Microfinance Focus January 2009

8/7/2019 Microfinance Focus January 2009

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www.microfinancefocus.com Microfinance Focus [ January 2009 ] 1

DevelopingCredit BureauIFC`s Group EffortIFC`s Group EffortIFC`s Group EffortIt is not just Technology : Planet FinanceIt is not just Technology : Planet FinanceIt is not just Technology : Planet Finance

Opportunities and ChallengesOpportunities and ChallengesOpportunities and Challenges

Access to Credit & Human Right

Livelihoods and Microfinance

Credit Management Thoughts

Mobile Banking in India

Designing Staff Incentive System

Institution Spotlight

Ujjivan Finance Pvt. Ltd

Learning CurveProduct and Methodologies

I– Focus

CAPITAL CONNEC

www.microfinancefocus.com

January 2009

An ExclusiveAn ExclusiveAn ExclusiveInterviewInterviewInterviewwithwithwithMr. Aloysius P.Mr. Aloysius P.Mr. Aloysius P.FernandezFernandezFernandez



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January 2009

Contents

Developing CreditBureau

23...Developing Credit Reporting forMicrofinance . By Peer Stein , IFC with IFC A2F Team Members

29...Opinion. By Samit Ghosh (Ujjivan) and P N Vasudevan (Equitas )

30...It is Not about Technology. By Anna Somos Krishnan and Enzo Cicchirillo , Planet Financ

32...Opportunities , Challenges and Way forward. By Dr. N Jeyaseelan

Horizon

13...Credit ManagementSome Radical Thoughts on Microfinance

By Dr. Souren Ghos al

17...Environmental Analysis : Mob ile Ban kingIn India

By Shumit Vatsal

Cover Story

08...Should Access to Credit be humanRight . By, Alex Count

08...Poor As a Partner . Farhat Abbas Sha

09...Micro Enterprise Training : GenderPerspective . By Dr. N Lalitha

35..Designing Staff incentive SystemBy Martin Holtman n, MicroSave

Best Practices



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“Affinity to Prosperity : Development of SHGs”

44...An Exclusive Interview with Mr. Aloysius P Fernandez,Executive Director , MYRADA

Interview

Exclusive Presentation From Microfinance Focus to promote innova-tive ideas /innovation/initiative

I-Focus of this month41...EDA Capital Connect

10...Livelihoods and MicrofinanceBy G Muralidhar , Akshara Livelihoods

Today crisis is that the poor are strug-gling with lack of ideas for investingthe funds they can access. It is time,we all jump in to help them out. Restw ill be history made by us.

49...News

48..Learning Curve

07...Editorial

06...About the issue

Perspective

38...Ujjivan Microfinance Services

They took 980 days to achieve 100 thou-sand borrowers . Next 300 days , the num-ber is expected to double . More abouttheir strategies and approaches...

Institution Spotlight Send your write up .

Download “the writing guidelinesfrom www.microfinancefocus.comorwrite an email [email protected]



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BOARD OF ADVISORS

Mrs. Frances Sinha , Managing DirectorEDA Rural System Pvt. Ltd , Gurgaon

Mr. Sitaram Rao, DirectorEquitas Micro Finance India P. Ltd, Chennai

Dr G. GandhiRegional Head, DHS, New Delhi

EDITORIAL BOARD

Dr. N JeyaseelanProgramme Director, Hand in Hand, Kancheepuram

Dr. Souren GhosalEx-Banker, Author , Kolkata

GOVERNING BOARD

Mr. Suresh K Krishna ,MD, Grameen Koota, Bangalore

Mr. Ashish GuptaCOO, Sonata Microfinance , Jabalpur

Mr. M. V. RamanVP (Marketing), Elitser IT Solutions , Hyderabad

Vikash Kumar

Executive Director , Microfinance Focus, Bangalore

© copyright 2008-09 www.microfinancefocus.com

TeamManaging Editor (India)Vikash Kumar

Managing Editor (US)Jerome Peloquin

Associate –Knowledge ManagementChristina Weichselbaumer

Disclaimer

Views expressed in the article/s are author’s own views. It does notnecessarily represent those of Microfinance Focus . MicrofinanceFocus does not take any responsibility of correctness of those data.Readers are free to use the info contained in the MICROFINANCFOCUS for educating the stakeholders in the micro finance sectohowever you must acknowledge MICROFINANCE FOCUS and onal source for the same.

Submission

Do you want to share Write up/ case study /research papers or yourexperiences . Write to us at [email protected]

Editorial officeMicrofinance Focus ,Avalahalli, Anjanpura Post , Bangalore( India)-62P: +91.80.28436237 |f: +91.80.28436577Email: [email protected]: www.microfinancefocus.com

Microfinance Focus is a Publication of “Centre For Microfinance Promotion”. “Centre For Microfinance Promotionis not for profit institution” Primary objective of this initiative is to inform about various developments from thefield of microfinance and engage in an open dialogue with various stakeholders of this sector.





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Information for better services!

I was discussing with one of the Microfinance`s client near Bangalore(India), she has taken loans from 3 microfinance institutions, and shetold me that currently she doesn`t have any problem to repay theloans installments. What if, she takes loan from 6 microfinance insti-tutions! Do lending MFIs gauge their debt capacity? Will client`s en-terprise have enough scope to grow and earn commensurate incometo keep the repayments on time? There may be many negative recip-rocate of such situation, in case, if she has problem of repayment, shelikely to default with all the MFIs. In the context of microfinance, ac-cessing and sharing such information will be very useful to minimizethe likely default risks and maintain the portfolio quality. Apart from

this, it will help to weed out clients with bad credit history in earlystages and will contribute on reducing the interest rate. However, inthe context of “Indian Microfinance sector”, setting up a credit bu-reau might face lots of challenges to set its parameters. In Indian Mi-crofinance sector, some of the Global Agencies specially“International Finance Corporation” and “Planet Finance” are puttingtheir effort to work-out a credit bureau. We understand that, in In-dian microfinance sector, there is some effort however with little qui-etness, going on in this direction. With an objective to bring moreconsensus and recent update on effort, we are glad to bring somevery special papers on this issue. However moving to livelihoods do-main is much needed to sustain growth of the sector and in this re-gard a sector wide effort is much needed. As in our perspective paperMr. Muralidhar, pointed out “Today the crisis is that the poor arestruggling with lack of ideas for investing the funds they can access. Itis time, we all jump in to help them out. Rest will be history made byus”.Microfinance Focus has put a modest effort to promote communica-tion among various stakeholders and incorporate more global issueand perspective ,since two years almost, decided to re-launch the is-sue based on reader`s feedback. We have added many new features

such as “Best Practices”, “Learning curve”, “Institution spotlight”, “I-Focus” and some more features. Before you scroll through pages, Ijust wanted to bring your attention that don’t miss a candid interviewwith Mr. Aloysius Fernandez on SHGs issue and you will have oppor-tunities to learn strategical approaches of one of the prominent MFIin India.Our Team has really enjoyed putting together various issues in our re-launched issue, hope you will enjoy and will find a value addition.

- Vikash

About the Issue

vikash@microfinancefocus. com

FROM INDIA DESK



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Credit and Prosperity: Two Sides of the Same Coin

This is an argument for a positive scoring credit system to be employed indeveloping economies. In the USA, credit is a way of life and has been for

fifty years. In low resource countries credit, even commercial credit is dif-ficult to impossible to obtain. Most sales of all kinds are on a cash basis.Yes, can be problems with aggressive and loose credit policies, but theability of merchants to depend upon the future payment of a present debthas fueled and powered our economy. The judicious use of credit in com-merce is an essential element in building a strong balance sheet.

In developing economies, most local commercial transactions are on acash basis. As more financial resources are being made available to thebottom of the pyramid, (BoP) As these micro enterprise businesses beginto grow, it will become necessary to grant short-term credit for wholesalepurchases and also to require credit from suppliers as well. Paying cashfor goods and services limits demand. This shrinks economic growth anddiscourages investment and equity expansion.

The present negative credit scoring practiced by most banks in the devel-oping world sets a negative bias toward granting credit privileges and lim-its the provision of credit to otherwise promising and creditworthy enter-prises. The credit reviewer is predisposed to find problems, since thegrading system requires it. A positive scoring method based upon balancesheet, inventory, cash flow and other financial measures will raise the bar

and open the door to a growing economy. Local MFI’s can and shouldband together and form a quasi-public, or cooperative organization apply-ing a set of positive scoring standards for credit evaluation. It should bemandatory, in accordance with the transparency and fairness doctrine, topre publish such credit standards.

Credit granting also requires a code of commercial law that provides legalprotection to both the creditor and customer. Models for protectingcredit grantors exist in the developed world. The key to an emergentcommercial and mechant class will be the establishment of dependableand trusted credit and evaluation system. An effective credit scoringprocess will be central to the establishment of an MFI Credit Bureau.

- Jerome

[email protected]

EditorialFROM THE US DESK



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Should Access

to Credit be aHuman Right?- Alex Counts

December 10th is the 60th anniversary of the universaldeclaration of human rights. But what does this reallymean for the world’s poorest people? Millions are unableto enjoy their social, political and economic rights, partlybecause they live in extreme poverty. Access to creditand other financial services could help reduce poverty andenable people to effectively realize many otherrights. Over the decade, Professor Muhammad Yunus,founder of the Grameen Bank and a founding board mem-ber of Grameen Foundation, has argued that credit shouldbe recognized as a fundamental human right. Today, thisis more relevant than ever as we grapple with issues of justice and sustainability in a globalizing economy that isteetering on the edge of collapse in many parts of theworld.

Economic rights, which are controversial but essential,were added to the International Bill of Human Rights 32years ago and, so far, 159 countries have signed and rati-fied this UN covenant. In our increasingly capitalisticworld, access to loans and other financial services is theticket the poor need to stay afloat and create new possi-bilities.With our global economy still reeling from shockwaves,this important anniversary is a fresh opportunity to exam-ine our successes and the opportunities that lay ahead inachieving universal access to quality financial services. Tohave a truly inclusive global economy, the world’s poorestpeople and initiatives that jumpstart their economic activi-ties must not be left out.

We have made tremendous strides in safeguarding humanrights since 1948, but more can and must be done. Weshould celebrate Human Rights Day 2008 by applaudingthe more than 113 million people who have alreadystarted down the path of self-determination and inde-pendence thanks to microfinance – and by redoubling ourefforts to ensure that others can follow in their footstepsby making access to financial services including credit afundamental human right. This would be a bold step inhelping the poorest global citizens realize the many rightsthat currently exist for them only in theory.

[ Mr. Counts is the President and CEO of Grameen Foundation]

P oor As a Partner- Farhat Abbas Shah

There is an established principle among all civilizedsocieties that stigma and discrimination should bediscouraged at every level and at every caste. Forexample in the mental health sector, it is strictlybanned to call a person suffering from psychologicalillness a patient and seriously advised to call him or

her a client. Also in the health sector there is a con-tinuous struggle to secure people who are HIV posi-tive from stigma and discrimination. Even peopleliving with any sort of handicap like deafness orblindness are typically called special persons andnever called handicapped.

When the microfinance field describes the definitionof poor individuals and claims to help not assistthem, the discrimination begins. It is reality that theultimate goal of the microfinance industry is sustain-ability and after that profitability. Without that theindustry cannot survive, but it should be transparentand clear that a cup of tea is a cup of tea and a busi-

ness is a business.

If the industry wants to own the claim of povertyalleviation along with the target of sustainability andprofitability, then it has to admit that the poor arenot only the clients but also the partners. When wediscuss helping the poor, we create stigma and dis-crimination against the poor. We are earning moneyfrom them and even then claiming to help them.Actually, the poor are our business partners and weshould accept their status as such. The parametersand modalities can be reset. We should give respectand honor to our clients and declare them our part-ners. By doing that, not only will we achieve lifetimeloyalty from the poor, but also we can fill the psy-chological gap between the working and businessclasses. The poor will become secure and remain outof the exploitations of the old-fashioned and unsuc-cessful economic theories as well.



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Micro enterprise trainingGender perspectives- Dr. N. Lalitha

In the arena of microfinance, the major players seem tobe NGOs who help to shape up the SHGs in the form of initiating, nurturing, motivating, capacitating and upgrad-ing them. The quantitative growth of about 30 lakhs SHGsall over India is amazing. But the mission is not only forforming the group for the sake of forming but economicempowerment of the poor women by building capability’ inthem to graduate them from micro credit stage to microenterprise stage. How far the training programmes NGOshave been successful in building capability in them. ForAmartya Sen has argued that what is most important isnot what we have but what we are capable of having –that is using microfinance effectively to start micro enter-prises or other sustainable economic activity. In the con-text of globalization, the SHGs have to develop resilienceto absorb the localized shock waves of global competition.Formation of quality groups, resource mobilization, riskmanagement , effective management of groups, propermaintenance of records, committed leadership, formationof federation, group cohesiveness and participation of mem-bers, enterprise management, periodic monitoring are theinvincible of management that would ensure outreachwith sustainability; the pre requisite factor for ensuringthe above process is training. Have the SHGs been drilledboth theoretically and more practically in obtaining suchskills at least to a workable extent? Yes , but not suffi-cient. Women find themselves competing in a heavily gen-dered labour market which disadvantages them vis-à-vismen who usually have more education, skill, work experi-ence and capital to draw on. Women are largely perceivedas unskilled and semi skilled. The credit absorbing capac-ity of the SHG members can be reinforced only by meansof enhancing their capabilities. The capacity buildingstrategies with women from marginalized sectionsstrengthen their understanding of the processes leading totheir subordinate position in the society and enhance theirability to claim their due share of resources and powerwithin the families and communities and vis-vis the mar-ket place and government organizations. The most defin-

ing aspect in training women to reach economic independ-ence and from there on to run up the social ladder and bevisible on level ground, is to pull up the gender differentialand shatter the myths about gender and society.

(Dr. N. Lal i tha is the Reader in Dept of Rural De- velopment w ith Gandhi Gram Rural University,Madurai , I ndia )

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W e, as a country, have come a longway in meeting the financial needs

of the poor. We are witnessing a transforma-tion of micro-finance as a growth industry.

More and more women are mobilized into SHGsall over the country. They are further mobilizedinto higher order federations. Bank linkages aregrowing rapidly. Some banks have started tooffer cash credit lines of Rs.5 lakh per group.Credit Cards to farmers, weavers etc., are notuncommon now.While a lot more poor still need to be reachedout with access to microfinance services, andsome more services can be loaded onto micro-finance bandwagon, many a poor and their or-ganizations are struggling to find ideas to in-

vest the funds in remunerative activities. Theproblem moves from the lack of funds to thelack of ideas to invest the funds. The sectormoves from the microfinance to microfinanceplus all across. Each one is exploring the ‘plus’.The ‘plus’ may include insurance, loans and re-payments in kind, food loans, businesses bythe groups and federations themselves, publicservices for fee etc.

Most of us, who are and continue in the devel-opment sector, are essentially livelihoods work-ers and their intent is to ensure that everyoneincluding the poor have a decent portfolio of livelihoods. The livelihoods are a play of sixcapitals – natural, physical, social, human, fi-nancial and spiritual, within the four contexts –ecological, techno-economic, patterns of distri-bution of capitals and patterns of investmentand expenditure, resulting in four arrows – in-come, expenditure, employment and risks. Thelivelihoods interventions are at the level of oneor more arrows, capitals, contexts and/or acombination thereof. Thus, the intervention re-sulting in enhancing livelihoods may happenwith information, knowledge, skill development,infrastructure, access to finance, collectiviza-tion, access to storage, technology, value-addition processes, direct reach out to the mar-

ket/consumer, risk diversification, minimumassured returns, etc. Therefore, the livelihoodsinterventions range from extremely simple ac-tions to extremely complex sets of activities.Thus, microfinance activities are a small subsetof the large livelihoods domain. Microfinanceplus ways are expanding this subset to an ex-tent.

Microfinance activities have become fairly sys-tematic and the processes have become

Perspective

Livelihoodsand MicrofinanceG Muralidhar

Akshara Network for Livelihoods Support



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‘standard’ for easy replication and scaling-up.The communities have responded well to theseprocesses and are endorsing them with 99%+repayment rates. The investors and the bank-ers are responding with increased investmentsfor microfinance. It is able to attract a goodnumber of human resources into it. The remu-nerations, it is able to pay, are comparable withthe corporate sector. Bright and young mindsare getting attracted to give a try.

Livelihoods activities are too large in number toattempt any standardization and/or systemati-zation. For example, a small village of 100-200families may have a number of crops, someonce a year, some twice a year and sometimesthrice a year. It may have some plantationcrops and some horticulture crops. It may havesome trees and some fruit-bearing trees. Itmay have fisheries and produce a variety of fishes. It may have livestock including sheepand goats, cattle, buffaloes etc. It may havehandlooms and handicrafts. It may have stonecutting, bidi rolling, and other miscellaneousactivities. There may also be some support ser-vices like transport, trade, education etc. Thepeople may be casual labour, skilled labour,self-employed, enterprise owners etc. Somemay be full-timers and some part-timers. Somemay not be engaged in direct income genera-tion activities.

We have very few people who can appreciateand support these livelihoods in toto. In fact,there are very few who can appreciate andsupport a single value-chain in its entirety. Theso-called experts master a bit of the value-chain. Yet, the poor and their collectives cannotafford them.

Some elements in the way forward for enhanc-ing the livelihoods of the poor include organiz-ing women and youth around savings, creditand micro-insurance into SHGs and their higherorder federations; undertaking participatorylivelihoods planning appreciating livelihoodscurrent reality, gaps and opportunities; facili-tating bank linkages and convergence withother programs to realize these plans; organiz-ing people around livelihoods activities; orga-nizing shops that sell essential items; buildingskills of the youth for meeting the services re-quired; exploring employment opportunitiesoutside and providing training; and buildinghuman resources for working in the people’s

institutions.

The way forward gets further complicated whenwe contemplate about the people whose livesand livelihoods are threatened and affected bydisasters. A variety of disasters and crises arelooming large. This gets further amplified inmany an ecologically fragile and marginalized

zone. This further gets fuzzy for the poor withglobalization, liberalization, privatization andclimate changes.

In this dynamic context, we, the ‘blind’, shouldensure that all the ‘blind’ come together andunravel the ‘elephant’ first, and explore the so-lutions. We need to reach the ‘ant’ when the‘fish’ does not dry-up (as in the seven fish andthe ant story). We need to recollect the saneadvice of Seattle, the Red Indian Chief of con-serving and living sustainable livelihoods.

As the pace of life is dramatically faster thanwhat our grandfathers had, the most prominentissue is how we could offer ‘metafishing’ skillsto the community, in addition to offering‘fishing’ skills, in stead of offering fish. This isthe need of the hour. The entire country andthe world have to gear up for this effort. And Iunderstand that this takes time, may be 10years or 20 years. This can begin with appre-ciation of current reality and pooling up knowl-edge-skills-resources in people’s domain with K-S-R in our domain and outsiders’ domain. Thisin turn generates a variety of informed choicesfor the community to choose from. The com-munity implements the plan so developed. Inthese iterative and repeated rounds, the com-munity acquires metafishing skills and, I guess,learns to adapt to the changing needs andchanging contexts.

Vast majority of the poor have to become part-ners in the high growth of the country. The is-sue is how we take some poor out of the exist-ing traditional activities so that the remainingpoor have better returns. What kind of voca-tions we can think of offering to them so thatthey come out and prosper? The situation atmigration is not ‘great’. How do we address theplaguing issue of the equity in many parts of the country? How do we ensure that minimumwages come to workers? How do we addressthe issue of education and literacy on which thelong-term solution to the poverty lies? How do



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we ensure that the poor have access to publicservices like health which form the most of thefamily’s expenditure? We still have lot of gen-der disparities to cope with and address. CivilSociety efforts are, at best, weak.

MFIs are spreading across the country. SHG

movement is growing rapidly. The proble of ac-cess to finance is being addressed. The needfor the Governments and the Civil Society is tomove into livelihoods domain. These efforts re-quire large number of human resources at thecommunity level, grassroots and at higher lev-els – paraprofessionals, professionals and vol-unteers, with passion, commitment and bestbrains. The poor need to have a hope for betterlife and this support can give that hope. Furtherpolicy support in terms of institutional frame-work like Mutually Aided Cooperative Societies’

Act, increased research into areas of livelihoodsof the poor like dry land agriculture, minimumsupport prices for all products of the poor, en-suring minimum wages for all workers, riskcovers for a wide variety of livelihoods of thepoor etc., are important.

Finally, let us appreciate the reality - w henin crisis, what matter the most are air, w a-ter and food. The rest is a matter of opin-ion really. Today the crisis is that the poor arestruggling with lack of ideas for investing thefunds they can access. It is time, we all jump into help them out. Rest will be history made byus.

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Dr. Souren Ghosal

Credit ManagementSome Radical Thoughts on Microfinance

Horizon

Micro credit to farmers and artisans needs to be routedthrough some voluntary agencies preferably of farmersand/or artisans. This has been the findings of almost allresearch studies undertaken in this regard particularlyin Asia. The reason is very obvious. Most of the farmersand artisans in rural areas do not possess necessaryskills and drive to transform themselves as viable en-trepreneurs. They lack in technical knowledge and mar-ket intelligence. It is, therefore, necessary that theyshould get support from within by grouping themselvesand also by joining with others who have necessaryexpertise and leadership to become better entrepre-neurs.

Institu tional Structure

Further, it would be advisable for commercial banks notto be branch-centric for catering micro credit to farm-ers and artisans. Merely conceiving a specializedbranch to cater to rural finance may not be an ade-quate innovation. Banks should be encouraged to inno-vate and experiment as no foolproof institutionalframework exists today. In fact, almost all researchstudies have found that conventional banking wouldnot be able to reach farmers and artisans and for thatreason most of them have remained under the clutchesof moneylenders who, over the years, have swindledfarmers and artisans by providing facile loans at aheavy cost.

It has become difficult to replace money lenders de-spite so much effort made in this regard due to two

very important factors viz.,

1) facile credit system without the ordeal of much pa-per work and

2) making available the credit for all purposes. Thequestion may, therefore, be asked why we should tryto have any other system.The reason is very obvious. Money lenders have ex-ploited farmers .. Next Page

To effectively providemicro finance at the rootlevel, studies undertakenin Asia suggest that it

should be routedthrough organization of users. The lack of technical knowledge andmarket intelligence is amajor hindrance. It canbe overcome by joiningup with institutions,which can providenecessary expertise andleadership.



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Up-to their neck for their lack of market intelli-gence and also for their weak financial position.The need is, therefore, to create such institu-tional structure that can provide easy creditwith reasonable cost to help farmers and arti-sans become viable entrepreneurs.

For this, considerable experimentations havebeen made in India and from those we wouldeasily understand that farmers and artisans in-dividually are ignorant and weak in bargainingloans at competitive interest rates.

Micro Financing to Groups

One popular innovation is to form groups of farmers and artisans for obtaining any loanfrom banks. However, it has also been experi-enced that groups of farmers or artisansformed only to provide group guarantee forloans taken by them would not help them to

become viable and in many cases such guaran-tees would not be of much help to the lendinginstitutions also as the total group may not beviable because they had no guidance frombanks on farming and marketing to becomeviable farmers and artisans. Further suchgroups do not have any control on individualfarmers for undertaking better farming andmarketing besides the fact that such groupscould never become a cohesive group to lookafter each other's interest both in farming aswell as in marketing.

These groups are unable to harness resourcesfor better farming and to generate enough bar-gaining power in buying inputs and marketingtheir produce. Recent studies have revealedthat micro financial institutions should veerround the strategy of building healthy Self HelpGroups (SHGs) of farmers and artisans andalso create opportunity for female members of the family of farmers and artisans to be amember of the group or its subsidiaries as theyhave been found more prone to saving and mo-tivating force for the families.

Micro Financing Ins titution - NGO

It has also been observed that banks in Indiadepend heavily on 30/40 successful Micro Fi-nancial Institutions (MFIs) instead of develop-ing new institutions wherever they find suchexisting institutions over burdened. It has to bekept in mind that Micro Financing Institutions

(MFIs) are of recent origin and they do nothave unlimited resource both in leadership andmanagement skill. Moreover, such institutionshave to develop Self Help Groups (SHGs) atlocal base in villages and semi-urban placeswhere one is having adequate rapport withpeople of the area. It is true that it is difficult toprescribe any cutoff rule for the same as eachmicro financing institution has varied type of leadership and management skill besides hav-ing differing amount of financial resources.

Comprehensive Policy Framework

However, one may suggest that at the apexlevel, banks may develop or support one MFI tocater to one or two districts of a state. Theseinstitutions may be informal bodies of NGOs.But it would be better if some special legislationis enacted by the government to make it a le-

gal entity to undertake all the jobs envisagedfor such institutions by banks keeping in viewof the potency of such institutions to enablesmall farmers and artisans to attain economicviability in the country. It may be worthwhile tonote that Pakistan has enacted a comprehen-sive policy framework (Ordinance No. 2001) toregulate its micro financing institutions. It ishigh time for our government to come out withsome such policy framework to guide andmonitor these institutions. There cannot be anydoubt about the need of these institutions inour country as these have been found highlypotent institution for poverty alleviations. How-ever, the strength of these institutions will de-pend greatly on how successfully they developself help group of farmers at local base to con-ceive and manage projects to make farmersand artisans viable entrepreneurs. These pro-jects could be on farming and/or subsidiaryagro-industries based on local talent.

Self Help Groups and Micro Financing In-stitutions

It has been observed from the present per-formance of commercial banks that to makegroup of farmers and artisans (SHG) as viableunit, one has to keep in mind the followingguidelines:

Should have compact plot of land of 5 to 10acres having irrigation facilities or havingpotentiality of developing such facilities.



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Similarly, for artisan groups it would behelpful if such groups are formed wherecluster of artisans of same trade live orwhere exist the potentiality of developingsuch cluster of people having skills to pur-sue one or two identified trade.

Should be suitably empowered with skillsand fund to perform their assigned func-tions.

Should also have internet facilities at villagelevel for easy reach to latest technology andmarket intelligence similar to e-Choupalconceived and promoted by the ITC in In-dia.

Should have well-defined roles to play andthe same should be elaborated by the apexbody, i.e., micro financing institutions at

district headquarter (MIC) in consultationwith the financing banks.

Should also be empowered to developschemes to cover risk partially or fully thatmay arise to farmers and artisans due tounforeseen reasons. A participatory fundmay be floated in collaboration with theapex institution and the financing bank.

Should be able to conceive, promote andmanage infrastructure projects in rural andsemi-urban areas to help farmers and arti-

sans to store and market their products asand when they perceive good marketingopportunities.

Should be able to give support services tofarmers and artisans like supply of capitaland crop inputs and transport and ware-housing for marketing their produce.

Should form a subsidiary group or have inthe parent group itself a female group con-sisting of family members of farmers and/orartisans to promote savings and to provideemployment to women folks in rural handi-crafts and/or subsidiary agro jobs and ruralindustries.

System for Lending

Banks shall lend fund as assessed for pro-jects prepared by the SHG and also for an-ticipated consumption needs of the group of

farmers. It may undertake reviews duringthe crop season and/or production seasonof farmers and artisans and keep SHG in-formed of its comments for initiating neces-sary action in the mid-course for safeguard-ing the loan. These reviews shall have to beundertaken by the extension officers of thebank who should be competent enough toguide farmers and artisans for improvingtheir farming and/or village-based subsidi-ary industries.

Bank shall assess the risk that farmers andartisans have taken and to what extent thatcan be provided for through subsidy of thegovernment and contribution to be made bythe bank and the SHG. A risk fund may becreated to meet such exigencies in farmingand business undertaken by farmers andartisans.

Bank shall examine the possibility of provid-ing loans to farmers and artisans on profitsharing basis as charging interest on suchloans (high or low) have not yielded veryhealthy effect on farmers and artisans. Infact, right from the days of moneylenders tothe days of institutional credit, policy mak-ers have failed to develop suitable intereststrategy with the result in most of the caseslending agents satisfied with interest onlyand foregoing principal amount and/ or ex-empting partly or fully the same as the rateof interest levied was unbearable. Thisstrategy, therefore, needs serious thinkingby the policy makers. In the Islamic bank-ing, charging of interest is prohibited andsharing of profit is adopted. It is interestingthat RBI has recently appointed a highpower committee to study the efficacy of the adoption of Islamic banking system forlending in some areas. In fact, some foreignbanks have shown interest in this consider-ing the feasibility of adoption in some coun-tries. This may be a boon to povertystricken farmers and artisans as interestcharging has been a bane to them for along period. This will also do away with thecontroversy of whether one should chargelow or normal rate of interest to farmersand artisans. Further, farmers and artisansneed not look for mercy from the lendinginstitutions.



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Bank may join hands with insurance compa-nies to cover the risk in farming and busi-ness run by the group of farmers and arti-sans. Since risk has to be assessed ongroup basis it would not be very difficult toassess such risk and creating special risksharing fund to meet unforeseen risks.

Bank may also participate in Derivatives inthe commodity markets to cover such risks.Government of India is considering the fea-sibility of such participation very seriously.In fact, a change in the market system inagriculture is in active consideration of theGovernment of India. The Government of India is actively considering changing themarketing route (AGRI-PRODUCE-PATH) toenable farmers to have direct contact withthe market. The present system builtaround Mandi warps the price signals the

market sends and thereby farmers just getonly 20-25% of the price of their produce.To change the same, the Government of India is encouraging the private sector tobuy directly from the farmers and to createan alternative link to Mandi. This can reallywork if MFIs and SHGs are roped in withadequate resource and skill.

Bank shall have to develop new methodol-ogy to increase their rural reach and for thisthey may look to the experimentation madeby ITC and HLL in India. ITC's e-Choupaland HLL's project Shakti may be worthstudying.

Banks may study the innovative methodadopted by the ICICI bank to enhance theirrural reach. ICICI bank has built up a sup-porting network of Village Internet Kiosks inpartnership with Social Initiative Group(SIG).

The above approach may bring a paradigmchange in rural lending recently branded asmicro financing. Such radical change is in-evitable particularly when we are marchingahead in economic field. There is nothingwrong to adopt globalization as it strength-ens the economy rather than weakening itas often wrongly assumed by the politiciansand the deprived sections of our society. Infact, the deprived section of the society willnot remain deprived if we carefully address

to their economic problems. The abovemodel of micro financing may address ef-fectively some of their problems and bringout their latent strength for amelioration of their poverty. The need of the hour is tohave a bold vision and to adopt innovativemethods to reach deprived section of ourpopulation who are mostly habitating in ru-ral areas.

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About the Author:Dr. Sourendra Nath Ghosal holds a PhD in Finance andholds Master degrees in both commerce and Econom-ics. He has experience taught for 18 years in collegesand university of Jodhpur Rajasthan; Worked as princi-pal cooperative training college for about 2 years at

kalyani w. b. He worked with United Bank of India FOR22 years and retired AS G.M. credit. He served in manyboard including "United Industrial Bank, W.B. Agro In-dustries Corporation and Small Industries Corporation.He has also authored several books and Papers pub-lished in several national and International journals &newspaper. He has also served as a visiting/Part-timefaculty member at IIM Kolkata, Vidya Bhawan and In-dira Gandhi Open University etc.

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Mr. Shumit VatsalMobile banking, a symbiosis of technology and financial ser-

vices, is the hottest area of development in the bankingsector and is expected to replace the debit/credit card system in fu-ture.

ATM and Internet banking have been around in India for a while.While both modes have had some success, penetration and use levelshave been moderate. While ATMs offer convenience, they pose a per-ceived security threat in India given instances of mugging aroundthem. Senior citizens and women appear reluctant to use ATMs if they have a choice to go to a branch and withdraw money in safety.The security situation in India shows little sign of improvement andtherefore a large-scale proliferation of ATMs will remain a challenge.Internet banking, on the other hand, relies on PC and Internet pene-tration. Estimates suggest that there are approx 40 million Internetusers that are expected to rise to 100 million soon – despite thisgrowth; penetration and use levels remain low, especially in non-metro areas.

Unlike online banking, mobile banking has certain advantages on itsside. It would not attract much investment from the bank and wouldnot need a change in the existing infrastructure of the bank.

Horizon

Environmental Analysis :

Mobile Banking In India

“We believe branchless banking can offer basic banking services to customers at a costof at least 50% less than what it would cost to serve them through traditional channels.Branchless banking helps address the two biggest problems of access to finance: thecost of roll-out (physical presence) and the cost of handling low value transactions.”- Gautam Ivatury , CGAP- Technology Program ,



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Mobile banking has the potential tobring a whole host of people that

have no/little access to land lines/internet con-nections onto the electronic platform – an inno-vative way to generate financial inclusion. Todo so successfully will require customer train-ing, technology stabilization and managingcarefully the ‘know your customer’ issues.

Political Factors

Only Banks can Offer Mobile Transaction Ser-vices: Only licensed banks that a have a physicalpresence in India are allowed to offer mobile-banking services. The banks are responsible forensuring Know Your Customer norms, andmust have core banking systems in place.

Several MFIs today act as a business corre-spondent (BC) (agents who work on behalf of banks) for commercial banks to reach areaswhere opening a bank branch is not viable.Usually at the business correspondent’s office,a bank representative is present who overseesthe enrolment of clients and ensures that theKYC requirements are complied with. The bankthrough a BC can enroll clients, the clients canbe served by the bank using mobile bankingthus fulfilling the objective and the spirit of fi-nancial inclusion

Mobile operators and mobile-application developersrequire a separate set of guidelines for nonbankingproviders who want to offer mobile banking services.

Regulations on Security: The RBI’s guide-lines call for a two-factor authentication forvalidation of a customer. The industry has re-acted to this by interpreting that two-factor au-thentication can be supported only by GPRSand not through SMS. Media has also criticizedRBI by saying that the new mobile bankingregulations such as the two factor authentica-tion do not facilitate financial inclusion sincebasic mobile phones owned by majority of peo-ple in rural India do not support GPRS.

Secure transactions can happen even via SMS.SMS’es are of two types – Normal and En-crypted SMS. Normal SMS is what we use forday-to-day communication and is not secure.The SMS is not encrypted when it passesthrough the pipe it can be accessed. On theother hand, an encrypted SMS is converted intonon-readable text using a RSA / AES (security)algorithm. The text that can be encrypted arenumbers from 1-9, capital letters from A-Z andsmall letters from a-z. Special characters can-not be encrypted. When the bank client sends asms from his phone to the server, a sms alongwith an encrypted key is sent to the server. If the encryption algorithm is strong enough, it isnot possible to read the SMS. The server then

The table below show s the P olitical, Economic, Social and Technology (P EST) factorsthat affect the mobile banking industry in Ind ia

Political Economic Social Technology

Only banks can offermobile transaction ser-vices

Cost of handsets A required be behavioralchange

One comprehensive applica-tion for all mobile handsets

Business Correspondentregulation

Mobile penetration inrural India

Illiteracy Security concerns

Regulations on Security

Daily Transaction Limit

Goal of Financial Inclu-sion



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decrypts (opens) the encrypted key using aRSA encryption algorithm. This technology isperfectly secure and GPRS is not mandatory.Not many phone users in India subscribe toGPRS and even fewer have phones that cansupport GPRS. Around 60 percent of the 306million handsets or mobile connections in Indiaare without GPRS and WAP. Due to lack of GPRS connectivity, Smart Trust applications,secure SMS based applications will be theprominent at least in the initial years of mobilebanking.

Daily Transaction Limits: The RBI has cappeddaily mobile transaction limits at Rs 5,000 fortransfer of funds and Rs 10,000 for purchase of goods or services.

This regulation, at least in the early stages of mobile banking, does not affect customers who

will be vary of performing high value transac-tions. It will surely not affect rural customerswho rarely receive more than Rs.5000 perday through remittances. It is also unlikelythat the rural customer will pay more thanRs.10,000 for paying his utility bills or otherservices.

Goal of Financial Inclusion: Currently in India,134 million households are financially excluded,which is 60 percent of country's population.Moreover, Financial Exclusion in Urban India isabout 44 percent where as exclusion in RuralIndia is about 76 percent. Among the recentGovernment initiatives it has been proposedthat a National Rural Financial Inclusion Planshould be launched with a clear target to pro-vide access to comprehensive financial servicesto at least 50 percent of the financially ex-cluded households (approximately 55.77 mil-lion) by 2012 through regional and semi-urbanbranches of Commercial Banks and RegionalRural Banks. The remaining households are tobe covered by 2015. The Finance Minister in hisbudget for 2007-08 announced the setting up

of a fund for financial inclusion of about Rs. 500Crore to meet cost of technology adoption.Looking at financial inclusion especially inunique nature of states such as Uttarakhandand Himachal where a ‘money order’ economyprevails and transferring money is problematic;mobile phone banking would prove an effectiveway to expand the reach of financial servicedelivery. The topography in hilly terrains is

such that banks cannot open branches in everycorner. Mobile banking as a technology is cer-tainly an answer to the growing demand forbanking facility at the village level.

Economic Factors

Cost of Handsets: Handsets are priced cur-rently at less than $25 (Rs.1000) and call ratesare less than 0.05 cents (Rs.2) per min-ute. Industry participants like Bharati Airtelhave already awarded a contract worth $2 bil-lion over two-years to Telefonaktiebolaget LMEricsson, to expand its network in rural areasand provide capacity management. Gartner ex-pects 58 percent of the rural population and 95percent of the urban population to be coveredby mobile networks by 2011. It is expectedthat the predominant model is likely to be acommunity owned handset, a concept that has

already been tried and tested in some areas.Considering the rapid growth mobile phone us-age, offering financial services through mobilescould help thousands, especially in rural areas,gain access financial services (banking and in-surance products).

Increased Penetration in Rural In-dia: Approximately 400 million Indians do nothave a bank account. India has a base of ap-proximately 300 million mobile handsets. Also,the Indian mobile phone market is worth up to10 million handsets a month. With the adventof an exponential growth in mobile phones inIndia, mobile banking applications can be usedas an efficient channel to deliver financial ser-vices to the farthest parts of the country at sig-nificantly low costs both for the financial insti-tution as well as the client. Only 2% of ruralIndia has access to cell phones today. Withmost mobile companies focusing aggressivelyon rural India, this situation is likely to changein the very near future. In remote geographiesof India, mobile recharge cards are a fast mov-ing product and Kirana (packed, to-the-brim

stores) storeowners earned a significant portionof their revenues by selling prepaid mobile re-charge cards.

Social/ Demographic/Infrastructure Factors

A Required Behavioral Change: Banks plan tocapitalise on this gap to increase penetration.



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There are 300 million mobile users, with 6 mil-lion being added every month. Despite suchpotential for convenience and business oppor-tunity, few people use mobiles even for simpleb a n k i n g q u e r i e s .

But people have their reasons for not yet lap-ping up the opportunity. They find many fea-tures complex to handle. That apart, there isthe issue of sensitising customers. There havebeen cases where help-desks at banks have notbeen able to offer much to willing users. Mo-biles have become ubiquitous, and using themfor banking is the logical step. But in order forbanks to explore full potential, increasingawareness is essential. A good strategy forbanks to ride on the mobile way will be to ini-tially offer some services for free.

Banking Network in the Country: There are

about 68,000 bank branches in this countryand 23,000 ATMs. But what's astounding is thatthe number of mobile subscribers in India,which is 85 million, is growing by 5 million eachmonth. So while today mobile banking is stillnot as widely used, the possibilities are limit-less

Illiteracy: Illiteracy could prove an issue whenusing technologies like mobile phones, espe-cially for tribal communities. Moreover, mobilebanking pre-supposes that the mobile holderhas a bank account, and thus along with pro-viding capacity building organizations will haveto focus on financial inclusiveness. This chal-lenge can be overcome by service provider de-veloping a user friendly mobile application us-ing local languages.

Technology Factors

One Comprehensive Application for All MobileHandsets: A major challenge for mobile appli-cation development is the great variety of dif-ferent target devices with different capabilities,

features and restrictions. There are a largenumber of different mobile phone devices andit is a big challenge for application providers tooffer mobile banking solution on any type of device. Some of these devices support J2MEand others support WAP browser or only SMS.Ideally, the technology provider should ensurethat the application should function on all hand-sets ranging from a Nokia 1010 to a I Phone.

Security Concerns: Security of financial trans-actions, being executed from some remote lo-cation and transmission of financial informationover the air, are the most complicated chal-lenges that need to be addressed jointly bymobile application developers, wireless networkservice providers and the banks' IT depart-ments. Security applications will gain a lot of ground during the period 2009-12. These appli-cations will include anti-theft and device recov-ery features via GPS. There will also be a lot of interest in areas such as remote data locking.

Conclusion

Mobile Banking is the most spoken about fac-tors in the area of development in the bankingsector as a whole and is expected by industryexperts to replace the credit/debit card system

in future. During the last quarter of 2008, thereare 47 million mobile users, with an average of 2 million being added every month While thegovernment incurs a transaction cost of Rs 12-13 for every Rs 100 of loan disbursement, mo-bile banking helps it reduce the cost to a mereRs 2. The number of mobile users is estimatedto have far surpassed the number of Internetusers. Some techniques that can be imple-mented for the same include using the phone-lock function on your mobile device when it isnot in use, choosing passwords which are diffi-cult to crack and keeping them safe and ensur-ing that the phone is configured securely, espe-cially when it comes to configuring the Webbrowser and email software. Finally, unless theexperience on the mobile device is as fric-tionless and simple as possible, consumers willwait to check their account status by visitingthe bank.

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Shumit Vatsal works as a program manager at Evolvus Solu-tions. Evolvus Solutions offers an end-to-end system calledMicro-Beans that creates a link for micro-finance clients to

step into the formal financial sector. Acting as a transactionbackbone, Micro-Beans supports scale that is essential forthe growth of a micro finance institution. The solution allowsdata to be captured remotely and transmitted to a backendwhere data is stored securely and can be retrieved withease."



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Developing

CreditBureau

In Focus

Developing Credit Reporting for MicrofinanceBy Peer Stein , IFC with IFC A2F Team Members

OpinionBy Samit Ghosh (Ujjivan) and P N Vasudevan (Equitas )

It is Not about Technology

By Anna Somos Krishnan and Enzo Cicchirillo , Planet Finance

Opportunities , Challenges and Way forwardBy Dr. N Jeyaseelan

“While credit reporting can help MFIs streamline lending activities andstrengthen risk management practices, it is also important to emphasizethe importance of educating borrowers on the relevance and use of per-sonal credit histories. Empowering the poor to build and use

“reputational collateral” to access financial services at better rates of fi-nancing, while maintaining prudent levels of indebtedness, benefits themand the financial system as a whole.”-Peer SteinHead (Financial Infrastructure and Institution Building ) , IFC`s Group



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Best Practices Management of Microfinance and for improving operational efficiency 1000-1200



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DEVELOPING

CREDIT REPORTING FOR M ICROFINANCE

Credit reportingcontributes

to financialstability anddeters systemic over-indebtedness anddefaults

By Mr. Peer Stein , Head (Financial Infrastructure and Institution Building ) ,IFC`s GroupWith Support from Following IFC’s A2F business line Team Members

◊

Tony Lythgoe,◊

Oscar Madeddu,◊

Colin Raymond,◊

Peter Douglas Sheerin,

◊

Nataliya Mylenko,◊

Makanda Kioko,

◊

Swapnil Kant Neerajand

◊

Shalini Sankaranarayanan.



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Approximately two-thirds of the emerging market popula-tion does not have access tofinancial services. While physicalinfrastructure such as bankbranches, ATMs, POS terminals areimportant for expanding access tofinance, financial infrastructure ele-ments, including credit bureaus arejust as important.

A credit bureau is an institution that collects in-

formation from creditors and available publicsources on a borrower’s credit history. Informa-tion, on individuals and small firms from varioussources is compiled into a comprehensive creditreport that is then sold to creditors. Credit bu-reaus support the retail lending business by pro-viding objective information on the credit worthi-ness of individual customers or small businesses.They allow lenders to make faster and more ac-curate credit decisions, thereby lowering theirdefault rates, by 30 to 40% according to variousstudies and increasing their credit lending vol-umes . 1

Benefits of credit reporting for microfinance

Credit reporting has significant benefits for microfi-nance institutions (MFIs) and their borrowers. MFIsare constantly grappling with the need to expand loanportfolios and simultaneously lower transactionscosts. It has long been recognized that technology canenable MFIs to expand while maintaining a doublebottom line. Credit reporting represents yet another,albeit lesser known, opportunity for MFIs to achievethis end.

In particular credit reporting can do the following formicrofinance:

(i) Improve risk management. Having access to a cli-ent’s credit history enables lenders to make a thor-ough assessment of a borrower’s repayment capacity.Specifically, a lender can quickly assess a client’s levelof indebtedness or propensity to repay a new loan,quickly eliminating obviously bad borrowers from theloan appraisal process. Further, the lender can use

the client’s credit bureau data/ranking to structurethe loan to fit the client’s risk profile, e.g. require ahigher level of guarantee, reduce the loan amount, orrequire payment of existing debt before a new loan isissued. In addition, the lender can use the data to cal-culate loan loss provision levels more accurately.

(ii) Reduce transaction costs. Use of credit bureaudata has proven effective in reducing loan approvalcosts while enhancing risk management. The net ef-fect is a reduction in costs associated with loan proc-

essing, defaults and provisioning – and, therefore, apotential increase in net income. In Bolivia, Ecuador,Peru and other markets with microfinance credit re-porting systems, several lenders underscore the im-portance of credit information as one of the key in-struments for efficiency gains and cost reductions inloan appraisal and monitoring.

(iii) Improve efficiency. Use of credit bureau data hasproven effective in eliminating part of the labor-intensive and lengthy early screening part of the loanappraisal process. For instance, a manager of INFO-CORP, a credit bureau in Peru, claimed that the use of credit bureaus reduced the waiting time for loan ap-plications from a week to 24 hours in some cases. 2

In the case of Genesis (a Guatemalan MFI), use of credit bureau data enabled the average credit officerto select 55% more new borrowers per month. 3

(iv) Increase client base and MFI competitiveness.Credit information can help MFI lenders tap new mar-kets and new borrowers, and can encourage the ex-pansion of lending in rural areas. Added to this are

the efficiency gains from faster loan processing timeswhich imply better client service - all of which helpMFIs maintain a competitive edge.

(v) Increase access to finance at better rates. Microfi-nance borrowers stand to benefit as well, as thecredit bureau helps them build “reputational” collat-eral, which precludes the requirement for physical



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collateral when applying for a loan. Moreover, aslenders streamline operations and lower operatingcosts, these savings are passed on to micro borrowersin the form of lower interest rates. Thus credit report-ing can help make loans more affordable and moreaccessible to micro borrowers.

(vi) Provide better incentives to repay. Assuming

borrowers are aware of the credit bureau and what itimplies for borrowing, credit bureau information candiscipline borrowers by letting them know that theyrisk being locked out of credit markets if they delay ordefault on their payments.

Promoting financial stability

Credit reporting also contributes to financial stabilityand deters systemic over-indebtedness and defaults:it is particularly important and relevant in the contextof the current financial crisis. The current crisis findsits underpinnings in a systemic lack of oversight andthe use of lax risk management practices by providersof financial services. Users of credit bureaus includefinancial institutions and non-bank financial institu-tions that are likely to be affected by global liquidityconstraints.

By pooling data across financial systems and reducinginformation asymmetries, credit information systemssupport efficient credit allocation and strengthen riskmanagement capabilities, thus enabling lenders tomake better informed and more responsible lendingdecisions. To reiterate, bureaus can help reduce de-fault rates by 30% to 40% in environments with com-prehensive credit information sharing.

Credit reporting for microfinance gained prominencein the late 1990s when the Latin American microfi-

nance industry was hit by a financial crisis stemmingfrom over-indebtedness. Bolivia’s credit crisis of 1999,demonstrated that an effective credit reporting sys-tem is a public asset that is critical to the financialsystem’s health and responsible finance. The crisis,which was stimulated by over-indebtedness,prompted borrower revolts, diminishing consumerlending, portfolio quality deterioration with portfolios

-at-risk (PARs) as high as 10% and reduced businessopportunities for MFIs. 4 Drawing lessons from thecrisis, Bolivia and several other Latin American coun-tries took strong measures to strengthen microfi-nance credit reporting systems and general financialsector supervision.

Empowering borrowers

While credit reporting can help MFIs streamline lend-ing activities and strengthen risk management prac-tices, it is also important to emphasize the impor-tance of educating borrowers on the relevance anduse of personal credit histories. Empowering the poorto build and use “reputational collateral” to accessfinancial services at better rates of financing, whilemaintaining prudent levels of indebtedness, benefitsthem and the financial system as a whole.

The status of credit reporting in microfinancetoday

In most emerging markets credit bureaus are eitherunderdeveloped or nonexistent. The situation is ag-gravated in the context of microfinance since creditreporting for microfinance is still a nascent conceptthat is only now gaining support outside of the LatinAmerican continent. Recent statistics from the WorldBank’s Doing Business report indicate that of emerg-ing market bureaus surveyed, 60% report receiving

“Credit reporting also contributes to financialstability and deters systemic over-indebtednessand defaults: it is particularly important and rele-vant in the context of the current financial cri-

sis.”



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data from MFIs. 5The news, while encouraging, can bemisleading as several challenges remain with respectto integrating MFI data with that of credit bureaus.

The status of credit reporting in microfinancetoday

In most emerging markets credit bureaus are eitherunderdeveloped or nonexistent. The situation is ag-gravated in the context of microfinance since creditreporting for microfinance is still a nascent conceptthat is only now gaining support outside of the LatinAmerican continent. Recent statistics from the WorldBank’s Doing Business report indicate that of emerg-ing market bureaus surveyed, 60% report receivingdata from MFIs. The news, while encouraging, can bemisleading as several challenges remain with respectto integrating MFI data with that of credit bureaus.

Some of these challenges are: 6

MFIs lack good quality data, which makes it dif-ficult for credit bureau providers to accuratelycapture demographic profiles, often of largelyilliterate populations. One of the key impedi-ments to the inclusion of MFI data in credit bu-reaus is the difficulty of being able to identify aunique user match for clients, mostly womenborrowers in the case of microfinance, due to

the lack of national identification numbers and /or verifiable addresses.

Traditional credit reporting does not meet thespecific needs of MFIs, and credit bureaus needto provide customized services for MFI clients.

The issue remains how to make credit reportingnot only applicable, but also affordable to theMFI sector, where margins are fairly low.

MFIs face technological challenges and workwith obsolete systems. Unlike the retail bankingsector, there is no standard technology platformthat MFIs can leverage for their own data main-tenance requirements. Existing custom builtmodels vary widely in design and functionalityand do not facilitate information sharing. Exist-ing backend systems are not only broken but

also inflexible and unable to process customerfeedback and react quickly to changing con-sumer needs.

Both MFIs and the credit information providersservicing them recognize the lack of adequatelytrained/ skilled manpower and the need to pro-

vide training.

Physical infrastructure, like access to electricityand internet, can affect the ability of MFIs toconnect in a timely and secure manner to creditbureaus and avail of credit reporting services.

CREDIT REPORTING FOR MFIS IN INDIA

Credit reporting for microfinance has

huge potential for impact in a country likeIndia, where, according to World Bank re-search, 52% of the population lacks accessto financial services. CIBIL, the existing In-dian credit bureau, does not providecredit reporting for MFIs yet.

IFC estimates that MFI credit reporting inIndia could benefit an additional 114 mil-

lion borrowers that are currently not inthe formal financial system due to theirinability to prove creditworthiness. In ad-dition to this huge market opportunity,availing of a credit reporting system canenable Indian MFIs to assess the level of over-indebtedness of their clients, whichcan be significant in urban areas that areheavily concentrated with MFIs. Credit re-

porting also presents an opportunity forexisting MFIs to scale up lending in themore rural and remote parts of the coun-try.



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Country and context-specific challenges existas well. In India, for instance, the multitude of languages and dialects can add to the level of complexity required in a credit bureau’s solu-tions, as existing credit bureau solutions havelimited language capabilities.

Nevertheless, known examples of successfulintegration of microfinance into credit report-ing systems exist in Ecuador, Peru, Bolivia andGuatemala. Challenges notwithstanding, it isevident from these countries, that credit re-porting systems are integral to facilitating sus-tainable and responsible access to finance, andthat these challenges are well worth address-ing.

At present there are no known global interven-tions that seek to address these challenges.IFC’s Global Credit Bureau Program, recogniz-

ing that such a void exists, is actively explor-ing new initiatives to address the specificcredit reporting needs of microfinance institu-tions.

IFC’s Global Credit Bureau Program

IFC’s Global Credit Bureau Program, is an inter-nationally recognized leader in promoting creditbureau development in emerging markets.Since inception in 2000, the program has cre-ated or significantly improved credit bureaus in10 countries, drafted or contributed to thedrafting of new laws and regulations in 19countries, organized over 60 credit bureauseminars, conferences, and outreach events inmore than 40 countries, and monitored thecredit reporting environment in over 180 coun-tries through the World Bank’s Doing BusinessReport.

The program has always supported the devel-opment of inclusive credit reporting systemswith a view to expanding access to financialservices by the poor and underserved, espe-

cially those served by microfinance institutions.In the past it has supported two global confer-ences: Next Generation Access to Finance(September 2007) and Making Small BusinessLending Profitable (April 2001) that specificallyfocused on the importance of credit reportingfor small business and micro lending. The pro-gram’s microfinance/small and medium enter-prise footprint to date includes work in: South

Africa, Tanzania, Mexico, India, Egypt, Mo-rocco, Mongolia, Mozambique, Cambodia, Af-ghanistan, Sri Lanka, China, Pakistan, Kenya,

Ghana, Madagascar, Rwanda, Azerbaijan, Kyr-gyz Republic, Russia and Uzbekistan.

In anticipation of the various credit reportingpolicy needs arising out of the current crisis,the Global Credit Bureau Program is reinforcingits efforts to develop more inclusive credit in-formation systems for regulated and non-regulated entities, while continuing to provide

CIBIL

Credit Information Bureau (India) Lim-ited (CIBIL) was incorporated in 2000.CIBIL’s aim is to fulfill the need of creditgranting institutions for comprehensive

credit information by collecting, collatingand disseminating credit informationpertaining to both commercial and con-sumer borrowers, to a closed user groupof Members. Banks, Financial Institu-tions, Non Banking Financial Companies,Housing Finance Companies and CreditCard Companies use CIBIL’s services.Data sharing is based on the Principle of Reciprocity, which means that only Mem-bers who have submitted all their creditdata, may access Credit Information Re-ports from CIBIL. The relationship be-tween CIBIL and its Members is that of close interdependence. The establish-ment of CIBIL is an effort made by theGovernment of India and the ReserveBank of India to improve the functional-ity and stability of the Indian financialsystem by containing NPAs while improv-ing credit grantors’ portfolio quality. CI-

BIL provides a vital service, which allowsits Members to make informed, objectiveand faster credit decisions.

Source: CIBIL Official website



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advice on legal and regulatory issues and ca-pacity building for financial services regulators.

More recently, the program has been exploringthe possibility of formalizing a MicrofinanceCredit Reporting Program in collaboration withinterested donors. As the liquidity crisisevolves, this focus will be extremely importantto ensure that credit is extended to the rightborrowers and that credit lines remain open, orare reopened for the most vulnerable borrow-ers, including both households and small busi-nesses. This new initiative will focus entirely onintegrating microfinance into credit reporting. Itwill start with a pilot set of countries andgradually expand its scope of intervention overa period of five years.The program is also stepping up financial liter-acy efforts to promote standards for responsi-ble lending during the crisis. In particular, such

efforts will involve designing and delivering fi-

nancial education training specific to the use of credit bureaus and credit information sharing.The primary audience for such training will in-clude lenders and portfolio and risk managersin financial institutions with a broader dissemi-nation strategy for the benefit of general bor-rowers. These efforts will be vital to ensuringthe successful integration of both microfinanceinstitutions and their clients into formal creditreporting systems.

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References:

1. Barron, J. M. and Michael Staten, (2003), “The Value of Comprehensive Credit Reports: Lessons from U.S. Experi-ence”, Credit Reporting Systems and the International Econ-omy , M. Miller editor. MIT Press.

2. Guillamon, Bernardo, Kevin X. Murphy and Saul Abreu,“Risk Mitigation as a cost effective MF strategy: Case study-IDB-Peru Global Micro enterprise credit program”, InterAmerican Development Bank, Washington.D.C., March 2000,p.9.

3. Luoto, Jill; McIntosh, Craig; and Wydick, Bruce (2007)“Credit Information Systems in Less Developed Countries: ATest with Microfinance in Guatemala.” Economic Develop-ment and Cultural Change, January 2007, Vol.55, issue 2,pages 313-34

4. Bolivian Banking Superintendence

5. World Bank Doing Business reports. Website:

www.doingbusiness.org

6. IFC, CGAP and Visa. Next Generation Access to Finance.Proceedings from the Global Conference on Gaining Scaleand Reducing Costs with Technology and Credit Scoring.World Bank Headquarters, Washington, D.C., September 17-19, 2007. Available online at: http://www.ifc.org/ifcext/gfm.nsf/AttachmentsByTitle/FI-CB-NextGenProceedings-

For more information on the GlobalCredit Bureau Program and its activi-ties please visit the website at

www.ifc.org/financialinfrastructure.

About the Author/ s

Mr. Peer Stein heads IFC’s group for FinancialInfrastructure and Institution Building. As Busi-ness Line Leader for Access to Finance (A2F), heoversees and supports IFC’s technical assistanceand advisory services in financial markets world-wide, including SME banking, housing finance,microfinance, leasing, and energy efficiency fi-nance. As of June 2008, IFC had a total of 230A2F advisory services projects in over 90 coun-tries. Further, he leads IFC’s and the WorldBank’s advisory work in financial infrastructure,which includes the development of credit bu-reaus, collateral registries, payment systems andremittances services to support greater access tofinancial services in developing and emergingmarkets.

Other contributors to this article from IFC’s A2Fbusiness line include: Tony Lythgoe, Oscar Mad-eddu, Colin Raymond, Peter Douglas Sheerin,Nataliya Mylenko, Makanda Kioko, Swapnil KantNeeraj and Shalini Sankaranarayanan.

Please send any queries to Shalini Sankarana-rayanan at [email protected].



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OpinionsCredit Bureau

“Sharing credit information among lenders in a constructive manner while ensucustomer confidentiality & privacy of the customer is extremely important for the fnancial services industry. It is not only good for the institutions which redutheir credit costs but also for the genuine customers, as it would in the long run rduce the cost borrowing. In India there are lot of legal & regulatory hurdles. So it important to share information in stages both informally and formally: negative arenegative list of fraudulent customers & staff, deliberate defaulters etc. In group lend-ing the traditional approach of credit scoring would not work but it would be effectiin individual lending. One of the big dangers today is multiple lending by MFIs andextension of credit. The credit bureau would provide the necessary information

avoid this kind of risk.”

- Mr. Samit Ghosh, Managing Director , Ujjivan Financial services Pvt. LtdBangalore- India Based MFI)

Micro finance has seen a multi fold increase in volumes in the recent years, thanks to a fundamentallystrong business model and the entry of private equity players into this segment. This has not only at-tracted newer players but also enabled the existing players to scale up many times over in quicktime. While on an all-India basis, the penetration of micro credit is still quite low at around 15-20%, yet,there are geographies where there are multiple MFIs operating. This ends up with customers gettingover leveraged with multiple loans. An unplanned and mindless borrowing by these customers could putthem at grave risk of running into default. Thus, the MFIs are likely to put at risk the very segment ofpeople that it seeks to serve.Other similar markets such as the sub-prime in the US and the Small Ticket Personal Loans in India havewitnessed the effect of mindless competition resulting in not only organizations closing down but also put-ting a large population of people in tremendous difficulties. It is important that the MFIs should immedi-ately take steps to ensure lessons are learnt from the mistake of others and we create a more sustainablesector.Credit Bureau for the micro finance sector would enable consolidation of the customer data base across

the sector and all fresh loans to customers could be decided based on the existing indebtedness of theclients and their ability to service the new loan. Parallelly it is also important that MFIs adopt a commoncode of conduct with regard to the overall exposure that they would permit per client. If these progres-sive steps are taken immediately, it is still possible that the dream story of growth of MFIs and the hap-piness that it brings to the face of its millions of poor people can sustain on a longer term basis

- Mr. P N Vasudevan , Managing Director , Equitas ( A Chennai –India based MFI )



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Microfinance Credit Bureau

It’s not about the

technology

Having a mobile phone connection, is a no brainer formost of us. In the United States when you wish to pur-chase a post-paid service you can get it without paying asingle cent for about 60 days after launching the service.How is it possible? Believe it or not it is thanks to the credit bureau. Any personwho has a social security number in the US can avail a phone connection in ex-actly 5 minutes.When the customer goes to any retail outlet with the intention of having a new connection, all the shop keeperneeds to know is whether the client would be able to pay for the mobile provider the equivalent of a monthly bill,which is around 30-50USD (1200-2000INR). For obtaining this information the shop keeper either calls a credit linephone number and tells the operator the client’s social security number or types the same into a PDA device orcomputer screen. This is called a credit check. In a few moments he will receive an “eligible” or a “not eligible”decision from the other end of the line.It goes without saying that in the 30 second transaction the shop keeper didn’t have the chance (nor had the in-tention) to obtain any confidential information about the client other than the eligibility for a service that costs2000INR a month. He didn’t know at the moment of granting a new phone where the client purchased his previ-ous phones, in which bank he had his mortgage loan, nor did he know how many children the client had. A creditbureau is the entity behind this eligibility information. The rapid assessment is based on years of extensive statisti-

cal research in client’s repayment behavior.

A credit bureau is part and parcel of many developed financial systems with a multifold purpose. The most com-mon role of such an entity is a risk assessment (whether the client is able to repay) of the financial institution orfraud protection (whether we are able to identify the client). Surprisingly, for most credit bureaus the credit scor-ing (a system where based on the borrowing and repayment history of clients they assign a score which indicativeto the credit worthiness) is just a by-product of the extensive analytical work that to better understand consumerbehavior. Companies with long term vision also use the services of a credit bureau to understand their clients andto target meeting their needs better.

By Anna Somos Krishnan and Enzo Cicchirillo

Planet Finance



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In India recently we hear a lot about the need of setting upa credit bureau with the participation of most MFIs. Mostof us agree that not being able to identify clients, mostlybecause of the absence of a national identification system,in densely populated areas are risky. Furthermore, the riskof multiple lending and indebtedness could defeat thewhole intention of microfinance; financial inclusion, andmay have a detrimental impact on the balance sheet of theinstitutions. The solution to these problems partially pro-vided by a credit bureau. There are two types of ap-proaches to such information sharing systems. The first iscalled a positive credit bureau, where the entire client datais available and a scoring system rewards the creditworthyclients or it penalizes the defaulters. The other type is thenegative credit bureau where you obtain only the de-faulters or black-listed clients.

It is important however that we all understand that an MFIcredit bureau is meaningless without a voluntary MFI infor-mation exchange and future integration plans with the

national level credit entity. This is exactly in line with thelarger mission of development. At the end of the journeywe would like to see the low-income population as an inte-gral part of the economy and Indian society. More pre-cisely, if we ensure that all MFI clients have their credithistory stored in a central data warehouse system it ismuch easier later to provide the same clients - building onthe above example, - with phone lines, electricity, orhealthcare services.Planet Finance followed in the past various efforts of MFIcredit bureau implementations across the world. We ob-served the credit bureau efforts in Benin, in Morocco andmost recently we work on the implementation of a bureauin Egypt. There are some very important lessons learntfrom these efforts.

Historically, it is not the technology which has the mostcritical role in the success. MFIs tend the focus most onunderstanding the small details of the technology as op-posed to the larger framework. Technology contributeshowever the smaller proportion to the seamless effort. Thelarger factor is the common MFI knowledge and partner-ship platform, which should be based on a clear under-standing of the regulatory framework on client-data ware-houses or more importantly on why sharing the right and

consistent information is crucial. If MFIs do not trust anindependent entity with the confidential handling of theirdata the whole initiative is meaningless.

It is also rarely understood that a thorough needs assess-ment i.e. which data the MFIs would like to supply thecredit bureau and which information they would like to seeas part of the credit assessment, is an inevitable part of theprocess. This support a technology company is unable to

provide. As per our experience there is always too muchemphasis on the technology hosting platform as opposedto focusing on the data consistency or sounds systemsaround the information process flow, which is an opportu-nity to create a safety net around our business.

Planet Finance usually plays an impartial, intermediary rolebetween the national credit bureaus (where there is any)and the MFIs. We take on the role of presenting the regula-tory study, needs analysis or designing the operative busi-ness model of the MFI credit bureau . On the technologyfront we always start with a gap analysis between the datathat the MFIs can extract from their own software and thedata we need to feed in to the credit bureau’s software.While Planet Finance developed its own credit assessmentsoftware called Easy-X-change, we never impose it on ourMFI partners. It is critical that we only bring the alterna-tives to the MFIs but the decision on the final parameters isalways theirs. We are happy to show how the systemworks but it is always the MFI team which takes the final

call. They decides for example on which type (positive ornegative) credit bureau service they would want to avail.Similarly, we do not restrict the participation of any MFI insuch efforts nor we promote one or the other nationallevel credit bureau. We provide training for all MFIs onwhat a credit bureau is, how to organize their data to getthe most out of the information exchange.

After each phase before entering the pilot project we sharewith the MFIs all the findings and encourage everyone tobring all the concerns to the fore. For example when itcomes to deciding on which technology company will hostthe credit software, we present all applications and it is upto the MFI team to collectively decide on the best suitableone. This is the single most important success factor andwe try to maintain our support role in this spirit.In India where the MFI sector poised to become the mostdeveloped and innovative globally, it is pivotal to set anexample of partnership of a bottom up initiative. We needto focus on the key issues such as how to ensure data con-sistency in our MIS systems and understand our strengthrather than speculating on how our competitors will mis-use the data we provide. Let us remember, credit assess-ment is “just” means to larger common good.

Ms. Anna Somos Krishnan is Executive Director of Planet Finance India.Mr. Enzo Cicchirillo is Director - Planet Finance ITSolutions.

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Need fo r Credit Bureaus:

In matured markets, the competition is moreand the clients have the option to borrow frommany sources and increase their credit risk tothe financial institution. The sharing of creditinformation among the players will remove theinformation asymmetry and will enable thelender to take an informed credit decision. Inmany places, the clients have become over-indebted due to multiple borrowing, which canbe prevented through credit bureaus. Thecredit history (positive) created at the creditbureau will enable the client to access the fu-ture loan easily with little time and cost.

International experiences:

A credit bureau is a system where clients’ credit information is collected from lenders andmaintained. Whenever a lender or others refera client, the information on the client is pro-vided by the bureau for a nominal fee, whichwill enable them to take credit decisions. In-ternational Finance Corporation (IFC), a Worldbank group promotes setting up of Credit Bu-reau by partnering with financial institutionsthrough its global program on credit bureaus.The credit bureaus have high predictive powerwhen both positive & negative information iscollected involving a range of players banks,MFIs, insurers, retailers, card issuers & mobileoperators as practiced in US, UK. They havelow predictive power when they collect onlynegative information and from only one institu-tion as practiced in Korea. Credit bureaus aresuccessful in Dominican Republic, South Africa,Brazil and Ecuador. In Ecuador, after the intro-duction of credit bureaus in 2004, the defaultrate has come down from 10% to 4% and time& cost to process new loans have been reducedby more than 50%. Pakistan Micro finance net-work has started its credit bureau for Micro fi-nance in Lahore and Cambodia is also trying to

set up the credit bureau with the support of IFC.

Opportunities in India:

In India, the CIBIL (Credit Bureau Informationof India Limited) is already in operation servingthe commercial loans. As India has a huge IT

infrastructure and CIBIL in place, integratingmicro finance loans with the system will beeasier. This will help the banks and MFIs toshare the micro credit information among themand will prevent multiple financing and reducethe credit risk. As the banks have to complywith Basel norms, which require them to assignmore capital for higher risks, credit bureaus willenable the banks to minimize the risk capital.

Challenges:

The first and foremost challenge is the lack of unique identity number for clients in India.Most of the MFIs are not regulated and collec-tion of credit information from them may bevery difficult. Many MFIs still maintain thecredit management program database manu-ally, which may come in the way of reporting tocredit bureaus on a real time basis. In India,the banks have overcome the bank secrecylaws of not disclosing the client information toothers by taking a consent letter from clients to

give their data to CIBIL. In some rural areas,the connectivity is also a problem, which will bea barrier in information flow from the branches.

The way forw ard:

In India, it appears that Sa-Dhan has takensome initiatives to bring in the concept of credit

A credit bureau is a system where cli-ents’ credit information is collected fromlenders and maintained. Whenever alender or others refer a client, the infor-mation on the client is provided by thebureau for a nominal fee, w hich w ill en-able them to take credit decisions.

The first and foremost challenge is thelack of unique identity number for clientsin India. Most of the MFIs are not regu-lated and collection of credit informationfrom them may be very difficult. ManyMFIs still maintain the credit manage-ment program database manually, whichmay come in the way of reporting tocredit bureaus on a real time basis.



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bureaus for MFIs. But, it will be better if themicro finance credit bureau is integrated withthe existing structure (CIBIL) and all playersviz insurers, retailers, utility payment receivers,mobile operators, card issurers and MFIs sharefull information (positive and negative informa-tion), it will be useful to all the stakeholders.The central bank i.e. RBI should support theinitiative of MF credit bureaus as a pilot insome mature markets like Tamilnadu or AndhraPradesh and then after learning lessons out of it, the initiatives can be scaled up.

MFIs need to be supported for computerizingtheir credit management system, so that theircredit operations are transferred to the CIBILon a real time basis as being practiced in SouthAfrica. Govt. Of India is actively promoting theE-governance projects, wherein the issue of National Identity card to all citizens of India is a

priority. Such initiatives should be speeded upin areas where the Credit Bureau pilots are tobe grounded. As IFC has drawn up a massivemicro finance program for Asia, its technicalassistance support may be sought for settingup micro finance credit bureau pilots in India.In the long run, the clients will enjoy hassle

free banking because of good credit historiesbuilt through these credit bureaus.

*****************

Dr.N.Jeyaseelan- Program Director of Help-ing Hand Micro Fin ance and Services (A Unitof Hand in Hand Tamilnadu) holds a Bache-lor degree in Agriculture, MBA in Banking & Finance and Ph.D in Micro finance. Earlierhe has served as Senior Manager in IndianBank. He has two decades of rural bankingexperience and piloted several micro fi-nance initiatives in the bank. He has been aconsultant to UNDP , UNOPS, GTZ, IFA D, AFC& Water Partner International (USA) in In-dia and abroad (Myanmar, Bangladesh & South Africa) on Micro credit and Micro in-

surance. He has headed the National levelstudy on Joint Liability Groups (May 2008)commissioned by GTZ-NABARD. He has sev-eral publications to his credit.

Download

A SpecialIssueonMicro Insurancewww.microfinancefocus.com



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D e si g n i n g St a f fI n c e n t i v eSystem

There is little dispute among microfinance practitionersthat well-designed staff incentive schemes can have posi-tive and powerful effects on the productivity and efficiencyof MFI operations. Conversely poorly developed schemescan have serious detrimental effects. This note lays outthe principles and steps for designing effective staff incen-tive schemes.

Essentials to Any and All I ncentive Systems:

Of prime importance is that the staff incentive scheme must be, and be seen to be, both transparent and fair:

The transparency requirement means that:

◊

Staff members affected by a bonus scheme should eas-ily be able to understand the mechanics of the calcula-tion, i.e. the system should not be overly complex;

◊

The scheme should contain as many objective factorsand as few subjective variables as possible;

◊

The “rules of the game” should be made known to eve-ryone and should not be changed arbitrarily.

In order to comply with the fairness requirement:

◊

The goals set out by the scheme must be attainable;

◊

Better performers must indeed be rewarded withhigher salaries;

Everyone must be able to achieve a higher compensationby working better and harder.

By Martin HoltmannMicroSave

To Know More about “MicroSave” an d ow nload Focus Notes , Visit th e w ebsi te .

www.microsave .ne t

Best Practices



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Critical Design Issues for Staff IncentiveSchemes

If the board and management of an MFI areprepared to implement a performance-basedincentive scheme, the following issues among

others, will need to be addressed.

TimingIn general, it is useful to introduce a financialincentive scheme only once staff have receivedsufficient training. Practical experience sug-gests that staff should become eligible for par-ticipation in bonus schemes approximately sixmonths after joining the organisation. Beforethat, they should just receive a fixed (trainee)salary.

Frequency of Incentive PayoutThe incentive payout (for instance a bonus),should not be construed by the staff membersas an entitlement, andthere must be a clear understanding that thepayout is entirely dependent on the perform-ance of the individual(or group) during the reference period forwhich the bonus is awarded. If the bonus for-mula is elastic (i.e. if it reacts strongly tochanges in output), staff members will receivedifferent bonuses from month to month, sothat the risk of an “entitlement mentality” should be controllable. Annual or semi-annualbonus payments do not make much sense: it ismore difficult for staff members to relate theirreward to any particular efforts.

Weigh t of Bonus in Total RemunerationIt is important to avoid the extremes: if thevariable portion of the monthly or quarterlysalary is too high most “normal” people wouldnot want to work under such a system. As a

consequence, extreme risk seekers would beattracted to the job – such phenomena are ob-viously not desirable for MFIs. On the otherhand, if the variable part of the salary is tooinsignificant, the bonus system as such willsimply not have any influence on the behaviourof the staff members – which would also not bea desirable result of the incentive scheme. Inpractice, we find that for effective incentive

schemes the weight of the bonuses for creditofficers range anywhere from 20% up to 50%of total compensation.

There are essentially five main types of incen-tive schemes:

1. Ind ividual Incentive SchemesUnder an individual incentive mechanism, there

is a direct link between individual performance andremuneration. However, they can lead to arather narrow focus, may reduce staff mem-bers’ intrinsic motivation and in addition, it isoften difficult to distinguish properly betweenindividual and group performance. Individualincentive schemes are often used for credit offi-cers.

Transparency

“It was extremely important for us to be able to calcu-late the bonus ourselves. Some of us had become sus-picious of the finance and MIS people. We feared theywould make maliciously complicated computations de-signed to deny us the bonus”.

Fairness

“Many of us operate as if there is no incentive scheme.We were sent to this difficult area to solve repaymentand drop-out problems. Apart from suffering becausewe have been transferred to this remote place, we havelost the bonuses we used to make in our previous ar-eas. So any thought of ever getting an incentive is noth-ing but day dreaming – we’ve given up!”

Participation

“The staff incentive scheme design should be participa-tory. The people at headquarters are out of touch withthe field realities and therefore cannot design a suc-cessful scheme. Although the consultation could haveinvolved a few more people and was a little long, weapplaud them for adopting a more inclusive approach.Then we share in its success and the responsibility if itfails.”



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2. Team-Based Incentives (Group Incen-tive Schemes)The goal of group-based incentive schemes isto increase the social cohesiveness of the staff and to foster good cooperation and team effort.Among the most important drawbacks of suchschemes is the free-riding effect: If the payout

of the individual depends on the performanceof the whole group, there is a huge temptationto reduce the individual contribution. Group in-centive schemes are often used for branch-based activities – in particular savings mobilisa-tion.

3. Employee Stock Ownership Plans(ESOPs)ESOPs may be attractive tools for motivatingstaff members because of their positive sym-bolic and motivational effect. Through an ESOP,

employees become owners, so that it should beeasier for the staff members to internalise theinterests of the firm. ESOPs are, however, typi-cally one-time incentive mechanisms that areprobably not very well suited to boost opera-tional performance over the longer term.

4. Profit Sharing and Gain-sharingSchemes

Positive effects of profit sharing schemescan be an increase in the sense of identifica-tion with the organisation, and a reduction of

the barriers between employees (“us”) andowners (“them”). But profit sharing schemesalso have a number of potential problems. Theyprovide a very weak connection between theperformance of the individual and his/her re-ward. Individuals are not able to exercise anycontrol over the generation of the annual profit,and free rider problems will invariably arise.Gain-sharing schemes are often used to sharethe benefits of productivity gains with middleand senior management.

5. Delayed BenefitsThese include pension and other social securitycontributions that a firm makes on behalf of itsemployees. Since pension benefits and contri-butions typically rise with tenure, they can helpto reduce turnover and to attract a more stableworkforce. Intelligent benefits plans can alsohelp to increase motivation and reduce turn-

over at the middle management level – typi-cally a scarce resource in microfinance.ConclusionStaff incentive schemes must be tailor-made,since there is no “one size fits all”. It is impor-

tant to remember that an incentive system isonly one part of the organisational“architecture”, and that even the best incen-tive scheme cannot compensate for flawedproducts or procedures. Good incentiveschemes are fair and transparent, and all in-centive mechanisms should be reviewed regu-larly by management

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10 Steps to Designing An Effective Staff Incentive Scheme

Step 1: Definition and clarification of the strategic goals of the MFI.This is such a fundamental and important process that it requiresthe participation of management (and often also of the board of directors).

Step 2: Analysis of culture, clientele, products, and processes. Weneed to know the operations of the MFI as well as the mentality andconcerns of the staff. At this point it may also be helpful to conductstatistical analyses and costing exercises (see for example Mi-croSave’s Toolkit for costing and pricing of Financial Services).

Step 3: Definition of the objectives of the incentive scheme – whatare we trying to achieve, and which results do we expect? Also:what problem are we trying to fix?

Step 4: Decision on how much we are willing to spend. This is thepoint where we need to conduct a proper Cost-benefit analysis.

Step 5: Decision as to the staff members and occupational levels tobe affected by the scheme. Hint: Often, the introduction of ascheme at one organizational level or function may create a need toimplement schemes at other levels as well. Try to think comprehen-sively!

Step 6: Choice of incentive mechanism(s): merit pay, incentivepay, perquisites, benefits, profit sharing, gain-sharing, ownership, ora combination of these mechanisms.

Step 7: Technical design work. This includes formula developmentand calibration, as well as spreadsheet testing. It is useful (andshould be obligatory) to carry out sensitivity and scenario analyses.It helps to use a participatory process in designing the scheme.

Step 8: Pilot test in a controlled environment. Based on test results,

make the necessary adjustments.

Step 9: Sell the scheme to the staff. Of course, if staff membersparticipated in the design, this task will be made easier.

Step 10: Monitor the performance of the scheme. Make adjust-ments based on regular reviews (for example, semi-annually).



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W hen Samit Ghosh enters his office, itseems not like he is a successful banker:

He operates from a small room, nothing specialrepresentative stuff, which comes alongnormally with a successful bank's managementdirector. But Samit Ghosh had all those things:a successful banking career, fulfilling hismaterial desires. After 30 years in thecommercial banking business he decided to dosomething, „which matters“ as Mr. Ghosh says.He founded one of the recent most successfulMicrofinance Institutions.

Ujjivan seems to be an institution with strongprincipals and a strong organisational culture.So when he identifies the first big milestone of founding Ujjivan seems to be no surprise: Itwas the licence to get in business. Ujjivan wasnot supposed to work with an existing licence –everything should start with a clearly clean

record. And it started with a record, having thelicence within only two month.

Expansion w ith clear knowledge

In the first 18 month of operation Ujjivandecided to run a pilot in Bangalore. Based onthe gained experience and extensive research itwas the MFIs clear strategy, to expand quick.Most of the MFIs are growing slowly by opening

one branch after the other. But after runningthe successful pilot in Bangalore, Ujjivan'smanagement team was sure about how tosuccessful run the Grameen model with theurban poor as its clients. While it took 980 daysfor the first 100.000 customers, the second100.000 were there after only 300 days. TodayUjjivan is running about 102 branches,providing financial services to urban and semi-urban poor in 9 states. Next year it plans tooffer its services in already 15 states.

Becoming a national organisation in scale hadits price: The Break Even initially plannedwithin 3 years will be delayed, which doesn'tworry Mr. Ghosh. He is confident aboutachieving it this year, still within the 4 th year of operation.Ujjivan was founded by people involved incommercial banking. And commercial success is

important at Ujjivan as well. Apart from thisefficiency is one of the main priorities. SamitGhosh is convinced, most MF institutions areterribly inefficient. So what he did was applyingtechnology and processes of modern retailbanking. With the upcoming economic crisis heis sure many MFIs won't survive or will beovertaken by others.

But Ujjivan trys to be one of the big ones even

Bangalore(INDIA) -based Microfinance Institution Ujjivan did big expansionsand has further plans to cover the urban poor all across India. Microfinance

Focus had a look behind Ujjivan's success: Its strategy, human resourceprincipals and of course its secret of success.

It's efficiency , stupid!

Institution Spotlight



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for other reasons: Small MF institutions are notable to offer attractive career opportunities forprofessionals. But to keep good people workingan institution has to offer more than only oneproject, one assignment or one internship. AtUjjivan's employees is offered a longtimecareer with decent compensation. Withoutbeing economically attractive Samit Ghosh seesno perspective for professionals. But this isonly one reason why Ujjivan is a clearly profit

making institution. Apart from efficiency andHR issues it is about attracting investors.Ujjivan has a balance between social investorsand pure market equity investors. And investorrelationships are crucial for Ujjivan: To enhancecommunication flows there's a monthly reportabout new developments. The strategy seemsto work out: Ujjivan's investors are putting inmore money! According to Mr. Ghosh it is

clear: the capital market knows about theongoing growth of Microfinance and is willing toinvest.

Unlike other MFIs Ujjivan applied modernmarketing methodology into the wholebusiness. „We first do a complete marketresearch of any city where we go. So little isknown about them. What we do is to focus ontheir needs“, explains Mr Ghosh. Due to the

research results the products are designed. Forinstance Ujjivan found out, 50 % of urban poorare already working in garment factories oredomestical work. Those who are employed,working 12 hours a day don't have time to starta business. Housing is first, second educationand third it's health care, people are in need formoney. So Ujjivan designed loans for thosepurposes.

An Interview with Mr. Samit Ghosh, Managing Director , Ujjivan FinancialService Pvt. Ltd .

What is Ujjivan`s social mission? what challenges do you face in bal-ancing the 'double bottom line'. What are the key issues they face inurban microfinance?

Our mission is to provide financial services to the poor and thereby help allevi-ate poverty. As I was telling you that we have various types of investors, socialinvestors and private equity investors etc., and private equity investors aredriven by the financial indicators, we have to make sure that our mission doesnot get diluted.

What are your plans for tracking your social mission?

What we have done is, putting in place an impact evaluation plan, andsees what the impact Ujjivan is having in our customer. Accordingly wewould adjust or change our programme.

What are the key issues you face in urban microfinance?

Purely from operational point of view, we have to work with smaller group, whereas in rural area you can workwith bigger groups. Secondly, they don’t have too much time, urban people are very busy. We have to makesure that we should run operation very efficiently. We have to adapt to what our customers can afford in termsof time or Place etc.Other thing is, half of our customers are employed, they borrow not only for business, and because they are al-ready employed thus they are borrowing for children`s education, healthcare, housing things like that. We haveto diversify our products to meet those needs. Now, of-course, we face lot of competition in Urban Markets,initially, there were few player in Urban Microfinance , but now many players have jumped in, so there is lot of competition among microfinance institutions.

Mr. Samit Ghosh , MDUjjivan Financial Services Pvt. Ltd



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Another focus have been emergency loans.Local money lenders with their exorbitantinterest rates are providing services for 24hours, 7 days a week. While getting a loanfrom MFIs took time. Ujjivan thereforeimplemented its successful emergency loan.

Microfinance not enough

Even by taking all this actions, being efficientand competitive and providing all theseservices, Samit Ghosh is convinced MF is notenough to alleviate poverty. Many other needslike health care, life insureance, education,trainings and community development have tobe done. Ujjivan did not integrate these MF-plus activities in its profit institution. But it setup the Parinaam Foundation, to cover criticalareas of initiatives outside the scope of Microfinance. Parinaam's plans for the nextyears fit Ujjivan's ambitious goals. It hopes toimpact eight million lives of the poor within thenext six years.

Management Director Samit Ghosh seemshighly pleased with his efforts, even when he isconvinced there are lot of targets to reach andthings to gain. He is proud of having builtsomething valuable, with meaning in life: „ Iwas a banker for 30 years and reached a lotconcerning commercial and material life. Butthan I had a dialogue with my dead father, whopassed away when I was 10. I asked my fatherif he was proud, and he said „So what“. This

made me think, I should do something withmore meaning in life“. And Samit Ghosh did.

***********************

Aditi makes paper packets for a living and is themain earner in her family of five, Her husband iscurrently unemployed and she has three chil-dren. she joined Ujjivan one year ago when she

began having difficulty paying for her children'seducational expenses. she also wanted to im-prove her home. The cost of the educational ex-penses and house repair demanded a one-timelump sum amount, which she could not affordon her meager monthly salary. Aditi took a Fam-ily Loan and later a Top-Up Loan from Ujjivan tofund her family’s pressing financial needs. withher children back in school and a newly repairedroof, she has renewed confidence that her family

life is improving. “My children have again startedgoing to school and the rainy season is no morea problem for us thanks to Uiiivan," chucklesAditi as she goes back to packet making.

Customer Name: Aditi Adhikari

City: Kolkata

Purposes of Loan taken : Family Loan

Facts and FiguresTop 8 activities for Ujjivan Customers in BanaloreFlower Vendors, Tailors, Housemaids, Saree Sellers,Agarbatti workers, Beedi Workers, Chamki (Embroidery)Workers, Garment Factory WorkersTraining Health Educators: Parinaam has conducted2.144 sessions at which terhe have been 40.108

attendances

To know more about Ujjivan, Visit the web-site www.ujjivan.com



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Microfinance Focus presentsI-FocusFor the Promotion of New Ideas,innovation and initiative

Background

In the development sector worldwide, the flowof information between providers and seekersof capital is imperfect and asymmetric. This in-adequacy is the root cause of three relatedproblems, all of which reduce the flow of capitalinto social enterprises.

Many social enterprises are unable to engageinstitutional lenders and investors in the devel-opment sector because they are small, physi-cally isolated, or unfamiliar with global financialmarkets. Similarly, many socially-driven insti-tutional funders want to lend to or invest inthese smaller, less-established organisations,but are unable to easily connect with the onesthat meet their funding objectives. This lack of information flow prevents many deserving or-

ganisations from obtaining the capital that theyneed.

Second, lenders and investors find it challeng-ing to offload their debt or equity, because theyare unable to efficiently identify and communi-cate with a majority of the financial institutionswho might be interested in purchasing theirholdings. This restricted flow of information im-

pedes funders’ ability to liquidate their assetsor diversify their portfolios, which curbs theirincentives to lend or invest in social enter-prises. These disincentives, in turn, reduceboth the volume of capital flow and the effi-ciency of capital allocation in the developmentsector.

Third, industry players cannot track the priceand volume trends of financial transactions inthe social sector, because no organisation orentity collects this information. A lack of indus-try-wide benchmarks prevents industry playersfrom knowing whether they will receive a com-petitive price for the capital they seek to raise,lend, or invest. This market inefficiency reducesthe long-term viability of capital flow into thedevelopment sector.

About CapitalConnect

Promoted by EDA Rural Systems, CapitalCon-nect is an online marketplace that allows socialenterprises, institutional lenders, and investorsworldwide to communicate with one another,initiate financial transactions, and analyze mar-ket trends.

EDA

Capital Connect

I-Focus





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that these two benefits of our service will facili-tate a more efficient, effective, and equitable

flow of capital into social enterprises, leading toimprovements in education, community health,and overall quality of life throughout the world.

Benefits to the company / equity partici-pating:

Online marketplace allows investors, lenders,and social enterprises to communicate with oneanother, initiate financial transactions, andanalyse market trends. These industry playerswill have the opportunity to interact with or-ganizations outside of their region or specificarea of interest, which will help them to expandtheir networks and more easily meet their fi-nancial needs. Participants will also have accessto aggregated information on the financialtransactions that occur between CapitalCon-nect's members, helping them to make better-informed financial and strategic decisions.

Benefits to employees of the Company /NGO:

Employees of social enterprises and institu-

tional investors who work in the areas of mar-keting, outreach, or public relations will findthat CapitalConnect makes their work mucheasier and effective. Insofar as the flow of capital benefits social enterprises, employeeswill be less constrained by their organisations’ unmet funding needs, providing both individu-als and organisations with greater opportunitiesto reach their social objectives.

Benefits to the Environment:

CapitalConnect seeks to provide capital to so-cial enterprises, including those working in thefield of renewable energy, energy and environ-mental design, waste treatment and manage-ment, and environmental consulting / impactassessment. By helping these organisations toexpand their scope and efficacy, CapitalConnectwill benefit the environment on a local, re-gional, and global scale.

Benefits to Regulators / Government(central, state, local):

Any governmental entity that wishes to provideor obtain capital – ranging from municipal bod-ies to federal agencies – may register on Capi-talConnect. Governmental entities can makeoffers to raise capital for their projects and ini-tiatives, and can also invest, lend, or partnerwith social enterprises who could aid them inreaching their mandated social objectives. Be-yond these direct benefits to government bod-ies, we believe that channelling capital into thesocial enterprise sector will significantly con-tribute to the welfare objectives of the state.

Participants currently registered on CapitalConnect

Appleaday.in Manidham Grameen Savings cum Credit Services

Ashajyothi Mahilabyudaya Society MicroVenture Support

ASSCOD MITR

BSS Microfinance Pvt. Ltd. Navachetana Foundation

Caspian Advisors Private Limited Pariraksha

CfBT Education Services Partner Microcredit Foundation

EDA Rural Systems Private Limited Prayas (Organisation For Sustainable Development)

ESAF Swasraya Producers Company Limited Rashtriya Gramin Vikas NIdhi

Hope Integrated Rural Development Society Rural and Urban Innovative Social Entrepreneurship

IFMR Trust Guarantee Company Samrudhi Micro Fin Society

Institute of Integrated Resource Management Sonata Finance Private Limited

Institute of Rural Credit & Entrepreneurship Development The Lok Capital Group

Kotalipara Development Society We The People

For more information contactDaniel Brett ( [email protected] )

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Interview



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MF Focus: What is the distinctive feature of Sanghamitra as a Microfinance Insititution?

Mr. Fernandez: goes in where the bank refuses to givemoney. With Myrada we have an organisation whichinitiated and strongly pushes the SHGs bank linkageprogramm. But sometimes banks refuse to give money.

Sanghamitra lends not to individuals but only to SHGs.There are three types of lending: One is to the individual,one is to the individual in the group, which is like a jointliability group, like Grameen Bank. And one is to thegroup, where you don't ask for the purpose of the loan.We just analyse the group and then give a loan to them.The group then decides what each one wants to do.

MF Focus: How did Sanghamitra start, was there any specific trigger?

Mr. Fernandez: The Basic concept of SAG- Myradastarted when a cooperative break down and peopleasked me what to do. They wanted to return the moneybut not to the cooperative because they have beencheated. So we finally said, why don't you return themoney to yourself!? So we worked out how to do it.Later when we analysed the group we found out that the

group members were linked with – what we call –relationships of affinity. That means mutual trust, mutualsupport, which is today called as social capital. Thishappened in 1984/85. And then we had about 300groups like this, all based on affinity. Then we went toNABARD (National Bank for Agriculture and RuraDevelopment) in 1986 and said we have an alternatesystem here. I was convinced if you want to get the poorinto credit you need an alternate system. So why not giveus some money.

“Affinity to Prosperity :Development of SHGs”

An Exclusive Interview withPadamshree Aloysius P. FernandezMr. Aloysius P. Fernandez is Executive Director of ruraldevelopment NGO MYRADA and Chairman of the Board of themicrofinance institution SANGHAMITRA Rural Financial Services.In 2002 he was conferred with the prestigious Padmashreeaward.

Christina Weichselbaumer and Vikash Kumar talked to him at hisoffice in Bangalore. Here are the excerpts :-

Myrada is an NGO engaged in the SAG ( Self Affinity groups )movement and also promote theSHG-Bank linkage programme. Sanghamitra is a MFI promoted by Myrada, providing credit toMyrada's Self Affinity Groups first and later to groups promoted by other institutions, as far asthey met Sanghamitra's set of criteria.



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MF Focus: was it only about the money?

Mr. Fernandez: No. It was about policy change. Lotsof studies were made and we came to the conclusionthat policy changes need to be made. We focussed onthree aspects: One is that you should allow banks tolend money to unregistered groups. Second is, to lendand not ask for the purpose and third, to lend withoutphysical collateral, if there was adequate socialcapital.

We found out that the dynamics of this discussionwas an empowering shift, it created empowerment:Who to give and how much to give.Therefore 1992 as a result of thisNABARD started the SHGs Bank LinkageProgramm. But by 1996 we found outthe banks are not lending enough, so we

started Sanghamitra.

MF Focus: You always talk about self AFFINITY groups, not SHGs. Why do you make this clear distinction?

Mr. Fernandez: There are two issues.One is, the groups were founded on thebasis of affinity. The people selectedthemselves. We identified the poorpeople in the village and said you form your own

groups. Whereas the government, they have a list of so called „BPL“, below poverty line people andpromoted SAGs. When the government made thisofficial, we changed the name from self help group toself affinity groups. It is always about affinity, but thismust be internal. It is not enough affinity that youhave no house and a similar amount of money... Wehave a lot of poor people who don't work together.But we invested in training the group, it was aneducational process and the groups were based onaffinity then.

MF Focus: Are there any special lessons learned while working with the SHGs methodology for years?

Mr. Fernandez: Of course, hundreds of lessons...There are certain problems with the SHGs. The SHGSis not part of a delivery service chain. In other words:

Don't get the SHGs to do your job, to distribute foodor work. SHGs are independent institutions with itsown vision, its own work and its own activities.Second: Every SHGs decides on its own livelihoodstrategy. If you study what sorts of loans people havetaken over a period of 8 years you will see: They havetaken loans starting with food, than going to clothes,

going to health continuing with education, going toagriculture, buying land, starting business. So it's alivelihood strategy. It didn't start with goats first. Itstarted with what they need.

We think a viable lifelihood consists of two cows ortwenty sheep. But if you give them 2 cows,they can't manage two cows. You needwater, food – they don't have that. Beforetaking a cow they need to do somethingelse. They maybe get into trade, they may

want return high cost loans first. Theyhave livelihood strategies, but don't takeup one or two livelihoods which are viableunits. They take lot of lot of smaller thingswhich are managable for them.

When you look at this woman,Shanthamma, over a period of 8 years shetook 20 loans for different things:household, cow, education, agriculture,

for a job in railways, for telephone booth, for an SHGuniform... It is not one big viable unit, it is a couple of things. It's a strategy. Not everybody wants a cow ordoing trade...

MF Focus: What about the SHG's potential to spread around the globe?

Mr. Fernandez: It was said, it won't work inMyanmar, Myrada went to Myanmar, where we have1000 groups, the same for Indonesia, now we have5000 groups in Indonesia. There are 500 groups inTimor East and I don't know how many in BanglaDesh. We have quite a large number of groups in SriLanka and we also have 300 groups in Iran now.

MF Focus: Are there any specific preconditions? Any special economical, cultural, social determinants?

“Don't get the SHGsto do your job, todistribute food orwork. SHGs arei n d e p e n d e n tinstitutions with itsown vision, its ownwork and its ownactivities“.



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Mr. Fernandez: Yes, there has to bee the traditionalculture of trust which exists in all our ruralcommunities. Not the whole community but groupsof people with trust. There has to be social capital,without that the SHG-movement can't work.

MF Focus: Which synergetic or antagonistic effects do you identify between the SHG-model

and Grameen-model?

Mr. Fernandez: Microfinance is not synonymous withpoverty. This is a mistake that they must go together.A painter, who needs paint – he is not poor. Thevegetable vendor – she's not poor... They need 5000or 20000 Rs but they are not poor people. But wheredo they get their credit from? They have to go forMicrofinance. And there is a whole set of Microfinance Institutions to cater differentrequirements.

MF can be used and must be used for the poor, that'swhere it started but the demand for MF is muchmuch bigger by the non poor. Because when it comesto the poor it is not only money they need, it'sempowerment they need, negotiating skills to train –and the Self Help Groups helps to develop these skills– how to talk, how to lobby, how to negotiate.

MF Focus: What are the biggest challenges you are facing now with MF work?

Mr. Fernandez: The biggest problem we are facing isthe lack of understanding for the need of Microfinance, that is not only for the poor. It is a largegroup of people in India, who need money. That'swhy the moneylender is thriving, the moneylenderlends to both people, he is not an idiot. He lends topeople who are capable of handing money. But he islending at very exorbitant rates of interest. So, if you

can compete with them – fine!

I have been to a village in the 80s and people told methey trust the moneylender most. More than banks.The moneylender is trusted, the bank is not.

MF Focus: Was there any special reason you decided to work in the development field?

Mr. Fernandez: Before 1971 I didn't care aboutdevelopement. During the Bangladesh War I wasrunning a refugee program and discovered thepoverty and the suffering there. What I have seenthere changed my life. I went abroad than and whenI came back my mission was to raise 1 million peopleabove the poverty line. And I have done.

MF Focus: What do you think is important to know, for people interested in working with development issues?

Mr. Fernandez: The developement sector is not anafternoon cup of tea. It is not easy, it is tough. If youare not having crisis, you are not gaining anything. If you want to change something you will haveproblems. Development is a power game and aboutchanging power relations. And change of powerrelations produces conflict. If you are not doing that itis not about development. Then you are deliveringservices.MF Focus : What do you think about

Microfinance Developement Bill –India ? Mr. Fernandez: Did you read the bill? Than youshouldn't ask. The MF bill is really/barely a load of rubbish! I don't know why we are talking about that.It's dead. Badly drafted, no way to pass it.

MF Focus: Thank you very much

“Development is a power game and about changing powerrelations. And change of power relations produces conflict.If you are not doing that it is not about development. Thenyou are delivering services.“



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A Microfinance institutions May offer several prod-ucts and Have a number of ways to delivering them.A Product is sometime called Service is “what a MFIdelivered to its customer. The Delivery methodology“Credit Technology” is how the product or service isdelivered. How the product or service is delivered issometime called product technology.

Characteristics of Product

There are 5 key elements consisting to develop a

Product

1. Size of the Loan: Microfinance institutions2. Interest Rate3. Repayment Interval4. Term:5. Purpose of Loan: example, working capital,

consumption loan, asset loan etc.

Similar to product, methodologies are also character-ized by certain elements

Three key elements are

1. Target market:2. Loan to individual or Groups:3. Loan Process:

One import reason for using a particular methodologyis the target market. A successful operation under-stands what motivates potential customers and de-cides whether that market can be reached in a waythat will lead to customer satisfaction and financialsustainability. Many micro-credits operations deter-

mine the methodology based on their developmentobjectives rather than an analysis of market prefer-ence or cost consideration. The Most Successful insti-tutions develop methodologies that combine ele-ments of each.

Institutional objectives are important in determiningthe methodology whether the methodology it is ex-clusive or inclusive.

****************(continue in the next issue )

Product and Methodologies *

Learning curve

Development Objectives+ Market Preferences+ Cost Considerations-------------------------------------= Successful MFl

Exclusive: particular business sector such as mar-ket vendor or small manufacturing.

Inclusive: have more expansive eligibility re-quirements and make their service widely avail-able.

* Adapted from MFTOT 4 course





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Grameen Foundation has launched StopPovertyNow.org, anew campaign that enables people to join the fight againstpoverty and celebrate loved ones with as little as US$10.With each donation, users will bring to life the greyed-outimage of a microfinance client – underscoring the impact of these tiny business loans. The photograph is built on10,000 image squares which users can dedicate to lovedones or memorable moments by posting personal photosand messages.As visitors scroll over each image square, they can see mes-sages and photos posted by other supporters. Users canalso select multiple squares, making it a good group projectfor teaching children about the value of giving and helpingpeople around the world. "StopPovertyNow.org is a simple,inexpensive and very personal way to support poor entre-preneurs in their journey to financial independence," saidAlex Counts, president of Grameen Foundation. "With thisnew campaign, we are hoping to expand our growing teamof global supporters who are committed to enabling the

poor to create opportunities for themselves."

Read More :http://www.grameenfoundation.org/resource_center/newsroom/news_releases/~story=360

CGAP Hosts Pioneer Perspectives on Mobile Bank-ing

NewsMIX Releases 2008 Global Rankings for MFIs

The Microfinance Information eXchange (MIX) has releasedthe 2008 Global 100 Composite ranking for MFIs. It analyzedand ranked MFI performance based on data from calendaryear 2007. MBK Ventura of Indonesia was ranked as the top

performing MFI for the year.

Using data from MFIs throughout the developing world, thereport illustrates successes and challenges experienced byMFIs in providing financial services to the unbanked. MIX hasalso created an Excel version of the Composite Rankings,which allows MFIs to see how improvements in performancewill impact their overall ranking.

To access the report the report, visit MIX website.http://themix.org/pub_popup.aspx?publicationID=272&latest=yes&hidepath=yes

Grameen Campaign Uses Pixels to FightPoverty

Last week, CGAP hosted a roundtable and webinar on thetopic of how mobile phone banking can deliver a range of financial services to poor people and change lives for thebetter. The presentations and video of the event are nowavailable online.

Download or Read more : http://technology.cgap.org/

New Credit Guarantee Facility for PakistaniMFIs Launched

The State Bank of Pakistan (SBP) has launched a credit guar-antee facility to arrange easy flow of liquidity to microfinancebanks. The Microfinance Credit Guarantee Facility (MCGF)will ensure that 40% of funds provided by banks to liquidity-starved MFIs are repaid in case of any default. The Depart-ment of International Development (DFID) has extended aGBP10 million (US$15 million) grant which will be kept in apool of reserve and used for issuing guarantees to microfi-nance providers. The facility is part of a GBR50 million(US$74 million) three-program initiative launched by the SBP

with the assistance of UK’s Government Financial Inclusionprogram and an endowment fund worth US$20 million underAsian Development Bank's (ADB) Improving Access to Finan-cial Services program. As an incentive, funds given to microfi-nance banks will be deducted from demand and time liabili-ties of banks for the purpose of statutory liquidity require-ment (SLR) and cash reserve ratio (CRR) calculation.Read More :

http://www.thenews.com.pk/daily_detail.asp?id=152734

you can to sent News , Events organized or participated byyour institutions at this email id :[email protected]



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Microfinance Focus January 2009

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