A Study on SHG-Bank Linkage and Status of MFI in Bihar (For Bihar Rural Livelihoods Promotion Society, Bihar)

Final Draft Report

By Bhartiya Samruddhi Investments and Consulting Services Ltd. (BASICS Ltd)

Plot No. 444, Road No. 4 A, Ashok Nagar, Ranchi-834002 Tel: 0651-2244720/ 2241874 Email: mihir@basixindia.com; Website: www.basixindia.com

April 2007

ACKNOWLEDGEMENT

We are grateful to Bihar Rural Livelihoods Promotion Society (BRLPS), Bihar for giving us an opportunity to do the study the SHG-Bank Linkage and Status of MFI in Bihar and necessary support extended to us. This has helped us enhance our understanding of rural livelihoods and especially the role of Micro-finance in promoting livelihoods. We would like to place on record our appreciation to Mr. Sandeep Pondrick, IAS, Add. CEO, Mr. Mukesh Chandra Sharan, SPM of BRLPS, Mr Neeraj Verma of World Bank, the Staffs of WDC especially Pradeep Kumar Ghoshal for their conceptual and administrative support during the course of the study. Our sincere thanks to all the NGOs who have helped us in our field work, without whose cooperation this study would not have been possible.

Study Team
Bhartiya Samruddhi Investments and Consulting Services Ltd. (BASICS Ltd)

Study Team: Dr Sankar Datta, Sourindra Bhattacharjee, Mihir Sahana, Rakesh Das, Pradip Mohapatra Dharmender Shriwastava, Kumaresh Rout, Akhouri Prabhas, Sonmani Choudhary and Promodit Dungdung with the help of more then 6 local NGos and 24 survey staffs.

A Study on SHG-Bank Linkage and Status of MFI in Bihar

Acknowledgement..............................................................................................................2 executive summary..............................................................................................................5 Chapter-1: Introduction:.......................................................................................................7 Background:.........................................................................................................................7 Micro finance Status and need in Bihar: A brief.................................................................8 Scenario of financial access to the poor:.........................................................................8 Why Bihar Rural Livelihood Promotion Society?..........................................................9 Study Objective:............................................................................................................10 Conceptual Framework of the study.............................................................................12 The study methodology:...............................................................................................12 Pre-Study Phase ...........................................................................................................13 Study and Survey Phase ...............................................................................................13 The organisation of the report: .....................................................................................20 Chapter-2: A Perspective on Micro Finance and its growth- A review of Literature .......21 Micro-Finance as a Concept and Process:.........................................................................21 The Evolution of Microfinance..........................................................................................22 Growth of Micro Finance:............................................................................................22 The Emergence of SHG Movement:.............................................................................26 Other Significant Experiments on micro finance in India:...........................................29 Emerging Micro Finance Models:................................................................................31 Moving from micro credit to micro-credit plus to Livelihood Finance:.......................39 NGOs as MFI or financial intermediary ......................................................................40 Cahpter-3: Landscape and status of the mF sector in Bihar:.............................................42 The Status of the Commercial and Cooperative banks in Bihar:..................................52 Priority sector lending:..................................................................................................56 Conclusions:..................................................................................................................62 The SHG-bank Linkage Programme:...........................................................................64 Apex Institutions:..........................................................................................................69 Bihar Women Development Corporation (BWDC).....................................................70 Other Major Donor Agencies and SHPIs:...................................................................71 The Alternative MF Institutions:..................................................................................72 Existing loan products................................................................................................83 Area Selection: .............................................................................................................85 The Products:................................................................................................................86 Livelihood Triad........................................................................................................92 NGO MFI of Bihar ....................................................................................................94 A....................................................................................................................................95 Micro Insurance Sector: ...............................................................................................97 Remittance Services: ..................................................................................................100 Chapter-4 The Demand of MF services in Bihar .........................................................102 Household Survey: Key Findings...............................................................................102 Demand estimation of Micro financial services of rural households:........................114
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Chapter-4: The supply side issues of mF .......................................................................117 The issues of Commercial Banks, RRBs and Cooperative Banks:.............................117 Plans and target for Bihar:..........................................................................................119 (b) Alternative Micro finance Institutions-issues and scope......................................122 MFI-PLANs Ahead ....................................................................................................123 Issues in Micro Insurance:..........................................................................................126 The SHG Study in Bihar..................................................................................................128 Summary of Findings of the SHG Study....................................................................155 Key findings from the SHG study:.............................................................................160 Impact of the SHG - Bank Linkage Program in Bihar................................................161 Chapter-5: Recommendation and Strategy for Scaling up MF in Bihar .........................165 Delivery of Micro Finance through mainstream formal banks in Bihar:....................165 Build up awareness on micro finance:.....................................................................170 Strategy for Micro Insurance Promotion in Bihar:.....................................................176 Migration and Remittances: Recommendation and strategy .....................................176 Potential Partners that can be incubated as SHPI and or MFI ...................................177 ANNEXE I...............................................................................................................179 ANNEXE-2.................................................................................................................184 ANNEXE-3.................................................................................................................186 ANNEXE-4.................................................................................................................188 ANNEXE-5.................................................................................................................190 ANNEXE-6.................................................................................................................201 ANNEXE-7.................................................................................................................202

EXECUTIVE SUMMARY

A study on the status of SHG-Bank linkage and MF in Bihar was commissioned by BRLPS, a world bank assisted project to BASIX as a part of the larger study for project design of the Bihar rural livelihood promotion in Bihar. The study was commissioned to know the status of the SHGs and MF in the six districts (which BRLPS has focused in its first phase) of Bihar in specific and the whole state in general. This report will help in project preparation. To understand the MF situation in Bihar an extensive secondary and primary data collection was undertaken from all possible sources. A team of 8 qualified MF professionals along with 24 field staffs of 7 local NGOs collected primary household and SHG level study to understand the actual ground situation. Extensive discussion through FDG and questionnaires were undertaken with the rural poor from all sections of the society. Similarly a detailed field work was undertaken to both get the status as well as the perception of the supply side. A state level workshop was also organised for all stake holders to get feedback on the findings and to get their views and devise a strategy for scaling up MF in the state. Extensive literature review and secondary data analysis is also being undertaken during the study. The report gives a complete understanding of the commercial banks, RRBs and Cooperative banks who are still the largest and the only provider of MF service in the state. The report highlights there status, their performance, issues, constraints and possible road map for all of them to improve their performance. The SHG-Bank linkage model being the predominant model in the state, its status, the issues and the possibilities for scaling up MF through SHG-Bank linkage programme has also been detailed in this report. As both the state and BRLPS level as SHG is seen as the prime agent for lending to the poor we have undertaken a detailed study of 1200 SHGs being promoted by various agencies in the state. We have also done a detailed analysis on more then 25 parameters and has then categorised them into categories. The detailed capacity building needs of the SHGs has also been provided. We have also done a detailed study of the various models and MFIs existing in the state and its pluses and minuses has been discussed. The MFI models have been discussed so that if practiced it can cater to the needs of some section of the society who cannot be reached through the SHG mode. As it is seen that NGOs are acting as prime agents of developing SHGs and can also become prime agents for delivery of other financial services either as NBFC, society, business correspondent, partnership model or just as SHPI has been graded. The capacity building needs and cost and time required for transforming the NGOs to become MFI is also suggested. It is on this basis we have also suggested strategy for NGO incubation.

The report gives the status, issues, constraints and road map for improving the insurance, saving and remittance service in the state. The last section on recommendations and suggestions both gives a broad strategy the state should adopt to improve the financial services to the poor. It has also detailed the role and has drawn a road map for the banks-public sector, private sector, NGOs, MFIs, SHPIs, training institutions in the state. A broad recommendation is also been given to BRLPS to be inclusive, innovative and broad based.

CHAPTER-1: INTRODUCTION:
BACKGROUND:
Bihar is a state which ranks quite low as regards different development indices. It is spread over an area of 94,163 square kilometers which is 2.8% of the total territory of the country. In contrast to that, the state has more than 8% of the total population with in its territory. The condition of the state deteriorated in different development indices after the bifurcation of the state in 2000. While it retained 75% of the total population of undivided Bihar, it was left with only 54% of the land. This has led to a lot of strain on the existing resources. Main thrust of the people is on agriculture which has a lot of potential to develop. The constraint is non existence of supporting industries to develop the sector. Industry contributes a paltry sum of 11% to its economy. As described above, constraint on resources has led to lot of unemployment and thus has instigated the process of migration. By a conservative estimation, every year around 42 lakhs of people migrate in other states to earn their living. The state is stricken with abysmal poverty scenario and it gets explicit as 42% of the total population is living below the poverty line. The state is struggling on its turf to find solution to the twin problems of flood and drought. In the situation where there is a high level of poverty and unemployment, an attempt to promote the livelihood options of the poor and women is of significant dimension. Bihar is considered to be one of the poorer states in India. The per capita GDP is less than Rs. 4,000 per month as compared to national average of Rs. 12,000 per month. The poor growth rate of per capita GDP of Bihar in the 1990s was 2.8% as compared national average of 4%. The state lags behind also on most counts of the human development index. It has one of the lowest literacy rates (48%) as compared to national average of 67%, with women literacy being abysmally low (35% against a national average of 54%). Bihar has a high dependence on agriculture with more focus on food grains, which account for 92% of agricultural production. Most of the areas in Bihar suffer from either flood or drought, which means the risk element in their basic livelihood, is quite high. Risk mitigation therefore will have to form an integral part of any intervention in Bihar. The sectoral composition of Gross Domestic product is given below: Sectoral Composition of SDP (Figures in percentages) Sectors 1980-81 1990-91 1999-00 Primary 59.93 46.52 29.59 Secondary 21.89 24.66 28.06 Tertiary 18.18 28.82 42.36

Although declining trend of the primary sector is being seen in the above table, it is still an important source of livelihood of the poor, especially in the rural areas.

MICRO FINANCE STATUS AND NEED IN BIHAR: A BRIEF

Scenario of financial access to the poor:
Performance of financial institutions addressing the issue of making finance accessible to the poor had been short of desired level in the state. Even the attempt to link the poor who are organized in the form of SHGs to the bank met with unsatisfactory results. A paltry amount of 37 crores had been extended to the SHGs as regards the SHG-Bank linkage program. The scenario had its implications and they made a detrimental impact on the economic development and business prosperity. Scenario of access of credit to the poor is still abysmal as the state has also witnessed a parallel informal financial flow to the poor. The reports confirm that they are doing a roaring transaction of over Rs3000 crores a year in some selected districts of the state. Such a huge transaction at a high rate of around 5 to 10 % has attracted the attention of the antisocial elements also as it became the easy source of money. The operation of organized informal source of banking has its impingements on the self dignity of the individuals as in many occasions person has to do away with the ancestral property also for not repaying the money on time. Such a scenario exists as mainstream financial institutions failed to meet the needs of poor and deprived sections of the society. The data released by the government on banking scenario vis- a- vis its reach to the poor does not portray a very promising picture. The data released by the government is following: Presently one bank exists for every 22,224 of the population where as the figures in Punjab, Maharashtra and West Bengal are much better with a bank existing for every 9000, 11000 and 14000 respectively. 37 blocks of the state dont have a single branch of commercial banks. The state has witnessed a condition where in 700 to 800 bank branches are functioning with a single person on board. The credit deposit ratio is pegging at 32.10% much below the national average of 57%. Bank Linkage: The banks have been unable to meet their credit targets in Bihar for the last few years despite thrust by RBI and are not able to meet the credit needs of the poor in Bihar. The CD ratio in the state is pegging at 32%, a ratio that is being stressed upon by the government as a major area for improvement. While the total deposits in banks in Bihar as on December 2005 stood at Rs 42,087 crore, the credit was just Rs 13,559 crore. The low CD ratio is reflection of the low off take by industry, poor infrastructural and support services. It has been estimated that 44% of the indebted farmers take loan from moneylenders and only 23% have borrowed money from institutional

sources. The moneylenders charge between 5-10% per month (study by IIM-Indore intern, 2005). There are a few major organisations that are trying to promote micro finance activity in this region. These are NABARD, Rashtriya Grameen Vikas Nidhi, CASHPOR, Rashtriya Mahila Kosh and a number of NGOs that try to provide bank linkage. Among banks SBI is very active and private banks like ICICI and others have participated to some extent through the partnership model with CASHPOR and through on lending to a few NGO/MFIs. Given the poverty levels and credit need, the number of organisations working in the micro-finance sector is very few in number. To name them the organizations are NIDAN, Nirdesh, AVS, SKS (recently started), NBJK, CASPOR, RGVN, KSS, and SHPIs promoting NABARD groups, DRDA among others. Bihar is a region which has a very high need of intervention in the micro finance sector but this intervention has to be initiated through a model which mitigates the naturally enhanced risk in this region and seeks to create an environment which makes micro finance sustainable not only feasible. The scenario of the rural insurance also needs quite innovative interventions. There is an urgent need to look in to the issues of insurance accessible to the poor and vulnerable community. There is a need for the mechanism where a rural poor is protected in monetary terms against the loss of livestock, human lives, crops and other assets which provides him a source of livelihood. This becomes all the more important as the state has 56% of the total flood affected people residing. During the flood season, lakhs of people are rendered homeless and suffer from the huge loss of property. Given nascent state of the MF sector in the state and the need for Micro finance, the Bihar rural livelihood Project (a World Bank project) commissioned a study to BASIX SHG-Bank Linkage and Status of MFI in Bihar which will help BRLP in planning its future course of intervention.

Why Bihar Rural Livelihood Promotion Society?

Taking cognizance of the enormity of problem, government of Bihar has initiated a project on rural livelihood promotion with support from World Bank for helping people come out of the vicious cycle of poverty. This would be implemented through Bihar Rural Livelihood Society (BRLPS). The project aims to improve rural livelihoods options and work towards social & economic empowerment of the rural poor and women. The objective of the project is to empower the rural poor and improve their livelihoods. This would be done by developing organization of the rural poor and producers to enable them to access and negotiate better services, credit and assets from public and private sector agencies and institutions. The project would also invest in building capacity of

public and private service providers. The project will also play a catalytic role in promoting development of micro finance and agribusiness sectors. The project has incorporated identification of existing innovations in various areas as its key element and professes to lend a helping hand in developing processes, systems and institutions for scaling up these innovations. It also aims to focus on stimulating productivity growth in key livelihood sectors and thus increase the employment generation options in project areas. It aims to position project investments to be catalytic in nature to spurt public and private investment in the poor. The proposed project components are formation and strengthening of SHGs, producers groups and federations, specialist technical assistance and development funds and project management. To spurt the process of economic development, capital flow to the community is required at the first level. In order to aid the process of credit accessible to people alternate channels have been put in use the world over. The approach of reaching out to the poor with the concept of micro-finance had met with successful results. Therefore, the project has a component of Micro-Finance to leverage timely credit to the poor and aiding the process of their development. A very important aspect of risk mitigation measure for the vulnerable community is making provisions of insurance. Poor are the most serious victims of the adversities and thus there is a need of protecting poor suffer from extreme tribulations. Thus the role of insurance will occupy a very significant dimension in the project. As more then 4 million people migrate seasonally or for more then 6 months there families face serious problem of cash flow to meet their both end meets. Systems of money transfer are still risky and time taking and are unable to meet the needs of the migrant families. The project must also look at innovative remittance product for the huge number of immigrant family.

Study Objective:
The broader objective of the study was as stated below: To present the financial landscape in terms of its accessibility to the poor in the state. A macro detail of the state has to be prepared with focus on selected districts. To identify different existing channels of Micro- financing to the poor and the identification of the barriers in increasing the access of finance to the poor under each potential micro-finance delivery channel. To identify the possible set of alternatives to address the barriers for each such channels. Assess the future prospect of Micro-Finance Institutions arrangement with rural poor community which can in turn support in reducing the poverty. To understand the existing procedures of accounting by the community and institutions and identify the gaps as well as the strengths. This is also to understand the use of software supported MIS by the existing institutions. Creation of data bank of the institutions which can provide guidance and support in the future by dint of their experience.

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To assess the methods by which access of rural poor to credit institutions can be increased.

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Conceptual Framework of the study

Analysis of the existing situation of the micro-finance sector in the state in terms of users as well as service providers to assess the current situation is being done in the study. From the user side, assessing the financial need of the poor, existing products and services being offered, needs that are being fulfilled and to be fulfilled, etc. was assessed; Thus from a user view point the study looked into: Target group in the context of BRLPS to assess the socio-economic context, opportunities, risks and vulnerability. Existing financial products and services being offered to them by various stakeholders. This will throw some light on perception of values and risks of services and service providers and Environmental opportunities and risk to the clients and service providers.

The second level of the study will be to examine the viewpoint of the service providers and the supporting environment. These would include Government, NGOs and public & private players on the basis of Interventions of these institutions, socio-economic context and internal capacity of these institutions. Study of different methodologies, balancing social and economic context with sustainability as a goal, and Delivery Channels for optimizing cost and attaining efficiency, effectiveness and sustainability in the context of the state.

At the final level it examines the Goal of the programs in terms of its Impact (Short and Long Term), Efficiency on the basis of its business planning, management and operational cost and finally on Sustainability as Institutional and Financial.

The study methodology:

The study was conducted at three levels, namely at the Primary (Household, Village and SHG) level, institutional level and policy and environmental level. The participative approach was adopted involving all the stakeholders. The first is to understand the present status quo of the micro-finance sector at the ground level. The second study was aimed at the existing service providers and to be service providers, which can give fillip to the sector in the state and. The last study examines the present role of policy makers and their envisaged role for promotion of the micro-finance sector in the state.

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Pre-Study Phase A preparatory phase of 15 days has been mooted to kick-start the assignment in terms of building the study team and getting contact with the key stakeholders. The broad steps in the preparatory phase are: 1. Consultation with key stakeholders at State level and District level: This is meant for apprising the stakeholders on the broad understanding about the study and expected outcomes. This will also help to get a possible support to the study process like collection of secondary data, getting the perspective of the key stakeholders in promoting mF in Bihar. 2. Formation and training of the study Team: The study team was formed keeping in the view the familiarity of the state and was trained on various issues of the study. 3. Development of Detailed Implementation Plan: Was mainly done a by core team comprising of BASIX and other NGO collaborators. A transition plan covering various interim milestones was developed. Timelines were defined for the achievement of the milestones. This enabled concurrent monitoring of the implementation plan as we went along. Study and Survey Phase This phase was planned out at three levels, Primary (Household, Village and SHG) level, institutional and policy & environment. In addition, there were continuous dialogues with the BRLP Official, NABARD, SIDBI, All district level DRDA, Lead Banks, DCCBs and PACS, RRBs, other financial institutions among other important stake holders. The study at all level focused mostly on the status of micro-finance in the state and roles of different stakeholders, both at the strategic and operational level. The details of the processes involved in these three levels are the following: Primary Level The primary survey was done at household, village and SHG level to have a complete picture of livelihood scenario of the poor in the state with a focus on the financial needs at household level, the constraints faced by them in accessing the same, especially by the women. Also the survey focused on the status of SHGs in the state with an objective of enumerating strong and weak points of the program and how the same could be improved. The details of the primary level study were as follows. SHG Level Study Sourcing of secondary data on promoted Self-Help Groups: This was done through secondary data search methods. These were: RBI and NABARD website Reports from DRDAs PLPs and ACPs of the identified district

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Previous study documents, if any Annual and mid-term review documents of the leading NGOs working in the districts

An intermediate output of this provides us with an idea on the district wise progress of micro-finance, intra region variation (between districts) in the state, reasons stated thereof and promoting institutions in the identified districts. The second output is analysis of the progress of micro-finance vis--vis neighbouring states with similar agro-climatic profile. This helps the reader to judge the possible growth and scope of micro-finance in the state Survey of the Self-Help Groups in the identified Districts: A ground level rapid assessment of the SHGs was done through a survey using an in-house developed SHG rating tool. The attempt would be to find the Status of the SHGs promoted by various SHPIs under various developmental schemes. Illustrate the Capacity Building Need Assessment (CBNA) for the various categories of SHGs purely focusing on financial discipline. Get a sense of a set of constraints faced by SHGs in the process of financial inclusion.

The sample taken was: At least 2% of the SHGs or 200 SHGs (which ever is more) in the selected districts. SHGs were selected from top five running projects including government Household Level Study: Survey at Household Level in the identified Districts: An individual level rapid assessment of the household was done through a survey using an in-house developed tool of livelihood profiling. The attempt was to find the To know the livelihood status of the household in Bihar. To know the need of the financial services by the poor with special focus on demand and supply gap of these services. To know the constraints faced by them for getting these services.

The sample would be following Cover at least 720 HH in the study, covering 48 villages of 24 blocks in 6 districts.

The quantitative and qualitative analysis of the survey highlights the financial services need at household level, a scenario of demand and supply gap, a list of service providers, accessibility issues, financial product designing and pricing issues and constraints faced by them. The analysis was done district wise as well as state as a whole.
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Village study: Detailed village livelihood profiling was undertaken in at least 50 villages, 2 in each block /district to understand the overall developmental needs to assess the credit needs of the area. Institutional Level: Five forms of institutions, namely the NGO-MFI, MFIs, PACS, RRBs & Banks and Micro Insurance companies was studied, which does play a key role in promotion of micro-finance. The opportunities and constraints at each level are expected to be different, especially with a focus on how better synergies can be drawn among these institutions for promotion of the micro-finance sector. NGO-MFI The NGO-MFIs in each selected districts was surveyed to understand the organizational capacity, quality of human resources, access to financial and non-financial resources, etc. This would be done by the field executive. The in-house developed Joint Initial Assessment (JIA) tool would be used for the survey. In addition; there would be semi-structured interview with the heads of the organization, officials at managerial as well as ground level to understand the prospects and constraints to the promotion of micro-finance in the region or their area of operations A qualitative assessment of the all NGO-MFIs in the selected districts will give a picture of their vision on micro-finance, constraints faced by these promoting institutions and support required from capacity building, financial and Governmental institutions. Micro-Finance Institutions Sourcing of secondary data on MFIs: This was done through secondary data search methods, including neighbouring states of Jharkhand, West Bengal and Uttar Pradesh. These would be: Reports of the state Government departments PLPs and ACPs of the identified districts Previous study documents, if any Annual and mid-term review documents of the leading MFIs working in the State. A qualitative analysis of the above was done to find the typologies of micro-finance prevalent in the state or even in the neighbouring states, if at all and the promoting institutions.

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Sampling: Two MFIs present in the state would be selected for a detailed assessment. The criteria applied were: It should be among top five MFIs in the state in terms of volume and membership It has presence in two or more districts It has been engaged in new product development or processes in delivery of services or promoting a typology For study of the two MFIs outside the state, the following criteria was used: It has multi-state presence and therefore has the willingness to move into newer states It has been engaged in product and process experimentation Assessment of MFIs The assessment would be done through an in-house developed MFI-rating tool and rummaging through existing documents Semi-structured interviews with CEO and Board of Directors to get an idea of the strategic focus of the MFI s and their views on the sector was also conducted. Semi-structured interviews with the management and staff of MFIs to understand the operational issues The output will provide information on various models of micro-finance prevalent in the state or even in the neighbouring states, their area of operation, operation design and products & services being offered by them to their clients. This will also throw some light in their perspective & Vision of micro-finance in the state of Bihar and constraints faced by them in scaling up their operation. And finally their present and envisaged role in the context of BRLP, the constraints faced by them and their expectations from the environment towards financial and non-financial support to the sector in general and their institution, in particular. DCCBs & PACS Sourcing of secondary data on PACS and DCCBs: This was also done through secondary data search methods, These were: Reports of the state cooperative bank and identified DCCBs Previous study documents, if any Annual and mid-term review documents of the lead banks working in the districts

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Sampling of PACS: Two DCCBs within the selected districts and two PACS with each DCCBs will be covered for a detailed assessment based on the findings from the secondary level survey in terms of profitability, reach, volume, programmes etc.

Assessment The assessment was done through an in-house developed survey tool and rummaging through existing documents Semi-structured interviews with president, chairman and Board of Directors to get an idea of the strategic focus of the PACS and their views on the sector was conducted Semi-structured interviews with the management and staff of PACS and DCCBs to understand the operational issues The output will provide information on their present and envisaged role in the context of BRLP, the constraints faced by them and their expectations from the environment towards financial and non-financial support to the sector in general and their institution, in particular. RRBs and Commercial Banks (Public and Private) Sourcing of secondary data on banks: This would be done through secondary data search methods. Reports of the state Government departments, Institutional Finance Department , GOB Data from SLBC & NABARD. PLPs and ACPs of the identified districts Previous study documents, if any The first cut analysis gives the network and typologies of different banking institutions prevalent in the state. Semi-structured interviews with senior officials was also undertaken to understand the strategic focus of these financial institutions and their views on the micro-finance sector. Sampling: Study of services through the lead bank of each district It has been engaged in new product development or processes in delivery of services or promoting a typology including commercial public sector and private sector banks

The output provides information on their present and envisaged role in ensuring financial inclusion of the poor in the context of BRLP, the constraints faced by them and their

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expectations from the environment towards financial and non-financial support to the sector in general and their institution, in particular. Micro-Insurance Service Providers Sourcing of secondary data on rural Insurance: This was done through secondary data search methods These would be: Reports of the state Government departments on insurance Available data on provision of various insurances to rural poor by public and private sector Previous study documents, if any An analysis was done to find the typologies of insurance products prevalent in the state for the rural poor. The output provides information on their present and envisaged role in the context of BRLP, the constraints faced by them and their expectations from the environment towards financial and non-financial support to the sector in general and their institution, in particular. Environmental Level: The environment study includes Government programs and policies, NABARD, and facilitating Banks, insurance providers, Training Institutions, etc. One of the key objectives of the environmental study is to understand the enhanced roles of all these institutions in promotion of the micro-finance sector in the state The process of search and assessment would be following: Secondary data search to get a first knowledge of the existing institutions in the state Select a few institutions with which BRLP requires to collaborate for promotion of micro-finance sector in the state. Primary list would include NABARD, Lead banks, insurance providers in the districts and Government Sponsored Programs. This would be followed by studying any documents published by these institutions and semi-structured interviews with the key officials in the state. Similarly Government program and policies would be studied through secondary data and through discussion with key officials in the state machinery

All the discussions would primarily focus at two levels- one, problems highlighted by the operational entities in the sector and second, discuss on the future plans and support to sector that is to be extended.

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While assessing the environment and undertaking the SHG and Institution level study an assessment will also be done to get a broad understanding of the formal and informal remittance services being offered in the state which has a special bearing on the livelihoods of the migrants of the state. A broad understanding of the alternative sources of credit among the rural poor in the state and its implications will also be developed during the environment study. The collated data would be analysed to identify any new steps or funds being allocated for promotion of micro-finance sector, especially for promotion of new institutions, which could lead to greater financial inclusion. State level Workshop of various stake holders, experts and policy makers: Three day learning cum sharing workshop was organised by BASIX with the hep of WDC and BRLPS to get a feedback on the findings of the study, to understand the perception of the stake holders and to draw a road map for scaling up micro finance and livelihood promotion in the state. It was also an opportunity to get the perception and views of the policy makers and their commitments on the road map prepared by various stake holders. Limitations of the Study: 1. A total of six districts have been selected for the study, which may not give the best picture of the situation of the whole state of Bihar. These districts where the detailed primary data survey was done are: 1. Muzaffarpur , Madhubani, Nalanda ,Gaya , Purnia and Khagaria 2. The time duration was short for the study commenced on 15th November, 2006 3. There is a variation in the figures from PLP, SLBC but all care has been taken to give a true picture of the districts 4. Getting the actual plan from the Private Banks and insurance companies was difficult, as they do not want to disclose their plan 5. Study was conducted with the best available human resources, who had worked with SHG and had good idea of the district but with limitations of high intellectual ability to comprehend most of the needs at the village level 6. Undertaking a PRA exercise to understand the livelihood situation ad the detailed development needs was not possible within the time span. 7. The harvest season disrupted our teams survey work particularly gathering the women from the SHG were difficult.

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The organisation of the report:

The report in the beginning gives a complete perspective of the micro finance sector and details out its growth, models and experimentation based on various studies being done. This helps the reader to get a first hand and complete understanding of the sector and its prospects. It also helps the reader to be informed about various issues before it get to the specifics related to Bihar. The second chapter gives a complete picture of the status of the Mf sector and its various stake holders in the state. Some analysis of secondary data has also been done. The Third chapter deals with the perspective of the rural poor or the demand side. A detailed HH survey is being undertake for the same and the needs of the people is clearly stated in this section. We have also estimated the potential demand of MF in the state. In chapter four we have looked at the issues, constraints and opportunities of the service providers. It also gives a detailed picture of the emerging alternative channels in the state and their potential. Chapter five gives a detailed analysis of the SHG quality status and their capacity building needs on which is seen as the key vehicle for social and financial intermediation by BRLP and the Government. The final chapter consists of key recommendations, strategies and models which BRLP can consider for design of their future programme.

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CHAPTER-2: A PERSPECTIVE ON MICRO FINANCE AND ITS GROWTH- A REVIEW OF LITERATURE

MICRO-FINANCE AS A CONCEPT AND PROCESS:
Before we understand the concept of micro-finance, it would be worthwhile to understand the term micro-credit as the two terms are closely related to each other. Poor people need micro-credit for various and different purposes. It may be to meet the major household expenses emergency needs or even basic livelihood support. There are two main systems of micro-credit (Chauhan, 1990: 50-51). One is formal financial institutions, banks and co-operatives, which provide micro-credit to the poor people under different schemes for livelihood support or helping them to start micro-enterprises. The other is informal system comprising traditional moneylenders, pawnbrokers and trade specific lenders. Both the systems have their own positive and negative aspects. Based on these two systems of micro-credit Singh .N in a review paper tried to define micro-credit as the provision wherein debtor takes money either from formal or informal sources of credit on unilaterally decided terms by the creditor. If we combine together positive aspects of both the systems like, low rate of interest, easy and periodical repayments with moratorium period, credit for income generating activities, easy process of disbursement, no collateral or security and less paper work etc., we come closer to understanding the concept of micro-finance. The Task Force on Supportive Policy and Regulatory Framework for Micro-Finance constituted by NABARD (National Bank for Agriculture & Rural Development) defines micro-finance as the provision of thrift, saving, credit and financial services and products of very small amounts to the poor in rural, semi-urban and urban areas for enabling them to raise their income levels and improve their standard of living. The emphasis of support under micro-finance is on the poor in pre-micro-enterprise stage for building up their capabilities to handle larger resources. This perception is quite significant, keeping in view the limitations of any approach of micro-enterprise development to help the poorest of the poor for self-employment (Awasthi, 1994 & 1996). The Task Force has not specified limit for the small amount of financial services envisaged. Vijay Mahajan, Bharati Gupta Ramola & Mathew Titus, 1996 views that all small savings are not micro finance, nor are all small loans. Going by that liberal definition, India is probably the world leader in micro finance. However, if micro finance is small savings, credit and insurance services, based on certain design principles, then there is little micro finance provided by existing mainstream Financial Institutions (apex FIs, commercial banks, co-operatives, NBFCs).

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Revan Smith, 2006 defines MF as an activity that includes the provision of financial services such as credit, savings and insurance to low-income individuals with the goal of creating social value. The creation of social value includes poverty alleviation and the broader impact of improving livelihood opportunities through provision of capital for micro enterprise, insurance and savings for risk mitigation and consumption smoothing

THE EVOLUTION OF MICROFINANCE

Growth of Micro Finance:
The historical account of the emergence and growth of micro-finance sector at the global level was started after the emergence of the Grameen Bank, Bangladesh which was started as an experiment in 1976 and accorded a special banking charter in 1983. In 1981 NDF (National Development Foundation), Jamaica, was started with support of Pan American Development Foundation. In 1983 ADEMI (Association for Development of Micro Enterprises) was established in Dominican Republic, Santo Domingo with support from ACCION, an International Agency. In 1984 BRI (Bank Rakayat Indonesia) started micro-finance in Indonesia. In 1984, K-REP (Kenya Rural Enterprise Programme) was set up by USAID (United States Agency for International Development) to develop credit programmes for micro-enterprises through NGOs intermediation. In 1986 ACEP (Agence de Credit Pour L Enterprise Privee) was established in Senegal with the support of USAID. In 1986 PRODEM (Foundation for the Promotion and Development of MicroEnterprises), which was established by USAID & ACCION International in Bolivia, started micro finance. Later on it was converted into a bank called Bancosol (Banco Solidario) in 1992. In 1987 IDH (Instituto de Desarrollo Hondurando) was started in Honduras with the support of Opportunity International. In 1992, BANPECO (Banco Nacional del Pequeno Comercio) that is, National Bank for Small Traders was renamed as BNCI (Banco Nacional de Comercio Interior), that is National Bank for Domestic Commerce and started micro-financing in urban areas of Mexico. Micro-Credit Summit (2-4 February, 1997) held at Washington D.C. was organised to launch a global movement to reach 100 million of the worlds poorest families, especially the women of those families, with credit for self-employment, by the year 2005. In India Rural financial markets have been dominated by informal lenders over many centuries. The All-India Debt and Investment Surveys (AIDIS) present distributions of informal credit by six main lender types as landlords, agricultural moneylenders, traders, friends and relatives, and others. According to this survey, the low volume credit segment has been virtually controlled by the informal markets. The overall debt of rural households is 39% in the year 1981 from informal sources. Share of informal credit in urban areas is 30%. Informal moneylenders covered 70% of farmers' credit needs. However, various debt and investment surveys conducted over the periods had been showing that only in the last 2 decades there is some significant drop in the share of informal credit sources in the non corporate, rural segments. AIDIS 1991-92 shows that institutional credit in the rural segment has been increased to 66.7%. It may be due to the advent of SHGs and Government directed Poverty Alleviation Programs through banks.

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T he rural economy has been surviving due to the presence of indigenous savings and credit systems for many decades despite its higher interest rates and usurious practices. The major reason for their success is easy access and informal nature. Volume of Institutional and Non-institutional Credit in Urban and Rural Areas of India (1981-82) gives information on the major informal credit systems that exists even today especially affecting the rural and semi urban economy. Among them, Chit Funds are indigenous rotating savings and credit organizations. While chit funds are prevalent among households and small businesses all over India, they are also organized by Chit Fund Firms, especially in South India, and are regulated by the Chit Fund Act (Germidis et.al 1991). Nidhis are single branch institutions similar to credit unions. They are mainly found in South India (Germidis et.al 1991). Wholesalers and other Intermediaries are agents who typically combine sale of goods with trade credit. The volume of finance is large relative to the total size of credit markets. Arartiyas or Commission Agents act as intermediaries between local and outstation sales in many commodity markets and provide financial accommodation to their clients. Their main role however is in reducing information costs of both buyers and sellers. Angadias play an important complementary role in facilitating fund flows between different centres at costs much below that of banks. Indigenous bankers are ageold Indian institutions serving businesses usually trade. They are grouped into various types like Multanis, Shikarpuris, Gujaratis, Shekhawatis, Rastogis, Marwaris, Kayas, Chettiars etc. along community lines and operate in different parts of India. Among the major groups, Chettiars in the south have almost disappeared (Germidis et.al 1991). There is a bewildering array of brokers in informal markets whose main and sometimes only role is informational. They link up potential borrowers and lenders for various purposes. Pawn Brokers accept deposits and provide pawn finance. Estimates put the total volume of loans between Rs. 2.5 - 3 billion in 1979. Money Lenders are wide spread in the rural areas; they rely on their own capital and are to be found in all parts of India. "Piggy-Back" intermediaries essential characteristic is being the close association with the formal credit markets. Along traditional lines, they are loan brokers who undertake to obtain bank loans in their own names for a fee (Germidis et.al 1991). Finance Corporations have activities essentially similar to commercial banks; except for non-issuance of cheques and no provision for fund transfer services. Hire Purchase Firms are generally active in vehicle and durable finance, specializing in market segments not served by commercial banks. Most of such firms accept deposits from the public. In India, the history of rural credit, poverty alleviation and Micro Finance are inextricably interwoven. The forces and compulsions that shaped the initiatives in these areas are best understood in context of State and banking policy over time. Thus, for e.g., there were peasant riots in the Deccan in the late 19th Century on account of coercive alienation of land by moneylenders. The policy response of the then British Government to this problem of rural indebtedness was to initiate the process of organization of cooperative societies as alternative institutions for providing credit to the farmers as also to ensure settled conditions in the rural areas. Sheokand S. M. (2000)

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In the development strategy adopted by independent India, institutional credit was perceived as a powerful instrument for enhancing production and productivity and for alleviating poverty. The strategy devised by the Government for this purpose comprised of expansion of the institutional structure, directed lending to disadvantaged borrowers and sectors and interest rates supported by subsidies. The institutional vehicles chosen for this were cooperatives, commercial banks and Regional Rural Banks (RRBs). Between 1950 & 1969, the emphasis was on the promoting of cooperatives. The nationalization of the major commercial banks in 1969 marks a watershed in as much as from this time onwards the focus shifted from the cooperatives as the sole providers of rural credit to the multi agency approach. Sheokand (2000) further states that, this also marks the beginning of the phenomenal expansion of the institutional structure in terms of commercial bank branch expansion in the rural and semi-urban areas. RRBs were set up in 1976 as low cost institutions mandated to reach the poorest in the credit-deficient areas of the country. In hindsight it may not be wrong to say that RRBs are perhaps the only institutions in the Indian context, which were created with a specific poverty alleviation mandate. While tracing the history of rural credit initiatives, it is seen that during this period, the Central Bank (Reserve Bank of India) came out with series of policy initiatives to enable the flow of credit to the rural sector despite of the conditions like absence of collateral among the poor, high cost of servicing geographically dispersed customers, lack of trained and motivated rural bankers, etc. The policy response was multi dimensional and included special credit programmes for channeling subsidized credit to the rural sector and operationalising the concept of priority sector. The priority sector concept was evolved in the late sixties to focus attention on the credit needs of neglected sectors and under-privileged borrowers. These strategies helped to build a broad based institutional infrastructure for the delivery and deployment of credit and ensured a wider physical access of financial services to the poor. As per Arvind Panagariya (2006), access in terms of rural branches increased from 1,833 in 1969 to around 32,200 at present, the population per rural branch declined from 2,01,854 in 1969 to around 16,000 at present and the proportion of borrowings of rural households from institutional sources increased from 7 per cent in 1951 to more than 60 per cent. This significant increase in the credit flow from institutional sources gave rise to a strong sense of expectation from the state agencies. However, this expectation could not be sustained because the emphasis, among others, was on achieving certain quantitative targets. As a result, inadequate attention was paid to the qualitative aspects of lending leading to loan defaults and erosion of repayment ethics by all categories of borrowers. The end result was a disturbing growth in over dues, which not only hampered the recycling of scarce resources of banks, but also affected profitability and viability of financial institutions. This not only blunted the desire of banks to lend to the poor but also the development impact of rural finance. Sheokand, (2000) describes that this was the position on the eve of reforms, which marks the second watershed, in the history of rural credit. The basic aim of the financial sector reforms was to improve the efficiency and productivity of all credit institutions including rural financial institutions (RFIs) whose financial health was far from satisfactory. In

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regard to RFIs, the reforms sought to enhance the areas of commercial freedom, increase their outreach to the poor and stimulate additional flows to the sector. The reforms included far reaching changes in the incentive regime through liberalizing interest rates for cooperatives and RRBs, relaxing controls on where, for what purpose and for whom RFIs could lend, reworking the sub-heads under the priority sector, introducing prudential norms and restructuring and recapitalizing of RRBs. A government regulated, the so called Directed Credit Approach included the policies namely, artificial/subsidized interest rates on advances (1970), benchmarks for priority sectors (1970), credit-linked programmes for addressing poverty and unemployment (1972); each having a subsidy component and the directed credit for the poor .Banks were used as a conduit for various poverty alleviation programmes of the government, notably the Integrated Rural Development Programme (IRDP). There was little change in the basic orientation of the formal government institutions as IRDP and subsequent poverty alleviation programmes continued to provide cheap, subsidized credit to the rural poor. Under IRDP, loans were given to the BPL families up to Rs. 15,000 for productive purposes with the subsidy of 25-30%. More than Rs 100 billions was disbursed under the scheme yet it failed to realize its intended objectives. It ended up in fetching abysmal repayment rates of 25-33%, appropriation of funds meant for the poor by the rural elite, reduction in loanable funds due to poor recycling of funds. The subsidy component in the loan systematically ingrained the culture that government loans are not to be returned. Amongst bankers, it deeply ingrained the view that poor are not bankable (DHAN Foundation, SHG Bank Linkage, 2001). As Sheokand (2000) reiterates, right from the time of independence, the overriding concern of development policy makers has been to find ways and means to finance the poor and reduce the burden upon them. However, the concern of the policy makers were on the quality of the effort, there were numerous efforts made to achieve the success envisaged for a variety of reasons mainly, defects in policy design, infirmities in implementation and the inability of the government of the day to desist from resorting to measures such as loan waivers However, despite the best efforts of the state, the banking system was not able to internalize lending to the poor as a viable activity but only as a social obligation something that had to be done because the authorities wanted it so. So, loans to the poor were treated as a part of social sector lending and not commercial lending; the poor were not borrowers, they were beneficiaries; poor beneficiaries did not avail of loans they availed of assistance (YSP Thorat, 2003). He further adds, It resulted in an attitude of carefully disguised cynicism towards the poor. The attitude was that the poor are not bankable, that they can never be bankable, that commercial principles cannot be applied in lending to the poor, that what the poor require are not loans but charity. Once this mindset hardened it became more and more difficult for commercial bankers to accept that lending to the poor could be a viable activity. It is significant to note that the system had to wait for almost a decade for the concept of Micro Finance to become credible Despite this attitude that banks are lending to the poor for social obligation but Prof. V.S. Vyas committee (November, 2003) on Rural credit found that the practice of advancing against productive purposes, neglecting credit need for social expenditures, lack of provisions to credit for working capital needs and physical settlement pattern of rural

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households were the major impediments to meet the rural credit requirements. Moneylenders with their rural proximity and timely supply of credits with easy accessibility gained prominent place in rural credit requirements. This paves for an exploitative credit by charging usurious rate eventually leads poor into debt trap. However Sheokanth S.M (2000) also observed that, Over regulated interest rates on deposits and advances, target orientation, insulation from competition, design problems did just the opposite. Absence of market based performance incentives and continued use of lending technology that systematically eroded financial discipline led to a gradual deterioration of the RRBs and commercial banks. There has been a long-standing tradition of government owned agricultural development banks distorting financial markets with cheap credit and thereby, contrary to their good intentions, undermining rural finance and development as well as their own viability. It is also feared that easy money, even at market rates, discourages savings mobilization and thereby undermines self-financing and self-reliance of financial institutions and clients. S.K Mitra, (2005) says that Abysmal rates of return, mounting losses and growing nonperforming assets in the early 1990s forced the government to review its controlled economic policy and introduce market- based financial reforms throughout the sector. As a result there were sector wide reforms made including substantial deregulation of interest rates for RRBs, commercial banks, change in the target orientation, a supportive policy environment and experimentation with NABARD SHG linkage programme.

The Emergence of SHG Movement:

The book published by DHAN Foundation (2001) on Self-Help Groups (SHGs) traces the evolution of SHGs and the role of NABARD on supporting this process through proactive policies and experiments. NABARD initiated a study of about 50 NGOs in the late 1980's which led to uncovering of certain striking field level realities such as, the poor need small and frequent credit at unpredictable times, the directed credit was a costly affair - the transaction costs for banks and the clients were high, in the government sponsored programmes, people's initiatives and voluntary participation was lacking or absent, need for transparent and cost effective credit delivery system and need for local specific approaches to be found. Above all, the need for a suitable mechanism for meeting the economic aspirations of the poor was considered necessary. In this scenario, the introduction of the Pilot phase of the SHG Bank Linkage programme in February 1992 could be considered as a landmark development in banking with the poor (NABARD, 2005). The SHG linkage programme owed its origins to the midwifery, if not parenthood of NABARD. The Pilot phase was followed by setting up of a Working Group on NGOs and SHGs by the RBI in 1994, which came out with wide ranging recommendations on internalization of the SHG concept as a potential intervention tool in the area of banking with the poor. The RBI was quick to accept most of the major recommendations and advised the banks to consider mainstreaming lending to the SHGs as part of their rural credit operations. The studies conducted by NABARD, APRACA and ILO on the informal groups promoted by non governmental organizations (NGOs) brought out that Self-Help Savings

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and Credit Groups have the potential to bring together the formal banking structure and the rural poor for mutual benefit and that their working has been encouraging (RBI, 2005). The research studies and action research instituted by NABARD to improve access to financial services found (Sheokanth S M, 2000): a. b. c. d. e. Traditional savings and credit products are not suitable for the poor; Systems and procedures of the banking system are too rigid; Absence of consumption credit; Savings as a financial product are not yet recognized; Too many resources are put in the poors hands under government-sponsored programmes with decisions resting with others. f. A need was felt to keep safe thrift, provide emergent consumption credit and credit for very small micro enterprises in a hassle-free and flexible delivery system. g. Need for identifying new partners: new approach with participation of the poor in decision making; Sheokand (2000) opined that, The Indian heritage has its roots in strong community affiliations and identification. The social fabric is endowed with the spirit of self-help and community help. The society has been throwing up a number of examples of self-help and community initiatives without waiting for external help. This is particularly witnessed in the moments of crisis and natural calamities. Question being pondered over was whether the combination of the spirit of self-help and community service can be harnessed in the extending financial services for the poor. Initial experience of some of the pioneering NGOs especially with MYRADA and PRADAN came in handy in looking for answers. The conceptual thinking behind the SHG philosophy and the Bank Linkage could be summarized as a Self-Help Group is a small economically homogeneous and affinity group of rural poor voluntarily coming together. It facilitates to save small amounts regularly, members mutually agree to contribute to a common fund, helps to meet their emergency needs, systems evolved to have collective decision making, solved conflicts through collective leadership and mutual discussion and provided collateral free loans with terms decided by the group at market driven rates (RBI, 1996). The blend of simple systems and easy access along with the institutionalization is the output of SHGs. Hence the origin of SHGs can be traced to some extent to the diversity and soundness of the indigenous savings and credit practices in India along with many other compelling reasons as cited above. PRADAN, (Sep 1998) in the book, RBI & NABARD - Guidelines on Linking Self-Help Groups with Banks says that For selection of SHGs for the linkage programme with banks, NABARD has set out simple and specific guidelines for the use of bankers and NGOs as follows: a. b. c. d. The group to be in active existence for at least a period of six months Have successfully undertaken savings and credit operation from its own resources Democratic working wherein all members feel that they have a say is evident. Maintaining proper accounts/records

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e. The banker should be convinced that a group has not come into existence only for the sake of participation in the programme and availing benefits [credit] there under. f. There should be a genuine need to help each other and work together among the members. g. Members preferably have homogeneous background and interest h. Interest of the NGO or the Self-Help Promoting Institution [SHPI] concerned, if any, in the group is evident and the agency is helping the SHG by way of training and other support for skill up gradation and proper functioning. YSP Thorat (2005) says that SHGs redefined the conventional way of doing banking with the poor. It proved that the poor are bankable. This can be viewed in the context of the attitudinal constraints, which characterized bankers on the eve of the linkage programme, one realizes what an immense learning point this has been. The poor, organized into SHGs, are ready and willing to partner mainstream financial institutions and banks on their part find their SHG portfolios safe and performing. Despite being contra intuitive, the poor can and do save in a variety of ways and the creative harnessing of such savings is a key design feature and success factor. As per Sa-dhan (2006), during the period April 2003 to March 2004 - 361,731 new SHGs were financed by banks to a tune of Rs 18.55 billion (US $ 412 million) by way of loans. Cumulatively, banks have lent Rs 39.04 billion (US $ 867 million) to 1,079,091 SHGs. NABARD has extended a refinance of Rs 7.06 billion (US $ 156 million) to banks during 2003-04 bring the cumulative refinance amount to Rs 21.24 billion (US $ 472 million). 35,294 branches of 560 banks (Commercial banks- 48; Regional Rural banks-196; & Cooperative banks - 316) situated in 563 districts in the 30 states of the country are participating in the programme. About 16 million poor households have gained access to formal banking system through SHG bank linkage programme. Nearly 90% of the groups are women only groups. Grant assistance extended by NABARD to various agencies/ institutions for promotion & linkage of self-help groups during the year as well as cumulatively is given below; Table 1: NABARD Financial Assistance Agency NGOs RRBs CCBs 2006) More than 500 NGOs provide micro finance services directly, and 550 participate in the SHG linkage programme. A Task Force was set up by NABARD at the instance of RBI to look into the entire gamut of micro finance and MFIs, to catalyze their growth. The self-help group SHG)-bank linkage programme of the National Bank for Agriculture and Rural development (NABARD) accelerated the growth of the micro finance movement in 2003-04 Number 221 23 28 Amount (Rs million) 47.38 6.48 11.60 Cumulative For prom Number Amount & linkage (Rs million) 37,268 785 151.22 7,895 90 27.58 14,750 29 12.40 For prom & linkage 115,279 35,045 15,550

RRB- Regional Rural Bank; CCB- Central Cooperative Bank; Prom- promotion & linkage of groups,

(Source: Sadhan,

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India in the latter half of the Nineties. Now the SHG-bank linkage programme is one of the largest micro finance programmes in the world with 10.79 lakh SHGs covering nearly 167 lakh poor families till March 31, 2004. As anywhere in the world, a sample analysis of micro finance institutions (mFIs) has concluded that nearly 78 per cent of the membership of MFIs is rural and almost 95 per cent of the members are women, the categories that have previously been underserved (Sadhan, 2006). In Bihar SHG was started in the year 1988 through Holy Cross Sister at Tilhara village of Ichhak block inhabited by Birhor tribe who were mostly beggars and also at Kolberia village of Berkhatta block. Simultaneously, SHG system was spread by PRADAN by its Hazaribagh unit. Gradually, NGOs who used to work in the state, started forming SHG in several districts. In the year 1993, a meeting with RBI team was held in Patna Secretariat on the micro-credit where it was discussed, whether the loaners should get subsidy. Followed the discussion during 1993, banks started giving loans to SHGs without any guarantee for the first time in Bihar. Bank of Maharastra & Canara Bank were the first two banks to bring out their guidelines for SHGs. After that, to the pressure of RBI and NABARD, different nationalized banks started opening accounts & lending loans to the groups. Y.V Reddy (2006) says that the approach of RBI has been to emphasize the informality of micro- finance and focus on the developmental aspects. The regulatory dispensation put in place by the RBI seeks to enable enhanced credit flow from banks through MFIs and could be further refined by RBI, as necessary. On the suggestion for bringing the micro-finance entities under a system of regulation through a separate legislation, the RBI felt that micro finance movement across the country involving common people has benefited immensely by its informality and flexibility. He further adds, Hence, their organization, structure and methods of working should be simple and any regulation will be inconsistent with the core-spirit of the movement. It was also felt that ideally, the NABARD or the banks should devise appropriate safeguards locally in their relationship with the MFIs, taking into account different organizational forms of such entities. In any case, if any statute for regulation of MFIs is contemplated, it may be at the State-level with no involvement of the RBI as a banking regulator or for extending deposits and insurance.

Other Significant Experiments on micro finance in India:

A few Indian experiments and its significance on designing effective delivery models and products are presented below. A few banks operated the pigmy deposit scheme, which involved daily/weekly collection of tiny deposits at the depositors doorstep by engaging local people as agents, in the past. The experience of banks most of the time has been adverse, with cash leakage, frauds and accounting and reconciliation problems. Most banks have now closed such schemes after booking losses. There is need to learn from this experience and devise adequate checks and balances and utilize IT tools to make any future initiatives less risky for banks (RBI, 2005). Banks have experimented with mobile banking in rural areas by several modes, including the use of mobile cash counters. The location and time of operation are usually synchronized with market days so that larger numbers of people could transact business.
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However, due to manpower constraints and inadequate volumes to cover costs, banks have not seen these operations as scalable models for wider replication (BASIX, 2004). Local Area Banks (LABs) is another initiative to mobilize rural savings by local institutions and make them available for investment locally. The LABs set up in the private sector and regulated by the RBI were expected to bridge the gap in credit availability and strengthen the institutional framework in the rural and semi urban areas to provide efficient and competitive financial intermediation in their area of operation. As on date, four LABs are functioning in the country. The LABs have, however, not made an impact on the local communities in which they function in terms of any significant indicators, such as, deposit mobilization, the number of depositors, borrowal accounts, rural branches and poor people helped on account of fundamental weaknesses inherent in their business model. One serious handicap identified with the business model is the absence of a refinancing facility, which hinders both in managing maturity mismatches and their ability to lend at finer rates. Krishna Bhima Samruddhi, a LAB promoted by BASIX in Andhra Pradesh, is the only LAB, which is into the business of micro-finance on a large scale and has achieved operational efficiency in terms of profits and a high credit deposit ratio. The experiment of LAB needs to be revisited particularly from the point of view of providing another institutional framework for reaching the rural areas (BASIX, 2004, RBI, 2003 et al). The Kisan Credit Card, now popular all across the country and the state, is a financial product innovation of far reaching significance. The card enables the farmer to get loans over a three to five year time frame as a revolving credit entitlement. These features give a farmer unlimited flexibility to manage his cash flows, reduces the documentation costs to a third or fifth of what was incurred in the past and also obviates the need for frequent branch visits, thereby keeping his travel costs to the minimum. A farmer's consumption requirements are also built into the credit limit, recognizing thereby that a banker's attempts at bifurcating productive and non-productive components of a loan does not match with a farmer's view in which caring for himself and his family is as important as crop husbandry. The reduction of workload for the rural bank staff due to simplification of documentation, a minimum of paper work and a reduction in transaction cost has resulted in better banker - client relationships. Many banks have innovated on the base KCC product and developed variants by integrating Term Loans and Crop Loans and providing other features akin to a 'General Purpose Credit Card' besides personal insurance linkage (Danish Faruqui, 2001) The national impact assessment survey conducted by the National Council for Applied Economic Research (NCAER), while bringing out several benefits of the KCC Scheme, has identified certain areas where further improvements are required, viz. restrictions imposed by banks on issuance of KCC due to security considerations, use of KCC only at the card issuing branches and lower credit limits. The Indian Banks' Association (IBA) is currently looking into these aspects (YSP Thorat, 2005). While this product addresses the needs of the farmers and cultivators, there are a large number of artisans, agricultural labour, and household entrepreneurs who also need a product with the features and flexibility that the KCC offers. Further, a potential innovation that has yet to be experimented upon on a large scale but which could have far reaching implications for

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the future could be for a KCC with smart-card features, which would facilitate POS transactions, linked to the farmers bank account.

Emerging Micro Finance Models:

India has been a fertile breeding ground for a large number of models of Micro finance, each of which has become hugely popular. In fact it can be said that India hosts the maximum number of Micro finance models, both in indigenous practices as well as in modern Micro finance. The sheer geographical size of the country, a wide range of social and cultural groups, the large spectrum of economic classes and a very active NGO movement, can be said to have caused the upcoming of a wide variety of Micro finance models. The models range from pure home-spun varieties like the SHGs and the cooperatives to the adapted models like the Grameen methodology and the for-profit corporate models (Sadhan, 2004). M S Sriram et al, (2005) gives his opinion saying, in the dynamic field of micro-finance, there is clearly no one best way to deliver services to the poor - multiple models exist and each has succeeded in their respective contexts. According to him, the evolution of the different models may have happened due to any or the combinations of the following reasons: a. Compatibility with the programmes that the NGO is already involved in. b. The inclinations of the promoter. c. Choosing between an approach that delivers only Micro finance or a mixture of financial and business development services. d. Legal and policy considerations. e. Whom to serve Clientele. f. How many clients to cater to and where to operate Outreach and Geographic Dispersion. g. What specific services to offer to the clients Products (social, financial and business intermediation). h. How much to charge for the various services Price. i. What methods of service delivery to employ Channels. j. What organizational mechanisms to use Legal/Institutional Forms, and k. How to communicate the availability of various services Promotion l. What are the long term objectives social versus commercial micro finance; the various dilemmas about Micro finance itself-For-profit or no-profit Though, a range of micro finance models exists in India, the most used model is SHGs. These are larger (around 20 members) and much more autonomous than borrower groups in the Grameen model. SHGs are based primarily on the principle of lending their members savings but they also seek external funding to augment these resources. A number of non-governmental organizations (NGOs) specialize in promoting and motivating SHGs, with an important distinction between NGOs, some who operate as financial intermediaries, and others, who confine themselves to social intermediation (ADB, 2005).

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Sadhan (2004) classifies Indian MFIs in to four categories and the reach of these models is given in the below mentioned table. Table 2: Model wise distribution of micro finance programs S.No MFIs Clients % women Grameen SHG 10 500191 of 97 35 105877 7 91 JLG 4 184638 96 Individual 2 5176 100 Total 51 1748782 93

(Source: Sadhan, 2004) The Indian Micro Finance models (Sadhan, 2004) can be classified based on institutional structure, legal form, ideology and other such factors. One model may include more than one such characteristic mentioned above. The following models were the highly effective innovative approaches that have been adopted by micro finance institutions (NGO-mFI, Mutual Benefit mFIs, and For- Profit mFIs) for increasing the credit flow to the unorganized sector (Sadhan, 2004). They are (SIDBI, 2005): The basic SHG Model with Commercial Bank linkage programme The Federated SHG approach. The Rural Industries Promotion (SHG) Framework. The GRAMEEN Replicator Approach The Urban Co-operative Banking Model The Multi-State Co-operative Solidarity Group Model The Enabling Co-operative Networking Framework The Co-operative - Grameen Hybrid Model The NBFC Approach

Different institutions in the micro finance sector have successfully tried out these approaches to deliver micro finance services. Though these approaches have their own model specific strengths and weaknesses, they have demonstrated to provide financial services to the unorganized sector with effective outreach. The models vary in their legal form, in the channels and methods of delivery, in their governance structure, in their approach to sustainability, and also in their approach to Micro finance. Sadhan (2004) states that yet all of them have an overarching view of micro finance as a very effective tool of poverty alleviation. Some of the models have a minimalist approach to Micro finance and others have a Credit Plus approach, depending on the way they approach Micro finance. All the models are tried and tested and have shown excellent results in the contexts that they are operating in. Each model has demonstrated its strength in making available services to their clientele effectively. Also, innovations and experimentation go on in each model as each organization tries constantly to improve the quality of their services and their outreach. The SHG model (Sadhan 2004), like almost all the other models in Micro finance, has evolved in the NGO sector. The belief has been that the poor have the capacity of self-

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help and the NGOs primarily have the functions of enabling, educating and networking. The NGOs have had a larger vision of development other than just provision of some services, there-from has emerged the paradigm of capacity building of community-based institutions. Needless to say, this set of belief has also given rise to a variety of other models also, but the SHGs have been the most popular among the lot. SHGs are small (membership 10 to 20), informal groups that have socially and economically homogeneous membership of poor people drawn from the same hamlet or from nearby hamlets. The composition is mostly male only or female only (as of now in India more than 90% of the SHGs are female only). S.K Mitra (2005) says, The SHG linkage model entails an NGO to act as facilitator between the bank and the SHG that wants to initiate micro savings through a savings bank account. The SHG Model also addresses womens multitude social and economic problems and links women to existing government programs (Deepa Narayan and Soumya Kapoor, 2005). The members are self-selected, meaning the potential members have a choice of being in this group or that group depending on their level of affinity with the other potential members. Thus the basic design of the SHG is robust and makes it easy for the NGO facilitator to build it into a strong social and financial institution. Once the basic group is identified the NGO facilitator builds in processes and systems that make the SHG a viable, sustainable institution. The group meets regularly, mostly weekly, at an appointed time and place and carries out its financial transactions of savings and credit (Sadhan, 2004). Alok Misra (2003) states the following characteristics consist the operational framework of SHGs, Homogenous Group of 15-20 people organized by NGO or Bank as SHG Focus on thrift initially, credit comes later Training by NGO/Bank No collateral, Group liability, loan purpose/ROI decided by SHG

As said earlier, Sadhan (2004), the NGOs promoting SHGs have set out with a broad vision of development, which culminates in the empowerment of the poor both socially and economically, there fore the activities taken up with the SHGs also reflect these concerns. Therefore we have a phenomenally large number of womens SHGs that have been promoted and the SHGs also take up social and political issues in addition to livelihoods. The compatibility of the SHG to adapt itself to the wide variety of developmental concerns and approaches, have made it currently the most popular model also. The SHG derives its strength from the fact that it provides an avenue for the poor to save and take small credit as and when needed. And this forms the primary stake that the member develops in the group. The fact that the members are all from the same settlement and know each other very well helps the members exert peer pressure on each other, in case of errant behaviour. This peer pressure ensures that the members follow the group norms strictly. The facility that the SHGs have now of drawing finance from the mainstream makes it more attractive because even bigger loans are now possible.

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There is a need felt among SHGs and facilitating organizations to bring SHGs together in the specific geographical area so that solidarity will be built among the SHG members, a unique identity would be created, scale can be achieved in certain programs like insurance and housing and SHGs can gain power to effectively negotiate with the mainstream organizations and can demand their entitlements. Hence, DHAN Foundation initially played pioneering efforts on promoting SHG Federations. Many organizations either adapted or created their own structures subsequently (Sadhan, 2004). BASIX (2001) states, Professional Assistance for Development Action (PRADAN) approach is to link SHGs with banks, and later establish strong local CDFIs in the form of SHG Federations and link them with banks. DHAN Foundation has taken this approach to a highly evolved stage with its "Kalanjiam Foundations" which are further federated at the block level. The Vaigai Vattara Kalanjiam was the first SHG federation promoted in Tamil Nadu at the initiative of DHAN Foundation (NABARD, 2001). Ajai Nair (2005) explains, SHG federations were promoted primarily as an exit strategy, i.e. to allow organizations that had promoted SHGs to withdraw their support to SHGs while also ensuring their sustainability. PRADAN and Mysore Resettlement and Development Agency (MYRADA), two large NGOs that pioneered the concept of SHGs, were also among the earliest agencies to promote SHG federations. DHAN Foundation further refined the federation model promoted by PRADAN. Other major NGOs that have promoted SHG federations include SEWA in Gujarat, PREM in Orissa, Chaitanya in Maharashtra, Gram Vikas in Karnataka, and YCO in Andhra Pradesh (FWWB 1997). The structure of the federations and the functions performed vary and depend significantly on the promoting NGO. He further states, Federations promoted by DHAN usually have more than 200 SHGs as members, provide a wide range of services including financial services, and employ paid staff. The federation structure is a nested-structure with SHGs as members in clusterlevel federations and block-level federations; the block-level is a registered entity, either as a society or trust. DHAN has promoted over 30 such federations. In contrast, federations promoted by MYRADA are unregistered associations of 15-25 SHGs each, do not have paid staff, and provide a more limited range of services that does not include financial services. The federation has no permanent staff, office, or funds. MYRADA had promoted over 50 such federations by 2001. Sadhan (2004) defines federation structure as The executive body at the apex level is the executive committee, which is typically made up of 9 to 15 members Federations also have paid staff members working for them but there is significant variation in the degree to which the staff is able to manage the affairs of the federation independently of the supporting NGO. In one federation, the SPMS (promoted by The DHAN Foundation), the NGO has almost completely withdrawn its support from the federation, and the staff and leaders of the federation manage all activities. In other federations, the staff manages the day-to-day operations, with guidance from the supporting NGO. Among other things, Federations enable SHGs to access and manage external funds, especially from microfinance wholesalers, help in the promotion of newer SHGs and also the strengthening of existing groups through capacity building inputs, facilitate inter-group exchange (both financial and non-financial) help in maintaining linkages between SHGs and other

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agencies acting as advocates for member groups, and assisting SHGs with loan recovery. Activities of the Federations (DHAN Foundation, 2003) are listed. Three financial activities that are common to federations need special mention: a. Acting as a conduit and manager of external credit funds b. Assisting SHGs with loan recovery in difficult cases: c. Strengthening weak SHGs, so that they are able to carry out their savings and credit function smoothly The effectiveness of the federation in these roles derives from several factors: a. The representative body at the federation level is a library of the experiences of several groups, which enables it to have a better perspective on SHG problems b. The members perceive the representative leaders as one of us, which increases their efficacy with the SHGs c. The representative body consists of group leaders, which makes it a concentrated pool of talented and competent persons, and d. Federation leaders receive a significant amount of training through the supporting NGOs, which enhances their competencies. Sadhan (2004) further informs, The federation, by virtue of its size and scale of operations, is thus able to expand the savings opportunities for members. The creditgiving patterns also vary. While, generally, federations have credit activities occurring at the group level, the federations also provide credit to their members. These loans are given from members savings that may be deposited with the federation, and from external funds that it is able to access independently. Federations are thus able to increase the amount of credit available to members. Sometimes, when bank loans take longer than expected, federations even provide bridge loans. One federation in India (Chaitanya), which started providing insurance services to its members, has even become an agent of the insurance company. Product diversification of financial services is thus a commonly observed trend after federative activity. Though Grameen bank evolved its methodology in Bangladesh, with its well-recognized success, many organizations in India, like SHARE Microfin Ltd., Activists for Social Alternative (ASA), and CASHPOR Financial and Technical Services Ltd. have adopted this methodology with little variations (Websites of the above organizations). Some of the salient features of Grameen Model are mentioned below (Sadhan 2004): Grameen groups are homogenous affinity groups of five members formed at village level. The field worker facilitates the process of forming group. All the group members undergo a 7-day compulsory training of 1-2 hours each day. Some groups undergo the Group Recognition Test (GRT). The GRT is a screening mechanism that can distinguish between serious and non-serious groups. It has been recognized as an effective targeting tool. Once the preliminary groups have passed the GRT, and then the women should become members of the institution by paying a one-time member fee. Eight group affiliate together to form a centre. The centre meets every week, at a defined time. The meetings are very structured and a staff of the institution attends the meeting .Grameen model is also started way back in 1993 by Read in West Champaran.

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Loans are provided for all kinds of purposes - General Loans, Supplementary loans, Special General Loans, Sanitation and Housing Loans. The savings are compulsory for the members. Every member saves Rs. 10 every week. This amount is deposited with a Bank. This deposit funds the members consumption needs. This strategy has paid off, because members are less likely to default on their own money as opposed to when funds are provided by outside institutions. The size of the loan generally ranges from Rs. 4000 to Rs. 10,000 for yearly loans. The first year size is Rs. 4000 and there is an annual increase of Rs. 1000 in loan size, for every year thereafter. All loans including agriculture loans are repayable within a year spread over equal instalments of 52 weeks. The provision of 5% tax of all productive loans disbursed to a member is one of the most important strategies to increase group fund. This fund remains with the group. From this fund the members can access the loans for consumption purposes. The belief here is that, if there is an alternatives provision for consumption loans, the clients will not divert production loans to meet their consumption needs. The group leader collects the loan repayments and savings prior to the meeting and hands it over to the Centre leader who in turn during the meeting gives it to the field worker. The collected money is never used for fresh loans. It is deposited in the branch the same day. In a sense it is a good practice as it discourages all possible leakages in monetary transactions. While the Grameen model is limited to less than a dozen major NGO-MFIs or NBFCs, it is an important alternative credit delivery system to mainstream finance. Some of the comparative strengths and weakness of the Grameen approach vis--vis SHGs are given in a later section. The leading organization that has been successful in using the cooperative form in rural micro finance in India has been the Cooperative Development Foundation (CDF), Hyderabad (Sadhan, 2004). CDFs approach has relied on a credit union model involving a savings first strategy. It has built up a network of financial cooperatives based upon women and mens thrift groups. After lobbying successfully for an enabling legislation in the State of Andhra Pradesh for the flexible functioning of cooperatives (which result in the Andhra Pradesh Mutually-Aided Societies Act), it has registered the associations of thrift groups promoted by it under this Act. M.S Sriram and Rajesh S Upadhyaya (2002) elaborate, About a decade ago, CDF was working exclusively with agricultural finance cooperatives. State interference in cooperatives was one of the major problems. The interference culminated in the nationwide loan pardon scheme of 1989, resulting in the impairment of the portfolio of many a cooperative. At that point CDF thought it was time to spin off the thrift and credit activity out of the cooperative fold and actively started promoting informal mutual benefit groups. Simultaneously, CDF also lobbied for a change in legislation, seeking greater autonomy for cooperatives in the state. This culminated in the Mutually Aided Cooperative Societies (MACS) Act. This act gives ample autonomy for cooperatives, provided they do not seek state funding. After the legislation was passed, the mutual benefit groups promoted by CDF were registered under the new act. Simultaneously other NGOs encouraged their groups to be formally registered as MACS. M S Sriram et al further say, The transformation of small groups to cooperatives has been painless. The advantage of a cooperative is that it can access various types of savings from its members besides providing credit like other MFIs. It can also easily get

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its stakeholders in the governance structure by the use of democratic processes. Besides, cooperatives can grow organically by setting up federations as and when they have a need to wield clout and negotiate on matters of policy. However, until now, the federations have played a limited role in the context of CDF cooperatives. One major drawback of cooperatives is the geographic limitation. State and not federal legislation governs cooperation, and even within that, usually the area of operations of a cooperative is demarcated. Cooperatives also experience problems in accessing mainstream finance, because of their poor image. Nevertheless, they seem to be a good mechanism to get the informal groups into a formal incorporation when the groups reach the limit of size. But it is also important to note that no single cooperative has grown big enough to cross Rs. 10 million in outstanding loans. The success of the new generation of cooperatives is limited to Andhra Pradesh, even though other states have passed similar legislation Andhra Pradesh Mutually Aided Cooperatives Act, 1995 features are greater flexibility to cooperatives to frame their own bye-laws; operations and management of cooperatives to be conducted according to bye-laws, role of Registrar of cooperatives reduced, Rulemaking power of Government abolished, Admission, disqualification and expulsion of members the sole prerogative of cooperatives, Members alone can contribute share capital (non-member including government share capital forbidden), greater flexibility in mobilization and utilization of funds, Cooperatives allowed to set up subsidiary organizations. (Biswas and Mahajan, 1995) Sadhan (2004) on its study on various micro finance models describes, All the members of the primary cooperatives constitute the General Body and adopt a uniform set of bylaws. The General Body meets once every year to elect the directors, review operations and discuss other issues. The Board of Directors consists of 12 directors who are elected from amongst the members. Each director is elected for a three-year term. To allow for both change and continuity in leadership, the byelaws provide for four directors to retire every year. These directors are however eligible for re-election. The directors elect a chairperson and appoint a managing director from among himself or herself. Both the Chairperson and Managing Director have a one-year term. They are however, eligible for re-election. It is the duty of the Chairperson to preside over all the board meetings, represent the cooperatives in other organizations and forums and to ensure that they function in accordance with the cooperative principles and bye-laws. The Managing Director is responsible for ensuring that the operations of the cooperative are properly conducted and that the resolutions of the Board are implemented. A set of geographically contiguous cooperatives federate to form an association of womens/mens thrift cooperatives (AWTCs/AMTCs). The Chairperson and Managing Director of each participating cooperative are members of the General Body of the associations. The General Body elects a Chairperson and a Managing Director to oversee the affairs. In addition to looking into matters such as training, management of the Loan Insurance Fund (LIF) and inter-lending, the associations also play a service and support role by helping the member cooperatives in handling accounting, auditing and other administrative and statutory matters (Biswas and Mahajan, 1995). In the models described above NGOs can either play a facilitating role for the promotion of various community-based micro finance institutions or can themselves, or through a satellite company, act as micro finance intermediaries. Thus NGOs can either link SHGs

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or their federations to banks and to enable them to access other sources of finance or can borrow funds themselves in order to act as retail MFIs serving either individuals or Grameen-style joint liability groups or SHGs and their federations. For this purpose they can be registered either as non-profit societies, trusts or companies or they can operate on a for-profit basis. Hence, Sadhan (2004) summarizes, The legal form of the Non-Banking Finance Company (NBFC) has emerged as the nearest substitute to being a full-fledged bank, for those MFIs who want to go the for-profit route. Since getting registered as a Bank is costly (requires the promoter to put up Rs 100 Crores as start-up to be recognized as a Bank in the private sector) and the Local Area Bank (LAB) idea still hanging fire, there fore the NBFC route is increasingly being chosen by MFIs operating for-profit. By going the NBFC way, the MFIs can also now vie for entering the capital markets for mobilizing resources. Rajashri Ghosh (2003) however brings other dimensions, Majority of MFIs would like to be converted to NBFCs, which would enable them to raise public deposits for on lending. A big deterrent is the start up capital of Rs 20 million required to register as an NBFC, which is beyond the reach of many MFIs. But this requirement is part of the regulatory apparatus of RBI to ensure the issue of safety of public money. But MFIs need liquidity also. Hence, they should be allowed to borrow public money with adequate safeguards like deposit insurance with banks. MFIs also want to have more freedom in raising equity capital. They face difficulties in raising equity, because NGOs are not allowed to invest in MFI equity, because of the charitable status of NGOs under the Sections 11 and 12 of the Income Tax Act (Priya Basu et.al 2002). One good measure of late is NGO-MFIs have been allowed to raise External Commercial Borrowings, where the interest costs are relatively lower, from April 2005. {RBI, 2005} The stipulations are (1) funds are to be routed through normal banking channels (2) funds to be earmarked for micro finance only and (3) the borrowed amount must be hedged. The belief is that the poor are bank-able and lending to them can be viable commercially, so it is not necessary to depend upon on low cost funds to lend to them. Secondly since the amounts required are huge (a rough estimate is that the poor in India require about Rs 50,000 crores a year as credit (Sanjay Sinha, 2003) and the existing mainstream sector meets only 20% of it), the financial markets are the only way to mobilize resources. This would mean mobilizing debt at market rates of interest. The for-profit NBFC route is currently the best method currently to operate in the capital markets. As of today the best example of an NBFC-MFI is BASIX, a new generation NBFC (also called the eclectic NBFC model) that has been promoted for providing tailor made financial services for the poor. Unlike the majority of MFIs in India, who have come through the NGO route, BASIX is the first one to have selected the NBFC route (Sadhan, 2004). This also means that unlike the other NGO-MFIs that have got into Microfinance with a not-for-profit motive, BASIX is the first one to have initiated Microfinance services with a stated agenda of making profits. So it has been registered as an NBFC. BASIX has also applied for starting a local area bank in Andhra Pradesh and Karnataka, which would be registered as a bank. Thus it can be said that BASIX is an attempt to demonstrate that lending to the poor can be a commercially viable business and the

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corporate financial world has all the reasons to begin to get interested in providing financial services to the poor. The poor do not have to be always looked at as worthy of doles and charity but realm of Micro finance and micro-enterprises they are capable of dealing with the mainstream as equal partners. However, it is not viable for a company or NBFC engaged in micro finance to invest in developing a customer base - which has to be undertaken by an NGO - to enable poor clients to absorb credit. Thus this form of MFI is dependent on having a ready clientele of SHGs/individuals through prior investments and facilitation by an NGO. The NBFC form is also the preferred form of Grameen replicators such as SHARE and CFTS, since the methodology requires the MFI to act as a financial intermediary rather than a facilitator. Whatever the model may be, SIDBI (2005) insists For the growth and increase in outreach of the micro finance sector, we need to create an environment that facilitates the market entry of new players, encourage them to innovate and brings competition in the sector resulting in efficient services and low interest rate to borrowers. However, this requires that the government, regulator and the apex institutions are methodology neutral and do not impose any restrictions or discriminate against MFIs adopting different methodology to reach the under-served segment of the society. Different methodologies have their own strengths and uniqueness in reaching out to the people left out of the ambit of the formal financial sector. There are a number of successful examples of retailing MFIs following different approaches in our country. The right approach does not appear in bringing uniformity in the methodology but in encouraging players with different methodology and providing them with capacity building assistance to improve their systems, internal control mechanisms and governance structure bringing thereby efficiency in the system and lower transaction costs. However, this requires an intensive study of different models of micro credit, the issues related with their sustainability and interest rate on the ultimate borrowers.

Moving from micro credit to micro-credit plus to Livelihood Finance:

Minimalist micro-credit is the practice of micro finance organizations. They provide only credit as part of their developmental activities. It reflects the ideology that if credit is provided, and invested in income generating activities, it will result in poverty reduction and increased welfare of the family. Most micro finance programmes now realize the limitation of this approach and move towards an integrated approach that provides not only financial but also social intermediation, enterprise development and other social services including education and health services. Vijay Mahajan (2007) opined that micro credit is essential but just micro credit without other support services is just like a vehicle with fuel and no wheel and accessories. He further says that poor families need saving services more then credit. Poor people taking credit faces huge risk of their lives and livelihoods and so is the need for suitably designed micro insurance products. He further opined that micro-credit in particular, and micro-finance (including savings and insurance) in general, is helpful for the more

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enterprising poor people in economically dynamic areas. However, for poorer people in backward regions, a whole range of other livelihood promotion services (input supply, training, technical assistance, market linkages) needs to be provided. Also, it is not possible to work with poor households individually as they need to be organized into groups, informal associations and sometimes cooperatives or producer companies, all of which requires institutional development services. BASIX follows this strategy as a new generation livelihood promotion strategy. Vijay Mahajan (2005) clearly states, While every effort should be made to expand and improve the micro-credit programs of banks and MFIs, we must note that micro-credit is able to address the livelihood problem only peripherally. What we need is to broaden the paradigm from Micro-Credit to Livelihood Finance. He further explains Livelihood Finance is any mechanism for investment in the very basis of livelihoods, which are Natural Resources: Land, water, trees, livestock, energy ,Human Resources: Nutrition, Health, Education, Vocational Training, Capacity Building of individuals and groups ,Infrastructure: Roads, power, market places, Institutions: Of law and order, of governance and representation, of free markets. He further states Seen in the above context, micro-credit pales into insignificance as a "solution" for promotion of livelihoods. Micro-credit is by definition, small loans, given for short durations, with repayments beginning as quickly and as frequently as possible. Moreover, whether given through self-help groups, Grameen bank style groups, joint liability groups or directly to individuals, most micro-credit eventually is loans to individuals, not to any collectives. In contrast, Livelihood Finance will require large amounts; it may need more than just loans (it may need equity or risk funds); it will invariably be for long durations, at least five and maybe 20 years, and its use will almost always be for collective purposes. Thus microcredit and Livelihood Finance are fundamentally different.

NGOs as MFI or financial intermediary

BASIX (2006) view, In the course of its work in the last few years, BASIX recognized that CSO/CB-MFIs play a critical role in supporting/ promoting livelihoods in rural areas if they become MFIs or financial intermediary. BASIX has also been the pioneer in building the capacity of these NGOs in terms of their (i) Operating System, (ii) Information System, and (iii) Human Resource System. This model is now being practiced widely by private banks like ICICI, HDFC and UTI . NGOs are also been partnered under the business correspondence model and as business facilitator. Keeping these validated models for delivery of credit to the poor and the unorganized sector in view, RBI is moving towards a systems perspective for providing effective policy support not only because a number of different institutions, viz. banks, MFIs, NGOs and SHGs are involved, but also because these institutions have very different institutional goals. With this in view, a series of initiatives is being planned for putting in place a more vibrant micro finance dispensation environment in the country where complementary and competitive models of micro finance delivery would be encouraged to co-exist.

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Excerpt from the Finance Ministers Budget speech

Paragraph 53 of the Union Budget 2005-06 reads as:

At present, micro finance institutions (MFIs) obtain finance from banks according to guidelines issued by RBI. MFIs seek to provide small-scale credit and other financial services to low income households and small informal businesses. Government intends to promote MFIs in a big way. The way forward, I believe, is to identify MFIs, classify and rate such institutions, and empower them to intermediate between the lending banks and the beneficiaries. Commercial banks may appoint MFIs as banking correspondents to provide transaction services on their behalf. Since MFIs require infusion of new capital, I propose to re-designate the existing Rs.100 crore Micro Finance Development Fund as the Micro Finance Development and Equity Fund, and increase the corpus to Rs.200 crore. The fund will be managed by a Board consisting of representatives of NABARD, commercial banks and professionals with domain knowledge. The Board will be asked to suggest suitable legislation, and I expect to introduce a draft Bill in the next fiscal year.

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CAHPTER-3: LANDSCAPE AND STATUS OF THE MF SECTOR IN BIHAR:

There have been many significant initiatives in the institutional and policy spheres since the mid 1990s to enable the poor access financial services. Major institutional initiatives include the bank linkage programme under the overall guidance and supervision of the National Bank for Agriculture and Rural Development (NABARD), the setting up of the Rashtriya Mahila Kosh to re-finance MF activities of NGOs, including the state of Bihar, and the significant role of RGVN in providing capacity building and start up loan to NGOs are some of the initiatives witnessed in the state. The Scheduled Commercial Banks (mainly in the public sector), Regional Rural Banks (RRBs) and cooperative banks are also emerging as important channels of micro finance provision in the state. There have been fiscal initiatives such as assistance under central development schemes like Swarnjayanti Gram Swarozgar Yojana (SGSY), Swa-Shakti, Swayamsiddha, Swawalamban and Deep (all central government scheme exclusively targeting rural women) are routed through SHG and for different category of clients. Besides this programmes being run by other donor agencies like PACS, Mahila Samakhya, Food for Hunger and OXFAM among others have played a significant role in giving a fillip to the SHG movement and MF development in the state. Some early initiatives by NGOs like NIDAN, CPSL and NBFCs like SNFL-ASSEFA, Bandhan, and CASHPOR are helping in the process of bringing in alternative methods of lending (SHG, SHG federation, ASA, Grameen, and cooperative models) in the state. Private Banks like ICICI has also initiated the partnership model and has started on lending to NGO and MFI in the state. BASIX also has started its Institutional Development work way back in 1999 with ASSEFA which transformed its Gram Kosh into a NBFC-SNFL. For the last three years BASIX is building the capacity of NGOs to run their MF program, which is being supported by ICICI and DID Livelihood and MF promotion fund through handholding support for SHG promotion, SHG quality improvement and designing MF operational and systems. In this section we will only present the present status of the SHG, SHG Bank linkage through formal institutional channels including the lending to priority sector and weaker sections in rural Bihar. In addition, the status of the new forms of alternative institutions for lending to the rural poor will also be looked and as well as informal sources. An attempt is also being done to compare the status vis-a-vis neighbouring states and some of the leading states. A complete profile of those indebted in the state is also presented in this section.

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Profile source and purpose of indebtedness of rural and farm households in Bihar: In this section we have presented the complete picture of indebtedness by households based on different occupation, income group, social status, its purpose, and its sources in Bihar and in other states. This will help us understand the status of micro credit vis-a-vis other states. A comparison will help understand any specific issue for growth or the need for a new strategy for the growth of MF sector in Bihar. A specific analysis of the indebtedness by the farmers household is also being done as most of the rural lending is still targeted towards the cultivators. Providing rural households access to financial services, particularly credit, has been a priority agenda for the state since the early days of independence. A survey on indebtedness by NSS-59th round, 2003 (report no - 498) shows that over the last decade there has been a significant (3 to 4 fold) increase of borrowings in rural areas. However the percentage shares of average borrowings in Bihar is far below states like AP and interestingly lower than the newly formed state like ChattiSHGarh. Thus, it can be inferred that the availability of credit and credit absorption capacity in states like Bihar and Assam is low (see table-1). This is probably because of limited opportunity of investment available in the state and is particularly true for farmer household. Table 2 gives a picture of the loan outstanding of loan per farmer household. Table-1: Average amount of cash borrowing per house- hold (AOB) in Bihar and other
states Major states Andhra Pradesh Assam Bihar Chattisgarh Orissa AOB(Rs) 1971-72 155 31 62 0 53 1981-82 664 29 113 0 194 1991-92 1894 236 305 0 269 Rural 2002-03 5306 622 1028 1569 1548

NSS-59th round In another study being done with the farming community only by NSSO in the year 2003 has the following findings: The table below shows the average amount of outstanding Loan (in Rs.) per farmer household of different Social Groups in different States. The loan outstanding of backward classes is lower than the socially forward castes across all states. This is due to low accessibility and possible discrimination of the lower caste by the formal institution.
Table- 2: Average borrowing per household by caste Social Group Other Backward class(OBC) 23697 598 4010 7845 Estimated no of indebted HHs(00) 49493 4536 23383 20250

State Andhra Pradesh Assam Bihar Orissa

Schedule Caste(SC) 12720 1141 3161 4850

Others 37802 971 6814 10439

All 23965 813 4476 5871

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Source-NSS-59th round Nationally, the decade of the 1970s was marked by directed lending following the nationalisation of banks in 1969 and introduction of the lead bank scheme. Institutional sources have made significant progress in provision of financial services in rural areas, with All India average standing at 57% whereas the corresponding figure in Bihar is 23%. The picture is true for urban Bihar where the percentage is lower than the other states. The other significant observation is that share of institutional credit in both urban and rural areas in Bihar has declined. This calls for a alternate banking strategy so as to increase the share of institutional finance in Bihar. Table-3 Percentage share of institutional agencies in cash borrowing of the household
Major states Andhra Pradesh Assam Bihar Chattisgarh Orissa NSS-59th round 1981-82 40.9 22.6 39.8 0 69.2 Rural 1991-92 23.9 44.7 57.7 0 68.5 2002-03 37.6 46.5 23.4 57.9 69.6 1981-82 38.1 52.1 63.3 0 85.9 Urban 1991-92 40.8 69.2 64 0 87.9 2002-03 60.2 87 46.8 86.1 95.8

While institutional intervention continued in rural markets, it was largely driven and skewed in favour of agricultural credit. Percentage of net bank credit to agriculture both direct and indirect was one variable consistently monitored by the regulators. In general, the targets relating to the sector were being achieved by the banking sector as a whole. At the same time, targets for weaker sections set at 10 per cent of the net bank credit has not been achieved. While the public sector banks as a category have lent around 7 per cent of net bank credit to weaker sections, the private sector banks have achieved less than 2 per cent. The institutional source of credit is manly long term where as the non institutional short term with quick repayment periods. The figures of repayment during the same year are also not encouraging. It is seen that the cultivators generally find it difficult to repay loans in the same year if it is a bad year. It can be seen that the ratio of no of persons from all category borrowing from institutional vs non institutional borrowings is quite high in the ratio of 1:11, where as the ratio of amount is 1:3.5. This can be also inferred that non institutional credit is more easily available and for smaller amount. Where as institutional credit is meant for small no of borrowers who need bigger amount of loan. Banks do not find it profitable to lend to small individual borrowers.

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Table-4: Occupation wise Institutional and Non-institutional credit usage in Rural Bihar
Occupational category Credit agency Institutional Type of transaction Borrowing in cash Av per000 Av. per HH 000 Rs. 322 30 600 151 116 241 Repayment of loan taken during the year Av per000 Av. Per HH 000 Rs. 2 0 1 1 1 1 18 0 0 9 4 12 Loans written off Av per000 HH 2 0 0 1 0 1 Av. Per 000 Rs. 16 0 0 1 1 10 No of HH Estd(000) 70718 25187 3150 17799 46136 116853 Rural

Cultivator 13 Agriculture labour 4 Artisans 26 Other 10 non-cultivator total 8 All 11 Credit agency Non-Institutional Cultivator Agriculture labour Artisans Other non-cultivator total All Credit agency All Cultivator Agriculture labour Artisans Other non-cultivator total All NSS-59th round 124 146 78 154 144 132 136 149 104 164 152 143

802 474 133 1287 765 787 1124 504 733 1439 880 1028

27 29 4 26 26 27 29 29 5 28 27 28

77 43 10 44 41 63 95 43 10 54 45 75

1 3 0 0 2 1 3 3 0 1 2 3

3 2 0 0 1 2 19 2 0 1 2 12

70718 25187 3150 17799 46136 116853 70718 25187 3150 17799 46136 116853

It is also observed that among the institutional source of borrowings commercial banks and RRB and to some extent cooperatives play an important role where as noninstitutional borrowings are dominated by the professional money lenders, agriculturist money lender and friends and relatives. The same can be seen in table-5 below. Table-5: No of households reporting cash borrowing during 1-7-02 to 30-6-03 per thousand
household (P) and per 1000 distribution of amount of borrowing (S) over credit agency for each major household type No. of hhs Cultivator Non cultivator All report Agency borrowings Credit agency P S P S P S est.(00) Govt. 0 2 1 17 0 7 50

45

Co-operative society/ bank Commercial bank including RRB Insurance Provident fund Financial corporation/institution Financial company Other institutional agencies All institutional agencies Landlord Agriculturist money lender Professional moneylender Traders Relatives and friends Doctors, lawyers and other professional Others All non-institutional agencies All agencies NSS-59th round

3 9 0 0 0 0 1 13 2 21 43 7 39 1 12 124 136

23 249 0 9 0 0 4 287 10 139 277 45 167 4 71 713 1000

0 5 0 0 0 0 1 8 9 24 48 4 40 0 19 144 152

2 106 0 3 0 0 2 131 22 122 209 9 448 1 57 869 1000

2 7 0 0 0 0 1 11 5 22 45 6 39 0 15 132 143

16 200 0 7 0 0 3 234 14 133 254 33 262 3 66 766 1000

261 856 0 17 2 1 93 1281 568 2571 5214 707 4610 52 1713 15410 16653

Another study done on indebtedness of the farming community only by NSSO(2003) also scores high in non- institutional borrowings from Agriculture /professional money lender, friend and relatives. In AP interestingly the share of professional money lenders to total borrowings is still highest among all sources though both the banking and Mf formal sector has the highest growth in AP.
Table: 6 Per 100 Farmer household by sources of loan Agriculture / Professional money lender 57 0 10 44 20 8 23 Doctor, lawyer and other professionals 1 0 1 2 2 1 0 Estimated no of indebted hhs(00) 49493 72 4536 23383 11092 19644 20250

State Andhra Pradesh ArunachalPradesh Assam Bihar Chhattisgarh Gujarat Orissa

Cooperative society 20 0 3 4 37 40 30

Bank 31 10 9 17 27 23 36

Trader 9 33 17 5 17 10 4

Relatives & friends 6 49 54 26 12 29 16

Others 4 21 6 7 5 1 3

NSS-59th round The table below shows the type of loans preferred by those borrowing in rural areas of Bihar. It can be seen that the number of house holds in rural Bihar borrowing cash from any source is mainly for short term and long term. Demand for medium term loans are less. Money is borrowed in short term with a combination of pledging and non- pledging from informal sources. Long term loans are mainly to big farmers from institutional lenders. The demand for pledged short term lending is more in Bihar compared to other states.
46

Table-7: Number of households reporting cash borrowings during 1-7-02 to 30-6-03 per 1000 households (P) and per 1000 distribution of amount of borrowings (S) by type of loan for each major household type Estd. Hhs(00)/ amount of borrowings (Rs000) Short term Medium Long combined term term All
175 415 103 339 89 580 56 220 26 93 86 94 80 190 72 307 35 219 46 255 26 615 39 426 29 428 22 63 38 278 12 441 17 165 7 165 19 481 16 481 10 748 268 1000 149 1000 152 1000 84 1000 83 1000 131 1000 111 1000 80937 25084655 15459 988560 46136 4060651 8816 1139580 27047 4681803 12979 4681804 23469 5229534

State

Type of estimat e

Type of loan Short term pledged Short term nonpledged

158 362 74 257 62 463 49 159 20 45 85 45 68 151

Andhra Pradesh Assam Bihar ChattiSHGarh Gujarat Haryana Orissa

P S P S P S P S P S P S P S

22 53 29 82 27 117 6 61 6 48 16 48 14 38

NSS -59th round The table below also shows that for both cultivator and non -cultivator borrowings are still on mutual faith, personal security and third party guarantee. This is mainly from the informal sources. The other form of security for loan is on mortgage on immovable property and first chare on immovable property. Table-7: Number of households reporting cash borrowings during 1-7-02 to 30-6-03 per 1000 Households (P) and per 1000 distribution of amount of borrowings by type of security for each major household type Cultivator Type of Security
P S 109 650 P 129 S 840 P 117 S 715

Non-Cultivator

All

No. of HHs Report. Borrowings

estd. (00) 13633

Personal security Surety security/ guarantee of third party Crop

5 0

57 1

3 0

18 0

4 0

44 1

515 32

47

First charge on immovable property Mortgage of immovable property Bullion/ ornaments Share of companies, govt. Securities/insurance policies etc. Agriculture commodities Other movable property Other type of security N.r. All NSS -59th round

5 14 0

67 204 1

1 7 1

27 87 2

4 11 0

54 165 2

444 1336 56

0 0 0 2 0 136

0 0 3 16 0 1000

0 0 0 10 1 152

1 0 1 23 1 1000

0 0 0 5 0 143

0 0 2 18 0 1000

2 0 32 616 29 16653

In the same study on the purpose of borrowings in Bihar it was also found that most of the borrowings both by no. of persons and amount are used for consumption and HH purpose. After meeting the consumption needs the demand for loan for farm business and working capital is more compared to loan for non farm business and working capital. A significant no of people also take loan to repay their old debts and often poor fall in the debt trap. Table 8: Number of households reporting cash borrowings during 1-7-02 to 30-6-03 per 1000 households (P) and per 1000 distribution of amount of borrowings (S) by purpose of borrowing for each major household type
Cultivator Purpose of borrowing P Capitals expend. In farm business Current expend. In farm business expenditure in farm business Capital expends. In non farm business Current expend. In non farm business expenditure in non farm business household expenditure expenditure on litigation 21 14 34 5 5 9 70 0 S 230 103 332 35 19 54 383 1 P 3 4 7 8 3 11 108 1 S 21 56 78 90 27 118 696 2 P 14 10 23 6 4 10 85 0 S 159 87 246 54 22 75 489 1 Non-cultivator All Number of hhs report. Borrowings estd. (00) 1615 1148 2739 704 444 1148 9972 50

48

Repayment of debt. financial investment expenditure Others Non-business expends. In hh. n.r. Any estd. No. of hhs.(00)/ amount borrowed (Rs 000)

6 0 18 95 0 136 70718

21 0 209 614 0 1000 7951267

3 0 23 134 1 152 46136

5 0 100 804 1 1000 4060651

5 0 20 110 0 143 116853

16 0 172 678 0 1000 12011918 x

584 0 2349 12907 27 16653

NSS-59 round Another survey on indebtedness gives more details of purpose of loan of the farming community shows that in Bihar most of the loans being taken by the farming community are for consumption, marriage and medical expenses. Farmers of Bihar and Arunachal Pradesh face severe risk of health and need some appropriate strategy to deal with this situation. The demand for loans for marriage is also highest in Bihar. On the contrary in developed states like Gujarat and AP, loans are mainly being taken for working capital for farm business for productive purpose. A loan product also needs to be made suitable as per the requirement of the state. Table -9: Per 100 distribution of indebted farmer households contracting loans from different sources by State. Per 100 no .of indebted farmer household by purpose of loan. Othe Current Consum Marria r Expenditu Nonption ges and Medical Exp re in farm farm Expendi ceremo Educa treatme endi States business business ture nies tion nt ture
Andhra Pradesh Arunachal Pradesh Assam Bihar Chhattisgarh Gujrat Orissa 51 10 12 12 42 56 36 3 1 7 5 5 2 8 26 39 30 21 23 13 21 9 0 10 18 8 13 8 1 6 1 1 1 0 0 4 18 6 17 5 5 4 9 38 25 12 6 8 8

th

NSS-59th round The table below shows the purpose of loan for different source of income by various social groups in Bihar. Though no significant difference is seen among different social groups but it is seen that loans for education is being taken only among the cultivators of OBC and among all category of the upper caste people. Table-10: Per 1000 distribution of outstanding loans (in Rs) by purpose of loan for different sources of income of different category of farmer households.
Bihar Social Group:SC

49

Purpose of loan Curren t Expen diture in farm busine ss 60 25 4 131 99

Sources of income Cultivation farming other than cultivation other agricultural activity Others All Bihar

Nonfarm busine ss 131 0 0 53 77

Consu mption Expen diture 83 41 268 38 64

Marriage s and ceremon ies 323 198 307 334 327

Educatio n 0 0 0 0 0

Medical treatmen t 56 133

Other Expen diture 70 66

Estimate d no of indebted hhs(00) 4209 261 669 5077 10215

61 135 150 55 113 64 Social Group: OBC

Sources of income cultivation farming other than cultivation other agricultural activity Others All Bihar

Purpose of loan Current expendit ure in Nonfarm farm busines busine s ss 67 111 11 26 26 53 41 17 62 93

Consum ption expendit ure 47 314 359 113 80

Marria ges and cerem onies 124 312 20 312 178

Educat ion 40 0 0 2 27

Medical treatmen t 104 107

Other expen diture 66 24

Estimated no of indebted hhs(00) 26479 974 1013 14811 43277

7 3 184 127 125 81 Social Group: Others

Purpose of loan. Current Expendit ure in farm busines s 198 0 0 48 138 Nonfarm busine ss 71 0 46 11 48 Consum ption Expendit ure 18 161 8 55 31 Marria ges and cerem onies 96 0 67 602 276 Estimate d no of indebted hhs(00) 10204 156 313 4635 15309

Sources of income cultivation farming other than cultivation other agricultural activity Others All

Educat ion 12 0 0 13 12

Medical treatmen t 51 555 3 89 65

Other Expendit ure 228 0 41 107 179

NSS-59th round

50

Loans are reported being taken from institutional agencies clubbed with some government schemes. In Bihar major scheme based lending has been for SGSY, though the reach through the same is quite limited. It is however reported that people has taken loan for other schemes that come in the block level on Agriculture, employment etc from time to time. Table -11: Number of households reporting cash borrowings from institutional agencies during 1-7-02 to 30-6-03 per 1000 households (P) and per 1000 distribution of amount of borrowings (S) by scheme of lending for each major household type No. of hhs. Report. Borrow. Scheme of Cultivator Non-cultivator All Institutional lending agencies P S P S P S Estd. (00) DRI 1 26 0 127 1 45 68 PMRY 0 26 1 146 1 49 62 SGSY 2 87 2 487 2 163 227 SJSRY 0 1 0 2 0 1 5 Advances to minority community 0 0 1 10 0 2 27 Liberalization and rehabilitation of scavengers 0 1 0 0 0 1 2 Exclusive state scheme 1 37 0 2 1 30 107 Other schemes( MSTP etc) 9 822 4 225 7 709 787 Not covered under any scheme 0 0 0 0 0 0 0 N.R. 0 0 0 0 0 0 0 All Institutional loans 13 1000 8 1000 11 1000 1281 th NSS-59 round In Bihar among the farming community, the demand for smaller loans for consumption and to meet other HH demand is maximum among all classes of farmers based on their land holdings(see table below) . It is also observed that small holders do invest significant amount in their holdings as they practice intensive farming to maximise returns from their small piece of land. Table-12: Per 1000 distribution of indebted farmer households by size class of land possessed
in different states.

51

Size class of land possessed (in ha) 0.010.40 192 0 332 580 114 161 235 0.411.00 361 181 371 271 331 250 465 1.012.00 218 444 208 92 306 217 206 2.014.00 151 278 81 28 169 183 73 4.0110.00 66 0 5 7 75 132 17 All Size 1000 1000 1000 1000 1000 1000 1000 estd. No.of indebted hhs 49493 72 4536 23383 11092 19644 20250

States Andhra Pradesh Arunachal Pradesh Assam Bihar Chhattisgarh Guajrat Orissa

10.00+ 7 0 0 6 4 11 0

NSS-59th round

The Status of the Commercial and Cooperative banks in Bihar:

The credit delivery organizations in Bihar comprises of Commercial Banks, RRBs and cooperative sector institutions vis. DCCB, LDB. They have got the largest network of rural branches among all other players of formal MFIs in the state. i.e. Commercial Banks has 1262 rural branches, RRBs 1267 and State Cooperative bank is operating through 22 DCCB to members of 279 PACS (See table below). This makes a total of 72% of all branches of the above mentioned MFIs in rural areas (see graph below). Despite its high percentage of branches in rural areas 37 blocks of Bihar are not touched by any branch of any bank and each bank has to serve a high no of customers (22000) compared to national average of 11,400. Other alternative source of MF lending through MFIs, Federations, community based cooperatives are too less to be accounted for in terms of lending in rural Bihar. Private Banks literally have no presence in rural Bihar. Network of Rural branches in Bihar by Banks:
Agency CBs RRBs SCCB DCCBs LDB TOTAL
(Source: SLBC & State focus paper NABARD)

No. of banks 30 5 01 22 01 59

No. of Branches 2059 1475 14 279 151 3978

Rural branches 1262 1267 0 279 2808

Semi Urban Branches 436 165 1 0 602

Urban Branches 395 34 13 0 442

Besides this Bihar has a large number of PACS (5626) and credit cooperative society (250). Percent wise distribution of Branches:

52

%age Composition of rural, semi urban & urban bank branches in Bihar

12% 16%

72%

Rural branches

Semi Urban Branches

Urban Branches

Though data shows a significant network of rural branches in rural areas of Bihar but at the aggregate level data hides the huge concentration of banks in few pockets. At the district level almost all banks has reduced their share of rural branches from 1955 onwards. It has come down to 64.5% from 72% in the last year itself. Regarding the concentration of braches in rural areas, Muzzafarpur, Gaya, Purbi Champaran, Patna and Samastipur together occupies a share of 23.5% of all rural branches of Bihar. Besides this, though the share of rural branches is high, in most of the branches in rural areas is poorly manned and are not well managed. More then 800 branches in rural area is being managed by one man, leaving no scope for him/her to push for credit and back office both. This has both effected its CD ratio, disbursements and in all other financial parameters including sustainability. Due to lack of proper management it is not even able to meet the basic objective of providing mF services to the weaker section and the priority sector. The status of the performance of commercial banks and cooperatives in the state is given below. Performance (disbursement) of the commercial (including RRB) and cooperative Banks in Bihar:
Credit Agencies Commercial Banks, Cooperative Banks RRBs & Year 2001-02 2002-03 2003-04 2004-05 2005-06 Rs. In crore 1234.10 1710.97 2669.61 3421.27 3751.00

NSS-59th round During the last five years, through aforesaid lending institution credit provided to rural areas amount to Rs.12786.95 crore out of that approximately Rs. 5754.13 crore disbursed among the weaker section. It is disheartening to see the CD Ratio and its National Comparison. None of the districts of Bihar has achieved a CD ratio of more then 45%. Where as when we compare it with states like AP. It has a CD ratio of less then 40. The comparison of CD ratio across states in given below.
Name Of States SDP -Per No. Of CDR <40 CDR 40CDR>50

53

Bihar Orissa Uttar Pradesh Jharkhand Madhya Pradesh Rajasthan Uttranchal Jammu & Kashmir West Bengal Andhra Pradesh Karnataka Tamil Nandu Kerela Himachal Pradesh Gujarat Punjab Maharashtra Haryana Goa SubTotal NSS-59th round

Capita (Rs.) 6840 12173 12219 12273 13747 15114 16513 16980 20835 21230 21604 24886 25392 26239 27331 30100 30510 31228 59740

Districts 27 12 54 12 38 26 8 14 19 23 20 21 14 12 19 12 29 16 2 378 23 1 38 12 17 13 7 13 15 0 2 4 8 13 6 5 6 1 184

50 4 2 9 0 4 5 1 1 3 6 1 4 2 2 4 2 6 2 1 59 0 9 7 0 17 8

0 1 17 17 17 8 2 2 4 18 8 0 135

In the tables below gives the financial status of the commercial banks of Bihar. It is disheartening to see that not only the CD ratio of Bihar is pegging at 32 %, but also the recovery percentage is at a staggering 47%. The performance of cooperatives in Bihar is a matter of serious concern in terms of saving mobilisation, credit disbursement, recovery rate and NPA. The CD ration of Bihar though has started improving over the last few years is still among the lowest in the country. Bihar Ranks 27th compared to other states of India. The deposit vs advances trend over the last 5 years is presented below:
Particulars DEPOSIT ADVANCE C: D RATIO Advances Incl invst Advance & invt vs deposit Ratio All India C: D Ratio 200102 30482 6945 21 9530 31 200203 33815 8089 25 10923 33 57 200304 35824 9604 27 10507 29 56 200405 40295 12031 30 0 N.A. 57 200506 46134 14808 32 15455 34 58 As on 30.09.2007 48913 15914 33 807 34 58

The same is being graphically shown below:

54

Deposits Vs Advances in Bihar

50000 INR-in crores 40000 30000 20000 10000 0 200102 200203 200304 Year 200405 200506 DEPOSIT ADVANCE C:D RATIO Advances Incl invst

In the graph below we can see the increasing trend of CD ratio over the last five years in the state. However its advances and investment ratio is not improving at the same rate. The national average marked below is well above the states ratios.
CD ratio trend over last 5 years
70 60 50 Ratio 40 30 20 10 0 2001-02 2002-03 2003-04 2004-05 2005-06 Year C:D RATIO Advance & invt vs deposit Ratio All India C:D Ratio

Important Financial Indicators of commercial banks: (Rs. Crores) Total Deposits Position as on 31 - 03- 2004 31 - 03 2005 31 - 03 2006 CBs 30640.48 34056.20 39177.00 RRBs 4421.54 5475.15 6182.00 Co - operative 762.08 763.53 775.00

55

Total CBs Total RRBs Advances Co - operative Total CBs CD Ratio RRBs Co - operative (%) Total CBs Recovery RRBs Position (%) Co - operative Total th NSS-59 round

35824.10
7829.63 1253.37 520.86

40294.88
9665.77 1795.99 569.44

46134.00
11988.00 2225.00 595.00

9603.86
25.55 28.35 68.35 26.81 41.28 51.84 10.08 33.85

12031.20 28.38
32.80 74.58 29.86 31.92 62.57 36.45 38.09

14808.00 30.60
35.98 76.70 32.10 46.53 69.40 34.60 47.24

Priority sector lending:

Public sector banks have got the dual mandate of profitability as well as meeting its priority sector lending. To meet the demand of the priority sector classified as Agriculture, SSI and other priority sector, the performance of RRB and Cooperative is poor and lags behind its objective of priority sector lending. Their CD ratio, priority sector lending is even below the commercial banks. The failure of cooperative sector as a whole in Bihar can be seen that its percentage target achievement of cooperative as low as 20%. Cooperative sector also has a lowest recovery percentage. All banks together had contributed only 23% of their advances towards the priority sector. As has already been seen from the indebtedness data that among all occupation groups, cultivators get the maximum loan. The trend of lending has only been to the Agriculture sector with little focus on the OPS and NFS on which majority of the poor livelihood are dependent upon. The ACP for the last five year and the achievement by banks in the priority sector is as presented below:

YEAR 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 (NOV-07)

TARGET PRIORITY 2929.22 3198.31 3451.50 4057.32 4743.09 6538.06

ACHIEVEMENT PRIORITY 1276.72 1710.97 2669.68 3421.27 3754.29 3474.47

%age Achvt 43.58566 53.49607 77.3484 84.3234 79.15283

56

The same is presented graphically.

Tgt vs Ach. under APC in Bihar
5000 4000 INR 3000 2000 1000 0 2001- 2002- 2003- 2004- 200502 03 04 05 06 Year TARGET PRIORITY ACHIEVEMENT PRIORITY

In the table and graph below we have presented the performance of various agencies for the last two years. It shows an increase in total percent achievement in the year 2005 but a decline in %age achievement though there has been an overall growth of around 20%. This shows that there is a constant demand from the RBI and government to lend more and more in rural areas. Table-15: Comparative trend in percentage achievement under ACP by agencies % age Ach. CB Agriculture 29.78 SSI 19.07 OPS 37.44 Total 31.39 NPS 38.78 Grand Total 34.36 As on 30 09 -2006 RRBs Cooperative 31.85 24.13 15.92 2.51 22.72 0 28.47 22.35 20.58 0 26.87 21.66 CB 36.13 21.86 51.16 40.34 41.48 40.8 As on 30 09 -2005 RRBs Cooperative 28.9 28.91 10.61 0 22.95 0.39 26.09 27.04 28.31 0 26.5 26.42

Source: Institutional Finance, Patna

57

Comparative trend in % age achievement under ACP

60 50 40 30 20 10 0

Sep-06 Sep-05 Sep-06 Sep-05 Sep-06 Sep-05 Sep-06 Sep-05 Agri SSI 19.07 15.92 2.51 21.86 10.61 0.00 OPS 37.44 22.72 0.00 51.16 22.95 0.39 NPS 38.78 20.58 0.00 41.48 28.31 0.00

CB RRB Cooperative

29.78 31.85 24.13

36.13 28.90 28.91

It is reviled by a study done by NABARD that 23% of the borrowings from farm household are reached by the institutional sources against a national average of 56% and by implication only 8% o the farm household in Bihar has access to formal credit against an all India average of 27%. The credit flow in Bihar to the farmers is low and is mainly restricted through the KCC, MSTP, SGSY and Farm mechanisation. The Kishan Credit Cards (KCC) in the last few years has been the greatest innovation being used by the banks in the last few years and has been the key source of lending to farmers. The cooperative bank through its DCCB is lending to the PACS members through the KCC. However here also the RRBs and Cooperatives lag behind their target achievement much below the commercial banks.

Table-16: Performance under KCC Rs. Crores

58

Sanction Application Recommended to Bank 596705.00 471433.00 325018.00

Disbursement % of Disbursement Against Physical Amount Target 496.36 59.36 860.51 58.25 814.95 55.98

Year Target 2003 - 04 595904.00 2004 - 05 795700.00 2005 - 06 566751.00

No. 594152.00 465744.00 318603.00

Amount No. 763.02 355502.00 873.90 463519.00 859.63 317294.00

(Source: Institutional Finance)

Table-17: Position since inception of KCC as on 30 / 09 / 2006

Agency No. of Cards Issued Limit Sanctioned (Rs Crore) DCCBs 606163.00 655.52 RRBs 298383.00 915.19 CBs 697351.00 1668.98 Total 1601897.00 3239.69 (Source: State focus paper 2007-08 NABARD)

% Share in Issue of Cards 37.90 18.60 43.50 100.00

Table-18: Agency Branch wise performance under KCC

Sl. No. Name of Agency No. of average cards issued per branch Limit per sanctioned branch Average sanctioned limit per

59

1 2 3

DCCBs RRBs CBs

2164 200 334

(Rs Lakhs) 2.3411 0.6158 0.8016

KCC 0.108 0.306 0.239

Bihar also lags much behind other states in issuing and disbursement through the KCC. Bihar accounts for 3.7% of the KCCs issues in the country and 2.0% of the total dispersal at an all India level. Performance under different government programmes: The following tables below shows the status and trends of target and achievement of various government plans under some subsidy to some section of the society. Prominent among them are the MSTP, PMRY and SGSY. In the last five years the trend of target achievement under MSTP is quite encouraging. It has increased from 12% to 81%. However there are issues of quality while achieving the targets. Table-19:- Performance under MSTP (Million Shallow Tube well Programme)
Year Target (Nos) Cumulative (Nos) Cumulative) Ach (Nos) 2001 02 2002 03 2003 04 2004 05 2005 06 33798 23313 160000 160000 160000 33798 57111 217111 397111 537111 4265 47710 155068 327689 436831 12.62 83.53 71.42 86.90 81.33 % age Ach

(Source: Institutional Finance)

Reported as on 31 / 03 / 2006, the target under this scheme is 537111 and 494156 applications forwarded in different Banks. Out of these only 459377 applications have been sanctioned and 436831 applications disbursed amounts Rs 864.04 crores. PMRY: Is another scheme of the GOI being routed through the banks . The performance of PMRY has not improved as expected even though the target has been reduced over the last years. The bankers face problem of bunching of all loaning for PMRY in the last quarter. Table-20: Year wise performance under PMRY
Year Target No. Ach % age

60

2000 01 2001 02 2002 03 2003 04 2004 05

Source: Institutional finance

14981 18000 18100 14400 16000

6682 8204 9366 9812 10119

44.60 45.57 51.74 68.30 63.24

SGSY: In the state the performance under SGSY has seen not much of a progress , under SGSY only 3353 groups and 24000 individuals has been financed under SGSY .The average loan per borrower is only 18,600 and group average is only 90,000/=. There is an urgent need to increase the same to make the scheme viable. The details of performance under SGSY are given below. Table-21: Performance under SGSY Rs Crores
Year 2003 04 2004 05 2005 06 Target Disbursement 273.93 545.28 671.20 195.44 284.33 248.86 Achievement 0.71 0.52 0.37

Source: State focus paper 2007 08 NABARD

Table-22: Agency wise position sanction vis a vis disbursement as on 31 March 2006
Agency CBs RRBs Total Sanctioned A/c 70139 33585 103724 Amount in lakh 21453 8405 29858 Disbursed A/c 66930 19163 86093 Amount in lakh 20318 4568 24886

Source: State focus paper 2007 08 NABARD

The performance of the banks can attributed to the poor recovery percentage in rural areas of Bihar. Given below is the performance of all banks for this financial year. The performance of loan recovery is as low as 0.6 %, which shows that there is a serious issue of delinquency management of SCCBs. The performance of banks cannot be improved and its objective of commercially lending for priority sector can even be achieved if the trend continues. Table- 23 : Bank wise performance of recovery as on 30 / 09 / 2006 (Rs in lakh)

61

Demand Raised Commercial Banks RRBs SCCB Bombay Cooperative Bank Total for Bihar 188051 53247 32871 M 26 274195

Amount Recovered 83194 35682 200 16 119092

% age recovered 44.24 67.01 0.61 61.54 43.43

Large no of pending certificate cases is another reason for non recovery and improvement of banks performance in Bihar. Table-24 : Certificate Cases as on 30 / 09 / 2005 (Amount in lakh)
Commercial Banks RRBs Cooperative Total of Total Cases A/cs 219448 48615 14 268077 Amount 54281 8816 93 63190 Disposed A/cs 7311 3843 0 11154 Amount 1553 486 0 2039 Pending A/cs 212137 44772 14 256923 Amount 52728 8330 93 61151

Bihar Source: NABARD State focus paper, 2005-06

Conclusions:
Commercial banks against a target of 40 per cent set under RBI guidelines, the percentage of net bank credit deployed in the priority sector was 42 per cent in 2003 up from 39 per cent in 1999 [RBI 2003] at a all India level. In Bihar the same was 41% in 2004-05 and declined to 32% the last year. But lending to agriculture and SSI remained low during this period, falling short of the overall target set for the sector. Lending to small industries has fallen and so the advances to other priority sectors have however shown an increase. It has the maximum share for the priority sector lending. The public sector banks, on the other hand, have consistently failed to meet the target to reach weaker sections of the society. Against the target of 10 per cent of the net bank credit, the achievement was only 7 per cent in 2003. This indicates that the banks though have been able to reach the priority sector target in overall terms to some extent , their ability to penetrate to the weaker sections, or make small loans, is still inadequate. However, public sector banks have achieved a greater penetration compared to private sector banks vis-vis the weaker sections. The latter advanced 11 per cent of the net bank credit to agriculture whereas their deployment for weaker sections is as low as 1.5 per cent and is not at all available in Bihar. In the annual focus paper NABARD points out that the commercial banks by far is the single largest bank to meet 68%of the formal sector loan and is also the largest lender of Agricultural loan followed by RRB (20.7%) and

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Cooperative banks (10.8%).The new generation private sector banks, interestingly, have not reached out to the weaker sections at all. It makes it evident that alternate mechanisms need to be worked out to ensure that these banks reach the poor. RRBs were created to offer targeted lending in rural areas. Their performance over the years has not been very heartening. Though in the past few years many of them have turned around from their extended state of sickness, the loans as a percentage of resources at their command (credit-deposit ratio) have been on the decline since 1997, but for an improvement in 2003 onwards. Given a stable and low interest rate regime, opportunities for arbitrage in the money market and interest earnings from investments major sources of income in the past years are going to have limited impact on the bottom lines of the RRBs. It may be noted that RRBs do provide an outlet for rural people to save. Several measures were taken in the past to improve the performance of the RRBs. These included a programme of proposal to merge RRBs sponsored by the same bank (1991), and closing of non-profitable branches (2002). In addition, they have been encouraged to issue kisan credit cards, and use mF as a mechanism to reach the poor by promoting and lending to SHGs. The deregulation of interest rates has gone a long way in making RRBs competitive and market savvy. In 2002 a working group has recommended changes in the RRB Act that included changes in capital and ownership structure, governance, regulatory and supervisory systems for the RRBs [GoI 2002]. However RRBs still contribute a significant portion of the priority sector lending in Bihar. By increasing its efficiency and management it can meet the needs of the state in a much better way. Emergence of the mF movement is often attributed to the failure of the cooperatives in providing sustained access to credit to the poor. It is seen evident that the resource availability for cooperatives has been decreasing in the last few years. If prudential norms applicable to the banking institutions were applied to the lower tier cooperatives, most of the primary and district cooperatives would be found wanting. None of the PACS in Bihar are now eligible for providing credit to its members directly. Out of 25 DCCB only 22 are in existence and except five DCCB rest are facing restriction under section 11 (1) of banking regulation act 1949. The most significant change in the balance sheets of these banks was the decline in the rate of growth of deposits, and loans and advances. Investments grew faster, implying that the customers (borrowers and depositors) are moving away from the banks, while the banks are deploying funds in investments that added marginally to their profitability. Data on primary societies is not readily available; but the broad trends indicate that this channel continues to have huge NPAs though their CD ratio is quite high compared to the commercial banks and RRBs in the state. This does not bode well for the structure that has the best outreach in rural India and rural Bihar with a total number of 5856 PACS already existing in rural areas. Given this pathetic situation of the banking sector in Bihar , even the growth of other alternative MF like NGO-MFI, MFI, SHG federations and others are rather too small to make any significant contribution to the overall financial needs of the poor , weaker section and the priority sector. The only way forward is to remove the constraints of these banks, and strengthen these banks capacities to deliver.

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The SHG-bank Linkage Programme:

One of the most successful programmes supported by the state in the mF sector has been the bank linkage programme. Around seven lakh groups were linked to the banks and around five lakh groups were refinanced by NABARD by 2003 (www.nabard.org). Cumulative disbursement of loans to these SHGs stood at Rs 2,048 crore. However, the linkage programme is skewed in favour of the southern states, particularly Andhra Pradesh. This state alone accounts for 39 per cent of the total linkage, while the northern and north-eastern region together account for only 5 per cent of the total programme. This imbalance is an issue that requires attention. The Bihar position is even more critical in terms of growth of SHGs. Table-25 :Performance under bank linkages of SHG Financial year 2001-02 2002-03 2003-04 2004-05 2005-06 All India position During the year 197653 255882 361731 539000 539365 Position of Bihar During the year Cumulative 1046 3957 4204 8161 8085 16246 11769 28015 18206 46221

Cumulative 461478 717360 1079091 1618091 2238200

The progress of SHG formed and credit support by financial institutions in Bihar is trailing behind the others states. In fact SHG in both parameters of formation & credit support by financing institution are at the bottom in Bihar as compare to other states. Per SHG cumulative Bank loan is also at the bottom as compare to other state. A comparative position is given below: Table-26 : State Rajasthan Assam Mp Maharashtra AP Orissa Bihar SHG linked in 2005-06 38165 25215 12020 60324 94311 57640 18206 Cumulative SHG Cumulative bank till march 2006 loan march2006 In million 98171 2448 56449 1424 57125 1667 131470 3952 587238 43455 180896 4755 46221 1052 Loan/SHG 0.024 0.025 0.029 0.030 0.074 0.026 0.023

Official figures shows that there are 46221 SHGs have been linked with the bank and obtained bank loan up to March 2006. The highest number of SHGs provided with bank

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linkage is 9361 from W. Champaran followed with Gaya having 6720 SHGs linked with bank. Out of 38 districts 15 districts have less than 500 SHGs linked with bank. The districts i.e Kaimur, Lakhiserai and Sheikhpura have very poor bank linkages of SHGs. In, 2005 NABARD identified 13 priority states accounting for 70 percent of Indias poor for special efforts and location specific strategies. The state Bihar is one among these identified states. Table 2 shows that there is a continuous increase in bank linkage over last few years in the state. There was 50 percent increase in 2004 and 57 percent increase in 2005 marked with 60 percent increase in 2006.
Table-27: Growth of SHGs over different years in Bihar 2003 2004 2005 8161 16246 28015 0 50% 57%
S ource: NAB AR D annual report s

2006 46221 60%

But when we compare the performance of different banks with even neighbouring states like WB and Orissa of eastern India, the performance of Cooperative banks is dismally poor. Even commercial banks have not faired well in comparison to the performance of neighbouring states. The RRBs among all banks has been most successful in Bihar even though it lags far below compared to the other states. Table- 28: SHG bank linkage performance by bank and state (in crores)
Region/State Commercial Bank No. Of Bank SHGs Loan Regional Rural Bank No. Of Bank SHGs Loan Cooperative Bank No. Of Bank SHGs Loan No. Of SHGs Total Bank Loan

Eastern Region: Bihar 19577 Jharkhand 21520 Orissa 77859 West Bengal 37828 Total 156784 www.naba rd.org

506.95 870 2140.05 802.26 4319.26

26188 9299 86256 37909 159652

535.18 244.6 2216.93 680.54 3677.25

185 00 16781 60514 77480

4.89 00 397.67 941.72 1344.3

45950 30819 180896 136251 393916

1047.02 1114.6 4754.65 2424.52 9340.79

The table below provides a complete picture of bank linkage performance by all districts of Bihar. In Bihar though there is some SHG linkage work started in all districts but the performance in terms of bank linkage has been best in Gaya district , where as SHG formed is maximum in West Champaran.

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Table-29: District wise position of linkages (up to Dec ember 2005)

Sl.No. Name of the District Araria Arwal Aurangabad Banka Beguserai Bhagalpur Bhojpur Buxar Darbhanga East Champaran Gaya Gopalganj Jamui Jehanabad Kaimur Katihar Khagaria Kishenganj Lakhiserai Madhepura Madhubani Munger Muzaffarpur Nalanda Nawada Patna Purnea Rohtas Saharsa Samastipur Saran Sheikhpura Sheohar Sitamarhi Siwan Supaul Vaishali W. Champaran Total Cumulative no. of SHGs provided with bank loan upto 31.03.05 193 260 359 446 205 1520 213 131 524 1474 3978 235 619 562 87 504 78 181 27 152 1105 328 1608 506 446 1607 417 453 281 606 908 35 108 511 54 422 504 6368 28015 No of SHGs provided with bank loan during 01 April 2005 to 31 March 2006 193 151 520 32 95 448 253 119 201 776 Cumulative no. of SHGs provided with bank loan up to 31March 2006 386 411 879 478 300 1968 466 250 725 2250

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38.

2742 6720 177 412 343 962 227 789 13 100 117 621 51 129 142 323 118 145 54 206 223 1328 175 503 1868 3476 441 947 1545 1991 1049 2656 719 1136 73 526 116 397 603 1209 410 1318 38 73 17 125 305 816 47 101 447 869 365 869 2993 9361 18206 46221 Source: State focus paper NABARD, Bihar, 2006-07,pp 206

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MAP INDICATING DISTRICT WISE COVERAGE OF SHGS AND ITS MEMBERS UNDER BANK LOAN Map - 1

Cumulative # of SHGs provided with bank loans < 50 50 175 176 300 301 500 501 750 751 - 1,300 1,301 - 2,000 2,000 - 3,500 > 3,500 Source: IFMR report, Dec ember, 2005

Cumulative # of SHG members* provided with bank loans < 750 750 2,625 2,626 - 4,500 4,501 - 7,500 7,501 - 11,250 11,251 - 19,500 19,501 - 30,000 30,000 - 52,500 > 52,500

The above map followed with the table is self-explanatory which is indicating about the cumulative number of SHGs provided with bank loan and cumulative number of SHG members provided with bank loans in the districts of Bihar. From The map it is portrayed that West Champaran is the only district which has very high concentration of SHGs provided with bank loans. Where as the districts like Patna, Muzaffarpur, Bhagalpur and Gaya has moderate concentration followed with Sheohar, Siwan, Buxar, Bhabhua, Sheikhpura and Lakhusarai has very poor concentration of SHGs provided with bank loan.

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Estimated % of female population covered by SHGs and MFIs as of March 2005 0% 0.1 - 0.5% 0.6 - 1.4% 1.5 - 2.9% 3.0 - 4.9% 5.0 - 6.9% 7.0 - 9.9% > 9.9%

It can be seen that Bihar lags much behind its neighbouring states in meeting its target of SHG bank linkage programme too. It has a share of a mere 11% of all SHGs being bank linked and so on credit amount to the groups among the eastern states of Bihar, Orissa, Jharkhand and West Bengal and contributes a total of only4% of al the SHGs formed by 13 priority states identified by NABARD. But what is interesting and important to note that even this mere 11% contribute to 30% of the total priority sector lending in Bihar. So SHG bank linkage programme seems to have been well accepted by the bankers as a vehicle for rural lending to the poor and weaker sections. The above graph however shows that the SHG programme is yet to make a good dent in increasing the female clients significantly. It could hence be concluded that SHG bank linkage is to be taken up as the top agenda along with alternate models of MF, where banks can lend not on an individual basis but on a wholesale basis. These will both increase the banks performance and it will increase the number of females and weaker section lending.

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Apex Institutions:
NABARD is the apex financial institution for agriculture and rural development and is expected to re-finance the rural portfolio of the banks and cooperatives. Refinance system by NABARD is classified as Automatic Refinance and Project finance. In automatic refinancing the schemes covered under bank plan like MSTP and in non farm sector financed under Government sponsored schemes are refinanced to pending institutions as per norm without prior approval of activities. Refinance against project financing naturally requires, area based techno economically and social friendly project proposal for scrutiny and sanction. For Production Loan limit to SCBs/DCCBs, RRB, CBs on eligibility basis are sanctioned. Also term loans to LDB are given in accordance with their borrowing capacity. NABARD in tune with its statute embarked upon development of non farm sector also. Rural infrastructure development fund (RIDF) is provided to state govt. for development rural infra structure, like irrigation, watershed management, rural road, market etc. Also for development of social sectors fund made available to state govt. for building primary school drinking water, health center etc. The other role that NABARD performs is that of managing the Rural Infrastructure Development Fund (RIDF), which is used to finance rural infrastructure projects. In case the banks are unable to achieve the priority sector lending targets for agriculture, they are expected to deposit the shortfall under the RIDF. While the banks falling short of their targets have been depositing the amounts, the funds do not seem to have been deployed effectively. By March 2004 it has cumulatively disbursed only around Rs 21,000 crore out of the total corpus of Rs 42,000 crore available under various phases of RIDF [RBI 2004]. And surprisingly due to lack of any project in Bihar, The state has got a share of 1.22 percent of the same. NABARD has also started consultancy services through its consultancy service NABCONS.NABARD is playing a very crucial role for promotion of entrepreneurs activities and flow of credit. Its role as coordinator of all agencies involved in development including govt. right from state level to block level is worth to mention. At District level District Development Manager has been posted to ensure coordination with Banks, supporting line functionaries and District administration. At BLBC level, review of flow of credit at ground level and coordination among different functionaries at block level are ensured. As regard Bihar, like other state, significantly has district wise sector wise identified economic activities, their credit need in some core group of community having expertise in certain vocation on annual bans and further divided them block wise sector wise and activity wise, physical possible units as amount of credit required. For state as a whole state focus paper for a year are prepared by NABARD for state level discussion such instruments are very useful for district level credit planning. A good amount for

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development of infrastructure both as a linkage for economic development and social sector facilities are provided to the state govt. under rural infrastructure development. NABARD, as an Apex organization is steering SHG Bank Linkage Programme in the State. DDMs of NABARD act as prime movers of SHG movement at the district level. They are in a position to guide and assist important players such as banks, NGOs, Farmers Clubs and SHGs. NABARD provides grant assistance to NGOs, Farmers Clubs, IRVs, Banks for promotion of SHGs and their capacity building. NABARD in the state supports more then 130 SHPI who are engaged into formation of SHGs. NABARD facilitates training and capacity building of various players including banks and extends concessional refinance support to banks.

SIDBI: SIDBI has also been playing a small role of supporting RGVN to on lend NGOs and build their capacity. It provides support for the capacity building of RGVN also.

Bihar Women Development Corporation (BWDC)

Women development Corporation, a society under the department of social welfare has played a significant role in the promotion of SHG in the state. It was revived with the World Bank assisted project Swashakti. WDC runs the following programmes in the state. A brief detail of the same is as follows. Swashakti: The World bank and IFAD assisted project with the over all objective of improvement of the quality of lives of rural women through formation of self reliant SHGs. Total SHG formed 458 groups in 6 blocks of Muzzafarpur district. Swayamsidha: Government of India assisted programme for womens empowerment in which 6329 SHGs have been formed in 63 blocks of 22 districts with a total of 86 thousand members a saving of more than 375 lakhs. 1820 groups have been linked with bank and RMK and has availed a bank loan of Rs. 118 lakhs Swalamban : Additional central assistance from the planning commission GOI in which 1000 SHG in 20 blocks of 10 districts was formed. Mukhya Mantri Nari Shakti Yojana: This is a state government supported project which 1000 SHG in the same blocks where swalamban is being implemented. Deep: Special component plan meant for only SC population in which 1986 SHGs( 100 in urban slums) has been formed in the same pattern as SGSY in 21 districts . It has till date a member base of 25283 and a saving of Rs 93 lakhs. Out of these groups a total of 120 groups have got loan from bank to the tune of 18 lakhs.

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Other Major Donor Agencies and SHPIs:

Poorest Area Civil Society (PACS): The PACS Programme was conceptualised to help the very large number of poor people living in other regions of the country. The aim of the programme is to achieve maximum long-term impact over a large area in an effective and manageable way, the PACS Programme focuses on strengthening the awareness and capabilities of poor people, so that they can demand and exercise their rights - political, economic, social and human - to improve their own lives. In other words, the programme focuses on the demand side, rather than on supply side activities such as building infrastructure. The PACs programme works with more then 50 partner NGOs in Bihar. It has formed more then 3170 SHGs in Bihar (2006). It is believed that for the poor to work towards the long-term outcomes listed above, it is essential that their immediate, basic needs be met. Therefore, PACS programme partners support the generation of alternative and sustainable livelihood initiatives through individual effort or self-help groups (SHGs). SHGs also provide a platform for addressing other key issues. Mahila Samakhya: Under the Bihar education project more then 3000 SHG has been formed by Mahila Samakhaya. NIDAN : NIDAN started way back in 1990 has always taken SHG as the basis for social and financial empowerment of the poor. NIDAN working in 5 districts through network partners has promoted around 1850 SHG groups. Others: The other major donors like UNICEF, CCF, Oxfam( Hongkong) , Freedom from hunger project, Plan International through various local NGOs has made significant contribution in the promotion of SHGs in Bihar. DRDA: - DRDAs of all districts have promoted SHG to link them with the central assisted SGSY programme. It is estimated that more then 85,000 SHGs has been promoted in the state of Bihar. BRLPS: The BRLPS is formed in the state to promote rural livelihoods and has adopted the Velegu model of implementation. Its approach is to saturate their adopted districts with SHGs who in turn will take up livelihood activities. SHPIs : NABARD has identified and supported more then 130 SHPIs in Bihar including 3 RRBs along with IRVs ( individual rural volunteers).More then 42 projects of SHPI and IRVs has been approved this year with a grant assistance of around 98 lakh rupees with a total target to form 42500 SHGs to be bank linked for this financial year. The same SHPI are also forming SHG as a part of other donors requirements . The other stakeholders who are or can become agents of SHG promotion are as follows:

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 Block Panchayats are facilitating promotion of SGSY groups. All of these groups may not get subsidy linked credit support immediately due to budgetary limitations under SGSY. SGSY groups which are functioning satisfactorily in tune with SHG concept can be initially credit linked under SHG Bank Linkage Programme. Framers club: Huge potential for promoting SHGs though Farmers Clubs (FCs) remains unexploited in the State. As on March 2006, 725 FCs were promoted by banks with the help of NABARD and 800 new clubs were expected to be promoted during 2006-07. NABARD also extends assistance to Farmers Clubs for promotion of SHGs. Assuming that each club will be able to promote at least 10 SHGs, formation of about 15000 SHGs can be ensured through Farmers Clubs in the near future. The table below gives a picture of the total number of SHG in the 6 focus district and the state as a whole. It is estimated that a total of 1.45 lakh SHG has been formed in Bihar of which 33% is bank linked. Details of SHG formed in Bihar by various agencies and programmes: District NABARD* SGSY WDC PACS Others Gaya 1,800 2,738 1,285 434 2525 Nalanda 600 2,307 385 298 NA Madhubani 492 9981 285 532 300 Purnea 524 1058 385 NA Khagaria 556 855 285 100 156 Muz 700 7718 523 644 NA Sub Total 4,672 24,657 3,148 2008 2981 All Bihar-Total 32116 85136 10,773 3170 11300 * These SHG nos are bank linked.

The Alternative MF Institutions:

These are the institutions, which have come up to fill the gap between the demand and supply for microfinance particularly to the smaller needs of the house holds like consumption needs , . MFIs were recently defined by the Task Force as those, which provide thrift, credit and other financial services and products of very small amounts, mainly to the poor, in rural, semi-urban or urban areas, for enabling them to raise their income level and improve living standards. The MFIs can broadly be classified as: 1. An Intermediate Model that works on banking principles with focus on both savings and credit activities and where banking services are provided to the clients either directly or through SHGs; NGOs, which are mainly engaged in

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promoting self-help groups (SHGs) and their federations at a cluster level, and linking SHGs with banks, under the NABARD scheme. 2. Wholesale banking Model where the clients comprise NGOs, MFIs and SHG Federations. This Model involves a unique package of providing both loans and capacity building support to its partners. NGOs directly lend to borrowers, who are either organized into SHGs or into Grameen Bank style groups and centers. These NGOs borrow bulk funds from RMK, SIDBI, FWWB and various donors. 3. Individual Banking-based Model that has its clients as individuals or joint liability groups. While program management and client appraisal in this Model may be a challenge, it is best suited to lending to enterprises. BASIX, SHARE Microfin Ltd and MACTS of CDF, AP falls under this category. Bihar in its recent years is seeing a spurt of formal MFIs intervention and is exposed to new models of lending besides the only mode of individual or SHG Bank linkage model. Though alternative methods like Grameen model has long been started way back in 1983 in West Champaran by REED, formal MFI either registered under NBFC or as cooperatives started coming to Bihar in the 90s. The first one to make inroads in Bihar is NIDAN . NIDAN follows the SHG and Cooperative model for MF in Bihar. The other models being introduced are ASA model of Bangladesh by Bandhan in Kisanganj, Modified Grameen model by CASHPOR, Grameen by SKS, JLG by BASIX and NBJK in Jharkhand. Many NGOs are poising themselves to adopt some of these models and undertake MF activity on their own. The other models being seen recently is the partnership model by CHASPOR with ICICI. Though the alternative MFI route is very recent in the state but brings in a lot of promise and learnings for the MF sector development in Bihar. In this section we are presenting the brief outline of the major MFIs working in Bihar, their model, outreach and some financial and operational parameters, which will be useful to compare with the existing models being adopted by the banks and FI in Bihar. NIDAN : NIDAN was started as an informal group of dedicated young men and women who wished to take up the cause of down trodden. It was formally registered under societies registration act in July 1996. NIDAN has been organizing poor involved in the informal economy since 1995. These are mostly vendors and hawkers and also home based workers, rag pickers, construction workers, domestic maids, agricultural laboures and have evolved as an effective organization of both women and men. NIDAN takes up the issue of legal rights of these poor, including policy interventions. Workers owned cooperatives are being promoted. NIDAN promotes saving habit among them and makes credit accessible to them through Financial Institutions, both Government and Non Governmental. NIDANs focus is also on education and better health of the target group and their children a micro-insurance program has been evolved. Housing issues have also been taken up and housing co-operative has been registered to assist poor in accessing land and houses. Advocacy on issues has been one of the mainstay of NIDAN and is consistently involved in advocacy

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NIDANs area of intervention NIDAN works in five districts of the state of Bihar. These are Patna, Vaishali, katihar, samstipur and Muzafffarpur. The work is spread over 17 blocks. Through networks it also supports the grassroots work in three other districts, Khagaria, Nawadah and Muzaffapur. Its work with the children is in the form of supporting early Childhood Care and Development Work where it works with 23 organizations in 15 districts of Bihar. An over view of the micro finance work done The outreach has increased to 25,000 workers of which men constitute around 5100 workers. Savings and Credit Activities: Thrift groups started in 1996. Total of 1810 SHG have been formed. Of the total of 1810 SHGs 1768 number are women SHGs and rest are male groups. Process of SHG formations and loan disbursement: Selection of the slum by the field workers & assessed by the NIDAN staff Supervisors interact and submit the report. Based on the reports and visits and after being convinced groups are formed The groups accounts are opened in banks in 3 6 months time. In case the groups are not able to open accounts in Nationalised banks, they open their accounts in Sanchay Cooperative of NIDAN The groups are encouraged for insurance. If insurance done then they can avail loans immediately (by 6 months). The request for loan is then scrutinized by the NIDAN committee based on a monitoring format with certain parameters savings, interlending, attendance, etc. The members normally saved between Rs. 30 Rs. 150 in the SHGs. If the members can save more, they become the member of Sanchay with a membership of Rs. 35/- . For Recurring Deposit the minimum amount is Rs. 100/Thrift & Credit Co-operatives A T& C cooperative known as Sanchay was registered in November 2001. The cooperative has grown over the years and today there are 3353 shareholders. Saving products include saving deposits, recurring deposits and fixed deposits while loans are made available for working capital, health expenses, marriage, and funeral and also housing purposes. There is an 11 member Board of Director who runs the cooperative. 1/3 members retire every 3 years. The members conduct monthly meetings and are assisted by a Sanchay Manager and 14 organisers from NIDAN. There are helped in Maintaining the books of Account Application collection Deposit collection and proceedings

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Information transfer

Savings & Loan Products SAVINGS Accounts Interest Savings account 4% Recurring 8% account Fixed Deposit 8.5% for 3 years & 10% for >10 years Other loan products For housing Garaunda Cooperative gives loans for purchase of land and repair of house @ 12%PA. (Only to old members with good track record) Micro Finance of NIDAN at a glance Districts SHGs Members Patna 577 5154 Vaishali 630 7073 Muzzafarpur 111 1220 Katihar 250 2155 Samastipur 206 2850 New Delhi 36 265 Total 1810 18717 Accounts Recurring Deposit Guarantee loan Ornamental loan LOANS Interest 10% 24%PA with declining rate of interest 24% PA

Land security loan for Maximum amount Rs. business 50000 as loan @4% PA

Total Savings 4876932 2984638 474315 870190 1098221 63910 10368206

Credit 1158100 3023000 277500 1410000 15868600

Loan Dues 4704150 1158839 193100 794311 6850400

Table showing growth of Micro Finance Activities of NIDAN Particulars # of SHG # of Members # of loanee 99-00 228 2,289 00-01 523 5,430 696 168,000 798,000 812,000 01-02 788 7,089 1,205 1,929,000 1,488,000 1,725,000 02-03 933 9,863 4,012 2,668,000 1,322,000 1,074,000 03-04 1,114 12,413 5,963 371,000 2,607,400 2,529,178 04-05 1,504 16,407 8,289 7,000,000 2,769,308 2,990,852

active 346

Amt. of Loan 148,500 Distributed (Rs.) Target (Rs.) Recovery DCB 485,000 407,000

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Recovery % Loan Outstanding Portfolio at Risk Loan outstanding per Client Loan Outstanding in Rs. Lakhs

84 105,000 9.0% 303 1.05

102 235,000 4.0% 338 2.35

116 1,854,000 2.0% 1,539 18.54

81 3,794,000 8.0% 946 37.94

97 2,696,000 3.5% 452 26.96

108 9,763,000 2.5% 1,178 97.63

Source of fund for NIDAN: Sources RMK Aditi RGVN FWWB Own fund Released 118 lakhs 1.21 lakhs 11.25 lakhs 2.20 lakhs 30 lakhs Status Re invested 60 lakhs Returned Returned Returned

NIDAN forms SHG groups and provides loan through the thrift and saving Sanchay cooperative. NIDAN (till 2005) has formed more then 1810 SHGs in five districts of Bihar and has a total membership of 18717. The Sanchay Thrift and credit cooperative registered in 2001 have more then 3500 members. They have formed 10 more thrift and credit cooperatives in 5 five districts of Bihar. The total portfolio of loan outstanding by NIDAN is 97.6 lakhs (2005). CASHPOR INDIA Cashpor Financial & Technical Services (CFTS), now one of the CASHPOR group of company began its operations of financing the poor women groups in Mirzapur district of Eastern U.P. in July 1997. The business was transferred to CASHPOR Micro Credit (CMC) there after. CMC is a Section-25 Company registered under Companies Act 1956. As per RBI guidelines, a Company registered under section-25 of the Companies Act can undertake such activities, without registration as an NBFC. The mission and vision of CASHPOR is To identify and motivate poor women in the rural areas and to deliver financial services to them in an honest, timely and efficient manner. CASHPOR as its vision see the day when all poor women in rural India have access to financial services, and many of them are using this opportunity to lift their families out of poverty and to provide opportunities for a better life for their children, while at the same time gaining self-respect and a better social position for themselves.

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All clients of CASHPOR group are women householders whose normal income is below official poverty line (BPL). In this target group, preference is given to the poorest women who tend to come from the Scheduled Castes and Tribes. CMC has its presence in two States of Uttar Pradesh and Bihar. In Eastern UP CMC is working in nine districts and in 4 districts of Bihar. It operates in the district of Buxar, Siwan, Sasharam and Saran. It has total portfolio of around 20 Crores in Bihar. Service delivery model: CASHPOR exclusively targets the poor women using Grameen Bank methodology (i.e., group lending) and hybrid of Grameen and SHG model to provide financial services. Clients are organized into groups & village-based centers consisting around 20 members. The methodology includes weekly meetings. Loan terms typically range from 10 to 50 weeks, with repayment of principal and interest on weekly pro-rata basis. Activities The organization is operating in the area mainly via two approaches on the basis of modification in Grameen model depending upon area suitability. They are following this model for covering the foreseen risks. Under which after household survey of particular village field level staff forms a group called center. A center consists of 20 members with 4 subgroups within this like JLG. Every center & subgroups having a leader responsible for the collection of loan amount and deposit in nearby banks where CASHPOR has already bank account. They are scheduling the center meeting just day after date of recovery so that field staff can collect the bank receipt. Their disbursement & collection accounts are same. They put the money in bank accounts through demand draft whenever there is need of extra money in case of heavy demands. After application and appraisal of a customer they disburse the loan through cheque either in the branch office or in the center meeting. In this way no cash is transacted within the field. The two approaches are Conventional or Branch approach: Under this model every branch having office in the mid of operational area. District Manager

Area Manager Branch Manager (5) Center Manager (8/BM)

Area Manager Branch Manager (5) Center Manager (8/BM)

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In Conventional Model Cashpor has adapted FI (Financial Intermediation) methodology, where Cashpor takes money from different banks in a pool and lend it to clients. Here the outstanding occurs in the books of the Cashpor. Operational Feature: Under this model they have 10 Branch offices associated with a District office. Each branch has 8 CM (Center Manager). CM reports to Branch Manager, whereas Branch Manager reports to Area Manager and Area Manager reports to District Manager. A group consist 5 members and a Center consist 4 groups. Center Meeting happens once in a week.

Partnership approach: This is the approach which Cashpor developed in collaboration with ICICI bank and NBFC manages the documentation, distribution and recovery part of ICICI loan portfolio, in return Cashpor is charging 6% as service fee to customer. District Manager Unit Manager (4) Center Manager (20) In Partnership Model Cashpor has adapted SI (Social Intermediation) methodology, where Cashpor manages the money of its partner Banks/FIs. Here the outstanding occurs in the books of the partner (Banks/FIs). Cashpor takes service charges in lieu of its services. As a Social Intermediary Cashpor undertakes following functions: Identification of poor clients. Group formation. Imparting training to the groups. Grading/Recognizing the groups. Taking loan proposals. Disbursing loans to poor clients and Taking care of repayments and managing delinquency Operational Feature

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1. Under this model we have a District office divided into 4 units, whereas units don't have it offices. 2. District office is headed by District Manager and units are headed by their Unit Managers. 3. Each unit has 20 Cluster Manager. 4. Cluster Ms reports to Unit Manager, Unit Managers reports to District Manager and District Manager report Managing Director. 5. All the center managers and Unit Managers report ones in week to District office. 6. Here a group consists 15-20 members. Major Difference Between Above Two Models: Supervision: Under branch model supervision of branch manager over center manager is very intensive, which is lacking in partnership model. Out reach & Cost effectiveness: In partnership approach one office at district place controls the larger area as compared to branch model Key constraints associated with the above two models: To handle a large number of bank account in operational area No separate collection & disbursement account In rural banks collection of weekly statement is a big problem due to lack of computerization Auditing problem arises. Cash deposit with bank for operating the account SKS Finance Limited: SKS a NBFC operating in AP has expanded to eastern India has also made its inroads to Bihar in the year 2006 and has started working in 3 districts with 9 units. It is still to build up its portfolio but has huge expansion plan. It has a portfolio of around 50 lakhs to start with. Swayam Krishi Sangam is among the leading Micro Finance Institutions in India launched in 1998 by Mr. Vikaram Akula with a vision of eradicating poverty by proper structuring and improvising the micro finance sector has recently started its operation in Bihar .SKS Microfinance is one of the fastest growing microfinance organizations in the world, having provided over $36 million in loans to close to 275,000 women clients. The organization is aggressively opening branches in pursuit of its goal to reach 500,000 clients by 2008. It has disbursed over 449 crores since inception and has maintained a loan outstanding of over 172 crores in loan to nearly four lakh women clients in the poor areas of India. Strategy & Activities

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SKS targets women (especially poor women) as their clients as they demonstrated themselves to be excellent Microfinance customers. The women clients take loans for almost all genuine income-generating activities like for agriculture and allied activities. SKS also offers interest-free loans for emergencies as well as life insurance to borrowers. Its affiliate, SKS Education, provides education services to poor children; including running a government-funded school for girls who have dropped out of school. SKS delivers micro finance through a Grameen (village) banking program that utilizes the joint liability model developed by the Grameen Bank of Bangladesh. SKS has adapted the methodology to suit the local conditions and currently uses the following three steps: The SKS Model SKS is offering the pioneering Grameen Bank (Bangladesh) approach to suits to local conditions of the rural people of Bihar. It lends to five-member groups of women and designates the group the ultimate guarantor of each of its members. If one member does not repay, no individual in the group is eligible to receive another loan. The keys to this approach include: Social Collateral - The poorest do not have physical assets that can be used as security. Instead, borrowers organize themselves into groups that take collective responsibility for repayment of one another's loans. Doorstep Banking - Providing financial services in the villages enables the rural poor to collect that days wages and avoid the costs of travel to mainstream banks. The illiterate poor are also unable to complete loan applications, which often require several trips. Customized Products - SKS designs loans with small, weekly repayments corresponding to wage structures, consumption and income generating loans to prevent emergency distress sales, and small first loans to inculcate credit discipline and collective responsibility. Interest and loan repayments are made equal for easy comprehension Focus on women - SKS works exclusively with women because they are the most marginalized among poor. Women also typically undertake small and manageable activities. Loan Product SKS Micro finance follows the below mentioned loan products for lending and is in the phase of designing suitable products for its semi urban customers.
S No 1. Name of Product AARAMBH Income Generation Loan (IGL) VRIDDHI Interest Rate 12.5% flat 24% effective Fee Yes Terms 50 weeks Repayment Weekly Purpose Income Generation, Asset development

2.

12.5% flat

Yes

50

Weekly

Same as above, Available

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Mid-Term Loan (MTL) 3 RAKSHA Emergency Loan (EL) SANJEEVINI Individual Loan (ILP)

24% effective Nil No

weeks 20 weeks 1 years 2 Monthly

after 25 weeks IGL All emergencies including maternal health, funerals, hospitalization

Bullet

11% (flat) 23% (effective

Yes

Income Generation, asset development

SKS has also facilitated a loan cover scheme in Collaboration with Life Insurance Corporation (LIC), as a tool to protect the clients and their families from severe shocks that may happen in his loan period. . The policy is developed and executed in partnership with Life Insurance Corporation of India (LIC) with additional support from TATA-AIG and ING-VYSYA. SKS acts as the master policyholder for all insurers and handles all customer transactions and claim processing. The loan cover fee is 1% of the loan amount and the policy covers the entire loan amount with interest for the term of the loan or one year. In the case of a client or spouse death, the loan amount outstanding is written off and the principal paid is returned to the clients nominee. Management Information System (MIS) SKS is using widely recognized management information systems (MIS) and innovative delivery solutions have increased operational efficiency and reduced transaction costs. The MIS enables SKS to manage small transactions efficiently, increase staff productivity, reduce operational costs, provide accountability for funds, and generate reports for effective and efficient management and decision-making. Status of SKS Mf Operations in Bihar SKS serves the poor in rural areas of Bihar state. The targeted group often is the landless and working as agriculture labourers, these poor have no asset or savings to manage livelihoods at the time of contingency. They most are dependent on village level moneylenders who charge high interest rates and mortgage personal property. The business expansion in Bihar has registered a growth rate of more than 100% in the third quarter of this financial year. The portfolios at Hazipur and Bhagalpur have gained good momentum in terms of business growth, client outreach and total lending. The lead manager Mr. Vijay Kumar is very optimistic about the growth trend, and confident of successfully creating a client base of 20,000 customers by June 2007. SKS works on saturation principle; they strategically devised mechanisms to successfully enter in all the sub divisions of Bihar in next three years. The SKS Model today is a strong and proven model because: 1. Community as a whole (village) is involved at all the stages 2. The accessibility is easy, no extra or hidden cost involved 3. Has insured loan coverage with all the financial transactions

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4. Loan products even to cover emergencies 5. Weekly repayment system 6. The whole of effort is very concentrated (only financial services) 7. Easy and fast replication 8. Women as a client base 9. Strong MIS and Reporting structure 10. Double joint liability system As of now SKS has three Area offices in three districts with total of 8 branch offices. 1. Patna Area Office Hazipur Branch Office (Biggest Portfolio in Bihar, Jharkhand and U.P.) Lalganj Branch Office Tarapur Branch Office 2. Bhagalpur Area Office Bhagalpur Umerapur Jamalpur 3. Gaya Area Office Gaya Dalmia Nagar Financials of SKS: SKS Microfinance emphasizes growth through a financially sustainable business model. SKSs focus on building the capacity to serve large numbers of clients through implementation of efficient operational processes and innovative management systems has allowed it to achieve consistent and impressive growth - close to 300% over the last two years while maintaining perfect portfolio quality and providing high quality service to its clients. As a financially sustainable institution, SKS can continue to provide permanent, stable access to finance for the poor.

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Financial and operational indicators and trend of SKS All India 04-Mar Total Branches Total Sangams (Centers) Total Clients Total Loan Clients Total Loans Outstanding Average Loan Outstanding per Loan Client Portfolio-At-Risk > 30 Days (%) Total Savings Average Saving per client Total Assets Total Equity Operating Self-Sufficiency (OSS) Administrative Efficiency Clients per Field Staff Rs Rs Rs Rs 11 928 30,763 24,800 4,711 0.00% 270 N/A 99.70% 17.50% 277 05-Mar 26 2,518 86,869 73,635 4,557 5.00% 134 4,379,912 103% 13.70% 460 327 06-Jul 100 8,653 275,879 239,511

Rs 116,821,680 335,580,180 1,249,129,021 5,215 1.43% N/A N/A 139,071,700

8,298,398 11,670,997

Rs 175,426,744 395,939,671 1,545,993,059

Nav Bharat Jagriti Kendra (NBJK) : Nav Bharat Jagriti Kendra (NBJK) is a leading grass root NGO operating in Jharkhand and Bihar. Apart from promoting peoples movement for good governance and civil society, NBJK is also promoting several income generating activities. Micro Finance is one of the main activities of NBJK. NBJK has hired the services of BASIX, to provide Institutional Development Services for improving the effectiveness of the management system, through setting up appropriate organizational form, registration of the same and developing MIS for micro finance including accounting package and inventory management system. Existing loan products
Sl no 1 Haza ribag h Prod uct Purpos e Inte rest Fee Servi ce Insur ance Securit y Repaymen t Morat orium

83

SHG

GP

12.5% Flat

RS 10 Memb ership

1% Principle amount 10% OF Principal amount

JLG

NON FARM

12.5% Flat

Weekly with maximum Duration of 12 weeks Monthly with maximum Duration of 12 months Monthly with Maximum of 20 months Monthly with Maximum of 15 months 11 Months with maximum of 3 instalments

2 weeks

None

Ranchi General Purpose 18% DB RS 20 Regist ration Fee Memb ership 1% LPF + 20 Rs Reg Fee 2%

SHG

1%

10%

None

JLG

GP

24% DB

10%

None

BASIX

CROP

24% DB

1%

10%

None

Summary of data collected on operations are as under: Sl. No 1 2 3 4 5 6 7 8 9 10 11 12 Project Project Year of start Disbursement till April 2003 Lending methodology Interest rate Interest calculation No of blocks No of villages No of SHGs Average group members Outstanding Recovery rate Ranchi RLF 1997 1032771 SHG Bank linkage Hazaribagh Patna RLF 1995 5.6 Crore RLF 1999 55.34 Lakhs Individuals on group guarantee 12.5% Flat 10 slums 10 slums 82 20 17.99 Lakhs 52% Kodarma RLF 1999 25.59 Lakhs Individuals on group guarantee 12.5% Flat 03 46 95 15 7.73 Lakhs 81% Pakur RLF 2000 24.59 Lakhs Revolving grant to group 12.5% Flat 01 26 26 16 7.81 Lakhs 79%

Individuals on group guarantee 18% 12.5% Diminishing Flat 5 150 400 20 4593155 94% 6 212 491 16 78.65 Lakhs 95%

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13

Business 1.12 Crores 4.9 Crores 50 Lakhs target 14 Recovery Monthly Weekly Weekly Weekly Weekly NBJK operates in Jharkhand and slums of Patna. Is still in the process of building its portfolio in Bihar with an approx portfolio size of around 2 crores in Jharkhand, of which a small percentage of it portfolio in Bihar. It is yet to make its inroads to the rural Bihar. Bandhan: Bandhan, the fastest growing MFI in the country, started in Konnagar in WB with a portfolio size of 38 crores has started operating in Kisanganj district of Bihar. It is yet to build a strong portfolio in Bihar. Operation System: BANDAN strictly follows its operational policy where all the products and processes including the office furnitures and utensils are standardized across the organization. Area Selection: The first step to implementation is selection of area where a branch would be opened. The branch operations are headed by a Branch manager and four community organizers. The branch manager and the community organizers have a residence cum office from where they operate. The opening of new branch is a carefully thought out process that is based on economies of scale and cost optimization. It is the Regional manager who first visits the area and makes an assessment of the region. The survey covers obtaining the basic socio economic data about the village and its surroundings. The managers also meet the local people and peoples representatives to apprise them of Bandhans work. A written statement is filed with the Panchayat Office wherein photocopies of all the necessary permissions etc are enclosed. An assessment of the potential keeping in view that a branch must have at least 1600 borrower clients. Since all the workings are standardized including loan frequency, service charges, recoveries and the fact there are no savings products, the task is simple and easily understood by the community organizers. The community organizers meet the designated area and hold meeting with the borrowers. Lending: Bandhan lends out to individual borrowers who are members of a group. Any women who fulfill the following criteria as led down in the operations manual are only eligible to be a member of the credit group and will be eligible for loan. Monthly family income not more than USD 2 per day in rural areas and USD 3 per day in urban areas for a family of five Those who do not have more than 50 decimal of land or capital of its equivalent Value

85

 Preference is given to those who are from the backward class and those who posses some specialized skills. Small business and trading loans dominate the loan portfolio of Bandhan. A group of minimum 10 members has to be formed before the loan is disbursed to the individual borrowers. A group can accommodate a maximum of 30 members. All the group members meet at a predetermined hour at a fixed place every week. There are no notices sent nor is any agenda fixed. The group members assemble with the simple purpose to transact the lending business. Loan applications and loans are sanctioned and repayments are collected. The CO updates the passbook, records the dealings in a simple register that serves as a minute book. The loans are sanctioned on the spot but the disbursement is made at the branch office the same day in cash. The place where all the group members meet is called the centre. The credit groups enable integrated development and play the pivotal role in implementing various social development schemes in an appropriate manner. The centre also acts as a literacy centre for those women who are illiterate, where they are taught to make signature. The Products: At present Bandana only offers two loan products. 1. General Purpose loan to individuals but member of the women credit group (ranging from 1k-9k) and to be repaid in 46 equal weekly instalments. 2. Micro enterprise loans to individuals (above INR15K) for a period of 10 months collected now on weekly basis. Features of the product: Non collateral based one. The first loan is disbursed after 4 weeks of membership. The first loan is between INR 1,000 5,000 for the rural clients and between INR. 1,000 7,000 for the urban clients. A service charge of 15% per annum is charged on the loans. Loan repayment is weekly-The weekly loan instalment for a loan of INR 1000 is INR 25 only. The loan term is only one year; the total number of instalments is 46. Subsequent loan is INR 1000 Rs. 3000 more than the previous loan on the basis of two factors viz. future potentiality of the clients income generating activity and whether it generates the expected income of the client. Entitlement to a grace period of 6 weeks- 3 weeks on medical grounds and the last 3 weeks for holiday purposes

To mitigate the risk on account of death of a member, Bandhan collects 2% of the loan sanctioned as risk fund. In the event of any defaults on account of death the reserves and

86

accessed. However, now it is proposed to be reduced to 1.5 % based on previous experience. Bandhan has not tied up with any insurance agency. It believes that tying up often may not be in the best interest of the poor. There is no possibility of reducing the premium paid and it works on global scale and they have to be dependent on another external agency, their rules and regulations, which is not attuned to the needs of the poor people. Bandhan feels that any lapse on the side of the insurance company will ultimately effect their credibility and hence their credit portfolio. Bandhan At a Glance Particulars No. of Branches District Covered No. of Block Covered No. of Panchayat / Municipality Covered No. of Village Covered No. of Staff No. of Community Organizer (CO) No. of Group Formed No. of Members No. of Cumulative Loan Disbursed No. of Borrowers Amount of Loan Disbursed in INR Millions Amount of Loan Outstanding in INR Millions No. of Overdue Borrower Amount of Overdue Average Loan Size on Disbursement Amount (INR) Average Loan Size on Outstanding Amount (INR) No. of Members per CO No. of Borrowers per CO Portfolio Outstanding per CO in Million (INR) Portfolio Outstanding per Branch in INR Millions On Time Repayment Rate - % 2001 -02 2002 -03 2003 -04 200405 200506

1 2 10 1 2 5 1 3 15 2 12 91 10 61 290 4 12 46 3 6 32 50 135 581 512 2,029 9,282 131 1,185 7,186 131 1,054 6,001
0.351 0.294 2.748 2.18 19.642 12.038

54 155 8 14 93 253 374 1,020 1,635 5,241 234 678 158 471 2,956 9,061 51,58 176,063 6 49,39 208,231 7 40,28 149,886 6
147.175 85.638 755.631 371.118

2,679 2,244 171 44

0.098 0.294

2,319 2,733 2,068 2,006 338 290 176 188

0.363 1.09 0.376 1.204

2,979 2,126 326 255

0.542 1.586

170 0.53 3,832 2,483 374 318

0.79 2.401

100

100

100

100

99.98

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Bandhan Key financial Ratios:

Ratio Defined as 2005-06 2004-05 2003-04 % Operational Ratio Cost Operating Expenses / Average Loan Outstanding Financial Cost / Average Loan Outstanding Operating Income Operating Income / 21.71 39 15 14 2002-03

Financial Cost Ratio Yield on Portfolio Operational Sufficiency Financial Sufficiency Capital Ratio

8.84 26.24 121.66

10.15 26.37 70

12.90 27 103

10.50 26.50 90

Self Operating Adjusted Expenses

Income / Operating /

Self Operating Income Operating Expenses

116.66 11.38 91.46

67.35 - 1.51 61.05

92 1.98 74

64 3.30 -

Adequacy Net Capital funds / Risk Weighted Assets

Debt Service Operating Income / Coverage Ratio (Principal Amount Repaid+ Interest Amount Repaid) Administrative Cost Administrative Ratio Expenses / Average Loan Outstanding Cost Per Loan Cost Per Loan Made Cost Per Earned Operating Expenses Loans Disbursed /

12.87

25.55

0.07 297 0.09 3.15

0.11 324 -

0.12 328 -

0.11 272 -

Operating Expenses / No. of Borrowers

Money Interest and Fee Income / Loan Disbursed Total Loan Disbursed / Average of Net Borrowings plus Security Deposit

Funds Rotating

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ASSEFA/SNFL Having started as an offshoot of Bhoodan Movement to carry out the noble mission of developing the Bhoodan Lands (meaning donated lands), in 1969 in a small village in Tamil Nadu, Association for Sarva Seva Farms or ASSEFA, is a development organisation. ASSEFA has been working towards achieving the Gandhian philosophy of Sarvodaya meaning Welfare for all. Its objectives are Improving the economic, social and cultural status of the rural communities and enhance their skills and self-management capacity. ASSEFA also wants the rural communities to unite without any kind of discrimination and work for the upliftment of the social, cultural and economic life of all and to establish self-sufficient, self-reliant and self managed communities based on the principles of freedom, economic equality and social justice. Sarvodaya Nano Finance limited is a part of this grand plan, in enabling the improvement of the economic and social quality of life, especially women and artisans. . BASIX is a group of companies involved in making financial and techno-managerial support services available to rural producers, including the poor and women, on a commercially sustainable basis. ASSEFA and BASIX share certain common ideals and some individuals sit on the governing boards of both the institutions and work together for a common cause while ASSEFA takes pride in its community based and community oriented approach to its integrated development BASIX focuses on livelihood issues using professionals and technology in a big way. The two institutions play a complementary role. SNFL is managed by BASIX. Mission To facilitate easy and timely access to credit and other financial services, for the rural population, especially poor women and rural artisans, through a network of Mutual Benefit Trusts located in their vicinity. To fulfil its mission the company adopts the womens Self Help Group (SHG) model for lending transactions. Products: Sarvodaya Nano Finance Limited provides three types of loan products namely: Multi Purpose Credit At present, unfortunately, there is no good credit system, which provides loans for emergencies, consumption or immediate needs, of the rural population, especially the

89

poor. Due to this, many poor people are forced to take loans from the local moneylenders in case of emergency credit needs and are caught in a debt trap, from which there is no way out but to keep on borrowing more, sometimes at usurious rates of interest. To address this specific situation, the concept of Multi Purpose Credit has been introduced. Micro-Enterprises Credit For farmers with small land holdings, agriculture is becoming an increasingly risky livelihood. Further, a large majority of the rural poor have little or no access to land. Thus, there is an imperative need to look at other options of livelihood. Microenterprises, like petty trade and small business development (SBD) prove to be an important alternative source of income. Dairy Promotion Credit Dairy is one of the better-suited activities for rural women for several reasons. But due to factors like the higher initial investment, risks in terms of cattle health and insurance, limitations in marketing an essentially perishable commodity, this sector needs a special package. Credit for dairy animals will have to necessarily take into consideration marketing linkage, cattle protection or risk cover, veterinary services etc. Hence, we have designed a separate product for the dairy sector Operations: Operations are focused mainly on providing micro-finance/credit and capacity building support, to members of Self-Help Groups (SHGs) through the Sarvodaya Mutual Benefit Trusts (SMBTs), which have the advantage of locally positioned field staff, who evaluate and grade the SHGs and the loan committee then decides on the credit to be given. There is also an independent appraisal of the loan applications before credit disbursement. Appraisal and Evaluation: Stage (1) Every Self Help Group which is a member of the SMBT is graded and evaluated as per well laid out clear indicators of Performance. Only groups which get at least a grade of 'B', among the grades ranging from A-D will be eligible to apply for a loan from the SMBT. Stage (2) When an application is forwarded by a SHG, a loan committee at the SMBT will approve the loan before the Field executive of SNFL appraises and evaluates the loan applications. Stage (3) The field executives of Sarvodaya Nano Finance Ltd. will scrutinize the applications submitted by the SMBT concerned, supported by the applications from the SHGs, on aspects of gradings, membership, regular attendance of meetings, savings, internal rotation of savings, bookkeeping, earlier history of the SHG loan taking and audit where required. Any SHG, which is more than one year old, will have to undergo an audit by an external qualified chartered accountant. If satisfied, the executive will recommend the loan, else reject the same.

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Once the application reaches the office of SNFL, the same is once again scrutinized by the Loan Processing Department and if found to be satisfactory, the same will be placed before a loan committee at SNFL also which may or may not approve the loan after due diligence and deliberations. SNFL has started its operation in Gaya and Jamui since last year and is lending to its SHGs and SMBTs, though ASSEFAs SHG and micro credit work goes back to the 1980s. Overview of the Gaya project: Particulars Bodh Gaya (including Gurua Sherghati Dobhi Mohanpur) (including Barachatti) Total no. of 109 68 78 63 village Total no. of 253 Women Self Help Group Total no. Members of 3774 237 222 212

Total 318

924 3459 16.37 0.99 3.62 13.28 3329 13.53 1.33 3.15 8.48 3172 13734 19.55 79.89 0.26 5.15 3.99 17.71 14.4 58.7

Total Savings 30.44 amount in Lakhs FNF o/s amount 2.57 in Lacs Project Fund o/s 6.95 amount in Lakhs Share capital 22.54 amount in Lakhs

SNFL is headquartered at Chennai has a total portfolio of 65 crores and has a operational self sufficiency of 110%.

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BASIX: BASIX is a new generation livelihood promotion institution established in 1996, working with over 265,600 households in 49 districts in the states of Andhra Pradesh, Karnataka, Tamil Nadu, Orissa, Jharkhand, Maharashtra, Madhya Pradesh, and Rajasthan. BASIX mission is to promote a large number of sustainable livelihoods, including for the rural poor and women, through the provision of financial services and technical assistance in an integrated manner. BASIX will strive to yield a competitive rate of return to its investors so as to be able to access mainstream capital and human resources on a continuous basis. BASIX strategy is providing a comprehensive set of livelihood promotion services to rural poor households from under one umbrella. This includes provision of micro financial, agricultural/business development and institutional development services.

IDS

BASIX

Livelihood
LFS BDS

The BASIX Livelihood Triad includes the following services. LIVELIHOOD FINANCE AG/BUSINESS DEVELOPMENT INSTITUIONAL DEVELOPMENT SERVICES SERVICES (LFS) SERVICES (BDS) (IDS)

Savings (only in three district where we have a banking license) Credit: agricultural, allied and non-farm Insurance, for lives and livelihoods Financial orchestration (arranging funding from various sources)

Productivity enhancement Risk mitigation (noninsurance) Local value addition Market linkages Input supply, output sales

Formation of groups, federations, cooperatives, mutual benefits, etc. of producers Accounting and management information systems, using IT Building collaborations to deliver a wide range of services Sector and Policy work analysis and advocacy for changes/reforms.

The rationale behind this is as follows: Micro-credit in particular, and microfinance (including savings and insurance) in general, is helpful for the more enterprising poor people in economically dynamic areas. However, for poorer people in backward regions like Bihar, a whole range of other Business Development Services (input supply, training,

92

technical assistance, market linkages) needs to be provided even for credit to be utilised properly. Likewise, it is not possible to work with poor households individually and they need to be organized into groups, informal associations and sometimes cooperatives or producer companies, all of which requires institutional development services, so BASIX works with JLGs, ROSCAS, SHGs, Federations, MACS and other NGOs who have a good community presence. BASIX Clientele A vast majority of the borrowers of BASIX are the rural poor, particularly the landless and women. BASIX lends to them to promote self-employment. However, all the poor do not want to be self-employed. Thus BASIX also lends to rural commercial farmers and non-farm enterprises, which generate much-needed wage employment for the rural poor. BASIX thus addresses customer segments in different sectors: Agriculture Sector Landless (lease-holder) Subsistence Workers and marginal farmers and Landless Poor in dryland areas. Small farmers Small and Marginal producing cash crops Farmers and non-farm or marketable surplus micro-enterprises of food crops
Commercial Farmers and Growth MicroEnterprises and Small Enterprises
Farmers mainly growing cotton, oilseeds, vegetablels, cotton and other cash crops.

Allied Sectors
Landless livestock rearers; backyard poultry rearers; lac

Dairy farmers, sheep and goat rearers, poultry farmers. Dairy cooperatives, Commercial poultry and dairy farmers; fish pond owners;

Non-Farm Sector Self employed artisans e.g. handloom weavers / cottage units Micro-enterprises and services e.g. furniture making unit; auto repair shops Enterprises, with 2-10 workers engaged in food processing, metal work, retail shops

Models of lending: BASIX predominantly follows the JLG method of lending to economically active poor for promoting livelihoods. It also lends to individuals, SHGs, Roscas, MACS, SHG federations and NGO-MFI all without any collateral. Outreach: BASIX has established its presence in various parts of India, especially central India. Ten years after it was founded, BASIX services over 13,400 villages in 49 districts in eight states of India. BASIX performance as in June 2006 is approximately: PARTICULARS Loan Disbursement since June 1996 (Rs. Million) Loan Outstanding (Rs. Million) Number of customers Cumulative customers Performing Assets (as per RBI norms, 180 days past due) Percentage of loan amount to non-farm sector (per cent) Percentage of loan amount to women (per cent) Customers supported with Agricultural/Business Development Services (BDS) productivity, inputs, value addition, market links ACHIEVEMENT 6385 1712 265,600 435,000 98.8% 55% 53% 27,500

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Producer groups supported with training, accounting, institutional development and livelihood support NGOs/MFIs/Cooperatives supported with Institutional Development Services (IDS)

Over 15000 SHGs and 750 CIGs 150

BASIX is operating in Jharkhand for the last 5 years with a portfolio of around 8 crores, and has sold more then 20,000 life, health, livestock and weather insurance and provides IDS services to more then 15 NGO-MFI in Jharkhand and Bihar. BASIX has recently started its operation in Bihar and is providing ID services and building up the portfolio of NGO with a soft loan outstanding of around 35 lakhs to 3 NGOs and one MfA. BASIX is also providing consultancy and livelihood training to NGOs of Bihar and Jharkhand. RGVN RGVN was founded as an autonomous, non profit organization in April, 1990 and is registered under the Society's Registration Act of 1860 in the State of Assam, with Head Quarters at Guwahati. RGVN operates in 14 states of the country. RGVN chose to focus on northeastern India including Sikkim initially as this region lacked NGOs as well as donors. It is head quarters at Guwahati to ensure special focus on the Northeast and eastern India. Program activities were gradually extended to the "poverty pockets" of eastern India - eastern Uttar Pradesh, Bihar, Jharkhand, Orissa, northeastern Andhra Pradesh and the Bastar region of Chattisgarh. The Credit and Savings Programme (CSP) was initiated in 1995 to provide credit and other financial service to the people who cannot access the formal sector. The main focus of CSP was to enhance the livelihood of poor women and empower them in the process. This is done by providing credit to poor women & men through Self Help Groups (SHGs) and Joint Liability Groups (JLGs). The vision of RGVN is to enhance the livelihood of the underprivileged of the society who has little or no access to formal banking systems, to inculcate the habit of thrift amongst the poor and empowerment of women through income generation activities. Its objectives are: Channelizing credit to the poor, eliminating the exploitation of money lenders and creating opportunities for self employment. RGVN offers loans through SHGs, JLGs and through its entrepreneurship development programme. RGVN has a total portfolio of around 50 lakhs in Bihar, which it canalizes through 11NGOs. RGVN also provides capacity building support to these NGOs to take up the CSP programme successfully. It grooms small NGOs to take up larger portfolios in the long run.

NGO MFI of Bihar

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To understand the status of NGO MFI and their requirement to become a MFI and those who can be incubated we undertaken in the six focus districts. A total of 12 organizations were studied across the 6 district of Bihar. The selection was based on our own understanding of MF and the potentials that we can see in these agencies. However there may be many other NGOs /SHPIs who can be considered for incubation but the broad issues will remain the same as is stated below. All the organizations studied have been divided into four major categories namely A, B, C and D based on following parameters: Purpose/origination/mandate of the organization Future strategy of the organization Scale of micro-finance Quality of borrowers/clients/beneficiaries

The following table presents the number of organizations enlisted in each state and the category profiling obtained thereof:
Category A B C D Total Madhubani 2 2 Gaya 2 2 Nalanda 2 2 2 Muzaffarpur 2 1 1 2 2 2 Purnia Khagaria Total 2 7 3 12

However, it should be noted that these rankings are based on quality of MF within each district; the characteristics of organizations in each category are not comparable to the all-India standards. Therefore, if one was to place the Category A organizations of Bihar on all-India basis, they may fall in Category B or C. The detailed observations on these categories are as follows: Category A No organisation of the 12 studied within the 6 districts of Bihar was able to fall under Category A. Category B Organizational orientation towards micro finance: Organizations are working on micro finance in addition to other programs; the human resource is not dedicated wholly to micro finance. Started SHG promotion as a community mobilization tool but now visualizes it as a platform to improve the economic status of the people. The purpose and objectives of the MF program have been understood to a certain extent at higher levels of the organization, but still needs to be internalized and percolated down the line.

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Operational level staff needs orientation towards treating micro-finance program as one of profit centered program rather than a grant oriented, cost centered program.

Scale of micro finance: They work in more than one district, and there is focus on micro finance. There is also intent to form community- based organizations for MF, but the structure and legalities need to be understood. These organizations have got good reach, but would still need to upscale and densified operations to bring the operations to the break-even levels. Quality of micro finance program: Systems have been developed to a certain extent. Groups and villages have been identified as the building blocks and necessary inputs provided. Operating systems have recently been introduced, which they are facing difficulty with, as is common with any newer system change. Though not computerized, the records and systems have been introduced. Funds need to be mobilized for streamlining the existing operations as well as for up scaling except in AP-Karnataka. Category C Organizational orientation towards micro finance: They are involved in a variety of programs of which micro finance is one. Micro finance taken up as part of government-funded programs e.g. watershed development etc. Lack of conceptual clarity on MF. Weak focus in understanding the importance of monitoring the micro finance project / program Scale of micro finance: These organizations are moderately sized catering to a membership of 700 above. Working in one or two districts. Quality of micro finance program: Group quality is moderate. Training to the groups unsystematic and erratic. SHG origination, purpose and activity performance is weak. There is a general lack of monitoring system and the data/information is either not collected from the SHG or not utilized for improving the status of the SHGs. MIS systems cater to funding agencies needs rather than that of the program. Where federations have already been formed, they require a lot of inputs. Operational systems not defined and rather haphazard. Overall micro finance program performance poor.

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Category D Organizational orientation towards micro finance: Entry into micro finance as SHG promotion / MACTS formation viewed as the in thing. View micro finance as a vehicle to spur growth. No orientation and training support for their field and managerial staff. The governing board also lacks vision. Organization too small to build and implement strategies for micro finance. Scale of micro finance: Very small just starting off with few numbers of groups. Operational area of organizations also low at present. SHG promotion work taken up based on funding/ promoting incentives that usually last for one financial year. Quality of micro finance program: Quality of the program is quite poor as no efforts made as yet to strengthen the groups. Private sector banks: As such none of the new generation private sector has made any dent in rural Bihar directly. The targets set out by them are negligible. In the agriculture sector it has a target of Rs.80 lakhs, and a total of Rs. 2800 lakhs in SSI and other priority sector lending. ICICI, HDFC and UTI are trying to make inroads to rural India through the intermediary route by on lending to MFIs. ICICI is also in the look out for opportunities for partnership model and loan securitization in Bihar. ICICI has taken a major step to build up the capacities of NGOs, entrepreneurs and cooperatives and is creating awareness about these agencies. ICICI is the first bank to have taken a step to invest in capacity building of the potential players of MF services in Bihar. ICICI in partnership with BASIX is already in the process of handholding CPSL (Patna), Nirdesh (Muzzafarpur) and AVS (Gaya) to transform them as MFI/CBMFI. HDFC and UTI are yet to come out with any concrete strategy for Bihar. HDFC at present is working with four partners namely NIDAN, COMFED, KSA and RGVN. It has also taken up lending to SHGs directly under the banking correspondent model. No agriculture lending has now been initiated. UTI is the only private bank who has tried with some agriculture lending in Muzzafarpur and Bhagalpur.

Micro Insurance Sector:

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It is interesting to note that except for the primary sources there is a complete dearth of documentation in the area of insurance at regional level particularly in Bihar. The aggregated data for the total number of policies sold and actual premium accrued is not available. Hence to analyze the actual number of people insured becomes an interesting area of primary research, which has still not been covered either by the researchers of India or any international agency. In addition to this, the regional offices covering more than one state are lacking the concept of data aggregation. Bifurcation of the data state wise is entirely out of ambit of this study. Hence in absence of aggregated data it is very difficult to portray an accurate picture of the current insurance scenario in Bihar. Keeping this backdrop in mind the status can be viewed from the references stated in various newspapers, magazines and websites and by reviewing certain indexes like a) Total population vs. insurance coverage, b) Governmental program and policies for risk mitigation, livelihood and social security, c) efforts made by NGOs and civil societies, d) Players from the supply side NGOs and MFIs and other intermediary agencies inclusive of financial institutions. Rajesh Sood, Executive Director, Max New York Life opines that studies reveal that only 1.5 percent of the total population in Bihar has opted for insurance cover. On the other hand the national indices according to various sources in terms of coverage of insurance does not exceed 10 percent of the total population. However, the fact remains that the insurance market is growing by 20 percent per annum keeping this fact in view, roughly a minimum of 12 lakh 45 thousand people are insured in Bihar and by any standard it can not exceed 83 lakh populations in Bihar. It is interesting to note that the insurance coverage in Bihar is positioned in a way where the urban population has been insured for life and assets and insurance coverage in the rural area is almost decimal. The rural coverage in Bihar is normally done to satisfy the regulatory norms of social and rural obligation. A core study however reveals that even this compliance is fabricated by issuing insurance in urban areas based on rural addresses. If we view the players particularly in terms of insurance companies functional in Bihar, we would find an interesting field that besides the governmental insurance company operational in life and general there is a total absence of private player in general insurance in Bihar. It is true that ICICI Lombard made some efforts in the year 2005-06 but closed down their operations for reasons best know to them. However, in 2007-08 Bajaj Allianz general insurance has plans to enter in Bihar. As far as life insurance is concerned besides LIC, the only operator, which was operational in Bihar as private player post liberalization was Bajaj Allianz Life Insurance Company and after that Birla Sunlife and Dabur Aviva entered into the picture. The success replications of these companies paved way for a host of life insurance companies like ICICI Prudential, Reliance, Max New York Life etc. it is now establish that the state of Bihar offered a very good potential for the life insurance market. As far as in the contribution of NGO-MFI is concerned in terms of insurance NIDAN has an outstanding position because the organization has made a conscious and this year the target was to rope in 2 lakh lives. Concrete figure of 40 thousand life with remarkable

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process and system in terms of claims is already documented by them. They had a conference on micro insurance along with their network partners in October 2006. The case study of NIDAN is attached herewith as annexure II. In the field of micro insurance and rural insurance the role of AVARAN can not be undermined in terms of the training being imparted by them both in terms of 100 hours and micro insurance. The organization has made efforts to sensitize 20 implementing agencies for rural and micro insurance. They have done a need assessment in the rural areas of Bihar and the risks have been clearly identified for redressal through insurance. As a result the product has been designed, which would be launched from January in the rural areas with simplified processes and systems at affordable price at the doorsteps of rural poor. The organization has bridged the gap on the demand and supply side and is in the process of continuous development of need-based product and capacity building. As far as the products in the rural areas are concerned it is in returnable term, term and endowment policies by the life insurers. The popular products are Janshree of LIC, Kavach of Birla Sunlife and Goolak of SBI Life. As far as general insurance is concerned universal health and Janta Personal Accidental policies and cashless mediclaim are the most popular products purchased and promoted by the NGOs and NGO-MFIs. Except for SEWAs bundle product promoted by NIDAN the concept of buying the bundle product at a low cost is absent. The demand and supply in Bihar is done on a piecemeal basis and the emphasis is health, life or accident. The coverage of assets is not on a priority basis though recurrent floods in Bihar are an annual phenomenon. Micro Insurance that suits to the needs of the rural poor products are still not in vogue in Bihar. Technically it is only LIC and Tata AIG has come up with micro insurance product which not in operation in Bihar. Rest of the products are rural social products of GIC and Term Insurance or endowment of Life insurance companies. NIDAN as one among the major and first MI promoting agency, began with linkage with LIC, Group Insurance Scheme and with NIC with Medi-claim. Poor had multiple insurance needs. Thus after exploring various schemes, finally decided to come out with a unified scheme with multiple benefits in one package being run by Vimo-Sewa. It covers life, health, asset and disability benefits for self and spouse at a low premium. Insurance Coverage by NIDAN Districts 2004 Katihar 401 Khagaria 764 Nawada 18 Vaishali 1011 Muzzarfarpur Patna 3542 Begusarai New Delhi 2005 1305 1339 42 2160 571 4699 73 14
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2006 1802 1436 106 5831 1167 7341 112 124

Samastipur Purnia Gaya, Saran, Nalanda Total Source: Awaran , Patna

5736

10203

3127 243 171 21460

GTFS has made inroads in Bihar and has been selling term policies including life and non life. No data was available for the exact numbers of policies sold and the quality of claim settlement is yet to be established. GTFS has a huge network and is the corporate agent of the following insurance companies. Sl. No. 1 2 3 4 Life Insurance Max New York Life Insurance Co. Tata AIG Life Insurance Co. Bajaj Allianz Life Insurance Co. LIC of India General Insurance Bajaj Allianz IFFCO TOKYO

Total No. of Branch 190, Total No. of Worker 2500000, Head Office Kolkata Livestock Insurance: The Bihar Dairy Cooperative through its huge network has sold more then 55,000 livestock policies. National Agricultural Insurance Scheme NAIS The Agricultural Insurance Company of India Ltd. has paid claims of Rs. 100.88 cr during Kharif 2005 and Rs. 53.03 cr during Rabi 2005-06 benefiting 1.25 lakh and 1.02 lakh farmers respectively in the State. The implementation of RKBY by Commercial banks and RRB was not been satisfactory (NABARD State focus paper-07-08).

Remittance Services:
Remittance service as in most other parts of the country is still unexplored and not much work has been done. Given the huge amount of remittances coming to Bihar where more then 31 % of the poor are dependent on, there is a high demand for the same. The poorest migrants hand carry their earnings and face considerable risks of theft while travelling. Workers in other states send money through Money Orders and Bank Drafts. The popularity of electronic transfers through private agents is increasing because they are reliable, safe and fast although slightly more expensive. Between April 05 and March 06 the total number of MOs recd was 875947 with a value of Rs 1411, 632,133(Deshinkar et.al, 2006). MOs show two dips in May and in February when migrants come home MOs recd in rural areas in Bihar show that the largest source of remittances was Delhi (see graph below)

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10 00 00 0 800 0 00 600 0 00 400 0 00 200 0 00

D e P l hi u n ja b W M B a B h ih a a ra r s h H tr a a ry a n a G Up u ja A ra J ss t h a a m rk h a n d R A a P ja S st h a C n h h M a ti P sg a rh O K ri s a rn s a U a tt a ta k ra n a c h a l N E

Source: Deshinkar et.al, 2006 To summarise, the status and characteristics of rural credit in Bihar are as follows: Dependence on CBs (68%) share of RRBs (21%) and Cooperative banks (11%) Credit portfolio mainly restricted to four activities. Kisan Credit Cards, MSTP, Farm Mechanization and SGSY. 29 percent of the cultivated area reported to be under oral share cropping restrict scope for crop loans to the extent. 40 percent of the area flood prone and 41 percent drought prone restrict flow of agriculture credit. 42 percent of the population below the poverty line: of the land owning households 80 percent nearly landless. (less than 0.30 hectare) Prevalence of one officer branches in rural areas estimated 800 branches. Low outreach and depth Average loans o/s per farmer household Rs.4476/(national average Rs.12585/-): Per branch population 22,000 (All India 11400). CD ratio of CBs and RRBs 33% as on 31.03.2005 (all India 65%) 33% farmer households have access to credit national average of 48.6% (Ranks 21st in the country) Only 23% of the borrowing farm households reached by institutional sources against national average of 56% - by implication only 8% of total farm households have access to institutional credit (all India - 27%) SHG bank linkage is the only predominant mode being accepted by the Government Bankers and surprisingly even by NABARD is growing over the last few years but at a very low pace and is lowest among the priority states. MFI are coming forward and have almost all models of MF being practiced in a small scale but what will work best in Bihar and when will the MFIs be able to break the hurdles of scaling up is yet to be seen in the state. Large no of SHPIs are there but will poor manpower and low capacity human manpower. Private sector is quite reluctant to lend in rural area of Bihar There is a dearth of Micro insurance and almost total unawareness about MI products available in other states Migration contributes a huge source of livelihoods but no proper remittance service to the poor is available.

T K N e ra la

A P

H P & K

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CHAPTER-4 THE DEMAND OF MF SERVICES IN BIHAR

Economists traditionally have viewed investment as one of the driving forces of economic growth. In a close economy, saving is the only source of investment. But in an open economy, investment can be financed by borrowing from other sources. Inadequate domestic savings will put down investment rates either directly or through constraints. In other words high savings and investment rates are the outcome of the rapid growth and economic transitions. Since the asset less people are much below the poverty line from where they do not have any easy way to come up. Therefore, if they can be helped to have some capital either in terms of savings and credit, they can try to come out of the poverty trap they are in.1 some other important findings of this study are: A brief analysis of the rural society and the life of the poor reveal that

their indebtedness has been the main source of their exploitation. Utter poverty and illiteracy force them to be the victims of the unauthorized private money-lenders. Further problems like bonded labour, child labour, mortgage of assets and migration etc. all due to the exorbitant rate of interest keep them struggling within the poverty trap throughout their lives. Banks are reluctant to deal individually with rural poor due to high transaction cost and fear of risk in granting loans to individuals. On the other hand the attitude of people towards government sanctioned loan makes them defaulters.

Household Survey:

Key Findings

Taking into consideration the above facts, an attempt is made to undertake a study in 6 districts i.e. Nalanda, Gaya, Muzaffarpur, Madhubani, Purnia and Khagaria districts of Bihar. An individual level rapid assessment of the households has been done through a survey using an in-house developed tool to meet the following objectives:

World Bank, Growth, Equity and Economic Change in The Eastern Asian Miracle, World Bank Policy Research Report (New York: Oxford University Press, 1994).

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 To know the livelihood status of poorer households in Bihar. The availability /accessibility of various financial services by the poor. To know the constraints faced by them for getting these services. To know the need preferences The districts covered under the study are shown in the map as given below. and demand for all financial services and their

Some of the observations on the socio-economic situation of the areas where the survey was undertaken will help us to understand the microfinance scenario in a broader viewpoint. More then 43% of the rural people live below the poverty line in Bihar More then 40% of the population in the districts survey are landless and a More then 30% of the rural population migrate seasonally or for more then

Around 50% in case of the six districts. similar number has wage labour as their main source of occupation. 6 months every year. Majority of the migrants either prefer to go to Metros for semi skilled or unskilled job opportunities and a high no also migrate as Agri labourers in places like Punjab, Haryana etc. Domestic migration within the state is low; people

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prefer wage employment in cities like Patna. Other local migration is low due to both low opportunities as well as attitude of the people not to work in local areas for dignity etc. state. districts. further. To meet the extra financial need the people of the area fall pray of The availability of basic infrastructure is generally poor. In the survey we found that most of the respondents in the six survey usurious money lenders who charges exorbitant rates of interest. Land lease and share cropping is common in the survey districts. Quite a large population has expenditure more then their present income, Farmers are facing severe constraints due to flood and draught in the past Other livelihood options are circumference in the area leading to migration The districts have OBC as the predominant caste, and they mainly practice Law and order and so risk of micro financial services is quite high in the consecutive years. of large number of people to other parts of the state and out side the state. agriculture. Cultivation is largely based on traditional pattern and the use of modern There is absence of profit motive, cooperation and collective endeavour. There is also lack of regular market facilities and market linkages in the technology is low.

and due to lack of suitable alternative livelihood opportunities are exploited even

districts have agriculture (for cultivators), business (for landless), wage labour and migration. People spend their income mainly in meeting their consumption needs. The major spending of the poor in preference is on food, expenditure on working capital for farm and non farm business, festival (including clothing), followed by expenses on medicine and health. Respondents also reported that they spend a significant amount of spending on marriages and other ritual ceremonies like death. Poor people, if able to save some surplus after this invest in Assets.

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In general there seems to be a slow process of development leading very low standard of living for the people. Now in this section we will analyse the financial status, its demand and perception of the poor for various kind of services. Saving Services: Vijay Mahajan, in a micro credit summit in Delhi states that the poor need savings (and insurance) services even more, and earlier, than credit. It is experiences that savings serve the following purpose for the poor. self-insurance for the poor in case of emergencies liquid reserve in case of cash flow shortages equity for seeking a loan and a source of lending funds to other poor in need

The field study was undertaken to understand the saving behavior of the house- holds, the constraints, the preference of services etc. by the rural poor in Bihar.
Saving Behaviour of the Poor in Bihar:

On analysis of the primary data it is found that only 9% of the households save money to meet their future needs. 12% of the poor HH in Purnea reported cash saving where as only 5% reported saving in Gaya. On further exploration to understand the behaviour of saving, people save in terms of purchase of assets, trees, jewelleries, utensils etc, which is not strictly perceived as a saving but is used for occasions like marriages. The reason stated for non- saving of cash is lack of adequate income to save (85%). 15% reported that they do not have any option for saving in institutions and also reported that they have no faith in them (Paiswa le kar rafuchakkar ho gailan). Further, the study reveals that out of 9 percent HH who save money 69 percent save on monthly basis. Another 15 percent save on seasonal basis and 12 percent of the HH save on yearly basis. Only 3 percent of the HH save on daily basis and 1 percent saves on weekly basis. This survey clearly reveals that the poor who need saving services the most are not able to save due to lack of adequate saving mobilisation strategy. Also the experiences of fly by night depositors who used to adjust to the flexible saving behaviour of the poor has jittered their faith in saving with NBFCs. It is stated by the Dept of Institutional Finance
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that in the 90s more then 450 NBFCs came to Bihar to mobilise savings. Out of this more the 400 of them are blacklisted and people has lost more then 12000 crores of rupees.

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Preferable attributes that will mobilise saving: Survey done to understand the key attributes which the poor prefer for saving mobilisation in banks and other financial institutions .The attributes in priority preferred are: Safety, Ease of deposit and withdrawal (physical access and paper work) and for availing loan and other government subsidy routed through banks. In an attempt to study the saving behaviour of the poor in Bihar we got the following understanding: Those members who have some agriculture lands, they save maximum during the Paddy and wheat selling season i.e. October to November and February to March. During the month of March to June they save some money by vegetable selling. Farmers of north Bihar which are affected by flood in the kharif practice corn as their main crop and gets high returns out of it. Farmers cultivating corn are able to save substantial part of the income during the month of May/June/July. Those members who are landless their saving is not fixed. Its dependent on their nature of work and their health. But the real fact is that there are unable to save as all of the earnings hardly meet their consumption needs. Members who are engaged in animal husbandry (Goatery) activities they have maximum savings in the month of March (HOLI), November and December by selling meat and rest of the month its depend on market force. Those who engaged in the milk business they have maximum saving in the month of February, May, November and December because in these month they have less expenses. Rest of the month they have very few saving and some time their saving is nil. Institutions for Saving: Most of the respondents who have saved or will like to save their money has either saved in LIC (money back policy), or in SHGs (where they are members of some SHG). Some people still have a preference to save to private depositors like Sahara. The reasons for saving are continuous persuasion by the LIC and private depositors agents and the SHG norms. The other reason is doorstep service and flexibility in deposit amount. Post office also is another important institution where people save as they are also easy to access with lesser complications. Credit Services: The survey brought out different sources indebtedness by the HH in different districts. In as many as (39%) house holds money lenders are the immediate source of getting loans. In (13%) house holds bank and post office, in 173 house holds (24%) shopkeeper, in 64 (9%) house holds input suppliers, in 178 (25%) friends, relatives and neighbours are the

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immediate source of getting loans, in 23 (3%) house holds others and in 81 (11%) house holds SHGs offers them with credit support . Therefore, it is inferred that majority of house holds follow the pattern of borrowing from money lenders, shopkeepers and friends and relatives with an almost low number of house holds banks and SHGs and other means of getting loans. Average amount of borrowings: Majority of house holds (42%) have an average cash borrowing up to Rs. 2000/- . However, large number of house holds (24& and 22.5%) also borrow Rs. 2000/- to Rs. 5000/- and above Rs.10, 000/- respectively. Purpose of loan: In the survey when we tried to identify the purpose of loan. Majority of the respondent house holds (43%) reported borrowing to meet their consumption (HH needs) where as (42%) house holds borrow for production purposes. About 7% of house holds borrow to meet the exigencies. Term of loan: In majority of cases the respondents have taken term loan for one year. However, a substantial number of house holds also borrow for a term of 6 months and more than 2 years. Rate of interest: In most cases (175 house holds -24%) pay an interest rate of 2-5 percent per month. In 128 house holds (18%) cases they pay 5-10 percent and some times above 10 percent and in 44 houses holds (6 %) they pay 1-2 percent interest per month. Security for taking loan: The survey findings reports that only 10 percent house holds give some collateral where as most of the cases it is being given on faith and mutual trust , and third party informal guarantee. Preference for loans: In the survey questions were asked on the preference on availing loans from Banks and formal financial institutions and with or with out subsidy, intention to repay if they get loan and would be interest rate that they will be interested to pay. The survey finding reveals that more then 70% of the rural HH are not interested in availing any loan from

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bank or formal institution. The reasons have already been stated. Many are unaware and can not even imagine of getting loan from banks. They only know that loans can be only taken by money lenders, traders and relatives. Of those who are interested in taking loans prefer taking loans on subsidy only, they do not want loan from banks without subsidy. On asking the willingness for on time repayment, respondents were reluctant but 17% clearly stated that they will not repay if they get loan. On asking for the would be rate of interest rate/pm ,48% of the respondent told they will be happy if they get loan at 1% pm , more then 44% told they prefer an interest rate of less then 2% pm , while the rest told they will take loan at higher rate of interest if it is available. 5-6% is in dire need of loan told they will be paying even more then 10% PM. Migration and Remittances On analysis of the migration data collected during HH survey in six districts, it is found that there is a good frequency of migration events amongst the respondents. 31% of them migrate in some or the other way. As we can see in the graph below, cases of migrating within the same state is lower than the metros and others.
70 60 50 40 30 20 10 0 Within the state No. of HH No. of Persons Metros Any other No. of HH No. of Persons Within the state Metros Any other Nalanda Gaya Muzafarpur Madhubani Purnia Khagaria

Place of migration

Place of migration

Seasonal (1-6 months)

Annual (More than 6 months)

Source: Compiled by the Study team of BASIX through extensive survey

It is also observed that both in case of seasonal or permanent migration people prefer to go to metros. The other areas where people prefer to migrate are to areas like Punjab and Haryana. Domestic and local migration is low but is mainly for construction work, rickshaw pulling, brick kiln etc types of work.

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Another survey being done during the same time states that SCs and EBCs2 are engaged in both short distance and long distance migration but usually in the lowest paid jobs. Farm labouring work, casual labouring work in construction, work in brick kilns and rickshaw pulling are the four most important categories of work for the poorest, unskilled landless and lowest caste migrants. This includes (but is not limited to) the Musahar, Paswan, Majhi, Dom, and other SCs. There are also strong indications that many migrants belonging to the broad and diverse category of OBC have become upwardly mobile, graduating from farm work to working in a variety of industries where earnings are higher. At the same time they have also become more spatially diversified, using their social networks to switch between destinations that are often quite far from each other in order to move up the job ladder in occupations that require similar skills. The result is that migrants from Bihar have now spread their networks to destinations all over India in a way that was not evident a decade ago. The attractions of city life have become a major factor in shaping migration decisions especially for young people and this explains in part high migration rates among the better off. For the better educated and connected migrants working in industries, migration money is an important way of financing agriculture and the accumulation of assets. Migration is now viewed as a finite stage in the lifecycle of the household: as sons approach an age where they can be sent away to earn, the head of the household stays in the village to look after the farm and other enterprise. Analysis of our survey data clearly indicates that, there is link between occupational patterns and migration. Based on some statistical tests, we verified our observation. On testing by using chi square test, we could verify that these events can not be due to chance factor and there has to be some linkage between migration pattern and occupational practices. As migration is one of the major sources of livelihoods of the poor of the state, so it becomes essential to see the demand for money transfer services (remittance services) among the poor. We tried to understand the demand and requirement of money transfer. The details of preference for frequency of money transfer are given in the table below.

Frequency of Money transfer:

2

Backward castes in Bihar are divided into two categoriesAnnexure 1 or Extremely Backward Classes (EBCs) and Annexure 2 or Other Backward Classes (OBCs). EBC include 109 groups and account for 32% of the population and OBCs include 32 groups and account for 20% of the population. The latter includes Yadavs, Kurmis, Banias, Koeri. In addition there are the Backward Caste Muslims. According to the 2001 census report, there are 13 million Muslims in Bihar, which has a total population of 83 million.

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Duration of sending money Weekly Monthly Quarterly Others Total

Number of persons Nalanda 1 4 24 11 40 Gaya 0 14 1 0 15 Muzafarpur 2 6 15 24 47 Madhubani 0 15 27 7 49 0 Purina Khagari a 0 21 34 12 67

Total

3 60 101 54 218

1.38 27.52 46.33 24.77 100

Source: Compiled by the Study team of BASIX through extensive survey

In an attempt was made to understand the status of remittance services and to know the status of the present service providers. The respondents reported that they transfer money either by self, or through agents and MO. The time taken to transfer money takes 1-2 weeks but in 31% of the cases respondents told that money transfer takes even more then one months time. The poorest migrants hand carry their earnings and face considerable risks of theft while travelling. Workers in other states send money through Money Orders and Bank Drafts. The popularity of electronic transfers through private agents is increasing because they are reliable, safe and fast although slightly more expensive.
Time taken to get the money

Duration of sending money 1 week 1-2 week 1 month or more Total

Number of persons Nalanda 1 4 25 30 Gaya 36 14 3 53 Muzafarpur 2 6 40 48 12 70 Madhubani 11 1 Purina Khagari a 44 26

Total

94 51 68 213

44.13 23.94 31.92 100

Source: Compiled by the Study team of BASIX through extensive survey

On asking the charges incurred on different modes of money transfer respondents reported charges up to 10% of the amount sent. This shows that there is a huge demand for a low cost, reliable and fast money transfer services.

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Mode of sending money and charges incurred in each mode No. Charges incurred in each mode No. of persons Percentage <5% 97 67.8 5-10% 38 26.6 8 5.6 >10% Total 143 100

Source: Compiled by the Study team of BASIX through extensive survey

Risk Management and Insurance Services:

The HH survey also made an attempt to understand the risk poor HH in rural Bihar face in their day to day life. Our findings show that many HHs face multiple risks of life and livelihood. It is found that an equal 30% face risk of drought and flood, some times both in the same area. The other risks faces are health, accident, mishap of earning members. Fire and theft so loss of asset is another risk poor people face every year. People also reported that face risk of price rise for inputs, pest attack and fall of price of produce (see table below). So it is quite evident that there is a high amount of risk many people are facing and so is the need for risk mitigation and risk management strategy to be adopted for protection of the poor lives and livelihoods.
R kE e tsinR ra H s is v n u l H
F ire Te h ft D uh ro g t F o lo d A id n cc e t Ps a c e t tta k In u p p t rice h ike P d ce rice fa ro u ll M a o e rn g ish p f a in mme e br A yo e n th r

T ta o l

Source: Compiled by the Study team of BASIX through extensive survey

Extent of monetary loss due to adverse event The survey finding show that around 35% loose less then 5,000 thousand , 25% loose up to 10 thousand, 15% in between 10-20 k and rest 23% loos even more then 20 thousand rupees due to adverse events stated above.

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Extent of Monetary loss

80 70 60 50 40 30 20 10 0
r da ni pu al an ba ay ni af Pu r G hu ga ar r ia a a

<5,000 5,000-10,000 10,000-20,000 >20,000

uz

Source: Compiled by the Study team of BASIX through extensive survey

The survey on awareness about various insurances, poor already insured and for which event and company was also undertaken with 720 poor HHs of the six districts. It has the following findings. Around 40% people do not know of any kind of insurance at all. Only 20% of the respondents told that they have got some insurance. The preference in which insurance has been sold by various companies in term of coverage is on life, livestock, general insurance, vehicle insurance and crop insurance. Few reported having weather insurance, health insurane also. Majority of the insurance is still sold by LIC, GIC and now some MI by GTFS and NIDAN. On asking if they will be interested in getting insured, 80% is still not convinced of buying any insurance product. Claim settlement and lapse of policy is a major case seen in case of LIC. The respondents demanded insurance on life, non life, livestock, assets and weather insurance on floods. In another study being done in Bihar for FFH by NIDAN to understand the effectiveness of different events on the livelihoods of the poor, SHGs members point out their many situations that affect badly to their lives and create pressure in the terms of financial crisis and their sustainability are : S.No. 1 1. Risk /Events Death of bread earner (%) of Effectiveness livelihoods 75% on

ad

Kh a

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1 1 1 1 1 1

2. 3. 4. 5. 6. 7. 1 8 .

Daughters marriage Diseases (chronic) Accident Flood House falling and roof falling Theft Unemployment

60% 50% 50% 20% 10% 5% 10%

1 1 1

9. 10. 11.

Loss in business Crop damage Legal and case in court

20% 30% 20%

In the life cycle analysis it is very much clear that two events i.e. death of bread earner and marriage of daughter badly affect their conditions followed by disease and accidents. The reason is majority of the members are wage earner nearly 50%, so their employment opportunity do get affected much since they work either in farm or non farm. But they do not have cushion in their life. The death of bread earner is common due to different health hazards and accidents. The unemployment is only 10%, which means that they can cope up with the unemployment situation. Damage of house and flood is also one of the major areas, which affects their life cycle.

Demand estimation of Micro financial services of rural households:

The demand is being estimated on the basis of detailed study of the HH livelihood needs and the expenses people are willing to undertake. This however is being estimated by the BASIX team after doing extensive survey of the 6 districts of Bihar only.

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Bihar -Rural HH Level Credit Demand Estimation by BASIX

Population of Bihar Population in rural BPL =43% Population 82878796 71690159 30826768 No Of HH 13813133 11948360 5137795 %age of HH in rural Bhr 100% 10% 15% 50% 10% 10% 10% 5% 15% 5% Av family size-6

Demand for MF in Bihar Fooding, Emergency/medical and education Marriages and ceremony- 43% of BPL Consumption need -10% of rest Housing and house repair loan to poorer families Crop Loan-50% of the Rural HH NFS Loan-10% of Rural HH Loan for Micro irrigation-10%of RHH Loan for Land Development-10% Farm Mechanisation-5% of RHH Agri- allied( Dairy, Poultry, Goatery and Fisheries) Horticultural Development Total Credit Demand at RR household level in Bihar

Av loan Req. 2500 3000 5000 5000 5000 10000 5000 20000 5000 20000

Total Demand(In crores) 1284 204 896 2987 597 1195 358 1195 896 1195 INR 10808 cr.

A similar exercise being undertaken by NABARD also has similar projections of credit demand in the state, however it was done more on a sectoral basis and it has ignored the consumption and housing needs of the rural households. The figures stated by NABARD for the FY -2007-08 is Rs. 82196 crores in its current year focus paper. Given these two estimates and the available loan for priority sector in Bihar at present is meeting less then 30% of the total credit requirement in rural areas. In our projection we have however ignored the loan requirements for common infrastructure development, which we have presumed will be met by a mix of government grants, private investment and entrepreneurs and they have access to rural financing . It is also assumed that poor people will not be able to invest over and above the individual loans estimated by us after looking at their livelihoods. We have tried to figure out the loan needs of individual households, who have a poor access to the banking services. Focus should be made by multiple channels to meet the varied demands of different category of poor and rural people. SHG is seen as the largest vehicle of offering financial services to the poor and in rural areas of Bihar. It is being practiced widely among all financial institutions, however as we have seen that there is a huge potential unleashed. An attempt has also been made to estimate the potential of SHGs in Bihar. This will be more relevant for BRLPS as per the project objectives.

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District wise Potential of credit linkage of SHGs (in lakh)

Sl.No District Population (as per 2001 Census) 34.65 23.68 12.76 25.41 35.7 37.44 169.64 828.78 Number of rural poor families 3.02 2.07 1.11 2.22 3.12 3.27 14.81 72.33 Long term Potential of SHG Promotion 0.26 0.18 0.1 0.19 0.27 0.28 1.28 6.25 Potential for credit linkage of SHGs during* 2007-08 0.023 0.016 0.009 0.017 0.024 0.025 0.114 0.55 Of which potential for women SHGs 0.02 0.013 0.007 0.014 0.02 0.021 0.095 0.468

1 2 3 4 5 6 Sub Total

Gaya Nalanda Khagaria Purnea Madhubani Muzaffarpur Focus Districts TOTAL OF BIHAR

Projection from NABARD Focus Paper 2007-08 It is estimated that presently out of all loans being provided in the state by all formal sources SHG- Bank linkage loan contribute only 2.5% and of all priority sector loans the contribution of SHG-Bank linkage is about 6%. Even with the current year projection through the SHG bank linkage programme banks will be able to contribute 10% of the priority sector lending through this route. Hence there is a need to explore various other channels of lending along with the SHG route like lending through JLG, Grameen, ASA, Federation etc.

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CHAPTER-4: THE SUPPLY SIDE ISSUES OF MF

Having presented the review of literature, the status of the banking and MF sector as a whole, demand of financial services at the house hold level we will now look at the supply side issues which are affecting the supply of MF services in the state. In this section we will deal will the various constraints and risk these agencies face at all levels, and their future plan and strategy to meet the

The issues of Commercial Banks, RRBs and Cooperative Banks:

As it has been seen that despite CB, RRBs and Cooperative banks have a large share of their network in rural areas and it is not able to serve to a large section of the rural poor in the state. The financial and operational performance of these banks lags way behind other states. Despite of its poor performance, banks are still the largest (can say the only) source of formal credit in rural Bihar. The other source of formal credit is rather limited in the state. This makes it even more important to see how can the banks perform and at least reach to the level of other states. Hence it is important to understand their The prudential norm evolved special responsibility on Bankers to ensure timely recovery of interest and principal from borrowers and also see to it that security realisable value should remain in-tack. The aforesaid situation had made bankers over conscious, fearful for recovery particularly while lending to individual poor or the SHGs. Bankers have the following risk perception and constraints in offering micro credit in rural areas, which arises from the following facts: The poor recovery percentage by most banks and large number of pending certificate cases in rural Bihar has shattered the confidence of the bankers to lend both in rural areas and to the poor. They do not realize how non-repayment will affect the credit lending institutions as well as his prospect of borrowing in future. The rural poor lack proper training on any system of accounting to assess the return from investment and there by practice of parking a portion of incremental income for repayment is not followed and hence they are not being able to pay their instalments on time. The people in rural Bihar due to low literacy level and exposure have no experience of assets management and cash management and often the loan is not properly utilized (which is also due to lack of enough livelihood opportunity in rural areas) and neither proper assets are created nor properly maintained hence out of investment expected income generation does not take place.

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The bankers provide loan for only single activity underlying the fact that rural livelihoods are diversified and hence loan facility availed by the poor in any one activity alone does not create enough surplus for repayment. As most( 43% ) of the rural poor are below the poverty line and are always struggling to meet their both ends meet , any surplus income coming from income is being utilised for some other HH purpose due to the lack of proper follow up by the bankers and hence default happens. Rural poor clients generally have borrowing from friends, relations and moneylenders. At the time of borrowing the aforesaid borrowing are not disclosed but their repayment got first priority at cost of banks repayment. Poor people as we have seen earlier face multiple risk like flood, drought, theft, death, illness of family members but there is no effective system of risk mitigation nor risk management is available in rural areas. Settlement of insurance claim is difficult hence under such circumstance default in repayment is usual phenomenon. Govt. extension services and other service line are not providing supporting services or imparting technical know how for proper income generation. Poor backward and forward linkage for any livelihood activity is lacking in the state and hence the returns in any activity is not sufficient to repay the principal as well as the interest of the loan amount, and when there s no proper follow up by bankers is being made. The banks on rural areas also face severe shortage of manpower, as it has been stated that more then 800 branches are manned by one staff, so it is impossible for him/her to manage both the back office, mobilise deposits and provide credit. And if credit is demanded, do to the fear that he/she will not be able to follow up the same they deny giving loans, unless it is mandatory and safe. Service area plan is not prepared based on the feedback and involvement of the rural banks and no proper survey of the villages done for identification economic activities feasible in the area. So due to the top down approach of target, bank managers do not take much interest on lending.

The other areas of concern for Banks to scale up its priority sector lending are: Weak financial health of cooperatives not allowing them to utilise its huge network in rural areas o There are approximately 5341 PACS in the State of which only 1330 were identified as potentially viable.

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o Non availability of paid manager in each society is the major problem in PACS. As gathered from RCS, GoB, only 1200 paid managers were posted in the PACS. o Audit of PACS is in huge arrears. Upto 2004, only 2171 PACS were audited. o 4009 PACS are in loss as on 31.03.2004. o Societies suffer from huge imbalances. o The PACS at ground level face the problems of low recoveries and high over dues. None of the PACS has prepared DAP and entered into MoU with the DCCBs. Commercial Banks are offering KCC coverage mostly to farmers owning large and medium holdings. NAIS & PAIS though mandatory are not implemented in totality by several banks in the state. Individual Maximum borrowing power fixed by RCS is only Rs. 50000/-. For cooperative Banks Individual Maximum Borrowing Power fixed by RCS is only Rs. 25000/-. Active participation of State Govt. machinery is not received for various political reasons for improvement in recovery. Land records are not available to the farmers easily or in time. Quality fertilizers and seeds in required quantity, agro clinical support and proper marketing linkages at the district level at present are not available to the farmers.

Plans and target for Bihar:

Projected credit flow of Rs.10, 000 crore under the Annual Credit Plan 200607 to be fully achieved. Every branch of commercial bank and RRB should achieve their targets in full. The targets under KCC should be reviewed and reallocated among commercial banks and RRBs. Zonal/Regional heads of Banks were advised to visit at least 20 branches each month with focus on reviewing credit dispensation. SME credit should grow by 20% every year in true value. Cluster approach to be adopted for accelerating flow of credit in sectors viz. Weaving, Handicrafts, Fisheries, Food processing, Dairy Development, Readymade garments. Cooperative banks net worth to be made positive to enable them to get assistance from NABARD. State Government should avail/utilize RIDF for development of rural infrastructure and watershed development schemes. RUDSETI type training institute to be opened. State Government to ensure sponsoring 2.61 lakh loan applications of eligible farmers through land possession and no dues certificate for achieving 100% target under MSTP. State Government to work out a compensation scheme for failed tube wells.
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 36000 SHGs to be credit linked during the current financial year. State Government to support banks in reducing NPA level from the current 18% to the national average level of less than 5%. Possible steps to be taken up in the state to scale up rural credit in the state: Commercial Banks and RRBs have to takeover financing in the districts where DCCBs are weak. SCB has to open 3 branches immediately for which permission has been granted by the RBI in the areas where the DCCBs have been rejected license by RBI. Commercial Banks have to expand KCC coverage to Small and Marginal Farmers, tenant farmers and oral lessees also. To recommend the state government may increase IMBP (Individual Maximum Borrowing Power) to Rs. 1 lakh for lending by Cooperative banks. To recommend state government to devise effective instruments for helping the banks in recovery of loans and dispose of the pending certificate cases. State Government need to strengthen the agri extension mechanism in order to increase agriculture productivity. State Government may undertake steps for computerization of land records so that timely availability of land Possession certificate (LPCs) to the farmers is ensured. State Government may ensure supply of good quality fertilizer and seeds in adequate quantities. Adequate arrangement may have to be made by the state government at several outlets for the procurement of food crops by FCI/SWC. Banks may need encourage providing flexible cost effective and easy credit facilities to rural households under a family centric approach. The loan size may be determined by the financing bank based upon the comprehensive credit needs of the family members (working capital, investment capital, consumption etc.) based on the cash flow per family from all sources.

Some other suggestions and actions points based on similar lines of Dr YSP Throat, to upscale priority sector and weaker section loans in the state are: Banks in the State to adopt SHG-Bank Linkage approach for increasing their credit outreach for this a Strategy may be formulated for promotion of 5.27 lakh additional SHGs in the State. State Government may identify appropriate agencies / NGOs to act as SHPIs. State Government may constitute a working group comprising NABARD, RBI, State Government and banks to evolve a strategy for up scaling SHG Bank Linkage Programme. The state should take help of suitable consultant for propelling SHG movement in the state. Credit linking of the remaining unlinked SHGs to be undertaken on priority basis and monitored by the SLBC and Controlling offices. 68000 SHGs are yet to be credit linked. These groups may be identified and credit linked. SLBC to focus on issues pertaining to financial exclusion.

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NABARD to provide technical support to banks for diversified financing. Banks should balance their loan portfolio by supporting diversified farm and non-farm activities and production and investment credit. Banks need to step up their efforts to promote rural non-farm sector in the state. State Government to provide necessary support. A comprehensive strategy for RNFS development should also be prepared. RD and NABARD to support capacity building of NGOs in the state. Greater support from NABARD for capacity building of RRB staff in view of amalgamation and likely diversification of business. Acceptance of terms and conditions for release of financial assistance under Cooperative Revival Package as per the suggestions of the Vaidhyanathan committee will give a new boost to the rural financial sector.

The following Policy initiatives of Government of Bihar will also give a boost to the priority sector lending in the state: Repeal of Agriculture Produce Marketing Act The State Government has repealed the Agriculture Produce Marketing Act. This will pave the way for contract farming and entry of corporate for large scale procurement of agriculture produce. Agro-processing sector will also get a boost. Stamp Duty Exemption Department of Registration, Government of Bihar has exempted mortgage instruments executed in favour of banks for all types of agricultural loans upto Rs.5 lakh from the purview of stamp duty. The agreement deeds executed by members of Self Help Groups have also been extended stamp duty exemption. Bihar Fish Jalkar Management Act 2006 Leasing Period for fisheries ponds The State Government has decided to give ponds under Fisheries Department GoB for lease periods of 5-10 years. This will provide incentive for the leaseholder to invest in long term development of the pond and adopt scientific fish farming. A new act has also been passed where the SHG can also take lease of ponds. Bihar Industrial Incentive Policy 2006 The policy contains provisions for granting pre-production incentive of subsidy/exemption from stamp duty and registration fee and post production incentive of grant/exemption for preparation of project reports, purchase of land/shed, technical know-how and captive power generation/diesel generating set. Quality certificate, Vat, luxury tax etc. Bihar Single Window Clearance Act 2006 has also been enacted for speedy clearance of proposals for setting up industries. Risk perception and plans of the private sector banks:

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Presently only three private sector banks are in the process of taking some initiatives for MF and priority sector lending: They are ICICI, HDFC and UTI. All are looking at the market of Bihar with lots of suspicion and are yet to put their stake directly. The following are some of the common perceived risk of lending in rural Bihar: Poor recovery rates of public sector banks and the attitude of the people for non repayment of loans. Their experience in Jharkhand and bordering areas of Bihar shows a high delinquency rate of 6-7%. Law and order situation and political connections of the people in rural areas is also perceived as a risk for non repayment. Recent guidelines of RBI for recovery of MF loans. Lesser avenues for lending in rural areas other then agriculture. Low credit absorption capacity. Lack of many reliable and business oriented entrepreneurs. Low capacity of NGOs to become MFI and lack of many reliable NGOs. Poor infrastructure and IT interventions in Bihar.

(b) Alternative Micro finance Institutions-issues and scope

As has been seen in progressive states like AP and nationally like in Bangladesh, MFI like Grameen bank, ASA has changed the whole economy of the state. In Bihar also we can see almost all models being tried out sporadically, but the impact is so limited to get any attention from the bankers and the customers. As the whole concept of MFI is new in the state (except for CHASPOR) who is working here in four districts for the last 5 -6 years with a total portfolio of around 20 crores no other MFI had built a strong portfolio in Bihar. SKS is the only other MFI (in real terms) that has started its operation in few districts of Bihar. Other NGO-MFI like NIDAN and NBJK is also trying to build some MF portfolio but is limited to the urban slums. Given this situation, MFIs in Bihar has to go a long way ahead to make its presence felt and again importance. Presently the MFIs face and perceive the following constraints and challenges in Bihar: Awareness about micro finance is low in the state. Objective of mF is neither understood by the banks, MFIs nor by the people. There is no coordination among Banks, MFIs, PRIs, Block officials. Low sensitisation of bankers about MFI, they only know about the SHG bank linkage model and rest others are not seen as some thing acceptable to them MFI face unforeseen problems like eviction. Group leaders roles have not been very encouraging due to poor political environment in rural areas. Lack of enough livelihood opportunities and diversified livelihood in rural Bihar affects regular cash flow of borrowers making it difficult for conventional MFIs to work in Bihar.

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Low NFS activity in rural Bihar makes some of the MF models non

viable. There is a huge competition for resources and so chances of wrong selection are high. Individualism and the tendency to sacrifice collective interest is found common in Bihar Tendency to take loans despite not actually needing the money, as if loans are to be taken as their right and non repayment is a pride. Diversion of resources by the poor also creates problems in getting timely recovery Late repayment is not perceived as a mistake thus members do not consider it a problem till they are repaying the money, albeit not on agreed terms. High turn over of staff /and non availability of high quality human resources affects the program. Increasing number of frauds as is seen in the case of CASHPOR Issue over higher interest rate charged compared to the banking sector. No government support/incentives available to promote more MFIs in the state. Fraudulent activity by many NBFC and recent past makes people suspicious. Lack of knowledge of Bihars economy and hence lack of suitably designed products.

MFI-PLANs Ahead
On discussion with the various MFIs presently operating in Bihar, though on a small scale, we got the following perceptions and their future plans for up scaling MF work in Bihar. SKS: Its business expansion in Bihar has registered a growth rate of approx 300% in the third quarter of this financial year. The portfolios at Hazipur and Bhagalpur have gained good momentum in terms of business growth, client outreach and total lending. The lead manager Mr. Vijay Kumar is very optimistic about the growth trend, and confident of successfully creating a client base of 20,000 customers by June 2007. He informed that SKS works on saturation principle; and they have strategically devised mechanisms to successfully enter in all the sub divisions of Bihar in next three years. BASIX: BASIX, a new generation livelihood promotion organisation often confused as a MFI has just recently started its office in Patna and will focus on its livelihood triad strategy. BASIX believes that poor need various other services along with financial services and BASIX will do a large no of innovations and action research for both financial and non financial services in Bihar , which can be replicated by various agencies .

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BASIX also plans to provide capacity building training and handholding to local NGOs and upcoming MFs to scale up their MF programme. BASIX plans to go for wholesale lending through NGO-MFI in Bihar. BASIX will also do some pilot retail lending for its own learning. BASIX also wishes to provide consultancy services and undertake pilot action research for the GOB, NABARD and the MF and livelihood sector for better implementation of the available schemes. BASIX also plans to form a livelihood enhancement forum in the state which will help all stakeholders engaged in MF and livelihood promotion work. CASHPOR: CASHPOR is working in the 4 districts of Bihar and has built a good portfolio. In the recent years with its growing portfolio and bank accounts it is facing issues of fraud and default. It wants to grow slow in the next few years. NBJK: Works only in the slums of Patna, forms SHGs and provide Micro credit support to them. It has no future plan for expansion in rural Bihar at least for a couple of years. NIDAN: NIDAN wants to grow its micro finance programme to other districts of Bihar besides the five it is already working. NIDAN feels that it is only this programme that has not grown as per his expectations. It was due to lack of enough loan fund availability. Now that private banks have come , the problem of loan fund is over, but it still feels that it will need some grant support up to the tune of 6-7 lakhs /year for opening of each unit till it breakevens. Some more fund support for capacity building, training and exposure will be required. It has plans to expand its insurance business and reach more then 40 thousands customers in this year itself. NGO MFI Issues which has effected the growth of and their potential: The following issues were identified in the course of Joint initial assessment of the 12 NGO MFI studied during the course of our field study. We have given more focus on this as there is a huge potentiality of these NGOs to be converted as NGO-MFI or can become CB-MFI .Given below is some broad learning from the study, an understanding of which will help us analyze the issues in a clearer light. o Macro environment in the State NGOs in Bihar are just beginning to understand the overarching objectives of micro finance. Most of the organizations have undertaken SHG promotion / micro finance as a sub set intervention of a larger project like Swa Shakti, Swayamsidha, Swayam Swablambhan and Deep for Women Empowerment under Women Development Corporation, Mahila Samakhya, and Poorest Area Civil Society Program etc. This has resulted in low prioritization being given to the micro finance program in the respective organizations. o Lack of conceptual clarity in Micro-finance Barring a few organizations, almost all the organizations exhibit in varying degrees of lack of conceptual clarity on micro finance and its potential to achieve far-reaching impact on the livelihoods of the rural poor. There is a limited worldview on the need for

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sustainable micro finance. This leads to treatment of the micro finance program merely as one more program and the restricted human resource and time allocations made on that basis. o Lack of clarity on legal issues/ options available for scaling up There is a singular lack of clarity on the best/ most suitable course of action that NGOs must adopt in order to catapult the SHG/ micro finance program into a sustainable one. This includes legal forms available and suitable, nature, tiers and form of federation, services that can be offered etc. o Fund constraints Funds are available for promotion from different sources, including Government and non-government sources, though accessibility to these sources is an issue. But funds for continuous program support, up scaling and capacity building are not widely available. The organizations do not have funds for meeting expenses on exposure visits, expansion, management and monitoring of SHGs in their areas. These activities are very important for them to reach a reasonable scale of operations for viability and profitability. This lack of sufficient resources- human and funds to invest in a proper capacity building program has proved to be a serious hindrance to the micro finance program. o Linkages with mainstream Financial Institutions As most of the NGOs have a background of social development coupled with activism (in certain cases) it is difficult for them to assimilate and exhibit the commercial orientation necessary to build sustainable micro finance programs. As a result, their understanding of the issues involved in negotiating linkages with the financial institutions leaves much to be desired. Consequently all of above have led to less concentration on the micro finance program as such, leading to utilization of inappropriately skilled staff, small-scale operations, poor quality MIS, complacency in the matters of portfolio quality, lack of financial control systems and poor governance. There are also some specific Issues among the different categories of NGOs: Organizations falling under different categories have their own specific issues. The issues depend on the way the organization is working, its manpower or strategies, which it has been following for a particular intervention. Categories A Issues B Mobilization of grants for meeting the deficits of micro finance program. Fund raising strategy for loans. Up-scaling. Lack of orientation on advanced financial management and business planning. Unstructured HR and operation system. Lack of support fund for micro finance program implementation.

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Not clear on legal issues Unable to track portfolio/ business with existing MIS system. Lack of economic orientation in SHGs. No operation system for micro finance in place Lacks professional and qualified HR Need of larger fund for long-term programs Low number of groups/clients Lack of quality groups. Lack of understanding of concept of SHG Lack of qualified and professional staff Unable to raise funds for program development and expansion

Given the situation that there is no NGO ready to act as a financial intermediary for banks or other FIs, there is a need for investment on building awareness about MF among the NGOs in particular and the state in general through exposure visits, capacity building among others. The MF availability of poor can only be achieved in Bihar with the help of a large no of NGOs already present in the state. The detailed suggestions and recommendation for incubating NGOs as potential MFI is given in next chapter.

Issues in Micro Insurance:

Perception of suppliers that vulnerable poor cannot be included in their scheme of business because of the following factors. High Risk Profile High moral hazard High claim ratio Low premium paying capacity High operating cost Limited bandwidth of their product Social and rural obligation should be the concern area of government and essentially should be subsidy based. Rural poor have their own risk retention mechanism so not within the ambit of suppliers. Problem of creating a new distribution channel Complex procedures in terms of selection of risk pool. Technical issues like proof in terms of age, illness, identification etc.. Calculation of premium and underwriting is still not shared with the clients.The concept of possible maximum risk is not shared and hence underwriting still remains an unknown area. High profit motive

System and process issues in Micro insurance Micro insurance propagation needs behavior change through education of the user group

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Knowledge and success of micro insurance or risk pooling heavily depend on training and capacity building of the member propagating it Claim settlement process should be easy and less time-taking and above all should be provided at the claimant's doorstep Role of service provider in case of micro insurance is really very crucial Positioning of micro insurance product as a composite of life and non-life is another gray area to be taken up very earnestly

Remittances: As micro remittance is a totally a new concept and not much work has been done notionally and internationally there is a no issue expect for proper product design and experimentation.

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THE SHG STUDY IN BIHAR

SHG is seen as the key vehicle of development in India. SHGs are formed both for the purpose of financial intermediation as well as to achieve various other project objectives like livelihoods, social mobilisation, gender , education and so on . BRLPS also wishes to adopt SHG as the key vehicle of its developmental programmes and wishes to adopt a saturation model in Bihar. In this section we have assessed the SHG with the key focus of their strengths and weakness for undertaking mf and other economic activity. In order to reach the objective of the study, a plan was made to assess 1200 Self Help Groups spread over 6 districts, 31 blocks and 531 villages with a total membership of 14,679. This was done to have a clearer picture of SHGs and their bank linkage status in the state of Bihar. This would also help to have an overall understanding of the capacity building needs of SHGs for making them financially sustainable and to prepare the action plan for BRLP. The criteria for sampling were as follows: Cover at least 2% of the SHGs or 200 SHGs (which ever is more) in the selected districts. SHGs to be selected from top five running projects including government Project promoted SHGs in the selected district The following table gives a clear understanding regarding the study districts, number of blocks, villages and SHGs studied in each district along with total number of members in the studied groups in the respective districts.
Table: 3 SHGs Surveyed under different Districts in Bihar
Sl. No Na me of the Distr ic t (s) No . of Blo c ks No . of Villa ge s No . SHGs of To ta l Numbe r of me mbe r s in the sur ve ye d g ro ups 21 78

Na la nd a

11 0

20 0

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2 3 4 5 6

Gay a Mu za ffa rp u r Ma dh ub an i Pu rn ia Kha ga ria To ta l

7 4 4 6 6 31

10 4 63 73 67 96 51 3

20 0 20 0 20 0 20 0 20 0 1 20 0

27 69 21 43 23 20 26 07 26 75 1 46 79

Source: Compiled by the Study team of BASIX through extensive survey

As the below table shows the study was confined to the SHGs promoted by the government and non-government agencies under different programmes. Among the government promoting agencies those were studies are SGSY, WDC and PACS. Other SHGs were also studies which were promoted by different NGOs and RGVN. Out of the 1200 SHGs studies 40 percent SHGs are promoted under SGSY programme, 26 percent SHGs were studied under WDC programmes, 11 percent SHGs under PACS programme, 21 percent SHGs promoted by the NGOs in different districts and 2 percent SHGs promoted by RGVN. The geographical distribution of SHGs also varies from agency to agency. SGSY, WDC and NGO promoted groups were studied across the districts. Table: 4 SHGs Surveyed under different Programmes Name of the District (s) Madhubani Gaya Khagaria
80 64 20 36 0 200

Groups studies under different Programmes

SGSY WDC PACS NGO RGVN Total

80 30 25 45 20 200

80 35 30 55 0 200

Muzaffarpur

Total groups studied under different programmes

Nalanda

80 80 0 40 0 200

80 30 60 30 0 200

Purnia
80 75 0 45 0 200

480 (40 %) 314 (26 %) 135 (11 %) 251 (21 %) 20 (2 %) 1200 (100 %)

Source: Compiled by the Study team of BASIX through extensive survey

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During the course of the study, attention was given to study the SHGs according to their age of formation. From the total number of SHGs 15 percent SHGs studied, which were formed within one year, 38 percent SHGs formed and existed within two years where as the 47 percent SHGs existed for more than two years. The following table gives a detail idea regarding the distribution of these three categories of SHGs studied in different districts. Table: 5 Duration of Existence of SHGs under study Sl. No Name of the districts No. of SHGs Groups formed within 1 year
59 8 6 84 20 4 181 15

Groups formed within 2 years

71 51 32 94 115 90 453 38

Groups formed Above 2 years

70 141 162 22 65 106 566 47

1 2 3 4 5 6

Nalanda Gaya Muzaffarpur Madhubani Purnia Khagaria Total Percentage

200 200 200 200 200 200 1200 100

Source: Compiled by the Study team of BASIX through extensive survey

Bank Accounts of SHGs Out of the total 1200, SHGs studied 887 SHGs i.e. 74 percent of the SHGs have accounts in different banks. Only 26 percent SHGs have not yet opened bank accounts. Majority of SHGs have accounts in the RRBs followed with PNB and SBI. From the data, it can be inferred that the RRBs are most approachable to the rural areas followed with PNB and SBI respectively. The reasons for not opening bank accounts by the groups may be due to less time span of formation of groups, which are promoted within one year, or lack of accessibility to the branches in some areas. Less than 50 percent groups in Madhubani have bank accounts as more almost 50 percent groups studied are within one year. The table given below gives a lucid picture of the SHGs having bank accounts in different bank branches.

Table: 6

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SHGs having bank accounts in different bank branches

Name of the Banks SHGs having bank accounts with different banks in the survey districts Nalanda PNB RRB Central Bank of India Bank of India State Bank of India UBI Indian Bank ADB UCO Bank BoB UBI No. Linkage Total % of groups having bank accounts 86 54 0 0 0 0 0 0 0 0 0 60 200 70 % Gaya 42 137 1 15 5 0 0 0 0 0 0 0 200 100 % Muzaffarpu r 63 24 8 0 15 19 7 0 0 0 0 64 200 68 % Madhubani 0 57 0 0 31 0 0 0 0 0 0 112 200 44 % Purnia 9 50 1 0 97 0 0 6 7 0 0 30 200 85 % Khagaria 0 118 0 0 18 0 0 0 0 5 12 47 200 76 %

Source: Compiled by the Study team of BASIX through extensive survey

GROUP COMPOSITION & MEMBERSHIP PATTERN

In any group activity, the composition and membership pattern are very important for the successful operation of the group. In case of the SHGs, there are certain principles and features, which are vital for the successful operation. One of the vital criteria for a group is the membership of the group. However, it varies from one group to another depending upon the ground situation in the villages and other local factors. The viability of a SHG very much depends on the memberships. The groups having very less members or exact number of members are considered as less viable or high-risk groups. In these groups if a single member leaves the group due to any reason the group loose its acceptability to obtain any outside support.

131

Table: 7 Group Composition and Membership Patterns

< 10

10-12

13-15

Nalanda Gaya Muzaffarpur Madhubani Purnia Khagaria Total %

7 0 0 2 0 0 9 0.75

178 71 187 159 113 77 785 65.25

14 92 12 31 70 101 320 26.5

1 37 1 8 17 22 86 7. 5

16-20

Name of the districts

Group Composition

Number of groups 200 200 200 200 200 200 1200 100 %

Total no of female members 1817 2739 2143 2316 2607 2614 14236 97 %

Total no. of Male members 361 30 0 4 0 61 456 3%

Total no of members 2178 2769 2143 2320 2607 2675 14692 100 %

Source: Compiled by the Study team of BASIX through extensive survey

As the above table shows out of the 1200 groups studied less than one percent of the SHGs studied have less than 10 members, which is an insignificant number. The average membership number of the surveyed SHGs was 12.24. The analysis of distribution of membership showed that majority of the SHGs (65%) were found to have memberships between 10-12 members, 26 percent of SHGs have memberships between 13 15 percent and 7.5 percent SHGs have memberships between 16 20 members. From the discussion with the group members during the course of the study, it was noticed that these groups are mainly promoted under various government schemes to fulfil the target of SHG promotion, particularly those SHGs with membership between 10-12. These groups were formed without following SHG principle and there exist a possibility of disintegration of the groups when benefits from program cease to come. Such a phenomenon perhaps would give a wrong signal to the overall environment of SHG program in the state in particular and micro-finance in general.

132

Further, it has been found that 97 percent of the totals were women SHG and the rest were male SHGs No mixed group was observed during the survey. From this it is evident that the SHG movement has created a platform for poor rural women to jointly come together for mutual benefit and support at times of need, which is a favourable sign. Frequency Of Saving The frequency of savings plays a vital role in resource mobilisation to the group and enhances savings habit of group members. The study reveals the fact that almost all the groups i.e. 96 percent of the total groups studied conduct savings on a monthly basis. Where as only 3 percent of the groups conduct savings on weekly basis and as less as only 1 percent of SHGs save occasionally. Table: 8 Frequency of Savings by SHGs under study Frequency District (s) of Saving Nalanda Gaya Muzaffar Madhubani pur Weekly 37 0 0 0 Monthly Occasional Total 155 8 200 200 0 200 200 0 200 200 0 200 Total Purnia 0 200 0 200 Khagari a 0 200 0 200 %

37 1155 8 1200

3 96 1 100

Source: Compiled by the Study team of BASIX through extensive survey

Degree of homogeneity: An attempt has been made during the course of the study to find out the degree to which the SHGs are homogeneous. For this purpose, a scale was used to find out exactly to what extent the SHGs are homogeneous. The criteria used for the scale was whether the SHGs are very strong, moderate or poor homogeneity based on caste, education, occupation and income level.

133

Table: 9 Degree of Homogeneity of the SHGs Degree of Districts Total Homogeneity Naland Gaya Muzaffarpur Madhubani Purnia Khagaria of SHGs a Very Strong 79 91 79 71 103 52 475 Moderate 91 96 83 76 85 114 545 poor (no 30 13 38 53 12 34 180 homogeneity) 200 200 200 200 200 200 1200 Total
Source: Compiled by the Study team of BASIX through extensive survey

% 40 45 15 100

As the above table, shows only 40 percent of the SHGs are considered as very strong homogeneous groups based on the above criterias. Another 45 percent of the groups are also moderately homogeneous. Similarly, the homogeneity level is disappointing for 15 percent of the groups those were studied. An interesting aspect of the study regarding the level of homogeneity is that most of the SHGs are promoted under different programmes and NGOs belong to BPL members. However, in case of some of the SHGs promoted under SGSY programme have members from the BPL and APL in the same group. These groups have been formed to avail the credit facility under SGSY programme. GOVERNANCE AND MANAGEMENT The governance and management of the groups those were studied is given in the following table. Awareness of group members on group activities is essential for effective functioning and sustainability of the groups. Correct information regarding group activities also facilitates to take efficient decisions in groups. Apart from thrift and credit, groups have diverse roles to play on socio-economic development of the villages in general and of the members in particular. The group members belong to the same village and same locality. Thus, the degree of awareness about objectives of Self Help Group programme should be high. The awareness about objectives of Self Help Group programme is 41 percent, which is considered as low level of awareness of the group members on the objective of the SHG programme. It means that the promoting authorities may not have spent much time on the benefits that flows from being a member and creation of an institution at village level. Awareness about rules and regulations is 34 percent, which is further low. This generally comes from the adherence to group processes and how much it has been imbibed by the

134

groups. The figures indicate that thrust on the group processes were minimal resulting in poor knowledge of the members on the functioning of the group. Only 23 percent of the groups are familiar with leaders responsibility. This also reflects the poor processes undertaken for group formation and possibly dominance of the groups by a few members. This negates the principles and often harmful to the long-term interest of the group cohesiveness. Similarly, only 14 percent of the groups have idea regarding member wise savings and loan position. The prima facie reason for them together is to inculcate in them role of savings and credit through group methodology and reap benefits from the same. However, the members were not even aware of their personal savings, let alone the groups savings and credit portfolio. It reflects low awareness among members about financial transactions, possibly due to poor process implementation such as discussion and ratification by the group on cash and bank savings, inter-loaning, repayment, etc. The specific interest of the groups is to obtain programme funds through a minimum period of savings (6 months) and thus vitiating the principles of SHG formation and its development From the following table it is evident that neither the promoting agencies nor the group members are serious about governance and management of the SHGs. If this kind of situation continues the SHGs can survive until the promoting agencies continue their support. Seeing the condition of governance and management of all the SHGs it is obvious that none of the groups is graduated groups. The fact is that in some cases the promoters of the groups maintains all the records, registers, and work on behalf of the group. Hence, in case of withdrawal of support of the promoting agencies none of the groups can function independently. The level of self-reliance of the groups is at a low key. In this case it is very important on the part of the promoting agencies is to do the visioning exercises for the SHGs and take up rigorous group building and capacity building exercises.
Table: 10 Governance & management of SHGs

135

136

137

138

139

Sl.No.

Criteria Nalanda Gaya

Indicators Purnia Muzaffarpur Madhubani Khagaria

Awareness about objectives of Self Help Group Programme Awareness about rules and regulations of group functioning Leader responsibility sharing by group members Awareness about memberwise savings and loan position

19 (9.5%)

87 (44%) 35 (17.5%) 45 (22.5%) 11 (5.5%)

94 (47%) 34 (17%) 23 (11.5%) 11 (5.5%)

79 (38%) 37 (18.5%) 22 (11%) 21 (10.5%)

112 (56%) 68 (34%) 54 (27%) 26 (13%)

101 (50%) 87 (43.5%) 73 (36.5%) 56 (23%)

492 (41%) 410 (34%) 283 (23%) 176 (14%)

149 (74.5%) 66 (33%)

51 (25.5%)

Source: Compiled by the Study team of BASIX through extensive survey

Meeting and Attendance for Group Cohesiveness During the study, it was found that only 22 percent of the SHGs were meeting on fixed date, time and place. In 34 percent SHGs meetings are held regularly once a month at the convenience of all the members. In 44 percent of the SHGs the meetings are irregular. Thus the cohesiveness among the members that develops through such regular meetings seems to be absent in most of the surveyed groups. Further, it was observed that the SHGs in Gaya, Muzaffarpur and Nalanda are more regular in conducting meetings than the SHGs studied in other districts. At the same time, more number of SHGs in Muzaffarpur, Madhubani and Khagaria are irregular in conducting meetings. An interesting fact is that in Muzaffarpur almost 30 percent SHGs conduct meeting regularly where as about more than 46.5 percent of SHGs are irregular in conducting meetings. The following table gives an overview of the frequency of group meetings of SHGs in different districts.
Table: 11 Frequency of Group Meetings
No. of Groups

140

Total

Nalanda

Gaya

Muzaffarpur

Madhubani

Purnia

Sl.No.

Frequency

Khagaria

Total (%)

1.

Regular Meetings are held on fixed date, time and place Meetings are held regularly once a month but at the convenience of all members Meetings are irregular

35 (17.5%) 62 (31%) 103 (51.5%)

69 (34.5%) 69 (34.5%) 62 (31%)

60 (30%) 47 (23.5%) 93 (46.5%)

27 (13.5%) 60 (30%) 113 (56.5%)

44 (22%) 95 (47.5%) 61 (30.5%)

26 (13%) 75 (37.5%) 99 (49.5%)

261 (22%) 408 (34%) 531 (44%)

2.

3.

Total

200 (100%)

200 (100%)

200 (100%)

200 (100%)

200 (100%)

200 (100%)

1200 (100%)

Source: Compiled by the Study team of BASIX through extensive survey

Through this survey, an attempt has been made to know the members attendance in-group meetings. It was found that only in 21 percent SHG the members have more than 90 percent attendance in meetings. Where as 43 percent SHG members have 70 90 percent attendance and 30 percent of SHG members have 50 70 percent attendance in meetings. From among the total 1200 SHGs studied 6 percent i.e. 71 SHG members have an attendance rate in meetings below 50 percent. The below mentioned table explains about the frequency of attendance of SHG members in different districts.
Table: 12 Attendance in Meetings
No. of Groups Nalanda Gaya Muzafarpur Madhubani Purnia Khagaria Sl.No. Frequenc y Total (%)

1.

>90 %

28 (14%)

61 (30.5%)

49 (24%)

33 (16.5%)

29 (14.5%)

48 (24%)

248 (21%)

141

2.

70 90 %

93 (46.5%)

101 (50.5%) 33 (16.5%) 5 (2.5%) 200 (100%)

56 (28%) 82 (41%) 13 (6.5%) 200 (100%)

80 (40%) 56 (28%) 31 (15.5%) 200 (100%)

114 (57%) 57 (28.5%) 0 (0%) 200 (100%)

74 (37%) 62 (31%) 16 (8%) 200 (100%)

518 (43%) 363 (30%) 71 (6%) 1200 (100%)

3.

50 70 %

73 (36.5%)

4.

< 50 %

6 (3%)

Total

200 (100%)

Source: Compiled by the Study team of BASIX through extensive survey

Financial Transactions in the Group

The present study revealed that only in 30 percent SHGs the financial decisions are made in-group meetings. Where as in 31 percent groups all financial decisions are made in meeting but loans are disbursed outside the meeting and in 30 percent of SHGs fund collections are made outside meeting but loan decisions are taken during the meeting. In rest 9 percent groups, both fund collections and financial decisions are taken outside the meeting. The study revealed the fact that only in 30 percent SHGs maintains transparency in financial transactions. The rest 70 percent SHGs do not have transparency in financial transactions. As a result most of the group members lack knowledge about their own savings, group fund, amount inter lent to group members, fund availability with the group, interest earned and fund availed from outside. As most of the groups do not maintain transparency, there exists fear of mismanagement and misappropriation of group fund by a few members of the group. Table 13 gives an overall view of the level of financial transactions in SHGs of different districts.
Table: 13 Financial transactions in the group

142

Financial transactions in Groups in % Sl.No. Method of decision making Total (%) Muzafarpur Madhubani Khagaria 25% 47.5% Nalanda Gaya Purnia 36.5% 42%

1. 2.

All financial decisions are made in meeting only All financial decisions are made in meeting but loans are disbursed outside Fund collections are made outside meeting but loan decisions are taken during the meeting Both fund collections and financial decisions are taken outside the meeting Total

30.5% 8%

46% 34.5%

32.5% 12%

7.5% 42.5%

30% 31%

3.

53%

16.5%

45%

22%

21%

24.5%

30%

4.

8.5%

3%

10.5%

28%

0.5%

3%

9%

100%

100%

100%

100%

100%

100%

100%

Source: Compiled by the Study team of BASIX through extensive survey

The data on members awareness about financial transaction by the SHGs presents a gloomy picture. From the total number of 1200 SHGs studied only in 23 percent SHGs all members are aware about all the financial transaction made by the group. In 30 percent of the groups, more than 75 percent members are aware about group finances. In as much as 37 percent SHGs, only a few members are aware about group finances and in 6 percent groups, none of the members are aware about the group finances. Table 14 gives a detailed picture on members awareness about financial transactions in SHGs studied in different districts.
Table: 14 Members awareness about financial transactions
Members awareness on groups finances Sl.No. Level of members awareness Total (%)

143

Nalanda

Gaya

Muzafarpur

Madhubani

Purnia

1. 2. 3. 4.

All members are aware about all financial transactions Above 75%of the members are aware Only few members are aware None are aware Total

26.5% 15% 49.5% 9% 100%

38% 40% 19.5% 2.5% 100%

31.5% 30% 32% 6.5% 100%

15.5% 30.5% 39% 15% 100%

14.5% 61.5% 24% 0% 100%

10.5% 26.5% 61.5% 1.5% 100%

Khagaria

23% 34% 37% 6% 100%

Source: Compiled by the Study team of BASIX through extensive survey

Regularity of Savings in SHGs The below mentioned table represents that only in 18 percent of the SHGs the members does 100 percent on time payment of their savings. Where as in majority of SHGs, i.e. 74 percent groups, 70 90 percent members do savings regularly and are on time. In rest 8 percent groups, less than 70 percent of members do regular savings. It seems that the highest percentage of members in SHGs have average performance in savings. The district wise performance of on time payment of savings by the group members are presented in the following table. Table: 15:
Regularity of savings
No. of groups in district Nalanda Gaya Purnia Muzaffarpur Madhubani Khagaria Sl.No. On time payment of savings Total %

1. 2. 3.

100% on time payment of savings by members 90% on time payment of savings by members 70% -90% on time payment of savings by members

21 85 83

49 99 45

23 50 98

45 40 81

23 98 71

49 86 59

210 458 437

18 38 36

144

4.

Less than 70% on time payment of savings by members Total

11 200

7 200

29 200

34 200

8 200

6 200

95 1200

8 100

Source: Compiled by the Study team of BASIX through extensive survey

As far as performance of the groups as a whole is concerned the performance, level of internal lending varies from SHG to SHG. An effort has been made to quantify the performance of internal lending of groups district wise. Altogether, 35 percent of SHGs provided need-based loans to most of its group members. Gaya, Nalanda and Muzaffarpur rank above than 3 other districts of study in terms of maximum SHG members availing loan. Khagaria is the lowest in the rank in terms of least members availed need based loan. As far as in 38 percent of SHGs under percent study have made available need based loans to its members. Twenty percent of the groups have made provision of equal distribution of loans among all its members. Only in 7 percent of the total groups only a few members in the group availed repeated loan.

145

Table: 16 Pattern of internal lending

No. of groups in districts Sl.No. Pattern of lending Nalanda Gaya Purnia Muzaffarpur Madhubani Khagaria Total

1.

2.

3.

4.

Need based loans availed by many members Need based loans availed by few members Equal distribution of loans among all members Loans extended repeatedly to only a few members in the group Total

38.5%

51.5%

48.5%

24%

33.5%

11.5%

415 (35%)

30%

31.5%

36%

45%

42.5%

44.5%

459 (38%)

19.5%

13.5%

9%

13%

23%

43.5%

243 (20%)

12%

3.5%

6.5%

18%

1%

0.5%

83 (7%)

(100%)

(100%)

(100%)

(100%)

(100%)

(100%)

(100%)

Source: Compiled by the Study team of BASIX through extensive survey

Velocity of Internal Lending During The course of the study, data regarding velocity of internal lending by the SHGs have been obtained from the group records. The data revealed that majority of the SHGs i.e. 43 percent of the groups have transacted their available amount less than 1 time, 38 percent of SHGs have transacted their savings among their members between 1 1.5 times of the available fund with the group. Only 19 percent of SHGs have transacted the available group fund over 1.5 times. The table gives an overview of the velocity of internal lending by the SHGs in different districts.
Table: 17: Velocity of internal lending

146

Sl. No

Name of the districts Nalanda Gaya Muzafarpur Madhubani Purnia Khagaria Total %

Over 1.5 times

Between 1-1.5 times 49 95 80 30 119 83 456 38%

Less than 1 time 119 29 55 156 53 105 517 43%

Total

1 2. 3. 4. 5. 6.

32 76 65 14 28 12 227 19%

200 200 200 200 200 200 1200 100%

Source: Compiled by the Study team of BASIX through extensive survey

The repayment terms of loan obtained by the members from the SHGs varies from one group to another. Altogether 19 percent of the surveyed groups repay the group loan in monthly instalments. Subsequently 16 percent of SHG members repay on quarterly basis and 37 percent of SHGs repay on lump sum basis as per the availability of fund with them. Twenty eight percent SHGs do not follow any specific repayment term. In Nalanda and Gaya districts majority of the SHGs repay either in monthly or quarterly instalments. Where as in rest 4 districts more number of SHGs repays in either lump sum basis or there is no specific term for repayment of internal loan. Table 18 gives a clear understanding about the repayment terms by the groups in different districts of Bihar under study.
Table: 18 Repayment terms
Sl. No Name of the districts Monthly Instalments 98(49%) 44 (22%) 22 (11%) 38 (19%) 29 (14.5%) 2 (1%) Total + (%) 233 (19%) Repayment terms by the groups Quarterly Instalments 40 (20%) 42 (21%) 35 (17.5%) 5 (2.5%) 55 (27.5%) (19 9.5%) 196 (16%) Lump sum Payment 32 (16%) 43 (21.5%) 63 (31.5%) 122 (61%) 199.5%) 170 (85%) 449 (37%) No specific term 30 (15%) 71 (53.5%) 80 (40%) 35 (17.5%) 97 (48.5%) 9 (4.5%) 322 (28%) Total

1 2. 3. 4. 5. 6.

Nalanda Gaya Muzafarpur Madhubani Purnia Khagaria

200 (100%) 200 (100%) 200 (100%) 200 (100%) 200 (100%) 200 (100%) 1200 (100%)

147

Source: Compiled by the Study team of BASIX through extensive survey

148

Linkages of SHGs with Banks Only 18 percent of the SHGs were found to be linked to any bank in the strict sense of the term. Altogether 82 percent of SHGs have not obtained credit from any of the banks that were studied in the district of Bihar. Here linkages of SHGs mean the linkage of the groups with banks for financial assistance through loan and subsidy. The table below shows the linkages of SHGs with the bank. Table: 19 Linkages with Banks for credit Sl. Name of the Status of bank linkages No districts Banks have Have given loans approached which are being Banks for repaid regularly loans but were refused

Have not yet approached Banks for loans

Total

1 Nalanda 36 (18%) 105 (52.5%) 59 (29.5%) 2. Gaya 36 (18%) 80 (40%) 84 (42%) 3. Muzaffarpur 88 (44%) 74 (37%) 38 (19%) 4. Madhubani 21(10.5%) 4 (2%) 175 (87.5%) 5. Purnia 32 (16%) 107 (53.5%) 61 (30.5%) 6. Khagaria 8 (4%) 15 (7.5%) 177 (88.5%) Total + (%) 211 (18%) 385 (32%) 594 (50%) Source: Compiled by the Study team of BASIX through extensive survey

200 (100%) 200 (100%) 200 (100%) 200 (100%) 200 (100%) 200 (100%) 1200 (100%)

Of the total number of 1200, groups studied only 18 percent of groups have established linkages with the bank by way of availing credit facility from the bank. About one third of the SHGs have approached bank for loan but were refused, as they do not fulfil the criteria of availing bank loan. Half of the SHGs have not yet approached the bank for loan, as they have not reach the desired level for availing loan. The district Muzaffarpur has the highest number of SHGs i.e. 44 percent have linked with the bank followed with Nalanda and Gaya having 36 percent SHGs linked to bank. Khagaria district has the lowest number of SHGs i.e. only 8 percent of SHGs linked to bank. Borrower Quality: Data has been collected at SHG level to know the quality of borrower in SHGs. The has been verified by getting information from the SHGs about no of defaulting members in the SHGs who have taken loan from the group and not repaying the loan amount sanctioned to them on time. In 31 percent of SHGs less than 2 members are unable to repay on time, whereas in 47 percent of the groups, 2-5 members are not in a position to repay back the group loan on time. In 22 percent of SHGs more than 5 members are not paying back their outstanding loan amount on time. The table given below gives a picture of the borrower quality in the SHGs of different districts.
149

Table: 20 Borrower Quality (No. of defaulting members)

Sl. No 1 2. 3. 4. 5. 6. Name of the districts Nalanda Gaya Muzaffarpur Madhubani Purnia Khagaria Total % < 2 members 2-5 members > 5 members Total

58 (29%) 52 (26%) 52 (26%) 57 (28.5%) 98 (49%) 56 (28%) 373 31 %

91 (45.5%) 100 (50%) 117 (58.5%) 41 (20.5%) 97 (48.5%) 122 (61%) 568 47 %

51 (25.5%) 48 (24%) 31 (15.5%) 102 (51%) 5 (2.5%) 22 (11%) 259 22 %

200 (100%) 200 (100%) 200 (100%) 200 (100%) 200 (100%) 200 (100%) 1200 100 %

Source: Compiled by the Study team of BASIX through extensive survey

Performance of SHGs Table 21 gives below some information of group performances based on the criterias of Adherence to the groups bye-laws, Attendance at the meetings, Financial decisions taken at the meeting, Savings collection, Loan disbursement, Repayment performance and Member-wise savings and loan portfolio.
Table: 21 Adherence of group norms and performance of SHGs

150

151

Sl.No.

Criteria Nalanda Gaya

Indicators Purnia Muzaffarpur Madhubani Khagaria

Adherence to the groups bye-laws Attendance at the meetings Financial decisions taken at the meeting Savings collection Loan disbursement Repayment performance Member-wise savings and loan portfolio

161 (80.5%) 127 (63.5%) 77 (38.5%) 86 (43%) 131 (65.5%) 106 (53%) 61 (30.5%)

29 (14.5%) 34 (17%) 79 (39.5%) 92 (46%) 22 (11%) 157 (78.5%) 26 (13%)

34 (17%) 162 (81%) 123 (61.5%) 110 (55%) 85 (42.5%) 124 (62%) 57 (28.5%)

100 (50%) 137 (68.5) 81 (40.5) 107 (53.5) 129 (64.5) 120 (60%) 53 (26.5)

91 (45.5%) 137 (68.5%) 98 (49%) 187 (93.5%) 181 (90.5%) 158 (79%) 162 (81%)

87 (43.5%) 133 (66.5%) 91 (45.5%) 172 (86%) 175 (87.5%) 97 (48.5%) 70 (35%)

502

Total

41.83

B C

730 549

60.83 45.75

D E

754 723

62.83 60.25

F G

762 429

63.5 35.75

Source: Compiled by the Study team of BASIX through extensive survey

Record Keeping By SHGs Almost all the SHGs maintain 8-10 types of different records, which are either maintained by the group leaders, or the promoters appointed for the group. The most common records maintained by the SHGs in different districts are presented in the following table no 22.
Table: 22 Types of record keeping in the SHGs

152

Sl.No.

District (s) Types of records Attendance Register Minutes Book Cash Book Nalanda 177 (88.5%) 199 (99.5%) 118 (59%) Gaya 200 (100%) 196 (98%) 179 (89.5%) 85 (42.5%) 193 (96.5%) 170 (85%) 182 (91%) 199 (99.5%) 25 (12.5%) 02 (1%) Muzaffarpur 198 (99%) 161 (80.5%) 199 (99.5%) 88 (44%) 198 (99%) 196 (98%) 176 (88%) 200 (100%) 79 (39.5%) 09 (4.5%) Madhubani 184 (92%) 195 (97.5%) 189 (94.5) 13 (6.5%) 198 (99%) 181 (90.5%) 28 (14%) 86 (43%) 00 (0%) 00 (0%) Purnia 192 (96%) 197 (98.5%) 121 (60.5%) 39 (19.5) 198 (99%) 174 (87%) 151 (75.5%) 195 (97.5%) 69 (34.5%) 00 (0%) Khagaria 181 (90.5%) 138 (69%) 79 (39.5%) 59 (29.5%) 181 (90.5%) 75 (37.5) 86 (43%) 184 (92%) 28 (14%) 02 (1%)

Individual Ledger Saving Book

187 (93.5) 199 (99.5%)

Loan Book

185 (92.5%)

Personal Passbook Bank Passbook Transaction Book Any Other Specify

195 (97.5) 181 (90.5%) 198 (99%) 02 (1%)

10

Source: Compiled by the Study team of BASIX through extensive survey

Usage of Group Physical Assets The table given below gives a picture of the group assets and usage by the group members. A little more than 83 percent groups have no commonly owned assets. Where as in little more than 8 percent groups, group assets benefits are cornered by a few members in the group. In similar way in little more than 8 percent groups group assets utilized by most members and are paid for. The table presented below gives details about the ownership and usage of group assets by the members.
Table: 23

153

Usage of group physical assets

Sl. No Name of the districts Usage of physical assets by No. of Groups Group Assets utilized by most members and are paid for 10 41 22 15 09 01 Total % 98 08.16 Group assets whose benefits are cornered by a few 11 21 07 27 29 07 102 08.5 Group has no commonly owned assets 179 138 171 158 162 192 1000 83.34 200 200 200 200 200 200 1200 100 Total

1 2. 3. 4. 5. 6.

Nalanda Gaya Muzaffarpur Madhubani Purnia Khagaria

Source: Compiled by the Study team of BASIX through extensive survey

From the study, it revealed the fact that about 20 percent of groups actively participate in social and other issues of the village and another 28 percent SHGs some times involved in resolving village issues. A large number of the SHGs i.e. more than 51 percent have rarely been involved in village issues. Table 24 gives a birds eye view of the SHGs involvement in village issues in different districts.
Table: 24 Groups involvement in village issues
Sl. No Name of the districts Group actively involves itself in social and other issues of the village 8 59 116 3 51 2 239 19.92 Group has sometimes been involved in resolving issues in the village 30 70 34 29 70 108 341 28.41 Group has never/rarely been involved in village issues 162 71 50 168 79 90 620 51.67 Total

1 2. 3. 4. 5. 6.

Nalanda Gaya Muzaffarpur Madhubani Purnia Khagaria Total %

200 200 200 200 200 200 1200 100

Source: Compiled by the Study team of BASIX through extensive survey

154

According to the primary survey the total cumulative savings of all the groups are Rs. 23, 04, 760/-. The total revolving fund obtained by the SHGs from the promoting agencies is Rs. 5, 20,000/-. The total amount of loan obtained from the bank by the SHGs is Rs. 4,17,031/-. The total amount of available fund with the SHGs is Rs. 35,15,691/-. The average internal fund per SHG is Rs. 17,578/- and average internal fund available per member is Rs. 1,314/-. The below mentioned table gives an overall view of the fund position of the SHGs studied in all the 6 districts.
Table: 25 Financial position of the groups
Sl. No Criterias for Group 1 2 3 4 5 6 Fund Total Cumulative savings Total Revolving fund obtained Loan from bank and other external sources Total available fund in the SHGs Average internal fund per SHG Average internal fund per member
Source: Compiled by the Study team of BASIX through extensive survey

District wise financial position of Groups Nalanda 1167579 764900 4196600 6205917.5 31029.59 2849.37 Gaya 1861203 121000 877250 3212590 16062.95 1160.19 Muzaffarpur 2291643 1198395 3856457 8442882 42214.41 3939.75 Madhubani 1506879.88 240100 243500 2008431.88 10042.15 865.70 Purnia 113542 1 220400 820400 226416 1 11320.8 1 868.50 Khagaria 2304759.5 520000 417031 3515690.89 17578.46 1314.27

Summary of Findings of the SHG Study

The following table gives a summary of the whole SHG study conducted in all 6 districts. Rating of SHGs Based on the objective of the study a grading tool was designed by BASIX Ltd. based on NABARD norms, discussed with Project staff and after mutual agreement it was planned to use the same in the all the sample groups to be assessed and categorized into A, B and C grades based on the scores obtained by these groups. Table: 27 Rating of groups studied across all the 6 districts

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Sl.No. 1. 2. 3. 4. 5. 6.

Performance District (s) Nalanda Gaya Muzaffarpur Madhubani Purnia Khagaria % Category A 26 0.5 28 10 28 9.5 % Category B 21 81 40 25.5 59 50 % Category C 53 18.5 32 64.5 13 40.5 Total % 100 100 100 100 100 100

S ou r ce: Com pil ed by t h e S tu dy t eam of BA SI X t hr ou gh ext en si ve s u r vey

Category A: Lend able SHGs Category B: Capacity Building required Category C: Intensive capacity building required Category Wise Characterization of SHGs Categories Parameter Category A Group Discipline Observation

These categories of groups have high homogeneity factor. Majority of them are comprised with same social and economic background of members. Meetings are conducted on a fixed day, time, and place. Attendance is more than 85% in most of the cases. Groups are governed by three leaders selected by the members and their terms are fixed and efforts are there to inculcate the leadership skills to other members and leadership rotation is on a regular basis. Almost 80% of the members are aware about their own as well as groups financial transaction.

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Financial Discipline Social Discipline Category B Group Discipline

All group and financial records are updated and enough training has been given on building capacity of members to write their own books of accounts. (Although the uniformity of registers were not there but all the relevant financial details were available) Pattern of the internal lending mostly need based and focus are given on not equal distribution of the external loans. All the members are not given loan at the same time so that peer pressure is built for high and on time repayment. With these groups Loan to saving ratio is more than 1.5 and terms of the loan are well defined and members are given adequate attention to pay on time. On time recovery rate was more than 95% and no of OD members were less than 5% average per group. Most of these groups are linked with bank and repayments are being done on time. These groups have some physical assets with them and being used by most of the members. Other than group and financial issues the awareness and readiness to address the village level issues were there. These categories of groups have moderate level of homogeneity where in more than 70% members are from same social and economic background but because of fulfillment of the group norms few members were taken from different background. And that shows in the benefit distribution and dominance of certain members in the group. Mostly meetings are conducted on a fixed day and time but in few cases meetings were not done, as members were not present there. Place is fixed for the meeting and it was found mostly in the group leaders house. Attendance %age ranges from 60% to 80% in most of the cases. Groups are governed by three leaders selected by the members and their terms are fixed, but due to lack of confidence of other group members leaders are continue to be the leaders more than two times. Almost 60% of the members are aware about their own as well as groups financial transaction.

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Financial Discipline

Social Discipline Category C Group Discipline

All group and financial records are updated and enough training has been given on building capacity of members to write their own books of accounts. (Although the uniformity of registers were not there but all the relevant financial details were available), but lots of overwriting was found in their books of accounts and overwriting were not supported with signatures of the leaders or members. Pattern of the internal lending mostly need based for their own money, but in most of the cases particularly on SJSY schemes loans were distributed equally among the members. Peer pressure was found moderate in the group. With these groups Loan to saving ratio is ranges from 1 to 1.5 times and terms of the loan are well defined and but adequate attention was not there to pay on time. On time recovery rate was ranges from 90-95% and no of OD members are 5-10% average per group. Majority of these categories groups are yet to link with banks. These groups have no physical assets with them but have a plan to build the same. Other than group and financial issues the awareness and readiness to address the village level issues were there but very low. In these categories of groups homogeneity level is very low. Mostly these groups were formed to fulfil the Govt. scheme norms by GoI for getting the benefits. According to the byelaws meetings are suppose to be conducted on a fixed day and time but more than 60% of the cases meetings are not regular. Attendance is very poor its less than 60% in most of the cases. Even the criteria of attendance are the members who have deposited their savings even without attending the meeting. Groups are governed by three leaders selected by the members but most of the cases leaders are representing the dominant class of people. Members are not aware about their own as well as groups financial transaction as most of the transactions were done outside of the meeting.

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Financial Discipline

Social Discipline

All group and financial records were not updated since long, member wise details was not there. Books were not giving the needed information for tracking their financial transaction. Pattern of the internal lending not need based expect few cases thats too volume was low. Most of the funds were lying idle with the group without utilization, because objective of the thrift and credit activities were not clear to the members. On time recovery rate cannot be tracked as records were not updated and few transactions were missing. These groups have no physical assets with them. No involvement with the village level issues.

Issues observed in different category of groups: SHGs falling under different categories have their own specific issues. The issues depend on the way the promoting organizations functioning, objective and purpose of the SHGs and its governance issues, which it have been following for a particular intervention. Categories A Issues Lack of economic orientation. Credit absorption capacity is low Insufficient understanding about livelihood issues Exploring opportunities for income generating activities Issues in managing Common property resources Dominance of few members Lack of clarity about the objective of the group Poor Book keeping No leadership skills among other members Peer pressure lacks in SJSY loans No clarity about the objective of the group Low homogeneity Low adherence with the group norms Book keeping is poor No operation system for mF in place Lacks skills on IGA Leadership is weak Financial discipline is bad Lots of idle fund within the group In few cases accounts are in the name of group leaders Confidence is low for going to banks

Swot Analysis of SHG -Bank Linkage Programme

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STRENGTHS Members generates won capital by mobilizing savings Fulfil the urgent need of the members by availing small loans for consumption/ emergency in flexible terms. Voluntary membership Low operational costs High repayment rates Enhances confidence/ capacity of members Provides space for skill development of members and builds community leadership Empowers women and communities. Poor members became bankable and credit worthy Membership based organization OPPORTUNITIES Linkages and networking with banks and other agencies for up scaling To act as financial intermediaries between poor people and formal financial institutions Can develop as a local institution to mitigate the minimum financial need of the poor people Can create new leaderships Can draw new livelihood opportunities

WEAKNESSES Groups are very much dependent on the promoting agencies Groups are formed in week foundation Group norms have not been shared and followed by all the group members. Poor linkages of the groups with out side agencies and bank The level of homogeneity among members seem to be low SHGs are dependent on subsidized funds from government departments. Low level of awareness of all the members about activities

THREATS Possibility of breakdown in case of withdrawal of cease of support from the promoting agencies Vested interest of few able members may hamper the group cohesiveness Government grants to groups may spoil the group sprit. Governance by few may hamper the greater benefit of the members as a whole

Key findings from the SHG study:

1. Some SHGs (groups with poorest members) are not in a position to open bank account as they are to open their account by depositing Rs. 500/- to Rs. 1000/- . 2. Most of the SGSY groups are formed with BPL members with a membership of 10 which is considered as high risk groups.

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3. There are cases where groups formed by other agencies have been hijacked by the SGSY promoters by assuring to give Rs. 10,000/- as subsidy per member and Rs. 10,000/- to the promoting agencies. 4. Under SGSY scheme 10 member groups are formed intentionally to give Rs. 10,000/- per member as the maximum limit per group is Rs. 1, 25,000. The other reason is to form more number of groups with the existing resources. 5. Commission has been taken from the BPL groups by officials and middlemen while sanctioning loan to them with subsidy. 6. The major objective of the BPL group is to avail loan with subsidy. 7. The homogeneity and feeling of solidarity among members of SHGs found to be moderate. In majority of SHGs visited by us during grading it observed that there is one or two dominant lady who had taken the initiative to form the SHG. Further on discussion with SHG members it observed that their purpose of joining SHGs to avail benefits from the government. 8. Group discipline in SHGs promoted by WDC is average and above average, where as the groups formed under SGSY / NABARD is average or below average. 9. Financial Discipline : a. Regularity of saving by all members of the SHG in distant blocks (Amour and Banmankhi block) is below average. b. SHGs which are linked with banks and availed SGSY scheme in most of the group the loan was equally distributed among all members of the SHGs. In more than 30 to 40% of the SHGs the loan was not utilized for production purpose. c. In case of inter-loaning the repayment terms was not defined the borrowers used to repay it in lump sum of varies from case to case. Borrower quality observed to be below average (there are 2 to 5 OD borrower in each group). d. Velocity of inter-loaning is less than 1 and 1.5 in most of the SHGs 10. Involvement in village issues is not very common in all the SHGs visited by us during grading. 11. Awareness about the functioning of bank & procedures for bank linkages is very low among SHGs, there are a large number of members who had never seen bank or dont able to imagine picture of bank, even some members told that they fear to enter the bank because there exist an armed guard outside the bank, even those who had some idea of bank the dont know whom to meet in bank so they never visited the bank. 12. The holistic understanding about the SHG is very poor among bank officials in rural branches and they are also not very willing to open the a/cs because of very less saving and transactions made by these SHGs and all these banks are manually operated so they face difficulty in updating the records.

Impact of the SHG - Bank Linkage Program in Bihar

Given these quantitative achievements, the observed impact of the program are as follows:

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Micro-finance has reduced the incidence of poverty through increase in income, enabled the poor to build assets and thereby reduce their vulnerability in some case. It has enabled households to spend more on education than non-client households. Families participating in the Program have reported better school attendance and lower drop out rates. It has empowered women by enhancing their contribution to household income, increasing the value of their assets and generally by giving them better control over decisions that affect their lives. It has contributed to a reduced dependency on informal moneylenders and other non-institutional sources. It has facilitated significant research into the provision of financial services for the poor and helped in building capacity at the SHG level. Finally it has offered space for different stakeholders to innovate, learn and replicate. As a result, some NGOs like NIDAN have added micro-insurance products to their portfolios, a couple of federations have experimented with undertaking livelihood activities and grain banks have been successfully built into the SHG model in the eastern region. SHGs in some areas have employed local accountants for keeping their books; and IT applications are now being explored by almost all for better MIS, accounting and internal controls.

Given this scale and impact, what have been the learning points? (1) The first point is that the poor are bankable. Sounds simple, but, when we view this in context of the attitudinal constraints which characterized bankers on the eve of the linkage Program, one realizes what an immense learning point this has been. But, for this we would still have been in the middle ages. (2) The second point is that the poor, organized into SHGs, are ready and willing to partner mainstream financial institutions and banks on their part find their SHG portfolios safe and performing. (3) The third point is that despite being contra intuitive, the poor can and do saving in a variety of ways and the creative harnessing of such savings is a key design feature and success factor. (4) The fourth point is that successful Programs are those that afford opportunity to stakeholders to contribute to it on their own terms. When this happens, the chances of success multiply manifold. This has been possible in the Bank - SHG linkage Program on account of the space given to each partner and the synergy built in the Program between

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the informal sector comprising the poor and their SHGs, the semiformal sector comprising NGOs, and the formal sector comprising banks, government and the development agencies. (5) Yet another learning point has been that when a Program is built on existing structures, it leverages all strengths. Thus, because the Bank-SHG Program is built upon the existing banking infrastructure, it has obviated the need for the creation of a new institutional set-up or introduction of a separate legal and regulatory framework. Since financial resources are sourced from regular banking channels and members savings, the Program bypasses issues relating to regulation and supervision. Lastly, since the Group acts as a collateral substitute, the model neatly addresses the irksome problem of provision of collateral by the poor. (6) The last learning point is that central banks, apex development banks and governments have an important role in creating the enabling environment and putting appropriate policies and interventions in position which enable rapid upscaling of efforts consistent with prudential practices. But for this opportunity, no innovation can take place. Challenges: Regional Imbalances The first challenge is the skewed distribution of SHGs across districts. About 55% of the total SHG credit linkages in the state are concentrated in nearer to state capital. However, in districts, which have a larger share of the poor, the coverage is comparatively low. The skewed distribution is attributed to The over zealous support extended by some the district administration. Skewed distribution of NGOs and Local cultures & practices.

From credit to enterprise The second challenge is that having formed SHGs and having linked them to banks in selected districts, how can they be induced to graduate into matured levels of enterprise, how they be induced to factor in livelihood diversification, how can they increase their access to the supply chain, linkages to the capital market and to appropriate/ production and processing technologies. A spin off of this challenge is how to address the investment capital requirements of matured SHGs, which have met their consumption needs and are now on the threshold of taking off into Enterprise. The SHG Bank-Linkage Program needs to introspect whether it is sufficient for SHGs to only meet the financial needs of their members, or whether there is also a further obligation on their part to meet the non-financial requirements necessary for setting up businesses and enterprises. In my view, we must meet both.

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Quality of SHGs The third challenge is how to ensure the quality of SHGs in an environment of exponential growth. Due to the focused growth of the SHG Bank Linkage Program, the quality of SHGs has come under stress. This is reflected particularly in indicators such as the poor maintenance of books and accounts etc. The deterioration in the quality of SHGs is explained by a variety of factors including The intrusive involvement of government departments in promoting groups, Inadequate long-term incentives to NGOs for nurturing them on a sustainable basis and Diminishing skill sets on part of the SHG members in managing their groups. And to meet these challenges, significant financial investment and technical support is required. Impact of SGSY Imitation is the best form of flattery but not always. The success of the Program has motivated the Government to borrow its design features and incorporate them in their poverty alleviation Program. This is certainly welcome but for the fact that the Governments Program (SGSY) has an inbuilt subsidy element which tends to attract linkage group members and cause migration generally for the wrong reasons. Also, micro level studies have raised concerns regarding the process through which groups are formed under the SGSY and have commented that in may cases members are induced to come together not for self help, but for subsidy. So there is a need to resolve the tension between SGSY and linkage Program groups. Role of State Governments A derivative of the above is perhaps the need to extend the above debate to understanding and defining the role of the State Governments vis--vis the linkage Program. Lets be clear: on the one hand, the Program would not have achieved its outreach and scale, but for the proactive involvement of the State Governments; on the other hand, many State Governments have been overzealous to achieve scale and access without a critical assessment of the manpower and skill sets available with them for forming, and nurturing groups and handholding and maintaining them over time. Emergence of Federations The emergence of SHG Federations has thrown up another challenge. On the one hand, such federations represent the aggregation of collective bargaining power, economies of scale, and are a for addressing social & economic issues ; on the other hand there is evidence to show that every additional tier, in addition to increasing costs, tends to weaken the primaries. There is a need to study the best practices in the area and evolve a policy by learning from them.

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CHAPTER-5: RECOMMENDATION AND STRATEGY FOR SCALING UP MF IN BIHAR

In this section, recommendations for pertaining to the development of the micro-finance sector are being attempted on the basis of the study findings as well as experience of the micro-finance development in other states in India. Since it is to be co-ordinated efforts of various stakeholders, specific recommendations for varied institutions, including program like BRLPS is being done in the following section.

Delivery of Micro Finance through mainstream formal banks in Bihar:

Despite the presence of large number of financial institutions in the formal financial sector existing in Bihar, the access to financial services among the rural masses, especially poor has been quite dismal. However, the financial institutions like the commercials banks, Regional Rural Banks and the co-operative sector has to continue to play key role in mainstreaming micro-finance in Bihar. Banks Role to be played by Banks in promotion of micro-finance in the stare: Innovations in delivery of banking services could be tried out by the banking sector. Some of the recommendations in these are: o Specialised SHG Branch: Similar to approach of SSI Branch, the concept of specialised SHG branch could be tried out in one or two locations in less developed districts. Such specialised branches of Indian Bank are currently operating in Tamil Nadu, especially in Madurai district and Chennai proper. BRLP can influence the lead bank to identify potential bank branches and convert them SHG branches, with renewed operational planning and operational targets. o Trying out new products or service delivery: As seen from the study, remittances from outside the state have been one of the key sources of income of the rural households. The role of the formal institutional sources in delivery of the service is almost negligible. Such services will bring the poor and marginal sections of the society under the fold of banking services. o Delivery of integrated services: Combination of services could be tried out in a product, and could be customised according to need. Remittances could be tried out savings and insurance services, savings can be tried out insurance as seen in several micro-finance products of NGO-MFIs. Banks like SBI, which have their insurance arms could be in a better position to

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supply such services. Otherwise, linkage with national or private insurance players could be tried out on pilot scale. Some of the developmental costs for product development, client awareness as well as a percentage of implementation costs could be supported through the BRLP. Bulk lending to MFIs or NGO-MFIs: The banks can give a fillip to the development of micro-finance in the state through bulk finance to institutions which can not raise deposits or do not have the wherewithal to raise capital for itself. Funds can be given to these institutions which can do the operations. Otherwise, these institutions are constrained by lack of funds. Structurally, the banks need to create a specialised cell or division in the rural finance division, if these have not been put in place. This cell should have their own plans and allocated funds which could be used for developmental persons. Similarly, to support the structure, a dedicated team of personnel should be deployed. Otherwise, micro-finance remains as the tertiary activity in a bank or its branch with little or minimum management attention.

These approaches could be adopted by the formal financial institutions, in addition their present operational strategy of scaling up of micro-finance. Budget for Innovations in Banks
SHG Branch Banking/per branch Human Resources Cost Exposure Visit for bankers Training of Staff Capacity Building of SHGs Linked Risk Fund Overheads Total Share of BRLP Cost of supporting two Branches by BRLPS 2007 330000 250000 200000 300000 400000 100000 1580000 1150000 2300000 2008 378000 300000 250000 350000 500000 125000 1903000 1400000 2800000 2009 426000 300000 250000 400000 600000 150000 2126000 1550000 3100000

Remittances Pilot and other Product development Survey Costs Professional costs for product and process design Implementation Costs Travel Costs Overheads Total Share of BRLPS 2007 300000 500000 1440000 582000 252200 3074200 3074200 2008 400000 500000 1728000 668400 289640 3586040 3586040 2009

2073600 622080 269568 2965248 5930496

Financial Co-operatives:

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The financial co-operative structure has played and will continue to play vital role in the rural economy as well as could be used a medium to promote micro-finance in the state. Such hope is being contemplated, despite its poor financial performance in most of the states, including Bihar. The Central Government is keen to revive the sector and has taken several steps on the recommendations of the Viadyanathan Committee. It is dependent on the states to accept the conditions and reform the co-operative sector in the state. This would call for policy level and structural changes in the co-operative sector. Given this broad picture, specific things which could be done by the co-operatives sector in any state and Bihar also is mentioned below: SHG-DCCB Linkage: There are instances of success of micro-finance operation by District Central Co-operative Banks such as Bidar in Karnataka and Chandrapur in Maharastra , Mandsaur in Madhya Pradesh, etc. have experimented with SHG lending in a much scale, both directly as well as though NGOs. In this way, they have catered to weaker sections of the society. Such initiatives could also be taken up with select DCCBs in the state: The attempt would be: Build operational and business plan of micro-finance operations of the DCCBs Help to develop products and systems around micro-finance operations Capacity building of the personnel in the Bank who would be deployed Exposure visit of other DCCBs in such initiatives

BRLP can influence the management in taking up new initiatives as well as fund some of the developmental costs of micro-finance in the DCCBs through PACS. PACS as agents for DCCBs: Pilots can be done for making PACS as agents for financial services, especially for savings and insurance. The latter would require tie of the cooperative with insurance companies. These above experiments could be tried out with the financial co-operative sector on a pilot basis. BRLP can support some of the initiatives, especially on the capacity building front. These attempts have to made in addition to the normal restructuring and reform process the DCCBs Budget for Co-operatives
Financial Co-operatives (1 DCCB and 30 PACS) Institutional Analysis Exposure visits Training of Staff Workshops Professional Costs Human Resources Computer Hardware Travel Costs 2007 100000 500000 300000 350000 1000000 1500000 2000000 780000 2008 500000 400000 350000 1000000 1800000 100000 840000 2009

350000 1000000 2160000 100000 948000

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Overheads Total Share of BRLPS Cost of supporting two DCCBs and 60 PACS by BRLP

653000 7183000 5387250

499000 5489000 4116750

455800 5013800 3760350

10774500

8233500

7520700

Promotion and Capacity Building of the SHGs in the state: One of the key strategies that needs to be pursued vigourously is strengthening the SHG movement in the state. As indicated in the study, the SHG is lagging behind other Eastern India states, both in terms of quality and quantity. Some of the recommendations for promotion of SHGs in the state are: Policy Level: SHG promotion norms ought to be relaxed, given the cultural and socio-economic scenario. The concept of APL/BPL should not be strictly adhered as these often act as constraint in sustainability of SHGs. Alternate mechanism for channelising subsidy to be employed as there is an imminent problem of formation of poor quality SHGs in the state.

Operational Level Grading process should be simplified. Number of parameters and sub parameters should be pruned to 4-5 from the present 70 Promotion of SHG federation as a strong grass root institution has to be initiated on a wider scale in the state as there are few examples. One of the key factors to SHG development in Southern states is building of these federations and creation of peoples institution. The women have leverage their funds and collective strengths to reap greater economic and non-economic benefits. Bankers should undertake capacity building of Self Help Promoting Institutions (SHPIs) on group formation, lending process, micro enterprise development & management (cost should be borne by bank) Awareness building campaigns should be undertaken through media (print and electronic), conferences, workshops, etc. Banks should finance MFIs for on-lending to poor in a more liberal manner Bankers should call a conference of stakeholders to understand each other and remove bottlenecks in promoting MF sector. BRLPS is an important stake holder and should play an important role of ensuring that the SHGs formed are of good quality with appropriate capacity building skills. BRLP needs to invest innovatively in capacity building of SHGs, building higher tier institutions and institutional sustainability. (for details see annexe-4)

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Cost of promotion of SHGs Estimates of costs of SHG promotion have been undertaken along with a discussion of the factors involved. A distinction is made between four major types of SHG models: (i) the minimalist approach; (ii) large project initiatives related to womens empowerment including all components; (iii) a microfinance plus approach focusing on livelihoods development; and (iv) a mixed category of SHGs formed through local initiatives, including SHGs promoted by the district development agency. Though inputs and contexts differ across the different projects rough benchmarks for cost of promotion of SHGs have been proposed in the study. The cost of promotion per SHG is around Rs. 6,000 for the minimalist model of pure bank linkage and Rs. 10,000 to Rs. 12,000 within a more comprehensive empowerment framework. The cost of promotion of SHGs appears generally to be in line with the scale of support provided by various government agencies. Necessary adjustments would, however, have to be made for particular regional, social and poverty contexts. Some other benchmarks that can be suggested: (i) period of support 3 to 5 years; (ii) clients per field worker 400 or 20 to 25 groups; (iii) minimum scale of intervention to justify costs incurred 150 to 200 groups, or 2,500 to 3,000 members, in a geographically compact area. There are prospects for a reduction in these costs over time as SHG numbers increase in an area and where associations of existing SHGs help to form new SHGs.

NGO - MFI: Recommendations:

Given the promising work done by the NGO-MFIs in promotion of micro-finance in the state, it appears to be a viable alternative for provision of financial services to the poor in the state of Bihar. Some of the recommendations for promotion of the NGO-MFIs are:

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Build up awareness on micro finance: Workshops to generate awareness on concepts and alternative models of MF should be organized in the states of Bihar comprising stakeholders from NGOs, NABARD, SIDBI, apex donor institutions working in micro finance. These will help: a. To bring to a common platform the various players thereby creating synergy and an enabling macro environment. b. Build up a platform for information sharing on conceptual issues, legal and federation building issues. Make funds available for program support The institutions need program funds to increase the outreach of their operations, improve the quality of the existing portfolio, develop systems, etc. However, the exact nature and quantum of support (program funds) required would vary from organization to organization. The support-providing agency should be in a position to cater to the varying needs of different types of institutions and must explore and develop the support plan vis-vis the requirements in the particular institution. A blanket approach to support is not going to be of any importance while supporting these organizations for improving their micro finance operations. This support may be in the form of facilitating linkages with existing financial institutions also. Facilitate fund availability for loans The organizations need loan fund support to be made available to the federations of SHGs promoted by them for further on lending to groups and members. There are hardly any financial institutions, which have come forward to support these institutions with loan funds except the banks under the SHG linkage program and financial institutions like RGVN and RMK whose contribution is very little but appreciable initiative. The micro-finance program is sustaining only with the funds available through SHG banklinkages. Also the funds are not available as per their requirements. The quantum of funds required in these organizations are not very high and more importantly, the same has to be made available in different installments in proportion to the growth in these organizations, so that the funds are not kept idle with these organizations/federations.

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This would also help them in reducing their interest costs. A flexible outlook needs to be taken up while supporting these organizations/federations with loan funds. On the other hand, adopting this flexible nature (in terms of quantum and frequency of funds required, etc.) by established financial institutions like SIDBI, ICICI and/or others would not make profitable business proposition for them. Therefore, it is suggested that options of financial intermediation through established MFIs be explored. The organizations like BASIX should be brought in for financial intermediation to this type of growing organizations/federations. Another recommendation regarding providing support to these organizations is that while they would need support for program funds and loan funds, this should be kept totally separated from each other. The project proposals for the two types of support funds need to be build separately with clearly spelt out objectives and expected outputs and need to monitored and evaluated accordingly. Provision of grant should be based on Performance, whereby the grant for a particular action point would be given /disbursed only on the completion of the earlier action items. This should ensure that the organization completes earlier items in the activity list in time in order to avail the support funds for the later activities. The other proposition can be treatment of grants as advance or loans (with interest tag attached to it Varying rate of interest, directly proportional to the delay in completing the action items) till they have completed the activity. The support fund can be extended as advances/loans and be adjusted as the back ended grants. The well laid down incentives and disincentives can be clubbed with this type of grant support vis--vis achievement of their business plans. Specific Recommendations The organizations involved in micro-finance programs in Jharkhand are at various stages of development, more so, they are not in a mode of realizing self-sustainability. They do need external support in the form of expertise, micro-finance services and funds to reach

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to a stable level of operations. However, the exact nature of support and kind of interventions needed would vary for different category of organizations. S No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Interventions Handholding for capacity for program implementation. Strategies for initial operational fund requirements Strategies for initial soft loan and subsequently long term fund raising strategy for on lending. Capacity building and handholding on advance financial management including business plans. Uses of software, generating and analyzing reports for the day-to-day operations to strategic level issues Raise funds for the day to day program development Day to day handholding process for strengthening a MF program through institutional development and information technology services. Training of Staff and leaders from the community on various aspects of micro finance. Fund requirement for strengthening the MF program. Capacity building of their groups and staff on micro finance Developing vision and the systems in the organizations. Strengthening the financial discipline and regular trouble shooting on the MIS designed for proper flow of information. Design Business plans for the micro finance and streamline the BP exercise. Need of professionals to handle the system effectively. Availability of fund for SHG strengthening. Priority is strengthening of SHGs SHG auditing, grading, institutionalizing group norms, capacity building of group leaders and members, re-scheduling of defunct loans, OD recovery, exposing them to better performing SHGs. Vision building for the organization vis--vis their microfinance program Building a plan of Action to achieve the vision developed for the organization and start implementing the same Introduction to and development of systems in the B Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y C Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y D Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y

17 18 19

Y Y Y

Y Y Y

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20 21

organization for carrying out the micro finance activities. Capacity building on SHG concept and formation of SHGs Training on book keeping and accountancy

Y Y

Financial need Recommendation: Based on the different categories of organizations requires different nature of support to improve the status of their micro-finance. Analysis of the organizations working in Bihar and in this study we covered indicates that majority of the B category organizations require funds to avail handholding support from institutions like BASIX to fine tune and strengthen their micro-finance program, They would also need program funds for building the capacities and the required skill base to manage these systems internally in due course of time. While program funds in C category of organization would be required for strengthening their building blocks - the SHGs under SHG quality improvement program, where capacity building of their groups and staff and developing vision, strengthening the financial discipline and subsequently the systems in the organizations. Later they would also need funds for similar purposes to that of B and A category of organizations.

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Category wise expected outcome of the different organizations. Capacity Categories B C Duration 2 years 3 years Building Fund* 8-10 Lakhs 12-15 Lakhs Budget requirement Operating Loan Fund (to build Cost** initial portfolio) 6-8 lakhs 8-10 Minimum of Rs 25 30 lakhs. 10-15 lakhs from 2nd

lakhs year onwards D * Including the cost of appropriate software for mF operations. ** This cost is excluding operational deficit cost which varies as per the business plan. However, there are some common recommendations for all categories of organizations: The organizations need loan fund support to be made available to the federations of SHGs promoted by them for further on lending to groups and members. Hardly there are any financial institutions, which have come forward to support these institutions with loan funds except the Banks under the SHG linkage program and financial institutions like RGVN and RMK whose contribution is very little but appreciable initiative. Another important issue in relation to making available the loan funds is that the funds are not available as per their requirements. The quantum of funds required in these organizations are not very high and more importantly, the same has to be made available in different instalments in proportion to the growth in these organizations, so that the funds are not kept ideal with these organizations/federations. This would also help them in reducing their interest costs. A flexible outlook needs to be taken up while supporting these organizations/federations with loan funds. Another very important support that the organizations required is program fund support. The organizations need this support to increase the outreach of their operations, improve the quality of the existing portfolio, develop systems, etc. However, the exact nature and quantum of support (program funds) required would vary from organization to organization. But before providing this support a proper need assessment exercise has to be done by the supporting agency in order to cater the
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varied need of these organizations and develop a mutual agreed support plan vis--vis the requirements in the particular institution to make a difference from blanket approach model. The experience shows that various micro finance organizations in Bihar, because of earlier experience in dealing only with the grant based funding; the ID association is also treated in similar manner where people expect grant assistance along with capacity building support from BASIX. Because of this the process of internalization becomes very difficult hence results slow progress of work. It is therefore suggested some system of grant linked to performance of micro-finance could be introduced to meet their day to day expenses particularly on HR and other overheads As observed and categorization made on above mentioned criteria the SHGs can be a tool or platform for scaling up mF in the state like Bihar. But they do need external support in the form of external expertise, external capacity building efforts. However, the exact nature of support and kind of interventions needed would vary for different category of organizations. Intervention required for different categories: S No. 1 2 3 4 5 6 7 8 9 10 11 12 13 Interventions Restructuring of the groups Training on the objective of SHGs Developing vision and the systems in the group. Designing book of accounts for SHGs Training on book keeping and accountancy Training on Group dynamics Training on Leadership Exposure visit Training on financial discipline Training on self assessment SHG grading (time to time) SHG auditing Training on IGA A B Y (selected cases) Y Y Y Y Y Y Y Y Y Y C Y Y Y Y Y Y Y Y Y Y Y Y Y

Y Y Y Y Y Y

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14 15 16

Livelihood profiling Training on livelihoods Training on CPRM

Y Y Y

Y Y Y

Y Y Y

Strategy for Micro Insurance Promotion in Bihar:

Promoting concept of Insurance amongst vulnerable through various strategies of sensitization namely soft skills, education, knowledge transfer through training etc BRLPS as a livelihood promotion institution must ensure that poor people have access to suitable insurance products covering risk of their lives, health, assets and business. This will both boost the confidence of the borrower and the bankers. MFIs to initiate the process with proper documentation and then transcend to the concept of social security with this protectionist tool for society at large and to use it for their recovery mechanism as well. Bridging gap between suppliers and clients in terms of process and systems and simplifying the procedural aspect to make it client friendly. Sewa and BASIX has demonstrated that it is possible to provide micro insurance cover to rural poor, and their expertise in product and process development be sought by BRLPS. Pilots should be done by expert agencies like BASIX to cover the bank clients with suitable insurance product and ensure a win- win situation for the borrower and the banker and insurance company, bundled products can be of much help to the borrowers and rural poor BRLPS can support such initiatives in the state. Perceptional change is required both at suppliers end and at the end of demand. It should be treated as a business model based on number game and law of probabilities. Consumer education is a huge task, and this role can be taken up by BRLPS with the help of SHGs, Federations, cooperatives, banks etc. Underwriting should be made transparent and should be worked out on the basis of possible maximum loss per event. The maximum exposure per annum can be worked out on probability and premium should be done in accordance. New distribution channel to be unleashed through NGOs, SHGs, MFIs and corporate agencies. NIDAN has demonstrated this in the context of Bihar. These identities can work at both endspartners for suppliers and the poor vulnerable and can act as guard for keeping the portfolio viable. Market research is required to understand the risk accumulation, nature and quantum of risk exposure, per event possible maximum loss, mortality pattern and age etc.. So as to create viable risk pools for insurance. Rigorous capacity building exercise for all the stake holders.

Migration and Remittances: Recommendation and strategy 3

3

(For more details please refer to the draft report on the role of migration and

remittances in rural Bihar , ODI, by Deshingkar et al, 2006 )

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BRLP should consider the following to deal with the issue of migration and remittance as more then 30% of the total rural population and despite being migrating is unable to provide timely financial help to their family due to poor remittance service in far of rural areas: Building up a comprehensive database on migration by caste, asset holding, occupation, duration and returns, remittances earned and transferred in their own project districts. Facilitate the provision of information on rights to migrant workers (especially to the most disadvantaged communities such as Musahar, Dom, Majhi) so that they can better protect themselves against exploitation (on work time, wages). In this regard collaboration between the proposed Livelihood Forum under BRLP and migrant support programmes that have worked successfully in other states could be considered. Facilitate the provision of information on health and provide health insurance coverage in collaboration with NGOs and government departments working in this area Help the poorest migrants to save and remit money to their families safely and efficiently. Carrying money home is extremely risky because of the high risk of theft when travelling. Sending by Money order is delayed and is also reported unsafe Help in creating the conditions for better investment of remittance in agriculture in partnership with private sector organisations and government Develop capacity building and skills enhancement programmes in collaboration with government and private sector organisations so that they graduate from unskilled to semi skilled workers and earn better remittances. Develop a relevant and effective mechanism like of the GVT model, mazdoor.com or any other organisation to make the whole process hassle and exploitation free. The project should pilot products and processes for safe, timely and micro remittances by exploiting electronic media in its project district. Seek collaboration with various agencies and provide capacity building support to identified MFIs and SHGs . Given below are some of the names (not on the basis of priority) to become potential partners to BRLPS as SHPI and NGO-MFI. BRLPS can grade them as per the parameters given above; undertake a detailed joint initial assessment to know their exact and detailed needs before incubating them as SHPI or NGO-MFI. BASIX has helped SIDBI and ICICI to incubate a large no of NGOs to become SHPI and NGO-MFI based on the above criteria.

Potential Partners that can be incubated as SHPI and or MFI

Potential Partner Districts

NIDAN

Patna and many districts

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ASSEFA CPSL Nirdesh Mukti Niketan Kanchan Sewa Ashram REED Sakhi Gram Vikas Parishad Binoba Arogya Awam Lok Shikshan Kendra Gram Nirman Mandal Mahila Vikash Samiti Gram Seva Rajya Samiti, Grameen Jan Kalyan Parisad Institute of Khadi, Agriculture & Rural Dev. Jan Vikas Samiti Jeevan Joythi Kela Kendra Matadin Mahila Manch Samajik Vikas Santhan Trust SIDRIB Surkje

Gaya,Jamui Patna and many districts Muzaffarpur,Sitamarih, Darbhangha Banka Muzaffarpur East Champaran Madhubani Madhubani, Darbhanga Nalanda Nawada Nawada Patna Muzafarpur Saran Saran Muzaffarpur Muzaffarpur Madhubani Patna Rohtas

However BRLPS should also consider the various capacity building and training needs of many other small and medium sized SHPIs (see annexe-6) and should also consider their financial requirements to act as an efficient SHPI who in the long run can transform into MFI. BRLPS also need to identify and nurture some of the key livelihood promotion and MF training institution in Bihar and the country who also provides training in Bihar both for the Sr /management level as well as the field workers. A data base of different agencies is being provided in Annexe-7 who is engaged into providing training on various aspects of LP and MF in Bihar. As Bihar lacks in quality human resources and quality infrastructure for training purpose, it will be important for BRLPS to even consider opening up a state of the art LP and MF training institution where various outside agencies can come and deliver training on various aspects as may be required from time to time.

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ANNEXE I
CASE STUDY: NIDAN Micro Insurance Programme in Bihar Maximising outreach Introduction Started in 1995, NIDAN was formed with an objective to enhance welfare of workers, particularly those in the unorganized sector, and assure a secure future for their families. NIDAN initially began its operations in the urban areas, but seeing the tremendous scope for improvement in the rural areas, the NGO realigned its strategies to offer social uplift programmes for the rural sector where citizens are deprived of state-sponsored social security net. The organization has since worked at the grassroots level in sync with village panchayats for better social security delivery systems and has increased the outreach through networking with state sponsored organizations like NASVI and Bihar Forces. NIDAN actively strives to organize self-help groups (SHGs), cooperatives, CBOs, to meet its strategic goals. Track Record Since its inception, NIDAN has shown significant achievement in terms of social upliftment of the weaker sections by reaching out to 40,000 families in Bihar and Jharkhand region. With its well-coordinated efforts, it has promoted 1,800 SHGs and 18 collective enterprises and cooperatives. One of the core areas of its NGO operations is to provide legal aid and promote association of workers in the unorganized sector. Over the years, NIDAN has consolidated its position by having access to credit and savings of Rs 1.47 crore and on lending; it has managed savings worth Rs 60 lakh. The valiant efforts of NIDAN team in seamless coordination with government and state sponsored agencies have resulted in promotion of social security covering insurance, child care services, educational, housing and health services to workers and families of the unorganized sector. Geographical Spread NIDAN has aligned its activities to cover Bihar and Jharkhand. The key areas are Patna, Vaishali, Katihar, Muzaffarpur and Samastipur. A breakup of the coverage of these areas is as follows: Patna: Patna Sadar, Danapur, Patna City and Fatua. Vaishali: Hazipur, Bidupur, Rajapakar, Deshri, Raghipur, Jandaha and Mahua.

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Katihar: Katihar, Pranpur, and Korha. Muzaffarpur: Mushari and Kurhani. Samastipur: Samastipur and Warsinagar. Foray Into Insurance After its initial launch in 1991, the NIDAN team quickly realized the need to build strategic alliances with insurance companies to achieve its main objective of providing insurance benefits to the rural population of Bihar. Its efforts paid off in a short span of time as it established links with the LIC for group insurance and insurance for loaners, and with NIC for mediclaim and Jan Arogya. In 2002, NIDAN conducted a study on insurance needs of the poor by collecting 1,000 rural and urban samples and identified aspects like sickness, risks and crisis, life insurance and assets to be brought under the insurance protection cover. To accomplish this task, NIDAN approached moneylenders and grassroots level organizations that contributed generously for the funding of the project. Popularising Insurance After identifying the insurance needs, NIDAN was faced with a challenge of popularizing insurance benefits to the weaker sections of Bihar and Jharkhand. The process began with educating people about group insurance and the difference between savings and insurance. Community leaders were roped in and convinced to promote the benefits of insurance cover to their respective communities. Villagers were cited examples of families, which are already enjoying the insurance benefits. The impact of this promotion was substantiated by the fact that many of the workers showed willingness to opt for an insurance cover by spending some part of their savings. At sok sabhas too the NIDAN team talked to villagers to highlight the benefits of insurance cover to men, women and children. To make these ventures successful, NIDAN team members underwent a rigorous training schedule conducted by the insurance companies to equip them with answers to any kind of questions on the subject. During its campaigning, the team realized the importance of easy payment options for the rural workers for the ultimate success of the mission and offered an effective tailor-made installment plan as per the individuals capacity. Village workers were also given a choice to opt for thrift and credit programmes. Aggressive field campaigning was also seen as another essential tool to promote the insurance benefits amongst the rural masses.

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In the midst of these efforts, NIDAN became the first corporate insurance agent in Bihar. It focused on poor friendly schemes of LIC. The organization now provides group insurance, individual insurance, health insurance and life insurance. The following table illustrates NIDANs efforts in the insurance field Table: Life insurance sales in Bihar & Jharkhand over 2004-05 District 2004 2005 Katihar 401 1305 Khagaria 764 1339 Nawadah 18 42 Vaishali 1011 2160 Muzaffarpur ----571 Patna 3542 4699 Begusarai ---73 Total 7740 12194 Challenges The majority of workers in the unorganized sector do not opt for insurance cover because of the myth that insurance companies do not give claims and their hard earned savings will not give any return. So, NGOs like NIDAN face a major challenge of educating and training uneducated rural population about insurance claim process. They have to act as an honest mediator between the target groups and insurance companies to settle claims. Further, NGOs have to constantly help insurance companies to design effective solutions for implementation of claim settlements by involving the target groups in preparation of claim settlements. Lack of adequate medical infrastructure and qualified doctors in the unorganized sector poses a major challenge to success of the mission. Also, the target groups have to be persuaded to visit good doctors and well-equipped hospitals, which are not easy to be found. Formation and sustenance of claims committee is another key challenge that NIDAN took on as it moved into the insurance space. Strategy To overcome the stiff challenges, NIDAN sought to develop the following strategies in popularizing micro-insurance products. Tailor-made packages as per individual requirements to cover major risks. Aggressive publicity and awareness needs at the national level to bring the programmes in campaign mode. Development of a dynamic MIS system for better feedback and accountability. Regular monitoring of age and health conditions of insured members through regular medical check-ups. Involvement and consent of all family members.

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Error free documentationthis was important due to the rate of illiteracy in the unorganized sector and the emphasis on correct entries by all insurance companies and banks. Building Awareness: As discussed earlier, success of micro-insurance products hinged on robust awareness programmes. NIDAN believes this could be made possible through the following ways: Insurance related discussions and forums be part of monthly meetings of SHGs, cooperative and market committees. Community leaders organize cluster meetings on insurance in their respective communities by inviting NGO executives. Target group leaders be given quality training on insurance policies and updates to create constructive awareness amongst the target group. Case studies of various agencies on the subject matter are shared amongst the target groups. Gram Sabha should be organized and matured claims disbursed in community meetings to instill a feel-good factor amongst the target groups. Promotional material like scheme pamphlets, scheme posters, claim pamphlets, hospitals name and address pamphlets be regularly circulated amongst the target groups. Claim Settlement Claim settlement is key to winning the trust of potential micro-insurance buyers. This is because, claim settlement in the unorganized sector is marred by false claims, false bills, use of undue pressure by communities, complicated cases like succession, murders, suicides and staff getting soft on false cases. Members do not easily accept further, genuine rejections and they leave a negative impact on prospective insurers. Over-enthusiastic insurance players offering false promises to target groups have also adversely affected the integrity of the mission. NIDAN maintains that convincing target groups for membership renewals becomes a daunting task as family discourages them and community members to further invest in the protection cover. Key Learnings In the years since NIDAN promoted micro-insurance products, the team has come to realize that the poor and deprived workers in the unorganized sector would opt for insurance covers provided they are assured of speedy claims and educated about the products on an ongoing basis. Monitoring should be regular and qualified and certified members should only handle claims. Further, the insurance officers should be sensitized on regular basis on attitude matters when dealing with unorganized sector workers. Insurance covers should be issued to only those target groups, which have regular interaction with the organizers. And, the organizers should conduct orientation

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programmes and motivate team members before assigning them the responsibility of marketing insurance products to the workers in the unorganized sector. NIDAN pioneered the selling of micro-insurance products in Bihar and Jharkhand, and has indeed set benchmarks for big insurance companies to assess the market potentials in this region. It would not be long before, the region sees a spurt in micro-insurance activities.

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ANNEXE-2
COLLABORATION by RRB Bihar Kshetirya Gramin Bank, Munger came up with well-designed livelihood Micro financing in 8 districts of their juridiction. They have come up with well functioning collaborative polygon in their working area. With their collaborative effort 151 branches of BKGB generated approx. 10000 livelihoods with cumulative loan disbursement of Rs.33424000/- up to 31st Nov. 2006. Munger district is famous for pistol and rifle business. The Govt. gun factory was closed in the year 1983. This district is also known due to tobacco cigarette manufacturing by ITC. Major junk of population is agriculturist and involved in agri-allied businesses. Temporary migration is prominent in this district. Historically it was under Ang Raja. As per Mahabharat Karn devoted his life to Maa Chandi at Chandi Asthan. A hot water aquifer is also present in Munger at Sitakund. Their savings, loan outstanding and CD ratio of last 3 years is as Year 2002-03 2003-04 2004-05 Savings (Rs.) 10940000 12219730 13385820 Outstanding (Rs.) 1842000 2267000 2979060 loan CD Ratio 18.57 18.55 22.25

For rural micro financing BKGB started promoting SHGs by themselves from the year 1992. They started with village meeting. Before entering into any village they advertised through local dhol system. They start the meeting with sharing the social benefits of a group. Slowly they came up with economic support without subsidy model. They initially segregate the members as per their activity and caste. After 2-3 meetings the banker gave training to the group for better understanding of group norms, account keeping, leadership development, banking process and market availability etc. For this group promotional activity they had made collaboration with SEWA, ASEFA, BIAF, YASH, other local NGOs and Kisan Club formed by BKGB itself under scheme of NABARD. BKGB, which act as SHPI assists small NGOs and Kisan club to be SHPI of NABARD. The finance to these SHGs is done by BKGB itself. BKGB linked all these SHGs with COMFED, BIAF, SEWA, ITC and CHIRAG for input linkage, technical support and

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market linkage. BKGB intervene in dairy, agarbatthi making, candle making, vermi compost, garment selling and agriculture. Their special intervention came up in watershed and food processing unit under NABARD schemes. For each interventions BKGB federate 3 SHGs into a federation. In dairy BKGB with the help of NGOs promote 23-federation marketing linked with Sudha Dairy, Barauni. For Agarbatthi making, which is a project of SEWA and ITC 17 federation is developed. In this trade raw materials are supplied by ITC through SEWA weekly and finished produced are procured weekly. Payment of procurement is done monthly. It is unscented sticks and wage rate is Rs.14/- per kg. BKGB with support from NABARD started 2 Apna Kendra where grocery items and processed food from different SHGs are sold. But in every activity the structure and functioning is same i.e. with 3 SHG - one federation. The regional coordinator Mr. A. K. Chaudhary of BKGB Munger told that their target is to develop a family by supporting one cow to male member, one cottage industry of agarbatthi to women member and a vermi compost unit to the family. All will be done without subsidy model of DRDA. He told that be introducing of subsidy model financing from 1999 to group, stop and hinder the SHG movement in Bihar. SJSY is group finance not SHG finance. SHG finance is different as it leads to attitudinal change of being Self Help, Self-initiator and us. In SHG finance SHG on lend it to their members by charging interest. Micro finance will not beg for subsidy.

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ANNEXE-3
Sashi Bhusan Smirity Sangh (SBSS) - A new form of Institution Sashi Bhusan Smirity Sangh (SBSS) is an informal institution of male situated at village Bhutauli, block- Chautham, dist Khagaria. It was formed in the year 2002 with an objective to have access of small loan to meet their immediate productive & consumption needs. This institution had generated cumulative saving (including saving & interest earned) Rs.144163/-. Total loan outstanding is Rs1, 40,964/-.It is neither self-help group nor cooperative. Village Bhutouli of block Chautham is a remote village dominated by other backward class (Chawrasia, Kurmis and Koyeries). The economy of village depends upon agriculture & agri allied activities besides the poultry. 40% of total households migrate to Delhi,Punjab & Hariyana for sowing & harvesting of paddy & wheat. 2 private schools are also present in the village. With the initiation of some youths, who have come across with the system of chit funds, during their migration period at Delhi. An informal institution emerged in Bhutouli village and spread up in Khagaria districts.At present 20 such informal group is witneshed at Khagaria. The coordinator of SBSS Mr. Pravas told that in Delhi model, on fixed date every one have to deposit a fixed amount and is taken by one person through vendor. In this system one has to take money in loss also it is not guarantee to have money in time. One who took money for one time his eligibility of taking money goes away from that committee. In the year 2001 they started this informal group with 5 members. They held their first meeting on 28-01-2002. With small change in the Delhi model they finalize their byelaws. They started saving of Rs.50/- per month. At present total member is 28. Those who came late entered in-group by giving the late fine with cumulative savings. They started inter loaning from day one of their meeting. The rate of interest they fixed is 2% monthly. The term for repayment is fixed to 6 months. In special case it can be exceeded up to one year. They earned an interest of Rs. 1554/- at the end of 1st year. They opened a bank account at Bihar Khetriya Grameen Bank. (Pipra branch, A/C no.2219/14 on 28.03.2003) They have simple accounting system of individual saving, individual loan, accrued loan and loan outstanding. At present total outstanding

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loan is Rs. 140964/- with cumulative money kept with them is Rs. 144163/-.( Savings is Rs.82320/-, Interest is Rs.61093/-, late fine earned is Rs. 750/-, Expenses made by group is Rs. 1248/- and in bank they have Rs. 1951/-) Their secretary told that they are in this position because they followed their byelaws strictly. He told that their group is a model self help group and they didnt required any subsidized loan. This group wants to be a bank at their doorstep for their 28 members. They are in need of capital but what are the ways, as it didnt come up in a SHG or under cooperative

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ANNEXE-4
DAIRY under SGSY Effecting the movement Self Help Group No-5 formed under NABARD scheme in the year 2002. Group lost their identity of being SHG after linked up with SJSY scheme. With their cc limit of Rs.325000/- they had taken a loan of Rs.144000/-. This SHG is formed at Nirpur village of Chautham block, Khagariya district. The village has mixed population with majority of small and marginal farmers. Water table is at the height of 15-20 foot. About 40% of population migrates in the month of December and came up in the month of March. On 25-12-2002, under the scheme of NABARD 15 male agriculturist came up in-group. They started monthly meetings and savings of Rs.50/- per member. Up to March 2006 they generate total money of Rs. 45132/-. This includes saving, interest earned and the grant money of Rs.15000/- of their 1st RLF which was given on 22-10-2003. The group gave a proposal of mini dairy and got sanctioned on 24-05-2005. Chandan Pathak, secretary of this group told that they had taken this loan under pressure of LEO and LDM. Under the supervision of bank manager and LEO they purchase 9 cows from Begusarai as per the choice of BAHOs vender. This cost Rs. 144000/-. The cows had to kept in a common place. The group spent Rs.70000/- (Approx) in forming the shed for cows, which had to be supported by DRDA. They had made a system of daily rotation of their work. Three persons had to look after these cows and two persons were responsible for marketing. They had not getting any honorarium for doing these works. They had put 2 labour of Rs.2000/- each to assist the group in dairy business. The recurring expenses for doing this business as stated by Mr. Chandan was Rs.14800/- which includes feeds, medical, labour and transportation of milk. Initially the cows were giving 80 liters of milk per day, which they sold at Laxmipur Dairy, 7 k.m away from their village and got Rs.8/per liter. Monthly they were getting Rs.19200/- They had done their business with Laxmipur dairy for only 3 months. As the party have overdue of Rs.15000/- After that they have started selling milk at Telaunch another dairy cooperative and within 3 months the other party had also overdue of Rs.4500/-. They had given an application in Barauni

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dairy to link up their group. But it is not linked till date. The milk quantity within 6 months had reduces to 22 litre per day. The banker was supposed to gave the 2 nd installment to make up the milk production. The group failed in availing 2nd loan as they repaid only Rs.10000/- within time period. Now the group has not any money to feed their animal. So they sold the cows within self and earned Rs.70000/- and reduce their loan amount. At present the group is no more and all became lonee of bank.

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ANNEXE-5
MISSION SHG:A strategy for sustainable growth of SHG Bank Linkage Programme in Bihar 1. Backdrop In Bihar, banks credit linked 18206 SHGs during 2005-06. Chairman, NABARD after holding high level discussion with the Chief Minister, senior state officials and bankers during his visit to the State, set an objective of credit linking 36000 SHGs during 2006-07. The Managing Director of NABARD reiterated this target for banks in a Special SLBC meeting held on 21 June 2006. Honble Ujnion Finance Minister confirmed this as a mandate to banks in the Special SLBC meeting. Thus, the Goal is clearly set Doubling of SHG credit linkages from 18206 in 2005-06 to 36000 in 2006-07 A challenging but not impossible task. Long Term Mission : Sustainable growth of SHG movement in Bihar This calls for a clear strategy and systematic team efforts by all partners. SHGs A strategy for promoting inclusive banking in Bihar There are some obvious pointers to continuing financial exclusion of rural poor in Bihar. These are : As high as 42% population lives below the poverty line. 93% farmers are small farmers with average land holding below 0.91 ha. Population pressure on developmental resources is high i.e. 8% of national population thrives on only 2% of geographical area occupied by the State. CD ratio in the state is below 35%. Average population served per bank branch in the state is high at 22000 suggesting inadequate banking network, especially for rural lending. This problem gets aggravated due to very weak cooperative credit structure. The State is characterized by very low Human Development Index (HDI), poor infrastructure and weak extension network in rural areas. Banks, therefore, are not enthusiastic about direct lending in rural areas.

2.

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 Under the circumstances, banks in Bihar would have to reach out to a large unbanked rural population in a short time and cost effective manner by adopting innovative credit delivery strategies such as lending through SHGs. In other states, lending through SHGs has proved to be an effective way of banking with large number of rural poor in a cost effective, timely and transparent manner. During 2005-06, only 18206 SHGs were credit linked in Bihar as against 4,92,927 in AP, 2,20,696 in Tamilnadu, 57,640 in Orissa, 38,166 in Rajashthan and 25,215 in Assam. Bihar ranked eleventh among the states in terms of SHGs credit linked during 2005-06. Sustainable and systematic growth of SHG movement in the state can be ensured only by creating widespread awakening among people and institutions, particularly banks, investing in their capacity building and ensuring team work among them. Huge untapped SHG potential in Bihar As per the broad estimate, there is a long term potential for forming approximately 6.25 lakh SHGs in Bihar. Around 1.20 lakh SHGs are reported to have been formed in Bihar by various agencies, leaving untapped potential for formation of over 5 lakh new SHGs. There has been a steady progress in credit linkage of SHGs in the state as banks credit linked 8085 SHGs in 2003-04, 11769 in 2004-05 and 18206 in 2005-06. On a cumulative basis, 46221 SHGs were credit linked up to March 2006, leaving a huge stock of SHGs for credit linkage at the beginning of 2006-07. NABARD, with the help of over 130 partner NGOs, banks, Farmers Clubs and Individual Rural Volunteers (IRVs) is assisting in promotion of over 13000 SHGs in the State. NABARD will continue to assist new agencies for promoting more SHGs in future. Bihar Women Development Corporation (BWDC), through partner NGOs is reported to have promoted 11000 SHGs. Around 6000 SHGs were credit linked with banks. Thus, over 5000 eligible SHGs are available for credit linkage is banks. BWDC is also launching livelihood promotion programmes in 6-7 districts with IFAD / World Bank assistance under which villages will be saturated with SHGs. SHGs are also formed under programmes such as Swa-shakti, Mahila Samakhya, watershed/forest development etc. Some social/charitable agencies are also forming SHGs. Banks have to credit link these SHGs too. Regular sharing of MIS on SHGs formed by these agencies with NABARD and controlling offices of banks will help in their timely credit linkages. Block Panchayats are facilitating promotion of SHSY groups. All of these groups may not get subsidy linked credit support immediately due to

3.

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budgetary limitations under SGSY. SGSY groups which are functioning satisfactorily in tune with SHG concept can be initially credit linked under

SHG Bank Linkage Programme. Huge potential for promoting SHGs though Farmers Clubs (FCs) remains unexploited in the State. As on March 2006, 725 FCs were promoted by banks with the help of NABARD and 800 new clubs were expected to be promoted during 2006-07. NABARD also extends assistance to Farmers Clubs for promotion of SHGs. Assuming that each club will be able to promote at least 10 SHGs, formation of about 15000 SHGs can be ensured through Farmers Clubs in the near future. Opportunity exists for promoting SHGs under Cattle Development Programme implemented by BAIF and Bihar Horticulture Project. Many smaller NGOs are willing to embark on SHG formation but need proper guidance. These NGOs have to be identified and guided to participate in SHG Bank Linkage Programme. Thus, SHG movement can see robust growth in Bihar, if all the stakeholders take necessary initiatives on their part. Stakeholder in SHG movement and their role NABARD NABARD, as an Apex organization is steering SHG Bank Linkage Programme in the State. DDMs of NABARD act as prime movers of SHG movement at the district level. They are in a position to guide and assist important players such as banks, NGOs, Farmers Clubs and SHGs. NABARD provides grant assistance to NGOs, Farmers Clubs, IRVs, Banks for promotion of SHGs and their capacity building. NABARD facilitates training and capacity building of various players including banks and extends concessional refinance support to banks. (ii) Banks Banks have to realize that SHGs is a very good business proposition for rural branches. It is a cost effective way of enhancing their outreach, loan business and marketing of small loans. Banks, therefore, have to develop mutually beneficial business relationship with SHGs / NGOs / Farmers Clubs / IRVs and other SHPIs. They are banks partners in tapping the untapped business. Corporate level commitment of banks for financing SHGs has to be translated into a SHG Business Plans of rural branches. This requires

4. (i)

Major stakeholders in SHG movement and their roles are as under :

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internalization of SHG agenda and objective monitoring of the progress by banks. Conscious efforts are required by banks for easing SHG account opening and credit linkage procedures so as to reduce hassles and delays faced by SHGs. Branch-wise database on SHGs is required to be maintained for effective follow up with branches for timely credit linkage of eligible SHGs. Flow of MIS from branches to controlling offices and further to NABARD/SLBC needs to be streamlined. Awareness has to be created among branches to realize that denial of credit to SHGs not only results in financial exclusion of poor but also means loss of present and future business opportunity to banks. Bank branches have to develop conceptual clarity on difference in normal SHG business and financing to SGSY groups. SHG concept believes in extending non subsidized loans to homogeneous groups of poor. Financing of bigger loans for undertaking projects in not compulsory under SHG concept. Neverthless, huge business opportunity for quality loaning is available under SHGs. (iii) State Government State government has a role of facilitator in SHG movement by creating supportive policies and congenial atmosphere. Recent decision to waive stamp duty on SHG loans up to Rs.5.00 lakhs by the State Government is a welcome step. State government may designate an appropriate agency (other than DRDA) having strong presence in villages for promotion and monitoring of SHGs outside SGSY. Aganwadis / ICDS would be the preferred agency being women oriented and village based. Anganwadis may also coordination with bank branches for saving / credit linkage of SHGs. Groups promoted under SGSY may also be oriented to function as cohesive groups on the lines of SHGs. Bihar Women Development Corporation (BWDC) BWDC is a major SHG promoting agency in the state having reportedly promoted around 11000 SHGs. However, only about 5500 SHGs promoted by BWDC are credit linked with banks. Field functionaries of BWDC/ Partner NGOs and bankers may have to work together for accelerating the process of SHG account opening and credit linkages. Conscious efforts are needed to coordinate with NABARD and banks at the state/district level for monitoring credit linkage to SHGs. District-wise and Branch-wise MIS on SHGs formed and linked may be regularly shared with NABARD, SLBC and Lead Banks. BWDC may expand its SHG promotion activities in all the remaining districts of the state.

(iv)

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(v)

SHG Promoting NGOs/Agencies NGOs having rural presence may seek support from DDMs, LDMs and banks to function as SHPIs. Conscious efforts are needed by NGOs to develop close rapport with branch personnel for ensuring hassles free banking service to SHGs. NGOs supported for SHG formation by NABARD, BWDC, etc. have to ensure completion of projects within the prescribed time frame. NGOs which have completed their earlier projects may apply for fresh project for formation of new SHGs in other villages. For healthy growth of SHG movement and maintaining the quality of SHGs, NGOs / SHPIs need to provide necessary capacity building inputs to SHGs till SHGs become mature.

(vi)

Farmers Clubs (FCs) SHG oriented members may be inducted into Farmers Clubs to accelerate the SHG formation process. NABARD also supports FCs with a promotional grant and capacity building support for SHG formation. This activity can become income generating proposition for FCs. Apart from SHG formation, Farmers Clubs may be involved in book writing and monitoring of SHGs. Farmers Clubs may function as extended arms of branches for nurturing SHGs.

(vii)

Capacity Building/Training Organisations Good quality of SHGs can be ensured only through continuous training of their members/leaders. Orientation and capacity building of functionaries of NGOs/ banks is also equally important. NABARD supports various training programmes at village / district / state levels. Both formal trainings through structured modules and informal on the spot trainings are needed under the programme. Agencies have to develop their in house capacity for imparting training to SHGs and staff. A team of SHG trainers may be develop at district/block levels. This may includes Banker, NGO facilitators, Farmer Club members, matured SHG members, Panchayat representatives etc. They may be invited as resource persons in various SHG related events.

5.

Specific Action Plan and strategies for Partner Agencies

Agencies have to adopt specific strategies for effectively discharging their responsibilities under SHG Bank Linkage Programme. Some of the key strategies are indicated below, agency-wise:(i) NABARD

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 Allocating district-wise and bank-wise SHG credit linkage targets and communicating the same to banks, DDMs/LDMs and SLBC. Expanding the base of SHG Promoting Institutions (SHPIs) i.e. NGOs, IRVs and Farmers Clubs. Extending grant support to RRBs / Cooperative banks to become SHPIs. Organising sensitization / orientation programmes and exposure visits for senior, middle, field level officials of banks and NGOs. Holding strategy cum review meetings with CBs, RRBs, DCCBs, SHPIs/NGOs/WDC officials. Facilitating training and exposure visits of SHG members, facilitators/animators from NGOs, Farmer Clubs members and IRVs. Participation in branch managers meetings organized by different banks for sensitizing and guiding them of SHG Bank Linkage Programme. Preparation and supply of publicity material to banks, NGOs and Farmers Clubs. Documentation and dissemination of success stories among bankers/SHPIs. Obtaining MIS under SHG Bank Linkage Programme from banks and facilitating review of progress. Presenting awards to best performing banks / branches / NGOs / FCs in recognition of their excellent performance under SHG Bank Linkage Programme. Providing concessional refinance support to banks to the extent of 100% of loans extended to SHGs. (ii) Strategies at District Level (LDMs, DDMs, Area/ Controlling Offices, NGOs/SHPIs, etc.) Allocating bank-wise and branch-wise SHG promotion and credit linkage targets in the district. Discussing strategies for SHG linkage in BLBC / DLCC meetings and reviewing of branch / bank-wise progress through monthly returns and in meetings. Constituting informal Core Team comprising of DDM, NABARD, LDM, Area Manager of RRB, District Coordinators of banks, SHG Link Officers of banks, WDC representatives, Heads of NGOs/SHPIs for collectively leading SHG promotion and linkage campaign in the district. Taking up structured branch visits jointly by DDMs/LDMs/District Coordinators and NGO/SHPI representatives to creating SHG awareness and identifying eligible SHGs for credit linkage process. Organising branch visits with senior bankers such as RMs / ZMs of CBs and Chairmen of RRBs so as to provide momentum to SHG linkage. Identifying branches/villages where Bihar WDC has promoted SHGs and ensuring time bound credit linkage of all the eligible SHGs by branches.
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 Encouraging local NGOs to function as SHPIs by occasionally inviting them to attend SHG related programmes organized in the district and providing hand holding support. Encouraging promotion of Farmers Clubs and orienting them for SHG promotion with grant assistance from NABARD. Inviting successful bankers, NGO workers, Farmers Clubs members, SHG members for interaction in training programmes/workshops, branch manager meetings, BLBC/ DLCCs, etc. for sharing of experiences. Organising visits of bankers / NGOs / Farmers Club members to successful branches / SHGs. Promoting team spirit among various stakeholders in the district by ensuring their participation in all the SHG related programmes. Organising SHG Linkage Camps for account opening and credit linkage of SHGs for enhancing awareness among rural people and promoting competitive spirit among SHGs/bankers. Involving experienced staff of SHPIs, members of Farmers Clubs and matured SHGs in organizing SHG camps. Inviting senior officials of NABARD, banks, WDC, NGOs to various SHG related programmes at village / district level with a view to sorting out operational problems and building corporate commitment. Facilitating exchange between SHG members and SHPI / Bank staff from different areas for experience sharing and promoting healthy SHG culture. Jointly instituting / sponsoring District Level SHG prizes by banks, WDC, NGOs etc. for rewarding the best banker, best SHG, best Farmers Club, best NGO, etc., who may later be nominated through DDMs for State SHG Awards instituted by NABARD. Ensuring that branches submit SHG related information/returns to LDM/Controlling offices and consolidated returns are submitted to NABARD / SLBC. Strategies for Controlling Offices of Banks Deciding banks Vision about SHG Business and communicating SHG business goals to branches in terms of new SHG accounts, credit linkage of SHGs, repeat loans to SHGs, etc. Ideally, rural branches may aim at having at least 100-150 S.B. accounts of SHGs and all eligible SHGs may be credit linked within one month from becoming eligible for credit linkage. SHGs which have repaid earlier loans may be given repeat loans within one months of closure of earlier loan. Branches may be categorises as high share and high growth branches in respect of SHG loan business. Such branches may be advised to have sharp focus on SHG business and their progress may be monitored by controlling offices.

(iii)

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 One officer may be identified to function exclusively as Link Officer for SHG / Farmer Clubs to assist branches in each District/Cluster. He should possess required orientation, skills and zeal to work with SHGs / Farmer Clubs / NGOs and ability to motivate others. Branches may be advised to submit information indicating number of S.B. accounts of SHGs, details of SHGs, new SHGs eligible for credit linkage, SHGs eligible for credit loans, SHGs credit linked, cumulative progress of SHGs linked, etc., on a monthly basis. Branch-wise information may be shared with DDMs and LDMs. Consolidated information may be furnished to NABARD / SLBC. Progress under SHG business may be reviewed personally by Controlling Heads during branch visits and review meetings with a view to guiding branches Officres on SHG linkage strategy. SHG review may be accorded high priority during branch visits and business meetings. DDMs of NABARD may be invited to share their observations in branch review meetings. Exclusive sensitization meets on SHGs/Farmers Club may be organized for branch staff in which DDMs, LDMs, NGO Heads, WDC officials may be invited for guidance. Besides, one session on SHG linkage may be planned in all the training programmes conducted by banks for rural branch staff. Branch staff may be deputed for attending SHG related trainings, particularly those organized by NABARD. Staff of SHG deficient branches may be provided exposure to SHG saturated villages of other branches / banks. Senior / middle level officials in the controlling offices may also be provided SHG related training and field level exposure for developing their understanding and commitment about SHG business. Banks may organize such programmes with the help of DDMs/LDMs. Banks may prepare an inventory of NGOs/SHPIs functioning in their area of operation and extend guidance / cooperation to them. Details of SHGs may be regularly obtained from such NGOs/SHPIs. Banks may also identify and encourage Individual Rural Volunteers (IRVs) and Farmers Clubs to act as SHPIs, particularly in NGO deficient pockets. Guidance and help of DDM, NABARD may be sought for sending proposal to NABARD for grant support. A set of guidelines on simplified SHG account opening and loan documentation procedure may be sent to all branches once again. Loan documentation procedures of all SHGs in a village may be completed by branches on a predetermined day preferably in the village itself so as to avoid hassles and delays faced by SHGs. Branches may be advised to observe one day as SHG Day in a week. SHG llink officers may visit branches on SHG Days as per the pre decided schedule and render active help to branches in SHG related matters.

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(iv)

Names of SHGs which are eligible for credit linkage but have not applied for loan or have not been credit linked may be displayed at branch premises. Branches may be asked to convene SHG leaders meetings at regular intervals for reviewing the functioning of individual SHGs, checking their records and review of credit linakge. Recognition may be given to branches which have rendered dedicated service to SHGs. Branch staff may be given an opportunity to attend quality trainings and they may be deputed as resource persons on SHGs. Their good work may be publicized in in-house journals / various forums. Strategies for Bank Branches Branches may set a time bound objective of extending SHG linkage programme in the entire village served by them. Ideally, each branch may decide a goal of having at least 100-150 saving accounts of SHGs (outside SGSY) by March 2008. Branches may saturate at least five villages with SHGs of men / women. Branches may form Grass Root Teams (GRTs) for expanding SHG business in villages. GRTs may include select Farmers Club members, anganwadi staff, school teachers, NGO volunteers, members of matured SHGs, panchayat members, etc. GRT members may be oriented for formation and nurturing of SHGs. Branches may maintain village-wise details of SHGs. Bimontly Review cum Exchange meetings of SHG leaders may be convened at village / cluster / branch level to guide SHGs on credit linkage and other aspects. Officials such as DDM, NABARD, LDM, Controlling Heads, Area Managers, NGO Heads, SHG link officer, District Coordinators, Farmers Club coordinators may be invited in such meetings for guidance. SHGs eligible for credit linkage may be identified. Weak SHGs may be guided for overcoming the weaknesses and credit linkage in future. Entire branch staff may be involved in SHGs related work in branches / villages. Staff may be motivated to adopt positive and supportive attitude towards SHG members and extend hassle free service to them. Branch staff may synchronize their village visits on SHG meeting days. In order to facilitate this, all SHGs in a village may be encouraged to hold meetings on the same day. Branch staff may examine the records/accounts of SHGs during their visits to villages or visits of SHG representatives to branches. The importance of regularity and accuracy in maintenance of accounts may be emphasized. Members of GRT / Farmers Clubs may also be motivated to take up this task voluntarily. SHG leaders / members may be trained regularly in various aspects of SHG functioning and record keeping. Branches may regularly identify SHGs which have become eligible for credit linkage and credit links them immediately. SHGs which have repaid earlier loans may also be extended repeat loans at the earliest. Loan

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applications of SHGs may be disposed off within one week from the date of receipt. SHG account opening and credit linkage procedures may be completed with the help of GRT / Farmer Clubs. Undue delays and hassles in completing the formalities may be avoided. Credit linkage of SHGs may be carried out in a transparent manner in the presence of all SHG members, members of GRT and villagers. Undue interference in day to day functioning of SHGs may be avoided by branches. However, help may be extended to SHGs / NGO animators in promptly resolving disputes arising in SHGs. NGO animators, members of Farmers Club/ GRT, SHG members etc. are equal partners in SHG business and may be treated with respect and honour. They are extended arms of branches for marketing of bank products and promoting healthy banking culture in villages. Branches may obtain village-wise reports on SHGs from NGOs / FC / GRT and monitor the quality of SHGs. SHGs may be motivated by branch staff for undertaking community development activities. This helps in strengthening of SHGs, enhancing their sustainability and acceptability in villages. Branches may follow the following strategy for systematic credit linkage of eligible SHGs.: (i) Organize bimonthly meetings at branch / cluster level in which 2-3 representatives from all the SHGs may be invited. Members of NGO/FC/GRT may also be invited. (ii) Facilitate SHG-wise discussion and identify SHGs which are eligible for credit linkage. Also identify SHGs which require repeat loans. Broadly assess their loan requirements. (iii) Hand over loan application forms to identified eligible SHGs, guide them on loan formalities to be completed, and specify the date for submission of completed loan applications. NGO animators, SHG leaders, members of Farmeres Club / GRT may be requested to help SHGs in completing loan application formalities. (iv) Weak SHGs which were not found eligible for credit linkage immediately may be guided on appropriate corrective action with a view to making them eligible for loan within a reasonable time frame. Upon receipt of loan applications from the eligible SHGs by a specified date, branch may complete the scrutiny, sanction loans and inform the decision to the respective SHGs, indicating the date for holding loan documentation camp. NGO animators, SHG leaders, members of Farmers Club/GRT may also be invited to the camp.

(v)

(vi) In a loan documentation camp on a predetermined date, branch staff, NGO staff, Farmers Club/GRT members, etc. may help SHGs in

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completing loan documentation formalities. Thereafter, the details of sanction of all SHGs may be announced publicly. (vii) This process may be repeated for convenient cluster of villages so as to cover all village / SHGs in the service area. 6. Credit Linkage of SHGs Some clarifications Generally, branches seem to have some dilemmas regarding credit linkage of SHGs. Some of the important clarifications are furnished below: i. Unlike in case of SGSY groups, loans to SHGs are extended without any subsidy from the government. Membership to SHGs under non subsidized SHG Bank Linkage Programme is open to non BPL households also.

For loaning to SHGs under SHG Bank Linkage Programme, banks do not have to depend on block officials for sponsoring of applications as SHGs under the programme are outside the purview of SGSY. Under SHGs Bank Linkage Programme, branches can obtain SHG loan applications directly or through SHG promoting NGO / Agency. iii. SHGs can be extended credit support by banks by extending several loan cycles, one after another, even without SHGs taking up any income generating projects. No project report is required to be submitted by SHGs even though they are availing bigger loans. Members of same SHG are free to pursue different activities if they so desire. iv. Bankers are free to decide the loan amounts to SHGs in progressive loan cycles depending on consumption / productive credit needs of members. Banks need not look into appraisal of individual loan requirements ofo SHG members. Loan amounts are generally decided based on the quality of SHGs and own resources / savings of SHGs.

ii.

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ANNEXE-6
Senior Level
Management Skills Sensitizing and involving stakeholders Organizational Development Financial Management

Common
Leadership Development Basic SHG management skill Advocacy Skills at all levels

Field Level
Mission and vision of the Organization

Best Practices at Group Level Basic SHG management skill Linkage of SHG with Gender various program Communication At NGO level Skills/street play/puppet marketing show Project Planning Capacity Building for RCH Skill Development Communication skill Accounts and Book Keeping Micro planning and action Marketing Micro-finance Documentation Computer Co-operative formation Account management Training for identifying IGA-/micro-enterprises

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ANNEXE-7
Capacity building Institutions:
Senior Level Resource Agencies NIRD,A.N.SINHA, ,DA,BIRD,NIPCID,EDA,SHAHBAGI SIKSHAN KENDRA,PEACE, NIRD, GRAMIN YOJNA KENDRA, CENORED

Management Skills Organisational Development Financial Mannagement Project Planning Sensitizing and involving stakeholders Common Level Leadership Development Basic SHG management skill Advocacy Skills at all levels Gender At NGO level marketing Capacity Building for RCH Communication skill Micro planning and action Marketing Micro-finance Documentation Computer Co-operative formation Account management MIS Training for identifying IGA-/micro-enterprises Field Level Mission and vision of the Organization Best Practices at Group Level Basic SHG management skill Linkage of SHG with various program Skill Development Accounts and Book Keeping

THREAD,SEARCH,CINI,CENCORD

SHAHBHAGI, GNK, DA, BIRD, INST. OF SOCIAL SCIENCES

SPAR,DA,NIPCID,IIHMR(JAIPUR) PRIYA,CENCORD DA,LDM,ISMW,SSK,CENCORD, BIRD,NIPCID,DA,RGVN,WDC,SEWA, NIRD, CENCORED,
SHABBHAGI

NCAS,BVHA CREA,GTI,JAGORI AGRAGAMI,NFI,PFI,POORVA,BVHA,CINI,CHETNA,MAMTA DA,RAVI BHARTI,CENCORD,IIMC, CENCORED MART,EDI BIRD,TDS,MART,BASIX,BIRD PRIYA,MARG,DA,PRIYA,WEE,SEARCH,CINI BIRD, SEWA, NIIT CYSD, SEWA NIDAN APMAS,MYRADA SHAHBHAGI ,GRAM NIYOJAN KENDRA, DA, SIDHARTH( THREAD) NBJK BIRD, NIRD, DA, EDI, SEWA, EDA BASIX,EDA,EDI,IRMA,BIRD,ISLP, GDS, PUSA, ICAR,

GTZ,CENCORD BIRD,NIPCID,DA,RGVN,WDC BIRD,NIPCID,DA,RGVN,WDC,SEWA, NIRD, CENCORED, SHAHBHAGI REED, APMAS, BASIX KVIC,WDC WDC,KVIC,,RAU,BIRD,NABARD WDC,EDA

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