Sreelatha Menon: Let MFIs die

How the AP govt is reinterpreting microfinance
Sreelatha Menon / New Delhi January 11, 2009, 0:00 IST

The Society for Elimination of Rural Poverty’s massive network of self-help groups and their linkages with banks in Andhra Pradesh has done a great job of combating poverty.

The Andhra Pradesh government is reinterpreting microfinance. Its Society for Elimination of Rural Poverty (SERP) today claims to be the largest microfinance institution in the world. SERP has done this through a massive network of self-help groups and their linkages with banks, covering 9.6 million women more than Grameen Bank’s 6.7 million and BRAC’s 6.3 million.

The groups have a savings corpus of Rs 3,000 crore while bank loans to self-help groups (SHGs) went up from Rs 200 crore in 2001 to Rs 5,900 crore last year.

The aim, SERP says, is to mobilise Rs one lakh crore by 2013-14 and have a bank in very village (which makes it 35,000 bank branches) with a woman SHG leader as business correspondent.

The programme is the state’s version of Swarna Jayanti Grameen Swarojgar Yojna of the Centre. Now, the latter is copying the model for the rest of the country. The formula for removing poverty is putting Rs 1 lakh in the hands of a family through repeat loans over a period of six years.

P Gracamma of Jakkaran village in Kalla mandal of West Godawari district is a government health worker and a member of a SERP group.

There are 30 groups of ten members each in the village.

Gracamma’s group has borrowed Rs 1.5 lakh and she has got Rs 15,000. She has bought a buffalo and now she sells milk to the collection centre. Her earnings are Rs 60 daily. She says her Suguna group is doing well and is getting ready for the next loan as they are about to finish repaying at the end of the 18-month period.

The beauty of the programme is that the loans keep coming, says CEO Vijay Kumar. The women couldn’t agree with him more. There is pressure to pay on time from women group federations, or samakhyas, at village, block and district levels as that makes them eligible for a chunk of the subsidy money.

“Why should you believe that giving a small amount once would eliminate poverty?,” He asks. The money for the programme comes from state and central funds besides a small component of aid from the World Bank. It has got Rs 1,500 crore from the World Bank since 2001 and there is about Rs 200 crore from the Centre and about Rs 30 crore from the state. An interest subsidy provided by the government comes to another Rs 250 crore.

Kumar is now busy sending village workers to Bihar and Uttar Pradesh to train women groups there.

SERP’s programme has been renamed with each new government. It was called Velugu, or glow of light, in the earlier regime. Now, it is called Indira Kranti Patham. What has been common to the programme are the officials heading it.

In the 75 villages in Kalla mandal, 40,000 women are part of SHGs. Nagamani, a scheduled caste woman who traditionally sells bangles and combs in villages, has taken Rs 20,000 a second time while her group has taken Rs 2 lakh.

Some fear the groups are going to kill MFIs. Others say this is a bubble sustained by the presence of the two people who have been heading it for a decade. Others feel the moment the World Bank aid ends, it would die a natural death.

But Kumar says the system is built on a sustainable tie-up with banks, which can’t get a bigger network of borrowers with such prompt re-payment. As for the threat to MFIs, he says the latter are there to make money from the poor while they are there to make the poor wealthier. Let them die.


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