Microfinance Focus, August 30, 2012: Alex Counts, President and CEO of the Grameen Foundation, gave the closing speech at this years Sa-Dhan/FICCI Financial Inclusion Conference held on August 07-08, 2012 in New Delhi.  Count’s speech, titled “Microfinance in India: A Way Forward,” highlighted obstacles currently facing the microfinance industry in India and discussed the methodologies of several MFIs that remained viable during difficult times, including Grameen Bank.

Throughout his speech, Alex Counts addressed the question “How was Grameen able thrive for decades in the face of stiff competition, unstable governments and periodic bursts of religious fundamentalism?”

According to Counts, aspects of the Grameen model such as  “active roles for clients in ownership and governance” and “strict limits on private benefit for its executives,” have played a huge role in the Foundation’s success.

Additionally, Counts emphasized the detrimental effects of a “zero tolerance” policy on both clients and MFIs. Alternatively, Grameen allows “clients who had problems repaying loans on schedule to reschedule them,” Counts said.

Counts also discussed lessons learned from MFIs in other nations that thrived despite political turmoil.  First, Counts spoke to the similarities between the current political situation of microfinance in India, and the 1999-2001 crisis in Boliva.

“In Bolivia,” Counts told the audience, “a political movement against microfinance that included some dissatisfied clients, opportunistic politicians and professional organizers accused MFIs of exploiting the poor by charging high interest rates and using coercive collection practices. Sound familiar?”

According to Counts, “One Bolivian organization was able to navigate the 1999-2001 crisis better than most: an NGO called Crecer.” Crecer “promoted a client-centric culture,” Counts said, “calling its borrowers ‘members’ rather than ‘clients’…positioning them as full partners in the enterprise.” And unlike other Bolivan MFIs, Crecer never converted into a for-profit finance company, “symbolizing their commitment to avoid mission-compromising shortcuts,” Counts said.

Counts also discussed a Haitian MFI, stating “I have become fascinated by the ability of the country’s leading MFI, Fonkoze, to operate for years in a very unstable environment.”

What was the key to Fonkoze’s success? “Most importantly,” said Counts, “[Fonkoze] management understood on a deep level that the poor as a group are not homogenous.”

According to Counts, recognizing diversity of one’s clients means that “products are customizable to meet the needs of the client.”

At this year’s Sa-Dhan/FICCI Financial Inclusion Conference, Counts expressed his confidence that MFIs could emerge from the recent crisis stronger than before. However, to achieve this goal MFIs “need to maintain an active dialogue with all critical members of our ecosystem, in good times and bad, with friends as well as opponents,” said Counts.  

He added, “No more finger-pointing…Let us build on the cooperative spirit that has recently evolved in this moment of great peril.”

Microfinance Focus, August 28, 2012: The Parinaam Foundation, a not-for-profit organization that provides social services to the urban poor, announced a joint effort with Citi Bank to bring financial literacy training to more than 31,000 Indian women. Parinaam’s Diksha Financial Literacy Program is supported by a Citi Foundation grant of INR 1 crore, and will reach out to urban microfinance customers in Karnataka, Tamil Nadu, Kerala, Maharashtra, Gujarat, Bengal, Orissa, Jharkhand, Bihar, Assam, Delhi, Rajasthan, Uttar Pradesh and Punjab.

Parinaam plans to launch The Diksha Financial Literacy Program at 105 Ujjivan branches this November. In 2011 The Parinaam Foundation partnered with Ujiivan, a MFI that provides services to India’s urban poor, at four branches to run pilot programs. Parinaam says, “the most effective content and mode of delivery was identified as a film to generate awareness, interest and curiosity, followed up by an intensive voluntary training that enables customers to delve deeper into the issues.”

The program teaches women of low economic status how to open bank accounts, access funding and understand their savings options. According to Monday’s press release, “The program does not direct the participants to follow any set pattern of financial decision making; instead it provides them with the tools… to make sound and informed choices…”

“Through this Diksha program we are aiming that at least 60% of the women participating will open savings accounts or increase their savings balance; at least half of them will improve their understanding of debt; and at least one third of the women will learn to manage their money better”, says Elaine Marie Ghosh, CEO of Parinaam Foundation.

Similar Citi Foundation funded projects include a program developed by American India Foundation, which will provide financial education to young adults and the Meljol program, which currently provides financial education to more than 500,000 children.

According to Maneesha Chadha, Head of Corporate Citizenship, Citi India, “we see financial literacy not only as an important driver to deepen financial inclusion with customers who understand and use financial services and products better, but also a means for financial institutions to improve their risk management and product offerings.”

Microfinance Focus, August 27, 2012: In a news bulletin issued by responsAbility, a swiss private capital provider for social businesses, the organization conveyed their disapproval of recent trends towards increasing “interference” in the business practices of MFIs. Christian Speckhardt, Member of the Management Board and author of this bulletin writes, “abandoning the proven, market-based model now would be careless.”

The statement is a response to two specific events. First, the theme of this year’s MFC annual conference: “Bussiness or Development? Time to Choose.” Speckhardt writes, “the future of microfinance is not a matter of choosing between business or development. Both can and must go hand in hand.”

According to responsAbiliy, the industry owes much its success to competition. “Where there were a few single-product credit suppliers once,” Speckhardt continues, “one now finds many fully fledged financial service providers competing for clients on price, quality, and flexibility.” ResponsAbility also mentions that the market mechanism allows MFIs to choose from a broad range of financing sources. “Competition on these two levels provides for efficient outcomes,” Speckhardt writes.

The second event that responsAbility addresses in their statement occurred one week after the above-mentioned MFC conference. The Social Performance Task Force (SPTF) announced Universal Standards for Social Performance (USSPM), measurements of social outcomes (school absentee rates, health indicators etc.) in client’s communities. ResponsAbility believes that, “proponents of outcome measurement raise inappropriate expectations that microfinance, as just one single factor in economic development, cannot realistically meet.”

Additionally, the organization believes social outcome measurements like USSPM distract MFIs from their primary goal: “to become efficient, long-term-oriented financial institutions offering a broad range of highly valued products and services to a large number of households at low cost.”

While leaders at responsAbility are aware of the need for some regulation, they are concerned that “the spirit behind the USSPM may be dangerously close to the ‘Business or Development’ mind-set, which we at responsAbility reject.”

ResponsAbility admits that clients of MFIs are especially prone to overdebetedness. However, “to question the market-based approach to microfinance and to replace it with illusive fine-tuning at the client level,” responsAbility concludes, “is inappropriate and may have unintended consequences for end-clients.” Instead, they argue for a “strict and transparent” selection process when captial providers choose which MFIs to refinance.

Microfinance Focus, August 27, 2012: A recent report released by EDA Rural Systems and Micro-Credit Ratings International Ltd. (M-CRIL) says new regulations “micro-manage” MFIs in India and prevent the proliferation of effective lending strategies. The report, titled “Responsible and Viable Micro-lending Needs ‘Smart’ Regulation”, praises the RBI for beginning “to specify prudential and operational rules for the smooth growth and responsible functioning of the sector.”  However, both organizations found that revised regulations “continue to be restrictive.”

Considering the current political climate, strict monitoring of the microfinance industry in India is welcomed by many. This is especially true in Andhra Pradesh, where indebetedness has led borrowers to commit suicide. In their report with EDA, M-CRIL emphasized the need for regulations that “facilitate the responsible functioning of the sector within an enabling framework.” In fact, the report argues, instead of protecting borrowers, stricter regulations may prevent MFIs from best serving clients.

In their joint report, EDA and M-CRIL criticized the RBI’s household income requirements. According to the report, “with the present rural household income limit, no more than 45% of the rural population is eligible to receive microfinance loans.” They suggest the rural income limit be raised from Rs60,000 to Rs1,00,000 in order to provide loans to the 85% of rural inhabitants subject to financial exclusion.

The report goes on to make several other suggestions, including the use of the Progress out of Poverty Index (PPI) to estimate family income. PPI, which accounts for assets as well as social parameters when calculating income, is viewed as a “more appropriate means” of estimation compared to “self-certification” practices espoused by the RBI. The report argues that self-certification, “perpetuates the culture of careless declarations that have become common in the targeting of welfare programs in India.”

The RBI’s revised regulations call for a 10% margin cap for large MFIs, and 12% for small MFIs. The EDA/M-CRIL report calculated the new margin caps to be too low, and said the current figures lead MFIs to cut corners, often at the expense of client relationships. “In order to provide microfinance in a reasonable environment that addresses borrower interests,” the report states, “RBI will need to consider some increase in margin.”

The authors of the report respect that the RBI has taken a “studied and cautious” approach to microfinance regulation in the wake of events in Andhra Pradesh. This being said, EDA and M-CRIL “hope that the RBI will also be dynamic in its approach to the needs of low income families for financial services.”

Read the full report here.

Microfinance Focus, August 21, 2012: Speech of Vijay Mahajan, Chairman, BASIX during Microfinance Regulation: The Emerging Landscape session at Sa-Dhan`s Conference 2012

Microfinance Focus, August 21, 2012:Microfinance Institutions Network (MFIN) and Centre for Economic and Social Studies (CESS) organized the Colloquium on Microfinance and Financial Empowerment today. The conference was conceptualized with the intent to bring together a wide spectrum of financial inclusion and microfinance sector stakeholders to discuss and debate current and emerging issues in microfinance.

Welcoming the delegates to the colloquium, Dr. Manoj Panda, Director, CESS, commenced the event by highlighting the pertinent role that microfinance can play in enabling financial inclusion. He said, “Empowerment of the poor can only be made possible through provision of financial services. For this, a viable business model needs to be established for scalable and sustainable operations and a strong regulatory framework needs to be implemented.”

Speaking on the occasion, Mr. Alok Prasad, CEO, MFIN, said, “Microfinance was one of the largest sources of formal credit in Andhra Pradesh for those at the bottom of the pyramid. However, the regulations introduced by the State Government resulted in stoppage of all lending by NBFC-MFIs in the past 18 months. As a result, a credit gap to the tune of over Rs. 5,000 crores has emerged and the un-banked and underserved sections of the society have resorted to moneylenders for funds.

It is imperative that a central microfinance law is instituted to ensure that appropriate legal framework is put in place to achieve the National Financial Inclusion agenda of the Government of India. The RBI has made considerable efforts towards addressing the issues of microfinance companies including the Andhra portfolios. However, given the nature of the Andhra situation the issue remains alive. For dealing with it systemically, the Andhra Pradesh government has to be brought into the equation. We hope that the discussion at the colloquium today will contribute to achieving this objective.”

The Colloquium on Microfinance and Financial Empowerment consisted of panel discussions around microfinance as a facilitator for financial inclusion and role of microfinance institutions towards enabling those at the bottom of the pyramid, the impact of microfinance on the economy and the way forward. The speakers included key stakeholders of the industry including Mr. Sridhar S, Former Chairman – National Housing Bank and Central Bank of India, Prof. R. Radhakrishna, Chairman – National Statistical Commission, Prof. P. Purushotham – NIRD, Ms. Jayshree Venkatesan, CEO – IFMR Mezzanine Finance, Ms. Veena Mankar, MD – Swadhaar FinServe, Mr. Ajaykumar Tannirkulam, Executive Director, CMF, Prof. S. Galab, CESS, Hyderabad, Ms. Shamika Ravi, Assistant Professor of Economics – The Indian School of Business & Fellow – Microfinance Management Institute, Mr. Sanjay Sinha, MD, M-CRIL, among others.

The Colloquium discussed the role and impact of Microfinance on its clients and the importance of product design and diversification in ensuring its efficacy. The panelists agreed that NBFC-MFIs have established a commercially viable and sustainable business model for delivery of financial services to the economically underserved/un-served segments of the population. Hence, there is a need to establish the regulatory and operational framework for allowing MFIs to provide the full range of financial services to this segment of the population.

The ‘Microfinance Institutions (Development and Regulation) Bill 2012’ not only provides an overarching regulatory framework for the entire sector, but also has a developmental orientation. As such, enactment of the Bill is essential so that a full framework of regulations is put in place, at the earliest. Microfinance is a proven tool to empower the economically weak. Hence, there is a critical need to build consensus on the way forward for the industry so that we can establish systems and processes that will promote the healthy development of the industry; catalyze the microfinance sector; and, allow MFIs to better serve the national agenda of financial inclusion and inclusive growth.

Microfinance Focus, August 8, 2012: The sixth session ‘Microfinance Regulation: The Emerging Landscape’  was moderated by Ms Mythili Bhusnurmath, Consulting Editor, Economic Times. She started off the session talking of the regulation. Does it make sense to have fewer rules and have it enforced or having large number of rules, which lie stagnant.

The panel included Mr M R Umarji, Chief Adviser (Legal), Indian Banks’ Association, Mr Anurag Jain, Joint Secretary, Department of Financial Services, Ministry of Finance,  Mr Vijay Mahajan, Chairman, BASIX and Mrs Archana Mangalagiri, General Manager, DNBS, Reserve Bank of India who joined via tele conferencing from Mumbai.

Mr M R Umarji, said that he drafted the MF Bill and Sa-Dhan took it to the ministries. The old bill lapsed on several issues and was dissolved. The new bill has been tabled and is yet to get approved. He said there is a basic issues, which is ‘if MFIs are money-lenders how can, parliament make the proposed law?’ Such questions were answered and RBI had formulated schemes for lending to MFIs he said. Mr Umarji widely discussed the regulation of NBFCs engaged in Micro Finance business. Other concerns that gnawed were unfair debt recovery practices and overindebtedness.  Provisions have been made in the bill for this, he said. From having state and district level advisory councils, the RBI will have wide powers. He hoped that the bill gets passed very soon.

Mrs Archana Mangalagiri said that financial inclusion program must be included in commercial lines and not on a charity basis. She at spoke at length about the MF bill. It is a positive move to bring MF under a single regulator she said. It takes away the uncertainty that the MF sector facing. “We do not want separate states having separate rules”, she added. The RBI is clearly for regulation, but they do not want to be regulators.

Mr Anurag Jain, spoke to the occasion, he said that Financial Inclusion is the top most priority for the Govt. The structure has been formed. The rules and regulation will fill the actual structure. The bill has gone to the standing committee and they take it forward.

Mr Vijay Mahajan, said that there was a near universal consensus on the way forward. The spirit of the bill already lays out reasonable highway for the MF. He spoke about the inter-state cap being removed. We must remember that it’s an ongoing dialogue in the industry. He said that it is totally in ease with the bill. We should define financial vandalism and it needs to be brought into the bill.

A question answer session followed. Ms Mythili Bhusnurmath concluded saying that it was a happy state affairs were the regulator and the regulated saw eye to eye.

Microfinance Focus, August 8, 2012: The  second day of Sa-Dhan’s Financial Inclusion Conference 2012, “The First Mile Walk into the Financial System”, in collaboration with the FICCI had an interactive session with five community leaders moderated by Mrs H Bedi. This session brought an insight on the major shift in the lives of the end users from their own narration. It also brought together different stakeholders to develop understanding on other significant requirements of the clients in order to bring positive change in life cycle.

Ms Kamlesh associated with Pradhan, Rajasthan started off sharing that when she started working with the groups her saving was Rs 10 and today she and her community is saving around Rs 11,000. Their federation is majorly into farming, sheep raring and other activities. Earlier the women of her community were just involved in managing their homes. Along with improving their finances these illiterate women have been able to sign their names. Along with the positives there are negatives as well. The main one being their interaction with banks. From opening accounts in the banks to withdrawing money it is plagued with problems.

Ms Suneela is from Kanpur district. Her group started savings from Rs 50 but today their saving is over a lakh. First she became a member and then she got in many other women into this federation. They were then linked to the banks. Tragedy struck, her husband passed away due to prolonged illness. Then she along with other members planned to start health schemes. They discussed this matter and they got good response from all. She said that these efforts towards improving health should be started all over. She also hopes that the bank helps them in this matter.

Ms Radha Ben from Alwar Zilla has been associated with her group from past five year. She started saving with Rs 40. She said that by joining this group, she started her own shop. Ms Radha also brought cattle. Today she is not afraid to speak or fill forms. This was not the case earlier. Never did she go to hospitals, but now she gets health check-up on regular basis. She was given leadership training and more importantly her husband supported her. She voiced similar problems like the other leaders that there were issues in the bank. She hoped that they get something new to learn and life gets better for women like her.

Ms Roopa Sharma from Pune is a DST community worker. Ms H Bedi conducted a question answer session with her. Ms Roopa joined DST as she has problems at home. She has been helped by the community when she was in dire need of money for her son’s education. She hoped that the bank officials behaved in a better way. Someday her group hopes to create their own bank that would cater to their needs and is more flexible.

Ms Shobha, Chaitanya is from Pune. From past 10 years she has been associated with this group. They first formed a group then they moved on to a federation. She took a small loan to start her own business.

A question answer session followed. Mrs H Bedi in her conclusion said that women empowerment is huge. We need to blend the system. The journey has begun and we have a long way to go. The session ended with a song by members of Pradhan, Jharkand.

Microfinance focus, August 7, 2012: The third Breakaway Session-1 Building an Effective Credit Information System deliberated on issues before various stakeholders in building an effective credit information system that works. The session was moderated by Mr Colin Raymond, Credit Bureau and Risk Management Advisor, Global Financial Markets Department.

The panel consisted of Mr Sriram Kalyanaraman, Director, Equifax Credit Information Services Pvt Ltd ,  Mr Suresh Krishna, Managing Director, Grameen Financial Services Pvt. Ltd and Mr V S Radhakrishnan, Managing Director & CEO, Janalakshmi Financial Services Pvt ltd.

The moderator started the session with some thought provoking statements. When we look at emerging markets two of three do not have access to banking. The bottom pyramid remains to be underserved. MFIs have similar situation. Sharing of resources among MFIs is beneficial. The Banana skin survey identified indebtedness as the top risk. The report raised the question of “Are credit bureaus the best answer?”

Mr. Suresh Krishna, Managing Director, Grameen Financial Services Pvt. Ltd with his presentation gave an overview of credit bureau at GFSPL. Their association with credit bureau goes back to 2010. The RBI has credit information for NBFCs, he said. GFSPL submits data on weekly basis. Data quality has been improving, sometimes there have been some rejections. No fresh loans are issued without credit bureau report, he informed.  Mr Krishna showed screenshots of the approval system and also  the working of credit bureau with screen shots.

He gave detailed information on rejection summary and GFSPL’s experience. One massive advantage that his organization has seen is that defaulters have come back and actually closed their outstanding amount, so that they can apply for new loans. Their awareness levels are increasing and they are cautioned now.

Rejections that have happened have been for three reasons. Around 50 cases have been rejected for all three reasons, which is very surprising he said. Mr Krishna outlined the challenges faced with this credit information system. Some of them are data discrepancy, No valid KYC ID, Multiple identity cards, Delayed or non-submission of credit data and no information on closed data. He also made several recommendations.

Mr. V S Radhakrishnan, Managing Director & CEO, Janalakshmi Financial Services Pvt ltd, said that MFIs should not feel demotivated that they have not done a good job. He said that his organization looked at individual customer; they have been biometric and focused. He stressed that UID was a necessity in the long run. They have been driving this process with complete conviction. We should look at credit bureau data for the company envisaging. Credit bureau has to be taken into the DNA of the organization. He concluded saying that having digital data is a must. We have to be careful of not taking away the judgment of individuals on field, he concluded.

Mr. Sriram Kalyanaraman, Director, Equifax Credit Information Services Pvt Ltd, spoke on three points, what are the pillars, what are the challenges and what can we do? Mr Kalayanaraman touched on accurate and timely data collection. He also told us about the launched products and the future products, evolved by MFI bureau usage. He spoke about the challenges faced in this ground. Key challenges and the road ahead were elaborated by Mr Kalayanaraman in detail.

A fruitful question answer session followed. The panel answered the questions. Mr Colin said that if you keep thinking of the value your deriving then the gain is definitely positive.

Microfinance Focus, August 8, 2012: The second day at the Financial Inclusion Conference 2012, “The First Mile Walk into the Financial System” kicked off with Mr Larry Reed, Director, Microcredit Summit Campaign speaking about an interesting topic ‘Recovering the soul of microfinance’. Mr D S K Rao introduced him to the gathering.

He started off with a slide presentation on the history of microfinance around the world. Tools used to move people out of poverty are not really helping them, he said. Are these tools used to exploit people than making their life better? he questioned.

Mr Reed introduced the gathering to the seven steps of microfinance.

The seven steps are…
•    Do no harm
•    Know your client
•    Encourage savings
•    Promote Financial Literacy
•    Monitor and reward social performance
•    Be transformative
•    Recognize excellence

He explained poverty constraints and how microfinance can move the constraints and help the clients grow. Mr Reed gave examples from various parts of the world of how people made it big from a humble beginning. We talk about financial access, financial inclusion, but despite this people are living risky life. How can we make life better for them? Can we be leaders of making poor live life of dignity? Can their children see a better future? All these thought provoking questions posed by Mr Reed made the audience think. He concluded saying that we need to work on this and make the world a better place.

A question answer session followed. Answering the questions Mr Reed said that it is very important to understand the client’s needs. The key issue is how do you organize all these activities and make it financially viable.