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Thursday, Jan 09, 2003

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Columns - On Mint Street

No money for the poor

P. Devarajan

BANKERS have little appetite to fund projects aiding the poor. And when the poor decide to help themselves, they are keen on tripping them.

A high power committee is now working on writing down regulations and supervisory guidelines to throttle micro-finance institutions. At no point the committee thought of challenging the very concept of regulating voluntary efforts of village women, across Indian villages, to help themselves. One has serious doubts whether some of the bankers on the committee have ever sat and talked with women trying hard to set apart a measly Rs 5 every week as savings.

As is the habit, the committee meets on Mint Street when its subject population grovel in villages. Some sensitive souls in RBI are sorely upset with the ways of the committee - - quoting Companies Act, Income-Tax Act and other legal provisions.

Microfinance bodies have sprung up as regulated banking entities have entirely failed to even offer consumption loans to the poor. A top Finance Ministry official spelt out five factors distinguishing microfinance bodies from traditional banking institutions and they are: a) client base (poor/low income); b) lending methodology (no collateral, peer or character lending); c) labour-intensive nature of work (with a cost structure reflecting it); d) portfolio (small, short-term laons) and e) institutional structure and governance.

The official added: "Because of these differences, and the fact that the majority of the providers of microfinance services are non-profit, non-governmental organisations (NGOs), existing regulations for the formal financial sector cannot be successfully applied to the microfinance industry and individual bodies without restricting growth."

The 3-tier co-operative banking structure was started to serve the poor. Today, it serves the cause of politicians of every hue when they run short of cash.

Four important models are being tried out by the poor to help themselves:

1) SHG Model, where the promoters organise groups of 5-20 women, who save even up to Rs 50 a week and deposit the amount in banks with the help of NGOs. Banks offer funds in the ratio of 1:1 (for every rupee deposited, the banks lend a rupee at around 13 per cent per annum) and there have been little defaults;

2) Grameen replicators based on the concept of the Grameen Bank with 4-5 groups of five members each;

3) co-operative socieites and

4) NBFCs. Nome new generation development practitioners have registered as NBFCs. Examples are CASHPOR Financial and Technical Services, Mirzapur, Share Microfin and BASIX in Hyderabad.

All these models are still experimenting and most admit, "there is no best one-way as it could vary with villages and districts." Initial research studies have a good word for the efforts with women being the main beneficiary. They obviously cannot be evaluated by various banking ratios and it may be best to allow them to spread before thinking up needless regulations.

The high-power committee will do best to get at the ground facts. Sa-Dhan, a key micro-finance player, and others could help in garnering details on the current status of the movement specially its coverage. The committee could then evaluate each model and every village-level effort before drumming regulations with clauses and sub-clauses to befuddle all.

Village women need to be thanked for making micro-finance popular with bankers when it should have been the other way. Perhaps the committee needs to be immediately wound up and regulatory efforts rested. The last thing village women want are RBI and Nabard officials nosing around.

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No money for the poor

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