Microfinance

Microfinance has been continuously cited as the most powerful tool to alleviate poverty, but has this tool been used to its full potential?. Microfinance has contributed significantly in reducing, if not eradicating poverty in many parts of the world. Its success stories are pretty impressive but, the question of whether microfinance be a vehicle through which even greater and more critical contributions to global poverty alleviation might be made needs further research. Many governments are still hesitant to adopt this model to help the poor and needy, and many tried but gave up too early. Microfinance should be adopted with the aim of social benefit rather than personal economical profits. People involved in economic decision making should realize that putting a microfinance framework in place effectively is arduous and time-consuming task. It involves teaching and making people aware of the rules and benefits of microfinance. It is particularly difficult as poor people have almost negligible literacy rate and they are afraid of paperwork because they have never done it before.

The growth of microfinance is fueled not by market forces, rather it has been due to sincere and conscious efforts of some governments, NGO's and donors who view microfinance as an effective tool to eradicate poverty. There have been many revolutionaries who have shown how microfinance can be used most effectively. Mohd. Yunus, the founder of Grameen bank, is the most notable of them all. His model of Grameen bank has yielded unprecedented results. This bank has not only improved the standard of living of 5 million bangaldeshi families but has also succeded in making economic profits out of it. The success story of Grameen bank was a surprise to many economists. There are many lessons to be learnt from Grameen Bank model, especially for the governments of developing and underdeveloped Asian and African nations where poverty is widespread. Mohd. Yunus had to work really hard to find his way through red tapes and lack of awareness among his fellow citizens. But he was determined to bring a change in his society and so he did.

There are many things worth noticing in how he implemented his model of microfinance. Firstly, he was not in any kind of a hurry, he gave the poor time to absorb and get used to the idea. He focused on spreading awareness by appointing some student volunteers who would go door-to-door and talk to the villagers about the benefits of microfincance. Though people would reject the idea of taking a loan at first, but the volunteers were trained to accept it and not get disheartened. Instead they were taught to be humble and keep trying such that at some point people would agree to give it a try. Secondly, he never gave loans to individuals, rather he would ask the borrowers to form a group, and the loan was granted to the group. This helped him reduce the rate of defaults. As even if one person in the group repays the loan, it inspires the others to do the same. And people in the group had someone to watch their back if they deviated from the right and proposed use of money. This would be reported to the volunteer assigned and then he would try to reslove the matter. Thirdly, Grameen Bank focused on lending to women. Yunus found that women members of poor and needy families are more hard-working and inclined to take care of their children in the best possible manner than the male members. This zeal and determination of the women borrowers assisted them to earn enough to repay the loan as well as run their families. Fourthly, the Bank kept the paperwork to be minimal and borrowers did not come to bank for loan, rather bank went to the doors of the poor. One or two volunteers were assigned to each village who would note down the name of the borrower with the date and amount of the loan and would visit the village once in a week to collect the installments. Minimizing the paper work avoided red-tapes and delays in allocating the loan. Fifthly and most importantly, Yunus was not afraid of incurring a loss, infact he did suffer a loss at first, but he kept his belief alive. Grameen Bank would not send a recovery guy if somebody defaulted, instead, they were provided assistance. Assigned volunteer would speak to the defaultor about what led to the failure and if the borrower appeared reasonable, she was offered another loan to start all over again. Yunus's autobiography "Banker to the Poor" explains in details the efforts and hard-work of Grameen Bank to bring a change in the lives of poor Bangladeshis.

Though Mohd. Yunus pioneered a way to use microfinance effectively but his model cannot be applied in the exact same manner everywhere due to varying traditions and mindsets of the people. However, with little improvisations to suit the region's need, it can be used to fight poverty. It is up to the government and resourceful individuals of a nation to take a step forward and contribute to microfinance which helps the poor and at the same time conserves their dignity and respect. The only thing to be borne in mind is "every good thing takes time and nothing good comes easy".

Bangalore, Boston and Beijing !!

This article is inspired by the readings from Thomas Friedman's "The World is Flat" where he discusses how over time, especially in the last decade the world has become a "level playing field". Specifically during the IT bubble era, massive investments were made to connect the whole world through broadband and undersea optic cables. Computers became cheaper and widespread, and there was advent of e-mail, IM clients which made communications amongst people in various parts of the world cheaper and convenient. Availability of information was made easier by search engines like Google and Yahoo!. Propriety softwares were engineered which could divide the work into logical pieces and distribute one part to Bangalore, one part to Boston and one part to Beijing where they would be developed simultaneously to be later assembled as a complete product.

There are uncountable benefits of such kind of a product development process. It not only makes the production cost come down but also adds a new dimension to the product. Production cost is reduced significantly as the parts of the job are assigned to the places where they can be done at the lowest cost. Moreover, people from various cultures, where the needs vary can add new dimensions to the product in order to make it globally usable, thereby increasing the market size for the product. Tens of thousands people at more than 30 companies on 3 continents worked together to make Apple's first iPhone possible. All in all, people with best possible skills come together to develop a product. But how do consumers benefit from this process?. Simple, they get high quality products at competitive prices.

There is no doubt that America is one nation driving this change in product development process. Be it Google or Yahoo! or Microsoft or Amazon, all are the creations of American nationals. It is due to the research going on in American universities that we have such high speed internet connectivity and companies can now do round table video conferences with their colleagues in other countries, discuss the prototype along with planning and distribution of tasks. But has USA really gained from it, from a long term perspective? Recently, there has been a lot of hue and cry over jobs being send overseas. People of America are for sure facing tough competition from their counterparts in Bangalore and Beijing. But that is the strength of our character; we are always at our best when challenged. Instead of wasting our time on putting up rallies on this issue, we should accept the fact and face it with wit and vigour. We should learn lessons of hard work from Indians and Chinese. And always remember one thing, be it good or bad, the time always changes for "Nothing but only change is permanent"

Declining birth rate: Good or bad??

Population has been a major concern in many countries, specifically in developing Asian countries. Countries such as India, China, Bangladesh and Pakistan have always struggled to feed their ever growing population. China and India combined have around 36% of the world's alive people. China on one hand has adopted "One child policy" and has been able to restrict the birth rate to a very low level, India on the other hand is still grappling with high-birth rate. Indian political and caste structure makes it difficult for the government to implement a policy like China's. Though supporting a huge population can be a nightmare for any government and economy, but is encouraging people not to reproduce, good from a long term perspective??.

There would be many advocates of the idea of declining population, but there are no less on the other side. There are many issues to be discussed here, particularly the increase in the number of aged people. Declining birth rate increases the dependency ratio i.e. there are more number of retired people than the number of people that constitutes active work force. Secondly, it results in higher taxes on the working people as the government needs to invest more in pension and health care services for the aged, hence in order to avoid a deficit, tax rates are raised. Thirdly and most importantly, there would be a shortage of labor which would lead to higher wages and firms would resist reinvestment into their business as their product's cost would not be competitive in the global markets.

No matter how much technology advances, human workforce has been and will remain the major ingredient of production process. Human resource is the most vital resource for any business. Youth's vibrant energy and creativity as well as aged's experience and understanding are required for the development of any economy. Realising this fact, many countries like Singapore with low birth rates are now providing financial incentives to their citizens to reproduce more, in addition to free education facitlies. Legally forcing people to reproduce less can no doubt yield positive results at first, but these demographic changes would be very difficult to reverse when needed, as a tradition is established over time. And people then are fearful to differ as they are worried whether they would be able to support a greater family.

Whether large population is a liability or an asset, it is up to the relevant countries to decide. India particularly is doing a tremendous job in this regard. They have no law regarding how many children a couple should have, rather they are focused on producing more jobs and providing education to the people. Their Prime Minister Mr. Manmohan Singh believes that their people are the most important asset and have contributed to the growth the country is currently experiencing. Many MNC's are compelled to set up their production units in India due to large scale availability of cheap and skilled labor. Now it would be interesting to see how China, which is being looked upon as the next "Superpower", solves the problem of aged population.

Internet and Economics !!

Gone are the days when you had to travel miles to get a book, to buy grocery items, to purchase clothes or to book a movie ticket in advance. Now it's just a matter of some mouse clicks and there you go, Home delivery!!. Internet transcends boundaries. No matter where you are you can get whatever you want from anywhere in the world. If you live in the California, USA and really want to buy Parisian lingerie, you can easily order it on Internet. Thats the kind of impact Internet has brought about in our lives. It has revolutionized the way people do businesses by expanding markets to a global level and thus has contributed in growth. Growth is dependent on consumption and spending. The more the consumers consume, the greater will producers be willing to produce, which in turn increases the output and thus growth of an economy. This kind of globalization also increases competition not just at a domestic level, rather at an international level, which is again advantageous for the consumers. It is a win-win for both the consumers as well as the producers.
E-commerce sites like Amazon and ebay who are the pioneers in this field of selling and buying online have made it comfortable for the consumers to purchase the desired items while sipping a cup of coffee under A/C at home. Isn't that amazing compared to the effort we used to make to get the smallest of things earlier.
And now with the growth of broadband and wireless services and with the advance of Internet facilities in developing countries, the markets are going to heat up and the spendings and revenues are bound to go north. Internet and economics have a long way to go together.
Hail Vinton Cerf!!(Inventor of internet)