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Submitted in partial fulfillment of the requirements for the award of the degree of Masters of Business Administration by Jain Vaibhav 2009MBA-15
ABV Indian Institute of Information Technology and Management, Gwalior - 474 010, India
1. .Introduction………………………………………………………………………..3 2. Microfinance in the Asian and Pacific Region……………………………………..6 3. Demand for microfinance services………………………………………………….6 4. Supply of microfinance services………………………………………………….....8 5. Emergence of MFIs and the growth of Microfinance Sector in India……………..10 6. Limitation of Government Schemes/Rural Banks ………………………………...12 7. Capacity Building Needs for MFIs………………………………………………...14 8. Women Empowerment through Micro Finance: A Boon for Development……….15 9. Case Study:-SDF Microfinance Methodology……………………………………..24 10. Conclusion and Suggestion…………………………………………………………31 11. References…………………………………………………………………………..32
Microfinance is the provision of a broad range of financial services such as deposits, loans, payment services, money transfers, and insurance to poor and lowincome households and, their microenterprises. Microfinance services are provided by three types of sources: • Formal institutions, such as rural banks and cooperatives; • Semiformal institutions, such as nongovernment organizations; and • Informal sources such as money lenders and shopkeepers. Institutional microfinance is defined to include microfinance services provided by both formal and semiformal institutions. Microfinance institutions are defined as institutions whose major business is the provision of microfinance services. The interest in microfinance has burgeoned during the last two decades: multilateral lending agencies, bilateral donor agencies, developing and developed country governments, and nongovernment organizations (NGOs) all support the development of microfinance. A variety of private banking institutions has also joined this group in recent years. As a result, microfinance services have grown rapidly during the last decade, although from an initial low level, and have come to the forefront of development discussions concerning poverty reduction. Despite this growth, as concluded in the recently completed Rural Asia Study, “rural financial markets in Asia are ill-prepared for the twenty-first century.”1 About 95 percent of some 180 million poor households in the Asian and Pacific Region (the Region) still have little access to institutional financial services. Development practitioners, policy makers, and multilateral and bilateral lenders, however, recognize that providing efficient microfinance services for this segment of the population is important for a variety of reasons. (i) Microfinance can be a critical element of an effective poverty reduction trategy. Improved access and efficient provision of savings, credit, and insurance facilities n particular can enable the poor to smoothen their consumption, manage their risks better, build their assets gradually, develop their microenterprises, enhance their income earning capacity, and enjoy an improved quality of life Microfinance services can also contribute to the improvement of resource allocation, promotion of markets, and adoption of better technology; thus, microfinance helps to promote economic growth and development. (ii) Without permanent access to institutional microfinance, most poor households continue to rely on meager self-finance or informal sources of microfinance,3
The study estimated that net household incomes of borrowers increased by about 76 percent and employment increased by 84 percent with three years of program participation. 4 .8 Thus. shown that microfinance services have also had a positive impact on specific socioeconomic variables such as children‟s schooling. (iii) Microfinance can provide an effective way to assist and empower poor omen. Extreme poverty declined from 33 percent to 10 percent among Grameen Bank participants. However. researchers and practitioners generally agree that the poorest of the poor are yet to benefit from microfinance programs in most countries partly because most MFIs do not offer products and services that are attractive to this category. managed to lift their families out of poverty within about four years of participation These services also had a significant positive impact on the depth (severity) of poverty among the poor. who make up a significant proportion of the poor and suffer disproportionately from poverty. and from 34 percent to 14 percent among Bangladesh Rural Advancement Committee participants. and women‟s empowerment Microfinance institutions (MFIs) have also brought the poor. a microfinance NGO. household nutrition status.6 The studies have. Without exclusively targeting the poor.”5 A 1988 sample survey of unit desa borrowers showed that microcredit has had a major impact on their families' standards of living. Developing countries in the Region have used microfinance services to reduce poverty. the unit desas of the Bank Rakyat Indonesia (BRI) have also assisted “hundreds of thousands of households in lifting themselves out of absolute poverty over the past decade. it is essential to extend a wide range of services on a continuing basis to the poor who are still excluded from the benefits of microfinance. About 21 percent of the Grameen Bank borrowers and 11 percent of the borrowers of the Bangladesh Rural Advancement Committee. (iv) Microfinance can contribute to the development of the overall financial system through integration of financial markets.which limits their ability to actively participate in and benefit from the development opportunities. particularly poor women. to increase the overall impact of microfinance on poverty reduction. in general. into the formal financial system and enabled them to access credit and accumulate small savings in financial assets. reducing their household poverty.
This large demand and the heterogeneity of services needed across households and microenterprises and over time have created scope for commercial financial intermediation. perceived low relative profitability. who are a significant proportion of the poor and suffer disproportionately from poverty. Lacking access to institutional sources of finance.Microfinance in the Asian and Pacific Region Over 900 million people in about 180 million households in the Region live in poverty. In many countries. The poor also lack access to institutional credit for consumption smoothening and to other services such as payments. Demand for microfinance services The poor and low-income households and their microenterprises in the Region are a diverse group. Most of the Region‟s poor (i. women. and inability of the poor to provide the physical collateral usually required by such institutions.00 a day) or more than 670 million people.. This demand reflects the importance of savings for these households and 6 . and insurance Most of the poor households also find it difficult to accumulate financial savings without easy access to safe institutions that provide deposit services. Many are also involved in a variety of microenterprises. high costs involved in small transactions. Poor and low-income households and their microenterprises in the Region have a large demand for safe and convenient deposit services.e. However. money transfers. live in rural areas although urban poverty is also a growing problem in virtually all DMCs. those who earn less than $1. most poor and low-income households continue to rely on meager selffinance or informal sources of microfinance. The business culture of these institutions is also not geared to serve poor and low-income households. Their demand for microfinance services also reflects this diversity The collective demand of these groups for financial services is large and the types of services they demand vary across households and microenterprises and over time. Most rural poor people are engaged in agricultural or related activities as laborers or small-scale farmers. a segment of the poor population that has viable investment opportunities persists in poverty for lack of access to credit at reasonable costs. operate many of these microenterprises. Most formal financial institutions do not serve the poor because of perceived high risks. these sources limit their ability to actively participate in and benefit from the development process Thus.
education of their children and many other purposes. which cover a wide array of activities such as food preparation and processing. This experience shows that the supply of such services creates its own demand because the real demand for such services remains hidden when suitable products are not available in the market. a microfinance NGO in Bangladesh. about 50. The poor need to save for emergencies. from 5. while the Association for Social Advancement. Poor households in the Region require microcredit to finance livelihood activities. for consumption smoothening. investment. The other source of demand is nonfarm microenterprises. The demand for deposit services is particularly strong among poor women in the Region. The cooperative rural banks in Sri Lanka had 4.microenterprises for a variety of reasons. At the end of 1999. and petty trading. Extensive use of informal savings arrangements by poor households is another indicator of their demand for savings facilities. and to finance some lumpy nonfood expenses for purposes such as education (e.000 of which are considered poor.1 million in 1996. housing improvements. Many Asian countries have numerous small farms and their operators also require microfinance services. had over 1. A good share of rural households borrow. The demand for other financial services among poor and low-income households and their microenterprises could also be significant. mat and basket making. for example.4 million active savings accounts of poor households at the end of 1999.g. the number of savings accounts in unit desas of BRI increased. found that its client base was expanding rapidly. weaving. In some countries. but all seek to insure against the vagaries of life and therefore the demand for insurance services among the poor is vast. consumption. the poor pay high prices to those providing deposit services.000 clients.7 million deposit accounts at the end of 1998. For example.. The demand for microcredit that originates both from households and microenterprises is also large. They have the capacity and willingness to save.0 million in 1988 to 16. 7 . Most of these accounts belong to poor households. many more save. school fees and books). pottery. The large demand for deposit services among the poor is confirmed by empirical evidence. this company had over 800. furniture making. social obligations. Savings are important for microenterprises and provide them with a major source of investment funds.11 A private insurance company in Bangladesh that started to provide micro-insurance services to low-income households on a commercial basis. and migration.
4 million clients. The microfinance services are supplied mainly by informal sources. Badan kredit-desas. both breadth and depth. Most informal insurance mechanisms are typically weak. and other factors (Appendix 4). Because of the relatively greater bargaining power enjoyed by the informal suppliers in general. and often provide only inadequate protection to poor households. and (iv) The introduction of new microfinance programs by the governments through nonfinancial institutions. particularly about different types of suppliers.Supply of microfinance services The market structure in microfinance varies significantly across countries in the Region depending on their stage of financial development. Therefore. However. now reach 1. policy environment. and they do not move funds over large distances. 8 (i) . For example.7 million clients. They supply mainly short-term credit and charge higher interest rates than semiformal and formal sources. The Bank Dagang Bali in Indonesia has expanded its microfinance operations and increased its clientele. such as the Grameen Bank of Bangladesh.140 branches and reaches about 2. The involvement of formal sources in microfinance has increased during the last two decades. aspects of the supply. informal sources do not allow savings to be collected from more than a small group of individuals well known to one another. level of economic development. may be usefully discussed.000 villages with 1. their contribution to financial intermediation and improvement of resource allocation is also limited. (ii) The emergence of new formal institutions focused on microfinance. This greater involvement has stemmed from The expansion of the scope of formal institutions into microfinance through downscaling and establishment of linkage programs with semiformal sources of different types. owned largely by its borrower members. (iii) Reforms of state-owned financial institutions such as unit desas of BRI. is vast in most countries. and the Grameen Bank in Bangladesh. the formal operations Formal microfinance has changed to some extent with increasing . operates in over 38. The informal sources operate in highly localized areas. particularly against repeated shocks. owned by Indonesian villagers. the terms and conditions under which services are provided do not enable the clients to fully harness economic opportunities. However. Their collective outreach.
The small average loan sizes of NGOs. suggest that their clients include the poorest. These cooperatives.13 In many countries.Cooperatives are also playing a significant role as financial intermediaries in the Region. A few NGOs in the Region have plans to transform themselves into formal financial institutions. and Viet Nam. Thailand. the cooperatives have begun to explore possibilities for deeper penetration into the microfinance market and show a greater concern about their financial viability than they did in the 1980s. which usually range from about $30 to $150 per active loan account.000 households while primary agricultural cooperative societies in India have about 89 million members. their services are targeted in most countries to serve poor women. provide microfinance services. 9 . A major feature of semiformal microfinance sources in the Region is the extensive involvement of NGOs. particularly in India. among other things. The thrift and credit cooperative societies in Sri Lanka reach about 800. In virtually all DMCs (except for transitional economies such as the People's Republic of China and Viet Nam) NGOs have become important providers of microfinance services Their involvement is important because their clients in general are poorer than those reached by many formal institutions.14 NGOs in some countries are trying to organize themselves into national coalitions to improve the industry standards and selfregulation. and their credit services are provided largely on the basis of social collateral. Sri Lanka.
Mr.for poor urban household. Apart from micro-credit.6000/.5 crores urban households. Credit Demand of the Poor It is estimated that in India there exist approximately 7.5 crores poor households. semi urban or urban areas. 000 crores on the basis of a maximum need of Rs. and Rs. Vajpayee assured that it would be government‟s endeavour to ensure that “ the poor and the unorganized sector have access to savings. This statement itself is a great boost to the microfinance sector.Emergence of MFIs and the growth of Microfinance Sector in India On 12th July 2002.000 crores assuming that annual average credit usage are Rs. An additional Rs. credit and other financial services and products of very small amounts mainly to the poor in rural. One estimate assumes that the total annual requirement of credit for the rural poor families would be at least Rs.2000/per family.15. The term “Microfinance” could be defined as “provision of thrift. Lately. Microfinance is being practiced as a tool to attack poverty the world over.per rural household. Microfinance Institutions (MFIs) are those. semi-urban or urban areas for enabling them to raise their income level and improve living standards. toward it.50. they 10 . the potential of MFIs as promising institutions to meet the consumption and micro-enterprise demands of the poor has been realized.9000/. as one can see the changing perception of the people influencing the policies. out of which 6 crores are rural and 1. the efforts have to be still on. Another estimate for requirement of credit (excluding housing) is Rs. which provide thrift.1000 crore is estimated to be required for housing per year. However. Prime Minister Atal Behari Vajpayee outlined an eight point agenda to push the economy on a growth path of eight percent during the 10 th plan.. it is still a beginning and to make the sector vibrant. for enabling them to raise their income levels and improve living standards” (NABARD 99). credit and other financial services and products of very small amounts to the poor in rural. credit and insurance services”.
Out of these.9700 crore during 1997-98. bank advances to weaker section aggregated Rs. the present total outstanding . The inadequacies of the formal financial system to cater to the needs of the poor and the realization of the fact that the key to success lies in the evolution and participation of community based organizations at the grassroots level led to the emergence of new generation of MFIs. including SaDhan members and bank linkages is approximately Rs. The growth of community institutions has taken place with the role to take social and financial intermediation. MFIs and SHGs are estimated to have provided about 137 crore (cumulative up to September 1998). 1 The above scenario. According to our estimate. 36% of the rural households are found to be outside the fold of institutional credit. 550 crores from the Banking system). Examples are Myrada in Karnataka. Meanwhile. Moreover. A numbers of community banks have come into existence at village and block levels call ' Federation of Self Help Groups'. a company of its village saving and credit sanghas. suggests a vast unmet gap in the provision of financial services to the poor. The total client base is estimated at 6-8 million as opposed to the Government of India (GOI) intention to reach 25 million clients. which has promoted Sanghmitra. there are 350 new generation co-operatives providing thrift and credit services.require savings and insurance also. Growth of microfinance The growth of microfinance is visible in many aspects. There are more than 2000 NGOs involved in the NABARD SHG-Bank linkage program.700 crores (Rs. One kind of MFI is an NGO engaged in promoting Self Help Groups (SHGs) and their federations at a cluster level and linking SHGs with Banks under the Scheme. Further. PRADAN which has established a large 11 . approximately 800 NGOs are involved in some form of financial intermediation. 150 crores of Sa-Dhan members and another Rs.
Bangladesh. who are either organized into SHGs or into Grameen Bank type of groups after borrowing bulk funds from SIDBI. while the remaining 84% was met by the informal services. According to an estimate. Limitation of Government Schemes/Rural Banks In India. Another kind is NGO-MFI directly lending to the poor borrowers. various studies have exposed the limitation of these programs. However. Ltd and Sarvodaya Nanofinance Ltd. which are organize as Non-Banking Finance Companies (NBFC) such as BASIX. Then we have MFIs. RMK and FWWB. Sakhi Samiti in Rajasthan. numerous government schemes have tried to provide various subsidized services to the poor households. Also we have SHARE in AP. a large number of the very poor continue to 12 . only 16% credit usage was met by the formal sources.number of SHGs and federated them under Damodar in Bihar. There are MFIs which are specifically organized as cooperatives. Despite having a wide network or rural bank branches in the country and implementation of many credit linked poverty alleviation programmes. SHARE Microfin. promoted among others by Cooperative Development Foundation (CDF) and the SEWA Bank in Gujarat which also runs federations of SHGs in nine districts. Examples in this category are Rashtriya Gramin Vikas Nidhi (RGVN) which runs credit and savings programme in Assam and Orissa on the lines of Grameen Bank. CFTS Mirzapur. showing the lack of access of mainstream financial services for these poor households and their over-dependence on the local moneylenders in meeting their consumption and micro-enterprise demands. ASA in Tamil Nadu under this category. such as over 500 Mutually Aided Cooperative Thrift and Credit Socities (MACTS) in AP.
However. Thus. do not suit the poor. Repeat loans. have low CD ratio but are suffering immensely from lack of skills. Therefore poor feel alienated in dealing with them. its ability to promote innovations or establish any “missing link” units is very limited. while there is no dearth of institutions and branch network in urban and rural areas.. wherever mainstream finance institutions are engaged in financing small borrowers. even though the many of the loans extended to the poor by the public sector financial institutions are subsidized. wage and business loss due to time spent in getting the loans approved. It also faces the same constraint. their experience is characterized by a number of factors. Various studies also suggested that the policies. this physical outreach does not translate into access to credit by microfinance sector producers. Their institutional design and mandate. which determines their procedures. incentives and infrastructure support. systems and procedures and the saving and loan products often did not meet the needs of the very poor. a small proportion of lending is done to the microfinance sector. They have also failed to provide a mix of credit for both consumption and productive loans. However. 13 . State Financial Corporations (SFCs) largely concentrate on the upper end of SSIs and that too in urban areas. through their district branches. The poor find their procedures cumbersome. but doesn‟t undertake direct financing. except for crop production are rare.remain outside the fold of the formal banking system. complicated and unsuitable for the local environment. hey Their lengthy and stringent procedures inhibit the poor. NABARD refinances the microfinance sector loans by banks. even for the borrowers who have repaid fully. They feel scared to go to them. Regional Rural Banks (RRBs) are located in rural areas. As can be seen from above. their ultimate cost to the borrowers is high which includes payments to the middle men. Small Industries Development Bank of India (SIDBI) mainly uses the network of State Financial Corporations (SFCs) and commercial banks to extend microfinance sector loans in rural small towns. Further.
A few MFIs which have registered as Non-Banking Finance Companies (NBFCs) are able to mobilize equity from development financial institutions and leverage these with borrowing from commercial banks. MFIS need grants to build their own capacity as well as that of the borrowers or SHGs. the need for capacity building of NGOs on one hand and the capacity building of local communities on the other hand is needed to ensure effective management. and they cannot mobilize large amount of lending funds due to the inappropriate legal and financial structure. The past few years though has seen an appreciable increase and support to this problem. MFIs are able to reach the poor effectively mainly because they have designed products and channels. In this context. The present economic advisory team under the leadership of the Prime minister though (PMO) has brought increasing focus to this problem and a group has been constituted to deal with these problems. the regulatory framework is not conducive for these MFIs. 14 . A vast majority of MFIs are NGOs registered under the Societies Act or Trust Act. Hence. MFIs outreach is limited in comparison with the mainstream financial institutions because of the shortage of financial and human resources. The Association of Community Development Finance Institutions (biggest Apex body of Microfinance Institutions in India) had been asking the Government of India to make more funds available for the capacity building of the microfinance sector. in India the dominant reform agenda of the mainstream sector clouds the reform and attention that is required at the bottom end. Though locked into bureaucratic procedures. However. Sa-Dhan. Unfortunately. However. if the Microfinance Development Fund (MFDF) of 430 crores is not released in the immediate future. some of these funds have been made available. it will culminate into disaster for the microfinance sector. which are friendly and suitable to the need of the poor.Capacity Building Needs for MFIs It has been observed that.
particularly among rural women who are mostly invisible in the social structure.Women Empowerment Through Micro Finance: A Boon for Development Under the trickle down theory in the planning process it was expected that women will equally benefit along with men. In India. An effort is also made to suggest the ways to increase 15 .leading to their empowerment. Microfinance is emerging as a powerful instrument for poverty alleviation in the new economy. This paper seeks to examine the impact of Micro finance with respect to poverty alleviation and socioeconomic empowerment of rural women. This paper puts forward how micro finance has received extensive recognition as a strategy for economic empowerment of women. Microfinance scene is dominated by Self Help Group (SHGs)-Bank Linkage Programme as a cost effective mechanism for providing financial services to the “Unreached Poor” which has been successful not only in meeting financial needs of the rural poor women but also strengthen collective self help capacities of the poor . create confidence for economic self reliance of the rural poor. In India. Economic empowerment results in women‟s ability to influence or make decision. the emergence of liberalization and globalization in early 1990‟s aggravated the problem of women workers in unorganized sectors from bad to worse asmost of the women who were engaged in various self employment activities have lost their livelihood. The ninth plan document recognizes that inspite of development measures and constitutional legal guarantees. Rapid progress in SHG formation has now turned into an empowerment movement among women across the country. Micro finance is necessary to overcome exploitation.women have lagged behind in almost all sectors. their work is considered just an extension of household domain and remains non-monetised. Despite in tremendous contribution of women to the agriculture sector. This has been belied by actual developmement. increased self confidence. better status and role in household etc.
the better managers of resources. Empowering women puts the spotlight on education and employment which are an essential element to sustainable development. If loans are routed through women benefits of loans are spread wider among the household. Micro finance deals with women below the poverty line. Micro loans are available solely and entirely to this target group of women. EMPOWERMENT: FOCUS ON POOR WOMEN In India. Women have been the vulnerable section of society and constitute a sizeable segment of the poverty-struck population. Besides 16 .Empowerment is a multi-dimensional social process that helps people gain control over their own lives communities and in their society. employment etc. by acting on issues that they define as important. group and community and challenges our assumptions about status quo. The problem is more acute for women in countries like India. There are several reason for this: Among the poor . The ministry of rural development has special components for women in its programmes. the poor women are most disadvantaged –they are characterized by lack of education and access of resources. asymmetrical power relationship and social dynamics. Evidence shows that groups of women are better customers than men. Funds are earmarked as “Women‟s component” to ensure flow of adequate resources for the same. Empowerment occurs within sociological psychological economic spheres and at various levels. despite the fact that women‟s labour makes a critical contribution to the economy. bringing women into the mainstream of national development has been a major concern of government. both of which is required to help them work their way out of poverty and for upward economic and social mobility. such as individual. Women face gender specific barriers to access education health. This is due to the low social status and lack of access to key resources. Since women‟s empowerment is the key to socio economic development of the community. the trickle down effects of macroeconomic policies have failed to resolve the problem of gender inequality.
over a period of time which roughly equals to $500 – a standard for South Asia as per international perceptions. no statutory definition of micro finance. The term micro finance. the borrowal amounts upto the limit of Rs. formed either in joint liability or co-obligation mode. However as per Micro Credit Special Cell of the Reserve Bank Of India . The taskforce on supportitative policy and Regulatory Framework for Microfinance has defined microfinance as “Provision of thrift. financial support to micro entrepreneurs.They are the Indira Awas Yojona (IAJ). gender development etc.25000/. But the task force has not defined any amount.Swarnagayanti Grameen Swarazgar Yojona (SGSY).could be considered as micro credit products and this amount could be gradually increased up to Rs. National Social Assistance Programme (NSAP). however. Restructured Rural Sanitation Programme. the (erstwhile) Development of Women and Children in Rural Areas (DWCRA) and the Jowahar Rozgar Yojana (JRY). The mantra “Microfinance” is banking through groups. Ministry of Rural Development is implementing other scheme having women‟s component . There is. The other dimensions of the microfinance approach are: 17 . sometimes is used interchangeably with the term micro credit. insurance etc.40000/. Accelerated Rural Water Supply programme (ARWSP) the (erstwhile) Integrated Rural Development Programme (IRDP). The essential features of the approach are to provide financial services through the groups of individuals. the term microfinance has a broader meaning covering in its ambit other financial services like saving. The term “Micro” literally means “small”. The term micro finance is of recent origin and is commonly used in addressing issues related to poverty alleviation. However while micro credit refers to purveyance of loans in small quantities. semiurban or urban areas for enabling them to raise their income levels and improve living standards”. as well. credit and other financial services and products of very small amounts to the poor in rural.
This is the predominant model followed in India. monitoring and recovery.Credit is linked with savings/thrift . individual loans are provided on the strength of joint liability/co obligation. In other words. WOMEN’S EMPOWERMENT AND MICRO FINANCE: DIFFERENT PARADIGMS Concern with women‟s access to credit and assumptions about contributions to women‟s empowerment are not new.Employed Women‟s Association (SEWA) among others with origins and affiliations in the Indian labour and women‟s movements identified credit as a major constraint in their work with informal sector women workers. financial assistance is provided to the individual in a group by the formal institution on the strength of group‟s assurance. In India organizations like Self. Basically groups can be of two types: Self Help Groups (SHGs) : The group in this case does financial intermediation on behalf of the formal institution. 18 .Absence of subsidies -Group plays an important role in credit appraisal.Savings/Thrift precedes credit . This microfinance model was initiated by Bangladesh Grameen Bank and is being used by some of the Micro Finance Institutions (MFIs) in our country. From the early 1970s women‟s movements in a number of countries became increasingly interested in the degree to which women were able to access poverty-focused credit programmes and credit cooperatives.. Grameen Groups: In this model.
Some programmes have 19 . This led to the setting up of the Women‟s World Banking network and production of manuals for women's credit provision. There is not only a concern with reaching the poor. The main focus of programmes as a whole is on developing sustainable livelihoods. but also poverty Reduction. HIV/AIDS and other goals. 1995a). healthcare and infrastructure development. Health. From the mid-1980s there was a mushrooming of donor. group formation and the possible justification for some level of subsidy for programmes working with particular client groups or in particular contexts7. community development and social service provision like literacy. Policy debates have focused particularly on the importance of small savings and loan provision for consumption as well as production. Poverty alleviation here is defined in broader terms than market incomes to encompass increasing capacities and choices and decreasing the vulnerability of poor people. government and NGO-sponsored credit programmes in the wake of the 1985 Nairobi women‟s conference (Mayoux.The problem of women‟s access to credit was given particular emphasis at the first International Women‟s Conference in Mexico in 1975 as part of the emerging awareness of the importance of women‟s productive role both for national economies. Other women‟s organizations world-wide set up credit and savings components both as a way of increasing women‟s incomes and bringing women together to address wider gender issues. Micro-finance for women has recently been seen as a key strategy in meeting not only Millennium Goal 3 on gender equality. but also the poorest. and for women‟s rights. C POVERTY REDUCTION PARADIGM The poverty alleviation paradigm underlies many NGO integrated poverty-targeted community development programmes. The trend was further reinforced by the Micro Credit Summit Campaign starting in 1997 which had „reaching and empowering women‟ as it‟s second key goal after poverty reduction (RESULTS 1997).
Although term 'empowerment' is frequently used in general terms. The main target group.developed effective methodologies for poverty targeting and/or operating in remote areas. The ultimate aim is large programmes which are profitable and fully selfsupporting in competition with other private sector banking institutions and able to raise funds from international financial markets rather than relying on funds from development agencies. This emphasis on financial 20 . together with other interventions to increase household wellbeing. The assumption is that increasing women‟s access to micro-finance will enable women to make a greater contribution to household income and this. Such strategies have recently become a focus of interest from some donors and also the Microcredit Summit Campaign. often synonymous with a multi-dimensional definition of poverty alleviation. World Bank. the term ' women's empowerment ' is often considered best avoided as being too controversial and political. is the „bankable poor': small entrepreneurs and farmers. Here gender lobbies have argued for targeting women because of higher levels of female poverty and women‟s responsibility for household well-being. the focus is on assistance to households and there is a tendency to see gender issues as cultural and hence not subject to outside intervention. will translate into improved well-being for women and enable women to bring about wider changes in gender inequality. FINANCIAL SUSTAINABILITY PARADIGM The financial self-sustainability paradigm (also referred to as the financial systems approach or sustainability approach) underlies the models of microfinance promoted since the mid-1990s by most donor agencies and the Best Practice guidelines promoted in publications by USAID. UNDP and CGAP. However although gender inequality is recognised as an issue. despite claims to reach the poorest.
among them. In India. the SHG programme has been successful in not only in meeting peculiar needs of the rural poor. Increasingly in the last five years .sustainability is seen as necessary to create institutions which reach significant numbers of poor people in the context of declining aid budgets and opposition to welfare and redistribution in macro-economic policy. MICRO FINANCE INSTRUMENT FOR WOMEN’S EMPOWERMENT Micro Finance is emerging as a powerful instrument for poverty alleviation in the new economy. 21 . separation of micro-finance from other interventions to enable separate accounting and programme expansion to increase outreach and economies of scale. Development practitioners in India and developing countries often argue that the exaggerated focus on micro finance as a solution for the poor has led to neglect by the state and public institutions in addressing employment and livelihood needs of the poor. Micro Finance for the poor and women has received extensive recognition as a strategy for poverty reduction and for economic empowerment. but also in strengthening collective self-help capacities of the poor at the local level. Recent guidelines for CGAP funding and best practice focus on production of a „financial sustainability index‟ which charts progress of programmes in covering costs from incomes. Based on the philosophy of peer pressure and group savings as collateral substitute . micro finance scene is dominated by Self Help Groups (SHGs) – Bank Linkage Programme. women in particular. reduction of transaction costs and ways of using groups to decrease costs of delivery. Policy discussions have focused particularly on setting of interest rates to cover costs. there is questioning of whether micro credit is most effective approach to economic empowerment of poorest and. aimed at providing a cost effective mechanism for providing financial services to the “unreached poor”. leading to their empowerment.
There are certain misconception about the poor people that they need loan at subsidized rate of interest on soft terms. it combines the goals of financial sustainability with that of creating community owned institutions. credit schemes for rural women were almost negligible. Nevertheless. the experience of several SHGs reveal that rural poor are actually efficient managers of credit and finance. The rural poor with the assistance from NGOs have demonstrated their potential for self help to secure economic and financial 22 .Credit for empowerment is about organizing people. Since the credit requirements of the rural poor cannot be adopted on project lending app roach as it is in the case of organized sector. However. skill. Further. there is a perceptible gap in financing genuine credit needs of the poor especially women in the rural sector. Since most of them are target based involving lengthy procedures for loan disbursement. there emerged the need for an informal credit supply through SHGs. particularly around credit and building capacities to manage money. high transaction costs. Perception women is that learning to manage money and rotate funds builds women‟s capacities and confidence to intervene in local governance beyond the limited goals of ensuring access to credit. The concept of women‟s credit was born on the insistence by women oriented studies that highlighted the discrimination and struggle of women in having the access of credit. The Government measures have attempted to help the poor by implementing different poverty alleviation programmes but with little success. Availability of timely and adequate credit is essential for them to undertake any economic activity rather than credit subsidy. The focus is on getting the poor to mobilize their own funds. Before 1990‟s. capacity to save. building their capacities and empowering them to leverage external credit. they lack education. credit worthiness and therefore are not bankable. and lack of supervision and monitoring.
lack of time because of unpaid domestic work and low levels of mobility. It is clear that women‟s choices about activity and their ability to increase incomes are seriously constrained by gender inequalities in access to other resources for investment. CHALLENGING ECONOMIC EMPOWERMENT However impact on incomes is widely variable. Various case studies show that there is a positive correlation between credit availability and women‟s empowerment. These gender constraints are in addition to market constraints on expansion of the informal sector and resource and skill constraints on the ability of poor men as well as women to move up from survival activities to expanding businesses. In many programmes and contexts it is only in a minority of cases that women can develop lucrative activities of their own through credit and savings alone. All the evidence suggests that most women invest in existing activities which are low profit and insecure and/or in their husband‟s activities. 23 . Studies which consider income levels find that for the majority of borrowers income increases are small. and in some cases negative. responsibility for household subsistence expenditure.strength. particularly in some urban markets like Harare and Lusaka. constraints on sexuality and sexual violence which limit access to markets in many cultures. There are signs. that the rapid expansion of micro-finance programmes may be contributing to market saturation in „female‟ activities and hence declining profits.
A Credit Officer (CO) from the Branch Office come to JLG meetings for conducting meeting and collection of loan installments.1 Clients A client is someone who agrees to join Sita Devi Foundation(SDF) and abides by its rules and regulations. Clients are entitled to use the services of Sita Devi Foundation(SDF) as per its terms and conditions. Sita Devi Foundation(SDF) presently operate through 1branch. The clients was organized in groups of five to form Joint Liability Groups (JLGs). 2. The JLGs meet regularly on weekly basis at a scheduled time and place for collection of installments.CASE STUDY:SDF Microfinance Methodology 1 Delivery Model Sita Devi Foundation(SDF) is following a Joint Liability Group (JLG) lending methodology for its microfinance programme. He/she will also become a member a JLG affiliated to Sita Devi Foundation(SDF).) 2.2 Joint Liability Group (JLG) 24 . These JLGs was further organized in centers (1-centre comprised of 2-JLGs) for effective administration of the groups. The description of the different units in the operational structure of Sita Devi Foundation(SDF) is given below: (Chart 1 on the shows the operational structure of Sita Devi Foundation‟ microfinance operations. 2 Operational Structure The operational structure defines the different units in the delivery models of Sita Devi Foundation(SDF).
traders .juice wala and related job profiles 2. A branch consists of the following staff: Table 1: Branch Staffing 25 . JLG will mainly be formed of small and marginal shopkeepers . thelawala.barbers.4 Branches Branches will be the smallest administrative unit of Sita Devi Foundation(SDF). JLG members come together for the purpose of utilizing the financial services and it can dissolve after Head Office Area Office Area Office Branch 1 Branch 2 Branch 3 Branch 1 Branch 2 Branch 3 JLG 1 C1 JLG 2 C2 JLG 3 C3 JLG 4 JLG 1 C1 JLG 2 C2 JLG 3 C3 JLG 4 the first loan cycle.rickshaw-pullers.Up to five individuals will come together and form a Joint Liability Group whereby they give guarantee of each other for loan repayment.
It is not necessary to have a separate structure for the Area Office. The Area Office could be based in one of the branches. 2. The responsibility of the Area/Regional Office will be to monitor the branches and consolidate the reports produced by the Branch Offices to send these reports further to the Head Office.6 Head Office 26 . 2.000 clients.5 Area Offices/Regional Offices Each Area/Regional Office in future will look after a maximum of eight branches. A branch will have an operational area of a maximum of 5-8 kilometers. Only one Regional Manager and possibly an accountant will man each Area Office.Designation No Responsibilities All administrative responsibilities Loan approvals Target setting and their achievements Monitoring of Credit Officers Reporting to the Head Office/Area Office Preparation of books of accounts Preparation of MIS reports Budgets and variance analysis Reconciliation of collected amount Branch Manager 1 Branch Accountant 1 (one of the Credit Officer) Credit Officers 6-8 Formation of JLGGs and their training Sourcing of loan applications and preliminary appraisal Disbursement of loans Collection of installments A branch will cater to around 3.
Product development 5. Performance management of the Branch as well as new branch opening Considering the wide variety of functions performed by the Head Office. Table 4: Departments and Functions Department Functions Preparation and finalization of books of accounts Preparation of funding proposals Negotiation with lenders and investors Business Planning Budgets and variance analysis 27 Finance .The Head Office of Sita Devi Foundation(SDF) is based in Delhi. Financial management 3. Systems development 6. all these departments will be separated with a separate head of department for each. More specifically the Head Office perform the following functions: 1. Human resource management including trainings 9. The Head Office coordinate the functions of all the branches. Coordinating with the Board of Directors 4. The structure of different departments will evolve as the scale of operations increases. Various departments and their functions have been shown in the following table. the functions of many of these departments will be combined but with increase in the scale of operations. Initially. Internal audit 7. we are planning it to divide into different departments. These departments will function in coordination with each other through formal and informal interactions. Funds mobilization 2. Setting budgets and performing variance analysis 8.
Once an area has been chosen a credit officer and Branch Manager go to the field and conduct a general meeting. its products and methods to the people. In the general meeting they explain Sita Devi Foundation(SDF). For the second meeting in the field the credit officer go alone.Treasury management Statutory compliance and reporting Collection of reports from the branches Consolidation Storage and dissemination of information MIS Preparation of IT strategy Purchase and maintenance of hardware Software development and maintenance Formulation of operational strategy Branch opening Operations Target setting for branches and other staff Monitoring of branches and staff as well as operational reporting Preparation of HR strategy Human Resources & Recruitments and training Payroll accounting Administration Performance appraisal Purchases Maintenance of fleet Administration Liaison Estate management Audit financial transactions Internal Audit Audit of non-financial transactions Review of internal controls Procedures of group formation. The Branch Manager ask the people to form into groups for the next scheduled meeting. disbursement and collection of loans Group formation Sita Devi Foundation(SDF) follows the JLG methodology. Groups made up of 5 individuals. Training is then conducted and group 28 . The credit officer explain the training and finalize groups.
If a member is missing any of the documents the process is cancelled.) The loan form and group resolution are then filled out. a test is administered. If a member is missing then the test is cancelled and rescheduled. A promissory note is signed by all members for the loan amounts attesting to their liability. The Branch Manager ensure that each member of the group has participated in the questioning. the group receives further training and retake the test. The test ensures members have an adequate grasp of the loan program. All documents are then sent for processing. This enforces the joint liability concept and method.members are asked if they accept the group joint liability. Since the credit officer is the person responsible for the training. he/she is not allowed to administer the verbal test. He/she must also question the group members on the purpose of their loan and if these responses match the group verification form. A family member is then asked to sign the application form. Loan Application Process The Credit Officer collects photographs and proof of addresses from each member to begin the loan application process. Loan Disbursement Process Finally the loans are ready for disbursement. Once again as before if all members are not present the meeting will be cancelled. if there isn‟t a 100% pass rate. If liability is not accepted the group was disbanded and the process begin again. Each Client receives one passbook mentioning all the details of laon disbursed and their loan repayment 29 . Group Recognition Test Once the training is completed. A 100% pass percentage is required for a group to join the microfinance. The Branch Manager questions the group on loan specifics as well as the concept of joint liability. The Branch Manager personally disbursed the laon at Branch Office to all members of JLG. All group members must be present for the test to be administered. Then loan cards(pass book) cards are disbursed along with funds. (Other arrangements can be made in extenuating circumstances for example as in the case of a widow living alone.
It also allows the credit officer to discuss any bad debt and the general progress of the group‟s portfolio.very little attention has been given to empowerment questions or ways in which both empowerment and sustainability aims may be accommodated. members will decide on loan disbursements and provide payments to the credit officer. and hence also for financial sustainability. Failure to take into account impact on income also has potentially adverse implications for both repayment and outreach. Loan Collection Process Lastly is the collection process. Viability of micro finance needs to be understood from a dimension that is far broader. An effort is made here to present some of these aspects to complete the picture. The loan card/pass book will be notated and signed upon each payment. 30 . The meetings allows for members to discuss any issues or problems they may be facing. During regular group meetings. The loan card/passbook is for the clients records. Any cash that is short or late must be collected from the other members CONCLUSIONS AND SUGGESTIONS Numerous traditional and informal system of credit that were already in existence before micro finance came into vogue.schedule.in looking at its long-term aspects too . The credit officer will take attendance and collect cash.
(2003). Yunus.). Manila: ADB 2. Beyond micro-credit: Putting development back into microfinance 3. (2001). E. Asian Development Bank (ADB). Mainstreaming microfinance. S. M. Dhaka: Grameen Bank. The microfinance revolution: Sustainable finance for the poor 6. Sriram (Eds. In T. Rural Asia Study: Beyond the Green Revolution. Manila: Asian Development Bank 7. Klaus. Fisher & M. Robinson. Journal of Microfinance 112 Volume 31 . Rhyne. Bank Rakyat Indonesia (BRI). (2001). 2000. Connecticut: Kumarian Press 5. M. (2001). Report of working group on savings mobilization. E. Some suggestions on legal framework for creating microcredit banks.S. Sinha. The role of central banks in microfinance in Asia and the Pacific. 4. M. (1999).References 1.
An effort is made here to present some of these aspects to complete the picture. The Branch Manager personally disbursed the laon at Branch Office to all members of JLG. Then loan cards(pass book) cards are disbursed along with funds.very little attention has been given to empowerment questions or ways in which both empowerment and sustainability aims may be accommodated. The meetings allows for members to discuss any issues or problems they may be facing. The loan card/pass book will be notated and signed upon each payment. members will decide on loan disbursements and provide payments to the credit officer. Viability of micro finance needs to be understood from a dimension that is far broader.in looking at its long-term aspects too . Loan Collection Process Lastly is the collection process. Any cash that is short or late must be collected from the other members CONCLUSIONS AND SUGGESTIONS Numerous traditional and informal system of credit that were already in existence before micro finance came into vogue. Once again as before if all members are not present the meeting will be cancelled. A promissory note is signed by all members for the loan amounts attesting to their liability. It also allows the credit officer to discuss any bad debt and the general progress of the group’s portfolio. Failure to take into account impact on income also has potentially adverse implications for both repayment and outreach. The credit officer will take attendance and collect cash. During regular group meetings.Loan Disbursement Process Finally the loans are ready for disbursement. The loan card/passbook is for the clients records. 33 . and hence also for financial sustainability. Each Client receives one passbook mentioning all the details of laon disbursed and their loan repayment schedule.
E. Manila: ADB 2. M. Yunus. In T. Rhyne.). M. Fisher & M. (2001). Klaus. Mainstreaming microfinance. (1999). Some suggestions on legal framework for creating microcredit banks. Dhaka: Grameen Bank. Rural Asia Study: Beyond the Green Revolution. Asian Development Bank (ADB). Beyond micro-credit: Putting development back into micro-finance 3. Report of working group on savings mobilization. E. 4. S. Bank Rakyat Indonesia (BRI). Journal of Microfinance 112 Volume 34 . Manila: Asian Development Bank 7. (2003). The role of central banks in microfinance in Asia and the Pacific.S. M. The microfinance revolution: Sustainable finance for the poor 6. (2001). 2000. Sinha. Sriram (Eds. (2001). Connecticut: Kumarian Press 5. Robinson.References 1.