Periodical Team meetings of senior staff from which this report originates are critical especially for a young and small organization like NABFINS. The year end, especially when data is collected and consolidated as required by audits and reports, presents a good opportunity to analyse and reflect whether the organization has progressed according to its mandate, to learn from experience, to strategise for the future. This report to which all members of the NABFINS Team have contributed both in writing as well as during the Team meetings, tries to record the outcome of reflections and our experiences and provides a basis to strategise for the near future.
1. Experiences and reflections: What can the NABFINS Team learn from the first full year of operations and from the developments in the micro finance sector in general which generated a great deal of concern? This was the question posed at team meetings. Given that operations really grew during the latter half of 2010, once field staff and basic systems were put in place, the learning is limited and conditioned by the added stress arising from having to balance recruitment, training, growth and developing appropriate systems; but it is nevertheless useful. This over view attempts to share our short experience, the learning that emerged and to humbly request you to provide your comments, suggestions and …yes - criticisms.
The Board of NABARD when it restructured the Karnataka Agriculture Development Finance Company Ltd (KADFC), renaming it NABARD Financial Service Ltd (NABFINS) which was registered in 2008, envisaged the following benchmark principles for the company: i) set standards of governance among the MFIs; ii) operate with exemplary levels of transparency; iii) operate at reasonable / moderate rates of interest and iv) provide a “bundle” of “retail” financial services at door step/ near doorstep.
The first three benchmark principles focus on the Company’s governance, ethics and culture which are critical to keep the organization on track. With remarkable foresight, the NABARD Board sought to warn NABFINS against practices that we now know were mainly responsible for the crisis in the micro finance sector. These practices among others are: i) maximization of profits through aggressive growth; ii) accounting practices like greening and topping up and quick write offs in order to present a healthy looking balance sheet; ii) interest rates which are not affordable by clients - given that the rates of return are not excessive in the agricultural and allied sectors; iii) interest rates and other terms of the loan of which the client is not aware; iv) excessive pressure on clients to take loans – hard sell – resulting in multiple borrowings in order to cope with weekly repayments for all categories of loans. NABFINS has endeavored to respect these benchmark principles and to design its organizational structure and supporting systems to promote them. No doubt we did not measure up to our own expectations in every situation; the reasons for these lapses are being identified and will be addressed.
The Board of NABARD also realized that for NABFINS to achieve its objective to support sustainable livelihood strategies of the poor and marginalised and to promote peoples institutions both at the base and at the second level (which can aggregate, add value to agricultural commodities, handicrafts, handlooms etc and support marketing linkages), provision of credit is critical but not enough. It therefore stated that the NABFINS business model requires “substantial amount of strategic alliances”; therefore it must “build synergies with other institutions involved in development in the area of operation”. (Extracts from NABARD’s documents) This strategic direction, based on the understanding that credit alone would not suffice to include the target group into the growth process requires an organizational culture which promotes healthy partnerships (not competition between institutions or cartels among NBFC/MFIs) with other institutions supporting livelihoods. Partnership is defined as “sharing risks”. NAFINS decided that its client risks also should be shared as part of its core operational strategy.
These guiding principles which are designed to promote the objectives of NABFINS were discussed at an invigorating brainstorming event on February 27, 2010 in which representatives of all stakeholders and other experts drawn from NABARD, Banks, Management Institutes etc participated. It was chaired by Dr.P.Kotaiah Rtd. Chairman and MD NABARD. This was followed up by discussions at Board Meetings where Dr. Prakash Bakshi reiterated NABARD’s guiding principles and by several team meetings of NABFINS staff to analyse and learn as NABFINS progressed. The following guidelines for the business model emerged from this exercise and from feedback from operations during the year.
NABFINS will try to balance Business with Inclusion of the marginalised in the growth process not just in the financial system. It follows that its business model would have to ensure that it adheres to all the requirements of a business – mainly to break even as soon as possible and that it customizes its loan products and mobilises support services, in a partnership mode, to meet the diverse needs of its clients and to remove the hurdles to their inclusion. Given the diversity of loan purposes and sizes required and the need to respond quickly to unexpected changes, the decision how to customize must be made by peoples institutions at the base which are able to assess each loan, provide support to members to cope with pressure from a male dominated society to divert the money for their purposes, exert pressure to repay and adjust the repayment schedule if required. Groups, if well trained, perform these roles with far more precision and effectiveness than staff of an NBFC/MFI. It is these roles/functions which assist the poor to gain inclusion into the growth process; they also provide a safety net for the poor to cope with unexpected pressures arising from a crisis and unequal gender and social relations. This is why NABFINS partners peoples’ institutions at the base like SHGs and JLGs as well as at the second level like companies and cooperatives in which people have an ownership stake and set the agenda.