MFIs - Sunlight is the best disinfectant !
MURUGAVEL
A day after the papers reported MFI's charging 60.5% , the MFI has come back saying that the there was an error in reporting the rates in view of wrong computation !!! ( Wow , I am wondering if they realized there was a computational error in charging the customers or in reporting the same to the Government !) They are still working on the exact rates ....! We will wait ...
Sunlight they say is the best disinfectant. More the disclosure, more the transparency and openness - more safer and saner is the process. The sector in general has been very opaque and taking cover behind the stated noble task of providing credit for the weaker sections - particularly women. Hopefully this time, the mask should be removed and the industry made absolutely transparent.
Rates apart, these firms were doing a strange form of 'securitisation and assignment of loan receivables' - about which I'll write after understanding how 'securitization' done with the investor taking PDCs for repayment be considered as securitization ! Anybody has any ideas on that ??
Regards
Murugavel
72001 01042
----- Original Message -----
From: "MURUGAVEL" <murug...@bim.edu>
To: "BIM_Finance" <BIM_F...@googlegroups.com>
Sent: Saturday, 30 October, 2010 13:09:50 GMT +05:30 Chennai, Kolkata, Mumbai, New Delhi
Subject: Microfinance
Today's BL carries a report saying MFIs have admitted to charging as high as 60.5% interest. And the firm which reported is BASIX , promoted by Mr Vijay Mahajan ( an IIM grad ! ), who currently is the president of Micro Finance Institutions Network ( MFIN), which is a ' self regulatory body ' !!!!! and also is the Chairman of the Washington based Consultative Group to Assist Poor (CGAP) ....so much for assistance to poor ! and self regulation !!.
I don't see how different these MFI are from loan sharks.
Most MFIs have declared a range of interest rate and have now begun to speak in terms of average interest rates - that is not right. We will need to look at the buckets to see how much of the portfolio is in what portion within that range...
Mr M.S.Sriram has this to say '' unfortunately, there have been numerous instances where our belief in the market has belied and microfinance adds to the scepticism about the school that believes only in markets'' . I fully concur with him.
I have attached his article ' Microfinance : A fairy tale turns into a nightmare' , in which he draws learnings from microfinance in Bolivia. He says ' The reading fo the microfinance movement of Bolivia in the 1990s looks like a contemporary Indian commentary. All the elements - client poaching , competition, reckless lending , over-indebtedness of the client - that eventually caused cracks in the efficient credit delivery mechanisms were present in Bolivia'.
( Dr MS Sriram is an Fellow from IIMB, teaches at IIM A and is the ICICI Bank Lalitha D Gupte Chair Professor in Microfinance )
Three issues ( which he highlights) are interesting
a) the downsides of standardisation of credit
b) the unreasonable expection and hunger for growth
c) the unreasonable expection of 100% recovery
The registration and disclosure made mandatory by AP Govt, has brought out the fact that interest rate charged by MFIs are indeed usurious. I expect ( and fervently hope) that the sector is well regulated. It is high time development is brought back into microcredit.
Regards,
J.Murugavel
72001 01042
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J.Murugavel
Bharathidasan Institute of Management
PB No 12, MHD Campus, BHEL Complex
Thiruchirapalli 620014
Hand phone: 93633 14015 / 96986 37776