today and tomorrow

July 2011

Hope Is in The Resilience of The Poor!— 9 Microfinance—17 Achieving The MDGs– 21

livelihoods July 2011
 Happy Gurupurnima! Happy Learning! Happy Rains!
NRLM signs an agreement with World Bank for NRLP. T-action and United action hot up. T-representatives
submitted their resignations. Gorkha land Territorial Authority comes into being.
Counselling for graduate admissions is in progress.
Let us hope we have enough to feed all our people in this world. Let us hope they will have their future remains
decent. Let us remember that the land, water, forests, and all other natural resources were community-owned once.
Let the original owners, indigenous people have say on what happens to them. Let us put our faith in our youth to
lead us into a better and equitable world. Let us trust their potential and build their capacities.
Let us not allow our humanism and humanitarianism to die at any cost. Let us Let us care all our people.
Let all our people have freedom and independence.
Meeting the needs of the poor with a range of financial services either individually, in a group or a collective is the
broad purpose of microfinance. It includes variedly savings, credit, insurance, remittance, equity, pension etc. While
dealing with individuals is eminently plausible, microfinance, given the size of transactions, willy-nilly has been
through some group of people in general and women in particular. Grameen groups, Joint Liability group, Self-help
Groups, Common Interest Groups ... these are the modes of reaching out. Some take up a range of services. Some
focus on an aspect. Some go beyond and take up collectivisation of purchases, processing/local value-addition and
sales. Social intermediation and civic intermediation comes along. These groups may also federate at higher levels
at village, block, district, state and may be national level and beyond. These services reach them through community
institutions, support institutions, private companies, non-banking financial institutions etc. Some of them are
borrower/member-owned and some are not.
While we see SHG movement as a way to reduce poverty, microfinance as a way forward for financial inclusion and
inclusive development, microfinance plus services are emerging. The growth has been phenomenal. Some MFIs
went ahead with public issues. There have been controversies of higher interest rates, duplicate funding, debt-traps,
not-so-decent recovery practices, suicides etc. Government of AP has responded with an MFI Bill (later Act) to
regulate this. RBI has set up Malegam Committee to study the situation and the report has been accepted.
Government of India came forward with a national MFI Bill. We also see collectivisation of MFIs as MFIN.
Community financial institutions were together as Sa-dhan. Alternative institutions came together as INAFI India.
In this context, ‘livelihoods’ has responded to bring a special edition on microfinance through the eyes of 49 students
of rural development at NIRD. They have looked at the range of issues and items that broadly associated with
microfinance, through discussions with people, with groups, with organisations and literature study. They have also
participated in some workshops. Finally, they are presenting this special edition ‘Microfinance’. Our role has been
limited to broad editorial support and overseeing.
Ingrid Munro from Sweden is leading ‘MF+’ movement through Jamii Trust in Kenya. BIRDS and Paul Raja Rao are
into poverty reduction and they offer microfinance services. Sewing (tailoring) centre is a tailoring service provider
which has demand throughout the year if the stitch is good. ‘Rural Finance Sector – Alternate Models’, edited by
Tamil Datta Choudari is a collection of articles on various players, models and policy context. Institutions that
provide microfinance services in Bangladesh (Mecca of MF) are also introduced.
We agree that these promising young men and women could not dwell upon all issues in MF. Some issues are not
dealt with details that one may want. Nevertheless, they have made an attempt. With the appreciation that their
learning in the process and the learning they have presented here is going to definite part of the way forward, I
remain thinking of ways to multiplying the responsible responsive livelihoods/development workers in large numbers
across.

G Muralidhar
the ‘livelihoods’ team

2 July 2011 livelihoods

 Inside ...

‘livelihoods’ team
Microfinance as “provision of thrift, credit and other financial 10
Editor-in-Chief G Muralidhar services and products of very small amounts to the poor in rural,
Principal Editor T Nirmala semi urban or urban areas, for enabling them to raise their income
levels and improve living standards”. Microfinance is an answer
Senior Editor K Bharathi
to the question as to how to provide access to financial services
Working Editor T Venkateshwarlu such as loans, money transfers and micro insurance to the poor.
Edit Associates G Bhargava
P Lakshmi
M Lavanya
S Laxman
B Madhusudhan Achieving The MGDs 21
G Madhu Vamsi
V Muralidhar Microfinance For Elders for Elders Foundation 22
M Nilendu
S Rekha
M Siddhartha Response 4
M Vijaybhasker Srinivas
News 5
Guest Contributors to this special edi- Legend The Saviour From Sweden 7
tion - Microfinance:
Kshetra MFIs in Bangladesh 8
PGDRM -III Batch Students
National Institution for Rural Development Perspectives Hope Is in The Resilience of The Poor! 9
(NIRD), Hyderabad.
Enterprise Sewing Centre 15
Interview with Bank Should Be Flexible With The Poor…
Common Person
16
Collecting Money Is a Major Problem...
Subsector Microfinance 17
Development in Bharati Integrated Rural Development
For Private Circulation only Action
23
Society
Opinion Microfinance And Inclusive Development 26
Context Malegam Committee Report 28
Case studies Proper Planning is Key to Management
Biased Feelings Spoils Life
29
For enquiries contact:
AKSHARA Network for Development Interview with
Grassroots Activist
Failed in SSC - Passed in Life 30
Support Services,
HIG II B-25 F-6, APHB Colony, Books Rural Financial Sector Alternate Models 31
Baghlingampally, Hyderabad - 500044

Mobile: 09951819345
Story Gopal And His Bat 32
[Link] Trends 33
Microfinance: Outreach
akshara@[Link]
Powerloom Weaving
The Contrasts
Handloomweaving
34

‘Yoga’kshemam 35

livelihoods July 2011 3

 Response

Greetings from Bhumika Women's Collective! We received livelihoods June

2011. Thanks a lot for sharing such an informative newsletter.

Regards,

Mujeeba Tarannum
Research Associate
Bhumika CSRF

This special edition ‘Microfinance’ is the work of 49 students of Post Graduate Diploma in Rural Development Management
PGDRDM (Batch 3) at National Institute of Rural Development (NIRD), Hyderabad. They have just completed the course and are waiting
for their convocation. This edition is a presentation of their braod appreciation of microfinance based on their intense classroom
discussions and rigorous long stretches of fieldwork to appreciate the field reality.

1. Abhishek Kumar 17. Keshaw 33. Said Rashid Ali Albadi

2. AG Abdella Bashir 18. Krishna Muraree Pandey 34. Sanjay Kumar
3. Alipate Seru Naulivou 19. Lily Sangpui 35. Sanjeet Kumar
4. Amrish Kumar Joshi 20. Manish Kumar 36. Santhosh Kumar Rena
5. Anuj Sharad Rao Kalpande 21. Mansi Kaushik 37. Shipra Jain
6. Anukriti Kaushal 22. Maren Akoht Bwani 38. Shweta Tekwani
7. Anwarul Azim 23. Menuoneituo Chadi 39. Sinkesh Kumar
8. Ashok Anand 24. Mukesh Kumar Jat 40. Siva Kumar D
9. Aparna Bhumi 25. Nagularpu Jaya Simha 41. Sujeet Kumar
10. Benzir Ahmed 26. Neelamani Kumar 42. Supriya Amirthamoney
11. B Chandrakant Shetkar 27. Nirmal Kumar 43. Surajit Sikdar
12. Chandranshu 28. Pankaj Kumar 44. Surender Kumar Regar
13. Dharmendar Singh 29. Pyndapbor Marbaniang 45. Swrang Basumatary
14. EAC Priyankara 30. Rajesh Kumar Sahoo 46. Thiha Soe
15. Garima Kumari 31. Rajkumar 47. Vibhavini Singh
16. Gopi Raman 32. Ramya Boddupalli 48. Vipra Verma 49.V Amareswara Reddy

World Nature
Conservation Day
28 July

4 July 2011 livelihoods

 News
Muhammad Yunus Leaves The rate chargeable on loans etc. revenue surplus budget for 2011-12
Grameen Bank: Muhammad Yunus projecting a good rise in revenue
UCBs are required to lend directly to
has left as the head of Grameen Bank collection. Sharp rise in income was
SHGs / JLGs and lending through
after a dispute with the Bangladeshi predicted in excise (after the hike on
intermediaries will not be permitted,
government. Photograph: Strdel/AFP/ liquor in star category hotels), stamp
the notification said. According to
Getty Images. The Nobe0l laureate, duty and share market transactions,
RBI’s lending guidelines, loans to
who founded the Grameen Bank, has and taxes on motor vehicles
SHGs / JLGs for agricultural and allied
quit as its head after a long dispute (estimating a substantial increase in
activities would be considered as
with Bangladesh's government. The purchase of vehicles). The official said
priority sector advance. Further, other
announcement by Muhammad that below par collections in stamp
loans to SHGs / JLGs up to Rs 50,000
Yunus ended a protracted legal duty were particularly worrying, as
would be considered as Micro Credit
wrangle with the Bangladeshi they pointed towards another
and hence treated as priority sector
government over control of the bank slowdown effect in the realty market.
advances. Lending to SHGs, which
and deputy, Nurjahan Begum, has The state treasury has already taken
qualify as loans to priority sector,
been appointed as interim managing a hit of over Rs 1,400 crore following
would also be treated as part of
director. Yunus was awarded a decision to slash various central and
lending to weaker sections.
the Nobel peace prize in 2006 jointly state taxes on diesel and kerosene.
with the bank. Literally meaning Banks May Acquire Majority Stake
State Seeks AIDS Funding Data
"village bank", the institution offers tiny in Microfinance Firm: Mumbai,
From NGO: MUMBAI: If the state has
loans to would-be entrepreneurs who Banks are set to take a controlling
its way, Avert Society will have to
would otherwise be refused stake in a microfinance institution, or
furnish details of its accounts to the
conventional loans, and his MFI, based in Andhra Pradesh by
state legislature. Avert, which works in
microcredit scheme has been converting part of its debt into equity
the field of HIV/AIDS control, is
replicated across the world, and has in a development that could set a
funded by the American government
been hailed as being the most precedent in India’s ailing Rs. 22,500
and submits its papers to
effective way of defeating poverty. The crore micro lending industry. The
the USAIDS. In a meeting in
bank has nearly 9 million borrowers in proposal by a group of lenders led by
Mantralaya on Friday, public health
Bangladesh; 97% of them are women. Indian Overseas Bank is likely to be
minister Suresh Shetty asked
Control of the bank would be a finalized at a meeting of the Corporate
representatives of Avert to give details
considerable political asset, and a Debt Restructuring (CDR) cell in
of funds received and spent by it in
significant help in the battle for power second week of June, according to
connection with their HIV\AIDS control
i n B a n g l a d e s h . H o w e v e r, i t s three persons, two of whom are
programs.
reputation came under attack in bankers and one is a microfinance
December by a Norwegian TV industry official. All three declined to Food Inflation Down to 7.78%: Food
documentary which raised allegations be named. Around 20 banks, inflation dropped to one-and-a-half
of irregularities over the transfer of including State Bank of India, are part month to 7.78 per cent for the week
£40m million from the bank to another of the consortium that has agreed to ended June 18 mainly due to falling
company. convert a significant portion of the prices of items like vegetables, fruits
outstanding debt into equity within and potatoes. Food inflation, as
RBI Allows Urban Co-operative three months from the implementation measured by Wholesale Price Index
Banks to Lend SHGs And JLGs: In of CDR. (WPI), stood at 9.13 per cent during
a move to open an additional channel the previous week. The sharp decline
for financial inclusion, the Reserve State Economy Slowing Down:
has been due to a significant fall in
bank of India has allowed Primary MUMBAI: In some worrying news for
prices of potatoes that saw a decline
Urban Co-operative Banks (UCBs) to development works planned in
of -3.70 per cent as compared to -0.63
lend to Self Help Groups (SHGs) and Maharashtra, the state economy has
per cent during the same period a
Joint Liability Groups (JLGs). begun to show signs of
year ago. While the prices of fruits fell
sluggishness. A senior finance
In a notification sent out to all UCBs, by -0.24 per cent as against 2.88 per
department official said that revenue
RBI said that UCBs will be required to cent during the same period a year
earnings in various segments have
frame a comprehensive policy on ago. The index for food articles group
been below estimated targets in the
lending to SHGs / JLGs, including the declined by 0.8 per cent due to lower
first quarter of the financial year. The
maximum amount of loan, interest prices of poultry chicken, masur, tea,
state government had announced a

livelihoods July 2011 5

condiments & spices and jowar, arhar, aspects in their control, but finding the case, though, it will not prevent
mutton and fish-inland. However, the practical ways for treating aspects that blame for the attack from ultimately
prices of egg, gram, urad, ragi and are not," Association of Power being laid at Pakistan’s door, with all
the implications that will have for the
fish-marine, wheat and barley moved Producers Director General Ashok country’s emerging status as a one of
up. The year-on-year (YoY) inflation Khurana said in a letter to the the world’s leading pariah states. The
was 20.12 per cent during the same Planning Commission. tentacles of Pakistan-based terror
period last year, a much higher base groups, many of whom are linked to
Move to Help PACS Get Loans the country’s all-powerful Inter-
for the inflation rate. YoY, vegetables
Directly from DCCBs: PATNA: Services Intelligence Directorate
became cheaper over 10 per cent,
Deputy CM Sushil Kumar (ISI), spread far and wide, even to
while prices of pulses fell by 9.50 per parts of India, where they provide
Modi decided to simplify and change
cent, and potato became cheaper by training instruction to local Islamist
existing rules so that the District
2.39 per cent. militants.
Central Cooperative Banks (DCCBs)
State Begins Consultations for 12th
Only 42% Students Take Midday are able to give loans directly to the
Five-Year Plan: HYDERABAD: With
Meals: Only around 42 per cent of the Primary (PACS) for distribution among
the Plan coming to an end by March
total number of enrolled students are the PACS members, on the one hand,
2012, the state government is
apparently taking midday meal (MDM) and to members of Self-Help
preparing the ground for the launch of
in the primary and upper primary Groups (SHGs) and Joint Liability
the 12th Five-Year Plan scheduled to
schools of Uttar Pradesh, a sample Groups (JLGs), on the other. The
commence from 2012-13 through a
survey being carried out by the decisions in this regard were taken at
consultative mode with civil societies
Gobind Ballabh Pant Social Science a high-level meeting convened to
and academic institutions. Planning
Institute (GBPSSI) has indicated. The review the activities of the DCCBs and
department officials said that in order
survey, commissioned by the state- the PACS in the state. Modi, presiding
to accomplish the main theme of
level Midday Meal Authority (MDMA) the review meeting, directed the
achieving 'faster, more inclusive and
in Luck now, will cover a total of 1,000 officials concerned of the cooperative
sustainable growth' during the 12th
schools in 10 districts of the state. So department to take steps to simplify
Plan, the government has been taking
far, seven districts — Sitapur, and revise rules governing the
adequate steps to identify the growth
Chhatrapati Sahuji Maharaj Nagar activities of the DCCBs and the PACS
engines pertaining to different sectors
(Amethi), Kannauj, Mahoba, Aligarh, to fit in with the decisions taken on the
that would propel the economy and
Basti and Chandauli — have been day.
put the state on a higher growth
covered. The remaining three —
trajectory.
Rampur, Lalitpur and Shrawasti — will
be covered in July. The final report will Nabard Sanctions Rs 716 cr to
be submitted to the MDMA before State: HYDERABAD: The National
August 15. The GBPSSI is also one of Bank for Agriculture and Rural
the empanelled institutions of the Development ( Nabard) has
Union Ministry of Human Resource sanctioned Rs 716 crore to the
Development for Sarva Shiksha state under the Rural Infrastructure
Abhiyan, of which MDM is a part. Development Fund for 16 minor
irrigation projects, 219 rural roads,
80% of Power Plants at Risk of
58 bridges and 33 rural water
Default Over Coal Issues: New
supply projects. Chief general
Delhi Warning that 80% of the
Mumbai Blasts: A fresh wave of manager P Mohanaiah said on
country's power plants face the risk of
terrorist attacks is launched at the Wednesday that Rs 198 crore of this
a default due to coal shortages and
heart of the Indian city of Mumbai, and has been sanctioned for 33
environmental issues, a body of immediately the finger of suspicion comprehensive rural water supply
power producers has petitioned the points towards Pakistan. And this is projects that would supply safe
government for an expert group to before Indian counter-terrorism
officials have even had a chance to drinking water to 844 habitations in
review contracts awarded under
examine the crime scene. Indeed, it Mahabubnagar, Rangareddy, Medak,
through the competitive bidding route.
may well transpire that the three Khammam, Warangal, Kadapa,
"An institutional arrangement (possibly
bombs that killed 17 people and Kurnool, Srikakulam, Vizianagaram,
an EGoM or an expert group) may be injured 131 others were the work of an Visakhapatnam, East Godavari, West
set up by government to carefully indigenous group of Islamists in
Godavari, Guntur, and Prakasam
evolve the principles and mechanisms retaliation for the recent arrests of
their fellow members by the Indian districts.

to revisit the contracts, duly holding
authorities. Even if that proves to be
the developers accountable for

6 July 2011 livelihoods

 Legend

The Saviour From Sweden

Ingrid Munro is the Founder and Managing later found his two brothers
Trustee of the Jamii Bora Trust, the largest and adopted them. It stands
Microfinance organization in Kenya. As a leader out as an example that an
and advocate of microfinance in one of the organization that does
poorest in Africa, she has provided a way out of remarkable work would have a
poverty for nearly 2,50,000 people. remarkable history but that is
not the case here.
Ingrid Munro stands out from the crowd. Her colleagues
have called her “revolutionary” and “innovative.” She is of Jamii Bora, which counts
Swedish and works with some of the most destitute beggars and former thieves
women and men in Kenya. Munro’s unique strategies have among its 170,000 members,
helped Jamii Bora, which means “good families” in is now the largest microfinance
Kiswahili, reach some of the poorest women and men in institution in Kenya. So this
Kenya, and helped bring them off the streets and into proves that if people are
secure homes. provided with right help, it can
change their life and way of living. Jamii Bora works with
Throughout
all sections of slums including disabled beggars, former
her life she
Microfinance needs to be gang members, and victims suffering from HIV/AIDS.
has been
combined with other programs to “Mother Ingrid” as she is called by many of the people she
involved in
help people get out of poverty. So has helped in the slum, saw an opportunity to create a
f i g h t i n g
to implement this thinking, Jamii community free of these problems by extending a hand to
inequality in
Bora also offers health insurance, anyone who would take it. “I think one of the secrets is no
many ways.
a housing program, the “Levuka” normal banking rules but in Jamii Bora we love
During her
substance rehabilitation program, everybody.” Explains Munro, “It doesn’t matter where you
student life in
and the “Tsumani” program for come from it just matters where you want to go in life.” She
the sixties,
beggars, plantation workers, and says “When people become members of Jamii Bora we
she was
the handicapped. give them access to a ladder. By being a member of Jamii
involved in
Bora they can get access to that ladder and they should
fighting for
use it to climb out of poverty. But we also make it clear to
what was
them that while we provide the ladder; the climbing is to be
right, for the lesser privileged. And in the late sixties and
done by themselves.”
early seventies, working for the government of Sweden,
she was part of an international project that provided Ingrid believes that to get out of the vicious cycle of
housing for the very poor. In the late seventies she poverty, people need more than just access to credit. They
engaged in funding research for planning and building also require insurance, education, healthcare, housing—all
houses. In 1985 she responded to a call to come to Africa the things that can help them move up and out of this
for the International Year of Shelter for the Homeless, a vicious cycle instead of spiraling downward.
major UN initiative that was headquartered in Nairobi. That Microfinance needs to be combined with other programs to
was when she was first exposed to real poverty in Latin help people get out of poverty. So to implement this
America, Africa, and Asia. thinking, Jamii Bora also offers health insurance, a housing
After working in housing research for the government in program, the “Levuka” substance rehabilitation program,
her home country, Ms. Munro became the head of the and the “Tsumani” program for beggars, plantation
African Housing Fund. While serving this post, she had workers, and the handicapped. They have plans for a new
become attached to Kenya. Upon her retirement in 1999, town outside the slums called Kaputiei which will give
Ms. Munro founded Jamii Bora along with 50 women 10,000 people currently living in the slums a chance to
beggars, loaning them twice as much as they agreed to have a real home with sanitation, running water and
save. Munro said she was acquainted with the women in electricity. Munro stands tall as a living example of
1988 when she and her husband, a Canadian, adopted champion of development, as an example of an individual
three boys who had lived on the streets as their sons. The who took up the cause of others not by circumstances but
New Yorker quotes her as saying, "It was a small seven- by choice. Only such legends can bring about change in
year-old boy who more or less adopted us....And then we the society.

livelihoods July 2011 7

 Kshetram

MFIs in Bangladesh
In the 1950s, Akhtar Hameed Khan began distributing BRAC school, and over 3 million have graduated. The
group-oriented credit in East Pakistan. Khan used the NGO employed over 34,000 staff, over 62,000 community
Comilla Model, in which credit is distributed through school teachers, and tens of thousands of poultry and
community-based initiatives (cooperatives). This initiative community health and nutrition workers and volunteers.
was the first ever initiative of small loaning, now known as The Grameen Bank is a finance-minimalist bank that
microcredit or microfinance. offers a wide range of financial products, and limited
Modern Microcredit: The origins of microcredit in its organizational support. It was started as an action research
current manifestation can be credited to several project in 1976, and became a government-regulated bank
organizations founded in Bangladesh, especially the through a special government ordinance in 1984. In 2001-
Grameen Bank. The Grameen Bank, which is considered 2, all Grameen Bank branches began to operate the new,
the first modern microcredit institution, was founded in simpler and much more flexible Grameen Generalised
1976 by Muhammad Yunus. Mr. Yunus began the project System (also called Grameen II), which offers four types of
in the small town of Jobra, using his own money to deliver loan products: basic, housing, higher education and
small loans at low-interest rates to the rural poor. In 1983 it struggling members (beggars) loans. There is also a facility
was transformed into a formal bank under a special law for larger small enterprise loans, and a range of companies
passed for its creation and began to be owned by the poor (commercial and not for- profit) in the Grameen family. This
borrowers of the bank who are mostly women designed to includes Grameen Shikka (GS), established in 1997 to
work exclusively for them. Borrowers of Grameen Bank at promote the education of non-literate Grameen Bank
present own 95 percent of the total equity of the bank. The members; provide financial support in the form of loans
remaining 5 per cent is owned by the government. The and grants for education; and use and promote new and
setting up of Grameen Bank was followed by the innovative ideas and technologies for educational
establishment of organizations such as BRAC in 1972 and development.
ASA in 1978. Proshika Also established in 1976, branched out into
Microcredit quickly became a popular tool for economic microfinance in the 1990s. It matches member savings
development, with hundreds of institutions emerging with credit and provides technical and marketing
throughout the developing world. Though the Grameen assistance where needed. Initially it fulfilled its social
Bank was started out as a non-profit organization intermediation objectives through group formation and
dependent upon government subsidies, it later became a conscientisation rather than providing services, but it has
corporate entity and was renamed Grameen II in 2002. moved into the provision of a wider range of social
Muhammad Yunus was awarded the Nobel Peace Prize in programmes. The present status of Proshika is unclear as
2006 for his work providing microcredit services to the it clashed with the government in 2002 and its registration
poor. as an NGO has been cancelled. At the end of 2004,
Proshika reported over 1.5 million active borrowers, 80% of
Major MFIs in Bangladesh: BRAC, originally known as whom were among the poorest. 65% of the poorest or 0.8
the Bangladesh Rural Advancement Committee, is a million people were women.
finance-plus NGO established in 1972. It houses a very
large range of non-financial Social programmes. It is noted The Association for Social Advancement, known as ASA,
that the know-how and confidence to implement large was established as an NGO in 1978 with a focus on raising
programs arose, in some cases, from the experience of awareness, group development and training among the
scaling up programs not related to microcredit. For rural poor. In 1991 it started its microfinance operations
instance, in the case of BRAC, its first major experience and recreated itself as a finance-only MFI. It is now the
with a nationwide program came when it implemented an third largest MFI in Bangladesh, and offers a range of
oral rehydration program to combat diarrheal disease in savings, credit and insurance facilities. Its non-financial
which thirteen million women were trained. Over the past activities are now limited to providing capacity
decade in particular, it has also developed a range of development to small Bangladeshi NGOs and MFIs
financial services to include a greater variety of savings worldwide. At the end of 2004, ASA had over 2.7 million
products, and credit for small business. active borrowers, about 90% of whom were among the
poorest. 96% of the poorest or almost 2.4 million people
More recently, in 2001 and 1997 respectively BRAC Bank were women.
and the Delta BRAC Housing Finance Corporation were
established as commercial interests to meet the financial BURO, Tangail began as a five branch pilot project in 1989
requirements of non-poor Bangladeshis. In 2001, BRAC in Tangail District, and established itself as an NGO in
established a university, and it started work in Afghanistan 1990. Today it operates in eight districts in north-central
and Sri Lanka in 2002 and 2005 respectively. As of Bangladesh. BURO’s savings systems in particular and
September 2005, BRAC was working in over 68,000 financial products in general were at the forefront of the
villages and over 4,000 urban slums in every district of movement to make microfinance products more flexible
Bangladesh. It claimed to have over 5 million members, products in the 1990s. At the end of 2004, BURO, Tangail
mostly women, and a cumulative disbursement of over had almost 220,000 active borrowers, of whom almost all
US$2.95 billion. Nearly 1 million children were enrolled in a were poor women.

8 July 2011 livelihoods

 Hope Is in The Resilience of The Poor!
Happy Gurupurnima! Happy Rains! others would have died! This resilience of the poor gives
us the hope.
UPA reshuffles Cabinet. Let us welcome Jairam Ramesh to
lead Rural Development in the country! He signs the But this needs two pronged approach -
National Rural Livelihoods Project loan from World Bank ∗ An individual needs fish first to survive, fishing skill to
already. NRLM is going to pick up momentum! live on fishing and meta-fishing (beyond fishing) skill to
Some stirrings for World Population Day (11 July)! Many identify the gaps and opportunities, acquire the
International Days just passed by – for instance - Doctors’ required skills, tools and resources and tap them for
Day (1 July), International Day of Cooperatives (2 July) and better living. Harnessing one’s innate potential along
International Cooperative Day (7 July) and Writers’ Day (8 with life skills and vocational skills is way forward for
July). Let us await International Day of the World’s children/youth. Education à Employment
Indigenous People, International Youth Day and World &Entrepreneurship à Decent Livelihoods.
Humanitarian Day. ∗ At the same time, existing livelihoods need to be
Gorkhaland gets Gorkhaland Territorial Authority, with more strengthened with plugging knowledge, skill, tool and
powers. Sudan becomes two nations. More than 100 resource gaps, and Collectivization. Expansion and
members of Parliament, Assembly and Council submit diversification in livelihoods is on the foundation of
resignations in AP. AP is back with T-agitation and United- improved existing livelihoods base. Job-employment,
agitation. There is silence (may be before storm) on Lokpal. Wage-employment, Piece-rate based employment and
2G investigations are in progress. CBI starts investigations Self-employment - to be carefully tailored on a case-by
into Jagan’s wealth. -case basis.
We discover more money with temples. Thus, reduced poverty is possible only
Anantha Padmanabha emerges as the Perspectives with sustainable livelihoods and inclusive
richest deity in the world, surpassing Lord development. The Indian growth has to
Balaji. Sathya Sai’s hidden wealth is still persist. The contexts of the poor have to
being uncovered.
G Muralidhar become favorable by deliberate policy
initiatives at national, state and local
Interesting times!
levels. The capitals of the poor need to be augmented –
The streams of thought and work that dominated the month increased natural resources in their hands, infrastructure
include institutions, livelihoods, vulnerable, convergence and physical assets that they can use, strong institutions of
and workers. Community-managed microfinance – savings, the poor at various levels of various hues with professional
credit, insurance, remittance, equity, pensions etc., and staff, and the information, knowledge and skills in the hands
collectivization of the poor have also taken some significant of the confident poor along with their own funds and access
time and energy. to leveraged funds. Then they act on their incomes,
expenditures, employment and risks so that they are out of
As NSS Survey confirms that 50% of Indian per capita
poverty by plugging the gaps and tapping the opportunities,
expenditure is on food, and the top 10% spend 10 times the
in their own way. A little support but long-term, beyond
bottom 10%, our millennium development goal chase is
loans, is the way.
admittedly slow – do we bring down our poverty level to
less than 20% by 2015? Can we have all our children MF is necessary but not sufficient. Range and depth of fair
complete schooling? Can we have no gender disparity in all MF services have to be comprehensive and on scale.
levels of education? Can we have our child mortality rate Further, MF+ is required and can be loaded on the MF
below 42 per 1000 live births? Can we have our maternal platforms. Multiple players need to coexist and service the
mortality rate below 107 per 100000 live births? Can we community needs fairly, efficiently and effectively in the
halt and reverse the incidence of malaria, tuberculosis and growing Indian economy. That is the only way forward. This
HIV/IDS? Can we reduce biodiversity loss? Can we inclusion is led by the SHG movement that is being
implement strategies for decent and productive work for all unleashed in the country. Various State Agencies of
our young people? The picture is not painted well at all. Poverty Reduction, Civil Society Organizations, People’s
Institutions and NRLM have to collectively make this a
Yet, we know that we need to invest long-term so that we
reality as soon as possible. I want to believe that this would
achieve 2015 MDGs even in 2017 or 2018 or in the ultimate
happen. And soon enough!
stretch scenario in 2020. The hope that we would succeed,
may be slightly late, comes from looking at the poor, Let us know the poor from inside. Let us know their fish,
looking at the contours of the poor. No poor would like to fishing and meta-fishing. Let us know their resilience. Let us
live in poverty and they are always ready. If they appreciate organize them and let us keep the services that they
opportunities, knowledge, resources and some push require I their hands. Let us serve them well with care
towards accessing these is available, they get going. Their directly, through their institutions and/or through the
needs change and therefore, they outgrow facilitation institutions that support them. Let us be with them in their
faster. Their resilience is enormous – they survive where movement of resilient fight to be out of poverty for good.

livelihoods July 2011 9

 Cover Story

Microfinance
Concept, Evolution and Challenges

NABARD defines microfinance as “provision of thrift, credit and other financial services
and products of very small amounts to the poor in rural, semi urban or urban areas, for
enabling them to raise their income levels and improve living standards”. Microfinance is
an answer to the question as to how to provide access to financial services such as loans,
money transfers and micro insurance to the poor. Microfinance is often mistaken with
microcredit. Microcredit is lending very small loans to the poor against little or no
collateral. It falls into the wider ambit of microfinance. However, microcredit cannot be an
all-weather solution to the problem of financial exclusion of the poor. Thus, services such
as savings, insurance and remittances also come under the purview of microfinance.

10 July 2011 livelihoods

A notable aspect of the microfinance sector is how it prefers The concept of microfinance pre exists in the country even
to lend to women rather than men. This is true across the before it became a global phenomenon to alleviate poverty.
board, no matter which model of microfinance. This practice From the initial years the focus of providing credit to rural
is based on the belief that women are more inclined to poor was on:
invest in their families’ welfare than men. ∗ expansion of institutional structure
One of the first instances of microfinance through a formal ∗ directed lending,
institution can be traced back to 1700s’ Ireland. Author and
nationalist Jonathan Swift established the Irish Fund loan ∗ Concessional or subsidized credit
system with the idea of providing small, short term loans on The All India Rural Credit Survey of 1954 recommended
interest. At its peak, the Irish Fund Loan system catered to the creation of an integrated rural credit scheme focussing
about 20% of Ireland’s population. on providing credit to farmers on low interest.
During the 19th century a variety of formal savings and In 1975, the nationalised banks were told to open Regional
credit institutions known as People's Banks, Credit Unions, Rural Banks (RRBs) to provide financial services in rural
and Savings and Credit Co-operatives sprung up. areas. The RRBs were to work with the attitude a
Indonesian People’s Credit Banks or the Bank Perkreditan cooperative which had the ins and outs of rural problems
Rakyat opened in 1895 and soon became a major combined with the approach of a commercial organisation.
presence in the country with nearly 9,000 clients.
Also in the 1970’ and 80’s the SHG movement was
In the period between 1950’s and 70’s focus was on beginning to gain ground in the country. In the 80’s the
providing agriculture credit at subsidised interest rates. SHGs began to be linked with banks for credit. Still, the
However, this proved highly unfavourable to the credit vacuum of financial services to the poor wasn’t filled, and
providers thanks to below-the-market interest rates; poor the 90’s saw a spurt in microfinance institutions (MFIs)
loan repayment discipline and also the funds rarely reached which followed the Grameen model.
the farmers they were really meant for.
The microfinance sector in India today is dominated by two
The 1970’s proved to be a turning point in the sector when major models, namely the Grameen model and the Self
Prof. Younus Khan designed a means to disburse and Help Group (SHG). Though both co-exist with numerous
recover loans from the poor through banks. In 1983, he clients present in both systems simultaneously, there is a
established the Grameen Bank and thus the Grameen debate as to which of the models is more feasible.
model came into existence. Since then, this model has
been widely replicated. In the intermittent period two earlier The Grameen model is inspired by Mohammad Younus
doubted facts were proven true: that rural poor can repay Grameen Bank model which is relatively easier to
loans regularly and also that they can afford high interest implement than the SHG model. The Grameen model
rates. This meant microfinance institutions (MFI’s) could requires the identification and organisation of the poor-
cover their costs and thus their sustainability was ensured. especially the women into groups. Once the groups are
This enabled them to reach a large number of clients. formed and if they satisfy the credit provider by showing
signs of being able to function as a group, the credit
According to an estimate by the World Bank, only the top provider gives loans. Unlike in SHGs, savings are not a
25% of economically active population in developing priority in this model. This is partly due to regulatory
countries have access to basic financial services through considerations and also because the organisations that
formal institutions. In an environment where access to promote this model are credit oriented. The members of the
financial services to the poor is next to absent, the poor group are to follow certain rules like attending meetings
face a major challenge in accessing basic financial services regularly, repay loans on time but do not have any decision-
like loans, savings and insurance. The poor, like the rest, making or bookkeeping role.
depend on financial support structures to sustain their
enterprises, build assets and manage risk. In the absence The SHG model is a home grown experiment that has met
of any formal institution, they resort to developing informal with varying degrees of success across the country. SHGs
financial relationships which are not governed by any are more like “micro cooperatives” where savings of the
discernible rules. Therefore microfinance has bigger role to group is given utmost importance. The savings of the group
play in the developing country like India for its inclusive enables the group to lend to its members after a certain
growth. point in time. SHG members are expected to play the role
of leaders of the group and also are involved in the
Microfinance: India accounting role. The women are not only members of the
There are approximately 60 million households below the group but also run the groups themselves. This is in
poverty line in India and only about 20% of these contrast to the Grameen model where the members do not
households have access to credit in India, Microfinance is enjoy the ownership of their groups and the groups are
based on the premise that credit on reasonable terms will managed by the organisation. SHGs receive loans by
reduce poverty significantly in the country. The annual establishing bank linkages and the loans are given to the
credit usage of poor households is estimated at Rs. 45,000 member who most needs it in the group.
crores and 80% of this is borrowed from informal sources.

livelihoods July 2011 11

Yet another key factor which differentiates the Grameen Reasons for the success of MFIs are:
model from the SHG model is the high rates of interest and
1. MFIs became the bridge between banks and the poor
drain of wealth in the former model. Not only are high
people who depended on informal sources of credit
interest rates charged, the profits made by the organisation
like local moneylenders.
are routed to its investors and not to the community. This
renders these micro finance institutions no different from 2. For a small amount of loan from a formal institution
any other commercial organisation. This in the recent times like bank, a person had to run from pillar to post
has shown the problem due to uncontrolled profit motive by before finally getting the loan sanctioned. But in the
MFI’s in different states of the country and its effects on the case of MFIs the MFI employee will go to their house
poor. and give them the money.
MICROFINANCE PROVIDERS: 3. Despite the high interest rates charged by the MFI,
they still flourished because poor people felt it is better
Microfinance providers in India involve an entire gamut of
than the interest rates charged by the moneylender.
players, some who failed to fill the space they were
expected to and some who evolved in the process. Post 4. MFIs continue to make huge profits as the poor do not
office, co-operative setup, chit funds, NBFCs, mortgage voluntarily want to default.
institutions are some of the microfinance providers apart 5. MFIs deal with women’s groups which have a better
from the much spoken about MFIs and banks. In many track record of repayment than individual lending.
countries, cooperatives have been able to elevate its
position as a powerful economic model. In some countries 6. There has been no competition to this MFI model of
they are a sizeable force within the national economy. money lending from the other formal set ups like
banks.
The slow growth of co- operatives in India especially with
respect to the credit sector can be attributed to various There are three main allegations levied against the
reasons including – mismanagement and manipulation: the MFIS:
democratic set up of co-operatives got corrupted and ∗ They charge exorbitant amount of interest rates
farmers with large holdings grew more powerful. ranging from 24 percent to 48 percent. Further, MFIs
Government interference, functional weakness in terms of lack the transparency with regard to their interest rate
lack of trained personnel, restricted coverage is some of practices which is helping them to transfer various
the other reasons. costs on the borrowers.
Similarly, the entire set up RRBs – established to meet the ∗ MFIs are resorting to unethical ways of recovering
needs of the rural sector in general and the poor, in loans.
particular – has proved a colossal failure. Saddled with the
burden of directed credit and a restrictive interest-rate ∗ MFIs are aggressively poaching from government and
regime, the financial position of the RRBs deteriorated banks to capture their borrowers. They are luring the
quickly. members of the SHGs and leading to multiple loans.

With co-operatives and RRBs unable to fill the gap But all these allegations are not the only reason for the
between the formal and informal sources of microfinance, current stir up caused in the MFI sector. Civil society
the percentage of money lenders grew manifold. It was organisations and governments are worried that in the
during this time that micro credit and microfinance to name of helping poor, MFIs are becoming mainly profit
women groups started gaining momentum. Initially NGOs making organisations.
started this process of providing credit through co- One of the significant development in the coming years
operative banks and then they started operating as which will also become the distinguishing factor for the
microfinance institutions. MFIs is the MF ‘plus’ services that they can render. MF
Basically, the MFIs in India are of three categories: plus services refers to all the services that the MFI offer in
addition to the microcredit or financial services. The
∗ Not for profit MFI, which include the NGOs increasing economic uncertainty and rapidly changing
∗ Mutual Benefit MFIs, which include mutually-aided co- external environment, compounded by increasing
operative credit and competition within the microfinance sector, MFIs are
already being forced to innovate new service offerings in
For Profit MFIs, which include the Non-Banking Financial order to differentiate themselves.
Companies (NBFC)
This additional component helps MFIs in generating
NABARD refinances the Financial Institutions engaged in additional revenues and also provides clients with a
micro finance, to the extent of actual disbursement. greater variety of products and services. MFIs partner with
NABARD, SIDBI are ‘bulk financiers’, who cleverly private companies to expand their outreach and also
leverage resources obtained from a variety of sources provide an additional product or service offering to their
(donors, government, market) for rural finance including clients. Examples of such partnerships are prevalent in all
microfinance. parts of the globe. A notable example is the partnership

12 July 2011 livelihoods

between Grameen Bank and Dannon
Foods to develop low cost manufacturing
units.
The collaboration between Village Financial
Services (VFS) and Hindustan Unilever enable
poor households to purchase HUL’s Pureit water
purifiers through the VFS network. The VFS
credit customers can take loan at zero rate of
interest to buy the purifier and the loan would be
repayable weekly over a period of eight months.
Such partnerships are generally cost-revenue
sharing agreements between the MFI and the
organization.
Here are some of the microfinance plus
activities:
1. Financial literacy training (SEWA Bank in
Ahmedabad).
2. Entrepreneurial / business skills training
(Mann Deshi in Maharashtra).
3. Health Education.
4. Helping establish co-ops.
5. Market linkage including both backward and
forward linkage.
Islamic microfinance
An estimated 72 per cent of people living in
Muslim-majority countries do not use formal financial typically used for financing equipment, such as small
services. Even when financial services are available, some machinery. The ijarah contract must specify that the
people view conventional products as incompatible with ownership of the asset, and responsibility for its
the financial principles set forth in Islamic law. In recent maintenance, remains with the financier. An ijarah contract
years, some microfinance institutions (MFIs) have stepped may be followed by a sale contract, in which event the
in to service low-income Muslim clients who demand ownership of the commodity is transferred to the lessee.
products consistent with Islamic financial principles—
Musharaka and Mudaraba (profit and loss sharing).
leading to the emergence of Islamic microfinance as a new
Musharaka is equity participation in a business venture, in
market niche. The basic concept apart from no interest
which the parties share the profits or losses according to a
based transactions is: Fund providers must share the
predetermined ratio. Musharaka can be used for assets or
business risk i.e. providers of funds are not considered
for working capital. Mudaraba denotes trustee financing, in
creditors (who are typically guaranteed a predetermined
which one party acts as financier by providing the funds,
rate of return), but rather investors (who share the rewards
while the other party provides the managerial expertise in
as well as risks associated with their investment).
executing the project. In mudaraba, profits are shared
The following are the most widely available types of Islamic according to a predetermined ratio; any losses are borne
microfinance contracts. Each can either operate entirely by the financier. If the mudaraba joint venture
individually or be combined with other contracts to create results in a loss, the financier loses the contributed capital
hybrid instruments. and the manager loses time and effort.
Murabaha Sale (cost plus mark-up sale contract).Typically, Takaful (mutual insurance). The equivalent of Islamic
the client requests a specific commodity for purchase, insurance, takaful is a mutual insurance scheme. The word
which the financier procures directly from the market and originates from the Arabic word “kafala,” which means
subsequently resells to the client, after adding a fixed guaranteeing each other or joint guarantee. Each
“mark-up” for the service provided. . However, ownership participant contributes to a fund that is used to support the
of the commodity (and the risk inherent thereto) strictly lies group in times of need, such as death, crop loss, or
with the financier until the client has fully paid the financier. accidents.
The mark-up is distinct from interest because it remains
Challenges:
fixed at the initial amount, even if the client repays past the
due date. Post the controversy that struck the microfinance sector
late last year, the AP state (which was the epicentre of the
Ijarah (leasing contract). Ijarah is a leasing contract

livelihoods July 2011 13

 List of Microfinance Institutions (MFIs) based on SHG Model

crisis) came up with an act to regulate the MFIs in the state. MFIs over the small ones.
The Central government too is mulling over measures to
Conclusion:
check the thus far unabated growth of MFIs. In the light of
such a policy environment, the going will get tough for the With more money being pumped into the sector the role of
MFIs especially with the government thrusting banks to MFIs in the coming years cannot be undermined. It is now
branch out into rural areas. If the banks do spread their proven worldwide that multiple doses of micro credit to the
presence in the rural areas, the MFIs which owe their poor is the way forward to help the poor come out of
existence to the absence of banks in the microfinance poverty. And financial inclusion of the poor can happen only
sector will lose their meaning. To find a good enough if microfinance reaches them at the right time.
premise to continue in the field and continue to function Besides, in such a set-up, it is important that the policies
they have so far would mean a complete rehaul of their governing these MFIs and other such institutions are firmly
organisation. A major challenge to the MFIs is restraining in place. More importantly, an apex body which will perform
from being commercialised. Since they function in the the role of both regulation as well as a monitoring
development sector, they cannot charge as they wish. exclusively for microfinance could be envisaged if the
The sector is also facing a serious human resource crunch country is determined to eradicate poverty from the face of
that is innovative. Most in the sector do not have a passion India. So far, government role in offering microfinance
for rural development nor do they feel attached to their job services has been only at the state levels where each state
which impacts on their commitment to serving the clients. has its own rural livelihood mission.
As MFIs stabilise and become mature players in the sector, Following the success of such interventions in states like
they have to look to providing services apart from financial Andhra Pradesh and Kerala, the SHG movement is now set
services. This is a key to their sustainability. to go national. And with the introduction of the National
The big MFIs which dominate the sector are likely to Rural Livelihoods Mission (NRLM) it will further gets
become more prominent in the future. This would mean the strengthen. The vision of NRLM is to enhance the
scope of operation for smaller MFIs will be lessened livelihoods of rural poor by organising them into groups that
greatly. The funding agencies too will prefer the bigger will help them access credit on time.

14 July 2011 livelihoods

 Enterprise

Sewing Centre
Ms. S. Nirmala, age 38 years of Budvel village, has a family of four which includes two children. Her husband is a daily
wage labour earning around Rs. 150/day. Four years ago, her husband earned Rs. 100/day as wage labourer and it was
not sufficient to fulfill the needs of the family.
Nirmala knew sewing but lack of money for initial investment prevented her from starting this enterprise. Then she took
loan of Rs. 25000 from SPANDANA Sphoorty Financial Limited. She has also purchased two sewing machines. She
bought cloth from wholesale and stitch dresses on demand. Her initial earning was Rs. 150/ for salwar kameez. As time
passed she repaid loan and got another loan for further expansion of her business. She increased the number of ma-
chines to five now and hired four women whom she employed on the rest of the machines. She pays them Rs. 125/ day
and now her net earnings is about Rs. 8,000/month.

Year 1st -year 2nd year 3rd year 4th year

Amount taken from microfinance institution Rs. 25,000 Rs. 25,000 Rs. 25,000 Rs. 25,000

Interest Rs.6250 Rs.6250 Rs.6250 Rs.6250

Repay in 1 year 1 year 1 year 1 year

No. of sewing machines 2 3 4 5

Fixed cost:

Machine cost Rs.14000 Rs.21000 Rs.28000 Rs.35000

Iron cost Rs. 1000 - Rs. 1500 -
Variable cost:

Raw material cost (monthly) Rs. 5000 Rs. 7500 Rs.10000 Rs.10000
Salary( worker) Rs. 3000 Rs.3000 Rs.6000 Rs.9000
Miscellaneous Rs. 1000 Rs.1000 Rs.1500 Rs.2000

Income for month Rs. 12500 Rs. 16000 Rs. 23500 Rs.29000

Saving after all expenditure (monthly) Rs.3500 Rs. 4500 Rs. 6000 Rs.8000

Repay loan per month Rs. 520 Rs. 520 Rs. 520 Rs. 520

Saving per month Rs. 2980 Rs. 3980 Rs.5580 Rs.7480

Saving per annum Rs. 35760 Rs.47760 Rs.66960 Rs.89760

Nirmala is happy now that she and her family have stable sources of income and eats more nutritious food. Microcredit at
the time of requirement changed her life. Today, she is able to provide education to her children in a recognized school.
She has a cooler, colour TV, refrigerator and other luxury items apart from the basic requirements. Besides, Nirmala also
has taken an insurance.

livelihoods July 2011 15

 Interview with Common Person

Bank Should Be Flexible With The Poor...

Q: What is your name? What do you do? Q: What is the method of repayment?
A: My name is Ettamma. I am a vegetable vendor. A: When I was part of Spandana Micro
Finance, I paid Rs600 per week. I am
Q: What is your income? paying now Rs.700 per week to the Money
A: I earn Rs. 100- 130 per day lender.
Q: What is your expenditure? How much do you save? Q: What challenges do you face while
repaying?
A: I incur an expenditure of Rs 1800 – 2000 per month;
Rs. 700 goes as interest on the loan. Savings under SHG A: It was easy to repay the loan amount through MFI as we
come close to Rs. 250 per month. could complete the payments timely. However, it is
becoming a burden to pay to money lender as vegetable
Q: What did you take the loan for? prices are fluctuating and prices have increased also
A: I took Rs.1, 00,000 loan for my daughter’s marriage and making saving extremely difficult.
10,000 on son’s education. Q: What do you prefer?
Q: Where did you take the loan from? A: As we cannot access bank facility I prefer MFI over
A: Initially took loan from Spandana Micro Finance, once Money lender.
they were shut down Money lender is our last resort as we Q: Changes anticipated
don’t have required criteria to apply for loan in bank.
Recently joined SHG where and I got loan of Rs. 50,000 A: Bank should be flexible with the documents part when a
from SBH. credit of Rs.50,000 by an individual is needed. But the
current policy only drives us to money lenders who push us
Q: What is the interest rate outside? into the web of poverty with their high interest rates.
A: Money lender lends @ 48% per year which is very high Q: What is your opinion about microfinance?
and I found very difficult to repay. Now, my outstanding
amount is Rs 50,0000. A: It is a viable option as long as you make timely
repayments. However in the long run it is not viable.

Collecting Money Is a Major Problem...

Q: What is your name? What do you do for living?
A: My name is Anitha. I am a lab worker . 600 rupees/ week.

Q: What is your income? Q: What problems did you face while

repaying?
A: I earn about Rs.6,000 per month from lab work and also
I am an MFI agent. A: Collecting money from members is a
major problem.
Q: What is your expenditure? How much do you save?
Q: What do you prefer, SHG loan or MFI
A: My expenditure goes in education of children. It comes loan?
close to Rs.5, 000-5,500 per month. I save around Rs.400-
500 a month which is deposited in Andhra Bank Savings A: I Prefer taking loan from microfinance but don’t want to
Account. be an agent, as it develops unnecessary tension and
dissolves the image. If the norms to obtain loan are flexible
Q: What did you do with the loan for? I would prefer to take loan from bank.
A: I took loan to start an enterprise (saree selling) Q: Changes anticipated
Q: From where did you take the loan? A: Terms which are promised should be followed.
A: I took multi loan from SKS micro finance and Spandana Deliberately MFIs change their terms and conditions and
even though we refuse to give back Rs 25/- which they
Q: What is the interest rate? collect weekly for investing in the banks and promised to
A: Micro finance charged 12.5% interest rate per year. repay back after the clearance of loan. Rigidity in collection
of due amount is forcing to pay them from my savings.
Q: How do you repay?
Q: What is your opinion about microfinance?
A: Earning from the business of saree making, liabilities of
other members are paid by the saved amount. I repay at A: It is a good medium to get mortgage free loan easily
whenever required but interest rates are very high.

16 July 2011 livelihoods

 Subsector

Microfinance
Microfinance assists people living in poverty who wouldn’t Under the present directive of the RBI, the Indian central
usually qualify for regular banking services because they do bank, the priority sectors must get a minimum of 40% share
not have any form of collaterals or formal identification of a commercial banks’ total lending. This includes 16% for
which can be taken by the banks and sometime it may not the agriculture sector.
be sufficient to consider as an collateral for the banks. With profit not being the only motive, the nationalized banks
Microfinance includes basic financial services like loans opened branches in the remotest corners of the country.
(generally smaller in size), saving accounts, fund transfers They were to implement various government schemes like
and insurance. It also provides non-financial service such the Twenty Point Program, Antodaya Program, subsidized
as business training etc Differentiated Rate of Interest (at 4%) loan etc which aimed
at uplifting the poorest of the poor with the help of micro
There are four major activities under microfinance which
credit. Banks like Industrial Development Bank of India
can be taken as its branches. These are:
(SIDBI), Export Credit Guarantee Corporation (ECGC) and
∗ Micro Credit the latest Credit Guarantee Fund Trust for Micro & Small
Enterprises (CGTMSE). The CGTMSE covers collateral-
∗ Micro Insurance
free credit up to Rs. 50 lakhs. These institutions play
∗ Remittance supportive roles to ensure uninterrupted flow of credit to
small time borrowers.
∗ Micro Saving
Micro insurance
“Micro insurance is defined as a mechanism to protect poor
Micro Credit:
people against risk (accident, illness, death in the family,
Micro credit has its origins in the early eras of civilization. It natural disasters, etc.) in exchange for insurance premium/
was out of necessity that man became aware of the payments tailored to their needs, income and level of risk”
benefits of lending and borrowing. Much before the advent
Types of Micro insurance
of money and banking, the practice of lending was
prevalent in kind. For example, suppose a farmer gave Life Insurance:
some seeds to another farmer with a condition of getting it Micro- Life Insurance is available to individuals between
back with some extra quantity. This extra quantity is known the age group of 18 years and 72 years. It provides
as interest or the cost of micro borrowing for borrower. coverage against death (accidental and natural).
Micro credit means loans to artisans, tiny and small Beneficiaries receive compensation upon the death of the
industries, grocers, vegetable vendors, rickshaw pullers, policyholder, who is typically the primary breadwinner. The
roadside retailers etc. It supports activities like farming, two types of micro- life insurance are term life insurance
poultry, cattle rearing, piggery, fishery etc. and endowment life insurance. Term life insurance provides
coverage on a fixed premium on a particular sum assured
In India, the gap between the haves and the have-nots is
for a limited period of time. It is also called term assurance.
always alarmingly high. Vices like superstition, illiteracy,
A policyholder must renew its term, or obtain further
caste system and the greed of the rich and powerful do not
coverage at different rates and/or conditions. Endowment
allow the principle of equality to set in. Consequently, India
life insurance provides coverage for a fixed period of time.
is unable to get rid of poverty and unemployment even
A policyholder can redeem at its face value if he or she is
though it is growing faster.
alive at the end of the endowment term.
With more than 220 million starving people, India needs to
General Insurance:
continue to exploit the great potential of micro credit. The
posh shopping malls, the multiplexes and the capital- Personal Accident Insurance extends protection against
intensive big industries can provide livelihood only to a few permanent disability or accidental death in the form of the
educated urbanites. The rest have to live on small ventures loss of eyes, limbs or both. Compensation terms and
and agriculture. These segments can never survive without amounts vary, depending on the extent and type of
small loans. Micro credit creates a huge purchasing power. disability.
This, in turn, gives impetus huge consumption, to industrial Asset Micro Insurance protects against loss of, or
growth and finally leads to a higher GDP(PPP). damage to, occupational or household assets. Low-income
households typically need to insure inventory, equipment

livelihoods July 2011 17

and tools, homes, livestock and personal items. Asset The Power and Potential of Remittance:
insurance covers damage caused by civil disturbances,
riots, fire, earthquakes, hurricanes, cyclones and similar Al Najib Milli Mutual Benefit Ltd. was incorporated in April
disasters. A policyholder is entitled to the amount of loss or 1990 as a Mutual Benefit Company under the Indian
damage, or the face value of the policy itself. Companies Act, 1956. It is delivering financial services
through 45 branches spread across four states in India
Health and Disability Micro Insurance offers coverage
(Uttar Pradesh, Delhi, Maharashtra and Gujarat). Al Najib
against the cost of medicine and hospitalization, up to a
plays an important role in the communities it serves, and is
certain amount as specified in the insurance contract. All
costs incurred may be paid directly to the healthcare respected, trusted and valued by its customers. Al Najib
provider or reimbursed directly to the policyholder. Disability offers a remittance product in two variants – one based on
micro insurance is an extension of health micro insurance, a money transfer order that can be encashed in any Al
extending coverage to a policyholder in times of severe Najib branch; and another, faster, version that involves
sickness. The two main types of disability micro insurance sending a fax to the branch where the money will be
are temporary and permanent. Temporary disability micro withdrawn. Al Najib has 6 branches across various suburbs
insurance offers partial compensation for the loss of income of Mumbai from where they serve many migrant clients,
during the months a policyholder is unable to work due to predominantly from the state of Uttar Pradesh. In spite of
illness. Permanent micro insurance offers complete income the overall rising trend of remitting through core banking
replacement coverage to a policyholder. services in Mumbai, the remittance products of Al Najib
Facts related to Micro insurance remain popular. Andheri, one of Mumbai branches visited
by MicroSave, remits over Rs. 3 crores annually.
Most insurance schemes (66%) are linked with micro
finance services provided by specialized institutions or non- A second option is bank drafts, which are cheaper, but
specialized organizations. 22% of the schemes are most recipients do not have access to the banks to encash
implemented by community-based organizations and 12% drafts easily.
by health care providers. A third option is sending money in cash through returning
Life and health are the two most popular risks for which friends and relatives, but this means waiting till someone
insurance is demanded; 59% of schemes provide life who can be trusted enough is returning home, and even
insurance and 57% of them provide health insurance. then there is the risk of theft.

Most schemes (74%) operate in the four southern States of One requirement for an MFI to meet the need for a money
India: Andhra Pradesh (27%), Tamil Nadu (23%), transfer or remittance service is a critical minimum number
Karnataka (17%) and Kerala (8%). The two western States: of migrants in the place of destination from a particular
Maharashtra (12%) and Gujarat (6%) account for 18% of place of origin, which will almost invariably be a rural area.
the schemes. At least a dozen larger cities in India are likely to meet this
condition, each of them for several groups of migrants from
Remittances:- different parts of the country. An MFI from the originating
Micro insurance services is a young and in its nascent area can establish a base in the city or area of migration
stage, albeit rapidly growing in India. Domestic money destination or it can tie up with an existing MFI or bank or
transfer services are still in their infancy, in India as money transfer company there. The same arrangements
elsewhere however they would appear to have tremendous are possible in reverse.
scope. The focus of the growing attention on money The second requirement for an MFI to provide money
transfer services as a potential opportunity for MFIs has transfer services viably is that it should be willing to charge
been on cross-border remittances. Internal labour migration a cost-recovering service charge the service charge is likely
has a long history in India, and is probably increasing with to be higher than that charged by the banks which enjoy
differential rates of growth in different states and pockets greater economies of scale and scope. However, until the
within states. Except for short distance or short term banks become a real alternative to most remitters there is
migrants, migrants need a fast, low cost, convenient, safe, appears to be enough headroom for MFIs to charge a
and widely accessible money transfer service to send their service fee that achieves viability.
earnings back to their families and dependents for vital
consumption needs, including lean season support and Micro Savings:
sudden medical emergencies, as well as for important A branch of microfinance, consisting of a small deposit
investment requirements. account offered to lower income families or individuals as
At present options available to a poor migrant are limited. an incentive to store funds for future use. Micro savings
The postal money order charge of 5 percent means parting accounts work similar to a normal savings account,
with a full day's wages about once a month, to send one's however, are designed around smaller amounts of money.
meager savings home. This is unacceptable in this day of The minimum balance requirements are often waived or
modern electronic communications. very low, allowing users to save small amounts of money

18 July 2011 livelihoods

and not be charged for the service. $20 earned on a single day. The task of smoothing
consumption is made more complicated if there is nowhere
After financial literacy, one could argue that savings is the
to store money safely. In an emergency, richer people
next most important aspect of an overall microfinance
might choose between dipping into their savings and
strategy. Learning to save, or building a savings culture, is
borrowing. The choice for the great mass of the unbanked
critical to one's economic self-reliance over a lifetime.
in the developing world is limited to whom to borrow from,
It is hard for people in the rich world to imagine what it is often at great cost. That they can borrow at all is partly due
like to live on $2 a day. But for those who do, the problem is to the rapid growth of microfinance, which specializes in
often not just a low income, but an unpredictable one. lending small amounts to poor people. Several big MFIs
Living on $2 a day frequently means living for ten days on also offer savings accounts.

International Cooperative Day (First Saturday in July)

The Seven Cooperative Principles:

1. Voluntary and Open Membership

Cooperatives are voluntary organizations, open to all persons able to use their services and willing to accept the
responsibilities of membership, without gender, social, racial, political or religious discrimination.

2. Democratic Member Control

Cooperatives are democratic organizations controlled by their members, who actively participate in setting their policies
and making decisions. Men and women serving as elected representatives are accountable to the membership. In
primary cooperatives members have equal voting rights (one member, one vote) and cooperatives at other levels are
also organized in a democratic manner.

3. Member Economic Participation

Members contribute equitably to, and democratically control, the capital of their cooperative. At least part of that capital is
usually the common property of the cooperative. Members usually receive limited compensation, if any, on capital
subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes:
developing their cooperative, possibly by setting up reserves, part of which at least would be indivisible; benefiting

members in proportion to their transactions with the cooperative; and supporting other activities approved by the
membership.

4. Autonomy and Independence

Cooperatives are autonomous, self-help organizations controlled by their members. If they enter to agreements with
other organizations, including governments, or raise capital from external sources, they do so on terms that ensure
democratic control by their members and maintain their cooperative autonomy.

5. Education, Training and Information

Cooperatives provide education and training for their members, elected representatives, managers,

and employees so they can contribute effectively to the development of their cooperatives. They inform the general
public - particularly young people and opinion leaders—about the nature and benefits of cooperation.

6. Cooperation among Cooperatives

Cooperatives serve their members most effectively and strengthen the cooperative movement by working together
through local, national, regional and international structures.

7. Concern for Community

Cooperatives work for the sustainable development of their communities through policies approved by their members.
The Cooperative Values Self-help; self-responsibility; democracy; equality; equity; solidarity; honesty; openness; social
responsibility; and caring for others.

livelihoods July 2011 19

 NRLM: A Critical Review
The National Rural Livelihood Mission (NRLM) launched on
3rd June 2011, the (NRLM) is an ambitious scheme from without interference from NRLM. In such a case, funds
the government to alleviate poverty. Its focus is “to reduce and areas can be clearly demarcated where these
poverty by enabling poor households to access gainful CSO’s can intervene without any NRLM presence
employment and skilled wage employment… through there.
building grassroots institutions…” The guiding force of the ∗ All SHGs should be graded on the basis of Panchsutra
mission is to create grassroots institutions by the way of and should be categorised into three grades namely A,
SHGs and build upon them a federation that is of the B and C. (A-Excellent, B- Good, C-Poor).The poor
people, by the people and for the people. SHGs (acting as NPA in the SHG system) should be
The document which we critiqued is the framework within imparted financial training to bring them back in the
which NRLM is to be implemented through State Rural main stream of financial [Link] can be
Livelihoods Missions (SRLM) across the country. A positive recovered by making proper linkages with the supply
aspect about NRLM is the emphasis it lays upon chain and other mechanism that play a beneficial role
decentralization of the planning process and thus justifying in enterprise development. Some incentives should be
the tenor of the framework which gives a broad outline as to given to SHG who are performing proper MIP & saving
how the project should ideally be run. Within these broad to create healthy peer competition among them.
guidelines, the states will formulate their own plans ∗ Continuous skill training and specialised RSETIs (skill
outlining their activities over the next seven years. enhancement) should be the crux of the RSETIs
The implementation of the NRLM depends entirely upon framework. This framework can also include value
the State Rural Livelihoods Missions (SRLM). The beauty added training and support for the existing enterprises
of NRLM is that it is too futuristic a programme for the (which are not generating the required output).
current mind set in our country. It is a major step forward in MOBILE RSETIs can also be an economic and
decentralising the planning process. The centre is simply effective option.
handing over the reins to plan the intricacies to the states
∗ Various type of partnership of NRLM with financial
so they can adapt this framework to the realities of their
institutions, insurance companies will build platform for
state.
Public-Private-Community in agriculture, livestock and
non-farm sectors. Artisans and wage labourers
brought into mainstream such that they are also
benefitted by this partnership With number of
partnerships from strategy to implementation, it is a
necessity to maintain core values and beliefs for
developing sustainable livelihood for rural poor such
that this mission fulfils its mission.
∗ The convergence of PRI with SHG is a good
intervention provided a strong structure exits. The
convergence model speaks is much relevant in state
like Kerala where there is strong Community structure.
This structure is not observed in the other states. More
over convergence of PRIs with SHG might have a
political bias.
∗ One of the reasons why SGSY was not
successful enough was the lack of development
professionals. Hence if there is one thing we can
learn, there should be concrete channel for supply of
This paper will try to bring out the loopholes of NRLM via professionals rather than its total dependence on open
various socio-economic factors: market. There is mention of collaboration with training
and professional institutes, but there is no mention of
∗ NRLM believes that livelihood security to the poor is
immediate relief.
best achieved by providing platforms to the poor where
they can voice their concerns. For such a platform to ∗ The powers of a SHG Federation showing good
be effective, it necessary that all the section of the poor performance at a regular basis should be increased i.e.
should feel included and involved in the community that SHG Federation should be able to interact with the
they reside in. State Government directly. This will reduce the time
taken in the implementation of a particular programme
∗ It is estimated that there exist about 7 million SHG’s
and also will curb down corruption due to money
under various projects and CSO’s in the country. Some
changing several hands.

of the CSO’s may want to continue with their business

20 July 2011 livelihoods

 Achieving The MDGs
“We must not fail the billions who look to the international protection by protecting child and maternal health.
community to fulfill the promise of the Millennium Financial support also brings poor under the lights of the
Declaration for a better world. Let us keep the promise.” education which preventing the vital diseases like HIV/
AIDS, malaria and other infectious diseases which
— UN Secretary-General Ban Ki-moon
considered under MDG.
The Millennium Declaration in 2000 was a milestone in
To ensure environmental sustainability MFIs give ideas like
international cooperation, inspiring development efforts
establishing rural enterprises by using Non-timber Forest
that have had mixed success in improving the lives of
Produce (NTFPs). Accessibility of the alternative inputs like
hundreds of millions of people around the world. The goal
Natural Pesticide Management (NPM) are also contributing
reflects concrete strategies and actions to meet the eight
eco-restoration and conserving bio-diversity.
Millennium Development Goals by 2015. The goals are:
1. Eradicate extreme hunger and poverty, Goal 2: Achieve The sources of fund are diversified through the
universal primary education, Goal 3: Promote gender involvement of wide range of the investors national as well
equality and empower women, Goal 4: Reduce child as international, who are helping poor by contributing their
mortality rate, Goal 5: Improve maternal health, Goal 6:
Combat HIV/AIDs, malaria, and other diseases, Goal 7: Millennium Development Goals :-
Ensure environmental sustainability and Goal 8: Develop a
global partnership for development
In the National Conference on Microfinance and
∗ Eradicate extreme hunger and poverty
Millennium Development Goals (Chennai on 22 August,
2009), Deputy Director Mr. Minar Pimple addressed to the
MFIs: In advancing the MDGs’ progress MFIs have a ∗ Achieve universal primary education
greater role to play. It can mobilize the society by building
community institutions and helping them in prioritizing the ∗ Promote gender equality and empower
development initiatives by extending the service areas.
MFIs also can promote enterprise development through women,
generating new livelihood ideas by initiating knowledge
sharing activities where natural resource management
taken into the consideration. More importantly MFIs can ∗ Reduce child mortality rate
play an active role in promoting the right to access public
information at the sub-national level to enhance ∗ Improve maternal health
governance and accountability.
MFIs create diversified livelihood opportunities to poor ∗ Combat HIV/AIDs, malaria, and other diseases
people & give them space, to plan their unanticipated &
future expenses, by providing alternative mechanism for
∗ Ensure environmental sustainability
poverty reduction. It also facilitates growth in family
income, leads to enhance opportunities for children
education especially girls & also restricts school drop-outs. ∗ Develop a global partnership for development
To promote gender equality, enhancement of women’s
access, control and ownership on the resource is an
money in the MFIs. It reflects public contribution in the
important issue can be covered under MFIs arena.
development sector.
Increasing women’s participation able to contribute excess
income towards the society and generate savings as well However Microfinance is much more than an income
as it helps to enhance social and political strengthening of generation tool. It acts as development factors to
the women. accelerate and sustain MDG progress. It gives greater
focus on equity and inclusion. By providing a chance to
To improve basic healthcare with particular attention to
work together, MFIs are helping developing countries to
child and maternal mortality, increase income through
achieve the MDG and advancing towards more
sustainable livelihood opportunity can address health
sustainable, inclusive empower and prosperous futures for
issues exacerbated by poverty. Some MFIs are also
all.

facilitating accessibility to healthcare insurance and

livelihoods July 2011 21

 Elders for Elders’ Foundation
S. Project Location No of Male Female
Immediately after tsunami struck Indian coast in 2004,
N Groups
HelpAge India (HI), the lead development organization in o
the country working for the cause of older people, under-
1 Cuddalore
took emergency relief operations in the worst-affected 99 620 868
coastal villages of southern India in Tamil Nadu and Kerala. 2 Nagapattinam
Loss of family members, homes and livelihoods have left 112 432 1189
the poor, particularly the elderly worse-off. The quality of life 3 Vedharanyam
130 993 1103
of the elders suffered a severe setback on all fronts. 4 Kollam
99 352 1336
As the initial need for relief started tapering off, HI transi- Total
tioned to rehabilitation phase and initiated Tsunami Disas-
440 2397 4496
ter/Extended Response Project to undertake long term
measures to restore the livelihoods of the elderly, to build
pattinam and Vedaranyam in Tamil Nadu and Kollam in
elderly organizations and work for sustainable and respon-
Kerala.
sible social protection of elders and to empower elderly to
EfEF has come into being to function as an independent
fight for enhancing their quality of life. In the course of the
project, elders were organized into Elders Self-help Groups non-profit foundation for the welfare of the aged in India.
(ESHGs). Further these ESHGs were federated in to village Currently, it operates in two States, viz., Kollam and Alleppy
level federation to take care of the destitute elderly and (Alappuzha) districts in Kerala and Cuddalore and Nagapat-
function as nodal organisation at the village level. tinam districts in Tamil Nadu. EfEF’s main areas of inter-
vention has been in promoting savings as a habit for the
By 2007, the elders’ organization grew in strength and Eld-
elderly, provide necessary credit for improving their eco-
ers for Elders’ Foundation (EfEF) was formed at the apex
nomic earnings, organize the elderly for the cause of the
level with 4 District-Level Federations – Cuddalore, Naga-
aged including advocacy efforts
for national and state level com-
mission for the aged, old age
pension for all destitute elders,
work with district and local gov-
ernment for facilitating quality
medical care for the aged in gov-
ernment run health facilities, etc.
EfEF has been able to success-
fully demonstrate the concept of
productive ageing. It has amply
proved that the elders have im-
mense potential to be productive,
can be collectivized, and require
credit to pursue livelihood activi-
ties. They need some instru-
ments to cope with their risks.
EfEF has also demonstrated that
the elders are better taken care
of by themselves and their imme-
diate families and social security
measures have to be geared to
cement this bonding rather than
making the elders dependent
solely on pension or other relief
assistance measures.

Elongo— HelpAge India (HI)

22 July 2011 livelihoods

 Development in Action

Bharati Integrated Rural Development Society

Bharati Integrated Rural Development •Will not work only for furtherance of its vision, mission and
Society (Birds) Is A Non Governmental objectives.

Organization (Ngo) Established In 1991 At •Recognize that it is only a part of a bigger movement to
Nandyal, In Kurnool District Of Andhra ensure environmental stability and in the fight against
Pradesh, India. It is registered under Society poverty. Therefore, it thrives to establish linkages at the
organization and community levels with different strategic
Registration Act 21 of 1860, in the year
developmental players (governmental and non-
1991. Its registration number is 262/91, governmental).
dated 28.11.1991. It is also registered
•Believe that it stands accountable to public, government
under Foreign Contribution Regulation Act
and for agencies providing financial support as well as for
(FCRA), 1976, on 16 May 1994. It has the people the support is intended. Through its transparent
Income Tax (IT) exemption under Sections administration and accounting systems BIRDSIN will
12 A.. register itself as an honest and humble change agent.

Founded and directed by Paul Raja Rao, BIRDS has grown •Work culture will be that of mutual respect, equality and
in the past years from a humble grassroots attempt to justice, where everyone irrespective of sex, sexual
empower the Dalits and provide a few microfinance loans to orientation, age, race, color, class, religion, ethnicity, and
groups of women attempting to form cooperative business location are treated equally.
ventures, to a major NGO non-profit, touching the lives of
tens of thousands of untouchables each year. •Will work with courage, creativity, innovativeness, in
pursuit of its vision, mission and objectives, without fearing
BIRDS works with Dalits, women, children and farmers on
anybody.
several issues like untouchability, social discrimination,
human rights, women issues, gender rights, women's Will have a bias for poor and marginalized people because
empowerment process, health issues, child labor, bonded of the fact that their mainstreaming can only result in
labor, farmer suicidal issues, organic agriculture practice, realization of its larger goal.
ground water management programs, farmer field schools, Objectives: To educate the rural poor through non-formal
malnourishment and HIV prevention programs. education
It has reached a new milestone in empowering dalits, To act as liaison organization between government rural
tribals, women, children and small and marginal farmers poor and to inform the rural poor about various
which is clearly evident in the impact generated as a result governmental programs intended to help them
of BIRDS intervention in building their capacities. Dreams
to support the farmers of the district by providing training To provide opportunities for the development of village
and demonstration facilities at stone-throw distance have artisans
been realized through construction of BIRDS Training To undertake land-based projects for the benefit of small
Centre and Organic Farm was conceptualized. and marginal farmers
The Vision Statement of BIRDS states “a world where all To establish homes for the aged, child labour, widows and
its inhabitants live in complete harmony with each other to disabled
maintain and benefit from balanced eco-systems.”
To undertake women welfare programs
It proposes to achieve this by creating a “platform for
To organize self help groups for poor women for economic
people from all walks of life” and enable to take necessary
independence
measures to ensure ecological stability, safeguarding
human rights, eradicating poverty, ensuring minimum To improve health conditions of rural poor
standard of living, and bringing in social justice (on Low cost housing programme for the poor
account of differences based on gender, disability,
social and economical marginalization and displacement). To preserve environment of the target areas
Guiding Principles of BIRDS are: To promote sustainable agriculture programs and organic
farming systems

livelihoods July 2011 23

 Organization Structure
General Body

Executive Committee
Donor

Government

Executive Director

Director-Micro finance

Branch Manager Accounts Manager

Project Director

Community Organizer
Credit Officers

Village Activist Community Health Worker

Interaction Fund flow Reporting

Activities of birds:
Apart from its major function as Microfinance Institution, it also provides the following listed services to the poor:,
People’s empowerment, Environment/ APFAMGS, CHETANA network: Campaign on Land Rights and Livelihood
programs, Health Facilities/Community Health Program, Care and Support: Children’s Education, Old age Pensions ,
PLHIV, Microfinance, Community-Staff Capacity Building, BIRDS International Learning Centre, International and
National Solidarity Mission, International Projects and National Projects.

World
Population
Day 11 July
2011
24 July 2011 livelihoods
 Time to Reflect and Reaffirm
Microfinance India Summit 2010: “Mission of credit with livelihood programmes and offer a range of
Microfinance: Time to Reflect and Reaffirm” financial services to clients. That is the reason state
governments have come up with ad hoc regulations to deal
The microfinance industry gathered to talk about the way
with the meteoric growth of the industry.
ahead from the current crisis (Andhra Pradesh) at the
Seventh Microfinance India Summit on November 15-17, Rethinking Development and Microfinance: Changing
2010 in New Delhi, India. Various stakeholders talked about Paradigms:
how the industry could course correct, tweak practices, to According to Roodman credit is not necessarily better
manage the political climate and perceptions. It was an because borrowers may take it irrespective of whether they
occasion to reaffirm their mission and stay on course. can pay back or not. This can lead to over indebtedness.
U.C. Sarangi, Chairman, NABARD, said that while Return That is why credit is not like any other product where
on Assets (RoAs) had been low till around 2008 after that increased supply would lead to a reduction in prices. So,
things changed. Since then, while the global norm for RoAs there has not really been a reduction in rates though the
is around 1.5% for Indian MFIs this could be between 1.5- number of microfinance players has increased.
5%. Lowering RoAs would allow The State and the Sector:
MFIs to lower interest rates as Locating the Fault Lines:
well. “You have to think of your The microfinance industry gathered On October 15, 2010, the Andhra
mission now,” he said.
to talk about the way ahead from Pradesh Government passed an
C.S. Reddy of APMAS presented
his study report that there are one
the current crisis (Andhra Pradesh) ordinance saying MFIs need to be
registered with a government
million SHGs waiting for bank at the Seventh Microfinance India agency, which can revoke their
accounts and two million SHGs
Summit on November 15-17, 2010 registration in case of a complaint.
with no active loans. Other They have to specify their area of
speakers stressed on the need to in New Delhi, India. operation and interest rate, which
increase per capita size of SHG cannot exceed the principal amount.
loans, which is currently lower than Loan recoveries can only be made
that of MFIs. by staff members with identity cards in public places.
Financial Inclusion: Second loans cannot be given without the first being repaid.
This ordinance came in the light of several alleged incidents
They talked about the need to make a range of financial
of suicides by borrowers because of forced recoveries. This
services and products available to the poor, including
led to increased non repayment to MFIs in Andhra.
savings, insurance, pension and remittances. They also
talked about reaching out to communities that are Growth and Governance: Pulls and Pressures:
particularly excluded from the financial system, including Good governance is not limited to the board of directors,
migrants. MFIs play a particularly important role in financial but should be implemented at every level within the
inclusion because current criteria for the bankable exclude organization, such as, the investors, shareholders, lenders
a substantial number of people. For instance, NSSO data and industry associations. Transparency is the key to good
shows that 45.9 million farmer households do not have governance l Good governance is a constant balancing act
formal credit. Just 27% farmers have loans from the formal between social outreach and financial sustainability
sector. So, banks, SHGs and MFIs need to be more
Risks in Microfinance: Current Environment and
sensitive to the needs of farmers and provide advice MFIs
Mitigation Strategies:
also need to be more transparent on interest rates and
ensure that they follow sensible collection practices and do Chandrashekhar Ghosh, CEO of Bandhan, said that MFIs
not do multiple lending. need to build capacity of the staff, teach them soft skills to
The State of the Sector: The Crests and Troughs: deal with crises. “Risk is a part of life that you cannot avoid.
You have to deal with it at the ground level,” he said. Also,
The State of the Sector 2010 indicates abated growth
while MFIs grow they should not lose their focus on the
compared to previous years. The sector grew at 18% in
borrower. He said that when Bandhan moved from non
2009- 10. For instance, the report found that there are
profit to for profit they created a structure to ensure that 5%
enough MFI loans in Andhra Pradesh so that each poor
profits went to the non profit, where they are used for
family could have nearly 10 loans. Or that even large
welfare programs.

villages have 4- 5 MFIs operating there. MFIs need to link
livelihoods July 2011 25
 Opinion

Microfinance And Inclusive Development

Declarations: An Alternative summit on Microfinance 4. Microfinance shall go beyond credit and shall include
focusing on Inclusive Development has been organized by ‘savings-first’ with differentiated savings products for
National Rural Livelihoods Mission , Ministry of Rural livelihood , health , education and life cycle needs:
Development , Government of India, SERP and insurance and micro pension for social security , remittance
Government of Andhra Pradesh from 21-23, 2011 . The services for migrants , micro justice for conflict resolution.
International conference was attended by delegates from
India, Bangladesh , 5. Holistic development approach with social and financial
Srilanka , Nepal, Afghanistan ,
Philippines and China. intermediation , livelihoods / enterprise promotion ,
integration with mainstream for civic intermediation with
With primacy on social capital, development outcome and proper sequencing, graduation , context and member
savings- led microfinance services, the summit had specific interventions shall guide the microfinance
deliberated upon the multi dimensional aspects of programs.
development covering livelihoods, health, MDGs, social
security, gender empowerment and main streaming across 6. Microfinance interventions shall be integrated into sub-
sector economic development process such as agriculture,

the development spectrum. A host of operational and policy farming, dairy, fisheries, etc.
leads in many of the topical issues. Synthesizing these 7. Capacity of building of the enabling and demand
issues and policy leads / recommendations, the summit stream is a crucial component of microfinance.
resolved to commend the following declarations to the Interventions and needs continuous public investment.
world of microfinance including the practitioners,
8. Self regulation process shall be a part of the
Government, regulators and policy makers.
microfinance programs, which would promote growth with
1. The purpose of microfinance being poverty reduction , quality. The SHG federations shall draw a road map and
development outcome connecting with Millennium set standards for governance, financial and social
Development Goals , ensuring social security and development aspects according to their age and contexts
entitlements should be guiding the provision of and evolve action plans for implementation.
microfinance services.
9. In building livelihoods systems, community ownership
2. The Institutions delivering micro- credit shall be in the form of producer and marketing companies with
recognized as MCIs i.e. Micro credit institutions and not as professional management shall be promoted with
MFIs as it gives rise to misleading expectations and undue innovative and appropriate credit products. Creation of
advantages. The summit recognizes the need to develop value and supply chain needs public investment for
appropriate nomenclature for microfinance with inclusive establishing infrastructure like gold chain, transport and
development. processing.
3. The social capital model of microfinance shall focus on 10. Gender empowerment and mainstreaming shall
building institutions founded on mutuality and solidarity, remain the core of the microfinance programs.
specifically federations of SHGs and specialized institutions
11. Highly vulnerable groups including Destitute, aged,
on health, livelihood and for technical support to SHGs.
physically and mentally challenged shall be organized with
The Community Resolution on The Issues of MFIs help of microfinance exclusively with higher degree of
sensitivity and innovation.
We, the women representatives of SHGs in Andhra Pradesh met
in the summit and deliberated upon the issues of MFIs and 12. Main streaming microfinance through linkages with
resolved to condemn the exploitative practices of MFIs, who is the banking system shall promote financial inclusion to
charging exorbitant rates of interest and often violating human provide access with affordability for the poor. The banking
rights at the time recovery with coercive methods. We are proud to system shall respond to the microfinance clients to the
claim that the SHG model of microfinance spearheaded by the microfinance clients with timely credit and appropriate
poor women is appropriate to our needs and it would help tackle financial products.

the issues of poverty.

26 July 2011 livelihoods

 Opinion Page

Microfinance
‘Where the mind without fear and the head is held high; Where knowledge is free;
Where the world has not been broken up, Into fragments by narrow domestic walls;
Where words come out from the depth of truth;, Where tireless striving stretches its arms towards perfection;
Where the clear stream of reason, Has not lost its way into the dreary desert sand of dead habit;
Where the mind is led forward by thee into ever-widening thought and action…, Into that heaven of freedom, my
Father, let my country awake.’ - Nobel laureate Shri Rabindranath Tagore,
Micro finance has been playing a stellar role in realizing the dream of Late Rabindranath Tagore, in fact, micro finance in
the form of money lenders, cooperative institutions, chit funds has been in operation since time immemorial. However,
the arrival of SHGs and microfinance institutions in the last two decades has really empowered the rural folk and
made them to hold their heads high. I do realize that there are some issues created by some micro finance institutions
specially with regard to high interest rates and forced lending. As a person dealing with poor people for decades I sug-
gest that the MFIs should realize their social responsibilities and act carefully while working with poor people. They must
take time to build the capacity of the borrower, give him flexible credit and recover in small installments over a flexible
period so that the poor man is not burdened. For instance SKDRDP encourages its members to go in for multiple activi-
ties to enable them to repay the loan in weekly installments. The overriding philosophy of the MFIs should be social ser-
vice and not profit maximization.
The state government should create a conducive atmosphere for MFIs to flourish. We cannot expect everything to be
done by the government only. NGOs and MFIs have a major role to play in financial emancipation of the poor people. We
can also play an important role in financial inclusion. However, presently the commercial banks are deploying technology
service providers in the process of financial inclusion. I think the government and the banks should use the extensive
networks created by the NGOs and the MFIs in making the process of financial inclusion more effective.
The media and the government should study the positive impacts of microfinance institutions in a given area. Stray
cases of failure, misfortunes, and individual incidences should not be generalized. We must understand that MFIs have
made poor people residing in remote rural villages and slums of cities creditworthy. The MFIs have brought radiating
smiles on the faces of the people struck with poverty.
I suggest that if the government can give interest subsidy to the micro loans, the MFIs are ready to pass it to the ultimate
borrower. I can cite the successful example of the self employment loans given by the Devaraj Urs Backward Classes
Development Corporation (DBCDC) in Karnataka. In this case DBCDC has offered low interest loans up to Rs.
25,000/- at 5% to SKDRDP which have been onward lent to the backward classes community for taking up self employ-
ment. SKDRDP has given these loans at 9% on daily reducing scales. Rs. 25.00 crores has been lent in this manner with
100% recovery. As a result the board is able to use the money recovered to lend to others. Thus I feel the MFIs and the
government must have closer coordination.
The poverty situation in the subcontinent however is fast changing. The introduction of the Mahatma Gandhi Rural Em-
ployment Generation Programme (MREGP) has affected the working class in the rural areas. It has also affected the
farming. It has in abroad sense also affected the micro finance initiatives. The growing opportunities in the service sector
in the urban and per urban areas have also had an adverse impact on farming in the rural areas. For youngsters it is
more attractive to work as security staff, drivers, salespersons in malls rather than toiling in the fields. The situation that I
saw in China three years back where I was informed by a senior citizen that people aged below sixteen and above sixty
only reside in villages is now being replicated in India too. The ever increasing migration of labour to the nonfarm sector
is delivering a body blow to the farm sector. The RUDSET movement in this context which motivates youngsters to re-
main in villages is thus an important initiative in the alternative sector. Inspite of all the progress it is the food security that
matters most in a populous economy like India.
Therefore credit alone is not sufficient, it is the ability of an individual family to make the best use of the financial sector
which matters most in creating a just society. The works of the partners of INAFI and the participants sitting here there-
fore will count much more than those who just provide credit.
I conclude with a quote from the famous novel “King Solomon the wise” which has been quoted by Mahatma Gan-
dhiji as he wrote in Harijan, on August 6, 1938.
Quote “ Better is little with fear of Lord than great Treasure and trouble there with” “Better is little with right-
eousness than great revenues without right” “Better is a dry morsel and quietness therewith than a house full of
good cheer with strife”
I thank one and all for this opportunity. May Lord Manjunatha swamy bless you all.

Dr. D. Veerandra Heggade

livelihoods July 2011 27

 Context

Malegam Committee Report

Microfinance has been in the headlines in the recent past. act with few changes here and there. In Andhra Pradesh
The sector is growing at a rate of 20-25% annually defying particularly, this has created a political unrest seeking for
all conventional wisdom of financing poor, while government’s intervention.
maintaining financial viability. So what is it that has created RBI’s Stand on The Issue: RBI has publically supported
such an amount of hype? the microfinance sector with few apprehensions. It fears
Microfinance which was meant to give poor people access the working of the NBFCs without a regulation which can
to credit facilities has turned out to be a business model have a huge impact on the rural poor which forms the bulk
generating huge amount of funds for the stakeholders. of Indian population. So it presses the point of interest cap
Quoting the case of SKS finance which issued its public on these MFIs to a level that neither does it undermine the
offering in financial year 2010-11giving its stakeholder a sustainability of the MFIs nor does it let to exploit the poor.
revenue to the tune of 200 crore. Talking about its impact However RBI restrains itself from pushing in a fixed
on the poor, it has been linked to farmer suicides in Andhra interest rate but only keeps a cap on it. It has even advised
Pradesh on one hand and helped people move out of the banks to stop their priority sector lending with the MFIs
poverty on the other. The question whether MFIs are in case they fail to follow the recommendations.
institutions for the poor or institutions for profit is Government’s stand on The Issue: Central government
continuously debated. intends to pass a bill on the recommendation of the
Malegam Report: A sub-committee was formed by RBI to Malegam Committee Report which will override all state
study the issues and concerns regarding the MFI. This government regulations. Further it is futuristic in its view
committee was to review microfinance and microfinance about the contributions made by this sector in poverty
institutions (MFIs) for the purpose of regulating Non- alleviation and is strongly supporting its growth.
Banking Finance Companies (NBFCs). Microfinance in The Way Forward: The MFIs can network into Self
India has been defined differently by different players and Regulatory Organizations (SRO) comprising of all the
there is no regulatory body which can channelize them MFIs. Those under the fold need to follow the guidelines
through a common path. So Malegam report is an set up under the network. This will be a credibility check on
extension of these issues in the form of recommendations. all the MFIs as institutions where as MFI’s not in the
Under this report, NBFC-MFI has been stressed upon as a network will lose their reputation
different category of microfinance institution. The New MFI Bill: In this context The government on 06-07-
committee recommends that effective interest rates 2011 released the draft Micro Financial Sector
charged by microfinance institutions be subject to a floating (Development and Regulation) Bill, 2011, which seeks to
ceiling of 10 to 12% over cost of funds, and a fixed ceiling make it mandatory for all microfinance institutions to be
of 24%. Transparency in the operation of the MFI has been registered with the Reserve Bank, making it the sector
brought under the fold through processing fee (1%), regulator. The Bill in its earlier form had proposed that the
interest rate (24%) and insurance charge. Monitoring of National Bank for Agriculture and Rural Development
these institutions will be done by MFI themselves, industry (NABARD) will be the regulator of the sector.
associations, RBI and banks. The report raised serious
questions on the act which envisages NABARD as the The latest draft Bill proposes that a micro finance institution
regulatory body. has to be registered with the Reserve Bank with the
minimum net owned fund of Rs 5 lakh. Besides, a Micro
Andhra Pradesh Microfinance Act: Andhra Pradesh Finance Development Council will be set up to advise the
passed on an ordinance on 14th December 2010 in lieu to government on formulation of policies, schemes and other
the growing questions about the viability of the MFI model measures required in the interest of orderly growth and
towards meeting the goal of poverty alleviation and also in development of the sector and micro finance institutions, to
wake of the series of suicide cases. The act requires all the promote financial inclusion.
microfinance institutions to register themselves with the
registering authority of the district and also to extend its The council will comprise of members not below the rank
services without collateral to only those which hold a single of Executive Director from NABARD, National Housing
SHG membership. The MFIs need to be transparent in Bank, RBI and SIDBI. Besides, Joint Secretaries from
their operations by displaying the interest rates in their Ministry of Finance and the Ministry of Rural Development
premises, issuing acknowledgement of the transactions will also be members. It also proposes that any micro
made by the borrower and also by submitting monthly finance institution which is not a company registered under
reports to the registering authority. The act also puts a the Companies Act, 1956 and which becomes systemically
restriction on the loans extended by the MFIs by the need important micro finance institution shall convert its
to get approval before sanctioning the loans. For putting a institution into a company registered under the Companies
check on the increasing use of coercive methods on loan Act, 1956 with or without a licence under section 25 of the
recovery, the act restricts MFIs from using any agents in Companies Act, 1956.

the process. Experts are more or less consistent with the

28 July 2011 livelihoods

 Case Studies

Out of Poverty Proper Planning is Key to Management

Mahipal Reddy is a marginal farmer from Nednur village of In the meantime, through SHG, the family availed a loan of
Kandukur Mandal in Rangareddy district. He has studied Rs.50000/- at 25 paise interest per month. Through that,
up to his intermediate. He is married and has two children they were able to repay their previous crop loans
with whom he lives in a rented house. On his 3 acres of successfully. Today, the family is convinced that getting
land, Mahipal usually grows maize for one season of a loan from SHG is easier, costs less interest, and is readily
year since it’s a rain fed crop. Due to poor quality of the available even in emergency. The husband and wife owe
soil, crops often fail to yield returns as expected. Generally, their improved conditions to SHG and continue to hold to
he sells the produce to the local poultry. In spite of the faith that their lives is more secured and valued with
fluctuating yields, Mahipal takes crop loans every year for the savings they maintain in the SHG. Like everywhere
buying agriculture inputs from Syndicate Bank in that else, Mahipal admits that commissions have to be paid to
village to the tune of Rs.30000/- at the interest of around officials for loan processing and has therefore decided not
Rs 10/- per year. to take loan this year. The good news is that the family has
enough savings and they are confident of being able to
Devoid of any livestock, Mahipal occasionally goes for stand on their own feet. From their experiences, the couple
labour work in order to supplement the family income. On testified that SHG is one best way for a determined family
average, the monthly income of the family is 4000/-. This to come out of poverty like them.
amount is barely sufficient to meet their expenses. In the
midst of all these uncertainties, Mahipal had another
constant worry about his children’s education once they Looking ahead, the family is busy making plans to buy
get old enough to attend school. However, better days cattle within a year. Mahipal is also paying Rs.3000 per
soon followed as Mahipal’s his wife was introduced to the year for insurance, which was a luxury until the recent
concept of SHG, which she joined and thus began the past. The family is even planning to build a new house.
journey towards a changed life. As luck would have it, the Thanks to the leverage from SHG, Mahipal and his family
family benefited from a loan waiver scheme provided by are respected among his friends and relatives.

state government to an extent of Rs.5000/- in year 2007-08

Broken Lives
Biased Feelings Spoil Life
Venkateswarlu belongs to Paipad village, Waddepally the Business. But he has not money for Business. He told
mandal and Mahaboobnagar district. He aged 38Years. He business plan to his mother. She is living with her second
Studied up to 10th class. He got married. He has three son. Earlier also she helped to him in sometimes. She
daughters and one son. His son is studding Intermediate made her son to borrow some money from her friends.
and younger daughter is studying 7th Class. Presently he He started tea and coffee business helping to his mother.
does not do any work because he does not Interested in She told to him that, this last chance to him. He wants to
doing agriculture works .He has one acre. He sold it for his purchase TVS moped for his business expansion. He
elder daughter marriage. spent Forty Thousand rupees for TVS moped, tea and
His wife goes to agriculture work daily. He depends on his coffee items. He went to daily one village for sale tea and
wife Income. His daughters also went to agriculture works. coffee packets to village.
He needs money because he wants to do his 2nd Daughter He went to nearest villages one week after stopped tea
marriage. So he decided to do some work. He was worked and coffee business because he has relatives in those
as a security guard in a beer company at Jogipet in Medak villages. He thinks that his relatives may feel bad. He feels
district. selling tea and coffee packets is not suitable for him. He
He deposited some Amount for his daughter marriage .He stopped his business and sold TVS moped to Rs 8
took Rs.1lakh with interest from his relatives .He came to Thousands loss to his friends. Remaining tea and coffee
his native place because to do his daughter marriage. packets are wasted.

He spent more days in the village and he does not interest He did not pay his loans which obtained from his relatives.
to go to Jogipet. He wants to stay in his own village. He His mother is bothering with her son attitude. Because him
her relations got strained with her friends. Presently
plans to do business. He observed that one person was
Venkateshwarlu wants to go Jogipet because to do the
coming to his village to sale tea and coffee packets. He
old job but it is not sure if he gets that job or not.

thought to do this type of Business. He decided to begin

livelihoods July 2011 29

 Interview with Grassroots Activist

Failed in SSC - Passed in Life

Q. What is your name? Age? children goes out and from then I will
go the field for the regular duties till
A. Macharam Aruna, and I am 29 years old. 3PM and I will be back to home.
Q. What is your native place? Sometimes I may stay till 6Pm in the
evening for the external work if
A. Shankarpalli, it is 27 km away from Hyderabad.
necessary.
Q. where do you stay in Hyderabad?
Q. Have you taken any loans? Can
A Hafeezpet, Miyapur. we have their details?
Q. What did you study? Where do you work? A. Yes, I had taken the sum of Rs.
15000 towards the treatment for my husband when he met
A. I studied SSC in 1999. Greater Hyderabad Municipal
with an accident. I repaid it in 10 months. Another time I
Corporation.
had taken the sum of Rs.15000 toward my son’s treatment
Q. What is your work profile there? 3 years back and I repaid it in 15 months. All the loans I
A. I work as a Community Resource Person (CRP). It goes had taken are from the linkages only.
around grouping the women, encouraging them, Q. what is you progress in the work?
strengthening them, trainings, helping for their livelihood
A. We had applied for the formation of the Slum Level
etc.
Federation (SLF) by grouping 25 groups together, which is
Q. How many members are the in your family? yet to be registered. If it was done then we can be
A. Me, my husband, my mother in law and two children benefited more from the government.
altogether 5 members. I have a boy, he is studying 2nd Q. what is your role in the group? And can we have the
standard and a girl, studying 4th standard in nearby details of the group?
school.
A. I am the leader of the group and my group name is
Q. Is there any other person from your family working? Navajyothi Self Help Group. And in the new Federation
A. Yes, my husband is there. He works in Paper Product which was proposed I will act as a resource person and I
Limited (PPL) as machine operator. will be dealing with 25 groups.

Q. Can we have the details of monthly income of your Q. Is there any problem from the family while working?
family? A. No. my husband gives his total support in doing my
A. I, myself earn up to Rs.1500 per month by book keeping work. Without his support I can’t do all these things and I
and other works. My husband earns up to Rs.7000 per will be remaining as a woman just confined to kitchen. But
month. some kind of problems will be occurring because of my
child as he is still younger.
Q. When did you join in SHG?
Q. As a member of the family what do you feel about it?
A. I have joined 6 years ago in the group and now I am a
leader for a group since 3 years. A. I feel very proud my family I have a very good husband
who is very cooperative, two lovely children and very good
Q. Have you done any work before? mother in law. And what else I wish other than this?
[Link]. I joined this in order to help my family out of some Q. How much do spend toward your children’s education?
financial problems.
A. we will spend around 12,000 on both of them annually.
B.Q. What do you feel about the work?
Q. What will be your monthly savings?
A. I am very much satisfied with what I am doing I can
enjoy more in my work than the other means of enjoyment. A. we had not saved anything till now. We are having the
loan of Rs.50000 outside which we had taken at the time of
Q. what are the problems you face while discharging my husband’s accident. I expect that can be repaid in a
duties? course of 2 years.
A. initially many people did not even allow us into their Q. Would like to share anything else with us and our
homes and we made different ways to convince them and readers?
join the groups. Some kind of difficulty occurs in collection
of money for the repayment. And we face some kind of A. Yes. I want every woman to stay independent helping
political pressure in handling the work. their family in every way possible, courageous, stubborn
and able to handle the situations arose. I request the
Q. What will be your routine?
government to concentrate more on the self employment
A. I will be engaged in my family work till my husband and groups and give them support needed.

30 July 2011 livelihoods

 Books
Book Summary final article in Section One by S.D. Mishra paper highlights
the difference in the productivity of Kisan Credi cardholders
and non-card holders. Section Two of the book starts with
Name of the Book: Rural Financial an article by the editor Chaudari Tamil Datta about efficient
Sector Alternate Models financial intervention through a mix of market forces and
Editor: Tamil Datta Chaudari social intervention. Mr A. Ramanathan then argues that the
principles upon which microfinance works are well suited
Publisher: Icfai University Press, for credit delivery to the poor.
Hyderabad
The twelfth article in part two by Paramita Raut paper
The book is a volume of 16 articles on shows that the SHG bank linkage model has grown in a
various thematic areas related to Micro- skewed fashion in India with some states like Andhra
Finance in the Country. It is divided into Pradesh being ahead of others. The paper analyses in
two parts the first examining the various detail the merits and demerits of the SHG bank linkage
institutions involved in rural financial sector development program and makes suggestion for further improvement.
and their performance. The second part discusses possible
strategies that could be adopted for improved credit Mr Janardhan .G. Naik then presents a piece on how
delivery. Regional Rural Banks can become vibrant rural financial
intuitions capable of meeting the growing requirements of
The editor Chaudari Tamil Datta begins with an overview of rural india.
the performance of various players involved in rural
financial sector development including Commercial Banks, The next article in the series is presented by Mr
Regional Rural Banks, Cooperative Rural Credit [Link] who discusses possible attractive
Institutions, NABARD, SHG’s and MFI’s. The second article strategies to be employed by the Small and Medium
by Y.V. Reddy points to the view that any plan for growth in Enterprise Sector (SME) branches, also highlights
the agricultural credit has to address the four deficits opportunities for joint financing of SME projects with SIDBI
namely public investment and credit deficit, infrastructure and other financial institutions
deficit, market economy deficit and knowledge deficit. Mr [Link] Das then presents a piece on risk
Mr A.K. Bandyopadhyay then discusses the Rural mitigation including government initiatives like minimum
Development process and the role of leadership, innovative support price, farm income insurance schemes , revamping
ideas, and people friendly means in hastening the process agro-marketing , development of commodities’ market and
of development. weather insurance. He concludes with emerging tools for
risk mitigation like rainfall index insurance. The final piece
The fourth article by Mr [Link] advocates that in the book is written by Mr Shymala Gopinath who argues
overall Micro-finance empowers the most marginalised that financial inclusion is a continuous process.
among the poor. There is then a discussion by Mr Rajaram
Dasgupta about the Agriculture Micro-credit, Weaker The book suitable as a background reading for individuals
Section Micro-credit and SHG Micro-Credit. who need to be brought up to date on the various players in
the Micro-Finance Sector in the country’s rural areas and a
Mr Francis Sinha discusses three models of microfinance – stock take of the policies adopted.

SHG’S, Grameen and Individuals and points out that
although micro-finance has increased the borrowing options New Book
of poor clients, it has not significantly affected the terms
and conditions of different informal credit providers. The
seventh article by Mahendra .Varman.P concludes that
microfinance SHG’s have inculcated the habit of banking Name of the Book: Microfinance India
especially among women. Sate of the Sector Report 2010
Mr Subrata Kumar Roy then discusses how Institutional Publication: An ACCESS Publication
Credit made an impact agricultural production through
change in cropping pattern in West Bengal. The ninth and

Resources

Resources of Microfinance : 1. Microfinance Gateway: [Link] 2. Consultative Group to Assist

the Poor (CGAP) [Link] [Link] Information eXchange (MIX) [Link] 4. Sa-Dhan: Associa-
tion of Community Development Finance Institutions [Link] 5. National Bank for Agriculture and Rural
Development (NABARD): [Link] 6. Unitus: [Link] Grameen Bank: http://
[Link], [Link] magazine: [Link]
cz_ms_1220microfinance_table.html, 8. Microfinance association: [Link] World Bank -
Micro-finance Events, International Development Information Centre (Cida), Microcredit Summit Homepage, The Infor-
mal Credit Homepage

livelihoods July 2011 31

 Story

Gopal And His Bat

There was a boy named Gopal who was extremely lazy. Once, he badly wanted a cricket bat but had no money to buy
one. So like every kid, he went to his father and asked for the money but was refused saying that he will have to earn the
money and that nothing comes for free in the world.

Lazy as he was, Gopal did not like the idea of putting in effort to earn the money. Therefore he went to the sports shop
with whose owner he was acquainted with. Gopal then said he wanted a cricket bat but he could only pay at a later date.
The shopkeeper who was short on staff offered his customer two options: that Gopal could take the bat and repay later
with interest or pay by lending a hand to running the shop. Again, Gopal’s laziness got the better of him and he opted for
the first option.

Gopal revelled in his new possession and forgot all about his deal with shopkeeper for a few days. He even bragged to
his few friends how he could get a new bat without paying even a single penny. However his short stint of fame came to
an end one day when walking down the street, he met the angry shopkeeper who threatened him that the interest rate
will be increased. Now, Gopal is faced with the pain of paying almost double of what the bat really cost.

This shook Gopal and he went to his father again. His father agreed to give money with the same condition that that he
will have to earn the money. As desperate as he was, Gopal was equally arrogant and turned down the offer and instead
approached his friend Krishna to borrow a part of the money. His friend said he could borrow the money but should repay
the money with interest on
time.

Gopal went to the shop the

next day and paid the
shopkeeper the first instalment
and this unexpected payment
raised the shopkeeper’s hope
that he will get the money.
However, sensing the
satisfaction of the shopkeeper,
Gopal again relaxed for a few
days oblivious of the fact that
his debt was rising by the day.

Few days later on a warm

evening, the angry
shopkeeper and Krishna came
to Gopal’s house and
demanded that they be paid
back immediately. Gopal’s
father who was present there
gave a puzzled look to Gopal
who had to finally recite the
series of the events and debts
that led to this embarrassing
day.

Gopal’s father was highly disappointed but apologetically told the unexpected visitors he would ensure that they would
get their money back soon. nce the visitors left, Gopal was made to sit and listen to his father and how he let him down
and that still he would still have to earn the money.

Left with no choice, finally it was decided that Gopal will work at the sports shop and the owner too waived off the interest
amount as a gesture of goodwill. Back home, he would also walk the family dog and earn money so he could repay his
friends.

Moral of the Story

Easy routes will not lead to easy solution. One should be ready to pay the price of one’s own bargains.

32 July 2011 livelihoods

 Trends and Statistics

Microfinance: Outreach
India is the largest microfinance industry in the world. The only two had been licensed for very restrictive deposit
high growth has been fuelled by commercial banks funding taking.
towards for profit institutional structures. Thus, this rush Not for Profits & Mutual Benefits grew from 111 to 208, for
towards growth has led to the speeding up of profit MFIs grew from 18 to 56
transformation of MFIs to for profit Non Bank Finance
Companies (NBFC). Total Outreach of Not for Profits & Mutual Benefits grew
from 39.79 lakh to 51.26 lakh in 3 years, Outreach of for
The growth rate recorded by India in microfinance in terms profit MFIs grew from 43.65 lakh to 221.71 lakh
of number of unique clients is 62% and 88% per annum in
terms of portfolio over the past five years and there are Portfolio outstanding of Not for Profits & Mutual Benefits
around 27 million borrowers’ accounts. The south grew from Rs. 1,432.81 crs to Rs. 2495.47 cr., and that of
dominates the sector in terms of number of MFIs but there for profit MFIs grew from Rs. 1,826.78 crs to Rs. 15,238.71
are some MFIs which have multistate activities and hence crs
cannot be categorized as working in a particular region. Where Not for Profit form stands for Society, Trust, Section
According to M-CRIL estimates there are around 18 million 25, Co – operatives and for profit stands for NBFC, LAB.
microfinance clients in India. This represents 8.2% of the
According to the following data from Financial
220million families in the country and 13.6% of the 60%
performance of Indian MFIs – A Quick Review 2010,Sa -
population that is thought to be excluded. in real terms, the
Dhan
cost of serving microfinance borrowers has declined from
Rs. 620 in 1999-2000 to Rs. 298 in 2009-2010 ( at 2002 Poorest districts’ coverage:
prices) [Figure 1]. This indicates the growing efficiency of Total number of poor districts covered by MFIs – 235
microfinance institutions in the country
Coverage by For Profit MFIs – 139
but whether this is due to increase in real productivity or a
decline in lending standards is a question that needs to be Coverage by Not for Profit MFIs – 205
answered. Coverage of backward classes:
In March 2010, RBI classified 25 MFIs as ‘systematically 25.3% clients belong to SC/ST communities, proportionate
important’ for portfolios in excess of Rs. 100 crores though to their ratio in total population, but lower than their
proportion in BPL families
MFIs that have SC/ST clients higher than 25% or
even 50% of their total clients fall in the category of
‘small’ & ‘medium’ MFI
Coverage of minority communities:
16% of clients are from minority community, again
proportionate to their ratio in total population, far
below in the category of below BPL
Urban poor:
By 2030, 40-50% Indians will be living in cities, rate
of growth of urban poverty is higher than rate of
growth of rural poverty
27% of clients live in urban areas, but MFIs don’t
have a solution for migrant population
The unbridled growth witnesses in the microfinance
sector leads to untrained staff, an increase in
multiple lending, deterioration in control systems
and potential for malpractices in loan collection.

source M – CRIL microfinance review Nov – 2010 L – 10: largest 10 MFIs

livelihoods July 2011 33

 Contrasts

Powerloom Weaving

Shining Livelihoods?

Handloom Weaving

Declining Livelihoods?

34 July 2011 livelihoods

 ‘Yoga’kshemam
Happy Gurupurnima! Vande Jagadgurum! videophones replace normal phones;
Rains finally come. They are still coming! Rising oceans will make most coastal cities unlivable.
UPA reshuffles Cabinets. Jairam Ramesh takes charge of Humans will walk on Mars, and on the moons of Jupiter
Rural Development and Drinking Water. and Saturn
AP is back with T-agitation and United-agitation. Terror The human lifespan will double, at least.
strikes in Maximum City. The American two-party system will collapse; political
Counseling is in progress across. parties will have explicit corporate alliances.
Anantha Padmanabha of Thiruvananthapuram emerges as Nuclear weapons will be used in a Sino-Soviet conflict.
the richest deity in the world. We will bioengineer animals with the ability of human
There was some activity for World Population Day (11 speech. They will have their own sitcoms.
July). South Africa will emerge as a major world power.
As usual, other International Days passed – Doctors’ Day Teledildonics will be more popular than flesh-on-flesh sex.
(1 July), International Day of Cooperatives (2 July) and
International Cooperative Day (7 July) and Writers’ Day (8 Humanity will not exterminate itself.
July). Now, we await International Day of the World’s Interesting!
Indigenous People (9 August), International Youth Day (12
August) and World Humanitarian Day (19 August). Of Linda Hill, discusses ‘three imperatives’ for being an
course, we also await Independence Day. effective transformational leader, which we can potentially
become – manage yourself, manage your network, and
Still lost in the institutions of the poor, knowledge manage your team; there is a need for fundamental shift in
assimilation and dissemination with reduced knowledge the mindset that you are a network builder and cultivator
intermediaries! Working Group on National Rural than the doer; and this is a lengthy and
Livelihoods Mission is also gaining difficult journey of unlearning, learning
momentum! Incidentally, Jairam Ramesh
signed on the loan agreement with World G Muralidhar and change and it takes long time and
great effort; new competencies need to be
Bank for National Rural Livelihoods acquired such as how to coach people,
Project (NRLP) that supports NRLM effort, on 18 July how to give feedback, and how to set the direction and get
2011. One more trigger for NRLM to gain momentum! people to execute that. Let us remind ourselves that we
NSS 2009-10 confirms our worst fears. As a country, are in the business of transformation towards free open
nearly half of our expenditure is on food. About 60% rural access knowledge marketplace.
India spends less than Rs.1000 per month. 60% of this, i.e. Soul’s blissful merger in the Soul of the Universe is
Rs.600 is on food. The top 10% of the country spends 10 possible and begins with the thoughts of intent - as these
times the bottom 10%. thoughts are expressed/articulated in words and action
Interesting! It is a crime in our country to attempt to commit leaving everything else here and now. Like when you
suicide. But, we can do fast unto death legally. Police dream in a sleep. Be in the dream. Be in the thought. Lose
Commissioners think we need permission to fast in public yourself in the thought. Then thought takes over. Dream
domain. Large number of us fast intermittently and many takes over. It becomes words. It becomes actions. It
an ascetic keep on fasting. Many of our poor starve quite becomes journey. It becomes flight. It becomes flow. It
regularly. All of us do not take permission. If food security continues in merger and flow of usefulness. Direction of
act comes in soon, is there a guarantee that no one flow of usefulness is presented to you and you respond.
starves and therefore, do we need permission to fast? You are guided all through. This is joy. This is bliss.
Thought is joy. Joy is thought. Joy is in thinking.
When you are down, all energy is sapped and finished, the
reflection, realization and rekindled wisdom presents In the confluence of the souls, we are in
greatest original opportunities. As you get back, you slow ‘sahaalochanapravaaham’ seeking and relishing
down a bit and push yourself to intense pursuit towards sangamaanantarasahapravaahayogam.
these original opportunities! Therefore, original potential! Can we be there? Yes, if we pursue Atma Yoga.
Livelihoods Knowledge workers/activists, I gather during Relentless devoted thought, for being in universal
the month, have to keep shifting between getting the work usefulness! Krshna confirms - any devoted thinking soul
done and doing. Towards this dynamic shift, they need to that thinks and pursues relentless thought attracts
have a way of reading the future at least to a limited extent. viswaatma to it.
Gavin Edwards tells us with ‘utter certainty’ what the 21st Join us in the world of yoga – for the joyous thoughts of the
century holds - innermost and viswaatama - towards
We move in electric cars; we use male birth control pills; sahapravaahayogasiddhi. You will not regret it.

livelihoods July 2011 35

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