The Truth Takes Time....(with surveys)

I've been having a great time reading the recently published Portfolios of the Poor by Murdoch et al (sorry CMF staff - I'm hoarding our copy for a few more weeks!). One of the interesting points the authors make early on in the book relates to research design, surveyor-surveyee trust and the quality of data. I think it has implications for all of us field researchers who rely on surveys to elicit quality data.

In the book the research team used a years' (or more) worth of financial diaries to piece together the financial lives and financial management of a number of poor households (spread across the globe). The team visited each household at least twice a month to capture its financial inflows, outflows, assets and liabilities. What I found fascinating was the opacity of information that the survey team received from the household during initial visits when compared to the information elicited after multiple visits. They write...

"It was sobering, then, to find that we would have missed much of the [financial] action had we undertaken only single, one-time interviews of each household. ..in the earliest interviews, we were often missing more than half of a household's financial activity in a given week. It took roughly six rounds of interviews and visits before we felt confident we had something close to the full story. It took time for our respondents to trust us..."1

This observation hit home for me, as part of an organization that relies on the accuracy of survey-based projects, most of which we administer once or twice to a household over the course of a year. What could we be missing out on?


1 pg 12 Collins, Murdoch al "Portfolios of the Poor" (2009)

Some Encouraging Words from the US Senate

Was very surprised to read that US Senator John Kerry said this in a Senate committee hearing on aid effectiveness:

[Experts] agree that too often decision-makers lack basic information about the actual impact of our development programs.

RA Training @ Mahabalipuram

Two weeks back (from 1^st July to 4^th July) we had a great training program conducted at Mahabalipuram. Mahabalipuram is a small tourist destination, nearly 60kms away from Chennai. It was a welcome break from the heat and traffic of Chennai. The venue for the program was at Chariot Resort, a very nice place close to the beach.

JPAL South Asia conducted a four day training program for the newly inducted RAs (Research associates). This program gave an overview of the tasks and responsibilities of the research associates.

The program started with a brief overview on the poverty and its various dimensions. Along with that the participants were made aware about the work and mission of JPAL, IPA, and CMF. The first day of the program was dedicated to explaining the importance, effectiveness and the measurement of the social impact evaluation programs. In this context the program mostly focused on the methodologies and procedures of RCTs (Randomized control trials). At the end of the day all the groups were asked to think about a project proposal which would make use of all the RCT tools taught. The second day of training was technical with a brief overview of sampling and sampling distributions.

The third day was devoted to explaining the RA responsibility in different phases of the project. The program also focused on survey and the design of questionnaires. On the last day, the program concentrated on discussing some ideas for maintaining good relationships with the partner organizations and PIs (Principal Investigators). After all presentations finished, every group was asked to share some basic ideas about their respective projects which they thought about during the training program.

I learned a lot from the training regarding the responsibilities of RAs. I like the part of sampling and sampling distributions in the training program. Overall the training program was good.

Cash Withdrawal at Points-Of-Sale

Merchant terminals in India can now be used as cash withdrawal points. Though customers, for now, can only withdraw up to Rs. 1000 through these terminals, this has the potential to augment financial inclusion efforts. Of course, banks are still required to adopt stringent KYC norms but the low costs and high convenience of withdrawals at POS terminals (there are 10 times as many terminals as ATMs in India, according to the Hindu report) indicate that financial inclusion efforts might receive a big boost.

It remains now to be seen how banks will go ahead and implement this. I think points of interest will primarily revolve around containment of frauds and payment structures.

Financial Decision Making and Advice

Just wanted to highlight this post on Dan Ariely’s blog. Most inconveniently, the link isn’t working at the moment. But until it starts working – Dan highlights a paper in the field of neuro-economics which demonstrates how people make financial decisions when provided with advice from an “expert.” In this study, subjects were presented with a series of choices between a guaranteed payment and a lottery. For some of the choices, these subjects were presented with no advice, for others they received advice from someone they were told was an “expert.” As they made these choices, their brain activity was scanned.

The results show that subjects consistently follow advice from “experts,” even when the advice was sub-optimal. What is more troubling -- the brain scans showed that when experts were providing advice, subjects simply shut down the processes by which their brain would have otherwise weighed those choices. In other words, when “experts” provided them with poor advice, these subjects tended to simply follow that advice, even if they would have likely been capable of making the right choice.

This study is not on low-income households. But given the implications of poor financial decision-making on the sub-prime crisis, it may be worthwhile to think about how clients who are even less literate and more marginalized than sub-prime borrowers (that is microfinance clients in India) make financial decisions, what are the channels they receive information from and how do microfinance clients process this information.

Article in The Economist: " A Partial Marvel"

http://www.economist.com/displayStory.cfm?story_id=14031284

Informal Remittance Systems

P Sainath weighs in with an insightful article on the informal remittance system in Orissa. Swathes of population every year adopt the east-west migratory route to reach Surat, the hub of diamond industries in India. Sainath provides a wonderful explanation of the entire network lucidly in his article.

An interesting figure quoted in the article is the cost of remittance at 3-4% of the amount remitted. Also, mentioned are anecdotal evidences on how formal systems such as post-offices are distrusted by the customers. All this and more points to the existence of untapped opportunities toexpand inclusive financial services by providing them the kind of services they require, rather than imposing services on them.

CMF in the News...

...sort of

Yes, that is is a photo of CMF intern Helena Garcia gracing the pages of India's most noteworthy English language newspaper. No, she is not an Italian tourist.

Discount Rates in Surveys: “I take the 200 rupees now, because the monsoon has not arrived”

“I take the 200 rupees now, because the Monsoon has not arrived”, this is my Tamil to English translation based on other translators (aka Ajay) and “body language” (I do not speak Tamil and I am afraid my English is not the best), of what some surveyed households answer two weeks ago in a village near Thanjavur while piloting a questionnaire and asking them to choose between 200 rupees now or a larger amount later (in a week or a month). These questions are used to measure discount rates (how patient are persons: having utility now or later) and its main purpose is to understand better client’s time preferences (quoting Emmerich Davies).

Economic theory models of intertemporal choices state that individuals have constant discount rates (Samuelson, (1937)), yet behavioral economics have found that people tend to have varying discount rates and link this with time inconsistency (see Rohde, K. (2008)). Then if a person chooses the 200 rupees now over 250 rupees in a week because of the cost that a delayed monsoon has for him/her, will this imply that if the same person chooses the 200 rupees now over the 250 in a month he is time consistent? Or is just a monsoon effect? Maybe if the monsoon had arrived on time the person will have chosen the 250 in a week over the 200 now and the 200 now instead than the 250 in a month and then have decreasing impatience and be time inconsistent.

I am trying to use the discount rates questions to measure time inconsistency and see the links to the type of business clients have (yes, Spears, D. (2009) “Dosas by the Dozen”)… any thoughts will be appreciated….

By the way, in the blog on June 9 “Time and Money”, Dan suggest that if you choose 10 rupees now over different larger choices in 4 months, then you may have a business with no prospect growth (time inconstant, right?), will this be a better measure of time inconsistency?

Is Quality of Education in Schools of Bihar Better than Tamil Nadu?

Most of us would not even think such questions as worth pursuing as Tamil Nadu is one of the better performing states in contrast to Bihar-one of the BIMARU states of India known for its poverty and dysfunctional state of public services provision. The literacy rate, enrolment rate , teacher-pupil ratio and other educational infrastructure has always been far more better in Tamil Nadu than Bihar.

However, one would be shocked on comparing the final learning outcomes of children in these two states. Annual Status of Education Report(ASER) 2008 reveals the huge gap between two states in all the indicators of learning. As the table provided here shows the learning outcomes in Tamil Nadu is unbelievably poor for all the indicators. Actually, for some of the indicators such as per centage of children who can do substraction and per centage of children(std 3-5) who can read std 1 text the difference is beyond imagination. While in Bihar, 62 per cent of Std 3-5 children can do substraction and 67 per cent of std 3-5 children can read std 1 text, the respective figures for Tamil Nadu is only 36 per cent and 45 per cent.

One partial explanation that could be offered is relatively higher percentage of out of school children in bihar in contrast to universal schooling in Tamil Nadu. Those children who would have perfomed badly are out of the school and therefore comparing the performance of children in schools overestimates the learning outcomes in Bihar. However, percentage of out of school children in Bihar is merely 5 per cent higher than that of Tamil Nadu. Even if we assume that all the out of school of children in Bihar would have performed badly had they were in school, the differnce in learning outcomes remains unbelievably high.

What explains such huge difference? Children learning outcomes mainly depends on the teacher pupil ratio, quality of teaching, school infrastucture, education level of the family members etc. In all of these factors Tamil Nadu performs far much better than Bihar but the end results are just the reverse. I do not have any convincing explanation to offer. While I think over this phenomenon and develop some possible hypothesis, I just thought of putting this puzzle over here so that other readers could share their thoughts and suggestions.

Conferences on impact assessment/monitoring and evaluation this year

Just a short note on some of the interesting conferences on impact assessment/evaluation that are happening this year. As a member of the Strategy Advisory Group at the Centre for Development Finance (CDF), it is exciting to hear about training programs and conferences on impact assessment/evaluation since it relates to the work we do. Hope this blog provides some useful information to others who may be interested in this area.

The South African monitoring and evaluation Conference is being held from 17th to 21st August, 2009 in Johannesburg to bring together practitioners in the field of monitoring and evaluation with a focus on practices in South Africa. For more details, please check -http://www.samea.org.za/samea-8.phtml

The second series of training programs/conferences which seemed more exciting considering the work we do is being held by INTRAC on issues such as organisational development, impact assessment, monitoring and evaluation, policy advocacy to name a few. These programs run through the year, details of which can be found here - http://www.intrac.org/training.php

Any comments/suggestions/insights are more than welcome!

NanoFin offers peer-to-peer lending

Corporate Reporter
CHENNAI: NanoFin Enterprises, an Indian Syntans group company, has launched peer-to-peer lending using the internet as a facilitating platform where lenders and borrowers can interact directly with each other.
The company is looking at bringing all forms of lending under one roof. Initially loans will be available for education, personal, auto, home (rural) and business. This would range from Rs. 5,000 to Rs. 2 lakhs.
http://www.hindu.com/2009/07/10/stories/2009071055231300.htm

Well That Was Unexpected

Parliament looks set to (finally) pass the microfinance bill. For all of you who, like me, have mostly forgotten what was in the bill in the first place, CMF has written a quick summary of the proposed legislation which you can find here.

The Right to Food

The issue of hunger and under-nutrition is one of the most crucial and emotive areas in the development space. It is directly linked to the right to life, a fundamental human right enshrined in the Indian Constitution and perhaps all the conceptions of human rights. As a nation, India has many things going for it - a fast growing economy, a vibrant democracy (at least functionally), a young population – and yet, it has failed to perform on this front. The latest National Family Health Survey (2006) showed that the child under-nutrition rate in India is 46%, almost double that of sub-Saharan Africa, which is economically poorer than India. Needless to say, the phenomenon is complex and multi-factorial, arising from various social, political and economic conditions. Blame has to be shared by the deep-rooted patriarchy, wide-spread poverty, poor implementation of government programmes (especially ICDS and PDS), and various other factors that interact in many ways to produce this dismal result. There is no simple solution to the problem, but the sheer availability and access to food is a central concern. As the Indian lawmakers begin to draw up the legislative framework for the ‘right to food’, it is important that we learn from the experiences of other nations, while addressing the various causes that are more or less unique to us. This article summarises many of the interesting international experiences, which making some important recommendations for India’s lawmakers. Written by a seasoned campaigner, the article is a good read.

It may not be inappropriate to say that, unlike many other issues like healthcare and education, food and nutrition security never quite found a critical mass of advocates among the powers that be (in civil society or in state), and never really witnessed a very favorable policy environment. Even the hunger/under-nutrition deaths in places like Melghat (Maharashtra) didn’t quite lead to the systemic changes that they should have. But, now the tide seems to be turning. The issue seems to have found advocates like the UPA chairperson, the PMO, and even some forces with the cabinet and the planning commission. The honorable Supreme Court has been responding with unparalleled detail and pro activeness to the legal activism on this issue for years, leading to many prescriptions for the executive branch of the government. Still, this is just a beginning as far as the legislature is concerned. There is a long way to go before we fully legislate and ensure sound implementation within the legislative framework.

Policy-Making at the International Level : Troublesome Justifications

You would expect international experts on development, economic assistance and finance to be careful as to the type of programs they sponsored and to try to make their investments as efficient as possible, be it in terms of financial or social returns. But international financial institutions appear to draw their motivation from other factors.

Blind Support?

As microfinance moves away from an NGO-type of activity to a business-type of sector, the World Bank and affiliated institutions increase their support to the program. While there is nothing intrinsically wrong with this, the justification they give for doing so is that microfinance is effective tool for poverty reduction, and that is rather troublesome.

And so are some of the propagandistic statements made by those institutions. Indeed, their blind embrace of microfinance as the cure to all ills and their statements lacking references show little professionalism. Here’s a sample for your delight:

CGAP:

“(…) microfinance empowers poor people to diversify their income sources, meet basic needs and cope with shocks to their income. (…) By reducing vulnerability and increasing earnings and savings, financial services allow poor households to make the transformation from every-day survival to planning for the future. Households are able to send more children to school for longer periods and to make greater investments in their children's education. Increased earnings can lead to better nutrition and better living conditions.”

http://www.cgap.org/p/site/c/template.rc/1.26.1305/

United Nations:

“Currently microentrepreneurs use loans as small as $100 to grow thriving business and, in turn, provide their families, leading to strong and flourishing local economies. (…) Women have become more assertive and confident. Furthermore, as a result of microfinance, women own assets, including land and housing, play a stronger role in decision-making, and take on leadership roles in their communities.”

http://www.yearofmicrocredit.org/

While I am myself a firm believer in the potential of microfinance to incur change, I believe that more needs to be done to measure its impacts before coming to any conclusion. The expected - and logical - path of action for international financial institutions would be to assess the impacts of microfinance and scale it up only after positive results have been found. However, they seem to be taking the reverse approach, in which massive funding and project scaling precedes evaluation.

Another widely discussed facet of this issue is the fungibility of money - some projects with more potential might not be happening because funding has been redirected towards microfinance. The numbers can appear rather trivial at the regional level, but overall, the World Bank spends more than a billion every year on microfinance through its International Development Agency (IDA) and International Financial Corporation (IFC), with microfinance representing almost 2% of IDA lending.


Justifications

But why the wave, why are international financial institutions giving full support to microfinance? One of the main reasons is that the World Bank and the IMF have, since the early 2000s, promoted the addition of ‘poverty reduction’ components to their policies, and microfinance is one of those policies. As a matter of fact, the World Bank has imposed the adoption of a “Poverty Reduction Strategy Paper” (PRSP) as a condition for a country to receive a loan or debt forgiveness.

Whether that can really be considered to be an innovation is debatable. Raul Prebisch’s 1979 cynical statement still has relevance today:

“Another idea has now appeared which fires the enthusiasm of some Northern economists, that of eradicating poverty – a phenomenon which, apparently, they have just discovered. Who could refuse to fight against poverty? But is this possible outside the context of development and enlightened international cooperation policy?”

While India and China refuse to write PRSPs for the World Bank, arguing that they already have national poverty reduction plans and that PRSPs would be quasi useless, most countries now have to conform to the World Bank’s policy regarding poverty reduction. The rationale behind this is controversial, but I will discuss it in another blog post.

Overall, the efforts that went towards promoting microfinance by multilateral organizations might be due to its real poverty reduction power. But they might also have been done for window-dressing purposes. Let’s hope that, if the latter is the reason, the former is also true. I suppose that this is in big part what the role of CMF and other research institutes is : to assess whether policy decisions, be they at the local, national or international level, can be justified and should be carried on.

Looking for Data

Does anybody have any idea where I could find data on states' contributions to the central budget government? To be a bit more specific, I am trying to get an estimate of the overall contribution to the Union Government revenues by residents / businesses of each state. Any leads would be much appreciated.

What, in the name of Allah, is it all about ?

Islamic finance comprises of financial practices that are permissible under Sharia law. What Sharia law permits though, is not as easily defined. According to an article in the London Review of Books, "the real influence of sharia lies in the way this material is constantly read and recast by modern Islamic scholars, reinventing old traditions or asserting new ones". 

In recent years, Islamic finance, that previously only existed within the realm of high finance, has been brought to the micro level. Islamic finance and microfinance, it has been claimed, go hand-in-hand, because of the common tenets they share as unconventional solutions to financial needs that promote mutual responsibility and entrepreneurship. The popularity of microfinance in Muslim countries like Bangladesh is considered to be another encouraging sign that a merging of the two could substantially increase access to financial services. Infact, the Islamic Development Bank has identified microfinance as a key issue to be addressed by the Islamic finance industry for its growth. Although it currently caters to just a tiny fraction of the millions of poor Muslims around the world, some of the questions that the concept and implementation of Islamic microfinance raise are monumental.

To begin with, a question that remains largely unanswered : What is the actual demand for Islamic microfinance ? That 72 % percent of people living in Muslim countries do not have access to financial services does not necessarily indicate demand for these services. Neither does the fact that a lot of poor Muslims express an interest to switch to Sharia compliant products or cite religious reasons for not accessing the financial services available to them. A CGAP study found that 49% of the population in rural Java in Indonesia consider interest rate entirely prohibited and prefer to work with Sharia-compliant products. At the same time, even as one of the few countries where Islamic microfinance is concentrated in, only 2 % of microfinance clients in Indonesia are served by Islamic microfinance. If surveys measuring demand are really only measuring the need to demonstrate religiosity, then low demand may be one reason for the limited supply of Islamic microfinance available.

Or it may be that the costs are too high. Can Islamic microfinance achieve sustainability ? Islamic microfinance is associated with high transaction costs and operational risks in an interest-free environment. Unless there is a way to cut these costs, attracting investors and achieving profitability will prove to be difficult. 

That said, Sharia finance is more than just the prohibition of interest rates. Sharia law prohibits the violation of riba and gharar.To put it briefly, this is ensured by the following four principles : risk sharing, materiality (a  transaction must be directly or indirectly linked to a real economic transaction ), no contractual exploitation, and no financing of sinful activities. These principles can be abided by in a number of different ways, however, not all are applicable in the context of microcredit. This raises another question : Do permissible contracts allow for the diversification and customization of products ? 

Of the few products that are currently offered, murabaha is amongst the most popular. In this contract, a client asks for a commodity that the financier procures and resells to the client with a markup. The markup differs from an interest rate in that it is a fixed one time charge. The financier owns the product and bears the risk until the loan is repaid.The conditions that govern such a contract try to ensure that the loan is being used to procure productive assets by minimizing fraud from false record keeping. It has been shown that typical microfinance clients use a part of their loan for consumption needs. Since this is not possible using an Islamic microfinance product, does murabaha, by eliminating the 'misuse' of loans, provide for a more effective form of micro-lending ? 

Among others, one factor that determines effectiveness is the cultural perception of credit. One of the five pillars of Islam is zakah, the obligatory practice of spending 2.5 % of one's wealth for the benefit of the poor, in order to ease economic hardship and eliminate inequality. In fact charitable practices play a major role in Islamic society, and charitable institutions ( awqaaf / waqf ) may be delivering both Islamic microfinance services and other charitable services side by side . This causes microfinance to be also viewed as a charity. Then, to what extent will a charitable approach to microfinance, as against that of a business, be a hindrance to growth of the sector ? 

Eventually it comes down to evaluating how Islamic microfinance fares against regular microfinance. The differences in the products offered is especially pertinent. Are interest-free Sharia compliant products more client friendly or is interest merely redressed as adminstrative or service fees ? Where Islamic microfinance products seem similar to conventional products offered, Islamic microfinance may not succeed in reaching out to the unbanked that desire products that incorporate their religious principles. 

Two new sites for the development sector in India

Just a short post to introduce two sites being developed by CDF:

India Development Indicators is an online platform that leverages existing investments in data by standardizing, harmonizing, and visualizing development data at various resolutions such as state, district, parliamentary constituency etc. The site allows users to visualize indicators using maps, charts, rankings, etc. We have uploaded several pan-India datasets as well detailed state specific datasets for 4 states and more is on the way. The site is fully functional but various sections are still under development and we hope to improve several aspects of the navigation soon.

Development Data Library is an online repository for development data and analysis on India. Designed for researchers, students, community organizations, and policymakers to quickly and efficiently share primary data, it can accept all common formats and does not require any harmonization or other data processing. The DDL site has been developed with a Web 2.0 interface which allows user to upload, search, view and download datasets. Datasets are saved in relevant categories and sub categories, tagged with keywords and relevant catalog information such as author name, relevant geography and publication details. In addition, the site permits users to rate and comment on datasets. It also features an interesting maps section which shows the datasets available for a particular geography, down to district level, and for a particular category and sub category. The database can also be accessed through the map interface. Over time, as more researchers start contributing datasets, it is hoped that this map section would reflect the type of research going into different geographies of India

2008 Microfinance State of the Sector Report Now Available Online

The Microfinance State of the Sector reports, published each year by ACCESS, are the most comprehensive reports on what's happening in in the world of microfinance in India. The 2008 version, authored by the ubiquitous N Srinivasan, is now online.

NREGA in Andhra Pradesh - Field Diary

Andhra Pradesh has been an important centre of research and evaluations for NREGA implementation. It has been acknowledged for best documentation of implementation and hence is known for its transparency in implementation. Extracting some introduction for Andhra Pradesh from my earlier blog http://www.indiadevelopmentblog.com/2009/06/nrega-snapshot.html , It has an average of 22.2 person days per rural household which is on a higher side and around 60% participation of women, which is again amongst the top scores. With an average wage of Rs 83 per day, it has a biggest chunk of wages being disbursed through post offices (around 60% of total wages), as compared to all other states. As analyzed by Prabhu Ghate, “AP has the advantage of relatively good quality of lower level field staff, has the advantage of managing the programme through mandals, which are smaller than blocks and therefore closer to the ground. It is unique in having institutionalized the social audit process through an autonomous state unit which makes a huge difference to the quality of the programme, has a good MIS (designed by TCS), and is spending more than 4 percent on administration of the programme, using its own resources to pay for the excess amount.”

As a part of our project, I and Sankar (another intern based in Hyderabad) went to 2 mandals (Ongole and Addanki) in Andhra Pradesh to gauge the ground level implementation of NREGA and facilitate our data analysis with some realistic field information along with a target to clarify some of our doubts about available data on NREGA implementation in AP (We went to 3 villages; Muktinutalapadi, Trovugunda and Venkatapuram). Our goal was to understand administrative hierarchies in NREGA implementation, clarify some issues in muster roll data of AP, analyze the social audit system and reports, and clarify issues relating to some data which can be our future avenues for research. We interviewed head of mandal level officials, head of gram sabha, field mates, field assistants, technical assistants and wage seekers (households). Here I present some of the crucial findings of our field work:

The flowchart shows the hierarchy of all officers involved in the implementation of NREGA (we gathered this information by interviews with officials). Every year in months of Jan-Feb, MPDO, APO, Technical officers and field assistants meet with gram sabha and identify the works. These work proposals are evaluated in terms of budget and collector issues a cheque to the MPDO for the budget. Budget is calculated by assessing total value of wages to be disbursed to the people in all working days (wage x days x workers). To demand work people approach panchayat secretary or field assistant and also they are informed about the works being conducted so that they can participate. Work calendar is also decided in the same meeting, which is generally during summers. Accordingly job cards are issued. During workdays all muster rolls are submitted to mandal office on Saturday and accordingly on Monday cheques are issued, which goes through a technical check and is credited in post office accounts by Tuesday. MPTC meets quarterly with around 90% attendance. They do follow up of earlier meetings and decide on some new worksite proposals in accordance with work demand (if any). MP and MLA’s so not have much involvement, there roles are only to supervise and give occasional suggestions. Main persons involved are APO and MPDO.

Regarding budget: it is unlimited depending upon the amount of workdays identified in a village. There is no limit as to how many workers will be employed. All work demands are taken care and if not possible in same village, they are provided work in another village. If they are not being provided work, they are entitled to an allowance of Rs. 40 per day for 1st month and Rs. 20 thereafter.

All new worksites are proposed in meetings are looked upon by technical officer who approves them and accordingly the budget in made and send to collector for sanction.

Social Audits: There is a requirement for keeping a Xerox of all muster rolls in gram panchayat office. Social audit in conducted once in a year and this is in two stages: official and village level. In official level, there is cross checking of all bills and receipts etc to and from collector’s office and in village level it is the verification of payment through muster rolls. VSA (village social auditors) are responsible for it and few others like SRP (state resource person), DRP (district resource person) are also involved. It takes 1 week to complete auditing in 21 villages and each village has 3 auditors (both mandals we visited expect the social audits to come in few weeks).

NREGA wages are determined according to the group setting. Let’s look at the group setting first. People are divided into groups of 20 are there is one Mastery (Mate) over a larger group of persons. A group of 20 people are given one work and they have to complete it in stipulated time. If group as a whole completes work in time, irrespective of individual worker, than they are paid full wages (min 100 and max 125) depending on the hard work required and season (max wage in April due to hot weather). According to the MPDO, minimum wage will be revised to Rs. 120 from now. If they could not complete the work in time as a group, then all wages are accordingly slashed. All payments are made through post office accounts only and the post master is responsible for later stage disbursement.

Skilled wages: It is nothing but material component of total expenses (officers are still unsure about different appearances in datasets).

About Rs. 3200 payment for 40 days: There were entries in weekly muster rolls about payment of Rs 3200 for 40 days, which seemed unusual. They are made for “Indramma Housing Scheme”. Wherein each household is provided 3200 rupees as wage cost for 40 days and provided all building material to construct houses once they have build a platform to raise house themselves. These payments are made through bank accounts specially created for this purpose. Entry in muster role for this scheme is not made by field assistant. This scheme is withdrawn now. NOTE: Indramma was a state scheme.

Apart from that, we had some other observations which are as follows:

1. Attitude of sarpanch in all villages we visited is not very positive about NREGA. They claim that wage labor is hired during agricultural season @ Rs. 200-300 per day. When we talked to households, they also confirmed that normally they get higher wages in agricultural season so there is no incentive to work in NREGA but during non agricultural season a few of them are interested in working more to bring about income stability. Sarpanch of one village had concerns about rising commodity prices but fewer rises in NREGA wages. Also we came to know that many NREGA works like land leveling, road side forest cleaning, road repairing etc suffers heavily from rain and these are washed out, so no asset is created.

2. One very important observation we have had is regarding the caste segregation. Only one of the villages we visited had worksites segregated on basis of caste and this village had predominance of caste leaders. Caste leaders held up the job cards of workers and were representing their caste in meetings where calendar days are decided for work. Workers are unaware of most of the payment related things are not at all involved when it comes to meetings etc. May be that is why they are not able to demand more work if they want. Also it was the only village where there were no records of muster roll kept in panchayat office and field assistant had no specific documentations (which were common in other very remote villages). In the same village few households who had received payments for Indramma scheme were aware of it (asked back in different survey, they showed the passbooks) and had newly constructed houses but a few of them were totally unaware about the 3200 payment and were still living in primitive houses (in other villages it was easy to locate an Indramma house due to its specific construction and logo/board etc).

3. About value of work done: At the end of each week, technical officer and field assistant measure the amount of work done (value of work) by using many scales, maps, guidelines, for e.g. In one village the value was measured as Rs. 117.50 for every cubic cm deepening of water body. I have got a new research idea from this, I will gather this data and calculate worker productivity and try to relate it to various other variables like amount paid, election results etc (I have already done some preliminary work on it, results are encouraging).

The Provisional Universal ID Budget in Perspective

Provisional budget of UID initiative = 120 crore rupees = 1/50th of Nandan Nilekani's estimated personal wealth = 3.33% of the cost of the Iraq War for a single day

Are they kidding?
(Ok, that last one is a little unfair. You could compare pretty much anything to the cost of the war in Iraq and it would look like peanuts.)

Changes to NREGA -- Latest from the Budget Speech

In their manifesto, the UPA promised to expand NREGA in three key ways. First, it promised to raise daily wages to 100 rs. Second, it promised to extend the guarantee of 100 days work was to individual workers rather than entire households. And third, it promised to extend to the scheme to urban as well as rural areas.

It looks like the UPA has renegged on all but the first of these promises. While the FM reiterated the government's committment to raising the wages of the scheme to 100 rs no mention of the other two campaign promises was made. This is unfortunate. While the wage increase may make political sense, it's the least important of the three promised changes and may even have negative effects. (Researchers have shown that when Maharashtra drastically increased the wage rate under the Maharashtra employment guarantee scheme years back it effectively ended the "right to work" due to budget pressures. Admittedly, the current wage increase is much smaller than the increase that was mandated in Maharashtra and there is a key difference between the two situations in that state governments don't foot the bill for NREGA wages but nevertheless it does not bode well.)

Open letter to the new Finance Minister of India by N. Srinivasan

The Centre for Micro Finance herein posts an open letter from the author of last year (and this year's) State of the Sector Report and sectoral expert Mr. N. Srinivasan to India's new Finance Minister

---------------------------------
Microfinance agenda for the new government

Dear Honourable Finance Minister,

The Indian electorate has returned a stable government to power which should facilitate the smooth passage of important policies and legislation. As one of the most versatile and experienced ministers in India, you have in front of you an enormous opportunity to empower more than 75 million microfinance clients who also voted during the elections. With suitable policies you can enable banks, Microfinance Institutions (MFIs), Non Government Organizations, Self Help Groups and thousands of people who have dedicated their lives to the betterment of our people to meet the aspirations of livelihoods development and viable financial services of the served and yet to be served microfinance clients.

The microfinance sector seeks the continued support from the new government.. With the growth of microcredit and the increasing aspirations of the people it is now time to look deeply into certain aspects which have now acquired an even greater importance.

1) First on the microfinance agenda is the microfinance law. With great hope the microfinance sector approached the previous government which suitably responded with a microfinance bill after consulting the sector at different levels. But the bill lapsed with the dissolution of parliament after its term was over. Now a new microfinance bill has to be brought in to ensure vibrant growth and effective regulation of the sector. You have the opportunity of doing the exercise de novo as the earlier bill had scope for several refinments. The new law should focus on functional regulation of those in microfinance – not form of institution based regulation as was attempted earlier. Customer protection is a critical issue that should be addressed in the law.

2. A clearer articulation of the stance towards Microfinance Institutions (MFIs) mobilising savings would be timely. You would be aware that the banks are still not in a position to provide savings services despite a few million “no frills accounts”. Allowing MFIs to mobilise savings on their own account or as correspondents of banks would improve availability of savings services to the remote and poor populations. Some of the limitations in the existing guidelines on banking correspondents need a review to accelerate availability of savings services.

3. A deposit insurance facility could secure savings of people in MFIs (e.g. Vietnam has a facility for this). This would increase regulatory comfort in allowing MFIs to mobilise savings. The Deposit Insurance Corporation could extend its existing cover to MFIs as well.

4. The refinance facility available to banks from the Reserve Bank of India (RBI) and other sources should also be available to MFIs. The MFIs’ needs are smaller, but are dire and funding them satisfies a critical segment of vulnerable population. The facility could be set up in the public sector and made merit based without discretionary allocations. This would go a long way in ensuring funds flow to the sector even during periods of recession and financial meltdown.

5. The Centre should have an urgent dialogue with the States on issues relating to legitimacy and relevance of MFIs. Currently State governments also run their own independent microfinance programs. State governments could multiply the impact of the resources they deploy towards microfinance if they partner with microfinance institutions. Hence they should be actively encouraged to support microfinance operations by partnering with MFIs and the current microfinance infrastructure. This measure will not only put an end to intrusive and at times abrasive interference of local state officials in microfinance which is not healthy for the sector. The current state run programs can be gradually transitioned to MFIs so that the poor clients are not impacted.

6. The governments (centre and states) have several schemes that offer capital and interest subsidies to borrowers from banks . Such selective application of subsidies through select banks distorts the market, influences borrowers in their choice of banks and increases transactions costs of the customers. If the government has to pass on subsidies or transfer other benefits to people, the MFIs should also be eligible to participate in such schemes. This would ensure that the government is not a party to setting an uneven playing field.

7. The financial inclusion drive should undergo a qualitative change. The focus on numbers should give way to real access to financial services and including clients.. The present efforts by and large start and end with opening of an account to meet mandates set by the RBI and as a result most banks end up doing the bare minimum. Doing business with included clients should become a valid objective in the drive towards total financial inclusion. This needs to become the corporate philosophy of banks engaged in inclusion. Perhaps, you may want to consider giving financial incentives to banks to work with low income clients so that the goals of shareholders, officers and employees of banks are aligned to making low income clients a significant source of revenue.

8. Lastly, financial inclusion measures have ignored MFIs and Primary financial cooperatives. These are the institutions that have the network and human capacity in the hinterland to provide financial services. Measures to strengthen and incentivise these structures to play a major role in financial inclusion would help the excluded population more than the other efforts targeting commercial banks.

Most of these require policy responses. Given the right policy environment, I am confident that the microfinance sector will perform and surpass your expectations. The perceived complexity and high costs (of designing financial sector policies that improve livelihoods of poor) should not deter the government nor make it defer the policy response to a future date. A large sector with more than 75 million poor but eager clients awaits your response; please help the clients empower themselves towards a better future.

Yours inclusively

N.Srinivasan
Author – State of the Sector report - Microfinance India 2008
Shrin54@yahoo.co.in

A pertinent question

A hospital is opened in a village. It surveys the village. Half of the patients in the village are suffering from chronic tuberculosis, advanced stage cancer etc. The other half are suffering from relatively more easily curable problems like early stage cancer, asthma etc.
The hospital decides to focus on the second half first and move on to the first category after dealing these ones. Additionally, by personal discretion, it does take some cases from the first category whom, judging by the level of their desire for treatment and efforts to help, it finds deserving of preferential treatment.

So do we say that this hospital is commercialized and not focusing on the most needy? I don't think so. I think its decisions are very logical.

You may have already guessed the analogy. I don't see why there is such a huge problem with MFIs focusing on the poor and not the ULTRA-poor. Why do we hear so much criticism of such MFIs?
Is it a crime to be not-so-poor, simply poor? Does that deprive you of the right to receive a loan? Even they need loans! Or wait, are we waiting for them to become ultra-poor and then reach out to them?
Please explain what's the whole hype about!

NREGS - evidence from UP

Got hands on an interesting read today. An empirical study from a Medak district in Andhra Pradesh found that NREGS improves food security and decreases anxiety levels. The study conducted by Shamika Ravi at ISB takes out data from June 2007 to Dec 2008. I tried searching link for the paper but could only get an abstract to share with. May be I'll summarize conclusion here -
1. Besides food the program raises the probability of savings and expenditure.
2. There is a significant decrease of emotional dis-stress in form of anxiety, tension and worries
3. Authors opine that in long term NREGS might have multiplier effects like increased wareness, good child education, that would foster well being of not just actual but also potential beneficiaries.

I tried to understand the econometrics of the paper too, but I guess requires more than one read to comprehend that completely. Anyways, I wish the study's result hold for pan india.

Karl, one of the interns with CMF this summer and I have been going on field for last few weeks in Allahabad and Sultanpur districts of Uttar Pradesh. Plus I have been reading local hindi newspaper and here is something we have to share -
1. Today the newspaper reported a traffic jam by villagers in Soraon block, when the village development officer wrote Rs 42 in their books, and not Rs 100 which is the daily wage as specified in UP. Surprisingly, no body(including SDM) directly asked the officer to correct it. The news said that in the end SDM asked development officer to look into the matter. Shamika's paper too brings out that corruption is one reason because of which people do not want to participate in NREGS.
2. While talking to microfinance clients, we often hear that, "I do not want to enrol in NREGS because I do not have time". "No time" is also reported in Shamika's paper as a reason why some people did not join NREGS.
3. My uncle, who supposedly is close to sarpanch of his village told me that NREGS money is divided 50% each between development officer and sarpanch!.
In Panchayat systems it was opined that while DO and Sarpanch would work together on development issues, beacuse of different priorities they would also keep check on each other's action. Didn't anybody thought of this nexus then?
4. Apart from this; fake names, fake works are teeming in NREGS.

There is so much money in NREGS that it is fishing grounds for corrupt officers. I have thought hard about this whole corruption issue and still unable to figure out the root cause. Well, as for now I suggest few steps that rural development ministry can quickly take up as a measure to prevent corruption.
1. Sounds naive, but think about it, who is not corrupt - the one who has strong values, one who believes in cause. Ministry should conduct compulsory trainings of BDO's, CDO's SDM's, DM's, on these issues.
2. Getting a CAG report once a year is not enough. The audit and more so operational audit systems should be made more stronger and frequent.
3. I believeThe HR systems in sarkari (government) departments are the root cause of high corruption and smart changes in that can make a big difference.

I feel bad about so much money just being used to build up a mansion, while intended for the poor.

The Unique Identification (UID) Proposal and Microfinance

'Acknowledging the existence of every single citizen automatically compels the state to improve the quality of services and immediately give the citizen better access', wrote Nandan Nilekani in his book 'Imagining India.'

Very soon, Manmohan Singh asked him to spearhead the National Unique Identification Card (UID) project.

To give a background for those who missed this news (most unlikely though), this project aims to provide a unique indentification card to every citizen of India. This card will contain details like the name, sex, address, marital status, photo, identification mark and finger biometrics by 2011. The unique identification number will be based on a sophisticated application called SCOSTA, a secured electronic device that’s used for keeping data & other info in a way that only authorized persons can view it. It can be used as a voter I-card to proof for opening a bank account and among other things, is supposed to "ensure that any lacuna in the UPA flagship schemes (NREGS, Sarva Shiksha Abhiyaan, Food Security Act- see the previous blog by Jay, etc) is removed so that the benefits do not reach those they are not meant for."

While cautiously acknowledging the grave and not-to-be-underestimated challenges in the implementation of this proposal, I am still trying to figure out why the microfinance sector seems to be so apathetic towards this initiative.

Just assuming for a minute that this excellent and ear-pleasing government proposal does manage to show some results for a change, we have reason to celebrate, don't we?

Provision under Rule 9 of the Prevention of Money-laundering Rules, 2005 is as follows:
"Verification of the records of the identity of clients. - (1) Every banking company, financial institution and intermediary, as the case may be, shall, at the time of opening an account or executing any transaction with it, verify and maintain the record of identity and current address or addresses including permanent address or addresses of the client, the nature of business of the client and his financial status;"

Minakshi Ramji aptly points out in her study on Financial Inclusion in Gulbarga that "Poor individuals, especially women and other marginalized groups, rarely have legal proof of identity, address or employment. This renders obtaining formal credit even more onerous."

So...how do these people get loans? So the UID proposal is good news...right??

Here are the cynical comments I'd expect and agree with and on why we should not overestimate it: (you may add)

• "Enrolment and authentication" will be a mammoth task, as pointed out by Mr. Nilekani himself. A population of 1.1 billion, a significant portion of India-2 (in Kishore Biyani's terminology) in remote areas
  
• Updating the data stored on the card and the database- another huge challenge.
• Past similar endaevours have not been entirely (ahem) successful.
• Voter ID cards, PAN cards, SMART cards... how many more cards do we stuff in our wallet?
  

At the same time, here's why we should not underestimate Mr. Nilekani!

• He is 'powered by intellect, driven by values' :) (Infosys tagline)
• project manager, CEO and vice chairman of Infosys for the past 27 years
• a proven outstanding programmer and systems analyst
  
• author of the bestselling book 'Imagining India' after reading which we can imagine his ethics
  

You'll say that one man alone cannot pull it off. Well, obviously! But he's been given complete autonomy to pick his own team from the private sector and if he's given carte blanche to execute his plans and gets decent level of cooperation from the government, he probably even can!

Judging just from the fact that Manmohan Singh picked a corporate maestro to head this project rather than a sycophant politician from the cabinet, he looks like he's looking for a clean, corruption-free delivery and would most likely be in the mood to give him his space too and make efforts to pave the way for him rather than pose the usual bureaucratic hurdles.

Personally, I've decided to have patience, settle at a mildly optimistic attitude and hope that for once, the execution of this project will be nearly (at least somewhat) as good as it sounds.