MFI’s, credit cards : Modern day greedy moneylenders a.k.a kanhyalal in old Indian films!!

Aaj Ka Kanhyalal ( modern day greedy moneylenders)

Remember Kanhyalal- a permanent fixture in bollywood films of 60s & 70s era  based on rural settings.The rogue moneylender who had a roving eye and used to hoodwink the poor villagers by making them sign all sort of horror deals on stamp-paper.Then one day he will appear outside the poor man’s hutment and demand the monies. As a good measure, he will also call the goons and announce to the neighbors what a cheat the poor man is as he has’nt paid back the money which he had lent to him two seasons back and which mysteriously has become two times. The poor man grovels at his feet, begs forgiveness, looks sheepishly around, his honor in tatters, he cries for mercy. No way, says Kanhyalal as his goons take away his goat and cow and he laughs out loud, insults the poor man, exhorts his neighbors to shun him, throw him out of the community and hundred such solutions to get back his money. The story always had a sad ending, either the poor man gets sick, his family disintegrates or he commits suicide.

Now, cut to modern era and enter a 5 star hotel conference hall holding a conference on micro finance and how it has changed the under developed nations. The pin striped, armani or seville row  bespoke suit wearing banker is espousing the cause of micro finance on the podium, how his heart bleeds at the plight of the poor people who find it hard to make it to two meals a day, how his life’s mission is to make them rise above their misery; and then he pauses, takes a sip from his evian bottle, adjusts his harrod’s special collection tie, looks down to his bally shoes and rants on. The lady on the first seat is bleary eyed from the long transcontinental flight, upset that the conference timings did’nt give her an opportunity to undergo early morning spa treatment to treat her jet lag!. She also couldn’t eat her croissants and muesli properly at the breakfast as she was rushed. But her heart is also silently weeping as she sees a micro finance company parading a group of poor women who have brought prosperity to their community. What a big sham is being perpetrated? The delegates bite into jumbo prawns at the evening cultural show sipping the best wines of the cellar…… and the charade continues to uplift the poor and downtrodden.

Microfinance shot into prominance when Muhummad Yunus got the Nobel Prize for his efforts related to the Grameen Banks in Bangladesh. After that there was a deluge. In India also, the poster company was SKS Microfinance which has been in news in recent times for all the wrong reasons.

Micro finance companies profess to uplift women and claim that they are the biggest beneficiaries, well the facts shows otherwise, they actually are its chief victims as well. Just read through the horror stories of  women in Andhra Pradesh which was the first full scale micro finance laboratory in India. They charge interest rates of upwards of 24% per annum, sometimes touching 36%, hold back payments but calculate interest on the whole amount, using the pretext that its risky, no banks are willing to lend and that distribution  cost for such scattered and diverse group is large. In good measures the repayments are on fortnightly basis, tightly ensured with no flexibility, and use community pressure to recover their monies to the hilt. They profess that the monies they provide is like micro credit and help impoverished to create businesses and secure their future. This a big ball of lies. All the FMCG companies use the micro finance distributors to sell off their goods and the monies which was supposed to create livelyhood is used for consumption of shampoos, soaps. The lender is least bothered about the end use of money, at times the monies received from one MFI was used to repay to another MFI.

The moneylenders were better. They offered the same interest, were flexible and were willing to take back in kind. No way, says the MFI co., and create a pressure cooker scenario around the borrower that lead to high suicide rate in Andhra Pradesh. Unfortunately they target women who pay a huge price by getting embroiled in shenanigans played by the lenders. In an already bleak scenario where women were oppressed, more levers are pressed to create peer pressure and gender inequality gets skewed further. The poor women situation does not improve, it worsens.

But damn the women, our banker is happy, his wife is happy, his friends are happy. The venture capitalist or the vulture capitalist ( VC), whichever way you look at it is ever eager to put in money in an enterprise that is charging interest rates upwards of 24% p.a. The Micro finance party was a big hit and finally the biggest charade happened. A microfinance company came out with a big bang IPO, general wide eyed public went berserk. Mouth watering returns and everybody wanted to lend to the poor.

Credit Card :

Well, the credit card companies are just like Kanhyalal.They are the only companies who get a “high” on receivables!! Unlike poor guys like us who get the “lows” when receivables go up.They simply love “roll-over” guys- people who roll their outstandings by paying the minimum payable.The receivables are their money generators!! Phew-the devil is in the fine print.That is the power of marketing.All costs considered, the outstanding amount comes at a shocking 46% p.a. interest tag. Infact once the roll over starts, your credit limit ends so interest gets calculated on all your current purchases as well.Infact in USA, Indians are a pariah for the credit card companies as they never roll-over and always pay on time!! The credit card companies hate people who pay on time!!. Such are ways of business.Well the credit card companies say that these outstandings are unsecuritised and hence such a high interest rate-46% p.a. A lot of bull-but well that’s the way a business which generates hundreds of billion of dollars per annum globally and which essentially triggered the current IT boom and continues to give impetus to the boom is based on-sheer muck!!.Actually credit card companies give us a lot insights to human mind working.

In Delhi, there are moneylenders who give 1000 Rs to the vegetable vendor in the morning to buy vegetables, and return them 1010 Rs in the evening. Simple maths. They charge 1% working capital interest per day. It adds to 365% returns p.a. No corporate has yet looked at corporatising this business model. The lender is happy and the borrower is also happy even after paying 365% p.a return.

About sanjay

A power industry professional. I did my schooling from DPS, R K Puram, New Delhi ( Class of 1982). Earned my engineering degree from DCE ( Delhi College of Engineering) in 1986. Worked in Tata Motors ( 2 years), Thermax India (5 years), ABB (2 years), Wartsila (13 years) and now work for Tata Power. Stay in New Delhi and works in Noida. Have travelled extensively worldwide and in India. Loves to travel and see the world.
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