The Burgundy School of Business is in Dijon, France. Prof. Arvind Ashta is the Banque Populaire Chair in Microfinance in BSB. He had recently conducted an email interview with Vijay Mahajan, founder of BASIX. BASIX is headquartered in Hyderabad. Vijay Mahajan was listed in “60 Outstanding Social Entrepreneurs” by the Schwab Foundation for Social Entrepreneurship at the World Economic Forum, Davos, 2002; “India’s 50 Most Powerful People” by BusinessWeek, 2009 and among “the twenty people who will reform India during this decade”, by the Indian Express, 2011.
When the Andhra Pradesh Government promulgated an Ordinance in 2010, effectively banning collection of repayments from micro-borrowers, it sounded the death-knell of many firms. It was supposedly a response to predatory lending practices of some microfinance institutions, allegedly motivated by profit and not by the goal of financial inclusion. BASIX, despite being a long-standing microfinance institution and despite being one of the most ethically run and reasonable microfinance institutions ended up being the most affected as it used revenues from lending operations in other parts of the country to continue to repay commercial banks for their refinancing loans to BASIX for its Andhra Pradesh Operations. Bulk of its loan portfolio was concentrated in Andhra Pradesh. Long before microfinance became possible, BASIX had recognised that credit alone would not do the trick and it had established other institutions that would promote livelihood skills and insurance for its borrower-clients.
It is one of the ‘dharma’s and tragedies of the times that we live in that Bharatiya Samruddhi Finance Limited, the microfinance institution promoted by BASIX, is in dire straits. Other microfinance institutions that were in the front-line of aggressive lending and collection went the route of corporate debt restructuring (CDR) with banks and have managed to bounce back. But, the one scrupulous operator is now fighting for survival!
As to the basic question of whether the Andhra Pradesh (AP) Ordinance was a ‘Black Swan’ event, I have some quibbles. But, since I want this post to be about Vijay Mahajan, I shall post my quibbles, separately, in a companion post. This blog post is not supposed to be about my prescient warnings on the microfinance crisis in India but about how Vijay Mahajan has stayed remarkably resilient to the most devastating setback caused to an institution that he had nurtured and for no fault of his or that of the institution. That is the lesson that we have to learn. He is still buzzing around, mentoring people, connecting young entrepreneurs to others who could help them, offering guidance to African nations on microfinance, etc. Lesser mortals would have turned bitter. But, not Vijay. Even if he harbours some bitterness (and no one would fault him for that), it has not curbed his zeal or enthusiasm for public and social causes. He continues to explore how he could support and nurture the other institutions that he has created as part of the BASIX family. Truly, an inspirational personality. I am fortunate to have known him in the last decade. I am unfortunate that I have known him only relatively peripherally. Hope the days, months and years ahead see that deficit wiped out.
I asked him once about the secret of his mental and spiritual resilience. Perhaps, it was towards the end of 2012 or in 2013. I do not remember. He asked me to come to Hyderabad, suggested a long morning walk together, for him to answer that question. I did not do that. Some prioritisation, that is!
Here are some of his most insightful responses from the interview:
it was at age 21 that I encountered Jean-Paul Sartre’s “Roads to Freedom” trilogy. Like the protagonist Mathieu, I realized that I suffered from the intellectually convenient assumption that “commitment precedes action”. In fact, as Sartre showed, plunging into action can build commitment. [Emphasis mine]
In 1993, I came across a case study written by a PRADAN colleague about how Tayappa, a poor farmer, died while making efforts to raise a bank loan to buy an irrigation pump to lift water to his land, which was just 50 metres away from the perennial Krishna river. That is when I decided, “I will set up a bank for the poor”.
Vijay was a pioneer and he and BASIX created many policy options that came in handy for others who came after him to benefit from it. Their reward to effort ratio was much higher naturally than it was for BASIX.
In the year 2000, BASIX got the Reserve Bank of India to permit banks to lend to Non-Banking Finance Corporations (NBFC) for on-lending to micro-credit customers. Then, they, together with the International Finance Corporation, lobbied the Government of India to permit foreign equity in ‘rural finance’ or ‘microfinance’. Unfortunately, that was to prove singularly unhelpful to BASIX, nearly a decade later.
In page 7 of the interview, he lists his six important take-aways for those wanting to start development ventures. The sixth one is insightful:
It is not enough that you are good and ethical – if a business becomes successful, even if it serves a social purpose, it will attract many imitators with questionable motives and also many detractors who will then mix the originals and imitators into one class, to destroy all of them. So remember TS Eliot’s line paraphrasing the Bible “The House of God is built with the spade in one hand and the sword in another”.
The second paragraph in page 10 – a long one – is worth reading for those who are looking for investors to fund ‘social enterprises’ or businesses. I will just repeat the last four lines from that paragraph:
In our perception, all the talk about the double bottom line and social performance was just talk and not walk, at least till 2010. Indeed, with a few exceptions like the Ford Foundation and the Swiss Agency for Development Cooperation, I found many Development Finance institutions (DFIs) and social investors who said one thing and did the opposite in their investing.
The parallel I can see in wealth management is with clients who profess to be risk-loving and, at the first sign of losses, turn around and blame the bank for mis-selling and underinforming them about risks!
As I had mentioned earlier, BSFL could not go for CDR because the International Finance Corporation (IFC) kept promising them equity but came up with it after dragging their feet with such pitiable terms that Vijay did not have the heart to propose it to his banks. IFC wanted Indian banks to take a big haircut on their loans to BSFL. Vijay records that trusting IFC was a very big mistake. Food for thought there, for many.
The Question No. 13 and his response:
Question 13: How did you deal with this crisis at a personal level?
How did I survive? Re/re-reading the Mahabharata, the Indian epic which has captured all that can happen in human life, mostly bad and ugly, and gives no explanation as to why; Homer’s Odyssey about the vicissitudes of Ulysses, once again without any reason, Liddell-Hart’s brilliant “History of the Second World War”, Hemingway’s “Old Man and the Sea”, and poetry like Kipling’s If, TS Eliot’s Four Quartets and Gerontion, Auden’s Atlantis and The People John Crowe Ransom’s Captain Carpenter, Walt Whitman’s O Captain, Dylan Thomas’ Do Not Go Gentle into the Good Night and the Hindi poet Harivansh Rai Bachchan’s Koshish Karne Walon Ki Haar Nahin Hoti. Perhaps all this didn’t totally help me deal with the stress, since it showed up in my weight shooting up by 12 kgs in the last four years.
Another survival aid – I had a wonderful set of colleagues who stayed back for the last fight and while many of my erstwhile supporters and friends turned cold, many new/old ones came and gave me whatever support they could give, the most important being one of “hang in there, we are with you”. My wife Savita, uncle Om, and son Chirag and daughter Chandni, all were wonderful sources of support.
Here is another one:
Question 16: If I may ask a personal question – You have been idolized as an exemplary and influential leader in the leading magazines. How did you deal emotionally with the events? What would you recommend to other development agents who suddenly find that the carpet has been pulled for under their feet?
I was pleasantly surprised when the Schwab Foundation at the World Economic Forum, Davos in 2003 decided to select me among 60 outstanding social entrepreneurs of the world. After this, many other awards followed. I always felt unreal when I used to be idolized as an exemplary and influential leader in the leading magazines and in public forums and tried to be self-deprecating, funny or just factual and humble.
But I also saw the day when in 2010, India Today magazine’s Telugu edition printed a picture of me along with the founders of Share, Spandana and SKS, captioned “the microfinance mafia” after the AP Ordinance. I had to face hostile media for months as the President of the Microfinance Institutions Network (MFIN), trying to defend the seemingly indefensible perception that all MFIs were usurers, foisting loans on the unwitting poor, and then coercing them for repayments, till some even committed suicides. This was how twenty years of public-spirited pro-poor work was caricatured. What hurt most was some close friends even began believing this and turned cold. I had to run to sympathetic politicians and civil servants in Delhi when MFIs were hounded by the AP government and their staff were getting beaten up by political workers and arrested by the police, when they tried to meet borrowers.
Couple of lessons here: self-deprecation is a way to avoid getting carried away by praise. I will have a separate post on the work of Daedalus Trust on hubris. Humour and cynicism have been proven to be good buffers against hubris. The other lesson is about the uninformed and ‘could not care less to be better informed’ media. Will they ever learn?
To the last question on his own personal plans for the future, among other things, Vijay answers that he would like to die reciting Yeats’ poem, ‘An Irish Airman Foresees His Death’:
I know that I shall meet my fate
Those that I guard I do not love;
My country is Kiltartan Cross,
My countrymen Kiltartan’s poor,
No likely end could bring them loss
Or leave them happier than before.
Nor law, nor duty bade me fight,
Nor public men, nor cheering crowds,
A lonely impulse of delight
Drove to this tumult in the clouds;
I balanced all, brought all to mind,
The years to come seemed waste of breath,
A waste of breath the years behind
In balance with this life, this death.
From a systemic perspective – economic and social -, the concluding remarks made by the Professor who conducted the interview are well made and they need to be internalised too. From an Indian context, with the benefit of hindsight, one can say that making money by serving the ‘Bottom of the Pyramid’ is never easy. India has 1.2 billion vetoes on everything. Where there is poor or poverty, the politician will never be far behind and that is the most abiding lesson from the microfinance crisis in India.
But, public policy issues can wait, for now. This blog post is a small tribute to the resilience and spirit of one man – Vijay Mahajan.