Mohamed Saifulla smiles as he pulls out a thick folder in the pale green office of the Anjuman-E Islamia of Kolar. He may well smile. Saifulla and the Anjuman committee are in a great part responsible for the Indian microfinance industry now finding itself with its back against the wall. The outgoing president of the Anjuman committee, made up of nominees from the town’s mosques, Saifulla has agreed to show us details of women borrowers who were harassed by microfinance institutions for repayments. Instead what he brings out ceremoniously from a plastic bag is a file with clips of blog accounts, comments and newspaper articles about how the committee brought microfinance repayments to a grinding halt in Kolar.
The Anjuman’s Conundrum
Call for Regulation
(This story appears in the 16 April, 2010 issue of Forbes India. To visit our Archives, click here.)
The lure of meat brings the dogs. Microfinance once viewed as a market efficient way of providing the poor credit has now become a cover for the same hoodlums and anti social elements. It needs some broad regulation.
on Apr 7, 2010Microfinance Companies need to sit back and ponder/decide on the overall positioning of their business whether it is commercial microfinance, responsible microfinance or social microfinance. The focus should shift back to relationship based business rather than transaction based.
on Apr 6, 2010The trend happening in micro finance space is what has happened in other lending sectors earlier. The small ticket personal loan (stpl) is a classic case in point. for over a decade citi corp and GE capital had successfully been lending small amounts (upto Rs. 50,000) to individuals as personal loans and it was very profitable. however in 2006, 7 new players viz icici, hdfc, hsbc, db, choladbs, indiabulls and fullerton entered and this led to significant amount of over funding of same clients and ultimately by 2008 all of them, including the first two successful pioneers downed shutters and wrote off huge amounts. the question is whether it can happen in micro finance.<br /><br /><br /> <br /><br /><br /> The answer is clearly that if we, in micro finance do what others did in other sectors, there is no reason why our end result would be any different. However herein, lies the key difference. The entire micro finance industry is a fully united industry which has never been the case with other sectors and lenders. In the MFI space, there is a new body called MFIN which is created which has all NBFC MFIs as its members. MFIN has now rolled out a code of conduct which lays down that no client shall be funded by more than 3 MFIs at any point in time. Also the funding should be only within what the client would be able to service and under no circumstance it can exceed cumulatively for all 3 put together, Rs. 50,000. This is a landmark agreement on self-regulation amongst the MFIs not heard of in any other sector. A strict enforcement mechanism is also put in place and consistent default by members on this, can lead to their name being struck off the membership of MFIN. Parallelly MFIN is in discussion with lenders and investors to make membership of MFIN a must to have lending / investing relationship. This would ensure that the code is followed truly by all.<br /><br /><br /> <br /><br /><br /> Also MFIN's code of conduct talks of transparency in communicating interest rates to clients and we have taken help of mfTransparency.org to help bring about ultimate transparency in the indian MFI sector. These initiatives are expected to fructify over the next few months/quarters.<br /><br /><br /> <br /><br /><br /> Parallelly Alpha Micro-finance consultants p ltd has recd equity investment from all the NBFC MFIs and has in turn taken a 5% stake in one of the credit bureaus. Alpha is in discussion with the credit bureaus and the MFIs and is helping the MFIs take their data out and make it bureau complaint so that it can be uploaded to them. While it is early times, Alpha expects that in about 9 months most of the members' data would be on the bureau and we would have authentic data on overall client indebtedness. Also alpha will be working with UIDAI to help as an enroller to collect biometrics of its member clients and family members and help them get Unique number which will further help in the credit referencing process.<br /><br /><br /> The amount of close coordination between the MFIs and their willingness to be self-regulated is something i have never seen either in the general NBFC industry nor in the banking industry (both of which i have worked earlier). While the criticism on heated growth of MFIs and poor client servicing is probably true in pockets, but one would have to come close to the sector to see the amazing level of serious intent of the sector to self--regulate. i am very confident that the MFI sector would be strengthened through such sector level initiatives and the sector would be able to sustainably take forward the national agenda of financial inclusion of the over 600 million excluded population, in a fair and ethical manner.
on Apr 6, 2010