Saturday 18 August, 2007

Many Lives, No Masters

Sorry people, those very few who had been reading this blog of mine. I know I am late. Two months is a long time in blogosphere.

Well, what do you expect? The last two months have been hectic, to say the least. I switched jobs in June, and since then, have found no time, but then, gained valuable experience.

I have spent time in Assam in a remote place where there are about 13 extremist groups, and while I was there, 14 people got killed in violence. Then there were floods. One of the reports says about 29 people died from that. No electricity for long stretches of time, high humidity, lots of mosquitoes and bugs, no internet access, very weak or at many times no phone network coverage at all, very small and dingy and ill maintained hotel rooms.

And then I looked around myself, the beautiful landscapes, extremely warm people, great food………life never fails to surprise you with its diversity, all in one place. I sometimes feel so privileged at working in the development sector, for I get to see life from up close. Life, which takes me to luxurious hotels, cocktail parties, meeting with high flying people……..and then, just like its another life, to paddy fields where I get knee deep into mud, meet struggling farmers barely managing two square meals a day, walk through dingy urban slums, eat at some roadside stall sweating in the heat and driving away flies……it really seems that I am leading two lives.

So, forgive me if I do not write often. Writing a blog takes a third life, and right now its difficult managing the first two. Wish there were wizards to manage your lives, just like you have them in blogs to design the templates. Without them, life is meandering. I certainly am not the master of my life, and I wonder if there is any master to to the multiple lives I lead.

Tuesday 12 June, 2007

Banks in Microfinance: Do They Have Any Strategy?

Microfinance in India has been a big thing for the past decade. In fact, for sometime it was felt that it was a solution for poverty in India before everyone realized that the expectations from it were over hyped. However, with so many players joining the bandwagon, banks have also joined in the fray, sometimes as an ally of MFIs and sometimes as competitors, and mostly as agencies fuelling the intense competition between agencies.

Although almost every bank has entered microfinance, from nationalized banks to private banks to foreign banks, there does not seem to be any focused strategy for the same. Apart from ICICI bank which is very aggressive in the field, all others have a policy of wait and watch, and have been very conservative. While a lot of the banks are there in this sector to fulfill their target of priority sector lending, a few banks believe in the bottom of the pyramid theory, and feel that this sector can actually be a rewarding source of revenue. Yet, no one seems to have a strategy in place, and currently each bank is doing a lot of trials and errors to find out what can be the best strategy, while in the process leaving the MFIs to make hay.

There are three ways that banks reach out to the Microfinance clients. One is by direct lending to such clients, which is usually and mostly through government schemes that come out from time to time. Also, they reach out to people individually. This is not much popular among the bankers as this method has seen large defaults and NPAs for banks. The second method is the SHG Bank Linkage model, where the groups formed by either the bank or some other NGO is given loans by the bank. Most nationalized banks, through NABARD have been following this method, but again, the results are not very positive. The third and the most popular way is to not give loans to the ultimate clients directly, but to lend to an intermediary, the MFI, which in turn onlends to clients. The MFI pays the money back to the bank. Again here there are different methods in which this is done. Term Loans, Cash Credit Loans or Agency model, where the MFI works as an agent of the bank and charges a commission for its services, while the loan portfolio and the clients belong to the bank.

As discussed earlier, the first two ways have not been very successful. The third is the most popular way but there are many problems with that too. One of the major problems there is that an intermediary in between increases the final cost of borrowing to the client by a huge margin. Another problem is that there are very few strong and well established MFIs which can be given loans to, and identifying and separating potential and good MFIs from the poor ones is really difficult, and certainly not an area which the banks are very capable at. Of course there are compatibility issues and the Partnership Model of the ICICI has gone through rough weather recently due to its over aggressive nature and RBIs guidelines. But all this has happened mostly because there has not been a very well thought out strategy on the part of the banks based on their own strengths and weaknesses and available resources. Even if there has been one, it has not been very well thought out or either has been too aggressive or too conservative.

Yes, there is a huge market for Microfinance out there, and yes there is fortune at the bottom of the pyramid, and banks, if they operate properly, can be the most efficient players in the sector, giving the poor clients very good deal on financial services, as banks can provide a full range of financial services at very reasonable rates. But for this to happen, they first need to have a concentrated, focused and well targeted strategy.

Should Social Networking Sites Like Orkut be Banned?

The recent happenings in Mumbai have once again raised questions over the existence of social networking sites like orkut.com. While the Shiv Sainiks have made violent protests against the use of these sites because of some derogatory remark against its party supremo and against Shivaji, the Mumbai Police also seems to have been keen on getting the site banned.

The orkut site has been very popular lately, and has been attracting many users who do social networking, meet and keep in touch with old friends, develop new friendships, discuss issues, voice their opinions on issues they feel about strongly or just have fun. There are communities on orkut ranging from ‘Social Development’, ‘Venture Capitalists’, ‘I love My Dad’, ‘I love Maggi’, ‘I want to kill Himesh Reshammiya’ etc. etc. etc. Here comes the thing of freedom of expression again, and the site promotes that.

Personally, I have found wonderful use of this site. Though I do not participate much in the communities of orkut, I have found many old, long lost friends on orkut, who I had never expected to meet again, and getting back in touch with them has been an absolute pleasure. Again, keeping in touch with your friends and associates or just dropping a short message has never been easier. One never forgets birthdays anymore, as they are listed on orkut. We even had a small reunion of school friends who had lost touch over time but again got back through orkut.

That was the good part. But there is an ugly side to it too. There are many emails floating around, many news articles from time to time, telling us about unpleasant incidents that happened over the sites. A girl and a boy meeting through orkut and setting up a date, where the girl is later found murdered in a hotel room, or about terrorists being active on the sites, harassment, sexual threats, misuse of pictures, intimidation are quite commonplace. Then there are offensive communities. There was a community, ‘I Hate India’, which showed the picture of burning of the Indian flag. Also there are porn communities, communities spreading hatred or violence and all such sorts. Now here it is that how far can such freedom of expression be taken?

Is banning the site a solution to all these problems? To some extent, maybe yes. You cannot, in the name of freedom of expression, allow such things to go on which puts to risk the privacy, safety and lives of people. But then these are things that happen in the society, with or without orkut. Even without orkut, there were still crimes in the society. As in everything else, nothing works more than self censorship. One should choose for oneself whether one wants privacy and be a member of such a site or not, or put one’s picture in the site or not. Also, the discretion to go out with someone that one has met only online is exercised by the person who goes out, and as in all cases, restrain has to be maintained in that, and such cases happen not only when people go out with someone they have met on orkut or elsewhere. Infact, one cannot put the entire blame on orkut for all the mishaps that have happened.

So, what is the solution? I guess banning the site is not the solution. Then even emails and mobile phones and cameras and many many such things will need to be banned because these have also been the medium of many crimes and harassments. The solution is not in banning the site and gagging the freedom of expression, but then for the promoters of the site to come up with as many possible ways that the misuse of the site can be stopped, like preventing the photos to be easily copied from the site, which has been one of the easiest way of harassing and impersonating people.

Monday 28 May, 2007

If the Government Fails, Blame it on Big Corporate Paychecks

I fail to understand what happens to our brightest of leaders at times. Dr. Manmohan Singh is highly respected as an economist, was the pioneer of liberalization in India and is known to be pro growth and reforms.

Hence the statement he made the other day at CII about ‘rationalizing’ the remuneration of top corporate executives and their lifestyles is very much unlike him. Was it a politically correct statement he was forced to make or a surge of socialistic feelings (which is again so unlike him) is not known, yet in the times we are living right now, the whole idea is flawed.

The first thing is about the market forces. For a corporate to do well, you need the best workforce, especially at the senior level positions who have leadership roles, hence guiding the organization towards better results. Now, the availability of such talented and capable people is low, and the best people always come at a premium. Retaining top executives in a globally competitive work area is highly difficult. Most of the times, the remuneration of these people is performance based, and it is quite justified if they are paid according to their performance.

When the Honorable Prime Minister says that high salaries to these executives fuel the divide between the rich and the poor, and that these people should restrain from spending or showing off their wealth publicly, is it not that somewhere he is accepting the failure on the part of the government to take proper steps to bridge this divide, for it is the government’s job to raise the income and standards of living of the poor through its programs and thus bridging that divide, not by capping the income of others who are doing it absolutely legally and by their capability and hard work. Also, does the government has any business in deciding how someone spends his own money, what lifestyle he chooses to live in or that if he decides to live it up? And is it not hypocrisy to have such a diktat only for these corporate honchos who are making India proud globally and creating a wealth of opportunities and only making the economy grow, thus creating livelihood opportunities for the very same poor people who he thinks will have an objection to someone else earning more. Why is this diktat not also for politicians who also live it up, have grand weddings for their relatives and their own birthday bashes? It is well known to us what the sources of their income is, and no one objects to these people spending crores of public money publicly, each having cases of disproportionate wealth and tax evasion etc.

Is Mr. Prime Minister not able to see that these are the people who create so much wealth, employment and earn so much foreign currency for the country, make the country grow, thus themselves helping the poor. And the most direct thing to this is, the more that these people earn and spend, the more it is that they pay in taxes. Income tax, wealth tax, capital gains tax, sales tax, VAT.....what and what not? So this is the money that the government gets, which it is supposed to spend on welfare and development projects to help the poor, so the more the better. Then why is he so against it?

Actually, our leaders find new ways to shirk responsibility and blame anything and everything for their own failures, however illogical that might be. So, the government, which was not capable to bridge the gap between poor and the rich, not able to spend prudently and plan welfare and development measures properly, now blames the high salaries of these capable, hardworking and intelligent executives for its own failure. If anything, these kinds of moves hamper the progress of the country rather than the so called high remunerations of top corporate executives.

But then, we did not expect this to come from you, Mr. Singh, maybe any other neta saying it we would not have given it too much importance, because we are used to hearing such nonsensical statements from our politicians. But we always thought you were different, atleast in matters of economy. But this I guess, is Indian politics.

Thursday 24 May, 2007

Forest SEZs, Serious Environmental Zatka

The Union government has recently taken an initiative to create special economic zones (SEZ) by leasing out degraded forest land to industry. While on the face of it, it seems like a great idea, is beneficial to everyone and good for the environment, going deeper into the matter will show us that the move may have serious negative implications and the move may have come more as a response to sustained pressure and lobbying from the paper and pulp industry rather than a genuine concern for the environment or the forest dwelling communities.

Let us first look at the positives that are being touted by the supporters of this policy. It is being said that with industry taking up degraded forests, and with the subsequent investment, India’s forest cover will increase to the ideal level of 33%, the target India has set for itself, in a mere five years. Increased forest cover means reduction in carbon emissions, another environmental benefit. Apart from the environment, it will benefit the forest dwelling communities as well as it will provide employment to those people in the industries that are set up there. The industry will gain from it in the form of increased and assured supply of raw materials, which has always been a concern in the industry. There is huge demand in the market for paper products which is currently met through imports, and with literacy levels going up, the demand is going to rise even further, and this move will help in meeting such demand, at lower prices. So the picture looks rosy and win all for everyone.

First let us look at the environmental factors. When you hand over the forest resource to industry, you are leaving it to be exploited to its hilt for commercial gains and depleting the resource. What is the kind of forest that will grow on these lands once given to industry? Eucalyptus is the major tree that will be grown. It is a proven fact that that the commercial trees like eucalyptus, which are very fast growing, deplete the water table considerably. It also does not allow other species to grow in the same area. The industry will promote mono cropping which in itself entails a lot of risks. Such trees also do not provide ideal habitat to most forms of animals. And the most basic thing that a forest should do, prevent soil erosion, is also not done by these forests. Again, one of the many benefits being claimed by the supporters of this move is that these forests will act as carbon sinks. This is also not true as carbon can be absorbed significantly only by forests having a very thick canopy cover, which is not the case with commercial plantations. Hence, if anything, there is going to be more of an environmental hazard than benefit if forest land is leased to industry.

Coming on to the other factor of this move benefiting the forest dwelling communities, it is not very difficult to see that even these people will be exploited and left stranded. While it is true that some of them will get employment in these industries in the form of tending to the forests and other forestry operations, it is also true that they will lose more than what they will gain. First is the risk of displacement from their traditional and age old abodes. We have seen this happening again and again, and the bloody uprisings in Nandigram in West Bengal are testimony to this. We do not want another one, do we? Again, the industry will be buying off traditional rights of fodder and other forest produce from the people. This will mean loss of the communities’ traditional rights over fodder and other forest produce over which they have been dependent for ages. The industries will be far less tolerant of these people taking away forest produce once they have bought the rights compared to the forest department. True, that the people themselves will sell off these rights, but have we not seen how these rights are acquired, are the people aware and capable of negotiating the right prices with the smart business savvy industrialists, and are they far sighted enough to see what alternative sources they have once they give away their rights to the industry? These are some very pertinent questions that need to be asked of ourselves before any such move.

I fail to understand, yet again, as to why does the government need to give away forest land, even degraded, to the industry to meet its environment targets? Can it not do it by itself? What is our Forest Department doing? Well, I guess like most other government agencies, it is.........forget it........

Monday 21 May, 2007

Now, A Quota For Bank Loans

For the last few months, we saw students fight it out against the quota or reservation policy in higher education. It seems the UPA government has done it again. The RBI has now included minority communities in the list of weaker sections for the purpose of priority sector lending by banks. All domestic banks are supposed to lend 10% of their total loans to these weaker sections.

First let us get into what this new regulation would mean. It would be the banks which will decide who the beneficiaries of this scheme would be. This will be done based on the demographics of the state. So, in Punjab, Sikhs may not be eligible for the priority sector loans, while in Jammu and Kashmir, Muslims will not be able to avail such loans. Earlier, the scheduled castes, scheduled tribes, small and marginal farmers, artisans and urban poor too distressed to repay their debt to money-lenders were part of this list.

Now, according to The Times of India, a senior banker has told them that he measure will help banks find better customers as the definition of weaker section has been widened. If we go a little deeper into this statement, we will know where the problem lies. With this new regulation, banks can now easily target the economically well off sections of the minority communities and can still meet their priority sector lending targets. The poor and economically and socially backward people will once again be marginalized as banks will first look at giving out secure loans. It is once again like the quota system in education where the creamy layer will once again take away the benefits of a scheme which is supposedly made for the benefits of the ‘weaker sections’.

Here is what I fail to understand. Why do our governments come out with schemes like these where it can be very easily seen that the benefits will be taken away by the creamy layers of the society, and does not solve the very problem that it has been formed for. Is there a conscious attempt at not trying to solve the problems, complicate issues further and still make people believe that they are doing something? Every party plays the vote bank politics, and we as a nation fall into the trap of this politics again and again, election after election and never learn our lessons. That is the saddest part.

Wednesday 16 May, 2007

The Development Divide

The recent announcement of the cheapest mobile phone handsets by Reliance set me thinking. This is development. Telecom has been one of the hallmarks of our development. The growth and reach have been so dramatic that today mobile phones have tremendous outreach, to all sections of the society. Be it a business tycoon, a housewife, a school teacher, college going students, a housemaid, rickshaw puller......it has made communication within reach to all and sundry. Not to mention the dropping call rates that have made distances shorter.

The same trend can be seen across many sectors. Things once viewed as luxury items are all within the common man’s reach. Be it television sets, refrigerators, computers, branded clothing, air travel (another major revolution) and the like. The sharp reduction in the prices of all these items within a short span of time has brought all these within reach of the common man. Now, my contention here with all this is, who do we consider to be the common man.

While it is true that the prices of the above items have been coming down, at the same time it is also true that inflation rates have been going up drastically, and prices of essential commodities have been going up. Cost of food grains and vegetables have gone up. Real estate prices are at an all time high. Costs of day to day household goods are increasing. Subsidies are coming down. This now means that sustaining the household at the basic level is becoming more expensive. After this basic level of sustenance is achieved, it becomes much easier for the household to then acquire the items that were once supposed to be more prohibitively priced like telephones, televisions, air travel etc. The different trends across these two segments of products point towards a dangerous trend. While it is becoming more and more difficult for the poor to sustain even the basic needs of the household, the standard of living of the lower middle class to the higher classes keep on increasing, and yet we talk about bridging the gap between the haves and the have-nots.

What efforts are we taking to correct the above anomaly? Practically nothing, in fact, in our scramble for development, we are fuelling this divide even more. While it is true that mobile telephony, real estate and aviation are revolutions of our time, and the cost of automobiles, air conditioners internet usage etc. have brought them within reach of a large mass, and that is a healthy trend, it is also true that there is some correlation between the trends of the two segments.

With the retail boom, industrialization, urbanization, the property prices have soared, which has made it difficult for a common man to acquire shelter for himself. Also, with acquisition of more and more land (including agricultural land) for industrialization, the costs of agricultural produce have gone up. Rapid urbanization has led to migration from traditionally agricultural belts. This again leads to rise in prices of agricultural produce. It does not help that with increasing population, the sizes of land holdings are coming down, making agriculture unviable. Government support for SEZs, in agricultural areas, not only leaves the farmers to fend with more problems with livelihoods, it also gives industries more incentives, hence bringing down their prices but leaves lesser land for agriculture and increasing the costs for farm produce. Also, with subsidies coming down in agriculture, there are lesser incentives and increasing costs in agriculture.

While it is true that support to industry is imperative for growth and development, it should not come at the cost of agriculture and the primary sector. We need development, and costs of mobile phones to come down, but the development has to be balanced and not increase the divide between the haves and have-nots. Only if there is a balance can we say that we are truly developing and only that will lead to a healthy society and sustainable development.

Sunday 13 May, 2007

Politically Incorrect

A woman Chief Minister, a Dalit, a lady of humble beginnings, from a caste once considered the untouchables……..has risen once more to rule the largest state of India, this time with much more authority and stability than the last three times. Speaks a lot of Indian politics, does it not? Yet, I have a growing feeling of discomfort somewhere. I feel something is not right somewhere.

This maybe a misplaced feeling, because I realise myself that there are a lot of positives from the emphatic victory of Mayawati in this election. First, the points I have mentioned above are in themselves reasons to feel good about, and the authority with which this victory has been achieved shows the growing acceptability of women and underprivileged sections in our society. Secondly, a state known for its caste based politics voting across caste lines is a cause of much relief. Mayawati won riding high on the support of Brahmans, Thakurs, Muslims in addition to her traditional support base of Dalits and the lower castes.

But when I think of what led to this success of Mayawati and I do not get any convincing answers, that is what makes me uncomfortable. A lady mired in controversy and cases of corruption against her, a party full of leaders tainted with some case of crime or corruption is again at the helm. Her track record as the Chief Minister the last three times is also not something that is too exciting. Changes in political loyalties, extending and taking support from any party (Congress, BJP, SP) that suits her convenience have been the hallmarks of her political career.

You may say that it is true of almost all political leaders and parties today. The public just does not have a choice and whoever they vote for does not really make a difference. All other parties also have leaders with dubious records, criminal cases, corruption charges and are veterans at changing loyalty to different parties. And herein lies my problem, why I cannot start my celebrations at all the positive trends that I mentioned at the beginning of this post. The reason for Mayawati’s victory may not be that people voted for a woman, or for a Dalit, but it may very well be that they did not have any choice. Worse still, there maybe a case that she was the one who was the most successful at what marks most elections in these states (UP, Bihar etc.) of India, muscle power, this time. Or maybe Behenji put the money at her disposal to the best possible use.

Whatever it is, one thing that we can hope from her landslide victory is that UP will atleast have a stable government that lasts its term without the pressures of coalitions and the need for horse-trading. And I hope that without such pressures, we see some development in the state, that Mayawati’s fourth term at the helm is memorable for the development of the state rather than murky episodes like the Taj corridor.

Friday 11 May, 2007

Gender Issues and All That

Even though I have been working in microfinance and it is seen as a very effective women’s empowerment tool, I admit I do not understand gender issues very well. To me the whole thing is like a lot of people making a lot of noises without actually doing anything. I agree that not all people working on gender issues are like that, but quite a few are. They will make tall claims and make wonderful presentations in various forums and presentations, but you can see through them through their actions or their off guard comments. That is what makes the whole concept of gender development all the more complex to me.

I will narrate an incident that happened a few days back. I was in a seminar were there were experts on various fields. There was also a lady who works towards gender development. She made a very moving presentation on the subject, and by the end of her speech, I really started to appreciate what she was saying. She ended off by saying that most people understand gender issue as women’s issues and women’s empowerment, when the fact is that it is about both men and women and about equality, and that both should work together towards mutual empowerment. She made it a point to mention that we need to come out of clichés and think beyond what we have been conditioned to think, to think that there are things that only men are supposed to do and that women are not supposed to do certain things. She said that gender development meant development, justice and opportunities to both men and women. Her point was well taken. I was to know later that I would have to change my opinion of this lady drastically later in the day.

What happened was that there was another presentation on perspectives, and the presenter narrator told us a story and asked a question. I will narrate the story in brief. Chandra and Chandni were deeply in love with each other but stayed on two sides of a crocodile raven river. The bridge across the river had fallen down but Chandni could no longer wait to get married to Chandra and desperately wanted to cross the river. The only way to do that was to sail across in the only ship, which belonged to Gurcharan. Chandni went to Gurcharan to ask him to take her in his ship, across the river. Gurcharan told her he would do so if Chandni agreed to sleep with him for a night. Chandni was furious, abused Gurcharan and stormed off.

Chandni then went to her friend, George, told him what had happened and asked for his help in the matter. George said it was none of his business and he did not want to get involved in all this, and that Chandni should find out her way on her own. Finding no other way out, Chandni went to Gurcharan and fulfilled his wish. True to his word, Gurcharan took her across the river to Chandra, who was very happy to see Chandni. Both of them hugged each other and started celebrating. Chandni thought she should not hide anything from Chandra and told him how she had managed to reach across the river. On hearing this, Chandra was furious and he refused to accept Chandni in his life and asked her to go back.

This was the story. The presenter then asked all the seminar participants to rank the four characters in the story from best to worst and various perspectives emerged. The lady who had earlier made the presentation on gender issue said that Chandra was the worst, and her first reason was, “First of all, it was Chandra, being the man, who should have crossed the river and gone to Chandni, not the other way round.” I was stunned to hear this from the same lady who had just a few hours earlier made the presentation on how we should come out of our clichés and that how men and women are equal and should not be discriminated in what they can do. While it maybe right that Chandra may have been the worst character in this scenario, but was this reason right, that too coming from this lady? Does it really matter who should have taken the initiative to cross the river, and why did she expect the ‘man’ to do it instead of the women. Are they not supposed to be ‘equal’? I lost the respect I had gained for her in that one moment, and this again left me confused on gender issues, what is right, what is wrong. I am no expert in this issue, but the expert who came, was no better herself, than saying a few rehearsed lines.

That is why I say, gender issues and experts never stop amusing, er, I mean, confusing me.

Thursday 10 May, 2007

It’s a Quality vs. Price debate, Even for the Poor

While most people believed that the poor are highly price sensitive, microfinance has proved that this might not always be the case. Yes, the poor will choose the best deal on offer, and that may not always be the service that is available at the lowest price, and they are ready to pay a premium. There are various reasons and issues why this happens.

Let us first see what would happen if the poor do not have access to financial services at all as against paying for an expensive service. The poor has acute need for these services and even a high price justifies their opting for an expensive service. In case of emergencies like illness or death, there is no other option but to avail of such services, as not having any access to finance at such situations would have highly negative consequences. The other kind of need is that for education, housing, festivals, weddings etc. Just because someone is poor does not mean that he/she does not have any aspirations. Spending on these assumes great importance for these people and they do not mind paying higher rate of interest as long as they can access such services. The third, and probably the most frequent and important cause for which the need for such services arise is that of working capital or income generation needs. It has often been observed that the small businesses yield high returns, not on an absolute basis but on a percentage basis, and these returns are much higher than the high rates of interest charged on loans for these purposes, which is why the client is ready to pay that rate rather than go without doing the business. It is exactly for this reason that many people borrow from moneylenders rather than go without credit, even though the rates maybe usurious. Thus there is a huge scope for MFIs to operate, even at a little higher rate of interest, if they provide a high quality service and provided there are no political issues.

Let us take the other case, where there are many financial service providers in an area. On what basis do the poor choose their ‘bank’? I have been a part of many discussions with the clients as well as in various forums, and have found that the price charged for the services are very low on the priority list for selecting a service provider. While in many cases the clients demand a lower rate of interest, it is often seen that while actually selecting a financial product, they mostly go for a service that provided them more convenience and reliability, even if at a slight premium. While going for the financial products, the following is mostly the order of priority for the clients:

· Reliability

· Timeliness

· Adequacy

· Relevance and suitability

· Time taken to process applications

· Collateral requirements

· Simplicity

· Ease of repayment terms

· Product delivery mechanisms

· Bouquet of services available

· Behavior of staff

· Returns/Interest rates

We can thus see that price is at the bottom of their concerns, though it must be said that it is an important consideration. Now let us see what choices are there in front of the clients in terms of financial service providers. Let us start with banks. While it is inaccessible to most from the segment we are talking about, there are some who are eligible for such loans. Even those who are, I have seen most of them opt for loans either from MFIs or even from moneylenders. This is, even though the rates charged are the lowest of all available options. This is the classic example of clients preferring quality over price. Let us analyze the reasons. Taking up from the list of priorities, while a bank might be the best in terms of the topmost concern, in reliability, and best in terms of the price, and for many products it might also have very flexible repayment terms, all other factors go against it. A bank may not have products catering specifically to the needs of this segment of clientele, which makes the suitability, adequacy and timeliness a big issue. Time is a critical concern for these clients as well as doorstep delivery of services. Typically at a bank, it takes a lot of time for the applications of this segment of clients to be processed, during which time they need to visit the bank frequently. Not only does this means cost to them in terms of travel to and fro the bank, it also means loss of work for the days when they come to the bank, which results in loss of income. Hence the opportunity cost is also very high in this case. The other major factor is the complexity of the entire process with complicated processes and documentation which the clients do not always understand. Many times they might not even have all the documents that might be required. Another important aspect is the behavior of the bank staff and their acceptability in the bank. It is often seen that clients are overawed by the bank infrastructure and size and all the complex processes and they need to be relaxed. Many a times, the behavior of bank staff is not very good to these people and their needs are not paid much heed to, as the size of the transactions are small and the work of the staff gets increased. This is a reason why many clients do not prefer a bank inspite of its very low costs.

If we look at a moneylender, he is great in terms of timeliness and adequacy, as loans are available on the spot whenever required and mostly fulfills the entire requirement. The processes are also very simple and there is no fancy paperwork that a client needs to go through. All these make a moneylender highly flexible. As the moneylender is mostly a local person and available in the area itself, the product delivery is also smooth. The moneylender has knowledge of the credit history of the clients and based on that he charges differential rates and collateral terms. This makes the moneylender non transparent also. The rates of interest are very high and many a times there are very high collateral requirements. Most moneylenders have very unfavorable terms and conditions for loan repayment, like the loan can only be repaid at one go and not in instalments. This makes it very difficult for the clients to repay and leads them to a debt trap, and that trap very often follows them for generations. A moneylender also is not able to provide a wide array of products and services, like insurance and pensions, which is another reason why they are not the most preferred service provider.

We now come to the MFIs, which have over the last few years become the most preferred choice for financial services for the poor. This is despite the fact that they charge more than double the price of what the banks charge them, which is only because of the convenience and quality of the services provided by them. These institutions are also more popular than the moneylenders, and that is not just because of the lower interest rates that these institutions charge. There are a lot of other factors also that contribute to them being the preferred choice. This is not to say that all MFIs will be very popular, or can charge very high rates of interest. I am talking of those MFIs which cater to the needs of the clients, provide better and quality service and only against that do they charge a premium for their products. An MFI deals only with this segment of clientele, and it is more likely that their products would be timelier, adequate and suited to the clients’ needs. Successful MFIs are those which are market led, and have changed themselves to suit themselves to the needs of the clients, rather than being product led and thrusting their products on them. Time taken to process applications is usually lower than the banks, and the client need not go to the branch very often to follow up as the appraisal and the procedures are done at the doorstep of the client itself. The documentation is very simple and minimal and there are no collateral requirements. MFIs today offer a wide variety of products and services and a client can solve most of their financial needs with on institution itself like credit, savings, insurance, pensions, money transfers, even investments etc. It has been noticed that MFIs that offer a wider array of products are more popular than single product MFIs even if they charge a little higher than the others. Clients would not like to be part of one institution for one service and of another for another service, even if it cost them a little less, they are more than willing to pay a little higher to access more services from one provider itself. What is more, the other services might not even be available to them from any provider. There is another very important factor which is the ease of repayment terms. MFIs have easy repayment terms wherein the loans can be repaid in small instalments and are paid within a fixed time period. The loans are also usually waived off in case of death of the client so that the family does not have to bear the burden of such loans. The staff of MFIs is also usually trained in how to behave and deal with the clients. Many times the staff is picked from the community itself, which gives them a sense of belongingness. Because of these factors, clients are ready to pay a premium for a market led good MFIs products; hence we see that it is the quality of the products that the clients value more than the price they need to pay on such products.

This does not mean that MFIs should charge usurious rates of interest or they should pass on the cost of their inefficiencies to the clients. MFIs should, by all means, charge reasonable interest rates. This article is not about justifying high rates of interest by MFIs but it says that MFIs can cover the cost of providing quality service by charging it to their clients. Many MFIs, on the pretext that providing more to the clients will mean more costs which will increase the interest rate which the clients will not be ready to pay, do not improve the quality of their service, which, in the competitive scenario today, is suicidal, as clients prefer quality over low price. This article is about making this fact clear.

Criteria for Selection

Wt.

Banks

Product Led MFIs with Single Product

Moneylenders

Market Led MFIs with Multiple Products



Score

Total Score

Score

Total Score

Score

Total Score

Score

Total Score

Reliability

12

4

48

3

36

2

24

3

36

Timeliness

11

1

11

3

33

4

44

3

33

Adequacy

10

1

10

2

20

4

40

3

30

Suitability

9

1

9

2

18

4

36

3

27

Processing Time

8

1

8

3

24

4

32

3

24

Collateral

7

2

14

4

28

1

7

4

28

Simplicity

6

1

6

3

18

4

24

3

18

Repayment

5

4

20

2

10

1

5

4

20

Delivery

4

1

4

4

16

4

16

4

16

Service Bouquet

3

2

6

2

6

1

3

4

12

Staff behavior

2

2

4

4

8

2

4

4

8

Interest Rates

1

4

4

3

3

1

1

2

2

Total



144


220


236


254

The above table tries to show which service provider a client will prefer when he/she has the choice. The criteria that a client uses are listed in the order of preference and in importance that they attach to each criterion, which is reflected in the weight column. The scoring has been done on a 4 point scale with 4 being the most preferred option for a particular criterion and 1 being the least preferred. It must be mentioned though that the importance of these criteria may vary in some places and in some places there might be additional criteria. From the above table we can see that even if clients have the option of going to a bank, they put it at the last choice, even though it has the lowest interest rate. Again, a moneylender, who is much despised, would be the second best option for the clients even if they charge very high interest rates. This is because of the various flexibilities and conveniences offered. A product led MFI is worse than a moneylender as it may create more problems than it might actually solve. The best option is that of a market led MFI providing multiple products. It charges higher rates of interest than banks and single product MFIs, yet is popular for the quality of service and the suitability of service. It scores above the moneylenders not just in price but in many other factors which makes it the ideal choice for a poor client, even at a premium price.

Hence we see that it is the quality and convenience of services that matter more to a poor client than the price that they have to pay for it.

Wednesday 9 May, 2007

All in the Name of Development

Development is a tricky word. For the past few years, I have been trying to understand what it really means and who defines development, and what the measures of development are.

As a part of one of my projects, I went to a village in Northern India. It was a chance visit, and it was a hilly village and had a very difficult access route, with no roads and on a hill. I had my own agenda of trying to see the potential of microcredit in the state, and though this village was not on my planned schedule, I thought I might as well check out the potential of this village now that I was already there.

It was a small village of about 100 households. It was not yet connected to electricity; there was no road that connected the village to the outside world, no school (the children went to school in another village about 15 kilometers away). In short, the village was still untouched of development. Yet, they seemed a happy lot. They produced most of what they needed in the village itself, and shared it amongst themselves. I cannot call it a barter economy, as it was more of people sharing things rather than exchanging them. For example, a family which had a cow would consume milk, and whatever was leftover, it would give it away to anyone who needed it, not necessarily exchange it for something. If this family needed vegetables, they could get it from someone who had cultivated vegetables and had an excess, and that person need not have been the one who the previous family had shared its milk with. There were people who worked in the cities and some also in the Indian army, so people had the money to buy things they needed from outside the village. I hardly saw anyone using any luxury item in the village; most of the things were either the basic necessities, or those of traditional value.

I realized that the village was not developed. I knew it had immense potential as a market for microcredit and other developmental activities. I knew these people could be connected to the mainstream; they had quite a few income generation activities and could earn better money for themselves. Only if they started selling the excess produce that they had rather than just giving it away. Then it struck me. What does development actually mean? These people were happy the way they were. They were a community based on togetherness, trust, sharing and caring for each other. Were they not immensely developed already? Or bringing electricity to their lives, bringing them closer to the markets, making them earn more would mean development. What I realized was while I was uncomfortable without electricity, they were not, and they did not need it. While I felt they earned very less, it was something they had never felt, as they did not have many needs to speak of, they had enough for their bar necessities and that is what mattered to them. While I thought they could actually have a lot of fancy things if they were linked to the market, I also realized that it would create a demand and dissatisfaction when they will not be able to get those things. They were happy as they were without having too many demands. Again, development would mean them earning more by selling their produce rather than sharing it, would it not destroy the very fabric of the community based on trust and sharing. People would then be more commercialized and be unhappy, they would earn more but lose out on the brotherhood they shared.

I walked off, obviously happy to have seen such a community for myself but was also left confused as to what development actually means. Do these people need development? Or are they better left the way they are? What is more important? Being developed or being happy? Because I realized that happiness does not follow development always, neither is it imperative for development to precede happiness. So, what should be done with this village? I left it alone and did not make it a part of my report. I only hope that no one comes to this village and thrusts their brand of development on these simple people.

Tuesday 8 May, 2007

My Initiation to the Development Sector


Till the time that I joined IIFM, Bhopal, for my management degree, I had never thought I would be a part of the so called "development sector". I was 21, starry eyed, wanted a flashy corporate job, with all the perks and a fat package to go with it. I appeared for CAT, and landed up at IIFM, and thus the story of my tryst with the sector begins.
Initially, it was which sector is going to pay me the highest, or which is the sector that is "in". Then the focus shifted to what is the subject I like most and am most capable of doing my best in. Microfinance for me was more of a career move rather than wanting to help poor women through providing them with access to financial services, thereby empowering them. This came in much later, after I joined my first job at an apex Microfinance agency - Friends of Women's World Banking, India.
While I still believe that market forces rule anything that is even remotely connected to finance, and that is how it should be, working in FWWB sensitized me towards issues and gave me perspectives I never had before. I am a firm believer that business, bottomlines and profits are the buzzwords and any development can be brought about only through mutual benefit, and development or prosperity cannot be brought through charity and grants, yet, I have now been through many incidents of meeting people, discussing with them their problems, sharing their practical day to day struggles, which now have made me capable of looking at things from their point of view also. Its a very humbling feeling. I will narrate a lot of those incidents in this blog.
Now, I am joining MicroSave, I hope to carry the learnings and build on them to a new workplace, to a new profile of work. Ultimately, it must lead to my career development, through developing the lives of those poor people.....which now clearly justifies my calling them our clients.......benefeciaries is a word that is long forgotten. If there is a benfeciary, its us.