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Micro gain, mega hype

By Laxmi Murthy

Micro-credit may offer some women the initial boost for sustainable self-employment, and in some instances enables them to question gender and caste subordination. But at a time when macro-policies are eroding smaller scale markets and promoting large-scale export-oriented production, which is out of reach of rural women, the power of micro-enterprises to lift women out of poverty becomes exaggerated

If ever there was a mantra for poverty reduction, women's empowerment, development, and economic growth all rolled into one, micro-credit has been presented as one. So far touted as a one-stop solution to several ills, the glitter on the magic wand may just be dimming, even as the reality of micro-credit can no longer be hidden behind the hype.

Variously referred to as micro-credit, micro-finance or self-help groups (SHGs), the essential principle is the same: extend small loans to women organised into small groups, and make the groups responsible for repayment. Women will use this seed money, it is surmised, and they will find ways to climb out of poverty, or at least make life a little better by investing in their own skills, in small businesses. Pioneered in 1976 by Muhammed Yunus and his Grameen Bank, the Bangladeshi model soon caught on in India . By the 1980s, millions of households, especially in rural India , were accessing micro-credit, and today thousands of NGOs and branches of over 500 banks are involved in micro-credit.

The major spin-off of the micro-credit movement at the grassroots level has undoubtedly been the fact that women have used this system to enter mainstream activity and public life in rural India. In many areas, particularly where there has been support from NGOs or strong SHGs, women have gained a voice and been able to use this space to emerge from their traditional roles into a more "proactive" male space. In many instances, gender and caste subordination has also been questioned.

Yet, it is difficult to gauge the actual "success" of micro-credit programmes. Despite the spread of micro-credit programmes and their growing popularity with policymakers and NGOs alike, hard data is somewhat lacking.

The main benefits of micro-credit claimed by proponents are a reduction in poverty, an increase in consumption among the poor, and empowerment of women. But there is little standardisation across studies on definitions or measures of "success". The definition of "poverty", and especially "reductions in poverty", tends to vary from study to study. "Women's empowerment" is another very nebulous term. Many terms and processes are redefined on an ad hoc basis in each new study, and a bulk of the literature on micro-credit appears to be in the stage of observation and anecdotal evidence.

Moreover, much of the 'success' in loan repayment can be attributed to dubious accounting systems. In 2001 itself, long before Yunus received the Nobel Peace Prize, experts in the micro-finance industry expressed their dismay: "Grameen Bank had at best been lax, and more likely, at worst, deceptive in reporting its financial performance," wrote J D von Pischke of the World Bank.

Downside of micro-credit

Though touted as a viable livelihood option for women, one of the most fundamental problems with micro-credit programmes is the difficulty involved in actually turning a profit on the loans. Rather than invest in commercial ventures, numerous field studies have found that the loans are often used to meet daily consumption needs and for emergencies like accidents, ill-health and death. In such a case, far from being the launching pad for entrepreneurial ventures, the SHG merely replaces the exploitative village moneylender.

The chances of a female-headed enterprise succeeding at all are often quite small in situations where women do not have access to, or even less, control of markets. In fact, as micro-credit programmes become more successful and disburse more loans, a greater number of people enter the local marketplace as micro-entrepreneurs, thus increasing the competition in a limited arena with limited absorption capacity or marketing infrastructure.

Indeed, micro-enterprises are prey to the same vulnerabilities as the informal sector, being located very much within the framework of unregulated labour and marketplace. The cumulative effect of rising costs, declining demand, and competition from both cheap imports and increased entrants into the sector leads to shrinking profits in informal-sector trade. Typically, small businesses undertaken with micro loans tend to be traditional "women's work", such as making agarbattis , candles, or papads; or weaving, sewing or poultry farming, which is not seen as fit for men to do. This leads women to rely on their children for supplemental labour, which could have the unintended effect of keeping children, especially girls, out of school so that they can help contribute to the family income and pay off the loan. In fact, a recent World Bank study by S Khandker reports that, "self-employed activity financed by a micro-credit programme may facilitate child employment".

When macro-policies are eroding smaller scale markets, and promoting large-scale export-oriented production, backed by aggressive commercial advertising and corporate financial backing which are out of reach of rural women, the power of micro-enterprises to lift women out of poverty is highly exaggerated.

One of the most disturbing aspects of micro-credit is cross-borrowing, leading to a spiralling cycle of debt. If the investment does not yield dividends, the money to repay the loan must come from reduced consumption or borrowing from some other source, usually on more stringent terms. Women take loans from village moneylenders at exorbitant rates to pay off loans from SHGs. Once on the treadmill of debt, the women borrowers cannot stop running. This is indeed ironic, in a programme that would like to see itself as a more progressive/respectable alternative to the existing usury arrangements of informal credit which could be exploitative, such as share-cropping, debt bondage, and so on. Reports of women in Andhra Pradesh committing suicide due to stress over repaying a micro-credit loan point to the need to look into this aspect more seriously.

One of the cornerstones of micro-credit -- peer-driven loan recovery -- hits at the very roots of community living. When group members are forced to put pressure on a defaulting member, lest they be deprived of a loan, the social conflict generated makes marginalised groups even more vulnerable. With "penalties" for default ranging from special boycott to "confiscating" chickens or household items, loan recovery becomes a serious business.

Another problem is capture of loans by male relatives. In some cases, male relatives use female borrowers as fronts to get relatively low-interest loans. These loans may or may not be used to benefit the family, and the female borrowers rarely see any benefit at all. And yet, the women are held responsible for repayment of the loans.

Who benefits?

In the rapturous hype over micro-credit, one crucial question begs to be asked: since a majority of people have neither the skills nor the inclination to be entrepreneurs, why is there a seeming boom in micro-enterprises? It has been clear for decades that the informal sector is a receptacle for the victims of the failure of the formal sector. So one must look at the other side: micro-credit offers brisk business to financial institutions.

For, it is the business aspect of micro-credit that reveals what these programmes are all about: a low-cost, non-threatening substitute for real people's movements for agrarian reform, and State-sponsored investment in infrastructure, healthcare and education.

A decade ago, a global campaign to extend credit for self-employment to 100 million of the world's poorest families by the year 2005 was launched at the three-day Micro-credit Summit in Washington , DC , in February 1997. Organised by RESULTS Educational Fund, a US-based non-governmental organisation, this summit was supported by the World Bank, International Fund for Agriculture and Development, and transnational banking institutions like Citicorp, Chase Manhattan and American Express, among others. It is no coincidence that international financial agencies have expressed an interest and put their stake in micro-credit. It is a profitable business -- a fact that must be kept in mind in the midst of platitudes about women's empowerment, alleviating poverty and other such good intentions.

Moreover, micro-credit interest rates are high, usually at least 20% or higher with commercial banks now into the business. NABARD, back in 1997, declared that it was a "myth" that the poor wanted credit at low interest rates. Claiming that the poor wanted timely and adequate credit, and were willing to pay high interest rates for it, even the public banks allowed the market to determine the rates of interest, which were invariably high.

Loans may be adequate to produce some income, but not to change significantly a family's environment. The illusion of "development" offered by small improvements in consumption tends to lower people's expectations of their rights as citizens. With low capital intensity of investment and the resultant low margin of profit, there is no significant savings for borrowers. The treadmill of investment in micro-enterprise, which is all that micro-credit allows, is hardly likely to change the face of poverty, as the votaries of micro-credit claim.

To re-phrase Yunus' rather presumptuous declaration: "One day our grandchildren will go to museums to see what poverty was like," (quoted in The Independent , May 5, 1996 ), perhaps our children will have to go to a museum to see what social welfare was like.

The tendency to attach programmes of education or healthcare to micro-credit programmes further takes away from people's fundamental right to healthcare and education. The trend to link micro-credit programmes with the commodity market controlled by multinational companies also reveals the not-so-hidden agenda of increasing market penetration, for instance, linking micro-credit loans with purchasing certain seeds or pesticide. It is difficult to suspend scepticism when Muhammed Yunus' diversification into the cell phone business (Grameen phone in Bangladesh ) seems to have contributed to his winning the Nobel prize for peace. The Nobel bid was reportedly solidly backed by a former senior finance ministry bureaucrat in Norway and top officials of Telenor , Norway 's phone company. It is no coincidence that Telenor owns 62% of GrameenPhone, which controls 60% of Bangladesh 's cell phone market. It is also not surprising that Telenor is today reluctant to sell its stake in the lucrative GrameenPhone, and allow it to be taken over by poor rural women, which Yunus insists was the original vision.

While micro-credit can undoubtedly offer some women entrepreneurs the initial boost required for sustainable self-employment, caution must be exercised in viewing it as a panacea for structural economic and social problems. It cannot substitute social policy and function as the single strategy to end poverty, caste discrimination, gender imbalance, ill-health and illiteracy. Unless movements for social justice ensure women's entitlement to productive resources, introducing micro-credit programmes alone will bring only micro-gains.

(Laxmi Murthy is a journalist who has been associated with the women's movement in India for over 20 years)

InfoChange News & Features, September 2007