If you're in Mumbai tomorrow (28th of April)...

...don't miss Sankalp 2009, India's first social enterprise and investment forum.  More info on the event can be found at www.SankalpForum.com.  Attendees can register online here.   

Below is a description of the event from the organisers:

More than 300 social entrepreneurs, a plethora of international and regional investors, funding agencies, corporate houses, and philanthropic organizations will come together on Tuesda, April 28, 2009 in Mumbai in an event that will change the landscape of social investing in India. Come and be a part of this landmark event!

Sankalp (English: Pledge or Determination) is India’s first Social Enterprise and Investment Forum with the primary goal of bringing together various stakeholders sharing a common conviction that capital should be invested to create multiple bottom-line returns (financial, social and environmental) and not exclusively financial (profit-maximizing) or social (philanthropic) returns.

Set against the background in India, where 924.1 million Indians (nearly 95% of India’s population) have incomes below USD 3000 per annum in local purchasing power, and 78% of this from rural India, India has been able to clock growth rates between 6.5% and 7% despite the slowdown. India presents us with questions of development coupled with the unlimited potential of an emerging market.

The event endeavours to recognise and award truly impactful enterprises and catalyze investments in sectors such as agriculture and rural innovations, affordable education, healthcare inclusion, environment and clean energy, and highly scalable social models.

At a time when investors are looking for sustainable returns, Sankalp presents opportunities to engage with the emerging class of impact investors and connect with evolving yet investible ideas in high impact sectors. The primary aim is to create a holistic ecosystem to facilitate catalytic growth in these recession proof sectors which yield lower longer term returns.

Sankalp 2009 will feature a stellar line up of thought leaders, luminaries, and speakers including Naina Lal Kidawai, CEO of HSBC India, Vijay Mahajan, CEO of Basix, Anthony Bugg Levine of Rockefeller Foundation, Gurcharan Das (former MD P&G), Sarath Naru of Venture East, and Vineet Rai, founder Aavishkar.

Sankalp Forum is the brainchild of Intellecap – a pioneer in the multiple bottom line investment industry. The key partners for the inaugural 2009 event include Rockefeller Foundation from the US, Rianta Capital from UK, National Bank for Rural and Agriculture Development (NABARD) and Rural Innovations Network (RIN).

Sankalp Forum will be held in Mumbai, India, on April 28th at the Taj Land’s End and additional details can be found at www.SankalpForum.com

Institutional Reform in India: Can we achieve big change through small measures?

Anyone who has had the pleasure of navigating the upper echelons of Indian bureaucracy has probably encountered the puzzling indo-western hybrid toilet. A true bastard child of globalization, this strange contraption is basically a western toilet with two footrests molded on the seat. The ostensible reason for the existence of this strange device is to afford the user the familiar desi comfort of squatting as they shit, while simultaneously elevating them (both literally and figuratively) above the unwashed masses who do their ablutions over a humble hole in the ground.

The first time I encountered these toilets in an IAS office, I was floored by their aptness as a metaphor for the position of many Indian public administrators: teetering awkwardly between two worlds while feeling allegiance to both, and balancing precariously on a tiny platform while trying to maintain a sense of dignity in a foul-smelling and uncomfortable room.

The structure and form of the IAS, IPS, and the majority of India’s public administration is largely a relic of the British colonial legacy. Most of the major administrative structures were inherited directly from the British; for example, the police are still organized and structured under the colonial police act of 1861. Though since Independence full autonomy has been transferred from colonial officers to an army of brown sahibs, one cannot help but question the soundness of the decision to incorporate, largely without amendment, a set of laws and system of governance that had continued subjugation rather than efficient service delivery as its overarching goal.

This is one of the many reasons people offer for the widespread corruption, institutional torpor, and sheer incompetence that seems to characterize a large portion of India’s bureaucracy. Another contingent seems convinced that all bureaucrats are simply evil souls motivated purely by greed and self-advancement. And others still will claim that the failures of India’s public administration are simply the result of human capital deficits among the ruling class.

Economists tend to analyze human behavior in terms of incentives, (admittedly, I am a student of economics). Thus, according to economic reasoning, if the vast majority of bureaucrats in an institution indulge in corruption or bribe-taking, it means that there is probably something seriously wrong with the incentives being offered to them. Sound institutions offer administrators strong incentives to perform well, deliver public goods, respect rule of law, and generally serve the people. Conversely, sound institutions are effective at catching and imposing punishment on those who violate the trust placed in them, punishments strong enough to deter such behaviors from becoming widespread and endemic.

I am not one prone to excusing the behavior of corrupt officials. But having spent a considerable amount of time working on institutional reform, and talking to bureaucrats and peons alike from various offices, I have heard a litany of compelling excuses and reasons why people in positions of administrative power are incapable of fulfilling their basic responsibilities and reduced to goondaism and criminality. The sheer prevalence of bribe-taking, corruption, and inefficiency suggests that these behaviors are born out of institutional failure rather than individual malevolence. Although many people would disagree with me, I think that claiming all of our nation’s administrators are bad by their very nature is simply wrong.

Entry to the Indian Administrative Service is truly meritocratic – individuals are selected based upon the results of the free worlds most competitive and intense civil service exam. There is no doubt that India’s civil service recruits represent the best and the brightest of each generation. The best minds from a variety of academic and professional disciplines are harvested and bestowed with an almost monarchial power over their respective spheres of influence. Yet widespread inefficiency and corruption has been an oft-lamented reality of Indian public administration since even before Independence. There are two possible explanations for this. The first is that India’s best and brightest are simply not good enough to run the country. The other is that the systems and structures in which the best and brightest are operating offer them perverse incentives not to perform to their potential..

For a country so brimming with talent and ability, the first explanation seems downright preposterous. Assuming that the second theory is indeed accurate, the logical next step is to carefully consider the various ways in which public institutions can be restructured to better provide services to their constituents. Although its tempting to simply lament the evils of “the system” and declare that no change is possible barring a revolution, this is at best unproductive and at worst counterproductive.

In spite of tremendous obstacles to wide-scale institutional reform, many organizations have made great progress increasing accountability and service delivery through relatively small and simple initiatives. For example, in collaboration with MIT Poverty Action Lab, the Rajasthan Police was able to improve service delivery by implementing seemingly small initiatives such as training and freezing of personnel transfers. Having spent a year working on that very project, I can personally attest that at the initial stages, many of involved parties (self included) were skeptical that the proposed changes would make any genuine difference, due to institutional inertia, lack of accountability, and the familiar litany of administrative grievances. Yet the data conclusively shows that the small measures actually did cause a substantial and measurable change. A number of other states are reporting initial success using e-portals as a transparent and corruption-proof way for governments to solicit tenders for public works contracts (a major source of graft), and I have also heard anecdotal reports of the successful use of participatory auditing to reduce graft in public works. Another J-PAL project is currently examining the effectiveness of institutional reform in Gujarat’s pollution auditing system.

Although none of these small-scale measures sounds particularly inspiring in their own right, I think that they are India’s greatest hope for improving governance in the short run. It is becoming very evident that public will for change is rapidly growing in this country, but it will take considerable time to consolidate that into widespread and dramatic institutional reform. In the meantime, we need to start small and take the first steps and continue to demonstrate to the public the great disparity between what is possible and what currently exists.

Since the research staff who contribute to this blog have a collective wealth of grass-roots knowledge at their disposal, I’d be interested in hearing firsthand examples of potential ways to improve or reform institutions in India that are currently not working to their potential.

Poverty and Festival Spending in India

We found some very interesting data about festival spending of Indians from a survey conducted in Western Orissa in early 2007. The survey was conducted as part of a randomized controlled trial the Centre for Micro Finance is carrying out in order to understand the impact of selling insecticide treated malaria bed nets through a Micro Finance institution. The survey was completed in 150 villages across 5 districts of Orissa, and the respondents were randomly selected from a list of microfinance clients provided by BISWA (Bharat Integrated Social Welfare Agency), who is the micro lending partner for this project. The total sample size was 1,947 households, all of which contain at least one BISWA SHG member.

In the survey, households were asked about the types of loss or unexpected spending they have experienced in the last one year. 42% of the respondents claim to have experienced “crop loss” & 38.5% claim “livestock loss.” Surprisingly, 81.5% of the households respond that they have spent some money on “marriage, funeral & ceremony expenses” in the last year. Considering that well over 50% of the household in the sample our below poverty line (BPL) card holders, this indicates that people of lower economic status also spend some portion of their income on festivals & ceremonies.

In India where 37.3% rural people and 22.5% urban people are below poverty line, is money spent on ceremonies and festivals a worthy expense? Where people do not have enough money to get food twice daily, but still they are saving something for ceremonies. National Council of Applied Economic Research (NCAER) and Max New York Life Inc. conducted a survey in 2005 -'How India Earns, Spends and Saves' in order to “gain deeper insights into the motives for financial savings, the degree of financial security of Indian households and the degree of sophistication that households bring to bear on their saving and investment decisions.” Here they found that different households save their money for different purposes like emergency, marriage, education, social events etc. The survey found that households priorities for using their spending are the following:

- 81% for education

- 69% for old age financial security

- 63% to meet future expenses like marriage, births and social ceremonies

- 47% to buy or build houses

- 47% to improve their business

- 22% to buy consumer durables and

- 18% for expenses towards gifts, donation and pilgrimage

Here also results show that people are prioritizing spending on festivals and social ceremonies. It is even a higher priority than building a new house!

Another study by Abhijit V. Banerjee and Esther Duflo (which uses survey data from 13 countries to document economic life of rural poor) also reveal some interesting results( Economic Lives of the Poor). From India, the authors use a survey conducted in Udaipur District of Rajasthan, which shows more than 99 percent of the extremely poor households spent money on a wedding, a funeral, or a religious festival. The median households spent 10 percent of their annual budget on festivals. Here the professors define the extremely poor as “those living in households where the consumption per capita is less than $1.08 per person per day,” and the poor as “those who live under $2.16 a day using the PPP [purchasing power parity] in 1993 as benchmark.” In Pakistan, Indonesia, and Cote d’Ivoire, more than 50 percent did likewise. But in some Latin American countries like─ Panama, Guatemala, Nicaragua─ festivals are not a notable part of their yearly expenditure.

As this survey only looks at a small part of India, we have to be careful with coming conclusions. But still, the question arises why poor people in India are spending a notable part of their income on these ceremonies?

It is tough to answer, but I think it proves that India is still a country of culture and tradition in this scientific world. Though lots has changed over the last century, Indians still believe in their ancient culture. Probably it is the country where people celebrate more festivals than anywhere else in the world and gatherings of family members and friends are very common in these festivals. After several weeks of hard work, a festival is necessary to pacify their mind and body. And these festivals increase the bonds between family members and friends. I do not think they should be encouraged to divert the money of festivals for other purposes, because it is one of their only sources of entertainment.

Remote Diagnosis via Cell Phones

An article in the Economist shows an ingenious addition to the cell phone, attaching a microscope to a cell phone (if mass-produced they estimate the cost to be around $100). "Called a CellScope, it can show individual white and red blood cells, which means that with the correct stain it can be used to identify the parasite that causes malaria". This nifty little badboy would enable diagnosis to be carried about in remote areas as "Someone with a small amount of training would be able to take and stain blood samples, and then capture and transmit images to an expert who could carry out the diagnosis". Further, it could build up digital records, creating valuable data, and improve verification of drug trails and ITN interventions.

Sharia Finance, Leverage and Sincerity

Up to now, I have mostly scoffed at sharia finance as an unseemly attempt to reconcile dated and hopelessly moralistic edicts with modern finance. This article from the London Review of Books has forced to to realize that there is, of course, more nuance to the issue to the issue than I had presumed.

Particularly interesting was the fact that not only does the Dow Jones Islamic Market (DJIM) not allow for the listing of organizations that deal in pornography, tobacco and alcohol (including hotels with minibars), it also does not allow participation to "any company whose debt is higher than one third of its market capitalisation (a valuation based on the total number of shares issued times the prevailing share price)." I am not sure if they are right about porn, cigarettes and booze, but they seem to have the right idea on leverage.

The Current Financial Crisis: Are Academics Partly to Blame?

Earlier today I attended a seminar entitled "Interpretations and implications of the global financial crisis: An Asian Perspective", which was held at John Hopkins' School of Advanced International Studies (SAIS) in Washington DC. The seminar is part of a 2-day conference on New Ideas in Development after the Financial Crisis Conference. Devesh Kapur, who is the Director of the Center for the Advanced Study of India at the University of Pennsylvania, brought up a topic that I have never thought about: the role of academics in the current financial crisis. Professor Kapur started by discussing how academics are often interested in how other people react to incentives across a number of fields. But, academics do not often discuss their own incentives, and possible problems with them.

From there, Kapur explained that academics often strive to be published in the most prestigious journals in their fields, which often requires coming up with a new "high theory", instead of discussing practical problems that governments or institutions are facing. Moreover, this "high theory", which is usually not grounded in real occurrences but instead on abstract models, is often used to rationalise policy frameworks. However, optimal policies, from a theoretical standpoint, may not play out well in actuality. (My own thought: One plus of randomised evaluations is that any policy recommendations are grounded in field research, not abstract models).

The above argument is one I have heard before, but then Professor Kapur spoke about the role academics may have played in financial deregulation, and accordingly, today's financial troubles. Many academics in economics or business are on the Boards of hedge funds, own hedge funds, or are advisers to hedge funds. Hedge funds (at least in the short-term) benefit from deregulation, and many top academics had substantial financial interests in these institutions. Therefore, the intellectual underpinnings for deregulation, which Kapur argued was pushed by many top-flight academics, may have been influenced by their own personal financial interests. Kapur then alluded that just like doctors that need to disclose payments from pharmaceutical companies, academics should need to disclose their own financial interests to minimise possible conflict.

Never thought about possible financial conflicts in academia before, but Professor Kapur's argument makes sense. Academics, just like any other group, should be transparent with their financial interests. Anything else would be unfair . . .

Financial Literacy vs. Awareness

Speaking of financial literacy, I wanted to bring up two different but clearly inter-related themes that are often mistakenly grouped under the same heading: financial literacy and financial awareness.

Financial literacy tends to be associated more with numeracy skills and also the ability to understand more complicated products. Financial awareness on the other hand would indicate a cursory understanding of what instruments are out there and which one can take advantage of. We often bemoan low levels of financial literacy and sometimes blame the failure of many government initiatives to increase financial inclusion (eg: financial inclusion drive, low account usage by accountholders through the Business Correspondent model). However, in many cases, particularly the two I have mentioned, the lack of information that the target beneficiaries display may be the result of lack of information or lack of financial awareness. While studies show mixed results in the long term impact of financial literacy training, lack of financial awareness should be much easier to correct.

Specifically in the context of the financial inclusion drive, media reports have pointed towards the low levels of financial literacy as one of the reasons why the drive has failed. While ensuring that the entire unbanked population of India becomes financially literate seems like a formidable task, ensuring that the unbanked population hears about the drive, the benefits of a savings account and how to use one seems much more achievable. Similarly, in a recent blog post, we learnt how accounts opened through the Business Correpsondent model are not being used, after account opening. Certainly innovative forms of marketing which explain the product in simple terms so that target accountholders understand the account and its benefits should go a long way.

Anyway, the point I am trying to make is instead of making low-income households reach up to a certain level of financial literacy, what we need to concentrate on is how to explain products, especially simple ones, to people in a manner that they can understand it and make an informed choice about whether or not to use it.

I should point out that that this doesn’t mean financial literacy isn’t important. While small borrowers such as microfinance clients typically use very simple products, there are other low-income groups such as sub-prime borrowers who become the target clientele for complicated loans which may require a much level of sophistication. Just that making people financially literate takes time, doesn't always work and in the meantime, just by giving people information in a form that they can use, you could be providing them with a very real service.

When it comes to financial literacy, patience pays...

This is going to be short post on subject du jour – financial literacy. There are a lot of studies which look at how financial literacy is correlated to cognitive ability (here), the importance of financial literacy (here and here), levels of financial literacy in general. To paraphrase and perhaps simplify the results of much of the work done so far, there seems to be consensus that financial illiteracy is rife, that financial illiteracy causes households to have higher debt and make financial decisions that are not in their best interests (like saving while simultaneously borrowing at extremely high interest rates). However, in terms of what kinds of financial literacy training promotes better financial decisions, there is no conclusive answer. Here is one study which helps us answer part of that question at least. This study by Stephan Maier and Charles Sprenger shows that patient individuals are more likely to take up financial literacy training. More patient individuals are:

• more likely to have greater financial information
• more likely to opt for financial training sessions

One thing which I found interesting was how the authors estimate time preferences or patience for the respondents in the study. Essentially, they look at the inflexion point at which the respondent swaps from smaller payment which she receives sooner versus a larger payment which she receives later. (The questions would be would you rather have $45 today or $50 a month from now, $40 today or $50 a month from now etc.. they use these answers to then estimate individual discount factors)

An important policy related question emerging from this study: how do you create financial literacy programmes that will increase participation, not just for those who are patient but also for those are impatient (and it turns out are in greater need of financial literacy)?

As an aside, the authors also find that more patient individuals are more likely to be women, which seems to provide some concrete support, apart from all the anecdotal evidence, as to why microfinance tends to cater almost exclusively to women.

CMF Pilots PALM Pilots

Sunset at Sangam

Akhand Tiwari (blog co-author), Divya Varma, Anand Shukla and I had a fun time in Allahabad implementing a short survey on PALM Centros. Allahabad feels strange. A potpourri of “sahib hazuri” from the 1960s, urban-Indian culture of today and ancient rituals of puratan Bharat, Allahabad really confuses me – more so than other Indian cities. A motorcycle ride through the Civil Lines followed by a boat trip at the Sangam highlights the melting-pot nature of Allahabad.

Getting back to why we are writing this blog entry, traditional paper surveys are often a nightmare and have given social researchers and economists many sleepless nights. Some of the obvious and frequent problems encountered are – (i) logical inconsistencies in surveyor entries (ii) questions left blank at the surveyor’s whim and (iii) inaccurate work by data entry companies. Prof. Chris Blatmann (http://chrisblattman.blogspot.com/search?q=PenDragon ) does an excellent job at expressing general frustration with paper surveys. CMF has been contemplating a move to electronic surveys for a while. Contemplation turned to action when Doug Johnson and Dan Kopf noticed Prof. Blatmann’s Pendragon blog (http://chrisblattman.blogspot.com/search?q=PenDragon) and put us in touch with Bryan Plummer (http://pluminliberia.blogspot.com). Bryan works with Prof. Blatmann and is carrying out a large PDA based survey in Liberia. With some initial encouragement and excellent notes, Bryan helped CMF start its own PDA journey.

We implemented a short 3 page micro-finance take-up survey in the Allahabad area with 5 Palm Centros (http://www.palm.com/us/products/phones/centro/index.html) and Pendragon (http://www.pendragon-software.com/). Pendragon is fairly user friendly and the entire process of hardware purchase, software procurement, survey design and testing took less than two-and-a-half weeks to complete.

We had some initial apprehensions about training surveyors on PDAs. Local languages and scripts in India change roughly every 600-800kms and Pendrgaon surveys can be in the Roman script only. We were also worried if surveyors would be comfortable and careful handling PDAs. The fortunate thing is that most Indian-college students have some knowledge of English although the skill level is typically not very high.

Akhand, Divya and Anand trained the surveyors ensuring that they would be at ease going back and forth between interviewing in Hindi/Allahabadi and entering the data in English. Akhand describes his experience with the training and the actual survey here.

Anil enters data into a PALM

Akhand:

I wasn’t that excited when the news came in about using PDAs for the take-up survey here at Allahabad. Gradually my optimism increased and today I am very happy that we are using PDAs for the take up survey.

Training – Finding surveyors with the right attitude and aptitude is always difficult. This time it was more difficult. The surveyors were required to have knowledge of handling digital devices and be familiar with computer-type keyboard in addition to others. I remember asking some of the candidates to send their complete mailing address to me via text message so that I know they are familiar with mobiles. It’s funny, but I asked candidates to show their cell phone during the interview in order to see if they are using a high-tech cell. Thanks to the IT revolution in India, my apprehensions were relieved to a great extent when each surveyor was able to complete the practical exercise we asked them to do (Some tasks - switch power on/off, press home, from the screen that appears choose Form 5.1, select particular options … etc).

Using PDAs – Apprehensions with the usage of machinery are always rife. It was true for me too. I asked Ajay to stay in Allahabad longer than he wanted to so that during the actual survey if problems arise (PDA may hang, it may not take values, surveyors press different buttons etc), he can sort things out. Unluckily we could start only after Ajay was gone. Fortunately, the PDA (I guess Pendragon’s) interface is very interactive and simple. One can easily edit the form code too. There has been no case where PDA has hung or worked badly (right now we have completed around 1000 households).

Precautions – You need to be careful during typing, it is very much possible that you pressed 2 while you wanted to choose 1. This is something we can take care of during backchecks. Moreover, gradually surveyor’s typing skills increase after they have done 50 surveys on PDA, (so initially you need to be careful and not look at the numbers achieved at the end of day).

It feels great to be able to look at survey data every evening. The data is already clean since all skips and logical checks can be taken care of during the software design stage itself. The software can be made to force surveyors to enter only logically consistent values. Also, minor changes in the questionnaire can be implemented overnight. We are looking forward to the day when plain-vanilla paper surveys will be a thing of the past at CMF.

Dispatches from the Field

I would like to invite those who are interested to check out a blog that I have created focusing solely on a project in rural Thanjavur. I am the Research Associate on the project and made the blog with the purpose of facilitating communication between the different levels of operations at Kshetriya Gramin Financial Services (KGFS was launched by IFMR Trust), CMF, and Researchers based at Harvard and Princeton. Additionally, I hope this blog provides a chance for the curious to gain an inside perspective of what a Research Associate at the Centre for Micro Finance does and experiences in the field. Although certain details will seem boring and unnecessary to a common reader, it at least reflects how much information needs to be captured from the field in order to make continuous changes in operations and its implications on research efforts. A more detailed introduction is included in the blog. The link: http://cmfandkgfs.blogspot.com/

On a side note, does this really read "Dispatches from the Field"? டிச்பட்சேஸ் பிரோம் த பிஎல்து. I had no idea, but apparently blogger can translate English words into Tamil automatically. I assume it's incorrect, but hopefully my cynicism is wrongly placed. Not sure how it would translate "Dispatches..." though.

CMF in the News

It's been a good month for CMF in the news. Some highlights...

• Our executive director Justin Oliver is quoted in an article on the potential impact of the global financial crisis in The Economist.
• I am quoted in an article on SHGs as potential vote banks in The Economic Times
• India Today profiles part time CMFer Jayaram Venkatesan

Happy Election Day?

Not only is historian and cricket lover Ramachandra Guha my kind of moderate liberal, he is also the clearest explainer of Indian politics to the uninitiated of whom I am aware. In the April 20th issue of Outlook magazine (a real hit among IDB bloggers), Guha states in his essay "The Past and Future of Indian Elections" that "a wise and far-seeing" central government is required to develop solutions for the 5 paramount issues of "health, education, environment, the economy and foreign affairs." I will quote the paragraph following this claim in full:

If one reads the newspapers of the past weeks and months, one finds that these policies are hardly discussed. Print and cyberspace alike are obsessed with which party is negotiating what kind of alliance, and with whom. Or they are speculating on the question of Kaun Banega Pradhan Mantri. And yet, feasible and effective policies in the sectors I have identified are vital to the long-term interests of India and Indians. However, in an era of multi-party coalition governments, one can be certain that we will not get them. Political negotiations will be resolutely focused on the short-term, with smaller parties asking for the most remunerative ministries in exchange for support to the ruling government. The prime minister's own working day will chiefly be taken up with massaging the egos of his fellow ministers, or of his own party members who have not yet found a place in the Union cabinet.

Dismal stuff, but Guha is optimistic that the rising educated middle class will and the urbanization of India will lead to fewer regional, religious and caste based parties, and as a result, an increase in long-term vision from national parties.

If you enjoy this article, you may want to check out Guha's epic history of post independence India. It reads like a casual and endearing college textbook.

Hat tip to Emmerich Davies for convincing me to spend a well worth it 25 rupees on Outlook.

Post-Conflict Microfinance

I thought this was an interesting Financial Times article documenting the use of microfinance in Iraq. The Al-Baydaa Centre in Balad was cited as a successful initiative in rebuilding economic activity. I thought the model they used was interesting, joint-liability in the form of one person rather than the JLG group.

“When we lend the money we make sure that the borrower is going to invest it in something that is viable enough to generate the monthly repayments,” Mr Saleh says, adding that all loans are guaranteed by an acquaintance of the borrower."

This article got me thinking about the appropriateness of microfinance in post-conflict or post-disaster situations. When should one draw the line between subsidized funding and funding at market rates? Especially in a place like Iraq where there are a myriad of actors doling out cash or in-kind goods at subsidized rates, when is the right time to begin disbursing credit? I also wonder in a place like Iraq, with such sectarian divisions....about the complications in implementation.

Thoughts?

Support for Randomised Evaluations in High Places

They have to conduct a pilot experiment in a small place in a state. It should be a controlled experiment...Let us conduct such pilot experiments for two or three years, discuss the good and the not-so-good coming from these experiments, correct the mistakes, and adopt if for the entire country. Once they have seen the benefits of those pilot experiments, the people will embrace them.

-N. R. Narayana Murthy in the latest Outlook magazine.

Know Your Schemes

One of the workprograms of CDF deals with tracking public expenditure and doing analysis on Centrally Sponsored Schemes (CSS). So we will be having a running series of blogposts called (drum roll please).... "Know Your Schemes"!!

One of the major CSS is called Pradhan Mantri Gram Sadak Yojana (PMGSY). Its goal is to provide road connectivity to all remote rural habitations. The scheme was supposed to be completed last year, and has been extended. Success has varied greatly across states.





State performance varies greatly in efficient implementation of PMGSY.
The variance in cost per km is one measure of output which demonstrates the ability of individual states to efficiently implement the scheme. It also can point the direction to which states suffer from leakage.

Bihar is easily the most inefficient state with respect to implementation, with a cost per km 25% higher than anyone else. Click on the image above for more detail on each state's performance.

More illustrations to come....

*Source: PMGSY.org and author's calculations

A well calculated step to address ‘mission drift’:

While ‘scaling-up’ has high potential to supply microfinance services to a greater number of clientele and to achieve institutional sustainability, there is a concern that scaling-up may lead to a drift from the microfinance institution’s original mission. In the other words, scaling-up may lead to a tendency to provide less attention to the poorer clients (mostly the ideal clientele of microfinance).

Recently, I had the opportunity to visit ‘Hand in Hand,’ (HiH) a well known NGO-MFI in Tamil Nadu, which also is promoting itself as an NBFC. Currently HiH is in the process of scaling outward to expand services to new clientele. During my visit to HiH, I learned that in the course of expanding operation into new areas the organization uses a well defined process to identify potential clientele. The process adopted is called a “participatory identification of target household (PITH)” which is a high value orientation exercise to select future clientele.

The PITH is conducted in three different phases at a village/hamlet level. Phase one is a transect walk, the second phase is social mapping and last one is introduction of poverty score card at house holds (HHs) level to identify the poorer households currently not served by other microfinance programme.

Transect walk:

The core objective of this phase is to build rapport among villagers, gather some basic information about the village etc. In process, a team of two Credit Officers walks around the village (they choose the village and panchayat based on secondary data, collected from government and non-governmental sources). They introduce themselves to villagers, share their purpose of visit, interact with key village representatives, talk about their programme. During this walk they also encourage villagers to participate in subsequent exercises such as the Participatory Rural Appraisal (PRA). On an average, each team spent around two to two and half hours in a village. There are no such scientific methods follow during transect walk but on a general level the team should collect information on the existing SHGs, NGOs, Govt. schemes and also, get a sense of potential household and demand for HiH microfinance.

Social Mapping Exercise (PRA)

The core objective of this phase is to assess the socio-economic status of village and understand potential clientele. A community participatory approach is adopted by HiH team in this exercise. In the course of the PRA exercise the team facilitates villagers to draw a social map of their village. The social map provides various crucial information of village such as the location of HHs, status of HH buildings (Kuccha/Semi-pucca/Pucca) and locations of drinking water facility, common water tank, temple, community centre, school, Agri-land (irrigated or dry) etc. All HHs are numbered and existing SHG members’ houses are identified and marked in the map. Apart from this information, the team also collects information like family member no, head – husband and wife name, names of children, school going child, telephone number, major income sources etc. about every HHs by using a separate chit papers for each HH. In addition, they notedsome of the aggregated information of village like total number of HH, population (men and female), number of potential HHs for HiH microfinance programme etc.

Introduction of poverty score card:

The final exercise is the introduction of poverty score card (PSC), which is the last screening process to identifying potential clientele (poor is the main criteria) for HiH microfinance programme. The PSC consist of well defined indicators to rate the poverty level of HH. This exercise is targeted at HHs identified during the first two phase exercises (specifically those left out from existing microfinance programmes or government programme). HiH keeps distance from the existing microfinance programme clients to avoid the duplication with other MF programmes.

After all three steps HiH launches its microfinance programme with the poor HHs those selected through the poverty score card.

Hand in Hand sets a good precedent in selecting clientele for its microfinance programme and demonstrates that expansion can be done without mission drift. The exercise demands a huge amount of effort in terms of human resources, time and money, which poses a question on its scalability for other MFIs. Indeed the cost effectiveness may not inspire other MFIs to adopt such methodology however the government and SHG promoting institutions like NABARD could come out with certain packages to support such a high value process. The other concern is usability of the huge amounts of information that is gathered during the exercises too. The implementer has to come out with a straightforward strategy on usability of such first-hand information that is collected during pre-SHG formation stages.

Why do microfinance clients want smart cards? Street cred . . .

I was recently pointed to an interesting blog entry written by Mr. Amitabh Saxena, Director of Alternative Channels at ACCION International. Swadhaar Finance, an ACCION microfinance partner, offers savings accounts to its poorer clientele by becoming a banking correspondent of ICICI Bank. Through the partnership, Swadhaar sets up small kiosks where clients can make basic transactions (e.g., balance inquiries, deposits, withdrawals). Clients needed to pay INR 200 (US $4) for smart cards to use these kiosks. Yet, Mr. Saxena and his colleagues found that of the 3,000 customers, 75-93% of the accounts had zero balance, and 63% of the customers had never made a single transaction. ICICI said that for its 120,000 customers through its banking correspondent network of 40 NGOs, this was about average. Why would this be, especially when poorer clients spend 200 rupees to open the account?

As Mr. Saxena explains
Through focus groups of Swadhaar FinAccess savings customers, we uncovered a number of reasons for this behavior. Among those who carried a balance, their decisions to open an account stemmed from their impression of the ICICI brand, and its association with “glamour” and the “middle-class.” For this group, the ICICI name also provided a sense of security – one of the most important features in promoting savings – specifically using the metaphor of the bank being a father-figure that “would help if his children [the customers] ever got in trouble.”

But what about the customers who carried no balance? Their revealing response: the smart card, complete with their name, thumbprint, and photo, acted as a identify card, and when combined with the adored ICICI logo, one that commanded respect. India does not have a national ID card. The smart card, in effect, provided them with an identity. We received comments like, “I just like to show that I have an account, it doesn’t matter if I have a balance or not” and “If you are going at night and you clash the police then you can show them this also.”

A smart card makes these poorer clients somebody, a somebody that can’t be pushed around by police. A little different use than I imagined, but it just may be worth it . . .

Click here for the full blog entry.

* Thanks to Cara Forster at ACCION’s Center for Financial Inclusion for pointing me towards this story.

Live Blogging: Long term, Lumpy and Collective

Sorry this is not technically "live," as our internet connection in Delhi was glacially slow. A few more thoughts from the conference...

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An interesting topic raised in several of the sessions was the need to expand microcredit beyond the scope of its current form. Speakers such as Vijay Mahajan and Nachiket Mor commented on the rigidity of microcredit today, in that most loans dispersed follow a rigid structure and are small and short-term. If building wealth at the base of the pyramid is truly the goal of microfinance, the speakers argued, it must expand to livelihood financing, community-based financing and other larger endeavors. Mr. Mahajan described such financing as, "long-term, lumpy and collective." An example such a project would be a new latrine for a village, or a better road for a rural area. Of course livelihoods financing ushers in a host of new dynamics such as collective repayment, larger risk (to the MFI).....but the potential benefits are enormous.