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.

New Yorker article: What Microloans Miss

Pretty much the usual criticism that what developing countries require is more job creation and not micro loans.

What poor countries need most, then, is not more microbusinesses. They need more small-to-medium-sized enterprises, the kind that are bigger than a fruit stand but smaller than a Fortune 1000 corporation. In high-income countries, these companies create more than sixty per cent of all jobs, but in the developing world they’re relatively rare, thanks to a lack of institutions able to provide them with the capital they need. It’s easy for really big companies in poor countries to tap the markets for funding, and now, because of microfinance, it’s possible for really small enterprises to get money, too. But the companies in between find it hard. It’s a phenomenon that has been dubbed the “missing middle.”

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

Changes to Grameen Bank's structure

Thanks to the Military backed Government currently running Bangladesh, Grameen Bank has achieved certain relaxation in the norms governing its functioning. It has to be noted that it was during the time of General Ershad, the military dictator, that Grameen Bank came into being. The current changes are:

• Grameen Bank allowed to operate branches in urban areas. Earlier they could open branches only in the rural areas.
• Government stake cut down from 25% to 15%. Note that when the Bank started, Government had a stake of 60%.
• Number of Government nominated directors brought down to 2 from 3.
• Chairman of the bank will be appointed by the board instead of Government nomination which existed until now.

This move will strengthen Muhammad Yunus to be at the helm of the bank for quite a while to come. When Yunus decided to run for elections, the political parties got quite antsy. Of course, all legislations can be amended again by newly elected Government, but there could be a lot of resistance form People if such moves are seen as inimical to them.

Microplace - Online microfinance

An Ebay owned company Microplace has launched a site through which online folks can invest any sum over US$100, earn some interest, and hope thew money invested goes to help poor people around the world in the form of microfinance. [Source]

This venture is different from Kiva.org, in that Kiva provides a direct people-to-people microfinance exchange, and you cannot earn any interest.

Now is not the time to discuss which is better. More the merrier.

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.

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.

Review of BANKER TO THE POOR

The Hindu has a review of this book - Indian edition brought out by Penguin Books here. It is pertinent to quote the last paragraph from the review here:

The book, first published in 1998, has just been published here in India. This is nine years too late. Perhaps, if it had come sooner we would not be seeing the Micro-Finance Sector (Development and Regulation) Bill 2007 in its current shape. The Bill seems to be a travesty of the original intentions of the micro-finance movement and takes a top down approach to supplying credit to the poor. Yunus has clearly specified a bottom up approach to make the scheme work “as intended”. The Bill, in the name of increasing the supply of credit to the poor, could actually put the deposits of the poor at risk and open the way for unscrupulous “charities” to manipulate the thrift market for their own ends. What this will do to the existing thousands of crores of deposits that self-help groups have in the commercial banking sector is anyone’s guess. One hopes a better assessment of consequences is made and more caution exercised before gifting the sector to so called micro-finance institutions. Please read the book Mr.Chidambaram.

Out of Focus: KAS Foundation

Business Standard focuses on a non so well known Microfinance institution - Kathir Foundation, KAS Foundation and Jaggannatha Financial Services - all started by Kathiresan, an ex-employee of ICICI Bank. This microfinance institution operates in Tamil Nadu, Pondicherry, Andhra Pradesh, Orissa, Chattisgarh, Maharashtra and West Bengal.

The range of services offered by them is interesting, all through ICICI or subsidiaries. In addition to opening savings bank accounts they have managed to offer medical insurance and micro-mutual fund SIP (systematic investment plan). A monthly investment of just Rs. 50 on mutual fund seems a cool idea. Some of the equity funds are offering excellent returns these days in India. The poor have rarely had access to the capital markets.

Interview with Jayshree Vyas of SEWA

Soumitra Trivedi interviews Jayashree Vyas, Managing Director of SEWA Bank in Business Standard.

SEWA, unlike other micro finance institutions, is a registered bank, regulated by RBI. This is both good and bad - SEWA can tap low cost funds, NBFCs cannot. But the banking norms have to be followed which are stricter.

Vyas feels, total poverty removal is not possible without government intervention and microfinance alone can not make that happen.

Unitus announces three partnerships in India

Details in the press release here.

The partners are:
Adhikar
IIRM
Vardan Trust

Solar power through micro credit

Reuters reports that an NGO run by Yunus, Grameen Shakti, is offering solar lighting equipment in rural Bangladesh, with financing through micro credit.

The solar lighting system costs between 25,000 taka ($360) to 65,000 taka ($940). About 70% of Bangladesh households are without electricity.

A similar project, fronted however by United Nations Environment Programme (UNEP), is happening in India. Here, UNEP provides grants that reduces the cost of financing of the equipment to the end users, in cooperation with two leading Indian public sector banks - Canara Bank and Syndicate Bank. More details on the project are available here.