With the recent hype on Microfinance its time for us to look on the basis of existence of this MF organisations. I believe MF started as a concept from the Grameen bank in order to serve the deprived part of the society which gradually changed and now became a profit making business model.
Andhra pradesh is now seen as the MF hub of the country is really spurred with several MF institutions. Why and how these MF is different from banks is really we need to understand. Also do these MF institutions really doing what they intended to do or they missing on the basics??
Banks do talk more on financial inclusion but when coming to the point of serving poor they are simply finding it difficult. They are good in getting the micro-savings from the poor through CASA and deposits but not really interested or properly aided with regulations for providing micro credits. This is seen more as an opportunity to begin and explore by MF institutions which started borrowing from banks at a very low cost of 14-16% and lent around 40-60% or even more. Not to be surprised many foreign institutions also directed their funding to these institutions which earned a reasonably good profit compared to investing in stock markets !!
So basically one of the weakness of the banks( their ability to reach poor) were used by these institutions to generate profits. Also many of the customers of these MF institutions feel that this MF institutions are a way better and in the pipeline they come in between the highly greed private moneylenders and very conservative banks, which made them to access these institutions for credits.
Its good that AP govt come up with the ordinance which caps on the interest that MF institutions charge to their customers and also regulating their operations. I do feel its completely absurd to avoid these institutions which are right in their direction i.e towards financial inclusion but the path they took is bit clouded with too many players with different objectives which needs to be regulated.
So my view is we should not completely move away from MF institutions, we need to take some of their concepts and rework on that to reach financial inclusion.
Its time for an apex institution like RBI to take up regulating these institutions and provide them suggestions and facilities like a common database like CIBIL in order to avoid multiple loans and have a detailed history of the customers.
Also banks also need to learn some of the innovative practices and highly recovery mechanisms using social respect which are adopted by MF institutions.
Yet another thing about MFIs that intrigues very much is its way of raising funds.When SKS went out for its IPO offering in mid 2010, it was openly condemned by Mohammed Yunus of Grameen Bank fame. He firmly believed that when an organization(like SKS) that is meant to serve poor people taps capital markets for its funding purposes,it is placing the interest of the shareholders above the poor people.He added that such a practice will trigger thoughts among the investors about fetching money from poor people themselves.This fails to serve the ultimate purpose of a MFI which is to serve poor people.
ReplyDeleteIn the case of Grameen Bank,it used its own deposits for funding purposes,a practice which is not permitted by our regulators.
My question is can there be any better means of funding a MFI..Some light on this please
If you see mainly MFI's are using two sources of funds, bank loans and equity funding. More than equity funding , bank loans will put more pressure on MFI's to go for higher interest charges on their customers. In all these cases there exists a conflict of interest. Better way can be a funding from govt, but the feasibility is in question...
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