Feature

April 23, 2009

Developing India: Microfinance on the Ground in Asia and Africa

Elizabeth Vivirito, MPP'10 spent her spring break in India, traveling and helping coordinate a "development finance" forum as part of an internship with ShoreCap Exchange. This is the second article in a three-part online series.

After backpacking around northern India for a week, I took an intra-country flight to the south and arrived in Chennai. The differences between northern and southern India are quite striking. As the scripts on street signs change so does the reason for my trip.

My purpose in Chennai is to help coordinate a microfinance conference for ShoreCap Exchange, the company with which I intern. The organizations encourage peer learning exchange between banks in order to increase access to financial services in underserved communities globally. During the last week of March, ShoreCap Exchange hosted 10 institutions at a branch management forum. Participants came from countries in Asia and Africa, including Cambodia, India, Pakistan, Afghanistan, Rwanda, the Gambia, Kenya, and Mongolia.

Microfinance is a relatively new movement in international development that straddles the public, private, and nonprofit sectors. Microfinance institutions (also known as MFIs) are funded with money from international donors (such as governmental aid programs), private funds, or nonprofits. Part of a larger trend towards "inclusive finance," MFIs, alongside regulated banks, provide a variety of financial products at a reasonable cost to those who would not otherwise have access to them.

At Plantersbank in the Philippines, the bank leadership recognizes its own part in developing its country. "We are very proud to be a double bottom-line bank," said Consuelo Dantes, a trainer at the conference, referring to the bank's commitment to social responsibility as well as its financial health. "We tell potential clients that they should bank with us because the money goes back into their communities and that we help to develop the small and medium enterprises within our country."

MFIs make small loans-equivalent to $25-$500 USD in many places-to groups of individuals or small businesses. These funds typically help establish or develop a micro-enterprise such as a bakery, small manufacturing business, or an agricultural venture.

Many Asian MFIs focus on group-based loans, when one individual within a group does well and pays back his or her loan, another member within that group receives a loan, and so on. Working with groups of people helps the banks minimize risk because the incentives for borrowers are strong: borrowers pick good partners and hold each other accountable.

SKS Microfinance in India provides loans mainly to women's groups throughout the country. With a mission to alleviate poverty, especially in the rural part of the country, it currently has over 3 million clients around India and has loaned out over 22 billion rupees ($443 million USD). But the company also recognizes that extending credit alone will not ease poverty. "We emphasize savings, which is very important for women in getting out of poverty. If they don't save, they don't come out of poverty," said Rashmi Singh, a regional manager.

But building up savings is becoming increasingly difficult to do given today's uncertain financial markets. And as I learn at the conference, microfinance is not isolated from the global financial markets.

Read the third article.

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