During your research you collected data from nearly 250 households from India, Bangladesh, and South Africa, did you notice any conforming patterns in these
The outcome of the research was that saving behaviours are very very similar in these three countries and that poor people have active financial lives. Its easy for the West to think that if you are earning two dollars a day, then you must spend all the money as soon as it comes in on food and basics, it cant be possible to save, it cant be possible to have a financial life. We discovered that it was not true. Poor people inspite of being poor tend to have rich financial lives. It comes from the fact that if your income is small, irregular and unreliable, then you are constantly faced by the need of stretching incomes to make sure that there is food on the table everyday, so you either have reserves or you have someone from whom you can borrow. So even for everyday survival people are driven to short-term, lower value saving and borrowing. And they do that in all the three countries. Two big issues in their lives that forces poor people to become active financial managers are emergencies and the need to build up big sums of money for the big life cycle events of their lives.
Did you find any differentiators in the three countries with respect to their saving needs, especially for South Africa
The structure of the South African economy is different from India and Bangladesh. South Africa is very odd; its a kind of modern economy sitting next door to a developing country economy. That makes a big difference; it means that many of the people in South Africa are receiving government grants of one sort or another. The other difference is cultural. In Bangladesh and India one of the really big life cycle events is marriage. In South Africa on the other hand for cultural reasons marriage is not very expensive, but funerals are incredibly expensive. Four out of five South African households had suffered a severe financial setback when they had to find money for funerals. There are also differences in the mix of instruments they use and the details in the way in which they are run. The extent to which you rely on borrowing and savings differs in the three countries. In Bangladesh the poor depend more on borrowing, India is in the middle and in South Africa reliance is more on savings.
Do you differentiate between the rural and urban poor and deliver services as per their requirements
We discovered that there is surprisingly little difference between the two, even if their occupations differed. But in terms of the problem of delivering services, it is a different proposition. For a successful financial service delivery programme we need to be able to offer services that is on the door step of the client and is very frequent. In rural areas it becomes more challenging to deliver door step and frequent services because people are dispersed as opposed to urban.
SKS microfinance is coming out with an IPO and expecting to raise Rs 1,000 crores. How do you rate this development of microfinance taking the IPO route
To begin with, its controversial, as within the industry there are those who still see microfinance better done by a development agency rather than by full-blooded capitalist organisations. For example Dr Muhammad Yunus would probably be negative about mass of profit money coming in; fearing that it will distract people, from what he regards the central purpose of microfinancethat is eliminating poverty. I share that view to some extent, but I believe that the need for good quality financial services for poor people is so enormous, that I welcome any actor that comes into it. So, I welcome the whole gamut of players from small, local, Gandhi-inspired local NGOs, right upto the SKSs and their Wall Street backers. As far as I am concerned the need is so pressing, the more players we get in, the better. So for me its not an unwelcome trend.
In India we have seen farmer suicides and loan waivers; on the other hand in the case of micro credit, the repayment history is very good. Do you think that there is an inherent contradiction between both the models
A lot of people in the banking industry, including people in micro finance dont like government loan waivers because they fear it destroys repayment disciple. And I too feel that, its important to find ways of subsidising the poor not using loan waivers, it would be better. For example Brazil follows Bolsa Famlia, its a conditional grant that government gives to poor families, you only get it if you make sure that your children are immunised, your girl children go to school and various other healthy living things that the government wants you to take up. I would prefer this. On the other hand I am not as worried about government loan waivers because these things are bound to happen, especially before an election. In Bangladesh, people dont repay to the banks but go on repaying loans to the micro finance organisations as they provide regular, reliable, bribe-free, convenient, frequent services. I think it will prove true for India. These loan waivers have not substantially damaged micro finance repayment regimen.
India is talking extensively about financial inclusion, how are the MFIs placed here
I would like to see MFIs able to extend the range of services. At the moment it is limited to loans. I welcome governments initiative to allow banking correspondents, and allow banks to take MFIs as their business correspondents. Indian government should allow MFIs to offer not just loans, but passport savings, and recurrent saving accounts. If we can look forward to providing frequent, local, basic savings and loan services, and add technology to it, it will improve financial services for the poor at an accelerating pace. India is in a very very exciting phase of microfinance development. Its not just the big guys who are growing fantastically fast; its also that new business models are coming in and which means that money can come in through IPOs. One of the fastest growing area in India is micro insurance. So the scope of micro finance is beyond the bottom of the pyramid and it is beyond micro credit and micro enterprise.