[Reader-list] reader-list Digest, Vol 88, Issue 13

Rajkamal Goswami rajkamalgoswami at gmail.com
Tue Nov 2 16:05:49 IST 2010



How can it be done?


On 11/2/10, asit das <asit1917 at gmail.com> wrote:
> On 11/2/10, reader-list-request at sarai.net <reader-list-request at sarai.net>
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>> Today's Topics:
>>    1. Demand to uphold free speech and expression (Yousuf)
>>    2. Microfinance: A Fairy Tale Turns into a Nightmare (Shashidhar)
>> ----------------------------------------------------------------------
>> Message: 1
>> Date: Mon, 1 Nov 2010 23:11:03 -0700 (PDT)
>> From: Yousuf <ysaeed7 at yahoo.com>
>> To: sarai list <reader-list at sarai.net>
>> Subject: [Reader-list] Demand to uphold free speech and expression
>> Message-ID: <859916.20954.qm at web51406.mail.re2.yahoo.com>
>> Content-Type: text/plain; charset=utf-8
>> We condemn the demand of the BJP to “take the strongest possible action”
>> against Arundhati Roy for her “seditious comments” at the seminar, “Azadi:
>> The only way” held in New Delhi, October 21, 2010. There is recorded
>> evidence to prove that the views expressed by her are not new and have
>> also
>> been made by innumerable others before and after her. If Arundhati Roy or
>> Syed Ali Shah Geelani (or any other speaker from that seminar) is to be
>> arrested for what they have said, then by the same logic a number of us
>> would have to be imprisoned not to mention the entire population of
>> Kashmir.
>> The concept of `sedition’ is archaic and has no place in a modern
>> democratic
>> imagination. Perhaps for this reason the Drafting Committee of the Indian
>> Constitution did not include “sedition” among the “reasonable
>> restrictions”
>> to Article 19(1) (a). In 1962, the Supreme Court (Kedar Nath Singh vs. the
>> State of Bihar) read down Section 124A IPC to argue that only a call to
>> violence or armed rebellion qualified to be considered as `sedition’. The
>> same Judgement reiterated the importance of not allowing the provision to
>> interfere with the Right to Free Speech and Expression. As the present
>> controversy proves, the Supreme Court’s worst fears have been confirmed.
>> The
>> Bajrang Dal’s threat that they will hound Arundhati Roy like M.F Hussain
>> provides further confirmation that `sedition’ will now be the new pretext
>> for censorship. When the British charged Gandhi with sedition, he famously
>> said, “Sedition in law is a deliberate crime but it
>>  appears to me to be the highest duty of a citizen.” Expressing dissent
>> about thenation-state and re-imagining its future is certainly the right
>> of
>> every citizen if not the “highest duty”.
>> We would like to point out that the disruption of the meeting and the
>> allegations of `sedition’ is part of a well orchestrated campaign. The
>> right
>> wing elements who disrupted the Azadi meeting were working in tandem with
>> certain media channels who flouted all norms of professional journalism to
>> create hysteria. In what appears to be an instance of `paid news’, a
>> certain
>> national news channel started a one-sided campaign against “splittists”
>> and
>> the “sedition industry” within hours of the meeting being held. The
>> `report’
>> only focused on two speakers and their supposed “seditious” utterances.
>> It is understandable that the BJP, in an attempt to deflect attention from
>> the Ajmer Blast case, should indulge in hyper-jingoism but it is most
>> unfortunate that the UPA, while deciding not to press charges of sedition
>> against the speakers, did not assert their right to free speech and
>> expression. Their silence on this matter has only emboldened groups like
>> the
>> Bajrang Dal who now want to take matters into their own hands.
>> This is perhaps expected from a government that has sought to suppress all
>> dissent in the valley through brute force. Between June and October 2010,
>> 111 people have been killed by security forces and this includes young
>> boys
>> who were not even participating in the protests. Countless have been
>> maimed
>> and injured by bullet injuries while many have been blinded by the
>> catapults
>> with marble shots used by the CRPF. For over two decades now, the armed
>> and
>> security forces have been committing extra-judicial killings, torture,
>> disappearances and rape with impunity. Draconian legislations like the
>> Armed
>> Forces (Special Powers) Act, the Jammu and &Kashmir Public Safety Act and
>> the Disturbed Areas Act continue to facilitate human rights abuses in the
>> valley. The hysterical cry to enforce the rule of law in the case of the
>> Azadi seminar contrasts with the long silence about the widespread and
>> systematic human rights violations in Kashmir. By allowing the speakers of
>>  the Azadi seminar to be censored, the government hopes to maintain its
>> silence on Kashmir.
>> We therefore demand that the government take full cognizance of the
>> continuing violation of human rights in the valley, make the security
>> forces
>> fully accountable so that the guilty can be prosecuted and punished. We
>> demand that the democratic right to free speech and expression is upheld
>> and
>> every citizen in this country, including the speakers of the Azadi
>> seminar,
>> is given full protection from any attempt to impose legal or extra-legal
>> censorship.
>> Signatories:
>> Vrinda Grover Lawyer, Delhi
>> Shohini Ghosh Professor, Jamia Millia Islamia, Delhi
>> Nivedita Menon Professor, Jawaharlal Nehru University, Delhi
>> Amar Kanwar Filmmaker & Artist, Delhi
>> Ranjani Mazumdar Associate Professor, Jawaharlal Nehru University.
>> Aditya Nigam Fellow, Centre for the Study of Developing Societies
>> Dayanita Singh Photographer, Delhi
>> Urvashi Butalia Writer and Publisher, Delhi
>> Lawrence Liang Alternative Law Forum, Bangalore
>> Sabeena Gadihoke Associate Professor, Jamia Millia Islamia, Delhi
>> Saba Dewan Independent Filmmaker
>> Aparna Sen Filmmaker and Actress, Kolkata
>> Kalyan Ray Author and Professor, Morris College, USA.
>> Joya Chatterji Historian, Trinity College, University of Cambridge, UK.
>> Lakshmi Subramaniam Professor, Centre for Social Sciences, Kolkata
>> Kajri Jain Asst. Professor, University of Toronto, Toronto.
>> Kumkum Roy Historian, Professor, Jawaharlal Nehru University. Delhi
>> Kamala Vishweshwaran Professor of Anthropology, University of Texas,
>> Austin
>> Shikha Jhingan Asst. Professor, Lady Shri Ram College, Delhi University,
>> Delhi.
>> Anjali Monteiro Professor, Tata Institute of Social Sciences, Mumbai.
>> Kalyani Menon-Sen Researcher & Independent Activist, Gurgaon
>> Uma Chakravarty Historian (Retired Professor, Delhi University) Delhi
>> KP Jayshankar Professor, Tata Institute of Social Sciences, Mumbai.
>> Pamela Philipose Journalist & Director. Womens Feature Service
>> Harsh Mandar Writer and Activist
>> Gauhar Raza Filmmaker & Poet, Delhi
>> Anuradha Chenoy Professor, Jawaharlal Nehru University, Delhi
>> Shabnam Hashmi Social Activist, Anhad
>> Neeraj Malik Associate Professor, Indraprastha College, Delhi University
>> Javed Malick Retired Professor, Delhi University
>> Madhu Bhaduri Former, IFS Officer
>> Anuradha Bhasin Executive Editor, Kashmir Times
>> Jyotsna Kapur Assoc. Professor, Southern Illinois University, Carbondale.
>> Dunu Roy Environmentalist, Hazard Centre, Delhi
>> Kamal Mitra Chenoy Professor, Jawaharlal Nehru University, Delhi
>> Ujjwal Kumar Singh Professor, Delhi University, Delhi.
>> Mahua Sarkar Assoc. Professor, Binghampton University, SUNY
>> Arvind Narrain Lawyer, Alternative Law Forum
>> Rebecca M. John Lawyer, Delhi
>> Amita Baviskar Associate Professor, Institute of Economic Growth
>> Sarada Balagopalan Associate Fellow, CSDS
>> Kaushik Ghosh Assistant Professor, University of Texas, Austin
>> (Issued in November 2010)
>> ------------------------------
>> Message: 2
>> Date: Tue, 2 Nov 2010 14:57:17 +0530
>> From: "Shashidhar" <shashidhar at butterfliesindia.org>
>> To: "sarai-list" <reader-list at sarai.net>
>> Subject: [Reader-list] Microfinance: A Fairy Tale Turns into a
>> 	Nightmare
>> Message-ID: <008601cb7a70$249fa840$6ddef8c0$@butterfliesindia.org>
>> Content-Type: text/plain;	charset="iso-8859-1"
>> Good write up on the MFI nightmare in Andhra
>> http://beta.epw.in/newsItem/comment/188904/
>> Shashi
>> Microfinance: A Fairy Tale Turns into a Nightmare
>> M S Sriram
>> It was inevitable that the commercial model of microfinance in India, with
>> its minimalist and standardised model of lending, would grow into a bubble
>> and run into trouble.
>> Many microfinance commercial organisations have entered the market in
>> search
>> of profits and are competing to lend to the poor. In the process they have
>> put the “understanding” of the needs of the poor aside and have started
>> chasing targets and numbers. For these institutions, the poor are not seen
>> as human beings having individual identities and needs. Instead they are
>> seen as data points that add up in their profit statements. The anxiety
>> for
>> growth is dictated by the fact that the investors in the market-based
>> models
>> are impatient and look for high returns – and then exit!
>> There is a new intensity in the discussion on microfinance – about
>> multiple
>> lending, interest rates and on whether a bubble is being built around
>> lending to the poor. There is a heated debate about the interest rates of
>> microfinance institutions (MFIs) and whether they could be termed
>> usurious.
>> There has also been a boardroom fracas at SKS Microfinance – an event
>> unrelated to the larger one about the delicate relationship between MFIs
>> and
>> their clients, but it is nevertheless hogging equal headline space in the
>> press. The commercial section of the industry has reacted with the
>> industry
>> association – the Microfinance Institutions Network (MFIN) – coming out
>> with
>> a code of conduct. The State has indicated its displeasure about the level
>> of interest rates and it has sent an advisory to the commercial banks. The
>> Government of Andhra Pradesh, facing a lot of flak from the local press
>> and
>> the opposition parties, has promulgated an ordinance in order to “rein in”
>> MFIs.
>> There is indeed a sense of déjà vu to the entire episode – of a crisis
>> following heady success. The success had culminated in the
>> oversubscription
>> of the SKS Microfinance initial public offering, allotment of shares at
>> the
>> upper end of the indicative price band, listing of the scrip at a premium,
>> and its continuous rise thereafter. As this was sinking into the minds of
>> the players in the microfinance market – and with the next rung of
>> institutions ready to harvest the gold rush – the same SKS Microfinance
>> was
>> in the news for all the wrong reasons.
>> Three Models
>> This article looks at the growth in microfinance, keeping the current
>> developments in perspective. But before looking at the current episode, it
>> is important to have a perspective on how the microfinance space is
>> organised and who the different of players in the market are. At this
>> point
>> of time there are three significant interventions in the provision of
>> universal access to financial services.
>> (1) The people’s movement which has existed outside of the government
>> schemes, banks and other interventions by entrepreneurs. This is led by
>> non-governmental organisations (NGOs) that have remained true to the
>> community-based model and have emerged by organising people to sort out
>> their financial mismatches without the intervention of the external world,
>> and if there is an intervention it is a conscious choice collectively
>> exercised by the people.
>> (2) The intervention by the government pre-existed the people’s movement
>> and
>> was expressed in the form of the self-help groups (SHGs). This has usually
>> been supply-driven, addressing the institutional and physical
>> infrastructure
>> needs and offering standardised supply-side solutions or “schemes”. In
>> Andhra Pradesh the State has almost usurped the community model through
>> the
>> Indira Kranti Patham scheme (earlier known as Velugu). Clearly the role of
>> the government in Andhra Pradesh has moved beyond being an independent
>> observer. In this case the State is in a peculiar position of being a
>> player
>> as well as an arbiter of microfinance practices.
>> (3) The market forces, which look at the poor as a market, have found a
>> mechanism to deliver credit through an efficient delivery model. This
>> approach is more than a decade old and has made rapid growth. This growth
>> has encouraged us to look at the business through a different lens.
>> Each of these interventions has a different approach and uses a different
>> methodology to reach out to the poor. These methodologies have an
>> important
>> bearing on the process and packaging of financial services. The SHG model
>> was promoted as an alternative to the available options of financial
>> intermediation. It was at one level rooted in the community and at another
>> level was integrated with the larger banking system. The dealings were on
>> the basis of mutuality, thus providing the power of a collective. The
>> approach, by definition, was a slow one because there had to be a good
>> understanding on how a collective based on the principles of mutuality
>> worked. It required patience, tolerance and an appreciation of the
>> constraints that the fellow SHG members faced. It made members think about
>> their financial services needs of their households, and also those of
>> their
>> neighbours who were members of the collective. This helped the members
>> think
>> responsibly because they were dealing with their own money or the money of
>> the members of the collective. This methodology ensured that people were
>> together to narrate a growth story, a story of their confidence and how
>> they
>> were taking charge of their own lives.
>> This movement is very time-consuming. The collective has to go through the
>> many phases of forming, storming, norming and performing. Even if the
>> process is slow, the edifice will be strong and lasting. This edifice can
>> continue to serve the poor and the marginalised on an auto-pilot basis
>> once
>> it stabilises. Once this happens, it shows that the poor can not only take
>> control of their resources, but as these resources grow they can hire
>> professional help to manage their resources. This transformation does not
>> happen overnight, but through a long process of community intervention.
>> Unfortunately, there is impatience, and then there is the State. If the
>> groups succeed, there is an urge to replicate the model quickly across the
>> country. The success of community-centred microfinance has attracted the
>> government. The State deals with large numbers and its anxiety to deliver
>> development at a pace that can do justice to the incumbent combination is
>> understandable. The State learnt quickly from the SHG movement and decided
>> to adopt it as one of its “schemes”. The bank linkage programme has been
>> going on for years, and each year the government increases the targets to
>> the banks for linkage and ports several other welfare schemes on to the
>> groups.
>> Market for Inclusion
>> The last type of player in the inclusion market is a product of market
>> forces. In the last decade there have been several people who for years
>> worked in the development sector with communities and became impatient for
>> growth. They embraced a market-based model of inclusive finance. The idea
>> was that if we are able to make this activity of inclusive finance
>> inherently profitable, then more and more people (who work for profits)
>> will
>> see merit in operating in this market. And with a good number of players,
>> the market will not only expand, but because of competition the poor
>> customers would eventually get a good deal.
>> Unfortunately there have been numerous instances where our belief in the
>> market has been belied and microfinance adds to the scepticism about the
>> school that believes only in markets. During the initial phases of the
>> intervention by the market model of mFIs, most of us looked at the growth
>> of
>> these organisations with a sense of awe. These organisations brought
>> efficiency to their operations. But gains in efficiency are usually a
>> function of standardisation. Standardisation worked at two levels: (a) The
>> organisations themselves offered standardised products, that allowed them
>> to
>> reduce operating costs. (b) The individual identity of each organisation
>> and
>> what it stood for vanished. In the field one could therefore see little
>> difference between one MFI and the other.Rhyne (2001) writing about MFIs
>> in
>> Bolivia has said that the institutions tend to converge operationally to
>> the
>> dominant microfinance paradigm. The paradigm of commercial microfinance is
>> that of minimalism. That credit should be provided efficiently and quickly
>> and a sharpening of financial viability have influenced institutions
>> operating in this space.
>> Bolivian Experience
>> In microfinance itself, there were significant lessons to be learnt from
>> Bolivia. For instance, Rhyne indicates that the number of institutions
>> that
>> had a subsidy drastically fell in about four years, and each of these
>> institutions lost its core identity. FIE, an MFI known for technical
>> assistance to a single community-based enterprise, Fades, which used to
>> focus on lending for community infrastructure projects, and ProMujer,
>> which
>> specialised in empowerment training; all dropped most of the operational
>> practices that differentiated them from the dominant paradigm.
>> This “convergence” is happening in India as well. The minimalist model
>> disburses credit in as efficient a manner as selling soaps and shampoos.
>> It
>> has its merits. For instance, in a largely agrarian society where large
>> cash
>> inflows take place only during the harvest season and the local economy
>> operates on peaking of financial activity in this season, forcing a weekly
>> repayment is by definition defying the logic of agrarian cash flows.
>> However, by forcing this weekly discipline these institutions have
>> possibly
>> expanded the market for credit – persuading people to think about
>> activities
>> that give a weekly cash flow that can service their loan. This could
>> thereby
>> have made more cash move through the hands of people and reduced their
>> vulnerability.
>> However, the downside of a standardised model is that unless the cultural
>> and economic nuances of each location are understood, there could be
>> cracks.
>> A standardised model closes innovation, reduces responsiveness and
>> prevents
>> customisation and once it reaches stability it expects to grow at a
>> scorching pace. When something – particularly in financial services –
>> grows
>> at an unnatural pace, it is going to build into a bubble sooner or later.
>> Such a process in the market-based microfinance sector may be happening
>> now.
>> The hope that the demonstration of one market-based experiment will
>> attract
>> more players has come true. Many more organisations have entered the
>> market
>> and are competing to lend to the poor. In the process they have put the
>> “understanding” of the needs of the poor aside and have started chasing
>> targets and numbers. For these institutions, the poor are not seen as
>> human
>> beings having an individual identity, characteristic and need. Instead
>> they
>> are seen as data points that add up to their profit statements. This
>> anxiety
>> for growth is dictated by the fact that the investors in the marketbased
>> models are impatient and look for returns (and then exit!). The evidence
>> from Bolivia is available before us. Microfinance in that country went
>> through a phase of intense competition, leading to over-indebtedness and
>> even the collapse of a few institutions. A reading of the microfinance
>> movement of Bolivia in the 1990s looks like a contemporary Indian
>> commentary. All the elements – client poaching, competition, reckless
>> lending, over-indebtedness of the client – that eventually caused cracks
>> in
>> the efficient credit delivery mechanisms were present in Bolivia.
>> Effects of Rapid Growth
>> One of the visible indicators of the standardised model is its religious
>> belief in zero tolerance of default. The organisations following the
>> market
>> model have possibly seen too much of indiscipline in the delivery of
>> credit
>> to the poor and have realised that this is one variable that has to be
>> controlled at all cost. The story of organisations having a near 100%
>> recovery rate for years is a fable difficult to believe, given that no
>> household or economy can be insular to shocks all the time. Yes, the
>> commercial models have been able to control one cause of default – intent.
>> But it is well known that default also happens when the ability to repay
>> is
>> impaired. The new generation of MFIs has possibly not learnt to deal with
>> this aspect. For a long time, while the MFIs were growing at an unnatural
>> pace through geographic diversification, the borrowers were probably
>> growing
>> at a normal pace. With competition setting in, more and more MFIs
>> concentrated on the same geographies.
>> With the client getting multiple choices and the anxiety of the client to
>> get as much of finance as possible from multiple institutions and this
>> coupled with the overzealous suppliers of credit meant that the client
>> herself was trying to grow at an unnatural pace, or that the client had
>> begun to resort to adverse usage of credit. Unfortunately the standardised
>> models do not have the patience to engage with the client. It is one thing
>> to justify the high cost of credit at lower levels, but we also have to
>> realise that at higher levels of indebtedness, interest rates become
>> onerous
>> from the point of view of the poor households.
>> Servicing five MFI loans of Rs 10,000 each at 28% is not the same as
>> servicing one such loan. And since the MFIs have not provided themselves
>> with a mechanism of coping with default, the pressure on the borrower
>> turns
>> out to be intense. And this pressure could potentially lead to suicides.
>> We
>> do not know whether the current spate of suicides in Andhra Pradesh is a
>> result of the MFI loans and the intense repayment pressure on the clients.
>> These are claims made by the state government. Vikram Akula, the chairman
>> of
>> SKS Microfinance acknowledged that 17 of the 30 suicide cases were related
>> to borrowers of SKS (Indian Express, 15 October 2010).
>> However he is not helping the cause of the MFIs by stating that “the
>> deceased borrowers were not defaulters of SKS and they would have been
>> driven to suicides by other factors such as pressure for repayment of dues
>> by other MFIs that lent money to the same borrowers” (Mint, 15 October
>> 2010). The collective response of the microfinance institutions has also
>> been found wanting. All that they have offered is a code of conduct, which
>> is observed in violation! A meta level credit bureau makes a mockery of
>> what
>> is clearly acknowledged on the field. You do not need a database of
>> clients
>> and loans. The clients themselves are openly talking of multiple
>> borrowings.
>> Governance Issues
>> Unfortunately, the celebration of the market endorsement of this business
>> at
>> the “bottom of the pyramid” could not have been more ill-timed. At the
>> ground level, the stress was showing. Clients (for whatever reasons) were
>> committing suicides. At the institutional level, it appeared that the
>> boardroom battles were all about stock options, cashing in, cashing out
>> and
>> severance packages, when each of the boards should have been discussing
>> whether their business model was showing cracks. Instead of being
>> introspective, the response of the MFIs has been stubborn and defensive.
>> State Response
>> The response of the State has also not been in the desirable direction.
>> Obviously, all the action is centred around Andhra Pradesh which has the
>> highest concentration of MFIs and the largest exposure through the
>> SHG-Bank
>> linkage model. The government has responded with a heavy hand by passing
>> an
>> ordinance that has shifted the discourse from the basic problem to a legal
>> frame. This almost appears like the government taking revenge on the
>> competition with its monopolistic regulatory power. While there are
>> nuances
>> in whether the Government of Andhra Pradesh has the ability and the
>> inclination to digest the administrative implications of the ordinance, it
>> has once again shown its inability to target the errant microfinance
>> institutions, and has instead come down heavily on the entire market.
>> Given
>> that the State itself is a dominant player in this market, this
>> heavy-handedness creates an undesirable competitive barrier to an
>> alternative model of credit delivery. Instead of harping on caps on
>> interest
>> rates and threatening to remove microfinance from the priority sector
>> list,
>> it is necessary for the State/Reserve Bank of India to look at specific
>> instances and pull up the delinquent organisations. The RBI has set up a
>> committee to look into the issues pertaining to MFIs and has asked the
>> committee to submit a report within three months.
>> But what is not clear is why the RBI is not carrying out a routine
>> inspection of the portfolio of some MFIs that are under its purview in
>> order
>> to understand the issues of ghost clients and multiple borrowings and take
>> action to discipline the erring organisations. Some of these organisations
>> have serious governance issues that are not being investigated. The
>> institutional representatives on the boards of these MFIs have not
>> exercised
>> their independence. The promoters have gotten away with significant
>> instances of skimming and there seems to be no dissent voiced on the
>> greedy
>> executive compensations and short-sighted behaviour of the management of
>> the
>> top MFIs.
>> So on the one hand, while the larger directional of the movement of the
>> State/RBI in terms of financial inclusion seems to be good – directing
>> payments through banks, calling for financial inclusion plans, opening up
>> branch licencing, removing the cap on end use interest rates and so on –
>> its
>> response to the rapid growth of microfinance has been somewhat alarmist.
>> Hopefully the State and the RBI would do what is well within their mandate
>> in specific cases. This would be a superior approach compared to the
>> policy-level clampdown that they have been talking about.
>> ------------------------------
>> _______________________________________________
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>> End of reader-list Digest, Vol 88, Issue 13
>> *******************************************
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