Started in Africa in 1998, MicroSave (www.MicroSave.org) is now a team of nearly 80 experienced professionals that has been operating for over a decade and is routinely described by clients as “the most reliable consulting firm for financial service providers”. With offices in Nairobi, Kampala, Lucknow and Hyderabad, MicroSave works throughout Asia and Africa with a strong focus on putting the clients at the centre of the business, and making products and delivery systems client responsive or “market-led”.
MicroSave is particularly well known for its field-level research, which entails extensive interviews with poor people (including microfinance clients) to better understand their financial behaviour and risk profile. MicroSave’s action research assists MFIs to better listen to clients and design appropriate financial products based on better market information. Both research activities complement each other and directly feed into the toolkit/curriculum development and dissemination efforts.
The combined experience of its core research and close work with a wide variety of partners in Asia and Africa has allowed MicroSave to develop and test a series of practice-based and practitioner-focused, training curricula and workshops – its “toolkits”. MicroSave uses a structured approach based on its internationally acclaimed toolkits to deliver its services to clients. These toolkits have been widely acclaimed, and have been translated into over 20 different languages. MicroSave toolkits are now used across the globe. The toolkit-based approach ensures a step-by-step process for field assignments, which yields consistency and unparalleled quality.
For more see MicroSave History
For several years now, MicroSave has been closely involved with several e- and m-banking initiatives in Africa and Asia, in particular working on the “soft side” of e/m-banking where the technology interfaces with the customer. Thus MicroSave has worked closely with a variety of providers including Vodafone’s M-Pesa, Kenya Post Office Savings Bank’s Cash Xpress and Eko-Airtel-State Bank of India, Drishtee – HDFC Bank, mChek and many others to provide support/conduct market research, process mapping and analysis, pilot-testing, customer interface and satisfaction, channel development, brand/marketing and financial education etc. In addition, MicroSave holds annual “M-banking Dialogues”, to bring together a select group of providers that are actually implementing m-banking solutions. The Dialogues allow practitioners to discuss some of the nitty-gritty details and challenges involved with developing, testing and rolling out e/m-banking solutions. The Dialogues have proved immensely valuable for participants, who leave with significant learning through the peer-to-peer exchanges. For more on our experience with or findings on m-banking, see http://www.microsave.org/mobile_banking.
Describe the microfinance ecosystem in India? Do any challenges stand out?
Microfinance in India has evolved over the past two decades since its inception in early 1990s. The SHG-bank linkage model, its first prototype, was an offspring from an unlikely marriage between the social intermediation role of the civil society and the financial intermediation of banks, with RBI and NABARD acting as more than willing midwives.
As the business potential of microfinance dawned on many, microfinance institutions (MFIs) took on the task of both the social and financial intermediation. Thus an alternate channel for microfinance arrived (somewhat belatedly by comparison to elsewhere in the world). This was second generation microfinance for India. Most of the MFIs adopted the Joint Liability Groups (JLGs) methodology, which is essentially the original Grameen peer group lending model, and standardisation became the new mantra for achieving rapid growth. Over the past 2-3 years, NBFC-MFIs operating under predominantly JLG-based methodology have emerged as a significant and rapidly growing force.
The burgeoning number of MFIs, and the relatively narrow focus of their products, has meant that intense competition has emerged, particularly in the southern states and in some limited areas of the east. This has provided microfinance borrowers with unprecedented access to credit. This has been a boon for them, but not without the concomitant vices of competition. Many of the larger MFIs are now responding to the demands of their commercial equity investors for very rapid expansion by adopting a “sales” driven approach for increasing outreach. The dash for growth has also seen several MFIs over-stretch their management capabilities and systems, resulting in significant portfolio problems.
To respond to the cut-throat competition MFIs are trying out different approaches that range from the desperate to the deliberate. The desperate measures have bordered on the unethical like “poaching” both credit officers and even groups from rival MFIs. Other more deliberate attempts have included offering individual lending (IL) products to their old clients. But the design of many MFIs’ IL product is little different from their group loans – except that the group guarantee is replaced by a single guarantor. Basic evaluation of the enterprise is usually performed, but the product is rarely customised to respond to cash flows, or even the financing needs, and reflects a pre-defined stepped loan schedule. And few MFIs invest in the skill sets required for a successful IL programme.
Given the saturation in a growing number of geographic markets, it is imperative for the MFIs to shift from a “product centric” to a “client centric” approach. The product-centric approach worked in uncompetitive markets with a huge demand-supply gap, and when the imperative was for rapid expansion. But as the number and outreach of MFIs has grown, supply is no more a constraint in many regions. Clients are in a position to pick-and-choose the MFI that offers them the most value. 3rd Generation MFIs will be quick to sense this “tectonic shift” in the dynamics of the highly competitive markets, and do everything they can to put the client back at the centre of their business. This focus will translate into a respect for client’s time and dignity, and into making the entire spectrum of financial services for her livelihood available to her – a welcome prospect for both clients and those who believe in microfinance as a service for development and poverty eradication.
3rd Generation MFIs will operationalise the strategy of deepening engagement by:
- Offering clients a suite of financial services in response to their full spectrum of financial needs – credit, savings, remittances, insurance etc.
- Focusing on convenience for all clients – so that products respond to clients’ needs, and not just those of the institution.
- Leverage technology, particularly e-/m-banking to increase transaction efficiency and reduce costs.
- Add supplementary services, such as the “livelihood” services or education/food security services or possibly even health services.
For more see http://bit.ly/M7rOW and http://bit.ly/2Sihm
The Reserve Bank of India (RBI) has a reputation for maintaining strict regulations for both microfinance and mobile payments. With those regulations beginning to lessen, what opportunities and challenges do you see on the horizon?
The Reserve Bank of India (RBI) brought out the Banking Correspondent circular in January 2006 to enable banks to establish correspondent relationships for delivery of basic financial services to the un-banked and under banked segments of the society in areas without bank branches nearby. Another circular was subsequently issued, restricting correspondents to not-for-profit entities. Despite the obvious limitations imposed by the regulator, perhaps in a bid to test the waters, the banks launched major initiatives for financial inclusion in underserved geographies. Some of the large public sector banks managed good outreach and in a period of less than two years, more than a million clients were ‘banked’. However, by the own admission of the banks and the technology providers, more than 85% of the accounts opened under the correspondent model are “dormant”. This has brought banks to a stage where the thought is, “Are initiatives under the banking correspondent channel a business proposition or is it a corporate social responsibility initiative?” The evidence so far is that banks have concluded that under the current regulations, it is a CSR activity. Accordingly accounts are opened and reported to the RBI but transactions are not encouraged.
The Working Group established to review the Banking Correspondent Model under P. Vijaya Bhaskar in its report submitted on 18 August, 2009, made a series of recommendations, many of which were endorsed by Dr. D. Subbarao, Governor, Reserve Bank of India in the Second Quarter Review of Monetary Policy for the Year 2009-10. In the Review, the Governor noted, “Based on the Group’s recommendations, it is proposed:
- to allow banks to appoint the following entities as BCs in addition to those permitted already: (i) individual kirana [small retail]/medical/fair price shop owners; (ii) individual public call office (PCO) operators; (iii) agents of small savings schemes of Government of India/insurance companies; (iv) individuals who own petrol pumps; (v) retired teachers; and (vi) authorised functionaries of well-run self-help groups (SHGs) linked to banks; and
- to allow banks to collect reasonable service charges from the customer in a transparent manner under their Board- approved policy for delivering the services through BC. This should be clearly explained to the customer.
MicroSave is absolutely convinced that with these and a few additional relaxations of the regulatory regime, India could have close to 100% coverage within a matter of 5-10 years – with a potential un-served market of 400 million, this represents a huge business opportunity. Three challenges remain:
- The requirement that banks involved in delivering e- or m-banking services are currently required to have branches within 30kms (or 15kms in urban areas) of potential customers/agents – which in many areas effectively limits the service provider to a few public sector banks.
- Restrictions on who can act as agents have meant that banks are struggling in their search for large numbers of organised/aggregated agents. In most countries, mobile operator networks’ agents or chains of supermarkets, petrol stations or pharmacies are typically used. These chains allow banks to recruit/train and manage agents en masse rather than individually – the latter is a very expensive proposition.
- For remote areas, for example the north east of India, it may be necessary to ask for the current requirement that all transactions be recorded in the books of the bank within 24 hours, to be put into abeyance.
If these issues were addressed, the opportunities for banks and other financial institutions to leverage technology are extraordinary – there is a domestic remittance market estimated to be “Rs.26,000-40,000 crore” (see http://bit.ly/2jbYnj); huge latent demand for a variety of insurance services (if they are appropriately tailored for the low income market); and of course, as has been shown across the globe, the potential for deposit mobilisation given the right products and delivery channels is startling (see for example http://bit.ly/1rT0x0).
How can interested parties help?
As the regulatory environment becomes more conducive for e- and m-banking, we will all need to work together to develop robust, customer-responsive products and channels and to understand the costs and revenues underlying them – thus allowing the development of successful business models that create real value for the poor. Too much of e-/m-banking for the poor remains rhetoric, but the potential is clear – a clearer focus on understanding the needs and behaviour of the poor, and a real commitment by the banks to extending services deep into the rural areas could change not just the endemic financial exclusion, but also much of the development challenges that face the world today.
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Graham A.N. Wright helped design and establish the MicroSave programme and is currently Programme Director for India. Graham pioneered much of the core of market-led approach used by MicroSave – in particular the Market Research for MicroFinance tools. He has had a career of two decades of development experience underpinned by five years of experience in management consultancy, training and audit with a leading accounting firm in Europe. He is a reformed Chartered Accountant.
Graham has provided training and technical assistance to a variety of microfinance institutions in Bangladesh, India, the Philippines and throughout Africa. He helped develop, test and implement a sustainable rural savings and credit programme for BURO, now an influential microfinance institution in Bangladesh. He provided long-term technical assistance to develop a rural finance system, using self-help “Savings and Loan Groups” linked to strong cooperatives in a remote mountainous area of the Philippines. He has also worked on training, systems design, research and evaluation for the usual alphabet soup of donors.
Graham has authored over 14 training toolkits and 25 papers, including a book entitled “MicroFinance Systems: Designing Quality Financial Services for the Poor” (University Press Ltd, Dhaka and Zed Books, London and New York, 2000). He was also chair of the CGAP Savings Mobilisation Working and a member of the Product Development Groups and is a Research Associate at the Institute of Development Policy and Management, University of Manchester, UK.
