CAB-CMF Conference Proceedings 2008

CAB-CMF MICROFINANCE CONFERENCE January 18, 2008

Summary of Proceedings

Contents Foreword

3

Programme Description

4

Research Summaries

5

Conference Proceedings

25

Questions and Answers

29

Programme Schedule

33

Profiles of Key Speakers

35

List of Participants

39

Foreword

Despite this growth, there are still a large number of households with no access to financial services. This situation poses two sets of distinct questions: How do we cater to the successful clients, who are now demanding larger loans, especially in the face of the emerging competition among MFIs? At the same time, how should we fill the “white space� where there is no microfinance activity, let alone a formal banking network?

Further, critical gaps remain in our understanding of how microfinance can be best used to fight poverty and promote development of small and cottage industries. Does micro-credit help small businesses grow, or does it have an impact primarily on areas such as women empowerment? Which financial products have the most impact on the lives of those who take them up? Can the impact of microfinance be enhanced by the addition of non-financial programmes such as business training? How can we ensure that the poorest are not left out of the microfinance revolution?

Practitioners regularly experiment with their programmes and models to address some of these gaps and improve their services. Academic researchers, working closely with practitioners, have attempted to document some of these innovations in order to provide the sector with information on best practices. Such research can help practitioners improve and develop their programmes further.

In order to foster an environment where practice and policy is informed by rigorous research, and research questions are guided by insights from practitioners, it is essential to bring together academics, microfinance practitioners, bankers and policymakers on a common platform and to encourage interaction among these players.

To this end, the Reserve Bank of India College of Agricultural Banking, together with the Centre for Micro Finance at the Institute for Financial Management and Research, with support from Union Bank of India, held a national conference on microfinance in January 2008 in Pune. The objective was to provide insights and highlight the policy implications from on-the-ground research, and to draw lessons from the innovations of leading practitioners. The conference also aimed at identifying challenges and emerging issues in the sector and areas for future research and experimentation that would be relevant to both practitioners and policy makers.

The conference was very successful in achieving these objectives. Speakers included eminent international development economists working closely with CMF, such as Profs. Abhijit Banerjee (MIT), Rohini Pande (Harvard University), Esther Duflo (MIT), Raghabendra Chattopadhyay (IIM Calcutta), Sendhil Mullainathan (Harvard University) and Jonathan Morduch (NYU) - and leading microfinance practitioners in the country - Ms. Jayahsree Vyas (Sewa Bank) and Mr. Mohammad Amin (Adhikar). The sessions were chaired by Dr. Nachiket Mor (ICICI Foundation), Mr. Ajit Ranade (Aditya Birla Group) and Mr. C.S. Murthy (RBI), three prominent individuals in the sector. The conference was attended by a wide variety of audience, comprising representatives from private and public commercial banks, MFIs, non-governmental organizations, policy makers, and several experts from the sector, and witnessed active discussions among them.

These proceedings showcase brief write-ups based on presentations from the conference, summaries of questions and answers, as also answers to some questions that speakers did not have time to respond to during the conference itself, and are extremely rich in learning for researchers and practitioners. They address issues such as the nature of small businesses financed by microfinance, possible interventions to help these businesses, the financial behavior of poor households and their vulnerabilities, and the need for appropriate financial services. Issues of particular interest for policy makers and regulators were also discussed, such as competition among MFIs and clients’ understanding and perception of interest rates.

While the presentations and discussions raised as many questions as they answered, the conference showed that rigorous research can provide important insights for policy and practice. In his concluding remarks for the conference, Mr. Michael Walton (Senior Visiting Fellow, Center for Policy Research, Delhi) observed that research is generally conducted with a long-term view and policy makers and practitioners have to take decisions with the limited information they have. Nevertheless, he acknowledged, policy makers and practitioners have an interest in using evidence-based research when taking such decisions. The conference encouraged us to further facilitate such dialogues and interaction between academics, microfinance practitioners, bankers, regulators and policy makers, and, we view this as an on-going effort and an opportunity for continuous collaboration between CAB and CMF. The conference would not have been a success without help from many people and we warmly thank all those who organized the conference, especially faculty at CAB and CMF researchers, and all the speakers. We finally thank all the participants for attending and actively participating in the conference.

Sandip Ghose (Principal, College of Agricultural Banking-RBI, Pune)

Foreword

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icrofinance in India has achieved tremendous growth in the last ten years, due to the progress of the SHG-Bank linkage model and of Micro Finance Institutions (MFIs) using variations of the Grameen Bank model. Both delivery models tackle selection and monitoring issues [that are inseparable from lending to the poor] through groups and joint liability.

Programme Description

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Programme Description

s microfinance innovation spreads across the country, several challenges arise. In areas where microfinance has existed for a few years and has expanded, issues relate to expanding outreach to include the poorest, managing competition and determining the product portfolio, among others. In areas untouched or underserved by microfinance, one of the challenges, for instance, is to design programmes and delivery mechanisms best suited to the needs of clients either through introducing flexibility in existing products or designing new products. There has been some amount of experimentation on the ground with programmes and models, by practitioners and by academic researchers, to document and address some of these issues.

The objective of this conference is to draw lessons from some of these instances of existing research and microfinance practices, and, to identify areas for future research and experimentation, of relevance to both practitioners and policy makers. The conference aims to achieve this by facilitating interaction between researchers, microfinance practitioners, bankers and policy makers involved in the sector.

During the conference, three panels comprising of researchers, leading practitioners, and experts from the Indian financial sector will discuss the following topics: o Current issues in product design; o Challenges in offering innovative financial and non-financial services with micro-credit; and o Emerging issues in the microfinance sector and related regulatory issues.

The Centre for Micro Finance will showcase some of its projects undertaken in collaboration with leading researchers from across the world. These include recommendations from experiments with loan repayment schedules in West Bengal, impact of business training on microfinance clients in Gujarat, the nature of small businesses in urban slums in Hyderabad, client understanding of interest rates, and prevalence of competition. Researchers will share results from these experiments that have led or could lead to improvements in microfinance programmes or policies.

Similarly, leading practitioners of microfinance in the country will present their experiences with innovations in developing tailor-made products for their clients and also identify challenges and emerging issues in the sector. Faculty from the College for Agricultural Banking will provide feedback and insights from a regulatory perspective.

A snapshot of small business in Hyderabad: Results from a large-scale survey Abhijit V. Banerjee, Esther Duflo, and Rachel Glennerster

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tarting in early 2005 we surveyed about 2400 households randomly selected from 120 “small” slums in and around Hyderabad city. The proximate goal was to create a baseline for a randomized evaluation of Spandana’s micro-lending program, but it also provides a rich new dataset for studying tiny family-run enterprises.

The first fact that emerges from the survey is that it is very common for families to own a business: 31% have one business and 9% have more than one, compared an OECD average of 12%. Most businesses do not require many specialized skills: 17% own a Kirana store, 8% own a fruits and vegetable sellers, 6.6% own a telephone booth, 6.3% have a milk business and 4.31% are auto drivers. The one possible exception is tailoring—12% are tailors.

Given the fact that there are so many people doing the same things, it is no surprise that many people in same slum are running the same business: many Kirana shops in a single slum, presumably with the predicted implication for their profit margins.

Businesses are small. Only 2% of businesses have a partner; 10% have an employee; and no one has more than 3 employees. Even when we include household members, only 42% of businesses have more than one worker and 5% have more than three workers.

Only 20 out of 730 businesses have a separate room in which they operate. 20% use no productive assets whatsoever.

The productive assets that are used are not particularly sophisticated: the most common assets include: Sewing machines (43), Tables (71), Chairs (83), a weighing balance (61), a pushcart, motorized or not (86). Interestingly almost none of these assets are rented.

Not surprisingly, the businesses do not generate a lot of revenues: The average revenue is actually Rs 12,000 per month but the median is Rs 3600. Yet the owners work very long hours: in our data, the number of hours worked in the last week by a full-time business owner ranges between 40 hours per week and 119 hours per week. The mean is 72 hours, and the median is 77, which means more than ten hours a day, seven days a week. However many businesses are parttime businesses, one of the many activities the owner undertakes. Part-time owners work only 24 hours per week on average.

The average monthly profit, after deducting any rents they pay but not the unpaid time spent by household members, is Rs 1,859, and the median is Rs 1,035, a real but modest gain. Fifteen percent of the businesses have lost money in the last month, after subtracting rents.

However when we value the long hours spent by household members, even at the low rate of Rs 8 an hour (which would give someone close to the minimum wage for a eight hours day), both median and average profits turned mildly negative.

Are these negative results because the scale is sub-optimally small: i.e. are the long hours largely being wasted because the amount of capital they are working with is inefficiently small? Or is it because the household is starting a business to “buy a flexible low-intensity job” and does not really want a larger business because that would make the job too demanding? And if it is the latter, would the availability of much/cheaper bigger loans change that?

Why should these businesses lack capital? One obvious explanation is that there are imperfections in the credit market, though it could be the risk of taking on a larger investment that is also holding them back.

What do we know about access in this population? A large fraction of household have debt: 69% of the households have at least one outstanding loan and 46% of the households have more than one outstanding loan. The average loan, when it was taken out, was for Rs 20,000 (the median was Rs 10,000). The average interest rate is 3.85% per month (which is close to 80% a year). Loans are taken from moneylenders (49%), family members (13%), friends or neighbors (28%). Loans from commercial banks are rare and there are almost no MFI loans (this was before Spandana entered the slum). We asked the respondents how much more extra loan repayment they could handle: The median person said Rs 500 per month while the mean was Rs 1,000, both of which, conveniently, are in the range of what it would take to repay a Rs 7,500 loan from Spandana. Among those households who do not have a loan, 56% say they want one but could not get one.

Research Summaries

The average family in this data set is a family of 5, with monthly expenditure of Rs 5,000, which makes them poor, but not ultra poor: only 6% of these households live under a dollar a day per member, but 47% live under 2 dollars a day.

67% of the household live in a house they own, and 29% in a house they rent. The median house has two rooms though 2/3 of the houses are Kuccha. 98% of the 7-11 years old, and 84% of the 12-15 year olds are in school.

However when we asked people why they took out the loans they have few (7%) said it was for starting a new business and 1.33% said it was for business expansion. Moreover households that have businesses are no more likely to be indebted. The main purposes for taking out a loan are health expenses (17%), temporary difficulty (10%), marriage (13%), home construction (10%), and consumption (10%). Of course this might just reflect the fact that the loans that they had access to were very expensive. Credit here is clearly acting partly as a substitute for insurance: essentially no one has health insurance in this population (though 26% have life insurance and 34% have savings accounts) and 40% of the household had to spend Rs 500 or more on health in the last year. Moreover for those who had to spend money, the average expense was Rs 7,500 (median Rs 3,000) and 60% of the households who had a sick member had to borrow.

Research Summaries

The fact that Spandana loans are much cheaper than the loans that they were getting gives us some reason to believe that these loans might go into business expansion/creation. However a puzzle remains: many of the Kirana shops have Rs 1500 or less in capital. This is not a lot of money for these people, especially for the half of them who spend $2 a day or more. Just by cutting their spending on alcohol and cigarettes to the levels we see among those who spend $1 a day or less, they could save enough to double the amount of capital stock they have. Why aren’t they?

Experiment on repayment schedules Rohini Pande, Erica Field, Emmerich Davies, and Anup Roy

A schism exists in microfinance between academics – who believe that microfinance can only stand to gain from greater flexibility – and practitioners – who are reluctant to introduce greater flexibility in microfinance contracts for fear of greater client default and delinquency. Over the past year, Professors Erica Field and Rohini Pande and the Centre for Micro Finance, in conjunction with the Village Welfare Society (VWS), a microfinance institution (MFI) in West Bengal, have sought to rigorously test these contending views.

How Microfinance Clients Make Use of their Loans How clients make use of their loans has been an important question for any research on microfinance. From survey questionnaires, we ascertained that clients did not use their money for large upfront investments in productive capital.

This finding defies conventional wisdom that suggests that clients use their loans to make productive investments. At the same time, there has recently been scepticism in the efficacy of microfinance because of widespread use of microloans for consumption. This discrepancy between what has been suggested and the ground reality motivated us to find ways to better design microfinance loan contracts so that clients can make the best use of loans.

Social Cohesion Microfinance is different from traditional debt contracts in the frequency of their meetings and repayments. Frequent meetings and repayment are believed to teach clients financial discipline, as well as build cohesion within groups so that clients will turn to each other in times of need and lack of verifiable collateral. Practitioners argue that with less frequent meetings, groups will not be as comfortable with each other and, as a result, clients will be reluctant to ask for help in making payments.

Due to the randomised nature of our intervention, we had a unique opportunity to test this proposition. We found, during the first intervention, that although clients that met more regularly had greater familiarity with fellow group members, this familiarity did not translate into greater financial reliance. Instead, clients relied on traditional networks for making payments - such as their husbands and family members - suggesting that the group structure has a very limited role to play in joint liability groups. We are unsure whether this is a generalizable phenomenon as these clients were first time borrowers and, thus, receive the smallest loan size that VWS offers. The fact that clients did not turn to their group members in times of need might be due to its small loan size or the age of the group rather than different meeting schedules.

Early Repayment Another salient - but unexpected - result from the first intervention was the differing rates of early repayment between meeting schedules. VWS has a policy that after 33 weeks clients are allowed to repay the entirety of their loan. Results from our first intervention revealed that clients that met more frequently were more likely to repay the entirety of their loan earlier, suggesting that some aspect of more frequent repayment schedules made it easier or more appealing to repay early. Two explanations are possible: 1) As having to repay more frequently imposes a higher effective interest rate, clients on weekly repayment schedules were eager to finish their loan payments faster and move onto more lucrative loan contracts, or 2) The more frequent meetings made it easier for clients to repay their loan faster.

Areas for Further Research The results discussed above as well as the results discussed in Field & Pande 2007 have created several avenues for further research. Two more interventions have been designed to test these questions presented above: loan contracts that incentivise clients to make larger investments at the beginning of the loan cycle; and the early repayment effect.

The second intervention with VWS introduces a treatment group that has a two-month time lag before they are required to make their first loan repayment. This change in the loan contract was derived through our interactions with VWS clients who hinted that having a longer period before having their first repayment would give them an opportunity to use their loans for larger and more productive investments. This intervention is currently ongoing and we have about 800 clients who have formed groups and received loans and we are hoping to add another 200 clients to the intervention.

Research Summaries

A first intervention with VWS took place between April 2006 and June 2007 and randomly assigned different repayment schedules to first-time female borrowers in joint-liability groups. Clients could either be assigned to 1) the traditional weekly meeting and weekly repayment schedule; 2) a weekly meeting and monthly repayment schedule; or 3) a monthly meeting and monthly repayment schedule. It soon became clear that introducing greater flexibility had no discernible effects on client default or delinquency: The rate of default in all three groups was virtually identical. These results are discussed in greater depth in Field & Pande, 2007. However, over the course of the first intervention several other findings stood out as interesting and worth further research.

The third intervention tries to tease out the mechanism behind the difference in early repayment results discovered in the first intervention. As one of the reasons behind weekly clients repaying earlier could have been a difference in effective interest rates between repayment schedules, we have equalised the interest rates faced by clients on all repayment schedules. As a result, clients on monthly repayment schedules will pay a slightly higher amount at each repayment, as they initially faced a lower effective interest rate. We hope to begin this intervention in the first quarter of 2008.

Research Summaries

Implications The most important implication of our results is that MFIs can potentially reduce their transaction costs through less frequent repayment schedules without significantly increasing their rates of default. This should be considered in light that the first intervention was conducted on first time loan clients with loans no greater than Rs. 4,000, as well as districts in West Bengal where MFI competition was absent. There exists the potential that increasing loan size would also increase loan default rates, as well as consequences from the entry of other MFIs into the area. We hope to test the effects of larger loan sizes in our third intervention, and also potentially test the effects that increased competition would have on default rates in a particular MFI.

Business training for micro-entrepreneurs Rohini Pande, Erica Field, and Divya Varma

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he Centre for Micro Finance, in collaboration with SEWA Bank in Ahmedabad, has undertaken a field experiment to examine the impact of business training on financial and business behaviour outcomes of members. The primary research questions explored are the impact of a scalable business training program and the effects of receiving training with a peer.

MFIs have an interest in business training as a catalyst to savings and loan repayment, as it helps their clients learn about loan and savings opportunities and manage their limited resources,. For this reason, it is important to conduct an impact evaluation to measure the cost and benefits of trainings and understand how they can be most effectively structured for the largest impact and for scalability. The Centre for Micro Finance, together with SEWA, has conducted a randomized impact study that investigates the impact of a streamlined, scalable training model as well as the effect of training with a peer.

Setting Shri Mahila SEWA Sahkari Bank was created in 1974, by the Self Employed Women’s Association (SEWA) in the city of Ahmedabad, Gujarat. For four years, SEWA Bank has run a five-day program on financial literacy, which uses lessons, games, and movies to teach modules on accounting skills, interest rates, avoiding excess debt, and the importance of long term “life-cycle� planning. Recently, it began a second five-day course, meant to supplement its financial literacy training, which teaches business skills such as marketing, cost reduction, investment, and customer service.

Design of the study training module We designed a streamlined training module aimed at maximizing the potential to scale up such a program to microfinance clients in other settings. We used information on what elements of the training the SEWA Bank clients found the most useful, what they implemented in the short run and what they retained or abandoned in the long run to condense the two five-day trainings into a two-day training (a total of 4 hours) costing approximately Rs.157 per student.

Our training had a few unique features. During the training, women would work in groups to identify one or more financial goals (and ways to achieve them) and sources of wasteful expenditure (and how to curb them). We introduced an inspirational element in the training, in the form of a movie, showcasing the lives of a few successful SEWA members who have used good financial practices to bring themselves out of poverty. Another unique feature was that half of the participants were invited to come alone while the other half were invited with friends. This primarily was to investigate if coming with peers influences take-up, participation in class, retention and reinforcement of the training lessons.

Study Protocol To evaluate the training module we selected 634 SEWA clients, of which a randomly sampled 423 were invited to the training. All women in the sample were either actively saving or borrowing from SEWA Bank between December 2004 and January 2006. The women in our sample were between ages 18 and 65 and were either business owners, piece-rate workers, or self-employed. For each session, twelve women were invited from our sample, among which four were in the control group and not trained; four were invited with a friend and four were invited alone.

Research Summaries

A key motivation underlying efforts to expand microfinance and micro-savings is that providing credit and banking opportunities to the poor will increase their economic opportunities and generate long-run income growth, thereby helping them out of poverty. However, these services reduce poverty only if the poor are adequately positioned to take advantage of borrowing and savings opportunities to improve household and business financial management. But, many of the poor lack human capital and have limited information about business and other economic opportunities, and women in particular face constraints on mobility and lack social networks to assist them with information and skill acquisition. Hence, the returns to entrepreneurial skill building and information about business opportunities gained through business training may be particularly high.

Preliminary Results We are currently conducting a detailed survey aimed at understanding how the training affected business and financial outcomes and women’s aspirations. Here we report findings based on women’s saving and loan behavior as observed in SEWA’s bank transactions database. We find that the business training increased borrowing in general and savings for the peer-trained cohort. Figure A shows that the amount of new borrowing increased in general by Rs.772 with a slightly larger increase for those trained individually. We also find the monthly savings of (only) the peer treated group increased by about Rs.217 per month. Also, the uptake of the training differed by treatment group, with 69% of those invited to train with a friend attending and 63% of those invited to train individually attending.

Figure A

Figure B Why is savings higher for those who are "Peer Treated"?

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396

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555.9

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Montlhly flow of savings

Research Summaries

Average amount of new borrowing per month

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64.6 0

-85.6

-200

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treatment

control

treatment--did not attend

treatment-attended

Future Directions Our findings suggest several future avenues of research. For example, we would be interested in whether a follow-up training impacts long-term retention rates. It would also be interesting to disentangle the reasons why coming with a peer has an influence on the savings and borrowing behaviour of the client. These questions suggest the need for further work to help us design appropriate methods to increase the likelihood of long-term financial improvement.

Targeting the hard-core poor in West Bengal Raghab Chattopadhyay, Esther Duflo, Abhijit Banerjee, and Jeremy Shapiro

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Take the case of Basanti of Hazrapara in Beldanga, West Bengal. She is keen to start a micro-enterprise but she could not start one due to a paucity of funds. No MFI approached her to join a microfinance group because she belongs to an ultra poor household. Hence she thought that her dream would never turn into reality. This is the fate of many such “Basantis” who cannot afford a square meal every day. To reinforce this, Morduch (1999) once opined that “poorer households should be served by other interventions than credit” (p.1600). One such intervention would be to uplift ultra poor households by providing income generating assets so that they can eventually participate in regular microfinance programs. With this objective, Bandhan, a Kolkata MFI, started the “Chartering into Unventured Frontiers-Targeting the Hard Core Poor” (CUF-THP) program in 2006. This grant-based program is financially supported by the Consultative Group to Assist the Poor (CGAP) and draws inspiration and technical support from a similar program2 run in Bangladesh by the Bangladesh Rural Advancement Committee (BRAC).

Targeting Hard Core Poor (THP) Program at a Glance The aim of the THP program is to provide income generating assets, such as livestock and other inventories for non-farm enterprises, to the poorest of the poor (the “Ultra Poor”) to assist them in starting businesses and eventually graduating into small scale entrepreneurs. To make this program successful, area selection and Ultra Poor targeting are of utmost importance.

Bandhan selected Murshidabad for the intervention because the district performs poorly in terms of certain human development indicators compared to other districts in West Bengal3. Once the village lists were finalized, Bandhan conducted Participatory Rural Appraisals (PRAs) to identify Ultra Poor households in each hamlet. The PRA includes social mapping of the hamlet and subsequent wealth ranking of residents based on information from neighboring households. Bandhan uses the wealth ranking to identify potentially Ultra Poor households in the particular hamlet.

A few days after conducting a PRA, Bandhan administers a detailed questionnaire to verify the results of the PRA and to identify the beneficiary in Ultra Poor households. Ideally, an able-bodied woman member of a household is the target beneficiary of this program. Subsequently, the THP program coordinator carries out the final verification of households identified as Ultra Poor through visual inspection and informal conversation. During the final verification, special attention is paid to the condition of the house, the health and nutritional status of the women and children, educational attainment of the children, and employment status of the women. One mandatory eligibility requirement is that the household must not be involved in any micro-credit activities and/or should not obtain “adequate assistance4” from any government aided program.

Targeting Effectiveness Study At Bandhan’s request, CMF undertook a study led by Profs. Abhijit Banerjee (MIT), Esther Duflo (MIT) and Raghabendra Chattopadhyay (IIM-Cal) to assess how accurately Bandhan’s identification procedure targeted the very poorest households with the least access to credit. To accomplish this, the researchers conducted detailed household interviews with households identified as Ultra Poor by Bandhan and households not so identified, but which appear poor according to an economic census of the village. The study then compares Ultra Poor households to others along various dimensions of poverty.

1. See Morduch, J. (1999). The Microfinance Promise. Journal of Economic Literature. 37 (4), 1569-1614. and Rabbani, M., Prakash, V.A. & Sulaiman, M. (2006) Impact Assessment of CFPR/TUP: A Descriptive Analysis Based on 2002-2005 Panel Data. CFPR/TUP Working Paper Series, 12.

2. See BRAC website: http://www.brac.net/cfpr.htm 3. Murshidabad was ranked 15th among 17 districts of West Bengal in Human Development Index Ranking, 2004. Source: West Bengal Human Development report 2004.

4. “Adequate assistance” is determined on a case-by-case basis.

Research Summaries

ver the last three decades, microfinance has emerged as a tool for the economic development of the poor across the globe. Nobel Laureate Muhammad Yunus’s pioneering Grameen model has been adopted in different countries and microfinance has become a global movement. But who are microfinance clients after all? There has been a persistent criticism about the discrepancy between whom microfinance claims to target and whom it actually reaches. Whether microfinance has been able to provide credit to the poorest of the poor remains a debatable topic1. As a matter of fact, microfinance institutions (MFIs) generally neglect ultra poor households because they are extremely vulnerable to shocks and are more likely to spend loans for consumption purposes rather than invest in productive activities. So even if an ultra poor household is interested in starting a petty business, it is often denied loans and hence such households find emancipating themselves from the shackles of poverty extremely difficult. They continue to face the tyranny of local moneylenders and other humiliations.

Results and Implications

Research Summaries

The results indicate that Bandhan’s identification procedure targets a sub-population which is notably poorer in certain respects, particularly readily observable attributes. Notably Ultra Poor own less land, have fewer assets and are more likely to lack formal credit access than non-Ultra Poor households. Another important result from the study is that the peer wealth rankings established by PRA’s generate a reliable assessment of relative poverty; households ranked as poorest by their neighbors also appear less advantaged, again particularly with respect to land holdings.An additional finding is that targeting based on an economic census alone, such as is done for various other assistance programs, does not appear to identify an especially poor sub-population. The study compares recipients of certain forms of government assistance to non-recipients and finds that, in this sample, recipients are not noticeably more disadvantaged than non-recipients.

The implications of this study are that the method used to identify the desired target population affects the characteristics of that group and may impact the success of the program. Defining the target population according to easily observable characteristics and using household surveys or PRAs, rather than broad censuses, to identify eligible households is more likely to result in effective targeting.

Health Insurance: Opportunities and Challenges Esther Duflo, Abhijit Banerjee, Rachel Glennerster, and Richard Hornbeck

P oor households face considerable risk both in their professional occupation and in their personal lives. Very few of them have any access to formal insurance against any of these risks. One particularly important source of risk comes from health shocks. A single bad health shock can cost thousands of rupees, undermining savings or forcing households to take loans. Governments and civil society organizations have thus felt the need to provide health insurance to the poor. However, the provision of insurance to the poor runs into considerable implementation challenges. Reaching and insuring a large number of individuals is necessary to achieve operational sustainability, and to avoid the classical problems facing health insurance, such as adverse selection (i.e. the risk that people who know they are sick are more likely to join the insurance pool).

To answer all these questions, the Center for Micro Finance (Chennai, India), the Abdul Latif Jameel Poverty Action Lab (J-PAL South Asia and J-PAL at MIT) and SKS microfinance set up a randomized experiment to evaluate the impact of offering health insurance to micro-lending clients. While SKS is already working in several hundreds villages and has insured close to 50,000 lives, two hundred and one villages were selected for the pilot study and 101 of these villages were randomized into the treatment group where clients purchase health insurance at the time they renew their loan.

The 100 remaining village form the comparison groups. The heath insurance product will be rolled out in those villages after two years. The loans and insurance products are administered by SKS in the state of Karnataka, and provided by ICICI Lombard. The data cover 7,000 households and about 28,000 adults.

This note presents preliminary findings from the analysis of part of the baseline data, and the experience of SKS since the health insurance has been introduced. The analysis reveals that the insurance has not led to clients dropping out in the villages where it was introduced, and has not adversely affected the composition of SKS clients. Moreover, the health insurance product is well understood, and well used by clients. The data therefore suggests that microfinance institutions are indeed effective channels for the delivery of health insurance. Future research will assess the benefits to the clients.

Note that all these results are highly preliminary and subject to change when more data becomes available.

The Need For Insurance: Evidence From The Baseline Survey The baseline data reveals considerable unmet demand for insurance. Less than a percent of surveyed households have accident or health insurance. Yet, they face frequent health shocks: in the last year, 93% of the households have experienced a serious health event, requiring an expense of at least Rs 300, a hospitalization, or keeping them away from work for more than a week at a time). 40% of the households experienced at least two of these shocks, and 6% of the households had at least one member hospitalized.

The average health event costs Rs 1,900, while the average monthly expenditure per capita is Rs 708. The distribution of these costs is very skewed: 5% of the households are responsible for 87% of the expenditures on these major health events. When they face an adverse health event, 43% of the households resort to a loan to pay off expenses (the vast majority of others use household savings). 32% of these loans are obtained from a money lender.

Thus, this data suggests that SKS households, despite the fact that they are already members of a microcredit organization, are facing considerable financial risk due to health events. Bundling catastrophic health insurance with the main microfinance product thus seems a promising avenue.

The Insurance Product The insurance policy (administered by ICICI Lombard) covers catastrophic costs which include costs related to maternity, hospitalizations, and accidents. The client must insure herself, and can include her husband as well as up to two children. The premium, including administration fees, varies from Rs. 350 to Rs. 525 depending on the number of family members covered. The policy includes annual premiums, but does not include co-payments or deductibles.

Research Summaries

Microfinance institutions (MFIs) have the potential to solve this problem. They reach a large number of clients, from whom they collect repayment on a weekly basis. Thus, MFIs have the ability to reach a very large client base in a very cost effective way, which makes it possible to keep the premiums to a minimum. Moreover, since the main reason the clients join the organization is to get a loan, making insurance mandatory for the client of the organization can mitigate adverse selection. Several MFIs have thus started to introduce catastrophic health insurance as part of their service to their clients. However, many questions remain unanswered: Does health insurance discourage clients from staying clients of the MFI? Does it encourage only the sicker clients to stay enrolled, which would threaten the main line of business of the MFI? What is the benefit to the clients of being enrolled (health benefits, economic benefits, etc.)? Does the availability of health insurance help client overcome health crises, maintain better businesses, and ultimately repay their microfinance loans?

The insurance products is rolled out progressively in SKS work areas, starting with northern Karnataka. When the product is introduced in a center, a specialized team first meets clients, explains the product to them, and shows a video produced by SKS. In order to minimize adverse selection while only minimally affecting SKS core business, the purchase of health insurance was made mandatory for SKS clients in centers where the health insurance was introduced at the time of the renewal of the loan. When clients become eligible for a midterm loan or need to renew their main group loan, they must purchase health insurance as well if they want to become a member.

Did Health Insurance Aect Sks Client Pool?

Research Summaries

While one of the goals of the insurance product is to ensure financial protection for those most at risk of having serious health shocks, the sustainability of these schemes depends upon the ability of the scheme to attract a large cross section of individuals to mutualize the risk. It is thus important to investigate whether the health insurance product discourages SKS clients from renewing, or selectively encourages some types of client to renew.

We compared the renewal rate (i.e. the take up of a new group loan for client finishing their first group loan) in treatment and control centre. The renewal rates are high, and similar in treatment and control groups. 96% of clients take up a new group loan in treatment centers, and 95% do so in comparison centers. The results are similar when we restrict the data to our baseline (94% in treatment and 95% in control, respectively). This is encouraging on two counts: first, it suggests that the health insurance product is not affecting SKS core business. Second, since the renewal rates are so high, it implies that SKS can effectively cover and keep covered a large number of lives.

It could still be the case that the few clients who drop out are different in the treatment and control groups. We thus compared the difference in a number of characteristics between those who renew and those who did not renew in treatment and control groups. A number of measures of health were created to capture different aspects of health which might explain a client’s choice to take up the insurance product. These measures include the number of consultations in the last month, total household spending on health in the last month, an index of chronic disease, an index of self-reported health, the number of health conditions reported by adults in the household during the last month, and the number of adverse health shocks in the last year. When each of these health measures are included in the analysis, we do not find a statistically significant difference in enrollment rates between the treatment and control group.

Policy Implications: o Households experience frequent and costly health shocks, which often result in financial jeopardy. Health insurance could lead to considerable improvement in household health and financial stability. Providing health insurance could in turn be beneficial to icrofinance organizations if it helped clients repay their loans and maintain a healthy business. o Health insurance does not lead to a change in the rate of renewal or the composition of clients who renew their loan: providing health insurance does not negatively affect SKS main business, and SKS is able to insure a large number of clients at a very small administrative cost: Microfinance institutions are thus likely to be an effective channel to provide health insurance. o Evidence shows that insurance can be provided to poor populations without necessarily entailing adverse selection.

Coupling insurance with other much needed products that the poor lack access to may be a promising mechanism for reducing adverse selection and ensuring the sustainability of insurance schemes.

What is an informed consumer?

Sendhil Mullainathan and Minakshi Ramji

I

n recent years, discussions on microfinance policy and regulation in India have centred on the extent to which small borrowers understand their loans and the financial liability implicated therein. Lack of financial awareness can lead to over-indebtedness and greater economic vulnerability for the very clients that microfinance seeks to help. Indeed, the voluntary code of conduct developed by Sa-dhan after the Andhra Pradesh crisis in 2005 recommends that MFIs be fully transparent in the communication of loan details and interest rates. Thus, financial literacy has become a key policy focus in microfinance.

Methodology For this study, we randomly surveyed two hundred first-time borrowers to gauge their understanding of their loan contract from two microfinance institutions in two locations in India, one in the north and one in the south. While this is a first preliminary round of surveying, we plan to complete a few more rounds based on the results from the first round.

Findings a) What clients already know

What is the amount of your loan?

What is the weekly instalment on your loan, as written in your contract?

(% of respondents)

Right Answer Wrong Answer

96.5% 3.5%

What is the duration of your loan? (% of respondents)

Right Answer Wrong Answer

89.0% 11.0%

Right Answer Wrong Answer Tried But Does Not Know Did Not Try and Does Not Know Blank

As written in loan contract

Adjusting for collection of savings (Rs. 12) in the South

Within 10% of their weekly amount

42.5% 52.0% 0.0% 1.5% 4.0%

66.0% 28.5% 0.0% 1.5% 4.0%

84.5% 10.0% 0.0% 1.5% 4.0%

An overwhelming majority of respondents were able to correctly state the size of the loan and duration of the loan. At ďŹ rst glance, the numbers seem to indicate that only 43% of the respondents were able to state their weekly repayment amounts accurately.

This is, in fact, misleading. One of the MFIs in this study collects Rs. 12 from its clients over and above the loan payment, Rs. 10 as member savings and Rs. 2 as an insurance premium. When this amount is added to the weekly interest payment, the total number of respondents able to state their weekly loan payment correctly rises to 66%. About 85% of the respondents are within the 10% range of the correct weekly repayment amount they owe. b) What clients do not know

Annualised Rate of Interest, as reported by respondents 80

Interest in NorthRs. 180

Interest in South- Rs. 150

60 40 20

60 40 20

% in North 18% % in South15%

0

Interest per Rs. 1,000 of loan (in Rs.)

-999: Did not try and does not know -444: Tried and does not know

250

200

175

150

125

100

50

25

-111

-444

-999

0

-999 -444 1 1.2 1.25 1.5 2 2.3 2.5 5 6 10 14 15 21

Frequency

80

Frequency

Annualised Interest per Rs. 1,000 of Loan, as reported by respondents

annualised rate of interest (in %)

Research Summaries

The Loan Contract Information Study aims to understand how MFI clients understand their loan contract and exactly what it means for an MFI client to be informed. This study goes beyond assessing whether an MFI client knows the terms of his loan. Rather, this study explores which loan term aspects are important to MFI clients and this should mean for regulation.

What is the total interest on this loan that you are required to pay over the time of this loan?

Right Answer 13.5% Wrong Answer 48.5% Tried But Does Not Know 16.0% Did Not Try and Does Not Know 21.0% Blank 1.0%

As suggested by the tables to the left and the graphs above, clients are not able to accurately state the interest on the loan either as a percentage or as a Rupee amount. They are also not able to correctly recall the total interest paid on the loan. In spite of this, almost 47% of the respondents say that the low interest rate was the reason why this source of credit was picked over others. In the North study site, in answer to the question on annualized interest rates, 48% of the respondents gave the answer as 1.5% which is the monthly non-declining interest rate on the loan.

Research Summaries

c) Client perspectives on collection practices Scenarios In case Lakshmi is not able to pay her loan and centre manager insists on holding the meeting outside her house. What do you think about the centre manager's action?

If Lakshmi doesn’t repay her loan in your group, do you think its appropriate to extend the meeting for another 30 mts to enforce the repayment?

If Lakshmi doesn’t repay her loan in your group, do you think its appropriate to extend the meeting for another 3 hours to enforce the repayment?

Lets say that Lakshmi is not able to repay her loan. Would it be okay for the MFI to take any of her assets, such as for instance, any cows she owns, her house her land or machinery she uses for work?

(% of respondents who said the action was appropriate)

42%

45%

33%

54%

The table above shows reactions from respondents to four hypothetical situations where MFI staff use coercive collection practices to enforce repayment. Interestingly, in all except the third scenario, the most popular answer choice was ‘Yes, it’s all right.’

Policy Implications While these results may come as no surprise, this data provides interesting leads to answer the question of what it means for a client to be informed. In this instance, small borrowers are able to identify the loan size and duration, and their loan’s weekly instalment. Many of the borrowers also recognize that non-repayment can have potentially harmful consequences. However, they know very little about the interest rate and total interest expense on the loan.

This study argues for regulation which would require financial institutions to provide interest rate and total interest expense information to clients, which clients can understand and use. The data here shows that clients are able to understand the liability on their loan in terms of weekly repayments, rather than in terms of interest rates. A majority of the clients seem to find what is commonly viewed as coercive collection practices to be acceptable.

In conclusion, the results of this survey would indicate that the way we currently think about how clients understand the loans may not be reflective of ground realities. Firstly, clients think about their loans not in terms of interest rates and interest expense but rather in terms of how much they actually owe on a weekly basis. Secondly, it is both unreasonable and unrealistic to expect small borrowers to have a deeper understanding of their loans than borrowers who have greater access to information and finance. Thus, top-down regulation which works on the assumption that borrowers should be able to calculate and understand their interest rates would not succeed in protecting small borrowers.

Finally, this study, while useful for preliminary understanding of how small borrowers view their loans, is limited in scope. While this study indicates a limited understanding of their loan contract, further research may demonstrate that a survey of middle-class borrowers would elicit a similar level of financial literacy. As such, more research is required in this area to examine how small borrowers understand their loans and how they use this understanding to make financial decisions.

The psychology of debt Sendhil Mullainathan and Elizabeth Koshy

M icro-entrepreneurs, around the world, pay exceedingly high rates of interest in order to finance working capital. In some cases this expensive investment does not translate into growth for their enterprise. Given that a significant portion of their profits is spent on servicing debt, it appears that they could considerably increase their long term income by using savings for working capital. Understanding this behavior can provide great insights into the functioning of micro –enterprises.

Following the baseline survey, the study used a randomized design to experiment with two interventions, 1) financial training and 2) a grant equal to working capital. Two follow up surveys after these intervention have been completed., and the final survey will be soon administered to the respondent population.

Findings - Debt Burden These are the findings from the baseline survey that was administered before the interventions. The sample population has been selected from twelve markets in Chennai. * Standard deviations are given in parentheses.

Table 1 – Business characteristics of sample population Detail 1. One trip a day to the market- normal days

Percentage of Average amount Profits per day* respondents purchased* 89.7%

Rs. 1075.3 (589.2)

Rs.110.5 (54.7)

2. Twice or more trips a day( total amount purchased per day)

8%

Rs.707.5 (422.6)

Rs.95.6 (46.1)

3. Once in two days trip to the market (amount purchased per trip)

2.3%

Rs. 1034.8 (515.8)

Rs.97.2 (44.3)

4. Good days a week

98.9%

Rs. 1666.3 (834.3)

Rs. 186.6 (83.4)

5. Festival days

91.5%

Rs. 2580.7 (1543.7)

Rs. 318.2 (187.3)

Table 1 presents some information on the business flows and the rotation of working capital for the sample population.

The sample population had been selected in such a manner that working capital requirements on a normal day are less than Rs. 3000. As can be seen from the table, majority of respondents make one trip to the whole sale market to buy goods that they resell. For those who make more than one trip a day to the market, they typically do it twice a day. It is mainly flower sellers who make two trips to the market to buy goods for resale.

The table presents information about three scenarios-normal days, good days and festival days. Good days are recurrent days in a week when the respondent knows with certainty that business will be good. Good days for flower sellers are Friday and Tuesday because of the increased temple visits on these days. Festival days are also marked by increased working capital because of the expected high business. It is to be noted that the phenomenon of good days and festival days is not applicable for all vendors. The table also shows the profits earned in each of the three scenarios. Profits have been defined as “take home profits,” i.e. money taken back home after all expenses of business have been incurred.

The respondents in the sample use two main sources of financing for working capital. The first is the meter loan/daily loans. These are high interest loans taken every day for the purpose of working capital financing. The interest rates on these loans vary from individual to individual and it is possible that two people working next to each other in a market get this loan from different moneylenders and pay different rates of interest on them. The second source of financing is buying goods on credit. A vendor who buys goods on credit incurs a charge for being able to do so.

Research Summaries

The Debt Traps project aims at understanding this behavior of entrepreneurs who take on high interest debt for working capital without a corresponding increase in the size of business activity. The sample population consists of 1000 smallscale fruit/vegetable/flower vendors in Chennai who have been selected on the basis of two criteria - buying goods on credit at a premium or taking a daily loan for working capital. The baseline survey collected information on business activities, debt and expenditure, and the main results from this baseline survey are summarized in the next section.

This charge is the difference between the goods bought on credit and the cost of the same bundle of goods if bought on cash. As can be seen in tables 2 and 3, 40 % of the respondents buy goods on credit and close to 70% finance their working capital through meter loans.

Another main point that emerges from the tables is the number of years that the sample vendors have been borrowing persistently for. If one looks at the figures from the table on meter loans, 9.5 years of borrowing 1000 Rs daily translates into 167,580 rupees of just interest payments . This constitutes close to half their income for the same period. For the 500 respondents who were randomly selected for the financial training classes, their training focused on the high interest payments experienced in daily borrowing.

Research Summaries

Table 2 – Buying on credit 1. % of sample size that buys goods on credit

40%

2. % of sample size that buys goods on credit for more than 15 days a month

34.6%

3. Average number of days in a month that the respondent buys goods on credit

19.9 days

4. Average number of years of buying goods on credit

13.4 years

5. Average premium paid for goods bought on credit

17.3%

6. Average of maximum that can be bought on credit

Rs. 3420

7. Alternate to buying on credit a. another moneylender

72.25%

b. friend

3.75%

c. family/relatives

1.75%

d. no one else

24%

Table 3 – Meter loans for financing 1. % of sample size that takes daily loans

69.4%

2. % of sample size that takes daily loans for more than 15 days a month

65.7%

3. Average number of days in a month that respondent takes a daily loan for working capital

25.8 days

4. Average number of years of taking daily loans

9.5 years

5. Average daily interest rate

4.9%

6. % of total meter loan borrowers who borrow from the same moneylender daily

67.7%

7. Average of maximum that can be borrowed as a daily loan

Rs. 4098.6

8. % of meter loan borrowers who feel there is no other way of doing business and the interest 63.8% is unavoidable

Table 4 – Usage of savings products Savings product

Usage by respondents (in %)

Cash at home

77.5

Cash lent out

5.7

Cash saved with family/friends

1.5

Chit funds

11.2

MFI/SHG

29.2

Bank account

12.8

Gold

74.6

One possible explanation for people being stuck in this debt trap may be that people cannot save easily. The final table (Table 4) looks at the different savings products that are available to respondents and the percentage of the sample population using these. As can be seen from this table, except for gold, the usage of formal savings is fairly low. The good thing to note is the relatively higher savings within MFIs and SHGs. Policy Implications Preliminary results point towards both a debt trap for some and a lack of a formal savings vehicle. The two main policy implications to take from this analysis follow here: (i) despite spread of credit to the poor, many of the poor

Competition in microfinance Doug Johnson and Karuna Krishnaswamy

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There is little consensus on how significant these potential positive and negative effects really are and, in the case of the negative effects, what, if anything, should be done about them. Some argue that the voluntary code of conduct, established in the wake of the AP crisis, should be revised or that new regulation aimed at curbing such activities as client or staff poaching should be adopted. Others argue that a credit bureau with mandatory participation is the way to avoid the potential negative effects of competition. Still others argue that the concerns over supposed “excessive” competition are overblown and that, in the end, it is only by greater competition that the end customer will truly win.

In an attempt to shed light on these, and other, issues, the CMF is currently conducting a series of studies on competition in the Indian microfinance sector. These studies, along with their results in the case of already completed studies, are described below.

Completed Project: Competition and Multiple Borrowing in the Indian Microfinance Sector by Karuna Krishnaswamy Multiple borrowing is a critical issue for MFIs and the microfinance sector as a whole. Multiple borrowing, if not accompanied by a sharing of client repayment information between the different lenders, may lead to a weakening of the incentive of the client to repay and over-indebtedness.

Through the use of a newly available dataset on MFI clients in a highly competitive region, interviews with managers of MFIs, and interviews with clients who borrow from more than one MFI at a time, the CMF sought to quantify the extent of multiple borrowing and to determine how multiple borrowers differ from those who borrow from only one source.

The key finding of this study is that there is no negative relationship between multiple borrowing and repayment performance. In fact, over a 3 year time frame of loan disbursal records, multiple borrowers had a lower or equal arrears rate than their single borrowing counterparts in the same villages or colonies, which in turn was lower than the overall arrears rate of all clients in the sample. A majority of the multiple borrowers interviewed reported that they used the second loan for investment purposes and none had repayment difficulties. The study also found that all MFIs for which data was available, except one operating in urban locations only, had equal or better repayment rates in more competitive branch locations (defined as villages with at least 3 MFIs with multiple borrowers) than in less competitive ones.

The results of this study were presented at the annual CMF summer policy conference in September.

Completed Project: Map of Microfinance The CMF, in collaboration with the Swiss Development Corporation has created a district-by-district map displaying the total number of bank-linked SHG members and total number of clients for 22 of the top MFIs in India. The map allows viewers to gain a comprehensive overview of microfinance coverage and competition levels across the country. In addition, the map also allows viewers to drill down to the state level and view which districts each of the MFIs for which data was collected have a presence in. To date, maps have been successfully created for the years 2005 and 2006. The CMF is currently working on creating the map for 2007.

The map can be found online at http://ifmr.ac.in/cmf/map-of-microfinance/ Current Project: Patterns of Competition and Expansion in Microfinance: A Case Study in the State of Karnataka The Centre for Microfinance is currently conducting a study on patterns of competition and expansion in the microfinance sector. Using historical data on district expansion for MFIs operating in the state of Karnataka, the CMF will analyse how MFIs respond to competitive pressures and whether, on average, MFIs seek out areas previously un-served by other MFIs or tend to gravitate toward areas in which at least one MFI already operates when deciding where to expand operations to. In addition, the impact of increasing competition on loans sizes and interest rates will be analysed.

Research Summaries

ith the phenomenal growth of the Indian microfinance sector over the past decade, microfinance institutions (MFIs) increasingly find themselves competing for the same customers. Competition between MFIs may lead to lower interest rates, better designed products, and better customer service as more innovative and efficient MFIs are rewarded and less efficient ones are driven out of business. Yet, competition may have adverse effects as well: overall repayment rates may drop if MFIs’ threats to withhold future loans in the case of default no longer act as a disincentive for customers with multiple borrowing options. Operating costs may increase due to client and staff poaching, clients may take on more debt than they can handle and credit officers may adopt overly-aggressive loan collection tactics as MFIs each try to squeeze delinquency rates down as far as possible. Indeed, many experts blame the recent crisis in Andhra Pradesh, in which government officials shut down nearly all MFI branches in Krishna district, on the negative effects of unbridled competition.

Microfinance and the market Jonathan Morduch

O ne of Muhammad Yunus’s remarkable qualities is to make microfinance sound easy. But, in truth, it is not. Building banks for the poor has vexed banks and government officials for decades, and only now have microfinance success

Research Summaries

stories edged out the many narratives of failures that litter the historical record. Now that the 2006 celebrations have quieted and there are a fresh crop of Nobel winners, it is the right time to step back to assess Yunus’s vision and the landscape on the ground. Despite the microfinance success stories, practitioners and policy makers continue to struggle with hard questions. Most important: how can the microfinance “industry” grow while institutions remain committed to their missions over time?

Microfinance institutions must have strong business models in order to survive over time, but the challenge is raised by the fact that most microfinance institutions have “double bottom lines”: they are not just working to make profits.

Inspired by Yunus and others, they are “social businesses” in part working to create lasting social change, and in that pursuit, donors—whether governments, foundations, or individuals—are helping with subsidized resources. Experts estimate that investments in microfinance average around $4 billion annually, much of that invested with social aims. A recent analysis of 94 million microfinance borrowers shows that over 80 percent are served by non-licensed institutions like NGOs or government banks, set up in part with social missions. The idea is clear, but how, in practice, can social businesses do justice to both the social side and the business side?

A recent international survey by a donor consortium showed that 30 percent of respondents stated that the most important use for subsidies is to help institutions operate reach “rural and/or remote clients.” Others pointed to various kinds of capacity-building and bridge-building to domestic capital markets. Every single one of the 45 institutions reviewed in the survey has a donor partner that provides some form of subsidy: seven institutions had one donor partner, fifteen institutions two or three and twenty of them more than three. The use of subsidies decreased in 12 institutions from 1999 to 2003, but in 14 the share of subsidies on total liabilities increased.

So far, however, the decision of governments or donors to grant subsidies is rarely based on considerations of efficiency.

Most institutions complain that donors push them toward more emphasis on poverty reduction or on financial self sufficiency. Institutions with several donor partners often get conflicting signals. Well-designed subsidies should focus first on ensuring that the institution operate most efficiently, whatever is its chosen combination of social and financial goals. Too often, current practices of subsidization lead to market distortions and unfair competition, as well as undermining accountability in the management of institutions. Focusing on efficiency, conditional on the type of institution, is an important way forward.

A starting point is to better understand the drivers of efficiency. In part, managers of microfinance institutions must deal with the markets they’re in, and have to take the nature of regulation and the structure of costs and wages as given constraints. But managers also have discretion; they can improve incentive contracts for loan officers, modify loan delivery techniques (e.g., choose between individual versus group transactions), adjust collateral requirements, choose combinations with non-financial services, and develop strategic partnerships with local groups and associations.

Given the mixed track record of subsidies to support microfinance so far – or in the entire financial sector of many countries, for that matter – some scepticism is justified. Which types of subsidies are “smart” and which are not? The form, intensity, timing, duration, transparency, conditionalities and magnitude of subsidies can make all the difference to market distortion, impacts, and institutional incentives. It is time to examine and debate these issues in an open way and to keep a sharp eye on efficiency as a critical element of the bottom line.

Designs for Microfinance: Linking Research, Policy and Product Design Michael Walton 1

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This note explores these questions for microfinance. It is based on the Pune workshop on research on micro-finance held in January 2008, which was co-sponsored by the Agricultural College of the Reserve Bank of India and the Centre for Micro Finance at the Institute for Financial Management Research. It first describes why research should be of keen interest to policymakers and practitioners. It then suggests why policy and practice is of equal interest to applied researchers. And finally it describes some challenges associated with the differing goals, style and rhythm of work for the different communities, and suggests approaches to tackling these challenges.

Why research matters - an example : To focus attention on the issues let’s take the highly topical example of farmer suicides in India. This is generally seen as the tip of the iceberg of a broader agrarian crisis, in which weather, economic vulnerability and debt are intertwined. By one estimate there were some 150,000 farmer suicides between 1997 and 2005, of which about two-thirds were in the States of Maharashtra, Andhra Pradesh, Karnataka, and Madhya Pradesh. 2 These are personally tragic events, reflections of suffering of the farmers and causes of further suffering by their families. There is surely a welfare and political case for public action?

While the prima facie case for action is clear, just what it makes sense to do is much less clear. This depends on both an understanding of the underlying causes and the short and long-term responses to alternative actions. Take a simplified schema, as presented in Figure 1. First, there is incomplete understanding of underlying processes and causes. What is the relative importance of the sequence of droughts, indebtedness, market structures for borrowing and selling, as drivers of the underlying causes? How do we understand the psychological and cultural context for taking such devastating action? And, even if we understand the causes, there are an array of alternative responses (in addition to doing nothing). There can be debt forgiveness—and a sweeping plan for debt forgiveness was indeed proposed in the March 2008 budget. This proved very politically popular, with political parties competing to argue for bigger and better forgiveness. But there are alternatives. Reduced interest rates could be part of a solution. This in turn can work through innovations in product design, broader financial market thickening, regulation or subsidies. And, to the extent that the real problem is not credit per se, but the exposure to adverse risks, there is surely a case for insurance, whether this is bundled with credit or through various independent schemes—for example independent weather or health insurance.

Finally, there may be a problem of farmers not understanding what they are getting into when they take on debt—here programs of financial literacy could be relevant.

And, to the extent that the real problem is not credit per se, but the exposure to adverse risks, there is surely a case for insurance, whether this is bundled with credit or through various independent schemes—for example independent weather or health insurance. Finally, there may be a problem of farmers not understanding what they are getting into when they take on debt—here programs of financial literacy could be relevant.

1. Senior Visiting Fellow, Centre for Policy Research, Delhi, and VKRV Rao Chair Professor, Institute of Social Economic Change, Bangalore; also adjunct lecturer of the Harvard Kennedy School. See Morduch, J. (1999). The Microfinance Promise. Journal of Economic Literature. 37 (4), 1569-1614.

2. Study by K. Nagaraj of the Madras Institute of Development Studies, as reported in The Hindu 12th November, 2007.

Research Summaries

hy should policymakers, practitioners and researchers be talking with each other, and, indeed, working together?

This seems an almost trivial question, with an obvious answer: surely there is potential for large mutual benefits? Yet, all too often there is a gulf in communication and understanding between these communities. Much policy design is ill-informed by research, or even by careful review of evidence. Practitioners shape their designs from their assessment of practical experiences rather than careful assessment of effects. Researchers often seem to spend far too much time exploring technically engaging questions whose results seem too remote or too abstract for the serious world of development practice.

And, to the extent that the real problem is not credit per se, but the exposure to adverse risks, there is surely a case for insurance, whether this is bundled with credit or through various independent schemes—for example independent weather or health insurance. Finally, there may be a problem of farmers not understanding what they are getting into when they take on debt—here programs of financial literacy could be relevant.

Figure 1. Farmer suicides: a clear problem with many alternative policy solutions

Farmer suicides

Droughts + indebtedness + shame + ?

Research Summaries

Political and prima facie welfare case for public action

Financial literacy Debt forgiveness

Ex ante insurance Reduced interest rates

Regulated caps Subsidies Product innovation to reduce transaction costs

Bundled

Independent weather insurance

Etc….

What is the point of this example? All these questions—and others that a more careful review of the processes would pose—can all be illuminated by careful, evidence-based research. And this can matter a lot. Even before we consider implementation issues, alternative technically plausible choices can be: o Irrelevant (but still have costs) o Highly effective o Poverty-increasing This is not merely academic. It is quite possible that the favored, highly politically popular, government action of debt forgiveness will be poverty increasing. Those with overdue debt will benefit, and will experience relief. These are not the poorest, since very few of the poor have access to formal sector debt. More important, widespread debt forgiveness is one of the most effective ways of setting back the goal of increased financial inclusion that many believe to be an important instrument for long-run agrarian progress.

Moreover, issues of implementation are huge in India (as they are in any developing country). Just how product designs and policies really work on the ground—with all the questions of administrative capability, corruption, social context, and household responses—is as important to success or failure as is technical design.

We can extend this heuristic example with reference to some of the research presented in the Pune conference, and summarized in this volume. None of the research was directly focused on the farmer suicide issue. But we can see how the kinds of questions being addressed in this ongoing work could be of direct relevance in comparable research.

Take the following examples: o To inform policy responses, it is important to develop a detailed understanding of the underlying household-business model. The careful descriptive work of poor household-business in Hyderabad by Banerjee et al exemplifies this; there is a long tradition of such analysis of farmer conditions. This type of analysis is necessary to understand how farmers interact with formal and informal financial markets, take on debt, and how this is linked to product markets. o Just what leads to debt problems is also important to any policy response. Is it an issue of unexpected shocks, and lack of insurance? Or are there psychological factors that lead to farmers not understanding the full financial consequences of borrowing, or being unable to “control” borrowing, despite an underlying preference to do so—as discussed in the two papers by Mullainathan and co-authors on the awareness of financial product characteristics amongst MFI borrowers, and on the practices of street-vendors. o To the extent that the problem lies in real risks, just how to provide insurance can have major effects. Is the problem weather risk or health shocks? How can insurance be offered in ways that ensure the insurer is not only left with the bad risks, or farmers expend less effort in cultivating their crops or taking care of their animals? Is bundling of insurance with credit a deterrent to borrowing, or likely to exclude lower-risk borrowers? The study on bundling of health with credit reported in Duflo et al is exploring the last question, with initially encouraging results for a different risk category. This type of insurance evaluation could also be explored for farming-related risks.

o On interest rates, an excellent example of a product design innovation that can lead to large declines in administrative costs is shifting to less frequent repayment schedules. But the concern, especially amongst practitioners, is that this would lead to lower repayment. Research on repayment schedules by Pande et al working with an MFI in West Bengal demonstrates some promise in reducing repayment frequency, with initial results suggesting there is potential for greater flexibility, and thus lower costs, without worsening of repayment. o While not in an experimental context, the analysis of the effects of multiple borrowing by Johnson and Krishnaswamy casts light on an issue that became very contentious after the Andhra Pradesh crisis in microfinance in one district. o The potential benefits of business training on management are being assessed in the study by Pande et al working with SEWA Bank in Ahmedabad. This too could be explored in a farming setting.

Note what the message is. It is not that the research being reported on here can be generalized and translated to the context of farming crisis and suicide. It is that the kinds of questions that need to be explored in diagnosis and policy design are researchable. The specific questions depend on the context, and this must be assessed in the research process—interacting with policymaker and practitioners. Moreover, actual effects of policy or product design innovations are also influenced by context: thus the central importance of a practical approach that builds in discovery of effects in a rigorous fashion, which would enable ongoing learning and adaptation.

What of researchers? Why should they be interested in connecting with policymakers and practitioners? One part of the answer is that policy and product design is a crucible for the exploration of empirical, and indeed theoretical, research questions. This was always true, but has acquired major additional force with the growing recognition of the centrality of carefully designed field experiments as a core tool for micro, empirical development economics. This recognition has been driven both by statistical concerns—that there are so many influences on observed outcomes that structured experiments are often essential to understand just what is going on—and especially so in response to policy and product design changes. But it is, perhaps more deeply, related to the recognition of the complexity of development processes and the need to understand behaviors of firms, farmers, households and government agents in the particular contexts in which they operate.

There are also more mundane, but equally important, reasons why researchers should, and increasingly are, concerned to contribute to policy and product design questions. First, most researchers working on development want to have an impact—they care about the lives of poor people, and they like to have influence. Second, relevance and influence is important to the authorizing environment for research—for the financial, human and organizational support that is necessary to conduct rigorous field-based research.

On style and rhythm: challenges and approaches Enough about the case for tighter interactions between researchers, policymakers and practitioners; if it is so obviously desirable, why is there so little of it going on, relative to the huge amount of development action, and associated outlays of financial and human resources? Figure 2 portrays a happy ideal of interactions: careful empirical research forms the basis for both policy and product design. Implementation is then constructed to be systematically linked with research—for example through building field experiments with randomized designs into the implementation process.

And this can then feedback into the adaptation of policies and product designs.

Figure 2. An “ideal” pattern of research-practice interactions

A happy ideal of interactions…

Initial empirical research

Policy design

Field experiments

Product design

Implementation

…is hard to achieve given different cultures, time pressures, requirements of researchers and practitioners

Research Summaries

o As a final example, as noted above, the poorest farmers typically have little or no access to formal credit, even from microfinance institutions. The study of an experiment on targeting the hard-core poor in West Bengal by Chattopadhay et al, which uses grant-financed assets as a first step to bring the poorest into the financial net, is directly applicable here.

There are perhaps two broad categories of reason why this happy ideal so rarely occurs in practice.

First of all, when there are political economy implications, programme advocates are often unenthusiastic about careful evaluation. The real purpose of policies or programmes are to further the entrenched, and influential interests of particular groups. The last thing these powerful groups want is revelation that policies supposedly adopted to reduce poverty (for example) are doing nothing of the sort, bur rather doing a great job of channeling scarce government resources to the influential.

Research Summaries

Now it may often be really important to do research even if the above situation exists. There will surely be a role for researchers in cases such as these, documenting the effects, revealing these to the public through the press and other means, analyzing why the political equilibrium supports the chosen policies, and so on. But it is unlikely that this will be vigorously supported by programme advocates. Alternative means of financing and undertaking this kind of research will be needed.

A second kind of case is more relevant here. Often policymakers and practitioners really are sincere in seeking to do what they say: improve the lives of the poor, increase financial inclusion, reduce vulnerability, etc. They may have strong views on how this can be done, but there is not decisive evidence on what works. And researchers really want to apply their tools to help solve practical problems. Yet, the marriage often does not occur because of the very different cultures and rhythms of work. Policymakers and practitioners want to take action now, and get concrete results on the bottom line of their efforts. Researchers can take seemingly forever working through a design that can deliver a carefully supported result that may seem little more than a theoretical curiosity to the world of practice. They may have data collection demands that seem unreasonable to practitioners. For randomized evaluations involving treatment of controls, there can be practical or political difficulties with groups of people assigned to be the control.

It is important to recognized differences in objective and style. However, the cases in this workshop illustrate the general principle that there is potential for overlap, and this potential is arguably much greater than is generally recognized, given the inertia of distinct traditions. For policymakers and practitioners are also keen to discover what does and does not work, to get results, to understand just what were the drivers of change, the influence of context and the potential for replication or adaptation of findings more broadly. Moreover, this increased interest in basing policies and actions on rigorous research aligns with the growing societal and political pressure for accountability, transparency and the associated right to information. To take a parallel case, the case for randomized trials in medicine is accepted at a technical, political and societal level.

This brings us back to one of the central techniques on display in the work presented at the Pune conference: institutionally embedded field experiments (generally using randomized designs). This type of experimental approach is highly suitable for many, if not all, financial sector questions, whether this is through exploration of underlying drivers of behavior, or responses of firms, households and financial sector actors to alternative product designs. The conference provide illustrations of tight links to specific product designs, some noted above, others summarized in the earlier parts of this volume.

To move things forward, there is a case for a more strategic approach. There is a need to: • Show the practical value of evidence-based research for policy and product design—that goes beyond “dissemination” to taking real design choices and exploring the statistical and economic significance of alternatives; • Organizational structures (formal or informal) that involve structured interactions, at both the design and evaluation phases of policy and practice that: •

Discipline researchers to provide structured responses to policy and practitioner questions (over time); and

• Discipline policymakers and practitioners to seek evidence-based results for policy design, and present the basis for choices to their stakeholders, and to society as a whole.

There are many ways of doing this. This conference already provides examples of such collaboration occurring, if more commonly with non-government organizations than with large scale financial institutions and governments. The latter is really important in order to find genuinely scaleable results. ************* The Pune conference involved a sharing of preliminary research results involving all three communities—researchers, policymaker and practitioners. It was a highly fruitful exchange but only a first step. There is enormous potential for deepening the relationships and developing joint work that uses the tools and approaches or researchers to tackle the very pressing issues faced by policymakers and practitioners. Strengthened collaboration needs to take account of the different style and rhythm of the three groups, while also exploring the very rich areas of common interest.

Conference Proceedings

O

ver three sessions, original research findings were presented on 1) issues of product design; 2) challenges in offering innovative financial and non-financial services with micro-credit; and, 3) emerging issues in the microfinance sector.

Following is a summary of the major issues/recommendations that emerged from the discussions and presentations.

Inaugural Session Welcome Address

Mr. Sandip Ghose, Principal, College of Agricultural Banking, Reserve Bank of India, Pune

Special Address

Dr Nachiket Mor, President, ICICI Foundation for Inclusive Growth

Special Address

Mr. C S Murthy, CGM-in-Charge, Rural Planning and Credit Department, Reserve Bank of India

Special Address

Mr. T Y Prabhu, Executive Director, Union Bank of India

Special Address

Ms. Annie Duflo, Executive Director, Centre for Micro Finance

In his welcome address, Mr. Ghose expressed his delight in the CAB-CMF collaboration and hoped that the conference would succeed in encouraging more interaction between academicians, microfinance practitioners, bankers and policy makers. Mr. Prabhu, in his special address, spoke about the efforts made by the Union Bank of India towards promoting financial inclusion – particularly its pygmy deposit schemes and the provision of biometric cards to hawkers.

Mr. Murthy, in his special address, raised concerns about the skewed growth of the sector towards the southern states.

He observed that in some states MFIs overlap with the banking infrastructure and emphasized the need for the sector to focus on expanding access and outreach in 13 states that National Bank for Agriculture and Rural Development (NABARD) had identified as under-served. He also expressed concern about the continued focus on credit and urged practitioners and policy-makers to take note of the constricted growth of savings and mechanisms to satisfy individual credit needs within the framework of group lending. He opined that there is an urgent need for the sector to evaluate the recovery practices employed by MFIs and develop technology-based solutions that would allow MFIs to track their activities and also create an enabling environment for the functioning of credit bureaus.

In her special address, Ms. Duflo spoke about the Centre’s objective to identify and bridge knowledge gaps in the practice of microfinance by facilitating interactions between researchers, practitioners and policy makers, and, the dissemination of research findings to promote evidence-based programme and policy design. She expressed her delight in the CAB-CMF initiative and highlighted its potential to achieve these very objectives.

Conference Proceedings

In his special address, Dr. Mor spoke about the importance of high-quality research for designing microfinance products and policies and the sectoral attempts to achieve inclusive growth. He welcomed the CAB-CMF initiative to bring together world-class researchers, and high-level practitioners and policy makers. The two key challenges, Dr. Mor argued, the sector is facing today are that of value addition and operations. While the positive effect the presence of a bank branch has on rural poverty in a given area had been established by Pande and Burgess, an important question that remains to be addressed is whether consumption smoothing leads to value creation – considering that a large percentage of credit is utilized for consumption purposes. While speaking about operational challenges in the sector, he highlighted the debate centered around the SHG-bank linkage model vis-à-vis the Grameen and the Joint Liability model, in terms of sustainability and social value addition. In particular, a recent RBI report finds that the cost of funds to a bank for SHG lending is around 12-14% raising a question whether the current interest rates charged are cost effective in the long run. On the other hand, the SHG-bank linkage model is considered superior because RBI considers credit linkage after just 6-7 days inappropriate. Apart from the issues related to operations and delivery mechanism, Dr. Mor expressed his concerns about the collection practices of microfinance institutions (MFIs) and banks.

Technical Session I Theme : Improving Businesses – Product Design and Additional Services Chairman: Dr Nachiket Mor, President, ICICI Foundation for Inclusive Growth A snapshot of small businesses in Hyderabad: results from a Professor Abhijit Banerjee, MIT large-scale survey Experiment on repayment schedules and business training Professor Rohini Pande, Harvard University for micro-entrepreneurs Tailoring products to clients’ needs

Ms Jayashree Vyas, SEWA Bank

Conference Proceedings

A snapshot of small businesses in Hyderabad: results from a large-scale survey Professor Banerjee drew upon preliminary results from a CMF research project in Hyderabad slums that focuses on evaluating the impact of micro-credit on households. The dataset of 2400 households reveals that most businesses are labour intensive (not requiring any specialized skills) at sub-optimal scale suggesting constrained access to risk capital or imperfect risk sharing mechanisms. Also, there was a lack of innovation and diversification of activities with many individuals involved in similar type of businesses and narrow profitability margins. The lack of diversification could be due to a lack of awareness about alternative businesses or the lack of incentives to innovate because it is easier for neighbours to adopt the innovation and drive profits down. Also, 69% of the households have at least one outstanding loan and 46% of the households have more than one outstanding loan. However, only 8% of those who had loans had taken it for business purposes. This leads to a question as to why households were not attempting to double their capital and grow their business. Perhaps, such an influx of capital would not be sufficiently transformative – implying that the Spandana loan may not be large enough – or people may simply find it difficult to save.

Speaking about the possible role of government and that of subsidies, Professor Banerjee pointed out that subsidies could function as a credit multiplier – cutting the cost of credit, increasing the ability to repay and take larger loans, and, reduce transaction costs. Also, if there is a concern that people are not aware of the cost of their loans and that they may not be willing or able to pay for financial literacy, the government could intervene to promote financial literacy.

Experiment on repayment schedules and business training Professor Pande presented results from a research project that tested the impact of flexible repayment schedules with an MFI, Village Welfare Society (VWS), in Kolkatta. From the experiment, it was obvious that monthly repayment schedules had no discernible effects on client default or delinquency. The study compared repayment behaviour and other indicators among three groups of clients randomly assigned to a) weekly meetings and weekly repayments; or b) weekly meetings and monthly repayments; or c) monthly meetings and monthly repayments. The rate of default in all three groups was virtually identical. However, early repayment – indicative of fiscal discipline – was higher for weekly repayment clients, and, monthly repayment clients worked more on the day before the repayment was due and borrowed more from husbands to repay loans. It was also observed that although clients that met more regularly had greater familiarity with fellow group members, this familiarity did not translate into greater financial reliance and these clients relied on traditional networks for making payments such as family and friends. These results are discussed in greater depth in Field and Pande (2007).

Most importantly, study results show that MFIs can potentially reduce their transaction costs through less frequent repayment schedules without significantly increasing their rates of default. While this study was conducted with first time borrowers who consequently had smaller loans in an area where competition was absent, further experiments with the same set of clients in their subsequent loan cycles are on-going and would allow the researchers to test the effects of larger loans and also, potentially, the effects of increased competition on default rates with the entry of other MFIs into the area.

Business training for micro-entrepreneurs Professor Pande also presented findings from a study in collaboration with SEWA Bank to examine the impact of business training on financial and business behaviour of its members. Preliminary results from this study indicate that the business training increased borrowing in general and training with a friend (peer) had significant effect on clients’ savings. In addition, training attendance differed between the treatment groups. The attendance rate among peer-trained clients was 69% and 63% among individually-trained clients.

While the results are indicative of the positive effects of business training, further experiments are necessary to determine the effect of follow-up sessions on long-term retention rates, and, to disentangle the reasons why training with a peer influences the savings and borrowing behaviour of clients. This would help design appropriate programmes that positively impact long-term financial status of clients.

Describing the efforts of SEWA Bank to tailor products to the needs of their clients, Ms. Vyas traced the history of product development at the Bank from their first basic savings and credit products to financial literacy training today. She emphasized that SEWA Bank’s product development strategy has been driven by rigorous research and a system of continuous feedback from field staff and clients. In the late 1980s, for example, the results from a Harvard study indicated that women were confused about personal and business needs, and consequently, made impulsive financial decisions in which clients did not effectivly use various financial products offered by the Bank. This led to the development and offering of a financial literacy curriculum that emphasized the management of cash and the power of compounding.

Most recently, when they deputed village leaders on a commission basis to start daily collections for savings and loans, SEWA Bank realized that their staff incentives were oriented towards collecting loans (2.5% commission with an average collection of Rs 500 a day in comparison to 2% commission on an average collection of Rs 100 a day).

Technical Session II Theme : Addressing Vulnerability Through Microfinance Chairman: Dr Ajit Ranade, Chief Economist, Aditya Birla Group Health insurance: opportunities and challenges

Professor Esther Duflo, MIT

Targeting the hard-core poor in West Bengal

Professor Raghab Chattopadhyay, IIM Calcutta

Remittancs: addressing the needs of migrant workers

Mr. Md N Amin, Adhikar

Speaking about preliminary findings from the baseline and take-up data, she said that it revealed a considerable unmet demand for insurance. Households face frequent ‘health shocks’ with 93% of the households experiencing a serious health event resulting in an expense of at least Rs 300 or more than 7 days of work loss; and 6% of households had at least one member hospitalized in a given year. Hence, there is potential for a health insurance product to reduce the financial risks households face. The insurance policy administered by Lombard covers catastrophic illnesses that include delivery, hospitalization and accidents. To minimise adverse selection, SKS made this policy mandatory to its clients along with renewal of loans. The take-up data revealed that there was no significant difference in the rate of loan renewal or the composition of the clients who renewed their loan when the product was made mandatory. These results suggest that this mandatory policy did not affect SKS financially and the high rates of renewal would help them cover operational costs. Coupling insurance with other much needed products that the poor lack access to may be a promising mechanism for reducing adverse selection and ensuring the sustainability of insurance schemes.

Targeting the hard-core poor in West Bengal Microfinance faces persistent criticism about the discrepancy between who it claims to target and its actual outreach.

There is a growing consensus, even among practitioners, that microfinance does not reach the poorest of the poor. MFIs may neglect Ultra Poor households because of their high vulnerability to shocks, making it less likely that they would invest the loan in productive activities and spend it on consumption items. Bandhan, a Kolkatta-based MFI, started the “Chartering into Un-ventured Frontiers – Targeting the Hard Core Poor” (CUF-THP) programme in 2006. This grant-based programme for the Ultra Poor households draws inspiration and technical support from a similar programme run in Bangladesh by the Bangladesh Rural Advancement Committee (BRAC).

Professor Chattopadhyay presented findings from a study that assessed the effectiveness of Bandhan’s identification strategy for the Ultra Poor. This is a part of a longer-term study that evaluates the impact of Bandhan’s grant programme for the Ultra Poor. The strategy adopted by Bandhan consists of a series of discussions and interviews at the village and household level, starting with a Participatory Rural Appraisal (PRA) to identify Ultra Poor households in each hamlet using wealth rankings, followed by detailed household survey and a personal visit by the THP Coordinator to verify the results of the PRA and identify the beneficiary. By comparing households that were identified as Ultra Poor by Bandhan and households that appeared poor according to an economic census but were not identified as Ultra Poor, the researchers were able to evaluate the accuracy of the identification strategy. The results indicated that Bandhan’s procedure identifies a sub-population which is notably poorer in certain respects, particularly readily observable attributes (land, assets and access to formal financial services). The study confirmed that the peer wealth rankings established by PRAs generate a reliable assessment of relative poverty – households ranked as poorest by their neighbours also appear less advantaged. However, economic census alone, as is done for many government assistance programmes, is not sufficient to identify a poorer sub-population – recipients were not found to be noticeably more disadvantaged than nonrecipients. These results have broader implications for the efficiency and effectiveness of the programmes that target

Conference Proceedings

Health insurance: opportunities and challenges Professor Duflo presented preliminary findings from a randomized experiment with SKS Microfinance to evaluate the impact of offering catastrophic health insurance to micro-lending clients. Households experience frequent and costly health shocks which often result in financial jeopardy. While MFIs have the potential to lower transaction costs through their established delivery channel and large client base, and, address adverse selection issues by combining the delivery of health insurance with credit, they face threats such as selective drop-outs and under-utilization of the insurance policy. And, of course, the question of whether health insurance ultimately benefits the client remains.

Remittances: addressing the needs of migrant workers Mr. Amin of Adhikaar spoke about his organisation’s remittance product for migrant workers from Orissa. He stressed the difficulties migrants face in accessing formal financial service providers for remittances – a combination of rigid Know Your Customer (KYC) norms, absence of network at the destination, and, opportunity costs they face (loss of a day’s wages). Apart from the difficulties in access to remittance products, migrants encounter a lot of health and occupational hazards compounded by lack of civic amenities and poor living standards. While there is an estimated Rs 2000 crores (20 billion rupees) worth of inward remittances from just the State of Gujarat to Orissa, there is an absence of regulation concerning remittances and there is an urgent need for it.

Technical Session III Theme : Emerging Issues in Microfinance

Conference Proceedings

Chairman: Mr. C S Murthy, CGM-in-Charge, Rural Planning and Credit Department, Reserve Bank of India What is an informed consumer? The psychology of debt

Professor Sendhil Mullainathan, Harvard

Competition in microfinance

Mr. Doug Johnson, CMF

Microfinance and the market

Professor Jonathan Morduch, NYU

What is an informed consumer? The psychology of debt Professor Mullainathan presented findings from a CMF Loan Contract Information study that was aimed at understanding whether and how MFI clients comprehend their loan contracts. The study identified which aspects of loan contracts are important to clients and the implications thereof for regulation. The findings revealed that clients think about their loans in terms of how much they owe on a weekly basis and not in terms of interest rates and interest expenses. This raises a question of whether it is reasonable or realistic to expect small borrowers to have a deeper understanding of their loans, whether this understanding is necessary at all and the relevance of financial literacy training. Hence, a topdown regulation that works on this assumption – borrowers should be able to calculate and understand their interest rates – may stifle access to financial services rather than protect small borrowers.

Professor Mullainathan also spoke about findings from a study that surveyed 1000 micro-entrepreneurs (vendors in Chennai) who had taken and continue to take a high-interest debt for financing their working capital. There are two ways in which these individuals finance their businesses. The first is the meter loan/daily loans which are characterized by their high interest rates (averaging 5% per day). The second source of financing is buying goods on credit, where a vendor incurs an interest rate that averages 17% for the sample. Interestingly, over a long period of time, the interest payments alone constitute nearly half their income while the size of their business remained the same. It is striking that if these individuals had attempted to save small amounts of money (assuming they have access to a suitable savings mechanism), for e.g. drink one less cup of tea a day, in 30 days, given the power of compounding, they would have doubled their income. Faced with persistent borrowers - the average number of years these women have been using costly debt is 13 years – it is pertinent to wonder whether they are confused i.e. they do not understand the costs (interest rates) or tempted i.e. they just happen to make bad choices while taking loans they do not actually need.

Competition in microfinance Mr. Johnson presented results from one of CMF’s studies on competition in the microfinance sector. Through the use of a dataset on MFI clients in a highly competitive region, interviews with managers of MFIs, and, interviews with clients who had borrowed from more than one MFI, CMF sought to quantify the extent of multiple borrowing and to determine how multiple borrowers differ from those who borrow from only one source. The key finding of this study was that there is no negative relationship between multiple borrowing and repayment performance. In fact, over a three year timeframe of loan disbursal records, multiple borrowers had a lower or equal arrears rate than their single borrowing counterparts in the same villages or colonies, which in turn was lower than the overall arrears rate of all clients in the sample. The study also found that all MFIs (for which data was available, except one operating in urban locations only) had equal or better repayment rates in more competitive branch locations (defined as villages with at least 3 MFIs with multiple borrowers) than in less competitive ones.

Microfinance and the market Professor Morduch spoke about the pressing trade-offs in the microfinance sector illustrating that, often, the best choices are not obvious. One such trade-off concerns interest rate policy and debate on the need for interest rate caps. It has been theorized, and established to a certain extent, that when institutions are pushed to decrease their interest rates, they will look towards increasing their loan sizes, consequently, shifting away from the poorer clients. In India, compared to the global scenario, average costs are relatively high and the interest rates are relatively low (given these costs).

This raises important questions of whether (a) an increase in interest rates would lead to an exclusion of certain populations and (b) technology and competition will impact costs as MFIs expand outreach and scale-up. The other trade-off he described was regarding loan usage. Money being fungible, even ‘production loans’ will be used for consumption, and, MFIs face a trade-off between possible financial implications of such behaviour (non-productive loans leading to lower repayments) and the institutional urge to help households smooth their consumption cycle and address

Valedictory Session Learning from the conference and future research needed

Mr. Michael Walton, Policy Advisor, IFMR

Vote of thanks

Mr. Sandip Ghose, CGM & Principal, CAB

Learning from the conference and future research needed In summarizing the discussions, Mr. Walton spoke about the need for greater interaction between research, policy and practice. He underlined the importance of evidence-based research in helping distinguish highly effective programmes from those that are irrelevant and contribute to increasing levels of poverty. A perfect harmony of interests is difficult to achieve among researchers, practitioners and policy-makers given the differences in requirements and constraints arising from the environments they operate in. However, by better disseminating relevant research to direct policy and product design, and designing better organisational structures that seek evidence-based results, congruence can be achieved.

Closing remarks In his closing remarks, Mr. Ghose said that the Conference had generated many ideas for further research and collaboration between researchers, practitioners and policy makers. He expressed hope that the interactions would continue outside of the forum, and, stated that the Centre for Micro Finance and CAB would approach policy makers and present the results and recommendations from the discussions.

Conference Proceedings

Questions and Answers Session 1: Product design and additional services Chair: Nachiket Mor Speakers: Abhijit Banerjee – Spandana results Rohini Pande – Repayment schedules, Business training Jayashree Vyas – SEWA Bank: Tailoring product to client needs 1) If in a slum area, almost all of them are involved in a similar activity, could this be a reason for their not earning much on their business?

Also, if people are not taking on bigger loans and are content with small amounts, is it because they may not be using the loan towards their primary income generation activity?

Abhijit Banerjee: The short answer to this is that in fact, this is one of the primary reasons why businesses are not so profitable in these slums. One of the key facts which emerged from the survey was that while it is common for households to own businesses, there is very little diversification of activities. For instance, 17% own a Kirana (retail) store, 8% are fruits and vegetable sellers, 6.6% own a telephone booth, 6.3% have a milk business and 4.31% are auto drivers. As a result, the revenues earned via these businesses are quite small and averaged about Rs 12,000, though the median was only Rs. 3600. The average monthly profit, not accounting for time spent by household members, is Rs. 1,859, and the median is Rs 1,035, which is only a small gain. But, once the time spent by household members is factored in, even at a fairly low rate of Rs. 8 an hour, profits turn negative. This raises the issue of why do people not start new businesses.

Some possible answers are that people do not know the alternatives and that innovation is under-rewarded (even if they did, neighbours can adopt what they are doing and drive profits down).

Question and Answers

Abhijit has left us with a number of questions but offered no preliminary answers. Why does he think that some of the outcomes he described happen? Why, in his view, do people seem reluctant to increase their capital base? Does he have some insights based on conversations, etc.?

Abhijit Banerjee: To answer this question, let us examine what would happen with the influx of capital. One thing we find is that loans are rarely taken for business expense – only 9% of our sample took out loans for their businesses. The largest proportion (17%) of our sample took out loans for health expenses. So here, credit is substituting for insurance.

Further, maybe the high interest rates are a constraint – perhaps they need a more productive business to repay loans.

The question this leads to ofcourse is why households are not attempting to double capital stock. Perhaps there are few avenues for saving, it is hard to save or a tiny increase in capital would not be transformative raising questions such as: do they have a capital constraint? is the Spandana loan large enough?

3) Can working longer hours translate into greater cash flows? It’s the same enterprise with similar demand across all days.

Are they simultaneously producing and selling?

Any findings on why women prefer self-employment to wage employment?

Abhijit Banerjee: Women are not necessarily simultaneously producing and selling, and in some of their occupations their income is partly a function of how many hours they work for a day.

Clients might be daily wage labourers and be paid by the number of hours they work a day or the number of goods they produce. In such situations, the story makes sense: working long hours translates into a higher income for the day.

Anecdotal evidence shows that a lot of women work producing saris or other such goods. In our survey, a lot of women are paid on commission – another situation in which longer hours translates into greater cash flow.

4) The big principle is to roughly match income inflows to repayment timing/ So, if income is salaried + monthly, then monthly repayments make sense. In urban settings, (maybe husband’s salary is monthly, or female customer has a salary). If income comes daily, then weekly repayments may be optimal. The question is, can results be distinguished by occupation and by income pattern of the customer?

Rohini Pande: Results from the study can indeed be distinguished by occupation and income pattern. We will keep this in mind for the final paper.

Question and Answers

2) For larger credit absorption (in the context of the Spandana case study), in addition to ensuring sufficient credit supply, what other factors would be critical?

Session 2: Addressing vulnerability through microfinance Chair: Ajit Ranade Speakers: Esther Duflo – Health Insurance Raghabendra Chattopadhyay – Targeting the hardcore poor Mohammed Amin – Domestic remittances 1) To what extent can the methods used by Bandhan for targeting be used by the government on a large scale?

How does Bandhan convince the government of this targeting procedure to get the benefits from the government for ultra poor clients, in terms of subsidies for land, housing, etc.?

Raghabendra Chattopadhyay: Bandhan’s identification strategy for the Ultra Poor consists of 3 steps – a Participatory Rural Appraisal (PRA) with wealth ranking of households; a detailed questionnaire to verify the PRA and identify the potential beneficiary from the household; and final verification process – informal discussions and visual observation – by a program coordinator. This was found to be efficient in identifying a sub-population that was poorer (including observable characteristics) – they own less land, have fewer assets, and are more likely to lack access to formal financial services. The finding from the study that economic census (such as used by government programs) alone is not particularly efficient in identifying the poorer sub-population has broader implications for policy makers. A methodology combining PRAs, household surveys and observational interviews could be better suited to identify the sub-population for a government subsidy or assistance. Bandhan has thus far not approached the government to convince them of their strategy.

2) Is the ultra poor microfinance program self-sustainable (without CGAP and Ford Foundation support)?

Raghabendra Chattopadhyay: While the program is funded by CGAP at Bandhan, they have been looking to expand this further than their pilot areas – which suggests that they are operating at full cost recovery (it is possible that microfinance is cross-subsidizing THP, but we do not know for certain).

Mohammed Amin : In order for any organization to be able to offer remittances services, they should be licensed money transfer agents. Currently, only banks and post offices are licensed to offer domestic money transfer services.

However, microfinance institutions and other organizations can act as agents to banks (as a business correspondent) in order to provide domestic remittance services to their members.

4) By introducing health insurance with microcredit: (a) Don’t we increase financial burden for clients without giving them a choice? (b) Aren’t we promoting curative health habits rather than preventive health habits? (c) For poor people, government public health centers are providing a type of insurance by providing services at low cost. Aren’t we jeopardizing this system rather than trying to improve it?

Esther Duflo: Combining health insurance with micro-credit helps to address the problems of adverse selection and moral hazard. This has advantages for the insurer, and for the clients. Access to micro health insurance has been limited largely due to insurers’ concerns with these two risks. Further, operational costs are prohibitive for companies in servicing small value policies. Combining insurance with micro-credit is an effective means of addressing the information problems and in managing costs. For the clients, this increases availability of formal financial instruments to address one of their biggest risks. Also, premiums would be much higher if it were to be marked up for adverse selection and moral hazard.

Combining micro insurance with micro-credit also introduces flexible options for paying premiums through small loans /installments, as opposed to an upfront lump sum payment.

It is true that health insurance does not address issues relating to preventive health care. While the importance of health education cannot be underestimated, it is as important to have access to formal financial instruments, such as, insurance for catastrophic illnesses, and accidents, and often, these are not avoidable through preventive healthcare.

However, micro insurance lends itself to innovative models where financial services, such as insurance, can be easily combined with health and insurance education to reach a large number of people.

Question and Answers

Question and Answers

3) What permissions or regulatory compliance is required for starting a remittance program?

While, in principle, poor people are entitled to free or low cost healthcare at government health centres and hospitals, we find that people also spend a considerable amount out-of-pocket towards health expenses. Government health centres at the village level are often not staffed adequately, and are rarely equipped to deal with surgeries, or maternity care. Insurance provides cover against catastrophic illnesses, accident, and maternity. It is a financial instrument to manage health risks, it does not replace the existing public health infrastructure.

5) How did MFI handle operational issues – for instance delayed payment or decline in payment in account of unexplained exclusions?

Esther Duflo: The microfinance institution evolved a fund for emergencies and unexpected payments of claims. In case of a genuine claim rejected due to any administrative or coordination problem with the insurance company, the MFI, upon investigation, is willing to reimburse the client out of this fund. This was seen to be fair and also in line with maintaining a good image and relations, especially in early stages of the product roll out. Thus far, the organization has not needed to use this fund.

6) Is the health insurance product coupled with financial literacy (i.e., education on concepts of insurance, what is covered and what is not, etc.)?

Esther Duflo: Currently, the product is not combined with financial literacy. However, the product is marketed after detailed discussions informing the client about product uses and other important details. A combination of different methods – an informational video, a power point presentation, village meetings, and small group discussions, are used to create awareness and market the product.

Session 3: Emerging issues in microfinance Chair: C S Reddy Speakers: Doug Johnson – Microfinance and competition Sendhil Mullainathan – Psychology of debt Jonathan Morduch – Microfinance and the market

Question and Answers

Doug Johnson: No, it has run into serious problems due to enforcement of Know Your Customer (KYC) norms by RBI. (See the most recent State of the Sector report for more details.) Aside from the partnership model, MFIs may also receive funds via direct loans from banks or equity investments.

2) Microfinance includes savings, insurance, remittances and investment, in addition to credit. What about competition in these areas, particularly, investment?

Doug Johnson: Very good point. As these areas are still relatively undeveloped the levels of competition seen between providers is still relatively low. For this reason, while we at CMF are certainly thinking about these questions, our work has been limited until now.

Question and Answers

1)Is the partnership model still in vogue with the banks? What is the lending scenario other than the partnership model?

Conference on Microfinance January 18, 2008 Organized by College of Agricultural Banking, Reserve Bank of India, Pune Centre for Micro Finance, Institute for Financial and Management Research, Chennai Union Bank of India PROGRAMME SCHEDULE Registration: 09. 15 to 09.45 hrs.

Inaugural Session: 09.45 to 10.45 hrs.

Welcome Address and introductory remarks

Shri Sandip Ghose, Principal, College of Agricultural Banking, Reserve Bank of India, Pune

Special Address

Shri T Y Prabhu, Executive Director, Union Bank of India

Special Address

Dr. Nachiket Mor, President, ICICI Foundation for Inclusive Growth

Special Address

Shri C S Murthy, CGM-in-Charge, Rural Planning & Credit Department, Reserve Bank of India

Tea break (10.45 – 11.00 hrs)

Technical Session I: 11.00 to 12.30 hrs.

Theme : Improving Businesses: Product Design and Additional Services A snapshot of small business in Hyderabad: results from Abhijit Banerjee, MIT a large-scale survey Experiment on repayment schedules and business train- Rohini Pande, Harvard University ing for micro-entrepreneurs Tailoring products to clients’ needs

Jayshree Vyas, SEWA Bank

Technical Session II : 12.30 to 14.00 hrs.

Theme : Addressing Vulnerability Through Microfinance Chairman : Dr.Ajit Ranade, Chief Economist, Aditya Birla Group Targeting the hard-core poor in West Bengal

Raghab Chattopadhyay, IIM Calcutta

Health insurance: opportunities and challenges

Esther Duflo, MIT

Addressing the needs of migrant workers: Remittances

Md N. Amin, Adhikar

Lunch: (14.00 to 15.00 hrs)

Technical Session III: 15.00 to 16.30 hrs.

Theme : Emerging Issues in Microfinance Chairman : Shri C S Murthy, CGM-in-Charge, RBI, RPCD What is an Informed Consumer? The Psychology of Sendhil Mullainathan, Harvard University Debt Competition in microfinance

Doug Johnson, CMF

Microfinance and the market

Jonathan Morduch, New York University

Programme Schedule

Programme Schedule

Chairman : Dr Nachiket Mor, President, ICICI Foundation for Inclusive Growth

Tea break (16.30 – 16.45 hrs)

VALEDICTORY SESSION : 16.45 to 17.45 hrs.

Special Address

Shri C S Murthy, CGM-In-Charge, RBI, RPCD, CO

Concluding Remarks & Vote of Thanks

Shri Sandip Ghose, CGM & Principal, CAB, RBI, Pune

Programme Schedule

Programme Schedule

Learning from the conference and future research need- Michael Walton, IFMR ed

Profiles of Key Speakers Abhijit Banerjee Department of Economics, MIT Abhijit V. Banerjee is the Ford Foundation Professor of Economics in the Department of Economics at Massachusetts Institute of Technology, the Director of the Poverty Action Lab and the past President of the Bureau for Research in Economic Analysis and Development (BREAD). He received his Ph.D. in economics from Harvard University in 1988, and has taught at Princeton and Harvard before joining the MIT faculty in 1996. In 2001, he was the recipient of the Malcolm Adeshesiah Award, and was awarded the Mahalanobis Memorial Medal in 2000. He is a fellow of the Econometric Society and the American Academy of Arts and Sciences, and has been a Guggenheim Fellow and Alfred P. Sloan Research Fellow. His areas of research are development economics, the economics of financial markets and the macroeconomics of developing countries. With Esther Duflo, he has conducted randomized evaluations of remedial and computer assisted education in India. He has also assessed reforms of informal schools in tribal areas in India, working closely with a local NGO. Abhijit Banerjee, along with Esther Duflo, work with the Centre for Micro Finance on three different projects: an impact evaluation of urban microfinance in Hyderabad; an impact evaluation of providing health insurance through microfinance networks in Karnataka; and an impact assessment of integrating the poorest into microfinance, in West Bengal.

Raghabendra Chattopadhyay

Profiles of key speakers

Professor, IIM Calcutta Raghabendra Chattopadhyay is a professor of business environment at the Indian Institute of Management, Calcutta.

He has also been a visiting fellow at the National Graduate School of Management, The Australian National University and a visiting scholar in the Institute for Economic Development, Boston University. Raghabendra has a Master’s in economics from Calcutta University and a Ph.D. in Economics from Australian national University. His research interests include self government and empowerment of women; development and the state’s role in the social sector, particularly adult and elementary education in India; and poverty eradication through self sustaining economic programmes.

As a follow up to an earlier research study with Esther Duflo, Raghab and Esther have initiated another study on the socio-economic impact of statutory participation of women in Panchayat in West Bengal.

Raghabendra Chattopadhyay, along with Esther Duflo and Abhijit Banerjee, works with the Centre for Micro Finance on an impact assessment of integrating the poorest into microfinance, in West Bengal.

Esther Duflo Department of Economics, MIT Esther Duflo is the Abdul Latif Jameel Professor of Poverty Alleviation and Development Economics in the Department of Economics at the Massachusetts Institute of Technology. She is a co-founder and director of the Poverty Action Lab, Research Associate at the National Bureau for Economic Research, and on the board of directors of the Bureau for Research and Economic Analysis of Development (BREAD). She is the recipient of the Bronze Medal from the Centre National de la Recherche Scientifique (2005), Le Monde’s Cercle des économistes Best Young French Economist Prize (2005), and the Elaine Bennett Prize for Research (2003). She received her undergraduate degree in history and economics from the Ecole Normale Supérieure (Paris) in 1994, a master’s in economics from DELTA (Paris) in 1995, and her Ph.D. in economics from MIT in 1999. She specializes in development economics and the design and evaluation of effective anti-poverty policy. Several of her research projects take place in India: among others, she has conducted a randomized evaluation of the usage of cameras to monitor teacher absenteeism in Udaipur district, and an impact evaluation of providing iron fortified wheat in villages. She has also examined the impact of women and lower caste members of village councils in West Bengal, India.

Profiles of key speake

Esther Duflo, along with Abhijit Banerjee, works with the Centre for Micro Finance on three different projects: an impact evaluation of urban microfinance in Hyderabad; an impact evaluation of providing health insurance through microfinance networks in Karnataka; and an impact assessment of integrating the poorest into microfinance, in West Bengal.

Jonathan Morduch Wagner Graduate School of Public Service, New York University Jonathan Morduch is a professor of public policy and economics at New York University’s Wagner Graduate School of Public Service. He received his B.A. in Economics from Brown and his Ph.D. in Economics from Harvard University. He has taught on the Economics faculty at Harvard and has held fellowships or visiting positions at Stanford, Princeton and the University of Tokyo. Since 2000 he has taught at NYU and is the Managing Director of the Financial Access Initiative (FAI).

His research interests are in finance and international development. In 2005 he co-authored a book, The Economics of Microfinance (MIT Press) and is currently chair of the United Nations Committee on Poverty Statistics.

Jonathan Morduch, along with Shamika Ravi (ISB), works with the Centre for Micro Finance on an impact assessment of a financial literacy programme.

Sendhil Mullainathan Department of Economics, Harvard University Sendhil Mullainathan is a professor of economics at Harvard University. He is the recipient of a MacArthur “genius” award, and he is currently a Director of the Financial Access Initiative. He received his B.A. in Computer Science, Mathematics, and Economics from Cornell University in 1993 and his Ph.D. in Economics from Harvard in 1998. He has taught at MIT for six years before joining Harvard. His research interests are development economics, behavioral economics, and corporate finance. Among other things, he has conducted a randomized evaluation of racial bias in hiring in the US with Marianne Bertrand. He has also examined the impact of cash transfers to the elderly in South Africa. Another paper with co-authors (Marianne Bertrand, Dean Karlan, Eldar Shafir and Jon Zinman) shows that small psychological factors can have large effects even in big decisions, such as borrowing decisions.

Rohini Pande Kennedy School of Government, Harvard University Rohini Pande is Mohamed Kamal Professor of Public Policy. Prior to joining the Kennedy School she was an Associate Professor of Economics at Yale University. She has taught at Yale University, MIT, and Columbia. A Rhodes Scholar, she is the recipient of several NSF grants, the Russell Sage Presidential Award (with Lena Edlund), and the Royal Economic Society Junior Research Fellowship. She holds a PhD and MSc in economics from the London School of Economics, an MA in philosophy, politics, and economics from Oxford, and a BA in economics from St. Stephens College, Delhi University. Her research focuses on the economic analysis of the politics and consequences of different forms of redistribution, principally in developing countries. Most of her field work is based in India. Ongoing projects examine microfinance, voter campaigns and anti-corruption policies.

Rohini Pande, with Erica Field and in collaboration with the Centre for Micro Finance, is evaluating the impact of providing business training for microfinance clients, in Gujarat, and an experiment with flexible repayment schedules, in West Bengal.

ofiles of key speakers

Jayshree Vyas SEWA Bank Jayshree Vyas has been Managing Director of Shree Mahila Sewa Sahakari (SEWA) Bank in Ahmedabad, India, for seven years. During her tenure there, Ms. Vyas has implemented various innovative programs aimed at providing self-employed women with access to credit, secure savings, insurance and housing. Prior to her position with SEWA Bank, she was a financial analyst at the Central Bank of India, a commercial bank. Ms. Vyas has been a member of the WWB Board of Trustees since 1998. She is also on the board of the Indian School of Microfinance for Women (ISMW) where she uses her experience to actively contribute to capacity building.

Profiles of key speakers

In the last few years, Sendhil Mullainathan has initiated several projects in India on financial services, contract design and client behavior with IFMR and also ICICI Bank. Along with Dean Karlan, he works with the Centre for Micro Finance on several projects including: an impact evaluation of rural micro credit in Karnataka. They are also examining the feature of high interest debt traps of micro-entrepreneurs. Sendhil has also initiated an experiment to assess the impact of flexible repayment schedules for dairy clients in Orissa.

Mohammed Amin Adhikar Md Amin is the CEO of Adhikar, an NGO-MFI that provides remittance services for migrant workers. Since it was established in 1993, Mr. Amin has spearheaded Adhikar’s transformation from an NGO working for the rights of migrant workers and slum dwellers to an organization that offers a range of microfinance services throughout the state of Orissa in India. Today, Adhikar’s clientele includes migrant workers, small and marginal farmers, daily wage earners, domestic servants and street vendors.

Michael Walton Institute for Financial Management and Research (IFMR) Michael Walton is Senior Visiting Fellow at the Centre for Policy Research, Delhi, and Adjunct Lecturer in International Development at the John F. Kennedy School of Government, Harvard University, where he taught in the MPA in International Development from 2004. He is also Visiting Professor for the 2007-08 semester at the Delhi School of Economics, and V.K.R.V.Rao Chair Professor, Institute of Social and Economic Change, Bangalore for 2008-09. He holds a masters degree in economics from Oxford University and a bachelors degree in philosophy and economics. In addition to his work, he is also the Policy Advisor for the Institute for Financial Management and Research (IFMR) Between 1980 and 2004, Michael Walton worked at the World Bank, including extended periods on Indonesia and Zimbabwe, adviser to two Chief Economists, Chief Economist for East Asia and the Pacific (1995-97), Director for Poverty Reduction (1997-2000), Chief Economist for Human Development (1999-2000), adviser for poverty and human development in Latin America and the Caribbean (2000-2004). He was part of the management group for World Development Report 2000/2001: Attacking Poverty, and played a central role in the design of the poverty reduction strategy process for low income countries. Prior to joining the World Bank, he worked for the Central Planning and Development Office for the Government of Lesotho, 1979-97.

Doug Johnson Profiles of key speakers

Centre for Micro Finance, IFMR Doug holds a BA in Political Science from Rice University and a Masters in International Development from Harvard University’s Kennedy School of Government. Prior to joining IFMR, Doug worked as a process consultant for Accenture, where he was responsible for the implementation and management of large-scale IT systems for companies such as eBay, Dell, and Ericsson. At CMF, Doug is currently working on projects in the areas of technology and microfinance, the potential of post offices to increase financial inclusion, and the impact of competition in the microfinance sector.

Nachiket Mor ICICI Foundation Nachiket Mor is currently President of the ICICI Foundation for Inclusive Growth. He is a Yale World Fellow (2004), and, has a Ph.D. in Economics from the University of Pennsylvania with a specialization in Finance from the Wharton School, a Masters degree in Management from the Indian Institute of Management, Ahmedabad and an undergraduate degree in Physics from the Mumbai University.

While completing his Ph.D., he was associated with a Philadelphia based hedge fund (Quantitative Financial Strategies) for three years. He has worked with ICICI since 1987 in a variety of jobs, including, Corporate Planning, Project Finance, Treasury and Rural Banking and was a member of its Board from 2001-2007. In addition to his work within ICICI, he is a member of the Boards of: Institute for Financial Management and Research (IFMR), CARE USA and International Food Policy Research Institute (IFPRI).

Reserve Bank of India C S Murthy is former Chief General Manager in charge of Rural Planning and Credit Department of RBI. As head of the department that is responsible for policy formulation in the area of rural credit and micro finance, he was closely associated with developments in the field of microfinance in India. Mr. Murthy has been member of several committees set up by the Reserve Bank and the Government of India in the field of rural credit and has chaired the RBI internal working

Profiles of key speake

C. S. Murthy

Sandip Ghose College of Agricultural Banking, RBI Sandip Ghose is Chief General Manager and Principal, College of Agricultural Banking, RBI, Pune. Prior to this, he served as Chief General Manager-in-Charge of Human Resources & Strategic Planning, RBI as also Principal, Bankers Training College, Mumbai, for a period of 4 years, overseeing recruitment, training, performance, compensation and industrial relations. His responsiblity also included formulation and monitoring of the Strategic Action Plan (SAP) for the RBI, as also grooming and capacity building of top management of public sector commercial banks in India.

Mr. Ghose has also served as Chief of Staff to three successive Governors (Dr. C Rangarajan, Dr. Bimal Jalan and Dr. Y.V.Reddy) over a period of 9 years, viz. 1996-2004. He was instrumental in setting up RBI’s Human Resources Development Department in 1995, and continues to be a part of Asia-Pacific and World HRD Congress.

Ajit Ranade Aditya Birla Group Ajit Ranade is currently with Aditya Birla Group as Group Chief Economist. Dr. Ranade has held faculty positions at the Indira Gandhi Institute of Development Research (IGIDR), the Indian Council of Research on International Economic Relations and JNU, New Delhi. He was also a faculty of Brown University, Holy Cross College, and Wesleyan University in the US. He is an op-ed columnist for the Financial Express and has been a consultant to the World Bank, the Tobacco Institute of India and the UN ESCAP among others.

ofiles of key speakers

Profiles of key speakers

List of Participants Shri Vipin Sharma

Shri Md. N. Amin

C.E.O.

President

Access Development Services

Adhikar

28, Hauz Khas Village, New Delhi - 110016

113/2526, Khandagiri Vihar, Khandagiri

Ph 011-26510915

Bhubaneswar - 751 030 Orissa

vipin@accessdev.org

Ph 0674-2384542, 2384731 amin.adhikar@yahoo.com, adhikar@satyam.net.in

Shri Gautam Ch. Swain

Shri N. Viswanadha Reddy

Project Co-ordinate

Asstt. General Manager

Adhikar

Andhra Bank

113/2526, Khandagiri Vihar, Khandagiri

Head Office, Dr. Pattabhi Bhawan

Bhubaneswar - 751 030 Orissa

Saifabad, Hyderabad - 500 004 (M) 9949229446

Ph 0674-2384542, 2384731

inallamilli@yahoo.co.in

gautamswain@yahoo.com Shri Chandra Shekhar Ghosh

Shri Arjun P. Ghugal

Executive Director

Dy. General Manager

Bandhan Financial Services Pvt. Ltd.

Bank of India

AB-48, Sector 1, Salt Lake City, Kolkata 700064

Head Office Star House, C-5, ‘G’ Block,

Ph 033-23347602, Fax 23343015

4th Floor, Bandra Kurla Complex, Bandra (E),

csghosh@bandhanmf.com

Mumbai - 400 051, Ph 022-66684648

List of participants

Fax 66684649 (M) 9833060820 apghugal@bankofindia.co.in Shri N. Narasa Reddy

General Manager

Dy. General Manager

Bank of Baroda

Canara Bank

Baroda Corporate Centre, C-26, ‘G’ Block

Priority Credit Wing, H.O. 112, J.C. Road

B.K.C. Bandra (E), Mumbai - 400 051

Bangalore - 560 002 Ph 080-22227859

Ph 022-66985736 Fax 26525762

Fax 22293517 (M) 9448589357

gm.ps.boc@bankofbaroda.com

narasareddyn@canbank.co.in

Shri K. Sekar

Shri Aruloli C.

Manager

Probationary Officer

City Union Bank

City Union Bank

Registered Office, 149, T.S.R. Big Street

Registered Office, 149, T.S.R. Big Street

Kumbakonam - 612 001 Ph 0435-2432322

Kumbakonam - 612 001 Ph 0435-2432322

Fax 2431746 (M) 09367722738

Fax 2431746 (M) 09367722738

cubmis@cityunionbank.com

List of participants

Shri V.K. Verma

Shri Avtar Singh Midha

Ms. Sagarika Gnanaolivu

Sr. Vice President

Research Associate

Capital Local Area Bank Ltd.

IFMR-Centre for Insurance and Risk Management

MIDAS Corporate Park, IIIrd Floor

8th, Floor, Fountain Plaza, Pantheon Road

37, G.T. Road, Jalandhar - 144 001

Egnore, Chennai - 600 008

Ph 0181-5050719 fax 5050744

Ph 044-42892785 Fax 42892799

as_midha@capitalbank.co.in

sagarika.gnanaolivu@ifmr.ac.in

Smt. Aparna Krishnan

Kum. Lakshmi Krishnan

Research Associate

Research Associate

IFMR-Centre Micro Finance,

IFMR-Centre for Micro Finance,

8th, Floor, Fountain Plaza, Pantheon Road, Chennai - 600 008

8th, Floor, Fountain Plaza, Pantheon Road, Chennai - 600 008

Ph 044-42892718 Fax 42892799

lakshmi@ifmr.ac.in

aparna@ifmr.ac.in Kum. Divya Varma A.

Kum. Minakshi Ramji

Research Associate

Research Associate

IFMR-Centre for Micro Finance,

IFMR-Centre for Micro Finance,

B-801/802, Gurukul Park Apartments, Behind Sterling Hospital

8th, Floor Fountain Plaza,

Gurukul

(M) 09327111067

Chennai - 600 033 Ph 044-42892729

divya@ifmr.ac.in

minakshi.ramji@ifmr.ac.in

Shri Surojit Chattopadhyay

Shri Kulkarni Atul Narhari

Research Associate

Microfinance Faculty in Chaitanya

IFMR-Centre for Micro Finance,

Chaitanya Moti Chawk, Brahmin Ali, Rajgurunala

8th, Floor,Fountain Plaza, Pantheon Road,

Tal. Khed Dist Pune - 410 505 Ph 02135-223176 (M) 9226379112

surojit.chattopadhyay@ifmr.ac.in

atul.kulkarni8@gmail.com

Shri Gaurav Wadhwani

Shri Avinash Chander Katial

Head Strategy - Assets

Asstt. General Manager

Deutsche Bank

Dena Bank

Private & Business Clients, India

28-A, Praveen House, V.S. Marg

7th Floor, Nicholas Piramal Towers,

Lucknow - 226 001 (U.P.)

Peninsula Corporate Part, Ganpatrao Kadam Marg,

Ph 0522-2272866, 3916885 Fax 2623150, 2614814 (M) 9839900366

Lower Parel, Mumbai - 400 013 Ph 022-67063000 Extn. 3309, 67063309 Fax 67063963 (M) 09892323460

katial@denabank.co.in

List of participants

gaurav.wadhwani@db.com Shri Sunirmal Paul

Shri V. Sridharan

Regional Manager

Asstt. General Manager

Dena Bank

Dena Bank

Geethanjali Convention Centre, 32, Venkatasen Street,

Regional Office, Shri Ram Complex,

T. Nagar, Chennai - 600 017

Radhanpur Road, Mehsana - 384 002

Ph 044-24359716 Fax 24330448

Ph 02762-251433 Fax 250874

ro.chennai@denabank.co.in

ro.mehsana@denabank.co.in

List of participants

Chennai - 600 008 Ph 044-42892729

Smt. Mini Bedi

Shri George K. John

Managing Trustee

General Manager

Development Support Team

ESAF

Flat No.2, Pooja Heritage Apts. Plot No. 46

Zonal Office, P.B. No.23, 9, Ramkrishna Society,

anand Park, Lane No.3, Aundh, Pune - 411 007

Gorewada Road, Katol Road P.O

Ph 020-25884987

Nagpur - 440 013 Ph 0487-2371472 Fax 2373813

dstpune@vsnl.net , dstpune@dataone.in

bobbyesaf@gmail.com

Smt. Smita Aggarwal

Shri Mohan P. Abraham

Executive Vice President

Chief Manager

Fullerton India Credit

The Federal Bank Ltd.

Level 5, West Wing, Workherdt Towers

Arihant, 1187/26, Ghole Road, Near Balgandharva Suare,

Bandra Kurla Complex, Mumbai - 400 051

Pune - 411 005

Ph 022-67491230

Ph 020-25512194 Fax 25538754

smita.aggarwal@fullertonindia.com

pne@federalbank.co.in

Shri Raj Singh Khaira

Shri Kishor Magdum

VP - Business Development

Managing Trustee

Financial Information Network & Operations Ltd.

14, Landmark Apartment, Sadhu Vaswani Circle,

C-401, Business Square, Chakala, Andheri Kurla Road,

Pune - 411 001 Ph 020-26051013

Andheri (E), Mumbai - 400 093

kbmtour@gmail.com

Ph 022-40973303, 40973466 Fax 40973300

List of participants

khaira@fino.co.in Shri K. Manohara Raj

Shri Pramod Marar

Sr. Vice President

VP - Commercial Banking

HDFC Bank Ltd.

The Hongkong and Shanghai Banking Corporation Ltd.

751-B, Anna Salai, (Mariam Centre),

3rd Floor, Ashoka Estate, 24, Barakhamba Road,

Chenani - 600 002

New Delhi - 110 001

Ph 044-28528861 Fax 28513547

Ph 011-43522633 (M) 09811848500

manohara@hffcbank.com

pramodmarar@hsbc.co.in

Kum. Bindu Ananth

Ms. Shamika Ravi

President, IFMR Turst

Assistant Professor

24, Kothari Road, Chennai

Indian School of Business

bindu.ananth@ifmrtrust.co.in

Gachibowli, Hyderabad - 500 032 shamika_ravi@isb.edu Shri P. Arunkumar

Chief Executive

(Staff OP MFI)

Seva Mandir

Svasti Foundation

Udaipur Rajasthan - 313 004 Ph 0294-2450960

801, Nav Sanapra, Hons Bhugra Road

neelima@sevamandir.org

Santacruz (E), Mumbai 400098 Ph 022-26652443 arun4all@yahoo.com

List of participants

Smt. Neelima Khetan

Dr. (Smt.) Kalpana Sankar

Smt. Purvi Bhavsar

Chief Executive Office

Asstt. General Manager

Hand in Hand Tamil Nadu

ICICI Bank Ltd.

42/270, Vandavasi Road, Chinna Kancheepuram,

ICICI Towers, Bandra Kurla Complex

Periyar Nagar, Kancheepuram - 631 503 (Tamil Nadu)

Mumbai - 400 051 Ph 022-26536468

Ph 044-27267065, 67271373 (M) 09840490455

purvi.bhavsar@icicibank.com

kalpana.sankar@hihseed.org Smt. Leena Venugopal Pillai

Smt. Sona Varma

Manager, ICICI Bank

Economic Adviser, ICICI Bank

ICICI Bank Towers, Bandra Kurla Complex

ICICI Bank Towers, Bandra Kurla Complex

Mumbai - 400 051 Ph 022-26536148

Mumbai - 400 051 Ph 022-26536148

Fax 26531175 (M) 09820121375

Fax 26531369 (M) 09920303343

leena.venugopal@icicibank.com

sona.varma@ext.icicibank.com

Shri Raghabendra Chattopadhyay

Shri M. Kalyana Sundaram

Professor at IIMC

Chief Executive , JNAFI India

Indian Institute of Management Calcutta

New No. 65, First Floor, IIIst Harvey Nagar

Joka, Diamond Harbour Road,

Ph 0452-2300480 Fax 4358490

Kolkata - 700104 Ph 033-24678300

mdumk2000@yahoo.co.in

Fax 24678062/8307 (M) 9433055230 rc@iimcal.ac.in , rchattopadhyay@gmail.com Shri M.S.V. Prasadarao

Research Associate

Vice President

IFMR-Centre for Micro Finance, 8th Floor, West Wing,

ING Vysya Bank Ltd.

Fountain Plaza, Khaleel Shirazi Estate

No. 22, M.G. Road, Bangalore - 560 001

31/2-A, Pantheon Road, Egmore,

Ph 080-25005108 Fax 25005121

Chennai 600008 Ph 044-42892778 Fax 424892799

prasadaraomsv@ingvysyabank.com

doug@ifmr.ac.in Dr. S. Elangovan

Shri G. Rangarajan

Dy General Manager

Asstt. General Manager

Indian Overseas Bank

Indian Bank

Central Office, 763, Anna Salai Chennai 600 02

Rural Banking Department, Head Office

Ph 28519441 Fax 28418030 (M) 9444015411

66, Rajaji Salai, Chennai - 600 001

drsc@iobnet.co.in, drsciob@hotmail.com

Ph 044-25271327 Fax 25230285

List of participants

rangarajan_g@yahoo.com Shri Subhash Deval

Shri Santanu Sen

Asstt. General Manager

Head Corporate Relations

Union Bank of India

Village Micro Credit Services

239, Vidhan Bhavan Marg, Nariman Point

Village Tower, F-15, Geetanjali Park, Ariadaha

Mumbai - 400 021 Ph 022-22896508

Kolkata - 700 057

deval@unionbankofindia.com

Ph 033-25646545/5786 Fax 25443240

List of participants

Shri Doug Johnson

Dr. (Smt.) Kalpana Sankar

Shri N.K. Bhatia

Chief Executive Office

Dy. General Manager

Hand in Hand Tamil Nadu

Reserve Bank of India

42/270, Vandavasi Road, Chinna Kancheepuram,

Rural Planning and Credit Department

Periyar Nagar, Kancheepuram - 631 503 (Tamil Nadu)

Central Office, Mumbai - 400 001

Ph 044-27267065, 67271373 (M) 09840490455

Ph 022-22610890 Fax 22610943

kalpana.sankar@hihseed.org

nkbhatia@rbi.org.in

Shri Venkatesh Saha

Shri Puneet Gupta

Chief Manager

Vice president

ICICI Bank

IFMR Trust

ICICI Bank Towers, Bandra Kurla Complex

24, Kothari Road, Nungambakkam

Mumbai - 400 051 Ph 022-26536402

Chennai - 600 034 Ph 044-28303508 Fax 28279208

Fax 26531226 (M) 09820895991

puneet.gupta@ifmrtrust.co.in

venkatesh.saha@icicibank.com Kum. Rohini Pande

Rebecca J. Shively

Professor Harvard University

AIF Fellow

Kennedy School of Government

Mann Deshi Mahila Sahakari Bank Ltd.

79, JFK Sheet, Cambridge 02138, USA

Post Mhaswad, Tal. Mann,

Ph 001-617-3845267

Dist Satara - 415 509

rohini_pande@harvard.edu

Ph 02373-270788 Fax 270141 (M) 9763420113

List of participants

rebecca.shively@gmail.com Smt. Sushama Chandrakant Shendge

Shri Abhijit Banerjee

Asstt. General Manager

Professor

Mann Deshi Mahila Sahakari Bank Ltd.

Department of Economics

Post Mhaswad, Tal. Mann, Satara - 415 509

E-52-252d, 50, Memorial Drive, HIT

Ph 02373-270788 Fax 270141 (M) 9422042822

Cambridge, HA 02142, USA

shendge.sushama@gmail.com

Ph 001-617253-8855 Fax 617-253-6915 banerjee@mit.edu

Shri Vikas Dimri

Shri Gobinda Banerjee

Product Head

Dy. General Manager

Deutsche Bank

Punjab National Bank

Private & Business Clients, India

P.S. & Lead Bank Division, Rajendra Place

7th Floor, Nicholas Piramal Towers,

Rajendra Bhawan, New Delhi - 110 008

Peninsula Corporate Park, Ganpatrao Kadam Marg.

Ph 011-25747449

Lower Parel, Mumbai - 400 013

vikas.dimri@db.com

List of participants

Ph 022-67063000 Extn. 3310 Fax 67063953

Shri Pukhraj Kanther

Shri Chetananand M. Raut

Dy. General Manager

Chief Executive Office

State Bank of Saurashtra

Sakhi Samudaya Kosh, Solapur

Regional Office, Jeevan Seva Extn.

Plot No. 16, Umberge Niwas, Bijapur Road

Ground Floor, S.V. Road Santacruz (W)

Solapur - 413 004

Mumbai - 400 054 Ph 022-26102761, 26105910 (M) 983359560

Ph 0217-2302507 (M) 9850104501

Fax 022-26105917

chtanssk@gmail.com

dgmmzo@sbs.co.in Shri Ramesh P.

Shri Ajit N. Kanitkar

Chief Manager

Program Officer

The Federal Bank Ltd.

The Ford Foundation

Unatee, Plot No.61, Opp. Vanaz Industry

Development Finance & Economic Security

Lokmanya Colony, Kothrud, Pune - 411 038

55, Lodi Estate, New Delhi - 110 003

Ph 020-25423805, 25446611 Fax 25423805

Ph 011-24619441, 24648401 Fax 24627147

pneb@federalbank.co.in

a.kanitkar@fordfound.org

Ms. Prema Gopalan

Mrs. Chouvet Delphine

Director

Micro Finance Programme Manager

Swayam Shikshan Prayog

Swabhimaan - Uplift Duolia Association

5th Floor, Bhardawadi Hospital, Bhardawadi Road,

14, Landmark apartment, B.J. Road

Andheri (W), Mumbai - 400 058

Sadhu Vaswani Chowk, Pune - 411 001

Ph 022-22907586, 26771132 Fax 26771132

Ph 020-26051013 (M) 9960498423

(M) 09821413246

delphine.dhouvet@gmail.com

sspindia@vsnl.net Shri anup Kumar Singh

Dy. General Manager

Managing Director

State Bank of India

SONATA Finance pvt. Ltd.

Rural Business (Micro Credit & Financial Inclusion), Corporate Centre

1/1-A, Raibahadur Ramcharandas Road Balrampur House, Allahabad - 211 002 U.P.

8th Floor, State Bank Bhavan, Madame Cama Road, Mumbai - 400 021

Ph 0532-3295984, 2503655 (M) 09839779346

Ph 022-22022847 Fax 22813757

anupmzp@yahoo.com, anup@sonataindia.com

List of participants

dgm.me@sbi.co.in Dr. R. Balasubramanian

Smt. Malini B. Eden

Chief Manager

Director

State Bank of Mysore

SEARCH - KOPSA

Lead Bank Department, Head Office

2/9/26, VI Main, IV Block, Jayanagar

Kempegowda Road, Bangalore - 560 009

Bangalore - 560 011

Ph 080-22353901 Ext. 396, 22353464

Ph 080-22444226 Fax 22635361

(M) 944829183

malini_eden@yahoo.com

balsn@rediffmail.com

List of participants

Shri V. Ramkumar

Shri Simon Cox

Shri K.C. Francis

South Asia Business Correspondent

Dy. General Manager

The Economist

The South Indian Bank Ltd.

71, Sunder Nagar, Ground Floor

SIB House, Mission Quarters,

New Delhi - 110 003

Thrissur - 680 001 Kerala

Ph/Fax 011-24352336 (M) 9953131915

Ph 0487-2444530, 2420020 Fax 2442054

simoncox@economist.com

(M) 9495331150

Shri Ajay Tankha

Shri Bhor Nilesh Vijay

Trustee

Agriculture Officer

REACH India

UCO Bank

20-D, Belvedere Road, 2nd Floor, Alipur

Branch Kalamb, Tal. Ambegaon,

Kolkata - 700 027

Dist Pune Ph 02133-239121

Ph 033-24792450, 24792452 Fax 24792450 (M) 09818533116

nilesh.bhor82@yahool.com

ajaytankha@vsnl.net

Shri Vikas Dimri

Shri Gobinda Banerjee

Product Head

Dy. General Manager

Deutsche Bank

Punjab National Bank

Private & Business Clients, India

P.S. & Lead Bank Division, Rajendra Place

7th Floor, Nicholas Piramal Towers,

Rajendra Bhawan, New Delhi - 110 008

Peninsula Corporate Park, Ganpatrao Kadam Marg.

Ph 011-25747449

Lower Parel, Mumbai - 400 013 Ph 022-67063000 Extn. 3310 Fax 67063953

List of participants

vikas.dimri@db.com

List of participants

Centre for Micro Finance

College of Agricultural Banking

8th Floor, Fountain Plaza, Pantheon Road Egmore, Chennai 600 008 http:w w w.ifmr.ac.in/cmf

Reser ve Bank of I ndia University Road, Pune 411 016 http:cab.org.in