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.