Udaia Kumar, Managing Director/Share Microfin

It's a long road from precious stones to hard rocks, but Andhra Pradesh's Rayalaseema region has travelled it. Once renowned as Ratnalaseema (land of precious stones), its present name means land of rocks. Few industries are located here and the locals eke out a living tilling the unyielding land. Veldurti is a village (pop: 2000) in Kurnool district, part of this region. In 1988, Rayalaseema suffered one of those acute droughts it does every few years. Local farmers saw their already hard lives becoming harder. And Suvarnamma, a beggar dependant on the charity of others, suddenly found her takings dwindle to next to nothing. Soon, the lady of indeterminate age-"Even I don't know how old I am," she says, her wizened face breaking into a smile-who had resorted to begging after the death of her husband, an agricultural labourer, couldn't summon energy enough to raise her begging bowl or move out of the sun where she was squatting. That's when a messiah walked into her life.

The slightly portly saviour offered her the comfort of words, food and water for four days. On the fifth, he suggested that Suvarnamma take up a small business with capital he would provide. The lady recollected that her grandfather had made a go of selling bangles and wooden combs to the village folk; soon, with Rs 500 in capital, she was in the business. The first days were hard, but business improved with time; three months later, during the festive season, Suvarnamma managed to earn profits of Rs 200 in a single week. Six months later, she bought a buffalo; two years later, she built a house; and today, she earns Rs 2,500 a month.

Musku Udaia Kumar, now 45, is an unlikely messiah. Born into a middle-class family in 1957, the commerce graduate would have ended up a Chartered Accountant had things turned out differently. If they didn't, attribute it to the quirks of the ca qualifying examination and Kumar's leaning towards social service. Like other commerce graduates wishing to become a ca, Kumar had time on his hands-it takes a while to qualify as a ca in India and wannabes appearing for the examination have the option of serving as an apprentice with a qualified ca or doing nothing at all. Kumar chose to do the latter, but spent his time working with a non-governmental organisation called Progress.

This was the 1980s and on his travels to the hinterland, the young idealist was shocked by the poverty around him. He soon realised that it was the inaccessibility to finance that was locking people into the poverty cycle. "A starving person cannot understand lectures on development," explains Kumar. "He or she needs money." His initial motivations were one of a do-gooder, but his means were limited, and Kumar soon realised that he couldn't help too many Suvarnammas on his own.

The same year he loaned Rs 500 to Suvarnamma, Kumar got a chance to attend the Asian Developmental Conference in Bangkok. Impressed by the way micro-finance institutions such as Bangladesh's Grameen Bank and Malaysia's aim work, he founded the Society for Helping and Awakening Rural poor through Education (share) in 1989. Then he went around looking for funds. The banks and financial institutions questioned him on his business model. "I said I want to borrow money to lend funds to the poor," recollects Kumar. And they dutifully laughed him out the door. The only people who took him seriously were Muhammad Yunus, the founder of Grameen Bank, and Mike Getubig of the Asia Pacific Development Centre. The first loaned him $34,000, the second, $25,000 (a total of Rs 18 lakh at the then exchange rate, and the two loaned the amount at a nominal interest rate of two per cent) and Kumar was in business.

It would have been easy to follow the Suvarnamma example. Step 1: Identify people in need. Step 2: Hand out largesse. But Kumar wanted share to work with a sustainable model. That involved recruiting a workforce and training it to identify people who need finance and ensure that the money loaned was used for the stated purpose. He hired 12 people and sent them to Bangladesh and Malaysia for training. On their return six months later, half quit immediately; three others, a little later; and today, only two of the original 12 work for share.

"Development economics is not charity; it is about doing good and at the same time ensuring that the company is profitable"

Undeterred, Kumar decided to develop work methods and training programmes for his employees in-house. The rules-of-lending emerged over time: anyone who earned less than Rs 250 a month was poor; all lending has to be done to women because they are more responsible with money. As did work methods: all lending was done through small groups; if the individual defaulted, it was the group that had to pay the sum back; and this simple tactic created a powerful collective monitoring mechanism that ensured that the money was put to the right use. Today, share boasts a workforce of 2,000.

By 1999, Kumar was itching to incorporate share: a society, by Indian laws, cannot make a profit and share was close to doing so; he wanted banks and financial institutions to treat share as a "responsible financial entity"; and he knew that the "grant culture" wasn't sustainable. "We want our developmental concerns to be run on a sustainable commercial basis," says Kumar. The 26,000 people to whom share had loaned money until then subscribed to the shares and on April 20, 1999, the society became a non banking finance company, share Microfin Ltd (SML). Today, the company has 134 branches across three states and has serviced some 300,000 borrowers. In the first six months of 2003-04, SML returned a profit of Rs 74 lakh. And, thus far, it has disbursed Rs 391 crore in loans and recovered Rs 297 crore. The recovery rate: 100 per cent.

Nearly 40 per cent of India's population of a billion-plus lives in abject poverty. share's research indicates that less than seven million of the 75 million households to which these 400 million belong have access to micro-finance. "Rs 27,200 crore is required to meet the demand from the other households; we have just scratched the surface," says Kumar. Which is why the company's five-year objective of one million customers and a loan portfolio of Rs 300 crore looks achievable.

Typically, SML borrows from banks at 12 per cent and lends at 15 per cent-micro-credit interest rates are high, although not usurious, because of the risk involved.

Kumar's response to obstacles is a businessman's. When he realised that the amount a bank can lend to one micro-finance company is limited, he incorporated Asmita Microfin Ltd to work in Orissa. And he is convinced that both companies are on to a good thing. "Development economics is an entrepreneurial opportunity," he says. "This is not charity; it is about doing good and at the same time ensuring that the company is profitable-otherwise, it is just not sustainable."

That could explain why share has recently diversified into micro enterprise credit, where it will loan customers as much as Rs 1,00,000. "We realised we were losing valued customers who were extremely trustworthy," says Kumar. "Creating a large enterprise needs extra special skills," admits an admiring Muhammad Yunus. "But to create a number of sound business enterprises that are totally dedicated to helping the poor, one doesn't just need to be a social entrepreneur but a special human being; Udaia is such a rare person."

There's a price Kumar has had to pay: he hasn't paid much attention to his family, wife Vidya Sravanthi, a former lecturer of English at Osmania University, and four daughters. Still, the pride in Sravanthi's voice is evident as she talks about her husband. "All great endeavours require sacrifice," she says. Kumar sees it differently. "In a way," he says, "I'm a capitalist, for I have created lakhs of micro entrepreneurs." That's a thought.