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Scope and Potential of setting up a MFI
CHAPTER-1
BHORUKA CHARITABLE TRUST
1.1INTRODUCTION
Late Sri Prabhu Dayal Agarwal, the then chairman of the TCI (Transport Corporation of
India)- Bhoruka group of companies, had a vision of establishing a social service
institution dedicated towards the development of underprivileged and weaker section of
rural masses. To implement his ideas he established the Bhoruka Charitable Trust (BCT)
on May 23, 1962 under the Bombay Trust Act. Bhorugram (Nangal Badi) is the
birthplace of late Sri Prabhu Dayal Agarwal. The Trust is working in Churu district of
Rajasthan since 1973. The geo-climatic condition of this region is very harsh and hostile.
Being an integral part of the Thar Desert, it receives very scanty rainfall (325-350mm
annually) and there is wide variation in temperature (-3 degree Celsius in winter to 50
degree Celsius in summer). The underground water being deep and saline with high
fluoride contents, there is acute shortage of drinking water particularly in the time of
summer. This area is also remote and deprived of natural resource. By founding the BCT,
late Sri Prabhu Dayal Agarwal wanted to reduce some problems of this area and tried to
do some developmental activities for the people of Bhorugram.
1.2 MISSION
The Trust is dedicated to the socio- economic transformation of rural and remote areas of
India, especially the weaker socially underprivileged groups through physical, social,
cultural and economic development of rural people, groups and institutions.
1.3 AREA OF INTERVENTATION

The Trust is implementing various projects in Women and Child Development Services
(ICDS), Primary health care, Family Welfare, Reproductive and Child health, Prevention
of HIV-AIDS, Formal and Non-formal education, Famine relief, and Infrastructure
development. The SHG project is undertaken with the help of NABARD. The
microfinance programme is started in association with ICICI, SIDBI, and RMK.
1 OTS, Alok Modi 25002

1.4 ADMINISTRATIVE STRUCTURE
BCT has a simple hierarchical structure and line of command for the operations of the
trust activities. There are separate Project officers and Assistant Project officers for each
project and all other functionaries remain the same.
[Figure 1: Here]
1.5 EXPANSION PHASES

The activities of the trust have undergone changes in geographical coverage, the
programmes and also the budget. The expansion of activities was accompanied with the
broadening of the target population base.
[TABLE 1: Here]
1.6 PROJECTS RUN BY BCT

The major projects under operation are listed below. In the preceding financial year BCT
has been running a total of 37 programmes. The programmes are supported by
Government of India, Government of Rajasthan, International agencies like CARE India,
and other national funding agencies, and by the trusts own funds. At present the following
programmes are running:
A. Women and Child development programme
(1) Integrated child development Services (ICDS)
(2) Integrated Nutrition and health programme (CARE-INHP II)
B. Health Programme
(1) Maternal and child health center and Eye Camp at Bhorugram
(2) HAMARA Project (HIV-AIDS)
(3) Mother NGO project (RCH and ISM&H)
C. Income Generation Programme
(1) Carpet Weaving
(2) Self Help Groups
(3) Dairy project (upto 2004)

D. Education
(1) BRJD Public School
(2) Shivamba Shivir (For Girls deprived of formal education)
(3) Smt. Dhanwanti Devi Girls High School, Dhandal Lekhu
E. Management of Natural Resources
(1) Construction of Watershed
(2) Afforestation
F. District Poverty Initiative Program (DPIP)
G. Famine Relief (Fodder depots and drinking water arrangements are done with
the help of Rajasthan government and from the Trust’s own funds).
1.7 ORGANISATION EMBEDDING

BCT is working as a part of the society and is socially embedded to perform various
functions.
[Figure 2: Here]
1.8 CONCEPT FOR MICROFINANCE PROGRAMME

BCT people visited Bangladesh in 1997 in relation with a project on health, and also
visited some self help groups of ‘Grameen Bank.’ The ‘Grameen Bank’ people also
visited BCT sometime later. The concept that emerged in the minds of BCT officials
culminated into formation of some SHGs in the middle of 1999 in Rajgarh block of
Churu district. At that time 60 SHGs were formed. The objective was to inculcate saving
habits, bring rural poor out of the hands of moneylenders, development of village level
organizations, and to create their own capital from where they can easily get loan in a
very low interest. Towards the end of 1999, NABARD allocated to BCT a project to
form 250 SHGs. In 2003 BCT submitted proposals to ICICI, SIDBI, and RMK for acting
as a lending intermediary to the SHGs. Meanwhile BCT financed some SHGs on its own,
as some of the groups were facing difficulties in getting loans from of the banks.

1.8.1 Present Microfinance Programme of BCT

At present there are 506 SHGs, which have a saving figure of Rs. 37.0 Lakhs. Out of
these 506 groups, 363 groups have obtained a total loan of Rs. 66.72 Lakhs from banks
and Rs. 34.80 Lakhs from FIs through BCT intermediation. 83 groups have completed
their first loaning cycle. Microfinance has proved a powerful tool for expanding
economic opportunities for the entrepreneurial poor, and has certainly contributed to
decrease their vulnerability. BCT is looking for identification of income generation
activities suitable to this region, so that the linkages can be further strengthened. There is
enormous potential demand that exists for microfinance services. The microfinance
activity of BCT is in an incipient stage, while there is enormous latent demand that
exists for microfinance services (Savings, Credit, and Insurance) in this area. This
demand is huge even when the services are offered to clients at their full cost. This
demand applies as much to credit as to savings, and empirical evidence has shown that
poor people are capable of amassing impressive amount of savings when afforded simple
and flexible instruments. In the villages people still depend on informal sources and BCT
is trying to increase the reach of its programme across the Rajgarh and Taranagar blocks
by trying to engage the community in various developmental activities and income
generation programmes. BCT has already successfully completed formation of 250 SHGs
under a project allocated by NABARD for Rs. 3.84 Lakhs. Looking into the same
NABARD has allotted another project to the BCT for forming another 250 SHGs under
another project for Rs. 4.5 Lakhs.
[Table2: Here]
[Table3: Here]
1.8.2 Demand Estimate in Operational Area

The BCT has defined the initial geographical area of operation as the Rajgarh and
Taranagar blocks of Churu district. There are 18 branches of MKGB, 3 of Churu
District Cooperative bank, 2 of Land Development bank, and 9 of Commercial

banks. In case of MKGB the annual advances to rural sector (Farm and Non-Farm
activities) is Rs. 5.0 Crores in 3 blocks of Churu district namely Rajgarh,
Taranagar, and Sardarshahar. Out of this, Rs. 60.0 Lakhs is given to SHGs formed
by BCT. The total estimated yearly advances to rural sector in Rajgarh and
Taranagar blocks, based on triangulation of bankers estimate, come to Rs. 20
Crore.
1.8.3 Mission of Microfinance Programme

BCT wants to achieve a status where it is able to provide savings and credit
services to the rural poor in the Rajgarh and Taranagar blocks of Churu district,
with minimum spread, so that poor stand benefited in obtaining both the services.
BCT wants to link the people with sustainable IGAs so that they are able to
improve their standards of living.
1.8.4 Challenges in Upscaling of Microfinance Programme

a. For retention of the target group with the MF programme, BCT wants to
continue with the SHG model. It wants to exclude the better off and also
those who do not fit into the credit discipline of the SHG. BCT wants to
institutionalise the MF programme by drawing out a framework of
operational rules. At present there is a loan sanctioning committee, but till
now no loan application has been turned down. BCT need to develop
suitable loan appraisal procedures.
b. BCT wants to create a separate legal entity for MFI operations. For a
long time BCT has been working in this area on health, education, and
social issues. The programmes are funded by different agencies. The
operational issues in running a MF programme are different from the
present working of BCT. In this case the beneficiary has to generate output
out of the assets build up through the finance obtained by her. BCT
agrees that a major portion of the present loaning goes towards the
consumption and smoothening functions. There is an urgent need to

develop a sense of linking the finances with the present or prospective

enterprises of people.
c. Only a small percentage of the thousands of microfinance institutions
supported by outside funds have the capacity to become financially
sustainable. The price of sustainability is often under-estimated. Reaching
the stability stage involves taking unpopular decisions (such as charging
the full cost of services), and implies a tremendous effort to build reliable
information systems and maintain low delinquency rates. Although many
MFIs claim to aim for financial sustainability, few may be willing to pay
the price necessary to reach this objective. Moreover, outside technical
assistance and financial support have much less ability to turn around
MFIs into profitable and sustainable institutions as compared to the vision
and capacity of the MFI to become sustainable. BCT has this advantage of
having the vision and will to carry forward the MF activity. Initially when
it was in the process of getting support from FIs, it demonstrated the
conviction to finance some of the beneficiaries out of its own funds.
d. The demand for microfinance is huge even when the services are offered
to clients at their full cost. This demand applies as much to credit as to
savings, and empirical evidence has shown that poor people are capable of
amassing impressive amount of savings when afforded simple and flexible
instruments. Moreover, microfinance has proved a powerful tool for
expanding economic opportunities for the entrepreneurial poor, and has
certainly contributed to decrease their vulnerability. BCT has the challenge
to find suitable operational methods for delivery of the MF products. The
products also need to be devised as per the identification of current needs
and aspirations of the population. The BCT also need to introduce suitable
IGAs to people. (Source: UNCDF Working Paper on Microfinance)

CHAPTER-2
FRAMEWORK FOR PROJECT WORK
2.1 INTRODUCTION
The prelude to the framework was a study of the organization by understanding its
working procedures and interviews with the BCT personnel about their idea of a MFI.
The title of the project work is to study the scope and potential of setting a Micro-finance
Institution. Here the dictionary meaning of the word ‘Scope’ is ‘Sweep or reach possible
to range of opportunities.’ Similarly the word ‘Potential’ means ‘capable of coming into
being or action.’ In the present context ‘speeding up and enlargement of activities’ is the
‘Potential’ of BCT. Also the ‘scaling up of the operations from the present level across
the breadth and depth’ is the ‘Scope’ of the operations. Therefore the potential of
establishing a MFI is the need, viability and sustainability of the operations. The scope
also would include the measures and methods that would operationalise the MFI.
2.2 OBJECTIVES
i. To study the scope and potential of creating a microfinance institution to cater to
the needs of different SHGs engaged in rural micro-enterprise activities in the
villages of Churu district.
ii. To study the present MF operations of BCT and study the reporting procedures,
need for training and capacity building, and possible procedure for upscaling.
iii. To find a suitable structure for the proposed MFI, that is self-sustaining.
2.3 SCOPE OF THE STUDY

i. Study of potential, present operations, and suitable structure for viability of
present operations.
ii. Geographically the Rajgarh and Taranagar blocks of Churu district of Rajasthan
are covered.
2.4 METHODOLOGY AND DATA SOURCES

The study was approached using the base of the present MF operations of BCT. The
methods of the study included field visits, case studies, questionnaire, interviews and
informal discussions with BCT staff, interaction with bankers, focus group discussions

with SHG members, and interaction with non-beneficiaries. Literature from IRMA
workshop on ‘Governance Issues in Rural Finance,’ and Internet were also used. The
Primary data for the study was collected from the SHGs, BCT staff and other
stakeholders using the above methods. Secondary data was gathered from records of the
SHGs and BCT, and some published articles on BCT. The analysis pertains to description
of the present operations and comparison with standard procedures as gathered from
various sources.
2.5 RELEVANCE OF MICROFINANCE AT BCT

Any organization would like to conduct a feasibility study of its proposed programmes.
In this case the issue is related to the lives of the poor in this remote area of Rajasthan. It
is necessary that the pros and cons of the issue and the probable operational problems be
revealed to the extent possible. BCT is an organization that has the conviction to accept
the poor state of affairs of many of its SHGs. In spite of sustained efforts on the part of
the BCT, the SHGs could not be effectively linked to IGAs. The people here do not
calculate the opportunity costs of their time. When there is no work in the fields, the
people in the village can be seen, sleeping and playing cards. BCT is trying to create a
demonstration effect of successful IGAs in the region and therefore wants to promote
entrepreneurship among the people of the region. Many cases have showed positive
results and looking into the vast coverage area of BCT many more activities need to be
identified to enhance the choice and diversity.
2.6 FRAMEWORK USED FOR ASSESSMENT OF SCOPE AND POTENTIAL

OF SETTING UP A MICRO FINANCE INSTITUTION BY THE BCT
2.6.1 Reasons to take finance: The members of the SHGs need monetary support for
various needs. These include productive, social, consumption, smoothening,
and seasonal requirements. The banks are not able to provide loans in various
cases for a number of reasons.
2.6.2 Purpose to set up MF activity: Make available cheaper and hassle free credit
and improve the accessibility to loan.

2.6.3 Methods: The BCT has a present base of 506 SHGs and uses the SHG model
for providing micro-credit to the target group. They have already advanced
Rs. 37.64 Lakhs of money borrowed from 3 FIs namely RMK, ICICI, and
SIDBI at 8%, 9.1%, and 10% respectively. The purpose of loaning is
Agriculture, Cattle, Shops, Machinery, and Household activities. BCT has 4
branches, 22 number staff looking after the MF activity, 5173 SHG members
having total savings of Rs. 36.17 Lakhs, and 155 active borrowers. The credit
extended by the banks to the SHGs is Rs. 67 Lakhs.
2.6.4 Mission of the MF activity: Reduction in incidence of poverty and promotion
of IGAs through micro-credit for socio-economically underprivileged sections
of the society in rural areas of the Churu district. To raise their standards of
living so that they can lead a meaningful and dignified life. Here BCT also
feels that there is a considerable amount of optimism regarding the ability of
microfinance. Microfinance is however not the panacea for poverty
alleviation, even though it is true that it can be an efficient tool to combat
poverty through self-help.
2.6.5 Problems with present method:
a. BCT is also acting as an intermediary for bank linkages of the groups. The
banks are reluctant to provide credit to the SHGs for different reasons and
their procedure is cumbersome for the groups.
b. The person, who is looking after the MF activity at the executive level, is also
not able to devote his full time to the MF operations. BCT is not able to get
services of a full time MF professional and is in search of the same.
c. The area of operation is under drought for the last 6-7 years, and people do not
have a surplus to carry on any IGA. This also reduces the consumption levels
and repayment capacity of the people.
d. BCT is not able to achieve the loan disbursement levels of Rs.6-7 Crores per
annum as estimated before starting the operations. The age of SHGs is 4-5
years and the loan disbursement process has started for about 18 months now.
2.6.6 How the BCT want to carry the MF activity: In the long term the BCT wants
to accept deposits from the SHG members at 5-6 %, and lend at 9%. This will

provide a two-way benefit to the members as compared to the banks. The

present status is that the money is borrowed at 8 to 10% and is lent at 12%.
The on-time recovery rate is 95% and there are no bad debts. The BCT wants
to create a separate wing for working as an MFI and wants to work on a no
profit and no loss basis. The establishment cost and the initial losses are to be
borne with the resources of the Trust.
2.6.7 Member level assessment of performance of SHG:
a. Savings: The SHG has provided an opportunity to save money.
b. Loan: The interactions with SHG members revealed that the SHG has reduced
their dependence on moneylenders. The internal loans from the SHG are
available to them in 1 day and loans from bank or BCT in 30 to 45 days.
c. Insurance: The awareness level of the SHG members is low on the issue.
d. Adequacy of loan: The SHG is given loan upto Rs. 25000/- to distribute to its
members. The members have a tendency to inflate their demands and divert
the amount partly or fully for consumption purpose.
e. Timeliness: For loans of amount ranging from Rs. 10000/- to Rs. 25000/- the
loan from the BCT is given to the members for a period of 24 months. Other
members have to wait for these members to return the loan. Sometimes the
members are able to make a premature repayment, but at the same time some
other members delay the installments. Therefore other members are not able
to get loan from BCT.
f. Fulfillment of expectations: In many cases it is seen that the more aware
members, who also happen to be post holders, avail the loans. Other members
either are not capable to grasp the opportunity or do not need a loan.
g. Possible improvements: Interaction with the members showed that the
members are not having any perception of possible change in the present
system. Many of them are not even able to understand even the present system
of savings and loaning.

2.6.8 Organisation level assessment of performance of SHG:

a. Savings: The SHGs have shown satisfactory performance in savings as they
have started from a situation where members did not have a habit of saving.
However further momentum is to be maintained.
b. Loan: The BCT has distributed loans as per the needs of the members. There
is no case of rejection of loan application till now.
c. Insurance: There is no urgent demand by the people on this issue at present;
however the BCT wants to include rural insurance products in its MF
portfolio. It is felt to be in the interest of the loanee and the BCT both.
d. Adequacy of loan: No shortage of funds is felt at any stage to provide credit
to SHGs. Further the operations are to be upscaled.
e. Timeliness: BCT perceives that the delay in initial loan disbursements to the
groups is mainly on account of factors external to BCT. These are incomplete
documentation by the groups or the procedural formalities of the FI. There is
shortage of staff and that also accounts for some delays. It has been observed
that due to inadequacy of trained staff, BCT attends to the deficiency in loan
applications with an average time lag of one month. The banking channel also
takes substantial time. This however was defended by the bankers. BCT
however charges interest to SHG members from the date of issue of cheque,
rather than the date of realization or debit from the BCT account.
f. Fulfillment of expectations: At present the mobilization of people towards the
IGAs is low and credit could be extended only to a small number. Some
people were given loans for Dairy project and others under DPIP. The
utilization level of these loans was satisfactory to the BCT. The people have a
fix of mindset of minimum wages and want to get an equivalent benefit from
any IGA from the very beginning.
g. Possible improvements: Cheaper and timely credit, coupled with opportunities
of linkages with suitable IGAs.
2.6.9 Assessment of banks and other institutions about the performance of SHG:

a. Savings: The SHGs are regular in depositing their savings in the bank and
some of them have savings in excess of Rs. 10000/-. This is considered by the
bankers as a good amount of saving by the SHG.
b. Loan: The banks are willing to extend credit to the SHGs. The ratio of credit
as compared to savings of the SHGs has been increased from 1:4 to 1:10.
c. Insurance: The awareness level of the SHG members is low on the issue and
not many loans are covered against insurance policies.
d. Adequacy of loan: The banks have no clear idea on the adequacy of the loans
to the members. The banks adhere to the maximum limits specified for the
purpose. However not all groups have utilized the facility to the maximum
possible limit. The banks feel that the smaller needs of the members are
fulfilled by internal loaning and that the BCT is also distributing loan to SHG
members. The hassles created in the banking system is accepted by the
bankers and also stressed by the BCT. In case of MKGB the annual advances
to rural sector (Farm and Non-Farm activities) is Rs. 5.0 Crores in 3 blocks of
Churu district, Rajgarh, Taranagar, and Sardarshahar. Out of this Rs. 60.0
Lakhs is given to SHGs formed by BCT, which comes to 12%.
e. Timeliness: The loans are disbursed on completion of documents, which
include a recommendation from the NGO and also on the spot credit rating by
the bank officers. The process inadvertently causes delay and also an
increased transaction cost for the members.
f. Fulfillment of expectations: In terms of the number of groups linked to the
bank, the expectations are partially met. All the banks that were visited
showed interest towards increasing the SHG accounts in the bank.
g. Possible improvements: The banks are constrained by their roles and cannot
form the groups at their own. They look forward to the NGO’s for increased
support. Mr., D.D. Agarwal, Area Manager MKGB, told that the bank has a
running loss of Rs.59.0 Crores and therefore charges 13% interest, while
admitting that other banks are charging between 10-12%. The idea is to cover
the losses, which the bank has already incurred, mostly because of earlier
government schemes.

2.6.10 Operational scenario for BCT to carry forward the MF activity: The
information was gathered mostly from the correspondence made by the BCT
with various financial institutions.
a. Priority areas for operations: The BCT primarily wants to deal in savings and
credit business.
b. Operational Parity: BCT want to accept savings and extend credit in the rural
areas keeping a lower spread and a not for profit character. However the
legal framework for NGO’s in Rajasthan, unlike other states like Andhra
Pradesh, inhibits acceptance of deposits. Further the present level of
operations needs a gradual upscaling and therefore the idea of accepting
savings at this stage may have to be reconsidered by BCT.
c. Upscaling the operations: By obtaining external credit and making a turnover
of 6-7 Crores.
d. Carrying forward the operations: BCT wants to avail external credit from FIs
and is also willing to bear the establishment cost of the new wing alongwith
the initial operational losses. BCT is willing to bring in promoters contribution
of 30-35 Lakhs for starting the operations.
e. Institutionalisation of operations: BCT want to create a separate wing for MFI
operations and get registered appropriately. One of the considerations at
present is getting registered under section 25 of the companies act as a non-
profit organization.
2.6.11 Future of the MF operations: BCT has already extended credit worth Rs. 34
Lakhs by borrowing from ICICI, SIDBI, and RMK. As the BCT is thinking to
work as a full-fledged MFI and also continue its social activities, it plans to
separate the MFI business by way of creating a separate wing. The working
manual of the institution and a manual to standardize the SHG loaning
procedure are to be codified. The BCT also want to develop an MIS system
for efficient monitoring of the operations.
2.6.12 How BCT wants to scale: BCT wants to operate regionally in the Rajgarh and
Taranagar blocks of Churu district of Rajasthan. The present SHG credit from
banks is Rs. 67 Lakhs and from BCT is Rs. 34 Lakhs. The repayments are

95% and there are no bad debts. BCT is obtaining funds from ICICI, SIDBI,
and RMK. The MKGB may also extend credit to BCT at 9%. The resources
needed for the upscaling up of the operations include the establishment cost,
trained staff, MIS, working manuals for loaning and working manual for the
staff.
2.6.13 Challenges in promoting an MFI
a. Getting funds: BCT had initial talks with SIDBI and also approached ICICI
and RMK while the matter with SIDBI was in the pipeline. There were some
initial difficulties like providing collateral guarantee from the parent
organisation. As BCT accepted all the three proposals, it could not fully utilize
the amount sanctioned by any agency. The funds are obtained by BCT at an
average cost of 9% and lending is done at 12%.
b. Formation of appropriate groups: The groups are not always showing
cohesiveness and proper utilization of credit. The illiteracy of the group
members is a big inhibiting factor to develop the group concept. The SHG
accounts are not maintained properly. Mismatch of cashbook, ledger and
passbooks is commonly seen. The field staff is shared with other projects.
There was an incentive of Rs.25/- per for formation of one SHG, but the same
has been withdrawn as the BCT felt that the quality of groups formed is not
good. In many groups there is more than one member from the same family or
close relatives. In most of the groups the key person is Aanganwadi worker,
who also is a BCT employee under ICDS project and also she herself has
availed the loan.
c. Linkage of SHGs with IGAs: The groups are generally not linked to any IGA.
In 15 villages wage employment has been provided for Carpet making. Some
individuals have gone for Buffaloes, Goats, and sewing machines. In one
group a cheque of Rs. 25000/- was given before us for ‘Medical store.’ On
asking the member it emerged that her husband is a quack and Rs. 20,000/- of
the loan amount will go for making campus wall of the house.

d. Monitoring of the groups: As of no there is no standard procedure for

operation of the groups, group meetings, loaning, utilization monitoring,
recovery, MIS or employee manual.
e. Timely disbursement of credit: BCT feels that documentation for obtaining
loan is not proper on the part of SHGs, owing to illiteracy of the members.
The BCT staff visiting the groups for getting the documents is shared with
other projects and is not properly trained. The incomplete documents are not
completed in subsequent visits of the same staff. In some cases the A.P.O. of
SHG project approaches the groups to complete the documents. After passing
the loan an account payee cheque drawn on RRB at village Bhorugram
(Project office of BCT) is delivered to the SHGs, which might take 7-10 days.
The banks take anything upto 45 to 60 days to collect the cheque. The
borrower has to pay the interest from the date of the cheque. BCT has no
policy to monitor the utilization of the sanctioned amount.
f. Operational costs: The spread obtained is only 3%, which may not sustain a
separate infrastructure. For getting cheaper credit, BCT may have to look for
alternate sources, which again may demand a bigger turnover. For achieving
the same, the BCT will have to establish linkages with more borrowers by
involving them into IGAs and thus build their capacity to repay.
2.6.14 Policy approach: At present there is no loaning manual and till now no one has
been refused loan. There is no prioritization for sanctioning the loans. No
verification of loan utilisation is done. The present situation is that of surplus
loans as BCT accepted offers of all the three FIs and was unable to meet the
enlarged targets. As the operations move towards a mature phase the
organization will be required to show more prudence towards the distribution
of loans. Development of a proper MIS will reduce the reporting delays and
will perpetuate to enforce a better credit discipline.
2.6.15 Willingness of institutions: NABARD has the target to cover one third of the
rural population in Rajasthan and therefore will most likely extend its support.
Already BCT has some talks with NABARD for obtaining another project of
forming 250 SHGs for Rs. 4.5 Lakhs. The banks have recently extended credit

ceiling of the SHGs ten times their savings, in place of four times hitherto.
This step might reduce the pressure on BCT to extend credit. However this
challenge may be overcome by providing better services. FIs may also provide
support in the form of providing 5% operational costs as envisaged by BCT.
The FIs are ready to extend credit support for enlarged operations of BCT.
The Union Budget 2005-06 has several positives for the Indian microfinance
sector. The initiatives to promote microfinance institutions (MFI) are a step in
the right direction in channeling credit to the economically challenged.
Qualified NGO-MFIs may now be eligible to access external commercial
borrowings (ECBs), enabling them to diversify their funding profile. This will
restore the position that prevailed before September 2002, when the ECB
window was closed for NGOs. Prior to that, a number of MFIs and NGO-
MFIs in India were able to access attractive long-term subsidised funds from
several social funds from the USA, Europe and other countries. The reopening
of this funding avenue will enable additional flow of funds to the sector,
which critically needs low-cost funds to reach out to the economically
challenged in rural and semi-urban areas. At the same time, this would allow
in foreign microfinance investment funds that are keen to increase their
exposure to Indian MFIs.
2.6.16 The move to allow commercial banks to appoint MFIs as "banking
correspondents" is expected to strengthen bank-MFI relationships and enable
MFIs to reach out to more rural people. Over the years, successful MFIs have
demonstrated their appreciation of local dynamics, enabling them to offer
customised services tailored to local needs. In a situation where an estimated
70 per cent of the rural poor do not have a bank account and 87 percent have
no access to credit from a formal source, this move will enhance the access of
the rural populace to formal sources of finance.
2.6.17 While some large MFIs are already channeling insurance for their customers,
the proposal to invite MFIs, NGO-MFIs and other entities as micro insurance
agents will translate into benefits such as improving insurance density and

mitigating credit risk for MFIs. It will enable MFIs and NGO-MFIs to
generate fee income.
2.6.18 BCTs own assessment for forming an MFI: BCT has made up its mind to
create a separate wing for MF operations and also to rectify the present
operational problems. It pursues that initially the demonstration effect takes
some time and the awareness of the public towards developing an additional
source of income will take both time and faith in the process. However the
BCT believes that they will be able to identify IGAs that will engage the
people of this area. The proposed structure of MFI with separate establishment
brings a running cost of about Rs. 20 Lakhs, which demands a turnover of Rs.
8 Crores.
2.7 INPUTS RECEIVED

2.7.1 Issues Identified By the Project Director Mr. Amitava Banerjee
a. Problems with present activities: There is no consistency in performance of
SHGs; they are classified as very good, average and not so good. The
documentation part is not satisfactory because of illiteracy of members. It is
difficult to find and retain a full time micro finance specialist and qualified staff in
this remote area.
b. Purpose of setting MFI wing and Expectations from it: BCT wants to provide
wide services of savings, loans, and insurance. The purpose is to empower
people by increasing their supplementary income through micro enterprises and
other IGAs. The Trust wants to build a larger outreach and provide easy access to
loan looking into the urgent needs of the people. They also want to include
micro-insurance products in their portfolio.
c. Challenges: The literacy levels of the target group (women of 40-45years age) are
low. There is need for their training and proper monitoring. At present many loans
are taken for social obligations and non-productive purposes. There is also a need
to identify IGAs like handicrafts, where upper end buyers might be available, and
establish market linkages with them.

d. Scaling up: All stake holders in the process, the FIs, Government system, banks
should partner in the process. The Trust is expecting support for enhanced
operations from SIDBI, ICICI, and ABN-AMRO. With the increase in SHG
loaning to ten times their savings, the competition is seen from the Commercial
banks. The necessary resource support is seen as managerial staff, trained field
staff, and a proper MIS for effective monitoring. The Trust also wants to consider
loaning for short term immediate needs, alongwith present system of 24 months.
They also want to link the loans with appropriate insurance product to safeguard
the family. The premium can be adjusted by charging a processing fee on the
loans.
2.7.2 Points Emerged In Discussion with Project Manager Dr. R.P. Bisht
a. BCT was mostly dealing with social issues till now and could not pay full
attention to the MFI activities. Financial trends of the MFI business are normally
confusing. BCT is under dilemma between the SHG and the individual loaning
models. There is an urgent need to standardize the loaning process and to develop
an operating manual for SHG by consolidation and revision of existing
regulations. For system development and improvement, the grading system of
SHG is to be revised and consolidated to suit the local needs. MIS is needed to
reduce the transaction cost of the BCT. MF operations emerged as a reaction to
the resistance of banks to lend to SHGs. MFI operations have a goal to increase
outreach to poor, by accepting savings at 5-6%, as compared to 3-4% by banks
and to provide cheaper funds than the present rate of 12% at about 9%. The future
plans are to leverage fixed cost by scaling the operations and attain sustainability.
Also there are plans to provide seasonal loans to farmers for agriculture
operations, which can be repaid in one single installment at the time of harvest.
b. There is need of a marketing expert to develop forward and backward linkages to
markets, some of the projects identified are Embroidery, Ready-made garments,
Carpet making, and dairy which was operational programme in the past in
association with RCDF. This is still seen as a potential IGP.
c. In case of micro-insurance specially designed products suitable to local needs can
also be designed. Earlier under the ICDS project ‘Raj-rajeshwari’ and ‘Jan-Shree’

schemes were introduced as group insurance. Also the changing needs of the SHG
members can be ascertained for better understanding.
d. For better interaction with SHGs there could be a concept of a ‘Resource center’
between 10-12 villages. This can serve as a contact point to the outside world,
where village level trainings can be arranged and any material meant for
distribution can also be placed there to save the transportation cost.
e. The orientation and mindset of the staff will have to be changed to carry forward
the MFI operations. The schedule of SHG meetings is not available ion the BCT
office and it is with the lady supervisor who visits them. The BCT only has the
movement details of the supervisor. The skill set required for an employee is
i. Command over local language
ii. Exposure to process of group formation
iii. Orientation towards NGO work
iv. Training for continuous motivation
v. Understanding of financial management of SHG (for P.O. level)
f. MFI to operate initially for the SHG members and later on individuals can also be
added. The plan is to spread the MFI operations to Rs. 3-4 Crore. At an average
loan level of Rs. 25000/- this would mean 1200-1600 beneficiary households. The
leakage of loan is understood even by the NABARD and the Commercial banks.
At least a part of the productive loan goes towards consumption and therefore the
value of loan can be proportionately enhanced to ensure asset building. At present
there is no strict provision of asset verification at the NGO level and it is assumed
that the loan is utilized for the purpose that it was taken. ICICI and SIDBI are
already partners in the present MFI operations. There continued support is
expected for the up-scaled level of operations. There is an ongoing NABARD
project for SHG formation and another project may be granted to BCT after
achieving the present target. The area of operations will be mainly Rajgarh and
Taranagar blocks.
g. Based on the present achievements the speeding up and enlargement of activities
has the ‘Potential’ (capable of coming into being or action). Scaling up of the

operations from the present level across the breadth and depth is the ‘Scope’
(Sweep or reach possible to range opportunities) of the operations.
h. The causes of SHG failure are
i. Lack of dissemination of proper information about group procedures at the
time of group formation.
ii. Apprehensions about the fate of deposits.
iii. Disparity in socio-economic status of group members.
iv. Improper and inadequate guidance and monitoring of groups.
v. Meetings of the groups are not held on timely basis.
vi. About 25 groups have become defunct by now.
2.7.3 Views of Mr. Balwan Singh Project Coordinator of BCT and Project
Officer of SHG Project
a. BCT already acquainted with SHG system. There are differences in
attitudes of banks. RRBs are friendlier than commercial banks. Although
SBBJ is the lead bank in the region, most of the accounts of BCT
promoted SHGs are in MKGB. Banks pay less attention to the customers
and there are long queues on the bank counter. Therefore BCT wants to
work as MFI to serve the poor. BCT wants to get registered as MFI and
looking for suitable from and method of registration. Target for next one
year is distribution of Rs.2.0 Crore. However no policy is developed and is
at the in-house discussion stage.
b. Reporting system is poor. BCT needs proper HR planning for specifying
job roles and work allocation. There is a requirement of manpower
planning for taking the business to Rs. 2.0 Crores in one year time frame.
BCT needs consultancy for a period of 2 years with a frequency of 1-2
months. In 1999 BCT formed 150-200 groups by themselves. In Later
part of 1999 BCT got a project from NABARD to form 250 groups. The
same has been completed and the second phase of another 250 groups in
under process. BCT is forming groups from generally well-off section, as
they perceive non-sustenance of BPL groups. NABARD has now

sanctioned a grant of Rs. 1000/- to each SHG. In future also BCT is

willing to carry on group formation, even without outside assistance.
2.7.4 Points Emerged In Focused Group Discussion with Ms. Darshana Poonia, Ms.
Kanta and Ms. Samjho Devi
a. In village ‘Neema,’ SHG members are active on social issues. They successfully
intervened in the family of a member, where the husband used to drink and beat
his wife. In village ‘Mithi Redu’ other members of the group are emerging as
second line of leadership. The SHG members in general are not aware about non-
life insurance schemes. The revived groups are able to retain 50% of the
members. Whenever a new member joins an existing group, she has to deposit an
amount equal to the present savings status of other members. Marriage
ceremonies of a boy or a girl make a spending of Rs.50000 to Rs. 60000. An
agriculture loan for sowing or a consumption loan amounts in the range of Rs.
1000 to Rs. 1500/-. Around ‘Makar Sakranti’ (mid January), there is shortage of
food and therefore members need a loan at that time. The cooperation and
cohesion among the SHG members is low and therefore only individual economic
activity is possible. Further the women do not find any free time from their
routine HH activities.
b. Till now BCT has organized 2-3 exposure visits with 25- 30 members on each
trip. The loan is given to a member in accordance with her paying capacity. One
working as agri-labour will be getting upto Rs.2000-Rs.3000. Similarly Daily
wager having regular permanent employment gets Rs. 5000/-. The lady
supervisors (13 nos.) of the ICDS programme are also looking to the SHGs.
Below them in the hierarchy are ‘Sathin’ at Panchayat level. Next at the village
level are the Aanganwadi worker, Sahayika, and Sahyogini in that order.
Normally one of the village level workers is a member of a SHG in the village
and is also the key person and post holder in SHG.
2.7.5 Field Visit With Mr. Rakesh Dubey (Cashpor-Varanasi), Mr.Neeraj Verma
(Aravali), Ms. Darshana Poonia (BCT) And Mr. Roshan Ali (BCT).
a. Conversion to full-fledged MFI needs an orientation to delink from social issues.
There is a need to provide an institution and a MIS for proper working of MF

operations. In rural areas the MFI loan portfolio normally contains 40-50%
exposure to AH, 20-25% to trading activities, and 10-20% for artisans. There is a
need to promote livelihood programmes in the operational area of BCT, alongwith
the wage employment schemes like Carpet weaving being promoted in the area.
For proper coordination there can be a resource center between 10-12 villages
having 6-10 field workers. Default in loan repayments arise due to inefficient staff
(slack in monitoring) and no utilization of loans for the actual productive purpose.
b. Problems with SHG model as compared with CASHPOR operational area
i. Demonstration effect is low as maximum of 2-3 members get the loan and
others wait for their turn. It usually comes after 2nd cycle of loan. Their
mental faculties are tied to the opportunity of loaning and they fail to
conceptualise suitable IG activity in absence of loan. Groups that are
formed for namesake and for the benefit of select individual tend to
default, as there is morally no shared peer guarantee to repayment.
Recovery of loans is 95%. The spread obtained is averaged at 3% and
thereby it is difficult to obtain sustainability of operations.
ii. No incentive is given to staff for group formation, linkages or loaning.
Focus is needed on HR policies and legacy issues in the organisation.
SHGs are used to carry different programmes run by BCT. The field staff
is not exclusive to SHG programme and is not properly acquainted with
the accounting procedures and record keeping of SHGs. Delegation of
responsibilities is required in BCT. For better working efficiency officers
and the staff should be at the same wavelength of thought process.
iii. Grading procedure had some mistakes like allocation of more marks to
improve the grading and thus enabling disbursement of loan. When the
targets for disbursement are to be met the staff is under heavy pressure of
work. It was pointed in discussion with Ms. Darshana Poonia that the
grading norms may be changed according to actual field conditions like
the number of members in a group may be less and therefore the
attendance in absolute number terms will always be less. The average time
for processing of loan request is two months. The minimum time for group

loan is 20 days. Sometimes the processing and disbursement is very fast

like in individual loan the amount is delivered the same day.
iv. Sub-loaning to Field Level NGO (FNGO) at Mithi Redu has been done at
12%. The FNGO might lend at 15% to the end user. They were forced to
take money from BCT due to onward commitment and instant shortage of
funds. The actual agreement was not present in the file.
v. Discussion with Dr. Vimla Sahoo, Project Officer, and SHG Project
indicated that the loan is to the individuals through the group. There is no
joint income generation activity by the groups, which might prevent
filtering out of very poor from the process. Therefore the comparatively
well off are repeatedly getting chance to avail the loan. Also discussion
with Ms. Darshana brought the fact that more aware and initiative seeking
members avail the loan more frequently.
vi. The accounting procedure does not reflect the bifurcation of the principal
and the interest amount in the books. This was seen in the case of
‘Bhaboota Sidha’ SHG from the village ‘Jor Ji Ka Was.’ The Yuva Ekta
SHG of village Lalpura has taken loan in February 2005, but deposited the
1st installment in July only.
2.8 FOCUS GROUP DISCUSSION

A Focus Group Discussion with 35 members of various SHGs was conducted in village
Nangal Badi on July 12, 2005. The members join an SHG for different purposes like
savings, awareness, and desire to come out of traditional way of life. The changes that
they perceive because of their association with SHG are opportunity to save, increased
awareness, and putting signatures in place of thumb impression. Some members need
another loan for Rs. 20,000/- to start an IGA like Flour Mill. They perceive that any IGA
would require an amount of that order. They also listed some other activities like Sewing
Machine, Carpet making, Dari making, Soap making, and horticulture. However they are
not aware on the success rate of these ventures. The activity of Soap making was taken up
in one village, but it could not be sustained because of low quality product and lack of
expertise. The members are able to get loans from the savings of the SHG itself within 1

day. The time required to get the same from BCT or bank is anywhere between 10 days to
1 month under normal circumstances. As of now the members do not perceive any delay
beyond 1-2 days in getting loan from SHG. In case of BCT sometimes the delay is upto
75 days counting from the day application is made to the SHG to actually getting money
in hand. This includes paper formalities and loan sanctioning at the BCT to the delay in
clearing of cheques. For loan disbursement the formalities required at the bank includes
an agreement on stamp paper of Rs.50/-, the copy of SHG meeting recommending loan to
that member, and a recommendation letter from the BCT. Thus for availing a loan of Rs.
10,000/- the member has to spend upto Rs. 300/- on formalities and travel. Here the
opportunity cost of the lost man-days and also that of lost IGA is not quantified or added.
The priority of members as a source of loan is to SHG, BCT, bank, and moneylender in
that order. They feel comfortable paying interest rates of 24% per annum, given a hassle
free loan. There are various difficulties in getting loan from the moneylender. He
charges interest rates of 24% to 36%, which might further increase as per the urgency of
the loan and creditworthiness of the loanee. The moneylender may additionally insist on
an agreement on stamp paper, and keep the documents of the agriculture land or house as
an assurance of repayment. In case of default in timely repayment he will give threats to
summon them in the village ‘Panchayat’ on the issue. Also the moneylender may go in
for forcefully lifting the agriculture produce from the field itself after harvesting of the
crop. He may also force the loanee to enter into a selling agreement for the agri-produce
at a price lower by 6-7%. For example ‘Grams’ that sell at Rs. 1500 to Rs. 1600 per
quintal, will be taken at a rate, which will be lower by Rs. 100 per quintal. The members
felt that unlike moneylenders, the BCT does not pester them with repayment demands.
They are having a faith that BCT will provide them a lease of time, if they happen to be
in a difficult situation. The members find that many people in the village, other than the
SHG members are in need of loan for productive purpose. Some people have purchased
Goats or other livestock by borrowing money from moneylenders. It is felt from the
discussion that BCT has an opportunity to enhance its role in providing credit, but at the
same time it is desirable to enforce credit discipline in practice and in the minds if the
SHG members. The members are willing to pay interest upto 24% per annum if the BCT
provides ease of documentation and early disbursements, to the SHG.

[TABLE 4: Here]
2.9 INERVIEWS
2.9.1 Interview with Branch Manager of Marudhar Kshetriya Gramin Bank (RRB),
Sadulpur, Churu, on 14.07.05.
Discussion with Mr. K.K. Khandelwal, Branch Manager of Marudhar Kshetriya Gramin
bank, focused on the needs and priorities of SHGs, their repayment performance, and role
of BCT. He told that the bank is giving loans to SHGs for the last 5 years and the present
rate of interest is 13% per annum. The loan is given upto 4 times the SHG funds,
irrespective of whether it is lying with the bank or used for lending by the group. Thus
effectively the SHG has an access to 5 times its savings. The branch has 19 accounts of
the groups promoted by BCT, and the loan advanced to them is Rs. 2.14 Lakhs. He said
that sometimes the loan is repaid by the members much earlier than the schedule, and in
other cases the monthly installments are deposited quarterly of half yearly. Although till
now no amount has fallen into bad debt. The SHG members are mostly illiterate making
the operation of bank accounts difficult for them and also for the bank. He said that the
bank personnel have to go to the different villages for grading of the groups. In the
process of grading they also take the help of BCT, as BCT form the groups and as such
are better informed about the groups than the bank. Regarding the distance of the branch
from the villages and possibilities of opening extension counters, he said that the people
have to come to the town for various reasons and therefore do not have to take any
additional efforts to operate the bank account. The members either themselves or through
some other person of the village, are able to operate the account. Also he told that the
bank procedures and operational difficulties, does not allow the bank to go for such
ventures. Discussing on the issue of BCT decentralizing the distribution of loan, he told
that if the BCT wants to transfer the funds across their branches the charges levied by the
bank are the following.
[TABLE 5: Here]

2.9.2 Interview with Branch Manager of Bank of Baroda, Sadulpur, Churu, on

14.07.05.
Mr. V.K. Jain, Branch Manager was available in his office and shared his views on the
working of the groups, their dealings with the bank, and the causes of default in a SHG.
According to him the prerequisite for proper functioning of the groups is the formation of
groups as per the established norms. If the group is heterogeneous, the possibility of
malfunctioning and consequent defaults also increases. In case the formation of the group
is based on vested interest of some members and others are acting as sleeping partners,
and do not want to utilize the facilities, the group will not persist beyond the first loaning
cycle. He said that there are instances when more than one member in the group is from
the same family. This puts the repayment burden on one family and also reduces the peer
pressure for recovery of loan amount. The cohesion in the group will be better if there is a
joint activity like dairy farming. Discussing on the advances extended by the bank, he
said that as the thrift of the group increases, the bank also extends the loaning exposure to
the group. He said that the SHG should have norms for delay in repayment and the group
can charge to the members a fine of Rs.5 to Rs.10 per day. This will help to inculcate
credit discipline among the members. Talking on the interaction of the groups with the
bank he said that the SHGs are better than the other customers to deal with, however
there are some defaults made by the groups and the present recovery rate is 90%.
2.9.3 Interview with Branch Manager of State Bank of Bikaner and Jaipur,
Sadulpur, Churu, on 14.07.05.
Mr. B.L. Agarwal, Branch Manager was present in his office and talked about the
performance of the SHGs and the loaning procedure to them. He said that there are nine
accounts, of BCT sponsored SHGs in the bank, and out of which loan is given to 7
groups. One account is dysfunctional after the default made by the group. He said that
the group members should be of similar socio-economic status for proper functioning of
the group. He said that the recovery of the groups is not timely, and the bank faces
difficulty, as there is no security of the money being lended. He said that if the groups are
formed of members with low economic status and they are not pursuing any income
generation activity, it becomes difficult to recover the loans. He added that the bank staff

is heavily loaded with work and therefore could not form any SHGs at its own even there
is a provision of incentive to the branch on making 100 SHGs.
2.9.4 Interview with Area Manager (Rajgarh, Taranagar, Sardarshahar) of
Marudhar Kshetriya Gramin Bank (RRB), at Bhorugram on 14.07.05.
Mr. D.D. Agarwal was on a tour to village Nangal Badi (Bhorugram) on July 22, 2005.
The branches of MKGB are spread within an average distance of 13 Kms and therefore
they have a good reach to the villagers. He told that the bank is happy with the
performance of the SHGs formed by BCT as the repayment rate is 90-95%, and there are
no bad debts. He told that the lending rate of the bank to the SHGs is 13%, which is on
the higher side as other banks are charging between 10-12%. The RRB has a running loss
of Rs. 59 Crores and therefore wants to cover up the losses. In case of MKGB the annual
advances to rural sector (Farm and Non-Farm activities) is Rs. 5.0 Crores in 3 blocks of
Churu district, Rajgarh, Taranagar, and Sardarshahar. Out of this Rs. 60.0 Lakhs is given
to SHGs formed by BCT, which comes to 12% of the rural business of MKGB. The bank
can also lend to BCT at 9% for onward lending to SHGs. Mr. Agarwal was
uncomfortable to know that the cheques of loan disbursement issued by BCT take upto
45 days for collection between branches. He stood firm on his estimate of one week for
the same.
2.9.5 Interviews and Discussions
Interviews and discussions with SHG members, non-members, and BCT employees
provided valuable inputs. Informal discussions and observations were also used. Various
staff meetings of BCT, training programmes for employees and SHG members,
inspection visits by CARE team, exposure visit by CAPART team, and Orientation by
CASHPOR team were also attended.
2.10 LIMITATIONS OF STUDY

The study was constrained by the interpretation of problem definition at the two ends.
The organization was initially of the opinion that it has access to sufficient funds to make
onward disbursements and therefore is interested only in a baseline survey of credit need
assessment at the village level. Also that it does not want to include operational issues of
MFI into the study. In fact beginning March 2004 the cumulative loan disbursements are

to the tune of Rs.34.0 Lakhs only while the initial estimates of BCT was to extend credit
of Rs.6-7 Crores in a year. For the same reason BCT felt that there is no need to seek
opinions of funding agencies or NABARD, and therefore the same are not included in the
study. As far the opinions of non-members of SHGs, BCT had an opinion that the people
in the area are not very much aware to talk on the issue and therefore the same may be
conducted with the members of the CIG formed by BCT under the DPIP scheme.
However this could not be conducted and the researcher has included the opinions of
some villagers (Females) on the issue. The financial data on microfinance operations
could not be obtained and is therefore based on triangulated opinions.
2.11 CHAPTER SCHEME

The report is divided in four chapters. The first chapter is about the host organization,
Bhoruka Charitable Trust (BCT), and serves as an introduction to the present activities of
the trust. This includes the developmental activities of the trust, as also its present
microfinance activities.
The second chapter deals with a framework developed to study the scope and potential of
setting up a microfinance institution by BCT. This incorporates various tools of theory as
applied to the particular circumstance.
The chapter three is about the Potential of SHG intervention on community. It includes
the understanding and involvement of the community with the programme. There are
some interesting case studies in the chapter on some SHGs and also interviews and
opinions of stakeholders. The present operations of microfinance taken up by BCT are
also detailed here.
The concluding chapter four of the report deals with the challenges and operational issues
in carrying forward the microfinance programme by BCT. Also included in this chapter
are the recommendations to the BCT for smoothening there operations under the
microfinance programme.
CHAPTER-3

POTENTIAL OF SHGS INTERVENTION ON COMMUNITY
3.1 INTRODUCTION
SHG movement opened up a new vista in the country to address poverty and especially
the women empowerment issues. The concept has provided banking facility at the
doorsteps of the underprivileged and served, as a means to address their credit needs. It
provides the flexibility of operations, both by way of timing and the amount. With the
major emphasis in the program on forming the women groups, the dependency of women
on their male counterparts for small sums of money has been reduced. The SHG concept
has gone beyond the concept of mere savings and credit, and acted as an influencing
group in the social circles of the villages. It has also tried to balance the social equation to
some extent and has provided an identity to the women. This way the formation of SHGs
has given a platform to the developmental agencies for making other interventions. There
are various agencies involved in the process with different mandates like promotion,
financing, capacity building, implementation, and facilitation at different levels.
(Teaching Notes of H.S. Shylendra: 2004)
In the Churu district of Rajasthan, Bhoruka charitable Trust (BCT) adopts an approach
that considers SHG as 'Developmental Unit,’ to fully capture the potential of the SHG
movement. The Trust states its objective behind promotion of SHG as to promote
savings, facilitate micro-credit, and income generation activities. The SHGs are running
in co-ordination with the ICDS and NFE workers. The formation of SHG helps to
generate funds within the group. Each group consists of 10 -20 members. A self-help
group promoted by the Trust has an optimum number of 12-13. The Trust finds that
taking the group size to 20 will make it difficult to ensure full attendance in the meetings,
which are held on a monthly basis. Also keeping the number at minimum of 10 will make
it difficult to complete the quorum. The members themselves decide the amount of
monthly contribution. More than 90% of the groups have all women members who
belong to poor families and are illiterate. Every group holds monthly meeting regularly
and each member contributes up to Rs. 50 per month. Involvement in the group activities
make every member self sufficient by inculcating the habit of saving. Loans are

sanctioned in the group meetings and the amount is determined according to the need and
the repaying capacity of the member. In each groups there are three posts, President,
Secretary and Cashier who are authorized to deal with the bank on behalf of the
members. Most of the members do not have proper knowledge of the SHG activities.
SHGs get loan from banks as well as BCT at 12 to 13%. The members are charged at
18% and non-members at 24%. Loans are taken mainly for household activities rather
than for the income generation activities. According to the Trust some of the justifiable
needs are marriage, purchase of animals and illness. The Trust believes that a group also
aims at improving health standards and developing educational activities for the
community.
3.2 THE COMMUNITY

Most of the villages are in remote area, but have electricity facility. The shortage of
drinking water is now met through Apni Yojna for the last 4 years and the project is in the
process of covering more villages. Most of the villagers have large un-irrigated land
holdings and have ‘Pucca’ houses. The ‘Purdah’ system is prevalent among women. The
women bear the double burden of household chores as well as the work in the fields. The
males who enjoy the decision making power in the family are mostly seen playing cards
and gossiping. The girl child is socially restrained as can be seen from restrain on joining
HIV-AIDS rallies. The rate of migration is high and so is the prevalence of HIV-AIDS.
People of this area have faith on the activities of the Trust and provide support it at the
community level. The Trust has helped to improve the economic as well as the social
status of the region and particularly the women through various interventions.
3.3 PRESENT STATUS OF SHGS (UP TO MAY 2005)

BCT got approval of NABARD for forming 250 groups in the year 2000. NABARD
assistance given in the project was Rs. 3.84 Lakhs. Another proposal of 250 groups is
now accepted, with a grant of Rs. 4.5 Lakhs.
[Figure 3: Here]

[TABLE 6: Here]
3.4 FUNDING AGENCIES

These agencies are evaluating and monitoring the progress of the projects and the
expenses made on the project at regular intervals. Different funding organizations have
different conditions for funding, which are as follows:
a. NABARD: It provides incentive to the NGO for successfully
implementing different stages of SHG. The incentive for formation of
SHG is Rs.460 per group, for bank linkage including loan Rs 616, for
recovery of loan per group Rs 39 approx. After successful implementation
of first project of 250 groups for Rs. 3.84 Lakhs, BCT has been awarded a
project to form another 250 groups for Rs. 4.5 Lakhs by NABARD.
b. RMK: It laid down conditions for loaning is that 2% of total amount can
be given for household activities and other 98% for income generation
activities. There is a cap of charging not more than 12% interest from the
SHGs. BCT has deposited a cash security of 5% of the amount sanctioned
to it.
c. SIDBI: Loan should be given for micro enterprises or for the development
of small-scale industries. The loans can be given to individuals also.
SIDBI has given a capacity building assistance of Rs. 9.74 Lakhs, to be
used for training, computers, and motorcycle purchase.
d. ICICI: 98% of the amount has to be given for productive purposes. A cash
deposit of 10% of disbursements by way of fixed deposit is made at
5.75%. The role of BCT is of intermediation with the loanee, and to
provide a counter guarantee to cover any default in repayment.
[TABLE 7:Here]
3.5 REPORTING SYSTEM OF SHGS

a. SHGs have their own reporting system, and normally the SHG members prepare their
own records with the help of field workers, especially for making entries of financial
transactions. The records include:
o Minutes Register for meeting,
o Cashbook,
o Individual Pass Book,
o Ledger Book,
o Bank's Pass Book
b. BCT has the separate reporting system. It has two parts, Field level File, and Project
File (all the correspondence with the Funding Organisations and as well as with the
Government).
c. In field level every supervisors have to submit their monthly reports to the APO or
PO (Project Officer). PO makes the compilation report of the whole project and
submits to the Project Coordinator (PC). PC discusses the whole reports to APO and
PO and also gives report to the higher authority and as well as Funding Organisation
as per their requirements.
d. Although this reporting system is same for all the projects in BCT, but it may vary for
different funding organizations. For example BCT submits monthly and quarterly
reports to RMK (Rashtriya Mahila Kosh). In NABARD project, apart from the
regular reports there is a Project Implementation and Monitoring Committee (PIMC)
meeting held every month. Here the chairman of various banks, representative from
NABARD, Lead bank officer and BCTs project Coordinator jointly make the project
evaluation and discuss the problems faced during the implementation. The Micro
finance activities of the Trust are also expanded with the NABARD assisted SHG
project.
[Table 8: Here]
[Table 9: Here]
3.6 MICRO FINANCE OUTREACH

BCT is carrying its MF operations with an aim to reach maximum number of

beneficiaries. BCT wants to increase member exposure to loans by way of savings
generation.
[Table 10: Here]
3.7 CASE STUDIES

3.7.1 Case Study of Laxmi Bai SHG at Village Radwa:
a. Started 06.01.2001 with 13 members, at present the number of members is 11.
Treasurer and key person of the group is Ms. Nirmala.
b. Loan given to 4 members of the group till now. One member availed loan of
Rs.5000/- for tailoring. She gets stitching for two dresses on an average, and is
now getting Rs. 60/- per day. Other members of the group also want to avail
loans. Angoori and Sunita want loan for house building.
c. Monthly meeting lasts for 2-3 hours but the proceedings is written down in 5-6
lines only. The women find no time for a weekly meeting owing to household
work like fetching water. Only 4 members are attending the group meetings
regularly. These are those members who have taken loans.
3.7.2 Case Study of Shyamji SHG at Village Achhapur:
a. There are 10 members in the group. The President of the group is Ms. Rajwanti
was delivered a cheque of Rs 25000/- by BCT staff in our presence for the loan
availed by her name from the SHG. Husband of Rajwanti is a ‘Jhola’ doctor
(Bare-foot doctor). The loan is availed in the name of medical store. She told that
Rs. 5000-7000/- would go towards purchase of medicines and the remaining Rs.
18000-20000/- would go into building the campus wall of the house. She is
already having a Pucca house, telephone, air coolers, and a fairly good standard of
living. All this indicates poor selection process. Earlier one member took a loan of
Rs.11000/- to repay her installment of loan on tractor.
b. From the joint family of Ms. Rajwanti, 4 are SHG members. Another one has
taken a loan of Rs. 35000/- to open a general store that actually cost them Rs. 1.5

Lakhs. At present these are the 2 live loans. Initially the group members were
reluctant to deposit Rs. 20/- per month. It was suggested to the group during the
interaction to increase the number of members in their group.
3.7.3 Case Study of Jai Shiv Shankar SHG at Village Kanjan:
Out of 11 members only one was present for interaction on July 06, 2005.She was
Ms. Reshma who is the key person and the treasurer of the group. The age of the
group is one year. Monthly contribution per member is Rs. 10 per month and
saving of the group is Rs. 900/-. Meeting is held on 6th of every month, but today
the group members were busy, probably in sowing operations. Motivation of
group formation is probable need of loan. The broader objective of group
formation and SHG movement are not clear to members.
3.7.4 Case Study of Srimati Santoshi Mata SHG at Village Ghanau:
a. The group has 15 members from Rajput and Swami Community. The meeting is
held at Carpet center of BCT as intermingling between the groups is low. The
Rajput members do not want to go to the houses of Swami Caste members. The
key person is the treasurer Ms. Pritam Kaur who is also the Aanganwadi worker.
She was not present not being in the village at that moment. 8 members of the
group were present for interaction. Pritam Kaur has taken a loan for Rs. 15000/-
for STD-PCO booth. 3 other members have taken loans of Rs.1000/- each, 1 for
household purpose and two for Goatary. There was no deposit of member
contribution amount in the bank. It was found that the amount has been utilized
for internal loaning in the group. The saving of the group is Rs. 4000/- and the
monthly contribution is Rs. 20/- per member per month. There are 2 internal loans
of Rs. 300/- each for which no repayment installment is received even after 4
months of loaning. This indicates absence of group norms.
b. The accounting system is not proper and the cashbook does not have matching
entries of interest amount received from members, while the same exists in the
individual loan account. The amount of on interest not entered in cashbook falls
under cash in hand and the members have no knowledge about its utilization. This
indicates low financial transparency in the group.
3.7.5 Case Study of Jai Bajrangbali SHG at Village Hansiawas:

a. Hansiawas village has 475 households and a population of 2700. There are 16
SHGs in the village including some male SHGs. There are 11 members in the ‘Jai
Bajrangbali’ group. 8 members of the group interacted with us. 3 members of
another group named ‘Santoshi Mata’ group were also present in the meeting. The
group is running from 2002 and the members have monthly savings of Rs. 20 per
member. The group got its first loan of Rs.6000 from the RRB (Marudhar
Regional Rural Bank). The group provides credit of maximum Rs.25, 000 to its
members for 1 year and at 18% p.a. The group has not taken up any income
generation activity. There are no influential members in the group and all of them
belong to the same socio-economic strata. During the interaction of the group
with the BCT personal from time to time the members have been informed about
the hygiene, Vaccination and the education of the girl child. One-month back a
fine of Rs. 20 was collected for the first time in the group. It was for delay in loan
repayment. There is a provision for imposing a fine of Rs.2 for non-attendance in
case of ordinary members and Rs. 5 for post holders.
b. The group members were aware about their surroundings and the day-to-day
happenings in the village. The group members told that there are 2 Aanganwadi’s
in the village for children of age more than 5 years. The children are given food
but no education is given there. The pregnant and lactating mothers are given
uncooked Wheat, Rice and Soya-Oil every 15 days. There are 2 Sewika’s and 2
Dai’s in the village and 80% of the children are born at home. The awareness
about immunization of the children of age group 0-6 years is low in the village,
except that of Polio vaccination.
c. The girls of the village go for higher education (senior secondary) to nearby
Digadla village. At present 5 girls and 9 boys are going there by boarding buses.
For college education they are going to Rajgarh town.
d. For availing health services they approach Aanganwadi centre, Local clinics,
Rajgarh town (35 Kms), and Hisar (70 Kms) in that order. The sanitation facility
(latrines and bathrooms) is available in 50% of the houses only.
e. On going through the records of the SHG we found that the Secretary of the group
Ms. Maya Kaur has an outstanding loan of Rs. 40,000 for 2 years that she has not

repaid. On making an inquiry from the group it was found that she took the
consent of the group for a loan of Rs. 20,000 for daughter’s marriage, but as other
members are illiterate and she only keeps the records, she actually took the
increased amount of Rs.40, 000. She is still the secretary of the group and meeting
of the group are also held at her place.
f. We did a Venn diagram and accordingly the group identified various sources of
credit in the order of priority as
(i) SHG group members in their personal capacity
(ii) Relatives (No interest)
(iii) SHG
(iv) RRB (Rajgarh or Sidhmukh)
(v) BCT (Nangal)
(vi) Moneylender (24% p.a.). Sources other than moneylender charge
interest at the rate of 18% p. a.
g. There was an old lady in the village and was also present during the interaction.
She is living alone in the village and lends money to women in the village at 24%
p.a. interest. This is the only source of her livelihood.
h. We also did a seasonality of credit with the help of sticks and found that
maximum credit is required during the months of Kartik (Agriculture), Magh-
Sirsh (More food and clothing during winter), Chaitra, Baisakh (Marriages), Jeth
(Illness like heat stroke, Diarrhoea, and Asad (Sowing operations). The credit
needs are low during, Poush, Magh, and Falgun due to harvesting season.
i. We tried to do a trend analysis of the change in the socio-economic status of the
women pursuant to formation of the SHG in the village.
[TABLE 11: Here]

CHAPTER-4
CARRYING FORWARD THE MICROFINANCE PROGRAMME
4.1 CHOICE OF THE APPROPRIATE LEGAL FORM FOR MFI OPERATIONS

BCT is working as a trust and is determined in maintaining the non-profit character of its
microfinance operations also. The surplus if any generated from the operations is
proposed to be placed in the service of the target community. As the operations are
designed to collect interest charge from the beneficiaries, BCT is looking forward to
adopt an appropriate legal form for the microfinance operations. As the BCT wants to
continue as a not for profit entity the options of conversion to a For-profit entity like a
Non Banking Finance Company (NBFC) or a Local Area bank (LAB) is ruled out.
Similarly the option of a mutual benefit entity like an Urban Cooperative bank is not
feasible, the area of focus being rural areas of Churu district. Another option falling
within the purview of a mutual benefit entity is an apex body of SHGs in the shape of a
Cooperative society. There are no plans at the end of BCT to upscale the SHGs in this
shape. The SHGs have not graduated to a stage where they can handle the microfinance
operations at their own. Also the BCT wants to continue the MF operations at their end
only and not to divulge the control. Therefore the option of forming a Public Society is
also out of place. Moreover the BCT wanted to carry the lending operations in a shape to
accept savings at 5-6% and extend credit at 8-9%. But the Rajasthan State unlike Andhra
Pradesh does not allow the NGOs to accept savings. The character of microfinance
operations is of generating a surplus and therefore different from the present activities of
the trust. The BCT therefore wants to separate out the MF activity from its other
activities. This is because the tax authorities may treat lending as non-Charitable activity
and withdraw tax exemption granted to trust. At present the BCT is working mainly on
social issues and has limited experience of operating a MFI. There are 506 SHGs and 155
active borrowers. For a breakeven as separately shown BCT needs to bank with 8000
borrowers. It is advised to take a gradual approach and upscale the operations in a self-
sustaining manner. Initially BCT can get the separate MFI wing registered as a Section 25
company, under the Companies Act. This is because the ownership is by shareholders and
the control is by the Board of Directors. This is the type of control BCT wants to have on
the MF operations. There is no day-to-day control by the regulatory bodies like Registrar
of companies or the RBI which might put requirements for extra paper work and
documentation which is not possible for the operations at a small level like that of BCT.

4.2 POSSIBLE STRUCTURE FOR OPERATIONS

BCT is having its Project Office at Bhorugram. For better overall supervision and
administrative convenience, the MFI can also operate from Bhorugram. It is understood
from the discussions, that the staff and operations of the MFI will be independent from
the operations of BCT at field level. The hierarchy can meet at the Project Manager level.
4 field offices, including 1 at Bhorugram is proposed. The other 3 will be at Rajgarh,
Taranagar and Churu. Although the Churu block is not fully covered under present
operations, but various parts of Taranagar block are geographically accessible to Churu
for banking purpose. Each office will have an Assistant Project Officer to monitor and
streamline the work of 3-5 field staff. The field staff may possess their own vehicles for
greater mobility or they can be provided soft loans for the purpose.
4.3 COSTING OF PRESENT MFI OPERATIONS OF BCT

a. BCT is allocating the administrative expenses @ 5%, but the actual cost is
difficult to calculate because of overlapping of responsibilities and sharing
of facilities. The Transportation cost of the staff is also not added because
of the same reasons.
b. The future administrative expenses with 5 offices are estimated as Rs.
7000/- per office per month. The overall expenses in the Balance Sheet
for all the projects put together are Rs. 7.64 Lakhs. Accordingly the
costing is redone with an administrative cost of Rs. 5000/- per month for
present operations of the SHG project. On recalculating the operational
loss comes to Rs. 1000/- per month or Rs.24000/- for the project period of
2 years, as allocated by NABARD. This is nominal and therefore
sustainable at present.
c. In the last 8 months of operation major portion of the total loan
advancement of Rs. 34.0 Lakhs has been made. RMK funds of Rs. 12.5
Lakhs were received in March ’04 and other funds in December ’04 and
January ’05.
d. NABARD has given a project to form 250 SHGs in 2 years. The same has
been completed and another project of 250 groups for Rs.4.5 Lakhs has

been allocated to BCT. It is seen that average expenses per group for
newly formed groups, as allocated by NABARD, comes to Rs. 1500 in 2
years of time. The expenses on the groups beyond 2 years are being borne
by BCT. These include the training costs and stationery expenditure, apart
from the routine handholding.
e. The staffs of Integrated Child Development Scheme (ICDS), Lady
Supervisors and Aanganwadi workers are looking after SHG work also.
The salary of Aanganwadi workers namely Sathin, Sahyogini, and
Sahayika, of which mainly ‘Sathin’ is associated with SHG work, has not
been considered, being part time devotion and small salary of Rs. 1000/-.
Moreover the salary of ICDS staff is drawn from that project.
f. The opportunity cost of cash deposits with ICICI, RMK, and SIDBI has
not been considered. The total amount deposited is approximately Rs.3.0
Lakhs and BCT is already getting interest of 5.75% on that.
[TABLE 12: Here]
4.4 COSTING OF PROPOSED MFI OPERATIONS OF BCT

a. The proposed structure of a separate MFI wing of BCT has 3 cluster
offices outside Bhorugram. The Controlling Office and 1 cluster office
will be at Bhorugram.
b. The turnover is taken as Rs. 2.0 Crore for the first year of MFI wing, i.e.
2006. The initial establishment cost for 1 controlling office and 4 branch
offices is taken as Rs. 5.0 Lakhs. It is assumed that the controlling office
and the branch at Bhorugram will not have to pay any rent, as they will be
accommodated in accommodation owned by BCT.
c. The opportunity cost of security deposits with financial institutions @ 5%
of the turnover of Rs. 2.0 Crore i.e. Rs. Rs. 10.0 Lakhs, which @ 5%,
comes out to Rs. 50,000/- has not been taken into account. It has been
assumed that on a good track record of recovery by BCT, the FIs will
waive the condition of cash deposit.

d. The grant assistance receivable from NABARD is not included as the

same will be for formation of new groups only. Further the initial group
formation and stabilizing process takes additional efforts. The first project
for forming 250 groups was for Rs. 3.84 Lakhs and the subsequent project
for another 250 groups is for Rs. 4.5 Lakhs. Further FIs like SIDBI allow
loans to individuals and but also provide capacity building assistance.
Such assistance received might be offset against the unplanned office
expenses and future cost of capacity building.
e. There is a scope to leverage the fixed cost by increasing the turnover. The
recalculation of above at a turnover of Rs. 8.0 Crores, gives a spread of
2.92%, keeping all other parameters as constant. Taking an average loan of
Rs. 10,000/-, this would mean 8000 loanees (20 each in 400 villages). At
present there are only 155 active borrowers. The present operations are
yielding a spread of approximately 3%. At the present average cost of
lending of 9% the parity of operations comes at approximately 19%.
[TABLE 13: Here]
4.5 COSTING OF INTERMEDIATE UPGRADATION OF MFI OPERATIONS

The operations may be started from the Project Office, with the field staff being given
about 40 SHGs each. The P.O. and the A.P.O. will do the smoothening and monitoring
work by going to the respective locations. They will verify the group formation and
strengthening process, verification of loan applications and also distribution of cheques.
The field staff will be placed at respective locations. Recalculations at a turnover of Rs.
8.0 Crores the Spread needed to cover the cost come to 2.185%, which is within the
present constraints of cost of funds.
[TABLE 14: Here]
4.6 FINDINGS

The interaction with various stakeholders bring forth the issue that the BCT wants to
carry out the MF operations and also wants people to participate in the process. The
present response rate of the FIs, the loan off takes, the loan appraisal and disbursement
mechanism does not fit in. The present MF operations of BCT fall under onlending
activity. They are run in conjugation with the developmental activities of the trust. The
onlending operations are not financially viable to recoup own cost. There is a potential to
do so by putting a focused approach and by increasing the base of operations. However
attaining this potential will take a long time given the present status of SHGs promoted
by BCT. Out of the total 6115 members in SHGs only 155 are having loans at present.
The SHGs though have grown in numbers but have not graduated to a stage of forming a
federation. The member awareness about the group activities is low and scattered. At
present the BCT is finding a gap in credit needs at the consumption and smoothening
level for the loans distributed by it. The members feel that the BCT is working with them
on the social issues and therefore will not press them as hard as a moneylender for the
recovery of loans. Because of this the BCT is able to attain recovery rates only upto 90-
95%. The BCT is able to leverage its network of social intermediation to find takers for
credit. In most of the groups the BCT staff itself is the key person and also the
beneficiary in terms of availing the loan. The present level of MF operations do not
permit establishment of a full fledged MFI. Most of the lending is done for non-
productive purposes. There are virtually no linkages of SHGs with micro-enterprise
activities and BCT itself is concerned about it. Therefore although there is a scope for
creating MFI but the potential is currently limited. Further BCT wants to continue the
onlending activities as an NGO and avoid probable tax liabilities arising out of interest
income. For the purpose, BCT plans to carve out a separate entity to carry out the micro
finance activity. This MF activity will be separate from their other developmental works.
The FIs have taken deposits and letter of comfort from the parent organization TCI which
according to BCT is putting constrains in obtaining larger funds for operations.
The BCT is incurring various costs that it wants to recover from the operations but at the
same time is constrained by its own mandate of not charging more than 12% interest rate
from the members. The BCT is trying to limit its own costs by clubbing all its

programmes with the ICDS programme. The Aanganwadi workers who are recruited for
4 hours on a salary of Rs. 1000/- per month are given all the responsibility of all the
programmes at the village level. They have their own limitations in terms of time and
proficiency. In most of the cases these Aanganwadi workers are also the key persons in
the SHG and also the beneficiaries in terms of loan from the BCT. The BCT finds it
difficult to timely appraise the loan applications and disburse the loans because of
improper documentation by this staff. The staff at the supervisory level has its own
limitation in terms of skills, number and time available. The BCT is feeling the need of
one MF specialist to smoothen the MF operations and also one marketing specialist to
develop forward and backward linkages. There is one Project Officer for SHG project
who finds himself not well acquainted with the procedures. BCT is facing bottleneck
constraints on the issues of remoteness, non-awareness of IGAs among the target
population, recruiting and retaining professionally trained personnel, lack of standardized
codified working procedures, and lack of proper reporting systems in the absence of an
MIS support. The inputs from the field level show that the members are not aware of the
activities they can successfully venture into and therefore are locked into a situation in
life with not many options for livelihood in this remote desert area. There is no
demonstration effect of successful ventures taken by fellow members and the same is also
admitted by the BCT. Therefore the BCT is not able to carry the MF activity on a larger
base of active borrowers.
The area under operation has a large migrant population (about 15000) and this is a major
contributor to their expenses. Also the good rains in 2-3 years (this time there is a gap of
4 years) retains moisture for the Rabi ‘Gram’ crop and provides a marketable surplus to
the farmers. Both the factors combined generate a repayment capacity for the farmers to
repay any smoothening and consumption loans availed in between. The BCT puts the
blame on the illiteracy and inconsistency of performance of SHGs forgetting in the
process that the hand-holding is the responsibility of the BCT itself. BCT is working in
this area for 35 years (since 1973) and is trying to create awareness among the people of
this remote area through various developmental programmes. From the year 1999 it is
working on SHGs project and also trying to cater to their credit needs. Thereby BCT also

becomes a party to the lack of awareness for livelihood activities among its target
population. It can not simply wash off its hands by shifting the entire responsibility to the
people. This is particularly of relevance as now the BCT is engaged in onlending
activities to this population. The BCT also admits that it has been committing most of its
energy on social issues and therefore could not pay attention to the development of the
MF activities. The immediate areas for attention are the standardization of SHG
procedures and SHG linkages with the IGAs. The broader and long-term objective of
starting the MF activity is to provide banking facility at a lower spread to the target
population. The absence of these linkages is forcing BCT to think in terms of charging
lesser interest rates from the members, rather than initiating the income generation
activities. The present view of BCT in helping the target population is restricted to
charging lower rates of interest. BCT wants to provide cheaper credit even below its
present rates of 12% to reach the poorest of the poor. BCT shifts the blame to the
financial institutions, which are providing funds at an average of 9%. BCT opines that the
financial institutions have failed to appreciate its specialized needs given the low
population density in this remote rural area, and consequent increase in operations cost.
BCT is aware that the repayment of loans is from the supplementary incomes of the
members. A working structure to separate the MF operations of BCT has been worked
out. The structure scales up to have a dedicated and properly trained staff for MF
activities. The staff strength and the complexity of the structure can grow with the
increase in operations.
4.7 CONCLUSIONS
The BCT is engaged in onlending activity and the SHGs are virtually not linked with any
IGA. The BCT wants to create a separate MFI to carry out their microfinance activity
under SHG model, in addition to other developmental works. This is not financially
feasible for the MF operations, as dedicated and properly trained staff is needed for
sustainable MFI operations to a proper scale. There is a scope for creating an MFI by the
BCT looking into the number of SHGs formed by the BCT, but the potential for the same
is limited. The SHGs are under the process of graduating to linkages with IGAs and this
process needs a fastening up. There is lack of standardized codified working procedures,

and lack of proper reporting systems in the working of BCT. A structure for proposed
MFI operations of BCT has been worked out but the same may be adopted by BCT in a
sequentially along with subsequent improvements in the MF procedures.
1. Measurement of impact
a. Increase in monthly contribution: In many cases the groups have increased
their monthly contribution. Starting with Rs. 10/-, they have reached upto
saving Rs. 50/- per month.
b. Credit requirement for productive and consumption purpose: The average
lending per group from the revolving fund given by the banks and loan
disbursed by BCT put together is Rs. 20,000/-, and the average group size
is 13, which brings per member average of credit to about Rs. 1600/-. The
total savings of 501 SHGs is about Rs.40 Lakhs. This brings an average
cumulative savings per group to be Rs. 8000/-, and per member
cumulative savings to Rs. 616/-. The average credit availability per
member thus comes to Rs. 2216/-. This is not adequate for productive
purposes looking into the amount needed by the members which is in the
range of Rs. 10000-15000/-.
c. IGPs are taking up individuals by themselves. There is no promotion by
BCT at the individual or group level. The people in the region rear
buffaloes, goats, and sheep as IGAs, and also keep Camel as a draught
animal. Apart from agricultural operations, people work on daily wage at
Rs. 70-80 per day. They get wages for 15-20days in a month. Another
option is use of camel-cart for carrying goods, which can fetch upto Rs.
5000/- per month, but feeding the animal costs Rs.1500/- per month. The
identification and implementation of IGAs that are suitable to the area is
sought by the BCT.
d. BCT is using SHGs for dissemination and extension of various ideas and
information on its Programmes. The vehicle of dissemination is mainly the
staff working in ICDS programme that is in regular touch with the target
population. The inspection visit by CARE people revealed that the staff is
not properly trained and lacks proper understanding of the procedures.

2. Access to cheap and easy credit

There is an access to easy and cheap loan however the average exposure per
member is very less. The time involved in obtaining the credit vitiates the purpose
of obtaining the loan. The mismatch of the delivery of funds and the probable
materialization of the idea diverts the funds into non-productive purposes. Many
of them did not avail loan for lack of awareness of productive use of the loan and
consequent repayment problems. People generally have large land holdings and
store back the crops from the year of rich harvest, upto 1-2 years. Others work on
wages in agriculture and construction works. At the time of need people are
borrowing from moneylenders at 24% p.a. BCT is running wage employment and
fodder distribution depots during natural calamity of drought. High repayment
should be linked to IGPs. Here it is linked only to the peer pressure and is made
from their supplementary incomes.
3. Basic features and strengths of the SHG
a. All the households reached do not belong to the real target group. A large
proportion of them are from relatively better off sections.
b. Effective targeting can be attained by laying down clear and transparent
guidelines at the time of SHG formation, based on local conditions.
c. Periodic grading of SHG in a participatory way may be done. A simple
format covering only the basic elements of SHG functioning may be used.
d. BCT can link poverty alleviation programmes like SGSY with the SHG. In
such case BCT need to monitor the group after their receiving subsidy and
concessional loans. The cohesiveness of the group is in their own long-
term interest.
e. Although the all India average of SHGs per NGO is only 214 (Widening
and Deepening the SHG base, pp 423 Journal of Rural Development),
there is a need of widening and deepening of the SHG Base, looking into
the fact that there is a large untapped potential to make provision for
microfinance activities of BCT. BCT may therefore include eligible
members in existing SHGs.
4. Updation of members’ skills

Objective of microcredit or microfinance is poverty alleviation and empowerment

of the poor. Poor also need other kinds of services like training for skill
development, arrangements to procure inputs, raw materials, technology, and
linkages to market their products and services. It is only when such services are
arranged; they would be able to utilize credit in a more productive way. Their
capacity to absorb credit and take risks for any self-employment ventures would
go up when access to credit is integrated with much needed credit plus services.
Only then a microfinance intervention will be able to make a desired impact on
poverty alleviation. With rise in the number of savings and credit transactions, the
work of record keeping is also increasing. Most SHGs have an inherent weakness
of having illiterate or semi-literate members. This weakness provides scope for
irregularities, as also has been experienced by BCT. At present the village
Aaganwadi workers write most of the records. BCT must ensure mechanism to
upgrade the member skills for accounts keeping and records maintenance. Simple
computerization may also be introduced to streamline the records. This will also
uphold the credibility of the SHG in the eyes of members and outsiders.
(Shylendra, H.S. and Harmeet Saini, Updating Members’ Skills pp 427 Journal of
Rural Development)
5. Maintaining Health of SHGs
Protecting the credibility of SHGs and retaining the confidence of the members
and public, become the primary responsibilities of the NGO. BCT may preferably
through some external agency, take up periodic verification/auditing of SHG
books of accounts. The cost initially is to be borne by the BCT and may be
transferred periodically to SHGs. Similarly periodic grading of SHG in a
participatory way may be done. A simple format covering only the basic elements
of SHG functioning may be developed.
6. Codification and standardization of working rules for SHGs
The savings facility is available only in a limited sense. There is restriction to
members even for drawing partially during emergencies and the procedure for
short-term loans has a high transaction cost. As of now there is no provision for
periodic distribution to the members, even partially of the income or interest

earned by the group from the savings and loan. Such distribution would add great
value to the SHG services.
7. SHG as vehicle of delivery
BCT is able to utilize the SHGs for delivery of other services like health, literacy
etc. In many cases SHGs take up services on member demand. This shows the
strengthening of the basic function of the SHG. Financial services like housing
loans and insurance services may also be channelised through SHGs. BCT is
already thinking of making such provisions in the proposed MFI. However the
delivery mechanisms need to be worked out.
8. Challenges for BCT
Although BCT has a fairly good understanding of the type of microfinance
services needed by the poor, less is known about the appropriate, efficient and
sustainable institutional models for delivering those services. In that respect, the
microfinance programme of BCT is still in its infancy. The challenge for BCT is
to provide, by its growth, a demonstration effect on the target population and the
FNGOs, and thus contribute to the microfinance industry in Churu district. The
confidence and faith of the members in the micro enterprises will come as a result
of watching other members successfully making such venture.
9. Networking of NGO’s
BCT is effectively trying to establish coordination between other NGO's in Churu
district to avoid any unnecessary duplication and competition. A forum at district
level like in the name of District Microfinance Forum has also been formed. This
would help to ensure orderly growth and increase outreach to untouched villages
and also to exchange ideas about best practices. This may also include NGO’s that
are not seeking any financial assistance from NABARD. Moreover, the potential
of microfinance is not limited to the provision of financial services, since it has
also successfully addressed the issues of gender equity, more equitable income
distribution, and the promotion of participatory approaches that stress individual
and collective responsibility.
10. Role of Women

Microfinance has recognized the critical role of women in income generating

activities at the household level and has often been an efficient instrument of their
empowerment. BCT from its developmental activities and now microfinance
services is trying to work in this direction. The best part is that BCT is looking for
improved awareness and sharing of best practices with other NGO’s in the Churu
district.
4.8 RECOMMENDATIONS
1. The suggestions for the BCT are to focus on Capacity building of the SHG
members, to fasten up the process of linkages to IGAs by use of demonstration
effect, and separating out the MF operations. The BCT can attain break even by
looking for better credit terms and generating the repayment capacities of the
target population to pay the full cost of the services. At present BCT is lending for
a 24 month period, which can also be brought down as per the needs of the
beneficiaries. In order to enable upscaling, broadening of base, and enforcing a
strict credit discipline the BCT need to inculcate professionalism in its approach.
2. Standardisation of operations: The MF operation of the BCT is a pioneering
example of a conviction to help the poor. There is a need to separate out the MFI
wing for various reasons like keeping a focused approach, legal requirements of
taxation, and standardization of the procedures. However the scaling up of the
operations will entail a graduated approach to cover up the costs incurred. The
proposed structures are only indicative and may need to be moderated as per the
actual working requirements of the operations.
3. Need for obtaining spread in MF operations: BCT may look for possible alternate
cheaper sources for fund like ECBs. The BCT can also mobilize the thought
process between the NGO’s of Rajasthan for building up an opinion on
amendment of the Mutually Aided Cooperative Societies Act enacted by State
Government. This will allow the NGO’s to accept savings and thereby SHGs can
be more effectively provided both the savings and credit services. Meanwhile
BCT can look for value addition in its services by faster delivery of loans and

reduced documentation exercise. This will allow BCT to make way for charging
the cost of the funds and operating in a parity zone.
4. For stability of operations the beneficiaries should be linked to IGAs. Apart from
the present considerations with BCT, it can promote the following
a. Ariculture: Ari (‘Arandi’ in local dialect) plantations are already planted in
this region as a cash crop.
b. Mushrooms: They are suitable in harsh winters of this region
c. Vermicompost: All around in the villages mounds of Cow-Dung can be
seen in the courtyards of every household. This presently used as a
substitute for firewood in winters and also as manure in the fields. A part
of this can be used to provide better quality of manure for own fields.
The surplus manure can also be sold in the market.
d. Bio-Village: In villages where ground water is not saline and is available
for use, there vegetables can be grown using the manure from
Vermicompost. If the vegetables are grown in bulk and one truckload can
be produced in a week, the same can be sold in Delhi market, which is
only 225 Kms from this place. Moreover the Rainfall is low in this region
and only ‘Urea’ is used and that too in ‘Bajra’ crop. This too is used once,
immediately after the rain, when the plant growth is about 1 foot.
Therefore there is a potential of increasing the crop yields also by using
the Bio-fertilisers.
e. Biogas: Similarly BCT can look for setting up individual or community
biogas plants, which can help to solve the problem of cooking in the
households. At present even the LPG cylinder is to be bought from
Rajgarh town or it has to be taken up in gray market.
f. Dairy: BCT initiated a dairy project and run it upto the year 2004. Still
milk is collected from the region by government dairy. Development of
high milk yielding breeds and involving more beneficiaries in the process
is a potential activity. BCT itself initiated and operated the Dairy project in
the region upto year 2004 before transferring it to government dairy. Still
the dairy makes the milk collection from villages, but the same is only 50-

60 liters from a village. Also the fat content is low (around 3.5). BCT is
already engaged in forming DPIP groups, where it is providing assistance
for purchasing Buffaloes. BCT can look for providing support services
like proper Veterinary care, animal feed and linkage to dairy.
g. Rearing and breed improvement of animals: People in the villages are
rearing Sheep and Goats and selling them in the market. Camels are also
purchased from outside for draught purposes. BCT can provide technical
and marketing support to the villagers in this trade.
5. In case of micro-insurance specially designed products suitable to local needs can
be introduced as group insurance schemes. Also the changing needs of the SHG
members can be ascertained for better understanding and accordingly insurance
products suitable to the local needs may be developed.
6. In case of savings the groups has an added advantage as the NABARD has
enhanced the credit limit of SHGs from the banks upto 10 times their savings.
BCT can take advantage of the scheme by intermediating for the groups in the
areas that are not presently proposed under the MFI. These are the Churu and
Ratangarh blocks of the Churu district. This will establish a foothold for BCT in
these areas and will help in future expansion plans of the MFI.
7. The present legal structure in Rajasthan does not permit NGO’s to accept savings.
However this is included in recommendations of the ‘Taskforce’ of NABARD. As
and when the state Government amends the Mutually Aided Co-operative
Societies (MACS) Act, BCT can also accept savings. These savings can be
accepted through federation of SHGs for lesser transaction costs to the BCT and
also for instilling greater levels of confidence among the SHG members.
8. In case of microcredit BCT can continue to borrow from the present sources
(RMK, ICICI, and SIDBI) and look for other options also. At present it is using
the best options available. The Union Budget for 2005-06 has opened the route of
External Commercial Borrowings for NGO-MFIs. BCT can partner with other
NGO’s in Churu district through the platform of District Microfinance Forum, to
explore the possibility.

9. BCT may build up loan loss reserves (2% of total assets to begin with and upto
10% over a period of 10 years). For this purpose better recovery rates are to be
achieved than the present rate of 95%. Although there are no bad debts reported
till now, but a better credit discipline need to be enforced. BCT has already
identified the necessity of codification and standardization of SHG formation and
loaning process. This institutionalization will enable the microfinance institution
to become financially sustainable, and increase its outreach capacity exponentially
without reliance on funding from donors (at present NABARD).
References
1. Sriram, M. S. and Rajesh S. Upadhyayula (2002) The Transformation of

Microfinance organizations (MFO) in India: Experiences, Options and Future,
Working Paper No. 2002-12-01, Ahmedabad: Indian Institute of Management.

2. Shylendra, H.S. and Harmeet Saini (2004) Taking Forward the Self-Help
Groups of an NGO on the Path of Microfinance: Some Possible Strategies for
SWDF, Working Paper No. 184, Institute of Rural Management Anand.
3. Tiwari, Piyush and S.M. Fahad “Concept Paper on Microfinance institutions
in India” Microfinance Institutions in India.htm (downloaded in July 2005)
4. Rao, K.Muralidhara (NABARD) Article written and presented at the
APRACA Seminar at Manila on Regulation of mFIs in July 2004
Microfinance Institutions in India1.htm (downloaded on July 15, 2005)
5. Zeelearn.com: NGO sec 25.htm (downloaded on July 15, 2005)
6. http://www.undp.org.in/events/microfinance/Session- Meeting the universal
obligations/Rashtriya Mahila Kosh.ppt (downloaded on July 15, 2005)
7. PlaNet Finance India2.htm Microfinance Scenario in India (downloaded on
July 15, 2005)
8. Reserve Bank of India Search Results.htm (downloaded on July 15, 2005)
9. CRISIL Analysis India Budget 2005-06 news, impact on economy, industries,
markets, companies.htm (downloaded on July 15, 2005)
10. Workshop on Governance Issues in Rural Finance at IRMA silver jubilee
symposium.
11. Shylendra, H.S. and Harmeet Saini, Journal of Rural Development Vol. 23(4),
pp. 411- 433 (2004) NIRD Hyderabad.
12. Teaching Notes of H.S. Shylendra: 2004
13. Fisher, Thomas and M. S. Sriram (2002), Beyond Microcredit: Putting
Development Back into Micro-Finance, Vistaar Publications, New Delhi.
Appendix-I
Questionnaire Administered on various Stakeholders
1. RRB-Marudhar Kshetriya Gramin Bank, Cooperative banks, Commercial banks
a. The present support level to SHGs formed by BCT in terms of number of
accounts and loan disbursement.

b. Satisfaction level on present performance of recovery.

c. Perception about the health of the SHGs.
d. Any plans to increase the coverage in the operational area of BCT.
e. Can the ratio of 1:4 for SHG loaning be improved to say 1:10?
f. Is the bank comfortable with any branch banking, for the SHGs or for
BCT? Any alternate arrangement that can be suggested to reduce the
difficulties in loan disbursement by BCT.
g. What is the recovery rate on loans disbursed to SHGs formed by BCT?
h. Is there any difference in recovery rate for the SHGs formed by other
agencies or by the bank itself?
i. What are the constraints faced by the bank in dealing with small accounts
of SHGs. Can there be an alternate mechanism like appointing agents or
opening separate counters in the bank or opening weekly extension
counters in specified villages.
j. What are the constraints you perceive for BCT in acting as an MFI?
2. Members (beneficiaries- already having a loan through SHG)
a. What is the reason for your associating with an SHG?
b. Did you receive the desired benefits?
c. Do you need another loan and what size?
d. How long you are willing to wait for taking a loan through the SHG?
e. Do you take loan from other sources also? What interest rate is charged by
the sources other than the SHG? What is the interest rate charged by
moneylender?
f. What efforts are required to take a loan from the SHG and that from the
moneylender or a bank?
g. With whom you feel more comfortable, SHG or other sources?
h. If you are able to get a timely loan, say within 1 day for a consumption
loan and 7 days for other loans, what interest rates you are willing to pay?
i. Do you find people other than the SHG members approaching to SHG for
a loan? If so than for what purpose and what amount?
3. Members (non-beneficiaries- not having a loan through SHG), Non members

a. Are you already having a loan? At what interest rate?

b. Do you need a loan and what size?
c. What interest rates are you willing to pay?
d. What is the source of income for making the repayment?
e. DO you see any difference in the life of SHG members based on
i. Sources of income
ii. Household dependency burden (indebtness)
iii. Productive assets
iv. Housing quality
4. Employees
a. DO you perceive that BCT can function as an MFI?
b. What can be your role in the new project?
c. What is your likely benefit or loss from the proposed change?
d. Which assignment do you perceive to perform more efficiently, a
specialised one or one having a combination of jobs?
5. Management
a. If the MFI operations are started as a different wing of BCT, will it be
possible to share the staff with other projects?
b. Do you perceive the SHG as a group and SHG as a customer in MFI
lending to be two different entities?
c. DO you feel BCT can develop SHGs of poor and very poor?
d. RMK allows charging the SHGs upto 18%. Your opinion on it. Can BCT
increase its outreach and reduce the transaction cost of the end user,
particularly looking into longer distances and urgent needs of the people.
e. Do you feel smaller loans of shorter duration will increase the transaction
cost for BCT? What changes in the present working of BCT can help to
reduce this cost? (Visualization of easy access, less time consuming and
user friendly procedures)
f. Is there a possibility of MFI wing of BCT financing to the BPL SHGs of
another NGO? Is it possible to get a counter guarantee of the other NGO
in financing to their groups?

g. Both road connectivity and population density is low in the region

operated by BCT. The NABARD report for Rajasthan says that ideally
561 households can be served from one outlet. Is it feasible for BCT to
operate with 10 outlets?
h. Given mostly illiterate members and the BCTs perception of
documentation work being unsatisfactory does BCT looks for taking
services of say 1 accountant for 10 SHGs at Rs.100/- per SHG per month
or does BCT looks for specialised staff exclusive to SHGs.
i. Given the savings of SHGs at Rs. 37.0 Lakhs the loan sanctioned by banks
is only Rs. 66.72 Lakhs, which is less than the maximum limit of 4 times
the savings. What could be the reasons for this?
j. The plan is to spread the MFI operations to Rs. 3-4 Crore. What could be
the number of loanees and average loan size? What could be the number
of SHGs and the average loan size? Given 501 SHGs, the total loan
exposure is Rs. 34 Lakhs through BCT and Rs. 67 Lakhs from banks. This
gives an average loan size per SHG as Rs. 20000/-. Further taking
approximately 2.5 borrower per SHG the average individual loan size is
Rs. 8000/-
k. Does the BCT visualize any cooperation of the FNGOs in 5 districts for
expansion of MFI operations at a later stage?
l. Does the BCT visualize demand for rural housing and repair loans upto
Rs. 50000/-, and financing the same through RMK or NABARD?
m. Does BCT visualizes formation of SHG federation and route the loans
through it. If yes what could be the time frame?

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Scope and Potential of setting up a MFI

1.3 AREA OF INTERVENTATION

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1.4 ADMINISTRATIVE STRUCTURE

1.5 EXPANSION PHASES

1.6 PROJECTS RUN BY BCT

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1.7 ORGANISATION EMBEDDING

1.8 CONCEPT FOR MICROFINANCE PROGRAMME

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1.8.1 Present Microfinance Programme of BCT

1.8.2 Demand Estimate in Operational Area

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1.8.3 Mission of Microfinance Programme

1.8.4 Challenges in Upscaling of Microfinance Programme

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develop a sense of linking the finances with the present or prospective

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2.3 SCOPE OF THE STUDY

2.4 METHODOLOGY AND DATA SOURCES

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2.5 RELEVANCE OF MICROFINANCE AT BCT

2.6 FRAMEWORK USED FOR ASSESSMENT OF SCOPE AND POTENTIAL

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provide a two-way benefit to the members as compared to the banks. The

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2.6.8 Organisation level assessment of performance of SHG:

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d. Monitoring of the groups: As of no there is no standard procedure for

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2.7 INPUTS RECEIVED

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sanctioned a grant of Rs. 1000/- to each SHG. In future also BCT is

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loan is 20 days. Sometimes the processing and disbursement is very fast

2.8 FOCUS GROUP DISCUSSION

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2.9.2 Interview with Branch Manager of Bank of Baroda, Sadulpur, Churu, on

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2.10 LIMITATIONS OF STUDY

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2.11 CHAPTER SCHEME

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POTENTIAL OF SHGS INTERVENTION ON COMMUNITY

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3.2 THE COMMUNITY

3.3 PRESENT STATUS OF SHGS (UP TO MAY 2005)

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3.4 FUNDING AGENCIES

3.5 REPORTING SYSTEM OF SHGS

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