Time to revisit the conceptual framework of Microfinance

By Tensing Rodrigues

I owe you explanation of two points I made in a previous article and did not sufficiently elaborate on. While talking about the proper term to be used for the beneficiaries of microfinance, I quoted from the Malegam Committee Report to illustrate the lexical ambiguity (not being sure of what is the right word) that prevails in the microfinance space. That might have given an impression that it is only the Malegam Committee that suffers from this confusion. That is not the case. The lexical ambiguity is found in all discussions on the sector.

Let me not go too far. Last month Ela Bhatt, the founder of the Self-Employed Women’s Association of India (SEWA) spoke of the need for “India Equity Fund” with long term vision for the poor. Now, Elaben is a venerable icon in the areas of cooperative movement, women’s emancipation and micro-finance, with impeccable credentials, and who has been in the thick of these movements for almost half a decade.

The point is simple. Our mindset is still set in the first phase of the microfinance movement. We felt a need and rose to create solutions to meet that need. At that stage the priority was solving the problem, not analyzing it. So the need for unambiguous terminology was not urgent. At that stage we were not interested in building an institutional framework. But at some point, and more so because our efforts fructified, the movement established itself and gained momentum and grew beyond the stage of fire fighting.

And then the need for an institutional framework became imperative; so too the need to call a spade a spade; because, called by any other name, it would not be spade. Bhatt herself points to our arrival at that stage. “But as MFI’s (not all) grew bigger it became increasingly difficult to remain non-profit, they (may be imperative) operated on commercial format.” Let me not go into the aspect of “commercialization” at this point, as I wish to discuss the more basic issue of “for whom ?” first.

We need to accept the fact that microfinance has come to the end of its age of innocence. To quote Bhatt again, probably quoting from her own experience : “As they (MFIs) became stabilized, and big, they became acceptable by banks–the growth continued with ICICI’s partnership leverage, SIDBI’s aggressive investment in microfinance, the bringing of private equity, charity money turned on to equity–all these factors were events of significance. … It is time to be more serious, not cynical. I am not. It is time to revisit, search, re-search our common shared goals, our motives deep down our soul. Cynicism we can’t afford.”

The facts bear testimony to Bhatt’s views, however confused she herself may sound. When did the kinks appear in the microfinance organizations ? They began faltering exactly when they attempted to make that big leap across the chasm, from NGO’s/charity organizations to economically sustainable/“commercial” entities. The leap failed precisely because the underlying conceptual framework that could make this transformation smooth was not good enough.

We cannot be cynic; we cannot throw the baby out with the bath water. Microfinance model has not failed. It is the conceptual framework underlying the model that calls for a change. The time has come to make the big difference between “social upliftment” of destitute and “financial inclusion” of … shall we stop using the term poor for beneficiaries of microfinance, and call them something like “low income persons” or “marginal income persons” or “below threshold income persons” ? Because, as I have said before, the destitute are to be supported at public cost – that is charity and the domain of NGOs; financial inclusion has to be economically viable – that should be the domain of microfinance. And we cannot mistake one for the other.

 models of microfinance

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