Yesterday, I blogged about a documentary by Trickle Up which showcased a unique model to uplift the poorest of the poor in India. This post is a continuation of yesterday’s article.
Comparison of Trickle Up and Traditional Microfinance
- Micro-grants and subsistence allowance versus micro-loans: micro-grants and subsistence allowance are interest free and do not need to be paid back. This element matches the principles of Islamic microfinance.
- Hand-holders versus field officers: the functions of hand-holders include that of typical field officers, and more. Money is not the only issue faced by the poor; assistance and guidance is offered in other vital areas as well (mentioned earlier).
- Saving groups: this is another idea borrowed from micro-finance (i.e. microsavings).
Advantages of the Trickle Up Methodology
Micro-entrepreneurs no longer have to pay exorbitant interest rates, and can focus on developing their business instead of paying back their debt. Moreover, microcredit clients pose the risk of asset consumption or misappropriation of credit when the tide turns against them, but these problems are avoided here thanks to the nature of financial instrument (micro-grant) and procedural factors (use of hand-holders as monitoring system).
Drawbacks of the Trickle Up Methodology
Firstly, the hand-holder mechanism is expensive to deploy as the visits are frequent and information rich (but perhaps the cost is acceptable considering the value proposition). Secondly, the pilot project is primarily based on charity (neither grants/monthly stipend nor costs are recovered, as per my understanding) and requires donations from individuals and corporations. While CGAP funded the Indian pilot project, capital availability may pose a threat.
However, this is not necessarily cause for alarm because several microfinance institutions survive despite financial losses and there are some successful charitable organizations that rely purely on donations.
Note: This article only pertains to the methodology employed by Trickle Up for the pilot project in India. They may use different models in other parts of the world.
