Microfinance & Self-Help Groups: 101 (and a bit about Goa)

As six months winds down, and I find myself reading my colleagues’ final blog posts in the days before returning to Canada, it is perhaps fitting to talk about what I did in India all this time. (This seemingly would be a more logical first blog post topic, but I clearly missed that boat in the beginning.)  My apologies for the gross over simplification of the topic.

Tailoring

First – the macro-context.  Globally, more than 2.5 billion adults do not have a formal account, most of them in developing economies.  Currently, over half of India’s population is without basic financial services (such as credit, savings, insurance, money transfer, etc.) – and only 58% of the population has deposit accounts; less than 20% have insurance coverage.  Further, there is great spatial inequality: rural areas account for only 9.2% of deposit amount, while metropolitan areas account for 56.9% of deposit amount.  Similarly, rural areas account for 9.6% of outstanding loan amount, while metropolitan areas for 60.4% of loan amount.  Yet 68.8% of India’s population lives in rural areas.  Additionally, while 93% of all jobs in India are in the informal sector, almost all the credit goes to the formal sector. 

Second – Microfinance 101.  Given the lack of financial inclusion through formal channels, microfinance fills a certain void.  To most, microfinance means providing very poor families with very small loans (microcredit) to help them engage in productive activities or grow their tiny businesses.  Microcredit came to prominence in the 1980s, although early experiments date back 30 years in Bangladesh, Brazil and a few other countries.  The important difference of microcredit was that it avoided the pitfalls of an earlier generation of targeted development lending, by insisting on repayment, by charging interest rates that could cover the costs of credit delivery, and by focusing on client groups whose alternative source of credit was the informal sector.  Traditionally, microfinance was focused on providing a very standardized credit product. Yet the poor, just like anyone else, need a diverse range of financial instruments to be able to build assets, stabilize consumption and protect themselves against risks. Thus, we now see a broadening of the concept of microfinance, to include a range of services such as credit, savings, insurance, etc.

Artisan livelihood in the village – pottery

Third –the Great Microfinance Debate. While microfinance has helped many, not all is rosy.  Microfinance is linked to an assumed entrepreneurial spirit – but who is to say all poor people are entrepreneurs?  Andhra Pradesh hit a particularly bad microfinance crisis in 2010, related to a wave of suicides caused by serious over-indebtedness (for some Economist assessment and opinion, see this post).  Dr. Milford Bateman is a critic of microfinance as the development community’s darling and neo-liberal solution to poverty, placing much of the onus on the poor to help themselves (asking “Have we reached the end of the road for microfinance?” in his book and this presentation).  The problem seems to be of profit-hungry individuals and institutions that have rapidly increased the supply of microfinance, resulting in huge individual over-indebtedness and aggressive loan collection techniques. 

Self-help group meeting

Fourth – Self-Help Groups. So where is the happy middle in this seemingly grim and complex tale?  The 1980s saw the emergence of women’s self-help groups (SHGs): a small group of 15 to 20 members, voluntarily formed and related by affinity for a specific purpose, whose members use savings, credit and social involvement as instruments of empowerment.  The idea is that an economically poor individual gains strength as part of a group; and financing through SHGs reduces transaction costs for both lenders and borrowers (a common problem is that many banks do not find it financially viable to open branches in remote areas).  In turn, in Andhra Pradesh SHGs are organised into federations at various levels, to give them greater influence and strength.  Nonetheless, that is not to say that SHGs are not without their own problems (e.g. taking low-/no-interest loans subsidised by the government and passing them on to even more desperate women/families with interest).  Further, certain vulnerable and marginalised social groups – such as rag pickers or domestic workers – are largely not enrolled in SHGs.

Village livelihood activity – knife making and sharpening.

Fifth – my work.  Going back to the question of whether all the poor are entrepreneurs – the answer may be no; but they can still undertake livelihood activities to improve their conditions and repay their loans.  A loan won’t do much good if the recipient can’t design a business plan or access markets (with branding, marketing, customer base, physical space), etc.  APMAS, the organisation I am working for, seeks to build the capacities of women working toward the vision of a sustainable self-help movement in India.  So I have been working on a livelihood mapping and assessment toolkit of women in self-help groups, whereby we use different tools to map and understand the current livelihood activities (how they are undertaken and the associated challenges), and what are the possible spaces for intervention.  So what happens when I go into the field?  Mostly we try to test the tools by conducting focus group discussions, household interviews, key informant interviews, livelihood ranking matrices, etc. and modifying the various steps and tools based on our experiences.

It is not an easy field to work in, and has stirred some mixed feelings speaking to various women – some of whom are concerned about their debt, while others are doing well with their loans.  So what a surprise: one size doesn’t fit all, and development isn’t so straight-forward after all.

Goa

For my final weekend in India, I went to Goa – truly a beach paradise on the Arabian Sea.  A few months back a non-resident Indian threw out a comment that every few months he just has to go to Goa to ‘stay sane in India’.  While at the time I brushed off this comment, I now understand what he meant.  Goa isn’t quite like the rest of the country – for starters, it was under Portuguese rule right up to 1961 (while the rest of India gained independence from the British in 1947).  The architecture is a little different, and churches can be seen everywhere.  But more than that, it is a very popular destination for foreign tourists (particularly Russian; there are even direct Moscow-Goa flights).  Besides relaxing activities by the beach (including swimming, kayaking, boat rides, etc.) it stands as a truly restorative niche where time doesn’t matter and you can let down your guard.  (In other words, on the Goa beaches women walk around in bikinis and nobody bats an eyelash; this is unimaginable in the rest of the country.)  There is fresh seafood (you can watch the nets being brought in, and for dinner select a fish and they prepare it exactly as you want); the best Indian beer I have tasted (that is regretfully not available anywhere else in the country); and stunning sunsets.

The best beer in India – for sale in Goa only

In Palolem, in south Goa, it feels like almost all the buildings are temporary – they are taken down each year for the monsoon, and re-built for the season.  The main reason for this is the complications associated with obtaining building permits for permanent structures.  As a result, it feels like all the shops, restaurants, huts – the whole town – is somehow temporary; and yet they invest in building what can be luxurious huts, and it gives them a certain charm.

And so as India faces typhoons hitting Andhra Pradesh’s coast, and Canada is bracing for the season’s first snow storms – I felt a world away in Goa.  What a fantastic way to finish six months.

Bringing in the fish nets

Goa sunset