STARTING SMALL, GOING BIG

By M H Ahssan

The rise of micro-finance institutions (MFIs) in India has opened a new door of opportunities for prospective entrepreneurs. HNN speaks to them to find out how, in the near future, this sector is destined to witness growth

Though, India, today is a force to reckon with in the global arena, there are certain sections of our Indian society that continue to be economically backward. But with the renewed focus on social entrepreneurship and “economic equality”, micro-finance ventures are seen to be the tools to drive this change. This has also given the economically backward a ray of hope as several micro-finance ventures are providing monetary help to this pool of budding entrepreneurs who are talented and ambitious but don’t have the financial support system to translate their ideas into real-time business application. Here’s a look at how MFIs are playing a crucial role by providing entrepreneurs a lot of opportunities.

THE GROWTH TRAJECTORY
History is evident of the fact that “informal” micro-finance ventures have existed since 1700. But these were usually in the form of moneylenders who were infamously popular for cheating people. Vineet Rai, Founder, Aaviskrar explains, “While we were under the British rule for over 300 years, micro-credit was never the administration’s priority at that time. And while there were cooperatives, lending was designed to capture the creamier pie; i.e. the traditional retail and corporate customers who were more concentrated and highly populated, back then. And it was only after independence that micro-credit, as a concept came into existence and gained immense popularity. The introduction of the ‘Self Help Groups (SHG)’ format and the nationalised banks’ lending system helped accentuate the importance of the same.”

Kalpana Sankar, CEO, Handin-Hand adds to this and explains further, “The growth trajectory of the Indian microfinance system can be traced way back to the mid-eighties and early nineties. Incorporating lessons from the micro-finance movement in Bangladesh and participatory group lending approaches in India, helped push this sector forward. And as that market reached its saturation point and the realisation of these initiatives not having the desired impact dawned on people, the search for new models and customers began, which led to the institutionalisation of MFIs.”

LAND OF THE RISING SUN
It does not take a genius to realise this but there has always been a need for micro-finance ventures. However, this concept gained some significance after Dr. Mohammed Yunus started his venture in the remote areas of Bangladesh. In India, however, the pace has been rather slow. Reports say that there are 700 million people living in rural areas and the recent World Bank studies confirm an increase in the percentage of poor people in India. Further, these are the same people who do not have access to timely credit from banking channels. This has led to poverty in various parts and several basic demands of this segment of the population are still unmet.

However, with the changing times, there has been a shift in the mindset of people. Though it has taken its time, many MFIs have been initiated, thanks to the modern approach of several entrepreneurs and social enterprises. Like Vishal Mehta, MD, Lok Capital adds, “The rise of MFIs started two years ago. The consistent and the gradual change lead to this rise. Also, with the changing mindset, demand for these ventures is only increasing.” Rai adds to this and says that because of the increasing number of entrepreneurs, companies are waking up to this exciting business model that is not only commercially attractive but also socially meaningful. In terms of success, Sankar says that lending to the poor has proven to be a successful and strategic move and MFIs will be able to break even within two-five years, depending on their approach.

“The risk is dispersed and banks/MFIs view this as a successful commercial proposition. Foreign investors are able to invest in equity and debt and they are able to obtain quick returns too. Hence, there is huge competition among the financing institutions and also, non banking finance companies are expanding rapidly to keep pace with the government/private banks, as scale and outreach are crucial factors for proper sustainability of a MFI,” explains Sankar.

NEED FOR MORE
While there are many reports saying that these MF ventures are doing more than their bit to help people, experts say that this may just not be enough. With the increasing population and meagre wage rates, people need more than just a chance to grow. “There have been promoters and NGOs that have been doing their bit. But now is the time for major players, also, to step in and contribute,” says Mehta. “Also, there is no exploitation of the people. The rate of interest is low and people below the poverty line are given equal treatment. This makes it all the more important for India to have more MFIs.”

Sankar adds, “It has helped people in diversifying their livelihoods and has significantly, contributed towards raising the incomes of poor families. It has allowed the poor to accumulate assets and has helped strengthen their security system. Finally, it also has a very significant social impact. In areas with sound micro-finance programmes, the quality of life of the poor has improved considerably as they have started investing in health, nutrition and sanitation and education of children, due to an increase in income.”

For a society to fully realise its potential, it is imperative that all sections contribute to and partake in the development process. And several demonstration projects in micro-finance in India have shown and proven that the economically backward, in India are a bankable lot. How far this sector continues to grow is for us to wait and watch!