Directions (1-10) : Read the following passage based on an Interview to answer the given questions based on it. Certain words are printed in bold to help you locate them while answering some of the questions.
A spate of farmer suicides lined to harassment by recovery agents employed by micro finance institutions (MFIs) in Madhya Pradesh $spurred$ the state government to bring in regulation to protect consumer interests. But, while the bill has brought into sharp focus the need for consumer protection, it tries to micro-manage MFI operations and in the process it could $scuttle$ some of the crucial benefits that MFIs bring to farmers, says the author of Microfinance India, State of the Sector Report 2015. In an interview he points out that prudent regulation can ensure the original goal of the MFIs-social uplift of the poor.
Do you feel the MP Bill to regulate MFIs is well thought out? Does it ensure fairness to the borrowers and the long-term health of the sector?
The MP Bill has brought into sharp focus the need for customer protection in four critical areas. First is pricing. Second is lender’s liability whether the lender can give too much loan without assessing the customer’s ability to pay.
Third is the structure of loan repayment whether you can ask money on a weekly basis from people who don’t produce weekly incomes. Fourth is the practice that attend to how you deal with defaults. But the Act should have looked at the positive benefits that institutions could bring in, and where they need to be regulated in the interests of the customers. It should have brought only those features in.
Say, you want the recovery practices to be consistent with what the customers can really $manage$. If the customer is aggrieved and complains that somebody is harassing him, then those complaints should be investigated by the District Rural Development Authority.
Instead what the Bill says is that MFIs cannot go to the customer’s premises to ask for recovery and that all transactions will be done in the Panchayat office. With great difficulty, MFIs brought services to the door of people. It is such a relief for the customers not to be spending time out going to banks or Panchayat offices, which could be 10 kms away in some cases. A facility which has brought some relief to people is being shut. Moreover, you are practically telling the MFI where it should do business and how it should do it.
Social responsibilities were inbuilt when the MFIs were first conceived. If MFIs go for profit with loose regulations, how are they different from moneylenders?
Even among moneylenders there are very good people who take care of the customer’s circumstance, and there are really bad ones. A large number of the MFIs are good and there are some who are $coercive$ because of the kind of prices and processes they have adopted. But Moneylenders never got this organized. They did not have such a large footprint. An MFI brought in organization, it mobilized the equity, it brought in commercial funding. It invested in systems. It appointed a large number of people. But some of them $exacted$ a much higher price than they should have. They wanted to break even very fast and greed did take over in some cases. Are the for-profit MFIs the only ones harassing people for recoveries?
Some not-for-profit outfits have also adopted the same kind of recovery methods. That may be because you have to show that you are very efficient in you recovery methods and that your portfolio is of a very high quality if you want to get commercial funding from a bank.
In fact, among for-profits there are many who have sensible recovery practices. Some have fortnightly recovery, some have monthly recovery. So we have differing practices. We just describe a few dominant ones and assume every for-profit MFI operates like that.
How can you introduce regulations to ensure social up liftment in a sector that is moving towards for-profit models?
I am not really concerned whether someone wants to make a profit or not The bottom-line for me is customer protection. The first area is fair practices. Are you telling your customers how the loan is structured? Are you being transparent about you performance? There should also be a lender’s liability attached to what you do. Suppose you lend excessively to a customer without assessing their ability to service the loan, you have to take the hit.
Then there’s the question of limiting returns. You can say that an MFI cannot have a return on assets more than X, a return on equity of more than Y. Then suppose there is a privately promoted MFI, there should be a regulation to ensure the MFI cannot access equity markets till a certain amount of time. MFIs went to markets perhaps because of the need to grow too big too fast. The government thought they were making profit off the poor, and that’s an indirect reason why they decided to clamp down on MFIs. If you say an MFI won’t go to capital market, then it will keep political compulsions $under rein$.
$Q.$ Which of the following best explains “structure of loan repayment” in this context of the first question asked to the author?
A. Higher interest rate
B. payment on weekly basis
C. Giving loan without assessing ability to pay
D. method of dealing with defaults
The author is of the view that __
A. the bill to regulate MFIs is not needed
B. the bill neglects the interests of the customers
C. the positive aspects of MFIs should also be considered
D. Most of the MFIs are not good
One of the distinct positive feature of MFIs is that ___.
A. they brought services to the door of people
B. they dealt with default very firmly
C. they provided adequate customer protection
D. they have highly flexible repayment plan
What is the difference between MFIs and moneylenders ?
A. There is no difference
B. A large no.of money - lenders are good whereas only a few MFIs are good
C. Money lenders gave credit at lower rate of interest than that of MFIs
D. MFIs adopted a structure and put a process in place, which was not the case with money lenders
Which of the following is positive outcome of the MP Bill to regulate MFIs?
A. The banks have started this service in remote areas
B. It highlighted some areas of customer protection
C. It highlighted the bad practices being followed by moneylenders
D. MFIs invested in systems and brought in commercial funding
The author is recommending ___.
A. Not - for - profit MFIs
B. For - profit MFIs
C. Stoppage of commercial funding to MFIs
D. Customer satisfaction irrespective of Not-for-profit or for-profit MFIs
Why did MFIs go to the equity markers?
A. To repay the loan
B. To lower interest rate
C. There were political compulsions
D. To grow very fast
Which of the following has not been indicated as one of the features of fair practices for customer protection?
A. Providing information about loan structuring
B. MFIs should also be held liable for some of their actions
C. Not to raise money from capital market
D. MFIs should also inform public about their own performance also
Directions(9-10): Choose the word which is most nearly the same in meaning as the word/ group of words printed in bold