Microfinance in India. Everything you need to know.

Check out this page at India Microfinance.  Full of useful information on business trends, lending, and pretty much anything else related to microfinance in India.  Happy reading, and happy lending.

Also, check out Kiva.com for lending opportunities in India, and throughout the world.  Happy reading, and happy lending.

 

Poverty Alleviation: The devil is in the details

Microfinance is known as a path out of poverty that can also empower women.  What’s the reality?

When visiting the northern reaches of West Bengal last April, I noticed that many of the women clients had borrowed the money to invest in their husband’s business.  For example, she might assist him in running a cycle repair shop, small retail business or agricultural undertaking.  Typically the wife works alongside, with both family members playing a critical role.  I noticed that the MFI loan life insurance only covers the borrower.

I asked a simple question. “What happens if the husband dies, and the wife cannot run the business on her own?   How can she repay this loan?  Is there any support for her?”   At the time, the answer was “No”.   I was concerned that while it appeared that so many were benefitting from these loans, a few borrowers might find themselves in a disastrous situation if saddled with a loan they cannot repay due to an untimely event.

Society for Model Gram Bikash (GBK) took this simple question to heart.  They negotiated with the insurance company to cover the co-borrower as well. During our visit last week, we were able to participate in loan disbursements where both wife and husband were covered. Now, the family is protected if something happened to either the wife or her husband.

It’s a small thing. It won’t change the world.  But it will change the world for the borrower who finds herself in the midst of a tragedy.  Her husband’s funeral will be paid, her loan forgiven, and she can pick up the pieces and work out the next steps needed to take care of her family.

The devil is in the details; even the smallest of changes can add up to make a big difference.   BankersLab is proud to support Grameen Foundation Bankers without Borders who provide technical support and capacity building for Microfinance.

 

 

What is a skillanthropist?

skillanthropist is a person or professional with a skill or skills that donates their time, effort, skills but not loads of money to a cause for the betterment of not only society but the world in general.

I recently had the honor of representing the Grameen Foundation at the Global Microcredit Summit in Valladolid, Spain.   I was there as part of the skilled volunteer corps who serve Bankers without Borders.   The conference was invaluable to gain a better understanding of what challenges the microfinance industry is facing.    While I continue to learn about the specifics of the microfinance domain, I was surprised by the number of common challenges which we face in both the retail and microfinance sectors.

Commonalities and Differences

Microfinance industry and retail banking both face overlending in certain segments, regulatory risk and aspire to improve their customers’ financial literacy.

Another commonality of the two industries is the desire to measure KPIs (key performance indices). While we normally measure Profit & Loss and other financial metrics in the traditional banking sector, the MFI industry has an even more difficult challenge — measuring “progress out of poverty”.    A microfinance institution is usually viewed as successful if they can become both financially self-sustaining while helping people out of poverty.  For example, in Nepal, MFI’s track whether the children in their customer’s households between the ages of 5 and 12 go to school, which is a predictor of movement out of poverty.   The MFI has guidelines for sampling their customers to collect a data sample, but obviously this is much more difficult than running a simple frequency distribution of billing file data.   Next time you complain about KPIs, think of your microfinance brethren and the challenges they face in measuring and ‘moving the needle’ on progress out of poverty KPIs!    It makes our profit & loss KPIs look like a piece of cake.

An important point of distinction of the microfinance industry are its roots in a poverty eradication social movement which provide inspiration and hope for all of us.  We cherish this in civil society, as this social element provides support for stability, peace and prosperity to the broader society.  Now, as banking professionals, we have the opportunity to support these efforts in a more powerful way.

How you can help

Bankers without Borders is redefining civil society engagement in poverty eradication.  In the past, as a banker you could either donate money to a good cause, or volunteer your time as unskilled labor.  However, now you can apply your professional skill set as a member of civil society.      In my view, this not only puts your valuable skill set to a good cause, but it also fosters important cross-society and cross-sector collaboration.

I would like to congratulate the Grameen Foundation and Bankers without Borders on launching this successful initiative, which is facilitating stronger connections between civil society and those working to escape poverty.   Finally, I would like to encourage each of you to find your own way of giving back.  Whether through Bankers without Borders, Corporate Volunteering programs, or local volunteering, we all have valuable experience and skills to share.   Getting involved, exposing yourself to project risk and criticism, and sacrificing scarce vacation and leisure time can be a more difficult path than simply ‘writing a check’.   However, I am pleased to report that the satisfaction, and ‘return on investment’ are likely to be inestimably higher.

“We all have a common responsibility for our world and are connected with everything in it.”   – Dalai Lama

May this holiday season bring peace and joy,
Michelle Katics
BankersLab, CEO
michellekatics@bankerslab.com

 

Risk Management: It’s a Mindset, Not a Budget Line Item!

Michelle Katics, CEO of BankersLab®, supports the MFI sector by providing pro-bono risk-management technical assistance to microfinance institutions (MFIs). BankersLab, through its corporate social responsibility program, supportsBankers without Borders®Bankers with VisionMFIOpenSource and Kiva.

I recently returned from a Bankers without Borders (BwB) volunteer engagement in West Bengal, India, with Society for Model Gram Bikash Kendra (GBK), a small non-profit microfinance company. As many BwB skilled volunteer-corps members can attest, volunteers typically feel they gain as much or more than the recipients of the services they provide. In this case, the experience for me highlighted important factors for success in risk management, some of which we forget from time to time in the traditional banking sector. Much of what I learned came from observing the energetic and curious discovery process of the GBK staff as they tackled typical risk management challenges.

When working with partners around the world, BwB (a Grameen Foundationinitiative) recognizes that MFIs have a common need: risk management. MFIs face similar risk management challenges across the board, including how much risk to accept, how to mitigate the risk that cannot be avoided, and how to manage the real risks that are part of their day-to-day business and operations.

It’s free to change your mindset and habits. The GBK staff expressed concern about how they could improve their risk management while remaining in control of their budget. They worried that IT systems and additional staff were the main (and costly) requirements for successful risk management, yet were delighted to discover simple and easy ways to improve their operations, with minimal cost. Many of these ways don’t apply to the traditional banking sector, which already has strong systems, but some of the simple ”mindset” changes are a relevant reminder for us all.  For example, GBK decided to research and implement new best practices in areas such as accounting and audit. Taking a step back to examine and improve the process can be the key to success. By doing this, they also realized the need to create contingency plans and other methods of dealing with crisis before facing one.

Another observation was the impact of GBK’s collegial and open collaboration among departments to jointly tackle risk management. In other words:

Cost of coffee and snacks for the meeting:  $20

Value:  Priceless

Risk awareness is one of the most important drivers of effective risk management. The risks that we don’t clearly understand are usually the same ones that cause material loss events. GBK has set out to conduct a risk assessment where staff will brainstorm all types of risks, then formulate action plans. For each, they will either mitigate, transfer or accept the risk. Reviewing those mindful decisions and strategies periodically is invaluable.

GBK was also concerned that it is just a small, non-profit MFI. How could it possibly develop a comprehensive risk management structure? There are certainly obstacles, but staff quickly realized that they already possessed the necessary intent, motivation and capabilities to make progress. With the right intent and motivation, this is true of most MFIs.

Clearly define employee roles and incentives. When we talk about mindset, we always say that each employee must support risk management. However, the stark reality of broad job responsibilities and too few hours in the day can result in a poor outcome. To mitigate against this, GBK has undertaken a review of employee responsibilities and incentives while brainstorming methods of facilitating risk awareness and issue escalation.

Mission drift: a menace to risk management. Isn’t serving borrowers in a financially sustainable manner the priority? Even in the traditional banking sector, this is our mission (albeit with higher expectations and requirements around financial sustainability). The philosophical question remains in both sectors – how can we manage to short-term budget and revenue pressure while balancing long-term sustainability?

There is no panacea for this underlying tension of two competing goals. However, clearly stating the mission and periodically reviewing outcomes is a start. Further, ensuring that the mission is clearly articulated and enforced from the Board level is also a key requirement. In the case of GBK, we had the luxury of multiple Board members attending our risk management education and brainstorming sessions. A mission can be easily articulated, but a Board needs strong dedication and risk tracking data to follow it up and enforce it. GBK has set out to do exactly this.

Good News for MFIs

BwB is developing tools to help institutions such as GBK build risk capacity. There are already some great training materials out there, and BwB will be complementing the capacity-building materials available for such projects. With BwB’s injection of skilled volunteers, MFIs can expect to build their risk capabilities very quickly.

 

In light of the recent debacles in Andra Pradesh, I arrived in India with a heavy heart to tackle risk management in the MFI sector. But as a result of the promising early results we saw at GBK, the weight soon lifted and I left West Bengal feeling energized and optimistic. We look forward to supporting GBK, leading the way as a “little guy” tackling big risk challenges.

About Gram Bikash Kendra

Society for Model Gram Bikash Kendra (GBK) is a microfinance institution registered under the West Bengal Society Registration Act, 1961. It began its work more than six years ago and has been working toward bringing about socio-economic changes in the lives of underprivileged people in West Bengal.

About Bankers without Borders

Bankers without Borders® (BwB), Grameen Foundation’s volunteer initiative, is on a mission to help people move out of poverty. With a global reserve corps of more than 8,500 people, BwB works with business professionals and recent retirees, from a variety of countries and industries, who contribute their time, skills and experience to support social enterprises serving the poor and poorest. Through on-site technical assistance, training and mentoring, or remote consulting projects, BwB’s volunteers work to increase the scale, sustainability and impact of the organizations they support.

 

 

Financial Literacy: Programs and Training Resources

In recent decades, credit has been introduced to populations that previously had no way of accessing it. The outcome of this has been well documented, ranging from the dramatic improvement of livelihoods, to the disastrous consequences of over lending. One of the primary lessons learned from Andhra Pradresh, is that financial literacy can be a key factor in the success of a microfinance program. As a result, financial literacy has been the focus of a number of initiatives, which range from government credit counseling centers to school education programs.

We have compiled a comprehensive list of notable initiatives with a focus on those in India. Many of these initiatives provide a range of open source training materials that can be useful when, for example, facilitating pro-bono projects for organizations such as Bankers Without Borders.

 

Global Financial Education

The Global Financial Education Program is the result of a strategic partnership between two U.S. based organizations, Microfinance Opportunities and Freedom from Hunger. The Global Financial Education Program develops curriculum targeted to low income households and trains a broad range of service organizations to use it.

The Global Financial Education Program now focuses on three main activities: 1) disseminating its curriculum around the globe through training of trainers events and technical assistance; 2) developing new curricula; and 3) measuring outcomes of financial education programs.

Core Curriculum consists of five modules:

Budgeting is a training course to help people learn how to set financial goals, to make a budget and to track monthly cash flow to make better financial decisions.

Savings is a training course to help people learn the benefits of savings and how to save.

Debt Management is a training course to help people understand the responsibility of borrowing, and to help them choose a lender and identify the costs associated with their loan products. It promotes sound borrowing and on-time repayment.

Bank Services is a training course to help people learn about how banks work, the types of products they offer, and how to choose the right type of bank service for their financial needs.

Financial Negotiations is a complete training course to help people learn how to achieve satisfactory, positive outcomes when they negotiate any type of transaction—whether related to business dealings or family decisions.

Each module includes a basic overview of the topic, Trainer’s guide with step-by-step instructions for conducting each learning session in the module and a training the trainers manual to prepare financial education trainers.

The curriculum can be purchased at: http://www.microfinanceopportunities.org/products.html

 

Indian School of Microfinance for Women

The Citi Centre for Financial Literacy (CCFL) was established in September 2005 with the goal of disseminating financial literacy, amongst poor, by building their knowledge, awareness and skill of financial services and manage their personal finance efficiently. The prime activity of CCFL is to share the concept of the financial literacy across the country, with the estimated outreach of 500,000 stakeholders from 89 Micro Finance Institutions.

Financial Literacy is taught via concept sharing workshops, media campaigns and training the trainer courses.

More information can be found at: http://www.ismw.org.in/

 

Accion

Accion’s financial literacy program was developed to help people improve their ability to manage their personal and household finances and become informed and effective consumer of financial services. Having been expanded to India, Accion’s Financial Literacy program covers topics, such as financial planning, cash flow, budget, savings and debt.

Program materials are tailored to the socio-cultural diversity of India and employ adult-learning methodologies to teach financial concepts, ensuring better assimilation and internalization of the ideas in participants’ daily lives.

A brochure can be downloaded at: http://www.accion.org/document.doc?id=786

 

Sanchayan Society

Sanchayan is a non-profit social enterprise working in financial inclusion with a specific focus on financial literacy and financial services. Sanchayan works with Governments, Regulators, Financial Institutions, Educational Institutes, Corporate Foundations, Partner NGOs, and other public and private sector organizations to continue the mission of delivering low-cost financial services to the BOP and disseminating neutral financial literacy.

Sanchayan has three main programs: MoneySmart Financial Literacy Workshops, Sanchayan Suraksha Points (Financial Services for Poor) and Grameen Arthik Sakshartha Karyakram (Rural Financial Literacy).

Key projects include:

  • Empanelled with Reserve Bank of India (RBI) for financial literacy programs
  • Financial Literacy Program for Farmers as part of National Agriculture Innovation Project (NAIP) launched by Ministry of Agriculture and sponsored by World Bank. (www.naip.icar.org.in)
  • Rural Financial Literacy for SHGs and Women households in partnership with Youthreach (www.youthreachindia.org)
  • Collaborated with Jharkhand State Women’s Commission (JSWC) to work for women’s economic empowerment in Jharkhand (www.jswc.in)

More information can be found at: http://sanchayansociety.org/

 

Reserve Bank Of India

The Reserve Bank of India (RBI) has facilitated a number of initiatives to enhance financial literacy, targeting children and college students, rural and urban poor people, women, defense personnel, and senior citizens.

‘Project Financial Literacy’ was established with the aim of disseminating information regarding the central bank and general banking concepts to various target groups. Teaching materials include: films, currency notes posters, games (puzzles to recognize bank notes), an essay competition and Basic Banking online story book for school children, Money Kumar & The Monetary Policy cartoon. Online resources can be accessed via the website: http://www.rbi.org.in/financialeducation/home.aspx

The Reserve Bank of India has also established a network of 135 Financial Literacy and Credit Counselling Centres in various states across the country. In 2012 the Reserve Bank of India announced plans to establish more than 630 Financial Literacy Centres throughout the country. The Financial Literacy Centers (FLCs) will impart financial literacy in the form of simple messages like Why Save, Why Save early in your Life, Why Save with banks, Why borrow from Banks, Why borrow as far as possible for income generating activities, Why repay in time, Why insure yourself, Why Save for your retirement, etc.

The FLCs and rural branches of the banks are also set to conduct outdoor Financial Literacy Camps with focus on financially excluded people, at least once a month.

 

Financial Literacy Agenda for Mass Empowerment (FLAME)

FLAME was founded by brokerage firm InfoLine with the aim to improve financial literacy across over 1,000 cities in India. The company has facilitated a mass media campaign, an online portal, a helpline, ground level financial awareness workshops, books and training via expert sessions on financial literacy.

To connect with students, FLAME developed Fin-Lites – a comprehensive Financial Literacy Contest for students of the 8th, 9th and 10th standards. This program evaluates and certifies students on day-to-day money management based on their understanding of key concepts including financial and economic terms, principles of Savings and Budgeting, banking, taxation and stock markets, prudent investment avenues, basic accountancy and entrepreneurial skills through a specially designed FIN-LITES workbook.

More information and general information on Finances, mutual funds, insurance, Investing can be found at: http://www.flame.org.in

 

Unitus Labs

As part of Unitus Labs’ India Microfinance Innovations initiative, Ujjivan Financial Services and Parinaam Foundation developed a financial literacy program for low-income, low-educated urban populations in India. The training, developed by the Parinaam Foundation, utilized creative comic strips, a workshop format, and unique incentives (such as a free calculator, financial diary, certificates etc.) to achieve high attendance rates.

The training materials are open source. To watch a training video, download the Literacy Program Trainer Manual and Client Financial Diary or request a free training DVD, visit: http://unituslabs.org/projects/india-microfinance-innovations/financial-literacy-on-debt-management/

 

National Institute of Securities Markets (NISM)

‘Pocket Money’ is a joint initiative between NISM and the Securities and Exchange Board of India (SEBI) to increase financial literacy among school students. It aims to make school students understand the value of money and the importance of saving, investing and financial planning. The program is delivered over 8 interactive sessions and covers topics such as savings and financial planning, Budgeting, Basics of Banking, Why Invest, Terminology of Markets, Options for investing, Borrowing money, etc.

Training material can be downloaded from: http://nism.ac.in/index.php?option=com_content&view=article&id=182&Itemid=235

 

Mann Deshi Foundation

Mann Deshi Mahila Bank Ltd (Mann Deshi) has developed a comprehensive Financial Literacy Program designed for illiterate or semi literate women in rural Maharasthra.

The foundation is also currently developing the curriculum for an Advanced and Business Financial Literacy course. The advance course will include modules on saving and loan management, bank services, budgeting, financial negotiation introduction, and pension and insurance presentation.

Training materials in Marathi (the local language) can be downloaded from: http://www.manndeshi.org/foundation/pdf/Basic%20Financial%20Literacy%20Booklet.pdf

 

Coady International Institute

The Coady Institute, a Canada-based educational institute, collaborated with the Self employed Women’s Association  (SEWA) and Freedom from Hunger to produce financial education materials for SEWA bank members. The training materials were part of ‘Project Tomorrow’ a financial education initiative implemented by SEWA Bank in 2002. The program includes sessions that introduce financial planning, money management practices, planning for future events, savings and investment, borrowing and loan management, insurance and risk management and making a financial plan.

The facilitators training guide can be downloaded at: http://coady.stfx.ca/tinroom/assets/file/resources/abcd/SEWA%20Financial%20Literacy%20Manual.pdf

 

Agricultural Finance Corporation Ltd (AFCL)

The AFCL has implemented a Financial Literacy Programme in Murshidabad district in West Bengal, focused on rural adults. The Financial Literacy Programme has been structured to support the participants’ progress towards meeting their savings and asset goals. The training will also provide programme participants with opportunities to develop skills and acquire knowledge necessary to effectively manage their own financial situation.

The program is delivered in local language i.e. Bengali and also utilizes training materials produced by the Reserve Bank of India.

More information can be found at: http://www.afcindia.org.in/Areas_of_Expertise09.html

 

Rural Finance Learning Center

The Rural Finance Learning center has produced a series of training materials designed to promote a philosophy of “Talking about Money”. Topics covered include cash flow and savings, profitability and borrowing, financial record keeping and how to use financial services.

Training materials can be downloaded at: http://www.ruralfinance.org/training/guides-for-trainers/financial-education-for-farmers/en/

 

International Gateway for Financial Education (IGFE)

The Gateway was established as part of OECD’s Financial Education project. Serving as a global ‘clearing house’ on financial education, The Gateway provides access to a comprehensive range of information, data, resources, research and news on financial education issues and programs around the globe. The gateway covers 70+ countries, 120+ programs, 170+ weblinks and resources, 160+ articles, research and data.

For more information visit: Financial-education.org

 

International Labour Organization

The International Labour Organization has published a training manual, designed to educate vulnerable groups, especially women, in financial literacy. The purpose of the training is to make women and men more informed and empowered decision-makers, able to set financial targets and reach them, whether in the household or in a small-scale business. The manual also is designed to help micro and small entrepreneurs in Cambodia increase their small profit margins. The trainer’s manual is based on material developed within the Financial Education for the Poor Project, which the Microfinance Opportunities, Citigroup and Freedom From Hunger financed.

The training manual can be downloaded at: http://www.ilo.org/wcmsp5/groups/public/—asia/—ro-bangkok/documents/publication/wcms_108269.pdf

 

Request your advice: Regulatory, Political and Unfair Competition Risk

As part of pro bono risk work for Bankers without Borders,  we are putting together some background information for use by Microfinance entities in their Risk Functions. I will assemble background educational materials along with mitigation suggestions for:

1. Regulatory Risk

2. Political Risk

3. Unfair Competition

Please suggest sources of guidance on these topics, which may be from the MFI industry, traditional banking sector, or other industries. If you can suggest content on this topic:
- Blog Posts

- Industry Articles

- reference books

- online resources

- your own thoughts and suggestions!
I will post the result of the findings so that everyone can have use of the summarized information.
Thank you!