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
atul_mdb@rediffmaail.com
Showing posts with label Exorbitant Financing. Show all posts
Showing posts with label Exorbitant Financing. Show all posts
Tuesday, November 2, 2010
Monday, March 23, 2009
Micro finance: A Panacea of Sustenance
Micro finance notionally stand with social aspects of economic requirements for marginal or weaker sections,both at the rural and urban spaces. It caters the micro credit for immediate requirements of initial capital for farming activities as well as for lower scale entrepreneurial activities.It introduced superb social binding over its recipients with it's theoretical aim to promote group effort during the attainment of specific enterprise.
Popularly these groups are known as Self Help Group(SHG) can be regarded as a forward move with community involvement as a key specialty potential in strengthening the social fabrics and further ushering towards the more regulated social development.
Micro finance as a concept reemerged and gained popularity in 1970’s in East Asian and South Asian countries like Philippines , Bangladesh etc: later caused for the social orientation of banking in developing nations. By which affect the formation of rural banking (Gramin Bank) in Bangladesh and India infused immense hope for inclusive development in these countries.
Dr. Muhammad Yunus received accolades and numerous international awards for his extraordinary accomplishment, so much so that many believe that Micro finance as an institution began only in the 1970’s and that too only in Bangladesh. In fact there have been also earlier claim of successes like William Reiffcisen’s village banking movement; another noteworthy was caisse populaire of Alphonse Desjardins in France were amongst the notable instances where considerable improvement was brought in the condition of the extremely disadvantaged peoples.
Such early conceptions were not entirely hypothetical, though all the previous success of Micro financial activities were not operationalised in an organized banking system,so, such initiative were largely remained confined beyond the institutional pattern.
So, seeing huge success of Gramin Bank in Bangladesh under the visionary leadership of Md Yunus and satisfactory success of Indian Gramin Banking (RRBs) in their goal; now this so far untapped sector is drawing fresh insights from commercial banking NBFC and NGOs.Over the years,Micro finance has emerged as promising way to check the poverty and empowering the underprivileged especially Women, Unemployed and Disabled.
In India a measure policy initiative was made by NABARD in 1992,for SHG-Bank linkage as a pilot project which in course of time grown into one of the largest micro finance programme in the world.
IN AN ANOTHER GREAT MOVE:-
The NABARD is planning to start a MFI to take financing to the” poorest of poor”. The venture will be launched in partnership with Commercial Banks(49%) and NABARD(51%). NABARD will also launch a Financial Advising unit to help bring down the high incidence of farmers suicides.
Despite observing high growth of rural credits and other small segments of lending in last decades the formal sector, nevertheless Microfinance accounts for less than 40% of the agriculture and rural credit; these demonic reality still haunts the welfare aim of institutional finance.Another alarming area of concern would be the burgeoning SHG and Microfinancial organizations becoming a favourite hobby horse of the NGO for exorbitant business that is going to be a grave challenge for original conception behind this movement. Most of them fail on all the basic criteria. Such tendencies needs an immediate cure through stringent regulatory mechanism…
Recently the Government is also proposing a legislation by which it will be able to regulate the Micro financial institutions to ensure fair, equitable and ethical practices and democratic functioning but that regulatory checks must be timely implemented before loosing the essence behind this social venture.Legislation also propose a ceiling of Rs50,000 by MFI; which is considerable in rural segments of Micro credit but will not be suffice in enterprise finances. NABARD would be its regulator.
In some more forward move banks must approach to a customized savings products targeting the poor. NGO should assist SHG to usher in flexible savings options too likewise banks and MFI should deliver agricultural seasonal loans with flexible repayment options through groups on a pilot basis.
Here it’s a chance to create a Micro financial promotional agency on the lines of Pali Karma Sahayak Foundation (PKSF) of Bangladesh programmes.Government must consider making NABARD MCID (Micro Credit Innovational Department) an autonomous promotional body. Having lower competitions among MFI is an another area where the India lag behinds from Bangladesh. Here some innovations are needed in Indian financial sector to infuse competition in Micro financial segments.
This is need of hour to innovate the existing products and introduce to some new product lines. Such some products which has called attention in Bangladesh can be also effective in India because of having many common grounds between two countries, some of those are: -
I. Risk Mitigation – As their insurance programmes are community managed on the basis of mutuality, they do not extend cover for risk of a co-variant nature, such as flood cover and crop failure.
II. Flexible Savings – To cope with food insecurity, employment insecurity etc.
III. Agricultural Finance- This product is already exists in India; only it needs more optimization for better needs and outcome.
IV. Larger Individual Enterprise Loans- This segment has drawn attention from policy makers like Dr Arjun Sengupta, chairmen, National Commission for Enterprise in the Unorganized Sector (NCEUS) expressed his views “If Micro finance properly nurtured and strengthened the unorganized non farm sector can be a pertinent tool of employment creation, poverty reduction and faster inclusive growth and would go a long way in closing the widening devide between urban and rural India.
NCEUS targeted fund corpus of 1,000 crores by 2011-12,target group for this corpus are small enterprise and the unorganized sector covering non farm activities employing less than 10 workers, primarily those with investment in plant and machinery not exceeding Rs5 lakh (excluding land and building at 2004-05 prices) if engaged in manufacturing and investment in plant machinery not exceeding Rs 2 lakh if engaged in non manufacturing.
However the upper limit of financing by the fund would be for enterprise with investment in plant and machinery not exceeding Rs25 lakh if engaged in manufacturing and investment in equipment not exceeding Rs 10 lakh if engaged in non manufacturing activities. As the commission cites the third census of SSI(2001-02);98% of all the manufacturing non agricultural small enterprise employed less than 10 works with an average capital investment of Rs1.47 lakh, quite a good number of them are also engaged in service business and trade.
Despite having all such arrangements, they hardly received about three percent of gross bank credit during 2002-03 to 2004-05 against the RBI priority sector plan that Micro enterprises should get 60% of total credit to SSI, they have been getting just about 40% and this had skidded to 34% in 2004-05.Even more surprising within the non farm, unorganized sector, the most vulnerable group is the smaller size micro enterprises with investment up to Rs 5lakh.
Here it will be quite imperative to channelize better policy options to minimize the suffering of this sector and enabled them for more healthy functioning. It could be a major area of employment generation, which follows by its stabilizing factor to domestic economy, So Government must also leveraged corporate to enter in Micro financial sector in more efficient and regulated manner-away from exorbitant aim of business.
Present presence of Corporate is still standing in obscure proportion, hope they will more motivated in near future with obeying the regulatory norms.In recent years Indian financial institution specially the Regional Rural Banks, some commercial Banks and to some extant Co-operative Banks displayed healthy trends in delivery of Micro credits in rural areas for farming and other employment generation programme. With merger and consolidation, RRBs being able to systematize restructuring of its business and healing from previous loss, now strengthening RRB; would indeed influence much stoutly to Micro finance programmes in near future.
Its huge branch network and strong presence in rural areas would be the most strategic factor in rural credit disbursement.Having tuned negatively for their poor financial structure and inefficient management system ; Co-operative Banks lost much of its reputation as pioneer of Micro financial movements.
Though implementation of Vaidyanathan committee is infusing some new hopes for their strategic revival. If it will able to regain its potential glory then, of course the task of mushrooming productive Micro credits would become much smooth.In present circumstances of financial meltdown, it would be desirable for Indian policy makers to stressed more on domestic financial features ; because it’s sheer domestic demand which is catalyst in sustaining the growing economy.
Hope the Micro financial programme along with other Priority sector programmes would get more attentions from policy front irrespective of any political rotations...besides RBI and NABARD have to keep vigil alive to not let deviate the social orientation of Microfinance for exorbitant greed of business by Corporates.
Atul Kumar Thakur
New Delhi
23rd March2009
atul_mdb@rediffmail.com
Popularly these groups are known as Self Help Group(SHG) can be regarded as a forward move with community involvement as a key specialty potential in strengthening the social fabrics and further ushering towards the more regulated social development.
Micro finance as a concept reemerged and gained popularity in 1970’s in East Asian and South Asian countries like Philippines , Bangladesh etc: later caused for the social orientation of banking in developing nations. By which affect the formation of rural banking (Gramin Bank) in Bangladesh and India infused immense hope for inclusive development in these countries.
Dr. Muhammad Yunus received accolades and numerous international awards for his extraordinary accomplishment, so much so that many believe that Micro finance as an institution began only in the 1970’s and that too only in Bangladesh. In fact there have been also earlier claim of successes like William Reiffcisen’s village banking movement; another noteworthy was caisse populaire of Alphonse Desjardins in France were amongst the notable instances where considerable improvement was brought in the condition of the extremely disadvantaged peoples.
Such early conceptions were not entirely hypothetical, though all the previous success of Micro financial activities were not operationalised in an organized banking system,so, such initiative were largely remained confined beyond the institutional pattern.
So, seeing huge success of Gramin Bank in Bangladesh under the visionary leadership of Md Yunus and satisfactory success of Indian Gramin Banking (RRBs) in their goal; now this so far untapped sector is drawing fresh insights from commercial banking NBFC and NGOs.Over the years,Micro finance has emerged as promising way to check the poverty and empowering the underprivileged especially Women, Unemployed and Disabled.
In India a measure policy initiative was made by NABARD in 1992,for SHG-Bank linkage as a pilot project which in course of time grown into one of the largest micro finance programme in the world.
IN AN ANOTHER GREAT MOVE:-
The NABARD is planning to start a MFI to take financing to the” poorest of poor”. The venture will be launched in partnership with Commercial Banks(49%) and NABARD(51%). NABARD will also launch a Financial Advising unit to help bring down the high incidence of farmers suicides.
Despite observing high growth of rural credits and other small segments of lending in last decades the formal sector, nevertheless Microfinance accounts for less than 40% of the agriculture and rural credit; these demonic reality still haunts the welfare aim of institutional finance.Another alarming area of concern would be the burgeoning SHG and Microfinancial organizations becoming a favourite hobby horse of the NGO for exorbitant business that is going to be a grave challenge for original conception behind this movement. Most of them fail on all the basic criteria. Such tendencies needs an immediate cure through stringent regulatory mechanism…
Recently the Government is also proposing a legislation by which it will be able to regulate the Micro financial institutions to ensure fair, equitable and ethical practices and democratic functioning but that regulatory checks must be timely implemented before loosing the essence behind this social venture.Legislation also propose a ceiling of Rs50,000 by MFI; which is considerable in rural segments of Micro credit but will not be suffice in enterprise finances. NABARD would be its regulator.
In some more forward move banks must approach to a customized savings products targeting the poor. NGO should assist SHG to usher in flexible savings options too likewise banks and MFI should deliver agricultural seasonal loans with flexible repayment options through groups on a pilot basis.
Here it’s a chance to create a Micro financial promotional agency on the lines of Pali Karma Sahayak Foundation (PKSF) of Bangladesh programmes.Government must consider making NABARD MCID (Micro Credit Innovational Department) an autonomous promotional body. Having lower competitions among MFI is an another area where the India lag behinds from Bangladesh. Here some innovations are needed in Indian financial sector to infuse competition in Micro financial segments.
This is need of hour to innovate the existing products and introduce to some new product lines. Such some products which has called attention in Bangladesh can be also effective in India because of having many common grounds between two countries, some of those are: -
I. Risk Mitigation – As their insurance programmes are community managed on the basis of mutuality, they do not extend cover for risk of a co-variant nature, such as flood cover and crop failure.
II. Flexible Savings – To cope with food insecurity, employment insecurity etc.
III. Agricultural Finance- This product is already exists in India; only it needs more optimization for better needs and outcome.
IV. Larger Individual Enterprise Loans- This segment has drawn attention from policy makers like Dr Arjun Sengupta, chairmen, National Commission for Enterprise in the Unorganized Sector (NCEUS) expressed his views “If Micro finance properly nurtured and strengthened the unorganized non farm sector can be a pertinent tool of employment creation, poverty reduction and faster inclusive growth and would go a long way in closing the widening devide between urban and rural India.
NCEUS targeted fund corpus of 1,000 crores by 2011-12,target group for this corpus are small enterprise and the unorganized sector covering non farm activities employing less than 10 workers, primarily those with investment in plant and machinery not exceeding Rs5 lakh (excluding land and building at 2004-05 prices) if engaged in manufacturing and investment in plant machinery not exceeding Rs 2 lakh if engaged in non manufacturing.
However the upper limit of financing by the fund would be for enterprise with investment in plant and machinery not exceeding Rs25 lakh if engaged in manufacturing and investment in equipment not exceeding Rs 10 lakh if engaged in non manufacturing activities. As the commission cites the third census of SSI(2001-02);98% of all the manufacturing non agricultural small enterprise employed less than 10 works with an average capital investment of Rs1.47 lakh, quite a good number of them are also engaged in service business and trade.
Despite having all such arrangements, they hardly received about three percent of gross bank credit during 2002-03 to 2004-05 against the RBI priority sector plan that Micro enterprises should get 60% of total credit to SSI, they have been getting just about 40% and this had skidded to 34% in 2004-05.Even more surprising within the non farm, unorganized sector, the most vulnerable group is the smaller size micro enterprises with investment up to Rs 5lakh.
Here it will be quite imperative to channelize better policy options to minimize the suffering of this sector and enabled them for more healthy functioning. It could be a major area of employment generation, which follows by its stabilizing factor to domestic economy, So Government must also leveraged corporate to enter in Micro financial sector in more efficient and regulated manner-away from exorbitant aim of business.
Present presence of Corporate is still standing in obscure proportion, hope they will more motivated in near future with obeying the regulatory norms.In recent years Indian financial institution specially the Regional Rural Banks, some commercial Banks and to some extant Co-operative Banks displayed healthy trends in delivery of Micro credits in rural areas for farming and other employment generation programme. With merger and consolidation, RRBs being able to systematize restructuring of its business and healing from previous loss, now strengthening RRB; would indeed influence much stoutly to Micro finance programmes in near future.
Its huge branch network and strong presence in rural areas would be the most strategic factor in rural credit disbursement.Having tuned negatively for their poor financial structure and inefficient management system ; Co-operative Banks lost much of its reputation as pioneer of Micro financial movements.
Though implementation of Vaidyanathan committee is infusing some new hopes for their strategic revival. If it will able to regain its potential glory then, of course the task of mushrooming productive Micro credits would become much smooth.In present circumstances of financial meltdown, it would be desirable for Indian policy makers to stressed more on domestic financial features ; because it’s sheer domestic demand which is catalyst in sustaining the growing economy.
Hope the Micro financial programme along with other Priority sector programmes would get more attentions from policy front irrespective of any political rotations...besides RBI and NABARD have to keep vigil alive to not let deviate the social orientation of Microfinance for exorbitant greed of business by Corporates.
Atul Kumar Thakur
New Delhi
23rd March2009
atul_mdb@rediffmail.com
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