Current events
From MIT INDIA READING GROUP
Contents |
Fiftieth Meeting
When and Where
Date: 20th Nov 2009
Time: 7pm
Venue:
Agenda: Group Dinner -
- Summarize the learnings from this semester (Anna)
- Come up with list of questions based on our discussions this semester (Group)
I am trying to see if we can invite an expert in this field to one of our meetings next month. It would be great to have our questions answered by an expert! I am going to write to the authors of the reading for last week (the MIT poverty action lab paper). Any suggestions on who else we can invite would be much appreciated!
- Decide on next steps (Group)
-Agenda for December meetings -IAP plans
- This dinner would also be a celebration of MIT India Reading Group’s 50th meeting!!
Forty Ninth Meeting
When and Where
Date: 7th Nov 2009
Time: 4pm
Venue: 1-132
Discussion leader : Aruna
Agenda: Impact of Microfinance on Poverty Alleviation
Reading: Required: Does microlending actually fight poverty; Boston Globe; September 20, 2009 http://www.boston.com/bostonglobe/ideas/articles/2009/09/20/small_change_does_microlending_actually_fight_poverty/?page=full
Optional: The miracle of microfinance? Evidence from a randomized evaluation http://povertyactionlab.org/papers/102_Duflo_Spandana_Microlending.pdf
Presentation: Impact of Microfinance
Participants: Deepak, Kaustuv, Meetu, Aimie, Kendra, Siddharth, Runal, Aruna, Anna
Notes:
1. Some highlights of the experiment methodology
- MIT Poverty Action lab partnered with Spandana (a major player in for-profit microfinance) to conduct randomized field experiment where the ‘treatment’ and ‘control’ group differed in access of microfinance. “Treatment” group had access to microfinance from Spandana and control group did not.
- The households in the ‘treatment’ group had to meet these criteria: no pre-existing microfinance presence, “upper” poor, fewer construction workers (to ensure stability)
- An important point to keep in mind is that Spandana only lends money to women and don’t have conditions on the use of money i.e. borrowers can spend the money as they like (unlike SKS that requires the money to be only spent on business related expenses)
2. Results
2.1 Impact on poverty
- those who already had business: increased borrowing; increased durable expenditure & profit
- those without business but high propensity of having one: cut back on spending (probably to save for durable assets?); decreased temptation goods spending.
Note: The propensity to start a business was based on education levels, amount of land owned, whether women in the household worked for wage etc. There was discussion around if “propensity” to start business was judged by some level of economic status, but there was no proof in the paper.
- those without business and low propensity of having one: increased nondurable and temptation spending. The attendees discussed whether increase in temptation goods spending reflects a negative impact of microfinance on this class of people. Some suggested that with access to microfinance these people might transition to the category of “high propensity to start business”, and so this is just a transitionary phase and not necessarily a negative impact. Longer observation periods are required to prove this.
2.2 Other Impacts
- Women Empowerment
Despite the policy of lending only to women in the household, the study showed that decision-making role of women did not improve. It was mainly the male entrepreneurs who seemed to be profiting. These results could be due to the noisy survey results, the attendees felt it would be helpful to see the questions on the survey.
- No impact on children’s health or education. But, this could be because the households selected here were not particularly worse off; also the experiment was over too short a time to make conclusions statements.
3. Why the results might be noisy
- Financial gains only measured by income/spending (not by savings or assets)
- Time frame of measurement is too short (less than 2 years), and gains from microcredit might be realized on longer time horizons.
- “Control” group could not borrow from Spandana, but had access to credit from other MFIs, thus the experiment might not be measuring the true benefits of access of microcredit. But, this might not be a concern as “treatment” group also had access to other MFIs.
Forty Eighth Meeting
When and Where
Date: 24th Oct 2009
Time: 4pm
Venue: 4-253
Discussion leader : Vijay
Agenda: Case Study - Grameen Bank
Reading: please read the Nobel Peace Prize lecture by Muhammad Yunus
http://nobelprize.org/nobel_prizes/peace/laureates/2006/yunus-lecture-en.html
Presentation: Grameen Bank
Participants: Sharad (Vijay’s roommate), Nitin, Mrinal, Venkat, Vijay, Anna, Aruna, Deepak, Karthik, Tom and Dave (Vijay’s lab mates)
Notes:
1. Differences between the For-Profit (SKS) and Not-for-Profit (Grameen) model
- Different Target Groups
While SKS targets the upper poor, Grameen reaches out to the lower poor too. In fact, they have a separate program for Struggling Members (e.g. beggars).
- Group Liability
Once a group of individuals get a loan from SKS, the group absolutely has to repay the loan, whether they split this repayment equally or some members bear disproportionate burden of the repayment. On the other hand, Grameen doesn’t place any liability on the group of individuals that they loan out to- so if one individual defaults, the rest of the group does not suffer.
While both models lend money to ‘group’ of individuals, there was discussion that since not-for-profits like Grameen do not place group liability then what does the group lending based on? What is the point of lending to a group when there is no concept of group liability. Some thoughts were that group model would lead to more subtle peer pressure and accountability.
- More points
Also, since Grameen operates as a bank, they help poor people to accumulate savings in the process of taking out loans and starting their own businesses (SKS didn’t offer savings products).
This being said, a for-profit has the advantage of scale and efficiency. Since they are driven by a growth imperative, they expand widely and rapidly in a way that a non-profit model might not.
Ultimately, this distinction between for-profit and not-for-profit might be trivial. A more relevant distinction to think about is that between financially-sustainable and non-financially-sustainable microfinance initiatives.
2. Advantages of the Not-For-Profit Model
In some ways, Grameen seems like a bank that works better than a regular bank! But there are some key differences that enable this: first, they are non-profit. Second, they don’t have corporate executives and the related principal agent problems (note that this could also be a drawback since corporate executives come with experience on business development and management). Third, the advice their borrowers on how they should invest their money. Fourth, the dividends that they pay out go to the members (“borrowers”) as opposed to private investors, even if this sum is meager.
Forty Seventh Meeting
When and Where
Date: 10th Oct 2009
Time: 4pm
Venue: 4-253
Discussion leader : Nitin
Agenda: Case Study - SKS Microfinance
Presentation: Available on request (email: annaag[at]mit[dot]edu)
Development through Enterprise: Presentation and MIT resources; E4SI resources
Participants: Kaustuv, Vinithra, Vijay, Anna, Aruna, Mrinal, Nitin, Mukul, Chris, Deb, Anjuli
Meeting Notes: (main contributions by Anjuli and Aruna)
General Microfinance discussion
1. Difference between the For-Profit and Non-Profit model
The main difference is that the for profit model “owns the channel”. They provide a means to reach the bottom of the pyramid. Then products like insurance, lamps etc. can be made available to them. In the non-profit model, self help groups are formed and the lender directly gives money to a group of borrowers. This is not scalable. On the other hand, in the for profit model, the companies (4 big players, beyond that it is extremely fragmented) develop routines and try to maximize the efficiency of these routines. For example, 1 individual is responsible for about 70 clients and the loan process is structured so that the groups of 5 people who are borrowing have already met, picked a leader etc. so that when the loan officer arrives, the processes run very smoothly. The profit margin here is 3%. The main costs in the for profit model is setting up branches and paying salaries to employees. NOTE: Private equity firms invest in microfinance companies purely for return. Also note, that for-profit microfinance companies are NOT banks- therefore, they do not collect deposits or help people build savings.
2. Drawback of For-Profit Model
Microfinance is not translated into microconsulting, which is what it should be. No advice is given to loan recipients about how they should run their business and improve sales etc. The government role is nil, which could be a good or bad thing.
3. Concept of Informal credit score
Loan officers pick recipients of microfinance loans based on their assets before they receive the loan. They serve as an indicator of whether the person is prepared to start their own business and how committed they are to this endeavor.
4. Penetration of Microfinance
Many states are now penetrated by microfinance: AP, Karnataka, West Bengal, Rajasthan, even UP. However, there are some parts of the northeast that have not been touched by microfinance. The South seems to have been targeted first for microfinance. This is made this region most attractive for newer entrants into the market too. For example, AP and Karnataka are now saturated with 4-5 big microfinance players operating here. On the other hand, regions like the North East haven’t been touched. Why has the South been popular? One explanation is that people here are more homogenous.
5. Major microfinance organizations / good models
- Spandana
- Share Microfin
- Ujjivan
- Accion International
- Swadhaar
- Microfinance Gateway (run by CGAP)
SKS Microfinance Specific Discussion
1. Overarching visions of for-profit Microfinance companies SKS’s vision is to raise the most capital to as many people as fast as possible. They launched themselves in 1997 and the goal was to develop a financially sustainable model. They implemented this in two parts, with a mainstream lending mission to the “upper poor” and education for the “lower poor” (to help them transition to the upper poor). Note, that SKS functioned as a non-profit till 2005.
The breakup into upper and lower poor is depending on the individual’s readiness for microfinance. Upper poor typically have some assets and so it is more likely that any credit given will be used for business opportunity. Whereas lower poor are striving to meet basic subsistence requirements and additional credit might not be used towards business.
2. SKS sees three constraints for scaling microfinance and has a way to address each:
- Capital: use a profitable business model to access commercial capital
- Capacity: use a scalable process from the business world
- Costs: use technology to automate / reduce transaction costs
3. Notes on the microfinance business model employed by SKS:
- Each branch serves a 25km radius
- Each loan officer sees 500-700 clients
- Each village meeting with each loan officer lasts 40 minutes
- Average loan officer salary is Rs. 5,000 / month (a little less than a Delhi taxi driver)
Thoughts for future discussions
- What other businesses could potentially be built off of a platform like SKS?
- What are the ethical implications of scaling so quickly? How could SKS measure the good that it is doing?
- What are the ethical implications of marking up credit rates for the poor such that they are attractive to the "greediest" of private sector investors?
- What about savings products? Why is that so tricky to provide?
Forty Sixth Meeting
When and Where
Date: 24th Sept 2009
Time: 7pm to 8:30pm
Venue: 4-253
Discussion leader : Kaustuv
Agenda: Microfinance
Reading: Please read the introduction (first 4 pages) of this paper http://www.nyu.edu/projects/morduch/documents/microfinance/Microfinance_Promise.pdf
Presentation: Microfinance
Participants: Chaitanya, Aruna, Anna, Kaustuv, Mukul, Vijay, Namita (Harvard Law), Ankur, Srikanth
Notes:
Main Points of Discussion
-*Mechanisms of Microfinance*
Microfinance is more than giving credit to the poor. It also encompasses the process in which the poor start building savings in the long-term.
- *Actors*
Questions arose whether the financial institutions (particularly banks like ICICI) penetrate into new markets or just tap into rural/poor markets that have already proven to be successful (e.g. SHGs), whether they are for-profit or non-profit.
- *Agents*
Who are the agents who sustain microfinance initiatives? This might be self-help groups, which are mostly staffed by women. Why are women key? Suggestions were that women are more responsible, have stronger ties with one another, and are unlikely to give into gambling and liquor.
- *Penalty that poor pay for being poor*
We see this in the fact that goods cost more for the poor than the rich. In addition to the reasons outlined in the presentation, the group suggested high opportunity costs and illiteracy as possible causes for this phenomenon.
- Discussion on whether illiteracy is a barrier to technology
(specifically, the discussion was around whether ITC e-Choupal would have been bigger had literacy levels been higher)
- *Existing institutions*
Did microfinance take off because the existing institutions were ineffective? Specifically, the example discussed was agricultural credit programs and whether this is correlated with farmer suicide rates. Also, as shown in the presentation, microfinance institutions are part of an infrastructure of institutions from policy, government, down to the village level: questions arose about whether these institutions are functional or not?
- Next steps**
Group wants to understand the business model of MFIs. Before looking at this from a theoretical perspective, it would be better to look at some case studies. It was decided to look at – SKS and Grameen.
Forty Fifth Meeting
When and Where
Date: 12th Sept 2009
Time: 6:30pm to 8pm
Venue: 1-150
Discussion leader : Anna
Agenda: Social Entrepreneurship in India - Introduction and Challenges
Reading: Wikipedia article http://en.wikipedia.org/wiki/Social_entrepreneurship
Presentation: Social Entrepreneurship in India
Participants: Aruna, Venkat, Leonid, Chaitanya, Kaustuv, Aditya, Ankur, Himanshu, Vaibhav, Anna
Notes:
1. Potential SE projects (Kaustuv):
- electric vehicles in India
- industrialization of food network
2. World Bank
- it is accessible? Can we get help/funding from WB for future projects
- do they work only with government?
3. Corporate Social Responsibility
- do they work only for profit?
- how much of that is for social causes and how much for image?
4. Definition of Social Business
Some discussion on what is the definition and scope of SB
Linkages between social groups (voluntary) and business Vs Sole business working for a social cause
The definition could be expanded to include different organizational forms
5. Some examples of social businesses?
- invite MBA student who worked for SKS Microfinance-Nitin
- e-Choupal
Maybe spend a couple of sessions on case studies?
6. Microfinance
-don’t need credit history
-connects to macro level economy
-what are the transaction costs involved?
Is AP most active in microfinance? Why?
7. Plan for next session
Analyze microfinance as developmental idea- How does it enable people whose labor was unproductive earlier? Why was it a success?
Other paths in microfinance
Will give better idea of social entrepreneurship
Kaustuv will do 101 of microfinance next time
Forty Fourth Meeting
When and Where
Date: 20th October 2007
Time: 4-5 pm
Venue: 1-150
Discussion leader : Anna
Agenda: Burden of indoor air pollution and the best clean technologies in practice. Brainstorming for the IDEAS competetion.
Reading: (very short text, recommended to read before the meeting) World Health Organization. (2006). Fuel for Life: Household Energy and Health.
http://www.who.int/indoorair/publications/fuelforlife.pdf
Presentation: Indoor Air Pollution and Household Energy in Developing Countries
Participants: Anna, James, Connie, Elisabeth, Rohit, Chintan
Notes: Three billion of the poorest people rely on biomass or solid fuels for energy needs such as cooking and heating water. It results in severe indoor air pollution that kills about 1.6 M people worldwide (2002, WHO). Diseases include acute respiratory tract infections and asthma (children), lung cancer, cataract, tuberculosis, low birth weight, etc. Interventions include better ventilation, better stoves, alternate fuels, energy efficient housing, drying fuels, using pot lids, etc. China implemented a national improved stoves program that was a big success as it was decentralized, developed local production and markets. Africa and Sri Lanka have similar success stories. In India, 33 million improved stoves have been distributed from 1983-, but they account for only 7 % of the stoves. Moving to cleaner fuels needs a financial incentive, since biomass has no cost associated with it. Moreover, some of the poorest people make a living by selling this biomass. Another area where indoor air pollution is significant is in industries with poor workers where enough attention is not paid to worker's health. Interventions need to be low-cost, practical, and not require social change.
Forty Third Meeting
When and Where
Date: 11th October 2007 (Thursday)
Time: 7pm
Venue: 1-150
Discussion leader : Lavanya
Agenda: National Rural Health Mission (NRHM).
Proceedings: Meeting Notes, Presentation
Forty Second Meeting
When and Where
Date: 22nd September 2007
Time: 7pm
Venue: 1-150
Discussion leader : Anna
Agenda: MIT India Reading Group: Recap of the summer and agenda for the next semester.
Proceedings: Introduction to the India Reading Group, Summary of the meetings on Public Health over the summer
Forty first Meeting
When and Where
Date: 7th September 2007
Time: 7pm
Venue: 1-150
Discussion leader : Rohit
Agenda: MIT India Reading Group: Where we are and where do we go?, Electing new Leadership.
Participants: Anup, Mihir, Ajay, Anna, Lavanya, Rohit, Varun (skype)
Proceedings: Meeting Notes - MIRG future directions
Fortieth Meeting
When and Where
Date: 25th August 2007
Time: 7pm
Venue: 1-150
Discussion leader : Mythili
Participants: Rohit, Mythili, Lavanya, Srinivas, Chintan, Anna
Agenda: Malnutrition among children in India
Readings: India’s Undernourished Children: A Call for Reform and Action, World Bank's Human Development Network
Presentation: Malnutrition in India
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