Indian Microfinance – The Untold Story

By Ramesh Venkat

The author of this article can be contacted at vramaca ( at the rate ) yahoo (dot) com

The views expressed in the below article are those of the authors and do not necessarily reflect the views of IMBN.

Indian Microfinance

A lot has been written over the past few months about how the Microfinance Industry  in India driven by profit motive  has ended up charging high rates of interest to gullible borrowers and burdened them with multiple loans  which in turn has given rise to a  sub-prime portfolio in the sector.

As the old saying goes – “ Wolf in Sheep’s Clothing ” ,  the sector now  requires closer supervision and must learn to nurture the borrower rather than carpet bombing rural areas with micro-loans . This has been missing for sometime now especially among the new generation MFI’s .

Finance far from being a means to achieve an objective has slowly became the objective itself , both for the lenders and borrowers. If availability of finance was the only criteria , then all the rich children in this world would have been equally intelligent, successful and there would not have been instances where not so well-to-do people have made a mark for themselves in business, literature , science or in public life.

We have many examples in India, where the enterprise support has alleviated the poverty and increased the living standards of the people like the case of Gujarat Co-operative Milk Federation , commonly known as AMUL. In the case of AMUL , the support provided by the apex body in terms of assured market at good prices for the people in the federation resulted in the overall improvement in the  economic well being of clients.

ITC – eChoupal

Another example is that of ITC-eChoupal, where the all stakeholders in the agricultural sector connected with wheat, sunflower and other crops have benefited from the market linkages created by ITC. The beneficiaries are mainly the farmers who produce these crops as they are given the best market rates by ITC which also provides them with warehousing support and helps them in reaching the final consumer. Finance is only used as a facilitator , which acts as catalyst in the entire process.

From the perspective of various organizations in this industry, there has been a fundamental shift – which has been the genesis of the vertical fall that we have witnessed at the enterprise level.

Not so long ago promoters focused on Profit & Loss account to monitor growth and Balance Sheet value was getting created as a natural extension. But at the turn of the century , the focus has shifted to Balance Sheet in the name of valuations  leaving large gaps in Profit & Loss Account , which finally enters the Balance Sheet and destroys the enterprise value.

The above two examples  are cases where there has been genuine effort in uplifting the standards of the stakeholders  and the enterprise value has been a derivative. The current model of MFI’s , where , the value is determined  based on loan book  or number of clients  like in the Dotcom bubble , where valuations were based on Eyeball Contacts  needs to be completely realigned  so that they can focus on customer needs and get some semblance of credence going forward.

The Journey is as Improtant , as the Destination.

The author of this article Mr Ramesh Venkat can be contacted at vramaca ( at the rate ) yahoo (dot) com

indian microfinance sector

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