Dr. Snigdha Chakraborty Coordinator (Program Quality) CRS – India Program

1. Dr. Snigdha ChakrabortyCoordinator (Program Quality)CRS – India Program Needs of the Poor and Product Diversification in Micro Finance - Experience from India Needs of the Poor and Product Diversification in Micro Finance - Experience from India

2. India - a snapshot • Population more then one billion (expected to be 1,363 billion by 2025). • Over 35% live Below Poverty Line. • Total literacy rate is 65% (75.85% is male and 55% female). • Sex ratio is 927 females per 1000 males. • Average age at marriage is 18 - 20 yrs. • Of 300 – 400 million poor, roughly 75% live in rural areas. Of this, 75% are the worst off women, children, tribal and scheduled castes (UNDP report). Needs of the Poor and Product Diversification in Micro Finance - Experience from India

3. Governance and Banking structure in India • Two levels – the State government and the Local Self Government / Panchayati Raj Institute (PRI) level – an elected body of people’s representative to ensure decentralized planning process at the village level. • Thirty three percent reservation of seats for women in local self government. • All developmental programs are implemented by PRI and finance is channeled through the local banks by the state and central government. Needs of the Poor and Product Diversification in Micro Finance - Experience from India

4. Banking networks • Over 150,000 retail outlets of the commercial, cooperative and regional rural banks. At least one outlet every four villages or every 1,000 households (NABARD, 2004). • Small borrowers represent 71% of all (2001). 7% of the total outstanding credit was available to these small borrowers. • National Bank for Agriculture and Rural Development (NABARD) - an apex financing agency(1982) for the institutions providing investments and production credits for the promoting various rural developmental activities. • NABARD coordinates the rural financing and takes measures towards institution building for improved credit delivery system by the banks. Needs of the Poor and Product Diversification in Micro Finance - Experience from India

5. Self Help Groups – a means towards organizing the poor • Self Help Groups (SHGs) organize by themselves for the poor, especially women using their own resources. • Savings and credit is in itself a livelihood intervention – it smoothes consumption, reduces vulnerabilities and also finances existing livelihoods. • Prepares members for further livelihoods interventions. • Mobilise finance from banks for livelihoods. • Reaches out to women systematically. Needs of the Poor and Product Diversification in Micro Finance - Experience from India

6. Why Women? • Efficiency and Equity. • Better money managers, more disciplined! • An affirmative action— to most disadvantaged – voice to the voiceless. • Women are involved in planning and decision making. • Women primarily involved and concerned about small finances and spend more on family welfare – more success! Needs of the Poor and Product Diversification in Micro Finance - Experience from India

7. Why SHGs as MFIs? • Reduces risks and costs. • Peer groups share information. • Does loan appraisal, loan use monitoring and enforces repayment discipline. • Inspires confidence in the banker. • Promotes social collateral – asserting rights and accessing entitlements. • Leads towards empowerment. Needs of the Poor and Product Diversification in Micro Finance - Experience from India

8. How are SHGs formed? • 10-20 women (similar socio economic background) form self-help groups (SHG), elect leaders for portfolio management. • Each SHG has its own by-laws (written). Norms regarding savings, rate of interest, repayment period, meetings, etc. set by the group, depending on the members’ capacity. • Each member deposits a regular savings amount into the group fund (Rs. 5-20/month = less then a dollar ). Needs of the Poor and Product Diversification in Micro Finance - Experience from India

9. Contd… • Inter lending begins immediately for a variety of purposes (school fees, medical treatment, house repairing, agriculture, etc). • Once the group shows its performance maturity (timely savings, timely repayment, regular meetings and minimum record keeping, etc), it opens the savings account in the local rural bank branch. • The group can apply for loans from the bank at 1:1 ratio (the first time) within 6 months of opening the bank account. Needs of the Poor and Product Diversification in Micro Finance - Experience from India

10. Contd… • The group takes loan from the bank at a fixed interest (@7% to 11%) without any collateral. While the group on-lends the loan to its members with flexible repayment schedule. • The group fixes interest rate (normally 12%) and terms of repayment internally depending on borrowers’ capacity. • SHGs learn to set their own terms and conditions for financially assisting each other. • Group also takes the responsibility of timely repayment to the bank, even if the members are in default because of an emergency. Needs of the Poor and Product Diversification in Micro Finance - Experience from India

11. Contd. • SHGs learn that repayment is easy if they continue to save. • SHGs use peer pressure as an effective substitute for collateral security, reducing risks for banks. • SHGs learn to prioritize their needs. • Groups form Social Cluster/ federations to facilitate the groups’ management and also provide financial & social services. Needs of the Poor and Product Diversification in Micro Finance - Experience from India

12. SHGs in India – outreach and growth • Over 18 million SHGs are linked to the banks (NABARD). • By CRS partners, 50,259 SHGs across India (does not include Tsunami affected areas) covering 579,427 members. • Outreach of SHGs is reasonable both in terms of total coverage and caste composition with Scheduled Tribes (STs) and Scheduled Castes (SCs) having the highest shares in membership, but with substantial coverage too of the upper (Other Castes) castes and even minorities. • More then 30,000 groups credit linked to the bank. Needs of the Poor and Product Diversification in Micro Finance - Experience from India

13. Contd.. • Total corpus is $10.5 million. • On an average, over 45% of the groups are credit linked to the banks. • Average loan per SHG from bank is $595. • Over 95% is the repayment ratio. • Number of poor families accessed bank credit (2005) is above 23 million. • About 3,223 members hold elected office in local government and play an active role in the developmental process. Needs of the Poor and Product Diversification in Micro Finance - Experience from India

14. Innovative results from SHGs • SHG membership does help in participation in political process, though it is still a family affair. Strategic capacity building support by the partners needed (increased participation by 60%). • SHGs mobilize communities, analyze situations, understand vulnerability, make action plans – Community Based Disaster Preparedness, HIV, Peace Building, Food Security (Grain banks, water-shed, etc.). • Participatory Monitoring and evaluation tool for better portfolio and record management. Needs of the Poor and Product Diversification in Micro Finance - Experience from India

15. Some challenging issues….from Optimizing SHGs – an on-going study in India • Self exclusion and operational reasons for exclusions exist. • We are too poor to be in SHGs”, “No one will listen to us”, “what are the benefits” as quoted from the poor and non-SHG members. • Social actions by the SHGs are sporadic, often without having proper clear directions from the NGOs. • NGOs’ capacity needs further strengthening in - transparency and accountability (record keeping and portfolio management), guiding SHGs in political process and providing appropriate inputs towards social actions. Needs of the Poor and Product Diversification in Micro Finance - Experience from India

16. Thank you. Contact: schakraborty@crsindia.org Needs of the Poor and Product Diversification in Micro Finance - Experience from India