Communication Among Stakeholders in Microfinance

Several weeks ago I was attempting to explain what “irony” to one of my colleagues, one of the most notoriously difficult to define words in English language. My lack of success was due mostly to poor examples (those I did remember were evoked by an Alanis Morisette song). If only I had read Carissa Paige’s 2006 CMF working paper “Reputation and Communication in Microfinance” just a few weeks earlier. I would have immediately quoted my colleague the following anecdote from a section of her paper on government-MFI relations:

SBI [State Bank of India] is frustrated because most MFIs in Orissa are not interested in availing their wholesale loans. Indeed, SBI offers MFIs bulk lending at a generous interest rate of 7%, but then requires that its MFI borrowers on-lend at no greater than 11%, a condition to which only one MFI in the State to date has agreed. However, there are four MFIs in the State that are currently choosing to borrow at around 10% from SIDBI, which, ironically, receives it financing from SBI. SBI is therefore aggravated that MFIs are opting to borrow at a higher rate in order circumvent SBI’s interest rate cap.

Paige’s excellent paper focuses on the lack of public relations and communications efforts by MFIs in Orissa, and was written in large part as a response to the Andhra Pradesh Crisis. The best parts of her paper are in my opinion when she describes the various government-run, subsidized microfinance programs and how they might affect adversely affect the effectiveness MFIs trying to collect repayment. She suggests that, at that time, government officials and MFI practitioners often viewed each other as competitors, and that they had little regard for each others work.

I’d like to finish this post with a question to readers. As the Indian MF industry matures, it seems to me, decreasingly likely that we will see another similar crisis to what happened in Andhra Pradesh in 2006. Is this a sentiment that other readers share? Is it only my perception, or have microfinance practitioners, through groups like Sa-Dhan, begun to work more intimately with government?