Could Google Maps Help End Poverty?

We feature an article from Forbes on Transparent Chennai, an initiative of the Centre for Development Finance.

Last year in the Indian city of Chennai, more than half a million people suddenly appeared from out of nowhere. These men, women and children weren’t rural migrants who had just moved to the city. Neither were they incomers from somewhere else in the world. They were slum dwellers who had lived in the city for generations. It’s just that no-one had bothered to notice them.

It wasn’t until a group called Transparent Chennai decided to digitally map the sprawling city’s slums that the local government even realized these half a million impoverished souls existed. Using open source software, Google Maps and good old-fashioned shoe leather, this collective of maptivists set out to draw a brutally honest portrait of their city in the hope of persuading politicians to make decisions that would improve the lives of the urban poor. What they achieved in the past year has already influenced anti-poverty groups across India, but some American academics want to see their ideas implemented across the world. Could this tiny group of social cartographers  teach the West a thing or two about running a city?

Map of Chennai city and Chennai metropolitan area, with major roads, railways and water bodies. (Photo credit: Wikipedia)

“Maps can be very empowering,” said Nithya V. Raman, who founded the Transparent Chennai project after taking a degree in social theory from Harvard and a masters in urban planning from M.I.T. “They pose an incredible opportunity for people to write their own narrative about civic problems, their experiences of the city and their lived realities. They offer a means for the urban poor to represent their case against the official record, which may underreport or completely ignore problems faced by communities in the city of Chennai or any other Indian city.”

Read the full article here.

A Fresh Look at Informal Finance in Chennai

Here's an excerpt from a blogpost published by our researchers, Amy Mowl and Ben Sprungkeyser on ACCION's Centre for Financial Inclusion blog featuring their work on informal finance in Chennai.

There is revived interest in the role of informal credit in India, with researchers using a variety of innovative tools to study informal products and their delivery channels. While the majority of informal loans may come from professional moneylenders, such lenders are not the only source of informal credit for micro and small entrepreneurs. Indeed, for households, non-bank credit is provided by a wide range of players, including moneylenders, unregulated pawn brokers and chit funds, employers and local shopkeepers, and caste and kin networks.

Interested in the range of alternative informal credit options available to businesses, we decided to take a fresh look at informal credit products in a major wholesale fruit and vegetable market in Chennai. The result: we found a market for alternative finance that revolved around merchants associations and the provision of common credit.

Two Associations, Two Loan Products, Two Outcomes

Amongst the collective loan products we examined, those offered by the Tomato Wholesaler Welfare Association (“tomato association”) and the Banana Merchant Welfare Association (“banana association”) were most notable. Like most voluntary trade associations in India, both associations function to protect and advance the common business interests of the members, share information, provide mutual assistance, and distribute gifts during festivals and ceremonies.

In addition to these basic functions, we found that the associations had credit and savings features, with mixed results. In the case of the tomato association, the individual wholesalers had devised an intricate mechanism for the collective pooling of resources amongst 50 members. All wholesalers who wish to join are required to pay a 10,000 rupee deposit and contribute an additional 50 rupees a day in membership fees. This financial arrangement lasts for five years, and so members are not permitted to withdraw their contributions before that time lapses. Instead, wholesalers in need of funds may borrow from the group at a rate of three percent per month. The tomato association deducts a small amount of interest income for operating costs and divides the interest income equally among individual members. One wholesaler explained that he had accumulated more than Rs. 200,000 in interest over the course of the last four years.

A banana vendor in Chennai

The banana association comprises 120 members who pay an annual membership fee of Rs. 1200. For a time, the banana association provided loans to its members at a rate of 2 percent per month.¹ This was initially designed as a system of mutual assistance. However, the banana association members we spoke to claimed that some members took advantage of the system. Realizing that the association would be reluctant to use the harsh enforcement tactics of professional moneylenders, some borrowers slipped into loan delinquency and default. Rather than continue to lose money, the merchants association stopped lending to all its members.

In addition, the banana association belongs to a larger association with flower and vegetable merchants. This larger association of 450 retailers previously provided assistance for members to receive formal bank loans. The association helped arrange documentation including tax returns, attested to the creditworthiness of borrowers, and helped confirm that borrowers had no outstanding credit obligations. In order to maintain credibility, the association was serious about only endorsing legitimate candidates. This process, however, created antagonism amongst the members. Merchants with poor credit histories began to approach the association demanding assistance. They felt that the selective provision of loan assistance was unfair. Rather than risk internal division and discord amongst members, the association simply stopped helping members receive loans.

Read the rest of the article here: bit.ly/CFIblog-Informalfinance

The Poverty of Decision Making

Here's an excerpt from an article published by The New Indian Express that features our work on the impact of poverty on cognitive function.

What remains key to how we make decisions is the context that we are in, according to a recent study that helps us understand how decision-making works in the context of poverty. The study, Poverty Impedes Cognitive Function, by Harvard economist Sendhil Mullainathan along with Anandi Mani (Warwick), Eldar Shafir (Princeton) and Jiaying Zhao (UBC), discovers that the state of being poor itself may be constraining a person’s mental capabilities from making wise choices, and that the magnitude of impact of bad choices is larger in the case of the poor, oftentimes with grave implications. Therefore, it is not that poor people make bad decisions; rather, it is the context the poor inhabit that makes them choose badly. Poverty drains poor people’s energy, depletes their cognitive resources, and compels them to make sub-optimal decisions.

The poor are often associated with a range of self-defeating behaviours, chief among which is poor financial management. Through a series of laboratory and field studies consisting of experiments conducted with shoppers at a New Jersey mall and with farmers in South India, the researchers determine that poverty exerts a certain cognitive load on individuals and taxes their mental bandwidth whenever they think about financial problems.

When experiencing scarcity repeatedly, the effect can prove to be disastrous with potential long-term effects as there is “less effective bandwidth” while making important decisions. What gets impaired is not the inherent capability, but really how much of that capability is available at the time of making decisions. The size of the impact of such scarcity is equivalent to losing about 13 IQ points or losing one night’s sleep!

Extensive studies in neuroscience point to the central role of the human brain’s frontal cortex in the management of complex cognitive processes such as attention, motivation, decision-making, and long-term planning; any deficits in the functioning of the frontal cortex, say resulting from the stress of impending tasks, can impair any of the processes.

This correlates to the study’s finding that poor people’s brains have to work harder than the brains of their rich counterparts because of the cognitive load experienced owing to poverty. While the poor did as well as the rich in financially “easy” scenarios, they did significantly worse than the rich in financially “hard” scenarios simulated in the experiments to test cognitive control.

Read the rest of the article here: bit.ly/1cA1Mhe

5th Annual IMTFI Conference - Understanding the Movement of Cash of Privately led Enterprises in Dharavi and Scope for Electronic or Mobile Payments

The Institute of Money, Technology and Financial Inclusion (IMTFI) held its fifth annual conference on December 2, 2013 where IMTFI fellowship award receipts presented their preliminary findings. The award was granted to assess technological infrastructures being developed as carriers of mainstream and alternative currencies worldwide.

Funded researchers invited to present at the conference

Mudita Tiwari and Deepti KC presented their findings from the study titled, “Understanding the movement of cash of privately led enterprises in Dharavi and scope for electronic or mobile payments”. 

Mudita Tiwari and Deepti Kc (L-R) presenting their findings

The study used ethnographic and experimental approaches to understand the movement of cash transactions, for three types (small, medium and large) of industries in Dharavi. Through the study, behaviors influencing business related financial transactions were observed, penetration of mainstream finance in the study area was mapped, and 200 stakeholders were interviewed to understand their knowledge and perception of electronic transactions. The study was conducted to determine the social, cultural and commercial factors influencing the decision of using cash versus electronic transaction systems, and understanding the scope of mobile or electronic payments.

Preliminary findings indicate that despite the RBI’s acknowledgement that universal access to modern e-payments is critical to ensure financial inclusion, sections of low-income residents in Dharavi face challenges accessing formal finance. Our findings indicate that nearly all enterprise owners have a strong preference for cash because of lack of awareness about convenient e-payment systems and general mistrust about banking systems. Respondents indicated a strong interest and need for information about banking products and services, convenient e-payment options and remittance options.

We are currently partnering with Neeti Solutions to develop financial literacy materials that can be delivered in an interactive, self-explanatory style. Comic books are being developed to present information about savings products, mobile banking options and remittance services (via agents) using context specific illustrative graphics that can be read by majority of respondents in our research – migrant workers and women entrepreneurs. The preliminary draft of these illustrative comics was presented at the conference as well.

A sample comic exhibited at the conference

To view our presentations, please visit: bit.ly/CMFconferences

(Note: IMTFI was established in 2008, with its mission to support research pertaining to technological advances impacting the financial lives of the world’s poorest people. IMTFI is housed in the School of Social Sciences at the University of California, Irvine, and is currently headed by Dr. Bill Mauer.)

Microfinance India Summit 2013 - SHG Bank Linkage – Applying the Responsible Financial Lens

Overview: Backed by findings of a sample study conducted by GIZ and IFMR research, this panel will seek to review practices in SHG bank linkage with respect to ‘responsiveness and responsibility’ to clients/members, and propose a way forward.

Moderator: Frances Sinha, Director, EDA Rural Systems

Lead Presentation – Amulya Champatiray, CMF 

Speakers

• Jonna Bickel, Technical Advisor, GIZ-NABARD Rural Financial Institutions Programme, GIZ

• Sonali Vayangankar, Vice Chair and MD, MAVIM

• Kalpana Sankar, MD, Hand in Hand

• Dr R M Manjunatha Gowda, President, Karnataka State Cooperative Apex Bank

• A. Chandrashekhar, Faculty, BIRD

_________________________________________________________________________________

Lead Presentation: 

Project page on CMF's website: bit.ly/18W0IUf

_________________________________________________________________________________

Frances Sinha: These findings were there 8 years ago as well and they are definitely disappointing. We have a very interesting panel to discuss these today– all institutions with a deep experience of working with SHGs.

Jonna Bickel

• This a realistic situation which we have to face and we have to question – why have we come to this point?
• I want to start by mentioning the quality of the program. This brings me to the point that SHGs are too dependent on external agencies. I want to ask everyone else here, why is it that we are reluctant to leave these groups and how can we help them get there? Now I see federations coming up but can they really fill this role? There is a huge mismatch because for me the SBLP program is the largest FI program in the world. If we want to make the SHG approach sustained we have to see how it is changing and why it is changing? When talking about responsible finance we always talk about service providers but never talk about what services are being used?

Kalpana Sankar

• It is a huge effort to ingrain culture in SHGs such as depositing the deposit on the same day. They do not get access to timely credit or savings mechanisms. A lack of transparency also exists as SHGs do not report to credit rating institutions. We have been operating the program for decades and still don’t have a particular apex model. To answer Jonna, where we have missed out is on quality – I feel like APEX institutions should monitor group quality because they have a close tie within the community and they can ensure scale and sustainable social enterprises. Girjah here helped me develop 7 indicators to show that a group is not operating well.
• Rating institutions should give some sort of weightage to institutions operating in the SHG field, since it is operating in a caste-based community encouraging communal harmony and affecting other indicators which do not reflect financially. Poor people also want their children’s lives to improve so debt should be made available to MFIs for giving loans for sanitation, etc.
• Grants and funds should be given to MFIs instead of being invested in expensive and unproven govt. development programs.

Sonali Vayangankar

•  MAVIM works under the WCD Ministry and we are currently running the Tejaswini program. We’ve formed 600000 SHGs in all 3 districts of MH. We do SBLP under this program. We have been emphasizing on capacity building, microfinance and livelihoods. Women’s empowerment, social injustice has been covered as well.
• To deal with the problem of lack of credit- we moved away from nationalized banks, we went with ICICI, to start with, to 8 districts and now we’re in partnership with them for covering all 33 districts. They charge 14% interest, of which 2% is returned to the community, which is a contribution to making the groups sustainable. ICICI has hired staff for our program, and have increased the average loan size as well. Whenever they face difficulty, they report to the head office. We’ve signed an MOU with NRLM and are also looking to bring convergence to make the groups more sustainable.

R.M. Gowda

• So Jonna had raised a question I find interesting which is, why is it that we are still standing still after 20 years? And how can we be more responsible? Our repayments have gone down from 97% to 95%. I’m not sure how much of the SHGs in Amulya’s study are from the Coop sector.
• After a lot of effort, we’ve managed to have the sign up for Aam Admi Bima Yojana.
• What I found interesting was that the cost of transportation for a HG loan in Karnataka was 8K ….. total amounted to 8000 rupees. If I took 1 lakh as a loan, that’s 8% interest. Where do we stand in the coop sector? 4% is all we pay. Coop sector is somewhere we can make a difference here.

A. Chandrashekhar

•  Different innovations are being undertaken by NABARD but the stakeholders have to become involved and maybe the banks should fund the capacity building of the SHGs because essentially it’s a business proposition.

Microfinance India Summit 2013 - SHG Bank Linkage – Optimizing the potential

Overview:  With the large existing pool of SHGs and the expected growth, it is imperative that the role of SHGs is extended beyond (indirect) credit linkage, and strategies are developed to optimize their potential in enabling comprehensive financial inclusion of their members. How can this social capital be leveraged to contribute to the larger financial inclusion agenda? This session seeks to learn from some existing efforts and brainstorm on operational and policy level changes needed to accomplish that

Moderator: Y C Nanda, Chairman, ACCESS ASSIST (Former Chairman NABARD)

Panelists

• Dr B S Suran, Chief General Manager, MCID, NABARD

• C S Reddy, CEO, APMAS

• D. Narendranath, Program Director, PRADAN

• Avijit Saha, General Manager, Rural Inclusive Banking Group, ICICI Bank

_________________________________________________________________________________

Y.C. Nanda: What more is required to be done and could we have done more?

B.S. Suran

• We feel the NPAs have gone up because the end of the SGSY program isapproaching and there seems to be a temporary lapse in the amount of credit being pushed out.

•  The agent model might improve access but if one actually wants to bring effectiveness, the members need to be involved to establish demand-pull. With SHGs there is a certain amount of trust in the institution.

• We’ve tried our best to build a suitable livelihoods framework. Conventionally, because SHGS involve women, there is a belief that there are only traditional activities that can take place. BUT they have tremendous organizational skills, which can be tapped – such as even providing government services. We need to strengthen financial inclusion, building capacity etc. needs to be done. 

      D. Narendranath

• What are the internal demographic processes being followed by the groups? Do the members have a plan for using the finances they access from the banks? SHGs are a forum for the women to link with each other and the bank. Bank linkages are just one of the plethora of things they can link to.

C.S. Reddy  

• What kind of linkages do institutions of the poor require? We must remember that SHG Bank Linkage is not a rural phenomenon. In AP alone, we have 300,000 SHGs that are linked to banks. Now the GOI has announced the NULM (National urban livelihoods mission).

• There is increasing default in areas where SGSY was operating.

• Do we also only want government to promote SHGs? Increasingly, the govt. is the only organization doing SHPI activities. This is dangerous because it makes the SHGs a supply channel, instead of being dependent on demand for services.

• PRADAN has played a pivotal role in SBLP, but the last 5 years there has not been enough of an effort.  For an org. like NABARD, we should make sure there is adequate support for sustainability of SHGs. Emphasis should be on savings as well as credit linkage. Initiatives like ‘Bank Mitra’ etc. should be promoted

     Sarat Yadav

•  I agree with Narendra’s point on quality. The continuity of the agency that made the SHG is important. It is necessary to have certain specially dedicated SHG bank staff and there needs to be a movement towards maintaining continuity once the credit link is established.    

     Ajay Tankha 

• My derived understanding from the experiences of others is – I see a commonality between different types of SHGs as they have evolved. I am of the view that the SBLP, which was based on the role of the SHG as a financial intermediary, that role has been diminished over the years. Whether it’s an NGO promoter, thereafter promoting an in house NBFC, whether it be federated structures, in all cases the SHG finds itself being squeezed, due to dependence relationship with the promoting agency.

• The new middlemen which were the NGOs are dying out, and if we take their example, the NGOs which have in-house MFIs lend to SHGS at a much higher rate than the SBLP.  So which SHGs are we talking about? The ones getting loans at 1%, 0% or 26%?? So SHGs have very different roles depending on the SHPI.

•  Linked to this is the question of empowerment. That is something I also have a different view-point on. What is viewed as positive by my peers is seen by others, especially the more gender aware of us, as a move by the state to impose gender roles. Instead of herding women into SHGs, there should be individual accounts for the women instead of forcing them to take uncommon types of loans rather than the ones available to everyone else in the country.

• What are we doing with SHG members when it comes to Financial inclusion? Are they being made to open basic savings accounts?

     Y.C. Nanda 

•  We go on loading programs on the SHG model. Social investment is not being done and quality is not being maintained as we are simply chasing numbers. Right now, the financial inclusion case is that neither MFIs not SHGs contribute to direct benefit transfers (DBTs). Maybe in 5-10 years when we are really talking about real financial inclusion – maybe that will facilitate them. Right now, the focus is on DBTs and if you do not fall into DBT, you are out of the picture.

• Twenty years ago there were the same branches for SHPIs and now they’re the same but they have been given additional tasks like NREGA payments etc. without giving them additional manpower. Suran, do you think SHG2 is achieving what you were expecting from the model?

    B.S. Suran 

•  Some of the issues which have surfaced over the last 20 years, like banks not understanding that this is a client development program, continue to happen.

• Many programs like NREGS have triggered the possibility of SHGs increasing savings. We decided to bring voluntary savings beyond being compulsory. Quite a few people could save much higher. The beauty of dealing with the poor is recognizing the heterogeneity of everyone’s abilities to save etc.

• Initially, there was the attitude of giving one vanilla product – a term loan. All SHG members do not move in the same fashion. Their desire to invest is varied. So there could be a possibility of a JLG WITHIN an SHG. So without breaking the SHG, they could take an increased loan. 25% growth has happened in SHGs.

•   Same is the case with savings. I’m not saying this is due to voluntary savings in the SHG2 model. This might be due to the ability of the agents to tell SHGs to increase savings in the corpus or in individual accounts. The idea was to stop pushing them into debt and now SHGs are looking at increasing their minimum savings, which is pegged by the lowest denominator/member who can contribute the least.

• Majority of banks have switched to cash-credit which lowers interest liability, registration etc. we believe to a certain extent we have made the model more client centric.

Y.C. Nanda - As a supervisor of the SHG system , why is it that credit is larger than savings?

B.S. Suran – 44 lakh SHGs are availing credit whereas 75 lakh are doing savings.

Y.C. Nanda – How do you see SHGs contributing to livelihoods and are they doing something for gender empowerment – what more is required? Does PRADAN have suggestion for NABARD?

D. Narendranath

• As I said earlier, one needs to work with groups on a long-term basis. Groups require some sort of hand holding.

• Limiting the SHGS to SBLP is a sub-optimal use of the group. These groups are concerned about multiple issues in their life and not just credit. If the poor are not mobilized properly and are not strong – they cannot become a passive credit bearer for the state. Groups should emerge as local political entities that demand rights, fulfillment of govt. guarantees and then credit becomes a component only in the larger structure. Each SHG becomes a project in that case.

• This is an entirely different attitude we expect from the bank – if the group can provide a structured plan – how does the credit institution converge into the larger picture? This needs handholding for the credit institutions as well!

      C.S. Reddy 

• Questions I have received are, have SHGs lost their sheen due to FI? And does that mean NRLM investment is a waste? Answer – with SHG2s we are changing the attitude. If the groups can open individual + group accounts then an interaction can happen. If there is a deliberate strategy then maybe something can take place. The beauty of the model is that it can fail and take off in different places.

• The second question is, what is the life cycle of a group? We have to agree that there are issues in the system. The main problem is that we DON’T HAVE THE DATA. We are unable to understand how many groups are defunct or discontinued so we don’t know the mortality rate of the group.

• Over the next year – we want atleast 500 blocks which should be NGO SHPI formed SHGs. The way to go for NRLM is to have at least 5-10 NGO partners to see more focus on innovation and capacity building.

•  NRLM – NABARD connection – I feel both have to work in tandem with each other. Maybe there’s a small difference of opinion at the state level. Alone, either cannot make a significant change happen. 

      Ajay Tankha 

• I see a very limited role for SHGs in financial inclusion and using them as CSPs for banks. And this will further continue the gender biases currently present in the model.