Microcredit

Samasta Microfinance

2009-05-09T06:46:00.003+05:30

I have joined the Board of Directors for a small start up microfinance company operating in Tamil Nadu and Karnataka, called Samasta Microfinance.

It is amazing to know how many people are desperately looking forward to getting money to kickstart their lives. It is also unfortunate to know that larger banks are not yet willing to lend money to microfinance institutions. As a result, the credit demand in India remains unfulfilled.

With respect to Samasta, I would like to suggest to the company interesting ways in which the borrowers can improve their lives, particularly through intervention in education, healthcare, better solutions for safe drinking water, renewable electricity solutions and so on.

I have looked at some simple, low cost water purifiers which, if deployed, can cut down the healthcare costs. The quality of water is notoriously bad in urban and suburban Chennai, and is one of the major causes of diseases. Several low income households can benefit substantially from solar lighting solutions. Power cuts have increased in the last 5 years in Tamil Nadu, not just in rural TN but also in the urban areas. The most affected are school children, near their exam times.

More technology providers will have to look at the lower end of the population to come up with affordable solutions.

I am greatly interested in education and reading books in general, being a book publisher myself. We gave away several free books to microcredit borrowers of Samasta (all women) and talked to them about the need to get their children to read books (as opposed to watching TV mindlessly). All the women accepted the idea and agreed to persuade their children to get into reading books.

Let us see what difference we can make in the coming days.

Credit crunch, Microfinance etc.

2008-10-19T18:46:00.002+05:30

An article that appeared in the Times of India, republished in Micro Capital:

Big financial institutions of all sorts are in dire straits across the globe. But one category remains unaffected - micro-finance. Even as the global financial system freezes and giants like Lehman Brothers collapse, micro-finance institutions (MFIs) are expanding unfazed. Famous financiers face defaults big enough to wipe them out, but MFIs report virtually zero default.

The article goes on to say the following:

Microfinance, by contrast, has no collateral at all. MFIs deliberately keep loans small, well within repayment capacity. Some MFIs give first loans of just Rs 5,000 a year. Those who repay qualify for a higher second loan, maybe Rs 7,000, and the third loan can be still higher. But MFIs set an absolute loan limit, ranging from Rs 12,000 to Rs 25,000, depending on local economic opportunities, to guard against over-borrowing. Wall Street needs similar safeguards.

India Post / NABARD credit disbursal

2008-10-19T18:39:00.003+05:30

A news item dated 29th September 2008 mentioned that, NABARD - National Bank for Agriculture and Rural Development has teamed up with India Post, the postal service of Govt. of India, to distribute microcredit to self help groups.

However, a later news item, dated 7th October 2008, says NABARD has backed off, at least temporarily, pending resolution of who shares the risks.

Don't make profits from micro finance - says Yunus

2008-07-30T21:53:00.003+05:30

In the 11th annual Microcredit Summit Campaign conference being held in Bali, Indonesia, Grameen Bank's Muhammad Yunus has said:

If you are making profits you are moving into the same mental mind-set as loan sharks.

However, the trend is going to be different. More private equity players and big banks are getting into the micro credit field, hoping to earn significant profits. I had already linked to The Economist article on CompartamosBanco, a micro credit institution which became an aggressive for-profit company a while back, raising hackles across.

Rangde.org - a Kiva.org type set up for India

2008-07-30T09:20:00.002+05:30

I found out about Rangde.org, an operation along the lines of Kiva.org, in bringing together microcredit lenders and borrowers. It also offers the lender an effective rate of 3.5% on the investment (the repayment period is unclear), while charging the borrower 8.5% (the spread of 5% is decent for the people involved in between, as we all know how high the cost of servicing is in this sector).

I wish them a great progress.

Micro-finance growing the fastest in the East (India)

2008-07-28T09:27:00.003+05:30

Chennai-based Centre for Micro Finance (CMF) has said the micro-finance sector is growing at the rate of 82% in the eastern part of the country, the fastest rate in India.

Also, there exist a great disparity in the penetration of micro finance within the region, with Orissa and West Bengal witnessing high levels of penetration, and states like Assam, Bihar and and Jharkhand lagging behind.

A proposed Micro Finance Bill 2007 is yet to be passed by the Parliament as there is no consensus on several issues. Most notable being on limiting the interest rate charged by the micro-finance companies. The article also talks about this.

Speaking at a seminar on micro credit organised by the Confederation of Indian Industries (CII), Abhijit Banerjee of Massachusetts Institute of Technology (MIT), said "Putting a ceiling on the rate of interest charged by the micro finance institution would not be a good idea, more so on this juncture when the economy is passing through a high inflationary regime."

According to him, "One should look for a couple of years before putting a cap on the lending rates, with the increase in competition the interest rate might even moderate. Moreover, in the current inflationary situation, it would become all the more difficult for these MFIs to sustain".

...

Generally a borrower repaid the loan weekly and so for a annual loan of Rs 5000, a collection officer had to visit 52 times, pushing up the transaction cost per loan.

"Hence the interest rate is higher," he explained.

Pragati Gramodyog Sansthan (PGS) - helping bonded labourers

2008-07-24T09:02:00.003+05:30

An article on slavery talks about the brave work done by an Uttar Pradesh based entity helping former bonded labourers benefiting from micro-credit.

Gonoo lives in Lohagara Dhal, a forgotten corner of Uttar Pradesh, a north Indian state that contains 8 percent of the world’s poor. I met him one evening in December 2005 as he walked with two dozen other laborers in tattered and filthy clothes. Behind them was the quarry. In that pit, Gonoo, a member of the historically outcast Kol tribe, worked with his family 14 hours a day. His tools were a hammer and a pike.

...

Every single man, woman, and child in Lohagara Dhal is a slave. But, in theory at least, Garg neither bought nor owns them. They are working off debts, which, for many, started at less than $10. But interest accrues at over 100 percent annually here. Most of the debts span at least two generations, though they have no legal standing under modern Indian law. They are a fiction that Garg constructs through fraud and maintains through violence. The seed of Gonoo’s slavery, for instance, was a loan of 62 cents. In 1958 his grandfather borrowed that amount from the owner of a farm where he worked. Three generations and three slave masters later, Gonoo’s family remains in bondage.

...

Among the Kol of Uttar Pradesh, for instance, an organization called Pragati Gramodyog Sansthan (PGS)—the Progressive Institute for Village Enterprises—has helped hundreds of families break the grip of the quarry contractors. Working methodically since 1985, PGS organizers slowly built up confidence among slaves. With PGS’s help, the Kol formed microcredit unions and won leases to quarries so that they could keep the proceeds of their labor. Some bought property, a cow or a goat, for the first time in their lives, and their incomes, which had been nil, multiplied quickly. PGS set up primary schools and dug wells. Villages that for generations had known nothing but slavery began to become free.

A moving story. A great example that micro-credit can go a long way in changing the fortunes of thousands of people.

The Economist article on profiting from the poor

2008-06-27T19:00:00.002+05:30

The Economist has an article talking about Mexico's CompartamosBanco. This Microfinance Bank charges high interest rate (annualised 75%+) and has listed its shares with a market capitalisation of over USD one billion.

Compartamos apparently ran a not-for-profit like operation and grew very little. Then it rediscovered itself as a for-profit aggressive company, raised money and is growing fast now. Several Microfinance industry veterans including Mohammad Yunus are of the opinion that Microfinance must be a social business with no-profit, no-dividend, reinvestment model. Compartamos is of the opinion that generating profits out of this sector will bring in more investment and thereby more individuals can benefit from this process.

The Economist approves this viewpoint. It is also praising Compartamos for its financial literacy course that has benefited around 60,000 people.

Microcredit for slum dwellers in Delhi

2008-06-26T15:24:00.002+05:30

A Government of India Press Release says, a bunch of Government owned banks have come together "to provide loans at reasonable rates of interest to the slum dwellers of Ekta Vihar in Delhi".

The banks involved in the lending are "Andhra Bank, Bank of India, Canara Bank, Indian Overseas Bank, Punjab National Bank, State Bank of India, Syndicate Bank, UCO Bank and Vijaya Bank."

The self help group involved in managing the lending is "ASHA Community Health and Development Society, an NGO working in health and development of slum areas."

The press release also says that the borrowers are eligible for life insurance cover from LIC.

Kiva vs Microplace

2008-06-19T15:32:00.002+05:30

I was thinking of writing about this for quite a while. There are two nice write-ups which I will point to. One at NextBillion.net: Kiva vs. MicroPlace - What's the Difference? and the other at Microfinance Gateway: The buzz about online microlending. At the nextbillion.net, an Indian commenter Subhodip Dutta had written:

I am looking forward to launching an Indian specific P2P lending site which would be a mixture of all three sites prosper,kiva & microplace.Already in the process of coding and designing would really appreciate if any one guide or throw some more light on the regulatory licensing aspects of the business and other country specific government permissions. Suggestions from mentors are welcome.

In India, both Kiva and Microplace will run into rough weather with the authorities, in my opinion. Or alternately, the RBI and the Government may not mind Kiva model but may get antsy with the Microplace model. It may be possible to simply register a non-for-profit charity and set up a web site to run a Kiva type operation.

However, Microplace model seems to be interesting. It is a bit too early to say which will succeed. India is a large enough microfinance market where one can tap enough lenders and enough MFIs and enough borrowers, to sustain several Kiva and Microplace like operations simultaneously.

Micro-investment: Fabindia

2008-06-17T12:27:00.002+05:30

Business Standard has a story on Fab India, owned by William Bissell, working with weavers to put together joint ventures.

The concept, now a Harvard Business School case study, is simple. A fully-owned subsidiary of FabIndia, Artisans Micro Finance, a venture fund, facilitates the setting up of these companies, which are owned 49 per cent by the fund, 26 per cent by the artisans, 15 per cent by private investors and 10 per cent by the employees of the community-owned company.

The investment by these four categories of investors provides the paid-up capital. The company promotes the sales of its artisan community to FabIndia, which is the principal buyer. Eventually the companies will sell to other buyers, too. Haryana and Faridabad have already started independent sales.

The results seem impressive too.

Although the villagers see it as a gamble, there is already evidence that it works. A community-owned company promoted a year ago in Jodhpur with a paid-up capital of Rs 34 lakh is valued at Rs 1.10 crore. The company, which totted up sales of Rs 5.7 crore and a profit after tax of Rs 22 lakh in its first year, has 2,300 artisan shareholders.

Each of their Rs 100 shares is worth about Rs 300. As many of them hold 10 shares each, their investment of Rs 1,000 has tripled to Rs 3,000, an escalation they couldn't have dreamed of. Through a complicated internal trading system, an artisan can — if he wishes — recover his investment.

Microcredit in Meghalaya

2008-06-15T22:34:00.002+05:30

Microcredit institutions has spread in the Indian state of Meghalaya. The Economic Times reports:

"At present, there are more than 1100 SHGs, formed under twenty-five federations comprising ten community and rural development blocks spread across the West, South and East Garo Hills. The groups are required to form federations before registering under the banner of BILCHAM," said Daniel Ingty, a rural development officer associated with the bank.

Here, BILCHAM is Banking Institution and Learning Centre of Excellence for Holistic Aspiration of Mothers, an apex self help group federation in Meghalaya.

Bollywood film has micro-credit featured

2008-06-15T22:31:00.002+05:30

A bollywood film called "Summer 2007", produced by Atul Pandey and directed by Suhail Tatari focuses on farm suicide in India, and proposes micro-credit as a possible solution:

The film also explores the possibility of micro credit as a solution and has a character inspired by Mohammad Yunus, the 2006 Nobel peace prizewinner and founder of Grameen Bank, Bangladesh's biggest micro-credit institution.

Microfinance Q&A in The Guardian

2008-06-11T09:58:00.003+05:30

A somewhat insulting Q&A on microfinance has been published in The Guardian. Here are some samples:

Why is Barclays interested in people with virtually no cash?
It isn't. That's why Care International is involved: it has the expertise to work with the poorest villagers. Barclays is interested in developing financial services for the next level up, where people might want to borrow to invest, and need a secure place to make deposits. ...

What is the point of people with almost no income getting into debt?
At the most basic level, sometimes even the poorest have to borrow a little in order to meet an unexpected financial demand such as a health bill.

If Barclays has no interest in "people with virtually no cash", they do not have to get involved in microfinance. Other people who are interested in the well-being of poor people with no cash are more than happy to do so. Barclays and several other banks are jumping into the microfinance bandwagon because they know they can make profits.

As to why people with almost no income are getting into debt, it is because by borrowing, they can generate income. This may sound a bit strange to Anne Perkins who wrote the Q&A. But people borrow micro loans not just for consumption, but mostly to generate income.

If we demanded that only people with income should get loans, then microfinance would not have survived.

LIC, state insurer to enlarge micro-insurance program

2008-06-11T09:49:00.002+05:30

Life Insurance Corporation of India (LIC) says it will massively increase its rural, micro-insurance program five-fold to offer 4 million insurance policies this year in rural India.

TS Vijayan, chairman, LIC said that two years ago, the insurer had sold 8 lakh policies through its tieup with NGOs, micro-finance organisations, co-operative societies and rural banks.

"Now that LIC's technology platform is perfected, we are confident of moving out in a big way. Having realised that the key to greater spread will come from creating new distribution avenues, we have set a target of selling more than 4 million policies in the current year," he said.

Loan waiver culture - The ET editorial

2008-06-01T10:48:00.000+05:30

21st May 2008 dated The Economic Times editorial (Waiver hits credit culture) lamets that waiver of farm loans by the Government of India has resulted in increased defaults.

The government’s farm loan waiver scheme has already caused default rates to rise, forcing the country’s largest bank, the State Bank of India (SBI), to temporarily stop funding tractor and farm equipment purchases.

Of course, the finance minister P.Chidambaram immediately intervened and directed the state owned bank to continue giving tractor loans.

Muhammad Yunus of Grameen Bank has severely criticised bank loan waivers by the Government owned Bangladeshi banks and how this has seriously affected the operations of microfinance bank, Grameen.

Paying back the loan is a cultural concept. People borrowing money should feel the strong moral urge to pay the loans back. Loan waivers instead make them feel that if things go really, really bad, Government will step in and cancel the interest payable and even the principal. This will make even the decent guys default on their loans.

Such a culture will seriously impact the microfinance institutions operating in the rural areas. The farmer whose agricultural loan from the state owned bank was waived, will have a wife who is the ideal candidate for taking loans from a microfinance company. Think about her attitude to paying the loans back, when her husband's loan gets waived by the Government itself!

The same ET editorial says the following:

It is also important to ensure that micro-finance and not bank lending becomes the dominant way of disbursing credit to the farm sector. The entrenched patronage culture has meant that despite farm credit growing at a fast pace, the number of farmers covered has not increased proportionately, implying that the same set of beneficiaries are cornering the increased credit.

No right thinking MFI should enter the farm loan sector. It is the most dangerous sector in India and also Bangladesh. As long as Government intervention persists, privately funded MFIs should never lend any money to the farmers. Muhammad Yunus has made this very clear... he stays as far away from the farm sector as possible, and he is managing a large bank. The Indian MFIs are tiny compared to Grameen and they will be killed by the farmers and Indian Government together.

The Indian Government has made the lives of several cooperative agricultural banks and societies crippled. The government will announce the loan waiver and the banks will be reimbursed at a later date, sometimes spreading over 5 years the money lost from waiving the loans. During this time, the cooperative banks will struggle to operate. Larger nationalised banks will manage because of their other portfolios.

Providing relief to the farmers in distress is very important. I am not against that. However the methodology should be carefully thought out. Low interest or no interest loans from Government directly to the affected, who in turn pay the banks for the loans they have taken should be the way to go. Rather than waiving the loans, give them a further liberal loan which they can pay back slowly. Yunus has done this in case of Grameen.

The Government can offer to pay the premia on crop insurance out of their budgeteray allocation, thereby offering completely free of cost insurance to the farmers. That would be acceptable. As it is, farm income is not taxed. Water comes free wherever farmers live in the river bed. Fertiliser is subsidised by the Government. In several Indian states, power is free to the farmers, or offered at extremely cheap rates by heavy subsidy.

If despite all this the farmers fail, it is because of the vagaries in the weather, lack of proper education, outdated methods of farming, highly fragmented fields reducing the yield drastically, complete lack of crop insurance and lack of cold storage facilities which can help them to get good price.

Rather than waiving the loans, the government should focus on improving the agricultural infrastructure and educating the farmers.

A panchayat near Chennai - Kuthampakkam - had a president called Elango for the last two terms. Currently someone else runs the panchayat. Kuthambakkam used to be full of thieves and robbers. (The word 'Kutham' is Tamil means 'Crime'. Pakkam is Ville. The place itself was called Crimeville, so you can imagine what the inhabitants used to do there!) He gave a speech couple of years ego on what he achieved there. He helped the farmers get loans, on the condition that they pay back the loans to the banks so they can get more loans. He helped set up flour mills, so that local entrepreneurs will procure the produce and pay a decent money and make the same into value added products. He got the village women to press oil, mill rice, make flour, produce other processed food and helped them to sell in the nearby towns. The village started propspering.

When DMK won the state elections in Tamil Nadu, one of the first thing they did was to waive off agricultural loans taken from the state controlled co-operative banks. Elango said that the farmers in his village started giving him dirty looks for forcing them to pay the loans back, while their brothers elsewhere enjoyed complete waiver. (His presentation @ slideshare in English, His speech from Archive.org in Tamil, My blog post then about this presentation in Tamil.)

How one man's laudable efforts end up for nought by the thoughtless 'waiver' actions of a government!

Microfinance and Sub-prime - from India Development Blog

2008-05-06T07:54:00.002+05:30

India Development Blog, a blog by researchers at the Institute for Financial Management and Research, compares securitization of Microfinance loan portfolio and onselling them with similar things that have happened with Sub-prime mortgage in USA. Most notable quote is

the worry is that MFIs that have securitized their portfolios and banks, which have lent money through the SHG-bank linkage program no longer have the incentives to ensure quality. The intention is that these financial instruments are designed with these issues in mind, and they are able to mitigate these problems, but in reality, that is not often true, as we have seen from the subprime mortgage crisis.

If would be interesting to know from the MFIs that have done securitization deals in India, how they keep up the quality of loan collection, and debt restructuring when they find defaulting likely to happen.

Grama Vidiyal gets funding

2008-05-04T12:13:00.003+05:30

Trichy, Tamil Nadu based microfinance institution Grama Vidiyal Microfinance Company has received investment funding from Unitus Equity Fund L.P., USA and Vinod Khosla, a VC. The investment received was Rs. 14.7 crore. The company focuses on Tamil Nadu right now. It hopes to cover all districts of Tamil Nadu and expects to spread its operation to other states in 2009.

I couldn't locate any website for this company.

Unitus and Vinod Khosla have also invested in SKS Microfinance.

Grameen Veolia Water partnership

2008-04-20T18:28:00.003+05:30

After Grameen Danone partnership offering nutritional yogurt and milk products in Bangladesh, Grameen is doing a deal with the French water company Veolia, for setting up water treatment plants and 'paid' water supply to people in Bangladesh.

Veolia and other water utility companies are seen as bad companies, in particular in the developing third world countries. Across the world, Veolia, Suez, and other water utility companies do not have a good record when it comes to taking over municipal facilities and providing service to the customers. The Water Business, a book by Ann-Christin Sjolander Holland, covers in detail the track record of these companies in Latin American, Asian and African countries.

Prof. Yunus of Grameen is seen as something of an outcaste, for his attempt at alleviating poverty by sleeping with 'profit making companies'. It was Telenor in telecom, a relationship that is not exactly great because Grameen goofed up with the ownership model, giving away majority equity to Telenor. But the deal with Danone is more carefully set up. Veolia will follow the same model of 50-50 ownership. I would like to keenly follow, if Veolia deliver in Bangladesh in the coming years.

Grameen is more than a micro-finance institution, in that it is looking at solutions to complex problems, beyond simply loaning money.

It will be interesting to see which MFI in India will seriously consider this model.

Micro finance institutions in East India, Forbes List

2008-04-20T18:06:00.002+05:30

This Business Standard article mentions several MFIs active in East India namely,

SKS Microfinance
Bandhan
Microcredit Foundation of India
Sadhana Microfin Society
Grameen Koota
Asmitha Microfin Ltd
Share Microfin
BISWA
Kas foundation
Prochesta
Youth Volunteers Union

This article also mentions a Forbes ranking list. So I searched for it and got this list.

Reliance Capital foray into microfinance

2008-03-17T16:10:00.002+05:30

Reliance Capital is providing funding (I suppose loans) to MAS Financial Services and Vardan Trust, two microfinance institutions in India. Initially they have been given Rs. 5 crore and Rs. 40 lakh respectively. Reliance Capital is earmarking Rs. 100 crore for Microfinance initiatives.

Details from The Economic Times

The Independent: Microcredits go mobile in India...

2008-03-17T16:03:00.004+05:30

I couldn't understand much from this article though.

But now hundreds of Indians have become attached to a mobile bank manager, which means they can be in direct contact with lenders. Using smart cards and handheld biometric fingerprint readers, Indian banks such as ICICI and Punjab National are now taking their services direct to India's 350 million once un-bankable people.

All I could locate from this article was the name of the company FINO, which must be this one. Should find out what they do.

New Yorker article: What Microloans Miss

2008-03-17T15:59:00.001+05:30

Pretty much the usual criticism that what developing countries require is more job creation and not micro loans.

What poor countries need most, then, is not more microbusinesses. They need more small-to-medium-sized enterprises, the kind that are bigger than a fruit stand but smaller than a Fortune 1000 corporation. In high-income countries, these companies create more than sixty per cent of all jobs, but in the developing world they’re relatively rare, thanks to a lack of institutions able to provide them with the capital they need. It’s easy for really big companies in poor countries to tap the markets for funding, and now, because of microfinance, it’s possible for really small enterprises to get money, too. But the companies in between find it hard. It’s a phenomenon that has been dubbed the “missing middle.”

Interview with Vikram Akula, SKS Microfinance

2008-02-22T09:43:00.002+05:30

There is an interview with Vikram Akula in Business Standard, dated 22nd February 2008. I cannot however locate the online URL to provide a link here. I will mention just the key points here.

On his model being a replica of Grameen Bank: Yes, it is, except for the difference that SKS works on for-profit and expects to make a profit. Yunus' Grameen model talks of no-profit, no-loss.

On the interest rate being high: SKS charges on an average 26% diminishing interest. This breaks into 11% their own borrowing cost, 9% staff costs, 3% amenities and office costs, 2% loan-loss provision, between 1-2% profit.Wherever they have reached size, they have reduced the interest rates - for example in Andhra Pradesh and Karnataka to 24%. Their eventual goal is to reduce this to 21% if further efficiencies are achieved.

FMCG: In addition to offering loans, they are negotiating with FMCG product companies to offer FMCG goods at cheaper prices to their existing loan customers. Current customer base of SKS is around 1.7 million people. Targeted by March 2008 - 2 million, and by March 2009 - 4 million.

Investment in Gold: SKS is offering fixed price gold coins, which can be paid for by a weekly investment of Rs. 10-15. Once the investment is complete, the investor gets a certificate for the weight of gold, at market price, which can be traded any time for the current market price of gold.

Education: SKS is teaming up with education provider and infrastructure provider to set up schools. SKS will finance the families. Infrastructure provider will set up school buildings. Education provider will provide the teaching. The cost of the education is expected to be Rs. 250 per child per month (which will be borrowed from SKS and paid to the providers). They expect to start with 20-30 schools in May 2008, and extend this to over 300 schools.

SKS Microfinance gets third round of investment

2008-02-22T09:34:00.003+05:30

US based Silicon Valley Bank and Columbia Pacific have together invested Rs. 147 crore (around US$ 36.75 million) in SKS Microfinance in December 2007. In the earlier round of investment made in October 2007, a clutch of investors, including Sequoia Capital, Unitus Equity Fund and Vinod Khosla had invested Rs. 50 crore (US$ 12.5 million).

The Economic Times article

Micro - housing loans

2008-02-05T13:43:00.000+05:30

This is not a new concept, but only now coming to India. National Housing Bank (NHB) and Chennai based Repco Foundation for Micro Credit (owned by Repco Bank, owned by Government of India), are disbursing micro home loans in five districts of Tamil Nadu. The loans range form Rs 25,000 to Rs 2 lakh. This is not for buying land, but only construction loans for those people who already own the land. Obviously, over the coming days, the model will change to include buying land as well.

News from Economic Times

Changes to Grameen Bank's structure

2007-10-25T10:49:00.000+05:30

Thanks to the Military backed Government currently running Bangladesh, Grameen Bank has achieved certain relaxation in the norms governing its functioning. It has to be noted that it was during the time of General Ershad, the military dictator, that Grameen Bank came into being. The current changes are:

Grameen Bank allowed to operate branches in urban areas. Earlier they could open branches only in the rural areas.
Government stake cut down from 25% to 15%. Note that when the Bank started, Government had a stake of 60%.
Number of Government nominated directors brought down to 2 from 3.
Chairman of the bank will be appointed by the board instead of Government nomination which existed until now.

This move will strengthen Muhammad Yunus to be at the helm of the bank for quite a while to come. When Yunus decided to run for elections, the political parties got quite antsy. Of course, all legislations can be amended again by newly elected Government, but there could be a lot of resistance form People if such moves are seen as inimical to them.

Microplace - Online microfinance

2007-10-25T10:44:00.000+05:30

An Ebay owned company Microplace has launched a site through which online folks can invest any sum over US$100, earn some interest, and hope thew money invested goes to help poor people around the world in the form of microfinance. [Source]

This venture is different from Kiva.org, in that Kiva provides a direct people-to-people microfinance exchange, and you cannot earn any interest.

Now is not the time to discuss which is better. More the merrier.

Grameen Bank goes to USA

2007-10-22T13:37:00.000+05:30

Mohammad Yunus has set up Grameen America, based at Queens, New York.

The Grameen office, where the door is always open in the Bangladeshi tradition, is a modest room down a flight of stairs under a doctor's office. Every day, Newaz walks along Jackson Avenue, going into one storefront after another, asking shop owners if they know groups of women who might want to borrow money.

Yunus has already started his operation in Mumbai, India.

Birla Sun Life to offer micro-insurance

2007-09-13T10:55:00.000+05:30

Birla Sun Life has launched two life insurance policies for the rural Indians, named Bima Suraksha Super and Bima Dhan Sanchay.

Bima Suraksha Super is a pure risk policy. A sample calculation shows that for a 30 year old male, for a 10 year policy, for an insurance amount of Rs. 10,000 (US$ 250), annual premium will be Rs. 91.24. The premium can be paid monthly, quarterly, semi-annually or annually. If the premium is paid monthly, it will be roughly Rs. 8 (around 20 cents).

Micro-credit institutions can bundle this product along with their loans, and thereby also cover the defaults on their loan, in case the borrower dies before repayment of the loan.

There is no medical test required, and supposedly minimal paper work. Self attestation on the age is sufficient, and will not require any age proof.

For more details, go here.

The second policy is Bima Dhan Sanchay. Unlike the previous policy, this is an endowment like policy. Upon the maturity period, the policy will pay back the total premia paid (but nothing more). However, the premium is quite low, for a similar risk cover from, say, Life Insurance Corporation of India.

For a 30 year old male, for a 10 year policy, sum insured Rs. 10,000, the yearly premium is Rs. 228.63. Monthly premium would come to around Rs. 20 (50 cents). In the event that the insured person survives over the 10 year period, he will get back Rs. 2263 (the premium amount paid in total). Of course, one could get more returns by investing the money in a bank deposit! But then, this also provides risk cover.

For more details, go here.

On the surface, these two schemes offer a decent risk cover at the lowest possible premium. With more players entering the market, even better products may be offered.

Sex workers bank

2007-09-13T10:51:00.000+05:30

The Hindustan Times reports that a co-operative bank has been set up in Kamathipura, the red-light area of Mumbai, by the sex-workers, called Sangini Mahila Seva Cooperative Society.

The co-operative is run by the sex-workers themselves, takes deposits from them, provides them loans, and also procures goods from the wholesale markets and sells them at lower prices.

This is an interesting idea, and I wish them all the success.

Aavishkaar Goodwell gets money

2007-08-27T17:20:00.000+05:30

Moneycontrol reports that Aavishkaar Goodwell has received investments from IFC, FMO and Deutsche Bank.

Aavishkaar Goodwell is a for-profit, private equity fund that invests in Microfinance institutions in India.

Micro credit for Scheduled Tribes and Castes

2007-08-26T11:19:00.001+05:30

I learnt yesterday (reading The Hindu) that there is an entity called The National Scheduled Tribes Finance and Development Corporation (NSTFDC) set up specifically to aid in economic development of the Scheduled Tribes.

This entity is planning to "launch a new micro credit scheme to provide financial assistance to people belonging to Scheduled Tribes for undertaking self-employment ventures/activities."

Scheduled Tribes form a very small part of the population across the country (roughly 7%), with high concentration in Madhya Pradesh, Chattisgarh, Jharkhand, Orissa and Maharashtra. Tamil Nadu has tribes existing only in Nilgiris district in reasonable numbers.

It may be more useful if the counterpart for Scheduled Castes - National Scheduled Castes Finance and Development Corporation (NSFDC) embarks on an aggressive micro credit program to help Scheduled Castes come out of poverty.

As part of its operations, the entity claims it is "Providing Micro-Credit Finance to the target group through the SCAs [State Channelising Agencies]." The State Channelising Agency in Tamil Nadu will be TAHDCO - Tamil Nadu Adi Dravidar Housing & Development Corporation - which has multiple functions, and may not focus on micro credit aggressively.

Therefore, rather than just disbursing funds and acting as a grants agency, NSFDC should consider setting up a subsidiary MFI, a focused micro finance company which will provide micro credit only to Scheduled Castes across the country.

Future of 'phone ladies' of Bangladesh

2007-08-26T10:55:00.000+05:30

In a detailed article, Richard Shaffer looks at the Grameen Telecom's Village Phones and where the project stands currently.

Grameen Bank is a micro-finance institution set up by Mohammad Yunus.
Grameen Bank (38%) and Telenor of Norway (62%) together own Grameenphone, a mobile phone service provider in Bangladesh. Grameen Telecom is a company owned by Grameen Bank.

Grameen Telecom provided women (dubbed 'phone ladies') in Bangladesh villages with a mobile phone handset and a Grameenphone connection, funded by micro loans from Grameen Bank. In countries like India and Bangladesh landline penetration is low, and non-existent in rural areas. Rented mobile phones provided a great service to people and good income for the phone ladies.

But soon, the mobile revolution caught on and most of the villagers could afford to buy a handset and a connection for themselves. This has impacted the phone ladies. Richard Shaffer finds that though the program helped several people come out of poverty, it is not true anymore, certainly not true in Bangladesh.

Grameen Telecom is however not entirely abandoning the program, and is looking at setting up kiosks - Community Information Centers - which

for fees of 42 cents an hour, will offer such services as online browsing, agricultural and health-care information, digital photography, video telephony via Web cams, and electronic access to government reports and forms.

Whether these centers will be successful or not, one has to wait and see.

In India too, the roadside PCO - Public Call Office - set up by Sam Pitroda under Rajiv Gandhi government, brought telecommunication to everyone, until mobile revolution completely demolished them. Today, PCOs still exist, but they generate a very meagre income for the operators. Rapidly falling telecom rates coupled with low cost mobile handsets have spelt a doom for the PCOs. In India too, there are several attempts at setting up rural information kiosks - both government and private ventures. To this day, every implementation has been a business failure.

N-logue kiosks are floundering. The company is not profitable and it is unclear when and how they will become profitable.

Government of Tamil Nadu initiated the project called RASI (Rural Access to Services through Internet), another utter flop. Villagers were supposed to get Government services delivered through Internet kiosks, set up and operated by women, funded partly by government grant and rest via micro loans. Several women were forced to take loans, but the supposed revenues never came in.

Central Government sponsored ICT kiosk project, currently being implemented by ILFS has a long way to go, and it is unclear how this venture will also succeed and be self-sustaining.

Some of these ideas are noble, but the implementation at the ground level is sadly pathetic.

A profile of Kotalipara Development Society

2007-08-23T15:50:00.000+05:30

Business Standard profiles a West Bengal based micro finance entity Kotalipara Development Society (KDS) in this article. Hear the stories of Najima and Purnima.

Najima [a 25-year-old woman] took a loan of Rs 3,000 to buy a sewing machine from KDS. She had to deposit Rs 300 while taking the loan and had to pay Rs 75 per week till she repaid the entire sum.

“I have borrowed money four times from KDS to expand my business. The last time I borrowed Rs 15,000,” [Najima] said.

...

[Purnima, a 38-year-old woman] received only primary education and had to discontinue due to financial constraints.

“I make saris. But when I started off I had no money to buy fabrics or sewing machines. I borrowed Rs 5000 from KDS. I paid Rs 125 every week till I repaid the entire amount,” Purnima said.

Keya Sarkar: Hope and despair in micro-finance

2007-08-23T15:34:00.000+05:30

Quotes from the article in Business Standard::

These last few months have been marked by deals in the microfinance industry never witnessed before. With $12.5m into Spandana (of which $10m came from JM Financial), $11.5m in SKS Microfinance (majority from Silicon Valley-based Sequoia Capital) and a whopping $27m in Share (of which $25 m came from Dubai based Legatum Capital), suddenly all MFI CEOs seem to be talking about raising capital and doing it quick lest they miss the bus.

...

Unitus India, which works with MFIs in what it calls a “partnership mode” (helping with grants, capacity building, etc) before investing in equity, has made three investments to date out of the 10 companies it has partnered. Unitus has put in two rounds of equity in SKS Finance (with which its association is over four years) and Bangalore-based Ujjivan Finance.

...

The disappointment over the last eighteen months, according to both Prasad and Farias, is that despite dealing with a cross-section of companies in the MF space they have not come across much of product innovation. “Attempts at product innovation have at best been half-hearted,” laments Prasad.

The other disappointment has to do with the policymakers. Despite a lot of discussion on the subject and mention of the sector in budget documents, on the ground not much had changed for MFIs or their clients.

Review of BANKER TO THE POOR

2007-08-22T18:51:00.000+05:30

The Hindu has a review of this book - Indian edition brought out by Penguin Books here. It is pertinent to quote the last paragraph from the review here:

The book, first published in 1998, has just been published here in India. This is nine years too late. Perhaps, if it had come sooner we would not be seeing the Micro-Finance Sector (Development and Regulation) Bill 2007 in its current shape. The Bill seems to be a travesty of the original intentions of the micro-finance movement and takes a top down approach to supplying credit to the poor. Yunus has clearly specified a bottom up approach to make the scheme work “as intended”. The Bill, in the name of increasing the supply of credit to the poor, could actually put the deposits of the poor at risk and open the way for unscrupulous “charities” to manipulate the thrift market for their own ends. What this will do to the existing thousands of crores of deposits that self-help groups have in the commercial banking sector is anyone’s guess. One hopes a better assessment of consequences is made and more caution exercised before gifting the sector to so called micro-finance institutions. Please read the book Mr.Chidambaram.

Business shouldn't be Govt. Business - Yunus

2007-08-10T12:02:00.000+05:30

Nepali Times has an interview with Mohammad Yunus here. Here is Yunus on privatised, free market economy...

What relationship do you advise a government to have with the private sector?

First, the only thing any government can do is have the humility to accept that it cannot change people’s lives, and that it can only help people who are changing their own lives. But most governments simply mess up people’s lives, something they are good at. My experience is that business should not be the business of government. Business should be in the hands of the private sector, which produces jobs and services. I define private sector broadly to include both businesses that make profits and do good for society at large such as by building schools, hospitals and the like.

Also interesting is Yunus' views on government run micro-credit program.

In Nepal, government promoted microcredit programs through five regional grameen banks, all of which failed. Is microcredit an area in which a government can play an active role?

I explained to your finance ministers that running microcredit programs through the government would never work. Things get politicised. Loans are given to friends and supporters, who do not pay back. Political supporters are hired as bank officers, and they do no work. I have seen this happen in every country where the government runs micro credit programs. So, the first principle is: no matter what sort of micro credit program you run, do it away from the government. Choosing partners such as NGOs or socially-oriented private businesses comes next. I define a socially-oriented private business as a business that can get its investments back from a socially useful venture but earns no dividend.

Out of Focus: KAS Foundation

2007-05-23T09:51:00.000+05:30

Business Standard focuses on a non so well known Microfinance institution - Kathir Foundation, KAS Foundation and Jaggannatha Financial Services - all started by Kathiresan, an ex-employee of ICICI Bank. This microfinance institution operates in Tamil Nadu, Pondicherry, Andhra Pradesh, Orissa, Chattisgarh, Maharashtra and West Bengal.

The range of services offered by them is interesting, all through ICICI or subsidiaries. In addition to opening savings bank accounts they have managed to offer medical insurance and micro-mutual fund SIP (systematic investment plan). A monthly investment of just Rs. 50 on mutual fund seems a cool idea. Some of the equity funds are offering excellent returns these days in India. The poor have rarely had access to the capital markets.

Interview with Jayshree Vyas of SEWA

2007-05-23T09:44:00.000+05:30

Soumitra Trivedi interviews Jayashree Vyas, Managing Director of SEWA Bank in Business Standard.

SEWA, unlike other micro finance institutions, is a registered bank, regulated by RBI. This is both good and bad - SEWA can tap low cost funds, NBFCs cannot. But the banking norms have to be followed which are stricter.

Vyas feels, total poverty removal is not possible without government intervention and microfinance alone can not make that happen.

Unitus announces three partnerships in India

2007-05-20T22:24:00.000+05:30

Details in the press release here.

The partners are:
Adhikar
IIRM
Vardan Trust

Solar power through micro credit

2007-05-20T22:18:00.000+05:30

Reuters reports that an NGO run by Yunus, Grameen Shakti, is offering solar lighting equipment in rural Bangladesh, with financing through micro credit.

The solar lighting system costs between 25,000 taka ($360) to 65,000 taka ($940). About 70% of Bangladesh households are without electricity.

A similar project, fronted however by United Nations Environment Programme (UNEP), is happening in India. Here, UNEP provides grants that reduces the cost of financing of the equipment to the end users, in cooperation with two leading Indian public sector banks - Canara Bank and Syndicate Bank. More details on the project are available here.

Would Grameen be the target of political parties?

2007-05-20T18:08:00.001+05:30

Asif discusses what the political parties - Awami League and BNP - target Yunus' Grmaeen Bank in this blog entry: Yunus’ Foray and the Image of Microcredit.

Citibank to buy SKS loans

2007-05-10T12:34:00.000+05:30

SKS Microfinance is one of the fastest growing microfinance institution in India, which is getting decent funding from venture capitalists. It has just closed a deal with Citibank, where Citibank will buy the SKS portfolio of Rs. 180 crores (roughly USD 44 million), while SKS will service the microloans. Grameen Foundation will provide limited guarantees.

News

Indian Microfinance Bill not adequate

2007-05-07T14:56:00.000+05:30

Indian Minister of State for Commerce Jairam Ramesh has said that the proposed draft of the Microfinance bill is not upto the mark.

In one of my earlier blogs, I had mentioned that there was some opposition to the current version of the bill.

I have not been able to find an online version of the draft bill so far.

Mint, the new Indian Business Daily, has an article that cautions about the clause that allows anyone who can collect upto Rs. 500,000 in total to be a Microfinance Bank.

Yunus abandons political plans

2007-05-07T11:04:00.000+05:30

Nobel Peace Prize winner Muhammad Yunus had started a political party couple of months back, called Nagorik Shakti. As the general election was getting closer in Bangladesh, the bickering between the two main political parties - BNP and Awami League - resulted in a political stalemate. Upset with this situation Yunus felt he could convert the groundswell of support he had into a political movement.

However he has now decided to call it off, after finding that he is not getting sufficient support from those who initially welcomed his move.

I wouldn't take the simplest of the explanations, as offered by Yunus. His plans to scrap the party may have something to do with the current military backed interim administration. More truth may come out in the days to come.

Unitus $5 viral web campaign

2007-05-04T10:27:00.000+05:30

Unitus is running a web campaign, asking people to donate $5, to help them fund their micro-credit partners around the World. In a blog entry, they explain what $5 can do.

Currently, it takes Unitus less than $5 to help our microfinance partners build the capacity to serve one new micro-entrepreneur with life-changing financial services. (We get this number by dividing our total budget spent per month by the total number of new clients added by our microfinance partners each month.)

So your $5 can help Unitus add one new micro-entrepreneur. To donate, go to Unitus.

Story on SKS Microfinance

2007-04-29T19:28:00.000+05:30

On Seattle Times: Making a profit while helping the poor

Tata Motors to provide Microfinance in Singur

2007-04-27T13:06:00.000+05:30

From Financial Express

Tata Motors have acquired land in Singur in West Bengal, India to set up an automobile factory. The land acquisition was politicised and handled poorly by the state Government as well. Tata now have to demonstrate that their intentions are honourable and they will help the local residents move up in their lives.

Tata Motors will be setting up an Industrial Training Institute (ITI), to train the local residents on basic mechanical and electrical techniques. They are also likely to provide microfinance through local Self-Help Groups, "to those driving van-rickshaws (cycle-carts) and upgrade them to motorised vehicles and earn higher income from providing transport services."

Two articles on Kiva

2007-04-20T10:20:00.000+05:30

Microcredit: You Too Can Be A Banker by R.Siva

Anyone can lend a hand via Web. Supporters say loans transform lives of poor by Daniel Dale

Microcredit is a debt trap

2007-04-06T17:18:00.000+05:30

Abul Barkat of the University of Dhaka says Grameen's microcredit is a debt trap and 80% of the beneficiaries are caught in it. That is, each of the women is borrowing frome one microlender to pay another and keep getting into an endless trap.

The key reason for the failure, he says, are the high interest rates — 25 to 65 per cent — and high costs of operation of the Grameen Bank model.

Time Magazine article on Microcredit

2007-04-06T17:12:00.000+05:30

General article with the usual quotes on Microcredit, what it can do and where critics say it has failed. The example with which the story starts and ends is more interesting.

When Melecio Penafiel wanted to expand his tailoring shop in Guayaquil, Ecuador, last May, he didn't go to the bank or ask his relatives for help. His seed money arrived via the Internet. Using the website Kiva.org a Bay Area software engineer named Nathan Folkert lent Penafiel the $500 he needed to buy two new sewing machines, fabrics and thread for higher-quality suits. Folkert has never met Penafiel but says making the loan "felt like I was giving him a shot at the American Dream."

...

Penafiel was able to pay back his Kiva.org loan five months later, and had a little left over to cover his six kids' school fees. It isn't quite the American Dream, but it's a start.

Microfinance 2.0

2007-04-06T17:05:00.000+05:30

I generally dislike 'Web 2.0' or 'Microfinance 2.0' kind of titles.

An interesting account from Alex Counts of Grameen Foundation. The title talks of "New Tools, New Goals and New Ways to Lift People out of Poverty", and the article says

In fact, Counts, whose non-profit Washington, D.C.-based group supports the Grameen Bank, outlined what could be called Microfinance 2.0 -- a new generation of more accurate tools that can be used to overhaul the loan making system and apply the infrastructure of microfinance to other social woes.

but unfortunately, there is nothing in the report about the "tools" or "goals" or "ways".

How the poor manage to live...

2007-04-01T17:57:00.000+05:30

Slate looks at how the global poor - where entire families spend either $2 or $1 a day - manage to live.

You can get an interesting research report The Economic Lives of the Poor (PDF), which is worth reading, if you want to look at the spending pattern of poor across the world.

Will microfinance wipe out poverty?

2007-04-01T12:22:00.000+05:30

Newsweek takes a look at what the critics have said about Microfinance. To quote:

The row over microfinance arises from colliding views on everything from the power of money to human nature. If there is any consensus, it's about the paucity of reliable data. No one knows how many microlenders exist or how solid they are, much less how their millions—or is it hundreds of millions—of clients fare. Some forecasts have projected a future market as (absurdly) large as 3 billion customers, or nearly half the current world population. All sides are arguing in the dark.

ABN Amro's microcredit exposure in India

2007-03-31T15:21:00.000+05:30

ABN Amro, in a press release, says it has become profitable in its microfinance portfolio in India.

In India we apply a different model. Here we provide specialised financial intermediaries with credit who then lend the money to economically disadvantaged borrowers. This approach combines the bank's financial strength with the vast rural network of the intermediaries. In 2006 our Indian microfinance portfolio had grown to EUR 26.2 million through partnerships with 26 intermediaries across six states. Our Indian microfinance business achieved break-even within one year of start-up and continues to operate profitably.

Sequoia Invests $11.5 Million in SKS Microfinance

2007-03-31T15:15:00.000+05:30

SKS Microfinance, a leading Microfinance entity in India has received significant venture funding (US$11.5 million - INR 50.6 crores) from Sequoia Capital.

For details of the story, go to CNBC, or company's PR.

The WaterCredit Initiative

2007-03-30T09:55:00.000+05:30

Watercredit Initiative is a microfinance organization, that is applying micro-finance principle to helping poor people harness water and build sanitation.

The project is operating in Bangladesh and Tamil Nadu in India.

In Tamil Nadu, the local governments (Panchayat) do not provide clean drinking water to every citizen. (The experience is the same across other Indian states as well.) Even in cities like Chennai, not all citizens have access to drinking water, supplied to their homes. Some of us in 'posh' localities get piped water supply from Metro Water which we collect in sumps and pump to overhead tanks. The water charges and tax are very minimal. For example, in an apartment complex consisting of nine apartments, I pay a little over Rs. 600 for six months. The other residents pay something similar.

Thus, for about Rs. 100 a month (about US$ 2), I get unlimited supply of water.

The water may not qualify as pure, but can be treated with water filters (aqua guard and such), boiled and consumed.

However, poor people within Chennai have Metro Water tankers coming and delivering water. Each family can at best fill a few pots and barrels. Most poor people may not have enough space in their small dwelling places to store the water.

In the suburbs, where Metro Water does not operate, the local municipalities and panchayats to do not provide quality water in decent quantity. In Trichy/Srirangam corporation, where my parents live, again, water is supplied to most homes through pipes, and in reasonable quality and quantity. This, however, is not the case in most of the rural areas.

While it is the job of the local elected Governments to supply water, since they derelict their duty, people have to turn to other means.

Watercredit could be a solution.

I also think it is sensible for the State Government to increase the water fees/tax substantially to 'richer' parts of the state where they are providing piped water supply and use the money to lay pipes to other residents across the state to offer enough water to the people.

Interest rate charged by Grameen Bank

2007-03-29T10:03:00.000+05:30

With Muhammad Yunus entering Bangladesh politics, the politicians have found an easy way of trashing him by talking of the 'exorbitant' interest rate charged by Grameen Bank.

Stung by criticism, the Deputy Managing Director of Grameen Bank Dipal Chandra Barua writes in "The New Nation", the different loans and interest rates charged by his bank.

Basic Loan: Income generating loan of Tk. 1,000 for borrowers with a year-end interest of Tk. 100 equivalent to 10% at flat rate. Due to the loan being paid in weekly installments the interest rate stands at 20% on declining balance.
Housing Loan: Interest rate on housing loans is 8% (declining basis) with a payback period of five years. This interest rate is halved, when calculated at flat rate. Around seven hundred thousand homes have been built using this loan scheme.
Higher Education Loan: Interest is 0% i.e. no interest is charged while students are studying. A 5% is charged as service charge after graduation. This scheme allows children of our members to obtain higher education in various fields like healthcare, engineering enabling them to finish their honours and masters degrees.
Struggling Member Programme: This special programme is designated for beggars, charging 0% interest. As of December 2006, about 90,000 beggars have received loans under this programme.
Village Centre Construction Loan: Members take this loan for constructing local village centers. No interest is charged i.e., interest rate is zero.

He also states that "Government financed agencies like PKSF and their affiliated NGOs provide loans at a flat interest rate of 12.50% that becomes 25% when calculated on a declining basis."

See also the article in The Daily Star Yunus, politics and interest rates by Safi Khan.

Indian legislation to regulate microfinance sector

2007-03-24T12:52:00.000+05:30

On February 22, 2007, the Union Cabinet (India) gave its approval for enactment of a Legislation on the Micro Financial Sector (Development and Regulation) subject to amendments of drafting or of a consequential nature, if any, in consultation with the Legislative Department. According to the press release issued by the Ministry of Finance,

The Legislation will provide a legal framework for the entities engaged in micro finance and facilitate an environment for development of micro finance services in the country with greater transparency, effective management and better governance. This will facilitate the flow of micro finance services to the un-banked population of the country.

Frontline's March 10-23, 2007 issue discusses the proposed bill and the opposition mounting against the draft being discussed.

Citibank's grant for microfinance

2007-03-24T12:48:00.000+05:30

Citigroup said it will give $570,000 to the Foundation for Development Cooperation and the Banking With the Poor Network to expand microcredit services in 10 countries, including India, Indonesia, the Philippines, Sri Lanka and Vietnam.

International Herald Tribune

SEWA vs Grameen

2007-03-24T12:08:00.000+05:30

One can hardly imagine a more paternalistic act than acknowledging the need for women's economic equality by making an award to a U.S.-trained, conservative male economist. This marginalizes the achievements of the world's first female-led microcredit organization, the Self-Employed Women's Association of India, known as SEWA.

Susan F. Feiner (director of women's studies and professor of economics at the University of Southern Maine) and Drucilla Barker (professor of economics and women's studies at Hollins University in Roanoke, Varginia) discuss Nobel Prize to Muhammad Yunus and whether micro-finance can completely take women out of poverty. They conclude:

Does the award of the Nobel Peace Prize to the Grameen Bank add credence to the neo-liberal myth of individuals escaping poverty merely through their own hard work? Yes. Do these programs help some women pull themselves up by their bootstraps? Yes. Will micro-enterprises do much to end widespread poverty among the world's poorest women? Not a chance.

Italian President wants Grameen like operation in his country

2007-03-22T10:17:00.000+05:30

Italy's President Giogio Napolitano, wants to replicate Grameen's micro-credit operation in his country, at least in the southern Italy.

The Daily Star News

Pakistan wants Yunus to set up micro-credit operation

2007-03-22T10:11:00.000+05:30

Pakistan President Pervez Musharaff has requested Muhammad Yunus to set up a Grameen type operation in Pakistan, and also provide technical advice for poverty alleviation schemes in Pakistan.

The Daily Star News

On his part, Yunus asked Pakistan to do the following:

Prof Yunus suggested the Pakistan prime minister to set up social business enterprise like Gameen-Danone Yogurt company to improve nutrition status of the poor.

He also urged the Pakistani leaders to establish a social stock market in which the social enterprises could be enlisted for trading their shares.

Academics criticise Yunus

2007-02-24T16:47:00.000+05:30

In the aftermath of Mohammad Yunus deciding to start a political party in Bangladesh, several academics and ex-staff of Grameen Bank have crticised some of his views in a meeting organized for launching a book "Grameen Bank and Dr Yunus: In the View of a Witness" written by former Grameen Bank official Sardar Amin.

The criticisms range from

Yunus entering politics shows microcredit alone cannot solve poor people's problems
Yunus can only help capitalists, not poor people
Out and out privatization is not good for Bangladesh
GrameenPhone is only notionally owned by the poor people but in reality it is owend by a Norwegian company
Yunus may misuse his clout with the Grameen Bank to his own advantage in politics

Caritas India to start micro-credit program

2007-02-22T17:27:00.000+05:30

Caritas India, an NGO of Catholic churches of India has indicated that it will start a comprehensive program to save farmers from committing suicide in India.

"An integrated approach to the development of the farmers' region include a sustainable natural resource management, effective micro-credit groups and empowerment of farmers in fighting high suicide rates among marginalized farmers," Fr Varghese Mattamana, Executive Director, Caritas India, said.

...

"We are planning large-scale intervention against farmers' suicides across the country based on our successful implementation of program in Wynad district, Kerala, where we were able to contain farmers' suicides," Fr Mattamana claimed.

He said more than 2000 poor and marginalized farmers in Wynad who had joined the self-help group development plan of Caritas India did not commit suicide. There are over 250,000 groups established among marginalized communities across India, he said.

Yunus starts a political party

2007-02-22T17:07:00.000+05:30

Nobel winner Mohammad Yunus is starting a political party in Bangladesh, named "Nagorik Shakti" (meaning "Citizen Power").

The political system is quite messy in Bangladesh. The two main parties BNP and Awami League are feudal, corrupt and violent in nature. Yunus, I hope, does something better.

However, I am also very skeptical about well meaning individuals jumping into politics in the hope that people would support them simply because they are 'well meaning celebrities'. This happens a lot in India. It takes a lot of organizational work to build a grassroots political party and win elections consistently. If Yunus doesn't build a strong political organization (hopefully in an ethical way), he will lose out to experienced politicians like Sheikh Hasina and Begum Khaleda Zia.

News from Daily Star

Vinod Khosla on his involvement in microlending

2007-02-05T15:49:00.000+05:30

Vinod Khosla interviewed in PBS, talks about four of the institutions he has invested in that are involved in microlending. The page contains a video interview. Khosla says he is happy about his friend Yunus getting Nobel, and that microcredit institutions are quite self sufficient.

Three of the entities he has invested in are in India and one in Africa, says Khosla. I know only of SKS Microfinance in which he has invested.

Create legislation for setting up micro-credit banks - Yunus

2007-02-05T14:52:00.000+05:30

Yunus has asked India to set up legislation allowing creation of micro-credit banks.

As of now, micro-credit institutions come under NBFC (Non-banking finance corporations) and as such are severely restricted in their operations including their ability to collect deposits and access low-cost funds. Reported in Financial Express:

Although India is booming, it cannot neglect those who are left without credit availability. He made an obvious reference to the Tata-Corus deal and said, "One side of India is looking up and the other not catching up. Grameen Bank, which lent to 7 million poorest of the poor in Bangladesh, has set the target of reaching out to every household by 2010. On these lines, India should try to reach out to the poorest of the poor," he opined. Yunus praised the self-help group model for providing credit linkage but asserted that it does not cover all poor but other segments also.

SHG model in India is quite restricted and it is important for India to come up with legislation for micro-credit banks. However, I have a feeling that there is no lobby pushing for this and as such no one is going to look at this space for a long time to come.

Also reported in Economic Times is that RBI's CS Murthy that RBI is not for creating banking regulations for micro credit institutions since the regulations are stringent and micro credit institutions may not be able to handle that. This argument sounds dodgy. One can always come up with reasonably relaxed norms specifically for micro credit banks, if one wants it.

Yunus has also suggested that micro credit institutions be regulated with an upper limit for the rate of interest on lending. However the formula he is proposing may have to be looked at carefully. A regulator like TRAI who constantly looks at the prevailing situation and modifies the limit on rate of interest could be useful rather than strict legislation for the upper limit.

Danone, Grameen and Yogurt in Bangladesh

2007-01-31T08:51:00.000+05:30

A lot is being made out of the Grameen, Danone joint venture in Bangladesh which will produce fortified yogurt for the malnourished children in Bangladesh.

A detailed article from Fortune appears in cnnmoney.com: Saving the world with a cup of yogurt

The modus operandi is as follows:

Danone will invest $500,000 in the venture. Grameen will supply the rest. Three years down the line, Danone will take back the initial investment and keep ploughing the rest of the profits back into the venture. (I think Telenor also said the same!)

Grameen borrowers will supply milk to the venture. Danone will make yogurt and sell them in cups priced $0.07 (approximately Rs. 3, or Taka 5). Grameen members will buy these cups and will sell them across their villages. The plant manufacturing yogurt will also employ women.

What is surprising is that such a venture actually requires french technology and investment. In India, plenty of local milk cooperatives make milk, yogurt and derivative products. The largest player in India is Gujarat Co-operative Milk Marketing Federation, which owns the brand name Amul. The multinationals Nestle or Danone or nowhere in the game. Yunus could have easily obtained technology at near zero cost or free from Amul, and could have run the plant with his own money.

The story of Danone's involvement is over-romanticised in the Fortune article. The $500,000 investment is probably just a fraction of what the CEO of Danone spends on his travel around the world.

We hope the malnourished children of Bangladesh get their nutrition quickly.

Give microcredit to 160 million in India - Yunus

2007-01-31T08:45:00.000+05:30

Muhammad Yunus was in India in connection with the Satyagraha centenary celebrations. (For those who do not know, Mohandas Gandhi launched the Satyagraha movement - a novel way of non-violent mass protest - in South Africa to get more rights for Indian immigrants in White-ruled South Africa, 100 years back. Later on, he came back to India to lead the country to freedom from the British rule. The function has been organized by India's Congress Party, the leading partner in the ruling coalition.)

Yunus addressed the gathering and has also been talking to press otherwise. He has talked about financial apartheid - of financial institutions not providing credit to poor. He says 16 million people in Bangladesh have been provided with micro-credit. If the same percentage is extended in India, then at least 160 million people should be given micro-credit in India.

Financial Express Article

Microfinance and the broader agenda

2007-01-23T09:15:00.000+05:30

Two part article in The Financial Express on Microfinance by Amrit Patel and Gopal Kalkoti (who are 'professionals with decades of field experience in microfinance planning').

1. Microfinance and the broader agenda
2. Microfinance: outreach and self-sufficiency

Yunus upsets Bangladeshi politicians

2007-01-23T08:57:00.000+05:30

This had to happen.

Muhammad Yunus has now succeeded in uniting the two warring political parties in Bangladesh - for one cause. To criticise Yunus.

Yunus, with his global fame after the Nobel Peace Prize, told AFP that politicians in Bangladesh as a class are dishonest and they are in politics only for money. (Which, I think is entirely true, not only in Bangladesh, but also in India and Pakistan and most other countries.) However, certain truths should not be told publicly, and bluntly.

BNP and Awami League - the two main political parties, aggressively fighting each other (I mean, not just ideologically but also with knives and stones!) to win the next general elections, have both criticised Yunus for being unfair and "jingoistic".

For more details: One | Two | Three

Yunus was recently offered the post of the caretaker chief of the country (a tradition in Bangladesh when one Government leaves and the elections have to be held for choosing the next Government), but declined.

The work Yunus is doing in Bangladesh still requires some support from those in power. If not anything, the Government has the ability to harm the good work microcredit can do, by simply bringing in more and needless regulation.

Yunus should be wiser in deciding what to say aloud and what not.

A defamation suit has also been filed against Yunus. Gulf News says, "Advocate Nazrul Islam Chunnu, joint general secretary of Jatiya Samajtantrik Dal (JSD) in Mymensingh in northern Bangladesh, filed a defamation suit against Younus, the New Age newspaper reported."

Bush is a terrible leader - Yunus

2007-01-23T08:53:00.000+05:30

Nobel laureate Muhammad Yunus has told a newspaper that George Bush, the President of USA is a terrible leader who "has led the world on a dangerous path and it will take a lot of time to take it back on the right one."

Reported in The Australian.

Microfranchising: the next big thing

2007-01-23T08:45:00.000+05:30

Microfranchise is the next great idea after microfinance, writes Swaminathan Anklesaria Aiyar, in The Economic Times.

There is only one serious example quoted - GrameenPhones of Bangladesh. Aiyar cleverly bats for Telenor. ("Without the financial and technical clout of Telenor, GrameenPhones could not have gone far.")

The other examples - Scojo (Spectacles) and HP (Marriage photos and video) have a fair way to go. ITC is not in the same franchise model; it outsources Agarbathi production and few other similar activities.

Aiyar wants Anil Ambani of Reliance Infocomm to unleash a revolution like what Yunus did in Bangladesh through the 'Phone Women', rather than looking at taking over Hutch.

Microfranchise ideas look a bit farfetched at this stage.

Yunus praised ... and slammed

2006-12-19T10:01:00.000+05:30

The Time Magazine honours Muhammad Yunus as People Who Mattered: Muhammad Yunus, Banker to the Poor, while Countercurrents.org writer Omar Tarek Chowdhury finds Yunus in secret collusion with all the ugly capitalists of the world and is all set to sell Bangladesh's poor cheaply to the global finance capital. Take your pick.

Vandana Shiva debates with Susan Davies of Grameen Foundation in Democracy Now! (also available in video) about microcredit and obliquely refers to Yunus at one time wanting to work out a joint venture with Monsanto. Shiva doesn't seem to like microcredit - it is so capitalistic, and worse that it appears to help the poor. That would rob the entire platform of the left.

While at it, you can also look at (or read) Vandana Shiva's take on farmer's suicides in India, Indo-US nuclear deal, foreign investment in retail trading in India and several other of her pet subjects.

At the other end, Jon Entine writes in American Enterprise Institute on Public Policy Research that microfinance at best can take the daily income of people from $2 to $3, whereas massive investment in building factories that can provide thousands of jobs is the way to go - because that is what happened in developed countries once upon a time.

Yunus on BBC HardTalk

2006-12-11T10:14:00.000+05:30

I couldn't find the video or transcript of this in BBC HardTalk site at this stage. This was telecast in India on Sunday (10th Dec 2006).

Stephen Sackur queried Yunus on some uncomfortable questions. One was about Yunus joining politics. Yunus was categorical in stating that he will not be joining the politics, that he understands the problems faced by his country in the political space but he doesn't know the answers. He said he is better at his current job but could be a total failure if he goes to politics. It was however clear that Yunus felt uncomfortable in dealing with this question.

Yunus found himself weak again dealing with questions on whether credit should be considered a 'human right'. Sackur quoted another economist and former microcredit proponent who now believes that education and training are far more important that microcredit. Yunus did not deal with this question as good as he should have.

I missed the early part of this interview, so need to wait until the transcript comes up in the BBC site.

Nobel Acceptance Speech by Yunus

2006-12-11T10:07:00.000+05:30

Muhammad Yunus spoke in detail about how to tackle poverty, setting up social businesses, a mild critique of capitalism and globalization during his acceptance speech after receiving the Nobel Peace Prize yesterday.

The complete text of the speech is here.

There is also a video (somewhat funny because half the time the picture is turned upside down, though you would only want to listen to the audio!) at the Nobel site.

Yunus ensured that he mentioned about Telenor of Norway and his intention to convert GrameenPhones to a company owned by the poor people in Bangladesh.

Chirag Terminals of N-logue

2006-12-09T09:23:00.000+05:30

N-logue is a rural Internet service provider in India which has been struggling for a long time in establishing a working business model.

N-logue, along with designated Local Service Providers (LSPs) sets up Internet nodes connected by leased lines and fibre. The LSPs provide connectivity to nearby villages through WiLL towers and receivers. In each village there will be a kiosk operator (KO) who has a single computer, a printer and a WiLL connectivity kit. The kiosks are named Chiraag.

N-logue expected local villagers to throng the Chiraag and pay money to send/receive emails, video chat and other services. However the revenue generated was not sufficient for the KOs and LSPs. Several people just closed down their businesses.

However, recently, there has been substantial rethink. The approach now is to convert the KO as outlet for a whole bunch of offline services resulting in footfalls, and possibly some Internet usage as a result of this.

In addition to offline services to the villagers, there is an attempt at creating revenue generating opportunities for the KOs.

One such is data entry/BPO job. I visited couple of such locations yesterday. Standard forms -> data input work was going on in one location. Another project happening was ITC's Mangaldeep Agarbathis. Using an information system organized by ILFS, ITC sends out the raw material required for making the Agarbathis and picks up the finished products.

Recharging of prepaid mobile phones is another interesting activity that is happening at the KOs. However the margins earned in the process is very limited (max of 3.5% of the recharge value).

If it can be demonstrated that rural kiosks can generate profits (after all costs) of about Rs. 5,000+ per month, there will be a resurgence in N-logue's operations. More prospective rural entreprenuers will join in. The investment required will be around Rs. 30,000-40,000 which can be funded partly by Government grants and rest by microcredit with monthly installments.

Internet access alone is not bringing money to the kiosk operator.

Grameen Foundation launches IT system for microcredit providers

2006-12-09T09:05:00.000+05:30

Grameen Foundation, the pioneering organisation providing micro-credit facilities in developing countries, has launched Mifos, a new initiative designed to "address the significant technology challenges facing microfinance practitioners worldwide by revolutionising the way they access and use technology to run their operations."

According to Grameen, "With Mifos, a single technology 'backbone' that all microfinance institutions can access and adapt is now available. Its innovative open source model allows microfinance institutions to engage local IT specialists to customise Mifos and to provide ongoing support at local, affordable rates rather than being dependent on one vendor that may sit on the other side of the world." Beta-testing is already underway in India and Tunisia.

Telenor says no quarrel with Yunus

2006-12-07T10:24:00.000+05:30

Telenor of Norway and Grameen Bank of Bangladesh are joint venture partners in GrameenPhone, the dominant mobile phone company in Bangladesh. Telenor owns 62% and Grameen 38% in GrameenPhone.

CNNMoney.com | Reuter News

Yunus, Nobel Laureate and founder of Grameen Bank has apparently claimed that Telenor had agreed to transfer majority shares in GrameenPhone to Grameen Bank "within six years". But Telenor claims no such agreement ever took place.

Yunus has also been quoted by Fortune as saying "they're [Telenor] oriented towards profit maximisation. We're oriented towards social objectives."

Telenor has retorted by saying that "this undertaking [GrameenPhone], which was set up as a business project from day one, has probably helped more people than all other development aid programmes together."

Jobs, not microcredit, is the solution

2006-11-23T09:49:00.000+05:30

Aneel Karnani, Professor at Ross School of Business, University of Michigan writes in today's Business Standard that rather than hyping microcredit, India should focus on job creation through "labour-intensive, low-skill sectors such as light manufacturing, garments and tourism." Some excerpts from his article:

The Economist magazine concluded that while “heart-warming case studies abound, rigorous empirical analyses are rare”. A few studies have even found that micro-credit has a negative impact on poverty; poor households simply become poorer through the additional burden of debt.

...

The United Nations’ declaration that microentrepreneurs use loans to grow thriving businesses leading to flourishing economies is hype.

...

In an insightful survey on the economic lives of the poor, Abhijit Banerjee writes that the self-employed poor usually have no specialised skills and often practise multiple occupations. Many of these businesses operate at too small a scale. Banerjee points out that the median business operated by the poor has no paid staff; most of these businesses have very few assets as well. With low skills, little capital and no scale economies, these businesses operate in arenas with low entry barriers and too much competition; they have low productivity and lead to meagre earnings that cannot lift their owners out of poverty.

...

Even in developed countries with high levels of education and infrastructure, about 90 per cent of the labour force are employees rather than entrepreneurs.

...

Rather than lending $200 to 500 women so that each can buy a sowing machine and set up a microenterprise manufacturing garments, it is much better to lend $100,000 to an entrepreneur with managerial capabilities and business acumen and help her to set up a garment-manufacturing business employing 500 people.

My comments:

It is understandable that a lot of people are upset about the extraordinary hype surrounding microcredit. I would agree with Karnani's statement that "The United Nations’ declaration that microentrepreneurs use loans to grow thriving businesses leading to flourishing economies is hype" at the present stage.

It is also regrettable that some Governments now look at abdicating their responsibility in job creation and poverty alleviation by simply encouraging nationalised banks or private bankers to offer microcredits and hoping that somehow microcredits will solve the problem of poverty and grow the economy.

Not all microcredit banks have succeeded yet. It is however an experiment worth continuing, even if it has only partial results, as long as no one becomes worse off than before because of taking microcredit.

Karnani argues that rather than offering microcredit of $200 to 500 people, offer larger loans ($100,000) to an entrepreneur who can create 500 jobs. In a country like India, one does not have to look at "either/or". Those who are capable of setting up $100,000 enterprises continue to do so. But such enterprises cannot be set up in rural areas, because of lack of transportation, quality power and other facilities. The microcredit and SHGs operate predominantly in rural and semi-urban areas. So these two models are mutually exclusive.

In rural India, most people are employed in agriculture as low daily wage earners. They all have jobs but very uncertain jobs paying very little. The Indian Government has just introduced a National Rural Employment Guarantee Act (NREGA), which assures a certain days of manual labour (of mostly unproductive and useless work, in my opinion), for which the workers will be paid minimum wages (of about Rs. 75-100 a day, I think). This money could simply have been given to the rural poor as dole. This will still leave them in poverty and the government has no idea of creating large scale jobs anyway.

I can't see very many entrepreneurs rushing to the rural areas to start enterprises that can give jobs to 500 people - or even 100 people - since the opportunities available in urban centres are more.

In this scenario microcredit in rural areas can at least help in one person micro-enterprises which can help in poverty alleviation. There are plenty of micro-enterprises possible in rural India, just like in rural Bangladesh. However, under extreme stress, a lot of micro-debtors use the money they get for consumption rather than investing that in their enterprise. This is, as Karnani says, a major problem. But this problem cannot be solved by microcredit institutions on their own. While the government works to ensure that there is at least enough money given to the poor people to find their food, the microcredit can then help in lifting them from their poverty.

In Bangladesh, the government is incapable of feeding the poor directly. But in India, if the government has the will, it can certainly provide the poor with food. Microcredit can then take these people to the next level.

Micro-entrepreneurs need not necessary have to have huge skills. Nor is their productivity or profits affected by competition. There is still a huge market for handicrafts (both utilitarian and decorative products), hand woven fancy fabrics, embroidery works and other traditional products. Each micro-entrepreneur learns these skills quickly and easily. Nor are they working towards wiping out the competition. You can see tens of women in most such villages engaged in much the same work (of say weaving a bamboo basket). They are merely looking to earn a little cash that can help in getting better nutrition for the family, the much coveted education for the children, some decent clothes, slightly better housing etc.

Microcredit doesn't need too much hype, but not this kind of onslaught either.

A right winger's criticism of Yunus and Grameen

2006-11-14T09:10:00.000+05:30

Yunus is getting it from right and left. Now, Jeffrey Tucker at Von Mises Institute says Microcredit is basically bunkum, and won't work at all without the help of massive grants, and also believes Yunus has most probably been swindling money! Further criticisms include lack of transperancy, phony shareholder set up and so on.

For a full read: Microcredit or Macrowelfare: The Myth of Grameen

Lalita Gupte says she will get involved in Microcredit

2006-11-02T18:17:00.000+05:30

Lalita Gupte, who retired just a couple of days back as the Joint Managing Director and Chief Operations Officer of ICICI Bank, says the following:

What are your post-retirement plans?

I cannot move away from the financial sector and, hence, would like to do some work in the area of microcredit. I may end up working with an NGO. I will continue to remain very active and will try to cultivate a few hobbies. I will continue to remain in India. The India story is happening and I can’t see myself staying anywhere else other than in India.

Ila Patnaik explains microfinance in India

2006-11-02T18:09:00.000+05:30

Now that there is a lot of buzz about microfinance because of Yunus' Nobel Prize, Ila Patnaik~~, who herself was involved in SEWA in Gujarat,~~ answers some commonly asked questions about microfinance and its practice in India in this piece in The Indian Express.

An interview with Malcolm Harper on micro credit in India

2006-10-27T21:13:00.000+05:30

Malcolm Harper worked was the chairman of Basix, a livelihood promotion institution based in India. Basix does a lot more than just providing micro credit.

Harper is not anymore with Basix, and is currently the chairman of M-CRIL, a rating agency for micro credit institutions.

In a detailed interview, Harper talks about Baisx' experience in providing livelihood services in India, the general micro credit scenario in India and more.

Grameen Bank comes to India

2006-10-27T17:10:00.000+05:30

Grameen Bank has completed formalities to start a liaison office in Mumbai. The operation will commence from January 2007, repots The Financial Express.

Some of its functions will include assisting those adopting the GB model in India, preparing project proposals, meeting training requirements, and creating awareness to make micro-credit at the ground level more effective.

...

GB proposes to implement its BOT model in India, too. Using this model, the bank will deploy its expertise for a fixed time until local staff recruited for the purpose acquire the necessary skills. Once the local staff is trained, GB will exit the project.

Grameen model vs Self-Help Groups - a comparison

2006-10-27T09:57:00.000+05:30

Grameen model of microfinance has evolved in Bangladesh and is the most dominant model prevalent there. Centrally managed, dedicated microfinance institution, groups of five, highly disciplined organizational structure - that is Grameen model. The focus is primarily on lending, but every group member must save a certain amount.

In contrast, in India, the most popular model is Self-help groups. SHGs are groups of between 15-20 people. Scheduled banks provide the loans and manage the savings for the group. But the banks do not directly interact with the SHGs. Instead, non-governmental organizations (NGOs) get involved, help in forming groups, but then empower the groups to manage their own affairs. The focus is primarily on saving. Lending to group members is first sought from within the group savings, and then from the bank.

I had learnt about both the methods - about Grameen model by reading various books on the subject, and the SHG from a person who is the administrative manager of an NGO, organizing SHGs in Chennai.

SHGs are more popular in India. The Grameen replicators are very few in India.

I was wondering why these two methods are so starkly different and how two distinct methods developed in these two countries independently.

I have now found an excellent article

Grameen Bank Groups and Self-help Groups; what are the differences? Malcolm Harper (2002)

which describes the two schemes in detail, compares the two, and explains possible reasons on why Grameen model developed in Bangladesh while SHGs are more popular in India.

Microcredit in China

2006-10-26T09:42:00.000+05:30

Like India, China also has regulatory problems which is preventing growth of Microfinance.

There are two articles of interest. One, an article by You Nuo in The Brunei Times on how there was a state controlled experiment in microcredit in China in the 11th century which failed resulting in the Prime Minister Wang Anshi who introduced it almost destroying the dynasty he was working for.

Wang Anshi (1021-86), the reform-minded prime minister of the Northern Song Dynasty (960-1127), practised it when he began to tinker with the imperial financial system and render credit to all farmers.

Wang had a plan of changing his office into some sort of a national agricultural bank. What a good thing, he thought, if the empire could, by rendering credit to its subjects, reap a healthy inflow of interest income to finance the defence and the endless need for luxury by the court.

He failed, of course, and the failure shattered both his career and, to some extent, the empire. The idea was noble. Farmers or any other grassroots-level business owners deserved financial support. However the failure occurred in converting a clumsy bureaucracy into a direct service to millions of farmers and small business owners. It was mission impossible. By the logic of bureaucracy, there can be a banker of the poor but never a finance minister of the poor.

Cut back to modern times. Muhammad Yunus is on a touring spree and was in Beijing, China to attend the Grameen International Conference on Microcredit in China.

Some pioneering institutions, mostly domestic or overseas non-government organizations, have experimented with microcredit in China for 10 years.

But they are not sustainable because of policy and legal restriction, and insufficient funds, said Du Xiaoshan, a pioneer of microfinance research and practice in China, and also deputy director of the Rural Development Institute affiliated to the Chinese Academy of Social Sciences.

Seven private microcredit companies in China also face the same problem, as they are only allowed to provide loans but cannot accept deposits.

Yunus said not allowing micro credit companies to take deposits would greatly hinder their development, and stressed the importance of a clear and proper legal environment and supervision mechanism. Currently, China has no laws or regulations in this field.

Jiao Jinpu, deputy director of the research bureau of the People's Bank of China, said the central bank is working closely with the China Banking Regulatory Commission, the Ministry of Finance and the Ministry of Commerce to give microfinance providers a clear legal environment to boost the development of microcredit in China.

Yunus suggested that under the current circumstances, establishing a fund from which microcredit companies could draw money might be a more practical choice.

Microfinance Fund raises second round funding

2006-10-26T09:24:00.000+05:30

The Bellwether Microfinance Fund, a fund that invests in Microfinance Institutions in India has raised a second round financing of $10 million, reports The Financial Express.

The fund was originally set up with $10 million equity.

"The fund was set up with $10 million with contributions from our investors like Triodos, Gray Ghost Arun Duggal and Kishore Munjani. We have now firmed up another $10 million, out of which $5 million is coming from our existing promoters, while FMO, the Dutch government-owned financial institution, has provided $2.5 million in equity capital. Another $3.5-5 million is being negotiated with a major US-based financial institution," Viswanatha Prasad, one of Bellwether’s promoters, told FE.

West Bengal Govt. claims better micro credit implementation

2006-10-21T18:18:00.000+05:30

If you are in micro credit, you have to now compare yourself with what Yunus has achieved.

The West Bengal minister for self-help groups Rekha Goswami claims the following:

"We have been stressing micro-credit since the nineties, but have been able to make it work very successfully for the past two or three years," she said.

The West Bengal model, she claimed, was far superior to the one created by Mohammad Yunus and his Grameen Bank in Bangladesh. "In Bangladesh, the government does not support Yunus," she said.

I have no idea what they have achieved in West Bengal. They are inviting Yunus to come to Kolkata for some awards and celebrations! I hope the minister can teach a trick or two to Yunus!

Micro loans, Macro racket

2006-10-21T17:55:00.000+05:30

Alexander Cockburn, thundering left winger, must take a dig at micro loans, since IMF and World Bank are praising micro loans.

Yunus has been given a Nobel Prize for his work in Bangladesh. Cockburn dismisses the three decade long work put in by Yunus and his bank with one big sweep:

In the statistical tables of human development Bangladesh ranks 139th, worse than India, with 49.8 percent of its population of 150 million below the official poverty line. In the homeland of the Grameen Bank, about 80 percent of the people live on less than $2 a day.

Yes, Yunus should be punished for this. Next, let us demolish the entire micro credit concept itself, having done the same to Yunus.

As the economist Robert Pollin put it pithily when I asked him what he thought of the award to Yunus, "Bangladesh and Bolivia are two countries widely recognized for having the most successful micro credit programs in the world. They also remain two of the poorest countries in the world."

Cockburn's primary source describing in detail the ills of micro loans is P.Sainath of The Hindu. It is unfortunate to compare the micro credit implementation in India with that of Bangladesh. In India, there is no single entity that comes anywhere close to Grameen in size and implementation. Sainath has well covered the rural problems in India, and frankly none of the problems is the doing of micro credit organizations. The blame is entirely on the governments, local moneylenders, drought and famine, and perhaps lack of good micro credit organizations. Thus, quotes from Sainath about Indian experience is taken, transformed into the failure of micro credit in the world, Bangladesh's chronic poverty and pathetic political situation and in the end we get the ultimate left wing mumbo jumbo:

The trouble with publicly subsidized credit programs is that they're public, they're large and run contrary to the neoliberal creed. That's why Yunus got his Nobel macro-prize of $1.4 million, whereas radical land reformers get a bullet in the bank of the head.

Since Yunus has powerful friends, he must also get powerful enemies. His work is irrelevent to these enemies.

Neither Yunus, nor any major proponent of micro credit has presented micro credit as the only development tool, and in oppostition to land reforms, larger government spending on poverty alleviation, publicly subsidized credit program etc. Rather than merely theorising, the micro credit people have gone about transforming the lives of people in a positive manner. The left wing theorists must now demonstrate that micro loans are actually bad, and will result in increased poverty. They have a lot of work in their hands.

Muhammad Yunus and Bangladeshi politics

2006-10-21T17:32:00.000+05:30

It appears that the vicious political atmosphere in Bangladesh may be impacting the performance of Muhammad Yunus and Grameen Bank in the days to come.

Yunus has, over the last three decades, stayed away from politics. Bangladesh has had a very difficult political set up so far. When it was part of Pakistan, the region remained underdeveloped. After 1971 war of independence, Bangladesh's father of the nation Mujibur Rehman could not solve the problems or set the tone for progress for the country. He was assassinated in a military putsch. Whoever was the instigator of the putsch, the real power subsequently descended on Major General Zia-ur-Rahman. Zia-ur-Rahman himself was later murdered in a failed coup, which subsequently resulted in another period of military rule by General Ershad. Ershad was later overthrown by popular revolt, which resulted in reinstating of democracy from 1990 onwards.

However the period of democracy has been quite traumatic as well. Mujibur Rehman's daughter Sheikh Hasina (Awami League) and Zia-ur Rahman's wife Begum Khaleda Zia (Bangladesh Nationalist Party) run the two main parties. Khaleda Zia won her first term in 1991, lost power to Sheikh Hasina in 1996 but recaptured power in 2001. The elections are coming up again now in 2006.

These two parties fight pitched roadside battles. It is common to have country made bombs thrown on opposition rallies. Vengeful ruling party throws the opposition leaders (most of them ex-ministers) in jail on trivial charges. Corruption is rampant. Around the election time, at least few thousand people are killed in violence.

There is a constitutional tradition that when elections draw near, a neutral person is brought in to manage the country and oversee the elections. This change-over process is to happen on October 28th, but the opposition Awami League is not confident of the designated neutral person. They believe the upcoming elections may be rigged, and are threatening to boycott the elections. This has caused a great amount of instability now in the country.

All of this is frustrating to the development-minded people, including Muhammad Yunus.

Yunus had learnt to live with the military rulers. Grameen experiment was going on with the help of Government owned banks during Maj. General Zia's time. It was during General Ershad's period that Grameen Bank was incorporated with the Government holding 60% equity and 40% with the customers of the Bank. Then, through a series of clever maneuvering, Grameen has become 6% owned by Govt. and 94% with the customers.

While Yunus kept quiet during the military rule, with his growing stature and mounting frustration, he is critical of the two leaders. Reported in The New York Times:

"There's no ideological fight between them," Mr. Yunus said of the leaders in an interview here this week. "They go back to what your husband did, what your father did. They have to fight because they came into politics because of their legacy. There's no substance in the politics.

In a country like Bangladesh, that is a very strong reaction. Though true, neither leader will take this lightly. Sheikh Hasina hates Khaleda Zia's husband Major General Zia because Zia exhonerated a lot of people suspected of involved in killing Sheikh Mujibur Rehman. Some may even go so far as to say Zia himself was involved in Mujib's assassination. Khaleda Zia responds back with her own hate of Sheikh Hasina.

This kind of family feud spilling into the administration of country is not good. Such a state of affairs will frustrate any development-oriented person. Frustrated by all this, Yunus has apparently hinted starting a political party himself.

Whether that is good news for Bangladesh or not, it is bad news for Sheikh Hasina and Khaleda Zia. They will both come together to cut Yunus to size. They will realise that Yunus draws his power from Grameen Bank and its millions of members - that is millions of votes. So the politicians will work towards destroying Grameen Bank. Clinging to power is far more important for them than the development of their country.

The Nobel prize has probably made Yunus stronger and bolder. But he has to now constantly watch his back.

Bangladesh Finance Minister criticises Yunus

2006-10-20T10:56:00.000+05:30

This had to happen. Politicians do not like non-politicians becming larger than life. The Daily Star of Bangladesh reports that the minister for Finance and Planning Saifur Rahman has criticised Muhammad Yunus, the Nobel Prize winner and his scheme of microcredit with some choice words:

... true development of the country will be achieved through establishing large-scale industries and modernising agriculture, not by running microcredit programmes.
... the people of Sylhet region demonstrated against the Grameen Bank during the previous term of the BNP government and he (Saifur) had to go to the spot himself to sort the situation out.
... the current government has distributed more microcredit loans than the Grameen Bank.
... none was able to relieve themselves of poverty with the help of microcredit only and they failed to become self-reliant.
... Yunus was able to win the Nobel Peace Prize only because he has good relations with former US president Bill Clinton and New York Senator Hillary Clinton, who helped Yunus in this regard.

But we get to the bottom of the string of accusations, because apparently Yunus has said that he is likely to start a political party. I hope Yunus stays away from the political mess, because he has to do much more in the microfinance industry, and he is the most visible face championing micro credit.

Manmohan Singh on credit and agriculture

2006-10-20T10:35:00.000+05:30

From The Hindu

Indian Prime Minister Manmohan Singh acknowledged that Indian agriculture is in deep trouble, there is a huge rural-urban divide and rural farmers are suffering from four deficits: (1) public investment and credit (2) infrastructure (3) market economy (4) knowledge. He said:

We cannot deny that there is a crisis in agriculture in many regions of the country ... In many parts of the country, agriculture is being carried out in adverse conditions ... There are large tracts where farmers seem to be in acute distress. In many other parts, agriculture is seeing a major transformation and farmers in these parts are reaping the benefits of technology, irrigation, better infrastructure, improved marketing facilities and advanced risk management strategies. It is this duality that we need to tackle.

The Prime Minister further ruminated:

Answers must be found to questions such as: do the farmers need a lower rate of interest or reliable access to credit at reasonable rates? Is our existing institutional framework adequate for meeting the requirements of our farmers who are a diverse lot? Do we need to create new institutional structures such as self-help groups and micro-finance institutions to provide improved and reliable access to credit? Or do we need to bring in money lenders under some form of regulation?

It is unclear to me where micro-finance institutions or self-help groups come into the picture here. The microcredit amounts are considerably smaller than what land owning farmers need. Farmers across the country have been borrowing money from (1) Nationalised banks (2) Agriculturual co-operative banks managed by State Governments (3) Private Money-lenders.

Agricultural co-operative banks are politicised institutions where writing-off loans is quite common. The recently elected Tamil Nadu state government wrote off close to Rs. 7,000 crores of agriculture loans, most of the money to well-off land owners and even fresh loans made just a few months back to buy tractors. Nationalised banks have not indulged in loan write-offs in the recent times. Private money-lenders on the other hand charge exhorbitant interest.

Indian agriculture is in distress because of lack of market economy. The state governments and Food Corporation of India are the major buyers, and the governments fix the price for the staple food. When the governments allow private players to buy the produce, the farmers invariably get better price. But the government cannot allow this to happen since its food reserves have come to the lowest position in the last decade, forcing them to import wheat for the first time in several years. So this depresses the income farmers get. A few droughts here and there, few floods there and here and the farmers lose everything.

Farmers are traditionally male, in India. As such, the Yunus school of micro-credit won't lend to such males. Like Grameen, the micro-credit institutions can demand that the land be transferred in the name of the woman of the household, and then lend money to women. Farming does not generate monthly or weekly income. After 4-8 months of hard work, you get the money only after the harvest. In Tamil Nadu, several farmers were waiting several months for money from the state government after they had sold rice to the government. So the turn-around time could be more than an year. Such farmers cannot pay monthly or weekly installments on micro-credit payments.

Micro-credit survival is based on fortnightly or monthly micro collections. As such what the Indian farm sector needs is credit against produce, combined with insurance against drought and floods. The lending institution should team up with FCI or private players such as ITC/Reliance/Bharti etc. and insurance companies to lend money to the farmers. Through the four-way contract, the farmer agrees to sell his produce to FCI or private companies at a specific price (subject to quality) and the buyer pays the loans off to the lending institutions and pays excess money to the farmer. A portion of the money lent to the farmer goes to the insurance company. Insurance company will compensate the lender and the farmer in case of adverse impact on the produce.

Farmers need reliable credit, but not loan write-off. Farmers need better training, better access to market and Government help in better flood/drought management.

Another skeptic reviews micro credit

2006-10-19T10:32:00.000+05:30

Counter arguments are good. It helps you clarify your views better. So we welcome Daniel Davies, commenting in Guardian Unlimited, where he says "Microcredit is a good thing, but it is nowhere near a panacea for global poverty." The strap line may be similar to that of Walden Bello, but the arguments are somewhat different.

Davies says

The main effect of the microfinance revolution has been the rebranding of agricultural development banks as "Microlenders". This has happened because although a loan to buy a tractor or provide working capital for a harvest season isn't microcredit, calling it microcredit will bring in a lot more grant money. That's probably good news, because agricultural development banks usually do good work.

This is not true. True micro credit institutions do not give tractor loans. Tractor loans are in lakhs of rupees (or millions of rupees) - that is about USD 5,000-8,000. The micro credit amounts are rarely more than ten thousand or twenty thousand rupees (or takas), and mostly in thousands of Rs/Tk - which in dollar terms is USD 200-500 at best. Agricultural banks are not renamed as micro lenders. In places like India and Bangladesh, all agricultural banks are owned by the Government, and it is a known fact that the Government messes with the banks, gives loans to party sympathisers and keep writing off loans. In any case, most such loans are never paid back. Yunus, right through his autobiography, disapproves of the Governement owned agricultural banks and their practices.

If the agri banks rename themselves as micro lenders for getting better access to grants, that is someone else's problem. Aid agencies beware!

Back to Davies. He says micro credit cannot help the poorest, and says micro credit organizations themselves know this. Quite true. It can only help those who can repay the money back, because for the banks' own survival, they need to get the money back, to relend, and to pay for the administrative costs. Until Yunus (and a few others elsewhere) started micro lending institutions, this particular segment of poor got nothing. Yunus is not providing a solution for every poor person out there, but most poor. For solving the real bottom poor, Governments have to step in, even if it means there is a lot of corruption and wastage. Or, someone else may have to come up with even more interesting models.

Yunus has never said anywhere that microfinance is a replacement for development policies. Grameen Bank's impact is real for all of us to see, even if the impact is not what some of the western writers want it to be - that is conversion of Bangladesh into France. That will take perhaps another 200 years and Grameen has been there only for 30 years or so.

Davies gives a neat introduction to JK Galbraith's (least-known but best book) The Nature Of Mass Poverty. I will note that down to read it.

Philippines House Speaker to start a microlending bank

2006-10-19T10:04:00.000+05:30

The Manila Bulletin says Philippines House Speaker Jose C. de Venecia Jr. is starting a microfinance bank patterned after Yunus’ multi-awarded Grameen Bank in Pangasinan.

De Venecia made the announcement as he urged President Arroyo and provincial business and political leaders to help build a national network of micro-finance banks as "weapons against poverty."

The Speaker said the First Dagupan Micro-finance Bank will be launched next month with him and more than 3,000 residents from Dagupan City and other areas in Pangasinan as stockholders.

This is probably the best Nobel prize given out, as more people are looking at debating issues on poverty, micro credit etc. They are not stopping with debates and discussions but are going ahead and doing something as well.

Nobel for Yunus Is Not a Defeat for Adam Smith

2006-10-19T10:03:00.001+05:30

Andy Mukherjee writing for Bloomberg says "Nobel for Yunus Is Not a Defeat for Adam Smith". It is not very clear who said moderate success of micro credit is somehow equivalent to repudiation of Adam Smith's theories. Leaving the provocative title, the article is quite good and it explains why micro credit model is robust in certain countries.

Micro-credit is a coping device. It is a big help in countries where legal contracts with individual borrowers may not be worth the paper they are written on, where the judicial systems are slow and overburdened, where the poor have little legally acceptable collateral to offer, and where credit history is worthless because no one is recording or disseminating it.

In such a situation, as Yunus has so successfully demonstrated over the past three decades, creditor rights can be profitably protected by transferring the liability from individual borrowers to a group.

However, Mukherjee doesn't think group lending "is the best way".

Yunus had to come up with a working model for lending to the poor. Poor across the world tend to be mostly illiterate, because in most countries in the world, getting an education costs money. Even if education is free, food and other needs or not, so poor have to go to work as early in their lives as possible, rather than going to school. Poorly educated people invariably get low paying jobs and that is how poor remain poor throughout.

Poor can be given free or subsidised food, education, training and good job opportunities so that they come out of their current state. But this calls for lots of spending, very active Government intervention and sustained monitoring. In the absense of money and a functional Government (example: Bangladesh, India), the next best thing is to work bottom up and provide minimal credit to poor people, educate them of the need to pay that money back in small installments, and also provide them guidance, social values etc. Grameen Bank has done this and more. For example, Grameen teaches people to drink clean water and supplies them with Aluminium Sulphate tablets to purify the ground water. Diarrhea, which is a major killer in Bangladesh - more than TB or AIDS or any other (The Week, UK, Oct 16 issue) - does not impact the Grameen members as much.

Grameen teaches its women members family planning and use of contraceptive devices, dignity for women, transfer of property for women (only such families are given the housing loan), and general healthcare and discipline for women etc. In poor countries and poor families, women empowerment is the best way of providing nutrition for the children and education for the children. More of Grameen member's children go to school than the national average in Bangladesh. That generation is more likely to come out of property, faster.

All these benefits will not be available if, as Mukherjee says, countries take a relook at their "contract laws" and banks start lending only to individuals. Most western writers do not understand poverty, or ways of resolving poverty. They think if laws are framed whereby "contracts are respected" and "creditor rights" are firmly established.

The trouble is in looking at micro credit as purely businesses run by cold individuals. Yunus and a few others have to sell micro credit as "sustainable business" because otherwise, the scheme will be dismissed as dole by investors and lenders. Micro credit is a sustainable business, but it can be made a sustainable business only by organizations which are sympathetic to the poor and work towards uplifting the poor. After all, the poor are their customers, and in case of Grameen, the poor are also 94% shareholders of the company.

Asian countries have to work towards improving the laws and law enforcement. But that will not solve the problem of poor people. Micro credit and responsible social organizations that offer micro credit can at least go far in achieving poverty eradication and wealth creation amongst the currently poor.

Muhammad Yunus does not seem to be proposing anything against Adam Smith. He seems to have simply enhanced the theory to conditions prevalent in his country. Others can take the same model and tweak it to their needs.

A counterpoint from Walden Bello

2006-10-18T22:27:00.000+05:30

Everyone is praising micro credit. Muhammad Yunus is the hero. Surely there must be dissenters? Walden Bello, whose blurb says "Professor of Sociology at the University of the Philippines and executive director of Focus on the Global South, Walden Bello was the recipient of the Right Livelihood Award -- also known as the Alternative Nobel Prize -- in 2003", dissents, but carefully and without openly trashing Yunus here. A friend forwarded this as email, and I replied to him disagreeing with Bello's views. The crux of Bello's argument is

In other words, microcredit is a great tool as a survival strategy, but it is not the key to development, which involves not only massive capital-intensive, state-directed investments to build industries but also an assault on the structures of inequality such as concentrated land ownership that systematically deprive the poor of resources to escape
poverty. Microcredit schemes end up coexisting with these entrenched structures, serving as a safety net for people excluded and marginalized by them, but not transforming them.

Good that Bello does not call microcredit as bourgoise invention created by counter-revolutionaries to keep the poor as poor, but opiated poor so that they don't storm the ramparts of rich and powerful.

"Massive capital-intensive, state-directed investments to build industries" will solve the problems of the poor? Did he mean "industries" or basic infrastructure? There is no doubt that in most developing countries, only the state has the ability to build massive infrastructure. They are expected to do that. But "industries"? Like bread making and soap making industries? Steel making behemoths? Telecom monoliths? This is simple, extreme left wing lunacy.

Bello thinks China has solved the problem of poor, better. However China thinks it has not solved its problem yet, and certainly not going to solve them by building big industries. Instead, it thinks it needs to do the following (from Xinhua, but also quoted widely in various news sources in the last few days):

Equal opportunity of education should be guaranteed. The government should invest more in education and ensure equal distribution of the limited educational resources.
The public service function of the government should be enhanced. The government should provide more public services and goods.
The construction of social security system should be speeded up.

One can't fault China's reasoning. Only Bello's.

India may create legislation to start microcredit banks

2006-10-18T22:08:00.000+05:30

Muhammad Yunus says he has talked to the Indian Prime Minister Manmohan Singh and the result may be that India may enact a legislation allowing creation of microcredit banks and a regulatory body that can regulate this sector.

He said if necessary India would have to create an independent regulatory body to monitor the micro-finance sector and "it will also perhaps bring in legislation for formation of a microcredit bank."

As of now, a microcredit organization can at best create a Non-banking Finance Corporation (called NBFC). The legislation governing banks are very different and benefits available to banks are not available for NBFCs. In fact, around the world, there aren't many that are in micro finance and notified as a bank. Grameen Bank in Bangladesh and a Chicago based small bank are probably the only ones, if I am not mistaken.

We must thank Muhammad Yunus for bringing this rather simple idea to Manmohan Singh's notice. One would have thought an accomplished economist such as Singh would have realised this all by himself by now.

There are laws passed in Indian Parliament in a hurry when it comes to saving their seats by the Indian lawmakers ("The Office of Profit bill") but they won't normally press the pedal on for things like micro credit. But since this is the Nobel year of micro credit, we may still see a draft bill presented over the next 12 months or so, and if we are lucky, the bill may get passed over the next three years or so. That is, if someone in RBI does not come up with strong opposition to such a move.

As to EU type economic union in SAARC countries, we are far away from it. Sri Lanka has a crumbling economy, Pakistan does not have a robust economy and a common market may not necessarly offer much to Nepal or Bangladesh in the medium term. First step will have to be heightened bilateral trade relationship and preferred investment opportunities within member countries.