Fundamental to the growth and development of an industry is the research that aids its practice, especially in the context of microfinance in India. Though the industry has grown rapidly, the research has been trailing, resulting in a gap between research and practice, which the research community has struggled to bridge.  Even among researchers, the ability to interact and gather viewpoints has been a challenge, thus hampering the quality of research and the synergies that could have been exploited.

To address these issues, and bridge the gap between practice and research and within the research community, the Centre for Microfinance (CMF) has launched a research capacity development programme called the Microfinance Researchers Alliance Program (MRAP) funded by Ford Foundation.  Stressing the need for better research, Justin Oliver, Executive Director, CMF, says, “Excellent research is essential to inform the microfinance industry, encourage innovation, affect policy, and maximize the impact of initiatives”.

Launched in November 2008, with 19 researchers from across the country, the key objectives of the program are:

•    To build research capacity among Indian researchers who are conducting or are interested in conducting research in microfinance.

•    To build a strong network of Indian researchers working on these issues and translate individual knowledge into a sector-wide knowledge base.

•    To foster “knowledge partnerships” between researchers and microfinance institutions and promote research-practice dialogues.

MRAP provides a platform where selected researchers are given training on various aspects that would help deliver better research output. This training is in the form of helping to frame the right research questions, research methodologies, developing questionnaires, undertaking field visits, workshops and importantly providing feedback as regards their research progress by way of a seminar. Also, through MRAP, CMF has launched an initiative that provides financial assistance to selected MRAP participants to conduct a field-based study on the status of microfinance in a particular region. This initiative, which draws inspiration from the State of the Sector Report, authored by N Srinivasan, aims to unearth new research questions for future research projects.

Recently, to track the progress of and offer suggestions to the researchers on their research studies, MRAP organized a seminar on August 6th, 2010, at IFMR’s office. The one-day seminar brought together all the researchers pursuing diverse projects under a single roof, along with N. Srinivasan, Bindu Ananth, President, IFMR Trust and Justin Oliver. The research studies presented ranged from a case study on “Why the clients default” to studies on Self-help groups and “An overview of microfinance in Assam”.

Dr Mani Nandhi’s study on” Why the clients default”, based on sample data, aimed to find the actual number of defaulter clients in relation to repayment clients, and dwelled on finding the reasons as to why clients default and the costs accruing to group members in the face of such defaults. The study shows that the proportion of defaulter clients to repayment clients is approximately 22%, with reasons for default being multifold, and among them, wilful default being most prevalent.

How then does an MFI possess a 100% On Time Repayment Record? Dr Nandhi says in her study that on the spot repayment is ensured by the centre manager by enforcing deadlines and constantly reminding clients about their “Joint Liability”. Also the processes of loan collection and repayment are well structured with staff incentives included. The study concludes that though MFIs have a good business model in place, they need to exhibit a human face and focus on the bottom line.

View the presentation below:

Later, an interesting presentation by Dr Debabrata Das focused on answering the status of microfinance in Assam and detailed the different practices and business models of MFIs working in Assam. The state has been witnessing rapid growth in microfinance reflected in the increase in the number of providers and high demand for credit.  However, he observed that there is a disconnect between demand and supply especially in the rural areas.

View the presentation below:

All the presentations can be downloaded here.

The seminar made way for healthy exchange of dialogue and suggestions, led not just by the experts, but also among the researchers. It concluded with Bindu suggesting to the researchers that they would do well to choose narrower questions when undertaking research.  A point, which N Srinivasan, also reiterated, in addition to suggesting that researchers should set aside their biases while undertaking their studies.

There was an article on the Tamil Nadu Socioeconomic Mobility Survey in Times of India, quoting Amy Mowl of CMF and Dave Wallack of IFMR Trust. The article highlights the comprehensive nature of the study and its potential significance in aiding financial policy in the future. The article also reveals the importance of such study in a developing country like India.

Excerpt: “If you thought rural households were all about agriculture, here is some fact for thought. In heavily urbanised Tamil Nadu, a rural household may no longer depend only on farming, despite the strong farmland sentiment….Researchers conducting an ongoing baseline survey covering 80 villages and cities across Tamil Nadu as part of a larger 15-year study on financial behaviour have come across such interesting patterns…“

Click here to read the article.

Including the poor into the formal financial system has been hard despite numerous and sustained efforts. The difficulty in achieving inclusion attains a whole new meaning in hills and mountainous regions where populations are sparse and connectivity is extremely low. My realization of this fact achieved some maturity after a recent 5th birthday celebration meeting of the Center for Micro Finance (CMF) research.

After a lot of research and some excellent recommendation from Anupama Joshi (CEO, Sahastradhara KGFS), Lakshmi Krishnan and Deeptha Umapathy  (Program Heads at CMF) zeroed in on Kanatal Resorts, Uttarakhand as the site for CMFs most recent research associate-birthday bash meeting. Located amidst the picturesque Tehri-Garwhal hills, Kanatal is a site for sore eyes and a panacea for the tired soul and body.

The drive up to Kanatal

After a half day of deliberations and updates on various research projects that CMF is leading across the country, Anupama Joshi closed the first day meeting with a brief presentation on Sahastradhara KGFS (SKGFS) – entity aimed at underserved rural areas of Uttarakhand. Ms. Joshi’s presentation highlighted some of the challenges faced in serving the hills, namely –

• Due to the extremely low population densities, SKGFS has had to relax its service radius and population number criterion from other KGFS ventures in the plains (DKGFS and PKGFS).
• Due to the hilly terrain and larger distances between the service provider and the served, technology is much more relevant in attracting and retaining clients. SKGFS has evolved a financial delivery model that is hybrid of branch-based and doorstep delivery.
• Compared to the plains, women’s participation is extremely low (probably due to a potent combination of travel difficulty and household/farm-related chores).
• Credit culture is low, and traditional JLGs do not work well. Financial trust among villagers who are even related to each other is not high.

SKGFS and CMF staff at Jadipani branch

To help understand these issues better, SKGFS invited CMF to its Jadipani branch the following day. After a brief introduction to operations, CMFers split into groups of 5-8 and ventured into nearby villages to hold brief discussions with local households. Each CMF team was ably led by an SKGFS wealth manager who played the role of a guide and host to perfection. CMFers huffed and puffed along the hilly tracks very quickly humbled by the terrain, further adding to the appreciation of the work that wealth managers and SKGFS is doing.

Projjal talking to Mr. Govindram and his wife.

The different CMF teams interviewed about 16 households in total. Post-visit here are some key observations from our group (Stuti, Deepti, Shreyas, Srikumar and Sushanta) –

Socio-economic conditions and access to finance:

1. The sanitation conditions and quality of the house structures were much better in Jadipani than much of India. Anecdotally, it seems that people invest a lot in making their houses better.
2. Most of the households we visited had some members in army which had helped them keep a decent standard of living because of the pensions provided by the Government. We noticed that pensions were the bulk of the income for many households.
3. Most households had access to bank accounts (according to the Branch Manager of Uttarakhand Grameen Bank, 700 households in a radius of 5kms had bank accounts. He estimated that the total population in the radius to be 2000). 70% of these accounts however were NREGA-disbursement accounts, with voluntarily created savings-accounts in the minority.
4. Savings is a space where private players can enter as the living standard in the region suggests that significant savings can be mobilized. Villagers currently invest on their house and in jewelry.
5. Almost all households had younger members who had left the village for better livelihood. The younger members were remitting money back home either through the post office or through acquaintances. We suggest that villagers’ interest in efficient remittance services be explored.
6. Agriculture is a primary source of work, although contribution to income is low due to poor rainfall in non-monsoon seasons over the last three years. This is unfortunate and easily remediable because the region still receives rainfall in the monsoon months. Loans for water-harvest tanks can help push up agricultural productivity significantly. A lot of the landscape is barren due to deforestation, thus loans for plantation can potentially help increase incomes and improve local ecosystem as well. Also the region grows apples and potatoes as cash crops, however there are a few insurance companies that provide cover for these crops. Households generally seemed to be interested in this kind of financial service but due to geographical constraints list of service getters remains limited to the ones living close to the market/road.
7. As mentioned in Anupama Joshi’s presentation, women seem to participate very actively in economic roles, but their say in financial decisions is low. Reasons for this low participation maybe a combination of culture and hard terrain. If hard terrain were the principal reason (which I suspect), technology and service at the doorstep or at the farm can improve the situation greatly. On a related note, could the fact that most JLGs are male groups be a cause for JLG under performance? Would carefully nurtured women’s groups perform better?

The Jadipani visit has thrown up many research and operational questions that need to be answered quickly, for financial inclusion in the hills to be a reality. Hopefully the initial steps that SKGFS has taken on the service delivery side and research studies that CMF is starting in Uttarakhand, will soon shed light on straightforward questions that need very innovative answers.

—
Ajaykumar Tannirkulam, CMF, contributed this post. Photo credit: Projjal Saha, Sushmita Meka and Srikumar

Last week I attended a conference titled “Microfinance: Translating Research into Practice”, hosted by the Centre for Microfinance in partnership with the College of Agricultural Banking (CAB) in Pune.

Among the varied things that were discussed in the conference, the underlying and oft repeated theme was microfinance sector’s need for effective research, which was well articulated by many participants. For example, Dr. Nachiket Mor felt that because the rapidly growing microfinance industry in India is quite different from the rest of the world in many ways (in terms of loan size, involvement of the banking industry etc), its challenges are also unique, and to address them effective research can play a crucial role.

Another important point was raised by Mr. Mathew Titus, who observed that to promote high quality research in the country there has been little or no funding to build a cadre of professionals who are capable of understanding the field realities and doing good research.

I have described some of the research works pertaining to microfinance that were discussed during the conference:

• Impact of Microfinance

Professor Abhijeet Banerjee of MIT presented the results of a randomized evaluation of Spandana’s microfinance programme in Hyderabad.  The main conclusions from the study were – microfinance has no clear impact on women empowerment, health or education; the accessibility to microfinance helps in setting up of new businesses; investing in durable goods by those who have existing businesses and more consumption by those who do not intend to start new business.

Results such as no impact on women empowerment, health and education might disappoint microfinance enthusiasts who think that microfinance is an antidote to many social and economic problems of the poor. However, one needs to understand that impact on health, education and women empowerment needs sustained interventions over a longer period.

Mr. B.B.  Mohanty of NABARD took forward the Impact session by highlighting the enhanced financial access of the poor, especially of the women, due to the SHG-Bank linkage programme promoted by NABARD. He made an interesting point that SHG members should graduate after a certain time period and become clients of regular banking system. While I agree with him that low-income people should come into mainstream, I disagree that there should be an exit from the programme. SHG programme is not just meant for micro credit, rather it is a social movement providing poor women a platform for addressing the social and economic problems, and giving them solidarity and strength so that their voices can be heard.

• Microfinance, Social Capital and Empowerment

Professor Rohini Pandey of Harvard University shared her research done with VWS, Kolkata, which revolved around the question of whether social interactions facilitate cooperative behavior among group members.

The research, done in an urban setting, revealed that after group formation women develop trust among each other and participate in social events. Opportunity for such association was absent for women before microfinance group formation. The results surely strengthen our belief that microfinance groups are not just credit associations; rather their role clearly goes beyond the financial transactions.

• Microfinance and Government Programs

The findings of CMF research conducted on the impact of participation in MGREGA (Mahatma Gandhi Rural Employment Guarantee Act) in Andhra Pradesh were presented in this session.

Important findings of the study are – MGREGA helps participants cope with stress periods such as those caused by bad weather; no difference in wages based on caste and gender; and getting a job card to avail the scheme is not a hurdle for people.

I wished the study could be extended to some other states to give us a comparative analysis of the impact of MGREGA in other places, as we often hear about the mismanagement and misappropriation of the scheme in various states. But it was heartening to see many positive results of the scheme in Andhra Pradesh.

• Tailoring Financial Services to Meet the Needs of the Poor

Professor Rohini Pandey presented another interesting research addressing the question of ‘what are the results of using a flexible credit repayment product for clients’.

The experiments examined differences from moving weekly (frequent) to monthly (less frequent) repayment, and effect of introducing grace period of two months before the repayment starts. Bindu Ananth of IFMR trust provided practitioners’ perspective emphasizing that the structure of the loan is crucial, and getting the lenders and savers together is very important while designing the financial products.

• Portfolios of the Poor

Professor Jonathan Morduch gave insights on how poor survive on less than $2 a day from his very famous book Portfolios of the Poor.

He said poor face triple whammy of low income, irregular/unpredictable income and lack of inappropriate tool to deal with the ups and downs of life; however, the poor are active money managers and they can and do save. He mentioned about the SEED Savings Account in Philippines and some Grameen Bank II products as good example of suitable products to the poor, and urged to scale up/learn from these ideas.

Anil SG from IFMR Trust made an interesting presentation on similar lines. By taking an example of a typical low-income household, Anil showed the volatility in cash flow, and the dreams and fears of the household. He through the LIWE (Life Wealth Envelop) tool explained what different types of risks households face and what can be the financial strategies for managing various risks.

• Competition, Multiple Borrowing and Information Sharing among MFIs

As we all know that nearly Rs. 600 million MFIs loan was reportedly involved in defaults in Kolar (Karnataka); the Kolar case was one of the important points of discussion in the conference. From a study on the Kolar case done by Mr. N. Srinivasan, factors such as clients’ behavior and MFIs’ practices were found responsible for the crisis. It was also discussed that the Kolar crisis resulted out of a Fatwa issued by a religious group. This was a larger risk that is beyond a MFIs’ capability to deal with.

The conference raised some of the very important issues prevailing in the microfinance industry and gave a platform to various stakeholders such as academicians, practitioners and policy makers to learn from the various experiments and discuss the policy implications.

PS: For notes and presentations from the conference click here

–
Anita Sharma, from IFMR Trust contributed to this post.

National Microinsurance Conference to be held on December 10-11th in Delhi

The UNDP is organizing a National Conference on the Status of Microinsurance in India, in collaboration with academic and policy centres – the Centre for Insurance and Risk Management (CIRM) and Centre for Micro Finance (CMF) at the Institute for Financial Management and Research (IFMR).  The conference is scheduled for December 10th and 11th 2009 at Essex Farms in New Delhi.

The conference is designed for insurance providers, regulators, researchers and other stakeholders. It will focus on product innovation, constraints to scale, supply/demand side challenges, and policy level issues in India. Panelists will, among other topics, discuss the role of government in extending micro-insurance, compare the status of the Indian market with other countries, and share successes and challenges implementing various models and products.

Delegates can register online at: http://ifmrundpmicroinsurancemeet.eventbrite.com/

To register or if you’d like more information about the conference or the centres involved, please contact Ms. Janani Akhilandeswari or Ms. Deepti KC or visit the organization’s websites: CIRM & CMF

Contacts: Ms. Janani Akhilandeswari, Ms. Deepti KC
Email: janani.akhilandeswari [at] ifmr.ac.in; deepti.kc [at] ifmr.ac.in

On August 11th, the Centre for Micro Finance, in conjunction with the Self Employed Womens’ Association (SEWA), hosted a day-long seminar on Risk Mitigation in Agriculture. The intent was to highlight the risks faced by farmers in India, in context to recent studies undertaken by CMF.

Please click here to read more

The miracle that microfinance is thought to be was subjected to a randomized evaluation in a study which was a result of a research partnership between MIT and the Centre for Microfinance at IFMR.

The research findings were presented by Prof. Esther Duflo to a packed audience at the IFMR campus on July 9th, 2009.

Prof. Esther Duflo presenting the study

According to her, the need for such an evaluation was necessitated by the fact that microfinance is often subsidized and there is a problem of self-control, which can if not dealt with, lead to a debt-trap.

Audience in rapt attention

Some of the key findings which she summed up with were:

• Take-up of MFI loans is lower than is often predicted – this matters for planning sample sizes and it also suggest that microcredit is not for everyone.
• Microcredit does have impacts and they differ for different households.

To know more about the research study please click here.