Indian Microfinance Leaders Talk about Poverty

> Posted by Siddhartha Chowdri

As part of a worldwide “listening tour” Larry Reed, Director Microcredit Summit Campaign, gathered around 20 of the leaders of the Indian microfinance sector for a roundtable discussion. This dinner took place on the eve of the Sa-Dhan Financial Inclusion Conference. In the two weeks since this candid discussion I have been dwelling on the questions Mr. Reed proposed to the attendees and their responses.
To paraphrase, the questions that were posed to these stalwarts of Indian financial inclusion were:

  1. Should microfinance institutions measure the poverty levels of their clients?
  2. If yes, how should this then be communicated to the world at large?

Given the beating that the Indian microfinance sector has taken over the last two years it was amazing to see such simple questions provoke such thought and passionate responses from some of the architects of the Indian microfinance movement. As these leaders of MFIs, support organizations, investors, and NGOs gave impromptu responses, several themes and trends emerged.
First, many people were quite clear that microfinance and financial services alone will not alleviate poverty. Even though at this point the whole “microfinance is not a panacea” conversation seems to be beating a dead horse, most of the discussants felt that this was an important message to reemphasize. After reading this recent Forbes article “Microfinance as a Tool to Alleviate Poverty“, I realize that this message is still is not clear to everybody.

Second, there was significant concern about talking about the poor and poverty alleviation in India out of a fear of that politics would provoke further government actions such as the Andhra Pradesh Microfinance ordinance. To simplify:

  • The government of India sees it as its duty to protect the poor and promote poverty alleviation through its mix of social welfare “schemes” and various subsidies.
  • Microfinance practitioners who claim to be working with the poor are treading into the government’s territory.
  • If there even the remotest evidence that microfinance is not in the best interests of the end recipients or in any way undermines the government programs, there will be political repercussions.

The conclusion was that we should be very cautious about how we talk about poverty and only do so when we are sure that microfinance’s impact on poverty is positive.
Third, the impact of timely and fair access to finance on poverty is not cheap to measure. Given the financial constraints facing MFIs in India today the MFIs have no resources to make additional efforts required to measure and report on poverty. Speakers wondered whether measuring poverty was worth it given the complexity and cost of doing it in an accurate and unbiased manner.
Fourth, many of the long-term practitioners expressed how they have seen their services changing peoples’ lives across generations and on a variety of different measures. For example, several people wondered how the empowering effect of self-help groups or joint liability groups can truly be measured and communicated. If left alone this could have led us down an entirely different discussion of how microfinance and social empowerment are interlinked. The takeaway is that microfinance has an impact on more than just incomes and traditional measures of poverty and we should therefore ensure that in the discussion of impact these other areas are considered.
Fifth, there is a wide range of people and types of institutions in India that are providing microfinance services, and not all of them are interested in or capable of focusing on poverty alleviation. Getting them all to agree on how to measure and report is extremely unlikely and not a practical step. I commented that despite the range of views on poverty that alleviation there should is no room for institutions that do not abide by the minimum client protection standards.
What was most telling was that most of the leaders of MFIs were very vocal about the idea that it is important to them to see that their clients are coming out of poverty and there is a need to systematically measure and demonstrate this impact. Many of these participants have been contributing to the Indian microfinance sector for over two decades and yearn to demonstrate that this work has made a meaningful difference to the poor of India. For most of us it is sufficient to “feel” that we have made a difference, however it seems that the burden is now on us to prove it.
Have you read?
An Excellent Resource on Regulating Client Protection: IFMR Trust’s Blog Series
Eight New Observations on the Aftermath of the Indian Microfinance Crisis
MicroSave Asks Clients in Andhra Pradesh: How Are You Coping without MFIs?