Tara Thiagarajan Wants the Poor to Get More Out of Their Micro Borrowings
Thursday, March 15, 2012
The answer she says lies in better networking—just like in the human brain
In June last year, Chennai-based Madura Microfinance posted a recruitment ad for post-doctoral students who could work efficiently with large datasets—the kind used by researchers in engineering, science and economics. The project involved reconstructing the trade and communication networks of rural South India from large datasets.
While the beleaguered microfinance companies are desperately seeking to control costs, standardise processes, explore new markets and battle regulatory changes, why was Madura looking for post-doctoral researchers?
Because its Chairperson Tara Thiagarajan believes that microfinance institutions (MFIs) have been pursuing the wrong goal. Instead of scale, they should be looking to make loans more effective. That means borrowers should get more out of their borrowings. Along with credit, they should also get the tools and the benefits of a large network to make the most of the credit.
The pursuit of scale—regardless of the borrowers’ capacity to repay, and at the risk of geographic concentration—has turned out to be the sector’s undoing. Thiagarajan is also not impressed with the past “achievements” of microfinance—with stories of how a young mother could buy notebooks for her children, or how a household could buy an additional cow in just one year. For a phenomenon that promised to lift people out of poverty, microfinance seemed to do too little.
She is drawing on her background as a neuroscientist to find the solutions.
The scion of a successful South Indian business family, she studied at the Kellogg Graduate School of Management at Northwestern University. While pursuing an MBA, she was also drawn to study how the brain works. Eventually, she did a PhD at Stanford, and ended up in the National Institutes of Health in the US.
Then in 2004, her father K.M. Thiagarajan, who was running Mudra, suffered a stroke and asked her to help him out. Initially, Tara divided her time between India and the US, where her family lived. In 2007, she decided to shift base to India, and devote most of her time to microfinance.
Luckily for her, she inherited a strong MFI. In 2007, Forbes had ranked it among the 50 top MFIs. It’s an offshoot of the Bank of Madura, which ICICI Bank acquired in 2000. So, it had processes in place that keeps its costs low. Its operating costs are 3.5 percent, its interest rates vary between 18-21 percent and repayment rate is 99 percent.
When its customer base reached 4 lakh in 2008, Thiagarajan pressed the pause button on scale, and began looking for ways to make the loans more effective.