Download sector_report1.pdf - Microfinance and Development ...

Issues and priorities for action research
A major issue is how competitive MFIs are with informal private operators in large centres like
Surat. There are very few reported cases of fraud against informal operators who depend on
reputation to maximize business and profits. Moreover in Surat, their service is superior for
the same cost, in the case of remittances in a certain size bracket, although the charge is
slightly higher for the slightly smaller, average-sized remittance. On the other hand, Surat may
be exceptional in the degree of competition that prevails between operators. Second, Adhikar
has the potential advantage that it offers loans to members, both in Gujarat and in Orissa, as
well as insurance. 5 Thus it enjoys the advantage of economies of scope over informal competitors.
It is in the process of expanding operations in Orissa to new blocks, and also to neighbouring
Ganjam district, and has plans to recruit more agents in Surat.
A second issue has to do with the scope for MFIs to enter remittances as an area of operations
in the country at large. There is a need to identify major inter-state migration corridors in the
country so as to identify other large concentrations of migrants from particular originating
areas. 6 Although there are not many MFIs that have a presence in both originating and
destination areas like Adhikar, there is scope, as noted above, for tie ups between MFIs in
different sets of origin-destination pairs, or between MFIs and banks in either the originating
and destination areas. Approval for such tie-ups between banks and MFIs already exists in the
Business Correspondent model (see Chapter 7A) and there is a need to study what has kept the
banks out of them so far. 7 With the several new and potentially large urban MFIs being set up,
the scope for such tie-ups should increase further.
Second, many of the larger MFIs are now establishing multi-state operations. 8 Third, there is
substantial migration within states, and large state-wide MFIs might become interested in
providing a remittance service to borrowers in different locations. In Assam for instance,
RGVN (see Chapter 8A), is planning to introduce remittances as a service to its approximately
35,000 Credit and Savings Programme members spread over 10 districts of the state. Remittances
will be delvered initially only to other members, either using email or telephone, for a proposed
fee of 1.5 percent. Delivery is expected to be completed within 24 hours.
The third issue is that of regulation. In the case of lending it is the MFI that incurs the risk,
whereas in the case of remittances, as with savings, the risk is incurred by the client. However,
as with MFI savings, the client is usually not only also a borrower, but one whose outstanding
loan often exceeds the remittance amount. Thus he is a net borrower. This greatly reduces the
prudential concern. In Adhikar's case remitters are often borrowers at both ends (through
their dependent families at the destination end). In order to encourage ease of entry and
competition among international money transfer operators (MTOs) so as to lower the cost of
remittances (which have been found to be price elastic, and which amount to more than the
value of development assistance received by developing countries) the UK regulators make a
clear distinction between remittances and savings by excluding the former from the definition
of the latter as long as they are not held for less than 3 days. (World Bank 2006). Also, UK
regulations do not lay down any net worth requirements for MTOs. These should be examined
by the framers of the proposed Microfinance Act.
Migrants have a vast range of problems, including lack of employment and physical insecurity,
separation from families and children, lack of housing and sanitation and educational
96