Hélène Keraudren Baube & Edouard Sers, Grameen Crédit Agricole Foundation

To overcome the effects of this unprecedented health and economic crisis, the Foundation has had to innovate, adapt and coordinate with other key players in the sector of inclusive finance and social impact entrepreneurship. Transversal work that involves the whole Foundation team. To find out more, spotlight on the testimonials of two Foundation experts, Hélène Keraudren-Baube, Administrative and Financial Director, and Edouard Sers, Risk, Compliance and Social Performance Director.

1.How has the Covid-19 crisis impacted the internal organisation of the Foundation and that of supported organisations?

Hélène: We used telework overnight, but since it was already a possible modality at the Foundation, the transition was very fluid. In addition to providing the equipment for teleworking, we have also adapted the schedules to take into account the context of confinement with children at home. We have had a very special year, with no field mission for the team based in France since February, as usually investment officers all go on field missions several times a year. The Foundation’s Board of Directors conducted regular updates to monitor the situation and determine the best measures to support the teams and organisations funded. In addition, we spoke on a more regular basis with our governance to keep them informed of developments in the situation and activity.

2. What responses did the Foundation give to deal with it?

Edouard: The Foundation’s first response was to establish a rapid and permanent dialogue with the organisations it supports to understand the effects of the crisis, the measures implemented and their needs. The investment manager teams have remained in very close contact with all the organisations we support, and we have conducted regular surveys with them to understand the impacts of the crisis in the various countries of intervention. In addition, we launched the Covid-19 Observatory in which we regularly publish articles in order to share our analyses and inform stakeholders of developments in the situation. At the same time, we led an international coordination of lenders and inclusive finance players to act in close cooperation, to protect microfinance institutions and their clients and prevent any liquidity shock that would have destabilised the sector.

Hélène: We have adapted our monitoring and analysis tools and our requests for information, particularly with regard to business continuity plans and short-term cash flow plans. On the financial front, we have granted deadline extensions to around 30 Foundation partner organisations, mainly microfinance institutions. These extensions, from 6 to 12 months according to the different cases, took the form of amendments to loan contracts, and revised deadlines. This volume of postponement requests is completely unprecedented and has “stressed” our liquidity. We have refined our projection and monitoring tools to track the financial impact for the Foundation.

3. Regarding the international coalition, what are the first results?

Edouard: Six months after the signing of the Commitment, along with all the signatories, we drafted a joint publication presenting the status of implementation of 10 principles of the Commitment. Among the conclusions of the publication, we can highlight the strong coordination between international funders to agree in terms of extension of deadlines, avoiding a liquidity crisis in the microfinance sector. We have also made progress in the area of ​​technical assistance, including webinars and joint field surveys with end customers. Finally, we have encouraged the coordinated collection of information on staff management and client monitoring of microfinance institutions and are promoting initiatives to strengthen the protection of clients and staff. In 2021, we will pursue our efforts to support the gradual recovery of microfinance institutions supported with technical assistance, appropriate financing and regular exchanges between the various players in the sector.

4. In relation to the Foundation’s donors, what common actions have been taken?

Hélène: We very quickly kept our funders informed of developments, with detailed presentations. Since the strat of the crisis, we understood that the main impact in 2020, for the Foundation, would be on our liquidity management. The requests for extensions from our partners weigh on the Foundation’s cash flow, and we wanted to preserve our ability to support our partners and avoid a liquidity crisis at all costs. To do so, we have asked for extensions of delays from our funders, and envisaged new “special Covid-19” financing lines to support the resumption of the activity of the microfinance institutions that we support.

5. Finally, what are the prospects for 2021? What will the Foundation’s priorities be?

Hélène: After a year 2020 marked by an operating result supported by the growth of the portfolio in previous years and substantial savings in 2020, particularly on travel costs, the year 2021 will be severely impacted by the contraction of the loan portfolio of the Foundation, following the crisis. The Foundation’s activity should continue its gradual and cautious recovery that began in recent months.We believe that the first semester will still be strongly constrained by the pandemic and its consequences, and hope to be able to resume our trips in the field, as close as possible to our partners, beggining from the second half of ther year. It will probably take another year for the Foundation to return to the level of activity it had before the crisis.

Edouard: A large part of the organisations supported have been able to cope with the crisis and are eligible for the funding offered by the Foundation according to standard risk criteria. On the other hand, a significant portion of them still carry a significant risk inherited from 2020 in their balance sheets. It is crucial that we continue to strengthen our support system to offer solutions adapted to the different levels of risk, combining new financing, technical assistance, deadline extension or, more exceptionally, debt restructuring.

At the sector level, lenders coordinated in 2020 in order to avoid a liquidity crisis and we will continue on this path in 2021. This year will also be crucial for investors to support microfinance institutions in accordance with their shareholder responsibility. Finally, we will continue to promote initiatives to protect the clients and staff of microfinance institutions in these times of crisis. For example, we actively participate in the Social Performance Task Force (SPTF) working group to define new certification criteria relating to customer protection in the sector. A permanent dialogue with our partners and coordinated actions will be key factors for the success of our commitments.

By Devesh Sachdev, CEO, Fusion

The microfinance model of providing small collateral free loans to the ‘bottom of pyramid’ clients hitherto overlooked by the formal sector, has established itself as an effective & sustainable model for financial inclusion. Financial inclusion has rightfully been the key focus area for policy makers in the last few decades given the sheer size of our population that remained unserved and underserved. It needs no complex analysis to know that if India as a country has to improve its per capita income and graduate people above the poverty line – then access to finance has to be the key.

Despite policy push through the mainstream banking system, few factors acted as impediments to this critical national objective of financial inclusion. First and foremost being the fact that our formal Banking system largely designed its policies and reach (be it brick and mortar or digital) to cater to the urban/semi-urban population with established track record/income and collateral that fit into their defined Risk/Reward matrix as an Asset Class. Secondly, the ‘cost of delivery’ for bite size transactions in BOP market became a dampener for the Banks. Lack of financial literacy also acted as a constraint.

The microfinance model of providing small collateral free loans to the ‘bottom of pyramid’ clients hitherto overlooked by the formal sector, has established itself as an effective & sustainable model for financial inclusion. It was conceptualized to transparently deliver financial services and products at the doorstep of these very customers in a very simple to understand manner. The concept of Joint Liability leveraging social capital combined with doorstep delivery has helped microfinance gain trust & acceptability.

The Microfinance ‘journey’ of the last decade has run on two broad themes. On one side, it has weathered serious setbacks like the one of 2010 Andhra crisis, 2016 Demonetization crisis, the NBFC liquidity and credibility crisis and is currently battling the Covid-19 global pandemic. All these events created a perception in the minds of stakeholders that microfinance per se is a risky asset class because unfortunately for the sector – it has been impacted by such unforeseen events once every 3-4 years.

However, there is another side to the sector which is its brighter side:

1. Today, the sector serves around 6 crore unique customers with a combined portfolio size of Rs 2,31,000 Crore across 620 districts in 28 states and 8 UTs. This makes it the 2nd largest sector after Mortgages. However, what has been even more commendable is that the sector has grown @30% CAGR in the last 3 years vs the overall Retail Sector’s 17% CAGR
2. Another highlight of the Microfinance sector has been delivering financial products and services via a prudent amalgamation of ‘Touch and Tech’ at the lowest cost amongst all its global peers. The sector leverages advances in technology to constantly deliver greater transparency, data security and privacy and affordability for its rural customers at their doorstep.
3. With both reach and operational effectiveness, Microfinance today is a sustainable business model, calibrated to leverage its network to deliver other goods and services to the rural masses contributing to India’s phenomenal growth story
4. The sector also generates significant employment opportunities not only by hiring from the hinterland but also enabling its customers provide employment opportunities to others via financial support extended.

The sector has demonstrated remarkable resilience across the last decade and this has been made possible due to some key contributory factors:

• The ‘inherent’ need for such a model in aspirational India where a large unserved /underserved population still needs to be brought onto the financial bandwagon, ensured that Microfinance remained a ‘preferred’ vehicle for both the policy planners and the practitioners across the years
• The phenomenal support and conducive policy framework provided by the RBI which has been a catalyst in furthering Microfinance’s mission of financial inclusion. The sector has been accorded a special category under the larger NBFC category of RBI – lending it a distinct identity and strong credibility by having country’s first RBI recognised Self-Regulatory Organisation.
• The functioning of MFIN (the sector association) as an SRO since 2010 has enabled the sector to build its growth on strong pillars. Key pillars of MFIN’s work have been customer protection, industry code of conduct and policy advocacy, all of which contribute towards building of a Responsible Finance ecosystem.
• Microfinance being a high touch model, it has ensured highest degree of customer centricity and familiarity. Response time in crisis situations is much quicker and the resolutions proposed are very focused. This aspect helped the sector tide over the challenges brought about by Demonetization in 2016 but more recently this model has proven its resilience and sustainability in the ongoing Covid 19 crisis. The frontline soldiers ensured that the wheels of financing kept moving when the customers needed them the most during pre and post lockdown periods. Operating platforms were quickly modified to work on remote basis delivering loan services digitally Field processes were altered to incorporate all health and hygiene guidelines.

The strong bond with customers stood the test of time and brought about a high degree of mutual understanding and cooperation. Most of the financial pundits were proven wrong when the microfinance portfolio delivered better than expected portfolio metrics post Covid and RBI mandated moratorium period.

Today, the Microfinance Sector is partnering with the government to roll out various social schemes be it Shishu loans under Mudra or Pradhan Mantri Svanidhi scheme. The importance of the sector has been recognised by PM in his United Nations General Assembly speech by terming it as instrumental in furthering women entrepreneurship.

As they say “It’s not the number of punches that you land that make you a winner, it’s the fact that you still get up strong after taking a lot of punches and emerge a winner” and this is an apt description of a ‘Resilient’ Microfinance Sector in India thus far ……but the journey has just begun!!

__________________________________________________________

Source: BW Businessworld