Microfinance Focus, August 08, 2011: Abstract: Recently inducted microfinance (MFI) entrepreneurs with an ‘eagle’s eye focus’ on “exits” sitting in MFI cockpits, fuelled by global MIV ‘n Hedge fund capital, zooming at stratospheric heights over developing countries(or states), carpet bombing microcredit loans (sometimes forcefully bundled with other non-financial products like $50 water filters and $40 solar lanterns) in fiercely competitive territories, incentivizing loan officers for larger loans, disturbing small local microfinance programs, creating highly leveraged balance sheets and obviously, absolutely unaligned with government financial inclusion programs, irking local government and communities in the process is thank god, passé.

SLO (Sustainable, Local and Organic) Microfinance is the mantra i.e. Development professionals leading small programs, chugging at ground level, focused on organic growth, employing locals as managers and field officers, availing funding from local sources, working in virgin territories, within a fixed radius of the MFI head office, focused on sustainability and cent percent aligned with government vision and financial inclusion initiatives.

SLO Microfinance is about building a microfinance institution which is sustainable, local and organic. An MFI which is built to last; which aren’t only good but great.
Sustainable amongst others also means reasonable surplus from operations. Return ratio’s that respect Newton's law of universal gravitation and not follow Sir Richard Branson’s Virgin Galactic.

Local i.e. human capital and financial capital sourced locally for conducting business locally, say in a certain radius of the MFI head office.

Organic i.e. to operate in virgin territories. Engage in healthy competition. Abstain from poaching employees and clients.

The DNA of SLO Microfinance was built by Prof David Gibbons, the Founder of the revered Cashpor Micro Credit Program in the Indo-Gangetic Plains, erstwhile United Provinces of India, an area which produced a quarter of a dozen Prime Ministers for India, innumerable civil servants, but still remains unindustrialized, largely agrarian with primary occupation being running nondescript stores selling lassy (a whipped yogurt drink), aaloo poorie (fried whole-wheat flour pancakes served with curried mashed potatoes and a hot potpourri  vegetable pickle) or the ubiquitous Paan (betel leaf crepe over loaded with secret spices, natural fragrances, manually crushed betel nuts, organic jaggery, forest honey and wild fermented tobacco with an option to lace it further with marijuana paste). Many term this region as India’s Wild West, where also the Ganges flows, the Indo Gangetic dolphin swims and poverty thrives. Welcome to Benares, India’s holiest and amongst the dirtiest cities. Prof. Gibbons deliberately chose this ‘difficult’ area in 1997, as it demanded microfinance the most.

Septuagenarian, Professor David Gibbons began Cashpor Micro Credit in the summer of 1997 at the same time; the current large five Indian MFIs (Hereafter referred as, “The Famous Five”) were starting in the Southern part of India.   ‘The Institution Professor David Gibbons built’ began as non-profit and remains non-profit. The ‘famous five Indian MFIs’ began as non-profit and are now for-profit. In a decade ‘famous five Indian MFIs’ are wilting, all reeling under severe financial and operational stress; newspaper reports confirm that most are undergoing corporate debt restructuring plans etc. Cashpor remains strong and sustainable with a member base of ‘around’ half a million (~500,000) women in concentrated geography of the erstwhile United Provinces, where the Ganges flows. Good things happen to good people and here’s why.

Cashpor works in a strictly defined radius of it head office. It has not given in to the temptation to spread ala Tom Cruise and Nicole Kidman in their lovely film ‘far and away’. In the name of competition, the ‘famous five Indian MFIs’ spread and multiplied like some virus out of some Robin Cook thriller, poaching employees, stealing clients and crushing competition. Cashpor clients remained loyal and did not flinch.

Prof Gibbons uses a poverty measurement tool, the Cashpor Housing Index. Potential clients are strictly  measured on this index before they are enrolled in the Cashpor program. Repeat loans are never forced or insisted upon. In case a client graduates on the Cashpor Housing Index, the member is ‘pulled off’ the program. Cashpor does not give fish to its clients; it strives to teach them how to fish. Shockingly, Global Microfinance Accelerators and Specialists term the above ‘teaching clients to fish’ as ‘Client Drop Out’.

Cashpor officers are never penalized for clients moving out from its program, neither are they ever incentivized to make larger loans with every passing cycle. Horrendously the reverse applies to ‘The Famous Five MFIs’ loan officer are incentivized to make larger loans with every cycle and penalized if a clients decides to step out from the ‘matrix’.

Many may argue that money is fungible and hence utilization of loan check is difficult. Cashpor is notoriously famous for strict monitoring of loan utilization.

Microfinance clients cannot afford to avail loans from MFIs’ led by professionals earning monstrous eight digit salaries plus stock options, as eventually the salaries get priced in the loan APRs. Cashpor attracts qualified, committed local talent which is fairly remunerated. Attrition at Cashpor is amongst the lowest across the sector.

In both letter and spirit, the institution is professionally managed. Cashpor has a governing body of development professionals and not filled with trophy professionals.

Professor David Gibbons clocks flying hours between Malaysia and India, spending half part of the year in each country. The professor enjoys strictly one goblet of red wine (regular vintage) post a day’s work accompanied by western instrumental music and pun unintended, is generally high, on the positive socio-economic impact Cashpor makes on the lives of ~500,000 women members. In his presence or while he is away in Malaysia, Cashpor Micro Credit, with sincerity and sensitivity to all stakeholders including the local community chugs along.

In 2009, A Mix Market global study ranked Cashpor number four in the world and furlongs ahead of the famous five, in the world on composite parameters, both operational & hold your breath, financial parameters including profitability.

Cashpor has built relationships with over three dozen banks and financial institutions. It has diligently diversified its funding across institutions and across facility types. 

As a non-profit, it cannot distribute dividend and hence it fails to attract commercial venture capital without selling its soul to the devil. Cashpor has chosen to take the subordinated debt route for the essential capital injections required to maintain the required gearing for its growth. The founder of Sun Microsystems, the ‘Midas touch’ venture capitalist, Vinod Khosla visited Cashpor and provided ‘some’ funding. In comparison, ‘The Famous Five Indian MFIs’ raked in serious capital from all over world, all type and variety, from MIVs to hedge funds.

In its decade and a half of existence, never has Cashpor ever delayed any repayment of any amount due to any financial institution or bank. Whereas some of the ‘The Famous Five Indian MFIs’ are being resuscitated through corporate debt restructuring program.

Cashpor is an institution; its alumni now occupy real leadership positions in several MFIs and other enterprises.

Cashpor works. Non-Profit microfinance runs.  SLO microfinance rocks.

To sum up: Big isn’t always better or good. No point spreading MFIs like coffee chains or hamburger joints selling artery choking greasy food to unsuspecting highway travelers. It’s good to remain concentrated in a small geography and strive for sustainability. It’s good to build the institution via organic growth.  Work in alignment with the half a century aged government financial programs; they have been around much much longer than the half a decade aged ‘the famous five Indian MFIs’. Take the community along, build friends not foes.

Welcome to SLO, Microfinance.

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(Disclaimer: Shakespeare Walla is the author’s pen name. The opinions expressed are solely those of the author and do not necessarily represent opinion of Microfinance Focus. Microfinance Focus does not take any responsibility for correctness of the data presented by contributors.)

Author can be reached at shakespeare.walla@gmail.com