 | Issue: | Asia-Pacific IV 2001 |
| Article no.: | 9 | |
| Topic: | Telecommunications, Micro-finance and Entrepreneurialism – Co-operative Strategies for Poverty Alleviation | |
| Author: | Ranjith Hettiarachchi | |
| Title: | CEO | |
| Organisation: | Association of Asian Confederation of Credit Unions (ACCU) | |
| PDF size: | 24KB |
About author
Not available
Article abstract
Can there really be a simple solution to a problem as endemic and complex as rural poverty? Many approaches to poverty alleviation focus on a single cause. Ranjith Hettiarachchi of the AACCU takes a broader perspective as he examines micro-finance and telecommunications strategies for the 21st century. Co-operative and collaborative solutions offer the best hope, building on the well-established credit union movement that began in the 19th century.
Full Article
Between 55 and 70 per cent of the population of developing countries is situated in the rural areas where poverty is greater and where the need for access to basic necessities like land, agricultural inputs and services, including access to credit and savings instruments, is much higher. Typically, rural areas suffer from low investment priorities in terms of infrastructure and financial systems by the government. The savings generated by the local financial institutions are ploughed back into the urban areas for investments and development, not into the rural areas. The Asia region at present continues to experience the highest concentration of rural poor in the world. According to the UNDP Human Development Report 1997, more than a quarter of the developing world’s people still lives in poverty. About a third (1.3 billion people) live on incomes of less than US$1 a day. South Asia has the greatest number of people affected by human poverty. And it has the largest number of people in income poverty: 515 million. Together, South Asia and East Asia, South East Asia and the Pacific have more than 950 million of the 1.3 billion people who are income-poor. The region has been experiencing a marked decline in terms of percentage of the total population of the poor. In absolute numbers, however, poor households continue to rise. No one single solution can offer a panacea for the alleviation of poverty. Communications, micro-finance and entrepreneurialism, when combined, can go some way towards finding a co-operative solution. The radio as a means for disseminating information has been used in rural development since the 1960s. Today even in very remote village, radio is used to educate people in health and community development. In Southeast Asia in particular, television is now widely used to promote entrepreneurship. Regular programming that provides business ideas and technical skills for small-scale and home-based enterprises are broadcast on television. Usually, television episodes are recorded and videotapes are sold by sponsor organisations. These tapes are readily available and can be used by NGOs and credit unions to train their members. This could be extended to accelerate the skills development of the entrepreneurial poor. In many cases, technical training is not readily available. However, these kinds of initiative are not available in South Asian countries. Radio and television are powerful tools to accelerate development. These are easily accessible technology for the poor. They could also be a tool for development as part of mass education on micro-finance and all the elements of poverty alleviation. Exploring technology is one aspect that should be considered in the poverty alleviation programme. The poor can only get out of poverty if their businesses become successful. Based on experience, market information is one of the most important aspects of business development. Access to market information is a prerequisite. In the remote villages, for example, telephone facilities are not usually present. However, mobile phones could be used instead, or a two-way band radio. What is important is to have access to business information. Entrepreneurs have skills and crafts, but they may not be properly utilised if appropriate technology is not available for proper business links. Using high technology could reduce the operating and capital cost of micro-finance and other poverty alleviation measures. In general, a field officer of a micro-finance institution is responsible for maintaining 300 clients. Maintenance of proper business information transfers does not require an office at village level. The Internet allows small and medium- sized enterprises to advertise their products and contact suppliers and buyers on a global basis. Palm tops and hand-phones could be used to process business information. This will reduce the operational cost of the programme. In addition, business information is kept up-to-date. The impacts of new technology can be radical, affecting quality management, distribution, delivery, packaging, marketing, trading and service delivery and nearly all business relationships. New information and communications technology can influence poverty alleviation in a number of ways. At its most simplistic it enables field workers to undertake routine tasks of procurement and communication more effectively through the ‘destruction of distance’. At the other end of the spectrum innovation and technology growth hubs bring together research institutions, business start-up initiatives and risk capital companies in many Asian locations, such as Bangalore, India, Taejeon and the Republic of Korea, and in Malaysia’s multimedia super-corridor. A pertinent example of the success of telecommunications and micro-finance is provided by the Wired Village Project at Warana Nagar in Maharashtra State in India. Within a complex of 25 co-operative societies the wired village has been established to increase co-operatives’ efficiency and productivity. Internet facilitation booths provide agricultural, medical and educational information to 70 villages. The links also provide tele-education at primary and higher levels. Information systems using user-friendly map systems are being developed for better administration and governance. In the course of working with the poor, micro-finance is only one solution to poverty. Certainly the entrepreneurial poor have benefited from micro-finance programmes but support services are required. In our experience, entrepreneurial poor need immediate support for market information. The goal of micro-finance initiatives should be to drive their clients out of the vicious cycle of poverty through successful micro-enterprises. Thus, any micro-finance institution should provide the necessary support for their clients to achieve their own goals. In this case, there is a great need for business development support from the provider of micro-finance to train the entrepreneurial-poor on high- standard quality products, upgrade skills, provide market information and link with the market. Without this support, there is no guarantee that micro-finance will be effective. According to experience, about 10 per cent of the poor could be good entrepreneurs. This means they have the skills and capabilities to take risks in expanding their businesses. The reality is that not all the poor have entrepreneurial abilities. But those who do not have sufficient skills should be engaged in business that generates self-sufficient revenues. Eventually, those that succeed create employment opportunities for others who do not possess entrepreneurial abilities. Therefore, micro-finance could be an effective strategy or means of poverty alleviation within a proper infrastructure that produces partnership or co-operative behaviour. Development planners, governments and NGOs have not yet realised the negative effect of micro-finance. We as a co-operative organisation are warning all development practitioners not to overestimate the power of micro-finance for poverty alleviation. Micro-finance initiatives and their programmes mainly focused on credit delivery rather than on inculcating the principle of savings mobilisation in the poor. The poor need financial services consisting essentially of savings rather than credit. Their savings habits help to build strong financial discipline and accumulate small equity from which to build future hope. However, after two decades of credit-focused micro-finance, ‘micro savings’ have been introduced. Surprisingly, credit unions have been operating for the last 150 years on the basis of savings, but have never been highlighted. The co-operative savings micro-finance programme is a savings-based initiative dating from the beginning of the movement. The other major issue in micro-finance is cost recovery. Unlike in the 1980s and 1990s, none of the donors provide capital and operating costs. Transaction costs are very high, and the operation and product price should cover that cost. Credit unions cover that cost. It is not an issue for them since they have a diverse field of membership that enables them to strategically price their products. Micro-finance programmes have to be designed as viable programmes. At present most micro-finance institutions and programmes are designed exclusively for the poor. There might be questions on matching funds to the loan grant. The cheapest source of loan funding is mobilised savings. Otherwise, one can have recourse to external funding, but this may not be readily available at all times. This again would raise questions of sustainability of the programmes and may restrain micro-finance institutions from significant outreach. Multilateral lending agencies, bilateral donor agencies, developing and developed country governments, and non-government organisations (NGOs) focused their development programmes on poverty alleviation. During the last 3 decades, micro-finance has become a vital strategy to alleviate poverty. Enormous numbers of micro-finance providers have come into being. To name the few leading micro-finance providers in Bangladesh: Grameen Bank, Rural Action Committee (BRAC) and Association for Social Advancement (ASA); in Indonesia is the Bank Rakyat (BRI) and in India are the Self-Employment Women’s Association (SEWA) and Working Women’s Forum. The private banking institutions have also joined this group in recent years. As a result, micro-finance services have grown rapidly during the last decade, although from an initial low level, and have come to the forefront of development discussions concerning poverty reduction. Despite this growth, as the recently completed Rural Asia Study concluded, ‘rural financial markets in Asia are ill-prepared for the 21st century.’ About 95 per cent of some 180 million poor households in the Asian and Pacific Region still have little access to institutional financial services. Development practitioners, policy makers, and multilateral and bilateral lenders, however, recognise that providing efficient micro-finance services for this segment of the population is important for a variety of reasons. Micro-finance can be a critical element of an effective poverty reduction strategy. Improved access and efficient provision of savings, credit and insurance facilities can enable the poor to smooth their consumption, manage their risks better, build their assets gradually, develop their micro-enterprises, enhance their income earning capacity, and enjoy an improved quality of life. Micro-finance services can also contribute to the improvement of resource allocation, promotion of markets, and adoption of better technology; thus, micro-finance helps to promote economic growth and development. A few micro-finance practitioners are aware that the first institution of micro-finance in the world is the Credit Co-operative. The history of micro-finance goes back to 19th century. Micro-finance was not introduced in the 1980s or 1970s; it had been practised for almost 150 years by the co-operatives. The savings and credit co-operatives started in Germany in 1844. The Schulze-Delitzsch model is equally commanding in helping urban poor communities to set up credit co-operatives. Convinced that debt was the root cause of poverty, Schulze-Delitzsch took a somewhat different line to that of Raiffeisen model by de-emphasising the welfare and moral dimensions, and instead building the basis for more sound business ventures. The practical business approach introduced by Schulze-Delitzsch seems highly relevant in today’s competitive environment, and could also be best adapted to helping the urban poor/informal sector, as well as industrial workers in many developing countries in Asia. The above examples provide ample proof that when communities in both rural and urban areas are confronted with pressing needs for affordable savings and credit, the solution actually lies in people’s own determination to work together and solve their own financial problems. They do so by using a well-tested and replicable model. We now call this model the ‘credit co-operative or credit union’. Credit co-ops can survive the myriad of odds against them by regulating and helping themselves without necessarily accepting subsidies or concessions from the top down. Herein lies the strength of a system that is not visible in many other Asian rural agricultural co-operatives. While all the self-help values promoted by Raiffeisen, Schulze-Delitzsch and Desjardins are still relevant and must definitely be preserved, a host of emerging competitors, be they banks, NGOs, insurance companies, or other financial institutions-both virtual and real-are penetrating the credit union territory in a very aggressive manner. Raiffeisen is the father of micro-finance in the world. He and his followers never used the term ‘micro-finance’ but they have been practising savings mobilisation and loans for production purposes for economically disadvantaged people in the community. Today, co-operative systems have been operating in more than 84 countries. The principles of credit unions and co-operatives are focused on people’s empowerment. Credit co-operatives are owned by members, managed by members and controlled by members. Not only are they financial services outlets but they also offer a total development approach to empower poor and marginal people. The operating principles of co-operative are focused on economic, political and social empowerment. Credit co-operatives exist because and for their members. They should be viable institutions able to serve their members according to their changing needs. They focus on members being able to stand on their own by building wealth through thrift. Conclusion This teaches every member to become responsible and learn the value of financial discipline. These are the significant features of the co-operative’s micro-finance, which is not only providing access to credit. Realising current trends, credit unions have repackaged micro-finance programmes. They offer products targeting a specific segment of the market: poor and marginal people. There is a huge market in Asia. In conclusion, communications, micro-finance and entrepreneurialism are powerful strategies to create employment opportunities. They are tools to develop communities that are not reached by financial and other services of the formal sectors. These strategies were reinvented in the 1970s. They are not new. They have been applied for over 150 years. However they are not only the solutions to poverty. Poverty is a complex situation that has social, political and economic dimensions. Could there ever be a simple solution?
