Rural Immersion Report:

Report on Micro financing model in Behragora - Success story and way forward

By

Manish Vijay (G14086)Mayank Sood (G14087)Naveen Kumar Pathak (G14088)Navneet Kumar (G14089)Nikhil Ramakrishnan (G14090)Nithin Thomas Kurian (G14091)

Contents

1.Introduction to micro financing and self-help groups-The Indian Context32.Celebrating success in Behragora43.Reasons for success of micro finance model in Behragora74.Role of Banks and NGOs85.Recommendations and Way forward96.Our Contributions107.Closure Comments118.APPENDIX12

1. Introduction to micro financing and self-help groups-The Indian Context MicrofinanceMicrofinance is often defined as financial services for poor and low-income clients offered by different types of service providers. In practice, the term is often used more narrowly to refer to loans and other services from providers that identify themselves as microfinance institutions (MFIs). These institutions commonly tend to use new methods developed over the last 30 years to deliver very small loans to unsalaried borrowers, taking little or no collateral. These methods include group lending and liability, pre-loan savings requirements, gradually increasing loan sizes, and an implicit guarantee of ready access to future loans if present loans are repaid fully and promptly.More broadly, microfinance refers to a movement that envisions a world in which low-income households have permanent access to a range of high quality and affordable financial services offered by a range of retail providers to finance income-producing activities, build assets, stabilize consumption, and protect against risks. These services include savings, credit, insurance, remittances, and payments, and others.Microfinance clients are often self-employed, household-based entrepreneurs. In rural areas, micro entrepreneurs often have small income-generating activities such as food processing and trade.

Self Help Group: A self-help group (SHG) is a village-based financial intermediary usually composed of 1020 local women or men. A mixed group is generally not preferred. Most self-help groups are located in India, though SHGs can also be found in other countries, especially in South Asia and Southeast Asia.Members make small regular savings contributions over a few months until there is enough capital in the group to begin lending. Funds may then be lent back to the members or to others in the village for any purpose. In India, many SHG's are 'linked' to banks for the delivery of micro-credit.A SHG may be registered or unregistered. It typically comprises a group of micro entrepreneurs having homogeneous social and economic backgrounds; all voluntarily coming together to save regular small sums of money, mutually agreeing to contribute to a common fund and to meet their emergency needs on the basis of mutual help. They pool their resources to become financially stable, taking loans from the money collected by that group and by making everybody in that group self-employed. The group members use collective wisdom and peer pressure to ensure proper end-use of credit and timely repayment. This system eliminates the need for collateral and is closely related to that of solidarity lending, widely used by micro finance institutions. To make the book-keeping simple enough to be handled by the members, flat interest rates are used for most loan calculations.In some villages, SHG members are involved in various activities instead of one common activity. They provide each other moral support, share ideas and give occasional financial help. Such kinds of groups are also making good success in villages

2. Celebrating success in Behragora

LocationBaharagora is a small town in East Singhbhum district and situated on the south-east corner of Jharkhand, India. It is 95 km from Jamshedpur & 189 km from Kolkata. KolkataMumbai National Highway 6 passes through it. National Highway 33 connects NH 6 at Baharagora and NH 2 at Barhi, Jharkhand.Nearest Railwaw Station Chakulia 28.6 km, Jhargram 49 km & Kharagpur 66 km & Kolkata(Howrah)189 kmBaharagora became a block in the year 1956. It is located at the southern end of Jharkhand.

More details on behragora and related pictures can be found here.Day 11. Dada Hotel (Village Kaparia)A line hotel located on NH 33 besides the guest house of forest department, started in 2010 with a capital of Rs. 3.50 lakhsProprietor Din Bandhu Bera (education 8th Standard) Member of Self Help Group Ms. Nakama BeraFamily Background Lives in a Kachcha house with wife, two sons and three sisters. Elder son works with Tata Steel and the younger son has left school to support his father in hotel. Family engaged in small scale rice farming and goat rearing. Initial Investment Rs. 3.50 lakhs financed through sale of land to Tata in 2010 Previous Occupation Driver with Utility Transport Current Operations Number of staff 8 (1 cook and 7 utility staff) Wages Cost Rs.150/- per day to cook and Rs. 140/- per day to the rest Electricity cost Rs. 3000/- per month Land Lease Rent Rs. 100/ per day (10 year lease) Sales Rs. 2000/- per day (approx.) Net revenue Rs. 2000-3000/- per month Assistance from Self Help Group Rs. 5000/- in 2013Reason for taking micro finance To cater to operational expenses, build new contacts and increase know howFuture Plans Looking forward to construction of four lanes on NH 33 as the hotel will be the one of few remaining untouched from this construction and will lie just beside the highway.Investment desired in electricity generator but constrained by lack of resources1. Topan Bera Paan shop A paan shop (gumti) with cigarettes and few eatables and utilities Started business in 2013 with initial investment of Rs. 50,000/- + Rs. 25,000/- Previous a driver and still takes odd driving assignments to supplement income Two sons 22 & 18 years studying Location advantage proximity to nursing home, girls school, and new ITI college Owns 4-5 bigha of land Net income per day Rs. 100/- per day1. Self Help Group 1 Group of 13 women Micro-finance beneficiaries have bank accounts Initially part of block level SHGs before joing hands with Kalamandir Initially got Rs. 25,000/- per group from block along with Government subsidy Government subsidy no longer present Involved in activities like cooking in government primary schools as part of NREGA Were given Crusher training in village which was not of much use Have Insurance Cards but its not much useful as it requires compulsory hospitalisation for 5 days No pension Focus on collective efforts as a group Activities involved in:- Agarbatti scenting and packaging (as making is not viable) Sari selling in open market or by making rounds on foot (pheri) Paan shop Gas lighter Muri bhaji Poultry Jharkraft

Future expectations/aspirations:- Increase business put in more money get more returns TELCO like self-employment training near village Training on marketing aspects of business Some jobs to supplement their income Extra loan to expand businessDay 21. Khan Mobile and Shoe Stores Arts graduate Started business in absence of any employment opportunities happy with decision 4 sons all studying otherwise they will get spoilt and waste time 3 shops in all 2 shoe store and 1 mobile store Mobile store is young business but gives more revenue Current stock in excess of Rs. 1 lakh Supply from Kolkata Timings 7am 10 pm Joined Kalamandir SHG for making new contacts and relations plus knowhow and training Relatives in Kolkata Give importance to education Use all kinds of fuels coal, wood and gas No health or insurance card Future Expectations:- Business growth If more investment then more revenue Extra loan1. Central Bank of India (Santosh Kumar Bank Manager) Considers self help groups more loan friendly Less chances of default Less NPAs Previous history has been good Government subsidy Have been involved with SHGs through block More instruments centred towards SHGs engaged in single task A challenge for SHGs financed by Kalamandir as they are engaged in different tasks More instruments focus on agriculture related credit Existing loans to SHGs About 20-25 thousand At 7% pa Subsidy from government on 25% of loan Willing to provide finance to Kalamandir SHGs as they seem to have good record would need to evaluate each groups on its own1. Bank of India (N K Tiwari Bank Manager) There is no subsidy from government on SHG Most of SHG activities are closed People took loans but did not utilise for purposes mentioned Some returned the loan, some didnt But the loans never met the intended purpose of development or making a difference to individuals life People misuse subsidy SHGs should take-up those businesses which can be successful in the region e.g. goat rearing There is 50% subsidy in dairy industry Purchase of lactating cow/buffalo But previous experience of villagers has not been good Poor quality animals were provided Another options can be:- honey bee rearing based on training received Paper plate making Another modes of finance like General Credit Card are in operation in villages like Mohanpur Bank accounts needed for credit history Wanted help in recovery of bad loans GCCs and SHGs formed about 10% NPA Ready to extend loans to SHGs of Kalamandir on case-by-case basis starting with small numbers1. Self Help Group 2 A group of about 15 women They are happy after taking the loan from Kalamandir Co-ordinators meet them every month Engage in farm labour and NREGA to supplement income Labour rates Rs. 60-100/- Work from 10 am to 4 pm Get medicines from Aanganbadi nurses Have voted in elections politicians come only for vote Need to save for dowry Children engaged in studies The illiterate once keep account on the walls All have account in the banks Renewal of health/insurance card every year Activities involved in:- Cycle repair shop Wood Dairy business Goat rearing Poultry Fruits/Flower business Silk making Future plans:- Need more loans to expand business; Rs. 5000/- - Rs. 10,000/- is too little a sum; Need self employment trainings3. Reasons for success of micro finance model in Behragora

1. Social Facilitation: The Self Help Groups have been established with female group members. In most cases the SHG members knew each other even before the SHG was established. This has created a social facilitation effect amongst the members. Each member becomes responsible to the group in generating an income and a profit from her business and repaying the next instalment due by her. As per our discussion with members of Kalamandir, there has been no significant loan default by an SHG in Behraghora. In case a particular member is unable to pay an instalment, the SHG as a whole will contribute and recover the amount later. SHGs, thus, by their nature of being closely knit groups are more credible. This fact was also appreciated by two bank managers we met during our stay in Behraghora.

1. Communication within the SHG: Formal meetings are held regularly, chaired by an NGO member from Kalamandir. Here all issues related to funding and basic business operations are discussed. Since the businesses are rather small scale and buy-and-sell type of operations, other members are able to pitch in and advise a fellow member in case of difficulties

1. Local facilitators: The representatives from the NGO Kalamandir are locals who reside in Behraghora. They have deep knowledge of the small scale business scene, credit sources, politics etc. in the local context. They also personally know a majority of the SHG members. This has contributed to the success of local SHGs

1. Markets: Behraghora sub-district population is 153051 [1]. There is a large and guaranteed market present for even niche and small goods such as decorated sarees and other marriage fineries, incense sticks etc. Almost all SHG members we spoke to were satisfied with the size of the local market and were confident of increased sales if capital were made available to expand business. Furthermore, NH33 passing through Behraghora is planned to be made into a 4 lane highway from the current 2 - lane. Behraghora is also the junction of NH33 and AH46 from Kolkata. Most business owners were optimistic about this on their future business prospects.

1. Family involvement: From our discussions it was evident that male members of the families of SHG members encouraged the businesses run by women folk, to the extent of becoming employees themselves. In 3 of the establishments we visited, the business was run exclusively by the male members. 4. Role of Banks and NGOs

SHG-Bank linkage programme was started with the objective of extending the outreach of banking to the poor, who mainly comprise the marginal farmers, landless labourers, artisans and craftsmen and others engaged in small businesses such as hawking and vending. However the banking system is still hesitant on various grounds (primarily due to fund diversion by SHGs & difficulty in recovery once they becomes NPAs)to purvey credit to the poor and low income groups especially in the rural areas. Some policy suggestions emerging from the above analysis are as follows:1. Make approvals to all SHG loan applications mandatory where NGOs provide training & have tie up for marketing.(in case all the members in the SHG doesnt have a default history)1. The loans should be given to them in a structured manner(say Rs 50,000/- for the first loan ,Rs 1,00,000/- in case of successful repayment of the first & so on up to Rs 2 lakhs) 1. Make all the loans given to SHGs compulsorily insured.1. To ensure non diversion of funds the eligibility should be confined to SHGs with BPL Women Aadhar holders & the same should be duly recorded in CIBIL NGOs can act as a link between the rural poor and the bank .The NGOs should also play a key role in arranging training & tie up for marketing, failing which the members of SHGs may lose their motivation and the sustainability of the micro enterprises may be affected in the long run.

[1] Census 2011, accessed at http://www.censusindia.gov.in/pca/SearchDetails.aspx?Id=381685 on 23/06/145. Recommendations and Way forward

The micro financing initiative of Kalamandir foundation has been a success at Baharagora Village on parameters such as coverage, inclusion and viability of the program. The program currently is used as to achieve the goal of poverty alleviation but it can be effectively used as a tool of empowerment and upliftment of the community as a whole. The below proposed steps can help achieve this objective. This section captures the recommendation of the field visit.1. Training at the Local LevelCurrently training (skill or product development) at the local level is not provided at all. The beneficiary (women) either has to travel to Jamshedpur (100 Kms) and stay there for the entire duration of training (ranging from 5 to 15 days) to learn or hone a skill. As this initiative is for women only, it is all the more difficult for them to make this travel as they cannot leave their household duties for such long duration. Because of this, they are forced to start their business in certain activities which require low skills and zero value addition, thereby resulting in very low profits (like trading activities, retail shops etc.). It is absolutely imperative that the skill development activities for the target audience (women in this case) have to be done at the local level. Only once the community as a whole sees the benefit of such activities, there will be enough awareness and incentive for the women to travel to the outstation training centre. A possible way to carry out this activity is to have tie ups with organizations to conduct training activities at the village or increase volunteer driven activities.1. Self Help Groups Beneficiaries can be organised into various clusters of the same activity/product they are producing so that they can learn from experience of everyone around them. This initiative can also help to collectively market their product, thereby securing a better product price and also achieve certain economies of scale. However, profitability should remain individual centric. 1. Lucrative Business ActivitiesProvide adequate guidance to the women in deciding the business they want to start. Most of the activities picked by beneficiaries are mere extension of their husbands business or some trading activity. With guidance by the Local chapter leader, certain products or activities that are profitable or have certain governmental schemes running can be picked by for the women. 1. Awareness Programs The objective of the program should not only be to make the women self-reliant economically but of welfare of the entire community. Various welfare schemes are run by both Central and State government which most of the villagers and beneficiaries are not aware of. Local chapter leaders can play an important role here. The entire community should be made aware of schemes on few key areas such as Health, Education, Agriculture, Employment etc. If the community starts availing the welfare programs run by the government effectively, the focus of the Kalamandir foundation can be shifted to other pressing areas. In order to carry out this activity, the local co-ordinators would need to be periodically updated about such schemes and their updated status. This activity has to be done from the headquarters.1. Collaboration with Banks In Baharagora Village, there are at least 2 National Banks present whose support can be actively sought by Kalamandir foundation. These banks can complement the work done so far. During our discussions with the Bank authorities, it was discovered that the banks have not been able to extend any support primarily because they are not aware of the credit worthiness of the person who seeks loan and also not many people have come forward with proper documentation. To overcome this problem, an arrangement can be worked out with the banks such that any beneficiary who goes for 4th or 5th round of funding can be brought to the bank for loan. Since the credit worthiness of the person and viability of the business has already been verified in the preceding rounds, the banks would be comfortable to provide loan to the concerned person. This activity will also free up the limited capital available with Kalamandir community so that it can be deployed elsewhere. In addition, conducting workshops with help of bank staff on education of community on the benefits of opening a bank account and operating it periodically can also be conducted. 6. Our Contributions

During our interactions with the villagers on micro financing and its impact on business, we came to know about their literacy level as well as their ignorance level. We decided to take up the task of creating awareness of: Importance of education: Most of the villagers engaged in any kind of commercial activities through self-help groups were under educated. We emphasized that education is the only tool which would enable them and their children to live a better life. Skill development programs and trainings: We encouraged them to participate in skill development trainings either through government run institutions or through private authorities. Once they have skill, they can employ it for their business as well as they can share their knowledge with other villagers.NGO coordinators may also support them in training programs. Government schemes for rural upliftment: Though competent, but most of the village SHG members were not aware of the government run schemes of rural development such as PMGSY.We told them about these schemes and they promised to follow up on it. Dynamics of markets and marketing: We told them how the markets work and how important it is to access the market to maximize their sales. We also made them aware of the importance of marketing in a scenario where product is directly getting sold to the consumers. Role of banks in further support: Since NGOs have a limited quota of loan per person; it is in the interest of villagers to contact banks for greater sum of money.NGO representatives can play a role of mediator between the bank and the loan applicant.

7. Closure Comments

Although it is different from normal SHG, the evolved SHG model in behragora and the micro financing model can be replicated in other rural areas. The important point to keep in mind would be that model should enhance the existing skills of villagers and add a new source of income to uplift their socio-economic conditions and to align their activities towards national goals.

8. APPENDIX Baharagora is the entry point of Jharkhand from the two states, namely West Bengal and Orissa. Since it is located at the border, West Bengal is approx 12 km and Orissa is approx 7 km from there. Although the official language of the state is Hindi, the local language in the area is a blend of Bengali and Oriya. Except some government employees, all localities use either Bengali or Oriya as primary mode of education. In the erstwhile state of Bihar, textbooks were also released in Bengali and Oriya.KalamandirKalamandir operates with a vision to foster necessity and accessibility of arts and aesthetics in our day to day social life. Its area of operation lies in districts of East Singhbhum and Seraikela-Kharsawan of Jharkhand and its main activities include: To undertake research / survey on Tribal heritage and the different forms of expression such as paintings, songs and dances. To act as a Resource Center to document and disseminate information related to different linguistic, ethnic and regional communities of Jharkhand and also to create awareness among them against all socio-economic evils. To create infrastructure and institution in the rural areas for development of sustainable livelihood through creation of micro-enterprises for the tribal / folk / regional cultural heritage of Jharkhand and preserve this.

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