“Financial Vandalism” in India, and a Way Forward

Alex Counts is president, CEO and founder of Grameen Foundation, and author of several books, including Small Loans, Big Dreams: How Nobel Prize Winner Muhammad Yunus and Microfinance are Changing the World.

I was invited to give one of the closing keynote addresses to the Sa-Dhan conference, something I had been preparing for at least since I travelled to India in early July to work on an upcoming book about the latest trends in microfinance.  I had intended to arrive in time for the inaugural session on August 7, but travel delays prevented that.  (Word to the wise: when travelling to India on the non-stop flights from Newark, plan to arrive in Newark long before your onward flight is due to depart.)

Upon arrival, I was told that the conference’s mood on the first day alternated between “somber” and “angry.”  Just a few days earlier, the Reserve Bank of India (RBI) had announced new regulations affecting microfinance.  Though these policies rolled back some harmful policies announced a few months back and helpfully clarified others, they also introduced a controversial new rule saying that microfinance institutions over a certain size would be subject to smaller margins than they were currently allowed between the rates they borrowed and lent at.  The whipsaw nature of Indian microfinance policy at the national level, coming on the heels of the debilitating and draconian law passed in the state of Andhra Pradesh in late 2010, had justifiably enraged many of the practitioners in attendance – particularly as there had been no warning or explanation for many of the policies announced over the last 12 months.

Grameen Foundation President and CEO Alex Counts (left) speaks about the Indian microfinance sector at the Sa-Dhan Conference held earlier this month in that country. With him on stage are Jayshree Vyas (center), Managing Director of SEWA Bank, who served as the moderator, and Sujata Lamba of the World Bank.

The second day did not get off to a good start.  Sa-Dhan executive director Mathew Titus announced that a senior government official had canceled his opening address.  However, as the day got going, the overall mood improved.  Royston Braganza, CEO of Grameen Capital India, organized and moderated an excellent panel on “Overcoming the Barriers to Resource Flows” to the sector.  (Grameen Capital India is a joint venture between Grameen Foundation and affiliates of two major banks operating in India.)

I attended Royston’s panel and then caught the end of a concurrent panel on “business correspondent” (BC) models for MFIs working in partnership with, and essentially as agents of, fully licensed banks.  Though some recent policies about the BC model have cast doubt on the viability of MFIs being able to work effectively with banks, it was an invigorating discussion.  Mukul Jaisal, Managing Director of Indian microfinance institution (MFI) Cashpor, talked about his experience pioneering this model for providing savings services (which the MFI has been able to implement with support from Grameen Foundation).

The Time to Defend Grameen Bank is Now

Todd Bernhardt is Director of Marketing and Communications at Grameen Foundation.

As you might have read in the news this week, the Bangladeshi government seems to be moving into the end game in its longtime effort to take over Grameen Bank, a move that has been widely criticized within Bangladesh and around the world.  To briefly summarize, the cabinet – presided over by Prime Minister Sheik Hasina – voted on Thursday to amend the Grameen Bank Ordinance of 1983, effectively removing the Board of Directors’ right to choose the Bank’s Managing Director, and vesting that power instead in the Board’s government-appointed (and aligned) chairman.

As troubling as that disenfranchisement of the Bank’s 8.3 million borrower-owners is (more than 8 million of these owners are poor women), equally troubling is a directive from the cabinet to the Finance Ministry to examine and report on the salaries and benefits that Grameen Bank founder Professor Muhammad Yunus received after he turned 60, which is the official age of retirement from the Bank. It also asked the Ministry to examine whether he earned foreign currency that was tax-exempt during his time as Managing Director.

(Prof. Yunus, who is 72 and going stronger than ever, was exempted from the retirement age by the Grameen Bank Board, whose decision was reviewed and accepted by the government for more than a decade before it suddenly decided that he was too old for the job; the post of Deputy Managing Director was also exempted. For more information on the government’s 21-month campaign against Prof. Yunus and the Bank, see this Fact Sheet developed by the Friends of Grameen organization. Grameen Foundation President and CEO Alex Counts also recently blogged about this issue.)

The women on Grameen Bank’s Board of Directors, who represent the Bank’s 8.3 million borrower-owners and are shown here with Prof. Yunus at the Nobel Peace Prize ceremony, are in danger of losing their ability to choose the Bank’s Managing Director.

Let’s look at the second part of the cabinet’s actions first.  The idea that Prof. Yunus would benefit financially from any of his activities advocating for the poor is patently absurd.  Throughout his career, he has had multiple opportunities to join corporate boards as a paid advisor or even to lead for-profit organizations, for great personal gain – yet he has declined.  He has consistently donated whatever money he has earned as a public speaker to social businesses dedicated to serving the poor or to other charitable causes – including Grameen Foundation, which began with $6,000 that he earned from one such speaking engagement.  He lives in a small apartment on the Grameen Bank campus.  All of his activities – either as leader of Grameen Bank or as leader of the Yunus Centre, which focuses on fostering social businesses – have been other-focused, rather than focused on personal gain.

As for the government’s moves to give the Bank’s chairman almost unlimited power to choose a new Managing Director and to sideline the poor women who own this successful, innovative, Nobel Prize-winning microfinance institution – well, to many, it smacks of pure desperation, and an attempt to shift public attention away from a number of public policy failures.  The government of Sheikh Hasina is facing a host of challenges and embarrassments at home, including the recent cancellation by the World Bank of a loan to fund the $1.2 billion Padma Bridge project – a huge infrastructure initiative that was going to be a hallmark of her administration – because of corruption within the government and contractors involved.  She herself has become more autocratic and combative, as noted by The Economist in several articles, and as demonstrated by a recent appearance on the BBC’s “Hard Talk” interview show, where – among other things – she argued with the presenter about accusing Prof. Yunus of “sucking blood from the poor in the name of poverty alleviation” (a well-documented quote from her referring to him) and misrepresented Grameen Bank’s interest rates, saying that it charges between 30 and 45%, when her own administration has confirmed studies showing that the Bank’s highest charge is roughly 20%, seven points below the maximum rate set by the government.

Professor Yunus, who was a surprised and disappointed as the rest of us by the cabinet decisions and directives, released the following statement on Friday:

I was very apprehensive about it for some time. Now my fear is becoming a reality. I am disappointed that we were not successful in stopping this process. It  makes me immensely sad to see the poor women being deprived of their rightful ownership and their rights as owners to exercise their power over the bank. I am so shocked by the turn of events that I am left without words. I request my fellow citizens who are as shocked as I am, to try to  persuade our government to realise that this is a very wrong step they are taking; they should refrain from proceeding with this. The decision of the government would destroy this well known bank for the poor, the bank that has made the country proud.  I urge our fellow countrymen to come forward and save this successful national enterprise owned by the poor women. I am also urging the poor owners of Grameen Bank to appeal to the government and the citizens  to come forward to help them safeguard  their rightful ownership of the Bank.

What can non-Bangladeshis do about these injustices?  You can take action by speaking up – Grameen Foundation has a petition that we plan to give soon to U.S. Secretary of State Hillary Clinton, asking her to reiterate the U.S. government’s strong support for the continued independence of Grameen Bank and the rights of the poor women who own it.  Microcredit Summit has its own petition on Change.org, also in support of the continued independence of the Bank, that it plans to give to Sheikh Hasina.  Please sign both petitions, and urge your friends, family and those on your social networks to do the same.

We would also ask that you contact your legislative representatives, and the media, no matter where you live, and let them know how important it is to you that the world’s flagship microfinance institution remain independent and able to continue its effective, innovative role in the ongoing battle against poverty. Time is short. The Bangladeshi government’s commission reviewing the Bank and the other Grameen social businesses is moving ahead quickly, and new actions against the Bank may be announced soon, so it’s essential that you act now to defend the rights of – and opportunities for – the world’s poorest.

In the meantime, we will keep you informed about developments as they occur.  Of course, with your support, we will continue our work around the world to provide the poor with access to appropriate financial services like microsavings and loans, as well as access to life-changing, real-time information about their health, crops, animals and finances. Working together, in the spirit of innovators like Grameen Bank, we can begin to realize Prof. Yunus’s vision of putting poverty where it belongs – in a museum.

Making Progress Through Savings

Kimberly Davies is a program officer on Grameen Foundation’s Financial Services team.

Traveling to the field and talking with clients is the favorite part of my job.  I’ve worked in microfinance for five years and think daily about the poor women and families whom we support. Working with partner organizations and meeting clients face-to-face not only reminds me of why I’m in this field – it also helps me better understand the poor’s demand for financial services and the many challenges involved in providing those services.

It has been really exciting to see the progress of our microsavings project in India.  The first time I visited our partner organization Cashpor Micro Credit – a poverty-focused microfinance institution (MFI) in Varanasi, India – it was not yet offering savings products to its clients. This was partly due to complex Indian regulations requiring MFIs to work with banks to provide savings. Since then, Cashpor partnered with ICICI Bank and Eko Technologies (a tech provider that enables savings via the mobile phone) to launch a new savings product in the summer of 2011.

Microsavings accounts provide poor parents with a safe place to save for their children’s future.

Since the launch, Cashpor has added about 250 new savers every day, and currently has more than 60,000 savings accounts. Cashpor’s clients have spoken loud and clear about their desire to save. Clients told us during my last visit that they wanted their own safe savings accounts, but I wasn’t sure what the real demand truly was. It’s also challenging to offer convenient services to clients, because some do not have cell phones, most can’t read and many are even numerically illiterate. These challenges, on top of others, were things that I knew would take time to navigate.

However, the huge demand does make sense. A safe place to save is critical for families, because it helps them smooth consumption during times of sporadic income, or prepare for an emergency or a planned lifetime event. Of course, people want convenient tools to help them better manage their lives. In the United States, we have access to so many financial tools in our everyday life – various savings accounts we can access at any time, insurance, loans, locked CDs that yield a safe and consistent interest rate, etc. You name it, we have it. The poor want these same tools.

Truly moving out of poverty is a huge task. Though tools like the Progress Out of Poverty Index^® can measure the likelihood that an MFI’s client base is poor and track its movement out of poverty over time, this is a complex thing to measure, because forces such as natural disasters and family illnesses can prevent people from moving out of poverty or cause them to slip back into poverty. These uncontrollable forces make the use of easily accessible and affordable financial tools – such as savings accounts – all the more important to the poor.

Again and again, I’ve seen with my own eyes and heard with my own ears how access to financial services has improved the lives of poor people and their families. I look forward to seeing Cashpor’s savings program grow even more over the next year, as they help more women and families in need.

Panel Explores the Power of the Mobile Phone in Fighting Poverty

Alex Counts is president, CEO and founder of Grameen Foundation, and author of several books, including Small Loans, Big Dreams: How Nobel Prize Winner Muhammad Yunus and Microfinance are Changing the World.

I first met Isobel Coleman, Senior Fellow for U.S. Foreign Policy and Director of the Civil Society, Markets and Democracy Initiative at the Council on Foreign Relations, through one of our greatest Grameen Foundation Board members, Lucy Billingsley.  When Isobel and I were introduced to each other, she was running a small program at the Council focused on women’s issues.  She has since grown it into a flagship initiative of this prestigious institution, and her reputation as a researcher and thought-leader has naturally grown along the way.

I was therefore very pleased when she invited me to speak as part of her Women and Technology series last week, alongside Ann Mei Chang, senior adviser for women and technology, Office of Global Women’s Issues at the U.S. Department of State (and formerly with Google), and Scott Ratzen, Vice President for Global Health at Johnson & Johnson.  The title of the session was “mDevelopment: Harnessing Mobile Technology for Global Economic Growth.”  We had a planning call with Isobel, Scott and Ann Mei the week before and I realized I was joining some extremely knowledgeable and articulate people.  To prepare, I read up on all of Grameen Foundation’s many programs that work to alleviate poverty by leveraging the mobile phone revolution, as well as some related research on inclusive business models.

Alex Counts makes a point while (from left) Isobel Coleman of the Council for Foreign Relations, Ann Mei Chang of the U.S. State Department and Scott Ratzan of Johnson & Johnson listen.

The event was kicked off with remarks by Suzanne McCarren of ExxonMobil, which sponsors this speaker series.  Suzanne, whom I sat next to during lunch, explained why women’s economic development is a high priority for their company’s foundation, which has made more than $50 million in grants so far, according to my notes.  Then Cherie Blair, the former first lady of the United Kingdom and the founder of a foundation that bears her name, spoke.  She announced the release of an important new report titled, “Mobile Value-Added Services: A Business Opportunity for Women Entrepreneurs.”  I had met Cherie several times through Meera Gandhi, whose book Giving Back features the Cherie Blair Foundation for Women, as well as Grameen Foundation.

David Roodman Does His “Due Diligence,” and Gets it Mostly Right

Alex Counts is president, CEO and founder of Grameen Foundation, and author of several books, including Small Loans, Big Dreams: How Nobel Prize Winner Muhammad Yunus and Microfinance are Changing the World.

David Roodman, Senior Fellow at the Center for Global Development, the country’s leading think tank on overseas aid and international development, has written Due Diligence: An Impertinent Inquiry into Microfinance, a remarkable book about microfinance.  It is, quite simply, the best book I have ever read about microfinance among the many I have gone through.  He analyzes the history, track record, recent developments and future of microfinance, and though I do not agree with all of his judgments, I agree with the vast majority of them and admire how he went about deconstructing such a diverse arena of human endeavor.

Most impressive is how he carries the reader through his rigorous thought process.  He repeatedly poses important questions, weighs the evidence, assesses whether there is enough information to make a definitive judgment, presents alternative answers and their implications, admits to a degree of uncertainty, and then does his best to provide an answer – all in plain language.  The hallmarks of his writing are nuance, detail-based distillations of publicly available information, fairness and dispassionate analysis.  If I had to keep one book on my desk for easy access to guide my writings, conversations, analysis and decisions, it would be his.  (Due Diligence is the culmination of research and writing process that played out on his blog, which has evolved to become a leading online source for microfinance information and analysis over the past couple of years.)

Alex Counts, Grameen Foundation's president and CEO, calls David Roodman's new publication "the best book I have ever read about microfinance."

After some introductory remarks, Roodman sets the modern microfinance movement in a historical context, and does this better than I have ever seen before.  His survey also provides some important lessons for those working to expand and improve microfinance today.

The bulk of the book addresses the question “Does microfinance work?” in distinct ways. Does microfinance reduce poverty, does it improve the control the poor have over their lives regardless of whether it leads them to a poverty-free life and, thirdly, has it become a vibrant new industry that strengthens societies by enhancing ecosystems (in the broadest sense) consistent with long-term socio-economic development?  I admire how he has given equal weight to the three dimensions of “working” – I strongly agree with him that all are important and the latter two (especially the third) have been comparatively neglected by microfinance advocates and critics alike.

Due Diligence deserves to be read by anyone involved in microfinance, including those who volunteer their time or contribute and/or invest their money.  Let me summarize how he answers the main questions he asks, as well as his recommendations, and then distill how I believe someone involved with Grameen Foundation – or any microfinance network or institution – should feel about their past and future involvements, given his judgments and recommendations.

CEOs Release “Road Map for the Microfinance Industry”

The founding members of the Microfinance CEO Working Group — which includes the CEOs of pioneering microfinance organizations ACCION, FINCA, Freedom from Hunger, Grameen Foundation USA, Opportunity International, Pro Mujer, VisionFund International and Women’s World Banking — have just released the “Road Map for the Microfinance Industry: Focusing on Responsible and Client-Centered Microfinance.”

This document outlines the Working Group members’ vision for the positive evolution of the microfinance field and underscores their commitment to raising industry standards, starting with their own.  Central to this vision is the Working Group’s support for three ambitious initiatives that are helping to lay the groundwork for a more responsible, client-focused and transformative industry: the Smart Campaign, MicroFinance Transparency and the Social Performance Task Force’s universal standards for social performance management.  Alex Counts first talked about the group and its goals in this blog post.

The Microfinance CEO Working Group members call for their valued peers in the microfinance industry to take action by endorsing these three initiatives, transforming their principles into action, and striving for better ways to provide financial services for the poor.

The full text of the letter can be read here.

The Working Group welcomes your comments and feedback. For more information, please contact Meghan Greene, manager of the Microfinance CEO Working Group, at mgreene@accion.org.

Giving India’s Poor a New Way to Save

Santosh Daniel is the project manager for Grameen Foundation’s Microsavings Initiative in India.

Anju Jaiswal lives in a remote village of Dheena in the state of Uttar Pradesh, India, where she and her husband, Ghanshyam, own a small kirana, or grocery.  Using a loan from Cashpor, a local microfinance institution (MFI), Anju is able to stock her family’s store with vegetables, provisions and other essential household items.  Her store serves the surrounding agricultural community, which can make earning a regular income challenging as most of her clients have seasonal farm jobs.  She uses most of the income she earns from the store to feed her family, often leaving very little for savings.  When the family is able to save, they keep their savings at home, like many other poor households.

For poor, rural households like Anju’s, opening a savings account poses several challenges.  The nearest Cashpor branch, for example, is 10 kilometers (about 6 miles) from Anju’s home, which means she would have to spend valuable time away from her business to go there.  In addition, the prospect of opening a savings account can be overwhelming for households that tend to have little schooling and low literacy skills.

On the other side of Uttar Pradesh, another Cashpor client, Sangeeta, lives with her husband and in-laws.  Sangeeta and her husband work in the family business in the remote village of Chaubeypur, making cardboard boxes used for packing sweets.  Though her husband has a bank account with one of the national banks, it’s often difficult for him to go to the nearest branch to deposit his savings because of distance and time constraints.  In fact, his account has been dormant for the past year and a half.

Thanks to Grameen Foundation's Microsavings Initiative and the work of its partners Cashpor (a local microfinance institution) and ICICI Bank, Sangeeta is now able to save a little each week to provide security for her future.

Poor, rural households face three common challenges when it comes to banking with a formal institution:

1. Many of them don’t use existing bank services because they’re too far away and don’t offer the services they need
2. They typically have very small sums to deposit, making the long trip to the bank not worth the time they lose
3. They are intimidated by documentation required for opening accounts because of low literacy and lack of self-confidence

To meet these challenges, Cashpor – in collaboration with ICICI Bank and Grameen Foundation – began in June 2011 offering the Apna Savings Account to more than 379,000 female clients, as well as non-clients, living in Uttar Pradesh and Bihar.  To date, Cashpor has enrolled more than 15,000 new savings customers – including Anju and Sangeeta – in more than 140 branches in five districts.  The demand for Apna (which means “ours” in Hindi) has been extremely high, with 300 to 500 new savers being added daily.

The savings product is designed to help the client overcome the challenges above.  Staff members conduct new-client enrollment via mobile phones, using the phone number as the account number.  Cashpor savings officers travel to clients to take their savings deposits (which clients can also make using their mobile phone), much as they do with traditional micro-credit clients. Deposits are then automatically updated, so clients can immediately check their balance using their phones.  Clients also can deposit, withdraw and send remittances through their phone using their mobile savings accounts.

As the project has grown, the partners have faced a few challenges in implementing the mobile savings account.  The biggest obstacle has been overcoming the cultural barriers in India to women owning a mobile phone, which is seen as a tool of the young and not respectable for Cashpor’s clientele, who are largely in the 31-45 age group.  However, when one group member decides to use the phone, we’ve seen that it is a powerful example to the others in the group.  In fact, 80 percent of Cashpor’s customers do have access to a phone (either their own phone or one they share with the rest of the household), so the potential for them using this savings account is large.  Current Cashpor clients and also non-clients are also expressing a strong willingness to buy a phone so that they can have access to formal-sector financial services.

For many women, having a savings account provides security. The savings provide a safety net for emergencies or household purchases, which is critical for poor women, who sometimes find it difficult to own property or assets.  At first, Cashpor’s clients feared their husbands would be able to check their balances on their phones, but now they’re realizing that saving with Cashpor provides more, not less, security for their savings.

The lives of Anju, Sangeeta and others who’ve taken up the new savings service have changed for the better. Grameen Foundation and its partners are working to bring safe, reliable savings accounts to poor women in rural India, provide quality customer service and use innovative approaches that will create a sustainable change in the lives of millions of poor women and their families.

Tackling the Challenges of Offering Voluntary Savings to the Poor

Leo Tobias is Grameen Foundation’s Technology Program Manager of the Solutions for the Poorest Microsavings Initiative.

Offering savings programs for the poor can be challenging. First, the microfinance institutions (MFIs) that want to offer these services are competing with a variety of alternatives, such as home-based savings (under mattresses, in strongboxes, etc.), or keeping money with relatives or neighbors. Second, offering savings products fundamentally changes the relationship between the MFI and its customers.  When clients only want loans, making that the primary purpose for their interactions with the MFI, there is a standard process. Taking voluntary customer deposits radically changes that relationship, to one that is initiated by the customer and that involves varying amounts of deposits or withdrawals. In other words, the customer interaction is less predictable.  At any time of the day or night, the customer can ask for her balance and withdraw from it.

A loan officer from CASHPOR in India processes loan payments on her mobile phone.

Grameen Foundation’s Microsavings team has found that poor customers all want to have easy and convenient access to their funds.  The MFIs we work with face common technology challenges involved with providing such access.

In this post on the CGAP Technology Blog, Leo Tobias, our technology program manager for the Grameen Foundation Microsavings Initiative, discusses two of the major technology challenges facing MFIs.

Reaching the Poor and Very Poor with Appropriate Savings Services

What does it take to design and create savings products that are useful and safe for poor people? In a guest piece for the CGAP Microfinance blog, Debbie Dean — Grameen Foundation’s Microsavings Project Director — discusses the team’s experience working with CARD Bank in the Philippines. Together, they are integrating poverty data and financial data to better understand the savings behavior of CARD’s existing clients and the markets it is serving, as well as to design products to fill needs where there are gaps. Her guest blog post is part of a special series on savings.

CASHPOR: The Importance of Risk-Management Tools

Kimberly Davies is a Program Associate for the Microsavings Initiative, which is part of Grameen Foundation’s Solutions for the Poorest program. This is part three of Kim’s blog series. If you haven’t yet, we recommend you read part one and part two of her blog post series.

Ranie's sixth loan, equivalent to $218 USD, allowed her to buy buffalo. She sells the milk in her rural village

While I like to plan ahead, one overcast day in Varanasi, India, I quickly learned that you can’t always anticipate what comes your way. Upon leaving the offices of CASHPOR (our microfinance institution partner) with our project manager, we were faced with a drizzle that quickly turned into buckets of pouring water. The busy streets became increasingly chaotic as everyone scurried for shelter, forcing us to pull our motorbike over to wait for the rain to stop. As the road began to flood, we became concerned about the laptops, cameras, and mobile phones in our backpacks, and realized that we needed to get out of the rain quickly to shield our things. We hopped into an auto-rickshaw as our only alternative transportation. Since the rickshaw did not have doors, the rain streamed into the car. The engine began to stall as it flooded with water, but somehow we made it back to my residence. This delay forced us to cancel a call that evening, even though it had been scheduled for weeks. What would have just been considered a heavy rain in Washington, was a flood in Varanasi, and prevented people from necessary travel and daily business.

The unanticipated ordeal opened my eyes just how many unknowns there are in developing areas that prevent the poor from predicting what obstacles will hit them down the road. This uncertainty is why we see a need for the poor to have access to risk-management tools, especially access to savings products, to act as a shield against shocks.