Tuesday, November 2, 2010

Nail Down the Exorbitant Financing

The Economic Times dated on October 30th2010 {Saturday} rightly placed its views in editorial that banks shouldn’t be forced for lending to Micro Financial Institutions {MFIs} under the Priority Sector Lending {PSL} albeit it straightly down while narrating MFIs as an improvement over conventional money lending system with further advice to RBI regarding the repercussions of interest control on this 27,000 crore rupees Microfinancial business. In the same page, independent views of V.Raghunathan “Permit MFIs higher interest rates” artificially and even better say hypothetically tried to end the genuine acrimony persisting among the MFIs, regulators and targeted clients…views shown by him candidly deciphering the structured backup for the greedy tendencies of MFIs.
The recent broke out at top management level in George Soros backed SKS Microfinance which hitherto have known for experiencing early innovations in Indian financial market have suddenly escalate the scenarios in swift maligning pace to entire Microfinancial sector. Vikram Akula {CEO, SKS Microfinance}, who have received accolades that is lucidly many times of summing the rest alls glamorous quotient for foraying and miraculously absorbing the less privileges dire needs in overt Spartan camouflage.
Height of MFIs limelight came out with the recent success of SKS Microfinance IPO that fetched $358million but before again leaving contagious bandwagon on its wayfarers, it completely caught under the radar of regulators and political parties for proliferation of bad ethics and finance-both within the organization and beyond…?

These institutions completely rest on the overall compulsions of banks struggling to complying with the Priority Sector Lending…they have to disburse at least slightly above of theirs one-theirs of total finances to weaker sections, unemployed, Rural sectors, MFIs etc. In my earlier article, I have elaborated on this subject in detail-how except Regional Rural Banks {RRBs}, not a single Indian bank is disbursing the requisite amount in proper manner…hence, they are banking upon on easy target like MFIs.
They lend them at 11-12% without any default and found freedom from cumbersome process of envisaged compliances…it’s a sort of ethical violation of Indian Constitution’s many articles and notably one its heart “Directive Principles” that is the originating point of Priority Sector Lending or Responsible banking. Founding easy capitalization, MFIs in India summarly violates all sort of moral imperatives in theirs business conduct…many of its ex Wall Street bankers CEOs are capitulating better the commercial pastures than their competitor moneylenders in the race of exorbitant charges. At present most of MFIs are charging near about hovering34%; 22 more than the Indian banks and around less 20% lesser than moneylenders…doesn’t it practicing like patronized moneylenders even under the eagle eyes of RBI?

The kind of business MFIs is dwelling with essentially undeserving to get any more cheap and easy capitalization from Indian banks under the quota of PSL…until the Y.H.Malegan committee report come into place, RBI must seriously look into this specific angle. If a cunning investor like George Soros is taking keen interest in MFIs, it signals something substantial advantage in favour of MFIs in India…intriguing to note that how unethically social capital being transfused for the accomplishment of maddening commercial goals. That’s the main reason, why so far private equity business have not mingled with the burgeoning MFIs…theirs money have few takers in Indian Microfinance business as our banks are more than generous in lending to these unaccountable institutions!

At this point, RBI should ensure the uniform lending rates to all the financial institutions irrespective of the nature of theirs incorporation besides the softening of collateralized loans in Microfinancial segment of banks. Why Microfinancial business should not converge with our real economy? Our banking system is quite robust and mature to trace and cater the financial needs of disadvantaged section without imitating the idealistic notional model of Md. Yunus from Bangladesh whose model is shambling in India through Private MFIs.
RBI before taking any further stances over this issue must enter into an ideation fray along with NABARD with keeping the goal to align Scheduled Commercial Banks, Private Banks and Co-operative Banks with hassle-free Microfinances. Second one, to create a competitive ground for bottom level financing where MFIs or NBFC have to compete with the banks…competition is always good in capitalism unlike the socialistic system where patronism of state plays major role. So, without swapping their inherent characteristics, Indian financial system should create a level playing field for bottom level financing…now goal should be to nail down the hasslefull and exorbitant financing out of sight instead to confusing idealism with Kurta clad CEOs!
Atul Kumar Thakur
November 1st2010, Monday
New Delhi


  1. A big concern-liked your concern and very clear details of actual happening in the financial industry-Ranjan Sen,Delhi

  2. Microfinance...truly next best only to moneylending.Regulations are shouting to check the wrong doings.Exorbitancy of lending rate is really an unethical practice.
    Ashutosh Thakur

  3. Thanks for a brave article on gloomy state of affairs inside the Microfinance business in India.Your views expressed the things in detail with claer clues to readdress the existing maladaies.Anyway,RBI as catalyst have to play a rational role in keeping Microfinance companies on ethical track,beyond of present doomsdoing.
    Amit Ganguly