MFIs need to change focus
Mumbai, Nov. 17: Microfinance companies need to change their focus back to the borrowers if they want to regain their lost credibility.
Instead, many of the firms had been trying to please private equity investors, says Mr Vijay Mahajan, who heads the Microfinance Institutions Network (MFIN).
The focus on investors —and the consequent push to lend more and more was a root cause of the crisis he says. Other players too, have started to acknowledge the mistakes made by them that has led to the current impasse.
“Greed is good sounds good only in movies,” says the MD of a North India- based MFI. “It is not a viable policy for MFIs, but that is the principle many of the investors were following,” he adds.
Mr Mahajan says: “I am increasingly beginning to understand the extent of wrongdoing by microfinance institutions in the last one and a half to two years that indulged in multiple lending that led to over-borrowing by some who now have mental tensions that even led to suicides. So to shirk responsibility doesn’t look good.”
MFIs can atone for some of the wrongs by restructuring the loans that have been given out, reducing the interest and increasing the duration of repayment.
A typical one year loan can be repaid in three years with the interest rate waived for remaining two years.
Another step that the sector could undertake now is to restructure these loans so that they are paid out over a longer period at a lower rate. He added the top five MFIs who met recently in Delhi drew up a reform agenda that includes reducing the rates of interest, capping the rates of return to levels necessary for growth and capital adequacy, transparent pricing, no multiple lending, no excess compensation for executives and promoters, putting a help line (first in Telugu) from December 1 and setting up an Ombudsman.
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