'Over-regulation of MFIs will hurt'

INDIA ECONOMIC SUMMIT 2006

Microfinance innovator Vikram Akula says government restrictions can only damage the cause of the microfinance industry.

Government regulations will only hamper the growth of the growth of the microfinance industry and the improvement it has brought into the lives of the poor, says Vikram S Akula, recipient of the Indian Social Enterpreneur of the Year 2006 award of the Schwab Foundation.

Congress President Sonia Gandhi handed over the award to Akula at a function organised at the India Economic Summit on Monday.

Speaking to Business Standard, Akula said the award was a recognition for the work his company is doing in rural India.

"It is a great boost for the microfinance industry and affirmation of what we are doing for the microfinance movement in the country. The award is a tribute to the entreprenuerial spirit of poor women," Akula said.

The Hyderabad-based Swayam Krishi Sangam, known better as SKS, operates in 11 states across the country catering to four lakh clients with a loan disbursement figure of Rs 500 crore.

"We have our activities in various states from Karnataka to West Bengal and we have a distinction of acheiving a repayment figure of 98 per cent," Akula, founder and CEO of SKS said.

Akula, who was also recognised by Time magazine as someone working for improvement in the lives of the poor and the recipeint of the Ernst and Young Entrepreneur of the Year Award just last week, came down heavily on government restrictions that he said would only hurt the prospects of the microfinance sector in the country.

The abuse of the microfinance system by some Micro Finance Institutions (MFIs) and the consequent government crackdown on the activities of the MFIs "has led to the banks moving away from us which has severely affected the industry and this is evident in places like Andhra Pradesh," Akula complained.

"The government approach towards MFIs does not help but will only hurt the sector. We are pleased to see what the RBI has been advocating for the sector but policies like allowing NBFCs to form correspondent models is disappointing," Akula said.

Seeking some initiative from the finance ministry and RBI he said that MFIs should be allowed to collect savings from the people.

"Not allowing us to collect savings will only lead to a negative macro economic impact. Where will the poor people who do not have a stable source of income go?", he asked.

"After the restrictions imposed by the Andhra government on MFIs we did not open a single new brach in the state", he said. "Other states like Karnataka are also restrictive in their approach. On the other hand in Orissa the state level bankers' committee said that a 28 per cent interest was acceptable, he added.

He pointed out that even Finance Minister P Chidambaram at a bankers' conference in Hyderabad had said that 25 per cent interest was acceptable. "We charge an interestof 24 to 30 per cent based on various products that we offer. For emergency loans upto Rs 2000 we charge zero per cent interest.", he said.

SKS, which applies global business practices to rural microfinance has been in the forefront of microfinance. "The design of our products which make sense to the poor, reaching to the doorstep and regular repayment mechanism through guaranteer scheme have brought us to this level."