Vol. 12, No. 1, Fall 2008 THE CURREN T The Public Policy Journal of the Cornell Institute for Public Affairs Does Consumption Expenditure Determine Credit Demand in Rural North India? Implications for Microfinance Shailesh Kumar Rising Income Inequality in China The Impact of the Decentralized Fiscal System Yang Song & Qianqian Wang Gauging Accessibility in the Digital Age An Analysis of Online Services Provided by Local Municipalities Adam L. Kress & Timothy J. Lindberg Thinking Outside the Border Redefining Wiretap Regulations to Reflect Modern Threats and Technologies Kathleen L. Lee Navigating the Strait Improving Crisis Communication in a U.S.-China Confrontation over Taiwan Devin Hayes Ellis Gender Equality and Harmful Practices in the SADC Gender Protocol The Challenges of Cultural Transformation Dunia Zongwe Public Policy and the Combination of Anti-Americanism and Anti-Semitism in Contemporary Islamic Ideology Bassam Tibi THE URREN T C The Public Policy Journal of the Cornell Institute for Public Affairs Volume 12, Number 1 Fall 2008 THE CURREN T The Public Policy Journal of the Cornell Institute for Public Affairs Editor-in-Chief Paula E. Reichel Senior Managing Editor Megan E. Hatch Online Managing Editor Justin Villere Editorial Board Jesse McCree Katelyn Purpuro Michaela Stewart Jessica Zimerman Article Editors Maryam Jillani Kate Stout Christina Tawtel Online Article Editors Nancy Sun Anuradha Tulachan Research Editors Noor Aboobacker Nancy Sun Associate Editors Dawn Hopkins Kristin Oberheide Anika Patterson Christina Walker Contributors Noor Aboobacker Daniela Ochoa Gonzalez Neal Kern Sara Rudow Gurpreet Singh Michaela Stewart Faculty Advisor Dr. Jerome Ziegler Professional Development Advisor Thomas J. O’Toole ii Core Faculty of the Cornell Institute for Public Affairs David B. Lewis Director of the Cornell Institute for Public Affairs Richard Booth Professor of City and Regional Planning Nancy Brooks Visiting Associate Professor of City and Regional Planning Nancy Chau Associate Professor of Applied Economics and Management Gary Fields Professor of Labor Economics Neema Kudva Assistant Professor of City and Regional Planning Daniel P. Loucks Professor of Civil and Environmental Engineering Theodore J. Lowi John L. Senior Professor of American Institutions Kathryn S. March Professor of Anthropology Norman Uphoff Professor of Government Jerome M. Ziegler Professor Emeritus in the Deptartment of Policy Analysis and Management Staff of the Cornell Institute for Public Affairs Jennifer Evangelista, Administrative Assistant Linda Haas Manley, Service Learning Initiative Program Coordinator Lisa Jervey Lennox, Assistant Director for External Relations Judy Metzgar, Administrative Manager Cheryl Miller, Administrative Assistant Thomas J. O’Toole, Executive Director for Professional Development iii Mission Statement As the academic journal of the Cornell Institute for Public Affairs (CIPA), The Current provides a platform for public policy discourse through the work of CIPA fellows and their mentors, with contributions from the public affairs community. Editor’s Note In our globalizing world, issues once considered state-based or culture-specific must now be viewed through a universal lens. The fall 2008 edition of The Current acknowledges this worldview in the analysis of public policy. Financial structures evolve to meet the needs of a population; economic growth begets inequality; the internet democratizes society; security becomes borderless; communication channels ease understanding; change is dulled by cultural norms; and ideologies merge in the interest of hatred. As the categories of domestic and foreign policy have become outmoded, how much more important it has become for participants in the public arena to form a clear vision of public policy. Contributors to The Current as well as the students of the Cornell Institute for Public Affairs pursue depth of reasoning in their studies in order to draw innovative solutions to today’s critical problems. We at The Current recognize and applaud their efforts. The Current’s online forum, which can be viewed at http://www. cipa.cornell.edu/cip_thecurrentopeds.html is also representative of our commitment to academic engagement. First and second-year CIPA fellows have taken the reins in responding to a number of topical policy issues, spurring debate within and outside of the forum. Without the strong commitment of The Current staff, both in-print and online, and support and guidance of CIPA faculty and administrative staff, none of this would have come to fruition. It is with great joy and some sadness that I give my final “thank you” to all involved and present the result of our efforts to our readers. Sincerely, Paula E. Reichel iv The Current reflects the diverse political, cultural, and personal experiences of CIPA fellows and faculty. The views presented are not neces- sarily the opinions of The Current, the Cornell Institute for Public Affairs or Cornell University. v Contents [Articles] I. Does Consumption Expenditure Determine Credit 1 Demand in Rural North India? Implications for Microfinance by Shailesh Kumar Cornell University II. Rising Income Inequality in China 19 The Impact of the Decentralized Fiscal System by Yang Song & Qianqian Wang Cornell University & Renmin University of China III. Gauging Accessibility in the Digital Age 33 An Analysis of Online Services Provided by Local Municipalities by Adam L. Kress & Timothy J. Lindberg University at Albany vi [Views & Reviews] Thinking Outside the Border 59 Redefining Modern Wiretap Regulations to Reflect Modern Threats and Technologies by Kathleen L. Lee Indiana University Navigating the Strait 79 Improving Crisis Communication in a U.S.- China Confrontation over Taiwan by Devin Hayes Ellis University of Maryland, College Park Gender Equality and Harmful Practices in the SADC 99 Gender Protocol The Challenges of Cultural Transformation by Dunia Zongwe Cornell University Public Policy and the Combination of 123 Anti-Americanism and Anti-Semitism in Contemporary Islamic Ideology by Bassam Tibi Cornell University A.D. White Professor-at-Large University of Goettingen vii Does Consumption Expenditure Determine Credit Demand in Rural North India? Implications for Microfinance Shailesh Kumar ABSTRACT: Most Microfinance Institutions (MFI) provide microcredit as part of their microfinance services. MFIs provide micro-loans to the poor for starting or enhancing small businesses. The practice of providing credit for consumption is less popular although ethnographic experience suggests that people in rural north India generally borrow for consumption purposes. Through an econometric study, the paper tries to establish that some consumption expenditures considered critical by the borrowers of rural north India significantly affect credit demand. The paper provides evidence that loans given for strengthening small businesses are being utilized for consumption purposes and hence MFIs are already bearing the risk of consumption loans. It recommends designing products for critical consumption needs after assessing risk and suggests savings and insurance products as an alternative to consumption credit. t is estimated that more than 370 million people in India are living under the internationally accepted poverty line of one USD Ia day; adjusted for the purchasing power.1 Access to affordable capital (financial services) is recognized as one of the most important preconditions for rising out of poverty. However, banks do not consider the poor as viable customers. Less than twenty percent of seventy-five million poor families in India have access to financial services from formal institutions. In the absence of formal financial services, the poor often borrow from informal sources at exorbitant rates. Although banks have been forced into financing small borrowers due to government efforts2, their procedures are cumbersome, the staff unfriendly and the transaction costs high. Second-time loans, except for crop production, are rare even to borrowers who have repaid.3 Microfinance can be defined as the “provision of thrift, credit and other financial services and products of very small amounts to the poor for enabling them to raise their income levels and improve living standards”.4 The distinguishing characteristic of microfinance 1 2 Kumar is the provision of financial services to the poor on their terms. This normally means waving the requirement of collateral for a loan involving collective liability.5 Therefore, microfinance is recognized the world over as an effective initiative for poverty reduction.6 Poor people need microfinance not only for investing in enterprises, but also for critical consumption purposes to tide over vulnerabilities. However, microfinance is often only provided for entrepreneurial activity. The demand for microfinance by seventy-five million poor families is estimated to be around thirty billion USD annually.7 The supply of microfinance has improved, but it still covers less than ten percent of demand. Indian MFIs have shown exemplary growth in the past five years, with a compounded annual growth rate (CAGR) of around sixty- four percent. Some MFIs like Bandhan have exhibited a growth rate of 300 percent. If they continue to expand at present growth rates till 2010, the MFIs will have little impact on the market. There is a need to increase the MFIs’ outreach dramatically and create mechanisms to include the poorest people in the network of microfinance services. Figure 1: Microfinance