Bangalore: Safatullah is 22 years old and runs a bakery from his home. He needs Rs8,500 to buy equipment and ingredients to increase biscuit production, so that he can sell more cookies to tea vendors. For three months, he’s been running around to raise the money, but has failed.
“No one gives me money. Banks ask for collateral, which I do not have. Where can I go but to the local mahajan (moneylender)?” he said.
While banks may not find Safatullah worth lending to, he looks an apt candidate for microfinance institutions (MFIs). He’s young, earns a livelihood, has the means to repay and can be a part of a cluster for group lending.
Rural spread: A file photo of area managers of microfinance institutions conducting a weekly meeting with borrowers at a village near Mysore in Karnataka. Nearly 80% of the MFI business is concentrated in the three southern states of Karnataka, Andhra Pradesh and Tamil Nadu. Hemant Mishra / Mint
Safatullah, however, lives in Uttar Pradesh’s Bahraich town. That’s an area where even the MFIs don’t want to go because widespread poverty has made forming self-help groups difficult here. Also, most people are not into a livelihood that can be expanded.
Apart from Bahraich, microcredit may not come easily to the poor, the target customers for MFIs, in Jammu and Kashmir and the North-East as well. MFIs say some of these are areas in which lending would be an unviable business proposition due to various reasons. That may be one reason why there aren’t any truly pan-India MFIs.
Other areas where the lenders aren’t too keen to go include parts of eastern Uttar Pradesh, West Bengal and Bihar, the hilly areas of Himachal Pradesh, the tribal areas of Jharkhand and Chhattisgarh, the more remote regions of Rajasthan and Orissa, apart from Punjab.
MFIs cite safety of their business and staff as the biggest concern. Hyderabad-based SKS Microfinance Ltd, India’s largest MFI and active in 19 states of the country’s 28, said some areas are just too dangerous to operate in.
Elsewhere, the economy isn’t necessarily cash-based, said Suresh Gurumani, chief executive (CEO) of SKS Microfinance.
“It’s difficult to have operations in the tribal areas of Jharkhand and Chhattisgarh as these people have not seen cash,” he said. “The only exchange they understand is barter of products.”
MFIs say that though they have been present in certain districts of Jharkhand, Chhattisgarh and West Bengal, Naxal-dominated areas such as Midnapore, Purulia and Bankura in West Bengal; Koderma, Latehar, Palamu and Gumla in Jharkhand; Bastar in Chhattisgarh; and Sundargarh in Orissa are now being seen as extremely risk-prone zones.
Other areas are off limits because of criminal activity.