Dear Readers

Before I continue my discussion on microfinance and exploitation, which I have been doing for nearly a month with a case study of BISWA, I wish to address some basic considerations here which I feel  most readers do not recongnize or dismiss them as minor.

1. In USA there is a department of small business administration in the federal government. In the context of this department, a small business is defined as those having a maximum of 5000 (five thousand) employees. Most of their regulations are devised to fit this model. However, the pop and mom store (i.e. a family store) with only one or two employees also falls under the category of small business and if they are incorporated they fill out the same tax forms as the employer with 5000 employees. We all know very well that even though they both fall under the same scheme, their operational economy is vastly different. Consequently, and unfortunately, you will not find government policies that will suit the family store business as the so called small business of 5000 employees.

2. Likewise, when the concept of Micro Finance was introduced operationally at the World Bank, this was devised for small and deprived countries with very poor people. Thus, finance in the tune of several crores was considered small (hence mcrofinance) as compared to hundreds and thousands of crores. Although the underdeveloped countries thought they were participating under microfinance schemes, the loan burden has grown to be so big that luminaries like President Clinton and Bono are trying their best to adopt "loan forgive" programs at the World  Bank with little success, if any.

This model of microfinance was adopted without modification when the NGO revolution took roots in the early 70s. Consequently, today’s NGOs are operating under old microfinance model with devastating social consequences. Because it is happening to poor people in remote areas, no one hears about it, knows about it or even cares about it. I myself was in this category until I started the rural development program and traveled all over Orissa for the last 7 years.

3. A poor tribal family works hard and earns only enough to feed the family for about 6 months of the year (actually they live the whole year with 6 month's supply through deprivation and hunger). They are so far from human civilization that they can not even come to the street for begging. For them microfinance is a few hundred to few thousand rupees, not tens of thousands of rupees. With appropriate technological advice (and I already have several packages for use) these poor people can start small efforts and gradually come out of poverty and hunger to a point where they even would not need any more loans. Yet the NGOs are using the old and failed model of microfinance, which is enriching them, but making poor people more dependent and deprived.

4. I wish to give here a theoritical example: Suppose a poor family needed only 500 rupees, how much the NGO can skim off? Pittance, meaning not worth doing. But suppose the same family is given a 5000 rupees loan, the NGO can skim off easily Rs.1000 as a "fee" (that is what the tribal people are given to understand). So now he has a burden of Rs.5000 on his head, but actually Rs.4000 in his hand. Then he is left alone (if you all have read all Khirode Malicks replies to me) without getting any help on how to invest it and more importantly how to market the goods they produce through various microfinance schemes. In many cases, before even the family gets to invest the money; much of it is gone through the "drinking binge" of the male tribals. Thus, I have met dozens, if not hundreds, of tribal people who have come to me begging for some reprieve (yes, I have a reprieve, but this is for another posting at another time).

 5. The above is a theoretical example, but let me tell you about the horror in the real world. NGOs like BISWA encourage (according to Khirode Malick they do not compel them) the tribals to take loans of several lakhs of rupees for each SHG (self help group). Remember, the loan comes in the name of the group (of about 20 or less people). Thus, if the loan is Rs.2 lakhs, the bank employees keep Rs.20,000 (10%) in the name of “fees”. Thus, the full money even does not get to the hands of the NGOs. After the money comes to the NGOs, they keep another 10% (Rs.20000) in the name of “fees”.This leaves Rs.160,000. In practice this is more than enough if the whole group uses this money for group advancement. But in practice this money is distributed among individual members of the group because this reduces to Rs.8000 per person so it will fit the traditional Micro Finance model; as if the Micro Finance will scheme if this is not done. Then what is the meaning and significance of the SHG. Why cant individuals get the same loan directly from the bank? Because if this happens there is little money left for the NGOs to gain as the middle men.

 6. I met one NGO (not BISWA) which has more than 100 SHGs. If it gets Rs.20000 per SHG, this makes Rs.2000000 for the NGO from just one loan of Rs.2 lakhs for each SHG. But this cycle goes on and on. No wonder, there is now a hidden war among area NGOs to snatch each other's SHG.

6. Now I to YOU, the readers, especially those who are demanding the moderators to stop these dirty discussions and “name calling” as they claim. I have a feeling these individuals have NGOs and they are dong the same thing as BISWA.

A. Not a day goes by when we do not assail in these discussion groups  individual politicians government officials for their bad deeds. You all think that is ok because we are doing this in the name of fighting government corruption and inefficiency. THAT IS NOT PERSONAL INSULT according to you all even if we give out names of the people involved.

B. We need to recognize that the NGOs are given registration and tax-exempt status because they declared that they want to help the public. Yet when they exploit the public they are supposed to help, we are advised to do only CONSTRUCTIVE CRITICISM of these exploiters. We are not supposed to name any names. How long you the readers will support hypocracy of naming corrupt government officials but protecting the name sof corrupt NGO officials?

C. At the risk of inviting character assassination by Khirode Malick and his advisor Prafulla Dhal and his employee, Sisir Sahoo, I am glad I was finally able to bell the cat. I am also glad that some of you chose to trickle in to this discussion. Thanks to those who had te courage to speak out, I have now enough information to write a book in the next couple of years. The title will be “Micro finance and Exploitation: a Case study”. Why couple of years? Because it will take at least that long for me to collect field data that will show clearly how “alternative micro finance models” are helping people better than the traditional  micro finance model”

D. Please stay tuned you will hear more from me not only on how exploitation is taking place in the name of micro finance but also more about how people are being rescued from this nightmare.

E. In the mean while, lend a deaf year to those who are crying foul because they fear if this discussion is not stopped immediately, their NGO may be the next target.

By Dr. Subhas C. Mohapatra, President, IAFF,