Sociopreneurship India 2010 special
Blending of neuroscience concepts into microfinance to make a difference to rural society
Microfinance is a boon to the poor, who cannot seek high-quality financial services, in the true sense of the word. Banking does not reach majority of rural poor. Microfinance has provided access to credit for the rural folk, but has it alleviated their poverty? Dr. Tara Thiagarajan, chairperson of Madura Microfinance Ltd., says it hasn’t. Madura Microfinance, besides providing financial services for thousands of rural women, brings value to the lives of these women by helping them to take a stand to become independent through imparting knowledge and awareness.
Her educational achievements qualify her as a neuroscientist. She holds a Ph.D. in neuroscience from the renowned Stanford University and was a postdoctoral researcher at the National Institute of Mental Health in USA. But Tara Thiagarajan did not take that leap of faith to abandon what she did. Destiny threw her into the rough and tumble of entrepreneurship. Her father passed away suddenly to leave Tara run the family-owned business. Having taken up microfinance, she has sought to innovate. By blending neuroscience with microfinance, she is now experimenting and validating (now the whole enterprise is her lab) her research with one aim -- create vibrant rural markets for rural poor for whom being on their own is a means to livelihood. Her ultimate aim, as we understand, is creating huge successes in rural markets and using this route to alleviate poverty. A worthy social goal. Madura Microfinance Ltd. has come a long way under Tara’s leadership in making a difference to its members’ lives. Tara wouldn’t want to just stop at that but she is bent upon getting to the bottom of this problem and finding a solution to why rural markets are not scaling and what can our (read her) understanding of brain networks do to alleviate poverty.
Dr. Tara Thiagarajan shares her perspectives with Venkatesh Krishnamoorthy, chief evangelist, YourStory and how her neuroscience research is helping her to “map” the minds of the rural populace to find a solution to poverty using microfinance just as a tool.
YourStory: Neuroscience and microfinance are two totally different fields. How did the transition take place?
Dr. Tara Thiagarajan: The transition from neuroscience to microfinance took place in the most standard way. My father was ill and passed away. I inherited the company from my father. The significance is on what we have done since then, the melding of the neuroscience and microfinance, to create something different. Our aim is to use the principles of complex systems and network science in implementing strategies in microfinance to alleviate poverty. Over time, microfinance will be one part and you will get to hear many other things.
YS: What has been the true impact of this initiative since you started it?
Dr. Tara: As a microfinance company, we offer one of the lowest lending rates in the country (less than 20% on an average), comparatively lesser than the general microfinance rates (28% to 40%). Since we are very operationally efficient, it brings down the operational cost, which in turn reduces the cost of financing for people who also stand to gain better returns from their investment.
Rather than the conventional platform which emphasizes on profits, we offer a training-intensive platform where we organize Self-Help Groups (SGHs), which meets twice a month. The financial transactions are carried out in the first meet. The second meet is about instituting knowledge and awareness about the intricacies involved in the concepts of microfinance. Many other topics are discussed as well.
Success in microfinance means making that Rs. 500 a month from an investment of, say, Rs. 15,000. It is only within that subsistence paradigm. For example, CavinKare started with Rs. 15,000, the same loan size we give to our members. In some contexts, people can take this money and turn it into hundreds of crores whereas in other contexts, they can make it to only Rs. 16,000. Why this difference? What is the structural difference in the rural ecosystem that prevents them being tremendously successful? Why are they so circumscribed and what can we do to change this structure so that they can use microfinance to take them to the next level? To get out of this smaller margins mindset is a success. At a global level, we don’t measure success this way. That’s where our focus is. We are looking at impact in a transformative sense.
Put another way, it is more about utilizing microfinance to increase the potential of the rural people to maximize their profit thresholds rather than limiting it to sustenance.
YS: You have predominantly targeted women in rural areas...
Dr. Tara: Women are our target for the loans but we are moving into products that will cater to a variety of people. We treat women as a representative of the household but we don’t exclude men. We believe that the woman represents the family as a whole.
YS: Having have involved in academics, in which you and experiment and fail at times, how do you feel is the transition to entrepreneurial venture, which is rather result-oriented?
Dr. Tara: We are trying to blend the academic concepts and cutting-edge techniques with microfinance. But the necessity is to strike the balance between experimenting, the analyzing process and arriving at the expected results. In our case, the stimulus to the system is in the form of products that have to make profits at a large scale. We have to strike a balance between operational efficiency and experiment and analysis.
We can allow ourselves to a threshold of failure because, in business, we may have to experiment new products to try to determine their success rate. There is some room for trial and failure here as well. It is through this process we might actually improve it.
YS: What necessity motivated you to take up entrepreneurship in microfinance to help the rural people?
Dr. Tara: Everything was there when I took over [she inherited the business and did not create it]. What difference I have made is how can we use the concepts of human dynamics, complex systems, neural networks and apply it to this problem. Our intention is not to create a microfinance company eventually but an organization or enterprise focused on solving a particular problem. It means that we will not have the same products. We need to evolve and move as we understand the problem better.
Dr. Tara: How is repayment rate so high in microfinance? Is it that rural populace is more honest or something like that?
Dr. Tara: You can’t make a blanket statement like that. The success of microfinance is attributed to the mechanism. If we don’t watch, fraud will become rampant in rural areas. Banks have had the same problem. The oversight mechanisms like the peer pressure model play a large role.
YS: Will microfinance bridge the gap and lead to financial inclusion of rural population?
Dr. Tara: I think microfinance can bridge the gap of giving people ‘the access to credit’ but the question is what does that do in the alleviation of poverty. That is where the link is very thin. Microfinance is not really doing the job of alleviating poverty well. There are a lot of reasons for that.
YS: What would advise for rural entrepreneurship? A profit-oriented model or a non-profit-oriented model?
Dr. Tara: In these times, I would advise a profit-oriented model better because a non-profit venture is extremely limiting in scale. But scale alone will not solve the problem. But in addition, a profit-oriented venture should be aimed at the efficiently solving a problem as well, rather than just raking in profits.
YS: What kind of books do you read and what books would you recommend?
Dr. Tara: I read a lot of popular science and more of non-fictional books rather than fictional. The books that I recommend are Linked by Albert-Laszlo Barabasi and How Nature Works by Per Bak.
YS: Many young people tend to take up social entrepreneurship, especially in microfinance arena, leaving behind a high-flying career. What is your advice for them?
Dr. Tara: I would advise people to think about the problem more before taking up social entrepreneurship, rather than following the people who take it up. I would tell them to think a bit more deeply into the problem before taking up social entrepreneurship. It puts the onus on you to ponder on the particular problem that you wish to solve, to find better approaches rather than sticking to a particular approach that might not turn fruitful. If you decide to take up to a social enterprise, you should be doing some social good by constantly improving and evolving better to serve better.