MICROBANKING BULLETIN - Microfinance Information Exchange

COMMENTARYfocuses its attention on the bigger loans because ifthey start going bad, the institution is in trouble.Secondly, I am not aware of any cross-subsidizingMFIs that have reached large numbers, say morethan 50,000, of the poor, not to mention the pooresthouseholds. The cross-subsidization argumentoften appears to be a ruse.MBB: Is there is a trade-off between serving thepoorest clients and achieving self-sufficiency? Howdeep can an MFI go and also be sustainable?DG: To the bottom, but attainment of institutionalfinancial sustainability will take longer - say up to 5years. When I say the bottom, I am referringlandless households in rural areas whose irregularmonthly income is well below the poverty line. Youcan tell these people are on the bottom because thewife regularly works as a paid laborer. Most womenwon’t participate in paid agricultural work unlessthey absolutely have to.MBB: What are the most appropriate ways ofattaining self-sufficiency for programs that aretargeted at the very poor?DG: There are four issues that spring to mind.First, MFIs need to maximize outreach to the poorand poorest so that economies of scale can beenjoyed to the fullest. Second, they should offerlarger subsequent loans based on good loanperformance. Third, they need to fine-tune theirfinancial products to meet the real needs of thepoor and poorest. And last, but certainly not least,they need to charge appropriate interest rates.MBB: Besides small loan sizes, are there specificconditions involved in serving the poorest thathamper the attainment of self-sufficiency?DG: Much more motivation work is required, as thepoorest do not believe that microfinance is for themand they are afraid of getting into debt. It takes timeto open their eyes to the opportunity beingprovided, and this increases total staff costs.Demonstration effect from neighboring poor andpoorest households is essential to convince manyothers to participate. Thus it takes more time forthem to form groups.Savings Products for the PoorMBB: How would you compare the relativedevelopment benefits of savings versus creditproducts?DG: MFIs working with the poorest have to walkequally on both legs to succeed. Unfortunately,regulatory constraints make it difficult to providesavings services in many countries. Many of ourmembers are mobilizing deposits illegally, so theycan’t let savings amounts reach levels that wouldattract too much attention.To overcome this problem, we are encouraging ourmembers to establish a regulated financialinstitution that can legally offer savings services.CARD Bank, SHARE, and Nirdhan Utthan Bankhave made this exciting leap. But the CASHPOR“transformation” model is different from theapproach elsewhere because the NGO still has animportant role to play. The NGO continues to beinvolved in group formation and after the first loanthe NGO hands over borrowers to the bank. Thiscontinued link is necessary because CASHPORmembers don’t want to lose their social orientation.The integrated NGO/bank approach is designed toprovide clients with a wider array of services, toincrease the institution’s outreach by leveragingequity capital, and to retain its commitment to thepoorest.MBB: Do you think MFIs can offer voluntarysavings while requiring forced savings as collateral?DG: This is a difficult question. My personalpreference—although I doubt many of myCASHPOR colleagues would agree with me—would be to do away with forced savings andemphasize voluntary savings. But it isn’t that easy.In the Grameen methodology, collectiveresponsibility is very important. And voluntarysavings and collective responsibility don’t mix verywell.In the group, everyone knows how much each othersaves. So someone who is having repaymentproblems will cast a covetous eye toward thevoluntary savings of another—or the loan officerwho is striving for perfect repayments mayencourage this to occur. This possibility woulddiscourage voluntary savings from taking place. Atthe same time, collective responsibility is a keyelement in reaching the poorest. Because of theirirregular income flows, the only way the poorestclients feel comfortable accepting the risks of takinga loan is through collective responsibility. CARD isexperimenting with confidential, individual, voluntarysavings transactions immediately after their Centermeetings. Let’s see if it works.David Gibbons (gibbons@pc.jaring.my) is the ExecutiveTrustee of CASHPOR Inc., the Asian regional network ofGrameen Bank-type microfinance programs for the poor.He is also the Executive Chairman of CFTS in India, anexperimental GB-type fast-track microfinance program inMirzapur District. In addition, he is the author of books,training manuals, and articles on sustainablemicrofinance for the poor and poorest.16 MICROBANKING BULLETIN, SEPTEMBER 2000