Microfinance Focus, December 28, 2010: Microfinance Focus recently floated an open discussion on LinkedIn to gauge industry perspective on – ‘What are the Crisis Management Measures microfinance institutions should take to sustain and keep going in turbulence time’. The discussion received a fervent response from microfinance stakeholders including practitioners, advisors and funders. Edited excerpts of their recommendations:

Brahmanand Hegde, Founder-Director at Vistaar Livelihood Finance, Mumbai

MFIs work with mass market where the interest of other stake holders is high. Therefore, crisis management needs to have two parts. One is internal to MFI in terms of transparency, governance, products, tech architecture, MIS, cash flow management etc. But, I feel, likely danger/crisis going forward is from external stakeholders. This could be managed better through being transparent, value adding and taking other stakeholders into confidence. Above all stronger bonding with customer is key for long term sustainability.

Saswati Mahapatra, International Database Manager, Haver Analytics and Faculty at Online School of Business at University of Phoenix, New York

If crisis means delinquencies than the answer is more scenario analysis of political effects, contagion affects, local geopolitical events, environmental crisis, and economic effects to ensure capital adequacy. MFIs’ clients seem to be geographically concentrated.

If crisis means bad publicity, then answer is good PR and measurable/sustainable development goals.

I think the microfinance industry, especially in India, have become big a systemic risk. Therefore there is need for good information system within an institution as well as information sharing in the industry.

John Bliek, MF and BDS advisor at NGO, Netherlands

Communication with staff is important, train them on customer relations and review critically your incentive system on different levels. Step back to the basics, which is providing a service to help poor customers.

Niranjan Sheelavant, Social Entrepreneur & Value Added Service Provider, Bengaluru

These are some of the insights gained during a workshop:

• Stop-watch and go. Revisit your Business Plan, moderate your growth and get ready for de-growth phase

• Do a thorough Risk Profiling - territory, portfolio, product, processes, etc.

• Put in place a special cell to monitor risky and problematic portfolio

• Revisit training strategies and invest in HR

• Invest in innovation and experiment in alternative models

• Cut your cost, without any mercy! Start from the top, not from bottom.

• Carryout impact studies to validate explicitly stated goals

• Build core values and ethos of your company

• Shift to other markets

• Move up the value-chain

Ultimately, the last mile is MFI staff, not clients.

Pon Aananth, South Asia watercredit officer at water.org, Tiruchchirappalli

• MFIs should follow organic growth and ensure that quality brings growth and not the other way.

• Revisit the client relationship - MFIs should identify ways, which will strengthen MFIs and clients relationship.

• MFIs should diversify its product offerings and allow standardized loans products should go

• CGT - should talk more about the MFIs social mission and similar other stuffs than loan products, ROI etc..,

Ascanio Graziosi, Founder, CDB Microfinance

In our opinion problems are about who - the practitioners who sanctioned unsustainable credit - and how - the credit model adopted.

In the common language, microfinance means everything and the opposite of it. However microfinance practitioners shouldn’t take advantage of an ordinary mystification. In other words, the mixture between commercial and social hasn’t been well balanced.

This means that practitioners have to revise the way of doing business and credit models should be revised. Above all, at country level it is necessary to translate into practice the "Core Principles for Microfinance Industry" approved last November in Seoul by G20 Group within the frame of Basel III regulations.

Chandan Batsayan, Associate Regional Manager-Rural Business at ICICI Prudential Life Insurance, New Delhi

In addition to what has been stated by esteemed members, I think the present crisis requires an MFI to develop a comprehensive framework for stakeholder's management. An enterprise can remain an ongoing concern only if it serves the interest of its constituents in fair and transparent manner. Hence it is equally important for an MFI to focus on the followings,

• Corporate governance: Transparent and ethical conduct must be the cornerstone of an enterprise in general and social enterprise in particular. Most of the Indian MFIs are still individual-centric and hence there is a natural tendency amongst the management to fall in line with the individual than of being system and process driven.

• Missionary approach: MFIs need to understand the critical mission they have set out to achieve. Any drift into it is going to meet with the kind of knee-jerk reaction we are witnessing today in AP.

In a nutshell, profit is good but an inexplicable act of profiteering will prove counterproductive.

Ramakrishnan Venkateswaran, Co-founder & Director M Power Micro Finance Pvt. Ltd, Mumbai

There is a famous Chinese curse "Let there be interesting times". The one who used the quote meant that the other person faces interesting times i.e., Crisis. However, the more enterprising of the Chinese took this as a positive comment and took the challenges head on. They were rather prepared for such events before hand and then came out trumps. Another Chinese interpretation of the word "Crisis" is that it has two sides, one meaning "Danger" and the other meaning "Opportunity".

In the present context, the MFIs should consider both the sides and be ready. They need to measure the Danger and be ready to face such situations time and again. It is but natural to expect these situations (The A.P like situations) to re-visit in many forms and many times again. This is an Opportunity because they are required to re-visit their models and work towards making robust organizations. There is no opportune time than the current period. They cannot make an organization robust without getting the trust of the Fulcrum of the Crisis i.e., the customer. If they are able to do this then there would be more interesting times one which is generally positive.

Mohsin Ahmed, Chief Executive Officer at Pakistan Microfinance Network, Pakistan

As is see it, we need to segment this in terms of kind of crisis. If this is the credit risk and it is spreading out at the industry level then the most important things to do are:

1. Acknowledge that there is a crisis - acknowledgement should be both by the MFIs affected and of the causes (especially if these are internal to organization or industry)

2. All MFIs need to come under the umbrella of their national network/association and decide on how to tackle this issue - one way of doing this is to give clear cut message that defaulters will not be lent by the sector unless he/she clears the loans; we can also decide to take a few defaulters to task by taking them to courts and sending out a clear message that we mean business.

3. Plan for the next crisis and this mean doing following:

• Accepting mistakes and committing to address them at the MFI and at the industry level

• Setting up of a Credit Bureau and developing lending codes with monitoring and implementation system

• Developing code of conduct for consumer protection and ensuring that a mechanism is put in place to monitor its implementation

• Setting up of a grievance cell - this cell must listen to the complaint of clients and if possible MFIs also

• Revisiting our value proposition (why are we so weak to external pressures; especially given we claim changing lives of the poor)

(Disclaimer: The opinions expressed are solely those of the authors and do not necessarily represent opinion of their organizations. Microfinance Focus does not take any responsibility for correctness of the data presented by contributors)