Wednesday, August 17, 2016

Snippet - Gandhi's Champaran Satyagraha

So often one sees the "Shylock" connotation for money lenders. How many know that Raj Kumar Shukla who made Gandhiji aware of the plight of Champaran indigo farmers was a money lender! His social intervention though may as well have been on account of business interests.

Sunday, July 24, 2016

The New Middle

The research referred to, in this article says, "India's middle class has seen new entrants. Pani puri vendors, dosa sellers, carpenters, welders, launderers, drivers and cable TV technicians have all pulled themselves out of the clutches of poverty and leapt into a section of the middle class — the bedrock of the economy." I am instantly reminded of the kind of occupations we come across when we go for our COCA or Portfolio Audit exercises. When people continue to remain in their occupations and their economic status improves, there is strong evidence that the "K or Finance" as a factor of production has played its intended role.

New entrants in India's middle class: Drivers, carpenters, pani puri vendors

Wednesday, September 16, 2015

Way Ahead for Small MFIs

Prelogue: The RBI has granted approval for setting up small finance banks to ten organizations. Eight of these are MFIs.

The microfinance sector in India has grown impressively over the previous ten years. This has ensured that millions of Indians now have access to institutional credit. The sector has traditionally been characterized by a diversity of institutional forms as well as operating models. Even in 2015, we have MFIs of diverse sizes as well as institutional forms who are providing financial services to the economically underprivileged.
MFIs that have reached a minimum scale and are in a position to generate surpluses, are well positioned to take advantage of the opportunities that have emerged in recent times[1]. However, for MFIs which are small – with a clientele of less than 50,000, the opportunities have also brought several challenges. Well capitalized MFIs which have the size and form to attract funding will be in a position to scale up their operations rapidly, sometime at the cost of small MFIs. Given this landscape, it is important to explore critical factors that will determine the sustainability of small MFIs and hence are factors that should guide their future roadmaps.

Critical Factors Framework
This note takes a look at some of the critical factors building a case that factors such as Value Proposition and Promoter’s Commitment etc. are basic and are like foundation, upon which higher order factors such as Continued Access to Funds can be built up, leading to institutional sustainability.

Value Proposition: A small MFI which stands out on account of its unique value proposition for its clients has a high likelihood of success. Pricing efficiency leading to low cost credit to clients, innovative products and processes for a client segment which is still excluded, use of innovative technology that leads to value addition for clients are all examples of value propositions which MFIs may offer to clients. It is important here that the value proposition is not a mere idea and the MFI has demonstrated early success with it.
Promoter’s commitment and interest: The commitment of promoters as well as their experience is another important foundation factor. In case of for-profit MFIs, the capital invested by the promoter himself/herself is an important determinant of his/her commitment and interest. In case of not-for-profit MFIs, the conviction, tenacity and reputation of the promoters towards their institutional cause become much more important.
Compliance: MFIs should be in a position to comply with regulations including those related to priority sector assets, code of conduct, as well as capitalization and capital adequacy. They need to have products and processes that ensure that they comply with existing regulations.

Small MFIs that have a strong foundation have a high likelihood that they will do well on “access” – to capital, onlending funds, technology and human resource.
Capital: Capital is required in order to meet investments related to start-up or operational expansion. It is also required to attract debt funding. Even under the BC model, MFIs are required to place a First Loss Default Guarantee (FLDG), which must come from its capital – the exception being guarantee arrangements which some institutional sponsors of not-for-profit MFIs provide. A small MFI needs to have sufficient capital to meet its investment and expenditure needs till it starts to accrue surpluses internally.
A not-for-profit MFI has to depend on grants to meet its capital requirements. Being strong on the “foundation” factors is especially important in order to generate donor interest given that donors do not expect financial returns on their investments.
A for-profit MFI may approach equity investors in order to augment its capital base. It needs to carefully select its investors so that there is an alignment between the MFI’s objectives and the investors objectives. Also, the promoters need to be willing to reduce their stakes in favour of the investors. The experience in the sector so far has been in favour of those promoters who have not chased very high valuations and those investors who have given equal importance to risk management and growth.
Cooperative organizations can access member contributions as capital. However, they lack the ability to attract equity capital from private sources. While cooperatives which enjoy sound reputation have been able to successfully obtain grants, their ability to get grants too is constrained because of their for-profit nature.
On-lending funds: Small MFIs largely depend on funds from financial institutions to build their portfolio. The availability of on-lending funds for MFIs has increased with funding available under the BC model complementing funds from term loans and cash credit extended by banks against hypothecation of book debts. The launch of MUDRA ensures that more on lending funds will be available for MFIs.
The ability to leverage on-lending funds largely depends on the capital base. MFIs that are constrained for capital may seek guarantees against which they may be able to access on-lending funds. It needs to be mentioned here that continuing access to onlending funds is important for smooth functioning of MFIs. This requires that MFIs maintain cordial relations with their lenders and fulfil terms and conditions that are laid down in the agreements they have with the lenders. In particular, lenders may need diverse data regarding their portfolios and MFIs should be able to provide such information in order to generate comfort among their lenders.
Cooperative organizations may be in a position to access savings of their shareholding-members and use these to provide loans to their members. There are several credit cooperative societies which have been running small scale microfinance programs and recovering their costs. However, the potential to scale up as a cooperative is limited given that equity capital is a constraint in cooperatives. There is also a high level of regulatory scrutiny on cooperatives. For this reason, banks and financial institutions are apprehensive of taking debt exposures in cooperatives (See Box below)[2].
Credit Cooperative Societies face Scrutiny
The Central Registrar of Cooperative Societies had in 2014, written to the Registrar, Co-operative Societies of all states informing that RBI is of the view that acceptance of deposits from nominal members by credit co-operative societies may have to be construed as accepting deposits from public and carrying out banking activity. In February 2015, the RBI asked the Orissa government to take steps for stopping collection of deposits from the public on a larges cale by chit fund companies in the guise of multi-state credit cooperative societies. Also, in May 2015, a Supreme Court bench of Justices A K Sikri and Uday U Lalit restrained co-operative societies in Rajasthan from carrying out any ‘banking activity,’ as defined under the Banking Regulations Act, and further imposed restrictions on accepting deposits from general public. The court noted that several such societies accepted deposits from nominal members as well as from public without obtaining a license for a banking business from the Reserve Bank of India.

Human Resource and Technology: It is important for MFIs to have competent human resource in order to build sound operations. The staff members need to be motivated and adequately trained on technical as well as soft issues. Similarly the falling cost of technology gives small MFIs the opportunity to utilize technology to improve their service delivery.

Beyond access, MFIs need to prepare for surprises that may affect their sustainability. For this on the one hand, they need to have sound risk management system, and on the other, they need to reasonably meet the expectations of their stakeholders.
Risk management: Risk management in MFIs is determined by their capacity to avoid, mitigate, control, tolerate and treat risks. Sound governance with oversight from competent directors, well defined institutional roles for Directors as well as managers, documented and disseminated processes are qualities that help organizations in developing sound understanding of their risk environment which in turn helps them avoid, mitigate and control risks. Additionally, for a given scale of operations, MFIs should target a capital base which gives them the capacity to tolerate the materialization of serious risk events.
Stakeholder expectations: MFIs have diverse stakeholders such as clients, the elected government, regulators, promoters, investors, lenders, managers, and operational employees. These stakeholders have diverse expectations from the MFI. If the MFI is able to align its operations with the expectations of its stakeholders and can manage its relationships with various stakeholders well, it can be reasonably sure that it will receive continued patronage, loyalty and support from them.

Bandhan in many ways is the most successful MFI in the country today. Starting modestly as an NGO in 2003, Bandhan has been able to establish a bank in 2015. Bandhan’s microfinance methodology was different than the standard joint liability group methodology. While it gave loans to women who had to form into groups, it did not have a culture of assertive enforcement of joint liability. Further, it discouraged involvement of informal rent seeking agents right since its initial days. This allowed it to develop sound relationship with its clients. It proactively reduced its interest rates and its repayment terms ensured that clients were never put under undue stress. In order to scale up, Bandhan formed an NBFC and received equity support from SDIBI and IFC. Gradually it also adopted technology and ensured that its risk management systems could cope up with the expansion in its operational scale. Finally, it has been able to reasonably meet the expectations of its various stakeholders – the fact that it received a banking license provides sufficient evidence in favour of this.

Cashpor started its operations in the late nineties in eastern UP. This area was considered a tough terrain for any type of enterprise. In its initial days it suffered setbacks as its application for the grant of NBFC license was refused by the RBI. However, the commitment of its founder to the cause of serving the underprivileged in some of the poorest parts of the country ensured that it received grant support from institutional sources as well as high net worth individuals, ensuring in turn, that it had sufficient capital to reach a sustainable operational scale. Even as Cashpor continues to operate as a not-for-profit, it has enjoyed continued access to onlending funds both for the portfolio it carries on its balance sheet as well as portfolio under the BC model.
Both Bandhan and Cashpor illustrate that if small MFIs build their operations on a strong foundation they can continue to serve their clientele in a meaningful and sustainable manner.

[1] In the emerging scenario, there is clarity in the regulatory environment for MFIs. The RBI has issued directions regarding priority sector classification of loans originated by MFIs. It has also created a specialised category of MFIs called NBFC-MFIs. The more recent Micro Units Development & Refinance Agency (MUDRA) set up by the Government of India, identifies MFIs as an important channel to disburse credit to microenterprises. Under the Business Correspondent model, banks are increasingly looking at MFIs to act as BCs to reach the unbanked. Overall also, the funding environment for MFIs has improved with investors and lenders taking a favourable view of the microfinance sector.


Wednesday, August 05, 2015

How Well are Not for Profit MFIs served by Existing Ratings?

Specialized institutional ratings developed for MFIs in 1999. These ratings were distinct from conventional credit ratings. As Ledgerwood etc. state in the New Microfinance Handbook, these were adapted to MFIs in that they did not automatically take a negative view of the relatively small size of MFIs compared to mainstream financial institutions and their uncollateralized loan portfolios[1]. These ratings played an important role in ensuring that MFIs had access to funds – starting from development banks such as SIDBI and subsequently by all commercial banks – during the previous decade.
Gradually as MFIs gained access to commercial funds, many also transformed into larger entities which had commercial objectives. Such MFIs started accessing funds from financial markets and microfinance institutional ratings also started assuming characteristics of standard credit ratings.

At the same time many MFIs have retained their non-profit character – MFIs who are organized as Not for Profit or NPO-MFIs. The two main reasons behind this are:
1.       MFIs have chosen to remain not-for-profit to focus exclusively on their social mission or,
2.       MFIs have not been able to attract funds from mainstream funders given the fact that challenges in their operational area militate against their potential to scale up commercially.

The underlying fact still remains that these organizations serve those clients who are largely ignored by mainstream financial institutions including banks and formal MFIs, because of cost concerns. As these organizations do not have access to commercial capital and generate little to no surpluses, their capital adequacy and financial performance ratios remain weak. This also adversely impacts their ratings. However, many among such MFIs have strong systems, processes and capacity to competently serve those who face exclusion from formal financial institutions. Therefore, there is clearly a need to re-look and design institutional ratings that can help us identify such organizations which can play an important role in financial inclusion.

Contours of Rating of NPO-MFIs

Risk management in MFIs is determined by their capacity to avoid, mitigate, control, tolerate and treat risks. Institutional ratings assess MFIs on these aspects. Sound governance with oversight from competent directors, well defined institutional roles for Directors as well as managers, documented and disseminated processes are qualities that help organizations in developing sound understanding of their risk environment which in turn helps them avoid, mitigate and control risks.

While the capacity of financial organizations to tolerate and treat risks is also served well by the aforementioned attributes, the primary defence they have to tolerate and treat risks is their capital base. The Basel committee recommendations focus on allocation of capital against major risk categories.

The need to have sound governance, systems and processes is important for all financial organizations including NPO-MFIs. However, as stated earlier in this note, the area where NPO-MFIs are at a disadvantage is the level of their capital adequacy. The primary concerns for an NPO-MFI of a given size are:
1.       Ability to sustain operations
2.       Capacity to tolerate materialization of serious risks given that it may be constrained for capital.

Risk Rating of NPO-MFIs may assess whether an institution possesses alternative means to sustain and grow operations as per its business plan and to withstand serious risk events. For example, as Business Correspondents of commercial banks NPOs may be able to achieve their business plan targets. Also, if they have access to formal guarantees against risk related losses from donors or institutional sponsors, they will have a degree of resilience against serious risk events. Institutional ratings for NPO-MFIs should be able to account for these and similar factors. This is a topic that deserves serious deliberations and rigorous analysis.

[1]Joanna Ledgerwood, Julie Earne and Candace Nelson, The New Microfinance Handbook: A Financial Market System Perspective, The World Bank 2013

Thursday, May 21, 2015

Genervon's small sample clinical trial

Amyotrophic lateral sclerosis (ALS) is a deadly motor neuron disease which causes death of neurons and ultimately wasting of muscles. The average survival after onset is less than four years, although 10% of those diagnosed live for more than 10 years. The famous Physicist Stephen Hawking is perhaps the best known long term survivor of the disease. More recently ALS was in news for the ice bucket challenge.

Genervon, a privately held drug development company, has conducted Phase 2 clinical trials on 12 ALS patients over a period of 12 weeks with its drug GM 604. They have performed small sample statistical tests to argue in favour of the drug’s effectiveness – see box below (source: (Forced Vital Capacity or FVC is a measurement that assesses respiratory compromise in ALS patient).

Critics have panned this evidence because of the small sample size. Genervon on the contrary argues that small sample tests have limited power and the fact that significant differences have appeared with such a small sample is all the more remarkable. The ubiquitous t-distribution is quite at the centre stage in this debate.

There is a petition with over 536,000 signatures requesting the US-FDA to rapidly approve GM604. It will be interesting to follow the course FDA takes given the evidence in favour of the drug comes from such a small sample. More importantly though, an effective drug that halts ALS will be a really welcome breakthrough.

Friday, April 17, 2015

Impact of Code of Conduct Assessments

Between 2010 and 2014, over 100 Code of Conduct Assessments have been carried out by several agencies including M2i. The COCAs commissioned by SIDBI have been published on its website. Since these reports are in the public domain, there is increased focus on the part of MFIs to improve their operational practices. These reports also provide a repository of desirable and undesirable practices.

M2i’s COCA reports highlight best practices of MFIs on code of conduct dimensions. It also highlights undesirable consequences of undesirable operational practices such as indiscriminate application of joint liability and disproportionate staff incentives on disbursement of new loans.

Code of conduct assessments have led to significant improvement in operational practices of MFIs. Many MFIs have undertaken comprehensive review of their policies and intensive training of their field staff after undergoing Code of Conduct of Assessment.

Bandhan’s view on Code of Conduct Assessments

The first ever Code of Conduct Assessment was performed on Bandhan by M2i in 2010. M2i again performed a Code of Conduct Assessment of Bandhan in 2012.

Mr CS Ghosh, CEO of Bandhan, as quoted in Microfinance India: Social Performance Report 2013, says:

"Third party CoC assessment establishes out good practice guidelines that better enable MFIs to face challenges of accessing long-term finance. The report benefits funders, investors, customers, owners, regulators and partner organizations. Investors use such evaluations as a second independent opinion for their investment decision– making processes. The CoCA helped us to judge (a) Extent to which policies and systems had been adopted and implemented in letter and spirit, (b) real status at the field, across several issues, (c) extent of client education efforts and whether results were commensurate, (d) unbiased view of staff performance and several operational aspects, which enhanced our confidence in our policies and systems."

Tuesday, December 30, 2014

Challenge of Governance in Financial Organizations

Financial Organizations (FOs) have businesses which involve assets comprising primarily of financial rights obtained through lending, financial investments or related contracts. The quality of these assets is determined by the strength of these rights, which in turn depends on the kind of diligence that has been performed at the time of originating these assets. Microfinance Institutions (MFIs), being niche financial organizations, have assets comprising primarily of loans given to low income clients. An important factor that the quality of these assets depends on is the quality of loan appraisals, and importantly lending based on accurate of assessment of cashflows of potential clients to service debt. 
The liabilities of FOs, similar to any other organization, comprise of borrowings, notes, debentures. Most often these organizations enjoy very high leverage. Thus, on the one hand their assets are exposed to financial risks, on the other the leverage they enjoy leads to a situation where a major proportion of their assets are funded by borrowings from a variety of sources, including public money.

Consequently it becomes important that decision making at the highest levels of such organizations ensure that asset origination practices are prudent and in line with the long term interest of all stakeholders, particularly those who do not have a say in the organization’s management. Given that there are many stakeholders with diverse interests, the challenge of Governance in FOs is to find optimal balance, taking into account the expectations and concerns of all stake holders. 

Wednesday, June 25, 2014

On Gandhi

Here at M2i we often discuss Gandhi. We mock him for his economic model – never mind we have only come to understand it (or so we think) from the editorial interpretations of the pink papers, we disagree with many of his views on material pursuits and markets, but we remain perennially in awe of his intellect and genius. But for these, how else he could have captured the imagination of the entire world.
The fact that he was foremost a politician does not scare us. His persona and legacy ensure that you can be critical of him without fearing retribution. Contrast this to what happens when one criticises any barely there “leader” on social media. To us, Gandhi is our own. Even after 66 years of his death he is more accessible to us than anybody else.
Gandhi represents the best of human endeavours. To those who see him thus, he will always be an inspiration. But Gandhi will also always amaze those that wear more critical lenses.

Thursday, June 12, 2014

High Time that MFIs Focus on their Operational Employees

The good news for the microfinance sector in India is the robust growth it has displayed during 2013. When the going is good, we tend to get complacent. Growth needs to be applauded, no doubt.  But we must also critically analyze what has made this possible. Better availability of on-lending funds as well as risk capital, definitely is important.

Given that M2i’s institutional mandate is to contribute to sustainable markets, we focus on the asset side and keep looking at factors other than capital – the ones that allow capital to play its intended role. Lately, our lens has been on issues that concern operational employees of MFIs.

Let me present some facts through two tables (data from MFIN’s micrometer – issue 09, 31 March 2014):

Table 1: Staff productivity

Clients (mn)
Glp (Rs bn)
Glp per employee (Rs mn)
Clients per employee

Table 2: Improvement in staff productivity during 2013-14 measured by % change

Glp per employee (Rs mn)
Clients per employee

Over the last one year, the amount of outstanding loan being handled by MFI employees on an average has gone up by 23%. The client per employee by 9%. This is a happy fact, however, we also need to apply our critical lens and ask whether the productivity gains are sustainable, given that higher staff productivity also means higher expectations from them.

Let me quote this box from Satin and M2i’s paper on - “Drive to Perform” of Operational Employees of MFIs - to give you an idea of the work environment of operational employees of MFIs.

How the days of the Operational Employees of Satin look like?

Customer Service Officer (CSO):  Satin’s loan officers are called CSOs.  A typical CSO may spend well up-to eight hours in the field performing the following activities
                    Collection meetings
                    Training of new clients
                    Verifying “Know Your Client” or KYC documents of clients
                    Verifying loan eligibility of potential clients
                     Follow-up on delinquent clients
                    Village surveys for new area identification

At the branch office, the CSO needs to deposit the cash collected during the meetings, prepare files for disbursements planned during the day, update MIS, and complete documentation for those loan applications that are in process.

Branch Manager (BM): A Branch Manager is responsible for the operations of a branch and has a team of between 4 and 6 CSOs to support him. His day also involves extensive field work as well as office work. In a day he may have to do the following activities:
                   Monitoring visits to collection meetings
                   Conducting Pre-Group recognition tests
                   Support to CSOs who are faced with delayed payments
                   Follow up on delinquent clients
                   Projection meetings in a new village for expanding operations
                   Handling HR issues involving branch staff as well as clients
                   Loan disbursements at the branch
                   Performing banking transactions which include depositing loan repayments collected in banks,     withdrawing money from bank for disbursements
                    Ensuring end of day procedures such as update of MIS, reconciliation of cash etc

Operational employees, particularly loan officers and branch managers, are critical cogs which keep microfinance moving. The issues that concern their motivation have not received adequate attention. It is high time that we seek answers to the following questions:
1.       What is it that operational employees of MFIs like about their jobs?
2.       What are the perceptions of the operational employees of MFIs regarding their primary job-objectives?
3.       What are the sources of anxiety for operational employees of MFIs?

Friday, May 30, 2014


Monday, May 26, 2014

Innovation and Thought Leadership @ M2i for Sustainable Markets

Risk Management: Whether adapting global risk management frameworks used in banks to the Indian microfinance sector, or identifying ill effects of the presence of informal agents, or highlighting the need to track occurrence of hidden delinquency – M2i has been at the fore-front.

Holistic HR development: M2i has performed extensive research on Human Resource issues that organizations working in Bottom of the Pyramid markets face, asking questions such as:
1.       What is it that operational employees of organizations working for the economically underprivileged like about their jobs?
2.       What are the perceptions of these operational employees regarding their primary job-objectives?
3.       What are the sources of anxiety for such operational employees?

M2i has utilized this research to create specialized modules for operational employees on topics such as Motivation, Communication and Conflict Resolution. 

M2IDEA: Measurement, Modelling and Interpretation of Data for Effective Actions
M2i has developed a model of performing primary research which ensures accurate data collection, rigorous analysis and clear reporting. We call this model M2IDEA. It includes:
·         Optimal sampling strategy in line with research objectives
·         Simple questionnaires that avoid respondent fatigue and fetch accurate data
·         Training enumerators on data collection and data collection pilots
·         Data entry in validated forms to eliminate data-entry errors
·         Appropriate statistical analysis for robust and significant inferences
·         Clear presentation of results

ADDO assessment framework: M2i has developed the ADDO – Approval, Documentation, Dissemination, Observance – assessment framework that provides a comprehensive methodology to assess the congruence an organization displays between its strategic intent and its operational performance. The framework is illustrated below:

Approval – Organizational policies that reflect its strategic intent.
Documentation – Whether policies have been elaborated in documented guidelines?
Dissemination – Are the people within the organization aware of the strategic intent and their own role in achieving it?
Observance – Whether the strategic intent of the organization can be observed in its operational performance?

Code of Conduct Compliance Assessment (COCA): M2i pioneered the development of the code of conduct compliance assessment, performing the first of these assessments in the microfinance sector across the globe. Since the time the first COCA was performed by M2i in December 2010, these assessments have been used widely by banks and MFIs to assess adherence to ethical operational practices. 

Thursday, May 01, 2014

M2i 2.0

Wednesday, April 30, 2014

“Drive to Perform” of Operational Employees of MFIs – Evidence from Satin Credit Care Network Ltd

Abstract from M2i & Satin's paper 

Challenging Work Environment for MFI Field Staff Members...
The operational employees of MFIs have challenging work life which includes extensive work in the field as well as back-office work. A typical loan officer in an Indian MFI may spend well up-to eight hours in the field performing the activities such as – Collection meetings, Training of new clients, Verifying “Know Your Client” or KYC documents of clients, Verifying loan eligibility of potential clients, Follow-up on delinquent clients. Then once s/he comes back to the branch office, the Loan Officer needs to deposit the cash collected during the meetings, prepare files for disbursements planned during the day, update MIS, and complete documentation for those loan applications that are in process. Add to this the risks that they face while performing their duties like robbery, and attacks from vested local interests such as money-lenders, small time leaders etc.  Branch Managers, who are one rank above loan officers also face a similar work environment.

Still, performance has been good
At the same time, these employees are the key to an MFI’s success as their efforts are responsible for the growth as well as the quality of MFI loan portfolios. More importantly, they are responsible for MFI’s relationship with its clients. The fact that MFIs have been able to achieve sound growth suggests that the operational employees have been able to operate with a degree of competence despite physically and mentally demanding job profiles.
However, so far, the factors that drive the operational employees of MFIs to perform have not been adequately explored.
Satin Creditcare Network Limited (Satin) and Prime M2i Consulting Private Limited (M2i) have performed a research to look at the factors that determine the “drive to perform” of operational employees of Satin.
Satin is a leading MFI operating in North and Central India with around 800,000 active loan clients and over 900 operational employees. M2i is a consulting, research and assessment company with microfinance and microenterprise development being its core objectives.

Research, Model Building and Statistical Testing...

465 operational employees of Satin participated as respondents in this research. This included 49 Branch Managers, 295 Customer Service Officers and 121 Trainee Customer Service Officers. The findings of this research are quite revealing:

Eight important indicators that influence their drives emerged. Further we were able to test whether these indicators reflected latent factors through a confirmatory factor analysis. The statistical evidence strongly supports the existence of two latent factors as presented below:

The factor “Better Human” is reflected in indicators such as:
1.       Working at MFI gives us a chance to work to make society better (Q1)
2.       Working at MFI gives us a chance to learn about the banking system (Q2)
3.       Working at MFI gives us a chance to learn financial management (Q3)
4.       Working at MFI gives us a chance to learn punctuality (Q4)

The factor “Benefits Desired” is reflected in indicators such as:
1.       Working at MFI gives us a chance to earn good salary (Q5)
2.       Working at MFI gives us a chance to exhibit leadership (Q6)
3.       Working at MFI gives us a chance to work and interact with people belonging to different cultures (Q7)
4.       Working at MFI gives us a chance to progress professionally without any discrimination on the basis of caste or religion (Q8)

...Provide Some Insights

While the research was performed on Satin’s field staff members, given the sound model fit, the results may be generalised to other MFIs as well. Some key insights emerged from this analysis:
          Presence of latent factors such as “Better Human” and “Benefits Desired” influence the drive of operational employees to perform well
          Need to ensure that employees have opportunities to become “Better Human” in addition to getting “Benefits Desired”
          Historically, while MFIs have been good at providing “Benefits Desired”, there is scope for them to improve upon the “Better Human” factor.
          At the time of recruitment of field employees, their propensity to become “Better Human” may be an important determinant of their performance in the organization subsequently
          Trainings on functional and technical aspects address the “Better Human” factor
          Communicating MFI’s successes in the operational and social performance domain and attributing these successes to operational employees may also address the “Better Human” factor
          Recognition should be provided to employees who perform well on “Better Human” aspects

Wednesday, January 08, 2014

Major Episodes of Risks in Indian Microfinance Sector

The illustration above maps major risk episodes in the Indian microfinance sector.  As the sector has scaled up over time, so has the magnitude of the impact from these episodes. Interestingly, a reading of the literature available on these risk episodes points to an interesting commonality in the progression of risks in each of these episodes.

1. Deterioration in relationship of the MFI(s) with its (their) clients
2. Localized contagions and involvement of local interest groups such as religious leaders, local politicians
3. Reputation of MFIs hit, liquidity dries up
4. Regulatory and administrative action against MFI(s)
5. MFI failures

Monday, April 22, 2013

People in Our Lives

The Old Maid: She possesses a toothless grin, and sound knowledge of economics. The latter I found out from the way she negotiated her wages with me. She is well past 60 but is energetic and manages her cleaning and cooking chores with ease. There have been several days during the past four months when she has been the only visitor to my apartment. She is also an excellent source of local news.  She likes sweet – I can say this on evidence of diminishing stock of sugar in my house.

The Security Guard: He gives me a wide smile and a loud greeting whenever he sees me. Initially I thought, this was his mechanism to get frequent tips. I thought I had sufficient proof favouring my hypothesis when he asked me for a loan of Rs 1,000 one day. I gave him the money as he said it was for the treatment of his little daughter. He returned the money back to me in 10 days, as soon as he received his salary – which I found out, is quite meagre. His daughter has a hole in her heart and he has been getting her treated at AIIMS.

Office Bearers of the RWA: There has been bitter politicking among existing office bearers of the Residents Welfare Association and the aspiring ones. Allegations have been thrown regarding malpractices and bad accounting. All this, when the total contribution collected by the RWA is estimated to be a grand sum of Rs 100,000. Mails, marked to almost everybody on the planet are being sent frequently – some suggesting humongous fraud and others urging restraint. One particular mailer stands out – he has been sending his poetry in order to make his point.

Sunday, April 21, 2013

Mahatma Gandhi's Train Travels

Mahatma Gandhi used simple language to communicate ideas that were by no means simple. His “The Story of My Experiments with Truth” is a must read. 

This apart, Gandhiji’s other writings and notes, some if which are now available freely as e-texts, are also very interesting reads. One such essay is his, “Third Class in Indian Railways”. He paints a vivid picture of the filthy conditions in the third class compartment during his journey from Bombay to Madras, which took place most likely in 1917. He writes, “A defiant Memon merchant protested against this packing of passengers like sardines. In vain did he say that this was his fifth night on the train. The guard insulted him and referred him to the management at the terminus. There were during this night as many as 35 passengers in the carriage during the greater part of it. Some lay on the floor in the midst of dirt and some had to keep standing. A free fight was, at one time, avoided only by the intervention of some of the older passengers who did not want to add to the discomfort by an exhibition of temper.” You can read the full essay at

What really struck me was the similarity of experience I had while travelling in general class compartments on the Patna – Gaya rail line in the mid and late nineties, although the train only took between 3 and 5 hours to cover this stretch of 90 Kms. I am told that the situation is still pretty much the same aboard the PG DMUs. 

Saturday, November 10, 2012

Yahan Akash Tablet Milta Hai!

My colleague Deepak Alok spotted the captioned notification while doing field work in rural areas of Bhadohi (Sant Ravidas Nagar), in a shop. One hopes that there is a tablet revolution in the making of the kind we saw in mobile telecommunication. 

Wednesday, October 10, 2012

Addressing Capital Constraints Utilizing SPVs Created Under GOI's Enterprise Cluster Initiatives

Like any other enterprise, microenterprises, too require risk capital. While equity is the foremost form of risk capital, and could come from internal or external sources, microenterprises face severe constraints in accessing it. Credit guarantee schemes address the need for risk capital partially as these facilitate the flow of loan funds into microenterprises. However, by their nature, guarantees are invoked in cases of default and are not useful in making good cashflow short falls which microenterprises experience, leading to difficulties in paying back installments regularly. As a result, microenterprises remain constrained for funds and are unable to adopt modern technologies and practices. It is here that the government support for cluster development can be leveraged. The support for creation of SPVs and CFCs represents government’s equity in the enterprise clusters and can potentially address the lack of risk capital. Moreover, this can also be used to attract more equity for the SPV from institutional sources in the private and public sectors.

Sunday, September 09, 2012

Goodbye! Dr Kurien

The papers today are full of tributes to Dr Kurien. The best comes from Dr YK Alagh, the present chairman of IRMA. Writing in The Indian Express today, he sets the record straight regarding the acrimonious exit of Dr Kurien from IRMA. In an article titled, "The milkman who covered the last mile" he says, "The Institute of Rural Management, Anand, asked me to succeed him as its head, an invitation I refused out of respect for Kurien. On their insistence, I agreed to discuss the matter with him. On a hot summer’s day in the Kurien enclave in Anand, he told me: “If you are doing it, Yoginder, I am happy”. Then, he gave me a set of papers that he said were charges that had been framed against him. I threw the papers away, as I haboured no doubts about Kurien’s integrity, but I wondered why we felt the need to constantly run down our icons."

Friday, June 29, 2012

Plastic Waste to Crude

Sanitation and energy remain two important challenges for India. And it seems a couple of Indian innovators may have a solution. Nitin Bondal and Raghuvendra Rao have set up STEPS, a company that uses Polycrack system developed by the duo to convert all kind of plastic waste to crude. They have recently been featured by BBC and Forbes India. 

STEPS is setting up a 150 tonne a day plant in Mumbai, which will produce 120,000 liters of crude oil every day. India is estimated to generate 1.2 million tonne of municipal waste every day. If all of that can be polycracked we will have an annual production of 2.2 billion barrel of crude, which can cover our entire crude import bill, if the calculations below are correct:

Daily Waste (Tonnes)
Crude Yield (Liters per Tonne of Waste)
Daily Crude Potential (Liters)
Daily Crude Potential (Barrels)
Annual Crude Production Potential (Barrels)
Dollar Value ($100/Barrel)
US$ 220 billion
India's Crude Import (FY 12)
US$ 160 billion

BBC and Forbes features on STEPS are interesting to read.

It turns out that there is atleast one other Indian innovator who has a developed a plastic to crude process. Alka Zadgaonkar, a Chemistry professor in Nagpur who has invented a method to turn waste plastic to crude, was featured by The Tribune way back in 2003 - This also found place in a Government of India press release on 7 February 2004.

One wonders then, why have these innovations not been commercialized and scaled up, when the evidence is that their economics actually work out. One possible common explanation that emerges from the various articles on these innovators on the www, is that they were afraid that the intellectual property underlying their innovation will not be duly respected, and they wont be duly rewarded.

There is also this issue of credibility. Innovators, given their sense of achievement, possibly overestimate the potential of their innovations. As a result, oftentimes, their claims lack credibility.

Friday, June 08, 2012

Credit Risk Measurement in MFIs

The credit risk measurement systems in MFIs need to evolve substantially in order to sustainably provide collateral-less loans to poor clients. While lending through the group guarantee mechanism has ensured sound portfolio quality for long periods of time, we have in the recent past witnessed situations when there has been a rapid decline in portfolio quality. At times, these have happened without any warning primarily catching the MFI management unaware. The present system of risk monitoring relies heavily on the Portfolio At Risk (PAR) indicator. This is inadequate because of two important reasons discussed below:
Firstly, making an assessment of credit risk inherent in the portfolio on the basis of Portfolio Age reports and PAR is necessary but not sufficient. This is so because potentially all the outstanding amounts with the groups which have hidden delinquency can be lost as within the microfinance sector, there is significant evidence to show that delinquency can rapidly spread from one member of a group to the entire group. Hence it is also important for MFIs to collect data regarding the number of groups that have delinquent clients and the amounts outstanding with them
Secondly, under the group guarantee mechanism, in case an individual is unable to pay her loan installments, other members of the group pool monies and pay up on the individual’s behalf.  As a result the individual’s installment is paid and her loan shows up as being regular, hiding delinquency. This constitutes a risk event for the MFI as a borrower had not been able to pay her installment and guarantee mechanisms had to be enforced in order to make up for the shortfall. However, the MIS of MFIs today do not catch data pertaining to such events. This results in Hidden Delinquency. Therefore, a system is required to correctly capture and classify incidence of hidden delinquency. This should form part of the regular reports generated by MFIs.
Thus, instead of generating only the PAR report portfolio age, there is a need to broaden the analysis to include data on groups which show manifest and hidden delinquency as well as the amounts outstanding with them.

Wednesday, May 30, 2012

Drug Patents and Affordable Treatment

The patent regime propagated during the Uruguay Round of Trade Negotiations, Trade related Aspects of Intellectual Property Rights (TRIPs), is designed in a manner that it would make latest medicines prohibitively expensive for the billions vulnerable to poverty. The manner in which India has prevented this from happening makes for an interesting read. In this Economic Times article, Arvind Panagariya tells the story of PH Kurien, former Controller General of Patents, Designs & Trade Marks, who took on global patents system to make very costly drug affordable for poor.