Over these years, no other form of financial services has had the kind of far-reaching impact, in terms of fostering financial inclusion, as microcredit has.
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Access to small, collateral-free loans for economically productive purposes has helped transform the lives of millions at the bottom-of-the-pyramid—especially women. It has helped free them from the clutches of informal moneylenders who would charge exorbitant rates of interest, usurp collateral in the form of land, gold or other assets, and perpetuate a cycle of indebtedness and poverty.
That microfinance ably serves its purpose is evident from the fact that despite several challenges along the way, the industry has not only survived, but grown significantly. Over the past decade, India’s microfinance industry has grown at a compound annual growth rate of 26% to reach ₹2.36 trillion.
It has helped 50 million economically vulnerable Indians, 99% of them women, live a life of dignity and financial independence. Assuming that these 50 million people who took a loan to start a small business employed at least one other person, it translates into 50 million additional jobs in the country.
This creates a ‘network effect’ that has a social impact at scale. Is there any other industry that could have supported these people—who are poor, have little or no assets to their names, and no proper documentation needed for traditional credit—in the manner that microcredit did? It’s doubtful.
Sure, there have been hurdles along the way. But the industry’s inherent resilience, which it draws from robust demand among people at the grassroots looking for some handholding to shape their lives, has made it stronger. Several events over the years—a crisis in Andhra Pradesh in 2010; demonetization in 2016; cyclones and floods in various Indian states—have failed to dent the industry, which continues to serve a vital need.
Recommendations of the Malegam Committee constituted by the Reserve Bank of India (RBI), which became regulations, and practices such as relying on credit bureau data to assess a borrower’s creditworthiness have helped the industry immensely. The vital role that microfinance plays in the last-mile delivery of financial services was acknowledged, and that is why an institution like Bandhan Bank was given a banking licence. Subsequently, eight out of the 10 small finance bank licences granted were also given to microfinance institutions.
Like everything else in life, the microcredit sector is evolving. It is indeed heartening to note that RBI has sought to undertake a comprehensive review of the sector again, after 10 years, to better align the regulatory framework with the sector’s current realities.
Going forward, entities engaged in microfinance need to focus on a few specific tasks for the holistic development of the sector. One of them is to promote financial literacy through group meetings of borrowers. Second, organizations should complement their microcredit operations with social development projects and community-connect initiatives. Third, prospective borrowers’ indebtedness and ability to repay dues should be assessed properly. Fourth, loans must be given only for income-generation purposes. Fifth, every microfinance organization should devote time and resources for capacity building at the grassroots. And last but not least, rather than focusing on taking over the existing debt of a borrower, or lending to her further, institutions should focus on bringing new-to-credit customers into the fold.
There is no better feeling than to see smiles on the faces of people whose lives have been improved by access to organized-sector finance. But the journey has only just begun, and there is much more that we, as a nation, collectively need to do in order to bring a vast population of unbanked and underbanked Indians into the fold of formal financial services.
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[wptelegram-join-channel link=”https://t.me/s/upsctree” text=”Join @upsctree on Telegram”]2021 WEF Global Gender Gap report, which confirmed its 2016 finding of a decline in worldwide progress towards gender parity.
Over 2.8 billion women are legally restricted from having the same choice of jobs as men. As many as 104 countries still have laws preventing women from working in specific jobs, 59 countries have no laws on sexual harassment in the workplace, and it is astonishing that a handful of countries still allow husbands to legally stop their wives from working.
Globally, women’s participation in the labour force is estimated at 63% (as against 94% of men who participate), but India’s is at a dismal 25% or so currently. Most women are in informal and vulnerable employment—domestic help, agriculture, etc—and are always paid less than men.
Recent reports from Assam suggest that women workers in plantations are paid much less than men and never promoted to supervisory roles. The gender wage gap is about 24% globally, and women have lost far more jobs than men during lockdowns.
The problem of gender disparity is compounded by hurdles put up by governments, society and businesses: unequal access to social security schemes, banking services, education, digital services and so on, even as a glass ceiling has kept leadership roles out of women’s reach.
Yes, many governments and businesses had been working on parity before the pandemic struck. But the global gender gap, defined by differences reflected in the social, political, intellectual, cultural and economic attainments or attitudes of men and women, will not narrow in the near future without all major stakeholders working together on a clear agenda—that of economic growth by inclusion.
The WEF report estimates 135 years to close the gap at our current rate of progress based on four pillars: educational attainment, health, economic participation and political empowerment.
India has slipped from rank 112 to 140 in a single year, confirming how hard women were hit by the pandemic. Pakistan and Afghanistan are the only two Asian countries that fared worse.
Here are a few things we must do:
One, frame policies for equal-opportunity employment. Use technology and artificial intelligence to eliminate biases of gender, caste, etc, and select candidates at all levels on merit. Numerous surveys indicate that women in general have a better chance of landing jobs if their gender is not known to recruiters.
Two, foster a culture of gender sensitivity. Take a review of current policies and move from gender-neutral to gender-sensitive. Encourage and insist on diversity and inclusion at all levels, and promote more women internally to leadership roles. Demolish silos to let women grab potential opportunities in hitherto male-dominant roles. Work-from-home has taught us how efficiently women can manage flex-timings and productivity.
Three, deploy corporate social responsibility (CSR) funds for the education and skilling of women and girls at the bottom of the pyramid. CSR allocations to toilet building, the PM-Cares fund and firms’ own trusts could be re-channelled for this.
Four, get more women into research and development (R&D) roles. A study of over 4,000 companies found that more women in R&D jobs resulted in radical innovation. It appears women score far higher than men in championing change. If you seek growth from affordable products and services for low-income groups, women often have the best ideas.
Five, break barriers to allow progress. Cultural and structural issues must be fixed. Unconscious biases and discrimination are rampant even in highly-esteemed organizations. Establish fair and transparent human resource policies.
Six, get involved in local communities to engage them. As Michael Porter said, it is not possible for businesses to sustain long-term shareholder value without ensuring the welfare of the communities they exist in. It is in the best interest of enterprises to engage with local communities to understand and work towards lowering cultural and other barriers in society. It will also help connect with potential customers, employees and special interest groups driving the gender-equity agenda and achieve better diversity.