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International Journal of Economics, Commerce and Research (IJECR) ISSN 2250-0006 Vol.

3, Issue 2, Jun 2013, 103-116 TJPRC Pvt. Ltd.

FINANCE FOR THE POOR: AN EXPLORATORY STUDY OF INTEREST FREE MICROFINANCE INITIATIVE AT KUTHIYATHODE PANCHAYATH, ALAPPUZHA, KERALA, INDIA
AMEER P. A Research Scholar (JRF), School of Management Studies, Cochin University of Science and Technology, Cochin, Kerala, India

ABSTRACT
Purpose The main objective of this research paper is to study the effectiveness of interest free microfinance in breaking the vicious cycle of poverty and to analyze how successful it is in reaching the poorest of the poor. The study undertakes a case study of Athani, an interest free microfinance initiative operating at Kuthiyathode panchayath of Alappuzha district, Kerala ,which aims to alleviate rural poverty by providing financial as well as non-financial services to the rural poor for generating employment and to setting up microenterprises. Design/Methodology/Approach To assess the impact of Athani on rural poors livelihood, primary data were collected from 80 beneficiaries engaged in different economic activities. A simple random sampling method was followed to select the respondents. Tabular method and descriptive statistics were used to analyze the data. Findings Results show that household income, expenditure on childrens education, housing conditions, drinking water source, consumption of nutritious food, expenditure on clothes, spending on food items and ownership of household asset had increased significantly due to the influence of invested money. The findings also indicate that there is great potentiality of interest free micro financing to cater to the needs of the poor as well as poorest of the poor. Practical Implications Beneficiaries opined that the interest free micro financing had provided them with the opportunity to carry out their income generating activities in a more systematic and better way, leading them to a higher level of living standard and also develops their awareness towards nutritious food, childrens education, and drinking safe water. This study also put forwarded some suggestions and recommendations to overcome barriers which challenged its long-term existence and immediate survival. Originality/Value The paper suggests the replication of this program in other rural areas of the country in order to accelerate economic activities of the poor. The author believes that, the findings of this paper could be beneficial to the poor in any other rural areas of this country and other countries that do not practice micro financing based on interest free mode.

KEYWORDS: Microfinance, Interest Free Micro Financing, Outreach, Repayment Rate, Microenterprises, Poverty
Alleviation, Financial Inclusion, Employment Generation, Socioeconomic Impact

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INTRODUCTION
Poverty is a socioeconomic phenomenon in which a large section of the people cannot meet their basic requirements of life and this deprivation remains as one of the biggest challenges of this century. According to latest poverty estimates, more than three billion human beings in this world live in abject poverty. International organizations like UNO, OECD, etc. started various programs which primarily aim at poverty eradication, particularly in underdeveloped and developing countries. Recently, policy makers and researchers have recognized the microfinance as a strategy which supports a large number of poor in fighting against poverty. At the same time, there are some studies which raise doubts about the effectiveness of MFIs in reaching the core poor. According to them the clients with existing microenterprises or employment (often defined as "the economically active") are the main beneficiaries of microfinance while a large section of the poor; especially the poorest among them are excluded. It was in this context many scholars proposed interest free microfinance system as an alternative way for Micro finance and recognize the urgency of attending the needs of the chronically poor than those of the poor or moderately poor or the not-so-poor. The present paper is an attempt to study the effectiveness of interest free microfinance in breaking the vicious cycle of poverty and to analyze how successful it is in reaching the poorest of the poor. Based on a case study of "ATHANI"- an interest free microfinance institution operating at Kuthiathode Panchayath of Alappuzha, a backward district in Kerala, we argue that the scope of interest free microfinance institutions, particularly those cater to the needs of the poor is very high.

REVIEW OF LITERATURE
Over the past two decades, microfinance has graduated from a novel idea to a Nobel Peace Prize winning concept for poverty alleviation. To affirm the belief that microfinance can be an important tool to fight poverty, the UN declared 2005 to be the International Year of Microcredit. Later, the attention for microfinance and its pivotal role in plummeting poverty was further augmented when Muhammad Yunus awarded the Nobel Peace prize in 2006. According to the Nobel Committee, microfinance can help poor people to break the vicious cycle of poverty, which in turn seen as an important requirement to establish long lasting peace and happiness. There are several studies which show that microfinance can lead to an increase in income, more employment opportunities, better nutrition for families, greater high school attendance, empowerment of women, and subsequently alleviation of poverty. It is also believed that microfinance has all the potential to accelerate the completion of six of the seven millennium development goals. At the same time, there are some studies which raise doubts on the effectiveness of microfinance in reaching the core poor, the reality behind the immediate and high repayment rates and the high indebtedness of beneficiaries as a result of cross borrowing etc. The success of microfinance has been contradicted by intense criticism in the current literature, particularly regarding loan repayment, high interest rates, exploitation of women borrowers, ineffective microfinance provision to target groups (Holt, 1994; Dignard and Havet, 1995; Christen, 1997; Mallik, 2002; Baru and Woller, 2004). In the meantime, there are other studies which highlight and propagate the severe effect of microfinance on their poor clients who became more vulnerable after entering into this program. According to Sadegh (2006), The equation between microfinance and poverty alleviation is not straightforward, because poverty is a complex phenomenon and many constraints that the poor in general have to cope with. Since 1996, David Hulme and Paul Mosley clearly mentioned that the findings of these studies are untrue, in reality poorest of the poor do not benefit from microfinance; it is the only non-poor or moderate poor who can enjoy the benefits of microfinance. The troubling effect , he pointed out is the vast majority of those who entered into the program

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when they were very poor ended up with less incremental income after getting micro-loans, as compared to a control group who have no such credit experience. In 2004 Coleman supported the findings of David Hulme and Paul Mosley, in his view microfinance programs are not reaching the poor as much as they reach relatively wealthy people and the microfinance impact is larger on richer community members rather than on the poorest members. In addition, Amin et al (2003) argued that microfinance programs are more successful at reaching poor, but less successful at reaching the most vulnerable among them. Moreover, several other profound authors like Ditcher (1996) and Montgomery (1996) who keep the same opinion that microfinance institutions do not serve the poorest that are either not given loans or drop out of the credit schemes. In 2002 Assaduzzaman concluded that the current operations of MFIs are not very effective in improving the lives of the extreme poor. Reghuramrajan in his report quoted an important inding from Indian Institute of Social Science (IISS). The data points out that in the 25 percent of low income population (they are extremely poor) 40 percent of their credit needs are fulfilled by money lenders and another 40% by relatives and friends, only about 10% of their credit needs are met by banks and the balance 5% by co-operative societies. In the next 25 percent of the population (relatively poor) only 21% of credit needs are fulfilled by banks. The majority of their credit needs are also fulfilled by money lenders (32%) and relatives and friends (34.3%). The high dependence on informal source in turn implies that the bulk of borrowing by the very poor is at very high interest rates. Almost half the loans taken by lowest income quartile carry interest rates above 48.4 percent. The loans taken by second lowest income quartile carry 39.7% interest. Non accessibility of formal financial institutions is the reason behind the high interest rate payment of the poor (Reghuramrajan, 2008). Microfinance had also been questioned on its overall desired impact since the poor are subjected to very high interest rate up to 30%. Some of them even argued that disbursing credit to the poor to make financial gains out of the same cannot be the aim of microfinance institutions. The interest charged is rather oppressive for their poor borrowers, and thus fails to achieve the noble objectives of microfinance (Abdul Rahim, 2007). The interest rates on loans charged by traditional NGOs including Grameen Bank are high by any standard(20-35%) and reports of poor borrowers having to dispose of whatever assets they have to pay the usurious interest are not uncommon (Rahman, 1999). Rahman (1999) found that Grameen Bank borrowers often took loans from other sources to pay installments and are trapped in a spiraling debt cycle. It is also alleged that micro-lending initiatives of interest based MFIs have a self-perpetuating character and the borrower is seldom rid of his/her indebtedness. According to Malik (2002) the interest rate charged by microfinance institutions on income generating loans is 20 per cent, which is notably higher than eight to ten per cent rates offered by commercial banks. In addition, Deheija (2005) emphasized that the poor are extremely sensitive to increases in interest rates which results in a reduced demand for financial services among this group. Sudhirendar Sharma, a former World Bank analyst, last warned that microfinance sometimes causes rural suicide which casts a dark shadow on the fledging microfinance sector (Thilo Kunzeman2008). He also complained that usurious interest rates of up to 40 percent and forced loan recovery practices were intimidating the poor. This and other incidents have led to mounting criticism of microcredit as a debt trap for the poor. Y.S Rajashekara Reddy (2008) the former chief minister of Andhra Pradesh complained that some MFIs were worse than money lenders because they charged interest rate over 20%. Poorer people normally pay exorbitant rates of interest to money lenders since banks are beyond their reach. It is due to these evils that money lending activity has evoked comments such as Private control of credit is a modern form of slavery (Upton Sinclair) Debt is the slavery of the free (Publilius Syrus) or Debt is the worst poverty (Thomas Fullar). According to the National Crime Record Bureau of India there are more than 87,000 farmers committed suicide between 2002 and 2006 because of failing harvest and huge debts.

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Hence to avoid the above mentioned evils of traditional (interest based) MFIs, a handful of interest free microfinance program have come forward in recent years to provide interest free financial services. A few countries have introduced interest free banks and micro finance institutions around the world. According to Habib Ahmed (2002) interest free microfinance is more successful in poverty alleviation and reaching the poorest of the poor than interest based microfinance. Asian Development bank in its 2006 report pointed out that the special characteristics of interest free finance can provide an alternative means to reach underserved groups in small rural areas and agriculture producers. In India the main factor which inhibits these institutions to enter into mainstream banking business is the prohibition from the RBI. Even then, non-banking financial companies and interest free micro credit institutions are doing interest free banking activities so as to benefit thousands of people in the country. ReghuramRajan (2008), the financial advisor to the prime minister of India has suggested starting interest free financial institutions in India as a remedy for financial exclusion, which is the main reason for extreme poverty in the country. He also argued that interest free finance especially in microcredit is an effective way to strengthen the vulnerable class. The finance sector in the country is eagerly waiting for a favorable decision from the part of the government of India. In the meanwhile the government of Kerala has already taken a bold decision to promote an interest free finance company to invest in the infrastructure development of the state (Malayalamanorama 2009). A Haran (1996) argued that interest free finance could be a viable alternative to the socioeconomic crisis derived out of interest based economic system. According to Choudary (2007) interest free MFIs have been performing better than the traditional MFIs, in the field of resource mobilization and poverty alleviation. In the above context, the study is an attempt to evaluate the efficacy of interest free microfinance in serving and saving poor from severe spirals of poverty.

DATA AND METHODOLOGY


The current study examines the effectiveness of interest free microfinance in breaking the vicious cycle of poverty, by conducting a case study of "ATHANI"- an interest free microfinance institution operating at Kuthiathode Panchayath of Alappuzha, a backward district in Kerala. The origin of IFFI in Kerala may be traced back to the 1960s. According to Official Records, currently more than 360 such institutions are in operation in the state, the majority of them are located in the districts of Kozhikode, Malapuram, Kannur, Kasargode, Kottayam, Eranakulam and Trivandrum. In order to prove the hypothesis interest free microfinance can contribute much towards poverty alleviation an d improve the quality of life of poor beneficiaries, the author randomly selected 100 respondents from among the beneficiaries of ATHANI and conducted detailed interview with some of these respondents and the officials of the institution. Both the secondary and primary data have been collected using pre-tested schedules during Jan- March 2012. The objectives of the study have been examined using descriptive statistics such as simple averages, percentages and ratios.

ATHANI OPERATIONS AND FUNCTIONS: AN OVERVIEW


Athani was established in 2000 with the objective of providing interest free micro credit to the poor so as to enhance their standard of living. Athani is dedicated to improving the lives of the poor; those who are financially abused, abandoned and disregarded by society. In 1999, a group of social activists and youngsters decided to start an interest free microfinance institution for serving the poor who have been living in a miserable and vulnerable situation at Kuthiathode Panchayath. It has started its revolution against poverty with a very small amount of capital collected from various sources such as donations, grants and deposits. The first and foremost objective of this institution is to provide financial support

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and assistance to people who are living below the poverty line and save them from the inescapable clutches of money lenders who have entrapped the poor borrowers with exorbitant interest. Even though it is not easy to eradicate poverty from the society, the interest free initiative is a small but strong and dedicated step in this way. The working capital has been rising through donations, grants and deposits from various helping hands like social investors and philanthropist. Recently, the institution has set up a chit fund for rising additional amount of capital so as to meet additional growing demand as well as day to day expenditure. The loan has been disbursed to the poor irrespective of their caste, creed, color and religion. The period of repayment ranges from three months to one year and in some cases additional time is granted on special request due to emergencies like ill health, death of a family member etc. The very important feature of the institution is the case of default is very rare among beneficiaries even though they are not following any harsh and cruel action to collect outstanding installments like other popular financial institutions practiced. Another exciting feature which made this firm unique is the financial system followed under this institution where financial services are provided without charging any form of additional cost like processing cost, application cost and administration cost etc. which are considered to be the stumbling blocks that hinder the access of poor people to the banking and financial system. They are providing interest free, collateral free and cost free loans to all poor that are excluded from the mainstream formal financial institutions. So according to the beneficiaries the institution has great role in their financial matters. The institution is introducing different types of loan packages which contain different loan amounts for beneficiaries and is disbursed according to their emergencies and needs. The low amount loans ranges from rupees 1000 to 3000 are mainly used for consumption purposes like medical treatment, education, festivals and meeting other occasional gaps. But at the same time most of the loans ranges from 5000 to 10000 are used for starting self-employment and opening microenterprises as their livelihoods. Regarding operation, it was registered and operating under INFECC (Interest free Financial Establishment Coordination Committee), an official body which is coordinating the functions of interest free institutions in Kerala. At present there are more than 300 beneficiaries served under this institution who are regularly taking advantage of financial services from this institution. Out of this, 120 beneficiaries are males and the rest is females, which mean 60 percent of beneficiaries are disadvantaged women who are regarded as the core target group of any microfinance scheme across the world. Micro-Credit Micro-credit means lending small amount of money (microloans) to poor borrowers and needy who typically lack collateral, steady employment and a verifiable credit history. The primary function of ethane is lending small loans which are properly designed and customized to serve people with very low income capacity. The cumulative amount of loan disbursed by the institution since its inception is 2225800. The analysis revealed an upward tendency in the amount of loan disbursed over the last five years. Table 1: Annual Distribution of Loans 2006-07 Year Total Loans 191175 Source: primary data 2007-08 318100 2008-09 328902 2009-2010 354652 2010-11 475000

The table reveals an upward tendency in the amount of loan disbursed over the last five years. The total loan granted during 2010-11 was Rs 475000 which is 160% of total loan disbursed in 2006-07.It is also found from the table

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that a steady increase of 40%, 42% and 47% in 2007-08, 2008-09 and 2009-10 respectively is registered when compared with that of the total loan amount in 2006-07. Microborrowers The mission behind the establishment of Athani is to assist poor in improving their standard of living by providing easy access to financial as well as non-financial services. So from the very beginning, it has been paying much attention to prevent beneficiaries from over-indebtedness in which the borrowers continuously failed to meet their repayment requirements and eventually entrapped in the spiral of debt trap. As the table shows the numbers of borrowers are seemed to be increased over the last five years. The following table will provide an overall picture of micro borrowers over the last five years. Table 2: The Number of Borrowers during the Last Five Years 2006-07 Year 125 No of Borrowers Source: primary data 2007-08 160 2008-09 190 2009-10 255 2010-11 320

As per the data furnished in the above table, the institution has experienced a steady growth in the number of beneficiaries over the last five years. A 60% growth in total number of borrowers is reported in 2010-11as it compared to that of 2006-07. The table also pointed out an average of 40% growth during the last five years. Repayment Rate The smooth functioning and continues success of any financial institution (whether it is big or small) mainly depends upon the repayment behavior of their clients. The study finds that the institution has been enjoying a high repayment rate over the last five years while the poor were considered to be not creditworthy among mainstream financial institution. The default rate in the last five years reported to be negligible and around 90% of beneficiaries keep a very good credit history. The main reason behind this high repayment performance is the healthy relation between the firm and clients. The following table will help to understand the position of repayment rates among the beneficiaries during the last five years. Table 3: Repayment Rate during the Last Five Years No of Borrowers 2006-07 125 2007-08 160 2008-09 190 2009-10 255 2010-11 320 Source: primary data Year On Due 110 155 170 247 300 No of Defaults 6 4 5 3 1 % of Default 5.46% 2.59% 2.94% 1.21% 0.33%

The study indicates that the institution experienced a high rate of repayment during the last five years. The percentage of defaults in 2010-11 is only 0.33% which alone is enough to understand the repayment performance of beneficiaries. The study also proved that the case of default is very rare among the borrowers over the last five financial years.

ATHANI AND THEIR BENEFICIARIES: NATURE AND CHARACTERISTICS


In this section, we present the information gathered from interest free microfinance institution operating at Kuthiyathode panchayath of Alappuzha district and their beneficiaries. The discussion is based on information collected in

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a field survey and interviews with the officials of these institutions. Before going into the results and discussion, we discuss the different characteristics of the IMFIs and their beneficiaries below. The following Table presents the socioeconomic background of sample respondents during the survey. Table 4: Socioeconomic Background of Sample Beneficiaries Gender Number Percentage Males 32 40% Females 48 60% Total 80 100 House Ownership Owned 50 62.5% Rented 24 30% Others 6 7.5% Total 80 100 Type of House Thatched 22 27.5% Concrete 30 37.5% Tiled 28 35% Total 80 100 Type of Family Nuclear 69 86.25% Joint 11 13.75% Total 80 100 Debt Yes 68 85% No 12 15% Total 80 100 Source: primary data As the table shows, the study has taken a sample of eighty beneficiaries on a random basis. Out of eighty sample beneficiaries, males constitute 40 percent and females 60 percent. The majority of beneficiaries is reported to be female. Regarding House ownership, the table shows that the 62.5% of the beneficiaries has own house while 30% residing in a rented house. Only 7.5% reside in their relatives or friends house. Type of house reveals that while 27.5% beneficiaries stay in thatched house and 37.5% live in concrete house. The remaining 35% stays in tiled houses. This highlights the relative economic backwardness of the interest free microfinance beneficiaries, compared to their Interest based counterpart. As regards the family type, 86.25% beneficiaries live in nuclear and rest in joint families. Debt positions of the sample households show that more than 85% of the sample is spiraled with debts while a negligible portion of sample rescued from debt burden. Age Status of Beneficiaries Table 5: Age Distribution of Sample Beneficiaries No of Persons Up to 20 0 21-30 8 31-40 8 41-50 16 51-60 40 Above 60 8 Total 80 Source: primary data Range Percentage 0% 10% 10% 20% 50% 10% 100

As shown in the table, the age status of beneficiaries ranges from below 20 to above 60 years. Among them, more

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than two third of beneficiaries belonged to the 40 60 age groups. About 20% beneficiaries belonged to 20 40 age groups. The analysis also shows that the majority of beneficiaries, about 50% come under the age group of 51 to 60. Occupational Status of Beneficiaries The analysis of occupational status of beneficiaries reveals that 30% of loans were taken by self-employed persons for starting and maintaining their self-employment programs. Another 28.75 % of loans were taken by collies for meeting their living expenses. Later 21.25%, 12.5% and 7.5% loans are used by small enterprises, domestic helpers and unemployed respectively. The following table presents the information regarding the occupational status of beneficiaries. Table 6: Occupational Status of Beneficiaries Occupational No of Status Persons Unemployed 6 Domestic help 10 Self employed 24 Small enterprise 17 Coolly 23 Total 80 Source: primary data Purpose of Loan Taken The ultimate aim of any microfinance institution is providing financial services to poor for setting up microenterprises and other income generating activities which create sustainable economic opportunities for poor and marginalized people. But normally the loans were taken by the borrowers for multifarious purposes, such as living expenses, working capital and medical treatment etc. Among the beneficiaries, around 27.5% had sought funding assistance for working capital requirements. About 8.75% had received it for debt repayment, and 20% and 16.25% for living and medical expenses. Only 7.5% had taken funds for other financial purposes. Table 7 records the purposes for which funding assistance has been obtained microfinance beneficiaries. Table 7: Distribution of Borrowers According to Purpose of Loan Purpose Living expense Working capital Medical treatment House repairs Repayment of old loan Marriage Other financial needs Total Source: primary data Education Status of Beneficiaries Among sample beneficiaries, 3% were illiterates. More than 27% had primary and 25% had middle school level education respectively. About 15% respondents have secondary school education. Only 5% beneficiaries had higher secondary and under-graduate educations. The following table gives details on the education levels of the beneficiaries. No of Beneficiaries 16 22 13 8 7 8 6 80 Percentage 20% 27.5% 16.25% 10% 8.75% 10% 7.5% 100 Percentage 7.5% 12.5% 30% 21.25% 28.75% 100

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Table 8: Educational Status of Sample Beneficiaries Level of No of Education Persons Illiterates 3 Primary 27 Middle school 25 Secondary 15 Higher secondary 5 Graduates 5 Total 80 Source: Primary data Percentage 3.75% 33.75% 31.25% 18.75% 6.25% 6.25% 100

RESULTS AND DISCUSSIONS


This section discusses findings with respect to the operation of interest free microfinance institution at kuthiyathode panchayath of Alappuzha district, and its socioeconomic impact on respective beneficiaries during the study period. It also examines the satisfaction level of beneficiaries who have been enjoying the services for last few years. Satisfaction Level of Beneficiaries Among 80 respondents 52 are satisfied (65%) , 16 are highly satisfied (20%) and 6 (7.5%) are neither satisfied nor dissatisfied. Another 6 (7.5%) have expressed their dissatisfaction because the fund granted by the institution is not sufficient to meet their needs. Table 9: Satisfaction Level of Beneficiaries Level of Satisfaction Very Satisfied Satisfied Neither satisfied nor dissatisfied Dissatisfied Total Source: Primary data Impact of Microfinance on Annual Income There is overwhelming evidence to demonstrate that families that participate in microfinance programs enjoy an increase in household income (Murdoch and Haley 2002:5; Simanowitz and Walter 2002:20). They also benefit from consumption smoothing and the ability to sustain gains over time (Khandker 1998:148; Murdoch and Haley 2002:5; Simanowitz and Walter 2002:23; Wright 2000). Thus microfinance enables many impoverished families to earn enough income to rise above the poverty line and is therefore an effective method of poverty alleviation. The following table presents annual income of the sample beneficiaries before/after the financial assistance. Table 10: Annual Income of Sample Beneficiaries before/after Assistance Annual Income Before in in000Rs. Percentage Less than 20 11 20 - 30 6 30 40 16 40 50 28 50 60 17 60 70 22 Above 70 Total 100 Source: Primary data After in Percentage 0 8 9 32 20 24 7 100 Difference -11 2 -7 4 3 2 7 No of Persons 16 52 6 6 80 Percentage 20% 65% 7.5% 7.5% 100

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As we could understand from the above table, after receiving the financial assistance, substantial improvement in the annual household income has been reported by the sample respondents. The economic status of the sample beneficiaries improved to a great extent, as majority of them had sought financial assistance for investment in employment activities. It is also found that the number of beneficiaries moved on to higher income ranges is comparatively very high. About 7% of the beneficiaries earned more than Rs. 70,000 per annum, while 4% of the beneficiaries moved on to the higher income range of Rs. 40,000 - 50,000. Thus, an upward movement in the income of the clients has been observed. In short, the study finds that the institution has contributed towards continues growth in the economic status of the sample households. Socioeconomic Impact on Poor Beneficiaries In common parlance, Impact of microfinance on poor beneficiaries is discussed under two broad categories: economic and socio-cultural. The economic impact of the MFIs services is reflected on employment, economic activity, and household assets of the beneficiaries while social impact adumbrated on education, nutrition and social capital. The following table examines the impact of microfinance program on Expenditure on childrens education, housing conditions, drinking water source, consumption of nutritious food item, expenditure in clothes, ownership of household asset, spending on food items, working capital and repayment problems. Table 11: Socioeconomic Impact on Poor Beneficiaries Effect of Fund Expenditure on childrens education Housing conditions Drinking water source Consumption of nutritious food item Expenditure on clothes Expenditure in celebrations Spending on food items Ownership of household asset Repayment problems Social dignity/status Self confidence Business knowledge Communication skills Source: Primary data Increased/Improved Frequency % 42 52.5 39 48.75 22 27.5 60 75 56 70 31 38.75 44 55 68 85 58 72.5 56 70 44 55 53 66.25 Decreased Frequency % 64 80 No Change Frequency % 38 47.5 41 51.25 58 72.5 20 25 24 30 49 61.25 36 45 12 15 16 20 22 27.5 24 30 36 45 27 33.75

It is evident from the data analysis that there is a strong positive relationship between microfinance participation and percentage of school going children. In the general case, participation in microfinance leads to more expenditure on childrens education. In this case, more than 50% 0f respondents reported a positive impact on expenditure on childrens education. The findings indicate that microfinance participation leads to improved housing condition (48%) and improved source of drinking water since the institution give special care in these two matters. Regarding consumption of nutritious food items, around 74% of respondents have the same opinion as they said; we are now being capable of buying nutritious food like egg, milk, meat etc. The study also emphasizes the role of microfinance participation in household expenditure like expenditure in celebrations, expenditure in clothes and spending in food items. It is clearly reported by the respondents that after getting services from microfinance, they are able to save some portion of their earnings to meet the household expenditure.

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Results also show that micro finance program had brought positive changes in their skill and socioeconomic status. Of them self-confidence development, economic solvency, communication skill, and knowledge on business are mentionable. Problems and Suggestions Stated by the Clients The microfinance beneficiaries sometimes face some problems in participating microfinance program which are diverse in nature and vary to one another. Success of the programs largely depends on identifying and solving the problems on time. Therefore, in order to improve the operations of the program, it is important to identify clearly the borrowers problems in participating microfinance. Table 12 shows that majority (82.5 percent) of the borrowers had problems with investment size. They mentioned that the amount of investment they had received from the micro finance was inadequate for them to pursue their IGAs smoothly. Lack of training facilities to upgrade their skills and knowledge is also an important problem mentioned by 77 percent clients. About 80 percent respondents mentioned that delaying receiving investment is also a problem which was followed by very short gestation period for repaying investment. Some respondents (78 percent) mentioned that sometimes they need to start repaying their borrowed money even before investing the money. The study recommends that microfinance functions should be extended towards hardcore poor and towards more widows and divorcees. Monitoring and supervision should be strengthened so that clients do invest their money in incomegenerating activities. The size of investment has to be optimum and timely. Gestation period for repaying investment should be increased (i.e. repayment of investment should start after getting return out of it).It is also observed that the institution should give additional attention to various training programs in order to upgrade the skill of beneficiaries. Table 12: Major Problems Stated by the Clients Serial Problem 1 Amount of investment is very small 2 Do not have any training program 3 Investment getting period is very long 4 Gestation period for repaying investment is too short 5 Insufficient time for meeting 6 Poorest are ignored for getting investment 7 Difficult to get repeated loan 8 Problems regarding processing charge Source: Primary data Frequency 66 62 64 63 30 7 32 0 % 82.5 77.5 80 78.75 37.5 8.75 40 0

In addition, the study found that there are so far 25 families at Kuthiathode panchayath have found their livelihoods through this institution. The institution has provided a sufficient amount of capital for them to set up livelihood and also provided additional loans to maintain their day to day expenses. Another important program which increased the popularity of the institution is its free shelter for poor program. As of yet, two houses have been constructed and donated to two poor families through this program and a total amount of rupees 455000 have been expended in this regard. The study acknowledges that the institution has played a vital role in building financial equity and social justice through their interest free, collateral free and cost free loans which is the main attraction of the institution. Another exiting reality is that they are not charging even a nominal fee on their loan application forms while other financial institutions charged exorbitant interest on their poor borrowers in the name of administration and processing cost. The findings indicate that the total amount of loan disbursed by the institution, since inception is Rs 2486800.But the case of default is very rare among the beneficiaries even though the repayment responsibility is solely rest on the

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individual borrower. It is because; the majority of beneficiaries are poor women who are very vigilant in financial matters. In 2003, after understanding the importance of education in social changes and economic growth it launched a scholarship program for outperforming children of beneficiaries. The scholarships are given away every year to poor children in order to encourage and acknowledge their outstanding performance in education. The ten year history of the institution recognizes its valuable contributions and unprecedented role in poverty alleviation and brings about financial inclusion. But at the same time, the institution continuously fails to satisfy all the needs of their beneficiaries since the demand for interest free loan is growing rapidly day by day. However, among these constraints and challenges, the institution played a very significant and magnificent role in socioeconomic development of its poor beneficiaries. To sum up, the study agreed that the interest free microfinance institutions have enough space and several roles to be played to rebuild the society in the days to come!

CONCLUSIONS
Microfinance initiatives are widely acclaimed as a flexible and successful approach to alleviate poverty and bring about development. While conventional MFIs have expanded their operations in the last two decades, poverty-focused MFIs based on interest free principles are yet to be developed. This paper provides new insights into the relevance of interest free microfinance in poverty alleviation and brings about sustainable development. The evidence from literature confirms that there is great potentiality of IFMFIs to cater to the needs of the poor as well as poorest of the poor. Later, the analysis part recognizes Interest free micro-finance as an important component in poverty alleviation and brings about financial inclusion, while conventional microfinance products have been less successful in meeting the needs of core poor such as food, clothing, shelter etc. A Haran (1996) found similar observation in his study; he argued that interest free finance could be a viable alternative to the socioeconomic crisis derived out of interest based economic system. These results are consistent with several studies such as ( Choudary , 2007) (Aliyar, 2010) (Ahmed, 2002) (Obaidullah, 2008) (Yakoob, 2009) (Shamshad, 2011) (S.M, 2008) (Ramzan, 2008) (Rahmathulla, 1999) (P. Ibrahim, 2009). The research paper undertakes a case study of Athani, an Interest free microfinance organization operating at Kuthiyathode panchayath of Alappuzha district, Kerala. Critical financial analysis of Athani indicates that it is providing its services for all living below the poverty line including the extreme poor and Interest free loans can be used as a powerful tool against poverty. It is also found that Athani is very efficient in breaking the vicious cycle of poverty and it is very successful in reaching the poorest of the poor. Based on the findings, the author argues that interest free microfinance can help poor to uplift their living standard and ultimately contribute towards the economic development and enriched prosperity of the country as a whole.

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