Presented by Shankar Man Shrestha

CEO, RMDC Nepal

Current Environment of Microfinance

Microfinance is established as a glorious phenomenon all over the world

Globally 135 million poor families have been benefitted from microfinance services

The world community has a great expectation from it

There was substantial evidences of microfinance being an effective tool of poverty alleviation

It has been proved as a sustainable operation Continue…

The efforts of MC Summit Campaign and Nobel Laureate Prof. Mohammad Yunus have made a great contribution to taking it to a remarkable height and get it popularized all over the world

In about 13 years, the outreach of microfinance has grown 18 folds

A huge funds of governments and non government and private agencies have been mobilized to support microfinance and related activities

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MF has got professionalized and has been a centre of attraction for almost all kinds of people from all walks of life such as academics, researchers, elites, practitioners, investors, philanthropist

However, lately questions have been raised on the effectiveness of microfinance operations in achieving social mission and the integrity of practitioners

In many countries, microfinance practitioners are being criticized as the blood suckers, shylocks, exploiter, opportunists and so on specially after Andra episode in India

Emerging Challenges

Mission drift - moving away from the poor.

Too much commercialization

Multiple financing by MFIs

Over indebtedness / misuse of resources

Board governance getting aloof from social mission

Practitioners are motivated towards making more and more profit

Increased social distortions among clients

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Borrowers getting displaced from their native places for

their failure to repay loans

Lending as well as reputation risks are on increase

MFIs following irresponsible practices

Degradation of portfolio quality

Increasing drop out of clients from program

Deteriorating staff behaviour

Widening gap between poor and rich

Reasons Behind the Problems

Lack of clients orientation and sensitization on over indebtedness and the risk involved

Lack of knowledge about clients Deviation from best practices norms and adoption of irresponsible practice

Negating essentials of microfinance

Lust for power and money

Irresponsible policy and management

Inadequate staff orientation and training on social mission

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Poor communication of MFIs officials with local community Lack of self regulation as well as external regualtion Discarding best practices norms

Board members’ failure to understand the underlying principles of

microfinance

Over ambition of private investors

Overriding of social mission and responsibility

Inclusion of non-poor

Way Forward for BoD and Investors

BoD should strongly come up with commitment for social mission and undertaking following actions:-

Have a CEO with commitment to achieve social mission and financial sustainability

Design MF policy strictly targeted at the poor and vulnerable

Orientate staff on serving the poor and the vulnerable

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Design loan size suited to the needs and capacity of the poor

Stop multiple financing Promote financial literacy among clients Encourage Savings from Clients

Serve graduated clients differently commensurating

with their increasing need and capacity

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Visit clients to know them well

Organize public audit in program areas for assessing impact and feedback from community

Employing self regulation for achieving social as well as financial missions

Thank You !