La Finance Autrement, 11/22/13, A little credit, a little saving… and lots of support

Séverine Leboucher, 22 November 2013
Source: La Finance Autrement (French Youphil Blog)
© Photos: Séverine Leboucher

More and more microfinance institutions all over the world are providing non-financial services in addition to the microloans that they grant. These services have more to do with their social responsibility than with their core activities. A small NGO in Kolkata (Calcutta), supported by Entrepreneurs du Monde actually prioritises these non-financial services over its financial services in relations with its clientele.

Since her operation on 20 August of this year, Gayetri is getting better, although these recent months have been difficult. The young mother of two children owns a small accessories shop together with her husband. In order to develop her business, she acquired three successive loans from NCRC, an NGO supported by Entrepreneurs du Monde which operates in disadvantaged areas of Kolkata. Everything was going well until Gayetri was diagnosed with a tumour in her breast. She could no longer work. To compensate, her husband now worked in a factory. However, Gayetri was afraid. She didn’t want to seek medical help, fearing that the treatment would kill her, and she didn’t receive any psychological support from her husband. She explained her situation to the NCRC agent who visited her every week on the due date of the repayment of her loan, which proved to be a good idea.

However, this move was not an obvious choice. How can a microfinance institution (MFI) help with clients’ health problems? NCRC is neither a hospital, nor an insurer, but since its establishment in 2007, the NGO has developed its own distinctive form of microfinance: social microcredit. Microcredit is by its very nature, social, you might say. Of course, but in NCRC’s case, the loan is only the starting point for a much broader relationship with its clients; clients that the NGO refer to as ‘partners’.

Therefore, when Gayetri decided to explain her difficulties to the NCRC agent, the latter turned immediately to the ‘Family Development Program’ area of the NGO. In fact, every branch of the MFI employs a social worker. Their work has nothing to do with financial services. They are, in reality, genuine social officers placed freely at the disposition of clients with personal difficulties. Thus, one morning, social worker for NCRC, Anuradha, went to visit Gayetri in the room that serves as her home by the river to speak to her. Several visits followed, building up the level of trust. “She told me which public hospital I could go to, to reduce the cost of treatment”, explained the young mother. “She persuaded me to be seen by a doctor and then to be operated on. She also spoke to my husband”. Thanks to her savings, takings from her small business and financial help from her father, Gayetri managed to obtain the 6,000 rupees (£60) needed to pay for the surgery. The reduced financial means of NCRC do not allow the organisation to grant these kinds of loans for medical emergency. Its effectiveness is rather in its support.

This type of social care reaches into many other domains apart from healthcare. Sometimes it helps to resolve complex familial situations, as in the case of Sanawara, whose husband spent much more time with another wife. As with Kanan too (pictured), who was concerned about the education of her two daughters, who were destined to take over her small cosmetics and cheap jewellery business, but seemed disinterested by their studies, had difficulties at school and were the despair of their mother. Again, a social worker from NCRC, with whom Kanan had acquired a loan, stepped in. After some long discussions, it was jointly decided that the girls would be educated at home by their mother to begin with, then by a tutor. Kanan valued this type of non-financial aid. She decided not to renew the loan she had had with a commercial MFI and instead turned exclusively to NCRC; a consequence of the financial education that the NGO provides its clients with.

Indeed, whoever says social microcredit means responsible microcredit. According to a specific assessment tool, for MFIs targeting the poorest households, the support must also be financial. A culture of saving is encouraged, as clients are obliged to put aside 10% of the amount borrowed for the duration of the loan*. “It also helps to inform them about the possibility of over-indebtedness, by showing them what to do to make sure that ‘their loans do not put them in a state of discredit’”, quotes Abhijit Bera (pictured), head of NCRC. This is precisely what Madhumita is in the process of explaining to four clients. Madhumita is a ‘CM’, ‘Collecteur Motivateur’ (Motivator Debt-collector) in the jargon of the MFI. She does of course collect the weekly repayments of groups of borrowers, but also takes some time to guide them in the running of their small businesses, in their accounting and in the management of their budgets. Contrary to commercial MFIs, which rally all of the members of their group every week, often including several groups, NCRC does not require the participation of all the borrowers for the repayment. The group leader is responsible for transferring the entirety to the ‘CM’, “in order to avoid taking up their time”. However, the NGO dedicates one afternoon a month to education; notably financial education.

Madhumita displays two pictures on the bed of the small room occupied by one of her clients. Featured in the two pictures is a borrower similar to them. In one case, she takes out one small loan for her business. In the other; she takes out multiple loans to pay for her consumer goods. What follow are two stories outlining the consequences of the two different choices. Naturally, the second choice ends badly… “The women we meet with are often approached by other microfinance institutions with a commercial focus. They are offered larger loans, which are not justified by their activity as far as we are concerned”, suggests Abhijit Bera, “They don’t understand why we only want to lend them 5 or 6,000 rupees, when others will grant them 10 or 15,000. Financial education is therefore essential”.

NCRC is a small actor in the world of microcredit, but it targets a very particular profile of women. These women all live in disadvantaged areas of Kolkata, doing their best to make a living from their small businesses or crafts. Its approximately 5,300 ‘partners’ thus form a coherent group with much collaboration; at least when they are well coordinated. This is what NCRC is working to achieve. Producers of certain goods and services are put in touch with consumers of those goods and services, sometimes living in different regions. Networking events are also regularly set up. Sometimes the skills of certain borrowers are sought by others. Thus, instead of them having to pay for an expensive course, the NGO puts the women seeking training in contact with another who may train them in those skills. It is in this way that dressmaker Nasrin met her group of around ten students (pictured). From saris to men’s shirts and little girls’ party dresses; the students delight in showing off the items that they were able to sew. They pay their teacher a wage every month and receive a lesson at home, which is often essential for them, because their Muslim families will not allow them to walk the city streets alone to go to a training centre. After a few months, NCRC validates the skills acquired with a certificate. Some establish their own microenterprises. Others join forces to open a shop. If they are in need of a loan, NCRC resumes its microfinance role.

These acts of coordination require only a minimum of investment from the MFI, which certainly does not have the means to significantly increase its loan portfolio. This makes life easier for the women involved, always with the idea that a loan is not an end in itself, but simply a beginning.

* More and more MFIs include a saving aspect in their microcredit offer, giving clients more or less freedom in their payments.