www.microfinancefocus.com January 2009

Developing Credit Bureau
IFC`s Group Effort It is not just Technology : Planet Finance Opportunities and Challenges

An Exclusive Interview with
Mr. Aloysius P. Fernandez

Access to Credit & Human Right Livelihoods and Microfinance Credit Management Thoughts

Institution Spotlight

Ujjivan Finance Pvt. Ltd
Learning Curve

Product and Methodologies

I– Focus

Mobile Banking in India

Microfinance Focus [ January 2009 ] 1


Designing Staff Incentive System


January 2009 Contents

Cover Story

Developing Credit Bureau
23...Developing Credit Reporting for Microfinance . 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 Finance 32...Opportunities , Challenges and Way forward. By Dr. N Jeyaseelan

13...Credit Management Some Radical Thoughts on Microfinance By Dr. Souren Ghosal 17...Environmental Analysis: Mobile Banking In India By Shumit Vatsal

08...Should Access to Credit be human Right . By, Alex Count 08...Poor As a Partner . Farhat Abbas Shah 09...Micro Enterprise Training : Gender Perspective . By Dr. N Lalitha

Best Practices
35..Designing Staff incentive System By Martin Holtmann, MicroSave
www.microfinancefocus.com Microfinance Focus [ January 2009 ] 2


“Affinity to Prosperity : Development of SHGs” 44...An Exclusive Interview with Mr. Aloysius P Fernandez, Executive Director , MYRADA

Exclusive Presentation From Microfinance Focus to promote innovative ideas /innovation/initiative I-Focus of this month

41...EDA Capital Connect Perspective
10...Livelihoods and Microfinance By G Muralidhar , Akshara Livelihoods
Today crisis is that the poor are struggling with lack of ideas for investing the funds they can access. It is time, we all jump in to help them out. Rest will be history made by us.

49...News 48..Learning Curve 07...Editorial 06...About the issue

Institution Spotlight
38...Ujjivan Microfinance Services They took 980 days to achieve 100 thousand borrowers . Next 300 days , the number is expected to double . More about their strategies and approaches...

Send your write up . Download “the writing guidelines from www.microfinancefocus.com or write an email to
Microfinance Focus [ January 2009 ] 3



Mrs. Frances Sinha , Managing Director
EDA Rural System Pvt. Ltd , Gurgaon

Team Managing Editor (India) Vikash Kumar Managing Editor (US) Jerome Peloquin Associate –Knowledge Management Christina Weichselbaumer

Mr. Sitaram Rao, Director
Equitas Micro Finance India P. Ltd, Chennai

Dr G. Gandhi
Regional Head, DHS, New Delhi

Dr. N Jeyaseelan
Programme Director, Hand in Hand, Kancheepuram

Dr. Souren Ghosal
Ex-Banker, Author , Kolkata

Editorial office Microfinance Focus , Avalahalli, Anjanpura Post , Bangalore( India)-62 P: +91.80.28436237 |f: +91.80.28436577 Email: info@microfinancefocus.com Web: www.microfinancefocus.com

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

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

Mr. Ashish Gupta
COO, Sonata Microfinance , Jabalpur

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

Do you want to share Write up/ case study /research papers or your experiences . Write to us at info@microfinancefocus.com

Vikash Kumar
Executive Director , Microfinance Focus, Bangalore

Microfinance Focus is a Publication of “Centre For Microfinance Promotion”. “Centre For Microfinance Promotion is not for profit institution” Primary objective of this initiative is to inform about various developments from the field of microfinance and engage in an open dialogue with various stakeholders of this sector.
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About the Issue
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 she told me that currently she doesn`t have any problem to repay the loans installments. What if, she takes loan from 6 microfinance institutions! Do lending MFIs gauge their debt capacity? Will client`s enterprise have enough scope to grow and earn commensurate income to keep the repayments on time? There may be many negative reciprocate of such situation, in case, if she has problem of repayment, she likely to default with all the MFIs. In the context of microfinance, accessing and sharing such information will be very useful to minimize the likely default risks and maintain the portfolio quality. Apart from this, it will help to weed out clients with bad credit history in early stages and will contribute on reducing the interest rate. However, in the context of “Indian Microfinance sector”, setting up a credit bureau might face lots of challenges to set its parameters. In Indian Microfinance sector, some of the Global Agencies specially “International Finance Corporation” and “Planet Finance” are putting their effort to work-out a credit bureau. We understand that, in Indian microfinance sector, there is some effort however with little quietness, going on in this direction. With an objective to bring more consensus and recent update on effort, we are glad to bring some very special papers on this issue. However moving to livelihoods domain is much needed to sustain growth of the sector and in this regard a sector wide effort is much needed. As in our perspective paper Mr. Muralidhar, pointed out “Today the crisis is that the poor are struggling with lack of ideas for investing the funds they can access. It is time, we all jump in to help them out. Rest will be history made by us”. Microfinance Focus has put a modest effort to promote communication among various stakeholders and incorporate more global issue and perspective ,since two years almost, decided to re-launch the issue based on reader`s feedback. We have added many new features such as “Best Practices”, “Learning curve”, “Institution spotlight”, “IFocus” and some more features. Before you scroll through pages, I just wanted to bring your attention that don’t miss a candid interview with Mr. Aloysius Fernandez on SHGs issue and you will have opportunities to learn strategical approaches of one of the prominent MFI in India. Our Team has really enjoyed putting together various issues in our relaunched issue, hope you will enjoy and will find a value addition. Microfinance Focus [ January 2009 ] 6- Vikash





Credit and Prosperity: Two Sides of the Same Coin
This is an argument for a positive scoring credit system to be employed in developing 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 difficult 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 the ability of merchants to depend upon the future payment of a present debt has fueled and powered our economy. The judicious use of credit in commerce is an essential element in building a strong balance sheet. In developing economies, most local commercial transactions are on a cash basis. As more financial resources are being made available to the bottom of the pyramid, (BoP) As these micro enterprise businesses begin to grow, it will become necessary to grant short-term credit for wholesale purchases and also to require credit from suppliers as well. Paying cash for goods and services limits demand. This shrinks economic growth and discourages investment and equity expansion. The present negative credit scoring practiced by most banks in the developing world sets a negative bias toward granting credit privileges and limits the provision of credit to otherwise promising and creditworthy enterprises. The credit reviewer is predisposed to find problems, since the grading system requires it. A positive scoring method based upon balance sheet, inventory, cash flow and other financial measures will raise the bar and open the door to a growing economy. Local MFI’s can and should band together and form a quasi-public, or cooperative organization applying a set of positive scoring standards for credit evaluation. It should be mandatory, in accordance with the transparency and fairness doctrine, to pre publish such credit standards. Credit granting also requires a code of commercial law that provides legal protection to both the creditor and customer. Models for protecting credit grantors exist in the developed world. The key to an emergent commercial and mechant class will be the establishment of dependable and trusted credit and evaluation system. An effective credit scoring process will be central to the establishment of an MFI Credit Bureau. - Jerome



Microfinance Focus [ January 2009 ] 7


Should Access to Credit be a Human Right?
- Alex Counts
December 10th is the 60th anniversary of the universal declaration of human rights. But what does this really mean for the world’s poorest people? Millions are unable to enjoy their social, political and economic rights, partly because they live in extreme poverty. Access to credit and other financial services could help reduce poverty and enable people to effectively realize many other rights. Over the decade, Professor Muhammad Yunus, founder of the Grameen Bank and a founding board member of Grameen Foundation, has argued that credit should be recognized as a fundamental human right. Today, this is more relevant than ever as we grapple with issues of justice and sustainability in a globalizing economy that is teetering on the edge of collapse in many parts of the world. Economic rights, which are controversial but essential, were added to the International Bill of Human Rights 32 years ago and, so far, 159 countries have signed and ratified this UN covenant. In our increasingly capitalistic world, access to loans and other financial services is the ticket the poor need to stay afloat and create new possibilities. With our global economy still reeling from shockwaves, this important anniversary is a fresh opportunity to examine our successes and the opportunities that lay ahead in achieving universal access to quality financial services. To have a truly inclusive global economy, the world’s poorest people and initiatives that jumpstart their economic activities must not be left out. We have made tremendous strides in safeguarding human rights since 1948, but more can and must be done. We should celebrate Human Rights Day 2008 by applauding the more than 113 million people who have already started down the path of self-determination and independence thanks to microfinance – and by redoubling our efforts to ensure that others can follow in their footsteps by making access to financial services including credit a fundamental human right. This would be a bold step in helping the poorest global citizens realize the many rights that currently exist for them only in theory.

Poor As a Partner
- Farhat Abbas Shah
There is an established principle among all civilized societies that stigma and discrimination should be discouraged at every level and at every caste. For example in the mental health sector, it is strictly banned to call a person suffering from psychological illness a patient and seriously advised to call him or her a client. Also in the health sector there is a continuous struggle to secure people who are HIV positive from stigma and discrimination. Even people living with any sort of handicap like deafness or blindness are typically called special persons and never called handicapped. When the microfinance field describes the definition of poor individuals and claims to help not assist them, the discrimination begins. It is reality that the ultimate goal of the microfinance industry is sustainability and after that profitability. Without that the industry cannot survive, but it should be transparent and clear that a cup of tea is a cup of tea and a business is a business. If the industry wants to own the claim of poverty alleviation along with the target of sustainability and profitability, then it has to admit that the poor are not only the clients but also the partners. When we discuss helping the poor, we create stigma and discrimination against the poor. We are earning money from them and even then claiming to help them. Actually, the poor are our business partners and we should accept their status as such. The parameters and modalities can be reset. We should give respect and honor to our clients and declare them our partners. By doing that, not only will we achieve lifetime loyalty from the poor, but also we can fill the psychological gap between the working and business classes. The poor will become secure and remain out of the exploitations of the old-fashioned and unsuccessful economic theories as well.

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


Microfinance Focus [ January 2009 ] 8


Micro enterprise training Gender perspectives
- Dr. N. Lalitha

In the arena of microfinance, the major players seem to be NGOs who help to shape up the SHGs in the form of initiating, nurturing, motivating, capacitating and upgrading them. The quantitative growth of about 30 lakhs SHGs all over India is amazing. But the mission is not only for forming the group for the sake of forming but economic empowerment of the poor women by building capability’ in them to graduate them from micro credit stage to micro enterprise stage. How far the training programmes NGOs have been successful in building capability in them. For Amartya Sen has argued that what is most important is not what we have but what we are capable of having – that is using microfinance effectively to start micro enterprises or other sustainable economic activity. In the context of globalization, the SHGs have to develop resilience to absorb the localized shock waves of global competition. Formation of quality groups, resource mobilization, risk management , effective management of groups, proper maintenance of records, committed leadership, formation of federation, group cohesiveness and participation of members, enterprise management, periodic monitoring are the invincible of management that would ensure outreach with sustainability; the pre requisite factor for ensuring the above process is training. Have the SHGs been drilled both theoretically and more practically in obtaining such skills at least to a workable extent? Yes , but not sufficient. Women find themselves competing in a heavily gendered labour market which disadvantages them vis-à-vis men who usually have more education, skill, work experience and capital to draw on. Women are largely perceived as unskilled and semi skilled. The credit absorbing capacity of the SHG members can be reinforced only by means of enhancing their capabilities. The capacity building strategies with women from marginalized sections strengthen their understanding of the processes leading to their subordinate position in the society and enhance their ability to claim their due share of resources and power within the families and communities and vis-vis the market place and government organizations. The most defining aspect in training women to reach economic independence and from there on to run up the social ladder and be visible on level ground, is to pull up the gender differential and shatter the myths about gender and society.

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(Dr. N. Lalitha is the Reader in Dept of Rural Development with Gandhi Gram Rural University, Madurai, India )


Microfinance Focus [ January 2009 ] 9





G Muralidhar
Akshara Network for Livelihoods Support


e, as a country, have come a long way in meeting the financial needs of the poor. We are witnessing a transformation of micro-finance as a growth industry. More and more women are mobilized into SHGs all over the country. They are further mobilized into higher order federations. Bank linkages are growing rapidly. Some banks have started to offer cash credit lines of Rs.5 lakh per group. Credit Cards to farmers, weavers etc., are not uncommon now. While a lot more poor still need to be reached out with access to microfinance services, and some more services can be loaded onto microfinance bandwagon, many a poor and their organizations are struggling to find ideas to invest the funds in remunerative activities. The problem moves from the lack of funds to the lack of ideas to invest the funds. The sector moves from the microfinance to microfinance plus all across. Each one is exploring the ‘plus’. The ‘plus’ may include insurance, loans and repayments in kind, food loans, businesses by the groups and federations themselves, public Microfinance activities have become fairly sysservices for fee etc. tematic Focus [ January 2009 ] have become www.microfinancefocus.com Microfinance and the processes 10

Most of us, who are and continue in the development sector, are essentially livelihoods workers and their intent is to ensure that everyone including the poor have a decent portfolio of livelihoods. The livelihoods are a play of six capitals – natural, physical, social, human, financial and spiritual, within the four contexts – ecological, techno-economic, patterns of distribution of capitals and patterns of investment and expenditure, resulting in four arrows – income, expenditure, employment and risks. The livelihoods interventions are at the level of one or more arrows, capitals, contexts and/or a combination thereof. Thus, the intervention resulting in enhancing livelihoods may happen with information, knowledge, skill development, infrastructure, access to finance, collectivization, access to storage, technology, valueaddition processes, direct reach out to the market/consumer, risk diversification, minimum assured returns, etc. Therefore, the livelihoods interventions range from extremely simple actions to extremely complex sets of activities. Thus, microfinance activities are a small subset of the large livelihoods domain. Microfinance plus ways are expanding this subset to an extent.

` ‘standard’ for easy replication and scaling-up. The communities have responded well to these processes and are endorsing them with 99%+ repayment rates. The investors and the bankers are responding with increased investments for microfinance. It is able to attract a good number of human resources into it. The remunerations, it is able to pay, are comparable with the corporate sector. Bright and young minds are getting attracted to give a try. Livelihoods activities are too large in number to attempt any standardization and/or systematization. For example, a small village of 100-200 families may have a number of crops, some once a year, some twice a year and sometimes thrice a year. It may have some plantation crops and some horticulture crops. It may have some trees and some fruit-bearing trees. It may have fisheries and produce a variety of fishes. It may have livestock including sheep and goats, cattle, buffaloes etc. It may have handlooms and handicrafts. It may have stone cutting, bidi rolling, and other miscellaneous activities. There may also be some support services like transport, trade, education etc. The people may be casual labour, skilled labour, self-employed, enterprise owners etc. Some may be full-timers and some part-timers. Some may not be engaged in direct income generation activities. We have very few people who can appreciate and support these livelihoods in toto. In fact, there are very few who can appreciate and support a single value-chain in its entirety. The so-called experts master a bit of the valuechain. Yet, the poor and their collectives cannot afford them. Some elements in the way forward for enhancing the livelihoods of the poor include organizing women and youth around savings, credit and micro-insurance into SHGs and their higher order federations; undertaking participatory livelihoods planning appreciating livelihoods current reality, gaps and opportunities; facilitating bank linkages and convergence with other programs to realize these plans; organizing people around livelihoods activities; organizing shops that sell essential items; building skills of the youth for meeting the services required; exploring employment opportunities outside and providing training; and building human resources for working in the people’s institutions. The way forward gets further complicated when we contemplate about the people whose lives and livelihoods are threatened and affected by disasters. A variety of disasters and crises are looming large. This gets further amplified in many an ecologically fragile and marginalized zone. This further gets fuzzy for the poor with globalization, liberalization, privatization and climate changes. In this dynamic context, we, the ‘blind’, should ensure that all the ‘blind’ come together and unravel the ‘elephant’ first, and explore the solutions. We need to reach the ‘ant’ when the ‘fish’ does not dry-up (as in the seven fish and the ant story). We need to recollect the sane advice of Seattle, the Red Indian Chief of conserving and living sustainable livelihoods. As the pace of life is dramatically faster than what our grandfathers had, the most prominent issue is how we could offer ‘metafishing’ skills to the community, in addition to offering ‘fishing’ skills, in stead of offering fish. This is the need of the hour. The entire country and the world have to gear up for this effort. And I understand that this takes time, may be 10 years or 20 years. This can begin with appreciation of current reality and pooling up knowledge-skills-resources in people’s domain with K -S-R in our domain and outsiders’ domain. This in turn generates a variety of informed choices for the community to choose from. The community implements the plan so developed. In these iterative and repeated rounds, the community acquires metafishing skills and, I guess, learns to adapt to the changing needs and changing contexts. Vast majority of the poor have to become partners in the high growth of the country. The issue is how we take some poor out of the existing traditional activities so that the remaining poor have better returns. What kind of vocations we can think of offering to them so that they come out and prosper? The situation at migration is not ‘great’. How do we address the plaguing issue of the equity in many parts of the country? How do we ensure that minimum wages come to workers? How do we address the issue of education and literacy on which the long-term solution to the poverty lies? How do


Microfinance Focus [ January 2009 ] 11

` we ensure that the poor have access to public services like health which form the most of the family’s expenditure? We still have lot of gender disparities to cope with and address. Civil Society efforts are, at best, weak. MFIs are spreading across the country. SHG movement is growing rapidly. The proble of access to finance is being addressed. The need for the Governments and the Civil Society is to move into livelihoods domain. These efforts require large number of human resources at the community level, grassroots and at higher levels – paraprofessionals, professionals and volunteers, with passion, commitment and best brains. The poor need to have a hope for better life and this support can give that hope. Further policy support in terms of institutional framework like Mutually Aided Cooperative Societies’ Act, increased research into areas of livelihoods of the poor like dry land agriculture, minimum support prices for all products of the poor, ensuring minimum wages for all workers, risk covers for a wide variety of livelihoods of the poor etc., are important. Finally, let us appreciate the reality - when in crisis, what matter the most are air, water and food. The rest is a matter of opinion really. Today the crisis is that the poor are struggling with lack of ideas for investing the funds they can access. It is time, we all jump in to help them out. Rest will be history made by us. *************

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Credit Management
Some Radical Thoughts on Microfinance
Micro credit to farmers and artisans needs to be routed through some voluntary agencies preferably of farmers and/or artisans. This has been the findings of almost all research studies undertaken in this regard particularly in Asia. The reason is very obvious. Most of the farmers and artisans in rural areas do not possess necessary skills and drive to transform themselves as viable entrepreneurs. They lack in technical knowledge and market intelligence. It is, therefore, necessary that they should get support from within by grouping themselves and also by joining with others who have necessary expertise and leadership to become better entrepreneurs. Institutional Structure Further, it would be advisable for commercial banks not to be branch-centric for catering micro credit to farmers and artisans. Merely conceiving a specialized branch to cater to rural finance may not be an adequate innovation. Banks should be encouraged to innovate and experiment as no foolproof institutional framework exists today. In fact, almost all research studies have found that conventional banking would not be able to reach farmers and artisans and for that reason most of them have remained under the clutches of moneylenders who, over the years, have swindled farmers and artisans by providing facile loans at a heavy cost. It has become difficult to replace money lenders despite so much effort made in this regard due to two very important factors viz., 1) facile credit system without the ordeal of much paper work and 2) making available the credit for all purposes. The question may, therefore, be asked why we should try to have any other system. The reason is very obvious. Money lenders have exploited farmers ..Next Page

Dr. Souren Ghosal

To effectively provide micro finance at the root level, studies undertaken in Asia suggest that it should be routed through organization of users. The lack of technical knowledge and market intelligence is a major hindrance. It can be overcome by joining up with institutions, which can provide necessary expertise and leadership.


Microfinance Focus [ January 2009 ] 13

` Up-to their neck for their lack of market intelligence and also for their weak financial position. The need is, therefore, to create such institutional structure that can provide easy credit with reasonable cost to help farmers and artisans become viable entrepreneurs. For this, considerable experimentations have been made in India and from those we would easily understand that farmers and artisans individually are ignorant and weak in bargaining loans at competitive interest rates. Micro Financing to Groups One popular innovation is to form groups of farmers and artisans for obtaining any loan from banks. However, it has also been experienced that groups of farmers or artisans formed only to provide group guarantee for loans taken by them would not help them to become viable and in many cases such guarantees would not be of much help to the lending institutions also as the total group may not be viable because they had no guidance from banks on farming and marketing to become viable farmers and artisans. Further such groups do not have any control on individual farmers for undertaking better farming and marketing besides the fact that such groups could never become a cohesive group to look after each other's interest both in farming as well as in marketing. These groups are unable to harness resources for better farming and to generate enough bargaining power in buying inputs and marketing their produce. Recent studies have revealed that micro financial institutions should veer round the strategy of building healthy Self Help Groups (SHGs) of farmers and artisans and also create opportunity for female members of the family of farmers and artisans to be a member of the group or its subsidiaries as they have been found more prone to saving and motivating force for the families. Micro Financing Institution - NGO It has also been observed that banks in India depend heavily on 30/40 successful Micro Financial Institutions (MFIs) instead of developing new institutions wherever they find such existing institutions over burdened. It has to be kept in mind that Micro Financing Institutions (MFIs) are of recent origin and they do not have unlimited resource both in leadership and management skill. Moreover, such institutions have to develop Self Help Groups (SHGs) at local base in villages and semi-urban places where one is having adequate rapport with people of the area. It is true that it is difficult to prescribe any cutoff rule for the same as each micro financing institution has varied type of leadership and management skill besides having differing amount of financial resources. Comprehensive Policy Framework However, one may suggest that at the apex level, banks may develop or support one MFI to cater to one or two districts of a state. These institutions may be informal bodies of NGOs. But it would be better if some special legislation is enacted by the government to make it a legal entity to undertake all the jobs envisaged for such institutions by banks keeping in view of the potency of such institutions to enable small farmers and artisans to attain economic viability in the country. It may be worthwhile to note that Pakistan has enacted a comprehensive policy framework (Ordinance No. 2001) to regulate its micro financing institutions. It is high time for our government to come out with some such policy framework to guide and monitor these institutions. There cannot be any doubt about the need of these institutions in our country as these have been found highly potent institution for poverty alleviations. However, the strength of these institutions will depend greatly on how successfully they develop self help group of farmers at local base to conceive and manage projects to make farmers and artisans viable entrepreneurs. These projects could be on farming and/or subsidiary agro-industries based on local talent. Self Help Groups and Micro Financing Institutions It has been observed from the present performance of commercial banks that to make group of farmers and artisans (SHG) as viable unit, one has to keep in mind the following guidelines:  Should have compact plot of land of 5 to 10 acres having irrigation facilities or having potentiality of developing such facilities.


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` Similarly, for artisan groups it would be helpful if such groups are formed where cluster of artisans of same trade live or where exist the potentiality of developing such cluster of people having skills to pursue one or two identified trade.  Should be suitably empowered with skills and fund to perform their assigned functions. Should also have internet facilities at village level for easy reach to latest technology and market intelligence similar to e-Choupal conceived and promoted by the ITC in India. Should have well-defined roles to play and the same should be elaborated by the apex body, i.e., micro financing institutions at district headquarter (MIC) in consultation with the financing banks. Should also be empowered to develop schemes to cover risk partially or fully that may arise to farmers and artisans due to unforeseen reasons. A participatory fund may be floated in collaboration with the apex institution and the financing bank. Should be able to conceive, promote and manage infrastructure projects in rural and semi-urban areas to help farmers and artisans to store and market their products as and when they perceive good marketing opportunities. Should be able to give support services to farmers and artisans like supply of capital and crop inputs and transport and warehousing for marketing their produce. Should form a subsidiary group or have in the parent group itself a female group consisting of family members of farmers and/or artisans to promote savings and to provide employment to women folks in rural handicrafts and/or subsidiary agro jobs and rural industries. farmers. It may undertake reviews during the crop season and/or production season of farmers and artisans and keep SHG informed of its comments for initiating necessary action in the mid-course for safeguarding the loan. These reviews shall have to be undertaken by the extension officers of the bank who should be competent enough to guide farmers and artisans for improving their farming and/or village-based subsidiary industries.  Bank shall assess the risk that farmers and artisans have taken and to what extent that can be provided for through subsidy of the government and contribution to be made by the bank and the SHG. A risk fund may be created to meet such exigencies in farming and business undertaken by farmers and artisans. Bank shall examine the possibility of providing loans to farmers and artisans on profit sharing basis as charging interest on such loans (high or low) have not yielded very healthy effect on farmers and artisans. In fact, right from the days of moneylenders to the days of institutional credit, policy makers have failed to develop suitable interest strategy with the result in most of the cases lending agents satisfied with interest only and foregoing principal amount and/ or exempting partly or fully the same as the rate of interest levied was unbearable. This strategy, therefore, needs serious thinking by the policy makers. In the Islamic banking, charging of interest is prohibited and sharing of profit is adopted. It is interesting that RBI has recently appointed a high power committee to study the efficacy of the adoption of Islamic banking system for lending in some areas. In fact, some foreign banks have shown interest in this considering the feasibility of adoption in some countries. This may be a boon to poverty stricken farmers and artisans as interest charging has been a bane to them for a long period. This will also do away with the controversy of whether one should charge low or normal rate of interest to farmers and artisans. Further, farmers and artisans need not look for mercy from the lending institutions.








System for Lending  Banks shall lend fund as assessed for projects prepared by the SHG and also for anticipated consumption needs of the group of


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`  Bank may join hands with insurance companies to cover the risk in farming and business run by the group of farmers and artisans. Since risk has to be assessed on group basis it would not be very difficult to assess such risk and creating special risk sharing fund to meet unforeseen risks. Bank may also participate in Derivatives in the commodity markets to cover such risks. Government of India is considering the feasibility of such participation very seriously. In fact, a change in the market system in agriculture is in active consideration of the Government of India. The Government of India is actively considering changing the marketing route (AGRI-PRODUCE-PATH) to enable farmers to have direct contact with the market. The present system built around Mandi warps the price signals the market sends and thereby farmers just get only 20-25% of the price of their produce. To change the same, the Government of India is encouraging the private sector to buy directly from the farmers and to create an alternative link to Mandi. This can really work if MFIs and SHGs are roped in with adequate resource and skill. Bank shall have to develop new methodology to increase their rural reach and for this they may look to the experimentation made by ITC and HLL in India. ITC's e-Choupal and HLL's project Shakti may be worth studying. Banks may study the innovative method adopted by the ICICI bank to enhance their rural reach. ICICI bank has built up a supporting network of Village Internet Kiosks in partnership with Social Initiative Group (SIG). The above approach may bring a paradigm change in rural lending recently branded as micro financing. Such radical change is inevitable particularly when we are marching ahead in economic field. There is nothing wrong to adopt globalization as it strengthens the economy rather than weakening it as often wrongly assumed by the politicians and the deprived sections of our society. In fact, the deprived section of the society will not remain deprived if we carefully address to their economic problems. The above model of micro financing may address effectively some of their problems and bring out their latent strength for amelioration of their poverty. The need of the hour is to have a bold vision and to adopt innovative methods to reach deprived section of our population who are mostly habitating in rural areas.




About the Author: Dr. Sourendra Nath Ghosal holds a PhD in Finance and holds Master degrees in both commerce and Economics. He has experience taught for 18 years in colleges and university of Jodhpur Rajasthan; Worked as principal cooperative training college for about 2 years at kalyani w. b. He worked with United Bank of India FOR 22 years and retired AS G.M. credit. He served in many board including "United Industrial Bank, W.B. Agro Industries Corporation and Small Industries Corporation. He has also authored several books and Papers published in several national and International journals & newspaper. He has also served as a visiting/Part-time faculty member at IIM Kolkata, Vidya Bhawan and Indira Gandhi Open University etc.

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Microfinance Focus [ January 2009 ] 16



Environmental Analysis :

Mobile Banking In India

Mr. Shumit Vatsal

obile banking, a symbiosis of technology and financial services, is the hottest area of development in the banking sector and is expected to replace the debit/credit card system in future. ATM and Internet banking have been around in India for a while. While both modes have had some success, penetration and use levels have been moderate. While ATMs offer convenience, they pose a perceived security threat in India given instances of mugging around them. 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 and therefore a large-scale proliferation of ATMs will remain a challenge. Internet banking, on the other hand, relies on PC and Internet penetration. Estimates suggest that there are approx 40 million Internet users that are expected to rise to 100 million soon – despite this growth; penetration and use levels remain low, especially in nonmetro areas. Unlike online banking, mobile banking has certain advantages on its side. It would not attract much investment from the bank and would not need a change in the existing infrastructure of the bank.

“We believe branchless banking can offer basic banking services to customers at a cost of 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: the cost of roll-out (physical presence) and the cost of handling low value transactions.” - Gautam Ivatury , CGAP- Technology Program,


Microfinance Focus [ January 2009 ] 17



obile banking has the potential to bring a whole host of people that have no/little access to land lines/internet connections onto the electronic platform – an innovative way to generate financial inclusion. To do so successfully will require customer training, technology stabilization and managing carefully the ‘know your customer’ issues.

Mobile operators and mobile-application developers require a separate set of guidelines for nonbanking providers who want to offer mobile banking services.

Political Factors Only Banks can Offer Mobile Transaction Services: Only licensed banks that a have a physical
presence in India are allowed to offer mobilebanking services. The banks are responsible for

Regulations on Security: The RBI’s guidelines call for a two-factor authentication for validation of a customer. The industry has reacted to this by interpreting that two-factor authentication can be supported only by GPRS and not through SMS. Media has also criticized RBI by saying that the new mobile banking regulations such as the two factor authentication do not facilitate financial inclusion since basic mobile phones owned by majority of people in rural India do not support GPRS. Secure transactions can happen even via SMS. SMS’es are of two types – Normal and Encrypted SMS. Normal SMS is what we use for day-to-day communication and is not secure. The SMS is not encrypted when it passes through the pipe it can be accessed. On the other hand, an encrypted SMS is converted into non-readable text using a RSA / AES (security) algorithm. The text that can be encrypted are numbers from 1-9, capital letters from A-Z and small letters from a-z. Special characters cannot be encrypted. When the bank client sends a sms from his phone to the server, a sms along with an encrypted key is sent to the server. If the encryption algorithm is strong enough, it is not possible to read the SMS. The server then

ensuring Know Your Customer norms, and must have core banking systems in place. Several MFIs today act as a business correspondent (BC) (agents who work on behalf of banks) for commercial banks to reach areas where opening a bank branch is not viable. Usually at the business correspondent’s office, a bank representative is present who oversees the enrolment of clients and ensures that the KYC requirements are complied with. The bank through a BC can enroll clients, the clients can be served by the bank using mobile banking thus fulfilling the objective and the spirit of financial inclusion

The table below shows the Political, Economic, Social and Technology (PEST) factors that affect the mobile banking industry in India

Political Only banks can offer mobile transaction services Business Correspondent regulation Regulations on Security Daily Transaction Limit Goal of Financial Inclusion

Economic Cost of handsets

Social A required be behavioral change

Technology One comprehensive application for all mobile handsets

Mobile penetration in rural India


Security concerns


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` decrypts (opens) the encrypted key using a RSA encryption algorithm. This technology is perfectly secure and GPRS is not mandatory. Not many phone users in India subscribe to GPRS and even fewer have phones that can support GPRS. Around 60 percent of the 306 million handsets or mobile connections in India are without GPRS and WAP. Due to lack of GPRS connectivity, Smart Trust applications, secure SMS based applications will be the prominent at least in the initial years of mobile banking. Daily Transaction Limits: The RBI has capped daily mobile transaction limits at Rs 5,000 for transfer 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 transactions. It will surely not affect rural customers who rarely receive more than Rs.5000 per day through remittances. It is also unlikely that the rural customer will pay more than Rs.10,000 for paying his utility bills or other services. 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 is about 44 percent where as exclusion in Rural India is about 76 percent. Among the recent Government initiatives it has been proposed that a National Rural Financial Inclusion Plan should be launched with a clear target to provide access to comprehensive financial services to at least 50 percent of the financially excluded households (approximately 55.77 million) by 2012 through regional and semi-urban branches of Commercial Banks and Regional Rural Banks. The remaining households are to be covered by 2015. The Finance Minister in his budget for 2007-08 announced the setting up of a fund for financial inclusion of about Rs. 500 Crore to meet cost of technology adoption. Looking at financial inclusion especially in unique nature of states such as Uttarakhand and Himachal where a ‘money order’ economy prevails and transferring money is problematic; mobile phone banking would prove an effective way to expand the reach of financial service delivery. The topography in hilly terrains is such that banks cannot open branches in every corner. Mobile banking as a technology is certainly an answer to the growing demand for banking facility at the village level. Economic Factors Cost of Handsets: Handsets are priced currently at less than $25 (Rs.1000) and call rates are less than 0.05 cents (Rs.2) per minute. Industry participants like Bharati Airtel have already awarded a contract worth $2 billion over two-years to Telefonaktiebolaget LM Ericsson, to expand its network in rural areas and provide capacity management. Gartner expects 58 percent of the rural population and 95 percent of the urban population to be covered by mobile networks by 2011. It is expected that the predominant model is likely to be a community owned handset, a concept that has already been tried and tested in some areas. Considering the rapid growth mobile phone usage, offering financial services through mobiles could help thousands, especially in rural areas, gain access financial services (banking and insurance products). Increased Penetration in Rural India: Approximately 400 million Indians do not have a bank account. India has a base of approximately 300 million mobile handsets. Also, the Indian mobile phone market is worth up to 10 million handsets a month. With the advent of an exponential growth in mobile phones in India, mobile banking applications can be used as an efficient channel to deliver financial services to the farthest parts of the country at significantly low costs both for the financial institution as well as the client. Only 2% of rural India has access to cell phones today. With most mobile companies focusing aggressively on rural India, this situation is likely to change in the very near future. In remote geographies of India, mobile recharge cards are a fast moving product and Kirana (packed, to-the-brim stores) storeowners earned a significant portion of their revenues by selling prepaid mobile recharge cards. Social/Demographic/ Infrastructure Factors A Required Behavioral Change: Banks plan to capitalise on this gap to increase penetration.


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` There are 300 million mobile users, with 6 million being added every month. Despite such potential for convenience and business opportunity, few people use mobiles even for simple b a n k i n g q u e r i e s . But people have their reasons for not yet lapping up the opportunity. They find many features complex to handle. That apart, there is the issue of sensitising customers. There have been cases where help-desks at banks have not been able to offer much to willing users. Mobiles have become ubiquitous, and using them for banking is the logical step. But in order for banks to explore full potential, increasing awareness is essential. A good strategy for banks to ride on the mobile way will be to initially offer some services for free. Banking Network in the Country: There are about 68,000 bank branches in this country and 23,000 ATMs. But what's astounding is that the number of mobile subscribers in India, which is 85 million, is growing by 5 million each month. So while today mobile banking is still not as widely used, the possibilities are limitless Illiteracy: Illiteracy could prove an issue when using technologies like mobile phones, especially for tribal communities. Moreover, mobile banking pre-supposes that the mobile holder has a bank account, and thus along with providing capacity building organizations will have to focus on financial inclusiveness. This challenge can be overcome by service provider developing a user friendly mobile application using local languages. Technology Factors One Comprehensive Application for All Mobile Handsets: A major challenge for mobile application development is the great variety of different target devices with different capabilities, features and restrictions. There are a large number of different mobile phone devices and it is a big challenge for application providers to offer mobile banking solution on any type of device. Some of these devices support J2ME and others support WAP browser or only SMS. Ideally, the technology provider should ensure that the application should function on all handsets ranging from a Nokia 1010 to a I Phone. Security Concerns: Security of financial transactions, being executed from some remote location and transmission of financial information over the air, are the most complicated challenges that need to be addressed jointly by mobile application developers, wireless network service providers and the banks' IT departments. Security applications will gain a lot of ground during the period 2009-12. These applications will include anti-theft and device recovery 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 factors in the area of development in the banking sector as a whole and is expected by industry experts to replace the credit/debit card system in future. During the last quarter of 2008, there are 47 million mobile users, with an average of 2 million being added every month While the government incurs a transaction cost of Rs 1213 for every Rs 100 of loan disbursement, mobile banking helps it reduce the cost to a mere Rs 2. The number of mobile users is estimated to have far surpassed the number of Internet users. Some techniques that can be implemented for the same include using the phonelock function on your mobile device when it is not in use, choosing passwords which are difficult to crack and keeping them safe and ensuring that the phone is configured securely, especially when it comes to configuring the Web browser and email software. Finally, unless the experience on the mobile device is as frictionless and simple as possible, consumers will wait to check their account status by visiting the bank. ********************** Shumit Vatsal works as a program manager at Evolvus Solutions. Evolvus Solutions offers an end-to-end system called Micro-Beans that creates a link for micro-finance clients to step into the formal financial sector. Acting as a transaction backbone, Micro-Beans supports scale that is essential for the growth of a micro finance institution. The solution allows data to be captured remotely and transmitted to a backend where data is stored securely and can be retrieved with ease."


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In Focus



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

By 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 forward
By Dr. N Jeyaseelan

“While credit reporting can help MFIs streamline lending activities and strengthen risk management practices, it is also important to emphasize the importance of educating borrowers on the relevance and use of personal credit histories. Empowering the poor to build and use “reputational collateral” to access financial services at better rates of financing, while maintaining prudent levels of indebtedness, benefits them and the financial system as a whole.” -Peer Stein Head (Financial Infrastructure and Institution Building ) , IFC`s Group
www.microfinancefocus.com Microfinance Focus [ January 2009 ] 21


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Credit reporting contributes to financial stability and deters systemic overindebtedness and defaults


By Mr. Peer Stein , Head (Financial Infrastructure and Institution Building ) , IFC`s Group With 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 Neeraj and ◊ Shalini Sankaranarayanan.
◊ ◊ ◊ ◊ ◊ ◊ ◊


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Approximately two-thirds of the emerging market population does not have access to financial services. While physical
infrastructure such as bank branches, ATMs, POS terminals are important for expanding access to finance, financial infrastructure elements, including credit bureaus are just as important.
A credit bureau is an institution that collects information from creditors and available public sources on a borrower’s credit history. Information, on individuals and small firms from various sources is compiled into a comprehensive credit report that is then sold to creditors. Credit bureaus support the retail lending business by providing objective information on the credit worthiness of individual customers or small businesses. They allow lenders to make faster and more accurate credit decisions, thereby lowering their default rates, by 30 to 40% according to various studies and increasing their credit lending volumes. 1 Benefits of credit reporting for microfinance
Credit reporting has significant benefits for microfinance institutions (MFIs) and their borrowers. MFIs are constantly grappling with the need to expand loan portfolios and simultaneously lower transactions costs. It has long been recognized that technology can enable MFIs to expand while maintaining a double bottom line. Credit reporting represents yet another, albeit lesser known, opportunity for MFIs to achieve this end. In particular credit reporting can do the following for microfinance:

(i) Improve risk management. Having access to a client’s credit history enables lenders to make a thorough assessment of a borrower’s repayment capacity. Specifically, a lender can quickly assess a client’s level of indebtedness or propensity to repay a new loan, quickly eliminating obviously bad borrowers from the loan appraisal process. Further, the lender can use the client’s credit bureau data/ranking to structure the loan to fit the client’s risk profile, e.g. require a higher level of guarantee, reduce the loan amount, or require payment of existing debt before a new loan is issued. In addition, the lender can use the data to calculate loan loss provision levels more accurately. (ii) Reduce transaction costs. Use of credit bureau data has proven effective in reducing loan approval costs while enhancing risk management. The net effect is a reduction in costs associated with loan processing, defaults and provisioning – and, therefore, a potential increase in net income. In Bolivia, Ecuador, Peru and other markets with microfinance credit reporting systems, several lenders underscore the importance of credit information as one of the key instruments for efficiency gains and cost reductions in loan appraisal and monitoring. (iii) Improve efficiency. Use of credit bureau data has proven effective in eliminating part of the laborintensive and lengthy early screening part of the loan appraisal process. For instance, a manager of INFOCORP, a credit bureau in Peru, claimed that the use of credit bureaus reduced the waiting time for loan applications 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 officer to select 55% more new borrowers per month. 3 (iv) Increase client base and MFI competitiveness. Credit information can help MFI lenders tap new markets and new borrowers, and can encourage the expansion of lending in rural areas. Added to this are the efficiency gains from faster loan processing times which imply better client service - all of which help MFIs maintain a competitive edge. (v) Increase access to finance at better rates. Microfinance borrowers stand to benefit as well, as the credit bureau helps them build “reputational” collateral, which precludes the requirement for physical Microfinance Focus [ January 2009 ] 24



“Credit reporting also contributes to financial stability and deters systemic over-indebtedness and defaults: it is particularly important and relevant in the context of the current financial crisis.”
collateral when applying for a loan. Moreover, as lenders streamline operations and lower operating costs, these savings are passed on to micro borrowers in the form of lower interest rates. Thus credit reporting can help make loans more affordable and more accessible to micro borrowers. (vi) Provide better incentives to repay. Assuming borrowers are aware of the credit bureau and what it implies for borrowing, credit bureau information can discipline borrowers by letting them know that they risk being locked out of credit markets if they delay or default on their payments. nance industry was hit by a financial crisis stemming from over-indebtedness. Bolivia’s credit crisis of 1999, demonstrated that an effective credit reporting system is a public asset that is critical to the financial system’s health and responsible finance. The crisis, which was stimulated by over-indebtedness, prompted borrower revolts, diminishing consumer lending, portfolio quality deterioration with portfolios -at-risk (PARs) as high as 10% and reduced business opportunities for MFIs.4 Drawing lessons from the crisis, Bolivia and several other Latin American countries took strong measures to strengthen microfinance credit reporting systems and general financial sector supervision.

Promoting financial stability Empowering borrowers
Credit reporting also contributes to financial stability and deters systemic over-indebtedness and defaults: it is particularly important and relevant in the context of the current financial crisis. The current crisis finds its underpinnings in a systemic lack of oversight and the use of lax risk management practices by providers of financial services. Users of credit bureaus include financial institutions and non-bank financial institutions that are likely to be affected by global liquidity constraints. By pooling data across financial systems and reducing information asymmetries, credit information systems support efficient credit allocation and strengthen risk management capabilities, thus enabling lenders to make better informed and more responsible lending decisions. To reiterate, bureaus can help reduce default rates by 30% to 40% in environments with comprehensive credit information sharing. Credit reporting for microfinance gained prominence in the late 1990s when the Latin American microfiwww.microfinancefocus.com While credit reporting can help MFIs streamline lending activities and strengthen risk management practices, it is also important to emphasize the importance of educating borrowers on the relevance and use of personal credit histories. Empowering the poor to build and use “reputational collateral” to access financial services at better rates of financing, while maintaining prudent levels of indebtedness, benefits them and the financial system as a whole.

The status of credit reporting in microfinance today
In most emerging markets credit bureaus are either underdeveloped or nonexistent. The situation is aggravated in the context of microfinance since credit reporting for microfinance is still a nascent concept that is only now gaining support outside of the Latin American continent. Recent statistics from the World Bank’s Doing Business report indicate that of emerging market bureaus surveyed, 60% report receiving Microfinance Focus [ January 2009 ] 25


data from MFIs.5The news, while encouraging, can be misleading as several challenges remain with respect to integrating MFI data with that of credit bureaus.

also inflexible and unable to process customer feedback and react quickly to changing consumer needs.

The status of credit reporting in microfinance today
In most emerging markets credit bureaus are either underdeveloped or nonexistent. The situation is aggravated in the context of microfinance since credit reporting for microfinance is still a nascent concept that is only now gaining support outside of the Latin American continent. Recent statistics from the World Bank’s Doing Business report indicate that of emerging market bureaus surveyed, 60% report receiving data from MFIs. The news, while encouraging, can be misleading as several challenges remain with respect to integrating MFI data with that of credit bureaus.

Both MFIs and the credit information providers servicing them recognize the lack of adequately trained/ skilled manpower and the need to provide training. Physical infrastructure, like access to electricity and internet, can affect the ability of MFIs to connect in a timely and secure manner to credit bureaus and avail of credit reporting services.


Credit reporting for microfinance has huge potential for impact in a country like India, where, according to World Bank research, 52% of the population lacks access to financial services. CIBIL, the existing Indian credit bureau, does not provide credit reporting for MFIs yet. IFC estimates that MFI credit reporting in India could benefit an additional 114 million borrowers that are currently not in the formal financial system due to their inability to prove creditworthiness. In addition to this huge market opportunity, availing of a credit reporting system can enable Indian MFIs to assess the level of over-indebtedness of their clients, which can be significant in urban areas that are heavily concentrated with MFIs. Credit reporting also presents an opportunity for existing MFIs to scale up lending in the more rural and remote parts of the country.

Some of these challenges are:6

MFIs lack good quality data, which makes it difficult for credit bureau providers to accurately capture demographic profiles, often of largely illiterate populations. One of the key impediments to the inclusion of MFI data in credit bureaus is the difficulty of being able to identify a unique user match for clients, mostly women borrowers in the case of microfinance, due to the lack of national identification numbers and / or verifiable addresses. Traditional credit reporting does not meet the specific needs of MFIs, and credit bureaus need to provide customized services for MFI clients. The issue remains how to make credit reporting not only applicable, but also affordable to the MFI sector, where margins are fairly low. MFIs face technological challenges and work with obsolete systems. Unlike the retail banking sector, there is no standard technology platform that MFIs can leverage for their own data maintenance requirements. Existing custom built models vary widely in design and functionality and do not facilitate information sharing. Existing backend systems are not only broken but www.microfinancefocus.com




Microfinance Focus [ January 2009 ] 26

` Country and context-specific challenges exist as well. In India, for instance, the multitude of languages and dialects can add to the level of complexity required in a credit bureau’s solutions, as existing credit bureau solutions have limited language capabilities. Nevertheless, known examples of successful integration of microfinance into credit reporting systems exist in Ecuador, Peru, Bolivia and Guatemala. Challenges notwithstanding, it is evident from these countries, that credit reporting systems are integral to facilitating sustainable and responsible access to finance, and that these challenges are well worth addressing. At present there are no known global interventions that seek to address these challenges. IFC’s Global Credit Bureau Program, recognizing that such a void exists, is actively exploring new initiatives to address the specific credit reporting needs of microfinance institutions. IFC’s Global Credit Bureau Program IFC’s Global Credit Bureau Program, is an internationally recognized leader in promoting credit bureau development in emerging markets. Since inception in 2000, the program has created or significantly improved credit bureaus in 10 countries, drafted or contributed to the drafting of new laws and regulations in 19 countries, organized over 60 credit bureau seminars, conferences, and outreach events in more than 40 countries, and monitored the credit reporting environment in over 180 countries through the World Bank’s Doing Business Report. The program has always supported the development of inclusive credit reporting systems with a view to expanding access to financial services by the poor and underserved, especially those served by microfinance institutions. In the past it has supported two global conferences: Next Generation Access to Finance (September 2007) and Making Small Business Lending Profitable (April 2001) that specifically focused on the importance of credit reporting for small business and micro lending. The program’s microfinance/small and medium enterprise footprint to date includes work in: South

Credit Information Bureau (India) Limited (CIBIL) was incorporated in 2000. CIBIL’s aim is to fulfill the need of credit granting institutions for comprehensive credit information by collecting, collating and disseminating credit information pertaining to both commercial and consumer borrowers, to a closed user group of Members. Banks, Financial Institutions, Non Banking Financial Companies, Housing Finance Companies and Credit Card Companies use CIBIL’s services. Data sharing is based on the Principle of Reciprocity, which means that only Members who have submitted all their credit data, may access Credit Information Reports from CIBIL. The relationship between CIBIL and its Members is that of close interdependence. The establishment of CIBIL is an effort made by the Government of India and the Reserve Bank of India to improve the functionality and stability of the Indian financial system by containing NPAs while improving credit grantors’ portfolio quality. CIBIL provides a vital service, which allows its Members to make informed, objective and faster credit decisions. Source: CIBIL Official website

Africa, Tanzania, Mexico, India, Egypt, Morocco, Mongolia, Mozambique, Cambodia, Afghanistan, Sri Lanka, China, Pakistan, Kenya, Ghana, Madagascar, Rwanda, Azerbaijan, Kyrgyz Republic, Russia and Uzbekistan. In anticipation of the various credit reporting policy needs arising out of the current crisis, the Global Credit Bureau Program is reinforcing its efforts to develop more inclusive credit information systems for regulated and nonregulated entities, while continuing to provide


Microfinance Focus [ January 2009 ] 27

` advice on legal and regulatory issues and capacity building for financial services regulators. More recently, the program has been exploring the possibility of formalizing a Microfinance Credit Reporting Program in collaboration with interested donors. As the liquidity crisis evolves, this focus will be extremely important to ensure that credit is extended to the right borrowers and that credit lines remain open, or are reopened for the most vulnerable borrowers, including both households and small businesses. This new initiative will focus entirely on integrating microfinance into credit reporting. It will start with a pilot set of countries and gradually expand its scope of intervention over a period of five years. The program is also stepping up financial literacy efforts to promote standards for responsible lending during the crisis. In particular, such efforts will involve designing and delivering financial education training specific to the use of credit bureaus and credit information sharing. The primary audience for such training will include lenders and portfolio and risk managers in financial institutions with a broader dissemination strategy for the benefit of general borrowers. These efforts will be vital to ensuring the successful integration of both microfinance institutions and their clients into formal credit reporting systems. ***************

About the Author/s Mr. Peer Stein heads IFC’s group for Financial Infrastructure and Institution Building. As Business Line Leader for Access to Finance (A2F), he oversees and supports IFC’s technical assistance and advisory services in financial markets worldwide, including SME banking, housing finance, microfinance, leasing, and energy efficiency finance. As of June 2008, IFC had a total of 230 A2F advisory services projects in over 90 countries. Further, he leads IFC’s and the World Bank’s advisory work in financial infrastructure, which includes the development of credit bureaus, collateral registries, payment systems and remittances services to support greater access to financial services in developing and emerging markets. Other contributors to this article from IFC’s A2F business line include: Tony Lythgoe, Oscar Madeddu, Colin Raymond, Peter Douglas Sheerin, Nataliya Mylenko, Makanda Kioko, Swapnil Kant Neeraj and Shalini Sankaranarayanan.

References: 1. Barron, J. M. and Michael Staten, (2003), “The Value of Comprehensive Credit Reports: Lessons from U.S. Experience”, Credit Reporting Systems and the International Economy, M. Miller editor. MIT Press. 2. Guillamon, Bernardo, Kevin X. Murphy and Saul Abreu, “Risk Mitigation as a cost effective MF strategy: Case studyIDB-Peru Global Micro enterprise credit program”, Inter American 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: A Test with Microfinance in Guatemala.” Economic Develop- Please send any queries to Shalini Sankaranament and Cultural Change, January 2007, Vol.55, issue 2, rayanan at ssankar1@ifc.org. pages 313-34 4. Bolivian Banking Superintendence 5. World Bank Doing www.doingbusiness.org Business reports. Website:

6. IFC, CGAP and Visa. Next Generation Access to Finance. Proceedings from the Global Conference on Gaining Scale and Reducing Costs with Technology and Credit Scoring. World Bank Headquarters, Washington, D.C., September 1719, 2007. Available online at: http://www.ifc.org/ifcext/ gfm.nsf/AttachmentsByTitle/FI-CB-NextGenProceedings-

For more information on the Global Credit Bureau Program and its activities please visit the website at www.ifc.org/financialinfrastructure.


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Credit Bureau


credit information among lenders

in a constructive manner while ensuring

customer confidentiality & privacy of the customer is extremely important for the financial services industry. It is not only good for the institutions which reduce their credit costs but also for the genuine customers, as it would in the long run reduce the cost borrowing. In India there are lot of legal & regulatory hurdles. So it is important to share information in stages both informally and formally: negative areas, negative list of fraudulent customers & staff, deliberate defaulters etc. In group lending the traditional approach of credit scoring would not work but it would be effective in individual lending. One of the big dangers today is multiple lending by MFIs and over extension of credit. The credit bureau would provide the necessary information to avoid this kind of risk.”

- Mr. Samit Ghosh, Managing Director , Ujjivan Financial services Pvt. Ltd. ( A Bangalore-India Based MFI)

Micro finance has seen a multi fold increase in volumes in the recent years, thanks to a fundamentally strong business model and the entry of private equity players into this segment. This has not only attracted newer players but also enabled the existing players to scale up many times over in quick time. 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 getting over leveraged with multiple loans. An unplanned and mindless borrowing by these customers could put them at grave risk of running into default. Thus, the MFIs are likely to put at risk the very segment of people that it seeks to serve. Other similar markets such as the sub-prime in the US and the Small Ticket Personal Loans in India have witnessed the effect of mindless competition resulting in not only organizations closing down but also putting a large population of people in tremendous difficulties. It is important that the MFIs should immediately take steps to ensure lessons are learnt from the mistake of others and we create a more sustainable sector. 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 the clients and their ability to service the new loan. Parallelly it is also important that MFIs adopt a common code of conduct with regard to the overall exposure that they would permit per client. If these progressive steps are taken immediately, it is still possible that the dream story of growth of MFIs and the happiness 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 ) www.microfinancefocus.com Microfinance Focus [ January 2009 ] 29


Microfinance Credit Bureau

It’s not about the
By Anna Somos Krishnan and Enzo Cicchirillo


Planet Finance

Having a mobile phone connection, is a no brainer for most of us. In the United States when you wish to purchase a post-paid service you can get it without paying a single 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 person

who has a social security number in the US can avail a phone connection in exactly 5 minutes.
When the customer goes to any retail outlet with the intention of having a new connection, all the shop keeper needs 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 line phone number and tells the operator the client’s social security number or types the same into a PDA device or computer 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 intention) to obtain any confidential information about the client other than the eligibility for a service that costs 2000INR a month. He didn’t know at the moment of granting a new phone where the client purchased his previous phones, in which bank he had his mortgage loan, nor did he know how many children the client had. A credit bureau is the entity behind this eligibility information. The rapid assessment is based on years of extensive statistical research in client’s repayment behavior. A credit bureau is part and parcel of many developed financial systems with a multifold purpose. The most common role of such an entity is a risk assessment (whether the client is able to repay) of the financial institution or fraud protection (whether we are able to identify the client). Surprisingly, for most credit bureaus the credit scoring (a system where based on the borrowing and repayment history of clients they assign a score which indicative to the credit worthiness) is just a by-product of the extensive analytical work that to better understand consumer behavior. Companies with long term vision also use the services of a credit bureau to understand their clients and to target meeting their needs better. www.microfinancefocus.com Microfinance Focus [ January 2009 ] 30

` In India recently we hear a lot about the need of setting up a credit bureau with the participation of most MFIs. Most of us agree that not being able to identify clients, mostly because of the absence of a national identification system, in densely populated areas are risky. Furthermore, the risk of multiple lending and indebtedness could defeat the whole intention of microfinance; financial inclusion, and may have a detrimental impact on the balance sheet of the institutions. The solution to these problems partially provided by a credit bureau. There are two types of approaches to such information sharing systems. The first is called a positive credit bureau, where the entire client data is available and a scoring system rewards the creditworthy clients or it penalizes the defaulters. The other type is the negative credit bureau where you obtain only the defaulters or black-listed clients. It is important however that we all understand that an MFI credit bureau is meaningless without a voluntary MFI information exchange and future integration plans with the national level credit entity. This is exactly in line with the larger mission of development. At the end of the journey we would like to see the low-income population as an integral part of the economy and Indian society. More precisely, if we ensure that all MFI clients have their credit history stored in a central data warehouse system it is much easier later to provide the same clients - building on the above example, - with phone lines, electricity, or healthcare services. Planet Finance followed in the past various efforts of MFI credit bureau implementations across the world. We observed the credit bureau efforts in Benin, in Morocco and most recently we work on the implementation of a bureau in Egypt. There are some very important lessons learnt from these efforts. Historically, it is not the technology which has the most critical role in the success. MFIs tend the focus most on understanding the small details of the technology as opposed to the larger framework. Technology contributes however the smaller proportion to the seamless effort. The larger factor is the common MFI knowledge and partnership platform, which should be based on a clear understanding of the regulatory framework on client-data warehouses or more importantly on why sharing the right and consistent information is crucial. If MFIs do not trust an independent entity with the confidential handling of their data the whole initiative is meaningless. It is also rarely understood that a thorough needs assessment i.e. which data the MFIs would like to supply the credit bureau and which information they would like to see as part of the credit assessment, is an inevitable part of the process. This support a technology company is unable to provide. As per our experience there is always too much emphasis on the technology hosting platform as opposed to focusing on the data consistency or sounds systems around the information process flow, which is an opportunity to create a safety net around our business. Planet Finance usually plays an impartial, intermediary role between the national credit bureaus (where there is any) and the MFIs. We take on the role of presenting the regulatory study, needs analysis or designing the operative business model of the MFI credit bureau . On the technology front we always start with a gap analysis between the data that the MFIs can extract from their own software and the data we need to feed in to the credit bureau’s software. While Planet Finance developed its own credit assessment software called Easy-X-change, we never impose it on our MFI partners. It is critical that we only bring the alternatives to the MFIs but the decision on the final parameters is always theirs. We are happy to show how the system works but it is always the MFI team which takes the final call. They decides for example on which type (positive or negative) credit bureau service they would want to avail. Similarly, we do not restrict the participation of any MFI in such efforts nor we promote one or the other national level credit bureau. We provide training for all MFIs on what a credit bureau is, how to organize their data to get the most out of the information exchange. After each phase before entering the pilot project we share with the MFIs all the findings and encourage everyone to bring all the concerns to the fore. For example when it comes to deciding on which technology company will host the credit software, we present all applications and it is up to the MFI team to collectively decide on the best suitable one. This is the single most important success factor and we try to maintain our support role in this spirit. In India where the MFI sector poised to become the most developed and innovative globally, it is pivotal to set an example of partnership of a bottom up initiative. We need to focus on the key issues such as how to ensure data consistency in our MIS systems and understand our strength rather than speculating on how our competitors will misuse the data we provide. Let us remember, credit assessment 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 IT Solutions. Microfinance Focus [ January 2009 ] 31



Dr. N Jeyaseelan





n India, the micro finance has brought about a revolution in rural areas in the last decade. The clients out reach has touched a level of 54.87 millions, with MFI loan outstanding of Rs.59540 millions (as of Mar 2008) and SHG bank linkage program outstanding of Rs.123660 millions (as of Mar 2007) as per the Status of the Sector report (Nov 2008). The SHG bank linkage program has recorded an annual growth rate of 18% and the MFI program has recorded an annual growth rate of 40%. The savings mobilized by 4.2 million SHGs account for Rs.35000 millions. The SHGs linked with bank credit has gone up to 3.48 million SHGs in Mar 2008. All these massive growth has led to greater pressure at the operational levels in banks, NGOs and MFIs and resulted in multiple financing by MFIs, banks and multiple borrowing by clients, which will pose a higher risk to the financing institutions in the near future. Under this context, the Credit Bureaus assume greater significance, as they have the potential to address these is sues.

“Multiple borrowing by clients, which will pose a higher risk to the financing institutions in thewww.microfinancefocus.com near future” Microfinance Focus [ January 2009 ] 32


 A credit bureau is a system where cliNeed for Credit Bureaus:
In matured markets, the competition is more and the clients have the option to borrow from many sources and increase their credit risk to the financial institution. The sharing of credit information among the players will remove the information asymmetry and will enable the lender to take an informed credit decision. In many places, the clients have become overindebted due to multiple borrowing, which can be prevented through credit bureaus. The credit history (positive) created at the credit bureau will enable the client to access the future loan easily with little time and cost. ents’ credit information is collected from lenders and maintained. Whenever a lender or others refer a client, the information on the client is provided by the bureau for a nominal fee, which will enable them to take credit decisions.

 The first and foremost challenge is the
lack of unique identity number for clients in India. Most of the MFIs are not regulated and collection of credit information from them may be very difficult. Many MFIs still maintain the credit management program database manually, which may come in the way of reporting to credit bureaus on a real time basis.

International experiences:
A credit bureau is a system where clients’ credit information is collected from lenders and maintained. Whenever a lender or others refer a client, the information on the client is provided by the bureau for a nominal fee, which will enable them to take credit decisions. International Finance Corporation (IFC), a World bank group promotes setting up of Credit Bureau by partnering with financial institutions through its global program on credit bureaus. The credit bureaus have high predictive power when both positive & negative information is collected involving a range of players banks, MFIs, insurers, retailers, card issuers & mobile operators as practiced in US, UK. They have low predictive power when they collect only negative information and from only one institution as practiced in Korea. Credit bureaus are successful in Dominican Republic, South Africa, Brazil and Ecuador. In Ecuador, after the introduction of credit bureaus in 2004, the default rate has come down from 10% to 4% and time & cost to process new loans have been reduced by more than 50%. Pakistan Micro finance network has started its credit bureau for Micro finance in Lahore and Cambodia is also trying to set up the credit bureau with the support of IFC.

infrastructure and CIBIL in place, integrating micro finance loans with the system will be easier. This will help the banks and MFIs to share the micro credit information among them and will prevent multiple financing and reduce the credit risk. As the banks have to comply with Basel norms, which require them to assign more capital for higher risks, credit bureaus will enable the banks to minimize the risk capital.

The first and foremost challenge is the lack of unique identity number for clients in India. Most of the MFIs are not regulated and collection of credit information from them may be very difficult. Many MFIs still maintain the credit management program database manually, which may come in the way of reporting to credit bureaus on a real time basis. In India, the banks have overcome the bank secrecy laws of not disclosing the client information to others 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 be a barrier in information flow from the branches.

Opportunities in India: The way forward:
In India, the CIBIL (Credit Bureau Information of India Limited) is already in operation serving the commercial loans. As India has a huge IT In India, it appears that Sa-Dhan has taken some initiatives to bring in the concept of credit


Microfinance Focus [ January 2009 ] 33

` bureaus for MFIs. But, it will be better if the micro finance credit bureau is integrated with the existing structure (CIBIL) and all players viz insurers, retailers, utility payment receivers, mobile operators, card issurers and MFIs share full information (positive and negative information), it will be useful to all the stakeholders. The central bank i.e. RBI should support the initiative of MF credit bureaus as a pilot in some mature markets like Tamilnadu or Andhra Pradesh and then after learning lessons out of it, the initiatives can be scaled up. MFIs need to be supported for computerizing their credit management system, so that their credit operations are transferred to the CIBIL on a real time basis as being practiced in South Africa. Govt. Of India is actively promoting the E-governance projects, wherein the issue of National Identity card to all citizens of India is a priority. Such initiatives should be speeded up in areas where the Credit Bureau pilots are to be grounded. As IFC has drawn up a massive micro finance program for Asia, its technical assistance support may be sought for setting up micro finance credit bureau pilots in India. In the long run, the clients will enjoy hassle free banking because of good credit histories built through these credit bureaus.

***************** Dr.N.Jeyaseelan- Program Director of Helping Hand Micro Finance and Services (A Unit of Hand in Hand Tamilnadu) holds a Bachelor degree in Agriculture, MBA in Banking & Finance and Ph.D in Micro finance. Earlier he has served as Senior Manager in Indian Bank. He has two decades of rural banking experience and piloted several micro finance initiatives in the bank. He has been a consultant to UNDP, UNOPS, GTZ, IFAD, AFC & Water Partner International (USA) in India and abroad (Myanmar, Bangladesh & South Africa) on Micro credit and Micro insurance. He has headed the National level study on Joint Liability Groups (May 2008) commissioned by GTZ-NABARD. He has several publications to his credit.

Download A Special Issue on Micro Insurance


Microfinance Focus [ January 2009 ] 34


Best Practices

Designing Staff Incentive System
By Martin Holtmann
There is little dispute among microfinance practitioners that well-designed staff incentive schemes can have positive and powerful effects on the productivity and efficiency of MFI operations. Conversely poorly developed schemes can have serious detrimental effects. This note lays out the principles and steps for designing effective staff incentive schemes.

Essentials to Any and All Incentive 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 easily be able to understand the mechanics of the calculation, i.e. the system should not be overly complex; ◊ The scheme should contain as many objective factors and as few subjective variables as possible; ◊ The “rules of the game” should be made known to everyone 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 with higher salaries; Everyone must be able to achieve a higher compensation by working better and harder.

To Know More about “MicroSave” and download Focus Notes , Visit the website . www.microsave.net


Microfinance Focus [ January 2009 ] 35

` Critical Design Issues for Staff Incentive Schemes If the board and management of an MFI are prepared to implement a performance-based incentive scheme, the following issues among others, will need to be addressed. Timing In general, it is useful to introduce a financial incentive scheme only once staff have received sufficient training. Practical experience suggests that staff should become eligible for participation in bonus schemes approximately six months after joining the organisation. Before that, they should just receive a fixed (trainee) salary. Frequency of Incentive Payout The incentive payout (for instance a bonus), should not be construed by the staff members as an entitlement, and there must be a clear understanding that the payout is entirely dependent on the performance of the individual (or group) during the reference period for which the bonus is awarded. If the bonus formula is elastic (i.e. if it reacts strongly to changes in output), staff members will receive different bonuses from month to month, so that the risk of an “entitlement mentality” should be controllable. Annual or semi-annual bonus payments do not make much sense: it is more difficult for staff members to relate their reward to any particular efforts. Weight of Bonus in Total Remuneration It is important to avoid the extremes: if the variable portion of the monthly or quarterly salary is too high most “normal” people would not want to work under such a system. As a consequence, extreme risk seekers would be attracted to the job – such phenomena are obviously not desirable for MFIs. On the other hand, if the variable part of the salary is too insignificant, the bonus system as such will simply not have any influence on the behaviour of the staff members – which would also not be a desirable result of the incentive scheme. In practice, we find that for effective incentive

“It was extremely important for us to be able to calculate the bonus ourselves. Some of us had become suspicious of the finance and MIS people. We feared they would make maliciously complicated computations designed to deny us the bonus”.

“Many of us operate as if there is no incentive scheme. We were sent to this difficult area to solve repayment and drop-out problems. Apart from suffering because we have been transferred to this remote place, we have lost the bonuses we used to make in our previous areas. So any thought of ever getting an incentive is nothing but day dreaming – we’ve given up!”

“The staff incentive scheme design should be participatory. The people at headquarters are out of touch with the field realities and therefore cannot design a successful scheme. Although the consultation could have involved a few more people and was a little long, we applaud them for adopting a more inclusive approach. Then we share in its success and the responsibility if it fails.”
schemes the weight of the bonuses for credit officers range anywhere from 20% up to 50% of total compensation. There are essentially five main types of incentive schemes: 1. Individual Incentive Schemes Under an individual incentive mechanism, there is a direct link between individual performance and remuneration. However, they can lead to a rather narrow focus, may reduce staff members’ intrinsic motivation and in addition, it is often difficult to distinguish properly between individual and group performance. Individual incentive schemes are often used for credit officers.


Microfinance Focus [ January 2009 ] 36

` 2. Team-Based Incentives (Group Incentive Schemes) The goal of group-based incentive schemes is to increase the social cohesiveness of the staff and to foster good cooperation and team effort. Among the most important drawbacks of such schemes is the free-riding effect: If the payout of the individual depends on the performance of the whole group, there is a huge temptation to reduce the individual contribution. Group incentive schemes are often used for branchbased activities – in particular savings mobilisation. 3. Employee (ESOPs) Stock Ownership Plans
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 requires the participation of management (and often also of the board of directors). Step 2: Analysis of culture, clientele, products, and processes. We need to know the operations of the MFI as well as the mentality and concerns of the staff. At this point it may also be helpful to conduct statistical analyses and costing exercises (see for example MicroSave’s Toolkit for costing and pricing of Financial Services). Step 3: Definition of the objectives of the incentive scheme – what are 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 the point where we need to conduct a proper Cost-benefit analysis. Step 5: Decision as to the staff members and occupational levels to be affected by the scheme. Hint: Often, the introduction of a scheme at one organizational level or function may create a need to implement schemes at other levels as well. Try to think comprehensively! Step 6: Choice of incentive mechanism(s): merit pay, incentive pay, perquisites, benefits, profit sharing, gain-sharing, ownership, or a combination of these mechanisms. Step 7: Technical design work. This includes formula development and calibration, as well as spreadsheet testing. It is useful (and should 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 members participated in the design, this task will be made easier. Step 10: Monitor the performance of the scheme. Make adjustments based on regular reviews (for example, semi-annually).

ESOPs may be attractive tools for motivating staff members because of their positive symbolic and motivational effect. Through an ESOP, employees become owners, so that it should be easier for the staff members to internalise the interests of the firm. ESOPs are, however, typically one-time incentive mechanisms that are probably not very well suited to boost operational performance over the longer term. 4. Profit Schemes Sharing and Gain-sharing

Positive effects of profit sharing schemes can be an increase in the sense of identification with the organisation, and a reduction of the barriers between employees (“us”) and owners (“them”). But profit sharing schemes also have a number of potential problems. They provide a very weak connection between the performance of the individual and his/her reward. Individuals are not able to exercise any control over the generation of the annual profit, and free rider problems will invariably arise. Gain-sharing schemes are often used to share the benefits of productivity gains with middle and senior management. 5. Delayed Benefits These include pension and other social security contributions that a firm makes on behalf of its employees. Since pension benefits and contributions typically rise with tenure, they can help to reduce turnover and to attract a more stable workforce. Intelligent benefits plans can also help to increase motivation and reduce turn-

over at the middle management level – typically a scarce resource in microfinance. Conclusion Staff incentive schemes must be tailor-made, since there is no “one size fits all”. It is important to remember that an incentive system is only one part of the organisational “architecture”, and that even the best incentive scheme cannot compensate for flawed products or procedures. Good incentive schemes are fair and transparent, and all incentive mechanisms should be reviewed regularly by management **********************


Microfinance Focus [ January 2009 ] 37


Institution Spotlight

It's efficiency,


Bangalore(INDIA) -based Microfinance Institution Ujjivan did big expansions and has further plans to cover the urban poor all across India. Microfinance Focus had a look behind Ujjivan's success: Its strategy, human resource principals and of course its secret of success.


hen Samit Ghosh enters his office, it seems not like he is a successful banker: He operates from a small room, nothing special representative stuff, which comes along normally with a successful bank's management director. But Samit Ghosh had all those things: a successful banking career, fulfilling his material desires. After 30 years in the commercial banking business he decided to do something, „which matters“ as Mr. Ghosh says. He founded one of the recent most successful Microfinance Institutions. Ujjivan seems to be an institution with strong principals and a strong organisational culture. So when he identifies the first big milestone of founding Ujjivan seems to be no surprise: It was the licence to get in business. Ujjivan was not supposed to work with an existing licence – everything should start with a clearly clean record. And it started with a record, having the licence within only two month.

one branch after the other. But after running the successful pilot in Bangalore, Ujjivan's management team was sure about how to successful run the Grameen model with the urban poor as its clients. While it took 980 days for the first 100.000 customers, the second 100.000 were there after only 300 days. Today Ujjivan is running about 102 branches, providing financial services to urban and semiurban poor in 9 states. Next year it plans to offer its services in already 15 states. Becoming a national organisation in scale had its price: The Break Even initially planned within 3 years will be delayed, which doesn't worry Mr. Ghosh. He is confident about achieving it this year, still within the 4th year of operation. Ujjivan was founded by people involved in commercial banking. And commercial success is important at Ujjivan as well. Apart from this efficiency is one of the main priorities. Samit Ghosh is convinced, most MF institutions are terribly inefficient. So what he did was applying technology and processes of modern retail banking. With the upcoming economic crisis he is sure many MFIs won't survive or will be overtaken by others.

Expansion with clear knowledge
In the first 18 month of operation Ujjivan decided to run a pilot in Bangalore. Based on the gained experience and extensive research it was the MFIs clear strategy, to expand quick. Most of the MFIs are growing slowly by opening


Microfinance Focus [ January 2009 ] 38

But Ujjivan trys to be one of the big ones even


An Interview with Mr. Samit Ghosh, Managing Director , Ujjivan Financial Service Pvt. Ltd . What is Ujjivan`s social mission? what challenges do you face in balancing the 'double bottom line'. What are the key issues they face in urban microfinance?
Our mission is to provide financial services to the poor and thereby help alleviate poverty. As I was telling you that we have various types of investors, social investors and private equity investors etc., and private equity investors are driven by the financial indicators, we have to make sure that our mission does not get diluted.

What are your plans for tracking your social mission? What we have done is, putting in place an impact evaluation plan, and sees what the impact Ujjivan is having in our customer. Accordingly we Mr. Samit Ghosh , MD would adjust or change our programme. Ujjivan Financial Services Pvt. Ltd 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 work with bigger groups. Secondly, they don’t have too much time, urban people are very busy. We have to make sure that we should run operation very efficiently. We have to adapt to what our customers can afford in terms of time or Place etc. Other thing is, half of our customers are employed, they borrow not only for business, and because they are already employed thus they are borrowing for children`s education, healthcare, housing things like that. We have to 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.

for other reasons: Small MF institutions are not able to offer attractive career opportunities for professionals. But to keep good people working an institution has to offer more than only one project, one assignment or one internship. At Ujjivan's employees is offered a longtime career with decent compensation. Without being economically attractive Samit Ghosh sees no perspective for professionals. But this is only one reason why Ujjivan is a clearly profit making institution. Apart from efficiency and HR issues it is about attracting investors. Ujjivan has a balance between social investors and pure market equity investors. And investor relationships are crucial for Ujjivan: To enhance communication flows there's a monthly report about new developments. The strategy seems to work out: Ujjivan's investors are putting in more money! According to Mr. Ghosh it is

clear: the capital market knows about the ongoing growth of Microfinance and is willing to invest. Unlike other MFIs Ujjivan applied modern marketing methodology into the whole business. „We first do a complete market research of any city where we go. So little is known about them. What we do is to focus on their needs“, explains Mr Ghosh. Due to the research results the products are designed. For instance Ujjivan found out, 50 % of urban poor are already working in garment factories ore domestical work. Those who are employed, working 12 hours a day don't have time to start a business. Housing is first, second education and third it's health care, people are in need for money. So Ujjivan designed loans for those purposes.


Microfinance Focus [ January 2009 ] 39

` Facts and Figures  Top 8 activities for Ujjivan Customers in Banalore Flower Vendors, Tailors, Housemaids, Saree Sellers, Agarbatti workers, Beedi Workers, Chamki (Embroidery) Workers, Garment Factory Workers  Training Health Educators: Parinaam has conducted 2.144 sessions at which terhe have been 40.108 attendances

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

Microfinance not enough
Customer Name: Aditi Adhikari City: Kolkata Purposes of Loan taken : Family Loan Even by taking all this actions, being efficient and competitive and providing all these services, Samit Ghosh is convinced MF is not enough to alleviate poverty. Many other needs like health care, life insureance, education, trainings and community development have to be done. Ujjivan did not integrate these MFplus activities in its profit institution. But it set up the Parinaam Foundation, to cover critical areas of initiatives outside the scope of Microfinance. Parinaam's plans for the next years fit Ujjivan's ambitious goals. It hopes to impact eight million lives of the poor within the next six years. Management Director Samit Ghosh seems highly pleased with his efforts, even when he is convinced there are lot of targets to reach and things to gain. He is proud of having built something valuable, with meaning in life: „ I was a banker for 30 years and reached a lot concerning commercial and material life. But than I had a dialogue with my dead father, who passed away when I was 10. I asked my father if he was proud, and he said „So what“. This made me think, I should do something with more meaning in life“. And Samit Ghosh did. ***********************

Aditi makes paper packets for a living and is the main earner in her family of five, Her husband is currently unemployed and she has three children. she joined Ujjivan one year ago when she began having difficulty paying for her children's educational expenses. she also wanted to improve her home. The cost of the educational expenses and house repair demanded a one-time lump sum amount, which she could not afford on her meager monthly salary. Aditi took a Family Loan and later a Top-Up Loan from Ujjivan to fund her family’s pressing financial needs. with her children back in school and a newly repaired roof, she has renewed confidence that her family life is improving. “My children have again started going to school and the rainy season is no more a problem for us thanks to Uiiivan," chuckles Aditi as she goes back to packet making.

To know more about Ujjivan, Visit the website www.ujjivan.com
www.microfinancefocus.com Microfinance Focus [ January 2009 ] 40



Microfinance Focus presents I-Focus For the Promotion of New Ideas, innovation and initiative


Capital Connect
Background In the development sector worldwide, the flow of information between providers and seekers of capital is imperfect and asymmetric. This inadequacy is the root cause of three related problems, all of which reduce the flow of capital into social enterprises. Many social enterprises are unable to engage institutional lenders and investors in the development sector because they are small, physically isolated, or unfamiliar with global financial markets. Similarly, many socially-driven institutional funders want to lend to or invest in these smaller, less-established organisations, but are unable to easily connect with the ones that meet their funding objectives. This lack of information flow prevents many deserving organisations from obtaining the capital that they need. Second, lenders and investors find it challenging to offload their debt or equity, because they are unable to efficiently identify and communicate with a majority of the financial institutions who might be interested in purchasing their holdings. This restricted flow of information impedes funders’ ability to liquidate their assets or diversify their portfolios, which curbs their incentives to lend or invest in social enterprises. These disincentives, in turn, reduce both the volume of capital flow and the efficiency of capital allocation in the development sector. Third, industry players cannot track the price and volume trends of financial transactions in the social sector, because no organisation or entity collects this information. A lack of industry-wide benchmarks prevents industry players from knowing whether they will receive a competitive price for the capital they seek to raise, lend, or invest. This market inefficiency reduces the long-term viability of capital flow into the development sector. About CapitalConnect Promoted by EDA Rural Systems, CapitalConnect is an online marketplace that allows social enterprises, institutional lenders, and investors worldwide to communicate with one another, initiate financial transactions, and analyze market trends.


Microfinance Focus [ January 2009 ] 41

` Participants register by submitting their organisation's financial performance information, which is reviewed to verify its adequacy and accuracy. Once they have undergone this initial due diligence process, participants create their own profiles, control which organizations can interact with them, search for participants with similar interests, initiate conversations that could lead to strategic partnerships, or send offers to these organizations to buy or sell capital. Participants will have access to aggregated information on the financial transactions that occur between CapitalConnect's members, allowing them to analyze market trends. Impact of the ICT led innovation Benefits to the community: By increasing the efficiency and volume of capital flow into social enterprises, CapitalConnect hopes to increase the scope and overall impact of these organisations. CapitalConnect will also help to make the distribution of capital more equitable, because its online service is particularly useful for small, isolated, or inexperienced social enterprises – organisations who have historically received a disproportionately small amount of funding relative to their wellestablished counterparts. Together, we believe

How CapitalConnect Works
Registration Process ◊ Submit your organization’s financial information, business plan, and institutional objectives. ◊ CapitalConnect will review all documents to ensure adequacy and accuracy of the information provided. ◊ Sign their service agreement, and begin interacting on portal. Setting up your Profile ◊ Select which members can view your detailed profile, or send you messages and offers. Connecting with Members ◊ Request other members to let you see their detailed profiles, or ask them to view your detailed profile. ◊ Initiate conversations to explore potential business partnerships, or send detailed offers to meet a wide variety of financial needs:

How Participants Benefit
Join a Secure Network ◊ detailed registration process creates a secure marketplace that promotes transparency and integrity. Meet Your Strategic and Privacy Needs ◊ You have complete flexibility and control over your profile. Want to get noticed? Allow all members to view your profile and send you offers. Prefer to have privacy? Specifically select which members you want to view your profile or communicate with you. Identify New Opportunities ◊ Use our advanced search tool to efficiently identify which organizations you want to communicate with, and then easily send them messages and offers. ◊ Interact with a host of providers and seekers of capital who work outside of your region and sector. Expand your network, and broaden your organization's scope. Leverage an Efficient Marketplace ◊ Receiving interest from a wide set of social enterprises and institutional investors gives you more choices, and increases the efficiency of capital pricing. ◊ More options also improves your ability to liquidate your assets, and diversify your portfolio. Make Better-Informed Decisions

 Raising fresh debt and equity  Offloading existing debt and equity  Investing in fresh or secondary debt and equity
Probing options for structured obligations Closing your Deals Once you have exchanged messages, offers, and counteroffers, you finalize your partnership or financial transaction offline.

Track Market Trends ◊ Quantitatively [ January 2009 ] and www.microfinancefocus.com Microfinance Focus gauge your market,42 make better◊ Have access to aggregate market data and analysis of informed financial and strategic decisions – decisions all transactions that occur among members of Capitalwhich are more crucial than ever considering the curConnect. rent financial climate.


Participants currently registered on CapitalConnect
Appleaday.in Ashajyothi Mahilabyudaya Society ASSCOD BSS Microfinance Pvt. Ltd. Caspian Advisors Private Limited CfBT Education Services EDA Rural Systems Private Limited ESAF Swasraya Producers Company Limited Hope Integrated Rural Development Society IFMR Trust Guarantee Company Institute of Integrated Resource Management Institute of Rural Credit & Entrepreneurship Development Kotalipara Development Society Manidham Grameen Savings cum Credit Services MicroVenture Support MITR Navachetana Foundation Pariraksha Partner Microcredit Foundation Prayas (Organisation For Sustainable Development) Rashtriya Gramin Vikas NIdhi Rural and Urban Innovative Social Entrepreneurship Samrudhi Micro Fin Society Sonata Finance Private Limited The Lok Capital Group We The People

that these two benefits of our service will facilitate a more efficient, effective, and equitable flow of capital into social enterprises, leading to improvements in education, community health, and overall quality of life throughout the world. Benefits to the company / equity participating: Online marketplace allows investors, lenders, and social enterprises to communicate with one another, initiate financial transactions, and analyse market trends. These industry players will have the opportunity to interact with organizations outside of their region or specific area of interest, which will help them to expand their networks and more easily meet their financial needs. Participants will also have access to aggregated information on the financial transactions that occur between CapitalConnect's members, helping them to make betterinformed financial and strategic decisions. Benefits to employees of the Company / NGO: Employees of social enterprises and institutional investors who work in the areas of marketing, outreach, or public relations will find that CapitalConnect makes their work much easier and effective. Insofar as the flow of capital benefits social enterprises, employees will be less constrained by their organisations’ unmet funding needs, providing both individuals and organisations with greater opportunities to reach their social objectives.

Benefits to the Environment: CapitalConnect seeks to provide capital to social enterprises, including those working in the field of renewable energy, energy and environmental design, waste treatment and management, and environmental consulting / impact assessment. By helping these organisations to expand their scope and efficacy, CapitalConnect will benefit the environment on a local, regional, and global scale. Benefits to Regulators (central, state, local): / Government

Any governmental entity that wishes to provide or obtain capital – ranging from municipal bodies to federal agencies – may register on CapitalConnect. Governmental entities can make offers to raise capital for their projects and initiatives, and can also invest, lend, or partner with social enterprises who could aid them in reaching their mandated social objectives. Beyond these direct benefits to government bodies, we believe that channelling capital into the social enterprise sector will significantly contribute to the welfare objectives of the state.


For more information contact Daniel Brett (danielbrett@edacapitalconnect.com)


Microfinance Focus [ January 2009 ] 43




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“Affinity to Prosperity : Development of SHGs”
An Exclusive Interview with Padamshree Aloysius P. Fernandez
Mr. Aloysius P. Fernandez is Executive Director of rural development NGO MYRADA and Chairman of the Board of the microfinance institution SANGHAMITRA Rural Financial Services. In 2002 he was conferred with the prestigious Padmashree award. Christina Weichselbaumer and Vikash Kumar talked to him at his office in Bangalore. Here are the excerpts :-

MF Focus: What is the distinctive feature of Sanghamitra as a Microfinance Insititution?
Mr. Fernandez: goes in where the bank refuses to give money. With Myrada we have an organisation which initiated and strongly pushes the SHGs bank linkage programm. 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 joint liability group, like Grameen Bank. And one is to the group, 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- Myrada started when a cooperative break down and people asked me what to do. They wanted to return the money but not to the cooperative because they have been cheated. So we finally said, why don't you return the money 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, mutual support, which is today called as social capital. This happened in 1984/85. And then we had about 300 groups like this, all based on affinity. Then we went to NABARD (National Bank for Agriculture and Rural Development) in 1986 and said we have an alternate system here. I was convinced if you want to get the poor into credit you need an alternate system. So why not give us some money.

Myrada is an NGO engaged in the SAG ( Self Affinity groups )movement and also promote the SHG-Bank linkage programme. Sanghamitra is a MFI promoted by Myrada, providing credit to Myrada's Self Affinity Groups first and later to groups promoted by other institutions, as far as they met Sanghamitra's set of criteria.
www.microfinancefocus.com Microfinance Focus [ January 2009 ] 45


MF Focus: was it only about the money?
Mr. Fernandez: No. It was about policy change. Lots of studies were made and we came to the conclusion that policy changes need to be made. We focussed on three aspects: One is that you should allow banks to lend money to unregistered groups. Second is, to lend and not ask for the purpose and third, to lend without physical collateral, if there was adequate social capital.

Don't get the SHGs to do your job, to distribute food or work. SHGs are independent institutions with its own vision, its own work and its own activities. Second: Every SHGs decides on its own livelihood strategy. If you study what sorts of loans people have taken over a period of 8 years you will see: They have taken loans starting with food, than going to clothes, going to health continuing with education, going to agriculture, buying land, starting business. So it's a livelihood strategy. It didn't start with goats first. It started with what they need.

We found out that the dynamics of this discussion We think a viable lifelihood consists of two cows or was an empowering shift, it created empowerment: twenty sheep. But if you give them 2 cows, Who to give and how much to give. they can't manage two cows. You need Therefore 1992 as a result of this NABARD started the SHGs Bank Linkage “Don't get the SHGs water, food – they don't have that. Before Programm. But by 1996 we found out to do your job, to taking a cow they need to do something else. They maybe get into trade, they may the banks are not lending enough, so we distribute food or want return high cost loans first. They started Sanghamitra. work. SHGs are have livelihood strategies, but don't take MF Focus: You always talk about i n d e p e n d e n t up one or two livelihoods which are viable self AFFINITY groups, not SHGs. Why institutions with its units. They take lot of lot of smaller things which are managable for them.

do you make this clear distinction?

Mr. Fernandez: There are two issues. One is, the groups were founded on the basis of affinity. The people selected themselves. We identified the poor people 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 and promoted SAGs. When the government made this official, we changed the name from self help group to self affinity groups. It is always about affinity, but this must be internal. It is not enough affinity that you have no house and a similar amount of money... We have a lot of poor people who don't work together. But we invested in training the group, it was an educational process and the groups were based on affinity then.

own vision, its own work and its own activities“.

When you look at this woman, Shanthamma, over a period of 8 years she took 20 loans for different things: household, cow, education, agriculture, for a job in railways, for telephone booth, for an SHG uniform... It is not one big viable unit, it is a couple of things. It's a strategy. Not everybody wants a cow or doing trade...

MF Focus: What about the SHG's potential to spread around the globe?
Mr. Fernandez: It was said, it won't work in Myanmar, Myrada went to Myanmar, where we have 1000 groups, the same for Indonesia, now we have 5000 groups in Indonesia. There are 500 groups in Timor East and I don't know how many in Bangla Desh. We have quite a large number of groups in Sri Lanka and we also have 300 groups in Iran now.

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 SHGS is not part of a delivery service chain. In other words: www.microfinancefocus.com

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

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

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

can compete with them – fine! I have been to a village in the 80s and people told me they trust the moneylender most. More than banks. The moneylender is trusted, the bank is not.

MF Focus: Which synergetic or antagonistic effects do you identify between the SHG-model and Grameen-model?
Mr. Fernandez: Microfinance is not synonymous with poverty. This is a mistake that they must go together. A painter, who needs paint – he is not poor. The vegetable vendor – she's not poor... They need 5000 or 20000 Rs but they are not poor people. But where do they get their credit from? They have to go for Microfinance. And there is a whole set of Microfinance Institutions to cater different requirements. MF can be used and must be used for the poor, that's where it started but the demand for MF is much much bigger by the non poor. Because when it comes to the poor it is not only money they need, it's empowerment 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: Was there any special reason you decided to work in the development field?
Mr. Fernandez: Before 1971 I didn't care about developement. During the Bangladesh War I was running a refugee program and discovered the poverty and the suffering there. What I have seen there changed my life. I went abroad than and when I came back my mission was to raise 1 million people above 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 an afternoon cup of tea. It is not easy, it is tough. If you are not having crisis, you are not gaining anything. If you want to change something you will have problems. Development is a power game and about changing power relations. And change of power relations produces conflict. If you are not doing that it is not about development. Then you are delivering services.

MF Focus: What are the biggest challenges you are facing now with MF work?
Mr. Fernandez: The biggest problem we are facing is the lack of understanding for the need of Microfinance, that is not only for the poor. It is a large group of people in India, who need money. That's why the moneylender is thriving, the moneylender lends to both people, he is not an idiot. He lends to people who are capable of handing money. But he is lending at very exorbitant rates of interest. So, if you www.microfinancefocus.com

MF Focus : What do you think about Microfinance Developement Bill –India ?
Mr. Fernandez: Did you read the bill? Than you shouldn'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

Microfinance Focus [ January 2009 ] 47


Learning curve

Product and Methodologies
A Microfinance institutions May offer several products and Have a number of ways to delivering them. A Product is sometime called Service is “what a MFI delivered to its customer. The Delivery methodology “Credit Technology” is how the product or service is delivered. How the product or service is delivered is sometime called product technology. Characteristics of Product There are 5 key elements consisting to develop a Product 1. 2. 3. 4. 5. Size of the Loan: Microfinance institutions Interest Rate Repayment Interval Term: Purpose of Loan: example, working capital, consumption loan, asset loan etc. Three key elements are


1. Target market: 2. Loan to individual or Groups: 3. Loan Process: One import reason for using a particular methodology is the target market. A successful operation understands what motivates potential customers and decides whether that market can be reached in a way that will lead to customer satisfaction and financial sustainability. Many micro-credits operations determine the methodology based on their development objectives rather than an analysis of market preference or cost consideration. The Most Successful institutions develop methodologies that combine elements of each. Institutional objectives are important in determining the methodology whether the methodology it is exclusive or inclusive. **************** (continue in the next issue )

Similar to product, methodologies are also characterized by certain elements

Development Objectives + Market Preferences + Cost Considerations ------------------------------------= Successful MFl
* Adapted from MFTOT 4 course

Exclusive: particular business sector such as market vendor or small manufacturing. Inclusive: have more expansive eligibility requirements and make their service widely available.
Microfinance Focus [ January 2009 ] 48




Grameen Foundation 2008 Awards Celebrate Lead- IDB Announces US$20Mln Package for MFIs Exing Global Poverty Fighters posed to Global Credit Crisis Washington, D.C., With the shockwaves of the financial crisis reverberating across the globe, there is growing concern about its impact on the world’s poor. Grameen Foundation is hosting a discussion of this issue among microfinance and international development leaders at its annual Knowledge Sharing Roundtable on November 12 in Washington, D.C. The roundtable precedes the foundation’s annual Microfinance Awards event where it will honor a microfinance pioneer and two microfinance institutions that play pivotal roles in helping poor women access financial services to support their self-help efforts. At the awards luncheon, Nurjahan Begum, one of Dr. Muhammad Yunus’ earliest associates and a founding staff member of Grameen Bank, will receive the Susan M. Davis Lifetime Achievement Award for her efforts to organize women in Bangladesh’s poorest villages and for leading the fight for the rights of disadvantaged women for more than 30 years. Named for Grameen Foundation’s third chair of its board of directors, this award was inaugurated in 2007. Mitra Bisnis Keluarga (MBK) Ventura of Indonesia will receive the Excellence in Microfinance Award for its leadership in ensuring that Indonesia’s poorest citizens receive financial services. Based on the island of Java, it is the only large institution focusing on the poorest 25 percent of Indonesians and serves almost 90,000 female clients. Al Tadamun of Egypt will receive the Grameen Foundation and Grameen-Jameel Pan-Arab Pioneer in Microfinance Award in recognition of its innovative and aggressive program to provide financial services to Cairo’s poorest women. Its creative, client-focused solutions have given more than 41,000 women and their families greater financial opportunity and security. This year’s Pioneer Award is being given jointly with Grameen-Jameel Pan-Arab Microfinance, Ltd., which directs Grameen Foundation’s work in the Middle East and North Africa. The Multilateral Investment Fund (MIF) of Inter-American Development Bank (IDB) will provide up to US$20 million in financing to the Emergency Liquidity Facility (ELF). This financing aims to help Latin American and Caribbean MFIs weather economic crises and natural disasters. The MIF has approved a US$16 million line of credit and a US$4 million subordinated loan for ELF. ELF’s short-term financing allows otherwise solvent microlenders to meet sudden spikes in credit demand or bridge temporary arrears in repayments during crises. To qualify for assistance, MFIs must comply with strict criteria concerning solvency ratios, management, governance and transparency. The facility also provides its clients technical assistance to strengthen their administration, risk management and contingency planning capabilities, preparing them to resume operations quickly after emergencies. So far ELF has pre-qualified 51 microlenders in 13 countries with an aggregate loan portfolio of US$4.3 billion. In its first four years of operations the facility has disbursed a total US$10 million through 12 operations triggered by political unrest, hurricanes, floods, an earthquake and a volcanic eruption. Read More : http://www.iadb.org/news/detail.cfm? language=English&id=5087

South Koreans Turn to Loan Sharks amid Global Credit Crisis

Low-income South Korean households with poor credit ratings are facing increasing difficulty in borrowing money from banks and other financial service companies in the wake of the global credit crunch. Many are turning to loan sharks who charge significantly higher interest rates. In recent months, the government has introduced a range of steps designed to encourage domestic lenders to extend credit to small businesses and not households. This has made it even more diffiRead More cult for low wage earners and the self-employed to secure http://www.grameenfoundation.org/resource_center/ cash amid rising debt and slow income growth. newsroom/2008_awards_press_kit Read More : http://www.koreatimes.co.kr/www/news/ nation/2008/12/123_36859.html


Microfinance Focus [ January 2009 ] 49



MIX Releases 2008 Global Rankings for MFIs

The Microfinance Information eXchange (MIX) has released the 2008 Global 100 Composite ranking for MFIs. It analyzed and ranked MFI performance based on data from calendar year 2007. MBK Ventura of Indonesia was ranked as the top performing MFI for the year.

CGAP Hosts Pioneer Perspectives on Mobile Banking

Using data from MFIs throughout the developing world, the report illustrates successes and challenges experienced by MFIs in providing financial services to the unbanked. MIX has also created an Excel version of the Composite Rankings, which allows MFIs to see how improvements in performance Download or Read more : http://technology.cgap.org/ will 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

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

New Credit Guarantee Facility for Pakistani MFIs Launched
The State Bank of Pakistan (SBP) has launched a credit guarantee facility to arrange easy flow of liquidity to microfinance banks. The Microfinance Credit Guarantee Facility (MCGF) will ensure that 40% of funds provided by banks to liquiditystarved MFIs are repaid in case of any default. The Department of International Development (DFID) has extended a GBP10 million (US$15 million) grant which will be kept in a pool of reserve and used for issuing guarantees to microfinance 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 Inclusion program and an endowment fund worth US$20 million under Asian Development Bank's (ADB) Improving Access to Financial Services program. As an incentive, funds given to microfinance banks will be deducted from demand and time liabilities of banks for the purpose of statutory liquidity requirement (SLR) and cash reserve ratio (CRR) calculation. Read More : http://www.thenews.com.pk/daily_detail.asp?id=152734

Grameen Campaign Uses Pixels to Fight Poverty
Grameen Foundation has launched StopPovertyNow.org, a new campaign that enables people to join the fight against poverty and celebrate loved ones with as little as US$10. With each donation, users will bring to life the greyed-out image of a microfinance client – underscoring the impact of these tiny business loans. The photograph is built on 10,000 image squares which users can dedicate to loved ones or memorable moments by posting personal photos and messages. As visitors scroll over each image square, they can see messages and photos posted by other supporters. Users can also select multiple squares, making it a good group project for teaching children about the value of giving and helping people around the world. "StopPovertyNow.org is a simple, inexpensive and very personal way to support poor entrepreneurs in their journey to financial independence," said Alex Counts, president of Grameen Foundation. "With this new campaign, we are hoping to expand our growing team of 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

you can to sent News , Events organized or participated by your institutions at this email id : info@microfinancefocus.com


Microfinance Focus [ January 2009 ] 50


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