Two friends and roommates set out to research a new microfinance scheme in India in the summer of 2013. But the reality of the industry changed their plans.

With the support of a Civic Fellowship, granted by the Bonner Center for Civic Engagement and part of the UR Summer Fellowships program, Dheer Shah, '15, and Xavier Bonifaz, '15, international students from India and Guatemala, respectively, traveled to India for an internship at a government bank branch — the first time two Civic Fellows worked together at the same site. Their initial idea was to work through the bank, SIDBI, to develop a new loan program for townships rather than just individuals. But midway through their stay in India, their research took a major turn.

Back in 2010, the Indian state of Andhra Pradesh experienced excessive overlending, which resulted in political turmoil and the freezing of the microfinance industry — now known as the AP crisis. The Reserve Bank of India introduced some guidelines to better regulate microfinancing, and a new bill was introduced to rethink the entire industry.

This bill proved to be a major barrier to Shah and Bonifaz’s initial idea, and they ultimately chose to focus their research on the legislation itself and its effectiveness.

“We learn a lot of things in books,” Shah says, “but it’s not necessarily practical in the real world. Nothing we read ever talked about the administrative difficulties that microfinance really has while operating.”

While in India, their internship experience comprised a stay in Mumbai to learn about the financial and administrative aspects of running a microfinance organization from the bank’s headquarters; gaining real-world experience in Gujarat through field visits; and observing the effects of the AP crisis in Hyderabad, India’s capital of microfinance.

“We stumbled upon [the AP crisis] issue while in Hyderabad, in the midst of our research,” Shah says. “It was hard to ignore the fact that the face of microfinance changed due to the preceding event, not only in India but even internationally.”

Shah and Bonifaz started their sophomore year as roommates in a Sophomore Scholars in Residence class, Social Entrepreneurship and Management. They developed a shared interest in microfinance. Shah says that Bonifaz’s idealistic nature balances his own realistic tendencies, allowing them to analyze and evaluate microfinance policies from both perspectives.

“I think the idea of microfinance itself is extremely empowering,” Shah says, “as the money you may use for a dinner could literally change the life of a whole family in a developing nation … Furthermore, coming from India, I thought that microfinance was a way to eradicate poverty in my home country, because as a child living in Mumbai, understanding the dynamics of poverty is inherent.”

In Hyderabad, they had the opportunity to interview officials from the well-known microfinance institutions to better comprehend and critique the current regulations. Bonifaz noted in their Civic Fellows Symposium last fall that it was interesting how the executives tried to avoid the questions. Shah says they found that the expansion of the sector had become over-capitalistic and “lost its social values” as a result of policy reforms.

They looked into how regulators were implementing solutions from the legislation, such as incentivizing savings accounts and improving financial literacy through a credit bureau. But they also found that the bill was often too simplistic and didn’t account much for inflation.

Their internship experience also showed Shah and Bonifaz just how much of a role cultural differences can play in the success of microfinance and lending models. For example, the culture of Gujarat was “very entrepreneurial, but at the same time anticipated exponential returns and lacked the sense of mutual growth” that Andhra Pradesh did, Shah says. As a result, the model did not work well there.

Bonifaz, a business administration and international economics major, and Shah, a business administration and economics major, worked with assistant professor of management Jeffrey Pollack in their research. “He always tried to understand our concept of the research,” Shah says, “and was very flexible with us changing our research idea in the midst of this experience.”