Urban poor need microfinance for livelihoods
There is a touch of irony in India's growth story. Jobs in the government, private and public sector are limited and restricted to the educated. At the same time, the informal economy in India is growing at a fast rate, employing 93 per cent of the labour force in the country. But informal economy workers, who contribute 63 per cent of the gdp, still cannot benefit from the additional wealth they have contributed to generate.
Why? That's because they do not have access to credit to take advantage of economic opportunities.
The problem, however, is more complex when viewed through the demographic and poverty trends in the country. Consider this: one-third of the world's poor live in India; the youth (15-34 years) constitute over a third of India's total population; and the proportion of unemployment among the youth is the highest in the country, especially among urban men.Doesn't this combination of poverty, youth and unemployment sound like a recipe for socio-economic crisis?
Now add to this the fact that India is getting urbanised at a faster rate than the rest of the world and around 60 per cent of the urban youth were jobless in 2004. To address this issue, policy-makers need to think of alternative sources of employment for those left out of the ambit of the formal economy. It is here that microfinance plays a pivotal role in providing sustainable livelihoods by stimulating small businesses.
How microfinance helps According to the Consultative Group to Assist the Poor, an international consortium of development agencies, people with access to savings, credit, insurance and other financial services are more resilient and better able to cope with everyday crisis. However, only 0.01 per cent of the urban poor have banking relationships. While rural areas account for 95 per cent of microfinance outreach in India, the cities are un-served. In urban areas, lack of access to trading space for vendors and livelihood training further push the poor into poverty.
According to the Economic Census 1998, banks and financial institutions directly financed 2.8 per cent of enterprises, while 1.9 per cent received finance linked to poverty-alleviation schemes. Thus, a total of only 4.7 per cent of enterprises, rural and urban, received formal finance. Informal credit