Micro-finance: Chennai unit shows the way

The good thing about the increasing interest in micro-finance is that many practitioners are feeling the need for hard facts on impact assessment.

While disbursement figures earlier did not merit spends on research and surveys, big growths (albeit on a low base) in disbursements are making both micro-finance organisations and the banks that are lending to them (primarily private sector banks and foreign banks) look for ways to measure what their money is doing.

While India can learn from the micro-finance experiences of many developing countries, its size and the nationalised banking environment for years make such learning have limited significance.

On the other hand, the experiments in India, or the rapid strides we are taking in the area of micro-finance can be of tremendous interest to other countries. But in the micro-finance sector in India, the documentation of experiments and successes is of recent origin. But increasingly, bankers, donors, researchers are bringing about a change.

Earlier in the month I had an opportunity to visit the Centre for Micro-finance Research (CMFR), which is housed in Chennai's Institute for Financial Management and Research (IFMR). The centre has been funded by ICICI Bank, which, in keeping with its increasing stake in the sector, felt the need for such an institution.

What the CMFR hopes to do is to be the ground resource for researchers across the globe, studying relationships between financing the poor and its social impact. The advantage is that these researchers can use live data from any micro-finance organisation that ICICI Bank has funded.

Since ICICI Bank is already working with over 55 micro-finance organisations, researchers would have diverse projects and regions to choose from.

There is also a possibility that the research organisation that has its primary base in Africa, Microsave, and which has been trying to set up its India base for a while now, may also be housed at the IFMR and work specifically on capacity building for the entire sector. Microsave's years of experience, together with ICICI Bank's reach in India, should be able to ensure that this effort achieves all that it has set out to.

The kind of research projects the CMFR is working on gives an indication of the range.

In collaboration with Gram Vikas (an NGO working in Orissa) and professors from MIT, US, the centre is examining the impact of improved chulhas on the health of women and children. By randomly distributing these chulhas to some households, the survey will seek to estimate the impact on women's health and fuel efficiency vis-à-vis households which have not been given the improved version of the chulhas.

In collaboration with MIT and Spandana, a micro-finance organisation based in Guntur, Andhra Pradesh, the centre will evaluate the economic and social impact of the urban micro-finance programme of Spandana in Hyderabad. The study will have a sample size of 100 slums (20 households in each selected randomly) and the time frame between the baseline and the final survey one year.

In partnership with ICICI Lombard, GIC and Grameen Koota, a micro-finance organisation, the centre will assess the impact of a health insurance scheme in a few talukas of Karnataka. The study involves a random sample drawn from clients of Grameen Koota, with or without access to the health insurance scheme. The objective is to assess the economic impact (savings, consumption, borrowings and labour supply) and the behavioral changes (risk taking and preventive health behaviour, and usage of healthcare services) that health insurance brings about in poor households. The study will also examine factors that influence households' decision to buy health insurance, focusing on awareness, vulnerability and importantly ease of buying.

In partnership with SEWA Bank, the Centre will seek to gain insights into the investment and borrowing behaviour of micro-finance clients. Historical loan account data and repeat loan cycles will be analysed to observe trends in client behaviour. In seeking to identify factors--including health challenges, marriages, or closures of business--that cause clients to delay payments or drop out of programmes, the research will provide insights into drivers of default.

Village internet kiosks, which of late have proliferated for services including health, education, e-governance, or financial services, are typically run by entrepreneurs. The centre has initiated a project to appreciate the impact of these kiosks as well as the differential performance of these kiosks which are entrepreneur-related. The results are expected to provide insights into the selection of kiosk operators as well as design of effective kiosk finance schemes.

While these are a few of the studies that the centre has started, there are many more in the pipeline as the Centre is open to examining research ideas from micro-finance organisations as well as banks.

The survey results will be available in the public domain. These would be a welcome addition to the limited documentation that currently ails the micro-finance sector in India.