In 2007, India experienced a commendable growth-rate of over 9% and in 2008, above 7%, thus becoming the fastest growing economy, only second to China. However, this growth has not translated into better standards of living for the destitute. The fact that last year many Indians made it to the Forbes list of the world’s richest men is praise-worthy; however, the listing completely ignores the plights of the poor, which have also increased simultaneously. India is a quintessential for the slip between the cup and the lip.


Being an agrarian economy, a large part of the population is employed in the agricultural sector. However, monsoon failures, sugar crisis, high inflation rates, passé technology, lack of basic infrastructure, unavailability of credit and inaccessibility to markets have adversely affected the lives of the poor, who are entirely dependent on agriculture for their sustenance. The Vidarbha crisis brought to the forefront the basic problems underlying the Indian agricultural sector. Thus, as agriculture forms the backbone of the rural economy, developments in this field have a major role to play in the poverty alleviation programmes, of which microfinance forms an integral part.


Microfinance came into limelight when Muhammad Yunus, founder of the Grameen Bank, won the Nobel Peace Prize in 2006 for his development initiatives in extending small loans to the villagers in Bangladesh at reasonable rates. It refers to the provision of financial services to the poor or low-income clients to have permanent access to financial services, including credit, savings, insurance and funds-transfer. Poor people find it difficult to avail loans due to lack of collaterals. In the book, ‘Creating a World Without Poverty’, Muhammad Yunus writes, ‘None of us likes the idea of apartheid. We object when we hear about such a system in any form, anywhere. We all understand that no one should suffer because s/he happened to be born in a certain race, class or economic condition. But our financial institutions have created a worldwide system of apartheid without anyone being horrified by it. If you don’t have collateral, you are not credit-worthy.’


Microfinance got its first official recognition with Indira Gandhi’s bank nationalization drive launched in 1969, requiring commercial banks to open rural branches to extend financial-aid to the poor. It was further extended through the Integrated Rural Development Program (IRDP) introduced in 1978, the main thrust of which was to alleviate poverty through provision of loans in the form of subsidized credit. But the final boost came in 1991 under the New Economic Policy, which brought about the liberalization of India’s financial system. It was characterized by financial policy reforms and new microfinance approaches, the most notable being the self-help groups (SHGs). These were created to link informal local groups created by NGOs to commercial banks like the National Bank for Agriculture and Rural Development (NABARD).


Muhammad Yunus has shown to the world that the poor are creditworthy by having a near-99% repayment record in his Grameen Bank, which today, alone, disburses more than Rs.3000 crores of loans every year, and has more than two-thirds of its funds as self-generated. His bank reaches more than 66,000 villages in Bangladesh and has, till date, touched the lives of more than six million poor, especially women, through its micro-credit schemes.


Three of the largest Microfinance Institutions in India are: SHARE, BASIX and SKS. Banks like Bank of Baroda, State Bank of India, ICICI, Yes Bank and ABN- AMRO have been foraying into microfinance. Several other microfinance programs introduced in India include the Kissan Credit Card, General Credit Card (GCC), Financial Network and Operations (FINO), and the SEWA Bank. Reports state that by 2010, amount of microfinance in India would be about $3 billion.


In spite of their extensive reach and initiatives, they have been criticized on account of the high rates of interest charged by them, zero tolerance of repayment defaults, regional inequalities, inaccessibility and low coverage of the core poor.


Microfinance is all about teaching the poor how to catch the fish and not provide them free fish. The poor need no mercy and keeping them as the central focus of economic activities not only is a must to have a humane and ethical society, but also makes sound business sense. The poor must also be given an opportunity to mediate their savings towards profitable investment, so as to maintain their haecceity and to satiate their family. Thus, India cannot hope to achieve continued high rates of growth without developing the hinterland.


Ashish Chowdhary

[Image source:http://www.flickr.com/photos/lecercle/2874004963/]