Why you should CARE about microinsurance

We have written about microinsurance before, including SKS’s Vikram Akula’s decision to develop a product for his customers. Now, Bajaj-Allianz and CARE India will be developing a product of their own. In an interesting partnership between the charity and a commercial company, this venture will aim to help individuals substantially improve livelihoods through the safety net insurance can provide. On Allianz’s site there is a great interview with RN Mohanty, Chief Operating Officer, CARE India, speaking to this new partnership. Here is an excerpt:

The biggest challenge was definitely educating people that risk protection is an important part of their lives. We do this because we want to inculcate a culture of savings with the community, not just insuring for the time being. The general mindset in rural India is that unless you get something out of it immediately it is not worth investing. If you look at our client list, close to 90 percent are first-time insurers.

The rest of the interview can be read here.

Evolution of microfinance through lens of human resources

One of the most recognizable names in Indian microfinance has decided to step down from his role as CEO. Vikram Akula, the visionary founder and leader of SKS Microfinance will step down.

Mr. Akula says that this change will allow him to focus on a new initiative – microinsurance.  As MicroCapital reported earlier this year, SKS partnered with Bajaj Allianz Life Insurance Company to offer insurance products toclients.  This announcement comes amid rapid growth in the company. Suresh Gurumani, Director, Barclays Bank, will take over as SKS Microfinance’s CEO.  An official transition date was not given.  

This event marks a point of evolution for the microfinance industry at large as entrepreneurs are now looking to the next big financial product to develop for their contstituencies. As microfinance becomes increasingly commoditized and regulated, risk-takers like Akula are now pushing the envelope further to find other services that are in need. TC-I wishes Akuka the best in his new endeavor(s).

[Source: Microcapital.org]

SKS looks to educate its members’ children

Partnering with Career Launcher, SKS Microfinance will be opening 10 school in Nalgonda, Khammam, Rangareddy and Medak districts of Andhra Pradesh that will be English medium institutions for primary school education.

The SKS-CL Academy, in the pilot phase, will provide primary education till third standard using the national open school syllabus with special emphasis on technology. While Career Launcher would manage and run the schools, SKS Microfinance would support the marketing of the schools and provide education loans.

Recognizing that there exists a need beyond only loans to assist individuals in breaking free from the shackles of poverty, SKS is now looking to provide the actual means for such people to acquire the knowledge to improve their own situations.

SKS members can opt for an education loan of INR 3,100 (USD 72) to provide quality education to their children. The school will run at a fraction of regular fees and the monthly fee for KG and Class I is INR 175 (USD 4).

The schools are also open to non-members as well. TC-I along with the community at large will be anxiously watching this program hoping for its success and its subsequent replication across the board.

[Source: Microcapital.org]

Vikram Akula of SKS Microfinance Touts Mobile Banking as the Future of Microfinance

In a recent interview with IndiaKnowledge@Wharton, Vikram Akula of SKS Microfinance touted mobile banking (conventionally used for performing balance checks, account transactions, payments etc. via a mobile device such as a mobile phone) as the future of microfinance, but cited India’s regulatory environment as a significant limiting factor in expanding mobile banking networks (click here for a related article from our archives). According to Akula,

“It doesn’t make sense to try and build a retail brick-and-mortar infrastructure in rural India. From a cost perspective, it makes no sense at all. Mobile technology today is robust enough that you can actually very easily do banking. We actually have a very successful pilot that we’ve done.”

The prohibitive regulatory environment cited by Akula may soon change, as RBI “has begun to realise that the ‘rapid expansion of this mode of communication has thrown up a new delivery channel for banks.’” In order for the mobile banking market to fully realize its full potential, however, further incentives/mechanisms need to be put in place that stimulate, rather than stifle growth, especially since the mobile “banking” sector in India is currently “limited only to enquiries, alerts, and certain kinds of bill payments,” and has yet to become “transactional.”

To watch a video of the interview, which focuses on issues beyond mobile banking, including capacity building, capital infusion, cost defrayal, and the notion that microfinance institutions’ operational models should be akin to those of businesses, see below:

[TC-I Changemaker]: CGAP’s Gautam Ivatury on the linkage between technology and financial empowerment of the poor

The ThinkChange India staff is committed to providing our readers with interviews with people we believe are at the brink of something special but have for the most part been overlooked by the mainstream media. Readers will be able to see other conversations under our TC-I Changemakers tab.

This week, Vinay sat down (over the phone) with Gautam Ivatury of the The Consultative Group to Assist the Poor (CGAP), a consortium of 33 private and public development agencies focused on working together to expand poor people’s access to financial services. Such services include but are not limited to microcredit and branchless banking. Within this organization, Gautam is the Manager of CGAP’s Technology Program (their blog on India can be read here), which focuses on researching, identifying and disseminating knowledge on how technology will help financial institutions deliver such services to the poor. The Technology Program is co-funded by the Bill and Melinda Gates Foundation.

Vinay Ganti: First, I want to thank you for taking the time to speak with ThinkChange India and its readership. Why don’t we start out generally. Can you speak more on CGAP’s goals and how the aspect of technology plays a role?

Gautam Ivatury: CGAP is about building financial systems that work for poor people. However, there is more to it than that as we want this financial system to be integrated with the mainstream financial system at large. We do not want to create a state where the poor bank in some parallel world completely disconnected from the resources and financial options that other people enjoy. In essence we envision one inclusive financial system that provides tailored products to all types of people, including the poor.

This desire for inclusion partly stems from the need to develop financial institutions for the poor that are sound and stable, and one of the most effective ways to do that is to link them to the mainstream financial architecture. Poor clients need to have the same level of security regarding their savings and deposits as do individuals elsewhere in the traditional banking structure.

To address the stability while also providing a wide array of financial products, CGAP recognizes that there must be an approach that moves beyond just microfinance institutions (MFIs) and includes other players in the space to maximize choice for the consumer and to help us attain scale. When one looks past the traditional MFI, one observes postal banks, agricultural banks and other actors that are already helping the poor.

This is where the technology program becomes so critical as it is charged to identify those technologies that will best assist this wide range of potential providers to reach out to the poor regardless of their location or personal circumstances. Right now, the one obvious solution is the mobile phone and the rise of branchless banking that can be done via that medium.

VG: CGAP’s website highlights three key players — financial service providers, public and private funding organizations, and government policymakers and regulators — that are stakeholders in CGAP’s work. Can we discuss the conflicts that emerge among these actors?

GI: All of these actors are critical. Without governments implementing the proper regulatory framework for banking, it cannot be done. Likewise, the other stakeholders also play a vital role. In fact, there is a fourth actor, whom CGAP does not deal with directly, who are the actual customers themselves. In any market these can at times become opposing forces. Government wants safety plus access; businesses want to make money. This forces CGAP to take a practical approach with each stakeholder.

Each player has different incentives and needs, and therefore when our conversations with them require differing skill sets that reflect these distinctions. When you sit down with a banker you have to understand their perspective. She will ask what services am I supposed to give and how should I give them? Do I want to provide them at the branch and encourage the poor people to come inside or do I want to do it in a way where it can happen remotely? What sort of incentives must I provide my employees to provide these services, and what is the structure in which the employees interact with these new clients?

In contrast, when we deal with an MFI, there concerns are more technical with regard to the management and oversight of their loans or disbursements. Questions regarding improvements to portfolio tracking software, customer relationships and external fund raising all dominate the conversation.

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TC-I Week in Review

First off there seems to be a lot of interest in our TC-I Changemakers profiles as that page on our website received a number of hits this week. For us here at ThinkChange India, interviewing people active in the field of social entrepreneurship in India is something that we truly love to do and we expect to bring you many more articles in the future on such agents of change. Check back tomorrow actually for another installment of the series.

Here are the top 3 posts over the last seven days.

  1. Vinay’s interview with TC-I Changemaker Kal Raman of GlobalScholar earned the top spot this week.
  2. Also written by Vinay, a post on GE’s new portable and affordable EKG for rural populations came in second.
  3. Finally, Prerna’s op-ed on whether or not SKS Microfinance should go public placed third.

Highlighted Jobs, Internships and Opportunities

  1. Oxfam’s job openings that we posted about a month back has received renewed attention.
  2. A similar resurgence was enjoyed by our posting of Source For Change’s internship opening.
  3. Finally, Deshpande Foundation’s Fellowship in NW Karnataka is still open for applications.

Reaching into the Archives

Building off of the highlighted post last week, which was written by Prerna, this week we will feature Shital’s very first post as a TC-I editor which spoke to the linkage between migration and remittances.

Op-Ed: Should SKS Microfinance go Public?

A recent article on www.sramanamitra.com postulates that SKS Microfinance, which offers “several microfinance options to the poor in India for a variety of businesses from agriculture and livestock purchase to basket weaving and photography,” and has to date “provided over $550 million in microcredit,” will most likely follow Compartamos’ model and go public. According to CEO Vikram Akula and CFO S. Dilliraj, plans for growth in the upcoming years include the following:

By the end of 2008, SKS plans to add 770 new branches to its existing 696 branches to increase its members from the present 1.8 million to 4.2 million and the gross disbursement from Rs 1,200 crore to Rs 5,000 crore. Their aim is to reach 5 million families by 2010.

However, for MFIs like SKS Microfinance, the question of going public is taking place against a fractious backdrop, as debates brew furiously between microfinance gurus such as the founder of the Grameen Bank, Muhammad Yunus, and co-founders of Compartamos, Carlos Danel and Carlos Labarthe, who have been vilified by critics as “pawnbrokers” due to a recent public offering of their former NGO.

According to a recent article from the NY Times entitled, “Microfinance’s Success Sets Off a Debate in Mexico,” at the crux of the debate lies the extent to which MFIs should contribute interest income towards profits (rather than cycling profits back into the organization for the benefit of their borrowers), and to what extent accountability to investors, rather than the borrowers themselves, impacts the fundamental premise of microfinance – poverty alleviation:

Microfinance started in the 1970s with a focus on using this breakthrough to help end poverty,” said Sam Daley-Harris, director of the Microcredit Summit Campaign, a nonprofit endeavor that promotes microfinance for families earning less than $1 a day. “Now it is in great danger of being how well the investors and the microfinance institutions are doing and not about ending poverty.” He said the situation posed the danger of “mission drift.”

Even though both sides agree on the need for the sustainable infusion of capital (consider this in the following context – “Deutsche Bank estimates the global demand for microfinance loans at about $250 million, 10 times the amount that has been lent out”), the question comes down to this: at what cost? Critics argue that the model adopted by Compartamos comes at a grossly high cost for its borrowers, skewing the mission of MFIs in favour of the investors rather than the interests of the borrowers themselves, which, in the case of Compartamos, has resulted in disproportionately high interest rates (read more after the break): Continue reading