It is the middle class which is the most visible in the progress of this present movement. The invisible others, who have the strings in their hands, are getting increasingly frustrated
One of the big questions doing the rounds with many of the ruling political and perception management classes in Delhi, as well as with a certain set of largely Anglophile pretenders, is—"how did we, or our in-house intelligence agencies—get it so wrong?" Certainly, there are honourable exceptions, two that I know of—Dilip Cherian, for one (who strangely enough does not seem to have been consulted by the Congress, although he handled their election campaign), and the abrasive Arnab Goswami for another. Both of them had their fingers on the pulse of the Nation, and declared it in advance, getting it right against the flow on various public forums.
But most of the rest, including limousine liberals and elite media channels, were and are still largely sneering at matters. Till Anna Hazare pulled literally out of his Gandhi topi this most amazing series of checks and counter-checks leading to the eventual checkmate so brilliantly portrayed in a series of body language changes on the part of the ruling coteries related to the Tihar Jail episode. If there was anything that said it all, it was the way Ambika Soni looked soon after she came on television, at a point when the channels knew that Anna Hazare had refused to come out of jail—but apparently she didn't. Brave lady, at least she came in front of the camera—the rest simply vanished.
However, semantics aside, the big question is—how did so many people who are supposed to be in the know of things, get this simple equation, staring everybody else in the face in the country, wrong? To try and answer that, a much longer article or maybe even a book or three on how information and intelligence is sourced might help. For now, briefly, some of the tried and tested methods do not seem to be working, in both fields—media and intelligence.
What works, then? There are different methods for different people. For me, I find that not carrying a huge camera or pad and pen, and engaging people in conversation as another fellow traveller, seems to work much better now. People talk for cameras, period, so better not to carry a big one. And marrying that to intelligence obtained from trade sources, people who would normally never interact with media, but do because of other alignments. Which is what I have been doing over the past few days in Delhi.
Some aspects, not brought out elsewhere, but relevant all the same, that emerged were:
1) The one group of people who have come out smelling of roses in this whole episode are the rank-and-file ground-level frontline staff from Delhi Police. The same people who were used in the Baba Ramdev fiasco, have been a totally different group when dealing with Anna Hazare's people, since they have seen themselves being used in this episode also. Talking with some of them, I found out, for example, that they had put the word out to all the petty criminals—pickpockets, bag-snatchers, and similar—to stay away from the Anna Hazare crowds. One reason, as explained to me, was that "Madam Bedi kee izzat ka sawaal hai" (The honour of Ms Kiran Bedi is at stake). The other was that they, too, are simply fed up of the way the country is being looted.
2) Here it is important to point out that there is a vast number of Delhi Police staff who are on PSO (Personal Security Officer) duties, or on deputation to other security agencies engaged in the protection of VVIPs. It is their role to try and be invisible, and as is often the case, those who they are supposed to protect often disregard their presence when they talk. This gets around in the barracks, eventually, and as a result nothing is a secret. While this was tolerated in the past to some extent, the loot has reached such high proportions, that even they cannot simply let their consciences go deaf, dumb and blind on these matters.
3) International events have not come to a halt just because of the fracas in India. If anything, in a world that is in more ways than one going rapidly in new directions mostly downhill, a certain amount of glee and satisfaction can be expected from those who would benefit from a weakening India. Bets are being laid that the success story hype around India, so often used as a ploy along with the development card, will have fully reversed itself in as little as three years from now. In other words, we shall, if we do not look out, be a country dependant as much on the neo-colonial supremacists as we might be on the oil sheikhs. Again.
4) Another not so small detail has to do with the continued absence of Sonia Gandhi and her family, the real possibility of legal Presidential sanction for taking forward Subramaniam Swamy's case on wealth held abroad by the Gandhi family, and the information that Julian Assange of WikiLeaks is apparently busy all over again reportedly negotiating with a variety of suitors on the purported information held by him about Indian origin money held in tax havens abroad. As a friend in the power broking business commented—the Pay Commission and the 'get work done' line of commerce is currently suspended.
5) Much is being said about "protecting democracy" lately, whatever that means, most of all by people who would gladly shut down all democratic options if possible. This is especially true in Delhi, where a vast legion of rent-seekers can see their income streams being disrupted. To quote once again from Amitav Ghosh's River of Smoke: "Democracy is a wonderful thing. It is a marvellous tamasha that keeps the common people busy so that men like ourselves can take care of all matters of importance. I hope one day India will also be able to enjoy these advantages." (Page 404, Indian edition).
If anything, the ongoing spectacle surrounding Anna Hazare and friends in India simply proves, once again, that the chances of us missing the important issues of daylight robbery from India, may get lost once again in the "marvellous tamasha" of democracy. While it is the middle class which is the most visible in the progress of this present movement, it is actually the invisible others who have the strings in their hands, and they are getting increasingly frustrated.
In the words of a very important spin doctor from Delhi on his Facebook pages —something's got to give. In Delhi tonight, after a day on the road when the most popular story was about how difficult it is now to court arrest, that's the mood. Enough is enough is the sentiment as expressed towards the politicians. Whether the same sentiment, with increased ferocity, will be swung against the movement itself if it does not deliver something tangible fast, is the real worry. The inertia is there, and the spin doctors have always been good at making small course corrections, enough to swing the same inertia against those who set it in motion in the first case.
In brief—there is now a real fear that this movement will, if those behind it are not careful, be hijacked and used against them. And the stakes, globally, are high enough for ample resources to be provided to willing hands. There are enough advance warning signals to show that the strategy to ensure that the Anna Hazare movement implodes into itself is already underway. And the touchstone as well as barometer for this statement, as always, is in reading between the lines—on the ground.
An internal study commissioned by the new SEBI chairman found what Moneylife alone has been saying: total subjectivity in the way whole-time members have been passing consent orders
Among the many things that UK Sinha, Chairman of the Securities and Exchange Board of India (SEBI) has thought fit to report in his 13-page letter to the Union finance secretary (dated 8th July), is a plan to review the consent order system. Under SEBI's current consent order system, those charged with specific violations are let off by paying a settlement charge without admitting or denying guilt.
The consent order system is another debatable import from the US markets. The logic was that monetary penalties are the biggest deterrents to financial crimes and when coupled with the embarrassment of the charges being published on the regulators' website, this would act as a sufficient check. India has perverted the system in two ways. First, there was no attempt to link the seriousness of charges to the amount paid. Worse, some wrongdoers were repeatedly let off for the same violations with either paltry penalties under the consent terms or a mere "administrative warning".
Moneylife has exposed these dubious 'administrative warnings', which find no place in the SEBI Act or its regulations. In the past three years, under the chairmanship of CB Bhave, these have been freely issued by SEBI's whole-time members (WTMs). SEBI has not bothered to answer our questions regarding the issue of these orders, although a SEBI director has promised to raise them at the regulators' board in the near future. Meanwhile, let's look at Mr UK Sinha's plans. We reproduce the section verbatim: "for the first time in the history of SEBI, I asked a research study to be done analyzing the orders passed by Whole Time Members (WTMs) and Adjudicating Officers.
"We found that in cases of orders passed by WTMs in similar type of cases, while one member had passed orders for suspension in 8% of the cases, another one has done it in 0.5% of the cases and the third member has passed suspension in 25% of the cases.
"Similarly, debarment order has been passed in 50% of the cases by one member, 75% of the cases by the second member and 0.4% of the cases by the third member. The quantum of suspension orders passed also varies vastly from member to member. In quantum of debarment orders, it varies from 50% to 1/3rd to 1/6th when the period of debarment of 2 to 5 years is calculated.
"In cases of corporates making misleading announcements, debarment has varied from 6 months to 2 years to 5 years.
"Similarly in orders passed by adjudicating officers, there is a wide variation. For non-compliance of summons cases, the amount has varied from Rs1 lakh to Rs20 lakh. Mr Sinha points out that, "It must be underscored, however, that different cases may have different facts and circumstances and a uniform slab cannot be prescribed but a wide variation unaccompanied by sufficient reasons gives the impressions to the outside world about arbitrariness and subjectivity. I have emphasized that the same should be avoided and quasi-judicial officers should be sensitive about the outcome and the need to maintain equal treatment in similar cases. Any good enforcement action must have some element of predictability with regard to similar cases based on quantum and degree of offence".
Mr Sinha goes on to say that there is a "prevailing perception" that consent orders passed by SEBI are "subjective" and "provide an escape route to offenders and the quality of orders is not high and is not transparent".
Well, Moneylife has certainly been saying this, and we have been alone in this regard. Mr Sinha then says, "while I have publicly defended the decisions of consent proceedings which are legal and as per law… I do feel that there is a need to bring in uniformity and consistency." He has advised SEBI executives to "have more clarity on when consent orders can be passed or cannot be passed, how to improve the quality of orders, how to improve drafting and to provide training to our officers so that the quality of their orders can improve". He also says that while his efforts have been appreciated by some of the staff members, his views and study may not have "gone well with everybody in the organization".
Moneylife has written regularly on the arbitrariness of consent orders and administrative warnings, even as the rest of the media has glossed over this, while singing praises of the previous regime.
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While macroeconomic changes are essential to iron out the chinks inherent in the industry, a close look is needed to look at the ground realities and the current agent-led decentralised microfinance model
As policymakers are trying to solve the Indian microfinance regulatory puzzle, let us look at a specific field-level problem that led to the present microfinance crisis and ask the question as to how the bill will prevent such occurrences in the future.
Let me start with the 'agent' led decentralised microfinance model. Many people have brought up the aspect of broker agents driving Indian microfinance but their (loud) voices seem to have fallen on deaf years. Several stakeholders including regulators have not even taken cognisance of this (serious) agent phenomenon. Further, more often than not, industry experts describe any such aspect brought up as just an aberration. They are however sadly mistaken, as agents seem to be becoming more of the rule than the exception, based on what I have been observing at the ground level since 2005/6.
The attached emails (Dated January 2011), in circulation among MFIs, inadvertently reached the mail box of this writer and they clearly articulate what I have been saying all along about the increasingly widespread use of agents in Indian microfinance, perhaps to turbo-charge growth, create efficiencies, increase profits and the like.
As the first email suggests, this seems to be the story of (agent/ring leader) Ms Eshwari of Kulithalai in Tamil Nadu. At one level it appears to explain the context in which Ms Eshwari operated. In the meantime, it is also indicative of her representation to the district administration that she is being coerced (by MFIs) into making repayments. The 2nd email is a clear admission by MFIs about the havoc being caused by agents on the ground all over Tamil Nadu.
I keep hearing of other notorious members in Vellore District in Tamil Nadu (where the MFIs have run into a lot of problems recently)-Jayalakshmi and Nagalaksmi-who also double up as agents. I can provide similar stories from other states as well. Further, other stakeholders like N Srinivasan (Author of State of The Sector Report) and Micro-finance Focus (MF) have also made a mention of these agents. Mr. Srinivasan noted in the State of the Sectori Report (2010),
"As in the example from Karnataka, MFIs in other states too have tended to concentrate around the same towns and peripheries, serving the same set of households. The deluge of availability of loans from several institutions has led to multiple borrowing and, in some cases, excessive debt. The pressure to achieve performance targets and breakeven within a short period of time has pushed the relatively new staff of MFIs to look to centre leaders who are in the know of MFI operations. These centre leaders have become a critical rallying point and are today termed as 'ring leaders: In state after state (Madhya Pradesh, Rajasthan, Orissa, West Bengal, Andhra Pradesh, Karnataka and Tamil Nadu), stories abound of how ring leaders informally register new customers promising loans for a fee. Most new MFIs setting up operations in such areas approach these centre leaders as an easy and natural entry point. This provides the necessary influence to the ring leaders to deliver on the promise made to several registrants for loans. The centre leaders are also in a position to obtain loans in the name of others, advantageously using the relative unfamiliarity of new field staff and new MFIs. The resultant ghost loans have a tendency towards default. The clients that pay the registration fee in order to get a loan feel justified in holding up repayments. This behaviour has an adverse effect on repayment rates and necessitates stronger recovery efforts. Some MFIs (including those in the list of top 10) had to wind down operations in some pockets of states such as West Bengal, Chhattisgarh, Rajasthan and Maharashtra without making an attempt to consolidate."
Likewise, Micro-finance Focus writes (Dec 22, 2010),
"Moulding business models to meet their growth targets, some of the largest microfinance institutions are using group leaders as interface agents between borrowers and loan officers. Popularly called as 'Ring Leaders', these agents are responsible for conducting meetings in their premises and collecting weekly repayments from the borrowers... Borrowers of microfinance institutions in townships of Mehndipatnam, Begumpet and Dilkhushnagar of Hyderabad (capital of Andhra Pradesh) told the microfinance focus team that now these ring leaders have become a major cause of distress for them. The principle of 'Know Your Customer' is one of the keystones around which microfinance practices have been evolved. However, with the introduction of the 'ring leaders' into the process, it seems that this essential requirement of lending is being compromised. The end borrowers interact with the ring leaders who maintain their passbooks and repayments. The loan officers, in turn, collect these from the ring leaders, reducing the amount of their interaction with the borrowers to almost neglible levels. Another disturbing practice which came to light was the charging of 'membership fees' by the ring leaders from the borrowers to join an MFI group. Ranging in the amounts of Rs300-Rs500, these membership fees are over and above the interest paid to service the loan. This fee was pocketed entirely by the ring leaders and is their 'commission' for allowing a prospective borrower to be part of the group. "Ring leaders have become a major cause of distress for us but as we need money and don't have any better sources, we give in to their demands," one of the borrowers said." As Microfinance Focus further writes, "in the last few years of unbridled growth, the MFIs have been guilty of compromising on processes to achieve their targets. However, given the current circumstances where the entire microfinance sector is being subjected to a minute regulatory examination, it is high time that the MFIs undertake a thorough introspection and attempt to correct the flaws which have crept into their processes."ii
Ok, so where does all of this lead us? As we go along, we are bound to see the agent problem cropping up in more places and states. Therefore, it is about time that we stopped pretending that there are no agents. The truth of the matter is that there are large numbers of agents who have been (and are perhaps being) used to turbo charge the growth of microfinance and they are turning into Frankenstein's monsters created by the MFIs themselves and they now need access to more and more loans to make their existing repayments. It is much like the famous Eaglesiii song, "Hotel California" which goes 'You can check out any time you like, but you can never leave'—the same applies to most MFIs today. That is why you are seeing the microfinance crisis in states (other than Andhra Pradesh) like Tamil Nadu, as the earlier email suggests.
In fact, I see agents as the major cause of the present Indian microfinance crisis and I strongly feel that the proposed bill should prevent their nefarious operations as otherwise, the end user clients will never be known. In my opinion, the agents 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 backing of thugs and criminals (locally). Once created by the MFIs in search of fast growth and greater efficiency, they are now turning out to be the bane of Indian microfinance and yet, we have many stakeholders pretending that agents do not exist. Therefore, it is about time that Indian microfinance wakes up and deals with them in a swift and strong manner and I hope the proposed bill will take the lead in ensuring this.
Without question, the bill must tackle the agent problem directly by building appropriate safeguards in its implementation. While it is tempting to postpone implementation arrangements, the success of the bill as a legal framework will fully depend on the implementation arrangements (to be employed) and therefore, it needs to be addressed in a transparent manner, right now. Otherwise, the bill will merely remain a document of good intentions and that takes us right back to square one. Hence, adopting a hands-off approach to the rapidly prevalent agent problem is not an appropriate option at all and it is perhaps akin to waiting for a time bomb to explode. I really hope that this is something that the various authorities, involved in drafting the microfinance bill, will not permit.
iSource: Quoted from Microfinance in India State of the Sector Report, 2010, by N. Srinivasan, Sage Publications
iiSource: Quoted from http://www.microfinancefocus.com/content/big-league-microfinance-institutions-using-group-leaders-agents
(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).