Keya Sarkar: Initiatives from Bangladesh

OUT OF FOCUS

It took me many attempts to speak to Shabbir Ahmed Chowdhury, director, micro finance, BRAC. He was touring the cyclone-affected parts of Bangladesh and therefore understandably occupied. When I did manage to talk to him, he confirmed what micro finance circles in India have been talking about for a while: That BRAC is seriously pursuing entering India.

BRAC was set up in Bangladesh in 1972 almost entirely donor-funded for small-scale relief and rehabilitation to help the country overcome the devastation and trauma of the Liberation War. Today, it is the largest NGO in the world, employing 97,192 people, with the twin objectives of poverty alleviation and empowerment of the poor. BRAC's outreach covers all 64 districts of the country through 3,000 branches.

Its comprehensive approach combines microfinance under BRAC's Economic Development Programme (cumulative loan disbursements up to March 2007 $3916m to 6.5 million borrowers) with Health, Education and other Social Development programmes, linking all the programmes strategically to counter poverty through livelihood generation and protection.

Interestingly, BRAC is not alone. ASA of Bangladesh too is considering an entry into India, confirms its founder and President Shafiqual Haque Choudhury. Established in 1978, ASA too boasts of 5 million borrowers and cumulative disbursements of $2,703 million through over 2,500 branches.

This is great news for the poor in India. The scale that both BRAC and ASA are used to and their holistic approach (which includes credit, livelihood, health and education) may be quite at variance with the new generation micro finance companies of India, which are purely credit volume-driven. That these organisations, which have almost three decades of experience in directly dealing with extreme poverty and human suffering will have more to teach Indian companies than the venture funds, may be beyond doubt.

But both BRAC and ASA seem to be veering around to setting up operations on their own rather than through investing in existing operations. This is despite the fact that both BRAC and ASA have existing relationships (primarily capacity building and technical assistance) in India. BRAC has helped Bandhan and Kapil Mandal's VSSU while ASA has supported Bandhan and Cashpor.

There are of course several reasons for this. The most important reason may be their size in comparison to any of the Indian companies. While their knowledge and experience are beyond doubt, investments by either of them in Indian companies would imply a complete surrender by the latter. While investments from venture funds or banks imply that the individuality of the micro finance company will remain, any investment by giants like BRAC or ASA certainly will not. In fact India would not be the first country where these Bangladeshi companies would have encountered this problem.

Both BRAC and ASA are not-for-profit-companies and would necessarily want to expand into India in the same framework. But while the number of NGOs operating in India is huge, many of them may not be of a scale and operational efficiency that would be able to match that of the foreign entrants.

In Bangladesh, the law of the land allows non-banks to mobilise deposits and both BRAC and ASA are currently funded by the savings of their members and internal accruals. In India thanks to the RBI's restrictions the framework is different. In fact, asked if there was any policy change that ASA would desire, Shafiqual Haque Choudhury said that "microfinance should be given an easy process of transformation to regulated financial institution with mobilisation of savings at least from their borrowers initially and in future from the bigger community".

In the absence of any change in the regulatory framework vis-à-vis savings, Shabbir Ahmed confirmed that they would have to adopt the bank leveraging route for Indian operations.

In terms of starting operations, BRAC would prefer West Bengal, where there is a natural language advantage.

The fact that even for capacity building and technical assistance both BRAC and ASA have preferred to work primarily with micro finance companies in West Bengal speaks for their cautious approach.

While they wish to start with West Bengal, BRAC would then consider Bihar and Orissa, said Shabbir Ahmed. The fact that the Indian micro-finance industry was changing rapidly and competition was increasing at a fast pace doesn't seem to be a concern for the Bangladeshi giants. As the scope for expansion in their country becomes limited given their size, they are keen to enter a market as "huge" as India. Their confidence probably stems from the fact that they would not do financing alone, but replicate their holistic approach.

In recent times a worrying trend in the micro-finance industry has been that the micro finance companies pushed by their investors and their bankers have been increasingly volume driven. If our neighbours can show a different strategy for financial inclusion it would be a service indeed.