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A neurology of microfinance……..Sushila Ravindranath
Tara Thiagarajan, chairperson and managing director of Chennai-based Madura Micro Finance is flying off to the US in a few hours.
She is going there for the screening of Shakti Pirakkudu (Shakti Rising), a feature film based on the real lives and struggles of Madura’s self-help group (SHG) for women. The film looks at the web of relationships that define these women’s successes and failures. It is a film meant to inspire and raise aspirations, and is being shown at the South Asian literary and theatre art festival in Washington DC. The film is produced by Madura, and written and directed by Usha Rajeswari. Tara will, of course, also be meeting prospective investors.
Microfinance was not Tara’s passion or area of interest. She has a PhD in neuroscience from Stanford University as well as a BA in mathematics from Brandeis University and an MBA from the Kellogg School of Management.
She is also a visiting scientist at the National Centre for Biological Sciences in Bangalore, where she works on understanding how distributed electrical activity gives rise to perception and behaviour. Circumstances brought her to microfinance .
Tara has millions of things to do before she takes off. We decide to have a quick bite at Chamiers, Chennai, a lifestyle store whose Eco Café is a tiny oasis in a buzzing, overcrowded area. Enclosed within its glass walls, you can gaze at both greenery and heavy traffic. We order healthy orange and carrot juice, which is also quite tasty. I ask Tara about the turmoil the industry is going through. Interest rates charged by most microfinance institutions have come up for steep criticism. Bank funds are drying up. Tara is quite unfazed. Madura has kept its average lending rate at less than 20% but remains profitable, with a net spread of 3%. “We use women to facilitate group meetings and compensate them for the number of meetings they organise. There are no door to door collections by agents. Women collect the payments and three representatives come to the branch and remit the amount. This keeps operating costs very low. The default rates do not exceed 1%.”
Tara says that Madura is not like your run of the mill microfinance institution. The thinking behind it has always been different. Madura was established as a non-banking finance company (NBFC) in 2005. In 1995, Dr KM Thiagarajan, Tara’s father, chairman and CEO Bank of Madura, experimented with a new model of self-help group training and lending as a means to create sustainable, profit-based rural lending. This effort succeeded in transforming rural banking into a distinct business activity with profit potential. By 2000, Bank of Madura had developed 1,500 SHGs, which was the largest SHG project undertaken directly by any commercial bank.
In the same year, the bank was merged with ICICI Bank and the SHG lending operations were rapidly scaled up. Thiagarajan retired from mainstream banking and founded Microcredit Foundation of India (MFI), where he intended to build sustainable models for delivery of banking and other services to the rural poor. For him, money was never the motivation. He believed in a greater purpose beyond microfinance. In 2003, MFI took over the management of ICICI’s SHGs in Tamil Nadu in a partnership model .However, as a not-for-profit company, MFI had limitations in its ability to grow.
Madura was thus established as a more sustainable model.
Thiagarajan suffered a stroke in 2004. The eldest of his three daughters, Tara, stepped in to help out. “It being a nonprofit and with so many lives depending on it, divesting the organisation was not an option.” She managed to keep it going for the next three years. By 2006, it had turned profitable. This was not easy. Tara was commuting between the US, where she was a postdoctoral researcher at the National Institute of Mental Health, and India. She also had to cope with pregnancies, managing a young family and Transatlantic commuting. Her father passed away in 2007. At the end of 2008, Tara moved to India. “I did not want to meander anymore. I had to focus on Madura.”
Tara orders Greek salad and I settle for pasta with roasted vegetables. Tara does not believe that the microfinance industry has brought about any real transformational changes. “Even in Bangladesh, progress is not visible in rural areas. The rural growth rates do not converge with urban business.” There are too many obstacles. “The idea of markets doesn’t exist. Let me give you the example of a woman making some powders in a village. She sells them to 10 or 12 houses in the neighbourhood. She cannot travel 8 km to the next small town. She doesn’t know what people want in the cities. Her vision is circumscribed by the village. Women in the villages can never manage a loan beyond Rs 10,000-15,000. Their life remains at the subsistence level. There is not even incremental growth. All they do is manage cash flow. We must stop getting excited over such low level standards.”
The scientist in Tara wants consistent results. She is not happy with one in ten success results. “We cannot gloss over failures. I looked at microfinance as I would look at neural systems. What is the topology of the transport and communication networks? How does information and trade flow in these networks? A cancer drug has to reach the right part of the body. There has to be dose responsibility. The patient dies if there is an overdose. With too much money, too bad things happen. I have had a lot of discomfort with existing models.” That is why Madura’s growth has been slow and measured (25% growth in portfolio each year).
Tara is constantly trying to innovate. Madura is educating rural borrowers, giving them ideas and opening up markets. The second meeting of the SHG groups each month is used to convey information on various topics of interest, such as entrepreneurship, health and the Internet. Education is delivered in ‘micro’ portions to make it as accessible to the audience as possible. Plus, members discover new opportunities and hear of success stories through newsletters, a monthly video magazine and free copies of the classifieds. Then there is the five part, digital, mini MBA certificate programme that takes business principles to the rural context. The film Shakti Pirakkudu will be widely screened in the rural areas.
Tara is truly excited. “Our mission is to set out a global model for what is success. I have been spending time understanding issues and finding solutions. We are at the cusp of taking a shot at pushing forward.” Now it is time for Tara to leave. Much as she would like to, she has no time to have a hot cup of cappuccino. She is also fretting about leaving her three children for the first time for ten days. It is a relief that her husband has relocated and will be with the children.
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