The Hindu Business Line : Is micro-credit a macro trap?

The incredible spread of micro-credit across rural areas has earned national and international accolades for the Chandrababu Naidu Government in the State.

The Andhra Pradesh Chief Minister misses no opportunity to reiterate that his is, indeed, the "largest organised anti-poverty initiative in the world".

Given that some 5.5 million women are engaged in micro-credit initiative across the State, the claim seems legitimate. More so, when these women have mobilised credit worth Rs 565 crore during the past financial year alone.

Not only has the number of self-help groups swelled in the past, the credit mobilised by these groups has shown an upward trend too.

Thanks to the dramatic increase in the number of lending institutions, from State agencies to external donors and from non-governmental organisations to commercial banks, credit is virtually available at every doorstep in rural Andhra Pradesh.

But easy credit has not transformed the lives of women any bit. Micro-credit has neither created nor helped accumulate wealth.

Despite the phenomenal growth of micro-credit, average savings per member of the group have been a pitiable Rs 337 over the past year. At an unbelievable interest rate of 2 per cent a month (24 per cent a year) on which SHG loans are granted, the first priority understandably, is family expenditure, not savings.

Most commercial banks, under instructions from the National Bank for Agriculture and Rural Development (Nabard), charge an annual interest rate of 13 per cent on each loan.

To make profit and to cover the operational costs, the SHGs, in turn, levy an interest rate of 24 per cent. Groups with exceptional entrepreneurial skills do make profit but a large majority of groups only manage to repay the loans by making small savings at home.

Far from generating wealth, the repayment pressure dries the household's existing savings. Where women lack productive work due to poverty and deprivation, the micro-credit loans become a debt-trap for the household.

SHGs have neither acted as safety-nets under adverse conditions, such as drought, nor have they transformed the economic status of women. In the current milieu, the role of SHGs stands circumscribed.

It might come as a surprise to those who may have rated the micro-credit movement in Andhra Pradesh in high esteem. In effect, however, it is not very different than the micro-credit movement in Bangladesh and Bolivia. While the Bangladesh Grameen Bank model of micro-credit has landed poor communities in a perpetual debt-trap, the rising number of loan defaulters has given a serious setback to the Bolivian experiment.

The goings-on in Andhra Pradesh are not unexpected either. However, it is another matter that the governments and donors neither picked up the clues nor are willing to do so now.

The Rural Development Ministry is upbeat about its target of creating 1.4 million SHGs in the country within the next three years. Nabard has contemplated an increase in demand for rural short-term credit by Rs 280-860 crore every year for the next five years.

But why is the Government pursuing the micro-credit route to rural emancipation when the results are just the opposite? It helps the formal banking system escape its primary responsibility of extending credit to the rural poor; it helps the government divert people's attention from the real life problems; and it helps politicians get captive audience (SHG members) for their political meetings.

Going by the manner in which an FMCG giant successfully used the large presence of SHGs in an AP district, to market its products, it is apparent that the Government's sponsorship of micro-credit movement is to facilitate corporatisation of the rural market.

While the corporate sector builds itself on the firm foundation of SHGs, political parties gain corporate patronage in the bargain.

No wonder, therefore, that unlike other issues there is a broad political consensus on micro-credit among all political parties.

All-round thrust on promotion of SHGs in the rural areas has found favour with all and sundry. The Prime Minister has gone a step ahead by giving a clarion call to the industry to join the movement.

Though politically disparate, the Madhya Pradesh Chief Minister, Mr Dijvijay Singh, is in tune with the Centre in the matter. The Chief Minister has allowed the 12,000 newly created micro-credit societies for sourcing consumer products by two corporate giants.

Far from eradicating poverty from the rural areas, the micro-credit hype is driving poor into a world of illusionary freedom, growth and development.

In reality, micro-credit is making the poor perpetually dependent on the forces they have little control over. The writing on the wall is clear.

(The author is a development analyst attached to the Delhi-based the Ecological Foundation. He can be reached at sudhirendar@vsnl.net)

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