MFI Basix boss, Vijay Mahajan goes on 12-state padyatra

NEW DELHI: You could say he has found a whole new way to walk the talk. And Vijay Mahajan, considered by many to be the high priest of Indian microfinance, is taking it quite literally—some 5,000 km across rural hinterlands. The chairman of Basix, a microfinance institution (MFI), began a quiet 75-day journey on January 30 from Wardha, Maharashtra—on foot, public transport and by car. He wants to meet and talk to poor borrowers and get the real, grassroots-level answer to an existential question: has microfinance been good for the poor or bad?

The walk, which will take him across 12 states, is ‘an inquiry into the lives and livelihoods of poor people’. “At about 80-90 km a day, I expect to cover about 5,000 km in 60 days, but I plan to take 2-3 days off after every 10 days.”

When ET called him, he had just walked through the Naxals-affected lands of Gadchiroli and had entered Chhattisgarh. The weeks ahead will take him through Orissa, UP, Uttarakhand, Sikkim, Assam, Meghalaya, Tripura, Jharkhand and Andhra Pradesh.

But why? Inside the industry, Mahajan strikes a somewhat self-contradictory stance—both a fierce critic and a leading light of for-profit MFIs. On the one hand, he is seen as `better-than-the-crowd’, happy to settle for lower returns compared with other mainstream MFIs. (Basix’s return on assets of 3.12% in 2009 is lower than the 8.99% earned by Spandana and 4.96% by SKS Microfinance).

On the other, he has also been accused of everything the rest of his ilk is considered guilty of—charging high interest rates, and once, arguably even trying a backdoor entry to become a bank.
“Vijay must be doing this to get a first-hand understanding of what is happening at the ground level. Today, it looks like the industry has really lost touch with what was happening there,” says Spandana Sphoorty Managing Director Padmaja Reddy.

"We got too busy raising money. Everyone stepped into that rat race."


Last year, the MFIs' fairytale existence turned into a nightmare. The Andhra Pradesh government, roused by complaints of irresponsible lending and coercive recollections, issued an ordinance that made it virtually impossible for them to lend or collect repayments in their largest market. MFIs are now deep in crisis as collections have dried up and banks have cut lending.

Where does Mahajan's walk fit into that already complicated equation? Is he introspecting? Or is this just a gimmick? And, is he really holier than the rest?


"Mahajan has lost a lot of credibility. Basix has been hit by charges of high interest rates, and so he might be wondering if he is doing anything worthwhile," says CS Reddy, CEO, Andhra Pradesh Mahila Abhivruddi Society (APMAS), a Hyderabad-based outfit that works with SHG institutions.


Indeed, Mahajan had recently written a six-point reform agenda for MFIs to follow. But he has been unable to get them to stick to it. At the same time, he has been unable to convince the government to let MFIs resume recoveries. "Mahajan is feeling like he has failed on both fronts," adds Reddy.


Mahajan's blog, written during the course of his walk, reflects this frustration. "Here I am at the end of the way…thirty years largely wasted… largely wasted? Who can tell… Just emerging raw from the microfinance crisis, what is real? The earlier assessment or the current one? What is real is what the people say."


Other MFI CEOs are also going through a similar introspection. "The period of rapid growth is over and every CEO will have to spend much more time in the field... The MFI model has become very fragile," says Spandana's Reddy. She recounts the tale of a teashop owner in Maharashtra, one of the millions of poor borrowers. "We recently learnt he had taken 10-15 loans. And then, instead of repaying, he spread a rumour that Andhra Pradesh MFIs are shutting down and that people did not have to repay." The result-about 15,000 borrowers stopped repaying and the industry lost about Rs10-12 crore. "Staff earning salaries of Rs7,000 a month are handling sums of Rs5-10 lakh," she adds. "It is a temptation for them to walk away."

A source who knows the Basix chairman well says, "Mahajan's walk is partly to get away from the pain of all this. Some part of it is to introspect. And maybe to also show that he is different-something that has not come through so far as he defended for profit MFIs."

Mahajan is also the Chairman of the Microfinance Institutions Network (MFIN). The walk will end on the 18th of April at Pochampalli, a village about 50 km from Hyderabad. Both dates are significant. The first is the day Mahatma Gandhi was killed. The second is the day in 1951 when Vinoba Bhave started the Bhoodan movement (from Pochampalli itself).

"It is a hybrid yatra-I will walk while in a village or a town, stopping by every once in a while to have a dialogue; and drive between habitations," Mahajan writes in his blog.

An IIT, IIM and Princeton University alumnus, Mahajan cut his teeth in developmental work with Bhoodan land awardees and later co-founded the Professional Assistance for Development Action (PRADAN). Mahajan says his soul searching on the need to reinvent microfinance started after he was elected as the chair of the executive committee (board) of the Global Consultative Group to Assist the Poor.

"I hope the Shodh Yatra will offer me chance to think through these issues for India and for the world. For financial inclusion and for livelihood promotion, I will use this opportunity to revisit fundamental assumptions about customers and collaborators, about cost structures and revenue models, and more fundamentally, about how to do all this responsibly as well as sustainably."