Who are you? After reading about a few of the 150 to 200 million borrowers driving the global trend of microfinance, a desire instilled – I want to know you. How many children do you have? Do they work in the fields or go to school? Is your livelihood dependent on the rainfall? What other unpredictable elements make you so “risky”? Is your husband ill? Did the outrageous interest rate on the loan from a local moneylender bury your hope for economic promise? Does your community stand strong and in union? What are your dreams?
Okay so you are in the ‘developing’ world. You are likely a woman. And a good number of you are probably out right now pushing a small creaky wooden cart piled high with fruit and vegetables, or perhaps you attractively aligned them on a large blue tarp blanketing the sidewalk or dirt beneath. Admittedly, I learned a fair amount about you already from Abhijit Banerjee and Esther Duflo, coauthors of “Poor Economics” (a must-read for anyone interested in global health, and well… anyone discontented with the worldly state of affairs comprising 13% living on less than 99 cents/day [World Bank, 2005], and so… really anyone interested in understanding how poor people make decisions and using this enlightenment as a means to fight global poverty = highly recommended).
So if you are living in urban Hyderabad (as we are now) and in a household living below $2/day (as we are NOT), you are primarily borrowing from moneylenders (52%), friends or neighbors (24%), and family members (13%). Why not commercial banks? Perhaps these givers of formal credit view you as more likely to default, and furthermore, to investigate your trustworthiness is just too costly an investment. Both have some reason. Therefore, you instead borrow from moneylenders with annual interest rates ranging 57 to >800% in the extremist of cases. No wonder you feel swallowed. Enter microfinancing. Now this alternative offers lower interest rate loans (in South Asia, ~25% annually) and nonthreatening loan officers (at least in theory) but at the ‘expense’ of reduced flexibility in borrowing. You borrow in groups thus enforcing joint liability as well as weekly meetings and the rigid rule of a fixed payment beginning week one post-disbursement. Understandably, such stringency may be tough for you.
Well I am from the ‘developed’ world. But I am in the business of borrowing money too. The difference is that for me, it was quite easy. Rather, too easy. Educational loans—the only kind I have—are viewed as secure investments with a high margin for return at a point still unknown to me later in life. Mostly from the government (and just a ‘tiny’ bit from the bank), the funds are directly deposited into my checking account after inking a few official-looking documents. Today I wonder, why I am considered trustworthy? I have not raised a single child (let alone 7, 8, or 9), I have not seen a harvest through from seedling to sacks-full on sale at the urban market each Sunday, I have not borrowed before or even repaid a single penny of the macro-credit I owe.
Thinking this through, I emerged from the sheltering of our back porch down the two flights of stairs to our quieter city street. The photo below captures what was waiting outside our apartment building. Of course, a woman was behind it all. Again, I want to know you. I can say with confidence that loans are a [necessary] vehicle for helping me realize my dreams, but I’m not so sure, are they doing the same for you?