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Saturday, Jan 05, 2002

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Microcredit: Globalisation unlimited

Sudhirendar Sharma

IT is a two-edged sword. While it supposedly takes the rural poor into a new domain of economic freedom, it keeps the corporate sector hopeful of exploiting this freedom. It helps the formal banking system shun its prime task of extending credit to the rural poor, but provides the necessary refuge to politicians from uncomfortable questions about generating jobs for the unemployed. It is a sword conveniently wielded both by the donors and the governments to create an illusion of freedom, growth and development. Considered a panacea for poverty eradication, micro-credit is the current buzzword for economic emancipation.

All-round thrust on promotion of self-help groups, the most basic form of micro-credit in the rural areas is, indeed, bewildering. While the Prime Minister has given a clarion call to the industry to join the movement, Chief Ministers are openly encouraging the corporate sector to make the best of this opportunity. Speaking at the World Economic Forum in the capital, the Madhya Pradesh Chief Minister, Mr Digvijay Singh, invited foreign investors to invest in the State.

Highlighting the numerous economic reforms being implemented in Madhya Pradesh, he offered the added incentive of newly created 12,000 micro-credit societies being at the industry's disposal for sourcing consumer products. "We are in dialogue with consumer majors such as Hindustan Lever and Godrej to tap this immense resource for the mutual benefit of both," Mr Digvijay Singh said.

Clearly, this will benefit the State, not the poor. The modus operandi is simple but elusive. By helping private sector make inroads into the rural market, the Government creates an illusion of additional job opportunities at one end and diverts the community's attention from their pressing needs, at the other. In Andhra Pradesh and Tamil Nadu, where the self-help group model is reported to have worked, the rural poor seem to be less demanding in their immediate needs.

Reflecting on his experience of working in the World Bank's Swashakti Project in five States, a grassroots development worker from Himachal Pradesh confirmed that "... the entire phenomenon of self-help groups has been created to kill women's collective desire to struggle against the unjust political system." While this trend of blunting people's creative conscience needs detailed investigation, clearly that for political forces it is a significant gain that cuts across party lines. No wonder, therefore, that unlike other issues, there is a broad political consensus on economic reforms among all political parties.

Consequently, the Union Rural Development Minister, Mr M. Venkiah Naidu, is upbeat about the Government's resolve to see the number of self-help groups swell to 1.4 million in the next three years, ensuring that the Prime Minister's plan of forging public-private alliance for rural development is on a firm footing. For the industry going through a lean patch, such an offer `on a platter' could not have come at a better time. Curiously, such MNC giants as Hindustan Lever, the ITC group, Philips have already made a beeline to the rural areas, eyeing a consumer base of over 600 million people.

Andhra Pradesh, Madhya Pradesh and Tamil Nadu that have accessed massive World Bank credit on the one hand and created an environment for bilateral donor assistance on the other, play host to such initiatives by the industry. It is now an established fact that through its lending mechanism, the World Bank introduces sector reforms towards privatisation of social services in the developing countries. At the behest of the World Bank, privatisation of water utilities has been successfully engineered in several developing countries. Once the seeds of privatisation are sown, it is then left to the bi-lateral donors to give the process a much-desired continuity.

For States facing a resources crunch, corporatisation of rural markets is a win-win proposition. While the corporate sector builds on the firm foundation of SHGs, political parties gain corporate patronage. Hindustan Lever has successfully encashed on this by pushing its consumer products in the rural areas of Nalgonda district in Andhra Pradesh.

Buoyed by the success of the AP experiment, ITC has taken the Internet route to create rural markets. Following its initial success in three states, ITC's e-Choupal (meeting ground) is now being expanded to cover 11 more States. The list of such innovative initiatives to woo the rural poor is only bound to grow. Can the corporate sector that thrives and grows on profit be expected to help the poor?

Bangladesh, which pioneered the micro-loan idea in 1976 by founding Grameen Bank, helped Motorola create a market among the poor. Else, the mobile phone company would have never dreamt of reaching the poorest in the world. It is not as if micro-credit made it possible for the poor to buy cellphones. On the contrary, micro-credit has pushed rural households into heavy debt. Recent research indicates that Grameen Bank allows several types of credit for one household at a time, making it easy to repay one loan with another. However, in the process the poor get trapped in a debt-cycle.

Once the poor become "credit-worthy", a number of lending institutions will create a web of soft-credit options. With an expert committee set up by Nabard having already observed that the demand for rural short-term credit is likely to be Rs 280-Rs 860 crore every year for the next five years, the number of institutions vying for the slice of this cake are bound to increase. The case of Bolivia gives credence to this hypothesis. The growth of micro-loans institutions in Bolivia has increased the number of loan defaulters. Though their repayment record is still better vis--vis banks, the number of bad loans is rising alarmingly. Currently, the loan default rate is 11 per cent — almost double, compared to the banks there. But with 337 micro-loans branches across the country, it is easy to raise collateral to make repayments. However, such easy loan facilities push many borrowers into debt. So, contrary to the belief that micro-loans help reduce the vulnerability of the poor, the reverse is in fact, the case.

Protagonists of the micro-credit movement make everyone believe that what has happened in Bangladesh or Bolivia is unlikely to get repeated in India because the poor in India are not gullible to market exploitation! But non-stop product intrusion through the rapidly expanding electronic media is sure to influence the rural folk.

But over-indebtedness and increased consumption are the risks of micro-credit, and pose a threat to sustained livelihood. Proponents of micro-finance do not sense the impending crisis. For them, micro-finance offers the denied economic freedom to the poor. It is, however, another matter that the entire micro-credit movement is a part of globalisation wherein profit comes first, people later.

(The author is a development analyst with The Ecological Foundation, New Delhi. He can be reached at

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