By Sanjay Jha

Isn’t a publicly listed,  heavily-traded , profit-making , “shareholder value”  obsessed company with a sophisticated  investor relations wing in the business of satisfying analysts earning forecasts , using the high-profile buzzword of “ social entrepreneurship” —– micro-finance , an oxymoron? Can and do they really care for the upliftment of the poor and the marginalized Indian ? Is poor regulation going to create a fresh deluge of IPO’s to tap this “ market segment”?

Tell me, if India’s numerous public sector commercial banks with their phenomenal rural penetration and priority sector lending experience cannot do micro-finance to reach out to the underprivileged as a larger part of their social responsibility , can private-for-profit firms really fulfill that gigantic task without resorting to bullying tactics , forced recovery, and in fact, willful funding to vulnerable sections to create India’s modern avatar of a “ corporate money lender”, a loan shark keeping its “ customers” in an inextricable web of perpetual debt ? Does that explain the spate of recent farmer suicides?

We will appreciate your views on


  1. View the contrary

    Can the NON existence of
    ” a publicly listed, heavily-traded , profit-making , “shareholder value” obsessed company with a sophisticated investor relations wing in the business of satisfying analysts earning forecasts , using the high-profile buzzword of “ social entrepreneurship” —– micro-finance”

    cause the upliftment of the poor and the marginalized Indian – just by the entity not being there?
    Will the above eliminate unmonitored, unaudited malpractices common among the rural moneylending class?

    Ask yourself these perhaps before putting out a blog.

    – a free market+INC supporter

  2. When we started out in development a couple of decades ago, we instinctively targeted to reduce the influence of money lenders, if not eliminate them completely. Why? They were the traditional oppressors and exploiters in society. Micro-savings and revolving loans worked very well until the most fancied MFIs burst into the scene. MFIs operate under these two beliefs: “Having access to expensive credit is better than no credit” and “the observed rate is where demand equals supply”. These two beliefs were ironically the very same fulcrum the traditional money-lenders operate with.

    The result is an “Animal Farm” situation where we are now not able to distinguish between “pigs” and “humans” and vice versa. In fact, money-lenders have got a make-over by packaging themselves as MFIs. A good example is Mohd Yunis of Grameen Bank comes from a traditional money-lending caste. And of course, he got the Nobel Prize and so did Al Gore & Pachauri. Thank God the Nobel Committee did not confer Gandhiji the same distinction, by clubbing him with these scamsters.

    The IPO of SKS, one of the largest MFIs in India, saw it over-subscribed by 15 times; their Ten-Rupee share was priced at a premium of Rs 985 – showing how much the market had confidence on their profitability while “banking with the poor”. The promotors of SKS became multi-billionaires over-night! MFIs argue that they have to charge high rates to maintain profitability. Profitability, which even private banks couldn’t match! Profitability that permits SKS to pay Rs 1 crore as bonus to their just fired CEO!

    And how do they attain profitability?

    A month ago, SKS in the state of Andhra Pradesh was accused of a series of farmer suicides that prompted the state government to introduce new restrictions on the microfinance industry by seeking to cap lending rates and end coercive means of recovery. Last week alone, Andhra Pradesh police arrested three loan agents of SKS Microfinance and Spandana Sphoorty Financial Ltd. after borrowers complain that they were illegally pressured by the agents to repay their small loans around $1,300. For those of us in the field, this conduct of MFIs is no surprise.

    MFI research puts irinterest rates between 25-30%. But my experience (and this is my 30 years in the field) put this figure several times higher. Even if we take this range which they described as the lowest in the world, the only benefit of such loans is for working capital and not capital formation. What is the kind of subsidies Rata Tata gets to produce a one lakh car? We all are aware that a mere 0.5% rise in banking rates can crash the stock market, so sensitive is their profitability linked to interest rates. Compare this with those the poor is asked to bear.

    AP’s share of outstanding microfinance loans represents nearly 40% of the sector’s total portfolio, according to CRISIL. Now if MFI is all about access to the poor, we can ask the question, why the clamour to be concentrated in a state which belong to top-five in development in the country? We would have thought they would have gone to the five lying at the bottom rung of the country. But no, they avoid it like plague. It is easy to see they do this on repayment potential of states. The interests MFIs pursue are interests of self sustenance and their own growth. The poor is hardly in the radar except for rhetoric. In fact, it is on the blood and coercion of the poor, MFIs like SKS can giveaway Rs 1 crore as bonus to the CEO.

    The sooner MFIs are seen as profit enterprises, the better. The longer they pretend they are pro-poor, the longer they discredit the NGO sector that gave birth to a Frankenstein. Rather than regulate MFIs, I for one will welcome the day of their demise. Loan sharks cannot be regulated

  3. Wow, this is amazingly flawed thinking! But, quite typical of a congress-man.

    Why do you think that profit making cannot be social? Its not an oxymoron infact its redundant. profit making (under a meritocratic system) does more for society than anything else – its been proven many times, so no need to have to make a case for this, surely?

    To your second para, because the public sector banks have not been able to do it, precisely because of that, there is a business opportunity and a for-profit firm will do absolutely better than public sector banks. Note, this does not mean that for-profit firms do not need to be regulated. In fact any systemic failures of for-profit systems are more likely because of ineffective regulation or incapable regulators. For-profit systems don’t necessarily preach the social responsibility mantra (unless its good marketing) but they end up doing much better on that metric than a corresponding public system anyway.

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