It was the year of flood and famine in Bangladesh. In 1974, just 3 years down the line from the year of the fight for Independence – a bloody war that claimed and maimed lakhs of families, Bangladesh had yet again to brace itself up for another fight against a calamitous flood.
In Chittagong University, right at that point of time, a Fulbright scholar and a graduate alumnus of the globally acclaimed Vanderbilt University of the United States of America was teaching Development Economics. Little did Muhammad Yunus know that his teaching stint at that university would be so fateful that it would earn him the Nobel Peace Prize decades later in 2006.
His transmutation from an academic into a social entrepreneur started in that year from a $27 dole to a group of women. These women were into making bamboo baskets and lacking economic muscle as they did, were exploited. Their products were underpriced. With the flood and famine, they were pushed into dire straits. The money from the young professor provided them with capital to build their business on and overcome the calamity.
This incident set Yunus thinking and he initiated a movement that saw the emergence of the famous Grameen Bank -- now a global model for fight against poverty. Like many other countries, including the developed ones, India too took to this model of microfinance for cutting the vicious cycle of poverty. The basic tenet is simple. Yunus proposed that poor people are forced to meet challenges every minute of their lives to survive. What is enterprise but this?
If we accept this tenet, given access to capital by way of loan and binding them to the commitment of repaying it, we will be able to create micro-entrepreneurs, he argued. These entrepreneurs, in turn, would create direct and indirect employment even in remote villages. He further argued that any economic model to succeed in alleviating poverty must be self-sustaining. And that can only happen if the model itself doesn’t depend on dole or subsidy.
The success of the Grameen Bank model started attracting policymakers and social entrepreneurs from other countries. Economic models focused on addressing the issues of poverty started to internalize the Yunus model in various hues and forms. India too, was not far behind.
Indian non-government organisations were the ones that saw merit in it and emulation started almost soon. For a very long period though the organisations operated without a comprehensive regulatory framework. It was only in 2011 that the first attempt at evolving a set of regulations for microfinance organisations started.
With the model now having taken a firm root and given that the policy focus in the alleviation of poverty has zeroed in on the creation of micro-entrepreneurs, the task of delivery has now squarely shifted to the industry. The industry has risen to the mandate.
It must, however, be said that in India the task is herculean. In most countries, microfinance organisations do not have to deal with as much diversity as we do here in India. With so many languages and so many customs evolving a homogeneous penetration, model is in itself a challenge. The engagement model that would work in West Bengal may not work in, say, Arunachal Pradesh. Therefore, the industry has to continuously keep tweaking its strategy as it evolves and spreads over territory to sync its penetration model with the local parameters.
Before getting back to the theme and its elaboration to explain the success of this industry’s efforts in keeping up with the mandate of creating micro-entrepreneurs, let us talk about our associated mandate. The microfinance industry is not only tasked with reaching out to the people, but it is also given the mandate of spreading financial inclusion. Financial inclusion involves creation of financial awareness and easing access to funds.
The task of easing access to fund is a more quantitative issue and can be thought of as a comparatively greater homogeneous task of deployment. In the context of our country, given the diversity, the creation of awareness requires location-specific strategies. Creation of awareness in the context of micro loans involves making the customers learn the trick of fund deployment and making it productive.
One needs to understand that at the level of economically struggling segment how difficult it is to deal with culture, immediate needs and future gains. They have never had the opportunity of looking at the future and their enterprise has always been focused on tiding over the challenges of the moment. Add to that the issue of local culture and language and one begins to understand the enormity of the challenge that the mandate bestows on the industry.
Then, of course, there is the issue of making them understand the onus of joint liability. As we all know, the addresses in our industry have no asset to pledge. The major reason why they have had no access to organized finance was this. Yunus cracked this challenge by creating group liabilities. The major issue in loan creation is getting it back with interest. The mortgage is insisted upon so that should there be a failure in repayment the mortgage asset will be called in.
In the case of the group liability, should a member fail in repayment, the onus devolves on the group. The logic here is that each member is beholden to the group and, therefore, there is a continuous group pressure on a member not to stray. Group dynamics, therefore, plays a huge role here. And here again, the nature of the dynamics varies across localities and regions due to a difference in customs. But what is admirable for the industry is that it has kept to its mandate diligently.
To understand the profile of customers that the industry faces let me blockquote the case of Anamika Panda. She hails from rural West Bengal. She and her husband sustained their family by raring goats. It doesn’t take a huge understanding of the Indian situation to understand their penury. When she approached us, we realised that she understood the issues involved in goat rearing. That was her USP. So why doesn’t she leverage that? That was the trigger. She just had three goats to depend on. With our help, she started expanding her operations. She now has about 40 goats and two cows. She had this to say about her aspirations, “My focus is on educating our children. But before going for a ‘pucca’ house for ourselves, we shall first create the infrastructure for the goats and cows. Till then we will live in our mud house.” This is the determination to prosper that is being created by the microfinance industry.
The industry is also getting into fashioning loans for related needs. As the business of the customers grows, they need subsidiary loans to create the infrastructure that growth brings in its wake. Take the case of Sujata Mullick. One of our oldest and regular borrowers, Sujata had initially taken loans to start making mats and to become financially independent. She, like many others of her ilk, works from home, and a decent isolated workshop within her premises might just be the boost she needs to beef up the production. We had the solution for her in our affordable housing loans.
Other life needs like health are also being funneled through the industry in the form of micro insurance products.
It’s not that these issues are not being faced by the microfinance organisations in other countries. What I am saying here is that in India, given the greater diversity, the challenge to deliver to that extent is more intense. But the industry has kept to the challenge. Witness the latest statistics contained in Micrometer – a Microfinance Institutions Network publication. It says, compared with the last quarter of the FY18, NBFC-MFIs’ portfolio has grown by 42 per cent, SEBs by 25 per cent, NBFCs’ by 59 per cent and other MFIs’ (including non-profit) by 30 per cent in the last quarter of FY 19. Each growth signifies spread of the network and delivering its mandate of alleviating poverty. The point to note here is that the network has kept its promise of sustainability and the goal of feasibility no matter what the obstacles are.