Alright, I’ll come right out and say it. Microfinance has done very little to alleviate poverty. Practically speaking, even after five loan cycles, virtually all of our borrowers are still poor—poor enough to be eligible for yet another microfinance loan.
The premise of microfinance has been that giving poor people a loan is all they need in order to get out of poverty. This presumes that simply giving someone money will first turn them into an entrepreneur, and that once they are thus transformed, that their entrepreneurial abilities will far exceed that of even the most educated entrepreneurs who fail more often than they succeed. This premise makes light of the difficulties of entrepreneurship and of the greater problem of the impoverished ecosystem within which the poor operate. On the other hand, in poor rural areas, where employment opportunities are few and most of India’s poverty is thus concentrated, effective entrepreneurship is a crucial component of progress. So how else to catalyze entrepreneurship but through microfinance? What about those pictures of Rajalakshmi and Kannamma smiling broadly alongside their cowshed and petty shop, the poster women of microfinance success? Surely there is something to that? There is a little. But that’s just it. It’s a little, very little.
There are without doubt some people who take a loan and take steps up the economic ladder. But they are a minority, and they are baby steps. Many don’t even try (a recent market research study we did turned up that a disconcerting percentage of our borrowers spend most of their day watching TV or ‘taking rest’) and many fail. Those who do succeed do so within the subsistence context, even if they may have managed to cross the arbitrary (and therefore meaningless) poverty line. Even at the pinnacle of their success, I wouldn’t want to trade places with them and neither would you. So by glorifying that as success, we are simply setting the bar far too low and lowering our chance of finding real solutions for real progress. By real progress I mean where the majority of the world’s population is engaged at a level that is actually meaningful by a single global standard.
So in the wake of the microfinance media melee, I think it’s time we went beyond and changed the conversation and the debate to address the real questions that were the whole point to begin with (weren’t they?): What are the fundamental drivers of societal progress? Why have some sectors of society progressed rapidly while others have not? And what can we do to turn a system from poverty to progress? To answer this we first need to define progress. To me progress is not about money, it’s about innovations that change the way we live. Efficient distribution of resources gives us incremental benefit but it’s innovation that fundamentally raises our capabilities and standards of living. Case in point, two hundred years ago, even the best of Kings and Emperors with all their wealth could not raise health standards beyond the medical capability of the day and had to sweat it out without ACs in the summertime. With over 6 billion people on the planet, why are there so few microsocieties that come up with all the innovations? What if a few more billion joined in? What if instead of using microfinance loans for another cow or chicken or sewing machine that millions of people invested in new innovative businesses and approaches? What if?
So if the fundamental driver is innovation, then what are the circumstances and conditions of human systems that drive it? It turns out that science might be on to some interesting answers and approaches. Complex systems scientists (largely mathematicians and physicists turned social scientists) are beginning to discover how structures and dynamics of human systems impact their outcomes. This column will be about sharing the insights of complex systems science in the context of what we can do about poverty, and the understanding we are building at Madura of the relationship between human network structure and economic outcome in order to evolve more intelligent for-profit, rapidly scalable products that facilitate changes in system structure and therefore systemic progress.
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