By the broader definition of poverty ($2 per day per person), nearly half the world’s population, over three billion people, lives in poverty. In India alone, over two-thirds of its one billion plus population is poor by this definition. Yet, the strategy for alleviating poverty across practically every developing nation has remained essentially the same for the past several decades. Shyama Venkateswar and Abraham George in Poor Want a Job, Not Benevolence discuss some of the drawbacks to microfinance as it is currently constituted and dispensed. In India's Agrarian Crisis: An Urgent Opportunity, Mira Kamdar discusses the substantial increase in levels of rural poverty and relative deprivation in the last decade, and argues that this problem needs can be tackled effectively by alternative agricultural development strategies. Women's World Banking article on Social Entrepreneurship and Poverty elaborates on some of the challenges now confronting microfinance, and outlines the ways in which these can be overcome so as to meet growing demand in the coming years.

Featured Event Rural Poverty and Social Entrepreneurship in India: Local Problems, Global Solutions? November 30, 2006 For other ASIP programs, see the Asia Society calendar Articles & Resources Poor Want a Job, Not Benevolence India's Agrarian Crisis: An Urgent Opportunity Social Entrepreneurship and Poverty Background Material

Poor Want a Job, Not Benevolence
published in Chicago Sun-Times.

by Abraham George and Shyama Venkateswar*

Business Week dubbed 2006 ''the year of micro-finance,'' when the idea of extending small loans to the world's poorest people to start their own businesses caught on in the developed world. Governments, financial institutions and private donors including the foundations of Bill and Melinda Gates, Dell and others committed hundreds of millions of dollars to micro-finance this year. To cap it all, Muhammad Yunus, founder of Bangladesh's Grameen Bank and progenitor of the global micro-lending industry, won the Nobel Peace Prize.

Yet 2006 might also be called ''the year of global poverty,'' because 3 billion people -- about half of the world's population -- now live on less than $2 a day, a billion of them subsisting on less than $1 a day. Each day, 35,000 children under 5 die of starvation or preventable diseases. In terms of sheer numbers, it's the largest poverty epidemic in our history. How did we get here?

For decades fighting poverty has been the responsibility of national governments, but they have been generally ineffective. Nongovernmental organizations, on the other hand, are strong advocates for change, creatively complementing government poverty programs, but lacking the capacity to transform the lives of the 3 billion poor.

Economic progress in countries such as India and China has the potential to lift millions out of poverty. But much of the gain is confined to urban areas, and the trickle-down effects haven't yet extended outside. Of India's billion-plus people, 650 million rural poor remain untouched.

That leaves the question of how to connect the economic engines of the private sector to the rural poor. Micro-loans, typically about $100, make a small-scale contribution by providing them access to cash for personal needs such as payment of dowry, medical emergency or repayment of prior loans. But as economic engines, the loans have severe limitations.

Banks and micro-finance intermediaries making the loans say they are intended to empower the poor to start and run their own businesses. Yet, the interest rates charged are often 18 percent to 24 percent for the poorest, sometimes as high as 36 percent. Repayment rates are high -- some banks claim 99 percent. That's good for the banks' bottom line, but it hardly proves that the loan recipients have become successful business owners. A recent study of 50 micro-credit programs in 17 villages in South India showed that less than 5 percent of recipients used the money to start businesses.

The current debate on the future of micro-finance is about how to cope with its growing pains, as it seeks to roughly double the number of loan recipients to 175 million by 2015. This discussion misses a vital point: If poverty alleviation were simply a matter of lending $100 to all the world's poor, poverty could be eradicated easily; it would cost about $300 billion (compared to trillions spent on assistance over the last half century), and we'd be done. But it's not that simple. In its current form, micro-credit can't build equity or jobs on the required scale.

What micro-financiers ought to be debating -- and some are -- is how to ensure that the loans create jobs, and how to leverage their activity to employ billions. From farming to alternate fuels, rural areas have great potential for developing sustainable industries, and yet there is almost no serious effort to realize that potential. We must build on the goodwill micro-finance has created to attract more private investment and commercial activity in deprived communities.

Micro-finance brought private investment capital to millions of poor people on a small scale and even proved it could be profitable. The challenge now is to bring investment capital on a larger scale to start businesses in rural areas and employ billions of people. Not government, not NGOs, but business, with its scalability, risk-taking and accountability for results, is in a position to do this.

Might some profit-driven businesses try to exploit the poor? Yes, which is why governments and NGOs must provide effective checks and balances. But ultimately it is not benevolence the poor seek; it is opportunity, and specifically jobs. Without vibrant economic activity where the poorest live, the global fight against poverty will be swamped by the nearly 100 million population increase in developing countries each year.

Abraham George is the founder of The George Foundation, which conducts humanitarian work in India, and the author of India Untouched: The Forgotten Face of Rural Poverty. Shyama Venkateswar is director of the Asian Social Issues Program at the Asia Society in New York, hosting a public conference November 30 with Mr. George and other experts on rural poverty and social entrepreneurship in India.

India's Agrarian Crisis: An Urgent Opportunity

by Mira Kamdar

On a blisteringly hot afternoon this past April, Mahadeo Kissan Pinjarkar sat on the veranda of his mud-walled farmhouse in the Vidarbha region of eastern Maharashtra and explained why his 30-year-old son had committed suicide a few days earlier. His son was in debt to local moneylenders, and couldn't borrow any more, yet he needed to plant the family's fields. So, Mr. Pinjarkar borrowed $156, and gave the money to his son to buy seeds, pesticides, and fertilizer to plant cotton on their three-acre farm. They had a well, but it had run dry and they didn't have the $2,500 to sink it deeper or dig a new one. The rains failed to arrive at the right time, and they ended up with a meager harvest of only three quintals, an amount that netted the Pinjarkars $75 - not enough to live on much less pay back the moneylenders. In desperation, his son set up a paan stand in the village. When that too failed, he doused himself with kerosene and set himself on fire.

His widow, looking shell-shocked, said she planned to work as a day laborer for other farmers in the village. She expected to make 25 rupees a day (about 60 cents). The couple had two gorgeous daughters, 13 and 11 years old. As their mother looked at them, her eyes filled with tears.

Mr. Pinjarkar told us they used to grow jowar (sorghum) and vegetables along with a little cotton. Even in lean years, they had food to eat. Recently, however, they had been tempted by the promise of a bumper crop of cotton. They hoped to make a bundle, and pay off their debts. So, they put all their land into cotton and now had to buy food at a time when basic food prices had risen dramatically. It used to be they could count on a guaranteed minimum price for their cotton from the government of Maharashtra, but that price had been reduced in a move to make the state's agriculture more responsive to market realities. The Pinjarkars were not going to make it.

Since 1997, more than 25,000 Indian farmers have committed suicide. Most of these suicides have occurred in states with thriving urban centers: Maharashtra (Mumbai), Karnataka (Bangalore), Andhra Pradesh (Hyderabad). The suicides are as eloquent a testimony as any about the desperate plight of rural India. Some 850 million Indians depend on agriculture for a living. Most are small-scale farmers, with between one and three acres to cultivate. Many are dry-farmers, with no access to irrigation. Most are illiterate, with few skills to offer - if there were jobs available off the farm.

India's government has set an ambitious target of boosting annual growth to 10 percent from its current impressive 8 percent level. There is no way to achieve this without pushing the country's huge agricultural sector from a sluggish 1.5 to 3.2 percent annual growth rate to at least 4 percent. With little funds to invest, the government is counting on private investment from large corporations to modernize Indian agriculture: shift more production from grains to fruits and vegetables, build a cold chain to get produce to Indian and foreign urban consumers who will pay a premium for fresh produce and processed foods, consolidate small holdings and streamline agricultural production.

India is the last undeveloped agricultural frontier for the world's large agribusiness concerns. Its varied climate and relatively large area of arable land mean a large variety of crops can be grown year-round. A veritable stampede is on by some of the biggest players in India and in the world - Reliance, Mahindra, Bharti, ITC but also ADM, Monsanto, Cargill, Wal-Mart and Carrefour - to stake a claim to the vast, under-exploited domain of Indian agriculture.

The need is great. An astonishing 40 percent of the world's poor live in India, including one-third of the world's malnourished children. A report to the United Nations General Assembly last September entitled The Extent of Chronic Hunger and Malnutrition in India asserted that hunger and malnutrition are bigger problems in India now than during the 1990s. As India's economy has taken off, the gap between those who have enough to eat and those who don't has widened. And while India claims self-sufficiency in food grains, and even exports grain, it has failed to make food available to all its citizens who need it. This year, for the first time in decades, India was forced to import food grains in order to meet its targets for basic food reserves.

Will the corporatization of Indian agriculture deliver food to India's hungry and improve the lives of poor farmers such as the Pinjarkar family? One such venture, Bharti Field Fresh in conjunction with the Rothschild Group, will only commit to dealing with large-scale farmers who have at least 1,000 acres under cultivation. Consolidation is being encouraged by using lease agreements to get small-scale farmers to sign over their land. They have the option of remaining on their farms as contract laborers. Bharti Field Fresh is exporting high-value crops to European customers. This type of effort may indeed increase profit margins and revenues from Indian agriculture, but to whose benefit?

While the Green Revolution of the 1960s and 1970s boosted production enormously and made India self-reliant in food grains, the environmental and social costs were also staggering. In Punjab, where the Green Revolution was most successful, a glut of water brought by large-scale irrigation schemes coupled with high concentrations of nitrates from synthetic fertilizer run-off have impoverished the soil and polluted the water. Production of grains is now falling. Pesticide use in India is also very high, resulting in high levels of pesticide residues present throughout the food chain.

And India is facing a severe water crisis. With 17 percent of the world's population, India has just 4 percent of the world's freshwater. India's surface water is highly polluted by untreated sewage and industrial effluents, while its underground aquifers are being depleted at a far greater rate than they are being recharged, resulting in falling water tables - such as caused the Pinjarkar's well to go dry - as well as dangerous leaching of arsenic and fluoride into the drinking water of millions of Indians. India's cities are struggling to provide enough water to burgeoning populations. Every one of India's large cities is dependent, at least in part, on delivering water to thirsty residents by tanker trucks. The massive industrialization of Indian agriculture will put new pressures on India's stressed water supply, and will clash with the growing demand for water in India's cities.

What is the total potential cost of a transition of this magnitude to industrialized agriculture in environmental, social, and cultural terms? How long can these practices be sustained from an environmental point of view or tolerated by domestic rural constituencies? These are all questions India needs seriously to debate as it seeks solutions to its agrarian crisis.

In this serious crisis, however, lies an immense opportunity, not just for India but for the world. India has the great good chance, as a developing country, to choose to develop differently. It can try to invent its own paradigm for an agricultural future that increases yields and better connects producers to consumers but that also improves farmers' lives, lifts millions out of poverty, conserves water and cleans up the environment. There are many efforts in India to do just this. ITC's e-Choupal initiative links farmers to markets and brings needed inputs and opportunities to remote locations without turning farmers into contract laborers. Fabindia's new foray into organic farming and processed food sales is introducing the relatively new concept organic foods to the Indian urban consumers who shop at its popular stores. Organic farming is more labor intensive than industrial farming - and India has no shortage of rural manpower. There are people looking at growing food for export from India that meets the European Union protocol covering pesticide-free food (EEC regulation 2092/91). As a leading Indian banker observed to me, "In some cases, you have to pick the pests off by hand. This is something that is very easy for us to manage." And why limit organic production to export crops?

Most promising of all, perhaps, is Dr. M.S. Swaminathan's biovillages project. Dr. Swaminathan is the revered father of India's Green Revolution. His thinking about agricultural development appropriate for India and its rural poor has led him in the intervening decades to embrace a philosophy of "human-centered development." He is committed to making India's small-scale farmers empowered producers by giving them the knowledge and the access to cutting-edge technologies - including genetically engineered crops where beneficial - they need. He is also committed to pursuing practices that are environmentally sustainable.

Dr. Swaminathan's vision comprehends "the twin challenges of poverty eradication and natural resource conservation." He uses a combination of strategies, including micro-credit, water conservation, natural soil enrichment, wireless internet kiosks to connect farmers to information and increase their knowledge, and cooperatives where farmers can consolidate their buying and selling power. He advocates weaning India from the monocultures of wheat and rice, and for farmers to return to cultivating the highly nutritious and locally adapted grain crops of bajra (millet) and jowar - exactly like the Pinjarkars used to do.

An Evergreen Revolution such as Dr. Swaminathan's has the potential to bring sustainable, equitable solutions to India's agrarian crisis. It can also create a desperately needed new agricultural paradigm, not only for other countries in the developing world but for a developed world increasingly alarmed by the environmental costs and health risks of industrial agriculture.

Large-scale industrial agriculture was an invention of the second industrial revolution and the 20th century. Along the lines of what it achieved in record time with telecommunications and information technology, India has within its power the potential to lead a 21st-century revolution in agriculture. To do so, it will have to resist powerful interests that see India as the last, great, exploitable frontier for business as usual. To allow a radical new paradigm to emerge, India must create a regulatory framework that nourishes the alternatives to corporatized industrial agriculture that are being imagined by visionary Indians, that supports farmers as they transition to a new agricultural economy, and that seeds entrepreneurial efforts that will turn dreams of improving lives into market realities. If India can do that, it will go a long way toward saving itself, and toward solving our global conundrum of how to reconcile growth, sustainability and equity.

Mira Kamdar is an Associate Fellow at Asia Society and author of Planet India: How the Fastest-Growing Democracy is Changing America and the World (Scribner: 2007).

Social Entrepreneurship and Poverty

The following thoughts are from a recent Op-ed published in the Miami Herald titled "Ending Poverty: Microlending works now, but it has to evolve" by Mary Ellen Iskenderian who took over as Women's World Banking's (WWB's) CEO and President in September. Iskenderian previously served in various leadership positions at the World Bank's International Finance Corporation. The piece lays out the critical steps involved in encouraging industry players to strategically collaborate, consolidate their resources and grow and strengthen their organizations-expanding the reach of microfinance to the some 500 million potential microfinance borrowers that exist (subsist) globally.

The spate of recent articles about Muhammad Yunus' Nobel Peace Prize spotlight a movement that has proven to the world financial community that "banking the poor" is a win-win solution for business and poor families. But now, although the microfinance industry is getting the attention it deserves, there is still much work to be done.

Currently, there are approximately 90 million people being served by a range of microfinance products and services. Yet the reality is that there are more than 500 million potential microfinance customers around the world. This major untapped market is finally being recognized for its profit potential by bankers, equity investors and entrepreneurs.

However, unlike in other parts of the global banking industry, the range of players-all eager to tap into this emerging market-remains fragmented. The result is an industry not fully equipped to meet the needs of the vast majority of its potential clients.

It is essential that the global microfinance industry evolve to a more mature business stage to capitalize on the power it can wield as a more collaborative and strategic force. We have seen a similar transition within the global banking industry, which since the 1990s has undergone a dramatic consolidation of its players.

The current microfinance market consists of cooperatives, NGOs and commercial banks providing a range of products and services. Fueling their expansion is a crowded playing field of grant-makers, debt and equity investors, technology innovators and technical service providers. This booming market does not lack for financing: everyone from government aid providers to high-tech billionaires is looking to commit vast sums of money to this worthy and profitable cause. But a more strategic collaboration of all these players is going to be necessary to expand the fight against poverty through microfinancing.

With so many committed and eager players, the industry is ideally placed to reap the benefits of consolidation and collaboration. The following steps could help the industry scale up and meet the future challenges.

First, donors and foundations, who have provided billions of dollars in grants to individual microfinance institutions (MFIs) in the past 30 years, must now work collaboratively to finance the development of industry-wide infrastructure and technology that no single MFI can bring about.

Second, a consolidation of smaller MFIs is needed. The Microcredit Summit Campaign's 2005 Annual Report provided statistics on over 3,000 microcredit institutions, many of whom serve less than 5,000 clients. Consolidation does not mean that their mission needs to change; in fact, a broader operating base will allow them greater access to capital and result in improved sustainability.

Finally, there needs to be further cooperation among NGOs and banks, with the latter now entering this market in increasing numbers. Instead of resisting the inevitable, NGOs should forge smart, strategic alliances with banks to benefit from their superior infrastructure and marketing capabilities in order to build their own competitiveness and capacity.

Moreover, microfinance providers must also recognize the limits of financial products in improving the lives of poor people and explore alternatives beyond the industry's current scope of traditional microfinancing. Promising collaborations between microfinance institutions, healthcare providers and educators in Africa and the Caribbean are already pointing the way to address poverty through inter-disciplinary measures and cross collaboration.

Cooperation Necessary

Forging "best practices," drawing on the knowledge of many different players, and fostering new collaborations will lead the microfinance industry beyond the status quo. To truly fight poverty, while making businesses more profitable, will require more cohesion and cooperation.

Let's never forget Sufia Begum, the 21-year-old woman to whom Yunus first lent in 1974, as the ultimate end consumer. Microfinance made a difference in her life, and in the lives of almost 100 million around the globe. Now, it is time that the global microfinance community adopted hard-nosed business strategies that will allow us to help an even greater number lift themselves out of poverty.

Women's World Banking is a leading non-profit microfinance organization reaching over 22 million borrowers in Asia, Latin America, Africa, Eastern Europe and the Middle East.

Background Material

Asia Society and Women's World Banking: Annual Microfinance Conference (May 13, 2003), speech by Stanley Fischer, Vice Chairman, Citigroup President, Citigroup International.

I to Eye: Portraits of Female Empowerment in Bangladesh: Fariba Alam (December 2001)

Micro Credit Gone Global: ASIP Panel Discussion (May 2, 2000)

AsiaSource Interview with Mohammad Yunus (May 2000)

AsiaSource Interview with Shafiqual Haque Choudhury (May 2000)

Women as the Leaders of Development (October 5, 1998)
Renana Jhabvala, Coordinator and Member, Executive Committee Self-Employed Women's Association (SEWA), Ahmedabad, India

Globalization: The Promises and The Perils U.S. and Asian Responses (March 30, 2000)
Dr. Nafis Sadik, Executive Director, United Nations Population Fund
Dr. Ashok Khosla, Founder, Development Alternatives
Muzaffar Chishti, Director, Immigration Project, UNITE
Nang Lao Liang Won, Co-founder, Migrant Assistance Programme, Thailand
Raymond Offenheiser, President, Oxfam America