Put the cart before horse in 'micro finance'

"PUT THE CART BEFORE THE HORSE" IN MICROFINANCE…

Microfinance is all about providing financial services and funds to the young entrepreneurs, making a stand in the world market. The acknowledged and most accessed Microfinance Institutes (MFIs) are BANDHAN, SONATA & BASIX etc.

These MFIs provide small loans to micro-entrepreneurs and as per rules & regulations, the borrowers use this fund

• For their present business
• Or, Open new business based on skills

And in return borrowers repay their loans and pay interest on time.

India's most successful model running through MFIs is, SEWA "Self Employed Women's Association". Started in 1972, it uprooted the low status of women, poverty, illiteracy, sexual & mental abuse and other problematic issues. Through the establishment of SHG's (self help group) and SHG's-bank linkage programmes they are breaking the vicious circle of poverty and making the men and women live with dignity in their own society.

"Put your money where your mouth is", without any backup any support MFI's faced major challenges in this decade. As they failed to take interest and capital on time, they used unacceptable, unethical, immoral and illegal ways to get their return back. Much in news Andhra Pradesh was the state with largest victims.

Andhra is one of the largest market for MFI's where 1.5 million applications for fresh loan are pending just because of mismanagement and turbidity in inflow and outflow of cash. But according to Mr. Alok Prasad, CEO, MFIN, 24 to 25 million borrower records has been uploaded till now.

So when you put the cart before the horse these types of problems arise, this happens to those industries that are broken and have no managerial environment.

Through MFI-bank linkage model, bank loans disbursed to MFIs shown below:

PARTICULARS

2008-2009

2009-2010

GROWTH DURING

2009-2010

No. of MFIs

Amount in cr.

No. of MFIs

Amount in cr.

No. of MFIs

Amount

Bank loan disbursed to MFIs during the year.

Bank loan disbursed to MFIs during the year.

581

1951

3732.33

5009.09

691

1513

8062.74

10147.54

18.9%

21%

116.0%

102.6%

MFI's supported by SIDBI:

Particulars

No. of MFIs

Amount in cr.

Loan disbursed to MFIs during 09-10

Loans outstanding against MFIs as on 31 march 2110

88

146

2665.75

3808.20

Data source by NABARD

The above figures depict the flow of money through MFI's-Bank, which is remarkable and draws out no fault in the supply of money.

Then why MFI's are fragile at the time of repayment of loans from SHG's and individuals??

And the only solution to this is to reach and address the ultra poor. Microfinance has been a major tool to fight poverty, but all it needs is a reconstruction, a reformation by a regulatory body.

MFI's desired goals can never be met without understanding the environment in which an individual is placed i.e. lending money without understanding the nature of the demand. Lending money without the specific milieu increases late night recoveries and police cases.

As per  MURABAHA, an Islamic financing structure, it aims at social practices through the provision of providing basic amenities like health, education and income generating productive assets, instead of extending cash. In Islamic financing structure the repayment of loans is easy as compared to Indian structure, because repayment is done through profit instead of interests.

According to Farhat Shah Abbas, CEO of Farz Foundation, recovery done in this way is even more than 99% as it empowers individuals by bringing economic and social upliftment. If such type of changes take place in the repayment of loans then participation through social performance will increase, further building trust for them, a magic mantra for MFI's.