International Finance Corporation fosters sustainable economic growth in developing countries by financing private sector investment, mobilising private capital in local and international financial markets. Globally, IFC, is also one of the world?s largest investors in microfinance. Swapnil K Neeraj, a senior microfinance specialist (South Asia) of IFC and a chartered associate of Indian Institute of Bankers, tells BV Mahalakshmi in an interaction that the future leaders of microfinance would emerge from the institutions who embrace innovative technology to increase efficiency, client convenience and low costs. Excerpts:
India?s growing microfinance market is concentrated in just a few states, leading to multiple lending and over-indebtedness within the same borrower base. What are your strategies to promote financial inclusion?
In India, a large number of national and regional initiatives have taken place to promote financial inclusion. However, despite significant contributions made over the years to improving access to financial services for the poor and for micro enterprises and concerted attempts by all stakeholders, financial inclusion still remains a challenge, particularly in the low income states of India. The overall intent of IFC is to support financial inclusion for low income households through services that are appropriate to their needs, affordable, efficient, with consumer protections and responsible financing features. IFC has been working pro-actively with key players in developing a sound, responsible and sustainable microfinance sector in India. This is being done through institutional engagement, sectoral engagement and stakeholder engagement.
What is IFC strategy to expand the credit reporting system to establish credit worthiness of customers?
Microfinance credit reporting is fairly new in the Asian region, although globally microfinance has been incorporated in the mainstream credit reporting regime for a number of decades. Since the last three or more years, IFC is focusing on the inclusion of microfinance into credit reporting in India.
Some of the other MFI credit bureau projects we have been involved with are in Egypt, Morocco, Pakistan and Bangladesh. IFC and Omidyar Network launched phase one of MFI Credit Bureau project in India in June 2009 that works closely with Microfinance Institutions Network and the existing credit bureaus. Phase two started in October 2011 and is focused on increasing the reach of MFI reporting to credit bureaus, greater use of credit information and client awareness regarding credit reporting.
IFC firmly believes in the importance of credit bureaus in building a strong and sustainable financial ecosystem. We are supporting the ongoing efforts of the sector in building a robust credit reporting system by partnering with two large credit bureaus. The project aims to achieve increased participation of MFIs in credit bureaus and raise awareness among end-clients on benefits of credit reporting. Thus, nearly 70 million loan accounts are recorded in this system and expected to grow as business grows and new MFIs join in.
Andhra Pradesh witnessed a fall with regard to MFI. How do you view the scenario and are there any remedial measures you can suggest?
Microfinance has made significant contributions over the years to improving access to financial services for the poor and for microenterprises and is one of several important tool to address financial exclusion. Microfinance repayment crises have occurred to some degree in several countries, including countries with previously well regarded microfinance sectors such as India, Brazil, Bosnia, Morocco, Bolivia. Each resulted in a marked slowdown, or reverse, in the growth of the microfinance sector. In all cases there is no systemic threat from the crises, as microfinance is generally still small in size. However given the small size of the loans, relatively large numbers of people are affected, and these crises are, therefore, a policy concern. Further, globally, our experience reflects that in case the response to the crisis has been late and piecemeal, and where politics has been a complicating factor, ?no payment? movements have arisen that have undermined the viability of financial institutions to serve low income clients for several years.
However, positive regulatory responses that includes ensuring that credit information systems are better used by MFIs, or introducing policy frameworks to promote responsible microfinance, as in the case of the RBI in India, can help the sector to emerge out of the crisis and provide financial services to its clients on a sustainable basis.
What is the roadmap for IFC in terms of investments and how many MFIs have been funded till date?
IFCs strategy for South Asia is built on the following pillars: inclusive growth, with a focus on the base of the pyramid, on rural areas, on infrastructure building and on improving access to finance for micro, small and medium enterprises; climate change, with a focus on adaptation and mitigation (including renewable energy, cleaner production, and energy efficiency financing); and global integration, with a focus on financial infrastructure, investment climate reforms, trade financing, logistics, and promoting South-South investments.
While IFC is constrained in providing direct financial access to large under-served populations, MFIs provide an efficient delivery mechanism to reach this market. Microfinance funds represent IFC?s wholesale approach to support microfinance institutions, and provide IFC with greater diversification, geographic reach and development impact. So far, in India, IFC has committed more than $78 million to five MFIs and four microfinance funds.
How do you perceive the MFI sector in India vis-a-vis the global scenario? What are the emerging trends in this sector?
In India there has been a scale up of micro credit services, but the low income households are yet to get the diversified financial services from the MFI and there is also a geographical skew in provision of financial services.
Globally, there is a consensus that the MFI is transforming from a limited scale lending model to a model that makes use of credit information and credit scoring, flexible forms of collateral, and technology and its product offerings are not restricted only to provision of credit.
