And, for abundant clarification the article is also not proposing microfinance for hand-held devices! Personally, that is a sheer waste of time and resources. The term bandwidth, here, has the meaning attributed to it by Sendhil and Eldar in their book "Scarcity"; due credit to the duo for the origin of this article and the findings in their book discussed herein. The book was an interesting read and is recommended to all and sundry bookworms; who, unfortunately, are a dying breed in this country.
In layman term, the authors baptise the computational capacity of a human as his bandwidth. Computational capacity includes the ability to think, to ability to focus on current problems, will power and self control, the ability to ignore distraction and to resist temptation. Apparently their finding is that there is a limited amount of bandwidth available to each individual and when it is taxed unnecessarily with current problems, the ability to focus on other, more important but less pressing, issues diminishes proportionately. And higher the usage larger the depletion of bandwidth, which contrary to its mechanical counterpart, increases or decreases based on rest and recreation. Ultimately, humans do not have a luxury of a constant bandwidth and must sleep and eat periodically to restore it.
Ramazan is perhaps the ultimate example of bandwidth depletion. Everyone's ability to focus and control their anger in a traffic jam in sweltering heat is below zero; it is a good thing that the nation virtually shuts down during the holy month. Imagine what would happen if the IMF was to come over for negotiations or a review in Ramazan! So what has bandwidth got to do with microfinance? Taking cognisance of the national deficit in digesting criticism of any kind, before answering it would be appropriate to submit that the objective is not to find faults. In fact quite the contrary, this is an attempt to highlight something interesting from the book, "Scarcity", which perhaps might contribute towards the existing laudable efforts of the microfinance institutions in Pakistan.
"Before you criticise someone, you should walk a mile in their shoes. That way when you criticise them, you are a mile away from them and you have their shoes." Jack Flandey. That would be an appropriate strategy when offering any sort of comment on anything in Pakistan, notwithstanding that everyone else for some reason believes that speech is prancing around freely now a days; crazy!
The key finding related to poverty is that scarcity of money taxes the bandwidth of the poor thereby comprising their ability to think long-term, explained in terms of tunnelling; and to clarify for the tax collector, before excitement sets in, the bandwidth tax is not something which can be quantified or included in budgetary targets. Short-term shocks result in mismanagement of meagre resources ensuring that the poor remain entrapped in a vicious circle of borrowing at higher levels of interest rates, which adversely impacts their disposable income and their already unequal living standard.
Current problems create an urgency for the poor and the quickest solution is the informal money lender willing to lend at the drop of the hat; that compared with the other option of the lethargic process of filing an application at the nearest microfinance bank branch, which in itself is a mountainous hurdle for the illiterate and can only be done during working hours, waiting for the application to be approved, which perhaps depends on the discretion of the branch manager and lots of other bureaucratic ups and downs before the money can finally be disbursed. By the time all that happens, the initial shock has achieved a magnitude of 9 on the Richter scale.
It is easy to challenge this finding on multiple grounds, however, logically if microfinance had been catering to the needy effectively, the informal money lender should be history today, at least in locations where microfinance has significant penetration; is that really the case?
The authors' suggestion is to consider, in addition to long-term structured loans, short-term microfinance loans, which cater to the urgent needs of the poor thereby providing necessary slack in resources to address the perils of bandwidth tax. In essence a product which substitutes the informal money lender. The loans may have higher interest where half the amount is saved on behalf of the individual, a forced saving for a rainy day. Alternatively the interest on such loans could perhaps be subsidised by the government; if the rich can get a subsidy on power why don't the poor deserve a subsidy on their bread and butter.
Peace of mind goes a long way in managing resources optimally, for everyone; ever wonder why stock markets virtually close down during Ramazan. The ever elusive pre-eminent objective of microfinance is to assist the targeted poor to achieve self-sustainability. Perhaps the solution lies in studying bandwidth tax. While the government successively increases money transfers to the poor in every budget, is poverty actually declining in Pakistan? Harbouring conflicting views on paying handouts, while at the same time acknowledging that in certain cases such payments are necessary, perhaps a well studied approach might be the best compromise. In addition and considering that there is already a scarcity of resource at the government level, every rupee spent on welfare has to count, with a continuing, even if gradual, reduction in poverty.
Would it hurt to study a fresh approach and perhaps test the findings in a select environment? For those interested, the book has interesting insight on how managers can better manage their deadlines and for dieters, although in the case of the former one remains extremely sceptical. This was not intended to be a book review, but happy reading!
(The writer is a chartered accountant based in Islamabad)