Microfinance

What’s in a name ? A lot, in fact

By Tensing Rodrigues

“What’s in a name? That which we call a rose, by any other name would smell as sweet.” said Juliet, in William Shakespeare’s much celebrated tragedy Romeo and Juliet. But she was dead wrong.

At least in microfinance I feel name matters a lot; in fact, I believe much of its woes arise from a name, or the lack of it. You must be wandering what I am talking about. Tell me, what name do you give to the beneficiaries of microfinance ?

microfinance india microcredit

“Microfinance is an economic development tool whose objective is to assist the poor to work their way out of poverty.” says the report of the Sub-Committee of the Central Board of Directors of Reserve Bank of India to Study Issues and Concerns in the MFI Sector led by Y.H. Malegam.

Down the page, the report talks of low-income groups. The report is more explicit, and brings out the ambiguity better in the paragraph on what it calls the “postulates of microfinance”. I quote :

(a) It (microcredit) addresses the concerns of poverty alleviation by enabling the poor to work their way out of poverty.

(b) It provides credit to that section of society that is unable to obtain credit at reasonable rates from traditional sources.

(c) It enables women’s empowerment by routing credit directly to women, thereby enhancing their status within their families, the community and society at large.

Two things become clear from this preamble to the report :

One, the committee treats microfinance as one of the schemes launched by the government as part of its social upliftment program, in line with schemes like the National Food for Work Programme, Rural Employment Generation Programme, Prime Minister’s Rozgar Yojana, Indira Awaas Yojana, etc.

Two, the committee confuses between poverty alleviation (see postulate a) and social emancipation (see postulate c) on one hand and financial inclusion (see postulate b) on the other hand.

No, I am not trying to split hairs. Social upliftment through poverty alleviation and social emancipation is not the same as financial inclusion. Social upliftment is a matter of State policy; it has no economic justification. In other words, social upliftment is helping those who cannot help themselves on account of certain irreversible deficiencies. The destitute are to be supported at public cost because in a civilised society it is below human dignity to let them be deprived of basic human necessities.

Financial inclusion on the other hand is tweaking the existing systems or extending them, to enable a class of people to participate in normal economic activity; a class which cannot currently do so because the entry barriers are too high for them. This is to be done not so much by providing them public funds as by lowering the entry barriers, or creating alternate systems with lower entry barriers. For instance, financial inclusion in banking would not mean giving the prospective customers the minimum sum required to open a bank deposit, but lowering the minimum sum required to open the deposit. Financial inclusion, therefore, has to be economically viable without infusion of public funds; public funds may be used for facilitation or for pump priming only.

If we accept that distinction, can we call the beneficiaries of microfinance poor ? I feel the term poor, as it is conventionally used, describes better the beneficiaries of social upliftment schemes; though, for the sake of unambiguity, I would prefer to call these destitutes.

Then what do we call the beneficiaries of microfinance ? Can we call them “low income persons” ? Or “marginal income persons” ? Or “below threshold income persons” ? I firmly believe that this ambiguity in terminology percolates down to the functional level, and lies at the heart of current crisis in microfinance space. More of that some other time.

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