Building Bridges Between the Poor and the Banking System: A Study of Sanghamithra Rural Financial Services

The paper is about Sanghamithra Rural Financial Services. It traces the growth of Sanghamithra from the time it was conceived till its completion of the fourth year of operations. It maps out how the strategic positioning of Sanghamithra has evolved and responded to external environment. It also traces the reasons for Sanghamithra to re-define its own role. Sanghamithra represents a unique experiment in the microfinance sector. It has important lessons on how an intermediary organisation can be structured, the impact it could have on the banking system, its own growth and sustainability. It raises issues of structuring organisations and also triggers a debate on whether the intent should be for-profit or not-for-profit. We conclude while the intent is important to choose the form of incorporation, while the nature of activities in itself does not dictate this intent and the consequent incorporation. We also discuss the issue of taxability. While there are arguments on the “charitable” nature of the operations of MFIs, we argue that these arguments are usually open to interpretation. If an institution has tax-free status as a non-negotiable part of its model, it may encounter regulatory roadblocks. This aspect is to be factored, while examining similar experiments. The paper also concludes that there is enough scope for an intermediary level organisation such as Sanghamithra to exist given the way the banking system is evolving and given the fairly inelastic nature of demand for credit vis-à-vis interest rates. It appears that access seems to be the prime concern while we deal with rural credit. However the paper recognises that this model is yet to build in a mechanism to collect “savings” of the clients. This is an issue worth pondering while structuring such intermediary organisations.