Last week I attended a conference titled “Microfinance: Translating Research into Practice”, hosted by the Centre for Microfinance in partnership with the College of Agricultural Banking (CAB) in Pune.
Among the varied things that were discussed in the conference, the underlying and oft repeated theme was microfinance sector’s need for effective research, which was well articulated by many participants. For example, Dr. Nachiket Mor felt that because the rapidly growing microfinance industry in India is quite different from the rest of the world in many ways (in terms of loan size, involvement of the banking industry etc), its challenges are also unique, and to address them effective research can play a crucial role.
Another important point was raised by Mr. Mathew Titus, who observed that to promote high quality research in the country there has been little or no funding to build a cadre of professionals who are capable of understanding the field realities and doing good research.
I have described some of the research works pertaining to microfinance that were discussed during the conference:
- Impact of Microfinance
Professor Abhijeet Banerjee of MIT presented the results of a randomized evaluation of Spandana’s microfinance programme in Hyderabad. The main conclusions from the study were – microfinance has no clear impact on women empowerment, health or education; the accessibility to microfinance helps in setting up of new businesses; investing in durable goods by those who have existing businesses and more consumption by those who do not intend to start new business.
Results such as no impact on women empowerment, health and education might disappoint microfinance enthusiasts who think that microfinance is an antidote to many social and economic problems of the poor. However, one needs to understand that impact on health, education and women empowerment needs sustained interventions over a longer period.
Mr. B.B. Mohanty of NABARD took forward the Impact session by highlighting the enhanced financial access of the poor, especially of the women, due to the SHG-Bank linkage programme promoted by NABARD. He made an interesting point that SHG members should graduate after a certain time period and become clients of regular banking system. While I agree with him that low-income people should come into mainstream, I disagree that there should be an exit from the programme. SHG programme is not just meant for micro credit, rather it is a social movement providing poor women a platform for addressing the social and economic problems, and giving them solidarity and strength so that their voices can be heard.
- Microfinance, Social Capital and Empowerment
Professor Rohini Pandey of Harvard University shared her research done with VWS, Kolkata, which revolved around the question of whether social interactions facilitate cooperative behavior among group members.
The research, done in an urban setting, revealed that after group formation women develop trust among each other and participate in social events. Opportunity for such association was absent for women before microfinance group formation. The results surely strengthen our belief that microfinance groups are not just credit associations; rather their role clearly goes beyond the financial transactions.
- Microfinance and Government Programs
The findings of CMF research conducted on the impact of participation in MGREGA (Mahatma Gandhi Rural Employment Guarantee Act) in Andhra Pradesh were presented in this session.
Important findings of the study are – MGREGA helps participants cope with stress periods such as those caused by bad weather; no difference in wages based on caste and gender; and getting a job card to avail the scheme is not a hurdle for people.
I wished the study could be extended to some other states to give us a comparative analysis of the impact of MGREGA in other places, as we often hear about the mismanagement and misappropriation of the scheme in various states. But it was heartening to see many positive results of the scheme in Andhra Pradesh.
- Tailoring Financial Services to Meet the Needs of the Poor
Professor Rohini Pandey presented another interesting research addressing the question of ‘what are the results of using a flexible credit repayment product for clients’.
The experiments examined differences from moving weekly (frequent) to monthly (less frequent) repayment, and effect of introducing grace period of two months before the repayment starts. Bindu Ananth of IFMR trust provided practitioners’ perspective emphasizing that the structure of the loan is crucial, and getting the lenders and savers together is very important while designing the financial products.
- Portfolios of the Poor
Professor Jonathan Morduch gave insights on how poor survive on less than $2 a day from his very famous book Portfolios of the Poor.
He said poor face triple whammy of low income, irregular/unpredictable income and lack of inappropriate tool to deal with the ups and downs of life; however, the poor are active money managers and they can and do save. He mentioned about the SEED Savings Account in Philippines and some Grameen Bank II products as good example of suitable products to the poor, and urged to scale up/learn from these ideas.
Anil SG from IFMR Trust made an interesting presentation on similar lines. By taking an example of a typical low-income household, Anil showed the volatility in cash flow, and the dreams and fears of the household. He through the LIWE (Life Wealth Envelop) tool explained what different types of risks households face and what can be the financial strategies for managing various risks.
- Competition, Multiple Borrowing and Information Sharing among MFIs
As we all know that nearly Rs. 600 million MFIs loan was reportedly involved in defaults in Kolar (Karnataka); the Kolar case was one of the important points of discussion in the conference. From a study on the Kolar case done by Mr. N. Srinivasan, factors such as clients’ behavior and MFIs’ practices were found responsible for the crisis. It was also discussed that the Kolar crisis resulted out of a Fatwa issued by a religious group. This was a larger risk that is beyond a MFIs’ capability to deal with.
The conference raised some of the very important issues prevailing in the microfinance industry and gave a platform to various stakeholders such as academicians, practitioners and policy makers to learn from the various experiments and discuss the policy implications.
PS: For notes and presentations from the conference click here
Anita Sharma, from IFMR Trust (presently known as Dvara Holdings), contributed to this post.