Comments on: The struggle to be responsible – what leads good providers down the road to bad practices? http://microfinance.cgap.org/2009/11/11/the-struggle-to-be-responsible-%e2%80%93-what-leads-good-providers-down-the-road-to-bad-practices/ Advancing financial access for the world's poor. Tue, 07 Sep 2010 09:10:39 +0000 http://wordpress.org/?v=2.7.1 hourly 1 By: V.Rengarajan http://microfinance.cgap.org/2009/11/11/the-struggle-to-be-responsible-%e2%80%93-what-leads-good-providers-down-the-road-to-bad-practices/comment-page-1/#comment-345 V.Rengarajan Sat, 14 Nov 2009 05:35:14 +0000 http://microfinance.cgap.org/?p=697#comment-345 I quite agree with Masudul Quader and thank for highlighting the valid point on drop out which I have been reiterating in many occasions in my posting in this blog. The scenario with glittering 90 to 100% in recovery for MFI and about 30-40% drop out in poor client side is highly unethical and irresponsible in MF arena. . In India also the MF sector report 2008 reveals incidence of members’ drop out in 43% of the SHGs and dropout rate is 8.2%.Eventually,this recurring syndrome paves the way for the exclusion of the most deserving poor who were once included for financial access and for foraying the non poor also into MF gamut. Besides there is a cost also. The above report indicates that it costs for NGO Rs. 8700 (US$180) for formation and nurturing.Why this dangerous symptom ,(dropout, defunct, inactive and mortality ) in the group system has not received due attention of the policy makers including world bank, researcher, the experts and the called leaders of MFI in India ? In the given level of vulnerability and capability in poverty sector, this kind of phenomenon viz.,., graduating some to above poverty (incidentally or accidentally ) receiving global publicity and degraduation further down to poverty ( intentionally ) invisibly, will it not lead to widen intra poor inequity level at household level within poverty sector level. ? Kate ! It is irony the struggle has to continue at least towards ‘responsible’......for a noble cause! But how long and what cost? Basically,the root cause is that modern economic activities biased towards commercialization in a given unhealthy market situation without any ethical and moral considerations are, to my view, responsible for leading the good providers down the road to bad practices! I quite agree with Masudul Quader and thank for highlighting the valid point on drop out which I have been reiterating in many occasions in my posting in this blog.
The scenario with glittering 90 to 100% in recovery for MFI and about 30-40% drop out in poor client side is highly unethical and irresponsible in MF arena. . In India also the MF sector report 2008 reveals incidence of members’ drop out in 43% of the SHGs and dropout rate is 8.2%.Eventually,this recurring syndrome paves the way for the exclusion of the most deserving poor who were once included for financial access and for foraying the non poor also into MF gamut. Besides there is a cost also. The above report indicates that it costs for NGO Rs. 8700 (US$180) for formation and nurturing.Why this dangerous symptom ,(dropout, defunct, inactive and mortality ) in the group system has not received due attention of the policy makers including world bank, researcher, the experts and the called leaders of MFI in India ? In the given level of vulnerability and capability in poverty sector, this kind of phenomenon viz.,., graduating some to above poverty (incidentally or accidentally ) receiving global publicity and degraduation further down to poverty ( intentionally ) invisibly, will it not lead to widen intra poor inequity level at household level within poverty sector level. ?
Kate ! It is irony the struggle has to continue at least towards ‘responsible’……for a noble cause! But how long and what cost? Basically,the root cause is that modern economic activities biased towards commercialization in a given unhealthy market situation without any ethical and moral considerations are, to my view, responsible for leading the good providers down the road to bad practices!

]]> By: Masudul Quader http://microfinance.cgap.org/2009/11/11/the-struggle-to-be-responsible-%e2%80%93-what-leads-good-providers-down-the-road-to-bad-practices/comment-page-1/#comment-343 Masudul Quader Fri, 13 Nov 2009 10:48:21 +0000 http://microfinance.cgap.org/?p=697#comment-343 "Expecting 99-100% on-time payment is both unrealistic and counter-productive, and we need to share openly the best ways to deal with delinquency, to reschedule loans when necessary, and to treat late-paying customers appropriately." Funding agencies like PKSF in Bangladesh should consider this seriously. Disaster porn country should consider clients problem and clients should not be abounded by high pressure of recovery. Drop out occurs at the rate of 30-40% in poverty pockets where project supported by multilateral donors like World Bank were implemented by DSK. So in three years time 100% poorest of the poor were dropped, result of course were rate of recovery 99%. We do not know what happened to those clients who wanted to come out of poverty. “Expecting 99-100% on-time payment is both unrealistic and counter-productive, and we need to share openly the best ways to deal with delinquency, to reschedule loans when necessary, and to treat late-paying customers appropriately.” Funding agencies like PKSF in Bangladesh should consider this seriously. Disaster porn country should consider clients problem and clients should not be abounded by high pressure of recovery. Drop out occurs at the rate of 30-40% in poverty pockets where project supported by multilateral donors like World Bank were implemented by DSK. So in three years time 100% poorest of the poor were dropped, result of course were rate of recovery 99%. We do not know what happened to those clients who wanted to come out of poverty.

]]> By: Daniel Rozas http://microfinance.cgap.org/2009/11/11/the-struggle-to-be-responsible-%e2%80%93-what-leads-good-providers-down-the-road-to-bad-practices/comment-page-1/#comment-342 Daniel Rozas Fri, 13 Nov 2009 09:51:02 +0000 http://microfinance.cgap.org/?p=697#comment-342 Kate, I'm glad though frankly not surprised to hear MFI leaders make these points. They're after in the thick of the action and see things first-hand. My concern is that nearly all these points are subject to what's termed the prisoner's dilemma, meaning that they all recognize that it's better for both long-term stability and the social mission to take action, but also know that if they were the first to move, they'd get crushed by the competition (and this includes most of the other concerns, not just client protection). Solving the prisoner's dilemma requires either 1) mandating the desired change (i.e. government regulation), 2) voluntary coordination among the parties (extremely difficult in competitive environments), or providing 3) suitable compensation for first movers. Among the three, I find the third option to be most likely in the current environment, namely through investor action via the SMART, MFTransparency and similar campaigns. Since the main investment vehicles (MIVs and DFIs) are largely socially motivated (even if not all their upstream investors might be), they could provide the effective compensation to MFIs by maintaining access to finance -- presumably, if a sufficient number of investors adopt these requirements, MFIs not signing on would suffer decreased funding. However, the window to do this might be shrinking -- non-socially motivated investors are growing in number, and might get another big boost if the SKS IPO is successful next year. Kate, I’m glad though frankly not surprised to hear MFI leaders make these points. They’re after in the thick of the action and see things first-hand. My concern is that nearly all these points are subject to what’s termed the prisoner’s dilemma, meaning that they all recognize that it’s better for both long-term stability and the social mission to take action, but also know that if they were the first to move, they’d get crushed by the competition (and this includes most of the other concerns, not just client protection).

Solving the prisoner’s dilemma requires either 1) mandating the desired change (i.e. government regulation), 2) voluntary coordination among the parties (extremely difficult in competitive environments), or providing 3) suitable compensation for first movers. Among the three, I find the third option to be most likely in the current environment, namely through investor action via the SMART, MFTransparency and similar campaigns.

Since the main investment vehicles (MIVs and DFIs) are largely socially motivated (even if not all their upstream investors might be), they could provide the effective compensation to MFIs by maintaining access to finance — presumably, if a sufficient number of investors adopt these requirements, MFIs not signing on would suffer decreased funding. However, the window to do this might be shrinking — non-socially motivated investors are growing in number, and might get another big boost if the SKS IPO is successful next year.

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