Microfinance in India: Future shift towards complete livelihood financial solution model

Abstract

The LMFT model discussed in the previous report incorporates innovations in the central Grameen model to reduce the operational cost and offer loans to the poor at an affordable rate, in response to the growing concern of ‘mission drift’ affecting many MFIs. This report attempts to study if credit alone is sufficient for the poor or they require other livelihood financial services to be really effective in pulling themselves out of the clutches of poverty. The detailed study of the sector and its challenges reveals that poor do need far more livelihood services like consumption loans, insurance etc. than plain credit in order to meet their product and financial security demands. On the other side, it helps MFIs to reduce costs and become more sustainable. The objective of the project is to study the pockets of innovations implemented by smaller as well as bigger players of Indian MFI in isolation. It then attempts to bring some of those innovations on a common platform and incorporate them after adapting in an integrated MFI model woven around central LMFT structure. The intensified power of collective effort by various organizations and institutions working against poverty and their collaboration towards a common goal while implementing innovative solutions tweaked to the LMFT requirements, is the principle behind the Integrated Model. All the above study is based on literature review, a survey conducted with 200 women borrowers in LMFT in order to seek their requirement inputs and interviews conducted with MFIs like BASIX, CASHPOR, UJJIVAN, RANGDE and GRAMEEN KOOTA The core LMFT model is based on Islamic principles of charging ‘no-interest’ on loans lent to poor while following Grameen I model. It not only works as a credit institution but also tries to provide livelihood solutions like financial services (insurance etc), healthcare services, agricultural solution, risk mitigation etc. to the poorest at different levels. It is also customized to the specific needs of its clients instead of following rigid repayment schedule for everyone. The model is designed in such a way that its operating cost is very low and it runs on faith based dedication of individuals while being self sustainable. This model doesn’t attempt to attract investors rather it operates on donations received from local philanthropists in the concerned areas or social investors via internet portal like rangde or kiva. Since the initial investment is sufficient to keep it running and expanding subsequently due to the inherent design of the model, it doesn’t get influenced by the donors’ whims and fancies. It works with the help of needy employees hired from the same slum areas and volunteers who expend at max 10-12 hours a week. All these practices help reduce its cost and hence offer loans at a meager interest rate of 7-8% flat. This is an attempt to show that there is a need to focus on the true spirit of poverty alleviation by moving towards non-profit and mission-driven institutions instead of exploiting the poor. The Integrated model also focuses on the strong need of building social bonding and interrelationships among the beneficiaries so that they can themselves join the force in whatever way they can, out of sheer spirit of serving their own kind. This could help provide the whole movement a stronger social thrust thereby facilitating its self expansion. The power of mass social mobilization should not be underestimated. The final proposed business model has been explained subsequently.