COVER STORY

ACHIEVEMENTS OF MICRO-FINANCING
Although there are differing numbers on repayment rates, all of them seem to support the view

that the repayment of SHGs or MFIs is quite encouraging. Figures of recovery vary from 92-93

per cent to 98 per cent; in any case, recovery is over 90 per cent. The participation of women has

been active. In addition, the private sector is now beginning to see that MFIs and SHGs offer a

business opportunity. More importantly, the movement has promoted participative decision-

making; savings; a diversity of loan products for consumption; production, and, in some cases,

insurance and social security. The formal structures only look after the specific needs of

consumption or production credit while the microfinance industry has shown the potential of

addressing multiple needs. An important lesson from the SHG movement is that peer pressure

can be used effectively for recovery. This needs to be considered in the context of extending the

lessons of microfinance to the formal sector. For instance, joint liability groups can be promoted

by the formal sector to advance agriculture credit to tenant farmers or share croppers.

SOME FACTS TO PONDER ABOUT MFI

While the achievements of microfinance programme in the country have been impressive, it is

necessary to discuss some downsides. The performance of SHGs and MFIs in the south has been

much better than the east, north-east, the central part of India or even some parts of western

India. Some findings of a study by National Bank for Agriculture and Rural Development

(NABARD) are worth a mention. Some major findings of the study were that the average value

of assets per household increased from Rs.63,000 in pre-SHG period to Rs.71,000 in the post-

SHG period. About 62 per cent of the households reported increase in assets by 24.5 per cent
from pre-to post-SHG situation. Almost all members were saving in the post-SHG situation as

against only 23 per cent savers in pre-SHG situation. The average borrowings per household per

year increased from Rs.4,282 to Rs.8,341. The average net income per household increased by

33 per cent from Rs.20,177 to Rs.26,889. These figures indicate that in terms of increase in

assets or incomes, the impact of the programme has not been significant and it raises questions

about its efficacy in its present form as an instrument of poverty alleviation. Therefore, if the

instrument of microfinance is to make a visible impact, the content, quality, and the range of its

products would need to be upgraded.

ISSUE THAT NEEDS TO CONSIDERED IN MICRO FINANCING

There are certain issues about the sustainability of MFIs and SHGs. A study indicates that

although there are thousands of MFIs in the world, only 60 might be sustainable on a long-term

basis as self-reliant and viable. This brings us to the issue of high interest rates of microfinance.

It is necessary, however, to communicate MFI’s perspectives on interest rates effectively to

policy-and law-makers. It is equally important to ensure better transparency on costs of

dispensing credit. We also have to look for ways of moderating interest rates by cutting costs.

When loans are for a short term, the problem does not seem unmanageable. The issue becomes

problematic when microfinance graduates into investment financing, when the risks and tenors

increase, and loans become unaffordable.

There is an emerging consensus that microfinance holds great promise particularly in the Indian

situation. As everybody is paying attention and SHGs can be used to advance a political agenda,

there is reason to worry. In this context, it is relevant to pose the question — To what extent

should the movement be mainstreamed? Should it be mainstreamed at all? This is not something

that we can easily take a view on. It is already gathering a momentum of its own because of its
popularity; it also, offers an opportunity for political mobilization. Every year, there is an

announcement from the government that it will support microfinance or SHGs in some way and,

accordingly, targets are set. This trend should be watched with caution. The essence of

microfinance is its voluntary character. It should not be over-regulated and be at the disbursing

end of directed credit with excessive government involvement. Involvement of bureaucracy

creates problems as we have seen in other such programmes. As soon as a new government

comes to power, it finds all kinds of issues and the first thing it wants to do is to bring about

changes including changes in the name. Thus, there is invariably a problem with programmes of

this nature. They get identified with specific political dispensations and that can hasten their

demise if the dispensation changes.

NEWS THIS WEEK

CB Bhave in favor of smooth passage of FII funds

NET foreign fund inflows into Indian equities are nearing a record high, but concerns
of restrictions on portfolio flows may have been exaggerated. Securities and Exchange
Board of India (Sebi) chairman CB Bhave is of the view that unless foreign portfolio
investors are allowed entry and exit without being hobbled, it would be difficult to
attract foreign investments into equities.

Idea’s failed branding impact

MUMBAI Indians, the Indian Premier League team owned by Mukesh Ambani, has
lost its largest sponsorship deal with Idea Cellular walking out of the $2-3 million per
year contract two years before schedule.
ICICI may sell its entire stake in 3i Infotech
THE Rs 96,000-crore ICICI group is in talks to sell its entire stake in 3i Infotech as
the financial conglomerate feels the IT venture it incubated 16 years ago has become
peripheral to its operations and matured enough to hold out on its own.

$10 b to buy LyondellBasell

RELIANCE Industries Ltd (RIL) is in talks with more than a dozen banks to ready an
$8-10 billion war chest for the acquisition of LyondellBasell, the world’s third-largest
petrochemical company that has filed for bankruptcy in the US

Defence to get 10% airwaves

THE defence forces will get exclusive rights to 10% of the airwaves, or spectrum,
that can be used for commercial telephony services and broadcast services. Spectrum
is the radio frequencies on which all mobile signals travel and is the lifeline for all
telecom companies.

VOLKSWAGEN for 20% stake in Suzuki

VOLKSWAGEN AG plans to take a stake of up to 20% in Suzuki Motor Corp, VW
hopes to get access to better small car technology.

Tatas in for Sumitomo pie in Swaraj

TATA Motors, India’s largest commercial vehicle maker wishes to acquire Japanese
conglomerate Sumitomo Corporation’s 53.5% stake in Swaraj Mazda as it attempts to
strengthen its position in the light commercial vehicle (LCV) market.

BYE BYE CHETAK

Bajaj Auto announced on Wednesday that it is pulling out of the scooter segment
altogether, bringing the curtains down on its iconic product line.
BARCLAY’S not allowed issuing new participatory notes
BARCLAYS Bank, a foreign institutional investor (FII), has been ordered by Sebi not
to issue new participatory notes because it allegedly provided false information to the
market regulator.

FOOD INFLATION AT 10-YR HIGH

There seems to be no respite from the ever rising food prices. The unrestrained rise in prices signals the
portending doom for the poor. It just goes on to reinforce that amidst all sorts of financial churning the
poor are going to be hid the hardest.

Banks begin crawl towards uniform home loan rates

THE difference in floating interest rates among old and new home loan borrowers
may soon be scrapped after a move by the Indian Banks’ Association (IBA) to
introduce a uniform rate. While the nitty-gritty is still being worked out, floating rate
home loans may soon get more efficient in reflecting interest rates prevailing in the
market.

Barclays to fire 150

Barclays Bank will lay off around 150 from its retail and commercial banking
operations in the country

10.3% RISE BELIES FORECASTS

INDUSTRIAL output grew by 10.3% in October from a year ago, not enough to
meet market expectations, and sowing seeds of doubt about the robustness of India’s
economic recovery.
 CAN YOU SOLVE

Unscramble the letters to make meaningful words

Aerl tetase ---- 9th and 10th (positions) letters of the correct word

Pneenalterreuri--14th letter of the correct word

Arbsrpteioon --9th and 10th letters of the correct word

Ifcopattien----- 7th letter of the correct word

tiilocvniebtyr ---4th letter of the correct word

Make a meaningful word out of the letters selected above

*correct word implies, word after the letters have been unscrambled
 WORDS

International Banking Facility - IBF

A facility that accepts deposits and offers loans to foreign customers and businesses.

Obligation
The legal responsibility to meet the terms of a contract. If the obligation is not met there is often
recourse for the other party to the contract.

Breach Of Contract
Violation of any of the agreed-upon terms and conditions of a binding contract. This breach
could be anything from a late payment to a more serious violation, such as failure to deliver a
promised asset. A contract is binding and will hold weight if taken to court; however, proof of
the violation is imperative.

Failure To Deliver

An outcome in a transaction where one of the counterparties in the transaction fails to meet their
respective obligations. When failure to deliver occurs, either the party with the long
position does not have enough money to pay for the transaction, or the party in the short
position does not own the underlying assets that are to be delivered. Failure to deliver can occur
in both equity and derivatives markets.

Contract Holder
An owner of a segregated fund contract.