BS: MFI sun rising in the east: April 01, 2006

Micro financial institutions are fast growing in eastern India, even as the south remains the place to consolidate the gains of the past .

Microfinance institutions are growing and they are moving to a more equitable spread across the country, away from their focus on southern India. And it is eastern India where the action is at its most exciting high, as a new report by Sa-Dhan underlines.

Walk into any village in Bagdogra in Bengal. Walk into Bhujia Pani village not far away from the airport. The rickshaw puller who takes you to the village is the first person one meets in the village, would be either a beneficiary from SKS Microfinance or from Bandhan.

Each household in the village tells a story about how a small loan of Rs 1,000 to Rs 10,000 has helped a person come up from nothing.

Whether it is a widow and her small children living off earnings working in houses in the town, or a grocer, each has an MFI connection. Rickshaw puller Hemanto Rai has taken Rs 5,000 from SKS twice till date. He paid at the rate of Rs 230 a week for 50 weeks. He repaired his old rickshaw once and then he finally bought a new one.

His wife had got the loan. “Which bank would have given us that?” he asks.

MFI money seems to be the only available trickle reaching the lowest ebbs of the economy. The fast growing coverage of villages in Bengal by the MFIs is a story also of the intensification of the coverage in the East with MFIs growing roots in Orissa, Bengal, Bihar and the North East.

The study by Sa-Dhan says that growth rate in client outreach is led by MFIs in east and north in the year 2007 covered by the report. The northern MFIs grew at a rate of 84 per cent while eastern MFIs grew at 82 per cent. Of course, the eastern rise began in a phenomenal manner in 2006 and the trend continues.

The MFIs have already spread to their maximum extent in the south and hence it is consolidation time for them there and thus the growth rate was 56 per cent. SKS, headed by Vikram Akula, has spread to 80 districts in 11 states and its journey started in Andhra Pradesh.

The west, meanwhile, is still in slumber as far as MFIs go. The growth rate was 7 per cent in 2006 and 10 per cent in 2007.

Small is big
The study by Sa-Dhan shows the growing power of the small players in microfinance and it is a role that won applause from Forbes magazine recently Forbes brought into focus the rise of the smaller MFIs and that is something which is evident in our report also, says Mathew Titus, director of Sa-Dhan.

Forbes recently ranked Bandhan, the Bengal-based MFI, second in the world, and Microcredit Foundation of India (ranked 13th) and Sadhana Microfin Society (15th) even above Bangladesh-based Grameen Bank, which, along with its founder Mohammed Yunus, was awarded Nobel Prize last year. Grameen Bank was ranked 17th .

The other Indian entries include Grameen Koota (19th), Sharada’s Women’s Association for Weaker Section (23rd), SKS Microfinance Private Ltd (44th) and Asmitha Microfin Ltd (29th). The ranking was done on the basis of scale, profitability, efficiency and portfolio risk.

Sharda covers five districts in Andhra Pradesh and has opened an account in Orissa, Madhya Pradesh and Tamil Nadu. Share Microfin covers 42 districts in Andhra Pradesh, Karnatka, Chattisgarh, Madhya Pradesh and Maharashtra.

Sharda, which started as an education outreach programme by a teacher, today has 80,000 clients and a loan portfolio of Rs 38 crore,

Share on the other hand has disbursed loans up to Rs 399 crore to its 1 million clients.

Reducing costs
The reason why the small MFIs are making it big is by virtue of the fact that spreading client reach is the only way costs can be cut. And small MFIs have been spreading as fast as they can.

According to Sa-Dhan, 65 MFIs have moved towards reducing operational costs over 2005-2007. These institutions cover 5.01 million (61 per cent ) of the total client outreach of 8.23 million of the 129 institutions covered in the Sa-Dhan report.

And the ones who have finally arrived are Sharda, Asmita and Grameen Koota who were earlier confined to their little zones of southern comfort. Sharda has moved from Andhra Pradesh and Tamil Nadu to explore Orissa, and Madhya Pradesh.

Grameen Koota is confined to two districts in Karnataka but its base has been doubling each year from 20,000 to 100,000 in three years.

BISWA, the self help group-based MFI in Orissa Chattisgarh and Bihar, has been growing with Rs 100 crore disbursed so far among nearly four lakh clients.

Another operator in Orissa, Chhattisgarh, Madhya Pradesh is Kas foundation, which according to Sa-Dhan, has covered close to 600,000 clients so far and disbursed Rs 120 crore.

Prochesta in Assam and Youth Volunteers Union in Manipur are the only MFIs in the north east which find mention in the report.

But, with an established name like Bandhan moving to north east, the road is clear for others. Says Bandhan CEO Chandra Shekhar Ghosh: “We strategically avoid overlapping, but it often happens that in a place where we have been operating for two to three years, another MFI also begins to operate.

Bandhan has now moved out to Tripura, Assam, Bihar Jharkhand and Orissa.

The result of spreading has been passed on to the clients. Says Ghosh: “We began with an interest of 17.5 per cent flat. But since two years we are charging 12.5 per cent.”

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