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Asia Pacific Region Microcredit Summit Presentation of Institutional Action Plans by Practitioner Organizations

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Asia Pacific Region Microcredit Summit (APRMS) Presentation of Institutional Action Plans by Practitioner Organizations
Original transcription by Barbara Cannas

Introduction by Kate McKee, Presentation by Shafiqual Haque Choudhury, and following questions and answers

Ms. McKee: I'm going to kick off the discussion with a question for Mr. Choudhury. Numbers talk and you've cited some very impressive numbers. 2.34 million clients is very impressive, even in Bangladesh. But the things that particularly jump out at us, I think, are the incredible operational efficiency—3.3% operating cost on funds loaned, operating costs. An amazing efficiency, and very high profitability, as well—174% financial sustainability. And I want to put a question to you about one of your newest products—the flexible loan product that's targeted to the hard core poor population and particularly those in more remote rural areas. Now the hallmarks of ASA are this efficiency and a commitment to profitability. And I'd like you to comment first on how you've had to adapt your standard methodology, but still keep it very efficient to serve hard core poor that are in less densely populated rural areas—number one. Number two, in your business planning, what are the profitability implications, both in the short term and in the long term, of trying to offer this new product?

Mr. Choudhury: By introducing this flexible loan product, all of ASA's staff now lift to do a little bit hard work…Now the new branches, which will help the hard core poor. The location of these branches will be in the remotest villages, as ASA branch cannot make precedent without achieving 1,200 borrowers—we need 1,200 borrowers to make a precedent. But in hard core poor many branches it will take 2-3 years to make precedent because hard core poor will take small loan and our cost is more. That is why ASA sustainability, 174%, we are dedicating some for hard core poor. Like that we are reducing our interest. People may criticize us that we are charging more interest, 15%, but from this 15% some percent will go to serve the very hard core poor because this will take at least three years to make a profit because [of the] very small loan. That is why, to reach hard core poor either institutions [must have] good financial sustainability, or donors aid. But I don't like donors aid because in donors aid you will not be able to grow fast. With all of their conditions, service, studies, evaluations—their growth will be restricted. That is why an organization, after reaching full financial sustainability, good margin, they can start. That is the profitability concern that—of course we need to share some of our profitability to serve the hard core poor.

Ms. McKee: Several questions pertain to this new product for the hard core poor and I'd like to perhaps follow up on those. One of those questions is how you're going to try to insure sort of quality—in a way, you're launching a new product development process and you're experimenting, but you're proposing very rapid scale up. You said more than a half a million clients in a short period of time. What will you do to try to ensure quality and to test your innovation and see if it's working with such a rapid scale-up that's proposed.

Mr. Choudhury: Regarding quality, we don't need to think so much, because the very hard core poor percentage in Bangladesh, is 15-20%. And if you cover this 15-20%. If you have a good house—a good foundation, if your 85% [of the population] is very good, then you can adjust this 15%. If you think of quality from day one, then you'll not be able to reach the hard core. And the quality is this, in Bangladesh already there is a culture of credit repayment developed and we must have some confidence in the people like that. And serving this 15% people with half of the loan then others. That is why we are minimizing risks….

Ms. McKee: How does ASA view empowerment and the building up of social capital, when your model is an individual model rather than a group mutual guarantee model?

Mr. Choudhury: Though ASA lend[s] money individually, we have a collection center group. 20-30 people come together for borrowing money and paying the installment. This is the network in the rural villages. You don't need to lend money to a group. If you can build a network among the borrowers that come once in a month…Financial things [are done] individually, other things collectively. In the rural villages you will find that there is a small unity. The village level women come together for assisting women facing abuse from their husbands, etc. though we provide loan individually and collect individually, but there is a scope of social capital.

Ms. McKee: Thank you very much. Now I'm going to be a bit provocative because we have quite a few questions that sound like the Minister of Finance, and I will quote one of them. "Since your financial self sufficiency is more than 100%, considerably more, why don¹t you reduce your interest rate?" And, "Why not reduce the interest rate so that the benefits of organizational self financial sufficiency benefit the hard core poor to become sustainable themselves. Is it not enough to achieve 100% financial self sufficiency?" Can you share your vision on this question about how profitable is profitable enough? ….[H]ow does ASA—channel that profitability to reconcile very high financial self sufficiency with its development mission?

Mr. Choudhury: For [reaching the] hard core poor you need initially some subsidy from your normal program. If I reduce interest, then how will I work with the hard core?—this answers number one. Number two, we started from this January a community assistance program. From the 15%, 2% set aside for community assistance. Women burned by acid, then divorce, then serious illness, then one leg lost in accident, children cannot go to the school, they do not have any sanitary latrine—like that there are some community assistance program in ASA. We started from 1st of January this year, set aside 2% for helping the poor. Do you not consider this is reducing interest? Because I can reduce interest but I will not give [these] services. But now I am giving [these] services. This means in financial service I am reducing 2%…All the surplus comes back to the loan fund again go to the poor people.

Ms. McKee: We have a number of questions that have come in to us here that basically say "Can financial services alone do it?" and "how can you really achieve development without other supportive social services?" Can you give us your take on that question?

Mr. Choudhury: We believe this is a specialized financial institutions. If there is a sustainable microfinance loan to the poor—sustainable, not one day and stop…If there is a sustainable microfinance, people will be able to increase their income gradually. That does not mean that people don't need help, legal aid, nutrition, or other services. They can do this either from surplus of microfinance profit, or government can take care for other services, because all services cannot be given by one institution. Then the institution will lose its specialization. If they lose their focus and specialization, that means they will be considered a generalist. Generalist generally cannot do good work. That is why you need a specialist. That is why I recommend that microfinance institutions should be a specialist. If other things [are] needed for the people, other organizations may come up to solve their health problem, education problem, nutrition problem. But don't mix all together, then you will lose your efficiency and effectiveness. But now if you have a sufficient surplus, you can help them indirectly, by not starting a school, but by giving some scholarship for the small children, giving them some health assistance so that they can go to a health practioner or hospital, but I don't advise to do all work by yourself and make a total mess.

2004 Institutional Action Plan by ASA: Page 1, Page 2

Continue to Presentation by Prakash Bakshi