Deepening Microfinance

Tata-Dhan Academy 04.03.2010

Context

Micro finance for poverty reduction

Context
Millennium Development Goals - an appropriate framework for micro finance industry to address poverty and development issues Scope for Beyond MDGs Characterizing poverty and development issues Contextualizing microfinance
Micro credit finance microfinance development

Poverty reduction - Household Outreaching poorest of the poor Ensuring food security Providing security of shelter Promoting educational security Providing health security Promoting and sustaining income security Sustaining social security Ensuring gender equality and equity Protecting from risks and vulnerabilities

Poverty reduction large scale phenomena

Disaster situations Mass migration Climate change Sectoral development agriculture, business development, service sector, processing, manufacturing, marketing, etc Remoteness and isolations Conservation common property resources and energy Narrow skill base Infrastructure electricity, communication, transport, water, drainage, services (health, education etc) Diseases out breaks Social and cultural issues related to children, adolescent girls, women, men, physically and mentally challenged Political environment Any localized issues

Available experience

Current status
microfinance has only reached about 10% of its potential market so far microfinance is now a tested business model offers variety of financial products such as savings account, productive loans including working capital loans, micro insurance, and even housing finance. Still evolution continues through experimentation Established social capitals: SHG - federation, cooperatives, trade-unions, NHG PRIs, SHG PLFs etc Conceptualized into different phases

Microfinance components

Social capital Financial services

Micro savings, micro credit, micro insurance, remittance transfers and payment services

Livelihoods promotion and development Beyond microfinance (Civic intermediation)

Deepening microfinance - Social capital

Structure Self Help Groups and Cooperatives with mutual concept Apex bodies: federations and associations of cooperatives Distinct governance and executive systems Systems Simple to complex operational systems such as accounts, audit, meetings, byelaws, policies and procedures, and management information, monitoring and evaluation, impact assessment etc External linkages banks, PRIs, networks, government and private service providers, and other local informal and formal associations Institutional building processes: defined goals and objectives, HR processes, growth and development related mechanisms, sustainability areas such as financial, institutional and development

Deepening microfinance - Financial

Savings Diversified savings products: voluntary, purpose oriented, compulsory, need based, cash and kind Incentives: with or without interest on savings, withdrawal/non withdrawal savings, flexibility Security: deposit in the bank, rotate among the members as loans, temporary tapping in S/B account, keep it in the apex bodies, as investments etc Credit lending policies Loan products-consumption, productive, housing and basic amenities etc using savings only or with external funds for lending Appraisals, loan graduation, credit absorption, term or multiple loans, ROC Repayment flexible or fixed amounts, period, monitoring/lack of monitoring PAR at group/cooperatives, follow-up by banks or federations or promoters, loan cards etc

Deepening microfinance - Financial

Collaboration with government: SGSY Handling subsidized credit, revolving funds, grants etc Financial inclusion and financial literacy Linkages different models, BC and BF Cost coverage (financial sustainability) Multiple sources of funding and cross subsidization Promotional cost Corpus creation Creation of development funds

Deepening microfinance - Financial

Micro Insurance
Different models: Partner agent model, community based model Products: life, livestock, health, and weather index Micro pension: concept phase Reinsurance Policy to facilitate promotion of pro-poor products by formal insurance companies Capacity building: concepts, principles, product design and administration, insurance literacy and piloting

Deepening microfinance Livelihoods intermediation

Strengthening existing activities, revival of traditional activities, promotion of new activities, Individual activities, PPGs, group activities Registered companies: marketing, processing, input purchase and supply Livelihoods framework: Basix, DHAN, PRADAN Localized efforts Community owned but professionally managed, facilitate tie ups with external agencies, promoters acts as agents Sub-sectoral focus: agriculture, dairy, forestry, fishery, poultry, artisans, handicrafts, home based activities, cottage industries etc Experimenting value chain Migration as livelihood option

Deepening: Civic intermediation

Health: holistic or particular health issues malaria, HIV/AIDS, malnutrition etc De-addiction Education: remedial, model schools, evening schools Slum development: drainage, sanitation, road and other infrastructure Rural and Tribal development: common property resources rehabilitation and management, basic amenities Conservation and management: coastal resources Gender and development Mainstreaming disaster management Human rights Old age, disabled, ultra poor who are excluded

Areas for deepening

Areas for deepening

Social capital (SHGs and Cooperatives) Special attention for hard- core poor through diversification and flexible products and establishing link between social safety net and subsidized program (Reaching the ultra poor experiment similar to BRAC IGVGD (Income Generation for Vulnerable Groups Development) with government or direct TUP (Targeting Ultra Poor) Families which have come out of poverty: Role in social capital Legitimizing SHGs and cooperatives at panchayat level (Kudubashree, Kerala model) Promotional and investment cost in building SHGs and Cooperatives as localized development institutions for generations Local networking banks, govt and development organizations

Setting standard by practice and develop benchmark as a model Mechanisms to ensure homogeneity and reach of equitable benefits Positioning social capital as a development organization: clear institutional framework, purpose clarity with governance and executive system Defined mission and vision for the organizations Institutionalizing democratic process in SHGs and cooperatives Satellite groups/cooperatives in remote areas

Financial intermediation
Tapping the savings potential into the system through safety and security mechanisms and guidelines Sophisticated systems to track the financial performance at member and SHG/cooperatives level investment on capacity building and providing necessary equipments and facilities Individual subsidy to institutional subsidy Financial inclusion and financial literacy through community organizations to make the reach of banking services to all eligible people Lending only through SHGs or Cooperatives by banks to avoid multiple loans

Financial intermediation
Remittance transfers and payments to experiment in places where the migration is traceable (within the state or across the states) On-going capacity building for banks, NGOs and government through community organizations (as resource centres) in remote areas to initiate and intensify the linkages Guidelines to sensitize insurance companies on providing pro-poor products Strengthen the demand driven credit service Corpus creation for sustainability

Livelihood intermediation
SHGs/Cooperatives with NREGAs to ensure employment to the needy Financial allocation (grant) for potential assessment for livelihood promotion in an area/location (SGSY) Wage based permanent job and assets creation Financial assistance for skill building and promoting entrepreneurship through SHGs and Cooperatives Providing infrastructure to SHGs/Cooperatives for promoting local markets (shandy) Promote community managed storage facilities for better marketing of the produces and goods (government can allocate, wherever it is possible and feasible) Attention on building local economy vibrant

Civic intermediation
Positioning the SHGs to avail primary health care services from PHCs and government hospitals (health card Pondicherry), secondary and tertiary services through referrals Grant support to SHG-federations/cooperatives for health literacy among their members Experiment running a few model primary schools by SHG-federations/cooperatives Promote and strengthen the linkage with PRIs for inclusion of poor in the development planning, implementation and monitoring process. Support for providing special care and services for the old age and disabled through SHGs/cooperatives (there are a few people initiatives)

Connecting Microfinance and MDGs for further deepening

Thank you