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E-news Main Page In This Issue Beggars, Savers and Borrowers: the ‘Good Families’ of Jamii Bora A Guardian for those at the Bottom: Bandhan’s Work to Reach the Poorest Measuring Client Progress out of Poverty: Successful Workshop in Hyderabad, India Archived Issues Vol 6 Iss 1 Dec '08 E-News Information |
A Guardian for those at the Bottom: Bandhan’s Work to Reach the PoorestThe CEO and founder of Bandhan, an Indian Microfinance Institution that reaches nearly one million clients, almost half a million of whom are among the poorest, spoke to the Microcredit Summit Campaign’s Deputy Director, Sangita Sigdyal on February 26, 2008.
The numbers speak volumes for Bandhan, the institution listed second on the Forbes list of the World’s Top 50 Microfinance Institutions (MFIs). The list highlights the cost-effectiveness of Bandhan, whose cost of lending, at 0.7%1, is the lowest among the fifty MFIs ranked by Forbes. Because of increases in loan volume and improved efficiency, Bhandan has been able to reduce its interest rates from 17.5% to 12.5% interest since beginning operations five years ago. The MFI boasts a repayment rate of 99.99% for nearly 900,000 members, 44% of whom live below the national poverty level. But founder and CEO Chandra Ghosh has a vision for that to extend further. His goal is much aligned with one of the themes of the Microcredit Summit Campaign - he wants to ensure that Bandhan’s services are available to the poorest. For several years after starting Bandhan, Ghosh sensed that Bandhan’s main microfinance programs were not reaching the poorest. He observes, “Sometimes our borrowers have refused to take people into their groups. When I asked them why, they told me, ‘She is not repayable – she is very poor.’ I realized that microfinance operations were not reaching all of the people in the village.” Bandhan’s solution to this was the creation of a program called “Chartering into Unventured Frontiers—Targeting the Hard Core Poor” (CUF-THP). In 2006, Bandhan received an award through CGAP’s Pro-Poor Innovation Challenge to pilot the program. Ghosh has been committed to reaching the poorest with microfinance since his beginnings in this field. When he reflects on his early experience, he recalls that after working with the poorest for twelve years through BRAC in Bangladesh, he was disappointed to find that NGOs in India were not meeting the needs of this demographic group. This omission puzzled him, as he saw that the poorest were the most in need of decent financial services; they were sometimes paying interest rates of 365% over the course of a year to village moneylenders. He also saw that while various NGOs were working with the poorest on issues like health education, the results were not satisfactory. Ghosh recounted a visit he made as a health educator that revealed to him the flaw in what he was doing: “I went to a village to educate women about children’s health. I saw a mother cooking rice in an open space, and her children – maybe two years old - were playing on the ground, taking dust and putting it in their mouths. I saw that as the right moment to educate the mother about the health of the children. I sat in front of the mother and told her, ‘This is not a good thing for the education of your children.’ I realized that the mother was not listening to me – she just kept responding, ‘Yes, yes, yes.’ I asked the mother, ‘Are you listening to me? Do you understand? Tell me what I have said.’ ‘You said, my children are putting dust in their mouths, and this is bad for their health.’ I said, ‘Then why do you not stop your children from doing this?’ She asked me, ‘Sir, can you hear me?’ I said yes. She said, ‘That is not what I am thinking about. I am thinking that last week, my children cried to me that they wanted to eat fish and meat with rice. But every day I had to give a false commitment that tomorrow I could give it to them. How can I tell my children to stop eating dust when I have nothing more to give them?’ What is the message the mother has given me? That actually, mothers do not need the health education. They are facing a lot already, because of money, because of income, their most basic needs are not being met.” This thought has stayed with Ghosh throughout his work with Bandhan, and it fuels the work of his employees, 95% of whom come from families that are among the poorest. When Bandhan staff begin the process of identifying the poorest, they spend 3-4 days working with community members to map the economic status of each household in the village they are targeting. The process they use to identify the poorest, called Participatory Rural Appraisal (PRA), is noted for its reliability. MIT researchers who studied the process concluded that it was both accurate and easy to use. Ghosh explains how the village mapping process is designed to include community members: “When we approach the villagers, we do not tell them what we are doing. When we call on them we ask them to sketch out the village map. The villagers sketch out on the ground where the roads are, how the river is, and where the place for prayers is. After that we give them numbered cards. They put the cards down where there would be a house. Meanwhile, one of our staff has been drawing that map on paper. After that we ask the villagers, ‘Which is this household, rich or poor?’ If they say, ‘rich,’ we put it into one group; if they say, ‘poor,’ we put it in another. Then for the next one we ask, is this person richer or poorer than the previous household? We divide the households into 5 segments, from richest to poorest. Then we review it all again.’
In the next step of the PRA process, the staff works with community members to classify each household into five segments that reflect relative wealth based on indicators including land ownership, education level, and income level. The final selection of participants for the CUF-THP project represents the poorest, typically about 6% of the total population of the village. Most of the participants in CUF-THP are women who have been widowed or have a husband who is disabled. Ghosh explains that in an Indian household, the husband is the earner. He says that the women feel an overwhelming loss of confidence—“When they go to their relatives, they are not going for money – they have gone to ask for guidance. But relatives give them a little money and send them away. I actually think they are guideless people.” Once the pilot program’s participants have been selected, Bandhan works to build up their confidence and to give them what they need: the self-esteem to get back on their feet. Participants receive assets in the form of cows, goats or tea stalls, and they use these to establish an income. After a year, if they have managed their assets successfully, the participants are granted a loan. Bandhan works with its poorest clients from the start, and stays with them and provides continued support until they can stand on their own.
The CUF-THP is still new, but Ghosh has observed positive changes in the lives of program beneficiaries. “In the last year, I have seen that their confidence has been built up. I have also seen that they’re getting their income from the assets we have given them. They know that they have a guide.” The program currently has approximately 500 participants, but Ghosh hopes to expand it to reach 1,500 households in the near future. With regard to mainstream microfinance, Bandhan plans to reach at least five million clients through 2,500 branches in the next five years. Another goal is to expand on the health education program Bandhan is piloting in cooperation with Freedom From Hunger. The program educates clients about women’s health, family planning, and sanitation; Ghosh plans to expand on the reach of this health component in the future. Ghosh attributes Bandhan’s remarkable success partly to its structure. Whereas many Indian MFIs follow the Grameen microfinance model or the Self Help Group (SHG) model, Ghosh learned much from ASA Bangladesh, which champions low cost microfinance to millions of poor in Bangladesh and elsewhere. Bandhan adapted many of the practices of ASA Bangladesh to India’s professional environment, including staff recruitment, internal controls, maximum delegation and minimum discretion, as well as auditing and accounting practices. Bandhan’s field worker salary package is also higher than other market salaries. From Ghosh’s twelve years with BRAC, Bangladesh, he has come to appreciate the importance of providing staff with systematic and rigorous training that allows them to become good field workers. Much of Bandhan’s success comes from the great rapport the staff enjoys among clients. For more information about Bandhan’s microfinance products and activities, please visit Bandhan’s website. 1 Bandhan has an operational expenditure of 70 cents for every $100 given out in loans. This does not include the MFIs cost of funds. |
