Towards financial inclusion – the microfinance way

Micro-finance Focus, February 13, 2012: At a recent workshop organized by the Association of Karnataka Microfinance Institutions (AKMI), financial inclusion experts, microfinance practitioners and development leaders came together to discuss the progress made in achieving financial inclusion in the state and the tasks ahead.

The workshop titled ‘Financial Inclusion in Karnataka – Convergence of Efforts’ was organized in collaboration with Federation of Karnataka Chambers of Commerce and Industry (FKCCI) and was supported by industry associations, Sa-Dhan and MFIN (Microfinance Institutions Network).

Acknowledging the efforts of microfinance institutions, Mr. Jagadish Shettar, Minister for Rural Development said in his inaugural speech, “Various programs conducted by the organisations such as SKDRDP (Shri Kshethra Dharmasthala Rural Development Project) have been witnessed and we have seen the financial development taking place in the lives of the poor which is making them well to do and building their confidence”. He assured that the Government will work to bring progress to the poor in Karnataka.

Mr. Muralidhar Rao, All India Secretary, Bharatiya Janata Party in his speech said that there is a need to make markets accessible to small producers. “India has an effective domestic market and has within itself the fulcrum for growth. Banks should create products that are suitable for the poor through special banking vehicles”.

He emphasised on empowering people and encouraging entrepreneurs for the growth of the country. “Organisations working in empowering areas should work under a policy framework. Leaders with clear commitment and dedication for the sector should take the lead in this hour of crisis”, he said.

Dr. Veerendra Heggade, Dharmadikari, Dharmasthala, who believes that microfinance organizations have a role to play between the government and the rural masses, said that MFIs need to be partners with the Government and they should educate the common man on the programs made available by the Government.

He also said that the Government could undertake a special study to see the impact of microfinance in the rural sector and then announce relevant programs. He encouraged MFIs and SHGs to meet at a common platform to exchange views, problems and share good experiences.

Speaking at a session on Financial Inclusion, Mr. Alok Prasad, CEO MFIN (Microfinance institutions Network) said that financial inclusion was talked about since 1960s, but the tragedy is that money lenders are still the primary sources of funding for the poor. Inequality is on the rise despite GDP growth rates. There has been no favourable financial inclusion so far.

The unprecedented growth rate of 60% in a 6 month period (April’10 to Oct’10) by the MFIs was brought to a halt with the Andhra Pradesh crisis. After the crisis all stakeholders are working hard to bring back to the growth phase supporting the cause of MFI.

Explaining the role played by credit bureaus in financial inclusion, Mr. Siddharth Das of credit bureau Highmark said that a comprehensive credit database will help a financial institution make an informed decision.

Presently, Highmark has around 70 million loan records and has 4 crore unique borrowers (which covers 90% of the MFI industry). 60 MFIs are using the bureau regularly for every loan granted by them. In Karnataka all AKMI members, except 1 MFI is using Highmark and 25% of the country’s credit checks are coming from Karnataka.

On the SHGs becoming part of the Credit Bureau data, Mr. Das said that only financial institutions can share the data – this is a legal hitch. Secondly, only the SHG names are available and not the names of the individual. Individual data availability is the key for including SHGs (Self Help Groups) in Credit Bureau. Banks should digitize the individual data and provide it to the Credit Bureaus.

“An immediate solution would be for banks to run the individual names of members of new SHGs formed through the Credit Bureau before granting loan to an SHG”, he said.

Mr. Abhishek Sharma from Equifax, said that credit bureaus help a financial institution assess whether it is moving in the right direction or not. “Credit Bureau can help overcome over indebtedness issues and can be used to get risk scores, alerts and portfolio review, and industry and client reports.

Mr. Alok Prasad concluded that investments and efforts are required to get the SHGs to share individual data. The success of the industry is dependent on a comprehensive package of financial services and enhancing quality thru the Credit Bureau.

Micro-finance Bill

During the workshop, a discussion also focused on the Microfinance Bill, which is expected to be introduced in the Parliament this budget session.

Ms. Achala, Vice President, Sa- Dhan stated that bringing the bill to Parliament is only 50% of the work done. The other 50% will depend on us. She also said that there is strong support from PMO, Ministry of Finance and the RBI for the bill to be passed.

“Those who choose to work with the bottom of the pyramid will have to pass a tough test. Work together with the senior policy makers of the banks”, she said.

Mr. Samit Ghosh , Managing Director, Ujjivan, stated that MFIs need to learn lessons from the crisis and urged the MFIs to step back and see what went wrong- pricing, efficiency or handling customers. In his opinion, Microfinance Bill is a blue print of the way forward for the sector.

“There should be genuine appreciation for microfinance for including the financial inclusion for the country. We need to advocate with the constituencies to ensure that the Microfinance Bill is passed”, he said.

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