Microfinance and Inclusive Growth: What are the Measures of Success or Learning?

This post is the detailed description of session one of the Financial Inclusion 2012 Conference. The aim of this session was to lay out the distinct features of microfinance that have a positive impact on the lives of its clients. The panel set out to review the lessons learnt from the sector and reflect on its mission. The discussion was moderated by  Mr. Matthew Titus, Executive Director of Sa-Dhan who expertly steered the discussion as well as involved members of the audience to gain a holistic picture of the challenges and ideals facing the sector.

  • Mr Jayanta Kumar Sinha, Chief General Manager, State Bank of India was the first of the presenters. He viewed formal institutions reaching the masses as the key step towards financial inclusion, and guided us through the efforts taken by the SBI to achieve one of its main objectives of taking rural credit to far flung areas. The SBI with its many initiatives currently finances approximately one crore farmers, out of whom 60% were small and marginal farmers financed through specialized agricultural finance branches. He stressed the need for a more collaborative approach to scaling up to the masses with banks, NGO’s and MFI’s together working for widespread coverage throughout the country.
  • Mr Larry Reed, Director of the Microcredit Summit Campaign then took the stage to talk a bit about the global picture of microfinance. Using the example of Brazil, Mr Reed suggests viewing financial inclusion not only as the spread of credit to the masses but with through the prism of eradicating poverty. He stressed the need for the sector to understand how our work intersects with other products in spheres like health, education, savings etc. and tailor products to the needs of the clients. ‘Success should be measured by the success of the clients’. There was much debate to how standardization of products as well as a failure to understand clients were one of the key stumbling blocks currently in the sector.
  • Dr Hema Bansal, India Manager, SMART Campaign then stressed the need for strict client protection measures. Most client protection measures are driven by the RBI, industry code of conduct and investors. Although the rules were conservative and slow to action, they seem to be evolving continually. She was optimistic about the current transparency levels of the sector and stressed the need for MFI practitioners to plan for Client Protection measures.
  • Dr. Ramesh Bellamkonda, Chairman cum Managing Director , BSS Microfinance Pvt. Ltd then gave us his views on the sector, which were more from an implementation viewpoint. He stressed that lenders should not unfairly shoulder all the blame for crises and suggested that people’s borrowing habits may also have a role to play. ‘Is Credit like alcohol? – People take in when they don’t need it and don’t know when to stop’ He spoke about the institutional constraints that most MFI’s had to work under and how corruption could also be a stumbling block in practice. He suggested reviewing the role of the media and asserted that rather than contributing to the hysteria, the media should look at issues like law and order situation and the absence of informed regulations.
  • Mr. T.K Arun, Editor Times Opinion then spoke about new developments in India affecting the sector and the importance of communication and technology. He disagreed with Mr. Reed in viewing poverty alleviation as the main objective, but firmly believed that the main aim should be to reach those with no access to credit. ‘If poverty is finished, do MFI’s stop working?’ He stressed how communication improvements and the implementation of the Aadhar scheme could MFI’s more successful as well as give more comfort to formal banks as it may be easier to scope out borrowers. He called for movement from widespread subsidies so as to cease underpriced products reducing the volume of transactions and instead moving towards cash transfers. He believes that time is right for the rural poor to be linked to the formal system and MFI’s should work as correspondents of these banks and claim a fee for their services rather than an interest rate. The launch of mobile banking was still seen to be a missing link, and Mr Arun believe that mobile banking could provide a strong impetus to widespread financial inclusion, ‘MFI’s to be the arms of the formal system’
Following the presentations by the panellists, a community SHG member provided an account of her experiences working in an SHG’s. She claimed that SHG’s had greatly helped her increase savings and reduce debt burdens from almost 50 Rs a month to 6000 Rs a month per person.
After the initial presentations, Mr Matthews moderated a discussion amongst the panellists as well as practitioners from the audience with the aim to arrive at a common ground amongst their viewpoints. Most panellists for of the belief that Financial Inclusion must be viewed through the prism of poverty eradication and that the credit distribution system of MFI’s could prove to be of great potential for other diverse products. There was widespread consensus that credit alone is not the answer and other financial products like savings, insurance and remittances were equally importance and hence it is important to define financial inclusion broadly.
The main take away from the session was that if we put clients’ interests first and look at their success as our own, it will lead to more diverse and needed products and help  achieve success in terms of poverty alleviation as well as having more people with access to credit and other products. There is still much work to be done- ‘There is a trade-off between high quality measures and scale and our key objective is try find an intersect between the two.’