Commercialization of Microfinance

- In Global Background

Presented by:
Anant Mishra
Vimal Singh
M.B.A.IIIrd Sem.
 OUTLINE
 INTRODUCTION
 EVOLUTION – INDIA
 EVOLUTION – GLOBAL
 GLOBAL MICROCREDIT SUMMITS
 OBJECTIVES OF MICROFINANCE POLICIES
 SOCIAL RESPONSIBILITY v. COMMERCIALIZATION
 INDIAN MFIs & COMMERCIALIZATION
 BANCOSOL – BOLIVIA
 BANCO COMPARTOMOS – MEXICO
 POVERTY LENDING & FINANCIAL SYSTEM
 RECESSION & MICROFINANCE
MICROFINANCE
 EVOLUTION- INDIA
Initial attempts of development finance
SEWA in 1974
Entry of NGOs into MF sector: Micro Finance
Institution Model
Self-Help Group (SHG)- Bank Linkage Programme
launched by NABARD since 1992
3 models of SHG-Bank Linkage Programme:
 Bank-SHG
 Bank-Facilitating Agency-SHG
 Bank-NGO-MFI-SHG
(KROPP & SURAN 2002; BANSAL,
2003)
EVOLUTION-GLOBAL

DURING 1970s AND 1980s

Privatization, liberalization became the main spirit
behind economic policy
Export oriented garment industry and service sector had
a high rate of growth while old manufacturing units
experienced negative growth or closure
Different poor targeted program evolved as “safety net”
programs to rescue the victims of the “reform” or
“restructuring”.
 GLOBAL DEVELOPMENTS
Land reform lost its place in development agenda
NGO activities expanded and were glorified as poverty
alleviation tools.
1997 – Grameen Bank model spread around the globe
 UN named the year 2005 as the “International year of
Microcredit”
ROLE OF WORLD BANK
 Develop regulatory framework for financial operations of
the NGO sector.
 Encouraging large NGOs to establish themselves as banks
 GLOBAL MICROCREDIT SUMMITS

 The Global Microcredit Summit 2006 was held from November 12-15, 2006 in
Halifax, Nova Scotia, Canada. More than 2,000 delegates from over 110 countries
participated at the event, assessing progress made toward the Campaign's goal of
reaching 100 million of the world's poorest.

 The second Global Microcredit Summit 1999 Meeting of Councils was held in
Abidjan, Cote d'Ivoire June 24-27, 1999. 600 delegates from 85 countries attended.

 The first Global Microcredit Summit 1998 Meeting of Councils was held in New
York City, USA June 24-27, 1998. 1,000 delegates from 107 countries attended.

 The original Microcredit Summit 1997 was held in Washington, DC, USA in
February 2-4, 1997. 2,900 delegates from 137 countries attended.
(CGAP WEBSITE)
 OBJECTIVES OF
MICROFINANCE POLICIES
SOCIAL RESPONSIBILITY
vs. COMMERCIALIZATION
 POVERTY LENDING
& FINANCIAL SYSTEM

Dimensions Poverty lending Financial system

approach approach

Focus Reaching the poorest Financial viability

Operational objective Social (not for profit) Commercial(for profit)

Impact assessment People’s lives Organization’s growth

 INDIAN MFIs &
COMMERCIALIZATION

Society for Helping and Awakening the Rural poor

through Education AND Swayam Krushi Sangham
indicate the orientation of these organizations at their
inception.

TRENDS IN INDIAN MF SECTOR

1) SHG & Non-Profit model adopted to reach poor
2) Such institutions shift to “for profit” activities
3) Established financial players come into fray

2002 Onwards – Transformation emphasized

Investors poured in – For returns & image makeover
Indian MFIs & Commercialization
Contd.

 Options available to functioning MFIs

1. Move the operations to a non-banking finance company [NBFC]
2. Move the operations to a co-operative format
3. Set up a local area bank

 Indian law, through the office of the charities commissioner –

prohibited equity investments by not-for-profits, following
the spirit of what public purpose organizations ought to do.

 NBFC model preferred, subject to RBI regulations post 96-97

NBFC scam.

 Transformation loan by SIDBI

Commercial Activities of MFIs
BANCOSOL -BOLIVIA
BANCO COMPARTAMOS - MEXICO
THE DEBATE
ARGUMENTS
RECESSION AND MICROFINANCE
 CONCLUSION
 Commercialization: Possibility of trade-off between profit motive and quality
service to the poorest of the poor.

 The MF sector in India should not succumb to the sweeping ideology propagated
by foreign players to secure their ever-expanding success.

 Commercialization should relate to sustainability of financing with profit thereto.

 Notwithstanding the advantages of commercialization, it cannot be the only

answer to success of MF industry.

 Instead efforts for a more vibrant industry with a broad spectrum of institutions,
with different degrees of stress on social over profit motive and operating within
different ideological frameworks- non-profit, not-for-profit, for-profit.

 Microfinance should not lose its innocence & must work on a balance of tight
rope.