New Dimensions of Micro Finance under NGOs to ensure sustainable development through Corporate Social Responsibility Under Millennium Development Goals of the UN.
Abstract:
Corporate Social Responsibility (CSR) came into prominence in the mid 1980s.This means business would, among others, ensure responsibility for its likely influence on stakeholders, environment and the community at large. It is a proactive approach to bring in holistic growth by containing the ill effects on environment on the one hand and bringing in a new deal in relation to mother earth vis a vis consumers, employees, environment, business profit and the like, on the other. The whole issue is examined with the help of some empirical data collected from a randomly selected international sample study of seven countries, spread over three continents. The major hypothesis of the empirical study was to ascertain whether CSR of businesses adequately empower NGOs with micro finance. The general perception of CSR is to plough back part of the profits of companies and businesses for sustainable development oriented activities.
Conscious efforts are required to select only those NGOs with impeccable integrity, to channel the CSR funds for redeployment. These NGOs must have undergone both financial and social audit. NGOs which resort to strong arm tactics in effecting recovery may be discriminated against in channeling the CSR funds. NGOs are to be assessed periodically to review their credibility. MFIs are to be subjected to strict and close scrutiny for human rights violations related to micro credit loan processing, sanction, disbursal and recovery.
Basically good governance is the key word, preamble and post-script for CSR. The starting point for any meaningful policy intervention aimed at the poor is that micro studies are required to theorize and conceptualize many a hunch and that is possible, among others by engaging focus group discussions on an on going basis. Researchers are challenged the world over and particularly in Asia, Africa and Latin America to take up the CSR-NGO-Micro-credit-theme as the prime theme of investigation during the first half of the 21st century.
Introduction:
It is amazing to note that the literature on corporate social responsibility (CSR), micro finance and NGOs abunds. The advent of the term CSR can be traced back to the 1970s. But it became prominent after the mid 1980s. It is also known by different names like corporate responsibility, corporate conscience, corporate social performance and the like. CSR means that businesses would monitor and ensure its support to rules and regulations of the land where it operates, maintain ethical standards and the norms of consciousness. This means among others, businesses to ensure responsibility for its likely influence on stakeholders, environment, and the community at large. It is a proactive approach to bring in holistic growth by containing the ill effects on environment on the one hand, and bringing in a new deal in relation to mother earth vis a vis consumers, employees, environment, business profits, etc.
The theme of CSR is much debated and criticized the world over. Proponents of CSR argue that there is a very strong case for CSR. Critics argue that CSR distracts from the fundamental economic role of businesses. Many a critic argues that it is nothing more than superficial window dressing. Another argument is that it is an attempt to pre-empt the role of governments as a watchdog over powerful multinational corporations. However, Corporate Social Responsibility has been redefined throughout the years. Therefore, the theme deserves great deal of thought in its approach and handling. The views of the corporate executives on NGOs and the deployment of micro credit through them are very important. However, at least five per cent of the sample was corporate executives as respondents of the field study and to that extent the study has covered that lacuna, though not fully.
Foot Note: Acknowledging the help received from others is a very difficult job. I am grateful to all the respondents who come from three continents for their time and commitment. I want to place on record my special gratitude to Prof Dr. Albert Schram, School of Business and Economics, Maastricht University; Dr. Michael Ashkenazi, Senior Researcher of Bonn International Centre for Conversion; Mr. K. Kannan, Director, Asian Development Bank, Manila and Mr. Kishore Menon of Bamco, Bahrain for editing an earlier version of this paper. They did contribute immensely. However, errors if any are solely attributable to the author.
Hypothesis:
The major hypothesis of the empirical study was to ascertain whether CSR of businesses adequately empower NGOs with micro finance for ensuring sustainable development.
Micro Finance & Macro Challenges:
Any discussion on the captioned theme becomes meaningful only if micro finance is touched up on at least thematically. As such an effort is made in the following section to familiarize the readers with MFIs and the challenges of micro finance globally and in the Indian context. It is worth recalling that there is grater awareness at the international level after the demise of the Lehman Brothers that the poor are better credit risks than the high flyers. This is one of the attractions of micro finance- the lending of tiny sums to those who are at the bottom of the economic pyramid. The sums involved may be around as little as USD 50. They range from farmers in rural areas, to shop keepers, artisans as well as very small businesses. The beauty is that MFIs reach those areas through NGOs where banks shy away from on account of connectivity problems, high risk and transaction costs. There is a word of caution that too much commercialism may ruin micro finance.
Taking a clue from the foregoing warning, it may be worth recalling the recent developments in the Indian micro finance market. With an estimated USD 6000million lent to some 27 million active borrowers, the Indian micro finance business has entered the mainstream. It is no more a fringe financial activity by any imagination calling for acts of good governance in place. MFIs have been very active even in the remotest villages of some the selected south Indian states of India. They say as their slogan, “ we are the last mile connectivity in rural finance” was considered as an amazing instrument of financial inclusion of the marginalized and the hither to neglected by the organized banking system of the country. Default by a single borrower impairs the eligibility of the group to receive further credit was a great repayment ensuring factor as well as proper end use of credit. Here come two questions. One is the adequacy of the loan in relation to the purpose of the loan. The other question relate to the credit absorption capacity of the borrower in relation to the marketing arrangements of the marketable surpluses of the borrower. There is a danger of multiple borrowings from different MFIs and even village money lenders in the absence of principles of good governance in operation. Another related issue may be of transparency in the operations of the MFIs particularly pertaining to the interest regime. It may be recalled that in any discussion on inclusion at least in the short term, profitability and social justice can not co –exist unless conscious policy interventions are effected by fiscal and monetary policy makers. It may be recalled that for financial inclusion, adequate preparations are required both at the beneficiary and policy makers levels, so that the erstwhile bitter experiences of the chaotic rush for receiving the payments of wages of NREGP at the bank branches are not repeated!
It is worth recalling that micro finance has rapidly grown in many countries in the recent past. There are some 30 million clients of MFIs in India during 2010. India is one of the biggest markets of micro finance in the world today. But in India a new breed of MFIs has come to stay namely pro- profit micro finance lenders. They have annoyed both the NGO sector and the government alike. In Andhra Pradesh state of India, with the largest number of micro finance borrowers, local politicians have halted the MFIs by an executive order of the government. It is a truism that the poor often use micro loans to pay off far more expensive loans contracted from village money lenders. In Bangladesh the MFIs can charge only a maximum of 27 per cent as annual interest on micro loans. It seems the Indian authorities are also planning to cap micro finance interest rates. It may be worthwhile to permit MFIs to take deposits and to augment the introduction of the proposed unique identity number ( UIN) ( Aadhaar) to all as it may help to track the clients overall indebtedness, credit histories, etc. among others.
This is by way of some understanding of the micro finance and its current challenges. It is time to get back to the main hypothesis of the present paper and its detailed analysis.
Sources of Data & Methodology:
Having seen the advent and background of CSR, the whole issue is examined with the help of some empirical data collected from a randomly selected international sample study of seven countries, spread over three continents. It was designed in such ways that both developed and developing countries represent the sample along with a mix of large and small economies as well. Data were collected on a pre-structured questionnaire electronically. Though it was proposed to collect data from some 300 respondents, in effect, only 100 respondents had returned the filled in questionnaires. The sample respondents were well educated and had adequate exposure to CSR related subjects to comment on it. Some of them were really practitioners of CSR regime themselves. Most of the respondents were personally known to the authors, owing to their professional erstwhile interactions with them.
The countries covered for the field work included Australia, UK and Italy as representatives of the developed world. The developing economies constituted India, Bahrain, Qatar and Afghanistan. The selection of these countries was mostly on account of the personal familiarity of the authors with the respondents. Nearly 10 sample respondents each had returned the filled questionnaires form these countries. In addition, around 30 filled in questionnaires had come from several other countries like Pakistan, Bangladesh, Nepal, Sri Lanka, PNG, Singapore, Philippines, etc. But the number of such questionnaires was less than five from any one country. For the purpose of data collection, the calendar year 2009- 2010, (July 2009 to June 2010) was considered as the study period, while field work was done during July, Aug, and Sept 2010.
Limitations of the Study:
The major limitation of the study is that the sample is only 100 respondents. For a study of a global nature, seeking to come out with policy implications, this is a major limitation. Again, there were no face to face interviews with the respondents and as such the body language communications and observation techniques could not be profitably made use of. Respondents, it is assumed, were in the same wave length with the interviewer even in an online survey. In fact, it is not always correct to assume so.
Findings & Data Analysis:
Table 1 shows the details of respondents, country wise distribution.
Country Respondents
India 10
Afghanistan 10
Australia 10
UK 10
Italy 10
Bahrain 10
Qatar 10
Others 30
All 100
As the above table is self explanatory, the following table examines the literacy details of the sample respondents.
Table 2 – Level of Literacy of the respondents
Under graduates 14
Graduates 55
Post Graduates 31
All 100
Nearly 86 per cent of the sample was highly educated respondents. They were reasonably well informed about CSR. Besides, they were competent to comment on CSR. Some of them were even representing business houses themselves and had practiced CSR.
Table 3 shows the details of age distribution of the sample.
Age Group Respondents
Less than 40 years Nil
40 to 60 years 61
Above 60 years 39
All 100
It could be seen from the foregoing table that the sample had nearly 40 per cent of the respondents classified as senior citizens. They were all mature people capable of assessing the field realities.
Table 4 shows the details of the annual average income of the sample in U.S. dollars.
Av Income Respondents
Less than 2000 Nil
2001 to 20,000 67
Above 20,000 33
All 100
While some 33 per cent of the sample had reported an average annual income of more than USD 20,000, 67 percent accounted for less than USD 20,000. In the international context of both developed and developing economies, this average income is a clear indication of the financial standing of the respondents.
Table 5 shows the perception of the respondents about CSR. It was asked as to what they understand by CSR. The tabulated summary is presented in the table below.
| Corporate entities ploughing back a part of their profits to sustainable development activities of the community | 73 % |
| Organizations sharing their profit with the poor | 20 % |
| Businesses helping society with funding | 7 % |
It is very clearly brought to sharp focus by an overwhelming majority of the respondents that their perception of CSR is to plough back part of the profits of companies and businesses for sustainable development oriented activities of the community.
Another attempt was made to ascertain as to which would be the appropriate agency to channel the CSR funds. The summary findings are tabulated and presented in table 6.
Table 6 – Agency to channel CSR Funds: NGOs
Good to channel through NGOs 93
Not good to have NGOs 7
All 100
It is worthwhile to mention that a clear choice was offered to the respondents among NGOs, community organizations, local self government organizations, churches, temples and such other religious organizations. But the response was only confined mostly to NGOs. It is worth recalling that nearly 93 per cent of the respondents had favored NGOs as the right vehicle to channel CSR funds on account of their grass root level connections and transparency in their approach and out look. Of course, they were very vocal in their views about cowboy NGOs. They were voting only for NGOs which are above board and run on professional lines with credibility.
A question was asked about the desirability of NGOs taking up micro finance activities on a larger scale, using CSR funds. In fact, there are some misgivings in the minds of many people. The results are presented in Table 7.
Table 7: NGOs to take up Micro Finance activities:
Agreeable 90
Disagreeable 7
Indifferent 3
All 100
It can be seen from the foregoing table that an overwhelming majority of the sample had opined that NGOs may take up micro finance activities by making use of CSR related funds for ensuring sustainable development in the community around them. Again, it is with qualifying clause that it must be woven around those NGOs which have track operational record.
As a logical corollary to the foregoing discussion, the cost effectiveness of NGOs in relation to micro finance was discussed with the sample respondents. The results are presented in Table 8.
Table 8: Micro Finance & NGOs: Cost Effectiveness:
Cost effective 97 %
Ineffective 3%
All 100%
It is evident from the foregoing table that around 97 per cent of the sample respondents had voted in favour of cost effectiveness of micro finance operations by NGOs. May be the wisdom coming from the field is worth experimenting with location and regional refinements. It offers new challenges for policy makers and researchers around the globe.
Asked about recovery performance as experienced by NGOs with regard to micro finance, the following table presents the field realities across the sample countries.
Table 9: Recovery Performance of NGOs in relation to Micro Finance:
Ensure better recovery 67 %
Does not make any difference 33%
All 100%
The better recovery performance of NGOs in relation to micro finance at 67 percent cannot be taken as a major suggestive indication. It may be noted that nearly 33 per cent of the respondents had opined that NGOs do not make any difference with regard to recovery of micro finance activities. However human rights violations related to MFIs must be the topic of debate and research as many a MFI is not for profit alone any more.
Another hypothesis tested in the study was that micro finance may be disbursed through self help groups (SHGs). Again this was a debatable subject. The results are tabulated and presented in Table 10.
Table 10: Micro Finance to be disbursed through SHGs:
Only through SHGs 63 %
Through others 37%
All 100%
It may be noted that while 63 per cent of the sample respondents had favoured the exclusiveness of SHGs in indulging in the micro finance domain, some 33 per cent had voted for other agencies to do this job. This means no exclusiveness was voted for any one agency. Again, this may be a worthy topic for future researchers to be taken up.
While responding to micro finance through the NGOs, the voice of the respondents was more discernible. Table 11 shows the details.
Table11. Deployment of CSR related funds by NGOs:
Better to opt for NGOs 85 %
Look for other agencies 15 %
All 100%
Respondents from almost all countries had favoured the micro finance lending through NOGs. It may be worth while to experiment this approach to prove or disprove it on a larger scale by innovative CSR oriented businesses.
Respondents were asked about their views regarding wider coverage in terms of deployment of funds of CSR through the medium of NGOs. The results are presented in Table 12.
Table 12: Wider coverage of CSR related funds through NGOs:
Required 100
Not necessary Nil
All 100
It is interesting to note that all the respondents had opined that wider coverage of CSR related fund deployment may be done only through NGOs. Whenever qualified and competent NGOs are not available, the corporate bodies in question may identify other organizations or do the job themselves. Obviously it is an excellent policy indication for those who are the movers and shakers of policy domain in the developing world and that too, particularly, in the context of the Millennium Development Goals of the United Nations.
How to empower NGOs through CSR related activities?
Much depends on our perception. It was pointed out by many a respondent from the developing countries that, lack of training is a major stumbling block withholding the NGOs from putting up a good performance. In order to overcome this inadequacy in training in financial management, targeted training programmes may be imparted. The local communities and NGOs are to be empowered by undertaking study tours. This would initiate them to several new things. According to conventional wisdom, it is said that seeing is believing. NGOs are to be trained on an ongoing basis, particularly with targeted training inside NGOs. The starting point is to empower the NGOs themselves. This is imperative for any activity to be undertaken by NGOs. As already mentioned elsewhere in this paper, select only those NGOs with impeccable integrity to channel the CSR funds for redeployment. Again, the selected NGOs must have undergone both financial and social audit and must be like role models.
It was suggested that NGOs must be strengthened with professional staff and competent advisors. It was felt that only those NGOs with sound monitoring and evaluation systems may be selected for channeling the CSR funds for redeployment.
NGOs which resort to strong arm tactics in effecting recovery may be discriminated against, in channeling the CSR funds. In fact, intimidating methods in recovering dues of loans or outstanding amounts must be done away with. MFIs are to be subjected to strict and close scrutiny for human rights violations related to micro credit loan processing, sanction, disbursal and recovery.
NGOs are to be assessed periodically to review their credibility and to ascertain whether they function as friend, philosopher and guide to their stakeholders and SHGs.
There is another dimension to the whole issue in the context of leading the war on poverty. The very exclusion of small and marginal farmers from the benefits of development mainstream due to the lack of credit to buy critical inputs would pose a moot question in terms of equity too. It is common knowledge that the burden of indebtedness is very high in rural India and the rural poor are exploited by all including the micro credit institutions as well. Farmer suicides are mostly attributed to the lack of formal credit at reasonable cost. Production oriented SHGs will become sustainable only with assured backward linkages and credit and forward linkages with markets. It is to be understood that the rationale for micro credit is to strengthen the livelihood security of the poorer sections of the society who live below poverty line. Again, its impact may be measured in terms of the poverty reduction. It is high time that banks and Corporates should lead the war on poverty, the former by its mandate and the latter governed by the CSR considerations.
Policy Implications:
It may be clearly understood that the corporate bodies owe certain duties to the community and should be transparently responsible to them and to the society at large. First and foremost among them is strict compliance with laws of the land in relation to pollution, health, environment and concern for the society. This is all the more essential in the prevailing socio-economic milieu where the corporate bodies in several countries indulge in polluting the rivers and other water bodies including aquifers. It is high time to have an inclusive growth approach, rather than following an undeclared anti-social and anti-people approach on the one hand and a proclaimed CSR creed on the other. Corporate bodies everywhere, namely in production, trading, banking, etc., should not be doing any unethical operations for amassing instant profits by exploitations and manipulations. Basically good governance is the key word, preamble and post-script for CSR.
It may be perceived unambiguously that this paper is not an attempt to debate the pros and cons of CSR. But it is looking into CSR as and when it comes in the form of resources for redeployment. As such it is examining the desirability of channeling the CSR recourses through NGOs and dedicating it under the head of micro finance.
It is very clearly brought to sharp focus by an overwhelming majority of the respondents that their perception of CSR is to plough back part of the profits of companies and businesses for sustainable development oriented activities. It is worth recalling that 93 per cent of the respondents had favored NGOs as the right vehicle to channel CSR funds on account of their grass root level connections and transparency in their approach and outlook. Of course, they were very vocal in their views about cowboy NGOs as well. They were voting only for NGOs which were above board and run on professional lines with credibility. An overwhelming majority had opined that NGOs may take up micro finance activities by making use of CSR related funds for ensuring sustainable development in the community around them.
97 per cent of the sample respondents had voted in favor of cost effectiveness of micro finance operations by NGOs. May be the wisdom coming from the field is worth experimenting with location and regional refinements. The extent of recovery performance of NGOs in relation to micro finance at 67 percent as “better recovery” cannot be taken as a major suggestive policy indication. It may be noted that 33 per cent of the respondents had opined that NGOs do not make any difference with regard to recovery of micro finance activities. In contrast, the recovery performance of micro finance institutions in Bangladesh at 95 percent is laudable and even worth studying. MFIs are to be subjected to strict and close scrutiny for human rights violations related to micro credit loan processing, sanction, disbursal and recovery.
But one important factor affecting the loan utilization and resultant repayment is the general inequalities and asymmetries that are prevailing in the economy. Income inequality is the major factor to be reckoned with. It is a sad commentary of our developmental dynamics that those with resources are included and those without resources are excluded. In fact the policy thrust must be one of integrated and inclusive approach towards planning and development. The starting point for any meaningful policy intervention aimed at the poor is that micro studies are required to theorize and conceptualize many a hunch and that is possible, among others by engaging focus group discussions on an on going basis.
It is interesting to note that all the respondents had opined that wider coverage of CSR related funds deployment may be done only through NGOs. Obviously it is an excellent policy indication for those who are the movers and shakers of policy domain in the developing world and that too particularly, in the context of the Millennium Development Goals of the United Nations.
The starting point is to empower the NGOs themselves. As already mentioned elsewhere in this paper, select only those NGOs with impeccable integrity to channel the CSR funds for redeployment. Again the selected NGOs must have undergone both financial and social audit and must be role models.
It was suggested that NGOs must be strengthened with professional staff and competent advisors. It was felt that only those NGOs with sound monitoring and evaluation systems may be selected for channeling the CSR funds for redeployment.
NGOs which resort to strong arm tactics in effecting recovery may be discriminated against in channeling the CSR funds. In fact, intimidating methods in recovering dues of loans or outstanding amounts must be done away with. NGOs are to be assessed periodically to review their credibility and to ascertain whether they function as friend, philosopher and guide to their stake holders and SHGs.
Researchers are challenged the world over and particularly in Asia, Africa and Latin America to take up the CSR-NGO-Micro-credit-theme as the prime theme of investigation during the first half of the 21st century. It may be noted that out of the eight MDGs at least eradication of poverty and hunger is directly related to the theme of this paper. Gender equality and women employment under the banner of SHGs and NGOs in relation to micro finance do find a prominent place in the modes operandi of the achievement of the MDGs of the UN. The future beckons, shall we falter?