Poverty, Livelihood and Microfinance: Observations from a Field Study

1. Poverty, Livelihood and Microfinance: Observations from a Field Study Tara S. Nair

2. 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 –microfinance’s contribution to development theory and practice

3. The idea of ‘Livelihood’ - assets, activities and access together determine the ‘living’ gained by an individual

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

5. 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

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

7. 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

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

10. 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?

11. 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?

12. 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?

13. 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

14. 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

15. Table 1: Poverty Ratio by State

18. Table 3: Distribution of Sample Households by State

21. Table 6: Distribution of Clients by Type of Organisation

23. 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

24. 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

25. 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

26. 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

27. 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

28. 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

29. 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

30. ‘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

31. 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?

32. 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?