Deepening MicrofinanceDeepening Microfinance

Tata-Dhan AcademyTata-Dhan Academy

04.03.201004.03.2010

ContextContext

Micro finance for poverty reductionMicro finance for poverty reduction

ContextContextMillennium Development Goals - an appropriate framework Millennium Development Goals - an appropriate framework for micro finance industry to address poverty and for micro finance industry to address poverty and development issuesdevelopment issues

Scope for Beyond MDGsScope for Beyond MDGs

Characterizing poverty and development issuesCharacterizing poverty and development issues

Contextualizing microfinanceContextualizing microfinance– Micro credit microfinance development Micro credit microfinance development

financefinance

Poverty reduction - HouseholdPoverty reduction - Household

Outreaching poorest of the poorOutreaching poorest of the poorEnsuring food securityEnsuring food securityProviding security of shelterProviding security of shelterPromoting educational securityPromoting educational securityProviding health securityProviding health securityPromoting and sustaining income Promoting and sustaining income securitysecuritySustaining social securitySustaining social securityEnsuring gender equality and equityEnsuring gender equality and equityProtecting from risks and vulnerabilitiesProtecting from risks and vulnerabilities

Poverty reduction – large scale phenomenaPoverty reduction – large scale phenomena

Disaster situationsDisaster situationsMass migrationMass migrationClimate changeClimate changeSectoral development – agriculture, business development, Sectoral development – agriculture, business development, service sector, processing, manufacturing, marketing, etcservice sector, processing, manufacturing, marketing, etcRemoteness and isolationsRemoteness and isolationsConservation – common property resources and energyConservation – common property resources and energyNarrow skill baseNarrow skill baseInfrastructure – electricity, communication, transport, Infrastructure – electricity, communication, transport, water, drainage, services (health, education etc)water, drainage, services (health, education etc)Diseases out breaksDiseases out breaksSocial and cultural issues related to children, adolescent Social and cultural issues related to children, adolescent girls, women, men, physically and mentally challengedgirls, women, men, physically and mentally challengedPolitical environmentPolitical environmentAny localized issuesAny localized issues

Available experienceAvailable experience

Current statusCurrent status

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

Microfinance componentsMicrofinance components

Social capital Social capital

Financial servicesFinancial servicesMicro savings, micro credit, micro insurance, Micro savings, micro credit, micro insurance, remittance transfers and payment servicesremittance transfers and payment services

Livelihoods promotion and Livelihoods promotion and developmentdevelopment

Beyond microfinance (Civic Beyond microfinance (Civic intermediation) intermediation)

Deepening microfinance - Social capitalDeepening microfinance - Social capitalStructureStructure

Self Help Groups and CooperativesSelf Help Groups and Cooperatives with mutual concept with mutual conceptApex bodiesApex bodies: federations and associations of cooperatives: federations and associations of cooperativesDistinctDistinct governance and executive systems governance and executive systems

SystemsSystemsSimple to complex operational systemsSimple to complex operational systems such as such as accounts, audit, meetings, byelaws, policies and accounts, audit, meetings, byelaws, policies and procedures, and management information, monitoring and procedures, and management information, monitoring and evaluation, impact assessment etcevaluation, impact assessment etcExternal linkagesExternal linkages – banks, PRIs, networks, government – banks, PRIs, networks, government and private service providers, and other local informal and and private service providers, and other local informal and formal associationsformal associationsInstitutional building processesInstitutional building processes: defined goals and : defined goals and objectives, HR processes, growth and development related objectives, HR processes, growth and development related mechanisms, sustainability areas such as financial, mechanisms, sustainability areas such as financial, institutional and developmentinstitutional and development

Deepening microfinance - FinancialDeepening microfinance - FinancialSavings Savings

Diversified savings productsDiversified savings products: voluntary, purpose : voluntary, purpose oriented, compulsory, need based, cash and kindoriented, compulsory, need based, cash and kindIncentivesIncentives: with or without interest on savings, : with or without interest on savings, withdrawal/non withdrawal savings, flexibilitywithdrawal/non withdrawal savings, flexibilitySecuritySecurity: deposit in the bank, rotate among the members : deposit in the bank, rotate among the members as loans, temporary tapping in S/B account, keep it in the as loans, temporary tapping in S/B account, keep it in the apex bodies, as investments etcapex bodies, as investments etc

Credit Credit lending policies lending policies Loan products-consumption, productive, housing and basic Loan products-consumption, productive, housing and basic amenities etcamenities etcusing savings only or with external funds for lendingusing savings only or with external funds for lendingAppraisals, loan graduation, credit absorption, term or Appraisals, loan graduation, credit absorption, term or multiple loans, ROCmultiple loans, ROCRepayment – flexible or fixed amounts, period, Repayment – flexible or fixed amounts, period, monitoring/lack of monitoring PAR at group/cooperatives, monitoring/lack of monitoring PAR at group/cooperatives, follow-up by banks or federations or promoters, loan cards follow-up by banks or federations or promoters, loan cards etcetc

Deepening microfinance - FinancialDeepening microfinance - Financial

Collaboration with government: SGSY Collaboration with government: SGSY Handling subsidized credit, revolving funds, Handling subsidized credit, revolving funds, grants etcgrants etcFinancial inclusion and financial literacy Financial inclusion and financial literacy Linkages – different models, BC and BFLinkages – different models, BC and BFCost coverage (financial sustainability)Cost coverage (financial sustainability)Multiple sources of funding and cross Multiple sources of funding and cross subsidizationsubsidizationPromotional costPromotional costCorpus creationCorpus creationCreation of development fundsCreation of development funds

Deepening microfinance - FinancialDeepening microfinance - Financial

Micro InsuranceMicro Insurance– Different models: Partner agent model, community based Different models: Partner agent model, community based

modelmodel– Products: life, livestock, health, and weather indexProducts: life, livestock, health, and weather index– Micro pension: concept phaseMicro pension: concept phase– ReinsuranceReinsurance– Policy to facilitate promotion of pro-poor products by formal Policy to facilitate promotion of pro-poor products by formal

insurance companiesinsurance companies– Capacity building: concepts, principles, product design and Capacity building: concepts, principles, product design and

administration, insurance literacy and pilotingadministration, insurance literacy and piloting

Deepening microfinance – Livelihoods intermediationDeepening microfinance – Livelihoods intermediation

Strengthening existing activities, revival of traditional Strengthening existing activities, revival of traditional activities, promotion of new activities, activities, promotion of new activities,

Individual activities, PPGs, group activitiesIndividual activities, PPGs, group activities

Registered companies: marketing, processing, input Registered companies: marketing, processing, input purchase and supplypurchase and supply

Livelihoods framework: Basix, DHAN, PRADANLivelihoods framework: Basix, DHAN, PRADAN

Localized effortsLocalized efforts

Community owned but professionally managed, facilitate Community owned but professionally managed, facilitate tie ups with external agencies, promoters acts as agentstie ups with external agencies, promoters acts as agents

Sub-sectoral focus: agriculture, dairy, forestry, fishery, Sub-sectoral focus: agriculture, dairy, forestry, fishery, poultry, artisans, handicrafts, home based activities, poultry, artisans, handicrafts, home based activities, cottage industries etc cottage industries etc

Experimenting value chainExperimenting value chain

Migration – as livelihood optionMigration – as livelihood option

Deepening: Civic intermediationDeepening: Civic intermediation

Health: holistic or particular health issues – malaria, Health: holistic or particular health issues – malaria, HIV/AIDS, malnutrition etcHIV/AIDS, malnutrition etc

De-addiction De-addiction

Education: remedial, model schools, evening schoolsEducation: remedial, model schools, evening schools

Slum development: drainage, sanitation, road and other Slum development: drainage, sanitation, road and other infrastructureinfrastructure

Rural and Tribal development: common property resources Rural and Tribal development: common property resources – rehabilitation and management, basic amenities– rehabilitation and management, basic amenities

Conservation and management: coastal resourcesConservation and management: coastal resources

Gender and developmentGender and development

Mainstreaming disaster managementMainstreaming disaster management

Human rightsHuman rights

Old age, disabled, ultra poor who are excluded Old age, disabled, ultra poor who are excluded

Areas for deepeningAreas for deepening

Areas for deepeningAreas for deepening

Social capital (SHGs and Cooperatives)Social capital (SHGs and Cooperatives)

– Special attention for hard- core poor through diversification and flexible Special attention for hard- core poor through diversification and flexible products and establishing link between social safety net and subsidized products and establishing link between social safety net and subsidized program (Reaching the ultra poor – experiment similar to BRAC IGVGD program (Reaching the ultra poor – experiment similar to BRAC IGVGD (Income Generation for Vulnerable Groups Development) with (Income Generation for Vulnerable Groups Development) with government or direct TUP (Targeting Ultra Poor)government or direct TUP (Targeting Ultra Poor)

– Families which have come out of poverty: Role in social capitalFamilies which have come out of poverty: Role in social capital

– Legitimizing SHGs and cooperatives at panchayat level (Kudubashree, Legitimizing SHGs and cooperatives at panchayat level (Kudubashree, Kerala model)Kerala model)

– Promotional and investment cost in building SHGs and Cooperatives as Promotional and investment cost in building SHGs and Cooperatives as localized development institutions for generations localized development institutions for generations

– Local networking – banks, govt and development organizationsLocal networking – banks, govt and development organizations

Setting standard by practice and develop benchmark as a Setting standard by practice and develop benchmark as a modelmodelMechanisms to ensure homogeneity and reach of equitable Mechanisms to ensure homogeneity and reach of equitable benefits benefits Positioning social capital as a development organization: Positioning social capital as a development organization: clear institutional framework, purpose clarity with clear institutional framework, purpose clarity with governance and executive systemgovernance and executive systemDefined mission and vision for the organizationsDefined mission and vision for the organizationsInstitutionalizing democratic process in SHGs and Institutionalizing democratic process in SHGs and cooperativescooperatives

Satellite groups/cooperatives in remote areasSatellite groups/cooperatives in remote areas

Financial intermediationFinancial intermediation

Tapping the savings potential into the system through Tapping the savings potential into the system through safety and security – mechanisms and guidelinessafety and security – mechanisms and guidelines

Sophisticated systems to track the financial performance at Sophisticated systems to track the financial performance at member and SHG/cooperatives level – investment on member and SHG/cooperatives level – investment on capacity building and providing necessary equipments and capacity building and providing necessary equipments and facilitiesfacilities

Individual subsidy to institutional subsidyIndividual subsidy to institutional subsidy

Financial inclusion and financial literacy through community Financial inclusion and financial literacy through community organizations to make the reach of banking services to all organizations to make the reach of banking services to all eligible peopleeligible people

Lending only through SHGs or Cooperatives by banks to Lending only through SHGs or Cooperatives by banks to avoid multiple loans avoid multiple loans

Financial intermediationFinancial intermediation

Remittance transfers and payments to experiment in places Remittance transfers and payments to experiment in places where the migration is traceable (within the state or across where the migration is traceable (within the state or across the states)the states)

On-going capacity building for banks, NGOs and On-going capacity building for banks, NGOs and government through community organizations (as resource government through community organizations (as resource centres) in remote areas to initiate and intensify the centres) in remote areas to initiate and intensify the linkageslinkages

Guidelines to sensitize insurance companies on providing Guidelines to sensitize insurance companies on providing pro-poor productspro-poor products

Strengthen the demand driven credit serviceStrengthen the demand driven credit service

Corpus creation for sustainabilityCorpus creation for sustainability

Livelihood intermediationLivelihood intermediation

SHGs/Cooperatives with NREGAs to ensure employment to SHGs/Cooperatives with NREGAs to ensure employment to the needy the needy

Financial allocation (grant) for potential assessment for Financial allocation (grant) for potential assessment for livelihood promotion in an area/location (SGSY)livelihood promotion in an area/location (SGSY)

Wage based permanent job and assets creationWage based permanent job and assets creation

Financial assistance for skill building and promoting Financial assistance for skill building and promoting entrepreneurship through SHGs and Cooperativesentrepreneurship through SHGs and Cooperatives

Providing infrastructure to SHGs/Cooperatives for Providing infrastructure to SHGs/Cooperatives for promoting local markets (shandy)promoting local markets (shandy)

Promote community managed storage facilities for better Promote community managed storage facilities for better marketing of the produces and goods (government can marketing of the produces and goods (government can allocate, wherever it is possible and feasible)allocate, wherever it is possible and feasible)

Attention on building local economy vibrantAttention on building local economy vibrant

Civic intermediationCivic intermediation

Positioning the SHGs to avail primary health care services Positioning the SHGs to avail primary health care services from PHCs and government hospitals (health card – from PHCs and government hospitals (health card – Pondicherry), secondary and tertiary services through Pondicherry), secondary and tertiary services through referralsreferrals

Grant support to SHG-federations/cooperatives for health Grant support to SHG-federations/cooperatives for health literacy among their membersliteracy among their members

Experiment – running a few model primary schools by SHG-Experiment – running a few model primary schools by SHG-federations/cooperativesfederations/cooperatives

Promote and strengthen the linkage with PRIs for inclusion Promote and strengthen the linkage with PRIs for inclusion of poor in the development planning, implementation and of poor in the development planning, implementation and monitoring process. monitoring process.

Support for providing special care and services for the old Support for providing special care and services for the old age and disabled through SHGs/cooperatives (there are a age and disabled through SHGs/cooperatives (there are a few people initiatives)few people initiatives)

Connecting Microfinance and MDGs Connecting Microfinance and MDGs for further deepeningfor further deepening

Thank youThank you