Policy Memo on PWMACS

Naman Singh

Mallayjosula Omkar

Arun Kumar Muthiah

Akshat Mehrotra

By:-

Mutually Aided Cooperative Societies

Mutually Aided Cooperative Society act was passed in the year 1995 by Andhra Pradesh Government. This act came into the picture because of the failure of cooperatives due to the intervention of government. This act has emphasized on the fact that power should rest with the members of the cooperative rather than the government appointed registrar. This brings more responsibility on the shoulders of the members. This act protects cooperatives from the intervention of government by giving the share capital into the hand of cooperatives. There are three features of MACS which make them stand apart from other cooperatives 1) The autonomy of cooperatives in how they govern themselves 2) The responsibilities and risks the members take when they join cooperatives 3) The restrictions on the powers of the registrar and the government This paper is a study on Payakaraopeta Womens Mutually Aided Co-operative Thrift and Credit Society (PWMACS). PWMACS was formed in the year of 1997 under APMACS act 1995. It took over the savings and thrifts activities of PSSAS which was active from 1994.

Activities of the organization

Now a days many microfinance organization activities are involved in community development activities along with their financial activities. PWMACS provide social services like accident insurance, health and immunization camps, helping the water user associations along with
another organization, providing drinking water bore wells. Constructing school sanitation facilities to schools in the villages and providing environmental friendly fuel efficient crematoriums. All these activities incur extra cost for which PWMACS donot charge anything from their clients. By looking at these activities it is hard to define a boundary

between the NGOs and socially active MFIs. Observers have penned a term Microfinance plus

which means providing social services along with financial products. These activities have improved the lives of the people living in community and helped MFIs in increasing their outreach. From birds eye view it seems that this organisation is trying to increase its impact and client outreach, but there can be more motivating factors which are pushing it for providing these facilities. Perhaps it can be said that they are trying to create entry barrier for new MFIs. Usually when new MFIs enter a region dominated by incumbent MFI, they get involved in interest rate war. New MFIs are threat to incumbent MFI in a way because fierce competition leads to lower interest. New MFIs can take advantage of the screened and trained borrowers of incumbent MFI. Another reason behind these activities can be the external loans and subsidy from the commercial banks and government organisations. Subsidies can help PWMACS in scaling up their activities and increasing the radius of their coverage around the existing area. PWMACS social services are innovative in as sense because it helps people in developing the habit of saving by investing in the accident insurance. If we look other activities of PWMACS, they are concerned focused on the health of their clients. It is notion that health is one of the major concerns for any low income family because bad health drains out the whole income in medication and hospital fees. PWMACS helps families in protecting them from this kind of income shock.

Clients & financial access

It provides financial and business consultancy services to women thereby making them empowered helps them in reducing mortality rate. Generally clients approach them because of their services, but PWMACS also does area targeting which is mentioned at the end of this section. This organisation addresses the concern of third component of Triple Whammy i.e. low access to financial services. PWMACS provides thrifts, credits and savings. According to the statistics mentioned on their website since 2009 they have provided thrift to around .11 million women and according to their estimate around .6 million women are financially excluded in the region of their operation.

AVG LOAN SIZE

2006 9619

2007 12913

2008 10941

2009 14500

Average loan size is a parameter which shows the depth of the outreach, lower loan size indicates more coverage higher probability of core poor being served. They employee a process of area targeting according to which they target those areas where women empowerment is very less , and area is also under developed. They run financial literacy programs which decreases the dropout rate of the clients. In rural areas, the publicity of any organisation is more effective through mouth to mouth medium, which motivates potential client to approach these kinds of organisations. By organising weekly meetings and peer monitored lending has helped them in reducing the cost of financial asymmetries.

Products and Services Offered

As mentioned earlier that PWMACS provide services having focus on the health and education of the underprivileged women and children. Apart from these activities they provide following services:1) Training and Consulting Trains women in different kind of income generation activities and provides consulting services to the clients which helps them in making portfolios comprising of savings, credits and insurance products. 2) Business development Many women are indulged in income generating activities like in East Godavari eri culture is one of the mode of income generation. PWMACS help them in arranging retail and wholesale dealers who can offer them optimal price for their products. Financial Products: 1) Loans

These products are one of the medium which helps women in income generation and provides immediate liquidity in case of emergency. 2) Voluntary Savings In this kind of savings member has the liberty of approaching the centers at any time of the day and can exercise the deposit and withdrawal facility. This product makes members interaction less predictable because deposits and withdrawals are in varying amounts. 3) Insurance PWMACS in association with Oriental bank provides accident insurance which can help women labourers in mitigating the risk of the accident which leads to erosion in income.

Environment
PWMACS is a cooperative societies who act as voluntarily self reliant competitive business enterprise, they are owned , managed and controlled by by their own Cooperative society members. Funds are mobilised by people. Currently PWMACS has agricultural labourers as customers, who pursue petty trade, selling green fodder, preparation of brooms, vegetable vending, dry fish marketing, fruit vending, flower nursery as subsidiary occupation. When the cooperative societies were under the control of the state with no autonomy there were interference from the government officials which prevented the effective serving of the funds to the intended population. Macs act which was implemented in 1995 has helped the cooperative socirties by preventing government influence, this enabled the members to choose a economic activity which they want to do.

Opportunities and Challenges

Macs are not established in lending to small scale industry and they can try to potentially vertically expand to this arena,There is a large need for funds by small scale industries cooperative societies could try to to cash in on it. Problem with PWMACS established by

mac sact is that the cooperative societies established under macs act are self regulatory by nature so in case of dissolving of the cooperative society there is no strict legal frameworks on who would pay the liability amounts.If PWMACS expands to areas of small scale industry they would be dealing with large amounts which needs stricter legal frame work . On horizontal growth PWMACS model is right now in operation in 2districts of Andhra Pradesh , they could expand this model in to other districts as well especially in telengana region of Andhra Pradesh where poverty is high and there is high need of funds from poor people.

Financing of Organisation
PWMACS can mobilise funds in the form of share capital, debentures, deposits, loans and other contribution from the members according to the rules set by the self governing body of the PWMACS at the time of formation. The cooperative society can also mobilise funds from non-members provided the rules set by the governing body allows it.They can accepts funds and grants from the government only by sighning MOU(memorandum of Understanding) with the government. PWMACS can invest outside their own business in a non speculative manner , this should be agreed through voting by the members.In any year a cooperative society shall allocate towards a deficit cover fund, reserve funds, deferred payment to members as patronage in proportion to their use of the cooperative society's services, and payment on share capital of interest not exceeding the rate of interest paid by scheduled banks Economic results gained from the PWMACS are distributed to all members in a propotional manner so that no members gain in expense of others.In case of dissolving of the ,PWMACS funds which are liable to others are paid first and the remaining funds are paid to the

members. a member can only borrow three times the amount they have deposited in the society.

Organisation & Legal Structure

The organisation currently has a current legal status of Cooperative Society. It is registered in the APMACS Act 1995 and established under Cooperative Societies Act of 1964. Its auditors are Rao and Manoj Associates. PWMACS has also placed various control systems in place in different processes. The Resident Officer also acts as internal auditor of the society who will report to the Chief Executive Officer / Board directly.

The basic unit of the PWMACS is a thrift group at the village level consisting up to 20 members subdivided in to 5 member groups. Each thrift group elects a delegate for the representative general body. The representative general body will elect Board of Directors. The Board is overall controller of the activities of the society and policy formation, which will meet every month. The president elected by the board will be the head the society and the Chief Executive Officer appointed by the board will be responsible to implement the policies.

The CEO is assisted by 2 Credit Officers, one Resident Officer, one systems Administratator, 3 Field Officers. The other staff includes One Accounts Assistant, Nine Thrift Organizers, One Computer Operator, one Office Boy and a Driver.

At the Village level the operations (collection of thrift deposits and loan repayments) will take place at weekly intervals on fixed day and time. The loan appraisal will be done by the members at the village itself in the presence of Credit Officer of the society. There is

internal control, external or internal audit and supervision system in place. All the staff

(management, accounting, auditing, etc,) are supervised by written chart of duties which they have to perform apart from the regular duties.

Reporting process occurs in the following manner: Thrift Organiser(basic Field worker) Field Officer and Unit Managers Chief executive officer Board of Directors

Apart from this reporting process on various activities of the organisation there are regular meetings like weekly or monthly to supervise or monitor these activities. Following is the Management Structure that is established in PWMACS:

President Head of the Society

President & CEO elected by the BOD

CEO responsible for implementation of the policies of the society

It meets every month to discuss the policy issues and also examine the activities

Board of The Board is overall Directors(BOD) controller of the activities of elected by the the society and policy RGB Representative General Body(RGB) formed by selecting a memebr from each thrift group

Thrift Group of 20 people subdivided into 5 member groups

Decision making process at PWMACS is totally formalized through the approval of the Board on different rules of business and administration which encompasses the regular and daily processes like thrift collection, loan issuance and other transactions. Under the Cooperative Societies Act of 1964 it is determined that the government is prohibited from owning any share capital in the cooperatives, to protect the cooperatives from direct influence of government through their financial stake. The members of PWMACS only can contribute share capital to the cooperative. They are not allowed to take any form of money for contribution towards share capital even though they can take money from the government as loans and guarantees ensuring that the members are the owners of the cooperative and also avoiding moral hazard as it is their capital that is at risk.

Under the Section ( of the act PWMACS has developed a set of 39 by-laws that would take control over the various governance issues apart from the main laws that were followed under the act. These by-laws are different and unique in comparison to other cooperative. The scope of powers of the general body and its board of directors is defined under this act. All the policy decision regarding the business, staff, member obligations and other human resource is taken only by the Board of Directors. The board of directors according to the act is responsible for the hiring, monitoring, and firing of all staff. The members take the responsibility for setting rules and procedures for settling disputes that might come up while forming the groups, loan issuance, repayments, etc,. Only after the remedies and procedures that were setup by the members did not work to settle the dispute an external tribunal is called for. PWMACS being registered under the Cooperative Societies Act of 1964 is not protected from the competition of other cooperative societies (both new or old), which means that the Registrar of the act does not give PWMACS monopoly in their area of jurisdiction and also

does not have the powers to control or condemn any other cooperative coming and providing similar services like that of PWMACS in the same area where it is serving.

Legal Rules
The Registrar of the Cooperative societies Act is the information depository for PWMACS. It files certain reports with the registrar 30 days after the annual general meeting every year to ensure that there is always an authenticity in dealings of disputes regarding the records maintenance in PWMACS. Under the MACS Act savings and credit operations of PWMACS are regulated. Sections 14.1 and 14.2 allow this cooperative society to mobilize funds in the shape of deposits, debentures, loans and other contributions from both members and nonmembers, but they are not subjected to any prudential regulations as the supervisory control of Registrar is limited. The members and their boards of directors take up the responsibility for the effective functioning of the financial cooperative.

Activities along with financial provision

Apart from Finance, PWMACS has been offering several other offerings to their clients such as: Social Security Programs like Group Accident Insurances Policy by linking with the Oriental Insurance Company. Organizing the health and immunization camps for the community. Helping the water user associations along with another Organization viz.,Creative Organization & Rural development. Providing drinking water bore wells. Constructing school sanitation facilities to schools in the villages. Providing environmental friendly fuel efficient crematoriums

These services can be said as part of Microfinance-Plus. The concept of MF-Plus is to provide the customer better satisfaction and finally better retention. The idea is to better services make them financially stable and wide range of opportunities for success (CGAP- Microfinance Blog, How Many Plus-es Can We Add to Microfinance ++?). The services of the PWMACS can be compared to the ones of Madura Microfinance- Micromarkets and Microeducation which provide them a better chance.

How to assess the performance

The MACS organization should take technical advice and assistance from CDF. The performance of such an organization can be assessed through Audit by the CDF, governance of cooperatives and their economic viability. Also CDF helps in mutually aid principles of cooperatives. This can be done to ensure that information is accurate and leaders do not exploit other members. There should be no caste based biasness in electing leaders and loan distribution. The loans should be channelized such that elite class or richer ones do not overuse the account of group. MACS should try to be selfreliant rather than depending on CDF in case of defaults. Also emphasis on quality and regularity of book- keeping is important. The innovations of the MACS need to enhance operational capacity and more support from NGOs. The individuals who are not the part of the organization should not be allowed put their money at stake.

Competitors and Competitive products

Some of their competitors in terms of clients or products are: The Swayamkrushi Womens Development Mutually Aided Cooperative Thrift Society Limited The organization is functioning in Yellamanchili, Andhra Pradesh and working towards promotion of sustainable livelihood or poor by providing financial services and technical assistance like computer training and consulting, loans, insurance and voluntary savings. Three types of loan products and three types of savings products. The loan products are:

short term (consumption), medium term (income generation) and long term (income generation and housing). The organization is competitor in terms of clients and also products offering which are similar to that of PWMACS. Mahila Sanatkar Mutually Aided Co-operative Society The organization is operating in Hyderabad and helping mostly Muslim women who are involved in manufacturing of traditional crafts like Zardozi, Embroidery, Bangle Making, Crochet. The organization provides financial assistance, technical literacy and marketing opportunities to attain best price for their produce.The society is competitor in terms of clients but not in products.

Should activities be scaled up and used as policy model

These activities should be scaled up as they are providing a fair chance of financial access to several sections of poor households who can be benefited by scaling up of their businesses and generate more income. These societies not only provide financial services but also technical assistance to enhance productivity and literacy in terms of business and better price of production due to knowledge of market linkage and proper channel distribution. The Microfinance Plus has also been added as an offering by most of the organizations for better satisfaction of people and better social and economic upliftment. But a major threat to these societies is of political interference as it results in lowering the quality of portfolio and major losses to the societies due to abrupt change in behaviour of clients.

References
http://www.mixmarket.org/mfi/pwmacs http://www.mitpressjournals.org/doi/abs/10.1162/itgg.2007.2.1-2.181 http://pwmacs.org/ http://www.scribd.com/doc/46258298/crisil
www.ekjaa.org www.ratinginitiative.org www.mismarket.org Guy Stuart, Regulatory Innovation in Microfinance CGAP microfinance blog