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institutions into for-profit NBFCs, a form of incorporation much better suited to financial operations. 15
The AP crisis is likely to encourage this migration, having made NGO-MFIs feel more vulnerable to the
interest rate predilections of state governments. 16 While there are clear benefits to formalization and
commercialization, and NGO-MFIs tend to have weaker governance and systems, they enable easier entry
into the sector, being much easier to set up, and serve to broad-base participation in it. Indeed they
do not even have to be set up afresh since many of them take up microfinance as an add-on to existing
social sector activities. This can also be a drawback, since it may be easier to inculcate microfinance
professionalism in a new rather than existing NGO (the oft-mentioned NGO "mindset" problem touched
upon in Chapter 6). In many cases however, they provide an important outlet to the creative energies
of talented new comers to the sector, many of who emerge later as sector leaders. Thus NGO-MFIs play an
important role as a seed bed from which saplings emerge to grow into trees.
...it would seem
a loss if the
sector were to
become
increasingly
homogenized in
the pursuit of
commercialization.
The proposed
microfinance
act recognizes
the need to
promote and
protect
diversity, by
requiring
formalization
only above a
certain size
Second, being much smaller, they are much more likely to be found in underserved areas and therefore
lend themselves more easily to the rectifying regional skew. Third, being easier to set up, they can more
easily be promoted by public and private apex financing institutions such as the FWWB and RMK,
although the attrition rate is high, and many of them fall by the wayside (Chapter 8A). Being closer to
the ground, they serve as an important source of innovations. The MFI cooperatives sector has served
as a trenchant source of critiques of the SHG movement which it attempts to improve on. 17 Last but not
least, because many NGO-MFIs have continuing activities in skill development, promoting marketing
linkages, and other aspects of livelihood promotion, they lend themselves potentially to "microfinance
plus" activities. For all these reasons it would seem a loss if the sector were to become increasingly
homogenized in the pursuit of commercialization. The proposed microfinance act recognizes the need
to promote and protect diversity, by requiring formalization only above a certain size.
Improving statistics and information on the sector
One of the strengths of the sector is that it has grown and evolved as a result of the combined actions
of a large number of creative, dynamic and idealistic individuals from diverse backgrounds, including
trade unionists, graduates of management schools who wanted to apply professional management skills
to development, promoters and employees of NGOs from other sectors, retired bankers, chartered
accountants, social workers, and many others. Between them they manage about a dozen NBFCs and S
25 companies, about 400-500 NGOs and trusts, and 300-400 cooperatives. The microfinance sector
remains very much a civil society movement, although state governments have become active partners
in the SBLP. Bankers, academics, consultants, trainers, credit raters, regulators, policy makers and
donor representatives have become partners in the sector generally, in an arrangement that has been
characterized, in a different context, as "co-production". However, as a result, the sector as a whole is
highly decentralized, with no single agency responsible for its development.
This is hopefully about to change with the setting up of the proposed microfinance development
council. Hopefully one of its tasks will be to coordinate and strengthen data and information
gathering and dissemination in the sector. While some useful information resources already
exists, 18 it would be useful if it could be supplemented by an annual statistical yearbook on
Indian microfinance which would include information contained in the existing reports but
also on areas such as bank lending to the MFI sector, investments by the venture capital
funds, information on the new products, life and non-life, of the insurance companies, and
their uptake by the sector, the activities of the apex financial institutions such as SIDBI,
FWWB and RMK (which are contained in their annual reports but could usefully be consolidated).
Also it would be useful to commission state level reports which would be the most appropriate
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