Samasta Microfinance

I have joined the Board of Directors for a small start up microfinance company operating in Tamil Nadu and Karnataka, called Samasta Microfinance.

It is amazing to know how many people are desperately looking forward to getting money to kickstart their lives. It is also unfortunate to know that larger banks are not yet willing to lend money to microfinance institutions. As a result, the credit demand in India remains unfulfilled.

With respect to Samasta, I would like to suggest to the company interesting ways in which the borrowers can improve their lives, particularly through intervention in education, healthcare, better solutions for safe drinking water, renewable electricity solutions and so on.

I have looked at some simple, low cost water purifiers which, if deployed, can cut down the healthcare costs. The quality of water is notoriously bad in urban and suburban Chennai, and is one of the major causes of diseases. Several low income households can benefit substantially from solar lighting solutions. Power cuts have increased in the last 5 years in Tamil Nadu, not just in rural TN but also in the urban areas. The most affected are school children, near their exam times.

More technology providers will have to look at the lower end of the population to come up with affordable solutions.

I am greatly interested in education and reading books in general, being a book publisher myself. We gave away several free books to microcredit borrowers of Samasta (all women) and talked to them about the need to get their children to read books (as opposed to watching TV mindlessly). All the women accepted the idea and agreed to persuade their children to get into reading books.

Let us see what difference we can make in the coming days.

Credit crunch, Microfinance etc.

An article that appeared in the Times of India, republished in Micro Capital:

Big financial institutions of all sorts are in dire straits across the globe. But one category remains unaffected - micro-finance. Even as the global financial system freezes and giants like Lehman Brothers collapse, micro-finance institutions (MFIs) are expanding unfazed. Famous financiers face defaults big enough to wipe them out, but MFIs report virtually zero default.

The article goes on to say the following:

Microfinance, by contrast, has no collateral at all. MFIs deliberately keep loans small, well within repayment capacity. Some MFIs give first loans of just Rs 5,000 a year. Those who repay qualify for a higher second loan, maybe Rs 7,000, and the third loan can be still higher. But MFIs set an absolute loan limit, ranging from Rs 12,000 to Rs 25,000, depending on local economic opportunities, to guard against over-borrowing. Wall Street needs similar safeguards.

India Post / NABARD credit disbursal

A news item dated 29th September 2008 mentioned that, NABARD - National Bank for Agriculture and Rural Development has teamed up with India Post, the postal service of Govt. of India, to distribute microcredit to self help groups.

However, a later news item, dated 7th October 2008, says NABARD has backed off, at least temporarily, pending resolution of who shares the risks.

Don't make profits from micro finance - says Yunus

In the 11th annual Microcredit Summit Campaign conference being held in Bali, Indonesia, Grameen Bank's Muhammad Yunus has said:

If you are making profits you are moving into the same mental mind-set as loan sharks.

However, the trend is going to be different. More private equity players and big banks are getting into the micro credit field, hoping to earn significant profits. I had already linked to The Economist article on CompartamosBanco, a micro credit institution which became an aggressive for-profit company a while back, raising hackles across.

Rangde.org - a Kiva.org type set up for India

I found out about Rangde.org, an operation along the lines of Kiva.org, in bringing together microcredit lenders and borrowers. It also offers the lender an effective rate of 3.5% on the investment (the repayment period is unclear), while charging the borrower 8.5% (the spread of 5% is decent for the people involved in between, as we all know how high the cost of servicing is in this sector).

I wish them a great progress.

Micro-finance growing the fastest in the East (India)

Chennai-based Centre for Micro Finance (CMF) has said the micro-finance sector is growing at the rate of 82% in the eastern part of the country, the fastest rate in India.

Also, there exist a great disparity in the penetration of micro finance within the region, with Orissa and West Bengal witnessing high levels of penetration, and states like Assam, Bihar and and Jharkhand lagging behind.

A proposed Micro Finance Bill 2007 is yet to be passed by the Parliament as there is no consensus on several issues. Most notable being on limiting the interest rate charged by the micro-finance companies. The article also talks about this.

Speaking at a seminar on micro credit organised by the Confederation of Indian Industries (CII), Abhijit Banerjee of Massachusetts Institute of Technology (MIT), said "Putting a ceiling on the rate of interest charged by the micro finance institution would not be a good idea, more so on this juncture when the economy is passing through a high inflationary regime."

According to him, "One should look for a couple of years before putting a cap on the lending rates, with the increase in competition the interest rate might even moderate. Moreover, in the current inflationary situation, it would become all the more difficult for these MFIs to sustain".

...

Generally a borrower repaid the loan weekly and so for a annual loan of Rs 5000, a collection officer had to visit 52 times, pushing up the transaction cost per loan.

"Hence the interest rate is higher," he explained.

Pragati Gramodyog Sansthan (PGS) - helping bonded labourers

An article on slavery talks about the brave work done by an Uttar Pradesh based entity helping former bonded labourers benefiting from micro-credit.

Gonoo lives in Lohagara Dhal, a forgotten corner of Uttar Pradesh, a north Indian state that contains 8 percent of the world’s poor. I met him one evening in December 2005 as he walked with two dozen other laborers in tattered and filthy clothes. Behind them was the quarry. In that pit, Gonoo, a member of the historically outcast Kol tribe, worked with his family 14 hours a day. His tools were a hammer and a pike.

...

Every single man, woman, and child in Lohagara Dhal is a slave. But, in theory at least, Garg neither bought nor owns them. They are working off debts, which, for many, started at less than $10. But interest accrues at over 100 percent annually here. Most of the debts span at least two generations, though they have no legal standing under modern Indian law. They are a fiction that Garg constructs through fraud and maintains through violence. The seed of Gonoo’s slavery, for instance, was a loan of 62 cents. In 1958 his grandfather borrowed that amount from the owner of a farm where he worked. Three generations and three slave masters later, Gonoo’s family remains in bondage.

...

Among the Kol of Uttar Pradesh, for instance, an organization called Pragati Gramodyog Sansthan (PGS)—the Progressive Institute for Village Enterprises—has helped hundreds of families break the grip of the quarry contractors. Working methodically since 1985, PGS organizers slowly built up confidence among slaves. With PGS’s help, the Kol formed microcredit unions and won leases to quarries so that they could keep the proceeds of their labor. Some bought property, a cow or a goat, for the first time in their lives, and their incomes, which had been nil, multiplied quickly. PGS set up primary schools and dug wells. Villages that for generations had known nothing but slavery began to become free.

A moving story. A great example that micro-credit can go a long way in changing the fortunes of thousands of people.