'Crowdfunding is used to generate money for microfinance'

'Crowdfunding is used to generate money   for microfinance'

Microfinance as a sector has come a long way. Right now, the sector is dominated by non-banking financial companies (NBFC) and microfinance institutions (MFIs) with a whopping market share of 88%.

According to the data available with MicroFinance Institutions Network (MFIN), the microfinance industry has a total loan portfolio of Rs 98,625 crore as on March 31, 2016. The report further suggests that “as of December 31, 2016, MFIs provided microcredit to over 3.38 crore clients, an increase of 42% over Q3 of FY2015-16”.

After 2010, MFIs consolidated their operations since the sector faced more stringent regulatory requirements. The number of MFIs declined from over 70 in pre-2010, to 56 in early 2016, according to the report by Ernst & Young.

Muhammad Yunus, a Bangladeshi social entrepreneur, and also known as the pioneer of microcredit and microfinance, was in Bengaluru recently. Yunus was awarded Nobel Peace Prize in 2006, for founding the Grameen Bank. In 2012, he became Chancellor of Glasgow Caledonian University in Scotland. He has also published several books related to his work in finance. In an exclusive interview with Furquan Moharkan of DH, Yunus talks about the changing financial system, and its impacts on microfinance. Excerpts of the interview:

At the time when you pioneered the concept of microfinance, technology wasn’t that prevalent. Now technology has crept into every sector. How do you see technology impacting the sector?
All the financial sectors would be impacted by technology, as it will make things far easier. You don’t have to carry things. You don’t have to carry cash to anybody. So technology makes it very simple and easy. That way there will be chances that people who are remote, and because of the remoteness, they can’t be reached. Now this remoteness won’t remain, as technology makes distance disappear. And it also makes cost disappear.

What do you think were the factors that led to the growth of microfinance?
I think because people needed it, everybody wanted it, and there was a shortage of money. That is all. Money was never a problem for us. The problem was to train people, so that they can do the right job. Once we a got hang of it, we came to a stage where we started rolling out one branch everyday at an average. So within a year, we had nearly 400 branches. That was quite a speedy expansion.

Do you see any kind of threat to MFIs from the concept of crowdfunding?
No, why should they pose a threat? Crowdfunding is supposed to give you money from many people. Actually, crowdfunding is used to generate money for microfinance. That is what Kiva and others are doing — reach out to people who would give you $20 or so, and will find you a borrower to borrow that money. They are mobilising funds for microfinance. Instead of being a threat, they are supporting microfinance.

According to the 12th Five Year Plan of India, the credit gap as percentage of total demand of credit was 56% for the fiscal year 2014 for the MSME sector. Where do you think that gap is coming from?
Financial institutions are not coming forward to do that. They are not ready to fill that gap. We need to create those institutions to fill that gap. There is the middle-level gap as well. This is not a huge number as compared to the top-level demand, as all the money is sucked up there. But, it is where a large number of people’s life is involved.
Do you think that MFIs need to do more for the people employed in the organised sector?
Banks need to have a system where they service people from top to bottom, so that nobody can say that they are not being serviced. That is the financial system that we vouch for.

What are your views on capitalism and microfinance?
If you talk of capitalism in a sense that all the businesses have to be profit-maximising, greed-bred business, then, of course, they wouldn’t be looking at this. As I have maintained all along that it is a different kind of business — business to solve problems, based on selflessness of people. So this can accommodate them by reinterpreting human beings, within the capitalist system. We are not changing the system, but we are enlarging the system, by adding a new dimension to human beings. You can call microfinance as capitalism with two businesses — making money for yourself and solve problem for others. It is a kind of social business. Right from the beginning, I said that we didn’t want to make money, but to make sure poor people benefited.

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