MFIN-NCAER study: Here’s the proof that microfinance agents are thriving in Tamil Nadu

The MFIN-sponsored NCAER study has acknowledged the role that microfinance agents are playing in places like Hyderabad and Jaipur. Curiously, Chennai does not find a mention in this study. Here’s some concrete evidence to the contrary

Yesterday (18th October), we had written on how microfinance agents have spread their tentacles far and wide across the country, and how they are breeding resentment against MFIs (See:MFIN-NCAER study unearths agents’ role in microfinance, but does not find these middlemen in Chennai). We had also written on how the MFIN-NCAER study acknowledges the presence of these middlemen, but the report has a number of loose ends.

The earlier Moneylife article had said that the findings from the MFIN-sponsored NCAER study suggested that agent-referred loans are significant in Hyderabad and Jaipur, whereas they are completely absent in Chennai. Let us take the above MFIN-sponsored NCAER study, conducted somewhere in and around November/December 2010, at face value and assume that there are no agents in Chennai. 

Now, please look at the following 3 emails (given as exhibits) in circulation among MFIs that operate in Tamil Nadu. These mails clearly suggest that the agent problem is very serious in that state. Let us get deeper into the emails and see what they are saying.

1st Email: The 1st email is from a former DGM (Deputy General Manager) of a large private sector bank and the same person is now the CEO of an important MFI that operates in Tamil Nadu also. The mail is a forward of a mail (from the Vice President, Business) that talks of several loans taken by one Ms Eshwari, a centre leader, from seven or eight MFIs and also of several benami loans taken by her, using names of other members. The forwarded mail also mentions that Ms Eshwari paid a commission of between Rs500 – Rs1,000 to each of the members who cooperated with her in the matter of the benami loans. It also clearly states that a money-lending operation was being run by Ms Eshwari for almost three years. It further mentions that Ms Eshwari had been making the repayments on behalf of the members for the other benami loans. It also clearly states that because MFIs have faced difficulty in raising money in the last three months (i.e., three months before 12 January 2011), Ms Eshwari’s cash flow and rotation of money (from ‘ever-greening’ of loans, or top-up loans), have been seriously affected (presumably because she could not access fresh loans from any of the MFIs, which were already cash strapped for lending funds). Therefore, she just absconded one day and when the concerned MFIs went for collection, other (benami) members said that they have not taken any loans.

This email thus clearly shows what a centre leader can do as an agent—in terms of taking multiple loans from multiple MFIs and also using the BENAMI route to take more benami (ghost) loans and use the money for further money lending, at the local level. I am not sure that this is financial inclusion or inclusive finance. As I have been saying for a long, long time now (since 2005), the outreach of Indian microfinance is very suspect and perhaps it has more of multiple, benami and ghost loans than estimated. That is why I have been requesting the RBI (Reserve Bank of India) to get an army of people to the grass-roots and get a real handle on the happenings. My repeated pleas have gone in vain so far…

Exhibit No. 1 (All the emails have been reproduced verbatim below, not corrected for grammar)

MAIL # 1:

From: Brahmanand Hegde [mailto:[email protected]]
Sent: Wednesday, January 12, 2011 5:31 PM
[email protected]
Subject: FW: Kulithalai Incident
Dear Vasudevan,
Wish you Happy New Year and Pongal ( Sankranti) !

While you may be aware of this incident, I thought of sharing the same with
you. The mail below is sent by our business head to president of TN-MFI forum.
With regards,
Dear Sir,
We wanted to update TN-MFI forum on recent press coverage about MFIs
operating in Kulithalai. We feel this issue need to betaken up by MFI- TN
chapter with  District Administration to sensitise the government machinery.
Brief details of the same is as under:
1.       At Kulithalai (Karur dist) one customer namely Eshwari has taken
loans from 7-8 MFIs and had also arranged another 7-8 members to pose as
customers. These benami customers were given Rs.500-1000 commission by
Eshwari and remaining loans amount was used by her.
2.       Members have informed that she has been running this (money lending
) business for last 3 years and paying instalments of self as well as other
7-8 customers also.
3.       As last 3 months have been difficult for MFIs to raise funds, few
MFIs have stopped giving new loans and this affected Eshwari's cash flow and
rotation of money and she absconded from her home.
4.       After she left her home, these benami customers came out in open
and informed that they have not taken any loan and they were only used by
Now , we understand that Eshwari has gone to collector and given a complaint
against all the MFIs informing MFIs are harassing her and other members.
There is also article in local magazine about the incident and it has
projected MFIs as doing everything wrong (scan copy of article is attached).  
Requesting you to look into the matter and initiate steps to educate
concerned authorities on entire incident and also to minimise negative
press coverage.
Sankar Sastri
Vice President, Business

2nd Email: The 2nd email is an update on collection issues in two specific areas where MFI collections had been impacted and one of them relates to the Ms Eshwari case stated above. It again talks about Ms Eshwari, a centre leader, borrowing by using names of other members (benami loans) in the centre, defaulting on repayments thereafter, absconding and finally, ganging up with another woman (Roopa Gandhi) and telling all centre members not to repay MFI loans! This mail is also from the former DGM of a large private sector bank, who is now the CEO of an MFI. It is addressed to some of the top NBFC MFIs in Tamil Nadu. This mail was written on 25 Jan 2011.

Exhibit No. 2

MAIL # 2

From: Brahmanand Hegde [mailto:[email protected]]
Sent: Tuesday, January 25, 2011 4:53 PM
To: Tamilarason; BWDA;
[email protected]; [email protected]; Krishna Chandran V; [email protected]; [email protected]; [email protected]
Cc: Ramakrishna Nishtala; Sankar Sastri
Subject: Update on collection issues at Kulithalai (Karur dist) and Musuri (Trichy dist)

Dear All,

This is to update you all on few recent happenings at above two locations during last few days, impacting collection of all the MFIs operating in the area. It all started with one centre leader namely Eshwari borrowing on behalf of few members of the centre and defaulting on repayment. I understand, she is now absconding from the village and joined hands with another lady by name Mrs Roopa Gandhi. I get to hear that, both these ladies are instigating other members of the centre and location not to repay the loans to MFIs. I also understand that they have gone and met Karur collector and complained about harassment by MFIs. Default by few members of the one weeks back, now has spread to few centres in Kulithalai.

Further, local newspaper and a posters by local CPI further fuelled this and few centres in Musari also impacted and customers are refusing to repay. Also, I understand one local lawyer is attending centre meetings and telling MFI credit officers not to force the customer to repay at Musari.

Therefore I suggest that those MFIs impacted by these issues at Kulithalai and Musuri, proactively go and meet local revenue officer (Tahashildar), police and also Dist collector and appraise them about our activities and about recovery issues. I also feel, we could have joint communication with centre members at these places, which might help us to convince good customers to keep their credit record good.

I feel we should take up this issue ASAP, may be on 27th or 28th itself. Sankar is our business head and he will be travelling to Kulithalai and Musari on 27th and 28th. It would be good, if you all depute your representatives to meet, discuss and take next steps on the above lines.

Please let me know if any one of you have any alternative thoughts.

 With best regards,

Brahmanand Hegde

Managing Director & CEO

Exhibit No. 3

3rd Email: The 3rd mail is a response to the 2nd mail above and it clearly suggests that there are agents all over Tamil Nadu who are causing huge problems and the MFIs are sort of helpless—indeed, these agents are now like Frankenstein’s monsters. Some of the top NBFC (non-banking financial companies) MFIs (NBFCs are generally MFIN members but some of them are also Sa-Dhan members) are copied in the 3rd mail below, addressed to their senior/operational management.

MAIL # 3

---------- Forwarded message ----------
From: Krishna Chandran V <
[email protected]>
Date: Tue, Jan 25, 2011 at 5:34 PM
Subject: RE: Update on collection issues at Kulithalai(Karur dist) and Musuri ( Trichy dist)
To: Brahmanand Hegde <
[email protected]>, Tamilarason <[email protected]>, BWDA <[email protected]>, "[email protected]" <[email protected]>, "[email protected]" <[email protected]>, "[email protected]" <[email protected]>, "[email protected]" <[email protected]>, "[email protected]" <[email protected]>, Ramakrishna Nishtala <[email protected]>, Sankar Sastri <[email protected]>

Cc: Pushparaj M <[email protected]>, Gopikrishna A <[email protected]>, K V Rao <[email protected]>, Sateesh Kumar A V <[email protected]>, Rashmi Singh <[email protected]>

Dear Sir,


We faced similar problems in two of our centers so far and had discussed the same.


We heard from the field that few members have gone to meet the District Collector again today. It would be better if all the concerned MFIs could meet and discuss POA before meeting the government representatives.

We welcome the idea of jointly addressing the concerns of the members. Also lot of problems are being caused throughout TN by commission agents. Please give a thought on whether we can issue legal notice to such people jointly through Sa-Dhan. Such people are indulging in cheating the members and the MFIs, but if a singly MFI takes legal action against them they can easily ask the members not to repay to the particular MFI and also give promise that they will arrange funds from other MFIs.


Warm regards,


As you would have noted, all of these emails in circulation among MFIN and Sa-Dhan members clearly point to the existence and use of agents all over Tamil Nadu and they allude to the fact that agents are causing havoc across the state. Thus, this issue has been self-admitted in the emails and must been seen as a confirmation coming from the horse’s mouth.

The above email conversations were conducted between Jan 12th (1st email) and Jan 25th 2011 (2nd/3rd emails) which is almost a month after the MFIN-sponsored NCAER study supposedly collected data. Please recall from the beginning of the article that the MFIN sponsored NCAER conducted small borrowing study came up with zero agents in the Chennai cluster (Tamil Nadu). Whether this findingi  is because of poor sampling, and/or otherwise innocent, is something that I leave to all of you to judge.

That said, as this writer has been arguing, in Moneylife and elsewhere, the client-origination process and incentives attached to it (as well as other reasons) have led to large-scale proliferation of agents in Indian microfinance. Irrespective of what the various stakeholders (interested parties) say, agents continue to dominate Indian microfinance.  In my opinion, they are all-pervading and powerful and they get clients for MFIs and they can make clients disappear from an MFI’s horizon and put these clients onto another set of MFIs. They (can) stop client repayments. They indulge in coercive collective practices as many of them have the backing of thugs and criminals (locally). Once created by the MFIs in search of fast growth, higher profits and greater efficiency, they are now turning out to be the bane of Indian microfinance and yet, we have many stakeholders (still) pretending that agents do not exist (in many places)—both through industry-sponsored reports and at sessions in various microfinance conferences.

Without question, studies and reports from within the microfinance industry, like the MFI-sponsored NCAER study, have hardly brought out the real issues and problems, especially concerning the aspect of agents and their ground level operations/ impact. And I hope that people like Mr Jairam Ramesh—the Honb’le Minister for Rural Development, who released the MFIN sponsored NCAER small borrowing study and very correctly argued that the NCAER study does not provide a robust defense of the MFIs—continue to take note of actual happenings in Indian microfinance and ensure that the Government of India responds quickly and appropriately! Otherwise, much of the inclusive growth agenda would be lost in the resulting chaos created by the grass-roots micro-finance agents, who seem to growing by the day… as the increasing fraudsii  in many MFIs clearly suggest!

One final word appears to be necessary. The idea in providing tangible evidence about use of agents is not to blame any of the MFIs but rather help them by highlighting their helplessness as far as these (Frankenstein) monsters are concerned. And let us be absolutely clear—until and unless the problem of agents is acknowledged, it cannot be tackled fair and square. And without question, unless the agent menace is solved completely and shared JLGs/clients are apportioned properly to MFIs, Indian microfinance cannot get back on the rails. There are no two ways about it and I hope that the RBI, which is to become the sole regulator of Indian microfinance sits up and takes notice of the real ground level issues concerning agents and their burgeoning influence in Indian microfinance!

  iThe aspect of whether the clients actually received the entire loan money is another issue that is worthy of detailed investigation
 ii Increasing frauds, internal lapses at MFIs: Need to strengthen supervisory arrangements to protect the poor, (

(The writer has over two decades of grassroots and institutional experience in rural finance, MSME development, agriculture and rural livelihood systems, rural/urban development and urban poverty alleviation/governance. He has worked extensively in Asia, Africa, North America and Europe with a wide range of stakeholders, from the private sector and academia to governments).

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