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Wednesday, July 28, 2010

Changing face of Micro-Finance in India

(Published at Eastern Chronicle on dated 07-07-2010)


According to encyclopedia “Microfinance is the extension of very small loans to those in poverty designed to spur entrepreneurship.” Ideas relating to microfinance can be found at various times in modern history, with attention paid by economists and politicians worldwide, especially the Grameen Bank of Bangladesh in 1970 onwards for which its founder Muhammad Yunus was awarded the Nobel Peace prize in 2006.


As per the mouthpiece of Grameen Bank, in Bangladesh where 15 million families now benefit from small loans, micro savings, micro insurance and more than 40 percent of the overall reduction of rural poverty due to microfinance.


Indian Scenario
In India, a number of Microfinance institutions (MFI) were created in 1980s to provide credit facility to the poor, especially women, in both urban and rural areas. Microfinance Institutions are vital because they can speak for “Poor India” at a time when “Rich India” is getting rapidly richer.


Due to large size of population at around 100 million, India’s GDP ranks among the top 15 economies of the world. However around 300 million people are living below poverty line and only about 20 percent have access to credit from the formal sector. The challenge before Indian Microfinance Institution is to reduction poverty among people who are economically active but financially constrained and vulnerable in various states.


There are three main factors that count to the bringing up of microfinance as a policy in India. First- Indira Gandhi’s bank nationalization drive launched in 1969 which required commercial bank to open rural branches in India. Second- Introduced “Integrated Rural Development Program (IRDP) in 1978 to alleviate poverty through the provision of loans and Third- Liberalization of India’s financial system in 1990s characterized by financial policy reforms initiated by the Reserve Bank of India.

Important roles of Microfinance Institutions (MFI)

MFI have to help build grassroots movements by creating spaces for poor people to gather, mobilize and organize. To create the movements they have to support the grassroots organizations that will link poor people together and helping transform them into a movement. Encourage movements to use things like research and promote changes in the pattern of negotiations with state authorities. Enable movements with the range of other movements which will create the mass support and monitoring the relationship of the various related organizations and movement building.


Source of Funds
After the role now relevant question arise how MFI sourced the fund to keep up the movement building perspective? These funds are generally coming from three different areas, the government, public at large and foreign agencies. Government institutions like National Bank for Rural Development (NABARD), Small Industries Development Bank of India (SIDBI), Regional Rural Bank (RRB) etc began lending to microfinance institutions in India. But sources said that the lending rates of MFI to borrowers were not cheap. For example, SIDBI lent to MFI at 9 percent and MFI in turn were allowed to charge up to 36 percent. Government initiative to bring the micro finance operations under control virtually foiled allegedly due to influence of some big Micro Finance Institutions, who are the lion beneficiary of micro finance activities. Also various studies have found that the loans are largely used by poor people to meet their daily consumption needs rather than such high interest rates funds use to undertake commercial ventures.


With liberal grants from international donor agencies like Ford Foundation, UNDP, Swiss Agency for Development and Cooperation (SDC) some micro finance operations are now being established in India. Critics said that such micro credit rather than resulting in poverty alleviation will simply bypass the poor people in favour of those who can afford credit at market rates. It is unacceptable when some NGO and MFI try to distort national image abroad for foreign help because they hardly talk about success of the country other than exaggerating their own achievements.


Finally, to enable the reach of micro finance services to the under privileged section of the society the problems associated with the legal, regulatory, organizational systems and the attitude should be addressed and the desired changes brought in these to make them more effective. The more rational way to help the poor could be the provision of sustainable economic opportunities at grass-root level especially provision of required services at competitive rates to support their investments and viable business activities.

Tuesday, July 27, 2010

Is it justified to stop medical insurer`s cashless facility?

(Published at Eastern Chronicle dated 28-07-2010)
Before we digest the process of “medical insurer’s cashless facility” we must first of all, explore its meaning. What is cashless facility? Cashless facility is service provided by an insurer wherein patient not required settling the hospitalization expenses at the time of discharge from hospital. The settlement is done directly by the insurance company. Cashless claims can be of two ways types. Planned where the insured is aware of the hospitalization 2-3 days in advance and emergency where the insured or any covered family members meets with sudden accident from bout of illness that requires immediate hospitalization.

Following are the situations under which one may be denied cashless hospitalization. First-If there is any doubt in the coverage of treatment of present ailment under the policy. Second- If the information sent to third party administrators is insufficient to confirm coverage and Third- If the ailment/condition is not being covered under the policy.

Why stop cashless facility

According to an official of the insurance company due to the hospitals make false claims and they charges higher amount from the insurance companies four of the major state run insurance companies namely United India, New India, Oriental Insurance and National Insurance have decided to stop cash less hospitalization facility at some 150 odd hospitals across the country with effect from 1 July-2010.


Though reason given is that hospitals make false claims but re-imbursement of bills would continue as if the problem of false claims and inflated bills will solve. The insurance company should try to catch the culprit hospitals and doctors with inflated bills rather than deny patients the facility. Experts said rather than such a retrograde step, insurance firms must sit with hospitals and professionals to standardize treatment, improving billing format to induce transparency in the system and build trust among stakeholders. The inability to remove bad apples does not mean that insurance company should throw away the basket.

Regulatory Stand Needed

The Insurance Regulatory and Development Authority (IRDA) chairman Hari Narayan said on 11 July that it had decided to scrutinize the matter of insurance companies stopping the cashless capability for hospitalization of patients to mediclaim policy holders. IRDA need to quickly implement provisions in the new cashless health reform law and stimulus legislation that focus on strengthening primary care, realigning incentives to reward higher quality and greater value, investing in preventive care and expanding the use of health information technology. Insurance companies which are bleeding because of what they claim are inflated claims, have been relying on special investigating agencies to verify the authenticity of many of the claims.

Impact on common people

The move by insurance companies to pull out the facility of cashless hospitalization has left the middle class in a reel who do not have ready cash available with them. A study conducted at Banglore based Manipal Hospital and New Delhi based Escorts Heart Institute revealed that more than 70 percent of the health insurance policyholders are relatively poor middle and lower middle class individuals who have giving premiums for the last 10-15 years with hope that they can avail the cashless benefit whenever they require. Medical costs are increasing to such an extent that paying medical bills become difficult.


Most of the state run insurance companies excluded the large hospitals those who have a transparent billing system. The smaller medical hospitals would continue to give the cashless benefits. Is it that indication in the small hospitals bill manipulations are not possible or is it that vested interests are more easily looked after there? We all know that serious injuries like joint replacements, heart surgeries cannot be done on small hospital. It is regrettable that even public sector insurance companies have joined private sector ones in their cold attitude towards their respective customers when large number of hospitals were de listed by these public sector insurance companies for extending the cashless benefits for availing medical facilities through mediclaim policies.


Finally, rather than withdraw cashless hospitalization facility insurance companies should encourage buying the medical insurance so that all the family members are able to avail quality medical treatment, if and when required as in the case of major developed countries in the world such as Canada, Germany, US, UK etc. Such a step would not only help insured avails treatment at the earliest but would also help for regular health check-up. This means that an insured can live healthy lifestyle as compared to uninsured.