[Reader-list] reader-list Digest, Vol 88, Issue 13

asit das asit1917 at gmail.com
Tue Nov 2 15:56:21 IST 2010

On 11/2/10, reader-list-request at sarai.net <reader-list-request at sarai.net> wrote:
> Send reader-list mailing list submissions to
> 	reader-list at sarai.net
> To subscribe or unsubscribe via the World Wide Web, visit
> 	https://mail.sarai.net/mailman/listinfo/reader-list
> or, via email, send a message with subject or body 'help' to
> 	reader-list-request at sarai.net
> You can reach the person managing the list at
> 	reader-list-owner at sarai.net
> When replying, please edit your Subject line so it is more specific
> than "Re: Contents of reader-list digest..."
> Today's Topics:
>    1. Demand to uphold free speech and expression (Yousuf)
>    2. Microfinance: A Fairy Tale Turns into a Nightmare (Shashidhar)
> ----------------------------------------------------------------------
> Message: 1
> Date: Mon, 1 Nov 2010 23:11:03 -0700 (PDT)
> From: Yousuf <ysaeed7 at yahoo.com>
> To: sarai list <reader-list at sarai.net>
> Subject: [Reader-list] Demand to uphold free speech and expression
> Message-ID: <859916.20954.qm at web51406.mail.re2.yahoo.com>
> Content-Type: text/plain; charset=utf-8
> We condemn the demand of the BJP to “take the strongest possible action”
> against Arundhati Roy for her “seditious comments” at the seminar, “Azadi:
> The only way” held in New Delhi, October 21, 2010. There is recorded
> evidence to prove that the views expressed by her are not new and have also
> been made by innumerable others before and after her. If Arundhati Roy or
> Syed Ali Shah Geelani (or any other speaker from that seminar) is to be
> arrested for what they have said, then by the same logic a number of us
> would have to be imprisoned not to mention the entire population of Kashmir.
> The concept of `sedition’ is archaic and has no place in a modern democratic
> imagination. Perhaps for this reason the Drafting Committee of the Indian
> Constitution did not include “sedition” among the “reasonable restrictions”
> to Article 19(1) (a). In 1962, the Supreme Court (Kedar Nath Singh vs. the
> State of Bihar) read down Section 124A IPC to argue that only a call to
> violence or armed rebellion qualified to be considered as `sedition’. The
> same Judgement reiterated the importance of not allowing the provision to
> interfere with the Right to Free Speech and Expression. As the present
> controversy proves, the Supreme Court’s worst fears have been confirmed. The
> Bajrang Dal’s threat that they will hound Arundhati Roy like M.F Hussain
> provides further confirmation that `sedition’ will now be the new pretext
> for censorship. When the British charged Gandhi with sedition, he famously
> said, “Sedition in law is a deliberate crime but it
>  appears to me to be the highest duty of a citizen.” Expressing dissent
> about thenation-state and re-imagining its future is certainly the right of
> every citizen if not the “highest duty”.
> We would like to point out that the disruption of the meeting and the
> allegations of `sedition’ is part of a well orchestrated campaign. The right
> wing elements who disrupted the Azadi meeting were working in tandem with
> certain media channels who flouted all norms of professional journalism to
> create hysteria. In what appears to be an instance of `paid news’, a certain
> national news channel started a one-sided campaign against “splittists” and
> the “sedition industry” within hours of the meeting being held. The `report’
> only focused on two speakers and their supposed “seditious” utterances.
> It is understandable that the BJP, in an attempt to deflect attention from
> the Ajmer Blast case, should indulge in hyper-jingoism but it is most
> unfortunate that the UPA, while deciding not to press charges of sedition
> against the speakers, did not assert their right to free speech and
> expression. Their silence on this matter has only emboldened groups like the
> Bajrang Dal who now want to take matters into their own hands.
> This is perhaps expected from a government that has sought to suppress all
> dissent in the valley through brute force. Between June and October 2010,
> 111 people have been killed by security forces and this includes young boys
> who were not even participating in the protests. Countless have been maimed
> and injured by bullet injuries while many have been blinded by the catapults
> with marble shots used by the CRPF. For over two decades now, the armed and
> security forces have been committing extra-judicial killings, torture,
> disappearances and rape with impunity. Draconian legislations like the Armed
> Forces (Special Powers) Act, the Jammu and &Kashmir Public Safety Act and
> the Disturbed Areas Act continue to facilitate human rights abuses in the
> valley. The hysterical cry to enforce the rule of law in the case of the
> Azadi seminar contrasts with the long silence about the widespread and
> systematic human rights violations in Kashmir. By allowing the speakers of
>  the Azadi seminar to be censored, the government hopes to maintain its
> silence on Kashmir.
> We therefore demand that the government take full cognizance of the
> continuing violation of human rights in the valley, make the security forces
> fully accountable so that the guilty can be prosecuted and punished. We
> demand that the democratic right to free speech and expression is upheld and
> every citizen in this country, including the speakers of the Azadi seminar,
> is given full protection from any attempt to impose legal or extra-legal
> censorship.
> Signatories:
> Vrinda Grover Lawyer, Delhi
> Shohini Ghosh Professor, Jamia Millia Islamia, Delhi
> Nivedita Menon Professor, Jawaharlal Nehru University, Delhi
> Amar Kanwar Filmmaker & Artist, Delhi
> Ranjani Mazumdar Associate Professor, Jawaharlal Nehru University.
> Aditya Nigam Fellow, Centre for the Study of Developing Societies
> Dayanita Singh Photographer, Delhi
> Urvashi Butalia Writer and Publisher, Delhi
> Lawrence Liang Alternative Law Forum, Bangalore
> Sabeena Gadihoke Associate Professor, Jamia Millia Islamia, Delhi
> Saba Dewan Independent Filmmaker
> Aparna Sen Filmmaker and Actress, Kolkata
> Kalyan Ray Author and Professor, Morris College, USA.
> Joya Chatterji Historian, Trinity College, University of Cambridge, UK.
> Lakshmi Subramaniam Professor, Centre for Social Sciences, Kolkata
> Kajri Jain Asst. Professor, University of Toronto, Toronto.
> Kumkum Roy Historian, Professor, Jawaharlal Nehru University. Delhi
> Kamala Vishweshwaran Professor of Anthropology, University of Texas, Austin
> Shikha Jhingan Asst. Professor, Lady Shri Ram College, Delhi University,
> Delhi.
> Anjali Monteiro Professor, Tata Institute of Social Sciences, Mumbai.
> Kalyani Menon-Sen Researcher & Independent Activist, Gurgaon
> Uma Chakravarty Historian (Retired Professor, Delhi University) Delhi
> KP Jayshankar Professor, Tata Institute of Social Sciences, Mumbai.
> Pamela Philipose Journalist & Director. Womens Feature Service
> Harsh Mandar Writer and Activist
> Gauhar Raza Filmmaker & Poet, Delhi
> Anuradha Chenoy Professor, Jawaharlal Nehru University, Delhi
> Shabnam Hashmi Social Activist, Anhad
> Neeraj Malik Associate Professor, Indraprastha College, Delhi University
> Javed Malick Retired Professor, Delhi University
> Madhu Bhaduri Former, IFS Officer
> Anuradha Bhasin Executive Editor, Kashmir Times
> Jyotsna Kapur Assoc. Professor, Southern Illinois University, Carbondale.
> Dunu Roy Environmentalist, Hazard Centre, Delhi
> Kamal Mitra Chenoy Professor, Jawaharlal Nehru University, Delhi
> Ujjwal Kumar Singh Professor, Delhi University, Delhi.
> Mahua Sarkar Assoc. Professor, Binghampton University, SUNY
> Arvind Narrain Lawyer, Alternative Law Forum
> Rebecca M. John Lawyer, Delhi
> Amita Baviskar Associate Professor, Institute of Economic Growth
> Sarada Balagopalan Associate Fellow, CSDS
> Kaushik Ghosh Assistant Professor, University of Texas, Austin
> (Issued in November 2010)
> ------------------------------
> Message: 2
> Date: Tue, 2 Nov 2010 14:57:17 +0530
> From: "Shashidhar" <shashidhar at butterfliesindia.org>
> To: "sarai-list" <reader-list at sarai.net>
> Subject: [Reader-list] Microfinance: A Fairy Tale Turns into a
> 	Nightmare
> Message-ID: <008601cb7a70$249fa840$6ddef8c0$@butterfliesindia.org>
> Content-Type: text/plain;	charset="iso-8859-1"
> Good write up on the MFI nightmare in Andhra
> http://beta.epw.in/newsItem/comment/188904/
> Shashi
> Microfinance: A Fairy Tale Turns into a Nightmare
> M S Sriram
> It was inevitable that the commercial model of microfinance in India, with
> its minimalist and standardised model of lending, would grow into a bubble
> and run into trouble.
> Many microfinance commercial organisations have entered the market in search
> of profits and are competing to lend to the poor. In the process they have
> put the “understanding” of the needs of the poor aside and have started
> chasing targets and numbers. For these institutions, the poor are not seen
> as human beings having individual identities and needs. Instead they are
> seen as data points that add up in their profit statements. The anxiety for
> growth is dictated by the fact that the investors in the market-based models
> are impatient and look for high returns – and then exit!
> There is a new intensity in the discussion on microfinance – about multiple
> lending, interest rates and on whether a bubble is being built around
> lending to the poor. There is a heated debate about the interest rates of
> microfinance institutions (MFIs) and whether they could be termed usurious.
> There has also been a boardroom fracas at SKS Microfinance – an event
> unrelated to the larger one about the delicate relationship between MFIs and
> their clients, but it is nevertheless hogging equal headline space in the
> press. The commercial section of the industry has reacted with the industry
> association – the Microfinance Institutions Network (MFIN) – coming out with
> a code of conduct. The State has indicated its displeasure about the level
> of interest rates and it has sent an advisory to the commercial banks. The
> Government of Andhra Pradesh, facing a lot of flak from the local press and
> the opposition parties, has promulgated an ordinance in order to “rein in”
> MFIs.
> There is indeed a sense of déjà vu to the entire episode – of a crisis
> following heady success. The success had culminated in the oversubscription
> of the SKS Microfinance initial public offering, allotment of shares at the
> upper end of the indicative price band, listing of the scrip at a premium,
> and its continuous rise thereafter. As this was sinking into the minds of
> the players in the microfinance market – and with the next rung of
> institutions ready to harvest the gold rush – the same SKS Microfinance was
> in the news for all the wrong reasons.
> Three Models
> This article looks at the growth in microfinance, keeping the current
> developments in perspective. But before looking at the current episode, it
> is important to have a perspective on how the microfinance space is
> organised and who the different of players in the market are. At this point
> of time there are three significant interventions in the provision of
> universal access to financial services.
> (1) The people’s movement which has existed outside of the government
> schemes, banks and other interventions by entrepreneurs. This is led by
> non-governmental organisations (NGOs) that have remained true to the
> community-based model and have emerged by organising people to sort out
> their financial mismatches without the intervention of the external world,
> and if there is an intervention it is a conscious choice collectively
> exercised by the people.
> (2) The intervention by the government pre-existed the people’s movement and
> was expressed in the form of the self-help groups (SHGs). This has usually
> been supply-driven, addressing the institutional and physical infrastructure
> needs and offering standardised supply-side solutions or “schemes”. In
> Andhra Pradesh the State has almost usurped the community model through the
> Indira Kranti Patham scheme (earlier known as Velugu). Clearly the role of
> the government in Andhra Pradesh has moved beyond being an independent
> observer. In this case the State is in a peculiar position of being a player
> as well as an arbiter of microfinance practices.
> (3) The market forces, which look at the poor as a market, have found a
> mechanism to deliver credit through an efficient delivery model. This
> approach is more than a decade old and has made rapid growth. This growth
> has encouraged us to look at the business through a different lens.
> Each of these interventions has a different approach and uses a different
> methodology to reach out to the poor. These methodologies have an important
> bearing on the process and packaging of financial services. The SHG model
> was promoted as an alternative to the available options of financial
> intermediation. It was at one level rooted in the community and at another
> level was integrated with the larger banking system. The dealings were on
> the basis of mutuality, thus providing the power of a collective. The
> approach, by definition, was a slow one because there had to be a good
> understanding on how a collective based on the principles of mutuality
> worked. It required patience, tolerance and an appreciation of the
> constraints that the fellow SHG members faced. It made members think about
> their financial services needs of their households, and also those of their
> neighbours who were members of the collective. This helped the members think
> responsibly because they were dealing with their own money or the money of
> the members of the collective. This methodology ensured that people were
> together to narrate a growth story, a story of their confidence and how they
> were taking charge of their own lives.
> This movement is very time-consuming. The collective has to go through the
> many phases of forming, storming, norming and performing. Even if the
> process is slow, the edifice will be strong and lasting. This edifice can
> continue to serve the poor and the marginalised on an auto-pilot basis once
> it stabilises. Once this happens, it shows that the poor can not only take
> control of their resources, but as these resources grow they can hire
> professional help to manage their resources. This transformation does not
> happen overnight, but through a long process of community intervention.
> Unfortunately, there is impatience, and then there is the State. If the
> groups succeed, there is an urge to replicate the model quickly across the
> country. The success of community-centred microfinance has attracted the
> government. The State deals with large numbers and its anxiety to deliver
> development at a pace that can do justice to the incumbent combination is
> understandable. The State learnt quickly from the SHG movement and decided
> to adopt it as one of its “schemes”. The bank linkage programme has been
> going on for years, and each year the government increases the targets to
> the banks for linkage and ports several other welfare schemes on to the
> groups.
> Market for Inclusion
> The last type of player in the inclusion market is a product of market
> forces. In the last decade there have been several people who for years
> worked in the development sector with communities and became impatient for
> growth. They embraced a market-based model of inclusive finance. The idea
> was that if we are able to make this activity of inclusive finance
> inherently profitable, then more and more people (who work for profits) will
> see merit in operating in this market. And with a good number of players,
> the market will not only expand, but because of competition the poor
> customers would eventually get a good deal.
> Unfortunately there have been numerous instances where our belief in the
> market has been belied and microfinance adds to the scepticism about the
> school that believes only in markets. During the initial phases of the
> intervention by the market model of mFIs, most of us looked at the growth of
> these organisations with a sense of awe. These organisations brought
> efficiency to their operations. But gains in efficiency are usually a
> function of standardisation. Standardisation worked at two levels: (a) The
> organisations themselves offered standardised products, that allowed them to
> reduce operating costs. (b) The individual identity of each organisation and
> what it stood for vanished. In the field one could therefore see little
> difference between one MFI and the other.Rhyne (2001) writing about MFIs in
> Bolivia has said that the institutions tend to converge operationally to the
> dominant microfinance paradigm. The paradigm of commercial microfinance is
> that of minimalism. That credit should be provided efficiently and quickly
> and a sharpening of financial viability have influenced institutions
> operating in this space.
> Bolivian Experience
> In microfinance itself, there were significant lessons to be learnt from
> Bolivia. For instance, Rhyne indicates that the number of institutions that
> had a subsidy drastically fell in about four years, and each of these
> institutions lost its core identity. FIE, an MFI known for technical
> assistance to a single community-based enterprise, Fades, which used to
> focus on lending for community infrastructure projects, and ProMujer, which
> specialised in empowerment training; all dropped most of the operational
> practices that differentiated them from the dominant paradigm.
> This “convergence” is happening in India as well. The minimalist model
> disburses credit in as efficient a manner as selling soaps and shampoos. It
> has its merits. For instance, in a largely agrarian society where large cash
> inflows take place only during the harvest season and the local economy
> operates on peaking of financial activity in this season, forcing a weekly
> repayment is by definition defying the logic of agrarian cash flows.
> However, by forcing this weekly discipline these institutions have possibly
> expanded the market for credit – persuading people to think about activities
> that give a weekly cash flow that can service their loan. This could thereby
> have made more cash move through the hands of people and reduced their
> vulnerability.
> However, the downside of a standardised model is that unless the cultural
> and economic nuances of each location are understood, there could be cracks.
> A standardised model closes innovation, reduces responsiveness and prevents
> customisation and once it reaches stability it expects to grow at a
> scorching pace. When something – particularly in financial services – grows
> at an unnatural pace, it is going to build into a bubble sooner or later.
> Such a process in the market-based microfinance sector may be happening now.
> The hope that the demonstration of one market-based experiment will attract
> more players has come true. Many more organisations have entered the market
> and are competing to lend to the poor. In the process they have put the
> “understanding” of the needs of the poor aside and have started chasing
> targets and numbers. For these institutions, the poor are not seen as human
> beings having an individual identity, characteristic and need. Instead they
> are seen as data points that add up to their profit statements. This anxiety
> for growth is dictated by the fact that the investors in the marketbased
> models are impatient and look for returns (and then exit!). The evidence
> from Bolivia is available before us. Microfinance in that country went
> through a phase of intense competition, leading to over-indebtedness and
> even the collapse of a few institutions. A reading of the microfinance
> movement of Bolivia in the 1990s looks like a contemporary Indian
> commentary. All the elements – client poaching, competition, reckless
> lending, over-indebtedness of the client – that eventually caused cracks in
> the efficient credit delivery mechanisms were present in Bolivia.
> Effects of Rapid Growth
> One of the visible indicators of the standardised model is its religious
> belief in zero tolerance of default. The organisations following the market
> model have possibly seen too much of indiscipline in the delivery of credit
> to the poor and have realised that this is one variable that has to be
> controlled at all cost. The story of organisations having a near 100%
> recovery rate for years is a fable difficult to believe, given that no
> household or economy can be insular to shocks all the time. Yes, the
> commercial models have been able to control one cause of default – intent.
> But it is well known that default also happens when the ability to repay is
> impaired. The new generation of MFIs has possibly not learnt to deal with
> this aspect. For a long time, while the MFIs were growing at an unnatural
> pace through geographic diversification, the borrowers were probably growing
> at a normal pace. With competition setting in, more and more MFIs
> concentrated on the same geographies.
> With the client getting multiple choices and the anxiety of the client to
> get as much of finance as possible from multiple institutions and this
> coupled with the overzealous suppliers of credit meant that the client
> herself was trying to grow at an unnatural pace, or that the client had
> begun to resort to adverse usage of credit. Unfortunately the standardised
> models do not have the patience to engage with the client. It is one thing
> to justify the high cost of credit at lower levels, but we also have to
> realise that at higher levels of indebtedness, interest rates become onerous
> from the point of view of the poor households.
> Servicing five MFI loans of Rs 10,000 each at 28% is not the same as
> servicing one such loan. And since the MFIs have not provided themselves
> with a mechanism of coping with default, the pressure on the borrower turns
> out to be intense. And this pressure could potentially lead to suicides. We
> do not know whether the current spate of suicides in Andhra Pradesh is a
> result of the MFI loans and the intense repayment pressure on the clients.
> These are claims made by the state government. Vikram Akula, the chairman of
> SKS Microfinance acknowledged that 17 of the 30 suicide cases were related
> to borrowers of SKS (Indian Express, 15 October 2010).
> However he is not helping the cause of the MFIs by stating that “the
> deceased borrowers were not defaulters of SKS and they would have been
> driven to suicides by other factors such as pressure for repayment of dues
> by other MFIs that lent money to the same borrowers” (Mint, 15 October
> 2010). The collective response of the microfinance institutions has also
> been found wanting. All that they have offered is a code of conduct, which
> is observed in violation! A meta level credit bureau makes a mockery of what
> is clearly acknowledged on the field. You do not need a database of clients
> and loans. The clients themselves are openly talking of multiple borrowings.
> Governance Issues
> Unfortunately, the celebration of the market endorsement of this business at
> the “bottom of the pyramid” could not have been more ill-timed. At the
> ground level, the stress was showing. Clients (for whatever reasons) were
> committing suicides. At the institutional level, it appeared that the
> boardroom battles were all about stock options, cashing in, cashing out and
> severance packages, when each of the boards should have been discussing
> whether their business model was showing cracks. Instead of being
> introspective, the response of the MFIs has been stubborn and defensive.
> State Response
> The response of the State has also not been in the desirable direction.
> Obviously, all the action is centred around Andhra Pradesh which has the
> highest concentration of MFIs and the largest exposure through the SHG-Bank
> linkage model. The government has responded with a heavy hand by passing an
> ordinance that has shifted the discourse from the basic problem to a legal
> frame. This almost appears like the government taking revenge on the
> competition with its monopolistic regulatory power. While there are nuances
> in whether the Government of Andhra Pradesh has the ability and the
> inclination to digest the administrative implications of the ordinance, it
> has once again shown its inability to target the errant microfinance
> institutions, and has instead come down heavily on the entire market. Given
> that the State itself is a dominant player in this market, this
> heavy-handedness creates an undesirable competitive barrier to an
> alternative model of credit delivery. Instead of harping on caps on interest
> rates and threatening to remove microfinance from the priority sector list,
> it is necessary for the State/Reserve Bank of India to look at specific
> instances and pull up the delinquent organisations. The RBI has set up a
> committee to look into the issues pertaining to MFIs and has asked the
> committee to submit a report within three months.
> But what is not clear is why the RBI is not carrying out a routine
> inspection of the portfolio of some MFIs that are under its purview in order
> to understand the issues of ghost clients and multiple borrowings and take
> action to discipline the erring organisations. Some of these organisations
> have serious governance issues that are not being investigated. The
> institutional representatives on the boards of these MFIs have not exercised
> their independence. The promoters have gotten away with significant
> instances of skimming and there seems to be no dissent voiced on the greedy
> executive compensations and short-sighted behaviour of the management of the
> top MFIs.
> So on the one hand, while the larger directional of the movement of the
> State/RBI in terms of financial inclusion seems to be good – directing
> payments through banks, calling for financial inclusion plans, opening up
> branch licencing, removing the cap on end use interest rates and so on – its
> response to the rapid growth of microfinance has been somewhat alarmist.
> Hopefully the State and the RBI would do what is well within their mandate
> in specific cases. This would be a superior approach compared to the
> policy-level clampdown that they have been talking about.
> ------------------------------
> _______________________________________________
> reader-list mailing list
> reader-list at sarai.net
> https://mail.sarai.net/mailman/listinfo/reader-list
> End of reader-list Digest, Vol 88, Issue 13
> *******************************************

More information about the reader-list mailing list