Burgess COMMENTARY

Peter Burgess

BRAC Microfinance Director Shameran Abed on Client Protection, Balancing Credit and Savings, and the Evolving Financial Inclusion Landscape

Since launching microfinance activities in 1974, BRAC has grown to become one of the world’s largest financial services providers to the poor. BRAC’s microfinance operations, which include loans and savings, serve more than 5 million clients in eight countries. In 2012, BRAC started a financial education and client protection project that aims to help clients adopt financial behaviors that facilitate their well-being. Shameran Abed, Director of Microfinance for BRAC International, recently spoke with me to discuss BRAC’s work. Prior to joining BRAC, Abed served as an editorial writer at one of Bangladesh’s main English-language daily newspapers where he wrote primarily on politics. He also serves on the Board of Directors of bKash, a mobile financial services platform in Bangladesh.

Eric: Can you talk about BRAC’s client protection work and what you learned from your project pilots in 2012 and 2013?

Shameran: We wanted to make sure that any clients coming into the BRAC microfinance program could be very well catered to. They should understand what our products are, what our terms are, what our rates are, and they should make an educated decision on whether they want to take our products. And if they do become our members then they should be treated well, treated with respect, and have access to information. I’m not saying that BRAC didn’t have all these things before two or three years ago, but we really wanted to double-down our efforts on these fronts. So that’s why we decided to do more work around client protection, client customer service, and financial education.

Eric: What do you think are the biggest risks facing microfinance clients?

Shameran: From a financial point of view, there are two or three risks that we’re particularly concerned about. One, of course, is something that’s been talked about a lot, the risk of overindebtedness. Bangladesh, although quite a mature microfinance market, is, in terms of overindebtedness, thankfully still quite low. But still I think overindebtedness is something that you always guard against because there is a lot of demand for credit and if microfinance institutions are not careful they can always have issues around overindebtedness of borrowers.

There are a lot of financial institutions nowadays that are kind of fly-by-night institutions that set up shop… Institutions that are typically unregulated. They come in, they offer products, they lure in clients, and then they disappear. I think around these issues the clients need more awareness, and these are some of the things our financial education components try to address.

Eric: How do you think clients’ needs are evolving – in terms of different kinds of services or the ways in which services are offered?

Shameran: From our experience in Bangladesh, for example, the country is unique in that it’s had microfinance for a long time now. What we’re seeing is that the second or third generation of microfinance clients is not happy with just the one or two basic savings and credit products that most MFIs tend to offer. They’re thinking about other types of services, and the MFIs are thinking about what other kinds of financial products our clients need. So, within the last two years, we are starting to think about a broader range of products that we can offer the poor. The rich can have access to insurance, pensions, and all of that. And the poor should also have access to a lot of those products.

Around that a lot of work has been done and a lot of work needs to be done. We still don’t have a large amount of insurance products for the poor. Contributory pension services are in demand because even poor people are surviving much longer. Life expectancies have increased quite a bit in low income countries. And we need those types of products that combat vulnerability in old age, vulnerability in the long run.

Eric: How does BRAC balance its focus between credit and savings? Have you found that one service leads to the uptake of another?

Shameran: Yes, I would say that the uptake of one does lead to the other. The BRAC microfinance program actually started off with a savings side and a credit side. From the very beginning of offering financial services to the poor, BRAC had decided that savings was just as important as credit.

The bankers that we had in Bangladesh, the regulators and the government, allowed microfinance institutions to also collect deposits, and we always found the poor to be very interested in saving, because poor people have very few options or choices in savings at financial institutions. In Bangladesh we always put a lot of effort into developing our savings portfolio. We have a lot, almost $300 million, in client savings. And yes you are right, what we’ve found is each affects the uptake of the other. So those who save also borrow. I think on both sides the one compliments the other.

Eric: Last November, CGAP featured some findings from BRAC’s pilot program with bKash on mobile financial platforms. Have there been any developments or lessons learned since then?

Shameran: We’re actually about to start several pilots on the integration of mobile financial services within microfinance. The report that you saw from CGAP was about a pilot that we wrapped a couple of years ago when bKash was still a fairly new organization. We have to wait and see how the innovations and the pilots shape up. They’re still in the very early days. But my hunch is that we will see some different results now because over the last two or three years people in Bangladesh have become far more used to mobile financial services for many things, not just money transfers, which have become quite widespread, but also using mobile financial services to be billed, to pay for bus tickets, to pay for train tickets. Some of the early problems we had around people not being used to it, not being used to the technology, not being happy with just an electronic confirmation but wanting a hard copy paper slip… All these things I think are going to go away as time goes by, and people are going to feel much more confident and comfortable using mobile financial services.

Eric: To close off, as you know, there’s been a paradigm shift over the past few years from microcredit to broader financial inclusion, with many more players coming into the space to offer a wider array of services. How do you view this evolution and the future of microfinance?

Shameran: I think the shift is very positive for the sector and also for people who use financial services. I think microcredit or microfinance is probably just a way to think about providing financial services to the poor. But the longer we work with poor people and the more we are aware of their needs we realize that there is a lot more that needs to be done in terms of products – savings products, insurance products, possibly pension products – and also in terms of delivery channels. So I think there are going to be different and newer players coming into the space, financial services providers and others, and I think this only bodes well for the client because it’s going to increase choice, potentially make financial services cheaper and more convenient for them, and that can only be a good thing.