Ramanagaram Financial Diaries: Loan repayments and cash patterns of the urban slums Rajalaxmi Kamath[1] Arnab Mukherji

2. Background for this pilot study Several shortcomings of snap-shot surveys of financial flows among the urban poor and the need felt for a more intensive methodology Understand the requirements of the �financial diaries� methodology Preparatory study for a bigger, year-long project beginning May 2008

3. Motivation for this study Use the financial diaries to understand the cash inflows and outflows of households residing in the urban slums AND using the two predominant models of microfinance services � the MFIs and the SHGs Study period: on a pilot basis for three months from Oct 2007 to Dec 2007

4. Methodology and some learnings� Diaries required to be written by the households themselves Recruitment problems � incentives, co-operation of husbands, TIME Level of detail to be kept � best left to the households 3 baseline surveys � First: socio-economic information of the households (beginning); second: annual income-expenditure information; third: savings, borrowings and use of financial instruments (end)

5. Sample Description For sample design, the minimum requirement was for the household to be a member of a MFI or a SHG Began with 23 households residing in the Hajinagar and Ambedkarnagar slums of Ramanagaram, Karnataka. 3 households dropped mid-way due to personal reasons Households engaged in filature, selling fruits, trading in metal scrap, coolie-work, beedi-rolling, making footwear, working on the municipality rolls as sweepers Wide variance in reported incomes (most households were above the official poverty line of Karnataka) Assets owned by the households � TV, mobile phones, VCD players, small amounts of jewellary

6. Preliminary Results I: Multiple Memberships

7. Multiple Memberships � some explanations Unintended result of our study i.e. did not go looking for it fallout on the outreach data given for MFIs and SHGs (sa-dhan and Nabard data) How representative is our sample to push forth this result? Consequences in terms of transactions costs for borrowers Some reasons for multiple membership

8. Preliminary Results II: Burden of Loan Repayments

9. Burden of loan repayments � some explanations Loan repayments vying with food-expenditure in the weekly budgets of households 10 out of the 20 households spend a higher proportion of their expenditure on loan repayments than on food 11 households spend greater than 30 percent of their total expenditure on loan repayments �over-lending� by MFIs or �over-borrowing� by households?

10. Preliminary Result III: The use of microfinance loans

11. Episodes of Borrowing for the Diary period

12. The use of microfinance loans Money being fungible, the actual use of microfinance loans can be different from the stated purpose for which the loan was obtained Closely tracking household transactions around the period of the loan is the only way to find the actual use � something which financial diaries allows us to do For each borrowing episode above Rs. 500 (of which there were 41), we defined a 7 day band - 3 days prior and 3 days post the borrowing episode The expenditures done in this band were most likely to be (a) financed by the borrowings or (b) done in expectation of the borrowing

13. The use of microfinance loans 55 expenditure episodes for amounts greater than Rs. 500 in these time bands 5 expenditure episodes coincided with the day of the borrowing, and were found to be household spending on clothes, jewellary and accessories for the festival of Ramadan

14. The use of microfinance loans

15. Uses of microfinance borrowings

16. Preliminary Result IV: Level of indebtedness of the households For the survey period, all households except two had a surplus of income over expenditure 14 households also had expenditures excess of gross inflows (borrowings + incomes) Festival related expenditure (survey period coincided with the festivals) Sustainability of this debt?

17. Conclusions - I Worrying trends that could be of concern to the microfinance sector at large Households borrowing from multiple MFIs / SHGs apart from informal private sources Underprovided in terms of the size of loans that they receive from a single source Expensive in terms of time and effort

18. Conclusions - II 60 percent of the household budgets is spend only on food and servicing existing loans Recycling of debt � borrowings used to repay various kinds of borrowings, including MFI and SHG borrowings Some evidence to suggest that avenues to invest in micro-enterprises or other economic activities is rather constrained The fact that most of these borrowings are taken as small sums from various entities also does not boost the use of these funds for productive purposes

19. Thanks and suggestions