Capital markets not the place for MFIs: Yunus

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Much before a wave of suicides in Andhra Pradesh, attributed to widespread over-indebtedness, and a clampdown that followed tarnished the image of microfinance in India, the capital markets loved these institutions.

The Rs 1,654 crore initial public offering of SKS Microfinance was a big hit, and other players like Spandana Sphoorty, Share Microfin and Asmitha Microfin had all lined up issues.

But Muhammad Yunus, father of the micro-credit concept, says capital markets are not the place to be for MFIs. Because, profit-hungry markets can force such institutions to deviate from their objective.

“Tapping capital markets is not a good idea, because then you will have to promise people that you are making money from the poor. Capital markets are not the source for you,” said the Nobel laureate.

Instead, he advised MFIs to look at micro-deposits for funds. “The industry should ideally be given special banking licences to accept deposits,” Yunus said.

But he cautioned that the industry should be steered with an intention to uplift the poor, and not to make money. Yunus founded the Grameen Bank in Bangla­desh in 1983, setting the microfinance industry rolling.

Referring to SKS Microfinance, he said, “Some people in Andhra, particularly SKS, tried to make money for themselves. That’s what created problems.”

SKS was India’s largest MFI till 2010 before the outfit came under investigations over its loan collection policies that allegedly lead to multiple suicides in Andhra. The MFI subsequently witnessed a change in the leadership, leading to the ouster of founder Vikram Akula.

“In Grameen Bank, all the funds come from depositors, so MFIs can use that money for lending. This way they don’t have to go out. In all the 38 years we worked, we didn’t have to go outside to raise money,” he told a conference of International Federation of Ageing on Wednesday.

Yunus and the Grameen Bank were jointly awarded the Nobel Prize in 2006 for their efforts to create economic and social development through microcredit.

Yunus talked of a model in which MFIs can be given a partial licence to accept deposits to be used strictly only for lending. “It’s a good thing that Bandhan got the bank licence. But generally, with a banking licence you are given lots of opportunities to make money for yourself. If you get interested in that part, then you will start ignoring the motive for which you opened the bank. So, ownership is important as is the objective and how one translates that objective,” he said.

Citing examples of German and French banks that had started with similar objectives only to deviate later, Yunus said special bank licences can be given under a legislative umbrella with regulatory power.

“If companies are not allowed to do any other kind of banking, they will not be tempted to move in other directions to invest somewhere else,” he said.

Set up in 1983, the Grameen Bank is today owned by the borrowers. The bank has saving made by borrowers-turned-depositors worth $1.5 billion.

Yunus said if he had the choice, he would have named these outfits ‘nanofinance’ institutions. “It started at a time when the word microfinance didn't exist in the dictionary. Today, looking back, I wish I had named it nanofinance and not microfinance. The idea of this bank is to address the problems of these poor women, and not to make profit,” he said.

Yunus has won accolades globally for innovating microcredit and other means to uplift the poor

He said there was a need to look at other aspects like health, education, technology and social business to address poverty. “We encourage children of our borrowers to go to school, and tell young people that they are not job-seekers but job-givers. If you create a social business fund, where people can borrow money and give back when their business is successful, it would work well. There is need for such financial structures to make people do their own thing,” he said.


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