Microfinance; Alternative Delivery Models

Author: Swadeque EK 

“Poverty is the parent of revolution and crime”, “poverty will make humans blind”, “The rich is a nothing but poor with money”. I like to start my essay with these three beautiful quotations given by Aristotle, Prophet Muhammed and Allen Watts. Hear they all are focussing to the different perspective. First two quotations are clearly saying the impact of the poverty. We could see the practical example for this from African and some of the Asian countries. The third statement brings out the beautiful hypothesis which differentiating poor and rich. Poor and rich are the two sides of the same coin. They may have same or more participation in the social aspects of the societies. They may live in same street of the same town. Then what is the difference between the two phases of the society. We can easily say with empirical examples that, the different is created by the economic differences of societies. Simultaneously second question is coming to front, that is, why these differentiations happened. There are several reasons for the question. One of the main reason is, closed, continues, hierarchal and highly exploitative web of the local money lenders presents in the Indian villages. Hear the importance of the microfinance is emerging. It facilitates the poor to access to small credit and savings in a systematic way. According to Robinson (1998) “Microfinance refers to small-scale financial services for both credits and deposits that are provided to people who farm or fish or herd; operate small or microenterprises where goods are produced, recycled, repaired, or traded; provide services; work for wages or commissions; gain income from renting out small amounts of land, vehicles, draft animals, or machinery and tools; and to other individuals and local groups in developing countries, in both rural and urban areas’. Hear I would like to focus on different alternative delivery model of the microfinance along with the positive and negative impact of those models in the world.

There are different models for microfinance in the world. Grameen Bank Modal, Self Help Group Modal and Individual Modal are the main important three modals which the people are commonly using. All of them have very unique and comprehensive feature. The entire tree modal have success stories from different stakeholders and places. They all are following very systematic way of all kind financial and supporting or enabling function to the poor people.

Grameen bank modal is the prime successful modal of the microfinance. Its origin is the cradle of the microfinance concept; Bangladesh. Muhammed Younus; the Nobile Prize winner is the father of this modal. The modal is widely replicated throughout the world and very famous. There are five elements for the modal. It comprises; five affinity group (SAG- Self Affinity Group), a centre of eight affinity group, weekly meeting, regular saving of all members, approval of loan decision in the group itself, direct payment of the loan to the Clint and very systematic instalment of the repayment system. It promotes the groups and motivates the people to attain the sustainable livelihood. Within all the systematic process, the modal ensure the simplicity in all sort operation such as designing of the products and sanctioning of those products. The concept of the entire system is based on an assumption that the all poor needs regular self-employment. But the person took the loan have to start to repay loan with a certain amount of interest, the next week after the loan disbursement. The impact of the modal in the Bangladesh is highly discussed. According to UN council (2009), every month 10,000 poor are coming out of the poverty because of the modal. But it is argued that many people suicide because of the high interest rate. So the founder Muhammed Younus kicked out by the government from his position. In short, if the problem of the system solved by any of the new intervention, the modal would bevery good for the sustainable development of the poor.

Self Help Group modal is widely used in India with the help of the different NGOs like DHAN and PRADHAN. It is a modal for enabling the community to identify and solve their problem rather than the direct implementation and right based intervention. It starts with saving of the SHGs. The entire benefits of the financial and non-financial activities of the group will go to the benefits of the members of the group. Kalangiam Federation of the DHAN Foundation have successful story of the modal. It enables the community to overcome the financial long-term indebtedness and exploitation. It also has very systematic way of programming of the entire organizational activity and development outlook. In India the modal is spreading very quickly. Hear the affinity group contains 15 – 20 members. The modal brought much social and economic development in the southern India especially Tamil Nadu, Karnataka and Andhra Pradesh. The financial transactions of the groups are self-regulated by themselves. According to last year reports of MAYRADA; one of the MFI, the credit creation of the groups are very high in the group. Most of the groups are rotated their fund more than eight times of the saving of the members.

Individual Banking is another delivery modal. In this two sub modal are available; JLG or Join Liability Groups and lending to the individual client directly. In India BASIX is providing these two facilities. JLG method helps to get back money very fast from the people who took the loan. The both modals help the people to start any venture for their own. The second one is very suite for the credit to personal purposes. Bank of Rikayath one of the successful microfinance institutions is concentrating to the individual loan.

Presently in India the linkage concept is coming to very fast. There are so many reasons for the linkage programme of the bank and SGHs. The following description of the Srinivasan (2010) is giving very good outlook to the Linkage concept. He wrote that “The provisional data of National Bank for Agricultural and Rural Development (NABARD) indicates that the self-help group bank linkage programme (SBLP) growth might be in a declining trend both in outreach and loan portfolio. The number of self-help groups (SHGs) that had outstanding loans was 4.58 million at the end of March 2010 which represents 8.5 per cent growth over the last year (4.22 million).1 The volume of outstanding loans was at ` 272.66 billion representing an increase of 20 per cent over the previous year (` 226.79 billion). The incremental loan outstanding achieved under the SBLP was of the order of ` 45.87 billion which is lower than the incremental loan outstanding achieved by Microfinance Institutions (MFIs) during the year. The disbursements by banks to SHGs increased by 49 per cent over the last year (` 122.53 billion) to ` 183.43 billion. Savings by SHG members increased to ` 63.58 billion from ` 55.45 billion. The number of SHGs with savings increased from 6.12 million to 6.81 million, by 11per cent. The average disbursement per group increased to ` 115000 which was a substantial step up over the last year (` 76000) (Table 2.1).” this quotation is very clearly stating the development and changes of the last year. It enables the commercial banks to get more profit and more customers. The direct intervention of the bank to the very bottom community is very difficult for them. Being a commercial entity, they will have their own self-interest for the same. But the both side have benefits. People will get access to loan very fast. On the other hand, the bankers will get more profit. For instance, because of the Kalanjium and Canara Bank linkage programme in Ramanadu region, increases the profit of the bank from the 1.8 crore to 18 crore during last ten years. There are three type of the linkages in India. In first the bank will give financial assistance to the SHGs directly, but they will not take care the operational expenses and social intermediation. Hear these both things will handle by the NGOs. In second modal the Banks will not approach to the any of the SHGs directly. Instead of that they will provides the loan facilities directly to the NGOs. NGOs will operate both financial and non-financial activities. The third modal consists of the Bank and SHGs only. They are making and promoting the SHGs and giving credit facilities directly.       

But the sustainability of the all models is argued from the different sources. I have some personal experience about the less growth of the some of the MP. The reason for the failure of the replication is high interest rate. Some of the places SHGs are charging more than the interest rate of the money lenders. The common interest rates of the SHGs are 3% PM. It means one year interest rate is 36%. It is almost three times of the local bank loan. In Andhra Pradesh some of the MFIs intervention created many farmers suicide and it was very big issue. Same thing happened in the case of the Grameen Bank Modal also.

SHGs are working for the marginalised poor community or poorest of poor. They are struggling to meet their day today life. The huge interest rate will create many problems in their life. So SHGs should not be a profit oriented business concern, but should be a social responsible institution. Some of the people are telling the profit will go to the common fund of the organization which will be useful for the development. But the person who took the money, to him it is burden. And the common money will be used for making some office or any other common development which will not be an income generating.