Where Angels Prey

Where Angels Prey is a novel by Ramesh S Arunachalam. Please refer to www.whereangelsprey.com for more information

Monday, February 14, 2011

Micro-Finance Conferences: The Need To Introspect with Integrity...

Ramesh S Arunachalam
Rural Finance Practitioner

Yesterday, I received a mailer that invited me to register for a National micro-finance, being held by Sa-Dhan and FICCI, at Ashoka Hotel, New Delhi on March 15th and 16th, 2011. The conference, according to the brochure, aims to create a space for dialogue between policy makers, MFIs and community leaders. The theme of this years conference is “Re-Engineering Micro-Finance: Need for New Products and Policies”. Prof Yunus is to be the Chief Guest at the conference and he is expected be there for both the days.

While I appreciate the efforts taken by Sa-Dhan, I must also state that there are far too many (national) conferences in Indian micro-finance…We had one in November 2010 and we are having another one in March 2011 and I am sure we will have a couple more through the year in July and November 2011 again…

Going by the number of conferences over the years, I dare say that, had only the real issues been discussed in these conferences, neither would “The AP crisis” have happened nor would we find ourselves in the marco mess (in the words of Mr Al Fernandez) that we are currently facing…

I want to rewind to the NABARD High Level Policy Conference held in New Delhi in May 2005. I liked the conference as Dr Thorat made it very clear on Day 1 that we were not here just to pat ourselves on the back but rather, as he would call it, “Introspect with Integrity”. I still remember Mr C S Reddy raising a large number of uncomfortable but valid questions on Day 1 about the SHG program. And the debates were of very high quality. On day 2, just before lunch, Dr Thorat and I presented a paper on “Institutional/Market Failures in Micro-Finance” which took a critical look at the various happenings in micro-finance, especially in Andhra Pradesh. The paper and presentation really got everyone excited (literally) and we had the presenters for the next session also discuss this paper rather than focus on their own presentations. Without naming the presenters, I would like to state their punch line made in their presentations:

Presenter A, Commercial Bank: None of our partners are like what was made out in the presentation. All of our partners use technology and have very good MIS systems and our due diligence indicates that their portfolio and practices are sound, unlike what has been made out in the paper

Presenter B, MF Association: Things are not as bad as made out to be and many of the cases pointed out in the paper are nothing but aberrations…they are the exceptions rather than the rule

This is why I appreciate Ms Moumita Sen Sarma, who was the first person to stand and say in the open that, “much of what is said in the paper is very true and it is time that the micro-finance industry pulls out the skeletons from the cupboard”

Sadly that never happened and over the years, the malaise has spread far and wide – from Krishna to Lucknow to Kolar, culminating in what we see as the present micro-finance crisis in India and AP specifically.

So, as the Sa-Dhan National micro-finance conference is to get underway, I want to raise several issues that, I hope, the conference can candidly focus on:

First and foremost, the scope of current practice is rather narrow. While the intentions in terms of the report of the Financial Inclusion committee and other policy/stakeholder pronouncements (including past conference pronouncements) may have been to provide low income clients with access to a wide range of need based financial services, in reality, the present paradigm has mainly led to the proliferation of credit and primarily consumption loans, although there have been some small production/livelihood loans. There has also been the added dimension of merely opening savings accounts, many of which appear to lie dormant today. And an important fact that the present efforts have low outreach with regard to vulnerable groups - and especially, people involved in agriculture - also needs to be recognized. Two other aspects stand out here in terms of access: (a) lack of suitable and affordable and risk management services; and (b) lack of appropriate livelihood financing.

We need to not only recognize these basic facts but also (more importantly) understand why these intended strategies have been narrowly realized on the ground? That is very critical as only then can product innovations (as the theme of the conference suggests) be actually delivered at scale.

Second, it would be useful if the conference comes up with practical strategies to deliver quality credit - e.g., post harvest and post production financing and general approaches to financing marketing of goods and services offered by low income people - that will reduce risk and vulnerability of low income clients and give them more choices. This needs greater emphasis in the context of agriculture as well, which is home to a large number of India’s poor

Third, it would very appropriate if the conference looks at how financial services can be used to strategically drive higher rewards, better remuneration and greater power down the value chain towards the benefit of low income producers? In other words, the conference needs to carefully examine and support financial services that increase the bargaining or staying power of low income people. That would be a very useful initiative indeed.

Finally, the conference would also need to look at how to create a better ecosystem so that the above efforts really succeed?
Apart from the above substantive comments, I would also like to argue the case for having more regional conferences rather than competing national conferences in Delhi - which seems very far removed from the actual micro-finance action. In my opinion, it may be more appropriate to hold several regional conferences annually, exploring critical local and regional issues in detail and then, cumulating this in a sort of a national round table – which perhaps guarantees flow of information from the grass-roots to the policy makers and other stakeholders…Wishing the conference and the participants, all the very best for their deliberations…


Have a Nice Day

1 comment:

  1. I completely agree with the point about quality credit. I would put the need as far more productive, long term and careful use of the large scale finance capital available

    When I was working in micro finance sector one small experiment we did was to create different loan products like housing loan, education loan, cattle loan, agri loan etc. with different interest rates, terms and repayment schedules. Loans of different categories were offered to same members of groups selected based on their good track record, need and excellent credit rating. With strict monitoring and other measures like phased release of funds to ensure use of funds for the specific purpose, we saw that credit absorption capacities are increasing many times more with healthy and steady repayment.

    Another experiment was to create funds for micro investments in select businesses of members on a profit sharing basis. These were typically given to businesses requiring asset creation or of seasonal nature or irregular cash flow. For example, such investments were made in the business of goat rearing of some members. Because it takes them more than a year to sell the goats and see cash in flow and a regular term loan is not suitable here. This financing model is already existing in villages and we were just refining it.

    I am sure there will be many more ways to use the finance capital for growth rather than using for high interest consumption loans as the gap in financial inclusion is so wide.

    But this will happen only if interest rates are regulated, if credit rating of every client / member family and issue of loans based on credit rating is ensured, if profiteering and return expectations by financial investors are controlled, if multiple loans are checked, and if use of loan funds are monitored well