#tbt: Excerpts from “Microfinance in India: A Way Forward”

CRECER clients

Photo credit: CRECER Bolivia

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We are pleased to bring you this #ThursdayThrowback blog post, which was originally published in Vulnerability: The State of the Microcredit Summit Campaign Report, 2013. It is particularly relevant with yesterday’s announcement of a Campaign Commitment launched by CRECER Bolivia. Learn more.

Read the full report here.

Grameen Foundation president and CEO Alex Counts has reflected on the recent crises affecting microfinance by thinking, reading, writing and interviewing people. He presented some of the findings in a talk given at the Sa-Dhan/FICCA Annual Conference in New Delhi in August 2012. These edited excerpts highlight the experiences of two institutions working in challenging, saturated environments, and how they overcame the difficulties.

First, let’s turn to Bolivia. If India’s microfinance sector was at its heyday in 2009, Bolivia’s was at a similar place 10 years earlier, in 1999. Well, within months of this moment in time, things went badly. A political movement against microfinance that included some dissatisfied clients, opportunistic politicians, and professional organizers accused MFIs of exploiting the poor by charging high interest rates and using coercive collection practices. Blockades were set up in front of MFIs’ offices, repayments plunged, and there was a general loss of support for microfinance in civil society.

One Bolivian organization was able to navigate the 1999–2001 crisis better than most: a non-governmental organization (NGO) called Crecer. During the crisis, their portfolio-at-risk rose, but not by much. Their staff and clients were often allowed to pass the blockades that were set up. The question is, why? My research has so far focused on four aspects of Crecer’s approach that enabled it to weather the crisis relatively unscathed:

  1. Once Crecer was consistently profitable, it began progressively reducing its interest rates and providing free life and accident insurance to its clients.
  2. Crecer promoted a client-centric culture that [ranged from] providing free nutrition and health education to calling its borrowers “members.”
  3. Crecer’s leaders resisted the encouragement of many to convert into a for-profit finance company because they did not feel it was consistent with their organizational purpose.
  4. They were active in FINRURAL, the [national] association of NGO-MFIs, and its work advocating for supportive policies. Crecer’s CEO often chaired FINRURAL’s board.

Photo credit: CRECER Bolivia

Let us now turn to Bangladesh. How was Grameen [Bank] able to thrive for decades in the face of stiff competition, unstable governments, and periodic bursts of religious fundamentalism? I see seven basic reasons that are relevant to the context in India:

  1. Constant tinkering with its products to create more value for clients
  2. Including active roles for clients in ownership and governance
  3. Promoting savings from its inception
  4. Placing strict limits on [compensation] for its executives
  5. Customiz[ing] credit products to fit the cash flow needs of clients (This was done despite the fact that it created major problems for the bank’s IT systems, as well as the need to retrain its staff.)
  6. Rather than “zero tolerance” [for missed loan payments], practicing what you might call “infinite tolerance” for legitimate cases of clients unable to pay according to the original schedule
  7. Creating a “balanced scorecard” for evaluating staff and branches, in the form of a five-star system, that included three measures of financial performance and two of social performance

[These are my reflections on] what might guide us from experiences abroad and what I think we should do going forward.

To read Alex Counts’ full speech, please visit http://bit.ly/U7T2Ug.

To learn more about Grameen Foundation, visit http://www.grameenfoundation.org.

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