Comments

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  Sonia Jaspal October 27, 2010 7:25

  Interesting article in Strategy + Business- A Gandhian Approach to R&D
  
  http://www.strategy-business.com/article/10310?pg=1
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  Sonia Jaspal October 26, 2010 16:58

  Check out the blog post tommorrow, there is a pleasant surprise : http://soniajaspal.wordpress.com
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  Seshadri Chari October 26, 2010 5:14

  My use of the term "sensitive" was to emphasize the nature of challenges in this sphere of financial activity and risk taking. My experience in micro financing dates back to late seventies.
  
  This segment is a good market - in the sense that it is a felt need. At the same time, given the Indian culture, particularly , political, it is a challenging task. Your concerns are shared by the States like Andhra Pradesh, West Bengal and Kerala where the problem of higher interest rates and employment of recovery agents for recovery have drawn official responses resulting in the review by RBI.
  
  I believe the solution lies in strengthening rural markets so that the rural poor have chances for poverty alleviation within their command area than relying on increasing the cost of marketing by looking to urban markets. In India, we need to move from Metropolitization to Ruralization - providing self sufficient communities, who can expect to achieve a reasonable standard of living. Development of SEZ will provide a good market for the farmers - but this will, initially, at least need government intervention.
  
  There are connected issues here as well. Such as the inflationary trends in basic food prices.
  
  Well, are there solutions that do not create fresh problems?
  
  I am veering round to the conclusion that life is one of managing solutions, not problems!
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  Sonia Jaspal October 26, 2010 2:57

  Seshadri, thanks for sharing your viewpoints. I agree with you comletely. I specially like your point that the poor should not bear the cost of their own upliftment by paying higher interests.
  
  My concern is that though it looks like the government has finally acknowledged the problems, they will again do the paper policies and there will be no change at the farmer level. And we will have to see many more suicides by the farmers.
  
  What do you say?
  
  Sonia
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  Seshadri Chari October 25, 2010 20:20

  Sonia,
  Government has been doing a lot - both on disbursement and waivers - which has been a contentious issue with commercial bankers. While the disbursements to weaker sections have been encouraged by a carrot and stick approach using targets and subsidised interest rates, the waivers have been a dampener in terms of repayment psychology of the borrowers.
  
  The Micro Finance domain is a sensitive and challenging area. As Deepak points out, if social uplift is the primary objective of Micro Finance, the profit motive becomes an anathema.
  
  For a healthy growth of MFI sector, I believe there is a need for a balance between the social objective and profitabillity to ensure sustainability of MFI operations. That in the first place was the basis for certain target oriented lending approach - a policy stance adopted by the RBI. It is also not fair to ask the poor to bear the cost of their uplift by charging a hefty margin, though they should be morally inclined to pay back the society during their prosperity. Setting up of the committee by theRBI to review the position, in my interpretation, reflects this stance.
  
  NABARD is the natural choice for regulatory role as it is the key player in formulating the schemes for social uplift in the context of rural poverty. In fact, the legislation on MFIs should necessarily include tenets of financial inclusion that also touchbases with urban poor.
  
  At the end of the day, if MFIs are able to reach out to the rural poor, energise them to achieve liberation from the debt trap and still make a decent margin through improved reach, business processes and a commitment to sustained service, such MFIs should be allowed to flourish within the accepted banking practices for credit delivery and recovery.
  
  MFI is essentially engaged in a banking activity and thus required to be brought under the purview of RBI regulatory framework keeping in view the specific objectives for which the MFIs are estabilshed in the first place.
  
  My two cents...
  Seshadri
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  Sonia Jaspal October 25, 2010 7:45

  Deepak, great thought process. Hope finally the government does something for the poor farmers.
  
  Sonia
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  Deepak Kumar Shaw October 25, 2010 6:58

  Till MFIs will run for profit it's not going to follow its core object of social upliftment. Basic idea behind establishment of these MFIs was to save poor from moneylenders. But currently they are no different from moneylenders in terms of interest charged by them and recent cases of forceful recovery strengthen this argument. With profit motive first there is pressure to distribute loans then to recover and these lead to malpractices. If this sector has to survive and wants to prosper then they have to do stick to their core objective i.e. helping the poors. In my view
  
  1. First profit making MFIs should not be allowed to operate as this will always lead to malpractice in the industry and if not possible then major percentage should go back to borrowers as relief or rebate.
  2. Interest rate should come down. Benefit of priority sector interest rate enjoyed by MFIs should be passed on to its borrowers.
  3. Part of profit should go back to these borrowers rather than entire thing going to investors.
  4. Licensing should be stricter and only a few MFIs should be allowed to operate in a region avoiding unnecessary competition between them.
  5. Financial discipline should be brought to the sector in terms of reporting correct numbers, strict audit controls preferably C&AG allotted audits and other control to ensure reported numbers are authentic.
  6. Finally a strict regulator like RBI.
  
  Hope these measures help industry to win its respect back and remove vultures out of this industry.
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  Sonia Jaspal October 25, 2010 6:00

  Microfinance Institutions dispute. AP government setting new norms. However in AP the government itself has a sector for distributing loans. So is it working for the benefit of the society or creating monopolistic situation.
  
  RBI has set a committee for establishing new norms.
  
  SIDBi takes responsibility for not monitoring MFI's properly.
  
  The latest headline - NABARD expected to control MFI's soon.
  
  What do you think should be done and will happen?