Microcredit Yatra: A Very Indian Journey

Of late, almost every day, we see media reporting one story or the other on miss governance in micro-finance institutions(MFIs) like promoters cheating the poor clients, highest salary for MDs of MFIs and others, difficulties of members of MFIs by defaulting on their loans, need for tough regulatory measures and what not, everything not good about their state of affairs in the country. Latest in the series is the padayatra by Vijaya Mahajan of BASIX to villages to know the reality.

The present generation of youth (professionals from IIMs/ IITs / MIT /IRMA) have a lot to learn from Vijay’s life and career. Over 2 decades back, as an IIM grad, he firmly believed that real work was in villages. So, instead of pursuing a great career in the corporate world, he convinced and organised like minded people like Aloysius Fernandez, Deep Joshi et al and formed the great institution called PRADAN. Even today, it remains one of the very few institutions in India that have remained focussed on integrated rural development in states like Bihar, Jharkand, Chattisgarh, UP etc. It continues to function as a catalyst (it has helped in creating organisations with livelihood opportunities for tribals and poorest of the poor, but remained unchanged in its character and vision). Then, Vijay moved out of PRADAN and opened a cluster of organistions under the banner ‘BASIX’. He demonstrated that a Local Area Bank (LAB) can be run successfully by setting up one in AP (with just 5 in India with almost all except 2 functioning well) when many did not want to get into it. Now, he is going back to villages to relearn some of the forgotton lessons which he himself had developed and taught to the very same poor in the villages. It is a heartening news.

In the good old days, stories from great epics used to be told often by our grand parents to mould the children with good character and develop them as good human beings. In the same way, given the above difficult situation in which MFIs are placed, it would be worthwhile to look at some of the good success stories that would help those concerned with the development and orderly growth of micro-finance sector, to know it better and learn so that they can move in the right direction. So, in that respect, at the end of Vijay’s yatra we will have good moral based stories.

The problem of MFIs is the design defect in adopting a narrow approach by simply doling out loans to the poor and not so poor and concentrating in effecting recovery of dues from their clients. Most of the problems for the sector have also come from just one State, viz., Andhra Pradesh, which has good infrastructure, great awareness about micro-finance, home for about 80 per cent of the top MFIs and promotional organizations like APMAS, training institutions like Livelihood Academy/ School, a state where all the experts in micro-finance had taken fancy to emotionally attach themselves with one MFI at the cost of others.

Here, I describe one such organization which I happen to study some time back and so feel that everyone who wants to contribute for the growth of micro-finance sector should visit such institutions and learn lessons from them.

There is an organization called Mahila Suth Tasar (MASUTA) Producers’ Company Ltd in Deoghar district of Jharkand promoted by PRADAN, an NGO (promoted by Vijay) working in the region for over three decades. It found that a large part of the central Indian plateau covering Bihar, Jharkand and Chhatisgarh in India is undulating with shallow soils (If you see MASUTA operations, you will agree with me that it is a myth that MFIs can flourish only in Southern states like AP. TN. Karnataka etc). The upper land is unbunded, underterraced and having varying slopes leading to heavy erosion of top soil. Such soil is not suited for crop cultivation resulting in the land to remain fallow. These lands were owned largely by poorer families of the villages nearby. PRADAN discovered that treatment of such lands with plantation of Arjun trees as host plant for tasar silk cultivation could check soil erosion and make them productive for the owners.

It also discovered that tasar silk cocoon production was an unorganized market in which the middlemen traders ruled offering low returns to the small producers. At the same time, yarn making for the cocoons was done by the weavers themselves using the traditional thigh spinning method.

To remedy this situation, PRADAN, over the years (from late 1980s) promoted Arjun plantation and tasar silkworm rearing on these lands among the tribals in those areas by forming women SHGs. The intervention led to converting thousands of hectares of erstwhile wastelands into productive tasar silk producing plantations. This was easier said than done as tasar silk yarn making was not a traditional craft of the region as it was being done by the tasar weavers in other areas. As a first step, it identified the women among its SHGs who were willing to take up silk tasar yarn reeling and spinning work and organized them into common activity groups, some of them were registered as Mutual Benefit Trusts (MBTs) of 20-30 women one in each village (The ownership of MBTs still remains with the women members unlike in the case of SKS where it was approprirated by the promotors). They organized separate MBTs for yarn reeling and yarn spinning so as to manage production and quality. With the assistance of the Central Silk Board and other donor organizations, PRADAN provided the women tasar silk yarn reeling and spinning machines.

PRADAN finally transferred the work of tasar silk yarn production to a Producer Company it helped to establish and in 2005 MASUTA was born with the shareholding of all the women undertaking the yarn making activity. Rest is history.

Today, MASUTA, a profit making company (PBT Rs.6.51 lakh for nine months as on 30 Sept 2010), manages the entire work of tasar silk yarn production among its members in the three states. It is involved in purchase of tasar silk cocoon from cocoon producers including those producers from states of Jharkhand, Chattisgarh, Andhra Pradesh, West Bengal, Orissa and Maharashtra. It stores these cocoons in its four regional tasar cocoon storage godowns and from there supplies to the MBTs for yarn reeling or spinning. It then buys the reeled or spun yarn from the MBTs on payment and markets it to tasar fabrics weavers in various states. It is presently the only company in India involved in tasar yarn production and marketing in substantial quantity.

As on 31st March 2010, MASUTA had 2468 producer members (Reelers – 1173 and Spinners – 1295) organized into 120 MBTs spread over 123 villages in the three states (Jharkhand Bihar and Chattisgarh). A look at the social-economic profile of the members of MASUTA reveals that as much as 80 per cent of them were from BPL families and all of them were from the vulnerable categories of communities such as SC, ST and OBCs (see table). MASUTA is still evolving.
Category Numbers %
Women 2468 100
Below Poverty Line Families 1970 80
Landless Labourers 615 25
Marginal Farmers 1853 75
Scheduled Tribe Families 296 12
Schedule Caste Families 493 20
Other Backward Caste Families 1679 68
Source: Masuta

MASUTA has demonstrated that a business enterprise using such product as tasar silk yarn production can be run successfully by tribal women creating greater wealth for the rural poor in states like Bihar, Jharkand and Chattisgarh.

When Smt. Lalmuni Devi, then-Chairperson of MASUTA was asked by me as to whether she and her team would run the business operations without PRADAN, she shot back saying that ‘Jungle is needed for tigers to live happily. On the other hand, without tigers, jungle too has no beauty. So, both MASUTA and PRADAN need each other’. It said all.

Therefore, the true mission of micro-finance was to help the poor, particularly the poorest of the poor in the rural areas by bringing them together as homogeneous groups, building their capacities in group dynamics, sensitizing them on the advantages of thrift, making them learn appropriate skills in harmony with the natural endowments available in and around their place of stay. In order to develop all these faculties among the rural poor (I would strongly recommend poorest), a strong and dedicated organizational network is very important. But, in a strip down version, the MFIs reduced themselves to a narrow loan distributor model and marketing of insurance and other financial products for the benefit of the companies. Instead, if they work as catalysts in development and growth of micro-finance sector, then even poorest of the poor can participate and benefit from it.

Perhaps, in the itinerary of Vijay Mahajan a visit to his Alma Matar in micro-finance will be there to learn the forgotten lessons.

1. Micro credit yatra is a belated one. Indian financial institution history had already accommodated many lessons experienced through muti-agency system (particularly since nationalization of banks in 1969) adequate enough to understand the problems associated for development through credit and financing the poor. , However it is better late than never in the process of innovating institutional means for achieving ultimate end –poverty reduction. .The emphasize here is that the ‘end’ is more important than the ‘means’ and latter should not become end itself. ( the nascent lesion from AP crisis)
2. Micro credit yatra could be better termed as ‘Microfinance Pilgrimage’ from wider perspectives as it would help appreciate various dimensions of micro financial needs and complexities for designing micro financial products and services for matching those needs of the poor (without confining to micro credit only).
3. Meeting ‘micro credit borrowers’ alone is not adequate for the said purpose. Dialogue with the drop out / push out from MFI/SHG system, defunct group, migrant poor , the non borrower poor, capability for productive use of the credit, etc may be of useful
4. ‘Soul searching the need to reinvent microfinance’ is appreciated. But again microfinance should not confine to micro credit only . The institutional re innovation should focus more on the ways and means for diversification of various microfinance products matching to the needs of the different category of the poor people in the poverty pyramid and making microfinance more inclusive one.
5. India provides a largest social lab with mutli-dimensional poverty profile and experimental financial projects with the focus on poverty reduction in terms of MDG. .This holy yatra would, I hope , certainly provide golden opportunity for CGAP to appreciate the fact that unless the ‘poorest’ who are in the bottom of the poverty pyramid are accorded priority in development through appropriate microfinance services ( not necessary micro credit ), the ultimate purpose (end) of MF will not be served. Dr Santhnam also emphasized the need to focus on poorest in our mission for poverty reduction through micro finance.
6. Trust the spiritual yatra ultimately would help widen the horizon of knowledge on micro financing for poverty reduction and guide how to institutionalize (means) these micro financial services holistically to the same target group in poverty sector singly or severally for the said ‘end ‘purpose
With good wishes
Dr, Rengarajan