Investigating the Impact of Microfinance and Social Enterprises in Auroville

As a student whose primary interests lie in economic and social policy in the developing world, it isn’t too surprising that microfinance has captured my interest, just as it captured the interest of the development community worldwide. Yet, an increasing body of research finds little evidence that microfinance actually helps to lift its recipients out of poverty. Aneel Karnani’s article “Microfinance Misses Its Mark” provides a helpful example to help explain where scholars see microfinance falling short:

“Consider these two alternative scenarios: (1) A microfinancier lends $200 to each of 500 women so that each can buy a sewing machine and set up her own sewing microenterprise, or (2) a traditional financier lends $100,000 to one savvy entrepreneur and helps her set up a garment manufacturing business that employs 500 people. In the first case, the women must make enough money to pay off their usually high-interest loans while competing with each other in exactly the same market niche. Meanwhile the garment manufacturing business can exploit economies of scale and use modern manufacturing processes and organizational techniques to enrich not only its owners, but also its workers.”

Thus, this type of critique leads scholars to see microfinance as a tool that elevates the standard of living of those in poverty, without necessarily drawing them out of poverty, by giving them access to credit that they would not be able to obtain otherwise, due to their lack of collateral and the small loan amounts. Yet, the very small scale of these micro-funded activities is not conducive to actual poverty alleviation; instead, creation of stable jobs is necessary.

Therefore, I was particularly interested in seeing microfinance in action in Auroville, and have been presented with multiple opportunities to do so over the past 10 days. In our visits to different microfinance and social enterprise organizations in and around Auroville, I was fascinated to see this critique being embraced in innovative ways.

WellPaper doesn’t simply form groups of women to receive loans, it provides a structured training in the making of high quality products from recycled materials. Instead of sending the women out to create their own individual crafting enterprises, WellPaper acts as a collective buyer for the women, who can work individually or in teams to fill the orders that WellPaper receives. This provides reasonably steady employment for the women, though there are busy and slow order periods, and allows WellPaper to sell and market its products all over India and abroad.

The Auroville Village Action Group (AVAG) has touched the lives of over 4000 women through microloans and women’s groups and, while continuing to expand their microcredit programs, is investing more and more efforts in opening business lines that provide stable jobs that build on the skills that their loan recipients have acquired. They now have lines selling environmentally friendly feminine protection, clothing and jewelry all over India. Thus enterprise development is building upon initial microfinance and education efforts.

Naturellement goes even farther than providing stable jobs; indeed, its founder argues that this is not enough, and that educating her employees on personal finance and providing a community in which the women can discuss issues such as domestic violence is also necessary.

The People’s Social Development Foundation (PSDF) does focus on self-employment micro-enterprises, and the effects of this do indeed seem to tend more towards “softening the blow” of poverty rather than alleviating it. However, this is not to say that this is not useful. PSDF’s microfinance efforts have made great gains in freeing families from crippling debt to local moneylenders and empowering women in non-economic ways, through providing counseling and social forums to discuss domestic violence and women’s political and communal leadership.

PSDF conducts awareness programs and group counseling in the 47 villages that it works in, as well as providing microloans.

PSDF conducts awareness programs and group counseling in the 47 villages that it works in, as well as providing microloans.

Thus, while it is important to take critiques of microfinance into account, criticizing microfinance’s ability to alleviate poverty does not mean that microfinance is a completely ineffective tool. Opening large enterprises that provide stable jobs is not always feasible in the short-term, especially in rural areas that are not attractive to investors due to a lack of skilled workers.
Indeed, both AVAG and PSDF note that, while the microfinance approach may not pull its recipients out of poverty, when coupled with education initiatives, it provides a basis for further quality of life improvement in future generations and a stronger foundation for present and future skills acquisition, thus creating a more attractive environment for larger, traditional investors in the future. These organizations see less children being taken out of school to work and less interest and trust in financing from moneylenders.

Auroville has thus demonstrated to me how both microfinance and enterprise building can be used as a package to empower and alleviate the poverty of developing communities. There is rarely a true “silver bullet” in development; rather, development practitioners need to draw from a toolkit of multiple tools, depending on the specific situation at hand. While the Auroville context, from my observations, provides further evidence that microfinance is not necessarily the best tool for rapid poverty alleviation, and the power of enterprise building and job creation to do so instead, it also demonstrates the power of microfinance coupled with social and economic education to lay a foundation for skills acquisition and women’s non-economic empowerment, which may ultimately create a more conducive environment for larger scale job creation in the future.

Stay tuned as I begin my work with the People’s Social Development Foundation for these next two weeks and explore this topic and the power and shortfalls of microfinance in more detail!

– Anna Wiersma, American University of Paris – MPPA (Master of Public Policy and International Affairs)

Sources for further information on the “Microfinance Critique”:

Banerjee, A. V., & Duflo, E. (2006, October). The Economic Lives of the Poor. .

Karnani, A. (2007, Summer). Microfinance Misses Its Mark. Standord Social Innovation Review. Retrieved December 29, 2013, from http://www.ssireview.org/articles/entry/microfinance_misses_its_mark/

Panagariya, A. (2010, December 17). Does Microfinance Reduce Poverty? An Analysis of India’s Crisis. Brookings. Retrieved from http://www.brookings.edu/research/opinions/2010/12/17-india-panagariya#

Our Last Day in India

By Madeline Boughton

January 14, 2012…
After a night of celebration with dinner, drinks, gift-giving to our mentors, and swimming in the restaurant pool, we all slept soundly that night.

Saturday arrived, our last day in India. Bright and early we made our way to the dining hall in the Tibetan Pavillion. Our hostess Kalsang (and company) prepared our breakfast of bread and jams, fresh fruit, oatmeal, and tea & coffee. Around the breakfast tables the consensus was people going shopping in Pondicherry for last minute gifts and souvenirs or to the beach for some last minute sun, sand and surf. (A few people had to go into their NGO’s to drop things off and say proper goodbyes.)

Everyone was happy with their last day spent around the beach, Kulu Payam, Pondicherry, and Auroville. The evening wore on and people ventured out for some food before we had to load up the “bus” at 9:30pm. Some went to a restaurant called Paris, some went to Tanto’s and others went to the ever faithful, Visitor’s Center. Many of us spent our last rupee on those meals. We were sure to leave a nice tip for those poor waiters at the Visitor’s Center 🙂

The pavilions had rush and adrenaline in the air. A few of us decided to create a donation bag for the Social Awareness for Liberation Trust (SALT) Children’s Home. This home is essentially an orphanage and was severely affected by the cyclone. People came by and put toiletries in the bags, a few clothing items and flip flops, first aid products, and headlamps and flashlights. It wasn’t much or very fancy, but we were positive that it would be of greater use to them than it would be to us in Paris, especially since the home was still without electricity.

True to form at the Tibetan Pavilion, we also lost power (again) when everyone needed it, while packing! Thankfully we still had some candles. People continued to pack and pray that their suitcases would not be overweight.  As we brought our suitcases down to the front of the building, everyone was saying goodbyes to Sacha, Luke and Kalsang. There were also a couple of us that were left behind (of their own volition). Kalsang said she will never forget the night of the cyclone and the night after where we shared a soup for dinner because we had virtually no food and only a stone-aged method of cooking.

We all huddled up into a big circle with our arms around one another’s shoulders and began to sway. Some started getting a little emotional. I thought to myself, “Finally!” I had been waiting the whole trip for us to bond like this and sing Kumbaya! I began singing it. We didn’t make it through the whole song but it was sort of like a gigantic, 25 person group hug and we ended on that note.

As the bus drove away we waved goodbye. Some of us waved goodbye forever, some for many years, and some will return next year. Each person took away something different from this adventure. But we can all agree that it was a “Once in a lifetime experience.” Image

The Other Side of Sustainability

By Shannon Warren

This morning Auroville was abuzz with the whirring of chainsaws slicing into fallen trees, the frantic beeping of the suddenly plentiful rickshaws, and the general chaos of people trying to make sense of the destruction around them.  It has been three days since cyclone Thane hit Auroville and the devastation is still astounding.  The heat and humidity bring into sharp relief the lack of drinking water and electricity as people venture out in the glaring sun to procure necessities and try to clear debris from the roads.  Some of our group has experienced natural disasters and many of us haven’t (I am included in the latter group).  Certainly none of us expected anything like this when we came to India for a practicum in communications and sustainable development.  I suppose the thing about learning, about self-improvement, is that you must be confronted with the unexpected and unknown to progress.

The night of the storm, while I curled up afraid but safe in my sheets and behind sturdy brick walls, I listened to the howling winds, shattering glass, and falling trees as peoples’ homes and livelihoods were destroyed in a matter of hours.  The next morning I woke up in disbelief.  Just one day earlier we were carefree, hiking up to a temple on top of a hill and swimming in a beautiful freshwater lake.  That morning we were not only in an unfamiliar landscape and culture, but had just been through the worst cyclone that had ever hit Auroville, according to local sources.

Although the situation could have escalated to the point of hysteria very quickly, we chose instead to play cards by flashlight and sit together singing familiar songs, letting our apprehension out through laughter rather than tears.  Some of us ventured out on the roads, clad in our raincoats and ponchos, to see how the villages had been affected and to search for food and water.  After climbing through the fallen giants blocking the roads and seeing that being in a mud hut during a cyclone as opposed to a sturdy brick building made a world of difference, we knew that we had our work cut out for us the next couple days.

The next day, New Year’s Eve, we donned our work clothes, picked up machetes, and started chopping and clearing up the trees and debris around our pavilions.  Suddenly it seemed as if we were no longer a group of semi-strangers brought together by wanderlust and a course requirement, we were all kindred spirits, working together to realize a common goal.

While traipsing through the grass behind my classmates with my arms full of branches and my heart full of determination, it became clear to me that there are two sides to sustainability: the physical side that involves composting toilets and cold showers as well as the emotional support that comes from being a member of a community which takes care of all of its members as well as the physical space that it inhabits.

So, while it may not have been the lesson we set out to learn, we have all discovered the emotional side of sustainability over the past few days.  Although the people who live here may not have many of the comforts we enjoy back home, they do have one thing that many of us don’t: the sense of security and assurance that comes from living in a community where people are connected and take care of one another.   I think I’d take that over an iPad any day of the week.