In India and many other developing countries, programmes for the poor rely chiefly on the initiatives of the government, voluntary groups, and funding agencies. The targeted sections of society, however, remain passive, often sceptical, and sometimes even hostile. The Self Help Groups (SHGs) of women drawn from poor households, which came into being in the closing decades of the last century, heralded a new trend of the poor taking the initiative themselves, and the concept met with remarkable success.
Maybe, there have been such initiatives earlier, but none comparable to the SHG movement in its geographical spread, coverage and sustained performance. In terms of membership and the volume of deposits and loans disbursed, the figures are very impressive. And the SHGs' record of loan repayment is excellent.
Modern moneylenders
More recently, the entry of what are referred to as microfinance institutions (MFIs) added a new, but arguably murky, dimension to this idyllic picture. They differed from the SHGs in several respects. The strength of SHGs lay in their small size and compactness, which made for better cooperation and peer pressure — virtues that helped them to be active and viable. On the other hand, MFIs operate more like modern moneylenders, liberal in giving loans but coercive in loan recovery where borrowers fall behind the repayment schedule.
The book under review traces the MFI story, including the crisis that engulfed the sector in the last few years. This indeed has been a painstaking venture, given the inadequacy of data and the secretiveness of the operators. The author, Ramesh Arunachalam, who has had a long association with the SHG movement and the MFIs, argues that the crisis was inevitable.
And the reason, according to him, is that the MFI operators were after quick profits and that they hardly perceived themselves as promoters of inclusive growth, helping the economically disadvantaged but potentially capable sections to get out of the poverty rut. He says it is this profit-milking strategy of the MFI operators that led to the current crisis in the microfinance sector, and neither the SHGs nor the poor are hardly to blame.
It is possible that Arunachalam's story has been shaped by his palpable hostility towards the MFIs. But considering the seriousness of the crisis in which they are embroiled, I feel that he needs to be heard with the utmost attention and patience. Arunachalam says that the “artificial burgeoning growth of some MFIs [is] caused in a significant measure by multiple lending, ghost lending, fraudulent transactions and the like [to show] abnormally high profits to attract equity at higher valuations and build wealth for their stakeholders through various means including IPOs … they have created a new set of intermediaries using harsh measures to force the poor women/men who fail to repay their loans.” He cites an instance where an eight-year-old girl was kidnapped. The mother did not eat for three days until the girl was released. And the irony of it all is that the lender was a registered microfinance company that claimed to work for fighting poverty, with accent on “women's rights and empowering the girl child”; the job of recovering the loan had been informally outsourced to a local money lender; and the moneylender who had the girl kidnapped was a woman!
While it will be unfair to tar all the MFIs with the same brush, the very fact that there are some bad elements clearly indicates that the MFI sector needs to be cleaned up urgently. The unscrupulous ones have to be weeded out and the microfinance sector should be kept healthy in the interest of sustained inclusive growth. The author has provided a regulatory framework for the MFIs and, coming as it does from one who has had long years of experience in the field of microfinance, it merits serious attention and close study by all the stakeholders.
Regulatory framework
I will close with a rider. In any transaction between the poor and the influential elite, the former would be vulnerable to exploitation and malpractices. Any institutional mechanism or scheme aimed at safeguarding and promoting the interests of the poor, like the framework proposed by the author, will be of help only if the targeted groups are organised and have political visibility and clout. As things stand, the poverty alleviation programmes operated by the government — such as the Mahatma Gandhi National Rural Employment Guarantee Scheme and the Public Distribution System — with the stated objective of reaching out to the lowest of the lowly are not effectively implemented. As a result, the targeted sections do not get the benefits they are supposed to. It is the neglect of this aspect that has repeatedly frustrated India's strategy for human development.
