Well, this concludes my blog about Women's Empowerment and Microfinance. I wasn't able to impart as much information as I'd hoped, but I hope I was able to shed some light on how microfinance works!
Thanks for tuning in...until the next adventure!
Wednesday, August 26, 2009
Tuesday, August 18, 2009
The Self Help Group Model
During our visit to Indian NGOs we've been exposed to different models of delivering microfinance as a way to facilitate women's empowerment. At Chaitanya and Development Support Team (DST) they use the Self Help Group (SHG) model. In this post I want to tell you about SHGs and why it works.
The groups comprise of 10-20 women who decide they want to take part in the program. The groups are economically homogeneous which means all the women know each other, live in the same area and have the same economic and social standing. The whole SHG concept rests on two important factors that make the SHG model successful: mutual trust and peer pressure.
In the beginning, NGOs go into communities to recruit members of the SHGs. It can be a slow and tedious process because women are hesitant at first. The NGOs we've visited are well established and the SHG program has spread like wildfire. Now when informational meetings are held, 100 women show up.
NGOs support the SHGs with training in financial literacy, accounting and the principles of credit. However, the groups are governed by the women themselves. Financial transactions, rules, loan approvals, disbursements, collections and delinquency measures are all decided upon and carried out by the group.
For the first six months, members of a newly-formed SHG save a predetermined amount every month. The amount is consistent with the economic capabilities of the members, anywhere from 20-50 Rupees/month (50 cents - 1 dollar). Each woman has a personal passbook in which her savings are recorded. After the six month period, the SHG group is linked to a bank by opening an account in the group's name and the members of the group may begin to borrow from their joint account.
The bank linkage is an integral part of the process and I think is one of the strengths of SHGs in the Indian context. Indian banks have nationally recognized the SHG movement and allow SHGs to register for bank accounts under special circumstances such as lower required amounts to open the accounts. Indian banks have even gone so far as to publish a manual teaching women how to form an SHG and open a bank account. The use of existing institutions speaks to the sustainability and effectiveness of the SHG model. The NGOs are not inventing their own banks or creating new institutions - they are teaching people to use existing services. I like to judge a development effort by thinking about whether it can sustain itself and exist if the NGO were to disappear. In this case, the answer is yes. If DST were to suddenly implode or cease to exist, the SHGs and microcredit will still exist because the women are completely in control of the process (the women admitted they have set up informal SHG groups of 80 members to increase their credit capacity and loan sizes!). They are not reliant upon the NGOs, they are reliant upon themselves and have the skills and knowledge to continue the SHGs. From a bank's perspective, banks are gaining access to thousands of customers and capital which will undoubtedly mature over time.
50% of the women in DST's SHGs are only savers - they have not taken loans from the group. This demonstrates that women are not only economically empowered by microloans, but they need a safe place to save their money. Even if these women had wanted to save money every now and then, there was no where to put the cash. Under the mattress? In a special jar in the kitchen? Even if the women were able to open a bank account with such a small amount, most women have never been to a bank nor know how to open an account. Most women are illiterate and when it comes to the rural poor - there are no banks for miles around. Access to financial institutions and services was not an option.
For many of the women, making the decision to save without the help or hindrance of their husbands is the first piece of the empowerment process. Making a decision to be part of the group and committing to a save allows the women to make decision in a new domain - the financial domain. Many women have said, "before the SHG I only knew two things: cooking and my children. Now I know about finance and education and many other things." Perhaps most importantly, being part of the group gives the women a new identity. Now they can say, "I am a member of ___ SHG" Previously, women were isolated to their households doing the chores, cooking, cleaning, caring for children...now they have a reason to get out of the house, meet other women and be social.
After 6 months, members of the SHGs are able to apply for loans from their collective savings. With the exception of the interest rates (fixed at 2% per month), everything is decided upon by the group. Loan approval, loan rejection, terms, collection, installments - all of it is collectively discussed and agreed upon by consensus in the monthly SHG meetings. I'll be honest, when I first heard of this model I could see many opportunities for exploitation and I was wary about the group dynamics and the negative influence of peer pressure as they regulated each other.
However, as I've interviewed the women and seen the SHGs in action, I can see it is the underlying cultural context that has allowed this model to flourish in India in a way that would not be possible in the individualistic culture of the US. The women in these groups live in the same slum or rural area. Nothing about their lives is secret and privacy is rare. If someone takes a loan to buy a sewing machine and they use the money for something else - everyone knows! Because of the nature of the group, the women in the SHG are engaging in an informal credit analysis of each person who requests a loan. If she wants a loan to start a vegetable stand, is it likely she will be successful with 6 other vegetable stands in the same area? Has that women been a consistent saver? Are there other loans that should take priority over hers? In the group discussions that accompany a loan request, the women are able to weigh the pros and cons of the loan and decide whether to grant the loan.
If she is granted the loan, the repayment schedule, installments and interest are all calculated by the group and to the next meeting the woman brings 1) the compulsory savings, 2) the first installment of her loan repayment and 3) the interest owed on the loan.
The interest and savings are what allows the capital of the group to grow, and over time the group is able to give larger loans to meet the credit needs. The interest is essentially the profit gained and there are various examples of ways the women choose to use or distribute the rewards to the group members. One group decided that every five years, they would withdraw all of the interest paid and distribute it evenly among each member. Another group who has been together for eleven years uses the interest every five years to treat themselves and their husbands to a mini-vacation. Other groups just continue to accumulate the interest to increase the lending capital of their groups.
Regardless of how it's spent, the interest allows groups to be self-sustaining and shows the women how money invested can grow over time. As groups become more mature they have the capacity to cover their own administrative costs through efficiency and awareness of their financial performance. DST teaches their groups to calculate basic financial ratios and performance indicators such as repayment rates on both the individual and group level. DST now expects new SHG groups to be self-sustaining within three years.
The SHGs have really taken to the idea of financial performance in their groups and the women take great pride in their repayment rates. DST branch offices display the performance of each SHG and at annual meetings high performing SHGs are congratulated. Every member in the mature groups are aware of their financial performance and how it affects the ability of the group to loan money and collect interest.
The SHG model works because the women own the group and are personally invested in the outcomes. If a woman fails to repay the loan as scheduled, the groups usually follow these steps:
1) First, the members of the SHG will talk to her at the SHG meeting.
2) Then, the members will visit her house to exert their peer pressure.
3) As a last resort, the SHG leaders or DST staff will visit her to confiscate something from her home to hold as hostage until she repays the loan.
It rarely progresses to step three - in the thousands of women who are served by these three NGOs, there was only 1 case where goods were confiscated. Interestingly enough, that person was Avida, whose story I told to you earlier. She defaulted on a loan and after her motorcycle was confiscated she resumed payment on the loan (and quickly regained possession of her motorcycle). Since that misstep she has never defaulted on a payment.
Both the NGO staff and the women say that it rarely reaches the third level because peer pressure is enough to spur repayment. There have been cases, however, where loan payments or schedules had to be restructured due to accidents or illnesses. Because of the peer pressure and group consensus decision making, loans are never given to someone who just simply won't pay. The system is set up to mitigate the risks of lending to risky borrowers because all of the members are personally invested and participate in the loan approval process. They will not risk giving their own money to someone who may not be able to repay it. The checks and balances are built in.
The culture of dialogue and lack of privacy also lends itself to this effective group dynamic. What we Westerners regard as 'private' or 'off-limits' topics such as household income is all discussed in the SHG meetings. Everyone knows how much she makes at her vegetable stands, how much debt she carriers, how many children she has, whether her husband works, how much he makes, whether he beats her... Everyone knows! And therefore the group makes a well-informed decision based on factors a loan officer could never hope to capture in a loan application.
Why do SHGs focus on women? Women that have access to credit invest it in their families and households. Men in these communities do work, but they use the money they earn for their own entertainment. When women need something for the household or need to take care of a sick child, they have no resources to do so. With the SHG capital, women are lifting up their entire family: educating their sons and daughters, investing in their households and healthcare. This is why women are the target for microfinance. Because of their traditional roles of taking care of the households and children, when given credit, they invest it in those areas, making a difference for future generations.
As a result of new economic power, men develop a new respect for their wives. One may speculate there is a potential for men to get jealous or resist the participation of their wives in SHGs. One NGO worker put it perfectly: the women are not challenging the traditional male domains by joining the SHGs, they are creating a domain or space for themselves. Once men recognize the benefit that it brings to their families, it becomes a win-win situation for all involved.
The women are granted the 'approval' needed from their husbands to attend the meetings because it benefits the family economically, but what they take from the group is confidence and social capital. When you get a group of women together they talk. They talk about their own lives, the lives of others, and they talk about issues they are having. The SHGs are a forum where they can voice their opinions and solve problems in the community and at home. Savings and credit is the tool that brings the women together but creating social support structures is the end outcome. I have heard countless stories of SHGs that decide to take up a cause in their community. As a group, the women:
- marched against the state minister of sanitation and demanded regular garbage pick up in their slum.
- reported a rape case against one of their daughters...the man was sentenced to 4 years in prison.
- went to the house of a man who was beating his wife, and they beat him with their flip flops and publicly shamed him. He hasn't laid a finger on her since then.
Women as individuals in India's patriarchal society do not have the power to express their opinions or even report a crime - but 20 women banded together are a strong, unified voice and an unstoppable force.
The groups comprise of 10-20 women who decide they want to take part in the program. The groups are economically homogeneous which means all the women know each other, live in the same area and have the same economic and social standing. The whole SHG concept rests on two important factors that make the SHG model successful: mutual trust and peer pressure.
In the beginning, NGOs go into communities to recruit members of the SHGs. It can be a slow and tedious process because women are hesitant at first. The NGOs we've visited are well established and the SHG program has spread like wildfire. Now when informational meetings are held, 100 women show up.
NGOs support the SHGs with training in financial literacy, accounting and the principles of credit. However, the groups are governed by the women themselves. Financial transactions, rules, loan approvals, disbursements, collections and delinquency measures are all decided upon and carried out by the group.
For the first six months, members of a newly-formed SHG save a predetermined amount every month. The amount is consistent with the economic capabilities of the members, anywhere from 20-50 Rupees/month (50 cents - 1 dollar). Each woman has a personal passbook in which her savings are recorded. After the six month period, the SHG group is linked to a bank by opening an account in the group's name and the members of the group may begin to borrow from their joint account.
The bank linkage is an integral part of the process and I think is one of the strengths of SHGs in the Indian context. Indian banks have nationally recognized the SHG movement and allow SHGs to register for bank accounts under special circumstances such as lower required amounts to open the accounts. Indian banks have even gone so far as to publish a manual teaching women how to form an SHG and open a bank account. The use of existing institutions speaks to the sustainability and effectiveness of the SHG model. The NGOs are not inventing their own banks or creating new institutions - they are teaching people to use existing services. I like to judge a development effort by thinking about whether it can sustain itself and exist if the NGO were to disappear. In this case, the answer is yes. If DST were to suddenly implode or cease to exist, the SHGs and microcredit will still exist because the women are completely in control of the process (the women admitted they have set up informal SHG groups of 80 members to increase their credit capacity and loan sizes!). They are not reliant upon the NGOs, they are reliant upon themselves and have the skills and knowledge to continue the SHGs. From a bank's perspective, banks are gaining access to thousands of customers and capital which will undoubtedly mature over time.
50% of the women in DST's SHGs are only savers - they have not taken loans from the group. This demonstrates that women are not only economically empowered by microloans, but they need a safe place to save their money. Even if these women had wanted to save money every now and then, there was no where to put the cash. Under the mattress? In a special jar in the kitchen? Even if the women were able to open a bank account with such a small amount, most women have never been to a bank nor know how to open an account. Most women are illiterate and when it comes to the rural poor - there are no banks for miles around. Access to financial institutions and services was not an option.
For many of the women, making the decision to save without the help or hindrance of their husbands is the first piece of the empowerment process. Making a decision to be part of the group and committing to a save allows the women to make decision in a new domain - the financial domain. Many women have said, "before the SHG I only knew two things: cooking and my children. Now I know about finance and education and many other things." Perhaps most importantly, being part of the group gives the women a new identity. Now they can say, "I am a member of ___ SHG" Previously, women were isolated to their households doing the chores, cooking, cleaning, caring for children...now they have a reason to get out of the house, meet other women and be social.
After 6 months, members of the SHGs are able to apply for loans from their collective savings. With the exception of the interest rates (fixed at 2% per month), everything is decided upon by the group. Loan approval, loan rejection, terms, collection, installments - all of it is collectively discussed and agreed upon by consensus in the monthly SHG meetings. I'll be honest, when I first heard of this model I could see many opportunities for exploitation and I was wary about the group dynamics and the negative influence of peer pressure as they regulated each other.
However, as I've interviewed the women and seen the SHGs in action, I can see it is the underlying cultural context that has allowed this model to flourish in India in a way that would not be possible in the individualistic culture of the US. The women in these groups live in the same slum or rural area. Nothing about their lives is secret and privacy is rare. If someone takes a loan to buy a sewing machine and they use the money for something else - everyone knows! Because of the nature of the group, the women in the SHG are engaging in an informal credit analysis of each person who requests a loan. If she wants a loan to start a vegetable stand, is it likely she will be successful with 6 other vegetable stands in the same area? Has that women been a consistent saver? Are there other loans that should take priority over hers? In the group discussions that accompany a loan request, the women are able to weigh the pros and cons of the loan and decide whether to grant the loan.
If she is granted the loan, the repayment schedule, installments and interest are all calculated by the group and to the next meeting the woman brings 1) the compulsory savings, 2) the first installment of her loan repayment and 3) the interest owed on the loan.
The interest and savings are what allows the capital of the group to grow, and over time the group is able to give larger loans to meet the credit needs. The interest is essentially the profit gained and there are various examples of ways the women choose to use or distribute the rewards to the group members. One group decided that every five years, they would withdraw all of the interest paid and distribute it evenly among each member. Another group who has been together for eleven years uses the interest every five years to treat themselves and their husbands to a mini-vacation. Other groups just continue to accumulate the interest to increase the lending capital of their groups.
Regardless of how it's spent, the interest allows groups to be self-sustaining and shows the women how money invested can grow over time. As groups become more mature they have the capacity to cover their own administrative costs through efficiency and awareness of their financial performance. DST teaches their groups to calculate basic financial ratios and performance indicators such as repayment rates on both the individual and group level. DST now expects new SHG groups to be self-sustaining within three years.
The SHGs have really taken to the idea of financial performance in their groups and the women take great pride in their repayment rates. DST branch offices display the performance of each SHG and at annual meetings high performing SHGs are congratulated. Every member in the mature groups are aware of their financial performance and how it affects the ability of the group to loan money and collect interest.
The SHG model works because the women own the group and are personally invested in the outcomes. If a woman fails to repay the loan as scheduled, the groups usually follow these steps:
1) First, the members of the SHG will talk to her at the SHG meeting.
2) Then, the members will visit her house to exert their peer pressure.
3) As a last resort, the SHG leaders or DST staff will visit her to confiscate something from her home to hold as hostage until she repays the loan.
It rarely progresses to step three - in the thousands of women who are served by these three NGOs, there was only 1 case where goods were confiscated. Interestingly enough, that person was Avida, whose story I told to you earlier. She defaulted on a loan and after her motorcycle was confiscated she resumed payment on the loan (and quickly regained possession of her motorcycle). Since that misstep she has never defaulted on a payment.
Both the NGO staff and the women say that it rarely reaches the third level because peer pressure is enough to spur repayment. There have been cases, however, where loan payments or schedules had to be restructured due to accidents or illnesses. Because of the peer pressure and group consensus decision making, loans are never given to someone who just simply won't pay. The system is set up to mitigate the risks of lending to risky borrowers because all of the members are personally invested and participate in the loan approval process. They will not risk giving their own money to someone who may not be able to repay it. The checks and balances are built in.
The culture of dialogue and lack of privacy also lends itself to this effective group dynamic. What we Westerners regard as 'private' or 'off-limits' topics such as household income is all discussed in the SHG meetings. Everyone knows how much she makes at her vegetable stands, how much debt she carriers, how many children she has, whether her husband works, how much he makes, whether he beats her... Everyone knows! And therefore the group makes a well-informed decision based on factors a loan officer could never hope to capture in a loan application.
Why do SHGs focus on women? Women that have access to credit invest it in their families and households. Men in these communities do work, but they use the money they earn for their own entertainment. When women need something for the household or need to take care of a sick child, they have no resources to do so. With the SHG capital, women are lifting up their entire family: educating their sons and daughters, investing in their households and healthcare. This is why women are the target for microfinance. Because of their traditional roles of taking care of the households and children, when given credit, they invest it in those areas, making a difference for future generations.
As a result of new economic power, men develop a new respect for their wives. One may speculate there is a potential for men to get jealous or resist the participation of their wives in SHGs. One NGO worker put it perfectly: the women are not challenging the traditional male domains by joining the SHGs, they are creating a domain or space for themselves. Once men recognize the benefit that it brings to their families, it becomes a win-win situation for all involved.
The women are granted the 'approval' needed from their husbands to attend the meetings because it benefits the family economically, but what they take from the group is confidence and social capital. When you get a group of women together they talk. They talk about their own lives, the lives of others, and they talk about issues they are having. The SHGs are a forum where they can voice their opinions and solve problems in the community and at home. Savings and credit is the tool that brings the women together but creating social support structures is the end outcome. I have heard countless stories of SHGs that decide to take up a cause in their community. As a group, the women:
- marched against the state minister of sanitation and demanded regular garbage pick up in their slum.
- reported a rape case against one of their daughters...the man was sentenced to 4 years in prison.
- went to the house of a man who was beating his wife, and they beat him with their flip flops and publicly shamed him. He hasn't laid a finger on her since then.
Women as individuals in India's patriarchal society do not have the power to express their opinions or even report a crime - but 20 women banded together are a strong, unified voice and an unstoppable force.
Saturday, August 15, 2009
Swine Flu!
The last few days have been a bit frustrating because a lot of our plans have been canceled due to Swine Flu. Just before we came to Pune there were a few cases of it and now Pune has been declared the 'epi center' of swine flu in India!
Not to worry, though. We are all safe and are being well taken care of.
August 15th was independence day and August 14th was the Krishna Festival...due to swine flu in this state, all the celebrations were canceled. Malls, movie theaters, restaurants and internet cafes are all closed (except of course the one I'm sitting at right now...). We're all going a little stir-crazy in our hotel rooms, but luckily we are still on track to do the last two NGO visits of our trip.
For Independence Day we were supposed to go to a village and participate in the festivities, but because of the danger of large gatherings and the stigma of foreigners bringing swine flu into the country, our in-country coordinator decided it wouldn't be wise if we imposed on the village. Yes, it's true that people are scared of us! Apparently the first case came from a guy who had been in the US, so when we pass people they bring their masks up to their faces just in case. It's not so bad in the city of Pune, but a few days ago in the rural area people were really cautious of us.
Instead of going to the village we went to a lake in the countryside and an Aryuvedic Health Center! It was so awesome, we ate a delicious lunch looking over an amazing view of the lake and valley below and then got a hot oil full body massage. Let me tell you, they weren't lying when they say 'full body' massage! There were a few times I couldn't keep from giggling because it was so awkward.
Overall it was a good day, but the swine flu thing still lingers in the background...until the 18th of August we're supposed to lay low. This is the first internet I've had in a few days...who knows when the next one will be. Take care!
Not to worry, though. We are all safe and are being well taken care of.
August 15th was independence day and August 14th was the Krishna Festival...due to swine flu in this state, all the celebrations were canceled. Malls, movie theaters, restaurants and internet cafes are all closed (except of course the one I'm sitting at right now...). We're all going a little stir-crazy in our hotel rooms, but luckily we are still on track to do the last two NGO visits of our trip.
For Independence Day we were supposed to go to a village and participate in the festivities, but because of the danger of large gatherings and the stigma of foreigners bringing swine flu into the country, our in-country coordinator decided it wouldn't be wise if we imposed on the village. Yes, it's true that people are scared of us! Apparently the first case came from a guy who had been in the US, so when we pass people they bring their masks up to their faces just in case. It's not so bad in the city of Pune, but a few days ago in the rural area people were really cautious of us.
Instead of going to the village we went to a lake in the countryside and an Aryuvedic Health Center! It was so awesome, we ate a delicious lunch looking over an amazing view of the lake and valley below and then got a hot oil full body massage. Let me tell you, they weren't lying when they say 'full body' massage! There were a few times I couldn't keep from giggling because it was so awkward.
Overall it was a good day, but the swine flu thing still lingers in the background...until the 18th of August we're supposed to lay low. This is the first internet I've had in a few days...who knows when the next one will be. Take care!
Monday, August 10, 2009
What about the banks?
"As for microfinance, I have a question. As microfinance becomes more recognized as a profitable tool, are larger international banks becoming attracted to the field? I know the IMF and World Bank have become more involved in it. As these larger, establishment type entities move into the field, are they putting the squeeze on the smaller NGOs, charging lower interest for larger loans and such? My biggest worry is that the bigger banks will take over the field and the philanthropic part of microfinance will be lost. I just don't see Bank of America giving a crap about empowering people but they have big money muscle."
Thanks, Joe, for giving me a perfect segue into a fascinating topic! This is the one of the main issues these NGOs are dealing with right now and as microfinance continues to prove its sustainability and profitability this issue is at the forefront of everyone's minds! This topic has come up at every NGO we have visited and here's what I've gathered and understand.
First, I want to give a bit of background. Indian Banks have a quota they need to fill to lend to those who may not be considered traditionally "credit worthy." At the end of the fiscal year when they realize the need to meet this quota they send a few representatives out onto the streets, identify a few people, give them loans, and then write it off as bad debts to close the fiscal year. In this way they 'meet' their quotas and unfortunately propogate the notion that the poor are not credit worthy. This story was related by the founder of one of the NGOs we visited, Annapurna. The founder, Medha Samant, worked in the banking sector for three years before starting Annapurna.
So far we've spent time at three NGOs and all three cite the huge gap between the supply and demand for finacial services. As I said before, moneylenders were occupying the space in the market for poor people to get loans. Then, the NGOs came in and began promoting microfinance alongside a series of social programs. Now, microfinance is gaining international attention from investors and corporate banks alike as a way to make a profit.
The problem is that the demand for financial services is so high, that the NGOs who have the right intentions are not able to serve everyone. This leaves the door open for other microfinance insitutions (MFIs) to come in and compete for the business. For-profit MFIs are able to give loans with a one-day turn around with lower interest rates. They are able to give lower interest rates because the loan periods are longer - the maximum loan repayment period we have seen at these NGOs is 2 years. Many Indian NGO microfianance models are based on a Self Help Group model (SHG) that require savings for the first 6 months. When members want to apply for a loan they apply to the group and the entire process may take a couple of weeks, depending on how often the groups meet. (I will write an entry describing the SHG model in detail...). The point is, if people really need money and they can get it the next day, why not use the for-profit MFI?
Members of mature SHGs that have been around for 5-10 years understand the value of the SHG and the benefits they receive from being a part of the group. However, there is nothing to stop members of even mature SHG groups to take a loan from a for-profit MFI during times when they need quick cash, or don't want to go through the group model. The for-profit MFIs are threatening the effectivness and structures of the SHGs and may hinder the ability of NGOs to spread their socially empowering model of microfinance.
Many people I've talked to point out that the for-profit model just doesn't make sense from a business standpoint. The for-profit model focused only on lending neglects the other 'needs' of their customers and does not encourage growth in their customer base and is not a sustainable business model. In fact, there is a shift in NGOs towards evaluating microfinance from social performance perspective in addition to a financial perspective.
The main concern NGOs have about for-profit MFIs is that they are in the market to gain profits, which sets up exploitative models for their clients. The NGO models must be efficient, effective and even self-sustaining, but they are operating with a completely different mission: to better the lives of their clients. I have not visited a for-profit MFI and to be sure, they most likely do not begin under the pretense of exploiting people. But I would argue that regardless of your intentions, if your goal is profit and you are accountable to shareholders who are expecting returns on their investment then this will be reflected in the way business is conducted. The NGOs do recognize these MFIs are providing a service that they are not able to provide, and that indeed they are expanding the scope and reach of credit, but at what cost?
Which brings us to the next part of Joe's question...
"And how are the NGOs funded? Are they more or less sustained by the interest paid on the loans?"
This differs between all of the NGOs we've visited. There are two basic philosophies I've encountered:
1) Sustainable microfinance programs after 3 years.
NGOs are now requiring the Federations (groups of SHGs) to be completely self-sustaining by the end of three years. They recognize that costs of the initial set up, support and development of these groups cannot be burdened on the people. The NGO use funds raised through grants and other international programs to support those groups while they are forming and becoming self sustaining.
DST recently realized the need for groups to be sustainable and now have the SHGs calculate repayment rates of their groups, the individuals and the federations. The women are very cognicent of these financial ratios and concepts and strive to achieve 100% repayment through peer pressure and mutual trust. (Two reasons why the SHG model is so brilliant...will explain in another post).
2) Profits not only sustain the microfinance program, but also fund the growth and development of new projects.
At Annapurna, where the founder comes from a private-sector banking background, they use the profits from the microfinance programs not only to sustain their operations, but also to expand other social programs. I sensed that other NGOs founders do not support this type of expansion funded by profits - they would rather the profits go to the women, or go towards lower interest rates for their loans.
At this point in time, NGOs are being approached by investors and they are having some real internal debates on how to handle this. Of course in an NGO capacity, funding is always an issue, but many are wary of compromising their mission. The only one currently exploring the issue of outside private investors is Annapurna.
Whew! Congratluations if you made it through this very lengthy explanation! This is a very real and complex issue and something the microfinance community is going through. All of my opinions are based on what I've learned here...I'm sure there are more scholarly articles about this topic if you're interested.
Also, there probably won't be any more pictures added to this blog, I'm having some issues with the technology. So sorry!
Thanks, Joe, for giving me a perfect segue into a fascinating topic! This is the one of the main issues these NGOs are dealing with right now and as microfinance continues to prove its sustainability and profitability this issue is at the forefront of everyone's minds! This topic has come up at every NGO we have visited and here's what I've gathered and understand.
First, I want to give a bit of background. Indian Banks have a quota they need to fill to lend to those who may not be considered traditionally "credit worthy." At the end of the fiscal year when they realize the need to meet this quota they send a few representatives out onto the streets, identify a few people, give them loans, and then write it off as bad debts to close the fiscal year. In this way they 'meet' their quotas and unfortunately propogate the notion that the poor are not credit worthy. This story was related by the founder of one of the NGOs we visited, Annapurna. The founder, Medha Samant, worked in the banking sector for three years before starting Annapurna.
So far we've spent time at three NGOs and all three cite the huge gap between the supply and demand for finacial services. As I said before, moneylenders were occupying the space in the market for poor people to get loans. Then, the NGOs came in and began promoting microfinance alongside a series of social programs. Now, microfinance is gaining international attention from investors and corporate banks alike as a way to make a profit.
The problem is that the demand for financial services is so high, that the NGOs who have the right intentions are not able to serve everyone. This leaves the door open for other microfinance insitutions (MFIs) to come in and compete for the business. For-profit MFIs are able to give loans with a one-day turn around with lower interest rates. They are able to give lower interest rates because the loan periods are longer - the maximum loan repayment period we have seen at these NGOs is 2 years. Many Indian NGO microfianance models are based on a Self Help Group model (SHG) that require savings for the first 6 months. When members want to apply for a loan they apply to the group and the entire process may take a couple of weeks, depending on how often the groups meet. (I will write an entry describing the SHG model in detail...). The point is, if people really need money and they can get it the next day, why not use the for-profit MFI?
Members of mature SHGs that have been around for 5-10 years understand the value of the SHG and the benefits they receive from being a part of the group. However, there is nothing to stop members of even mature SHG groups to take a loan from a for-profit MFI during times when they need quick cash, or don't want to go through the group model. The for-profit MFIs are threatening the effectivness and structures of the SHGs and may hinder the ability of NGOs to spread their socially empowering model of microfinance.
Many people I've talked to point out that the for-profit model just doesn't make sense from a business standpoint. The for-profit model focused only on lending neglects the other 'needs' of their customers and does not encourage growth in their customer base and is not a sustainable business model. In fact, there is a shift in NGOs towards evaluating microfinance from social performance perspective in addition to a financial perspective.
The main concern NGOs have about for-profit MFIs is that they are in the market to gain profits, which sets up exploitative models for their clients. The NGO models must be efficient, effective and even self-sustaining, but they are operating with a completely different mission: to better the lives of their clients. I have not visited a for-profit MFI and to be sure, they most likely do not begin under the pretense of exploiting people. But I would argue that regardless of your intentions, if your goal is profit and you are accountable to shareholders who are expecting returns on their investment then this will be reflected in the way business is conducted. The NGOs do recognize these MFIs are providing a service that they are not able to provide, and that indeed they are expanding the scope and reach of credit, but at what cost?
Which brings us to the next part of Joe's question...
"And how are the NGOs funded? Are they more or less sustained by the interest paid on the loans?"
This differs between all of the NGOs we've visited. There are two basic philosophies I've encountered:
1) Sustainable microfinance programs after 3 years.
NGOs are now requiring the Federations (groups of SHGs) to be completely self-sustaining by the end of three years. They recognize that costs of the initial set up, support and development of these groups cannot be burdened on the people. The NGO use funds raised through grants and other international programs to support those groups while they are forming and becoming self sustaining.
DST recently realized the need for groups to be sustainable and now have the SHGs calculate repayment rates of their groups, the individuals and the federations. The women are very cognicent of these financial ratios and concepts and strive to achieve 100% repayment through peer pressure and mutual trust. (Two reasons why the SHG model is so brilliant...will explain in another post).
2) Profits not only sustain the microfinance program, but also fund the growth and development of new projects.
At Annapurna, where the founder comes from a private-sector banking background, they use the profits from the microfinance programs not only to sustain their operations, but also to expand other social programs. I sensed that other NGOs founders do not support this type of expansion funded by profits - they would rather the profits go to the women, or go towards lower interest rates for their loans.
At this point in time, NGOs are being approached by investors and they are having some real internal debates on how to handle this. Of course in an NGO capacity, funding is always an issue, but many are wary of compromising their mission. The only one currently exploring the issue of outside private investors is Annapurna.
Whew! Congratluations if you made it through this very lengthy explanation! This is a very real and complex issue and something the microfinance community is going through. All of my opinions are based on what I've learned here...I'm sure there are more scholarly articles about this topic if you're interested.
Also, there probably won't be any more pictures added to this blog, I'm having some issues with the technology. So sorry!
Saturday, August 08, 2009
Avida's Story
Access to credit is not a new concept in the urban slums in India. Women borrow money from 'money lenders' who usually charge a rate of 10-15% per month or 120% annually. These exorbitant rates not only make repayment next to impossible but creates an environment where families become more and more entrenched in debt as they borrow money to pay back old loans. Money-lenders exploit women unable to make timely payments through the use of sexual and physical violence that sometimes even extends to the family.
From an economic point of view, NGOs are creating a more efficient money-lending market. Critics of microfinance point out the high interest rates - averaging about 24% per year. However, comparing 24% to the 120% the money lenders charge, the rate is much more reasonable. And that's where the comparisons should end. True, the 24% rate would never fly in the States, and in the same vein, no one would take out a loan for just $50. What seems like an insignificant amount of money to us can really make a difference in the ability of poor people around the globe to create and sustain livelihoods.
For example, listen to the story of Avida. Married at 9 years old she had her first child at 14. Only educated through the second grade, when her husband died of a heart attack she was left along to care for her four children. Through a friend, Avida learned of microfinance and joined a Self Help Group (SHG) to gain access to savings and credit. Ten years later, Avida has taken out three separate loans to expand her business of selling bangles and tailoring saris. So far she has borrowed and repaid 50,000 Rupees (about $1,100). She is currently repaying her third loan and then plans to take another to build a second floor on her house to rent. This will provide her with a stable source of income in addition to her other businesses.
Avida attributes her success as a business woman to the network she's built through the SHG group and her perseverance and patience. She takes great pride in the quality of her work and most of her business referrals come through word of mouth. At 34 Avida already has grandsons, but she hopes to educate her two children still living at home. One day she dreams of having a shop of her very own.
After spending an afternoon in Avida's 1-room home in the Pune slums listening to her story, I was struck by her confidence and the great strength she gains from the other members of her SHG. Joining the group has given her access to credit and savings, but along the way she and the other women have created a support structure for each other. Together they have taken on sanitation issues with the municipal government, successfully reported a man of domestic violence, and organized a day of clean up to impact the overall health of the community. Women came together for a tangible thing: money, and through the process became leaders and in their community.
As I continue to write this blog and delve into the specifics of how microfinance works please keep one thing in your mind:
Microfinance is a tool used for the end goal of empowering women.
Yes, microfinance is profitable.
Yes, microfinance institutions can be self-sustaining.
...but microfinance practiced for the sake of making profits is a misguided approach.
In the next few entries I will describe a few methods of microfinance I have witnessed and how it contributes to women's empowerment.
Sorry, no pictures today! Having some technology issues... Hope all is well!
From an economic point of view, NGOs are creating a more efficient money-lending market. Critics of microfinance point out the high interest rates - averaging about 24% per year. However, comparing 24% to the 120% the money lenders charge, the rate is much more reasonable. And that's where the comparisons should end. True, the 24% rate would never fly in the States, and in the same vein, no one would take out a loan for just $50. What seems like an insignificant amount of money to us can really make a difference in the ability of poor people around the globe to create and sustain livelihoods.
For example, listen to the story of Avida. Married at 9 years old she had her first child at 14. Only educated through the second grade, when her husband died of a heart attack she was left along to care for her four children. Through a friend, Avida learned of microfinance and joined a Self Help Group (SHG) to gain access to savings and credit. Ten years later, Avida has taken out three separate loans to expand her business of selling bangles and tailoring saris. So far she has borrowed and repaid 50,000 Rupees (about $1,100). She is currently repaying her third loan and then plans to take another to build a second floor on her house to rent. This will provide her with a stable source of income in addition to her other businesses.
Avida attributes her success as a business woman to the network she's built through the SHG group and her perseverance and patience. She takes great pride in the quality of her work and most of her business referrals come through word of mouth. At 34 Avida already has grandsons, but she hopes to educate her two children still living at home. One day she dreams of having a shop of her very own.
After spending an afternoon in Avida's 1-room home in the Pune slums listening to her story, I was struck by her confidence and the great strength she gains from the other members of her SHG. Joining the group has given her access to credit and savings, but along the way she and the other women have created a support structure for each other. Together they have taken on sanitation issues with the municipal government, successfully reported a man of domestic violence, and organized a day of clean up to impact the overall health of the community. Women came together for a tangible thing: money, and through the process became leaders and in their community.
As I continue to write this blog and delve into the specifics of how microfinance works please keep one thing in your mind:
Microfinance is a tool used for the end goal of empowering women.
Yes, microfinance is profitable.
Yes, microfinance institutions can be self-sustaining.
...but microfinance practiced for the sake of making profits is a misguided approach.
In the next few entries I will describe a few methods of microfinance I have witnessed and how it contributes to women's empowerment.
Sorry, no pictures today! Having some technology issues... Hope all is well!
Thursday, August 06, 2009
Communicating in India
English and Hindi are the national languages in India, but that doesn't mean that everyone speaks one or both of those! And even if people do speak English, the cadence, vocabulary and inflection is so difficult to understand to my American-English ears that they may as well be speaking a different language!
India is huge, and every state speaks a different language.
For example, when major corporations are running a national marketing campaign in India there is always the question of what languages to run it in and where...and it can lead to really costly marketing in multiple languages. When Indians travel between states, they aren't always able to communicate with each other.
We are able to get by with English, most people speak basics in the cities for shopping and other things. However, in the slums and rural areas we are working through translators.
Another really interesting thing is the head waggle. The best I can describe it is as a bobble head doll, when you ask a yes or no question the head moves from side to side in sort of a figure eight motion...I'll demonstrate it for you when I get back! It can mean yes or no or anything in between. It's hilarious.
Thanks, Stacy for the questions! Yes, in the first group meeting we went to they had us sit in chairs while they sit on the floor. In most meetings people sit on the floor...but since we were guests at the meeting they had set up their chairs for us. It was awkward sitting there, but if we were to refuse it might be even more awkward.
I've learned that in India there is a saying, "athithi devo bhava" which means something like "treat the guest as God." Perhaps some of you who are more familiar with Indian culture can shed more light on this...but the bottom line is guests are treated very well. Everywhere we go we have been served tea and biscuits (another tradition likely inherited from the English colonization) and we have been treated very well. Even in the slums, we were served hot chai!
And, since I'm a firm believer that every blog entry should have pictures, I'll leave you with a few.
India is huge, and every state speaks a different language.
For example, when major corporations are running a national marketing campaign in India there is always the question of what languages to run it in and where...and it can lead to really costly marketing in multiple languages. When Indians travel between states, they aren't always able to communicate with each other.
We are able to get by with English, most people speak basics in the cities for shopping and other things. However, in the slums and rural areas we are working through translators.
Another really interesting thing is the head waggle. The best I can describe it is as a bobble head doll, when you ask a yes or no question the head moves from side to side in sort of a figure eight motion...I'll demonstrate it for you when I get back! It can mean yes or no or anything in between. It's hilarious.
Thanks, Stacy for the questions! Yes, in the first group meeting we went to they had us sit in chairs while they sit on the floor. In most meetings people sit on the floor...but since we were guests at the meeting they had set up their chairs for us. It was awkward sitting there, but if we were to refuse it might be even more awkward.
I've learned that in India there is a saying, "athithi devo bhava" which means something like "treat the guest as God." Perhaps some of you who are more familiar with Indian culture can shed more light on this...but the bottom line is guests are treated very well. Everywhere we go we have been served tea and biscuits (another tradition likely inherited from the English colonization) and we have been treated very well. Even in the slums, we were served hot chai!
And, since I'm a firm believer that every blog entry should have pictures, I'll leave you with a few.
Wednesday, August 05, 2009
Field Excursions with DST
The last two days we spent at an NGO called Development Support Team (DST). The organization began in 1984 as what I liken to a consulting firm - they provided support to other non profit organizations in proposal writing, monitoring, capacity building and evaluation. After a time they became direct practitioners in the field because they felt it would inform their theory. Since 1992 they have been practicing microfinance as a tool for women's empowerment.
In the mornings, DST gave a presentation on their model of microfinance and how it's a tool used for women's empowerment. I found these presentations to be extremely useful and fascinating - and we had a lot of really great discussions about the model, the practice and how it all translates into the end goal. I feel like this direct experience has really answered a lot of my own questions on how microfinance actually works and I feel so lucky to be here. I can't wait for the coming weeks and to learn about other models.
DST has developed a microfinance framework based on Self Help Groups (SHG). Each group is between 10 and 20 women in size, and to be in the group you must commit to save a small amount every month. After 6 months of the formation of the group, the group can start lending to each other using the money they have collected. Each group establishes their own rules, regulations, loans to approve, etc. DST aids the group in creating these formal structures but the groups are completely run by the women, DST only aids in further training and development through connecting them with resources or facilitating workshops. Each group is also supported by a community worker, a social worker and DST staff maintains in contact with the groups on a regular basis. I want to go into the details but I think I'll save it for another post - only 10 minutes left at the internet cafe! I'll write a post soon about their model, how it works and why it works.
In the afternoons DST took us to the field to visit with the women's groups and with a translator we were able to engage in direct Q&A with the groups. Here is a picture as everyone is getting seated and filing in - there were 20 women there when the meeting started.
It was set up so that for 2 hours were were able to ask any question we wanted. I didn't expect that we would have such free reign and direct interaction! After the first hour, the group really started to liven up and come out of their shells, their reactions were much more boisterous and they started to tell more of their experiences. I was struck by how confident the women are. It's obvious they have a strong sense-of-self despite the challenges they've faced. The SHG serves two purposes: 1) to give the woman a safe place to save, and access to loans if needed, and 2) to set up a social support group the women can turn to. The individuals have benefited in so many ways - it goes so far beyond access to money, yet the microfinance is the tangible tool that brings them all together and allows them to build community and support each other. The groups not only uplift the members economically, they also tackle social issues and give the women a platform with which to approach authorities when they need to report a crime or demand municipal services when they need something done for the community.
I only have pictures from the first day, unfortunately. I let the kids handle the camera and they had a great time taking photos. Here's one they took:
Other images from the day:
Today we split into smaller groups and were given a tour of the slums and visited a few microenterprises that the women had set up in their homes.
One woman was doing some sewing, selling saris (traditional dress) and bangles (bracelets). Others were selling grain, others had set up small vegetable stands. Their stories were incredible and they were so gracious. This group of women were more focused on enterprise as opposed to savings like the first group we visited...and their groups were much more mature than the first group, 10 years as opposed to 2 years old. In this community, there were also four or five men's SHGs that had formed - and it was great to hear that it was becoming a community wide phenomenon and men were being taken into the mix as well.
I have so much to share and convey, but I'm running out of time. I'll go into more details on my next posts. This is an amazing experience and I'm so excited for the next few weeks. Hope all is well!
Monday, August 03, 2009
On to Pune!
We've arrived! Now begins the microfinance study and the days will be packed from here on out. We drove from Mumbai this morning to Pune, which is about 3 hours east towards the central part of India. We traversed the Ghat Mountains which was beautiful. After being in Mumbai it was a much needed change of scenery! The country is so lush and beautiful - we passed lots of rice paddies. View from the top of the mountain pass into the valley:
Tomorrow we're visiting the Development Support Group - an NGO that trains other NGOs how to do microfinance programs. For the next two days we'll have these training sessions and then we're going to visit some of their project sites and sit in on the women's group meetings.
Much more to report in the next few days!
Tomorrow we're visiting the Development Support Group - an NGO that trains other NGOs how to do microfinance programs. For the next two days we'll have these training sessions and then we're going to visit some of their project sites and sit in on the women's group meetings.
Much more to report in the next few days!
Sunday, August 02, 2009
Beware the Monkeys!
We've been hanging out in Mumbai for about 3 days now taking in the sights, adjusting to jet lag and gearing up for our rural excursions. It's been great to have the down time, but I'm getting anxious to get started!
Today we spent the day at Elefanta Island - which is a very slow hour-long boat ride from the "Gateway to India" the large gate-like structure in the picture below.
To the left is the Taj Hotel.
Boats:
At Elefanta Island there are caves that were carved into the mountain.
It was cool to see the carvings, but it was even better to step away from the craziness that is Mumbai. There was lush vegetation and it was quiet and calm! It was nice to be in an open space without tons of people. There were also crazed monkeys that would take things literally out of your hands. I did not witness but heard a pack of monkeys wreaked havoc on one family's picnic. One lead monkey hissed and distracted the people while the other two monkeys tore apart and gobbled the food, and even wrestled a candybar from a child's hand. Traumatic!
We ate lunch at a restaurant that had a nice view of the bay and what parts of the city we could see through the thick haze. This area is so polluted and hazy because of the monsoon clouds. Here's a picture of our Veg Thali. Thail means 'set meal':
Well, time to wrap it up! Tomorrow we are transferring to Pune which will hopefully be the beginning of our microfinance adventures. Woo!
Today we spent the day at Elefanta Island - which is a very slow hour-long boat ride from the "Gateway to India" the large gate-like structure in the picture below.
To the left is the Taj Hotel.
Boats:
At Elefanta Island there are caves that were carved into the mountain.
It was cool to see the carvings, but it was even better to step away from the craziness that is Mumbai. There was lush vegetation and it was quiet and calm! It was nice to be in an open space without tons of people. There were also crazed monkeys that would take things literally out of your hands. I did not witness but heard a pack of monkeys wreaked havoc on one family's picnic. One lead monkey hissed and distracted the people while the other two monkeys tore apart and gobbled the food, and even wrestled a candybar from a child's hand. Traumatic!
We ate lunch at a restaurant that had a nice view of the bay and what parts of the city we could see through the thick haze. This area is so polluted and hazy because of the monsoon clouds. Here's a picture of our Veg Thali. Thail means 'set meal':
Well, time to wrap it up! Tomorrow we are transferring to Pune which will hopefully be the beginning of our microfinance adventures. Woo!
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