The Indian Microfinance Impasse
Image: Gireesh G V for Forbes India
ohamed Saifulla smiles as he pulls out a thick folder in the pale green office of the Anjuman-E Islamia of Kolar. He may well smile. Saifulla and the Anjuman committee are in a great part responsible for the Indian microfinance industry now finding itself with its back against the wall. The outgoing president of the Anjuman committee, made up of nominees from the town’s mosques, Saifulla has agreed to show us details of women borrowers who were harassed by microfinance institutions for repayments. Instead what he brings out ceremoniously from a plastic bag is a file with clips of blog accounts, comments and newspaper articles about how the committee brought microfinance repayments to a grinding halt in Kolar.
“Most of them agree with us,” he says, basking in his new celebrity status and pointing to articles that say the meteoric growth of microfinance could lead to problems. Saifulla knows he has caught India’s MFI industry by the scruff of its neck. Upon a directive from Anjuman in February 2009, Muslim women borrowers stopped repayments Kolar, Mysore, Ramanagaram, Tumkur and other neighbouring towns in Southern Karnataka amounting to a default of around Rs. 60 crore for microfinance institutions (MFIs), probably the biggest default in the Indian microfinance industry.
While MFI activity in India has grown exponentially, the top five MFIs have more than doubled their client bases and grown at more than 45 percent over the last couple of years, some areas like Kolar are facing saturation. But for an industry that prides itself on near 100 percent repayment rates and doubled its turnover last year, the Kolar standoff is bad news not just for the loss of the money but for the larger ills that plague the entire microfinance ecosystem.
Microfinance has changed social and economic equations even in conservative societies. Is it now being held hostage by interests that are threatened by this change? Or has the industry skipped processes in its eagerness to grow? Turns out it is a bit of both. What the microfinance industry is also pondering is how this can be prevented from happening again.
On the Ground
The growth of MFIs in Kolar has been a natural consequence of the socio-economic fabric of the place.
A poor, area with a considerable Muslim polulation, Kolar was known for housing India’s only gold mines, an hour away from the town. But when the mines closed, it came to depend on silk factories as did Ramanagaram, a rocky place known more as the location of the cult film Sholay. But with the decline of silk factories, most women just sit outside their houses endlessly rolling beedis that earn them no more than Rs. 60 or Rs. 70 a day.
Most who say they started small businesses, including pushcarts selling firewood or vegetables or opened repair shops, say they suffered losses because people had no means to buy. With no way to earn, the lure of the increasingly available MFIs loans became hard to resist but harder to return.
Jabeen (who uses a single name) is a defaulter like hundreds of others who have taken multiple loans from MFIs. Jabeen and three friends have gathered at her house to talk about their financial woes. Jabeen says she took loans worth Rs. 15,000 and Rs. 12,000 from Rores Micro Entrepreneur Development Trust and FFSL Microfinance for house repairs and to give her husband — an auto driver who wanted to start a small business. But that did not work out and eventually Jabeen had to take a loan from the money lender to make her weekly repayments. So, it was with some relief that she told MFI officers that she would not repay till the Anjuman allowed her to.
But a year later Jabeen and her friends agree that they need loans of at least Rs. 10,000 a year to pay school fees or celebrate festivals. “If the Anjuman asked us to stop paying can they give us even Rs. 100?” Jabeen demands even as an Anjuman member, who accompanied us to her house, glares at her. The choking of MFI loans has meant that they are now borrowing small amounts at high interest rates from moneylenders.
As we leave the house they call out to say they would like to work, earn and then take loans and repay but that there are no jobs for women to do here in Kolar. To give this desperate message out they change their minds about not allowing their names to be used for this article.