MFIs: Creating Slaves to Microfinance or Becoming the Saviors?

Author: Surabhi Agrawal

With an even-fisted force in the air, he yells, “We are not a slave to your microfinance!” and storms off to the back of the house, leaving twenty-three clients, one collection officer, and two surveyors in a small room shyly looking at each other. The group leader, the wife of the angry gentlemen who believed we had invaded his house, stated that her husband was frustrated with the weekly meetings held by the Microfinance Institution (MFI). “He feels our work is disrupted weekly because we have to gather for the meeting.”

If we leave the story here, then this will become another example to be cataloged in the literature of how capitalist are imposing their microfinance, making clients ‘slaves’ in debt with various imposing conditions. But a different chord will be struck as you enter another household for a collection meeting and a woman begins to show case her new sewing machine along with a sample of household handicraft items she has made. “I learned how to design these at a workshop held four months ago at the branch office.” With a shining face, she shows the repairs she made to a window in the house from the profits.    

These scenarios, as nerving or heart-warming, take us to the original debate - “Does microfinance perpetuate women in a cycle of debt or does it help lift women out of poverty?” Much research has been conducted on this topic, with ardent supporters of both schools. CMF-IFMR has undertaken a study in partnership with Columbia University Business School where we are approaching this topic with a different angle: What are the sources and best management practices for high productivity for MFIs? Along with the financial services, if the MFI provides any social services, then what are the performance outcomes?

The study is being conducted across six states in India (Uttar Pradesh, Madya Pradesh, West Bengal, Maharashtra  Tamil Nadu and Kerala) with 19 partner MFI organizations. Through surveys, fieldwork observations, and focus-group discussions, we are understanding the perspectives of branch managers, loan officer, and clients. We are also interviewing senior management in operations and human resources, along with collecting particular branch level financial data for the past two years. Yes, we are covering all four corners of the country. Yes, we are working with a large segment of the sector, some of which started as grassroots NGOs and some which are the largest players in the industry. And yes, we are compiling a very large and detailed database, a unique undertaking at such a critical time for the industry.  

So how are management practices going to answer the original question? Mandatory attendance policy? Weekly meetings? Socially-geared workshop? These are all elements of the management policies and practices the MFI has put into place. For example, how does the recollection frequency structure effect repayment rates? How effective are social program in terms of client retention, repayments, and capacity-building? As fieldwork has completed, questions like these and many more will soon be analysed, providing critical insights to the industry at a moment when the RBI is devising new policies and legislature is debating where to place this sector in the complex world of finance.

So before we jump to any conclusions, we should rethink the question, what exactly determines the successes and failures of microfinance? 

Women gathered for MFI Meeting (Photo courtesy of Pramod Tiwari)