Ramesh S Arunachalam
Rural Finance Practitioner
I had an interesting telephone conversation with a colleague from Netherlands sometime ago. We were talking about multiple lending and shared JLGs/Clients and then, he suddenly asked me a question, “Have you ever thought of how the current set of fast growing MFIs acquire their clients?” Spontaneously, I said, “they perhaps form JLGs” and then realised that I could have made a mistake as my mind went back to the shared JLG/clients model that I had been seeing very often – where a particular JLG and its member clients are serviced by different MFIs on successive days of the week and the same happens to other JLGs in the same village/cluster.
The Concept of Shared JLG/Clients: Table 1 below will illustrate this and let us assume that a cluster of 3 hamlets have 7 JLGs. Each JLG has 5 members and there are 35 members in all – the normal size of a centre
The above is an illustrative case and it highlights how JLGs and clients may be (could be) shared in practice. However, I have personally seen several cases where there are 4 – 7 JLGs in a cluster of villages and at least 3/5 JLGs are shared between MFIs – Mostly with weekly repayment and 1/2 cases with monthly repayments
Therefore, while multiple lending and over-indebtedness are, as cited, a major reason for the present Andhra Pradesh micro-finance crisis, there also seems to be reasonable evidence to the fact that the ‘phenomenon of shared JLGs and clients’ is perhaps an important antecedent factor that deserves attention. The following questions seem relevant here:
How widespread is this phenomenon of shared clients and JLGs? To what extent do MFIs actually share JLG and clients, across districts in Andhra Pradesh and other States? How much multiple lending actually exists on the ground, from state to state across these shared JLGs and clients? How to resolve this existing multiple lending across shared JLGs and clients? What range of strategies exist – apportioning of JLGs/clients and their loans across MFIs, re-scheduling, re-financing, waivers, debt swaps etc – and how to use these and in what situations and for whom? What CREDIBLE safeguards can be built to prevent recurrence of the shared JLGs/clients and the resultant multiple lending problems in the future?
In my opinion, given the fact that JLGs/Clients are shared through use on successive days by different MFIs as illustrated in Table 1 earlier and also given that this model is somewhat widespread, unless, this problem of sharing JLGs and clients is sorted out, there is a very high likelihood of the multiple lending problem recurring again. So, another key question here is:
How to allocate JLG and clients across MFIs - in a fair and transparent manner - so that the above model of same JLG/clients being used on successive days by different MFIs goes out of vogue in Andhra Pradesh and Indian micro-finance? The issue here is somewhat similar to the concept of de-marketing, talked by Prof Phil Kotler.
While shared JLGs are indeed a problem and deserve a close look, it also seems important to focus on something more fundamental than that – the manner in which MFIs acquire clients (in the first place)
Client Acquisition Process in MFIs: There are several ways in which clients can be acquired by MFIs: a) Green Field; b) Acquisition; c) Joint Venture; d) Simple Reciprocal Arrangement; e) Conversion/Cannibalisation of SHGs and several other strategies. Some of these are explained in Table 2 below:
Thus, the RBI sub-committee may therefore want to ascertain, how the MFIs have grown during the last few years and how they intend to grow in the next few years? Have they formed green field (own) JLGs? Have they acquired JLGs from other MFIs? Have they had joint venture and/or simple reciprocal arrangements to share JLGs? Have they split SHGs (as Dr C S Reddy of APMAS often argues and as currently stated by him in the CGAP blog) to create several JLGs? What other strategies have they used to gather clients at such a fast pace?
These and similar questions certainly deserve an answer and I believe that the client acquisition process is a very crucial aspect that should not be ignored. Without question, we need to ascertain and understand how MFIs have grown during their period of fastest growth and how they intend to so in the future. In my opinion, unless suitable safeguards are built into the client acquisition process adopted by MFIs and unless the present sharing of JLGs/clients is resolved, the problem of multiple lending will re-surface YET again and perhaps on higher scale and at a national level – just as the lessons from Krishna and Kolar crisis continue to haunt us...Therefore, it is imperative for the RBI sub-committee to look at the above issues and come out with practical suggestions on: a) How the existing sharing of JLGs/Clients and the associated multiple lending can be resolved on the ground; and b) How the client acquisition process of MFIs can be re-engineered as to avoid sharing of JLG/clients. Unless these operational issues are sorted out, let us be sure that multiple lending in Andhra Pradesh/Indian micro-finance is here to stay...much to our discomfort.