Microfinance Focus, May 4, 2010: Responding to the recent comments made by some of the top leaders in the microfinance space, Mr. P N Vasudevan, Managing Director of Chennai based NBFC-Microfinance institution ^[1] Equitas replied and urges an open discussion on these issues while an interaction with Microfinance Focus.

Here are the excerpts of his comments:-

I read with interest Mr. Sam’s views on a recent interview ^[2] with Microfinance Focus and numerous other articles of similar kind.  I believe we are trying to be simplistic about the whole thing.  Looks like, we believe that if an institution is structured as a not-for-profit then it is focused on the poor and is ‘mission focused’ while if it is structured as for-profit, it is deemed that it is always out to milk the poor and feed the investors.  Both assumptions are wrong.

I have known of not-for-profit trusts or societies where the promoters of such entities are systematically fleezing the institution of cash through various means and enriching themselves personally.  Also the rates charged by such institutions to clients are not only very high but also completely opaque and not subject to any supervision either neither of a strong and independent board nor of any regulators since they are unregulated entities. On the other hand, if we take Equitas Micro Finance ^[3] of which I am the promoter, from 15th Dec 2007 when we did our first loan transaction, we had pegged the difference of lending rate to cost of funds at 13.5%.  This was done by seeing competitors of which only one competitor in those days was having cost of operations of 7.5% and rest were over 10%.  so we told ourselves, we need to reach this 7.5% cost of operation too, then add 2% for delinquency and 4% for return on assets and we arrived at 13.5%.  to this day we have lent only with this mark up and happy to share we have finally reached 7.5% in 2  years which we thought will take us 3 years to reach.  Going forward any reduction we achieve in cost of operation will get passed on to client, reducing the 13.5% further.  Also we have no charges or fees at all charged from clients and we are the only MFI in the entire world to first and voluntarily disclose the true cost of funds by way of reducing interest rate for the clients by printing it in the pass book.

Further, because of our extreme efficiency combined with this limit on mark up, our lending rate today is the lowest in India and probably in the entire world.   We have further a rule that our Return on Equity would never exceed 25% which is shared with all our investors before they invest.   We also have probably the highest governance structures in place and very proud that we meet and exceed almost all global benchmarks on governance and transparency issues.  We are probably the most transparent company in India and have just initiated a CRISIL Governance and Value Creation Rating exercise.

And talking of social or non-financial initiatives, for the year 2009-10 we have spent 11% of our profits on social activities, we undertake primary healthcare and secondary healthcare for our clients and families, education for their children through tuition centers and food security program, all on a not-for-profit basis.  Our primary healthcare has already benefited 170,000 clients, forming 21% of our total client base while over 50,000 people have been given skill development trainings.  I am ready to throw an open challenge to all MFIs who claim they are mission focused (simply  because they are not-for-profit formats), that Equitas is at-least as much if not much more client focused than they have ever been in their history.   Format of the institution does not determine anything it is the real actions of these institutions which determine everything.  I extend an open invitation to anyone of you to spend a day with us and then declare that not-for-profit format is the only way of being mission focused and I promise to quit my organization.

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