"At present, there are more than 1100 SHGs, formed under twenty-five federations comprising ten community and rural development blocks spread across the West, South and East Garo Hills. The groups are required to form federations before registering under the banner of BILCHAM," said Daniel Ingty, a rural development officer associated with the bank.Here, BILCHAM is Banking Institution and Learning Centre of Excellence for Holistic Aspiration of Mothers, an apex self help group federation in Meghalaya.
Sunday, June 15, 2008
Microcredit in Meghalaya
Microcredit institutions has spread in the Indian state of Meghalaya. The Economic Times reports:
Bollywood film has micro-credit featured
A bollywood film called "Summer 2007", produced by Atul Pandey and directed by Suhail Tatari focuses on farm suicide in India, and proposes micro-credit as a possible solution:
The film also explores the possibility of micro credit as a solution and has a character inspired by Mohammad Yunus, the 2006 Nobel peace prizewinner and founder of Grameen Bank, Bangladesh's biggest micro-credit institution.
Wednesday, June 11, 2008
Microfinance Q&A in The Guardian
A somewhat insulting Q&A on microfinance has been published in The Guardian. Here are some samples:
As to why people with almost no income are getting into debt, it is because by borrowing, they can generate income. This may sound a bit strange to Anne Perkins who wrote the Q&A. But people borrow micro loans not just for consumption, but mostly to generate income.
If we demanded that only people with income should get loans, then microfinance would not have survived.
Why is Barclays interested in people with virtually no cash?If Barclays has no interest in "people with virtually no cash", they do not have to get involved in microfinance. Other people who are interested in the well-being of poor people with no cash are more than happy to do so. Barclays and several other banks are jumping into the microfinance bandwagon because they know they can make profits.
It isn't. That's why Care International is involved: it has the expertise to work with the poorest villagers. Barclays is interested in developing financial services for the next level up, where people might want to borrow to invest, and need a secure place to make deposits. ...
What is the point of people with almost no income getting into debt?
At the most basic level, sometimes even the poorest have to borrow a little in order to meet an unexpected financial demand such as a health bill.
As to why people with almost no income are getting into debt, it is because by borrowing, they can generate income. This may sound a bit strange to Anne Perkins who wrote the Q&A. But people borrow micro loans not just for consumption, but mostly to generate income.
If we demanded that only people with income should get loans, then microfinance would not have survived.
LIC, state insurer to enlarge micro-insurance program
Life Insurance Corporation of India (LIC) says it will massively increase its rural, micro-insurance program five-fold to offer 4 million insurance policies this year in rural India.
TS Vijayan, chairman, LIC said that two years ago, the insurer had sold 8 lakh policies through its tieup with NGOs, micro-finance organisations, co-operative societies and rural banks.
"Now that LIC's technology platform is perfected, we are confident of moving out in a big way. Having realised that the key to greater spread will come from creating new distribution avenues, we have set a target of selling more than 4 million policies in the current year," he said.
Sunday, June 01, 2008
Loan waiver culture - The ET editorial
21st May 2008 dated The Economic Times editorial (Waiver hits credit culture) lamets that waiver of farm loans by the Government of India has resulted in increased defaults.
Muhammad Yunus of Grameen Bank has severely criticised bank loan waivers by the Government owned Bangladeshi banks and how this has seriously affected the operations of microfinance bank, Grameen.
Paying back the loan is a cultural concept. People borrowing money should feel the strong moral urge to pay the loans back. Loan waivers instead make them feel that if things go really, really bad, Government will step in and cancel the interest payable and even the principal. This will make even the decent guys default on their loans.
Such a culture will seriously impact the microfinance institutions operating in the rural areas. The farmer whose agricultural loan from the state owned bank was waived, will have a wife who is the ideal candidate for taking loans from a microfinance company. Think about her attitude to paying the loans back, when her husband's loan gets waived by the Government itself!
The same ET editorial says the following:
The Indian Government has made the lives of several cooperative agricultural banks and societies crippled. The government will announce the loan waiver and the banks will be reimbursed at a later date, sometimes spreading over 5 years the money lost from waiving the loans. During this time, the cooperative banks will struggle to operate. Larger nationalised banks will manage because of their other portfolios.
Providing relief to the farmers in distress is very important. I am not against that. However the methodology should be carefully thought out. Low interest or no interest loans from Government directly to the affected, who in turn pay the banks for the loans they have taken should be the way to go. Rather than waiving the loans, give them a further liberal loan which they can pay back slowly. Yunus has done this in case of Grameen.
The Government can offer to pay the premia on crop insurance out of their budgeteray allocation, thereby offering completely free of cost insurance to the farmers. That would be acceptable. As it is, farm income is not taxed. Water comes free wherever farmers live in the river bed. Fertiliser is subsidised by the Government. In several Indian states, power is free to the farmers, or offered at extremely cheap rates by heavy subsidy.
If despite all this the farmers fail, it is because of the vagaries in the weather, lack of proper education, outdated methods of farming, highly fragmented fields reducing the yield drastically, complete lack of crop insurance and lack of cold storage facilities which can help them to get good price.
Rather than waiving the loans, the government should focus on improving the agricultural infrastructure and educating the farmers.
A panchayat near Chennai - Kuthampakkam - had a president called Elango for the last two terms. Currently someone else runs the panchayat. Kuthambakkam used to be full of thieves and robbers. (The word 'Kutham' is Tamil means 'Crime'. Pakkam is Ville. The place itself was called Crimeville, so you can imagine what the inhabitants used to do there!) He gave a speech couple of years ego on what he achieved there. He helped the farmers get loans, on the condition that they pay back the loans to the banks so they can get more loans. He helped set up flour mills, so that local entrepreneurs will procure the produce and pay a decent money and make the same into value added products. He got the village women to press oil, mill rice, make flour, produce other processed food and helped them to sell in the nearby towns. The village started propspering.
When DMK won the state elections in Tamil Nadu, one of the first thing they did was to waive off agricultural loans taken from the state controlled co-operative banks. Elango said that the farmers in his village started giving him dirty looks for forcing them to pay the loans back, while their brothers elsewhere enjoyed complete waiver. (His presentation @ slideshare in English, His speech from Archive.org in Tamil, My blog post then about this presentation in Tamil.)
How one man's laudable efforts end up for nought by the thoughtless 'waiver' actions of a government!
The government’s farm loan waiver scheme has already caused default rates to rise, forcing the country’s largest bank, the State Bank of India (SBI), to temporarily stop funding tractor and farm equipment purchases.Of course, the finance minister P.Chidambaram immediately intervened and directed the state owned bank to continue giving tractor loans.
Muhammad Yunus of Grameen Bank has severely criticised bank loan waivers by the Government owned Bangladeshi banks and how this has seriously affected the operations of microfinance bank, Grameen.
Paying back the loan is a cultural concept. People borrowing money should feel the strong moral urge to pay the loans back. Loan waivers instead make them feel that if things go really, really bad, Government will step in and cancel the interest payable and even the principal. This will make even the decent guys default on their loans.
Such a culture will seriously impact the microfinance institutions operating in the rural areas. The farmer whose agricultural loan from the state owned bank was waived, will have a wife who is the ideal candidate for taking loans from a microfinance company. Think about her attitude to paying the loans back, when her husband's loan gets waived by the Government itself!
The same ET editorial says the following:
It is also important to ensure that micro-finance and not bank lending becomes the dominant way of disbursing credit to the farm sector. The entrenched patronage culture has meant that despite farm credit growing at a fast pace, the number of farmers covered has not increased proportionately, implying that the same set of beneficiaries are cornering the increased credit.No right thinking MFI should enter the farm loan sector. It is the most dangerous sector in India and also Bangladesh. As long as Government intervention persists, privately funded MFIs should never lend any money to the farmers. Muhammad Yunus has made this very clear... he stays as far away from the farm sector as possible, and he is managing a large bank. The Indian MFIs are tiny compared to Grameen and they will be killed by the farmers and Indian Government together.
The Indian Government has made the lives of several cooperative agricultural banks and societies crippled. The government will announce the loan waiver and the banks will be reimbursed at a later date, sometimes spreading over 5 years the money lost from waiving the loans. During this time, the cooperative banks will struggle to operate. Larger nationalised banks will manage because of their other portfolios.
Providing relief to the farmers in distress is very important. I am not against that. However the methodology should be carefully thought out. Low interest or no interest loans from Government directly to the affected, who in turn pay the banks for the loans they have taken should be the way to go. Rather than waiving the loans, give them a further liberal loan which they can pay back slowly. Yunus has done this in case of Grameen.
The Government can offer to pay the premia on crop insurance out of their budgeteray allocation, thereby offering completely free of cost insurance to the farmers. That would be acceptable. As it is, farm income is not taxed. Water comes free wherever farmers live in the river bed. Fertiliser is subsidised by the Government. In several Indian states, power is free to the farmers, or offered at extremely cheap rates by heavy subsidy.
If despite all this the farmers fail, it is because of the vagaries in the weather, lack of proper education, outdated methods of farming, highly fragmented fields reducing the yield drastically, complete lack of crop insurance and lack of cold storage facilities which can help them to get good price.
Rather than waiving the loans, the government should focus on improving the agricultural infrastructure and educating the farmers.
A panchayat near Chennai - Kuthampakkam - had a president called Elango for the last two terms. Currently someone else runs the panchayat. Kuthambakkam used to be full of thieves and robbers. (The word 'Kutham' is Tamil means 'Crime'. Pakkam is Ville. The place itself was called Crimeville, so you can imagine what the inhabitants used to do there!) He gave a speech couple of years ego on what he achieved there. He helped the farmers get loans, on the condition that they pay back the loans to the banks so they can get more loans. He helped set up flour mills, so that local entrepreneurs will procure the produce and pay a decent money and make the same into value added products. He got the village women to press oil, mill rice, make flour, produce other processed food and helped them to sell in the nearby towns. The village started propspering.
When DMK won the state elections in Tamil Nadu, one of the first thing they did was to waive off agricultural loans taken from the state controlled co-operative banks. Elango said that the farmers in his village started giving him dirty looks for forcing them to pay the loans back, while their brothers elsewhere enjoyed complete waiver. (His presentation @ slideshare in English, His speech from Archive.org in Tamil, My blog post then about this presentation in Tamil.)
How one man's laudable efforts end up for nought by the thoughtless 'waiver' actions of a government!
Tuesday, May 06, 2008
Microfinance and Sub-prime - from India Development Blog
India Development Blog, a blog by researchers at the Institute for Financial Management and Research, compares securitization of Microfinance loan portfolio and onselling them with similar things that have happened with Sub-prime mortgage in USA. Most notable quote is
the worry is that MFIs that have securitized their portfolios and banks, which have lent money through the SHG-bank linkage program no longer have the incentives to ensure quality. The intention is that these financial instruments are designed with these issues in mind, and they are able to mitigate these problems, but in reality, that is not often true, as we have seen from the subprime mortgage crisis.If would be interesting to know from the MFIs that have done securitization deals in India, how they keep up the quality of loan collection, and debt restructuring when they find defaulting likely to happen.
Sunday, May 04, 2008
Grama Vidiyal gets funding
Trichy, Tamil Nadu based microfinance institution Grama Vidiyal Microfinance Company has received investment funding from Unitus Equity Fund L.P., USA and Vinod Khosla, a VC. The investment received was Rs. 14.7 crore. The company focuses on Tamil Nadu right now. It hopes to cover all districts of Tamil Nadu and expects to spread its operation to other states in 2009.
I couldn't locate any website for this company.
Unitus and Vinod Khosla have also invested in SKS Microfinance.
I couldn't locate any website for this company.
Unitus and Vinod Khosla have also invested in SKS Microfinance.
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