Arvind Ashta

Does Microfinance Cause or Reduce Suicides? Policy Recommendations for Reducing Borrower Stress

At a time when suicides by microfinance borrowers in Andhra Pradesh are extensively discussed, this paper makes an initial tentative exploration into the impact of microfinance on suicides. Does MF reduce or increase suicides? Data limitations imply methodological limitations and provisional conclusions. The literature review, starting with Emile Durkheim, of research on suicides brings out the importance of psychological factors, divorce, and unemployment. We investigate time series data on suicides in India and find a just significantly positive correlation with male suicide rates and slightly negative correlations (not significant) with female suicide rates – but no relation between microfinance and total suicides. Cross-sectional data of Indian states indicates a significant positive correlation of total suicides with number of SHGs loans outstanding to Banks, higher than with microfinance loans provided by MFIs, which only shows a weak correlation. Going beyond India, a global country-wise analysis indicates that there is no correlation between microfinance and male or female suicides, yet regression analysis of 31 countries (weakly) indicates that microfinance penetration among the poor is a causal factor for increased suicides. Three related questions are discussed. First, do rapid growth and sustainability aims make MFis forget the human angle? Second, is social pressure necessary to make people repay? Third, if Microfinance increases suicides, is this impact to be differentiated between women and men possibly due to changing roles? Based on these, we tentatively propose policy recommendations.

To whom should we be fair? Ethical issues in Balancing Stakeholder Interests from Banco Compartamos Case Study

In the world of microfinance, interest rate ethics is an important issue, thrown into the limelight by the Initial Public Offering of Compartamos which resulted in millions of dollars of gains, some of which found their way into private pockets. These high gains were based on high interest rates, raising ethical questions. The paper then uses a stakeholder analysis to explain the interests of different stakeholders in this case and present that fairness to one group of stakeholders is often at the expense of another group. We take the position that in this case, specifically, the firm objectives could have been met without such ethical trade-offs. The specifics of the case are then generalised to all NGOs participating in for-profit firms.

Co-Creation for Impact Investment in Microfinance

The boom of microfinance and its high profits in emerging countries has raised interest in this sector of investors in developed countries. The question to be addressed is how venture capital will help this MFI scale its business and profits? Can developed country investors, facing a lack of profitable investment opportunities in the wake of the financial crisis, marry their business acumen with social responsibility towards the poor? The paper uses a case study of Riskebiz, a venture capital fund that is investing in the microfinance sector. Microfinance is a tool, among others, in development and poverty alleviation. The value of the tool is enhanced if technology and technical services are provided to the MFI as well as to the poor entrepreneur. The case illustrates that the poor are not only requiring microcredit, but also micropayments and microinsurance, as well as health check-ups. A team of complimentary partners who can standardize and deliver these services could be very useful to provide a rich experience to the customer to co-create value, growth, new revenue opportunities and new delivery opportunities to the MFI. Donors and social investors who do not have specific knowledge of emerging country markets should consider such issues before investing in microfinance funds. The receiving MFI should also try to partner with VCs who can provide the required advice.

Evolution of Mobile Banking Regulations: A Case Study on Legislator's Behavior

Legislation takes place slowly and incrementally, much like evolution. Ideas in one field get transferred to others. New mutations and new fusions take place with apparently dissimilar partners creating a need for other adaptations. Such a fusion is now occurring between the banking industry and the telecommunication industry, creating a concept called mobile banking, which would enable transaction cost reduction and increase in outreach to enable poor unbanked people to access micro financial services. This fusion is necessitating a change in the regulatory environment to accommodate and adapt to this fusion. This paper studies the evolution of the mobile banking regulations in five zones (Kenya, South Africa, Philippines, India and European Union) in different stages of economic development and offers possible reasons for such differing evolutions. Future research directions are also indicated.

Dialectic evolution through the social innovation process: from microcredit to microfinance

Microfinance is the provision of financial services to the financially excluded, usually the poor. We use literature reviews and descriptive research to present different aspects of the relationship of the microfinancial services to microenterprise. The first thrust in this field had been from microcredit and group lending to encourage business initiatives among the poor. The hope that these services would lift them out of poverty had largely built the brand image of the sector. However, the spread of consumer microcredit and uncontrolled growth of microfinance led to over-lending without adequate checks and balances, leading to over-indebtedness and associated stress, and critique of microcredit. To restore balance, other financial products, such as microequity, microsavings, microinsurance, microguarantees, and microremittances, have been suggested. We place these developments in a social innovation process perspective by showing that microfinance, through its wide range of innovatively distributed products, can be a key factor to foster entrepreneurship.JELL26, O16, O17, O30

Corporate Social Responsibility in the Dynamic Information Age of Inter-Systems Connectivity

The Information Age, with its new technologies, is accompanied by an accelerating shift in work relations, of which this article focuses on connectivity, interdependence and dynamism. Along with this change in relations, new ethical cultures and responsibilities are evolving at different levels: individual, corporate, governmental, NGO, and global. This article zooms in on theoretical developments related to Corporate Social Responsibility to see how they have evolved to adapt to the new mode of inter-dependent connectivity in a dynamic environment of changing relationships. The article proposes that, by and large, corporate-centric theories are giving way to person-centric theories. The limitations and contradictions of this evolutionary view and theories are also presented.

Hinduism and microcredit

Purpose – The purpose of this paper is to show that the microfinance industry practices can benefit from the culture and spiritual traditions of a country. Design/methodology/approach – The authors use the Bhagavad Gita and the codes of Manu and Kautilya to describe the background of Hindu teaching and practical wisdom. The authors use a case study of a Hindu microfinance institution (MFI). Findings – The authors find that Indian spirituality is a case-based application of learning through experience. Research limitations/implications – The case used in this study is one of a religious organization led MFI. It would be interesting to have follow up case studies of for-profit organizations and study their philosophy and links to spiritual traditions. Practical implications – The authors find that business in general, and MFIs in particular, should adopt risk-based pricing. The specificities of each product, its delivery and price should be based on continuous learning from experience of helping customers. ...

A Minimum Wage Solution to Halving World Poverty by 2015: A Stakeholder Approach

The UNDP has set Millennium Goals which include the halving of world poverty by 2015. This can be viewed in the light of enlightened self interest, including noneconomic interest, within the above view. This was translated into reducing by half the number of people living in abject poverty. We examine some existing poverty reduction solutions which are being experimented with, including aid (with central planning with participatory development), property rights, education, microfinance, bottom of the pyramid inclusion, and public sector employment, and find that these have been inadequate to the task, even conjointly. We add a minimum wage based solution.

Is SaaS the Appropriate Technology for Microfinance

Microfinance, the provision of financial services to poor people, suffers from high interest rates owing to high transaction costs. Within these transaction costs, technologies such as MIS may be a solution to lower operating costs. However, the small size of most MFIs makes software seem expensive and the MIS providers are many and the offer is rather opaque to MFIs who cannot distinguish between the offers. At the same time, the specificities of the microfinance sector and its large diversity require high degree of support from MIS suppliers. Shared infrastructure solution such as Software as a Service (SaaS) may be a possible solution to bring down costs and remove uncertainties. The sharing of infrastructure costs comes from a gap analysis which indicates that software providers would like to receive high margins and provide low support to a few customers. As opposed to this, the long tail of small MFIs would like to buy cheap products and get volunteer support for their products. The Software as a Service (SaaS) provider becomes an intermediary who enables both of these opposite needs to be addressed. Essentially, the SaaS provider uses a software solution which they host in the cloud. The MFIs use this paid on a pricing model such as number of transactions, accounts or customers. The paper provides technical detail of how SaaS will operate in an international microfinance setting with its unique problems mentioned earlier. To overcome many of the problems a hybrid SaaS solution is proposed. Case studies (MicroPlanet Technoloiges, IBM , FINO and MOSTFIT) illustrate the mechanics of this partnership between MIS and Microfinance. The paper deals will questions such as under what conditions SaaS is appropriate partner for MFIs, the difficulties of implementation and needs of tailor made solutions.

The Role of Stakeholders in the Historical Evolution of Microfinance in Togo

ABSTRACT The paper traces the evolution of The Microfinance Sector of Togo over the half century from its independence in 1960 to 2010. The methodology uses oral histories, consisting of a round table discussion with heads of Microfinance Institutions as well as regulatory, supervisory and financing institutions and academics, followed by semi-structured individual interviews. We compare their diverse perspectives with the few archives and data that exist. We find seven stages in the development of microfinance from an unorganized sector consisting of tontines and usurious money-lenders in the 1960s to a considerably organized sector dominated by credit unions (COOPECs) and NGOs. The unorganized sector continues to play a role and the regulatory authority intervenes to protect the masses from unscrupulous and inefficient operators.