ThinkWeek Winter 007 Template for Word 2003
Yüklə 170,5 Kb.
|
- Bu səhifədəki naviqasiya:
- Acknowledgements
- Introduction
- Study sample
- (1) Microcredit is (and should be) used primarily to support microenterprise.
- (2) For poor households, microfinance offers the only option for saving and borrowing (aside from moneylenders).
- (4) The 24-36% interest charged on microcredit is exploitative.
- Appendix 1: Methods
Deconstructing 4 microfinance1 mythsAuthor: aratan Date: Dec 18, 2006 AbstractThe jury is still out on the systematic welfare impact and value-addition from the expansion of targeted microfinance market interventions for the poor. We present the following four key insights from a study of 64 low- and middle-income households in rural and urban southern India today on how they use various financial products, services, and instruments (including microfinance) to manage their money: (1) respondents borrow for several reasons other than ‘small enterprise development’ (only 30% share) – it is important to unmarry ‘microfinance’ from ‘small enterprise development’ to objectively assess its welfare impact along multiple dimensions; (2) microfinance remains one (30-35% share) among many formal, semi-formal and informal savings and credit channels used by poor households to manage their income and consumption streams, and negotiate risk; (3) there appears to be some link between being marginally ‘better-off’ in our sample and being affiliated with microfinance in some form – however, interpreting this will involve solving the causal inference quandary; (4) microfinance loans at 24-36% interest rates are considered ‘cheap’ (not exploitative) in our respondents’ environment – attractive terms of finance involve much more than just the stated interest rate. We present these findings to contradict popular rhetoric on the subject, and provide food for thought to any person/ institution interested in using market mechanisms to alleviate poverty. AcknowledgementsMy sincere thanks to U.Vasudha and Carol Savia Peters for the research assistance they provided in conducting fieldwork for this study. Thanks to Kentaro Toyama, Neeharika Adabala, and Maithreyi Ratan for feedback on a previous draft. OutlineIntroduction 2 Study sample 3 (Myth #1) Microcredit is (and should be) used primarily to support microenterprise. 4 (Myth #2) For poor households, microfinance offers the only option for saving and borrowing (aside from moneylenders). 6 (Myth #3) Microfinance is for the “better-off” poor. 8 (Myth #4) The 24-36% interest charged on microcredit is exploitative. 10 Conclusion 11 Appendix 1: Methods 12 IntroductionDebates around the welfare impact and value-addition from the expansion of targeted microfinance interventions for the poor continue in non-profit, corporate, and policy circles (the 2006 Nobel Peace Prize being awarded to Dr. Mohammad Yunus of Grameen Bank has been recognition of microfinance’s positive impact worldwide; for a recent critique of microfinance in the popular press, see Claire Miller’s “Easy Money”, Forbes magazine, www.forbes.com/forbes/2006/1127/134.html ). There is hyperbole on both the pro- and anti- sides, with little systematic quantitative evidence from research on the strengths and failures of microfinance interventions in alleviating poverty in particular contexts through particular models of delivery. Where success is realised through revenues, the criticism is that those benefiting are the non-poor. Where success is realised through targeting the poorest, the criticism is that the financial services are running on subsidies. While it is difficult to see what is driving the microfinance boom in India over the past decade (market signals or donor interest or some combination of both), the fact that the boom is real cannot be denied ($1.3 billion lent as microcredit to poor borrowers in India during the fiscal year 2005-06, up from $4 million ten years ago, source: M-CRIL)2. Microfinance now reaches out to over 17 million clients in India alone. Why is all this relevant to us at Microsoft? C.K. Prahalad’s “Fortune at the Bottom of the Pyramid” was an instant bestseller. But now businesses are slowly coming to terms with the practical complexity of rearranging business processes and models to serve customers such as Velu who have studied till Class 7, earn Rs. 5000 ($110) each month, have school-going children, and work as office cab drivers in Bangalore. Microfinance is situated exactly at this junction of being interesting to the world’s 2.8 billion people living on <$2 a day3, but also having to construct and deconstruct ways of supplying the demanded services profitably. This is a pure demand-side analysis of how 64 low- and middle-income households in rural and urban southern India today use various financial products, services, and instruments to manage their money. We situate the role and value of “microfinance” within these households’ broad and complex financial portfolios, and draw attention to four insights gained from this most limited of empirical exercises that contradict popular rhetoric on the subject, and provide food for thought to any person/ institution interested in using market mechanisms to alleviate poverty. Study sampleTable 1 presents the composition of our sample, in terms of rural/ urban location and income category. We use the NCAER (National Council for Applied Economic Research) income class categorisation as shown in the table. Reflecting the shares of each class in rural and urban India, the proportion of rural households (HHs) among the poor in our sample is high (80%), while the share of urban HHs in the Middle and Upper Middle/ High income group is high. (For details on the limitations of our sample and the resulting inferences, please see the description of study Methods in Appendix 1). Table 1: Composition of sample
*Reliable income estimates were not shared for 6 of our original sample of 70 households (1) Microcredit is (and should be) used primarily to support microenterprise.No. Microfinance began as an effort to provide small loans to poor entrepreneurs to improve their businesses and generate “new income”. One of the major allegations thrown at the microfinance industry today is that microcredit is often not used for enterprise creation or small business development (‘productive purposes’), but instead for consumption-related expenditures. It is inferred that such use of microcredit amounts to wastage, dependency creation, and the continuation of poverty. The observation that not all micro-borrowing is for enterprise is accurate, but the inference of wastage is misplaced. Table 2 below summarises the various purposes for which our respondents report having borrowed in the recent past (last 5 credit instances per household) from a variety of formal, semi-formal (microfinance) and informal lenders. Readers must be cautioned that these are self-reported, and may diverge from actual behaviour. Table 2: Uses of credit among 64 low- and middle-income households
Clearly, microfinance or no microfinance, our respondents are borrowing for a host of reasons in the course of their everyday life. At most, 30% of loan instances recorded have been towards small enterprise development (farm and non-farm sectors combined). What is striking is the high share of household capital-accumulation-related loans (physical or human capital as assets), almost equalling the share of loans put towards small enterprises. Does this amount to ‘productive’ use of finance? Absolutely. The returns on a house or on a child’s education do not show up in one’s income stream, but are major components of long-term household well-being and mobility. Similarly, the returns on an investment in an expensive marriage for a daughter manifest over time when she faces a health shock and is able to pawn her wedding jewels to access a loan at 2% per month instead of 10%. Apart from the ‘long-term’ welfare impact not covered by measuring short-term income indicators, it is important to remember that ‘expenditure saved’ (through a lower-cost loan) is as important a determinant of rising welfare as ‘income earned.’ Consumption and social functions feature as prominent uses of loans (each contributing to 11% of all loan instances in the sample). If I had to take three loans to finance such consumption, of which even one is a collateral-less microfinance loan at 2% per month (compared to the normal 10% on the other two loans, or compared to a situation of having to pawn jewellery to obtain a 2% loan), the interest saved from access to one lower-cost loan itself amounts to a welfare gain. It is therefore important to unmarry ‘microfinance’ from ‘small enterprise development’ to objectively assess its welfare impact along multiple dimensions, and better understand/ cater to the seemingly unquenchable demand for cheap(er) finance among poor households. (2) For poor households, microfinance offers the only option for saving and borrowing (aside from moneylenders).No. Even after two decades of active promotion, microfinance remains one among many channels used by poor households to manage their income and consumption streams, and they negotiate risks through a complex and dynamic portfolio of instruments, many of which are informally obtained. Our 64 respondents reported 260 savings instances and 250 credit instances (when asked to describe their five most recent savings and credit products). As Table 3 shows, just about 30% of the savings instances and around 37% of all credit instances reported were through microfinance institutions. Table 3: Types and frequency of various savings and credit products used by 64 low- and middle-income households (in their 5 most recent saving and borrowing instances)
When it comes to credit, informal 1-on-1 instruments top the list, accounting for around 40% of all credit instances in our sample. This is not surprising given the flexibility and timeliness of informal 1-on-1 credit services (including those provided by the infamous moneylenders and private financiers), which microfinance services have as yet only partially bridged. The strong social and personal networks that microfinance uses to elicit repayments from poor households pre-date institutionalisation, and the poor continue to rely heavily on their neighbours, relatives, employers, and informal thrift/ credit groups like chit funds, for both with-interest and interest-free loans. The fact that close to 43% of all savings instances (the highest share) are conducted through formal instruments, particularly through life insurance (LIC) policies, comes as a major surprise, especially given the rhetoric on ‘poor access for India’s poor millions to formal financial services.’ When seen through the narrow lens of a savings/ checking account with a commercial bank, yes, only 7% of all savings instances in our sample are through such a device. However, the moment you include other formal savings products such as LIC policies, Post Office savings, fixed and recurring deposit schemes, Provident Fund and Gratuity arrangements at one’s employment, the figures change quite dramatically. Figure 1 (below) shows the distribution of formal savings across income categories, and it is clear that consumption of formal savings products is high even among the poorest in our sample, particularly the rural poor. The question to then ask is what is it about particular formal instruments like the LIC, which makes it so popular (including its strong and widespread marketing arrangement, its long-term focus and high returns), which other formal instruments cannot match. Figure 1: Savings instruments used, per-household average, per-wealth group
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
