Making micro-credit work

Print edition : June 08, 2002

NOWHERE has the potential of panchayat-coordinated women neighbourhood groups (NHGs) been demonstrated so well as in Alappuzha district. It was the success of a 1995 prototype Left-initiated experiment in Alappuzha municipality that led to a similar experiment being conducted in both urban and rural areas of Malappuram district and subsequently extended to the entire State.

At a neighbourhood group meeting in Thiruvananthapuram city.-C. RATHEESH KUMAR

On May 11, over 20,000 members of women NHGs, mainly from eight gram panchayats in Alappuzha and other southern districts, came together at the St. Michael's college grounds at Chertala to reiterate their achievements and take a pledge.

The occasion was the inauguration of a seminar on 'Decentralisation, sustainable development and social security', which was organised by the joint committee of panchayats of Aryad and Kanjikuzhy blocks and the International Labour Organisation (ILO). The seminar was to analyse the weaknesses identified in the decentralisation experiment in Kerala and find ways to take it forward. The ILO will be collaborating with the eight panchayats to design and implement a decentralised social security programme.

The highlight of the first day's session, which was inaugurated by Union Minister of State for Rural Development Anna Sahib M. K. Patil in the presence of Chief Minister A.K. Antony and Opposition Leader V. S. Achuthanandan, was an oath, taken by the gathering of women, to boycott toilet soaps manufactured by multinational companies. Instead they vowed to use and promote the use of a brand of soap, made of pure, locally available coconut oil, produced by micro-enterprises of local NHGs of women.

What the women NHG members were indirectly referring to through their high-visibility demonstration was the conflict between the micro-credit model espoused by international development agencies and the Kudumbashree micro-credit NHG model. (While the model espoused by international development agencies provides the State with a minimal role in poverty eradication and links the provision of micro-finance to NGO-led self-help groups, the Kudumbashree model maintains close links to local bodies and various government anti-poverty programmes.)

An important paper presented at the seminar, 'Women Neighbourhood Groups: Towards a New Perspective', co-authored by Thomas Isaac, Michelle Williams, Pinaki Chakraborthy and Binitha V. Thampi, is a severe critique of the World Bank and the micro-credit programmes that it has promoted through NGOs in several countries. This paper argues that the World Bank is attempting to integrate the micro-credit movement with the globalisation process and transform it into a complementary component of its financial sector reforms.

The paper pointed out that the World Bank's support for micro-credit schemes as a form of poverty eradication and its endorsement by a 1997 United Nations resolution have led to a dramatic increase in micro-finance spending in the world. This required the tapping of international financial markets, as the resources of aid donors were inadequate to meet the demand. This meant that the needs of the international commercial lenders had to be incorporated into micro-credit programmes, which was achieved by ensuring the minimisation of the cost of providing such credit and allowing an increase in the "income" from micro-credit lending (that is, the interest rate).

The paper said that the World Bank identified informal mechanisms of NGOs as the most cost-effective method of providing micro-credit . And that the World Bank argues for an increase in interest rates on micro-credit in the belief that the poor can both afford and are willing to pay commercial interest rates and that they are more concerned about the timely availability of credit than how much it will cost them. This is why, the paper argues, the World Bank opposes subsidies on interest rates and promotes the dismantling of subsidised (and competing) alternatives to its micro-credit model, such as priority sector lending, subsidised credit systems and traditional rural credit institutions.

The result is the emergence of a "micro-finance industry" of the World Bank, along with multinational banks and financial institutions at the international level, lending to national-level micro-finance institutions, which in turn either advance money directly to NGOs or refinance the financial institutions that lend them money. At the bottom of this pyramid are the women self-help groups (SHGs).

"Thus, micro-credit programmes are rendered a profitable venture for international finance capital, while also ensuring sufficient outreach and sustainability in order to make a dent in poverty. Poverty eradication through women SHGs is thus made a profitable venture," the authors said.

The paper points out that the World Bank's prescription ignores the fact that globalisation policies are rendering unsustainable the self-employment activities that its micro-credit programmes promote. For them to be viable, they need to be part of a larger development agenda that includes linkages to product markets, local government programmes and community development, it said.

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