Biharis Processing Outsourcing (BPO)

Kumari Chitra/ Patna

Win-win strategy: To tap manpower potential, entrepreneurs have set up about 70 BPOs in rural Bihar.

Biharis are an enterprising and hardworking people. Lack of opportunities back home has forced them to migrate and work in all kinds of situations, including in hostile terrains. To fulfil their dreams and aspirations, educated youths have to venture out of state. But the situation is slowly changing for the good.

A few entrepreneurs have set out to tap the huge human resource potential of the state by starting business processing outsourcing (BPO) units in hinterlands. Their argument is that if a Bihari youth can excel in BPO firm in Bangalore or Gurgaon for that matter, he can very well excel back home too. What is needed is skill development opportunities.

The advantages are many for this business model. The BPO get cheap manpower while the employee gets a job near his home. RK Paswan, an intermediate of science student, had only heard about computers a few years ago. He now sits in front of an LCD monitor surfing Internet, tweet his mind and chat with his friends. During breaks, he will go to his home to taste delicacies prepared by his mother.

Students of over 150 villages of Madhubani, Darbhanga and Samastipur, Motihari and Betiah need not have go now to neighbouring towns to get computer education. Knowledge and daily utility kiosks are at their doorsteps.

Rahika village of Madhubani is a great case in point to village BPOs' tagline that believes "towns are now being set among villages". Right from get eyesight check to seeking insurance cover from leading companies, villagers can buy mobile phones, recharge coupons, herbal beauty products, solar lamps, lever torches and even micro education loan up to R15,000 at these kiosks.

Saurath village of Madhubani has got the state's first-ever rural BPO that works as a nodal unit for all kiosks.

Over 5,000 students including rural girls have got diploma in cyber gateway programme (6 month) and advanced nine-month diploma in software programme at these kiosks. Several of them have now moved out of their villages to get jobs in Bihar towns and also in New Delhi, Mumbai and Kolkata. Drishtee organizes employment fairs at regular intervals.

Quiver Infoservices Limited under Drishtee Development and Communications Limited (DDCL), a public limited company, has been bringing about knowledge revolution in Mithila villages. They started the mission of "connecting village to village" in 2004 from a single kiosk at Saurath and have now taken it to 35 kiosks and 75 village resource centres (VRC) and rural retail points centres (RRPC). VRCs provide English speaking courses, insurances and market products. RRPCs have only insurance and market products.

Besides Madhubani, Quiver Infoservices Limited has been operating 20 kiosks at Munger, Samastipur, Vaishali, Sitamarhi and Muzaffarpur.

Satyan Mishra, a Delhi School of Economics pass-out, has been instrumental behind the idea. Drishtee Foundation has over 8,000kiosks at Bihar, Assam, UP, Haryana and Northeastern states.

Rural BPO manager KK Jha, who has worked as an IT advisor with UNDP in Darwin, Australia, said: "I am immensely satisfied with working with a village BPO. It is like a homecoming with a great mission of connecting India". Kamlesh's associate Shishir Jha has also left a Jhansi job for the BPO near his hearth and home.

Kamlesh said convincing people about technology had been a big problem. "We had to change mindsets of people before enlightening them. I still remember how our first batch of computer students would spread gutkha covers all around. But they learnt to keep it clean soon".

Kiosks have directly and indirectly employed over 300 youths, some of them earning between Rs 3,000 and Rs 7,000. BPO, however, can employ only 20 people. BPO runs on diesel-run generator. All kiosks get Internet services through V-SAT.

The BPO does data entry for companies and also engages in translation, typing, cut and paste job and all-bound insurance services and control all kiosks. These kiosks have been getting big public response at Satghara, Bijalpura, Simri, Basaith, Gurmaha and Rahika panchayats of Madhubani and Rajaura in Darbhanga.

Murhaddi panchayat kiosk operator Chandrashekhar is so enthused about villagers' response that he had now procedures four computers and a laptop for them. He has also employed two staffers at his kiosk. Gurmaha panchayat Narendra Kumar Lal is so busy in far off villages that his mobile phone mostly says 'unreachable".

MFIs: Market forces muddying the system

Sankar Ray / Kolkata


Success stories are fading away as profit-greedy operators have taken the centre-stage....

Gonuguntla Mariamma was born into a poverty-stricken agricultural labour household in Andhra Pradesh. Her mother died of severe malnutrition when Gonuguntla was eight year-old .She had to drop out of school to look after the household. .Matters worsened when she was married off to a relative with a ten-member household when she was ten. They had two acres of dry land that depended wholly on monsoon. She craved for an alternative for sustenance and approached the local Mahila Mandal (Women's Association) in her neighborhood, learned to sew and bought a sewing machine with micro-credit of Rs 3400 to buy a buffalo and then a seasonal loan of Rs 1700 for grass and fodder. All this helped her keep from an wolf at the door, although one buffalo died. Refusing to be disheartened , she went ahead in her war against poverty and he overcame it. With the help of her husband the dry land is now a small orange orchard. Today Gonuguntla owns four buffaloes, one calf, and 17 goats. She has a telephone and a television. She can sign her name, count money, and read a little.

But success stories like Gontugunta’s ’s are fading away as profit-greedy operators posing themselves as welfarists are into the micro-finance arena . . India’s rapidly progressing micro-finance industry is in a grave crisis . The principal reason for this is high rate of interest with an average minimum of 28 per cent per annum. An additional deterrent is hyper-activity of vested political interests in the way of smooth repayment mechanism . Nearly Rs 1700 crores are blocked due to breach in repayment in AP alone. Accusations of coercion against micro-finance operators or loan-recovery agents are true as over 100 loan recipients committed suicide.

Public anger against exploitative trends is expanding. It was evident during the recent initial public offering by SKS Microfinance, India’s largest for-profit microlender, with the backing of like George Soros and Vinod Khosla, a co-founder of Sun Microsystems.

Obviously the expectation that the Nobel laureate Mohd Yunus-scripted model of Grameen Bank will open up new possibilities of micro-finance in areas where the national banking network has failed to reach –for whatever reasons – is probably ending up in a myth.

Signs of collapse are manifest at many places. After all, Soros is not expected to wear the robe of benevolence unlike Prof Yunus. Public anger is spreading against exploitative aspects of micro-finance in contrast to welfare objectives based on which the Grameen Bank saga was built. SKS founder chairman Vikram Akula defends the high rate of interest. The break-up of 28.3 p.c, interest his concern used to charge, spelt out by him is as follows : the cost of funds -8.5, salary and incentives for staff- 6.4, overhead and administrative costs 4; loan-loss provisioning 1.5%, ; a corporate tax 2.8%) and profits 5.1%.

But doubts remain. How could the company slash the rate to 24 p.c. Questions are raised against the Financial Inclusion Network and Operations (FINO), set up by the ICICII as a provider of an electronic technology services ostensibly to help micro-credit system. It runs through a network of some 10,000 bandhus (friends) to convey welfarist and human message . These bandhus are human ATMs where no electronic teller machines exist as each bandhu carries a small, handheld biometric device for transactions with clients, who access banking services through smart cards. Balance transfers, deposits and withdrawals are through the smart card system.

FINO was to create a platform to facilitate "technology-enabled financial inclusion," claims Rajiv Sabharwal, ICICI Bank executive director. But implicit objective was money-spinning. Which was why it roped in investors like including ICICI Bank (19 p.c. stake ), Intel Capital and IFC (15 p.c each ), Life Insurance Corporation (8 p.c. ) and public sector banks (22 p.c. together). It had never addressed the economically weaker sections which are under the yoke of usurers.

The international jamboree of micro-finance organisatiuons – the Global Microcredit Summit –is scheduled to take place 2011 in Valladolid, Spain between 10 and 17 November next year. Over 2000 delegates from 100 countries are expected to attend and deliberate there. Sam Daley-Harris, chief of national host committee in Span set out the motto of the summit. “When Prof. Yunus lent a grand total of US$27 to 42 desperately poor Bangladeshis in 1976, it turned out to be much more than just an economic transaction. One of the 42 borrowers was Sufia Khatum, a stool maker who struggled to survive on 2 cents a day. That was all that was left after she borrowed money from the money-lender to buy the bamboo to make her stools and then sold the finished product back to the money-lend at a price he set. The price he set barely covered the cost of the bamboo. Her profit each day—just two cents. As Prof. Yunus has said, he was ashamed to live in a country where people could work so hard and only make 2 cents a day.

But with her loan of less that US$1 from Prof. Yunus, Sufia Khatum was able to pay off the money lender, buy her raw materials, make her stools, and then sell the stools to the highest bidder. Her profit soared 60 fold, from 2 cents a day to $1.25 a day. Prof. Yunus talks about how surprised he was that such a small amount of money could make 42 desperately poor people so very happy. It freed them from the money-lender. It freed them from debt bondage. And I would add it unleashed the human spirit. It is not only a story of economic transformation but of spiritual transformation. This is the story we must tell and must contrast with those going down the profit maximizing fork in the road.”

Does FINO or SKS have even the semblance of this commitment. Absolutely no. There are valid criticisms against Grameen Bank model. One of them is that it appears to offer a capitalist answer to development without asking for increased aid. Another criticism is that microfinance’s inaccessibility to people below the poverty line. But there are some positive elements as well. Some 67 p.c of its deposits belong to women who were benefited by substantial financial empowerment. On the other hand, the model that dominates in India is stripped of welfare objectives. It has been hijacked by profiteers.

Nonetheless. there are really micro-experiments operating in southern Bengal and western parts of India. The interest rate is within 20 p.c, much below the usurious 120 p.c. which thrives on political backing. Kolkata-based Durbar Mahila Samanway Samiti, an NGO working among sex-workers and their offprings, runs a successful micro-finance scheme, USHA, a cooperative of 7000-plus sex-workers.It transacts Rs eight crores a year and got award from the state cooperative department.

There is no room for pessimism. But the path is tough and meandering.

MFIs: Devils or contributors to rural prosperity

Amitabh Shukla / New Delhi

Policy makers are trying to regulate microfinance institutions so that they can become engines of progress

The Microfinance institutions operating in the country have come under an intense scrutiny, something which had not happened ever since they started operating in the country a few years ago, replacing the traditional money lenders in several places.

While a section in the government dubs them as modern money lenders, charging rates of interest unheard of in the banking sector, a section of cooperatives, farmers’ group, NGOs working at the grassroots level seem to indicate that they have brought in money in the rural sector and have helped a large number of self help groups.

Villains contributing to rural distress or institutions which have helped alleviate rural poverty that is the question dominating the policy makers, government, Self-help groups, NGOs and civil society activists now.

The public outcry led to a situation where the Andhra Pradesh government brought out an Ordinance pushing the microfinance institutions in the corner, a situation of extreme distress which they had never experienced in the recent past. Suicides of farmers in parts of Andhra Pradesh, Vidarbha (Maharashtra) were the reasons from the Ordinance along with political populism and pressure generated by the political parties.

A senior government official said that subprime lending or the loans extended to people with poor repaying capacity is one of the primary reasons for the defaults. He said this is followed by coercive methods, often humiliating, which have led to suicides in some cases.

Vijay Mahajan, President of the Microfinance Institutions Network (MFIN), a group comprising all the large companies in the sector, argues that 80 per cent of the microfinance institutions are regulated by the Reserve Bank of India as non-banking financial companies and they have to submit monetary statement to the banking regulator.

Mahajan, who is also the Chairman of Basix, counters the allegations leveled against the microfinance institutions but also promises that certain things need to be looked into by the companies and they were already doing that. He points out that some fly by night operators and those institutions not in the organized sector, have brought in a bad name to micro credit and even the organized players would help the government bring them to book.

The top officials of the MFIN have been meeting the government officials to put forward their demands and seek a solution to the crisis in which they find themselves.

Due to the crisis, triggered by the AP Ordinance, the finance ministry plans to introduce a new legislation for the nation’s microfinance industry, Minister of State for Finance Namo Narain Meena said in a written statement to the Rajya Sabha. The new rules brought loan collections in Andhra to a near halt, leading to a plunge in shares of the largest micro-lender.

The Micro Finance (Development & Regulation) Bill, 2010, will be developed in consultation with the central bank, Meena said.

The Reserve Bank of India a few weeks ago appointed a sub- committee led by Y.H. Malegam to study the nation’s microfinance companies and recommend ways to make their interest rates “reasonable,” Meena said. The Malegam committee will submit their report in three months, he said.

At a function in New Delhi, Finance Minister Pranab Mukherjee too made it clear that the idea was not to strangulate the MFIs, but to regulate it so that the interest that they charge is not exorbitant and the method of realisation, under no circumstances is quick.

How these MFIs differ from the concept of Nobel laureate Mohammed Yunus of Bangladesh is that they work for profit unlike the not-for-profit model and work like a normal corporate entity and see giving micro credit as a business. While Yunus’ model is based on a mechanism to lift people out of the poverty cycle, the model of the MFIs is based on profits and they see it more as a business rather than anything else.

Sensing that the noose is tightening around them, the prominent microfinance companies have agreed to reduce the interest rate to 24 per cent effective, initially to the borrowers in Andhra Pradesh. They have also decided to switch to the monthly recovery system from the weekly system which causes tension in the households.

The sops offered by the MFIs do not stop here. They have decided to announce a scheme of restructuring loans of their highly indebted borrowers, share the credit history of their borrowers and create a common database and affirmed that they do not and will not use coercive policies.

Besides, they have decided to expose the unregistered entities pretending to the MFIs and promised to take strict action against their own errant staff for any violation of the MFIN code of conduct.

The other promises of the MFI’s include setting up of a telephone helpline to record complaints, establish regional Ombudspersons, set up an Eminent Persons Group to probe into the suicide allegations and bring in more transparency in the entire system.

Now let us see why the MFIs are needed in a poor rural setting, more so in our country. It is amply clear now that more than subsidies poor need access to easy credit. We have already seen that absence of formal employment has made most of the rural poor what is called non-bankable. The result is visible. The moneylenders come in the picture and this cycle forces the poor to borrow from them at exorbitant interest rates as high as 100-200 per cent in some cases. In fact the loan taken by one generation continues to the other due to the high rate of interest.
As the MFIs chipped in, the experience of the last over ten years, has shown that providing finance to small entrepreneur and farmers – the poor - is productive. Given loans at market rates, they repay their loans and use the proceeds to increase their income and assets. This is an eye-opener and least surprising since the only realistic alternative for them is to borrow from informal market at an interest much higher than market rates. There are several success stories around the country how the livelihood of people have changed due to timely and easy credit, how women have become self-sufficient by running cottage industries with the help, how the unemployed turned small-time entrepreneurs and how the rural economies of a particular area has changed for the good.

Community banks, Self-help groups, NGOs and grassroots savings and credit groups around the world have shown that these micro loans can be profitable for borrowers and for the lenders, making microfinance one of the most effective poverty reducing strategies.

Not surprising that nearly half of the MFIs working today have come into existence in the last five years as Sa-Dhan, the Association of Community Development Finance Institutions, has pointed out in its handbook. This reflects the high growth of number of MFIs in recent years.

It also points out that the not-for-profit MFIs still dominate in the sector but the non banking finance companies (NBFCs) are catching up very fast.

Lured by the mullah, most of the new entrants in microfinance and the erstwhile not-for-proft MFIs are converting into NBFC and they cover the overwhelming majority of collective outreach and loan portfolios of all MFIs.

Traditionally the southern region was the backbone of the MFIs but Sa-Dhan points out that even as it still retains the leadership in terms of concentration of MFIs, the eastern region has strongly emerged as the next preferred destination while the north-eastern region lags far behind.

Before the big advent of MFIs, the Self Help Groups were there besides the moneylenders. In SHG, credit is linked to savings, there is focus on capacity-building among borrowers and the rate of interest is almost half with option of monthly repayment.

What made matters worse is that in states like Andhra Pradesh, the MFIs chose the easy route of tapping into established SHGs for advancing loans. This was viable in the early stages but, over time, it has led to the problem of multiple lending and excessive debt burdens.

Moreover, MFI credit, for the most part, went for consumption – for family weddings, buying consumer goods instead of income generation. What went to agriculture could not be returned back as returns in agriculture are so low that it is inconceivable that it can service interest rates of around 30 per cent that MFIs charge. In some cases, MFI credit went for commercial agricultural farming and when the crops failed, it led to severe distress in the household, even leading to suicides.

Government feels regulation is needed, it is a must. A delicate balancing act needs to be done in this as not to kill the availability of credit and also not to bring in a new set of moneylenders in the guise of MFIs. Weaving microfinance in and around livelihood seems to be the way out.

Panel proposes 24 % interest cap on MFI loans

Separate category of NBFCs for microfinance institutions suggested

Sopan Correspondent / New Delhi

A Reserve Bank of India Committee has suggested that micro finance institutions (MFIs) be allowed to charge a maximum interest of 24 per cent on small loans which cannot exceed Rs 25,000. The committee was formed in a bid to revive the crisis- ridden micro finance sector in the backdrop of the Andhra Pradesh government bringing an Ordinance to curb usurious practices by some such institutions.

The committee, headed by Reserve Bank’s Central Board Director Y. H. Malegam, also pitched for creation of a separate category of non-banking financial companies (NBFC-MFI) for the micro finance sector. The panel said small loans of up to Rs 25,000 could be given to families having an income up to Rs 50,000 per annum. On repayment, it said, the borrowers should be given the option of weekly or fortnightly or monthly return of the loan. It further said at least 75 per cent of loans extended by MFIs should be for income generation purposes while recommending that a borrower cannot take loans from more than two MFIs. The committee wants the recommendations to be implemented from April 1, 2011.

Industry body Microfinance Institution Network (MFIN) termed the recommendations as balanced. MFIN CEO Alok Prasad said, “It gives clarity to the industry requirements. The recommendations have been long demand of the industry.” On interest rate ceiling, he said, the micro finance industry was already moving in that direction, so it was nothing new.

The RBI constituted the committee in October last in the wake of allegations of overcharging and using coercive recovery practices by MFIs that led to a spate of suicides in Andhra Pradesh. The decisions taken by the State government to regulate MFIs slowed down the loan recovery process hitting the financial health of the sector. It was further aggravated by the reluctance of banks to support MFIs. Earlier, Prime Minister’s Economic Advisory Council Chairman C Rangarajan had also vouched for capping the MFIs’ interest rate margins.

About the regulations of MFIs, the Malegam Committee, suggested that it should be done by the National Bank for Agriculture and Rural Development (NABARD) in close coordination with the RBI. If the recommendations are accepted, the committee said, a separate law enacted by the Andhra Pradesh government would not be needed. With regard to NBFC-MFIs, the committee suggested that they should have a minimum net worth of Rs 15 crore.

The other members of the panel include industrialist Kumar Mangalam Birla, RBI Central Board member U. R. Rao and RBI Deputy Governor K. C. Chakrabarty. The report was widely awaited, as the Finance Ministry is expected to draft a bill to regulate MFIs on the basis of the sub-committee’s recommendations.

AP accounts for nearly half of the total MFI business in the country, with major players like SKS Microfinance, Spandana Sphoorty Financial, Basix and Share Microfin present in the state. The industry had practically collapsed in the state after the Ordinance of the state government which prevented the MFIs to recover the dues. They were lobbying with the government over the weeks to overcome the crisis which led to the formation of the Malegam Committee. It now remains to be seen what direction the government takes and what would be the shape of the proposed Bill for the purpose.

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