How do you provide banking services to rural women who are usually regarded as un-bankable because they do not have collateral? Twenty-five years ago, Chetna Gala Sinha was confronted with that question, when a blacksmith woman in Maharashtra’s Mann taluka in Satara district could not park her meagre daily savings with a bank literally for a rainy day. She wanted to pool her savings to buy a plastic sheet to protect her dwelling during the monsoons.
Why don’t we start a bank ourselves? The blacksmith woman and her unlettered associates asked. Why not, thought Sinha. With that audacity of hope, Sinha and her unlettered group approached the Reserve Bank of India, but their application was turned down, because the bank’s promoters were mostly unlettered. Undaunted, the women returned, learned to read and write and reapplied five months later. This time they got the license. That was in 1997. That was also when Sinha realised that courage can be capital. Sinha has recounted this fascinating story in her 2018 Ted talk which can be accessed here.
Sinha was a Mumbai lady but romance with a farmer activist brought her to rural Maharashtra, where she lived without creature comforts. The house did not have running water and no toilet either.
As the bank celebrates its 25th anniversary, Vivian Fernandes interviewed its CEO, Rekha Sunil Kulkarni for thefederal.com. One of the early learnings for the bank was never to provide poor solutions to poor people. How has the bank acted on that principle? Kulkarni said initially its depositors would save money in piggy banks, but family members, usually husbands, would grab the money. That resulted in the initiation of doorstep banking where agents visit homes every day and collect the savings. Now the agents have hand-held digital devices, and depositors get SMS alerts as proof of money deposited. Doorstep banking also met a felt need as branch visits would mean loss of wages for the bank’s customers. There have been other innovations too. Like thumb impressions instead of personal identification numbers (PINs) which can be forgotten or stolen.
From a lending of Rs 43 lakh in the first year, the bank lent Rs 80 cr in 2021-22. This may not seem large, but it has a disproportionate impact because the average loan size was Rs 46,800. Last year there were 17,800 borrowers and they were all women. A fifth of the loans are done to joint liability groups, where members of the group guarantee repayment of interest and principal. The rest are to individuals. Forty percent of the loans were to street vendors, 20 percent was for purchase of goats, sheep, cows and buffaloes, 14 percent for housing and eight percent were against the hypothecation of business assets like utensils, if, say, the business is a canteen.
Kulkarni said loans up to Rs 1 lakh are unsecured and given against the personal guarantee of two persons. For loans between Rs 2-5 lakh, business assets have to by hypothecated and for loans above, the house or landed property has to be given as security.
One of the facilities popular with vendors at weekly haats or bazaars is the cash credit facility. Kulkarni said the bank studied the borrowing and repayment practices of the vendors for three months and found that if they borrowed Rs 1,000 in the morning, they would pay Rs 50 or Rs 100 more by end of the day. But the vendors preferred moneylenders because they would provide the loans when and where needed and had established trust.
The bank’s cash credit facility has obviated the need for the vendors to pay such usurious rates. Before giving the facility, the agents of the bank assess the business of the likely borrower, make enquiries, and start with small sums. They also look at their credit rating score. The interest rate for cash credit and joint liability loans is 22 percent, lower than the RBI limit of 24 percent, but higher than that of other loans. This is because of feet on the ground. Forty-three of the bank’s 69 employees are field workers.
Kulkarni said the bank has access to low-cost funds from depositors. These cost 6-7 percent. The operational cost is 8-9 percent. She spoke of borrowers like Ms. Vanita Pishe who started a business of making paper plates and cups and now is an agent for the equipment vendor. Another borrower, Ms. Vidya Kirve, has a bag-making unit. Quite a few borrowers like them have risen in life, she said.
The bank works in tandem with Mann Deshi Foundation which provides skills training. Women are coached in entrepreneurship, given financial and digital literacy, and taught trades like tailoring. The mobile ‘schools’ are housed in 16 buses. The foundation works in Maharashtra, Gujarat and Karnataka and has touched 8 lakh women, but the bank is confined to eight branches in western Maharashtra. Among the success stories are goat artificial inseminators. This used to be a male dominated activity. But now, 45 women do the job. They are also adept at providing other veterinary services and are referred to as goat doctors. To encourage asset transfers to women, the bank gives a rebate of 2 percentage points on interest if the property offered as security is in the name of the woman borrower.
While digital banking has extended the reach of the bank and made banking services convenient, it is unable to recover some of the costs. For example, UPI based transactions where payment can be made to phone numbers, or UPI IDs or QR code scans, the bank has to pay the vendor 65 paise per transaction but is barred from charging a fee by the RBI.
Spotting a need, Mann Deshi Bank has a pension product for those who cannot rely on their migrant – or uncaring – children in old age. It also provides several insurance products.
Last year, the bank earned a profit of Rs 29 lakh on deposits of Rs 136 cr and loans of Rs 80 cr. Kulkarni says this is because of a provision of Rs 1.70 cr for loans that borrowers were unable to repay and had to be restructured. The non-performing loan percentage, though low, had increased because of the pandemic. But the borrowers are making efforts to repay and the reduction in doubtful loans will shore up the bottomline.
(Mann Deshi Bank CEO Rehka Sunil Kulkarni with clients. Photo courtesy of the bank)