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.

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.

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.

Microcredit for slum dwellers in Delhi

A Government of India Press Release says, a bunch of Government owned banks have come together "to provide loans at reasonable rates of interest to the slum dwellers of Ekta Vihar in Delhi".

The banks involved in the lending are "Andhra Bank, Bank of India, Canara Bank, Indian Overseas Bank, Punjab National Bank, State Bank of India, Syndicate Bank, UCO Bank and Vijaya Bank."

The self help group involved in managing the lending is "ASHA Community Health and Development Society, an NGO working in health and development of slum areas."

The press release also says that the borrowers are eligible for life insurance cover from LIC.

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.

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.

Grameen Veolia Water partnership

After Grameen Danone partnership offering nutritional yogurt and milk products in Bangladesh, Grameen is doing a deal with the French water company Veolia, for setting up water treatment plants and 'paid' water supply to people in Bangladesh.

Veolia and other water utility companies are seen as bad companies, in particular in the developing third world countries. Across the world, Veolia, Suez, and other water utility companies do not have a good record when it comes to taking over municipal facilities and providing service to the customers. The Water Business, a book by Ann-Christin Sjolander Holland, covers in detail the track record of these companies in Latin American, Asian and African countries.

Prof. Yunus of Grameen is seen as something of an outcaste, for his attempt at alleviating poverty by sleeping with 'profit making companies'. It was Telenor in telecom, a relationship that is not exactly great because Grameen goofed up with the ownership model, giving away majority equity to Telenor. But the deal with Danone is more carefully set up. Veolia will follow the same model of 50-50 ownership. I would like to keenly follow, if Veolia deliver in Bangladesh in the coming years.

Grameen is more than a micro-finance institution, in that it is looking at solutions to complex problems, beyond simply loaning money.

It will be interesting to see which MFI in India will seriously consider this model.

Micro finance institutions in East India, Forbes List

This Business Standard article mentions several MFIs active in East India namely,

1. SKS Microfinance
2. Bandhan
3. Microcredit Foundation of India
4. Sadhana Microfin Society
5. Grameen Koota
6. Asmitha Microfin Ltd
7. Share Microfin
8. BISWA
9. Kas foundation
10. Prochesta
11. Youth Volunteers Union

This article also mentions a Forbes ranking list. So I searched for it and got this list.

Reliance Capital foray into microfinance

Reliance Capital is providing funding (I suppose loans) to MAS Financial Services and Vardan Trust, two microfinance institutions in India. Initially they have been given Rs. 5 crore and Rs. 40 lakh respectively. Reliance Capital is earmarking Rs. 100 crore for Microfinance initiatives.

Details from The Economic Times

The Independent: Microcredits go mobile in India...

I couldn't understand much from this article though.

But now hundreds of Indians have become attached to a mobile bank manager, which means they can be in direct contact with lenders. Using smart cards and handheld biometric fingerprint readers, Indian banks such as ICICI and Punjab National are now taking their services direct to India's 350 million once un-bankable people.

All I could locate from this article was the name of the company FINO, which must be this one. Should find out what they do.

Interview with Vikram Akula, SKS Microfinance

There is an interview with Vikram Akula in Business Standard, dated 22nd February 2008. I cannot however locate the online URL to provide a link here. I will mention just the key points here.

On his model being a replica of Grameen Bank: Yes, it is, except for the difference that SKS works on for-profit and expects to make a profit. Yunus' Grameen model talks of no-profit, no-loss.

On the interest rate being high: SKS charges on an average 26% diminishing interest. This breaks into 11% their own borrowing cost, 9% staff costs, 3% amenities and office costs, 2% loan-loss provision, between 1-2% profit.Wherever they have reached size, they have reduced the interest rates - for example in Andhra Pradesh and Karnataka to 24%. Their eventual goal is to reduce this to 21% if further efficiencies are achieved.

FMCG: In addition to offering loans, they are negotiating with FMCG product companies to offer FMCG goods at cheaper prices to their existing loan customers. Current customer base of SKS is around 1.7 million people. Targeted by March 2008 - 2 million, and by March 2009 - 4 million.

Investment in Gold: SKS is offering fixed price gold coins, which can be paid for by a weekly investment of Rs. 10-15. Once the investment is complete, the investor gets a certificate for the weight of gold, at market price, which can be traded any time for the current market price of gold.

Education: SKS is teaming up with education provider and infrastructure provider to set up schools. SKS will finance the families. Infrastructure provider will set up school buildings. Education provider will provide the teaching. The cost of the education is expected to be Rs. 250 per child per month (which will be borrowed from SKS and paid to the providers). They expect to start with 20-30 schools in May 2008, and extend this to over 300 schools.

SKS Microfinance gets third round of investment

US based Silicon Valley Bank and Columbia Pacific have together invested Rs. 147 crore (around US$ 36.75 million) in SKS Microfinance in December 2007. In the earlier round of investment made in October 2007, a clutch of investors, including Sequoia Capital, Unitus Equity Fund and Vinod Khosla had invested Rs. 50 crore (US$ 12.5 million).

The Economic Times article

Micro - housing loans

This is not a new concept, but only now coming to India. National Housing Bank (NHB) and Chennai based Repco Foundation for Micro Credit (owned by Repco Bank, owned by Government of India), are disbursing micro home loans in five districts of Tamil Nadu. The loans range form Rs 25,000 to Rs 2 lakh. This is not for buying land, but only construction loans for those people who already own the land. Obviously, over the coming days, the model will change to include buying land as well.

News from Economic Times

Grameen Bank goes to USA

Mohammad Yunus has set up Grameen America, based at Queens, New York.

The Grameen office, where the door is always open in the Bangladeshi tradition, is a modest room down a flight of stairs under a doctor's office. Every day, Newaz walks along Jackson Avenue, going into one storefront after another, asking shop owners if they know groups of women who might want to borrow money.

Yunus has already started his operation in Mumbai, India.

Birla Sun Life to offer micro-insurance

Birla Sun Life has launched two life insurance policies for the rural Indians, named Bima Suraksha Super and Bima Dhan Sanchay.

Bima Suraksha Super is a pure risk policy. A sample calculation shows that for a 30 year old male, for a 10 year policy, for an insurance amount of Rs. 10,000 (US$ 250), annual premium will be Rs. 91.24. The premium can be paid monthly, quarterly, semi-annually or annually. If the premium is paid monthly, it will be roughly Rs. 8 (around 20 cents).

Micro-credit institutions can bundle this product along with their loans, and thereby also cover the defaults on their loan, in case the borrower dies before repayment of the loan.

There is no medical test required, and supposedly minimal paper work. Self attestation on the age is sufficient, and will not require any age proof.

For more details, go here.

The second policy is Bima Dhan Sanchay. Unlike the previous policy, this is an endowment like policy. Upon the maturity period, the policy will pay back the total premia paid (but nothing more). However, the premium is quite low, for a similar risk cover from, say, Life Insurance Corporation of India.

For a 30 year old male, for a 10 year policy, sum insured Rs. 10,000, the yearly premium is Rs. 228.63. Monthly premium would come to around Rs. 20 (50 cents). In the event that the insured person survives over the 10 year period, he will get back Rs. 2263 (the premium amount paid in total). Of course, one could get more returns by investing the money in a bank deposit! But then, this also provides risk cover.

For more details, go here.

On the surface, these two schemes offer a decent risk cover at the lowest possible premium. With more players entering the market, even better products may be offered.

Sex workers bank

The Hindustan Times reports that a co-operative bank has been set up in Kamathipura, the red-light area of Mumbai, by the sex-workers, called Sangini Mahila Seva Cooperative Society.

The co-operative is run by the sex-workers themselves, takes deposits from them, provides them loans, and also procures goods from the wholesale markets and sells them at lower prices.

This is an interesting idea, and I wish them all the success.

Aavishkaar Goodwell gets money

Moneycontrol reports that Aavishkaar Goodwell has received investments from IFC, FMO and Deutsche Bank.

Aavishkaar Goodwell is a for-profit, private equity fund that invests in Microfinance institutions in India.

Micro credit for Scheduled Tribes and Castes

I learnt yesterday (reading The Hindu) that there is an entity called The National Scheduled Tribes Finance and Development Corporation (NSTFDC) set up specifically to aid in economic development of the Scheduled Tribes.

This entity is planning to "launch a new micro credit scheme to provide financial assistance to people belonging to Scheduled Tribes for undertaking self-employment ventures/activities."

Scheduled Tribes form a very small part of the population across the country (roughly 7%), with high concentration in Madhya Pradesh, Chattisgarh, Jharkhand, Orissa and Maharashtra. Tamil Nadu has tribes existing only in Nilgiris district in reasonable numbers.

It may be more useful if the counterpart for Scheduled Castes - National Scheduled Castes Finance and Development Corporation (NSFDC) embarks on an aggressive micro credit program to help Scheduled Castes come out of poverty.

As part of its operations, the entity claims it is "Providing Micro-Credit Finance to the target group through the SCAs [State Channelising Agencies]." The State Channelising Agency in Tamil Nadu will be TAHDCO - Tamil Nadu Adi Dravidar Housing & Development Corporation - which has multiple functions, and may not focus on micro credit aggressively.

Therefore, rather than just disbursing funds and acting as a grants agency, NSFDC should consider setting up a subsidiary MFI, a focused micro finance company which will provide micro credit only to Scheduled Castes across the country.

Future of 'phone ladies' of Bangladesh

In a detailed article, Richard Shaffer looks at the Grameen Telecom's Village Phones and where the project stands currently.

Grameen Bank is a micro-finance institution set up by Mohammad Yunus.
Grameen Bank (38%) and Telenor of Norway (62%) together own Grameenphone, a mobile phone service provider in Bangladesh. Grameen Telecom is a company owned by Grameen Bank.

Grameen Telecom provided women (dubbed 'phone ladies') in Bangladesh villages with a mobile phone handset and a Grameenphone connection, funded by micro loans from Grameen Bank. In countries like India and Bangladesh landline penetration is low, and non-existent in rural areas. Rented mobile phones provided a great service to people and good income for the phone ladies.

But soon, the mobile revolution caught on and most of the villagers could afford to buy a handset and a connection for themselves. This has impacted the phone ladies. Richard Shaffer finds that though the program helped several people come out of poverty, it is not true anymore, certainly not true in Bangladesh.

Grameen Telecom is however not entirely abandoning the program, and is looking at setting up kiosks - Community Information Centers - which

for fees of 42 cents an hour, will offer such services as online browsing, agricultural and health-care information, digital photography, video telephony via Web cams, and electronic access to government reports and forms.

Whether these centers will be successful or not, one has to wait and see.

In India too, the roadside PCO - Public Call Office - set up by Sam Pitroda under Rajiv Gandhi government, brought telecommunication to everyone, until mobile revolution completely demolished them. Today, PCOs still exist, but they generate a very meagre income for the operators. Rapidly falling telecom rates coupled with low cost mobile handsets have spelt a doom for the PCOs. In India too, there are several attempts at setting up rural information kiosks - both government and private ventures. To this day, every implementation has been a business failure.

N-logue kiosks are floundering. The company is not profitable and it is unclear when and how they will become profitable.

Government of Tamil Nadu initiated the project called RASI (Rural Access to Services through Internet), another utter flop. Villagers were supposed to get Government services delivered through Internet kiosks, set up and operated by women, funded partly by government grant and rest via micro loans. Several women were forced to take loans, but the supposed revenues never came in.

Central Government sponsored ICT kiosk project, currently being implemented by ILFS has a long way to go, and it is unclear how this venture will also succeed and be self-sustaining.

Some of these ideas are noble, but the implementation at the ground level is sadly pathetic.

A profile of Kotalipara Development Society

Business Standard profiles a West Bengal based micro finance entity Kotalipara Development Society (KDS) in this article. Hear the stories of Najima and Purnima.

Najima [a 25-year-old woman] took a loan of Rs 3,000 to buy a sewing machine from KDS. She had to deposit Rs 300 while taking the loan and had to pay Rs 75 per week till she repaid the entire sum.

“I have borrowed money four times from KDS to expand my business. The last time I borrowed Rs 15,000,” [Najima] said.

...

[Purnima, a 38-year-old woman] received only primary education and had to discontinue due to financial constraints.

“I make saris. But when I started off I had no money to buy fabrics or sewing machines. I borrowed Rs 5000 from KDS. I paid Rs 125 every week till I repaid the entire amount,” Purnima said.