Former President of Women's World Banking notes need for financial intermediaries for the poor, not just lenders.
Business Today
Nancy Barry
Published: November 26, 2008
Nancy Barry is the ex-head of the world Bank’s Global Industry Development Group and former President of Women’s World Banking. Over the last two years, Barry has built
The outreach that the Indian microfinance industry has achieved, through both the microfinance institutions (MFIs) and the Bank-Self Help Group (Bank-SHG) linkage model over the last 10 years, is impressive. Today, over 50 million poor women have access to very small loans. I believe this is the main accomplishment of the Indian microfinance sector over the last 10 years.
However, there are issues that underly this accomplishment. First, both
Group lending is very powerful as a “startup” product, particularly for poor women, because it has built into it an empowerment component, a community component and a social component. The problem is that the SHG and Grameen-type group lending models have been used only to make very small loans. These groups involving 50 million poor women in
Today, most Indian microfinance institutions are becoming loan dispensers, rather than financial intermediaries for the poor. Part of the problem lies with the group lending model in which group organisers are not comfortable making growth oriented loans or providing a range of savings, insurance and other financial products. Part of the problem also rests with the NBFC legal structure that many microfinance institutions have chosen, which does not enable MFIs to mobilise broad-based savings as a service or as a source of funds.
As a result, MFIs have relied increasingly on foreign equity sources to fuel growth. Most of the foreign equity sources have no interest or capabilities in supporting MFIs in diversifying their product offerings to poor clients; rather, these sources increase the pressure on MFIs to make shortterm profits by focussing on dispensing more small loans. So, group lending business models keep the loans small, and legislation, MFI capabilities and the short-term profit push keep the focus on microcredit.
Also, some of the leading MFIs have moved the focus on building livelihoods to a mentality of a consumer lender, asking how much of the poor family’s purse or wallet they can gain by providing loans and consumer goods. What
Enterprise Solutions to Poverty has engaged leading companies in India—including Tata, Reliance, ITC and Mahindra—as well as some emerging entrepreneurs— such as FabIndia, ICICI Foundation and SELCO. These companies are paving the way in mobilising large numbers of poor people as suppliers, distributors and consumers of asset building products. ESP has mobilised over 150 of the leading companies and emerging entrepreneurs of
