Social Entrepreneurship in India: Dr. K. Jeyakodi, Associate Professor, S.N. College, Madurai
Social Entrepreneurship in India: Dr. K. Jeyakodi, Associate Professor, S.N. College, Madurai
Social Entrepreneurship in India: Dr. K. Jeyakodi, Associate Professor, S.N. College, Madurai
India
DR. K. JEYAKODI,
Associate Professor,
S.N. College, Madurai.
What Solutions do we have Today*
Government – alone is not the answer
Inefficiencies, slow, bureaucratic, prone to corruption….
Energy
Solar Electrification - Harish Hande, SELCO (Social Entrepreneur of the Year
Award 2007)
Other examples
Education (Same Language Subtitling, Janarth - education solutions for
children of migrant laborers)
Many more…
Need for Financial Services for Low-income
People
Why do poor need financial services?
A study in Andhra Pradesh revealed that for the poor, about 50% of all risky events were
characterized as “health-related” and another 28% were “nature-related”.
Responses to these risks -
1st preference of the rural poor is borrowing (money lenders have very high interest rates,
subject to exploitation),
followed by mortgaging/selling assets (often under difficult conditions that limits the value
received for such assets).
The group is eligible for ‘bank-loan’ after atleast 6 months of ‘inter-loan’ repayments
Maximum loan amount is a multiple (usually 4:1) of the total funds in group account –
starts with lower multiples (1:1 to 2:1)
Microfinance - Key Challenges
High ‘Cost-to-Serve’
Accounts are low in value but large in volume
High transactions costs (as frequent transactions)
Low levels of automation
Intense supervision requirements to maintain high recovery rates (trade-off between
supervision cost min. and recovery max)
Very small scale – figure shows SHGs linked to banks are in handful of States
(mostly in South India – AP) [Chakrabarti, Georgia Tech, 2004]
Regulatory/policy Issues
If the NGO earns a substantial part of its income from lending activity, it violates the Income
Tax Act and could lose its charitable status.
If an MFI opts to become an NBFC, it should be able to satisfy the entry-level capital
requirements of Rs. 20 million. (In India, there has been strong advocacy for bringing down
the capital entry norms for NBFCs in the business of microfinance)
In the case of NBFCs, deposit mobilisation is not possible at least for the first 3 years, till a
satisfactory credit rating is obtained.
Borrowing from foreign institutions is hard due to the credit rating requirements imposed by
RBI.
Challenges present Opportunities
SKS, specializing in microfinance
is one of the largest and fastest-growing microfinance
organizations in the world (disbursements exceeding
$500 million to about 2.2 million women)
Inter-linked three principles:
1. for-profit methodology 2. best business
practices 3. latest technology