Hi! Everyone,

I am back with my next update and apologize for the delay, for we do live in a world where we need to ensure that results are always there to back up our claims. Now that the business part of the year is over, I am back to a subject I love - Micro finance and the opportunities it presents for the poor

I make it a point to meet as many micro finance institutions and self help groups as possible, spend some days on the field with them, their members, to observe the impact of micro finance

As we know, there are two schools of thought in micro finance in India, one is the Self Help Group Model championed by the Public sector banks & NABARD and the Grameen Model propogated by most of the MFI. While I shall not be dwelling on the pros and cons of these models, as this has been done to death by many people, one thing which strikes me as remarkably similar is the sense of accomplishment and pride amongst the members of both these paths.

I met members of a SHG association in Tamil Nadu and what struck me was the confidence these members displayed while talking to strangers, the lucidity in their thought process and their ability to overcome extreme odds. Remember, these are people who are in the hinterland, traditional and conserative by nature, unlike the India we associate with the cities. These very people who normally do not talk to strangers especially men, would invite me to their house for a cup of coffee, and ask me questions relating to business. They were sure of their numbers and were happy that this sort of activities gave them a sense of pride and standing in society, which even their husbands acknowledged, during my chat with them. The sense of discomfort which they had earlier because of women empowerment was being replaced albeit grudgingly in some cases by the acceptance that women had their own standing in society

To illustrate further, I met a lady Yellamma in a village which is around 100 km from Hyderabad. She used to run a small grocery store in her village. Contact with MFI and women groups opened up a new world of opportunities to her. She bought a second hand refrigerator for Rs 4000 i.e ($89)and started storing the usual stuff and in addition water.

Pretty soon she realized that the demand for water was higher than for colas and other stuff, but the price point at Rs 10 i.e.(20 cents) was very high. She started stocking water in satchets and selling the same for 4 cents each. She ended up selling water bought at Rs 8 (17 cents) for Rs (18) 40 cents. Thus began her voyage into entrepreneurship, discovery of marketing, price points, things which we read in Management text books.

Today, she has repaid her loan and makes a weekly net profit of  Rs 200 ($ 4.50), and this has given her the confidence to explore further. She now has tied up with FMCG good distributors and stocks toothpastes, shampoos, other goods at the price points convenient for her customers, which in turn ensures that her business continues to expand and remain profitable. Even though she borrowed at 20% diminishing, the return on capital for her was exceedingly high in excess of 200%. She converted 3 cents margin to 32 cents

The point I am trying to make is that there are many such Yellammas in India who need an opportunity to tap their business acumen and come out of penury and micro finance is providing the opportunity to them.

However this is not without its pitfalls. Microfinance is certainly a good thing, but too much of a good thing is also bad. which I shall highlight in my next blog