Innovative Approaches to Delivering Microfinance Services: The Case of VSSU, West Bengal

The paper examines Vivekananda Sevakendra O Shishu Uddyan - VSSU - an unconventional and imaginative microfinance institution with intelligent product design and delivery of savings and loan products. These are "imagined" by a dynamic individual possessing a strong instinctive understanding of the local microfinancial market and the charisma to motivate a small band of modestly-paid workers.

The report emphasises VSSU's operation in an area of widespread poverty and VSSU's successes in loans and savings. It has always held more deposits than loans outstanding (in April 2002 the ratio was 1.02) and has been able to finance its portfolio entirely from deposits. Interests rates are 24% a year and with interest rates paid on savings held at a very low effective overall rate through fees and penalties, the actual yield on the microfinancial work taken as a whole has averaged 22% a year 1997-2002. This has generated enough income to cover VSSU's modest costs (cost control is ferociously enforced) and still leave enough spare to finance social work of about US $12,500 a year, and to re-invest in steady expansion

Report identifies weaknesses in management, accounting and information systems together with a slow down in growth and identifies solutions in a branch structure and computerization. The paper recommends:

• Outside assistance provided to VSSU be coordinated with the history and nature of the organization;
• Modernization of systems, supplementing of staff and otherwise should be aware of local tradition, the intuition of its present staff and preserving flows of locally mobilized funds;
• Conventional standards of capital adequacy should be installed and donors might ensure stability in the face of a crisis like a cyclone or flood with concessional debt subordinated to repayment of client deposits.

The paper concludes that VSSU shows that there are no "best practices" for microfinance, only good practice. Good practice tests general principles against concrete experience. It is context-specific. It has to be imagined and re-imagined, designed and re-designed, tested and re-tested.