Towards bridging the gap – fostering the change

Present day microfinance in the form of providing micro credit to the rural impoverished people started in late 1970s in Bangladesh. Till now it evolves throughout the world around two issues namely its operational limit and nature and proves to be the single most important and effective way for financial inclusion for the poor from every nook and corner, both in rural and in urban milieu. Its ever growing financial services and ever increasing diversification of clients extend the boundaries of microfinance well beyond the classic role of financial assistance to the ‘poorest of the poor’, characterized by the Grameen Bank model.

Microfinance grows in the country to its present form and extension while addressing the single most important gap in the formal financial markets, i.e., gap between the lenders and service providers who have very little information about their potential consumers, and mainly the rural impoverished people who could not avail the services of formal banking sector. The problems largely hinge on market failures that stem from poor and high cost of information, high transactions costs, and difficulties enforcing contracts, and on the other hand given their very educational and social background the poor prefer to turn to informal sources of finance — friends, family-members and moneylenders known for generations, to mention a few. Thus neither the formal banking sector nor the poor households could meet each other in formal financial market.

Microfinance has long been proved to be one of the most sustainable and scalable answers to these problems – it plays effective role in breaking the vicious circle by reducing transactions costs, and overcoming information problems and difficulties in enforcing contracts, specially in the developing countries. It simultaneously challenges the received ‘knowledge’ about what poor households can and cannot achieve and, shows the potential for innovative contracts and institutions to improve conditions in low-income communities. It is a clear improvement over the development banks that emerged in the 1970s. Over the last four decades it proved it has potential for extending markets, reducing poverty, and fostering social change. Moreover, in India private sector MFIs have an essential role to play if the goal of financial inclusion is to be realized, as neither the government nor charities have the capital nor business model required to meet the insatiable demand for finance in rural India. And to realise the need of financial inclusion bankers of the MFIs have to reorient their perception, they must stop perceiving MFI as sector for 100% risk free investment – they must priorities financial inclusion as well.
Like any substantial MFI, VFSPL also emerges and operates to address the gap and plays the role in meeting the financial inclusion. Over the years it emerged as one of the substantial and sustainable platforms of meeting for the formal banking sector and the impoverished people across the state.

But the role of microfinance does not end in mere financing the poor for their livelihood development. It is to ensure few other important aspects of social development while bridging the gap between the formal banking sector and unbanked poor in the country. VFSPL has very well defined set of social indicators which it ensures while it finances the poor for livelihood. For example, it develops financial capability of the loanees, which has far reaching and permanent impacts in their life. At times it also provides training for skill development and supports market linkage for the small enterprises. So far more than 5 lakhs family from poor and marginalized communities developed their livelihoods with the microfinance support from VFSPL.

With this review of the perspective of microfinance in general and VFSPL’s practice in particular, I would like to draw your attention to the review of VFSPL’s thought and achievement in this financial year. VFSPL specifically concentrated on “Financial Literacy” programme of our customers keeping in the mind of Ponzi Scheme run by several money laundering organizations and the natural inclination of over indebtedness. We conducted series of Training Programme and Awareness Programme in which, majority of our customers participated. We are also in the line of thinking to facilitate 100% “Financial Inclusion” of our customer for safe banking. Thus this year VFSPL got the Transparency Seal awarded by mftransparency.org, it proves our ethical practice of micro financing the poor and impoverished. VFSPL continually adopts technological advancement to be cost effective and transparent. Customer will get to know the details of their loan and outstanding after each payment of installment through SMS by newly launched mobile service.

I would like to conclude by drawing your attention to an old axiom – finance alone, however readily and adequately it is available to the poor, cannot effectively and sustainably reduce poverty. It calls for the poor to have education and social capital. And VFSPL would continue its complementary services for the poor towards developing their social capital as well.