How can we ensure easy credit to poor?

The break-even rate for micro finance lending is 24% because of the small size of the loans. So I think we should set up an industry sourcing mechanism to bring down the cost of funds. At present, micro-finance institutions negotiate with banks and financial institutions on an individual basis for loans, which does not give them access to the best borrowing rates. If mobile banking takes off, the cost of operations would come down for micro finance institutions.

There are two points raised here.  How can we provide easy loans to the poor and how to avoid multiple loans.  The answer is same - availability of need based loans.  When needed, if one has confidence that he can raise the loan, he need not go for unethical practices.  Once the penalty for default is made stringent, and once a person knows he can raise funds following ethical practices, he finds no need to resort to unethical practices. 

So the solution is - need based finance availability.  It is said in a different context that justice should not only be delivered but it should be seen as being delivered.  Similarly, loans should not only be made available, but it should be made known that loans ARE available.

No change happens overnight.  Over a period of time, things will improve. It is like being jailed.  Once a person is jailed after being convicted for fraud, life for him is not easy.  99 out of 100 have fear that their illegal act may land them in jail and so they avoid such a thing happening.  For these 99 persons, it is easy to live without going to jail.  

Similarly, for those in need of loans, it should become easy to get a loan.  If they do an illegal act to secure a loan and then get caught, the consequences of penalties imposed and punishments given should be similar in gravity as going to jail described in the earlier paragraph.  In such event, 1% may still engage in unethical practices but the 99% have not need to.

To do this, the lender should change his mindset.  First thing he should avoid is to depend on a check list but take a conscious lending decision.  Second, he should be proactive to lend but not to avoid lending.  

I have earlier on too step emphasized on separating sourcing a customer; documentation for loan, appraisal of loan, sanction and disbursement of loan and recovery of loan.  All these five should be independent functions.  Each of these should reward achievement of targets said.  A person to source should simply source - irrespective of quality.  The documentation person should get all available genuine documents - irrespective of whether it is going to be accepted or not.   The appraiser should not depend on documents not available but take a conscious decision on those that are available. He only makes a recommendation but the sanctioning authority yet again has to be proactive in sanctioning the loan.  

Similarly, the disbursement too has to be proactive to disburse.  During none of these situations, the borrower is not contacted unnecessarily.  The person involved does not process one paper in a day but 200 of them.  It is like a machine churning out components.  It should be a routine matter but the emphasis is on positive process than to hinder further process.  

Finally in recovery, one should be human.  One should identify the causes for default.  Wilful default is punished very severely.  But genuine circumstances for default should receive a proactive response.  Like bankruptcy options available in the US.   

In all these stages, one should work the way it is described above but the organisation and financial system should provide confidence to the borrower that he will be treated fairly throughout, even in times of recovery and defaults.  

This will improve matters 99%.  

Loans are available for the poor and also for the rich.  For the poor under various government schemes, from the government departments and banks. For the rich the financial institutions go after them to meet their requirements.  It is the middle class who have to face a lot of hurdles in getting credit.

Microfinance Institutions, though not many in India, are the best combination of personalised credit services and corporate structuring. Setting up of centres taking into confidence the local people is the starting point. Having branches of banks can make life of some of the people better but to get the crowd involved in this idea and take benefit from it, we need to have someone from them. Giving proper training about use of money, housekeeping, education, etc. can definitely help in strengthening the drive.

Launching attractive savings schemes can be another boost. Point is not to give free money to these people, but to help them understand how money can be used to satisfy their financial goals like money for child's education, marriage, illness, etc.

SE Investments and Ishara Microfinance are two such institutions which provide microfinance. Credit to poor is more of social responsibility.

we can take some doc. to them with two guarantor  and also take the guarantor's doc. along with the applicants doc.( because the low class and middle class people always feared to the insulting in the same people  ) and why do you give them cash credit , you can give them consumer product's  that is also 30% guaranty of fund return to them.

Banks and Fianancial institutions should hire people locally in the rural areas, train them on the basics of lending, risk - management etc, and lend through them to the communities where they are based. These people should be small entrepreneurs having other existing sources of income and they should be paid a percentage of recoveries, but no fixed salaries (similar to insurance agents). We are following a similar approach in providing agricultural advice and inputs to small farmers in Cambodia in a project supported by the World Bank, and its shaping up into a great success and in fact we have been shortlisted by Nestle for a $ 500K prize.