Monday, January 3, 2011

The Decade of the Cow

According to the microfinance calendar, the last ten years were the decade of the cow. We celebrated the cow as the path out of poverty. At Madura we even benchmarked the loan amount to the cost of a cow. What good is a loan if it’s not even enough to buy a cow? And so over the last decade the microfinance industry has supported the purchase of millions of cows across the country. Millions of scrawny cows with poor yield it turns out; a hallmark of the inefficiency of microenterprise. I for one am glad to be past the decade of the cow and am excited and hopeful that this decade we will do away with celebrating cows - and pigs and goats and chickens and antiquated sewing machines and cottage industries - and celebrate instead the human being and its capacity for extraordinary innovation.

India has been built on a romanticised notion that small is beautiful. The spinning wheel became the symbol of a self-reliant India. Each of us independent, spinning our own yarn and milking our own cow. Yet such self-reliant independence is the very antithesis of progress. By the time we have each woken up, milked the cow, cleaned the cowshed, and sat down to spin enough yarn just so that we can finally make one new set of clothing to replace the one that is fraying, the light is fading. It’s time to cook and eat dinner and go to bed so we can wake up and start the routine again. No time for anything else. No time to think.

Progress is about interdependence and not independence. It is about the ability to organize ourselves into groups to accomplish more than any one of us could on our own. It is about each of us specializing in our knowledge and function and coming together to create something more than the sum of the parts. We lose our self-sufficiency, our ability to survive independently in the woods. But we gain by being part of something bigger, something extraordinary. It’s not so different from life itself – from self-reliant single celled ‘micro’ organisms like bacteria have evolved aggregates of cells with specialized function that together make organisms of extraordinary capability. The cells of the organism cannot survive on their own very well, but they play a part in something much more significant.

A hallmark of poverty is a lack of functional specialization and organization. Poverty is largely characterized by people engaged in self-reliant, independent methods of livelihood where cooperation and organization rarely extends beyond the immediate family. It is characterized by people engaged in enterprise that requires little specialized knowledge and is therefore easy to replicate. It is characterized by people engaged in enterprise too small or ‘micro’ to enjoy economies of scale. Indeed, even biological organisms gain efficiency with scale, larger organisms require less metabolic energy per unit mass than smaller ones. Most significantly however, is that the backbreaking effort of self-reliance leaves little time for innovation. And so also it is only larger organisms with cells specialized into organs that have the capacity for thought.

In the new modern India we are slowly shedding our Gandhian ideals of self-reliance and scale has become the mantra. I applaud this. However, our view of scale has been unidirectional. Large urban corporations serving the poor masses. Yet when these urban corporates constitute such a small fraction of the population it is horribly limiting in its scope. What if instead we could find mechanisms that catalyze functional specialization and organization among the hundreds of millions of individual cow keepers? Maybe then larger organizations will begin to emerge from the most surprising places and in numbers we could never before fathom. Tall order you might think, but I am convinced that with our understanding of how large scale interconnected systems function, together we might just be able to crack this. More about this to come in the following weeks.


  1. This post brings to mind all sorts of lessons through history, most of which make me despair of your mission.

    The United States was founded with the ideal of the "yeoman farmer", independent, free and highly productive. This was Jefferson's ideal, and he was wrong.

    The United States didn't rise to world prominence through this model. The States survived this early period because of its geographic isolation (a 3,000 mile moat), and its extraordinary agricultural fertility. But it was the industrial revolution and a freely capitalistic economy that allowed for specialization and the accumulation of enormous wealth by corporations which transformed it into an economy marked by efficiency and not by independence.

    I agree with you that India's path out of poverty is through economic interdependence, but I fear that that path is paved with national economic and cultural reform, and not through microfinance. Microfinance may be the antithesis of efficiency through interdependence. For the minority who are enterprising individuals it's a blessing, but it can't be a rising tide to float all boats.

    But I hope I'm wrong.

  2. Matt, I have to agree with you that the path out of poverty requires change on multiple dimensions. I would venture to say that the largest driver of change will be better information flow in impoverished areas. Microfinance all on its own is certainly the antithesis of efficiency through interdependence, but if the other mechanisms are in place, finance can be tremendously catalytic. I'm not despairing yet....

  3. Dear Tara,

    Came across a recent interview with you and that is how I happened to see this post. I am myself someone who had stints in micro finance, entrepreneurship development and now an entrepreneur, rather a social entrepreneur as they say.

    Your post reminded me of a work I was involved in 2002 - 03. We asked are 'small is beautiful' and 'big is bountiful' to be treated as two irreconcilable, opposite concepts? We saw that sustainable development cannot happen by selecting one over the other. Instead we have to have models of combining both

    We in India have the good old example of our cooperative organizations, esp. Amul and NDDB where both micro and macro were brought together to create a mammoth organization with individual cow owners as the smallest units.

    The initiative I was part of conceived by (Late) Prof. Ranjit Gupta of IIMA tried to create a larger wholesome organization out of a number of functional smaller organizations like women SHGs; farmers' associations; procurement and processing collectives, etc. The idea was to cover the entire value chain of specific agro products from conservation to cultivation to procurement and processing using functional smaller units of stakeholders with specialized roles and leave branding and marketing to a central team of professionals. There are many other attempts one can list out. I can see such successful attempts not only combine micro and macro, they also know what to decentralize and what to centralize.

    As you rightly indicate, there are not many recent examples of similar institutional models. Apart from investments required in capacity building in specialized and organizational skills is this not also because individual entrepreneurship and desire to accumulate wealth by few are the driver of a capitalist economy? Opportunities are created because of an imbalance of wealth and not because equity in wealth creation. Greed is legitimate and welcome and rightly so

    Are we not going through an irreversible process that will replace 'hundreds of millions of cow owners' you talk about with 'few owners having hundreds of millions of cows'? If so the development focus in the livelihoods sector accordingly i) has to shift from the old co-operative mind set to one that help the entrepreneurial ones become successful and scale who in turn create opportunities for others and ii) target linking with private sector and create use and pay community owned infrastructure (both soft and hard) for efficient aggregation, supply chain and / or distribution. Finance can be catalytic in both areas, but not micro finance the way it is practiced now. Rural finance and development finance in India need more bold attempts and products


  4. The ecosystem that micro entrepreneurs need is process standardization in their own living/working space. Space and manpower in their own territory should be the rule of the game. Any attempt to bring a larger organization to take over the space and manpower will lead to dis-economies to scale and eventual death knell of economic value to the village entrepreneur. For the milch cow business, the micro entrepreneur ecosystem should typically provide (1) sourcing getting good quality cows (2) technical help in keeping the cow shed clean and hygenic given the limitations of space and resources available (3) cow feeds at low cost (4) periodic cow health check (5) quality control processes and internal warning systems (6) creating higher value products for those entrepreneurs willing to go the extra mile.

    Most microfinance companies in India are not anywhere close to creating sustainable business ecosystem. There is an opportunity but the big question is it their job or the job of a SHG or a separate entity under the auspices of NABARD or a VC funded social entrepreneurship entity that creates these standard processes not just for the milk cow business but also for all types of micro business. This business could work for a MFI or group of MFIs for a fee.