By Kishore Kumar Puli,

Microfinance Focus, April 16, 2012: Government of India has taken a decision to provide Rs.30,000 crore to bail out Air India.

The Government largesse to bailout Air India will be a futile exercise and a drain on the National exchequer.

The market environment for aviation-both domestic and international – has become highly competitive as well as unpredictable and there is no guarantee that the airline will turn the corner in the near future. The Government is throwing good money after bad money at the tax payers’ expense.

When developed countries such as Switzerland and Germany have given up the idea of having a national carrier for obvious reasons, can a developing country like India with so many other pressing priorities, afford the exorbitant cost of having a national carrier? It is high time the idea is given up and the amount is utilized for better purposes. Moreover, whom it is going to benefit? Is it the common public? No. Hardly 2% of our population travel by Air. It is politicians and bureaucrats who milk the airline left and right including for their personal jaunts.

Why not Microfinance ?

One cannot help but draw a parallel between the issue of bailing out Air India and microfinance industry in the country.

The present predicament of Air India is solely due to gross mismanagement over a prolonged period of time by all the people connected with the airline. There was no third party intervention. No one can say that the troubles of Air India are due to any external factors which are beyond the control of the management. The airline’s accumulated loss of Rs.20,320 crore is solely due to a prolonged mismanagement by the powers that be.

The present predicament of the Microfinance Industry, on the contrary, is primarily due to the govt. intervention in the sector.

The AP Government Ordinance of October,2010 has, by a stroke of pen, practically killed the microfinance institutions in the states and Rs.7,000/-crore of microfinance loans have become bad and irrecoverable. These are public funds kept as deposits with the banking system which were lent to the MFIs. As the MFIs have stopped lending to these segments of population who are at the bottom of the pyramid, these people have been left high and dry and at the mercy of traditional money lenders for their tiny business activities as well as for emergency requirements.

Instead of now infusing Rs.6,750 Cr. into the airline to meet its working capital requirements, if it is  utilized to write off the microfinance loans, the Government will earn the good will of 90 lac women (affecting the financial capacity of a total population of 360 lakhs, on the basis that each lady is supporting a family of 4) belonging to low income communities and the MFIs can start with a clean slate. Even politically also this sounds a better proposition, as with one stroke, the government is achieving multiple objectives such as earning the good will of the poor people, reactivate their income generating tiny businesses with the fresh credit provided by the MFIs, help the banking system by wiping off their NPAs, put a check on the activities of traditional money lenders and so on.

The agenda of Financial Inclusion of the Govt. is almost at a standstill.  Financial Inclusion does not simply mean opening of saving accounts in the names of poor people and the accounts becoming inoperative within a short period.  The linking of low income communities with institutional financial system like; banks or MFIs is really the crux of the concept of Financial Inclusion. With the MFIs, particularly in A.P., remaining stagnant, the low income communities are not getting the financial services, particularly credit, for the past about 18 months, ever since the MFI ordinance was issued by the AP Govt on 15-10-10.

It is high time, the civil society raises it voice and makes the government see the writing on the wall.  We request the stakeholders of microfinance sector to join together and take up the issues with the appropriate authorities before the situation becomes irretrievable. Since the MFIs are not hanging together, they are being hanged separately. Let us stop this annihilation of the microfinance sector immediately.

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About the writer:Kishore Kumar Puli, Managing Director: Kishore is the promoter/Managing Director of Trident a microfinance institution based out of Hyderabad. He brings with him more than 14 years of combined experience in commercial sector, microfinance, rural development and banking. He has a unique combination of extensive operational and funding experience coupled with excellent knowledge of Indian microfinance market gained through his association with BASIX (the oldest MFI in India) from 1999 to 2005 and with ICICI Bank thereafter. He was instrumental in designing and implementing microfinance best practices while working as Unit Head and Regional Manager in BASIX. He was the first operations manager at Krishna Bheema Samruddhi Local Area Bank, a BASIX subsidiary, and has also led livelihood promotion initiatives of the group companies. Kishore also managed microfinance business in Karnataka and Tamilnadu for ICICI Bank before moving out to launch Trident.

Disclaimer: The opinions expressed are solely those of the author and do not represent opinion of Microfinance Focus.

Disclaimer: The opinions expressed are solely those of the author and do not represent opinion of Microfinance Focus.