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Practitioner Interview Series: Ep. 1 - Understanding microfinance and women as borrowers
In this interview with Mr. Nagarajan M. founder of Velicham Finance & Bharathi Women Development Centre, we trace his 3 decades-long journey while exploring the potential and challenges of the microfinance sector.
IndiaP2P: Your organisations have been undertaking banking and credit extension activities amongst women for the last 3 decades, what led you to venture in this space?
Extension of loans enables an individual to expand their businesses and incomes and with SHG linkages, the banks would extend such loans to enterprising, disciplined rural women. However, there were some inherent challenges, banks would visit SHG field operations to announce credit programmes when the bank had some internal target and not necessarily when women wanted credit. Furthermore, the loan ticket sizes offered were too small and the waiting time and process to get them cumbersome.
It was a mixed bag, on the one hand the banks had identified a very credit-worthy and 'in-need of credit' segment but not fulfilling their requirements completely. This led us to think about and eventually start our own microfinance operations in collaboration with banks. We started with a business correspondence (BC) partnership with HDFC Bank and offered loans to SHG clients with timely disbursement for a decade, adding more banks and NBFCs as partners along the way, however, sometimes credit products offered by banks would lag in terms of the requirements of clients.
Being closer to the clients and interacting with them during SHG meetings every month, we understand how the rural landscape, aspirations, and behaviour are evolving. We decided to design our own products which needed the loan assets to be in our books and this led to Velicham Finance NBFC in 2018 which now operates across 10 districts of Tamil Nadu and Pondicherry. We have built a base of steady clients over the years who have maintained credit discipline. In the next phase of our journey, we are seeking to digitize our operations and constantly upgrade our product suite keeping pace with client requirements.
IndiaP2P: What was the personal motivation behind this?
Nagarajan M: For me, I always believed that enabling equalizing economic opportunities for women is the most straightforward means to economic development. Fortunately, when I started there was adequate encouragement from peers and experts.
IndiaP2P: You mentioned that conventional banking products do not always work for this borrower segment, can you elaborate on that?
IndiaP2P: In spite of product-need fit and other challenges, the microfinance sector has significantly superior repayment rates and low defaults compared with almost all other unsecured loans borrower segments. What would you attribute this to?
Nagarajan M: The reason is very simple, it’s because the lender-borrower relationship in the case of microfinance is direct, continuous, and essentially supportive.
IndiaP2P: Microfinance with women across the world whether in Asia, Sub-Saharan Africa, or even Latin America has done exceedingly well and been transformative for the local economies. However, we are yet to see at-scale examples of microfinance with men succeeding. Why do you think that is?
Nagarajan M: In my experience and as we can see from the global success of microfinance for women, women are more disciplined. This discipline can be seen in the way they handle business, family, and personal finances. I would say that this is a common truth.
IndiaP2P: In India, an estimated 6 Crore women or roughly 25% of households access microfinance through banks, MFIs, or other sources. This is already a big number. How do you think this will change over the next decade?
IndiaP2P: There have constant upgrades to regulation in this sector and overall technology is changing how credit is delivered. What are some of your observations here?
IndiaP2P: The microfinance sector is large but still somehow does not feature prominently in conversations around the credit landscape in the country. Do you think there are some things about the sector that external stakeholders don’t fully understand?
You can read more about Velicham Finance at www.velichamfinance.com
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