Wednesday, January 18, 2006
Development analyst Dr Sudhirendar Sharma worked at the World Bank before embarking on development consultancy and independent research. During the last five years or so, he helped set up hundreds of self-help groups in villages. However, realising that the hidden agenda might be different, he started researching the flip side of micro-credit. At the Ecological Foundation, the Delhi-based think-tank, Dr Sharma and his colleagues critique development through research and advocacy.
Is micro-credit the answer to rural poverty in India? Does it create wealth?
Scratch the surface and you’ll find that this is not the case. Soft loans do remove cash poverty, but only elusively. Unless loans are converted into investments in on-farm productive activities, rural poverty will not go away. Micro-credit improves cash flow but doesn’t create wealth. Far from helping people generate wealth, easy credit is being used to encourage primary producers at the farm to become secondary distributors for consumer products. Howsoever lucrative, the transition has severe implications on the livelihood security of poor people. Micro-credit has caught on so much, courtesy the donors, that no one questions its implications now and for the future.
Would you call micro-credit exploitative, in terms of rates of interest?
Of course! Though the motive was to drive the exploitative moneylender away, in effect exploitation has been legitimised through the neo-institutional mechanism of micro-credit. While interest rates have come down, the banks continue to charge high rates of interest (around 11%) on borrowings by the groups, who in turn levy a higher rate of interest (between 24 to 36%) to make profit. Shockingly, the poor are exploiting the poor by charging high rate of interests. Ironically, the so-called exploitative moneylender has been replaced with an army of moneylenders. With interest rates exceeding the repayment capacity of the poor, a debt-trap has been laid.