Sushi
 

Gunjan Grover

Senior Analyst, M-CRIL


The SHG-bank linkage and the MFI models have their own advantages and disadvantages. While the former seeks to foster SHGs as an independent institution in itself and is the only model focused on savings, the latter has proven to be very successful in rapidly covering the huge market for small loans.

The MFI model has shown itself to be rapidly scalable because of its commercial orientation as compared to the SHG-bank linkage where the financial incentives for the organizations that nurture SHGs have not been well defined.
The commercial orientation, on the other hand, has also proven to be the reason for many of the ills affecting the MFI model, especially the operations of non-banking finance companies (NBFCs).

All NBFC-MFIs, for example, have been focusing on lowhanging fruits – areas with good road and banking  nfrastructure, characterized by trading activities and good cash flows. Since such areas are convenient to reach for all MFIs, we are seeing intense competition between them and consequent problems.

A client in such an area could be borrowing from multiple MFIs and might also be borrowing from one to pay off a loan taken from another.

It’s difficult to track where the MFI money is going, because money is fungible and there is no sharing of information between lenders.

It is all very well to say that an MFI goes and checks what a client is doing with a loan, but  the ground reality is that most MFIs have set huge targets for their loan officers. When a loan officer is required to reach out to 600-700 clients, it becomes impossible for them to check each and every client.
The need of the hour is for MFIs to take a step back and recall their mission, which is to lend responsibly and not just focus on margins and profits.
 
Our study shows that while the expense ratio of the MFIs have been steadily going down, their interest rates have been simultaneously rising. Recently some of the malpractices of the MFI promoters were also highlighted, such as the use of trusts and other bodies to benefit from capital gains and using money through private equity.

 


Other Speakers

  • Radhika Agashe
  • Pushkal Gupta
  • K. Natarajan
  • Gunjan Grover
 

Video of Financial Inclusion

 

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