MICRO-CREDIT IN BOMBAY
In our “western” universities our development-economists-to-be are taught everything about micro-finance. They study Mohammed Yunus’s life step by step. They are supposed to read “the Banker of the Poor” as if it was a holy script, they all should be familiar with those revolutionary (from the economical point of view) ideas that are the funding ground of the Grameen bank. Our students get an idea of how micro-credit should work, how a self-help group should be led, what a micro-finance institution is supposed to be.
Enthusiastic students will line up to get selected for an internship/volunteering program in one of the countless organizations inspired by the Grameen Bank, mostly working in the Bengale area. They will fill their backpacks with few clothes, mosquito spray, medicine, and huge expectations.
By going there, they will end up discovering that their ideas were both romantic and too rational. Romantic, as no group of poor women living in the most remote villages in the world will actually gain their economical independence this way. The women taking loans from a MFI (micro-finance institution) will not start their own business, but more simply they will put money into their husband’s businesses, or use that money to cultivate their family land. No romantic idea of a poor women emancipating herself all the way up to entrepreneurship.
At the same time, our ideas of micro-finance is based on a rationalist model, that fails to recognize one simple question: is the theoretical way actually better? Indeed, from a theoretical point of view, micro-finanace doesn’t work: as we just said, only a small fraction of all women receiving loans actually starts a business, thus the ultimate scope of micro-finance seems not to be achieved. The loan is not used for the purpose it was granted. No rise of the poorest of the poor straight to the highest level of the national production. The economy of the poor stays unnoticed.
This negative perception of micro-credit, though, comes form a GDP biased logic. To state that micro-credit betrayed its primary scope is a confession of blindness. As the primary objective of micro-finance is to better living conditions of the poor, by giving them the means for escaping from their poverty. Micro-finance should allow them not to die from hunger if, for example, their crops were devastated by the rain. It should teach them how to save, first, in order not to borrow again. It should contribute to increase their life expectancy, or allow their children to get an education (thus really permanently escaping from poverty). Of course, micro-credit alone cannot do all this. Of course, micro-credit needs a network of government of non-government organization building hospitals, schools, and roads.
Thus, a micro-finance institution should not only be concerned with granting loans to the poor. Its mission should be to educate the poor. On how to use their money, how to plan a family, how to marry their children, how to run their small activities, and cultivate their lands. Micro-credit cannot be separated from its social mission.
The loan disbursement and collection has to be seen as the last stage of a really long process. Such a process starts with few NGO’s workers visiting a village, in order to have a preliminary meeting with all the “respectable people” of that village. First stage of micro-credit it’s really a lot about talking. As it is not possible to create any self-help group without permission of the local landlords. Second step is to talk to village people, the women and their husband, and explain the benefits of being part of a self-help group. Women have to be interested, though husband have to be convinced too. In fact, without the husband’s permission, a woman cannot participate to the group-meeting. So micro-finance is much more fragile, and complicated than what we think from our efficient and organized countries. Specifically, micro-finance in the South-East Asian area is built on personal relationship. Indeed, almost everything in Asia requires personal relationship. Nobody would do anything if they don’t know the person they are dealing with. On the contrary, nothing is really impossible if the two of them are able to build a trust relationship.
Thus, the most fragile part of micro-finance is the establishment of this trust relationship.
An organization with no link to the local reality, which is not interested into the human consequences of what it is doing, will just behave as a new landlord, coming to tax the villagers. To make micro-finance mission accessible to the majority of people living in those areas, it cannot be just a matter of business establishment.
That’s why our academic ideas are at the same time romantic and too rational. And that’s why micro-finance is really working, despite a new generation of women entrepreneurs coming from the Darkness is not yet formed.
Micro-finance is not solving the problem, though contributing to solve it. It can better lives in areas where the government is nothing more than a mere phantom, people still struggle to get water to their houses, roads are often too bad for any car to arrive there, houses are still built by mud and rifles, and electricity is an optional. In those places, women burn themselves to death for fear of being unfertile, the majority of people cannot read and write, and it is not that uncommon for a child to die of malnutrition.
Even by granting a minimum level of social security, by providing basic services such as health-care and education, things can start to get better. By meeting every week, women get the opportunity to compare their experiences with those of the other members. They can get advise from the Community Officers (he intermediaries between the women and the organization), about every subject matter, form hygiene to dietary needs, together with loans and savings. They will start to build a network of mutual support within the village, beyond religion and cast differences. Those women will be allowed by their husbands to meet outside of the house. They are offered a place where to deposit their own money, instead of financing their husband’s liquor. Those are small, yet basic changes.
On the other side of the coin, micro-finance is faced with a future challenge. Repayment are constants and punctual, default rate is low. Micro-lending is working, and service charged can be paid out of this loan. For this reason, more and more for-profit MFI have been created in the last few years.
This leads to two major problems: the loss of micro-finance primary social mission. Indeed, those institutions act as normal commercial banks, though on smaller scale. Second, competition in the field is dramatically increased, making difficult to find enough “market share” (such a sad definition if we think we are referring to the rural village mothers). More and more often, not-for-profit NGOs already operating in the field for a decade now are forced to struggle in order not to let any newcomer spoil what they created through years of work.
From a certain point of view, it may be a good sign, as it means that micro-finance is now going to increase substantially those countries’ GDP, creating job opportunities and economic growth.
God of Wealth finally blessed the area. Goddess of Competition will take care of the rest. Holy Market Laws will grant an happy ending to everyone.
No more need for any social NGOs.
Of course, my conclusion is purposely exaggerated. Though, my question is still valid: is this way actually better?
I can’t help seeing dangers where GDP measures predict Success.
(Post-Grad student in Development Economics,
and past volunteer for IIMC Micro-Finance Project, Kolkata.)