by Kate McKee: Sunday, November 1, 2009
Are the products, practices and policies of the leading Indian microfinance providers responsible? Or might the unprecedented growth of the sector (particularly the top-tier for-profit NBFCs of the likes of SKS, SHARE, Spandana, Bandhan, and BASIX) leading some providers to cut corners, such as over-selling loans with little analysis of clients’ repayment capacities and other debts?
Those questions featured prominently both on the stage and in the hallway chatter here at the 6th Annual Microfinance India Summit, which took place earlier this week in Delhi. The speakers list read like a “Who’s Who” of the booming Indian microfinance sector, along with an estimated 800 practitioners, policy makers, researchers and funders. Themed “Doing Good and Doing Well: The Need for Balance,” people here debated strongly whether the right kinds of balances are being struck lately in the race to expand access, double client rolls and loan portfolios annually, and attract massive amounts of debt and equity. Though there were sessions on “business correspondents” in India (branchless banking), as well as a day on livelihoods, the primary focus was on the rapid growth of the sector.
Brij Mohan, ACCESS Board Chair (and one of the grand old men of the Indian microfinance scene) voiced concerns that the rapid growth and new business models might be distancing providers from their clients and institutions from their original mission. Princess Maxima, Her Royal Highness and Special Advocate for Inclusive Finance for Development, urged those assembled to stay focused on client needs. That means avoiding over-indebtedness, ensuring transparency, and that clients are fully informed about the pricing, terms and all relevant conditions of their loans. She voiced hope that the just-launched SMART Campaign will help create norms and practical tools for providers and regulators.
There was serious data to be had, too. In highlighting key findings from the annual state-of-the-sector report, N. Srinivasan raised concerns that expansion and profits might be prioritized over consolidation of operations and customer service; he also noted that although efficiency is up at most MFIs, interest rates are not coming down for customers. In the introduction to the just-released M-CRIL report on the sector’s financial condition, Sanjay Sinha echoed similar worries.
Some said that these problems are predictable with a microfinance sector that is unable to offer more than one product. Shubhankar Sengupta of Arohan agreed that when products cannot be tailored to a client’s actual repayment ability and preferences, tendencies towards over-lending, lack of transparency, and aggressive collections practices are not surprising, especially in such a go-go environment. He also challenged the sector to back off from an insistence on 99-100% repayment – this target was neither realistic nor appropriate, and drove some of the distasteful practices.
Suresh Gurumani, CEO of SKS stressed recent steps taken by leading MFIs to form Alpha, an entity that will improve information-sharing, including investment in a credit bureau, and be “an SRO [self-regulating organization] with teeth.” This may have been a reference to the fact that meaningful compliance with the government’s fair practices code for MFIs – which addresses price transparency, collections and recourse — is far from universal.
Lurking among the talk: the political risks of not being proactive on responsible finance Gurumani was perhaps speaking for many in the room when he summed up: “I don’t see responsible lending as an option. It is a must.”