FM's constituency: a mall for financial services

Farm loans at four per cent, enhancement of credit target for the sector by Rs 1 lakh crore, and a reminder to banks to focus on small and marginal agri-borrowers were some of the sops Finance Minister Pranab Mukherjee offered to the farmers - around 50 per cent of the country's population - under the spectre of financial inclusion in his Budget proposals.

However, perhaps his commitment to financial inclusion is best manifested in Jangipur (Murshidabad), his constituency.

Banks, insurance companies, tax offices, unique identification cards, income tax offices, credit camps, training for insurance agents and ATMs are some of the services he has rolled out for the people of the district in the last two years.

In a short, it's a mall for financial services.

His speeches at the inaugural ceremony of these services, flanked by thousands of supporters, are generally crisp and pointed:  'Take loan from banks and repay on time.'

Yet, there are at least two dozen women in Behrampore, less than an hour away from his constituency at Jangipur, who seem to be ignoring his advice.

Instead of taking loans from banks, they believe in forming groups - some acting as treasurers, others as accountants, credit officers or recovery agents - with Bandhan, one of the most active microfinance institutions (MFI) in the region.

MFI business in Baharampur has been booming since the last one year, with all the top players working in the town.

Banks, on the other hand, are seeing stagnancy in business and even reduction in credit growth.

Consider this: Maitri is a group of 27 women constituted by Bandhan at Baharampur, a town with about 83 commercial bank branches.

At nine in the morning, all the women in the group meet for a credit meet. Most of them knowing the difference between the reducing and flat rate of interest charged by MFIs.

Under reducing balance, interest is charged on outstanding balance, while under the flat rate of interest, it is charged on the entire loan.

MFIs have drawn flak from regulators and the government in the recent days over their high rates of interest and coercive methods of recovery, prompting the government in Andhra Pradesh to severely curtail their operations through legislations.

The repercussions were felt all over the country, with a Reserve Bank of India-constituted panel recommending some tough measures for the sector.

However, the women in Maitri have a different tale to tell. "Banks ask for security deposits. Also, if husbands default on a loan, the wife will also have to share the burden. Bandhan is like a family. If one member is unable to pay loan, others help her," says Nandita Sarkar, a credit officer at Maitri.

Sarkar's story defines the reason behind the phenomenal success of MFIs in India over the last decade.

Need-based financing of small ticket size and self-imposed credit discipline has helped MFIs flourish.