Microfinance

Why this Kolaveri…. Kolaveri …Kolaveri Di? – A Microfinance Song

By Santhanam S

Email : santhraj5@gmail.com

Why this Kolaveri…. Kolaveri …Kolaveri Di?. The way  each actor in micro-finance Sector will sing the popular song. 

The ‘Why this kolaveri  Kolaveri Kolaveri Di?’ (Why is this rage for killing?) song from actor Dhanush’s Tamil film ‘3’  has become one of the most popular songs crossing  the boundaries of India. Every day,  a new version of the same song is being uploaded and shared by its fans.  The song has reportedly crossed 15 million hits on Youtube.  A look at the events in the micro-finance sector made me feel that it will fit well for all  the various players associated with it.

i.  From promoters of MFIs

In July 2011,  in an interview to ‘livemint.com’, the headlines flashed the following caption

‘India’s oldest microfinance firm on the verge of closure –  Mr Vijay Mahajan-promoted Bhartiya Samruddhi Finance, India’s oldest microfinance institution, is collapsing under the burden of bad loans’.   The whole interview epitomised the cry of the representatives of  promoters of various micro-finance institutions (mFIs) in general and particularly those operating from Andhra Pradesh.  At one point of the interview,  Mr Vijay Mahajan says that there is no cash with  the company ……… if it is unable to raise Rs.250 crore, the company will collapse. At another point, he laments that for having worked with all passion for financial inclusion work and livelihood promotion work  and demonstrated 99%  plus repayment for 15 years.….without any subsidy from any government……..instead of  applauding his work  they are destroyed………all will be dead in the long run, but, we may be alive in the long run but dead in the short run…..it is the death knell to the micro-finance sector.

Mr Tamal Bandyopadhyay, the editor of  ‘livemint.com ……You seem to have given up completely, your body language tells all…

Alongside, SKS Microfinance Ltd, the only public limited company which was put on the mat with all types of  dirty linen getting washed in public by the management and others.  Greed, self-interest over public interest, blood suckers and all sorts of negative adjectives and phrases were used to describe the goings on in the company.

People  criticised even those  held in high esteem like Mr Narayana Murthy as he had invested in the company.   A pre-IPO analysis of  the company by Prof Sriram of IIM became a holy book like document for making any reference and it appeared to contain  all the vital clues necessary to bring an apocalypse. The company went to the Supreme Court  complaining that the  AP Government’s micro-finance Act has destroyed it completely.  Then, came the exit of  Mr Vikram Akula, the promoter of the company and the replacement with a more energetic  and experienced banker Mr PH. Ravikumar.

Adding fuel to fire, the RBI in its latest circular dated 02 Dec 2011 has be very specific about the capital adequacy of those NBFC-MFSs in Andhra Pradesh. Accordingly, the CRAR for NBFC-MFIs which have more than 25% loan portfolio in the state of Andhra Pradesh will be at 12% for the year 2011-2012 only. Thereafter they have to maintain CRAR at 15%.

Similar examples can be cited from Andhra Pradesh.  All fingers pointed  to the famous (or infamous) ‘the Micro Finance Institutions (Regulation of Money Lending) Act’  introduced by the Andhra Pradesh government.

Vijay Mahajan and others similarly placed MFI promoters will be happy to sing the ‘Why This Kolaveri Kolaveri  Kolaveri Di?’ song to the AP Government / other governments. Will the governments listen to it?

ii.  From Governments (State and Central)

It may not be surprising if some researcher comes with a finding  that the reams of  paper used in  writing about the Andhra Pradesh crisis of MF –  for and against the action taken by the government,  have consumed a whole forest of trees.  It is mainly because,  Andhra Pradesh is having the largest number of  SHGs and also MFIs in India.  SHGs were promoted and nurtured actively by the Andhra Pradesh Government.  It found that the growth of micro-finance institutions (MFIs) was coming in the way of its flagship programme of SHG linkage banking.  Added to that, series of suicides of farmers and users of micro-credit led the government to act against the MFIs in the State. Hence, it brought out the   Microfinance Institutions (regulation of money lending) Ordinance, 2010. The preamble to the Ordinance ran like this:

‘An Ordinance to protect the women Self Help Groups from  exploitation by the Micro Finance Institutions in the State  of Andhra  Pradesh and for the matters connected therewith or incidental thereto’

It went on to defend its position saying that it  has facilitated organization of the below poverty line households into SHGs for the purpose of their economic advancement  by  achieving  financial  inclusion  through  linking  with  the banking network. But, according to the State Government that  these SHGs were exploited by private MFIs through usurious interest rates and coercive means of recovery resulting in their impoverishment and in some cases leading to suicides of SHG members. So, it was felt that  its paramount duty was to protect the interest of the SHGs by regulating the money leading transactions by the money lending MFIs and  achieve greater transparency in such transactions in the State.

A few other states where the State Governments operate their own SHG linkage programmes also felt the tremors of Andhra Pradesh  reaching their states as well. So, they also wanted to protect their  SHGs (some were well nursed and a number of them were mal-nourished also) from the inroads made by MFIs.

As far the Government of India is concerned, it started to join the programme by initially tweaking DWCRA, a component of  the then popular  IRDP and  creating what was popularly known as Swarnajayanthi Gram Swarozgar Yojana (SGSY).  This programme also ran into rough weather due to various internal and external factors. Now, it has come in  a new avatar in the name of  National Rural Livelihood Mission (NRLM). The backbone of  NRLM  is the SHGs and their SHG Federations which will function more or less as like MFIs to their members. But, most of the criticisms of the governments both at the Centre and the States were aimed at MFIs which made  deep inroads into  the SHG movement and destroyed or almost destroyed it in a number of states.

As a final toast to the cries of MFIs, Government of India is sitting on a draft Bill on Micro-finance which it threatens to approve at an appropriate time to increase the heat on MFIs.

These observations have  their merits and demerits, support and criticism from the analysts, promoters and above all,  the users of these MFIs, namely the low income rural households.

So, it is equally appropriate for the Government of India and State Governments, more particularly the State Government of Andhra Pradesh to sing the  ‘Why This Kolaveri  Kolaveri  Kolaveri Di?’  song to the MFIs who it claimed virtually killed the SHG linkage programme and in turn the poor.

iii. From Regulator and Supporters (banks/funders)

 From the beginning of the neoteric micro-finance in India, say 1992, the Reserve Bank of India (RBI), the Regulator has been playing the role of  Vishnu (Protector) by providing all the flexibility for the then pilot project of SHG Bank linkage designed by NABARD,  to grow in to a movement.  Simultaneously,  it also encouraged growth of MFIs operating in the non-profit institutional mode (NGOs, Sec-25 Companies, Coops etc).  Then, it also allowed the for-profit institutional mode also to play the role of MFIs (NBFCs). But, within a short time, the for-profit institutional mode has started occupying  the central stage and virtually making all other types either non-existent or powerless.  Though there are no precise data to indicate the exact number of MFIs in the country covering all institutional  modes, there are over 300 MFIs in the non-NGO sector. But, no names other than about 10 of the MFIs like BASIX, SKS, Spandana, SHARE, Bhandan, DHAN etc., are being heard in every forum in proving the Pareto Principle of 80-20.

So, the Regulator brought various forces (Task Forces and Committees) to contain and teach the rules of the game to the MFIs. The last one was the Malegam Committee which among other things capped the interest rate on loans by MFIs, restricted the number of MFIs to two to provide loans to the same  borrower and host of other conditions.   Mrs Shashi Rajagopalan, a member of the Committee said that the refrain that the Malegam committee report will push poor women back to the moneylender is quite unfounded.  Latest, RBI has come out with its guidelines dated 02 Dec 2011, on introduction of new category of NBFCs called NBFC-MFIs.

NABARD on its part has been playing the second fiddle to RBI by carrying out all the instructions relating to micro-finance issued  by the latter. Earlier, they were the leaders and their voices heard by the sector. Now,the roles are reversed  and  taken over by RBI through  its various actions from time to time and particularly in the MFI related areas.  But, the lion in the den is making the right noise now and then. Recently, in one of the programmes attended by Dr Prakash Bakshi, Chairman, NABARD, he brought home the simple truth saying that  ‘ if we think that poverty can be eradicated by putting more money in the hands of the poor, then, we should have no poor people in India by now as we have been doing that for several years. Eradication of poverty and inclusive growth require much more than mere consumption credit. And savings should be  a very critical component of any strategy, as is in the SHG bank-linkage program…….He further added that ‘given that much of the MFI related crisis has been happening time and again, it is clear that, we have not learnt from past crisis situations and also, we seem to have tackled the symptoms more rather than the real causes.’

Bankers on their part played their role by creating innovative financial products.  The  ICICI Bank  offered ‘on-tap securitisation’ and ‘partnership product’, SIDBI offered liquidity support in the form of an innovative ‘transformation loan’ at subsidised interest rates for the not-for profit MFIs to ‘convert’  in to for-profit entities. These measures enabled other funders to develop similar products and also offer equity investments in these MFIs.

Of late, it is understood that gold loans are also offered to the members of MFIs thus virtually losing the character of the MFIs.  So, if we study the way the regulator  and supporter of the regulator viewed the MF sector and the MFIs in particular, they apprehended  that some destructive forces will be unleashed on the poor and vulnerable section of the society.  On the other hand, the bankers looking for an acceptable route to meet the priority sector lending commitment   offered  chocolate quoted products to the MFIs and the rest is history. Now, all banks have debt exposure to the MFIs to  their brim and now they are  in the game of restructuring them. Same is true of the equity investors who showered all their affection to the MFIs during the initial stages, lately  started realising that they are caught  in a whirlpool which pull them down to the bottom of the pit.

So, it is equally appropriate for the Regulator, its supporter, the bankers and other funders to sing the ‘Why This Kolaveri Kolaveri Kolaveri Di?’ song to the MFIs.

iv. From Users – unreached/ underserved/ poorest/ poor/ not-so poor/ ultra poor/ urban poor/ rural poor/ low income household.

As for users, I do not find a single definition being followed by any of the players who work in  the micro-finance sector.  I tried to look at various names in which they are called by a number of institutions.  List will be exhaustive.  So, I have given a short list who are supposedly covered by the MFIs. But, when it comes to problems of finance, all those categories indicated above will be very much there.

In this world,  poor are everywhere. Everyone wanted to make their living better. When the modern day micro-finance programme was not there (before 1992),  governments and NGOs were mainly taking some interest in the poor.  The term micro-finance itself was given to the programmes of the poor through private sector intervention around the last decade of the last century. Earlier, the poor were supported through various government programmes. With the term micro-finance coined and a few models of financing them were pilot tested, a whole lot of organisations in the name of MFIs descended on the scene and wooed the poor through one financial product after another.  Initially, it appeared to be a win-win game for both the poor as they did not find anyone else to help them and the promoters of MFIs as they found new business opportunities to become entrepreneurs in their own way.

The United Nations set Millennium Development Goals (MDGs) and listed as many as eight MDGs to address the problems of the Poor. Of these, MDG -1 was to ‘Eradicate extreme poverty and hunger’.  As part of MDG-1, a target was fixed to halve, between 1990 and 2015, the proportion of people whose income is less than $1 a day. In 1990, there were 1.8 billion people living on less than $ 1.25 a day.  This is expected to come down to 920 million by 2015.   According to the UN Report  on MDGs for 2010, an estimated 1.4 billion people were still living in extreme  poverty in 2005. Moreover, the effects of the global financial crisis are likely to persist. Poverty rates will be slightly higher in 2015 and even beyond, to 2020, than they would have been had the world economy grown steadily at its pre-crisis pace.  The World Bank body, the CGAP started with a Mission to help support the Poorest (the P in CGAP then stood for). But, somewhere down the line, it realised that it cannot support the Poorest and so it modified its Mission to help support the Poor (the P in CGAP as it stands today).  So, there is no surprise there are a variety of names for the same category of people.

See, what the State of the Sector report 2010 indicates that out of 60 MFIs which reported on profitability, six had ROAs over 7%; thirty five had ROAs over 2%. In contrast the public sector banks in 2009 had average ROAs of 0.6% with the best being 1.6%, while the best private bank had ROAs of 2%. The yield on portfolio confirms this picture; in the case of 23 MFIs it was above 30 %(the highest being 41.29%).  The report also says that economies of scale have not led to lower interest rates or lower yields. This implies that MFIs maximized their profits and competition did not decrease rates as it was expected to. The largest MFI recorded a 116% jump in net profit at Rs 81 cr  in the second quarter ending September 2010 as against the corresponding period last year. All by serving the  poor.

Now, the same MFIs are crying that they have lost all their money and are threatening to close their shops if circumstances do not improve in their favour. But, who will improve the circumstances in favour of the poor?  Added to that,  criticisms by leading voices like Dr C Rangarajan who said that “The business model of microfinance institutions is faulty. They must revisit the model to support the income earning ability of the borrower,” makes the situation of the poor worse than before, who need to access  financial services from MFIs.  

Mr Aloysius Fernandez of MYRADA, a pioneer in the area of micro-finance once said that those who work in the sector should understand  that  poor do not need us, only we need the poor as we do business with them.   Golden words to be remembered by all those working in the micro-finance sector.

Governments raised the hopes of poor; the world Bodies raised the hopes of poor; the MFIs raised the hopes of poor; and  the Regulators/ Supporters/ Banks/ Funders also raised the hopes of poor.  Hopes remain hopes and the poor remain poor.

So, users of micro-finance let down by all those surrounding them  are also right in feeling that they should also sing the ‘Why This Kolaveri Kolaveri Kolaveri  Di?’ song loudly to make the pitch heard by all the other players in the game of micro-finance.

Conclusion

Everyone feels the Kolaveri  (rage for killing) against the other.  Let us sincerely  hope that such thoughts do not become a reality and remain only in our imagination.

In summary,  a ‘Why This Kolaveri Kolaveri Kolaveri Di?’ version as modified for the micro-finance sector is given below. Any takers to sing the song!

kolaveri kolaveri di

Hello Boys.. I am Singing Song..
Soup Song.. Flop Song..

Why This Kolaveri Kolaveri Kolaveri Di?
Why This Kolaveri Kolaveri Kolaveri Di?
Rhythm Correct..

(To be sung by MFIs)

Why This Kolaveri Kolaveri Kolaveri Di?
Maintain This..
Why This Kolaveri? Di..

Distance’la Poor’u  Poor’u
Poor’u Heart’tu White’tu
Middl’a Government Block’u Block’u

So, White’tu Background Night’u Night’tu
What to do now’u?

(To be sung by Governments)

Why This Kolaveri Kolaveri Kolaveri Di?
Why This Kolaveri Kolaveri Kolaveri Di?

Poor’u Heart’tu White’tu
MFIs did’u wrong’u wrong’u

Because’u their’u  Heart’tu Black’ku
Eyes’su Eyes’su  don’t  Meet’tu Meet’tu
So, Poor’u Future Dark’ku Dark’ku.

What to do now’u?

(To be sung by Regulator , Supporter and Banks)

Why This Kolaveri Kolaveri Kolaveri Di?
Why This Kolaveri Kolaveri Kolaveri Di?

Mama(referring to MFI promoters), Notes take’ku..
Think’u for the Poor’u
Papapa Papapapa Papapa Pa Pa..
Mama,  Right’tu route’la go go..
Šuper Mama Ready.. Ready 1 2 3 4..
What A Change Over Mama..
Oh Mama.. Nøw Why Tune Change’ju..

See’u See’u Poor’u Crying’u

Èyes’su Full’la Tear’ru
Èmpty Life’fu After Death’u.

What to do now’u?

(To be sung by Users)
Why This Kolaveri Kolaveri Kolaveri Di?
Why This Kolaveri Kolaveri Kolaveri Di?

Life’fu Reverse’su Gear’ru
You Showed  Me Love’vu Mama (MFIs)
We Poor’u Cow’vu Cow’vu Holy Cow’vu
I Want You Hear  Now’vu
God I am Dying Now’vu
Are You Happy How’vu?
This Song’gu For Poor’ru In Soup’pu
We Don’t Have Choice’su

Our Life’u Became’u A Flop Song’u..

What to do now’u?

Why This Kolaveri Kolaveri Kolaveri Di? (showing hands towards  MFIs)
Why This Kolaveri Kolaveri Kolaveri Di? (showing hands towards  Govts)
Why This Kolaveri Kolaveri Kolaveri Di? (showing hands towards Regulator and others)
Why This Kolaveri Kolaveri Kolaveri Di? (Showing hands towards Self)

5 Comments

5 Comments

  1. Ravichandran R

    December 19, 2011 at 5:52 pm

    This remark is very apt , coming on the heels of the recent tamil craze song. Yes, Kolaveri di, should not apply to such sensitive areas like micro finance , and i do hope regulators and its different partners in the musical chair wake up and take action as needed without any delay or prejudices.
    Point well brought out.

    BR
    ravi

  2. Archana Rao

    December 21, 2011 at 11:40 am

    As we sow, so we reap…and what we reap is our future out of all the efforts that we intend we are taking towards the farmers, who have been made to tune into the greatness of ‘MicroFinance in India’. The song of Microfinance has been sung by many players, in many ways…but what is now being sung louder is the ‘Kolaveri’ (rage for killing) number by each one of them…in their own ways…either by fighting it against others, or by giving up on their own lives…

    Unless there is a format where every actor in action is performing with committment, allowing change to make a wider path in creating a better future for our Farmers….in an agri-country like India….it is only going to bring in newer songs, more outrageous than the present…

    Interest is a very tricky word…unless one invests in the welfare of others, the Interest is always low! and then if it is all about SELFISH interest….it only leads to losses…for everyone.

    Micro Finance has greater benefits if there is direct approach making a grassroot welfare approach…which will create a ripple effect of growth and possibilities for the other members as well!

  3. s jagannathan

    December 22, 2011 at 1:05 pm

    a good expose on micro finance sector. It appears as in other areas of social amelioration that there is total disconnect between the philosophy behind a noble intention and the practice during implementation. The cry of anguish like that of the author of the article needs to be amplified by many others who have other perceptions and know what ails microfinance.

  4. Aswin Ramakrishnan

    December 23, 2011 at 3:13 am

    A good comparison with the current scenario in India. Though, the song / the comparison might seem to be a not-so-serious one. It definitely is one of the issues that has been affecting the economy and adding to the skyrocketing-corruption in the country.

    I enjoyed reading the article with an informative premise and a song that conveyed the message from a non-microfinance standpoint.

  5. Mani Narayanan

    December 23, 2011 at 7:06 pm

    The truth and the inefficiency of MFIs is vividly brought out through the song. It is an eye opener for both Governments and MFI’s to take it seriously and come up with better strategies for the betterment of the poor. This song suits best to the users than the other groups and to be sung by them in the rage against MFIs.

Leave a Reply

Your email address will not be published. Required fields are marked *

To Top