The Hindu Business Line : Beyond credit

On his first visit to India after winning the 2006 Nobel Peace Prize, Mr Muhammad Yunus spoke to a select audience of bankers and Reserve Bank of India officials in Mumbai on his pet theme, "Credit as Human Right". His passionate conviction seems to have affected the RBI Governor where it was meant to, for Dr Y. V. Reddy, perhaps half in jest, remarked on the need for the central bank to consider micro-credit as a human rights issue. That is understandable and perhaps indicates the extent to which Dr Reddy himself feels the need for the poor to get a head-start in what the Nobel laureate described as the "champagne glass society". As the pioneer of the micro-credit concept, Mr Yunus has more than proved his point. What began as a local operation in Bangladesh has spawned a global movement; estimates suggest there are 7,000 micro-credit societies around the world servicing 25 million entrepreneurs most of them women in the rural areas. The central credo of the movement set in stone by Mr Yunus is that lack of credit is the principal cause of poverty and its provision the means of lifting the poor out of it. Whatever its successes in fulfilling this dream elsewhere, it is debatable if micro-credit would serve that noble purpose all on its own in India.

Among the developing countries, India holds the record for the number of planned experiments for poverty abolition. Most worked on the premise that the provision of credit and physical inputs would work their magic. But the Integrated Rural Development Programmes had a mixed record in creating successful enterprises in rural territory; and priority sector lending diktats and their arm-twisting cousin, the loan mela, failed where the usurer succeeded. Many blamed the lack of collateral, and now view the micro-credit system as a workable alternative. But enterprise needs context. It is the disabling environment that surrounds the poor and the socially deprived — women, Scheduled Castes — that often puts paid to the best development plans. In India's case, gender inequality runs through even caste inequality and both constrict the world that micro-credit beneficiaries have to break through. For Mr Yunus credit empowers but so long as women continue in the self-enclosing milieu of the village, the micro-financed enterprise will face extra-economic threats to its scale.

Cities offer an enabling environment by keeping all economic transactions relatively free of social prejudice. Markets — demand and supply — determine exchanges; that explains the massive migrations to cities from villages. While working on micro-credit channels, policymakers need to understand that what makes the city tick for the rural poor is its value-free ethos. Doing whatever it takes to create such an environment in the rural areas could go a longer way in alleviating poverty than a fistful of rupees.

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