Best of the Microfinance Blog 2010

It’s inevitable that a review of the year would highlight the dramatic turn of events in the Indian state of Andhra Pradesh, as well as other fundamental issues about the provision of financial services for the poor that emerged in such stark light in 2010.

Early in the year CGAP released new research that raised concerns about the pace of growth in some markets and the degree to which that could strain MFI systems. By the end of the year, the unfortunate turn of events in South Asia took center stage.

In between, we saw the breathtaking SKS IPO, and much debate about different approaches to delivering services, high interest rates, and the various facets of commercial microfinance.

It wasn’t all controversial or bad news. Financial Access 2010 showed that access to financial services had continued to grow in 2009, despite the financial crisis. The G20 took up the cause of financial inclusion, and in June endorsed “Nine Principles for Innovative Financial Inclusion” at the Toronto Summit. And the Basel Committee–the Vatican of global banking– issued its first guidance on microfinance in August. All signs of progress.

Here is a quick recap from 2010′s most popular and most discussed posts. We hope the CGAP Microfinance Blog provided some context, and perspectives that went beyond what you were hearing in the news. The issues raised last year remain imminent, and the conversation flows into 2011. As new issues emerge, we hope the CGAP Microfinance Blog will continue to offer new ideas, data, and informed opinion, and we hope you’ll offer your views by commenting on the issues at hand.

  • The Perils of Uncontrolled Growth by Xavier Reille – “The Morocco microfinance sector wasn’t a casualty of the global financial crisis: this was primarily a crisis of the MFIs themselves.”
  • How to Tell Good MFIs from Bad MFIs by Richard Rosenberg – Rich points out how there is no black and white formula to separate the two.
  • Perplexed about Over-indebtedness, part 2 by Richard Rosenberg – “What do we mean when we use that term? This question, like most others about over-indebtedness, gets annoyingly complicated.”
  • The Next Decade of Microfinance by Alexia Latortue – “Advancing financial access isn’t just about expanding access from a sheer numbers perspective—though that’s critical—it’s also about the quality of that access.”
  • 6 Questions for SKS by Stephen Rasmussen – The post kicked off the blog series on SKS, shortly after the largest MFI in India launched its IPO. Steve asks whether SKS will be passing on the gains from the capital markets to their millions of clients in India.
  • Is SKS any Different from Wal-Mart and does it matter if it isn’t? By Malcolm Harper – “Now microfinance is a mainstream business, it’s been “Wal-Martised,” whether we like it or not, Compartamos and now SKS have shown the way, and soon many more will follow. The clock cannot be put back.”
  • Who’s the Culprit? Accessing Finance in Andhra Pradesh by Justin Oliver – The Andhra Pradesh crisis has been a critical turning point for microfinance in India and the globe. Justin’s post, which kicked off the series on this topic, was the most read and most discussed post of the year.
  • Crisis by Invitation by N.Srinivasan – “More than 15 years of hard work has gone into the (microfinance) sector. For the mindless actions of a few with a profit motive, a large number of customers are set to lose linkages to institutions that had helped them over the years.”
  • Andhra Pradesh Crisis or Opportunity by Parmesh Shah – The post argues for creating a pro-poor ecosystem which includes a diverse range of financial products and services that meet needs related to health, food, education, and livelihoods.
  • Will the Indian SHG Movement Withstand the Competition offered by MFIs? By CS Reddy – Reddy’s post offers an analysis of why the SHG movement is such a critical way to include the poorest people in India.

Which did you like the best?


06 September 2012 Submitted by Dr V.Rengarajan (not verified)

Dear Jeanette Thomas & Shweta Banerjee
Let me first thank CGAP and both of you for the invitation for critical opinion on the special MF blog series on MF crisis in AP and other issues about the provision of financial services for the poor under microfinance platform. This kind of transparent participation with the freedom of expression views on the globally recognized subject – Microfinance for poverty reduction, has immensely facilitated the readers like me, for widening the horizon of knowledge on the subject and motivated for critical thinking and sharing my experience based opinions for the cause of wellbeing of the poor
As desired, for selecting the ‘best paper’ I like, I made an over view on the contents of the papers and the various comments on them as well in MF field and presented below the rationale for selecting the best paper. These observations on the papers is certainly neither an evaluation and nor any sort of valuation or assessment on these papers. The authors of all papers are right on the issues discussed from their perspectives.
Regarding the ten postings referred to above .I feel that most of them delve on institutional issues from supply side for the said mission goal of Micro finance – poverty reduction. Further, these issues are narrowly confined to micro credit alone being one of the MF services Although it is required, they are all well known factors. Further, these factors that led to all these sordid events happened in AP, have all been forewarned through various forums and media. However all these warning signals remain neglected despite the presence of experts/advisors/regulators in the field . This is irony. It is after all ‘a crisis by invitation’, as aptly remarked by N.Srinivasan. But again .obviously known fact is that mere credit service from supply side is inadequate for achieving the MF mission goal- poverty reduction .Hence any analysis on MFI with limited variables related to credit only such as interest rate, therefore remains partial I feel.. Rich postings also belong to this kind. In the context of said mission of Micro finance being poverty reduction, commercialization of micro credit like WalMortization as pointed by M.Harper is irrational as it shows the way for the growth of the institution only but certainly not for upliftment of the poor clients of MF. The main purpose of MF is lost. It would further aggravate the phenomenon like drop out/push out /mortality of group/defunct group involving cost, being witnessed in Indian MF-SHG system in the demand side. It is unfortunate to note that none of the postings in the special blog series, covered this vital fact which is threatening the existence of SHG system being the very base for MFIs causing exclusion of vulnerable poor clients. ;Why this vital issue has not received due attention in the institutional analysis ? However the very fact has been well brought to light at least in one of the comments on these postings.. It is true that Justin Oliver’s paper was most discussed one but the data and the analysis, made, were much questioned for making any meaningful conclusion on the subject .Stephen’s 6 questions are pertinent to the institution only however one of the response to this post has aptly raised a supplementary question in the context of mission drift on diversification of SKS’s MF products for a balanced growth with interest income from micro credit and fees & commission from Micro insurance there by ensuring both financial impact and social impact as well . Here there is a sensible way forward for the practitioners in MF arena to provide more MF services ( not micro credit only) to the vulnerable poor clients. there by considerably moving towards mission goal. In the context of mushroom growth of MFIs and massive outreach quantitatively in this sector, Alexia has rightly emphasized the quality dimension for a healthy growth of Micro finance in the next decade of micro finance in terms of development of products and services matching the needs of the poor among others. At least this paper slowly moves from the institution to the concern of the poor in demand side but establishing these ideals at grass root levels calls for ethical and moral responsibilities among the players in both supply and demand sides for eschewing multiple lending and multiple borrowing respectively.. Inculcation of ethical attitude among the players in this sector in the midst of unhealthy competition and unregulated environ remains a challenging task in the next decade.
While most of the papers have focused on the supply side covering institutional issues and micro credit service only in MF platform , it is consoling to note that there are two papers -one by Parmesh Shah and another by C.S Reddy, deserving appreciation as the authors have critically focused the attention on needs from the demand side there by directing the practitioners towards realizing the mission goal of MF. Further, both the papers delve the subject in total perspectives of Micro finance as a means for poverty reduction .without confining narrowly to micro credit and its related issues.. While the first one, on ‘AP crisis or opportunity’ ’ has rightly emphasized the need for pro poor eco system which goes beyond micro credit services covering diversification of financial services , livelihood development , livelihood services . village level credit planning, financial literacy ,debt counseling etc for effecting sustainable poverty reduction, the second one on ‘SHG movement’ has highlighted the social role of SHG and the values of its federation at grass root level and the priority for savings for them (not credit) to become self reliant in due course of time. The potential of SHG being a social capital towards sustainable poverty reduction is great if it is carefully nurtured along with the economic capital (Micro finance) From my past three decades of exposure in MF arena I feel that all these social dimensions from demand side have been ignored in the past and over dose of micro credit services with more focused attention on institutional issues although needed, has only demoralized the MF system resulting the crisis in AP.
In view of the presentation of above positive features of MF and rational direction for the future towards achievement of its mission goal I therefore consider these two papers by Parmesh Shaw and C.S.Reddy are the best I like.
The above over views on the papers provoked to draw some lessons and suggestion for making away forward which I would like to share with your permission
1. Under microfinance platform , every issue need to br deliberated in totality with reference to the goal . That is to say how all MF services (not credit alone) need to be institutionalized matching the requirements of different segment of poor in the poverty pyramid. either singly or jointly.. This calls for more research and innovation for institution building for delivering collectively all the MF services to the poor clients and such institution alone could be called MFI ( present MFI serving only credit service both to the poor and non poor act like money lenders. Without much bothering the poor clients dropped out. Are they really making any value addition in the process of poverty reduction mission leave alone suicide incidents.. They may continue to do their business as financial institution like LAB and foray into capital market but not necessarily under micro finance brand name ) Under financial inclusion mission, the recent innovative project such as business correspondence/facilitator model, mobile banking appear good in out reaching but it should not end up with mere credit servicing only
2. A sensible way forward for sustained poverty reduction through MF is accordance of priority to the most vulnerable poorest for their graduation with MF services like micro savings and micro insurance coupled with capacity building –(CGAP-Pilot project serving as role model) Similarly under MF arena transfer services facility may help a lot for the socio economic upliftment of the migrant poor in particular. I wonder why these MF services, having greater potential for poverty reduction among different segments in the poverty sector , have not received due attention of the experts/advisors in this sector
3. There is an imperative need for Credit discipline and credit planning at micro level (SHG Level) focusing more for income generation with adequately linked with micro insurance and other supporting services for a sustained poverty reduction – This calls for an integrated development planning at micro level(district/block) Without adequate potential for credit absorption capacity -a must for income generation- mere financial inclusion will not work In this context pumping money through Bank-SHG/MFI linkage to these poor segment as an annual targeted feature without adequate support facilities need rethinking. In the context of over heated household economy with debt trap consequent to the multiple lending and multiple borrowing, it is not a bad idea to declare holiday for micro credit and micro credit summit as well for at least for a year.
4. Financial inclusion should not involve financial exclusion by way of drop out phenomenon in SHG-MF system in India (43% of SHGs in India reported drop out of members ) Recognition of this syndrome and effective preventive action are urgently required on priority basis for protecting the most vulnerable and marginalized in this sector
5. Nurturing SHG more for social purpose and later federating SHGs(SHG federation ) for building self reliant institution for the poor as micro MFI based on local financial sources only at grass root level (without much dependence on external finance) would go a long way in impacting a sustainable dent in poverty canvas in the next decade .The candid Microfinance should emerge indigenously from locally financed and democratically formed at grass root level institutions like SHG/Federation from the below and not necessarily from capital market in the top
6. Thank you once again for the opportunity to share my views on the subject and learn further.

06 September 2012 Submitted by Content Admin (not verified)

Dear Rengarajan,
We really appreciate your detailed feedback and your enthusiastic presence on the blog as a reader and participant. Looking forward to hearing more from you on the blog in 2011.
Jeanette and Shweta

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