Putting all fraught images (however problematic or trite) of the ‘relief worker’, the ‘aid worker’, or the ‘humanitarian’ to the side, it is a very stirring experience to sit with Indian villagers and discuss with them their day-to-day trials, and for them to be so open to the possibility of your helping them. At least, that’s how I feel today.
During the peak daylight hours I journeyed with Kannan Arthanari, one of CMF’s liaisons here, to a KGFS branch in the thankfully-breezy village of Alakudi, a thirteen minute train ride outside of Thanjavur proper.
From what I understand, experience in ‘development’ is practically consonant with jadedness. Development work (still not really sure what this is) might be in large part a meditation on limits — at first increasingly rigorous, then increasingly frustrated, finally, increasingly facile. These limits demarcate what can be accomplished or changed in a human environment, what people can or should be asked to change, and what results, if any (and if anticipated), can be expected in a given time frame. The more experience one has in this industry, the more clearly one can see the limits of what is possible. Burn-out, or at least chronic, low-level, emotional smoldering, seems an abundant phenomenon.
Putting that aside, and bringing into the open my personal suspicion that in no time at all this entry will read like the most naive, worthless rambling put to pixel in this young blog’s life, I am going to write about my first field-week in microfinance.
Increasingly in the last decade, microfinance has assumed vogue status in the world of development, which seems, from where I stand right now, to be a very trendy place. Since its beginnings in Bangladesh with Muhammad Yunus and Grameen Bank (no relation) in the 1970s, microfinance has been noted for its apparent (and apparently remarkable) sustainability and its potential for ‘breaking the cycle of poverty’ — to such a degree that, today, it’s regarded by the lay observer as a panacea of sorts for the problems that people (particularly women) face in the developing world. In an example of this somewhat hazy, generalized praise and admiration, Obama’s speech in Cairo the other day, which laid out a whole bunch of the vaguest proposals of collaboration, included a quick reference to the ‘power’ of microfinance, as though its acknowledged potency constitutes of a kind of trump card in the game of development:
the United States will partner with any Muslim-majority country to
support expanded literacy for girls, and to help young women pursue
employment through micro-financing that helps people live their dreams.
The logic underlying microfinance goes something like this: poverty is bad and self-perpetuating; if poor people have access to financial services, maybe they can break out of the ‘poverty trap’; but, it’s risky to give credit to the poor because they can’t supply collateral so a client’s defaulting leaves a bank in the lurch; still, there’s huge demand for financial services among the poor everywhere that they know about the possibility of financial services, and this could be a really big new market; if we charge high interest rates and take other precautions, maybe we can bank these people in a sustainable way; maybe we can even help them get out of poverty.
In India, as elsewhere, much microfinance has involved the provision of credit through loans. In the most-traded, stereotypical diegesis of microfinance-in-action, a poor villager wants to start a business, but — in the course of his (or, more likely, her) day-to-day trials — can’t put together the start-up capital. If this villager could just have a small nest-egg at his (her) disposal, he (she) could start a lively business that brought greater financial welfare to his (her) household, enabled him (her) to pay back the loan, and basically made everything peachy.
As you might imagine, it doesn’t exactly work that way. Current research suggests that (while borrowers are generally able to pay back loans, and default is rare,) the impact of microfinancing is not always discernible.
For their part, the women in the JLG (joint liability group; a group of people that takes a loan together and guarantees one another) we spoke to in Alakudi, while they have never defaulted and have always paid back their principle and interest (usually around 12%) on schedule, have had outstanding loans since the day they first took a loan, and they imagine that they will have loans for the foreseeable future. They are not starting entrepreneurial ventures that ‘break the cycle of poverty’; rather, they are trying to regulate their financial situation in order to brace against the stresses and insecurities of poor, rural life. Loans, in this sense, are being used by borrowers to mitigate the effects of financial shocks — deaths, droughts, other bad things that put unforeseen (though hardly unfamiliar) strain on a poor household. As you can see, credit might not the best way to accomplish this complex task, though for these women, borrowing has become something of a habit — maybe even an addiction.
This is where microinsurance and microsavings might come in. Microinsurance shemes with incredibly small premiums can theoretically help people deal with unfortunate events like crop failure or a family member falling sick. (I don’t really know enough about microinsurance schemes to say anything about how they measure up; more on this will follow I hope.) Meanwhile, savings products (like, most basically, a savings account; in our case, a mutual fund) could in theory ably fulfill the twin function of buttressing the household against shocks and building capital for a business venture of some sort down the road. Instead of having to pay interest on their loans, poor households could accrue interest on their savings. (The potential need for microsavings is made more urgent by the fact that in plenty of places, poor people who want to keep their money safe must pay interest to do so, ’saving down’ instead of ’saving up’; this is common with a money lender, for example; see Nicholas Kristof’s blog entry from last week, which discusses the need for savings products in microfinance in the teensiest detail and further hints at what a fad all this is.) Moreover, by offering savings products, MFIs — which are usually non-profits — could raise some capital from clients instead of having to find all capital elsewhere.
Sounds promising, right? Of course, there are a ton of considerations that affect the viability of savings products. But this much is clear: the women we spoke with in Alakudi have heard about the nascent savings product through talks with the WMs (Wealth Managers) at the KGFS branch in the village. And they want it.