A Study on SHG-Bank Linkage and Status of MFI in Bihar

(For Bihar Rural Livelihoods Promotion Society,

Bihar)

Final Report

By Bhartiya Samruddhi Investments and Consulting

Services Ltd. (BASICS Ltd)

Plot No. 444, Road No. 4 A, Ashok Nagar, Ranchi-834002 Tel: 0651-2244720/ 2241874

Email: mihir@basixindia.com; Website: www.basixindia.com

April 2007

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ACKNOWLEDGEMENT

We are grateful to Bihar Rural Livelihoods Promotion Society (BRLPS), Bihar for giving

us an opportunity to do the study the “SHG-Bank Linkage and Status of MFI in Bihar”

and necessary support extended to us. This has helped us enhance our understanding of

rural livelihoods and especially the role of Micro-finance in promoting livelihoods.

We would like to place on record our appreciation to Mr. Sandeep Pondrick, IAS, Add.

CEO, Mr. Mukesh Chandra Sharan, SPM of BRLPS, Mr Neeraj Verma of World Bank,

the Staffs of WDC especially Pradeep Kumar Ghoshal for their conceptual and

administrative support during the course of the study.

Our sincere thanks to all the NGOs who have helped us in our field work, without whose cooperation this study would not have been possible.

Study Team Bhartiya Samruddhi Investments and Consulting Services Ltd. (BASICS Ltd)

Study Team: Dr Sankar Datta, Sourindra Bhattacharjee, Mihir Sahana, Rakesh Das, Pradip Mohapatra Dharmender Shriwastava, Kumaresh Rout, Akhouri Prabhas, Sonmani Choudhary and Promodit

Dungdung with the help of more then 6 local NGos and 24 survey staffs.

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A Study on SHG-Bank Linkage and Status of MFI in Bihar

Acknowledgement ............................................................................................................. 2 EXECUTIVE SUMMARY .............................................................................................. 5 Chapter-1: Introduction:.................................................................................................. 7 Background: ...................................................................................................................... 7 Micro finance Status and need in Bihar: A brief ........................................................... 8

Scenario of financial access to the poor: ..................................................................... 8 Why Bihar Rural Livelihood Promotion Society?..................................................... 9 Study Objective:.......................................................................................................... 10 Conceptual Framework of the study......................................................................... 11 The study methodology: ............................................................................................. 11 Pre-Study Phase .......................................................................................................... 12 Study and Survey Phase ............................................................................................. 12 The organisation of the report:.................................................................................. 19

Chapter-1: A Perspective on Micro Finance and its growth- A review of Literature........................................................................................................................................... 20 Micro-Finance as a Concept and Process:.................................................................... 20 The Evolution of Microfinance ....................................................................................... 21

Growth of Micro Finance:.......................................................................................... 21 The Emergence of SHG Movement: ......................................................................... 25 Other Significant Experiments on micro finance in India:..................................... 28 Emerging Micro Finance Models:............................................................................. 30 Moving from micro credit to micro-credit plus to Livelihood Finance:................ 38 NGOs as MFI or financial intermediary .................................................................. 39

Cahpter-2: Landscape and status of the mF sector in Bihar:..................................... 41 The Status of the Commercial and Cooperative banks in Bihar: .......................... 51 Priority sector lending:............................................................................................... 55 Conclusions:................................................................................................................. 62 The SHG-bank Linkage Programme:....................................................................... 63 Apex Institutions:........................................................................................................ 69 Bihar Women Development Corporation (BWDC)................................................. 70 Other Major Donor Agencies and SHPI’s: .............................................................. 71 The Alternative MF Institutions: .............................................................................. 72

New Delhi..............................................................................Error! Bookmark not defined. Existing loan products ............................................................................................ 83

Area Selection: ............................................................................................................ 85 The Products : ............................................................................................................. 86 NGO – MFI of Bihar................................................................................................... 95 A.................................................................................................................................... 95 Micro Insurance Sector:............................................................................................. 98 Remittance Services:................................................................................................. 100

Chapter-3 – The Demand of MF services in Bihar.................................................... 103 Household Survey: Key Findings ........................................................................... 103

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Demand estimation of Micro financial services of rural households:.................. 114 Chapter-4: The supply side issues of mF .................................................................... 117

The issues of Commercial Banks, RRBs and Cooperative Banks:....................... 117 Plans and target for Bihar: ...................................................................................... 119 (b) Alternative Micro finance Institutions-issues and scope ................................. 122 MFI-PLANs Ahead................................................................................................... 123 Issues in Micro Insurance: ....................................................................................... 126

The SHG Study in Bihar .............................................................................................. 128 Summary of Findings of the SHG Study ................................................................ 148 Key findings from the SHG study: .......................................................................... 153 Impact of the SHG - Bank Linkage Program in Bihar ......................................... 154

Chapter-5: Recommendation and Strategy for Scaling up MF in Bihar ................ 158 Delivery of Micro Finance through mainstream formal banks in Bihar: ........... 158 NGO - MFI: Recommendations .............................................................................. 162

Basix has the following suggestions and recommendation for BRLPS to upscale MF activity in the state. ...............................................Error! Bookmark not defined. Build up awareness on micro finance: .......................Error! Bookmark not defined.

Strategy towards incubation of NGOs towards doing mF. ........Error! Bookmark not defined. Strategy for Micro Insurance Promotion in Bihar:............................................... 169 Migration and Remittances: Recommendation and strategy ............................... 169 Potential Partners that can be incubated as SHPI and or MFI............................ 170 Broad Suggestions for BRLPS:................................................................................ 171 ANNEXE – I .............................................................................................................. 172 ANNEXE-2 ................................................................................................................ 177 ANNEXE-3 ................................................................................................................ 179 ANNEXE-4 ................................................................................................................ 181 ANNEXE-5 ................................................................................................................ 183

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EXECUTIVE SUMMARY A study on the status of SHG-Bank linkage and MF in Bihar was commissioned by BRLPS, a world bank assisted project to BASIX as a part of the larger study for project design of the Bihar rural livelihood promotion in Bihar. The study was commissioned to know the status of the SHGs and MF in the six districts (which BRLPS has focused in its first phase) of Bihar in specific and the whole state in general. This report will help in project preparation. To understand the MF situation in Bihar an extensive secondary and primary data collection was undertaken from all possible sources. A team of 8 qualified MF professionals along with 24 field staffs of 7 local NGOs collected primary household and SHG level study to understand the actual ground situation. Extensive discussion through FDG and questionnaires were undertaken with the rural poor from all sections of the society. Similarly a detailed field work was undertaken to both get the status as well as the perception of the supply side. A state level workshop was also organised for all stake holders to get feedback on the findings and to get their views and devise a strategy for scaling up MF in the state. Extensive literature review and secondary data analysis is also being undertaken during the study. The report gives a complete understanding of the commercial banks, RRBs and Cooperative banks who are still the largest and the only provider of MF service in the state. The report highlights there status, their performance, issues, constraints and possible road map for all of them to improve their performance. The SHG-Bank linkage model being the predominant model in the state, its status, the issues and the possibilities for scaling up MF through SHG-Bank linkage programme has also been detailed in this report. As both the state and BRLPS level as SHG is seen as the prime agent for lending to the poor we have undertaken a detailed study of 1200 SHGs being promoted by various agencies in the state. We have also done a detailed analysis on more then 25 parameters and has then categorised them into categories. The detailed capacity building needs of the SHGs has also been provided. We have also done a detailed study of the various models and MFIs existing in the state and its pluses and minuses has been discussed. The MFI models have been discussed so that if practiced it can cater to the needs of some section of the society who cannot be reached through the SHG mode. As it is seen that NGOs are acting as prime agents of developing SHGs and can also become prime agents for delivery of other financial services either as NBFC, society, business correspondent, partnership model or just as SHPI has been graded. The capacity building needs and cost and time required for transforming the NGOs to become MFI is also suggested. It is on this basis we have also suggested strategy for NGO incubation.

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The report gives the status, issues, constraints and road map for improving the insurance, saving and remittance service in the state. The last section on recommendations and suggestions both gives a broad strategy the state should adopt to improve the financial services to the poor. It has also detailed the role and has drawn a road map for the banks-public sector, private sector, NGOs, MFIs, SHPIs, training institutions in the state. A broad recommendation is also been given to BRLPS to be inclusive, innovative and broad based.

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CHAPTER-1: INTRODUCTION:

BACKGROUND: Bihar is a state which ranks quite low as regards different development indices. It is spread over an area of 94,163 square kilometers which is 2.8% of the total territory of the country. In contrast to that, the state has more than 8% of the total population with in its territory. The condition of the state deteriorated in different development indices after the bifurcation of the state in 2000. While it retained 75% of the total population of undivided Bihar, it was left with only 54% of the land. This has led to a lot of strain on the existing resources. Main thrust of the people is on agriculture which has a lot of potential to develop. The constraint is non existence of supporting industries to develop the sector. Industry contributes a paltry sum of 11% to its economy. As described above, constraint on resources has led to lot of unemployment and thus has instigated the process of migration. By a conservative estimation, every year around 42 lakhs of people migrate in other states to earn their living. The state is stricken with abysmal poverty scenario and it gets explicit as 42% of the total population is living below the poverty line. The state is struggling on its turf to find solution to the twin problems of flood and drought. In the situation where there is a high level of poverty and unemployment, an attempt to promote the livelihood options of the poor and women is of significant dimension. Bihar is considered to be one of the poorer states in India. The per capita GDP is less than Rs. 4,000 per month as compared to national average of Rs. 12,000 per month. The poor growth rate of per capita GDP of Bihar in the 1990s was 2.8% as compared national average of 4%. The state lags behind also on most counts of the human development index. It has one of the lowest literacy rates (48%) as compared to national average of 67%, with women literacy being abysmally low (35% against a national average of 54%). Bihar has a high dependence on agriculture with more focus on food grains, which account for 92% of agricultural production. Most of the areas in Bihar suffer from either flood or drought, which means the risk element in their basic livelihood, is quite high. Risk mitigation therefore will have to form an integral part of any intervention in Bihar. The sectoral composition of Gross Domestic product is given below:

Sectoral Composition of SDP (Figures in percentages)

Sectors 1980-81 1990-91 1999-00 Primary 59.93 46.52 29.59 Secondary 21.89 24.66 28.06 Tertiary 18.18 28.82 42.36

Although declining trend of the primary sector is being seen in the above table, it is still an important source of livelihood of the poor, especially in the rural areas.

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MICRO FINANCE STATUS AND NEED IN BIHAR: A BRIEF

Scenario of financial access to the poor: Performance of financial institutions addressing the issue of making finance accessible to the poor had been short of desired level in the state. Even the attempt to link the poor who are organized in the form of SHG’s to the bank met with unsatisfactory results. A paltry amount of 37 crores had been extended to the SHG’s as regards the SHG-Bank linkage program. The scenario had its implications and they made a detrimental impact on the economic development and business prosperity. Scenario of access of credit to the poor is still abysmal as the state has also witnessed a parallel informal financial flow to the poor. The reports confirm that they are doing a roaring transaction of over Rs3000 crores a year in some selected districts of the state. Such a huge transaction at a high rate of around 5 to 10 % has attracted the attention of the antisocial elements also as it became the easy source of money. The operation of organized informal source of banking has its impingements on the self dignity of the individuals as in many occasions person has to do away with the ancestral property also for not repaying the money on time. Such a scenario exists as mainstream financial institutions failed to meet the needs of poor and deprived sections of the society. The data released by the government on banking scenario vis- a- vis its reach to the poor does not portray a very promising picture. The data released by the government is following:

• Presently one bank exists for every 22,224 of the population where as the figures in Punjab, Maharashtra and West Bengal are much better with a bank existing for every 9000, 11000 and 14000 respectively.

• 37 blocks of the state don’t have a single branch of commercial banks. • The state has witnessed a condition where in 700 to 800 bank branches are

functioning with a single person on board. • The credit –deposit ratio is pegging at 32.10% much below the national average

of 57%. Bank Linkage: The banks have been unable to meet their credit targets in Bihar for the last few years despite thrust by RBI and are not able to meet the credit needs of the poor in Bihar. The CD ratio in the state is pegging at 32%, a ratio that is being stressed upon by the government as a major area for improvement. While the total deposits in banks in Bihar as on December 2005 stood at Rs 42,087 crore, the credit was just Rs 13,559 crore. The low CD ratio is reflection of the low off take by industry, poor infrastructural and support services. It has been estimated that 44% of the indebted farmers take loan from moneylenders and only 23% have borrowed money from institutional sources. The moneylenders charge between 5-10% per month (study by IIM-Indore intern, 2005).

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There are a few major organisations that are trying to promote micro finance activity in this region. These are NABARD, Rashtriya Grameen Vikas Nidhi, CASHPOR, Rashtriya Mahila Kosh and a number of NGOs that try to provide bank linkage. Among banks SBI is very active and private banks like ICICI and others have participated to some extent through the partnership model with CASHPOR and through on lending to a few NGO/MFIs. Given the poverty levels and credit need, the number of organisations working in the micro-finance sector is very few in number. To name them the organizations are NIDAN, Nirdesh, AVS, SKS (recently started), NBJK, CASPOR, RGVN, KSS, and SHPIs promoting NABARD groups, DRDA among others. Bihar is a region which has a very high need of intervention in the micro finance sector but this intervention has to be initiated through a model which mitigates the naturally enhanced risk in this region and seeks to create an environment which makes micro finance sustainable not only feasible. The scenario of the rural insurance also needs quite innovative interventions. There is an urgent need to look in to the issues of insurance accessible to the poor and vulnerable community. There is a need for the mechanism where a rural poor is protected in monetary terms against the loss of livestock, human lives, crops and other assets which provides him a source of livelihood. This becomes all the more important as the state has 56% of the total flood affected people residing. During the flood season, lakhs of people are rendered homeless and suffer from the huge loss of property. Given nascent state of the MF sector in the state and the need for Micro finance, the Bihar rural livelihood Project (a World Bank project) commissioned a study to BASIX “SHG-Bank Linkage and Status of MFI in Bihar” which will help BRLP in planning its future course of intervention.

Why Bihar Rural Livelihood Promotion Society? Taking cognizance of the enormity of problem, government of Bihar has initiated a project on rural livelihood promotion with support from World Bank for helping people come out of the vicious cycle of poverty. This would be implemented through Bihar Rural Livelihood Society (BRLPS). The project aims to improve rural livelihoods options and work towards social & economic empowerment of the rural poor and women. The objective of the project is to empower the rural poor and improve their livelihoods. This would be done by developing organization of the rural poor and producers to enable them to access and negotiate better services, credit and assets from public and private sector agencies and institutions. The project would also invest in building capacity of public and private service providers. The project will also play a catalytic role in promoting development of micro finance and agribusiness sectors. The project has incorporated identification of existing innovations in various areas as its key element and professes to lend a helping hand in developing processes, systems and institutions for scaling up these innovations. It also aims to focus on stimulating productivity growth in

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key livelihood sectors and thus increase the employment generation options in project areas. It aims to position project investments to be catalytic in nature to spurt public and private investment in the poor. The proposed project components are formation and strengthening of SHGs, producers groups and federations, specialist technical assistance and development funds and project management. To spurt the process of economic development, capital flow to the community is required at the first level. In order to aid the process of credit accessible to people alternate channels have been put in use the world over. The approach of reaching out to the poor with the concept of micro-finance had met with successful results. Therefore, the project has a component of Micro-Finance to leverage timely credit to the poor and aiding the process of their development. A very important aspect of risk mitigation measure for the vulnerable community is making provisions of insurance. Poor are the most serious victims of the adversities and thus there is a need of protecting poor suffer from extreme tribulations. Thus the role of insurance will occupy a very significant dimension in the project. As more then 4 million people migrate seasonally or for more then 6 months there families face serious problem of cash flow to meet their both end meets. Systems of money transfer are still risky and time taking and are unable to meet the needs of the migrant families. The project must also look at innovative remittance product for the huge number of immigrant family.

Study Objective:

The broader objective of the study was as stated below: • To present the financial landscape in terms of its accessibility to the poor in

the state. A macro detail of the state has to be prepared with focus on selected districts.

• To identify different existing channels of Micro- financing to the poor and the identification of the barriers in increasing the access of finance to the poor under each potential micro-finance delivery channel.

• To identify the possible set of alternatives to address the barriers for each such channels.

• Assess the future prospect of Micro-Finance Institutions arrangement with rural poor community which can in turn support in reducing the poverty.

• To understand the existing procedures of accounting by the community and institutions and identify the gaps as well as the strengths. This is also to understand the use of software supported MIS by the existing institutions.

• Creation of data bank of the institutions which can provide guidance and support in the future by dint of their experience.

• To assess the methods by which access of rural poor to credit institutions can be increased.

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Conceptual Framework of the study

Analysis of the existing situation of the micro-finance sector in the state in terms of users as well as service providers to assess the current situation is being done in the study. From the user side, assessing the financial need of the poor, existing products and services being offered, needs that are being fulfilled and to be fulfilled, etc. was assessed; Thus from a user view point the study looked into:

• Target group in the context of BRLPS to assess the socio-economic context, opportunities, risks and vulnerability.

• Existing financial products and services being offered to them by various stakeholders. This will throw some light on perception of values and risks of services and service providers and

• Environmental opportunities and risk to the clients and service providers. The second level of the study will be to examine the viewpoint of the service providers and the supporting environment. These would include Government, NGOs and public & private players on the basis of

• Interventions of these institutions, socio-economic context and internal capacity of these institutions.

• Study of different methodologies, balancing social and economic context with sustainability as a goal, and

• Delivery Channels for optimizing cost and attaining efficiency, effectiveness and sustainability in the context of the state.

At the final level it examines the Goal of the programs in terms of its Impact (Short and Long Term), Efficiency on the basis of its business planning, management and operational cost and finally on Sustainability as Institutional and Financial.

The study methodology: The study was conducted at three levels, namely at the Primary (Household, Village and SHG) level, institutional level and policy and environmental level. The participative approach was adopted involving all the stakeholders.

• The first is to understand the present status quo of the micro-finance sector at the ground level.

• The second study was aimed at the existing service providers and to be service providers, which can give fillip to the sector in the state and.

• The last study examines the present role of policy makers and their envisaged role for promotion of the micro-finance sector in the state.

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Pre-Study Phase A preparatory phase of 15 days has been mooted to kick-start the assignment in terms of building the study team and getting contact with the key stakeholders. The broad steps in the preparatory phase are:

1. Consultation with key stakeholders at State level and District level: This is meant for apprising the stakeholders on the broad understanding about the study and expected outcomes. This will also help to get a possible support to the study process like collection of secondary data, getting the perspective of the key stakeholders in promoting mF in Bihar.

2. Formation and training of the study Team: The study team was formed keeping in the view the familiarity of the state and was trained on various issues of the study.

3. Development of Detailed Implementation Plan: Was mainly done a by core team comprising of BASIX and other NGO collaborators. A transition plan covering various interim milestones was developed. Timelines were defined for the achievement of the milestones. This enabled concurrent monitoring of the implementation plan as we went along.

Study and Survey Phase This phase was planned out at three levels, Primary (Household, Village and SHG) level, institutional and policy & environment. In addition, there were continuous dialogues with the BRLP Official, NABARD, SIDBI, All district level DRDA, Lead Banks, DCCBs and PACS, RRBs, other financial institutions among other important stake holders. The study at all level focused mostly on the status of micro-finance in the state and roles of different stakeholders, both at the strategic and operational level. The details of the processes involved in these three levels are the following: Primary Level The primary survey was done at household, village and SHG level to have a complete picture of livelihood scenario of the poor in the state with a focus on the financial needs at household level, the constraints faced by them in accessing the same, especially by the women. Also the survey focused on the status of SHGs in the state with an objective of enumerating strong and weak points of the program and how the same could be improved. The details of the primary level study were as follows. SHG Level Study Sourcing of secondary data on promoted Self-Help Groups: This was done through secondary data search methods. These were:

• RBI and NABARD website • Reports from DRDAs • PLPs and ACPs of the identified district

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• Previous study documents, if any • Annual and mid-term review documents of the leading NGOs working in the

districts An intermediate output of this provides us with an idea on the district wise progress of micro-finance, intra region variation (between districts) in the state, reasons stated thereof and promoting institutions in the identified districts. The second output is analysis of the progress of micro-finance vis-à-vis neighbouring states with similar agro-climatic profile. This helps the reader to judge the possible growth and scope of micro-finance in the state Survey of the Self-Help Groups in the identified Districts: A ground level rapid assessment of the SHGs was done through a survey using an in-house developed SHG rating tool. The attempt would be to find the

• Status of the SHGs promoted by various SHPIs under various developmental schemes.

• Illustrate the Capacity Building Need Assessment (CBNA) for the various categories of SHGs purely focusing on financial discipline.

• Get a sense of a set of constraints faced by SHGs in the process of financial inclusion.

The sample taken was:

• At least 2% of the SHGs or 200 SHGs (which ever is more) in the selected districts.

• SHGs were selected from top five running projects including government Household Level Study: Survey at Household Level in the identified Districts: An individual level rapid assessment of the household was done through a survey using an in-house developed tool of livelihood profiling. The attempt was to find the

• To know the livelihood status of the household in Bihar. • To know the need of the financial services by the poor with special focus on

demand and supply gap of these services. • To know the constraints faced by them for getting these services.

The sample would be following

• Cover at least 720 HH in the study, covering 48 villages of 24 blocks in 6 districts.

The quantitative and qualitative analysis of the survey highlights the financial services need at household level, a scenario of demand and supply gap, a list of service providers, accessibility issues, financial product designing and pricing issues and constraints faced by them. The analysis was done district wise as well as state as a whole.

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Village study: Detailed village livelihood profiling was undertaken in at least 50 villages, 2 in each block /district to understand the overall developmental needs to assess the credit needs of the area. Institutional Level: Five forms of institutions, namely the NGO-MFI, MFIs, PACS, RRBs & Banks and Micro Insurance companies was studied, which does play a key role in promotion of micro-finance. The opportunities and constraints at each level are expected to be different, especially with a focus on how better synergies can be drawn among these institutions for promotion of the micro-finance sector. NGO-MFI The NGO-MFIs in each selected districts was surveyed to understand the organizational capacity, quality of human resources, access to financial and non-financial resources, etc. This would be done by the field executive. The in-house developed Joint Initial Assessment (JIA) tool would be used for the survey. In addition; there would be semi-structured interview with the heads of the organization, officials at managerial as well as ground level to understand the prospects and constraints to the promotion of micro-finance in the region or their area of operations A qualitative assessment of the all NGO-MFIs in the selected districts will give a picture of their vision on micro-finance, constraints faced by these promoting institutions and support required from capacity building, financial and Governmental institutions. Micro-Finance Institutions Sourcing of secondary data on MFIs: This was done through secondary data search methods, including neighbouring states of Jharkhand, West Bengal and Uttar Pradesh. These would be:

• Reports of the state Government departments • PLPs and ACPs of the identified districts • Previous study documents, if any • Annual and mid-term review documents of the leading MFIs working in the

State. A qualitative analysis of the above was done to find the typologies of micro-finance prevalent in the state or even in the neighbouring states, if at all and the promoting institutions.

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Sampling: Two MFIs present in the state would be selected for a detailed assessment. The criteria applied were:

• It should be among top five MFIs in the state in terms of volume and membership • It has presence in two or more districts • It has been engaged in new product development or processes in delivery of

services or promoting a typology For study of the two MFIs outside the state, the following criteria was used:

• It has multi-state presence and therefore has the willingness to move into newer states

• It has been engaged in product and process experimentation Assessment of MFIs The assessment would be done through an in-house developed MFI-rating tool and rummaging through existing documents Semi-structured interviews with CEO and Board of Directors to get an idea of the strategic focus of the MFI s and their views on the sector was also conducted. Semi-structured interviews with the management and staff of MFIs to understand the operational issues The output will provide information on various models of micro-finance prevalent in the state or even in the neighbouring states, their area of operation, operation design and products & services being offered by them to their clients. This will also throw some light in their perspective & Vision of micro-finance in the state of Bihar and constraints faced by them in scaling up their operation. And finally their present and envisaged role in the context of BRLP, the constraints faced by them and their expectations from the environment towards financial and non-financial support to the sector in general and their institution, in particular. DCCBs & PACS Sourcing of secondary data on PACS and DCCBs: This was also done through secondary data search methods, These were:

• Reports of the state cooperative bank and identified DCCBs • Previous study documents, if any • Annual and mid-term review documents of the lead banks working in the districts

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Sampling of PACS:

• Two DCCBs within the selected districts and two PACS with each DCCBs will be covered for a detailed assessment based on the findings from the secondary level survey in terms of profitability, reach, volume, programmes etc.

Assessment The assessment was done through an in-house developed survey tool and rummaging through existing documents Semi-structured interviews with president, chairman and Board of Directors to get an idea of the strategic focus of the PACS and their views on the sector was conducted Semi-structured interviews with the management and staff of PACS and DCCBs to understand the operational issues The output will provide information on their present and envisaged role in the context of BRLP, the constraints faced by them and their expectations from the environment towards financial and non-financial support to the sector in general and their institution, in particular. RRBs and Commercial Banks (Public and Private) Sourcing of secondary data on banks: This would be done through secondary data search methods.

• Reports of the state Government departments, Institutional Finance Department , GOB

• Data from SLBC & NABARD. • PLPs and ACPs of the identified districts • Previous study documents, if any

The first cut analysis gives the network and typologies of different banking institutions prevalent in the state. Semi-structured interviews with senior officials was also undertaken to understand the strategic focus of these financial institutions and their views on the micro-finance sector. Sampling:

• Study of services through the lead bank of each district • It has been engaged in new product development or processes in delivery of

services or promoting a typology including commercial public sector and private sector banks

The output provides information on their present and envisaged role in ensuring financial inclusion of the poor in the context of BRLP, the constraints faced by them and their

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expectations from the environment towards financial and non-financial support to the sector in general and their institution, in particular. Micro-Insurance Service Providers Sourcing of secondary data on rural Insurance: This was done through secondary data search methods These would be:

• Reports of the state Government departments on insurance • Available data on provision of various insurances to rural poor by public and

private sector • Previous study documents, if any

An analysis was done to find the typologies of insurance products prevalent in the state for the rural poor. The output provides information on their present and envisaged role in the context of BRLP, the constraints faced by them and their expectations from the environment towards financial and non-financial support to the sector in general and their institution, in particular. Environmental Level: The environment study includes Government programs and policies, NABARD, and facilitating Banks, insurance providers, Training Institutions, etc. One of the key objectives of the environmental study is to understand the enhanced roles of all these institutions in promotion of the micro-finance sector in the state The process of search and assessment would be following:

• Secondary data search to get a first knowledge of the existing institutions in the state

• Select a few institutions with which BRLP requires to collaborate for promotion

of micro-finance sector in the state. Primary list would include NABARD, Lead banks, insurance providers in the districts and Government Sponsored Programs. This would be followed by studying any documents published by these institutions and semi-structured interviews with the key officials in the state.

• Similarly Government program and policies would be studied through secondary

data and through discussion with key officials in the state machinery All the discussions would primarily focus at two levels- one, problems highlighted by the operational entities in the sector and second, discuss on the future plans and support to sector that is to be extended.

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While assessing the environment and undertaking the SHG and Institution level study an assessment will also be done to get a broad understanding of the formal and informal remittance services being offered in the state which has a special bearing on the livelihoods of the migrants of the state. A broad understanding of the alternative sources of credit among the rural poor in the state and its implications will also be developed during the environment study. The collated data would be analysed to identify any new steps or funds being allocated for promotion of micro-finance sector, especially for promotion of new institutions, which could lead to greater financial inclusion. State level Workshop of various stake holders, experts and policy makers: Three day learning cum sharing workshop was organised by BASIX with the hep of WDC and BRLPS to get a feedback on the findings of the study, to understand the perception of the stake holders and to draw a road map for scaling up micro finance and livelihood promotion in the state. It was also an opportunity to get the perception and views of the policy makers and their commitments on the road map prepared by various stake holders. Limitations of the Study: 1. A total of six districts have been selected for the study, which may not give the best picture of the situation of the whole state of Bihar. These districts where the detailed primary data survey was done are:

1. Muzaffarpur , Madhubani, Nalanda ,Gaya , Purnia and Khagaria 2. The time duration was short for the study commenced on 15th November, 2006 3. There is a variation in the figures from PLP, SLBC but all care has been taken to give a true picture of the districts 4. Getting the actual plan from the Private Banks and insurance companies was difficult, as they do not want to disclose their plan 5. Study was conducted with the best available human resources, who had worked with SHG and had good idea of the district but with limitations of high intellectual ability to comprehend most of the needs at the village level 6. Undertaking a PRA exercise to understand the livelihood situation ad the detailed development needs was not possible within the time span. 7. The harvest season disrupted our team’s survey work particularly gathering the women from the SHG were difficult.

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The organisation of the report: The report in the beginning gives a complete perspective of the micro finance sector and details out its growth, models and experimentation based on various studies being done. This helps the reader to get a first hand and complete understanding of the sector and its prospects. It also helps the reader to be informed about various issues before it get to the specifics related to Bihar. The second chapter gives a complete picture of the status of the Mf sector and its various stake holders in the state. Some analysis of secondary data has also been done. The Third chapter deals with the perspective of the rural poor or the demand side. A detailed HH survey is being undertake for the same and the needs of the people is clearly stated in this section. We have also estimated the potential demand of MF in the state. In chapter four we have looked at the issues, constraints and opportunities of the service providers. It also gives a detailed picture of the emerging alternative channels in the state and their potential. Chapter five gives a detailed analysis of the SHG quality status and their capacity building needs on which is seen as the key vehicle for social and financial intermediation by BRLP and the Government. The final chapter consists of key recommendations, strategies and models which BRLP can consider for design of their future programme.

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CHAPTER-1: A PERSPECTIVE ON MICRO FINANCE AND ITS GROWTH- A REVIEW OF LITERATURE

MICRO-FINANCE AS A CONCEPT AND PROCESS: Before we understand the concept of micro-finance, it would be worthwhile to understand the term micro-credit as the two terms are closely related to each other. Poor people need micro-credit for various and different purposes. It may be to meet the major household expenses emergency needs or even basic livelihood support. There are two main systems of micro-credit (Chauhan, 1990: 50-51). One is formal financial institutions, banks and co-operatives, which provide micro-credit to the poor people under different schemes for livelihood support or helping them to start micro-enterprises. The other is informal system comprising traditional moneylenders, pawnbrokers and trade specific lenders. Both the systems have their own positive and negative aspects. Based on these two systems of micro-credit Singh .N in a review paper tried to define “micro-credit as the provision wherein debtor takes money either from formal or informal sources of credit on unilaterally decided terms by the creditor”. If we combine together positive aspects of both the systems like, low rate of interest, easy and periodical repayments with moratorium period, credit for income generating activities, easy process of disbursement, no collateral or security and less paper work etc., we come closer to understanding the concept of micro-finance. The ‘Task Force on Supportive Policy and Regulatory Framework for Micro-Finance’ constituted by NABARD (National Bank for Agriculture & Rural Development) defines “micro-finance as the provision of thrift, saving, credit and financial services and products of very small amounts to the poor in rural, semi-urban and urban areas for enabling them to raise their income levels and improve their standard of living”. The emphasis of support under micro-finance is on the poor in ‘pre-micro-enterprise’ stage for building up their capabilities to handle larger resources. This perception is quite significant, keeping in view the limitations of any approach of micro-enterprise development to help the poorest of the poor for self-employment (Awasthi, 1994 & 1996). The Task Force has not specified limit for the ‘small’ amount of financial services envisaged.

Vijay Mahajan, Bharati Gupta Ramola & Mathew Titus, 1996 views that all small savings are not micro finance, nor are all small loans. Going by that liberal definition, India is probably the world leader in micro finance. However, if micro finance is small savings, credit and insurance services, based on certain design principles, then there is little micro finance provided by existing mainstream Financial Institutions (apex FIs, commercial banks, co-operatives, NBFCs).

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Revan Smith, 2006 defines MF as an activity that includes the provision of financial services such as credit, savings and insurance to low-income individuals with the goal of creating social value. The creation of social value includes poverty alleviation and the broader impact of improving livelihood opportunities through provision of capital for micro enterprise, insurance and savings for risk mitigation and consumption smoothing

THE EVOLUTION OF MICROFINANCE

Growth of Micro Finance: The historical account of the emergence and growth of micro-finance sector at the global level was started after the emergence of the Grameen Bank, Bangladesh which was started as an experiment in 1976 and accorded a special banking charter in 1983. In 1981 NDF (National Development Foundation), Jamaica, was started with support of Pan American Development Foundation. In 1983 ADEMI (Association for Development of Micro Enterprises) was established in Dominican Republic, Santo Domingo with support from ACCION, an International Agency. In 1984 BRI (Bank Rakayat Indonesia) started micro-finance in Indonesia. In 1984, K-REP (Kenya Rural Enterprise Programme) was set up by USAID (United States Agency for International Development) to develop credit programmes for micro-enterprises through NGOs intermediation. In 1986 ACEP (Agence de Credit Pour ‘L Enterprise Privee) was established in Senegal with the support of USAID. In 1986 PRODEM (Foundation for the Promotion and Development of Micro-Enterprises), which was established by USAID & ACCION International in Bolivia, started micro finance. Later on it was converted into a bank called Bancosol (Banco Solidario) in 1992. In 1987 IDH (Instituto de Desarrollo Hondurando) was started in Honduras with the support of Opportunity International. In 1992, BANPECO (Banco Nacional del Pequeno Comercio) that is, National Bank for Small Traders was renamed as BNCI (Banco Nacional de Comercio Interior), that is National Bank for Domestic Commerce and started micro-financing in urban areas of Mexico. Micro-Credit Summit (2-4 February, 1997) held at Washington D.C. was organised to launch a global movement to reach 100 million of the world’s poorest families, especially the women of those families, with credit for self-employment, by the year 2005.

In India Rural financial markets have been dominated by informal lenders over many centuries. The All-India Debt and Investment Surveys (AIDIS) present distributions of informal credit by six main lender types as landlords, agricultural moneylenders, traders, friends and relatives, and others. According to this survey, the low volume credit segment has been virtually controlled by the informal markets. The overall debt of rural households is 39% in the year 1981 from informal sources. Share of informal credit in urban areas is 30%. Informal moneylenders covered 70% of farmers' credit needs.

However, various debt and investment surveys conducted over the periods had been showing that only in the last 2 decades there is some significant drop in the share of informal credit sources in the non corporate, rural segments. AIDIS 1991-92 shows that

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institutional credit in the rural segment has been increased to 66.7%. It may be due to the advent of SHGs and Government directed Poverty Alleviation Programs through banks.

The rural economy has been surviving due to the presence of indigenous savings and credit systems for many decades despite its higher interest rates and usurious practices. The major reason for their success is easy access and informal nature.

‘Volume of Institutional and Non-institutional Credit in Urban and Rural Areas of India (1981-82)’ gives information on the major informal credit systems that exists even today especially affecting the rural and semi urban economy. Among them, Chit Funds are indigenous rotating savings and credit organizations. While chit funds are prevalent among households and small businesses all over India, they are also organized by Chit Fund Firms, especially in South India, and are regulated by the Chit Fund Act (Germidis et.al 1991). Nidhis are single branch institutions similar to credit unions. They are mainly found in South India (Germidis et.al 1991).

Wholesalers and other Intermediaries are agents who typically combine sale of goods with trade credit. The volume of finance is large relative to the total size of credit markets. Arartiyas or Commission Agents act as intermediaries between local and outstation sales in many commodity markets and provide financial accommodation to their clients. Their main role however is in reducing information costs of both buyers and sellers. Angadias play an important complementary role in facilitating fund flows between different centres at costs much below that of banks. Indigenous bankers are age-old Indian institutions serving businesses usually trade. They are grouped into various types like Multanis, Shikarpuris, Gujaratis, Shekhawatis, Rastogis, Marwaris, Kayas, Chettiars etc. along community lines and operate in different parts of India. Among the major groups, Chettiars in the south have almost disappeared (Germidis et.al 1991).

There is a bewildering array of brokers in informal markets whose main and sometimes only role is informational. They link up potential borrowers and lenders for various purposes. Pawn Brokers accept deposits and provide pawn finance. Estimates put the total volume of loans between Rs. 2.5 - 3 billion in 1979. Money Lenders are wide spread in the rural areas; they rely on their own capital and are to be found in all parts of India. "Piggy-Back" intermediaries’ essential characteristic is being the close association with the formal credit markets. Along traditional lines, they are loan brokers who undertake to obtain bank loans in their own names for a fee (Germidis et.al 1991).

Finance Corporations have activities essentially similar to commercial banks; except for non-issuance of cheques and no provision for fund transfer services. Hire Purchase Firms are generally active in vehicle and durable finance, specializing in market segments not served by commercial banks. Most of such firms accept deposits from the public.

In India, the history of rural credit, poverty alleviation and Micro Finance are inextricably interwoven. The forces and compulsions that shaped the initiatives in these areas are best understood in context of State and banking policy over time. Thus, for e.g., there were peasant riots in the Deccan in the late 19th Century on account of coercive alienation of land by moneylenders. The policy response of the then British Government to this problem of rural indebtedness was to initiate the process of organization of cooperative

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societies as alternative institutions for providing credit to the farmers as also to ensure settled conditions in the rural areas. Sheokand S. M. (2000)

In the development strategy adopted by independent India, institutional credit was perceived as a powerful instrument for enhancing production and productivity and for alleviating poverty. The strategy devised by the Government for this purpose comprised of expansion of the institutional structure, directed lending to disadvantaged borrowers and sectors and interest rates supported by subsidies. The institutional vehicles chosen for this were cooperatives, commercial banks and Regional Rural Banks (RRBs).

Between 1950 & 1969, the emphasis was on the promoting of cooperatives. The nationalization of the major commercial banks in 1969 marks a watershed in as much as from this time onwards the focus shifted from the cooperatives as the sole providers of rural credit to the multi agency approach. Sheokand (2000) further states that, this also marks the beginning of the phenomenal expansion of the institutional structure in terms of commercial bank branch expansion in the rural and semi-urban areas. RRBs were set up in 1976 as low cost institutions mandated to reach the poorest in the credit-deficient areas of the country. In hindsight it may not be wrong to say that RRBs are perhaps the only institutions in the Indian context, which were created with a specific poverty alleviation mandate”.

While tracing the history of rural credit initiatives, it is seen that during this period, the Central Bank (Reserve Bank of India) came out with series of policy initiatives to enable the flow of credit to the rural sector despite of the conditions like absence of collateral among the poor, high cost of servicing geographically dispersed customers, lack of trained and motivated rural bankers, etc. The policy response was multi dimensional and included special credit programmes for channeling subsidized credit to the rural sector and operationalising the concept of “priority sector”.

The priority sector concept was evolved in the late sixties to focus attention on the credit needs of neglected sectors and under-privileged borrowers. These strategies helped to build a broad based institutional infrastructure for the delivery and deployment of credit and ensured a wider physical access of financial services to the poor. As per Arvind Panagariya (2006), access in terms of rural branches increased from 1,833 in 1969 to around 32,200 at present, the population per rural branch declined from 2,01,854 in 1969 to around 16,000 at present and the proportion of borrowings of rural households from institutional sources increased from 7 per cent in 1951 to more than 60 per cent.

This significant increase in the credit flow from institutional sources gave rise to a strong sense of expectation from the state agencies. However, this expectation could not be sustained because the emphasis, among others, was on achieving certain quantitative targets. As a result, inadequate attention was paid to the qualitative aspects of lending leading to loan defaults and erosion of repayment ethics by all categories of borrowers. The end result was a disturbing growth in over dues, which not only hampered the recycling of scarce resources of banks, but also affected profitability and viability of financial institutions. This not only blunted the desire of banks to lend to the poor but also the development impact of rural finance.

Sheokand, (2000) describes that this was the position on the eve of reforms, which marks the second watershed, in the history of rural credit. The basic aim of the financial sector

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reforms was to improve the efficiency and productivity of all credit institutions including rural financial institutions (RFIs) whose financial health was far from satisfactory. In regard to RFIs, the reforms sought to enhance the areas of commercial freedom, increase their outreach to the poor and stimulate additional flows to the sector. The reforms included far reaching changes in the incentive regime through liberalizing interest rates for cooperatives and RRBs, relaxing controls on where, for what purpose and for whom RFIs could lend, reworking the sub-heads under the priority sector, introducing prudential norms and restructuring and recapitalizing of RRBs. A government regulated, the so called Directed Credit Approach included the policies namely, artificial/subsidized interest rates on advances (1970), benchmarks for priority sectors (1970), credit-linked programmes for addressing poverty and unemployment (1972); each having a subsidy component and the directed credit for the poor .Banks were used as a conduit for various poverty alleviation programmes of the government, notably the Integrated Rural Development Programme (IRDP). There was little change in the basic orientation of the formal government institutions as IRDP and subsequent poverty alleviation programmes continued to provide cheap, subsidized credit to the rural poor. Under IRDP, loans were given to the BPL families up to Rs. 15,000 for productive purposes with the subsidy of 25-30%. More than Rs 100 billions was disbursed under the scheme yet it failed to realize its intended objectives. It ended up in fetching abysmal repayment rates of 25-33%, appropriation of funds meant for the poor by the rural elite, reduction in loanable funds due to poor recycling of funds. The subsidy component in the loan systematically ingrained the culture that government loans are not to be returned. Amongst bankers, it deeply ingrained the view that poor are not bankable (DHAN Foundation, SHG Bank Linkage, 2001).

As Sheokand (2000) reiterates, right from the time of independence, the overriding concern of development policy makers has been to find ways and means to finance the poor and reduce the burden upon them. However, the concern of the policy makers were on the quality of the effort, there were numerous efforts made to achieve the success envisaged for a variety of reasons mainly, defects in policy design, infirmities in implementation and the inability of the government of the day to desist from resorting to measures such as loan waivers”

However, despite the best efforts of the state, the banking system was not able to internalize lending to the poor as a viable activity but only as a social obligation – something that had to be done because the authorities wanted it so. So, loans to the poor were treated as a part of social sector lending and not commercial lending; the poor were not borrowers, they were beneficiaries; poor beneficiaries did not avail of loans they availed of assistance (YSP Thorat, 2003). He further adds, “It resulted in an attitude of carefully disguised cynicism towards the poor. The attitude was that the poor are not bankable, that they can never be bankable, that commercial principles cannot be applied in lending to the poor, that what the poor require are not loans but charity. Once this mindset hardened it became more and more difficult for commercial bankers to accept that lending to the poor could be a viable activity. It is significant to note that the system had to wait for almost a decade for the concept of Micro Finance to become credible”

Despite this attitude that banks are lending to the poor for social obligation but Prof. V.S. Vyas committee (November, 2003) on Rural credit found that “the practice of advancing

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against productive purposes, neglecting credit need for social expenditures, lack of provisions to credit for working capital needs and physical settlement pattern of rural households were the major impediments to meet the rural credit requirements. Moneylenders with their rural proximity and timely supply of credits with easy accessibility gained prominent place in rural credit requirements. This paves for an exploitative credit by charging usurious rate eventually leads poor into debt trap”.

However Sheokanth S.M (2000) also observed that, “Over regulated interest rates on deposits and advances, target orientation, insulation from competition, design problems did just the opposite. Absence of market based performance incentives and continued use of lending technology that systematically eroded financial discipline led to a gradual deterioration of the RRBs and commercial banks. There has been a long-standing tradition of government owned agricultural development banks distorting financial markets with cheap credit and thereby, contrary to their good intentions, undermining rural finance and development as well as their own viability. It is also feared that easy money, even at market rates, discourages savings mobilization and thereby undermines self-financing and self-reliance of financial institutions and clients”.

S.K Mitra, (2005) says that “Abysmal rates of return, mounting losses and growing non-performing assets in the early 1990s forced the government to review its controlled economic policy and introduce market- based financial reforms throughout the sector. As a result there were sector wide reforms made including substantial deregulation of interest rates for RRBs, commercial banks, change in the target orientation, a supportive policy environment and experimentation with NABARD SHG linkage programme”.

The Emergence of SHG Movement: The book published by DHAN Foundation (2001) on Self-Help Groups (SHGs) traces the evolution of SHGs and the role of NABARD on supporting this process through proactive policies and experiments. NABARD initiated a study of about 50 NGOs in the late 1980's which led to uncovering of certain striking field level realities such as, the poor need small and frequent credit at unpredictable times, the directed credit was a costly affair - the transaction costs for banks and the clients were high, in the government sponsored programmes, people's initiatives and voluntary participation was lacking or absent, need for transparent and cost effective credit delivery system and need for local specific approaches to be found. Above all, the need for a suitable mechanism for meeting the economic aspirations of the poor was considered necessary.

In this scenario, the introduction of the Pilot phase of the SHG Bank Linkage programme in February 1992 could be considered as a landmark development in banking with the poor (NABARD, 2005). The SHG linkage programme owed its origins to the midwifery, if not parenthood of NABARD.

The Pilot phase was followed by setting up of a Working Group on NGOs and SHGs by the RBI in 1994, which came out with wide ranging recommendations on internalization of the SHG concept as a potential intervention tool in the area of banking with the poor. The RBI was quick to accept most of the major recommendations and advised the banks to consider mainstreaming lending to the SHGs as part of their rural credit operations.

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“The studies conducted by NABARD, APRACA and ILO on the informal groups promoted by non governmental organizations (NGOs) brought out that Self-Help Savings and Credit Groups have the potential to bring together the formal banking structure and the rural poor for mutual benefit and that their working has been encouraging “ (RBI, 2005).

The research studies and action research instituted by NABARD to improve access to financial services found (Sheokanth S M, 2000):

a. Traditional savings and credit products are not suitable for the poor; b. Systems and procedures of the banking system are too rigid; c. Absence of consumption credit; d. Savings as a financial product are not yet recognized; e. Too many resources are put in the poor’s hands under government-sponsored

programmes with decisions resting with others. f. A need was felt to keep safe thrift, provide emergent consumption credit and credit

for very small micro enterprises in a hassle-free and flexible delivery system. g. Need for identifying new partners: new approach with participation of the poor in

decision making;

Sheokand (2000) opined that, “The Indian heritage has its roots in strong community affiliations and identification. The social fabric is endowed with the spirit of self-help and community help. The society has been throwing up a number of examples of self-help and community initiatives without waiting for external help. This is particularly witnessed in the moments of crisis and natural calamities. Question being pondered over was whether the combination of the spirit of self-help and community service can be harnessed in the extending financial services for the poor. Initial experience of some of the pioneering NGOs especially with MYRADA and PRADAN came in handy in looking for answers”.

The conceptual thinking behind the SHG philosophy and the Bank Linkage could be summarized as a Self-Help Group is a small economically homogeneous and affinity group of rural poor voluntarily coming together. It facilitates to save small amounts regularly, members mutually agree to contribute to a common fund, helps to meet their emergency needs, systems evolved to have collective decision making, solved conflicts through collective leadership and mutual discussion and provided collateral free loans with terms decided by the group at market driven rates (RBI, 1996).

The blend of simple systems and easy access along with the institutionalization is the output of SHGs. Hence the origin of SHGs can be traced to some extent to the diversity and soundness of the indigenous savings and credit practices in India along with many other compelling reasons as cited above.

PRADAN, (Sep 1998) in the book, “RBI & NABARD - Guidelines on Linking Self-Help Groups with Banks says that “For selection of SHGs for the linkage programme with banks, NABARD has set out simple and specific guidelines for the use of bankers and NGOs as follows:

a. The group to be in active existence for at least a period of six months b. Have successfully undertaken savings and credit operation from its own resources

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c. Democratic working wherein all members feel that they have a say is evident. d. Maintaining proper accounts/records e. The banker should be convinced that a group has not come into existence only for the

sake of participation in the programme and availing benefits [credit] there under. f. There should be a genuine need to help each other and work together among the

members. g. Members preferably have homogeneous background and interest h. Interest of the NGO or the Self-Help Promoting Institution [SHPI] concerned, if any,

in the group is evident and the agency is helping the SHG by way of training and other support for skill up gradation and proper functioning”.

YSP Thorat (2005) says that SHGs redefined the conventional way of doing banking with the poor. It proved that the “poor are bankable”. This can be viewed in the context of the attitudinal constraints, which characterized bankers on the eve of the linkage programme, one realizes what an immense learning point this has been. The poor, organized into SHGs, are ready and willing to partner mainstream financial institutions and banks on their part find their SHG portfolios “safe” and “performing”. Despite being contra intuitive, the poor can and do save in a variety of ways and the creative harnessing of such savings is a key design feature and success factor.

As per Sa-dhan (2006), during the period April 2003 to March 2004 - 361,731 new SHGs were financed by banks to a tune of Rs 18.55 billion (US $ 412 million) by way of loans. Cumulatively, banks have lent Rs 39.04 billion (US $ 867 million) to 1,079,091 SHGs. NABARD has extended a refinance of Rs 7.06 billion (US $ 156 million) to banks during 2003-04 bring the cumulative refinance amount to Rs 21.24 billion (US $ 472 million). 35,294 branches of 560 banks (Commercial banks- 48; Regional Rural banks-196; & Cooperative banks - 316) situated in 563 districts in the 30 states of the country are participating in the programme. About 16 million poor households have gained access to formal banking system through SHG bank linkage programme. Nearly 90% of the groups are women only groups.

Grant assistance extended by NABARD to various agencies/ institutions for promotion & linkage of self-help groups during the year as well as cumulatively is given below;

Table 1: NABARD Financial Assistance

2003-04 Cumulative Agency Number Amount

(Rs million) For prom & linkage

Number Amount (Rs million)

For prom & linkage

NGOs 221 47.38 37,268 785 151.22 115,279 RRBs 23 6.48 7,895 90 27.58 35,045 CCBs 28 11.60 14,750 29 12.40 15,550

RRB- Regional Rural Bank; CCB- Central Cooperative Bank; Prom- promotion & linkage of groups, (Source: Sadhan, 2006)

“More than 500 NGOs provide micro finance services directly, and 550 participate in the SHG linkage programme. A Task Force was set up by NABARD at the instance of RBI to look into the entire gamut of micro finance and MFIs, to catalyze their growth. The

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self-help group SHG)-bank linkage programme of the National Bank for Agriculture and Rural development (NABARD) accelerated the growth of the micro finance movement in India in the latter half of the Nineties. Now the SHG-bank linkage programme is one of the largest micro finance programmes in the world with 10.79 lakh SHGs covering nearly 167 lakh poor families till March 31, 2004. As anywhere in the world, a sample analysis of micro finance institutions (mFIs) has concluded that nearly 78 per cent of the membership of MFIs is rural and almost 95 per cent of the members are women, the categories that have previously been underserved” (Sadhan, 2006). In Bihar SHG was started in the year 1988 through Holy Cross Sister at Tilhara village of Ichhak block inhabited by Birhor tribe who were mostly beggars and also at Kolberia village of Berkhatta block. Simultaneously, SHG system was spread by PRADAN by its Hazaribagh unit. Gradually, NGO’s who used to work in the state, started forming SHG in several districts. In the year 1993, a meeting with RBI team was held in Patna Secretariat on the micro-credit where it was discussed, whether the loaners should get subsidy. Followed the discussion during 1993, banks started giving loans to SHGs without any guarantee for the first time in Bihar. Bank of Maharastra & Canara Bank were the first two banks to bring out their guidelines for SHGs. After that, to the pressure of RBI and NABARD, different nationalized banks started opening accounts & lending loans to the groups.

Y.V Reddy (2006) says that the approach of RBI has been to emphasize the informality of micro- finance and focus on the developmental aspects. The regulatory dispensation put in place by the RBI seeks to enable enhanced credit flow from banks through MFIs and could be further refined by RBI, as necessary. On the suggestion for bringing the micro-finance entities under a system of regulation through a separate legislation, the RBI felt that micro finance movement across the country involving common people has benefited immensely by its informality and flexibility. He further adds, “Hence, their organization, structure and methods of working should be simple and any regulation will be inconsistent with the core-spirit of the movement. It was also felt that ideally, the NABARD or the banks should devise appropriate safeguards locally in their relationship with the MFIs, taking into account different organizational forms of such entities. In any case, if any statute for regulation of MFIs is contemplated, it may be at the State-level with no involvement of the RBI as a banking regulator or for extending deposits and insurance”.

Other Significant Experiments on micro finance in India: A few Indian experiments and its significance on designing effective delivery models and products are presented below. A few banks operated the pigmy deposit scheme, which involved daily/weekly collection of tiny deposits at the depositors’ doorstep by engaging local people as agents, in the past. The experience of banks most of the time has been adverse, with cash leakage, frauds and accounting and reconciliation problems. Most banks have now closed such schemes after booking losses. There is need to learn from this experience and devise adequate checks and balances and utilize IT tools to make any future initiatives less risky for banks (RBI, 2005).

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Banks have experimented with mobile banking in rural areas by several modes, including the use of mobile cash counters. The location and time of operation are usually synchronized with market days so that larger numbers of people could transact business. However, due to manpower constraints and inadequate volumes to cover costs, banks have not seen these operations as scalable models for wider replication (BASIX, 2004).

Local Area Banks (LABs) is another initiative to mobilize rural savings by local institutions and make them available for investment locally. The LABs set up in the private sector and regulated by the RBI were expected to bridge the gap in credit availability and strengthen the institutional framework in the rural and semi urban areas to provide efficient and competitive financial intermediation in their area of operation. As on date, four LABs are functioning in the country. The LABs have, however, not made an impact on the local communities in which they function in terms of any significant indicators, such as, deposit mobilization, the number of depositors, borrowal accounts, rural branches and poor people helped on account of fundamental weaknesses inherent in their business model. One serious handicap identified with the business model is the absence of a refinancing facility, which hinders both in managing maturity mismatches and their ability to lend at finer rates.

Krishna Bhima Samruddhi, a LAB promoted by BASIX in Andhra Pradesh, is the only LAB, which is into the business of micro-finance on a large scale and has achieved operational efficiency in terms of profits and a high credit deposit ratio. The experiment of LAB needs to be revisited particularly from the point of view of providing another institutional framework for reaching the rural areas (BASIX, 2004, RBI, 2003 et al).

The Kisan Credit Card, now popular all across the country and the state, is a financial product innovation of far reaching significance. The card enables the farmer to get loans over a three to five year time frame as a revolving credit entitlement. These features give a farmer unlimited flexibility to manage his cash flows, reduces the documentation costs to a third or fifth of what was incurred in the past and also obviates the need for frequent branch visits, thereby keeping his travel costs to the minimum. A farmer's consumption requirements are also built into the credit limit, recognizing thereby that a banker's attempts at bifurcating productive and non-productive components of a loan does not match with a farmer's view in which caring for himself and his family is as important as crop husbandry. The reduction of workload for the rural bank staff due to simplification of documentation, a minimum of paper work and a reduction in transaction cost has resulted in better banker - client relationships. Many banks have innovated on the base KCC product and developed variants by integrating Term Loans and Crop Loans and providing other features akin to a 'General Purpose Credit Card' besides personal insurance linkage (Danish Faruqui, 2001)

The national impact assessment survey conducted by the National Council for Applied Economic Research (NCAER), while bringing out several benefits of the KCC Scheme, has identified certain areas where further improvements are required, viz. restrictions imposed by banks on issuance of KCC due to security considerations, use of KCC only at the card issuing branches and lower credit limits. The Indian Banks' Association (IBA) is currently looking into these aspects (YSP Thorat, 2005). While this product addresses the needs of the farmers and cultivators, there are a large number of artisans, agricultural labour, and household entrepreneurs who also need a product with the features and

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flexibility that the KCC offers. Further, a potential innovation that has yet to be experimented upon on a large scale but which could have far reaching implications for the future could be for a KCC with smart-card features, which would facilitate POS transactions, linked to the farmer’s bank account.

Emerging Micro Finance Models: India has been a fertile breeding ground for a large number of models of Micro finance, each of which has become hugely popular. In fact it can be said that India hosts the maximum number of Micro finance models, both in indigenous practices as well as in modern Micro finance. The sheer geographical size of the country, a wide range of social and cultural groups, the large spectrum of economic classes and a very active NGO movement, can be said to have caused the upcoming of a wide variety of Micro finance models. The models range from pure “home-spun” varieties like the SHGs and the co-operatives to the “adapted” models like the Grameen methodology and the for-profit corporate models (Sadhan, 2004).

M S Sriram et al, (2005) gives his opinion saying, in the dynamic field of micro-finance, there is clearly no one best way to deliver services to the poor - multiple models exist and each has succeeded in their respective contexts. According to him, the evolution of the different models may have happened due to any or the combinations of the following reasons:

a. Compatibility with the programmes that the NGO is already involved in. b. The inclinations of the promoter. c. Choosing between an approach that delivers only Micro finance or a mixture of

financial and business development services. d. Legal and policy considerations. e. Whom to serve – Clientele. f. How many clients to cater to and where to operate – Outreach and Geographic

Dispersion. g. What specific services to offer to the clients – Products (social, financial and business

intermediation). h. How much to charge for the various services – Price. i. What methods of service delivery to employ – Channels. j. What organizational mechanisms to use – Legal/Institutional Forms, and k. How to communicate the availability of various services – Promotion l. What are the long term objectives – social versus commercial micro finance; the

various dilemmas about Micro finance itself-For-profit or no-profit

Though, a range of micro finance models exists in India, the most used model is SHGs. These are larger (around 20 members) and much more autonomous than borrower groups in the Grameen model. SHGs are based primarily on the principle of lending their members’ savings but they also seek external funding to augment these resources. A number of non-governmental organizations (NGOs) specialize in promoting and motivating SHGs, with an important distinction between NGOs, some who operate as financial intermediaries, and others, who confine themselves to social intermediation (ADB, 2005).

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Sadhan (2004) classifies Indian MFIs in to four categories and the reach of these models is given in the below mentioned table.

Table 2: Model wise distribution of micro finance programs

S.No Grameen SHG JLG Individual Total

MFIs 10 35 4 2 51

Clients 500191 1058777 184638 5176 1748782

% of women

97 91 96 100 93

(Source: Sadhan, 2004)

The Indian Micro Finance models (Sadhan, 2004) can be classified based on institutional structure, legal form, ideology and other such factors. One model may include more than one such characteristic mentioned above. The following models were the highly effective innovative approaches that have been adopted by micro finance institutions (NGO-mFI, Mutual Benefit mFIs, and For- Profit mFIs) for increasing the credit flow to the unorganized sector (Sadhan, 2004). They are (SIDBI, 2005):

• The basic SHG Model with Commercial Bank linkage programme • The Federated SHG approach. • The Rural Industries Promotion (SHG) Framework. • The GRAMEEN Replicator Approach • The Urban Co-operative Banking Model • The Multi-State Co-operative Solidarity Group Model • The Enabling Co-operative Networking Framework • The Co-operative - Grameen Hybrid Model • The NBFC Approach

Different institutions in the micro finance sector have successfully tried out these approaches to deliver micro finance services. Though these approaches have their own model specific strengths and weaknesses, they have demonstrated to provide financial services to the unorganized sector with effective outreach. The models vary in their legal form, in the channels and methods of delivery, in their governance structure, in their approach to sustainability, and also in their approach to Micro finance. Sadhan (2004) states that yet all of them have an overarching view of micro finance as a very effective tool of poverty alleviation. Some of the models have a minimalist approach to Micro finance and others have a Credit Plus approach, depending on the way they approach Micro finance. All the models are tried and tested and have shown excellent results in the contexts that they are operating in. Each model has demonstrated its strength in making available services to their clientele effectively. Also, innovations and experimentation go on in each model as each organization tries constantly to improve the quality of their services and their outreach.

The SHG model (Sadhan 2004), like almost all the other models in Micro finance, has evolved in the NGO sector. The belief has been that the poor have the capacity of self-help and the NGOs primarily have the functions of enabling, educating and networking.

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The NGOs have had a larger vision of development other than just provision of some services, there-from has emerged the paradigm of capacity building of community-based institutions. Needless to say, this set of belief has also given rise to a variety of other models also, but the SHGs have been the most popular among the lot. SHGs are small (membership 10 to 20), informal groups that have socially and economically homogeneous membership of poor people drawn from the same hamlet or from nearby hamlets. The composition is mostly male only or female only (as of now in India more than 90% of the SHGs are female only).

S.K Mitra (2005) says, “The SHG linkage model entails an NGO to act as facilitator between the bank and the SHG that wants to initiate micro savings through a savings bank account”. The SHG Model also addresses women’s multitude social and economic problems and links women to existing government programs (Deepa Narayan and Soumya Kapoor, 2005).

“The members are self-selected, meaning the potential members have a choice of being in this group or that group depending on their level of affinity with the other potential members. Thus the basic design of the SHG is robust and makes it easy for the NGO facilitator to build it into a strong social and financial institution. Once the basic group is identified the NGO facilitator builds in processes and systems that make the SHG a viable, sustainable institution. The group meets regularly, mostly weekly, at an appointed time and place and carries out its financial transactions of savings and credit” (Sadhan, 2004).

Alok Misra (2003) states the following characteristics consist the operational framework of SHGs,

• Homogenous Group of 15-20 people organized by NGO or Bank as SHG • Focus on thrift initially, credit comes later • Training by NGO/Bank • No collateral, Group liability, loan purpose/ROI decided by SHG

As said earlier, Sadhan (2004), “the NGOs promoting SHGs have set out with a broad vision of development, which culminates in the empowerment of the poor both socially and economically, there fore the activities taken up with the SHGs also reflect these concerns. Therefore we have a phenomenally large number of women’s SHGs that have been promoted and the SHGs also take up social and political issues in addition to livelihoods. The compatibility of the SHG to adapt itself to the wide variety of developmental concerns and approaches, have made it currently the most popular model also. The SHG derives its strength from the fact that it provides an avenue for the poor to save and take small credit as and when needed. And this forms the primary stake that the member develops in the group. The fact that the members are all from the same settlement and know each other very well helps the members exert peer pressure on each other, in case of errant behaviour. This peer pressure ensures that the members follow the group norms strictly. The facility that the SHGs have now of drawing finance from the mainstream makes it more attractive because even bigger loans are now possible”.

“There is a need felt among SHGs and facilitating organizations to bring SHGs together in the specific geographical area so that solidarity will be built among the SHG members, a unique identity would be created, scale can be achieved in certain programs like

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insurance and housing and SHGs can gain power to effectively negotiate with the mainstream organizations and can demand their entitlements. Hence, DHAN Foundation initially played pioneering efforts on promoting SHG Federations. Many organizations either adapted or created their own structures subsequently” (Sadhan, 2004).

BASIX (2001) states, “Professional Assistance for Development Action (PRADAN) approach is to link SHGs with banks, and later establish strong local CDFIs in the form of SHG Federations and link them with banks. DHAN Foundation has taken this approach to a highly evolved stage with its "Kalanjiam Foundations" which are further federated at the block level”. The Vaigai Vattara Kalanjiam was the first SHG federation promoted in Tamil Nadu at the initiative of DHAN Foundation (NABARD, 2001).

Ajai Nair (2005) explains, “SHG federations were promoted primarily as an exit strategy, i.e. to allow organizations that had promoted SHGs to withdraw their support to SHGs while also ensuring their sustainability. PRADAN and Mysore Resettlement and Development Agency (MYRADA), two large NGOs that pioneered the concept of SHGs, were also among the earliest agencies to promote SHG federations. DHAN Foundation further refined the federation model promoted by PRADAN. Other major NGOs that have promoted SHG federations include SEWA in Gujarat, PREM in Orissa, Chaitanya in Maharashtra, Gram Vikas in Karnataka, and YCO in Andhra Pradesh (FWWB 1997). The structure of the federations and the functions performed vary and depend significantly on the promoting NGO”.

He further states, “Federations promoted by DHAN usually have more than 200 SHGs as members, provide a wide range of services including financial services, and employ paid staff. The federation structure is a nested-structure with SHGs as members in cluster-level federations and block-level federations; the block-level is a registered entity, either as a society or trust. DHAN has promoted over 30 such federations. In contrast, federations promoted by MYRADA are unregistered associations of 15-25 SHGs each, do not have paid staff, and provide a more limited range of services that does not include financial services. The federation has no permanent staff, office, or funds. MYRADA had promoted over 50 such federations by 2001”.

Sadhan (2004) defines federation structure as “The executive body at the apex level is the executive committee, which is typically made up of 9 to 15 members Federations also have paid staff members working for them but there is significant variation in the degree to which the staff is able to manage the affairs of the federation independently of the supporting NGO. In one federation, the SPMS (promoted by The DHAN Foundation), the NGO has almost completely withdrawn its support from the federation, and the staff and leaders of the federation manage all activities. In other federations, the staff manages the day-to-day operations, with guidance from the supporting NGO. Among other things, Federations enable SHGs to access and manage external funds, especially from micro-finance wholesalers, help in the promotion of newer SHGs and also the strengthening of existing groups through capacity building inputs, facilitate inter-group exchange (both financial and non-financial) help in maintaining linkages between SHGs and other agencies acting as advocates for member groups, and assisting SHGs with loan recovery”.

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Activities of the Federations (DHAN Foundation, 2003) are listed. Three financial activities that are common to federations need special mention:

a. Acting as a conduit and manager of external credit funds b. Assisting SHGs with loan recovery in difficult cases: c. Strengthening weak SHGs, so that they are able to carry out their savings and credit

function smoothly

The effectiveness of the federation in these roles derives from several factors:

a. The representative body at the federation level is a library of the experiences of several groups, which enables it to have a better perspective on SHG problems

b. The members perceive the representative leaders as ‘one of us’, which increases their efficacy with the SHGs

c. The representative body consists of group leaders, which makes it a concentrated pool of talented and competent persons, and

d. Federation leaders receive a significant amount of training through the supporting NGOs, which enhances their competencies.

Sadhan (2004) further informs, “The federation, by virtue of its size and scale of operations, is thus able to expand the savings opportunities for members. The credit-giving patterns also vary. While, generally, federations have credit activities occurring at the group level, the federations also provide credit to their members. These loans are given from members’ savings that may be deposited with the federation, and from external funds that it is able to access independently. Federations are thus able to increase the amount of credit available to members. Sometimes, when bank loans take longer than expected, federations even provide bridge loans. One federation in India (Chaitanya), which started providing insurance services to its members, has even become an agent of the insurance company. Product diversification of financial services is thus a commonly observed trend after federative activity”.

Though Grameen bank evolved its methodology in Bangladesh, with its well-recognized success, many organizations in India, like SHARE Microfin Ltd., Activists for Social Alternative (ASA), and CASHPOR Financial and Technical Services Ltd. have adopted this methodology with little variations (Websites of the above organizations). Some of the salient features of Grameen Model are mentioned below (Sadhan 2004):

“Grameen groups are homogenous affinity groups of five members formed at village level. The field worker facilitates the process of forming group. All the group members undergo a 7-day compulsory training of 1-2 hours each day. Some groups undergo the Group Recognition Test (GRT). The GRT is a screening mechanism that can distinguish between serious and non-serious groups. It has been recognized as an effective targeting tool. Once the preliminary groups have passed the GRT, and then the women should become members of the institution by paying a one-time member fee. Eight group affiliate together to form a centre. The centre meets every week, at a defined time. The meetings are very structured and a staff of the institution attends the meeting “.Grameen model” is also started way back in 1993 by Read in West Champaran.

“Loans are provided for all kinds of purposes - General Loans, Supplementary loans, Special General Loans, Sanitation and Housing Loans. The savings are compulsory for

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the members. Every member saves Rs. 10 every week. This amount is deposited with a Bank. This deposit funds the members’ consumption needs. This strategy has paid off, because members are less likely to default on their own money as opposed to when funds are provided by outside institutions. The size of the loan generally ranges from Rs. 4000 to Rs. 10,000 for yearly loans. The first year size is Rs. 4000 and there is an annual increase of Rs. 1000 in loan size, for every year thereafter. All loans including agriculture loans are repayable within a year spread over equal instalments of 52 weeks”.

“The provision of 5% tax of all productive loans disbursed to a member is one of the most important strategies to increase group fund. This fund remains with the group. From this fund the members can access the loans for consumption purposes. The belief here is that, if there is an alternatives provision for consumption loans, the clients will not divert production loans to meet their consumption needs. The group leader collects the loan repayments and savings prior to the meeting and hands it over to the Centre leader who in turn during the meeting gives it to the field worker. The collected money is never used for fresh loans. It is deposited in the branch the same day. In a sense it is a good practice as it discourages all possible leakages in monetary transactions. While the Grameen model is limited to less than a dozen major NGO-MFIs or NBFCs, it is an important alternative credit delivery system to mainstream finance. Some of the comparative strengths and weakness of the Grameen approach vis-à-vis SHGs are given in a later section”.

The leading organization that has been successful in using the cooperative form in rural micro finance in India has been the Cooperative Development Foundation (CDF), Hyderabad (Sadhan, 2004). CDF’s approach has relied on a credit union model involving a savings first strategy. It has built up a network of financial cooperatives based upon women and men’s thrift groups. After lobbying successfully for an enabling legislation in the State of Andhra Pradesh for the flexible functioning of cooperatives (which result in the Andhra Pradesh Mutually-Aided Societies Act), it has registered the associations of thrift groups promoted by it under this Act”.

M.S Sriram and Rajesh S Upadhyaya (2002) elaborate, “About a decade ago, CDF was working exclusively with agricultural finance cooperatives. State interference in cooperatives was one of the major problems. The interference culminated in the nation-wide loan pardon scheme of 1989, resulting in the impairment of the portfolio of many a cooperative. At that point CDF thought it was time to spin off the thrift and credit activity out of the cooperative fold and actively started promoting informal mutual benefit groups. Simultaneously, CDF also lobbied for a change in legislation, seeking greater autonomy for cooperatives in the state. This culminated in the Mutually Aided Co-operative Societies (MACS) Act. This act gives ample autonomy for cooperatives, provided they do not seek state funding. After the legislation was passed, the mutual benefit groups promoted by CDF were registered under the new act. Simultaneously other NGOs encouraged their groups to be formally registered as MACS”.

M S Sriram et al further say, “The transformation of small groups to cooperatives has been painless. The advantage of a cooperative is that it can access various types of savings from its members besides providing credit like other MFIs. It can also easily get its stakeholders in the governance structure by the use of democratic processes. Besides, cooperatives can grow organically by setting up federations as and when they have a need

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to wield clout and negotiate on matters of policy. However, until now, the federations have played a limited role in the context of CDF cooperatives. One major drawback of cooperatives is the geographic limitation. State and not federal legislation governs cooperation, and even within that, usually the area of operations of a cooperative is demarcated. Cooperatives also experience problems in accessing mainstream finance, because of their poor image. Nevertheless, they seem to be a good mechanism to get the informal groups into a formal incorporation when the groups reach the limit of size. But it is also important to note that no single cooperative has grown big enough to cross Rs. 10 million in outstanding loans. The success of the new generation of cooperatives is limited to Andhra Pradesh, even though other states have passed similar legislation”

Andhra Pradesh Mutually Aided Cooperatives Act, 1995 features are greater flexibility to cooperatives to frame their own bye-laws; operations and management of cooperatives to be conducted according to bye-laws, role of Registrar of cooperatives reduced, Rule-making power of Government abolished, Admission, disqualification and expulsion of members the sole prerogative of cooperatives, Members alone can contribute share capital (non-member including government share capital forbidden), greater flexibility in mobilization and utilization of funds, Cooperatives allowed to set up subsidiary organizations. (Biswas and Mahajan, 1995)

Sadhan (2004) on its study on various micro finance models describes, “All the members of the primary cooperatives constitute the General Body and adopt a uniform set of bylaws. The General Body meets once every year to elect the directors, review operations and discuss other issues. The Board of Directors consists of 12 directors who are elected from amongst the members. Each director is elected for a three-year term. To allow for both change and continuity in leadership, the byelaws provide for four directors to retire every year. These directors are however eligible for re-election. The directors elect a chairperson and appoint a managing director from among himself or herself. Both the Chairperson and Managing Director have a one-year term. They are however, eligible for re-election. It is the duty of the Chairperson to preside over all the board meetings, represent the cooperatives in other organizations and forums and to ensure that they function in accordance with the cooperative principles and bye-laws”.

“The Managing Director is responsible for ensuring that the operations of the cooperative are properly conducted and that the resolutions of the Board are implemented. A set of geographically contiguous cooperatives federate to form an association of women’s/men’s thrift cooperatives (AWTCs/AMTCs). The Chairperson and Managing Director of each participating cooperative are members of the General Body of the associations. The General Body elects a Chairperson and a Managing Director to oversee the affairs. In addition to looking into matters such as training, management of the Loan Insurance Fund (LIF) and inter-lending, the associations also play a service and support role by helping the member cooperatives in handling accounting, auditing and other administrative and statutory matters” (Biswas and Mahajan, 1995).

In the models described above NGOs can either play a facilitating role for the promotion of various community-based micro finance institutions or can themselves, or through a satellite company, act as micro finance intermediaries. Thus NGOs can either link SHGs or their federations to banks and to enable them to access other sources of finance or can borrow funds themselves in order to act as retail MFIs serving either individuals or

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Grameen-style joint liability groups or SHGs and their federations. For this purpose they can be registered either as non-profit societies, trusts or companies or they can operate on a for-profit basis.

Hence, Sadhan (2004) summarizes, “The legal form of the Non-Banking Finance Company (NBFC) has emerged as the nearest substitute to being a full-fledged bank, for those MFIs who want to go the for-profit route. Since getting registered as a Bank is costly (requires the promoter to put up Rs 100 Crores as start-up to be recognized as a Bank in the private sector) and the Local Area Bank (LAB) idea still hanging fire, there fore the NBFC route is increasingly being chosen by MFIs operating for-profit. By going the NBFC way, the MFIs can also now vie for entering the capital markets for mobilizing resources”.

Rajashri Ghosh (2003) however brings other dimensions, “Majority of MFIs would like to be converted to NBFCs, which would enable them to raise public deposits for on lending. A big deterrent is the start up capital of Rs 20 million required to register as an NBFC, which is beyond the reach of many MFIs. But this requirement is part of the regulatory apparatus of RBI to ensure the issue of safety of public money. But MFIs need liquidity also. Hence, they should be allowed to borrow public money with adequate safeguards like deposit insurance with banks. MFIs also want to have more freedom in raising equity capital”. They face difficulties in raising equity, because NGOs are not allowed to invest in MFI equity, because of the charitable status of NGOs under the Sections 11 and 12 of the Income Tax Act (Priya Basu et.al 2002). One good measure of late is NGO-MFIs have been allowed to raise External Commercial Borrowings, where the interest costs are relatively lower, from April 2005. {RBI, 2005} The stipulations are (1) funds are to be routed through normal banking channels (2) funds to be earmarked for micro finance only and (3) the borrowed amount must be hedged.

The belief is that the poor are bank-able and lending to them can be viable commercially, so it is not necessary to depend upon on low cost funds to lend to them. Secondly since the amounts required are huge (a rough estimate is that the poor in India require about Rs 50,000 crores a year as credit (Sanjay Sinha, 2003) and the existing mainstream sector meets only 20% of it), the financial markets are the only way to mobilize resources. This would mean mobilizing debt at market rates of interest. The for-profit NBFC route is currently the best method currently to operate in the capital markets.

As of today the best example of an NBFC-MFI is BASIX, a new generation NBFC (also called the eclectic NBFC model) that has been promoted for providing tailor made financial services for the poor. Unlike the majority of MFIs in India, who have come through the NGO route, BASIX is the first one to have selected the NBFC route (Sadhan, 2004). This also means that unlike the other NGO-MFIs that have got into Microfinance with a not-for-profit motive, BASIX is the first one to have initiated Microfinance services with a stated agenda of making profits. So it has been registered as an NBFC. BASIX has also applied for starting a local area bank in Andhra Pradesh and Karnataka, which would be registered as a bank. Thus it can be said that BASIX is an attempt to demonstrate that lending to the poor can be a commercially viable business and the corporate financial world has all the reasons to begin to get interested in providing financial services to the poor.

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The poor do not have to be always looked at as worthy of doles and charity but realm of Micro finance and micro-enterprises they are capable of dealing with the mainstream as equal partners. However, it is not viable for a company or NBFC engaged in micro finance to invest in developing a customer base - which has to be undertaken by an NGO - to enable poor clients to absorb credit. Thus this form of MFI is dependent on having a ready clientele of SHGs/individuals through prior investments and facilitation by an NGO. The NBFC form is also the preferred form of Grameen replicators such as SHARE and CFTS, since the methodology requires the MFI to act as a financial intermediary rather than a facilitator.

Whatever the model may be, SIDBI (2005) insists “For the growth and increase in outreach of the micro finance sector, we need to create an environment that facilitates the market entry of new players, encourage them to innovate and brings competition in the sector resulting in efficient services and low interest rate to borrowers. However, this requires that the government, regulator and the apex institutions are methodology neutral and do not impose any restrictions or discriminate against MFIs adopting different methodology to reach the under-served segment of the society. Different methodologies have their own strengths and uniqueness in reaching out to the people left out of the ambit of the formal financial sector. There are a number of successful examples of retailing MFIs following different approaches in our country. The right approach does not appear in bringing uniformity in the methodology but in encouraging players with different methodology and providing them with capacity building assistance to improve their systems, internal control mechanisms and governance structure bringing thereby efficiency in the system and lower transaction costs. However, this requires an intensive study of different models of micro credit, the issues related with their sustainability and interest rate on the ultimate borrowers”.

Moving from micro credit to micro-credit plus to Livelihood Finance: Minimalist micro-credit is the practice of micro finance organizations. They provide only credit as part of their developmental activities. It reflects the ideology that if credit is provided, and invested in income generating activities, it will result in poverty reduction and increased welfare of the family. Most micro finance programmes now realize the limitation of this approach and move towards an integrated approach that provides not only financial but also social intermediation, enterprise development and other social services including education and health services. Vijay Mahajan (2007) opined that micro credit is essential but just micro credit without other support services is just like a vehicle with fuel and no wheel and accessories. He further says that poor families need saving services more then credit. Poor people taking credit faces huge risk of their lives and livelihoods and so is the need for suitably designed micro insurance products. He further opined that micro-credit in particular, and micro-finance (including savings and insurance) in general, is helpful for the more enterprising poor people in economically dynamic areas. However, for poorer people in backward regions, a whole range of other livelihood promotion services (input supply,

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training, technical assistance, market linkages) needs to be provided. Also, it is not possible to work with poor households individually as they need to be organized into groups, informal associations and sometimes cooperatives or producer companies, all of which requires institutional development services. BASIX follows this strategy as a new generation livelihood promotion strategy.

Vijay Mahajan (2005) clearly states, “While every effort should be made to expand and improve the micro-credit programs of banks and MFIs, we must note that micro-credit is able to address the livelihood problem only peripherally. What we need is to broaden the paradigm from Micro-Credit to Livelihood Finance”. He further explains “Livelihood Finance is any mechanism for investment in the very basis of livelihoods, which are Natural Resources: Land, water, trees, livestock, energy ,Human Resources: Nutrition, Health, Education, Vocational Training, Capacity Building of individuals and groups ,Infrastructure: Roads, power, market places, Institutions: Of law and order, of governance and representation, of free markets”. He further states “Seen in the above context, micro-credit pales into insignificance as a "solution" for promotion of livelihoods. Micro-credit is by definition, small loans, given for short durations, with repayments beginning as quickly and as frequently as possible. Moreover, whether given through self-help groups, Grameen bank style groups, joint liability groups or directly to individuals, most micro-credit eventually is loans to individuals, not to any collectives. In contrast, Livelihood Finance will require large amounts; it may need more than just loans (it may need equity or risk funds); it will invariably be for long durations, at least five and maybe 20 years, and its use will almost always be for collective purposes. Thus micro-credit and Livelihood Finance are fundamentally different”.

NGOs as MFI or financial intermediary BASIX (2006) view, “In the course of its work in the last few years, BASIX recognized that CSO/CB-MFIs play a critical role in supporting/ promoting livelihoods in rural areas if they become MFIs or financial intermediary. BASIX has also been the pioneer in building the capacity of these NGOs in terms of their (i) Operating System, (ii) Information System, and (iii) Human Resource System. This model is now being practiced widely by private banks like ICICI, HDFC and UTI . NGOs are also been partnered under the business correspondence model and as business facilitator.

Keeping these validated models for delivery of credit to the poor and the unorganized sector in view, RBI is moving towards a systems perspective for providing effective policy support not only because a number of different institutions, viz. banks, MFIs, NGOs and SHGs are involved, but also because these institutions have very different institutional goals. With this in view, a series of initiatives is being planned for putting in place a more vibrant micro finance dispensation environment in the country where complementary and competitive models of micro finance delivery would be encouraged to co-exist.

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Excerpt from the Finance Minister’s Budget speech

Paragraph 53 of the Union Budget 2005-06 reads as:

At present, micro finance institutions (MFIs) obtain finance from banks according to guidelines issued by RBI. MFIs seek to provide small-scale credit and other financial services to low income households and small informal businesses. Government intends to promote MFIs in a big way. The way forward, I believe, is to identify MFIs, classify and rate such institutions, and empower them to intermediate between the lending banks and the beneficiaries. Commercial banks may appoint MFIs as “banking correspondents” to provide transaction services on their behalf. Since MFIs require infusion of new capital, I propose to re-designate the existing Rs.100 crore Micro Finance Development Fund as the “Micro Finance Development and Equity Fund”, and increase the corpus to Rs.200 crore. The fund will be managed by a Board consisting of representatives of NABARD, commercial banks and professionals with domain knowledge. The Board will be asked to suggest suitable legislation, and I expect to introduce a draft Bill in the next fiscal year.

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CAHPTER-2: LANDSCAPE AND STATUS OF THE MF SECTOR IN BIHAR:

There have been many significant initiatives in the institutional and policy spheres since the mid 1990s to enable the poor access financial services. Major institutional initiatives include the bank linkage programme under the overall guidance and supervision of the National Bank for Agriculture and Rural Development (NABARD), the setting up of the Rashtriya Mahila Kosh to re-finance MF activities of NGOs, including the state of Bihar, and the significant role of RGVN in providing capacity building and start up loan to NGOs are some of the initiatives witnessed in the state. The Scheduled Commercial Banks (mainly in the public sector), Regional Rural Banks (RRBs) and cooperative banks are also emerging as important channels of micro finance provision in the state. There have been fiscal initiatives such as assistance under central development schemes like Swarnjayanti Gram Swarozgar Yojana (SGSY), Swa-Shakti, Swayamsiddha, Swawalamban and Deep (all central government scheme exclusively targeting rural women) are routed through SHG and for different category of clients. Besides this programmes being run by other donor agencies like PACS, Mahila Samakhya, Food for Hunger and OXFAM among others have played a significant role in giving a fillip to the SHG movement and MF development in the state. Some early initiatives by NGOs like NIDAN, CPSL and NBFCs like SNFL-ASSEFA, Bandhan, and CASHPOR are helping in the process of bringing in alternative methods of lending (SHG, SHG federation, ASA, Grameen, and cooperative models) in the state. Private Banks like ICICI has also initiated the partnership model and has started on lending to NGO and MFI in the state. BASIX also has started its Institutional Development work way back in 1999 with ASSEFA which transformed its Gram Kosh into a NBFC-SNFL. For the last three years BASIX is building the capacity of NGOs to run their MF program, which is being supported by ICICI and DID –Livelihood and MF promotion fund through handholding support for SHG promotion, SHG quality improvement and designing MF operational and systems.

In this section we will only present the present status of the SHG, SHG Bank linkage through formal institutional channels including the lending to priority sector and weaker sections in rural Bihar. In addition, the status of the new forms of alternative institutions for lending to the rural poor will also be looked and as well as informal sources. An attempt is also being done to compare the status vis-a-vis neighbouring states and some of the leading states. A complete profile of those indebted in the state is also presented in this section. Profile source and purpose of indebtedness of rural and farm households in Bihar:

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In this section we have presented the complete picture of indebtedness by households based on different occupation, income group, social status, its purpose, and its sources in Bihar and in other states. This will help us understand the status of micro credit vis-a-vis other states. A comparison will help understand any specific issue for growth or the need for a new strategy for the growth of MF sector in Bihar. A specific analysis of the indebtedness by the farmers’ household is also being done as most of the rural lending is still targeted towards the cultivators. Providing rural households access to financial services, particularly credit, has been a priority agenda for the state since the early days of independence. A survey on indebtedness by NSS-59th round, 2003 (report no - 498) shows that over the last decade there has been a significant (3 to 4 fold) increase of borrowings in rural areas. However the percentage shares of average borrowings in Bihar is far below states like AP and interestingly lower than the newly formed state like ChattiSHGarh. Thus, it can be inferred that the availability of credit and credit absorption capacity in states like Bihar and Assam is low (see table-1). This is probably because of limited opportunity of investment available in the state and is particularly true for farmer household. Table 2 gives a picture of the loan outstanding of loan per farmer household. Table-1: Average amount of cash borrowing per house- hold (AOB) in Bihar and other states Major states AOB(Rs) Rural 1971-72 1981-82 1991-92 2002-03 Andhra Pradesh 155 664 1894 5306 Assam 31 29 236 622 Bihar 62 113 305 1028 Chattisgarh 0 0 0 1569 Orissa 53 194 269 1548

NSS-59th round In another study being done with the farming community only by NSSO in the year 2003 has the following findings: The table below shows the average amount of outstanding Loan (in Rs.) per farmer household of different Social Groups in different States. The loan outstanding of backward classes is lower than the socially forward castes across all states. This is due to low accessibility and possible discrimination of the lower caste by the formal institution. Table- 2: Average borrowing per household by caste Social Group

State Schedule Caste(SC)

Other Backward class(OBC) Others All

Estimated no of indebted HHs(00)

Andhra Pradesh 12720 23697 37802 23965 49493 Assam 1141 598 971 813 4536 Bihar 3161 4010 6814 4476 23383 Orissa 4850 7845 10439 5871 20250

Source-NSS-59th round

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Nationally, the decade of the 1970s was marked by directed lending following the nationalisation of banks in 1969 and introduction of the lead bank scheme. Institutional sources have made significant progress in provision of financial services in rural areas, with All India average standing at 57% whereas the corresponding figure in Bihar is 23%. The picture is true for urban Bihar where the percentage is lower than the other states. The other significant observation is that share of institutional credit in both urban and rural areas in Bihar has declined. This calls for a alternate banking strategy so as to increase the share of institutional finance in Bihar. Table-3 Percentage share of institutional agencies in cash borrowing of the household Major states Rural Urban 1981-82 1991-92 2002-03 1981-82 1991-92 2002-03 Andhra Pradesh 40.9 23.9 37.6 38.1 40.8 60.2 Assam 22.6 44.7 46.5 52.1 69.2 87 Bihar 39.8 57.7 23.4 63.3 64 46.8 Chattisgarh 0 0 57.9 0 0 86.1 Orissa 69.2 68.5 69.6 85.9 87.9 95.8

NSS-59th round While institutional intervention continued in rural markets, it was largely driven and skewed in favour of agricultural credit. Percentage of net bank credit to agriculture – both direct and indirect – was one variable consistently monitored by the regulators. In general, the targets relating to the sector were being achieved by the banking sector as a whole. At the same time, targets for weaker sections – set at 10 per cent of the net bank credit – has not been achieved. While the public sector banks as a category have lent around 7 per cent of net bank credit to weaker sections, the private sector banks have achieved less than 2 per cent. The institutional source of credit is manly long term where as the non institutional short term with quick repayment periods. The figures of repayment during the same year are also not encouraging. It is seen that the cultivators generally find it difficult to repay loans in the same year if it is a bad year. It can be seen that the ratio of no of persons from all category borrowing from institutional vs non institutional borrowings is quite high in the ratio of 1:11, where as the ratio of amount is 1:3.5. This can be also inferred that non institutional credit is more easily available and for smaller amount. Where as institutional credit is meant for small no of borrowers who need bigger amount of loan. Banks do not find it profitable to lend to small individual borrowers.

43

Table-4: Occupation wise Institutional and Non-institutional credit usage in Rural Bihar Occupational category

Type of transaction Rural

Credit agency Institutional Borrowing in cash

Repayment of loan taken during the year Loans written off

Av per000 HH

Av. per 000 Rs.

Av per000 HH

Av. Per 000 Rs.

Av per000 HH

Av. Per 000 Rs.

No of HH Estd(000)

Cultivator 13 322 2 18 2 16 70718Agriculture labour 4 30 0 0 0 0 25187Artisans 26 600 1 0 0 0 3150Other 10 151 1 9 1 1 17799non-cultivator total 8 116 1 4 0 1 46136All 11 241 1 12 1 10 116853Credit agency Non-Institutional Cultivator 124 802 27 77 1 3 70718Agriculture labour 146 474 29 43 3 2 25187Artisans 78 133 4 10 0 0 3150Other 154 1287 26 44 0 0 17799non-cultivator total 144 765 26 41 2 1 46136All 132 787 27 63 1 2 116853Credit agency All Cultivator 136 1124 29 95 3 19 70718Agriculture labour 149 504 29 43 3 2 25187Artisans 104 733 5 10 0 0 3150Other 164 1439 28 54 1 1 17799non-cultivator total 152 880 27 45 2 2 46136All 143 1028 28 75 3 12 116853NSS-59th round It is also observed that among the institutional source of borrowings commercial banks and RRB and to some extent cooperatives play an important role where as non- institutional borrowings are dominated by the professional money lenders, agriculturist money lender and friends and relatives. The same can be seen in table-5 below. Table-5: No of households reporting cash borrowing during 1-7-02 to 30-6-03 per thousand household (P) and per 1000 distribution of amount of borrowing (S) over credit agency for each major household type

Agency Cultivator

Non cultivator

All

No. of hhs report borrowings

Credit agency P S P S P S est.(00)

44

Govt. 0 2 1 17 0 7 50Co-operative society/ bank 3 23 0 2 2 16 261Commercial bank including RRB 9 249 5 106 7 200 856Insurance 0 0 0 0 0 0 0Provident fund 0 9 0 3 0 7 17Financial corporation/institution 0 0 0 0 0 0 2Financial company 0 0 0 0 0 0 1Other institutional agencies 1 4 1 2 1 3 93All institutional agencies 13 287 8 131 11 234 1281Landlord 2 10 9 22 5 14 568Agriculturist money lender 21 139 24 122 22 133 2571Professional moneylender 43 277 48 209 45 254 5214Traders 7 45 4 9 6 33 707Relatives and friends 39 167 40 448 39 262 4610Doctors, lawyers and other professional 1 4 0 1 0 3 52Others 12 71 19 57 15 66 1713All non-institutional agencies 124 713 144 869 132 766 15410All agencies 136 1000 152 1000 143 1000 16653

NSS-59th round Another study done on indebtedness of the farming community only by NSSO(2003) also scores high in non- institutional borrowings from Agriculture /professional money lender, friend and relatives. In AP interestingly the share of professional money lenders to total borrowings is still highest among all sources though both the banking and Mf formal sector has the highest growth in AP. Table: 6 Per 100 Farmer household by sources of loan

State

Co-operative society Bank

Agriculture /Professional money lender Trader

Relatives & friends

Doctor, lawyer and other professionals Others

Estimated no of indebted hhs(00)

Andhra Pradesh 20 31 57 9 6 1 4 49493Arunachal- Pradesh 0 10 0 33 49 0 21 72Assam 3 9 10 17 54 1 6 4536Bihar 4 17 44 5 26 2 7 23383Chhattisgarh 37 27 20 17 12 2 5 11092Gujarat 40 23 8 10 29 1 1 19644Orissa 30 36 23 4 16 0 3 20250

NSS-59th round The table below shows the type of loans preferred by those borrowing in rural areas of Bihar. It can be seen that the number of house holds in rural Bihar borrowing cash from any source is mainly for short term and long term. Demand for medium term loans are less. Money is borrowed in short term with a combination of pledging and non- pledging from informal sources. Long term loans are mainly to big farmers from institutional

45

lenders. The demand for pledged short term lending is more in Bihar compared to other states. Table-7: Number of households reporting cash borrowings during 1-7-02 to 30-6-03 per 1000 households (P) and per 1000 distribution of amount of borrowings (S) by type of loan for each major household type

State Type of estimate

Type of loan

Estd. Hhs(00)/ amount of borrowings (Rs000)

Short term pledged

Short term non-pledged

Short term combined

Medium term

Long term All

Andhra Pradesh P 22 158 175 72 38 268 80937 S 53 362 415 307 278 1000 25084655Assam P 29 74 103 35 12 149 15459 S 82 257 339 219 441 1000 988560Bihar P 27 62 89 46 17 152 46136 S 117 463 580 255 165 1000 4060651ChattiSHGarh P 6 49 56 26 7 84 8816 S 61 159 220 615 165 1000 1139580Gujarat P 6 20 26 39 19 83 27047 S 48 45 93 426 481 1000 4681803Haryana P 16 85 86 29 16 131 12979 S 48 45 94 428 481 1000 4681804Orissa P 14 68 80 22 10 111 23469 S 38 151 190 63 748 1000 5229534

NSS -59th round The table below also shows that for both cultivator and non -cultivator borrowings are still on mutual faith, personal security and third party guarantee. This is mainly from the informal sources. The other form of security for loan is on mortgage on immovable property and first chare on immovable property. Table-7: Number of households reporting cash borrowings during 1-7-02 to 30-6-03 per 1000 Households (P) and per 1000 distribution of amount of borrowings by type of security for each major household type

Type of Security Cultivator

Non-Cultivator

All

No. of HHs Report. Borrowings

P S P S P S estd. (00) Personal security 109 650 129 840 117 715 13633Surety security/ 5 57 3 18 4 44 515

46

guarantee of third party Crop 0 1 0 0 0 1 32First charge on immovable property 5 67 1 27 4 54 444Mortgage of immovable property 14 204 7 87 11 165 1336Bullion/ ornaments 0 1 1 2 0 2 56Share of companies, govt. Securities/insurance policies etc. 0 0 0 1 0 0 2Agriculture commodities 0 0 0 0 0 0 0Other movable property 0 3 0 1 0 2 32Other type of security 2 16 10 23 5 18 616N.r. 0 0 1 1 0 0 29All 136 1000 152 1000 143 1000 16653

NSS -59th round In the same study on the purpose of borrowings in Bihar it was also found that most of the borrowings both by no. of persons and amount are used for consumption and HH purpose. After meeting the consumption needs the demand for loan for farm business and working capital is more compared to loan for non farm business and working capital. A significant no of people also take loan to repay their old debts and often poor fall in the debt trap. Table 8: Number of households reporting cash borrowings during 1-7-02 to 30-6-03 per 1000 households (P) and per 1000 distribution of amount of borrowings (S) by purpose of borrowing for each major household type

Purpose of borrowing Cultivator

Non-cultivator

All

Number of hhs report. Borrowings

P S P S P S estd. (00) Capitals expend. In farm business 21 230 3 21 14 159 1615Current expend. In farm business 14 103 4 56 10 87 1148expenditure in farm business 34 332 7 78 23 246 2739Capital expends. In non farm business 5 35 8 90 6 54 704Current expend. In non farm business 5 19 3 27 4 22 444expenditure in non farm 9 54 11 118 10 75 1148

47

business household expenditure 70 383 108 696 85 489 9972expenditure on litigation 0 1 1 2 0 1 50Repayment of debt. 6 21 3 5 5 16 584financial investment expenditure 0 0 0 0 0 0 0Others 18 209 23 100 20 172 2349Non-business expends. In hh. 95 614 134 804 110 678 12907n.r. 0 0 1 1 0 0 27Any 136 1000 152 1000 143 1000 16653estd. No. of hhs.(00)/ amount borrowed (Rs 000) 70718 7951267 46136 4060651 116853 12011918 x

NSS-59th round Another survey on indebtedness gives more details of purpose of loan of the farming community shows that in Bihar most of the loans being taken by the farming community are for consumption, marriage and medical expenses. Farmers of Bihar and Arunachal Pradesh face severe risk of health and need some appropriate strategy to deal with this situation. The demand for loans for marriage is also highest in Bihar. On the contrary in developed states like Gujarat and AP, loans are mainly being taken for working capital for farm business for productive purpose. A loan product also needs to be made suitable as per the requirement of the state. Table -9: Per 100 distribution of indebted farmer households contracting loans from different sources by State. Per 100 no .of indebted farmer household by purpose of loan.

States

Current Expenditure in farm business

Non-farm business

Consumption Expenditure

Marriages and ceremonies

Education

Medical treatment

Other Expenditure

Andhra Pradesh 51 3 26 9 1 4 9Arunachal Pradesh 10 1 39 0 6 18 38Assam 12 7 30 10 1 6 25Bihar 12 5 21 18 1 17 12Chhattisgarh 42 5 23 8 1 5 6Gujrat 56 2 13 13 0 5 8Orissa 36 8 21 8 0 4 8

NSS-59th round The table below shows the purpose of loan for different source of income by various social groups in Bihar. Though no significant difference is seen among different social groups but it is seen that loans for education is being taken only among the cultivators of OBC and among all category of the upper caste people.

48

Table-10: Per 1000 distribution of outstanding loans (in Rs) by purpose of loan for different sources of income of different category of farmer households. Bihar Social Group:SC Purpose of loan

Sources of income

Current Expenditure in farm business

Non-farm business

Consumption Expenditure

Marriages and ceremonies

Education

Medical treatment

Other Expenditure

Estimated no of indebted hhs(00)

Cultivation 60 131 83 323 0 56 70 4209farming other than cultivation 25 0 41 198 0 133 66 261other agricultural activity 4 0 268 307 0 61 135 669Others 131 53 38 334 0 150 55 5077All 99 77 64 327 0 113 64 10215Bihar Social Group: OBC Purpose of loan

Sources of income

Current expenditure in farm business

Non-farm business

Consumption expenditure

Marriages and ceremonies

Education

Medical treatment

Other expenditure

Estimated no of indebted hhs(00)

cultivation 67 111 47 124 40 104 66 26479farming other than cultivation 11 41 314 312 0 107 24 974other agricultural activity 26 17 359 20 0 7 3 1013Others 26 62 113 312 2 184 127 14811All 53 93 80 178 27 125 81 43277Bihar Social Group: Others Purpose of loan.

Sources of income

Current Expenditure in farm business

Non-farm business

Consumption Expenditure

Marriages and ceremonies

Education

Medical treatment

Other Expenditure

Estimated no of indebted hhs(00)

cultivation 198 71 18 96 12 51 228 10204farming other than cultivation 0 0 161 0 0 555 0 156other agricultural activity 0 46 8 67 0 3 41 313

49

Others 48 11 55 602 13 89 107 4635All 138 48 31 276 12 65 179 15309

NSS-59th round Loans are reported being taken from institutional agencies clubbed with some government schemes. In Bihar major scheme based lending has been for SGSY, though the reach through the same is quite limited. It is however reported that people has taken loan for other schemes that come in the block level on Agriculture, employment etc from time to time. Table -11: Number of households reporting cash borrowings from institutional agencies during 1-7-02 to 30-6-03 per 1000 households (P) and per 1000 distribution of amount of borrowings (S) by scheme of lending for each major household type

Scheme of lending

Cultivator

Non-cultivator

All

No. of hhs. Report. Borrow. Institutional agencies

P S P S P S Estd. (00) DRI 1 26 0 127 1 45 68 PMRY 0 26 1 146 1 49 62 SGSY 2 87 2 487 2 163 227 SJSRY 0 1 0 2 0 1 5 Advances to minority community 0 0 1 10 0 2 27 Liberalization and rehabilitation of scavengers 0 1 0 0 0 1 2 Exclusive state scheme 1 37 0 2 1 30 107 Other schemes( MSTP etc) 9 822 4 225 7 709 787 Not covered under any scheme 0 0 0 0 0 0 0 N.R. 0 0 0 0 0 0 0 All Institutional loans 13 1000 8 1000 11 1000 1281

NSS-59th round In Bihar among the farming community, the demand for smaller loans for consumption and to meet other HH demand is maximum among all classes of farmers based on their land holdings(see table below) . It is also observed that small holders do invest significant amount in their holdings as they practice intensive farming to maximise returns from their small piece of land.

50

Table-12: Per 1000 distribution of indebted farmer households by size class of land possessed in different states. Size class of land possessed (in ha)

States 0.01-0.40

0.41-1.00

1.01-2.00

2.01-4.00

4.01-10.00 10.00+

All Size

estd. No.of indebted hhs

Andhra Pradesh 192 361 218 151 66 7 1000 49493Arunachal Pradesh 0 181 444 278 0 0 1000 72Assam 332 371 208 81 5 0 1000 4536Bihar 580 271 92 28 7 6 1000 23383Chhattisgarh 114 331 306 169 75 4 1000 11092Guajrat 161 250 217 183 132 11 1000 19644Orissa 235 465 206 73 17 0 1000 20250

NSS-59th round

The Status of the Commercial and Cooperative banks in Bihar: The credit delivery organizations in Bihar comprises of Commercial Banks, RRBs and cooperative sector institutions vis. DCCB, LDB. They have got the largest network of rural branches among all other players of formal MFI’s in the state. i.e. Commercial Banks has 1262 rural branches, RRBs 1267 and State Cooperative bank is operating through 22 DCCB to members of 279 PACS (See table below). This makes a total of 72% of all branches of the above mentioned MFIs in rural areas (see graph below). Despite its high percentage of branches in rural areas 37 blocks of Bihar are not touched by any branch of any bank and each bank has to serve a high no of customers (22000) compared to national average of 11,400. Other alternative source of MF lending through MFIs, Federations, community based cooperatives are too less to be accounted for in terms of lending in rural Bihar. Private Banks literally have no presence in rural Bihar. Network of Rural branches in Bihar by Banks: Agency No. of banks No. of

Branches

Rural

branches

Semi Urban

Branches

Urban

Branches

CBs 30 2059 1262 436 395

RRBs 5 1475 1267 165 34

SCCB 01 14 0 1 13

DCCBs 22 279 279 0 0

LDB 01 151

TOTAL 59 3978 2808 602 442

(Source: SLBC & State focus paper NABARD)

51

Besides this Bihar has a large number of PACS (5626) and credit cooperative society (250). Percent wise distribution of Branches:

%age Composition of rural, semi urban & urban bank branches in Bihar

72%

16%

12%

Rural branches Semi Urban Branches Urban Branches

Though data shows a significant network of rural branches in rural areas of Bihar but at the aggregate level data hides the huge concentration of banks in few pockets. At the district level almost all banks has reduced their share of rural branches from 1955 onwards. It has come down to 64.5% from 72% in the last year itself. Regarding the concentration of braches in rural areas, Muzzafarpur, Gaya, Purbi Champaran, Patna and Samastipur together occupies a share of 23.5% of all rural branches of Bihar. Besides this, though the share of rural branches is high, in most of the branches in rural areas is poorly manned and are not well managed. More then 800 branches in rural area is being managed by one man, leaving no scope for him/her to push for credit and back office both. This has both effected its CD ratio, disbursements and in all other financial parameters including sustainability. Due to lack of proper management it is not even able to meet the basic objective of providing mF services to the weaker section and the priority sector. The status of the performance of commercial banks and cooperatives in the state is given below. Performance (disbursement) of the commercial (including RRB) and cooperative Banks in Bihar: Credit Agencies Year Rs. In crore

2001-02 1234.10 2002-03 1710.97 2003-04 2669.61 2004-05 3421.27

Commercial Banks, RRBs & Cooperative Banks

2005-06 3751.00 NSS-59th round During the last five years, through aforesaid lending institution credit provided to rural areas amount to Rs.12786.95 crore out of that approximately Rs. 5754.13 crore disbursed among the weaker section.

52

It is disheartening to see the CD Ratio and its National Comparison. None of the districts of Bihar has achieved a CD ratio of more then 45%. Where as when we compare it with states like AP. It has a CD ratio of less then 40. The comparison of CD ratio across states in given below.

SDP -Per Capita

No. Of Districts CDR <40

CDR 40-50 CDR>50 Name Of States

(Rs.) Bihar 6840 27 23 4 0

Orissa 12173 12 1 2 9 Uttar Pradesh 12219 54 38 9 7

Jharkhand 12273 12 12 0 0 Madhya Pradesh 13747 38 17 4 17

Rajasthan 15114 26 13 5 8 Uttranchal 16513 8 7 1 Jammu & Kashmir 16980 14 13 1 0

West Bengal 20835 19 15 3 1 Andhra Pradesh 21230 23 0 6 17

Karnataka 21604 20 2 1 17 Tamil Nandu 24886 21 4 17

Kerela 25392 14 4 2 8 Himachal Pradesh 26239 12 8 2 2 Gujarat 27331 19 13 4 2 Punjab 30100 12 6 2 4

Maharashtra 30510 29 5 6 18 Haryana 31228 16 6 2 8

Goa 59740 2 1 1 0 SubTotal 378 184 59 135

NSS-59th round In the tables below gives the financial status of the commercial banks of Bihar. It is disheartening to see that not only the CD ratio of Bihar is pegging at 32 %, but also the recovery percentage is at a staggering 47%. The performance of cooperatives in Bihar is a matter of serious concern in terms of saving mobilisation, credit disbursement, recovery rate and NPA. The CD ration of Bihar though has started improving over the last few years is still among the lowest in the country. Bihar Ranks 27th compared to other states of India. The deposit vs advances trend over the last 5 years is presented below:

Particulars 2001-02

2002-03

2003-04

2004-05

2005-06

As on 30.09.2007

DEPOSIT 30482 33815 35824 40295 46134 48913ADVANCE 6945 8089 9604 12031 14808 15914C: D RATIO 21 25 27 30 32 33Advances Incl invst 9530 10923 10507 0 15455 807Advance & invt vs deposit Ratio 31 33 29 N.A. 34 34All India C: D Ratio 57 56 57 58 58

53

The same is being graphically shown below:

Deposits Vs Advances in Bihar

0

10000

20000

30000

40000

50000ro

res

2001-02

2002-03

2003-04

2004-05

2005-06

Year

INR

-in c

DEPOSITADVANCEC:D RATIOAdvances Incl invst

In the graph below we can see the increasing trend of CD ratio over the last five years in

the state. However its advances and investment ratio is not improving at the same rate.

The national average marked below is well above the states ratios.

CD ratio trend over last 5 years

70

0102030

405060

001-02 2002-03 004-05

Ratio

C:D RATIO

Advance & invt vsdeposit RatioAll In tiodia C:D Ra

2 2003-04 2 2005-06

Year

rs of commercial ban

s. Crores)

ion as on 31 - 03- 2 1 - 03 – 2 1 - 03 – 200

Important Financial Indicato ks:

(R

Posit 004 3 005 3 6

Total CBs 306 340 39177.00 40.48 56.20

54

RRBs 44 54 6182.00 21.54 75.15

Co - operative 7 7 762.08 63.53 75.00

Deposits

358 402 46134.00 Total 24.10 94.88

CBs 78 96 11929.63 65.77 88.00

RRBs 12 17 2253.37 95.99 25.00

Co - operative 5 5 520.86 69.44 95.00

Total

Advances

l 9603.86 12031.20 14808.00 Tota

CBs 25.55 28.38 30.60

RRBs 28.35 32.80 35.98 CD Ratio

Co - operative 68.35 74.58 76.70 (%)

Total 26.81 29.86 32.10

CBs 41.28 31.92 46.53

RRBs 51.84 62.57 69.40

Co - operative 10.08 36.45 34.60

Recovery

Position (%)

Total 33.85 38.09 47.24

NSS-59th round

Priority sector lending: Public sector banks have got the dual mandate of profitability as well as meeting its

riority sector lending. To meet the demand of the priority sector classified as Agriculture, SSI and other priority sector, the performance of RRB and Cooperative is poor and lags behind its o f pr ing. Th ratio, priority sector lendin n below ercial failure of cooperative sector as a whole in Bihar can be seen that its percentage target achievement of cooperative as low as 20%. Cooperative sector also has a lowest recovery percentage. All banks together had contributed of thei s toward rity sector. As has alre seen fro ebtedness data that among all occupation groups, cultivators g aximum loan. The trend of lending has only been to the Agriculture sector with s on the OPS and NFS on which majority of the poor livelihood are

ependent ACP fo t five year and the achievement by banks in the :

p

bjective o iority sector lend eir CDg is eve the comm banks. The

only 23% r advance s the prio

ady been m the indet the m

little focuupon. Thed r the las

priority sector is as presented below

55

YEAR TARGET

PRIORITY ACHIEVEMENT

PRIORITY %age Achvt

2001-02 2929.22 1276.72 43.58566 2002-03 3198.31 1710.97 53.49607 2003-04 3451.50 2669.68 77.3484 2004-05 4057.32 3421.27 84.3234 2005-06 4743.09 3754.29 79.15283

20(NO

06-07 V-07) 3474.47 6538.06

The same is presented graphically.

Tgt vs Ach. under APC in Bihar

0

1000

2000

3000

4000

5000

2001-02

2002-03

2003-04

2004-05

2005-06

Year

INR

TARGET PRIORITY

ACHIEPRIOR

VEMITY

ENT

In the table and graph below we have presented the performance of various agencies for

the last two years. It shows an increase in total percent achievement in the year 2005 but

a decline in %age achievement though there has been an overall growth of around 20%.

This shows that there is a constant demand from the RBI and government to lend more

and more in rural areas.

Table-15: Comparative trend in percentage achievement under ACP by agencies

As on 30 – 09 -2006 As on 30 – 09 -2005 % age Ach.

CB RRBs Cooperative CB RRBs Cooperative

Agriculture 29.78 31.85 24.13 36.13 28.9 28.91

SSI 19.07 15.92 2.51 21.86 10.61 0

OPS 37.44 22.72 0 51.16 22.95 0.39

56

Total 31.39 28.47 22.35 40.34 26.09 27.04

NPS 38.78 20.58 0 41.48 28.31 0

Grand Total 34.36 26.87 21.66 40.8 26.5 26.42 Source: Institutional Finance, Patna

Comparative trend in % age achievement under ACP

0

20

40

60

CB 29.7836.1319.0721.8637.4451.1638.7841.48

RRB 31.8528.9015.9210.6122.7222.9520.5828.31

Cooperative 24.1328.91 2.51 0.00 0.00 0.39 0.00 0.00

Sep-06Sep-05Sep-06Sep-05Sep-06Sep-05Sep-06Sep-05

Agri SSI OPS NPS

It is reviled by a study done by NABARD that 23% of the borrowings from farm household are reached by the institutional sources against a national average of 56% and by implication only 8% o the farm household in Bihar has access to formal credit against an all India average of 27%. The credit flow in Bihar to the farmers is low and is mainly

stricted through the KCC, MSTP, SGSY and Farm mechanisation.

he Kishan Credit Cards (KCC) in the last few years has been the greatest innovation eing used by the banks in the last few years and has been the key source of lending to rmers. The cooperative bank through its DCCB is lending to the PACS members rough the KCC. However here also the RRBs and Cooperatives lag behind their target

chievement much below the commercial banks.

re Tbfatha

57

Table-16: Performance under KCC

C

Sanction Disbursement

Rs. rores

Year Target

ApplicationRecommended

to Bank No. Amount No. Amount

% of Disbursement Against Physical

Target2003 - 04 595904.00 596705.00 594152.00 763.02 355502.00 496.36 59.362004 - 05 795700.00 471433.00 465744.00 873.90 463519.00 860.51 58.252005 - 06 566751.00 325018.00 318603.00 859.63 317294.00 814.95 55.98

(Source: Ins )

e-17: P ce inception of KCC as on 30 / 09 / 2006

Agency

titutional Finance

Tabl osition sin

No. of Cards Issued Limit Sanctioned (Rs Crore) % Share in Issue of Cards DCCBs 606163.00 655.52 37.90 RRBs 298383.00 915.19 18.60 CBs 697351.00 1668.98 43.50 Total 1601897.00 39.69 32 100.00 (Source: State focus paper 2007-08 NABARD)

58

Table-18: Agency Branch wise performance under KCC Sl. No. Name of Agency No. of average cards issued

per branch

Limit sanctioned

per branch

(Rs Lakhs)

Average limit

sanctioned per

KCC

1 DCCBs 2164 2.3411 0.108

2 RRBs 200 0.6158 0.306

3 CBs 33 016 9 4 0.8 0.23

Bihar also lags much behind other states in issuing and disbursement through the KCC.

Bihar accounts for 3.7% of the KCCs issues in the country and 2.0% of the total dispersal

at an all India level.

Performance under different government programmes:

and trends of target and achievement of

e subsidy to some section of the society. Prominent

em are the MSTP, PMRY and SGSY. In the last five years the trend of target

Table-19:- Performance under MSTP (Million Shallow Tube well Programme)

The following tables below shows the status

various government plans under som

among th

achievement under MSTP is quite encouraging. It has increased from 12% to 81%.

However there are issues of quality while achieving the targets.

59

Year Target (Nos) Cumulative (Nos) Cumulative) Ach % age Ach

(Nos)

2001 –02 33798 33798 4265 12.62

2002 – 03 23313 57111 47710 83.53

2003 – 04 160000 7111 155 71.42 21 068

2004 – 05 160000 7111 327 86.90 39 689

2005 – 06 160000 537111 436 81.33 831

(Source: Institutional Finance) eported as on 31 / 03 / 2006, the target under this scheme is 537111 and 494156

nctioned an plications disbursed amounts Rs 864.04 crores.

: Is another scheme of the GOI being routed through the banks . The performance

RY has not i d as ex even though the target has been reduced over the

st years. The bankers face problem of bunching of all loaning for PMRY in the last

R

applications forwarded in different Banks. Out of these only 459377 applications have

been sa d 436831 ap

PMRY

of PM mprove pected

la

quarter.

Table-20: Year wise performance under PMRY Year Target No. Ach % age

2000 – 01 14981 6682 44.60

2001 – 02 18000 8204 45.57

2002 – 03 18100 9366 51.74

2003 – 04 14400 9812 68.30

2004 – 05 16000 10119 63.24

Source: Institutional finance

tate the perform der SGSY has seen not much of a progress , under SGSY 53 groups and 2 dividuals has b nanced under SG e average

and group av e is only 90,000/=. is an urgent ke the scheme le. The details of p ance under

low.

rman SGSY Rs Crores

Year Target Disbursement Achievement

SGSY:In the s ance unonly 33 4000 in een fi SY .Thloan per borrower is on 8,600need to increase the same to maSGSY are given be

ly 1 erag viab

There erform

Table-21: Perfo ce under

60

2003 – 04 273.93 195.44 0.712004 – 05 545.28 284.33 0.522005 – 06 671.20 248.86 0.37Source: State focus paper 2007 – 08 NABARD Table-22: Agency wise position sanction vis a vis disbursement as on 31 March 2006

Sanction sbursed ed DiAgency A/c Amount in lakh A/c Amount in lakh

CBs 70139 21453 30 669 20318 RRBs 33585 8405 63 191 4568Total 103724 29858 86093 24886 Source: State focus paper 2007 – 08 NABARD

of the banks can attributed to the poor recovery percentage in rural The performance

areas of Bihar. Given below is the performance of all banks for this financial year. The

performance of loan recovery is as low as 0.6 %, which shows that there is a serious issue

of delinquency management of SCCBs. The performance of banks cannot be improved

and its objective of commercially lending for priority sector can even be achieved if the

trend continues.

Table- 23 : Bank wise performance of recovery as on 30 / 09 / 2006 (Rs in lakh)

Demand Raised Amount Recovered % age recovered

Commercial Banks 188051 83194 44.24

RRBs 53247 35682 67.01

SCCB 32871 200 0.61

Bombay M

Cooperative Bank

26 16 61.54

Total for Bihar 274195 119092 43.43

Large no of pending certificate cases is another reason for non recovery and improvement of banks performance in Bihar. Table-24 : Certificate Cases as on 30 / 09 / 2005 (Amount in lakh) Total Cases Disposed Pending

A/cs Amount A/cs Amount A/cs Amount

61

Commercial

Banks

219448 54281 7311 1553 212137 52728

RRBs 48615 8816 3843 486 44772 8330

Cooperative 14 93 0 0 14 93

Total of

Bihar

268077 63190 11154 2039 256923 61151

Source: NABARD State focus paper, 2005-06

Conclusions: Commercial banks against a target of 40 per cent set under RBI guidelines, the

B (20.7%) and

st few years many of them have rned around from their extended state of sickness, the loans as a percentage of sources at their command (credit-deposit ratio) have been on the decline since 1997, but

opportunities for arbitrage in the money

percentage of net bank credit deployed in the priority sector was 42 per cent in 2003 – up from 39 per cent in 1999 [RBI 2003] at a all India level. In Bihar the same was 41% in 2004-05 and declined to 32% the last year. But lending to agriculture and SSI remained low during this period, falling short of the overall target set for the sector. Lending to small industries has fallen and so the advances to other priority sectors have however shown an increase. It has the maximum share for the priority sector lending. The public sector banks, on the other hand, have consistently failed to meet the target to reach weaker sections of the society. Against the target of 10 per cent of the net bank credit, the achievement was only 7 per cent in 2003. This indicates that the banks though have been able to reach the priority sector target in overall terms to some extent , their ability to penetrate to the weaker sections, or make small loans, is still inadequate. However, public sector banks have achieved a greater penetration compared to private sector banks vis-à-vis the weaker sections. The latter advanced 11 per cent of the net bank credit to agriculture whereas their deployment for weaker sections is as low as 1.5 per cent and is not at all available in Bihar. In the annual focus paper NABARD points out that the commercial banks by far is the single largest bank to meet 68%of the formal sector loan nd is also the largest lender of Agricultural loan followed by RRa

Cooperative banks (10.8%).The new generation private sector banks, interestingly, have not reached out to the weaker sections at all. It makes it evident that alternate mechanisms need to be worked out to ensure that these banks reach the poor.

RRBs were created to offer targeted lending in rural areas. Their performance over the years has not been very heartening. Though in the paturefor an improvement in 2003 onwards. Given a stable and low interest rate regime, market and interest earnings from investments – major sources of income in the past years – are going to have limited impact on the bottom lines of the RRBs. It may be noted that RRBs do provide an outlet for rural people to save. Several measures were taken in the past to improve the performance of the RRBs. These included a programme of proposal to merge RRBs sponsored by the same bank (1991), and closing of non-profitable branches (2002). In addition, they have been encouraged to issue kisan credit cards, and use mF as a mechanism to reach the poor by promoting and lending to SHGs. The deregulation of interest rates has gone a long way in making RRBs

62

competitive and market savvy. In 2002 a working group has recommended changes in the RRB Act that included changes in capital and ownership structure, governance,

s [GoI 2002]. However RRBs still ute a significant portion of the priority sector lending in Bihar. By increasing its

fficiency and m nagement it can meet the needs of the state in a much better way.

h ed t es in sustai edi . It is seen evident that the resource y for cooperatives has been ng in th ew years. ential norms to the institutions lied to r co es, most of ry and cooperative e foun ting. Non PACS in now el providing s mem ctly. Ou CCB only existen cept five D are fac riction under section 11 (1)

f banking regulation act 1949. The most significant change in the balance sheets of these

mpared to the commercial banks and RRBs in the state. This e well for the structure that has the best outreach in rural India and rural total num 5856 P n

Given this pathetic si in growth of other MF like N MF federations and others are rather too small to significant ution overall financial needs of the poor , weaker

and the priorit The y forward is ove the cons f these rengthen nks c to deliver.

HG-bank Li Pro e:

regulatory and supervisory systems for the RRBcontribe a

mergence of tEpr

e mF movementned access to cr

is often attributt to the poor

o the failure of the cooperativoviding

availabilit decreasi e last f If prudapplicable banking were app the lower tie operativ

e of thethe prima district s would b d wanBihar are igible for credit to it bers dire t of 25 D22 are in ce and ex CCB rest ing restobanks was the decline in the rate of growth of deposits, and loans and advances. Investments grew faster, implying that the customers (borrowers and depositors) are moving away from the banks, while the banks are deploying funds in investments that added marginally to their profitability. Data on primary societies is not readily available; but the broad trends indicate that this channel continues to have huge NPAs though their

D ratio is quite high coCdoes not bod

with a Bihar

ber of

tuation of theI,

ACS already existi

banking sector

g in rural areas.

en the Bihar , evalternative

ny GO-MF I, SHG

make asection

contriby sector.

to the only wa to rem traints o

banks, and st

these ba apacities

The S nkage gramm One of the most successful programmes supported by the state in the mF sector has been the bank linkage programme. Around seven lakh groups were linked to the banks and around five lakh groups were refinanced by NABARD by 2003 (www.nabard.org). Cumulative disbursement of loans to these SHGs stood at Rs 2,048 crore. However, the linkage programme is skewed in favour of the southern states, particularly Andhra Pradesh. This state alone accounts for 39 per cent of the total linkage, while the northern and north-eastern region together account for only 5 per cent of the total programme. This imbalance is an issue that requires attention. The Bihar position is even more critical in terms of growth of SHGs. Table-25 :Performance under bank linkages of SHG Financial y position Po Bihar ear All India sition of

63

ear lative During the year CumuDuring the y Cumu lative 2001-02 197653 8 1046 3957 461472002-03 255882 717360 4204 8161 2003-04 361731 1079091 8085 16246 2004-05 539000 1618091 11769 28015 2005-06 539365 2238200 18206 46221

The progress of SHG formed and credit support by financial institutions in Bihar is ailing behind the others states. In fact SHG in both parameters of formation & credit

SHG cumulative Bank loan is also at the bottom as compare to other state. A cposition is given b Table-26 : State SHG

lin d in 05

l march’ 2006 ati k

an march’2006 In m n

/SH

trsupport by financing institution are at the bottom in Bihar as compare to other states. Per

omparative elow:

ke20 -06

Cumulative SHG til

Cumul ve ban Loanlo

illio

G

R 165 98171 2448 ajasthan 38 0.024 A 2 5 1ssam 25 15 6449 424 0.025 M 02 5 1p 12 0 7125 667 0.029 Mah a arashtr 603 1 324 31470 952 0.030 AP 94311 587238 43455 0.074 Orissa 57640 180896 4755 0.026 Bihar 18206 46221 1052 0.023

Official figures shows that there are 46221 SHGs have been linked with the bank and obtained bank loan up to March 2006. The highest number of SHGs provided with bank linkage is 9361 from W. Champaran followed with Gaya having 6720 SHGs linked with bank. Out of 38 districts 15 districts have less than 500 SHGs linked with bank. The districts i.e Kaimur, Lakhiserai and Sheikhpura have very poor bank linkages of SHGs. In, 2005 NABARD identified 13 priority states accounting for 70 percent of India’s poor for special efforts and location specific strategies. The state Bihar is one among these identified states. Table 2 shows that there is a continuous increase in bank linkage over last few years in the state. There was 50 percent increase in 2004 and 57 percent increase in 2005 marked with 60 percent increase in 2006.

Table-27: Growth of SHGs over different years in Bihar

2003 2004 2005 2006 8161 16246 28015 46221

0 50% 57% 60% Source: NABARD annual repor ts But when we compare the performance of different banks with even neighbouring states like WB and Orissa of eastern India, the performance of Cooperative banks is dismally poor. Even commercial banks have not faired well in comparison to the performance of

64

neighbouring states. The RRBs among all banks has been most successful in Bihar even

28 k by

CommercBank

onal RurBank

e

though it lags far below compared to the other states. Table- : SHG ban linkage performance

ial Regi

bank and state

al CooperativBank

(in crores)

Total Region/State

No. Of SHGs

Bank Loan

o. Of HGs

Bank Loan

No. Of SHGs

Bank Loan

No. Of SHGs

ank oan

NS

BL

Eastegi

ern R on:

Bi ah r 19577 506.9 26188 535.18 5 4.89 4595 1047.025 18 0 Jharkha 0 87 9299 244.6 0 00 3081 1114.6nd 2152 0 0 9 O isr sa 77859 2140.0 86256 2216.93 1 397.67 180896 4754.655 1678West Be 8 802.2 37909 680.54 4 941.72 13625 2424.52ngal 3782 6 6051 1

Total 156784 4319.2 59652 3677.25 0 1344.3 393916 9340.796 1 7748www.na

tabl rovides a com picture of bank linkage performance by all districts har though there me SHG linkage work started in all districts but the rm rms of bank linkage has been best in Gaya district , where SHG ed is maximum in West Cha ran.

bard.org The e below p

harp lete

of Bi . In Bi is soperfo ance in te as form mpa

65

Table-29: District wise position of linkages (up to Dec ember 2005)

upto 31.03.05ith bank loan during 01 April 2005 to 31

March 2006

SHGs provided with bank loan up to 31March 2006

Sl.No. Name of the

District Cumulative no. of SHGs provided with bank

No of SHGs provided Cumulative no. of loan

w

1. Araria 193 193 386 2. Arwal 260 151 411 3. Aurangabad 359 520 879 4. Banka 446 32 478 5. Beguserai 205 95 300 6. Bhagalpur 1520 448 1968 7. Bhojpur 213 253 466 8. Buxar 131 119 250 9. Darbhanga 524 201 725 10. East

Champaran 1474 776 2250

11. Gaya 3978 2742 6720 12. Gopalganj 235 177 412 13. Jamui 619 343 962 14. Jehanabad 562 227 789 15. Kaimur 87 13 100 16. Katihar 504 117 621 17. Khagaria 78 51 129 18 81 . Kishenganj 1 142 323 19. Lakh 27 118 145 iserai 20. Madhepura 54 206 152 21. Madhubani 23 1328 1105 222. Munger 5 503 328 1723. Muzaffarpur 8 3476 1608 18624. Nalanda 947 506 441 25. Nawada 1991 446 154526. Patna 2656 1607 1049 27. Purnea 1136 417 719 28. Rohtas 526 453 73 29. Saharsa 16 397 281 130. Samastipur 606 603 1209 31. Saran 908 410 1318 32. Sheikhpura 35 38 73 33. Sheohar 108 17 125 34. Sitamarhi 511 305 816 35. Siwan 54 47 101 36. Supaul 422 447 869 37. Vaishali 504 365 869 38. W. Champaran 6368 2993 9361

Total 28015 18206 46221

Source: State focus paper –NABARD, Bihar, 2006-07,pp 206

66

AP INDICATING DISTRICT WISE COVERAGE OF SHGS AND ITS EMBERS UNDER BANK LOAN

Map - 1

MM

Cumulative # of SHGs provided with bank loans Cumulative # of SHG members* provided with

bank loans < 50 < 750

50 - 175 750 – 2,625 176 - 300 2,626 - 4,500 301 - 500 4,501 - 7,500 501 - 750 7,501 - 11,250

751 - 1,300 11,251 - 19,500 1,301 - 2,000 19,501 - 30,000 2,000 - 3,500 30,000 - 52,500

> 3,500 > 52,500

rovided with bank loans. Where as the districts like Patna, Muzaffarpur, Bhagalpur and

Source: IFMR report, Dec ember, 2005

The above map followed with the table is self-explanatory which is indicating about the

cumulative number of SHGs provided with bank loan and cumulative number of SHG

members provided with bank loans in the districts of Bihar. From The map it is portrayed

that West Champaran is the only district which has very high concentration of SHGs

p

Gaya has moderate concentration followed with Sheohar, Siwan, Buxar, Bhabhua,

67

Sheikhpura and Lakhusarai has very poor concentration of SHGs provided with bank

loan.

Estimated % of female population covered by SHGs and MFIs as of March 2005 0% 0.1 - 0.5% 0.6 - 1.4% 1.5 - 2.9% 3.0 - 4.9% 5.0 - 6.9% 7.0 - 9.9% > 9.9%

only4% of al the SHGs formed by 3 priority states identified by NABARD. But what is interesting and important to note

that even this mere 11% contribute to 30% of the total priority sector lending in Bihar. So

ever

It can be seen that Bihar lags much behind its neighbouring states in meeting its target of SHG bank linkage programme too. It has a share of a mere 11% of all SHGs being bank linked and so on credit amount to the groups among the eastern states of Bihar, Orissa, harkhand and West Bengal and contributes a total ofJ

1

SHG bank linkage programme seems to have been well accepted by the bankers as a vehicle for rural lending to the poor and weaker sections. The above graph how

68

shows that the SHG programme is yet to make a good dent in increasing the female clients significantly. It could hence be concluded that SHG bank linkage is to be taken up

banks can lend not on an

roject finance.

ordance with their borrowing

F), which is used to finance ral infrastructure projects. In case the banks are unable to achieve the priority sector

lending targets for agriculture, they are expected to deposit the shortfall under the RIDF. n depositing the amounts, the funds

o not seem to have been deployed effectively. By March 2004 it has cumulatively re out of the total corpus of Rs 42,000 crore

2004]. And surprisingly due to lack of any

ure coordination with

as the top agenda along with alternate models of MF, where individual basis but on a wholesale basis. These will both increase the banks performance and it will increase the number of females and weaker section lending.

Apex Institutions: NABARD is the apex financial institution for agriculture and rural development and is expected to re-finance the rural portfolio of the banks and cooperatives. Refinance system by NABARD is classified as Automatic Refinance and PIn automatic refinancing the schemes covered under bank plan like MSTP and in non farm sector financed under Government sponsored schemes are refinanced to pending institutions as per norm without prior approval of activities. Refinance against project financing naturally requires, area based techno economically and social friendly project proposal for scrutiny and sanction. For Production Loan limit to SCBs/DCCBs, RRB, CBs on eligibility basis are sanctioned. Also term loans to LDB are given in acccapacity. NABARD in tune with its statute embarked upon development of non farm sector also. Rural infrastructure development fund (RIDF) is provided to state govt. for development rural infra structure, like irrigation, watershed management, rural road, market etc. Also for development of social sectors fund made available to state govt. for building primary school drinking water, health center etc. The other role that NABARD performs is that of managing the Rural Infrastructure Development Fund (RIDru

While the banks falling short of their targets have beeddisbursed only around Rs 21,000 croavailable under various phases of RIDF [RBI project in Bihar, The state has got a share of 1.22 percent of the same. NABARD has also started consultancy services through its consultancy service NABCONS.NABARD is playing a very crucial role for promotion of entrepreneurs’ activities and flow of credit. Its role as coordinator of all agencies involved in development including govt. right from state level to block level is worth to mention. At District level District Development Manager has been posted to ensBanks, supporting line functionaries and District administration. At BLBC level, review of flow of credit at ground level and coordination among different functionaries at block level are ensured.

69

As regard Bihar, like other state, significantly has district wise sector wise identified economic activities, their credit need in some core group of community having expertise in certain vocation on annual bans and further divided them block wise sector wise and

l possible units as amount of credit required. For state as a whole such

are very useful for district level credit planning. A good amount for evelopment of infrastructure both as a linkage for economic development and social

DMs of NABARD act as prime movers of SHG movement at the district level. They

s, Farmers Clubs, IRVs, Banks for romotion of SHGs and their capacity building. NABARD in the state supports more

g banks nce support to banks.

Os ty building of RGVN also.

s d with the

orld Bank assisted project Swashakti. WDC runs the following programmes in the

impSH

thoban Sw

h

activity wise, physicastate focus paper for a year are prepared by NABARD for state level discussion instruments dsector facilities are provided to the state govt. under rural infrastructure development. NABARD, as an Apex organization is steering SHG Bank Linkage Programme in theState. Dare in a position to guide and assist important players such as banks, NGOs, Farmers Clubs and SHGs. NABARD provides grant assistance to NGOpthen 130 SHPI who are engaged into formation of SHGs. NABARD facilitates training and capacity building of various players includinand extends concessional refina

SIDBI: SIDBI has also been playing a small role of supporting RGVN to on lend NGnd build their capacity. It provides support for the capacia

Bihar Women Development Corporation (BWDC) Women development Corporation, a society under the department of social welfare haplayed a significant role in the promotion of SHG in the state. It was reviveWstate. A brief detail of the same is as follows.

Swashakti: The World bank and IFAD assisted project with the over all objective of

rovement of the quality of lives of rural women through formation of self reliant Gs. Total SHG formed 458 groups in 6 blocks of Muzzafarpur district.

Swayamsidha: Government of India assisted programme for women’s empowerment in which 6329 SHGs have been formed in 63 blocks of 22 districts with a total of 86

usand members a saving of more than 375 lakhs. 1820 groups have been linked with k and RMK and has availed a bank loan of Rs. 118 lakhs

alamban : Additional central assistance from the planning commission –GOI in ich 1000 SHG in 20 blocks of 10 districts was formed. w

Mukhya Mantri Nari Shakti Yojana: This is a state government supported projectwhich 1000 SHG in the same blocks where swalamban is being implemented.

70

Deep: Special component plan meant for only SC population in which 1986 SHGs( 100 cts . It has till

d ber base d of Rs 93 lakhs. Out of these groups a total of 1 ps have got loan nk to the f 18 lak

O r Donor Ag ies and ’s: Poorest Area Civil Society (PACS):

The PACS Programme w eptuali lp the v ge num poor l ns of ntry. Th the p e is to e ma

ea in an effective and manageable way, the PACS ng the awareness and capabilities of poor people, so

at they can demand and exercise their rights - political, economic, social and human - to , the programme focuses on the demand side, s building infrastructure.

MaUnder Samakh NID Nandpartner Othershuncon DRDAassisted ,000 SHGs has been

in urban slums) has been formed in the same pattern as SGSY in 21 distriate a mem of 25283 an a saving20 grou from ba tune o hs.

ther Majo enc SHPI

as conc sed to he ery lar ber of peopleiving in other regio the cou e aim of rogramm achiev ximum

long-term impact over a large arrogramme focuses on strengtheniP

thimprove their own lives. In other wordsrather than on supply side activities such a

The PACs programme works with more then 50 partner NGOs in Bihar. It has formed more then 3170 SHGs in Bihar (2006). It is believed that for the poor to work towards the long-term outcomes listed above, it is essential that their immediate, basic needs be met. Therefore, PACS programme partners support the generation of alternative and sustainable livelihood initiatives through individual effort or self-help groups (SHGs). SHGs also provide a platform for addressing other key issues.

hila Samakhya: the Bihar education project more then 3000 SHG has been formed by Mahila aya.

: NIDAN started way back in 1990 has always taken SHA G as the basis for social financial empowerment of the poor. NIDAN working in 5 districts through network

s has promoted around 1850 SHG groups.

: The other major donors like UNICEF, CCF, Oxfam( Hongkong) , Freedom from project, Plan International through various local NGOs has made significant ger

tribution in the promotion of SHGs in Bihar.

: - DRDAs of all districts have promoted SHG to link them with the central SGSY programme. It is estimated that more then 85

promoted in the state of Bihar. BRLPS: The BRLPS is formed in the state to promote rural livelihoods and has adopted the Velegu model of implementation. Its approach is to saturate their adopted districts with SHGs who in turn will take up livelihood activities.

71

SHPIs : NABARD has identified and supported more then 130 SHPIs in Bihar including 3 RRBs along with IRVs ( individual rural volunteers).More then 42 projects of SHPI and IRVs has been approved this year with a grant assistance of around 98 lakh rupees with a total target to form 42500 SHGs to be bank linked for this financial year. The same SHPI are also forming SHG as a part of other donors requirements . The other stakeholders who are or can become agents of SHG promotion are as follows: • Block Panchayats are facilitating promotion of SGSY groups. All of these groups

may not get subsidy linked credit support immediately due to budgetary limitations under SGSY. SGSY groups which are functioning satisfactorily in tune with SHG concept can be initially credit linked under SHG Bank Linkage Programme.

• Framers club: Huge potential for promoting SHGs though Farmers’ Clubs (FCs)

remains unexploited in the State. As on March 2006, 725 FCs were promoted by banks with the help of NABARD and 800 new clubs were expected to be promoted during 2006-07. NABARD also extends assistance to Farmers Clubs for promotion of SHGs. Assuming that each club will be able to promote at least 10 SHGs, formation of about 15000 SHGs can be ensured through Farmers Clubs in the near future.

The table below gives a picture of the total number of SHG in the 6 focus district and the state as a whole. It is estimated that a total of 1.45 lakh SHG has been formed in Bihar of which 33% is bank linked. Details of SHG formed in Bihar by various agencies and programmes: District NABARD* SGSY WDC PACS Others Gaya 1,800 2,738 1,285 434 2525Nalanda 600 2,307 385 298 NAMadhubani 492 9981 285 532 300Purnea 524 1058 385 - NAKhagaria 556 855 285 100 156Muz 700 7718 523 644 NASub Total 4,672 24,657 3,148 2008 2981All Bihar-Total 32116 85136 10,773 3170 11300

* These SHG nos are bank linked.

The Alternative MF Institutions:

f the house holds like the Task Force as “those, which

ounts,

These are the institutions, which have come up to fill the gap between the demand and supply for microfinance particularly to the smaller needs oconsumption needs , . MFIs were recently defined by prov eid thrift, credit and other financial services and products of very small am

72

mai areas, for enabling them to raise their income

1. king services are provided to the

2.

owers, who

3. anagement and client appraisal in this Model may be a to lending to enterprises. BASIX, SHARE Microfin Ltd

amparan by REED, formal MFI either registered under NBFC or as

in Jharkhand. Many NGOs are poising themselves to adopt some of these models and und a eir own. The other models being seen recently is the par r CI. Though the alternative MFI route is very rece gs in a lot of promise and learnings for the MF sector

evelopment in Bihar. In this section we are presenting the brief outline of the major odel, outreach and some financial and operational

arameters, which will be useful to compare with the existing models being adopted by the banks and FI in Bihar.

nly to the poor, in rural, semi-urban or urban level and improve living standards”. The MFIs can broadly be classified as:

An Intermediate Model that works on banking principles with focus on both savings and credit activities and where banclients either directly or through SHGs; NGOs, which are mainly engaged in promoting self-help groups (SHGs) and their federations at a cluster level, and linking SHGs with banks, under the NABARD scheme. Wholesale banking Model where the clients comprise NGOs, MFIs and SHG Federations. This Model involves a unique package of providing both loans and capacity building support to its partners. NGOs directly lend to borrare either organized into SHGs or into Grameen Bank style groups and centers. These NGOs borrow bulk funds from RMK, SIDBI, FWWB and various donors. Individual Banking-based Model that has its clients as individuals or joint liability groups. While program mchallenge, it is best suitedand MACTS of CDF, AP falls under this category.

Bihar in its recent years is seeing a spurt of formal MFIs intervention and is exposed to new models of lending besides the only mode of individual or SHG –Bank linkage model. Though alternative methods like Grameen model has long been started way back n 1983 in West Chi

cooperatives started coming to Bihar in the 90s. The first one to make inroads in Bihar is NIDAN . NIDAN follows the SHG and Cooperative model for MF in Bihar. The other models being introduced are ASA model of Bangladesh by Bandhan in Kisanganj, Modified Grameen model by CASHPOR, Grameen by SKS, JLG by BASIX and NBJK

ert ke MF activity on thtne ship model by CHASPOR with ICInt in the state but brin

dMFIs working in Bihar, their mp

NIDAN : NIDAN was started as an informal group of dedicated youn men who

up mally registered under societies registration act in has been organizing poor involved in the informal economy since 1995. These are mostly vendors and hawkers and also home based

orkers, rag pick s, construction w have evolved as an effective organizat h women and m

f these poor, including policy interventions. Workers owned co-s

g men and wowished to take the cause of down

July 1996. NIDAN trodden. It was for

w er orkers, domestic maids,ion of bot

agricultural laboures and en. NIDAN takes up the

issue of legal rights ooperatives are being promoted. NIDAN promotes saving habit among them and makecredit accessible to them through Financial Institutions, both Government and Non

73

Governmental. NIDAN’s focus is also on education and better health of the target group program has been evolved. Housing issues have

al ken ho perat egiste ssng land and h . Advoc issues has of ay of

sistently in d in adv

ea of in ntion ricts of t ate of Bihar. are Patna, V shali, katiha

ur and Muz ur. The is spread loc h nelso supports the grassroots work in three other districts, Khagaria, Nawadah and

g early Childhood Care ment W here i with anizat 5 dis f Bih

An over view of the micro finance work done ch has ased to 00 wo of whic n constitute around 5100

Savings and Credit Activities: 996. T f 1810 ave be ed. Of the total of 1810

768 number are women SHGs and rest are male groups.

an sbf the slum by the field workers & assessed by the NIDAN staff

and a on p dThe group’s accounts are opened in banks in 3 – 6 months time. In case the

ups are to ou io kooperative of NIDAN

roups encoura or insu . If insurance done then they can avail loans immediately (by 6 months).

equest f th ini N m d fo c ra av le n

bers normally saved between Rs. 30 – Rs. 150 in the SHGs. embers can save mo hey be the mem of San wi

membership of Rs. 35/- . For Recurring Deposit the mini amoun . 1

Co-ope s

n as Sanchay was registered in November 2001. The the years and today there are 3353 shareholders. Saving

include savin , recurring d and fixed deposits while loans are ilable for w ital, health and funeral and also

g purposes.

and their children a micro-insurance so been ta up and using co-o ive has been r red to a ist poor in

accessi ouses acy on been one the mainst NIDAN and is con volve ocacy

NIDAN’s ar terveNIDAN works in five dist he st These ai r, samstip afffarp work over 17 b ks. Throug tworks it aMuzaffapur. Its work with the children is in the form of supportinand Develop ork w t works 23 org ions in 1 tricts o ar.

The outrea incre 25,0 rkers h meworkers.

Thrift groups starteSHGs 1

d in 1 otal o SHG h en form

Process of SHG fo• Selection o

rmations d loan di ursement:

• Supervisors interact and subm• Based on th•

it the report. visits ande reports fter being c vinced grou s are forme

groaccounts in Sanchay C

not able open acc nts in Nat nalised ban s, they open their

• The g are ged f rance

• The r or loan isrm

en scrutert

zed by themeter

IDAN coings,

mittee basending

on a damonitoring

etc. at with ain pa s – s inter , atte nce,

• The mem• If the m re, t come ber

mumchay t is Rs

th a 00/-

Thrift & Credit rative A T& C cooperative knowooperative has grown over c

products ava

g deposits eposits made orking cap expenses, marriage, housin

74

There is an 11 member Board of Director who runs the cooperative. 1/3 members retire ars. The m nduct month eetings and are assisted by a Sanchay

anager and 14 organisers from NIDAN. There are helped in

S LOANS

every 3 ye embers co ly mM

• Maintaining the books of Account • Application collection • Deposit collection and proceedings • Information transfer

avings & Loan Products S

SAVING

Accounts Interest Accounts Interest Savings account 4% Recurring Deposit 10% Recurring account

8% Guarantee loan 24%PA with declining rate of interest

Fixed Deposit 8.5% for 3 years & 10% for >10 years

Ornamental loan 24% PA

Land security loan for Maximum amount Rs. business 50000 as loan @4% PA

Other loan products For housing Garaunda Cooperative gives loans for purchase of land and repair of house

redit Loan Dues

@ 12%PA. (Only to old members with good track record)

Micro Finance of NIDAN at a glance

Districts SHGs Members Total Savings CPatna 577 5154 4876932 1158100 4704150Vaishali 630 7073 2984638 3023000 1158839Muzzafarpur 111 1220 474315 277500 193100Katihar 250 2155 870190 1410000 794311Samastipur 206 2850 1098221 - -New Delhi 36 265 63910 - -Total 1810 18717 10368206 15868600 6850400 Table showing growth of Micro Finance Activities of NIDAN

Particulars 99-00 00-01 01-02 02-03 03-04 04-05

# of SHG 228 523 788 933 1,114 1,504

# of Members 2,289 5,430 7,089 9,863 12,413 16,407

# of active anee

346 696 1,205 4,012 5,963 8,289 lo

75

Amt. of Loan Distributed (Rs.)

148,500 168,000 1,929,000 2,668,000 371,000 7,000,000

Target DCB (Rs.)

485,000 798,000 1,488,000 1,322,000 2,607,400 2,769,308

Recovery 407,000 812,000 1,725,000 1,074,000 2,529,178 2,990,852

Recovery % 84 102 116 81 97 108

Loan Outstanding 105,000 235,000 1,854,000 3,794,000 2,696,000 9,763,000Portfolio at Risk 9.0% 4.0% 2.0% 8.0% 3.5% 2.5% Loan

utstanding per oClient 303 338 1,539 946 452 1,178 Loan

utstanding in ORs. Lakhs 1.05 2.35 18.54 37.94 26.96 97.63 Source of fund for NIDAN: Sources Released Status RMK 118 lakhs hs Re invested 60 lakAditi 1.21 lakhs Returned RGVN 11.25 lakhs Returned FWWB 2.20 lakhs Returned Own fund 30 lakhs NIDAN forms SHG groups and provides loan through the thrift and saving Sanchay cooperative. NIDAN (till 2005) has formed more then 1810 SHGs in five districts of

ihar and has a total membership of 18717. The Sanchay Thrift and credit cooperative ve more then 3500 members. They have formed 10 more thrift and

redit cooperatives in 5 five districts of Bihar. The total portfolio of loan outstanding by NID N CA Ca e CASHPOR group of om n or women groups in Mirzapur district of astern U.P. in July 1997. The business was transferred to CASHPOR Micro Credit

is a Section-25 Company registered under Companies Act nes, a Company registered under section-25 of the Companies

ct can undertake such activities, without registration as an NBFC.

Bregistered in 2001 hac

A is 97.6 lakhs (2005).

SHPOR INDIA

shpor Financial & Technical Services (CFTpa y began its operations of financing the po

S), now one of thcE(CMC) there after. CMC956. As per RBI guideli1

A

76

The mission and vision of CASHPOR is “To identify and motivate poor women inrural areas and to deliver financial services to them in an honest, timely and manner.”

the efficient

men in rural India have access to nancial services, and many of them are using this opportunity to lift their families out of

rovide opportunities for a better life for their children, while at the same

ll clients of CASHPOR group are women householders whose normal income is below n to the poorest women

ho tend to come from the Scheduled Castes and Tribes. CMC has its presence in two tates of Uttar Pradesh and Bihar. In Eastern UP CMC is working in nine districts and in

t has

livery model:

ASHPOR exclusively targets the poor women using Grameen Bank methodology (i.e., ancial services.

Clients are organized into groups & village-based centers consisting around 20 members. The me weekly meetings. Loan terms typically range from 10 to 50 wee , terest on weekly pro-rata basis. Ac tThe r pproaches on the basis of

od i ty. They are following this foreseen risks. Under which after household survey of particular forms a group called center. A center consists of 20 members with

4 s ible for has alre of rec n acc ank accounts through demand draft whenever the f a c e cen Con

CASHPOR as its vision see the day when all poor wofipoverty and to ptime gaining self-respect and a better social position for themselves. Aofficial poverty line (BPL). In this target group, preference is givewS4 districts of Bihar. It operates in the district of Buxar, Siwan, Sasharam and Saran. Itotal portfolio of around 20 Crores in Bihar. Service de Cgroup lending) and hybrid of Grameen and SHG model to provide fin

thodology includes ks with repayment of principal and in

tivi ies o ganization is operating in the area mainly via two aif cation in Grameen model depending upon area suitabilim

model for covering thevillage field level staff

ubgroups within this like JLG. Every center & subgroups having a leader responsthe collection of loan amount and deposit in nearby banks where CASHPOR ady bank account. They are scheduling the center meeting just day after date

overy so that field staff can collect the bank receipt. Their disbursement & collectioounts are same. They put the money in bre is need of extra money in case of heavy demands. After application and appraisal oustomer they disburse the loan through cheque either in the branch office or in thter meeting. In this way no cash is transacted within the field. The two approaches are

ventional or Branch approach:

nder this model every branch having office in theU mid of operational area. District Manager

77

Area Manager Area Manager Branch Manager (5) Branch Manager (5)

Center Manager (8/BM) Center Manager (8/BM) In C Intermediation) methodology, whe C l and lend it to clients. Here the

uts nd

CM reports to Branch Manager, whereas Branch Manager reports to Area Manager and Area Manager reports to District Manager.

rn Cashpor is charging 6% as service fee to customer.

District Manager

the books of the partner (Banks/FIs). Cashpor takes service charges in lieu of its

• Group formation.

onventional Model Cashpor has adapted FI (Financialre ashpor takes money from different banks in a poota ing occurs in the books of the Cashpor. o

perational Feature: O

• Under this model they have 10 Branch offices associated with a District office. • Each branch has 8 CM (Center Manager). •

• A group consist 5 members and a Center consist 4 groups. • Center Meeting happens once in a week.

Partnership approach: This is the approach which Cashpor developed in collaboration with ICICI bank and NBFC manages the documentation, distribution and recovery part of ICICI loan portfolio, in retu Unit Manager (4) Center Manager (20) In Partnership Model Cashpor has adapted SI (Social Intermediation) methodology, where Cashpor manages the money of its partner Banks/FIs. Here the outstanding occurs inservices. As a Social Intermediary Cashpor undertakes following functions: -

• Identification of poor clients.

78

78

• Imparting training to the groups. • Grading/Recognizing the groups. • Taking loan proposals.

it offices.

r managers and Unit Managers report ones in week to District office.

Major Difference Between Above Two Models:

nder branch model supervision of branch manager over center manager is

ut reach & Cost effectiveness: In partnership approach one office at district place ntr ea as c b ch l

y c ssociated abo o dels:• n nk account in operational area • separate collection & disbursement account • In rural banks collection of weekly statement is a big problem due to lack of

erization • a• Cash deposit with bank for operating the account

SKS

S rating in a t India has also made its inroads to Bihar nd 9 units. It is still to build

It has a portfolio of around 50 lakhs to start

• Disbursing loans to poor clients and • Taking care of repayments and managing delinquency

Operational Feature

1. Under this model we have a District office divided into 4 units, whereas units don't have

2. District office is headed by District Manager and units are headed by their Unit Managers.

3. Each unit has 20 Cluster Manager. 4. Cluster Ms reports to Unit Manager, Unit Managers reports to District Manager

and District Manager report Managing Director. 5. All the cente6. Here a group consists 15-20 members.

Supervision: Uvery intensive, which is lacking in partnership model. Oco

ols the larger ar ompared to ran mode

Ke onstraints aTo handle a large No

with the ve tw mo umber of ba

computAuditing problem rises.

Finance Limited:

SK a NBFC ope

in the year 2006 a AP has exp has started working in 3 districts with

nded o eastern

up its portfolio but has huge expansion plan. with. Swayam Krishi Sangam is among the leading Micro Finance Institutions in India launched in 1998 by Mr. Vikaram Akula with a vision of eradicating poverty by proper structuring and improvising the micro finance sector has recently started its operation in Bihar .SKS Microfinance is one of the fastest growing microfinance organizations in the world, having provided over $36 million in loans to close to 275,000 women clients. The

79

organization is aggressively opening branches in pursuit of its goal to reach 500,000 clients by 2008. It has disbursed over 449 crores since inception and has maintained a loan outstanding of over 172 crores in loan to nearly four lakh women clients in the poor reas of India.

trategy & Activities

rance to borrowers. s affiliate, SKS Education, provides education services to poor children; including

r girls who have dropped out of school. SKS elivers micro finance through a Grameen (village) banking program that utilizes the

ts that can be used as roups that take collective

• Do bles the rural poor to banks. The ill ich often require severa

• Cu repayments co ting loans to pr n es,” and small first loans to inculcate credit discipline and collective responsibility. Interest and loan repayments are made equal for easy co

Focus on women - SKS works exclusively with women because they are the most

Loan P dSKS Micro finance follows the below mentioned loan products for lending and is in the

products for its semi urban customers.

a S SKS targets women (especially poor women) as their clients as they demonstrated themselves to be excellent Microfinance customers. The women clients take loans for almost all genuine income-generating activities like for agriculture and allied activities. SKS also offers interest-free loans for emergencies as well as life insuItrunning a government-funded school fodjoint liability model developed by the Grameen Bank of Bangladesh. SKS has adapted the methodology to suit the local conditions and currently uses the following three steps: The SKS Model SKS is offering the pioneering Grameen Bank (Bangladesh) approach to suits to local conditions of the rural people of Bihar. It lends to five-member groups of women and designates the group the ultimate guarantor of each of its members. If one member does not repay, no individual in the group is eligible to receive another loan. The keys to this approach include: Social Collateral - The poorest do not have physical asse•

security. Instead, borrowers organize themselves into gresponsibility for repayment of one another's loans.

orstep Banking - Providing financial services in the villages ena collect that day’s wages and avoid the costs of travel to mainstreamiterate poor are also unable to complete loan applications, wh

l trips.

stomized Products - SKS designs loans with small, weeklyres, consumption and income generarresponding to wage structu

leve t emergency “distress sa

mprehension

•marginalized among poor. Women also typically undertake small and manageable activities.

ro uct

phase of designing suitable

80

S No

N e Interest Rate Fee Terms Repayment Purpose am of Product

1.

AARAMBH In e (IGL)

12.5% flat 24% effective

Yes

50 weeks

Weekly

Income Generation, Asset development com Generation Loan

2.

VRIDDHI

L)

12.5% flat 24% effective

Yes

50 weeks

Weekly

Same as above, Available after 25 weeks IGL

Mid-Term Loan (MT

3 RAKSHA

Emergency Loan (EL) Nil No 20

weeks

Bullet maternal health, funerals, hospitalization

All emergencies including

4

SANJEEVINI Individual Loan (ILP)

11% (flat)23% (effective

Yes

1 – 2 years

Monthly

Income Generation, asset development

SKS has also facilitated a loan cover scheme in Collaboration with Life Insurance Corporation (LIC), as a tool to protect the clients and their families from severe shocks that may happen in his loan period. . The policy is developed and executed in partnership with Life Insurance Corporation of India (LIC) with additional support from TATA-AIG and ING-VYSYA. SKS acts as the master policyholder for all insurers and handles all customer transactions and claim processing. The loan cover fee is 1% of the loan amount and the policy covers the entire loan amount with interest for the term of the loan or one year. In the case of a client or spouse death, the loan amount outstanding is written off and the principal paid is returned to the client’s nominee. Management Information System (MIS) SKS is using widely recognized management information systems (MIS) and innovative delivery solutions have increased operational efficiency and reduced transaction costs. The MIS enables SKS to manage small transactions efficiently, increase staff productivity, reduce operational costs, provide accountability for funds, and generate reports for effective and efficient management and decision-making. Status of SKS Mf Operations in Bihar SKS serves the poor in rural areas of Bihar state. The targeted group often is the landless and working as agriculture labourers, these poor have no asset or savings to manage livelihoods at the time of contingency. They most are dependent on village level moneylenders who charge high interest rates and mortgage personal property.

The business expansion in Bihar has registered a growth rate of more than 100% in the third quarter of this financial year. The portfolios at Hazipur and Bhagalpur have gained good momentum in terms of business growth, client outreach and total lending. The lead manager” Mr. Vijay Kumar” is very optimistic about the growth trend, and confident of successfully creating a client base of 20,000 customers by June 2007. SKS works on saturation principle; they strategically devised mechanisms to successfully enter in all the sub divisions of Bihar in next three years.

81

The SKS Model today is a strong and proven model because:

1. Community as a whole (village) is involved e staessibility is easy, no extra or hidden cost involved ured loan coverage with all the financial transactions

en to cover emergencies kly repayment system

of effort is very concentrated (on cial splication nt base

tructu0. Double joint liability system

has three Area offices in thr ist ot h offices.

Office (Biggest tfolio in Bihar, Jharkhand and U.P.) lganj Branch Office rapur Branch Office

. Gaya Area Office •

aining perfect portfolio quality and providing high quality service ially sustainable institution, SKS can continue to provide inance for the poor.

at all th ges

2. The acc3. Has ins4. Loan products ev5. Wee6. The whole ly finan ervices) 7. Easy and fast re8. Women as a clie9. Strong MIS and Reporting s1

re

As of now SKS ee d ricts with t al of 8 branc 1. Patna Area Office

• Hazipur Branch Por• La• Ta

2. Bhagalpur Area Office • Bhagalpur • Umerapur • Jamalpur

3 Gaya • Dalmia Nagar

Financials of SKS: SKS Microfinance emphasizes growth through a financially sustainable business model. SKS’s focus on building the capacity to serve large numbers of clients through implementation of efficient operational processes and innovative management systems has allowed it to achieve consistent and impressive growth - close to 300% over the last two years while maintto its clients. As a financpermanent, stable access to f

82

Financial and operational indicato and tr d of SKS i

v K JK)

v e ) i rad fro g ve e

society, NBJK is also prom g sev ge tiv ro e o tivi NBJK. hir ices of BASIX, to provide tit lopm oving the effectiveness of the m ent te ettin , regi n of the e and

ve for icro finance including accounting package and inventory na

s u

rs en –All Ind a

Na

Bharat Jagriti

riti K

endra (NB :

Naan

Bharat JagBihar. Apart

ndra (NBJKm promotin

otin

s a leading gpeople’s moeral income

has

ss root NGOment for goonerating ac

erv

operating ind governancities. Mic

Jharkhand and civil

Finance ison f the main ac

eveties of NBJK

pred the s

Inssys

utional Dm, through s

ent Servicesg up appropriate organizational form

for im anage sam

mstratio

de loping MIS mma gement system.

ExiSl

ting loan prodHazaribagh

cts

no

1 t Purpose rest FService

ance ity Repayment toProduc Inte ee Insur Secur Mora

rium

2 SHG GP Flat

RMrship

cipamount

Weekly with ma mum Duration of weeks

12.5% S 10 embe

1% Prin le

xi

12 weeks

2

04-Mar 05-Mar 06-JulTotal Branches 11 26 100Total Sangams (Centers) 928 2,518 8,653Total Clients 30,763 86,869 275,879T tal L lie 24,800 7o oan C nts 3,635 239,511Total Loans Outstanding Rs 116,821,680 335,580,180 1,249,129,021Average Loan Outstanding per LoanClient

s 4,711 5,215 R 4,557

Portfolio-At-Risk > 30 Days (%) 0.00% 1.43%5.00% Total Savings Rs 8,298,398 11,67 N/A0,997 Average Saving per client R s 270 134 N/ATotal Assets Rs 175,426,744 395,93 93,0599,671 1,545,9Total Equity Rs N/A 4,379,912 139,071,700Operating Self-Sufficiency (OSS) 99.70% 103% Admi nistrative Efficiency 17.50% 13.70% Clien ld Staff 27ts per Fie 277 460 3

83

3 JLG NON FARM

12.5% Flat

10% OF Principal amount

Monthly with maximum Duration of

None

12 months Ranchi

4 SHG General Purpose

18% DB

RS 20 Registration 1% 10%

Monthly with Maximum of None Fee

Membership

20 months

5 JLG GP 24% DB

1% LPF + 20 Rs Reg 10%

Monthly with Maximum of 15 months

No

Fee

ne

6 BASIX CROP 24% DB 2% 1% 10% with

maximum of 3 instalments

None

11 Months

Summary of data collected on operations are as under: Sl. No

Project Ranchi Hazaribagh Patna Kodarma Pakur

1 Project RLF RLF RLF RLF RLF 2 Year of start 1997 1995 1999 1999 2000 3 Disbursement

till April 2003 1032771 5.6 Crore 55.34

Lakhs 25.59 Lakhs

24.59 Lakhs

4 Lending methodology

SHG Bank linkage

Individuals on group

Individuals on group

Individuals on group

Revolving grant to

guarantee guarantee guarantee group 5 Interest rate 18% 12.5% 12.5% 12.5% 12.5% 6 Interest

ation Diminishing Flat Flat Flat Flat

calcul7 No of blocks 5 6 10 slums 03 01 8 No of villages 150 212 10 slums 46 26 9 No of SHGs 400 491 82 95 26 10 Average group

members 20 16 20 15 16

11 Lakhs 17.99 7.73 Lakhs 7.81 Outstanding 4593155 78.65Lakhs Lakhs

12 Recovery rate 94% 95% 52% 81% 79% 13 Business

target 1.12 Crores 4.9 Crores 50 Lakhs - -

14 Recovery Monthly Weekly Weekly Weekly Weekly

84

NBJK operates in Jharkhand and slums of Patna. Is still in the process of building its portfolio in Bihar with an approx portfolio size of around 2 crores in Jharkhand, of which a small percentage of it portfolio in Bihar. It is yet to make its inroads to the rural Bihar. Bandhan: Bandhan, the fastest growing MFI in the country, started in Konnagar in WB with a portfolio size of 38 crores has started operating in Kisanganj district of Bihar. It is yet to build a strong portfolio in Bihar. Operation System: BANDAN strictly follows its operational policy where all the products and processes including the office furniture’s and utensils are standardized across the organization.

a where a branch would be opened.

sessment of the region. The survey covers obtaining the bas out the village and its surroundings. The managers also meet the local people and people’s representatives to apprise them of Bandhan’s work. A

h the Panchayat Office wherein photocopies of all the e potential keeping in view

that a branch m

no ple and easily understood by the community and hold meeting with

the borrowe

Banwho s manual are only eligible to

• more than USD 2 per day in rural areas and USD 3 per day in urban areas for a family of five

Area Selection:The first step to implementation is selection of areThe branch operations are headed by a Branch manager and four community organizers. The branch manager and the community organizers have a residence cum office from where they operate. The opening of new branch is a carefully thought out process that isbased on economies of scale and cost optimization. It is the Regional manager who first visits the area and makes an as

ic socio economic data ab

written statement is filed witnecessary permissions etc are enclosed. An assessment of th

ust have at least 1600 borrower clients. Since all the workings are standardized including loan frequency, service charges, recoveries and the fact there are

savings products, the task is simorganizers. The community organizers meet the designated area

rs.

Lending: dhan lends out to individual borrowers who are members of a group. Any women fulfill the following criteria as led down in the operation

be a member of the credit group and will be eligible for loan.

Monthly family income not

• Those who do not have more than 50 decimal of land or capital of its equivalent Value

• Preference is given to those who are from the backward class and those who posses some specialized skills. Small business and trading loans dominate the loan portfolio of Bandhan.

85

A group of minimum 10 members has to be formed before the loan is disbursed to the individual borrowers. A group can accommodate a maximum of 30 members. All the group members meet at a predetermined hour at a fixed place every week. There are no otices sent nor is any agenda fixed. The group members assemble with the simple

ding business. Loan applications and loans are sanctioned and The CO updates the passbook, records the dealings in a simple

register that serves book. The loans a ct o sp thdisbursement is made at the branch office the same day in cash. The place where all the group members meet is called the centre.

s enable integrated development and play the pivotal role in ocial development schemes in an appropriate ma

en who are illiterate, w re th re t

: loan products.

e loan to individuals but member of o r iual weekly instalm

f e n

ed one.

e

een INR 1,000 – 5,000 for the rural clients and between INR. rban clients.

on t ns

he weekly loan instalm r a of 100 NR25 only. The loan term is only one year; the total number of instalments is 46.

• Subsequent loan is INR 1000 – Rs. 3000 more than the previous loan on the basis of two factors viz. future potentiality of the client’s income generating activity and whether it generates the expected income of the client.

• Entitlement to a grace period of 6 weeks- 3 weeks on medical grounds and the last 3 weeks for holiday purposes

To mitigate the risk on account of death of a member, Bandhan collects 2% of the loan sanctioned as risk fund. In the event of any defaults on account of death the reserves and accessed. However, now it is proposed to be reduced to 1.5 % based on previous experience. Bandhan has not tied up with any insurance agency. It believes that tying up often may not be in the best interest of the poor. There is no possibility of reducing the premium paid and it works on global scale and they have to be dependent on another

npurpose to transact the lenrepayments are collected.

as a minute re san ioned n the ot but e

The credit groupimplementing various salso acts as a literacy c

nner. The centre ey aentre for those wom

make signature. he aught to

The Products At present Bandana only offers two

1. General Purpos the w men c edit group (rang ng from 1k-9k) and to be repaid in 46 eq ents.

2. Micro enterprise loans to individuals (above INR15K) collected now on weekly basis.

or a p riod of 10 mo ths

Features of the product:

• Non collateral bas

• The first loan is disbursed after 4 weeks of memb rship.

• The first loan is betw1,000 – 7,000 for the u

• A service charge of 15% per annum is charged he loa .

• Loan repayment is weekly-T ent fo loan INR 0 is I

86

external agency, their rules and regulations, which is not attuned to the needs of the poor of the insurance company will ultimately

ir credit portfolio.

2001 2002-03

20034

2004-05

2005-06

people. Bandhan feels that any lapse on the sideeffect their credibility and hence the

Bandhan – At a Glance

-02 -0Particulars

No. of Branches 1 2 10 54 155District Covered 1 2 5 8 14No. of Block Covered 15 2 1 3 93 53No. of Panchayat / Municipality Covered 2 12 91 374 1,020No. of Village Cover 6 90 1,63 5,2ed 10 1 2 5 41No. of Staff 4 12 46 234 678No. of Community Organizer (CO) 3 6 32 158 471No. of Group Formed 50 135 81 2,9 9,0615 56 No. of Members 2,02

99,28

2 51,58

6 176,06

3512

No. of Cumulative Loan Disbursed 131 1,1 186

49,3 208,231

85

7, 97

No. of Borrowers 131 1,05 6,001

40,28 149,884 6 6

Amount of Loan Disb lions 0.351 2.748

19.642

147.175 755.631

ursed in INR Mil

Amount of Loan Outstanding in INR Millions 0.294 2.18

.038 85.638 371.118

12

No. of Overdue Borro - - - 170wer - Amount of Overdue - - - - 0.53Average Loan Size on Disbursement Amount 2,67 2,31 2,73

3 2,979 3,832

(INR) 9 9Average Loan Size o(INR)

2,244

2,068

2,006

2,126 2,483n Outstanding Amount

No. of Members per CO 171 338 326 374290 No. of Borrowers per 176 88 2 31 CO 44 1 55 8Portfolio Outstanding per CO in Million (INR) 0.098 0.363 0.376 0.542 0.79Portfolio OutstandingMillions 0.294 1.09 1.204 1.586 2.401

per Branch in INR

On Time Repayment Rate - % 100 100 100 100 99.98

87

Bandhan – Key financial Ratios:

Ratio Defined as 2005-06 2004-05 2003-04 2002-03

%

ORatio Average Loan

Outstanding

perational Cost Operating Expenses / 21.71 39 15 14

Financial Cost Ratio Financial Cost / Average Loan Outstanding

8.84 10.15 12.90 10.50

Yield on Portfolio Operating Income / Operating Income

26.24 26.37 27 26.50

Operational Self OperatinS

Expenses ufficiency

g Income / Adjusted Operating

121.66 70 103 90

FSufficiency Operating Expenses

inancial Self Operating Income / 116.66 67.35 92 64

Capital Adequacy Ratio

Net Capital funds / Risk Weighted A

11.38 - 1.51 1.98 3.30ssets

Debt Service Coverage Ratio

Operating Income / (Principal Amount

91.46 61.05 74

Repaid+ Interest Amount

-

Repaid)

Administrative Cost Ratio

Administrative Expenses / Average Loan

12.87 25.55 -

Outstanding

-

Cost Per Loan Operating Expenses / Loans Disbursed

0.07 0.11 0.12 0.11

Cost Per Loan Made Operating Expenses / No. of Borrowers

297 324 328 272

CEarned

ost Per Money Interest and Fee Income / Loan Disbursed

0.09 - - -

Funds Rotating Total Loan Disbursed / 3.15 - - -Average of Net Borrowings plus Security Deposit

88

ASSEFA/SNFL Having started as an offshoot of “Bhoodan Movement” to carry out the noble mission of developing the “Bhoodan Lands” (meaning donated lands), in 1969 in a small village in

for Sarva Seva Farms or ASSEFA, is a development

s objectives are “Improving the economic, social and cultural status of the rural heir skills and self-management capacity. ASSEFA also wants

grand plan, in enabling the improvement f the economic and social quality of life, especially women and artisans. .

ds of both the institutions and work together for a common cause while

ommunity based and community oriented approach to its

ission

s located in their vicinity. To fulfil its mission the company adopts the omen’s “Self Help Group” (SHG) model for lending transactions.

mergencies, consumption or immediate needs, of the rural population, especially the

Tamil Nadu, Association organisation. ASSEFA has been working towards achieving the Gandhian philosophy of “Sarvodaya” meaning “Welfare for all”. Itcommunities and enhance tthe rural communities to unite without any kind of discrimination and work for the up-liftment of the social, cultural and economic life of all and to establish self-sufficient, self-reliant and self managed communities based on the principles of freedom, economic equality and social justice.” Sarvodaya Nano Finance limited is a part of thiso BASIX is a group of companies involved in making financial and techno-managerial support services available to rural producers, including the poor and women, on a commercially sustainable basis. ASSEFA and BASIX share certain common ideals and some individuals sit on the governing boar ASSEFA takes pride in its cintegrated development BASIX focuses on livelihood issues using professionals and technology in a big way. The two institutions play a complementary role. SNFL is managed by BASIX. MTo facilitate easy and timely access to credit and other financial services, for the rural population, especially poor women and rural artisans, through a network of Mutual Benefit Trustw Products: Sarvodaya Nano Finance Limited provides three types of loan products namely: Multi Purpose Credit At present, unfortunately, there is no good credit system, which provides loans for e

89

poor. Due to this, many poor people are forced to take loans from the local moneylenders in case of emergency credit needs and are caught in a debt trap, from which there is no way out but to keep on borrowing more, sometimes at usurious rates of interest. To address this specific situation, the concept of Multi Purpose Credit has been introduced.

ers with small land holdings, agriculture is becoming an increasingly risky rity of the rural poor have little or no access to land.

T is an o iv Micro-enterprises, like petty trade and small business development (SBD) prove to be an important alternative source of income. Dairy Promotion Credit Dairy is one of the better-suited activities for rural women for several reasons. But due to f itial investment, risks in terms o le health insurance, l n essentially perishable commodity, this sector needs a special package. Credit for dairy animals will have to necessarily take into consideration m or risk cover, veterinary sedesigned a separate product for the dairy sector OOperations are focused m micro-finance/credit and capacity building support, to m Self-Help Groups (SHGs) through the Sarvodaya Mutual B which have the advan f loca sitioned staff, who evaluate and grade the SHGs and the loan committee then decides on the credit to be given. There is also an independent appraisal of the loan applications before credit d Appraisal and Evaluation: S elf Help Group which is a member of the SMBT is graded and

Stage (2) When an application is forwarded by a SHG, a loan committee at the SMBT will approve the loan before the Field executive of SNFL appraises and evaluates the loan applications. Stage (3) The field executives of Sarvodaya Nano Finance Ltd. will scrutinize the applications submitted by the SMBT concerned, supported by the applications from the SHGs, on aspects of gradings, membership, regular attendance of meetings, savings, internal rotation of savings, bookkeeping, earlier history of the SHG loan taking and audit where required. Any SHG, which is more than one year old, will have to undergo an audit by an external qualified chartered accountant. If satisfied, the executive will recommend the loan, else reject the same.

Micro-Enterprises Credit For farmlivelihood. Further, a large majo

hus, there imperative need to look at other ptions of l elihood.

actors like the highimitations in marketing a

er in f catt and

arketing linkage, cattle protection rvices etc. Hence, we have

perations:

embers of ainly on providing

enefit Trusts (SMBTs), tage o lly po field

isbursement.

tage (1) Every Sevaluated as per well laid out clear indicators of Performance. Only groups which get at least a grade of 'B', among the grades ranging from A-D will be eligible to apply for a loan from the SMBT.

90

Once the application reaches the office of SNFL, the same is once again scrutinized by Processing Department and if found to be satisfactory, the same will be placed

ing to its HGs and SMBTs, though ASSEFA’s SHG and micro credit work goes back to the

Barachatti) Total

the Loan before a loan committee at SNFL also which may or may not approve the loan after due diligence and deliberations. SNFL has started its operation in Gaya and Jamui since last year and is lendS1980s. Overview of the Gaya project: Particulars Bodh Gaya (including

Mohanpur) Gurua Sherghati Dobhi

(including

Total no. of 109 68 78 63

318village

Total no. of 253 237 222 212 Women Self

924

Help Group

Total no. of 3774 3459 3329 3172

13734Members

Total Savings 30.44 16.37 13.53 19.55

79.89amount in Lakhs

FNF o/s amount 2.57 0.99 1.33 0.26 5.15in Lacs

Project Fund o/s amount in Lakhs

6.95 3.62 3.15 3.99 17.71

Sa

58.7

hare capital mount in Lakhs

22.54 13.28 8.48 14.4

SNFL is head artered at Chennai has a rtfolio of 65 crores and has a operational self sufficiency of 110%.

qu total po

91

BASIX: BASIX is a new generation livelihood promotion institution established in 1996, working with over 265,600 households in 49 districts in the states of Andhra Pradesh, Karnataka, Tamil Nadu, Orissa, Jharkhand, Maharashtra, Madhya Pradesh, and Rajasthan. BASIX mission is to promote a large number of sustainable livelihoods, including for the

ral poor and women, through the provision of financial services and technical grated manner. BASIX will strive to yield a competitive rate of return

to its investors so as to be able to access mainstream capital and human resources on a

velopment services.

The BASIX Livelihood Triad inclu

ruassistance in an inte

continuous basis. BASIX strategy is providing a comprehensive set of livelihood promotion services to rural poor households from under one umbrella. This includes provision of micro financial, agricultural/business development and institutional de

des t

S

LIVELIHOOD FINANCE SERVICES (LFS)

AG/BUSINESS DEVELOPMENT SERVIC

(BDS)

Savings (only in three district where we have a banking license)

Productivity enhancement

Credit: agricultural, Risk mitigation (noallied and non-farm insurance)

Insurance, for lives an alue additiod Local vlivelihoods

Financial orchestration (arranging funding from

Market linkages - Input supply, outpusales various sources)

The rationale behind this is as follows: Micro-cred

help(including savings and insurance) in general, ispeople in economically dynamic areas. However, for

92

BDS

LF

BASIX

IDS

rvicNT

he following se es.

ES INSTITUIONAL DEVELOPME

SERVICES (IDS)

Formation of groups, federcooperatives, mutual benefetc. of producers

ations, its,

n- Accounting and management information systems, using IT

n Building collaborations to deliver a wide range of services

t Secto ork –

analy cy for changes/refo

r and Policy wsis and advoca

rms.

nit iful

particular, and m nce for the more enterprising poor

ople in backw ns

i acrofin

poorer pe ard regio

like Bihar, a whole range of other Business Development Services (input supply, training, or

to work with poor households individually and they s and sometimes cooperatives or

ich requires institutional development services, so BASIX orks with JLGs, ROSCAS, SHGs, Federations, MACS and other NGOs who have a

enterprises, which generate much-needed wage employment for the rural poor. hus addresses customer segments in different sectors:

technical assistance, market linkages) needs to be provided even fproperly. Likewise, it is not possible

credit to be utilised

need to be organized into groups, informal associationproducer companies, all of whwgood community presence. BASIX Clientele

A vast majority of the borrowers of BASIX are the rural poor, particularly the landless and women. BASIX lends to them to promote self-employment. However, all the poor do

ot want to be self-employed. Thus BASIX also lends to rural commercial farmers andnnon-farm

ASIX tB

Agriculture Sector Allied Sectors Non-Farm Sector

Subsistence Workers and Landless Poor

Landless (lease-holder) and marginal farmers in dryland areas.

Landless livestock rearers; backyard poultry rearers; lac

Self employed are.g. handloom we/ cottage units

tisans avers

Small and Marginal Farmers and non-farm micro-enterprises

Small farmers producing cash crops or marketable surplus of food crops

Dairy farmers, sheep and goat rearers, poultry farmers.

Micro-enterprisesservices e.g. furnmaking unit; auto

and iture

repair shops Commercial Farmers and Growth Micro-Enterprises and Small Enterprises

Farmer’s mainly growing cotton, oilseeds, vegetablels, cotton and other cash crops.

Dairy cooperatives, Commercial poultry and dairy farmers; fish pond owners;

Enterprises, with 2-10 workers engagedfood processing, work, retail shop

in metal s

Models of lending: BASIX predominantly follows the JLG method of lending to

ally

economically active poor for promoting livelihoods. It also lends to individuals, SHGs, Roscas, MACS, SHG federations and NGO-MFI all without any collateral. Outreach: BASIX has established its presence in various parts of India, especicentral India. Ten years after it was founded, BASIX services over 13,400 villages in 49 districts in eight states of India. BASIX performance as in June 2006 is approximately:

PARTICULARS ACHIEVEMENT

Loan Disbursement since June 1996 (Rs. Million) 6385 Loan Outstanding (Rs. Million) 1712 Number of customers 265,600 Cumulative customers 435,000 Performing Assets (as per RBI norms, 180 days past due) 98.8% Percentage of loan amount to non-farm sector (per cent) 55% Percentage of loan amount to women (per cent) 53% Customers supported with Agricultural/Business Development 27,500

93

Services (BDS) – productivity, inputs, value addition, market links Producer groups supported with training, accounting, institutional Over 15000 SHGs and development and livelihood support 750 CIGs NGOs/MFIs/Cooperatives supported with Institutional Development Services (IDS)

150

BASIX is operating in Jharkhand for the last 5 years with a portfolio of around 8 crores, and has sold more then 20,000 life, health, livestock and weather insurance and provides IDS services to more then 15 NGO-MFI in Jharkhand and Bihar. BASIX has recently tarted its operation in Bihar and is providing ID services and building up the portfolio of

to 3 NGOs and one MfA. BASIX is o f Bihar and Jharkhand.

es in 14 states of the country. RGVN chose to focus te lu i ia i d s

d s rs e f d eastern India. Program activ es were gradually extended to the "poverty pockets" of eastern India - eastern Uttar Pradesh, Bihar, Jhar and, Oris , northe tern An ra Pradesh and the Bastar region of Chattisgarh.

he Credit and Savings Programme (CSP) was initiated in 1995 to provide credit and

derprivileged of the society ho has little or no access to formal banking systems, to inculcate the habit of thrift

oor and empowerment of women through income generation activities.

ey reating opportunities for self employment.

loans through SHGs, JLGs and through its entrepreneurship development rogramme.

RG11NGO NGOs to take up the CSP rlong ru

sNGO with a soft loan outstanding of around 35 lakhs

d training to NGOs oals providing consultancy and livelihoo RGVN RGVN was founded as an autonomous, non profit organization in April, 1990 and is registered under the Society's Registration Act of 1860 in the State of Assam, with Head

uarters at Guwahati. RGVN operatQon northeas

ors. It irn India inc

head uarteding S a Gu

kkim initwaha i to

lly as this regnsure pecial

on lackeocu on

NGOs asthe Northe

well aast non q t t s s a

itikh sa as dh

Tother financial service to the people who cannot access the formal sector. The main focus of CSP was to enhance the livelihood of poor women and empower them in the process. This is done by providing credit to poor women & men through Self Help Groups (SHGs) and Joint Liability Groups (JLGs).

The vision of RGVN is to enhance the livelihood of the unwamongst the p

Its objectives are: Channelizing credit to the poor, eliminating the exploitation of monlenders and c

RGVN offersp

VN has a total portfolio of around 50 lakhs in Bihar, which it canalizes through s. RGVN also provides capacity building support to these

p ogramme successfully. It grooms small NGOs to take up larger portfolios in the n.

94

NG To understand the status of NGO MFI and their requirement to become a MFI and those who awere s

entials that we can see in these agencies. However there ay be many other NGOs /SHPIs who can be considered for incubation but the broad

me as is stated below. All the organizations studied have been eters:

• n Fut

• iciaries

The l s enlisted in each state and the cate r

C g

O – MFI of Bihar

c n be incubated we undertaken in the six focus districts. A total of 12 organizations tudied across the 6 district of Bihar. The selection was based on our own

understanding of MF and the potmissues will remain the sadivided into four major categories namely A, B, C and D based on following param

Purpose/origination/mandate of the organizatio• ure strategy of the organization

Scale of micro-finance • Quality of borrowers/clients/benef

fo lowing table presents the number of organizationgo y profiling obtained thereof:

ate ory Madhubani Gaya Nalanda Muzaffarpur Purnia Khagaria TotalA B 2 2 C 2 2 2 1 7 D 1 2 3 Total 2 2 2 2 2 2 12

owever, it H should be noted that these rankings are based on quality of MF within each

ategory are not comparable to the Bihar

es are as follows:

studied within the 6 districts of Bihar was able to fall under

district; the characteristics of organizations in each call-India standards. Therefore, if one was to place the Category A organizations ofon all-India basis, they may fall in Category B or C. The detailed observations on these categori Category A No organisation of the 12Category A. Category B Organizational orientation towards micro finance:

• Organizations are working on micro finance in addition to other programs; the human resource is not dedicated wholly to micro finance.

• Started SHG promotion as a community mobilization tool but now visualizes it as a platform to improve the economic status of the people.

95

• The purpose and objectives of the MF program have been understood to a certain still needs to be internalized and

percolated down the line. tional level staff needs orientation towards treating micro-finance program

as one of profit centered program rather than a grant oriented, cost centered

Scale of micro finance: cus on micro finance.

F, but the stru d.

e and densified operations to bring the operations to the break-even levels.

• Operating systems have recently been introduced, which they are facing difficulty ewer system change.

• • ed to be mobilized for streamlining the existing operations as well as for

up scaling except in AP-Karnataka.

tely sized catering to a membership of 700 above.

ination, purpose and activity performance is weak. • There is a general lack of monitoring system and the data/information is either not

collected from the SHG or not utilized for improving the status of the SHGs. MIS systems cater to funding agencies’ needs rather than that of the program. • Where federations have already been formed, they require a lot of inputs.

extent at higher levels of the organization, but

• Opera

program.

• They work in more than one district, and there is fo• There is also intent to form community- based organizations for M

cture and legalities need to be understoo• These organizations have got good reach, but would still need to upscal

Quality of micro finance program:

• Systems have been developed to a certain extent. • Groups and villages have been identified as the building blocks and necessary

inputs provided.

with, as is common with any nThough not computerized, the records and systems have been introduced. Funds ne

Category C Organizational orientation towards micro finance: • They are involved in a variety of programs of which micro finance is one. • Micro finance taken up as part of government-funded programs e.g. watershed

development etc. • Lack of conceptual clarity on MF. • Weak focus in understanding the importance of monitoring the micro finance

project / program Scale of micro finance: • These organizations are modera• Working in one or two districts. Quality of micro finance program:

• Group quality is moderate. Training to the groups unsystematic and erratic. • SHG orig

•

96

• Operational systems not defined and rather haphazard. Overall micro finance program performance poor.

taken up based on funding/ promoting incentives that usually

IDAN, COMFED, KSA and

• Category D Organizational orientation towards micro finance: • Entry into micro finance as SHG promotion / MACTS formation viewed as the

‘in thing’. • View micro finance as a vehicle to spur growth. • No orientation and training support for their field and managerial staff. • The governing board also lacks vision. • Organization too small to build and implement strategies for micro finance. Scale of micro finance: • Very small just starting off with few numbers of groups. • Operational area of organizations also low at present. • SHG promotion work

last for one financial year. Quality of micro finance program: • Quality of the program is quite poor as no efforts made as yet to strengthen the

groups. Private sector banks: As such none of the new generation private sector has made any dent in rural Bihar directly. The targets set out by them are negligible. In the agriculture sector it has a target of Rs.80 lakhs, and a total of Rs. 2800 lakhs in SSI and other priority sector lending. ICICI, HDFC and UTI are trying to make inroads to rural India through the intermediary route by on lending to MFIs. ICICI is also in the look out for opportunities for partnership model and loan securitization in Bihar. ICICI has taken a major step to build up the capacities of NGOs, entrepreneurs and cooperatives and is creating awareness about these agencies. ICICI is the first bank to have taken a step to invest in capacity building of the potential players of MF services in Bihar. ICICI in partnership with BASIX is already in the process of handholding CPSL (Patna), Nirdesh (Muzzafarpur) and AVS (Gaya) to transform them as MFI/CBMFI. HDFC and UTI are yet to come out with any concrete strategy for Bihar. HDFC at present is working with four partners namely NRGVN. It has also taken up lending to SHGs directly under the banking correspondent model. No agriculture lending has now been initiated. UTI is the only private bank who has tried with some agriculture lending in Muzzafarpur and Bhagalpur.

97

Micro Insurance Sector: It is interesting to note that except for the primary sources there is a complete dearth of documentation in the area of insurance at regional level particularly in Bihar. The aggregated data for the total number of policies sold and actual premium accrued is not vailable. Hence to analyze the actual number of people insa

aured becomes an interesting

ive

s that the

ge in the ural area is almost decimal. The rural coverage in Bihar is normally done to satisfy the

unctional in Bihar, e would find an interesting field that besides the governmental insurance company

s far as life insurance is concerned besides LIC, the only operator, which was er post liberalization was Bajaj Allianz Life Insurance

and after that Birla S and Dabur Avi into the p The eplications of these companies p way for a host of surance comp

Prudential, Reliance, Max New York Life etc. it is now establish that theffered a very good potential for the life insurance market.

rea of primary research, which has still not been covered either by the researchers of India or any international agency. In addition to this, the regional offices covering more than one state are lacking the concept of data aggregation. Bifurcation of the data state wise is entirely out of ambit of this study. Hence in absence of aggregated data it is very difficult to portray an accurate picture of the current insurance scenario in Bihar. Keeping this backdrop in mind the status can be viewed from the references stated in various newspapers, magazines and websites and by reviewing certain indexes like a) Total population vs. insurance coverage, b) Governmental program and policies for risk mitigation, livelihood and social security, c) efforts made by NGOs and civil societies, d)

layers from the supply side NGOs and MFIs and other intermediary agencies inclusPof financial institutions. Rajesh Sood, Executive Director, Max New York Life opines that studies reveal that only 1.5 percent of the total population in Bihar has opted for insurance cover. On the other hand the national indices according to various sources in terms of coverage of insurance does not exceed 10 percent of the total population. However, the fact remaininsurance market is growing by 20 percent per annum keeping this fact in view, roughly a minimum of 12 lakh 45 thousand people are insured in Bihar and by any standard it can not exceed 83 lakh populations in Bihar. It is interesting to note that the insurance coverage in Bihar is positioned in a way where the urban population has been insured for life and assets and insurance coverarregulatory norms of social and rural obligation. A core study however reveals that even this compliance is fabricated by issuing insurance in urban areas based on rural addresses. If we view the players particularly in terms of insurance companies fwoperational in life and general there is a total absence of private player in general insurance in Bihar. It is true that ICICI Lombard made some efforts in the year 2005-06 but closed down their operations for reasons best know to them. However, in 2007-08 Bajaj Allianz general insurance has plans to enter in Bihar. Aoperational in Bihar as private playCompany unlife va entered icture.success r aved life in anies like ICICI state of Bihar o

98

As far as in the contribution of NGO-MFI is concerned in terms urance NIDANing position because the organiz ion has made a conscious and this yearo rope in 2 lakh lives. Concrete igure of 40 thousan fe with remarkable system in terms of claims is already documented by them. They had a

nce on micro insurance along with their network partners in October 2006. The s attached herewith as nnexure – II.

surance and rural rance the role of AVARAN can not be parted by them both in terms of 100 hours

s at affordable price at the doorsteps of ural poor. The organization has bridged the gap on the demand and supply side and is in

ess ent of need-based product and capacity building.

far as th re concern e term, term and dowment he pop lar products are Janshree of LIC, vach of B d Goolak of SBI Life. As far as general insurance is concerned

niversal health and Janta Personal Accidental policies and cashless mediclaim are the

nt. The demand and supply in Bihar is done on a iecemeal basis and the emphasis is health, life or accident. The coverage of assets is not

e an annual phenomenon.

ajor and first MI promoting agency, began with linkage with eme and with NIC with Medi-claim. Poor had multiple

surance needs. Thus after exploring various schemes, finally decided to come out with

of ins has an outstand at the target was t f d liprocess andconferecase study of NIDAN i a In the field of micro in

ndermined in terms of the training being iminsu

uand micro insurance. The organization has made efforts to sensitize 20 implementing agencies for rural and micro insurance. They have done a need assessment in the rural areas of Bihar and the risks have been clearly identified for redressal through insurance. As a result the product has been designed, which would be launched from January in the ural areas with simplified processes and systemr

rthe proc of continuous developm As e products in the rural areas a ed it is in returnablen policies by the life insurers. T uKa irla Sunlife anumost popular products purchased and promoted by the NGOs and NGO-MFIs. Except for SEWA’s bundle product promoted by NIDAN the concept of buying the bundle product at a low cost is absepon a priority basis though recurrent floods in Bihar ar

Micro Insurance that suits to the needs of the rural poor products are still not in vogue in Bihar. Technically it is only LIC and Tata AIG has come up with micro insurance product which not in operation in Bihar. Rest of the products are rural social products of

IC and Term Insurance or endowment of Life insurance companies. G NIDAN as one among the mLIC, Group Insurance Schina unified scheme with multiple benefits in one package being run by Vimo-Sewa. It covers life, health, asset and disability benefits for self and spouse at a low premium. Insurance Coverage by NIDAN Districts 2004 2005 2006 Katihar 401 1305 1802Khagaria 764 1339 1436Nawada 18 42 106Vaishali 1011 2160 5831Muzzarfarpur - 571 1167

99

Patna 3542 4699 7341Begusarai - 73 112New Delhi - 14 124Samastipur - - 3127Purnia - - 243Gaya, Saran, Nalanda - - 171Total 5736 10203 21460Source: Awaran , Patna GTFS has made inroads in Bihar and has been selling term policies including life and non life. No data was available for the exact numbers of policies sold and the quality of claim settlement is yet to be established. GTFS has a huge network and is the corporate agent of

nies. the following insurance compa Sl. No. Life Insurance General Insurance 1 Max New York Life Insurance Co. Bajaj Allianz 2 Tata AIG Life Insurance Co. IFFCO – TOKYO 3 Bajaj Allianz Life Insurance Co. 4 LIC of India Tot N Liv omore th Na The s. 100.88 cr dur lakh fa n the State. The implementation of RKBY by Commercial ban a

Re t Remitt ot much wo hthen 31The po le risks of theft while trav iThe popularity of electronic transfers through private agents is increasing because they are iBet eof Rs 1411, 632,133(Deshinkar et.al, 2006). MOs show two dips in May and in February when migrants come home

al o. of Branch – 190, Total No. of Worker – 2500000, Head Office – Kolkata

est ck Insurance: The Bihar Dairy Cooperative through its huge network has sold en 55,000 livestock policies.

tional Agricultural Insurance Scheme – NAIS

Agricultural Insurance Company of India Ltd. has paid claims of Ring Kharif 2005 and Rs. 53.03 cr during Rabi 2005-06 benefiting 1.25 lakh and 1.02

rmers respectively iks nd RRB was not been satisfactory (NABARD State focus paper-07-08).

mi tance Services:

ance service as in most other parts of the country is still unexplored and nrk as been done. Given the huge amount of remittances coming to Bihar where more

% of the poor are dependent on, there is a high demand for the same. orest migrants hand carry their earnings and face considerab

ell ng. Workers in other states send money through Money Orders and Bank Drafts.

rel able, safe and fast although slightly more expensive. we n April 05 and March 06 the total number of MOs recd was 875947 with a value

100

MO re(see gra

Source: Deshinkar et.al, 2006 To summarise, the status and characteristics of rural credit in Bihar are as follows:

• Dependence on CBs (68%) – share of RRBs (21%) and Cooperative banks (11%) • Credit portfolio mainly restricted to four activities. Kisan Credit Cards, MSTP,

Farm Mechanization and SGSY. • 29 percent of the cultivated area reported to be under oral share cropping – restrict

scope for crop loans to the extent. • 40 percent of the area flood prone and 41 percent drought prone – restrict flow of

agriculture credit. • 42 percent of the population below the poverty line: of the land owning

households 80 percent nearly landless. (less than 0.30 hectare) • Prevalence of one officer branches in rural areas – estimated 800 branches. • Low outreach and depth – Average loans o/s per farmer household Rs.4476/-

(national average Rs.12585/-): Per branch population 22,000 (All India 11400). • CD ratio of CBs and RRBs 33% as on 31.03.2005 (all India – 65%) • 33% farmer households have access to credit – national average of 48.6% (Ranks

21st in the country) • Only 23% of the borrowing farm households reached by institutional sources

against national average of 56% - by implication only 8% of total farm households have access to institutional credit (all India - 27%)

• SHG bank linkage is the only predominant mode being accepted by the Government Bankers and surprisingly even by NABARD is growing over the last few years but at a very low pace and is lowest among the priority states.

• MFI are coming forward and have almost all models of MF being practiced in a small scale but what will work best in Bihar and when will the MFIs be able to break the hurdles of scaling up is yet to be seen in the state.

• Large no of SHPIs are there but will poor manpower and low capacity human manpower.

• Private sector is quite reluctant to lend in rural area of Bihar • There is a dearth of Micro insurance and almost total unawareness about MI

products available in other states

s cd in rural areas in Bihar show that the largest source of remittances was Delhi ph below)

0

200000

400000

600000

800000

1000000

Delhi

Punja

bWB

Biha

r

Maharas

htra

Harya

na Up

Gujarat

Assa

m

Jhark

hand

APS

Rajasth

an MP

Chhati

sgarh

Orissa

Karnata

ka

Uttaranc

hal

NEAP HP

J & K TN

Kerala

101

• Migration contributes a huge source of livelihoods but no proper remittance service to the poor is available.

102

CHAPTER IHAR -3 – T D MF B HE EMAND OF SERVICES IN

Economists traditionally have viewed investment as one of the driving forces of

economic growth. In a close economy, saving is the only source of investment. But in an

open economy, investment can be financed by borrowing from other sources. Inadequate

high savings and investment rates are the outcome of the rapid growth and

conomic transitions. Since the asset less people are much below the poverty line from

hav s of savings and credit, they can try to come out of the

s are reluctant to deal individually with rural poor due to high transaction cost

e towards government sanctioned loan makes them defaulters.

districts i.e. Nalanda, Gaya, Muzaffarpur, Madhubani, Purnia and Khagaria districts of

sur es:

domestic savings will put down investment rates either directly or through constraints. In

other words

e

where they do not have any easy way to come up. Therefore, if they can be helped to

e some capital either in term

poverty trap they are in.1 some other important findings of this study are:

A brief analysis of the rural society and the life of the poor reveal that their

indebtedness has been the main source of their exploitation. Utter poverty and

illiteracy force them to be the victims of the unauthorized private money-lenders.

Further problems like bonded labour, child labour, mortgage of assets and migration

etc. all due to the exorbitant rate of interest keep them struggling within the poverty

trap throughout their lives.

Bank

and fear of risk in granting loans to individuals. On the other hand the attitude of

peopl

Household Survey: Key Findings Taking into consideration the above facts, an attempt is made to undertake a study in 6

Bihar. An individual level rapid assessment of the households has been done through a

vey using an in-house developed tool to meet the following objectiv

1 W wth, Equity and Economic Change” in The Eastern Asian Miracle, World Bank Policy Research Report (New York: Oxford University Press, 1994).

orld Bank, “Gro

103

To know the livelihood status of poorer households in Bihar.

The availability /accessibility of various financial services by the poor.

es

To know the constraints faced by them for getting these services.

To know the need and demand for all financial services and their preferenc

The districts covered under the study are shown in the map as given below.

Some of the observations on the socio-economic situation of the areas where the survey

ple live below the poverty line in Bihar Around 50%

survey are landless and a similar

source of occupation.

asonally or for more then 6 months

ourers in places like

Punjab, Haryana etc. Domestic migration within the state is low; people prefer wage

cal migration is low due to both low

was undertaken will help us to understand the microfinance scenario in a broader viewpoint.

More then 43% of the rural peo

in case of the six districts.

More then 40% of the population in the districts

number has wage labour as their main

More then 30% of the rural population migrate se

every year. Majority of the migrants either prefer to go to Metros for semi skilled or

unskilled job opportunities and a high no also migrate as Agri lab

employment in cities like Patna. Other lo

104

opportunities as well as attitude of the people not to work in local areas for dignity

etc.

Cultivation is largely based on traditional pattern and the use of modern technology is

low.

There is absence of profit motive, cooperation and collective endeavour.

There is also lack of regular market facilities and market linkages in the state.

Farmers are facing severe constraints due to flood and draught in the past consecutive

years.

Other livelihood options are circumference in the area leading to migration of large

number of people to other parts of the state and out side the state.

The districts have OBC as the predominant caste, and they mainly practice

agriculture.

The availability of basic infrastructure is generally poor.

In the survey we found that most of the respondents in the six survey districts have

agriculture (for cultivators), business (for landless), wage labour and migration.

People spend their income mainly in meeting their consumption needs. The major

spending of the poor in preference is on food, expenditure on working capital for

farm and non farm business, festival (including clothing), followed by expenses on

medicine and health. Respondents also reported that they spend a significant amount

of spending on marriages and other ritual ceremonies like death. Poor people, if able

to save some surplus after this invest in Assets.

In general there seems to be a slow process of development leading very low standard of

living for the people. Now in this section we will analyse the financial status, its demand

and perception of the poor for various kind of services.

Law and order and so risk of micro financial services is quite high in the districts.

Land lease and share cropping is common in the survey districts.

Quite a large population has expenditure more then their present income, and due to

lack of suitable alternative livelihood opportunities are exploited even further.

To meet the extra financial need the people of the area fall pray of usurious money

lenders who charges exorbitant rates of interest.

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Saving Services:

states that the poor need savings (and

ds to other poor in need

ploration to understand the behaviour of

in institutions and also reported that they have

experiences of “fly

rs who used to adjust to the flexible saving behaviour of the poor has

Vijay Mahajan, in a micro credit summit in Delhi

insurance) services even more, and earlier, than credit. It is experiences that savings serve

the following purpose for the poor.

• “self-insurance” for the poor in case of emergencies

• “liquid reserve” in case of cash flow shortages

• “equity” for seeking a loan and a

• source of lending fun

The field study was undertaken to understand the saving behavior of the house- holds, the

constraints, the preference of services etc. by the rural poor in Bihar.

Saving Behaviour of the Poor in Bihar:

On analysis of the primary data it is found that only 9% of the households save money to

meet their future needs. 12% of the poor HH in Purnea reported cash saving where as

only 5% reported saving in Gaya. On further ex

saving, people save in terms of purchase of assets, trees, jewelleries, utensils etc, which is

not strictly perceived as a saving but is used for occasions like marriages. The reason

stated for non- saving of cash is lack of adequate income to save (85%). 15% reported

that they do not have any option for saving

no faith in them (“Paiswa le kar rafuchakkar ho gailan”).

Further, the study reveals that out of 9 percent HH who save money 69 percent save on

monthly basis. Another 15 percent save on seasonal basis and 12 percent of the HH save

on yearly basis. Only 3 percent of the HH save on daily basis and 1 percent saves on

weekly basis.

This survey clearly reveals that the poor who need saving services the most are not able

to save due to lack of adequate saving mobilisation strategy. Also the

by night” deposito

jittered their faith in saving with NBFCs. It is stated by the Dept of Institutional Finance

that in the 90s more then 450 NBFCs came to Bihar to mobilise savings. Out of this more

the 400 of them are blacklisted and people has lost more then 12000 crores of rupees.

106

Preferable attributes that will mobilise saving:

nd paper work) and for

subsidy routed through banks.

ands, they save maximum during the Paddy vember and February to March. During the

June they save some money by vegetable selling. Farmers of north

lth. But the real fact is that there are unable to save as all of the heir consumption needs.

are engaged in animal husbandry (Goatery) activities they have maximum

in these month they have less expenses. Rest of the month they have very few e their saving is nil.

are continuous persuasion by the LIC and private

as they are also easy to access with lesser complications.

Survey done to understand the key attributes which the poor prefer for saving

mobilisation in banks and other financial institutions .The attributes in priority preferred

are: Safety, Ease of deposit and withdrawal (physical access a

availing loan and other government

In an attempt to study the saving behaviour of the poor in Bihar we got the

following understanding:

Those members who have some agriculture land wheat selling season i.e. October to Nomonth of March toBihar which are affected by flood in the kharif practice corn as their main crop and gets high returns out of it. Farmers cultivating corn are able to save substantial part of the income during the month of May/June/July.

Those members who are landless their saving is not fixed. It’s dependent on their nature of work and their heaearnings hardly meet t

Members who savings in the month of March (HOLI), November and December by selling meat and rest of the month its depend on market force. Those who engaged in the milk business they have maximum saving in the month of February, May, November and December becausesaving and some tim

Institutions for Saving: Most of the respondents who have saved or will like to save

their money has either saved in LIC (money back policy), or in SHGs (where they are

members of some SHG). Some people still have a preference to save to private depositors

like Sahara. The reasons for saving

depositor’s agents and the SHG norms. The other reason is doorstep service and

flexibility in deposit amount. Post office also is another important institution where

people save

Credit Services:

The survey brought out different sources indebtedness by the HH in different districts. In

as many as (39%) house holds money lenders are the immediate source of getting loans.

In (13%) house holds bank and post office, in 173 house holds (24%) shopkeeper, in 64

(9%) house holds input suppliers, in 178 (25%) friends, relatives and neighbours are the

107

immediate source of getting loans, in 23 (3%) house holds others and in 81 (11%) house

holds SHGs offers them with credit support .

Therefore, it is inferred that majority of hou

se holds follow the pattern of borrowing

f

s of getting loans.

sh borrowing up to Rs. 2000/- .

rrowing to meet their consumption (HH needs) where as

an for one year. However, a

substantial number of house holds also borrow for a term of 6 months and more than 2

years.

Rate of interest:

In most cases (175 house holds -24%) pay an interest rate of 2-5 percent per month. In

128 house holds (18%) cases they pay 5-10 percent and some times above 10 percent and

in 44 houses holds (6 %) they pay 1-2 percent interest per month.

Security for taking loan:

The survey findings reports that only 10 percent house holds give some collateral where

as most of the cases it is being given on faith and mutual trust , and third party informal

guarantee.

the survey questions were asked on the preference on availing loans from Banks and

ot interested in availing any loan from

from money lenders, shopkeepers and friends and relatives with an almost low number o

house holds banks and SHGs and other mean

Average amount of borrowings:

Majority of house holds (42%) have an average ca

However, large number of house holds (24& and 22.5%) also borrow Rs. 2000/- to Rs.

5000/- and above Rs.10, 000/- respectively.

Purpose of loan:

In the survey when we tried to identify the purpose of loan. Majority of the respondent

house holds (43%) reported bo

(42%) house holds borrow for production purposes. About 7% of house holds borrow to

meet the exigencies.

Term of loan:

In majority of cases the respondents have taken term lo

Preference for loans:

In

formal financial institutions and with or with out subsidy, intention to repay if they get

loan and would be interest rate that they will be interested to pay. The survey finding

eveals that more then 70% of the rural HH are nr

108

bank or formal institution. The reasons have already been stated. Many are unaware and

can not even imagine of getting loan from banks. They only know that loans can be only

taken by money lenders, traders and relatives.

Of those who are interested in taking loans prefer taking loans on subsidy only, they do

not want loan from banks without subsidy.

vailable. 5-6% is in dire need of loan told they will be paying even more then 10% PM.

of the migration data collected during HH survey in six districts, it is found

On asking the willingness for on time repayment, respondents were reluctant but 17%

clearly stated that they will not repay if they get loan.

On asking for the would be rate of interest rate/pm ,48% of the respondent told they will

be happy if they get loan at 1% pm , more then 44% told they prefer an interest rate of

less then 2% pm , while the rest told they will take loan at higher rate of interest if it is

a

Migration and Remittances

On analysis

that there is a good frequency of migration events amongst the respondents. 31% of them

migrate in some or the other way. As we can see in the graph below, cases of migrating

within the same state is lower than the metros and others.

70

20

30

40

50

60

0

10

Within thestate

Metros Any other Within thestate

Metros Any other

No. of HH No. of Place of migration No. of HH No. of Place of migrationPersons Persons

Seasonal (1-6 months) Annual (More than 6 months)

NalandaGayaMuzafarpurMadhubaniPurniaKhagaria

ource: Compi led by the Study team of BASIX through extens ive survey

It is also observed that both in case of seasonal or permanent migration people prefer to go to metros. The other areas where people prefer to migrate are to areas like Punjab and Haryana. Domestic and local migration is low but is mainly for construction work, rickshaw pulling, brick kiln etc types of work.

S

109

Another survey being done during the same time states that SCs and EBCs2 are engaged short distance and long dista ally in the lowest paid jobs

construction, work in brick kilns and aw p o teg fo re ed

landless and lowest caste migrants. This includes (but is not limited to) the Musahar, wan, Majh om, and other SCs.

re are also ong ind ons that m ny migrants belonging to the broad and diverse ory of O have be e upwar obile, graduating from far work to working

higher. At the same time they have also ecome more spatially diversified, using their soci networks t switch between

destinations that are often quite far from each other in order to move up the job ladder in tions th equire sult is th igrants from Bihar have now

spread their networks to destinations all over India in a way that was not evident a decade

age here they can be sent away to earn, the head of the household stays in the village to

ise.

of our survey data clearly s link between occupationans an l tests, we verified our observation. On g by sq st rif ve no to

chance factor and there has to be some linkage between migration pattern and cupational p tices.

As migration is one of the major sources of livelihoods of the poor of the state, so it es esse ee the demand money transfer services (remittance services)

among the poor. We tried to understand the demand and requirement of money transfer. tails of erence requency money transfer are given in the table b

in both Farm labouring work, casual labouring work inricksh

nce migration but usu .

ulling are the four m st important ca ories of work r the poo st, unskill

Pas i, D The str icati acategin a variety of industries where earnings are

BC com dly m m

b al o

occupa at r similar skills. The re at m

ago. The attractions of city life have become a major factor in shaping migration decisions especially for young people and this explains in part high migration rates among the better off. For the better educated and connected migrants working in industries, migration money is an important way of financing agriculture and the accumulation of assets. Migration is now viewed as a finite stage in the lifecycle of the household: as sons approach anwlook after the farm and other enterpr Analysispattertestin

indicates that, there i l d migration. Based on som

using chi e statistica

, we could veuare te y that these e nts can t be due

oc rac

becom ntial to s for

The de pref for f of elow.

2 Backward castes in Bihar are divided into two categories—Annexure 1 or Extremely Backward Classes (EBCs) and Annexure 2 or Other Backward Classes (OBCs). EBC include 109 groups and account for 32% of the population and OBCs include 32 groups and account for 20% of the population. The latter includes Yadavs, Kurmis, Banias, Koeri. In addition there are the Backward Caste Muslims. According to the 2001 census report, there are 13 million Muslims in Bihar, which has a total population of 83 million.

110

Frequency of Money transfer: Number of persons Dura

sending money Nalanda Gaya Muzafarpur Madhubani Purina Khagari

a

Total % tion of

Week 1 2 0 0 3 1.38 ly 0 Monthly 4 14 6 15 21 60 27.52

Quarterly 24 1 15 27 34 101 46.33

Others 11 0 24 7 12 54 24.77

49 0 67 218 100 Total 40 15 47

Source: Compi led by the Study team of BASIX through extens ive survey In an attempt was made to understand the status of remittance services and to know the status of the present service providers. The respondents reported that they transfer money either by self, or through agents and MO. The time taken to transfer money takes 1-2 weeks but in 31% of the cases respondents told that money transfer takes even more then one month’s time. The poorest migrants hand carry their earnings and face considerable risks of theft while travelling. Workers in other states send money through Money Orders and Bank Drafts. The popularity of electronic transfers through private agents is increasing because they are reliable, safe and fast although slightly more expensive.

Number of persons

Time taken to get the money

Duration of senmo

Total % ding ney Nalanda Gaya Muzafarpur Madhubani Purina Khagari

a 1 week 11 44 94 44.13 1 36 2 1-2 week 4 14 6 1 26 51 23.94

1 month or more

25 3 40 68 31.92

Total 30 53 48 12 70 213 100

Source: Compi led by the Study team of BASIX through extens ive survey On asking the charges incurred on different modes of money transfer respondents reported charges up to 10% of the amount sent. This shows that there is a huge demand for a low cost, reliable and fast money transfer services.

111

Mode of sending money and charges incurred in each mode

Charges incurred in each mode No.

<5% 5-10% >10% Total No. of per s

97 38 8 143 son

Percentage 67.8 26.6 5.6 100

Source: Compi led by the Study team of BASIX through extens ive survey

Risk Management and Insurance Services:

The HH survey also made an attempt to understand the risk poor HH in rural Bihar face in their day to day life. Our findings show that many HHs face multiple risks of life and livelihood. It is found that an equal 30% face risk of drought and flood, some times both in the same area. The other risks faces are health, accident, mishap of earning members. Fire and theft so loss of asset is another risk poor people face every year. People also reported that face risk of price rise for inputs, pest attack and fall of price of produce (see table below). So it is quite evident that there is a high amount of risk many people are facing and so is the need for risk mitigation and risk management strategy to be adopted for protection of the poor lives and livelihoods.

Risk Events in Rural HHs

Total

Fire

Theft

Drought

Flood

Accident

Pest attack

Input price hike

Produce rice fall

Mishap of earningmemberAny other

Source: Compi led by the Study team of BASIX through extens ive survey Extent of monetary loss due to adverse event The survey finding show that around 35% loose less then 5,000 thousand , 25% loose up to 10 thousand, 15% in between 10-20 k and rest 23% loos even more then 20 thousand rupees due to adverse events stated above.

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Extent of Monetary loss

01020304050607080

Naland

aGay

a

Muzafa

rpur

Madhu

bani

Purnia

Khaga

ria

<5,0005,000-10,00010,000-20,000>20,000

Source: Compi led by the Study team of BASIX through extens ive survey

The survey on awareness about various insurances, poor already insured and for which event and company was also undertaken with 720 poor HHs of the six districts. It has the following findings.

• Around 40% people do not know of any kind of insurance at all. • Only 20% of the respondents told that they have got some insurance. • The preference in which insurance has been sold by various companies in term of

coverage is on life, livestock, general insurance, vehicle insurance and crop insurance. Few reported having weather insurance, health insurane also.

• Majority of the insurance is still sold by LIC, GIC and now some MI by GTFS and NIDAN.

• On asking if they will be interested in getting insured, 80% is still not convinced of buying any insurance product.

• Claim settlement and lapse of policy is a major case seen in case of LIC. • The respondents demanded insurance on life, non life, livestock, assets and

weather insurance on floods.

In another study being done in Bihar for FFH by NIDAN to understand the effectiveness

of different events on the livelihoods of the poor, SHGs members point out their many

situations that affect badly to their lives and create pressure in the terms of financial crisis

and their sustainability are :

S.No. Risk /Events (%) of Effectiveness on

livelihoods 1.

Death of bread earner 75%

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2.

Daughters marriage 60%

3.

Diseases (chronic) 50%

4.

Accident 50%

5.

Flood 20%

6.

House falling and roof falling 10%

7.

Theft 5%

8.

Unemployment 10%

Loss in business 9.

20%

10.

Crop damage 30%

11.

Legal and case in court 20%

In the life cycle analysis it is very much clear that two events i.e. death of bread earner and marriage of daughter badly affect their conditions followed by disease and accidents. The reason is majority of the members are wage earner nearly 50%, so their employment opportunity do get affected much since they work either in farm or non farm. But they do not have cushion in their life. The death of bread earner is common due to different health hazards and accidents. The unemployment is only 10%, which means that they can cope up with the unemployment situation. Damage of house and flood is also one of the major areas, which affects their life cycle.

Demand estimation of Micro financial services of rural households: The demand is being estimated on the basis of detailed study of the HH livelihood needs and the expenses people are willing to undertake. This however is being estimated by the BASIX team after doing extensive survey of the 6 districts of Bihar only.

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Bihar -Rural HH Level Credit Demand Estimation by BASIX Population No Of HH Population of Bihar 82878796 13813133 Av family size-6 Population in rural 71690159 11948360 BPL =43% 30826768 5137795

Demand for MF in Bihar

%age of HH in rural Bhr

Av loan Req.

Total Demand(In crores)

Fooding, Emergency/medical and education Marriages and ceremony- 43% of BPL 100% 2500 1284Consumption need -10% of rest 10% 3000 204Housing and house repair loan to poorer families 15% 5000 896Crop Loan-50% of the Rural HH 50% 5000 2987NFS Loan-10% of Rural HH 10% 5000 597Loan for Micro irrigation-10%of RHH 10% 10000 1195Loan for Land Development-10% 10% 5000 358Farm Mechanisation-5% of RHH 5% 20000 1195Agri- allied( Dairy, Poultry, Goatery and Fisheries) 15% 5000 896Horticultural Development 5% 20000 1195Total Credit Demand at RR household level in Bihar INR 10808 cr.

A similar exercise being undertaken by NABARD also has similar projections of credit demand in the state, however it was done more on a sectoral basis and it has ignored the consumption and housing needs of the rural households. The figures stated by NABARD for the FY -2007-08 is Rs. 82196 crores in its current year focus paper. Given these two estimates and the available loan for priority sector in Bihar at present is meeting less then 30% of the total credit requirement in rural areas. In our projection we have however ignored the loan requirements for common infrastructure development, which we have presumed will be met by a mix of government grants, private investment and entrepreneurs and they have access to rural financing . It is also assumed that poor people will not be able to invest over and above the individual loans estimated by us after looking at their livelihoods. We have tried to figure out the loan needs of individual households, who have a poor access to the banking services. Focus should be made by multiple channels to meet the varied demands of different category of poor and rural people. SHG is seen as the largest vehicle of offering financial services to the poor and in rural areas of Bihar. It is being practiced widely among all financial institutions, however as we have seen that there is a huge potential unleashed. An attempt has also been made to

115

estimate the potential of SHGs in Bihar. This will be more relevant for BRLPS as per the project objectives. District wise Potential of credit linkage of SHGs (in lakh)

Sl.No

District

Population (as per 2001

Census)

Number of

rural poor

families

Long term Potential of

SHG Promotion

Potential for credit linkage

of SHGs during*

Of which potential

for women

2007-08 SHGs 1 Gaya 34.65 3.02 0.26 0.023 0.02 2 Nalanda 23.68 2.07 0.18 0.016 0.013 3 Khagaria 12.76 1.11 0.1 0.009 0.007 4 Purnea 25.41 2.22 0.19 0.017 0.014 5 Madhubani 35.7 3.12 0.27 0.024 0.02 6 Muzaffarpur 37.44 3.27 0.28 0.025 0.021

Sub Total Focus Districts 169.64 14.81 1.28 0.114 0.095

TOTAL OF BIHAR 828.78 72.33 6.25 0.55 0.468

Projection from NABARD Focus Paper 2007-08 It is estimated that presently out of all loans being provided in the state by all formal sources SHG- Bank linkage loan contribute only 2.5% and of all priority sector loans the contribution of SHG-Bank linkage is about 6%. Even with the current year projection through the SHG bank linkage programme banks will be able to contribute 10% of the priority sector lending through this route. Hence there is a need to explore various other channels of lending along with the SHG route like lending through JLG, Grameen, ASA, Federation etc.

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CHAPTER-4: THE SUPPLY SIDE ISSUES OF MF Having presented the review of literature, the status of the banking and MF sector as a whole, demand of financial services at the house hold level we will now look at the supply side issues which are affecting the supply of MF services in the state. In this section we will deal will the various constraints and risk these agencies face at all levels, and their future plan and strategy to meet the

The issues of Commercial Banks, RRBs and Cooperative Banks: As it has been seen that despite CB, RRBs and Cooperative banks have a large share of their network in rural areas and it is not able to serve to a large section of the rural poor in the state. The financial and operational performance of these banks lags way behind other states. Despite of its poor performance, banks are still the largest (can say the only) source of formal credit in rural Bihar. The other source of formal credit is rather limited in the state. This makes it even more important to see how can the banks perform and at least reach to the level of other states. Hence it is important to understand their The prudential norm evolved special responsibility on Bankers to ensure timely recovery of interest and principal from borrowers and also see to it that security realisable value should remain in-tack. The aforesaid situation had made bankers over conscious, fearful for recovery particularly while lending to individual poor or the SHGs. Bankers have the following risk perception and constraints in offering micro credit in rural areas, which arises from the following facts:

• The poor recovery percentage by most banks and large number of pending certificate cases in rural Bihar has shattered the confidence of the bankers to lend both in rural areas and to the poor. They do not realize how non-repayment will affect the credit lending institutions as well as his prospect of borrowing in future.

• The rural poor lack proper training on any system of accounting to assess the

return from investment and there by practice of parking a portion of incremental income for repayment is not followed and hence they are not being able to pay their instalments on time.

• The people in rural Bihar due to low literacy level and exposure have no

experience of assets management and cash management and often the loan is not properly utilized (which is also due to lack of enough livelihood opportunity in rural areas) and neither proper assets are created nor properly maintained hence out of investment expected income generation does not take place.

117

• The bankers provide loan for only single activity underlying the fact that rural livelihoods are diversified and hence loan facility availed by the poor in any one activity alone does not create enough surplus for repayment.

• As most( 43% ) of the rural poor are below the poverty line and are always

struggling to meet their both ends meet , any surplus income coming from income is being utilised for some other HH purpose due to the lack of proper follow up by the bankers and hence default happens.

• Rural poor clients generally have borrowing from friends, relations and moneylenders. At the time of borrowing the aforesaid borrowing are not disclosed but their repayment got first priority at cost of banks repayment.

• Poor people as we have seen earlier face multiple risk like flood, drought, theft,

death, illness of family members but there is no effective system of risk mitigation nor risk management is available in rural areas. Settlement of insurance claim is difficult hence under such circumstance default in repayment is usual phenomenon.

• Govt. extension services and other service line are not providing supporting

services or imparting technical know how for proper income generation. • Poor backward and forward linkage for any livelihood activity is lacking in the

state and hence the returns in any activity is not sufficient to repay the principal as well as the interest of the loan amount, and when there s no proper follow up by bankers is being made.

• The banks on rural areas also face severe shortage of manpower, as it has been

stated that more then 800 branches are manned by one staff, so it is impossible for him/her to manage both the back office, mobilise deposits and provide credit. And if credit is demanded, do to the fear that he/she will not be able to follow up the same they deny giving loans, unless it is mandatory and safe.

• Service area plan is not prepared based on the feedback and involvement of the

rural banks and no proper survey of the villages done for identification economic activities feasible in the area. So due to the top down approach of target, bank managers do not take much interest on lending.

The other areas of concern for Banks to scale up its priority sector lending are:

• Weak financial health of cooperatives not allowing them to utilise its huge network in rural areas

o There are approximately 5341 PACS in the State of which only 1330 were identified as potentially viable.

o Non availability of paid manager in each society is the major problem in PACS. As gathered from RCS, GoB, only 1200 paid managers were posted in the PACS.

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o Audit of PACS is in huge arrears. Upto 2004, only 2171 PACS were audited.

o 4009 PACS are in loss as on 31.03.2004. o Societies suffer from huge imbalances. o The PACS at ground level face the problems of low recoveries and high

over dues. None of the PACS has prepared DAP and entered into MoU with the DCCBs.

• Commercial Banks are offering KCC coverage mostly to farmers owning large and medium holdings. NAIS & PAIS though mandatory are not implemented in totality by several banks in the state.

• Individual Maximum borrowing power fixed by RCS is only Rs. 50000/-. For cooperative Banks Individual Maximum Borrowing Power fixed by RCS is only Rs. 25000/-.

• Active participation of State Govt. machinery is not received for various political reasons for improvement in recovery.

• Land records are not available to the farmers easily or in time. • Quality fertilizers and seeds in required quantity, agro clinical support and proper

marketing linkages at the district level at present are not available to the farmers.

Plans and target for Bihar:

• Projected credit flow of Rs.10, 000 crore under the Annual Credit Plan 2006-07 to be fully achieved. Every branch of commercial bank and RRB should achieve their targets in full.

• The targets under KCC should be reviewed and reallocated among commercial banks and RRBs.

• Zonal/Regional heads of Banks were advised to visit at least 20 branches each month with focus on reviewing credit dispensation.

• SME credit should grow by 20% every year in true value. • Cluster approach to be adopted for accelerating flow of credit in sectors viz.

Weaving, Handicrafts, Fisheries, Food processing, Dairy Development, Ready-made garments.

• Cooperative bank’s net worth to be made positive to enable them to get assistance from NABARD.

• State Government should avail/utilize RIDF for development of rural infrastructure and watershed development schemes.

• RUDSETI type training institute to be opened. • State Government to ensure sponsoring 2.61 lakh loan applications of eligible

farmers through land possession and no dues certificate for achieving 100% target under MSTP.

• State Government to work out a compensation scheme for failed tube wells. • 36000 SHGs to be credit linked during the current financial year. • State Government to support banks in reducing NPA level from the current 18%

to the national average level of less than 5%.

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Possible steps to be taken up in the state to scale up rural credit in the state:

• Commercial Banks and RRBs have to takeover financing in the districts where DCCBs are weak.

• SCB has to open 3 branches immediately for which permission has been granted by the RBI in the areas where the DCCBs have been rejected license by RBI.

• Commercial Banks have to expand KCC coverage to Small and Marginal Farmers, tenant farmers and oral lessees also.

• To recommend the state government may increase IMBP (Individual Maximum Borrowing Power) to Rs. 1 lakh for lending by Cooperative banks.

• To recommend state government to devise effective instruments for helping the banks in recovery of loans and dispose of the pending certificate cases.

• State Government need to strengthen the agri extension mechanism in order to increase agriculture productivity.

• State Government may undertake steps for computerization of land records so that timely availability of land Possession certificate (LPCs) to the farmers is ensured.

• State Government may ensure supply of good quality fertilizer and seeds in adequate quantities.

• Adequate arrangement may have to be made by the state government at several outlets for the procurement of food crops by FCI/SWC.

• Banks may need encourage providing flexible cost effective and easy credit facilities to rural households under “a family centric approach”. The loan size may be determined by the financing bank based upon the comprehensive credit needs of the family members (working capital, investment capital, consumption etc.) based on the cash flow per family from all sources.

Some other suggestions and actions points based on similar lines of Dr YSP Throat, to upscale priority sector and weaker section loans in the state are:

• Banks in the State to adopt SHG-Bank Linkage approach for increasing their

credit outreach for this a Strategy may be formulated for promotion of 5.27 lakh additional SHGs in the State. State Government may identify appropriate agencies / NGOs to act as SHPIs. State Government may constitute a working group comprising NABARD, RBI, State Government and banks to evolve a strategy for up scaling SHG Bank Linkage Programme. The state should take help of suitable consultant for propelling SHG movement in the state.

• Credit linking of the remaining unlinked SHGs to be undertaken on priority basis and monitored by the SLBC and Controlling offices. 68000 SHGs are yet to be credit linked. These groups may be identified and credit linked.

• SLBC to focus on issues pertaining to financial exclusion. • NABARD to provide technical support to banks for diversified financing. Banks

should balance their loan portfolio by supporting diversified farm and non-farm activities and production and investment credit. Banks need to step up their efforts to promote rural non-farm sector in the state. State Government to provide

120

necessary support. A comprehensive strategy for RNFS development should also be prepared.

• RD and NABARD to support capacity building of NGOs in the state. • Greater support from NABARD for capacity building of RRB staff in view of

amalgamation and likely diversification of business. • Acceptance of terms and conditions for release of financial assistance under

Cooperative Revival Package as per the suggestions of the Vaidhyanathan committee will give a new boost to the rural financial sector.

The following Policy initiatives of Government of Bihar will also give a boost to the priority sector lending in the state: • Repeal of Agriculture Produce Marketing Act The State Government has repealed the Agriculture Produce Marketing Act. This will pave the way for contract farming and entry of corporate for large scale procurement of agriculture produce. Agro-processing sector will also get a boost. • Stamp Duty Exemption Department of Registration, Government of Bihar has exempted mortgage instruments executed in favour of banks for all types of agricultural loans upto Rs.5 lakh from the purview of stamp duty. The agreement deeds executed by members of Self Help Groups have also been extended stamp duty exemption. • Bihar Fish Jalkar Management Act 2006 – Leasing Period for fisheries ponds The State Government has decided to give ponds under Fisheries Department GoB for lease periods of 5-10 years. This will provide incentive for the leaseholder to invest in long term development of the pond and adopt scientific fish farming. A new act has also been passed where the SHG can also take lease of ponds. • Bihar Industrial Incentive Policy 2006 The policy contains provisions for granting pre-production incentive of subsidy/exemption from stamp duty and registration fee and post production incentive of grant/exemption for preparation of project reports, purchase of land/shed, technical know-how and captive power generation/diesel generating set. Quality certificate, Vat, luxury tax etc. Bihar Single Window Clearance Act 2006 has also been enacted for speedy clearance of proposals for setting up industries. Risk perception and plans of the private sector banks: Presently only three private sector banks are in the process of taking some initiatives for MF and priority sector lending: They are ICICI, HDFC and UTI. All are looking at the market of Bihar with lots of suspicion and are yet to put their stake directly.

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The following are some of the common perceived risk of lending in rural Bihar:

♦ Poor recovery rates of public sector banks and the attitude of the people for non repayment of loans. Their experience in Jharkhand and bordering areas of Bihar shows a high delinquency rate of 6-7%.

♦ Law and order situation and political connections of the people in rural areas is also perceived as a risk for non repayment.

♦ Recent guidelines of RBI for recovery of MF loans. ♦ Lesser avenues for lending in rural areas other then agriculture. Low credit

absorption capacity. ♦ Lack of many reliable and business oriented entrepreneurs. ♦ Low capacity of NGOs to become MFI and lack of many reliable NGOs. ♦ Poor infrastructure and IT interventions in Bihar.

(b) Alternative Micro finance Institutions-issues and scope As has been seen in progressive states like AP and nationally like in Bangladesh, MFI like Grameen bank, ASA has changed the whole economy of the state. In Bihar also we can see almost all models being tried out sporadically, but the impact is so limited to get any attention from the bankers and the customers. As the whole concept of MFI is new in the state (except for CHASPOR) who is working here in four districts for the last 5 -6 years with a total portfolio of around 20 crores no other MFI had built a strong portfolio in Bihar. SKS is the only other MFI (in real terms) that has started its operation in few districts of Bihar. Other NGO-MFI like NIDAN and NBJK is also trying to build some MF portfolio but is limited to the urban slums. Given this situation, MFIs in Bihar has to go a long way ahead to make its presence felt and again importance. Presently the MFIs face and perceive the following constraints and challenges in Bihar:

♦ Awareness about micro finance is low in the state. Objective of mF is neither understood by the banks, MFIs nor by the people. There is no coordination among Banks, MFIs, PRIs, Block officials.

♦ Low sensitisation of bankers about MFI, they only know about the SHG –bank linkage model and rest others are not seen as some thing acceptable to them

♦ MFI face unforeseen problems like eviction. ♦ Group leader’s roles have not been very encouraging due to poor political

environment in rural areas. ♦ Lack of enough livelihood opportunities and diversified livelihood in rural Bihar

affects regular cash flow of borrowers making it difficult for conventional MFIs to work in Bihar.

♦ Low NFS activity in rural Bihar makes some of the MF models non viable. ♦ There is a huge competition for resources and so chances of wrong selection are

high. ♦ Individualism and the tendency to sacrifice collective interest is found common in

Bihar

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♦ Tendency to take loans despite not actually needing the money, as if loans are to be taken as their right and non repayment is a pride.

♦ Diversion of resources by the poor also creates problems in getting timely recovery

♦ Late repayment is not perceived as a mistake thus members do not consider it a problem till they are repaying the money, albeit not on agreed terms.

♦ High turn over of staff /and non availability of high quality human resources affects the program.

♦ Increasing number of frauds as is seen in the case of CASHPOR ♦ Issue over higher interest rate charged compared to the banking sector. ♦ No government support/incentives available to promote more MFIs in the state. ♦ Fraudulent activity by many NBFC and recent past makes people suspicious. ♦ Lack of knowledge of Bihar’s economy and hence lack of suitably designed

products.

MFI-PLANs Ahead On discussion with the various MFIs presently operating in Bihar, though on a small scale, we got the following perceptions and their future plans for up scaling MF work in Bihar. SKS: Its business expansion in Bihar has registered a growth rate of approx 300% in the third quarter of this financial year. The portfolios at Hazipur and Bhagalpur have gained good momentum in terms of business growth, client outreach and total lending. The lead manager” Mr. Vijay Kumar” is very optimistic about the growth trend, and confident of successfully creating a client base of 20,000 customers by June 2007. He informed that SKS works on saturation principle; and they have strategically devised mechanisms to successfully enter in all the sub divisions of Bihar in next three years. BASIX: BASIX, a new generation livelihood promotion organisation often confused as a MFI has just recently started its office in Patna and will focus on its livelihood triad strategy. BASIX believes that poor need various other services along with financial services and BASIX will do a large no of innovations and action research for both financial and non financial services in Bihar , which can be replicated by various agencies . BASIX also plans to provide capacity building training and handholding to local NGOs and upcoming MFs to scale up their MF programme. BASIX plans to go for wholesale lending through NGO-MFI in Bihar. BASIX will also do some pilot retail lending for its own learning. BASIX also wishes to provide consultancy services and undertake pilot action research for the GOB, NABARD and the MF and livelihood sector for better implementation of the available schemes.

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BASIX also plans to form a livelihood enhancement forum in the state which will help all stakeholders engaged in MF and livelihood promotion work. CASHPOR: CASHPOR is working in the 4 districts of Bihar and has built a good portfolio. In the recent years with its growing portfolio and bank accounts it is facing issues of fraud and default. It wants to grow slow in the next few years. NBJK: Works only in the slums of Patna, forms SHGs and provide Micro credit support to them. It has no future plan for expansion in rural Bihar at least for a couple of years. NIDAN: NIDAN wants to grow its micro finance programme to other districts of Bihar besides the five it is already working. NIDAN feels that it is only this programme that has not grown as per his expectations. It was due to lack of enough loan fund availability. Now that private banks have come , the problem of loan fund is over, but it still feels that it will need some grant support up to the tune of 6-7 lakhs /year for opening of each unit till it breakevens. Some more fund support for capacity building, training and exposure will be required. It has plans to expand its insurance business and reach more then 40 thousands customers in this year itself. NGO –MFI – Issues which has effected the growth of and their potential: The following issues were identified in the course of Joint initial assessment of the 12 NGO MFI studied during the course of our field study. We have given more focus on this as there is a huge potentiality of these NGOs to be converted as NGO-MFI or can become CB-MFI .Given below is some broad learning from the study, an understanding of which will help us analyze the issues in a clearer light. o Macro environment in the State NGOs in Bihar are just beginning to understand the overarching objectives of micro finance. Most of the organizations have undertaken SHG promotion / micro finance as a sub set intervention of a larger project like Swa Shakti, Swayamsidha, Swayam Swablambhan and Deep for Women Empowerment under Women Development Corporation, Mahila Samakhya, and Poorest Area Civil Society Program etc. This has resulted in low prioritization being given to the micro finance program in the respective organizations.

o Lack of conceptual clarity in Micro-finance Barring a few organizations, almost all the organizations exhibit in varying degrees of lack of conceptual clarity on micro finance and its potential to achieve far-reaching impact on the livelihoods of the rural poor. There is a limited worldview on the need for sustainable micro finance. This leads to treatment of the micro finance program merely as ‘one more program’ and the restricted human resource and time allocations made on that basis.

o Lack of clarity on legal issues/ options available for scaling up There is a singular lack of clarity on the best/ most suitable course of action that NGOs must adopt in order to catapult the SHG/ micro finance program into a sustainable one.

124

This includes legal forms available and suitable, nature, tiers and form of federation, services that can be offered etc.

o Fund constraints Funds are available for promotion from different sources, including Government and non-government sources, though accessibility to these sources is an issue. But funds for continuous program support, up scaling and capacity building are not widely available. The organizations do not have funds for meeting expenses on exposure visits, expansion, management and monitoring of SHGs in their areas. These activities are very important for them to reach a reasonable scale of operations for viability and profitability. This lack of sufficient resources- human and funds to invest in a proper capacity building program has proved to be a serious hindrance to the micro finance program. o Linkages with mainstream Financial Institutions As most of the NGOs have a background of social development coupled with activism (in certain cases) it is difficult for them to assimilate and exhibit the ‘commercial’ orientation necessary to build sustainable micro finance programs. As a result, their understanding of the issues involved in negotiating linkages with the financial institutions leaves much to be desired.

Consequently all of above have led to less concentration on the micro finance program as such, leading to utilization of inappropriately skilled staff, small-scale operations, poor quality MIS, complacency in the matters of portfolio quality, lack of financial control systems and poor governance.

There are also some specific Issues among the different categories of NGOs: Organizations falling under different categories have their own specific issues. The issues depend on the way the organization is working, its manpower or strategies, which it has been following for a particular intervention.

Categories Issues

A • Mobilization of grants for meeting the deficits of micro finance program.

• Fund raising strategy for loans. • Up-scaling. • Lack of orientation on advanced financial management and business

planning. B • Unstructured HR and operation system.

• Lack of support fund for micro finance program implementation. • Not clear on legal issues • Unable to track portfolio/ business with existing MIS system.

C • Lack of economic orientation in SHGs. • No operation system for micro finance in place • Lacks professional and qualified HR • Need of larger fund for long-term programs

125

D • Low number of groups/clients • Lack of quality groups. • Lack of understanding of concept of SHG • Lack of qualified and professional staff • Unable to raise funds for program development and expansion

Given the situation that there is no NGO ready to act as a financial intermediary for banks or other FIs, there is a need for investment on building awareness about MF among the NGOs in particular and the state in general through exposure visits, capacity building among others. The MF availability of poor can only be achieved in Bihar with the help of a large no of NGOs already present in the state. The detailed suggestions and recommendation for incubating NGOs as potential MFI is given in next chapter.

Issues in Micro Insurance: Perception of suppliers that vulnerable poor cannot be included in their scheme of business because of the following factors.

• High Risk Profile • High moral hazard • High claim ratio • Low premium paying capacity • High operating cost • Limited bandwidth of their product • Social and rural obligation should be the concern area of government and

essentially should be subsidy based. • Rural poor have their own risk retention mechanism so not within the ambit of

suppliers. • Problem of creating a new distribution channel • Complex procedures in terms of selection of risk pool. • Technical issues like proof in terms of age, illness, identification etc.. • Calculation of premium and underwriting is still not shared with the clients.The

concept of possible maximum risk is not shared and hence underwriting still remains an unknown area.

• High profit motive

System and process issues in Micro insurance

• Micro insurance propagation needs behavior change through education of the user group

• Knowledge and success of micro insurance or risk pooling heavily depend on training and capacity building of the member propagating it

• Claim settlement process should be easy and less time-taking and above all should be provided at the claimant's doorstep

• Role of service provider in case of micro insurance is really very crucial • Positioning of micro insurance product as a composite of life and non-life is

another gray area to be taken up very earnestly

126

Remittances: As micro remittance is a totally a new concept and not much work has been done notionally and internationally there is a no issue expect for proper product design and experimentation.

127

THE SHG STUDY IN BIHAR SHG is seen as the key vehicle of development in India. SHGs are formed both for the

purpose of financial intermediation as well as to achieve various other project objectives

like livelihoods, social mobilisation, gender , education and so on . BRLPS also wishes to

adopt SHG as the key vehicle of its developmental programmes and wishes to adopt a

saturation model in Bihar. In this section we have assessed the SHG with the key focus of

their strengths and weakness for undertaking mf and other economic activity.

In order to reach the objective of the study, a plan was made to assess 1200 Self Help

Groups spread over 6 districts, 31 blocks and 531 villages with a total membership of

14,679. This was done to have a clearer picture of SHGs and their bank linkage status in

the state of Bihar. This would also help to have an overall understanding of the capacity

building needs of SHGs for making them financially sustainable and to prepare the action

plan for BRLP.

The criteria for sampling were as follows:

Cover at least 2% of the SHGs or 200 SHGs (which ever is more) in the selected

districts.

SHGs to be selected from top five running projects including government

Project promoted SHGs in the selected district

The following table gives a clear understanding regarding the study districts, number of

blocks, villages and SHGs studied in each district along with total number of members in

the studied groups in the respective districts.

Table: 3 SHGs Surveyed under different Districts in Bihar

Sl.No

Name of the District (s)

No. of Blocks

No. of Vil lages

No. of SHGs

Total Number of members in the surveyed groups

1 Nalanda 4 110 200 2178

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2 Gaya 7 104 200 2769

3 Muzaffarpur 4 63 200 2143

4 Madhubani 4 73 200 2320

5 Purnia 6 67 200 2607

6 Khagaria 6 96 200 2675

Total 31 513 1200 14679

Source: Compi led by the Study team of BASIX through extens ive survey

As the below table shows the study was confined to the SHGs promoted by the government and non-government agencies under different programmes. Among the government promoting agencies those were studies are SGSY, WDC and PACS. Other SHGs were also studies which were promoted by different NGOs and RGVN. Out of the 1200 SHGs studies 40 percent SHGs are promoted under SGSY programme, 26 percent SHGs were studied under WDC programmes, 11 percent SHGs under PACS programme, 21 percent SHGs promoted by the NGOs in different districts and 2 percent SHGs promoted by RGVN. The geographical distribution of SHGs also varies from agency to agency. SGSY, WDC and NGO promoted groups were studied across the districts. Table: 4 SHGs Surveyed under different Programmes

Name of the District (s) Groups studies under different Programmes

Nal

anda

Gay

a

Muz

affa

rpur

Mad

huba

ni

Purn

ia

Kha

garia

Total groups studied under different programmes

SGSY 80 80 80 80 80 80 480 (40 %)

WDC 30 35 80 30 75 64 314 (26 %)

PACS 25 30 0 60 0 20 135 (11 %)

NGO 45 55 40 30 45 36 251 (21 %)

RGVN 20 0 0 0 0 0 20 (2 %)

Total 200 200 200 200 200 200 1200 (100 %)

129

Source: Compi led by the Study team of BASIX through extens ive survey

During the course of the study, attention was given to study the SHGs according to their age of formation. From the total number of SHGs 15 percent SHGs studied, which were formed within one year, 38 percent SHGs formed and existed within two years where as the 47 percent SHGs existed for more than two years. The following table gives a detail idea regarding the distribution of these three categories of SHGs studied in different districts.

Table: 5

Duration of Existence of SHGs under study

Source: Compi led by the Study team of BASIX through extens ive survey

Bank Accounts of SHGs Out of the total 1200, SHGs studied 887 SHGs i.e. 74 percent of the SHGs have accounts in different banks. Only 26 percent SHGs have not yet opened bank accounts. Majority of SHGs have accounts in the RRBs followed with PNB and SBI. From the data, it can be inferred that the RRBs are most approachable to the rural areas followed with PNB and SBI respectively. The reasons for not opening bank accounts by the groups may be due to less time span of formation of groups, which are promoted within one year, or lack of accessibility to the branches in some areas. Less than 50 percent groups in Madhubani have bank accounts as more almost 50 percent groups studied are within one year. The table given below gives a lucid picture of the SHGs having bank accounts in different bank branches.

Sl. No

Name of the districts

No. of SHGs Groups formed within 1 year

Groups formed within 2 years

Groups formed Above 2 years

1 Nalanda 200 59 71 70

2 Gaya 200 8 51 141

3 Muzaffarpur 200 6 32 162

4 Madhubani 200 84 94 22

5 Purnia 200 20 115 65

6 Khagaria 200 4 90 106

Total 1200 181 453 566

Percentage 100 15 38 47

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Table: 6 SHGs having bank accounts in different bank branches

SHGs having bank accounts with different banks in the survey districts Name of

the Banks

Nalanda Gaya Muzaffarpur

Madhubani Purnia Khagaria

PNB 86 42 63 0 9 0 RRB 54 137 24 57 50 118

Central Bank of

India

0 1 8 0 1 0

Bank of India

0 15 0 0 0 0

State Bank of

India

0 5 15 31 97 18

UBI 0 0 19 0 0 0 Indian Bank

0 0 7 0 0 0

ADB 0 0 0 0 6 0 UCO Bank

0 0 0 0 7 0

BoB 0 0 0 0 0 5 UBI 0 0 0 0 0 12 No.

Linkage 60 0 64 112 30 47

Total 200 200 200 200 200 200 % of

groups having bank

accounts

70 % 100 % 68 % 44 % 85 % 76 %

Source: Compi led by the Study team of BASIX through extens ive survey

GROUP COMPOSITION & MEMBERSHIP PATTERN

In any group activity, the composition and membership pattern are very important for the

successful operation of the group. In case of the SHGs, there are certain principles and

features, which are vital for the successful operation. One of the vital criteria for a group

is the membership of the group. However, it varies from one group to another depending

upon the ground situation in the villages and other local factors. The viability of a SHG

very much depends on the memberships. The groups having very less members or exact

number of members are considered as less viable or high-risk groups. In these groups if a

131

single member leaves the group due to any reason the group loose its acceptability to

obtain any outside support.

Table: 7

Group Composition and Membership Patterns

Group Composition Name of the districts

< 10

10-1

2

13-1

5

16-2

0

Number of groups

Total no of female members

Total no. of Male members

Total no of members

Nalanda 7 178 14 1 200 1817 361 2178

Gaya 0 71 92 37 200 2739 30 2769

Muzaffarpur 0 187 12 1 200 2143 0 2143

Madhubani 2 159 31 8 200 2316 4 2320

Purnia 0 113 70 17 200 2607 0 2607

Khagaria 0 77 101 22 200 2614 61 2675

Total 9 785 320 86 1200 14236 456 14692

% 0.75 65.25 26.5 7.5

100 % 97 % 3 % 100 %

Source: Compi led by the Study team of BASIX through extens ive survey

As the above table shows out of the 1200 groups studied less than one percent of the

SHGs studied have less than 10 members, which is an insignificant number. The average

membership number of the surveyed SHGs was 12.24. The analysis of distribution of

membership showed that majority of the SHGs (65%) were found to have memberships

between 10-12 members, 26 percent of SHGs have memberships between 13 – 15 percent

and 7.5 percent SHGs have memberships between 16 – 20 members.

From the discussion with the group members during the course of the study, it was

noticed that these groups are mainly promoted under various government schemes to

fulfil the target of SHG promotion, particularly those SHGs with membership between

10-12. These groups were formed without following SHG principle and there exist a

possibility of disintegration of the groups when benefits from program cease to come.

Such a phenomenon perhaps would give a wrong signal to the overall environment of

SHG program in the state in particular and micro-finance in general.

132

Further, it has been found that 97 percent of the totals were women SHG and the rest

were male SHGs No mixed group was observed during the survey. From this it is evident

that the SHG movement has created a platform for poor rural women to jointly come

together for mutual benefit and support at times of need, which is a favourable sign. Frequency Of Saving The frequency of savings plays a vital role in resource mobilisation to the group and

enhances savings habit of group members. The study reveals the fact that almost all the

groups i.e. 96 percent of the total groups studied conduct savings on a monthly basis.

Where as only 3 percent of the groups conduct savings on weekly basis and as less as

only 1 percent of SHGs save occasionally.

Table: 8

Frequency of Savings by SHGs under study District (s) Frequency

of Saving Nalanda Gaya Muzaffar

pur Madhubani Purnia Khagari

a

Total %

Weekly 37 0 0 0 0 0 37 3 Monthly 155 200 200 200 200 200 1155 96

Occasional 8 0 0 0 0 0 8 1

Total 200 200 200 200 200 200 1200 100

Source: Compi led by the Study team of BASIX through extens ive survey

Degree of homogeneity: An attempt has been made during the course of the study to find out the degree to which the SHGs are homogeneous. For this purpose, a scale was used to find out exactly to what extent the SHGs are homogeneous. The criteria used for the scale was whether the SHGs are very strong, moderate or poor homogeneity based on caste, education, occupation and income level.

133

Table: 9 Degree of Homogeneity of the SHGs

Source: Compi led by the Study team of BASIX through extens ive survey

As the above table, shows only 40 percent of the SHGs are considered as very strong homogeneous groups based on the above criteria’s. Another 45 percent of the groups are also moderately homogeneous. Similarly, the homogeneity level is disappointing for 15 percent of the groups those were studied. An interesting aspect of the study regarding the level of homogeneity is that most of the SHGs are promoted under different programmes and NGOs belong to BPL members. However, in case of some of the SHGs promoted under SGSY programme have members from the BPL and APL in the same group. These groups have been formed to avail the credit facility under SGSY programme.

GOVERNANCE AND MANAGEMENT

The governance and management of the groups those were studied is given in the following table. Awareness of group members on group activities is essential for effective functioning and sustainability of the groups. Correct information regarding group activities also facilitates to take efficient decisions in groups. Apart from thrift and credit, groups have diverse roles to play on socio-economic development of the villages in general and of the members in particular. The group members belong to the same village and same locality. Thus, the degree of awareness about objectives of Self Help Group programme should be high. The awareness about objectives of Self Help Group programme is 41 percent, which is considered as low level of awareness of the group members on the objective of the SHG programme. It means that the promoting authorities may not have spent much time on the benefits that flows from being a member and creation of an institution at village level.

Awareness about rules and regulations is 34 percent, which is further low. This generally comes from the adherence to group processes and how much it has been imbibed by the

Districts Degree of Homogeneity

of SHGs Nalanda Gaya Muzaffarpur Madhubani Purnia Khagaria

Total %

Very Strong 79 91 79 71 103 52 475 40 Moderate 91 96 83 76 85 114 545 45 poor (no

homogeneity) 30 13 38 53 12 34 180 15

Total 200 200

200 200 200 200 1200 100

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groups. The figures indicate that thrust on the group processes were minimal resulting in poor knowledge of the members on the functioning of the group. Only 23 percent of the groups are familiar with leader’s responsibility. This also reflects the poor processes undertaken for group formation and possibly dominance of the groups by a few members. This negates the principles and often harmful to the long-term interest of the group cohesiveness. Similarly, only 14 percent of the groups have idea regarding member wise savings and loan position. The prima facie reason for them together is to inculcate in them role of savings and credit through group methodology and reap benefits from the same. However, the members were not even aware of their personal savings, let alone the group’s savings and credit portfolio. It reflects low awareness among members about financial transactions, possibly due to poor process implementation such as discussion and ratification by the group on cash and bank savings, inter-loaning, repayment, etc. The specific interest of the groups is to obtain programme funds through a minimum period of savings (6 months) and thus vitiating the principles of SHG formation and its development From the following table it is evident that neither the promoting agencies nor the group members are serious about governance and management of the SHGs. If this kind of situation continues the SHGs can survive until the promoting agencies continue their support. Seeing the condition of governance and management of all the SHGs it is obvious that none of the groups is graduated groups. The fact is that in some cases the promoters of the groups maintains all the records, registers, and work on behalf of the group. Hence, in case of withdrawal of support of the promoting agencies none of the groups can function independently. The level of self-reliance of the groups is at a low key. In this case it is very important on the part of the promoting agencies is to do the visioning exercises for the SHGs and take up rigorous group building and capacity building exercises.

Table: 10

Governance & management of SHGs

Indicators Sl.No. Criteria

Nal

anda

Gay

a

Muz

affa

rpur

Mad

huba

ni

Purn

ia

Kha

gari

a

Tot

al

A Awareness about objectives of Self Help Group Programme

19

(9.5%)

87

(44%)

94

(47%)

79

(38%)

112

(56%)

101

(50%)

492

(41%)

B Awareness about rules and regulations of group 149 35 34 37 68 87 410

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Source: Compi led by the Study team of BASIX through extens ive survey Meeting and Attendance for Group Cohesiveness

During the study, it was found that only 22 percent of the SHGs were meeting on fixed date, time and place. In 34 percent SHGs meetings are held regularly once a month at the convenience of all the members. In 44 percent of the SHGs the meetings are irregular. Thus the cohesiveness among the members that develops through such regular meetings seems to be absent in most of the surveyed groups. Further, it was observed that the SHGs in Gaya, Muzaffarpur and Nalanda are more regular in conducting meetings than the SHGs studied in other districts. At the same time, more number of SHGs in Muzaffarpur, Madhubani and Khagaria are irregular in conducting meetings. An interesting fact is that in Muzaffarpur almost 30 percent SHGs conduct meeting regularly where as about more than 46.5 percent of SHGs are irregular in conducting meetings. The following table gives an overview of the frequency of group meetings of SHGs in different districts. Table: 11 Frequency of Group Meetings

No. of Groups

Sl.No.

Frequency

Nal

anda

Gay

a

Muz

affa

rpur

Mad

huba

ni

Purn

ia

Kha

gari

a

Total

(%)

1. Regular Meetings are held on fixed date, time and place

35

(17.5%)

69

(34.5%)

60

(30%)

27

(13.5%)

44

(22%)

26

(13%)

261

(22%)

2. Meetings are held regularly once a month but at the convenience of all members

62

(31%)

69

(34.5%)

47

(23.5%)

60

(30%)

95

(47.5%)

75

(37.5%)

408

(34%)

3. Meetings are irregular 103

(51.5%)

62

(31%)

93

(46.5%)

113

(56.5%)

61

(30.5%)

99

(49.5%)

531

(44%)

functioning

(74.5%) (17.5%) (17%) (18.5%) (34%) (43.5%) (34%)

C Leader responsibility sharing by group members

66

(33%)

45

(22.5%)

23

(11.5%)

22

(11%)

54

(27%)

73

(36.5%)

283

(23%)

D Awareness about member-wise savings and loan position

51

(25.5%)

11

(5.5%)

11

(5.5%)

21

(10.5%)

26

(13%)

56

(23%)

176

(14%)

136

Total 200

(100%)

200

(100%)

200

(100%)

200

(100%)

200

(100%)

200

(100%)

1200

(100%)

Source: Compi led by the Study team of BASIX through extens ive survey

Through this survey, an attempt has been made to know the members attendance in-group

meetings. It was found that only in 21 percent SHG the members have more than 90

percent attendance in meetings. Where as 43 percent SHG members have 70 – 90 percent

attendance and 30 percent of SHG members have 50 – 70 percent attendance in meetings.

From among the total 1200 SHGs studied 6 percent i.e. 71 SHG members have an

attendance rate in meetings below 50 percent. The below mentioned table explains about

the frequency of attendance of SHG members in different districts.

Table: 12 Attendance in Meetings

No. of Groups

Sl.No.

Frequency

Nal

anda

Gay

a

Muz

afar

pur

Mad

huba

ni

Purn

ia

Kha

gari

a

Total

(%)

1. >90 % 28

(14%)

61

(30.5%)

49

(24%)

33

(16.5%)

29

(14.5%)

48

(24%)

248

(21%)

2. 70 – 90 % 93

(46.5%)

101

(50.5%)

56

(28%)

80

(40%)

114

(57%)

74

(37%)

518

(43%)

3. 50 – 70 % 73

(36.5%)

33

(16.5%)

82

(41%)

56

(28%)

57

(28.5%)

62

(31%)

363

(30%)

4. < 50 % 6

(3%)

5

(2.5%)

13

(6.5%)

31

(15.5%)

0

(0%)

16

(8%)

71

(6%)

Total 200

(100%)

200

(100%)

200

(100%)

200

(100%)

200

(100%)

200

(100%)

1200

(100%)

Source: Compi led by the Study team of BASIX through extens ive survey

137

Financial Transactions in the Group

The present study revealed that only in 30 percent SHGs the financial decisions are made

in-group meetings. Where as in 31 percent groups all financial decisions are made in

meeting but loans are disbursed outside the meeting and in 30 percent of SHGs fund

collections are made outside meeting but loan decisions are taken during the meeting. In

rest 9 percent groups, both fund collections and financial decisions are taken outside the

meeting.

The study revealed the fact that only in 30 percent SHGs maintains transparency in

financial transactions. The rest 70 percent SHGs do not have transparency in financial

transactions. As a result most of the group members lack knowledge about their own

savings, group fund, amount inter lent to group members, fund availability with the

group, interest earned and fund availed from outside. As most of the groups do not

maintain transparency, there exists fear of mismanagement and misappropriation of

group fund by a few members of the group. Table 13 gives an overall view of the level of

financial transactions in SHGs of different districts.

Table: 13 Financial transactions in the group

Financial transactions in Groups in %

Total

(%)

Sl.No.

Method of decision making

Nal

anda

Gay

a

Muz

afar

pur

Mad

huba

ni

Purn

ia

Kha

gari

a

1. All financial decisions are made in meeting only

30.5% 46% 32.5% 7.5% 36.5% 25% 30%

2. All financial decisions are made in meeting but loans are disbursed outside

8% 34.5% 12% 42.5% 42% 47.5% 31%

3. Fund collections are made outside meeting but loan decisions are taken during

53% 16.5% 45% 22% 21% 24.5% 30%

138

the meeting

4. Both fund collections and financial decisions are taken outside the meeting

8.5% 3% 10.5% 28% 0.5% 3% 9%

Total 100% 100% 100% 100% 100% 100% 100%

Source: Compi led by the Study team of BASIX through extens ive survey

The data on member’s awareness about financial transaction by the SHGs presents a

gloomy picture. From the total number of 1200 SHGs studied only in 23 percent SHGs

all members are aware about all the financial transaction made by the group. In 30

percent of the groups, more than 75 percent members are aware about group finances. In

as much as 37 percent SHGs, only a few members are aware about group finances and in

6 percent groups, none of the members are aware about the group finances. Table 14

gives a detailed picture on members awareness about financial transactions in SHGs

studied in different districts.

Table: 14 Member’s awareness about financial transactions

Members awareness on groups finances

Total

(%)

Sl.No.

Level of member’s awareness

Nal

anda

Gay

a

Muz

afar

pur

Mad

huba

ni

Purn

ia

Kha

gari

a

1. All members are aware about all financial transactions

26.5% 38% 31.5% 15.5% 14.5% 10.5% 23%

2. Above 75%of the members are aware

15% 40% 30% 30.5% 61.5% 26.5% 34%

3. Only few members are aware

49.5% 19.5% 32% 39% 24% 61.5% 37%

4. None are aware 9% 2.5% 6.5% 15% 0% 1.5% 6% Total 100% 100% 100% 100% 100% 100% 100%

Source: Compi led by the Study team of BASIX through extens ive survey

139

Regularity of Savings in SHGs

The below mentioned table represents that only in 18 percent of the SHGs the members

does 100 percent on time payment of their savings. Where as in majority of SHGs, i.e. 74

percent groups, 70 – 90 percent members do savings regularly and are on time. In rest 8

percent groups, less than 70 percent of members do regular savings. It seems that the

highest percentage of members in SHGs have average performance in savings.

The district wise performance of on time payment of savings by the group members are

presented in the following table.

Table: 15:

Regularity of savings

No. of groups in district

Sl.No.

On time payment of savings

Nal

anda

Gay

a

Muz

affa

rpu

r

Mad

hub

ani

Purn

ia

Kha

gar

ia

Total

%

1. 100% on time payment of savings by members

21 49 23 45 23 49 210 18

2. 90% on time payment of savings by members

85 99 50 40 98 86 458 38

3. 70% -90% on time payment of savings by members

83 45 98 81 71 59 437 36

4. Less than 70% on time payment of savings by members

11 7 29 34 8 6 95 8

Total 200 200 200 200 200 200 1200 100 Source: Compi led by the Study team of BASIX through extens ive survey

As far as performance of the groups as a whole is concerned the performance, level of internal lending varies from SHG to SHG. An effort has been made to quantify the performance of internal lending of groups district wise. Altogether, 35 percent of SHGs provided need-based loans to most of its group members. Gaya, Nalanda and Muzaffarpur rank above than 3 other districts of study in terms of maximum SHG members availing loan. Khagaria is the lowest in the rank in terms of least members availed need based loan. As far as in 38 percent of SHGs under percent study have made available need based loans to its members. Twenty percent of the groups have made provision of equal distribution of loans among all its members. Only in 7 percent of the total groups only a few members in the group availed repeated loan.

140

Table: 16 Pattern of internal lending

No. of groups in districts

Total

Sl.No.

Pattern of lending

Nal

anda

Gay

a

Muz

affa

rpur

Mad

huba

ni

Purn

ia

Kha

gari

a

1. Need based loans availed by many members

38.5% 51.5% 48.5% 24% 33.5% 11.5% 415 (35%

2. Need based loans availed by few members

30% 31.5% 36% 45% 42.5% 44.5% 459 (38%

3. Equal distribution of loans among all members

19.5% 13.5% 9% 13% 23% 43.5% 243 (20%

4. Loans extended repeatedly to only a few members in the group

12% 3.5% 6.5% 18% 1% 0.5% 83 (7%)

Total (100%) (100%) (100%) (100%) (100%) (100%) (100%) Source: Compi led by the Study team of BASIX through extens ive survey

Velocity of Internal Lending During The course of the study, data regarding velocity of internal lending by the SHGs

have been obtained from the group records. The data revealed that majority of the SHGs

i.e. 43 percent of the groups have transacted their available amount less than 1 time, 38

percent of SHGs have transacted their savings among their members between 1 – 1.5

times of the available fund with the group. Only 19 percent of SHGs have transacted the

available group fund over 1.5 times. The table gives an overview of the velocity of

internal lending by the SHGs in different districts.

Table: 17: Velocity of internal lending

Sl. No Name of the districts

Over 1.5 times Between 1-1.5 times

Less than 1 time

Total

1 Nalanda 32 49 119 200

2. Gaya 76 95 29 200

3. Muzafarpur 65 80 55 200

4. Madhubani 14 30 156 200

5. Purnia 28 119 53 200

141

Source: Compi led by the Study team of BASIX through extens ive survey

The repayment terms of loan obtained by the members from the SHGs varies from one

group to another. Altogether 19 percent of the surveyed groups repay the group loan in

monthly instalments. Subsequently 16 percent of SHG members repay on quarterly basis

and 37 percent of SHGs repay on lump sum basis as per the availability of fund with

them. Twenty eight percent SHGs do not follow any specific repayment term. In Nalanda

and Gaya districts majority of the SHGs repay either in monthly or quarterly instalments.

Where as in rest 4 districts more number of SHGs repays in either lump sum basis or

there is no specific term for repayment of internal loan.

Table 18 gives a clear understanding about the repayment terms by the groups in different

districts of Bihar under study.

Table: 18 Repayment terms

Repayment terms by the groups Sl. No Name of the districts

Monthly Instalments

Quarterly Instalments

Lump sum Payment

No specific term

Total

1 Nalanda 98(49%) 40 (20%) 32 (16%) 30 (15%) 200 (100%)

2. Gaya 44 (22%) 42 (21%) 43 (21.5%) 71 (53.5%) 200 (100%)

3. Muzafarpur 22 (11%) 35 (17.5%) 63 (31.5%) 80 (40%) 200 (100%)

4. Madhubani 38 (19%) 5 (2.5%) 122 (61%) 35 (17.5%) 200 (100%)

5. Purnia 29 (14.5%) 55 (27.5%) 199.5%) 97 (48.5%) 200 (100%)

6. Khagaria 2 (1%) (19 9.5%) 170 (85%) 9 (4.5%) 200 (100%)

Total + (%) 233 (19%)

196 (16%) 449 (37%) 322 (28%) 1200 (100%)

Source: Compi led by the Study team of BASIX through extens ive survey

6. Khagaria 12 83 105 200

Total 227 456 517 1200

% 19% 38% 43% 100%

142

Linkages of SHGs with Banks

Only 18 percent of the SHGs were found to be linked to any bank in the strict sense of the term. Altogether 82 percent of SHGs have not obtained credit from any of the banks that were studied in the district of Bihar. Here linkages of SHGs mean the linkage of the groups with banks for financial assistance through loan and subsidy. The table below shows the linkages of SHGs with the bank.

Table: 19 Linkages with Banks for credit

Status of bank linkages

Sl. No

Name of the districts

Banks have given loans which are being repaid regularly

Have approached Banks for loans but were refused

Have not yet approached Banks for loans

Total

1 Nalanda 36 (18%) 105 (52.5%) 59 (29.5%) 200 (100%) 2. Gaya 36 (18%) 80 (40%) 84 (42%) 200 (100%) 3. Muzaffarpur 88 (44%) 74 (37%) 38 (19%) 200 (100%) 4. Madhubani 21(10.5%) 4 (2%) 175 (87.5%) 200 (100%) 5. Purnia 32 (16%) 107 (53.5%) 61 (30.5%) 200 (100%) 6. Khagaria 8 (4%) 15 (7.5%) 177 (88.5%) 200 (100%) Total + (%) 211 (18%) 385 (32%) 594 (50%) 1200

(100%) Source: Compiled by the Study team of BASIX through extensive survey Of the total number of 1200, groups studied only 18 percent of groups have established linkages with the bank by way of availing credit facility from the bank. About one third of the SHGs have approached bank for loan but were refused, as they do not fulfil the criteria of availing bank loan. Half of the SHGs have not yet approached the bank for loan, as they have not reach the desired level for availing loan. The district Muzaffarpur has the highest number of SHGs i.e. 44 percent have linked with the bank followed with Nalanda and Gaya having 36 percent SHGs linked to bank. Khagaria district has the lowest number of SHGs i.e. only 8 percent of SHGs linked to bank. Borrower Quality: Data has been collected at SHG level to know the quality of borrower in SHGs. The has been verified by getting information from the SHGs about no of defaulting members in the SHGs who have taken loan from the group and not repaying the loan amount sanctioned to them on time. In 31 percent of SHGs less than 2 members are unable to repay on time, whereas in 47 percent of the groups, 2-5 members are not in a position to repay back the group loan on time. In 22 percent of SHGs more than 5 members are not

143

paying back their outstanding loan amount on time. The table given below gives a picture of the borrower quality in the SHGs of different districts.

Table: 20 Borrower Quality (No. of defaulting members)

Source: Compi led by the Study team of BASIX through extens ive survey

Performance of SHGs Table 21 gives below some information of group performances based on the criteria’s of Adherence to the groups bye-laws, Attendance at the meetings, Financial decisions taken at the meeting, Savings collection, Loan disbursement, Repayment performance and Member-wise savings and loan portfolio.

Table: 21 Adherence of group norms and performance of SHGs

Sl. No

Name of the districts

< 2 members 2-5 members > 5 members Total

1 Nalanda 58 (29%) 91 (45.5%) 51 (25.5%) 200 (100%)

2. Gaya 52 (26%) 100 (50%) 48 (24%) 200 (100%)

3. Muzaffarpur 52 (26%) 117 (58.5%) 31 (15.5%) 200 (100%)

4. Madhubani 57 (28.5%) 41 (20.5%) 102 (51%) 200 (100%)

5. Purnia 98 (49%) 97 (48.5%) 5 (2.5%) 200 (100%)

6. Khagaria 56 (28%) 122 (61%) 22 (11%) 200 (100%)

Total 373 568 259 1200

% 31 % 47 % 22 % 100 %

Indicators Sl.No. Criteria

Nal

anda

Gay

a

Muz

affa

rpur

Mad

huba

ni

Purn

ia

Kha

gari

a

Tot

al

%

A Adherence to the groups bye-laws

161 (80.5%)

29 (14.5%)

34 (17%)

100 (50%)

91 (45.5%)

87 (43.5%) 502 41.83

B Attendance at the meetings

127 (63.5%)

34 (17%) 162 (81%)

137 (68.5)

137 (68.5%)

133 (66.5%) 730 60.83

C Financial decisions taken at the meeting

77 (38.5%)

79 (39.5%)

123 (61.5%)

81 (40.5)

98 (49%)

91 (45.5%) 549 45.75

D Savings collection

86 (43%)

92 (46%)

110 (55%)

107 (53.5)

187 (93.5%)

172 (86%) 754 62.83

144

Source: Compi led by the Study team of BASIX through extens ive survey

Record Keeping By SHGs Almost all the SHGs maintain 8-10 types of different records, which are either maintained by the group leaders, or the promoters appointed for the group. The most common records maintained by the SHGs in different districts are presented in the following table no 22. Table: 22

Types of record keeping in the SHGs

E Loan disbursement

131 (65.5%)

22 (11%)

85 (42.5%)

129 (64.5)

181 (90.5%)

175 (87.5%) 723 60.25

F Repayment performance

106 (53%)

157 (78.5%)

124 (62%)

120 (60%)

158 (79%)

97 (48.5%) 762 63.5

G Member-wise savings and loan portfolio

61 (30.5%)

26 (13%)

57 (28.5%)

53 (26.5)

162 (81%)

70 (35%) 429 35.75

District (s) Sl.No. Types of records Nalanda Gaya Muzaffarpur Madhubani Purnia Khagaria

1 Attendance Register

177

(88.5%)

200

(100%)

198

(99%)

184

(92%)

192

(96%)

181

(90.5%)

2 Minutes Book

199

(99.5%)

196

(98%)

161

(80.5%)

195

(97.5%)

197

(98.5%)

138

(69%)

3 Cash Book

118

(59%)

179

(89.5%)

199

(99.5%)

189

(94.5)

121

(60.5%)

79

(39.5%)

4 Individual Ledger

187

(93.5)

85

(42.5%)

88

(44%)

13

(6.5%)

39

(19.5)

59

(29.5%)

5 Saving Book 199

(99.5%)

193

(96.5%)

198

(99%)

198

(99%)

198

(99%)

181

(90.5%)

6 Loan Book 185

(92.5%)

170

(85%)

196

(98%)

181

(90.5%)

174

(87%)

75

(37.5)

7 Personal Passbook

195

(97.5)

182

(91%)

176

(88%)

28

(14%)

151

(75.5%)

86

(43%)

8 Bank 181 199 200 86 195 184

145

Source: Compi led by the Study team of BASIX through extens ive survey Usage of Group Physical Assets The table given below gives a picture of the group assets and usage by the group

members. A little more than 83 percent groups have no commonly owned assets. Where

as in little more than 8 percent groups, group assets benefits are cornered by a few

members in the group. In similar way in little more than 8 percent groups group assets

utilized by most members and are paid for. The table presented below gives details about

the ownership and usage of group assets by the members.

Table: 23 Usage of group physical assets

Usage of physical assets by No. of Groups Sl. No Name of the

districts Group Assets

utilized by most members and are

paid for

Group assets whose benefits are cornered

by a few

Group has no commonly owned

assets

Total

1 Nalanda 10 11 179 200

2. Gaya 41 21 138 200

3. Muzaffarpur 22 07 171 200

4. Madhubani 15 27 158 200

5. Purnia 09 29 162 200

6. Khagaria 01 07 192 200

Total 98 102 1000 1200

% 08.16 08.5 83.34 100

Source: Compi led by the Study team of BASIX through extens ive survey From the study, it revealed the fact that about 20 percent of groups actively participate in

social and other issues of the village and another 28 percent SHGs some times involved

in resolving village issues. A large number of the SHGs i.e. more than 51 percent have

Passbook (90.5%) (99.5%) (100%) (43%) (97.5%) (92%)

9 Transaction Book

198

(99%)

25

(12.5%)

79

(39.5%)

00

(0%)

69

(34.5%)

28

(14%)

10 Any Other Specify

02

(1%)

02

(1%)

09

(4.5%)

00

(0%)

00

(0%)

02

(1%)

146

rarely been involved in village issues. Table 24 gives a bird’s eye view of the SHGs

involvement in village issues in different districts.

Table: 24 Group’s involvement in village issues

Source: Compi led by the Study team of BASIX through extens ive survey

According to the primary survey the total cumulative savings of all the groups are Rs. 23, 04, 760/-. The total revolving fund obtained by the SHGs from the promoting agencies is Rs. 5, 20,000/-. The total amount of loan obtained from the bank by the SHGs is Rs. 4,17,031/-. The total amount of available fund with the SHGs is Rs. 35,15,691/-. The average internal fund per SHG is Rs. 17,578/- and average internal fund available per member is Rs. 1,314/-. The below mentioned table gives an overall view of the fund position of the SHGs studied in all the 6 districts. Table: 25

Financial position of the groups District wise financial position of Groups Sl. No

Criteria’s for Group

Fund Nalanda Gaya Muzaffarpur Madhubani Purnia Khagaria

1 Total Cumulative

savings

1167579 1861203 2291643 1506879.88 113542

1

2304759.5

2 Total Revolving fund

obtained

764900 121000 1198395 240100 220400 520000

3 Loan from bank and

other external sources

4196600 877250 3856457 243500 820400 417031

Sl. No Name of the districts

Group actively involves itself in social and other

issues of the village

Group has sometimes been involved in

resolving issues in the village

Group has never/rarely been involved in village

issues

Total

1 Nalanda 8 30 162 200

2. Gaya 59 70 71 200

3. Muzaffarpur 116 34 50 200

4. Madhubani 3 29 168 200

5. Purnia 51 70 79 200

6. Khagaria 2 108 90 200

Total 239 341 620 1200

% 19.92 28.41 51.67 100

147

4 Total available fund

in the SHGs

6205917.5 3212590 8442882 2008431.88 226416

1

3515690.89

5 Average internal fund

per SHG

31029.59 16062.95 42214.41 10042.15 11320.8

1

17578.46

6 Average internal fund

per member

2849.37 1160.19 3939.75 865.70 868.50 1314.27

Source: Compi led by the Study team of BASIX through extens ive survey

Summary of Findings of the SHG Study The following table gives a summary of the whole SHG study conducted in all 6 districts. Rating of SHGs Based on the objective of the study a grading tool was designed by BASIX Ltd. based on NABARD norms, discussed with Project staff and after mutual agreement it was planned to use the same in the all the sample groups to be assessed and categorized into A, B and C grades based on the scores obtained by these groups.

Table: 27 Rating of groups studied across all the 6 districts

Source: Compiled by the Study team of BASIX through extensive survey

Category A: Lend able SHGs Category B: Capacity Building required Category C: Intensive capacity building required

Performance Sl.No. District (s) % Category A % Category B % Category C Total %

1. Nalanda 26 21 53 100

2. Gaya 0.5 81 18.5 100

3. Muzaffarpur 28 40 32 100

4. Madhubani 10 25.5 64.5 100

5. Purnia 28 59 13 100

6. Khagaria 9.5 50 40.5 100

148

Category Wise Characterization of SHGs Categories Parameter Observation

Group Discipline

• These categories of groups have high homogeneity factor. Majority of them are comprised with same social and economic background of members.

• Meetings are conducted on a fixed day, time, and place.

• Attendance is more than 85% in most of the cases. • Groups are governed by three leaders selected by the

members and their terms are fixed and efforts are there to inculcate the leadership skills to other members and leadership rotation is on a regular basis.

• Almost 80% of the members are aware about their own as well as group’s financial transaction.

Financial Discipline

• All group and financial records are updated and enough training has been given on building capacity of members to write their own books of accounts. (Although the uniformity of registers were not there but all the relevant financial details were available)

• Pattern of the internal lending mostly need based and focus are given on not equal distribution of the external loans. All the members are not given loan at the same time so that peer pressure is built for high and on time repayment.

• With these groups Loan to saving ratio is more than 1.5 and terms of the loan are well defined and members are given adequate attention to pay on time.

• On time recovery rate was more than 95% and no of OD members were less than 5% average per group.

• Most of these groups are linked with bank and repayments are being done on time.

Category A

Social Discipline

• These groups have some physical assets with them and being used by most of the members.

• Other than group and financial issues the awareness and readiness to address the village level issues were there.

149

Group Discipline

• These categories of groups have moderate level of homogeneity where in more than 70% members are from same social and economic background but because of fulfillment of the group norms few members were taken from different background. And that shows in the benefit distribution and dominance of certain members in the group.

• Mostly meetings are conducted on a fixed day and time but in few cases meetings were not done, as members were not present there. Place is fixed for the meeting and it was found mostly in the group leaders house.

• Attendance %age ranges from 60% to 80% in most of the cases.

• Groups are governed by three leaders selected by the members and their terms are fixed, but due to lack of confidence of other group members leaders are continue to be the leaders more than two times.

• Almost 60% of the members are aware about their own as well as group’s financial transaction.

Financial Discipline

• All group and financial records are updated and enough training has been given on building capacity of members to write their own books of accounts. (Although the uniformity of registers were not there but all the relevant financial details were available), but lots of overwriting was found in their books of accounts and overwriting were not supported with signatures of the leaders or members.

• Pattern of the internal lending mostly need based for their own money, but in most of the cases particularly on SJSY schemes loans were distributed equally among the members. Peer pressure was found moderate in the group.

• With these groups Loan to saving ratio is ranges from 1 to 1.5 times and terms of the loan are well defined and but adequate attention was not there to pay on time.

• On time recovery rate was ranges from 90-95% and no of OD members are 5-10% average per group.

• Majority of these categories groups are yet to link with banks.

Category B

Social Discipline

• These groups have no physical assets with them but have a plan to build the same.

• Other than group and financial issues the awareness and readiness to address the village level issues were there but very low.

150

Group Discipline

• In these categories of groups homogeneity level is very low. Mostly these groups were formed to fulfil the Govt. scheme norms by GoI for getting the benefits.

• According to the byelaws meetings are suppose to be conducted on a fixed day and time but more than 60% of the cases meetings are not regular.

• Attendance is very poor it’s less than 60% in most of the cases. Even the criteria of attendance are the members who have deposited their savings even without attending the meeting.

• Groups are governed by three leaders selected by the members but most of the cases leaders are representing the dominant class of people.

• Members are not aware about their own as well as group’s financial transaction as most of the transactions were done outside of the meeting.

Financial Discipline

• All group and financial records were not updated since long, member wise details was not there. Books were not giving the needed information for tracking their financial transaction.

• Pattern of the internal lending not need based expect few cases that’s too volume was low. Most of the funds were lying idle with the group without utilization, because objective of the thrift and credit activities were not clear to the members.

• On time recovery rate cannot be tracked as records were not updated and few transactions were missing.

Category C

Social Discipline

• These groups have no physical assets with them. • No involvement with the village level issues.

Issues observed in different category of groups: SHGs falling under different categories have their own specific issues. The issues depend on the way the promoting organizations functioning, objective and purpose of the SHGs and its governance issues, which it have been following for a particular intervention.

Categories Issues

A • Lack of economic orientation. • Credit absorption capacity is low • Insufficient understanding about livelihood issues • Exploring opportunities for income generating activities • Issues in managing Common property resources

B • Dominance of few members • Lack of clarity about the objective of the group

151

• Poor Book keeping • No leadership skills among other members • Peer pressure lacks in SJSY loans

C • No clarity about the objective of the group • Low homogeneity • Low adherence with the group norms • Book keeping is poor • No operation system for mF in place • Lacks skills on IGA • Leadership is weak • Financial discipline is bad • Lots of idle fund within the group • In few cases accounts are in the name of group leaders • Confidence is low for going to banks

Swot Analysis of SHG -Bank Linkage Programme

STRENGTHS WEAKNESSES Members generates won capital by mobilizing savings

Fulfil the urgent need of the members by availing small loans for consumption/ emergency in flexible terms.

Voluntary membership Low operational costs High repayment rates Enhances confidence/ capacity of members

Provides space for skill development of members and builds community leadership

Empowers women and communities. Poor members became bankable and credit worthy

Membership based organization

Groups are very much dependent on the promoting agencies

Groups are formed in week foundation Group norms have not been shared and followed by all the group members.

Poor linkages of the groups with out side agencies and bank

The level of homogeneity among members seem to be low

SHGs are dependent on subsidized funds from government departments.

Low level of awareness of all the members about activities

OPPORTUNITIES THREATS Linkages and networking with banks and other agencies for up scaling

To act as financial intermediaries between poor people and formal financial institutions

Can develop as a local institution to mitigate the minimum financial need of

Possibility of breakdown in case of withdrawal of cease of support from the promoting agencies

Vested interest of few able members may hamper the group cohesiveness

Government grants to groups may spoil the group sprit.

152

the poor people Can create new leaderships Can draw new livelihood opportunities

Governance by few may hamper the greater benefit of the members as a whole

Key findings from the SHG study: 1. Some SHGs (groups with poorest members) are not in a position to open bank

account as they are to open their account by depositing Rs. 500/- to Rs. 1000/- . 2. Most of the SGSY groups are formed with BPL members with a membership of 10

which is considered as high risk groups. 3. There are cases where groups formed by other agencies have been hijacked by the

SGSY promoters by assuring to give Rs. 10,000/- as subsidy per member and Rs. 10,000/- to the promoting agencies.

4. Under SGSY scheme 10 member groups are formed intentionally to give Rs. 10,000/- per member as the maximum limit per group is Rs. 1, 25,000. The other reason is to form more number of groups with the existing resources.

5. Commission has been taken from the BPL groups by officials and middlemen while sanctioning loan to them with subsidy.

6. The major objective of the BPL group is to avail loan with subsidy. 7. The homogeneity and feeling of solidarity among members of SHGs found to be

moderate. In majority of SHGs visited by us during grading it observed that there is one or two dominant lady who had taken the initiative to form the SHG. Further on discussion with SHG members it observed that their purpose of joining SHGs to avail benefits from the government.

8. Group discipline in SHGs promoted by WDC is average and above average, where as the groups formed under SGSY / NABARD is average or below average.

9. Financial Discipline : a. Regularity of saving by all members of the SHG in distant blocks (Amour and

Banmankhi block) is below average. b. SHGs which are linked with banks and availed SGSY scheme in most of the

group the loan was equally distributed among all members of the SHGs. In more than 30 to 40% of the SHGs the loan was not utilized for production purpose.

c. In case of inter-loaning the repayment terms was not defined the borrowers used to repay it in lump sum of varies from case to case. Borrower quality observed to be below average (there are 2 to 5 OD borrower in each group).

d. Velocity of inter-loaning is less than 1 and 1.5 in most of the SHGs 10. Involvement in village issues is not very common in all the SHGs visited by us during

grading. 11. Awareness about the functioning of bank & procedures for bank linkages is very low

among SHGs, there are a large number of members who had never seen bank or don’t able to imagine picture of bank, even some members told that they fear to enter the bank because there exist an armed guard outside the bank, even those who had some idea of bank the don’t know whom to meet in bank so they never visited the bank.

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12. The holistic understanding about the SHG is very poor among bank officials in rural branches and they are also not very willing to open the a/cs because of very less saving and transactions made by these SHGs and all these banks are manually operated so they face difficulty in updating the records.

Impact of the SHG - Bank Linkage Program in Bihar Given these quantitative achievements, the observed impact of the program are as follows:

• Micro-finance has reduced the incidence of poverty through increase in income, enabled the poor to build assets and thereby reduce their vulnerability in some case.

• It has enabled households to spend more on education than non-client households.

Families participating in the Program have reported better school attendance and lower drop out rates.

• It has empowered women by enhancing their contribution to household income,

increasing the value of their assets and generally by giving them better control over decisions that affect their lives.

• It has contributed to a reduced dependency on informal moneylenders and other

non-institutional sources.

• It has facilitated significant research into the provision of financial services for the poor and helped in building “capacity” at the SHG level.

• Finally it has offered space for different stakeholders to innovate, learn and

replicate. As a result, some NGOs like NIDAN have added micro-insurance products to their portfolios, a couple of federations have experimented with undertaking livelihood activities and grain banks have been successfully built into the SHG model in the eastern region. SHGs in some areas have employed local accountants for keeping their books; and IT applications are now being explored by almost all for better MIS, accounting and internal controls.

Given this scale and impact, what have been the learning points? (1) The first point is that the “poor are bankable”. Sounds simple, but, when we view this in context of the attitudinal constraints which characterized bankers on the eve of the linkage Program, one realizes what an immense learning point this has been. But, for this we would still have been in the “middle ages”.

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(2) The second point is that the poor, organized into SHGs, are ready and willing to partner mainstream financial institutions and banks on their part find their SHG portfolios “safe” and “performing”. (3) The third point is that despite being contra intuitive, the poor can and do saving in a variety of ways and the creative harnessing of such savings is a key design feature and success factor. (4) The fourth point is that successful Programs are those that afford opportunity to stakeholders to contribute to it on their own terms. When this happens, the chances of success multiply manifold. This has been possible in the Bank - SHG linkage Program on account of the space given to each partner and the synergy built in the Program between the informal sector comprising the poor and their SHGs, the semiformal sector comprising NGOs, and the formal sector comprising banks, government and the development agencies. (5) Yet another learning point has been that when a Program is built on existing structures, it leverages all strengths. Thus, because the Bank-SHG Program is built upon the existing banking infrastructure, it has obviated the need for the creation of a new institutional set-up or introduction of a separate legal and regulatory framework. Since financial resources are sourced from regular banking channels and members’ savings, the Program bypasses issues relating to regulation and supervision. Lastly, since the Group acts as a collateral substitute, the model neatly addresses the irksome problem of provision of collateral by the poor. (6) The last learning point is that central banks, apex development banks and governments have an important role in creating the enabling environment and putting appropriate policies and interventions in position which enable rapid upscaling of efforts consistent with prudential practices. But for this opportunity, no innovation can take place. Challenges: Regional Imbalances – The first challenge is the skewed distribution of SHGs across districts. About 55% of the total SHG credit linkages in the state are concentrated in nearer to state capital. However, in districts, which have a larger share of the poor, the coverage is comparatively low. The skewed distribution is attributed to

• The over zealous support extended by some the district administration. • Skewed distribution of NGOs and • Local cultures & practices.

From credit to enterprise The second challenge is that having formed SHGs and having linked them to banks in selected districts, how can they be induced to graduate into matured levels of enterprise,

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how they be induced to factor in livelihood diversification, how can they increase their access to the supply chain, linkages to the capital market and to appropriate/ production and processing technologies. A spin off of this challenge is how to address the investment capital requirements of matured SHGs, which have met their consumption needs and are now on the threshold of taking off into “Enterprise”. The SHG Bank-Linkage Program needs to introspect whether it is sufficient for SHGs to only meet the financial needs of their members, or whether there is also a further obligation on their part to meet the non-financial requirements necessary for setting up businesses and enterprises. In my view, we must meet both. Quality of SHGs – The third challenge is how to ensure the quality of SHGs in an environment of exponential growth. Due to the focused growth of the SHG Bank Linkage Program, the quality of SHGs has come under stress. This is reflected particularly in indicators such as the poor maintenance of books and accounts etc. The deterioration in the quality of SHGs is explained by a variety of factors including The intrusive involvement of government departments in promoting groups, Inadequate long-term incentives to NGOs for nurturing them on a sustainable basis and Diminishing skill sets on part of the SHG members in managing their groups. And to meet these challenges, significant financial investment and technical support is required. Impact of SGSY – Imitation is the best form of flattery – but not always. The success of the Program has motivated the Government to borrow its design features and incorporate them in their poverty alleviation Program. This is certainly welcome but for the fact that the Government’s Program (SGSY) has an inbuilt subsidy element which tends to attract linkage group members and cause migration generally for the wrong reasons. Also, micro level studies have raised concerns regarding the process through which groups are formed under the SGSY and have commented that in may cases members are induced to come together not for self help, but for subsidy. So there is a need to resolve the tension between SGSY and linkage Program groups. Role of State Governments – A derivative of the above is perhaps the need to extend the above debate to understanding and defining the role of the State Governments vis-à-vis the linkage Program. Let’s be clear: on the one hand, the Program would not have achieved its outreach and scale, but for the proactive involvement of the State Governments; on the other hand, many State Governments have been overzealous to achieve scale and access without a critical assessment of the manpower and skill sets available with them for forming, and nurturing groups and handholding and maintaining them over time. Emergence of Federations – The emergence of SHG Federations has thrown up another challenge. On the one hand, such federations represent the aggregation of collective

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bargaining power, economies of scale, and are a for addressing social & economic issues ; on the other hand there is evidence to show that every additional tier, in addition to increasing costs, tends to weaken the primaries. There is a need to study the best practices in the area and evolve a policy by learning from them.

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CHAPTER-5: RECOMMENDATION AND STRATEGY FOR SCALING UP MF IN BIHAR

In this section, recommendations for pertaining to the development of the micro-finance sector are being attempted on the basis of the study findings as well as experience of the micro-finance development in other states in India. Since it is to be co-ordinated efforts of various stakeholders, specific recommendations for varied institutions, including program like BRLPS is being done in the following section.

Delivery of Micro Finance through mainstream formal banks in Bihar: Despite the presence of large number of financial institutions in the formal financial sector existing in Bihar, the access to financial services among the rural masses, especially poor has been quite dismal. However, the financial institutions like the commercials banks, Regional Rural Banks and the co-operative sector has to continue to play key role in mainstreaming micro-finance in Bihar. Banks Role to be played by Banks in promotion of micro-finance in the stare:

• Innovations in delivery of banking services could be tried out by the banking sector. Some of the recommendations in these are:

o Specialised SHG Branch: Similar to approach of SSI Branch, the concept of specialised SHG branch could be tried out in one or two locations in less developed districts. Such specialised branches of Indian Bank are currently operating in Tamil Nadu, especially in Madurai district and Chennai proper. BRLP can influence the lead bank to identify potential bank branches and convert them SHG branches, with renewed operational planning and operational targets.

o Trying out new products or service delivery: As seen from the study, remittances from outside the state have been one of the key sources of income of the rural households. The role of the formal institutional sources in delivery of the service is almost negligible. Such services will bring the poor and marginal sections of the society under the fold of banking services.

o Delivery of integrated services: Combination of services could be tried out in a product, and could be customised according to need. Remittances could be tried out savings and insurance services, savings can be tried out insurance as seen in several micro-finance products of NGO-MFIs. Banks like SBI, which have their insurance arms could be in a better position to

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supply such services. Otherwise, linkage with national or private insurance players could be tried out on pilot scale.

Some of the developmental costs for product development, client awareness as well as a percentage of implementation costs could be supported through the BRLP. • Bulk lending to MFIs or NGO-MFIs: The banks can give a fillip to the

development of micro-finance in the state through bulk finance to institutions which can not raise deposits or do not have the wherewithal to raise capital for itself. Funds can be given to these institutions which can do the operations. Otherwise, these institutions are constrained by lack of funds.

• Structurally, the banks need to create a specialised cell or division in the rural

finance division, if these have not been put in place. This cell should have their own plans and allocated funds which could be used for developmental persons. Similarly, to support the structure, a dedicated team of personnel should be deployed. Otherwise, micro-finance remains as the tertiary activity in a bank or its branch with little or minimum management attention.

These approaches could be adopted by the formal financial institutions, in addition their present operational strategy of scaling up of micro-finance. Budget for Innovations in Banks SHG Branch Banking/per branch 2007 2008 2009 Human Resources Cost 330000 378000 426000 Exposure Visit for bankers 250000 300000 300000 Training of Staff 200000 250000 250000 Capacity Building of SHGs Linked 300000 350000 400000 Risk Fund 400000 500000 600000 Overheads 100000 125000 150000 Total 1580000 1903000 2126000 Share of BRLP 1150000 1400000 1550000 Cost of supporting two Branches by BRLPS 2300000 2800000 3100000 Remittances Pilot and other Product development 2007 2008 2009 Survey Costs 300000 400000 Professional costs for product and process design 500000 500000 Implementation Costs 1440000 1728000 2073600 Travel Costs 582000 668400 622080 Overheads 252200 289640 269568 Total 3074200 3586040 2965248 Share of BRLPS 3074200 3586040 5930496

Financial Co-operatives:

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The financial co-operative structure has played and will continue to play vital role in the rural economy as well as could be used a medium to promote micro-finance in the state. Such hope is being contemplated, despite its poor financial performance in most of the states, including Bihar. The Central Government is keen to revive the sector and has taken several steps on the recommendations of the Viadyanathan Committee. It is dependent on the states to accept the conditions and reform the co-operative sector in the state. This would call for policy level and structural changes in the co-operative sector. Given this broad picture, specific things which could be done by the co-operatives sector in any state and Bihar also is mentioned below: SHG-DCCB Linkage: There are instances of success of micro-finance operation by District Central Co-operative Banks such as Bidar in Karnataka and Chandrapur in Maharastra , Mandsaur in Madhya Pradesh, etc. have experimented with SHG lending in a much scale, both directly as well as though NGOs. In this way, they have catered to weaker sections of the society. Such initiatives could also be taken up with select DCCBs in the state: The attempt would be:

• Build operational and business plan of micro-finance operations of the DCCBs • Help to develop products and systems around micro-finance operations • Capacity building of the personnel in the Bank who would be deployed • Exposure visit of other DCCBs in such initiatives

BRLP can influence the management in taking up new initiatives as well as fund some of the developmental costs of micro-finance in the DCCBs through PACS. PACS as agents for DCCBs: Pilots can be done for making PACS as agents for financial services, especially for savings and insurance. The latter would require tie of the co-operative with insurance companies. These above experiments could be tried out with the financial co-operative sector on a pilot basis. BRLP can support some of the initiatives, especially on the capacity building front. These attempts have to made in addition to the normal restructuring and reform process the DCCBs Budget for Co-operatives Financial Co-operatives (1 DCCB and 30 PACS) 2007 2008 2009 Institutional Analysis 100000 Exposure visits 500000 500000 Training of Staff 300000 400000 Workshops 350000 350000 350000 Professional Costs 1000000 1000000 1000000 Human Resources 1500000 1800000 2160000 Computer Hardware 2000000 100000 100000 Travel Costs 780000 840000 948000

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Overheads 653000 499000 455800 Total 7183000 5489000 5013800 Share of BRLPS 5387250 4116750 3760350 Cost of supporting two DCCBs and 60 PACS by BRLP 10774500 8233500 7520700

Promotion and Capacity Building of the SHGs in the state: One of the key strategies that needs to be pursued vigourously is strengthening the SHG movement in the state. As indicated in the study, the SHG is lagging behind other Eastern India states, both in terms of quality and quantity. Some of the recommendations for promotion of SHGs in the state are: Policy Level:

• SHG promotion norms ought to be relaxed, given the cultural and socio-economic scenario. The concept of APL/BPL should not be strictly adhered as these often act as constraint in sustainability of SHGs.

• Alternate mechanism for channelising subsidy to be employed as there is an imminent problem of formation of poor quality SHGs in the state.

Operational Level

• Grading process should be simplified. Number of parameters and sub parameters should be pruned to 4-5 from the present 70

• Promotion of SHG federation as a strong grass root institution has to be initiated on a wider scale in the state as there are few examples. One of the key factors to SHG development in Southern states is building of these federations and creation of people’s institution. The women have leverage their funds and collective strengths to reap greater economic and non-economic benefits.

• Bankers should undertake capacity building of Self Help Promoting Institutions (SHPIs) on group formation, lending process, micro enterprise development & management (cost should be borne by bank)

• Awareness building campaigns should be undertaken through media (print and electronic), conferences, workshops, etc.

• Banks should finance MFIs for on-lending to poor in a more liberal manner • Bankers should call a conference of stakeholders to understand each other and

remove bottlenecks in promoting MF sector. BRLPS is an important stake holder and should play an important role of ensuring that the SHGs formed are of good quality with appropriate capacity building skills. BRLP needs to invest innovatively in capacity building of SHGs, building higher tier institutions and institutional sustainability. (for details see annexe-4)

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Cost of promotion of SHGs

Estimates of costs of SHG promotion have been undertaken along with a discussion of

the factors involved. A distinction is made between four major types of SHG “models”:

(i) the “minimalist” approach;

(ii) large project initiatives related to women’s empowerment including all components;

(iii) a microfinance plus approach focusing on livelihoods development; and

(iv) a mixed category of SHGs formed through local initiatives, including SHGs

promoted by the district development agency.

Though inputs and contexts differ across the different projects rough benchmarks for cost

of promotion of SHGs have been proposed in the study.

The cost of promotion per SHG is around Rs. 6,000 for the minimalist model of pure

bank linkage and Rs. 10,000 to Rs. 12,000 within a more comprehensive empowerment

framework. The cost of promotion of SHGs appears generally to be in line with the scale

of support provided by various government agencies. Necessary adjustments would,

however, have to be made for particular regional, social and poverty contexts.

Some other benchmarks that can be suggested: (i) period of support – 3 to 5 years; (ii)

clients per field worker – 400 or 20 to 25 groups; (iii) minimum scale of intervention to

justify costs incurred – 150 to 200 groups, or 2,500 to 3,000 members, in a

geographically compact area.

There are prospects for a reduction in these costs over time as SHG numbers increase in

an area and where associations of existing SHGs help to form new SHGs.

NGO - MFI: Recommendations: Given the promising work done by the NGO-MFIs in promotion of micro-finance in the state, it appears to be a viable alternative for provision of financial services to the poor in the state of Bihar. Some of the recommendations for promotion of the NGO-MFIs are:

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Build up awareness on micro finance:

Workshops to generate awareness on concepts and alternative models of MF should be

organized in the states of Bihar comprising stakeholders from NGOs, NABARD, SIDBI,

apex donor institutions working in micro finance.

These will help:

a. To bring to a common platform the various players thereby creating synergy and

an enabling macro environment.

b. Build up a platform for information sharing on conceptual issues, legal and

federation building issues.

Make funds available for program support

The institutions need program funds to increase the outreach of their operations, improve

the quality of the existing portfolio, develop systems, etc. However, the exact nature and

quantum of support (program funds) required would vary from organization to

organization. The support-providing agency should be in a position to cater to the varying

needs of different types of institutions and must explore and develop the support plan vis-

à-vis the requirements in the particular institution. A blanket approach to support is not

going to be of any importance while supporting these organizations for improving their

micro finance operations. This support may be in the form of facilitating linkages with

existing financial institutions also.

Facilitate fund availability for loans

The organizations need loan fund support to be made available to the federations of

SHGs promoted by them for further on lending to groups and members. There are hardly

any financial institutions, which have come forward to support these institutions with

loan funds except the banks under the SHG linkage program and financial institutions

like RGVN and RMK whose contribution is very little but appreciable initiative. The

micro-finance program is sustaining only with the funds available through SHG bank-

linkages. Also the funds are not available as per their requirements. The quantum of

funds required in these organizations are not very high and more importantly, the same

has to be made available in different installments in proportion to the growth in these

organizations, so that the funds are not kept idle with these organizations/federations.

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This would also help them in reducing their interest costs. A flexible outlook needs to be

taken up while supporting these organizations/federations with loan funds.

On the other hand, adopting this flexible nature (in terms of quantum and frequency of

funds required, etc.) by established financial institutions like SIDBI, ICICI and/or others

would not make profitable business proposition for them. Therefore, it is suggested that

options of financial intermediation through established MFIs be explored. The

organizations like BASIX should be brought in for financial intermediation to this type of

growing organizations/federations.

Another recommendation regarding providing support to these organizations is that while

they would need support for program funds and loan funds, this should be kept totally

separated from each other. The project proposals for the two types of support funds need

to be build separately with clearly spelt out objectives and expected outputs and need to

monitored and evaluated accordingly.

Provision of grant should be based on Performance, whereby the grant for a particular

action point would be given /disbursed only on the completion of the earlier action items.

This should ensure that the organization completes earlier items in the activity list in time

in order to avail the support funds for the later activities. The other proposition can be

treatment of grants as advance or loans (with ‘interest’ tag attached to it – Varying rate of

interest, directly proportional to the delay in completing the action items) till they have

completed the activity. The support fund can be extended as advances/loans and be

adjusted as the back ended grants. The well laid down incentives and disincentives can be

clubbed with this type of grant support vis-à-vis achievement of their business plans.

Specific Recommendations

The organizations involved in micro-finance programs in Jharkhand are at various stages

of development, more so, they are not in a mode of realizing self-sustainability. They do

need external support in the form of expertise, micro-finance services and funds to reach

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to a stable level of operations. However, the exact nature of support and kind of

interventions needed would vary for different category of organizations.

S No.

Interventions B C D

1 Handholding for capacity for program implementation. Y Y Y 2 Strategies for initial operational fund requirements Y Y Y 3 Strategies for initial soft loan and subsequently long term

fund raising strategy for on lending. Y Y Y

4 Capacity building and handholding on advance financial management including business plans. Y Y Y

5 Uses of software, generating and analyzing reports for the day-to-day operations to strategic level issues Y Y Y

6 Raise funds for the day to day program development Y Y Y 7 Day to day handholding process for strengthening a MF

program through institutional development and information technology services.

Y Y Y

8 Training of Staff and leaders from the community on various aspects of micro finance. Y Y Y

9 Fund requirement for strengthening the MF program. Y Y Y 10 Capacity building of their groups and staff on micro

finance Y Y Y

11 Developing vision and the systems in the organizations. Y Y Y 12 Strengthening the financial discipline and regular trouble

shooting on the MIS designed for proper flow of information.

Y Y Y

13 Design Business plans for the micro finance and streamline the BP exercise. Y Y Y

14 Need of professionals to handle the system effectively. Y Y Y 15 Availability of fund for SHG strengthening. Y Y Y 16 Priority is strengthening of SHGs– SHG auditing,

grading, institutionalizing group norms, capacity building of group leaders and members, re-scheduling of defunct loans, OD recovery, exposing them to better performing SHGs.

Y Y

17 Vision building for the organization vis-à-vis their micro-finance program

Y Y

18 Building a plan of Action to achieve the vision developed for the organization and start implementing the same

Y Y

19 Introduction to and development of systems in the organization for carrying out the micro finance activities.

Y Y

20 Capacity building on SHG concept and formation of SHGs

Y

21 Training on book keeping and accountancy Y

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Financial need Recommendation:

Based on the different categories of organizations requires different nature of support to

improve the status of their micro-finance. Analysis of the organizations working in Bihar

and in this study we covered indicates that majority of the B category organizations

require funds to avail handholding support from institutions like BASIX to fine tune and

strengthen their micro-finance program, They would also need program funds for

building the capacities and the required skill base to manage these systems internally in

due course of time. While program funds in C category of organization would be

required for strengthening their building blocks - the SHGs under SHG quality

improvement program, where capacity building of their groups and staff and developing

vision, strengthening the financial discipline and subsequently the systems in the

organizations. Later they would also need funds for similar purposes to that of B and A

category of organizations.

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Category wise expected outcome of the different organizations.

Budget requirement

Categories Duration Capacity

Building

Fund*

Operating

Cost** Loan Fund (to build

initial portfolio)

B 2 years 8-10 Lakhs 6-8 lakhs Minimum of Rs 25 -

30 lakhs.

C 3 years 12-15 Lakhs 8-10

lakhs

10-15 lakhs from 2nd

year onwards

D - - - -

* Including the cost of appropriate software for mF operations.

** This cost is excluding operational deficit cost which varies as per the business plan.

However, there are some common recommendations for all categories of organizations:

• The organizations need loan fund support to be made available to the federations of

SHGs promoted by them for further on lending to groups and members. Hardly there

are any financial institutions, which have come forward to support these institutions

with loan funds except the Banks under the SHG linkage program and financial

institutions like RGVN and RMK whose contribution is very little but appreciable

initiative. Another important issue in relation to making available the loan funds is that

the funds are not available as per their requirements. The quantum of funds required in

these organizations are not very high and more importantly, the same has to be made

available in different instalments in proportion to the growth in these organizations, so

that the funds are not kept ideal with these organizations/federations. This would also

help them in reducing their interest costs. A flexible outlook needs to be taken up

while supporting these organizations/federations with loan funds.

• Another very important support that the organizations required is program fund

support. The organizations need this support to increase the outreach of their

operations, improve the quality of the existing portfolio, develop systems, etc.

However, the exact nature and quantum of support (program funds) required would

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vary from organization to organization. But before providing this support a proper

need assessment exercise has to be done by the supporting agency in order to cater the

varied need of these organizations and develop a mutual agreed support plan vis-à-vis

the requirements in the particular institution to make a difference from blanket

approach model.

• The experience shows that various micro finance organizations in Bihar, because of

earlier experience in dealing only with the grant based funding; the ID association is

also treated in similar manner where people expect grant assistance along with

capacity building support from BASIX. Because of this the process of

internalization becomes very difficult hence results slow progress of work. It is

therefore suggested some system of grant linked to performance of micro-finance

could be introduced to meet their day to day expenses particularly on HR and other

overheads

As observed and categorization made on above mentioned criteria the SHGs can be a tool

or platform for scaling up mF in the state like Bihar. But they do need external support in

the form of external expertise, external capacity building efforts. However, the exact

nature of support and kind of interventions needed would vary for different category of

organizations.

Intervention required for different categories: S No. Interventions A B C 1 Restructuring of the groups Y 2 Training on the objective of SHGs Y (selected cases) Y 3 Developing vision and the systems in the group. Y Y 4 Designing book of accounts for SHGs Y 5 Training on book keeping and accountancy Y Y 6 Training on Group dynamics Y Y 7 Training on Leadership Y Y 8 Exposure visit Y Y Y 9 Training on financial discipline Y Y Y 10 Training on self assessment Y Y Y 11 SHG grading (time to time) Y Y Y 12 SHG auditing Y Y Y 13 Training on IGA Y Y Y 14 Livelihood profiling Y Y Y

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15 Training on livelihoods Y Y Y 16 Training on CPRM Y Y Y

Strategy for Micro Insurance Promotion in Bihar: • Promoting concept of Insurance amongst vulnerable through various strategies of

sensitization namely soft skills, education, knowledge transfer through training etc… BRLPS as a livelihood promotion institution must ensure that poor people have access to suitable insurance products covering risk of their lives, health, assets and business. This will both boost the confidence of the borrower and the bankers.

• MFIs to initiate the process with proper documentation and then transcend to the concept of social security with this protectionist tool for society at large and to use it for their recovery mechanism as well.

• Bridging gap between suppliers and clients in terms of process and systems and simplifying the procedural aspect to make it client friendly. Sewa and BASIX has demonstrated that it is possible to provide micro insurance cover to rural poor, and their expertise in product and process development be sought by BRLPS.

• Pilots should be done by expert agencies like BASIX to cover the bank clients with suitable insurance product and ensure a win- win situation for the borrower and the banker and insurance company, bundled products can be of much help to the borrowers and rural poor – BRLPS can support such initiatives in the state.

• Perceptional change is required both at suppliers end and at the end of demand. It should be treated as a business model based on number game and law of probabilities. Consumer education is a huge task, and this role can be taken up by BRLPS with the help of SHGs, Federations, cooperatives, banks etc.

• Underwriting should be made transparent and should be worked out on the basis of possible maximum loss per event. The maximum exposure per annum can be worked out on probability and premium should be done in accordance.

• New distribution channel to be unleashed through NGOs, SHGs, MFIs and corporate agencies. NIDAN has demonstrated this in the context of Bihar.

• These identities can work at both ends—partners for suppliers and the poor vulnerable and can act as guard for keeping the portfolio viable.

• Market research is required to understand the risk accumulation, nature and quantum of risk exposure, per event possible maximum loss, mortality pattern and age etc.. So as to create viable risk pools for insurance.

• Rigorous capacity building exercise for all the stake holders.

Migration and Remittances: Recommendation and strategy 3

3 (For more details please refer to the draft report on the role of migration and remittances in rural Bihar ,

ODI, by Deshingkar et al, 2006 )

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BRLP should consider the following to deal with the issue of migration and remittance as more then 30% of the total rural population and despite being migrating is unable to provide timely financial help to their family due to poor remittance service in far of rural areas:

• Building up a comprehensive database on migration by caste, asset holding, occupation, duration and returns, remittances earned and transferred in their own project districts.

• Facilitate the provision of information on rights to migrant workers (especially to the most disadvantaged communities such as Musahar, Dom, Majhi) so that they can better protect themselves against exploitation (on work time, wages). In this regard collaboration between the proposed Livelihood Forum under BRLP and migrant support programmes that have worked successfully in other states could be considered.

• Facilitate the provision of information on health and provide health insurance coverage in collaboration with NGOs and government departments working in this area

• Help the poorest migrants to save and remit money to their families safely and efficiently. Carrying money home is extremely risky because of the high risk of theft when travelling. Sending by Money order is delayed and is also reported unsafe

• Help in creating the conditions for better investment of remittance in agriculture in partnership with private sector organisations and government

• Develop capacity building and skills enhancement programmes in collaboration with government and private sector organisations so that they graduate from unskilled to semi skilled workers and earn better remittances.

• Develop a relevant and effective mechanism like of the GVT model, mazdoor.com or any other organisation to make the whole process hassle and exploitation free.

• The project should pilot products and processes for safe, timely and micro remittances by exploiting electronic media in its project district.

• Seek collaboration with various agencies and provide capacity building support to identified MFIs and SHGs .

• Given below are some of the names (not on the basis of priority) to become potential partners to BRLPS as SHPI and NGO-MFI. BRLPS can grade them as per the parameters given above; undertake a detailed joint initial assessment to know their exact and detailed needs before incubating them as SHPI or NGO-MFI. BASIX has helped SIDBI and ICICI to incubate a large no of NGOs to become SHPI and NGO-MFI based on the above criteria.

Potential Partners that can be incubated as SHPI and or MFI Potential Partner Districts NIDAN Patna and many districts

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ASSEFA Gaya,Jamui CPSL Patna and many districts Nirdesh Muzaffarpur,Sitamarih, Darbhangha Mukti Niketan Banka Kanchan Sewa Ashram Muzaffarpur REED East Champaran Sakhi Madhubani Gram Vikas Parishad Madhubani, Darbhanga Binoba Arogya Awam Lok Shikshan Kendra Nalanda Gram Nirman Mandal Nawada Mahila Vikash Samiti Nawada Gram Seva Rajya Samiti, Patna Grameen Jan Kalyan Parisad Muzafarpur Institute of Khadi, Agriculture & Rural Dev. Saran Jan Vikas Samiti Saran Jeevan Joythi Kela Kendra Muzaffarpur Matadin Mahila Manch Muzaffarpur Samajik Vikas Santhan Trust Madhubani SIDRIB Patna Surkje Rohtas

However BRLPS should also consider the various capacity building and training needs of many other small and medium sized SHPIs (see annexe-6) and should also consider their financial requirements to act as an efficient SHPI who in the long run can transform into MFI. BRLPS also need to identify and nurture some of the key livelihood promotion and MF training institution in Bihar and the country who also provides training in Bihar both for the Sr /management level as well as the field workers. A data base of different agencies is being provided in Annexe-7 who is engaged into providing training on various aspects of LP and MF in Bihar. As Bihar lacks in quality human resources and quality infrastructure for training purpose, it will be important for BRLPS to even consider opening up a state of the art LP and MF training institution where various outside agencies can come and deliver training on various aspects as may be required from time to time.

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ANNEXE – I CASE STUDY: NIDAN Micro Insurance Programme in Bihar

Maximising outreach Introduction Started in 1995, NIDAN was formed with an objective to enhance welfare of workers, particularly those in the unorganized sector, and assure a secure future for their families. NIDAN initially began its operations in the urban areas, but seeing the tremendous scope for improvement in the rural areas, the NGO realigned its strategies to offer social uplift programmes for the rural sector where citizens are deprived of state-sponsored social security net. The organization has since worked at the grassroots level in sync with village panchayats for better social security delivery systems and has increased the outreach through networking with state sponsored organizations like NASVI and Bihar Forces. NIDAN actively strives to organize self-help groups (SHGs), cooperatives, CBOs, to meet its strategic goals. Track Record Since its inception, NIDAN has shown significant achievement in terms of social upliftment of the weaker sections by reaching out to 40,000 families in Bihar and Jharkhand region. With its well-coordinated efforts, it has promoted 1,800 SHGs and 18 collective enterprises and cooperatives. One of the core areas of its NGO operations is to provide legal aid and promote association of workers in the unorganized sector. Over the years, NIDAN has consolidated its position by having access to credit and savings of Rs 1.47 crore and on lending; it has managed savings worth Rs 60 lakh. The valiant efforts of NIDAN team in seamless coordination with government and state sponsored agencies have resulted in promotion of social security covering insurance, child care services, educational, housing and health services to workers and families of the unorganized sector. Geographical Spread NIDAN has aligned its activities to cover Bihar and Jharkhand. The key areas are Patna, Vaishali, Katihar, Muzaffarpur and Samastipur. A breakup of the coverage of these areas is as follows: Patna: Patna Sadar, Danapur, Patna City and Fatua. Vaishali: Hazipur, Bidupur, Rajapakar, Deshri, Raghipur, Jandaha and Mahua.

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Katihar: Katihar, Pranpur, and Korha. Muzaffarpur: Mushari and Kurhani. Samastipur: Samastipur and Warsinagar. Foray Into Insurance After its initial launch in 1991, the NIDAN team quickly realized the need to build strategic alliances with insurance companies to achieve its main objective of providing insurance benefits to the rural population of Bihar. Its efforts paid off in a short span of time as it established links with the LIC for group insurance and insurance for loaners, and with NIC for mediclaim and Jan Arogya. In 2002, NIDAN conducted a study on insurance needs of the poor by collecting 1,000 rural and urban samples and identified aspects like sickness, risks and crisis, life insurance and assets to be brought under the insurance protection cover. To accomplish this task, NIDAN approached moneylenders and grassroots level organizations that contributed generously for the funding of the project. Popularising Insurance After identifying the insurance needs, NIDAN was faced with a challenge of popularizing insurance benefits to the weaker sections of Bihar and Jharkhand. The process began with educating people about group insurance and the difference between savings and insurance. Community leaders were roped in and convinced to promote the benefits of insurance cover to their respective communities. Villagers were cited examples of families, which are already enjoying the insurance benefits. The impact of this promotion was substantiated by the fact that many of the workers showed willingness to opt for an insurance cover by spending some part of their savings. At sok sabhas too the NIDAN team talked to villagers to highlight the benefits of insurance cover to men, women and children. To make these ventures successful, NIDAN team members underwent a rigorous training schedule conducted by the insurance companies to equip them with answers to any kind of questions on the subject. During its campaigning, the team realized the importance of easy payment options for the rural workers for the ultimate success of the mission and offered an effective tailor-made installment plan as per the individual’s capacity. Village workers were also given a choice to opt for thrift and credit programmes. Aggressive field campaigning was also seen as another essential tool to promote the insurance benefits amongst the rural masses.

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In the midst of these efforts, NIDAN became the first corporate insurance agent in Bihar. It focused on poor friendly schemes of LIC. The organization now provides group insurance, individual insurance, health insurance and life insurance. The following table illustrates NIDAN’s efforts in the insurance field Table: Life insurance sales in Bihar & Jharkhand over 2004-05

District 2004 2005Katihar 401 1305

Khagaria 764 1339Nawadah 18 42Vaishali 1011 2160

Muzaffarpur ----- 571Patna 3542 4699

Begusarai ---- 73Total 7740 12194

Challenges The majority of workers in the unorganized sector do not opt for insurance cover because of the myth that insurance companies do not give claims and their hard earned savings will not give any return. So, NGOs like NIDAN face a major challenge of educating and training uneducated rural population about insurance claim process. They have to act as an honest mediator between the target groups and insurance companies to settle claims. Further, NGOs have to constantly help insurance companies to design effective solutions for implementation of claim settlements by involving the target groups in preparation of claim settlements. Lack of adequate medical infrastructure and qualified doctors in the unorganized sector poses a major challenge to success of the mission. Also, the target groups have to be persuaded to visit good doctors and well-equipped hospitals, which are not easy to be found. Formation and sustenance of claims committee is another key challenge that NIDAN took on as it moved into the insurance space. Strategy To overcome the stiff challenges, NIDAN sought to develop the following strategies in popularizing micro-insurance products. Tailor-made packages as per individual requirements to cover major risks. Aggressive publicity and awareness needs at the national level to bring the programmes in campaign mode. Development of a dynamic MIS system for better feedback and accountability. Regular monitoring of age and health conditions of insured members through regular medical check-ups. Involvement and consent of all family members.

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Error free documentation—this was important due to the rate of illiteracy in the unorganized sector and the emphasis on correct entries by all insurance companies and banks. Building Awareness: As discussed earlier, success of micro-insurance products hinged on robust awareness programmes. NIDAN believes this could be made possible through the following ways: Insurance related discussions and forums be part of monthly meetings of SHGs, cooperative and market committees. Community leaders organize cluster meetings on insurance in their respective communities by inviting NGO executives. Target group leaders be given quality training on insurance policies and updates to create constructive awareness amongst the target group. Case studies of various agencies on the subject matter are shared amongst the target groups. Gram Sabha should be organized and matured claims disbursed in community meetings to instill a feel-good factor amongst the target groups. Promotional material like scheme pamphlets, scheme posters, claim pamphlets, hospitals name and address pamphlets be regularly circulated amongst the target groups. Claim Settlement Claim settlement is key to winning the trust of potential micro-insurance buyers. This is because, claim settlement in the unorganized sector is marred by false claims, false bills, use of undue pressure by communities, complicated cases like succession, murders, suicides and staff getting soft on false cases. Members do not easily accept further, genuine rejections and they leave a negative impact on prospective insurers. Over-enthusiastic insurance players offering false promises to target groups have also adversely affected the integrity of the mission. NIDAN maintains that convincing target groups for membership renewals becomes a daunting task as family discourages them and community members to further invest in the protection cover. Key Learnings In the years since NIDAN promoted micro-insurance products, the team has come to realize that the poor and deprived workers in the unorganized sector would opt for insurance covers provided they are assured of speedy claims and educated about the products on an ongoing basis. Monitoring should be regular and qualified and certified members should only handle claims. Further, the insurance officers should be sensitized on regular basis on attitude matters when dealing with unorganized sector workers. Insurance covers should be issued to only those target groups, which have regular interaction with the organizers. And, the organizers should conduct orientation

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programmes and motivate team members before assigning them the responsibility of marketing insurance products to the workers in the unorganized sector. NIDAN pioneered the selling of micro-insurance products in Bihar and Jharkhand, and has indeed set benchmarks for big insurance companies to assess the market potentials in this region. It would not be long before, the region sees a spurt in micro-insurance activities.

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ANNEXE-2 COLLABORATION by RRB Bihar Kshetirya Gramin Bank, Munger came up with well-designed livelihood Micro

financing in 8 districts of their juridiction. They have come up with well functioning

collaborative polygon in their working area. With their collaborative effort 151 branches

of BKGB generated approx. 10000 livelihoods with cumulative loan disbursement of

Rs.33424000/- up to 31st Nov. 2006. Munger district is famous for pistol and rifle

business. The Govt. gun factory was closed in the year 1983. This district is also known

due to tobacco cigarette manufacturing by ITC. Major junk of population is agriculturist

and involved in agri-allied businesses. Temporary migration is prominent in this district.

Historically it was under Ang Raja. As per Mahabharat Karn devoted his life to Maa

Chandi at Chandi Asthan. A hot water aquifer is also present in Munger at Sitakund.

Their savings, loan outstanding and CD ratio of last 3 years is as

Year Savings (Rs.) Outstanding loan

(Rs.)

CD Ratio

2002-03 10940000 1842000 18.57

2003-04 12219730 2267000 18.55

2004-05 13385820 2979060 22.25

For rural micro financing BKGB started promoting SHGs by themselves from the year

1992. They started with village meeting. Before entering into any village they advertised

through local dhol system. They start the meeting with sharing the social benefits of a

group. Slowly they came up with economic support without subsidy model. They initially

segregate the members as per their activity and caste. After 2-3 meetings the banker gave

training to the group for better understanding of group norms, account keeping,

leadership development, banking process and market availability etc. For this group

promotional activity they had made collaboration with SEWA, ASEFA, BIAF, YASH,

other local NGOs and Kisan Club formed by BKGB itself under scheme of NABARD.

BKGB, which act as SHPI assists small NGOs and Kisan club to be SHPI of NABARD.

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The finance to these SHGs is done by BKGB itself. BKGB linked all these SHGs with

COMFED, BIAF, SEWA, ITC and CHIRAG for input linkage, technical support and

market linkage. BKGB intervene in dairy, agarbatthi making, candle making, vermi

compost, garment selling and agriculture. Their special intervention came up in

watershed and food processing unit under NABARD schemes. For each interventions

BKGB federate 3 SHGs into a federation. In dairy BKGB with the help of NGOs

promote 23-federation marketing linked with Sudha Dairy, Barauni. For Agarbatthi

making, which is a project of SEWA and ITC 17 federation is developed. In this trade

raw materials are supplied by ITC through SEWA weekly and finished produced are

procured weekly. Payment of procurement is done monthly. It is unscented sticks and

wage rate is Rs.14/- per kg. BKGB with support from NABARD started 2 Apna Kendra

where grocery items and processed food from different SHGs are sold. But in every

activity the structure and functioning is same i.e. with 3 SHG - one federation. The

regional coordinator Mr. A. K. Chaudhary of BKGB Munger told that their target is to

develop a family by supporting one cow to male member, one cottage industry of

agarbatthi to women member and a vermi compost unit to the family. All will be done

without subsidy model of DRDA. He told that be introducing of subsidy model financing

from 1999 to group, stop and hinder the SHG movement in Bihar. SJSY is group finance

not SHG finance. SHG finance is different as it leads to attitudinal change of being Self

Help, Self-initiator and us. In SHG finance SHG on lend it to their members by charging

interest. Micro finance will not beg for subsidy.

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ANNEXE-3 Sashi Bhusan Smirity Sangh (SBSS) - A new form of Institution

Sashi Bhusan Smirity Sangh (SBSS) is an informal institution of male situated at village

Bhutauli, block- Chautham, dist Khagaria. It was formed in the year 2002 with an

objective to have access of small loan to meet their immediate productive & consumption

needs. This institution had generated cumulative saving (including saving & interest

earned) Rs.144163/-. Total loan outstanding is Rs1, 40,964/-.It is neither self-help group

nor cooperative.

Village Bhutouli of block Chautham is a remote village dominated by other backward

class (Chawrasia, Kurmis and Koyeries). The economy of village depends upon

agriculture & agri allied activities besides the poultry. 40% of total households migrate to

Delhi,Punjab & Hariyana for sowing & harvesting of paddy & wheat. 2 private schools

are also present in the village.

With the initiation of some youths, who have come across with the system of chit funds,

during their migration period at Delhi. An informal institution emerged in Bhutouli

village and spread up in Khagaria districts.At present 20 such informal group is

witneshed at Khagaria. The coordinator of SBSS Mr. Pravas told that in Delhi model, on

fixed date every one have to deposit a fixed amount and is taken by one person through

vendor. In this system one has to take money in loss also it is not guarantee to have

money in time. One who took money for one time his eligibility of taking money goes

away from that committee. In the year 2001 they started this informal group with 5

members. They held their first meeting on 28-01-2002. With small change in the Delhi

model they finalize their byelaws. They started saving of Rs.50/- per month. At present

total member is 28. Those who came late entered in-group by giving the late fine with

cumulative savings. They started inter loaning from day one of their meeting. The rate of

interest they fixed is 2% monthly. The term for repayment is fixed to 6 months. In special

case it can be exceeded up to one year. They earned an interest of Rs. 1554/- at the end of

1st year. They opened a bank account at Bihar Khetriya Grameen Bank. (Pipra branch,

A/C no.2219/14 on 28.03.2003) They have simple accounting system of individual

saving, individual loan, accrued loan and loan outstanding. At present total outstanding

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loan is Rs. 140964/- with cumulative money kept with them is Rs. 144163/-.( Savings is

Rs.82320/-, Interest is Rs.61093/-, late fine earned is Rs. 750/-, Expenses made by group

is Rs. 1248/- and in bank they have Rs. 1951/-) Their secretary told that they are in this

position because they followed their byelaws strictly. He told that their group is a model

self help group and they didn’t required any subsidized loan. This group wants to be a

bank at their doorstep for their 28 members. They are in need of capital but what are the

ways, as it didn’t come up in a SHG or under cooperative

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ANNEXE-4 DAIRY under SGSY –Effecting the movement

Self Help Group No-5 formed under NABARD scheme in the year 2002. Group lost their

identity of being SHG after linked up with SJSY scheme. With their cc limit of

Rs.325000/- they had taken a loan of Rs.144000/-.

This SHG is formed at Nirpur village of Chautham block, Khagariya district. The village

has mixed population with majority of small and marginal farmers. Water table is at the

height of 15-20 foot. About 40% of population migrates in the month of December and

came up in the month of March. On 25-12-2002, under the scheme of NABARD 15 male

agriculturist came up in-group. They started monthly meetings and savings of Rs.50/- per

member. Up to March 2006 they generate total money of Rs. 45132/-. This includes

saving, interest earned and the grant money of Rs.15000/- of their 1st RLF which was

given on 22-10-2003.

The group gave a proposal of mini dairy and got sanctioned on 24-05-2005. Chandan

Pathak, secretary of this group told that they had taken this loan under pressure of LEO

and LDM. Under the supervision of bank manager and LEO they purchase 9 cows from

Begusarai as per the choice of BAHO’s vender. This cost Rs. 144000/-. The cows had to

kept in a common place. The group spent Rs.70000/- (Approx) in forming the shed for

cows, which had to be supported by DRDA. They had made a system of daily rotation of

their work. Three persons had to look after these cows and two persons were responsible

for marketing. They had not getting any honorarium for doing these works. They had put

2 labour of Rs.2000/- each to assist the group in dairy business. The recurring expenses

for doing this business as stated by Mr. Chandan was Rs.14800/- which includes feeds,

medical, labour and transportation of milk. Initially the cows were giving 80 liters of milk

per day, which they sold at Laxmipur Dairy, 7 k.m away from their village and got Rs.8/-

per liter. Monthly they were getting Rs.19200/- They had done their business with

Laxmipur dairy for only 3 months. As the party have overdue of Rs.15000/- After that

they have started selling milk at Telaunch another dairy cooperative and within 3 months

the other party had also overdue of Rs.4500/-. They had given an application in Barauni

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dairy to link up their group. But it is not linked till date. The milk quantity within 6

months had reduces to 22 litre per day. The banker was supposed to gave the 2nd

installment to make up the milk production. The group failed in availing 2nd loan as they

repaid only Rs.10000/- within time period. Now the group has not any money to feed

their animal. So they sold the cows within self and earned Rs.70000/- and reduce their

loan amount. At present the group is no more and all became lonee of bank.

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ANNEXE-5 MISSION SHG:- A strategy for sustainable growth of SHG – Bank Linkage Programme in Bihar

1. Backdrop

• In Bihar, banks credit linked 18206 SHGs during 2005-06. • Chairman, NABARD after holding high level discussion with the Chief

Minister, senior state officials and bankers during his visit to the State, set an objective of credit linking 36000 SHGs during 2006-07. The Managing Director of NABARD reiterated this target for banks in a Special SLBC meeting held on 21 June 2006.

• Hon’ble Ujnion Finance Minister confirmed this as a mandate to banks in the Special SLBC meeting.

• Thus, the “Goal” is clearly set – “Doubling of SHG credit linkages from 18206 in 2005-06 to 36000 in 2006-07 – A challenging but not impossible task.

• Long Term Mission : “Sustainable growth of SHG movement in Bihar” • This calls for a clear strategy and systematic team efforts by all partners.

2. SHGs – A strategy for promoting inclusive banking in Bihar

• There are some obvious pointers to continuing financial exclusion of rural poor in Bihar. These are :

As high as 42% population lives below the poverty line. 93% farmers are small farmers with average land holding below 0.91

ha. Population pressure on developmental resources is high i.e. 8% of

national population thrives on only 2% of geographical area occupied by the State.

CD ratio in the state is below 35%. Average population served per bank branch in the state is high at

22000 suggesting inadequate banking network, especially for rural lending. This problem gets aggravated due to very weak cooperative credit structure.

The State is characterized by very low Human Development Index (HDI), poor infrastructure and weak extension network in rural areas. Banks, therefore, are not enthusiastic about direct lending in rural areas.

• Under the circumstances, banks in Bihar would have to reach out to a large unbanked rural population in a short time and cost effective manner by adopting innovative credit delivery strategies such as lending through SHGs.

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• In other states, lending through SHGs has proved to be an effective way of banking with large number of rural poor in a cost effective, timely and transparent manner.

• During 2005-06, only 18206 SHGs were credit linked in Bihar as against 4,92,927 in AP, 2,20,696 in Tamilnadu, 57,640 in Orissa, 38,166 in Rajashthan and 25,215 in Assam. Bihar ranked eleventh among the states in terms of SHGs credit linked during 2005-06.

• Sustainable and systematic growth of SHG movement in the state can be ensured only by creating widespread awakening among people and institutions, particularly banks, investing in their capacity building and ensuring team work among them.

3. Huge untapped SHG potential in Bihar

• As per the broad estimate, there is a long term potential for forming approximately 6.25 lakh SHGs in Bihar. Around 1.20 lakh SHGs are reported to have been formed in Bihar by various agencies, leaving untapped potential for formation of over 5 lakh new SHGs.

• There has been a steady progress in credit linkage of SHGs in the state as banks credit linked 8085 SHGs in 2003-04, 11769 in 2004-05 and 18206 in 2005-06. On a cumulative basis, 46221 SHGs were credit linked up to March 2006, leaving a huge stock of SHGs for credit linkage at the beginning of 2006-07.

• NABARD, with the help of over 130 partner NGOs, banks, Farmers Clubs and Individual Rural Volunteers (IRVs) is assisting in promotion of over 13000 SHGs in the State. NABARD will continue to assist new agencies for promoting more SHGs in future.

• Bihar Women Development Corporation (BWDC), through partner NGOs is reported to have promoted 11000 SHGs. Around 6000 SHGs were credit linked with banks. Thus, over 5000 eligible SHGs are available for credit linkage be banks. BWDC is also launching livelihood promotion programmes in 6-7 districts with IFAD / World bank assistance under which villages will be saturated with SHGs.

• SHGs are also formed under programmes such as Swa-shakti, Mahila Samakhya, watershed/forest development etc. Some social/charitable agencies are also forming SHGs.

• Banks have to credit link these SHGs too. Regular sharing of MIS on SHGs formed by these agencies with NABARD and controlling offices of banks will help in their timely credit linkages.

• Block Panchayats are facilitating promotion of SHSY groups. All of these groups may not get subsidy linked credit support immediately due to budgetary limitations under SGSY. SGSY groups which are functioning satisfactorily in tune with SHG concept can be initially credit linked under

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SHG Bank Linkage Programme.

• Huge potential for promoting SHGs though Farmers’ Clubs (FCs) remains unexploited in the State. As on March 2006, 725 FCs were promoted by banks with the help of NABARD and 800 new clubs were expected to be promoted during 2006-07. NABARD also extends assistance to Farmers Clubs for promotion of SHGs. Assuming that each club will be able to promote at least 10 SHGs, formation of about 15000 SHGs can be ensured through Farmers Clubs in the near future.

• Opportunity exists for promoting SHGs under Cattle Development Programme implemented by BAIF and Bihar Horticulture Project.

• Many smaller NGOs are willing to embark on SHG formation but need proper guidance. These NGOs have to be identified and guided to participate in SHG Bank Linkage Programme.

• Thus, SHG movement can see robust growth in Bihar, if all the stakeholders take necessary initiatives on their part.

4. Stakeholder in SHG movement and their role Major stakeholders in SHG movement and their roles are as under :

(i) NABARD

• NABARD, as an Apex organization is steering SHG Bank Linkage Programme in the State.

• DDMs of NABARD act as prime movers of SHG movement at the district level. They are in a position to guide and assist important players such as banks, NGOs, Farmers Clubs and SHGs.

• NABARD provides grant assistance to NGOs, Farmers Clubs, IRVs, Banks for promotion of SHGs and their capacity building.

• NABARD facilitates training and capacity building of various players including banks and extends concessional refinance support to banks.

(ii) Banks

• Banks have to realize that SHGs is a very good business proposition for rural branches. It is a cost effective way of enhancing their outreach, loan business and marketing of small loans.

• Banks, therefore, have to develop mutually beneficial business relationship with SHGs / NGOs / Farmers Clubs / IRVs and other SHPIs. They are banks’ partners in tapping the untapped business.

• Corporate level commitment of banks for financing SHGs has to be translated into a SHG Business Plans of rural branches. This requires internalization of SHG agenda and objective monitoring of the progress by banks.

• Conscious efforts are required by banks for easing SHG account opening and credit linkage procedures so as to reduce hassles and delays faced by SHGs.

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• Branch-wise database on SHGs is required to be maintained for effective follow up with branches for timely credit linkage of eligible SHGs. Flow of MIS from branches to controlling offices and further to NABARD/SLBC needs to be streamlined.

• Awareness has to be created among branches to realize that denial of credit to SHGs not only results in financial exclusion of poor but also means loss of present and future business opportunity to banks.

• Bank branches have to develop conceptual clarity on difference in normal SHG business and financing to SGSY groups. SHG concept believes in extending non subsidized loans to homogeneous groups of poor. Financing of bigger loans for undertaking projects in not compulsory under SHG concept. Neverthless, huge business opportunity for quality loaning is available under SHGs.

(iii) State Government

• State government has a role of facilitator in SHG movement by creating supportive policies and congenial atmosphere. Recent decision to waive stamp duty on SHG loans up to Rs.5.00 lakhs by the State Government is a welcome step.

• State government may designate an appropriate agency (other than DRDA) having strong presence in villages for promotion and monitoring of SHGs outside SGSY. Aganwadis / ICDS would be the preferred agency being women oriented and village based. Anganwadis may also coordination with bank branches for saving / credit linkage of SHGs.

• Groups promoted under SGSY may also be oriented to function as cohesive groups on the lines of SHGs.

(iv) Bihar Women Development Corporation (BWDC)

• BWDC is a major SHG promoting agency in the state having reportedly promoted around 11000 SHGs. However, only about 5500 SHGs promoted by BWDC are credit linked with banks.

• Field functionaries of BWDC/ Partner NGOs and bankers may have to work together for accelerating the process of SHG account opening and credit linkages. Conscious efforts are needed to coordinate with NABARD and banks at the state/district level for monitoring credit linkage to SHGs.

• District-wise and Branch-wise MIS on SHGs formed and linked may be regularly shared with NABARD, SLBC and Lead Banks.

• BWDC may expand its SHG promotion activities in all the remaining districts of the state.

(v) SHG Promoting NGOs/Agencies

• NGOs having rural presence may seek support from DDMs, LDMs and banks to function as SHPIs.

• Conscious efforts are needed by NGOs to develop close rapport with branch personnel for ensuring hassles free banking service to SHGs.

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• NGOs supported for SHG formation by NABARD, BWDC, etc. have to ensure completion of projects within the prescribed time frame. NGOs which have completed their earlier projects may apply for fresh project for formation of new SHGs in other villages.

• For healthy growth of SHG movement and maintaining the quality of SHGs, NGOs / SHPIs need to provide necessary capacity building inputs to SHGs till SHGs become mature.

(vi) Farmers Clubs (FCs)

• SHG oriented members may be inducted into Farmers Clubs to accelerate the SHG formation process. NABARD also supports FCs with a promotional grant and capacity building support for SHG formation. This activity can become income generating proposition for FCs.

• Apart from SHG formation, Farmers Clubs may be involved in book writing and monitoring of SHGs. Farmers Clubs may function as extended arms of branches for nurturing SHGs.

(vii) Capacity Building/Training Organisations

• Good quality of SHGs can be ensured only through continuous training of their members/leaders. Orientation and capacity building of functionaries of NGOs/ banks is also equally important. NABARD supports various training programmes at village / district / state levels.

• Both formal trainings through structured modules and informal – on the spot trainings are needed under the programme. Agencies have to develop their in house capacity for imparting training to SHGs and staff.

• A team of SHG trainers may be develop at district/block levels. This may includes – Banker, NGO facilitators, Farmer Club members, matured SHG members, Panchayat representatives etc. They may be invited as resource persons in various SHG related events.

5. Specific Action Plan and strategies for Partner Agencies

Agencies have to adopt specific strategies for effectively discharging their responsibilities under SHG – Bank Linkage Programme. Some of the key strategies are indicated below, agency-wise:-

(i) NABARD

• Allocating district-wise and bank-wise SHG credit linkage targets and communicating the same to banks, DDMs/LDMs and SLBC.

• Expanding the base of SHG Promoting Institutions (SHPIs) i.e. NGOs, IRVs and Farmers Clubs. Extending grant support to RRBs / Cooperative banks to become SHPIs.

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• Organising sensitization / orientation programmes and exposure visits for senior, middle, field level officials of banks and NGOs. Holding strategy cum review meetings with CBs, RRBs, DCCBs, SHPIs/NGOs/WDC officials.

• Facilitating training and exposure visits of SHG members, facilitators/animators from NGOs, Farmer Clubs members and IRVs.

• Participation in branch managers’ meetings organized by different banks for sensitizing and guiding them of SHG Bank Linkage Programme.

• Preparation and supply of publicity material to banks, NGOs and Farmers Clubs. Documentation and dissemination of success stories among bankers/SHPIs.

• Obtaining MIS under SHG Bank Linkage Programme from banks and facilitating review of progress.

• Presenting awards to best performing banks / branches / NGOs / FCs in recognition of their excellent performance under SHG Bank Linkage Programme.

• Providing concessional refinance support to banks to the extent of 100% of loans extended to SHGs.

(ii) Strategies at District Level (LDMs, DDMs, Area/ Controlling Offices, NGOs/SHPIs, etc.)

• Allocating bank-wise and branch-wise SHG promotion and credit linkage targets in the district.

• Discussing strategies for SHG linkage in BLBC / DLCC meetings and reviewing of branch / bank-wise progress through monthly returns and in meetings.

• Constituting informal Core Team comprising of DDM, NABARD, LDM, Area Manager of RRB, District Coordinators of banks, SHG Link Officers of banks, WDC representatives, Heads of NGOs/SHPIs for collectively leading SHG promotion and linkage campaign in the district.

• Taking up structured branch visits jointly by DDMs/LDMs/District Coordinators and NGO/SHPI representatives to creating SHG awareness and identifying eligible SHGs for credit linkage process. Organising branch visits with senior bankers such as RMs / ZMs of CBs and Chairmen of RRBs so as to provide momentum to SHG linkage.

• Identifying branches/villages where Bihar WDC has promoted SHGs and ensuring time bound credit linkage of all the eligible SHGs by branches.

• Encouraging local NGOs to function as SHPIs by occasionally inviting them to attend SHG related programmes organized in the district and providing hand holding support.

• Encouraging promotion of Farmers Clubs and orienting them for SHG promotion with grant assistance from NABARD.

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• Inviting successful bankers, NGO workers, Farmers Clubs members, SHG members for interaction in training programmes/workshops, branch manager meetings, BLBC/ DLCCs, etc. for sharing of experiences. Organising visits of bankers / NGOs / Farmers Club members to successful branches / SHGs.

• Promoting team spirit among various stakeholders in the district by ensuring their participation in all the SHG related programmes.

• Organising “SHG Linkage Camps” for account opening and credit linkage of SHGs for enhancing awareness among rural people and promoting competitive spirit among SHGs/bankers. Involving experienced staff of SHPIs, members of Farmers Clubs and matured SHGs in organizing SHG camps.

• Inviting senior officials of NABARD, banks, WDC, NGOs to various SHG related programmes at village / district level with a view to sorting out operational problems and building corporate commitment.

• Facilitating exchange between SHG members and SHPI / Bank staff from different areas for experience sharing and promoting healthy SHG culture.

• Jointly instituting / sponsoring District Level SHG prizes by banks, WDC, NGOs etc. for rewarding the best banker, best SHG, best Farmers Club, best NGO, etc., who may later be nominated through DDMs for State SHG Awards instituted by NABARD.

• Ensuring that branches submit SHG related information/returns to LDM/Controlling offices and consolidated returns are submitted to NABARD / SLBC.

(iii) Strategies for Controlling Offices of Banks

• Deciding bank’s “Vision” about “SHG Business” and communicating SHG business goals to branches in terms of new SHG accounts, credit linkage of SHGs, repeat loans to SHGs, etc.

• Ideally, rural branches may aim at having at least 100-150 S.B. accounts of SHGs and all eligible SHGs may be credit linked within one month from becoming eligible for credit linkage. SHGs which have repaid earlier loans may be given repeat loans within one months of closure of earlier loan.

• Branches may be categorises as high share and high growth branches in respect of SHG loan business. Such branches may be advised to have sharp focus on SHG business and their progress may be monitored by controlling offices.

• One officer may be identified to function exclusively as “Link Officer for SHG / Farmer Clubs” to assist branches in each District/Cluster. He should possess required orientation, skills and zeal to work with SHGs / Farmer Clubs / NGOs and ability to motivate others.

• Branches may be advised to submit information indicating number of S.B. accounts of SHGs, details of SHGs, new SHGs eligible for credit linkage, SHGs eligible for credit loans, SHGs credit linked, cumulative progress of

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SHGs linked, etc., on a monthly basis. Branch-wise information may be shared with DDMs and LDMs. Consolidated information may be furnished to NABARD / SLBC.

• Progress under SHG business may be reviewed personally by Controlling Heads during branch visits and review meetings with a view to guiding branches Officres on SHG linkage strategy. SHG review may be accorded high priority during branch visits and business meetings. DDMs of NABARD may be invited to share their observations in branch review meetings.

• Exclusive sensitization meets on SHGs/Farmers Club may be organized for branch staff in which DDMs, LDMs, NGO Heads, WDC officials may be invited for guidance. Besides, one session on SHG linkage may be planned in all the training programmes conducted by banks for rural branch staff. Branch staff may be deputed for attending SHG related trainings, particularly those organized by NABARD. Staff of SHG deficient branches may be provided exposure to SHG saturated villages of other branches / banks.

• Senior / middle level officials in the controlling offices may also be provided SHG related training and field level exposure for developing their understanding and commitment about SHG business. Banks may organize such programmes with the help of DDMs/LDMs.

• Banks may prepare an inventory of NGOs/SHPIs functioning in their area of operation and extend guidance / cooperation to them. Details of SHGs may be regularly obtained from such NGOs/SHPIs.

• Banks may also identify and encourage Individual Rural Volunteers (IRVs) and Farmers Clubs to act as SHPIs, particularly in NGO deficient pockets. Guidance and help of DDM, NABARD may be sought for sending proposal to NABARD for grant support.

• A set of guidelines on simplified SHG account opening and loan documentation procedure may be sent to all branches once again. Loan documentation procedures of all SHGs in a village may be completed by branches on a predetermined day preferably in the village itself so as to avoid hassles and delays faced by SHGs.

• Branches may be advised to observe one day as “SHG Day” in a week. SHG llink officers may visit branches on SHG Days as per the pre decided schedule and render active help to branches in SHG related matters.

• Names of SHGs which are eligible for credit linkage but have not applied for loan or have not been credit linked may be displayed at branch premises. Branches may be asked to convene SHG leaders’ meetings at regular intervals for reviewing the functioning of individual SHGs, checking their records and review of credit linakge.

• Recognition may be given to branches which have rendered dedicated service to SHGs. Branch staff may be given an opportunity to attend

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quality trainings and they may be deputed as resource persons on SHGs. Their good work may be publicized in in-house journals / various forums.

(iv) Strategies for Bank Branches

• Branches may set a time bound objective of extending SHG linkage programme in the entire village served by them. Ideally, each branch may decide a goal of having at least 100-150 saving accounts of SHGs (outside SGSY) by March 2008. Branches may saturate at least five villages with SHGs of men / women.

• Branches may form Grass Root Teams (GRTs) for expanding SHG business in villages. GRTs may include select Farmers’ Club members, anganwadi staff, school teachers, NGO volunteers, members of matured SHGs, panchayat members, etc. GRT members may be oriented for formation and nurturing of SHGs.

• Branches may maintain village-wise details of SHGs. Bimontly Review cum Exchange meetings of SHG leaders may be convened at village / cluster / branch level to guide SHGs on credit linkage and other aspects. Officials such as DDM, NABARD, LDM, Controlling Heads, Area Managers, NGO Heads, SHG link officer, District Coordinators, Farmers’ Club coordinators may be invited in such meetings for guidance. SHGs eligible for credit linkage may be identified. Weak SHGs may be guided for overcoming the weaknesses and credit linkage in future.

• Entire branch staff may be involved in SHGs related work in branches / villages. Staff may be motivated to adopt positive and supportive attitude towards SHG members and extend hassle free service to them.

• Branch staff may synchronize their village visits on SHG meeting days. In order to facilitate this, all SHGs in a village may be encouraged to hold meetings on the same day.

• Branch staff may examine the records/accounts of SHGs during their visits to villages or visits of SHG representatives to branches. The importance of regularity and accuracy in maintenance of accounts may be emphasized. Members of GRT / Farmers Clubs may also be motivated to take up this task voluntarily. SHG leaders / members may be trained regularly in various aspects of SHG functioning and record keeping.

• Branches may regularly identify SHGs which have become eligible for credit linkage and credit links them immediately. SHGs which have repaid earlier loans may also be extended repeat loans at the earliest. Loan applications of SHGs may be disposed off within one week from the date of receipt.

• SHG account opening and credit linkage procedures may be completed with the help of GRT / Farmer Clubs. Undue delays and hassles in completing the formalities may be avoided. Credit linkage of SHGs may be carried out in a transparent manner in the presence of all SHG members, members of GRT and villagers.

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• Undue interference in day to day functioning of SHGs may be avoided by branches. However, help may be extended to SHGs / NGO animators in promptly resolving disputes arising in SHGs.

• NGO animators, members of Farmers’ Club/ GRT, SHG members etc. are equal partners in SHG business and may be treated with respect and honour. They are extended arms of branches for marketing of bank products and promoting healthy banking culture in villages.

• Branches may obtain village-wise reports on SHGs from NGOs / FC / GRT and monitor the quality of SHGs.

• SHGs may be motivated by branch staff for undertaking community development activities. This helps in strengthening of SHGs, enhancing their sustainability and acceptability in villages.

• Branches may follow the following strategy for systematic credit linkage of eligible SHGs.: (i) Organize bimonthly meetings at branch / cluster level in which 2-3

representatives from all the SHGs may be invited. Members of NGO/FC/GRT may also be invited.

(ii) Facilitate SHG-wise discussion and identify SHGs which are eligible for credit linkage. Also identify SHGs which require repeat loans. Broadly assess their loan requirements.

(iii) Hand over loan application forms to identified eligible SHGs, guide them on loan formalities to be completed, and specify the date for submission of completed loan applications. NGO animators, SHG leaders, members of Farmeres’ Club / GRT may be requested to help SHGs in completing loan application formalities.

(iv) Weak SHGs which were not found eligible for credit linkage immediately may be guided on appropriate corrective action with a view to making them eligible for loan within a reasonable time frame.

(v) Upon receipt of loan applications from the eligible SHGs by a specified date, branch may complete the scrutiny, sanction loans and inform the decision to the respective SHGs, indicating the date for holding loan documentation camp. NGO animators, SHG leaders, members of Farmers’ Club/GRT may also be invited to the camp.

(vi) In a loan documentation camp on a predetermined date, branch staff, NGO staff, Farmers’ Club/GRT members, etc. may help SHGs in completing loan documentation formalities. Thereafter, the details of sanction of all SHGs may be announced publicly.

(vii) This process may be repeated for convenient cluster of villages so as to cover all village / SHGs in the service area.

6. Credit Linkage of SHGs – Some clarifications Generally, branches seem to have some dilemmas regarding credit linkage of SHGs. Some of the important clarifications are furnished below:

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i. Unlike in case of SGSY groups, loans to SHGs are extended without any subsidy from the government. Membership to SHGs under non subsidized SHG – Bank Linkage Programme is open to non – BPL households also.

ii. For loaning to SHGs under SHG – Bank Linkage Programme, banks do not have to depend on block officials for sponsoring of applications as SHGs under the programme are outside the purview of SGSY. Under SHGs – Bank Linkage Programme, branches can obtain SHG loan applications directly or through SHG promoting NGO / Agency.

iii. SHGs can be extended credit support by banks by extending several loan cycles, one after another, even without SHGs taking up any income generating projects. No project report is required to be submitted by SHGs even though they are availing bigger loans. Members of same SHG are free to pursue different activities if they so desire.

iv. Bankers are free to decide the loan amounts to SHGs in progressive loan cycles depending on consumption / productive credit needs of members. Banks need not look into appraisal of individual loan requirements ofo SHG members. Loan amounts are generally decided based on the quality of SHGs and own resources / savings of SHGs.

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ANNEXE-6 Senior Level Common Field Level

Management Skills Leadership

Development Mission and vision of the

Organization Sensitizing and involving stakeholders

Basic SHG management skill Best Practices at Group Level

Organizational Development

Advocacy Skills at all levels Basic SHG management skill

Financial Management Gender Linkage of SHG with various

program

Project Planning At NGO level

marketing Communication Skills/street

play/puppet show Capacity Building for RCH Skill Development Communication skill Accounts and Book Keeping

Micro –planning and action Marketing Micro-finance Documentation Computer Co-operative formation Account management Training for identifying IGA-/micro-enterprises

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ANNEXE-7 Capacity building Institutions: Senior Level Resource Agencies

Management Skills

NIRD,A.N.SINHA, ,DA,BIRD,NIPCID,EDA,SHAHBAGI SIKSHAN KENDRA,PEACE, NIRD, GRAMIN YOJNA KENDRA, CENORED

Organisational Development THREAD,SEARCH,CINI,CENCORD

Financial Mannagement SHAHBHAGI, GNK, DA, BIRD, INST. OF SOCIAL SCIENCES

Project Planning SPAR,DA,NIPCID,IIHMR(JAIPUR) Sensitizing and involving stakeholders PRIYA,CENCORD

Common Level

Leadership Development DA,LDM,ISMW,SSK,CENCORD,

Basic SHG management skill

BIRD,NIPCID,DA,RGVN,WDC,SEWA, NIRD, CENCORED, SHABBHAGI

Advocacy Skills at all levels

NCAS,BVHA

Gender CREA,GTI,JAGORI

At NGO level marketing

Capacity Building for RCH AGRAGAMI,NFI,PFI,POORVA,BVHA,CINI,CHETNA,MAMTA

Communication skill DA,RAVI BHARTI,CENCORD,IIMC,

Micro –planning and action CENCORED

Marketing MART,EDI

Micro-finance BIRD,TDS,MART,BASIX,BIRD

Documentation PRIYA,MARG,DA,PRIYA,WEE,SEARCH,CINI

Computer BIRD, SEWA, NIIT

Co-operative formation CYSD, SEWA NIDAN APMAS,MYRADA

Account management SHAHBHAGI ,GRAM NIYOJAN KENDRA, DA, SIDHARTH( THREAD) NBJK BIRD, NIRD,

MIS DA, EDI, SEWA, EDA

Training for identifying IGA-/micro-enterprises

BASIX,EDA,EDI,IRMA,BIRD,ISLP, GDS, PUSA, ICAR,

Field Level Mission and vision of the

Organization GTZ,CENCORD

Best Practices at Group Level

BIRD,NIPCID,DA,RGVN,WDC

Basic SHG management skill

BIRD,NIPCID,DA,RGVN,WDC,SEWA, NIRD, CENCORED, SHAHBHAGI REED, APMAS, BASIX

Linkage of SHG with various program

KVIC,WDC

Skill Development WDC,KVIC,,RAU,BIRD,NABARD

Accounts and Book Keeping

WDC,EDA

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