conference report 2008

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The Poor First

MICROFINANCE INDIA SUMMIT, 20083

Contents

1. Introduction 4

2. Inaugural Session 6

3. Plenary Session I: 7

Lookingback,lookingforward:ThestateofthemicronancesectorinIndia

4. Plenary Session II: 9

Deepeningoutreach:Graduatingthepoorestintomicronance

5. Breakaway Session III(a): 11

Securing the future: Contributory Micro Pensions

6. Breakaway Session III(b): 13

Diversifyingnancialservices:Acaseformicroinsurance

7. Breakaway Session III(c): 15

Buildingcapacity,informingchoice:Investinginnancialliteracy

8. Breakaway Session III(d): 16

Anurgentpriority:Meetingtheneedsofurbanpoor

9. Plenary Session IV: 18Setting standards of client servicing

10. Plenary Session V: 20

Globalmeltdownandmicronance:Implicationsforthesector

11. Plenary Session VI: 21

From transactions to transformation: Bridging the economic and social divide

12. Breakaway Session VII(a): 23

Pricing Transparency : The important next step

13. Breakaway Session VII(b): 25 TechnologyforMicronance:Newfrontiers

14. Plenary Session VIII: 27

SHG Bank Linkage Programme: Sustainability and Impact

15. Breakaway Session IX(a): 29

Savings: Options , avenues and the policy environment

16. Breakaway Session IX(b): 31

Community based models: Looking beyond SHGs

17. Breakaway Session IX(c): 33

SocialPerformance:IncreasedAccountabilityandTransparency

18. Plenary X: 35

Thechallengesofregionalskew-micronancevisionforBihar

19. Valediction 38


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MICROFINANCE INDIA SUMMIT, 2008 4

Introduction

Overthelastdecadeandahalf,themicronancesector in India has grown incrementally to reach

out to over 50 million clients through both the

home-grown SHG- Bank Linkage programme

as well as through the alternate channel

represented byNGO-MFIs. The growth story

is no doubt heart-warming, but the expanded

outreach and increased loan disbursement

needed to be better understood from the clients

perspective. Are the poor getting enough,and when they need it? How diverse are the

products and services? Are these services

helping the poor acquire new assets, upscale

their livelihoods, reduce their vulnerability

and help them emerge out of their current

state of affairs? How protected are clients from

malpractice? How strong is the social resolve of

practitioners? What is the policy environment

in which the sector operates? These were someoftheissuesthatthemicronanceIndiaSummit

2008attemptedtoaddressacrossthersttwo

days through insightful discussions and debates

and the sharing of experiences by the various

stakeholders.

Due to the undue focus being given over the

previous few years, to institutions and the

upscaling and sustainability challenges thatthey face at times, at the expense of the

clients that the institutions support; a conscious

decision was made to dedicate the theme for

the micronance IndiaSummit 2008 to The

PoorFirst.Thiswastheftheventorganisedby

themicronanceIndiaplatformwhichhasbeen

institutionalizedwithinACCESSDevelopment

Services, having transitioned from Care India.

The conference this year attracted over 1000delegates, both from within and outside India

and 156 resource persons constituting of thought

leaders, senior policy makers, academics and

practitioners.

An extra feature this year was the additional

third day that focused on the broader issue

of sustainable livelihoods, highlighting the

composite nature of services required by the poor

to upscale their livelihoods. The conference on

InclusiveValueChainsgenerateddiscussion

on topics such as fair trade and its limitations

and organised retail and the opportunities that

it holds for the poor. The theme was chosen to

coincide with the release of Professor Malcolm

HarpersbookInclusiveValueChainsinIndia:

linking the smallest producers to the modern

market. This initiative of a separate day

dedicated to livelihoods achieved its purpose of

allowing the sharing of scaled-up and successful

experiences and helping to understand the

world in which the poor live and work.

Afurtheraccomplishmentof themicronance

India Summit 2008 was not only the timely

releaseofthethirdMicronanceIndia-Stateof

the Sector Report, but also the circulation of

the State ofLivelihoodsThe 4PReport

apioneeringjointeffortbetweenACCESSand

the Livelihoods School.

AnothersignicantachievementoftheSummit

included the Ode to Earth market event

which sought to support the linking of small

producer groups to mainstream markets. The

eventorganisedinconjunctionwithAIACA

and Women on Wings was a tremendous

success and helped to market the products of

the associated producer groups, to counsel

them in marketing and communication, and to

orient them to marketplace dynamics.

Additionalhighlightsofthisyearsconference

included the inauguration of the rst Invest

Asia Fairwhich brought global investors and

SouthAsiainvesteestoasingleforumtoenable

the assessment of the investment potential of

emerging MFIs. Finally, a Knowledge Fair was


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set up to allow industry stakeholders to share

their plans and programmes, disseminate their

work, demonstrate technology solutions anddisplay their products and services.

The conference organisers are extremely grateful

for the continued overwhelming support for the

micronanceIndiaSummitbythemanydiverse

sector stakeholders. This year, an increasing

number of sponsors supported the conference:

thetwoapexorganisationsNABARDandSIDBI;

a number of donor agencies, including the Ford

Foundation and Citi Foundation; the largestIndian public sector bank, State Bank of India;

other commercial banks including Citibank;

and an insurance company, Max New York

Life. The effort each year is to bring greater and

newvaluefromthisinitiativeofACCESSandto

meet the expectations of the sponsors and those

participating in the Summit.

MICROFINANCE INDIASUMMIT 2009

Doing Good and Doing Well

October 26 - 28, 2009

Taj Palace Hotel

New Delhi


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Inaugural Session

DrSureshDTendulkar(Chairman-EconomicAdvisory Council to the Prime Ministers

Ofce) along with Mr. Steven Solnick

(Country Representative - Ford Foundation),

Mr.MVNair(Chairman-UnionBankofIndia),

Ms. Mamta Shah (Director Global Financial

Markets Operations IFC) and Mr. Brij Mohan

(Chairman - ACCESS Development Services)

marked the opening of the Summit by lighting

the lamp.

The inaugural panel emphasised the importance

of The Poor First, the central theme of the

Summit.

ThemicrrovnancesectorinIndiainlastfew

years, has witnessed unprecedented growth.

India is perhaps the fastest growing market

in Micronance the efforts of the variousstakeholders have facilitated the sector in

breaching the 50 million client mark this year.

Even though the SHG-Bank Linkage model

maintains its dominance in the industry, the

alternative MFI channel too has been growing at

a fair pace. However, the sector still only covers

20% of the poor and caters to merely 10% of the

demand for credit. The key issues that require

further attention from the sector include: deeper

poverty penetration, dealing with mission

drift, looking at the shortage of quality human

resourcesandincreasingoperationalefciency.

There is also a need to work on the accessibility

of loan funds, particularly to Tier-2 and Tier-3

institutions,upscalingmicronanceoperations

using technology andproviding livelihood

options to the poor.

Mr. Brij Mohan,

Chairman ACCESS

Development Services

welcomed the Chief

Guest, panel members

and participatingdelegates from India

and abroad to the

conference. He also

thanked the growing

Although India has been one of the fastest

growing economies in the world in the last

two and a half decades, its per capita incomein purchasing power parity terms still lies

among the bottom third of the countries.

Low per capita GDP implies low average

absolute productivity..

low productivity, in turn, is caused by

inadequacy or total lack of access to human

and physical capital. I would, therefore,

use this opportunity to reect on the role ofmicronance institutions in the alleviation

and eradication of poverty and ag certain

problems for your consideration in the

context of the theme of the Summit, namely,

The Poor First

Dr Suresh D Tendulkar, Chairman,

Economic Advisory Council to Prime

Ministers Ofce

From(ltor)StevenSolnick,CountryRepresentative,FordFoundation,NSrinivasan,Author,Stateof

theSectorReport,DrSureshDTendulkar,Chairman,EconomicAdvisoryCounciltoPrimeMinisters

OfceandMVNair,Chairman,UnionBankofIndia


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no. of sponsors of this years Summit for their

support. The other speakers pledged their

commitment to both nancial inclusion and

the improvement of the livelihoods of the

poor. It was also stated that forums like the

present Summit help bring pertinent challenges

into focus, `which in turn helps the sector toconcentrate its intellectual energies on relevant

issues in a more effective manner.

The chief guest Dr. Tendulkar highlighted the

enhancedrolethattheMicronanceinstitutions

could play in alleviating and eradicating

poverty.

He highlighted that the SHG movement initiatedin 1992 with its aim of improving on the IRDP

bycorrectingitsdeciencies,hasprovedtobe

a ground-breaking endeavour that has brought a

large number of poor households into the ambit

ofnancialservices.

He said that the theme of this years conference

would guide the debate to the next level by

bringing in the all-important perspective of theend clients that the micronance industry is

expected to serve. In his view, the sector could

focus on upscaling the services being provided

to clients. The emphasised on the role of

technology and the development of capital and

skill-building as well as physical resources.

The State of the Sector Report authored by Mr.

NSrinivasan,wasreleasedbythehonourable

chief guest Dr. Suresh D Tendulkar. The Report

focuses on the growth and consolidation of the

micronancesectorinIndiaoverthelastyear.

Plenary Session I: Looking back,looking forward: The state of themicronance sector in India

The State of the Sector Report brought out

by ACCESS through the Micronance India

platform three years ago has perhaps become

the most comprehensive document that traces

recentdevelopmentsinmicronanceandtracks

progress across models and methodologies. The

State of the Sector Report, 2008 authored by Mr.

There is a growing realisation that trickle-

down effects of growth do happen but it takes

too long a time to reach the poor. Hence

there is a need to focus on measures that

lead to more inclusive growth. Micronance

is the catalyst to inclusive growth

M V Nair, CMD, Union Bank of India

Today we are facing difcult timesglobally nancial markets are in turmoil,

equity evaluations has halved in emerging

markets and we are in the midst of a credit

crunch all of which are resulting in slower

GDP growth. The impact on current crisis

on MFIs could be severe. We estimate that

for every one percentage decline in global

GDP growth about 20 million additional

people join the ranks of the poor.

Mamta Shah, Director Global Financial

Markets Operations, Asia, IFC

From (l to r) Mamta Shah, Director Global Financial Markets

Operations,Asia,IFC,DrSureshDTendulkar,Chairman,Economic

Advisory Council to the Prime Ministers Ofce, Brij Mohan,Chairman,ACCESSDevelopmentServices,StevenSolnick,Country

Representative,FordFoundation,andMVNair,Chairman,Union

Bank of India


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N.Srinivasan,providesanupdateandareview

on the nature and dimensions of the sectors

growth in terms of challenges and the externaland the regulatory environment. The report

analyses key data and helps in benchmarking

thegrowthofthemicronanceindustry.

During this session, the author presented key

highlights from the report. The discussants

expressed views on the report and suggested

that future efforts be made more comprehensive

in terms of coverage and content.

Chair

Dr.YSPThorat,FormerChairman,

NABARD

Lead Presenter

Mr.NSrinivasan,Author,Stateofthe

Sector Report 2008

Discussants

Mr.VijayMahajan,Chairman,BASIX

DrKCChakrabarty,CMD,Punjab

NationalBank

Ms.MoumitaSenSarma,Head-

Micronance&Sustainable

Development,ABNAMROBank,

India

Presentation Highlights

Duringhispresentationofthesalientndingsof

the State of the Sector Report 2008, the author

highlighted the following trends:

Thesectorhaswitnessedimpressivegrowth in terms of both client

outreach as well as lending

SHGmembersaregrowingatasteady

pace of 18% and constitute the largest

partofthemicronanceclientele

MFIoutreachhasincreasedby40%and

crossed the 14 million mark during the last

year

MoreNGOsarealsobeginning

to function as MFIs and aspire to

transformintoNBFCs

Micronanceserviceprovidersare

focusing more on widening their

client base and increasing outreach

SocialperformanceofMFIsstill

remains an area of concern that

requires greater attention

Oneofthekeychallengesisto

mainstream the savings agenda in

micronance

Flowoffunds,includingequity,to

medium and small MFIs is critical to

ensuring growth

Financialinclusionistheavour-of-

the month and is now attracting moreattention from all stakeholders

YSPThorat,formerChairman,NABARD

From (ltor)MoumitaSenSarma,Head,MicronanceandSustainable

Development, ABN AMRO Bank, India, Dr KC Chakrabarty, CMD,

PunjabNationalBankandNSrinivasan,Author,StateoftheSectorReport


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Discussion

The panelists appreciated the efforts of the lead

author and other contributors in the compilation

of a comprehensive document in the form of the

State of the Sector Report 2008. The discussants

also brought attention to the links that can be

further strengthened in subsequent editions.

These include more space for the structural and

policy issues facing the sector, further detailingof other methodologies in addition to the

SHG and MFI models and emphasis on other

nancial services (not only credit) especially

microsavings and microinsurance.

Conclusion

The panel suggested that a summary report

based on the comprehensive State of theSectorReportincludingonlythekeyndings,

inferences and recommendations as well as

the comments of the practitioners received at

the ongoing Summit should be compiled in the

form of a monograph. This document would

be of specic use to the policy makers whowould be able to draft concrete focused policy

interventions based on the Report.

Plenary Session II:Deepening outreach Graduatingthe poorest into micronance

The progression of micronance has seen it

cateringtothenancialserviceneedsofpeople

just below and above the poverty line. Also,

most practitioners and experts agree on the limits

of microcredit in effectively serving the needs of

thepoorest.Theleadpresenterandtheother

panelists discussed the graduation model

beingdevelopedbyCGAPandFordFoundation.

Chair RobertAnnibale,GlobalDirector

Micronance,Citigroup

Lead Presenter

SyedHashemi,SeniorMicronance

Specialist, World Bank

Panelists

VikramAkula,CEO,SKSMicronance

DavidGibbons,Chairman,CashporIndia

CSGhosh,FounderandCEO,

Bandhan

The micronance sector is characterised

by diversity and heterogeneity in terms of

geographies served, legal forms, products

etc. It is hard therefore to make general

recommendations for the industry. The

report does justice to this nature of the

industry.

Vijay Mahajan

Chairman, BASIX

The theme for the sectors growth now

onwards is not growth itself there is

more contemplation on what the sector

is collectively out to achieve in terms of

nancial inclusion and poverty reduction.

N Srinivasan, Author, State of the Sector

Report - 2008

The State of the Sector Report is an

attempt to bridge the gap between research

and policy formulation. A brief version

including only the inferences and insights

can be effective in catalysing wider policy

action

Y S P Thorat, Former Chairman, NABARD


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During his presentation of the concept and

implementation of the graduation model,

the lead presenter highlighted the following

points:

Experiencehasdemonstratedthat

the poorest need a more holistic

range of inputs including livelihood

improvement support and social

security,inadditiontonancial

services.

Thegraduationmodelworkswith

the poorest - the chronically food

insecure - and follows the principle ofsequencing.

Theinterventionstartswithavery

rigorous market analysis and moves to

providing consumption support (cash

stipend)astherstinput.

Thebeneciariesarethenencouraged

to initiate savings followed by

skills training and asset transfer for

sustainable livelihood promotion.

Theentireprocessofsuccessful

graduationofbeneciariesinto

micronancetakesaroundtwoyears.

Theinitialresultsarepositive

and encouraging but the real

challenge lies in scaling upfrom small pilots to more broad-

based interventions. Small

pilots of the graduation model

are presently underway in 5

locations in India, Pakistan and

Haiti. Two more are to be set

upinHondurasandEthiopia.

DiscussionThe discussants shared their

experiences of working with

the poorest of the poor using

micronanceasatool.Itwaslargelyagreedthat

micronancehaspresentedasuccessfulstrategy

to help the poor for over a decade. The poorest

comprising of the destitute, the landless and

theunemployedhowever,havenotbeneted

asmuchfrommicronance.Inthepast,there

havebeenexperimentswithmicronanceplus

consisting of training support and enterprise

development assistance, etc. However, those

attempts have had limited impact in terms of

What works for the poorest of the poor? This

is the question that the graduation model

aims to address and for the last couple of

years we have worked on this and even

taken it beyond BRAC and Bangladesh. The

model brings together a new discourse that

focuses on consumption, social protection,

livelihoods, asset transfer and nancial

services but goes beyond the limits of each

of these paradigms. We try to sequence

different activities to really bring about a

transformation in the lives of the poor

Syed Hashemi, Senior Micronance

Specialist, World Bank


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povertyreduction.Deliberationsidentiedthe

role of philanthropic capital as a key catalyst to

augmenttheservicestothepoorest.Also,the

needforsegmentationforaccurateidentication

of the poorest clients and a separate channel to

service the poorest was highlighted.

Conclusion

The shift in focus to the Poorest is timely and theuseofmicronancealoneisinsufcientforthose

deprived of basic amenities. The graduation

model presents a more comprehensive approach

by combating vulnerability and supporting

consumption that the poorest require. The

inclusion of safety nets and the provision ofassets to augment livelihoods may be essential

to protect them from regressing when faced

with adverse situations. Also, learning from

the pilot phase is important and this needs to

be considered for scaling up. There may be

important lessons to learn on the stabilisation

of consumption, the balancing of savings,ensuring immediate income, developing a

clear enterprise development strategy and hand

holding for knowledge transfer.

However, the number of poorest is small in

comparisontothepoor.Atpresent,thecredit

available to a poor household is less than $30,

where as the credit demand may be to the tune

of $300. The question remains will serving

the poorest mean losing out on serving the

poor?

Breakaway Session III (a):Securing the future:Contributory Micro Pensions

Less than 12% of Indias 321 million paid

workers have access to a pension scheme.The remaining workers, most of whom are

employed in the informal sector, are excluded

from formal retirement provisions and need

to generate retirement income from their own

lifetime savings. The panel discussed new ideas

and the challenges of achieving a broader-based

coverage of micropensions among Indias low

income workforce.

Moderator

GautamBhardwaj,Director,Invest

IndiaEconomicFoundation

Panelists

AshishAgarwal,ExecutiveDirector

&CEO,IndiaInvestMicroPensions

Services Pvt Ltd

ZaitoonEsmail,Associate,Standard

Chartered Bank

Discussion Summary

The discussants presented several facts

pertinent to the micropension industry in India.

(l)SyedHashemi,SeniorMicronanceSpecialist,WorldBankand

(r)RobertAnnibale,GlobalDirectorMicronance,Citigroup



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India is experiencing a demographic transition

leading to higher life expectancies and a greater

proportion of aged population. Only 10% ofthe total population is covered under any kind of

pension scheme. There are 284 million workers

who are not covered under any kind of pension

arrangements. Furthermore, half of the low-

income group is under 35 years.

Deliberations focused on the coverage under

theNationalPensionSchemewhichisavailable

for those who have attained 65 years of age.

The scheme has however seen low levels of

subscription from beneciaries. Emphasising

the Social Security for Unorganised Sector

Workers Bill and its limitations, the panel

insisted that the outcome of the bill was not

signicant.Theprovisionsunderthebilldidnot

ensure complete social security to all workers

in the sector.

Although low-income workers may have

both the desire and competence to save for

retirement but they have limited avenues

open to them. The need for pension products

for the large unorganised population of India

emergesfromtheincomeuctuationstheyare

exposed to, lack of opportunity to create assets

and problems in formal access, ability andopportunity to save. Micropension allows the

poor to lead a quality life after retirement. The

panel stressed the importance of developing

an understanding within the sector in order to

meet the challenges.

Micropension becomes unviable for the

poorest who have scant savings spread

across their entire lifetime. The Governmentenvisages supporting this group by means of

co-contribution, wherein the state matches

the contribution towards a pension scheme

in accordance with the beneciaries

contribution and income cycle. Experiences

from two successfully running micropension

programmes, that of Sewa Bank and that of the

Government of Rajasthan, have highlighted

the need for pensions. The programmes havewitnessed increasing participation from low-

income groups who are required to make small

monthly contributions.

Way forward

Concerted efforts of various stakeholders i.e.,

social entrepreneurs, nancial institutions,

India has a large workforce of the poor

working mostly in unorganised enterprises.

Most of these are left out of the present social

security mechanisms. However, studies

show that roughly 80 million people have

some capacity to save for their retirement.

Also many of these poor have a desire to

save small amounts towards their old-age

income security. However, they cannot

save enough to take care of the entire

amount required at the time of retirement.

This will lead to a scenario in future where

these workers become beneciaries of a

scheme that is tax-nanced. The only way

that it is possible to convert this demand

into a meaningful retirement for these poor

individuals is by convincing the government

that it should step forward and put some co-

contribution.

Gautam Bhardwaj,

Director, Invest India Economic

Foundation


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researchers and policy makers are needed to

surmount the challenges and ensure successful

employment of micropensions as an instrumentof providing social and future security. Co-

contribution from the Government has a major

role to play towards securing and providing

micropensions to the poorest.

Breakaway Session III (b):Diversifying nancial services:

A case for micro insurance

The penetration of microinsurance to the low-

income groups has not been successful and

its promotion by MFIs has not yet realised

its full potential. Despite IRDA stipulations,

microinsurance products are still not reaching

the poor. Awareness of its value and its

administration remain key tasks in being able

to successfully deliver microinsurance. Theseissues alongwith the designing of a future road

map were deliberated on during the session,

whilst being needful to always keep the target

group in focus.

Chair

TarunBajaj,JointSecretary(Banking&Insurance),MinistryofFinance

Lead Presenter

AnilMehta,DirectorGroupBusiness,

MaxNewYorkLifeInsuranceCoLtd

Panelists

MuhammadJunaid,Regional

TechnicalAdvisor,UNDPRegionalCentreforAsia/Pacic,SriLanka

AnnaSomosKrishnan,Executive

Director, Planet Finance India

K.C.Mallick,CEO,BISWA

RalfRadermacher,Director(Research

&Training),MicroinsuranceAcademy


The lead presenter underscored the current

bottlenecks, the key concerns and possible

steps that could be taken to catalyse the growth

of microinsurance with optimum value for

consumers. The salient points were:

Thepresentmicroinsuranceinitiatives

in India are driven by non-market

motives. This may not be a veryhealthy situation.

Thereisalsoanimplicitinequityin

the current product designs. This may

be due to high commissions, in-built

support in case of lapse of policy and

complex documentation and claim

procedures.

Thepresentmicroinsuranceproductsdo not empathise with customer

preferences and abilities. This is

reectedinthefactthatpaymentsdo

not match income cycles, poor service

anddifcult-to-understandcontracts

and conditions.

Thecontemporaryinsuranceparadigm

is not geared to serve the poor - high

costs, restrictive access and lowtransparency being the chief reasons.

Potentialmicroinsuranceclientsoften

perceivethisasawasteandarenot

abletoseelongtermbenets.Also,

Anil Mehta, Director Group Business, Max New York Life

Insurance Co Ltd


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end-consumers are largely unfamiliar

with the insurance service provider

which leads to low levels of trust. Whilewehavewitnessedsome

activity on the regulatory front in

the past few years, there is a lot of

unnishedagenda.

Possiblestepsthatcanbetakento

redesign microinsurance include

giving the consumer a comprehensive

protection solution as opposed to a

single insurance product. To facilitate

this, allowing co-branding and co-

packaging of insurance products

between general and life-insurers will

be a key policy intervention.

Additionally,theindustryshould

work towards integrating more

consumer-focused features and

developing innovative products. Thesteps here may include reducing

transactioncosts,introducingexi-

payments, reducing entry hurdles

in terms of documentation and

enrollment amounts, building more

comprehensive risk management

features and offering payment

holidays.

Discussion

The panel discussed the principal question of

equity between the three main stakeholders in

the business of insurance the manufacturer,

the distributor and the customer. While it has

been well-accepted that microinsurance not

only helps poor households manage risks but

also acts as a savings and investment vehicle. It

must be noted that it further aids in achievinggoals related to asset-building and retirement-

planning.ArecentsurveybyNCAER,MaxNew

YorkLifeandtheGovernmentofIndiarevealed

that a substantial proportion of respondents

were aware of the importance of life as well as

occupation insurance. However, less than 2%

considered it worthwhile to purchase insurancewith household savings.

Practitioner experiences have revealed that

the reasons preventing the penetration of

microinsurance are: lack of awareness, inequality

of life insurance premium for different ages and

non-refund of premium. The discussants agreed

that the development process of microinsurance

products should consider its value proposition

for the poor. Moreover, it was expressed that

MFIs and insurance companies have a limited

role in insuring the poorest. The Government

with a welfare mandate and large schemes has a

greater role to play in meeting the needs of this

segment of the population.

Conclusion

Microinsurance is a useful tool for risk mitigation,

as a savings and investment vehicle and also

as a measure of social security. Furthering

the microinsurance agenda needs additional

efforts from multiple stakeholders. Rather than

the present practice of selling microinsurance

products mostly bundled with credit products,

When it comes to insuring the poorest, two

important issues are referred to often - Whose

benet should microinsurance target? This

issue keeps cropping up at the policy level

the second issue is who should pay the

microinsurance premiums? Should 100%

of the premium be paid by the governmentor the sponsoring agency or some part of it

should also be paid by the client covered

under the scheme? Rashtriya Swastha Bima

Yojana is one of the example where clients

pay part of the premium amount.

Tarun Bajaj, Joint Secretary (Banking &

Insurance), Ministry of Finance


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effort should be made to make the poor realize

its value and promote its purchase.

Breakaway Session III(c): Buildingcapacity, informing choice:Investing in nancial literacy

As the sector progresses there is a growing

concern about the need for nancial literacy

among clients. Financial literacy helps the

poor to better utilize loans, better manage their

household cash ows, and to distinguish thevalueofdifferentnancialproducts.Itprotects

the clients from exploitation and helps them

make informed choices. The session highlighted

theneedandsignicanceofnancialliteracyas

apartofthecampaignfornancialinclusion.

Chair

BPVijayendra,CGM,ReserveBank

of IndiaLead Presentation

JayshreeVyas,ManagingDirector,

SEWABank

Panelists

BharatParekh,SeniorProgramme

Ofcer,INBAR

JustinOliver,ExecutiveDirector,CMF

UshaPadhee,Director,MissionShakti- Orissa

DrPercyBarnevik,Boardmember,

General Motors


The lead presenter discussed the efforts being

madebytheIndianSchoolofMicronancefor

Womentowardseducatingmicronanceclients

and achieving nancial literacy. Below are

highlights of the presentation:

Effortsinnancialliteracyshouldbe

aimed at encouraging the poor to

forecast there lifecycle needs instead

of just meeting daily requirements.

Thenancialservicerequirements

ofthepoorcanbebroadlyclassied

into three categories consumption

needs, emergency needs and

productive purpose requirements.

Eachoftheseshouldbeaddressed

byspecicnancialproducts-for

example, small savings to meet

consumption, insurance to take care

of contingencies and credit to meet

the productive purpose requirements.

Thepoorneedtobeeducatedand

motivatedtowardsthrift.Saveas

muchasyoucan,thinkbefore

spending and avoid the avoidable

expensesandborrowonlyifyou

must should be the guiding principles

Fungibilityandcompoundingofmoney are important concepts that

need to be communicated to the poor.

For instance, loans for productive

purposes should not be used to meet

consumption needs.

Thepooralsoneedtobeeducated

in understanding the key aspects of

borrowing. These include knowing

the conditions of a borrowing contract

and knowing the dangers of multiple-

borrowing.

Thirteenorganisationsacross10states

have come together to create the


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The Poor First


NationalAllianceforFinancialLiteracy

(NAFL).Theallianceaimstotakethe

efforts to 1 million women clients. 40other MFIs have also agreed to join this

alliance.

Thefutureplanofactionofthe

programme includes developing

modules for operations, enterprise

managementandgroupnancial

management.Acerticatecoursein

nancialliteracywillalsobelaunched

in the future.

Discussion

The poor live on a more day-to-day basis,

make impulsive nancial decisions and deal

with money without actually managing it.

The discussants acknowledged the power

of nancial literacy in enabling the poor to

make informed nancial decisions. Gaining

knowledgeofnancialinstruments,budgeting,planning, understanding loan terms and

maintaining personal and business records can

help enhance output in the long-run.

To start with, the poor can be helped to

understand more holistically where the money

comes from and how it gets spent i.e. householdcashows.Thedeliberationsalsoemphasized

the need for overcoming bottlenecks in the

form of a lack of skilled human resources that

can help clients understand the dynamics of

nancialliteracy.Moreover,trainingthetrainers

is necessary before permitting the passage of

information totheprimarybeneciaries the

women clients.

Conclusion

Financial literacy is imperative to help the poor

especially women have a better and secure

future. The poor can benet from enhanced

knowledge and understanding of their lifecycle

needsandchartoutanancialplanwithclear

goals and milestones. Financial literacy can help

inculcate a feeling of economic independence

inthepsycheofthepoorclients.Effortsshouldbe targeted to cultivate a belief that the money

being earned today can be useful not only for

the present but also to make the familys future

more secure.

Breakaway Session III (d):An urgent priority: Meeting the

needs of the urban poorWhile the micronance sector in India has

rapidly scaled up in rural areas, there has not

beenenoughfocusonnancialservicestothe

urban poor. In recent years, there has been some

interest in reaching out to the urban poor. How

different has the delivery of services been to

urbanclients?Areurbanmicronanceproducts

different from rural micronance products?

Issues and experiences of product adaptations

that best impacts the urban poor, along with the

keychallengesemerginginurbanmicronance

were discussed during the session.

We at the RBI have been making a lot of

effort to spread nancial awareness and

literacy. The intention is to help the poor

develop understanding and appreciation

of basic concepts of nance. A successful

strategy for nancial inclusion must establish

a link to the common people and reach out

to them in their language and be sensitive

to their context. Government of India, RBI

and State Governments can collaborate and

work together and can achieve the desired

objective.

B P Vijayendra, CGM,Reserve Bank of India


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The Poor First


Moderator

RaghvendraSingh,MichaelandSusan

Dell Foundation

Panelists

SamitGhosh,CEO,UjjivanFinancial

Services

HarshaThadani,Manager,Market

Insight, WWB

JaipalSingh,ExecutiveDirector,CMF

Jaipur

NeerajAgarwal,ProjectDirectorfor

AfrmativeAction,NIIT

Discussion Summary

Graduating from providing services to the poor

in rural areas, MFIs are now spreading their

operations to urban slums. Micronance in

urban areas is a relatively new phenomenon.

What is common between rural and urban pooris that a major part of their income is spent on

meeting basic needs.

However, in urban areas, a higher proportion

of poor people are employed while those in

the rural areas are primarily self-employed.

AccordingtoastudyconductedrecentlybyCMF

(Jaipur)andsharedaspartofthediscussion,a

major aspiration of the urban poor is to get theirchildren out of poverty. Consequently, they are

ready to pay higher interest rates on education

loans for their children. The number of sources

from where an urban poor person could generate

funds (moneylender, relatives, employer etc)

is also higher and varied in comparison to

their rural counterparts. The most common

assets owned by households are bicycles and

televisionsandthemainsourceofassetnanceis savings. Credit is the least important source

for household assets. The share of credit from

the formal sector is negligible.

The discussants asserted that it was time to

revisit several myths surrounding the urban

poor asmicronance clients. These includedresolving key questions around social cohesion

and migration, which would perhaps determine

to a great extent how urban clients are serviced

by micronance institutions. Based on the

experiencesofUjjivan,thereisenoughbonding

in a small group of 5-6 members. The majority of

the clients are largely stable (and not excessively

mobile). These are encouraging results that will

catalysefastergrowthofmicronanceinurbanareas.

Further, there is a need for MFIs to reengineer

processes pertaining to eld operations and

stafng and repayment collection to suit the

needsofurbanclients.Anotherbigchallengeis

providingmicronanceservicestoconstruction

workers and seasonal labourers as they belong to

the poorest of the poor category. The panel also

discussed the use of employability training in

urbanmicronance.Employableyouthinurban

slums may use skills in information technology

and the English languageetc. totakeupjobs

aswell as to initiateenterprisewith nancial

supportfrommicronanceinstitutions.

Some of the myths that we faced when

we started - the urban poor are not socially

cohesive, they are constantly moving, they

are not disciplined and have poor work

ethicMost of these are not founded in

reality as we have discovered working with

urban clients during the past few years. Itreally is a question of understanding them

better in order to serve them better

Samit Ghosh, CEO,

Ujjivan Financial Services


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The Poor First


Conclusion

The poor in the urban slums have been neglected

foralongtime.Asthesectorbeginstocaterto

this new segment, it is necessary to dwell on

understanding the exact nature of their needs

and aspirations. There is a need to develop

innovativenancialandnon-nancialproducts

specicallytargetedaturbanclients.Creditisa

key requirement especially for productive assets

since most of the savings are spent in meeting

day-to-dayrequirements.Micronanceservice

providers may also develop saving products to

take care of various lifecycle needs. The idea

should be to encourage small deposits and

provide periodic withdrawal facilities. Providing

livelihood support services like market linkages

and vocational trainings would play a key role in

encouraging entrepreneurship and productive

activities tosupplementmicronanceservices

provisions.

Plenary Session IV:Setting standards of clientservicing

It has become critical that the micronance

industry be dedicated to ensuring the welfare of

its clients in this period of rapid growth. There

is a need to avoid reckless lending, ensure

transparent and fair pricing, adopt fair and non-

coercive collection practices, establish ethical

standards among staff and maintain privacy of

client data. The social performance of MFIs

has become equally as important asnancial

performance. The real challenge is to maintain

a balance between the rapid upscaling and

meeting the highest standards of client service

andprotection.ACCIONInternationalbrought

together this special panel to highlight the issues

relating to client protection.

Lead Presenter/Moderator

RobinRatcliffe,VicePresident,

ACCION

Panelists

VijayalakshmiDas,CEO,FWWB

SitaramRao,Director,ACCESS

Development Service

M.S.Sriram,Professor,IIM,

Ahmedabad

SwapnilKantNeeraj,IFC

CSGhosh,FounderandCEO,

Bandhan


The lead presenter elaborated on the objectives

of the initiative on consumer protection being

ledbyACCIONInternationalthroughitsCentre

for Financial Inclusion. Some of the pertinent

points from the presentation are:

Theneedforclientprotectionin

micronancehasbeenunderscored

and accentuated since the sub-prime

crisis.

Also,themicronanceindustryhas

witnessed much stronger competition

and a race to acquire new customers

in the past few years. Thevisionoftheongoingcampaign

isAmicronanceindustry

distinguished by the responsible

treatment of its customers.

Thegoalofthethreeyearcampaign

istoBuildglobalacceptance

and implementation of a code of

responsiblepracticeformicronance.

Thecampaignfocusesonproviding

recognition to and branding of

themicronanceindustryaspro-


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The Poor First


consumer, creating more informed

andcondentcustomersand

inuencingthemainstreamnancialsector in the long term.

Thecampaignhasalsointroduced

a microbankers oath incorporating

aspects of reckless lending, collection

practices, transparency, staff

behaviour, client complaint redressal

and privacy of client data.

Discussion

The panel discussed the importance of client

protection, issues related to it, the on-going

efforts, the challenges and the role that various

stakeholders can play in standardizing the

matter. The importance of setting standards of

client-servicing is due to the rapid growth of themicronancesector.Thiswasnotconsideredso

important until a few years ago. Furthermore, the

needforconsumerprotectioninmicronance

arises from the fact that, in most cases, clients

have little education, no sophistication in

nancialplanningandnoor limitednancial

literacy.

Discussants highlighted the challenges

in implementing consumer protectionprinciples. These include standardizing

lending methodologies and sales techniques,

compatibility with staff incentive programmes,

monitoring the quality of collection (if

outsourced)andprovidingnancialliteracyandcredit information. In order for standardisation

to take place, participation from the broader

sector is required. Discussions also highlighted

the importance of contribution from lenders

and investors in providing client protection.

Lenders and investors may give preference to

MFIs that insist on fair practices and that do not

seekunjustiedaggressivegrowthoverlooking

benetstoclients.

Conclusion

Considering the fast-paced growth being

witnessed in micronance, there is a need

for an immediate commitment to increase

transparency. This may manifest itself in

the updating of client data more frequently,

improved systems and processes, efcientcomplaint redressal mechanisms, a growth

strategy that is not overly aggressive and

In reality, micronance institutions are ina better position with a lot more power and

information than the customers themselves

it is thus our special responsibility to look at

our operations and activities in a very careful

way and be sure that we are operating

responsibly

Robin Ratcliffe,

Vice President, ACCION

(l)VijayalakshmiDas,CEO,FWWBIndiaand(r)M.S.Sriram,

Professor,IndianInstituteofManagement,Ahmedabad

SitaramRao,Chairman,ACCESS-Assist.


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The Poor First


community investments getting a fair deal. While

maximisingprotsisimportantforinvestors,it

should also be ensured that a part of the same isploughed back into the community.

MFIs also need to understand whether the

products offered are suitable and in-sync with

the needs of the client and whether there is a

good understanding of the clients household

economy at the institutional level.

Plenary Session V: Globalmeltdown and micronance:Implications for the sector

The concluding session on day one focused on

thecurrentglobalnancialcrisisanditslikely

implications for the micronance sector. The

world is currently facing an unprecedented

nancial crisis which has affected mosteconomies of the world, including India. The

micronance sector is closely related and

directlydependentonthemainstreamnancial

market either through banks, private lenders

orinvestors.Howhasthemicronancesector

been impacted in terms of its access to the

mainstream nancialmarkets?Thediscussion

focused on the impact and resilience of the

micronancesectorinthecontextoftheglobalmeltdown.

Moderator

VijayMahajan,Chairman,BASIX

Discussants


EricSavage,ManagingDirector,

UnitusCapital

NancyBarry,Founder&President,

EnterpriseSolutionstoPoverty

RobertAnnibale,GlobalDirector,Citi

foundation

HansRuediPeffer,SDC

Discussion Summary

Althoughthemicronancesector isintegrated

into the global formal nancial system as it

follows the same sources for funds; it is also

decoupled, at least to some extent, from the

globalnancialmeltdownduetothenatureofits

borrowers and the utilizations of funds in petty

tradesandactivities.Theclientsofmicronance

the poor invest in enterprises and businesses

catering to day-to-day needs at the local level.

The effect of the global meltdown on the sector,

is thus, indirect and can be attributed to other

factors.

On the positive side, the present crisis has helped

to validate several of the principles that are

followed withinmicronance. These include:group vs. individual lending; small sized loans

with frequent repayments, high touch lending

and strong credit checks as opposed to blind

reliance on collateral. The effect has also been

positiveintermsoftheinuxoftalenttothe

MFI space.

Althoughthereisnodirectnegativeimpact,the

sector is observing some indirect adverse effects

from the global meltdown. There is an increase

in operating expenses because of ination

and a rise in interest rates which leads to an

increase in the cost of borrowing and delayed

disbursements. Banks have become sceptical ofVijay Mahajan, Chairman, Basix


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The Poor First


lending and are demanding personal guarantees

fromtheCEOsofMFIs.Poorborrowersarealso

hurtbyinationduetoanincreaseinthepriceof food items and other essential commodities.

Theextenttowhichamicronanceinstitution

has been affected is determined largely by its

capital structure, the amount of deposits and

thediversicationofitsfundingsource.

The discussants also highlighted and expressed

concern over the trend of fast-growing MFIs to

turn into loandispensers rather thannancial

intermediaries working as agents of poverty

alleviation. This may lead to a bubble-like

situation very similar to the one faced in the

mainstream nancialmarkets recently. Itwas

also stressed that there is a need for a shift in

micronanceoperationsinIndiafromlending-

based to more savings-driven operations.

Promoting savings helps the poor to meet their

consumptionneedsandghtvulnerabilities.A

savings-led model may also help in minimizing

the risk of defaults and increase the absorption

capacity of borrowers in the long-run.

Conclusion

Themicronanceindustryissusceptibletothe

global nancialmeltdownas ithas relativelyless depth and diversity of products. To

overcome such a situation, the basic principles

of understanding and catering to the needs of

the clients must be adhered to rather than just

operating on a target-driven basis with only

protasamotive.Othermeasuresmaytakethe

formofusinginnovativenancingoptionsand

maintaining a healthy equity base.

The present times can also lead to the possible

establishment of credit bureaus, which would

operate as agencies to enforce checks and

balancesinnancialoperations.

NOVEMBER 12, 2008ry Session VI: From

Plenary Session VI:

Transactions to transformation:Bridging the economic andsocial divide

The session focused on issues such as gender,

social stratication, methods of micronance

service delivery, womens empowerment

and the nature of poverty. It also looked at

how dividing issues into economic and social

compartments is detrimental to the effectiveness

ofthemicronancesector.Aneffortwasmade

to look at ways in which a holistic methodology

canbedevelopedwhichwillallowmicronance

to move from transactions to transformation.

Chair

MichaelDrinkwater,SeniorAdvisor,

CARE

Lead Speaker

JoyDeshmukh-Ranadive,Director,

IndianSchoolofMicronancefor

Women

I am actually hoping that we do face a

slowdown in the micronance industry in

India because I believe that the industryitself is increasingly decoupled from

livelihoods and I think this race around

outreach with very very little depth and

diversity of offerings is actually creating a

serious risk and certainly represents a very

deep opportunity loss in terms of responding

to what poor women and clients want.

I dont think that we should assume that

just because the borrowings are increasing,the underlying activities of the clients are

untroubled.

Nancy Barry, Founder and President,

Enterprise Solutions to Poverty


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The Poor First


Panelists

TaraNair,ResearchHead,Friendsof

Women World Banking AnnieDuo,ResearchNetwork

Director, Innovations for Poverty

Action

SmitaPremchander,Founder,

Sampark


During the presentation of the paper entitled

Micronance From Transactions to

Transformation: Collapsing the divide between

the economic and the social, the lead presenter

made the following salient points:

Micronancewhichismorefocused

on credit rather than savings or other

services is largely routed through

women in poor households

Therearebroadlytwomodels

ofmicronanceservicedelivery

Community-based (relies on the

mobilisation of social capital) and

Commercial (relies on joint liability)

Thetwosignicantaspectsof

contemporarymicronanceare

Transactory and Transformatory

Transactorymicronancefocuseson loans while insurance is used to

protect against loan loss and savings

are used to ensure eligibility for loans.

InTransactorymicronance,poverty

alleviation, empowerment and other

development outcomes may not be

the goal or priority of the service

provider. The primary objective is to

ensurethenancialsustainabilityof

the service provider

Transformatorymicronance,onthe

other hand, is sensitive to the needs of

the poor

Theinterventiondesignincorporates

tracks and monitors components

that lead to womens empowerment.Poverty alleviation and development

are in-built into the interventions

design and are tracked and monitored

Contemporarymicronancestrategies

and models face a false divide

between the economic (Transactory)

and social (Transformatory)

Inordertocollapsethisdivide,

micronanceserviceproviders

mustrealisethattheirnancial

sustainabilityhingesonthenancial

sustainability of their clients

Thismaybehelpedbyemploying

othernancialproductssuchas

savings and insurance to minimise

risks and build resilience at the

household level. Micronancealsoseekstoinuence

the World of Work which has both

market (economic) and care (social)

roles that are determined to a large

extent by gender. This will improve

targeting as services are routed

through women

From (l to r) Smita Premchander, Founder, Sampark, Tara Nair,

ResearchHead,FriendsofWomenWorldBanking,JoyDeshmukh-

Ranadive, Director, Indian School of Micronance for Women,

MichaelDrinkwater,SeniorAdvisor,CAREUS andAnnieDuo,

ResearchNetworkDirector,InnovationsforPovertyAction


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The Poor First


Womensempowermentisessential

for poverty alleviation and has to be

integratedintomicronancestrategiesand operations

Executionofthesestrategieswill

need the augmentation of capacities

technical, managerial and leadership.

Discussion

The underlying hypothesis of micronance

practices has been poverty alleviation and

the empowerment of women. Women form

the coreofallmicronancestrategiesas they

are received as more reliable in complying

with societal norms and conditions. This is

applicable in the case of loan repayment

also. The discussants agreed that present

micronanceapproachesbothbypractitioners

and donors are neither focused on women

nor on the ultra poor. Insurance and savings

representtransformatorymicronanceandhave

the potential to improve and secure lives. It was

also asserted that the state has a vital role in this

context. This includes the prevention of forced

labour and debt bondage, ensuring decent jobs

and minimum wages, and maintaining labour

standards.

Conclusion

Micronance has been accepted globally as

an effective tool for poverty alleviation andwomens empowerment. Indian micronance

has witnessed a transition from being a

development initiative with business character

to a business initiative with a development

implication;fromanunregulatednot-for-prot

activity to a regulated for-prot activity. The

needofthehour isto put the client rst, the

poor,andmorespecically,women.Thereisa

needtomovebeyondtransactorymicronanceto transforming livelihoods and then to enabling

environment.

MFIs have a major role in this transformation.

Steps should be taken by MFIs to consciously

incorporate elements that deal with social

inequity and exclusion. They may also

endeavour to educate clients in nancial

responsibility, inculcate leadership qualitiesand ensure that communities have adequate

representation in governance.

Breakaway Session VII (a):Pricing Transparency:The important next step

Thetransparentpricingofmicronanceproductsis increasingly being discussed as an important

next-step for micronance. Though the

industryhaslongbeentransparentonnancial

indicators, pricing transparency has seldom

beenpracticedinmicronance,eventhoughit

iscommonpracticeinformalnancialsystems.

Pricing transparency is highlighted among all

the recently-launched consumer protection

movements. The session discussed issues andchallenges of applying pricing transparency in

micronance.

Poverty alleviation is the underlying

hypothesis of all micronance operations.

There seems to be an economic vs. social

divide in contemporary micronance. The

sector needs to look at ways and means

to bridge this divide. Otherwise we may

fail to realise the potential of micronance

to transform lives and micronance will

continue to remain only at the level of

transactions.

Joy Deshmukh-Ranadive, Director, Indian

School of Micronance for Women


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The Poor First


Lead Presenter

ChuckWatereld,Founder,

MicronanceTransparency

Panelists

AlokPrasad,CountryHead-

Micronance,Citibank

MuralidaranVijay,Head-Advisory

ServiceGroup,Unitus

SanjaySinha,MD,M-Cril

NKMaini,CGM,SIDBI OliverSchmidt,Manager-Regional

OfceHyderabad,Sa-Dhan


In his presentation the lead presenter

highlighted the need for a fair and transparent

pricing mechanism and the efforts being made

byMicronanceTransparencyinthiscontext.

Some of the salient points presented are givenbelow:

Inmicronance,transparencyis

practicedonnancialperformance.

However, transparency on pricing is

uncommon

Thepriceofanancialproductis

determined by the interest charged

which varies to a great extent by itssize.

Ontheotherhand,thecostof

servicing a loan is rather constant

and does not increase much with

thesize.Thismakesitunprotable

formicronanceserviceprovidersto

service small loan sizes at low interest

rates.

Thecommonlyacceptedindustry

benchmark of 15-20% in terms of

Operating Cost Ration is appropriate

for only larger loans.

Non-transparentpricingcreatesa

major market imperfection, impeding

competition and consumer choice Pricingtransparencyisessentialfor

awell-functioningmicronance

market;topromoteefciency,healthy

competition and better prices for

millions of poor people.

Thechallengeistopractice

transparency in an environment where

non-transparency is the norm.

MicronanceTransparencywillcreate

an enabling environment, which

means enabling industry-supported

truth-in-lending.

Advocatingthiswouldmean

publishingcountry-wiseAPR-equivalent interest rates all at once,

country-by-country and educating

stakeholdersandbeneciariesabout

the variation in interest rates according

to loan size.

Discussion

Pricing transparency is not in-built in the

micronance system and is characterized bytheverynatureofmicronanceoperations.The

discussants maintained that a blanket approach

to pricing transparency may not be feasible.

Interest charged on the pricing side has to be

NKMaini,ExecutiveDirector,SIDBI


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The Poor First


offset against the operating expenses and other

factors contributing to the cost side. However,

the cost varies radically with parameterslike geographical area, nature of clients and

outreach.

Presenting the lenders perspective, the

discussion underscored the need for regular

nancialstatementswhichcanactasinstruments

to monitor MFIs. It was asserted that MFIs must

lend in adherence to the already accepted code

of conduct. Wholesale lenders should provide

support to MFIs for capacity-building which

may help in reducing operating costs. The need

for familiarising policymakers with the interest

rates charged and the corresponding reasons

was also stated. It can help foster trust in an

MFI which in turn helps them work in an open

environment.

Conclusion

Pricing transparency is the much awaited next

stepinthemicronancesector.Therearemany

challenges related to the promoting of pricing.

ItisdifcultforanyMFItobetherstorthe

only one practising transparent pricing. Pricing

transparency will help in bringing in regulation,

essential for the overall protection of the sector.

There is a need to educate stakeholders about

interest rates as well as the cost of operationssince there is widespread ignorance about the

factors affecting them. Price transparency should

be promoted as it is essential for the market to

function well and for promoting efciency,

healthy competition, and better prices for the

millions of poor.

Breakaway Session VII(b):Technology for Micronance:New frontiers

Mobile phone banking, using retailers as

agents for banks, and improving back-ofce

information systems (IS) are all ways in

which technology is already working to help

micronance institutions reach economies of

scale and reduce costs to serve greater numbers.In this panel discussion, some of the innovators

in these areas shared their experiences.

Policy constraints in integrating technology in

micronancewerealsodiscussed.

Lead Presentation

GautamIvatury,Micronance

Specialist,CGAP

Panelists

AlexIbasco,CEO,Smart

Communications, Philippines

ManishKhera,CEO,FINO

RohitBhargava,Founder,BomtechInc

VijayMahajan,Chairman,Basix

Discussion Summary

The panel shared views and experiences on

the most recent innovations in technology

particularly those pertaining to branchless

banking and mobile banking.

From(ltor)ChuckWatereld,Founder,MicronanceTransparency,

NK Maini, Chief General Manager, SIDBI, Muralidaran Vijay,

Head-AdvisoryServiceGroup,Unitus,AlokPrasad,CountryHead-

micronance, Citibank, Sanjay Sinha, Managing Director, M-Cril

andOliverSchmidt,Manager-RegionalOfce,Sa-dhan


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The Poor First


One of the biggest challenges in the micro

banking industry is the huge amount of

paperwork and human effort currently required.This has been traditionally used for supporting

micro-transactions and for the credit-scoring

of potential customers. Other hurdles include

information gaps, accessibility of and reach

to consumers, infrastructure, semi-literate and

illiterate populace & foolproof identity. High

costs coupled with low returns did not make

micronanceviablebeyondacertainthreshold,

thus hampering growth.

Branchless banking is a new way of interacting

with customers and has a lot of potential

to improvise and ease operations. It uses

infrastructure which is already available

and new technologies which makes it more

secureandtrustableforpeople.Thebenets

of branchless banking include: the lack of

additional infrastructure required by MFIs; the

ease of reaching out to people; and the ease with

which clients can go for small transactions.

Branchless banking uses small petty shops to

perform cashless transactions. Due to nature

of this type of banking there is a need to take

some precautionary measures. There is also

a need tooffer incentives to the shopkeeper/

vendors so that they provide transaction points.

Furthermore, some risk remains in holding cashinshopsasshopkeepersmaynotbeefcientor

empathetic to MFI clients. The biggest hurdle

in branchless banking, however, is nding

shops and people to be involved as points of

transaction.

The panel members also threw light on the

operations of Smart Communications in

imparting mobile banking support to MFIs in thePhilippines. Through the use of cellular phones,

micronanceclientscangeteasyaccesstofunds

and can take out loans. It does not require MFIs

tocreatenewsystems.Nevertheless,MFIsdo

need to obtain a host model, which provides all

the necessary information. Relevant information

is converted into an SMS which goes into theMFI system and also reaches the customer.

There is also a provision of sending voice SMS

in case the customer is not able to read the text

message.

Conclusion

Micronance countries like the Philippine

and Brazil pioneered the use of technology

andarenowreapingthebenets.InIndia,themicronance fraternity seems to have come

to an understanding regarding the potential

of technology and the value that it adds tomicronancebusinesses.However, stillmany

MFIs especially the small and medium-sized

ones nd the cost inhibiting. The graduation

to the next level may necessitate resolving the

techno-commercial issues as well as addressing

the regulatory considerations through targeted

advocacy efforts. The process may be aided

through more focused experimentation and

innovation incorporating technology andmicronance.

Any MFI wishing and willing to explore

a technological solution needs to take

a call as to the value that it adds to their

operations. This may be in terms of reducing

costs, increasing control over business

operations and easing expansion and scale.

The next question would be that of the costof investment versus the potential benets.

After these are resolved, the MFI can pick

and choose from the range of solutions

available.

Manish Khera, CEO, FINO


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The Poor First


Plenary Session VIII:SHG Bank Linkage Programme:

Sustainability and Impact

NCAER recently completed a detailed study

covering 7,000 households which assessed

the sustainability and impact of the SHG Bank

Linkage Programme in 7 States of India. Major

ndingsandrecommendationsofthisimportant

report were shared at the session and an attempt

was made to draw a new road map for the SHG

movement to provide greater benet to the

poor.

Chair

Y.C.Nanda,formerChairman,

NABARD

Lead Presenter

DrSumanBery,DirectorGeneral,

NCAER

Panelists

RamakrishnaRegulagedda,Senior

ProgramSpecialist,GTZ

AlFernandez,ExecutiveDirecotor,

MYRADA

DrAnushreeSinha,SeniorFellow,

NCAER

MalcolmHarper,ProfessorEmeritus,

CraneldInstituteofManagement


The Lead Presenter alluded to the impact

assessment study of the SHG-Bank LinkageProgramme in India. The study was done by

NCAER andwas supported byNABARD and

GTZ. Following are some of the prominent

points from the research:

Theobjectivesofthestudywereto

assess the impact of the SHG-Bank

Linkage programme at two levels - at

group level and at member level

AttheSHGlevel,focuswason

assessing the effect on the economic

activities, household welfare and

social empowerment of members.

Additionally,strategiesforfurther

strengthening of groups and cohesion

within SHGs were also appraised.

AttheSHGmemberlevel,the

focuswasontheidenticationandassessmentofcapacitybuilding/

training needs for undertaking

income-generating activities.

Assessmentofthefactorsaffecting

the sustainability of SHGs and

identicationofconstraintswerekey

to the study.

Thereare3modelswhichwereconsidered for investigation:

- SHGsformedandnancedbybanks

- SHGs formed by informal agencies

otherthanbanks(NGOsandothers)

butdirectlynancedbybanks

- SHGsnancedbybanksusingNGOs

andotheragenciesasnancial

intermediaries. Thetotalsampleof4791SHGswas

distributedoversixstates-Assam,

Orissa,U.P.,Maharashtra,A.P.and

Karnataka

(l)Y.C.Nanda,formerChairman,NABARDand(r)DrSumanBery,

DirectorGeneral,NCAER


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The Poor First


Majorreasonsforwhichloanswere

used were agriculture, followed by

trade and other social purposes. Majorndingsofthestudyillustrated

that:

- more than 80% of SHGs had only

women members

- more than 60% of SHGs had members

from BPL families

- 61.8% of loans were utilized for

income-generating activities- 69.2% of SHGs reported 100% loan

recovery

- Averagehouseholdsavings(nancial

&physical)increasedby14.2%

annually

- 93% of SBLP households reported

taking loans post-SHG (vs. 46.5% pre-

SHG)

- More than 60% of SBLP households

reported an increase in ownership of

productive assets

- NetHouseholdIncomeincreasedby

6.1% annually for bank-linked SHGs

- BPL households reduced from 58.3%

pre-SHG to 33% post- SHG

- about 92% of SBLP households

reported enhanced social

empowerment of women

Fromthesendingsitisevidentthat

credit linkage has led to positive

economic impact with an increase in

net household income.

Theaveragelevelofsavingsper

householdhasincreased.Expenditure

on education by households has alsobeen greater than before.

Post-linkage,therehasbeenasharp

decline in borrowing from money

lenders.

Notwithstanding their wide diversity,

the continued existence of SHGs for

nearly 5 years of bank linkage validatestheir organisational sustainability.

However,membersneedmore

technical,nancialandmarketing

skills particularly related to income-

generating activities.

Discussion

It was contended that although banks provide

funds to SHGs, a much larger resource pool is

needed to help make advances in livelihood and

group-building. The establishment of secondary

institutions such as federations is imperative for

the sustainability of SHGs. Discussants agreed

that the success of SHGs has to be attributed, at

least in part, to the discipline and leadership of its

members. However, the sustainability of SHGs

also necessitates the involvement of effective

Gram Panchayats at the village level. Groups

also needmore nancial support for training

and lending in order to promote collective

action and empowerment. SHGs now need to

move towards helping each member to build a

strategy on livelihood by providing individual

guidance to use loans for productive purposes.

There is a need to build further mutual support

and trust among members.

The NCAER study is probably the most

comprehensive and exhaustive assessment

of the linkage banking programme of

NABARD. The study has brought out very

clearly the tremendous impact the SHG Bank

linkage has had on incomes of people who

joined the movement, helping in moving

away from poverty, increase in expenditure

on nutrition, education and health It has

also brought out the considerable decline in

borrowing from moneylenders.

Y.C. Nanda, former Chairman, NABARD


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The Poor First


Conclusion

SHG linkages with banks have shown a

positive impact and changes in the lives of thepoor.Astrong indicator of the durabilityand

sustainability of the institution is demonstrated by

theextendedexistenceandefcientfunctioning

of SHGs for over 8 years with healthy overall

growth. There is a need for greater availability

of funds for increased linkages. The dependence

on external sources to meet the mounting

requirement for funds should be substituted by

the promotion of savings. The amount of moneyspent on education and health which forms part

of consumption loans may be subsidized with

government support.

Breakaway Session IX(a):Savings: Options, avenuesand the policy environment

Often savings is a greater priority for the poor

than credit. However, for the poor, whose

portfolio of savings is proportionally much

smaller, there are few options that are secure,

exible and also have a positive yield. The

panel discussed the options that the poor have

for savings. Issues such as the structural aspect

of saving products, plausible strategies forMFIs to expand outreach, the role of regulators

and steps to be taken by all stakeholders for

promoting savings among the poor were also

analysed.

Lead Presenter

GrahamWright,ProgramDirector,

Microsave

Panelists

MarieLouiseHaberberger,Program

Director,GTZ

SubramaniamSekhar,DGM,

AlliancesRuralBusiness,SBI

NSrinivasan,Author,Stateofthe

Sector Report

Presentation HighlightsThe lead presenter expressed his views on

the present scenario and put forth potential

future strategies to motivate the poor towards

mobilising savings.

Savingsarenecessaryforthepoorto

combat predictable and unpredictable

risks and needs.

Thenatureandpredictabilityoftheriskspoorpeoplefaceinuencethe

structure of savings products to be

designed.

Aforseeableneedsuchasthe

marriage of children necessitates a

recurring deposit-type product.

Ontheotherhand,anurgent/

unexpected need such as a health

emergency may require instant access

which can be catered for by a current

account type product.

Sustainability is a key question when it

comes to SHGs. The sustainability of any

group is determined to a large extent by who is

forming the group and the capacity-building

which is a function of the funds available

for training. For SHGs to be sustainable

they need to have sound systems for social

and nancial intermediation, the ability to

re-engineer themselves and the ability to

form second and third level institutions for

social and political support.

Al Fernandez, Executive Director,

MYRADA


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The Poor First


InIndia,thereisastrongemphasis

onnancialinclusion.Boththe

government and the central bank areclearly and fully committed to this

objective.Atthesametime,theyare

also committed to the concept of

prudential regulation to ensure the

protection of savings and deposits,

especially those of the poor. Different

departments of the RBI are responsible

fornancialinclusionandjudicious

regulation.Thus,thereisaconictof priorities here. Financial inclusion

mandates that the poor be allowed to

saveinsmallquantitiesinaexible

manner. On the other hand, it is also

important to ensure that such an

avenue is free of risks and that the

savings of the poor are adequately

safe-guarded.

Historically,therehavebeeninstanceswhen people have lost their money by

saving in unsafe, informal sources.

Anotheroptionforthepooristosave

inNoFrillsAccounts(NFAs)with

regulated banks. However, these

accounts introduced by the regulator

are not very popular as banks do not

publicize them. The service quality

is also not very good which adds to

consumer disinterest.

Inthecurrentscenario,therearesome

options and avenues for the poor to

save their surplus cash.

Therstoptionbywhichthepoor

are able to save their surplus cash

is by SHGs collecting savings from

members for internal funding. Butthis is inherently limited to small

scale, small term savings and not

for the longer term and larger

amounts.

Ontheotherhand,exible

life insurance based schemes

are good for long term capitalaccumulation.

Mutual fund and unit-based

schemesunderSEBIspurview

may appear a bit risky in the

current market scenario, however,

this could be a healthy option if

the savings are to be utilised in

making immensely conservative

mutual fund investments.

Asset-basedborrowingscould

over time lead to substantial

savings in the form of the asset

itself. The most common assets

herethatcanbenancedby

MFIs could be gold or residential

property.

Afunctionalco-operativesystemcould prove an invaluable method

for the poor to save in future.

Discussion

The panel members agreed with the RBIs

approach and commitment to nancial

inclusion and the balancing act is required to

protect the savings of the poor. Public sector

banks are being asked to take greater ownershipindriving the initiative of nancial inclusion.

Some state governments have also been brought

on board.


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The Poor First


The panelists insisted that while the promotion

of savings is not a great challenge in India, a

veritable challenge is outreach and providingpeople with viable options for saving. Safety,

liquidityandconveniencehavebeenidentied

as the most important requirements for micro

savers.

The SHG model provides convenience and

deliversdoorstepnancialservices.Butsafety

ishardtoaddressinthismodel.Also,sincea

large sum of money is not available within

SHGs at any one point, liquidity remains an

issue as well. RRBs have proven to be unviable

and unsuccessful in providing a solution to this

problem. The introduction of newer technology

and the effective implementation of the BusinessCorrespondentmodelwereidentiedascritical

to expanding the outreach of savings services

to the poor.

Conclusion

It is normal for poor people to earmark part of

their income as savings for different purposes

and future requirements. As such, there is a

need to design a product to cater to this need.

Savings among SHGs are not high and are

liquidated quickly. Small amounts are saved

in SHG bank accounts primarily to be able to

qualify for loans and for offsetting outstanding

loans. SHGs have not proven to be the best

place for the poor to save over an extended

period.

TheprobabilityoftheNFAinitiativeachieving

success can be increased by the banks

introducing a limited fee income to cover the

cost of delivering the product. The Business

Correspondent and Facilitator model are

instruments that could address the question

of outreach. However, facilitators will need

a more open environment where they can

providemultipleservices.Electronicandmobile

banking have a huge potential in making the

process cost-effective and enhancing outreach.

This would need concerted efforts from all

stakeholders, particularly from the regulators.

away Session IX(b):

Breakaway Session IX(b):Community based models:

Looking beyond SHGs

With an outreach of more than 3 million SHGs

and cumulative loans of over Rs. 20,000 crores,

the SHG-Bank linkage is the dominant delivery

modelinIndianmicronance.Withmorethan

15 years of success with the model, the panel

discussed issues facing the SHG movement.

Structural changes and innovative future options

for SHGs in terms of products and servicesdelivery were also discussed. These may be

critical for achieving the higher order of formal

aggregation.

Moderator

MalcolmHarper,ProfessorEmeritus,

CraneldInstituteofManagement,UK

Panelists

DrSalomo,DGRV,Germany

D.Narendranath,Programme

Director,PRADAN

AnirudhTiwari,CountryCoordinator,

IFAD

Savings services are essential to attain

some semblance of balance in the nancial

services being provided to the poor. While

there is adequate evidence from across the

globe that poor people save, there are also

very good reasons why they must. We need

to understand the nature of the drivers of

savings in order to develop products that

meet the requirements of the poor.

Graham Wright, Program Director,

Microsave


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The Poor First


RSowmithri,ManagingDirector,

SarvodayaNanoFinanceLtd

The Discussion Summary

The SHG movement has been a major

boost for women in India. They are not only

participating but are also running microbanks,

deciding interest rates, and determining the

purpose and amount of loans to be distributed.

The success of the movement, the largest

micronanceprogrammeintheworld,canbe

attributed to its large network and outreach.This alsoincludes formalnancialinstitutions

intheformofcommercialbanks,RRBs,PACS

and co-operative banks. The network caters

to the need of savings, which is an important

instrument for SHG members to work towards

alleviatingpoverty.Unlike in theMFImodel,

SHG members can graduate to open individual

accounts.

The views of SHGs members were represented

in the discussion. It was determined that

this may be an opportune time to strengthen

the movement. It may require a universal

policy framework, legal structure and similar

recognition from nancial institutions across

India. The importance of the Federation is

reectedinthefactthatSHGsassociatedwith

federations or clusters are functioning better

than those not linked. The SHG Federation as

a platform works towards providing market

linkages, product development, the removal

of middle men and other social activities.

These may include child marriage, child

labour, domestic violence and other atrocities

committed on women.

Some key features in the progress of the SHG

movement as highlighted were:

IfSHGsareallowedtoroute

government funds they may fall

prey to politicians who use them for

fulllingtheirownvestedinterest.

SHGsarealsobeingexploitedby

corporate companies as a market for

overpriced FMCG products TheSHGmovementisyettodo

complete justice to the inclusion of

the poorest. Banks are hitherto not

lending to the poorest of the poor.

TypicallyinanSHG,thewell-off

borrow the maximum and the poorest

borrow the least but both have to bear

the same cost.

SHGstendtodiscourage

entrepreneurs due to the group

behavioural attitude

OlderSHGsarehardertomanage

Banksareoutsourcingtheworkof

deciding whom to lend to, lending

norms, collecting savings and are

distributing loans without actually

remunerating for such services.

The discussants agreed that to ensure the

sustainability of SHG federations, rational

institutional structures need to be introduced.

This would mean instituting a self-regulated

system, owned and accepted by the members.

In recent years the shift that has really

happened in the development sector hasbeen the realisation that communit

conference report 2008

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