Founder and chairman of Grameen Financial Services Private Limited, M. Reddy is one of the early activists and pioneers in India’s microfinance sector. She was engaged in the field of development even before her involvement in microfinance sector, founding a rural Montessori school called “Gurukul” in her native Avalahalli village with a trust set up by her grandmother. The school still serves students today.Previous story Next story
Vinatha first came across the theory of microfinance reading the book Give Us Credit by Alex Counts, which tells the story of Professor Muhammad Yunus and Grameen Bank and how microfinance gave hope and uplifted the poor in Bangaldesh. Vinatha saw microfinance as a powerful tool that could raise people out of poverty in India. She immediately wrote to the author asking for more information. Little did she know, the letter would be forwarded directly to Professor Yunus, who invited Vinatha to join his training program. Soon after, she received a grant of US $35,000 from the Grameen Foundation to set up a Grameen replica in India. She founded GrameenKoota in 1999.
With sheer will and determination, Vinatha nurtured GrameenKoota from a not-for-profit entity to a division of Grameen Financial Services Private Limited. Currently, GrameenKoota is spread across three states in India with more than 200 branches. Apart from lending, GrameenKoota is also involved in social development activities such as health care, sanitation and financial literacy programs.
Here Vinatha shares her thoughts on the current status of the Indian microfinance sector and more.
What made you to choose microfinance as your career?
Vinatha: I never chose microfinance as a career. I stumbled upon it! I had a comfortable upbringing and spent a lot of time in the village of Avalahalli, in my grandmother’s house. All around our house lived the poor of Avalahalli—agricultural laborers, quarry workers, daily wage earners and others. The memory of having seen their poverty, their stark lives and especially the condition of the children of these underprivileged homes, was always there with me. A chance reading of Alex Counts’ book, Give Us Credit on the story of Professor Yunus and his work with the poor, convinced me that I needed to replicate the same work to help the poor households of Avalahalli. That is how GrameenKoota was born in Avalahalli in 1999.
What difficulties and constraints you have faced in your career?
Vinatha: We have been lucky that GrameenKoota has had a good run and track record. As we replicated the tried and tested Grameen Bank program, we were able to build a strong foundation for GrameenKoota. From the beginning we had the advantage of David Gibbons’ Grameen manuals, which were a source of excellent guidance. The challenges we have constantly faced is about raising debt funds from banks. Most of bankers were familiar only with the SHG (self-help group) village-based group financing model and were apprehensive about lending to MFIs (microfinance institutions). We had to work hard to remedy this situation. The aftermath of the two crises in the southern Indian state of Andhra Pradesh were also challenging times for us.
Some say MFIs have deviated from their original purpose. As a veteran in the sector, what do you stand for and what policies are you against?
Vinatha: I believe that microfinance has to be run strictly in a businesslike manner but with a firm social purpose. There should be no compromise in either of the two objectives. The client should always be the center of our focus. The microfinance sector needs to adhere to the code of conduct principles that have been issued, which will lead to fair practices and client protection. We need to be constantly conscious of the quality of our service as we deal with an asset class of vulnerable and semi-literate clients. We should always aim for controlled growth with no dilution in good practices.
Is the microfinance sector changing as fast as the world around us? Should we start focusing more on customer empowerment and investment in technology?
Vinatha: Innovation and reforms are the need of the hour in microfinance. The next version of microfinance is overdue. We have to innovate and evolve to provide easy services to the clients. Many current practices can be dismantled and customers should experience ease of transactions and technology interventions too.
In a country like India, where there is huge disparity between rich and poor, do you think the government should step in to provide loans to MFIs at more subsidized rates?
Vinatha: The people that the microfinance sector is servicing—the asset class of our clients from low income households and the unorganized sectors—are the direct responsibility of the government. So it is but logical that the government/Reserve Bank of India should step in to provide debt funds to MFIs at lower rates of interest. Compared to the huge non-performing assets that the banking industry is facing, the repayment track record of the MFI sector should also warrant a better credit score for this sector and lowering of interest rates.
Investors, who generally expects higher returns for their investments, may not be the best source of funding for social business models like microfinance. What is your opinion on that?
“What matters is passion, commitment, consistency and doing the right things at all times. Success depends on these factors, and women should believe that gender plays no part.”
Vinatha: Firstly, social businesses like microfinance need to be scaled up to enable total financial inclusion. For this to happen, the sector needs huge amounts of risk capital, which only investors can provide. The good news is that the days of runaway profits are over. With the maturing of the sector, with new microfinance regulations in place, with close monitoring by RBI, with the credit bureau in place, with an industry watchdog functioning and competing, it is not easy for MFIs to develop bad habits of pursuing unbridled profits.
The major focus of the microfinance sector is financial inclusion. But for the most part MFIs stop with just giving credit. What should be done to include other services like savings, insurance and pension schemes?
Vinatha: Credit is only a part of financial services, and financial inclusion is incomplete with- out savings, insurance and pension. Likewise the bedrock of financial literacy campaigns is savings, which MFIs cannot provide presently. So currently our financial inclusions efforts are incomplete and our financial literacy campaigns are meaningless. We have to work hard to remedy this situation. We have to engage with the regulator for change in rules to enable holistic financial inclusion.
What is the way forward for the microfinance industry?
Vinatha: The way forward for the microfinance industry is definitely small banks. Banking li- censes would be out of reach and not viable for MFIs. The small banks format is most suitable for MFIs. I think the sector is eagerly awaiting the announcement of the norms and guidelines from RBI for small banks. Provision of a complete range of financial services by small banks will take the sector into a different orbit altogether. Our clients would then experience true customer empowerment, with all the entitlements like credit, pension, insurance and, most importantly, savings in place.
What advice do you have for aspiring women entrepreneurs and young women in general?
Vinatha: Firstly, there is no ceiling for entrepreneurs whether women or men. What matters is passion, commitment, consistency and doing the right things at all times. Success depends on these factors, and women should believe that gender plays no part. The younger generation today more than at any other time in history is equipped with education, awareness and technology to bring about positive transformation and change in the world. They should have faith and confidence in this power they possess. Those of them who have had a comfortable upbringing and a good education should do whatever is in their power to lend a helping hand to build a more inclusive world.
You can watch a video of the full interview, on which this story is based, by clicking here.