Microfinance struggles to restore its reputation

Mar 7, 2011

MUMBAI, India (AP) — Long heralded as a way to lift the downtrodden out of poverty, microfinance has come under a cloud.
The stories of lives being changed by a $27 microloan and picture perfect scenes of smiling women with colorful handlooms, empowered by affordable credit, have been replaced by headlines about borrowers driven to suicide.
At best, microfinance seems to be failing to achieve its most noble goal: poverty alleviation. At worst, some lenders are contributing to a cycle of indebtedness and abuse, just like the loan sharks they sought to replace.
Critics say the industry has grown too quickly for its own good, with too much rapaciousness and too little regulation. That has fostered a breakdown in lending discipline, with multiple loans to overextended borrowers, and allowed some unscrupulous players to thrive.
The controversy has hit the heartland of microfinance in South Asia hard. As India prepares charges in 51 cases of suicide allegedly linked to coercive microfinance institutions, microfinance's founding father, Nobel laureate Muhammad Yunus, is fighting to hold onto his position as head of Grameen Bank in a Bangladeshi court.
Yet advocates for microfinance say it has achieved much despite the recent bad publicity. They argue that extending credit to the poor — in practice most of the borrowers are women — has fostered small businesses, helped promote gender equality, lifted incomes, and improved access to food and education for some of the world's most desperate citizens. The backlash could unwind all that progress, they warn.
"To stifle an entire industry is wrong," said Vikram Akula, chief executive of SKS Microfinance, whose listing on India's stock market last year sparked fierce debate about how much profit is justifiable when helping the poor. "It is the poor who will ultimately suffer the most if they have to return to village loan sharks for financial services."
As the industry indulges in a bout of soul searching over what has gone wrong, some say microfinance is suffering, in part, from its own success.
Microfinance has excelled at getting a lot of money to a lot of borrowers quickly, disrupting established networks of power and patronage in the process.
Some say that remarkable growth has prompted a backlash from vested political interests.
"The poor is a constituency politicians see as their own turf," said Alok Prasad, chief executive of India's Microfinance Institutions Network, whose 46 members represent about 85 percent of the lending in the sector in India. "Anything which leads to greater empowerment of the poor makes them insecure."
In Bangladesh, the government order dismissing Yunus — which he is now fighting in court — is widely seen as retribution for his 2007 attempt to form his own political party. Yunus, who in founding Grameen Bank in 1983 pioneered the concept of reducing poverty by making tiny loans to the poor, has himself been frequently critical of the commercialization of microfinance.
In India, some say pandering for voters, corruption and competition with a state-backed lending program helped spark a crackdown that has essentially frozen microlending in the southern state of Andhra Pradesh, India's most important microfinance market. The central bank had to step in to try and prevent microfinance institutions from going bankrupt.
Government lending programs for the poor in India have been losing ground to microfinance groups. In 2007, state-backed self-help groups, which link local borrowers with banks, sometimes at subsidized interest rates, added 8.5 million clients, while microfinance groups added 3.2 million. Two years later, self-help groups added just 6.7 million clients, while microfinance groups added 8.5 million, according to M-CRIL, an Indian micro-credit rating agency.
M-CRIL director Alok Misra said the gains by the private microfinance groups have shamed the government and unsettled politicians who believe the self-help groups are an important means of securing votes.
"It is showing the government its own inadequacy," Misra said. "That's a big challenge for the politicians. Politicians feel poverty-lending should be in the government's name."
R.Subrahmanyam, Principal Secretary of Rural Development in Andhra Pradesh dismisses charges of politicking as "a figment of the imagination of disgruntled elements."
"How can microfinance institutions step on political interests?" he said. "If poor are getting exploited and commit suicides by dozens, should government be a mute spectator?"
He said the state is preparing to prosecute 51 cases of suicide allegedly linked to coercive microfinance groups. Meanwhile the central bank is considering new regulations which would, among other things, cap microfinance interest rates.
"Irresponsible lending leading to multiple loans without due diligence, unproductive loans for consumption and consumer durables, lack of transparency in operations, usurious interest rates, coercive recovery practices, have all resulted in hyper-profits to microfinance institutions and impoverishment of the poor," Subrahmanyam said in an e-mail.
Many within the industry would agree with that assessment and welcome better regulation. The Microfinance Institutions Network plans to launch a microcredit bureau in India in a few weeks, which should help reduce the problem of borrowers taking on too many loans.
Evaluations which benchmark results against control groups so far haven't found evidence that microloans alone are enough to solve the complex problems of the deeply poor. Still, many warn that a world without microfinance would be much worse off.
"Microcredit is a good thing but has been oversold," said Yale professor Dean Karlan, who authored one such study. "It will not raise people out of poverty, certainly not single-handedly. But there are benefits that are important
http://www.google.com/hostednews/ap/article/ALeqM5gWkw5ZOkT3QYIBr3X3QhyLgBsliw?docId=4314a0557a664c3e8828571eb0e31079

POVERTY: South Asian 'Growth Miracles' can wipe out poverty and hunger by 2030

Surekha Subarwal : Surekha.subarwal@undp.org : 24 February 2011

New Delhi - South Asia, the second fastest-growing region in the world is uniquely placed to accelerate growth and catch up with the world leader, East Asia, to create its own ‘growth miracles’ and eliminate poverty and wipe out hunger by 2030, according to the United Nations Development Programme (UNDP).
South Asia is at a critical turning point in its history. Countries are deepening and strengthening their democracies. Stimulus packages have helped the region recover well from the global economic downturn. Efforts at reconciliation, peace-building, and including marginalized social groups into the national mainstream are beginning to take off.
“The time has come for South Asia to achieve its full potential. The region has a huge ‘demographic dividend’, democracy is taking root, the leadership is kept on its toes by an increasingly vocal population that demands accountability and transparency,” said Ajay Chhibber, UN Assistant Secretary General and UNDP Regional Director for Asia and the Pacific. “Stronger institutions and greater decentralization are transforming the governance architecture giving power to those on the bottom rung.”
Mr. Chhibber was speaking today alongside President Mohamed Nasheed of the Maldives and Nobel Laureates Amartya Sen and Muhammad Yunus at the inaugural session of the World Conference on Recreating South Asia: Democracy, Social Justice and Sustainable Development, organized by the South Asia Centre for Policy Studies. The Conference aims to explore new policy perspectives for development, democracy and peace to transform South Asia.
Even as economic growth has reduced the poverty rate in South Asia, the total number of poor people in the region has increased. The number of people living on less than US$1.25 a day increased from 549 million in 1981 to 595 million in 2005. More than 250 million children are undernourished and more than 30 million children miss out on schooling in South Asia. More than one-third of adult women are anaemic. These numbers clearly indicate that a large part of the population has been deprived of opportunities for sharing the fruits of growth.
Poor households are disproportionately affected by high food prices as compared to the rich - the purchasing power of the poor declined by 24 percent as compared to 4 percent for the rich. With rising food and fuel prices, South Asia’s poor will be hit hardest. Governments must manage the demand and supply side to ensure food security and rapid poverty reduction. Another challenge is to create decent employment as half of South Asia’s workers are underemployed.
Making a push for an inclusive growth model Mr. Chhibber added: “The focus must now be on bringing the benefits of prosperity to those who have been excluded for far too long. Inclusive growth must be the mantra that informs all our policy decisions with civil society playing its part in articulating the voice of the voiceless.”
The democratic governance challenges in South Asia are diverse, ranging from inequitable service delivery, weaknesses in parliamentary oversight, unequal access to justice, and the exclusion of marginalized groups—including indigenous peoples.
For the past 20 years UNDP has advocated the human development approach that is not only about helping to ensure a decent income level and standard of living for everyone but also about helping to ensure that every person has the capacity, right, freedom, and choice to be part of the decisions that affect their lives, to select the leaders that take those decisions, and to then hold them to account. “Democracy has the real potential to empower inclusive development and to enable pro-poor growth that sustains human development.” said Mr. Chhibber.
“It is sometimes claimed that East Asia does better than South Asia because it does not have to deal with dysfunctional democracies. The recent events in the Middle East show that these are false choices. South Asia has revealed that it can deliver democracy at lower levels of development and can accelerate growth even under chaotic democratic systems,” he added.
Even as growth continues to accelerate, South Asian countries are climate victims and continue to be very vulnerable to the impacts of climate variability and disasters. Largely attributed to global warming, Pakistan witnessed a flood of historic magnitude along the Indus valley. While rising sea levels threaten the Maldives, and Bangladesh coastlines, the Himalayan mountain range on which South Asia is so dependent is melting.
“Climate change is no longer a distant threat; it is a reality and a sign of what lies ahead…Win-win strategies need to be identified and promoted – conferences like this offer a huge opportunity to build synergies between the fights against both poverty and climate change.” said Mr. Chhibber.

http://content.undp.org/go/newsroom/2011/february/south-asian-growth-miracles-wipe-out-poverty-and-hunger-by-2030.en

MALNUTRITION: Afghanistan : scale, scope, causes, and potential response

This book has the potential to contribute to a reversing of this trend, whereby activities in not only the health sector but also in other sectors relevant to nutrition will gain increased support and prominence in national development planning. South Asia has by far the largest number of malnourished women and children, and no other region of the world has higher rates of malnutrition. Malnutrition in childhood is the biggest contributor to child mortality; a third of child deaths have malnutrition as an underlying cause. For the surviving children, malnutrition has lifelong implications because it severely reduces a child's ability to learn and to grow to his or her full potential. Malnutrition thus leads to less productive adults and weaker national economic performance. Therefore, the impact of malnutrition on a society's productivity and well being and a nation's long-term development is hard to underestimate. For the South Asia region of the World Bank, malnutrition is a key development priority, and in the coming years, the Bank intends to enhance dramatically its response to this challenge. As a first step, a series of country assessments such as this one are being carried out. These assessments will be used to reinforce the dialogue with governments and other development partners to scale up an evidence-based response against malnutrition. To succeed, we will need to address the problem comprehensively, which will require engaging several sectors.
http://www-wds.worldbank.org/external/default/main?pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187511&entityID=000356161_20101115233235&cid=3001_7

POVERTY: The poor half billion: What is holding back lagging regions in South Asia?

Ejaz Ghani
28 October 2010


Ejaz Ghani

Economic Advisor at the World Bank

South Asia’s economy is one of the fastest growing in the world, yet it is also home to the largest concentration of people living in debilitating poverty. How do the two co-exist? This column says that South Asia’s division into leading and lagging regions means that stupendous growth hides deep pockets of poverty.
South Asia presents a depressing paradox. It is among the fastest growing regions in the world. But it is also home to the largest concentration of people living in poverty on earth. While South Asia is at a far more advanced stage of development than Sub-Saharan Africa, it has many more poor people.



Figure 1. Number of poor people has increased in South Asia
Source: World Development Indicators, World Bank 2009. Note: Number of people living on less than US$1.25 a day at 2005 international prices. South Asia includes Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. East Asia Pacific includes China.
Increasing number of poor people
Though economic growth has reduced the poverty rate in South Asia, its total number of poor people has increased. The number of poor people living on less than $1.25 a day increased from 549 million in 1981 to 595 million in 2005. In India, where almost three-quarters of these poor live, the number increased from 420 million in 1981 to 455 million in 2005 (Ravallion et al. 2009).
Moreover, human development has not kept up with the pace of income growth. Children and women appear to suffer more than others. More than 250 million children are undernourished and more than 30 million children do not go to school in South Asia. More than one-third of adult women are anaemic. The share of female employment in total employment is among the lowest in the world.
South Asia is a land of sharp contrasts and mind-boggling disparities (Devarajan 2006). It has more pronounced regional disparities than the rest of the world and is in fact divided into two Asias. A lot of attention has been given to “Asia Shining”. But there is another Asia that exists in parallel, “Asia Suffering”. The distinction between the two is so sharp that they seem to be anchored in two different centuries. And the gap is increasing.
Spatial disparities
The leading sub-sections of South Asia are the envy of the rest of the world. These shining lights are the gateways connecting South Asia with the developed economies. The city of Bangalore in India is an example of this, and it is riding the wave of globalisation in services. Growth has benefitted from technological externalities (self discovery, demonstration effects, learning by doing), pecuniary externalities (thick labour markets that promote better matching), and agglomeration (Krugman 1999). The city of Bangalore has acted like a hub of schools and universities that promote face-to-face learning and entrepreneurship (Glaeser 2010). The transformation that is taking place in the leading areas of South Asia seems to have become a virtuous circle, where an initial advantage has spiralled into greater growth, leading to even more growth, and so on. Indeed, rapid growth can eliminate poverty in the leading regions in a generation.
But the story is wildly different for the lagging sub-sections of South Asia. “Asia Suffering” is doing no better than many Sub-Saharan African countries.
The problems of South Asia – poverty, conflict, hunger, and gender disparities – are concentrated in these lagging areas (Ghani 2010). There are limits to growth in lagging regions, since economic geography, institutions, and globalisation will continue to favour increased concentration of economic activity in the leading regions. Because the migration rates are low, poor people do not move from lagging to leading regions. The lagging regions seem to be trapped by the dual failure of the market and the state.
What can be done?
While economic growth is critical for poverty reduction, reviving growth in lagging regions will take time. Given that growth has its limits, growth should not be the sole solution. Policymakers should consider direct policy interventions to reduce poverty (Banerjee and Duflo 2007). Direct interventions can have a double dividend – they will reduce human misery, which could spark growth.
A high priority should be given to increasing the pro-poor fiscal transfers.
Poor regions have a low base of economic activity to tax, and typically these regions have lower revenues. This revenue constraint prevents governments from expanding safety nets, investing in human and physical capital, and adequately delivering government services.
Achieving equity through fiscal transfers can ensure a level playing field.
This equity is particularly important if the government services are important inputs into future growth potential, such as in developing a healthy and educated workforce.
Simply directing financial resources to lagging regions, however, may not be sufficient. It will need to be complemented with an improvement in capacity, accountability, and participation at the local level.
Reduced migration rates for the poor
Migration rates are low in South Asia for its stage of development. Frictions and imperfections in the labour market seem to be hampering less skilled workers more than skilled workers. This is reflected in lower migration rates for uneducated than educated migrants (Caglar 2010).
In India, the mobility rate increases with the education level. The mobility of university graduates is much higher than the mobility of unskilled workers. Removing barriers to human mobility – such as labour laws, state-specific social welfare programs, and housing market distortions – should be an integral part of development. Human mobility allows poor people to move to geographic areas and economic sectors where the demand and the returns are higher. By pulling up wages in lagging regions, migration benefits non-migrants in these regions. Migration also empowers the traditionally disadvantaged groups, in particular women.
Poor growth in the agricultural sector
Slow agricultural growth has constrained economic opportunities for the vast majority of poor people in lagging regions. Policymakers should recast agriculture in the new environment of globalisation, supply chains, and growing domestic demand. The food price crisis has served as a “wake up call” for policymakers and has created an opportunity to revisit existing agricultural policies.
Regional development policies aimed at promoting equitable growth are not a solution for two simple reasons.
First, empirical evidence shows that convergence of per capita income between lagging and leading regions is neither a necessary nor a sufficient condition for achieving poverty and social convergence.
Poverty and social convergence can co-exist with (widening or reducing) income divergence.
Second, regional policies that promote balanced growth could lower the overall growth rate itself and, therefore, slow down the pace of poverty reduction.
Regional development policies lower growth when they target the creators of wealth and the concentration of economic activity. South Asia has numerous examples of such failed regional policies (Panagariya 2009).
The escape from human misery need not be a slow process. Not so long ago, Bihar, the poorest state in India, was known for law-and-order problems, extortion, carjacking, kidnapping, and low growth. However, with the restoration of law and order, improved governance, increased use of fiscal transfers, and greater market integration and human mobility, Bihar has started to turn a corner. So can others.
South Asia is at a critical stage of historical transformation. Time is of the essence. There is no room for complacency. Growing disparities could stifle growth itself. If not handled well, they could undermine the security of development.
References
Banerjee, A and E Duflo (2007), “The Economic Lives of the Poor”, Journal of Economic Perspectives, 21(1):141-167.
Caglar, O and M Sewadeh (2010), “How important is migration?”, in E Ghani (ed.), The Poor Half Billion in South Asia, Oxford University Press
Devarajan, Shanta, 2006, “Can South Asia Eliminate Poverty in a Generation?” World Bank, Washington DC, World Bank.
Ghani, Ejaz (2010), The Poor Half Billion in South Asia – What is holding back lagging regions?, Oxford University Press
Glaeser, Edward (2010), “Making Sense of Bangalore”, Legatum Institute, London
Krugman, Paul (1999), “The Role of Geography in Development”, International Regional Science Review, 22(2):142-161.
Panagariya, Arvind (2009), India: The Emerging Giant, Oxford University Press.
Ravallion, Martin, S Chen, and P Sangraula (2009), “Dollar a Day Revisited”, Policy Research Working Paper No 4620, World Bank, Washington DC.
http://www.voxeu.org/index.php?q=node/5722

POVERTY: Poverty levels in South Asia

(July 15 2010): The Oxford Poverty and Human Development Initiative in conjunction with the Human Development Report Office of the United Nations Development Programme have developed a new Multidimensional Poverty Index (MPI) that disturbingly found that half of the world's poorest live in South Asia and, and contrary to popular belief, only a quarter live in Africa.The index notes that 421 million MPI poor reside in six Indian states namely Uttar Pradesh, Bihar, Madhya Pradesh, Orissa, Rajasthan and West Bengal - this number vying with 26 of the poorest African countries. The responsible factor is evidently unchecked population growth rates in these six states, with a growth rate higher than the Indian national average, and poor literacy rates as a consequence of small outlay by these six states on education.Statistics on poverty are critical in determining a government's expenditure priorities by focusing public attention on those areas that are sadly deficient. In Pakistan under the Benazir Income Support Programme, designed to provide Rs 1000 per month to 2.7 million poorest households, the government was compelled to abandon its earlier methodology of inviting parliamentarians across the political divide to identify a limited number of poor in their constituencies and, at the World Bank's insistence, began to develop a poverty scorecard.This scorecard is essentially a 13 indicator instrument which identifies the poor and requires information that includes household size, composition, education, employment, and certain household assets. Ignored by this scorecard are other critical information that are used by the MPI to determine poverty namely health, environment and gender dimensions.The scorecard, analysts argue, has other limitations also that include an overwhelming focus on assets, consumption considered a dependent variable and assuming a cardinality of ordinal data and perfect substitutability across dimensions. A paper published in January 2009 titled "Estimation of Multidimensional Poverty in Pakistan" notes that indicators of financial poverty, human poverty, poor housing and lack of physical assets were combined to get a composite index of poverty across multiple deprivations. These income and non-income indicators were developed using Household Income and Expenditure Surveys for the years 2004-05 and 2000-01.The empirical findings "reveal that about 54 percent of the people of Pakistan were in the state of multiple deprivations in the year 2004-05. Rural incidence was about 69 percent, while 21 percent of urban population faced extreme poverty in terms of indicators used in the construction of multidimensional poverty. An important finding of this study is that the magnitudes of equity-sensitive multidimensional poverty aggregates (poverty gap and poverty severity) are quite high as compared with income poverty.This situation indicates high inequality among the poor in terms of non-income poverty dimensions. Inter-temporal consistency of methodology facilitates future monitoring of multidimensional phenomenon of poverty." Many argue that BISP is a start and would eventually include health insurance as well. And given the severe resource constraints the government is unable to invest more in providing social safety nets that are required given our rising poverty levels.That argument is consistent with the state of the economy however where our government continues to show poor performance is in allocating expenditure priorities, a reflection of poor governance, where current expenditure continues to reflect profligacy and development expenditure continues to be slashed to accommodate the rise in current expenditure. That must change.
http://www.pakistantalk.com/forums/social-affairs/7480-poverty-levels-south-asia.html

MALNUTRITION: in Asia too

BANGKOK, 1 June 2010 (IRIN) - Chronic hunger has worsened in recent years, and Asia - home to two-thirds of those suffering - must invest strongly in agriculture to avert this crisis, says the UN Food and Agriculture Organization (FAO). More than one billion people in the world, including 642 million in Asia, live in chronic hunger, up from 840 million in the mid-1990s. "Maybe you think hunger and poverty are problems in Africa, but the reality is different," said Hiroyuki Konuma, FAO chief for Asia and the Pacific. "The hunger problem is not only in sub-Saharan Africa, but also in Asia Pacific, and specifically in South Asia." Globally, the situation has deteriorated in the past four years with the fuel, food price and financial crises. "Every six seconds, one child dies from hunger... Every year, five million children die from hunger. This is unacceptable," Konuma said. Decades of poor agricultural investment have resulted in low productivity in many Asian developing countries, the agency said. This trend must be reversed to double food production in the region - and in South Asia in particular - by 2050. FAO estimates US$209 billion in gross annual investments in agriculture would help developing countries meet global food needs by 2050.