Microfinance is known as a path out of poverty that can also empower women. What’s the reality?
When visiting the northern reaches of West Bengal last April, I noticed that many of the women clients had borrowed the money to invest in their husband’s business. For example, she might assist him in running a cycle repair shop, small retail business or agricultural undertaking. Typically the wife works alongside, with both family members playing a critical role. I noticed that the MFI loan life insurance only covers the borrower.
I asked a simple question. “What happens if the husband dies, and the wife cannot run the business on her own? How can she repay this loan? Is there any support for her?” At the time, the answer was “No”. I was concerned that while it appeared that so many were benefitting from these loans, a few borrowers might find themselves in a disastrous situation if saddled with a loan they cannot repay due to an untimely event.
Society for Model Gram Bikash (GBK) took this simple question to heart. They negotiated with the insurance company to cover the co-borrower as well. During our visit last week, we were able to participate in loan disbursements where both wife and husband were covered. Now, the family is protected if something happened to either the wife or her husband.
It’s a small thing. It won’t change the world. But it will change the world for the borrower who finds herself in the midst of a tragedy. Her husband’s funeral will be paid, her loan forgiven, and she can pick up the pieces and work out the next steps needed to take care of her family.
The devil is in the details; even the smallest of changes can add up to make a big difference. BankersLab is proud to support Grameen Foundation Bankers without Borders who provide technical support and capacity building for Microfinance.
What is a skillanthropist?
A skillanthropist is a person or professional with a skill or skills that donates their time, effort, skills but not loads of money to a cause for the betterment of not only society but the world in general.
I recently had the honor of representing the Grameen Foundation at the Global Microcredit Summit in Valladolid, Spain. I was there as part of the skilled volunteer corps who serve Bankers without Borders . The conference was invaluable to gain a better understanding of what challenges the microfinance industry is facing. While I continue to learn about the specifics of the microfinance domain, I was surprised by the number of common challenges which we face in both the retail and microfinance sectors.
Commonalities and Differences
Microfinance industry and retail banking both face overlending in certain segments, regulatory risk and aspire to improve their customers’ financial literacy.
Another commonality of the two industries is the desire to measure KPIs (key performance indices). While we normally measure Profit & Loss and other financial metrics in the traditional banking sector, the MFI industry has an even more difficult challenge — measuring “progress out of poverty”. A microfinance institution is usually viewed as successful if they can become both financially self-sustaining while helping people out of poverty. For example, in Nepal, MFI’s track whether the children in their customer’s households between the ages of 5 and 12 go to school, which is a predictor of movement out of poverty. The MFI has guidelines for sampling their customers to collect a data sample, but obviously this is much more difficult than running a simple frequency distribution of billing file data. Next time you complain about KPIs, think of your microfinance brethren and the challenges they face in measuring and ‘moving the needle’ on progress out of poverty KPIs! It makes our profit & loss KPIs look like a piece of cake.
An important point of distinction of the microfinance industry are its roots in a poverty eradication social movement which provide inspiration and hope for all of us. We cherish this in civil society, as this social element provides support for stability, peace and prosperity to the broader society. Now, as banking professionals, we have the opportunity to support these efforts in a more powerful way.
How you can help
Bankers without Borders is redefining civil society engagement in poverty eradication. In the past, as a banker you could either donate money to a good cause, or volunteer your time as unskilled labor. However, now you can apply your professional skill set as a member of civil society. In my view, this not only puts your valuable skill set to a good cause, but it also fosters important cross-society and cross-sector collaboration.
I would like to congratulate the Grameen Foundation and Bankers without Borders on launching this successful initiative, which is facilitating stronger connections between civil society and those working to escape poverty. Finally, I would like to encourage each of you to find your own way of giving back. Whether through Bankers without Borders, Corporate Volunteering programs, or local volunteering, we all have valuable experience and skills to share. Getting involved, exposing yourself to project risk and criticism, and sacrificing scarce vacation and leisure time can be a more difficult path than simply ‘writing a check’. However, I am pleased to report that the satisfaction, and ‘return on investment’ are likely to be inestimably higher.
“We all have a common responsibility for our world and are connected with everything in it. ” – Dalai Lama
May this holiday season bring peace and joy,
Risk Management: It’s a Mindset, Not a Budget Line Item!
Michelle Katics. CEO of BankersLab ®. supports the MFI sector by providing pro-bono risk-management technical assistance to microfinance institutions (MFIs). BankersLab, through its corporate
social responsibility program, supportsBankers without Borders ® , Bankers with Vision , MFIOpenSource and Kiva .
I recently returned from a Bankers without Borders (BwB) volunteer engagement in West Bengal, India, with Society for Model Gram Bikash Kendra (GBK ), a small non-profit microfinance company. As many BwB skilled volunteer-corps members can attest, volunteers typically feel they gain as much or more than the recipients of the services they provide. In this case, the experience for me highlighted important factors for success in risk management, some of which we forget from time to time in the traditional banking sector. Much of what I learned came from observing the energetic and curious discovery process of the GBK staff as they tackled typical risk management challenges.
When working with partners around the world, BwB (a Grameen Foundation initiative) recognizes that MFIs have a common need: risk management. MFIs face similar risk management challenges across the board, including how much risk to accept, how to mitigate the risk that cannot be avoided, and how to manage the real risks that are part of their day-to-day business and operations.
It’s free to change your mindset and habits. The GBK staff expressed concern about how they could improve their risk management while remaining in control of their budget. They worried that IT systems and additional staff were the main (and costly) requirements for successful risk management, yet were delighted to discover simple and easy ways to improve their operations, with minimal cost. Many of these ways don’t apply to the traditional banking sector, which already has strong systems, but some of the simple ”mindset” changes are a relevant reminder for us all. For example, GBK decided to research and implement new best practices in areas such as accounting and audit. Taking a step back to examine and improve the process can be the key to success. By doing this, they also realized the need to create contingency plans and other methods of dealing with crisis before facing one.
Another observation was the impact of GBK’s collegial and open collaboration among departments to jointly tackle risk management. In other words:
Cost of coffee and snacks for the meeting: $20
Risk awareness is one of the most important drivers of effective risk management. The risks that we don’t clearly understand are usually the same ones that cause material loss events. GBK has set out to conduct a risk assessment where staff will brainstorm all types of risks, then formulate action plans. For each, they will either mitigate, transfer or accept the risk. Reviewing those mindful decisions and strategies periodically is invaluable.
GBK was also concerned that it is just a small, non-profit MFI. How could it possibly develop a comprehensive risk management structure? There are certainly obstacles, but staff quickly realized that they already possessed the necessary intent, motivation and capabilities to make progress. With the right intent and motivation, this is true of most MFIs.
Clearly define employee roles and incentives. When we talk about mindset, we always say that each employee must support risk management. However, the stark reality of broad job responsibilities and too few hours in the day can result in a poor outcome. To mitigate against this, GBK has undertaken a review of employee responsibilities and incentives while brainstorming methods of facilitating risk awareness and issue escalation.
Mission drift: a menace to risk management. Isn’t serving borrowers in a financially sustainable manner the priority? Even in the traditional banking sector, this is our mission (albeit with higher expectations and requirements around financial sustainability). The philosophical question remains in both sectors – how can we manage to short-term budget and revenue pressure while balancing long-term sustainability?
There is no panacea for this underlying tension of two competing goals. However, clearly stating the mission and periodically reviewing outcomes is a start. Further, ensuring that the mission is clearly articulated and enforced from the Board level is also a key requirement. In the case of GBK, we had the luxury of multiple Board members attending our risk management education and brainstorming sessions. A mission can be easily articulated, but a Board needs strong dedication and risk tracking data to follow it up and enforce it. GBK has set out to do exactly this.
Good News for MFIs
BwB is developing tools to help institutions such as GBK build risk capacity. There are already some great training materials out there, and BwB will be complementing the capacity-building materials available for such projects. With BwB’s injection of skilled volunteers, MFIs can expect to build their risk capabilities very quickly.
In light of the recent debacles in Andra Pradesh, I arrived in India with a heavy heart to tackle risk management in the MFI sector. But as a result of the promising early results we saw at GBK, the weight soon lifted and I left West Bengal feeling energized and optimistic. We look forward to supporting GBK, leading the way as a “little guy” tackling big risk challenges.
Society for Model Gram Bikash Kendra (GBK) is a microfinance institution registered under the West Bengal Society Registration Act, 1961. It began its work more than six years ago and has been working toward bringing about socio-economic changes in the lives of underprivileged people in West Bengal.
Bankers without Borders ® (BwB), Grameen Foundation’s volunteer initiative, is on a mission to help people move out of poverty. With a global reserve corps of more than 8,500 people, BwB works with business professionals and recent retirees, from a variety of countries and industries, who contribute their time, skills and experience to support social enterprises serving the poor and poorest. Through on-site technical assistance, training and mentoring, or remote consulting projects, BwB’s volunteers work to increase the scale, sustainability and impact of the organizations they support.
Category: Payday loans