Nobel Laureate and founder of Bangladesh's Grameen Bank Muhammad Yunus today suggested the setting up of a regulatory authority for Micro Credit Institutions (MCIs) in India. "They (MCI) were created to fight the loan sharks and not to create one. There should be some regulatory authority when you have so many micro credit programmes running. It's time to have one for transparency purposes so that people are given out information in a transparent way," he said during a video conferencing session organised at IIM-A.
"Bangladesh has created a micro credit regulatory authority to address these issues because we have so many programmes in the country now. I think it would be a good idea for India to do that," he said.
Grameen Bank offers small loans for self-employment to some of the poorest people in Bangladesh, including beggars.
The bank, with 2,600 branches and total deposits of $1.5 billion - of which 46 per cent come from its borrowers - has 8.3 million borrowers, 97 per cent of them women.
"The bank lends over $120 million per month in Bangladeshi currency," said Yunus, who received Nobel Prize for peace in 2006. Yunus maintained that government should not be running the micro credit programmes. Instead, they must create some sort of fund so that there is an easy source of funding for the NGOs who want to start such programmes.
"The government should not be running the micro credit programmes. They should be run by other people," Yunus said in reply to a query.
The reason why I say government should not be lending money directly to the borrowers is that the moment they do that, politics gets involved into it," Yunus said.
"The government should stay away from the credit side so that quality of credit is good." Yunus' remarks on MFIs come in the backdrop of a controversy over alleged strong-arm tactis adopted by MFIs in loan recovery from poor farmers and charging exorbitant interest on loans.
Prescribing an ideal operational cost guideline for a healthy microfinance firm, Yunus said "cost of fund plus ten per cent for operational cost, and one is in green zone and can be called a micro finance institution."
"Cost of fund plus 15 per cent and above as operational cost puts an institution into the loan sharking zone," the 70-year-old economist stated. At the Grameen Bank, our cost of funds is about 10 per cent.
Our highest interest rate is 20 per cent on declining basis, then 8 per cent on housing loans, 5 per cent on student loans and zero per cent interest on loans given to beggars, so the average is 19 per cent, Yunus explained. "So, the gap between the average lending rate and cost of funds is around 9 per cent only," Yunus said.
Grameen Bank, set up in late 1970s, exhibits one of the finest models of inclusive growth and is in the process of creating a social business fund in Bangladesh in collaboration with a Japanese company, he said.
"We are talking with a Japanese agency for creation of a social business fund so that young people could create social business models in the country," Yunus said.
