Indian film actress Gul Panag is a microcredit fan. “It’s abreath of fresh air,” she says. The Bollywood star first became awareof microfinance when Muhammad Yunus, the man who developed the concept,won the Nobel Peace prize jointly with the ‘banking for the poor’Grameen Bank in 2006.

Gul Panag – a former Miss India – has followed Professor Yunus inthe media since he won the Nobel prize, and thinks what he has to sayon microcredit makes sense… a lot more sense than the conventionalbanking system.

“He says that sometimes just because it’s conventional doesn’t mean ithas to be wisdom. Sometimes convention can also have stupidity woveninto it. And banks have always traditionally lent money to people whodon’t need it. If I can prove that I can buy a car that costs 100,000dollars, then they will give me a loan for it. But if I have all themoney then I don’t need the loan!”

Everything about the way our financial institutions have beenstructured over the past century, says Gul Panag, has been what shedescribes as “not pro-poor”. As a result, the poor have beenmarginalized in the conventional banking sector.

Chit funds
India does have initiatives that allow people too poor to get bankaccounts to build up savings, Ms Gul says. She points to the ‘chitfund’ savings schemes operated in rural India, whereby a group ofpeople pool a certain amount of money each month, or microsavingsschemes that allow people on the very lowest incomes to save as littleas 10 rupees (15 eurocents) a week. By way of comparison, Ms Panag saysan Indian high street bank might require a minimum deposit of 50,000rupees.

So there are possibilities in India for poor people to save up forlarger or unexpected expenses – such as doctor’s bills – but schemes tohelp them invest in their futures are still thin on the ground. Whilemicrocredit schemes have proved their value in neighbouring Bangladesh,says Gul Panag, in India they are still gaining momentum. It’s a pity,she says, that while the microfinance concept has existed since 1970,it took 30 years for Muhammad Yunus to gain recognition.

Narrowing the gap
There’s a deep divide in Indian society between a prosperous middleclass and the overwhelmingly poor. Gul Panag believes microfinanceisn’t enough to close that gap – but can help narrow it.

“It is one of the solutions. I don’t think there can be just onesolution. A lot of solutions have to come out of policy. A lot ofsolutions have to come out of social responsibility. And education, andat some level probably overall growth in society. But yes I thinkmicrocredit will go a long way in alleviating the basic problem ofcredit – because poor people do not get credit.”

Not that this lack of access to conventional credit means thatIndia’s poor stay free from debt. Major outgoings such as familyweddings can drive poor people into the arms of money lenders, leavingthem with crippling debts they will never be able to pay off. “Thebeauty of microcredit is that one of the conditions on which it isgiven is usually for productive purposes, or for educational-linkedpurposes, not to have marriages.”

Borrowing from the boss
As a well-off Indian, Ms Panag is no stranger to lending money. Shesays it goes without saying that someone from her socio-economicbackground  – and not just those who have successful careers as topmodels and film stars-  will employ staff ranging from drivers andhousekeepers to personal assistants. And these are also people whoperhaps don’t have bank accounts, and certainly don’t have access toconventional credit. When they need to borrow, they turn to the boss.

So when her staff needs money, says Ms Panag, she gives them a loan,and so far she hasn’t had any defaulters. But this is not exactly thekind of microfinance she envisages bringing business success to India’sambitious poor.

“The opportunity hasn’t presented itself that I have had an optionto actually lend money to someone who’s starting something new. So farit’s always been about ‘we need money, can you please give us somemoney’. So yes I have been a giver of microcredit – and sometimes macroas well.”