Businesses that target the poor need to look beyond sales figures: Learning from the MFI debacle- Feb 26, 2012
An independent probe has suggested that certain cases of suicides among poor borrowers in Andhra Pradesh in 2010 were, in fact, caused by harassment by employees of microfinance institutions that lent money to them (read related news). The microfinance industry in India has seen a rapid rise and a steep downfall as well, when malpractices that surfaced in Andhra Pradesh caused the government to pull the carpet from under its feet by passing regulations that have sort of paralyzed the industry.
Their experience serves as a grim reminder for all industries, enterprises and organizations that serve the poorest of the poor that this is a segment distinct from others in many ways; a tougher market to sell to, the toughest to serve. Many enter this market assuming that any value addition to the poor will be appreciated and therefore, their product/service will be successful and scalable. Many of these hunky dory business plans fail miserably. For many reasons.
The vulnerability of low-income households is in itself a double edged sword. While introducing a new product or technology (like innovations in seeds, farming technology, irrigation, new income generating skill training or equipment) could enhance lives; but its failure or incorrect application might push families further into poverty. The margins are so thin, that any investment that does not give returns hurls the family into a deeper spiral of deprivation, depression and hopelessness. Compounded with other issues like lack of awareness and education, over-indebtedness, social and economic marginalization by other classes in the community, low skill levels, large family sizes and no method of redress in case of injustice, the poor have a raw deal indeed. When they invest in a new product or service, they do so believing it will change their fortunes. When it doesn’t, they are driven to desperate measures, ranging from migration, prostitution, pawning valuables and assets and even suicide!
It is, therefore, doubly imperative for all organizations serving the poor to have a holistic view of how their new offering will impact their lives. Who will consume it (the new product or service), who within the family will be impacted and how, what will they give up in order to consume it, will it impact their quality of life or income generation negatively, will it cause the poor to be further marginalized or disadvantaged, etc, etc? What will be the impact on communities of poor, in the immediate, medium and long term?
For the argument that consumers always have choice and therefore the responsibility to choose widely rests with the consumer simply does not work for the poor. New products and services, therefore, must be introduced along with a comprehensive awareness generation drive among the target communities. Moreover, periodic evaluations are needed to ensure there are no negative impacts. Training of employees and more stringent processes would need to be put in place as well. All of this means higher upfront costs and M&E costs for those operating in this segment.
In the affordable housing segment as well, many loose ends need to be tied before scalable, workable models emerge. There seems to be a wide gap between what the poor perceive as their needs and what the market is offering them. Haphazard, self-built housing is, therefore, on the rise (mHS is hoping to target this self-construction market). Because housing is a particularly complex issue that involves higher costs and is deeply connected to quality of life and emotional stability, organizations in the low income housing space need to be extremely analytical about their interventions and have strong links with the communities where they work to be able to develop appropriate solutions and have a long-term positive impact on the poor.
Posted on February 26, 2012, in Urban Planning & Policy and tagged microfinance, product, responsible, service, vulnerable. Bookmark the permalink. 2 Comments.
Mukta,not at all surprising to learn,and read the article on the workings on MF Institutions in AP.
At least 5 years back,I recall talking to a highly paid VP at CitiBank Chennai who was taking care of their MF Vertical,lots of travelling between Hyderabad,Delhi and Chennai.Told me it was booming sector”with very good returns.”
I wonder if the same Bankers/MF Institutions would treat Mr.Mallya the same way.
exactly! but the danger is of the MF sector going under. there is a need to find the middle path, so the poor have access to finance without being harrassed. the due diligence of the MFIs etc needs to be stringent and their practices monitored. the good thing is that he study as financed by SKS, the MFI under the scanner. there is, fortunately, a high degree of willingness to clean up their act and be responsible among MFIs.