What does it mean to have vision? (HBR review)
[I got this in HBR Jan 2009 review

• simplifying complex situations
• foreseeing events that will affect the organization.

• encouraging new business
• defining new strategies

• Inspiring constituents
• challenging the status quo
• being open to new ways of doing things

The study focuses on Microfinance and its financial inclusivity in India. Whether microfinance is success of failure in India, can it be used as a means of reaching to poor. What is the impact of current liquidity crunch on microfinance, can it be used as a mean of providing income to poor people.

Microfinance is often defined as financial services for poor and low-income clients. Micro Finance Institutions (MFIs) are providers of very small loans to unsalaried borrowers taking little and no collateral. These institutions commonly tend to use new methods developed over the last 30 years, these methods includes lending and liability, pre-loan saving requirements, gradually increasing loan sizes and an implicit guarantee to ready access to future loans if present loans are repaid fully. The microfinance industry in the country has over 2500 micro finance providers in the form of trusts, societies, cooperative and NBFCs.

Poverty is multi-dimensional. By providing access to financial services, microfinance plays an important role in the fight against the many aspects of poverty. For instance, income generation from a business helps not only the business activity expand but also contributes to household income and its attendant benefits on food security, children's education, etc. Moreover, for women, who, in many contexts, are secluded from public space, transacting with formal institutions can also build confidence and empowerment.

The poor already save in ways that we may not consider as "normal" savings--- investing in assets, for example, that can be easily exchanged to cash in the future (gold jewelry, domestic animals, building materials, etc.). After all, they face the same series of sudden demands for cash we all face: illness, school fees, need to expand the dwelling, burial, weddings.

            These informal ways that people save are not without their problems. It is hard to cut off one leg of a goat that represents a family's savings mechanism when the sudden need for a small amount of cash arises. Or, if a poor woman has loaned her "saved" funds to a family member in order to keep them safe from theft (since the alternative would be to keep the funds stored under her mattress), these may not be readily available when the woman needs them. The poor need savings that are both safe and liquid. They care less about the interest rates that they can earn on the savings, since they are not used to saving in financial instruments and they place such a high premium on having savings readily available to meet emergency needs and accumulate assets.

Poor people use savings for a wide range of purposes—from taking advantage of business opportunities to accumulating assets to protecting against a variety of risks. They have a variety of cash requirements for events like the marriage and education of their children; structural risks like macroeconomic fluctuations and seasonal variations in cash needs and availability; and crises like theft, fire, damage, accidents, and death of a family member. The less predictable the opportunity or risk, the more difficult it is for the poor to manage without some sort of savings.

Poor value security above all other considerations. Other priorities include convenient locations and operating hours, flexible products, helpful and friendly staff, confidentiality, and a decent return (although this last feature is less important to the smallest depositors). Appropriate products encompass both highly liquid accounts that allow for frequent, small deposits and withdrawals, combined with time-bound accounts that allow people to save for specific objectives (school fees, weddings, etc.).

Microfinance products such as savings accounts, microcredit loans (usually $50 to $150), and health insurance empower the poor to lift themselves out of poverty. Through microfinance, they can secure better nutrition, education, healthcare and housing for their families.

Microfinance success or failure

Micro-finance programs have given women and men access to savings and credit. Microfinance institutions and self help groups in India are playing crucial role to help poor people.

Some of Microfinance institutions in India are 'Arman India', 'Arohan', 'Asmitha Microfinance', 'Bandhan Microfinance', 'Basix Microfinance', 'Janalakshmi', 'Moksha Yug', 'Saadhana', 'Samridhi Microfinace', 'Sarvodaya Nano Finance', 'Share Microfinace','SKS India', 'Spandana India' and Self help groups are 'SKDRPD India',       'Aadarsh Welfare Society'.

Microfinance institutions come in all sorts of shapes and sizes, but the main ones plying their trade in rural India are Self-Help Groups (SHGs) and for-profit MFIs. SHGs—numbering 3.4 million and servicing 45 million poor—are groups of up to 20 women who borrow directly from banks at a 12 per cent rate and then lend the money internally to members with additional percentage points tacked on. Interest income earned on each loan goes into a savings pool. In about five years, each individual from the group has a nice little nest egg of around Rs 25,000 to spend as they like. For profit MFIs like SKS and Spandana—only 25 of which serve 14 million people, but are the fastest growing outfits today in microfinance—have a different approach. They loan out money using the Grameen model, within groups of five women or so—but the loans are to individuals. The group exists as a collective guarantee for the loan and if someone defaults, the rest of the members have to come up with the cash. A staggering 800 million of India's poor are starved of formal credit and MFIs can be a godsend to their poor clients who use this cash injection to try and transform themselves into successful minientrepreneurs by rearing buffalos or selling vegetables and thereby improving the quality of their lives. Without them, the only alternative is to sell one's pound of flesh to the money lender, who is only too happy to give out funds that command interest rates that range from 100 per cent to a mind-boggling 5,000 per cent, depending on the nature of the loan.

There is evidence of significant potential for micro-finance to enable women to challenge and change gender inequalities at all levels if there is a strategic gender focus. There have also been many important recent innovations in products and services to enable women to better benefit. Nevertheless benefits cannot be assumed and even financially sustainable micro-finance if it is gender blind may seriously disempowering for women and increase inequality. Many of the strategies promoted for financial sustainability may exacerbate the negative impacts of debt, because of overpaid expansion, rigid product design inappropriate to women's economic activities, cutting of necessary support services and lack of attention to local economic contexts.

Challenges currently faced by MFIs

The current challenges are in the form of "funds" – both capital and funds for on lending. Retail participation in the capital structure requires listing on the stock exchange, for smooth operations regular funding from banks and financial institutions is critical. Along with the funding, human capital and technology are the main area of concern.

There is less effect of the global financial crisis on the poor, mainly because micro enterprises are not dependent on global consumption patterns; "economy of poor is decoupled from the global crisis", but the surplus generated by micro enterprises has come down. Along with this as the liquidity of large banks diminishes, it directly affects the ability of MFIs to give loans to their customers. When financial crisis coincides with food and oil price fluctuation; which leads to increase in the cost of inventories for the business and basic necessities of the family, there was increase in the demand for micro loans.

Inflationary situations affect more to poor people, since there is increase in the prices has more impact on poor families. This leads to more demand for the micro loans, because of less funds with banks there is less supply for the micro loans and more interest rate though the amount is very less.

According to a report called "Maturing of Indian Microfinance" by EDA Rural Systems and numbers published by the World Bank, the current estimated market for microcredit in India is Rs2,400bn. This is based on a calculation that there are 150 million poor household in the country (as per World Bank statistics for India) with an average credit demand on Rs20,000 per household. The credit demand is adjusted with a 20% upside for the urban poor households.

With the high inflation in the economy and global crisis, the overall requirement of the micro credit in the underserved low-income segment has gone up substantially. This is due to increase in costs of inputs and also an increase in overall volumes for the products manufactured by microfinance clients.

Microfinance has grown significantly in India and worldwide from last 5-6 years.

Microfinance is playing very important role for the development of poor, though there are some negative impact, like too much loan is given without any collateral, there are situations where MFIs start competing with each others, loan is given to more people for the same purpose without understanding their business plan e.g. many retail shops in same village will not help the purpose of microfinance i.e. to bring poor people above poverty line, again many times loans are not given to poor people only.

Regulations should be tightening so that only poor and needy people will be benefited by microfinance. 

 Conclusion

Microfinance is very successful India, to help poor people. Many MFIs and Self help groups are working in India and their customer base is also increasing year on year. Microfinance is helping poor people to fight against many aspects of poverty.  Though microfinance is a failed in some cases it has successfully allowed poor people to lift themselves out of poverty in many parts of country.

 Biblography

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Perception: Attempt to develop explanations of why things are in a certain way.

Whenever any individual joins some organization; one observes people and their behavior.  Then he/she attempts to develop explanation about, why people behave in certain manner.  This is the perception of that individual about the environment around him/her. Thus Perception is the process by which individuals organize and interpret their sensory impressions in order to give meaning to their environment.

Perception of an individual is caused because of External and Internal factors.

Whenever behavior of an individual is under his/her control it is known as internally caused behavior. E.g. coming late in office because of oversleep, is an internally influenced behavior. Such behavior is known as Internally caused behavior.

Also when individual behave because of outside causes is known as externally caused behavior. E.g. coming late in office because of traffic jam or some other such reason is an externally influenced behavior.  Such behavior is known as Externally caused behavior.

Attribution Theory: When individuals observe behavior, they attempt to determine whether it is internally or externally caused 

Attribution theory is mainly of three phases.

·         Observation.

·         Interpretation.

·         Attribution of Cause.

Individual behavior comes under observation.

Interpretation is of following three types

1.      Distinctiveness: Refers to whether an individual display different behavior in different situations. If individual always shows the same behavior, it is internally caused behavior, else if the behavior is unusual one then it is caused because of External things. E.g. If one individual always comes late in office then it is an internally caused behavior but if he/she seldom comes late then we can say that this is because of external causes.

2.      Consensus: Whether in similar situation, everyone responses in the same manner. If everyone behaves in similar way then consensus is high, i.e. the behavior is externally caused. E.g. If all employees who use same route to come to office; come late, then this can said to be an externally caused behavior. If consensus is low then the behavior is internally caused.

3.      Consistency: This is refers to the consistency in the behavior of an individual. Does the person responses same way over time, again and again. If yes then it is said to be internally caused behavior, otherwise it is an externally caused behavior.

Whenever any organization uses Attribution Theory, there are biases or errors those distorts attributions.

Fundamental attribution error is the tendency to underestimate the influence of external factors and over estimate then influence of internal factors when making judgments about the behavior of others.

Self-serving bias is the tendency for individual to attribute their own success to internal factor, while putting the blame for failures on external factors.

E.g. if one member of the sales team is making calls to the customers, but neither of them is replying, then other team members may blame on the laziness of the 1^st member, this is an fundamental attribution error in perceiving the behavior.

Also if some case customer itself needs some product of an organization he/she calls the sales person, then that sales person might take pride in saying that, he/she made the deal possible, this is a Self-serving bias.

Frequently used short-cuts in judging others are as follows

·         Selective Perception: People selectively interpret what they see on the basis of their interest, background, experiences and attitude.

·         Halo effect: Drawing a general impression about an individual on the basis of a single characteristics.

·         Contrast effects: Evaluation of the person's characteristics that one affected by comparisons with other people recently encountered who rank higher or lower on the same characteristics.

·         Projection: Attributing one's own characteristics to other people.

·         Stereotyping: Judging someone on the basic of one's perception of the group to which that person belongs.

Specific applications in Organizations

      In any organization judgment happens on the basis of performance. And Performance of employees' is related to their perceptions too.

Employment Interview: Employees are employed on the basis of perceptual judgments of interviewer. Also the perception about the employee may be different by different interviewers. Many times in organizations interview is very common application for the employee's performance; and this is heavily influenced by personal perception of interviewer.

Performance Expectations: People's expectations determine their behavior. Self-fulfilling prophecy is a situation in which one person inaccurately perceives a second person and the resulting expectations cause the second person to behave in ways consistent with the original perception.

Ethnic Profiling: A form of stereotyping in which a group of individuals is singled out- typically on the basis of the race or ethnicity- for intensive inquiry, scrutinizing, or investigation.

Performance Evaluation: An employee's performance appraisal is very much dependent on the perceptual process.

Employee Effort: Many organizations give more importance for the employee's performance rather his/her perception in the organization. As assessment of an individual's effort is a subjective judgment susceptible to perceptual distortions and bias.