Micro No More

Women's Feature Service, January 16th 2006

For most people, an earthquake merely connotes disaster. Yet for many women of Maharashtra's Sonvati village, it was the Latur earthquake of 1993 that heralded positive transformation in their lives. Indeed, that was when Swayam Shikshan Prayog (SSP) began its microfinance initiatives in their village and in villages across disaster-affected areas of Maharashtra.

Each woman assembled at the self-help group (SHG) meeting in Sonvati eagerly awaits her turn to describe the remarkable change that microcredit has brought into her life. Before SSP began in her village, Serekha Mude says, "I could never leave my home. Not only could I not talk to other men, I was even forbidden from speaking to other women." She began secretly
attending SHG meetings when her in-laws and husband were working in the fields. She initially applied for a loan of Rs 1000 to buy an ice-cream maker, and began a modest enterprise. Today, with a small clothing store, and more pieces of machinery - including an oil-press, mirchi grinder and atta chakki - she has a flourishing business and even employs several people. "Attitudes have changed dramatically. My husband has stopped drinking and beating me, and is proud of the work that I do," she says.

Mude is, in fact, part of a growing tribe of small-scale entrepreneurs from around the world benefiting from the growth of microfinance, a form of banking that provides financial services to those who traditionally have not had access to these services due to social, economic and geographical barriers. From Bolivia to Haiti and Congo to the Philippines, poverty-stricken people - many of whom are women - have been able to improve the quality of their lives due to improved access to financial services through socially-driven microfinance initiatives.

In India, microfinance initiatives have largely been initiated by NGOs that offer financial services - small loans and savings services are the most common - to groups of poor women. (Group models and sizes differ around the world, but in India the most common operating model is the SHG model, in which 15-20 women form a group.) The microfinance initiatives are usually packaged with a diverse array of support services aimed at improving the lives of the women. SSP, for instance, regularly holds awareness-raising workshops on issues as diverse as health, technology and water conservation for its SHG members.

Development institutions have been quick to recognise the importance of microfinance as a weapon against poverty; the United Nations had named 2005 as 'The Year of Microcredit'. Research has found that poor people not only benefit from access to affordable credit, but they also benefit from and value a diverse package of financial services. Through unique offerings -
such as savings schemes and cattle, crop and life insurance - microfinance initiatives in tandem with appropriate social interventions can help cushion the impact of a disaster that would otherwise have the effect of pushing poor people further into poverty.

Microfinance Institutions also differ from mainstream banks in that most specifically target women clientele. Grameen Bank of Bangladesh - the success of which inspired thousands of others across the world to replicate the experiment - has nearly 3.7 million borrowers, 96 per cent of whom are women.

But in a world where men constitute the majority of the labour force, why target women? In his autobiography titled 'Banker to the Poor', Grameen Bank founder Mohommed Yunus writes, "Not only do women constitute a majority of the poor, the underemployed, and the economically and socially disadvantaged, but they more readily and successfully improve the welfare of both children and men."

Indeed, not only are women more successful than men in improving their own lives and those of people around them, they also make for more creditworthy clients. Research indicates that along with being more likely to repay their loans on time, women also build social networks that encourage others to repay their loans.

Leading Indian microfinance institutions Spandana and SKS mandate that all their clients be women. The banks' low default rates and high returns on assets indicate that this is not a bad
strategy. According to Mix Market, a web-based microfinance information platform, in 2005, Spandana reported a return on asset of over 8 per cent - a rate better than that of even some of the most successful global banks.

The prospect of realising profits while providing financial services to the poor is creating a ripple among mainstream financial sectors. Though some decry what they consider to be "profiteering from the poor", more and more mainstream institutions across the world are beginning to dip their toes in the sector as they realise that the poor can be creditworthy and valuable clients who, like the wealthy, also are in need of financial services. ICICI, India's largest bank, has seen its microfinance portfolio outstanding grow from US$ 4.5 million to US$ 227 million over the last four years, and plans to increase these figures significantly over the decade. (United Nations Capital Development Fund, October 2005) Other banks, such as HSBC, Citigroup, and ABN Amro are showing interest. Private equity is also starting to trickle in; last month, private equity investor and Sun Microsystems co-founder Vinod Khosla made an equity investment of US$ .25 million in a Hyderabad-based microfinance institution called Cashpor.

A consensus is emerging that commercial interest in the sector is not only welcome, it is vital if microfinance institutions are to be sustainable, and if microfinance is to truly make a dent in global poverty. Studies indicate that the global demand for microfinance is tremendous; the
Economist magazine (November 2005) estimates there are thousands of crores worth of unmet demand in India alone. It is widely acknowledged that traditional sources of funding - from donors, development and charitable institutions - are insufficient to meet the demand.

More credit availability would certainly be welcome to women like Premila Jadhav, who would like to expand her business. She wants to open a bakery, and has approached her SHG for funds. While adjusting her pallu, she looks thoughtfully at the piece of paper in front of her and completes a profit calculation. One woman explains how she is happy because microfinance has
given her knowledge of the world around her (gyan), while another adds, "I'm grateful to microcredit; it has given me experience and courage."

Though it may not be a cure-all, the twin bottomlines offered by microfinance can only be a good thing for Mude and her sisters.

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Published by the Deccan Herald: http://www.deccanherald.com/deccanherald/Jan202006/she1344202006120.asp