Microfinance in India has a long way to go: Vikram Akula
Monday, 27 November 2006, 06:00 Hrs
New Delhi: Microfinance in India is growing exponentially but it has a long way to go, says Hyderabad-based Vikram Akula, winner of the Social Entrepreneur Award of the Schwab Foundation 2006.
Akula, founder and chairman of SKS Microfinance Private Limited, shifted to the US at the age of three. However, India's ever-growing poverty brought him back to the country.
"Microfinance in India is a growing sector but it has a long way to go and much more needs to be done before we can successfully help our poor with the support of credit and microfinance," Akula told IANS in an interview.
"The regulatory environment created by the Reserve Bank of India (RBI) is unfavourable for the growth and proliferation of microfinance in India," Akula pointed out.
India is one the largest emerging markets in microfinance in the world, but has been able to penetrate to only one-fifth of the country's 70 million poor.
For the last two years, many public and private sector banks have been aggressively eyeing the market along with various overseas retail banks.
"It is true that all the major domestic and foreign banks have been actively involved in India's microfinance, but we need more commercial funding which is somehow not pacing up," Akula emphasised.
Popularly known as the 'Starbucks of Microfinance', SKS automates microfinance through user friendly back office and field technology reducing manual processing with minimal labour costs.
The organisation has witnessed a growth rate of 300 percent and has provided over 3.2 billion in loans to 322,000 poor women in 11 states.
According to some experts, the microfinance model in India is slowing down due to lack of repayment loan capabilities by the poor who take loans to start up their own enterprise.
But Akula disagrees. "This is not true. This may happen in very rare cases. The current repayment rate is 90-95 percent.
"Across the country, poor people do have the capability to repay their loans."
A former consultant with McKinsey and Company, Akula was named by the Time magazine as one of the world's 100 most influential people.
"Do you know washers, barbers and tailors contribute more to the country's GDP (gross domestic product) than the IT sector?" asked Akula.
The firm has elaborate future plans in its effort to create entrepreneurs from poor people.
"Our goal is now to reach out to 10 million households in the Indian hinterland and disperse funds over 50 billion to them," he said.
According to M-CRIL Microfinance Review of 2003, there are over 100 established microfinance institutions (MFI) in India that have been credit-rated. These MFIs have a combined outstanding portfolio of 5.07 billion with cumulative disbursements of 16.36 billion.
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