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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
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Deepening Microfinance Tata-Dhan Academy 04.03.2010
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 microfinance development finance
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
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 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)
