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

Source: http://www.microfinanceindia.org/mailer/october/index1.html
 
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:

• Given what happened with Sahayata microfinance, how can self-reported data be taken at face value? (Award winning Sahayata Microfinance is the latest to go astray)  What are the implications of such flawed business models for financial inclusion? (Lessons from the commercial micro-finance model in India)  
•  When agents abound in Indian microfinance (and last mile end user clients are not known) as self-admitted by the NBFC-MFIs top bosses themselves, how reliable and valid is this social performance data? (MFIN-NCAER study: Here’s the proof that microfinance agents are thriving in Tamil Nadu)
•  With ghost, multiple and over lending as well as frauds burgeoning over the last few years due to a faulty operational model (as Dr Rangarajan has argued) with perverse incentives (as Dr YV Reddy and Vijay Mahajan have consistently stated), what are the real implications for financial inclusion? (Increasing frauds, internal lapses at MFIs: Need to strengthen supervisory arrangements to protect the poor)
• When sharing JLGs and clients are the norm and client acquisition by MFIs is through mutual sharing arrangements (that in turn leads to greater sharing of JLGs/clients), how can multiple, over and ghost lending be eliminated? What happens to the already existing shared clients/JLGs in terms of their apportionment across MFIs for the future? (Microfinance securitisation: Impact of client-acquisition strategies and other factors)

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)