Creating a surplus: a route out of poverty




For a long time now, the issue of empowerment has been at the heart of the strategy in the fight against poverty. The underprivileged live at the margin, eking out their daily sustenance. As has been repeatedly pointed out by various researches, including the one by Prof Abhijit Banerjee, who won his Nobel for his work in the field of issues related to poverty, the struggle at this level is to generate a surplus.

The ability to generate a surplus marks the difference between the one who is caught in the vicious cycle of poverty from the one who has moved on into the prosperity cycle. How does one generate a surplus? The simple logic is that she who has something left after taking care of daily needs—saving, in other words--is in a position to generate a surplus. The crux of the issue, therefore, lies in the answer to the question as to how this can be achieved by someone who barely makes her daily sustenance.

The only way to make the poor generate a surplus – to produce enough to create a marketable surplus – is to provide access to capital. The logic that has been missed for a very long time is the self-sustaining nature of poverty. This has been the major reason why poverty dogs the Indian economy.

A way out of the issue was sought through the subsidy route. It was thought that if the basic consumption needs of the poor are subsidised, they would probably be able to generate the needed surplus to free themselves from the grip of poverty. But the outcome has not been measurably satisfactory.

The other innovative route was seen in microloans through joint liability groups. I have discussed the merits of this route many a time in my previous blogs. But as it bears repetition, I will just add that this route creates a joint responsibility for creating a surplus. The members of the group are jointly responsible for paying the loan back and a failure by one will not be benignly tolerated by others as the onus, then, will devolve on the group.

It's now an accepted fact that this route--by creating access to funds and creating awareness about the productive deployment of funds--is proving to be more fruitful than others in fighting poverty. At the forefront, as an instrument of this fight, is the microfinance industry. Compared with other financial channels, this is a relatively new industry that saw a structured birth in India after 2011. Customer addition was at 16 per cent CAGR in September 2019, according to the MFIN industry data published in the 31st Micrometer, an MFIN industry publication.

The success says all. To get the poor come out of the dilemma of whether to sell their produce and starve or not starve and thereby stay in the perpetual vicious cycle of poverty, we need to include all of them in the microloan map.

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