The problem arises in the case of people who are unable to move forward at the speed of the market. They become laggards and are left out. Hence, there should be a special strategy to bring them to the mainstream of economic life. The normal strategy that had been adopted to address this issue has been the introduction of safety nets to capture them before they make a free fall to the ground. The safety nets so introduced have taken different forms depending on the era or the country. About five decades ago, the safety nets took the form of providing outright grants to the poor people. The objective of the grants was to provide some relief to them, so that they could at least meet their food requirements. The weaknesses in this type of strategies are well known. It encourages poor people to remain in the safety net forever. They have no incentive to move out of the net, because moving out would mean their having to work hard for a living. If at least the basic requirement of food is provided free of charge, then why would anyone want to work for the same? Economists have long named this problem “moral hazard” problem. This problem simply says that, when one helps another, the person being helped does not have the incentive to adopt even the minimum safety measures. As a result, he increases the chance of the occurrence of the event which the helper desires to prevent.
2  BIS Review 48/2007  This was experimented in one of the development projects implemented by the Central Bank of Sri Lanka. In this particular project, bank financing was available for both micro and small businesses. One of the requirements of banks was the submission of a comprehensive business plan, acceptable to the banker, by the prospective micro-borrowers. But, none of the borrowers had the capacity to prepare them. As a result, the utilization of the moneys in the project became a problem. As a solution, it was decided to outsource the function to some business development consultants at a cost to the borrowers. Accordingly, a number of youth who had studied economics, business studies and accounting for the GCE Advanced Level were selected for training as business consultants. Then, they were appointed to provide consultancy services to potential entrepreneurs for a fee. The lending banks also paid a certain commission to them for services such as loan recovery and follow up work. The program worked well and a new generation of fee-based business consultants was developed by the project. At the end of the project, most of these consultants, having used their own expertise, started their own businesses. Another pertinent issue involved in microfinance delivery is how to reduce the transaction costs and make available the loans at the time they are needed by the borrowers. The transaction cost is simply the additional resources which a person has to spend, other than what is paid to the supplier, in order to complete a transaction.