Microspam

You know the industry you work in has hit the big time when Nigerian con artists start using it as a pretext for phishing scams. From a message in my spam folder this morning:

I am sorry for this unsolicited approach.Nevertheless, I have a challenging news you might find interesting in the content. RAFODE is a burgeoning organization prepared for growth,prepared and focused on serving and bringing financial assistance to emerging businesses. Founded in 2005, with the home office in Kisumu,proven to be a useful and welcome vehicle built for the poorest businesswomen and men currently dealing exclusively in micro-credit,though best serving numerous clients as a comprehensive micro finance institution....To my greatest surprise after due verification exercise conducted by the organisation on the certificate of registration and incorporation,the expansion fund support application was approved of,withtotal sum of 19,500,00 (GBP) payable through Barclays BanK Plc (UK). Now, I have gone out of control regarding the surprised amount,therefore needs a capable and competent individual to work with me in lodging the amount into a foreign account since RAFODE not aware of my masterplan to setup a microfinance firm.

RBI Doubles Transaction Limits for Mobile Banking

For more info click here. This is really good news for those who want to see mobile banking flourish and serve as a tool for increasing financial inclusion in India. Now, if the RBI can just see fit to relax some of the other restrictions in the draft guidelines...

What is Microfinance "Plus"?

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 . . .

Why is Financial Inclusion Important for the Delivery of Social Transfers?

That was the topic of a recent presentation I gave at a conference on financial management for programme delivery hosted by the Controller General of Accounts. For anyone interested, my powerpoint (and those of other speakers) can be found here. I would highly recommend checking out YK Alagh's and NC Saxena's presentations if you get a chance.

Question of the Day

A lot of people are puzzled by the near perfect repayment rates on microfinance loans of >98%. To me, a much more puzzling phenomenon is that of repayment rates of 20%, which, apparently, is the current rate on Indira Awas Yojana loans (a government subsidized housing "loan") according to one knowledgeable person I talked to. Who are the people who repay these loans while other borrowers just pocket the money? Are there some people in the world who are simply congenitally honest?

Is e-governance enough?

This year a number of e-governance projects are ongoing in India. Apart from just the smart-card program, the Government of Rajasthan has implemented other e-governance interventions such as the designing of a web-based monitoring system for the Below Poverty Line Census in the state. The Department of Rural Development started this project with NIC (National Informatics Centre) to make the census easily available at a central location and introduce more transparency in the system.

The project aimed at computerization of BPL Census 2002 data, which was based on 13 socio-economic parameters. Such a system makes the data viewable by the public as well as other government departments. It was done in the view to have an online monitoring system to enable the updating of the list from time to time. The BPL list is now subject to change through a process of appeal where the names of the ineligible persons can be deleted if the public files an appeal against such an addition. Earlier, the list once prepared remained applicable for the next 5 years and it was impossible to update it. The last survey was done in 2003 based on the parameters defined in 2002. This was for all the rural households the number for which turned out to be more than 92 lakhs for Rajasthan. Due to some legal issues this project was realized only in 2006.

Supposedly, now the list is dynamically updateable and is sustainable for use by all departments. Government says that anyone can visit the portal and update it. Also, that the concerned department frequently verifies the database to ensure that correct and updated data is available on the portal.

Although the project shows great potential, I am not convinced about how well it can or is able to monitor the updating of the BPL Census Database and ensure transparency. Below, I have substantiated this with my experience working in the field.

I worked as a field executive for BASIX on the Bhamashah project in the months of July and August 2008 ( I had posted another blog on this). This was another e-governance initiative taken by the government of Rajasthan to issue smartcards to a targeted set of beneficiaries, which included BPL families, small and marginal farmers and selected set of SCs/ STs. It also aims at providing the BPL beneficiaries with medical insurance under the RSBY. The first phase of the project was to execute financial inclusion through opening of bank accounts for the beneficiaries. For this camps were set up at different panchayats in all districts where we had our team (customer enrollment agents-CEAs who we had recruited) filling out forms and clicking photographs of the beneficiaries. I worked in Jaisalmer as a camp supervisor. My job was to monitor and supervise these camps as well as train the CEAs. There were times when our work was interrupted by certain field-related issues, which I consider to be quite crucial.

These issues arose in the village of Delasar (Panchayat) on 29^th July 2008 that stalled the work of CEAs.

There were around 50 people of Delasar who completely opposed the implementation of the enrollment process. They claimed that the given list of BPL beneficiaries was incorrect and that the survey conducted in 2002 was faulty. According to them, many ineligible names were still on the list (who over the years had crossed the BPL line) while; several others who were eligible were not included in the list. They said that this had repeatedly been happening for the last two surveys and all the benefits that are given to the BPL families by the government go to the same families over and again, these families should not be considered BPL in the first place. They further asserted that the gram sevak and the patwari were aware of this but were too scared to take any action towards it, as the non- BPL beneficiaries (whose name was on the list) were very powerful.

We informed the Block Development Officer (BDO) about this situation. He sent the SDM and the Tehsildar to look into the matter. The SDM told the people that the BPL survey was re-conducted in 2006 because many people had opposed the 2002 survey in the past (for the same reason). He also said that he would help the actual beneficiaries with the application procedure but could not guarantee that they will become a part of the list; meanwhile the implementation of the enrollment process should be allowed.

Though work got started, people seemed highly dissatisfied. It was apparent that this kind of problem had risen a few times before as well and government was aware of it. Such a situation was encountered in 2 other villages. Also, many times people had come to us individually with their problem of not being included in the BPL list in spite of having applied a month or a few months ago. When we conveyed this to the government officials we were told that it takes time for the application to be processed so that the name can be included in the list. This might take months- meaning the name would show only on the next list.

Witnessing this whole episode raised several questions in my mind. What is the use of having a web-based online monitoring system for computerization of BPL Census data if it is not in fact being upgraded regularly? Especially, this updating becomes even more important when the data is being used for implementing other government schemes (in this case bhamashah). I know one can say that the allegations made by the villagers might have been incorrect. But why would so many people lie at once and why would this take place repeatedly? Does this reflect carelessness and inefficiency in operations on part of the government? These questions troubled me a lot. I thought to myself that the whole of purpose of projects like web-based monitoring of BPL Census and Bhamashah gets defeated if surveys are not conducted properly.

Moreover, when the government says that anyone is allowed to access the BPL list on the portal and update it. Is it really “anyone’? The illiteracy rate in Rajasthan is only so high, let alone being computer–savvy. People are not even aware of how and when the survey is done. The surveyors most of the time take the lists directly from the patwaris or the gram sevaks. Villagers don’t even know how to appeal against or apply to be on the BPL list.

I also recently visited Sambalpur, Orissa as a part of my training process. While there I interacted with fellow blogger Dan Kopf and his colleagues who are working on a malaria and microfinance study, I learnt that similar situation was seen in some of the villages in the western parts of Orissa.

We being researchers really need to give these things a deep thought and perhaps can start by ensuring that the surveys supervised under us are of high quality. Meanwhile, I think before the Department of Rural Development introduces new projects, the NSSO needs to improve their quality of work.

by Akshi Khandewal

Social Audits

For the past month or so I have been working on a report on the use of smartcards to disburse NREGA wages and pensions in AP. (For anyone interested, the report is in the final stages and should be released shortly.) As part of this research, I got the opportunity to travel to several areas in rural AP, visit a few NREGA worksites (though most are shut down this time of year), talk to several NREGA workers, and sit in on the public hearing in which results from a “social audit” of the functioning of NREGA in one mandal were released.

Before traveling to AP, I had read a lot about how AP’s ambitious system of state promoted social audits has led to reduced leakage and increased compliance in the implementation of NREGA. Our own limited experience in the field certainly confirmed these results: not a single person we talked to had been the victim of “skimming” of wages by either a post office employee (wages are typically delivered via post office savings accounts) or an NREGA field supervisor or had even heard of anyone having had a portion of their wages “skimmed.” Further, while some complained that the NREGA field supervisors did not properly inform them of the availability of work, we didn’t find anyone who had been completely barred from working at a worksite. Considering the common perception that post office employees often skim money from illiterate recipients of money orders and that GPs often refuse people NREGA work as it makes it more difficult for them to siphon off funds these results are pretty remarkable.

Yet while AP’s system of NREGA audits certainly seems successful, I had a hard time figuring out what exactly was “social” about the audit process other than the public hearing at the end. The audit was lead by trained auditors employed by a state level agency (the SPIU) who systematically gathered data on a random sample of workers using a standardized process. This all seemed a lot different from the concept of a “social audit” as defined in the NREGA legislation (the act itself defines a social audit to be one in which the gram sabha collects information on the functioning of all worksites in the GP) or from those audits I had read about in the press conducted by NGOs such as MKSS.

It may seem like I’m arguing over semantics, but I think the distinction is pretty important. If AP’s system of audits is successful as it appears, it’s important that we call a brick a brick and label the AP experiment in audits for what it actually is – an internal audit system led by a state agency with results released at local public hearings – so that we don’t make the mistake of attributing the success of the audit system to something which isn’t there.

In fact, it could very well be that it is precisely because the audits are led by state level officials that they are so successful. One thing I noticed during the public hearing of the audit is that the auditors and district officials went pretty easy on offenders as you might expect from government officials. GP officials caught siphoning funds were only told to pay them back. While some may criticize the mildness of the punishment, if punishments are meted out too severely auditors might meet a stone wall the next time they attempt to conduct an audit. Similarly, never were the mandal level or district level officials criticized. Again, this might not be ideal from a fairness perspective, but is important to ensure that other officials at these levels are not afraid of participating in audits in the future.

New and Newsworthy

• The RBI orders Sahara and Peerless to shut down deposit taking operations by 2010. For more info see here and here. I don't understand the issue well enough to pass judgment on whether the RBI restriction was necessary (though the legal wranglings described in the Mint article makes me think it most likely was) but nevertheless, it's always a shame to see the savings options available to the poor reduced even further. Peerless and Sahara, which both offer recurring deposit savings products similar to those offered by the post office, are pretty much ubiquitous throughout much of the Indian countryside and their exit will leave a gaping hole in the supply of small scale savings products.

• The RBI will begin enforcing the weaker sections sub-target of the priority sector requirements. For the legalease RBI doc click here. The RBI has long mandated that domestic banks lend 10% of net bank credit to "weaker sections" (a category which includes landless labourers, marginal farmers, artisans, and members of SHGs) but, unlike the sub-target for direct agri lending, has never really enforced this requirement. As a result, banks, in particular private ones, have pretty much ignored the requirement: average lending to weaker sections in 2007 across private sector banks was a mere 1.55% (for more info on the performance of private sector banks in meeting this target click here). The implications of this move for the microfinance sector are huge. First, it will give a strong incentive for banks to ramp up lending to SHGs. Second, it will likely lead to a significant reduction in the cost of funds for MFIs as private sector banks will seek to buy up any MFI loans which qualify under the weaker sections sub-target at reduced rates. (They already do this for the portion of MFIs' portfolios which qualify as direct agri.)
  
• The RBI has released it's modified set of draft mobile banking guidelines. For the revised draft guidelines click here. Plenty of others have offered astute criticisms of the overly cautious restrictions in these guidelines so I won't bore you with my own opinion on this one.
  

Innovative Use of Microfinance Channels: Fighting Malaria with Bednets

In India, microfinance institutions (MFIs) and self-help groups (SHGs) traditionally provide loans to low-income borrowers. However, outside of providing credit, there are also other critical development needs that could be served through microfinance channels. In one of our ongoing research studies, an MFI in Orissa (BISWA), is piloting a new product in which microloans for insecticide treated bedents (ITNs) are being given to low-income households in a malaria-infested region of Western Orissa.

My colleague at CMF, Dan Kopf, who is the research associate helping to evaluate the potential of this product and the impact on participating households’ health (i.e., are rates of malaria decreasing among those purchasing bednets through BISWA in comparison to other villagers? Does it make a difference to people's health if bednets are free or purchased?), recently wrote a case study on the pilot project. BISWA offered SHG members in 50 villages the opportunity to purchase bednets through cash or credit contracts, and the case study focuses on the 1) Process of developing the product, 2) Key challenges, and 3) Lessons learned through implementation. If you are too excited to continue reading and want to dive into the study (I'm not offended), it can be found here.

To give some background on the larger study, BISWA and professors from Duke and Stanford wanted to see if microfinance channels could be used to increase ITN coverage to improve the health of BISWA’s SHG members. To rigorously test this idea, BISWA and the researchers decided to conduct a randomized evaluation comparing the benefits of the following three interventions:
1) Educating SHG members about the benefits of ITN usage.
2) Educating SHG members about the benefits of ITN usage and then giving these members enough free ITNs for everyone in their household to use.
3) Educating SHG members about the benefits of ITN usage and then offering these members the opportunity to purchase ITNs on micro-credit contracts.

I have visited Sambalpur, Orissa and gone to some of the field sites with Dan and his colleagues. The paper does a great job of highlighting, and helping to answer, some of the key questions I had after my visit, including:
1. How many people actually decide to purchase bednets?
2. Do loan officers need to be incentivised to sell this important, but relatively inexpensive product? Should such a product be bundled with larger loans?
3. Does retreatment of the nets (which is critical to the effectiveness of ITNs) actually happen? Why or why not?

This case study is a good read for those interested in how microfinance distributed channels can be used to address low-income household needs, outside of capital constraints. To learn more about this research study in general, check out this project description.

RBI Regulation on Mobile Banking -Two Factor Authentication

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 decrypts (opens) the encrypted key using a RSA encryption algorithm. This technology is perfectly secure and GPRS is not mandatory.

Live Blog of the IPA - Financial Access Initiative Conference

Here is some blog coverage of the recently concluded IPA - Financial Access Initiative Conference where some of CMF's work was presented.

Of particular interest to me was Professor Morduch's point about competition in micro finance. Working in West Bengal, we see this issue everyday, with over 20 MFIs operating in Kolkata and surrounding districts: Is competition benefiting the industry? Clients? MFIs? Or will it just lead to client poaching and greater cycles of indebtedness?

Enough Soft Money for Microfinance?

In a recent post on CGAP's blog, Richard Rosenberg writes about a debate he moderated at this years World Microfinance Forum between Muhammad Yunus, founder of the Grameen Bank, and Michael Chu, former president of ACCION, over the impact commercialization is having on microfinance. Rosenberg writes:

I had one more reflection after the event. As I listened to and thought over the issues, it became clear to me that a core question in this argument is a factual one: is there enough government and socially-oriented capital to meet eventual worldwide demand for microfinance, or is there not? Neither debater had much to offer by way of evidence to support their opposing assertions about this....

and later in the post:

... even if we knew what the demand would be, that gets us toward an answer only if we also have some kind of fix on how much subsidized and soft money is floating around out there. Neither debater had anything to offer on that one. I don't either...

This is an essential question and one that I had not formulated. Rosenberg has also written an incisive case study on the commercialization of the Mexican MFI Compartamos, in response to the controversy surrounding the MFI's IPO.

For more on commercialization and microfinance, check out Selvan Kumar's earlier post on this subject.

The global bubble

I was wondering, as an extension to a thought initiated by a friend in a discussion: The gobal financial crisis that has engulfed the world has the western governments gear up for some collective action to set things right - regulations/controls/socialism/nationalisation are not bad words any more.

There was a blog post about the sub-prime crisis and lessons for microfinance back in June this year and nothing substantial since! My hypothetical question is - What if the Third World sub-prime bubble had imploded? Of course, I am referring to microcredit. What if microcredit had beaten the home loans in the race to a crisis? How do you think the governments of the world would have reacted? Would they have sanctioned the required millions (not even billions)? And what else?

The Dreams and Realities of Mobile Banking in India

It is an incredible image:

A woman in rural Bihar has recently been given a cell phone by her son who is a migrant worker in Delhi. Her son does not have lucrative job but has saved enough money so to give this gift to his mother so he can periodically speak to his parents and siblings. His mother, a farmer and bidi (hand rolled cigarette) maker, is a member of joint liability group which gets loans from a large MFI. Recently the MFI rolled out a program through which members can receive loans and save money through their cell phones. To make a deposit or repayment, the member simply has to go to the village kirana shop (ubiquitous daily needs stores in India). So rather than stashing it in some secret but precarious hiding place, the 200 rupees which she earned in the last few weeks from rolling bidis is given to the Kirana shop owner. The owner, acting as a remote branch, sends a text message to the MFI that he has received 200 rupees from this woman, and within five minutes she has received a message on her cell phone which displays her new balance. The woman is able to go through a similar process when she wants to make a withdrawal.

It is a wonderful world in which the benefits of technology are harnessed by those most in need, and there are places in the world where this fantasy is close to reality (particularly in latin America and Africa). India is not so close. The problems, not surprisingly, seem to be in a overly restrictive regulatory environment (see the RBI rules on mobile banking). .Particularly onerous is the 2,500 rupees limit of per transaction, and the 5,000 rupee daily limit,making it impossible to disburse even most microloans in one day.

In July 2008, CGAP recently released an accessible and exceptionally detailed focus note on the exciting possibilities of cellular banking and the stumbling blocks MFIs may face when trying to actually implement this new technology.

If you don't have time to read the entire note, I found the description of the "main application environment choices" on page 14 most illuminating. This section illustrates the choice mobile banking providers have to make about whether to use an SMS based service, which don't need to installed, or simpler to use applications which do need to be installed.

For more, read this interview with Vikram Akula of SKS on mobile banking, in which he argues against India's "prohibitive" regulatory environment.

Amidst hunger and poverty!

Yesterday we had a post mentioning hunger crisis in India. Indian states were kept under strong and higher hunger categories. Madhya Pradesh where I live, was rated the highest. I was in shock. I read the original article to learn what they measured and how?  The high rank on the index is probably due to large tribal population in the state. Tribals have different set of food habits and that would have not matched to the diet chart of IFPRI!  However, this doesnt mean that I am denying the report. we certainly need to work on getting out of hunger and malnutrition. After reading the article if you are thinking MP as poor and backward state let me tell it is very rich in minerals and natural resources and tribes. The landscape is beautiful and people are very nice.

On the day of blog action day ( I came to know about this just now) bloggers around the world wrote about poverty. I think it is a really good initiative. Following the blog action day posts I came to this story that mentions about 25 poor children taken up by charity institutions. I am surprised to find no Indian-face.

Also came across an article,  about rural tourism and its role in poverty alleviation.  Rural tourism as per me is when one visits a village for a substantial period of time (more than a day), lives there (make that your base), appreciates the culture and living style, enjoys cuisines and stories, and enjoys the care by people (which would be better than hotel steward for sure). When I started my work at CMF, I had this idea of evaluating impact of  microfinance in ecotourism activity and thus cleint well being. It proved impractical. Ecotourism is mostly under Forest Department's jurisdiction. This was the first obstacle. Secondly, it involves a part of community only, so the potential cleints are always less than the number required to break even in that area. 

Now Rural tourism certainly comes as an alternative. Imagine Kerela. One loves the beaches and the ambience , loves the masages and oil treatments.. But when it comes to living and eating one goes for tested options eats food which can be found elsewhere to and lives in hotels or lodges. Consider this You go few kilometers ahead from a regular beach. There is a family who can take you as guest, it will serve you food that they eat (it will be hygenic and more so for you). You can travel to other places with them, watch them climbing a coconut tree and drink the fresh coconut especially plucked for you. You can even try to climb. You discover new tastes, styles and beleifs. Isn't this exciting? It is cheap, you are supporting a family and you are not doing bad for yourself either.

It requires at least one entrepreneur to promote a rural tourism site. The person would need little technical support and credit for developing infrastructure, creating right attitudes in community, finding the right mix of  indigeniousity ettiquetes. There are many consultancies organization that can provide technical support or consultancy. Credit is a problem though!

If you are involved in providing credit services,  you can certainly help him. You can ask your managers to find an entrepreneur whom you can support in developing a rural tourism site. I will call you social for sure. Read here for the context...

470 Million Person Workforce, 35 Million Formal Jobs

Running the risk of being redundant, this entry highlights insights from Edward Luce’s 2006 book, “In Spite of the Gods” (my colleague Dan Kopf wrote an entry centred on this book entitled India’s Economic Path and What it Could Mean for MF). I was reading the book last night, and came upon a startling passage that discusses the formal job sector in India. It starts with the quote below:

“Less than 7 percent of India’s dauntingly large labour force is employed in the formal economy . . . That means that only 35 million people out of a total 470 million have job security in any meaningful sense; and only about 35 million Indians pay income tax, a low proportion by the standards of other developing countries.”

According to Luce, of this 35 million people in the formal sector, 21 million are government employees (e.g., civil servants, postal workers, teachers, soldiers, railway employees, oil sector workers). Of the remaining 14 million, which are formally employed in the private sector, only .25% are employed in IT, software, BPO work or call centres. Foreign companies employ somewhere between 1-2 million employees, “depending on the definition of a foreign company”. The rest are private sector employees hired by Indian private companies.

And what does the informal sector look like? According to Luce, “They are milking the family cow, making up the seasonal armies of mobile casual farmworkers, running small shops or street-side stalls, making incense sticks and bidis, driving rickshaws, working as maids, gardeners and nightwatchmen, and bashing metal as mechanics in small-town garages.”

Why is the small size of the formal sector (and huge size of the informal sector) matter? There are several reasons, including:
1) As of 2000, formal sector employees make about 9 times more money, and are 9 times more productive, than informal sector employees (Luce points this fact out).
2) The income tax base is tiny for a country of India’s size. I think this may be one of the reasons for the poor public infrastructure and health services provided by the government (among others such as corruption). Also, lack of government services actually has more of an effect on those making less money, meaning those in the informal sector are disproportionately affected by lack of government support.

To address the problems related to the huge size of the informal sectore Luce argues, “If India is to build a better bridge between the old world and the new it must provide jobs for unskilled and semi-skilled employees in its manufacturing sector . . . In 2005, India employed just seven million people in the formal manufacturing sector, compared to more than a hundred million in China”.

I don’t think China is the one and only shining example, and I do not 100% agree that scaling up manufacturing is the only way to go in India, which has great higher education and technology. However, I agree with Luce’s bottom line: for economic growth to be more equitable, a bridge must be built for the 400 million-plus informal sector labourers to help them make their way to the better-payed and more productive formal sector.

Hunger and Malnutrition in India

BBC News has an article today about a new report on hunger and malnutrition around the world released by the International Food Policy Research Institute (IFPRI). The article focuses on India, and concludes that the state of hunger in India is worse than that of 25 sub-Saharan African countries. Moreover, the situation in Madhya Pradesh is alarming enough to be comparable to those of Ethiopia and Chad.

Glancing at the complete table , its striking that even comparatively rich states like Maharasthra and Gujarat (leaders in terms of FDI) have a lower ranking than the DRC, Sudan, and Rwanda, all of which have had major civil conflicts in the past quarter of a century.

Given the dramatic reduction of poverty in China -- unequivocally the foremost boon to development in recent history -- on account of reforms made in the late 70's, it's startling to imagine what a difference 'inclusive growth' might mean for India over the next quarter of a century, and how a desperate situation stands to get that much worse if growth is limited to its present quarters.

From Harlem to India: You Have to Read to Your Children

Several weeks ago on the weekly Public Radio International show “This American Life” there was a fascinating/disturbing/uplifting story on the philosophy and programs of the urban non-profit Harlem Children’s Zone. Harlem is a poor, majority African-American neighborhood in New York City, less than 10 miles from Wall Street. It is an area that is stuck in a poverty trap, not uncomparable to that of certain areas of rural India, with comparatively low levels of education and income to the American middle class. The schools in the area are inadequate and government services in general are less effective in Harlem than in New York’s wealthy downtown and suburbs.

The episode of “This American Life” focuses on the story of Geoffrey Canada reaching the conclusion after years of frustrating social work that “the most effective time to intervene in the lives of poor kids is between the ages of 0-3, when the only people who can really give that help are the parents.” This conclusion was the result of research conducted by Harlem Children’s Zone staff and supported by rigorous child development research. The most stunning of these studies is discussed in the following quote comes from a 2006 article written by Paul Tough, who was also the narrator of the “This American Life” piece, for the New York Times Magazine:

Researchers began peering deep into American homes, studying up close the interactions between parents and children. The first scholars to emerge with a specific culprit in hand were Betty Hart and Todd R. Risley, child psychologists at the University of Kansas, who in 1995 published the results of an intensive research project on language acquisition. Ten years earlier, they recruited 42 families with newborn children in Kansas City, and for the following three years they visited each family once a month, recording absolutely everything that occurred between the child and the parent or parents. The researchers then transcribed each encounter and analyzed each child’s language development and each parent’s communication style. They found, first, that vocabulary growth differed sharply by class and that the gap between the classes opened early. By age 3, children whose parents were professionals had vocabularies of about 1,100 words, and children whose parents were on welfare had vocabularies of about 525 words. The children’s I.Q.’s correlated closely to their vocabularies. The average I.Q. among the professional children was 117, and the welfare children had an average I.Q. of 79.

In the radio story, Tough and distinguished economist and social program evaluator James Heckman go on to explain how small early childhood interventions, like parenting education and pre-school (tools currently used by Harlem Children’s Zone), have proven to have outsized impact.

Canada decided that, considering limited resources, the most effective way to uplift the Harlem community was not to help adults get themselves out of poverty, but to have those adults focus on preparing their kids for a more prosperous life. It is in many ways a devastating and unattractive conclusion because the theory suggests that 19 and 20 year old parents are likely beyond saving from an economically disadvantaged life. As Canada himself says in response to the assertion that his work chooses to focus on kids at the expense of the parents, “It is probably one of the toughest choices I have made, but our choice is to focus on [the kids]… so that you don’t end up with the same cycle going over and over again.”

The concept that early childhood interventions are the most resourceful ways of approaching economic development for the poor and underserved is of obvious importance to equitable Indian development. If children from poor households are going to succeed in the knowledge economy of India, the research cited in this story suggests that interventions need to begin from early childhood.

Though governments and NGOs can not and should not ignore the needs of those who are suffering now, it may just be that Harlem Children’s Zone approach is one that deserves more attention and a larger piece of the social programs pie.

Happy Lakshmi Pooja.

*For another wonderfully thoughtful and engaging story from “This American Life” listen to this great story on the financial crisis recommended by my colleague Amy Mowl.

A rundown on the Bhamashah Project; the First Phase

October 8, 2008

By: Akshi Khandelwal                                                                                

 

The Bhamashah project is a joint venture between the IL&FS (Infrastructure Leasing and Financial Services) and the government of Rajasthan. Due to lack of suitable access to low-income clients IL&FS subcontracted this project to BASIX, which took this as an opportunity to build an extensive network across Rajasthan.

Goal of the project

The government of Rajasthan has two main motives behind implementing this project. First, it wants to spread digital inclusion across Rajasthan through issuing smart cards to the targeted set of beneficiaries. The targeted set of beneficiaries consists of BPL families, small and marginal farmers and selected set of scheduled castes (SCs) and scheduled tribes (STs).

Financial inclusion, however, is a prerequisite for digital inclusion. Therefore, first phase of the project involved opening of bank accounts for beneficiaries and was termed as the ‘enrollment phase’. It is important to keep in mind that the beneficiary is to be the oldest female member of the family and only one account was to be opened per family. In case of exceptional cases where no female member was present in the family the account was to be opened in the name of the oldest male member. IL&FS had partnered with the Punjab National Bank (PNB) to open these accounts. Apart from opening bank accounts, the government of Rajasthan also credited these accounts by Rs. 1500 to set off savings for beneficiaries out of which only up to Rs. 1300 can be withdrawn in this year.

Second, to provide BPL beneficiaries with medical insurance which would cover the cost of their absence from work due to illness and also cover hospital bills to the extent of Rs.30, 000 per annum. This falls under the Rashitrya Swasthya Bima Yojna (RSBY).

 

Implementing the first phase

BASIX (a group of companies engaged in livelihood promotion) implemented the first phase from 28^th July 2008 to 14^th August 2008. The target was to open around 52 lakh bank accounts.

Rajasthan can be divided into 7 divisions. Out of these, IL&FS is responsible to cover 6 divisions that are Jodhpur, Udaipur, Bikaner, Ajmer, Jaipur, and Kota. A divisional head was assigned to each division. Certain number of district coordinators worked under the divisional head depending upon the number of districts that fell under that division. Further, 2 to 3 camp supervisors (CS) worked under each district coordinator.

Such an organizational structure worked well for effective implementation of the project in such a short period of time. There are about 29 districts that fall under 6 divisions with at least 3 blocks in each district. Each block consists of several panchayats and each panchayat consists of around 3 to 4 villages at least. The camp supervisors recruited customer enrollment agents (CEAs) for their blocks. The number of recruits varied depending upon the population of the villages present in different districts.

 

The camp supervisors had under gone training for the enrollment process before they left for their respective districts. This training was organized by the IL&FS team and was inducted to the CEAs by the CSs. This involved teaching the CEAs to fill out forms and take pictures (Kodak cameras were provided by IL&FS) of beneficiaries. The CS was responsible for training all CEAs and supervising as well as monitoring all the camps that were held within his block.

The recruited CEAs were divided into groups of 8, 5 or 3 depending upon the size of the panchayats they had to cover. A group covered approximately 5 panchayats (again depending upon the size of the district) and a camp was held for 3 days in each panchayat. The scheduling of the camps was done with the help of government officials present. These included the Block Development Officers (BDOs) and also the District Collector. They were very supportive and cooperative at all times.  Though all camps were supposed to start on the same day in all districts, due to lack of coordination and differences in number of blocks to be covered, this could not happen.

The beneficiaries were supposed to bring their ration cards or job cards as ID proofs. Since there were three categories in the targeted set of beneficiaries, different forms were available for each category. There were three types of forms that were to be filled. The pre-populated forms (in which certain fields had already been filled), the new enrollment forms and the correction forms. The pre-populated ones were further divided into categories of BPL and APL (for SCs/STs and small and marginal farmers). The lists of BPL families and SCs/STs were to be found with the ‘gram sevek’ of the panchayat, while the list of small and marginal farmers was to be found with the ‘patwaris’.  While there can be 3 to 4 patwaris to each panchayat, there is only 1 gram sevek to a panchayat. Also, the lists vested with these authorities and other government officials were from the year 2002.  Therefore, if new beneficiaries were to be added to these lists, authorization of the ‘Tahseeldar’ was required and if old names needed to be deleted from these lists then the sanction of ‘patwaris’ or ‘gram sevek’ was sufficient.

Fingerprints (on the forms) of all those beneficiaries who were illiterate and could not sign their names (this covered the majority) were taken. These set of fingerprints were, however, only for the enrollment phase. As stamp pads were used to take these, another set of prints will be taken at the time of issuing smartcards (for better quality).

 

Field-related problems

I worked as a camp supervisor (field executive for BASIX) in the district of Jaisalmer, which falls under Jodhpur Division. The enrollment procedure was successfully implemented by the 14^th August, 2008. After which it took us a couple of days of winding up in making payments to a total of 200 recruits.

Visiting the field I got familiar with different types of problems that our teams were facing while they were at their jobs.

The weather was not very favorable. Initially, it was too hot and later it rained regularly for a few days. It became difficult for the beneficiaries to reach the camps on time.

Apart from the weather conditions there were other problems, such as ILFS’s lack of preparation and lack of coordination. Their delay in sending the pre-populated forms and other stationery items caused a lot of confusion and wastage of time and money.

Certain problems regarding the BPL beneficiary list not being updated (it was based on 2002 survey) were encountered in some villages but were managed well by the government officials and BASIX team. People of these villages were not allowing our teams to take pictures and claimed that the BPL list included families that did not deserve to be a part of the list and excluded those who actually fell under the BPL category.  As this issue arose in a few other places as well, I feel that the government should consider taking some action towards this or else, the whole purpose of the project gets defeated.(perhaps, I will  post another blog on this issue)

 There were a couple of quality issues as well. Overtime with proper monitoring the quality of the photos taken and forms filled improved. However, a few teams in Jaisalmer block forgot to write the ration card number/voter ID or NREGA number on any of the forms. In order to rectify this error I had to sent all the forms back to them to get all the empty fields filled and have them re-take all the pictures of the forms. This was not possible for the forms that had already been sent to ILFS.

Jaisalmer, being a district of a very large radius demanded a lot of traveling. Financial issues pertaining to mobilization of teams from one village to another arose at many instances.

 

Second Phase:

The second phase of the project involves issuing of the smart cards and training the beneficiaries to use them. It was supposed to start in October, 2008 and should be underway now.  Also, BASIX plans to open at least 2 to 3 points of services (Pos) in each district.

Whether, smart cards will be issued to all those who filled forms and got their pictures taken is still a big question, as it is important that their bank accounts are opened first (this might be impossible due to quality issues). However, as the project is sustainable for 10  years, this process is to be repeated for those who get rejected or are left out this time.

I cannot say much about the second phase as I only witnessed the first phase. One good thing about the project or the way it is being implemented is that it gives employment to many people, especially in areas where job opportunities are very rare. Also, it is incredible how we were able to achieve our targets in such a short period of time despite of the different obstacles we faced (though I cannot comment about other districts).

 Doug had forwarded me  a couple of articles about this project which I found quite misleading.  He, however, got in touch with Preeti (senior manager at BASIX) regarding the  present state of the Bhamashah project and can probably follow up with this….and let us know more about it. Also, Doug if you feel that I have missed out on something or written something incorrectly....you are free to comment.

From swaminomics

In his latest column, S A Aiyar asserts that lending based on collaterals can go wrong and one must take look at cash flows. Sometimes cash flows just helps and he mentions about his involvement in 3 Indian MFIs.

More importantly he argues for need of mini finance which can lend in range of 50k to 2 lakhs. Read about it here.

Financial Inclusion – Work in Progress

I heard a joke in a conference some days ago - "Two guys were working on the field in tandem, the first one digging a hole and the second guy filling it up….Confused passer-by asked what was happening…. The guys explained that the third guy who plants the tree is absent today… but that doesn't deter us from working".

 

While I laughed, I realized that this is how we have been working - each doing his part with efficacy - but missing the big picture. The above example could be interpreted in the context of financial inclusion as follows:

As evident from the ongoing financial turmoil in US, anything anywhere could go wrong if the end objective is not planned intuitively or at least, well thought of in advance. When all the sophisticated Wall Street Investment bankers were eying big money by selling 'Collateralized Debt Obligation's' and 'Structured Investment Vehicle's', they conveniently forgot an elementary factor i.e. to have a good quality loan portfolio in the first place.

Similarly, providing financial services to the poor is just the means to achieve a larger goal of eradicating poverty and promoting social welfare, rather than an end in itself. As cited in the aforementioned example, we can all claim that the work is deftly being done by all of us but unless we apprehend the real need of the poor, i.e. plant the tree, the delivery of the required services seems a dwindling possibility. We need to identify and bridge the missing links - (like the intermediaries, brokers, TPAs, agents and most importantly – The Re insurers) in the sector with a well-defined, lucidly designed objective in focus, in order to facilitate inclusive growth. 

Now let me explain with some facts……..

"Financial inclusion" is a term that has garnered considerable attention in the recent past, not only in India but in developed countries as well. In fact, India finds itself placed in the bottom rungs in the index of financial inclusion (IFI) structured by the Indian Council for Research on International Economic Relations (ICRIER). So while we languish at the bottom of the Financial Inclusion Ladder, I recently attended a conference focussing on "The Other half of financial inclusion - Insurance for the Poor" as if the first half has been seemingly achieved.

I believe emphasis should be shifted to upgrading the banking sector for all of us, especially the poor who eke out a living by means of debts and mortgages, via moneylenders or from a soi-disant "MFI".  It’s time we look at providing Healthcare, education, savings and insurance along with our Credit. If we are unable to bring about this change, then needless to say, we are expending crucial resources just digging holes and covering them up, unknowingly neglecting the big picture.