Recently, I have been researching for a short paper that a colleague of mine, Akhand Tiwari, and I plan to write on microfinance plus activities. We want to discuss whether microfinance institutions (MFIs) can effectively play a role in issues outside of microfinance, or whether MFIs should stick to their core competency – providing credit (and other financial services).
Yet, I have reached a pretty early stumbling point; I am struggling to define microfinance plus activities, and even more fundamentally, microfinance activities. What is included within the traditional microfinance umbrella, would it include health insurance or is this a “plus activity”?
After some searching and thinking, I have come upon a definition that I think is a good starting point for defining microfinance. It comes from the Grameen Foundation site (here), and follows below:
"Microcredit refers specifically to loans and the credit needs of clients, while microfinance covers a broader range of financial services that create a wider range of opportunities for success. Examples of these additional financial services include savings, insurance, housing loans and remittance transfers."
I agree with the above definition because non-traditional financial products (e.g., health or crop insurance, loans for education) still are financial by nature, and should be thought of as “microfinance” products.
That said, what could microfinance plus activities include? Back to the Grameen Foundation, which explains microfinance plus in the following manner:
"The local MFI might also offer microfinance plus activities such as entrepreneurial and life skills training, and advice on topics such as health and nutrition, sanitation, improving living conditions, and the importance of educating children."
Building on this definition and current microfinance plus activities out in the field, I have come up with the following list of potential microfinance plus activities:
1. Financial literacy training (SEWA Bank in Ahmedabad)
2. Entrepreneurial/business skills training (Mann Deshi in Maharashtra)
3. Health education
4. Helping establish co-ops (e.g., dairy)
5. Market linkages
Do you think the delineation made above between “microfinance” and “microfinance plus” is correct? What additional MF plus activities would you add to the list?
I look forward to comments . . .
5 comments:
I think the definitions that you have posted here definitely make sense. As you pointed out, I would not classify insurance or remittances as an mf"plus" product/activity precisely because of the financial- non financial distinction. In my mind, the part that is more nebulous is whether the intention of the MFI doing mf plus matters in this definition or not. For instance, some MFIs clearly provide mf "plus" services so that the clients graduate to the "economically active" level and that would add to their future clientele, so the motive there is still financial. While some other NGOs/MFIs might provide such services just to complement the mf services in order to maximise social impact.
Another related aspect worth thinking about would be the cost recovery. We see various options in practice- ones that are entirely grant based to ones that cross subsidise or even totally recover costs from clients. Do these nuances also have a bearing on the mf- mf "plus" distinction. If the costs are recovered from the client, for eg: for a housing product, does it still remain non financial and hence qualifies as mf-plus?
I think a few other examples that can be added on to your list are gender sensitization trainings, trainings on social empowerment, local governance etc. Also, some NGOs like SEWA Mandir distribute nourishment products like fortified atta, not to forget health products like our very own malarial bed nets, iron tablets etc. which are also sometimes distributed by MFIs for free.
I think any MFI activity that goes beyond financial services should be classified as MF Plus, irrespective of the MFI's stated intention or mode of cost recovery. All insurance products at their core are financial services, notwithstanding the arrangements that go with them. That would be a neat distinction to draw. The only exception to this would be financial literacy, which in my opinion is a financial service, and should be treated as a part of the financial services package, just like wealth advisory services are treated.
As far as the list of such activities is concerned, there can be many different kind of activities. Just look at what organisations like BRAC (and India's DHAN Foundation) do by leveraging the micro finance groups and federations. Having drawn the financial-non financial line, it would be interesting to see how we classify the work being done by different organisations. As Divya rightly mentions, there are significant differences in purpose and cost recovery. There are also differences in the way delivery of these services is structured vis-a-vis the core MF work, and that is important to look at. Do look at Christopher Dunford's work on this. He has provided some interesting ways of classifying such activities.
It would be interesting to see some analysis around: How the MFIs leverage their core competencies to undertake different MF Plus activities, and which activites are more in line with their competencies. When should the MFI actually deliver the service, and when it should look to work with other organisations, and on what terms. What are the efficiency and effectiveness gains, and what can be the negative implications, if any, for the core MF work? What are the risks of this 'multiplex' approach to service delivery? Hope this turns out to be a crack good paper. Looking forward to it!
Divya and Suyash, thanks to both of you for your comments. Divya, I'll definitely add your examples to our list of MF plus activities.
As to the distinction between whether MFIs are providing MF plus services to increase future clientele or not should affect designation, I agree with Suyash that regardless of intention, activities that go beyond financial services should be classified as MF plus.
Once again, thanks to both of you for insight. Your comments and questions will definitely help us define the paper's scope.
I read the blog entry, "What is Microfinance 'Plus'?" While the author presents novel ideas, developin parallel institutions for the poor is only a short term solution. The unfortunate part is that I have not seen a genuine effort by MFI practitioners calling for a re-negotiation or re-development of corporate governance principles that gives poor the equal rights as the rich. We can’t make progress towards inclusion without having set a definite set of rights for people. After 10 to 15 years these ideas are going to get old as the poor people will soon realize that the point is not to include them into the society, but to keep them on bay while providing them with minimum facilities.
MFIs should look into literature of 'rights based development' by Moser & Norton and literature on corporate governance by Islamic Economists to develop an operational framework for access to financial markets and products for the poor.
If you lack access to services like banking, microfinancing is definitely needed.
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