Inspiring Ideas in Microfinance

Inspiring Ideas in Microfinance
A proposal

Contents: Introduction; What are Inspiring Ideas?; Why are Inspiring Ideas important?; What qualifies as a Inspiring Idea?; How can we learn from Inspiring Ideas?; What are the possible issues to be covered by the Inspiring Idea?; How to nominate and sumbit examples of Inspiring Ideas?; What will be the output of the Microfinance Inspiring Ideas Initiative?

Fill-in forms to submit Inspiring Ideas:

Draft proposal for comments/suggestions

Prepared by:: Hari Srinivas
Dept. of Social Engineering, Tokyo Institute of Technology
Fax: +(81-3) 5734-3199
Email: hsrinivas@gdrc.org
Version 3.0 dated Friday, April 25, 1997
Current Status: Not implemented yet; funding sources being explored.

INTRODUCTION

Walking along the street of any low-income settlement, one is frequently struck by the apparent contrast of dwelling and habitat. On one side of the road is a dilapidated, single story, windowless house of tin sheets and open drains; across the street is a fine two-storied brick and concrete house with glass windows, paneled doors, and painted walls. While there are many reasons for such contrasts even among the poor, one variable that repeatedly surfaces as a sort of common denominator is the accessibility to different sources and types of credit.

Commercial banks and other formal financial institutions have systematically kept low-income households outside their credit delivery networks, forcing them to resort to informal and non-conventional systems of mobilizing credit. The unique features of such loans are only now being understood:

Loans used by the low-income households are small in size since money is acquired only for a part of a larger activity. These small amounts starkly contrast loans from banks, which tends to be large and for lump sum investments.
Loans are usually made for very short periods. That is, the borrowers prefer to repay the loans quickly to avoid long-term commitments in repayments. This situation also reflects the insecurity of the borrowers jobs/income and the need for smaller interest payments.
Loans are unsecured, and usually no collateral or guarantee is used. Lenders rely on borrower's personal information and close proximate links to "keep on eye" on their expenditures and ensure repayment. Since services are localized, and only well- known borrowers identified, the rate of repayment is also very high.

Such deeper understandings of the quality and quantity of credit that low-income households prefer has brought to the fore the viability of microfinance schemes to satisfy financial needs of these households.

With information collation and dissemination being critical aspects of any campaign that attempts to focus attention on microfinance, an initiative to identify, nominate and document INSPIRING IDEAS in microfinance schemes as a means of learning from past and ongoing successes is being proposed here. Such an initiative would enable individuals, groups and organizations to participate in a continuous exchange of know-how, experience and expertise in microfinance management. Inspiring Ideas defer from 'Best Practices' in that it documents individual components of a microfinance policy, programme or project. The other advantage of inspiring ideas is that traditional and historical methods of financial transaction (for example, savings and credit clubs) can also be included.

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WHAT ARE INSPIRING IDEAS?

Inspiring Ideas are examples of actions that could be recommended for further application, whether in a similar or adapted form. They are actions, initiatives or projects which have resulted in clear improvements in the quality of life and the living environments of people in a sustainable way by provision of micro loans and savings opportunities.

It would therefore include new services, organizational/operational structures, laws, constitutions, procedures, ways to relate to and solve problems etc. It would also enable a continuous process of measuring, analyzing and comparing an organization/programme/project's products, services and practices for development and refinement. It includes successful components of a policy,programme or project which may have been, on the whole, a failure. By taking such a desegregated view of a microfinance scheme, it is possible to generate several 'Ideas' per scheme, allowing for a broader mix-and-match in designing microfinance programmes.

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WHY ARE INSPIRING IDEAS IMPORTANT?

Through the years, similarities and differences in initiation, development, success/failure etc. of microfinance programmes and projects has become increasingly apparent. Lessons have been learnt and recorded in documents and other media, including the internet. Despite these efforts, our knowledge at the global level of actions which offer vital insights is incomplete and out of date.

The initiative will provide a unique opportunity to set up a neutral, balanced and broadly representative process for identifying Inspiring Ideas in the field of microfinance. A standardized approach for selecting and describing each idea will facilitate comparisons between communities, and provinces within each country, as well as regionally and globally.

Inspiring Ideas will play an important role in building a world-wide picture of microfinance and in identifying ways in which common needs and problems can be met through the application of documented successful solutions and approaches. They represent the latest and pragmatic solutions to common problems facing many savings-and-credit programmes and communities. They are a learning process and constitute a knowledge base for effective action now and in the future.

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WHAT QUALIFIES AS A INSPIRING IDEA?

There are no limits set on the size and nature of an Inspiring Idea, nor are there any limitations on the range of organizations or groups responsible for it. These can be NGOs, user groups, neighbourhood/ward committees, private sector, the media, municipalities, provincial/state governments, regional authorities or central government ministries and departments.

Regardless of the location or scale of activity, what should be important is that the activities contribute - directly or indirectly - to improving the living environments of people in a sustainable manner, and overcoming poverty by providing adequate opportunity and resources in the form of microfinance. Generically, this would include best skills, processes, solutions, and resources.

Particular emphasis can be paid to INSPIRING IDEAS that have been developed without outside help and which can therefore provide important examples of independent and self-reliant initiatives.

Gender-sensitive initiatives also need to be highlighted - those Ideas that take into account gender specific roles, responsibilities and access to resources, ensuring that the needs of both men and women are met.

To increase its utility value and readability, all Ideas will be presented in one single sheet of paper. This, however, need not be a restriction - contributors can send additional material, brochures, evaluations articles etc. to substantiate an Idea.

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HOW CAN WE LEARN FROM INSPIRING IDEAS?

Many of the financial problems facing the world's low-income households are common to all countries: poverty and lack of job opportunities, lack of access to formal financial institutions, poor marketable assets, insufficient and inappropriate use of resources etc. Many of the solutions which have proven successful are based on similar strategies: improving the efficiency of management and support systems for the delivery of microfinance, forging new partnerships between public and private sectors for more effective investments, broadening the decision-making process to harness and focus resources and energies of all key actors and communities, creating increased awareness of problems and opportunities for action.

An effective means of know-how and information exchange is through the sharing of first-hand experience and learning from each other's successes and failures.

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WHAT ARE THE POSSIBLE ISSUES TO BE COVERED BY THE INSPIRING IDEA?

Tentatively, the following aspects are intended to be covered, but will be expanded later.

Organizational Aspects			Operational Aspects

Community participation			Savings systems and procedures
Training of community leaders		Credit loans - terms and conditions
Community group formation process	Repayment procedures and options
Networking and involvement of other	Keeping transaction costs low
	agencies			Accounting and record keeping
Institutionalization of the programme	Creating debt capacity
Other aspects ...			Fund creation strategies
					Review and monitoring Process
					Financial intermediaries
					Other aspects ...

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HOW TO NOMINATE AND SUBMIT EXAMPLES OF INSPIRING IDEA?

Step 1: Identification of an inspiring idea

An inspiring idea is an action or initiative which has resulted in a clear impact on one of the proposed issues and involving at least two of the following key actors:

National governments
Local governments and their associations
Community-based organizations and associations
Commercial Banks and other specialized financial institutions
NGOs and PVOs
Academic and scientific institutions
Mayors, councilors
Media groups (press, TV, radio)
Microfinance professionals
Private sector (for profit and non-profit)

The distinction between an example of Inspiring Idea and a good practice should be based on the criteria of sustainable impact of the initiative/action on one or more of the following:

Legislation and regulatory frameworks providing formal recognition of the issues and problems of microfinance which have been addressed
Policies and/or sectoral strategies at the sub-national level that have a potential for replication elsewhere
Institutional frameworks and decision-making processes which assign clear roles and responsibilities to different levels and groups of actors, such as, central and local government, private sector, NGOs and CBOs
Management systems that make more efficient use of human, technical and financial resources

Step 2: Submission procedure and format

In order to keep the identification, slection and documentation process simple, each Inspiring Idea should be sumbitted in the prescribed form with a 600-1000 words description of the idea itself. This will ensure that each idea can be presented on a single sheet of paper. Details to be included are listed in the form. Additional material, such as charts, graphics, photos etc. can also be submitted as annexures in order to substantiate the Idea.

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WHAT WILL BE THE OUTPUT OF THE INSPIRING IDEA INITIATIVE?

Output from the Initiative's activities will be an on-going and sustained effort in collation and dissemination of Inspiring Ideas. They include:

Document describing the initiative with a summary and its implications
A dossier/folder with a series of one-page Inspiring Ideas
Information on the initiative posted in the Virtual Library on Microcredit
Interactions such as seminars, workshops, lectures etc.
Use collected Ideas for the "Cybercourse in Microbanking"

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For further information and submission of Ideas:

Hari Srinivas
Dept. of Social Engineering
Tokyo Institute of Technology
2-12-1, Ookayama, Meguro-ku,
TOKYO - 152, Japan
Tel: +(81-3) 5734-2808
Fax: +(81-3) 5734-2926
Email: hsrinivas@gdrc.org