Effect of Microloans/Grants in India

ant80

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NYTimes article on the aforementioned subject.
Canning, West Bengal–A debt crisis in India's microfinance sector in Andhra Pradesh in 2010 revived the question of how to help the hard-core poor without forcing them into a debt trap. Now it appears that microfinance institutions may have had an alternative all along.

The hard-core poor, or people who live far below the national poverty line, are vulnerable to even small changes in circumstance, from a shift in daily wages to the onset of heavy rains. Repaying a microloan can become an untenable proposition.

This is particularly true of rural women, who accounted for 97 percent of microfinance loans in India in 2011 according to the data center MixMarket, but are less likely than men to be literate or to have the same skills and experience to earn as much. This is where a handful of microfinance institutions — among them Bandhan, currently India's largest such lender — come in.

Bandhan's Targeting the Hardcore Poor program was inspired by one pioneered by BRAC, a community development group, in Bangladesh in 2002. Bandhan's program is not for profit and offers cash-free grants to selected participants in poor villages for 24 months. A "grant" refers to everything a borrower may need to start and ply a sustainable trade — everything, that is, but cash.

cont...
All is not lost, folks. There are some positives to take away.
...

In 2011 the M.I.T. economist Abhijit Banerjee co-authored a randomized test of Bandhan's program. He says that the team found "very strong positive results" and that it was clear that "beneficiaries were substantially better off in terms of how much they ate, measures of depression, schooling for children and other indicators."

The hard-core poor have no liquid assets, which they require to pull themselves out of poverty. But putting mere cash in the hands of people whose immediate concerns are regular meals and safe shelter is risky for them and for their lenders.

This is why the bridge programs inspired by BRAC are so important. They offer the poor opportunity but without the initial risk of debt. But they also demand commitment and require change in the habits that may hurt the potential gains from microloans.

"I have a daughter to marry off," says Mrs. Mollah. "So I work all day and worry all night. But I've seen a transformation in my life. What more can I ask for?"
 
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