Microfinance is good if we accept that everyone needs to make money

This blogpost first appeared in Trak.in on 18 October 2010

Some twenty years ago in the dusty suburb of Pune called Pimpri Camp there used to live a Sindhi businesssman. His fame in the industrial mess in that godforsaken place was due to his business model. Say if you were the owner of a handcart and wanted Rs 100 to buy bananas from the wholesale market, the Sindhi gent would give the money to you if you promised to return the money along with a small fee of Rs 15 at the end of the day. Yes you heard me right - take Rs 100 at seven in the morning and return Rs 115 at seven in the evening.

Every morning atleast a few hundred men and women would queue up along the bylane where he had setup shop. My father used to talk about him with the reverence given to true social workers. He used to say that he knew atleast twenty families that supplemented their income by using this Rs 100 loan everyday. The women in these families bought wheat flour, oil and kerosene and made chappatis everyday and sold them at 1 rupee each to the TELCO factory. The economics was sane - you could make around 200 chappatis at an average with that money - an income of Rs 85 per day.

The security deposit that you gave the 'moneylender' was just a reference of someone who used the service for atleast 3 months. That's it. If you did not pay back for three days your reference would not get the money and would be blacklisted. The system worked it seems till the gent passed away. But he extended his line of business to renting handcarts and then rickshaws.

In recent times if you travel down to Borivali - the northern most outpost of Mumbai using the Malad Link Road post midnight, you are likely to see rows and rows of rickshaws along the road. These form an organised 'rent by the day' method of working. You provide a copy of your license and a reference and hire a rickshaw for 12 hours for x amount, you can keep the money that you earn minus the daily rent and the cost of fuel. Efficient and enterprising politicians of all hues and colour own atleast 200 plus rickshaws and rumours are that they make around Rupees 100 - 150 per day - thats Rs 20000 per day on the lower side or Rs 600000 per month, tax free I assume.

The point I am making is that microfinance is nothing new. It has existed for a long long time. The workings have been exposed and outrage has piled up on the corporate ones only now when moneyed, educated, sophisticates have entered the fray with truck loads of money - from other banks and the public and have stopped pretending that they are here for doing good. Once we accept that microfinance like any other form of business has the aim of making money for its stakeholders, including the borrower, the bitterness goes away.

If anyone needs to take the blame for the lack of options for the women who need Rs 3000 a month to buy wheat flour, or Rs 2500 for buying a sewing machine, it is the existing banking infrastructure. When the treat people like you and me like a piece of thrash, I can imagine what they would do to the people at the lower strata. It makes me wonder when Mr O P Bhatt, Chairman of State Bank of India - one of the largest banking networks in India says in the Times of India he is surprised by the numbers of the microfinance companies. I am surprised that the postal network, the branch network and the reach of the cooperative movement has not been used to lead the way. Atleast you would not express surprise!

What we need is not mega venture funded companies - they serve their purpose too but are not easy to digest :), we need a thousand people who are like the Sindhi businessman from Pimpri Camp or even the politicians of Mumbai who provide a source of income to the a few hundred migrants. Their aims must be dubious but they do serve a purpose. And how different are they from the microfinance guys anyways?

I recently invested a modest amount of Rs 500 through RangDe.org. Of the amount Rs 400 went to Rama Dipak of Maharashtra who wants to setup a diary business and Rs 100 to Ujjwala Santosh who wants to buy a sewing machine. Between the two they needed to raise Rs 7500 and thirteen people contributed towards the amount. None of us are expecting to make any money on this investment, though the promised rate is of 3.5% per annum. If this experiment works I am willing to invest a small sum every month and hopefully a few people will raise themselves and live with dignity. I think its a great thought, only problem is that if RangDe succeed twenty similar ventures will be setup and the same story would get repeated.

I can bet that the social - collective - investing is a fantastic idea and the ones who want to get involved can start small. Locality based startups that work closely with the people who want to volunteer with money and time. We used to call this Social Service under the NSS in college. I wonder if it exists!