Tag Archives: N Srinivasan

From Microcredit to Livelihoods – New Roles for UnitedProsperity

2 Feb

The Malegam committee that was constituted to look into the state of microcredit in India presented its report a few days back. The report has been greeted with cautious optimism by several experts including N Srinivasan and Ramesh Arunachalam (Note: One USD is equal to Indian Rs. 45. One lakh is 100,000 and one crore is 10 million). The regulator, the Reserve Bank of India (RBI) has now requested comments from the general public and the RBI will finalize its guidelines in March-April 2011.

Meanwhile, the repayments in the state of Andhra Pradesh are still severely affected. Following the Malegam committee report, banks have started restructuring the loans for microfinance organizations (MFIs) that have made a lot of loans in Andhra Pradesh (i.e. MFIs get more time to repay the bank). In the rest of the country repayments continue to be high in the order of 99%. Loans are also being paid back to our MFI partner, Ajiwika, as per usual levels and we do not foresee any problems. Bank lending to MFIs has slowed down considerably and it seems that banks will start lending in a serious manner only after April 2011 when they have greater clarity on the nature of regulations.

These events are profound with a couple of important take-home messages:

  1. Supporting MFIs with the right social DNA is very important: This crisis highlights the fact that a few MFIs lost the way and started profiteering from the poor rather than helping them. In India alone there are perhaps more than 100 MFIs that are very committed to supporting the poor and are not indulging in any profiteering. However many of them do not get the needed support. Thus we clearly recognize that we need to support these socially oriented organizations and we will continue to support such socially oriented organizations. Conversely we also need to consciously avoid organizations that could potentially one day start profiteering. In this regard, an MFI in Kenya had got a bank loan approval based on a 50% guarantee from UnitedProsperity. On further due diligence we found that the MFI’s effective interest rate was high and the pricing to its borrowers was non-transparent. We therefore decided to not support this MFI.
  2. Beyond microfinance, focus on livelihoods is essential: A typical MFI would provide credit and in some cases provide other financial services. The clients would in most cases be engaged in different businesses, and beyond assessing the capacity of the borrower to repay the loan, the MFI does not directly help the borrower with her business. Thus if a client of an MFI finds that she cannot get the raw material for her business on time or if the costs go up suddenly or if the market for the product is affected then the client could get severely affected. In some cases these clients may borrow from multiple MFIs or money lenders to tide over what would seem to be a short term crisis and then eventually get enmeshed in a debt trap. An organization that is involved in livelihoods will do much more such as getting together clients who perform a similar business together in a co-operative or a producer company. The organization may pool the raw material requirements of its clients and buy the raw material in bulk from wholesalers or manufacturers cutting out the middlemen. The organization may provide training to its clients in their business. The organization may also aggregate their produce and sell it to end customers cutting out the middlemen. Thus, well run livelihood initiatives reduce input costs, get better prices for their products, reduce risks, allow clients to slowly graduate to larger loans without getting enmeshed in a debt trap, generate higher income and help clients get better control of their businesses and lives.

In my next post I will be writing about a new livelihood initiative that we are working on. And thank you very much for your patience and understanding over the last few months when we have had no loans online.

Microfinance agenda for the new government: Open letter to the new Finance Minister of India – guest post by Mr. N Srinivasan

24 Jun

Readers may recollect, the previous interview with Mr. N.Srinivasan on microfinance in India. In the interview he had also suggested policy measures for the new government..

I am delighted to share with you, Mr.  N Srinivasan’s ‘ Microfinance agenda for the new government: Open letter to the new Finance Minister of India’.

Mr. Srinivasan will be participating in the discussion on this blog so please feel free to comment, critique and add your suggestions. Also please tell your friends and people involved in Microfinance in India and other parts of the world.

Thank you very much.


Microfinance agenda for the new government: Open letter to the new Finance Minister of India

Dear Honourable Finance Minister,

The Indian electorate has returned a stable government to power which should facilitate the smooth passage of important policies and legislation. As one of the most versatile and experienced ministers in India, you have in front of you an enormous opportunity to empower more than 75 million microfinance clients(1) who also voted during the elections. With suitable policies you can enable banks, Microfinance

N Srinivasan

N Srinivasan

Institutions (MFIs), Non Government Organizations, Self Help Groups and thousands of people who have dedicated their lives to the betterment of our people to meet the aspirations of livelihood development and viable financial services of the served and yet to be served microfinance clients.

The microfinance sector seeks the continued support from the new government. With the growth of microcredit and the increasing aspirations of the people it is now time to look deeply into certain aspects which have now acquired an even greater importance.

1) First on the microfinance agenda is the microfinance law. With great hope the microfinance sector approached the previous government which suitably responded with a microfinance bill after consulting the sector at different levels. But the bill lapsed with the dissolution of parliament after its term was over. Now a new microfinance bill has to be brought in to ensure vibrant growth and effective regulation of the sector. You have the opportunity of doing the exercise de novo as the earlier bill had scope for several refinments. The new law should focus on functional regulation of those in microfinance – not form of institution based regulation as was attempted earlier. Customer protection is a critical issue that should be addressed in the law.

2. A clearer articulation of the stance towards Microfinance Institutions (MFIs) mobilising savings would be timely. You would be aware that the banks are still not in a position to provide savings services despite a few million “no frills accounts” (2). Allowing MFIs to mobilise savings on their own account or as correspondents of banks would improve availability of savings services to the remote and poor populations. Some of the limitations in the existing guidelines on banking correspondents need a review to accelerate availability of savings services.

3. A deposit insurance facility could secure savings of people in MFIs (e.g. Vietnam has a facility for this). This would increase regulatory comfort in allowing MFIs to mobilise savings. The Deposit Insurance Corporation could extend its existing cover to MFIs as well.

4. The refinance facility(3) available to banks from the Reserve Bank of India (RBI) and other sources should also be available to MFIs. The MFIs’ needs are smaller, but are dire and funding them satisfies a critical segment of vulnerable population. The facility could be set up in the public sector and made merit based without discretionary allocations. This would go a long way in ensuring funds flow to the sector even during periods of recession and financial meltdown.

5. The Centre should have an urgent dialogue with the States on issues relating to legitimacy and relevance of MFIs. Currently State governments also run their own independent microfinance programs. State governments could multiply the impact of the resources they deploy towards microfinance if they partner with microfinance institutions. Hence they should be actively encouraged to support microfinance operations by partnering with MFIs and the current microfinance infrastructure. This measure will not only put an end to intrusive and at times abrasive interference of local state officials in microfinance which is not healthy for the sector. The current state run programs can be gradually transitioned to MFIs so that the poor clients are not impacted.

6. The governments (centre and states) have several schemes that offer capital and interest subsidies to borrowers from banks(4). Such selective application of subsidies through select banks distorts the market, influences borrowers in their choice of banks and increases transactions costs of the customers. If the government has to pass on subsidies or transfer other benefits to people, the MFIs should also be eligible to participate in such schemes. This would ensure that the government is not a party to setting an uneven playing field.

7. The financial inclusion drive should undergo a qualitative change. The focus on numbers should give way to real access to financial services and including clients. The present efforts by and large start and end with opening of an account to meet mandates set by the RBI and as a result most banks end up doing the bare minimum. Doing business with included clients should become a valid objective in the drive towards total financial inclusion. This needs to become the corporate philosophy of banks engaged in inclusion. Perhaps, you may want to consider giving financial incentives to banks to work with low income clients so that the goals of shareholders, officers and employees of banks are aligned to making low income clients a significant source of revenue.

8. Lastly, financial inclusion measures have ignored MFIs and Primary financial cooperatives. These are the institutions that have the network and human capacity in the hinterland to provide financial services. Measures to strengthen and incentivise these structures to play a major role in financial inclusion would help the excluded population more than the other efforts targeting commercial banks.

Most of these require policy responses. Given the right policy environment, I am confident that the microfinance sector will perform and surpass your expectations. The perceived complexity and high costs (of designing financial sector policies that improve livelihoods of poor) should not deter the government nor make it defer the policy response to a future date. A large sector with more than 75 million poor but eager clients awaits your response; please help the clients empower themselves towards a better future.

Yours inclusively,


Author – State of the Sector report – Microfinance India 2008


(1)Revised estimates for 2009 made on the basis of the data provided in the State of Sector Report on Indian Microfinance 2008, Access Development Services

(2)Simple savings accounts introduced that required no minimum balance and no service charges to facilitate poor open and operate bank accounts – introduced by Reserve Bank of India

(3)RBI offers a lender of the last resort facility; NABARD, SIDBI, National Housing Bank also offer refinance facilities to banks; some limited facilities are also available to MFIs

(4)Mostly public sector banks handle such schemes