Need for “India Equity Fund” with Long Term Vision for the Poor
Speech of Smt. Ela R. Bhatt, Chair Emeritus, Sa-Dhan at Sa-Dhan National Workshop on Governance & Risk Management, Ahmedabad, 17th January 2011.
There was a time when India was compared with Bangladesh that why India remain far behind in micro-finance movement. Then, we discussed “what is ailing India?” Today, we have to discuss “what is ailing microfinance sector in India”. The sector has unbelievably grown in the last 5 years; look at the pace of growth in terms of volume and clients, new players, free flow of International capital. Diverse ways of microfinance have scope to flourish in this country.
There were handful of providers in India who tried out different forms of Micro Credit –SHGs, Federations, NGO-MFIs, Independent MFIs, NBFCs. In the initial years, SEWA Cooperative Bank started retail credit, FWWB came up supporting MFIs to grow from small to medium. This is my experience overtime.
But as MFI’s (not all) grew bigger it became increasingly difficult to remain non-profit, they (may be imperative) operated on commercial format. As they become stabilized, and big, they became acceptable by Banks–the growth continued with ICICI’s partnership leverage, SIDBI’s aggressive investment in microfinance, the bringing of private equity, charity money turned on to equity–all these factors were events of significance.
Sa-Dhan has been holding deliberations, they are timely. It is time to be more serious, not cynical. I am not. It is time to revisit, search, re-search our common shared goals, our motives deep down our soul. Cynicism we can’t afford. It is the poor, particularly poor women who are the ultimate sufferers. We are in serious business with the poor,we can’t let them down. We have to regain our lost – whatever little – credibility.
All MFIs have not failed in their mission. We have to show the positive work that is being done by MFIs. We should outnumber failures with much more positive work that is being done. Our work will say the positive story. If need be, we MFIs should admit our failings, our mistakes. That is healthy business, healthy public life. We are all responsible to the society to all.
While deliberating the revisit, I have two suggestions that I am keen to share with you.
Let us make a demand for an Indian Equity Fund, large in size, say Rs. 5000 Crore to serve 500 MFI’s need in India. A fund that is client-centric with a long term vision vis a vis the poor, with our deepened engagement with clients, to produce multiple –diverse products. I would assume slower growth at the bottom line, moderate surplus / profitability and assessment of positive impact on clients’ lives. I assume the fund will be a mix of patient capital: which is both risk funding and loan support . An independent , autonomous body professionally mooted it will be. The fund will work closely with public financial institutions to leverage its own investments.
The resources generated will be redeployed into the sector; within country. There will be no risk of flight of capital beyond the borders of India.
Let the fund stay; say for 15 years, moderate returns in the form of declared dividends, not in the form of capital gains. I am indeed keen on this. I believe that this is time to launch such India equity fund for the Government of India. It will facilitate the progress of the Micro finance movement from poverty to sustainability.
I have a second point. I often think that we are missing a larger picture of the issues of our country?-The issues like hunger, food, water, forest –violence particularly. We see anger and violence, what is worrisome is rampant unemployment amongst the young. There is a demography driven upsurge in our country.
In any country, in any culture, when the proportion of 15-29 years olds swells beyond 20 percent, it creates a serious matter of worry. We already see violent eruption all around us. Youth today is in turmoil. Youth needs a purpose to live, to perform his / her abilities.
By 2020 and beyond, as the experts say, the 15-29 age groups will be rising 1.2% annually. This is the early working age population that needs MFIs’ attention.
Of course, many of them will find gainful employment, but many more will be building over, frustrated, angry. They will be available as cannon fodder for the wild–eyed politicians and extremist or for any so called ’cause’. Feeding the young is easy but keeping them productively, meaningfully engaged so that their energies are used constructively is definitely tougher. I see that our MFIs active role, here.
My emphasis is on youth and on strategic lending. Call it ‘Livelihood finance ‘or ‘Youth finance ‘. Micro credit –the meaning of credit is trust in Latin. Banking to me is continued relationship of trust. Let us build such relationship with the youth of India. As t he experts say, by 2025, the demographic surge will begin to subside but we won’t know what kind of country we will be left with, by then!
Therefore Microfinance cannot miss the macro picture. Microfinance had emerged out of development paradigm. We succeeded because it was needed by the poor. MFIs were needed, and are still needed by the poor.
Thank you Ela R Bhatt