Dr. P.V. Viswanath

 

pviswanath@pace.edu

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FIN 680V/ FIN 360:
Microfinance and Small Business Financing in India

 
   

Report on the class's trip to India. The report is put together from write-ups from several individuals.

Prior to enrolling in this semesters Microfinance and Small Business Financing in India course, I knew absolutely nothing about the field of Microfinance. Today I can walk away saying I've learned a lot.  During the “in class” sessions, we became familiar with terms such as “moral hazard”, “adverse selection”, and “group lending”.  What we did not learn in the classroom, we learned in the field, and this is what made this course one of the most memorable experiences of my life.

During the 8 weeks leading up to our travel to India, we studied from The Economics of Microfinance by Beatriz Armendariz and Jonathan Murdoch, which was not a difficult read, however, I did find the post chapter review problems to be somewhat confusing, and not thoroughly explained in the chapter’s reading.  We went over the post-chapter problems in class; did that help you at all?  What about the solutions posted online?  The Economics of Microfinance taught us the basics of Microfinance such as moral hazard, adverse selection, group lending, and joint liability. We also watched several pod-casts on Micro-Finance lending which taught us how the field of Microfinance, evolved from focusing on small loans to women, because of their higher repayment rates, to shifting focus caused by commercialization which caused the absolute number of female clients to rise across institutions, but the percentage of clients that were women overall to fall.

Our field trip experience began on Sunday March 11th, with a visit to Institute of Finance and Management Research (IFMR) in Chennai.  We began with a Microfinance overview lecture by professors Amy Mowl and Deepti Kc. We reviewed topics such as, group lending, joint liability, and the role of women in microfinance. We learned about Randomized Control Trials, a technique utilized by IFMR students in order to gather data on the effects of Microfinance lending in rural India.  During our lunch break, we met with IFMR students, who shared their backgrounds, and study experiences with our group.  After leaving IFMR we began our journey to Pondicherry.

IFMR Lunch

Discussion is more important than lunch?

group_photo_IFMR

Group Photo outside IFMR with Amy Mowl and Deepti

lunch

Making points? Lunch at IFMR

 


The second day of our trip took us to Auroville,”a universal city in the making in South India”.  We spent the day at Auroville learning how they attempted to incorporate Microfinance practices into their community.   Auroville claims to be “a universal town where men and women of all countries are able to live in peace and progressive harmony above all creeds, all politics, and all nationalities”.  I walked away from Auroville feeling the exact opposite.  Of all the institutions we visited while in India, which attempted to incorporate some form of Micro-finance practice into their mission, I felt that Auroville’s accomplishments were the least effective.

auroville_pashi

Mr. Pashi explaining Auroville's philosophy

auroville_workshop

Work Environment at Auroville

   

 

On Tuesday while still in Pondicherry we visited the Sri Aurobindo Society.  The Microfinance practice of the Sri Aurobindo Society was called Sarvam, an Integral Village Development Programme. They explained they chose 2 villages to focus on; their goal was modernize these villages, by empowering the village people to take charge of their own destiny and future.

When they began working with the village, they found that there were several schools but no children attending. They asked the parents why and they said it was because the conditions of the school were so poor - so they explained to the parents how important these formative years were to a child’s development, in order to encourage them to ensure that their children went to school.  They went to the government for support to improve the conditions of the schools, which was a complaint that the teachers of the schools vented to them. Their hard work paid off with the improvement of enrollment, and an improvement in grades.  

Auroville

With Mr. Ladd at the Sharanam site, outside Pondicherry

sarvam

At the Aurobindo Society: Learning about Sarvam programs from Senthil and Chitra

   

 

The Sri Aurobindo Society also made improvements in Health, by providing transportation to hospitals outside of the villages.   They improved sanitation, by working with the government to ensure that toilet blocks were installed in the villages.  They contributed to housing improvements by training the villagers in masonry techniques, which led to the employment of the villagers in the field of construction. They empowered the women of the community by helping them to improve existing skills such tailoring, they also provided small loans to these women, in order for them to begin their own businesses.

On Tuesday we also made a visit to Sharanam village, where we met with Jateen Ladd, British born of Indian descent, who traded in a life of designing homes for British models and rock stars in order to return to his roots to help the poor. Jateen explained that the people of Sharanam village would prefer to accept the basic welfare supplement from the government of just enough rice to feed their families than working for him for 60 Rupees a day. (I thought he said that he allowed the workers to set their wages, which were 200-300 Rs. a day.)  He explained that he initially had to hire men from outside of Tamil Nadu, from up in the North where over-population is more rampant and the motivation for work a commodity more in demand.   I thought he said that he was advised to hire people from outside Tamilnadu, but he refused to do so.
He was later able to convince some of the village men that it was better to work than to collect a government stipend. He allowed them to choose their own tasks, choose their own work schedules and set their own pay – all of this to motivate them to build a community center which will be used by Sarvam to apply their Integral Village Development Program at a location closer to the village. This facility will be used for training, counseling and advisement of the villagers.
On Wednesday, we ventured to Thanjavur, where we went to meet with Kshetriya Gramin Financial Services (KGFS).  KGFS mission is to “maximize the financial wellbeing of every individual and every enterprise by providing complete access to financial services in rural India”.  

 

KGFS employs wealth managers, who get to know their customers by finding out their income, assets, liabilities and expenditures.  The wealth managers find out their customers goals and set out to help their customers achieve these goals by breaking the goals down into monthly terms.

KGFS provides structured products to provide insurance to household earners.  They encourage their customers to have diversified investments, for example they encourage them to not only open savings accounts but to also invest in commodities such as gold.  This diversification technique also helps KGFS to reduce the risk of loan delinquencies.

Over the past 4 years KGFS has accumulated over 130,000 customers.  They explained that their wealth managers do not receive incentives for lending, and also explained that their rate structured is based on Cost, Loan Loss Provisions and Return on Equity.  They explained that most of their loans are based on Joint Lending Groups – this policy helps KGFS to weed out risky borrowers, as non-risky borrowers will not want to pair (peer is not usually a verb – not in this sense) with risky borrowers.

After leaving KGFS we went to visit one of their financial institutions in the village, to get a first-hand experience of how KGFS branches operate.  Upon arrival we noticed that most of the clients in the bank were women, which tied back to our classroom lecture that most Microfinance institutions focus their lending to women.  After leaving the branch we also went to visit the home of one of the villagers, who explained the benefits of the loans and insurance policies provided to her household by KGFS.

Thanjavur Selfhelp group

Lubin students with members of a self-help group related to the KGFS operation in Thanjavur

thanjavur temple visit

At the Thanjavur temple with some local fans of Pace :-)

branch

KGFS Branch at Mathur -- most of the clients are women

guru

Mr. Guru, CEO of the Puduaaru KGFS



On Thursday we went to Kancheepuram, where we met with Hand in Hand (HIH).  Hand in Hand started out as a small NGO, operating in the South-Indian state of Tamil Nadu, in 2004 with only 10 people working under her (?  Under whom?) now there are over 3500 people.

The officers at HIH explained to us that three-hundred million people in India live in abject poverty, earning less than $2 a day.  They explained that they, like many other Microfinance Institutions also focus on women, as a tool to fight poverty. They work to offer programs that give confidence to the poor.

Hand in Hand, believes no one should be given anything for free, they claim to be socially responsible and have made loans in excess of $120 million USD in the last 8 years.  Their clients over the past 8 years have saved $50 million USD, and they have worked to reduce child labor abuses from 80% to 5 % in Kancheepuram.  (Is this from something that was said at the meeting?)

bauty parlor bakery
weaver Weaving at Kanchi



Hand in Hand operates under a 5-Pillar model for empowering the poor.  These pillars include Self-Help Groups, Environment, Child Labor Elimination and Education, Health, and Citizens Center Enterprises.  Self-Help Groups are created to monitor and mobilize women to form self-help groups, to which they make micro loans in order to help them set up small businesses.  They believe that environmental degradation affects the poor most, so they work on initiatives such as planting trees, clean ponds and creating waste management programs that have impacted over 2 million households.  (Try and give citations for whatever you are saying – if it is from one of the talks, that’s fine, say that; if it’s from a website, mention that..

After meeting with the representatives at Hand in Hand we went to meet with some of the small business owners in the villages that were affiliated with HIH.  We met with a woman, who successfully started her own bakery, through loans from Hand in Hand.  We also met with a hairdresser, and a silk sari weaver in the village. I found the work that Hand in Hand provided to the villagers was the most productive of the Micro-finance institutions we visited.  You are arguing from impressions, not after doing a study – perhaps a more emotive word such as “I feel?”

On Friday, we headed back to Chennai where we made a visit to Great Lakes Institute of Management (GLIM) in Manamai, near Mahabalipuram. We started off the day by first meeting the students who are all one month away from completing their one year MBA programs. All the students have undergraduate degrees and between 3-11 years of working experience. After meeting the students we ate breakfast and then participated in a tour of their beautiful campus.

After the tour we went back into the lecture hall, where the GLIM students gave a presentation on Micro-finance. They explained how they all worked with several micro-finance institutions such as Hand in Hand and the Hope Foundation. They showed us a video of the work they participated in throughout the year which they term "Great Lakes Karma-Yoga".

GLIM

Ping-pong diplomacy at GLIM

children

Founders of the private school at far right, teachers from the school at far left.

students

Hindi-chini bhai-bhai -- Pace students from China with primary school students from a nearby school. GLIM students perform karmayoga work at the school

glim_banner

Pace faculty, students and GLIM students




Pace University students also gave a presentation on Micro-finance in India and China - what China can learn from India. India and China share many similarities, such as GDP growth rate, and populations of over 1 billion. Both countries have majority of population in rural areas. Borrowing rates of fasacaasdqdwqwqwwqe20+% ??? for micro-finance institutions for both countries. Contrasts micro-finance borrowers in India are mainly poor people, but in China they are people with jobs.

The founders and primary school children from Hope Foundations School were also in attendance for our presentations. Hope Foundation is an NGO that has been in existence for 17 years. HFS started out by providing free education to a fishing community impacted by a recent Tsunami. The founder of HFS spoke about microfinance lending that was performed on the fishing community. He explained that HFS was originally a completely free school, which thrived on donations, but as donations began to dwindle he wanted the student’s parents to begin participating in the tuition payment for their children. He explained that in order to help these poor parents help with providing funding microfinance loans were given to the parents. He explained that his experience has taught him that microfinance lending works best when small loans are provided.

We ended the session with an open forum discussion on Micro-finance in India.  We talked about how microfinance has provided a helping hand for people who did not have access in the past. We spoke about how advances in technology such as cell phones have improved access to information in rural areas, such as farmers who could now get faster access to the asking price of their crops.

As previously stated my study of Microfinance has been my most memorable educational experience, to date.  I walked into my first Microfinance class with little knowledge of the field and walked away with a wealth of knowledge that could not have been attained in classroom environment.  I hope to one day be able to bring some of the practices learned from Microfinance and Small Business Lending in India, to help the poor people of my country in Jamaica.