Return to the Roots

MMFL has been ensuring productive deployment of microfinance loans to help create a better generation of entrepreneurs.

By Shobha Mathur

Dr. Tara Thiagarajan was a neuroscientist in the United States when her father suffered a stroke in 2004. Forced to return home to streamline issues and rejuvenate the Microcredit Foundation of India (MFI) that was run by her father to provide banking and training services to the rural poor in Tamil Nadu, Tara found herself drawn into the vortex of her father’s business unwillingly.
She was a director in the not-for-profit foundation that operated on the Self-Help Group (SHG) model.

Faced with the option of downing the shutters or growing it further, she realized that it was not possible to divest stake in the foundation due to the presence of large outstandings. Perforce, Tara became involved in helping her father, who was not keeping good health, to morph the foundation into a non-banking finance company (NBFC), Madura Micro Finance Limited (MMFL).

This was to facilitate a scalable business growth of the NBFC. Tara is now gunning not only for expansion of the NBFC’s loan portfolio to rural areas but also scientifically networking the villages in the state to facilitate exchange of innovative ideas. These are expected to spin off a better generation of entrepreneurs and ensure productive deployment of microfinance loans.

Initially, though, Tara was not drawn to her father’s traditional banking and textiles business. The Math graduate and MBA from U.S.A. enrolled for a Ph.D in neuroscience at Stanford University in 1999. She even undertook eight years of research and was working on the different patterns of information movement in the brain and how it triggers behavior and electrical activity in the brain, when her father was taken seriously ill.

She returned home and after one and a half years of rushing to and fro between the U.S. and India has finally settled down in India with her American husband and son.

For Tara, 2007 was the watershed year when she decided to actively participate in the running of the NBFC after her father’s death and simultaneously worked to raise the bar of entrepreneurial activities in rural Tamil Nadu.

But for her, an entrepreneur’s graduating from a Rs.1,500 income level to Rs.3,000 by rearing a goat or a cow, grinding masala or making pickles was not fascinating or a harbinger of change. Instead, her scientific mind sought a transformational change in the rural lifestyles by creating networks to foster free flow of entrepreneurial ideas and information between villages in the 29 districts of the state. This, she believes, would ensure better deployment of microfinance, as well as give a heads-up to micro markets and income levels of households, while pushing growth for the microfinance institution.

Giving a thumbs up to these initiatives are the four lakh members of the 25,000 SHGs who are the beneficiaries of the MMFL loans who, through peer pressure, instigate loan repayments. The membership of the SHGs stood at two lakh two years ago. The bigger picture of MMFL is to have on board 15 lakh members within two years.

The launch of a simple monthly four-page Madura classified paper a few months ago has also proved to be a lifeline by raising the rural readership base to a million people in the state. SHG members can now advertise their products in the paper free of cost, thereby ensuring a wider marketing horizon of around 200 km for their products, a far cry from the ‘few meters from home’ marketplace earlier. The paper is also expected to trigger new ideas for aspiring entrepreneurs and is funded through corporate advertisements.

Also on the anvil is a more real time vehicle in terms of a mobile platform for advertising in micro markets. A newsletter issued once in two months gives an update on the working of SHG members and invites them to write in it.
As Chairperson of MMFL, Tara says she is bringing cutting-edge science to streamline the dynamics and network structure of this venture.

Recently, the NBFC released a micro education film, Shakti Pirakkudhu in Tamil, based on the lives and struggles of the SHG women and the circumstances that define their successes/failures. The film is telecast in theaters and TV channels to motivate villagers to aspire to a bigger world. Twenty-nine screenings of the shows are over in different states and another 1,000 shows are planned in Tamil Nadu.

Tara is meanwhile involved in transforming traditional mindsets through exchange of ideas at forums, audio-visual training centers at 200 locations in the state, a mini MBA that is a six-module visual-based program to impart the principles of business to semi-literate entrepreneurs and the uneducated, besides facilitating regional trade shows or melas to market rural products.

Loan amounts sanctioned by the NBFC have also witnessed an uptick and are now pegged at a maximum of around Rs.30,000 per SHG member starting at Rs.7,500 per member. Loans are given to the group so that peer pressure would instigate quick repayments. Loans were of small ticket sizes ranging between Rs.2,500-Rs.25,000 per SHG member a couple of years ago. Individuals are allowed a secured housing loan of up to Rs.1 lakh but this forms a very small percentage of the total lendings.

All these initiatives are a fruition of two years of scientific analysis by Tara pertaining to problems in the rural ecosystem. She traced the crux of the issue to limited market sizes. Also, the market was fragmented and lacked information systems for facilitating product promotion and productive use of money.

Meanwhile, the microfinance industry in the country today is pegged at Rs.30,000 crore outstandings growing from Rs.10,000 crore a couple of years ago. The nature of the industry, though, maintains a status quo with the industry growing by pushing microfinance lendings without accompanying due diligence or a proper mechanism to monitor the spendings of the beneficiaries.

Agreeing, R. Venkatakrishnan, Chartered Accountant and Management Consultant says that though the sector’s NPAs continue to remain small due to small ticket sizes, easy guidelines of the RBI to nationalized banks to promote lending to microfinance institutions in the last three years has spurred lendings for non-productive purposes. He expects future regulatory mechanisms on loan recoveries and interest rates to slow down the sector’s growth in the future.

MONEY-WISE
MMFL’s current outstandings: Rs.175 crore
Outstandings in 2006-’07: Rs.100 crore
Disbursals since inception: Rs.600 crore
Non-performing assets as on March 2010: 0.48 percent of outstandings
Year of inception of MMFL: 2006
Capital at inception: Rs.4 crore