In the last post I argued in favour of the indispensability of handholding and why technology can at best be a facilitator rather than being a total replacement of human intervention in the microfinance segment. This was argued in the perspective of the accepted axiomatic premise of the entire microfinance movement.

Let me start this blog by reiterating the basic tenet of the microfinance movement that is so relevant for my argument in this post. Microfinance movement evolved from the realisation that unless a system evolves that provides resources to create capacity at the level of the needy, the Gordian knot of vicious grip of poverty cannot be sliced. However, as this argument rules out a comprehensive dole based model, the concept of micro loan evolved. One does not need to be reminded that loan requires repayment and risk bearing ability.

The poor do not have any resource other than their enterprise that they are forced to learn from their daily compulsion to survive against odds. This led to the concept of joint liability group. The logic here is that a member takes credit and the risk is borne by the entire group. Further, the group knows the skill of a fellow member and since they jointly and severally bear the risk, they will ensure timely loan repayment and act as risk minimising machinery. And of course enterprise is something that is part of their daily life.

But this concept of joint liability is now decades old. The demands and the opportunities over the time have drastically changed. So have the risks. To illustrate, with the spread of the mobile phone, motor driven two and three wheelers or myriad other accoutrements even in the rural areas, the demand for their maintenance skill has also gone up. But to meet the need for such varied demands also carries with them varied degrees of risk. When the joint liability group was thought of, the market demand spectrum was less varied as it is now. And it was easier for the groups to comprehend their collective risk bearing ability.

In a nutshell, JLGs acted somewhat like a credit monitoring mechanism at the local level. However with the compliances and structural changes brought about in the recent time, individuals are getting monitored and rated based on their own activities.

A study by European Bank and our own experience is now pointing to a clear shifting of the demand for loan more towards individual in sync with the market reality precisely due to the reason mentioned above. The challenge for us is to accept this reality and evolve a comprehensive structure to meet the demand while at the same time sticking to the basic ethos of microfinance.