Eating is an agricultural act - Wendell Berry

Monday, October 18, 2010

microfinance - unanswered questions

microfinance has come into the news for a new set of reasons - the wrong ones.
suddenly the concept that got mohd yunus the nobel peace prize has come under the scanner. read the ugly underbelly of microfinance.

i have never bought this idea that microlending could help in alleviating poverty. in fact, it strikes me as completely absurd that putting someone in debt could be a route out of poverty.

it is clearly a cheaper alternative to conventional local loan sharks and that service is surely laudable. but poverty is not a sole function of revenue and hence my bold stance in the previous para.

i will point at the articles over at the discomfort zone on the impact of microfinance.


Azagappan PS said...

Poverty exploited in name of Help.

I dont see MFI's any different from the Credit cards. They both force people to borrow and then harass.

Mayank said...

CSM you asked me about anger and angst. Statements like UID cost and disbelief in micro finance despite seeing its success globally gives me an impression that there is a scope for a lot of study.

One- if people are poor what are the reasons for it? Can you eliminate those conditions?Poverty is one of the most complex economic phenomenons. You can't. If someone doesn't have the land to do agriculture, where do they get that help from? Suppose you didn't have any land for your PR, What would you have done?

If people need money to start something, would people like you or me lend it to them? I can't.
Where do they get there resource from? It has to be a banking agency.

Now if the agency was not regulated well like a lot of non profits that indulge in nefarious activities too, does that imply that the concept of the agency itself is to be ruled out?

Its like throwing the baby with the water in the bath tub.

csm said...

mayank - a nobel peace prize is not an indicator of global success.
if indeed MF is a global success, there should be
1. enough indicators that global poverty is reducing and
2. MF is playing a key role in the reduction.
the data/research i have read remain inconclusive. do point me to your sources. would be grateful.

as you rightly say poverty is a complex process and the MF formula of reducing it to a single variable equation (revenue) is churlish.
if the MF money-lending solution formula was an one time application in a poor person's life, i would be inclined to subscribe to it. but since MF is a business, its raison d'etre rides on people's indebtedness and we are back to the same "distrust of movements" story.

the successes of MF largely come when it is combined with savings or even more correctly when lending 'follows' savings.
that is precisely how 'self'-help groups came into this space in the early days. and i salute SEWA format of successes in this space. they are both in the revenue space as well as the costs space of poverty reduction, while MFIs are one step removed from the revenue space.

and i dont ever believe that any government bureaucracy can honestly regulate any industry.
to expect that the indian govt (under any political party) will be able to do maintain justice in stuff like UID/NREGA/industry regulation is pretty wishful.

my theory on poverty eradication is out here (

Mayank said...

Please have a look at this CSM

Any scalable model of credit has to depend upon revenue growth. Or else you depend upon money earned by others. How do you think one can give credit without asking for interest? And why not ask for interest in the first place if there is a value to the client in the transaction? Secondly by saying that the model is dependent upon the indebted nature of the client you are fundamentally closing any doors of a social enterprise with the client base. Is it a crime to make money when the transaction helps the other end to do well at the same time?

Savings need to be created by the loan seeker through his enterprise.And thats what a lot of people have done

Will be happy to know more about the SEWA model. Didn't get it clearly.

Government is corrupt but there are bodies like RBI, SEBI which have done commendable work in regulation in the financial sector space which has been much lauded internationally as well. So I disagree on your perspective of inability of government. There is a constant denial of possibility of govt to do anything worthwhile which i find strange.

Saw your PR and laud it as an initiative to look at agriculture through a different vein. To give the respect to environment which is our cardinal responsibility. This is what brings me to your blog as well. But I couldn't see a viable economic model for a mass of population.

csm said...

m - prefer some data/reports from independent sources rather than industry captains.

why scalable model?
from all these exchanges, you would have gleaned my thoughts on scale.
i think scale is self-defeating.

lets agree to disagree on the efficacy of governments.
the most effective government is one which becomes irrelevant. you could read this article -

you may find it strange, but we need not agree on everything, right ;-)

and pR is just not an attempt to look at agriculture differently, it is to look at living itself differently. and that encompasses all aspects including agriculture and economics.
it will take some years to get to cover these aspects. as food sufficiency is top of priority, our current activities are all around agri.

csm said...

mayank - came across this article. obviously this contours well with my stance.