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Directions (61-75) : Read the following passage based on an Interview to answer the given questions based on it. Certain words are printed in bold to help you locate them while answering some of the questions.
A spate of farmer suicides linkedto harassment by recovery agents employedby micro finance institutions(MFls) in Andhra Pradesh spurred thestate government to bring in regulationto protect consumer interests. But, whilethe Bill has brought into sharp focusthe need for consumer protection, ittries to micro-manage MFI operationsand in the process it could scuttle someof the crucial benefits that MFIs bringto farmers, says the author ofMicrofinance India, State Of The Sec- tor Report 2010. In an interview hepoints out that prudent regulation canensure the original goal of the MFIs -social uplift of the poor.
Do you feel the AP Bill to regulateMFls is well thought out? Doesit ensure fairness to the borrowersand the long-term health of the sector?
The AP Bill has brought intosharp focus the need for customer protectionin four critical areas. First ispricing. Second is lender’s liability -whether the lender can give too muchloan without assessing the customer’sability to pay. Third is the structureof loan repayment - whether you canask money on a weekly basis frompeople who don’t produce weekly incomes.Fourth is the practices thatattend to how you deal with defaults.
But the Act should have lookedat the positive benefits that institutionscould bring in, and where they needto be regulated in the interests of thecustomers. It should have brought onlythose features in.
Say, you want the recovery practicesto be consistent with what thecustomers can really manage. If thecustomer is aggrieved and complainsthat somebody is harassing him, thenthose complaints should be investigatedby the District Rural DevelopmentAuthority.
Instead what the Bill says is thatMFls cannot go to the customer’s premisesto ask for recovery and that alltransactions wi ll be done in thePanchayat office. With great difficulty,MFls brought services to the door ofpeople. It is such a relief for the customersnot to be spending time outgoing to banks or Panchayat offices,which could be 10 km away in somecases. A facility which has broughtsome relief to people is being shut.Moreover, you are practically tellingthe MFI where it should do businessand how it should do it.
Social responsibilities were inbuiltwhen the MFls were first conceived.If MFls go for profit withloose regulations, how are they differentfrom moneylenders?
Even among moneylenders thereare very good people who take care ofthe customer’s circumstance, andthere are really bad ones. A large numberof the MFls are good and thereare some who are coercive becauseof the kind of prices and processesthey have adopted. But Moneylendersnever got this organised. They did nothave such a large footprint. An MFIbrought in organisation, it mobilizedthe equity, it brought in commercialfunding. It invested in systems. Itappointed a large number of people.But some of them exacted a muchhigher price than they should have.They wanted to break even very fastand greed did take over in some cases.
Are the for-profit MFls the onlyones harassing people for recoveries?
Some not-for-profit outfits havealso adopted the same kind of recoverymethods. That may be becauseyou have to show that you are veryefficient in your recovery methods andthat your portfolio is of a very highquality if you want to get commercialfunding from a bank.
In fact, among for-profits thereare many who have sensible recoverypractices. Some have fortnightly recovery,some have monthly recovery. Sowe have differing practices. We justdescribe a few dominant ones and assumeevery for-profit MFI operates likethat.
How can you introduce regulationsto ensure social upliftmentin a sector that is moving towardsfor-profit models?
I am not real ly concernedwhether someone wants to make aprofit or not The bottom-line for me iscustomer protection. The first area isfair practices. Are you telling your customershow the loan is structured ?Are you being transparent about yourperformance? There should also be alender’s liability attached to what youdo. Suppose you lend excessively to acustomer without assessing their abilityto service the loan, you have to takethe hit.
Then there’s the question of limitingreturns. You can say that an MFIcannot have a return on assets morethan X, a return on equity of more thanY. Then suppose there is a privatelypromoted MFI, there should be a regulationto ensure the MFI cannot accessequity markets till a certainamount of time. MFls went to marketsperhaps because of the need to growtoo big too fast. The governmentthought they were making profit offthe poor, and that’s an indirect reasonwhy they decided to clamp downon MFls. If you say an MFI won’t go tocapital market, then it will keep politicalcompulsions under rein.
A spate of farmer suicides linkedto harassment by recovery agents employedby micro finance institutions(MFls) in Andhra Pradesh spurred thestate government to bring in regulationto protect consumer interests. But, whilethe Bill has brought into sharp focusthe need for consumer protection, ittries to micro-manage MFI operationsand in the process it could scuttle someof the crucial benefits that MFIs bringto farmers, says the author ofMicrofinance India, State Of The Sec- tor Report 2010. In an interview hepoints out that prudent regulation canensure the original goal of the MFIs -social uplift of the poor.
Do you feel the AP Bill to regulateMFls is well thought out? Doesit ensure fairness to the borrowersand the long-term health of the sector?
The AP Bill has brought intosharp focus the need for customer protectionin four critical areas. First ispricing. Second is lender’s liability -whether the lender can give too muchloan without assessing the customer’sability to pay. Third is the structureof loan repayment - whether you canask money on a weekly basis frompeople who don’t produce weekly incomes.Fourth is the practices thatattend to how you deal with defaults.
But the Act should have lookedat the positive benefits that institutionscould bring in, and where they needto be regulated in the interests of thecustomers. It should have brought onlythose features in.
Say, you want the recovery practicesto be consistent with what thecustomers can really manage. If thecustomer is aggrieved and complainsthat somebody is harassing him, thenthose complaints should be investigatedby the District Rural DevelopmentAuthority.
Instead what the Bill says is thatMFls cannot go to the customer’s premisesto ask for recovery and that alltransactions wi ll be done in thePanchayat office. With great difficulty,MFls brought services to the door ofpeople. It is such a relief for the customersnot to be spending time outgoing to banks or Panchayat offices,which could be 10 km away in somecases. A facility which has broughtsome relief to people is being shut.Moreover, you are practically tellingthe MFI where it should do businessand how it should do it.
Social responsibilities were inbuiltwhen the MFls were first conceived.If MFls go for profit withloose regulations, how are they differentfrom moneylenders?
Even among moneylenders thereare very good people who take care ofthe customer’s circumstance, andthere are really bad ones. A large numberof the MFls are good and thereare some who are coercive becauseof the kind of prices and processesthey have adopted. But Moneylendersnever got this organised. They did nothave such a large footprint. An MFIbrought in organisation, it mobilizedthe equity, it brought in commercialfunding. It invested in systems. Itappointed a large number of people.But some of them exacted a muchhigher price than they should have.They wanted to break even very fastand greed did take over in some cases.
Are the for-profit MFls the onlyones harassing people for recoveries?
Some not-for-profit outfits havealso adopted the same kind of recoverymethods. That may be becauseyou have to show that you are veryefficient in your recovery methods andthat your portfolio is of a very highquality if you want to get commercialfunding from a bank.
In fact, among for-profits thereare many who have sensible recoverypractices. Some have fortnightly recovery,some have monthly recovery. Sowe have differing practices. We justdescribe a few dominant ones and assumeevery for-profit MFI operates likethat.
How can you introduce regulationsto ensure social upliftmentin a sector that is moving towardsfor-profit models?
I am not real ly concernedwhether someone wants to make aprofit or not The bottom-line for me iscustomer protection. The first area isfair practices. Are you telling your customershow the loan is structured ?Are you being transparent about yourperformance? There should also be alender’s liability attached to what youdo. Suppose you lend excessively to acustomer without assessing their abilityto service the loan, you have to takethe hit.
Then there’s the question of limitingreturns. You can say that an MFIcannot have a return on assets morethan X, a return on equity of more thanY. Then suppose there is a privatelypromoted MFI, there should be a regulationto ensure the MFI cannot accessequity markets till a certainamount of time. MFls went to marketsperhaps because of the need to growtoo big too fast. The governmentthought they were making profit offthe poor, and that’s an indirect reasonwhy they decided to clamp downon MFls. If you say an MFI won’t go tocapital market, then it will keep politicalcompulsions under rein.
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