Kuldip Maity

Shabnam (name changed) had to suffer the pain of selling toys and snacks that she couldn’t afford for her child.

The youngest in a household of five siblings and being the only daughter, one would have thought that life for Shabnam would be easy and fun-filled. But the social construct and her family’s poverty dished out a different story for her.

The elder brothers and their wives treated her as a burden. Manual labourers all, Shabnam was seen as a burden in a household that struggled to live a day at a time. She was married off at an age in which she was supposed to be in school and to play with her friends.

Her husband’s family lived in a neighbouring village and was just as poor. The story for her, therefore, remained the same. Within a year, she had become the mother of a daughter. She couldn’t provide a son.

One day, she found her husband bringing home a second wife. The next thing she knew, she had the choice of going back to her parents with her daughter or get thrown out on the streets. With her daughter in mind, she chose to go back to her mother, knowing fully well the step-motherly treatment that awaited her.

Back in her parents’ home, her sisters-in-law treated her like their maid. But one of her brothers took pity and gave her Rs 200, a princely sum for them, to buy lozenges and sell to the boys of the village school.

She started off with her business. Being a mother, it was a pain not to be able to offer her daughter a lozenge that she was selling. Giving away one single piece would have meant that much less of earning. She was noticed by a local NGO involved in sustainable development work. She was given Rs 5000 to set up a roadside stall. She started selling tea, toast and omelettes as the customers demanded. While she couldn’t yet afford an egg for her daughter, she was selling omelettes to her customers, dreaming every day of a future in which her daughter would go to a proper school and wouldn’t have to face her plight.

Shabnam’s story doesn’t get repeated much. Subsequently, she got micro-loans, and her father gave her a small piece of land that couldn’t be put to any use by their reckoning. She built a tea stall on that plot and got a refrigerator from a soft drink multinational. She is saving. And yes, she gets to provide proper food to her daughter.

Hers has been a story of grit and leveraging every single bit of help to create a sustainable income stream. But there are a million others who suffer what no parent should suffer – not being able to offer even a simple lozenge to their child while selling it to others.

The carrot or the stick? What should one use to improve an employee’s performance? This question is as complicated as the chicken and egg conundrum.

Let me start by owning up that I am yet to come across a universally accepted solution to this unique issue. While influences on humans are more individualistic, an organisation cannot have different policies for different employees. To standardise, it is essential that we assume one and keep a close eye on its implications while staying nimble to make course corrections when necessary.

Performance has always been measured against an SOP and an associated target. Any deviation in the interim had met with actions that clearly conveyed the management’s disapproval. Appreciation was conveyed through the periodic appraisal process with either monetary rewards or career progression.

However, as we move from the industrial to information to the social engagement era, expectations of regular feedback have increased and team members want an immediate response to their actions. Monetary or career-related rewards, while still having the highest impact, are no longer the sole motivators.

We have a school of thought — and a strong one — advocating that negative feedback such as reprimands have a long-term adverse effect on employee morale and should be avoided at all costs. A disgruntled employee can spread negativity across the team. The best way of motivating the team is to ensure that there are proper incentive policies in place that drive the performance towards a positive impact.

But there is another school of thought that wants serial deviators to be brought back into the mainstream. Many organisations invest substantially in their employees to upgrade their skills, and parting ways is not always the best option. The group tends to advocate a balance between reprimand and incentive.

I also come across a new group of professionals who are totally against any incentive policy. This group feels that incentives are counterproductive to team building. Individual incentives make a team member selfish, as the person no longer wants to share knowledge or strategies of good performance with the rest. For team incentive, there is always a group of high performers who feel deprived if the reward is divided equally.

As I have said earlier, I do not have any definite stance on this critical question. It has always been the most complicated challenge in any entrepreneur’s life.

Development of self-employment and micro-enterprises, with the support of microcredit, makes it possible to transform the poor into wealth creators. Microfinance institutions know that their primary mandate is to raise the unbanked poor out of the depths of poverty. But what we normally do not talk of when discussing the effect of microfinance is that the work of MFIs also helps lower the unemployment numbers. This happens in many ways.
• Employment opportunities created directly in the NBFC-MFIs, banks, small finance banks and NBFCs;
• Self-employment opportunities through microcredit disbursements as a part of the primary business model;
• Jobs in the microenterprises as they grow;
• Self-employment and jobs created in the supply chain of the microenterprises.

In the last financial year, the NBFC-MFIs reported a staff headcount growth of 34% over the previous year. The quality of skills also improved as digital technologies opened up career growth opportunities for MFI employees.

The number of loans disbursed grew by 28%, indicating that self-employment through microenterprise initiatives is increasing. What is more encouraging is that the total loan amount disbursed increased by 44%. This indicates that the microenterprises are individually growing in their operations and what was primarily a family-run operation, may have to start employing from outside the family.

Lastly, but not to be ignored, are the businesses that sprout to supply raw materials to the MFIs’ customers and become their logistics providers. This has traditionally been a virgin market as it was always assumed that rural products would reach their consumers through a complicated network of distribution.

However, with online marketplaces opening up a direct sales channel for micro businesses, the need for organized supply chain providers has increased steadily—and so have the employment opportunities.

Going by the data, we can find microfinance outgrowing its primary mandate of poverty alleviation through self-employment and is graduating into a job creator.

Ever wondered why the Gross NPA in the NBFC-MFI sector always comes out champs in relation to the other lending channels? The answer probably lies in the way lenders of various sectors engage with their borrowers.

Even in FY2019, a fiscal marked by much discussion about the rising NPAs and issues involved, NBFC-MFIs brought down their NPAs to about four per cent. Other channels, however, kept struggling with NPAs above five per cent and in some cases way above six.

If we want to seek a probable explanation to this huge difference in managing NPA we might have to look into the strategic engagement pattern and expectation differences in the respective sector’s client-patron relationship. There is an additional fact that might lead one to look into the differences in the client-patron relation in this context. The NBFC-MFIs have been able to significantly reduce their NPAs in FY19 over FY18 while others kept struggling with containment strategies.

In a generalised vein, all lending channels, save the ones from the MFI sector, depend on the past performance of the clients while considering their creditworthiness. The very structure of the lending channels perhaps creates a legacy driven assessment of the degree of efficiency in the deployment of funds, purely on the basis of financial performance.

While the traditional channels rely on assessing risk of lending on the past performance, the MFIs, by their mandate, have no legacy to depend on in assessing lending risks. In my last blog, I talked about joint liability and what it means in risk assurance. At the cost of repetition, let us revisit that so that the point I am trying to make may become clear.

The MFIs are channels to alleviate poverty. They try to empower the poor by creating access to capital and creating awareness about its productive deployment. But the poor have no traditional collateral against the capital they borrow. So the money is lent to a group where members together become responsible for productive deployment and repayment. This is called social collateral.

The MFIs, by their mandate, are also responsible for handholding the members in the use of the capital productively. This method ensures that in each turn of the process the borrowers or customers as they are called would keep correcting their course, reap surplus from engagements. The direct engagement of the channel in the customers’ business ensures that repayment failures are capped to a bare minimum.

On the other hand, in the traditional channels the disbursement is done against financial performance and historical financial parameters as risk evaluation method. At the operational level, in a manner of speaking, repeat failures in repayment lead to bleeping of warning lights.

We, however, should keep in mind the qualitative and quantitative difference between the two segments. What is possible in the MFI sector may not work for the traditional as the customer profiles are vastly different.