Money & Banking
The Micro-Finance India Summit 2011

Beyond all the buzz, when can we embed social performance within practice?

Social performance is the ‘in’ thing in micro-finance and an entire session is devoted at the Micro-Finance India summit towards the same and a special social performance report is also to be released at the Summit. The Micro-Finance India Summit session is titled, “Beyond the Buzz, Embedding Social Performance within Practice” and the emphasis of the session is described  below 

Session Outline: Beyond the Buzz, Embedding Social Performance within Practice

There is a multiplicity of methodologies and indicators which emphasize inclusion of social performance standards in concurrence with financial performance. There is also an emphasis from investors as well as lenders on incorporation of Social performance metrics and on adherence to code of conduct. Against this backdrop, MFIs are undertaking objective steps to manage and enhance their social performance, which range from changes in product features and delivery processes, communication with clients, human resources management practices including emphasis on women supportive work policies, governance, internal audit and control mechanisms, MIS and so on. The Microfinance India Social Performance Report is an initiative to comprehensively document the efforts of MFIs and other players to better manage and report on the social performance based on some field evidence. The session will review the findings of this report and discuss the process and progress of deeper internalization of SPM within the sectoral practice and highlight avenues for the way forward. Source:

Readers would recall that Moneylife has already commented on this new development in the field of micro-finance. (Microfinance: Will seal of excellence and social performance management as yardsticks work?)

That said, while it is great to talk of social performance, internal controls and the like, a key question here is: How to enforce this on the ground in a practical sense when you have multiple agents (MFIN-NCAER study: Here’s the proof that microfinance agents are thriving in Tamil Nadu) colluding with fraudulent staff (often hired without serious background checks and practically no training) and MFIs that rely heavily on a fully decentralized model that has all the wrong incentives? (How and why did microfinance agents become a part of the Indian microfinance business?; Implementation safeguards against notorious agents are an imperative for the proposed microfinance bill; and Proposed Microfinance Bill has to look at the centre leader as a microfinance agent

Further, given that a lot of growth has occurred (and is perhaps still occurring) through outsourcing to agents, where the end user clients may not be strictly traceable, how can social performance be enforced in a practical sense? What lessons can the Indian and global micro-finance industry learn from past efforts to enforce codes of conduct and the like? (We all know what happened after the 2005/6 Krishna crisis in India)

Also, when simple internal controls (and internal audits) were busted and disregarded during the burgeoning growth phase of Indian micro-finance, which saw the phenomenal rise of multiple lending and other malpractices, with what confidence can we expect social performance to be implemented on the ground? (Increasing frauds, internal lapses at MFIs: Need to strengthen supervisory arrangements to protect the poor)

And finally, when MFIs operate using different kinds of agents in an outsourcing model, how can one be sure of the data that is provided by the MFIs with regard to social performance management? How can we rely on self - report data that is supplied by the MFIs with regard to these, especially when many MFIs may not even be aware of who their clients are because of the prevalent agent models? This question becomes even more relevant when we consider the recent experience of Sahayata Micro-Finance (Award winning Sahayata Microfinance is the latest to go astray)

Accordingly, I raise several (further) specific questions - for the presenters and discussants in the social performance session of the Micro-Finance India summit and social performance management advocates and practitioners - with regard to the agent led decentralized model. I hope that the concerned stakeholders factor these into their discussions on social performance management at the Micro-Finance India Summit:

When center leaders or others act as agents at the last mile, how can reliable and valid information about products and processes be obtained and used in the social performance management assessment? (Proposed Microfinance Bill has to look at the centre leader as a microfinance agent)

When end user clients are (themselves) not known, as in many cases, what client level data can be obtained and used in the social performance management process? This aspect becomes exacerbated when one considers the fact that MIS in micro-finance is far from satisfactory (Establishing standards for effective management information systems for MFIs)

When the monitoring for the last mile stops with the agent, what real assessments can be done with regard to various social performance objectives? (MFIN-NCAER study: Here’s the proof that microfinance agents are thriving in Tamil Nadu)

When end use is unclear and end user clients are unknown, as in many agent led models, how can client impact be measured? (How and why did microfinance agents become a part of the Indian microfinance business?; Implementation safeguards against notorious agents are an imperative for the proposed microfinance bill)

Thus, under circumstances such as the above, it would be impossible to assess aspects such as the following, so critical for social performance management: (1) Who uses and who is excluded from using the MFIs services?; (2) How do the MFI’s clients use the MFIs services?; (3) Do MFI services meet their client needs?; (4) Why do some clients leave or become inactive?; (5) Who benefits and how?; and (6) What benefits were unexpected? 

When one considers these and other questions, the credibility of social performance management, as a sub-field of micro-finance and financial inclusion, is seriously at stake. I sincerely hope that the presenters and discussants at the Micro-Finance India Summit, who are also the so called practitioners of social performance management, address the aforementioned real ground level issues rather than merely focus on high level concepts that can at best be described  as superfluous and, perhaps, even redundant.

Hence, while social performance sounds fantastic on paper, any talk of social performance is meaningless when one looks at the current ground realities in Indian micro-finance. While these concepts sound excellent at a conference in Delhi (like at the Micro-Finance India Summit), from visits to the hotbeds of micro-finance in Tamil Nadu and Andhra Pradesh among others, it is clear that enforcing social performance on the ground is an almost impossible task. This is especially true given the huge level of decentralized operations in current day micro-finance and the manner in which this model has evolved and the associated motivations therein. With the huge (and perhaps increasing) presence of agents (or ring leaders) and their all pervasive role, social performance is therefore more likely to be a mirage rather than reality! 

Therefore, using so called tools of social performance or seals of excellence - merely to justify the existence of such (and especially, for-profit) MFIs that sound GREAT on paper but are rarely implemented (or visible) on the ground - certainly does not befit the status of an  industry like micro-finance that has pledged its troth to financial inclusion and inclusive growth. And it is about time that we start asking the question as to why many so called great concepts (like social performance or even principles of corporate governance etc) are not implemented on the ground rather than creating newer and newer tools that may have lesser and lesser relevance to field realities. And such questions will have to focus on the flawed business model adopted by the NBFC MFIs, the greater use of agents in a decentralized model, increased sharing of JLGs/clients and the like. Let us make no mistake about that!

And, my humble plea here is as follows: The micro-finance industry needs to tackle issues head on and ensure that low-income people get access to a wide range of appropriately designed and delivered high quality financial services at affordable costs. And this does not have to come from MFIs and for profit MFIs alone. Retailing by banks and delivery of such financial services by community development finance institutions (like Cooperatives) should also be strongly encouraged – and this is a point that needs to be noted carefully and appreciated by various industry stakeholders. Therefore, let us stop creating tools and instruments to merely justify existence of for profit MFIs and rather focus on building a REALLY transparent client oriented micro-finance industry on the ground with pluralistic institutions, that can serve clients in an effective (doing the right things) and efficient (do things the right way) manner. That alone will help bring back glory to the beleaguered micro-finance industry in India as well as globally. I hope that the session on Social Performance at the 2011 Micro-Finance India Summit drive home these points in a convincing manner.





The Microfinance India Summit 2011: Bridging The Hiatus, Building Trust?

The two-day summit is expected to analyze and introspect on the issues that have led to the erosion of trust with/in the sector. Additionally, the summit is to attempt and build consensus on how the sector can move forward

Come November-December and it is microfinance tourism time across the globe and India is no different. We have an annual Microfinance India summit, held at the sprawling five-star Ashoka Hotel in New Delhi annually where the industry stakeholders meet to discuss critical issues pertaining to the microfinance industry! This year’s summit themed as, “Bridging the Hiatus, Building Trust”, will be held on 12 and 13 December 2011.

Across the two-day summit, the sessions are to analyze and introspect on the issues that have led to the erosion of trust with/in the sector. Additionally, the summit is to attempt and build consensus on how the sector can move forward. Discussions are to take place on the delivery of responsible finance to the unbanked poor, how better social performance management can help institutions align with the mission of microfinance and the need to refocus on the client needs and deliver appropriate products and services in a more transparent and efficient manner.

A look at the program suggests discussions around the following clichéd topics:

Topics for discussion at the Microfinance India Summit

  •    State of the Sector: Beyond the Impasse
  •    SHG Version 2: Recasting the Vision
  •   Microfinance in a Regulatory Regime
  •   Aadhaar: The Foundation for Financial Inclusion
  •  New Arrangements for SHG Financing
  •   Financial Inclusion: Taking Stock of the Challenge
  •   Social Performance: Need to Move Beyond the Buzz
  •    Innovations in Microfinance Business Models
  •  Health and Microfinance: The Case for Integration
  •  Client Protection and Code of Conduct: From Principles to Practice and Compliance
  •   Micro-insurance and Pensions

While I do appreciate the efforts taken by the summit and its organizers, I must also state that there are far too many conferences in Indian microfinance. We had one in November 2010 and another one in March 2011. And now we have one in December (2011) again—not to mention the recent Micro-Credit Summit in Spain (November 2011), which also had a large Indian presence.

Going by the number of conferences over the years, I dare say that, had only the real issues been discussed in these conferences and dealt with candidly in their reports, neither would “The AP crisis” have happened nor would we find ourselves in the macro mess that we are currently facing in Indian microfinance. Without any doubt, what happens in theory and discussions at these conferences is very different from ground level reality and let us set the record straight on that.

Take for example, a statement in the State of the Sector report (2010), which argues that:

“Governance of MFIs (microfinance institutions) had improved over the last few years, as was also commented in the last year’s report. The NBFC-MFIs, in particular, have brought in professionals to their boards. Audit committees, executive compensation committees and the like have been set up. The annual report disclosures indicate the hard work put in by these committees.”

Given all that has happened during the last two years, I am not sure whether this statement is a reflection of ground level reality. On the contrary, many happenings with regard to governance in some of the largest NBFC-MFIs in India (over the last few years) have indeed left a lot of unanswered questions. That being the case, I am not sure why an important report like the State of the Sector report leaves untouched some of the most unusual governance practices including an interest-free loan granted to a founder MD of an NBFC-MFI to buy shares in the same MFI. That the same report did not raise questions on serious governance violations at these NBFC-MFIs—especially, when a lot of this material was available in the public domain—does not auger well for the objectivity of the State of The Sector report. Please see previous Moneylife articles that raise critical governance issues at MFIs during the same period! (MFI corporate governance norms: How can these be put in place?; Governance of MFIs: Time to implement ‘connected lending’ provisions of RBI circular of 2007; Establish standards for MFI independent directors as first step to ensure good corporate governance; Does a five-star board guarantee good corporate governance?; Four ways to improve the regulation of compensation at MFIs; and Regulating the compensation awarded to bosses of MFIs)

Likewise, many stakeholders promise the world at conferences like the Microfinance India Summit but I am not sure that these superficial discussions will help build the trust, so vital for the Indian microfinance industry to move forward in the immediate future. For example, there is talk of social performance and so many high-level concepts like that at such conferences. But I have several innocent questions, some of which are listed below:

Therefore, it is time that the Microfinance India Summit looks at some of hard issues in a candid manner—both related to the recent 2010 crisis as well as those concerning Indian microfinance from a long-term view point. Otherwise, it will become one more conference—with lofty discussions and high profile reports—that have very little relevance to grass-roots reality and the real problems of the low income/excluded people in India. And before I sign off, I want to raise several issues that the Microfinance India Summit should focus on with utmost urgency and I do hope that the conference organizers steer discussions to focus on questions given above and issues listed below:

First and foremost, the scope of current microfinance practice is rather narrow. While the intentions in terms of the report of the financial Inclusion committee and other policy/stakeholder pronouncements (including past conference pronouncements) may have been to provide low-income clients with access to a wide range of need-based financial services, in reality, the present paradigm has mainly led to the proliferation of credit and primarily consumption loans, although there have been some small production/livelihood loans. There has also been the added dimension of merely opening savings accounts, many of which appear to lie dormant today. And an important fact that the present efforts have low outreach with regard to vulnerable groups—and especially, people involved in agriculture—also needs to be recognized and addressed. Two other aspects stand out here in terms of access: (a) lack of suitable and affordable and risk management services; and (b) lack of appropriate livelihood financing.

We need to not only recognize these basic facts but also (more importantly) understand why these intended strategies have been narrowly realized on the ground? That is very critical as only then can bridging the gap (as the theme of the conference suggests) be actually delivered effectively.

Second, it would be useful if the conference comes up with practical strategies to deliver quality credit—e.g. post harvest and post production financing and general approaches to financing marketing of goods and services offered by low income people—that will reduce risk and vulnerability of low income clients and give them more choices. This needs greater emphasis in the context of agriculture as well, which is home to a large number of India’s poor. A strong and direct focus on agriculture is also required because of the current growth and inflationary situation in India.

Third, it would very appropriate if the conference looks at how financial services can be used to strategically drive higher rewards, better remuneration and greater power down the value chain towards the benefit of low income producers? In other words, the conference needs to carefully examine and support financial services that increase the bargaining or staying power of low-income people. That would be a very useful initiative indeed for the low income clients as it would help reduce their vulnerability.

Last but not the least; the conference would also need to look at how to create a better ecosystem so that the above efforts really succeed?
Apart from the above substantive comments, I would also like to argue the case for having more regional conferences rather than annual national conferences in Delhi—which seem very far removed from the actual microfinance action. In my opinion, it may be more appropriate to hold several regional conferences annually, exploring critical local and regional issues in detail and then, cumulating this in a sort of a national round table—which perhaps guarantees flow of information from the grass-roots to the policy makers and other stakeholders. That would also serve the cause of financial inclusion better!

(The writer has over two decades of grassroots and institutional experience in rural finance, MSME development, agriculture and rural livelihood systems, rural/urban development and urban poverty alleviation/governance. He has worked extensively in Asia, Africa, North America and Europe with a wide range of stakeholders, from the private sector and academia to governments)


‘IRDA circular asking insurers not to reject claims mechanically has made little impact on ground’

Insurance industry experts Rohan Dukle and Girish Malik spoke at Moneylife Foundation seminar. Mediclaim and life insurance intricacies of proposal, policy, fine prints, grievance redressal and recent court judgements were discussed.

Insurance companies have started stringently enforcing timelines for hospitalisation intimation and claims filing. IRDA had issued a circular more than two months ago asking insurance companies not to reject claims mechanically just based on violation of timelines. Unfortunately, there is not much impact on the ground as yet by the insurers who were rejecting claims on frivolous reasons.

Moneylife Foundation seminar was conducted by insurance industry experts Rohan Dukle, director, Magus Corporate Advisors Pvt Ltd and Girish Malik, vice-president (Life),  Nandi Insurance Broking. The event was attended by almost 200 people; many had interesting questions.

Mr Dukle, said, “Mediclaim is not one policy fits all. It is common sense, but needs application of mind. Every product has different wordings and customers need to spend time to read the fine print. It is not fill it, shut it and forget it.

Unlike life insurance, which is one-time event, mediclaim has lot of issues and hence needs periodic evaluation to ensure customer needs are covered as well as changes in the insurance company terms and conditions are understood. Buying the policy is not enough.”

Less than 15% of Indians are covered by some form of medical insurance. 40% borrow money or sell assets to cover medical expenses. It is one of three main reasons for impoverishment. Insurance policy is something individuals buy to take care of adverse times. Often, they realize that what they thought was covered in the policy, is not covered. It can lead to policyholder ranting about insurance company or even the government.

Mr Malik said, “Life insurance is long-term contract. The perception of the insurance company in the market, past performance and claims settlement matter a lot. The spread and reach of the insurer as well as availability of intermediary after several years to help file claim is also important.”

Online term plans have gained popularity. The companies are targeting specific segment who is educated, aware of insurance, conscious of own health and can complete the documentation accurately. Only time will tell if the basic premise of such segment of customer having low mortality rates and hence reduced premium holds true or not.

Grievance redressal is important aspect of any insurance policy. For individual customers with claim below Rs20 lakh, insurance ombudsman is the best option. Mumbai ombudsman is reputed to give swift, sensible judgement and even instructing the insurance companies to settle the claims payment within 10-15 days. The only drawback is that it can still take 6-8 months to get justice.

According to Mr Dukle, IRDA has come out with good guidelines on mediclaim portability, which will help customers.” Customers can get credit for the time spent with existing insurer for pre-existing disease waiting period as well as specific ailment waiting period in the policy,” he added.



R Nandy

6 years ago

The way the insurance sector is behaving for private individuals I have second thoughts whether people with decent financial wherewithal should actually buy health insurance,especially senior citizens.Health insurance for younger individuals might be beneficial as they may not have the corpus to take care of the highly unlikely event of getting hospitalized.

But,for senior citizens the chances of  some kind of hospitalization is much higher and is worked out in the much higher premiums.Secondly,there is a high probability of getting the claims rejected.Also they may have the emergency fund to take care of hospitalization.I am not sure what kind of actuarial analysis the insurers are doing but most are at a loss in health insurance.
I have many people advising me to buy Heath insurance though I am covered by my employer now and will be covered at least for the next 30 years,as the premium will be high after I retire.I feel I am better of just keeping money in a mandated balanced fund with nominal contributions so that it can be used as emergency medical fund after retirement,rather than wasting money in premiums for the next 30 years.So,that there is no need of medical insurance after retirement.


Deepak R Khemani

In Reply to R Nandy 6 years ago

It makes great sense to have a fund specifically for the purpose of Hospitalization expenses but to say that you don't need medical cover as you have cover by your employer is not correct. There is no way of knowing whether you will be with the same employer or not or whether your new employer(if you Shift) will provide you with the same medical cover. Health Insurance companies are bleeding from Group Mediclaim given to employees and not from individuals claims. It makes immense sense to have Individual medical cover when you are young and when it is available cheap.
Its just my opinion, Finally it is your call.

Harish Shah

6 years ago

When IRDA has no control on the Insurance Company what is their role to look into the interest of Policy Holders. Only on paper with NO ACTION. Is Finance Ministry aware of hundreds of claim are repudiated. Only an individual Policy holders are harassed while those covered under Group Policy enjoy the maximum benifit at the cost of Individual Insured Person who is made to pay high premium.

PC Chacko

6 years ago

When a person get sick he rushes to hospital His and his relatives firstconcern is to get the patients treated and cured.therefore sometimes they forget to intimate the Insurer with whom therir Medicalaim policies are being taken..If the hospitals admitting such patients should include one colum in their admission card or register to get the name of the Insurer and the Policy No from the relatives of the patient who are attending the patient s and the Hospitals should intimate the Insurer regarding the same
if the patient has not done it .Some doctors and hospitals have a tendency of charging more for the patients who have mediclaim cover and give unnecessary tests etc. to extract more money This should be discouraged.


R Nandy

In Reply to PC Chacko 6 years ago

Thanks for the suggestion.Your comment is well taken.But, I would like to add a few points to ponder regarding buying an extra health cover by employees already covered by
their employer.

(1)It is no doubt based on the industry the person is working and the job security.But,if we take people from the organized
manufacturing sector,IT,finance etc.Most of the employers give adequate health cover either through Group insurance or ESI. Regarding periods of unemployment,it is a risk regarding which each person has to take his call.But,I think periods of unemployment will be very small for a person below 60 compared to periods of employment.In my case I have been unemployed for 4 days in my previous employment of 9 years while changing a job. I am assuming I will be at a max unemployed for 1 year at different times
in my future employment of 30+ years.So,if I buy a heath cover for the next 30 years I will be paying a premium for 30 years of cover whereas I will actually need a cover of 1 year.In fact I can cover the risk myself
during this short period of unemployment by taking a loan or from my emergency
savings.This seems to be a nobrainer for me.Paying 30 years of premium
for 1 year of cover just doesn't make sense.Or am I missing something?

(2) Do people in the US(considering that they are ahead of India in the maturity of the finance and insurance industry) take double cover even though they are covered by their employer. The answer is NO.Of course they have portability from group cover to individual cover to take care of preexisting illnesses.

(3)Insurance can be bought as and when required.Medical insurance can also be bought when the person decides to be self employed.I have done my calculation in this regarding considering the the premium payable with age including diseases
like diabetes.It works out cheaper even after buying insurance at a late age rather than buy
unnecessary cover at an earlier age with lower premium. This also includes life insurance.I can share my calculations for life insurance,in case you want to see it.

R Nandy

In Reply to vivek p 6 years ago

Probability of hospitalisation in the next 30 years against which the insurer charges you premium,P(hospitalisation)=x/30,I am assuming you will be hospitalized x number of times in the next 30 years

.Probability of unemployment in the next 30 years assuming 1 year of unemployment in the next 30 year period,P(unemployment)=1/30
P(hospitalisation while being unemployed)=P(unemployment)*P(hospitalisation)=x/900
You are paying the premium for P(hospitalisation)=x/30 which is a much higher probable event to actually cover P(hospitalisation while being unemployed) =x/900,which is an extremely low probable event.So,in other words the probability is lower by a factor of 30 in this, the premium should also be lower by a factor of 30. I will take a cover if some insurer gives me at a premium of Rs 6000/30 per year for a coverage of 3 lacs to give me medical cover while being unemployed.

If we just understand the principle of insurance as sharing risk with others in the pool.That condition is not satisfied. As we are looking for a cover forP(hospitalisation while being unemployed) while others are looking for a cover for P(hospitalisation).You are essentially subsidizing for others hospitalisation.You in fact can just assume the risk yourself and save loads of money.

Coming to your question,a simple contribution of Rs 6000 per year increasing at the rate of 8%(inflation rate) per year with a real return of 2% in a balanced mutual fund will give you around 300000 after 30 years in today value.this can be used for medical cover,there is no need of medical insurance premium payment after retirement.

Deepak R Khemani

In Reply to PC Chacko 6 years ago

What you are suggesting is ideally what should happen. The Insurance company mindset now is to reject the claim under any possible fine print or under the intimation delay or submission delay
The hospitals are not going to do it for you . It is very important that the insured and the intermediary are in good contact so that all this follow up can happen for the claim to get processed.
Regarding the hospitals overcharging patients having Mediclaim that is the issue which has resulted in Insurance Cos tightening their belts to avoid fleecing by hospitals and reduce fraudulent claims!

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