Posts

Extreme Poverty in India
India recently fell from the top of the list in the ranking of countries living with extreme poverty. Defined as living under an income of $1.90 a day, India had remained at the top spot for many years. In 2016, India had an estimated 124 million people living in extreme poverty.

Due to longstanding economic efforts, the rate of poverty in India has fallen dramatically. Today it is estimated to be around 70 million. The numbers are still high, but the rate of reduction is nothing but optimistic. Every minute, about 44 Indians come out of poverty, which is one of the fastest rates of poverty reduction in the world. Studies indicate a staggering projection of zero percent extreme poverty by 2030.

Economic Growth in India

These projections rest solidly on The World Poverty Clock, which tracks poverty rates in real time. Its information is collected from domestic surveys and The International Monetary Fund’s data mapper, World Economic Outlook (IMF WEO). The clock’s projections suggest the gap between India and Nigeria (which now holds the most citizens living in extreme poverty) is widening. The World Poverty Clock has reported that by 2021, the forecast shows that the number of Indians living in extreme poverty will fall below 3 percent of the population.

India’s decline in poverty is correlated with its years-long economic growth. Over recent decades, the nation has implemented many economic efforts to counter economic instability. Ranil Salgado, the head of the IMF team for India has stated that a recent policy called the goods and services tax, which “created a unified national market for the first time by lowering internal barriers to trade – effectively establishing a free trade agreement for a market of 1.3 billion people.” The tax increases economic activity, creating jobs and customers. GDP has steadily grown in recent years at a rate of about 5-6 percent, but Salgado expects a rate of 7.3 percent for 2018-2019.

Necessary Steps to Reducing Poverty

In order to maintain this amount of growth and keep it healthy, India will have to monitor its growth and implement necessary policies. Nobel Peace laureate Muhammad Yunus believes India should encourage microfinance institutions “to fill up the gaps left by the conventional banks, that only cater to the rich.”

Access to finance is like economic breathing. In order to be independent and sustainable economically, individuals coming out of extreme poverty in India need the agency and independence microfinance legislation would create. If done right, Yunus is strong in his belief the U.N.’s projection of zero percent extreme poverty in India will be reached by 2030.

India is showing that this is not an impossible feat, but a very plausible one. The outlook shows that further growth is still needed, but this necessary first step is an encouraging one for the future of India.

– Yumi Wilson
Photo: Flickr

Rang De Facilitates Peer-to-Peer Microloans in India
According to the World Bank, approximately 20 percent of India’s population is poor. This totals 270 million people. These low-income individuals often lack credit or banking history and are considered too risky to finance by traditional lenders, like banks.

Rang De is a peer-to-peer microlending platform that works to increase low-income Indians’ access to capital. So far, Rang De has disbursed 57,096 microloans in India.

How Rang De Facilitates Peer-to-Peer Microloans in India

Low-income individuals are often unable to access capital from major lenders. Often, this underserved population turns to independent lenders who charge extremely high-interest rates for small loan amounts. Microloans from qualifying lending institutions are an alternative to predatory lenders. Rang De keeps interest rates low, between six and 10 percent.

Loans are financed by social investors, who choose a borrower through the platform and contribute in multiples of Rs.100. So far, 12,443 social investors have helped finance microloans in India.

Interest is used to pay back investors and to fund Rang De’s internal expenses; two percent of interest payments go to each. The rest of the interest payment funds rural partners who conduct literacy training sessions and collect borrower statistics.

Rang De’s Success So Far

Social investors can choose to finance a wide range of borrowers, from entrepreneurs to students to farmers. One example is Pooja Devi, a tailor who secured a loan of RS.10000.

Devi’s husband works at a factory and earns only Rs.7000 per month, too little to pay for their housing. Devi holds a Master of Arts degree but lives in a village with few work opportunities. As a new mother, finding suitable work while looking after her infant has proven impossible.

Devi accessed a Rang De loan to purchase a sewing machine for her at-home tailoring business. Her business is about four months old and she currently earns only Rs.1000 per month but plans to grow her client base. Tailoring at home gives Devi the flexibility needed to look after her infant while providing an additional stream of income for her family.

Ensuring Continued Success for Rang De

Rang De’s cofounder, Smita Ramakrishna, says that Rang De purposely keeps initiatives small so individual lenders receive more assistance. In addition to facilitating microloans in India, Rang De also focuses on increasing the financial literacy of borrowers. “For every sector we work with, we actually design the loan product to make sure that it works for them,” said Ramakrishna.

The majority of Rang De’s microloans in India, 93.25 percent, go to women. To further support this group, Rang De launched a new initiative targeted at women called Swabhimaan. Swabhimaan provides online loan applications and credit scoring. Self-serve kiosks set up around villages serve as portals to the online services. Women will be able to access same-day loans from Rang De with more ease and autonomy thanks to the kiosks.

To tackle skepticism in target borrower communities, Rang De publishes interest rates publicly on its website. The nonprofit also regularly updates social investors and hosts in-person meetings with both investors and borrowers.

Rang De’s hands-on approach and transparent business practices have led to a consistently high loan repayment rate of 93 percent. Ultimately, Rang De’s cofounders believe the innovative initiatives implemented through Rang De will “go a long way in making poverty history in India.”

– Katherine Parks
Photo: Flickr

Credit Access in IndiaThe evolution of credit has sanctioned simply the idea of money as an invisible but powerful force. In a place where poverty still affects 22 percent of the population, credit access in India is difficult for many of its people. Often, formal credit is as elusive for the people of India as its tangibility.

PMJDY and Financial Inclusion
Though financial inclusion has become a recent focus for policymakers, 40 percent of people still lack access to basic financial services. Financial inclusion is the basis of perpetual economic growth. “Without financial inclusion, we cannot think of economic development because a large chunk of the total population remains outside the growth process,” said Dr. Harpreet Kaur and Kawal Nain Singh of Punjabi University and The Rayat Institute of Management.

Many low-income individuals have relied on informal, and sometimes devastating, options to borrow money or gain credit access in India. In response to this, formal options such as Pradhan Mantri Jan Dhan Yojana (PMJDY), a mega financial inclusion plan, was designed. PMJDY aims to ameliorate poverty and fast track financial growth. The program targets those from remote areas and promotes financial literacy, universal access to banking services and insurance. This is all to “commence the next revolution of growth and prosperity,” the plan explains.

Unfortunate Faults
More than a few studies have reported the same findings as Dr. Joy Deshmukh-Ranadive of the Human Development Resource Centre in New Delhi. In the doctor’s report on rural micro-finance in India, she explains that “the track record of these formal sources has not been positive. Micro-finance…circumvents the drawbacks of both formal and informal systems of credit delivery.” These downsides include exploitative interest rates and fortifying systems of oppression.

Entrepreneurship in Rural India
The micro, small and medium enterprise sector (MSME) account for 37 percent of India’s GDP, and more than 40 percent of the country’s total exports, according to the World Bank. Despite this, MSMEs have been limited by inadequate access to financial services.

Fortunately, the International Finance Corporation devised a program called India Collateral. The program is modeled after a similar program that has had success in China. The project hopes to revise the discrepancy by opening access to banking services for more MSMEs by increasing lenders’ confidence.

While there are programs formulated to improve access to credit in India, there remains a gender bias. Though loan rejection and approval are issued at an equal rate to both men and women, women tend to seek financial services less often. Higher gender bias countries like India see more women deferring from the loan process, according to a report by the European Central Bank.

It is an interesting paradox: those who have money are those who typically qualify to borrow it. The necessary condition for credit access is already established finances. Those who stand to benefit the most from borrowed money are those who do not have it. Steps toward financial inclusion in India are governed by this idea. Many programs continue to amend credit access in India, develop the informal credit market and lower interest rates in the hopes of developing the country’s economy from the bottom up.

– Sloan Bousselaire

Photo: Flickr