Consultant A – Banks should not Involve

1. Consultant A – Banks should not Involve • The Bank has only fairly recently emerged from a painful restructuring process; it should focus on its traditional business and not become involved in a quite unfamiliar market. • Micro-clients have no collateral, and their informal associations or groups are not legal entities; it is not possible to sue informal entities in case of default. The Banks’ objective and organisational culture is to make a profit; micro-credit is about poverty alleviation, and requires NGO’s attitudes and skills, not bankers’. • The Bank’s staff had made many bad loans in the past; it is now vital to be ultra-conservative, to lend only to respectable and well-known customers with good security.

2. Consultant A – Banks should not Involve • Most of the Bank’s customers are savers, and many of them are poor. Their savings should not be put at risk by being lent to un-creditworthy borrowers. • The rural economy depends on agriculture, which is risky, particularly when carried out using traditional methods on a small scale. • The earlier Government schemes created the impression that TCB’s loans to poorer people need not be repaid; any new business will suffer from this reputation. • Most micro-loans are to poor women, who own less assets than men; they are also more likely to spend what little money they have on their families, and not on loan repayments.

3. Consultant A – Banks should not Involve • The Bank’s staffs are educated business-oriented people, who are used to dealing with clients who are similar to themselves; it will be costly to re-orient them to dealing with the rural poor. • Micro-finance can only be profitable for a Bank if it charges extortionate interest rates; TCB, one of the nation’s largest and oldest banks, cannot be seen to be charging higher rates to poorer people. • If poor borrowers cannot repay, the TCB will have to seize what assets they have. This will be difficult, expensive and disastrous for the bank’s image. • Micro-finance is often heavily subsidised; a commercial institution should not enter a market which has been ‘spoiled’ by subsidy. • Many of the micro-credit NGOs are customers of the TCB; it should not compete with them.

4. Consultant B – Bank should Indirectly Involve • The rural poor are the majority of the population, and their savings and loan requirements are already large in aggregate, and will grow. The TCB must have a share of this new market. • The Bank does not have the systems to deal with thousands of tiny loans and savings accounts, or the related transactions. It should use the new micro-credit NGOs as its distribution channels. • The TCB’s staffs have poor experience in lending to the rural poor; they will not be able to change their views, but they will be able to deal effectively with credible NGO intermediaries. • The Bank has a wide rural network and can easily service the micro-credit NGO’s savings and credit needs and monitor their performance.

5. Consultant B – Bank should Indirectly Involve • It will be cheaper to deal with a small number of formally registered NGOs than with millions of individual borrowers. • The Bank is already dealing with many of the micro-credit NGOs, and by offering bulk loans to them it can acquire many more of them as customers for other services as well. • The high rates of interest charged by the NGOs are too high for the TCB to charge, but they do allow the NGOs to pay a higher rate for bulk loans than the TCB can get on treasury bills. This will be a profitable use of surplus finds.

6. Consultant B – Bank should Indirectly Involve • Some poor rural clients will in time ‘graduate’ to mainstream banking. If their NGOs are using funds borrowed from TCB, TCB will be the obvious commercial bank for them to go to. • Many of the NGOs do not have collateral security, but foreign donors and government may be willing to guarantee loans from TCB to them as part of the process of phasing out their support. • The Bank can learn about the new market by dealing with NGOs, and will then be able to decide whether or not to enter the market directly. • NGOs understand the social aspects of micro-finance, and the Bank can deal with the finance; this is an ideal partnership.

7. Consultant C – bank should directly involve • The TCB cannot claim to be one of the nation’s main banks if it does not do business with the majority of the population; with micro-credit, it can reach them, profitably. • The rural economy is becoming more diversified, and is less dependent on agriculture; the Bank should take advantage of this new strength. • The Bank’s smaller savers, and some of its borrowers also, may join credit groups, thus reducing the numbers of accounts which the Bank has to manage. • The Bank’s major strength is its branch network and national reputation; everyone knows TCB, and once it offers appropriate products and services people will prefer it to an unknown NGO.

8. Consultant C – bank should directly involve • The NGOs have done the costly ground-work of building a credit culture; the Bank can now exploit this in its own interest. • The bank can and should learn from its past losses in rural lending, and can spread its risks and profit from high interest micro-loans and low interest savings mobilisation. • The Bank can and does take small savings, from poor people. NGOs are not allowed to offer this service, which poor people need as much as they need loans. TCB is already half way into the micro-finance market, and loan products will complement the existing savings products.

9. Consultant C – bank should directly involve • The Bank can learn about micro-finance groups though their savings accounts, and can then lend to those which are worth working with. • TCB will lose some of its corporate business to foreign banks as financial markets become globalised. It must compensate by building new home-based business, based on its branch network with which other institutions cannot compete. • Large customers will move from one bank to another for a minor difference in interest rates; the price of financial services is less important to smaller customers than the service, and TCB can offer a good service through its branch network.

10. Consultant C – bank should directly involve • Some of the new NGO micro-credit institutions will grow, and may become commercial banks themselves; TCB must pre-empt this by getting into their market before they get into its market. • Some micro-credit clients will grow into larger clients. They will stay with the institution which assisted them when they were poorer. • TCB is now private, but it depends on Government for much of its business, and for general support. If it is seen to be assisting to alleviate poverty, the Bank’s image will be enhanced and it will gain in other ways.