By Ramesh S Arunachalam, Rural Finance Practitioner
I have been wondering about the causes of the burgeoning growth experienced by MFIs in India during the last few years and have had this nagging question, at the back of my mind, for almost 3 to 4 months:
1. What caused MFIs to grow at such rapid rates?
2. Specifically, what made them add a very significant proportion (often greater than 2/3rds) of their total end march 2009 client outreach, during the period April 2007 – March 2009?
Please see the data in the Tables below, which are self-explanatory. They have been compiled from http://www.mixmarket.org/
As seen from the above tables, the following aspects are clear:
1. For the group of top 14 MFIs (ranked on the basis of a number of clients added from April 2007 to March 2009 and other parameters), barring two institutions, for all the others, almost 75% (or more) of the total clients (added between April 2005 to March 2009) were done so during the period April 2007 to March 2009.
2. For the two institutions that are exceptions, nearly 2/3rds (or 67%) of the clients added between April 2005 to March 2009, were done so during the fastest growth period – April 2007 to March 2009
3. Further, for these top 14 MFIs, barring three institutions, all of them added a very significant proportion (>2/3rds or 66.67%) of their total end March 2009 client outreach during the 24 months from April 2007 to March 2009. That is phenomenal growth indeed by any standards
4. This clearly establishes this period of April 2007 to March 2009 as the period of most rapid growth (ever perhaps) in Indian micro-finance.
5. Therefore, in many ways, these two financial years (April 2007 – March 2009) represent a watershed for Indian micro-finance and I believe that the seeds for the present Andhra Pradesh and Indian micro-finance crisis were actually sown then or thereabouts. That this period of phenomenal growth occurred just 1 to 1 1/2 years after the famous KRISHNA Crisis in Andhra Pradesh (2005/6) is indeed interesting and I think the remarks of Mr. C S Reddy, CEO, APMAS (quoted from the CGAP Blog) put the various happenings in proper perspective:
1. For almost six years, the MFIs have been asked to improve their practices on the ground. However, there is no improvement. After the 2005-06 crisis, the MFIs came up with the voluntary code of conduct. Its implementation is yet to begin. The SHGs and their federations suffered a great deal due to the exponential growth of the MFIs without any regard for the SHGs.
2. In 2005-06, MFIs made several commitments like reducing the interest rates, not indulging in multiple lending and that the recovery practices would not be coercive. None of those commitments were acted upon. They did not seem to learn any lessons from previous experiences. MFIs have pushed a lot of credit resulting in many households going into a debt trap.
3. MFIs have to demonstrate that they “walk the talk”. Those that seem to make comments in support of the MFI practices need to understand the practices on the ground. Responsible microfinance does not exist in practice – Quoted from CGAP Blog, Crisis, or Opportunity.