This Saturday, the monsoon started in Chennai, which meant holding the umbrella horizontally to try to avoid the spray from the cars on the hectic roads, scrambling to pick everything up off the floor when the guesthouse started to flood, and dealing with frequent power cuts.
After working with IRCS for a month and conversing with a few other microfinance organizations in Bangalore and Chennai, here are a couple of trends I have found:
-More emphasis on group lending
MFIs issue Joint Liability Group (JLG) loans, which basically mean that the loan is given to several people and that members of this group are responsible for pitching in to cover a default. These loans are generally more effective with women, who have higher repayment rates. This marks a contrast from in Peru, where the emphasis is on individual lending because the culture does not promote as much shared accountability within communities.
-Shift toward a for-profit model
IFMR is a revenue-generating company and raises its own capital from well-funded investors. Nikhil and I both expected more emphasis on the social impact aspect of microfinance when we began our internship, but IFMR positions itself as a traditional financial services firm. Today, Indian MFIs are becoming profit-conscious in order to scale and provide services to the mass population.
-More provision of insurance
Loaning to low-income customers without a credit history is very risky. IFMR tries to minimize this risk by conducting a survey of each family’s situation, which provides income and expenditure projections. Based on this, IFMR can recommend a selection of loan and insurance products that will allow the family to meet their financial commitments. By supplementing loans with insurance, IFMR is protected in the case, for instance, that an animal dies or a crop fails.
It is very interesting to gain a different perspective on improving financial access in rural communities. In Huancayo, Peru, I worked on the ground, educating and evaluating loan applicants, while in Chennai, my work is mostly in the office – compiling sections of the annual report, creating graphs and pivot tables in Excel, building credit risk forecasts, and working on information memoranda to send to potential lenders and investors. Although it is hard to see the big picture of a company with $100 million in assets in comparison to the $10,000 portfolio I am operating in Peru, IFMR’s model is very pioneering and innovative – and it will be exciting to follow the company’s future growth.