We thank both Mr Mathew Cherian and Mr Pradeepta Nayak for their contribution to the debate. This is what ultimately enriches the knowledge, as we get more views and members share their perspectives. Below we continue with the sectoral issues and look at the issues of sustainability of the sector.
Mainstreaming of any sector always is regarded as an important event as it brings sustainability in the sector, however considering this brought out problems of plenty (I am sure many will call it greed), there is a need to understand what could have prevented the same. We all are aware that micro-finance activities have been going on for a number of years (admittedly at a much smaller scale), but such widespread abuses of over-lending never occurred, simply because the sector always worked using social dimension. Instrument of this dimension has been, NGO, which ensured that there were mechanisms of assessing the need and paying capacity of borrower through the SHG Groups. Since the groups represented the community in which the borrower lived, SHG had a clear understanding both of the need of the borrower as well as her/his paying capacity. Clearly the models followed by the MFIs of present genre just ignored this vital mechanism.
One could argue that problem is too quick expansion of the sector. That is a point, however it is worth comparing what happened in the Telecom which has seen enormous growth with tariffs touching to record lows, enabling a large number of people with low incomes, both from urban and rural areas getting access to the mobile telephony. Thus competition does work. Of course, there were several issues which affected the sector, as it was expanding and more and more players joined the sectors. Some of the issues which immediately come to mind included high tariffs, lack of transparency in charges by various players in the sector, DOT (Dept of Telecommunication) being the dominant player in the sector tried to nip the competition through various restrictive practices, including delay in providing interconnection to the private players. Even among private players disputes arose on access of each others’ interconnections. Had these issues been not resolved in a timely manner, the competitive growth of the sector could have been affected. TRAI was able to resolve these issues as well as fix tariffs for such inter-connections. It developed framework which helped create rules for the different players in the sector in a competitive spirit.
There is no such regulator in the MFI sector which can set framework to ensure that the spirit of microfinance is maintained. Perhaps this has been the bane of the problem. Appointment of the regulator would not only streamline the sector but could usher in healthy growth.
——- next series would look into legal aspects of MFI sector indicating turf battles, perhaps one of the reason why the sector does not have a regulator.
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