Urban Poverty and Micro Finance

chillibreeze writer — Nandini Y. Kapdi

Kamala and her family were forced to migrate to Mumbai from their village in Ratnagiri. There had been crop failure in successive years and there was no farming activity whatsoever in the previous year. Not able to bear hunger and poverty any longer, Kamala took the lead to come to Mumbai in search of a livelihood. The golden dream did not materialize. She and her family, including her husband and three children, were soon caught in the clutches of urban poverty. Kamala sold her silver jewelry to pay an advance on the rent of Zopadpatti, a hutment bordering the Mithi River. She managed to get some work as a domestic help in a flat nearby but the wages she earned could not support the family. Five mouths to be fed and she was the sole bread earner. Her husband suffered from breathlessness and could not work. As she mingled with other women living in the same slum, she soon realized that everyone had a similar story to tell. Meagre wages could not sustain expenses on food, clothing and shelter. Soon Kamala sent her husband as well as her two elder children to work. But that did not solve the problem as her husband fell sick and had to be hospitalized. The expenses even in a government run hospital catapulted the family into the clutches of the local moneylender. Kamala had joined the ranks of millions like her, living below the poverty line in urban areas.

The cities in India are projecting immense development with sky scrapers, fancy flyovers, massive shopping malls and multiplexes. But what is co-existing is urban poverty, poverty of employment, poverty of shelter, poverty of basic necessities and poverty of access to basic infrastructure like electricity, water, drainage and sanitation. Housing for the poor is so scarce and consequently slums are mushrooming everywhere, with little action on the part of the authorities to ensure cheap housing for the poor. The so called Slum Rehabilitation Authority does precious little by way of locating suitable land and constructing tenements with basic necessities.

As the number of migrants increase, so does the index of poverty. The poor do manage to find some work, but it is either not regular or in the unregulated sector with no guarantee of minimum wages and number of working hours. Unsecured employment or no employment force the urban poor to eke out a living somehow. Some of them take to crimes, but a majority of them work in factories or homes or do some petty trading. The skilled ones manage to get employed somehow, but the large majority of unskilled people forces work in the unorganized sector. Some are even forced to driven to begging, prostitution or peddling drugs in the hope of getting easy money. Poverty is an accepted situation. Today urban poverty has been globally recognized as a problem area and the Millennium Development Goals adopted by the UN and accepted by India includes the alleviation of urban poverty as one of the primary goals.

Consequent to poverty of employment, all other types of poverty follow. Thus there is lack of shelter, lack of basic necessities such as clean air, clean water, proper toilets, and electricity. Lack of proper nutrition affects everyone, especially the growing children. Lack of medical facilities results in spread of diseases, leading to ill health and loss of man hours. Lack of transport results in longer commuting time and longer hours reaching essential facilities.

In the above context, micro finance becomes important as a tool of poverty alleviation. Most of the financial institutions, being commercial institutions, do not find it commercially feasible to lend to the poor. The poor are generally illiterate, they have no fixed address and they cannot offer anything as collateral security. Moreover, the cost of lending becomes unprofitable since the number is large but the quantum of loan is insignificant. So in spite of the availability of huge funds, bigger financial institutions do not finance the poor.

The idea of microfinance was mooted sometime in 1992, when attention was focused on the experience of other developing countries, where such micro finance was already introduced. National Bank for Agriculture, Reconstruction and Development (NABARD) took the lead in this direction. Micro finance works through the operation of Self Help Groups (SHG), which are a group of fifteen odd women living in the same neighbourhood. These women work and generate small savings, which are invested in the common pool from which loans can be availed of. All the members agree on the rate of interest and the number of installments. Where savings generated are substantial, they are invested in a bank deposit, against which banks advance loan to the SHG, which in turn can advance it to the members. The SHG is required to keep proper books of accounts and all the transactions relating to individual members. Interested NGOs help these SHGs in regard to extension, mobilization and keeping proper books of accounts. The SHGs have to meet periodically to discuss their mutual needs and interests. The financial institutions deal with the SHGS and not with the individual beneficiaries and therefore the cost of transactions is less.

A World Bank report suggests that 95% of the members do not default in repayment and the effort s of these SHGs need to be lauded. In small ways these groups have mobilized savings and employed it on economic activities, which are earning steady rate of returns. The sustainability of these micro finance institutions depends upon the zeal of the members to save more and employ the funds in profit generation. While microfinance is growing as an institution it has not yet been able to fill the huge gap between poverty and sustainable economic activity. Urban poverty, in absolute terms, is far too huge for micro finance to make a sizeable dent. Moreover, it is pointed out by critics that funds obtained from micro credit are often employed on domestic necessities, such as marriage or cost of hospitalization and not on profit generating activity. Hence it can at best be a community lending activity without an adequate rate of return or an agent of profit generation. But, it is accepted that micro finance is still in its nascent stages in India and given the right fillip, can metamorphose into a bigger activity.

It is interesting to note that a majority of the members of SHGs are women. It is these poor and illiterate women who are making a difference for the micro economy. The success of micro finance has attracted bigger financial institutions who have now taken to it as a social objective. However, mere micro finance cannot address the larger issues of inadequate infrastructure or lack of employment opportunities, which need to be addressed by the state and the local self-government. The 74th Constitutional Amendment has given a significant role to both rural and urban local bodies in terms of empowerment and expanding their normal functions to include poverty alleviation. In this regard, all the urban local bodies have to focus on micro finance at the grass root level. The present quantum of micro finance can be enhanced by sustained efforts on the part of financial institutions, SHGs and interested NGOs. Once it is accepted that micro finance can be enhanced to fund profit generating activity, the SHGs should be suitably educated and trained to take on more activities. As they say, it is the tiny drops that create an ocean.

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Nandini says, "Who am I and what am I doing here are questions of philosophical import. So you see, my perspective of life is still evolving! I am full of imagination and I guess thats what keeps me going!"

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