Quick Dollar

During these past 8 months, I’ve had the fortune of discovering the reasons for which the only word people can unwaveringly use to generalize India is diverse. As I’ve alternated roles between visitor, tourist, and resident in different parts of the land, my interaction with my surroundings has evolved. Even though what I’ve gained most is a better understanding of what I don’t know, it’s at least useful in forming more accurate expectations in new circumstances. A couple of weeks ago, as my vacation was coming to a close, I decided to stop through Hampi en route to Chennai. After an overnight bus ride, I was greeted by an energetic young man in my early morning stupor with, “Let me show you Hampi, everyone here knows me and calls me Dollar.” Partly entertained and too tired to argue, I decided to accede to his pursuit for earning a fair share of my tourist dollar; it wouldn’t trickle down to him faster any other way, or at all. My short, spontaneous trip was poorly planned and so I accepted this form of a tourist-tax. Yet, it saddened me that this was the general case for the visitor-local population interaction; it was dominated by those trying to make a quick dollar and spend a quick dollar. The implications that this has on the local economy, social perceptions, and rich (yet poorly maintained UNESCO World Heritage Site) history of the area disturbed me and gave me a cynical outlook on the impact that visitors could have on sites in India as they increase in numbers. (Economic growth has added millions annually to the ranks of India’s middle class, a group that is driving domestic tourism growth. Disposable income in India has grown by 10.11% annually from 2001-2006, and much of that is being spent on travel. Foreign tourists spend more in India than almost any other country worldwide. Tourist arrivals are projected to increase by over 22% per year through till 2010, with a 33% increase in foreign exchange earnings recorded in 2004.)
Nevertheless, I’ve also been lucky to experience tourist areas where resulting income-generating activities aren’t strictly seasonal or restricted to the self-employed poor, but are supported by SMEs and contribute to improved infrasturcture. The potential for the role of MFIs and SMEs in driving a sustainable path for tourism is huge and can be a source of poverty alleviation. For those who are interested in some info, check out “Tourism, Microfinance and Poverty Alleviation” published by the WTO. A Working Paper is also available online called “Financial markets, microfinance and tourism in developing countries” by Jos van der Sterren.

Two Sessions In...

The Sa-Dhan conference on microfinance has completed two sessions and already a few themes have emerged. The first has been a resounding call for regulatory reform in India. Dr. Mohammad Yunus spoke during his inaugural address about the journey Grameen Bank tread in Bangladesh and how some of the tribulations and challenges he faced could be applicable to the Indian context. He spoke of how existing microfinance regulations in India have the, “architecture of a super-tanker,” a nod to how many regulations are designed for larger entities rather than MFIs; he advocated regulation with the “architecture for a dinghy boat,” for microfinance. Without the needed regulations, the majority of microfinance providers in India cannot mobilize deposits. Yunus spoke passionately about how in Bangladesh, Grameen Bank worked with politicians to create a law specifically for its operations, the Grameen Bank Law, in 1983 which allowed the fledging institution to take on savings. Since the passage of this regulation, Grameen Bank could leverage its deposits and erase the fear of bending to the will of outside providers of capital. He urged India to follow the same example. Other speakers such as Vijay Mahajan echoed Yunus’ statements for regulatory reform. Regulation was framed by many speakers as a binding constraint for continued maturation of the sector.

A second refrain, which one might expect, is reference to the global financial mess. Many of the speakers took time to point out the lessons learned from the crisis, such as the conflation of financial markets’ value with the value of the “real economy,” and the error in expecting financial services as a business model to reap high margins.

To be continued….

Live Blogging from Sa-Dhan Conference

Good morning! Today several representatives from the Centre for Micro Finance will be attending Sa-Dhan's National Conference in Delhi titled, "Microfinance Ecosystem - Equilibrium between Growth and Effectiveness." Scheduled speakers and guests include Dr. Mohammed Yunus, Founder of Grameen Bank and Nobel Laureate, Dr. Nachiket Mor and Mr. Vijay Mahajan. Our team will post on the sessions of the day as well as our reactions to the topics discussed.

Links you might enjoy

The New York Review of Books on novelist and critic Margaret Atwood's latest book about the culture of debt.

"From being a necessary tool in productive enterprise, debt came to be viewed as an instrument of wealth creation. Using cheap credit, hedge funds and investment banks were able to multiply their profits, while society at large—including some in its poorest groups—came to see taking on large amounts of debt as a way of building up capital. Now that this structure of debt is unwinding, older ideas may be on their way back: "We seem to be entering a period in which debt has passed through its most recent harmless and fashionable period, and is reverting to being sinful."

The Atlantic on Goan dim sum.

Slate on the protests of Pakistani lawyers.

Tariq Ali on the disturbing history of the Bhutto family.

The New York Times on the failures of Hollywood in India.

A bizarre Telegraph piece attacking Slumdog and Salaam Bombay.

Interview w/Bellwether Fund sheds light on how private equity views acquisitions

My colleague Akhand Tiwari and I are writing a case study on the first acquisition in Indian microfinance, Sonata Finance's purchase of Jeevika's (a non-profit livelihoods organisation) loan portfolio in August 2007 (press release found here). The study should be up on the CMF website by the end of the week, but I thought it would be cool to post one of the two interviews (over e-mail) that we had with Bellwether Microfinance Fund, a private equity fund that helped organize and finance the acquisition. Bellwether is based in Hyderabad, and specifically focuses on microfinance.

This interview was with Venkatram Reddy of Bellwether, who played a lead role in Annupurna's acquisition of Maxwealth's (another non-profit) loan portfolio. The fall 2008 acquisition was for Rs. 193 million (~ USD 3.94 million), and Maxwealth's senior management did not join Annapurna's microfinance group. Instead the non=profit's management team used the buyout as an opportunity to focus more on the non-profit's livelihood activities. As context, Annapurna is based in Hyderabad, and Maxwealth conducted microfinance activities in and around Hyderabad.

Enough from me, below is our interview. Would love to hear thoughts on these types of acquisitions or Mr. Reddy's comments . . .

Bellwether’s Responses on Annupurna-Maxwealth Acquisition
(Interview with R. Venkatram Reddy, Principle–Investments: Via E-mail, January 2nd, 2009)

A) Initial thoughts on the Acquisition:

1. Why did Bellwether think the Maxwealth acquisition was a good idea?
ICFAI-sponsored Maxwealth trust started their microfinance operations in Hyderabad to support income generating activities of urban poor to help ensure quality education for the poor children. The senior management of Maxwealth trust visited well- run MFIs in India to understand the microfinance business and its impact on customers before starting the program. The trust has highly experienced and quality field people from leading MFIs. More than 90% of the filed staff had around 4 years of microfinance experience, and their intention to build professional microfinance institution with high portfolio quality has been achieved in a short span of time. Hence we felt that acquiring Maxwealth would be very beneficial for our investee company, Annapurna. Also, Bellwether has one such successful acquisition under its belt (Sonata – Jeevika) where the benefits of acquisition are clearly visible.

2. What attributes of Annapurna made it a good candidate for expansion?
When Maxwealth trust approached Bellwether with their intention of having of an NBFC microfinancé program, Bellwether decided that the acquisition shall be pursued by Annapurna Financial Services Limited (Trident) due to the following reasons:
1. Annapurna Financial Services’ (AFS) proximity to the operational area of Maxwealth Trust.
2. Similarities in business model
3. Matching profiles of field staff
4. Strong microfinance background of Mr.Kishore (founder of Annapurna) and his orientation towards people
5. Annapurna’s Ambition of rapid business expansion

B) Bellwether’s Role in the Acquisition Process:

1. What role did Bellwether play in working with other stakeholders during the acquisition process?
Bellwether’s role included:
a. Due diligence of Maxwealth’s Microfinance program along with promoter of Annapurna, Mr. Kishore
b. Roll out of a plan for the acquisition process including commercial discussion
c. Instrumental in bringing Maxwealth and AFS on a same platform for attaining smooth acquisition
d. Played a key role in bank funding to AFS for purchasing the portfolio
e. Infused the capital in to AFS to ensure future growth and other business requirements like HR, Branch expansion and infrastructure

2. Did you play a role in the valuation process of Maxwealth loan portfolio?
Bellwether played a key role in the valuation exercise along with the promoter.

3. Did Bellwether provide support during the integration process? If so, what type of support did you provide?
Yes. At board level and also Bellwether is a part of the transition committee that meets more frequently to address issues related to HR, portfolio and positioning of the combined entity in the market.

C) Evaluating the Success of Integration:

4. How do you evaluate the success of the acquisition? Do you use a list of objectives/achievements to measure medium or short-term success?
Commenting on the acquisition’s success requires more time as the acquisition happened in September of 2008.

5. In your view, what have the main challenges been during the integration process? What has been the experience so far?
Some of the following were assumed as key challenges for AFS while doing the acquisition of Maxwealth portfolio.
• Difference in salary structure
• Retaining of experienced staff
• Rural and urban portfolio mix
• Alignment of work culture

AFS, given its promoter and key management’s track record, has been in a position to handle above challenges in an amicable manner. Some of the experienced field staff from Maxwealth has been assigned with higher responsibilities to match with their salary structure by showing a visible career path. Even though there is a difference in urban and rural scenario, the customers’ profile, the model, and the systems followed by Maxwealth are not very different from AFS. As the AFS promoter has proven institution and team building ability shown in previous assignments, we do not expect the integration of staff from both entities will be an issue.

6. Do you think consolidation in the microfinance industry in India is a good idea? In what instances is it most beneficial?
I feel that this is a definitely a good idea as consolidation enables the institution to visualize the bigger things which leads for better positioning. Such acquisition also helps an MFI increase its outreach in terms of portfolio size, experienced staff and number of customers, thereby increasing its overall value proposition in the market.

The Paradox of Child Malnutrition in India

A NY Times article published today highlights an interesting, though depressing, paradox in India – a decade of steadfast economic growth and one of the worst child malnutrition rates in the world. As the article notes: “China, that other Asian economic powerhouse, sharply reduced child malnutrition, and now just 7 percent of its children under 5 are underweight, a critical gauge for malnutrition. In India…the comparable number is 42.5 percent”. According to the Global Hunger Index (which measures three criteria with equal weight; the proportion of undernourished as a percentage of the population; the prevalence of underweight children under the age of five; the mortality rate of children under the age of five), India is worse than two-dozen Sub-Saharan African nations and other neighbouring nations such as Pakistan.

There are obviously a multitude of reasons given for the paradox. One mentioned is the ‘democracy versus authoritarianism’ debate, in the context of growth and development. And it probably has some explanatory power. The state-led authoritarian model followed by China makes it easier to pass health legislation to intervene when necessary. Despite some shortfalls, there is evidence to support this as China’s low child malnutrition rates continue to decline. In contrast, India finds it more difficult to intervene and direct funds towards particular problems. It is the world’s largest democracy that has a ton of special-interest groups guiding politician’s legislative agendas, and it could be argued government itself is a formidable gird-locked bureaucracy.

Further, despite the democratic incentive for politicians to cater to voters, the majority of whom do not have access to healthcare, public expenditure on health is low. According to WHO data on public and private expenditure, per capita health spending is probably slightly lower compared to nations that India has outpaced in economic growth. However, as seems to be the case in many debates about Aid and Growth, maybe the issue is more about the allocation of money and resources. The article explains, “most experts agree that providing adequate nutrition to pregnant women and children under 2 years old is crucial – and the Indian program (the Integrated Child Development Services program – network of soup kitchens in urban slums and villages) has not homed in on them adequately”.

While a call to more effective health interventions is central, it seems that microfinance should have some role to play – especially if aggregate economic growth is not going rapidly mitigate child malnutrition. Intuitively, given that the majority of credit is held by women, greater access to credit should help in some way to reduce malnutrition among children.

So I guess the big question is, since India and Bangladesh (below India in the Global Hunger Index) have been the examples of microfinance proliferation and innovation, why has child malnutrition persisted at levels worse than a number of war-ravaged sub-Saharan nations who don’t have a microfinance sectors? So more to the point, in India, has microfinance had a role in reducing this problem?
Any thoughts?

Exploitative Interest Rates in Indian Microfinance?

Several months ago, I attended a microfinance (MF) conference in which practitioners, academics and regulators had substantive discussions on a variety of issues that confront the sector as it matures.

Towards the end of the conference, an eminent government official gave a speech on the state of the sector from the states viewpoint. Nearing the end of his speech, the official made a statement similar to the following, “And don’t forget about high interest rates, this is still an issue as far as regulators are concerend.” My immediate internal reaction was a quizzical and deflated, “Really? Interest rates?”

It was my opinion from studying the issue over several years that MF interest rates in India are absolutely NOT an issue. From comparing the Indian MF sector to others in the world, and understanding the massive operational costs of microfinance institutions (MFIs), it seemed to me that not only were MF interest rates in India not a problem, they were comparably quite low. And thus, any effort by the government to instate an interest rate cap on MF would almost certainly be counter productive by limiting the ability of MFIs to sustainably provide loans to those unable to access formal banking services. It was my view that any government official who supported interest rate caps was either being irresponsibly populist or was simply uninformed.

But it is always worth reassessing your opinions, and recently I came across a research paper and internet discussion that allowed me to do just that. In February 2009, CGAP published “The New Moneylenders: Are the Poor Being Exploited by High Microcredit Interest Rates?”. It is a detailed and fair minded report done by a group of authors that are proponents of for profit microfinance but have been critical of MFIs and there stakeholders before when they believed an organization was acting in an exploitative manner (see this note on Mexican MFI Compartamos). The paper does essentially affirm my prior beliefs so my commendation should be taken with a grain of salt.

The authors use MIX Market data (the best available repository of financial data for MF poviders) reported by sustainable MFIs to find the current interest rate levels for MF in the world and in specific regions. They find that “In 2006, the most recent year available, the median interest income for sustainable MFIs in MIX, weighted by [gross loan portfolio], was 26.4 percent of loans outstanding.” The average for the South Asian region is 26.2 percent (note that this is an average and not a median so these two pieces of data are not perfect comparables). I was actually a bit disappointed by this because I had thought that because of the socially minded origins of South Asian MF, it might be lower.

The report also shows that MF rates in South Asia are actually lower than those for formal consumer credit (credit cards, consumption loans) and less surprisingly informal credit providers (i.e. moneylenders). Though they do tentatively, because of limited data, suggest that MF rates are higher than those loans offered by credit unions to poor clients.

The authors go on to analyze the major components of MF interest rates (cost of funds, loan loss expense, operating expense and profit) to see if there is a particular component that is bloated and would cause what might be considered usurious rates. They find that of all regions, South Asian MFIs costs of funds (the amount the MFI needs to pay for borrowing money) are highest, and that the percentage of their interest earnings going to profit are slightly higher than in other regions. The two may be connected in that I believe Indian MFIs are more attracted to growth through retained earnings/profit because of the high and rising costs of borrowing money.

South Asian operating expenses are near the world average and loan loss ratios unusually low.

The reports most important findings for our purposes are the following:

1) MF interest rates are declining worldwide (a 2.3% drop from 2003 to 2006) mostly due to increased operating efficiency and perhaps in part due to competition. Yet interest rates in South Asia have stayed constant during this period most likely because they had an unusually low starting point.

2) “After Tax Profit as Percentage of Gross Loan Portfolio” is only 1.9% in South Asia compared to 12.5% worldwide. If anyone reading this knows why after tax profit is so low when the percentage of interest going to profits are a bit high, I would love to know the answer (are taxes that onerous?). Regardless, if you think MFI owners are robber barons; this data should give you a moment of pause.

I was and am convinced by this data that MF interest rates worldwide and in South Asia are not a cause for concern, but I did read a fascinating internet discussion that suggested several mechanisms through which interest rates might be reduced. I would be happy to cite those that made these suggestions, but as it was part of a private chat I will not do so. The suggestions are in italics and my comments are not:

Several members of the discussion suggests that microfinance branches and organizations expect to break even much more quickly than other types of businesses. These members of the conversation think that MF organizations should see their operations as more of a long term investment, as a manufacture might, where initial costs will be high, with low yearly profits that will be sustained over a long period.

Some of these same folks contend that if MFIs funded themselves more through equity investment and less through borrowed funds and retained earnings, interest rates could be lowered and profitability expected after a longer time horizon.

I think these are fantastic suggestions that I am eager to see tested. The basic arguments against these thoughts are that many MFIs would like to raise equity stakes but simply do not have the capacity. Also, the costs of failure would be much higher if the organization is further leveraged against future earnings that might never come (the future is an unpredictable place).

Another member suggests that interest rates could be lowered by serving all members of the population rather than just the poor or women. In this manner, a branch office would not be as limited in the number of clients they might take on and thus take advantage of economies of scale, lowering operating expenses as a percentage of the loan portfolio.

Another idea certainly worthy of a go. I think the worry here is that this might lead to mission drift because loan officers might prefer to serve wealthier clients as they are generally better credit risks.

Another member of the discussion believes that the current situation in which most MFIs offer only one product, grameen style joint liability loans or self help group loans, does not allow the large amounts spent on infrastructure to be properly utilized. Offering a larger menu of products would reduce fixed costs as a percentage of the portfolio.

An interesting thought but from my field experience I am skeptical of how easily this can be done effectively. Surely it would be best to have MFIs offer a variety of different products rather than simply joint liability loans (for both clients and the MFIs bottom line), but the capacity of loan officers and organizations to take on a diverse menu of financial products is suspect. Organizations like SEWA Bank do offer a massive number of products, but whether this is done sustainably is unclear.

There are a number of topics about the effect of interest rates on clients that I was not able to address, but I feel that this post is long enough already!

A quick question to any reader who got this far: Is anyone aware of the likelihood of interest rates caps being imposed or states that have already imposed them? I was searching the internet and could not find any discussions about the issue in the last year.

IFMR Capital and Equitas Complete First Securitisation in Indian Microfinance

A couple days ago IFMR Capital and Equitas completed the first rated micro loan-backed securitisation in India (and maybe around the world). How does a securitisation differ from the typical loan-portfolio buyout? Both can help banks fulfill priority sector lending requirements, but securities can be traded on the market while banks are fixed in when they buyout loan portfolios, which could mean securities would be more valuable. This securitisation bundles Rs. 157 million (~USD 3.1 million) worth of Equitas' micro loans into one security. As the fiscal year ends in India at the end of March, I am curious how much this security will go for as banks scramble to meet priority sector lending requirements.

The Reserve Bank of India’s (RBI) priority sector requirements stipulate that 13.5% of domestic banks’ net credit must go directly toward agricultural purposes. Banks that fail to meet this target are required to deposit the shortfall with NABARD for which they receive below-market rates of interests (typically 3.5% to 6% depending on the size of the shortfall). Rural micro loans often can qualify as direct agricultural loans. Also, there are RBI weaker sector lending requirements that include poorer urban borrowers, that combined with the 13.5% direct agricultural lending requirements, total 40% of domestic banks' net credit. RBI now says they will enforce this 40% weaker lending requirement in 2009. WIth this 40% now being enforced, microfinance loan portfolio buyouts (and now securities) should be bought up quickly before the end of the fiscal year.

To help explain the differences between loan portfolio buyouts and securitisations, I include some detail below, which I mainly borrow from an investment climate summary written by my colleague Doug Johnson (and used in the 2009 State of the Microfinance Sector report):

Loan Portfolio Buyouts
A portfolio buy-out occurs when a bank (or other agent) purchases the rights to the future payment stream from a set of loans granted by the MFI. Notionally, there is little difference between an MFI receiving an up-front term loan or a delayed payment from a portfolio buyout other than the timing of the transfer from the bank to the MFI. In practice however, buyouts allow banks to more easily create a portfolio of loans which qualify under the RBI’s priority sector requirements for direct agricultural lending.

MFIs typically can only sell off loans financed by accumulated earnings or equity, not term loans from banks, in a portfolio buyout. (This is because the payment stream from those micro-loans is already hypothecated to the bank which granted the term loan.)

Securitisation
Securitisations are often confused with portfolio buyouts but is in fact quite different. Securitisation in microfinance generally refers to a transaction in which microfinance loans held by a bank (either as a result of the bank extending a term loan to the MFI, lending via the partnership model, or purchasing the loans via a portfolio buy-out) are bundled into a special purpose vehicle to create a security (usually bonds) which is then traded on international capital markets. From the perspective of the MFI, whether or not a portfolio of loans it has sold to a bank is securitised matters little. (The only substantive difference from the MFI’s perspective is that the bank may be willing to pay more to the MFI for the portfolio of loans if it anticipates receiving a high price for them via securitisation.)

Will be interesting to see how well this IFMR Capital -Equitas security sells on the market. Would be great to hear others thoughts . . .

Religious politics for people who do not know what their religion is?

I am in Allahabad at present, in the state of Uttar Pradesh. The state has always been focus of national politics. Below are two facts that support previous statement.
1. Out of 15 prime ministers till date, 9 are from UP.
2. Many regional parties from UP grew to become national level parties (BJP, BSP, SP etc).

I along with my colleague traveled to a village in Phoolpur tehsil of the district. We were there for the purpose of piloting a take up survey. The survey has a question on caste category and religion. The women whom we interviewed neither knew the caste category nor the religion. The village was a ambedkar gram though. You can find more about ambedkar gram here (hindi website). I was not surprised at this fact. Last year I interviewed women in the same geography and found that women did not know what religion they belong to?

The fact that all the politics is based on religion and caste moved me though. Abhishek, our project assistant commented, " all the politics is about religion and caste of these people who do not know what religion they belong to?" This is the state which influences the politics of the country the most.

SEWA Bank: In the NYTimes and Working with CMF

This weekend I came across a good New York Times article on SEWA Bank and its founder, Ela Bhatt. SEWA Bank is based in Ahmedabad, was founded in 1981, and now has overall 500,000 women members. The cooperative bank, which is allowed to take in savings (all cooperative banks are allowed, non-banking financial companies are not allowed), has about 350,000 depositors and provides health and life insurance to about 100,000 of its members. This article was particularly interesting because though I knew about SEWA, I knew very little about its founder Ela Bhatt.

SEWA also happens to be one of CMF's most active partners, as we have several ongoing projects with the bank. We recently published an overview of these projects, which CMF and Harvard (mainly my colleague Ami Bhavsar Vyas from the CMF side) developed using a presentation we made to SEWA's management. The overview details CMF's progress on projects including: 1) developing unique identification codes for each client, 2) how location of loan officers' homes affects client take-up and use of financial products, and 3) business training.

WIth the business training project, the three principal investigators (Rohini Pande-Harvard, Erica Field-Harvard & Seema Jayachandran - Stanford), recently wrote a three-page summary of the project's findings. Interestingly, women who attended SEWA's business training took out a new SEWA loan in the next four months at a higher rate than control group SEWA members who did not attend. Specifically, 6% of control group members took out a new loan and 14% that took the training took out a new loan. My favorite finding is that in three main areas (housing, business creation/expansion, children's education) that training participants wanted to improve within, SEWA members that participated in the training used their loans toward these purposes at a much higher rate. The figure below details this finding.


If you are interested in other findings from the SEWA-CMF business training project, I encourage you to check out the summary.

Indian Politics: How Crises affect Voter Decisions

With the dates for national elections in India recently set for April 13 - May 16, I have become more sensitive to articles and papers that discuss voter tendencies (particularly within India). This morning I came across an interesting paper on voters' reaction to weather crises in India, and whether government responses to such crises affect voter decisions (courtesy of a blog by Chris Blattman, a Yale Political Science professor). With weather crises, it seem like incumbent provincial governments do lose votes after floods or droughts, but that these losses can be lessened if the government provides timely and well-documented relief aid. As the paper's authors (Shawn Cole and Eric Werker of Harvard, and Andrew Healy of Loyola-Marymount), put it:
"We find that voters do indeed punish politicians following adverse weather events, but that the degree of punishment depends critically on the quality of the ruling party’s response: those distributing greater amounts of relief aid suffer smaller subsequent electoral losses."

The paper I discuss above focuses on crises related to weather. On a broader level, I wonder whether the current financial crisis will negatively affect Congress in the upcoming elections. The government is definitely trying to react to the crisis both on the national level. For instance Congress has passed two fiscal stimulus packages in December 2008 and Jan. 2009 that combined amount to 3% of India's GDP, and has expanded the national rural employment scheme (NREGA). As this Reserve Bank of India (RBI) paper details on page 9, there have been several relief packages across the past 12 months:
"These fiscal stimulus packages, together amounting to about 3 per cent of GDP, included additional public spending, particularly capital expenditure, government guaranteed funds for infrastructure spending, cuts in indirect taxes, expanded guarantee cover for credit to micro and small enterprises, and additional support to exporters. These stimulus packages came on top of an already announced expanded safety-net for rural poor, a farm loan waiver package and salary increases for government staff, all of which too should stimulate demand."

Voter theory, and the paper discussed in the 1st paragraph on weather-related crises, demonstrate that crises typically result in the incumbent government losing votes. In the Indian context, it seems like government aid programmes can help mitigate these losses, particularly with weather-related crises. Will this idea hold with the financial crisis? Has the incumbent government's package provided visible relief to distressed voters (such as food aid would after a flood)?

As the financial crisis by nature is more abstract than a flood that destroys the crop for a year, I am not sure how voters will react to government relief programmes. These relief packages are more indirect than food aid or direct government benefits, and accordingly I am not sure if voters will feel the affects of aid in the same way. Regardless, it's fun to think about . . .

HR issues in microfinance, BIRD conference

BIRD recently hosted a one day conference on "Building Efficient Human Resources in Microfinance". The conference reflected a very positive sign for the microfinance sector in India for an apex institution took lead about an issue which is core to the whole microfinance sector and is very less talked about at the same time. The conference essentially focused on HR needs of MFIs and covered issues of HR challenges in microfinance, how management courses can help and capacity building of HR to increase financial literacy of clients. Some facts from the conference -

1. 2.5 lakh personnel needed in coming years in the microfinance sector
2. The microfinance insights issue states that 48% MFIs think they lack strategic thinkers with experience in microfinance, while 35% think they lack strategic thinkers on capital markets experience.
3. BIRD, may soon start a management course on microfinance to generate microfinance managers
4. Need of training and proper motivation for MFI officers is very important. As Mr Ghosh from Bandhan pointed out – “success is not world class talent, it is world class performance”. His presentation talked about various HR motivation strategies adopted by the MFI.
5. BIRD may start customized HR training programs for microfinance institutions.
6. The staff incentive schemes need to be properly designed. Mr T N Shukla from cashpor presented a series of steps starting from recruitment up to career growth for the same.

A couple of CMF’ers wonder if is it possible to evaluate HR policies of a MFIs? The researchers, who are based in field and are in constant touch with practitioners, have found that there have been cases where monetary staff incentives have led to frauds etc. This blog talks about few such cases and studies. However, it is also known that staff incentives need not to be monetary all the time. Mr Ghosh, from Bandhan during his presentation opined, “what it basically needs to institutionalize a successful MFI, is a good HR manager; other things follow”. Perhaps, we all understand the importance of right HR and right staff incentives in microfinance and it is high time that we know what type of incentives work for MFIs.

Please feel free to contact the author of this post with any ideas or suggestion on evaluation of HR policies for MFI.

Capturing Microfinance in Action

CGAP recently publicized the winners of their annual photography contest. Noteworthy is that many of the finalists captured Indian microfinance in action. The winning photograph is of a young girl preparing radishes to take to market in West Bengal and was chosen from more than 700 entries. Check out the winning and finalist photographs at the link below:
http://www.cgap.org/s/photo2008/


In honor of CGAP's contest, I wanted to post one of my favorite pictures of microfinance in action, taken my CMF's very own photographer-extraordinaire Sushmita Meka. This photograph is of a self-help group member holding her individual passbook, which helps her keep track of her savings progress and loan repayments. Sometimes a picture really is worth a thousand words!