Dhaka Round Table
Reviewing the Replication Experiences
Growing with confidence ---
But Screaming For Funds

Report by Khalid Shams
with Lamiya Morshed

Some of the oldest replicators of Grameen Bank approach to microfinance met at a round table in Dhaka on September 25, to review their varied experience. Almost all of them have grown from the initial pilot, tiny action research, to full-fledged microcredit programs (MCP). They have clearly demonstrated that essential features of Grameen Bank's credit delivery system are not only well defined, but indeed are replicable, in different socio-economic milieu. More important, the system cost effectively addressed the development needs of the poorest segment of the population. However, there were important factors which have aided and factors which impeded their development. Acquiring a strong institutional identity with a clear, target focused mandate for providing microcredit to a well defined clientele group, was extremely important. Programs and institutions have initially lagged behind for lack of understanding of the Grameen system. The gaps in skill and know how, could be filled through systematic training and workshops, similar to what Grameen Trust, CASHPOR and other Grameen networks have been doing. Many of the MCPs had run into initial teething problems and they yet clearly showed their capacity for crisis resolution, through rigorous application of the microcredit methodology and its operating systems. Effective and professional management was an important factor that accelerated the growth of MCPs. Microcredit obviously cannot be done through volunteers. The biggest constraint has been the lack of funds for institutional development as well as operational programs. Grameen Trust has played a vital role in providing the small, but critical start up fund. This is the sort of money that big donors find difficult to provide. The Trust also provided a larger scaling up fund amounting to US$ 100,000 to demonstrate how the branch level operations could quickly become financially viable, a prerequisite for the sustainability of MCPs.

Some like the Amanah Ikhtiar Malaysia or AIM have grown into full-fledged national programs. Some have been scaled up to become large financial institutions like the Nirdhan Utthan Bank, Self-help Banking Program and the Rural Microfinance Development Center of Nepal. Even those which have started as NGOs, like Project Dunganon in the Philippines and Mitra Karya East Java, Indonesia, with no initial intention to expand their programs, have eventually begun to scale up due to new contingencies, like the financial crisis that engulfed South East Asia in 1997. The Poverty Research Center sponsored by the Chinese Academy of Social Sciences, has until now retained its action research character, but has been instrumental in initiating other GB type microcredit projects in China through NGO and international support. Vietnam, yet another socialist country, has also encouraged the Capital Aid Fund for Employment of the Poor in Ho Chi Minh City to expand and become more autonomous in character. It is also beginning to expand with support from aid agencies and increased access to more commercial funds.

The replicators of GB approach had a rich and varied experience during the last decade, with ups and downs, many twists and turns along the way. This would be expected with any social development experiment. What was remarkable was their resilience and commitment to achieve much of what they had determined to accomplish, designing, developing and implementing a credit delivery system, targeting specifically on the bottom poor. They could have accomplished much more, but for some constraints. What paths have they followed in scaling up their programs? What is their institutional status today? What were the critical success factors and what were the impediments while scaling up? Where would they like to go from here? These were some of the issues which were discussed at the Round Table.
The participants at the Round Table were: S.Devraj (ASA, India), Zalmah Mahusin (AIM, Malaysia), Mila Mercado-Bunker (ASHI, the Philippenes), H. D. Pant (Nirdhan Utthan Bank, Nepal), Shankar Man Shrestha (RMDC, Nepal), Nguyen Thi Hoang Van (Capital Aid Fund to Employ the Poor, Vietnam), Du Xiaoshan (Poverty Research Centre, China), Carmen Velasco (Pro Mujer, Bolivia), Djumila Zain (Mitra Karya East Java, Indonesia). The Round Table was hosted by Professor H.I.Latifee of Grameen Trust. Discussions were facilitated by Khalid Shams, Executive Editor of Grameen Dialogue.

Ms. Zalmah Mahusin

Amanah Ikhtiar Malaysia (1986), began as a small research project of the University Sains Malaysia, Penang, at the initiative of Professors David Gibbons and Sukor Kasim. It has indeed grown since then in terms of outreach. Many people initially were doubtful and critical at that time whether essential features of Grameen could be replicated in Malaysia, which was a high middle income country. Poverty was not very acute, in contrast to Bangladesh. AIM has now grown big with 62 branches and 80,000 borrowers, the more important, it has disbursed more than M$ 730 million as loans. It is now a nationwide program, providing credit to the poor in all the thirteen states of Malaysia, including even Sabah and Sarawak. Inspite of the big expansion, AIM has all along maintained an outstanding repayment record of 95 percent. Its institutional identity is that of a Trust set up under the Malaysian law. Another important factor in its development is the big role that the government has always played. Senior government officials like Datuk Sulaiman, the then Chief Secretary of the State of Selangor, have played a crucial role during its formative years. Currently, a Member of the Parliament is the Chairman and also the Acting Managing Director of AIM. The organization now needs a full time professional CEO. Although government plays a big role within AIM, that has not stopped the organization from faithfully implementing the replication of essential Grameen. In fact quite early during the pilot phase, an evaluation carried out by senior Grameen Bank staff helped AIM to rectify the initial errors and make necessary adjustments. Close association with the government has also helped AIM to mobilise the required fianances, which many replicators have found difficult to do in other countries. For its expansion AIM has received allocations under the Sixth Malaysian Plan and funds were also made available through YPIEM, the Islamic Foundation. Right now AIM has access to soft commercial loans from the banks. AIM has also access to interest free loans from the government under the Seventh Malaysian Plan for another M$ 300 mil- lion. This would certainly help AIM to expand its operations further.

Mila Mercado - Bunker

Like the AIM in Malaysia, ASHI (Ahon Sa Hirap Inc) also began as a small project of a big university, the University of the Philippines, Los Banos. Unlike, AIM however, it suffered from an institutional identity crisis and a weak management from the beginning. Although, it received the initial seed capital from the Asian & Pacific Development Centre and later the Grameen Trust, it has been constrained due to lack of funds, lack of focused management and lack of government support. It was merely a research project run by the university and finally became an NGO in 1991. The four branches were run by the church parishes and the management board did not play any effective role. The lowest point in its history was in 1994, when it looked like that ASHI would have to close down altogether. Sixty five percent of the loan portfolio was at risk. Rehabilitation of ASHI started following a Grameen Dialogue program that was organized in the Philippines, at the initiative of Professor David Gibbons. 1994 to 97 were the years of rehabilitation, restructuring, and very hard work, with a new leadership and a much stronger focus on the original mandate of following the Grameen model. Memebrship was drastically reduced; two of the branches were closed down in consultation with the church parish. ASHI literally had to rise from the ashes. But today, with full organisational commitment and a thoroughly professional management, ASHI is on the move again and it is expanding rapidly. It already has 10 branches with 15 thousand borrowers. Branch level operations are being automated to improve staff efficiency. We plan to reach 18,000 borrowers by 2005; 50,000 borrowers by the year 2007. The chronic funding problem has been resolved to some extent. It had received the crucial scaling up support from Grameen Trust. In addition ASHI right now has a line of credit with People's Credit Finance Corporation set up by the government. That means that Government of the Philippines now will provide a financial life line to MCPs like ASHI. This is endorsed by President Arroyo herself who wants the country to have one million new microfinance clients by 2004. In the future, I would like to see ASHI reconstituted as a bank, since government now gives strong encouragement and support to microfinance banks.

Historically, there were two problems; fistly, lack of funds and secondly, absence of a uniform standard of accountability to assess outreach, quality of portfolio, operational self sufficiency, capital adequacy etc. Microfinance Council of the Philippines now aims to set some of these standards, more by way of self regulation. Financing problems could be solved, if the necessary regulatory changes were made by the government which would allow the NGOs to collect public savings and use these for onlending to microcredit borrowers.

S. Devraj

The Activists for Social Alternatives or ASA was set up in 1980. It was already functioning as an NGO with a broad development mandate in the southern Indian state of Tamil Nadu. It was promoting savings and credit through credit unions and co-operatives, which according to an evaluation done by the Indian Institute of Management, Ahmedabad, did not deliver the desired results. At that stage I attended an International Dialogue Program which was sponsored by Grameen Trust in 1994. I decided to try out the Grameen Bank approach, since I thought poverty was the real issue and our replication began in right earnest in 1995. One of the existing ASA branches was assigned the task to do the essential Grameen. Since we did not fully comprehend the systems and processes involved in replication, the first branch proved to be quite difficult. Arrears and defaults by borrowers climbed up ominously. It took us two years to rectify our errors and pick up the main features of GB system. This followed a mission undertaken by Grameen Trust which recommended that a separate branch should be set up to exclusively focus on microcredit and the essential Grameen approach. Getting initial funding was a major problem, which we found like all others, extremely difficult to overcome. Our microcredit initiative, however, received a big support with the seed capital from Grameen Trust in 1997. Even with perfect repayment records, commercial banks in India were not willing to come forward. Finally, it was Grameen Trust which provided us once more with scaling up funds. It helped us to demonstrate that our branch level operations were indeed financially viable. ASA was incorporated as a non- banking financial institution, which enabled mobilization of borrowers' savings as equity. But it still could not raise depositors' savings which could have eased the funding crisis. Subsequently, additional funds were raised from Grameen Foundation USA and even CGAP. The latter provided US$20,000 for training and technical assistance.

But ASA has big plans for future expansion and is now confident about implementing these plans. It has already received Rs.100 million as credit from commercial banks. It would be possible to raise additional funding now from the commercial banks which have been given the green signal to provide funds for MCPs. ASA plans to open 50 branches by 2005 and 100 branches by 2010. It will be a big leap forward to fight poverty in this region.

Nguyen Thi Hoang Van

The CEP or the Capital Aid Fund for Emp- loyment of the Poor is a very interesting example of GB type microcredit operating in a socialist country. I think with ten years of experience, the Fund has already become a microcredit model in Vietnam. The institutional identity of the Fund is very different from rest of the MCPs in the region. It was established in November, 1991, through a decision of the People's Committee of the Ho Chi Minh City. Currently the CEP Fund, is a not-for-profit social organisation, under the over all supervision of the Labour Confe-deration, which is mandated to undertake reduction of poverty in Ho Chi Minh City. It has received the initial start up support from Grameen Trust. The successful adoption of the Grameen model in the context of Vietnam and CEP's achievement in attaining full operational and financial sustainability, have been highlighted. However, it has a lot more flexibility today compared to other financial institutions in Vietnam, since it charges variable interest rates for its three main loan products. The interest rate for the daily basic loan, which is a market loan, is 2.5% per month; for weekly basic loan the interest rate is 1% per month and the interest rates for monthly basic loans earmarked for factory workers is 0.5 to 0.8% per month. Initially, there were some financing constraints, but CEP has clearly established its credentials. It raises 20 percent of its financing form internal savings; another 20 percent comes from own profits. Besides it has also drawn from domestic and international sources. In 2001, funding from AUSAID marked a milestone in the efforts to scale up the operations of CEP Fund. The biggest achievement so far has been the attainment of full financial viability of the organization. We have quite ambitious expansion plans. Currently, we have 30,000 clients; by 2005 we expect to provide our special financial services to 60,000 very poor people in and around the Ho Chi Minh City. We are now focusing attention on mobilizing savings of our members, while continuing our efforts to seek funding from government sources, as well as the bilateral and multilateral donors abroad. In fact we have been quite successful in mobilising internal savings, which exceed the loan portfolio by as much as 20 per cent.

But I feel that the biggest problem is, how do we integrate the social development aspects like health needs of our clients, with the very successful microcredit program? This is also a part of Grameen essentials, that we pay adequate attention to the social development agenda to increase the safety net for the poor. To do that, we need a specially supportive policy and strong linkages with other social development programs.

Lic. Carmen Velasco

It is precisely the integration of social development issues, with which Pro Mujer in Bolivia has been concerned from the outset. So, Pro Mujer is not a Grameen replication in the context of other examples. But we have definitely learned a lot about microcredit from Grameen Bank since 1994, when I first came to the International Dialogue Program. Our effort has been to design and develop an MCP that will provide credit to the clientele based on their specified microfinance needs --- it is very much demand driven. The program is tailored to meet clientele requirements, hence we emphasize developing individual business plans. Microcredit is, therefore, one of the major elements in an integrated development program that provide both financial and non-financial services. The latter would include health, education, civic consciousness, leadership training and other activities. But when it comes to credit, we try to apply the rigour and discipline of Grameen type of program. In fact the MCP services of Pro Mujer have expanded considerably and there are at present 30,000 outstanding loans in 28 branches. The repayment record has been excellent. When compared to other MCPs in Bolivia, we really try to reach out to the bottom poor, which others do not. We could have done much more, much faster. The critical constraint has been the non availability of required loan funds. We have really struggled to raise the money from various sources. Grameen Trust made available the initial seed capital. It also gave us additional funds when we wanted to scale up. We have since then raised funds abroad, from the Calvert Foundation, USA, the Spanish Government and the European Union. But it took almost two years to receive the money from the EU. The procedural and bureaucratic hassle is just unbelievable What are our borrowers supposed to do in the meantime?

We could have overcome the problem, if Pro Mujer became a regulated financial institution. But that would have meant loss of our precious autonomy and new government controls on our program. We would also not be able to provide the much needed non-financial services that our clients demand from us. It would make things more difficult. I would be afraid of taking money from the government, because I would not know what conditions they will attach to our lending program. At the same time, I believe that MCPs have to demonstrate that they are capable of maintaining the highest professional standards in microfinance. I would prefer to hire professionally reputed financial analysts to evaluate the portfolio quality of my MCP just to show that I am doing things right.

Djumila Zain

In Indonesia we had a very big demand for microcredit because of the poverty situation. I decided to try out the Grameen model for research purposes only, just as a pilot demonstration under the university. Initially, the faculty members and other staff of MKEJ simply worked as volunteers in implementing the pilot project. I had no intention to expand and I also continued with my teaching responsibilites. I decided to expand because of the economic situation in Indonesia, specially after the financial crisis. We became a foundation that could provide microfinance to the poor. We are now growing fast - starting from only ten borrowers in 1993, today we have 11,000 active clients with perfect repayment record. Because of the success, I have become a strong advocate of the microcredit system. I have tried to introduce the model to other NGOs, financial institutions and universities in Indonesia. I have also become a trainer for other MCPs. We have inspired programs like YDBP, YPM, YMU, which all replicate Grameen. I realised that a major problem faced by MKEJ and the other Indonesian MCPs, related to human resource development. Without training of skilled staff, expansion will not be possible. In coming years, I am confident that MKEJ will grow much bigger and quite rapidly. We are aiming at 13,000 clientele by the end of 2002, 20,000 by 2003 and 35,000 by 2004.

I am confident of reaching these ambitious targets. But our main problem is to raise the required funds to meet the institutional cost as well as the funding need for lending operations. No one wants to trust and give money to the small MCPs, who are about to start their program. We were assisted by the seed capital provided by Grameen Trust, but the payment was awfully delayed due to the cumbersome procedures of GTZ. We were able to raise a paltry sum of $3000 from the commercial banks, at 6% interest. CASHPOR provided us with an interest free loan of $5000. We were then able to raise project funds from the Rotary International. I am now devoting full time attention to MKEJ as its CEO and I am quite confident that we can grow rapidly in view of the big demand for microcredit. But the problem for me right now is how do we raise the required funds?

Du Xiaoshan

In China replication of Grameen Bank model was undertaken at the initiative of the Rural Development Institute of the Chinese Academy of Social Sciences. Known as "Funding the Poor Co-operative" or FPC. It was implemented through the Poverty Research Center of the CASS. Until now, the Poverty Research Centre functions strictly as a research project. It is not a financial institution, nor an NGO. It is a government sponsored research activity. The objective is to provide information and policy advice to the Chinese government regarding operational systems that can help fight poverty in the country---Grameen model in that context has been a major factor. But that also means that there is little scope for the microcredit program of the Poverty Research Centre to expand much further. The current project already has 15,000 borrowers in two provinces. This has been made possible because of the financial and technical support by Grameen Trust which made available the start up as well as the scaling up funds. In addition, the Ford Foundation has provided financial assistance to FPC. There is also a businessman from Taiwan who became interested and has provided money since 1998. Our main problem in China is that on one hand, no government money is available for this type of microcedit; all funds have to be generated through international aid agencies and given to local NGOs. On the other hand, the government strictly regulates the financial operations and the interest rates that the MCPs can charge, putting a tight cap on lending rates. FPC for example, charges 8 percent interest rate, which is not high enough for attaining financial self sufficiency. Still it is higher than what other financial institutions can change. But lately, there have been some changes in government policies and the government is encouraging MCPs and NGOs to fix their own interest rates. The regulatory regime is changing to allow the MCPs more flexibility. My assessment of the situation is that microcredit programs in China will expand in the coming years, but not as rapidly as in other Asian countries. Now the People's Bank of China (Central Bank) is encouraging Rural Credit Co-operatives to implement microcredit programs, but they do not really focus on the poor.

H D Pant

Microcredit had a head start in Nepal. It is estimated that microfinance services today reach about 500,000 clients. Of these more than half are being served by Grameen replicators. Nirdhan Utthan Bank is an interesting example of an NGO that transformed itself into a bank, with the expectation that it will be able to offer its financial services more efficiently to the poor in Nepal. It was the first Grameen replicator and also the first microfinance NGO that was transformed into a bank. Recently some other NGOs in Nepal have also transformed themselves into banks. Consequently, we were of the view that : (a) newly established microfinance institutions needed central bank supervision (b) MCPs when converted into banks would be able to mobilise deposits from the public and become financially more self sufficient (c) it would be easier for the MCPs as financial institutions to borrow funds from the commercial banks.

Nirdhan, like some of the other replications also began with the financial support of Grameen Trust and APDC. But it was difficult to borrow from the banks, because the commercial banks required the NGOs to provide personal guarantees by the board of directors against any loans. The NGOs could not raise any savings from outside either. Given the difficulties, Nirdhan Utthan finally opted to become a bank in 1999. It raised 12 percent of the equity from the sponsoring NGO, 11 percent came from Grameen Trust, 12 percent each from three commercial banks, and the rest from public subscriptions and personal contributions. The current paid up capital is Rs 10 million. But Nirdhan still cannot raise any savings from the public, unless the paid capital is further raised to Rs 50 million. The real problem with Grameen replication is availability of funds to the MCPs. In case of Nepal, my experience is that a regulatory regime is necessary to maintain strict financial discipline within the microfinance institutions. At the same time the latter need sufficient flexibility to allow the MCPs to expand its outreach, raise funds through public savings, and keep the operational costs at the minimum level. The regulators who have the powers to control and lack the knowledge of the MCPs , try to over regulate the micro finance institutions. We have already experienced the dangers that arise as a consequence of too much of deregulation and emergence of financial institutions which have functioned like "fly by night" operations. A fine balance has to be struck between the two situtations.

Shankar Man Shrestha

Right now the growth of MCPs has been stifled in many countries. I am entirely in agreement that diversified savings products are necessary in order to mobilise sufficient funds that would allow the MCPs to grow. But I would also stress the need to start with clients' savings in the first instance, and then based on prudent regulations proceed to mobilise public savings. So there has to be a sequential development. It is to finally resolve the funding problem for MCPs operated by NGOs that Nepal established the Rural Microfinance Development Centre or MDC. It is a professionally run wholesale fund for MCPs, following the pattern of PKSF in Bangladesh. GB replications began in real earnest about ten years ago and out of its initial enthusiaism the central bank set up as many as five Grameen Bikash Banks all over the country. In addition there were NGOs like Nirdhan and CSD who were doing the replication. But they ran into problems for lack of funds and also for lack of financial discipline. The major constraint has been the lack of managerial capacity to run the microcredit programs efficiently as self sustaining business operations. The Grameen Bikash Banks were politically controlled and ran into problems. Atleast two of these have recently been recapitalised with fresh injection of funds.

RMDC however, has finally solved the problem of funding which was acute for Nepalese MCPs. They now have easy and adequate access to loan funds --- but they have to meet the strict standards set by RMDC to be eligible for such financing. It has succeeded in raising as much as US $20 million from Asian Development Bank, which is sufficient to meet the current demand of MFIs. It can also access additional funds from commercial banks. Right now 17 Grameen replicators are being financed by RMDC, with approximately 270,000 borrowers --- that's quite a large operation. Of these 95 percent would be accounted for by seven large replicators.

H I Latifee

The roundtable has definitely provided us with an extremely useful overview of how some of the oldest Grameen replications have grown over time. It is indeed a story of hard work and commitment, to fight poverty in countries around the world. It is a great story of a hard struggle to overcome the institutional problems that we all faced in starting up as an MCP. It is nevertheless an inspiring story to learn from people directly involved that difficulties can definitely be overcome. What will be our institutional identity? What sort of organisation would we like to have? What will be our relationship with the government, which no doubt plays an important role in our countries? It is also a question of how we can appropriately distance from the government, to ensure our operational autonomy. It is interesting to note that Grameen replications have taken various institutional forms -- ranging from research projects, foundations and NGOs to pure financial institutions and banks.

Most important, it has been a struggle to overcome our nagging, and chronic financing problem. Some have solved the problem by accessing government budgetary sources. Some have finally managed to access commercial banks, but for relatively small amounts. Others have been fortunate enough to find donor funds. But at best, such funding has been sporadic in the past and depends on special favours, special dispensations. It will be more and more difficult to find funding for small start up projects in the future, in the context of a gloomy global developmental scenario. We find that soft aid money is drying up. Creating a wholesale fund could provide an appropriate solution, provided the governments, commercial banks and international financial institutions agree to contribute substantially to the equity. But the final solution lies in bringing about the critically needed regulatory changes which would allow the MCPs to mobilise public savings that can in turn be on lent for microcredit. This will be the only long term solution to the chronic problem of financing that has severely constrained the growth of MCPs around the world.

 Editor : Muhammad
Executive Editor : Khalid Shams 
Editorial Assistance: Nazneen Sultana, Lamiya Morshed
Editorial Advisory Board: Argentina : Pablo Broder, Buenos Aires     Australia : Shan Ali, Sydney     Chile : Benardo Javalquinto, Santiago     Colombia : Mauricio Fernandez, Bogota     France : Maria Nowak, Paris     Germany : Nancy Wimmer, Munich     Malaysia : David S. Gibbons, Kuala Lumpur     Philippines : Dr. Cecilia D. Del Castillo, Bacolod City     USA : Alexander Counts, Washington DC
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