Micro finance for poverty alleviation: Why run after alien models?
VEHICLE OF POVERTY ALLEVIATION: Micro Finance has come to be regarded
as an accepted vehicle of poverty alleviation though the topic is not
without debate notably in respect of its contribution to a rapid
boosting of a national economy. Who provides micro-finance? When you
look at Sri Lanka, there is a plethora of micro-finance providers.
There are the international organisers who pressurize the Government
to be active in the provision of micro-finance to the poor so that they
are pushed over the poverty line. There are countries which bilaterally
encourage the provision of micro-finance.
Then, there are the International Non-Governmental Organisations (INGOs)
as well as the local NGOs in the fray of providing micro-finance to the
poor. The former either does it directly or through the local NGOs of
The international organization and those bilaterally supporting
countries channel micro-finance with Government's contributions through
the Finance Ministry and the Central Bank via the recognized
micro-finance institutions namely the Development Banks. State
Commercial Banks and the willing Private Banks. To reach the
grass-roots, some of them use the financial intermediaries operating at
national, regional and local levels.
The National Development Trust Fund (Former Janasaviya Trust Fund)
also an important disburser of micro-finance through its partner
organizations (POs). In addition, there are micro-finance components in
many development projects under various ministries and departments. So
we have a jumble of micro-finance providers.
All of their roads, they say, lead to poverty alleviation. But has
the poverty really decreased over the year. The urban poverty is being
contained at 8%, However, 25% of the rural population is poor, Estate
poverty has increased to 30%. On the whole, a minimum of 23% of the
population outside North and East remain poor.
According to the Department of Census and Statistics (DCS), no
significant dent has been made in poverty alleviation over the past
decade or so. As a matter of fact, DCS expresses its doubt about the
possible attainment of the poverty alleviation targets envisaged in the
Millennium Development Goals (MDG), that is, reducing the overall
poverty to 13% set for the year 2015.
Most of the other MDG 2015 goals have been already achieved or
achievable by that year. But perhaps not poverty that continue to haunt
us severely despite many development strategies launched and that many
micro-finance windows are said to be in active operation.
Micro-finance has gone down the pipe-line admirably well from the
national level to the regional level and from the regional level even to
the local levels with less vigour during the past decade or two. But the
local level has micro-finance gone to the deserving and for the intended
purposes? Of the deserving too, has it gone to the poor at the bottom
layers? This remains the grey area in the path of micro-finance flow.
Arm-chair micro-finance theoreticians at the national level in
particular appear to be fond of adducing many reasons for this clogging
of micro-finance near the door-steps of the deserving borrowers, having
moved it so far from the national level through the regional level and
even to the periphery of the local level.
The reason or reasons may vary from location to location, types of
intended activities for which micro-finances are made available,
supply-driven nature of the micro-finance provision, interest rate
structures, not meeting adequately the credit pluses so vividly spoken
of but not provided or inadequately provided, consumer preference and
consumer tastes unfavourable to what are being produced in income
generating activities of the poor supported with micro-finance,
micro-finance beneficiaries using their income generating activities as
marginally supplementing the traditional family income source which is
something else (e.g. farming), the poor with many worry-beads around
their necks in a perpetual struggle to get rid of them being compelled
to divert their resources and micro-finance received or receivable less
for the intended income generating activities which are often
time-specified, resource-specified, produce-specified activities that
the beneficiaries are unable to comply with and many other reasons not
clearly known to the micro-finance wizards at national and even at
regional levels. Hence, the grey area referred to earlier continue to
remain not cleared.
So we have two problems in hand. One is that at the national level we
have no effective pivotal point which very effectively look for who
provides micro-finance in what amounts, to whom for what, when, where,
under what terms and conditions etc.
These may be well expressed on paper backed with statistical tables
but what is expressed on paper and what is on the ground are often found
to be not the same. This pivotal point be it under the Ministry of
Finance (with National Development Trust Fund as its Secretariat) or the
Central Bank (with the Regional Development Department as its
Secretariat) or any other organ deemed fit enough should be empowered to
look into the workings of all the micro-finance providers who should be
made responsible to report to it.
It should also be empowered as a clearing house where information
should be called for, collected, collated, processed and disseminated to
micro-finance providers and other relevant agencies so that there is a
high degree of transparency and information exchange facility among the
There has to be an open understanding. The micro-finance providers
are so many, who knows that for the same purposes beneficiaries have
taken loans from different sources? Some have taken loans to repay loan
installments of previous loans! So the information at the beneficiary
levels should be accurately collected and stored.