Six years ago, in March 2009, after my return from The Philippines where I’d first conducted fieldwork using design ethnography methods to understand household financial management at the erstwhile Base of the Pyramid in a rural region, I had written:
Another eye opener was hearing the story about a micro-finance loan for enabling local women to start their own small businesses. The woman in question runs a sari sari store as seen in the photograph above in a small cluster of houses. She participated in the program about 4 years ago and took out a loan of 5000 pesos to start the shop. It was based on the Bangladesh model according to her memory of the introductory seminar by the loan officers and they would be required to pay it back over a period of 25 weeks (6 months). The experience made her so unhappy that she will never take out such a loan again, poor woman entrepreneur or no.
The first payment was due exactly one week after the loan was disbursed – she’d barely set up her shop, bought inventory of stocks, figured out pricing and what to do, already she was under pressure to start repaying. She used the capital to pay the interest and wished that there had been a grace period to get the business up and running. After all, it was not a cow or a mobile phone, something that could conceivably start earning money in the first week after purchase. A shop needed time to start generating cash flow as people in the neighbourhood discovered the location and spread her prices (the lowest in the walkable distance) by word of mouth. The pressure was intense and created tremendous ongoing tension every week. It just wasn’t worth it and she was glad to have gotten out from under the cloud.
Others, she says, are still trapped in the ongoing cycle of taking out constant loans for working capital and repaying back, never quite earning enough to buy a decent amount of inventory and thus earn enough to get their heads above water.
Was this bridge between “poverty and progress” meant to drown the BoP in consumer debt? The whole experience sounded like a vicious downward spiral for the new business owner/entrepreneurs.
Now, finally, after years of suicides and scandals, such as in India, and debt burdened poor, as in South Africa, there’s a spate of articles digging the grave for this usurious practice of “loans for the poor”. I could see this train wreck coming but when silver bullets capture the imagination of the powers that be, small voices barely heard can rarely make a difference. It takes years of failure, and so many lives ruined, before donors, funders and institutions wake up to the problem.
The question still remains, however, whether anyone cares enough to design a more viable solution/s, and to put an end to this nonsense, or, whether under the new name of financial inclusion, market forces will continue to drive the implementation of cheap and easy money dangled in front of the poor?