Micro Finance Basics

Well I am back, 4 days of training at the Institute for Finance Management and Research (an Indian college for upper level individuals getting masters and Phd's in all things financial related.)

Biju, the COO and Aju, the Financial Manager, and I the consultant, along with 13 others, a combination of masters students from Stanford and Stockholm university going to volunteer several weeks at Hand in Hand, plus we had as fellow students a good cross section of the industry, including someone from the Reserve Bank of India (the governing body of financial maters in India) and other key players in the finance industry. Networking was a very good aspect of what was taken from the week.

We all enjoyed 18 sessions delving into theory and research about micro finance in all forms. Micro finance is not only lending money, but also savings, insurance, money transfers etc for the client. But it was not all about the front office stuff, most of the sessions delved into backroom thoughts, how to get more capital, how to reduce risk, identify clients, where the industry is going, and examples of different methods with pros and cons.

Most micro lending activity is happening in rural areas, and most do not yet take into account the income cycle of the borrower. For example a loan could be made to buy a water buffalo (a good source of milk here in India) The loan would want repayment each week all year long, even though they do not produce milk for 4 months of the year. Then if all you do is loan for milk producing animals there are two issues, the village will have more milk than it needs, and if there was a disease in the buffalo all the banks loan income could be wiped out (in technical terms that is called High Systematic Risk.) The average family can care for only 4 buffalo before they run out of land and time in the day. After each family has their 4 buffaloes the lender will no longer be needed. A lender should look at lending also for other things, such as fruit and vegetables, small crafts, a refrigeration center for milk, a truck to move milk to nearby cities, cheese making etc etc... Now we are talking Micro-Enterprise development.

One last thought, there is not social security number here in India, no one number identifies a person, as a result many agencies have no true easy way to identify who they work with, from the government on down to the local micro bank. Technology companies are stepping in with fingerprint readers, photo ID cards, etc but currently the average cost is $3 a card and the reading machine is $300, with a need to one or several per village...

This message is getting much too long for your email box. I will stop now and return to editing of the new Growing Opportunity Website, the plan is to have the site up and running by the 14th of the month. This will include a very good description of how we interact with our clients.

Meanwhile if you would like to see pictures from another Growing Opportunity Volunteer the link below will take you to Annemarie's site. please note she is from the Netherlands, her text is in her native language.
http://www.travelmessage.nl/an_met_stip/

The attached picture is a kolam made from a variety of flower petals to celebrate Onam it is about 2 meters in diameter.