Thursday, August 23, 2007

Keya Sarkar: Hope and despair in micro-finance

Quotes from the article in Business Standard::
These last few months have been marked by deals in the microfinance industry never witnessed before. With $12.5m into Spandana (of which $10m came from JM Financial), $11.5m in SKS Microfinance (majority from Silicon Valley-based Sequoia Capital) and a whopping $27m in Share (of which $25 m came from Dubai based Legatum Capital), suddenly all MFI CEOs seem to be talking about raising capital and doing it quick lest they miss the bus.


Unitus India, which works with MFIs in what it calls a “partnership mode” (helping with grants, capacity building, etc) before investing in equity, has made three investments to date out of the 10 companies it has partnered. Unitus has put in two rounds of equity in SKS Finance (with which its association is over four years) and Bangalore-based Ujjivan Finance.


The disappointment over the last eighteen months, according to both Prasad and Farias, is that despite dealing with a cross-section of companies in the MF space they have not come across much of product innovation. “Attempts at product innovation have at best been half-hearted,” laments Prasad.

The other disappointment has to do with the policymakers. Despite a lot of discussion on the subject and mention of the sector in budget documents, on the ground not much had changed for MFIs or their clients.


Julia Styles said...

How do you think microfinance should innovate? I heard something about implementing savings accounts through phone companies. What are your ideas?

Badri said...

Most MFIs offer a variety of loans. Consumption loan, business loan, housing loan etc.

Savings account has been the most natural add-on.

In addition, they can offer

1. Micro-insurance on lives of humans, cattle, produce
2. Healthcare products - medical insurance along with healthcare providers.
3. Long-term pension.
4. Low cost educational loans, with pay back happening after they find a job.
5. Business advisory services. In most cases, rural folks may not know about exciting business opportunities.

But a Micro finance institution can only go so far, since they are basically a financial institution. It is important for other entities such as NGOs to offer additional counseling and guidance required to people so that they can make best use of the money that an MFI can provide.