US' Gutierrez gets lesson on India's micro-finance
New Delhi, Feb 18: When the US Commerce Secretary came visiting,along with meeting business CEOs he made a slight detour to acquainthimself with the lesser known but highly-successful micro financelending endeavour that has spawned thousands of self-employedentrepreneurs in the country.
Taking out time from his packed schedule to get an overview ofIndian micro-finance institutions and their contribution to self-helpgroups and individuals in rising from poverty, US Commerce SecretaryCarlos Gutierrez availed the chance to learn about the key role thatmicro finance lending institutions were playing in poverty alleviationin India during his two-day visit here last week.
He praised the initiative of various players in lending microfinance credit in the country, saying other countries could learn fromIndia's experience which was "impressive and truly inspiring".
Mr Gutierrez said, "by tapping into the human essence ofentrepreneurship you have been truly empowering individuals. Manycountries can learn from what you are doing." A visibly impressedGutierrez met women who had benefitted from the microfinance creditsystem and set up handicraft enterprises, either individually orthrough self-help groups.
He spent some time admiring an array of decorative items ondisplay at the venue. The encounter with various players in India'smicro finance lending arose over an informal discussion at Dilli Haaton February 14 last.
Giving an overview of how the micro finance picture has played outin India, Mr Vivek Mahajan, chief of Basix, a non-governmentorganisation (NGO) in the field of micro finance, told the US officialof the growing incidence of urban poverty which now stood at 25 percent -- on par with rural poverty.
Of the 200 million households in the country, roughly 50 millionhouseholds were in urban cities. Altogether, 30 million householdslived below the poverty line in India.
Pointing out that there was a downside to India's growth story, hesaid micro finance had provided the have-nots easy access to loansafter banks had turned them down and the only recourse was themoneylending sharks.
Among the NGOs IndCare, Ujjivan and Sa-dhan were focusing on urbanpoverty. When these NGOs started, the urban poor were under served andhad no institution to turn to for funds.
Sa-Dhan made a start by lending to small shopkeepers and traders.
The repayment risk was lower for these NGOs compared to banks, according to its head Mathew Titus.
Claiming as high as "95 per cent plus" repayment from its clients,Mr Mahajan said in the case of the nationalised banks, due tolarge-scale default on loans, branches of nationalised banks had becomenon-viable and its customers dissatisfied.
Credit for some of the repayment lay in the way the lending institution behaved with borrowers, he added.
For Reva Sood of IndCare, Delhi may have emerged as a hub of womenentrepreneurs but the financial support was not available to them.
There was heavy demand for micro finance and the facility was soon expected to be available in 50 cities.
Both Mr Gutierrez and US Ambassador David Mulford, who hadaccompanied him, exhibited keen interest in the proceedings and askedsearching questions from the participants. He asked about the number ofborrowers and the rate of interest.
In the case of borrowers, the interest charged was between fiveand nine per cent, nine per cent for long term lending of three yearsand five per cent for one year.
There was one noteworthy difference between the urban and ruralpoor in that large majority of the urban poor were employed, of whom 30per cent were self-employed.
According to a Ford Foundation official, so far it had focused onrural poverty alleviation, it was now looking to encouraging microfinance earnings as there was a huge unmet need.
US Ambassador David Mulford, who asked a pointed question onwhether it was not easier to start unlimited bank branches to bring inhuge sums of money in rural areas, got a categorical no in reply.
Bank branches did not necessarily translate into bank finances oraccess for the poor population, he was firmly told by Sa-Dhan headMathew Titus.
By addressing the needs of the bottom end of the segment, Mr Titussaid the access to micro finance had become so central to their upwardmobility that it was being delivered at their doorstep! The Citibankofficial corroborated this view saying that as per records, commercialbanks have not been successful in rural finance.
The need of the day was for low-cost micro finance institutions.