Kuldip Maity

What holds true across the spectrum of entrepreneurs also holds true for microfinance customers, perhaps even more. I keep pointing out how the microfinance industry has been given a specific mandate based on a specific customer base.

Microfinance is no ordinary financial industry. This industry’s mandate is to provide much-needed capital to budding entrepreneurs who are shunned by the formal financial system. The three I’s nicely encapsulate the mandate of the industry.

The first “I” is Invest. The entire structure of the microfinance industry is built on this tenet. Microfinance is not a recent idea and has been around for centuries. But the repurposing of the entire structure for the alleviation of poverty happened in the 20th century through the experiments of Muhammad Yunus, the Bangladeshi economist who won global recognition for his effort, including the Nobel Prize. I talked about it in my last blog as well.

The microfinance movement started with the assumption that if we give the poor access to capital instead of a survival dole, they will turn it into a productive stream. The hawkers that we see on suburban trains, the roadside tea shops or the door-to-door hawkers are all entrepreneurs. Below them are the aspiring entrepreneurs who do not have the resources to buy the basic kit to start hawking.

We have a significant number of such aspiring entrepreneurs for whom the doors of institutional capital are shut. This is where the microfinance industry comes in. Unlike other financial institutions, the microfinance industry was born to expressly meet this demand and has grown with the focus on poverty alleviation.

But providing them with investible capital is not enough. Some handholding is necessary. This is another point that sets aside the microfinance industry. Shaping raw enterprise to fit the market is a big role for the microfinance industry. Creating books of accounts, tracking expenditure, paying back loans and a lot of related stuff is essential to keep the loan capital productive. In short, oversight in the productive deployment of capital is an important part of the game.

This handholding is the second “I”——incubation, which is the structuring of the business. The microfinance industry is expected to actively participate in this incubation.

The third “I” is a comparatively recent addition to the microfinance business: insurance or micro-insurance, to be specific. Every day, we face a clutch of risks that affects our financial or physical well-being. The well-off can buy insurance of all sorts——medical, health, life, home, car or even travel. The microfinance industry’s customers could not buy such insurance. Not just because they are ignored by the formal financial system, but also because they could not afford it even if they had access to it. This had serious implications for them and their families.

Out-of-pocket expenses for medical treatment could wipe out their life’s savings and assets. The sudden death of the breadwinner could jeopardise the family’s financial life. With micro-insurance now made available for the people at the base of the pyramid, such risks are covered at the lowest possible cost. The microfinance industry is now also tasked with creating awareness about the need for insurance and then making such insurance available to them.

So while investment through access to easy capital leverages the enterprise in the customers, incubation ̛polishes that ability into a structured skill. And insurance protects customers from various life risks. These three I’s, therefore, define the entire microfinance industry and enable the enterprising lot at the bottom of the pyramid to break out of the vicious cycle of poverty into the world of prosperity.

Life indeed, is strange. While everyone else struggled, those at the base of the pyramid — the microfinance borrowers, the ones dubbed hapless — apparently were among the first to immediately pick up the threads of productive life after the lockdown was lifted.

It might be pertinent to remember the basic tenet that acted as the springboard of the microfinance movement. When Muhammad Yunus began his experiment with microfinance to tackle poverty in Bangladesh, his belief was that the people who miraculously manage to survive by taking every day as it comes and overcoming every challenge that life throws at them are naturally endowed with the power of enterprise. The only thing that stands between them and prosperity is a lack of access to capital.

The post-lockdown experience has endorsed the wisdom of Yunus. On June 15, The Hindu reported that the microfinance companies are back in action in the areas that are not containment zones. That was about Unlock 1.0. Quoting microfinance industry sources, the newspaper said that the expectation about the recovery at the end of May was about 12-14 per cent. The recovery rate was expected to pick up from June. But to their utter surprise, May 2020 ended with a recovery rate of 18 to 20 per cent!

This essentially implies that the people at the base of the pyramid started to pick up the pieces no sooner had the markets opened. There was a difference between urban and rural customers: the urban customers were slower to get back on their feet than the rural ones. This was logical as the urban customers’ products could be deemed as less essential than those in the rural customers’ portfolio.

Micrometer’s report for the third quarter of FY 2020-21 also indicated that life is fast becoming normal for the microfinance industry’s customers compared with the rest of the world.

These are the people at the base of the pyramid and have almost nothing to fall back on. Yet, most of them declined the offer of a loan repayment moratorium when it was extended. If you recall, everybody else was clamouring for an extension of the moratorium. The regulatory authority had to accede to the demand. But the microfinance customers, or at least most of them, declined the moratorium as they had successfully picked up their economic life again, perhaps, from scratch.

In the same report, The Hindu quoted the industry sources as saying that initially, there were demands for emergency loans amounting to Rs 5,000 on an average. But soon, the demand for credit transformed into the usual loans for business.

Enterprise is tested in the time of adversity. What could have been more adverse than the pandemic—a time when the entire world stood still, factories shut down, and life became uncertain? Right after this, as we look at the microfinance customers’ statistics, we find that the adage about enterprise got tested to the hilt. And the proof lies in the lives of those at the base of the pyramid.

This is a question that has been in the air for quite a while. What should be the choice of employment for those who are right at the base of the pyramid? The answer lies in the immediate economic environment of the people concerned: whether the base is urban or rural, whether it encircles an industrial belt. If the base is in the rural areas, the question will have a different context. But there is a generally-accepted premise that the members living at the base will have little opportunity to get absorbed in an industrial outfit unless they are trained and employable.

Anecdotal evidence and our everyday experience indicate that self-employment could be the preferred choice for those at the bottom of the pyramid who need to earn a living.

We must remember that the economic realities for the rural and the urban members of the base of the pyramid are entirely different.

For the rural, the situation and the earning abilities are directly linked to the seasonal nature of agriculture. In contrast, in the case of the urban population, the deal is a bit more complex.

Take the rural structure. Availability of a job doesn’t mean just a vacancy. It means a vacancy that suits the skill of the aspirant. Unfortunately, today’s medium and heavy industries require skill sets that the rural underprivileged do not have. The small and the tiny industries perhaps could absorb the rural underprivileged. But again, the very definition of the underprivileged implies a lack of access to gainful employment.

For ages, the rural underprivileged have been used to working as seasonal labour in the fields and living in a vicious cycle of poverty. To escape this, they need capital as the springboard to jump into the virtuous cycle of prosperity. Over the last decade, the microfinance movement’s spread has addressed this issue in a gradual but methodical way. In a manner of speaking, for the under-skilled, industrial employment is a tethered existence, while self-employment is deemed as a “free” existence.

The same argument runs equally true for the urban poor or those at the pyramid’s base. Lacking even the seasonal farm employment that their rural brethren get, they scour the urban market for a glint of survival. The growth of the informal sector has been largely due to this lack of access.

India’s industrial growth has not happened in a manner that could have catered to the base of the pyramid. Economist Arvind Panagariya, in a recent article, harped on the inability of the small-scale to scale up through the natural cycle. This could also have taken away the current agony of the urban underprivileged.

Be that as it may, the economic reality dictates that self-employment and the informal sector remain the haven that beckons those at the base of the pyramid, even in the urban sector, with microfinance playing a major role.

Bengal nursery owner shows how

“The most certain way to succeed is always to try just one more time” – Thomas A. Edison.
She might have studied only up to Class 12, maybe she has never heard of Edison or his words, but Rina Khatun of Umedpur in West Bengal’s South 24 Parganas district lives the maxim thoroughly.
It is always a challenge to have a business that is dependent on the vagaries of nature. Last year was even harder. It was not only the scare of COVID-19 and the lockdown.
Until the winter of 2019-2020, business at Rina’s flower nursery was good. Her buyers came from various states such as Assam, Andhra Pradesh and Bihar to load their trucks with seedlings of dahlias and chrysanthemums and other flowers from her and nearby nurseries.
When the government announced a country-wide lockdown towards the end of March, Rina and her husband were sure that it was a temporary issue and kept on tending to their nursery, getting ready for the business of summer flowers. The months before the monsoon were also the time for urban dwellers to visit and take seedlings for their terrace gardens.
Then came the Amphan supercyclone in May 2020. The supercyclone ripped off the bamboo scaffolding, the pickets and the covers shielding the seedlings, flattening all hope of profitable summer business. Anyone in the nursery business will understand the jolt that one gets if seedlings get destroyed. All that Rina and her husband could do is salvage the situation with seedlings for the next season.
Life became tough, but Rina and her husband’s education came in handy. They started giving tuitions to children in the village, who also benefitted since their schools were also locked down. Since the day I took over the helm at VFS, I have emphasized that one should never compromise with education, whatever the social or economic condition.
Rina regrets not being very fluent in Hindi, which makes her uncomfortable while dealing with buyers from other states, but I am sure she will learn and overcome the challenge. What amazed me in my entire conversation with her is that not once did I get any hint of depression in her voice.
Yes, she is unhappy about the jolt they got last year. That is understandable. But she does not waste time brooding. This year, she exhibits renewed energy and is confident of bouncing back. She asked us to pray for her family, and we are sure our prayers will not go unanswered. No matter what obstacle fall in her path to prosperity, Rina will succeed in moving ahead.
Just like the Japanese proverb: “Fall seven times, stand up eight.”