Editorials
by Rajen Kumar
No Escaping Social Media
Running a magazine concentrating on issues of small and medium enterprises and managing with limited resources is a like living life on the edge. In this rush of meeting deadlines,...
More
Special Reports
Apr 2012EMRC, Brussels Associates with SME WORLD as its New Media Partner
EMRC has promoted business partnerships with the developing world and has organised dozens of business forums in key decision-making cities, such as Amsterdam, Rome,...
More
Micro Finance
The National Rural Livelihood Mission (NRLM): A Brief Critique
Ramesh S Arunachalam
Sep 2011
Sep 2011
So, what are the critical issues that raise the risk of failure with regard to implementation of the NRLM? I present my views with all humility!
.jpg)
First, the NRLM talks of rural livelihoods primarily through Self-Help Groups (SHGs) and I very much appreciate the contribution of SHGs in financial services and development. That said, in my opinion, relying only on SHGs appears to be a serious limitation as not everyone in a rural area is a member of an SHG and not everyone may desire to become a member of an SHG. Furthermore, rural folk may perhaps like to access various services through other aggregation mechanisms and/or even individually. Also, in today's fast paced rural economy, the number of people who are likely to be actively involved in the kind of social intermediation that so-called good SHGs are said to practice, appears rather far-fetched. Given the (fast) changing nature of our society, the choices available and information explosion that is going on, the long winding meetings of SHGs may be difficult to sustain in the medium and long term. And without such preparation, the quality of SHG will also become low and using only the SHG mechanism may become counter-productive. And the moment we forcefully push mandatory membership in SHGs as a means to access various services, then, the process starts getting corrupted as numerous available examples (one given below) suggest. “Very interestingly, micro-finance agents in Tamilnadu claimed to be working with the SHG – Bank Linkage model, by taking groups to banks for the 1st linkage. One of them said that they received no commission from the banks but received between 7 – 10% from group members for getting the group a first loan of Rs 50000.
Agents also confirmed that bankers are now actively calling them in to help them meet their various targets, including those pertaining to financial inclusion. To reconfirm some of these aspects, I met several bank managers in the same areas and two managers candidly said that since they lacked sufficient staff and were being pushed on targets, they started relying on the agents for bringing in the groups to meet the various targets.
One of them even had an interesting observation…the groups brought in by agents typically paid off their first loan within 1 year whereas the loan term was around three years and then, they took the 2nd loan of 4 times the savings – many of these groups accumulate as much as between Rs 30000 – Rs 40000 and therefore receive a 2nd loan of Rs between Rs 120000 – Rs 160000 (46 Rs = 1 US Approximately). Managers also confirmed that several groups do not repay the 2nd loans and that, many of the members migrate to other areas and are not traceable. One manager even said that Rs 40 Lakhs (Rs 4 million) is likely to be written off in the future as the members are not traceable.
Yet another startling fact was brought up the managers and they said that Rs 50000 first loan taken is not used towards any income generating activity and that this money sans the commission paid to the agents was used as the corpus for a local chit run by the group members, who divided the interest profit amongst themselves.
Clearly, as far as I can see the burgeoning growth of micro-finance and financial inclusion initiatives, have indeed led to the development of an entire new set of intermediaries – agents – who are best described as a new class of money lenders, especially because of their overall coercive behaviour, the harsh terms that they offer and the strong arm strategies that they employ for collection…I can see some parallels with agents used for personal loans in India, that turned out to be disastrous for many banks.
Therefore, it is about time that we as practitioners, begin to introspect with integrity, on what is working on the ground, why or why not and what can be done to salvage the various micro-finance and financial inclusion innovations in India…Otherwise, much of our efforts of several decades could be sadly lost…”
In fact, even today the correct number of SHGs operational in the country cannot be accurately estimated and there are many issues such as SHGs either disintegrating (may not be bad thing by itself) or being taken over by the elite amongst the poor. These are aspects that the NRLM must surely factor into its design and implementation. Also, the over emphasis of NRLM on SHGs could result in exclusion (rather than inclusion) of rural low income people who are not inclined and/or unable to participate through SHGs. Hence, my humble request is that the NRLM focus on the household as the primary target of the program.
Second, the NRLM design perhaps looks at the rural economy as one whereas in reality, many segments exist within rural low income people as well as across the broader rural economy spectrum. Therefore, it would become crucial to ensure that a range of bundled services (as envisaged) are provided in accordance with the needs of the different segments. I am not sure that the design has the flexibility and ability to ensure that during delivery. I could be mistaken but I get a sense of a 'boiler plate' design across the spectrum. This issue would need greater attention during program implementation.
Third, the whole concept of NRLM, which is SHG focused as noted above, should in reality be driven by critical sub-sectors, associated value chains and related livelihoods including MSMEs. In other words, it should use these as focal points and address the practical challenges emanating from a detailed analysis of the concerned sub-sectors/value chains/livelihoods to address the vulnerability and risks faced by rural producers. Although, the NRLM talks about value chains, it does so in a cursory manner whereas I feel that the program design itself should be driven by a strong focus on critical value chains that employ large numbers of rural people across the country. Since, independence, we have had a lot of programs that have looked at rural livelihoods in general with limited success and therefore, the need of the hour is focused interventions that would address specific livelihood issues in specific contexts where a large number of rural low income people subsist. What I am arguing for is the selection of critical sub-sectors, value chains and related livelihoods across the geography of implementation and then, delivery of NRLM with a strong focus on these. The results would be there for everyone to see.
Fourth, another aspect with regard to NRLM is its lack of serious attention to value added agriculture and rural MSMEs - which, as the experiences of many countries suggest, can play a major role in enabling and sustaining inclusive growth in rural areas. MSMEs are the growth engines in emerging and developing economies and they need to have targeted interventions. The NRLM does not seem to have taken this into account. One of the key areas that NRLM could focus upon is the creation of a stronger and vibrant ecosystem for agro MSMEs in various value chains.
Fifth, the strategy of NRLM is too broad and sweeping. Rather than attempting to do a whole lot of things across the board, it may be better if the NRLM learns from its past avataar's (such as the IRDP or SJSY) mistakes and focuses on areas that could impact livelihoods of large number of rural livelihoods so as to generate quick wins for the program as well as get the initial thrust and momentum – so critical for medium and long term success.
Sixth, the design appears far too academic and top down and I am not sure of the extent to which real livelihood practitioners (producers themselves) have been directly and continually involved in design and proposed implementation arrangements – here I am taking of REAL and practicing low income producers in various sub-sectors like Agriculture, Fisheries, Non-Farm Sectors, Forestry etc. This was among the biggest reasons for the failures of IRDP and SGSY - in fact, if these had not failed, we would not need an NRLM today.
Nearly 64 years after independence, we are still talking of basic services pertaining to rural livelihoods. We seriously need to introspect as to why this is the case? With all due respect, I would like to state that, one of the major reasons for this is the fact that past programs designed to strengthen and develop rural livelihoods have failed to understand and grasp the whole range of vulnerabilities and risks faced by different low income producers at different points in various value chains in many strategic contexts. That is why they have not succeeded and having worked in 540 of India's 600 districts, I can vouch safe that the aspect of involving actual low income producers in the design must not be underestimated. I sincerely hope that the NRLM does not ignore this crucial issue and thereby, repeat the same mistake of past programs during its design and implementation.
0 Comments >>
Our Achievements
- Winner of appreciation award for promoting SMEs in India.
- 1st ever Indian magazine to penetrate tier II, III cities & the rural belt.
- Industry Partnerships include CII, FICCI, ASSOCHAM, PHDCC, AIMA, ITPO, SME Network, Federation of Indian Micro Small Enterprises (FISME)
- Official Magazine Partners for several national & international MSME events.
More
The Last Word
More Learned than Educated, You were!
I was speechless. Rather hesitatingly I asked him, “So, what have you decided, Sominder ?” His reply was curt and candid, “I have told the doctors that I don’t want to live life as dumb. Only...
More
Contribute
You can also write for SME WORLD
We are looking for writers and experts to contribute original stories and articles. Send an email to smeworld@gmail.com with your story idea and lets get talking.
Some of our valued contributors are...