In collaboration with the Carsey Institute’s Sustainable Microenterprise and Development Program, the Microcredit Summit Campaign held a webinar to discuss its new report Vulnerability: The State of the Microcredit Summit Campaign Report, 2013. A total of 88 people joined the webinar, with the majority self-identifying as practitioners (39%) and support organizations (31%).
The Campaign is teaming up with Carsey once again on May 15th to host a webinar in French, featuring Gauthier Dieudonné (Fonkoze), Luisa Brunori, and Fanta Wolde Michael (MAIN). Learn more today!
Panelists Chandra Shekhar (“CS”) Ghosh, chairman and managing director of Bandhan in India, and Luisa Brunori, full professor of the department of psychology at the University of Bologna in Italy, shared their insights on the client’s perspective: how they prioritize activities, what psychological issues they are dealing with, and what products and services they need in order to overcome severe poverty.
Campaign director Larry Reed began with an overview of the report. Every year, the Campaign collects data from microfinance institutions (MFIs) around the world—more than 3,700 MFIs having reported between 1998 and 2012 and 600 reporting in 2012 alone. For the first time since the Campaign began collecting data, the number of clients reached by microfinance providers decreased, though this was almost exclusively in India as a result of the 2010 crisis of client over-indebtedness in Andhra Pradesh. On the other hand, an increase of 1.4 million clients was seen in sub-Saharan Africa, which was largely due to the increase in savings groups. (Take a look at the Executive Summary.)
Why did the decline happen? Larry suggested 5 reasons to consider:
- herd mentality led to overinvesting in Andhra Pradesh
- bad information prevented investors from correcting the overinvestment
- misaligned incentives meant the poor were excluded
- better measurement tools uncovered that MFIs’ clients were not as poor as they thought they were
- investors and MFIs had a myopic focus on growth instead of client well-being
Speaking from his experience with the Indian MFI Bandhan, CS Ghosh agreed that incentives were misaligned. MFIs were under intense pressure to reduce costs in order to increase profits while decreasing high interest rates for their clients. Many MFIs reduced operational costs by reducing staff size, which meant that each loan officer had more clients to manage and less time for each one. MFIs also reduced costs by increasing loan size and implementing harsh collection practices in order to reduce nonpayment.
These measures paradoxically increased the risk of bad loans while damaging the MFI-client relationship. Clients did not believe that the MFIs had their best interests at heart and were invested in their success; therefore, clients did not protest when the Andhra Pradesh government took draconian actions against the microfinance industry. (Visit the report website to learn more about CS and Bandhan.)
Professor Luisa Brunori weighed in with her expertise in the psychology of the group, pointing out that both loan officers and clients are vulnerable but that lending groups help deal with vulnerability. (In a real-time poll, 75% of webinar participants said they offer group loans and 25% offer individual loans.) Groups with high-quality, well-trained loan officers acting as facilitators “can develop a theoretically infinite [amount] of relational goods,” Luisa explained. By depending on one another and sharing this experience together, “The group can be a great fertilizer… Individuals can grow a great deal through exchange.” Luisa also emphasized the importance of initial and on-going training for loan officers who work with vulnerable populations as group facilitators. (Visit the report website to learn more about Luisa Brunori and the psychology of the group.)
Panelists also discussed the pros and cons of integrating mobile technology into microfinance services. While mobile payments can reduce costs for both the MFI and the client and increase access to services, especially for those in hard-to-reach areas, there are many obstacles: difficult regulatory environments, low literacy rates, and low mobile phone penetration. One regulatory challenge in India is that clients must have an account with a traditional bank in order to use mobile technology, but according to CS, only 60% of Indians and 10% of Bandhan clients have such bank accounts. Thus, Bandhan does not have the economy of scale to switch to mobile technology at this time. (Visit the report website to learn more about the promise of mobile technology.)
For a recording of this webinar and information on upcoming webinars by SMDP, go to http://carseyinstitute.unh.edu/smdp/2013-webinar-series
To read the 2013 report “Vulnerability: The State of the Microcredit Summit Campaign” and watch expert interviews, go to www.stateofthecampaign.org