For a very long period in the history of development planning, empowerment and how to do it remained a big question mark. The issues were all agreed upon. Poverty alleviation needed capital infusion in the hands of the poor. This would empower them to ride out of the poverty trap and climb into the prosperity cycle. The issue was how? Would it be the subsidy route or some other way?

Jeffrey Sachs in his celebrated book, The End of Poverty, traces the malaise of poverty to capital deprivation. His thesis, quoted by the Nobel laureate Abhijit Banerjee in his Poor Economics, emphasises the importance of empowering the poor with capital.

He argues that the curse of poverty worsens with time. The government of a poor country is poor because its people are poor. Without a remedial intervention, the state of poverty keeps getting worse. This is so because without an intervention mechanism per capita capital availability goes down across generations due to the rise in the population number. This is simple arithmetic with devastating consequence.

Now, will a huge infusion of capital by way of dole help? Apparently not, because a dole is never appreciated in a productive way and tends to be frittered away through the current consumption route. So, he urges the aid agencies to act more like venture capitalists in giving out aids.

However, at the operational level, the issue has serious ramifications. The basic premise of the argument draws its strength from the fact that if funding is purposive, whoever is getting funded must be made responsible both for the fund and the use of it for the purpose the fund is taken.

The issue of collateral for a country loan is different from that of an individual. If a loan is given there has to be a guarantee to cover the risk of failure. For someone with no asset to pledge, access to capital under the conventional structure is completely blocked. In fact, when it’s argued that capital deficiency is the root cause of poverty, this is the reality that it stems from.

So, the challenge was to create a structure wherein the poor can also be provided with access to fund or capital. Because the issue of poverty can only be fought in a sustainable manner through the creation of access to capital while ensuring that they can easily avail themselves of the route created for them.

What if a loan is given to a group of poor who will be jointly responsible for the loan to individual members? The revolutionary idea to tackle the issue was the creation of joint liability groups. The logic here is, if the fund is treated to have been given to the group for productive use and made responsible for it together, the group members would ensure that each uses the fund for productive use and the repayment contribution also keeps flowing. The idea of social collateral brought about this concept and is being implemented globally. The concept has revolutionised the fight against poverty and is fast spreading.