About the Conference

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Dvara Research, India’s niche policy research institution in financial inclusion and social protection, hosted a two-day, in-person conference on approaches to making credit work for the poor. The conference was held in collaboration with the Consultative Group to Assist the Poor (CGAP), housed at the World Bank.

The conference themed ‘Making Credit Work For The Poor’ brought together thought leaders and researchers from across the world to discuss various aspects of the credit ecosystem. It focused on the three kinds of engagements required of authorities and providers to make credit work for the poor, and these are the prevention of distress, the identification of distress, and the alleviation of distress. These three thematic areas provided the framing for presentations and discussions.

About the Conference

This conference was structured as a platform to (i) disseminate high-quality and policy-relevant research on how to make credit work for the poor, i.e., how to prevent, identify and alleviate distress owing to over indebtedness; and (ii) pose questions under each of the three themes, and in particular ask what new challenges and/or opportunities are posed by digital credit, for structured discussion and solutioning. In particular, the conference served on:

  • Facilitating a rich, deep dialogue on the subject among academics, practitioners and policymakers from India and other countries, who bring very different perspectives and experiences to the table.
  • Developing a deeper understanding of the causes, symptoms, and results of debt distress, and their interactions with providers, broader financial markets, and the economy.
  • Identifying solutions at different levels of the ecosystem, and ways to test them, to improve the way credit is provided to the poor, its impact on customers’ lives is monitored, and debt distress is alleviated.
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14th and 15th February 2023

(Tuesday and Wednesday)

Hotel Crowne Plaza

Alwarpet, Chennai, INDIA

Key themes at the Conference

Our Past Engagement on Making Credit Work for The Poor

Over the past decade, at Dvara Research and CGAP, we have extensively studied and written about the various aspects of the credit ecosystem. Our research and advocacy efforts acknowledge the potential benefits of credit access to the poor, while highlighting the necessity of ensuring that those benefits are properly realized. Making credit work for the poor, so that their lives and conditions are indeed enhanced by it, is an outcome that cannot be taken for granted but rather one that must be consciously and deliberately pursued. When credit fails to work for the poor, it produces suffering and distress.

In India, such distress appears to be pervasive, rising into view only episodically when waves of default (and sometimes, much worse) occur, as with the Andhra Pradesh microfinance crisis in 2010, and more recently, in Assam in 2019. The proliferation of digital lending in India and other jurisdictions also poses new risks that our work seeks to make transparent and provide solutions for. In our work, we consider the three kinds of engagement required of regulators and providers in order to minimize customer distress – the prevention of distress, the identification of distress, and the alleviation of distress.

Dvara’s work has framed these issues in terms of “suitability” which is a well understood concept in India among regulators and providers, but not necessarily well implemented. To ensure that the credit advanced to a poor household is actually suitable for that household, it is important for the regulator to institute comprehensive conduct regulations which include the requirement of appropriate underwriting processes on the part of the provider. Even after a suitable loan has been advanced, it can turn unsuitable for a variety of reasons, some of which may be beyond the control of the borrower (for e.g. a pandemic-induced lockdown). It becomes necessary therefore for both providers and authorities (regulators and supervisors) to monitor the state of indebtedness in credit markets, and this constitutes a concern for “ongoing suitability” and the associated activity of identifying distress. Dvara has published a detailed framework for monitoring credit markets to flag signs of distress. This framework is for the authority to implement in its role as a supervisor, and the indicators in the framework cover all the actors in the credit system and provide a comprehensive view of credit markets, while also facilitating the identification of distress.

Dvara has also worked with IIT Madras to develop an artificial intelligence/machine learning (AI/ML) model that providers might deploy for identifying distress. Once successfully identified, distress may be alleviated by provider interventions that could be grounded in a principles-based approach that Dvara has designed. Dvara is in the process of field-testing the aforementioned AI/ML model and designing provider interventions to alleviate the distress identified by the model. If the alleviation of distress requires the discharge of debt, then the Insolvency and Bankruptcy Board of India (IBBI) can also step in, and Dvara’s work on the IBBI’s remit touches on the design of statutory debt relief remedies, like the personal insolvency process, bankruptcy process, and a low-cost quasi-bankruptcy process for low-income, asset-lite households, called the fresh start process.

About the Conference
About the Conference

CGAP, after years of work on making microfinance and digital finance more responsible, and as part of its new strategy for CGAP VII, is developing a vision that takes a more holistic approach to make the financial inclusion ecosystem more responsible, still with a focus on women and vulnerable people. This new approach which focuses on working with all key stakeholders in a specific market encourages more Customer Centricity, more Capability for key actors and increased Collaboration among key stakeholders. Ultimately, the aim is to ensure that customers, especially women, have positive outcomes in their financial journeys, and this vision builds on CGAP’s previous work.

At the regulatory level, CGAP has identified key elements required for a customer-centric regulatory framework that looks at customer outcomes, based on the experience in India, the UK and South Africa, and then identified indicators to measure how providers meet these outcomes with a pilot in South Africa. Two out of six key customer outcomes identified in CGAP’s work are suitability and meeting the customer’s purpose.

CGAP has also developed a set of tools for supervisors to better monitor the market, particularly vulnerable customers, and for different market actors to elevate customers’ voices in the regulatory process. In the domain of credit, CGAP has done in-country research to better understand customer risks and issues with digital credit in Kenya, Tanzania, and India (partly in collaboration with Dvara) and more recently in Cote d’Ivoire. CGAP has also looked at the situation of low-income borrowers right after COVID-19 started to hit the economy in developing economies. In Kenya, together with SME digital lender 4G Capital, CGAP has sought to measure the debt stress level of borrowers.

CGAP is now putting in place a working group on Responsible Digital Credit as part of its work with the Responsible Finance Forum, and is planning further work on responsible digital credit practices, regulation, and supervision. All this work is essential to create a responsible financial inclusion ecosystem, with three building blocks focusing on Customer-centricity, market actors’ Capability, and Collaboration. These three Cs, together, will help make credit work for the poor.

About the Conference