"The point is, ladies and gentlemen, that: Greed, for lack of a better word, is good. Greed is right; greed works."
- This fictional character Gordon Gekko's address to stockholders in the famous movie Wall Street , still seems to find a good cheering audience, both among the business and the elected representative body, in India. The latest in this avarice seems to be the $1.5 billion Biscuit industry's desperate attempt to double its market share by its brow-raising offer to supply biscuits through government's Mid Day Meal Scheme (MDMS). The industry along with the MPs, who they have evidently have pocketed, are lobbying for serving biscuits instead of the traditional cooked meals under MDMS.

According to these self-proclaimed experts, not only in  the field of nutrition but also in the multifaceted socio-economic development, biscuits are the best meals for the 120 million growing children across the country who are covered under MDMS. It escapes my comprehension as to how company's like ITC, Parle and Britannia are backing baseless statements of MPs that biscuits are a favorite snack of children and that they have a higher recall and acceptance among the intended beneficiaries of the MDMS. How can one, based just on the grounds of couple of corruption cases and reported poor quality of meals, stretch to make claims that cooked meals should be replaced by packaged biscuits? The least one expected from the industry was to lend its mind-space in efficiently managing supply chain and delivery channels. Instead all one can see is the potential atrocity when "greed" and "corruption" join hands. 

It seems that the lobbyists need a primer not only on nutrition but also on the multipurpose objectives of MDMS. As per the Supreme Court order, all states are mandated to provide every child in Government/Government-assisted primary schools with a "prepared meal" instead of "dry rations". The revised norms of NP-NSPE even specify the minimum content of 450 calories, 12 gm of Protein, with adequate quantities of micro-nutrients such as Iron, Folic acid, Vitamin-A, etc.

However, today's most ubiquitous Parle-G Glucose biscuits claim to provide just about 300 calories and protein of less than 5 gm in serving size of 11 biscuits. So, how many biscuits is a child expected to munch in a day and of course without the usual accomplice of a cup of tea or coffee? Is the industry claiming that it would come with a perfect recipe with all the essential nutritional ingredients in magical proportions all within the current average conversion cost of Rs 1.17? Is the industry setting new paradigms for CSR by sacrificing its usual margins? Even if we were to accept the unusual benign nature of the industry, can a biscuit be any distant substitute to a hot cooked meal which can offer the variety to sustain the interest of children?

Today it is the biscuit industry and tomorrow it could well be the packaged food and even confectionery industries vying for the lucrative piece of this Government initiative. Before one tends towards the industry side based on common charges of corruption and health hazards as a result of food not being cooked in hygienic conditions which might be partially true, one needs to carefully consider the sheer impact of cooked meals on aspects such as child nutrition, school attendance and social equity. Firstly, in deprived areas where the child does not even get two square meals a day, these cooked meals are enjoyed as a "festival food".  In areas where hunger is endemic, will one value the assurance of cookies? Secondly,  the socialization value that MDMS brings as children sit together and share a common meal would seem to get eroded if one is given a pack of biscuits instead. (Hope that one is not attempting to to create a "High Tea" gathering here!) Thirdly, the employment opportunities created for the poor women in particular has no place if cookies are to replace cooked meals. (For a detailed analysis read here)

Now on the "corruption" argument front, I wonder how packaged snacks is any less vulnerable. What is needed to minimize corruption in MCDS is an overhaul of our monitory system. The need of the hour is development of appropriate technologies and operational models that will improve the administration of MDMS. Is it too much to expect the industry to partner with the state at operational or management level to ensure delivery of warm healthy meals to vulnerable children without incurring high cost? Who is to defend the right to food of vulnerable groups when MPs decide to leave them in the hands of corporations whose sole objective seems profits?

Thanks to SC-appointed commissioners who have just today slammed the suggestion by MPs' group. Well, now it remains to see if someone will wake up the industry's "conscience"!

~ Santosh 
 

 

When Shubra Singh, State Project Commissioner for Rajasthan, made a grave appeal to the REI partners to help the government in setting up toilets, by sponsoring capital and/or operational costs, in the government schools, I was baffled. I wondered if she had gone berserk in bringing up apparently inapt  topic in an ICT forum. As one would expect almost all partners gave their nod with a scoff that was best left to interpretation. I must admit that I was one among those who gracefully ignored the request for I presumed it hardly concerned me , let alone my company. I now realize that I grossly belittled the gravity of the issue that she was attempting to address.I'm ashamed for my blissful ignorance and apathy.

Recently, as I was trying to gain a deeper understanding of reasons for dropouts in primary and secondary schools, I came across shocking observations, both anecdotal and statistical, that trace one of the primary reasons for girl dropouts to lack of toilets in schools. A recent report claims that more than 3 in every 5 schools, which is about 620,000 schools, don't have toilets. The report also found that boys and girls share toilets in every second school at the elementary stage. Let us not even venture into usable condition of the toilets where it exists and add to the already dismal state of infrastructure. At the outset, UNICEF study's claim that sanitation is closely linked to female literacy in India might sound absurd especially given that over 90% of rural people defecate in the open. The bizarre linkage only unfolds when one listens to an 11-year-old girl's woe - "I was always first in the class. I'm very much interested in studies. I want to become a lawyer. But my mother stopped me from going to school after Class V as the middle school I was attending, 5 km from my house, had no toilet. Can someone help me?".

One can hardly dismiss this as one off and an inconsequential case when one realizes that these sentiments are shared by many a girls facing the onset of puberty, and with it the realities of menstruation in a school with no toilet and no hope of privacy other than the shadow of a bush. The impact becomes more substantial given that in rural communities, menstruation itself is so taboo that girls are prohibited from cooking or even banished during their periods. The problems that accompany maturity, like sexual harassment by male teachers and parental pressure to marry, only aggravates the pressure to drop-out.

While buying the case for toilets, one might question how realistic it is to expect a school to have a toilet when more than 700 million people don't have a toilets in their households. But  in a country where 700,000 children die every year due to diarrhea and dehydration caused by poor hygiene, can we choose to ignore? Is this an insurmountable challenge or is it just a lack of political-will? Dr. Bindeshwar Pathak, who has successfully championed the cause of sanitation, has responded to this call by constructing more than 6000 toilets through his Sulabh Shauchalaya. What is even more commendable is his design of toilets that can be constructed at as little as 500 Rupees. He has also shown that the waste can be recycled to make gas, electricity and manure. If there are toilets that can be built at such affordable cost, why isn't the government or community taking it up for its schools?

It is incomprehensible to learn that government is still expending money on designing "ideal" toilets on paper. Is the government showing indifference in warning its tourists, on its official "Incredible India" website,  to not venture into public toilet facilities? I'm sometimes dumbstruck on how the same government which can afford a computer lab in a school at an exorbitant price, be not able to fund for a toilet. Is it because even at a higher cost the socio-economic impact of a computer in a school is much more than that of a toilet? Or can the corporates simply be blamed for coaxing the government to put an ICT solution in place of toilets? Is the government dumb or the corporate a con-man? Probably for a young woman in an Indian village who wrote a letter to her husband  "When you come home, do not bring ornaments for me. I would be more pleased if you bring money so we can build a toilet in the house.", a "personal" computer would hardly be the need of the hour.

~ Santosh

 

(..continued from previous post)

The morning discussion on "Rural markets and Entrepreneurship opportunities" had an interesting mix of panelists - one from corporate sector, two social venture captialists, an entrepreneur and a village panchayat head. While Sanjay Kapoor from Bharti made a marketing pitch of how Airtel sees a huge business opportunity in rural, Elango Rangaswamy, who has been heading the Kuthambakkam Village Panchayat, posed a question on why most corporates look at rural as a pure consuming class and not look at ways to increase the dispoable income of the families. As a true Gandhian, Elango spoke very passionately about his community and how his institution has been trying to do its wee bit on the developmental front. From his humble attire and not-so-well- polished speaking style, one cannot possibly make out that he is an IITian who quit the mainstream career options to make a difference to his village (Click here to read more). Not sure if one Kuthambakkam amongst 265,000 Gram Panchayats in the country can be viewed as glass half-full. 

Later Aavishkar Venture Management co-founder Vineet Rai spoke on how they have partnered with Elango's Panchayat on one of their projects to manufacture burners. Now that the demand for the burners couldn't be serviced from the village alone, owing to its production limitations, the firm was looking for other communities that it could partner with. 

All in all, though the panel did manage to throw some interesting tit-bits, it failed to focus on the theme of entrepreneurial opportunities in the rural market. Though the panelists managed to hover around the subject, neither the entrepreneur nor the two social venture capitalists in the panel could bring to light some of the opportunities and challenges of entrepreneurship. It would have been good to hear on some of the entrepreneurial initiatives on ground that the VC firms have funded and how they have created a social impact. Probably, someone from Acumen Funds, Ashoka Foundation or Skoll Foundation would have been more appropriate considering the theme.  

The panel discussion on "Financial Products for Rural Consumers": had a better panel mix - Vijay Mahajan of Basix, Somak Ghosh of Yes Bank, Viral Acharya of LBS, Priya Basu of World Bank and Rajesh Balaraman of Diamond Consulting. Talking about about recent findings (check my earlier post) on missed opportunity in the rural sector, Rajesh spoke about how apart from Product, Cost and Convenience, Eligibility Criteria needed much focus. Many of the rural consumers surveyed lacked financial literacy and preferred borrowing from the money lender owing to huge ambiguity that surrounds the paper work with a formal financial institution.

Priya talked about policy implications and how it would be good to have "Priority Sector Lending" part of a bank's obligation tradeable so that the counterparts more competent in rural banking could do it more efficiently and effectively. Speaking on how from a banking perspective the urban poor was not any different from that of a rural one, Somak Ghosh called for more action from all domestic banks - both public sector and private sector ones.

Taking a tangential view, Vijay Mahajan spoke of how it was not product offerings, but channel that has been a barrier in expanding to the rural market. In his words - "Products is a glib MBA talk. What is needed is one to travel to slums and deliver the product at the poor's footsteps". Speaking of customer friendliness, he cited his experience with a bank in Salempur, which is in the heart of the city, had created such a perceivable barrier for a bank customer, let alone a prospect,  to make any transactions. In a country where one has cumbersome, and in some cases no options, to get a birth certificate as a proof-of-age, it is ridiculous that a formal financial institution mandates this document as prerequisite for opening an account of any kind. He proposed a 3P focus on channel strategy - Place, Process and People.  In his view, STEMS - Single Terminal Enabling Multiple Services - and pre-paid debit cards such as Zipp Interchange, was the key to provide low-cost, yet friendly, banking services to the rural.

In the subsequent key note session, Abhijit Banerjee, Director of Poverty Action Lab at MIT, spoke about primary education and its challenges. His talk was primarily centered on Pratham's ASER report and findings from experiments conducted by MIT. It was sad however that the talk did not dwell on the entrepreneurial opportunities in the sector. More so, not much was spoken about the limitations of a technology in improving the access and quality of education. 

Though the following panel discussion on "Supply chain and Logistics" had dignitaries from Reuteurs, Reliance, HLL and Mahagrapes, it failed to throw any insights into the opportunties and challenges. One interesting thing that came out of the session was RML - Reuters Market Light - a BOP service from Reuters that provides mobile information services to the farmer. It was good to hear some evidences, though anecdotal, on how this information service helped farmers in making better decisions and subsequently in making higher profits.

Overall, the second India Business Forum could be termed informative. However, there was probably a scope for more insightful & quality discussions. The conference seemed to rather just scratch the surface of business opportunities and hurdles in the countryside. It is sad that none of the politicians invited to the panel discussions did not make it, despite this being scheduled on Sunday. I hope such conferences are not an end in itself but a beginning to more fruitful brainstorming, action plans and cross-sector partnerships. I keenly await to see how LBS takes this forward.

~ Santosh 

 

Who would not want to listen to  the distinguished likes of Nachiket Mor, Dr. Swaminathan Aiyer and Vijay Mahajan, even if it meant  dragging oneself out of bed on the wee hours of Delhi's coldest Sunday morning? I couldn't resist missing the Second Annual India Conference organized by London Business School on the theme "Exploring Business Opportunities in Rural India".  Well, given that it was something to do with rural, I wasn't expecting the gathering to be dressed in the best of business suits. Luckily I was not dressed way out of place. I could manage to hide in the corner and focus on more important things. 

Let me begin with kudos to LBS students for their commendable effort in putting together this conference, especially given that they had to conceive, plan and organize the event sitting in UK. After conducting one such event (Social Responsibility Conclave at ISB), I can imagine and vouch for the amount of efforts that would have gone into this event management. The theme could also have not been more appropriate given the unprecedented interest from all sectors of society in rural economy.

Nachiket Mor was at his usual best in the opening key note setting the stage for subsequent sessions. Though he spoke more from ICICI Foundation's initiatives end, the strategies outlined - strengthening the rural delivery channels and creation of operating business models - seemed relevant to anyone interested in rural business. Touching upon the potential of and risks involved in Microfinance, he compared Grameen model with that of Compartamos (refer to my earlier post). While he was all praise for Grameen model, he cautioned on the commercial model of Compartamos, for in the shareholder's interest, it is virtually impossible to reduce the already exorbitant interest rates charged to the borrower. He said the irrational interest rates that Compartamos could charge was due to the illiquid immature market in Mexico.

He then went on to explain how some of the innovative rural products such as weather insurance which was pioneered along with Basix, as a better alternative to crop insurance, failed for the simple reason that there were not many weather stations close to the farmer's village. In a place where the local weather information was fed from a nearest weather station that was a 100 km away, why would a farmer pay for the premium? The post-analysis showed that in order for this product to make any inroads, a whooping 50,000 additional weather stations were required in the country. Nachiket also made a case for listing India's rainfall index, like that of other countries, in the international market. Moving from the financial products front, he later talked about the need for operating business models such as Fab India and Indonesia's Ramayana stores and networked enterprises such as Rural BPO and Rural tourism in the rural space. 

Taking on questions from the attendees, he mentioned the reason for proliferating ATMs in India. It was interesting to know that though the per transaction cost in a ATM model was much higher than a Teller model for the bank, it was the option that many banks embraced to get around the branch licensing restrictions. He ended his energetic talk on a note that he personally did not believe that market per se was not the panacea for reaching rural poor. 
 
The next speaker Dr. Swaminathan Aiyer, in a typical journalist kurta, started off saying he was asked to fill in the shoes of Tata Sons' JJ Irani just last night. He wondered why one assumes a journalist, owing to their apparent instant wisdom, is always assumed to be able to talk any topic. What was surprising was he had managed to put in a carefully thought out presentation with  3 relevant preconditions for rural economy to take off - Infrastructure & Connectivity, Capital, and Education and Skills development.

Talking about rurbanization, he went on to explain how due to lack of infrastructural support, an Indian village with 10,000 population was still called rural while an American village with 800 population was considered urban. Tamilnadu, the most urbanized state in the country (44% urban), owes credit to its unparalleled connectivity. He noted from his observation how once he could only cite a couple of tea shops on Delhi-Dehradun roadway when there was no highway. When he recently heard of a 8 crore worth robbery on the same highway, he said, on an albeit lighter note, on how this was indeed a sign of prosperity owing to good connectivity.

He then cited his shocking experience at Dhaka where he was trying to find if microfinance was the panacea to poverty. It is ironical to note that all the recipients of the microfinance were better-off, but in larger picture, the village was not any better-off. There were only limited entrepreneurial opportunities that were viable in a village. Well, it is unrealistic to expect to every microfinance borrower to open a tea shop in the village. He also cited how a woman due to social dis-empowerment has hardly seen a customer and hence cannot think of anything but buying a buffalo, in some cases goats, for livelihood. He ended stressing on the need for expanding the total available business space in the rural India.  

The syntactical oversights ('manks' in the place of 'banks') on and plain template of his Powerpoint presentation was evidence of how short a notice he was given to address the gathering. Anyways, who would complain after such an informational talk that drew lessons from his personal experiences. After all 'Swaminomics' would not have carved a niche and emerged from no where!

To be continued.. (check next post)

~ Santosh

 

How many times have you been harassed by telemarketing calls at the weirdest of hours asking you if you need a home loan or a credit card? What is so impalpable is how they manage to call you at the most inconvenient time and offer you the most irksome basket of products/services that you hardly perceive as needed. Sometimes one needs to try out the Sienfeld way of responding to these irritant pricks. For me, I have just entered all my contact numbers that I'm even remotely linked to in the National Do Not Call Registry. Hopefully, I don't get bombarded with a series of calls from the service-provider's staff confirming whether I really meant to not be contacted when I opted for this option.

While one learns to patiently deal with these inevitable calls, it is ironical to note that that these marketed services never reach those who are in dire need of them. If we take the banking services in particular, it is shocking to note that the second fastest growing economy in the world has about 240 million unbanked adults as per the reports. Rural lending to total bank lending has shown a steady decline since 1990s. The skewed outreach of our banks becomes evident when one looks at statistics that show that with a mere 19% rural penetration, only 30% of the deposit accounts are in rural areas. What is worse is, where these services are accessible, the poverty penalty is as high as 10%. 

While we acknowledge that there are a number of grassroot changes, such as microfinance, taking place in the countryside, the fundamental question that needs answer is are the rural poor indeed unbankable? To put it the right way, as Nobel Laurette Muhummad Yunus says - "It is not people who are not credit-worthy. It's banks that aren't people worthy". Are the grassroot revolutions, microfinance in particular, a viable solution to poverty - a problem which humiliates and denigrates everything that a human being stands for?

(More on rural banking, agriculture lending and ebanking in the coming posts)

~ Santosh

 

While on one hand the news of executives of Indian origin - Citi's Pandit, Pepsi's Indra Nooyi, Vodafones' Arun Sarin to name a few - reigning on top of the business world behemoths, says something of our Indian education system, the ghastly news, of perhaps the first incident of its kind in the country, which brought to light a high school student being shot  by his unrepentant classmates, probably speaks otherwise. While this post offers no knee-jerk reaction to the latter, it makes an attempt to bring forth the dual side of Indian higher education system's achievements vis-a-vis that of from other parts of the world.

The feats of Indian engineers and business professionals abroad speaks enough of our highly acclaimed higher education system. On a lighter note, it is interesting to note that our IIT engineers have made appearances in the Dilbert cartoons. However, when these feats are put on a wider spectrum, irreconcilable diverse points of view come to light. As soon as one ferrets through some of the statistics of post graduates from our colleges and universities, moribund nature of our quality of research and value system emphasis becomes evident.  

On the numbers front, India's production of 2.5 million graduates each year, trails behind only US and China. On the quality front its a mixed bag with skewed statistics. While IITs, IIMs and ISB have become truly global brands, the quality of many other 300 universities and more than 15000 colleges is questionable to mention the least. What needs pondering is whether the quality of our research, the breadth of our innovations, the number and frequency of entrepreneurial incubations, and the depth of our faculty reached anywhere close to that of Harvard, MIT or Stanford?

If one takes management education itself, with 1400 B-schools in India, we produce almost seven times the number of B-school graduates in UK. If one were to measure the quality of our management education in terms of return on investment and number of graduates managing to get glamorous jobs with top investment banks and consulting firms, then we can definitely pat our back. But if this was the only yard stick then we would have long back been on the much coveted B-school rankings. Sadly for  our Indian B-schools, the rankings take a holistic view of the school and their management professionals.

While we still fight to find a remote mention in these rankings, I wonder whether today's "supposedly" creme de la creme graduates from IIMs and ISB are well equipped with social , environmental and economic perspectives which are required for business success in a competitive and fast changing world.

We have the numbers; We have the talents; Do we have the motivation? (More of Indian B-schools and their social & environmental stewardship in coming posts) 

~ Santosh

 

It was heart-rending to watch media images last evening of two 10-year olds yoked to a plough and laboring in the soggy fields of Bihar. While such brutal images are neither uncommon or unfathomable in a country which has the largest number of working children (115 million) in the world, what is shocking is that it was Union Rural Development Minister's elder brother who employed these young boys. What was even more horrid was how with no self-disgust whatsoever, in fact with a tinge of pride, he justified this remorseless act. According to him since the farm area was waterlogged, neither tractors nor bulls could be used to plough the fields and hence he had no choice but to employ the children. As far as the Minister's response goes, let us not even venture into what political spin he managed to give and escape the brunt. What an irony that he is democratically elected to shape the development of our rural masses!

While on one hand, the global attention from countries, international development agencies and MNCs to the child labor has mandated stricter actions from and controls on our end, I wonder how domestic labor such as this which rarely come to light, be subverted. It took US government's notification on imported goods, made using child labor,  to finally wake us up. The concerned Ministry and Export Promotion Council decided that the five child-labor sensitive sectors - carpets, handicraft, gems & jewelery, sports goods and apparel - would be required to conduct external social audit in a transparent manner. The audits apparently would be open for examination by anyone who is interested. I'm not sure if this auditing of child labor practices would in any way go beyond papers. I wonder whether such act of banning child labor is mere treating of a symptom or this is in fact the panacea to break the vicious intergenerational cycle of poverty.

For now, I'm not sure if the concerned take any remote actions against the Minister's brother following the FIR lodged under the Child Labor Prevention Act. However, I'm quite sure that in the public mind space this is just one of those short-lived imageries that would get masked by the greener cricket field ones flashed by the media.  

Just another flash in the pan??

~ Santosh

 

I wonder how many would today resonate with the then Prime minister Lal Bahadur Shastri's slogan "Jai Jawan, Jai Kisan" (Hail the soldier, Hail the farmer). While the country still honors the many soldiers for their sacrifices, I have my own doubts on whether the Kisan has managed to garner the same attention let alone the much deserved respect.

As the nation booms in the digital economy, agriculture - the once backbone of the country - seems to be pushed into the backdrop. One forgets that it is Kisan, the lost soul, who still contributes about a fifth of economic output. The sector that employs about a 2/3rd of India's billions seems to not get the much deserved priority, status and respect in the eyes of the elected and bureaucrats, let alone the common man. 

Even the unprecedented deaths of farmers - on an average, one farmer dies every 30 minutes -  in the recent past has presumably not evoked the actions or emotions in our minds. Are these deaths a desperate attempt by the Kisan asking us to juxtapose the rate of farmer suicide with that of killings in the defense? Are these uncalled deaths not enough to bring to light our failed policies and inability to provide access to affordable credit? Do they not tell the tales of greedy middlemen and corrupt administration?

Probably the wake up call would come when this continued passivity hits the food security. It's an irony that we, despite being the world's 2nd largest wheat producer the world, had to import wheat from US and Canada last year.  With the rate of agricultural growth falling from 5% in the mid-1980s to less than 2% in the past 5 years, the demand-supply gap for the staples seem to be rising. For rice alone this gap was around 4 million tonnes.

For now, the good news is that the Prime minister Manmohan Singh has at least acknowledged that the agriculture in many parts of the state is in crisis.

(More on the Kisan story in the coming blogs..)

~Santosh

 

An interesting read impelled me to find out where India stands vis-a-vis rest of the world with respect to innovatio.  Some of the facts I managed to find did massage the patriotic side of my ego - the fastest supercomputer in Asia is owned by an Indian firm; in the field of satellite imagery India is the 2nd best in the world; more than 300 MNCs have set up R&D centers in India; and Indian Americans account for 26 per cent of tech firms founded by immigrants as a whole.

But, in a country where -  more than 800 million earn an income of less than Rs. 20 per day, only 14 in 1000 people have access to PC, internet penetration is less than 0.5%, less than 7% of labor force is employed in the formal economy and more than 70% of population is still rural - do these innovations really matter to the common masses?

The concept of innovating for the BOP segment originated in the west. Everyone knows that one of the prominent think-tanks behind the concept of BOP, Prof. CK Prahalad, who was recently voted as the "World's Greatest Management Thinker", is of Indian origin. One also knows that India boasts of BOP innovations such as that of HLL, ICICI, Jaipur Foot, Aravind Eye Hospital.  But the question that makes me ponder is in the "Inclusive Innovation" landscape where do we stand today?

Today when one thinks of advancing social innovations and fostering grassroots entrepreneurs, the names that flash are the likes of  - Ashoka Foundation, Acumen Funds and Skoll Foundation. Sometimes I wonder why even the most optimistic eyes can't find one such Indian venture philanthropic firm incubating social enterprises through their financial capital and business acumen. 

Some might argue that it is only those wealthy likes of Americans & Europeans who can afford to get into this philanthropic space. Well, in a nation which today boasts of Ambanis and Mittals, who are constantly raising up in the ranks of the world's richest (As per Forbes Rich List, India has more billionaires today than any other Asian country), is there a lack of high net worth individuals? Or is one claiming that for those with the entrepreneurial zeal to create such fostering organizations it is tough to raise capital in a global world?

(More on this in the coming posts..)

~ Santosh

 

The first ever major controversy surrounding Microfinance seems to have gained steam with Muhamma Yunus, the Nobel laureate, openly challenging Carols of Compartamos bank. The debate is over whether the capitalist or the socialist approach is the right model in the step to alleviate poverty.

Compartamos (which means "Let's share" in Spanish) a prominent Mexican MFI is charged with exploiting the poor with their loans that carry an exorbitant annual interest rate of 100%. While the founders of the MFI claim that such lending rates are necessary in the wake of high cost of capital, and needed to cover the high operational costs of lending and maintaining lower denomination loans, one wonders how this lending rate is almost thrice that of other MFIs.

The Nobel laureate who pioneered the Microcredit movement three decades back challenges this model and dismisses this as a model that would eventually be a thing of past just as money-lenders have faded away. But then I wonder why the borrower still flocks to Compartamos if he/she thought he/she was being exploited. Is it lack of other cheaper borrowing options? If so then why don't we see likes of Grameen bank, who consider microcredit as a philosophy and not look at it with just the financial bottom-line, lending at lower interest rates in Mexico?

At the risk of sounding a socialist, I second the Grameen school of thought. I see MFIs as social enterprises and not just a traditional for-profit firm going by willingness-to-pay. In my opinion, this defeats the very purpose of microcredit. On one hand while I believe in market forces and existence of invisible hands, I fail to see how this is the right approach to lift oneself out of poverty.

Catch a glimpse of this debate on PBS Video. You may also want to peruse on the two distinct school of thoughts here.

~ Santosh


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