Archive for: BASIX

With around 20 million borrower accounts estimated for March 2012, India still has one of the largest microfinance industries in the world – even though the number is much lower than 32 million in October 2010 when the microfinance crisis began.  However, in March 2012 it also had the dubious distinction of having perhaps the worst portfolio quality in the world (at the national level).  Since October 2010 commercial bank lending to MFIs, which made up over 70% of their funding, has been consistently drying up mainly because of perceived political risk. Read the rest of this page »

In this short video Vijay Mahajan, Chair of Basix, welcomes a new customer to Sub-K, Basix’ new agent banking service in Panchlingala, a small village on the outskirts of Kurnool in Andhra Pradesh. The customer has brought two forms of photo ID with him to open the account, and he speaks his voice password into the agent’s mobile phone in Kannada, one of five languages in which the service works.

It’s “truly a high-tech solution,” Mahajan told me, brought to outlets like this small store where people go daily to buy small goods.

Sub K in Hindi means for everybody –and the tagline of the service is bringing prosperity to everyone. It’s meant to attract customers sending or depositing less than 1,000 Rupees, or about $20 at a time. Vijay sees it as a way to move beyond microcredit in India to offer safe financial services to poor people on their doorsteps: “Microfinance in the old style way anyway didn’t have any savings in India,” he says. “So it’s really adding microsavings, remittances, and government payments—three important services to microcredit–and therefore making the whole model viable.”

The new service, like other mobile and agent banking services, including the successful Kenyan mobile money transfer service M-PESA , is intended to enable people to carry out microtransactions safely and conveniently.

With this, says Vijay, “We think we will make the next new breakthrough in the availability of financial services to the poor.”

–Jeanette Thomas

In 1946 or thereabouts my father took me to the local bank and helped me to open an account. He made something of a small ceremony of it, and he added ten shillings (around two U.S. dollars in those days) to my ten shillings of savings to make it up to one pound.

I do not remember much of the occasion, I was very young at the time, but I certainly do NOT remember that there was any talk of credit or a loan. The bank was a place to save, they would take good care of my money, and might even add a little to it, and perhaps I could (with my father’s permission of course) take some of the money out one day, but even that was not mentioned.

So my own and maybe most readers’ first view of a financial institution was that it was a place to save. Borrowing might come later, but much later, and the purpose of saving was not to qualify for borrowing; it was a useful thing to do for its own sake.

Why should it be any different for ‘the poor’? Read the rest of this page »

In late summer/autumn of 2010 the perfect storm hit microlending in the Indian state of Andhra Pradesh. In July SKS, the largest and fastest-growing microfinance institution in India with about 6 million clients, issued an IPO. The company valuation reached the top of the offer band price at US$1.5 billion, and five weeks after trading on the Bombay Stock Exchange, the share price rose 42%. In early October Andhra Pradesh’s chief minister passed a punitive ordinance that effectively stopped business for the microfinance institutions in the state. Today microfinance institutions in the state are struggling to survive.

The microcredit crisis in Andhra Pradesh was precipitated by a number of causes. CGAP has written about the context for the crisis and implications for microfinance more broadly here.

Now Vijay Mahajan, oft described in the Indian media as the “high priest of microfinance,” has set off on a spiritual and literal journey across India to explore the reality of what microcredit has done for poor people.

Vijay, who is the current Chair of CGAP’s Executive Committee and Chairman of BASIX, a microfinance and livelihoods business headquartered in Andhra Pradesh, has been on the front lines of the battle in Andhra Pradesh. His journey by foot, public transport, and by car—what he calls a “hybrid yatra” —will take him across five thousand kilometers of his country, walking through the villages and driving across the country to meet and talk to poor borrowers, and get the real, grassroots-level answer to an existential question: has microcredit been good for the poor or bad? Vijay is blogging about his journey here. The yatra, which will take him across 12 states, is ‘an inquiry into the lives and livelihoods of poor people’.

The yatra is a uniquely Indian phenomenon: a journey of self-purification. Vijay began his devotion to rural development in the 1980s, and the 2011 yatra is a chance to reconnect with his roots and to rethink the organization he founded—BASIX. His journey will end with visits across the state of Andhra Pradesh.

The Economic Times quoted Vijay as saying that his “soul searching on the need to reinvent microfinance started after he was elected as the chair of the executive committee (board) of the Global Consultative Group to Assist the Poor.” So we are following the journey closely, and Stephen Rasmussen, CGAP’s regional manager for South Asia, will join Vijay in the final days of his journey. Stay tuned.

–Jeanette Thomas

Traveling the Africa and Asia conference circuit over the past month, it’s striking how the issues of responsible finance and client protection are suddenly prominent wherever microfinance providers and financial inclusion policy makers, funders and observers gather. From Africa , where the first Africa-wide conference on consumer protection drew over 200 participants, to the annual Indian Microfinance Summit “Doing Good and Doing Well” a surprising consensus has emerged around the need for action on multiple fronts, encompassing a range of responses from consumer education and financial capability, to regulation.

So I’ve been putting microfinance leaders – including the heads of BASIX, SKS, Arohan, Bandhan (all in India), Advans-Ghana, and Blue Financial Services (a South-Africa-based company with growing operations across Africa) – on the spot, asking them to talk about the pressures that make providers cut corners and adopt less than fully-admirable practices.

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In an interview with CGAP Vijay Mahajan, Managing Director of BASIX, lays out his vision of microfinance as “necessary, but not sufficient” to alleviate poverty. He discusses lessons from the turmoil in microfinance in his home state of Andhra Pradesh in India a couple of years’ ago, and talks about how the broad range of skills required to be effective in microfinance today is stretching microfinance institutions:

“Sometimes in the same weeks I am dealing with very poor people and their issues in villages, and then going to Mumbai and dealing with capital markets and those issues… I don’t know of anybody else in the corporate sector who has to deal with such a diversity [of issues].” While it’s personally challenging and satisfying, says Mahajan: “I don’t think that kind of broad spectrum of competencies are possible in too many organizations. And therefore we need to find some other kind of architecture.”

Do you agree that its very success and growth is what’s challenging microfinance? What are the biggest challenges you see for the sector?

Listen to the full interview
Watch video clips from the interview or subscribe to the podcast on iTunes

Are the products, practices and policies of the leading Indian microfinance providers responsible? Or might the unprecedented growth of the sector (particularly the top-tier for-profit NBFCs of the likes of SKS, SHARE, Spandana, Bandhan, and BASIX) leading some providers to cut corners, such as over-selling loans with little analysis of clients’ repayment capacities and other debts?

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