Micro finance is a dead horse and non-banking finance is a deadly horse | The Dark Side of Microfinance and Non-Banking Finance | A Cautionary Tale | Global TV

Posted on: February 5, 2025

Learn the art of reverse thinking. Many complex concepts can be made easier with reverse thinking | Global TV

NV Paulose, Chairman, Global TV +91 98441 82044

Microfinance institutions should come out of the banking stream of activities and do something better and more rewarding than microfinance. Non-Banking Finance sector should get into establishment of Career Organisations (CO) as an alternative to Non Governmental Organisations (NGO). These are the safe alternatives instead of opted out by the system automatically.   

The paperwork and operational costs associated with small transactions are no longer significant concerns today. Banks can now process small transactions efficiently and cost-effectively. We are simply creating names and thereby boundaries of operations without knowing that we are living in a boundaryless world. The rise of fintech companies like Bajaj Finance has no base at all. They are shining by offering paperless and automated lending solutions. They are but charging exorbitant interests from the people. Profits for them come from two sides. One is increase interest rates like 18% to 24% and the other from the sales commission offered by shops. Can you imagine buying a computer priced One lakh rupees with a Bajaj Finance of seventy five thousand rupees? 10% Commission from the sales and 18% from the finance for 3 years.  

Here’s the calculation: Let’s break it down:

  • Computer price: ₹1,00,000
  • Down payment: ₹25,000
  • Bajaj Finance amount: ₹75,000
  • Sales commission: 10% of ₹1,00,000 = ₹10,000 (paid to Bajaj Finance)
  • Interest rate: 18% per annum for 3 years
  • Total interest paid: ₹75,000 x 18% x 3 years = ₹40,500
  • Total amount paid by the customer: ₹25,000 (down payment) + ₹75,000 (loan amount) + ₹40,500 (interest) = ₹1,40,500

The alarming truth about fintech companies like Bajaj Finance is that they’re profiting handsomely from unsuspecting customers. Take, for instance, a computer purchase priced at ₹1,00,000, with a down payment of ₹25,000 and the remaining ₹75,000 financed by Bajaj Finance. The customer is already paying a hefty sales commission of 10% (₹10,000) to Bajaj Finance. But that’s not all – they’ll also be charged an exorbitant interest rate of 18% per annum for 3 years, resulting in a total interest payment of ₹40,500. This means the customer will end up paying a staggering ₹1,40,500 for a computer originally cost them at ₹90,000. It is a matter of ₹15,600/- interest when a bank gives it in a transparent loan process. Total payment by the beneficiary is only ₹1,05,600/-  

What Microfinance institutions can do in the new global economy?

The role of local microfinance institutions can be elevated to the status of the kings in the Golden era of Indian Economy. They should run the Wearhouse and Godowns of local produce. Buy produce from the people at good price, process them, store them and sell them Globally at the best possible price. This was the revenue source of the Kings in India during the Golden era of Indian Economy.

There is recorded facts in the history about how India was a trade headquarters of the world. The situations remain the same with Indian people spread all across the world in key positions and well to do propositions. We should apply brain to understand the changed scenario and to make us fit to the new market conditions. The world is in a crossroads. Everyone is looking for cost savings. We can do a lot with a renewed understanding of what’s really happening in the world. A move from the chemical food culture to the organic living is very much required today.

Career Loans is the way forward for NBFIs

Non-Banking Finance institutions should understand their real advantage and use their brains to expand their streams of operations to Career Loans. For example, 75,000 Tourism Ambassadors across India is a brilliant Idea. To position 75,000 into tourism sector means you are making the tourism sector to become an organised sector from its present status of scattered and unorganised sector. What happens here is the opening of regional, zonal offices and training facilities. You are already having everything from Head Office to local offices. You can take up every sector and make people to work from their homes while they come to the nearest offices for training and facilitation purposes. To understand this need lot of thinking. Imagine the government decides today to dismantle the Head Office, Zonal Offices and Regional offices of all the Banks? This is not going to happen, but if happens, it will make the bank branches to become an unorganised sector and the entire industry will collapse within no time.

Learn the art of reverse thinking. Many complex concepts can be made easier with reverse thinking. Do something different when you want to achieve greater goals in life. Demographic dividend is the greatest resource that India can boost today. Can we spread net when there is abundance of fishes in the river and sea?    

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