The Hindu Business Line : Encouraging entrepreneurship

Microfinance institutions should be given a free hand to identify all deserving poor people and support them in launching enterprises
of their choice.

Generating job opportunities for the poorer segments would probably be the best way forward.

M. Udaia Kumar

Born into a poor family, Santh Chandramma of Zaheerabad was forced to join her siblings right from her childhood to supplement the meagre family income. Still, there was hardly enough to make ends meet. Her early marriage to a cobbler and six children in a row only worsened the situation. But Chandramma was made of tougher stuff.

When she failed to get any help from people around, she set up her own footwear shop with loans. She also took a housing loan to renovate her house and an education loan for her younger son, who is doing his engineering. Thanks to the timely help she received, today she is not only well off but also looking forward to expanding her business further.

Chandramma represents millions of poor people in rural and urban areas waiting patiently waiting to have ready access to financial services. They want to take up some enterprise that would get them a fair income and provide employment to the needy.

If the expectations of this vast majority can be met, the whole country will be dotted with small and medium enterprises, raising the earnings capacity of every poor person. If that were to happen, India could easily be on a par with any developed country in terms of human development.

Inclusive growth

So far, around 1,200 microfinance institutions across India have made a cumulative disbursement of around Rs 1,00,000 crore. Yet, they have been able to reach only 8-10 per cent of the rural poor looking for financial services.

Today, there are about 80 million households that are not able to meet even their basic subsistence needs. This is indeed a matter of serious concern, calling for effective measures with long-term perspectives.

The data about poverty remind us that it is not enough to grow but to ensure that increasing numbers of people benefit from the growth. India can generate high growth with a far greater impact on poverty through well-formulated policy actions. In fact, inclusive growth is not only a key to social progress but an indispensable factor in sustaining growth itself.

To achieve greater inclusiveness, there is an urgent need for a definitive strategy to address disparities in education that contribute to large earnings differentials.

Of course, what matters is greater access to schooling with quality education, ensuring its usefulness in the workplace and contribution to growth. Similarly, expansion of farm productivity, complemented by the construction of quality rural roads and rural electrification, would have an important impact on rural poverty.

Further, there should be improved ways to provide income support to the poor. Many countries have relied on the provision of subsidies for consumer items, but the programmes have seldom been effective.

On the other hand, conditional cash transfer programmes have been found to be promising. These approaches have shown encouraging results in reducing poverty and improving education and health that help sustain future growth.

Enterprises in every pocket

Fortunately, an entrepreneurial mindset is re-emerging in India. Young Indians are no longer obsessed with India’s poverty but with its future. This gives India a chance to chart its own course.

It is important to get at inequalities first, without derailing growth. In fact, generating job opportunities for the poorer segments would probably be the best way forward. Policy documents in India recognise the directions needed: To spur actions and achieve results.

In this respect, microfinance institutions have been successful, as they have rightly focussed on strategies to reduce poverty.

What is now required is to facilitate both existing and prospective microfinance institutions to explore the vast untapped poverty segments to encourage entrepreneurship.

Microfinance institutions should be given a free hand to identify all deserving poor people and support them in launching enterprises of their choice.

At the same time, greater intervention is required not only in encouraging more and more poor people to take to suitable enterprises but also in evolving an acceptable mechanism to guide and monitor.

Poverty alleviation

Equally important is the need to have the right kind of infrastructure to facilitate the marketing of their products, ensuring right prices without the involvement of middlemen. Corporate strategist and management expert, C. K. Prahalad rightly says, “Entrepreneurship, more than subsidies or philanthropy, holds the key to poverty alleviation in India.” According to him, it is important that “as a country we learn to celebrate wealth creation as a key ingredient in the elimination of poverty.”

Terming micro-entrepreneurship involving women at the grassroots as an exciting development, Prahlad recalls the saying: “Educating a woman was equivalent to educating a family and creating a successful woman entrepreneur was equivalent to making a successful family.”

I am optimistic that India will be able to make rapid strides to alleviate poverty. But this has to be a collective effort with the government taking the lead.

(The author is the Founder and Managing Director of SHARE Microfin Ltd. blffedback@thehindu.co.in)

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