MICROCAPITAL.ORG STORY: CEO Of Delhi-Based NGO Access Development Services Warns Of The Risks Of Commercialization And Government Intervention In Microfinance And Discusses The Need For ‘Microfinance-Plus’ Services Including Livelihood Planning

In a recent article in India’s Business Standard online paper entitled ‘There is a tension between scale and soul in microfinance’ [1], reporter Sreelatha Menon interviews the CEO of Access Development Services (ADS) [2], Mr Vipin Sharma, on microfinance and the forthcoming event organized by on ADS later this month on responsible and social finance. Delhi-based ADS is a non-profit company that was established in March 2006 with a focus on ‘incubating emerging MFIs’ and helping them ‘upscale their operations, enhance their portfolio and meet the growing demand among poor communities’. ADS also seeks to facilitate on-lending fund flows from financial institutions through the ACCESS Microfinance Alliance platform [3].

In response to a question of whether microfinance has survived the recession, Mr Sharma noted that self-help groups (SHGs) linked to banks through NGOs or MFIs have not been as badly hit as MFIs that borrow in bulk from commercial banks. He reiterates the point that has been made several times in the aftermath of the credit crisis that ‘shrinking of liquidity takes a toll on lending funds’. Microfinance in the form of SHG-bank linkages have about 60 percent of the share of the Indian microfinance market with a total of about Rupees 9,000 crore (approximately USD 2 billion) outstanding. Mr Sharma added that government intervention in microfinance in India ‘has been a disaster’ and that government authorities should ‘either withdraw from the scene’ or hand over operations to ‘competent organisations’. According to the article, interventions in the region of Adhra Pradesh has meant that interest on some MFI loans is currently being paid by the government which according to Mr Sharma ‘is not a good idea’ as microlending should be a ‘market-oriented process’.

In response to the differences he has seen in the last 12 months in the world of microfinance, Mr Sharma was quoted as stating that the focus on high growth in the MFI sector in the past 5 to 6 years led many institutions to lose their focus on the poor. The over-emphasis on growth and the building of more MFIs have caused a number of stakeholders to forget that microfinance is ‘more than loans’ and that the sector should be about ’empowering the poor’. He added that the focus now is ‘to make microfinance the entry-point strategy to engage the poor’ and to build not just financial capital but social capital as well. In other words, institutions need to focus on ‘making the poor employable, to enable [them] to access resources’ and to improve governance.

As to how these would impact the profits of MFIs, Mr Sharma added that MFIs need to consider how best to ‘replough’ profits back to the business and ‘improve the breadth of services’ offered by MFIs. In terms of what stakeholders are calling ‘MFI plus’ services, Mr Sharma noted that the ‘plus’ at this stage ‘is not happening’ and that the challenge is for MFIs to establish links or look into business development with entitles that focus on ‘livelihood planning’. As an example, he stated that ‘we can’t leave people with $100 loans and expect them to move up with buying a cow. You have to help him cope with more cows, and help him link to the market’.

Mr Sharma noted in conclusion that commercialisation of MFIs can be ‘a bit dangerous’ and that the focus on the forthcoming event organised by ADS would be on responsible and social finance.

By Chinq Yee Chong, Research Assistant

Bibliography

[1] Article in the Business Standard entitled ‘There is a tension between scale and soul in microfinance’: http://www.business-standard.com/india/news/%5Cthere-istension-between-scalesoul-in-microfinance%5C/373588/

[2] Access Development Services: www.accessdev.org/

[3] Access Microfinance Alliance platform: www.accessdev.org/microfinance-amfa.php

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