Padmaja Reddy belonging to Guntur in Andhra Pradesh was a typical housewife till she struck up a conversation with a ragpicker pushing a handcart outside her house in the 1990s. The pushcart was on lease and the lease rentals were eating into the surplus that the ragpicker would make everyday.
The formal banking system had ‘procedures’ which were not easy to comply with. So Padmaja Reddy gave her a loan on soft terms and soon there were other indigent women who queued up for similar loans. Thus was born SpandanaSphoortyFinancial Limited which is now a Non-Banking Finance Company listed on the stock exchanges, profitably run, doling out small sums of money to poor women across the country.Spandana has 30 lakh customers today and the total loans given aggregate to Rs. 6000 crore.
Micro-credit, as this activity is known, is making a major difference in the lives of millions of people across India, especially women. The impact generated by entities such asSpandana got a leg-up recently with the Nobel Prize in Economics for 2019 going to Abhijit Banerjee (India-bornUS-citizen), his wifeEsther Duflo and MichaelKramer who were recognised for their ‘experimental approach to alleviating global poverty’.
Till now, the focus was on the big theories in economics which would reduce global poverty and lift people to standards of living acceptable to the developed world. Classical economics, neo-classical economics and theories of Marx/Engels had approached the topic from a higher-level perspective.
But Abhijit Banerjee and partners had been conducting small field trials (which are appealing in their originality and simplicity) to draw conclusions on what kind of work really produces effects on the ground in alleviating poverty and making a difference.
The Nobel Prizes this year for Economics thus marks a significant shift in focus from big theories to path-breaking ground work in poverty alleviation. This has special relevance for India as it is estimated that nearly 22% of Indians still are below the poverty line and need support so that our society becomes more egalitarian.
In schools across the country even now a pledge is taken in the morning which reiterates that “all Indians are my brothers and sisters”. If this has to have a real meaning, our collective conscience should remain disturbed till poverty is fully eradicated in our country and the last man/woman standing has a decent lifestyle which is the minimum-acceptable to any modern society.
While the 2019 Nobel in Economics has drawn attention to this area, we should also remember that the brilliantly practical theme of ‘Antyodaya’ (the resurgence of the lowliest) was articulated first by Pandit Deendayal Upadhyaya, an original socio-economic thinker of the last century.Poverty alleviation was a constant obsession for Deendayal Upadhyaya.
Loans for marginalised
The Union Government has been piloting a scheme called the Deendayal Antyodaya Yojana through the banks in the country in both rural and urban areas. Under the scheme, bank loans for amounts, ranging from Rs 10,000 to Rs 50,000 disbursed to Self-Help Groups (SHGs),have already helped in demonstrably altering the lives of lakhs of women all over the country.
The SHGs are typically groups of ten women in the same neighbourhood pursuing economic activities such as food processing, catering, tailoring and tiny local trade including vegetable vending, dairy and backyard poultry. Banks lend them small sums in doses under a 5-year annually stepped-up credit-support structure. These loans have proved to be extremely popular among the marginalised and have bound these women in meaningful economic pursuits making for positive changes in their own lives as well in their neighbourhoods.
In a silent revolution of sorts during the last five years, the loans under DAY all over India, have grown from Rs.23,319 crore to Rs.84,790 crore and the number of SHGs who have received this credit support stood at 5.13 million as on March 31, 2019. (Each SHG will consist of at least 10 women. So, the number of beneficiaries would be about 5.5 - 6 crore, taking individual SHG members at 10 - 12).
Obviously, to the extent that the loan growth indicates, the dependence on private money lenders has been reduced for these groups, who continued to be ‘credit-excluded’ earlier from formal banking channels. That a few State Governments such as Kerala, Telangana, Andhra Pradesh, Bihar and Odisha have latched on to this opportunity by creating the right ecosystems for nurturing these women SHGs is reflected in the relatively higher disbursals under DAY in these States.
Kerala, strikingly, is a good example of the power and the potential of the women SHGs where the State Government has been continuously building up this network of women and use it for taking them to the forefront in other innovative socio-economic activities as well. For instance, the Government of Kerala has recently promoted and used women SHGs for the entire construction of houses in the Rebuild Kerala programme, post last year’s devastating floods.
The opportunity for all State Governments to tap this fully Centre-funded low-interest credit linkage programme is immense. The experience of State Bank of India as the largest lender in the country is that wherever the States have understood the opportunity that DAY affords and entrusted the leadership to efficient bureaucrats, the traction has been immense. And, with attendant benefits to the lending banks as well.
While the banking system as a whole has been beset by the elevated level of non-performing assets (NPAs), the SHG loans is one sector where delinquencies are lower. Even where defaults are noticed, mostly it does not arise out of wilful default - empirically, the credit morality and the ‘intent to repay’are the highest among women, especially those who borrow relatively smaller sums. It is a tribute to womanhood in general that bankers face lesser problems in recovery of their loans!
What then is the potential we are talking about, based on the budget announcement ? Under the Jan Dhan Yojana, banks had at last count (as of June, 2019), opened 36.25 crore accounts.
It may also be worthwhile noting in this context that the public sector banks have opened 35 crore accounts, with State Bank of India alone facilitating 11 crore accounts out of them. The private sector banks have been relatively laggards in this exercise (for various reasons) with the largest contributor from them opening just 47 lakh accounts.
Key to financial inclusion
I believe that a bank account is the key to Financial Inclusion and opens the door to many economic possibilities including micro-credit support. It is estimated that nearly 60% of these accounts are those of women, that is, about 18 crores.
In a country aspiring to pitch real growth rates of 8%, formal credit linkages to these previously excluded groups is an imperative. The number of women already assisted has been estimated at 6 crore, based on the number of SHGs financed. The gap which needs to be filled to ensure full credit inclusion thus becomes about 13 crore people.
In their 2011 popular book, ‘Poor Economics’, Abhijit V.Banerjee and Esther Duflowrote that Micro-credit works, based on results from their field studies. “In our minds, microcredit has earned its rightful place as one of the key instruments in the fight against poverty,” say the authors.
From a bankers’ perspective, I believe that micro credit and support for loans through the SHG scheme will well and truly contribute to ‘Antyodaya’ as envisaged by its original proponent, Deendayal Upadhyaya.