Poverty, Livelihood and Microfinance: Observations from a Field Study

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Poverty, Livelihood and Microfinance
Observations from a Field Study

• Tara S. Nair

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• CONTEXT
• Microfinance in India - the trajectory of growth
  and implications
• The lost decade of the 1990s with respect to
  poverty reduction widening gaps
• New concerns does credit market intervention
  helps correct endowment failures?
• Search for approaches that address the
  multi-dimensionality of poverty
• The broad question microfinances contribution
  to development theory and practice

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• The idea of Livelihood
• - assets, activities and access together
  determine the living gained by an individual

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• Assets - natural, physical, human, financial and
  social
• Access mediated by institutions and social
  relations

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• Sustainable livelihood
• Coping with and recover from stress and shocks
• Maintaining and enhancing resource productivity
• Providing livelihood opportunities for the next
  generation
• Contributing net benefits to other livelihoods at
  the local and global levels and in the short and
  the long term

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• Need to understand LIVELIHOOD AS A SYSTEM
• Variety of assets
• Interconnectedness of livelihood
• Mediating institutions and practices
• Appropriate patterns of behaviour

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• Ways in which households achieve sustainable
  livelihood security
• through ownership of resources like land,
  livestock or trees
• through rights to grazing, fishing, hunting and
  gathering
• through stable and adequate employment
• through varied repertoires of activities

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The Central Question

• How does microfinance interact with this system?
  How do different microfinance institutional
  arrangements conceptualise and operationalise its
  relationship with client livelihood?

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Research Questions

• How microfinance initiatives address and
  incorporate issues pertaining to livelihood at
  the level of planning, programme design and
  strategy? Are there observable differences
  across regions with respect to the strategies
  followed by microfinance models for addressing
  livelihood?

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• How has microfinance shaped the occupational
  structure in given regions? Has it helped the
  structure diversify in a sustainable and
  inclusive manner? Or has it fragmented the
  structure without perceptible gains to the
  targeted participants?

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• How do clients perceive and experience
  microfinance in relation to their livelihood
  environment and choices?
• How far have organisational efforts enabled the
  clients to cope with their current livelihood
  needs and the needs that arise from future
  uncertainties?

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Methodology

• The study was carried out in two regions Upper
  Gangetic Plains (comprising districts in the
  western and central Uttar Pradesh) and Eastern
  Plateau and Hills (extending over eastern
  Maharashtra, parts of Madhya Pradesh, Orissa,
  Chhattisgarh and Jharkhand).
• Within each region specific sub-regions were
  identified by looking at a set of indicators like
  infrastructure and human development indices,
  incidence of poverty and the extent of
  microfinance presence
• The available microfinance initiatives in the
  selected regions were reviewed
• Established contacts with as many organisations
  as possible

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• The field study had three components
• a locational study (qualitative)
• assessment of organizational approaches
  (qualitative)
• Client/ household level study (questionnaire
  survey)
• Pilot survey carried out in the UGP region
• Clients of 29 organisations were met

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Table 1 Poverty Ratio by State
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Table 3 Distribution of Sample Households by
State
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Table 6 Distribution of Clients by Type of
Organisation
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• Predominantly SC and OBC clients
• Average age of the client male 36 female 35
• share of kutcha houses 44.65
• of Illiterate 43.32
• Dominated by subsistence farming
• UGP rice-wheat cropping system
• EHP predominantly rice with a variety of
  vegetables
• 59 households reported their current primary
  occupation as farming and 40, as labour

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Observations from qualitative Analysis

• The link between mF and livelihood is taken for
  granted
• Apparent mismatch between the livelihood
  environment of clients and loans offered by
  microfinance providers the mismatch is more
  glaring in the case of mFI model.
• In EHP 101 agricultural loans were ongoing at the
  time of the survey only 17 (mostly in Orissa)
  originated from mFI. 43 loans were provided
  through SHGs. Commercial banks and cooperative
  banks were important players.
• Missing out on a key asset like land in regions
  like EHP

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• livelihood is understood only as income
  generating activity by mFIs they seem interested
  in promoting activities that generate regular
  cashflow to the household until such time the
  loan is outstanding
• the activity-asset-access relationship is seldom
  recognised as part of the strategic approach of
  mFIs
• There are exceptions way outside the normal
  picture

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• SHGs by virtue of their structure and liberal
  framework of operation have a better perspective
  but their scale and other operational bottlenecks
  create limits to their efficacy
• Very few SHPIs play proactive role in
  capacitating the groups to graduate to higher
  levels of assets-activity they look upon
  themselves as sheer agents either of the
  government or of NABARD

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• Came across one initiative replication of
  Velugu.
• Follows a step-wise methodology for organising
  women, savings and bank linkage, livelihood
  assistance, and social safety net linkage.
• Initial two years spent on forming, federating
  and training SHGs
• Following two years for strengthening the quality
  of their social and economic life
• Four years as to demonstrate the impact of the
  programme

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• mFIs who understand asset-access-activity
  interactions are comfortable with models that
  connect the local economy to agents external to
  the system livelihood diversification happens,
  but sustainability is in question as there is not
  much scope for local learning and sharing or
  development of appropriate behaviour patterns

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• Organisations that had worked for long years on a
  variety of development projects including
  education and health, seem to have a better
  understanding of livelihood and better
  appreciation of the potential impact of credit
• The paradox - they progressively conform to the
  minimalist view in line with the business
  strategy of risk-conscious fund providers

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• Skill a critical intangible asset
• Myths are perpetuated poor lack
  entrepreneurial spirit or money can inspire
  entrepreneurship in the poor
• Diverse skill needs of clients difficult to
  cater to
• mFIs and SHPIs lack the capacity for capacity
  building those who are small and remotely
  located face serious problems even in managing
  their routine activities

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• Whether and to what extent mFIs can take up the
  issue of skill and capacity building of clients
  who are engaged in income generating activities
  other than agriculture?

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The core questions

• Is it possible and necessary to develop
  approaches to addressing livelihood issues of
  microfinance clients in specific regions? What
  should be the elements of such approaches?
• Are we witnesses to a phase of specialisation,
  with increasingly clearer bifurcation in focus or
  of increased overlap and competition between
  SHG-bank linkage and microfinance intermediation
  models?

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