Stuart Rutherford reacts to the Sa-Dhan National Microfinance Conference

Stuart Rutherford  is the author of The Poor and Their Money, and founder of SafeSave, a microfinance institution in Bangladesh.

I’ve just finished up an engagement at the Sa-Dhan National Microfinance Conference 2010 on 'Financial Inclusion and Responsible Microfinance', organized in collaboration with the Federation of Indian Chambers of Commerce and Industry (FICCI). Beyond my own panel (with economist Reetika Khera and Vijay Mahajan of BASIX), I had some time to take in some of the others.
 
I noted some good presentations on m-banking and the ‘business correspondence’ model for banks, including some very forward thinking by people in various parts of the government. My takeaway was that the banks may, at long last, be back in the game of providing basic services to the poor and very poor, and may even be pushing the MFIs onto the back foot. If the government/RBI tweak the regulations a bit more to make the business correspondence model more profitable (and it seems they may do that) we could see banks very quickly signing up clients through mobile phones or portable biometric point-of-service devices in the hands of village agents, and offering a service that really is "close at hand, frequent, flexible-but-disciplined, and above all reliable". I saw some of that at work in rural Uttar Pradesh, and was impressed. I noticed that some of the language used by several of the speakers was very close to lessons we put forth in Portfolios of the Poor, so directly or indirectly I think our views are becoming more and more mainstream in India.

Although the big MFIs in India are still stuck with a credit-only model (because most of them are not legally entitled to take deposits), much of the conference was about savings and payment systems – a big contrast to the situation a few years ago. Vijay, in a presentation on the second day, gave a ranked list of the services that were the most urgent to achieve financial inclusion. Given that more and more poor Indians are getting state payments through NREGA (the national rural employment guarantee scheme that entitles all rural Indians to 100 days of work a year if they want it) he put payment systems at the top of his list, followed by transfers/remittances to allow workers to get money back to their village families, and then savings and then finally credit.
 
Vijay also stressed financial literacy. But some of what was said by others about financial literacy perplexed me. The message seemed to be that 'financial literacy is a prerequisite of financial services for the poor'. Doesn't this seem a bit like telling poor people that they shouldn't get into the water until they have learnt to swim?