After the crisis broke in Andhra Pradesh, many observers regretted that India's microfinance industry was legally confined to making loans. Many poor people would rather save than borrow because, when done right, savings is safer. In the Huffington Post, Elisabeth Rhyne went further. The inability to take savings not only deprived poor people of a valuable option; it contributed to the crisis on the credit side:
Deposit-taking, properly supervised, would have allowed the MFIs to raise funds locally, both from clients and others in their neighborhoods. It would have created a balanced portfolio of products and revenue sources, rather than exclusive reliance on the micro-loan mono-product. Instead of unbalanced mono-product giants, MFIs like SKS might have grown up to look more like Mibanco in Peru, Equity Bank in Kenya or BRI in Indonesia, all with solid loan and deposit bases.
In the year since (happy anniversary, Andhra Pradesh microcredit crisis), parts of India's central government have made noises about allowing microsavings. But according to a
helpful post for non-Indians, by Anjana Ravi of the New America Foundation, moves in that direction are now hampered by internecine warfare:
...it seems as though the proposed MFI [microfinance institution] regulations have become the victim of a turf war between the RBI, Lok Sabha (federal legislative body), and state governments. Traditionally, Indian federalism has been known for its contentious battles and the financial sector has been dangerously subject to political whims. In this case, the MFI Bill takes microfinance regulation out of the hands of the state, superceding Andhra Pradesh’s existing legislation. The federal government has used the MFI Bill to restrict state power; yet in a magnificently ironic fashion, the RBI [Reserve Bank of India] rejected the deposit clause in order to restrict the Lok Sabha from sacrificing proper financial regulation for political gain.
I hope this works out. Careful steps towards deposit-taking could be very healthy for Indian microfinance.
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