Poverty in Marginalized Communities is Solvable

enterprise can strengthen these communities. So we're in India today, a fabulous country that's about ten years away from becoming the biggest in the world population wise. India has had this booming economy that is slowing somewhat these days, but this huge nation has seen massive improvements in the quality of life for many of its one point three billion citizens. The work that they've done is extraordinary and the speed

of it too. In the ten years leading up to twenty sixteen, India lifted two hundred and seventy one million people out of poverty. However, the World Bank's median poverty line is three dollars and ten cents a day and over half of India's population are stuck there at least for now. More than two hundred and fifty million people survive there on less than two dollars a day. So if it takes money to make money, can't they just

borrow some and clamber up the ladder that way? Sadly, no, that particular slice of upward mobility is not available to many Indians. Banks will not do it, claiming limitations like oh, lack of security, high operating costs. But you know there's an alternative, and that's our guest, Sammy Roy is Solvable. Microfinance provides loans to poor people with the goal of creating financial inclusion and financial equality. Microfinance can also include

savings and checkings, accounts, microinsurance, and payment systems. It basically makes money more affordable to poor and socially marginalized customers and helps them to become self sufficient. Samuel Roy came

to this solvable in kind of a roundabout way. She started out as a financial journalist documenting the heyday of India's booming economy, and this one piece she was working on led her to discover whole communities that were cut out of the boom all these neighborhoods that were systematically denied banking services. That's called redlining, and red lining, well, it happens all over the world. It's a discriminatory practice that was actually banned here in the US fifty years ago.

Red Lining is basically the way of locking people into poverty. Samya wanted to do something to help, and eventually, when her father retired as Mumbai's police chief, together they set up a nonprofit called the Vandana Foundation to help people that were targeted by redlining. You'll hear Samia mention a place called Daravi, which is considered to be one of the biggest slums in the world, but of course it's also an affordable place to call home in an expensive

city like Mumbai. Davi has many Dalit communities made up of people outside the cast system, sometimes known as untouchables. We'll hear how Samya uses microfinance to lift the people in Daravi as well as people in other regions of India out of poverty in this great exchange with Malcolm Gladwell. Oh, and when she says microfinance, she means it. For context, you should know that five thousand rupees is about seventy dollars, So one thousand rupees is only around fourteen dollars. Okay,

let's get yours. You started out as a journalist, a financial journalist, so tell me how one gets from doing financial journalism to becoming interested in starting a non profit in microfinance by making a lot of mistakes. So I was a financial journalist. I used to write about the stock market, about you know, GDP and all of these things.

And one of the stories that I wrote about was redlining, which exists in the US and it exists in the UK, but I wrote about it for the first time in India, which is that I got out documents from banks that said what are the areas, the people, the communities that they don't learn to And that was the time, I think two thousand and eight or so, when the Indian economy was growing at like a historic base. Call center representatives would call up and say, do you need a

loan for holiday? Do you need a loan for a wedding? Do you need a loan for your education? And if the person on the other side said yes, I would and they would say okay, grides to where do you live? And if they said they lived in an area that was dominated by Muslims. Often, you know, depending on the communities that you belong to where you lived, they would say no, I'm sorry, so we can't give you a loan.

I often went to the Harave and I found that there were almost a million people living there and not a single bank branch. And if you went any two bank branches where and said that you belong to the Arave and you needed even to open a bank account to keep your own money, they would say, no, sir, if you belong there, we cannot open a bank branch for you for you to keep your own money. So and the other aspect was I wrote about India's farm prices and a farmers who committed suicide in spite of

owning ten twenty thirty forty acres of land. And I often thought that, with my meager reporters salary, if I ever have the money, I would like to do something to resolve this. And yet, you know, journalists we think in terms of problems. We don't think in terms of solutions or solvables as you call them. So I waited a few years. I remember I had gotten award from

the Asian Development Bank for a story. I did, and it was a princely some of five hundred dollars, and I saved it for two or three years, thinking that, Okay, if I have an opportunity, I would like to spend it to to in some way resolve issues like this.

And then in twenty ten, my father retired from the government and we decided that we would start a nonprofit together where we would work on financial inclusion, as in strengthening these communities where nobody opened their bank account, nobody open and gave them credit cards for business purposes and if I wanted one for a holiday to Europe, I could get a loan. And so we decided to open a nonprofit that worked on this, and we also worked

in rural areas where they faced very similar problems. So tell me a little bit about all the reasons why particular communities would be either ill served or not served by existing financial institutions, because I'm assuming it's some combination of attitudes on a part of the financial institutions, but also characteristics of the community themselves. Yeah, so it is what I would call othering, where it's the bank's call.

At that point, there was not much data available like today, data science makes it possible for us to say who can repay and who cannot repay, But at that point they didn't have any great empirical data to say so, and so it was just a feard. We don't want to step foot in this place. It's a ghetto. We don't feel we can find addresses in this place. The lanes are too narrow even for the sun to get in.

We don't want to send up people there because they could be in harm's way, and so they didn't extend their services. They're not based too much on any data because in fact we find that today if you see India's economy today, corporate defaults are at a historic high. So all the people that banks were lining up to give loans to have defaulted on their loans left the country and they now live in Europe, having defaulted on

thousands of cross of loans. Banks have known way of getting that money back, and yet they targeted the pos saying that, oh, we don't feel they would get that money. So you identify a couple of different strands of misinformation and prejudice on a part of the institutions. One is that they're simply don't know the communities don't know how to navigate them. And the second thing is that they have an intuition, which is that getting people to repay

their loans will be more difficult in these communities. Do they have no empirical support for that second of those institutions. So that has changed over the last ten years. The for profit microfinance sector has stepped in and it's become big. It's sort of fairly well regulated, and now we have credit bureaus even for the poor. So we do report our data to the credit bureau that we have a fair ranular data in terms of who repays who doesn't repay.

There are also national identity cards through which subsidies go in, so that has changed a lot in the last ten years. But but yes, at that point that was the case very much. But now, so what is empirically the state of our knowledge about the credit worthiness of poor communities? What is it? Yes, we know how much how many loans they have, we know if they've defaulted on loans they have. They also have a credit rating, so you know,

sometimes they'll even try to game this. They know what they have a sense, they have a degree of soface, they have a slightly sophisticated sense of what is their credit rating, and that that drives consumer behavior as well. They know that in order to get the next loan, or to get a higher ticket loan, they need to maintain their credit worthiness, and they do what it takes.

Having said that, access to credit for say Muslims, for the lids for schedule cast is still not comparable with what it is for uppercasting, those etc. Yeah, So even if I provide a financial institution with data showing which people in a particular community are credit worthy, that's not going to be sufficient to get them to serve that community as well as they do other communities. So there's a there's a there's a bias on top of suspicion

about credit worthiness. Yes, I would say, first of all, if you were to have done nothing, Yes, if no nonprofits were stepping in, would this problem naturally resolve itself over time? Do you think the banks would eventually come around?

So what happened was that, as you know, gramming became a huge success in the microfinance space, and since the time when we started, when we started in where they would hardly one or two microfinance companies, but then this sector became very big in the for profit space, so there is a lot of lending now. Many of them have become banks, they become small banks, They raised private

equity money and successfully returned it. Having said that, do I see the lives of the poor having changed, Not necessarily, the lives of the poor remain in many ways, just as fragile. Their studies to show that many of these loans become consumption smoothening loans they go into say medical expenses, educational expenses, emergency expenses. We don't see the kind of

asset creation, not them. And it's something that bothers me as well that I don't necessarily see the poor becoming rising to the middle class or the lower middle class. Any blow that comes, like say in the form of demonetization, really does get them back to the ground as they were before. Yeah, So describe to me your the particular niche that you're operating in as this nonprofit you're involved in. What is it? So you're trying to address a specific

part of this problem. Yes, So, our ticket sizes of loans are the smallest in the industry in India by far. The average ticket size in India would be about twenty five thousand rupees for per loan. We started five thousand, so we are specifically targeting porest of poor. About eighty percent of our borrowers are Muslims. Then, in the rural area where we work specifically look for widows of farmers

who committed suicide. In the last nine years our work has grown, so while they are not all the widows, we also have at risk women like who have whose husbands have defaulted on loans, they're working on farms, they maybe single mothers for different reasons. So we are looking

for the most vulnerable communities. We work a lot with waste because who work on the landfill of Bombay, So we definitely look for the most vulnerable of communities, and apart from microfinance, even to make them credit worthy, we give them everything from say counseling to my enterprise training.

I remember when we worked with widows. We wasted months and months with us saying hey, we have a grant, we can give you money, why don't you start a business, and they, having faced years and years of abuse and depression and vulnerability, said we can't do anything. What do we do even if you give us the money, we have no way of doing anything we just endlessly do

weating and debating on farms. So we started classes for them that hey, here's what you can do, and once they started, almost all of them have been highly successful. So describe your typical loan applicant and then tell me the ways in which they're with your help their life might change over the course of After the course, I'll tell you, I'll take a rural example, if you don't mind. So we have many of these widows. We've picked widows particularly. You think that they will be old, but many of

them are very young. They're between twenty and forty years old. Often they'll have two children or more. They will be looking after their parents in law, who are typically old and real. When we spend months and months telling them you should do something, they'll say, we can't do anything. We've had many women calling us up. When we call them, they say, please don't call us, because you're going to push us to do something and we can't do anything. So one or we've had a few who've dropped out

for that reason. And eventually when we'll push them and there's there'll be a lot of motivation and a lot of counseling everything, and when they agree, just that act of stepping out of the house to take our loan or to take a grunt. Sometimes we've even given small grunts when we feel they don't even have food in the house. We've given them a grunt to start with. So now they have a lot of fear in their

mind that if they were to sit. Let's say, we've had a woman who sat outside on the street and sold glass bangles, and people came and told her, you know, like, have you forgotten. Women are supposed to stay within the house. They're not supposed to be sitting on a street and selling bangles. And at first she said, and then she thought about everything she had learned in her glass and she said, you know what, I'm doing this to look after my children. If you will give me money for

my house, I will stop doing it. And just the confidence to say that took a lot for her. But eventually, she being a widow, it became very big in though marriage market. As you know, Indian weddings are very big. It'll always be bigger than what the parent can afford. So she started walking miles and miles to different villages, saying, here I can sell bangers and whatever else. It is you need for a wedding, and so she would walk something like ten to twenty miles a day. In spite

of having sickles cell anemia. She educated her daughter who's now a teacher. She treated her son, she treated herself. She had throat cancer and you know, but she never stopped working through any of that because she knew that that is what was keeping her family going. Another one has educated her son is an engineer today. He works for one of the biggest auto companies in India. Some of them had mortgaged their gold and they brought it back.

So I think that first step is the hardest. So in that case, the only you were talking about, you did you begin with a grant or alone. We began with a grunt and so the grant would have been how large thousand rupees a month? Yeah, oh I see. So it was an ongoing We gave it to her for about a year yea. And by the end of it she was supposed to do something. So she has

no obligations to repay this initial amount of money. We actually visited her house and we saw that she had no money even to eat and in that position, to become another source of debt to her just didn't feel right to us. So instead we said that in this one year, we'll train you, we'll do anything that you want, but by the end of this year, you need to become self sufficient. So one of our people when she finally she agreed and she decided to keep glass bangles.

And I remember two months later we decided to visit her and we heard that yet she started her business and she had a little piggie bank in her house and she had kept all her earnings and that that in case we came, she could give the money back to us. Wow, that's how the degree of responsibility. So how in that year, how long did it take her to come up with the notion that she wanted to do to sell glass Bengals. It took her several months.

At that point, we didn't have an office. We used to sit under a tree thirty forty women, and you know, they would all, what will you do? You know, it was a deadlock where we would we would have forty women sitting around and so, well, we will fund you, you know, with a small amount of money, what would you like to do? And they would say, we can't do anything. And finally this One woman stood up and she said, you know, I was pregnant when my husband died, and now my son is five years old. I have

to do something. I don't care what anybody says. And when the next time she came for the meeting and she said, yes, I've started. I run a little like a corner shop within my own house. It's running, I'm earning money, and I feel so confident I can face anything. And that gave confidence to other women as well, that yes, we can do it too. It's a notion, this question of there resists the reluctance to do something? Is it?

You said? How much of it is a product of just how kind of traumatic and overwhelming your lives a been, and how much of it is if they don't know, they actually don't know what it would? I mean, if you ask me to start a business tomorrow, I've taken a long time figure what I would do right? How much of it is simply that what on earth business could I do even if I wanted to. It's both,

and we tackle both. You know. When we've had this deadlock, we called a trainer in and he turned out to be very nice because he actually he said, let's we have a blackboard here right down. Why what are the hurdles you face in doing a business. So some of them said, well, I have no ideas. What would I do. I've never done a business before. And he said, yeah, that's fair. It takes a different kind of mindset to be an entrepreneur. So he said he thought of the

smallest of things that they could do. I think it's also a little bit of I wouldn't do lack is a very strong word, but the lack of imagination, because they don't know what urban markets are like. So he gave them the most easy examples. He said, could you sell crushed peanuts? Could you sell peeled sugar cane? And he gave them this example. So you guys in a village can just eat a sugar cane. You have strong teeth.

But people in cities they're not used to it. So if you were just to peel a sugar cane and sell it, you could earn so much more money. And they were just surprised, you know. Or if you just crushed chilies and sell it, you could earn a lot more money, and they were just like, wow, I could do this. So he just gave them hundreds of easy ideas. Then one woman finally stood up and said, I worry

what are people going to say? And he reminded them of a Bollywood song, like people are going to say something, it's their job to say something. We don't need to worry about those people. And suddenly this room full of women was just giggling like he just made light of the fact that, yes, that discrimination all that, that judgment is there, and here let's deal with it head on. So let's go back to the example of the woman with the Bengals. So she gets a grant for a year,

a thousand rupees a month. Then she decides at some point that she would like to she making the class Bengals stuff. Now she's buying them from somewhere else and buying them wholesale and selling them on the street. So you then, at that point when she has this idea, you then say, we'd like to give you a loan. Yes, how much of a loan are you giving her? We started with five thousand, She's now taken twenty five thousand

each time from us several times. Yeah, and she what is the term of repayment on that twenty five thousand? It's interest free. Who's interest free? Yeah, oh, I see, and so but she is. So can you tell me a little bit more about how kind of credit worthy she has been. Yeah, she's been perfectly credit worthy. Actually, in rural areas, we found people to be extremely credit worthy because also, our loan is interest free, so we

do tell them. Even when demonetization happened, there were a lot of politicians who came and told them, hey, you don't need to repay et cetera, and we told them to listen, our loan is interest free. So you know, we have a bond with you. We're not doing this because we're trying to make money off of you or we are not like another money lender or something like that.

So you know, we want to have a long term relationship with you, and when you return your money, we give it, give it to somebody else who needs it, just like yourself. Yeah, so she is she going to be using you in perpetuity as a revolving man of credit. So we are we are grappling with that at this point because she's been with us for now. This is our ninth year, so she wants to graduate to bigger loans. She also took a loan to take a tailoring machine.

She makes starry blouses. She's very highly enterprising, so she'll have bangals, she'll have jewelry, she'll have anything that sells in the manage market, flowers, flower pots. Every time I go, I find something new that she's selling. So, yes, she can take a bigger loan and she can RepA it. Can she go to a bank? Would a bank be

interested in her? Maybe? Or maybe not? No. This is interesting because I would have thought that eventually people would graduate out of your program and the banks would see this is a woman who's now been an entrepreneur for nine years. She can presumably the bank can come to you and say, what is your credit history? And you can tell you can tell them what a good credit risk she has been. What would be problematic for a bank about this woman? See, banks don't always have that

last mile reach. We've tried this in our urban project and it's done. It has been successful, but not completely successful because the bank will not come to your house to take the loan. The bank will tell you come to our branch and pay the loan. If you don't repay on a particular day, we'll call you. The bank may not necessarily call you. They will just say al a defaulter, So that last mile connectivity that we provide

is not necessarily provided by a bank. Having said that, we have had borrowers who have taken bank loans and repaid bank loans as well. Is the idea to be the primary source of credit for a large group of people or to be constantly graduating people out into the into the commercial credit market. Yeah, we would like to stay at the bottom of the pyramid. Those who get successful, we would like them to be bankable. We would like them to grow their businesses. But yes, this is a

conundrum that we face. How do you raise the money that you Where does the money come from? For your pool of capital? We get grunts and we also take some low interest of social sector loans, like we had a loan from the Social Business Fund, so that came to us at a lower interest rate. And what are your if you look at your total pool of capital, how much of that is grants and how much of that is loans? At this point it would be almost equal grants and low interests. So some portion of your

capital is being returned. But but the point of grants is always to get someone stable enough so that they are taking out loans. So it's kind of now, that's sort of super interesting that what you're doing essentially is preparing people to enter the credit market. Yeah, and also sort of credit related behavior. Just we already have a credit history that we create with them. Their first credit

history is created with us. We have a pass, but we show them that yes, every week, this person is repaying every week, or they've had so many cycles of loans, so they are now credit worthy. They have the kind of behavior that you would like from a borrow What are the most surprising things you've learned over the course of that nine years. I mean, I'm guessing what you're doing now does not match your expectations of what you thought you would be doing nine years ago. Yeah, it doesn't.

So in the rural Project, what surprised me was that the most difficult step was the first step. They were a lot of exclusion. There was a lot of even abuse. There was a lot of like, oh, if your husband is dead, you no more have anything to do with us, and we can treat you any way we like. While I knew that it existed, I think it was more than what I thought it was, And that made that mountain in their mind tremendous to come out of that, to do something, to fight that fight that yes, I

can do something and I will do it. To have that confidence was the most difficult thing. Having started. Very few have failed and you going in and thought it would be the reverse. Yes, in urban areas. What has surprised me? And I mean, I could be wrong, but this is my personal experience. I feel that urban poverty lacks dignity and there's a tremendous fragility to urban poverty,

even with our loans. What disappoints me is I don't necessarily see people getting to the next stage very easily because there's very little social security in India, so one illness or you know, like a wedding, can just wipe out their savings. I remember we had this. We had this one moment who was a fruit seller in Bombay and on a handcut. She used to sell fruit and

she was doing very well. We paid her three we gave her three or four loans and one day I was just walking through her community and I saw her standing there in her fruit cart and it was totally empty. So I got very upset with her. I said what are you doing? And she just started crying. And she was a middle aged woman. I suppose why are you crying? And she said, you should have come a week ago. Why did you come today? I had so much fruit? You didn't come then? So I said, well, what did

you do with all the money? She said, you know, my father, he died in and we had my brothers told me that we need to do the funeral immediately. So I used all the money I had. I took a flight and I went to and she was very proud of it that she thought, what better he could my money bet that I could go for my father's funeral. And if I didn't have this money, I couldn't have been able to attend it. So small, I wouldn't say this is a small thing, but like medical expenses or

wedding related expenses. Educated they're very aspirational to educate their children. There's been a huge move from government schools to private schools, low cost private schools, and they will pay whatever it takes to shift their children to private schools. And the pressure for that, I feel sometimes is spared more by women than by you. You're not arguing with her choices, You're saying that that is a that is the outcome that they want. In many of these, do you feel

that their lives are very fragile? You know, if we go into it with a degree of innocence thinking, oh, I paid you fifty that whatever, we give you a loan of fifty thousand rupees. By now you should have X, y Z, But we don't realize that they are. They're facing headwinds from really everywhere. So in that case of the woman with the root stand, what did you do next? We continue to lend and she's doing well. Now someone like her who's been running a fruit card for so long,

I would think she should now have a shop. She should be able to render shop and have a shop. So that taking that next step out of poverty is just a huge step, just because of all the headwinds that they face. Too. Finals one is give me a sense of what a typical day looks like for you, Either me or my father will personally meet an interview everyone who comes for a loan. So usually they come to our office, but by the same token we do go out on the field just to see what are

they up to these days. I've been researching a ways picking communities. So I go to the garbage landfill of Bombay at least every week, climb up, try to see what people are picking, what are they buying, what are they eating in their house? Because even to understand their household finances it's not necessarily written neatly on a firm. It's also by knowing what did you have for dinner last night? What did you do for a festival? How did you celebrate a festival? Could you buy clothes for

the festival? Or your medical expenses how are you meeting those medical expenses? And that often helps to strengthen communities rather than just pouring cash in that community. So we do run a few after school classes, I clinics, so based on the feedback that we get from them, we do try to resolve their problems in non financial ways as well. Are the things that ordinary people can do

to help. They can do a lot to help. First of all, I think that I myself and I think anybody hearing about these women, they can be inspired by these women. And then yes, they can get involved in any way they like, whether it is by teaching, by donating money, by just spreading the world around all of them. The great writer Jonathan Swift said that a wise person should have money in their head, but not in their heart, and that's what kept coming through for me when I

listened to that interview. Also handy, of course, is money in your pocket and the transformative power of investing in people For the first time, that sounded so real and incredibly empowering. India remains one of the fastest growing major economies in the world, and it's impossible not to watch in awe as the country surges toward a brighter future with digitization, globalization and favorable demographics. But poverty is hard to shake and many people will stay stuck there unless

financial opportunities are inclusive and fair. India has a chance to refuse to repeat the mistakes of other countries. Today's Solvable the work Zamia and her dad do at the Vandana Foundation providing financial opportunities while la can help everybody to win. Solvable is a collaboration between Pushkin Industries and the Rockefella Foundation, with production by Laura Hyde, Hester Kant, Laura Sheeter, and Ruth Barnes from Chalk and Blade. Pushkin's

executive producer is Nia LaBelle. Research by Sheer, Vincent Engineering by Jason Gambrel and the great folks at GSI Studios. Original music composed by Pascal Wise and special thanks to Maggie Taylor, Heather Fine, Julia Barton, Carly Mgliori, Jacob Weisberg, and Malcolm Gladwell. You can learn more about solving today's biggest problems at Rockefeller Foundation dot org slash salvable. I'm Mave Higgins. Now go solve it.