Column: New vistas in micro finance in India

(BS 27/07/2006) New Delhi - Finally, there seems to be a will to take a re-look at financial services for the poor. Much lobbying with the government and the RBI by those who work with financial services for the poor resulted in the government announcing on June 26 that it had constituted a committee under the chairmanship of Dr C Rangarajan, chairman of the Economic Advisory Council to the Prime Minister, to prepare a strategy of “Financial Inclusion”. The ten-member committee is expected to submit its report by November 30.

The other members of the committee are Mr Vinod Rai, special secretary, ministry of finance; Dr (Ms) Rohini Nayyar, adviser, rural development; Mr M B N Rao, chairman and managing director, Canara Bank; Mr Yogesh Agarwal, managing director, State Bank of Patiala; Prof. Mahinder Dev, director, Centre for Economic and Social Studies, Hyderabad; Mr Vijay Mahajan, CEO, BASIX; Mr R Gopalkrishnan, executive director, TATA Sons; Mr A P Fernandes, director, MYRADA; and Dr Y S P Thorat, chairman, NABARD.

The terms of reference of the committee include:

i) to study the pattern of exclusion from access to financial services disaggregated by region, gender and occupational structure;

ii) to identify the barriers confronted by vulnerable groups in accessing credit and financial services, including supply-demand and institutional constraints;

iii) to review the international experience in implementing policies for financial inclusion and examine their relevance/applicability to India;

iv) to suggest (a) strategy to extend financial services to small and marginal farmers and other vulnerable groups, including measures to streamline and simplify procedures, reduce transaction costs and make the operations transparent, (b) measures including institutional changes to be undertaken by the financial sector to implement the proposed strategy of financial inclusion, and (c) a monitoring mechanism to assess the quality and quantum of financial inclusion including indicators for assessing progress.

While the emergence of a macro picture and the committee’s recommendations are essential in effecting policy level changes, what is heartening is that in recent years stimuli, often external to the government, have brought about sweeping changes in how the mainstream financial sector is viewing financial services to the poor.

As I have mentioned in several of these columns earlier, the nature of organisations which are being set up to cater essentially to the poor, the kind of people who are running them, and those that are funding them, are undergoing a qualitative change. Examples are quite a few of new micro finance organisations being set up by professionals who are venturing out on their own, having worked with banks or large micro finance organisations earlier. Those that come to mind are Sonata in Allahabad, set up by Anup Singh and Rakesh Dubey, ex-Cashpor; Ujjivan, Bangalore, set up by ex-Citibanker Samit Ghosh; Swadhar FinAccess in Mumbai, set up by ex banker Veena Mankar; and Jeevika in Jabalpur, set up by Ashish Gupta, ex-BASIX.

Instead of talking in the abstract, it may be worthwhile to share with readers my experience with one such company I have had the pleasure of watching closely as a member, first of its advisory council, and now after registration as a company, as a member of the board. “Arohan” was set up last year with 85 per cent funding from venture fund Bellwether, 7 per cent from renowned columnist Swaminathan A Aiyer, and 7 per cent from Shubhankar Sengupta, who is also the CEO.

The vision was to be based out of Kolkata and was to operate initially within a 50-60 km radius of the city, which constitutes 40 per cent of West Bengal’s population. Subsequently, it would cover other parts of West Bengal and eventually spread to other states in eastern and north-eastern India. In five years, Arohan aims at a portfolio size of Rs 43 crore and generate profits of Rs 2.8 crore, reaching out to 86,000 poor women across 30 branches with a staff strength of 195. It would break even in its third full year of operations.

Arohan wished to commence its lending operations in 2006-07 with five branches in and around Kolkata, i.e. Beleghata, Howrah, Barrackpur, Sreerampur, and Tollygunge. In the first phase, three branches would commence lending in April and another two from May. The plan was to lend Rs 4.5 crore in 2006-07 to 9,000 customers and end the year with a gross loan outstanding of Rs 2.7 crore.

At the end of the first quarter, Arohan had already opened four branches out of the five planned for the first year. In July the fifth branch too has started operations and started lending, and Arohan expects to end July with disbursements of Rs 100 lakh. The fact that bankers too are impressed with Arohan’s sense of purpose is evident from the fact that HDFC, ICICI and ABN Amro have sanctioned or are in the final stages of sanctioning loans.

Arohan’s entire operations are computerised with a specialised MF software package, developed for its use and all branch heads and field officers are trained in order to keep all accounts online. Enthused by the progress, Arohan is now planning to go beyond its five branches for the year and may open a few more.

The fact that the demand for MF services is huge is no longer in question. What is now getting established is that the right professionals, and their orientation can make lending to the poor efficient and sustainable. By Keya Sarkar