MFIs Should Do Responsible Finance: What about the rest of us?

by N Srinivasan : Wednesday, October 5, 2011

Responsible finance is not an output resulting from good intentions. It is an input in to business to ensure its relevance to customers and other stakeholders. This means that institutions should design their products, processes and staff training to think, plan and deliver responsible finance. The institutions should have an appropriate collective mindset and back it up with a set of practices that look at the customer as a valuable person who has to be nurtured and sustained. If the institution level initiative on responsible finance is effective and purposeful, then industry-level initiatives become easier to implement.

Today all stakeholders demand responsible finance from microfinance institutions (MFIs).  It is only fair and reasonable that they should expect the MFIs to be responsible to their customers. But let’s take a step back and examine what the stakeholders do to the MFIs—does their behavior qualify as responsible? Let me look at the other stakeholders in turn.

How many lenders and funders of MFIs are transparent in their dealings? Many arrangements are opaque and do not make clear the implications of the funds offered to the MFIs. Lending in foreign currency while fully knowing that institutions are incapable of dealing with currency risks, writing shareholder agreements that make it difficult for MFIs to undertake second cycle equity funding, passing on interest cost hikes to MFIs even when expecting them to hold down the prices to the borrower, charging several types of appraisal, monitoring and commitment fees to MFIs when MFIs are expected to charge understandable all-in-one prices to customers: these are only some of the practices that funders adopt. Many investors approved of mega growth plans without adequately questioning the risks to the MFI and their customers. The few MFIs that approached the capital markets did so with not only consent, but also active encouragement of ‘socially oriented’ investors. Even today some of these socially oriented investors refuse in their shareholder agreements to agree to allocate a part of the profits for development of MFI customers. Well-run cooperative institutions find it difficult to access funds as they are not in an ‘appropriate’ form. Let us remind ourselves that many MFIs found to be not-so-responsible had directors on the board of governance from among the same stakeholders that demand responsible performance.

The state should have a vested interest in ensuring that poor customers get a fair deal.  Yet did the state create an enabling environment for this? By choosing not to regulate or by introducing inappropriate regulation, governments have an impact on poor clients too. Introducing interest, margin caps, and loan ceilings regulation could drive customers into the informal sector, and away from regulated financial services. Governments may also place unrealistic burdens for providing affordable services on MFIs. If poor cannot afford high food prices, the baker and grocer do not offer lower prices–and governments do not demand this of them. They find other ways to deal with the welfare responsibilities. But in microfinance governments sometimes even legislate this without fully understanding the cost structure of MFIs.

Technical assistance (TA) providers gave advice to MFIs to change their business models and products. Some of this advice resulted in considerable harm to the customers.  Community-owned institutions were been routinely asked to change form. Ratings agencies consistently offer lower ratings to institutions in a non-profit form . If boards were comprised of community representatives from among customers, the MFIs were given lower ratings. Products that were long term with sensibly structured lumpy repayment installments were changed to weekly one-year loans on advice from expert consultants. The limitations of software prevented many institutions from offering products that were more friendly to customers.  MFIs were not always free to choose the service provider: in several cases they had to use the services of those already identified by funders.

Meanwhile scholars and academics ask for evidence from MFIs that they have cured poverty. No doubt this stems from the tall claims that MFIs themselves make in their mission statement, marketing pitch, and in the endless conferences. Small amounts of money given for short periods of time can only have a limited impact on a poor household’s economy.  When gradually increasing doses of this high-priced loan is given for many cycles, it is possible that the household builds some assets. For such changes to take place, however, several other conditions must be fulfilled. The poor need access to natural resources (including water), access to technology and skills, and access to markets if they are to apply their tiny capital to good use.  Can MFIs ensure these? They can at best refrain from giving loans where customers want loans without having access to the other resources required. Rather than question the MFIs’ inability to eradicate poverty, we should be questioning our naïve assumptions. Maybe we should also question the state about why the fundamental access to these other resources is lacking.

Responsible finance is not just the responsibility of the MFIs. Other stakeholders have a role to play. These stakeholders should exhibit the same virtues that they demand of MFIs. Let all of us in the sector examine our roles in governance, funding, design of business models and products, advice and guidance, regulation and research. Are we responsible and thus creating an environment in which MFIs can deliver value to customers? This does not mean that MFIs should not do their job. They need to be accountable to their clients, but others should support MFIs in this objective and help make it possible.

–N. Srinivasan

The next post in a new blog series on responsible finance from longtime observer and commentator on the Indian microfinance scene, Srinivasan.  We look forward to your comments in the coming weeks.

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PART OF THE SERIES: Responsible Finance and Commercialization

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  1. October 6th, 2011 at 1:34 am, RBI increases Domestic Money Transfer Limits – News Digest ()

    [...] MFIs Should Do Responsible Finance: What about the rest of us? The next post in a new blog series on responsible finance from longtime observer and commentator on the Indian microfinance scene, Srinivasan. We look forward to your comments in the coming weeks. CGAP [...]

  • October 6th, 2011 at 3:03 am, Chuck Waterfield ()

    Srinivasan gets to the root issue. Responsible practice is needed, but we don’t consistently practice responsibly. That isn’t always the fault of the MFI, even though blame is often placed on the MFI. The industry is a complex web of stakeholders, and we all need to dialogue and work in coordination to achieve the desired goal of responsible practice.

    There aren’t many industries that can take on this challenge of disciplined coordination, but I believe that Microfinance, because of our roots, has the potential to use our original roots to strengthen and maintain the health of our work and ensure that financial services for the poor continue to be a service for the poor.

  • October 7th, 2011 at 1:25 am, Dr S Santhanam ()

    A balanced view.
    But, a number of issues remain unanswered. With all the difficulties including the Andhra Pradesh strangle hold on MFIs, has any MFI gone out of business? Most of those big MFIs working in India started very small with great Mission and Vision Statements. But, they all could survive by tweeking their operations and virtually becoming contract MFIs (dancing to the tunes of investors). Initially, NABARD and SIDBI were the main funders of these MFIs. The operations of these two organisations with these MFIs were/ are very transparent and without any strings attached. But, how many of these MFIs have approached and taken advantage of the transparent way NABARD and SIDBI offered their finance and how many of them used the funds genuinely for the purpose of lending only. As opposed to this, MFIs preferred to take funds from international funders knowing fully well that there were strings attached. Because the promotors of these MFIs know fully well that they can manage the investors.
    Prof Sriram’s paper on SKS (pl see the link) http://indiamicrofinance.com/commercialisation-microfinance-india-discussion-prof-sriram.html has touched upon the ways some of the MFIs tweeked their business models to hoodwink the funders. Sometimes, both needed the supoort of the other for their mutual benefits ( you scratch my back and I will do it for you).
    In the MF sector, the governmnets and regulators are known constraints and the MFIs know how to move around them and still get their business done.
    In many a business, it is often told that while the business is doing badly, the businessman continues to grow. It is true of MF sector also. While the personal wealth of all the MFI promotors have gone up multi-fold, the sector is still struggling and there is not a single case of an MF client who has grown in the same proportion. MFI promotors know fully well the underlying principle of the economic theory on (i) the law of marginal utility, (ii) consumer surplus and (iii) income effect and use them in their business models which are always advantageous to them and not the consumer.
    Let MFIs really feel that they have a mandate to help the poor and not make money out of them through usurious means.
    My observations may appear a bit cynical, but, sometimes truth is a bitter pill to swallow.

  • October 7th, 2011 at 4:54 am, P N Vasudevan ()

    Mr Sinivasan is asking the question that most MFIs would like to ask. how does one expect the MFI alone to be responsible if other stakeholders who deal with such MFIs are not responsible themselves, is a fair question.

    this is a question which has insufficient answer in the current context. today, there are still banks in India who lend to MFIs at over 14%, knowing fully well that the MFI’s margin gets squeezed at a borrowing cost over 14%. and yet these banks cite the current situation and make their money at the expense of the poor MFI.

    however any kind of irresponsible behaviour of any of the other stakeholders does not condone irresponsible behaviour of the MFIs. MFIs are ultimately the last mile connectivity with the clients and given the lack of sufficient market information by such clinets, MFIs are in a position to take undue advantage and hence the responsibility is much higher on the MFIs than other stakeholders.

    as far as Equitas is concerned, we hold a simple philosophy. Responsibility in all our actions with all stakeholders and not just clients is something we believe is part of our genes and hence we will need to be totally responsible in our actions, irrespective of what others do. over the long run, this is always bound to keep such institutions sustainable and strong, whatever may be the short term challenges. hence we believe responsibility in action is part of the soul of the organisation and this itself would eventually influence other stakeholders to modify their behaviour vis a vis such model institutions
    regards/vasu

  • October 7th, 2011 at 8:03 am, Srinivasan ()

    Dear Dr. Santhanam,
    Let me assure you that the post does not in any way condone exploitative, rent seeking behaviours of a number of MFIs. The post does not justify miscarriage of governance. The post asks whether apart from MFIs others could have done better to ensure that they deliver value to customers. While stakeholders have the right to question institutions on their performance, they also have a duty to ensure that institutions are enabled to realise their mission and increase the benefits to customers..
    Regards
    srinivasan

  • October 8th, 2011 at 4:52 am, D.S.K. Rao ()

    Srinivasan has argued so correctly that it is the collective responsibility of all stakeholders and the blame does not lie with MFIs alone….Absolutely correct.

    While analyzing the shortcomings of different stakeholders are we forgetting the borrowers?

    Tracing the one year old crisis in Andhra Pradesh, I am terribly disappointed at the opportunistic behavior of millions of MFI clients. They refused to repay, without an iota of compassion to the institute which believed in them and gave decent amounts of loan.

    I know at least one MFI in AP who has provided education on health to all of their clients, incurring a huge expenditure. In my field visits, I used to hear these clients showering praise on the MFI and their staff for their efforts to educate them. At that time they never complained against the rate of interest, short repayment period, multiple loans etc. Today they do not even want to meet the MFI staff when they visit their village.

    Are all these clients innocent and gullible?

  • October 8th, 2011 at 6:26 am, Dr V.Rengarajan ()

    Dear Mr Srinivsan
    Grateful to you for the thought provoking post covering some rudimentary factors for bringing responsible finance in MF industry. I would like to share a few points in this regard

    In the first ,I agree that there are ‘other stake holders’ in the supply front that is apart from MFIs – funders, lender, TA, State players have a role to play for ensuring ‘ responsible finance’ as an input for the ultimate output/outcome-‘curing poverty’. However looking from the ‘end’ perspective of responsible finance holistically covering supply side providers only appears partial since the customers also have stake at their level in making responsible finance more relevant to the ultimate ‘outcome’ in the demand side. Among others misutilization of responsible finance extended by all stake holders would erode the ethical and moral values of the finance and make it appear irresponsible finance at the surface for no fault of suppliers

    Secondly, The rationale used for defending MFIs’ inability to eradicate poverty is quite logical questioning the state role in creating necessary environment for supporting the finance for the said goal. But here, I feel, it is too late to realize this fact . One need to probe fundamental lacunae, found while promoting an institution called ‘Microfinance Institution(MFI) using the brand name Microfinance on one hand and defining the term Microfinance as a package of pro poor financial services including micro saving, micro credit, micro insurance , remittances etc on the other hand. The institution which provides all these services responsibly to fulfill its social mission are called MFIs Here the researchers and academics need to probe a few moot points since poverty is multifaceted phenomenon requiring integrated inputs of both financial and non financial inputs –of which micro credit one among them is singly inadequate for the said purpose.. Poverty cure is ultimate goal of responsible finance and therefore it has become social mission and vision for MFI as well . In this context some moot points
    a) Having known well the fact that ‘ small amount of money given for short periods can only have limited impact on poor household’s economy’ Why the so called MFI have been promoted to surface for only money lending services and that too in the presence of multi agencies in rural financial landscape and near saturated market environ?
    b) Does provision of micro credit services only using the brand name ‘microfinance’ by these stake holders in the supply side represent ‘responsible finance’ ? Isn’t the responsibility of MFI in providing other pro poor micro financial services – micro savings, micro insurance, remittances in an integrated manner? Aren’t together of all these inputs truly reflect the values of ‘responsible finance since they do facilitate in no uncertain terms for their social mission ‘poverty cure’ if not alleviation ?
    c) In the context of poverty cure being the common concern for all I agree that ‘ we should also question the state about why the fundamental access to these other resources is lacking.’ It is true MFI alone cannot ensure this. But at the same time why this most appropriate question relating to the business activity has not been raised for remedial action by the Board members/governing body/the advisors (other stake holders) of these MFIs when they inaugurated the opening of these MF institution ceremoniously and remained silent spectator watching the MF crisis later?
    d) Doesn’t this situation demand for sequencing all MF inputs more responsibly by all these stake holders for the common goal- poverty cure?
    e) Isn’t the sequencing the availability of other resources by the state and accessibility to finance an imperative need for achieving the said goal through responsible finance ? Till adequate environment is created sequentially in the respective area of financial operation for making candid ‘responsible finance’ for the said mission, is it a bad idea for eschewing ‘putting the last (micro credit) first approach and declare holiday for any kind of pro poor finance for that matter for some time? In such case albeit the process of poverty cure may be delayed or postponed , at least some ‘suicides’ could be avoided in the poverty sector. This argument is much closer to your idea of MFI at best refraining from giving loans in the areas lacking other resources required
    f) Why not we include in the list of ‘Other stake holders’ the forums like DCC/SLBC/NABARD(PLCP at district level and RIDF at national level) and redefine their role in value addition for responsible finance ?

    Thirdly we have wealth of researched documents on the principles of development through credit approach in Indian banking industry one should be proud of for this. Among others CRAFICARD report(1981-B.Sivaraman) ACRC report(1989-A.M Khusro) and Financial Inclusion Committee report (2008 Dr Rangarajan ) are worthy mention since they have all focused the need to link up the financial input with non financial input and go hand in hand for any development activities in general and poverty alleviation in particular
    CRAFICARD-1981(B.Sivaraman- (page 350) “Under fragmented approach to lending (individual,ad hoc or scattered) without dovetailing it into an overall area plan, the danger of credit becoming a burden ,instead of an instrument for uplift, is greater in the case of loans to the vulnerable sections of the rural community’
    ACRC 1989 –A.M.Khusro in the chapter on Development planning and credit planning emphasized at length the need to link up between the village development planning and credit –planning and sequencing the provision of physical infrastructure as per district development plan (DDP)and then generation of district credit plan(DCP) from DDP.
    Rangarajan’s report (page 106)categorically emphasized that ‘in the absence of all this (physical capital) merely insisting on financial inclusion will not work’
    Researchers need to note that right from 1980s onwards , the above rudimentary fact in development finance has not been recognized well particularly when institutionalization of credit took place for development purposes. and eventually sustainable dent in poverty cure remained elusive one and the performance of cooperatives and RRBs , which emerged as champion of rural poor was not at expected level and they have not succeeded in their mission goal. In regard to coordinated approach among the financial institutions and the state development institution at each district levels, the ideals of Lead Bank scheme of RBI showed a promise but poorly implemented and mostly the progress remain in paper without contributing towards development through credit collectively Now this is the case for MFI struggling with monopoly of micro credit in between funders on one side and the poor creditor on the other side. Even if these MFIs become LAB , social mission could not be achieved with mere credit input alone. In the process of development through credit, the Institution is only a means for the said goal and it should not become end itself. Ironically this is happening in today’s world.
    The lesson from the above review is that unless these above fundamentals of development finance are taken cognizance of in the process of institutionalization , responsible finance is impossible and it is possible collectively by all stake holders keeping their mindset in same wave length uniformly towards the common goal

    In fine Mr Srinivasan as you desired (last para) I am to happy to associate in the sector for examining our roles in governance, funding, design of business models and products, advice and guidance, regulation and research for effecting a candid responsible finance and rejuvenated MFI with the responsible involvement of all the visible and non visible stakeholders collectively for the common goal in the universe – making a sustainable dent in global poverty canvas.
    Thank you for sharing my views
    Dr Rengarajan

  • October 8th, 2011 at 10:09 pm, Dr S Santhanam ()

    Dear Mr Vasudevan,
    It is heartening to see the honest admission of an MFI promotor like you, the responsibilities of an MFI as a last mile provider of credit and other services to the unreached knowing full well the constraints of operating in the sector. I appreciate your great work being done in Equitas. I am sure that Indian MFIs will have more of Vasudevans and bring cheers on the face of the poor.

  • October 8th, 2011 at 10:16 pm, Dr S Santhanam ()

    Dear Mr Srinivasan
    If we dig deep into the souls of such investors for adding various charges/ fees, we may find that inasmuch as we have contract MFIs who do the bidding of such investors, there may be investor sharks in the garb of good samaritan MFI funders. If the MFIs are clear about their goal, they will be quick to distinguish between the bad and the good apples.

  • October 9th, 2011 at 9:19 pm, peter van dijk ()

    Chapeau Mr. Srinivasan,

    My respect for your work and commitment towards Micro-Finance in India and beyond.

    Linking the financiers of mainly micro-LENDING institutions to achieving the final objective of helping clients out of poverty should be part of the same issue as evaluating the performance of the MFIs themselves. In enterprise governance, founders, owners, shareholders, managers, controllers and staff are part of the same entity vis-à-vis the market they want to operate in.

    But there is something wrong from the beginning; clients in ALL countries and in common sense want reliable partners where to safeguard the little money they depend on and which can help them managing it better and for the long-term (that clients thus get more money, i.e. the only clear performance signal that they are not poor anymore, as a big house and car can be bought with big loans and fraud). The clients of MF don’t want to be borrowers only. And when clients are only borrowers, they find themselves in the weaker position, as then the lender needs to trust the client, and not the other way around as I started this paragraph.

    The confusion is clear in India, where there are many more depositors and deposits (including fixed term equitable return earning savings) than borrowers and loans outstanding; in particular in the Postbank and in the National Savings Program. But these institutions are well out of the regulatory and supervisory realm of RBI, is it not? Who will regulate Postbank in the future, has that been resolved?

    Another illustration of the confusion are the cooperatives. They are “traditionally” another channel for government credit, thus another product that clients need to receive with broad and patient “cheese”-smiles. As anyone knows financial coops can be GREAT MFIs if only they were voluntary and funded by member capital (for work capital) and member deposits for loan capital. Only then can you really expect active member control. Now they grow slowly on the rhythm of government spending, regular re-capitalisation and bankruptcy, all over the world except where financial coops really work as such.

    And, in the mean time, the Micro-Credit Industry of good doers, entrepreneurs and media professionals (the conference organisers, journalists and support technicians) reaches ever larger numbers of staff with good salaries. Well, honestly, that does produce a real “market” incentive in having poor people stay poor isn’t it? We don’t want to fire our colleagues just because some people get out of poverty, would we? That would also be irresponsible.

    It is long overdue that MF clients understand very well what they need in financial services and the MF industry and only local government has in my view a genuine interest in ensuring market equality, if it considers itself to be a true democracy.

    Cheers, Peter van Dijk (Indonesia)

  • October 9th, 2011 at 10:12 pm, Srinivasan ()

    Dear Dr Rengarajan,
    I agree with your several points of view. My post no doubt dwells more on other stakeholders – as I thought that others posts in this series adequately focused on shortcomings of MFIs. MFI are guilty of tall claims and everything else that resulted in customers being denied effective services and intended beneficial consequences. All others who subscribed to the dreams of MFIs, should not now absolve themselves of complicity – there should be some ‘soul-searching’ – then only the changes that we seek in microfinance will be meaningful for the customer.

  • October 9th, 2011 at 10:17 pm, Srinivasan ()

    Dear Mr Rao,
    What you say is entirely true. Customers have no loyalty. They seek to maximise their benefit. But then MFIs should plan on the premise that ‘customer is king’ and figure out what might make them more committed. In a competitive market, we are bound to find opportunism as the operative principle! Even MFIs might dump customers that are seen to be ‘sub-prime’.
    Regards
    Srinivasan

  • October 10th, 2011 at 8:53 pm, B S Suran ()

    Thanks for a great article. Just reflecting on a few things that I noticed during my visit to the field last week. Has all the lending by mFI lending to borrowers in AP come to a stand still ? No perhaps, on mFI had put in applications for financing over 1 lakh borrowers and the govt cleared just 2000+ odd applications – the reason, the rest of the potential borrowers have more than 2 loans outstanding. Did meet up with a few borrowers, who did have a clutch of loan cards, never knew the names of any mFI operating in the village. There were 4 mFIs operating in the village, did ask them if they knew any of these institutions by their name. No, even after the group test etc? mFIs were known as Tuesday mFI, Wednesday mFI, Friday mFI and so on . Was the assessment for fresh loaning done based on due diligence and repayment capacity? The answer to me appeared contrary! Responsible activities still appear distant to me ………..
    Cheers
    Suran

  • October 11th, 2011 at 6:36 am, Srinivasan ()

    Dear Dr Suran,
    Excessive lending by MFIs has been rampant, especially in AP. 10 loans per poor household is the average. Fresh loaning was not based on any assessment – but that is true of SHG loans also. Informal sector loans were quite high – with a significant part of informal sector being MF customers of MFIs and SHGs. As for what is happening to MFI lending in AP, the second half of 2010-11 (Oct 10 to Mar11) saw disbursements of about Rs85 million compared to Rs 50000 million disbursed in the first half of 2010-11. What you describe from the field also explains the lack of customer loyalty as the MFIs had not been really close to them.
    But none of this happened overnight. All this was possible even with boards, donors, funders, investors and governments being a part of the different processes. When it comes finger pointing all the stakeholders have more than 10 fingers.
    Regards
    Srinivasan

  • October 11th, 2011 at 12:33 pm, Srinivasan ()

    Peter,
    thanks for bringing some valuable perspectives in to this discussion. I totally agree with your view that from a policy point of view expanding institutional choices to poor is socially responsible behaviour from the government.
    Regards
    Srinivasan

  • October 13th, 2011 at 5:39 am, Dr V.Rengarajan ()

    Dear Mr Srinivsan & Dr Suran
    Thank you Mr. Srinivsan for your positive response to my views and also thank both of you and Dr Suran for updating MF state of affairs reflecting quantitative (macro level) as well qualitative (given area) dimension of finance in MF industry respectively in the previous posts in this new series. While probing a little further on the current state of affairs in this industry in general , the bird’s eye view reveals unpalatable scenario both in supply and demand sides which is not good for functioning of responsible finance responsibly .
    In side the industry, on supply front too many channels for indiscriminate delivery of micro credit in the name of ‘financial inclusion’ include a bank branch for every 15000 population, almost for every village a cooperative society, 4MFIs as in the case of AP village (Suran) social capital based SHGs and JLGs (NABARD bank –SHG linkage programme) Technology based Mobile banking , agency based BC and BF facilitating indirect finance for the formal players besides wide network of informal agencies,
    In the demand side, constant influence of the ‘Drivers’ for enhancing marginal propensity to consume in the poverty sector resulting in multi-borrowing with an average of 10 loans per house hold(Srinivasan), include individual self interest maximization, conspicuous consumption. Social value system Media (News ,film, TV) , liquor based social relaxation and entertainment.
    On the other hand, outside MF industry level but bearing on the function of this industry , there is also a concern over the official poverty line controversy since it poses another challenge for the crisis ridden MF industry in terms of socially justifiable identification of the target client in the first and quality economic impact monitoring on their upliftment over the sanctified poverty line later, acceptable to all the stake holders including the state concerned. Here it may be noted that any concern over poverty and the poor is also a concern for the MF industry so long its focus exclusively is on welfare of the poor and poverty cure. In this context, it is unfortunate to observe much heated debate the official poverty line in India questioning the wisdom and rationale for arriving such line. It is irony India is struggling even now to identify ‘who is real poor’ even after ten five year planning by the so called experts /advisors while at the same time the nation has succeeded in positioning a few persons in the top layer of world richest . The controversy over the official poverty line might have perhaps emerged mainly due to poor perception of the men at the helm of affairs on the field realities pertaining to the profile of poor. In this regard it is pertinent, I feel, to quote the following from the book ‘Rural Development-Putting the last first’ by Robert Chambers with whom associated as fellow researcher during field study in South India.
    “ What the eye does not see , the heart does not grieve about” Further his explanation was “Outsiders under perceive rural poverty….The direct rural experience of urban based outsiders is limited to the brief and hurried visits from urban centers and of rural development tourism” .As a result , the poorer rural people are little seen and even less is the nature of their poverty understood. The fact holds good for micro finance tourism also. Here I assert that eventualities of such poor perception include the facts like controversial poverty line for the nation and , irrational ‘one size fits for all’ MF products & norms, monopoly of micro credit as silver bullet for poverty cure , too many assumptions based innovative institutions for financial inclusion etc in this industry.
    In the given MF industrial scenario , Responsible finance may appear distant as Dr Suran anguished. I agree. But ‘Real poor’ also is at distant incidentally or intentionally so the journey has to continue towards ways and means for reducing the distance and harness the potential of responsible finance towards the poverty cure – a global concern
    . For this as a way forward 3 alternative approaches are mooted below
    1. Revitalization of MFI with integrated services
    Responding to Srinivsan’s clarion call to all of us in this sector, intensive research may be conducted for examining various aspects for revitalization of MFI with integrated services practiced collectively by all stake holders towards ensuring responsible finance in this industry. Both the distance and journey are long but It is better late than never for sustaining research and innovation in MF industry towards the common cause of global human agenda- Poverty cure.. Till such time MFI may go for Micro insurance and capacity building activities in their service area with a holiday for micro credit and even for global micro credit summit
    2. Promotion of Local institutions on self help basis
    Encourage and promote community based institution locally and nurture social capital like SHG/JLG federation for managing self reliant basis with their own resources –true to sense of self help concept .Let them identify real poor among them through PWR or any indigenous methodology. It is unfortunate the present SHG may not know what is the value of self help and made to survive depending on external help eternally Thanks to continued patronage by Bank linkage programme and political galvanization
    (Both 1 & 2 focus more on the ultimate goal –poverty cure irrespective of type of institutions delivering responsible finance)
    3. Pastoral Elegy on Microfinance
    As a last one, if both 1 and 2 alternatives are considered impracticable and irrational, then it is not a bad idea that one can write a ‘Pastoral Elegy on Microfinance’ and draw the attention of Nobel committee.

    Thanks for sharing my views
    Dr Rengarajan

  • October 15th, 2011 at 10:46 am, Suran ()

    Sirji, my limited experience in a village showed that responsibility can be fixed, neednot be spread. Village already had 100 shgs with a carpet coverage. Most of 800 loans were forced or enticed …… Many stayed away – there were many shgs where nobody borrowed ! Some lessons forme

  • October 16th, 2011 at 2:25 am, Dr.Venugopalan Puhazhendhi ()

    The concern expressed by Mr Srinivasan on focussing mainly MFIs for responsible financing is genuine and most relevant in the present day context. No doubt, MFIs are the ultimate retailer providing financial services to the targeted clients. However, their governance, plan, cost, other terms etc., are more likely influenced by the stakeholders also. As remarked by Mr Vasudevan, to a greater extent, the sole of the organization has an impact on responsiveness. Nevertheless, on many occasions, the organization focus might be influenced by both the stakeholders as well as clients responsiveness.

    Fast growth of MFIs in short period led to several abnormalities which should not be considered as permanent barriers in promotion strategies in the sector. Let all the entities in the sector look for collective responsiveness for greater outreach of financial services to the designed clients.

    As discussed elsewhere in this forum by Mr Srinivsan himself, the client response, governance and regulations etc., needs to be appropriately addressed for sustainable growth. We should also recognize that poverty issues have wider canvas where MFIs role to be designed to offer mainly financial services. The blend of SHG movement based on community approach with MFIs as financial service providers will have greater scope for future. Let the lessons learnt in recent days on both clients as well as institutional perspective, especially from AP experience; provide adequate hints for valuable corrective measures. Still there are many success stories in this sector which needs to be pondered and widely discussed to take as guiding factors for evolving future strategies for growth of the sector.

    These are some of my random thoughts while reading this excellent post which I am sure will stimulate the researchers, administrators and regulators for further revisiting.

    Regards – Prof Puha

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