> Posted by Siddhartha Chowdri
As part of a worldwide “listening tour” Larry Reed, Director Microcredit Summit Campaign, gathered around 20 of the leaders of the Indian microfinance sector for a roundtable discussion. This dinner took place on the eve of the Sa-Dhan Financial Inclusion Conference. In the two weeks since this candid discussion I have been dwelling on the questions Mr. Reed proposed to the attendees and their responses.
To paraphrase, the questions that were posed to these stalwarts of Indian financial inclusion were:
- Should microfinance institutions measure the poverty levels of their clients?
- If yes, how should this then be communicated to the world at large?
Given the beating that the Indian microfinance sector has taken over the last two years it was amazing to see such simple questions provoke such thought and passionate responses from some of the architects of the Indian microfinance movement. As these leaders of MFIs, support organizations, investors, and NGOs gave impromptu responses, several themes and trends emerged.
First, many people were quite clear that microfinance and financial services alone will not alleviate poverty. Even though at this point the whole “microfinance is not a panacea” conversation seems to be beating a dead horse, most of the discussants felt that this was an important message to reemphasize. After reading this recent Forbes article “Microfinance as a Tool to Alleviate Poverty“, I realize that this message is still is not clear to everybody.
Second, there was significant concern about talking about the poor and poverty alleviation in India out of a fear of that politics would provoke further government actions such as the Andhra Pradesh Microfinance ordinance. To simplify:
- The government of India sees it as its duty to protect the poor and promote poverty alleviation through its mix of social welfare “schemes” and various subsidies.
- Microfinance practitioners who claim to be working with the poor are treading into the government’s territory.
- If there even the remotest evidence that microfinance is not in the best interests of the end recipients or in any way undermines the government programs, there will be political repercussions.
The conclusion was that we should be very cautious about how we talk about poverty and only do so when we are sure that microfinance’s impact on poverty is positive.
Third, the impact of timely and fair access to finance on poverty is not cheap to measure. Given the financial constraints facing MFIs in India today the MFIs have no resources to make additional efforts required to measure and report on poverty. Speakers wondered whether measuring poverty was worth it given the complexity and cost of doing it in an accurate and unbiased manner.
Fourth, many of the long-term practitioners expressed how they have seen their services changing peoples’ lives across generations and on a variety of different measures. For example, several people wondered how the empowering effect of self-help groups or joint liability groups can truly be measured and communicated. If left alone this could have led us down an entirely different discussion of how microfinance and social empowerment are interlinked. The takeaway is that microfinance has an impact on more than just incomes and traditional measures of poverty and we should therefore ensure that in the discussion of impact these other areas are considered.
Fifth, there is a wide range of people and types of institutions in India that are providing microfinance services, and not all of them are interested in or capable of focusing on poverty alleviation. Getting them all to agree on how to measure and report is extremely unlikely and not a practical step. I commented that despite the range of views on poverty that alleviation there should is no room for institutions that do not abide by the minimum client protection standards.
What was most telling was that most of the leaders of MFIs were very vocal about the idea that it is important to them to see that their clients are coming out of poverty and there is a need to systematically measure and demonstrate this impact. Many of these participants have been contributing to the Indian microfinance sector for over two decades and yearn to demonstrate that this work has made a meaningful difference to the poor of India. For most of us it is sufficient to “feel” that we have made a difference, however it seems that the burden is now on us to prove it.
Have you read?
An Excellent Resource on Regulating Client Protection: IFMR Trust’s Blog Series
Eight New Observations on the Aftermath of the Indian Microfinance Crisis
MicroSave Asks Clients in Andhra Pradesh: How Are You Coping without MFIs?
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August 27, 2012 at 6:25 am
John Gitau
Siddhartha,
Thank you for bringing to us in a simple and brief way, the microfinance development in India and Larry’s indomitable efforts ( Larry, you are a Divine gift to the poor).
Your last paragraph is emotion evoking. It is easier to lay blame than to think, design and implement workable solutions to poverty eradication. The grand masters of microfinance have done a good job so far-they went where banks never went after many years of existence, and for anything gave the poor hope, an important asset.
Your post sends me thinking about the evolution of a microfinance operation, and the point where things go wrong. I take the normal path to an MFI founder to be: Start with a noble cause to empower the poor out of poverty. Get donors and investors to help you with funds to pursue the cause. You start growing in costs and revenues. You realize profits are sweet. You forget the original cause and become insensitive to the poor you meant to serve. They get over-indebted and disgruntled. You don’t notice that or notice and don’t care. There is an outcry from the poor your customers. Decibels increase. Government intervenes. Your business is affected. You get confused and wonder if to change business or close shop. You reflect and search your soul. Government sticks to its guns saying you either serve the poor sensibly or pack and go. You decide to go back to your original cause. You become more sensitive to the poor, for real. It dawns on you that we are in the financial inclusion era and your customer is king and queen. You either serve them as per their needs or join other sectors of business where obscene profits are lauded. You decide to get into real genuine empowerment bandwagon. You stop cursing the government and get down to business playing by the new rules.
Microfinance institutions, dust yourselves and don’t give up. You still have not scratched the surface of what you set to accomplish from the onset. and like we say in Kiswahili ” kuteleza si kuanguka” ( slipping is not falling)
August 29, 2012 at 7:00 am
M.N.Bhatia
We want an effective NPA System specifically to handle a wide range of simple to complex tasks
Also we need an automated data recording and reporting mechanism in order to capture only the most accurate picture of our bank at any given point of time as per RBI’s Guidelines .
August 30, 2012 at 1:52 pm
SonjaKelly
It’s an interesting point that the group made about the danger of appearing to infringe on the government’s territory. I would have expected that the government of India would WELCOME microfinance, especially given its efforts to make banking easier to people at low income levels (no-frills bank accounts, relaxing the “know your customer” laws, etc.). I wonder why it is, therefore, that the microfinance industry in India receives so much opposition from the government when the commercial banking sector is encouraged to reach the bottom of the pyramid. Is it an issue of the local government versus the national government? Or is there still an image problem that the microfinance industry has in India?