A short note on microfinance

If one takes into account the definition, then microfinance means the provision of broad range of financial services such as deposits, loans, payment services, money transfers, and insurance to poor and low-income households, and their micro-enterprises. There are three types of sources:
1. Formal institutions, such as rural banks and cooperatives;
2. Semiformal institutions, such as non-government organizations; and
3. Informal sources such as money lenders and shopkeepers

The target groups for microfinance are generally marginalised sections of the society. They can be: poor women (widows, Scheduled castes/ scheduled tribes), women having low skill, women who want to start up (in group) with their own small scale enterprises such as soap industry, agarbatti etc. Microfinance initiatives can also target men.

The importance of trust (which is an 'institutional' problem) is of paramount importance in initiatives taken for microfinance. Often peer pressure acts as pressurising element to block the members from theft. However, agencies taking inititatives in microfinance can be more successful if they have taken community outreach programmes. Group discussions/ interface with the community becomes vital to 'know' the type/ kind of 'community' , and their needs. Agencies can start with membership with token amount of donation. Work/ occupational pattern and income levels of the members should be known. Strategizing the goals for microfinance initiatives is vital.

Bank (commercial/ cooperatives)---> NGOs---> Target population (or SHGs)
NGOs (with support from donor agencies)---> Target Population (or SHGs)
Banks (commercial/ cooperatives)---> SHGs

For maximum impact, microfinance initiatives by NGOs can generally be taken in backward areas (rural areas with low per capita income, areas with poor infrastructure, areas with high level of malnutrition among women and children, areas from where emigration takes place due to socio-economic distress, areas where people highly depend on primary sector for their livelihoods, urban slums). Such NGOs can work in co-operation with the community based organizations, political organizations, panchayats, govt. officials (such as District Rural Development Agency) etc. However, chances for effective intervention are high for those NGOs who have been attached to the ground/ grassroots since a long duration. This does not mean that new entrants cannot succeed. For effective intervention, knowing the economic demands and occupation of the community members is of high importance. This can be done by going though group discussions, Participatory Rural Appraisals (PRAs) with the members. Area specific information on human development indicators from census, state Human Development Reports (HDRs), past studies can help in this regard. Instead of facilitating finance linkages only, there is need for building up strategies for social cohesion and empowerment. To prevent defaults, focusing not only on peer pressure but also generating mutual trust and respect is important, in the long run.

Lessons can be learnt from microfinance initiatives taken in other countries like Bangladesh. Monitoring and evaluation of initiatives can be done to check leakages of funds, corruption, and blurring of objectives.

One can go through case studies to know what kind of organization would be effective in microfinance. Some of the indicators can be looked at to cross check the success of microfinance initiative:

1. Reduction in poverty level of the household/ members – movement from a Below Poverty Line (BPL) to Above Poverty Line (APL) household.
2. Rise in real income
3. Gender equality: literacy rate of female members, increase in child sex ratio of the intervened areas.
4. Rise in profits of the enterprises etc.
5. Sustainability of the MFIs in the long run—profits/ capital accumulated; reach of the MFIs etc.

According to researchers, there exists lack of stable medium and long-term credit resources, which inhibit enterprises from investing in the productive and technological conversions for making them competitive. Microfinance can play a crucial role here. In many of the countries from South Asia formal financial system is plagued by inefficiency, ineffectiveness, and market failures. But there also co-exists the problem of moral hazards, which are mostly faced by the banks while lending. It is considered that microfinance institutions should target the poor since they have little or no access to credit and savings. However, the critiques say that microfinance does not have the ability to reach ‘the poorest of the poor’. There exists lack of consensus as to whether reaching the poorest should be ultimate goal of microfinance institutions since reaching out to the poor is a costly affair. The poorest of the poor need small individual loans with flexible repayment schedules, services, which are considered costly by the microfinance institutions. Instead of microfinance, there is need for delivery of basic social services such as food, shelter, and sanitation to the poor, according to the critiques. Microfinance institutions can serve the poor in a better way only when their basic needs are taken care of by either a government service, or international relief and development organizations. Microfinance can serve the women who lack access to credit, skill and information to start up their own businesses. Capacity-building of women is needed before they are provided credit so that they become empowered and fight back gender injustice. According to feminists, the Structural Adjustment Programs (SAPs) initiated by the World Bank and the International Monetary Fund (IMF) for rescuing the heavily indebted countries have adversely affected the lives of women from the third world. SAPs consist of a set of policies and programs that include:

• Severe cuts in government spending to balance federal budgets and reduce debt (both internal and external);
• Restrictive monetary policies created to control inflation (currency devaluations etc.)
• Privatization (de-industrialization) of government enterprises to increase the productivity and efficiency of private sector businesses
• A heavy emphasis on the export sector (agriculture and manufacturing) to foster international balances and increase foreign exchange reserves.

It has been argued by the feminists that poverty alleviation models have overemphasized the importance of private funding and support. A shift has taken place from development as the responsibility of nation-states to development as the responsibility of the global community, including international markets, financial institutions, and private corporations and organizations. Microfinance industry is nowadays governed by the corporate barons and not by the government that relies upon the model of decentralization, self-employment, and individual entrepreneurship. Such a model relies on the strengths of individual women to help themselves, rather than focusing on structural changes in the economy.

I would like to point out some of the problems related to the HIV/ AIDS, as per the literature goes. They are:

(i) Accessiblity (due to lack of income/ reach or distance) and availability (not all hospitals/ dispensaries have) of Anti Retroviral Drugs.
(ii) Trauma faced by the PLHIV (involvement of psychologists becomes important)
(iii) Discrimination and lack of care (including tidiness) shown by the PLHIV 's family members, and the rest of the society. They are often socially ostracised. ('Social capital' is often nil for PLHIV, if one uses Putnam's definition).
(iv) The blame often falls on the PLHIV rather than on the educational system (or the 'value system') of the society.
(v) Often the PLHIV are neglected as they are thought to have a specific cultural background (poor, illiterate, floating population). This tendency is even seen among researchers. Well, that can be good for targeting (for treatment and research), but on the other hand can lead to biasness (as if they are ones who are at the margin, in each and every context). Being 'sensitive' is the challenge. Emphasis on knowledge about precautions can be given more attention.
(vi) Pricing of the Anti-Retroviral Drugs is not discussed in the context of policy making. Involvement of the scientific community, along with the drug manufacturers, govt. and non-govt. agencies is vital.
(vii) Testing for HIV/ AIDS cannot be done in each and every hospital/ dispensary.
(viii) Capacity building in the form of peer to peer (without a third party mediation) discussion in a 'normal' ambience is not given much attention, by the NGOs/ other agencies.
(ix) Introducing sex education in the school syllabi is sometimes taken in a negative mood.
(x) HIV/ AIDS is often seen as a problem of the Western civilisation (this is one of the views that come out in earlier Indian literature on HIV/ AIDS).

Mapping for targeting the PLHIV should be done on the basis of:

(i) Regions (states, rural/urban/suburban/cities). Incidence of HIV/AIDS is quite high in the North Eastern states, Maharastra etc.
(ii) Sex (male/ female). Females are more vulnerable as they have lesser control on their bodies, sexuality ( exception: men having sex with men without condoms) and reproductive choices (in the context of Indian society)
(iii) Social groups (are nomads, truck drivers more vulnerable in the Indian context?)
(iv) Occupation/ profession (those involved in flesh trade, floating population such as truck drivers are prone to more risk)
(v) Income groups (resource mapping--income/ non income)
(vi) Age groups
(vii) Educational status

Livelihood options for PLHIV:

(i) VOs/ NGOs who take care of such patients can provide them with skill, and can also take care of them.
(ii) Role of the family becomes crucial in allowing the PLHIV for career options
(iii) Capacity building of the recruiters of PLHIV is vital
(iv) What kind of skill generation should be encouraged? Can ICTs be of help?
(v) Whether there should be skill generation of the PLHIV or their closer ones so as to enhance their livelihood options and income generation?

Some pertinent questions:

(i) Is HIV/ AIDS given more prominence over other diseases like malaria, typhoid, TB, cancer, hepatitis? Why?
(ii) How far government and non-govt. programmes and organisations have helped in curbing the spread of HIV/ AIDS? Has there been enough evaluation and monitoring of the programmes done in this area to check the effectiveness and reach?
(iii) Should family planning techniques like the use of condoms be delinked with the awareness generation campaign that using condoms reduces the risk of HIV/ AIDS, in order to provide a more rational model of capacity building? If there is such a link between the above, why is it so? Does this mean killing two birds with one bullet?
(iv) Should there be more focus on capacity building or pricing of ARV drugs?

There are three specific paradigms that link microfinance to women’s empowerment:

I. Financial Self-Sustainability Paradigm: This paradigm is backed by international donor agencies such as USAID and CGAP. Its focus is to encourage and support financially self-sufficient microfinance programs with the goal of reaching the greatest number of end borrowers. This paradigm targets women since it assumes that women tend to have the highest repayment rates. It focuses on economic empowerment, the encouragement of self-employment and self-reliability, and individual initiative.

II. Poverty Alleviation Paradigm: This paradigm is inspired by interdisciplinary community development programs that are targeted at reducing poverty. The major policy focus is to use microfinance as one part of an integrated approach to alleviate poverty and improve the livelihoods of the poorest households. This paradigm targets women based on the belief that there are higher levels of poverty within the female population and women take part in unpaid domestic activities. This paradigm focuses on empowerment in terms of increased well-being, self-sufficiency, and community development.

III. Feminist Empowerment Paradigm: This paradigm is rooted in the international women’s movement and is commonly found underlying the policies of many gender-oriented NGOs, which are run by feminists from elite backgrounds. It is the foundation for some of the earliest microfinance programs such as SEWA and WWF in India. This paradigm focuses on microfinance as a stepping stone for women to enter into social, economic, and political empowerment. Such NGOs target women in the name of gender equality and human rights. This paradigm focuses on empowerment in terms of a transformation of relationships of power throughout a society.