Mr Lokesh Singh, CEO of Sanchetna Microfinance, has very kindly responded to my article on microfinance. His letter, published on http://www.indiamicrofinance.com/, was brought to my attention by an avid reader. I am penning down my reply below, with the hope that the microfinance industry will wake up and realise that the poor beneficiaries are not only mere figures in their balance-sheets, but are human beings too.
Dear Mr Lokesh Singh,
Thank you very much for your letter dated Jan 1, 2010.
First of all, I am glad you appreciate my concern for the poor. Not only me, I am sure any sensible Indian would be aghast to learn that the poorest of the poor are being charged such a high rate of interest for the smallest of the small loans.
While the 24 to 26 per cent rate of interest (for an average loan of Rs 7000) may make perfect business sense for the MFIs, but seen from the eye of the loanee it is nothing short of an organised crime. I think we need to put ourselves in their place and then see how far the rate of interest that the MFIs charge, is justified.
The other day I was on a TV show. I felt amused when the chairman of a financial company disclosed on the show that his company was planning to enter the housing sector, and would provide a loan of Rs 5 lakh on 8 per cent interest, and Rs 20 lakh for 8.5 per cent interest. Isn't it shocking that for a higher amount you have to pay a very nominal rate of interest whereas for a pittance you are charged exorbitantly.
There would always be stories of some women in some remote corner making a livelihood from opening a paan shop from the small loan she got as microfinance. SEWA does that exceptionally well. Basix has hood-winked the policy makers to believe their stories. Muhammed Yunus has built an Empire selling his microfinance. There are others like them doing the same in more than 134 countries. The common thread being that they are all exploiting the poor, divesting the poor of their hard earned money, living off the hungry stomachs.
I feel outraged at this systematic exploitation that goes unchecked. I think the time has come to launch an international campaign to weed out these unscrupulous brand of organised money lenders. I am overwhelmed by the response that has poured in ever since I began trailing the MFI claims. I am sure slowly but steadily the voice against this unbrazen exploitation will gain strength, and the poor will get the much needed respite.
I am looking for the day when the poorest of the poor gets a microfinance loan at not more than 4 per cent rate of interest. Whether it makes business sense or not to provide small loans at 4 per cent interest rate is not important. What is important is whether the poor can get loans at a nominal interest so as to carve out a sustainable livelihood for themselves.
There is no question of winning brownie points. I am more determined to win a brownie future for the poor and marginalised. I am aware that there are many among the existing MFIs who feel equally concerned about the poor. I am hoping that people like you would also join my campaign to bring some sanity to the microfinance business. We need to look out of the box and come out with viable alternatives. With help from people like you, I am sure we would be able to build a better tomorrow for the poor.
Mr Lokesh Singh's letter is placed below:
Response to Microfinance Article by Devinder Sharma
Published on http://www.microfinance.com/ Jan 1 2010
Dear Mr. Sharma,
Though as much I like the sympathy that you have for the poor of the country I could not disagree more with you. The article that you have been writing show the shallow knowledge that you have about the entire dynamics of poverty and how to get rid of it.
Though you have been more than vitriolic with your criticism for the entire system which has evolved because of the market failure to reach the poor but to my surprise you do not offer any alternative system to this. By just focusing on interest rate (which I think is important factor but definitely not the most important) you are missing the woods for the jungle.
It is very easy to criticize but had you been little more objective with your observation then you would have realized that the cost of funds to the MFIs itself comes to 13 – 14% plus if you add the cost of conducting meeting with the borrowers every week in the villages and the entire systems part to that the combined cost would be at least 22%.In such a scenario it will take either some ultra-rich guy to dole out money from his/her pocket to get people out of poverty or some body who has no sense about doing business. I do not know which one you would prefer but I think none of this will be long lasting solutions to the problem at hand.
Please mind this that I in no way defending some dark horses which might be involved in profiteering but you can not paint everyone with the same brush. Please learn how to distinguish between what you perceive to be bad and what is bad.
In case if you want to discuss this objectively rather than going after winning brownie points you can always discuss this with me.
Lokesh – email@example.com
Devinder Sharma can be contacted at firstname.lastname@example.org