G Venkatasubramanian trots out some astonishing numbers. Over the last 15 years, he and his fellow researchers at Pondicherry’s French Institute have been studying debt bondage among families in 20 villages in Tamil Nadu. Half of these settlements are in the coastal district of Cuddalore, and the others are in the adjoining district of Villupuram.
Their study is throwing up some puzzling changes in how much these families borrow – and how. In 2001, the average annual income of these families was Rs 16,000. Average debt was Rs 10,000. Come 2016, annual income has risen five-fold to Rs 80,000. Average debt, however, stands at Rs 250,000. This is a 25-fold increase.
How these families borrow has changed too. Earlier, only land-owning communities – Mudaliars, Chettiars or Reddiars – lent money. But now, said Venkatsubramanian, the Scheduled Castes are increasingly lending and borrowing among themselves. “A family will borrow Rs 50,000 and lend Rs 25,000,” he said. At the same time, communities that once looked down upon moneylending are entering the trade. The Nadars of southern Tamil Nadu, for instance, have begun lending in central and northern parts of the state.
early in april, the rbi surprised most financial sector watchers by granting a banking license to bandhan, a microlender with most of its operations in eastern india. in a story out today, my colleague atmadip and i take a closer look at this decision. and say that this is a high stakes experiment — for the rbi, which is looking for fresh ideas on how to deepen financial inclusion; for the mfis, which, given rising competition from banks, mobile companies and banking correspondents, are looking for new ways to survive and grow; and for bandhan itself, which has to pupate into a bank without losing its quick response times, but while guarding against mis-selling of financial products to its vulnerable client-base.
and, after a long time, i write again on india’s search for regulatory mechanism for microfinance.
With the Standing Committee on Finance rejecting the latest avatar of the microfinance bill, old questions about the microfinance sector have resurfaced. Since 2010, when the controversial Andhra Pradesh ordinance made it all but impossible for Microfinance Institutions (MFIs) to operate in their largest market, the industry has been hoping that the passage of the bill would result in the removal of the ordinance.
But now, with the bill going back to the drawing board, says Mathew Titus, the executive director of industry association Sa-Dhan, banks will be nervous about the risk of further state-level interventions…
The other question is on how to regulate MFIs. After the 2010 AP Microfinance crisis, it seemed that a large part of the institutional response would take the form of this Bill — “The Micro Finance Institutions (Development and Regulation) Bill, 2012.” However, with the Standing Committee returning the Bill, that question is wide open again.
also, see these. on the draft bill. on the need for the states to have a stay in mfi regulation. another story on the draft bill. on how to regulate mfis – story 1, story 2, story 3. and the need for regulation: story one, story two, story three, story four and story five.
on vikram akula’s attempt to get back into sks microfinance, by my colleague john samuel raja and me.
india’s beleaguered mfis are making a set of fundamental changes to their business models. in a bid to survive, one bunch is diversifying beyond microfinance into lending for cycles, vehicles, homes, tractors and whatnot. another lot is sticking to microfinance but making some significant changes within that — like who they lend to and how they lend.
in the process, they are all going through a bunch of massive transitions — from unsecured loans to secured loans, from group loans to individual loans, from the poor to those well above the poverty line. my latest story on the mfis discusses this transition and then talks about the issues this diversification poses before regulators.
(Usha) Thorat fears that if the NBFC arms lend the way MFIs did during the boom years of microfinance, there might be a surge in secured loans, but without enough due diligence into the end use of that loan, the borrower’s repayment capacity or the worth of the asset. For example, if a poor woman uses a loan to buy a house in a slum or an informal tenement, she won’t have a title. How can that serve as collateral then? There’s also the risk of priority-sector funds being used for other purposes. R Bupathy, former president of the Institute of Chartered Accountants of India (ICAI), says this risk is greater in a holding-company structure with many subsidiaries.
do take a look.
reported for this story by my colleague atmadip on how the credit taps might be opening up again for the mfis. which is good for them. coz the last few months have seen mfi loan portfolios shrink as bank lending dried up.
At Chennai-headquartered Equitas, the asset base is down from 950 crore to about 660 crore since March this year. Or take Ujjivan Microfinance in the east. Its loan portfolio has fallen from 620 crore to 590 crore during the same period. Satin Microfinance, which lends in the north, has seen its loan book reduce from 230 crore to 195 crore, so far this financial year. “We are seeing that portfolio of most MFIs has shrunk substantially in the last one year,” says Alok Misra, CEO of M-Cril, which rates the portfolios of MFIs.
and a look at what debt restructuring means for mfi promoters.
“I have a 45% stake,” says a promoter of a leading MFI. “If we restructure Rs 1,000 crore of debt, my stake will drop to about 1%.” This will be a setback for promoters of MFIs such as Spandana Spoorthy and Share Microfin, which bought back large quantities of shares from their borrowers – mostly poor women – between 2005 and 2007 for a pittance just before their business took off. They built the business with an objective of going public at some point and realising those gains.
But if they are reduced to minority shareholders, they will not be able to realise those gains. more here.