Successful bankers are those who run their banks prudently and keep adapting their business according to the changing times. History is replete with stellar examples of such bankers and A.P. Giannini has remained as one of the best role models. Giannini was the son of an Italian immigrant farmer near San Francisco, USA. When the teenage Giannini lost his father, he was motivated by his mother to take up a business of vegetables & fruits and soon he became a popular merchant in the San Francisco market. At one point in time he was invited to become a director in a local society-bank where he found that banks were only catering to the rich and decided to start his own bank, the Bank of Italy in 1904. He is now part of a legend that describes how Giannini braved the horrible 1906 San Francisco earthquake and how he used a garbage wagon to haul all his money, gold and records from his bank and moved them to a safe place in the then rural San Mateo. It is also amazing how Giannini reopened his bank in the midst of the earthquake rubbles by “operating from a plank across two barrels in the street” with the only “mantra” to help his countrymen rebuild the city. The best part that fascinated me was the way he assisted jobless dock workers by lending them money. Giannini made collateral free loans on the basis of a handshake and an enduring smile. All his loans came back. A P Giannini was perhaps the real forerunner of the modern structured market-driven microfinance. His Bank of Italy went on to become Bank of America.
In 1998, when I was bestowed with an onerous responsibility of spearheading India’s first effort in market-driven microfinance, through a non-profit company IASC promoted by HDFC Ltd., Giannini was my role model for what was a fairly new business model of microfinance. Most of the loans made were collateral free and were made purely on mutual trust. There were no subsidies attached to loan facilities and yet all the loans did come back. Not many in the microfinance fraternity know that I was instrumental in assisting the Reserve Bank of India in 2000-01 in coming out with their first circular/notification on fixing upper limits of financing for microfinance- income generating loans-Rs 50,000 and micro-housing loans-Rs.1,25,000. IASC was then extending individual loans of up to Rs 15000 and had pioneered Housing Microfinance up to Rs. 45000 and I had to extrapolate the demand for the next 15 years. It is now gratifying when I browse through scores of concept notes sent to RBI through HDFC Ltd.
When India started getting into a typical market driven mode of microfinance by the turn of the century, there were still scores of institutions under the patronage of NABARD and hardcore thinkers who vehemently opposed the market-driven model and fought tooth and nail against the model. They have all eventually fallen in line with the exemplary performance of mainstream microfinance institutions (MFIs) in India during the last two decades. For them the word microfinance is not anathema anymore. Barefaced NABARD and their Velugu protagonists in Andhra Pradesh had to eventually recognize the model, differentiated from their own archaic and counterproductive subsidized model. Later in 2014, when working with Water.org as its Country Director we were pioneering Water & Sanitation Microfinance in India. At one stage we found that it was time for the RBI to include Water & Sanitation Microfinance under their Priority Sector List. Water.org worked closely with the RBI and I took the lead through constant liaison with key officials in RBI. In 2015 RBI came out with a landmark circular including Water & Sanitation under the Priority Sector List and opened up a new avenue for financing by banks.
It is gratifying to know that studies have proved that the microfinance thrust in the last two decades across the globe has pushed many families above the poverty line. Globally the biggest recognition for microfinance again came in India from the RBI when it gave a license to Bandhan Microfinance to graduate itself from an MFI to a universal banker- Bandhan Bank. This was soon followed by another shot in the arm for the microfinance sector when, the RBI again recognized the work of eight MFIs to permit them to open Small Finance Banks.
The RBI, microfinance practitioners, financial institutions like SIDBI, rating agencies like MCRIL, Crisil, ICRA, network institutions like Sa-Dhan and MFIN, banks and many other institutions have reason to believe that a poor woman who got empowered through her self-help group has been graduated now to walk into a neighbouring Small Finance Bank and avail a loan on her own. This group of people and institutions, along with the RBI, were instrumental in making a change in the way the poor in India have to be financed.
Thanks to the Government’s Jan Dhan scheme, poor and poverty alleviated families have started banking on their own. The self-help groups and other formats of groups were, no doubt, an exemplary process in women empowerment but the brazen acquisitiveness displayed by NGOs and state run programs in “owning the groups” has shockingly driven groups to a point of no return with most of them getting dissolved and with pilferage of funds at all levels, including corruption at the group level by smart over-empowered elements. The day has come for poor women and families to liberate from the shackles of such groups with vested interests and walk into their neighbourhood bank, with their head held up and demand a loan on their own.
If there was one institution in India which had stood like the Rock of Gibraltar supporting and motivating the then emerging microfinance sector, it was the RBI and now with climate change and the emergence of Green Banks in many countries RBI should be looking at these new challenges too.
Times are changing. Climate change is now the most happening thing across the globe. People of all countries have started taking stock of the climate change and have started exploring ways and means of facing the challenge, come what may. Every day the world is witness to happenings around the globe that are as a result of climate change. Climate change is the new knowledge bandwagon. Whether you like it or not, building climate resilience has become the new sine quo non of serious economies. Governments and institutions across the globe have taken cognizance of the situation and are gearing up fast to save the planet. The United Nations Framework Convention on Climate Change (UNFCCC) is an international environmental treaty and is spearheading a whole lot of activities. The Kyoto Protocol and the Paris Agreement are milestone developments in the race to fight climate change. The UNFCCC conducts periodical Conferences of the Parties (COPs) to assess the progress in dealing with climate change. The COPs have come a long way from COP1 in 1995 Berlin to COP25, which was held in Madrid from 2nd to 13th Dec 2019. In case the reader is interested to gather more knowledge on matters related to climate change the best place to start would be the UNFCCC website. There are scores of organisations across the globe that have sprung up during the last three decades.
India has been taking a proactive role in all crucial international climate change related meets. The Ministry for Environment, Forest and Climate Change has been doing its best but then there is always a lot more one can do in the area of climate change. Prime Minister Modi has personally taken a lot of interest in solar energy and has to be appreciated for getting India a rare chance to lead the International Solar Alliance.
The climate change fervour has induced a new realm of thinking across the globe and ‘business as usual’ is not going to be the norm anymore. The climate change orientation is already making drastic changes in the way banking has been done all these years. Green Banking is picking up fast. To usher in a Green Banking regimen there is a need for national governments, superintendency banks (central bankers), commercial banks, insurance companies and stakeholders to first get an orientation to carry on normal banking with new objectives to save/preserve the environment. Savings and credit products would have to be designed accordingly. There would be a huge gap between demand and supply in the emerging green finance areas and Green Banks in India can look forward to profitable and meaningful business. For instance, when the e-vehicle transformation in India gets kick-started in full gear, it should be the green banks that will be pitching in to meet the demand-supply gap.
The concept is to encourage private investments into entirely new Green Banks, much like the way RBI opened up an entirely new avenue for opening Small Finance Banks in 2014. While developing a blueprint for Green Banks in India, the Government and the RBI should refrain any temptations to convert existing banks/institutions into Green Banks since these new generation banks have to maintain their exclusivity. There is also a need for a National Green Bank. The easiest way would be to convert NABARD or IREDA into a national Green Bank and that would be a disaster. NABARD started as Agricultural Refinance Development Corporation (ARDC) and went on to do subsidized financing and “promotion of self-help groups”- a non-banking activity. They virtually lost their identity way back in the late eighties when banks virtually stopped refinancing from NABARD. What else can one expect from an institution which has been deluged by strong trade unionism at “all levels of the staff”? Can you compare NABARD with SIDBI which has gone lightyears ahead in doing profitable business and is fit to be called a national bank for industries?
A National Green Bank (NGB) in India has to be a new one at any cost and a ‘cut and paste’ model will just not work out. It can be a PSU or an entirely private effort with considerable government stakes. The NGB should be supporting and regulating the work of Green Banks in the country and should work with a profit motive like any other bank. Any temptation to work as a conduit for populist government projects should be avoided. Every proposition should be bankable. The primary job of the NGB would be refinancing, to start with, and eventually can take up bancassurance in the form of reinsurance, floating of green bonds, project support of huge projects, assistance in floating Special Purpose Vehicles, supporting carbon trading, research & development in climate finance etc.
The need of the hour is a full throttle sensitization effort on Green Banking at all the crucial levels of the government including the RBI. Our country has a huge potential for this new generation banking proposition and let us not keeping mulling on it too long as time and tide wait for none. Let us kick start yet another revolution in banking in India- GREEN BANKS.
About the Author
P. Uday Shankar is a long-time rural development banker and a pioneering microfinance practitioner. With a penchant for exploring new realms, he is now an accredited Green Bank Specialist. Uday is based out of Coimbatore follow him on twitter – @udaygeeth