Tuesday, December 1, 2009

Are the Poor Wage Earners or Entrepreneurs? Thoughts from LabourNet

In 2007, Dr. Muhammad Yunus came back to his and my current alma mater as the Commencement speaker. It was a big deal. Just one year prior he had received the Nobel Peace Prize for his work in microfinance. Microfinance – banking for the poor – is now a staple in development efforts, and even commercial banks are starting to dip their toes in the water.

Microfinance institutions (MFIs) like Yunus’s Grameen Bank, for the most part, see the poor as creative entrepreneurs who just lack the capital to get started. But not just any poor people - specifically, women. They’d like to give these poor females a loan and see them start businesses. LabourNet, a Bangalore-based social business working with informal labor, sees things differently. I had the opportunity to visit LabourNet a few weeks ago. What I learned was completely contrary to everything else I’m hearing and seeing. Yet it all makes sense.

Since LabourNet deals with wage labor, I wanted to know what they thought about microfinance. J.P. Solomon, its founder, feels that microfinance has “very little to do with poverty alleviation. Microfinance gives access to finance to people, but building a business and creating a livelihood option is another matter altogether.” He thinks there needs to be more development than just handing the poor a wad of cash and expecting a business. He even sits on the boards of some MFIs, and in his words, “I keep telling them that we need to move towards real, solid livelihood programs. And some of them are trying hard to do that."

Rajesh Joseph, LabourNet’s Manager of Strategy and Reserach, told the same, and put it plainly that not everyone is cut out to be an entrepreneur. He gave an example of how uneducated subcontractors will juggle money and workers between construction jobs. “In the end, I ask any of the subcontractors who have actually gone from a worker level to a subcontractor level, actually, and I ask them, ‘How much profit are you doing?’ Nobody knows. Nobody knows.”

I don’t agree with Mr. Solomon that microfinance has no role to play in development. Even if we assume that these loans don’t lead to long-term income appreciations, it can still have powerful effects, for example improving female self-confidence or facilitating income smoothing during bad crop harvests. And, just because we think the poor don't have the necessary capabilities, does that mean they shouldn't get a chance?

However, LabourNet’s perspective seems to fuel lingering concerns I’ve always had about microfinance. There’s no silver bullet to poverty alleviation, unfortunately, though for many in the microfinance sphere, their strategy is about the closest thing. But when an alleviation strategy leaves out half of the development equation right off the bat – men – and then precludes the option of more secure wage labor, could there be better ways? LabourNet believes that if you want to be a microentrepreneur, great. If you want to be a wage earner, that’s fine too. Both men and women should be given this choice.

So to answer the question posed in this post’s title simplistically, LabourNet thinks the poor are much like you and me: some of us thrive as employees and others want to do our own thing. There’s a lot more to this discussion (such as the economies of scale lost through tiny microbusinesses), so feel free to indulge me with a comment or direct email. In the next post I’ll cover how LabourNet wants to use its perspective to reshape India’s labor landscape.


  1. Hi Rob! Your good friend Thomas Davis just had a very interesting article in the Vanderbilt Magazine about poverty alleviation...between the two of you, you've got my head swimming! A lot to think about. Gary doesn't think the building pictured in this post would pass inspection, but did remind him of some stuff he's built! Keep up the good deeds and research. Much love.

  2. I can't help but wonder about your own microfinance scheme. Given to a male and it didn't succeed...

  3. Thanks for the comment, Jes. That's one way to look at it, and perhaps you are right. However, I think that conditions I set forth were more at the crux of the problem than gender. For example, in traditional microfinance programs, loan officers check on the borrowers every week if not more frequently, and often use measures (sometimes through the other women in loan groups) just short of coercion to get the borrower to repay. There's also the peer pressure factor that's a staple of microfinance programs.

    We didn't have the ability to do this with our limited scope (and I don't know that we wanted to). Instead we left it up to him to come to us. Looking back, it was almost as much a test of character and how forward thinking he could be as it was effective social development. I think an interesting test would certainly be to do the same with a woman. But remember, we're talking specifically about microfinance. For development programs in general, I think focus on men as well as women could and should happen. We should provide vocational training for women and loans for them to start small businesses, but we should also train men on more effective crop yields or in LabourNet's case, how to get better labor work more often.

    In the end, I think it comes down to what has the biggest impact on everyone involved at the smallest price. Certainly, I should do some more reading and seeing on this topic.

  4. Leave it to you to turn my snarky comment into an educational lesson.

    I do agree that ideal development includes both. In all honesty though, there have been so many studies showing that improving the lot of the female improves the lot of the family (including the husband) through better health standards, better nutrition, more education for the children, wiser spending, and (the big prize) lower birth rate.

    I do not think that groups that focus on women would agree that it leaves males out of the big picture. But in the short term, the fact that they focus at all just seems to be a game of trying to make limited resources count the most.

    Comparing your time in Idia to your time in China (or even Bangladesh), I am really inspired by the wide bredth of social organizations that you have encountered. Hopefully as the sustainable ones grow, there might be a greater overlap of organizations so that women can have the microfinance and men can have access to steady labor. I know you painted an awful picture of what happens when NGOs compete, but I am sure the outlook would be a little rosier when organizations in the same area are not offering the same service? Have you already seen something like this in one town?

    P.S. Is your next stop... Orlando, FL? Because of the holiday season, I am living in poverty, and would be more than happy to let you come stay here and figure out what the market could be doing for me.