Fundamental Microfinance

English: Roadside billboard of Deng Xiaoping a...
English: Roadside billboard of Deng Xiaoping at the entrance of the Lychee Park in Shenzhen (Photo credit: Wikipedia)
I am a huge fan of microfinance. But it has to be reimagined. It is one of the three basic ingredients, the other two being education and health.

A country like Nepal can not afford to only educate the kids, although it currently does a poor enough job of that as well. But adult education has to step in. You use the same school buildings, but perhaps in the evenings and during weekends, for adult education. Everyone, child or adult, needs at least 10 years of schooling. And you should be able to pick up no matter where you left. And you should have the option to move at your own pace sometimes. Perhaps you put FM radio to use. People could tune in at a certain time of the day to listen into lessons. There is one frequency for the first grade, another for the second grade and so on. Lessons should be available in your primary language. The Chinese have proven beyond doubt that you don't have to learn English first before the world opens up for you.

People like Mao and Fidel Castro have done impressive work in basic health. You provide basic training to a large number of workers who then fan out to where the needs might be. There is a fundamental need to take up this work with revolutionary zeal.

But a left leaning country like Nepal where even the so-called right of center party like the Congress calls itself "socialist" sometimes tends to not grasp entrepreneurship well. You can educate your people all you want, you can turn them into fighting shape in terms of health, but unless you can create jobs for them they are going to rust with disuse. You are going to pump up a population that is all ready with nowhere go to.

Left leaning political leaders should cultivate a healthy respect for entrepreneurs who might be millionaires. They are like hens that lay the golden egg. You don't kill those hens. You don't get in their way. When they create more wealth for themselves, they pay more in taxes. You can use that tax money to serve the poor all you want.

But then entrepreneurship goes way beyond people who establish and run big factories. Small businesses are all the rage. Even in a country like America the vast majority of new jobs get created by small businesses.

And then there are micro businesses. I am talking raising goats to sell, or cultivating vegetables to sell, small businesses that you could start with a hundred dollar loan. Access to credit should be like a right, just like basic education and health.

But then sometimes it is hard to create any meaningful business with just a hundred dollars. China does not have a track record in microfinance, but it has lifted more people out of poverty than anyone else. And they have done that by creating jobs at large scales through large scale factories.

Very few rich people choose to become entrepreneurs. I like to say being an entrepreneur is kind of like being gay. It is assumed perhaps one per cent of the population is biologically gay. So if very few rich people are entrepreneurs, it is erroneous to think all poor people are inclined to entrepreneurship.

Another dimension to microfinance would be that you would have something like a right to a hundred dollars in business loans every year, but you would also have the option to pool your resources. So 100 individuals should have the option to bring together 100 dollars each into a pool of 10,000 dollars for a one per cent share each in an enterprise led by one entrepreneur who perhaps ends up employing most or all of those 100 people.

If you make room for the fact that 5-10% of those loans will fail that you will happily write off, I think that could create a lot of small business action. And you will end up with a lot of workers who are also part owners in enterprises. That is key. Deng Xiaoping started by letting Chinese farmers own small plots of land. The sense of ownership is key. The right to property is a fundamental human right, like free speech. And the act of exercising free speech takes some practice.

Completely state owned enterprises are not simply failed Soviet era ideas. Modi proved in Gujrat they can outperform the market if they are kept free of political interference and are allowed to run on meritocratic guidelines. It makes sense for some companies and some enterprises to be 100% state owned. As long as they perform is all that matters. What is dead weight is companies that are state owned and run losses year after year.

You can also have companies that are partly owned by the state. You can have companies that are partly owned by foreign investors.

There is no one size fits all. The key point is entrepreneurship has to be nurtured. It has to be allowed to flourish. There does not seem to be only a left or right way of doing it. State owned enterprises can work. Private companies can fail. Small business owners can create jobs. Large companies can stagnate. The job market is and should be a dynamic situation. As long as the cat catches mice is all that matters.
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