REPORT OF THE STEERING COMMITTEE ON MICRO-FINANCE AND POVERTY ALLEVIATION

THE ELEVENTH FIVE YEAR PLAN (2007-08 - 2011-12)

DEVELOPMENT POLICY DIVISION PLANNING COMMISSION NEW DELHI MAY - 2007

Contents Pages Chapter I Historical Background and Present Status of Micro-Finance in India 1.1 Major initiatives in ural Credit ural Credit Surve+s !" !" 1! 11 1( 1( ural 5evelop#ent 1, 1, 1, 1. 1. 11 11

1.1.1 Shivara#an Co##ittee $1%&"' 1.1.( eserve Bank of India)s *ll India 1.1., For#al-Banking sector initiatives 1.1.. S/0* Co-operative Bank $1%&.' 1.1.1 Self Help 2roups $SH2s' 1.1.3 4ational Bank for *griculture and 1.1.&

ashtri+a Mahila 6osh $ M6'71%%,

1.1." S#all Industries 5evelop#ent Bank of India $SI5BI'7 1%%. 1.1.% SH2-Bank 8inkage Progra##e $1%%3' 1.1.1! Microfinance 5evelop#ent and /9uit+ Fund $M5 : /F'7 (!!1 1.1.11 Micro Finance Progra##e$MFC'7 (!!. 1.1.1( Micro Finance Bill $(!!3' Chapter II (.1 (.( Models of Micro-Finance in India

Bank-SH2s 8inkage Progra##e MFI Models (.(.1 *genc+ #odel of MFI (.(.( MFI Bulk 8ending Model

1" 1% (! (1 (1 (,

(., Micro Finance and P*CS (.. Post ;ffice 4et<ork and Banking Services

(.1 Business Facilitator : Correspondent Models (.3 Micro Credit Models in ;ther Countries (.& ole of =echnolog+ and Micro-Finance (.&.1 Infor#ation and Co##unication =echnolog+ $IC=s' and Micro-Finance *ctivities. (.&.( Co##on Service Centres (.&., Co#puter Munshi S+ste# Chapter III ,.1 ,.( ,., ,.. ,.3 ,.& ,." ,.% ,.1! ,.11 ,.1( ,.1, ,.1. Issues of Micro-Finance in India

(. (1 (3 (3 (& ("

8egal Issues 2ender Issues Increasing accessi>ilit+ of the poor ate of interest ,1 Choice of productive activities *ssess#ent of 5e#and Su>sid+ Capacit+ >uilding ecords Maintenance *uditing =ransparenc+ *>sence of Polic+ *>sence of infor#ation-statistics eco##endations

(% ,! ,! ,! ,( ,, ,, ,, ,. ,. ,1 ,1 ,1 ,&

,.1 ?n>alanced 2eographical 2ro<th

Chapter I@

eferences

.1

*nneAureB Constitution-Co#position of the Steering Co##ittee

.&

P /F*C/
Microfinance #eans providing ver+ poor fa#ilies <ith ver+ s#all loans $#icro credit' to help the# engage in productive activities -s#all >usinesses. ;ver ti#e7 #icrofinance has co#e to include a >roader range of services $credit7 savings7 insurance7 etc.' as <e have co#e to realiCe that the poor and the ver+ poor <ho lack access to traditional for#al financial institutions re9uire a variet+ of financial products. =he /leventh Five Dear Plan ai#s at inclusive gro<th and faster reduction of povert+. Micro Finance can contri>ute i##ensel+ to the financial inclusion of the poor <ithout <hich it <ill >e difficult for the# to co#e out of the vicious c+cle of povert+. =he report ackno<ledges the fact that in order to ena>le the poor people to access credit 7 there is a need to strengthen all the availa>le channels of providing credit to the poor such as SH2- Bank 8inkage progra##es7 Micro Finance Institutions 7 Cooperative Banks7 State financial corporations7 egional ural Banks and Pri#ar+ *gricultural Credit Societies. 0hile appreciating the need for ade9uate regulation and standardiCation of the various processes and practices adopted >+ the Micro Finance Institutions7 the report underlines the fact that the strength of the #icro finance industr+ lies in its infor#alit+ and fleAi>ilit+ <hich should >e protected and encouraged. =he eport puts for<ard a nu#>er of reco##endations for the orderl+ gro<th and #anage#ent of the #icro finance sector <hich7 I hope7 <ould >e useful for Polic+ #akers. It is #+ pleasure and privilege to thank all the #e#>ers of the Steering Co##ittee for their valua>le contri>utions <ithout <hich it <ould not have >een possi>le to prepare this report. I a# also thankful to the officers and staff of the 5evelop#ent Polic+ 5ivision7 Planning Co##ission for their contri>ution in preparing this eport. =he contri>utions #ade >+ 5r. *rvind @ir#ani7 Pr. *dvisor $5P : I/' <ho headed the 0orking 2roup on Co#petitive Micro Credit Market in India7 5r. Sharat 6u#ar7 for#er 5irector $5P' Shri 4.5.2eorge7 5irector $5P'E Shri @. Sreenivas For#er7 S ;E Shri .6.2upta7 S ; and Shri =inu Foseph7 Consultant are ackno<ledged.

4e< 5elhi 5ated Ma+ (!!&

*n<arul Hoda Me#>er

Abbreviations 4*B* 5- 4ational Bank for *griculture and MFIs- Micro Finance Institutions. SH2s- Self Help 2roups. B- egional ural Bank. 5 5*- 5istrict ural 5evelop#ent *uthorit+. SI5BI- S#all Industries 5evelop#ent Bank of India. BI- eserve Bank of India. 4BFCs- 4on-Banking Financial Corporations. 8*Bs-8ocal *rea Banks. 42;s- 4on-2overn#ental ;rganisations F852- First 8oss 5efault 2uarantee. IC=- Infor#ation and Co##unication =echnolog+. S2SD- S<arnaja+anti 2ra# S<aroCgar Dojana. MF;s- Micro Finance ;rganisations. I 5P- Integrated ural 5evelop#ent Progra##e. F82- Foint 8ia>ilit+ 2roup. MF5/F- Microfinance 5evelop#ent : /9uit+ Fund. P*CS- Pri#ar+ *gricultural Cooperative societies. M6ashtri+a Mahila 6osh. ural Bank B- egional ural 5evelop#ent.

SB8P- SH2 Bank 8inkage Progra#. S/0*- Self-/#plo+ed 0o#en)s *ssociation. SFMC- SI5BI Foundation for Micro credit.

Chapter I Historical Background and Present Status of MicroFinance in India

0hile technolog+ and finance hold the ke+ to a#eliorate povert+7 the poor in India do not have ade9uate access to the for#al >anking sector. Inaccessi>ilit+ of the poor to the for#al-institutional >anking sector is #ainl+ due to the follo<ing reasonsB $a' 8ack of good retail outlets offering >anking services7 $>' lack of assets <ith the poor that could >e used as collaterals and $c' illiterac+ of the poor. =he credit re9uire#ent of the poor in India has >een esti#ated >+ the 0orld Bank to >e around s.1!7!!! crore per annu# in (!!(. *gainst this re9uire#ent7 the credit outstanding of the poor <ith the for#al >anking sector is stated to >e s.1!!! crore or ten per cent of the total de#and. =he poor re9uire finance for >oth production and consu#ption purposes. Production loan #a+ >e of three t+pes7 viC. $a' short ter# $for periods up to 11 #onths'7 $>' #ediu# ter# $fro# 11 #onths to 1 +ears' and $c' long ter# $for periods a>ove five +ears'. /cono#ic activit+ in rural areas #a+ relate to the various sectors of crop hus>andr+7 ani#al hus>andr+7 poultr+7 fisher+7 cottage : village industries7 handicrafts7 transportation7 repair shops7 and trade : services. But the recent strateg+ is to ensure fleAi>ilit+ in lending and in repa+#ent >ased on the capacit+ of the >orro<er to earn enough to repa+- <hether it is dail+7 <eekl+7 #onthl+ or seasonal. Short ter# loans #a+ >e re9uired >+ the poor for purchasing $HD@' seeds7 fertiliCer and for irrigating a leased-in land etc. Mediu# ter# loans #a+ >e re9uired for purchase of >ullocks $or a >oat' and for purchase of #achiner+ and e9uip#ent. 8ong ter# loans #a+ >e re9uired for repa+#ent of 7

loans7 for constructing a shed-shop and for purchase of land etc. 0hat needs to >e appreciated is that all the three kinds of production loans are relevant to the poor. *>out t<o-thirds of the esti#ated credit re9uire#ent of the poor is said to >e on account of consu#ption needs. 4earl+ three-9uarters of this consu#ption need $ s.(17 !!! crore' is stated to #eet e#ergencies like illness and household eApenses during the lean seasons. It is <orth #entioning that due to lack of e#plo+#ent7 and inco#es during the lean seasons7 the poor are often not in a position to >u+ su>sidiCed food grains fro# the =argeted Pu>lic 5istri>ution S+ste# $=P5S'. If consu#ption loan could >e #ade availa>le through the for#al >anking sector7 the poor <ill >enefit not onl+ >+ <a+ of lo<er interest rate >ut also in ter#s of realiCing the su>sid+ on food grains-ite#s of =P5S. *lternativel+7 food grains credit could >e provided directl+ under =P5S. It is i#portant to note that consu#ption loans are also as relevant to the poor as production loans. *vaila>ilit+ of finance7 #oreover7 tilts the e#plo+#ent scenario in favour of self-e#plo+#ent vis-G-vis <age e#plo+#ent. *n added di#ension is the e#po<er#ent of <o#en <ith easier availa>ilit+ of #icro-finance to the#. 2oing >+ the esti#ates provided earlier7 the de#and for production credit in the countr+ toda+ is e9ual to s.1&!!! crore per annu# <hereas the total credit outstanding s.1!!! crore. =hus7 there is definitel+ a need to under #icro-finance is #erel+ sector.

increase the flo< of credit7 >oth for consu#ption and production7 to the rural

11

Ma!or initiatives in "ural Credit

2overn#ent)s initiative to reduce povert+ >+ i#proving access to financial

services to poor started since independence. IndiaHs over<hel#ing #ajorit+ of poor is located in rural areas and this #otivated the govern#ent to give special attention to rural credit. Follo<ing the report of *ll India ural Credit Surve+ in #id 1%1!)s7 the State took crucial steps in revie<ing Cooperative structure including the partnership of State in cooperatives. *lso the polic+ initiative of Hsocial >anking) concept descri>ed as Ithe elevation of the entitle#ents of previousl+ disadvantaged groups to for#al credit even if this #a+ entail a <eakening of the conventional >anking practicesJ led to the nationalisation of co##ercial >anks in 1%3%7 adoption of direct lending progra##es to rural areas and develop#ent of credit institutions such as egional ural Banks $ Bs'. 2overn#ent initiatives during the Fourth Plan focused on #arginal far#ers and agricultural la>ourers >ringing individual fa#il+ as the >asic >orro<ing unit. Integrated sustaina>le inco#e generating activit+ <as pro#oted through su>sidiCed lending under Integrated ural 5evelop#ent Progra##e $I 5P' and its su>se9uent variations including the current self-e#plo+#ent progra##e kno<n as S<aranja+anti 2ra# S<aroCgar Dojana $S2SD'. 1 1 1 Shivara#an Co##ittee $1%&'( 8ooking into all aspects of consu#ption credit for the poor7 the /Apert Co##ittee on Consu#ption Credit $Chair#anB Shri B. Shivara#an7 Me#>er7 Planning Co##ission' reco##ended for allo<ing a line of credit to poor households >+ the for#al >anking sector. /Aa#ining the consu#ption need of the poor in 1%&37 the Co##ittee reco##ended a line of credit e9ual to s.&1! per household. =he specific consu#ption de#ands identified >+ the Co##ittee <ereB $a' #edical eApenses $,,K'7 $>' #arriage $,,K'7 $c' education $1,K'7 $d' >irth7 death : religious purposes $1!K' and $e' general consu#ption $1!K'.

=he co-operative credit structure <as to >e the #ain pillar of this drive. =he Co##ittee further reco##ended for legislative refor#s in all states for universal #e#>ership in all the Pri#ar+ *gricultural Cooperative Credit Societies $P*CS' across the countr+. In regard to the rate of interest7 the Co##ittee o>served that the rate charged >+ >oth cooperative >anks and co##ercial >anks on consu#ption loans should >e the sa#e as crop loans. It further o>served7 H=he cost of servicing the consu#ption loans <ill perhaps >e even higher than the agricultural loans7 therefore7 to eApect the societies to operate on s#aller #argins than on the agricultural loans <ill >e unrealistic). ;n the pre#ise that the risk to the >anking sector in the case of consu#ption loan is higher than the production loan7 the Co##ittee reco##ended for a higher percentage $1!K' of risk cover >+ the 2overn#ent than usuall+ done for other $rural' loans eAtended >+ the co-operative and co##ercial >anks. ;n the esti#ated crore $in 1%&3'7 it provided for de#and for consu#ption loan of s.1&! s.1& crore as isk Fund. =his fund7 #oreover7

<as re9uired to >e shared e9uall+ >+ the Central and the State 2overn#ents. Ho<ever7 despite all its #oorings there <as not #uch progress in regard to flo< of consu#ption credit to the poor >+ the for#al >anking sector. 8egislative refor#s vis-G-vis universal #e#>ership in P*CS <as introducedE >ut the co-operative >anks the#selves >eca#e <eaker and <eaker in the su>se9uent +ears. =he introduction of >ank-SH2 linkage progra##e in the 1%%!)s has in so#e <a+s addressed the need of consu#ption credit of the poor. ?nder this s+ste#7 the >anks lend to the SH2s <ho7 in turn7 are free to dis>urse loan to their #e#>ers in their >est judge#ent7 <hether for production or for consu#ption purposes.

10

1 1 ) "eserve Bank of India*s All India "ural Credit Surve+s =he *ll India ural Credit Surve+s conducted >+ the BI during the

various +ears7 sho< the follo<ing transfor#ation in rural credit7 viC.7 $i' $ii' $iii' =he share of non-institutional sector in rural credit that <as %1 per cent in 1%11 <ent do<n to .1 per cent in 1%%1. =he share of institutional sector that stood at % per cent in 1%11 <ent up to 1, per cent in 1%%1. =he share of credit cooperatives in rural credit that <as ..3 per cent in 1%11 <ent up to (% per cent in 1%"17 >ut declined su>se9uentl+ to 1% per cent in 1%%1. $iv' =he share of co##ercial >anks in rural credit that <as 1.1 per cent in 1%11 <ent up to (% per cent in 1%"1 and has re#ained at the sa#e level in 1%%1. =he a>ove #entioned percentages are7 ho<ever7 >ased on aggregate figures and do not thro< #uch light in regard to transfor#ation in rural credit visG-vis #icro-finance. =here has not >een an+ rural credit surve+ at the all-India level since 1%%1. * surve+ <as7 nevertheless organised >+ the 0orld Bank : 4C*/ in (!!,. It utilised a sa#ple of 3!!! households $in *ndhra Pradesh and ?ttar Pradesh' and thro<s light on the condition of #icro-finance as <ell. *ccording to this stud+7 around "& per cent of #arginal far#ers -landless la>ourers do not access credit fro# the for#al >anking sector. In other <ords7 the share of non-institutional sector in #icro-credit re#ains7 #ore or less7 the sa#e as during 1%11. Most of the >enefits of the so called eAtensive >anking infrastructure have gone to the relativel+ >etter-off peopleE around 33 per cent of large far#ers have a deposit account and .. per cent have access to credit.

11

1 1 , For#al-Banking sector initiatives @arious progra##es <ere initiated >+ >anks to inculcate savings ha>it and to provide financial assistance. =he initiatives are as follo<s1. Pig#+ deposit sche#e L =he Pig#+ deposit sche#e intended to collect =he eAperience

tin+ deposits fro# the depositors fro# their doorsteps. =he sche#e <as i#ple#ented >+ a fe< >anks >+ engaging local people. leakages7 frauds and reconciliation pro>le#s. sche#e unattractive. (. Mo>ile >anks L So#e of the >anks started #o>ile >anks in rural areas. =he location and ti#e of operation are usuall+ s+nchroniCed <ith the #arket da+s so that the large nu#>er of people could transact its >usiness. constraints. ,. egional ural Banks $ Bs' <ere intended to serve the people not =his progra##e <as dropped >ecause of the #an po<er of the >anks <as not encouraging as there <ere large scale cash Most >anks found the

covered >+ co-operatives and co##ercial >anks. But the+ <ere not a>le to serve the purpose as the+ <ere #ore focused on profita>ilit+ and strong >alance-sheets. In spite of this7 it <as found that the Bs are >etter e9uipped than the co##ercial and co-operative >anks to undertake #icro finance operations >ecause of the understanding of the local conditions. *s on (!!17 there <ere 1%3 of 3.(& crore. .. 8ocal area >anks $8*Bs' ai#ed to #o>iliCe rural savings >+ local institutions and #akes the# availa>le for invest#ent locall+. =he+ <ere set up in private sector and regulated >+ BI. =he <orking of 8*Bs <as not ver+ encouraging. ;ne serious dra<>ack <as a>sence of refinancing Bs7 covering 113 districts and a client >ase

12

facilit+. 6rishna Bhi#a Sa#rudi7 the local area >ank in *ndhra Pradesh is onl+ one into the >usiness of #icro finance on a large scale. India to-da+ has an eAtensive >anking infrastructure co#prising over ,!7!!! rural and se#i-ur>an >ranches of co##ercial >anks7 over 1.7!!! >ranches of egional ural >anks $ Bs'7 around 1(7!!! >ranches of 5istrict Cooperative Credit Banks $5CCBs' and 171(7!!! Pri#ar+ *gricultural Credit Societies $P*CS' at the village level $around 337!!! P*CS are stated to >e functionalE the re#aining are dor#ant'. 1 1 . S/0A Co-operative Bank $1%&.( =he i#ple#entation of for#al lending progra##es to<ards the poor suffer fro# the difficulties such as of eAact targeting7 screening pro>le#s of distinguishing good and >ad >orro<ers and usuall+ lending agencies <on)t >e a>le to ensure the productive usage of loans. *lso7 the high transaction costs incurred in lending to the poor #ade the for#al lending agencies leave the poor un->anked. =he Indian cooperative credit structure #eant to e#po<er the poor <as not ver+ successful as it <as captured >+ a fe< po<erful and >ecause of eAcessive govern#ental interference and regulation. =he search for an alternative to the for#al >anking sector and an effective financial s+ste# to cater to the needs of the poor7 especiall+ the rural poor7 continued. =he origin of #icrofinance can >e traced to the esta>lish#ent of the S/0* cooperative >ank in 1%&.7 to provide >anking services to the poor <o#en e#plo+ed in the unorganised sector in *h#eda>ad in 2ujarat. 1 1 1 Self Help 2roups $SH2s( 2overn#ent initiatives during seventies and the Fourth Five Dear Plan focussed on s#all and #arginal far#ers and agricultural la>ourers. Integrated

13

sustaina>le inco#e generation activit+ <as pro#oted under Integrated

ural

5evelop#ent Progra##e. Inade9uacies inherent in running progra#s focussed on individual households called for shift to a group >ased approach. =he first step to<ards setting up self help groups $SH2s' <as taken >+ MD *5* and it >uilt upon rural chit funds and infor#al lending net<orks to evolve a credit #anage#ent group. 1 1 3 4ational Bank for Agriculture and "ural 5evelop#ent In 1%%%1-%(7 4*B* 5 launched the SH2-Bank 8inkage Progra##e on a pilot >asis to finance SH2s across the countr+ through the for#al >anking s+ste#. High repa+#ent rates >+ the SH2s encouraged the >anks to finance SH2s. 1 1 & "ashtri+a Mahila 6osh $"M6(71%%, =he success of the concept of #icro-credit through self help groups $SH2s' has encouraged the 2overn#ent of India to esta>lish a 4ational level Micro-Credit organiCation - ashtri+a Mahila 6osh $ M6' $4ational Credit Fund s.,1 crore. =he o>jective <as to help <o#en organise M6 had s 111 crore up to Ful+ (!!37 >enefiting 1.1! lakh for 0o#en' under the Ministr+ of 0o#en and Child 5evelop#ent in 1%%,7 <ith an initial corpus of inco#e generating activities to i#prove their socio econo#ics status. dis>ursed cu#ulative loan of <o#en and the recover+ rate is a>ove %1K. 1 1 ' S#all Industries 5evelop#ent Bank of India $SI5BI(7 1%%. In 1%%.7 S#all Industries 5evelop#ent Bank of India $SI5BI' launched a pilot sche#e to provide financial assistance >+ <a+ of loans to 42;)s for providing credit to the poor households7 especiall+ <o#en. * s#all a#ount of grant also acco#panied the loans so as to >uild capacit+ of the inter#ediates

14

and end-users. =he progra##e did not achieve the desired o>jective. * large nu#>er of 42;s <ere not a>le to up scale their lending operations >ecause of difficulties like interest rate cap on lending7 securit+ stipulations etc. SI5BI reoriented its Micro Finance Progra##e in 1%%% >+ addressing the <eakness of the pilot sche#e7 <ith an o>jective to create a national net<ork of large and via>le Micro Finance Institutions fro# the for#al and infor#al sector. =he progra##e provides need >ased assistance >+ <a+ of ter# loans to partner institutions for #eeting their on lending fund re9uire#ents. Its progra##e took off slo<l+. =he >ank <as a>le to i#prove its portfolio >+ 1!!K each +ear for the last three +ears in a ro<. It had sanctioned during (!!3 as against s.,(! crore financial assistance s 1"%.&, crore during (!!1.

1 1 % SH2-Bank 8inkage Progra##e $1%%3( In 1%%37 eserve Bank of India included financing of SH2s as a #ain

strea# activit+ of >anks under the priorit+ sector lending progra##es. =he SH2 Bank linkage progra##e covered over (.., #illion fa#ilies >+ March (!!1. ?nder the Bank-SH2 8inkage Progra##e (.(. #illion SH2s <ere linked7 up to ,1st March (!!37 of <hich %! percent are <o#en)s groups. 1 1 19 Microfinance 5evelop#ent and /:uit+ Fund $M5 ; /F(7 )991 2overn#ent of India7 in (!!1 re-designated the eAisting Micro Finance 5evelop#ent Fund as Micro Finance 5evelop#ent and /9uit+ Fund <ith the o>jective of facilitating and supporting the orderl+ gro<th of the #icrofinance sector7 >+ especiall+ assisting the <o#en and vulnera>le sections of the societ+ and also >+ supporting their capacit+ >uilding. =he siCe of the fund <as also enhanced for# the eAisting <as to >e contri>uted >+ s.1!! crore to s.(!! crore. =he additional a#ount eserve Bank of India7 4*B* 5 and the co##ercial

>anks in the proportion .!B(!B(!.

15

1 1 11 Micro Finance Progra##e$MFC(7 )99. In March (!!.7 the Ministr+ of S#all Scale Industr+ introduced the Micro Finance Progra##e along <ith the SI5BI. =he 2overn#ent provides funds for Micro Finance Progra##e to SI5BI7 called IPortfolio isk Fund $P F'J. =his fund is used for securit+ deposit re9uired of the MFIs- 42;s to get loan. *t present SI5BI takes fiAed deposit e9ual to 1!K of the loan a#ount. =he share of MFIs42;s is (.1K of the loan a#ount $i.e (1K of securit+ deposit' and >alance &.1 K $i.e &1K of securit+ deposit' is adjusted fro# the funds provided >+ the 2overn#ent of India. =he MFIs- 42;s avail of loan fro# SI5BI for further on lending on the support of the deposit. ?pto 5ece#>er (!!37 ,% MFIs have >een dis>ursed loan to the tune of s.&.3. crore for# the P F. >eneficiaries7 #ainl+ <o#en. 1 1 1) Micro Finance Bill $)993( =he Micro Financial Sector $5evelop#ent : egulation' Bill <as recentl+ introduced in the Parlia#ent. =he silent features of the draft Micro Finance Bill $(!!3' are as follo<sB $a' /nact#ent of the >ill <ill give the 4*B* 5 eAplicit po<ers to regulate the #icro finance and so ensure greater transparenc+7 effective #anage#ent and >etter governance. =his <ill facilitate the flo< of Micro Finance Services in a #ore efficient <a+ to the un->anked population. $>' =he Bill defines the Micro Finance services as provision of financial assistance to the eligi>le clients either directl+ or through group #echanis# for s#all and tin+ enterprise7 agriculture7 allied activities including consu#ption7 upto an a#ount not eAceeding aggregate and upto s. 1!7!!!-- in s. 171!7!!!-- for housing purpose or such other s. 1!( crore7 there>+ utiliCing an a#ount of =his has >enefited approAi#atel+ ,.(! lakh

a#ounts for the a>ove purpose or such other purposes as specified >+ the 4*B* 5 fro# ti#e to ti#e.

$c' Micro Finance ;rganiCation is defined as an ;rganiCation carr+ing on the >usiness of eAtending Micro Finance Services and includes Societ+ registered under the Societies egistration *ct7 1"3! or a =rust created under the Indian =rust *ct7 1""! or Pu>lic =rust registered under an+ State enact#ent or a Cooperative Societ+ engaged in Micro Finance service eAcluding a Cooperative Bank as defined under the Banking egulation *ct7 1%.%. $d' It differentiates >et<een ;rganiCations accepting thrift and those not accepting thrift. =hrift receiving organiCations <ill >e kept under sharp focus. 4o #icro finance ;rganiCation <ould >e a>le to accept thrift unless it o>tains a certificate of registration fro# the 4*B* 5 su>ject to fulfil#ent of certain conditions. It <ill re9uire MF;s accepting thrift to create a eserve Fund. $e' It provides for the creation of a Micro Finance 5evelop#ent Council for advising the 4*B* 5 on for#ulation policies. $f' It provides to facilitate constitution of a Micro Finance 5evelop#ent and /9uit+ Fund to provide loans7 refinance7 grant and seed capital to MF;s. $g' It <ill provide a redressal #echanis# through a Sche#e of Micro Finance ;#>uds#an. $h' It <ill provide penalties for violation on the provisions of the *ct. $i' It <ill authorise the Central govern#ent to #ake rules and authorise the 4*B* 5 to for#ulate regulations <ith the previous approval of Central 2overn#ent.

17

Chapter II Models of Micro-Finance in India

8andlords7 local shopkeepers7 traders7 suppliers and professional #one+ lenders7 and relatives are the infor#al sources of #icro-credit for the poor7 >oth in rural and ur>an areas. So#e of the perceived advantages of infor#al loans are $a' contractual fleAi>ilit+7 $>' lo<er discrepancies >et<een loan sanctioned and loan received and $c' less reliance on collateral. /#phasis on collateral securit+ is7 ho<ever7 not totall+ a>sent under infor#al loans as #one+ lenders keep je<eller+ and kitchen <are as ph+sical securit+ and are kno<n to #ortgage land and house against loans. *n over<hel#ing #ajorit+ of $landless' agricultural la>ourers attached to landlords have >een >orro<ing #one+ >ased on pledging Iself-la>ourJ as collateral. =his categor+ of >orro<ers is the #ost vulnera>le as harsh contracts linking la>our to loans are i#posed. Bonded la>our is the eAtre#e for# of this collateral. =he interest charged on infor#al loans is stated to var+ >et<een (. per cent to ." per cent per annu# $or . per cent per #onth'. In certain regions7 it goes up to 1(! per cent per annu# $or 1! per cent per #onth'. =he Mone+ 8ender)s *cts enacted >+ various states are intended to check the eAploitation of the poor >+ the #one+ lenders. =he+ cannot charge eAor>itant rates of interestsE in fact7 in #ost cases there is an upper ceiling on interest rates and the total recoveries cannot eAceed t<ice the a#ount of Hthe principal). Ho<ever7 such provisions are rarel+ enforced due to various reasons. =here are t<o #ain #odels of #icro credit in the countr+ and the+ are H>anking #odel) and the HMFI #odel). In the case of the >anking #odel Self Help

18

2roups are for#ed and financed >+ >anks. In so#e cases SH2s are for#ed >+ for#al agencies-42;s and financed >+ >anks. In the HMFI #odel) SH2s are for#ed and financed >+ the MFIs that o>tain resource support fro# various channels. In India7 #ajorit+ of #irco credit activit+ is under the HBanking #odel)$4*B* 5)s Bank-SH2 8inkage' and 1!-11K of the activit+ is through HMFI #odel).

)1

Bank-SH2s 8inkage Progra##e

=he Self-Help-2roups $SH2s' have e#erged as a tier >elo< P*CS. SH2S

co#prise a group of 11-(! #e#>ers. =he groups >egin >+ savings that are placed in a co##on fund. In a <a+7 SH2s are co-operative $credit' societies linked to a co##ercial >ank rather than an apeA cooperative >ank. ;nce linked to the >ank7 the SH2s #a+ access a given #ultiple of the pooled savings for dis>urse#ent to its #e#>ers. 2roup selects its leader and the selection of the leader is >ased on rotation. Isocial collateralJ su>stituting =he SH2s have7 #oreover7 e#erged as a for# of other for#s of Hcollateral securit+) insisted upon

>+ >anks. High repa+#ent rate has encouraged >anks to institutionaliCe SH2s under the >ank-SH2 linkage #odel. *ccording to give loans to SH2s up to BI 2uidelines7 >anks #a+ s. 1 lakh <ithout insisting on Hcollateral safet+).

=he Bank-SH2 linkage progra##e is noticed to have encouraged thrift-savings a#ongst the poor. *ccording to one case stud+7 <hile the average savings per #e#>er #ore than tripled7 the increase in assets <as a>out &( per cent. ;ut of (,. BP8 households surve+ed under the particular case stud+7 and 1(( households <ere noticed to have >een lifted up fro# povert+. =here <as7 further#ore7 a decline in the share of consu#ption and crop loans increase in loan for allied agricultural activities and s#all >usinesses. For#ulation of SH2s is7 ho<ever7 dependent on the intervening agenc+7 <ho has so far >een 42;s-MFIs7 Bs7 Banks and 5 5*s. SH2s are >eing

1!

pro#oted pri#aril+ under the t<o separate sche#es of 4*B* 5-Ministr+ of Finance and the Ministr+ of for#ed >+ the Ministr+ of ural 5evelop#ent. 5uring so#e +ears7 the SH2s ural 5evelop#ent under S2SD sche#e have >een

t<ice the nu#>er of those for#ed >+ 4*B* 5 under their >ank-SH2 progra##e. =he total nu#>er of SH2s for#ed is reported to >e approAi#atel+ (., #illion that covers nearl+ ,!-,1 #illion BP8 households $#ore than 1! per cent of all BP8 households'. =here is another i#portant difference >et<een the t<o. 0hile the SH2s pro#oted >+ the Ministr+ of ural 5evelop#ent enjo+s credit-linked su>sid+7 those pro#oted >+ 4*B* 5 do not have an+ such facilit+. 5espite this7 the credit dis>ursed to SH2s under the 4*B* 5 progra##e has >een #ore than under S2SD. =he su>sid+ level7 #oreover7 deter#ines the standard loan siCe irrespective of <hat the project needs to >e via>le.

))

MFI Models
=he specialiCed MFIs or #icro-finance #ove#ent since the 1%%!)s is a

ne< avenue of reaching the poor for their #icro-credit needs. So#e of the MFIs are >ased on the 2ra#een Model7 <hich entails for#ation of a Centre co#prising eight solidarit+ groups of five >orro<ers. Me#>ers of each solidarit+ group #utuall+ guarantee each other loan. =en Centres for# a Cluster and seven clusters for# a $>ank' >ranch Mand several >ranches together presu#a>l+ for# the BankN. =his is t+picall+ >ased on the #odel of 2ra#een Bank of Bangladesh1. *ll #e#>ers save regularl+ and loan proposals are approved >+ the CentreE all loans are7 #oreover7 repa+a>le in 1! <eekl+ instal#ents. MFIs in India register the#selves either as societies $under the Societies egistration *ct7 1%3!'7 as trusts under the =rust *cts7 as 4on-Banking Financial
1

In contrast to the top-do<n approach of credit cooperatives $>anks' for#ed in India7 this is a >otto#-up approach of for#ing a co-operative >ank. Credit cooperatives in India7 #oreover7 >eca#e credit agencies rather an agent of >oth thrift and credit.

20

Co#panies $4BFCs'7 or as 8ocal *rea Banks $8*Bs'. *ll 4BFCs re9uiring registration <ith the eserve Bank of India should have a #ini#u# capital of BI. =he issue of s.( crore. 4BFCs intending to accept pu>lic deposits have to satisf+ stipulated criteria and have to o>tain specific authorisation fro# the covering of 4BFCs) deposits >+ 5eposit Insurance and Credit 2uarantee Corporation $5IC2C' <as eAa#ined several ti#es7 and it <as found neither desira>le nor feasi>le to eAtend such coverage. Sa-5han7 an association of MFIs have argued for a ne< categor+ of 4BFCs7 na#el+7 Micro Finance Co#pan+ <ith a #ini#u# e9uit+ capital re9uire#ent $capitaliCation' of s.(1 lakh. Such MFIs are designed to provide credit onl+E #o>iliCation of savings is restricted to #e#>ers and >orro<ers. =he ratio of savings to net o<ned funds is reco##ended to >e 1 B 1 initiall+7 <hich #a+ go up to 1 B 1 su>se9uentl+. =his #a+7 ho<ever7 pose a pro>le# of supervision >+ the regulator $ BI' if there are a large nu#>er of MFIs. * Micro L Finance 5evelop#ent Council <as therefore proposed for perfor#ing the task of regulating such MFIs. =he 2overn#ent has7 ho<ever7 not favoured this idea. ) ) 1 Agenc+ #odel of MFI =he Internal 2roup on ural Credit and Micro Finance of BI $Ful+7 (!!1'7

ca#e to the conclusion that parking of funds <ith MFIs is faced <ith t<o sets of eAposures7 na#el+7 once at the MFI-42; level and thereafter at the level of SH2s-individual >orro<er level. =he BI has7 nevertheless7 favoured the *genc+ #odel of MFIs. ?nder this #odel7 in addition to the MFIs7 CS;s etc.7 onl+ those 4BFCs <hich are incorporated under Section (1 of the Co#panies *ct7 1%13 are per#itted to >e appointed as HBusiness Facilitators) $BFs' or as HBusiness correspondents) $BCs'. In the for#er case7 the MFIs provide the nonfinancial services7 such as7 identification of >orro<er7 processing and su>#ission of applications to >anks etc. In the latter case7 the MFI provide financial services as Ipass throughJ agents for dis>ursal of s#all value credit7 recover+ of principal -

21

collection of interest or sale of #icro insurance - #utual fund products etc. =he loan a#ount7 ho<ever7 re#ains in the >ooks of the >ank. =he >anks need not o>tain prior per#ission fro# BI for appointing BCs and BFs. =he+ are re9uired to conduct thorough due diligence >efore appointing BFs-BCs7 and as principals7 are responsi>le for custo#er service and control operations. =he >anks also need to have operational guidelines for the purpose. =he MFIs7 #oreover7 provide First 8oan 5efault 2uarantee $F852' e9ual to " L 11 per cent of the li#it sanctioned in the for# of securit+ deposit <ith the >ank so as to #aintain its stake in the loan portfolio. =he >anks appear to have positive eAperience under this #odel as the MFIs have helped the# overco#e the pro>le# of outreach in rural areas and have also reduced their transaction cost. In >rief7 the agenc+ #odel of MFI is >ank driven. ) ) ) MFI Bulk 8ending Model 0hile the *genc+ #odel #a+ appear #ore appropriate in the case of s#all MFIs7 the larger MFIs #a+ like to operate independentl+ of >anks $e.g. as 8*Bs'. =his categor+ of MFIs >elong to MFI Bulk 8ending $/9uit+ Participation' #odel <here>+ the+ can access funds in the for# of cheaper loans7 ashtri+a su>ordinated de>ts7 e9uit+ or 9uasi-e9uit+ fro# agencies7 such as7 the

Mahila 6osh7 the SI5BI Foundation for Micro-Credit $SFMC'7 the Micro-Finance 5evelop#ent and /9uit+ Fund $under the chair#anship of 4*B* 5' as <ell as the F00B.

) , Micro Finance and PACS

=he share of pri#ar+ agricultural credit societies $P*CS' in rural credit stood at 1".3 per cent in 1%%1. * good deal of this a#ount <ent to people <ho <ere relativel+ >etter-off7 that is7 to those <ho do not >elong to the BP8 households. 4ot<ithstanding this7 a certain percentage of the credit flo< has >enefited the poor. *ccording to the 0orld Bank 4C*/ stud+ $(!!.' the share

22

of P*CS in #icro-credit is as high as ,! per cent or one-third. such7 +et another i#portant channel of #icro-finance.

P*CS are7 as

In ter#s of retail outlets7 the P*CS are ahead of the >anks and the MFIs at the all-India level7 although the+ are o>served to have greater concentration in Maharashtra and 6erala and ver+ lo< in 4orth /astern states. =he total #e#>ership of P*CS is reported to >e 1(! #illion. =he Scheduled Castes and Scheduled =ri>es <ho generall+ co#prise the <eaker sections of the societ+ constitute as high as ,3-,& per cent or approAi#atel+ .1 #illion P*CS #e#>ers. =his is #uch higher #e#>ership than under the SH2-Bank linkage progra##e7 $currentl+ around ,! #illion BP8 households' and under the MFIs-8*Bs-4BFCs $around 1 #illion clients'. =he co-operative structure is ideall+ >ased on the nor# of Ione #an7 one voteJ. =he concept of Hsocial collateral) or Hgroup guarantee) holds good for the co-operatives as <ell. 2roup guarantee is supposed to >e stronger in the Ione for all and all for of cooperatives $of the poor' and the guiding principle is

oneJ. 0hat appears to <ork >est under this #odel is greater proAi#it+ of P*CS to its #e#>ers and the credit histor+ that deter#ines the credit <orthiness the clients. * large nu#>er of P*CS in rural India have >een7 ho<ever7 do#inated >+ the po<erful. =he prudential nor#s of >anking have also >een ignored and loans have >een eAtended to defaulting #e#>ers. Besides7 records are not #aintained properl+ and accounting and >ook keeping of #ost P*CS are ver+ <eak. Political interference of one kind or the other7 instead of i#proving the situation7 has onl+ contri>uted to the decline of P*CS. efinancing facilit+ fro# apeA organisations has conse9uentl+ declined-stopped and in the a>sence of e#phasis on thrift7 the P*CS have hardl+ sufficient funds for credit activit+.

23

Successive Co##ittees constituted to suggest #easures for revitalisation of P*CS have reco##ended for enact#ent of the Model 8a< of Cooperatives. It is an ena>ling 8a< that <ould #ake the credit cooperatives free fro# the State)s prerogative to override the #anage#ent $the control of the egistrar of Cooperatives'. =he reco##endations also include diversification of credit portfolio >+ P*CS - Cooperative Banks >e+ond crop loans. =he credit cooperatives #a+ thus also give consu#er loan7 housing loan and provide finance for services sector as <ell as distri>ute insurance products. =his <ould call for capacit+ and infrastructure >uilding of P*CS and o>servance of prudential >anking nor#s >+ P*CS. =he revitalisation package <ill >e linked to signing of a M;?. proposed is7 #oreover7 restricted onl+ to via>le P*CS and an+ ne< infusion of funds >+ the apeA >anks

) . Post <ffice 4et=ork and Banking Services

=he eAisting eAtensive for#al >anking structure is still not sufficient to #eet the gro<ing de#and of rural credit. 8ack of sufficient nu#>er of retail outlets of for#al >anking sector has >een a >ig handicap in reaching the poor. =here are together. approAi#atel+ 17117!!! post-offices in India7 <hich is #ore in nu#>er than the co#>ined outlets of all the >anks and the $functional' P*CS put Post-offices have >een alread+ into the >usiness of collecting s#all deposits fro# people and have >een providing services of transferring #one+. Post-office net<ork could ver+ <ell >e considered for increasing the outreach of >anking services7 especiall+ in re#ote and rural areas. ;ne of the i#portant principles of #icro-finance is to provide door-step

and ti#el+ deliver+ of financial service. =he sche#e of pig#+ deposits pioneered >+ so#e >anks in the past #et these criteria. =his eAperi#ent7 ho<ever7 failed >ecause of unscrupulous agents <ho indulged in fraud. =he post-offices are also kno<n to have eAperi#ented <ith si#ilar sche#es and had a greater

24

#easure of success. =he+ have a regular and paid staff and <ith little training and incentives7 their services could >e utilised ver+ usefull+.

) 1 Business Facilitator ; Correspondent Models

=he eserve Bank of India7 in Fanuar+ (!!3 issued an order to ensure greater financial inclusion and increase the outreach of the >anking sector7 through Business Facilitator Model and Business Correspondent Model. =his ena>led the co##ercial >anks7 including the B to use the services of 42;s7 to provide SH2s7 MFIs and Civil Societ+ ;rganiCation as inter#ediaries

financial and >anking services through Business Facilitator and Correspondent Model. ?nder the Business Facilitator Model the Post ;ffices can also >e used as inter#ediaries for providing services like $i' identification of >orro<ers and fit#ent of activities $ii' collection and preli#inar+ processing of loan applications including verification of pri#ar+ infor#ation-data E $iii' creating a<areness a>out savings and other products and education and advice on #anaging #one+ and de>t counsellingE$iv' processing and su>#ission of applications to >anksE $v' pro#otion and nurturing Self Help 2roups-Foint 8ia>ilit+ 2roupsE $vi' postsanction #onitoring E $vii' #onitoring and handholding of Self Help 2roups-Foint 8ia>ilit+ 2roups- Credit 2roups- othersE and $viii' follo<-up for recover+. ?nder the Business Correspondents Model 42;s-MFIs7 Cooperative Societies7 section (1 co#panies7 registered 4BFCs7 not accepting Pu>lic 5eposit and Post ;ffices #a+ act as Business -correspondent. In addition to the activities listed under the Business Facilitators Model the scope of activities of the Business Correspondent included $i' dis>ursal of s#all value credit7 $ii' recover+ of principal-collection interest $iii' collection of s#all value deposits $iv' sale of #icro insurance - #utual fund products-pension products-other third part+ products and $v' receipt and deliver+ of s#all value re#ittances - other pa+#ent instru#ents.

25

=he >anks are eApected to act diligentl+ in e#plo+ing the Business Facilitators and Correspondents. Both the Business Facilitators and Correspondents #a+ >e paid reasona>le co##ission-fee >+ the >anks. 4o fees can >e directl+ charged >+ the# for the services rendered to the custo#ers. =he >anks are to specif+ clearl+ the role of the Business Facilitators and Correspondents and also give <ide pu>licit+ >oth in electronic and print #edia. =he >anks are also to constitute 2rievance Correspondents and Facilitators. Ho<ever7 no #ajor head<a+ has >een #ade in this direction. It <as found that the >anks have not e#plo+ed >oth the Business Facilitators and Correspondents to #eet the increasing rural credit re9uire#ents. edressal Machiner+ <ithin the >anks for addressing the co#plaints a>out services rendered >+ the Business

) 3 Micro Credit Models in <ther Countries

=here are7 ho<ever7 t<o #odels of >ank-post office linkage7 na#el+ $a' the service #odel of BraCil)s Banco Postal and $>' Post Bank #odel of the 4etherlands. ?nder the first #odel7 the post offices <ork as H>usiness facilitators) and as H>anking correspondents). >anks. =he In return7 the+ receive co##issions fro# the Fanuar+7 (!!3 has approved of post BI7 vide its circular of (1 th

office functioning as >usiness facilitators to >anks and as >ank correspondents. =he second #odel $Post Bank #odel of 4etherlands' on the other hand7 postulates a kind of a #erger of the post office <ith the >ank->anks. =he postoffice net<ork in the 4etherlands is jointl+ o<ned >+ =P2 Post and Post >ank $each of the# having a 1! per cent stake'. Post Bank is clai#ed to >e one of the #ost advanced postal >anking net<orks in the <orld.

) & "ole of >echnolog+ and Micro-Finance

Micro-finance is not onl+ a>out credit. It is as #uch a>out thrift $or

savings'7 re#ittance services and #icro-insurance. In a <a+7 even credit #a+ >e looked at as one)s o<n savings #ade availa>le at advance. =here is need to put in place a <orka>le s+ste#7 technologicall+ and #anageriall+7 for collecting savings fro# the poor in s#all a#ounts7 at regular intervals and at their door step. In the case of the ur>an poor7 in particular7 it is o>served that the+ suffer fro# high inco#e drain on account of #an+ avoida>le practices. =here is7 as such7 a great need for plugging this inco#e drain through diverting their resources to savings. =he econo#icall+ active ur>an poor #a+ >e encouraged to o<n Hde>it card) and >anks #a+ introduce *=M #achines in the residential colonies of the poor. Besides this7 the ur>an <age earners separated fro# their rural fa#ilies re9uire to send #one+ ho#e. 4BFC-MFI net<ork could devise a #echanis# to deliver the #one+ at their doorstep. =here are7 si#ilarl+7 #an+ upco#ing technologies suita>le for the rural poor. H2ra#teller)7 a rural *=M could >e eAplored for their successful usa>ilit+ in rural areas. Introduction of $>io#etric' s#art cards is also eApected to revolutionise the #icro-finance sector and >ring do<n the transaction costs. ) & 1 Infor#ation and Co##unication >echnolog+ $IC>s( and MicroFinance Activities IC=s can >e effectivel+ used to provide infor#ation a>out #icro finance organisations and their services. =hough #an+ <e> sites provide infor#ation on #icro financing7 there is dearth of infor#ation on the ter#s and conditions7 institutions that provides #icro finance etc. =his infor#ation can >e provided >oth in /nglish and also in other Indian languages. IC=s can >e effectivel+ utilised to #onitor the various Micro Finance activities. =he various sche#es i#ple#ented >+ the 5epart#ent of ural

27

5evelop#ent are #onitored ph+sicall+ through various i#pact assess#ent studies. ? *8S;F= $httpB--ruralsoft.nic.in.' is soft<are used to #onitor the *t present assess#ents are done onl+ up to sche#es on a #onthl+ >asis.

district or >lock level >ecause of the consolidated data. 5etails that trul+ reflect the success of the sche#es are not currentl+ captured >ecause of nonavaila>ilit+ of IC= infrastructure in rural areas and the infor#ation a>out individual >eneficiaries. =he infor#ation re9uired to assess the sche#es at the grass root level can >e out sourced to the self help groups. =his infor#ation can >e fed into the uralsoft for detailed #onitoring of the sche#es. IC=s can >e used to provide access to <ider #arkets and >etter prices. IC=s can >e used to enhanced the econo#ic returns for the #icro finance activities >+ provide access to glo>al #arkets at >etter prices. *t present ? *8B*O* $httpB-- rural>aCar.nic.in' the application soft<are has >een conceptualiCed to assist #arket needs of products produced >+ rural people. It offers internet <e> to sho< case there products to the <orld. It appears so#e of the states like =a#il 4adu7 2oa and =ripura have successfull+ adopted the soft<are. Ho<ever7 efforts should >e #ade to ensure 9ualit+ of the products produced >+ rural producers and to provide logistic support like appropriate packages and ti#el+ deliver+ to the products. ) & ) Co##on Service Centres 5epart#ent of Infor#ation =echnolog+7 2overn#ent of India has proposed to set up a net<ork of #ore than 1!!!!! internet ena>led Infor#ation and Co##unication =echnolog+ $IC=' access points ter#ed as Co##on Service Centres $CSC'. =he+ are #eant to provide high 9ualit+ and cost effective video7 voice and data content >+ the end of (!!&. =he 2oal is to e#po<er the rural co##unit+ and catal+Ce social change through #odern technologies. It endeavours to provide econo#ical access to infor#ation and services to rural citiCens and i#prove governance at cheaper cost. It envisages a colla>orating

28

#odel that allo<s pu>lic and private enterprises to integrate their goals of profit and social o>jective into a sustaina>le >usiness #odel for achieving rapid socioecono#ic change. =he sche#e proposes a three tier structure <here at the first level a @illage 8evel /ntrepreneur $@8/- a franchise'7 at the #iddle level a Service Centre *genc+ $SC*- franchiser' and at the third level a State 8evel *genc+ $S8*' to facilitate i#ple#entation of the sche#e <ith in the state. =he S8* <ill >e responsi>le for i#ple#entation of the sche#e through the franchiser $SC*' and the franchisee $@8/'. ) & , Co#puter Munshi S+ste# P *5*4 evolved the Co#puter Munshi S+ste# to i#prove the >ook keeping of the self Help groups $SH2s'. So as to i#prove transparenc+7 e9uit+ and longevit+ of its groups. =he #odel >asicall+ ai#s to i#prove the accounting and >ook keeping of the SH2s. * #e#>er7 accepta>le to all the #e#>ers and capa>le7 of the group is selected and trained in >ook keeping. He is the 2roup *ccountant $2*'. He is supported >+ a Co#puter Munshi $CM'7 <ho is e9uipped <ith a co#puter and printer in a central location <ith po<er connection. * CM is eApected to serve a>out ,!! groups. egular Monthl+ =ransaction State#ent $ M=S' consisting of the <eekl+ savings and credit transactions and >alances7 including eApenditure and inco#e state#ent is delivered to the CM. =he CM enters these accounts in the co#puter and sends >ack the corrected state#ent to the 2*. =he s+ste# is designed to >e self corrective7 as the 2* is <arned each <eek a>out the discrepancies7 if an+. Si#ilarl+ the CM is also <arned of discrepancies ever+ <eek. Monthl+ trial >alance for the group is prepared >+ the CM <hich is discussed in the #onthl+ #eetings of the group. =he group pa+s a fee to >oth the 2* and CM. *s on March (!!17 there <ere ." CMs saving a>out (!!! groups. =he #odel is cost effective7 helps in ti#el+ preparation of accounts and identif+ing the discrepancies at the initial stages. P *5*4 <as provided <ith grants >+ 4*B* 57 SI5BI7 and 5FI5

2!

Chapter III Issues of Micro-Finance in India

,1

8egal Issues
=he various Mone+ 8ending *cts enacted >+ the different states have not

>een successful in ensuring an+ discipline on the non-for#al >anking sector. Illegal $loan' contracts7 though not judicia>le7 are enforced >+ the #one+ lenders through the #uscle po<er tactics as <ell as the desire of the poor the#selves not to lose credi>ilit+ for taking loans in the neAt c+cle. lenders are the#selves at risk7 >oth legall+ and sociall+. In a <a+7 the #one+ =he+ #a+7 therefore7

also need to >e reha>ilitated. =his <ould re9uire operating ethicall+ and <ithin the per#issi>le li#its. *s per the Mone+ 8ender)s *cts <hich are in force at present7 registration and license for #one+ lending are #andator+. *s an incentive7 the professional #one+ lenders <ho are so registered #a+ >e allo<ed access to refinancing facilit+7 sa#e as the MFIs7 if the+ allo<ed their accounts to >e audited >+ the authorised regulator regularl+. ?nder the Constitution of India $Seventh Schedule'7 #one+ lending is a State Su>ject. *n+ other la< enacted in this conteAt is7 therefore is su>servient to the la< passed >+ the state legislature. =he Seventh Schedule does not #ention Private Mone+ 8ending. *s such7 all kinds of #one+ lending <hether through institutional or non-institutional sources can get covered. * particular Mone+ 8ending *ct $of a state' #a+ thus co#e in conflict <ith another *ct7 enacted let us sa+7 on >ehalf of BI. ;ne <a+ to overco#e this difficult+7 #a+ >e the Centre preparing a #odel IMone+ 8ending *ctJ and passing it do<n to the states for enact#ent of a si#ilar legislation.

30

,)

2ender Issues
Fe#inisation of povert+ has >een associated <ith a>sence of econo#ic

opportunities and lack of access to econo#ic resources such as credit for the <o#en. =he <o#en face nu#erous pro>le#s like lo< level of assets o<nership7 illiterac+7 ina>ilit+ to identif+ suita>le activit+7 participation in lo<-return sectors7 restricted >usiness avenues7 li#ited access to technolog+7 lack of access to #arket7 poor access to for#al sector7 poor capacit+ L>uilding etc. =herefore7 direct involve#ent of <o#en in the econo#ic activities is i#perative to achieve sustaina>le develop#ent and to alleviate povert+. *n i#portant co#ponent of the develop#ent strateg+ is e#po<ering <o#en econo#icall+ and #icro finance is e#erging as an i#portant #easure in this develop#ent strateg+.

,,

Increasing accessibilit+ of the poor

=he positive result of the gro<th of self help groups is an increased

availa>ilit+ of credit to poor household in rural areas.

Ho<ever7 the poorest

households are still not a>le to access credit and assistance provided >+ govern#ent progra##es. =he+ are not a>le to i#prove their inco#e earning capacit+ >+ ac9uiring the right kind of assets or selecting the #ost suita>le activit+. I#pact assess#ent studies of the sche#es i#ple#ented >+ the Ministr+ of ural 5evelop#ent confir# the >enefits of self e#plo+#ent progra##es accrue to slightl+ >etter off rural households.

,.

"ate of interest
=he rate of interest charged in the #icro finance sector depends on the

cost of funds7 cost of deliver+ of credit7 cost of collection and pa+#ent7 cost of

31

providing for >ad de>ts and profit #argins.

*t present7 the rate of interest

charged is >et<een (1 to ,!K. =he sustenance and econo#ic via>ilit+ of #icro finance organisations depends on charging interest at the rate of (1-(.K. Sa5han7 $an association of MFIs' has laid do<n #odel #utual Code of Conduct for Micro Finance Institutions. It advocates interest rate of (1-(.K. =he sector as a <hole has >een criticised for charging rates higher than the prevailing for#al >anking sector rates. =o counter the criticis# of high interest rates there is an urgent need for creating a<areness a>out the need for charging cost-recovering interest rates. =he #icrofinance organisations reach roughl+ one fifth of the poor households and s#all percentage of non-poor households. Sustenance of these institutions and their continued support to the poor households depends on charging cost recovering rate of interest. =he perfor#ance of the sector cannot >e judged purel+ on the >asis of rate of interest charged. =he sector has nu#erous advantages like outreach7 deliver+ and collection of loans7 etc7 <hich #akes it #ore attractive than the for#al sector. 8oans are delivered and collected virtuall+ at their door step and at intervals convenient to the >orro<er. It is therefore advisa>le not to put a cap on the interest rate and to encourage co#petition a#ong service providers and leave it to the #arket to deter#ine the interest rates <ith in a range of 11-(. percent.

,1

?nbalanced 2eographical 2ro=th

=he sector has <itnessed an eAponential gro<th during the last couple of

+ear)s especiall+ in southern part of the countr+. So#e of the s#all scale 42;s have gro<n into large corporate institutions <ith so#e of the# having #ore than one lakh #e#>ership. So#e of the# are offering technolog+ >ased7 de#and >ased products and services to their #e#>ers. Ho<ever7 eastern7 northern7 northLeastern and <estern states are lagging >ehind on account of a>sence of conducive socio-econo#ic and political set-up re9uired for such interventions. *>sence of local institutions to start7 #anage and upscale credit progra##es7

32

lack of focus on the part of FIs- >anks7 lack of social services providers etc. are so#e of the #ajor pro>le#s. =o overco#e this un>alanced geographical gro<th7 4*B* 5 in (!!1 identified 1, priorit+ states accounting for &!K of India)s poor for special efforts. *s a result the share of the ne< loans of the four southern states ca#e do<n fro# .% to .3 K in (!!3. 4u#>er of ne< loans also ca#e do<n sharpl+ in *.P fro# 1!&,11 in (!!1 to ."1"% in (!!3 and repeat loans fro# 11,%!, to 1,.(,.. =he nu#>er of ne< SH2s for#ed <ent up to 1.K in north Least7 .1K in <est and ..K in the east <hen the national avegarge <as (1..K. =he gro<th in the central7 northern and southern states ranged fro# 11 to (!K. 2ro<th in these States7 particularl+ in ?ttaranchal and *ssa# <as achieved >asicall+ >+ diversif+ing the use of partners. Partners like for#al agencies7 42;s and >anks <ere granted assistance for for#ation7 training and nurturing of groups.

,3

Choice of productive activities

=he poor households have li#ited choices <hile identif+ing productive

activities.

=he S2SD progra##e unfortunatel+ has not >een a successful

sche#e. It e#phasised on a cluster approach <here ten ke+ activities <ere identified per >lock and pro#oted. It does not take into consideration the #arket de#ands or capa>ilities of the >eneficiaries. In so#e cases7 the activities are selected just on the >asis of <hat can >e supplied >+ the poor households. 2overn#ent depart#ents and agencies7 even 42;s have not succeeded in understanding the #arket de#and and creating fresh de#and for the products and services delivered >+ the Self-Help groups. 8ess i#portance is given to i#prove the 9ualit+7 >randing and packaging. =he poor households adopt the activit+ reco##ended >+ the govern#ent functionaries <ithout access to eAternal eApertise or guidance.

33

,&

Assess#ent of 5e#and
Professional assess#ent of #arket de#and #ust >e #ade >efore hand.

Suita>le strategies should >e evolved >+ involving trained persons >efore adopting the cluster approach. 2uidance and counselling #ust >e #ade availa>le to the fa#ilies to choose their skills and the activities the+ <ould like to undertake. Multiple activities should >e offered7 finances provided #ust also >e fleAi>le to #eet their needs for consu#ption7 production7 housing7 etc.

,'

Subsid+
Su>sid+ is used to #ake self e#plo+#ent progra##es for poorer

households via>le. So#eti#es this leads to pro#otion of unvia>le products <hich fail once the su>sid+ co#ponent is <ithdra<n. =he polic+ of providing creditlinked su>sid+ to SH2s and individuals #a+ >e given up. * si#ilar reco##endation <as #ade earlier in the *pproach Paper to the =enth Five Dear Plan. =he >udgetar+ support can >e >etter used for providing infrastructure to the #icro finance organisations.

,%

Capacit+ building
=he sector <hich is still in its infanc+7 faces shortage of eAperienced

consultants-#anpo<er-eAperts. =here is a need to have good 9ualit+ professionals7 trained in >est practices in governance for effective corporate governance. the sector. * need->ased capacit+ >uilding progra##e to #eet the So#e of the i#portant areas <here capacit+ >uilding is needed are re9uire#ents of all categories of MF;s is essential to >ring a>out sustaina>ilit+ in transfor#ation7 >est practices7 interest rate #anage#ent7 deliver+ #anage#ent7 #anaging gro<th7 risk #itigation7 product designing7 #arket research etc.

34

, 19 "ecords Maintenance
2ood 9ualit+ group records help in transparenc+ <ithin the groups and also help the >anks in loan appraisals and #onitoring. In a recent stud+ conducted across four states7 it <as found that onl+ in 11 percent of the cases the 9ualit+ of records #aintained <ere found to >e Hgood)7 in ,% percent of cases7 it <as H#oderate) and it <as H<eak) in .! percent of the cases. =he highest proportion of <eak records7 #ore than 1! percent7 <as found in groups pro#oted under the govern#ent agencies7 <hereas it <as less than 1! percent in the case of groups pro#oted >+ 42; s or >anks.

, 11 Auditing
*>sence of good auditing and #aintenance #echanis# of Self Help 2roups $SH2s' is a handicap. =he initial enthusias# in for#ation and >ank linkage fades once govern#ent handouts for group for#ation and training are <ithdra<n. =he+ tend to stop functioning after so#e ti#e and the hard earned savings of group #e#>ers fall into the hands of the last set of >orro<ers and are then not recovered. =here is need to standardiCe and si#plif+ accounting procedure and i#prove Book 6eeping procedures in such a <a+ that all i#portant infor#ation a>out the SH2 are readil+ availa>le. It <ould ena>le the >anks to appraise and #onitor loan portfolios. =here is a need for #ore detailed7 accurate and ti#el+ disclosure in financial state#ents and annual reports. Sa5han7 the association of MFIs7 is reported to >e finaliCing <ith the Institute of Chartered *ccountants of India7 a standardiCed set of reporting for#ats co#pati>le <ith >oth MFI re9uire#ents7 and Indian accounting conventions and la<.

35

, 1) >ransparenc+
In #an+ cases there is a>sence of transparenc+ regarding interest rate and other charges to the >orro<ers. *s #entioned a>ove7 proper records are not #aintained and there is no statutor+ re9uire#ent of audit. So#e of the studies have sho<n that certain sections of the societ+ are eAcluded. In so#e cases it is self-eAclusion and in so#e7 the eAisting #e#>ers of the MF; eAclude certain sections. So#e are eAcluded >ecause of the anticipated difficulties in #eeting savings o>ligations7 lack of understading and confidence in group processes7 etc. =hese difficulties result in #anipulation >+ a fe< and failure of organisations. Sa5han7 an association of MFIs7 appears to >e <orking on detailed code of conduct for transparenc+ in dealings <ith >orro<ers and consu#er protection issues.

, 1, Absence of Polic+
*>sence of an+ eAplicit polic+ on Micro Finance adversel+ affected its gro<th. Ho<ever7 the HMicro Financial Sector $5evelop#ents and egulations') Bill <hich is presentl+ under consideration is eApected to address the issue and the Hregulator) <hich has >een proposed in the Bill is eApected to put in place the re9uired polic+ and regulator+ fra#e<ork.

, 1. Absence of infor#ation-statistics
=he #icrofinance sector as a <hole is highl+ decentraliCed <ith no single agenc+ responsi>le for its develop#ent. Infor#ation-data on the sector is scattered and there are no fir# esti#ates a>out the sector. Insufficient infor#ation i#pedes understanding and polic+ for#ulation. For a >etter understanding7 #onitoring and future planning there is a need for collection and co#pilation of infor#ation regarding the nu#>er of SH2s-MFIs7 the loans dis>ursed7 deposits7 interest rates etc. =he scattered research carried out >+ various agencies also re9uires to >e consolidated. Periodic surve+s of #icro 3

finance organiCations on all India >ases #a+ >e considered so that all necessar+ infor#ation a>out the sector could >e collected on a continuous >asis. =he surve+ can >e done jointl+ >+ the 4SS; and the state govern#ents.

37

Chapter I@ "eco##endations

.1

Access to Credit =he poor people)s access to credit #a+ >e significantl+ i#proved through

all the channels of SH2-Bank linkage progra##e7 MFIs7 Cooperative Banks7 State Financial Corporations7 B s and P*CS. So#e MFIs $i.e. 2ra#een Bank #odel-8*BS7 4BFCs' have >een doing ver+ <ell in selected states <ith d+na#ic #arkets and d+na#ic individuals. Be+ond these jurisdictions7 their outreach is non-eAistent. *n+ significant up scaling of #icro-finance at the all India level <ill have to depend7 therefore7 on the large net<ork of >anks7 the >ank-SH2 linkage progra##e and the MFIs. In addition7 the post office net<ork in the countr+ #a+ also >e used to deliver >anking services7 especiall+ in re#ote rural areas. =he post offices #a+ >e further encouraged to <ork as I>usiness facilitatorJ and as I>anking correspondentJ in accordance <ith >anks7 the Ministr+ of BI guidelines. =he 4*B* 5 #a+ consider setting up a Co##ittee7 consisting of various private and pu>lic sector ural 5evelop#ent7 S#all Industries 5evelop#ent ashtri+a Mahila ;rganisation $SI5;' of Ministr+ of S#all Scale Industries $SSI'7

6osh $ M6' of =he Ministr+ of 0o#en and Child 5evelop#ent7 5epart#ent of Posts7 SI5BI7 MFIs and the 42;s in the #icro finance sector to evolve an effective strateg+ to i#ple#ent the Business Facilitators and Correspondents Model. Such a strateg+ should also take into account special target groups such as the SCs-S=s and the #inorities through their respective 4ational Finance Corporations. =he /leventh Plan #a+ target to eAtend #icro-finance to at least "! percent of the BP8 households.

38

.)

For#ation of Consortiu#s b+ Banks Both pu>lic and private sector >anks have the eApertise in financial

inter#ediation. *ll the >anks should co#e together and for#ulate a strateg+ at the national level to cover all regions of the countr+ and to address the needs of the MF;s. =he different >anks #a+ for# Hconsortiu#s) to leverage each other)s advantages and <ork out suita>le strategies to address the needs of #icrofinance at the national level. elevant H2uidelines on Micro-Finance) >oth for the MFI #odel and the Bank-SH2 linkage #odel7 #a+ >e prepared >+ 4*B* 5 for the field level officers. So#e incentives #a+ also >e introduced to encourage lending to the poor. Internal #onitoring #a+ also >e further strengthened to check eAploitation of the poor >+ unscrupulous ele#ents. ., ?nifor# 8egal Fra#e=ork =o facilitate the eApansion of #icro credit7 the Centre should prepare a #odel Bill on Mone+ 8ending and circulate it a#ong the State 2overn#ents re9uesting the# to enact si#ilar state legislations. =he constituted a H=echnical 2roup for eserve Bank has evie< of 8egislations on Mone+-lending). =he

group is alread+ drafting a #odel Bill <hich is eApected to >e co#pleted >+ Fune ,!. =his draft >ill can >e used as an input for preparing #odel >ill >+ the Central 2overn#ent. .. 4ational Polic+ on Micro Finance *t present7 >oth 2overn#ent and the private agencies involved in #icro finance have devised their o<n individual strategies in furtherance of their goals. *>sence of co#prehensive national level polic+ has hindered the orderl+ gro<th of the sector. =here is an urgent need for a concerted effort on the part of the various agencies and the services providers involved in the sector to co#e together to evolve a coordinated strateg+ for a faster and s#oother gro<th of the

3!

sector. =he proposed >ill on #icro finance #a+ address so#e of the issues. =he Hregulator) proposed in the HBill) #a+ have to co#e out <ith a detailed strateg+ on issues like coordination a#ong various agencies7 accounting and auditing7 transparenc+7 good governance7 consu#er protection7 #icro insurance7 statistics : research7 rate of interest7 su>sidies etc.7 keeping in #ind the fact that the strength of the #icro-finance industr+ lies in its infor#alit+ and fleAi>ilit+. .1 ?neven 2eographical 2ro=th ;ne of the #ajor reasons for the uneven gro<th of the sector is the a>sence of conducive socio-econo#ic and political set-up. 4*B* 5 introduced special incentives in the north7 north-eastern and <estern states. =he Ministr+ of ural 5evelop#ent7 Ministr+ of S#all Scale Industries7 4*B* 5 and SI5BI #a+ devise further need >ased incentive sche#es for a faster and even gro<th of the sector in all parts of the countr+ in consultation <ith Ministr+ of Finance and BI. SI5BI has also taken positive steps to reach the underserved states through the portfolio risk fund sche#e of the #inistr+ of SSI and through its o<n special efforts. .3 Mobilisation of Savings b+ MFIs =he a>sence of savings7 apart fro# SH2s and MFI cooperatives7 has unfortunatel+ >een one of the features of Indian Micro finance and it prevents providing financial service to the poor. =he Indian MFIs survive on >orro<ed funds7 unlike other countries <here savings fund a large share of lending. =he regulator+ environ#ent onl+ allo<s cooperatives to collect savings. =he MFIs #a+ >e allo<ed to #o>ilise savings at least fro# their #e#>ers under a regulator+ fra#e<ork #onitored >+ the 4*B* 5. =he proposed Microfinance Bill is eApected to address this issue.

40

.&

Cost Covering Interest "ates =here is a need to create a<areness of the need to charge cost-

recovering interest rates. =he rate of interest charged >+ the MFIs depends upon the cost of funds7 cost of deliver+ and pa+#ent7 cost of purchasing >ad de>ts and cost of #argins. For econo#ic via>ilit+ and sustaina>le gro<th7 the MFIs need to charge interest rate covering these costs. @arious studies conducted on this aspect indicate that MFIs nor#all+ charge (1-(. K interest rate for their sustenance. Innovative techni9ues #ust >e identified to reduce the cost and the interest rate. =he cost of deliver+ and collection of pa+#ent7 <hich for#s a #ajor co#ponent of cost7 can >e reduced su>stantiall+ >+ using the proposed Co##on Service Centres7 <hich can >e shared >+ other agencies also. =he sector should #ake all atte#pts to reduce the rate of interest >+ #eans of efficienc+ enhancing innovations <ith the aid of technolog+. .' Credit-8inked Subsid+ =he polic+ of providing credit-linked su>sid+ to SH2s and individuals #a+ >e revisited. =here are SH2s <hich are >orro<ing fro# >anks on a continuous >asis <ithout clai#ing su>sidies. * co#prehensive stud+ #a+ >e co##issioned to stud+ the incidence and effects of su>sid+ as part of the 11 th Plan and to <ork out #odalities and long ter# strategies to use the su>sidies #ore productivel+ and effectivel+. .% "ole of >echnolog+ =he net<ork of internet ena>led Infor#ation and Co##unication =echnolog+ $IC=' access points ter#ed as Co##on Service Centres $CSC'7 1!!!!! in nu#>er across the countr+ >eing i#ple#ented >+ the 5epart#ent of Infor#ation =echnolog+ $5I='7 Ministr+ of Co##unications and Infor#ation =echnolog+7 2overn#ent of India also #a+ >e utiliCed for i#proving the reach

41

and spread of various Micro-Finance and Povert+ *lleviation Sche#es in rural areas in the countr+. Further7 the 5I= #a+ coordinate <ith 4*B* 57 Ministr+ of ural 5evelop#ent7 Sa-5han and P *5*4 to integrate the HCo#puter Munshi S+ste#) of accounting into the IC= ena>led CSCs. . 19 *=Ms and 2ra#teller $rural *=M' #a+ >e located in the Post ;ffices. =he

Co##on Service Centres >eing developed >+ the 5epart#ent of Infor#ation =echnolog+ #a+ also >e linked to Post ;ffices to s+nergise the technolog+ induction <ith eAperience of Posts to handle financial products. =he proposed #ulti-purpose uni9ue I5 >ased s#art card s+ste# can also >e utilised for effective deliver+ of #icro-credit. . 11 4*B* 57 SI5BI7 Ministr+ of ural 5evelop#ent and Sa-5han7 <hich is

alread+ <orking to evolve a standard >ook keeping procedure along <ith the Institute of Chartered *ccountants of India7 #a+ co#e together to evolve a standardiCed7 si#plified and >ook keeping procedure for all for#s #icro finance organisations7 <hich <ould not onl+ understand the health of the #icro finance organisation >ut also help in accurate and ti#el+ disclosure of financial state#ents and annual reports. Further7 the HCo#puter Munshi S+ste#) developed >+ P *5*4 and <hich appears to have >een adopted successfull+ for #aintenance of accounts #a+ also >e integrated into the overall strateg+ of si#plif+ing the accounting procedure. . 1) Maintaining Standard Accounting S+ste# =he guidelines->est practices for SH2-Bank linkages and #icrofinance #a+ >e issued >+ 4*B* 57 covering auditing and #onitoring #echanis#s. #a+ conduct evaluation studies as and <hen re9uired. BI

42

. 1,

/Atension Services 4eed for eAtension services in the different econo#ic activities of crop

hus>andr+7 ani#al hus>andr+7 agro : rural industries is >eing <idel+ recognised for guidance and counselling of SH2s-individuals7 to help the# choose useful activities and ac9uire the re9uired skills. =hese eAtension services #a+ not al<a+s >e provided in-house through the line depart#ents of the State 2overn#entE rather the+ #a+ >e provided >+ the private sector $eg. 42;s-MFIs' adopting the PPP #odel reinforced >+ via>ilit+ gap funding. =he line depart#ents #a+7 nevertheless7 continue to function as apeA institutions deter#ining the o>jectives and ter#s of contract for the private sector participation. . 1. Micro Insurance Micro insurance should >e perceived as a ke+ service in the financial needs package of the people and in conjunction <ith #icro savings and #icro credit could go a long <a+ in keeping the vulnera>le seg#ent a<a+ fro# the povert+ trap and could >e an integral co#ponent of financial inclusion. =he Insurance Micro Insurance egulator+ and 5evelop#ent *uthorit+ $I 5*' has notified

egulations in 4ove#>er7 (!!1 <ith focus on the direction7

design and deliver+ of the products including tie up <ith life and non life insurance pla+ers for integration of product to address various risks7 introduction of a standalone Micro Insurance deliver+ channel consisting of 42;7 SH2 and MFIs.7 enlarging the service activities entrusted to #icro insurance agent7 issue of Polic+ docu#ents in si#ple vernacular language etc. =he I 5* #a+ continue to give ade9uate priorit+ to the #icro insurance sector <ith focus on re#oving the constraints and further developing the sector.

43

Micro insurance is increasingl+ offered >+ MFIs acting as agents of the insurance co#panies. 8ife insurance is co##on a#ong MFI #e#>ers and so#e of the #e#>ers are also availing asset insurance7 #ainl+ loan financed assets. Insurance is less <idespread under the SH2 #odel. MFIs and other civil societ+ organiCations are >eginning to offer health insurance7 <hich is of greatest relevance for povert+ alleviation. 4*B* 5 #a+ consider coordinating <ith various insurance co#panies7 SI5BI7 Ministr+ of ural 5evelop#ent7 Ministr+ of SSI7 42;s and their associations to >ring out fleAi>le #icro insurance sche#es7 covering not onl+ loan financed assets >ut also life7 health7 crop7 ani#al hus>andr+7 etc . . 11 Capacit+ Building So#e financial institutions7 particularl+ SI5BI7 are t+ing up <ith capacit+ >uilding providers to provide assistance to the #icrofinance institutions. * need>ased capacit+ >uilding progra##e to #eet the re9uire#ents of all categories of MF;s is essential to >ring a>out sustaina>ilit+ in the sector. So#e of the i#portant areas of capacit+ >uilding are transfor#ation7 >est practices7 interest rate #anage#ent7 deliver+ #anage#ent7 #anaging gro<th7 risk #itigation7 product designing etc. *dditional infrastructure for capacit+ >uilding #a+ >e created on PPP >asis <ith appropriate govern#ent assistance. . 13 For#alities to access the credit are re9uired to >e si#plified to ena>le

se#i literate and illiterate custo#ers to access credit. =he deliver+ #echanis# also needs to >e si#plified to provide eas+ access to >oth credit and <orking capital. *ctivities suita>le for <o#en #a+ >e identified taking into consideration their traditional skills. * variet+ of enterprises #a+ >e offered to the <o#en to select the >est suited for the#. Constant feed>ack on the #arket <ould also ena>le the <o#en entrepreneurs to i#prove the product designs and #arketing.

44

. 1&

>ransparenc+ =he >orro<er needs to >e protected fro# practises like lending <ithout

regard for the >orro<ers a>ilit+ to repa+7 deceptive rate of interest and a>usive collection techni9ues. Borro<ers -consu#er protection la<s #a+ >e designed to take care of a>usive lending and collection practices >+ defining the# and >+ #aking provision for effective co#plaint redressal #echanis#s. =he consu#er protection la<s #ust also provide for transparent discloser of interest rate7 cost and other ter#s of lending. =he consu#er la<s #ust also educate the consu#er on good #one+ #anage#ent practices for earning7 spending7 saving7 >orro<ing and investing. . 1' Availabilit+ of Infor#ation-Statistics 0ith a vie< to developing a detailed data >ase of the #icro-finance sector7 it #a+ >e desira>le to conduct periodic surve+s of all the #icro-finance organisations in the countr+ and their operations. =he surve+ can >e conducted jointl+ >+ the 4SS; and the state govern#ents.

45

References
""""P#$%%&%' C())&**&(%+ Approach Paper to the Tenth Five Year Plan (2002-07 )+ N,D,#.&+ 2001/ """" P#$%%&%' C())&**&(%+ Report of the Working Group on Agricultural Cre it! Cooperation an Crop "n#urance for the Tenth Five Year Plan (2002-07$! N,- D,#.&+ 2001/ """" W(0#1 2$%3+4 "n ia % &caling-up Acce## to Finance for "n ia'# Rural Poor' (R,5(06 %(/ 30740-IN)+ N,- D,#.&+ D,7,)8,0+ 2004/ """" M&%&*609 (: F&%$%7,+ T$*3 Force on Revival of Cooperative Cre it "n#titution# (D0$:6 R,5(06)+ N,- D,#.&+ 2004/ """" M&%&*609 (: F&%$%7,+ ()pert Co**ittee on Con#u*ption Cre it (C.$&0)$%; 2/ S.&<$0$)$%)+ N,- D,#.&+ 1!7 / """""M&%&*609 (: R=0$# D,<,#(5),%6 (G(I)+ Annual Report (200+-0,$+ N,- D,#.&+ 2005/ """""M&%&*609 (: >08$% E)5#(9),%6 ? P(<,069 A##,<&$6&(% (G(I)+ Report of the Ta#k Force on -icro-Cre it to the .r/an Poor 0"nfor*al &ector+ N,- D,#.&+200 / """"M&%&*609 (: W(),% ? C.&#1 D,<,#(5),%6+ Ra#htri1a -ahila 2ho#h+ N,- D,#.&+ 200 / """" D,5$06),%6 (: P(*6* (M&%&*609 (: C())=%&7$6&(% ? I%:(0)$6&(% T,7.%(#('9)+ @()ecutive &u**ar1! &e*inar on Tran#for*ation of "n ia Po#t for 3i#ion 20204+ N,- D,#.&+ O76(8,0+ 2005/ """" D,5$06),%6 (: I%:(0)$6&(% T,7.%(#('9 (M&%&*609 (: C())=%&7$6&(% ? I%:(0)$6&(% T,7.%(#('9)+ '"CT# for -icro-Finance Activitie# at Gra## Root 4evel' + N,- D,#.&+ 200 / """" R2I+ 5Report of the "nternal Group to ()a*ine "##ue# Relating to Rural Cre it an -icrofinance'+ M=)8$&+ A=#9+ 2005/ """" R2I+ @The (volution of Central 6anking in "n ia'+ R,5(06 (% C=00,%79 $%1 F&%$%7, (2004-05)+ M=)8$&+ 2005/ """"M$.$B$%+ V&B$9+ @T., -icrofinance an Povert1 Alleviation 4+ ()&)&()+ N,- D,#.+ 200 / """" M$1$%+ G/R/+ Cooperative -ove*ent in "n ia+ M&66$# P=8#&7$6&(%*+ N,- D,#.&+ 1!!4/ 4

"""""P=%&$+ A/C/+ A &hort 7ote 8n the Working of 76CF9C With Re#pect to -icro Finance Activitie#+()&)&()+ N,- D,#.&+ 200 : """" T.(0$6+ Y/S/P/+ @-icrofinance in "n ia % Per#pective an C(%:,0,%7, (% M&70(:&%$%7, I%1&$+ M=)8$&+ 2005/ """" V&*.-$%$6.$%+ R+ -icro Finance an ()&)&(+ 200 )+ N,- D,#.&/ """"" C=)$0+ S%,. L$6$+ @Con#traint# face (*i*io$! 7e< 9elhi! 200=: Challenge#4 ()(%('0$5.)+

Povert1 Alleviation ; &o*e Thought#

/1 Wo*an in -icro-finance an &olution#'

"""" V&30$)$%+ A+ @&"96"'# "nitiative# in -icro Finance ; ()perience! Concern# an Wa1 For<ar '! 4uckno<! 200=: --------G.$6,+ P0$8.=+ @M&70(:&%$%7, &% I%1&$ D A *6$6, (: 6., S,76(0 R,5(06+ 200 4

47

A%%,E=0, No.20(5)/DP/PC/2005 Government of India Planning Commission (Develo ment Polic! Division) " #o$na %&avan' (ansad )arg' Ne* Del&i- ++0 00+ ,+st )arc&' 200-. .rder (/0$ect1- (teering Committee on )icro-2inance 3 Povert! 4lleviation' for t&e 5levent& 2ive #ear Plan " I% 6., 7(%6,E6 (: 6., :(0)=#$6&(% (: 6., E#,<,%6. F&<, Y,$0 P#$%+ &6 .$* 8,,% 1,7&1,1 6( 7(%*6&6=6, $ &teering Co**ittee on -icro-Finance > Povert1 Alleviation: T., 7()5(*&6&(% (: 6., &teering Co**ittee &* $* :(##(-*; S.0& A%-$0=# H(1$ M,)8,0+ P#$%%&%' C())&**&(% )em0ers 1/ S,70,6$09+ D,5$06),%6 (: A'0&7=#6=0, ? C((5,0$6&(% 2/ S,70,6$09+ D,5$06),%6 (: R=0$# D,<,#(5),%6 3/ S,70,6$09+ D,5$06),%6 (: W(),% ? C.&#1 D,<,#(5),%6 4/ S,70,6$09+ D,5$06),%6 (: 2$%3&%'+ M&%&*609 (: F&%$%7,/ 5 S,70,6$09+ M&%&*609 (: S(7&$# A=*6&7, ? E)5(-,0),%6 / S,70,6$09+ M&%&*609 (: T0&8$# A::$&0*/ 7/ S,70,6$09+ D,5$06),%6 (: P(*6* 8/ S,70,6$09+ D,5$06),%6 (: I/T/ !/ D9/ G(<,0%(0+ R,*,0<, 2$%3 (: I%1&$ 10/ C.$&0)$%+ NA2ARD 11/ C.$&0)$%+ SID2I 12/ C.$&0)$%+ HDFC 13/ C.$&0)$%+ S2I 14 CMD+ >TI 2$%3 15/ C.$&0)$%+ IRDA/ 1 / EE/ D&0,76(0+ ICICI 2$%3 17/ C.$&0)$%+ S$-D.$% 18/ CEO+ 2ASIF (V&B$9 M$.$B$%) 1!/ P0(:/ V/S/ V9$* 20/ P0(:/ A/ V$&19$%$6.$% --C&airman

48

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