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MFIs need to get grassroot act right ……..Sumita Dawra
Consider the plight of a woman struggling to come out of poverty, who would probably have children to feed and is reeling under the burden of multiple debt. Chances are that she may be repaying Rs 675 a week to microfinance institutions from which she had taken a loan.
Micro Finance Institutions (MFIs) have a strong presence in many villages in Andhra Pradesh. Many of these MFIs, by their very presence in the villages and proximity to the self help groups (SHGs), are able to win over the women groups nurtured by the district administration, thus adding to the number of SHGs within their own fold, and then nurturing them with credit.
Once these SHGs take a loan from an MFI, availing another loan from a bank with intervention of district administration and on easier interest rates, adds to their repayment burden. Therefore, it is seen that often they do not take a loan from a bank when an MFI has already given them a loan. A bank loan, as well, would make it unsustainable for these women to recycle the existing debt burden.
Many times a bank branch is not in the same village where the SHG members reside. This helps MFIs make inroads in the villages. If a ‘mature’ SHG does want to access a bank loan, the members have to travel a few kilometres to the nearest bank branch.
In contrast, the convenience offered by the MFIs, with doorstep services, although at higher interest rates, make SHGs turn to these institutions. Significantly, the MFIs are able to avail funds from the banks at far lower rates than at which they on lend to the poor. Administrative expenses are frequently quoted as the reason for this mark up.
Andhra Pradesh has had a strong government sponsored SHG movement for years. The district administration sometimes felt that these MFIs gave the SHGs ‘easy credit’, as early as in the first few months of their existence, much before they had completed the mandatory one-year period of savings.
A one-year moratorium before the functionaries of rural development are allowed to facilitate access to bank credit for the SHGs had been set as a disciplinary measure in Andhra Pradesh. During this period, SHGs are expected to save regularly in their bank accounts and rotate the corpus of savings among its members.
With access to easy credit, many SHGs formed and developed by the government machinery got into the fold of the MFIs, accessing credit at higher interest rates and with rapid recovery schedules. Microcredit was envisaged as a tool to tackle poverty, and not burden the poor with debt.
Experience shows that the first cycle of microcredit is usually used for consumption. Subsequent cycles are normally used for income generating, productive activities. So the women SHGs are seen investing the microfinance they access from the banks/financial institutions in pickle making, papad manufacturing, trading in ready made garments, and so on to add to their incomes.
Many of the SHG women are malnourished, many are leading lives that could be described as distressed, with the responsibility of running the household. To increase their burden, by giving loans for which the MFIs have perhaps not guided their field workers to help the SHGs work out a productive purpose, is indeed a social disservice.
There is an interview of the founder of a leading MFI on YouTube and it is disconcerting to hear him talk of ‘social responsibility’ and the need for the MFI to give ‘attractive returns to their corporate investors’, in the same breath. Was the purpose of the MFI to fill the gaps in credit delivery to the poor and the needy, those who had no collaterals to offer but were particular about repayments or to ‘create wealth’ for the rich by offering multiple doses of credit in a bid to boost their own growth rates and profits, like any other corporate? Not at the cost of the poor, malnourished woman of any district in the country, please.
It is a scary scenario where the fast growing MFI segment looks at its profitability and returns as greater priorities than serving the SHGs comprising poor women, whose debt repayments will be used to fuel the growth of the MFIs and their investors.
Perhaps the MFIs need to consider accessing a larger part of their portfolio of investment from the banking sector and then controlling their administrative costs through more effective use of technology. The MFIs also need to learn from the Grameen Bank, which offers different loaning models for different needs of the poor. There is no ‘one size fits all’ rule.
The MFIs need to lend in an environment of growing incomes of the clients for their own business to be sustainable. For this the MFIs need to stress income generating activities and train their own workers to guide the SHG women.
Further, there is a need to have flexible repayment schedules that match the cyclical nature of agricultural incomes. They also need to encourage lending through the SHG federations, where the federations are strong and well recognised, and would be able to play a meaningful role by becoming a part of the lending mechanism and regulate credit flow to the SHGs as per their need.
While states like Andhra would be able to offer such village federations, where the SHGs in the village federate and the village federations federate at the tehsil level, this may be a problem in many others.
However, wherever possible, the MFIs should intervene in terms of capacity building and training of the SHG leaders so that the SHGs can themselves regulate the credit flow to the needy among them, as per their requirement, and in doses that ensure the women do not get into a debt trap.
(The author, Sumita Dawra, is an IAS officer. Views are personal)
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