TECH TALK: As India Develops: Microcredit (Part 3)

To give an idea of the opportunity in the microfinance sector in India, take a look at Grameen Bank of Bangladesh, started by Muhammad Yunus:

Grameen Bank Project was born in the village of Jobra, Bangladesh, in 1976. In 1983 it was transformed into a formal bank under a special law passed for its creation. It is owned by the poor borrowers of the bank who are mostly women. It works exclusively for them. Borrowers of Grameen Bank at present own 93 per cent of the total equity of the bank. Remaining 7 percent is owned by the government.

Grameen Bank has 1,195 branches. It works in 43,681 villages. Total staff is 11,855. Total number of borrowers is 3.12 million, 95 per cent of them are women. Total amount of loan disbursed by Grameen Bank, since inception, is Tk 191.44 billion (US$ 4.18 billion). Out of this, US$ 3.78 billion has been repaid. Current amount of outstanding loans stands at US$ 274.08 million. During 2003, a total amount of US $ 369.22 million has been disbursed by the bank. Loan recovery rate is 99.06 percent.

The Economist had a review of Muhammad Yunuss book Banker to the Poor (December 10, 1998):

Can we really create a poverty-free world? asks Muhammad Yunus at the end of his autobiography. Yes, he says, and he believes that he has the key: credit. According to Mr Yunus, the surest route out of destitution for the worlds poorest people lies not in aid, welfare payments or loans from development banks to governments, but in lending tiny amounts of money directly to the poor. This book, the story of both Mr Yunuss life and Grameen Bank, the institution he founded, is his account of how he has put his belief into practice.

The poor, he argues, have a much greater incentive than the rich to repay their debts: it is their only way out of destitution. He claims that Grameen Bank has a default rate of less than 1%, far lower than conventional banks can boast. Moreover, most of the worlds poorest people are women. To Grameen, they are more reliable customers than men, and make up 94% of the banks borrowers. The banks unusual system of making loans, which relies on peer-group pressure, also plays an important part in keeping defaults down. Prospective borrowers form groups of five who learn the banks ways together. If one member of a group defaults, the others cannot get a loan.

Microlending, for all its successes, has barely scratched the surface of the worlds poverty. To rid the globe of poverty through credit would require many, many more people with Mr Yunuss energy and optimism. Are there really enough?

The development of India is intricately linked to creating microfinance options for the poor in both urban and rural India. This is an opportunity that is only now being seen by the bigger players. The last word from Vinod Khosla: There are NGOs and Grameen representatives, who have powerful micro-financing model with a business principle in mind and market competitiveness. Venture capital funds for BPL (below poverty line) families is a very good idea. If it happens in a more systematic way it will be probably the single largest revolution after the Green Revolution of 1960 in India.

Tomorrow: Market Access

TECH TALK As India Develops+T

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.