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Microfinance in India empowering women

Sep 16, 2009

Using microfinance, women in southern India are running viable businesses and contributing to family income. Hundreds of thousands of women are opening up grocery shops, engaging in poultry and livestock, pappad or pickle making, pottery, vegetable vending, bangle or trinket shops, and beauty parlours.

Andhra Pradesh: We are on our way to Gollapally village, 70 km from Hyderabad in Sanga Reddy district of Andhra Pradesh. On this narrow road, at the Mallaipally village, we sight a school bus belonging to Vidya Bharati High School English Medium.


The words ‘English medium’ warm your heart as little kids scramble into the vehicle for their journey. Microfinance and women’s self-help groups that have taken off in a big way in Andhra Pradesh have also contributed to sending village children to English medium schools located 10 or 20 km away.

At Gollapally, the weekly meeting of the seven groups of borrowers from SKS Microfinance, which began as an NGO in 1998 but was registered as an NBFC in 2005, is on.

Asiya Begum, the smartly dressed 30-year-old leader of this centre – each village has about 7-8 groups comprising five members each – is in charge of handing over the weekly collection from each group (about Rs 1,800) to the SKS loan officer Suresh.

The 35 women are seated in a circle on the neatly swept exterior of Asiya’s house; it is 8 a.m. and a couple of women have come with their babies to the meeting, which is conducted in a brisk, businesslike manner. They have to return to their vocations and have little time to chat.

As the leader of each group hands over the money, Asiya runs a quick check before handing the notes to Suresh.

Each woman has taken a loan of about Rs 20,000 and all of them have utilised the amount to run enterprises which involve not only their husbands but also sons. While Asiya’s family runs a chicken centre, Lathifa Pasha has set up a mutton stall operated by her husband.

As SKS Microfinance founder and chairperson Vikram Akula points out, in order to scale up and reach the much-needed finance to larger numbers, a standard model is adopted.

“We do very little customisation for our borrowers. You can take only one type of loan; it’s a 50-week loan and our operations are based on a standardised prototype. Our centre meetings are exactly the same everywhere. That level of standardisation allows you to roll out quickly and achieve scale. Every month we open 50 new branches and add 3 lakh new customers.”

These customers engage in various income-generating activities – kirana shops, poultry and livestock, pappad or pickle making, pottery, vegetable vending, bangle or trinket shops, and beauty parlours, which are becoming very popular in rural India.

Astounding growth

The numbers Akula reels out make your head spin. SKS has already disbursed over Rs 8,500 crore in loans to 47 lakh women; last year it lent Rs 3,600 crore. It recruits and trains 1,000 new loan officers or field assistants every month and over the last three years it has been growing at an annual compounded rate of 128%!

You can see that its founder, who grew up in the US and got his Masters from Yale University and a PhD in social sciences from Chicago, is a man in a hurry and brimming with new ideas to help his astronomically large family of borrowers.

Along with the money, what these women get is training, discipline and responsibility to return the loan in weekly installments

In the process, of course, SKS, the largest microfinance institution in India, and the fourth largest in the world, will make money too.

And it is not small money that SKS makes. Many economists and social scientists will object to the rate of interest SKS charges its poor customers — 28% (diminishing)! But while this rate would disturb people who can access finance from banks at 15% or less, SKS customers are able to borrow at this high rate, repay the money – boasting 99% repayment – and make good profit too.

For villagers who are forced to borrow small sums from moneylenders at 36, 48 and even 120%, this microfinance model is a boon.

Along with the money, what these women get is training, discipline and responsibility to return the loan in weekly installments, life insurance which covers the loan amount and basic health insurance for the family. And group dynamics and support in preventing default in a bad week.

Explaining the SKS model, Akula says that after returning from the US in 1997, he spent a couple of weeks with the Grameen Bank in Bangladesh to understand how microcredit works.

“But while I adopted the five-member model, my innovation was at a structural level. Prof (Muhamed) Yunus (founder of Grameen Bank) says microfinance should be a social business; you return to your investors the capital but no profits. My view is very different. I think that if you have to raise Rs 2.4 lakh crore of debt, which is my rough estimate of the Indian market with nearly 80 crore poor people, you need a commercial model.”

He believes that the only way to raise that kind of money is “by being not just profitable but extremely profitable. The way commercial investors look at our business is sub-prime, unsecured lending to poor illiterate women who have no credit history. So it has to be more profitable than telecom, IT or real estate. Otherwise they just won’t come.”

Today he has on board venture capital, private equity and commercial banks. While banks lend him money at 12-13%, the minimum threshold or typical return for a venture capitalist is a stiff 35%.

So is he able to manage that?

“I am not in a position to reveal our projections but I will say that we meet the test of being ‘very profitable’. The business model is to simply take the equity, leverage it five times by borrowing from commercial banks. Today we raise about Rs 730 crore of equity, and by leveraging that five times we were able to disburse Rs 3,600 crore last year.”

Economic empowerment

Allowing his organisation to be “very profitable” are women like Asiya Begum and her colleagues. Or Ananthamma, a 40-year-old Telugu-speaking maidservant in South Delhi, who was unable to take care of her handicapped son after her husband died.

Her father-in-law had a spice business, which was doing well; she took an SKS loan and set up a similar spice business. It flourished, and when it was time for a mid-term loan she bought trinkets and put her son on the job of selling them door-to-door.

Now she has two businesses, her son is self-employed, and she has proved that small sums of money can make a big difference to the poor when routed through organised channels.

But then, as Akula points out, barely 10% of SKS borrowers are in the six big cities.

At Sadasivapet village, about 80 km from Hyderababd, we stop at the provision shop run by Susheela, who had started a small shop with a loan of Rs 4,000 taken from SKS eight years ago.

Subsequent loans have allowed her to expand business and her latest loan is for Rs 25,000. Tea, sugar, salt and light bulbs are fast-moving items and she even stocks gulab jamun for her clients.

Her daily turnover is Rs 1,000 and the profit a neat 15% or Rs 150. Both her children go to government residential schools, leaving the parents with ample time to concentrate on business.

In Gollapally, Asiya’s chicken centre, the only one in her village with 1,200 homes, is flourishing. As also the mutton-stall run by Lathifa’s husband.

This is a monopoly too; “on ordinary days it is two goats, on Sundays it is four, and on Id day we cut up to 25 goats,” says Lathifa. This is her fourth cycle of SKS loan; her two sons work in mutton shops in Hyderabad, the family owns 8 acres where rice, wheat, turmeric and vegetables are grown.

Lathifa is the boss on the farmland and in the busy season employs up to 10 labourers, paying them Rs 140 a day. Luckily the drought has not affected her; “we have our own bore-well and there is enough water for the crops,” she smiles. Because she is a landowner, she has got an agricultural loan of Rs 2 lakh at 4% interest.

Hymavathi has bought a buffalo with her latest loan, adding to the six she owns already. They give her 35 litres of milk every day which she sells at Rs 15 a litre to a hotel and sweet shop in Sanga Reddy. This is her sixth cycle; her family owns land too and, like most of the women at her centre, she is wearing gold ornaments… the nose stud, earrings and chain are gold but the bangles, in typical Hyderabadi style, are either made of glass or ornamental plastic.

Elamma runs a vegetable business and is able to earn about Rs 4,000 every month after repaying the loan. Through earlier loans she had bought a few goats, which her husband tends, and an autorickshaw which her son drives.

Social empowerment missing

The confidence these women exude is phenomenal and there are smiles all around, and these should be sufficient to soon transform the slightly nervous Lakshmi, who is attending the meeting for a first-time loan. While some of the women have grownup children who are self-employed thanks to loans from SKS, others have young children in school.
Asiya proudly says she has a boy and a girl and both are in school. That her boy goes to an English medium school and her daughter studies in an Urdu school is a social commentary in itself.

So, will she have to pay dowry when her daughter is married?

“When women bring home money their social status improves, and we hope that eventually these women will be able to tackle such social evils”

“Of course… there is no escape from that,” admits Asiya. Her economic empowerment will not prevent this, “as everybody has to give dowry”. The booty will be in the form of 5 gold sovereigns, a two-wheeler worth Rs 50,000, another Rs 50,000 for the bridegroom’s wedding dress and then the marriage expenses. “We’ll need at least Rs 3 lakh,” she sighs.

So why don’t women in these groups take an anti-dowry stance? “Nahi hota hei, madam”, is all she can say. Even Akula doesn’t have a convincing response when asked why these women can’t take anti-dowry pledges as Grameen Bank women do: “We strive for their economic empowerment; that is our core competence. But when women bring home money their social status improves, and we hope that eventually these women will be able to tackle such social evils.”

But for now, his mission to “eradicate poverty by providing financial services to the poor in a sustainable manner and eventually serve 50 million households across India” is a huge challenge in itself. The constant endeavour is to have sufficient technological interventions to keep costs low and speed up delivery to newer areas.

Akula is a man in a hurry and his business has not been impacted by the economic slowdown.

“Our growth has been exponential; three years ago we had two lakh clients; the following year it was 6 lakh; the next year 18 lakh and now we serve 47 lakh. Even as I talk to you that data is becoming history. We now pick up middle-level managers… recent MBAs from IRMA and such institutions on an annual salary of Rs 7 lakh, train them, show a map of rural areas and ask ‘where would you like to go?’. Because, eyes closed, you can start a branch anywhere in the country and it’ll work.”

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