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Apex Financing Institutions:
Growing the Seeds
and Saplings
IAS officer on deputation. Seven members of the governing body are nominated by the
government as representatives of NGOs active in the field of micro-credit.
RMK initiated its activities on the basis of an initial corpus received from government of Rs
31 crores, which has since grown to Rs 54 crores on the basis of surpluses generated by the
lending operation, and the investment proceeds of its reserve funds of about Rs 21 crores
currently. While its Memorandum of Association allows it to borrow from the banks, it has not
felt the need to do so yet, and has been sanctioned a further addition to its corpus of Rs 10
crores in this year's budget. The latest published annual report which is available, that for
2004-05, contains a cumulative state-wise list of 1,153 partner NGOs (which has since grown
to about 1,250) but does not mention how many of them are active, with loans outstanding
currently. Only 112 partners were disbursed loans in 2003-04 and 118 in 2004-05. The cumulative
list includes presumably a large number of partners who have repaid their loans and graduated
to the banks or SIDBI, and of others who defaulted. 12
Disbursements (of Rs 18.8 crores in 2004-05) provide a better indication of the scale of
activities than loans outstanding, since the latter figure includes Rs 9 crores of cumulative
bad and doubtful loans. Writing some of them off will shrink the balance sheet commensurately. 13
Thus RMK is lending out much less than FWWB on the basis of a much larger corpus, albeit at
a lower interest rate of 8 percent as against FWWB's current rate of 10.5 percent. 14
Cumulative overdues constitute 7 percent of total disbursements of 126.8 crores since inception.
This may still be an acceptable figure depending on the quality of partners that were sought
to be assisted, the extent to which default was beyond their control, and the offsetting
success in growing other partners. The social justification for the public sector financial
institutions is overcoming market failures by being able to accept higher risk. However,
clearly, greater capacity needs to be built up in appraising and monitoring partners.
RMK does however make much smaller loans (average disbursements per partner were Rs 16
lakhs in 2004-05 as against Rs 1 crores by FWWB), and it has reached a much larger number of
nascent NGOs. Moreover it is much better represented in the non-southern states. The true
test is how effectively it has helped its partners to grow. Unfortunately the documentation or
ongoing monitoring does not exist to enable such an evaluation. RMK certainly showed great
promise in its early days when there was a dearth of funding from other sources, despite the
fact that an earlier, unrealistic, interest rate cap on the rate at which a partner could on-lend
along with certain procedures greatly decreased its attractiveness. 15 Several of today's wellknown
MFIs were partners of RMK in their early days, including the largest in the country
SHARE. SIDBI was appreciative of the candidates it threw up for SIDBI financing, and others
shifted to FWWB.
It is likely that many of RMK’s partners are too small or inexperienced to be lent to by the
banks, and that assisting them to grow is still a vital need. However more important than
funding, even more so in this, is capacity building assistance, which RMK is not in a position
to provide in-house, and without radical changes in structure (see below) is not likely to be.
With the increase in TCB providers (see Chapter 6) it should be possible to outsource this
input, but even this would require a great deal of coordination and monitoring, which is not
to say it may not be well worthwhile, provided RMK redefines its role, as discussed below. 16
Thus RMK is
lending out
much less than
FWWB on the
basis of a much
larger corpus,
albeit at a
lower interest
rate of 8
percent as
against FWWB's
current rate of
10.5 percent
The true test is
how effectively
it has helped
its partners to
grow.
Unfortunately
the
documentation
or ongoing
monitoring oes
not exist to
enable such an
evaluation. RMK
certainly
showed great
promise in its
early days when
there was a
dearth of
funding from
other sources
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