Credit portal




Microfinance and rural development

microfinance and rural development

Sponsored by:

More than half of Asia's population still live in rural areas. but the figure is dropping. And dropping fast. Reliant for the most part on subsistence agriculture, villagers are packing up in droves and heading to the cities.

The results are all too evident in the region's cramped, unsustainable mega-cities, such as Mumbai and Manila. Rural migration is especially acute in China, which now boasts around 100 cities with more than one million people (the UK has two, London and Birmingham).

So what can be done to persuade rural residents not to leave? The answer is simple: give them something worth staying for. The far harder question is "how?".

A new list of Asia's most inspiring sustainability pioneers offers some valuable clues. Occupying a prominent role in the Purpose Economy Asia 100. compiled by US-based career consultancy Imperative. is the theme of rural entrepreneurship.

Finance first

A common denominator among the listed experts is the notion that it takes money to make money. Micro-finance is an Asian creation after all, initially popularised in Bangladesh by Nobel Prize winner Muhammad Yunus before being quickly taken up in India and elsewhere.

"If people aren't able to access a microfinance loan, then they will go to loan sharks", says Chetna Sinha, founder of Mann Deshi Mahila Bank. a co-operative bank operating in the Indian state of Maharashtra. Unlicensed lenders can charge compound interest rates of anywhere from 20% to 120%, adds Sinha, who was recently named India's Social Entrepreneur of the Year by the Schwab Foundation.

Peer support plays a core role in most rural micro-finance schemes. Loan recipients are first formed into groups, with repayments then the collective responsibility of all group members. This not only provides assurance for the lender, but it promotes a sense of solidarity between group members as well – an important factor given the fluctuations inherent in new business ventures.

Micro-finance is not the only option on the table. Mann Deshi, for example, offers specially designed savings accounts, pension services and insurance products to its rural customers, as well as individualised loans. Proximity Designs. meanwhile, a Myanmar-based social enterprise, has a farm finance package that times loans for the planting season and delays payments until after the harvest.

Despite the growth of rural finance options, loans are very often too small or the interest on them is too high for villagers to build a sufficient credit score to access larger capital sums. Indian finance provider InVenture has developed a mobile application that promises to overcome the problem. Phone owners can use the system to log their personal and business cashflows. This information can then be accessed by institutional lenders, which can consequently tailor their lending terms accordingly.

Holistic help

Finance is far from being the

be all and end all for rural entrepreneurship, however. All too often, potential entrepreneurs are held back by a lack of basic business skills, market know-how or entrepreneurial drive.

The latter is particularly important, according to Vinya Ariyaratne, general secretary of Sarvodaya Shramadana Movement. one of Sri Lanka's largest non-profits. "You need to change the mindset of people. That is, [teaching them] that they can do things on their own without relying on external resources to come to the village, in particular the government", he explains.

Villages working with Sarvodaya – which number over 15,000 – can therefore take anything between 18 months and three years to embark on a new venture. The interim is filled with training, collective dialogue and formalising community institutions. Naturally not all villagers will become business owners, but every individual must at least be given a shouting chance, argues Ariyaratne, who was also singled out recently for the Schwab Foundation's top award .

Heavily influenced by Buddhist and Gandhian thinking, Sarvodaya reflects a common trend in Asia of seeing rural development in its widest sense. "Other organisations see poverty basically as a problem with income and straight away start microfinance and so on", Ariyaratne states. "But we believe development needs to encompass … spiritual, moral and cultural development too."

Context is king

While it's possible to speak of certain generic trends across Asia, successful rural enterprise interventions will inevitably look slightly different in different markets. Just because an innovation works in India or Nepal doesn't mean it will in Thailand or Vietnam, argues Jim Taylor, chief executive at Proximity Designs.

"On the surface, a lot of people treat emerging markets as pretty uniform, but in reality they are very complex and nuanced. Western agencies are definitely guilty of taking an approach that works somewhere else and thinking that it can be applied across many countries", he says.

In-depth knowledge of the local market context is vital. Take the example of solar lighting in Myanmar, which is currently attracting considerable interest from aid agencies and commercial service providers. Important though lighting is, villagers are looking for domestic power systems to charge their newly acquired cell phones and other white goods as well, Taylor notes.

Such local insights derive from having the right analytical expertise coupled with spending time on the ground. "If you're not in the local market and getting signals from customers every day and every week, then you can miss key trends", he says.

The role of business in development hub is funded by Business Call to Action. All content is editorially independent except for pieces labelled advertisement feature. Find out more here .

Join the community of sustainability professionals and experts. Become a GSB member to get more stories like this direct to your inbox

Category: Payday loans

Similar articles: