tag:blogger.com,1999:blog-7182576430045656062.post6257219054729332650..comments2024-02-25T13:47:07.003+05:30Comments on Candid Unheard Voice of Indian Microfinance: Will A Credit Bureau Eliminate Multiple Lending?Ramesh S Arunachalamhttp://www.blogger.com/profile/09264606020720529040noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-7182576430045656062.post-65964302952777051052011-01-07T00:57:10.159+05:302011-01-07T00:57:10.159+05:30SHGs constitute nearly 50% of the lending in India...SHGs constitute nearly 50% of the lending in India. Hence taking into account SHG loans is important. This measure may by itself as an ancillary benefit improve record keeping or at the least increase attention to good record keeping.<br /><br />Another benefit to SHGs due to credit bureau would be faster approval of loans especially since some banks disburse loans to SHGs only after getting a no-objection certificate from neighbouring banks. <br /><br />Malcolm's post on 'best being the enemy of the good; impossible to implement, and thus an excuse for implementing nothing' posted on yahoogroups is also valid. Trying to get information from all informal lenders (money lenders,neighbours, shopkeepers) is really a tall order. It would make the whole project a non starter. <br /><br />Nevertheless, the credit bureau project should have a basic fundamental soundness such as having MFI, SHG and direct bank borrowing for the household ( husband, wife and other family members in case of a joint family) as a bare minimum for a credit bureau's usefulness. Without some basic soundness, the credit bureau will not be trusted and members may not report data to the credit bureau, causing the premature demise of a wonderful idea.<br /><br />Most important would be creating a culture of responsible lending across the board. That is an important solution every organization would need to pursue vigorously. <br /><br />Bhalchander VishwanathBhalchanderhttps://www.blogger.com/profile/08175631798527917632noreply@blogger.comtag:blogger.com,1999:blog-7182576430045656062.post-61154263172027177602011-01-06T21:55:02.383+05:302011-01-06T21:55:02.383+05:30Dear Ramesh -
I second Malcolm's opinion.
...Dear Ramesh -<br /><br /><br />I second Malcolm's opinion.<br /><br /><br />I would add that such a bureau would need to take into account internal SHG loans; and loans from informal lenders (neighbors, moneylenders, shopkeepers). This is a tall order since SHG books are not always the best and informal lenders might benefit from credit bureau information but would be unlikely to report into it.<br /><br /><br />This credit bureau would also need to include forms of redress. In the US, when we received a poor credit rating (sometimes it is unwarranted), there are many avenues for individuals to rectify the rating - all of them a great pain to do. This all reminds me of the wonderful novel by RK Narayan called the Financial Expert. I see many small businesses cropping up to help consumers make sense of both their financial institutions and their credit ratings. If only the Narayan's humor could be part of the solution.<br /><br /><br />Thank you for your post.<br /> <br />Kim Wilson<br />Faculty, The Fletcher School of Law and Diplomacy (617-763-2469) <br />Kimberley.Wilson@Tufts.EduKim Wilsonnoreply@blogger.comtag:blogger.com,1999:blog-7182576430045656062.post-57926933937786147142011-01-06T21:53:10.933+05:302011-01-06T21:53:10.933+05:30Great post, Ramesh.
I myself have been confuse...Great post, Ramesh. <br /><br /><br />I myself have been confused and frustrated at the Indian NBFC MFIs' approach to this issue. Already a year ago, having acknowledged and recognized that multiple lending IS a problem, and presented a solution to deal with that -- a cap of 3 loans or 50,000 Rs per client -- MFIN then conveniently put off any efforts to implement such limits until the credit bureau was made operational. I fully agree that a credit bureau is an important tool, but it is not indispensable, nor, as Ramesh points, in any way foolproof. <br /><br /><br />Fact is, already a year ago, MFIN's members could have easily begun to implement real-world measures to reduce multiple lending. It is well-known that loan officers are often aware of how many loans their clients have. Thus, I can't help but think that the credit bureau was simply a convenient delaying tactic for MFIs who weren't at all interested in complying with MFIN's guidelines, but were willing to agree, knowing that it would be years before the credit bureau would come online. Importantly, that timeframe all but assured that those planning IPOs (and not just SKS) would be able to execute them before the credit bureau started functioning, thus enjoying a couple more years of unconstrained growth.<br /><br /><br />I know that a number of individual MFI leaders in India have been very serious about these sector-level risks, with multiple borrowing high on the agenda. Their efforts seem to have been thwarted at every step by others who saw this as an effort they couldn't publicly reject, but could still undermine through delay tactics. To make matters worse, RBI, which holds a pretty tight leash on the banks, has seemed to favor the clearly unworkable self-regulation approach of the NBFC MFIs, in effect allowing them to operate with zero oversight over client protection, portfolio risk, and other critical factors. <br /><br /><br />DanielDaniel Rozasnoreply@blogger.comtag:blogger.com,1999:blog-7182576430045656062.post-19849611825602221072011-01-06T21:51:29.504+05:302011-01-06T21:51:29.504+05:30Thank you Ramesh, again. I suspect that the banks ...Thank you Ramesh, again. I suspect that the banks and others whose over-lending caused the USA sub-prime crisis were well-served by credit bureaux, and they did not prevent the problem. <br /> <br />But, as with microfinance itself, we must beware of discarding or belittling solutions because they are only partial solutions. <br /> <br />Microfinance's over-arching problem has been the claim that it can, on its own, eliminate poverty. Some of its critics have over-reacted to the folly of this claim by rubbishing the whole notion of microfinance. Similarly, a credit bureau cannot on its own eliminate multiple borrowing and over-indebtedness; but it can help. <br /> <br />MalcolmMalcolm Harpernoreply@blogger.comtag:blogger.com,1999:blog-7182576430045656062.post-43346288572972334582011-01-06T19:38:45.217+05:302011-01-06T19:38:45.217+05:30MFIs need change in business model and not just so...MFIs need change in business model and not just some kneejerk changes or adhererence to creit bureau guidance only.<br />Dr.S.N.Ghosalsourenhttps://www.blogger.com/profile/07687345225285668161noreply@blogger.comtag:blogger.com,1999:blog-7182576430045656062.post-35274293181097548192011-01-06T11:12:57.934+05:302011-01-06T11:12:57.934+05:30Dear Sir,
I agree fully with you. Now a days MFIs ...Dear Sir,<br />I agree fully with you. Now a days MFIs look for were we have given loan and knowingly financing them with bigger loan. MFIN has decided to give three MFI to one client as allowed. How to say who is the third and not forth? Even three means 1.5 lakhs maximum loan to one client. Once I raised this with Mr. Vikram Akula and he said "we should not deprive them taking loan and our system is very strong and time tested to avoid such things. <br /><br />Now before starting a branch, MFIs look how many other MFIs are working and take this as potential rather going to un-reached region. <br /><br />The credit bureau will give information to such MFIs poaching others client.<br /><br />I appreciate Bandhan in this regard. Once I informed Mr. Ghose about multiple lending by one of their branch. Within no time he called me and send his senior staff to resolve the issue with both the branches. <br /><br />So it is the attitude not the information which will solve the issue<br /><br />Tanay/AJIWIKATANAYhttp://www.ajiwika.orgnoreply@blogger.comtag:blogger.com,1999:blog-7182576430045656062.post-41513297882436807672011-01-06T10:49:53.123+05:302011-01-06T10:49:53.123+05:30hi Ramesh, i agree with u that a lot of simultaneo...hi Ramesh, i agree with u that a lot of simultaneous efforts are required to prevent multiple lending from happening. credit bureau is definitely just one part of it and as u say, the will and desire of the promoter and top management must be definitely there too. if this is there, then the whole challenge of execution has tobe carried out to implement this top management desire to prevent over lending. if all this is there, then the credit bureau comes in handy for such 'Responsible' MFIs to use as an added tool to prevent over lending. there is neither any confusion nor disagreement on that. <br /><br />i believe that what we shoudl do as a sector is that a team must work on getting the bureau up and running while another team is working iwth all the MFIs to change their mindset as well as on the ground practices like the ones u have mentioned in this post. this is critical becasue if one fine day we find that all MFIs are ready to be 'responsible' in their lending practices, they may still not be able to fully impelemnt it due to lack of authentic information on existing levels of borrowing of members. <br /><br />my only comment is that both shoudl go hand in hand rather than one after the other. my own personal wish would be to put a very short time frame to get both sides rolling out ... unfortunately neither the urgency or criticality is sufficiently demonstrated by enough number of MFIs ... hopefully the current crisis will atleast spur them all into action<br />regards/vasuvasudevanpnhttp://www.equitas.innoreply@blogger.com