1. Micro Finance in India overview, challenges, and the role of technology By Annie Duflo Centre for Micro Finance Research October 28, 2005

3. Microfinance: what is it?

5. Microfinance: what is it? Microfinance = provision of financial services to the poor 48% 15% 37% R4 R3 R1 / R2

7. Providing financial services to the poor: challenges

9. Information asymmetry Decision to take loan Loan usage loan repayment Adverse selection Moral hazard

10. Adverse selection: incomplete information problem (before the loan) Don’t know Client’s type Interest rate reflects proba of default Safer clients drop out Need to increase interest rate Providing credit can become impossible

11. Moral hazard: hidden action problem (after loan) Can not observe what client is doing Bad loan usage Strategic unwillingness To repay

14. Delivering financial services to the poor in India: an overview

24. Microfinance ahead: challenges

25. Gaps in demand and supply Demand: Rs. 450 billion/y 60% in South … to cover all parts of India Less than 2 million Households reached 500 million un-served poor Disbursed: 39 billion Need employment opportunities Need protection against all risks Market constraints Insurance under-delivered Scaling up Increase impact

26. Scaling up: challenges

27. Limitation of the predominant model Bank SHG NGO Loan at 9% No liability Group formation/linkage SHG-Bank linkage model

28. Financial Intermediation Model Loan at a 9% Loan at 20% Scaling up existing MFIs: challenges MFI JLG Group Bank

31. The ICICI Bank Partnership Model Servicing fees of 11% Loan at 9% Interest charged: 20% FLDG of 10% MFI JLG Group Bank

43. ICICI Bank strategy: summary Conventional Rural Banking Branch based Manpower intensive Product driven Single product Our strategy Hybrid channels Technology intensive Customer driven Multiple products

44. Maximize impact of microfinance: challenges

45. Maximize impact Vulnerability Need for More than credit Differences among customers Need for customized products Understand what programmes work the best and for whom

46. Maximize impact Local Financial Institution: serving all credit constraint- Segments in 2-3 districts Employment scarcity Other constraints Finance other credit constraint segments MFI-sectoral experts Partnerships

52. CMFR: The Centre for Micro Finance Research

55. Strategy Research Influence practice Advocacy Strategy building Training

56. Partnerships CMFR Banks/ Insurance Companies International organizations MFIs/NGOs Universities Regulators/policy makers

57. CMFR: Research Areas

58. Impact of Microfinance Access to Financial services Impact? Advocacy based on rigorous results ?

65. Research: other initiatives

69. MFI Strategy Unit at CMFR

70. Strategy Building MFIs Sectoral Experts Pilots Scale-up LFI

72. THANK YOU!