For 47-year old Radhamma, life changed when Grameen Financial Services Private Limited, a registered non-banking financial company (NBFC) actively engaged in the Microfinance sector started operations in Kolihalli village, 10 kilometers from Tumkur. From a mobile bangle store to owning six high-breed cows, today, Radhamma along with her husband also cultivate paddy and ragi.
A classic example of what small but sensibly taken loan can do to life. And this revolution of financial assistance began in Avalahalli village in J P Nagar. Started by Vinatha M Reddy, a trained Montessori teacher, who runs a school, Gurukul, in the village, she was inspired by Alex Count's book 'Give Us Credit' which focused on the story of Grameen Bank in Bangladesh & Dr. Muhammad Yunus, hailed as the father of Microfinance.
Ably supported by Suresh K Krishna, who is the managing director of the firm, Grameen Koota (GK), a division of GFSPL, began in May 1999 as a project under the T. Muniswamappa Trust. Grameen Koota adapted Grameen Bank's group lending methodology, and offers collateral-free loans to women from poor and low-income households.
"As we were one of the early starters in Microfinance field, we faced our share of struggle - which included convincing banks that the poor to whom we will cater will repay their loans to making Microfinance, a self sustainable activity. For that matter our clients were also suspicious about us as we were lending without any collateral security, which is unconventional. When we started off even our own employees found it difficult to accept our innate trust in the fact that the poor borrowers would repay. In hindsight, I knew that our initial struggle was worth it, and now Microfinance as an industry in itself is getting visibility from all stakeholders. The success of Microfinance attracted many players into this sector resulting in many people joining the Microfinance movement, some who wanted to work for the poor & some who saw great opportunity in making lots of money," said Suresh.
But the the Microfinance industry did undergo significant reputation damage in the recent past due to many factors. According to Suresh, the turbulent times the industry faced resulted in the industry indulging in some soul searching and coming together to focus on client's safety and needs. "A majority of Microfinance institutions have now started sharing data with Credit Bureaus and are using the Credit Bureau reports before they offer any new loans. Using Credit Bureau reports has helped in reducing the multiple lending to the clients. The new regulations from RBI have helped keeping the sector in check and have kept the interest rates under control. There were institutions which were charging high interest rates earlier but now owing to regulations, interest rates are moderated. Grameen Koota has always been responsible in its pricing; in fact, Grameen Koota had one of the lowest interest rates when compared to the others in the industry and they ensured that financial products were priced right to cover operating costs and not for company’s growth," said Suresh.
From the beginning, Vinatha understood that Microfinance clients are mostly illiterate women, and hence the need to educate them on the terms and conditions of the loans prior to loan issuance, becomes even more important. "Microfinance institutions have to ensure high transparency levels with the clients. They also need to setup adequate systems and mechanisms that can effectively address client grievances. Additionally they should put in place proper feedback mechanisms as well. Microfinance institutions also have the responsibility of training their employees to conduct themselves ethically while dealing with clients," she says.
GK developed various products which address the needs of the clients like emergency loans, educational loans, medical loans, cook stove loans, water loans, sanitation loans, along with providing them pension services by partnering with national pension scheme. Moreover, they have been providing various training programs to their clients in different areas like financial literacy, awareness on clean drinking water, sanitation, indoor air pollution, health, beneficial government schemes regularly through our client awareness program called Jagruthi. "We also conduct workshops & training programs for our clients regularly under our Social Economic Development Workshops. We also recently partnered with Buzz India to initiate a program to train women micro entrepreneurs to help them scale up their business," said Suresh.
But there are many challenges and both Vinatha and Suresh are aware of it and hope that the government addresses the concerns. "There are many kinds of MFIs in the country which follow different operating models. The new regulations from RBI are restricted to NBFC-MFIs only. Hence we feel it is important that the Parliament passes the Microfinance Bill which has been tabled in the house now," says Suresh.
He states that the Bill provides Constitutional legitimacy to micro finance activities in the country and will also bring in uniform regulations to the sector. "Microfinance institutions are most appropriately suited to deliver credit to the poor and low income households that too in a cost effective manner. Moreover they can design products suitable for such poor & low income households. Microfinance institutions need to be included & recognised as important institutions for financial inclusion. Therefore, relevant regulations and space has to be created for institutions like ours," he stresses.