Microfinance India Blog

A space to share learnings, updates and events at Microfinance India.

State of the Sector Report 2011 

Microfinance India: State of the Sector Report 2011 presents the growth of the microfinance sector in India in its entirety. It offers in-depth, well-researched and thoroughly analyzed evidence on how the sector has made an impact at various levels of the economy and society. The report provides most recent statistical data relating to the sector’s growth and expansion across models. It highlights perspectives on current issues and documents new interests, new investments and innovations in the sector.

The report collects information from the authoritative sources, studies and reports on the sector and field studies on specific developments of interests. Highlighting on more topical themes, this year’s report begins with an overview of the microfinance sector, which had performed badly in the beginning of the financial year 2010–11 but recovered gradually. It then evaluates the performances of the SHG and MFI models and discusses thematic issues such as social performance management and financial inclusion in detail. The newly launched National Rural Livelihoods Mission and the Andhra Pradesh government-run program, Indira Kranti Pratham (IKP), have been covered for the first time in this year’s report.

The best reference book on the annual trends and progress of the Indian microfinance sector, the report is a must for every microfinance practitioner.

Purchase the SoS 2011 on-line at http://www.sagepub.com/books/Book238957?subject=300&sortBy=defaultPubDate%20desc&fs=1.

(Source: sagepub.com)

Mark your calendars

Microfinance India Summit 2012 will take place on November 27th & 28th. 

A Red Letter Day

On Day 2 of the Summit the two microfinance networks, Sa-Dhan and MFIN, united to release the common code of conduct for the sector. The code of conduct is inclusive of all microfinance organizations regardless of their legal status. This is an important action for the sector in compliance with the Malegam Committee recommendations on December 2, 2011, which stipulate a standard code of conduct in alignment with the RBI Client Protection Code.

(Source: thehindubusinessline.com)

Building Consensus, Looking Ahead

New Delhi, December 13, 2011: Day two of the Microfinance India Summit examined the challenges of the time, the new regulatory environment and the need to look at the entire scope of microfinance models to meet the needs of the client. M I Dholakia, DGM, State Bank of India, commented that for this to be achieved,“We need the support of the Government, RBI, Business Correspondents, SHGs, Cooperatives and other organizations…” 

A re-newed focus on the client and the complexity of her needs was driven home throughout the plenary and breakout sessions. “…we have to have a customer based approach rather than product based approach to deliver a robust and cost- effective model.” Mr. Tushar Vikram, MD, Head Of Financial Institution Group and Micro Finance- India and Nepal Citibank commented.

Vipin Sharma, CEO of ACCESS Development Services, summed up the two day summit with his insights, “While in the last 20 years, the sector has largely grown without any composite regulatory framework, with the expectation that this growth should be facilitated through self regulation mechanism. Given the ambiguities that existed in terms of what was prudent within practice, since 2005, there has been a demand from the sector for the need for a comprehensive regulation for the sector for more orderly and legitimized growth.”

Access and HSBC Present Microfinance India Awards 2011

Company Brief
New Delhi, December 13, 2011

Microfinance India Awards- 2011 were presented by ACCESS Development Services in association with HSBC at the 8th Annual Microfinance India Summit 2011.

The eminent jury panel of Microfinance India Awards 2011 selected the winners on the basis of their performance in growth, social performance, innovation (process, product and technology) and promotion of responsible finance. The awards were presented to the following recipients:


• Ujjivan Financial Services Pvt. Ltd., Microfinance Organization of the Year Award for large MFIs 

• Sanghamithra Rural Financial Services Pvt. Ltd., Microfinance Organization of the Year Award for small and medium MFIs 

• Center for Microfinance (IFMR), Contribution to the Sector by Enabling Institution 

• Prof. David Gibbons, Chairman, CASHPOR, Contribution to the Sector Award (Individual)

• Mr. Y.C. Nanda, Chairman, Agriculture Finance Corporation and Former Chairman NABARD, Jury’s Special Award for Lifetime Achievement

The distinguished Jury panel was chaired by Ms. Naina Lal Kidwai, Country Head India, Director HSBC, Asia Pacific and co-chaired by Mr. Brij Mohan, Chairman, ACCESS Development Services. The illustrious panel consisted of Vijayalakshmi Das, Managing Director, Ananya Finance for Inclusive Growth Pvt. Ltd.; Meera Sanyal, Chairperson and Country Executive, The Royal Bank of Scotland N.V.; and Dr. Arvind Mayaram, Additional Secretary & Financial Advisor, Ministry of Rural Development, Government of India.

Ms. Naina Lal Kidwai, Country Head Country Head India and Director, HSBC Asia Pacific, “The Microfinance India Awards, which is in its third year, aims to recognise the larger contribution of notable thought leaders, policy makers, promoters and institutions to the microfinance sector. As the sector goes through its most challenging time, the Awards reflect the changed ground realities and recognise those who have emerged as leaders, exhibiting balanced responsible growth, promoting transparency and pro-client lending practices, and above all, creating a sustainable impact on under-served communities.”

The winner for the Microfinance India Organization of the year 2011 for large organizations was Ujjivan Financial Services. Ujjivan was established in November 2005 and is one of the first MFI’s in India to be established with a unique decentralised management structure operating under a hub and spoke framework. Ujjivan provides financial services to the economically active urban poor, to help build a better life. 

The second award for the Microfinance India Organization of the year for small and medium organization was presented to Sanghamithra Rural Financial Services (SRFS). SRFS promoted by MYRADA lends to SHGs ensuring that the SHG decide the amount of loan and the purpose for which it should be lend further to the members. Sanghamithra has grown at a steady pace with an average of 11-18% during last three years.

The third award, Microfinance India Contribution to the Sector 2011 was honoured to Centre for Microfinance (CMF). CMF is a non profit, non partisan research centre housed within the Institute for Financial Management and Research in Chennai. CMF undertakes qualitative and quantitative research in four broad areas: Financial inclusion, livelihoods, social objectives, and policy and regulation.

The Microfinance Individual of the Year award was given to Prof. David Gibbons, founding Chairman of CASHPOR Micro Credit, the largest poverty-focused, not-for-profit MFI in India providing financial services to over 450,000 below-the-poverty-line women in eastern Uttar Pradesh and Bihar in a financially sustainable manner.

Lastly, the Jury’s Special Award was presented to Mr. Y. C. Nanda, The Chairman of Microfinance India Advisory Group and Chairman of Agriculture Finance Corporation. Mr. Y. C. After an initial career with the State Bank of India and the Reserve Bank of India, Mr. Nanda joined NABARD when it was first formed in 1983. Mr. Y. C. Nanda is the former chairman of NABARD. He is also an alumnus of Delhi School of Economics. He has been involved with a number of microfinance institutions, rural development agencies, management institutes as Director/Trustee.

As the Microfinance sector grapples with new realities and the regulations are finalized, the Awards will honour institutions and individuals that have contributed to the growth story and worked tirelessly towards financial inclusion. The inspiration behind the Microfinance India Awards is to recognize the contribution of notable thought leaders, policy makers, promoters and institutions, which help translate the vision of reaching the poorest in a sustainable manner into reality. This is the third year for the Microfinanc India Awards.

Microfinance Summit 2011 

From top: Release of State of the Sector Report 2011 by N. Srinivasan; Samit Ghosh on behalf of Ujjivan receives the Microfinance Organization of the Year Award (large MFIs); Vipin Sharma welcomes Nandan Nilekani to the Summit; Delegates connecting at the Knowledge Fair; Vipin Sharma and Lalitha Sridharan (ACCESS) smile proudly by the Summit welcome signs; Dr. Hans-Dieter Seibel participates in the discussion on recasting the strategy for the SHG movement; and Delegates enjoy the morning sunshine during the tea break.

Beyond the Impasse - Options for the Microfinance Sector?

The 8th Microfinance India Summit was inaugurated today in New Delhi.

Mr. Y C Nanda, Chairman, Microfinance India Advisory Group in his welcome address set the tone for the two days. He said, “This year’s Microfinance India Summit has come at the right time, as we are striving for the betterment of the people linked to micro credit. Though, it will be a challenge to push the boundaries and reach the unreachable, closing down the gaps in terms of commitments and actual practice would be a perfect start to make the Millennium Development Goals a reality.”

The Microfinance India State of the Sector Report was released in the inaugural followed by the initiatory standard plenary session on the current plight of the sector. N. Srinivasan, author of the report, remarked, “The sector is aware of the problems and issues, which have a burdening effect of late. The future is not about rectifying the problems, it’s about doing things differently. Change management is what we need at this point in time. We simply need to Retool, Reengineer, Revisit and Reinvent.”

Vijay Kumar, Joint Secretary, Ministry of Rural Development, National Rural Livelihoods Mission, in the Plenary Session II on the SHG movement, commented, “[The] client is at the centre of all Microfinance related issues and we have to take these generic lessons from context specific innovations by NGOs, Government and other organizations to make them the centre of deliverance as well.”

In the afternoon Nandan Nilekani, Chairman, Unique Identification Authority of India (UIDAI), expounded on the role of unique identification numbers as a path breaking initiative of the Government of India and strategic opportunity to support and enhance financial inclusion through banks. Nilekani voiced his opinion, “UID is a path breaking initiative of the Government of India, which will create an opportunity to address the existing limitations in financial inclusion. UID will make sure that the transactions of different financial products become easier, hassle free and add value at the same time.”

Today, the microfinance industry is gasping for survival. The Andhra Pradesh Microfinance Institutions (Regulation of Moneylending) Act, 2010 came down hard about 15 months ago on MFIs for what it thought was predatory lending practices. Given the bad press, it severely curbed fresh lending and impacted recovery of loans in the state. Thus of the Rs 20,000 crore MFI industry in India, at least Rs 7,000 crore is set to become bad debts in Andhra Pradesh, the state with the highest concentration of the MFI industry. The MFIs will have to raise as much as Rs 5,000 crore by March 2012 as equity on account of these non-recovered loans through equity, according to Alok Prasad, CEO, MFIN. With bank’s reluctant to lend, MFIs across the country are facing the heat of the Andhra Pradesh regulations. Recovery dropped from 100 per cent to less than 5 per cent in the last one year.

“Prehaps the sector will take a longtime to recover from its current downturn, and perhaps only after a formal regulation is in place will the confidence between funders and investors return,” Vipin Sharma, CEO, ACCESS Development Services. 

 

Regulation of Microfinance

By N. Srinivasan*

Microfinance regulation in India so far has been vociferously demanded by the sector, hesitantly introduced by RBI and reluctantly accepted by the MFIs.  The regulation applicable to NBFCs under the RBI Act was made use of to regulate the MFIs in company form.  Till recently this regulation was more prudential in character and did not look in to operational and customer aspects of their functioning.  The other parts of microfinance sector comprising non-profit MFIs in any form, cooperative MFIs and microfinance projects involving SHGs and JLGs had not been under any kind of regulation.  RBI thought it fit to let the nascent market develop without regulatory restrictions.   The questions of bandwidth to supervise a large number of small institutions as well as the costs associated were also underlying considerations in the reluctance to start regulation at an early stage of the sector’s development.

The state governments have been examining the possibility of controlling the activities of the Microfinance Institutions for some time.  Kerala and Gujarat State governments had initiated regulatory measures against NBFCs (but not MFIs) a couple of years back under money lending laws of the state.  Andhra Pradesh government initiated action against MFIs in 2006 for usurious practices.  In Karnataka some MFI staff had been imprisoned under money lending laws.  But these were sporadic actions and did not take the shape of regulation over the sector. 

There were attempts to enact legislation at the national level and a draft microfinance bill was referred to a parliamentary committee.  The bill did not get the approval of the committee and lapsed.  The bill, however, was a deficient one covering only a small part of the microfinance sector.  The Andhra Pradesh Government introduced a comprehensive legislation in October 2010 in the wake of reported debt induced distress.  The AP regulation has almost driven the sector to extinction in the state.  With loan recoveries out of Rs 9000 crore loans of MFIs plummeting to about 10% from the usual 99%, the debilitating effect of regulation was clear.

RBI acted with alacrity to set up the Malegam Committee, which recommended regulation of NBFC MFIs as a separate class of institutions under the RBIs regulatory powers over the financial sector institutions.  RBI has since introduced regulations over the NBFC MFIs (issued to commercial banks in May 2011 and to NBFC MFIs in December 2011).   The RBI’s regulations are a marked departure from its earlier stance.  RBI has clearly defined new basis for its regulation of microfinance, that is customer protection and credit operations.  The regulations of RBI focus on avoidance of excessive debt, multiple lending, lending to poor clients, suitable loan terms, reasonable rates of interest, acceptable behavior of staff as also prudential aspects relating to regulatory capital, asset classification and provisioning. 

The Government of India has drafted a new microfinance bill to be introduced in the parliament for enactment in to law.  The bill is a comprehensive effort at regulating the microfinance sector.  While RBI has issued regulatory guidance on NBFCs, the GoI’s bill will apply to the entire sector including other forms of organisations in microfinance. The bill endorses the legitimacy of MFIs in supporting financial inclusion and casts a responsibility on RBI for development and growth of the sector apart from regulation. RBI has been given more powers over the sector than it has over banks and the flexibility to delegate its supervisory powers to NABARD.  While some provisions can benefit from refinement, the bill is a much better piece of legislation than the previous versions.

Despite the progress in regulation made by RBI and Government of India, the sector does not stand to benefit from the holocaust in AP.  The loss of almost a third of the portfolio is a blow from which the sector will find it hard to recover.  The vitiated repayment culture is not about to recover too soon. The question that arises is what is the price of regulation and who should pay it.   Should taxpayers bear the burden of regulation introduced in haste?

*Author of the Microfinance India - State of the Sector Report for the years 2008, 2009, 2010 and 2011.

Social Performance Management - Just another microfinance buzz?

The word “social” seems to be easily thrown around in the development world and social enterprise scene. It appears that any service that does some kind of social good can be labeled as a social business or have a social bottom line. As the mission of microfinance, empowering the poor with access to affordable finance services, has unraveled with the recent events in Kolar and Andhra Pradesh, lack of transparency, over indebtedness of clients, coercive practices and poor governance, social performance and social performance management has popped up as the new vogue. Is it only a new wave or is it here to stay and bring the sector back on track?

Social Performance Management (SPM), integrating the mission of microfinance institutions into operational practices and policies, has emerged in the last few years as enabling organizations (Smart Campaign and Social Performance Task Force), rating and reporting agencies (M-CRIL and MIX) and national networks (Sa-Dhan and MFIN codes of conduct) have pushed for more transparency, greater client protection and better treatment of staff and clients alike. To what extent has signing onto campaigns, endorsing client protection principles and agreeing to codes of conduct changed institutions for the better? Or has it just been an added burden, marketing technique or donor requirement? The test of time will prove whether this toiling is fruitful and whether this movement towards SPM will provide better structure and accountability.

Antidotal evidence, sector reports and social ratings show that while there are several star performers that deserve recognition in SPM, as a whole in the sector the mission and intentions of institutions are not fully being fulfilled in their operations and practices. Reasons vary from lack of good governance to limited resources (staff, funds, etc.) and poor implementation of strategies and goals. Despite the good intentions of MFIs to reach the poorest and most marginalized of society with financial services, the reality is that these products, entailing small lump sums (for loans, insurance, pensions, etc.), are costly to service and do not always afford the institution to fulfill its social goals. With tighter regulations around the corner and institutions struggling to retain clients and find capital, the road ahead is steep. The bubble of microfinance as a silver bullet of poverty alleviation has burst, now what?

Q&A with Vipin Sharma

Q: The Microfinance India Summit is right around the corner, with the current mood in the sector how will this impact the Summit?

A: The mood of the sector is somber this year. Post the Andhra crisis the blazing pace of growth has come to a grinding halt. The MFIs have significantly lost their credibility, being accused of drifting from their original mission, profiteering from the poor in the name of sustainability, charging high interest rates, lacking in transparency and adopting unethical practices and causing indebtedness among clients; and have been accused of driving the clients to committing suicides. The Summit will, I hope, look at all these issues honestly, locate the fault lines and help to build a new climate for Responsible Finance to restore the lost credibility. At this stage, frank and fierce discussions are important. This will not be an easy task, I’m aware, and will require serious follow-up and engagement post the Summit.

 Q: The theme for this year’s Summit is “Bridging the Hiatus, Building Trust.” Why did you choose this theme?

A: The sector in the last year has become polarized, with the two models of delivery in a confrontation mode. It has become a state versus the sector affair. Given the challenge of financial inclusion in the country where half the population of 1.2 billion remains unbanked, there is a need for greater consensus among stakeholders. There is a need to bring the client’s interest to the fore. While on the one hand, it is critical to make the formal financial institutions more responsive to the needs of the poor, on the other hand, we must recognize their limitations and look for alternate supplementary mechanisms to deliver financial services to this segment of the population. There is a need to better understand the roles and value of all actors in the financial supply chain and this needs to be respected. To bridge this hiatus, trust needs to be built among the stakeholders. The Summit will look at all devices that will help in closing this gap.   

Q: This is the 8th Summit. In looking back over the past years how has the Summit contributed to the sector?

A: The Summit over the years has had a significant impact on the sector’s growth. It has brought to the fore several issues that needed discussion and resolution. The Summit has influenced the need for regulating the sector, it has cautioned against the reckless growth; it has highlighted the need for greater focus on the client, introduced the client protection principles and the need for internalizing social performance into practice. The Summit, over the last few years, has been influencing on the need to build the sector around the principles of Responsible Finance, greater ethics and transparency. I hope this effort will continue to build a stronger sector, whose mission and mandate is evident in how it is managed.