“We asked the assembled 40 odd women, ‘Is there anything that you wish was different about the way the loan is provided; any little thing that would have made it easier for you?’ Most of them shook their heads to signal that there was no such thinking. We persisted in silence for an answer. Though they had whispered conversations for a couple of minutes there were no reactions to the question. Then an old lady got up and started, ‘I have something to say.’ We asked, ‘What?’ She said, ‘You see, I run a small bangles and cosmetics shop in the local market. I could not be running this shop but for the loan from the MFI. I started with a smaller loan and over two cycles of repayment, the loan had become Rs 10,000. With this I could start this shop.’ So what was the problem, we wondered? She continued, ‘I repay the loan instalments every week without fail. But I find that after six months, the repayments become more difficult for me. I have to borrow from elsewhere to keep up weekly instalments and around the tenth month I look for an external loan with which I can repay the balance of MFI loan and take a fresh loan.’ We asked her why she suddenly finds it difficult to repay after six months of loan. She looked at us in amusement that how could we be ignorant of such a simple thing. Then she patiently explained, ‘Initially when I stock my shop with Rs 10,000 worth of goods, there is a large range and variety. My sales are higher and cash inflow is higher. But after each sale, I am unable to replenish my stock as I have to meet my family needs and service the loan every week. By the sixth month my shop has half the stock I started with. With half the stock, I cannot maintain my sales volume at a high enough
level. Very often the stock that I am left with is not the first preference of customers and cannot be sold at good profits. My cash flow declines and I am unable to meet all my commitments. This is what constrains my repayment.’ We again asked her, ‘What do you want the MFI to do?’ She explained, ‘Nothing extraordinary. They (MFI) should relend the repayments at the end of each month after every four instalments. This would ensure that I replenish my stock and my cash flow from sales remains high.’”
This is an excerpt from “Microfinance India – State of the sector report 2008”. I hope this throws some light at the state of microfinance in India.
More than half of India is rural and more than 70% of rural India suffers from lack of credit availability. Of the rough 30% who manage to get credit, there is sheer dearth of knowledge on how to utilize it as can be seen in the above excerpt. The state of Indian microfinance requires more of consultancy than financial engineering of credit needs. Just as finance is no longer credit and debit but a bundle of a whole gamut of financial and allied services, microfinance needs to be a bundle of credit and other financial service availability along with entrepreneurship, business development, consultancy, literacy programmes and innovations to usher in inclusive growth in India.
Microfinance in India and not just India but for all economies that has a sizeable population who do not have access to credit is more about empowerment. It is like teaching people to fish and not just providing them fishes to eat. When people do not have access or timely access to credit they end up borrowing from informal lenders who charge exorbitant interest rates. A study of about 28 studies on informal lending in about 14 countries in Asia, Africa and Latin America found that about 76% of the lenders charge more than 10% interest on a monthly basis and about 20% of them have rates about 100% per month. Mind you, the rates are monthly and not annualized.
The question that now awaits us is: Are we ready to provide for the needs of rural India? If the potential to grow lies in India, there is still huge untapped potential in rural India. Are we ready to fulfil our rural CSR by helping the rural India in areas like encouraging entrepreneurship among rural population, business development, consultancy, literacy programmes and innovations?
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