Optimisation of the Regulatory Regime and its Impact on Women Empowerment?A Case Study of Karnataka

Micro-finance seems to be doing much better than what the rural branches of commercial banks and branches of rural banks (RRBs) did when they set out to financially assist the vulnerable sections of society particularly those sections that lived in villages. Unlike the commercial bank branches and the RRB branches, micro-finance institutions cater exclusively to the needs of those who are financially excluded. They seek to finance those who have been denied finance by the formal and institutional financial sector. Unlike commercial bank branches and RRB branches which insist on comprehensive documentation to ensure that they can access legal remedy against the defaulting borrowers, the micro-finance institutions rely upon peer pressure to minimise delinquency. Thus a small group of borrowers, numbering, say, 20, is financed one at a time. Once the first borrower repays the loan, the next qualifying beneficiary is sanctioned loan. Any delay on the part of the first borrower to repay the loan inevitably leads to a delay in the release of the loan to the beneficiary next in line. Hence there is peer pressure always at work which by and large helps the MFI to recover its loan in as amicable a manner as possible. The borrower, apart from the legal obligation to repay the loan, is also under a moral obligation to service the loan promptly. The operations of MFIs in rural India have, to a certain extent, reduced the dependence of the beneficiaries on the local moneylenders for financial assistance. This is all the more significant when the beneficiaries happen to be women since women and in particular rural women figure among the most vulnerable and by extension, most exploited sections of the country in general and rural India in particular. The financial assistance extended by MFIs has made them financially independent thereby rendering them invulnerable to exploitation by vested interests. The presence of the locals in the teams deputed by MFIs to disburse loans and recover the disbursed loans has struck a chord with the rural beneficiaries. Strangely, the higher rate of interest applied by the MFIs to the loans raised by the beneficiaries does not seem to have affected the recovery of loans. Apparently, the rate of interest applied to their loans does not seem to affect the borrowers much. This only shows that small borrowers are as bankable as the so-called creditworthy borrowers the commercial banks finance in urban India. It also lays to rest the commonly held belief of the bankers that secured loans seldom fail and unsecured loans often fail. What this implies is that it is the borrowers character more than the security that the borrower furnishes, that determines the borrowers adherence to repayment ethics. Even in the real world situation, one comes across huge loans backed by huge securities have not helped the commercial banks reduce their NPA levels. The loans still remain unrecovered and the assets the loans helped create, are gradually turning into scrap heaps. On their part, MFIs can periodically design the products they offer to the beneficiaries. In fact, they can waive the margin requirement in respect of first-time borrowers. After availing of the loan, the first-time borrower would be in a better position to furnish margin money in respect of the loan applied for. Many beneficiaries who have borrowed from MFIs admit at least in private that their association with the MFIs has helped them in several ways their standing in society has gone up, they are able to educate their children, they are able to access nutritious food. Bankable, commercial banks, creditworthy, MFIs, peer pressure, RRBs, standing