• Introduction
  Small collateral free loans offered to women borrowers in rural and semi-urban areas are generalised as Micro Finance Loans. These small loans of about Rs. 30,000 for first time borrowers, gradually increasing up to Rs. 100,000 are focused on income generation and/or income augmentation, of the borrower-household. Since the borrower has barely any collateral to offer for borrowings, social (group guarantee) and emotional (solemn promise) collateral is used to secure the loan. Forming Joint Liability Groups (JLGs) have proved to be most popular and effective method of credit delivery in this sector. The loan provided to individual but guaranteed by the group comes along with a very strong preamble of using it only for productive purposes. This point is driven home by intensive credit conditioning within the JLGs. It is now a well settled position that neither all JLG lending is Micro Finance, nor Micro Finance necessarily needs to be in JLG format.

 
  • Micro-Finance in Numbers
  Micro Finance as sector is in its growth phase in India. Based on June 2019 report by MFIN (MicroFinance Institutions Network : www.mfinindia.org) A whopping 192 entities have a sum total of Rs.187,386 crs. of outstanding loan portfolio from 9.33cr loan accounts. NBFC-MFIs are the dominant players in the industry with NBFCs and Not for Profit Entities being other important contributors. Industry at a Glance

Type of Entity  No of Entities  Loan Account Nos. Crs  Portfolio o/s Rs. Crs
NBFC -MFI  82 4.13           68,868
Banks  11 2.33           61,046
SFB  9 1.74           34,679
NBFC  42 1.02           20,681
Others  48 0.11             2,112
Total  192 9.33         187,386 
     
Past Due 0 – 179 Days 192 8.65 178,552  
*Data from MFIN Micrometer June 2019
The microfinance industry’s gross loan portfolio (GLP) of Rs 1,87,386 crore at the end of March 2019, showed a growth of 38 per cent year-on-year. The total number of microfinance accounts was 9.33 crore, showing a year-on-year growth of 21.9 per cent. Non-Banking Finance Company Micro Finance Institutions (NBFC-MFIs) hold the largest share of portfolio in micro-credit with the total loan outstanding of Rs 68,868 crore, which is 36.8 per cent of total micro-credit universe. These loans have performed admirably as well. Out of the 9.33 cr accounts just 68 lac accounts have delayed repayments by more than 179 days and out of Rs. 187,386 cr portfolio only 4.71% (Rs. 8,834 crs) is housed in these delayed accounts. Experts estimate there is significant untapped potential to this industry. The above ~200 odd entities are yet to cover remote areas in our country where a significant portion of population remains financially underserved.

 
  • Observed Tool of Social Change
  Micro Finance has been an acknowledged change-agent and it has been observed that positive social changes follow the credit trail. First-time borrowers engage in low expertise businesses like dairy, tailoring, micro-catering, micro-groceries, micro-trading and other such micro-businesses. Income generated from these micro-businesses is slowly and steadily ploughed back thereby increasing own stake and ensuring business continuity. Thus, for first-time borrowers, a sense of self-worth gets cultivated along with credit discipline. Not all first-time borrowers are successful, nevertheless a very high proportion of them manage to keep their weekly / fortnightly / monthly repayment promises by relying on a combination of existing and the newer income sources.   With households staying invested in their local income generating activities, the need to relocate in search of steady income is reduced. Income searching nomadic existence gives way to stability and thereby makes erstwhile transient population stable. Stability evolves into an identity and with it comes eligibility to participate in local and regional social upliftment programs of the state and central governments.   JLGs the cornerstone of this type of financing leverages trust amongst members and by extension amongst the community. A sense of unity and inter-dependability is nurtured amongst the participants and it is backed by direct financial gains; in effect building, fortifying moral fibre of the community.   One of the significant offshoots of financial certainty is investment in health, hygiene and fuelling of ambition like higher education. Low wage earners are susceptible to ill-health due to poor nutrition. With income augmentation, nutrition level improves reflecting positively on health of such families. With these families in position to provide basic education to their children, higher education aspirations take root and ultimately improve standard of living within a generation. Governmental policies have indeed made significant contributions, but at the same time financial certainty has underpinned this improvement as well.

 
  • More than Micro-Finance
  Offering Credit facilities is Micro Finance. However for it to be a true change-agent it is imperative that “credit-plus” services be offered. Imparting livelihood skills that augment earning capacity of target demographic is as important as credit itself. Skill enhancement propels say a carpenter earning Rs.150 per chair to earn say Rs.250 by selling a combination of table-chair. The skill enhancement for this carpenter is worth Rs.100, who post skilling-session(s), learns to make a table in addition to his earlier know-how of chair making. It is this occupational skilling that will improve lives significantly. The grand-vision of Micro Finance Institutions should be to offer financial support during course of skill enhancement, thereby upgrading borrowers from Micro-scale income generators to Small-scale income generators. Borrowers participating for more than six/seven/eight borrowing cycles need to be counselled for graduation to the next level. Very few Credit companies invest in skilling the populace – the ones those do, focus on financial skilling; calling it financial inclusion rather than occupational skilling.

   
  • The way forward
Micro Finance Institutions will continue to play a vital role in developing positive credit culture and financial discipline. In the coming years we will see models of microfinance where structuring of credit offerings as well as their delivery will be digital. Such digitised Micro Finance would realise social benefits like being truly non-discriminatory and enhanced serviceability for credit users and being cost optimal for credit providers and as with any socially impactful program, progressive regulations will further buttress growth.

 
  • About the Author
Kedar Deshpande is a Chartered Accountant and has held important positions in a large Multinational Bank, a Rating Agency and a Systemically Important NBFC over the last 15 years. Currently he heads the Product Strategy and Wholesale Funding vertical of Profectus Capital Pvt. Ltd. While finance continues to be his current passion, he aspires to be a change agent and continues to work in this direction.

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