Saturday, February 23, 2008

Micro-finance and India : first of ....

This is a first in the series of posts on this blog through which I will be exploring the subject of Micro-finance in India.

Micro-finance is an awesome idea; a proven way to alleviate poverty in the world.

India is a poor country. Yes, lets not mince words about it. Yes, I know about the booming Indian economy, the impressive GDP growth rate, the IT millionaires & billionaires, the increased level of disposable incomes among the Indian middle-class, the Indian conglomerates' ambitious surge in the world economy, Mukesh Ambani pipping Bill Gates as the richest man in the world, the sky-rocketing prices of real-estate in the Indian Cities, the multi-million dollar bidding game on Cricketers in the Indian Premier League, and so on and so forth.

54 % of the population in India has an annual income of less than Rs. 1000 in 2005, as per this report from McKinsey. This damning statistic alone condemns India as a poor country, in my view. Here is an interesting article exploring the rather different interpretation of the term "Poverty Level" in India.

I know about the daily struggles of some of my relatives living in Rural areas of India, and had it not been for some folks in my family-tree taking up education, I too would have been in their ranks today. Given the magnitude of this problem, I expected Micro-finance to be BIG in India. However, I haven't come across any major news - accessible to an irregular reader of CNN international news or the on-line editions of Indian Newspapers - about the growth and impact of Micro-finance in India so far.

Kiva - which allows for affluent people to provide 0.0% loans to help (groups of) individuals in need of capital in the poorer countries and neighbourhoods - is a brilliant idea. I was shocked and disappointed to see that there is not a single Micro-finance Institution listed as a Field Partner of Kiva on the Kiva web-site. I would have preferred to help the needy and deserving folks in India, but there are no one from India listed on Kiva!

My Indian friends gave the following reasons for this discrepancy:
  • Micro-finance has the potential to promote Money-Laundering; hence it is not being encouraged in India.
  • Corrupt politicians and goons have a stranglehold over Micro-finance industry in India these days.
I find it incredible that an idea that is being touted as the best possible way to combat poverty and imbalance of economic opportunities is not a kosher idea in India.

A New York Times article by Economist & author Tyler Cowen explains the state of Micro-finance in India. Though the article is from 2006, it is still relevant. I am surprised to learn about the high cost of operating small Micro-finance organizations, and the consequent high-rate of interest charged for the micro-finance loans. This makes the Kiva model even more attractive in the Indian context.

At this time, I can only guess about the reasons why very few Indian Micro-finance institutions are listed on MIX Market (only 96 as of Feb 23, 2008, with only a handful of them meeting the highest information disclosure criterion) and not a single one of them is a registered and active Field Partner of Kiva. That is likely to be the topic of my next post in this series.

Tyler Cowen's article talks about one Indian MFI - Spandana. The web-site lists news items about a few Indian MFIs.

Making the world a better place


Moderator said...

Good work. I'll say you've done your part well with whatever data is in the public domain.

Given the size and things about India, I would doubt any statistic about it. You don't study India, you just experience it.

EG said...

Checkout for india.

Kiva has its problems. Once i was shocked to see countless pig-farming projects in indonesia listed on the same day.

Also i think the stars only mean there has been disclosures - and we know what it is worth, you just have to learn to cook-up this.

Also Kiva field partners still charge some serious percentage - some 15+ % on the average. Compared to MSSRF's 0%.

So you basically have a situation where lend money to the field partners at 0% - while they are free to lend your money to others for 15% !!

The Theme said...

To my knowledge, Kiva does not operate in India, because its operations require changes in the FCRA (Foreign Contribution Regulation Act).

At least, that was the issue about a year and half back, when I had met Premal Shah in the Microfinance India 2006 conference.

India, incidentally, has the largest number of MFIs in the world. If interested, you can download the 2007 MF State of Sector from:

Anonymous said...

good post.. i saw the same discrepancy in Kiva, and found your blog while googling.. hope the situation changes.

Arch said...

Good one.

Please check out, a P2P microlending platform concentrating in India. RangDe charges 8.5% flat from the borrowers, of which the investor gets a 3.5% return. One can lend as little as Rs.500 to a borrower.

Moderator said...

Good work. I'll say you've done your part well with whatever data is in the public domain.

Given the size and things about India, I would doubt any statistic about it. You don't study India, you just experience it.