Microfinance

International Workshop on Inclusive Financial Innovation at XLRI, Jamshedpur

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Last month I got an invitation from Professor HK Pradan of XLRI Jamshedpur to attend the three-day International Workshop on Inclusive Financial Innovation: Making Finance and Insurance Markets Work for the Poor, conducted during March 1-3, 2012 XLRI Jamshedpur and it was a great learning experience in deed.

The international event was graced by eminent personalities from finance domain with focus on financial inclusion, academia, business leaders from the microfinance industry and financial institution, NGO workers and field level practitioners. The event brought them all in single platform to discuss the challenges and issues concerned to financial inclusion.
Father E Abraham, Director of XLRI Jamshedpur argued that credit should be given the status of basic needs like food, cloth, shelter, education etc. He also condemned the coercive collection practice of some MFIs in Andra Pradesh referring the recent article published in Hindu regarding the AP Microfinance crisis.

Dr. David Dror, Chairman of Micro Insurance Academy (MIA) New Delhi while delivering his inaugural presentation stressed on micro health insurance. Dr. Dror argued for a demand driven, community based insurance, where the community assesses their own risk and designs their insurance for a right price. His research and expertise on community based health insurance has opened the doors of opportunity to serve the under privileged in a profitable business way. According to Dr. Dror charity can’t provide a long term permanent solution to any kind of problem.

Basix group of companies were represented by Dr S.S. Tabrez Nasar, Associate Director, BASIX Academy for Livelihoods and Micro Banking Practice and Mihir Sahana, Director Indian Grameen Services. They presented case studies of potato growers of Jharkhand. The innovative livelihood development project was taken by Basix, where farmers were given credit by Basix and potato were bought by Pepsico at a pre determined price. Dr. Nasar said that credit without insurance is one kind of responsibility and stressed on weather insurance. (Basix is the first organization to adopt weather insurance in collaboration of ICICI Lombard)

Another innovative model was presented by Dr. Rangan Varadan, CEO of Microgram. Dr. Varadan said that financial inclusion doesn’t mean merely opening a no frill bank account or providing just credit. Credit is necessary but it is not sufficient, to uplift the poor, an ecosystem is needed, that encourages the customer orientation of products and ownership among of the beneficiaries. He also stated that Microgram has started such model on profit sharing between customers and the investors.

In a penal discussion Dr. Muhammad Masudur Rahaman from Bangladesh Microcredit Regulatory Authority advocated sustainable microfinance. In his note he advocated “financial inclusion for poverty eradication”. He also suggested regulatory reform for Indian microfinance industry to allow MFIs to offer other financial products like savings, insurance and remittance etc to scale up the poverty alleviation initiative. He refers the importance of creating specialized bank like Bangladesh Grameen Bank and wholesale funding agency for microfinance. He criticized the supply driven microfinance approach in India, where demand side (customer orientation) is ignored. Dr. Alok Misra CEO, Micro-Credit Rating International Limited (M-CRIL) supporting Dr. Rahman said that our government is not taking the risk to allow the MFIs to offer savings for merely regulatory comfort. Dr. Misra also predicts that if the MFIs are allowed to take savings, it will build a holistic relationship between customer and MFIs and will also decrease the cost of credit.

Another important outcome of the workshop was call for forming an international research network on inclusive finance like SSRN (Social Science Research Network). Dr. HK Pradan, Professor of Finance and Economics, XLRI Jamshedpur, the mentor and architect of the focused event said that such network will help to share and recognize the innovative ideas among the industry giant, academia, policy maker and field level practitioners to bring out the poor from the misery of poverty cycle.

The valedictory function of the three day international event was addressed by SBI Managing Director, Mr. A Krishna Kumar. He is optimistic regarding the Business Correspondence model for financial inclusion for the maximum out reach.

Building Social Business: A quick Review

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Last year I got “Building Social Business” by Nobel Laureate Muhammad Yunus. I knew him as an economist and Founder of Grameen Bank, Bangladesh. But after reading this, I got more interest on his writing. During the recent NE Book Fair I purchased his Biography and now searching “Creating a World Without Poor”

Let’s have a quick overveiw on “Building Social Business”: Micro credit pioneer Professor Yunus introduced a new business model and termed it as ‘The New Kind of Capitalism that Serves Humanity’s Most Pressing Needs’. Professor Yunus unearth the idea Social Business when the capitalism witnessing its worst form. His idea of social business is quit different from conventional money making businessmodel as well as NGO and CSR (Corporate Social Responsibility).

NGO and other charitable organizations are mainly dependable on the donation, so as soon as the donated amount is utilized they have to wait for another donation. In this way they are fully dependable on the will of the donators. But in social business model, the company revolves the invested amount. This recycling process gives maximum outputs (social outputs) and after a certain period of time the investors can get back their invested amount. This also encourage the maximum investors to invest on the social business ventures to change the world not to make money.

The Social Business is aimed to address a particular social problem like poverty, illiteracy, health, malnutrition etc, not to maximize profit. Professor Yunus has given the example of Grameen Danone. The ventures was started by Grameen and Danone group to address the malnutrition of Bangladeshi children. The company is providing low cost Shakti Doi to the poor children of Bangladesh at a affordable price. Grameen group has started many other ventures on Social Business model to address the social problems. The Social Business runs on ‘no loss, no dividend’ basis, where the owner or the investor gets no profit and get-back the invested amount over a certain period. Professor Yunus said that there a numbers of people in our society, whose are concerned about the poverty and other social problems and they have a burning desire to work for development of the society and alleviate poverty. The owner or the investor of a Social Business Venture get mental satisfaction in lieu of financial gain. Professor Yunus also urges that the concept of Social Business has opened a new avenue for investment diversification. Professor Yunus also proposed a separate stock exchange for the social business. He is optimist that people will purchase a share through social stock exchange to change the society not to gain financial benefit.

Professor Yunus has taken seven principles of Social Business:

1. The business objective is to overcome poverty or one or more problems (such as education, health, technology access, and environment) that threaten people and society- not to maximize profit.

2. The company will attain financial and economic sustainability.

3. Investors get back only their invested amount. No dividend is given beyond the return of original investment.

4. When the investment amount is paid back, profit stays with the company for expansion and improvement.

5. The company will be environmentally conscious.

6. The work force gets market wage with better-than-standard working conditions.

7. Do it with jay!!!

Though the book talks about business and all, yet the reader gets a satisfaction and eagerly waits for the next chapter. The language and description is vivid. Interestingly the writer catches up readers state of thinking.

Published in an online journal on 4/2/12