Association of MFIs

Microfinance sector in India is now laden with issues of multiple lending, multiple borrowing, or irresponsible lending/borrowing. This is what most conferences and recent state of sector report is discussing. There are also arguments and discussion about irrational behavior shown by borrowers while some agencies talk about overzealous approach of MFIs in disbursing loans. This is the present state of MF sector in India. Many fear of a bubble. However, I support Nachiket Mor, who recently said, “The sector is moving forward because there are good MFIs, having sound operations and there are good clients” at the CAB conference organized by CMF in Pune. The future will be much disciplined sector with regulations and clear operational policies of MFIs. Read some related discussions here, here and here.

Is self regulation an important issue? Is choosing rational clients an issue? Well, we do not know. There are not many evidences but few sporadic cases. But then the concentration of MFIs is still not as high in many other parts of country. So I would say of course self regulation in MFIs will lead to screening-in of rational clients. Thus, one small step can solve two big problems stated above. And as a sector we know this is coming. It will be there – self regulation to achieve higher microfinance penetration! Formation of Microfinance India Network and its emphasis on self regulation perhaps is an evidence. Self regulation is also important in the light of government regulation aka "The microfinance bill", which was a hot topic some score months back; will again awake soon, NABARD will get busier. More NBFC MFIs may lead RBI to make some special rules for such MFIs.

Recently I came across about a non-registered association of MFIs working in West Bengal. Though not aware of many details, I understood the association works on the field level issues faced by operations team. I believe this is something interesting. Nobody (except the bunch involved in policy making) knows what government regulations are in offing. While Alpha and MFIN may impose some bindings, we do not know how well this formal institution will work? May be an informal institution is more effective. May be this kind of association not only solves and prevents issues like in Kolar and Kanpur but also builds a collective local strength. It may add to the power of Alpha or may be an alternative to such institution. We should further explore how this association came into existence? What was the thinking process of MFI CEOs - Were there incidences that resulted in this or it was sheer leadership? What is the operational paradigm? Are there any operational issues? How is it helping the sector in West Bengal, is it scalable?

Aren’t these some issues that we would like to know? Answers will help us in building any other formal or informal association. It thus helps the sector and microfinance clients.

PS - Vijay Mahajan is Chairman, Microfinance India Network and Basix, Nachiket Mor is President ICICI Foundation. Alpha and MFIN is discussed in two articles referred above.