Sa-Dhan Newsletter Volume 4 Issue 2

Community Based Organisations

Virtual Round Table

-

Alloysius P. Fernandez, MYRADA

discussed issues related to education, to health, to religion

This article is based on the virtual discussion taken

-- 80% of their time was spent on discussing issues. Finance

with the Author, AL Fernandez and the Reserve Bank

was not an issue at that time because they were not doing

of India (RBI), NABARD and other stakeholders on

micro- finance. Over the last 10-12 years, BRAC has promoted

the issues relating to microFinance in India.

a major micro-finance programme. What was happened with

the groups today is that 80% of their time is spent discussing

1.GROWTH ISSUES

loans, recoveries and savings. Hardly, 10% of the time is

I

spent on broader issues for which the groups were first

f you read the material coming out on micro-finance

formed. I discussed this with BRAC and they said, "We have

institutions (MFIs), one of the assumptions that is made,

been under pressure to have a separate institution for micro-

is that about Rs.15,000-20,000 crores is required to meet

finance and a separate one for development. But the decision

the demand in the micro-finance sector. The conclusion is

we took was to have only one institution but with two clear

that the MFI should grow to meet this demand. First, I

line departments. Within a few years the finance sector has

question the assumption that the micro-finance sector has

overridden the development one for the simple reason that

to meet the total demand. The goal is to promote an

at the end of the day, you really must report on loans,

environment (policies, systems, culture and practices) in

recoveries and payments, but you do not need to report on

which the poor can access credit and other financial services

how empowerment has progressed." So as a result of the

quickly, easily and at minimum cost. I find in some of our

very strong demand for regular feedback on finance, the

projects where the Self Help Affinity Groups (SAGs) have

financial sector has taken over the organisation. I have

met around 20-25 percent of the demand, the entire interest

discussed this with one of the senior consultants there and

structure in the private or the informal sector, has come

he agreed with me.

down. The informal sector was always easy to access; it was

the interest rate that was exploitative. If this is reduced, not

We learn from those lessons; to me it would be self-defeating

through legislation (which anyway is ineffective) but through

to make an NGO into a micro-finance institution. And there

competition, the informal/private sector will always have a

are many reasons for this. MYRADA is an NGO; it does not

role as credit demand cannot be met fully by the formal sector

work like an MFI. We have excellent systems, financial/

and the MFIs. If the MFIs can provide 20-25% of demand,

compliance audits etc. But at the end of the month we are

the interest rates in the area will come down. This is my

not interested in a break-even analysis. We are not interested

first major point. It is debatable, but I think it is worth putting

in disbursing funds like an MFI, which has to reach

on the floor.

disbursement (and repayment) targets and so on. On the

contrary, we hesitate to push funds which people's capacity

Secondly, there is also the emerging view -- if I look at micro-

cannot absorb, so we are very careful to see that our pushing

finance literature again -- that the NGO-MFI animal has to

funds into groups does not disturb their whole learning and

grow and to professionalise in order to cope with demand.

empowerment process. We use credit as an empowering

But, implicitly (and at times even explicitly), available

instrument -- that is why, even in our micro-finance strategy,

literature seems to take the position that for an NGO to

we do not give priority to the provision of funds; we look

professionalise it should "professionalise" by adopting the

at the management of funds. The entire model concerns the

functions of a micro-finance institution. I think this is a

management of funds. That is why in MYRADA, the SAG

dangerous one-track path, because there is a whole sector

decides on the loans, the interest, the repayments, and the

of NGOs which will continue to function without entering

sanctions. Decisions are taken only within the group. And

into micro-finance. Further, even though an NGO remains an

that in itself is an empowering process. So the whole way

NGO, it needs to professionalise. And that is the big weakness

we function is totally different from how a micro-finance

we are facing -- the NGO sector is not professionalising. And

institution functions. And it is not just the financial systems,

I will not describe here what professionalising is; we can

it is the whole culture - as I said, disbursement and recovery

go into that later. The problem of an NGO becoming an MFI

pressures, break-even analysis, a lender-borrower relationship

in order to meet demand is worrying.

(which does not promote the building of institutions) - all

these are features of a sound financial institution, not of an

In fact some time ago I wrote a very quick article about this

entitled "Is Micro Finance Heading towards a Macro Mess?"

NGO. Further, most NGOs have traditional people like us who

My conclusion was that it is a mistake to expect (and urge)

have their own Gandhian ideology or a little leftist ideology.

the NGO into becoming an MFI. My recent experience in

We are not equipped to run an MFI. You need a different

Bangladesh seems to confirm my position. I've been involved

type of person to run an MFI. So how do you expect us

with Bangladesh since 1971, running the refugee programme

to run an MFI? Making an NGO into an MFI, to me is like

and so on, and I have visited the Bangladesh NGOs

asking a banana tree to produce coconuts. This is my second

periodically. I was there earlier this year, looking at the BRAC

point, which I know will be debated hotly.

groups, the Grameen Bank groups, the ASA groups and a

few other NGOs. Now I notice that about 10 years ago the

NGO-MFIs complain that in the present environment they feel

BRAC groups really discussed issues at their meetings. They

insecure. If you ask NGO-MFIs why they feel insecure, they

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