Will you do a business where the Cost of Capital is 1500%?

Can you imagine doing a business with a Cost of Capital of 1500%!!!!

Sounds absurd isn't it! But this is precisely what is happening in rural India.

Let me elaborate...

You must have seen the lady vegetable vendor who comes to your house everyday carrying a basket full of vegetables every day. She gets up at 4 am in the morning, goes to the local market and asks the money lender for a small capital to buy one basket of vegetables. The money lender gives her, let us say Rs 500. He, in fact, gives her only Rs 475 after deducting his interest of Rs 25. The lady, then buys vegetables for Rs 475, and goes around her beat selling vegetables at a nominal profit. At the end of the day, she has to return Rs 500 to the money lender. The same scene is repeated the next day. This means that she is paying Rs 25 as interest per day for Rs 500, i.e 5% per day. Assuming she works 300 days in an year, excluding Sundays, the cost of capital works out to 1500%. This is the plight of 60% of the population indulged in small scale sales in India.

All the Government has to do is to implement a micro financing scheme to help these people, a la Muhammad Yunus and Grameen Bank of Bangladesh. But the successive governments have never cared. They are more worried about the cost of capital to major industrialists, who anyway are the major defaulters. It remains a mystery as to why the money allocated to many poverty alleviation schemes cannot be used to establish a viable micro credit facility. This will be a big relief to millions of poor people and shall encourage entrepreneurship at the grass root level.

Was Gandhiji right when he propounded his Gandhian economics that stressed on the need to develop rural communities? The bottom up approach to economic development. We have never had a chance to find out the efficacy of that model.

If our Economist Prime Minister were ever to be asked to evaluate a business venture where the cost of capital is 1500%, he will not touche it with a 1000 feet barge pole. But millions of his countrymen continue to be under the evil influence of the money lenders , wallow in poverty and do trading by incurring such ridiculous costs. And no one cares.


"But I, being poor, have only my dreams. I have spread my dreams under your feet; tread softly, because you tread on my dreams" - William Butler Yeats


The successive governments have not just tread on the poor mans dreams, but they have trampled on them. There in lies the tragedy