By Vivek Taparia, AB’03
Vivek Taparia, AB’03; chronicles his experiences raising women in India above the poverty line through microfinancing.
In spring 2006, Vivek Taparia, AB’03; was an investment banker at JPMorgan Chase when he stumbled on a Wall Street Journal article about a former University of Chicago classmate, Vikram Akula, PhD’04. Akula’s company, SKS Microfinance, was thriving making thousands of small loans to village women in India to help them raise their income level above the poverty line. A few months later, Taparia arrived in Hyderabad, India, to join SKS. The following is excerpted from his account of his experience that appeared in the Fall/Winter 2007 issue of The Core.
One of my first tasks in Hyderabad was to visit local villages in order to understand the grass-roots mechanisms behind microfinancing. For a full day, I was to shadow Ravanth, an SKS loan officer, into the nearby village of Chatyal. That morning our jeep noisily approached the village center, where I saw small groups of women, Muslims with their darker burqua garb and Hindus with their brightly colored saris and red tika markings on their foreheads, a solemnity of purpose in their eyes. As the morning sun warmed the cool ground, the women quietly seated themselves in an oval and placed their loan books by their sides. SKS makes loans only to female borrowers because women tend to engage in income generating activities and reinvest their income into the household, while men are more likely to spend their loans on personal consumption.
After we were seated, the borrowers, in unison, chanted a pledge in the local language, Telugu, stating that they would attend weekly meetings without fail, always pay back their loans, help out other borrowers when required, and use their loans to uplift the economic condition of their families. Ravanth then took attendance and began collecting the women’s loan installments. One at a time, eight of the forty women handed a wad of rupees to Ravanth. SKS has a policy of lending to groups of five women at a time, and these eight women, the group leaders, were giving him the weekly installments for their groups. This set-up assured a co-guarantee system: if one borrower was unable to pay one week, then the other four would cover her installment. If the group could not pay, then the center would pitch in.
This social collateral went a long way toward explaining the high repayment rates SKS experienced. The free market combined with established social norms to enable microfinance to work. Women were free to choose their own groups. Within each village, people intimately know the details of one another’s lives and would therefore naturally form their group with those they perceived to be credit-worthy. Since the borrowers in effect conducted their own credit checks among themselves, SKS was able to avoid the usually exorbitant costs of credit checks and operate profitably.
One woman, Meena was eager to tell us how microfinance changed her life. After her first 5,000 rupee ($100) loan from SKS, Meena used her savings to purchase a cow for 10,000 rupees ($200). Her total revenues from the cow that year of 22,600 rupees ($450) provided her household with an incremental $200 per year. This new income stream enabled Meena to pay for her son’s education rather than keeping him home to work. Another woman, Rama, took out a one-year loan of 5,000 rupees ($100) to lease two flowering mango trees in order to sell their fruit. Rama made 12,000 rupees ($240) in income during mango season. This extra income allowed her to afford medication for the typhoid her daughter had recently contracted. Microfinance had afforded Meena and Rama access to healthcare and education, significantly improving the livelihood and future prospects of their families.