After last two turbulent years, has the dust on MFIs settlednow?
In 2010, the Andhra Pradesh government passed an ordinanceto regulate MFIs and that had a huge impact in the country. Even though the lawwas applicable only to AP, collateral damage occurred on a pan-India basis.Post-October 2010 was extremely difficult phase for the industry when fundingcompletely dried up as banks and investors had slammed their brakes. Bestinstitutions were struggling in all kinds of ways. But pretty early right fromNov-Dec 2010, the RBI, ministry of finance (MoF) and GoI got into the act. Theindustry got under much scrutiny with the Malegam committee being appointed inNovember 2010.While it is a funds-based industry and lending business, in 2011,the industry was struggling without funds. In AP, it was at a completestandstill.
From the period Jan-March 2012, banks once again startedfunding outside AP. It was like lifeblood flowing back into the industry andinvestor interest began to resurface.
What, according to you, is the solution for Andhra?
It is about making choices available for the clients. The APgovernment has destroyed choices and forced self-help groups (SHGs) as the onlymodel, created a whole lot of bureaucracy for it, which is inefficient andcorrupt, as is true of many other government agencies. They have a vestedinterest in perpetuating that model and trying to keep everybody out. Peoplehave to get together and prevail upon the government. The RBI is the regulatorfor financial system of country. Parliament has passed a law to deal with thatand you need to back off.
Do you think that microfinance companies have learned fromtheir past experience? Will they provide new of activities?
MFI industry was very uni-polar in its approach and amono-lined business. Today, the industry is looking at new kinds of productsand models, multiproduct business with products specifically designed to meetneeds of larger mass of clientele.
But there is not yet a separate regulatory body formicrofinance. Is it a hindrance for your work? (Microfinance companies whichare registered as Non Banking Finance companies are regulated by the RBI.)
As things stand right now, RBI is the regulator for NBFCsand MFIs. It is the non-NBFCs and non-MFIs where there is no regulation. Thereis need for a regulator, which is what the microfinance bill provides for.
Under the garb of high cost of microfinancing, severalmicrofinance companies instead of working for the poor work against theirinterests. What do you have to say on this?
Because some institutions made mistakes, it is extremelyunfair to paint the entire industry black. Across industries, over the world,people make mistakes and learn from them. This industry is still in its infancyand will evolve. A lot of people in this industry are hurt and troubled becausesome people made mistakes everyone is being described as wrong. You need tomake a distinction between large mass of people who were doing the right thingsand a few others who made mistakes.
So how do you reach out to the unbanked?
Since independence, mainstream banks have failed to do so.You need a class of institutions that reach out and serve half of country’spopulation whom the mainstream banks don’t serve. GoI and RBI have come outwith a range of policy prescriptions and initiatives to open that end of themarket and do financial inclusion. Today, even after 65 years of independenceif we are still talking about it, it means that the policies have failed. Whilein 5-7 years, MFIs have reached out to 30 million clients largely in rural areasit has more loan accounts below Rs 50,000 than the entire banking system. Weneed to build on that.
Did microfinance companies deliver their promise offinancial inclusion and inclusive growth?
It is a process and good progress has been made. With goodsupportive regulatory framework and enabling environment, they will do muchbetter work in promoting financial inclusion.
Are you happy with the provisions made in the MicrofinanceInstitutions Development and Regulations Bill 2012?
I was a member of the drafting committee. We have created avery good document .I can say entire MF industry is eagerly awaiting itspassage in parliament. We are hopeful that it will be passed by the wintersession.
This bill also provides for the creation of a microfinancedevelopment council. Is this council going to help microfinance institutions?
It is not about MFIs merely, but helping the clients. It isa good framework whereby the government is endeavouring to ensure thatinterests of clients are protected with good growth of industry.
Do you think that there should be stringent norms for MFIs?
The issue is not about norms. It is about good regulationsfor the industry. Industry is eagerly awaiting passage of the bill.
