The Sewa Bank Recipe: An Interview with Jayshreeben Vyas
By Vanya Pasheva | Vanya Pasheva is a Research Associate at the CMF. She has been working on CMF's projects with Sewa Bank in Ahmedabad.

Jayshreeben Vyas, managing director of Sewa Bank in Ahmedabad shares the secrets of the Sewa Bank success. Sewa's objective: helping clients come out of the vicious cycle of poverty. Sewa's approach: staying close to the women, looking at their lifecycle needs and learning from them.



Sewa Bank is a cooperative bank based in Ahmedabad. It is the financial unit of the Sewa network of organizations which was founded by Ela Bhatt more than 30 years ago to empower urban self-employed women and help them come out of the cycle of poverty. More than 93% of the economically active women are self-employed and often lack formal protection and access to capital. Through its numerous sister organizations Sewa provides a variety of services such as financial services, savings, credit, insurance, business education, health care, procuring and marketing of members' products, lobbying and labor organization. Serving exclusively women, a vast majority of whom are urban poor, with more than 100,000 clients, average annual growth of more than 30% for the past 5 years Sewa Bank has demonstrated that poor self-employed women are bankable and make great clients.
Q: Starting in 1974, Sewa Bank is perhaps the oldest microfinance institution, older even than Grameen Bank. You have been with Sewa Bank for 20 years. During these years a lot of things have changed—the economy, the clients, their lifestyle and necessities. How has Sewa Bank evolved with its clients? Have the priorities changed in any way?
A: SB didn't have a blueprint to follow, we always learned from our experiences and mistakes. What was very clear from the beginning was that we were focused on our women members. We knew the goal was to improve the economic condition of these women by offering financial services. The systems and mechanisms were not in place. This is what has been evolving on a daily basis as well as products and services. Initially, we had only one simple saving account and one loan for any purpose. Then, gradually we realized that they need different products to match their needs. We looked at their lifecycle needs and have come up with various saving products to mirror those needs ... various recurring accounts, savings for buying gold, for education, for marriage, for old age, etc. Similarly, we have developed a range of products within credit. We realized that women need loans for housing, for improving their infrastructure, for water connection, etc. We try to provide livelihood finance by integrating various products or forming partnerships with external programs—for example in the Parivartan project infrastructure facilities are key for the financial upliftment of the poor, so while as a bank we provide financing, we seek to support a program which would provide a holistic solution. We try to identify the needs our clients are facing, analyze and understand them—do they increase the clients' income or productivity—and lastly we look for ways to most effectively provide financing to address these needs and to link them with other programs and organization. For home-based workers, their home is their productive place, so any improvement in the home helps them increase their income. Similarly, in Ahmedabad in particular, a large proportion of the men were employed in the textile mills. With the closure of the mills, many of our clients' family members were becoming unemployed. There was a need to help these particular families, to create employment in their houses. And because these people were already used to working in a factory or in a mill with machines, they were inclined to get involved in businesses using machines. So, we created a special loan for buying machines designed for the ex-mill workers.

Q: You have been talking about analyzing the problems and coming up with holistic solutions. You are also aware of the debate between the supporters of the livelihood approach - providing a package of services (such as education, health care, etc) together with credit - and the advocates of a more specialized microcredit-only approach which promotes the benefits of scale and argues that the beneficiary is in the best position to deploy the funds most effectively. Sewa Bank has a unique model: while it is a cooperative bank and specializes in financial services, it is a part of the large Sewa network through which it has access to clients' lives from multiple angles. How does it balance these two models and take advantage of its position?
A: It does not need to be one or the other. We started very simple—with one loan and one savings account. Looking at the lifecycle needs of our clients and at their reasons for borrowing... to repair the house, for marriage. And then the question arises: is it right to encourage them to spend on things such as marriage? On the other hand, who are we to teach them what to do? Thus, business training emerged naturally, as a way to empower them by giving them more information. Similarly, insurance arose from a survey among defaulters that we conducted. All of them had suffered a health shock or an accident in the family, which either exhausted their savings or forced them into indebtedness. Thus we realized that if we wanted to help them form capital we had to help them address the hindrances which were beyond their control. So, although we started from one savings and one loan account, now we offer Credit, Savings, Insurance. Looking at the lifecycle we have designed products and services, and have evolved them over time.

The second component is mechanisms. Everyone will say—what is so new in Sewa Bank? True we do the same door-to-door banking that everyone does. But especially with women we have found that we have to remain closer to them. If somebody asks, what is the learning point? It's a relationship based on trust, and not simply a customer service. For example during the riots, when the women were in relief camps, we went to see them just for concern and relationship. Especially in times of crisis, you have to remain close to them. Continuous contact—the reason we came up with the daily loan was that our NPA rate was going high after the shocks in Gujarat ... earthquake, flood, riots. We realized we have to remain close to the women, to keep contact through transactions, and that is why we came up with bank sathis and daily repayment schemes.

Q: I can see how building trust and relationships is important, but doesn't that take up too much time and resources? Is it feasible in terms of maintaining growth?
A: It depends on your structure. A neighbor trusts a neighbor more than an outsider. So, when you build a structure where the neighbor is given the power and the education about it, she becomes the best ambassador. And now, Sahara and others are starting to use this model too. You have Sahara agent in each slum, and Sahara is growing incredibly fast. But the biggest concern of course is quality. You need very good monitoring and control mechanisms.

Q: So, would you say that the sathi level is the bottleneck to growing if you want to maintain quality?
A: I wouldn't call it a bottleneck, but it is definitely a challenge. It needs to be a perfect system of monitoring. And even with the bank sathi model we can take advantage of collective monitoring. There are constant verifications and once a month all clients get together for a meeting and while talking about anything and everything, everyone's balance is read and tallied with our accounts. And thirdly, informal networks, which are perhaps the most important in our case. There is so much informal networks in Sewa Bank, that if anything were to go wrong in the field, you would get to know at the latest in 15 days. Look at the general manager and the head office manager—anyone can walk in their office and talk to them at any time. This is what keeps the flow of information right to the top to the decision maker. It is these informal system within the system which are crucial for monitoring. The message is there ... the doors are open, our clients know that they can always come and talk to us, to Elaben even. And it's not just about being a good person - it is our strategy and it works.

Q: We talked a lot about lifecycle needs and addressing them to get people out of the poverty trap. Are there mechanisms in place to graduate clients into more mainstream financial institutions?
A: Like any other bank we don't want our clients to go elsewhere—we're a for profit organization. Our average loan size used to be Rs 500, now it is more than Rs 15,000. The maximum loan size has also increased to Rs 50,000 and we give up to Rs 100,000 in some cases. We do increase the limit and try to change with our clients so that we don't lose them. Coming back to lifecycle needs: the women who come to us initially are not at zero capital; they are at negative capital, indebted to moneylenders. They start saving, they start taking loans—initially small, to cover past debts. We have tried to find out what is the capital formation process and when do they fall back, when are they most vulnerable, what are the linkages. Then we try to design specific products. They have three kinds of needs. First, emergency needs—accident, sickness—and we have developed insurance to address them. Second, consumption needs—marriages, festivals. These needs can be planned. For them we have designed specific savings products and promote education and discipline. The third kind is productivity needs for which we design credit products. But the problem is in marketing these products. Our clients are people who live and think on day-to-day basis, from one crisis to another crisis. They don't know what insurance is, they don't know the difference between credit and savings, if a money lender offers a loan, they wouldn't bother to think about the interest rate, but would pay it as it is a social obligation. Thus, we started the financial literacy program to explain the importance of planning, what credit is and how savings accumulate to large amounts in the future.

Q: How have the needs of your clients changed? You now have a special telephone loan, for example. How does the way people's needs and way of working change reflect in their relationship with the bank?
A: We're finding a shift in purpose for which clients take out loans. Initially, there weren't many education loans for instance, but now people are seeing the importance of education ... and not only school education but higher education as well. One of our directors is a rag picker ... her daughter has become a doctor. And we see that education has become a priority for many of our clients whose sons and daughters have gone on to higher education.
The second thing is saving capacity. I don't know if it is because of the change in culture, whether they have formed a habit and that is the reason why they are able to save more, or whether their capacity to save has gone up. And this is visible also in the proportion of fixed deposits which has increased considerably to a point where now our fixed deposits are higher than the savings deposit. Thus, our clients have gradually started converting their savings into investment.

Q: In the past couple of years it seems that microfinance has been picking up speed with the entry of new players and interest from a wider range of investors. Do you think Sewa Bank will be faced with increased competition and would it change the way you operate?
A: I think the biggest advantage we have is that in 1974, when the 15 founding members decided to start the bank, when there was no other microfinance organization, they somehow came up with the right format. Tomorrow, I am going to Delhi for discussions about the designing a legal structure for the MFIs. But if you think about it, people came up with the appropriate structure 30 years ago—you have to be able to provide savings, to provide credit. The majority of the MFIs are able to provide credit, but they are not able to legally collect savings. For example, I see a few organizations coming up in Ahmedabad but they are not a bank—and now the situation with cooperative banks is such at the moment that they will not be able to get cooperative bank status. Thus, they are not able to provide savings facilities and to achieve our range of products and services. Thus, competition is not really an issue at this point. On the contrary, most of them use our savings facilities for their clients' accounts. And this is not necessarily due to the characteristic of Sewa Bank in particular ... what is great is the structure.

Q: So, would you say that regulation is the biggest bottleneck for the sector to take off?
A: Yes, but it's not going to get sorted out that easily (laughs). But if we want the sector to grow, four things have to happen: first is capacity building. There are 370 million informal workers in the country who are not getting access to financial services and who are economically active and who need financial services. Only 10% of them are getting these services. There is a need for building the capacity of the existing microfinance organizations, there is a need to build a cadre of experts in microfinance, particularly grassroots level experts, and there is a need to build an environment where a larger number of new organizations come up.

Second, there is a need for low-cost free flow of funds to the microfinance sector. Of course, this flow has considerably increased recently, but cost is also a factor. And this is especially important for the small microfinance organizations.

Third is legal structure. All said and done, most MFIs are SHG federations. They are registered as trusts and they cannot earn interest. If it is a NBFC (Non-Banking Finance Company) it can give credit, but it cannot collect savings. If it is a credit society, then yes, it can provide savings, but there are very few credit societies because of the high state control. In only a few states has the Mutual Aided Cooperative (MAC) Act been passed allowing credit societies to exist without government control. What we're saying is that the poor need three basic financial services - credit, saving, and insurance ... and the structure should allow for that. We are also asking for an apex organization which will oversee the sector—not only monitoring, designing prudential norms, but also ensuring that the finds are channeled properly and facilitating the environment by rating the MFIs, registering and recognizing them. It will be both a regulating and a facilitation and development body—it will regulate the sector, but it will also ensure that good organizations get funds.

And the fourth thing: the need for microfinance is so much that unless the formal banking organizations get involved in the microfinance system, the MFIs alone will not be able to cover the need. In the past 30 years, we have either developed structures, the SHG model, the MAC Act, or adopted existing structures; we have designed products and services, we have designed mechanisms; and we have proved to the country and to the world that the poor are bankable and that it can be done at a low cost. Ultimately, what we want is access to financial services to all who need it, and I don't think that the microfinance sector alone can do it ... the formal banking sector has to step in. Because 90% of the working population is in the informal sector, and only slightly over 20% have a savings account. And I see savings as the biggest potential for the poor ... they need individual savings, they need voluntary savings... if motivated and facilitated, they can save!