Dr. P.V. Viswanath



Economics/Finance on the Web
Student Interest

  Courses /  

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


Report on the class's trip to India. The report is put together primarily from a write-up by Shevalene Williams, with considerable input from all the other students in the class.

Prior to enrolling in FIN 680V, "Microfinance and Small Business Financing in India" taught by Prof. P.V. Viswanath, 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. (Shevalene)

During the eight 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. However after reviewing the problems in class, many of these problems became more comprehensible.  As part of our in class learning we were instructed to watch several pod-casts.  These pod-casts taught us how the field of Microfinance, evolved from a Grameen 1 system, which had very rigid lending standards, to Grameen 2, which had a lot of savings features.  We also learned of recent controversies in the field, in regards to predatory micro-finance lending practices, leading to an increase in suicide rates of women in rural India. (Shevalene)

Day 1 -- Chennai

We arrived at Chennai around midnight Saturday, March 10th, 2012. However, our field trip experience began on Sunday March 11th, 2012, 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 used by researchers to better understand the relationship between MF programs and outcomes; this technique is also 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.

The day that we were in Chennai was also the first anniversary of the earthquake and tsunami in Japan. Tada spoke briefly about it to us, and we observed a moment of silence. We were all very moved. (Yunyi)

IFMR Lunch

Discussion is more important than lunch?


Group Photo outside IFMR


Making points? Lunch at IFMR


Excited to be at IFMR -- Pace students with Professors Amy Mowl and Deepthi Kc posing with their Pace T-shirts

Day 2: Auroville

The second day of our trip, we breakfasted at our hotel in Pondicherry and left by bus for Auroville,”a universal city in the making in South India,” about fifteen kilometers away from Pondicherry.  We spent the day at Auroville learning how they attempted to incorporate cooperative living and working practices into their community.   While this is not microfinance, per se, it is related to issues that come up in microfinance, such as the free rider problem and moral hazard. The internal economy of Auroville is indeed somewhat difficult to grasp, since there don't seem to be clear lines of authority and accountability. Since one of the goals of Auroville is to make a difference to their environment, they also have microfinance projects as part of their program. 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”.  One student, less than impressed by the environment noted "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 cooperative practice into their mission, I felt that Auroville’s accomplishments were the least effective."

On the other hand, another person noted that Auroville gave him a different take on micro finance and that helped him get a broader understanding.  He also enjoyed seeing the bamboo production, music shop, and the basket center.  Part of the reason, in his opinion, for some of the negative feedback from the visit to Auroville might be the seemingly diverse opinions we got from the different  presenters/people we met in Auroville.  He noted that he might have been more able to relate to the commune approach because he was much older than the other students.

Upon arrival in Pondicherry, there was a panel discussion in the conference hall of the Town Hall. Participating in the panel were Pashi Kapur, Danny Merguei, and Anbu Morris. This discussion focused on how Auroville is organized, as well as on the practice of microfinance in Auroville. From the discussion, it emerged that Auroville belongs to nobody in particular; rather it belongs to humanity as a whole. Many people in Auroville follow the ideas of Sri Aurobindo and serve the Divine Consciousness. As far as finance was concerned, Auroville does not focus on microfinance. They do have a group-lending type of set up wherein women divide the available loan money amongst themselves. They charge a few percentage points more than banks since their transactions costs are greater. This was followed by a vegetarian lunch at the Solar Kitchen, which is, as its name suggests, operated on solar energy. In the afternoon, we were taken on a tour of several Auroville units conducted by Aurelio, Danny and some others.We visited several business units -- one called Svaram is dedicated to the preservation of local musical traditions and musical instruments. Svaram also helps local artisans manufacture musical instruments and sell them. We then visited Wellpaper, which is run by Danny Merguei, a former investment banker. Wellpaper is also focused in village development. One of the things is does is to organize the manufacture of products made with recycled paper, which are bought by Wellpaper from the local producers and then sold all over the country. Another visit was to the Bamboo Research Center, a unit which builds things made of bamboo. Nicholas Klotz, who introduced us to the Bamboo Research Center was very informative about how the local workers were involved in the manufacturing process and in the ownership structure. Most of these units, however, are not breaking even, yet.


Mr. Pashi explaining Auroville's philosophy


Women making baskets from recycled paper at Auroville -- a worker-owned project


Roughing it in Auroville


Danny Merguei, founder of Wellpaper and other Auroville volunteers

Day 3: Pondicherry

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 two villages to focus on -- Poothurai and Perambai; 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.  (Shevalene)

There were also some issues with the panchayat power structure, which meant that the social workers had to tread carefully and lay out clearly the goals of Sarvam so that political issues would not interfere with the achievement of those goals.

Housing also emerged as a critical issue, with families below the poverty line struggling to find shelter. During heavy rains, one family had to send the children to relatives while the parents hid out in the school.  To aid these poor families, new and renovated housing was made available funded partially by the families about to move in, partially by the government and partially by proceeds from philanthropy. However, there was still some difficulty in selecting which families could be allocated new housing, and which families would just get renovated housing. Currently this process is handled by a committee, which follows a selection process arguably still subject to human bias. (Shuting Zhang)

Traditional Gender stereotypes also seemed to be strongly embedded within the village communities, where women are expected to do house chores and not work. Men also did not want their wives to work. This meant that the women had to ask their husband for money even to buy treats for their children. The Sarvam field worker described women as being “servants”. However, through education and encouragement, the field worker was able to engage more and more women to work part-time for the local companies. Eventually, the women of the villages even created a business of their own and started to lend money to other women to encourage them to start their business. These helped the families to earn extra income and women to be more financially independent. (Shuting Zhang)

The issue of human respect and integrity was also stressed in the discussions with the field workers. There were many examples where problematic members of society were transformed into constructive participants of the local community when given respect by the field workers and the community itself. One account described a trouble maker who was encouraged to be a member of the local committee, and how he changed when the community treated him with dignity and respect. There were also accounts of women who preferred their husbands to work with the Sarvam field workers because their husbands no longer “drink and beat them” when they are working with the field workers. These examples teach that leveraging the positive side of human nature by offering them the same respect regardless of their education, caste or background will help them get in touch with their core human values. (Shuting Zhang)


With Mr. Ladd at the Sharanam site, outside Pondicherry


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


Learning about the French colonial architecture in Pondicherry, a former French colony


A view of the Bay of Bengal from the terraces of the Aurobindo society

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 a building site operated by Sharanam, another venture of the Sri Aurobindo Society. At this site, a community and teaching center is being built to allow more effective access to the villages, where Sarvam operates. There, 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 many of the people of the surrounding villages would prefer to accept the basic welfare supplement from the government of just enough rice to feed their families than working for him.  As a result, he was advised to hire men from outside Tamil Nadu, from up in the North where over-population is more rampant and the motivation for work a commodity more in demand.  However, he insisted that the local people should be involved in the building of an edifice the very purpose of which is to better help the local people obtain better employment. He was ultimately 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. While one of the objectives of the Sarvam and Sharanam programs is to have the villagers help themselves, it is often necessary to obtain outside funds for the initial work. Mr. Ladd told us that some of the initial funds came from the Cadbury chocolate company, and of course, some from the Aurobindo Society.

The Sarvam and Sharanam visits were big hits -- Mr. Ladd, in particular. We are all grateful that the Aurobindo Society shared all these aspects of their work with us.

From the Sharanam building site, we drove to Villupuram, from where we caught a train to Thanjavur to continue our trip.

Click here for the continuation