List of Tables, Figures, Boxes, Appendices, and Abbreviations Foreword by Harsh Kumar Bhanwala Preface 1. Introduction 2. Trends in Rural Savings 3. Rural Credit—An Overview 4. Rural Credit—Geographical Distribution 5. Rural Credit Flow—The Institutional Scenario 6. Rural Credit—Subsectoral Analysis 7. Rural Finance—Products 8. Rural Credit—Nonfarm Sector 9. Repayment Performance in Rural Credit 10. Insurance and Risk Mitigation 11. Studies of Some Major Rural Finance Schemes and Themes 12. NABARD—A Review of Its Role 13. Microfinance 14. Policy Issues and Some Final Reflections Annexures About the Author
The U.S.-India Partnership to Advance Clean Energy - Deployment Technical Assistance (PACE-D TA) Program is organizing a "Clean Energy Products Showcase and stakeholder discussion" event in Mumbai on March 1st, 2016.
The PACE-D TA Program is five-year bilateral initiative between the governments of India and USA. One of the key objectives of the PACE-D TA Program is to enhance access to clean energy sources for rural and urban communities through MFIs. As part of this component, the program has partnered with seven Microfinance Institutions (MFIs) in Uttar Pradesh, Odisha, Kerala and Bihar to design, develop and scale energy lending programs.
This product showcase event seeks enhance the partnerships between MFIs and relevant product companies. Several participating product and marketing companies will be demonstrating their products, while marketing companies will be showcasing their product range and operational model.
The product showcase event will be followed by a moderated discussion intended to help build a common vision for how to expand access to clean energy products through MFIs. Details of the events are as follows -
Date: Tuesday, 1 March, 2016 (8.30 am – 5.00 pm)
Venue: Hotel Trident, C-56, G Block, Bandra Kurla Complex, Mumbai, Maharashtra 400051
And here is an article, an example of why and how we in financial inclusion also need to connect with Marco finance…. Estimated write off in indian banking sector in a different news article is $ 100 Billion (yes Billion). The banking sector stress is contributed by agriculture (considered to be most risky investment) to the extent of 7.9%.
Finance Minister Arun Jaitley and Reserve Bank of India Governor Raghuram Rajan during a financial stability development council meeting in June 2014. "No one wants to go after the rich and well-connected wrong-doer, which means they get away with even more," Rajan wrote, in an email to RBI employees last month.
If the unpaid loans made by India's public-sector banks were recovered, they would be enough to pay for India's 2015 spending on defence, education, highways, and health, according to an IndiaSpend analysis.
These bad loans, or gross non-performing assets as they are called in banking parlance, of public-sector banks crossed Rs 4.04 lakh crore, a rise of 450% since March 2011.
Private-sector banks also have an NPA problem, but their bad loans are less than half the level of public-sector banks, which account for 73% of all lending.
The crisis in Indian banking, which IndiaSpend has repeatedly flagged (here, here and here), has now reached a point where the NPAs of many public-sector banks are higher than their net worth.
This affects their ability to make fresh loans to business, and these bad loans are ultimately paid for by India's taxpayers, the final guarantors of government-owned public-sector banks, as editor and columnist TN Ninan recently wrote in Business Standard.
"So what is to be done?" he wrote of the banking crisis. "The easy option is to take more of your tax money and give it to the same banks, on a platter. The government has talked of giving them another Rs 2.4 lakh crore – which works out to Rs 10,000 from every family, rich and poor."
"Indeed, 19 of 24 listed government banks' stocks now quote at less than half of book value, some at a discount of 75 per cent. Clearly, investors still think these banks' books are akin to fiction."
Source: IndiaSpend, Lok SabhaSource: Budget documents of ministries: Defence, Health & Family Welfare, Human Resource Development: Department of School Education and Literacy, Human Resource Development: Department of Higher Education, Road Transport and Highways.
Indeed, the actual value of stressed and below-par assets of public-sector banks is higher than the NPA data reveal.
There are a number of loans that have been restructured, which means the borrower gets more time to repay the loan; sometimes, the interest rate is lowered as well–because the borrower could not, or did not, keep to the original terms of repayment.
The combined level of NPAs and restructured assets is 14% – or one rupee in seven – of all loans made by India's public-sector banks, close to Rs 8 lakh crore ($117 billion). This amount, higher than the gross domestic product of Oman, Sri Lanka and Myanmar, is potentially at risk.
The problem has become big enough for Finance Minister Arun Jaitley to weigh in, saying there is no need to panic, a message he first issued in August 2015.
The Government and the Reserve Bank of India have tried to address the problem over several quarters. The Economic Survey 2014-15, released just before last year's budget, identified rising NPAs as a major problem and listed the RBI efforts to curb them, including tighter guidelines on reporting bad loans.
Tighter reporting guidelines are partly responsible for swelling NPA levels: Loans that could have earlier not been revealed in accounting statements are now being reported as bad loans.
Bad risk management, not always fraud
The RBI cites three reasons for these loans which have gone bad: genuine business reasons; wrong business decision and inefficiencies; and misdemeanour.
Almost 85% of all stressed assets are from the industrial sector (Refer chart below), mostly from core sectors, such as iron & steel, infrastructure, engineering, construction, textiles and shipbuilding, all affected by India's industrial slowdown.
Some of the large loans that recently went bad include:
ABG Shipyard: Rs 11,000 crore, restructured and then became NPA
Contrary to popular perception, not all bad loans are the result of fraud or political influence. For instance, the four examples listed above are operational companies with physical assets. They have been brought down by a combination of factors, including poor economic conditions and high levels of debt relative to their capital and profits.
In some cases, projects have been stalled due to land-acquisition issues, local opposition or environmental clearance: This is especially true for the hydropower sector, where almost all projects are behind schedule.
Many of the bad or stressed loans result from mis-management and, perhaps, overly optimistic business projections, such as tycoon Vijay Mallya, whose defunct Kingfisher Airlines owes banks Rs 4,000 crore.
The impunity of big borrowers
This is not to say that there haven't been frauds. There have been high-profile defaults by borrowers, such as Winsome Diamonds, Deccan Chronicle Holdings and Surya Vinayak Industries, which borrowed several thousand crore from public-sector banks, with very little by way of physical assets and investments.
Source: Reserve Bank of India
India's banking culture of allowing influential borrowers who default to get away was flagged in January by RBI governor Raghuram Rajan.
"We do not punish the wrong-doer–unless he is small and weak," Rajan wrote in an email to RBI employees. "This belief feeds on itself. No one wants to go after the rich and well-connected wrong-doer, which means they get away with even more. If we are to have strong sustainable growth, this culture of impunity should stop."
How the taxpayer pays for bad loans–and other effects of NPAs
There are two effects that the rising tide of bad loans has on the banking system.
First, the taxpayer ends up paying. Banks take money from depositors that they lend to borrowers. If a borrower cannot repay loans, banks make up the shortfall from their own capital and profits. If a bank has bad loans, its shareholders take the hit. India's public-sector banks are owned by the government, and, so, these bad loans are a loss to the government and the taxpayer.
Second, bad loans slow economic activity. Banks lend to companies to make profits and grow their working capital. High levels of bad loans erode bank capital, reduce their ability to raise fresh capital and reduce a bank's capacity to lend, slowing the economy.
Private-sector banks also face stress over bad loans, but their problems are nowhere close to the crisis at their public-sector cousins.
For bad loans, worst private banks better than best public banks
The total stressed assets of India's private-sector banks were 6.7% of their outstanding loans, against 14% for public-sector lenders, according to RBI data.
Private banks have consistently had lower NPA levels. For the quarter ended December 2015, many private banks, such as HDFC Bank, IndusInd Bank and Yes Bank, have NPA levels of less than 1%; the worst private performers, such as ICICI Bank and Federal Bank, do better than the best-performing public-sector banks.
This article was originally published on IndiaSpend, a data-driven and public-interest journalism non-profit.
Next Thursday, February 18th, the Smart Campaign will release its ‘Client Voices’ research on how microfinance clients in Benin, Georgia, Pakistan and Peru feel they are treated by their financial service providers. The findings – from thousands of 1:1 interviews with the clients themselves – will be discussed at a Washington D.C. roundtable hosted at World Bank headquarters. For a CFI blog post just published about the project, click here. Details on the launch event can be found here.
Regards,
Bruce
Bruce J. MacDonald | VP, Communications & Operations | Center for Financial Inclusion at Accion | 10 Fawcett Street, Suite 204, Cambridge, MA 02138 USA
From: "SENBUMO francois.rossier@senbumo.com [MicrofinancePractice]" <MicrofinancePractice@yahoogroups.com> To: MicrofinancePractice@yahoogroups.com Cc: Djankou NDJONKOU <ndjonkou@socoop.coop> Sent: Wednesday, January 27, 2016 3:14 PM Subject: Re: [MFP] Re: Measuring the Impact of Microfinance: Looking to the Future
Good afternoon. I'm in the microfinance sector since 1994 and I agree that the hype over microfinance is far above evidence. Agree also that financial inclusion for the sake of financial inclusion is maybe not the first source of happiness at the BoP.
Let's not forget that microfinance "took off" at a moment where there was a lot of despair with traditional development projects fully financed by donor money and with no sustainability strategy in sight. Today, we have sustainable MFIs that manage to reach quite remote places even if rural areas remain underserved. So to remain positive I would consider the following:
First, the cooperative model should be revamped again. It's true that the cooperative model was depreciated during the 70, 80 and 90's mainly due to strong political interference. But a coop is probably the easiest way to take people out of informality. A Coop is a legally recognized body, it has some equity (not much but the purpose of equity is here more to measure the commitment of the members towards the coop) and, because of these 2 elements, you can more easily access a bank loan and finance maybe equipment or machinery. So MFIs should better consider cooperatives as a potential client (some do but most don't).
Second, especially in Africa, you have hardly any SMEs as we find them in Europe. And if we agree that not every body is an entrepreneur than you need SMEs to create jobs for those who are not. And when you have one, it will mostly be either a hotel/restaurant or a construction company. And if this SME is established as Limited Liability Company (SARL in French) you will very rarely find founding shareholders that are not family related because trust is missing. So a MFI taking a (even a minority) stake in a SME could help build this trust between non-kin founding shareholders. Off course it is risky but can be manageable if you keep the size of this SME portfolio below a safe limit. But to engage in these 2 directions, you need sound governance.
One could say, but this is the market segment for impact finance. Unfortunately, despite the hype :), most of impact financers cannot invest below a USD 500K ticket if they want to be break even. I worked for one and believe me, it's a real issue, mainly because the due diligence is cumbersome.
So there is a missing middle where the social mission of microfinance could drag the industry, at least to some extent.
Good post and glad I came across it just now. You were right to point out that there is way too much waffle written about the power of microcredit, and too many attempts to hide the problems of microcredit by attempting to bury the concept within the silly financial inclusion trope.
Microcredit analysts and academics supporters all refuse to confront the issue of the longer run opportunity cost of microcredit because it represents a negative impact, so better not go there if you want to come up with the required positive result. The (in)famous 6 RCTs all did this to varying degrees, of course, as my blog posting you referred to pointed out. Carefully ignoring a whole load of the most important downsides in order to get to the very weakly 'microcredit is sort of a little positive' result they came to, which I guess was a contractual requirement insisted upon by those that funded these RCTs, is what happens a lot these days, unfortunately.
In terms of Odell's work in 2015 (and in 2010) undertaken on behalf of the Grameen Foundation USA it is, sadly, nothing more than a veritable masterpiece in this unethical Soviet-style technique. So she purports to neutrally summarise the research on the impact of microcredit, and centrally claims that there is no evidence of any negative impact arising from microcredit. But by refusing to engage with, or even cite one single article, from the now very extensive literature contending just such an impact, the general reader is left in some ign! orance and confusion, as presumably intended, as to exactly what has been claimed by which critics and on what basis. Phew, we can carry on believin' folks........
Interestingly, this 'looking the other way' approach to the downsides to microcredit continues in spite of much interesting work of late in mainstream neoclassical economics confirming, yet again (see earlier excellent work by people like Ross Levine), that the depth and structure of the financial intermediation system is quite paramount to growth, development and long-term poverty reduction, and that if your chosen financial intermediation structure progressively supports the least productive projects - say, for arguments sake, informal micro enterprises and self-employment ventures - you essentially destroy the foundations required for sustainable and equitable local economic development. I just finished reading some very interesting papers touching on this released by - of all people - the Bank for International Settlements in Basel and they all have profoundly negative implications for the microcredit/financial inclusion project. One by Stephen Cecchetti and Enisse Kharroubi in 2015 is very interesting, arguing that a financial system that allocates scarce capital into unproductive ventures - they talk about construction, but the concept extends further - this will seriously undermine the economy (its here to download)
Another one by a group of authors out in late 2015 argues that the evidence shows that financial crises destroy e! ven more of the economic structure - think microcredit crises here, and you get the picture. This article is here;
These papers, and others by the same team of authors, all highlight how long-term growth and poverty reduction is brought about by consistent patient investment in the most productive enterprises, and NOT by increasingly investing in the least productive enterprises (or, even worse, consumption spending). They use data from the developed economies, sure. But their argument also provides us with an interesting explanatory framework that we can use to begin to understand why we find that when microcredit has reached critical mass - Bangladesh, Bolivia, Bosnia, Cambodia, Peru, South Africa, Nicaragua, Morocco, Andhra Pradesh in India etc - it has actually destroyed the local economic fabric far more than it has improved it, which is why no-one can find any genuine data to confirm microcredit has had an overall positive impact. In spite of some positive impacts, therefore, and as I am hearing a lot in the course of my current assignment on local finance for one of the international development agencies, microcredit can be most accurately summed up as the programmed but unintentional destruction of the local economic and social base.
