Microfinance Institutions can learn from moneylenders
Aniruddha M. Godbole

Microfinance Focus, August 25, 2011: Mr. Aniruddha M. Godbole, a business analyst with a financial software company in Bangalore ( India) shared with Microfinance Focus that Microfinance Institutions (MFIs) could learn from the traditional moneylenders how to be more effective in lending to the poor. Some of the points he brings up include the need for a market research survey of money lending practices and the need for MFIs to develop new products.

A suggestion shared by Mr. Godbole is that the microfinance industry in India can learn from a possible nation-wide survey of money lending practices. The key purpose of such a survey is to understand the main competitor, the moneylender, better and to learn from good practices that some moneylenders employ. Among other things such a survey would help us understand the variations in tenors, repayment frequency, collaterals, nature of the loans, nature of interest rates and other factors that suit different borrowers. Currently no such survey data exists. Mr. Godbole recommends that such a survey would be best undertaken by a non-government professional research agency, with the survey being funded by an industry association.

Mr. Godbole highlights one major failure in the MFI sector in India, namely, the failure to develop new products for addressing the customers' needs. To further explain his point he gives an example of an innovative product created by disbursing gold denominated loans along with a gold collateral. The credit risk is transformed into a market risk and thus the interest rate offered to the borrower can be substantially reduced. The lender can address its asset-liability mismatches by creating gold denominated liabilities. The microfinance industry in India needs to come up with such robust innovations in order to be effective lenders to the poor.

An observation made by Mr. Godbole is that the “public perception of the moneylender is often considered 'evil' and implicitly the MFIs are perceived as potential replacements to moneylenders. And when customers notice that for-profit MFIs are charging interest rates like that of some moneylenders the MFIs themselves get a negative image like that of the moneylender. An effective communication strategy may involve the industry association informing the public that not all moneylenders are bad and that MFIs are not for the main purpose of replacing moneylenders and that MFIs' main purpose is to simply serve customers better.”

Mr. Godbole has previously worked with A.V. Rajwade & Co., Mumbai, and in the Treasury Department of Indian Bank, Chennai. He has written many articles on microfinance.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.

MFIs can learn from money lenders

Author has aptly drawn attention of MFIs to learn from money lenders. Though we may like it or not, moneylender as an informal institution shall continue to exist so long as human race has to survive. It has over a period of time demonstrated its significant utility to a very large population in developing economies. A time is opportune for MFIs & private sector banks to invest in doing research around their geographical area and understand the system, methods & procedure followed by money lenders in identifying client, understanding his/her credit needs and designing loan product to match requirements of both lender & client, disbursement & repayments. This can provide MFIs better insight into the area-specific lending mechanism and facilitate designing few loan products, pilot testing,puting in place and learning lessons for improvements.In fact, innovations need to be introduced how best moneylenders as an informal institution can best be integrated with rural financial system in India. Similar is the case to understand, experiment, put in place a system of Islamic banking & finance and learn lessons for improvement. Area of knowledge sharing & management in rural fiance is indeed a vast and more frequent innovations & experiments are required. Dr Amrit Patel, Edison, NJ 08837 USA[732-553-0825]

If any MFIs couldnt make good

If any MFIs couldnt make good and proper relatioship with customers, that MFI will never succeed in this field. My suggestion is good and proper relationship with customers is most vitable tool of MFIs and its development.

Regards,

Jaisingh.

Post new comment

The content of this field is kept private and will not be shown publicly.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Allowed HTML tags: <a> <em> <strong> <cite> <code> <ul> <ol> <li> <dl> <dt> <dd>
  • Lines and paragraphs break automatically.

More information about formatting options

CAPTCHA
This question is for testing whether you are a human visitor and to prevent automated spam submissions.

Sponsored Links

Microfinance Focus


Copyright @ Microfinance Focus. All rights are reserved. Managed by Ekayana Media