low-cost funds

Hard for MFIs to go it alone

Posted on September 28, 2011 by Tara Thiagarajan in Microfinance, OpEds, Writing. Comments Off on Hard for MFIs to go it alone

MFIs can operate as subsidiaries of banks, using a bank’s access to low-cost funds to lend cheap to the poor.

In 1995, Bank of Madura had 95 rural branches that were generally unprofitable. Deposits in these branches were too low and defaults on loans too high to justify the cost of servicing these communities. Besides, the bank’s staff disliked rural postings and it was difficult to attract talent into these areas.

The then Chairman & CEO, Dr K. M. Thiagarajan, in his bid to develop a profitable model of rural lending, pioneered the model of Self Help Group (SHG) lending, that was a hybrid between the Grameen Joint Liability model and mainstream banking.

Lending was done to a group of 15-20 women, who were co-guarantors for one another. They would meet locally to pool their dues once a month, and two of the … Read More »