Microfinance 101

75% of people in India don't have a bank account. 

Yesterday, two people from Basix Microfinance came to brief our group on their company and initiatives in India. Basix is one of the premier MFIs that gives micro loans (say $50 - $200) to very poor entreprenuers to invest in equipment that will help them start a business. They also offer micro pension plans and micro home loans.

They pair financial services with development services to help ensure that the borrowers make a profit and are able to repay a loan. They have a 99% repayment in almost all of the states - only in one state has the rate dropped from 90% - 15% following political pressure on people from the Maoist Communist party.

These are really great, sustainable programs that can change the lives of the poor. Over 30 million households in India have taken out microfinance loans. Basix is a private company, not a non-profit, that makes a return of around 9% for its investors.  One of the ways they maintain such a low default rate is by forming Joint Liability Groups of 5 borrowers or so. The group is liable for paying the debt of each member. This means that borrowers will only band together with individuals they trust, and it helps the company with the vetting process. They charge an interest rate of 2% per month, compared with traditional money lenders who charge 10% per day.

We went to visit 5 women who had received multiple micro-loans in a resettlement colony in southern Dehli. It was incredible to hear about what these women had done. One, a 26 year-old named Reky particularly inspired me. An orphan at the age 3, she had been working since age 8. Today, she runs a garment business that employs 4 people.

With her first loan, Reky bought 2 used sewing machines. She used later loans to buy a machine that can put elastic waistbands in pants. She buys bundles of used clothing (usually from the US), deconstructs them, and makes them into more fashionable clothing items. Because she adds a label on the jeans pocket, they have the appearance of being western. 

What's really amazing about this story is that she had no education or help planning her business or help creating designs. She just took out a loan at the age of 23.Now, she has invested in a micro pension plan where she and her husband invest 400 rupees a month (around $10) and have taken out a home loan. She dreams of further expanding her business and moving to a different colony. With that raw skill, just imagine where she would be if she had been born and educated in the U.S.

The other women were also interesting - one had a business making coils to put in speakers and another had a wedding photography business. It was just so fascinating to hear about how they were able to move out of poverty with tiny investments and a lot of hard work.

After the interview, she let us visit her 2-room home which is next door to her work space. It was so amazing to see the colorful interior and their possessions. She was so happy to meet us and talk to us and gave us all hugs on the way out. The women couldn't believe that we were there to learn about their program and that there was poverty in the U.S., too.

There is one downside to microfinance. Sometimes when borrowers know they'll default on a loan, they feel there is other alternative than to commit suicide. There has been a spate of 80 suicides in the past 3 months. This is mostly confined to the state where the Maoist party has been encouraging borrowers not to repay their debt. If you're interested in learning more about microfinance, here are a few links.

After the meeting, we took the long bus ride back to our hotel. The cook at the hotel had packed us a lunch of sandwiches. These were interesting because the filling wasn't in between the bread. It was in the bread. There were potato and onions and garlic and spices chopped in tiny pieces inside the round flat bread. We put ketchup and spicy chutney on top.

When we returned, everyone was completely exhausted, but we tried to stay awake in order to adjust to the new time zone. I made it until around 8 pm... only because we visited a sari shop called Nelli before dinner. The silks were so gorgeous and intricate. What's amazing is that this is one of the nicest sari shops in Dehli, and the most expensive ones cost around 3000 rupees or $90.  (41 rupees = $1)

 

Dinner at the hotel was good: chicken curry, dahl, rice and cauliflower. It will be weird not having fresh produce for the next few weeks or drinking the water. So far, I'm awful at brushing my teeth with bottled water. At least 4 times I have forgotten and rinsed my toothbrush under the tap.