Reporter : Arvind Ashta, Banque Populaire Chair in Microfinance of the Burgundy School of Business
Dr. Arjun Sachidanand talked about partnerships to increase the impact of microfinance. He comes from a family of doctors. As opposed to Vikash, he came from a well settled family. Till his under-graduation, he had not entered the family hospital. In the last year of his MBBS, his father fell ill and he had to go to the hospital to look at the accounts. But the watchman did not allow him in since he didn’t know who he was.
As he started visiting the hospital, he realised many things. It was the only private hospital with qualified doctors in an area with a huge population. There are about 2000 clinics with quacks .
When he was doing internship, he was observing a complicated surgery. He was asked to go and see what to do for a child who was really suffering. He treated her and called the parents. Her parents were incense manufacturing artisans earning about a Euro a day. The consultancy charge in the hospital is more than that. So the parents worked for two days before coming to the hospital. The doctor had prescribed antibiotics. But they could not afford to buy medicines. So, they went to a clinic where some quack gave two injections for 20 rs.. The fever went, but came back…. For six months this continued. This time, they again worked to pay the fees to come back to the hospital.
Dr. Arjun was 23 years old. He decided to take a year off and came back to join a business school called ITM Khargar in Mumbai. Then he realized that he should do something which should reach out to a large number of people.
He then joined MS in orthopaedic surgery. He met Suresh, the MD of Grameen Koota. From him, he got in touch with microfinance. His research found that microfinance was focusing on wealth rather than knowledge and health. But in fact, people were not healthy enough to earn money to repay the loan.
In India, there are a lot of hospitals but no access of specialists. “Rural beds to population” ratio is extremely low. Only 35% are successful surgeries, despite competent specialists, because the environment is infectious owing to the number of patients. As a result, patients get each other’s infections and recovery takes longer.
People therefore prefer to go to private hospitals. But private hospitals need to be paid in advance. For this, the people need to sell jewellery, borrow money, etc. A survey found that when people are treated well, they can repay loans. So MFIs have a vested interest in protecting their clients from health related financial shocks so they can increase assets and become more stable consumers of their microfinance services. Dr.Arjun started to work together with them.
The structure is a Health trust fund. This is a not-for-profit. Then there is a healthcare service provider with is a for-profit. And there are 12 MFI partners in Karnataka. The members pay annual fees to the health trust fund for about 3 Euros per family member. This can be given as a loan from the MFI. The service provider then links the patients with the best clinics and hospitals in the area. In each partner clinic, there is someone from the network who receives the patient. This ensures that the hospital does not jack up the price once he knows that the patient is insured.
Members visit the network hospital and can check it online. She then takes Rs 10 for their client instead of Rs 100. Clinics agree to do this because the network ensures that hospitals get more in-patients but at a more reasonable price.
The Physician of SAS reviews claim in the online system and pre-approves the claim within 15 minutes. SAS reviews the claim detail and reports, approves and settles claim amount. The online software is such that the SAS head office can look at the claim simultaneously. Member is treated and discharged and the treatment is cashless. Hospital sends the invoice to SAS and gets paid. A great cost reduction is that the health card gives all the medical history and there is no need for repeat checks.
Djamchid Assadi talked about Localopment, a word he has coined for local development. The development can be done by three actors: the state, the community and private. Each of them can be for-profit or not-for-profit. So, for example, the for-profit network of Dr. Arjun’s SAS is a community for-profit network. Similarly, each of the actors can do things for social purpose or for itself. His theme produced a lot of interaction with the audience on the precise value added by this modelisation of the development activities.
Laurence Attuel-Mendes is researching on institutional microfinance. The main idea is what are the issues which lead to develop microfinance? So, she has been studying with Arvind Ashta mainly the usury legislation and whether it is curtailing microfinance. Theyfound that even though we removed the usury ceilings in France, microfinance did not take off. They then looked at why in some countries it succeeds and then not. For thisthey found Morocco succeeded while others that did not to the same extent. The main difference was that if you have oil in your country, there is less microfinance. She also studied if religion is important. What she founds is that in three religions, there was prohibition in in the initial texts but with time, the interpretation has changed and loans are allowed with manipulation of the terms of the contract. As compared to these religions, in Hinduism there is more permission. But in microfinance a lot of organizations are connected to religion anyway. Finally, she has looked to see if microfinance is a real innovation? She finds that as early as the tenth century there have been financial initiatives to help the poor. So, she doesn’t find that Prof Yunus created anything new. But she finds that he was successful in launching it worldwide. And the evolution is due to using of technology tools such as those Microfinance Focus discussed earlier. The next step is going to be research with Jofin Kurian oncrowdfunding. The question is whether a borckerage platform would be ideal for microfinance.
It was suggested that the religion question can go further and see the problems, such as the Kolar problem where borrowers of one religion refused to pay back MFIs run by people of a different religion because of social pressure.
Cornelia Caseau is researching Raiffeisen bank’s work in microfinance. She has found that there is a link between the original involvement of F.W.Raiffeisen on behalf of poor people and the current strategy of the Raiffeisenlandesbank of Lower Austria and Vienna (RLB NÖ-Wien) for the integration of immigrant communities in the Austrian capital. Both cases deal with so-called ‘excluded’ or ‘marginal’ groups of the population and the question of their integration in society. Her first research is to see how the minority Turks are being included in microfinance in Austria. She found that RLB NÖ-Wien is offering a banc product to the Austro-Turkish community, called ‘wedding credit,’ a specific credit for young Turkish couples needing short-time financing for their costly weddings. The RLB NÖ-Wien deliberately sends messages to potential clients of immigrant families to show them that all people have the same importance for them. The conditions are that primary residence has to be in Austria but they don’t have to be citizens. The amount is 10000 to 15000 Euros. The guarantee is a fixed salary and life insurance. The loan conditions are the same as for a classic consumer credit, and the average loan is between 5 and 8 years. Since wedding guests give sums of money as gifts, the credit can be paid back rather quickly, usually within one year. The RLB NÖ-Wien will also offer small loans (the conditions are being finalized by the bank) with a maximum amount of 5000 Euros.
Her next research is going to be to find out how credit is being provided to wandering Roma people. There may be some inter-cultural study to be done comparing this with India for example where bankers being present at weddings would not go well and where the RBI wants to limit consumer loans.
Hayyan Alia is studying the use of financial diaries. Basic research shows that impact of microfinance cannot be proved by statistical studies, despite years of research on this. Maybe qualitative in-depth research is required. The question is whether the use of diaries can answer such major questions as the impact of microfinance. For the moment he is in the literature review stage. Since ten years the diary method is being used in microfinance. However, this method is being used for over a century elsewhere. He is now looking at whether financial diaries can get any ideas from time use diaries. Today he wants to present the link with impact evaluation through quantitative experimental methods with quantitative non-experimental methods. The main problem in impact evaluation is the attribution and counterfactual problem. Can we attribute the impact to microfinance? However, even if randomised experiments may indicate impact, can we look at qualitative studies to understand how the impact takes place? It was suggested that the study could be of use for improving microfinance products also.
Jofin Kurian is a student at the Burgundy school of Business and is researchingcrowdfunding. There are many different kind of platforms: donation based (charity), equity based, lending based (microfinance) and reward based. Today, there are over 450 platforms, of which 124 new ones are in Europe itself. Today, the buzz is focused onKickstarter and Kiva, but others are coming up. Reward based ones include Microworld. So far, no equity based platform so far. Nevertheless, the market is like a jungle. There is need today to have a platform which would act like a hub dispatching any new project of investment or business to the right website. Correct information leads to better use of money. It was suggested that future research can focus on which platforms are more successful and why?
Arvind Ashta contextualised the overall research focus of the Burgundy school of business. By comparing data from the MIX, it is clear that the total of operating costs, financing costs, write-offs and return on assets, the four components of interest rates, have more or less stayed constant between 2003 and 2011. At the same time, yields have fallen. Perhaps this is because yields are a percentage of the part of assets that is given as loans and therefore the relationship is more complicated. In any case, write-offs is the smallest part of an MFI’s cost and the Burgundy Group has not really focussed on it, although some work on credit scoring and poverty scoring is starting. Instead most of its work has been either on the operating cost question, the financing cost question and the profitability question. On the operating cost question, it has been doing research on MIS in microfinance as well as starting research on cooperatives. On the financing cost, it has been looking at online financing (Kiva, Babyloan, Rangde among others) as well as local investor clubs and slow money. On the profitability question, it has been examining questions on the ethics of high interest rates (Compartamos) as well as usury ceilings on high interest rates and institutional factors leading to the development of microfinance. It is also looking at slow money solutions to couple local interest at reasonable profit levels.