A micro initiative with a macro objective

In these uncertain times, Mumbai’s only microfinance bank is steadily making a difference in the lives of the city’s lower income group

"This is my fourth loan from the bank, and I use the money to make much-needed repairs in my house. Before this, the only way we could save money was by reducing our food expenses," says 50-year-old Mahadevi Shivmat, who lives with her family in a small chawl at Kherwadi.

Shivmat gets the loans from Swadhaar FinAccess, the only microfinance institution (MFI) in Mumbai that is steadily making a huge difference in the lives of people like Shivmat, who otherwise might not have been eligible for a bank loan. The MFI was set up in 2005 with the intention of helping the economically active poor in the city. 

According to the Microbanking Bulletin, the year 2006 recorded 704 MFIs serving 52 million borrowers and 56 million savers, across the world. Of these clients, 70 per cent were in Asia. This year, seven Indian MFIs featured in the first ever list of world's top 50 MFIs compiled by Forbes magazine.

For a long time, the focus has been on the rural poor, but now, MFIs are also looking at providing financial support to the urban poor. Ujjivan in Bangalore and SKS Microfinance Private Ltd in Hyderabad are some such MFIs catering to this segment.
Over the last few years, Bangalore, Hyderabad, Kolkata, Orissa and Chennai have witnessed the emergence of many MFIs; Mumbai saw its first MFI in the form of Swadhaar FinAccess in 2005.

In three years, since its inception, Swadhaar has over 3,500 clients, with three branches, and five kiosks in different parts of the city. Individual loans are given to men and women while the group loans are restricted only to women. "We started out by only giving group loans to women. Traditionally, women are believed to be better 're-payers' and it is assured that the money given to a woman reaches the family," says PR Vishwanathan, director, Swadhaar FinAccess.

Now, for the first time, a whole section of Mumbaikars no longer have to rely on local money lenders. "Initially, I took loans to pay for my children's school fees. Banks do not give small loans, and they need a lot of documents. Money lenders give you loans, but the interest rates they charge are as high as 10 per cent per month. Here, I pay a monthly interest of 1.5 to 2 per cent," says Sayyad Parveen, who runs a tailoring business from her house. After years of saving, she recently bought a small house at Nalasopara.

The fact that MFIs provide small loans — as low as Rs5,000 — goes a long way in helping people. "Most of our loans are between Rs5,000 to Rs10,000. The maximum would not exceed Rs50,000," says Vishwanathan.

The role of MFIs have slowly expanded: From being primarily loan providers, they have included many more services like financial education, providing savings accounts for clients, tying up with NGOs to teach people different trades, etc. Swadhaar is not far behind, and helps its clients open savings accounts in ICICI and Citibank.

Swadhaar gives loans to people with a minimum monthly income of Rs3,000 per household. Says Vishwanathan: "Our loans are given based on repayment capacity. Below that level of income, a loan would be an additional burden. Such individuals need a boost to their income-generating capacity first. Our 'livelihood programme' is a step in that direction." 

The MFIs themselves receive support from many organisations such as Intellecap that provide advisory services to social development related sectors; and Aavishkar Goodwell that provides equity finance and hands-on support to entrepreneurial microfinance organisations in India.

Aparajita Agrawal, vice president, Intellecap that has recently started IntelleCash, says, "IntelleCash microfinance network programme will provide holistic support in strategy, operations, training, equity, funding, and technology to clients. It will help people set up a microfinance industry in nine months."

But to truly make an impact in Mumbai, there is a need for more such institutions. Most however, are adopting a wait and watch approach, before opening shop.     

s_surekha@dnaindia.net