By Jayanth Srinivasan, IFMR Mezzanine Finance
Last week witnessed the 4th edition of the annual College of Agricultural Banking – Centre for Microfinance conference on “Microfinance: Translating Research into Practice”, held in Pune. With the spectre of the crisis in Andhra Pradesh hovering in the background, the proceedings featured intense discussions over the future shape of the microfinance space in India involving over twenty thought-leaders – including researchers, practitioners and representatives from various commercial banks and the Reserve Bank of India.
While a detailed, session-by-session account of the discussions is featured here, two salient themes emerged from the two-day conference which deserve closer mention.
First, the regulatory morass affecting the space came in for sharp criticism. While many experts deliberated at length on the possible ways in which existing regulatory mechanisms could be expanded / fine-tuned / overhauled to meet the unique concerns of the microfinance sector, and while much lamenting took place regarding governmental failure to take cognizance of the work of past task-forces which had studied the issue in some depth, broad agreement was nevertheless forged on the principles to which any new post Andhra-crisis framework must fulfill:
(a) state-level legislation to be avoided: with the objective of preventing the mushrooming of a chaotic patchwork of diverging laws complicating operations of MFIs across India’s federal set-up, as well as nipping scope for any form of legal arbitrage in the bud
(b) customer protection to be strengthened: given that inherent political risk cannot be wished away, strengthening rights of micro-borrowers through appropriate administrative means would serve as the ideal safety valve
(c) growth of the sector itself and scope for innovation to be preserved and encouraged: with the government/regulatory bodies introducing clarity on the sector’s role in filling the gaps in the existing financial services infrastructure available in the country and at the same time making adequate provision for mitigating systemic risk
Secondly, the normative need for service providers in the sector to transform from being purveyors merely of micro-credit products to becoming financial services intermediaries offering a bouquet of products. Pointing out the deleterious aspects of the single-minded focus on pushing loan products with scant regard for the actual “wealth management” needs of the customers, several participants predicted that it was time for a change in the current delivery mechanisms. Possible transformations included regional institutions specializing in servicing local geographies a la the IFMR Trust’s “KGFS” model, and offering a range of products (such as micro-pensions, insurance, investment products et al) tailored to meet the actual needs of individual customers. Technology, in the form of “m-banking”, the interface with the UID eco-system and the like, would play a significant role in accelerating this shift.
While the repercussions of the Andhra crisis in terms of alerting stakeholders to the need for the sector to reinvent itself was clear for all to see, and though differences remained on the precise route to be taken going forward, it was nevertheless heartening to see all participants consciously strive to achieve common ground in conquering the challenge of meaningful and sustainable financial inclusion of underprivileged sections throughout the country.