The lurking danger on Microfinance in India

By S S Sangra

Former Chief General Manager of NABARD. Send your feedback to sssangra (at the rate) gmail (dot) com

One comes across a very funny situation in this country when you witness credit at 4% p.a (announced in 2011-12 budget) to the landlords pursuing agriculture and moving in SUVs/ MUV’s and other high-end vehicles and the poor and landless labourer getting the same credit at 24% to 36% loaded further with several other charges (LPF, charges on providing insurance facility etc.) and the Government claims to be a Govt for the common man.

When all other sectors are having Govt intervention why is the microfinance sector left to the market forces ? Agreed that it is fraught with risk to lend to the poor then why the evolvements are not being thought of in this area. It needs both the evolvements and the Govt. attention and assistance in the shape of subvention.

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If the well organised banking sector can get the interest subvention on the loans to agriculture sector then why can’t  something similar be thought off for the agencies involved in providing credit to this vulnerable section of the society in the shape of microfinance?

Why these MFI’s whether they are For-profit or even the Not-for-profit’s , have to borrow at commercial rates from the various indigenous as well as the foreign equity participants/Banks? Why can’t the Govt think of creating an agency and earmarking substantial funds with it to encourage micro financing in the country which is needed by 30% of the Nation’s population?

I feel that there is an urgent need of doing this when both NABARD and SIDBI the promoters and saviors of the two micro financing channels (SBLP and MFI) have not been able to discharge their role commensurate to the actual field level requirements. There is no regulatory mechanism for microfinance in the country and the draft microfinance bill has been languishing for approval in the Parliament for the last 3 years. God only knows what is going to be it’s fate and under what sort of influence’s it is going to be considered for approval by the Parliament .

However, looking at the lurking danger of the ever increasing number of the poor in this country, I strongly feel that the Govt should come out with the nomination of some existing/creating a new organization dedicated to the micro financing by augmenting the MFDE Fund created with NABARD in 2005 and transferring this fund to the aforesaid organization and making it responsible and accountable for the overall development of the MF sector.

The poor not only need credit but they also need capacity building and entrepreneurship / skill development to efficiently establish and compete in the market. If the issue is not handled carefully at this stage there will be several repetitions of the Kolar and A.P. episodes in the whole country and again the poor will suffer the most.

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