 "India needs a specialised regulatory authority for microfinance: Muhammad Yunus")
In Hubballi to attend the Deshpande Foundation’s annual Development Dialogue event, Muhammad Yunus, Nobel Laureate and recognised global pioneer of micro lending, tells Bibhu Ranjan Mishra a dedicated regulatory body for the segment will help its growth. Edited excerpts:
Microfinance institutions (MFIs) in India have not really picked up, despite the initial noise? What is holding them back?
The real issue is the huge number of people, percentage-wise, left out of the financial system. They are left to the sahukars, mahajans, money lenders – these are vultures, getting fed by these people. It thrives because the formal financial sector has not extended its boundary to cover them.
That’s the real issue. Whether you call it microfinance or something else – if this does not work, we have to find something else to do it. Its spread (in India) is slow, of course, given the country’s vastness. It could have covered the bulk of the population by now but it didn’t, not because there of a lack of initiative from the people but simply because the structure did not exist.
What is the way ahead?
Earlier, this was basically left to non-government organisations (NGOs). NGOs don’t bring their own money; they don’t create their own subsistence. They have to be funded from outside, by either the government or another bank or donors.
They’re limited by that. If you’re dependent on somebody else’s decision, you can’t plan because you have no control over that.
Then, the very important thing is a legal framework to create financial institutions for the poor and weaker people. I am happy the Government of India has taken a decision to issue banking licences to NGOs, for becoming microfinance banks.
I think that will open the whole door. You will see how quickly they can grow because you can now plan. Money is in their control — they can now take deposits, lend money and expand.
Who should control MFIs? The central bank or should some other entity be created for this?
We in Bangladesh, where our root has been, always favoured that there be a separate microfinance regulatory authority. Luckily, the government created Bangladesh Microfinance Regulatory Authority, to only focus on issues related to this sector. We thought it would not be a good idea to leave it to the central bank, as they’re too busy with conventional banking. And, not familiar or equipped to address the issues of microfinance. It’s good to have a separate one, so that they became a dedicated institution and maintain the quality.
The Reserve Bank of India has done great work so far on the microfinance side. But, if you want to grow, you need some specialised regulatory authority.
Do you think MFIs or NGOs becoming banks as part of a financial inclusion drive, as it’s happening in India, solves the purpose for which these were created?
NGOs are coming to the microfinance area because nobody else is doing it. If you’d created other institutions which are capable and legally ready to do that, NGOs will not have been there. As this did not exist, NGOs took it over. You should be grateful to the NGOs for having done so.
The responsibility now is to give them the facility and legal authority to convert into microfinance banks, which the (Indian) government is giving. I think that’s the best possible outcome. Bandhan is a different case; it has a full banking licence.
There is danger in (giving) a full bank licence for an NGO doing microfinance.
I’m not saying it’s applicable to Bandhan; they are trying to keep it (microfinance) separate. However, banking with the rich is such that you’ll soon forget the work of microfinance. The real micro credit programme for the poor comes under threat. You have to be careful about this.
How can businesses make an impact in the social sector while staying focused on their core areas?
Conventional business is all about making money, profit maximisation. Textbooks are all filled with subjects like how to make money and maximise it. That’s what we have learnt and the whole world is doing. This whole world of business is kind of selfishness driven — it’s all about yourself.
In the process, we created many problems because we don’t bother about the others. Businesses say they pay taxes and so, it’s the job of the government to take care of them (poor). The government can’t take care of all the problems created along the way. Human beings are not all about selfishness; it is a mixture of this and selflessness.
There is a choice before businesses, to bring in selflessness and solve peoples’ problems, though there is no law mandating this. There is also scope for the business world to address the problem they had left behind. For example, after the company names its profit, two per cent (by Indian law) goes to corporate social responsibility (CSR). That CSR money goes to NGOs, so that business can remain clean.
In my view, business should also be involved in social activities, creating businesses (out of that money) to solve people’s problems, to solve problems of illiteracy, education, vocational training, etc. All these can be done. CSR money can easily be invested into that, to create those kinds of business, so that it will open doors for many. So, we move from a charity base thing for poor people to a business-based model, so that it becomes robust.
Microfinance institutions (MFIs) in India have not really picked up, despite the initial noise? What is holding them back?
The real issue is the huge number of people, percentage-wise, left out of the financial system. They are left to the sahukars, mahajans, money lenders – these are vultures, getting fed by these people. It thrives because the formal financial sector has not extended its boundary to cover them.
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What is the way ahead?
Earlier, this was basically left to non-government organisations (NGOs). NGOs don’t bring their own money; they don’t create their own subsistence. They have to be funded from outside, by either the government or another bank or donors.
They’re limited by that. If you’re dependent on somebody else’s decision, you can’t plan because you have no control over that.
Then, the very important thing is a legal framework to create financial institutions for the poor and weaker people. I am happy the Government of India has taken a decision to issue banking licences to NGOs, for becoming microfinance banks.
I think that will open the whole door. You will see how quickly they can grow because you can now plan. Money is in their control — they can now take deposits, lend money and expand.
Who should control MFIs? The central bank or should some other entity be created for this?
We in Bangladesh, where our root has been, always favoured that there be a separate microfinance regulatory authority. Luckily, the government created Bangladesh Microfinance Regulatory Authority, to only focus on issues related to this sector. We thought it would not be a good idea to leave it to the central bank, as they’re too busy with conventional banking. And, not familiar or equipped to address the issues of microfinance. It’s good to have a separate one, so that they became a dedicated institution and maintain the quality.
The Reserve Bank of India has done great work so far on the microfinance side. But, if you want to grow, you need some specialised regulatory authority.
Do you think MFIs or NGOs becoming banks as part of a financial inclusion drive, as it’s happening in India, solves the purpose for which these were created?
NGOs are coming to the microfinance area because nobody else is doing it. If you’d created other institutions which are capable and legally ready to do that, NGOs will not have been there. As this did not exist, NGOs took it over. You should be grateful to the NGOs for having done so.
The responsibility now is to give them the facility and legal authority to convert into microfinance banks, which the (Indian) government is giving. I think that’s the best possible outcome. Bandhan is a different case; it has a full banking licence.
There is danger in (giving) a full bank licence for an NGO doing microfinance.
I’m not saying it’s applicable to Bandhan; they are trying to keep it (microfinance) separate. However, banking with the rich is such that you’ll soon forget the work of microfinance. The real micro credit programme for the poor comes under threat. You have to be careful about this.
How can businesses make an impact in the social sector while staying focused on their core areas?
Conventional business is all about making money, profit maximisation. Textbooks are all filled with subjects like how to make money and maximise it. That’s what we have learnt and the whole world is doing. This whole world of business is kind of selfishness driven — it’s all about yourself.
In the process, we created many problems because we don’t bother about the others. Businesses say they pay taxes and so, it’s the job of the government to take care of them (poor). The government can’t take care of all the problems created along the way. Human beings are not all about selfishness; it is a mixture of this and selflessness.
There is a choice before businesses, to bring in selflessness and solve peoples’ problems, though there is no law mandating this. There is also scope for the business world to address the problem they had left behind. For example, after the company names its profit, two per cent (by Indian law) goes to corporate social responsibility (CSR). That CSR money goes to NGOs, so that business can remain clean.
In my view, business should also be involved in social activities, creating businesses (out of that money) to solve people’s problems, to solve problems of illiteracy, education, vocational training, etc. All these can be done. CSR money can easily be invested into that, to create those kinds of business, so that it will open doors for many. So, we move from a charity base thing for poor people to a business-based model, so that it becomes robust.