987 and 1988 floods entailed further rounds of lending, and the experience changed ASA forever. Now ASA was ready for the credit business, much later than Grameen and BRAC.
In his book, Stuart wrote:
“Shafiq is above all a practical man, a doer. He prizes action, output, and growth above all else. He believes in doing what can be done, rather than struggling and failing to do something that might in theory be more worthwhile.”
“Microcredit under ASA is simple, practical, measurable, and busy, characteristics that fitted snugly with the temperament of its founder.”
Indeed, ASA’s original model was significantly simple and practical:
- ASA thought the Grameen five-members grouping was too complex, so they didn’t follow it. For each 1,000 taka borrowed, clients made 46 weekly payments of 25 taka (i.e., 15% flat rate). The loan size was the unit of 1,000 taka. All members were required to borrow the same amount. Savings were compulsory and standardized at 5 taka per week. By making it simple, it was easy for loan officers to keep records without mistakes. Tracking the target numbers was also very easy.
- Each branch had 4 loan officers and 1 branch manager and 1 messenger who can also cook. The branch office had dormitory rooms in which the whole staff reside, thus not necessitating security guards. An ASA branch looked after a smaller number of clients than Grameen did, so it was easy for loan officers to visit clients whenever they needed.
- There was no regional or zonal office. They had HO and branches only. The simple and rigid products didn’t need inspections. It was an “unusual combination of extreme decentralization with extremely limited discretion.”
Later ASA abandoned the joint liability model, introduced voluntary and high liquidity saving, and insurance.
The simple and efficient model was called the “Ford Motor Model of Microfinance.” ASA became the №1 MFIs in the world by Forbes Magazine, in terms of scale, efficiency, risk, and return. The model influenced the global MFI industry. Bandhan, for example, applied the ASA model, and we know how successful the bank is.
After the Bangladesh microfinance market got saturated, ASA started to expand its business abroad. ASA didn’t know much about equity financing and investment, so they partnered with a Dutch banker and formed an investment fund to invest in MFIs and apply the ASA methodology. After finding out that many existing MFIs were not keen on getting aggressive intervention from ASA, they started greenfield investments mainly, fully copying the ASA methodology.
The original pledge remained the same. To Stuart, Mr. Choudhury said:
“A lot of Latin American and other microcredit organizations are also going towards commercialization, but I say no. We are going in a new way. We can show to the whole world that by serving the very poor it can be profitable.”
Though ASA International didn’t scale as it did in Bangladesh, it proved that the model is robust elsewhere, as we see the consistently high ROE in their annual reports.
ASA is an example of successful organizations that committed to making positive change for the poor while making a profit. I think the reasons of their success are as follows:
- Unchanging vision and mission. Though ASA had changed its activities considerably in the first decade, its objective remained the same. They didn’t work for financial inclusion per se — rather they worked to uplift people’s lives and make a better society.
- Simple and replicable business model made by the innovative founder. The simple model didn’t require well-educated college graduates to run the business. After 10 days of training, the young local-hire staff were able to run the business comfortably. Their core product, the simple 46 weeks loans, lasted very long thanks to its simplicity. They didn’t need computerization until 2008 because of the robustness of the business model.
- Generous donors who supported ASA in the early days. Perhaps ASA was lucky. These days, it is very difficult for MFIs to obtain large-scale grants, and they instead need to rely on shareholders' capital. That might be one challenge that the entire sector is facing.
Many first-generation microfinance practitioners are departing these days. Although their personalities were diverse, there was one common trait. They started their endeavor for the sake of improving the lives of the underprivileged people, not of his or her personal wealth creation. Things are very different now among the new generation entrepreneurs, and I silently lament them. I hope that Gojo and I can show something different to the world.