Bhagyamma and 15 other women were sitting around and talking about how Kalamma was suffering from the last two years. They were discussing whether her drunken husband needed to be chided collectively or boycotted socially or to file a complaint of domestic violence in the nearby police station. Some of them felt that resolution had to be by reconciliation and keeping in mind the need for peace in Kalamma’s family. They also decided to give her Rs.250 for her immediate needs and in passing discussed the savings that they all had collectively made. This was a typical Wednesday evening for them and they spent nearly two hours every week talking about their welfare, problems, health issues, the weather, savings and credit. This was truly a self-help group where they existed for each other and were completely independent of any outside assistance. This group gave them so much – a sense of identity for themselves, a few hours away from home and all their domestic chores, a reason to celebrate their own womanhood and a relative degree of privacy and independence. These two hours each week meant so much for them and the social, economic, and political empowerment that was happening was so subtle and invigorating.
As I was watching them discuss and debate Kalamma’s problem, my mind was drawn to what was happening in Andhra Pradesh over the last many years. A large number of profit seeking micro-finance institutions had extended more than 6,000 crore rupees in loans to millions of women. Many of them were forced to take loans and make repayments and this led them deeper into poverty. Hundreds of women unable to bear the pressure of making repayments have committed suicide. It has become such a large problem that the Government had to step in and begin regulating this industry. All that had happened was, suave executives using technology and huge capital to leverage profit out of these unsuspecting poor, had replaced the local money-lender.
Unfortunately, in our haste to capitalize on the enormous power and potential of self-help, Government and NGOs around the world have reduced it to a mere micro-finance movement. People have forgotten the underlying principle of self-help that is so empowering and filled with dignity and have reduced it to a vehicle providing loans and affecting recoveries.
We need to understand that poverty is an experience that only the poor can relate to. It is the poor who understand the needs of the poor best. They understood their own difficulties, got together to save their money, and with their saved money they would extend credit to the poorest of the poor. The interest they determined was correlated to the paying capacity of the individuals themselves. It was a wonderful mechanism where the poor not only understood their needs, but also understood their paying capacities. They also went beyond mere savings and credit. The finance part was only the excuse and many groups evolved into true self-help groups and provided the members with the psychological, social and political strength that only groups can give individual members. There was very little outside influence or intervention. When Self Help Groups (SHGs) started more than 3 decades ago, they were reasonably community driven and community centric. The loan amounts given out were determined by the absorption capability of the group members. They were not determined by the amount of money the group had. When the Government came into this business a few years ago, they offered a seed capital without considering the group dynamics or the strengths and weaknesses of the participating members. There was no evolutionary process or any training; there was no understanding of what credit was; there was no understanding of what savings could do or not do. All that they thought was seed capital would kick-start an economic process and bring the women and their families out of poverty.
Organized and large-scale micro-finance institutions (MFIs) further damaged this concept of self-help. These people were driven not just by social concerns. They might have started for social concerns, but once they started the process I think they were driven mostly by economic concerns of their own profitability. Recovery became more organized. Interest rates were not determined by the ability of people to pay but by how much the bank needed to get back. While many NGOs were passionately committed to the social benefits, the present breed of MFIs is trained to run these institutions on business principles.
Self Help Groups operated not on the ability of its members to repay but on the ability of poor to use the credit for generating more wealth to get out of the poverty trap, and kept the interest rate such that it did not become a burden. They did not lend money to make profits from the interests. They lent money to get someone out of poverty. Whereas the MFIs give out loans with the focus being on recoveries rather than on what the poor can do with their loans. These agencies have interest rates of 40-50%, which to the poor looks smaller than the 100-120% they would otherwise pay to the local money-lender.
Today we have International MFIs who are actually going to public to raise funds exactly like a private company raising funds. Raising public funds means paying out dividends and this forces one to charge large interest to not only cover their own operating costs but also give them sufficient room to make large profits and pay it out as dividends to the investors. The poor in this entire operation is a mere statistic rather than an inclusive participant seeking to get out of the poverty trap.
One understands the need for a large influx of capital into the rural areas to kick-start the economy. But then they need to be socially conscious MFIs with the ability to look at the larger picture and go beyond mere finance. We need to have a hybrid solution wherein the small and local self-help group operates with the benefit of easy access and availability of credit that tie ups with larger MFIs can provide. They need to build on the strength of sitting together in small groups, discussing their problems and find contextually relevant solutions. Not just for their financial problems, but also for their everyday local issues. The way micro-finance is designed, it is limited to only look at economic empowerment and its spinoffs. The empowerment process that happens in SHGs is much more complex, much more multi-dimensional, and follows an ecosystem approach.
What the micro-credit movement needs is to go beyond being unidimensionally focused on just money. It needs to look at the power of communities – of community engagement, community ownership and community centricity. What we need is the members determining the rates of interest, determining whether the loans are for consumption or production, determining the amount of wealth they can absorb or need. We also need to empower people with the training and the tools. One needs to ensure that the technology that is brought in does not exclude the poor and is something that the women can handle. True self-help is when the women are made the drivers of change, the owners of the groups that they run, and take responsibility for the development that determines how they live and cope with the challenges of poverty. This can happen only when it is a community-driven process and not external agency driven. The micro-finance industry is just the body, they need to get a soul and transform into a true self-help movement.