From APU Conference 2013 : On right to welfare

APU Conference 2013. Right to Welfare: Education, Food and Work, Bangalore

APU Conference 2013. Right to Welfare: Education, Food and Work, Bangalore

This morning we are at APU’s Conference 2013 on Right to Welfare: Education, Food and Work. The focus seems firmly set on India and here is the list of papers. My colleague and I find the conference note to be high on theoretical quotient with respect to thinking on institutional and legal fronts – about what welfare means in India and its delivery. During the day we hear people working in social security, education, poverty, food, work and a variety of interdisciplinary areas in development like rights based approach to welfare, structural violence and welfare etc.

Besides the range being a little too expansive, we find that it might well be one of the few times in a year that we sit in conferences understanding, debating and learning about new ways of thinking and conceptualization of problems that we see in our work with non-profits and small businesses in the development sector. We experience the issues of equity, access and rights but seldom get to effect changes to remedy the imbalance. Or at times we have not even known how to approach serious issues such as these. The themes –

I. Law and development in India

II. Statutory rights-based approach to welfare

III. Rights and Obligations

Of these we look forward to interesting research on structural violence and welfare by Akhil Gupta, Social Citizenship in India by Niraja Jayal and on India’s new rights agenda by Sanjay Ruparelia.

The conference opened with two fairly accurate observations from Anurag of APU, who trawls the Indian hinterland looking at changes, emerging practices and learning from them to devise effective social action –

1. That there has been a retreat of welfare in India

2.  That there is a lack of engagement between the intellectuals and people on the ground. And  that this is beginning to be a problem .

For us as practitioners, this might yield interesting ways to look at the contests of rights, access and equity and associated problems that we see in out work. And how these could be addressed by businesses or perhaps by our work in data analysis and documentation. If it does yield interesting insights, be sure to find it here.


Paving the road to hell with agricultural productivity

Kuppam, Andhra Pradesh . This region in AP witnesses a bumper tomato produce in November, 2012 and effects the prices (adversely) in the nearby cities of Bangalore and Chennai. High volumes of production did not lead to commensurate rise in income of the farmers in this region, as we know.

Kuppam, Andhra Pradesh . This region in AP witnesses a bumper tomato produce in November, 2012 and effects the prices (adversely) in the nearby cities of Bangalore and Chennai. High volumes of production did not lead to commensurate rise in income of the farmers in this region, as we know.

Here is a brief of a new policy study that my colleague Praveena and I begin this month. We are excited about this idea as agriculture and development has been sectors of our interest since long and that a sector fatigue (from our work in water sector) is slowly kicking in. We would sharpen this as we get going on this, but sharing a rough cut of the idea is called for to invite inputs and criticism on this from folks we know and the readers of this blog. 

Paving the road to hell with agricultural productivity: Agri- commodities, International Trade and Development

Focus on increasing agriculture productivity as an intervention in alleviating poverty across the less developed and developing countries, particularly of Africa and Asia has had reverse effect of pushing people further down into economic crisis. We begin a small study this week where we explore the consequences of large agriculture programs which are focused on increasing agricultural productivity of farm sector, for a variety of staple crops, cash crops as well as horticultural crops. The increase in productivity is treated as end in itself. Whereas, in practice, the productivity rise is not realized as increased income for the farmers but works adversely works on pushing the prices of that crop further down. What is proposed is that increased agri productivity will lead to increase in income of the farmers. In practice, what happens is that the increased flow of agri-produce in the market pulls the price down and neutralized the gain of the producer.

There are two problems that we see –

1)      Development programs which focus on increasing agriculture productivity alone are not desirable as they do not alleviate poverty in long term, instead work adversely.

2)      Increased agri-productivity affects less developed and developing economies which earn by exporting these primary goods. When a higher volume of produce hit the international market they push the prices down and lead to lesser earnings by the producing country. This has an aggregate effect of leaving the economy as impoverished as it was earlier, if not worse.

These two problems could be addressed by thinking about development sector programs in agriculture as well as international agri-commodities trade from analyzing existing policies in agriculture and trade sectors.

Our argument is that development sector programs in agriculture, domestic as well as international agri-commodities trade and poverty are linked very closely and in a direct fashion. There is a ripple effect that travels right through this chain and leads to adverse effect on the producers if these programs focus only on productivity increase. This fixation without looking at the policy environment and prevalent trade practices will always lead to poor outcomes as seen in declining international agri-commodity prices by as much as 25% across the board – coffee, tea, cocoa and sugar, in the last decade. From 1980 to 2000, world prices for 18 major export commodities fell by 25% in real terms.  The decline was especially steep for cotton (47%), coffee (64%), rice (61%), cocoa (71%) and sugar (77%)  (World Commission on the Social Dimension of Globalization 2004: p83).[1]


[1] The commodities crisis and the global trade in agriculture: Problems and proposals, Martin Khor

Microfinance in India: A case of development’s bull run

Image: Flickr User Vikram Walia

Image: Flickr User Vikram Walia

Talking to some friends who work in NGOs I have noticed an increased pace of activity in NGOs running microfinance programs. And some programs around the other buzz word ‘financial inclusion’. This made me think if microfinance really has the kind of emancipatory potential that many in the non-profit sector see. I dug up a few papers that were discussed as a part of microfinace module back at the university and found I could use them to make a case of a clear bull run that happened and which really isn’t anything better than retrofitting a market idea into a ‘non-profit’ space.

Whatever the motivations of microfinance as a service in the interest of development were, there is one thing that may be safely stated – that microfinance was a market based enterprise. An enterprise which affected a kind of financial engineering that could potentially help people in the poor and low income categories to get out of the poverty trap that they found themselves in. It may not have started with the motivation of making higher returns by extending credit at an interest to the poor but it certainly ended as that. By end, I imply the crashing of microfinance industry with the Andhra Pradesh crisis. On the thought that it was a market based enterprise it would not be difficult to find consensus, irrespective of which side of the debate one is positioned. What many contend is writing off microfinance as an approach in helping the poor and lower income people to get out of poverty.

If we look at microfinance industry’s performance in India during the period 2000-2010  it reflects what I allege as microfinance’s ‘bull run’ in the development sector. ‘Bull run’ is a term borrowed from stock markets where it is characterized by a sustained increase in share prices. Such an increase is based on positive investor confidence in the economy. For instance, the Bombay Stock Exchange had a bull run from April 2003 to January 2008, a period of five years when the sensex increased from 2,900 points to 21,000 points. This is a massive bull run which tends to pay off investors handsomely. During such a bull run there is a widespread confidence in the market which tends to obfuscate information, merits and overall sustainability of prices of a company’s shares. I argue that such a thing happened with the microfinance industry in India. The use of market terms in explaining the dynamics of an industry which was touted to be necessarily steeped into development sector is deliberate. It is deliberate because microfinance’s emergence as an industry received its most important impetus only when capital from the conventional or mainstream financial markets made its entry into the sector.

The origins of microfinance industry may have been out of concerns of poverty alleviation and genuine belief in the deliverance of microfinance as a tool to escape poverty but as it unfolded it can be seen that it was anything but that. This professor at the university notes that microfinance industry has done well in the last decade: has grown from a USD 400 million in 1996 to USD 200 billion industry, by 2010. In terms of market size it has indeed done well and is an indicator of the kind of growth that a necessarily development activity is capable of showing if it is left to market forces. This aligns with the bull run phase that is the subject of this article. He also explains the underlying reason for such a splendid rate of return that many of the microfinance companies saw during this period. There was also a growing thinking that subsidized credit has its own limitations. Lending should be done at rates which cover the costs: of capital, of delivery and of risk. While costing, cost of delivery of both financial and technical assistance and support services, at the doorstep of the poor household was also included. However, these services were often not delivered, leaving an extra-normal margin for the Micro-finance Institutions (MFI).

This extra-normal margin is well explained in a paper by this professor and his co-authors who happened to be a part of the early microfinance movement themselves. An extra normal margin was an attractive proposition for the mainstream finance companies which were already reeling under the ongoing crisis in the banking industry in India to channelize their capital and of course forces in to this emergent sector. The emergent patterns had all the making of a typical market space where the ruling order is capital and scale. This became evident in the course of growth that microfinance companies in many states later followed. A high capital investment which had to be responded to with strict performance in terms of return on investment which would then effect the earlier stated ‘development outcomes’ by the microfinance company.

There are several arguments made on the impact of microfinance on poverty alleviation, its role as an activity which brings access to finance by the poor who are not covered by mainstream banking etc. These arguments need empirical evidence. Presenting microfinance as a win-win solution that helps companies find that fortune at the ‘bottom of the pyramid’ as well as offers a value proposition to the poor in terms of access to low interest capital is incomplete. As a general proposition the vision is fully supported neither by logic nor by the available empirical evidence. Morduch’s example from Micro Banking Bulletin, 1998 speaks to the emotive argument made by others – that the most careful and comprehensive recent survey shows that the programs that target the poorest borrowers generate revenues sufficient to cover just 70% of their full costs. So why would such an inefficient program as microfinance should be run when in comparison by making lending to the poor a banking priority one could achieve similar results, theoretically. Now, one may argue that banking priorities gravitate towards those who are rich and not to the poor. Then this is where the argument that making access to finance to the poor a political priority will be necessary. If it can be a political priority then it will also get addressed by the banking sector. The reason for having a parallel industry where regulation and quality control has been rife with conflict is unexplained. It will be easier to achieve this outcome via the conventional banking industry given the same political and social conditions that are argued for by the microfinance proponents.

Mission drift argument about microfinance industry’s good intentions in the beginning which then get subjected to equity market’s pressures of return on investment and also to the emergence of microfinance as a ‘sunrise’ opportunity must also be examined in the reverse order. Why did the mission drift happen? 

The mission drift argument does not note that structurally finance industry is oriented towards capital flows, performance of capital, return on investment, scale and other typically market oriented structures. What was being attempted by the microfinance industry pioneers was a retrofitting of a market structure into the development sector and reorienting its goals from wealth creation to servicing the poor with access to finance and help them escape poverty. This reasoning is not pursued for a variety of reasons. First is that of admitting to this massive transplantation experiment. Second, is that of making mistakes and not acknowledging them. Third, that pushing microfinance as a solution the development practitioners have come so far that mission drift is the only convenient and saving argument that can be made. However, this reasoning must be driven in order to not make the same mistakes again.

A revision in the microfinance industry regulation and working is being proposed in the wake of Malegam Committee report and the other multiple crises like debt recovery methods of microfinance companies and borrower suicides. It should be questioned if watering down of a capital and market dominated industry like finance to suit development outcomes could be done like the way it was done starting from Grameen Bank to Basix and to SKS Microfinance.
It appeared to be a purely market opportunity which ran well for a period rising on investor confidence and sector wide optimist. During this time finer details were dispensed with. Every microfinance company responded to the lure of capital and the charm of ‘reaching out’ to a large number of ‘unreached’, ‘under-served’ constituency of poor.

The crash of the industry should serve a vital lesson to development sector – of not working in complete dispensation of the day’s reality that market forces are major influences. The development goals of equity, access and opportunity to a poverty free life cannot be situated in a world which discounts the market forces. The measures must work with them and try to negotiate around conflicting goals. Not in the way of retrofitting an idea from one space to the other. If the poor must escape poverty then structural adjustments in the political, governance and social spaces must be effected which then effects a conducive environment for the poor to rise up on the back of equal opportunities and on their own capabilities. The idea that enabling access to finance will achieve this outcome has been a flawed one not only incomplete.