Feature Img
Rural villagers queue with their ledger books to repay loans to a micro-credit group in northern Lalmonirhat, Bangladesh. Photo: Reuters
Rural villagers queue with their ledger books to repay loans to a micro-credit group in northern Lalmonirhat, Bangladesh. Photo: Reuters

1. I shall begin with an old saying: “If a drop of water falls on a lake, it loses identity, if it falls on lotus it shines, if on a shell it becomes a pearl. The drop is same but company matters.”

2. Microcredit is neither a panacea nor a devil; it all depends on the context! Taken simply, “Microcredit” is a very old thing — it is a micro sized credit. So it must be financing at least initially only micro activity satisfying micro needs. But human nature is such that as soon as a micro activity and/or micro need is fulfilled he/she will aspire for a larger credit and will try to fulfil richer human needs. The question of graduation from micro to macro is an inherent necessity attached to each microcredit borrower. A constant vulnerability is another essential problem of the microcredit borrower.

3. There is therefore an important failure or limitation of microcredit — it ensures only limited mobility and that mobility is generally non sustainable.

4. The supporters of microcredit claim that micro-macro graduation is possible by reinvestment of the surplus by the micro borrowers. The savings of poor borrowers and interest paid, savings accumulated, etc. actually prove that they do generate surplus.

5. And here lies the bone of contention. It is beyond doubt that the ability to move upward will depend upon how effectively the surplus is used to generate additional income and how that additional income is distributed. This obviously will depend on how the surplus is distributed as well as on the internal capacity of the micro borrower and the external constraints within which he/she has to operate.

6. One school of economists claim that MC manager/social entrepreneurs have taken away the lion’s share of the surplus, enjoying high income, fame and luxury and also maintaining status quo or managing poverty to ensure political stability. At least they fail to stop the increasing relative gap between rich and poor based on unjustified distribution of surplus/income.

7. Another school claims the MC entrepreneurs have saved the poor from further deterioration, from the clutches of the so-called bloodsucker Mohajons. It not only prevented deterioration and maintained status quo, but also increased their income, smoothened their consumption, increased their social capital, human capital, physical capital, and finally made it possible for them to graduate above poverty line. This debate has to be solved on the basis of objective facts.

8. Even if somebody accepts the above positive claims, the question remains “How Much” and more importantly “How much more can be done by proper institutional changes and through proper regulation of the micro credit entrepreneurs.” Then only one begins a proper search for a more effective model of microcredit!

9. Indian model of self help group is naturally the most preferred model for the poor if a minimum management capacity exists among the poor members of the group and also if external political intervention can be checked.. And that is better because by that they become the subject of their life and no more remain a target object in need of so called safety nets! It is ideally a self-owned, self-managed and self-appropriated collective model of “Micro Credit”.

10. NGO models and GB model of micro-credit in our country deals with the micro man but they have generally failed to turn him/her into an independent macro/meso subject. Perhaps the degree of failure in case of GB model is lesser because at least it has legally given De jure ownership of the bank to the micro man!

M. M. Akash is a professor, economist, researcher.