Our stint in India has almost come to a close so it’s time to consolidate all we’ve seen, all we’ve come to know of this wonderous country, and realise the expanse of knowledge we leave undiscovered.
Over the weekend we flew north to Delhi. This city was not to be our destination, instead we were making our way Northwest to the small city of Rohtak where Lara had gotten us invited to a wedding! It was such a great experience, Los Tres Hombres (The 3 Hombres – hombres cannot be translated in this context) dressed in all Indian wedding gear while the ladies put on their magical Sari’s…cultural immersion. I even wore overtly sparkling Cinderella style shoes and we had a blast. Everyone was so welcoming, wanting to accommodate us in every vein possible and had even organized our accommodation, transport, fun times, all for seven of us complete strangers from a far off place known as Sydney.
We danced on the Saturday to a mix of Bollywood tracks and Western Flavas, taking special consideration for our trips theme song…
SHEILA KI JAWANI..I’m too sexy for you!!!
…on Sunday we entered a temple dedicated to a man of great faith before witnessing a sleepy tiger and back onto the celebrity dance floor at the wedding’s second night of spectacularness! The reception was enormous…over 3000 guests were expected for the evening, delicious food (unbelievably so) and a sea of people who wanted our fotos and footage of us dancing as though we were celebrities in our own right. Unfortunately we were forced to leave early in order to catch our flight back to Mumbai but it was certainly a weekend to remember. I want to take this moment to thank all who were there and all the wonderful things that were done for us! Thanks Guys.
Since my last post we have witnessed Asia’s largest slum, Dharavi. Here, like any locality on the planet, there is a unique social environment being played out. It is a location where the attraction of India’s economic epicentre, MUMBAI, has culminated in the constant reshaping of new businesses, homes, alleyways and school’s built by the nation’s migrant poor.
Unfortunately I regret to say that the guys in our team including myself did not have the opportunity to extensively explore the area, however we were given unprecedented access to the State Bank of India’s (SBI) six month old Dharavi office, specifically established for the purpose of microfinance lending. SBI is the largest public sector Bank in the country with over 124,000 employees and 14,000 branches. The Bank has been at the forefront of India’s microfinance revolution holding 31% market share of the nation’s microfinance industry, demonstrating the significant impact their initiatives have on India’s poor.
SBI was close to another office space located in an area we had visited the week prior. At that time we came to the Dharavi office of Hindustan Microfinance, I remember it vividly due to the interesting array of activities being carried out within each of the small rooms of that building. In one room sat a woman and her child watching TV, another held several men in white singlets sewing garments on archaic style machines, a further one where people were chopping and sorting vegetables on the floor was present amongst others. It was intriguing to observe the daily life of the slum being played out in each of those doorways, a microcosm of the faces and livelihoods that form the suburb surrounding us.
Back to the State Bank of India.
They contribute to the sector in two ways, which can be summarised as direct and indirect. A Self Help Group (SHG) with a maximum of ten members can approach SBI directly by establishing a joint savings account with the bank. This savings account acts as a form of collateral absent from the Joint Liability Groups (JLG) model established by Microfinance institutions under their limited role as credit lenders under the government’s Non-Banking Finance Corporation regulations (NBFC). YES! It’s true…Microfinance is a land of Acronyms!!!!!
After six months the women (and in some cases men, as we witnessed during our visit) will have shown the bank they are able to consistently save and therefore demonstrate financial discipline. SBI then offers a loan of four times their consolidated savings balance or 50,000 Indian rupees ($AUD1,100), whichever is higher. Meanwhile, the same advantages are offered through indirect lending where typically a Non-overnment Organisation or non-profit community organisation acts as an intermediary between SBI and the SHG. Sanmitra Trust who was mentioned in my previous post is one such organisation that benefits from this project. The intermediary recieves two commission payments of 375 Indian rupees ($AUD8), one for establishing the relationship between SBI and the SHG with another given once the SHG start a savings account.
This 750 Indian rupees ($AUD16.50) can then be utilised by the community organisation, rather than being used for profit to private investors. It is important to mention that SBI has one of the lowest repayment interest rates of any Microfinance lender at 10.5% per annum. This is possible as the rate is subsidised by the Federal Indian Government as part of their push to see all Indian citizens become financially included.
It would be impossible for smaller Microfinance Institutions (MFIs) who are just establishing themselves to offer such low rates. This is due to the economy of scale, whereby larger organisations can always offer lower rates to their poorer clients as both their operational and borrowing costs are much lower. For example, the majority of MFIs appear to be borrowing from Banks at 15% p/a, once you add on the costs of facilitating their loans to the customer, interest rates are more likely to be in the realm of 24-40%, dependent upon the area of the country they are serving (rural or urban) and the level of risk (are they servicing an area where there are diverse occupations present or one occupation that is susceptible to adverse conditions, ie. fishermen). The recently released Malagan report, established to advise the Reserve Bank of India (RBI) on the parameters for regulating the microfinance sector, called for a fixed interest rate cap of 24%, a rate comparable to recent regulations cemented in neighbouring Bangladesh. This rate does not take into account the need for smaller and newly establishing MFIs to meet their higher costs, nor does it acknowledge the diverse circumstances of the borrowers being targeted. What it will signal, and clearly its aim, is the consolidation of the industry into a group of larger organizations. If this situation is not handled with great care we could witness a lack of competition with the formation of monopolies in some areas of the country where microfinance is yet to reach its full potential.
The Reserve Bank is yet to make any final decisions on the regulation of the India Microfinance industry. Regardless of the final outcome, it is clear that public sector support is required to decrease the current risks present in the unregulated sector. In Andhra Pradesh the State Government interefered in the sector out of panic and hysteria, hampering growth and promoting band aid solutions under the ostensible guise of regulation. Thankfully I believe the RBI is not of the opinion that draconian policy will allow the financial inclusion of India’s poor, as per their mandate. As such, next month’s scheduled draft regulations will hopefully allow continued growth of an industry that has the capacity to include more Indians into mainstream services, offering them the tools of self-empowerment. From our time investigating the work of the State Bank of India it is evident that managing loans with the efficiency and reach of business entities decreases the complexity of microfinance lending and increases the capacity for social imperatives to be achieved on a larger scale. The one thing I can say is missing from the picture of sustainable socio-economic inclusion is a mention of the natural environment in any of the discussions we have attended. Sustainable development should not just be about Human Development, although this is the primary focus of today’s Microfinance industry.
THE FINAL ANSWER? Microfinance is a partial answer. This seems like an ambiguous statement but it truly cannot be seen as the silver bullet to ensure the eradication of poverty. The mission of alleviating or eradicating poverty must be one that is open to all the solutions that we offer ourselves. Once we can start to get rid of some teething problems, we will continue to require the microfinance industry to remain dynamic and open to collaboration. The future face of microfinance will certainly not have the same appearance as the one we observe today.
On to some relaxing fun stuff. Yesterday we were excited to learn that India’s 61st Republic Day coincided with our national day. Republic Day commemorates the establishment of India’s constitution on 26 January 1950.
Fionita and I had planned to enjoy a gym work out in the morning. Upon arrival at 9am we discovered to our dismay that Fitness First (our second home) would not be open until 10am. We ventured out to the streets to see a multitude of groups parading along, some with flags and everywhere with the blaring of patriotic rhythms from large speakers stationed on the roadway. We saw one vendor selling handheld windmills in the colours of India’s flag, white, green and brown. We purchased one for each of the Bombay Builders team and set forth to our apartment in Malad West to bring the joy of India’s patriotic windmills to our fellow Aussie patriots.
Upon arrival I heard three distinctly Australian cultural tones. The first was our Aussie accent mixing with the pouring of cold beer and a final stream of music presented by Triple J’s Hottest 100 from our home half way across the world.
The majority of our day was spent by the pool at the Sea Princess Hotel on Juhu Beach. The sun reflected over the translucent surface of the pool’s calm water begging us to dive past the ‘no diving’ signs. I cannot over emphasise the pleasure of spending AUSTRALIA DAY with a fellow team of Aussies by an outdoor pool overlooking the Arabian Sea.
Water…the essence of wetness.
It has been a pleasure to share a little more of our experience with you. Next installment there will be more discussion about microfinance and the final chapter to these three weeks in India.
On a personal note it is just over two weeks until I land in Buenos Aires, Argentina for one year of exchange. Let the discovering continue…