Ramesh S Arunachalam
As someone who has been involved with what is now called the microfinance industry, for around 28 years, I must say that all is not lost. Indian MFIs and microfinance can salvage the lost ground, but they need to put clients first. For this, they must get back to the basics and do some of the following if indeed they are to rebuild their (lost) credibility and revive the industry.
First, MFI’s must build (lasting) client relationships and let me outline what I mean by this!
In the initial years of microfinance, some 3 decades ago, the MFIs that existed had great social acceptability and local support, because their first and foremost task was getting to know clients rather than mere lending. MFIs field staff spent quality time with the clients but unfortunately, we seem to have lost our way in this regard. Today, our assembly line approach has led to MFI’s getting farther and farther away from clients. Servicing of clients by MFIs has also become poorer as the dictates of the MFI assembly line have gained in prominence.
The use of process mapping, 6 sigma and the like have really shortened group meetings and reduced the quality of information that used to come through from the grass-roots. As economists have always argued, information is POWER and MFIs have increasingly lost that access to superior grass-root information – which means that their knowledge about the client is poorer. And of course, CGAP courses on delinquency will always tell you – “THERE ARE NO BAD BORROWERS, ONLY BAD LOANS!”
Agreed that people are busier but is it not a recipe for disaster when an MFI lends to someone whom it hardly knows (processed mapped group meeting routine OF 15/20 MINUTES hardly is used) and/or whom it does not know at all (centre leader/group leader acting as the agent disburses and recovers loans). And in the latter case of agent led microfinance, the lack of rigorous, independent and objective internal audits means that the MFI does not EVEN know whether its credit policy is really being implemented on the ground!
Therefore, MFIs must get back to the basics and create a process by which they can know their clients better! MFIs must also start to view low-income people not just as mere clients who borrow, but rather respect them as producers of goods (micro-entrepreneurs) and services specialists who make a significant contribution to the growth of the country and its economy. In fact, the contribution of the informal sector to the economy of a country like India is indeed already huge. And imagine what will happen when this is fully harnessed through the efforts of responsible microfinance!