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Financial Inclusion Conference 2012 - Summary of Day Two

“The Seven Steps to Save the Soul of Microfinance”

Mr Larry Reed, Director, Microcredit Summit Campaign started the first session of the day by re-emphasizing the need to view Microfinance as a poverty alleviation tool and listed seven steps, which in his view were important for the future of microfinance:
  • Recognize excellence:  Recognizing that clients are the ones who are striving to get out of poverty and microfinance is merely a tool. He spoke of the need to learn from successes (best-case practices) in the sector.
  • Be Transformative: Acknowledging that microfinance is only one tool to eradicate poverty and not the only tool, and needs to combine with other products meeting the clients’ needs.
  • Encouraging Savings
  • Knowing you clients, understanding their needs and tailoring products accordingly
  • Promoting Financial Literacy
  • Monitoring and rewarding social performances, by keeping track of achievements,  goals and rewarding successes in different spheres
  • Doing no harm- which can be achieved by adopting client protection measures as well as through responsible pricing.
He stressed that client understanding is key for functioning of MFI’s and that ‘the challenge is to use tools to provide more opportunities and reduce risks for the poor’ through a combination of developing diverse products and learning from successes across the world and adopting them accordingly.

The First Mile Walk into the Financial System: Experiences of Life.

This session, moderated by Mrs H. Bedi from the Development Support Team aimed to bring to the fore the major impact microfinance has had on lives of people through an interactive session with community leaders who are the end users of the products. The panel (Kamleshben, Sunilaben, Radhaben, Rupaben and Shobhaben) shared their experiences with SHG’s and banks in different parts of the country.

The community leaders were appreciative of the impact MFI’s had played in helping them increase their savings drastically and reduce their debt burdens as well as prove as an enabler for them to take up different occupations. They also spoke about how different aspects like health and education were also now being improved thanks to the formulation of SHG’s. One common them that rang around the presentations of all the leaders was the importance of microfinance in giving them a voice in society and playing a more active role in decision-making. They spoke about how the movement had led to greater financial literacy levels, leadership training and training in other spheres of life like dairy farming or animal husbandry. A common concern amongst the leaders was the inadequacy of access to formal credit and they stressed for the need for training of staff at the ground level to be more sensitive to the needs of the poor.

The discussion ended with the panel and the members of the audience all agreeing that bank linkages were useful and although based on the accounts of the community leaders, there may be some work further to be done to improve access to the poor there is a need to appreciate the fact that we are trying to blend a people-based system comprising of simple traits with a formal sector system and initial teething problems are hence bound to arise. Thus, it was suggested that we must appreciate the work of formal banks also and try to make an atmosphere of collaboration through persuasion rather than protest. The session concluded with community leaders performing two powerful songs about the strength of women and the need for women to awaken in society and recognize their potential.

Business Correspondents: A potential model and the Launch of Sa-Dhan study on the BC Model
Mr R Prabha, Expert,Banking and Microfinance
Mr Mukul Jaiswal, MD, CASHPOR Micro Credit Ltd.
Mr. Rajeev Lal , General Manager, SBI
Mr. Abhishek Sinha, Co-Founder & CEO, Eko India Financial Services
Mr Philip Brown, Citi Foundation

The session started with the launch of Sa-Dhan’s Research study on ‘The Business Correspondents Model’, funded by the Citi Foundation. The session went through current status of the BC model in India, its stumbling blocks, key strategies ahead as well as its potential for the future. The BC model was launched only in 2006, and hence is relatively new and the panel agreed that although it is important to review its current situation, obituaries being touted around may be premature. We have faced some initial trouble due to inexperience and technological issues but are continually making advances in this regard.

Mr R Prabha first went through a brief summary of the results from the Sa-Dhan Study.
The key findings of the report can be summarized as below:
  • Commercial Viability is the greatest challenge of this model , as compensation is too meagre for Customer Service Points(CSP)
  • CSP’s are the weakest link of the model and they suffer from low morale, retention issues and high expectations.
  • The operations have thus far been too small, comprising of 103 million No-Frills Account amongst a total of 114 operations
  • Banks consider the model as a mandated program and fail to see their business interests in the program
  • There has been an over-emphasis on the quantity of operations as opposed to quality
  • Inadequacy in financial literacy support as clients don’t feel the need to take advantage of financial infrastructure
  • The range of products offered is too low and till date many BC’s refrain from offering credit
  • Government to Person Payments still not being routed through EBT’s to NFA’s
  • Lack of a customer grievance mechanism and business continuity plan
  • Need for improvement in connectivity and technical infrastructure

The panel also suggested the following strategies for improving the viability of the BC’s:
  • Banks to provide viability gap funding to BC’s
  • RBI/IBA to prescribe uniform minimum rates to BC’s to ensure fair return
  • Change in the selection process and a capacity to deliver more criteria of products
  • A minimum compensation for CSP’s
  • BC’s should keep initial investment low
  • SHG federations, CBO’s and MFI’s to be included as BC’s
  • All government transactions necessitated through BC’s as this would give 2% admin costs to banks
  • Convergence of the BC model with National e-governance plan and the Kiosks in the Kiosk model to act as common service centres
  • BC’s should go beyond NFO’s and offer alternative channels of finance like ATM’s, internet banking etc.
  • The BC should be the complete responsibility of the bank

There was also stress laid on the need for more customer-centric strategies like activating dormant NFA’s through yearly national campaigns, providing customer grievance and service mechanisms as well as including financial literacy as part of school curriculums.
It is important that in the future, the banks take more interest in the services offered by BC’s and try tapping the potential of the delivery channel by providing new products. Further avenues of funds for initial investments are also necessary as BC’s cannot be held responsible for it and RBI and the government must create an enabling environment for this model to flourish.

“A Bank led, technology driven agency model is still our best bet.”

The session concluded with Mr Jaiswal and Mr Sinha providing us an account of their experiences with the model in practice and a question-answer session with the audience.


  1. Hello

    Very nice post even i cant take away my eyes from blog. The panel who suggested the strategies for improving the viability of the BC’s are informative.

    The two points which stuck my eyes are -

    Banks to provide viability gap funding to BC’s
    RBI/IBA to prescribe uniform minimum rates to BC’s to ensure fair return


  2. MFIs and their development has led to considerable change in the rural landscape. Providing banking facility to the poor and in remote areas is crucial for sustainable development of the country. Though a lot of MFI are not doing well, I see the role of technology taking a front seat in the near future. Let's hope intent of the concerned authorities and the right mix of technology can help shape up the social paradigm in the near future. Very informative read indeed.

  3. I like the last line in this post. And good thing they have plans of including financial modelling and literacy to the school curriculum. Many would take chances of pursuing business for the future of India.

  4. There should be more stress on financial literacy. A lot of small businesses fail in the early run because they fail to understand how their capital works. Some tend to overbuy to get more material, but in the end they suffer the consequences of increased debt.


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