Microfinance Institutions Should Learn From 2010 AP Crisis

Telangana and Andhra Pradesh Governor, E.S.L. Narasimhan being welcomed by ASSOCHAM president, Mr Sunil Kanoria as chamber's national secretary general, Mr D.S. Rawat looks on at an ASSOCHAM Microfinance Summit held in Hyderabad yesterday.

Telangana and Andhra Pradesh Governor, E.S.L. Narasimhan being welcomed by ASSOCHAM president, Mr Sunil Kanoria as chamber’s national secretary general, Mr D.S. Rawat looks on at an ASSOCHAM Microfinance Summit

Microfinance Institutions (MFIs) should find out adequacy of skills, competence, capability and the need of the borrower before lending money thereby learning lessons from the crisis that originated in erstwhile Andhra Pradesh in 2010, Telangana and Andhra Pradesh Governor, Mr E.S.L. Narasimhan said at an ASSOCHAM event held in Hyderabad yesterday.

“Today when you are talking of skill development and Make in India as one of the priority areas, I think there is a great responsibility on MFIs, please do not carry people on the dream path of consumerism once again to start with,” said Narasimhan while inaugurating an ASSOCHAM National Summit on Microfinance.

Talking about financial inclusion, he said that there is an urgent need to bridge the growing gap between haves and have-nots together with the divide between rural-urban, rich-poor, privileged-under privileged.
“Unless we are able to bridge this concept of financial inclusion, (programs like) Skill India, Make in India are not going to take us anywhere, we need to make a very conscious effort to bridge this gap,” said the Governor.

“While looking at financial inclusion, we particularly need to go into the rural areas as there are lot of skills available there which die unheard of because they are not able to support their ideas,” he added.

“I think it is for all of us to learn lessons from the past and ensure that we do not repeat the whole crisis of 2010 and force us to do something more again,” said the Governor on the crisis that broke out in erstwhile Andhra Pradesh when the government had to pass an ordinance to control the MFIs.

“The purpose of the MFIs was to help the self-help groups (SHGs) to grow but unfortunately what happened was that lending system went beyond a certain level, the very purpose of the SHGs was itself was to promote entrepreneurship, skills, employment, earning capabilities and basically to improve the economy, but a temptation was put forth by the MFIs in lending at so-called hidden rates of interest which made people borrow large sums of money and get into consumerism,” he further said.He urged the MFIs to spread their institutions’ operations into rural India with the advantage of technological advancement.

 

While addressing the ASSOCHAM summit, the chamber’s president, Sunil Kanoria said, “The success of the MFI sector will largely depend on how well the players can blend technology and human interface in providing financial solutions to the clients and leveraging technology to bring down operational costs and enhancing penetration and training employees to offer customised solutions to the clients will shape the future of the MFI sector.”

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