No small change this

For the poor in rural India, till not very long ago, credit meant the unscrupulous mahajans who roamed the villages with wads of cash. Dime a dozen Bollywood movies had depicted the wily moneylender who not just ripped off the hapless creditors, but who was also cruel enough to grab their movable and immovable property. Moneylenders are still prevalent in the Indian hinterland, even though their grip on rural credit market has loosened considerably in the last 2-3 decades, thanks to the advent of microfinance institutions (MFI), which started mushrooming in India by the 1990s.

The late blooming of microfinance as a concept in India is an irony considering that there is a shining example from the neighbouring Bangladesh how micro-credit can bring about a substantial difference to the lives of the poor. Since the mid-1970s, Muhammad Yunus and his microfinance organisation, Grameen Bank — winner of the 2006 Nobel Peace Prize — have been making affordable finance a reality for rural people in Bangladesh, particularly for women.

Credit to poor

Microfinance is defined as the provision of thrift, credit and other financial services — often of very small amounts — to the poor in rural, semi-urban or urban areas for enabling them to raise their income levels and attain a meaningful livelihood. Notwithstanding their late entry on the Indian scene, MFIs — be they are formed as societies, trusts or non-banking finance corporations (NBFCs) — assumed a lead role in providing credit to the poor.

In Ujjivan: Transforming With Technology , senior journalist Subir Roy chronicles the tale of a latest entrant into the field, Ujjivan, but in the process he also retraces the history of the organised microfinance landscape in India.

The book briefly touches upon the sporadic history of governments extending taccavi , or short-term loans, to villagers by rulers in medieval India, during British period as well as immediately after India attaining independence. Ujjivan, which Samit Ghosh, a banker of 40-odd years of experience, and others founded in 2005, is unique in many senses. In its brief existence, The Bengaluru-headquartered MFI negotiated several unexpected policy minefields — an existential crisis precipitated by an ordinance, and subsequently a State law, passed by Andhra Pradesh government in 2010 to restrict the operations of MFIs and demonetisation by the Narendra Modi government in November 2016 — with aplomb.

Besides, it has been reckoned as a pioneer in financing the urban poor, which was neglected by the MFIs till Ujjivan came into being. Ujjivan started off as a microfinance organisation that has been giving small, unsecured loans to the urban poor, particularly women who are either salaried (such as housemaids, sweepers or teachers) or self-employed (fruits and vegetable vendors, tailors, petty shop owners) with aspiration of augmenting their incomes. Besides, Ujjivan was one of the first beneficiaries of a domestic equity fund set up specifically for investing in start-up microfinance companies, which came into being around the time Ghosh and friends were for scouting for initial capital that would have enabled them to apply for an NBFC licence from the RBI.

Customer in focus

The experience of its founders, especially that of Ghosh, who spent decades as banker in West Asia and later on in India with HDFC Bank, has been instrumental in moulding Ujjivan into one of the finest financial institutions operating in the sector, Roy says. Ujjivan has a way of dealing with its customers, which is not just innovative but also very customer friendly. It adopted proper quality control measures in every aspects of its operations: in selecting borrowers, processing of loans, disbursal and follow-up with borrowers.

Very similar to what was followed normally in self-help groups, Ujjivan insisted on its borrowers taking joint responsibility for loans disbursed. For instance, to get a loan, a woman had to join a group of five members and take joint responsibility for the group members’ loans and show willingness to partake in a group training programme and clear a test.

Besides, it educated borrowers about the need for taking insurance, which it provided at modest premium rates, to secure the loans advanced in the event of demise of the borrower. “During the high-growth period, Ujjivan also undertook the financial literacy programmes Sankalp and Diksha, which sought to educate cstoemrs and insulate them from the ravages of the Andhra type of crisis which could severely cripple microfinance,” writes Roy, who spent nearly four decades as journalist in different media houses.

Constant interaction and engagement with customers and maintaining a crop of motivated staff have been critical for the firm, which in just 12 years emerged as a firm that valued at close to $1 billion. In 2015-16,Ujjivan had 3.3 million customers from 24 States.

The book also throws light on to how the tsunami of demonetisation hit microfinance, which, arguably, the worst affected by the sudden banning of high-value currencies. Like almost all others in the MFI sector, Ujjivan too had to weather the storm that was precipitated by a sudden decline in repayment by customers.

Its customers, poor working women who dealt mostly in cash, were affected twice over — first by the shortage of cash and second by loss of income as the businesses they worked for were severely disrupted. Politicians too played a part: Many of them discouraged borrowers from repaying loans, saying governments may waive of microfinance loans. Even though Ujjivan too saw a fall in growth, rise in NPAs and an impact on its bottomline post demonetisation, it was lucky enough to come out with minimum scars, thanks due to the ingenious ways it adopted in dealing with customers.

Undoubtedly, the book provides an interesting insight into the ups and downs of microfinance, which has been a tremendous tool for uplifting the unbanked in India.