Kuldip Maity

Generations of students of Economics grew up reading ‘Small is Beautiful: A Study of Economics as if People Mattered’ by the German born British Economist E F Schumachar. Published in 1973, the book champions small, appropriate technologies that empower people more than large scale units working on technologies that have a lower employment potential.

Ever since the book was written the debate over appropriate technology has never ceased. But the debate notwithstanding and logical intricacies aside, it is now statistically and experientially accepted that the ability of MSMEs, both in formal and informal sector, generate more employment per unit of investment than their big brothers.

The story in India is no different. The data available from the latest annual reports of the Union Ministry of Micro Small and Medium enterprises show that the sector provided 39 lakh 36 thousand 788 crore rupee in 2015-16 by way of gross value addition. The growth clocked was 7.62 per cent with the share in the total value addition being 31.6 per cent. The GDP share of the sector was a substantial 28.72 per cent. The current Economic Survey provides the same accolades to the sector by counting its contribution to the export at more than 40 per cent.

According to a KPMG survey in the East and North East the informal manufacturing sector keeps contributing more than 60 percent to the SGDPs. According to the ministry concerned, generation of employment by the sector in the FY 2017-18 is estimated to be 85,792.

The CMIE in its February, 2018, report says that 31 million unemployed are searching for jobs. Keeping this in mind and the potential of job creation per unit of fixed asset in the sector, MSMEs are becoming our bet as a development driver with MFIs acting as their financial consorts.

Repeated talks of market’s ability to distribute gains of growth have triggered a reasonable faith in the power of the market to such an extent that it has almost taken up a divine status. If, however, we take out the veil of divinity, we will find that even the market needs facilitators to distribute the gains from growth and take it down to the poorest of the poor. And it is precisely here that the role of microfinance in the development paradigm is recognized as crucial.

As the saying goes, there is no free lunch. And the underprivileged cannot be taken out of their rut by providing them with a free passage, read doles, to prosperity. For the poor to benefit from the development process a structure of enabling agents is required to empower them so that they can transact in the market by selling services or products like everybody else in the economy. It is now an accepted proposition in the theories of development that the poor remains poor because they do not have access to the means and the technology to leverage the means. This distinction has been the major starting block for economists like Abhijit Banerjee and Esther Duflo of MIT in exploring why poverty is so sticky.

Globally all the work on poverty has now recognized that creation of mere access to finance is not enough to alleviate poverty. That is because the traditional channel stops at providing them access to finance without helping them to walk the way. This is like providing timed water connection to a person who doesn’t have any storage facility. The UN charter on inclusion therefore explicitly states that no government can do the hand-holding as it requires a special skill that no traditional channel by their very legacy can generate.

This lacuna has generically facilitated the birth of a powerful concept like microfinance and driven the UN to loudly advocate the need for those financial institutions in the inclusion charter that can not only provide access to finance but also provide the target cohort with the technology to leverage the help. Microfinance institutions are the ones that are not only providing financial access to the deprived section but are also handholding to walk the walk and talk the talk of development aspirations.

With the government agencies and the Reserve Bank of India predicting a growth rate of seven per cent plus the onus on the microfinance industry as the development finance vehicle therefore is going to be even more acute in the context of Indian economic reality.