Kuldip Maity

In all my blogs I have been reiterating the reason for instistutionalising the concept of micro finance that there is a developmental perspective to it and hence the concept of micro finance has social call to respond to. In my last blog I had talked about the concept of double bottomline, about the meaning of responsibility and responsiveness of micro finance institutes and their implications. As a natural extension of the concept of both responsiveness and responsibility I now need to talk about the concept of social collateral and customer engagement and their implication.
In my previous blogs I have talked about joint liability groups. Let me, in this blog, focus on the rationale of social collateral and consequently joint liability groups. The functional onus of the micro finance institutions rest on connecting to the poor through credit lines and yet stay profitable. The job is at this level similar to the commercial lenders.
But commercial lenders extend their credit lines against encashable collaterals. The concept of collateral rose from the realisation of repayment in the event of a failure. The poor do not have any surplus to mortgage – be that in physical or liquid form. Yet credit line in any form needs collateral to support the engagement. So the solution was to look for a functional institution of guarantee for the credit line. The concept of social collateral emerged from this. If a person takes a loan and a group similarly engaged and of similar economic status stand guarantee to the credit line, the group becomes socially responsible for the loan and if the person fails to pay back, the onus of repayment will fall on the group. The concept of collateral rose from the realisation of repayment in the event of a failure.
This was the root of the emergence of the concept of joint liability groups. The credit engagements through the micro finance institutions are with joint liability groups in which the groups bear the repayment onus jointly and severally. But in the case of the poor treating a group as social collateral for a credit line is not enough. While the social responsibility creates a high probability that the members would hold each other responsible for the repayment burden should they together fail due to lack of knowledge in putting money to productive use what will happen then?
This is where the issue of customer engagement takes up paramount importance. The microfinance institutions are also tasked with the responsibility of hand-holding the groups in terms of making them financially aware, teaching them how best to put the credit line to yield a surplus and ride through different cycles of credit into prosperity. One of the tests of the success of a micro finance institutions therefore is the position of NPAs on book in relation to the industry average. It wouldn’t be out of place to say here that VFS carries nearly zero NPA on its book and the credit goes entirely to our team’s dedicated customer engagement in which they are hand-held in their journey by making them aware in the best utilisation of their loans.
The fact that only through creation of effective social collateral and customer engagement can an MFI sustain their double bottomline has etched their ensurance as the golden rule.

The concept of microfinance grew out of the need to alleviate poverty in the countries like Bangladesh and India. The issue was to institute a system that would be a sustainable way of meeting the challenge.
By the seventies of the last century it was abundantly clear that dole in the form of subsidies was not really a solution but an expedient way largely justified by political needs and natural disasters. But the real solution lay in economic empowerment that doles and vanilla subsidies couldn’t provide.
Given the fact that poor by the very circumstances of their station are forced to be enterprising in their life. If that enterprise could be leveraged in a profitable way that also is sustainable, the goal would have been achieved.
The big challenge to assess in this paradigm was of course the issue of fund. Given a hand to mouth existence, where would the poor get the fund from, however little their requirement may be?
If they were to go to the money-lenders their usurious ways would be killing instead of empowering. The financial institutions would require collateral or some guarantee for repayment. The poor didn’t have the network to generate that kind of guarantee. In the absence of any effective ties if someone were to run away with the loan amount the financial institutions will not have any other option but to write that off.
It was in this context the concept of micro finance institutions took root and the concept of first self-help group and then joint-liability group took birth. The concept of repayment onus held severally by a work was thought of as a stand-in for collateral. And it worked.
As we can see, micro finance institutions were created not simply as a vehicle for lending but with a purpose that had a huge socio-economic implication. Because of this microfinance is said to have a double bottom-line -- (a) social commitment to benefitting clients and (b) a financial commitment to operating profitability. This responsibility implies that the task of an MFI doesn’t end at creating loan books. It needs to commit itself to its customers by handholding to make them reap surplus from the business that they have taken loan to start.
The second part flows from the first and they are linked. If the customers don’t make a surplus from their businesses, loan books would soon fill up with NPAs making the MFI concerned an unsustainable operation.
The double bottom-line also implies a responsible delivery of financial services to the poor that involves client protective social performance. The sustainability of the entire chain of MFI operations doesn’t start and end with giving out a loan, making the customer earn surplus and encouraging repayment of the loan. An MFI operation means that the customers through the entire chain operate with awareness and knowledge. MFIs are also tasked with helping them become aware and gather knowledge to survive and sustain their families by permanently taking them out of the grip of poverty.

This is a question that repeatedly keeps popping up in different fora and interactions. This is a question that I cannot answer in one sentence as this has a context and the context is that of preference. Do I prefer women entrepreneur to their male counterparts?
As a social entrepreneur and being male how can I get into a value judgment in a macro perspective? However, within the field that I work in and the mandate I am given I work with joint liability groups (JLGs) and I prefer to work through JLGs formed exclusively of women.
Why? To answer this question let us look into the rationale that describes the role of the MFIs. To survive in poverty requires a huge amount of enterprise as to live from hand to mouth every day requires overcoming challenges of living every moment of life. Therefore to alleviate poverty the best route could be to leverage their enterprise and empower them so that the process becomes self-actuating. Self help groups were an organizational innovation towards this.
It was thought that if groups of say 10 members could be formed with their savings pulled and loans were given to the group for distribution among the members with the pulled savings acting as the collateral, the members could invest the loan in business for reaping profits and initiating a process towards pulling themselves out of poverty.
Till 2004-2005 self-help groups were the focus as a tool to alleviate poverty in India. But it was increasingly being felt that given the requirement of collateral the system had its limitations in reaching out to all the poor. Around 2004-2005 NABARD took the initiative to move through the JLG route.
Poverty alleviation through JLG as a process of self actuating route to fight against the greatest curse of mankind is not just about creating steps to move out of the vicious cycle of deprivation by enabling the poor to generate business surplus. To make it self-sustaining it needs a 3600 empowerment. This empowerment includes education and health for the entire family.
This is the point where women win their primacy. Experientially it is found that women are better in terms of putting money to such use as would optimize the welfare of the family. They are instinctively oriented towards providing for the improvement of the life of the next generation, whereas the role of the menfolk is just restricted to being the bread-winners largely. So if we get to empower women, we empower their entire family. Now that being the goal and the women turning out to be better agents than men, my vote goes to women entrepreneurs because they channel my mandate and mission more efficiently.

Key to success for any company is efficiency. The degree of efficiency with which a company delivers marks it from the others in the same business and therein lies the rub.
The definition of efficiency in most of the companies is seen as a command-delivery relationship. The process of delivery in the sense of how an employee absorbs a specific command and links it to his role in the company does not go beyond lip service by the top brass of the company concerned.
In most of the companies, therefore, efficiency remains a perennial strategic issue that the top management grapples with. This not only bleeds the company in terms of engaging the top management’s precious time in reinventing the wheel, it also creates efficiency gap in a company’s strategy space by squeezing out productive thought time from the top brass of the company concerned.
The proposition here is simple – if a company’s top brass is preoccupied with the issue of efficiency it implies, ipso facto, that the company is inefficient and by further implication falls short of being considered a successful one. While these companies spend hours of cutting the t’s and dotting the i’s in ensuring an efficient work process, the solution actually lies in empowering the employees.
However, empowerment as an HR policy is easier said than implemented. Most of the owners of companies or the top brass entrusted with the work of running of the company concerned apprehend that empowerment may lead to indiscipline. Empirically it has been seen that a company that takes pain in properly empowering its employees not only gains in terms of improved efficiency, it also gets to earn deeper employee loyalty.
How does or should one go about it? Although the management science has struggled to find one rule applicable to all, that may not work. However, it is generally seen that in an organisation if an employee is just given a work goal and told what is expected of him, the process gets to evolve in a democratic dynamics. If there is a predefined structure, likely in an older company, the process-employee mapping happens through the path of least resistance where empowerment is the key word in running of a company.
To sum up, efficiency defined from the perspective of employee performance increases in an empowered environment. This tends to create ownership among the staff that ought to be the single most important objective for HR. Ownership creates loyalty which is a necessary condition for creation of efficiency.