Harnessing the Youth Through Micro Credit

By Dr Amiya Sarma

INTRODUCTION: As the unemployment problem in the North East is becoming unmanageable, there is a need to find out avenues for self-employment. In most cases, it seems the reluctance on the part of the youths seems to be a result of unavailability of finance. Since the traditional approach to financing entrepreneurs will not be able to bring these borrowers under its net, a newer approach, even different from the ones already existing, is the need of the hour. Below some suggestions regarding the problem are put forward.

MANIFESTATION OF THE PROBLEM: A group of unemployed youth from Kamalpur in Kamrup District wants to buy a power tiller and they need money to supplement their small savings, mostly taken from their family members. They are not looking for grants but a loan from anybody, any bank, anywhere. They are also looking for some working capital. The group has five members, all of them graduate and some of them are also married. For the last two months they have been running from pillar to post. Nobody said ‘No’ to them and yet they have nothing to show except a letter from the agriculture office.

Another group from Sarthebari, famous for bell metal work, has been going to various government departments and banks to get some loan for starting buying some materials needed to come up with better design and finish in their bell metal works. Two of them have been to Moradabad for training and three of them have also greased the palms of some DIC officials to get loans under PMRY. But the local bank of Sarthebari has not given them any loan. May be right amount of ‘greasing’ has not been done. May be the experience of the bank regarding recovery has not been so good. It is learnt that Sahara India alone collects nearly Rs 2.5 lakhs every month in deposits. There are also the 'Mahajans' who give loans of 5% per month (60% per year)! But in spite of all the big talks of the government officials and the politicians, nobody is there to provide funds to these youths at reasonable terms and conditions. Even the Common Facility Centre, built at the cost of a few crores of rupees, which could have generated lot of income and employment is lying unutilzed since 1985.

With the scarcity of job openings in the government departments as well as other avenues for wage employment, there is an obvious need to encourage self-employment. Almost everybody understands this. But there seems to be no organization to take on this challenge other than the government. One often comes across complaints that there is a dearth of Assamese youths willing to venture into self-employment activities. But then can this be an outcome of their experience that even the few who want to take up such activities have to retract after the harassment by the financial institutions and/ the government officials?

Besides the start-ups, there are innumerable petty traders, barbers, mechanics and carpenters who want some loans to expand their business. And similarly, one has also come across groups of women in Meghalaya, Mizoram, Morigaon, Nagaland and artisans from Tripura who have been looking for loans to increase their existing business. These people do not want grants. They do not even want to talk about Government. help. In lower Assam, particularly in places like Kaniha, Rangia, Nalbari there are many educated unemployed youths who are willing to take up self-employment activities provided they get timely and adequate funds. May be their ideas are not that sound; but willingness is there. In that case where are the banks and financial institutions to give loans, even at the commercial rates? What can the society do to help them? Should the Government be approached for grants? Should the public sector banks be bullied into giving them loans?

EXISTING REMEDIES: The existing methods and schemes of giving financial help to these poor people have proved to be a failure, Govt. officials, politicians and bankers have made more money in the name of helping the poor people than what these people made. Schemes after schemes have been devised or renamed but effect on the ultimate beneficiary has still been negligible. Even the new SGSY scheme using ‘self help group’ concept has been a non-starter in states like Assam. All this seems to have something to do with the ways that the borrowers have been treated in this region, not with their lack of initiatives and character.

In the North East, it is a matter of concern that the repayment situation has been very poor as far as the banks are concerned. This has led to low devolution of credit as many would agree. Banks have also been saying that unlike the previous years they are unable to lend more in view of the poor recovery situation and the new strictures regarding NPA after the Narasimham Committee report. Here too, the analysts seems to put most of the blame on the borrowers.

But there is another side to the story and that is the problem associated with adverse selection. The negative attitude and difficult terms and conditions of the lenders invite only those people who match in their behaviour as borrowers. If one can get loan by paying a bribe one can also escape paying bank the loan by paying a bribe. After all, who loses if the loan is not repaid? Neither the govt. official who had recommended the borrowers nor the bank manager who had selected them! So when the problem of repayment is put forward as the main hurdle in disbursing more credit here it should be viewed only as an excuse for not giving loans to the 'honest' borrowers. The dishonest ones have no difficulty in getting loans if they are keen. If the borrowers of the NE are to be blamed for the present mess of low repayment leading to low credit/deposit ratio, these banks officers are equally to be blamed for giving loans to bad borrowers.

In this scenario it is heartening to see that many organizations like RGVN, NEDFi, SIDBI and NABARD have devised ways and means to give out micro credit to groups of small borrowers through NGOs. But their schemes too are not free of some criticism, however.

First of all, even these institutions shy away from the educated unemployed, the biggest potential threat to the society. Somehow every small group coming for loans seems to be viewed by these institutions with suspicion and every second group is presumed to be SULFA.

Secondly, all of them seem to work like a poverty alleviation scheme keeping the slightly better-off ones out of their purview.

Thirdly, the loans are routed through NGOs and NGOs for these institutions seem to mean only those registered groups of social workers. Business minded NGOs are viewed to be ineligible. The upshot is that the small borrowers just above poverty line and the educated unemployed are deprived of loans by banks as well as these institutions.

Fourthly, organizations like SIDBI, NEDFi tend to view micro credit and other project finance with the same measuring stick. Different criteria have to be there.

Lastly, these lending institutions are so much concerned with NGOs and self help groups that they seem to miss the woods while looking for trees - the individual micro level entrepreneurs are bye-passed because they are not part of an NGO/SHG.

SUGGESTIONS FOR IMPROVEMENT: Although modern micro credit has been a catch word of today, even before the advent of this type of credit, there have been traditional systems under various names whereby small loans have been given out, either from group collections or from money lenders. The Kabuliwallahs have rendered a great service although what people remember is the exorbitant interests. This is true for any middleman too. That without the middleman, there would be no link between the ultimate producers and consumers under the present system, one does not notice. Without a Mahajan or Kabuliwallah who would help Mr. Bhekoram when he has to take his mother to the hospital by taxi? Without a middleman who will purchase the surplus rice produced by the village near Nalbari when the government is busy with other problems?

One of the most ubiquitous system of informal credit is the formation of voluntary groups in villages (called ‘funds’, ‘committees’ etc), members of which collect money periodically and give out loans at high rate. The profits are shared. In Manipur, the MARUP system has almost engulfed the entire state. The advantage of modern micro credit by formal institutions is that there is an external flow of funds into the hands of the groups (SHGs) which can enhance the loanable funds.

The question still remains as to how the unemployed youth can be reached today so that they can start self-employment ventures. Somehow the traditional system of micro credit and the modern system must be incorporated together to develop a new system.

Having interacted with a number of NGO persons and unemployed youths, it is found that:

  • The youths in Assam are too impatient to start with a loan of Rs 2000 and graduate to higher amounts. Thus, the initial loan amounts have to be increased.

  • A lot of guidance is required. The youths are in a situation where pressure from all sides has made them look at themselves as useless creepers in the society. They are also witnessing that by joining banned militant organizations their friends are getting more self respect. That feeling has to be neutralized by a very positive and receptive financial institution.

  • Since the borrowers are not accustomed to doing business with borrowed funds, groups have to be formed with training in group-ventures. Businesses like restaurants, book-stores, group farming, transportation can be done by the groups.

  • The lending institutions can appoint supervisors for such ventures for the initial years.

  • For formation of the groups, the opinions of the local teachers, bank officers, social workers should be taken.

  • Training programmes should be organized where they can meet successful entrepreneurs face to face.

  • Care must be taken to stay clear of politicians at every level of this process. In the North East these youths can be easy target for political maneuvers.

  • Loan disbursement should be done in a public meeting so that borrowers are under the scrutiny of the public too.

  • Lastly, following the foot steps of the money lenders and the Kabuliwallas, loans must be disbursed without any hassle once creditworthiness has been established.

A system based on the above points will work provided the youths themselves start forming such groups. But this is too much to expect in the present environment. Therefore catalysts are needed to help the youths to form groups. There has to be a receptive financial institution too to try out such a scheme. Since both sides are not forthcoming it is the duty of the intellectuals and the press to start a public discussion for evolving such a scheme catering to the unemployed youths in the state who are slowly being drawn into anti-social activities because of the absence of any opportunity to utilize their energy and skill.

POST SCRIPT: About a year ago, there was this boy, Baapi, killing time playing carom, organizing theatres, picnics and then looking for a peon’s post in some government department. After much coaxing, he became ready to run a grocery store and a loan was organized for him. Even then for at least the initial few months he would talk about the openings at government departments where he could be a peon. One year after he started his grocery store, today, he has an employee to work under him and his monthly earnings are more than nine thousand rupees. Of course, it has been the efforts of a good man and his wife who arranged the loan for this boy and kept track of his accounts everyday. Let us realize that there is a scope to groom thousands of Baapis n Assam today. It is not their fault that they have not been shown the proper path.

Dr Amiya Sarma is working for NEDFi as Manager (Economist).

This article was written on 2004-12-07.
Currently Dr Sharma is the Executive Director at Rashtriya Gramin Vikas Nidhi.