This presentation discusses the causes of Andhra Pradesh crisis, how it all started and the possible after-effects. It also examines how the Indian MFIs and the government should respond post this crisis. The presentation concludes with reactions from the clients.
This is a joint report focussing the impact of microfinance among the clients before and after the Andhra Pradesh crisis arising from the Andhra Pradesh Microfinance Institutions (Regulation of Money lending) Act, 2010. The report highlights the similar findings from quantitative study conducted by the Centre for Microfinance (CMF) at IFMR Research and qualitative study conducted by MicroSave. This paper features findings related to multiple borrowing, household indebtedness, loan purpose and client perspectives on availability of financing. Both studies validate the fact that the members of the community face issues raising credit in the absence of MFIs. Members of the community have reduced their spending on important aspects such as health, education and business because of non availability of adequate credit from alternative sources. Moneylenders are having a field day with the absence of MFIs. Members of the community are falling back to moneylenders who charge usurious rates of interest to meet their credit needs. The study also highlights the failure of MFIs when designing market led products and processes. MFIs, in the process of rapid scale up and single minded pursuit of exponential growth targets, ignored the needs of the clients. The study clearly shows the discomfort of the clients with inflexible repayments, interest rates and behaviour of the staff especially when it comes to repayment.
Microfinance in India grew rapidly in the 2000s but faced a crisis in 2010 when over 200 suicides were linked to coercive loan collection practices. This prompted the Andhra Pradesh government to waive $1.5 billion in loans, crippling the industry. The document analyzes issues like multiple lending, lack of transparency, and inadequate regulations that led to this crisis. It recommends regulations like a credit bureau, caps on multiple loans to one borrower, allowing MFIs to accept deposits, and improved training to promote a sustainable microfinance industry focused on social welfare over profits.
Microfinance in India provides small loans and other financial services to low-income households through microfinance institutions (MFIs), which are mostly non-banking finance companies. There is large unmet demand as only 10% of the estimated $74 billion in demand has been met. The microfinance business model has been proven successful over the last decade, with MFIs growing over 100% annually. However, continued growth will require a large inflow of debt and equity capital totaling around $200 million annually for the top MFIs. The industry is concentrated in southern India but has room to expand to northern and central regions. Common MFI practices include group lending through joint liability groups. Microfinance aims to foster both
The document provides an overview of microfinance concepts, principles, characteristics, and best practices. It discusses that microfinance aims to provide financial access to low-income groups through loans, savings, and other services. Key principles include understanding the market, streamlined operations, repayment incentives, and sustainable interest rates. Characteristics are collateral-free and small loans with flexible terms. Best practices are effective management systems, financial sustainability, and involving clients.
Microfinance aims to provide financial services like credit, savings, insurance and money transfers to low-income households and micro-entrepreneurs. It is delivered by microfinance institutions (MFIs) through small loans with group lending. Shortcomings include overdependence on donors, high interest rates, lack of regulations and difficulty reaching remote areas. The State Bank of Pakistan has launched various initiatives like credit guarantee facilities, funding programs and partnerships to strengthen the microfinance sector and promote financial inclusion.
Financial inclusions a pavement towards the future growthTapasya123
This document discusses financial inclusion in India and its importance for future growth. It summarizes various committees established by the Reserve Bank of India to promote financial inclusion. Key recommendations include expanding access to banking services in rural areas through business correspondents, developing differentiated banking licenses, and setting targets to provide universal access to bank accounts. However, progress on financial inclusion has been mixed as many rural villages and small businesses still lack access to formal financial services. More work is needed to make financial inclusion programs sustainable and ensure the unbanked population can benefit from banking.
A Strategic Perspective of the Indian Micro Finance Sector 2015Chandrasekhar Poduri
The document discusses the evolution of microfinance in India over the past century. It began as a means of providing credit to rural India through cooperative banking and social banking initiatives. Over time, self-help groups (SHGs) and microfinance institutions (MFIs) emerged as effective models for extending financial services to the poor. MFIs grew rapidly in the 2000s by transforming into non-banking financial companies (NBFCs) and accessing mainstream capital markets. However, over-aggressive lending practices by some MFIs in Andhra Pradesh led to a crisis in 2010. The microfinance sector in India continues to evolve through policy changes, industry self-regulation, and expanding access to financial services for under
This presentation discusses the causes of Andhra Pradesh crisis, how it all started and the possible after-effects. It also examines how the Indian MFIs and the government should respond post this crisis. The presentation concludes with reactions from the clients.
This is a joint report focussing the impact of microfinance among the clients before and after the Andhra Pradesh crisis arising from the Andhra Pradesh Microfinance Institutions (Regulation of Money lending) Act, 2010. The report highlights the similar findings from quantitative study conducted by the Centre for Microfinance (CMF) at IFMR Research and qualitative study conducted by MicroSave. This paper features findings related to multiple borrowing, household indebtedness, loan purpose and client perspectives on availability of financing. Both studies validate the fact that the members of the community face issues raising credit in the absence of MFIs. Members of the community have reduced their spending on important aspects such as health, education and business because of non availability of adequate credit from alternative sources. Moneylenders are having a field day with the absence of MFIs. Members of the community are falling back to moneylenders who charge usurious rates of interest to meet their credit needs. The study also highlights the failure of MFIs when designing market led products and processes. MFIs, in the process of rapid scale up and single minded pursuit of exponential growth targets, ignored the needs of the clients. The study clearly shows the discomfort of the clients with inflexible repayments, interest rates and behaviour of the staff especially when it comes to repayment.
Microfinance in India grew rapidly in the 2000s but faced a crisis in 2010 when over 200 suicides were linked to coercive loan collection practices. This prompted the Andhra Pradesh government to waive $1.5 billion in loans, crippling the industry. The document analyzes issues like multiple lending, lack of transparency, and inadequate regulations that led to this crisis. It recommends regulations like a credit bureau, caps on multiple loans to one borrower, allowing MFIs to accept deposits, and improved training to promote a sustainable microfinance industry focused on social welfare over profits.
Microfinance in India provides small loans and other financial services to low-income households through microfinance institutions (MFIs), which are mostly non-banking finance companies. There is large unmet demand as only 10% of the estimated $74 billion in demand has been met. The microfinance business model has been proven successful over the last decade, with MFIs growing over 100% annually. However, continued growth will require a large inflow of debt and equity capital totaling around $200 million annually for the top MFIs. The industry is concentrated in southern India but has room to expand to northern and central regions. Common MFI practices include group lending through joint liability groups. Microfinance aims to foster both
The document provides an overview of microfinance concepts, principles, characteristics, and best practices. It discusses that microfinance aims to provide financial access to low-income groups through loans, savings, and other services. Key principles include understanding the market, streamlined operations, repayment incentives, and sustainable interest rates. Characteristics are collateral-free and small loans with flexible terms. Best practices are effective management systems, financial sustainability, and involving clients.
Microfinance aims to provide financial services like credit, savings, insurance and money transfers to low-income households and micro-entrepreneurs. It is delivered by microfinance institutions (MFIs) through small loans with group lending. Shortcomings include overdependence on donors, high interest rates, lack of regulations and difficulty reaching remote areas. The State Bank of Pakistan has launched various initiatives like credit guarantee facilities, funding programs and partnerships to strengthen the microfinance sector and promote financial inclusion.
Financial inclusions a pavement towards the future growthTapasya123
This document discusses financial inclusion in India and its importance for future growth. It summarizes various committees established by the Reserve Bank of India to promote financial inclusion. Key recommendations include expanding access to banking services in rural areas through business correspondents, developing differentiated banking licenses, and setting targets to provide universal access to bank accounts. However, progress on financial inclusion has been mixed as many rural villages and small businesses still lack access to formal financial services. More work is needed to make financial inclusion programs sustainable and ensure the unbanked population can benefit from banking.
A Strategic Perspective of the Indian Micro Finance Sector 2015Chandrasekhar Poduri
The document discusses the evolution of microfinance in India over the past century. It began as a means of providing credit to rural India through cooperative banking and social banking initiatives. Over time, self-help groups (SHGs) and microfinance institutions (MFIs) emerged as effective models for extending financial services to the poor. MFIs grew rapidly in the 2000s by transforming into non-banking financial companies (NBFCs) and accessing mainstream capital markets. However, over-aggressive lending practices by some MFIs in Andhra Pradesh led to a crisis in 2010. The microfinance sector in India continues to evolve through policy changes, industry self-regulation, and expanding access to financial services for under
Microfinance provides small, short-term loans, savings, insurance, and training opportunities to low-income groups without requiring collateral. Microfinance has existed informally for ages in India but legal frameworks and institutions like cooperatives, regional rural banks, NABARD, and microfinance institutions (MFIs) have expanded access. Currently, only 14% of the 32 crore Indians living below the poverty line have access to microfinance. Issues facing MFIs include high interest rates, over-lending, multiple borrowing, and coercive practices. Recent regulations have aimed to address these issues and expand microfinance's role in poverty alleviation.
Financial inclusion – objectives - Micro finance as a Development Tool - The Indian Experience - Evolution and Character of micro finance in India - Micro finance Delivery Methodologies and models- Legal and Regulatory Framework- Impact of Micro finance - Revenue Models of Micro finance- Profitability, Efficiency and Productivity Emerging issues
Micro finance in India: legal and regulatory frameworkNishant Pahad
This document discusses the different legal forms that microfinance institutions (MFIs) can take in India and the associated regulatory frameworks. It outlines not-for-profit entities like societies, trusts, and Section 25 companies; for-profit entities such as non-banking financial companies (NBFCs) and local area banks; and mutual benefit entities like cooperatives and cooperative banks. For each type of legal entity, the document covers aspects such as ownership structure, capital requirements, ability to mobilize deposits and access funding sources, applicable regulatory authorities, and tax implications.
The document summarizes a presentation on financial exclusion in Pakistan and opportunities for Islamic microfinance. It finds that over 25 million Pakistani adults are financially excluded and do not have bank accounts. While access to financial services is low across urban and rural areas, exclusion is highest in Balochistan province and among women. The presentation outlines the demand and potential for Islamic microfinance in Pakistan to help reduce exclusion and poverty. Challenges to growth include increasing penetration, building human resources, and developing strong legal/policy frameworks.
India’s economic growth rates higher than most developed countries in recent years, a
majority of the country’s population still residue unbanked. Financial Inclusion is a relatively
new socio-economic concept in India that aspire to change this dynamic by providing
financial services at affordable costs to the underprivileged, who might not otherwise be
aware of or able to afford these services. Global trends have revealed that in order to achieve
inclusive development and growth, the expansion of financial services to all sections of society
is of utmost importance. As a whole, financial inclusion in the rural as well as financially
backward pockets of cities is a win-win opportunity for everybody involving – the
banks/NBFC’s intermediaries, and the left-out urban population. Banks will handle core
infrastructure and services while intermediaries known as Business Correspondents (BC’s)
will be the executors and act as the face of these banking & financial institutions in dealing
with end-users. Therefore, it is assumed that financial inclusion can initiate the next
revolution of growth and prosperity. In the 21st century, India has been pulling all the right
levers to advance financial inclusion and economic citizenship by channelling its own
transactions to lubricate the system. India’s journey towards economic ascension relies on
how the 65% unbanked population of India (conservative 2012 estimate by World Bank) is
enabled with financial infrastructure.
The document provides an overview of microfinance, including its history, definition, key concepts, and common activities. Some of the main points covered include:
1) Microfinance emerged in the 1970s and was pioneered by organizations like Grameen Bank, which provided small loans to poor individuals.
2) It involves providing financial services like credit, savings, and insurance to low-income individuals. This gives them access to capital to invest in businesses or manage cash flows.
3) Common microfinance activities are microcredit, microsavings, microinsurance, and remittances. Products must be designed based on the needs and risks of the target borrower population.
|Page 11
The document discusses the history and current state of microfinance in India. It begins with an overview of what microfinance aims to be by providing small loans to impoverished individuals. It then discusses the rise and fall of microfinance institutions (MFIs) in India, from early growth in the 1980s-2000s to over-lending issues and client suicide crises in 2010-2011. The document analyzes factors that contributed to the MFI crisis in India, including exorbitant interest rates, client coercion, a focus on high growth over responsible lending, and multiple overlapping loans leading to over-indebtedness. It concludes by discussing regulatory options and the need for sustainable microfinance models going forward.
Mr. Napoleon Micu from the National Credit Council- Department of Finance speaks about the national policy framework of microfinance in the Philippines (Jan 29, PACAP Community Development Forum - Microfinance Amidst the Global Financial Crisis)
The document discusses ICICI Bank's efforts to expand access to microfinance in India by partnering with microfinance institutions (MFIs). It outlines some of the challenges with traditional MFI models and describes a new partnership model developed by ICICI Bank. The model involves ICICI Bank lending directly to low-income clients through MFIs, while also providing MFIs with an overdraft limit to share risk. This allows for more efficient use of capital compared to previous models.
Presentation includes Introduction to Microfinance Industry, Business Process, Strategies, Key Challenges, Future Outlook and Special Issues like Urban Microfinance & Rating of Microfinance Institutions
Microfinance, also called microcredit, is a type of banking service provided to unemployed or low-income individuals or groups who otherwise would have no other access to financial service.
The document provides an overview of the microfinance sector in India. It defines microfinance and discusses the key features and models used, including self-help groups (SHGs) and SHG-bank linkage models. It outlines the case for microfinance in India given high poverty levels. It also discusses the various actors involved like MFIs, banks, NABARD, SIDBI and regulations like the Microfinance Institutions Bill. It notes that while microfinance has grown, there is still a large unmet demand and challenges remain around access to funding, human resources and over-indebtedness.
With the help of this presentation you will be able to know the financial inclusion status in india. Stats from RBI and Inclusix index also had been included in presentation.
This document provides an overview of microfinance and Satin Creditcare Network Ltd (SCNL). It discusses how microfinance helps the poor and low-income individuals raise their income and standard of living. It then describes SCNL's evolution since 1990, including its expansion, funding raised, and various awards received. The rest of the document details SCNL's product portfolio, microfinance model, social impact, and business trends compared to other microfinance institutions in India. It concludes by outlining SCNL's goals for the next 3-5 years.
Microfinance provides small loans, savings opportunities, and insurance to low-income individuals. It began as a way to provide financial services to the poor so they can become self-sufficient. Microfinance includes products like loans, deposits, insurance, and money transfers for microenterprises, poor and low-income households. It aims to alleviate poverty by increasing incomes and living standards through programs tailored to disadvantaged communities.
The document provides an overview of microfinance in India, including its challenges and potential solutions. It discusses how microfinance aims to provide financial services to the poor through mechanisms like group lending. However, challenges remain around risk management, accessibility, staff training, and high costs. Scaling up microfinance further requires addressing issues like adequate funding, infrastructure, and the development of new microfinance institutions and technologies to reduce transaction costs and expand access across India.
A Little World: Facilitating Safe and Efficient M-Banking in Rural IndiaAshley Metz
The initiative is led by a private sector organization, A Little World (ALW) and its sister entity, a non-profit organization, ZERO Microfinance and Savings Support Foundation (ZMF). ALW and ZMF act as intermediaries between rural communities at one end, and mainstream financial institutions and the government at the other end. ALW offers a secure, low‐cost technology driven delivery platform for financial services through special mobile phones that store and help manage a vast amount of customer bank account data, authenticates account holders through photo and biometric identification and allows access to the bank accounts as Point of Service terminals. Since its pilot project in 2006, ALW and ZMF have rapidly grown and are now present in 22 states, with over four million rural customers, 8,314 points of presence and an average of 25,000 new account openings every day.
Research Inventy : International Journal of Engineering and Scienceresearchinventy
Research Inventy : International Journal of Engineering and Science is published by the group of young academic and industrial researchers with 12 Issues per year. It is an online as well as print version open access journal that provides rapid publication (monthly) of articles in all areas of the subject such as: civil, mechanical, chemical, electronic and computer engineering as well as production and information technology. The Journal welcomes the submission of manuscripts that meet the general criteria of significance and scientific excellence. Papers will be published by rapid process within 20 days after acceptance and peer review process takes only 7 days. All articles published in Research Inventy will be peer-reviewed.
The document summarizes microfinance issues in India and Bangladesh. In Andhra Pradesh, India, a microfinance crisis emerged due to government intervention through an ordinance claiming high interest rates and coercive collection practices were causing suicides. In Bangladesh, the government has also gradually encroached on the microfinance sector through ties between Grameen Bank and political activities. Both governments need to carefully regulate without favoring certain models over others like NBFC-MFIs.
The Global Crisis and Microfinance: A Rural Bank’s PerspectiveMABSIV
The document discusses the impact of the global financial crisis on microfinance and Can-lan Bank specifically. It provides an overview of the crisis and notes that while microfinance has weathered past crises, the effects of the current crisis are still unfolding. For Can-lan Bank, loan volumes declined initially but have since increased, and deposits have remained stable. The bank has initiatives to improve products, staff capabilities, and delinquency management to strengthen its position.
Microfinance provides small, short-term loans, savings, insurance, and training opportunities to low-income groups without requiring collateral. Microfinance has existed informally for ages in India but legal frameworks and institutions like cooperatives, regional rural banks, NABARD, and microfinance institutions (MFIs) have expanded access. Currently, only 14% of the 32 crore Indians living below the poverty line have access to microfinance. Issues facing MFIs include high interest rates, over-lending, multiple borrowing, and coercive practices. Recent regulations have aimed to address these issues and expand microfinance's role in poverty alleviation.
Financial inclusion – objectives - Micro finance as a Development Tool - The Indian Experience - Evolution and Character of micro finance in India - Micro finance Delivery Methodologies and models- Legal and Regulatory Framework- Impact of Micro finance - Revenue Models of Micro finance- Profitability, Efficiency and Productivity Emerging issues
Micro finance in India: legal and regulatory frameworkNishant Pahad
This document discusses the different legal forms that microfinance institutions (MFIs) can take in India and the associated regulatory frameworks. It outlines not-for-profit entities like societies, trusts, and Section 25 companies; for-profit entities such as non-banking financial companies (NBFCs) and local area banks; and mutual benefit entities like cooperatives and cooperative banks. For each type of legal entity, the document covers aspects such as ownership structure, capital requirements, ability to mobilize deposits and access funding sources, applicable regulatory authorities, and tax implications.
The document summarizes a presentation on financial exclusion in Pakistan and opportunities for Islamic microfinance. It finds that over 25 million Pakistani adults are financially excluded and do not have bank accounts. While access to financial services is low across urban and rural areas, exclusion is highest in Balochistan province and among women. The presentation outlines the demand and potential for Islamic microfinance in Pakistan to help reduce exclusion and poverty. Challenges to growth include increasing penetration, building human resources, and developing strong legal/policy frameworks.
India’s economic growth rates higher than most developed countries in recent years, a
majority of the country’s population still residue unbanked. Financial Inclusion is a relatively
new socio-economic concept in India that aspire to change this dynamic by providing
financial services at affordable costs to the underprivileged, who might not otherwise be
aware of or able to afford these services. Global trends have revealed that in order to achieve
inclusive development and growth, the expansion of financial services to all sections of society
is of utmost importance. As a whole, financial inclusion in the rural as well as financially
backward pockets of cities is a win-win opportunity for everybody involving – the
banks/NBFC’s intermediaries, and the left-out urban population. Banks will handle core
infrastructure and services while intermediaries known as Business Correspondents (BC’s)
will be the executors and act as the face of these banking & financial institutions in dealing
with end-users. Therefore, it is assumed that financial inclusion can initiate the next
revolution of growth and prosperity. In the 21st century, India has been pulling all the right
levers to advance financial inclusion and economic citizenship by channelling its own
transactions to lubricate the system. India’s journey towards economic ascension relies on
how the 65% unbanked population of India (conservative 2012 estimate by World Bank) is
enabled with financial infrastructure.
The document provides an overview of microfinance, including its history, definition, key concepts, and common activities. Some of the main points covered include:
1) Microfinance emerged in the 1970s and was pioneered by organizations like Grameen Bank, which provided small loans to poor individuals.
2) It involves providing financial services like credit, savings, and insurance to low-income individuals. This gives them access to capital to invest in businesses or manage cash flows.
3) Common microfinance activities are microcredit, microsavings, microinsurance, and remittances. Products must be designed based on the needs and risks of the target borrower population.
|Page 11
The document discusses the history and current state of microfinance in India. It begins with an overview of what microfinance aims to be by providing small loans to impoverished individuals. It then discusses the rise and fall of microfinance institutions (MFIs) in India, from early growth in the 1980s-2000s to over-lending issues and client suicide crises in 2010-2011. The document analyzes factors that contributed to the MFI crisis in India, including exorbitant interest rates, client coercion, a focus on high growth over responsible lending, and multiple overlapping loans leading to over-indebtedness. It concludes by discussing regulatory options and the need for sustainable microfinance models going forward.
Mr. Napoleon Micu from the National Credit Council- Department of Finance speaks about the national policy framework of microfinance in the Philippines (Jan 29, PACAP Community Development Forum - Microfinance Amidst the Global Financial Crisis)
The document discusses ICICI Bank's efforts to expand access to microfinance in India by partnering with microfinance institutions (MFIs). It outlines some of the challenges with traditional MFI models and describes a new partnership model developed by ICICI Bank. The model involves ICICI Bank lending directly to low-income clients through MFIs, while also providing MFIs with an overdraft limit to share risk. This allows for more efficient use of capital compared to previous models.
Presentation includes Introduction to Microfinance Industry, Business Process, Strategies, Key Challenges, Future Outlook and Special Issues like Urban Microfinance & Rating of Microfinance Institutions
Microfinance, also called microcredit, is a type of banking service provided to unemployed or low-income individuals or groups who otherwise would have no other access to financial service.
The document provides an overview of the microfinance sector in India. It defines microfinance and discusses the key features and models used, including self-help groups (SHGs) and SHG-bank linkage models. It outlines the case for microfinance in India given high poverty levels. It also discusses the various actors involved like MFIs, banks, NABARD, SIDBI and regulations like the Microfinance Institutions Bill. It notes that while microfinance has grown, there is still a large unmet demand and challenges remain around access to funding, human resources and over-indebtedness.
With the help of this presentation you will be able to know the financial inclusion status in india. Stats from RBI and Inclusix index also had been included in presentation.
This document provides an overview of microfinance and Satin Creditcare Network Ltd (SCNL). It discusses how microfinance helps the poor and low-income individuals raise their income and standard of living. It then describes SCNL's evolution since 1990, including its expansion, funding raised, and various awards received. The rest of the document details SCNL's product portfolio, microfinance model, social impact, and business trends compared to other microfinance institutions in India. It concludes by outlining SCNL's goals for the next 3-5 years.
Microfinance provides small loans, savings opportunities, and insurance to low-income individuals. It began as a way to provide financial services to the poor so they can become self-sufficient. Microfinance includes products like loans, deposits, insurance, and money transfers for microenterprises, poor and low-income households. It aims to alleviate poverty by increasing incomes and living standards through programs tailored to disadvantaged communities.
The document provides an overview of microfinance in India, including its challenges and potential solutions. It discusses how microfinance aims to provide financial services to the poor through mechanisms like group lending. However, challenges remain around risk management, accessibility, staff training, and high costs. Scaling up microfinance further requires addressing issues like adequate funding, infrastructure, and the development of new microfinance institutions and technologies to reduce transaction costs and expand access across India.
A Little World: Facilitating Safe and Efficient M-Banking in Rural IndiaAshley Metz
The initiative is led by a private sector organization, A Little World (ALW) and its sister entity, a non-profit organization, ZERO Microfinance and Savings Support Foundation (ZMF). ALW and ZMF act as intermediaries between rural communities at one end, and mainstream financial institutions and the government at the other end. ALW offers a secure, low‐cost technology driven delivery platform for financial services through special mobile phones that store and help manage a vast amount of customer bank account data, authenticates account holders through photo and biometric identification and allows access to the bank accounts as Point of Service terminals. Since its pilot project in 2006, ALW and ZMF have rapidly grown and are now present in 22 states, with over four million rural customers, 8,314 points of presence and an average of 25,000 new account openings every day.
Research Inventy : International Journal of Engineering and Scienceresearchinventy
Research Inventy : International Journal of Engineering and Science is published by the group of young academic and industrial researchers with 12 Issues per year. It is an online as well as print version open access journal that provides rapid publication (monthly) of articles in all areas of the subject such as: civil, mechanical, chemical, electronic and computer engineering as well as production and information technology. The Journal welcomes the submission of manuscripts that meet the general criteria of significance and scientific excellence. Papers will be published by rapid process within 20 days after acceptance and peer review process takes only 7 days. All articles published in Research Inventy will be peer-reviewed.
The document summarizes microfinance issues in India and Bangladesh. In Andhra Pradesh, India, a microfinance crisis emerged due to government intervention through an ordinance claiming high interest rates and coercive collection practices were causing suicides. In Bangladesh, the government has also gradually encroached on the microfinance sector through ties between Grameen Bank and political activities. Both governments need to carefully regulate without favoring certain models over others like NBFC-MFIs.
The Global Crisis and Microfinance: A Rural Bank’s PerspectiveMABSIV
The document discusses the impact of the global financial crisis on microfinance and Can-lan Bank specifically. It provides an overview of the crisis and notes that while microfinance has weathered past crises, the effects of the current crisis are still unfolding. For Can-lan Bank, loan volumes declined initially but have since increased, and deposits have remained stable. The bank has initiatives to improve products, staff capabilities, and delinquency management to strengthen its position.
The document discusses competition in the Indian microfinance sector and its effects. It presents results from a study analyzing loan repayment data from multiple MFIs with over 500,000 client records. The study found that approximately 10% of MFI clients had loans from multiple lenders. Interviews with these clients suggested they borrowed from multiple MFIs primarily to obtain larger loan sizes or as a backup in case of default. While competition benefits customers through lower rates and better service, concerns remain around potential negatives like over-indebtedness and mission drift. The document advocates further research to better understand the impacts of competition.
This document discusses farmers suicides in Andhra Pradesh, India. It provides data showing:
1) Over 5,000 suicides have been officially recognized by the state government between 1997-2011, with the highest numbers occurring between 2000-2008.
2) Small and marginal farmers, tenant farmers, and rural laborers have been disproportionately impacted by an agricultural crisis characterized by reduced incomes, stagnating yields, and increasing costs of cultivation.
3) Recommendations to address the crisis include improving irrigation access, expanding institutional credit, diversifying rural economies, and protecting farmers from volatile output prices.
4) A verification process established by the state government requires documentation like police reports, autopsy reports, and loan
130220 out of Pesticide trap: Learning from NPM experiences in APRamanjaneyulu GV
This document summarizes the experience of non-pesticidal management (NPM) in Andhra Pradesh, India. It notes that Andhra Pradesh was heavily dependent on pesticides, which led to pest problems, pesticide resistance, health issues, and ecological damage. NPM was introduced as an alternative, ecological approach using monitoring, prevention, and natural control methods. Studies found NPM reduced costs and increased yields and incomes compared to pesticide use. The program expanded across the state, covering over 3.5 million acres by 2009. NPM helped reduce farmer suicides and hospitalizations from pesticide poisoning. The success of NPM in Andhra Pradesh has influenced national policy and expansion of similar programs to other states.
This document provides an overview of microfinance in India. It defines microfinance and its key features. It discusses the evolution of microfinance in India since the 1970s. It describes the different models of microfinance delivery including self-help groups (SHGs), joint liability groups (JLGs), microfinance institutions (MFIs), and the priority sector lending framework. It summarizes the recommendations of the Malegam Committee on regulating the microfinance sector in India. Finally, it provides some statistics on the growth and current status of microfinance in India.
This document presents information on microfinance in India. It discusses how microfinance provides financial services like credit, savings and insurance to poor individuals. It notes that microfinance aims to improve livelihoods through capital provision. The document provides statistics on microfinance in India and outlines the roles of various regulatory bodies. It discusses self-help groups and their importance in poverty alleviation. It also examines the role of banks in providing assistance to microfinance institutions and some problems faced by these institutions. Finally, it proposes various solutions and concludes by emphasizing the potential of self-help groups and microfinance to reduce poverty in India.
The document summarizes microfinance as small loans provided to low-income individuals who lack access to traditional banking. It discusses the history and philosophy of microfinance, how it works through peer lending circles, and its growth centers globally. Key risks for microfinance investors include foreign exchange risk, difficulty assessing credit risk for many small borrowers, and potential volatility. The document also analyzes financial performance and growth metrics for microfinance institutions.
SAKHI raises capital through:
1. Loans from Friends of Women World Bank at an annual interest rate of 13.5%
2. Group guarantees followed by center guarantees for loans provided to members
3. Upfront loan processing fees of 2% charged to borrowers
SAKHI provides microloans ranging from Rs. 3,000 to Rs. 15,000 to economically disadvantaged individuals through a systematic organizational structure and loan disbursement process.
This document is a research project report submitted in partial fulfillment of an MBA degree. It examines the impact of microfinance on the living standards, empowerment and poverty alleviation of poor women in North India. The report includes a declaration by the student, acknowledgements of those who assisted and supervised the project, and an introduction providing context on microfinance and its goals. It also outlines the chapters to follow, which will cover a literature review on previous research conducted on microfinance and its effects, as well as subsequent chapters analyzing and discussing the results of the student's case study research.
This document provides an overview of microfinance in India. It discusses how microfinance provides financial services to low-income individuals who lack access to traditional banking. It notes examples like Mrs. Bharti who was able to start a sewing business after getting a microloan. The document also discusses challenges in the microfinance sector like steady access to capital, heavy dependence on banks/financial institutions, and political sensitivity around interest rates charged. Overall, the document aims to introduce microfinance and its role in empowering the poor in India.
Indian agriculture sector experiences vicious circle of poverty which decelerate economic growth. Financial exclusion is one of the main reason of it. In India marginals and weaker sections are excluded from main stream of the economy. To achieve sustainable development, all sections of the people need to be come into main stream. This study is an attempt to understand the concept of financial inclusion, financial inclusion in India and micro finance. RBI defines “Financial Inclusion is the process of ensuring access to appropriate financial products and services needed by all sections of the society in general and vulnerable groups such as weaker sections and low income groups in particular at an affordable cost in a fair and transparent manner by mainstream institutional players”. The present study also tries to understand how micro finance lending facilitates the acceleration of financial inclusion. Micro finance lending is a strong weapon of financial inclusion. Micro credit provided by banks emerged as a major policy tool of financial assistance in the rural credit, particularly to the poor sections of the society. Micro finance by providing small loans and savings facilities to those who have been excluded from other formal services, acting as a key strategy for reducing poverty and discrimination.
Inclusive development means empowerment of weaker sections, SC/STs and women. In this context “financial inclusion “ owns its significance.
Microfinance has grown significantly in India, with over 92 million borrowers and a gross loan portfolio of $65.2 billion. However, a microcredit crisis emerged in 2010 in the Indian state of Andhra Pradesh, where suicide incidents among microcredit users fueled allegations against microfinance institutions. Andhra Pradesh has a large government-backed self-help group program as well as many private microfinance institutions, leading to over-indebtedness among some borrowers from taking on multiple loans. In response, the Andhra Pradesh government halted microfinance operations through an ordinance, though experts argue this could restrict access to financing and push borrowers to more expensive moneylenders instead of solving over-indebtedness through measures
Microfinance refers to providing small loans, savings opportunities, and other basic financial services to low-income individuals. The modern microfinance movement began in the 1970s by providing small loans to groups of poor women in Bangladesh, Brazil, and other countries. In India, an estimated 350 million people live below the poverty line, but only about 5% have access to microfinance due to high costs, lack of legal frameworks for microfinance institutions, and other barriers. Various models of microfinance have emerged and shown success in India, including self-help group bank linkage programs and wholesale banking models.
This document provides an overview of microfinance in India. It defines microfinance as the provision of financial services to low-income populations who lack access to mainstream services. Microfinance includes small loans, savings, insurance, and money transfers. Key aspects of microfinance in India discussed include the evolution of the industry, types of microfinance institutions such as self-help groups and joint liability groups, and channels for delivering microfinance services such as the SHG-Bank linkage model.
Microfinance has existed informally in India for ages, but the legal framework and institutions to support it have developed over time, starting in the early 20th century. Currently, an estimated 350 million people live below the poverty line in India, but formal microfinance has only reached around 5% of the rural poor. There remains a large unmet demand for financial services among the poor. While microfinance institutions have grown, challenges remain in achieving sufficient scale, access to low-cost funding, developing appropriate legal structures, and balancing financial sustainability with an inclusive development agenda.
A study of Branchless banking for financial inclusion in India!L S Subramanian
Branchless banking plays a key role in achieving financial inclusion in India. It provides banking services to the large unbanked population through methods like business correspondents and use of technologies like mobile phones. Studies show over 50% of Indian households do not have access to formal banking. The government and Reserve Bank of India have implemented policies like the National Rural Financial Inclusion Plan to increase access through branchless models. Research found branchless banking has benefited customers by providing convenient, affordable services. However, more financial education is still needed and future models could offer additional products like insurance to further help low-income groups.
Microfinance refers to small-scale financial services like credit and deposits provided to low-income individuals who lack access to traditional banking services. It aims to help the poor become self-sufficient through saving, borrowing, and insurance. While banks are reluctant to serve those with little income or collateral, microfinance fills this gap by providing small, collateral-free loans. In many developing countries, over 75% of the population lacks access to financial services apart from money lenders who charge high interest rates. Microfinance helps the poor by increasing incomes, allowing them to better manage cash flows and risks through access to credit. It also supports micro-enterprises and women's empowerment. Common microfinance models include self-help groups, credit
The document provides an industry profile of microfinance institutions (MFIs) in India. It discusses that MFIs provide small loans and other financial services to low-income groups. The microfinance industry in India has experienced rapid growth in recent years, reaching over 200 million customers. However, there remains significant unmet demand as many parts of India remain underserved by MFIs. The industry is fragmented with over 3000 MFIs, though the top 10 companies account for around three-quarters of the total loan portfolio. Continued growth is expected, but regulations and competition will impact the future trajectory of MFIs in India.
Microfinance refers to small-scale financial services like credit and deposits provided to low-income individuals who lack access to traditional banking services. It aims to help the poor become self-sufficient through saving, borrowing, and insurance. Traditional banks are reluctant to serve the poor due to high costs and lack of collateral. As a result, the poor rely on expensive moneylenders. Microfinance helps address this need by providing affordable credit that supports small businesses and empowers women. It has been successful in reducing poverty in countries like Bangladesh and India through high repayment rates of over 95% in many areas. While it benefits the moderately poor more than the destitute, microfinance overall has proven effective in poverty alleviation when designed
Role of microfinance in promoting micro entrepreneurshipVijayakumar Kumar
This document discusses the role of microfinance in promoting micro-entrepreneurship in India. It begins by defining key terms like microenterprise and microfinance. Microenterprises are very small businesses, often with just one employee owner, while microfinance provides small loans and other financial services to the poor. The document then outlines the various models of microfinance that have been implemented in India, including self-help groups linked to banks. It argues that microenterprises are important for employment generation and poverty alleviation in rural areas. Access to microfinance can play a key role in meeting the credit needs of the rural poor to start micro-businesses.
The document provides an overview of microfinance institutions (MFIs) in India. It discusses that MFIs aim to provide financial services to low-income populations who are excluded from traditional banking. MFIs offer loans for purposes like small businesses, agriculture, and consumption. They also provide an alternative to expensive loans from money lenders. The document then covers definitions of microfinance and MFIs, different business models used, key funders of MFIs including donors and investors, and the need for MFIs in India given the large unbanked population.
The document summarizes the emergence and growth of microfinance in India. It discusses how microfinance began informally in the early 1900s and became more formalized over time with the establishment of organizations to promote microfinance. It outlines the major developments in microfinance in India between the 1970s and today. These include the establishment of pioneering microfinance organizations like SEWA and the growth of microfinance institutions from the 2000s onward. The document also summarizes data showing tremendous growth in the number of microfinance clients served and loans disbursed among leading Indian MFIs between 2008-2010.
Microfinance in India provides small loans and other financial services to the poor, especially women. Approximately 300 million people in India live below the poverty line, and only 20% have access to formal credit. Self-help groups are a common model, with groups of 10-20 women saving together and lending to each other. NABARD, India's agricultural bank, supports microfinance through refinancing loans and programs. Microfinance has grown substantially and helped many poor households rise out of poverty.
This document provides a historical overview of microfinance initiatives in India since independence. It discusses early committees and surveys that examined rural credit needs and access. Major initiatives are described, including self-help groups, programs through NABARD and SIDBI, and the SHG-Bank linkage model. The document also outlines the current status and infrastructure of microfinance provision in India, noting that while access to formal credit has increased, the majority of marginal farmers and landless laborers still rely on informal sources. Overall it traces the evolution of microfinance policy and models in India over several decades.
This document provides an overview of microfinance in India. It defines microfinance and discusses its evolution in India since the 1970s. It describes different microfinance models like self-help groups (SHGs) and joint liability groups (JLGs). It also discusses microfinance institutions (MFIs) like non-profits, cooperatives, and NBFCs. The document outlines priority sector lending guidelines and summarizes recommendations from the Malegam Committee on regulating the microfinance sector in India.
Microfinance is defined as providing financial services like credit, savings, and insurance to low-income individuals and those below the poverty line, with the goal of poverty alleviation and improving livelihoods. Microfinance is typically delivered through self-help groups and used by individuals to promote self-employment, such as starting small businesses. It aims to empower the poorest in society, especially women. In India, microfinance is dominated by self-help group bank linkage programs to provide affordable financial services to the poor. While microfinance has helped increase incomes and education for many clients, limitations remain around maximizing its contribution to women's empowerment.
This document summarizes a study on Micro Finance Institutions (MFIs) in India. It discusses how MFIs provide financial services like credit, savings, and insurance to individuals below the poverty line. It notes that MFIs were founded to improve livelihoods through capital provision. In India, MFIs play a large role through self-help groups that provide savings and small loans. However, MFIs face challenges in reaching all in need due to financial, legal, and operational issues. The document calls for reforms to regulation and oversight that recognize MFIs separately from other financial institutions in order to better alleviate poverty in India.
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1. MICROFINANCE IN INDIA:
A CRISIS AT THE BOTTOM OF THE PYRAMID
How the Government of Andhra Pradesh has severely damaged private sector
microfinance and put 450 million of India’s rural poor at risk
May 2011
2. A Crisis at the Bottom of the Pyramid
I. Introduction
The microfinance industry in India is in the midst of the most severe crisis in its 25 year history. The genesis of the crisis lies
with the actions taken by the government of the southern state of Andhra Pradesh in October 2010, when it passed
legislation effectively shutting down all private sector microfinance institutions (“MFIs”) operating in the state. In the first half
of FY2011, MFIs in Andhra Pradesh disbursed Rs 5,000 crore ($1.13 billion) to borrowers; in the second half of FY2011,
these same MFIs could only disburse Rs 8.5 crore ($1.9 million) i. The Andhra Pradesh Government's stated aim was to
protect the poor and yet its actions have resulted in financing to the very poorest of India’s citizens shrinking by 600%. This
should make everyone pause. The rural poor depend on access to consistent and dependable finance to help smooth patchy
income streams and avert financial crises. The AP government’s actions have effectively shut off finance to these most
vulnerable of India’s citizens. Indeed, as this paper discusses, the very premise of the Andhra Pradesh Microfinance
Institutions (Regulation of Money Lending) Act, 2010 (the “AP Act”) was fundamentally flawed. Quite apart from protecting
the poor, the AP Act does just the opposite and risks creating a near term financial and human crisis amongst the rural poor
in Andhra Pradesh, while also potentially jeopardizing the Indian government’s broader financial inclusion agenda.
II. Executive summary
• The direct effect of the enactment of the AP Act has been to deny millions of India’s poorest citizens access to basic
financial services. The impact of the AP Act has the potential to affect 450 million people. Since the AP Act was
adopted, MFI disbursements in AP alone have diminished from Rs 5,000 crore ($1.13 billion) to a mere Rs 8.5 crore
($1.9 million), creating a severe shortage of much needed finance to the rural poor, India’s most vulnerable citizens.
• The rationale for the AP Act is not to protect the poor, but to protect the uncompetitive government-backed Self-
Help Group (“SHG”) program run by the Society for the Elimination of Rural Poverty (“SERP”).
• The AP government’s claims that private sector MFIs are exploiting India’s poor by charging usurious interest rates
and practicing coercive recovery techniques cannot be substantiated and, based on numbers from SERP, it appears
that the suicide rates amongst MFI borrowers are dramatically lower than the statistical average in the entire state
of Andhra Pradesh.
• Private sector MFIs have demonstrated to be the most scalable and sustainable way of helping the Indian
government meet its stated policy of encouraging “financial inclusion” for the 450 million people in India who are
currently “unbanked”, i.e., with no access to basic finance.
• If the World Bank provides the much discussed $1 billion in funding to the government-backed SHG program in
AP, it will be complicit in snuffing out the private sector from Indian microfinance.
• The Reserve Bank of India (“RBI”) and central government must take immediate and decisive action to supersede,
suspend or repeal the AP Act and introduce sensible legislation on a federal level which allows the private sector to
grow and flourish.
• The Malegam Committee’s recommendations and their broad acceptance by the RBI give rise to a number of
concerns, and the constraints proposed around loan limits, interest rates, provisioning norms and capital
requirements must be revisited to avoid unintended and deleterious consequences that could permanently impact
private sector MFIs.
• MFIs represent the only viable way for lenders to recover their loans to MFIs, given their relationship with the end
customers. MFIs must be given the time to undo the damage inflicted by the AP Act and to recover the loans from
borrowers.
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3. A Crisis at the Bottom of the Pyramid
III. Microfinance background
History
Microfinance in India can trace its origins back to the early 1970s when the Self Employed Women’s Association (“SEWA”)
of the state of Gujarat formed an urban cooperative bank, called the Shri Mahila SEWA Sahakari Bank, with the objective of
providing banking services to poor women employed in the unorganised sector in Ahmedabad City, Gujarat. The
microfinance sector went on to evolve in the 1980s around the concept of SHGs, informal bodies that would provide their
clients with much-needed savings and credit services. From humble beginnings, the sector has grown significantly over the
years to become a multi-billion dollar industry, with bodies such as the Small Industries Development Bank of India and the
National Bank for Agriculture and Rural Development devoting significant financial resources to microfinance. Today, the top
five private sector MFIs reach more than 20 million clients in nearly every state in India and many Indian MFIs have been
recognized as global leaders in the industry.
The Government of India and the RBI have a stated goal of promoting financial inclusion.
According to recent RBI estimates ii, there are over 450 million “unbanked people” in India, most of whom live in rural areas.
The term “unbanked” refers to people who have no access to formal financial services, but rather must rely on either family,
or informal providers of finance, such as the village moneylender. It is undisputed that access to finance is critical for enabling
individuals and communities to climb out of poverty. It is also generally agreed that relying on the limited resources of village
moneylenders exposes the poor to coercive lending practices, personal risks and high interest rates, which can be a much as
150% iii. Therefore the Indian Government and the RBI have a policy of “financial inclusion”. As part of this policy, the
government requires Indian banks to lend to “priority sectors”, one of which is the rural poor. Until recently, banks were
happy to lend money to MFIs who would then on-lend funds, primarily to poor women across rural India. The banks have
welcomed this policy because historically they tended to charge MFIs average interest rates of 12-13% and benefited from
100% repayment rates. Thus, by lending to MFIs, banks have been able to meet their “priority sector” lending requirements
with what historically has amounted to a risk-free and very profitable arrangement.
The goal of financial inclusion must include the private sector.
Microfinance in India is currently being provided by three sectors: the government, the private sector and charities. These
three sectors, as large as they are, have only a small fraction of the capital and geographic scale required to meet the
overwhelming need for finance amongst India’s rural poor.
The top 10 private sector microfinance providers in India together serve less than 5% of the unbanked population of India –
approximately 20 million clients iv. For example, SHARE Microfin Limited (“SHARE”) and Asmitha Microfin Limited
(“Asmitha”), two of the five largest MFIs in India, have almost Rs 4,000 crore ($900MM) loaned to over 5 million poor
women in 18 Indian states (prior to the crisis, the combined outstanding loan portfolio had been as high as Rs 6,750 crore
($1.525BN)). Yet, despite the size of MFIs like SHARE and Asmitha, only a fraction of the overwhelming need is being met.
Private sector MFIs have an essential role to play if the goal of financial inclusion is to be realized, as neither the government
nor charities have the capital nor business model required to meet the insatiable demand for finance in rural India. As the
public listing of SKS Microfinance underscored, private sector institutions are able to attract increasingly large amounts of
private capital, in order to accelerate the growth of the industry, which is essential to expanding financial inclusion as far and
as fast as practicable.
IV. Legatum Ventures’ contribution to the microfinance sector in India
Legatum is a multi-billion dollar investment organization with a 25 year heritage of allocating capital successfully around the
globe. Legatum has been one of the largest private portfolio investors in India since 2005. Legatum has invested billions of
dollars in some of India’s leading companies, primarily focusing on banks and other financial institutions. In addition to its
investment business, Legatum has a very active philanthropic arm, the Legatum Foundation, which has since its inception
provided over $100 million to over 1,200 humanitarian projects in over 100 countries, including India. The Legatum
Foundation supports local grass-roots community-based initiatives that focus on issues ranging from health, education,
financial inclusion and human trafficking. Our investment in the microfinance sector was an effort to combine our investment
and philanthropic efforts to demonstrate that “good business is good development”.
Page 2 of 10
4. A Crisis at the Bottom of the Pyramid
In 2007, Legatum Ventures invested $25 million in SHARE, which was at the time the single largest private equity investment
globally in microfinance, to help the company scale its operations to reach more clients while also improving its governance
and operations. At that time, SHARE was in distress due to the “Krishna crisis” (where local politicians told borrowers they
no longer needed to repay MFIs). With Legatum Ventures’ equity infusion, SHARE was able to survive the Krisha crisis and
grow. Over the last four years, SHARE, together with its sister organization, Asmitha, has expanded from under one million
clients to over five million. The combined company has grown from operating in 3 states to 18 across India. As of the
beginning of March 2011, the combined company had an outstanding loan portfolio of almost Rs 4,300 crore ($970MM) and
10,000 employees.
Legatum introduced world-class corporate governance standards and ensured that SHARE’s operations met with the highest
ratings from CRISIL and other agencies, while also overseeing SHARE’s transition to a “Big Four” audit firm (S. R. Batliboi &
Co., a member of Ernst & Young). SHARE has historically had one of the lowest interest rates of the large MFIs in India and
also one of the lowest operating expense ratios of just 7%.
V. The microfinance crisis in Andhra Pradesh – analysis of the AP Act
The Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Act, 2010
In October 2010, with no warning or consultation with stakeholders, the Government of Andhra Pradesh issued the Andhra
Pradesh Microfinance Institutions (Regulation of Money Lending) Act, 2010 effectively shutting down all private sector
microfinance operations in the state. The AP Act does not however apply to AP’s government-backed microfinance business
which directly competes with private sector MFIs. This was a major blow to the entire microfinance industry as Andhra
Pradesh, widely regarded as the birthplace of private sector microfinance, accounts for over 40% of all loans by MFIs across
India according to some estimates v.
To justify its extraordinary action against private sector microfinance, the AP government claimed to be protecting the poor
from what they claimed to be rapacious lending practices by the MFIs. But, as discussed below, the facts prove otherwise.
Moreover, by its own terms, the AP Act aims to protect the government’s own microfinance programs which had been
losing market share to the more efficient and better run MFIs:
“Whereas these SHGs are being exploited by private Micro Finance Institutions (MFIs) through usurious
interest rates and coercive means of recovery resulting in their impoverishment & in some cases leading to
suicides, it is expedient to make provisions for protecting the interests of the SHGs, by regulating the money
lending transactions by the money lending MFIs and to achieve greater transparency in such transactions in the State
of Andhra Pradesh” vi.
No-one would object to protecting the poor from exploitation by institutions charging usurious rates, practicing coercive
recovery techniques, or driving clients to suicide. However, was there ever any real substance behind these alarming claims?
Indeed, when one looks for evidence to substantiate these allegations, it quickly becomes apparent that the services being
provided by private sector MFIs are valued by their clients, and are neither usurious nor violent. On the contrary, given the
size of the MFI sector, tales of exploitation are remarkably rare.
Let’s consider each of these three allegations in turn, again using SHARE and Asmitha as our case study:
1. Do private sector MFIs charge usurious interest rates?
SHARE and Asmitha, two of India’s largest MFIs, charge average interest rates of between 23.6-28.1% depending on
the maturity of the market in a particular state. These rates are lower than the average interest rate of 30% for
consumer credit cards in India vii. They are also among the lowest rates for microfinance in India and the world. These
rates are offered despite the high cost of providing “door-step services” (i.e., sending loan officers to meet the
borrowers in their villages), which allow clients to remain close to their homes, children, fields, livestock and
livelihoods. This is in contrast to the AP government’s SHG program which requires borrowers to pay at the local
or regional office behind closed doors.
Conclusion: MFI interest rates are commercial, reasonable and competitive.
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5. A Crisis at the Bottom of the Pyramid
2. Do MFIs (need to) employ coercive collection practices?
By design, MFI processes have a number of in-built mechanisms to ensure repayment. From identification to
repayment, a larger group of borrowers is engaged in appraising MFI members and in ensuring on-time repayments.
The group pledges to cover for members and ensures credit discipline. In addition, the small, frequent payment
structure eases this process. In a few instances where repayments have posed a hardship for clients, MFIs have
restructured loans to support clients. Thus, there is little need for MFIs to employ coercive measures. Finally, clients
rely on ongoing access to finance in the same manner as any borrower in the formal banking sector; and the failure
to repay results in the client’s inability to take future loans which can be important for business and other needs. A
good credit history is as valuable to the poor as it is to the wealthy.
Established MFIs such as SHARE and Asmitha have strict policies against physical coercion being used to force
repayment, and the consequences for doing this can be severe and result in immediate termination. In addition,
both the Sa-dhan and MFIN code of conduct have clauses on fair recovery practices which all major MFIs in India
have signed and are committed to.
Conclusion: loan repayments are professionally managed and humanely carried out.
3. Are MFI clients being pushed to commit suicide?
Suicide for any reason is a profound tragedy. In a report published in Microfinance Focus in October 2010, the
gender unit of SERP asserted that 54 microfinance borrowers residing in AP had tragically committed suicide as a
consequence of MFI lending practices viii. Although 54 deaths may seem a substantial number to be allegedly caused
by MFI lending practices, it is not until one contrasts this number with the suicide statistics for the state of Andrah
Pradesh as a whole that one can begin to put these numbers into perspective. There were over 14,500 people who
committed suicide in Andhra Pradesh in 2009 alone, most being attributed to agricultural failure or grief over
political developments ix. Based on an estimated population of 75 million in Andhra Pradesh, for every 6 million AP
residents, 1,160 of them might be expected to commit suicide in any given year based on statistical norms. Given
the estimated 6 million microfinance borrowers in AP, SERP’s assertion that there were 54 deaths allegedly caused
by MFI lending practices therefore appears not to be unusual, based on what national statistics demonstrate.
Additionally, based on the numbers from SERP (formally a non-governmental organization, but it receives its
funding from the AP government and the state’s Chief Minister chairs its governing board), it appears that the
suicide rates amongst MFI borrowers are dramatically lower than the statistical average in the entire state of Andhra
Pradesh. In other words, borrowers from private sector MFIs appear less likely to commit suicide than their fellow
residents in Andhra Pradesh. This should, of course, not be very surprising, given the manner in which MFI clients
benefit from the services provided.
Conclusion: there is no proven correlation or causal link between MFIs and suicides.
It can be seen from the foregoing that the factual basis for the AP Act is, in fact, deeply flawed. This does not mean to say
that the prevailing system, with thousands of staff and millions of clients, is perfect. All MFIs need to work hard to build a
common culture and mitigate the risk posed by overzealous loan officers. Yet shutting down an entire industry because of
anecdotal evidence of occasional problems would be like closing all schools because a few teachers provide poor or
misguided teaching to their students.
Additionally, this raises the question: what was the real reason that such draconian measures were taken to stifle private
sector MFI activity in Andhra Pradesh? It will be seen in the next section that, rather than doing a bad job, private sector MFIs
have been doing their job too well – too well for their competition within the state of AP. Regardless of the motivation
behind the AP Act, serious damage has already been done to the microfinance sector, as well as to the climate for business
and investment in AP and India.
Page 4 of 10
6. A Crisis at the Bottom of the Pyramid
VI. The source of the AP Act and the microfinance crisis
Where did the allegations of suicides and violence come from?
If the extremely serious assertions of MFI wrongdoing are in fact not true, then this demands an answer to the question
“Where did these allegations come from?” Who could possibly gain from shutting down the private sector MFI industry in
Andhra Pradesh, and from denying the rural poor access to their services? The answer is not difficult to find. The number
one competitor of private sector microfinance in AP is the state-run microfinance business, SERP.
Behind the scenes, the AP Act was written and championed by SERP, the agency responsible for running the AP
government-backed microfinance SHG program. Evidence shows that SERP has been losing the struggle to compete with
private sector MFIs.
The effect of the AP Act is not to protect the poor, but to protect the uncompetitive government-backed SHG
program run by SERP.
The AP government-backed SHG program competes directly with the private sector MFIs. The SHG program however is
failing to keep up and has lost significant market share to the MFIs. Why? According to the October 2010 Intellecap White
Paper, the government programs have “…neither the discipline needed for long-term sustainability, nor a business model that can
be scaled up effectively”x. Additionally, there is a widespread belief that the World Bank is on the point of providing an
additional $1 billionxi in funding support to SERP or a successor program. The case for this extension is believed to be
strengthened if the commercial MFI industry is weakened.
An AP Act that eliminates law-abiding private sector participants in the market and directly benefits the government-backed
provider is unfair at best and illegal at worst. Given that it will negatively impact millions of borrowers amongst India’s rural
poor, it is also unconscionable. As Vijay Mahajan, Chairman of BASIX, has stated, the AP government “is an unfair referee as it
is both player and referee.” The AP Act does not try to hide its anti-competitive aims. The text of the Act states that its goal is
“to [protect] the interests of the SHGs”xii. If the World Bank provides the much discussed $1 billion in funding to the SHG
program in AP, it will be complicit in snuffing out the private sector from Indian microfinance. According to David Roodman
of the Center for Global Development in his blog on the crisis in AP, “World Bank money has…beefed up a political economy
hostile to private sector solutions” xiii.
VII. The superior performance of private sector microfinance
Private sector microfinance has grown dramatically because it offers the best products and services to meet the
massive demand for credit amongst India’s rural poor.
Between 2008 and 2010 the number of clients of MFIs grew by an average of 61% each year, with loan portfolios growing
85% per year. The AP government-backed microfinance SHG program, on the other hand, only grew its client base by 13.6%
during the same period and its loan portfolio by 28%xiv. As an October 2010 White Paper by Intellecap stated “the MFI’s
combination of door-step service, easy credit, frequent small-value repayments and the group guarantee is attracting borrowers –
who are no longer so naïve that they cannot weigh the attractions of these factors against the lower rates of government programs”xv.
Additionally, a World Bank report found that government loan administrators sometimes demand bribes of up to 20%xvi of
the loan amount before loan requests are granted. If true, this would help explain why borrowers prefer accessing loans
through MFIs which are provided in a transparent manner, over the potentially coercive manner some SHG loan officers
provide loans. Moreover, if a borrower must pay interest of 3% per annum (typical SHG interest rate) and a bribe of 20% of
the loan amount, then the borrower’s actual cost of capital is similar to (if not greater than) interest rates charged by MFIs.
When one takes the better service offered by MFIs into account, it becomes easy to understand why MFIs are taking market
share from SHGs.
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7. A Crisis at the Bottom of the Pyramid
VIII. The Krishna precedent – having been here before, MFI clients in Krishna choose to
continue to pay.
Industry observers who have been following the microfinance sector in India for some time will recall the politically
motivated attacks on MFIs in the AP district of Krishna in 2006 (where local politicians essentially told clients of MFIs they
were no longer required to repay their loans) which almost destroyed a number of MFIs. A little known fact that has
emerged since the issuance of the Andhra Pradesh Microfinance Institutions Ordinance xvii in October 2010 is that, within AP,
the Krishna district is currently reporting the highest recovery rates (approximately 40% vs. 10-20% for other districts across
AP).
How can this be explained? One plausible explanation is that during the time of the 2006 crisis when MFIs were no longer
actively providing fresh loans, clients were forced to return to other avenues for financing - essentially either the
government-sponsored SHGs or the village moneylenders. Like everyone else, the poor have long memories when it comes
to facing less attractive choices.
IX. Consequences of the AP Act
Unless repealed or overruled immediately, the AP Act will continue to cause irreparable damage to the wellbeing of
the rural poor by destroying a large part of the private sector microfinance industry, cause large write-offs for public
and private sector banks in India and put the policy goal of financial inclusion in jeopardy.
The AP Act made it illegal for MFIs to collect outstanding loans in the field in the manner in which they and their client base
had become accustomed to. It provided that all MFIs must now register at the district level and require prior approval from
the respective District Authorities to disburse any loan. At the same time, repayments must now only be collected at
government notarized locations, a big departure from the village center meetings designed to maximize efficiency and benefit
for the client. Previously, MFIs were able to conduct weekly meetings in small groups of 40 women, which formed a critical
aspect for building and maintaining a strong credit culture and financial discipline. With MFIs now only able to collect loans
monthly as opposed to weekly, this strong repayment culture has eroded significantly. As a result, there has been a complete
standstill of disbursements and repayments in the state of AP, with adjoining states now also witnessing a spillover effect.
While this puts MFIs and banks in jeopardy, the ones who lose the most, of course, are those with no voice: the millions of
poor families across India with no access to finance in the planting season.
It is possible to get a sense of the extent of the consequences that would flow from the collapse of the private sector MFIs
by looking at the position of SHARE and Asmitha alone:
• Five million poor women in 18 states across India will lose access to finance. Without private sector MFIs,
these clients will need to rely on the limited resources, inefficiencies, and frequently unethical practices of other
sources of rural finance. Most states outside AP do not have government-backed competing microfinance
institutions, leaving these borrowers with no alternative other than the village moneylender. Five million of India’s
poorest citizens would be impacted by the collapse of SHARE and Asmitha alone - a broader collapse of private
sector MFIs across India would cause this number to multiply, putting many millions more at risk.
• Indian private Sector MFIs will ultimately fail. Due solely to the AP Act, SHARE and Asmitha are prevented from
collecting the amounts owed to them, and are therefore unable to repay these amounts to their 40 lenders. As per
recent news reports, the Corporate Debt Restructuring (“CDR”) Cell of the RBI admitted loans in excess of Rs
6,000 crore ($1.35BN) for restructuring in March 2011, involving five MFIs. However, such is the depth of the
prevailing crisis in AP that even the most forgiving of CDR packages is only likely to provide a temporary fix. It
seems clear that the effects of the AP Act on MFIs have been extremely severe. Unlike other companies that
typically end up in the CDR process, the current plight of the private sector MFIs was attributable to external
factors, i.e. the passing of the AP Act, rather than any credit weakness or operational negligence committed by the
MFIs themselves. It seems incredible and tragic that an ill-advised law passed by a state government in India can
cause the demise of several otherwise healthy and productive companies, and potentially imperil an entire sector.
• The financial inclusion agenda will suffer. To fulfill the vision of financial inclusion, billions of dollars must be lent
and collected across India. There is room for all providers of microfinance given that the needs are so great. The AP
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8. A Crisis at the Bottom of the Pyramid
Act has the underlying potential to kill leading private sector providers of microfinance, cause massive write-offs for
the banking sector and reduce the supply of both debt and equity capital to this “priority sector”, turning the clock
back 20 years when finance for the poor was primarily provided by moneylenders, poorly managed government
agencies of questionable governance and charitable organizations with limited capital. Not having been able to
conduct its normal business since October 2010, and with planting season approaching, SHARE and Asmitha are
now seeing large numbers of women coming to its branches demanding loans but who, due to the AP Act, must
leave empty-handed.
• Indian private and public sector banks will suffer substantial losses. SHARE and Asmitha alone have over Rs
2,100 crore ($475MM) in loans made to borrowers in AP. The AP Act has made it impossible for SHARE and
Asmitha to collect the amounts due for repayment. The repayment rate in AP for all MFIs is down to an average of
15%, from 98% before the Act was passed. While the terms of the CDR packages remain to be seen, the potential
for future default by SHARE and Asmitha remains material and any such default would lead to significant write-
downs at 40+ lenders of the two MFIs. Defaults by other MFIs are also a real possibility. With SKS Microfinance the
only likely large survivor of the crisis (ironically, given how much equity was raised in its IPO, SKS can afford to
write-down its entire AP portfolio without wiping out all of its equity), it is highly doubtful that lenders will ever
again extend credit to the microfinance sector.
• Thousands of people employed in the microfinance sector will lose their jobs. SHARE and Asmitha together
employ approximately 10,000 people across India. Remarkably, private sector microfinance provides employment
to more people in AP than the Information Technology industry. It is noteworthy that the IT industry as a whole
was not forced to close down when the $1 billion Satyam scandal came to light; no more so should the
microfinance industry be forced to close down, especially when, unlike Satyam, MFIs have not committed any
malfeasance.
X. The Malegam Committee Recommendations:
Even if the AP Act fails to quickly destroy private sector microfinance, the Malegam Committee recommendations, if
adopted without change, will likely achieve the same result, albeit more slowly.
The RBI is responsible for regulating non-banking financial companies (“NBFCs”), not the state governments. As a first step
toward resolving the jurisdictional breach caused by the AP government’s purported regulation of NBFCs, the RBI set up the
Malegam Committee to study the issue and make recommendations. In its draft report, the Malegam Committee thankfully
legitimized MFIs and the private sector’s involvement in microfinance and called for continued priority sector lending support
to MFIs. However, the Malegam Committee’s recommendations also gave rise to a number of concerns, as discussed below.
• Loan limits. A limit on loans of Rs 25,000 to borrowers with household income of less than Rs 50,000. This could
result in a disincentive for these clients to state their true income, or even to increase their household income for
fear of losing access to finance from MFIs. And the millions of borrowers who now cannot avail themselves of
microcredit will have limited alternatives, most likely needing to return to the village moneylender.
• A cap on interest rates and margins. It is well known that price controls create benefits for the few and shortages
for the many - in this case, the result will be a shortage of available finance. To make broad-based financial inclusion
a reality in India, the sector will need to attract billions of dollars from global capital markets. If the RBI chooses to
set pricing and margins, instead of letting competition and the market set prices, this will dramatically reduce the
amount of investment capital flowing to these MFIs, especially the equity capital they will need to maintain minimum
capital adequacy going forward while still growing.
• Provisioning norms. The report recommends much higher provisioning norms than are currently in place. If these
are implemented, because of the current situation in AP, many of the large MFIs will have to provide for and write-
off their portfolios in AP which would ultimately lead to bankruptcy.
• Increased capital requirement. An increase in the minimum capital requirement from Rs 2 crore ($450,000) to Rs
15 crore ($3.4MM), represents a 7.5 fold increase for an industry with historical repayment rates of 98% and
higher. Such a draconian and arbitrary requirement will make it nearly impossible for new companies to start or
survive, therefore reducing competition and ultimately denying potential borrowers access to financial inclusion.
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9. A Crisis at the Bottom of the Pyramid
The framework of regulations recommended by the Malegam Committee has now been broadly accepted by the RBI in its
monetary policy statement for 2011-2012. Some of the parameters recommended by the Committee have, however, been
adjusted. For example, the RBI has increased the annual income limits for eligible households to Rs 60,000 in rural villages and
to Rs 120,000 in urban or semi-urban districts. The limit on loans has also been increased to Rs 35,000 in the first cycle and
Rs 50,000 in subsequent cycles, and the interest rate cap has been raised to 26% (compared with 24% recommended by the
Committee). Detailed regulations are expected in due course.
While these adjustments are welcome, they do not go far enough - it is estimated that more than 50% of the clients of
private sector MFIs in India are above the Rs 60,000 income bracket, and the concerns around provisioning norms and capital
requirements remain. These concerns must be addressed by the RBI and central government, as the Committee itself
recognized the dangers of crippling the flow of funds to borrowers “…The Sub-Committee has cautioned that while recognizing
the need to protect borrowers, it is also necessary to recognize that if the recovery culture is adversely affected and the free flow of
funds in the system interrupted, the ultimate sufferers will be the borrowers themselves as the flow of fresh funds to the microfinance
sector will inevitably be reduced” xviii.
XI. Equity investment needed for financial inclusion
Legatum is hopeful that the RBI and the Ministry of Finance will take an active role in resolving the crisis and in bringing much
needed clarity to the regulatory landscape for microfinance. It is encouraging that the Malegam Committee has conducted
significant research and invited many industry participants to provide feedback on its draft recommendations. It is concerning,
however, that both the Committee and the Ministry of Finance may not have had the opportunity to hear from one key
stakeholder – equity investors.
Given Legatum’s significant experience in the microfinance sector, we believe it might be helpful for policymakers to hear
equity investors’ perspective on the crisis and the current recommendations. Legatum is, of course, concerned that it may
lose 100% of its investment in SHARE in a very short time. But this pales in comparison to the loss of the real victims of the
crisis – the millions of clients who no longer have access to credit to purchase seed or fertilizer in the planting season, or to
run their small enterprises which provide for their families or to send their children to school. Legatum is also focused on the
potential long-term consequences of the AP crisis and the regulatory response, and we would like to do everything possible
to ensure that as the sector recovers it can continue to avail itself of the significant amount of equity capital required to attain
the goal of financial inclusion.
XII. What is to be done?
Prior to the enactment of the AP Act prohibiting the normal operations of the private sector MFIs, repayment rates
were over 98% and the industry was healthy and growing rapidly. The source of the current crisis is also the solution
to the current crisis – namely the repeal of the AP Act.
1. Urgently repeal the AP Act. Immediately supersede, suspend or repeal the AP Act, which is the source of the
crisis. The only way to address the extensive damage being done by the Act’s effective prohibition against private
sector MFI operations is to remove it. Removal would achieve the following goals:
• Allow MFIs to collect the amounts owed to them in AP
• Allow the MFIs to meet their commitments to lenders
• Avoid the wholesale destruction of several leading MFIs
• Avert a banking crisis
• Aid the rural poor by ensuring that they retain access to microfinance services
2. Removal would also redress the current balance of power issue, ensuring that regulation of those MFIs classified as
NBFCs is returned to its rightful controller, namely the RBI.
3. Consult with equity stakeholders to ensure the new regulations do no harm. The RBI and central government
must take the time to do a full analysis with input from all stakeholders to ensure that the regulations ultimately
introduced are beneficial and that any unintended consequences have been identified and fully considered. A
cautionary tale regarding investment in India has unquestionably already been written and how the RBI and central
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10. A Crisis at the Bottom of the Pyramid
government craft the new regulations will ultimately determine whether the flow of equity and debt capital to the
microfinance sector is severed for years to come.
4. Facilitate fair restructuring of loans to MFIs to allow time for recovery. It is clear that if any meaningful
recoveries are to take place, lenders and MFIs must work together through a mutually supportive approach to
achieve a mutually beneficial outcome. With an exposure of over Rs 6,500 crore ($1.470BN) outstanding in AP,
MFIs represent the only viable way for lenders to recover their loans to MFIs, given their relationship with the end
customers. MFIs must be given the time to undo the damage inflicted by the AP Act, and to recover the loans from
borrowers. In this regard, the terms and conditions applicable to the repayment of loans admitted by the CDR Cell
for restructuring must be favorable to the MFIs to ensure they are not penalized due to the external business
factors created by the AP Act.
XIII. Conclusion
The social and economic consequences of the AP Act are stark and disquieting. Millions of poor people across India are
presently denied their fundamental right to make their own financing choices and are without access to basic financial
services, thousands of people employed in the microfinance sector have lost their jobs, countless MFIs are on the brink of
financial ruin and the long-term fate of some of the largest MFIs in India is hanging in the balance. Private sector MFIs have an
essential role to play if the goal of financial inclusion is to become a reality for the millions of India’s “unbanked”, and the RBI
and central government must take immediate action to supersede, suspend or repeal the AP Act and introduce sensible
legislation on a federal level which allows the private sector to grow and flourish.
The Malegam Committee has proposed a number of welcome recommendations and indeed affirms the value that MFIs
bring to the microfinance sector in rural India. These recommendations have now been broadly accepted by the RBI, subject
to certain adjustments. However, the constraints proposed around loan limits and interest rates, as adjusted by the RBI,
together with those around provisioning norms and capital requirements must be revisited to avoid unintended and
deleterious consequences that could permanently impact private sector MFIs. The one thing that the RBI and central
government would benefit from at this stage is being afforded the time to further develop, modify and refine the Malegam
Committee recommendations in collaboration with stakeholders to ensure that the new regulatory framework introduced
allows the sector to continue in its quest to meet the burgeoning social and economic needs of a rapidly growing India.
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11. A Crisis at the Bottom of the Pyramid
About Legatum
Legatum is a private investment group with a 25 year heritage of global investment, allocating proprietary capital in the global
markets and to businesses and programs that promote sustainable human development. Legatum Ventures invests private
capital in growing enterprises that promote prosperity in the developing world by delivering both a financial and social return.
Find more information about the Legatum Group at www.legatum.com
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i
http://www.livemint.com/2011/04/25212545/Six-months-on-loan-defaults-m.html?atype=tp
ii
The actual number could be higher as these estimates do not account for multiple accounts by a single individual. Source:
“Financial Inclusion – The Indian Experience” Speech by Smt. Usha Thorat, Deputy Governor, Reserve Bank of India at the
HMT-DFID Financial Inclusion Conference 2007, Whitehall Place, London, UK on June 19, 2007.
iii
http://www.livemint.com/2011/01/17213953/Moneylenders-push-up-interest.html?atype=tp
iv
Consolidation of data on Indian MFIs at www.mixmarket.org.
v
Intellecap estimates.
vi
http://indiamicrofinance.com/wp-content/uploads/2010/10/Andhra-MFI-Ordinance.pdf
vii
Interest rates on credit cards in India range from 29.88% to over 45%.
viii
http://www.microfinancefocus.com/content/exclusive-54-microfinance-related-suicides-ap-says-serp-report
ix
14,500 suicides occurred in Andhra Pradesh in 2009 according to the National Crime Records Bureau
x
http://www.intellecap.com/assets/82/Intellecap_Microfinance_White_Paper_Oct_2010_.pdf
xi
http://blogs.cgdev.org/open_book/2010/11/when-indian-elephants-fight.php
xii
AP Microfinance Ordinance - “Whereas these SHGs are being exploited by private Micro Finance Institutions (MFIs)
through usurious interest rates and coercive means of recovery resulting in their impoverishment & in some cases leading to
suicides, it is expedient to make provisions for protecting the interests of the SHGs, by regulating the money lending
transactions by the money lending MFIs and to achieve greater transparency in such transactions in the State of Andhra
Pradesh”
xiii
http://blogs.cgdev.org/open_book/2010/11/when-indian-elephants-fight.php
xiv
Intellecap analysis of data on MFIs at www.mixmarket.org and NABARD’s data on SHGs
xv
http://www.intellecap.com/assets/82/Intellecap_Microfinance_White_Paper_Oct_2010_.pdf
xvi
‘Scaling-up Microfinance for India’s rural poor’ - World Bank Policy Research Working Paper 3646, June 2005
xvii
The Ordinance became law in December 2010 with the enactment of the AP Act.
xviii
http://indiamicrofinance.com/wp-content/uploads/2011/01/Malegam-Report-Issues-Microfinance-India.pdf
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