Indian film actress Gul Panag is a microcredit fan. “It’s a breath of fresh air,” she says. The Bollywood star first became aware of 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 in the media since he won the Nobel prize, and thinks what he has to say on microcredit makes sense... a lot more sense than the conventional banking system.

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

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

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

So there are possibilities in India for poor people to save up for larger or unexpected expenses – such as doctor’s bills - but schemes to help them invest in their futures are still thin on the ground. While microcredit 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 middle class and the overwhelmingly poor. Gul Panag believes microfinance isn’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 one solution. A lot of solutions have to come out of policy. A lot of solutions have to come out of social responsibility. And education, and at some level probably overall growth in society. But yes I think microcredit will go a long way in alleviating the basic problem of credit – because poor people do not get credit.”

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

Borrowing from the boss
As a well-off Indian, Ms Panag is no stranger to lending money. She says it goes without saying that someone from her socio-economic background  - and not just those who have successful careers as top models and film stars-  will employ staff ranging from drivers and housekeepers to personal assistants. And these are also people who perhaps don’t have bank accounts, and certainly don’t have access to conventional 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 the kind of microfinance she envisages bringing business success to India’s ambitious poor.

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