“I can talk about success stories. Among our four lakh members, there are several cases that are successes. But, it is like saying, the patient did not recover following a treatment, but, some of the cells are healthy and responded to treatment,” says Dr. Tara Thiagarajan, chairman of Chennai-based Madura Microfinance Ltd (Madura). Madura is a microlending organisation that aims at social transformation through micro-education by changing the thinking of its registrants; and creating micromarkets to expand its marketplace. Thus, for Madura, the goal is not just creating a successful enterprise, but, transforming the entire rural ecosystem.
“The growth of an individual was as important as expansion of the business. Therefore, only after a year’s training would money be lent”
Being a neuroscientist, Dr. Tara’s imagery automatically falls back to the nervous system, but, this has also helped her identify that, like the nervous system, it is the structure and the dynamics of interaction in the system that determines the outcome. Hence, the organisation is partnering with research scientists to understand the social networks and how they function, to turn into reality, its vision of social transformation through microfinancing.
One may well ask why a microfinance company has to worry about this transformation. And this is where the thinking differs at Madura. Some of that thinking has been passed on by genes, as Dr. Tara Thiagarajan’s grandfather, the late Dr. K.M. Thiagarajan, then Chairman and chief-executive officer (1995), Bank of Madura, introduced rural banks for microlending. Madura has gone a step further in wanting to transform the rural ecosystem in India. As Dr. Tara explains, training has been a key activity of the organisation. “Even at that time, Dr. Thiagarajan believed that the growth of an individual was as important as the expansion of business. Therefore, only after a year’s training would money be lent,” explains Dr. Tara. Today, in addition to development of the individual, Madura – which became an independent entity in 2005 – also recognises the need to create markets and improve networking to enhance the reach of the enterprises.
Lending is through self-help groups to the rural people who create products for the rural markets. “But, first, after giving a small amount as loan, we insist that they attend our education program – a mini-MBA, that trains them in managing finances, people, marketing and more through digital content aimed at creating a successful enterprise. Earlier we used physical materials, but, now we are trying digital content with some groups,” she explains.
Tamil Nadu, where Madura has 200 branches, is like its laboratory where the education module is being tested. The team is focusing on fine-tuning the content as well as its delivery model such that there is sustained interest as well as interactivity among the groups. It is also looking for existing content as well as third party content developers.
The focus is to help the rural people think like entrepreneurs, who can supply products that the customers need. “Currently, their attitude typically is to work hard, but, not think as to why their product is not moving. Also, they do not take the trouble to even cross the field to go to a nearby village,” adds Dr. Tara.
And that is precisely the reason why the micro market became a key driver for Madura’s growth.
Understanding the market
Information on what is needed and what is available is critical for the success of a business. And this, in rural areas, is not available as communication is fragmented and inconsistent. To counter this, Madura runs a classifieds paper for which the revenue comes from advertisements and products and services offered by their members are advertised free of cost. The circulation is free to its four lakh member base, which provides ready readership and easy access to information, increasing the possibility of tying demand with supply and vice versa.
The 200 branches are also sources of information and a convenience to the villagers, opines Dr. Tara.
After the training, the subsequent loan is given only to those who show commitment to self-development and an interest to pursue their venture. “Despite this, we have a high retention rate, with only four-five percent dropouts,” says Dr. Tara. The lending rates are between 19 and 21 per cent on diminishing balance, all inclusive.
The company has one institutional investor in Seattle-based Elevar Equity as well as up to 250 employee shareholders. Loans largely come through debt financing from banks.
In the next one year, Madura expects to expand to other states. For Dr. Tara, scalability is the critical factor determining the success of a venture, whether it is for the enterprises the firm backs or for its own growth. The company has been growing at 20-30 per cent, “which is slow compared to the industry standard, which is 100-200 percent. But, we are fine with that for the moment, since our intention is to see social impact and we are still refining our model,” admits Dr. Tara. “We can set targets and force loans, but, we want to be sure that they are utilised effectively. Even if they are used for the family, we want the women of a household to know how to channelise the loan effectively,” she says, frankly. “And therefore, we work with people who understand our vision,” she adds.
The greatest challenge to expansion that she anticipates is micro education. “Micro lending and micro markets – they will not be such big challenges. But, cultural and linguistic challenges to understanding what will work for cultures other than rural Tamil Nadu will determine its success. But, it is not insurmountable,” she says, optimistically.
Currently, the microfinance industry is one of the fastest growing in the country. But, Dr. Tara cautions that it needs transparency, standardisation and a code of conduct. For her and Madura, it is not the numbers that matter, but, the impact. And to achieve that, she prefers a scientific approach where she can be sure of the cause-effect of the actions of Madura and fine-tune them along the way, bringing about the transformation desired.