Opportunity International Australia Blog

Day two in India starts, as most overseas parliamentary trips do, with a political and economic briefing by the Australian High Commission. We joined the Deputy Australian High Commissioner, Mr Lachlan Strahan, and Ms Caitlin Bell, Third Secretary (Political), as well as First Secretary of AusAID, Mr Russell Rollason, at a 7am breakfast meeting. We were also joined by Ms KC Ranjani, Managing Director of Opportunity International Australia's Indian subsidiary, Dia Vikas Capital, and its Executive Director, Mr Saneesh Singh.

The discussion confirmed much and provided additional understanding, including more stark numbers in a country that never seems to fail to impress when it comes to startling statistics.

According to AusAID, a third of the world's poor are concentrated in five Indian states. 

There is a $1 trillion backlog in infrastructure in the country, across all areas: schools, roads, water, transport, and electricity. Water sanitation is a challenge, but so too is water security. By 2030, we were told, India’s demand for water will be double its available supply. Electricity is another example of India’s forward thinking and yet challenging present. Currently, between $6-8 billion is being invested in renewable energy in India every year, yet 40% of electricity is lost on the country’s electricity grid.

AusAID spoke to the Independent Review of Aid Effectiveness and confirmed that the intent of the Government is to phase out its Indian aid program. At present, the Indian aid budget is $6 million a year, and is part of a total government spend of some $22 million on India.

What the Commonwealth Government will do, AusAID indicates, is continue to invest in regional multi-lateral programs.

In reality, this does mean that Australian aid will continue to flow to India, albeit in a more roundabout fashion. Given Indian’s dominance in the region, any multi-lateral regional agreement will see Australian aid still reaching India. At what levels, and how well directed it is, remains to be seen.

Meetings

The first external meeting of the day was with Mr Jay Panda, Member for Kendrapara in the Lok Sabha (lower house).  He is a member of the Biju Janata Dal (BJD) Party, and is currently an opposition MP. His district is in the state of Odisha (Orissa). Opportunity funds two microfinance institutions in Orissa, and Mr Panda expressed his support for microfinance for the role it plays in improving the lives of women in Orissa.

Mr Panda would like to see the Government put in place a strong and rational legislative framework to support the growth of microfinance in India. However, he laid bare the stagnation of several key pieces of legislation – including an Ombudsman Bill – meaning that it is unlikely the Microfinance Legislation will be dealt with quickly.

Our next meeting was with the Federation of Indian Chambers of Commerce and Industry (FICCI). As an industry body that has extensive contacts with Members of Parliament and Ministers, FICCI is a key body that can help move the Microfinance Legislation through the Parliament.

FICCI updated us on their financial inclusion agenda. They are also keen to see the Microfinance Bill be passed by the Parliament and understand its importance to provide confidence in microfinance institutions so they grow sustainably. Ms Vij, Assistant Secretary General, indicated FICCI’s support for socially focused microfinance as a way to solve the problem of poverty.

Lunch was in the Australian Deputy High Commissioner’s home, with representatives of major Australian companies operating in India. We were able to discuss Opportunity’s work in India, serving some 1.5 million families through 18 partner organisations, and the notion of corporate social responsibility in India. Several of the companies present expressed strong interest in supporting Opportunity’s work, and the Deputy High Commissioner spoke supportively of the benefits to both India and Australia in what Opportunity does.

After a few other meetings, we set out for an early evening tour of the Parliament of India, or Sansad Bhavan. Its three chambers – the Lok Sabha (lower house), the Rajya Sabha (upper house) and the Central Hall (used for joint sittings), symbolically represent Indian and Commonwealth history. It was a special privilege for me to sit in the seat the Prime Minister occupies in the Lok Sabha (lower house). On the desk are plaques observing that ‘J Nehru’ and ‘Indira Ghandi’ occupied this seat. An amazing chance to touch a piece of Indian history.

Kristina Keneally, MP
Opportunity International Australia Ambassador

www.opportunity.org.au
Twitter: @OpportunityAUS

Another day with the Dia Vikas team yesterday – going through how our Indian microfinance partners are performing and focusing on where we can assist them. IT is always a challenge for our partners; funding is another persistent issue, as well as finding good staff. I could be talking about PwC or Westpac, organisations face the same issues all over the world, hey?

Floods in Orissa and Bihar have displaced two million people. Two million people! That’s half of Sydney. Hard to comprehend and you’d probably think that with so many problems in the world that there’s no one there to help. Well, you’d be wrong this time. We have a partner in Orissa –Adhikar – that has clients in six branches that have been affected. So Dia Vikas offered to make a small amount of funds available for clients of Adhikar for immediate relief. Nice you say. But here’s the best bit – Adhikar replied no thanks, the government are doing a great job helping, we and the clients are fine. Sometimes it works like it should and for that it gives us hope. And we like hope.

Stephen Penny
Chief Financial Officer
Opportunity International Australia

So I am back in India for the first time in nearly a year and it is good to be back. Spent the day yesterday with the Dia Vikas team and there really is nothing like face-to-face time. We are so lucky to have such a great team here on the ground in India. Their knowledge, professionalism and hearts are amazing. Along with the talented people who run our partners, it reinforces the point that local people solve local issues. There was also an editorial in the Times of India today about the setting of the latest BPL income figure – if you earn more than R965 a month you are above the official poverty line. Yep, that’s A$20 a MONTH. Frightening. Who can live on that?

Had dinner with an old friend of ours, Ray Jourdan, who works with the ultra poor at the Delhi House Society. An Aussie guy who took his family to live in India two years ago to work with the destitute on the streets of Delhi. He is truly inspirational. We spent some time thinking how we can work together – love collaboration.

Stephen Penny
Chief Financial Officer
Opportunity international Australia

I am back in Delhi, the graveyard of empires - half a dozen dynasties, then the Mughals. The British were based in Calcutta for 150 years but 36 years after moving the headquarters to Delhi they were gone too. Now Indian business rules. An Indian now owns the East India Company which ran the country for the British for 100 years from 1757. Tata Motors owns Jaguar Land Rover which provides vehicles to the Queen of England. India is rising.

Opportunity International Australia is in India helping those living in poverty. But what are the Indians doing for them? Plenty, but the task is huge.

Today's Economic Times carried a leader on one of India's most famous investors, Rakesh Jhunjhunwala, who is giving away 25% of his wealth. "I treat charity as my fourth child and will divide my wealth equally among my children”. He’s the fourth Indian businessperson to make such a statement. It's great to see. As the current Australian of the Year, Simon McKeon, has been saying, Australia could do with more of this too.

Gurgaon, a new city just outside of Delhi, is where Dia Vikas is based. Dia is Opportunity's Indian team. This week we met with the financial advisory firm who is seeking to form bank syndicates to fund our MFI partners. We reviewed progress in discussions with a US social fund which is interested in supporting the program. We planned an engagement with a European bank that has also expressed interest and assessed the plans of Mi India, an initiative to raise money in India to fund the Dia Vikas program - Indian’s giving alongside Australians. But it's early days.

A real personal highlight this week was spending time with Chris Murdoch. Chris is a dear friend and a key leader in Opportunity. He moved to India at the start of 2009 to drive the co-location of complementary programs for microfinance clients. Health is one area Chris has been working in and so is providing access to savings.

A small loan can be the crucial hand up, but savings can be equally important. Microfinance institutions (MFIs) are not allowed to take savings and, in general, those in poverty can’t get bank accounts. Chris has been working with Eko, a low cost mobile banking solution. It enables people who don’t have banking arrangements to do payments, transfers and savings with two of India’s largest banks. Customers just have to approach local retail stores that are sub-agents of Eko with their identity proof, a photograph, and a personal mobile phone with which they text the transaction. Most of our clients in India don’t have toilets but they do have access to a cheap mobile phone.

Eko is being rolled out in two of our northern MFI partners. It’s also being used by Healing Fields as the payments mechanism in some of their community heath programs. (For more on Healing Fields, see the blog “CEO diary note: A Typical Day”.)

For Australians, credit and savings are important, but so is superannuation. Not surprisingly, for those living in poverty there is no such safety net - until now. Ranjani (CEO of Dia) and her team have been working with the Pension Fund Regulatory and Development Authority to enable those living in poverty to have pensions and, the Central Government is matching contributions to a level. This is now being rolled out across the client base.

So this is the dream; millions of microfinance clients having access to a full range of financial products and essential community services - generating income to educate their children. Having savings and insurance provides a buffer for crises and security in their latter years.

Transformed lives.

Rob Dunn
CEO
Opportunity International Australia

Microfinance in India has grown to serve millions of households in recent years, though this growth is still dwarfed by the immense need for financial services. However in recent months, microfinance has come under significant scrutiny in the Indian state of Andhra Pradesh, with concerns raised over the treatment of borrowers and the levels of interest rates being charged. Many commentators have accused commercial microfinance institutions – those organisations whose primary motive is making a profit on microfinance – of behaving irresponsibly, pursuing growth and commercial returns as they allow clients to build up excessive levels of debt. The controversy is also suggested to be, in no small part, a backlash toward the recent initial public offering by SKS Microfinance, India’s largest for-profit microlender, headquartered in the state capital.

The situation in Andhra Pradesh had an effect on the microfinance industry as a whole, including Opportunity’s socially focused partners who aim to help people out of poverty, not make a profit.

Andhra Pradesh – the centre of the concern
Late last year, local politicians instructed microfinance borrowers in Andhra Pradesh to stop making loan repayments until the microfinance institutions met certain regulatory requirements. This put at risk the sustainability of all microfinance institutions in the area – with social microfinance providers being affected as well as commercial. About 15% of Opportunity’s India Program portfolio operates in Andhra Pradesh, and Portfolio At Risk (PAR) for these partners has been affected in recent months.

Elsewhere in India – the need for bank lending
Outside Andhra Pradesh, client repayment rates have not been impacted. What is of concern however is the hesitancy of banks to lend to microfinance institutions in all states, not just Andhra Pradesh. This reduced funding affects a microfinance institution’s ability to expand its reach to people in need – those still waiting for much-needed financial services to help them start small businesses, earn incomes and provide for their families.

The need for microfinance in India remains massive – and Opportunity’s partners have a strong track record of serving poor communities with our social mission. Our partners remain capable of meeting the needs of the poor in India now and in the future, and the current lack of bank funding for microfinance is of concern. Consequently, Opportunity’s ongoing support of our microfinance partners is now more important than ever. It is vital that our partners have the resources they need to increase their effectiveness in the fight against poverty.

In India, Opportunity’s local subsidiary Dia Vikas Capital is playing an important advocacy role in the sector. Opportunity and Dia Vikas are constantly monitoring the situation in India and advocating on behalf of our microfinance partners to the Indian government and local banks. Recently Robert Dunn, CEO of Opportunity, and KC Ranjani, Managing Director of Dia Vikas, had a very positive meeting with the Deputy Governor of Reserve Bank of India to discuss the current situation. Positively, he reiterated that the Reserve Bank of India remains supportive of financial inclusion for the people of India, and the important role microfinance can play in bringing this about.

The Reserve Bank has in fact asked banks to keep funding the microfinance sector, but in a somewhat unstable environment, some banks are not rushing to do so. This could lead to a reduction in loan portfolio (and therefore the number of clients served) and could also reduce our partner’s ability to leverage donor funds (done to increase impact). Dia Vikas is continuing to help our partners obtain funding from local banks and is actively engaging with relevant stakeholders to advocate on behalf of our partners and their clients – reiterating our social mission and concern over microfinance practices that do not serve the best interests of the poor.

The Malegam Report and the future of the sector in India
With the situation in Andhra Pradesh raising broader questions about codes of conduct, transparency, profitability and the effectiveness of microloans, the Reserve Bank appointed the Malegam Committee to review the current climate and offer recommendations.

Its report was released in late January, with the aim to restrict the detrimental behaviours of some of the commercial MFIs operating in India and to offer some regulation for the sector. The review is welcomed by Opportunity International Australia, in as such as it provides an opportunity to refocus the microfinance industry on the needs of poor communities – those whom it was established to serve.

Significantly, the report confirms the Reserve Bank’s support for the microfinance sector as an important means of providing access to financial services to people living in poverty. We are encouraged that many of the recommendations of the Malegam Report are already in effect and actively practised by our socially-focused partners. Key aspects of the report include:
• The introduction of codes of conduct, outlining that no coercive methods are to be applied for recovery of loans, specifications about locations where recoveries can take place, the establishment of grievance processes and client protection charters (Client-focused principles, including the implementation of client protection charters, have been a key component of Opportunity’s India program since its inception. Already in 2011 we have held a workshop with our partners on how to strengthen their client protection charters).
• An emphasis on the transparency of interest rates and how they are calculated, including a recommendation for interest rates to be capped at 24% (Our partners explain the terms and conditions of loan products to new and returning clients, often within the context of a wider financial literacy program).
• Increased lending by banks to MFIs is encouraged and priority sector lending stays in place (priority sector lending is the requirement by the government for banks to lend a percentage of their funds to sectors the government wants to support, including the social sector – this is encouraging as the funding needs of MFIs remain as urgent as ever).
• Increased emphasis on skills development and training of microfinance clients (Opportunity’s partners provide a range of business and financial literacy training to their clients. In many cases, our partners have employed innovative and intensive approaches to building the skills of marginalised women. For an example, see here:  http://www.opportunity.org.au/Resources/DVDs/Rope-Weavers-DVD.aspx)

Opportunity is confident of the crucial role that social microfinance plays in enabling poor people to transform their lives. We welcome and encourage developments in the sector that refocus attention on the needs of poor communities. Together with our supporters in Australia, we need to continue to support the excellent work of our microfinance partners in India. Your support is highly valuable, effective and needed now more than ever.