Dear regulators, policymakers and other stakeholders:
I am a MFI client from an urban slum, and yes I have taken loans from 2-3 MFIs operating in my area. I do have a bank account, however, every time I have tried to use the banking services, I found the entire process too complicated, and I have no idea about bank Khatas or bank’s products. In addition, I do not find their staff friendly or courteous. I remember the day when a MFI loan officer visited my house asking if I needed any credit. My friends and neighbors were asked to make a group and apply for the loans together. Why did I need credit at that time? I remembered that I had taken a loan from a moneylender the previous month, and I thought I could use this MFI’s loan that had a lower interest rate to pay the moneylender. At least that way I could save some money, which, otherwise would have gone to the moneylender.
(Pic Source: Sushmita Meka. Note: Pic used only for representative purposes)
Another loan officer came within a month and asked me if I needed a loan. I took that loan for my children’s education. The next month, another loan officer came in our area and again offered us credit. I took that loan too to fix the floor of my house, which we were planning for the last 3 years. That year was difficult for me as I had to attend 3 meetings every week. In addition, I felt obligated to pay the installment for anyone in my group, who was not able to make the payment. There were cases when some members ran away and I had to pay their share. It was not an easy process for me. Had the banks provided me an opportunity to save or take loan to meet my credit needs for education, home improvement and others, I would not have taken these micro loans from 3-4 MFIs and gone through this process.
I heard that regulators want us to use our loans for income generating purposes only. Could you please describe what income generating purpose is? Some of my group members have been running enterprises for the last 5 years, and I can understand them using these loans for their business. I was not born an entrepreneur, and I do not have any business. Hence, if I use this MFI loan for my children’s education-how is that wrong? When I see non-poor people taking education loans and sending their children to good schools and colleges in India and abroad so that their children get good education, don’t you think, we poor want our children to get good education too? How about health? If my husband, who gets salary on a daily basis, is sick and not able to go to work, can I not use some portion of that loan to take him to a doctor or a hospital. Every day he misses his work, it affects our livelihoods. If I use the MFI loan for home improvement, do you think it is wrong because we poor people cannot have dreams to construct our own house. When non-poor can take a housing loan, why cannot I take loan from MFIs to construct my own house?
I heard that the regulators do not want MFIs to give loans if my annual household income is more than Rs. 1,20,000, which means, my monthly income should not be more than Rs. 10,000. My HH income is more than Rs. 10,000/month, which makes me not eligible for a MFI loan. However, if not MFIs, I have no option but to go to the nearby moneylenders for loans. Had I been included in an effective banking system where I could save, I could use my savings for all these routine or non-routine expenditures. The bank official thinks he is doing me a huge favor by just letting me enter his bank branch, and MFIs cannot take deposits. Where shall I save and how? Without proper savings of my own, I do not have any option but to rely on credit whenever needed.
I heard that the regulators do not want MFIs to provide more than Rs. 50,000 loan. If you want me to start a new business, then Rs 50,000 is not enough to start any business. My neighbor wanted to start a chicken business and she needed Rs. 1,50,000. Banks could not help her because she did not have any ration card or other documents to fulfill their Know Your Customers (KYC) norms, MFI loan officers told her that they could not provide her with a loan over Rs 50,000, so she had no option but to rely on moneylenders.
I request all regulators, policymakers and bankers to visit our slums once in a while, to understand our problems and then probably decide what we should do, and what not, how we should use loans and how not. We need MFIs at this time because they are the ones who are meeting our needs. If the Indian banking system works well and gives us an opportunity to save, probably we will not even need credit. However, till that happens, we have no option but to continue taking loans from MFIs because moneylenders are more expensive.
This letter is based on the anecdotes collected by the author during her interaction with clients in urban slums in Karnataka in January 2012
Author: Deepti Kc