Distinguishing between urban "India" and rural "Bharat," the Chairperson of MFIN and Managing Director of Credit Access Grameen Limited emphasises how microfinance is empowering underserved communities.
In an exclusive conversation with ET Edge Insights, Udaya Kumar Hebbar, Chairperson MFIN and Managing Director of Credit Access Grameen Limited, talks about the pivotal role that microfinance plays within the expansive landscape of financial inclusion, the industry’s growing commitment to sustainability, and much more.
Excerpts
What key strategies within the financial sector have excelled the remarkable success of the microfinance growth story in India, positioning it at its current pedestal?
The microfinance growth story in India has spanned over two and a half decades, exhibiting robust progression. In the past decade, a significant catalyst has been the supportive regulatory framework established for microfinance. This unique regulatory environment facilitated the inception of initiatives like PSL funding, channelling bank funds into microfinance institutions. These institutions, integrated into banks, have extended their reach to even ₹10,000 loans for women at the base of the economic pyramid, effectively impacting 60-70 million individuals.
The growth of these institutions has led to improved service delivery at a low cost, catering to diverse lifecycle needs with an array of financial and non-financial products. This success is underpinned by comprehensive systems and regulatory backing, exemplified during crises such as demonetisation and the COVID-19 pandemic, where regulatory measures and government liquidity support were promptly instituted. Notably, India’s microfinance sector stands alone with its self-regulatory organisation, an unparalleled feature. The convergence of these factors has propelled India’s microfinance sector to unparalleled heights, reflecting its expansion across rural areas and underscoring its path of growth.
Given the analogy of microfinance as a rural anti-poverty vaccine, could you share insights on your organisation’s rural outreach?
The notion holds true. In India, the rural GDP accounts for around 45 to 50%, yet the credit supply is merely 10 to 12%. This glaring disparity underscores the need to bridge this gap, akin to a powerful vaccine for rural development. While microfinance is a vital component, there exists an unaddressed ‘missing middle’ that requires financing between microfinance and formal banking. This gap persists for loans of 3 to 5 lakhs where neither microfinance nor the formal sector adequately caters. Collaborative efforts are being made by the government and various stakeholders, aiming to infuse more credit into rural areas, potentially propelling the GDP to new heights. Therefore, the realisation of our ambitious economic goals, be it a 5 trillion or 8 trillion economy, heavily hinges on empowering rural communities. Microfinance stands as a significant contributor within this broader framework.
Amid the widespread adoption of sustainability and environmental practices, how do you envision microfinance institutions playing a role in fostering environmental sustainability?
In the face of climate change and sustainability challenges such as the El Nino, microfinance customers find themselves in a paradoxical situation. Though not the cause, they are highly vulnerable to its impact. This vulnerability is particularly pronounced in developing nations like India, Southeast Asia, and East Asia. Despite this, microfinance plays a vital role in building resilience for these communities. The credit provided assists them in managing their cash flow during both good and bad times. This credit supply inherently falls within the social sector, generating employment opportunities within vulnerable communities. Additionally, efforts are made to raise awareness among these communities about climate change and how to adapt to changing weather and rainfall patterns.
Moreover, microfinance institutions extend support for home improvements, flood or cyclone relief, rehabilitation, and other corporate social responsibility (CSR) initiatives. As an industry, microfinance has innovated solutions such as the Nat Cat insurance—a parametric insurance product designed to protect community income during cyclones or adverse weather conditions. This product uses triggers like weather degrees or flood intensity to provide assistance, thus aiding in effective management during such situations. These initiatives are documented in the annual reports of microfinance institutions, showcasing their commitment to addressing these critical issues.
In this era of rapid technological advancement, how do you ensure that your delivery mechanisms remain up-to-date and aligned with the latest technologies?
There is a big difference between India and Bharat. Distinguishing between urban “India” and rural “Bharat,” we operate in the latter. A stark ecosystem disparity exists, spanning infrastructure, smartphones, networks, banking accessibility, and outlets, affecting various demographics such as age, gender, and wealth. Despite these challenges, the microfinance industry invests in advanced technologies for efficient data processing and transactions. However, we assist customers in overcoming barriers like literacy, financial understanding, and digital skills, facilitating their integration into this digital landscape. As their readiness improves, we continue our support, emphasising the essence of personal connections in this unsecured business. The blend of high touch and high tech remains integral to microfinance, enhancing efficiency and relationship building. Our expectation is a notable shift in delivery dynamics in the coming years, driven by evolving customer segments. These customers may transition from group-based mechanisms to individual loans, potentially reaching bankability. Amid this journey, the core values of high touch and high tech will persist, ensuring a growth trajectory.
Lastly, what does leadership mean to you?
The distinction between empowerment and non-empowerment, leadership and non-leadership, becomes evident. True leadership entails sensitivity towards management, customers, employees, and the ecosystem. This role encompasses being a trustee for stakeholders, a gatekeeper for regulators, and a guardian for employees, fostering a comprehensive sense of ownership. Effective leadership transforms us into trustees for all, ensuring a balanced approach. Empowerment involves enabling teams to excel autonomously, even in the face of failure, where the leader stands accountable. In essence, leadership embodies these principles.
