December 2006
By Abraham M. George
MFIs are following in the footsteps of Dr Yunus but should be socially responsible.
Laxmamma lives with her three children in the tiny village of Sidhanalli in Tamil Nadu. Recently, she was faced with a family crisis. Her 17-year-old unmarried daughter underwent a botched partial abortion in the hands of a village “doctor”. Bleeding profusely, Laxmamma took her daughter to a nearby private hospital where the physician reluctantly agreed to complete the abortion for a “discounted” charge of Rs 4,000.
With little savings, Laxmamma turned to her local money-lender, who immediately advanced her the funds at terms acceptable to her - Rs 200 in interest and Rs 200 in principal each, over 20 months. The loan was arranged in less than two hours, confirming the terms with her thumb impression on a two line promissory note. The surgery went off well, and her daughter has recovered since then.
Laxmamma would end up repaying double the amount of the loan, but she feels that no one else would have provided the funds in such a short time to save her daughter’s life. She doesn’t know about today’s so-called social entrepreneurs, who might have been willing to advance her a micro-loan at a relatively much lower interest rate. Even if she had known, she couldn’t have waited to go through the loan approval process.
Agents of change
Micro-credit is touted as one good example of “social entrepreneurship”, especially since Dr Muhammed Yunus received the Nobel Prize. Yet there has been little effort to define and distinguish it in practical terms. The assumption is that social entrepreneurship is “business for benevolence”. Just as entrepreneurs create and transform whole industries, social entrepreneurs are presumed to apply entrepreneurial principles and act as agents of change for society, seizing opportunities to advance sustainable solutions that create social value. The real distinction between entrepreneurship and social entrepreneurship should be the main intent and purpose.
A business or business-like activity that is intended mainly or solely for social good is social entrepreneurship. One is expected to run such activity in a sustaining way, and preferably at a profit, so that one may be able expand the work and do more good for the poor. There is no doubt that the borrowers of micro-credit are better off even at 36 per cent annual rate of interest.
By requiring repayment guarantees by groups on behalf of the individual borrower, and with arrangements for government grants, micro-finance institutions (MFIs) are able to ensure high, some claim 99 per cent, payback of principal and interest, making this form of credit a profitable business.
Despite the life-saving help, no one will argue that Laxmamma’s
money-lender is a social entrepreneur. However, the fact that MFIs charge interest at relatively lower rates than money-lenders does not necessarily qualify them as social entrepreneurs either. MFIs exist to make profits for their owners, and are least concerned about whether borrowers use the funds for worthwhile purposes.
Income generation
Unlike local money-lenders, who offer credit for the specific needs of borrowers
- such as crop loans given prior to sowing seeds and repaid after
harvest - MFIs do not earmark their loans. Many borrowers utilise the loan to cover expenses for festivals and for other reasons that have little to do with income generation. The absence of any direct involvement on the part of MFIs to help the poor use the loans properly make this form of lending simply a commercial activity. It is hard to find many individuals or institutions that meet the true test of social entrepreneurship.
What we really need are everyday entrepreneurs, who are prepared to invest in rural and other deprived communities. They would generate employment and income for many poor people. Only through vibrant business activity can the needed 600 million new jobs in India and the two to three billion in developing countries be added.
Businesses who conduct themselves in a socially and environmentally correct manner are meeting their community responsibilities. Instead of searching for social entrepreneurs, it is time to raise the bar for our expectations of anyone who does business, especially in the rural sector.
(The writer is author of India Untouched: The Forgotten Face of Rural Poverty.)
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