With the Microfinance movement tottering due to an unhealthy
combination of greed and lack of political will, Gandhiji’s birthday is a good
time to take a pause and look at the mess we have created, and the possible way
forward. Rural India, especially needs a
good dose of the Gandhian movement today – at a time when inflation has reached
an all-time high, rampant urbanization is destroying the ecosystem of our
sustenance model, and the Government does not seem to have any cogent plan to
resolve either issue.
For Gandhi, the spirit and soul of India rested in the
Village communities. He said “the true
India is to be found not in its cities, but in its seven hundred thousand
villages”. The spirit of the Swadeshi movement was embodied in his slogan “Production
by the masses, not mass production”. In effect, Swadeshi was to be the corner stone
of economic independence – not just for the village communities, but for the
entire country. Somewhere between
Self-Help Groups and For-Profit Microfinance companies we seem to have lost
this very important message. What should
have become a community of self-reliant people developing a sustainable and
growing ecosystem has been hijacked for narrow and pecuniary interests;
successful not-for-profit organizations that built a sustainable scalable model
lost their way when they converted themselves to for-profit bodies, while the
rest of the “social” organizations still leave us wondering whether private
enterprise is after all delivering more social good. In between all this the hapless victim seems
to be the microfinance customer.
Even as early as 1999, CGAP had realized the need to
introduce an appraisal guide (http://bit.ly/qReGrR)
to enable Funders evaluate the performance of Microfinance Institutions on the
two counts of Financial Performance and Social Performance. A key aspect of this is the evaluation of
internal processes and orientation towards social performance. Since then, there have been many tools
designed to evaluate the Social Performance aspect of Microfinance
Institutions. It would not be very
difficult for the government to mandate social performance audits as part of a
regulatory process. The sustainability
of the microfinance institution could also be evaluated from the strength of
their internal processes.
I am tempted to believe that a Swadeshi-like model for
microfinance would perhaps result in sustainable growth where the true
benefactor would be the microfinance client.
For this to happen, the microfinance institution would transform itself
into a facilitator of the ecosystem, and not merely remain a provider of credit. In today’s setting, an urban microfinance
group is taught skills such as soft-toy making, agarbathi manufacturing and
other similar activities. However, in
most cases, while the NGO involved steps in to provide training, there is no
guarantee of a market for such goods.
The gullible client takes a loan to buy the materials required to make
the soft toy, but is ultimately unable to
sell it. It is not very different in the
villages, where instead of soft toys, they end up making baskets.
The Swadeshi movement advocated the creation of goods and
services that would be consumed internally, and only then export the
surplus. In a sense, every village would
be a producer-consumer, with the village community deciding on what goods could
be imported, and how much would be exported.
In today’s context, a network of communities could very easily produce
goods and services that were complementary and would boost the overall
productivity of the villages. Such a
network would be able to realize a better price for their goods, without having
to depend on middlemen. The role of the
microfinance institution needs to transform into the facilitator of such a
network, where, apart from playing the traditional role of providing access to
finance, they could implement best practices, engage agricultural scientists
for enhancing crop yields, and ensure training that would really benefit the
farmers. The community could also learn
from each other, where lessons learned or innovations in one sector or village
can be transplanted in other areas. The
MFI would be a knowledge manager – capturing and sharing knowledge across
communities.
Does this mean that MFIs are necessarily not-for-profit
organizations? It just requires the microfinance
institution to look at a larger role and move beyond the role of providing
credit only. They will need to step up
and ensure that social performance is top on their agenda – financial performance
will automatically follow. When a need
is converted into a demand, then we are bound to see a market at the bottom of
the pyramid. Instead today, we see an exploitation of the
BoP, under the mistaken assumption that there is a demand.
One hopes that Gandhiji’s message does not remain just in
the history books or meaningless hyperbole of political speeches, but is
transformed into useful action taking into account today’s reality. I am sure that his messages are applicable in
today’s context just as much as they were more than half-a-century ago. Jai Hind.
