Microfinance: Moving From Financial Capital To Social Capital

Vipin Sharma, CEO of Access Development Services speaks about micro finance institutions and the need for microfinance institutions to move from creating financial capital to social capital.

Formed in 2006, Access is a not for profit organisation offering specialised technical assistance in microfinance and livelihood. It provides streamlined and technical services to emerging MFIs.

Access assists emerging MFIs to build their capacity, uspcale and enhance their portfolio. It has a network of 130 MFI partners, reaching out to more than 3.9 mn clients.

Here are some of the excerpts from the inerview:

Has microfinance survived the recession?
Yes and no. In India, the model of microfinance based on self-help groups linked to banks through NGOs or MFIs has not been affected, but the model which depends on MFIs borrowing in bulk from banks and then lending to people has been hit. When there is surplus liquidity, banks like to give to MFIs. But shrinking of liquidity takes a toll on lending funds.

What is the share of the SHG-bank linkage kind of microfinance?
About 60% of all microfinance, and it has Rs 9,000 cr outstanding. Government intervention in microfinance has been a disaster. It should either withdraw from the scene or give it to competent organisations.

Self Help Groups are small informal associations created for the purpose of enabling members to reap economic benefits out of mutual help, solidarity and joint responsibility. SHG Linkage programme was first launched by NABARD in 1992.

What about interventions in Andhra Pradesh, where the interest is being paid by the government.
I don’t think that is a good idea. If you want to get into a serious relationship between client and bank, then it should be a market-oriented process. Why should Government give largesse?

What is the difference between last year and now in the world of microfinance?
In the past five to six years, growth has been the focus. If you see the proportion of poor and the percentage of financial inclusion, it was less than five per cent five years ago. The biggest challenge was to push this. Hence, growth of MFI was a big issue. To generate growth, we need strong institutions and so all were talking of building such institutions. So, focus on the poor was lost. Last year, we decided to focus on the poor. MFI is more than loans. It is about empowering the poor.

So, what is the focus now ?
To make microfinance the entry-point strategy to engage the poor. It is not about building financial capital but building social capital.

What is social capital?
Making the poor employable, to enable him to access resources, governance rights.

So, MFIs will not think of making profit?
We have to think how much profit is good, how we can replough the profits and improve the breadth of services.

Everyone is now talking of MFI plus services. Is that what you mean?
Precisely. But MFIs don’t have bandwidth to give that kind of advisory services which can take people out of poverty. The ‘plus’ is not happening.The challenge is for MFIs to expand ability to do business development or link with someone who does livelihood planning.We have to think of deepening operations and not just widen these. We can’t leave people with $100 loans and expect them to move up with buying a cow. You have to help him cope with more cows, and help him link to the market.

Does he mean that other than providing capital tp the poor MFIs should also get engaged in advising clients on fund utilisation

Last year, many MFIs were close to getting listed on the stock exchange. What is the situation now?
They still are. SKS, for instance, is close. I don’t know if it is good or bad. In the third phase, microfinance is getting commercial, which is a bit dangerous. So, our conference will focus on responsible finance, the issues related to social finance. It is a tension between scale and soul.

Andhra Pradesh based SKS is one of the fastest growing microfinance organizations in the world, having provided over US $ 2.05 Bn and has maintained loans outstanding of US$ 671 Mn in loans to 5,301,181 women members in poor regions of India. SKS has branches in 19 states across the country.

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