This would be critical in determining the demand for MFI products by poor households, minimising the incidence of loan defaults and loan losses, and guaranteeing MFIs operational viability. Initially, however, in view of the clients being destitute (below the poverty line, with annual per capita expenditure less than $360), operations may need to be subsidised through grants or soft loans/investments that yield below market-rates of return or no return at all.
Microfinance has seen several innovations. Notably, group lending with joint responsibility, flexible approaches to collateral requirements, high-frequency installment payment schedules, future access to credit denied in the event of default, exclusive focus on women and development of high empathy levels amongst credit officers who reach out to the poor. These innovations have made it commercially feasible to reach many many clients. This can be done by a specialised MFI or as a distinct line of services offered by a commercial bank or a credit union seeking to go downmarket. A combination of products and delivery systems must be developed to satisfy clients. The differences in relative emphasis affect the design and management of microfinance products, delivery systems and even institutions. Different motives lead to different methods. Fin-ancial systems should be so developed as to lower the cost and increase the convenience of financial services, so that the unbanked masses can be reached by commercially viable enterprises. There are 41 microfinance programmes in operation in 17 countries, including Grameen Bank and BRAC in Bangladesh, which qualify as leaders in terms of scale of deep outreach and sustainability of the institutions.
Microfinance accounts for 40% of the reduction of moderate poverty in rural Bangladesh, according to some measures. It works especially well for women
1. Evaluation of existing microfinance programmes by independent institutions to study the extent to which impacts have been created, focusing on deficiencies, and suggesting corrective steps
2. Governments must crystalise in their Eleventh Five Year Plan documents and annual budgets, microfinance policies and plans, allocation of funds, strategy, monitoring, compliance and review mechanisms. Adequate infrastructure must be in place.
3. Potential Linked Credit Plan of each district formulated by National Bank must focus the strategic action plan.
4. National Bank, SIDBI and commercial banks may need to arrange for training of personnel and evaluate the effectiveness of the same.
5. Effective coordination must be established among MFIs and government departments.
6. NGOs and banks to review the progress and initiate corrective steps.
7. Involve Panchayati Raj Institutions right from village to district levels to implement the programmes
8. Commercial banks, RRBs and cooperative banks must, learning lessons from other countries, commit and involve themselves to form and finance self-help groups (SHGs), monitor their progress and guide them to achieve results consistent with the goals that have been set.
The authors are professionals with decades of field experience in microfinance planning