Journey of Indian Micro-Finance – Ramesh S Arunachalam

microfinance book india

The book, Journey of Indian Micro-Finance, authored by Ramesh S Arunachalam, was released on 4th July 2011 at Homi Talyarkhan Hall, by Shri. Y.H. Malegam, Eminent Chartered Accountant and Senior Member of the Board of Directors of RBI. The first copy was received by Ms. Sucheta Dalal, Managing Editor, Money Life, in the presence of Dr. Prakash Bakshi, Chairman, NABARD. Speaking on the occasion, Mr. Malegam, said that it was his privilege to release the book, which uses relevant data to provide an excellent overview of the evolution of micro-finance in India along with the attendant problems and possible solutions. He strongly recommended the book as ‘must read’ for micro-finance practitioners and lay people interested in micro-finance.

Journey of Indian Micro-Finance Book by Ramesh S Arunachalam

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The event also featured a panel discussion on the future of Indian micro-finance moderated by Shri. V. Vivekanandan, Advisor, South Indian Federation of Fishermen’s Societies. Kick starting the panel discussion, Mr. V. Vivekanandan, said that micro-finance has three distinct strands of work – Govt. led, civil society/non-profit and commercial models and this makes the task of regulating and supervising micro-finance difficult. He argued that the complexity of the micro-finance field mandated pragmatic solutions to the vast array of issues created by pluralistic approaches – community, NGO and commercial models.

Leading the panelists, Ms. Sucheta Dalal, Managing Editor, Money Life, pointed out that the book brought out several critical issues across different micro-finance crisis situations in a diplomatic manner. She mentioned the fact that whenever such crises occur, regulatory and supervisory action to stem the rot is often not swift and perhaps even inadequate and that is one of the major reasons for such crisis to recur again. She gave examples of several private fly by night operator finance schemes that continue to erode poor people of what little wealth they have. She urged regulators/supervisors to learn from crisis situations and tackle issues in a firm and expeditious manner. She said that poor people can be positively impacted only if financial institutions do the ‘hard work’ to include and protect them and not look for quick fix solutions.

Journey of Indian Microfinance

Talking as part of the panel, Dr. Bakshi, Chairman, NABARD said 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 such strategy, as is in the SHG bank-linkage program. In fact every loan is like a discounted long-term savings product and therefore, we must start to refocus on savings and only then can we have a strong resultant impact on the lives of the poor.” He further added that “given that much of the MFI related crisis has been happening time and again, it is clear that, as Ms Dalal had earlier said, we have not learnt from past crisis situations and also, we seem to have tackled the symptoms more rather than the real causes.”

Mr. S. Subramaniyan, Chairman, African Centre for Mobile Financial Inclusion and also retired RBI executive said that, “ MFI’s are bad and the lack of a proper eco rural system has led to the present problem of multiple lending, greening of loans and the like etc. And until and unless we have a proper ecosystem that can facilitate sustainable livelihoods for the rural poor, we will continue to have such over lending and the resultant crisis.” He further said that technology could play a greater role in financial inclusion/micro-finance in this regard and he urged the various stakeholders to use and deploy technology like mobiles to enable the low income entrepreneurs to overcome their innate disadvantages.

Speaking on the panel, Mr. Malegam said that MFIs need to appropriately balance their social and commercial objectives and the key to future success would be in striking the right balance. He also articulated that the proposed 4 pillars of regulation/supervision of micro-finance (as per the Malegam Committee Report) should certainly help in overcoming some of the past problems mentioned with regard to regulation/supervision. He also said that there can be no easy solutions as the situation is rather complex and micro-finance is much more than micro-credit. He urged stakeholders to look at the Malegam Committee Report as a whole rather than at one or two of the recommendations. He said if implemented holistically, the committee recommendations should indeed facilitate the inclusion of the poorer and more disadvantaged in the larger economy. He also said that if MFIs follow the various norms set out in the report on corporate governance, internal controls, internal audits, risk management etc, then, such micro-finance crisis situations could perhaps be avoided in the future.

Proposing the vote of thanks, Ramesh S Arunachalam, the author, said that it is about time that we in India get the micro-finance strategy and regulatory framework right so that a large number of people, who are financially included, excluded and re-included on a regular basis, indeed gain access to a wide range of financial services and become part of the inclusive growth story. “As many of the experts on this panel have said and as the book notes, this requires the ability to learn seriously from past crisis situations and any regulatory/supervisory framework, including the proposed Micro-Finance bill, must understand the nuances and peculiarities of micro-finance so that it can outline an appropriate regulatory approach. Otherwise, like all other regulatory frameworks, the forthcoming bill too would be difficult to implement on the ground and is perhaps doomed for failure…”

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