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Issue #9 March 2009

Cost–BenefitandUsage BehaviourAnalysisofNo Frills Accounts ByJayaramVenkatesanandS.Thyagarajan

Financialinclusionisthedeliveryoffinancial

openanaccount.Thispopulationaccountedfor around47percentofthehouseholdswhichdid nothavebankaccountspriortoimplementation oftheproject.2Therewerelargevariationsin termsofreportedwillingnessandunwillingness bythebanks,indicatingtheseriousness,orlack thereof,withwhichdifferentbanksparticipated inthehouseholdsurveywork.Otherthan reasonssuchasdistancefrombanks,oneofthe mainreasonsgivenbytheunbankedpopulations forunwillingnesswasimproperadministration ofthehouseholdsurveys.Thesemistakes includedincorrectorincompleterecordingof thesurveyformsandinadvertentomissionof householdsthathadexpressedwillingness.

services at an affordable cost to the vast sectionsofdisadvantagedandlow-income groupsofpeoplewhohave,untilnow,been excluded.IntheMidTermReviewofPolicy (2005-06),theReserveBankofIndiaexhorted bankstomakebasicno-frillssavingsaccounts, eitherwithnilorlowbalances,widelyavailable toavastsectionofthepopulationin Therewerelargevariationsintermsofreported atransparentmanner.ByNovember willingnessandunwillingnessbythebanks,indicating 2008,ofthe342districtsidentified byStateLevelBankersCommittee, theseriousness,orlackthereof,withwhichdifferent 155districtsweredeclaredtohave banksparticipatedinthehouseholdsurveywork. achieved 100 percent financial inclusion,andbytheendofMarch 2008,15,788,919no-frillsaccountshadbeen Accordingtothebranchmanagerswhowere opened.Atthisjuncture,manypartiesfeltit interviewedbythestudyteam,banksthat importanttoevalutethefinancialinclusiondrive adheredtothefollowingproceduresachieved andtheimplementationoftheno-frillsaccounts 100 percent willingness: by partner banks. 1.Makingannouncementstovillagerspriorto Therefore,theCollegeofAgriculturalBanking arrivalofbankstaffthathouseholdsurveys (CAB), RBI, Pune and the Centre for Micro andaccountopeningformalitieswouldbe Finance (CMF) at IFMR, Chennai honed in administered. onadistrictinTamilNadu,Cuddalore,that 2.Deploymentoffull-timespecialofficers in2007hadbeendeclared100%financially fromoutsidebankbranchwhogaveundivided included1.Thisstudywasdesignedtoanalyse attention to the project work. theresultsofthefinancialinclusionprojectin 3.Involvementofthepanchayatpresidentsand termsofcoverage,bygeographicalandother Municipal Chairman. parameters,cost,involvedinopeningofaccounts Account Usage Behaviour: andmaintenance,andtransactionalusage behaviour,whichwouldallowresearchers In the opinion of the study team, the real tocalculatethebreak-evenpointafterwhich successofthefinancialinclusiondrivecouldbe measuredbytheactualquantityandquality banks would begin to earn revenue. Financial Inclusion Project Results : ofusageofthenewlyopenedno-frillsaccounts bythosepreviouslyoutsideformalbanking TheCMF/CABstudyfoundthatinthewakeof channels. Perusal of a sample of accounts thefinancialinclusiondrive,25.3percentof collectedbytheresearchersrevealedthat72 householdsinCuddaloreremainedoutsidethe percentoftheaccountshadzeroorminimum bankingnetinthegarbof“unwillingness”to balanceevenafteroneyearofopening.Only15 1.ReportonTrendandProgressonBanking,200708, Reserve Bank of India

2.IndianBank,BookletonFinancialInclusionProject in Cuddalore District

Centre for Micro Finance at Institute for Financial Management and Research 8th Floor, West Wing, Fountain Plaza, Khaleel Shirazi Estate 31/2 A, Pantheon Road, Egmore, Chennai, 600 008, India Phone: (91) 44 4289 2725 | Fax: (91) 44 4289 2799 | Web: www.ifmr.ac.in/cmf

In This Issue Cost–BenefitandUsageBehaviour AnalysisofNo-FrillsAccounts ByJayaramVenkatesanandS.Thyagarajan JayaramisaconsultantattheCentreforMicro Finance.Mr.Thyagarajanisamemberofthe FacultyattheCollegeofAgriculturalBanking in Pune . Pg. 1

SmartcardsfortheDeliveryof GovernmentBenefits:FadorHere to Stay? By Doug Johnson DougistheHeadofSectorWideandPolicy studies at CMF. Pg. 2

Launch of Microfinance Researchers Alliance Program (MRAP)

ByKnowledgeManagementTeam MembersoftheKnowledgeManagementteam includeAlexandraKobishyn,Head,andDeepti KC, MRAP Programme Associate. Pg. 3

PhoningitIn:UsingCellPhones todoDailyConsumptionSurveys ByAnupRoyandEmmerichDavies AnupandEmmerichareCMFResearchAssociatesontheflexiblerepaymentprojectinWest Bengal. Pg. 4

ACloserLookatConsolidation: TheSonata–JeevikaAcquisition By Akhand Tiwari and Michael Chasnow AkhandandMichaelaretheCMFResearch Associate for the Sonata - Jeevika project. Pg. 5

Interview with Justin Oliver, Executive Director, Centre for Micro Finance By Satyarupa Shekhar SatyarupaisanAssociatewiththeKnowledge Management Unit. Pg. 7

CENTRE FOR MICRO FINANCE


Excerpt from the Indian Development Blog

IndianPolitics:HowCrises affect Voter Decisions MichaelChasnow,Consultant,CMF Withthedatesfornationalelectionsin IndiarecentlysetforApril13-May16, Ihavebecomemoresensitivetoarticles andpapersthatdiscussvotertendencies (particularlywithinIndia).Thismorning Icameacrossaninterestingpaperon voters’reactiontoweathercrisesinIndia,andwhethergovernmentresponses tosuchcrisesaffectvoterdecisions (courtesyofablogbyChrisBlattman, aYalePoliticalScienceprofessor).With weathercrises,itseemlikeincumbent provincialgovernmentsdolosevotes afterfloodsordroughts,butthatthese lossescanbelessenedifthegovernment providestimelyandwell-documentedreliefaid.Asthepaper’sauthors(Shawn ColeandEricWerkerofHarvard,and AndrewHealyofLoyola-Marymount), put it: “Wefindthatvotersdoindeedpunish politiciansfollowingadverseweather events,butthatthedegreeofpunishmentdependscriticallyonthequality oftherulingparty’sresponse:those distributinggreateramountsofrelief aidsuffersmallersubsequentelectoral losses.” ThepaperIdiscussabovefocuseson crisesrelatedtoweather.Onabroaderlevel,Iwonderwhetherthecurrent financialcrisiswillnegativelyaffect Congressintheupcomingelections.The governmentisdefinitelytryingtoreact tothecrisisbothonthenationallevel. ForinstanceCongresshaspassedtwo fiscalstimuluspackagesinDecember 2008 and Jan. 2009 that combined amountto3%ofIndia’sGDP,andhas expandedthenationalruralemployment scheme(NREGA).AsthisReserveBank ofIndia(RBI)paperdetailsonpage9, therehavebeenseveralreliefpackages across the past 12 months: “Thesefiscalstimuluspackages,togetheramountingtoabout3percentof GDP,includedadditionalpublicspending, particularlycapitalexpenditure,govern-

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Continuedonpage4

percentoftheaccountshadabalanceofmore thanRs.100,leaving85percentofthenew no-frillsaccountsessentiallyinoperative.One ofthemostimportantreasonsforinoperation seemed to be lack of awareness among householdsaboutsavingsandabouttheuses ofno-frillsaccountsoreventhepurposeof openingthebankaccountandobtainingthe passbook.Theywereundertheimpression thathavingthebankpassbookmightenable themtogovernmentassistanceschemesor resultinaloanfromthebankatalaterstage. Cost and Break-even of No-Frills Accounts: Basedoninterviewsandinputsprovidedby variousbranchmanagersinCuddalore,the costofopeningano-frillsaccount(excluding thefixedcostatthebranch)wasestimated to be Rs. 50.45 per account. The cost of maintenanceofano-frillsaccountorthecost oftransactioninsuchaccountswasestimated to be Rs. 13.40 per account. At current levelsoftransactionandaveragebalance, theresearchteamcalculatedthatthepartner bankscouldbreak-evenonthemaintenance costsiftransactionswerecarriedout,butnot iftheno-frillsaccountswereopenedbutnot used.Thepercentageofno-frillsaccounts operatinghadtoimprovesignificantlyfornofrills accounts to break-even all the costs. Recommendations: Keyrecommendationsfromthestudyinclude: •Financialawarenesshastobothprecedeand accompany account opening. •Atolerancelimitforunwillingnessmaybe fixedasanacceptablecriterionfordeclaringa districtas100percentfinanciallyincluded. • Some of the best practices employed by banksandbranchesthatachieved100percent willingnessshouldbedocumentedbybanks anddisseminatedtootherpartnerentities. •Thisstudyshouldbeviewedasastarting pointinreviewingbankcostsassociatedwith thedrive.Banksshouldconductmoreintensive

StepsInvolvedinDisbursement:1.Agentinserts beneficiary’scard2.Beneficiaryfingerprintisread 3.Agentgivescashtobeneficiary4.Receiptsare printed and signed

studiestoexaminethecostsofbothopening andmaintainingaccountsandbreak-even scenarios.

SmartCardsfortheDeliveryofGovernmentBenefits:FadorHeretoStay? By Doug Johnson

Governmentsaroundtheworldareincreasinglyexperimentingwithinnovativeways ofdeliveringgovernmentbenefits(Bankable FrontierAssociates,2006).Onesuchsolution whichhasachievedprominenceinrecentyears istheuseofbiometric-enabledsmartcardsand smartcardreaders.InGermany,smartcards arenowusedfortrackingindividualclaimsand storingmedicalinformationforall71millionlegalcustomersofhealthinsuranceinthecountry.InMalaysia,thegovernmenthasgoneone stepfurtherbyrollingoutanationalsmartcard IDwhichsimultaneouslyservesasadriver’s license,ATMcard,creditcard,andrepository ofsensitivemedicalinformation.Chinahas unveiledsimilarplanstointroduceanational smart card ID for all its citizens. Thiscasestudyevaluatesanddocuments apilotprojecttousesmartcardstodeliver governmentbenefitsbytechnologycompany FINOinthestateofAndhraPradesh.In2007, FINO,incollaborationwiththestategovernmentofAndhraPradeshandseveralpartner banks,launchedaprojecttodeliverpayments fromtwolargegovernmentprograms–the NationalRuralEmploymentGuaranteeScheme (NREGA)andtheSocialSecuritiesPensions Scheme(SSP)–viaasystemofsmartcards heldbyendbeneficiariesandagentsequipped withsmartcardreaderslocatedinvillages. TheFINOschemerepresentsthefirstlarge scaleuseofsmartcardsforthedeliveryof government services in India’s history. Theanalysisrevealsthat,thesmartcardpaymentsystemresultedingreaterconvenience andempowermentforbeneficiariesandreducedfraudatthebackend.Withthesmart cardpaymentscheme,beneficiariesspend fewerdayswaitingforpaymentstobecome availableandlesstimewaitinginlineattransactionpointsfortheirpaymentstobeprocessed.Inaddition,anecdotalevidencesuggeststhattheuseofsmartcards,byensuring thatpaymentstofemalebeneficiariesare deliveredtothebeneficiariesthemselvesand nottheirhusbandsorbrothers,hasresulted inincreasedwomen’sempowerment.Further, limitedevidencesuggeststhatthesmartcard


systemhasreducedlevelsoffraudinNREGA andSSPbya)identifyingfictitiousbeneficiaries duringtheenrolmentstageandb)bymakingit moredifficultforNREGAsupervisorstooverreport work done.

widerrangeofresearchersthroughwhichresearcherscanshareinformationaboutcurrent researchandissuesaffectingthemicrofinance sector

ThelasthalfofthisreportdescribesFINO’s planstooffersavingsaccountstobeneficiariesusingthesmartcardsandinvestigatethe potentialforotheradditionalfinancialservices orgovernmentbenefitstobedeliveredaswell. DuetothecurrentextremelylowlevelsofaccesstosavingsproductsbyNREGAworkers andSSPpensioners,theanalysispredictsthat theadditionofsavingsproductsislikelytohave significantimpactonthefinancialinclusionof beneficiaries.However,noothersuitableserviceswerefoundwhichcouldrelativelyeasily bedeliveredviatheexistingpaymentsystem.

TheMicrofinanceResearchersAllianceProgram waslaunchedonNovember14-15,2008in NewDelhi.OverthirtyfiveIndianscholarsappliedfortheprogramme,ofwhichtwentywere invitedtoattendthemeeting.Thecandidates selectedtojointheprogrammebringdiversityin academicdisciplinessuchaseconomics,social work,regionaldevelopment,finance,entrepre-

Launch of MRAP

andexposurevisitsthatCMFwillorganiseto supportresearchersinundertakingrelevant, focusedandqualityresearch.Workshopswill includeresearchmethodologyanddatacollectionandanalysistechniques.Eachparticipant willconductresearchinpartnershipwithamicrofinanceinstitution,therebygainingexposure totheprocessesandresultsofpracticeinthe microfinancesector.Additionally,MRAPwill provideopportunitiesforresearcherstoshare theirresearchandengageindialogueoncurrent issuesthroughacommononlineplatform.

Launch of E-Library and E-Platform

Thefullcasestudycanbefoundonlineathttp:// ifmr.ac.in/cmf/casestudies/Johnson%20_%20 SmartCard.pdf

MicrofinanceResearchersAllianceProgramme (MRAP)

ParticipantsinMRAPdesignasamplesurveyinstrument aspartoftheinuaugralworkshoponFebruary21,2009

neurship,management,anthropologyandorBy Knowledge Management Team ganisationalbehaviour,andareassociatedwith premierinstitutionslikeIIT-Kharagpur,Univerhaslaunchedaresearchcapacity sityofDelhi,UniversityofBaroda,Sa-Dhanand developmentinitiativecalledtheMicrofinance National Institute of Rural Development. ResearchersAllianceProgram(MRAP),funded bytheFordFoundation.MRAP’smissionisto VijayMahajan,ChairmanofBASIX,delivered bridgethegapbetweenpracticeandresearch, theinauguralspeechinwhichhepresented andalsotoprovideaplatformwhereresearch- asuccinctoverviewofthehistoryofmicrofierscansharetheirresearchandlearning.The nanceandruraldevelopmentinIndia.Other microfinancesectorinIndiahasexperienced eminentspeakerspresentattheeventinclude tremendousgrowthinthepastdecadesbutthe Dr.NachiketMor,memberofBoardofGoverresearchcommunityhasnotbeenabletokeep norsofIFMR,JustinOliver,ExecutiveDirector stride.MRAPintendstoimprovetheprospects ofCMF,AnnieDuflo,ResearchNetworkDirecforindividualresearcherstobenefitfromthe toratInnovationsforPovertyAction(IPA)and researchbeingconductedbyothersinthecom- MalcolmHarper,ProfessorEmeritus,Cranfield munity,andforresearchtointegratewithprac- University,whoencouragedthecandidatesby tice.MRAPisguidedbytwokeyobjectives: presentingtopicalresearchissues,detailingexi)Providinglong-term,intensiveresearchca- isting research. pacitybuildingsupporttoresearchersintheir Benefits to MRAP Participants early-tomid-careerwithstrongresearchpotenItisenvisagedthatMRAPparticipantswill tial. ii)Providingacommononlineplatformfora benefitfromworkshops,researchseminars,

CMF

http://ifmr.ac.in/cmf/mrap http://ifmr.ac.in/cmf/elibrary

CMFhaslaunchedtheMRAPE-Platform (http://ifmr.ac.in/cmf/mrap),acommononlineplatformforresearchersworkinginthe fieldofmicrofinance.Thiswebsiteprimarily promotesdiscussionamongmicrofinanceresearchersaswellencouragescollaboration. InconjunctionwiththeE-Platform,CMFhas launchedtheMicrofinanceE-Library(http:// ifmr.ac.in/cmf/elibrary)asaresourcefor deskresearch.Currently,itcontainsover 300researcharticleslinkedtothesiteina user-friendly presentation.

First MRAP Workshop

ThefirstMRAPworkshopwasorganised fortheselectedparticipantsonFebruary21-22, 2009inChennai.Theagendaforthisworkshop wasontrainingresearcherstoidentifyrelevant researchquestionsandtechniquestodesign rigoroussurveyinstruments.CMFExecutiveDirectorJustinOliverandProgrammeHeadsAmy MowlandLakshmiKrishnanpresentedonthese topicsandalsoengagedindiscussionwiththe participants.Amydiscussed“developingasurveyinstrument”whichincludedvariousfacets likedefiningtheresearchobjective,deciding whichmodulestoincludeinquestionnaires, draftingmodulestoensuretheymetobjectives andwerecoordinated,anddesigninglayout. Shealsotalkedaboutethicalpracticesthat researchersshouldadoptwhileconductinga survey.Lakshmi’spresentationfocussedonthe researchmethodologiesemployedinweather insurance experiments.

MRAP’s Value to the Sector MRAPstresseson“knowledgepartnerships” betweenresearchersandmicrofinancepractitionerstobridgethechasmbetweenpractice andresearchinIndia.Theprogrammewillbuild astrongnetworkofIndianresearchersworking onvariousissuesinthesectorandassimilate individualknowledgeintoasector-wideknowledge base.

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Continuedfrompage2 mentguaranteedfundsforinfrastructure spending,cutsinindirecttaxes,expanded guaranteecoverforcredittomicroand smallenterprises,andadditionalsupport toexporters.Thesestimuluspackages cameontopofanalreadyannouncedexpandedsafety-netforruralpoor,afarm loanwaiverpackageandsalaryincreasesforgovernmentstaff,allofwhichtoo should stimulate demand.” Votertheory,andthepaperdiscussed inthe1stparagraphonweather-related crises,demonstratesthatcrisestypicallyresultintheincumbentgovernment losingvotes.IntheIndiancontext,it seemslikegovernmentaidprogrammes canhelpmitigatetheselosses,particularlywithweather-relatedcrises.Will thisideaholdwiththefinancialcrisis? Hastheincumbentgovernment’spackageprovidedvisiblerelieftodistressed voters(suchasfoodaidwouldaftera flood)? Asthefinancialcrisisbynatureismore abstractthanafloodthatdestroysthe cropforayear,Iamnotsurehowvoterswillreacttogovernmentreliefprogrammes.Thesereliefpackagesare moreindirectthanfoodaidordirectgovernmentbenefits,andaccordinglyIam notsureifvoterswillfeeltheaffectsof aidinthesameway.Regardless,it’sfun to think about . . . March 4, 2009 http://www.indiadevelopmentblog. com/2009/03/indian-politics-how-crisesaffect-voter.html

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PhoningItIn:UsingCell PhonestodoDailyConsumption Surveys By Anup Roy and Emmerich Davies

Inearly2006,theCentreforMicroFinance

(CMF)collaboratedwithVillageWelfareSociety(VWS),oneoftheoldestmicrofinance institutionsinWestBengal,toconductastudy ontheimpactvaryingrepaymentfrequency wouldhaveonaclient’sabilitytorepaytheir loanaswellastheirconsumptionandinvestmentpatternsoveraloancycle. Duringthe third phase of the study, started in 2008, clientswererandomlyassignedtoeithera weeklyrepaymentgroupora5-weeklyrepayment group.3 Inadditiontoinfluencingrepaymentandinvestmentbehaviour,theCMFresearchteam believedthatchangingrepaymentschedules wouldleadtodifferentpatternsofconsumptionandsavingsoverthecourseofarepaymentcycle.Totestthishypothesis,CMFundertookadailyconsumptionstudy(DCS)that contacted200clientseveryalternatedayfor amonthtorecordtheirconsumptionandexpenditure patterns over a 48 hour cycle. Why Phones?

aphasedmanner,therebyallowingtheteam toreachagreaternumberofrespondentsin theprocess.Moreover,respondentscouldbe contactedatalmostanytimeofthedayand werenotrestrictedbysurveyors’traveltime. This also meant that the team could reach therespondent’shusbandstoaccountforany discrepanciesinconsumptionthatmighthave arisen. Details of Surveying with Mobile Phones Afterabrieftwo-weekpilotthatwasconductedwithfourclientswithaperfectresponse rate,thesurveywasscaledupto200respondents.Theteamadministeredthesurveyin aphasedmannertotwogroupsofahundred respondentseach,witheachgroupbeing contactedonalternatedaysoveraperiodof sevenweeks.Eachrespondentwasoffered theoptionoftakingtwopre-purchasedCDMA phones,onefortheclientandoneforherhusband,lockedwithapre-determinedservice provider.Intotal,350phonesweredistributed,200torespondentsand150tohusbands. Toensurethatrespondentscompliedwiththe surveyandreturnedthephonesattheconclusionofthesurvey,theywereofferedRs.5for everycallansweredbythemortheirhusband, deliverableuponreturnofcellphonesatthe end of the survey period.

Benefits and Pitfalls TheDCSin2008wasessentiallyareplication Althoughusingphonestosurveyclientsraises ofasimilarstudybyCMFconductedin2006; additionalcostsontopoftraditionalsurvey howeverthispriorsurveywasdonein-person. costs,webelievetherewereoffsetbysavings Althoughthesurveyin2006wasshort–on elsewhere.Surveyorsdidnothavetospend average 25 minutes – the rate of attrition timetravellingtoandfromthefield,thuselimamongrespondentswashighforsuchasmall inatingtravelcostsand sample size, running time,animportantcon“Eventuallywesettledonsurveying at 7 percent, as they siderationwhensurveyclientseveryotherdayusingmobile tiredofdailysurveys. inginurban,traffic-ridden phonesasitprovideduswithagreater Looking to improve Kolkata. With this time levelofflexibilitythatphysicalvisits on this, the research saved,surveyorscould could not.” - CMF Research Team teamdiscussedother reachagreaternumber ways that could be of clients and fewer surusedtoretainrespondentswhilepreserving veyors were hired to conduct the survey. thedetailadailyconsumptionsurveyrequires. Ideasthatwereconsideredincludedoffering Lessons Learned respondentsincentivestoparticipate,admin- The initial goal of using mobile phones to isteringthesurveyonalternatedaystoask conductsurveyswastoreduceattritionand abouttheprevious48hours,andusingphones surveyorcostswhileincreasingthespeed tocontactrespondents.Eventually,theteam andaccuracywithwhichthesurveyswere settledonsurveyingrespondentsonalternate conducted. Inalltheseregards,usingmodaysusingmobilephonessinceitprovideda bilephonesprovedtobeasuccess.Overthe higherdegreeofflexibilitythatphysicalvisits entireperiodofthesurvey,only6callswere didnot.Surveyingonalternatedaysmeant missedbyclientswhohadtravelledoutof thattherespondentscouldbecontactedin town.Despitethetremendoussuccessofthe 3Between2006and2008,VWSchangedtheir standardloanproductfroma44-weekloantenure toa45-weekloantenure.Toaccommodatethis, wechangedourtreatmentgroupfromamonthly(4 weekly) to a 5 weekly repayment cycle.

survey,itmaynotbepossibletoreplicateit inothercontexts.Monitoringtoensurethat clientsretainedtheirmobilephoneswasinterlinkedwithsurveyingthem,andassuchwas doneatnoadditionalcosts.Moreover,phones


werelockedCDMAphones,therebyreducing thepotentialtousethephonesforpurposes other than the survey. Providingasmall,cumulativeincentivetoclientstoanswercallswasprobablythebiggest factorthatcontributedtothenear-perfectlevelsofparticipation.Surveysthatseektouse mobilesphonesneedtokeeptheseconcerns inmindwhiledesigningsurveys.Inparticular,scenarioswhereregularmonitoringofthe useofthephones(throughdailycallsforexample)isnotpossible,itisdifficultforsurveyorstominimiseattritionamongrespondents sincethereisnootherinteractionbetween respondentsandsurveyors. Additionally, havingpre-paidphonesmeantthatifrespondentsventuredbeyondtheKolkataarea,they wouldnotbereachableasroamingfacilities weredisabledonthephones.Thiseliminated the cost of the phone call but it also meant thattherecouldbeaminorlossofdata.Accordingly,surveyingapopulationthatishighly transientmayintensifytheproblemofconsistently reaching respondents. Thefullstudyisavailableonlineathttp://ifmr. ac.in/cmf/policy_memos/1.VWS.pdf

Microfinance:FromResearch to Practice Reportontherecentconferencehostedby theCentreforMicroFinanceandtheCollegeofAgriculturalBanking(CAB)onJanuary 16-17, 2009.

TheconferencetookplaceonCAB’scampus

inPuneandwastitled,“Microfinance:From ResearchthePractice.”Theobjectiveofthe conferencewastofacilitateinteractionamong prominentmicrofinancepractitioners,bankers, policymakers,andresearcherswhoareconductingfieldexperimentsinmicrofinance.The conferencewasorganisedaroundfivetechnical sessions,eachfeaturingmicrofinanceresearch as a focal point. TheEnhancingtheImpactofMicrocredit sessionfeaturedpreliminaryresultsfrom CMF’simpactevaluationofSpandana’smicrocreditprogramme.Thestudyprovides anunderstandingoftheeffectsofamicrofinanceprogrammeatthehouseholdlevel andtheusageoffinancialservicesinparticular,whichcouldleadtobetterfinancial servicesproductdesignandthedevelopmentofcomplementarynon-financialservicesinterventionsatthehouseholdlevel.

RBIbyusingevidenceonusage.Thestudies, conductedinGulbargadistrictofKarnatakaand CuddaloredistrictinTamilNadu,twodistricts thatclaimed100percentfinancialinclusion,revealedthatinbothdistrictsasignificantpart ofthepopulationeitherremained“unbanked” becausetheydidn’tunderstandtheneedfora savingsaccountorhavebeenopenedunderthe NREGS to collect wages. ThesessiononFinancialLiteracyincludeda studythataimstounderstandhowMFIclients understandtheirloancontractandexactly whatitmeansforanMFIclienttobeinformed byassessingwhethertheyknowthetermsof theirloans,whichaspectsoftheirloanterms areimportant,andwhataretheimplications forregulation.ThepresentationsbyrepresentativesfromthePunjabNationalBankand theUnionBankofIndiawereabouthowbank branchemployeesaimedtohelpinformclients aboutdifficult-to-understandproducts,suchas insuranceorsavingsaccountsandotherfinancial products. TheOptimizingmicrofinancedistributionchannelssessionsawthepresentationoftworesearchstudies:thefirstattemptstounderstand factorsthatdrivehouseholdinsurancedemand andwhethraccesstorainfallinsurancemight helphouseholdsmitigatetheriskofmajorincomeshocks;thesecondseekstounderstand whetherdistributinginsecticidetreatednets forfreeorbundlingwithamicrocreditloanand spreadingcostsovertimeincreasestake-upand improveshealthoutcomesaswellastheeffect theseITNscanhaveonrepaymentsanddebt absorbing capacity of clients. TheEmergingissuesinthemicrofinancesector sessionsawdiscussionscenteredonthevarious issuesthathaveaccompaniedtheboominaccesstocredit,amongwhichweretherecycling ofdebt,theneedformanagementinformation systemstoimprove,andforacreditinformationsystemthatcouldprovideafullerpicture ofwhereborrowershavetakenoutloansso thatmicrofinanceinstitutionsdonotoverburdenborrowerswithcredit.Theotherissuewas

TheFinancialInclusionsessionincluded presentationsthatexploredtheresultsof Delegatesenjoyatechnicalsessionattheconference thefinancialinclusiondriveexhortedbythe

thegrowingcompetitionwhichispredictedto promptproductandserviceinnovationsasMFIs will cater more to client needs. Presentationsfromtheconferenceareavailable athttp://ifmr.ac.in/cmf/seminars_conferences/ CAB2009/2009_cab_conf.html

ACloserLookatConsolidation:TheSonata–Jeevika Acquisition ByAkhandTiwariandMichaelChasnow

Ascreditinfinancialmarketstightenedin

late2008andearly2009,manymicrofinance sectorleaderspredictedthatconsolidationwill occur within the sector. For instance, in an articledatedNovember25,2008intheMint, SKSfounderVikramAkulastatedthat“Inthe currentenvironment,capitalisflowingtoqualityandthisisaffectingthesmallandmedium MFIs(microfinanceinstitutions).Banksare lendingonlytolargeMFIs.Weareinastrong position.WeareholdingdiscussionswithMFIs whoarefacingstrainandhelpingthembytaking over their clients.” Whetheritisincreasinglydifficultforsmaller MFIstofindfundingsourcesisdifficulttoverify.However,underscoringAkula’slatterpoint, themicrofinancesectorhasbeenwitnessto twoacquisitionsrecently.Thefirstoccurred inAugust2007,whenAllahabad-basedSonata FinancePrivateLtd.purchasedtheloanportfolioofJeevikaLivelihoodsSupportOrganisation,aJabalpur-basedlivelihoodnon-profit. Thesecondacquisitionoccurredinthefallof 2008,whenAnnapurnaFinancialServicesacquiredMaxwealth’sloanportfolioforRs.193 million(approximately$400,000).Sonataand AnnapurnaarebothclientsofBellwether,aprivatemicrofinanceequityfundbasedinHyderabad. Giventheincreasingprevalenceofacquisitions, andpredictionsthatsuchacquisitionswillincreaseinfrequencyandsize,CMFresolvedto takeanin-depthlookatoneoftherecentacquisitionstolearnmoreabouttheprocessand thechallengesthatMFIsconfrontduringintegration.ThankstoSonata’sgenerositywith theirtimeandopenness,CMFstaffspentafull weekmeetingwithstaffinbothAllahabad(UttarPradesh)andJabalpur(MadhyaPradesh), andmetwithclientsinJabalpurwhoseloans weretransitionedfromJeevikatoSonata. Thisarticlegivesasneak-peekoftherecently concludedcasestudydelvesintotheSonata acquisition and integration process.

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SUSTAINABILITY OF SHGs CMF-NABARD CONFERENCE November 1, 2008 GuidelinesfortheSHG-banklinkageprogrammewerefirstissuedbyNABARDand theReserveBankofIndia(RBI)in1992,but theconceptdidnotgainmomentumuntil theendofthedecade.Inthemovement’s nascentstages,SHGpromotionwasorganisedmainlybyNGOs,butastheconcept gainedpopularity,manystategovernments took on an intermediary role. The movement’s initial success has attractedconsiderableattentionfromawide rangeofstakeholdersandsomeSHGshave becomevehiclesforotherdevelopment objectivesincludingthefinancialinclusion agendaoftheCentralGovernment.Theadvantagesofaggregationandsocialcapital are key factors that attract such actors toSHGs.However,therearequalityand sustainabilityissuesoftheSBLPthatstill needtobeaddressed.Oneconcernisthat thetargetbaseapproachandprofitmotives ignorethequalityoftheSHGentitiesthemselves.Also,theapproachlacksanenabling environmentthatcandriveandexpandthe scope of livelihood options for SHGs. Recognizingsuchkeyqualityandsustainabilityconcernsandquestionsattheheart oftheSHGmovement,theCentreforMicro FinanceattheInstituteforFinancialManagementandResearch,ChennaiandNABARDjointlyorganizedaconferencetofacilitatediscussions,shareexperiencesand debateamongvariousSHGstakeholders. Theconferencewasdesignedaroundfour major themes - The trend and progress of SHGs -SHGsasSustainableEntities–Scopeand Possibilities -UpscalinganddeepeningtheSHGmovement- Issues and Challenges -IssuesandChallengesinFinancingSHGs Theconferenceaimedtoaddresstheseissuesbybringingtogetherpractitioners, promoters,andregulators.Also,itas¬pired todiscussactionablesolutionsthatcould makeasignificantimpactontheoperation of SHG programmes on the ground.

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LoanPortfolioBuyoutversusFullAcquisi- teamworkedatCashporpriortostartingSotion nata,wouldbeveryhelpful.Whenfacedwith Thereisalargedistinctionbetweentheacqui- challengesthatwouldhavebeennewtoJeevisitionofamicrofinanceloanportfolio,whether ka,theSonatateamhasoftenconfrontedthese not-for-profitorfor-profit,andtheacquisition problems earlier. ofafor-profitentity,suchasaNon-Banking •Funding:Jeevika’sNGOstatuslimiteditsabilFinancialCompany(NBFC).Theprimarydiffer- itytoreceivefunding,particularlyifitwanted enceisthatpurchasingtheloanportfolioofa toexpanditsmicrofinanceoperationsrapidly. microfinanceinstitution,asinthecaseofSo- BybecomingapartofSonata,Jeevikawould nataacquiringJeevika’sportfolio,isnotmoni- receiveNBFCstatusaswellasgainSonata’s toredtoocloselybytheReserveBankofIndia experienceinfundraising,whichwouldenable (RBI)althoughithasoversightofthetransac- Jeevika’smicrofinanceoperationstogrow tion.Ontheotherhand,ifanNBFCacquires more quickly. anotherNBFC,regulatoryscrutinywouldbe Challenges and Accomplishments similartoanyothercompanytocompanyacquisitionforwhichregulatorystepswouldin- AsMr.Dubeyexplained,“Mergingthebalance sheetisnotaproblem,thedifficultyliesinmergclude: ingoperations”.Earlyaftertheacquisition,the •Publicnoticeofacquisition–RBIandother newSonataMadhyaPradeshoperations(forregulatorswouldhave30daystoreviewthe merlyJeevika)adoptedSonata’saccounting acquisition to decide on its legality practices,butmergingproductandoperational •NeedtofilewiththeRegistrarofCompanies practiceshastakenmoretime.Therearevaria•NewNBFClicensingforthecombinedentity; tionsinproductcharacteristics,suchasrepayNBFClicensingtypicallytakesseveralmonths mentschedules,andintheuseofmanagement informationsystemstotrackrepaymentand Reasons for Partnership theadditionofnewclientsthatstillexist.It ChiefExecutiveOfficerAnupSinghandChief wasthusnecessarytoevaluatetheSonata Financial Officer Rakesh Dubey of Sonata andJeevikaloanproductsandoperations.Instressedtheimportanceofsynergyinmaking terestingly,Sonataplansontakingpositiveattheacquisitiondecision.AsMr.Singhframed tributesfromtheMadhyaPradeshandUttar it,“Whatwouldbethekeybenefitsofworking Pradeshoperationstocreateanimprovedand togetherbe?Doestheacquisitionmake senseforbothparties?”Theyoutlined severalbenefitstheyenvisionedfrom the partnership: •Base for expansion: Sonata was thinkingaboutexpansionintoMadhya Pradesh(MP),andnowcoulduseJeevika’s base in Jabalpur, MP to grow a businessthere.TheacquisitionwouldallowSonatatoskipstepsinthegrowth process,suchascreatingapresencein villagesandgettinggoodstaffonthe Meetingwithclientswhoseloansweretransferredfrom ground. Jeevika to Sonata • Building out senior management team:Sonata,establishedin2006,isa relativelyyoungorganizationthatneedstoadd integratedend-product.Forinstance,senior strongpeopletoseniormanagement.Mr.Ash- managementdecidedthatJeevika’s47-week ishGupta,thefounderofJeevika,andcurrent repaymentschedule,whichtakesintoaccount ChiefOperatingOfficer(COO)atSonata,would holidays,workedbetterthanSonata’s50-week bringavaluableskillsettoSonataandbring repaymentschedule.Moreover,Sonataplans toincorporateJeevika’sloanrepaymentpolicy, expertise in Madhya Pradesh. whichrequiresweeklyrepaymentinstallments Mr.Gupta,thefounderofJeevikaandcurrent shouldbemultiplesofRs.25perRs.1000of ChiefOfficerofOperationsforSonata,outlined loan.ThismakesthecalculationseasyforclithebenefitsoftheacquisitionfromJeevika’s entsaswell. Forexampleaclientcaneasily perspective. findouttheamountofrepaymentifherloanis •Operationssupport:Jeevikawasrelatively Rs.5000withthiskindofsystemwhichwillbe newinmicrofinance,astheybeganproviding 5 times of 25. loansinJune2006.Joiningagroupwithabout Onthefinancialside,theacquisitionhasyielded 10yearsofexperience,Sonata’smanagement positiveresultsforSonata.Sincetheacquisi-


tioninAugust2007,Sonata’sloanportfolio hasincreasedfromRs.7croretoRs.42crore, a600%jump,andtheMadhyaPradeshoperationshavebeenquiteprofitableaswell.This successhasenabledSonatatothinkmoreambitiouslyabouttheirfuturegrowthprospects,and theirabilitytoextendintonewareastoprovide financial services to the poor. TheSonata-Jeevikaacquisition,beingthefirst in thecountry,couldbealearningcasefor variousplayersinthemicrofinancesector.It demonstratesthatsimilarvisionsoftwomergingorganisationscanbebeneficial.Inaddition, itshowsinstitutionsinvestinginMFIs,suchas privateequityfirms,thatacquisitionscanhelp consolidatetheirportfoliosandpossiblyadd value.Fornon-profitorfor-profitorganisations thatnolongerwishtocontinuetheirmicrofinanceoperations,thedealdemonstratesthat nonprofitscanselltheirloanportfolios,thus getting an easy exit option.

Interview with Justin Oliver,ExecutiveDirector of CMF By Satyarupa Shekhar

JustinistheExecutiveDirectoroftheCentre

forMicroFinance.HejoinedCMFinJuly2008 buttheKnowledgeManagementUnitrecently grabbedtheopportunitytogettoknowhim better. Why did you join the Centre for Micro Finance? BeforeIcametoIndia,I’dknownaboutCMFfor severalyearsbecauseithasdonesuchexcellentworkinmicrofinance.IthinkthatCMFhas auniquecapabilityandthemissiontotacklethe issuesthataremostbasic,relevant,andpressingtothesector.Sowhentheopportunityfor joining CMF arose, I took it. What was your background in research prior to joining? IwaspreviouslyinGhana,astheCountryDirectorforInnovationsforPovertyAction,another globalresearchorganizationfocusedprimarily on the finances of the poor. Prior to this, IworkedattheBrookingsInstitutioninthe ForeignPolicydepartment,andbeforegraduateschoolIworkedinstrategyconsultingfor privateequityfirms.Ialsospenttwoyearsin MauritaniawiththePeaceCorpsworkingwith microfinanceinstitutionsandsmallenterprises. HowwouldyoucompareandcontrastAfrica’s microfinance sector to India’s? TheIndianmicrofinancesectorismoremature

inmanywaysthaninWestAfrica,inthatmicrofinancehasbeenhereforlonger,andthe scaleismuchgreater.Forinstance,thebiggest MFIinGhanahad60,000loanclientswhilein IndiatherearemorethanahundredMFIswith morethanthatmanyclients,andseveralwith morethanamillion!InIndia,thehighpopulationdensity,highrepaymentrates,andthe rigidmodelsemployedhaveworkedinfavourof MFIsandtheyhavebeenabletoscaleuptheir operationsfairlyefficiently.ButinWestAfrica andelsewhereintheworld,itisrecognizedthat thepoorneedsavingsfacilities,perhapsjustas muchastheyneedcredit–inIndia,veryfewfinancialinstitutionsthatservethepoordirectly can accept savings. CanyouexplainwhyRandomisedControl Trials (RCTs) are a useful methodology? TherealvalueofaRandomisedControlTrialis thatitallowsyoutodeterminewhichresultsor impactsaredirectlyattributabletothething– theproductortheintervention–you’dliketo knowabout,independentofalloftheotherfactorsthatmaybeaffectingthepeopleinvolved. Thisiswhyit’stheonlymethodthat’saccepted fordeterminingwhetherornotamedicineare safeandappropriatefortreatingailments.For me,figuringouthowtoreducethepovertyand inequalityintheworldisjustasimportant,and yearsandyearsofguessingaboutwhatworks hasn’tyetresultedinalotofknowledge.Usingrigorousmethodsisthebestwayforpolicy makers to get that knowledge. Practitionersfindrigorousresearchusefulbecauseitprovidesinformationontheiroperationsandimpactthattheywouldhavealot ofdifficultygettingelsewhere. It’salsoparticularlyusefulbecauseitcanbeaveryfast andefficientwayforthemtodeterminetheir owninternalbestpractices–especiallyproductfeaturesandmarketingmethods.Normally, MFIsdecidewhatproductstoofferandhowto marketthembasedontheirhistoricalpractices andwhatothersaredoing,andmakesome changesinhopesthatitwillworkbetter.With aRCT,anMFIcouldtryoutmultipleproducts orprocessesallatonce,andlearnabouttheir relativemeritswhichwouldsavethemtimeand money. HowdoyouhopeCMFresearchwillimpact the microfinance sector? IexpectCMFresearchtohavebroadimpacts onthewayfinancialservicesreachpoorpeople bothglobally,andspecificallywithinIndia.We haveavarietyofdifferentstudiesthatshould beusefulfordifferentpeople,fromseveral groundbreakingstudiesthatarelookingatthe basicimpactsofmicrocreditonpoorpeople’s lives,tostudiesthatexaminespecificproducts

or features, to short case studies that look deeplyintoaspecificissuesuchastheuseof smartcardsoracquisitionsintheindustry.We sawagreatexampleoftheimpactofourresearchlastmonth:we’vebeenexaminingthe “100%financialinclusiondrive”promotedby theRBIinselecteddistrictsaroundthecountry. Withinaweekofpresentingthemourresults, theRBIissuedacircularonthesubjectwith recommendationstoimprovetheprogramme, whichislikelytoimpactliterallymillionsof people.We’relookingforwardtocontinuingto work with the RBI on this. What, in your opinion, are the major research areas in microfinance that require additional study in India? There’salotthatneedstobedone.Oneparticularlypressingareaistheroleofcompetitionin financialservicesforthepoor.It’snotclearyet whethercompetitionwillputanypressureon interestrates,orwhetherMFI’sjustcompete onservices,loansizes,orfordifferenttarget markets.Norisitclearwhethercompetition necessarilyincreasesaccesstofinancialservicesforthepoor,orwhetheritjustencourages MFI’stomoveup-markettotheless-poor.CMF would like to look at these issues. AnotherareathatIthinkitwouldbeworthresearchingisthetransactioncostsofallsources ofcreditandsavings,formalandinformal. I thinkwewouldfindthatinformalsourcesof creditexistalongsideformalsourcessimplybecausetheycatertoverydifferentrequirements, andwehaveaveryincompleteunderstanding of this. What CMF research projects are you most excited about and why? I‘mexcitedaboutallofthemandamnotgoing toplayfavourites!Seriously,eachofour30or 40-oddprojectsisexaminingadifferentissue andtryingtoansweranimportantquestion. Regardingresults,Ithinkthefindingsthatare justcomingoutfromthestudywithSpandana areparticularlyinteresting.Weobservedthat themerepresenceoftheMFIinaneighbourhoodledtoa30percentincreaseinthenumber ofnewbusinessescreatedperyear,onaverage.Wealsofoundthatitincreasedaverage householdspendingondurablegoodsdramatically,anddecreasedspendingonthingslikealcohol,paan,andsmoking.Itmayindicatethat thepresenceofcredit(andpresumablyliquidity)givespeopleanincreasedseriousnessabout whattheyspendmoneyon–maybeyoucould callithope.We’relookingforwardtoexploring this further.

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CENTRE FOR MICRO FINANCE

CENTRE FOR MICRO FINANCE 8th Floor, West Wing, Fountain Plaza Khaleel Shirazi Estate 31/2 A, Pantheon Road, Egmore, Chennai, 600 008, India Phone: (91) 44 4289 2725 Fax: (91) 44 4289 2799 Web: www.ifmr.ac.in/cmf


Eye on Micro Finance - Issue 9