Live Mint : There is too much hype about micro-finance: Oct 11,2007

mint INTERVIEW – MALCOLM HARPER/MICRO-CREDIT RATINGS ‘
B Y A LISON G RANITO alison.g@livemint.com NEW DELHI

T he current chairman of New Delhi-based Micro Credit Ratings International
Ltd, Malcolm Harper, who is also the former chairman of Basix, a major
for-profit microfinance firm based in Hyderabad, took a break from this
week’s Microfinance India conference to discuss his new book What’s Wrong
With Microfi nance? Much like the title, Harper, a leading international
expert on enterprise development, is blunt about the fastgrowing sector,
saying it isn’t reaching the poorest, interest rates are too high and credit
is not a human right.
He says most Indian firms aren’t ready for outside investment, and are
opening the door for exploitation of the poor if they don’t choose their
capital wisely. Edited excerpts:
So, what is wrong with microfi nance?
(Nobel Prize winner and Grameen Bank founder) Muhammad Yunus says credit is
a human right like it is water or shelter or something of that kind…
There’s too much hype. It is nowhere near as important as primary health
care, primary education, decent nutrition and decent infrastruc ture, decent
government and security. Financial services are needed too, but they aren’t
the be all and end all.
What is right about it?
It provides formal financial services to hundreds of millions of people, in
India alone, probably 100 million, that they otherwise wouldn’t get.
It is wonderful that in the space of 20-30 years-in India, really the last
10 years-formal financial services of a kind, and they aren’t that good but
they are still better than nothing, have come to a quarter or one-third of
the population that didn’t have them before.
What changes have you seen in the industry over the decades you’ve been in
India?
Microfinance in this country is driven heavily by the existing commercial
banks, largely public sector, that have been driven, cajoled, compelled,
however you want to say it, by the National Bank for Agriculture and Rural
Development largely. It has been largely a rural phenomenon-which isn’t the
case in most countries-and provided largely through the movement toward
women’s self-help groups, which is also unusual. It is approaching three
million groups with, say, 15 people in each, but if (we) multiply that by
households, there are a couple of million people.
What has changed is that new generation microfinance providers-Share
(Society for Helping and Awakening the Poor through Education), SKS, Basix,
Cashpor-have come up using the grameen model that has been so successful in
Bangladesh. That has provided a very healthy competition to the self-help
group movement. It means there are two main strands that mingle at the
edges, the bank provided to the self-help groups and the MFI (microfinance
institutions) provided to the self-help group, in the majority of cases
through the self-help group.
Your thoughts on the Microfinance Bill?
I enormously respect your finance minister and I would offer him a job in
England if he wanted one, but I think perhaps here (he) is oversimplifying.
To suggest that dealing with the poor is the job of the not-for-profits and
dealing with the better off is the job of the for-profits, it does rather
oversimplify things.
I hope it doesn’t go through, though there is a great need for regulation.
The Bill opens the door for NGOs to accept deposits and offer savings.
Are they ready?
A resounding no. They are very much not prepared. It alarms me that these
very weak institutions, and by weak I mean managerially, weak operationally
and weak financially, though often run by wonderful people who are
thoroughly committed to bettering the world through work on sanitation,
health care and so on. But, these people don’t know how to run a bank. For
poor people to be allowed to deposit their savings in weak institutions is
altogether wrong.
One of the reasons I enormously respect the major role the banks have played
in Indian microfinance is that they are, for all their weaknesses, a safe
place to put money.
The conference is full of investors and private equity money. Are these
institutions prepared for their demands?
I don’t think most of them are, but there are a few. It is a small minority
of larger, more established institutions who have already received a fair
dosage of equity and loan capital. I find it rather sad that the majority of
investors are from overseas. In microfinance, of all things, there is no
need for foreign money and a lot (of) the conditions that that could bring
down the road aren’t particularly attractive.
Are interest rates high?
Even though Indian microfinance has some of the lowest rates in the world,
they are still too high. Interest rates in the 20-30-40% are too high,
though they are coming down, partly thanks to competition.

Publication : Livemint; Section : Economy & Politics; Pg : 9; Date :11/10/07
URL :http://epaper.livemint.com/artMailDisp.aspx?article=11_10_2007_009_005&typ=0&pub=422