Keya Sarkar: Micro finance lessons at IIM Bangalore

OUT OF FOCUS

Until recently mainstream banks were uninterested in micro finance or lending to the poor in amounts of less than Rs 20,000. But with the competition for upper end and middle end personal finance business worsening among the banks, many of them turned their attention to the rural and urban poor as a new and emerging asset class.

Since many of the banks did not have the administrative capacity to deal with such small loans, most adopted the route of refinancing micro finance companies. In their efforts to do so, many realised that there were only a handful of micro finance institutions (MFIs) that could be refinanced. Although different practitioners in the sector gave different figures as to how many bankable MFIs there are, it would be safe to say that the number of good MFIs is around 15.

Understandably, these 15, in the last two years, have been wooed by banks. Over this period, the discerning observer has noticed a situation of banks having the money and inclination to lend, but there is a paucity of borrowers. There is of course a huge number of NGOs which are now increasingly including micro financing as one of their activities, but banks have been uncomfortable about lending to them, with of course a few exceptions""primarily because NGOs which have traditionally worked in the social sector have not had the kind of financial discipline that banks are looking for.

So the need of the hour was to set up micro finance companies. Global micro finance venture funds have thus turned their attention to India and the Bellwether Fund, Unitus and many more have started operations. Two hurdles have been the most difficult to overcome in funding start-ups.

The first has been the issue of obtaining NBFC registration and the other has been manpower. Since this sector had been stagnant for so long, it had failed to attract quality people. The result was the usual""the talented few were hopping from company to company. Many organisations within the sector which had also started a training arm (the Dhan Foundation, Basix, Sewa, FWWB, Sadhan, etc.) had been making an effort to raise the skill levels of those already working in the sector.

But it seems that the Indian Institute of Management, Bangalore, has pioneered a course to teach the essence of micro finance to talented people coming to work in the micro finance sector for the first time. In its design of this one-month residential course, the institute has concentrated on the basics of running a commercially-oriented financial business. In addition, it has enunciated why micro finance is a little different from mainstream financial services designed for the middle- and upper-income groups. The fact that participants, many of whom are completely new to the rigours of this sector, were taken to village-level meetings to witness loan sanctioning and payback procedures took the course beyond being merely academic. The course also includes a two-week training component with an established micro finance organisation. In addition to this, the IIMB faculty has promised the participants, even after the course is over, mentoring through communication.

Thirteen persons from eight organisations took part in the programme, held between mid-December and mid-January. Of these organisations, two were start-ups, one a co-operative, and the rest NGOs. Of the five NGOs two were being transformed into Sec 25 companies and one into an NBFC. Almost all had venture-funding participation in some manner or form. The reason for detailing the kind of participation is to highlight that the latest initiative by the IIMB seems to have thought through in terms of who it is meant for, who would pay for it, and what purpose it would serve.

The fact that venture funds were willing to put many of the employees of the organisations they are funding through an expensive course (by micro finance standards) is proof that they saw value in it. The fact that they managed to impress SIDBI to sponsor part payment from SIDBI's fund set aside for capacity building in this sector, underscores that funding is available for legitimate purposes.

As I sat through a presentation that some of the participants made on what the course meant to them, their enthusiasm seemed apparent. It almost seemed symbolic of a slow but perceptible change that has started in the micro finance sector. While from the outside international funding agencies and banks are seeing in them a big opportunity, from the inside, a realisation is dawning on the micro finance sector that operational and service quality is of critical importance even in dealing with the poor.