Keya Sarkar: Micro-finance is not Nabard's focus

OUT OF FOCUS

It has suddenly become fashionable to talk about "financial inclusion". After Yunus won the Nobel, and Bill Gates, Michael Dell and Pierre Omidyar (of eBay fame) funded micro-finance companies globally, even Chidambaram decided to do his bit.

In this year's Budget speech he specified that "a Financial Inclusion Fund to be established with NABARD for meeting cost of developmental and promotional interventions, a Financial Inclusion Technology Fund to be also established to meet costs of technology adoption; each fund to have an overall corpus of Rs 500 crores with initial funding from Government, RBI and NABARD."

While Chidambaram has not spelt out exactly which organisation would be entrusted with the Financial Inclusion Technology Fund, he has clearly established the Financial Inclusion Fund with a corpus of Rs 500 crore with Nabard. The trouble is Nabard simply may not know what to do with it.

It has still not been able to do justice to the Micro-Finance Development Fund (MFDF) of Rs 100 crore placed with it by the Budget of 2000-01. But for this inability to spend Nabard was granted an even bigger (Rs 100 crore was enhanced to Rs 200 crore) fund in the Budget of 2005-06. The fund was even renamed and it became the Micro-Finance Development and Equity Fund (MFDEF).

An advisory body was established to guide and render advice on the various aspects relating to the micro-finance sector drawn from the RBI (Rosemary Sebastian, general manager), bankers (Anup Bannerji, deputy managing director, State Bank of India; Nachiket Mor, deputy managing director, ICICI Bank; and others), MFI practitioners (Vijay Mahajan, chairman, BASIX; A P Fernandez, executive director, MYRADA; M P Vasimalai, executive director, Dhan Foundation; and Mathew Titus, executive director, Sa-Dhan), besides members from Nabard. It was decided that this board would meet at least once a quarter (more if necessary) to review the progress of work. 
 

Activity-wise utilisation of MFDF / MFDEF  (year by year)                                                                                                               (Amount in Rs lakh)
	Purpose	2000-01	2001-02	2002-03	2003-04	2004-05	2005-06	2006-07*	Total
1	Training prog. for bankers, SHGs and SHPIs	69.10	107.29	134.22	354.20	306.17	365.60	160.78	1497.36
2	Promotional grant to NGOs, Farmers' Clubs and RRBs	110.37	134.70	220.48	301.45	290.32	327.51	287.41	1672.24
3	Publication and documentation	0.00	5.17	3.06	33.65	32.61	15.94	21.56	111.99
4	Monitoring and evaluation studies	1.01	0.07	0.00	0.00	0.00	1.52	0.00	2.60
5	Others	0.00	0.00	8.16	15.82	10.19	54.13	5.80	94.10
	Sub-total [expenditure]	180.48	247.23	365.92	705.12	639.29	764.70	475.55	3378.29
6	RFA to NGOs	0.00	337.00	151.00	322.00	260.00	370.00	NIL	1440.00
	Total utilisation	180.48	584.23	516.92	1027.12	899.29	1134.70	475.55	4818.29
Source: Nabard                                                                                                                        *(30 Nov, 2006)

But despite the advisory committee reviewing progress, all that Nabard has been able to disburse in a cumulative manner from 2000-01 till the second quarter of the current fiscal is Rs 48.18 crore. The reason is not hard to find. Micro-finance is simply not Nabard's focus. While members of the advisory group complain that meetings were not called every quarter, senior personnel in the department of micro-finance in Nabard say that disbursements are taking time because "a process needs to be in place". According to K Muralidhara Rao, general manager, Micro Credit Innovations Department, Nabard, "about 10 sanctions are now in the pipeline". "Some of these took time because we were waiting for credit ratings," he added.

What is even more noteworthy than the lack of fund utilisation is the fact that all of what has been disbursed has been under the "safe" heads of training and grants. Despite being renamed the Micro-Finance Development and Equity Fund, there has been no attempt at equity investments. And for bankers needing credit rating certificates, funding start-ups would be a strict no-no.

Nabard's performance, to be seen in perspective, needs to be compared to what has been the progress made by the private venture capital players operating in the micro-finance sector. Between Bellwether, Unitus, Lok Capital and Aavishkaar Goodwell, the funds already disbursed would add up to $12 m. The more charitable would compare this to Nabard's disbursement figure of Rs 48 crore and say it has done as well as the private players.

The more cynical point to the fact that Nabard's disbursements are not in the nature of equity, and so the comparable figures are really $12 m and nil! Since most of the micro-finance venture funds became active two years ago, the time horizon too is comparable when the MFDEF became operational.

But who cares about performance! At the end of the day what counts is that Nabard has been rewarded with the management of another Rs 500 crore. And a little more time spent on "process" could just land it the other Rs 500 crore of the Financial Inclusion Technology Fund"!