Microfinance Development Strategy Self Study Report Submitted to Dr.

Gyan Prakash

Submitted in partial fulfillment of the requirements for the award of the degree of Masters of Business Administration by Jain Vaibhav 2009MBA-15

ABV Indian Institute of Information Technology and Management, Gwalior - 474 010, India
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CONTENTS

1. .Introduction..3 2. Microfinance in the Asian and Pacific Region..6 3. Demand for microfinance services.6 4. Supply of microfinance services.....8 5. Emergence of MFIs and the growth of Microfinance Sector in India..10 6. Limitation of Government Schemes/Rural Banks ...12 7. Capacity Building Needs for MFIs...14 8. Women Empowerment through Micro Finance: A Boon for Development.15 9. Case Study:-SDF Microfinance Methodology..24 10. Conclusion and Suggestion31 11. References..32

Introduction
Microfinance is the provision of a broad range of financial services such as deposits, loans, payment services, money transfers, and insurance to poor and lowincome households and, their microenterprises. Microfinance services are provided by three types of sources: Formal institutions, such as rural banks and cooperatives; Semiformal institutions, such as nongovernment organizations; and Informal sources such as money lenders and shopkeepers. Institutional microfinance is defined to include microfinance services provided by both formal and semiformal institutions. Microfinance institutions are defined as institutions whose major business is the provision of microfinance services. The interest in microfinance has burgeoned during the last two decades: multilateral lending agencies, bilateral donor agencies, developing and developed country governments, and nongovernment organizations (NGOs) all support the development of microfinance. A variety of private banking institutions has also joined this group in recent years. As a result, microfinance services have grown rapidly during the last decade, although from an initial low level, and have come to the forefront of development discussions concerning poverty reduction. Despite this growth, as concluded in the recently completed Rural Asia Study, rural financial markets in Asia are ill-prepared for the twenty-first century.1 About 95 percent of some 180 million poor households in the Asian and Pacific Region (the Region) still have little access to institutional financial services. Development practitioners, policy makers, and multilateral and bilateral lenders, however, recognize that providing efficient microfinance services for this segment of the population is important for a variety of reasons. (i) Microfinance can be a critical element of an effective poverty reduction trategy. Improved access and efficient provision of savings, credit, and insurance facilities n particular can enable the poor to smoothen their consumption, manage their risks better, build their assets gradually, develop their microenterprises, enhance their income earning capacity, and enjoy an improved quality of life Microfinance services can also contribute to the improvement of resource allocation, promotion of markets, and adoption of better technology; thus, microfinance helps to promote economic growth and development. (ii) Without permanent access to institutional microfinance, most poor households continue to rely on meager self-finance or informal sources of microfinance,3
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which limits their ability to actively participate in and benefit from the development opportunities. (iii) Microfinance can provide an effective way to assist and empower poor omen, who make up a significant proportion of the poor and suffer disproportionately from poverty. (iv) Microfinance can contribute to the development of the overall financial system through integration of financial markets. Developing countries in the Region have used microfinance services to reduce poverty. About 21 percent of the Grameen Bank borrowers and 11 percent of the borrowers of the Bangladesh Rural Advancement Committee, a microfinance NGO, managed to lift their families out of poverty within about four years of participation These services also had a significant positive impact on the depth (severity) of poverty among the poor. Extreme poverty declined from 33 percent to 10 percent among Grameen Bank participants, and from 34 percent to 14 percent among Bangladesh Rural Advancement Committee participants. Without exclusively targeting the poor, the unit desas of the Bank Rakyat Indonesia (BRI) have also assisted hundreds of thousands of households in lifting themselves out of absolute poverty over the past decade.5 A 1988 sample survey of unit desa borrowers showed that microcredit has had a major impact on their families' standards of living. The study estimated that net household incomes of borrowers increased by about 76 percent and employment increased by 84 percent with three years of program participation.6 The studies have, in general, shown that microfinance services have also had a positive impact on specific socioeconomic variables such as childrens schooling, household nutrition status, and womens empowerment Microfinance institutions (MFIs) have also brought the poor, particularly poor women, into the formal financial system and enabled them to access credit and accumulate small savings in financial assets, reducing their household poverty. However, researchers and practitioners generally agree that the poorest of the poor are yet to benefit from microfinance programs in most countries partly because most MFIs do not offer products and services that are attractive to this category.8 Thus, to increase the overall impact of microfinance on poverty reduction, it is essential to extend a wide range of services on a continuing basis to the poor who are still excluded from the benefits of microfinance.

Microfinance in the Asian and Pacific Region Over 900 million people in about 180 million households in the Region live in poverty. Most of the Regions poor (i.e., those who earn less than $1.00 a day) or more than 670 million people, live in rural areas although urban poverty is also a growing problem in virtually all DMCs. Most rural poor people are engaged in agricultural or related activities as laborers or small-scale farmers. Many are also involved in a variety of microenterprises. In many countries, women, who are a significant proportion of the poor and suffer disproportionately from poverty, operate many of these microenterprises. Most formal financial institutions do not serve the poor because of perceived high risks, high costs involved in small transactions, perceived low relative profitability, and inability of the poor to provide the physical collateral usually required by such institutions. The business culture of these institutions is also not geared to serve poor and low-income households. Lacking access to institutional sources of finance, most poor and low-income households continue to rely on meager selffinance or informal sources of microfinance. However, these sources limit their ability to actively participate in and benefit from the development process Thus, a segment of the poor population that has viable investment opportunities persists in poverty for lack of access to credit at reasonable costs. The poor also lack access to institutional credit for consumption smoothening and to other services such as payments, money transfers, and insurance Most of the poor households also find it difficult to accumulate financial savings without easy access to safe institutions that provide deposit services.

Demand for microfinance services The poor and low-income households and their microenterprises in the Region are a diverse group. Their demand for microfinance services also reflects this diversity The collective demand of these groups for financial services is large and the types of services they demand vary across households and microenterprises and over time. This large demand and the heterogeneity of services needed across households and microenterprises and over time have created scope for commercial financial intermediation. Poor and low-income households and their microenterprises in the Region have a large demand for safe and convenient deposit services. This demand reflects the importance of savings for these households and
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microenterprises for a variety of reasons. The poor need to save for emergencies, investment, consumption, social obligations, education of their children and many other purposes. They have the capacity and willingness to save. Savings are important for microenterprises and provide them with a major source of investment funds. The large demand for deposit services among the poor is confirmed by empirical evidence. For example, the number of savings accounts in unit desas of BRI increased, from 5.0 million in 1988 to 16.1 million in 1996. Most of these accounts belong to poor households. The cooperative rural banks in Sri Lanka had 4.7 million deposit accounts at the end of 1998; while the Association for Social Advancement, a microfinance NGO in Bangladesh, had over 1.4 million active savings accounts of poor households at the end of 1999. Extensive use of informal savings arrangements by poor households is another indicator of their demand for savings facilities. In some countries, the poor pay high prices to those providing deposit services. The demand for deposit services is particularly strong among poor women in the Region. The demand for microcredit that originates both from households and microenterprises is also large. Poor households in the Region require microcredit to finance livelihood activities, for consumption smoothening, and to finance some lumpy nonfood expenses for purposes such as education (e.g., school fees and books), housing improvements, and migration. Many Asian countries have numerous small farms and their operators also require microfinance services. The other source of demand is nonfarm microenterprises, which cover a wide array of activities such as food preparation and processing, weaving, pottery, mat and basket making, furniture making, and petty trading. The demand for other financial services among poor and low-income households and their microenterprises could also be significant. A good share of rural households borrow, many more save, but all seek to insure against the vagaries of life and therefore the demand for insurance services among the poor is vast.11 A private insurance company in Bangladesh that started to provide micro-insurance services to low-income households on a commercial basis, for example, found that its client base was expanding rapidly. At the end of 1999, this company had over 800,000 clients, about 50,000 of which are considered poor. This experience shows that the supply of such services creates its own demand because the real demand for such services remains hidden when suitable products are not available in the market.
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Supply of microfinance services The market structure in microfinance varies significantly across countries in the Region depending on their stage of financial development, level of economic development, policy environment, and other factors (Appendix 4). However, aspects of the supply, particularly about different types of suppliers, may be usefully discussed. The microfinance services are supplied mainly by informal sources. Their collective outreach, both breadth and depth, is vast in most countries. They supply mainly short-term credit and charge higher interest rates than semiformal and formal sources. Because of the relatively greater bargaining power enjoyed by the informal suppliers in general, the terms and conditions under which services are provided do not enable the clients to fully harness economic opportunities. The informal sources operate in highly localized areas. Therefore, their contribution to financial intermediation and improvement of resource allocation is also limited. For example, informal sources do not allow savings to be collected from more than a small group of individuals well known to one another, and they do not move funds over large distances. Most informal insurance mechanisms are typically weak, particularly against repeated shocks, and often provide only inadequate protection to poor households. The involvement of formal sources in microfinance has increased during the last two decades. This greater involvement has stemmed from The expansion of the scope of formal institutions into microfinance through downscaling and establishment of linkage programs with semiformal sources of different types; (ii) The emergence of new formal institutions focused on microfinance, such as the Grameen Bank of Bangladesh; (iii) Reforms of state-owned financial institutions such as unit desas of BRI; and (iv) The introduction of new microfinance programs by the governments through nonfinancial institutions. However, the formal operations Formal microfinance has changed to some extent with increasing . The Bank Dagang Bali in Indonesia has expanded its microfinance operations and increased its clientele. Badan kredit-desas, owned by Indonesian villagers, now reach 1.7 million clients, and the Grameen Bank in Bangladesh, owned largely by its borrower members, operates in over 38,000 villages with 1,140 branches and reaches about 2.4 million clients.
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(i)

Cooperatives are also playing a significant role as financial intermediaries in the Region, particularly in India, Sri Lanka, Thailand, and Viet Nam. The thrift and credit cooperative societies in Sri Lanka reach about 800,000 households while primary agricultural cooperative societies in India have about 89 million members. These cooperatives, among other things, provide microfinance services.13 In many countries, the cooperatives have begun to explore possibilities for deeper penetration into the microfinance market and show a greater concern about their financial viability than they did in the 1980s. A major feature of semiformal microfinance sources in the Region is the extensive involvement of NGOs. In virtually all DMCs (except for transitional economies such as the People's Republic of China and Viet Nam) NGOs have become important providers of microfinance services Their involvement is important because their clients in general are poorer than those reached by many formal institutions, their services are targeted in most countries to serve poor women, and their credit services are provided largely on the basis of social collateral. The small average loan sizes of NGOs, which usually range from about $30 to $150 per active loan account, suggest that their clients include the poorest.14 NGOs in some countries are trying to organize themselves into national coalitions to improve the industry standards and selfregulation. A few NGOs in the Region have plans to transform themselves into formal financial institutions.

Emergence of MFIs and the growth of Microfinance Sector in India On 12th July 2002, Prime Minister Atal Behari Vajpayee outlined an eight point agenda to push the economy on a growth path of eight percent during the 10 th plan. Mr. Vajpayee assured that it would be governments endeavour to ensure that the poor and the unorganized sector have access to savings, credit and insurance services. This statement itself is a great boost to the microfinance sector, as one can see the changing perception of the people influencing the policies, toward it. However, it is still a beginning and to make the sector vibrant, the efforts have to be still on.

Microfinance is being practiced as a tool to attack poverty the world over. The term Microfinance could be defined as provision of thrift, credit and other financial services and products of very small amounts to the poor in rural, semi urban or urban areas, for enabling them to raise their income levels and improve living standards (NABARD 99). Microfinance Institutions (MFIs) are those, which provide thrift, credit and other financial services and products of very small amounts mainly to the poor in rural, semi-urban or urban areas for enabling them to raise their income level and improve living standards. Lately, the potential of MFIs as promising institutions to meet the consumption and micro-enterprise demands of the poor has been realized..

Credit Demand of the Poor It is estimated that in India there exist approximately 7.5 crores poor households, out of which 6 crores are rural and 1.5 crores urban households. One estimate assumes that the total annual requirement of credit for the rural poor families would be at least Rs.15, 000 crores on the basis of a maximum need of Rs.2000/per family. Another estimate for requirement of credit (excluding housing) is Rs.50,000 crores assuming that annual average credit usage are Rs.6000/- per rural household, and Rs.9000/- for poor urban household. An additional Rs.1000 crore is estimated to be required for housing per year. Apart from micro-credit, they
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require savings and insurance also. Meanwhile, bank advances to weaker section aggregated Rs.9700 crore during 1997-98. MFIs and SHGs are estimated to have provided about 137 crore (cumulative up to September 1998). 1 The above scenario, suggests a vast unmet gap in the provision of financial services to the poor. Moreover, 36% of the rural households are found to be outside the fold of institutional credit.

Growth of microfinance The growth of microfinance is visible in many aspects. There are more than 2000 NGOs involved in the NABARD SHG-Bank linkage program. Out of these, approximately 800 NGOs are involved in some form of financial intermediation. Further, there are 350 new generation co-operatives providing thrift and credit services. According to our estimate, the present total outstanding , including SaDhan members and bank linkages is approximately Rs.700 crores (Rs. 150 crores of Sa-Dhan members and another Rs. 550 crores from the Banking system). The total client base is estimated at 6-8 million as opposed to the Government of India (GOI) intention to reach 25 million clients. The growth of community institutions has taken place with the role to take social and financial intermediation. A numbers of community banks have come into existence at village and block levels call ' Federation of Self Help Groups'.

The inadequacies of the formal financial system to cater to the needs of the poor and the realization of the fact that the key to success lies in the evolution and participation of community based organizations at the grassroots level led to the emergence of new generation of MFIs.

One kind of MFI is an NGO engaged in promoting Self Help Groups (SHGs) and their federations at a cluster level and linking SHGs with Banks under the Scheme. Examples are Myrada in Karnataka, which has promoted Sanghmitra, a company of its village saving and credit sanghas, PRADAN which has established a large
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number of SHGs and federated them under Damodar in Bihar, Sakhi Samiti in Rajasthan.

Another kind is NGO-MFI directly lending to the poor borrowers, who are either organized into SHGs or into Grameen Bank type of groups after borrowing bulk funds from SIDBI, RMK and FWWB. Examples in this category are Rashtriya Gramin Vikas Nidhi (RGVN) which runs credit and savings programme in Assam and Orissa on the lines of Grameen Bank, Bangladesh. Also we have SHARE in AP, ASA in Tamil Nadu under this category.

There are MFIs which are specifically organized as cooperatives, such as over 500 Mutually Aided Cooperative Thrift and Credit Socities (MACTS) in AP, promoted among others by Cooperative Development Foundation (CDF) and the SEWA Bank in Gujarat which also runs federations of SHGs in nine districts.

Then we have MFIs, which are organize as Non-Banking Finance Companies (NBFC) such as BASIX, CFTS Mirzapur, SHARE Microfin. Ltd and Sarvodaya Nanofinance Ltd.

Limitation of Government Schemes/Rural Banks In India, numerous government schemes have tried to provide various subsidized services to the poor households. However, various studies have exposed the limitation of these programs, showing the lack of access of mainstream financial services for these poor households and their over-dependence on the local moneylenders in meeting their consumption and micro-enterprise demands. According to an estimate, only 16% credit usage was met by the formal sources, while the remaining 84% was met by the informal services. Despite having a wide network or rural bank branches in the country and implementation of many credit linked poverty alleviation programmes, a large number of the very poor continue to
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remain outside the fold of the formal banking system. Various studies also suggested that the policies, systems and procedures and the saving and loan products often did not meet the needs of the very poor. NABARD refinances the microfinance sector loans by banks, but doesnt undertake direct financing. Thus, its ability to promote innovations or establish any missing link units is very limited. Small Industries Development Bank of India (SIDBI) mainly uses the network of State Financial Corporations (SFCs) and commercial banks to extend microfinance sector loans in rural small towns. It also faces the same constraint. State Financial Corporations (SFCs) largely concentrate on the upper end of SSIs and that too in urban areas. However, through their district branches, a small proportion of lending is done to the microfinance sector. hey Their lengthy and stringent procedures inhibit the poor. Regional Rural Banks (RRBs) are located in rural areas, have low CD ratio but are suffering immensely from lack of skills, incentives and infrastructure support. As can be seen from above, while there is no dearth of institutions and branch network in urban and rural areas, this physical outreach does not translate into access to credit by microfinance sector producers.

However, wherever mainstream finance institutions are engaged in financing small borrowers, their experience is characterized by a number of factors. Their institutional design and mandate, which determines their procedures, do not suit the poor. The poor find their procedures cumbersome, complicated and unsuitable for the local environment.. They have also failed to provide a mix of credit for both consumption and productive loans. Therefore poor feel alienated in dealing with them. They feel scared to go to them. Repeat loans, except for crop production are rare, even for the borrowers who have repaid fully. Further, even though the many of the loans extended to the poor by the public sector financial institutions are subsidized, their ultimate cost to the borrowers is high which includes payments to the middle men, wage and business loss due to time spent in getting the loans approved.

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Capacity Building Needs for MFIs It has been observed that, MFIs are able to reach the poor effectively mainly because they have designed products and channels, which are friendly and suitable to the need of the poor. However, MFIs outreach is limited in comparison with the mainstream financial institutions because of the shortage of financial and human resources. MFIS need grants to build their own capacity as well as that of the borrowers or SHGs. A vast majority of MFIs are NGOs registered under the Societies Act or Trust Act, and they cannot mobilize large amount of lending funds due to the inappropriate legal and financial structure. A few MFIs which have registered as Non-Banking Finance Companies (NBFCs) are able to mobilize equity from development financial institutions and leverage these with borrowing from commercial banks. However, the regulatory framework is not conducive for these MFIs. Unfortunately, in India the dominant reform agenda of the mainstream sector clouds the reform and attention that is required at the bottom end. The past few years though has seen an appreciable increase and support to this problem. The present economic advisory team under the leadership of the Prime minister though (PMO) has brought increasing focus to this problem and a group has been constituted to deal with these problems.

Sa-Dhan, The Association of Community Development Finance Institutions (biggest Apex body of Microfinance Institutions in India) had been asking the Government of India to make more funds available for the capacity building of the microfinance sector. Though locked into bureaucratic procedures, some of these funds have been made available. Hence, the need for capacity building of NGOs on one hand and the capacity building of local communities on the other hand is needed to ensure effective management. In this context, if the Microfinance Development Fund (MFDF) of 430 crores is not released in the immediate future, it will culminate into disaster for the microfinance sector.

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Women Empowerment Through Micro Finance: A Boon for Development Under the trickle down theory in the planning process it was expected that women will equally benefit along with men. This has been belied by actual developmement. The ninth plan document recognizes that inspite of development measures and constitutional legal guarantees- women have lagged behind in almost all sectors. In India, the emergence of liberalization and globalization in early 1990s aggravated the problem of women workers in unorganized sectors from bad to worse asmost of the women who were engaged in various self employment activities have lost their livelihood. Despite in tremendous contribution of women to the agriculture sector, their work is considered just an extension of household domain and remains non-monetised. Microfinance is emerging as a powerful instrument for poverty alleviation in the new economy. In India, Microfinance scene is dominated by Self Help Group (SHGs)-Bank Linkage Programme as a cost effective mechanism for providing financial services to the Unreached Poor which has been successful not only in meeting financial needs of the rural poor women but also strengthen collective self help capacities of the poor ,leading to their empowerment. Rapid progress in SHG formation has now turned into an empowerment movement among women across the country. Economic empowerment results in womens ability to influence or make decision, increased self confidence, better status and role in household etc. Micro finance is necessary to overcome exploitation, create confidence for economic self reliance of the rural poor, particularly among rural women who are mostly invisible in the social structure. This paper puts forward how micro finance has received extensive recognition as a strategy for economic empowerment of women. This paper seeks to examine the impact of Micro finance with respect to poverty alleviation and socioeconomic empowerment of rural women. An effort is also made to suggest the ways to increase

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Empowerment is a multi-dimensional social process that helps people gain control over their own lives communities and in their society, by acting on issues that they define as important. Empowerment occurs within sociological psychological economic spheres and at various levels, such as individual, group and community and challenges our assumptions about status quo, asymmetrical power relationship and social dynamics. Empowering women puts the spotlight on education and employment which are an essential element to sustainable development.

EMPOWERMENT: FOCUS ON POOR WOMEN In India, the trickle down effects of macroeconomic policies have failed to resolve the problem of gender inequality. Women have been the vulnerable section of society and constitute a sizeable segment of the poverty-struck population. Women face gender specific barriers to access education health, employment etc. Micro finance deals with women below the poverty line. Micro loans are available solely and entirely to this target group of women. There are several reason for this: Among the poor , the poor women are most disadvantaged they are characterized by lack of education and access of resources, both of which is required to help them work their way out of poverty and for upward economic and social mobility. The problem is more acute for women in countries like India, despite the fact that womens labour makes a critical contribution to the economy. This is due to the low social status and lack of access to key resources. Evidence shows that groups of women are better customers than men, the better managers of resources. If loans are routed through women benefits of loans are spread wider among the household.

Since womens empowerment is the key to socio economic development of the community; bringing women into the mainstream of national development has been a major concern of government. The ministry of rural development has special components for women in its programmes. Funds are earmarked as Womens component to ensure flow of adequate resources for the same. Besides
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Swarnagayanti Grameen Swarazgar Yojona (SGSY), Ministry of Rural Development is implementing other scheme having womens component .They are the Indira Awas Yojona (IAJ), National Social Assistance Programme (NSAP), Restructured Rural Sanitation Programme, Accelerated Rural Water Supply programme (ARWSP) the (erstwhile) Integrated Rural Development Programme (IRDP), the (erstwhile) Development of Women and Children in Rural Areas (DWCRA) and the Jowahar Rozgar Yojana (JRY).

The term micro finance is of recent origin and is commonly used in addressing issues related to poverty alleviation, financial support to micro entrepreneurs, gender development etc. There is, however, no statutory definition of micro finance. The taskforce on supportitative policy and Regulatory Framework for Microfinance has defined microfinance as Provision of thrift, credit and other financial services and products of very small amounts to the poor in rural, semiurban or urban areas for enabling them to raise their income levels and improve living standards. The term Micro literally means small. But the task force has not defined any amount. However as per Micro Credit Special Cell of the Reserve Bank Of India , the borrowal amounts upto the limit of Rs.25000/- could be considered as micro credit products and this amount could be gradually increased up to Rs.40000/- over a period of time which roughly equals to $500 a standard for South Asia as per international perceptions.

The term micro finance, sometimes is used interchangeably with the term micro credit. However while micro credit refers to purveyance of loans in small quantities, the term microfinance has a broader meaning covering in its ambit other financial services like saving, insurance etc. as well.

The mantra Microfinance is banking through groups. The essential features of the approach are to provide financial services through the groups of individuals, formed either in joint liability or co-obligation mode. The other dimensions of the microfinance approach are:
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- Savings/Thrift precedes credit - Credit is linked with savings/thrift - Absence of subsidies -Group plays an important role in credit appraisal, monitoring and recovery.

Basically groups can be of two types:

Self Help Groups (SHGs) : The group in this case does financial intermediation on behalf of the formal institution. This is the predominant model followed in India.

Grameen Groups: In this model, financial assistance is provided to the individual in a group by the formal institution on the strength of groups assurance. In other words, individual loans are provided on the strength of joint liability/co obligation. This microfinance model was initiated by Bangladesh Grameen Bank and is being used by some of the Micro Finance Institutions (MFIs) in our country.

WOMENS EMPOWERMENT AND MICRO FINANCE: DIFFERENT PARADIGMS Concern with womens access to credit and assumptions about contributions to womens empowerment are not new. From the early 1970s womens movements in a number of countries became increasingly interested in the degree to which women were able to access poverty-focused credit programmes and credit cooperatives. In India organizations like Self- Employed Womens Association (SEWA) among others with origins and affiliations in the Indian labour and womens movements identified credit as a major constraint in their work with informal sector women workers.
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The problem of womens access to credit was given particular emphasis at the first International Womens Conference in Mexico in 1975 as part of the emerging awareness of the importance of womens productive role both for national economies, and for womens rights. This led to the setting up of the Womens World Banking network and production of manuals for women's credit provision. Other womens organizations world-wide set up credit and savings components both as a way of increasing womens incomes and bringing women together to address wider gender issues. From the mid-1980s there was a mushrooming of donor, government and NGO-sponsored credit programmes in the wake of the 1985 Nairobi womens conference (Mayoux, 1995a). The trend was further reinforced by the Micro Credit Summit Campaign starting in 1997 which had reaching and empowering women as its second key goal after poverty reduction (RESULTS 1997). Micro-finance for women has recently been seen as a key strategy in meeting not only Millennium Goal 3 on gender equality, but also poverty Reduction, Health, HIV/AIDS and other goals. C POVERTY REDUCTION PARADIGM The poverty alleviation paradigm underlies many NGO integrated poverty-targeted community development programmes. Poverty alleviation here is defined in broader terms than market incomes to encompass increasing capacities and choices and decreasing the vulnerability of poor people. The main focus of programmes as a whole is on developing sustainable livelihoods, community development and social service provision like literacy, healthcare and infrastructure development. There is not only a concern with reaching the poor, but also the poorest. Policy debates have focused particularly on the importance of small savings and loan provision for consumption as well as production, group formation and the possible justification for some level of subsidy for programmes working with particular client groups or in particular contexts7. Some programmes have
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developed effective methodologies for poverty targeting and/or operating in remote areas. Such strategies have recently become a focus of interest from some donors and also the Microcredit Summit Campaign.

Here gender lobbies have argued for targeting women because of higher levels of female poverty and womens responsibility for household well-being. However although gender inequality is recognised as an issue, the focus is on assistance to households and there is a tendency to see gender issues as cultural and hence not subject to outside intervention.

Although term 'empowerment' is frequently used in general terms, often synonymous with a multi-dimensional definition of poverty alleviation, the term ' women's empowerment ' is often considered best avoided as being too controversial and political. The assumption is that increasing womens access to micro-finance will enable women to make a greater contribution to household income and this, together with other interventions to increase household wellbeing, will translate into improved well-being for women and enable women to bring about wider changes in gender inequality.

FINANCIAL SUSTAINABILITY PARADIGM The financial self-sustainability paradigm (also referred to as the financial systems approach or sustainability approach) underlies the models of microfinance promoted since the mid-1990s by most donor agencies and the Best Practice guidelines promoted in publications by USAID, World Bank, UNDP and CGAP. The ultimate aim is large programmes which are profitable and fully selfsupporting in competition with other private sector banking institutions and able to raise funds from international financial markets rather than relying on funds from development agencies. The main target group, despite claims to reach the poorest, is the bankable poor': small entrepreneurs and farmers. This emphasis on financial
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sustainability is seen as necessary to create institutions which reach significant numbers of poor people in the context of declining aid budgets and opposition to welfare and redistribution in macro-economic policy.

Policy discussions have focused particularly on setting of interest rates to cover costs, separation of micro-finance from other interventions to enable separate accounting and programme expansion to increase outreach and economies of scale, reduction of transaction costs and ways of using groups to decrease costs of delivery. Recent guidelines for CGAP funding and best practice focus on production of a financial sustainability index which charts progress of programmes in covering costs from incomes.

MICRO FINANCE INSTRUMENT FOR WOMENS EMPOWERMENT Micro Finance is emerging as a powerful instrument for poverty alleviation in the new economy. In India, micro finance scene is dominated by Self Help Groups (SHGs) Bank Linkage Programme, aimed at providing a cost effective mechanism for providing financial services to the unreached poor. Based on the philosophy of peer pressure and group savings as collateral substitute , the SHG programme has been successful in not only in meeting peculiar needs of the rural poor, but also in strengthening collective self-help capacities of the poor at the local level, leading to their empowerment.

Micro Finance for the poor and women has received extensive recognition as a strategy for poverty reduction and for economic empowerment. Increasingly in the last five years , there is questioning of whether micro credit is most effective approach to economic empowerment of poorest and, among them, women in particular. Development practitioners in India and developing countries often argue that the exaggerated focus on micro finance as a solution for the poor has led to neglect by the state and public institutions in addressing employment and livelihood needs of the poor.

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Credit for empowerment is about organizing people, particularly around credit and building capacities to manage money. The focus is on getting the poor to mobilize their own funds, building their capacities and empowering them to leverage external credit. Perception women is that learning to manage money and rotate funds builds womens capacities and confidence to intervene in local governance beyond the limited goals of ensuring access to credit. Further, it combines the goals of financial sustainability with that of creating community owned institutions.

Before 1990s, credit schemes for rural women were almost negligible. The concept of womens credit was born on the insistence by women oriented studies that highlighted the discrimination and struggle of women in having the access of credit. However, there is a perceptible gap in financing genuine credit needs of the poor especially women in the rural sector.

There are certain misconception about the poor people that they need loan at subsidized rate of interest on soft terms, they lack education, skill, capacity to save, credit worthiness and therefore are not bankable. Nevertheless, the experience of several SHGs reveal that rural poor are actually efficient managers of credit and finance. Availability of timely and adequate credit is essential for them to undertake any economic activity rather than credit subsidy.

The Government measures have attempted to help the poor by implementing different poverty alleviation programmes but with little success. Since most of them are target based involving lengthy procedures for loan disbursement, high transaction costs, and lack of supervision and monitoring. Since the credit requirements of the rural poor cannot be adopted on project lending app roach as it is in the case of organized sector, there emerged the need for an informal credit supply through SHGs. The rural poor with the assistance from NGOs have demonstrated their potential for self help to secure economic and financial

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strength. Various case studies show that there is a positive correlation between credit availability and womens empowerment.

CHALLENGING ECONOMIC EMPOWERMENT However impact on incomes is widely variable. Studies which consider income levels find that for the majority of borrowers income increases are small, and in some cases negative. All the evidence suggests that most women invest in existing activities which are low profit and insecure and/or in their husbands activities. In many programmes and contexts it is only in a minority of cases that women can develop lucrative activities of their own through credit and savings alone.

It is clear that womens choices about activity and their ability to increase incomes are seriously constrained by gender inequalities in access to other resources for investment, responsibility for household subsistence expenditure, lack of time because of unpaid domestic work and low levels of mobility, constraints on sexuality and sexual violence which limit access to markets in many cultures.

These gender constraints are in addition to market constraints on expansion of the informal sector and resource and skill constraints on the ability of poor men as well as women to move up from survival activities to expanding businesses. There are signs, particularly in some urban markets like Harare and Lusaka, that the rapid expansion of micro-finance programmes may be contributing to market saturation in female activities and hence declining profits.

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CASE STUDY:SDF Microfinance Methodology 1 Delivery Model

Sita Devi Foundation(SDF) is following a Joint Liability Group (JLG) lending methodology for its microfinance programme. The clients was organized in groups of five to form Joint Liability Groups (JLGs). These JLGs was further organized in centers (1-centre comprised of 2-JLGs) for effective administration of the groups. The JLGs meet regularly on weekly basis at a scheduled time and place for collection of installments. A Credit Officer (CO) from the Branch Office come to JLG meetings for conducting meeting and collection of loan installments.

Operational Structure

The operational structure defines the different units in the delivery models of Sita Devi Foundation(SDF). Sita Devi Foundation(SDF) presently operate through 1branch. The description of the different units in the operational structure of Sita Devi Foundation(SDF) is given below: (Chart 1 on the shows the operational structure of Sita Devi Foundation microfinance operations.)

2.1

Clients

A client is someone who agrees to join Sita Devi Foundation(SDF) and abides by its rules and regulations. He/she will also become a member a JLG affiliated to Sita Devi Foundation(SDF). Clients are entitled to use the services of Sita Devi Foundation(SDF) as per its terms and conditions.

2.2

Joint Liability Group (JLG)

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Up to five individuals will come together and form a Joint Liability Group whereby they give guarantee of each other for loan repayment. JLG members come together for the purpose of utilizing the financial services and it can dissolve after
Head Office

Area Office

Area Office

Branch 1

Branch 2

Branch 3

Branch 1

Branch 2

Branch 3

JLG 1 C1

JLG 2 C2

JLG 3 C3

JLG 4

JLG 1 C1

JLG 2 C2

JLG 3 C3

JLG 4

the first loan cycle. JLG will mainly be formed of small and marginal shopkeepers , traders , thelawala,rickshaw-pullers,barbers,juice wala and related job profiles

2.4

Branches

Branches will be the smallest administrative unit of Sita Devi Foundation(SDF). A branch consists of the following staff:

Table 1: Branch Staffing

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Designation

No

Responsibilities All administrative responsibilities Loan approvals Target setting and their achievements Monitoring of Credit Officers Reporting to the Head Office/Area Office Preparation of books of accounts Preparation of MIS reports Budgets and variance analysis Reconciliation of collected amount

Branch Manager

Branch Accountant 1 (one of the Credit Officer)

Credit Officers

6-8

Formation of JLGGs and their training Sourcing of loan applications and preliminary appraisal Disbursement of loans Collection of installments

A branch will cater to around 3,000 clients. A branch will have an operational area of a maximum of 5-8 kilometers. 2.5 Area Offices/Regional Offices

Each Area/Regional Office in future will look after a maximum of eight branches. Only one Regional Manager and possibly an accountant will man each Area Office. The responsibility of the Area/Regional Office will be to monitor the branches and consolidate the reports produced by the Branch Offices to send these reports further to the Head Office. It is not necessary to have a separate structure for the Area Office. The Area Office could be based in one of the branches.

2.6

Head Office

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The Head Office of Sita Devi Foundation(SDF) is based in Delhi. The Head Office coordinate the functions of all the branches. More specifically the Head Office perform the following functions:

1. Funds mobilization 2. Financial management 3. Coordinating with the Board of Directors 4. Product development 5. Systems development 6. Internal audit 7. Setting budgets and performing variance analysis 8. Human resource management including trainings 9. Performance management of the Branch as well as new branch opening Considering the wide variety of functions performed by the Head Office, we are planning it to divide into different departments. Various departments and their functions have been shown in the following table. The structure of different departments will evolve as the scale of operations increases.

These departments will function in coordination with each other through formal and informal interactions. Initially, the functions of many of these departments will be combined but with increase in the scale of operations, all these departments will be separated with a separate head of department for each.

Table 4: Departments and Functions

Department

Functions Preparation and finalization of books of accounts Preparation of funding proposals Negotiation with lenders and investors Business Planning Budgets and variance analysis
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Finance

Treasury management Statutory compliance and reporting Collection of reports from the branches Consolidation Storage and dissemination of information MIS Preparation of IT strategy Purchase and maintenance of hardware Software development and maintenance Formulation of operational strategy Branch opening Operations Target setting for branches and other staff Monitoring of branches and staff as well as operational reporting Preparation of HR strategy Human Resources & Recruitments and training Payroll accounting Administration Performance appraisal Purchases Maintenance of fleet Administration Liaison Estate management Audit financial transactions Internal Audit Audit of non-financial transactions Review of internal controls Procedures of group formation, disbursement and collection of loans Group formation

Sita Devi Foundation(SDF) follows the JLG methodology. Groups made up of 5 individuals. Once an area has been chosen a credit officer and Branch Manager go to the field and conduct a general meeting. In the general meeting they explain Sita Devi Foundation(SDF), its products and methods to the people. The Branch Manager ask the people to form into groups for the next scheduled meeting. For the second meeting in the field the credit officer go alone. The credit officer explain the training and finalize groups. Training is then conducted and group

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members are asked if they accept the group joint liability. If liability is not accepted the group was disbanded and the process begin again.

Group Recognition Test Once the training is completed, a test is administered. All group members must be present for the test to be administered. If a member is missing then the test is cancelled and rescheduled. The test ensures members have an adequate grasp of the loan program. A 100% pass percentage is required for a group to join the microfinance, if there isnt a 100% pass rate, the group receives further training and retake the test. Since the credit officer is the person responsible for the training, he/she is not allowed to administer the verbal test. The Branch Manager questions the group on loan specifics as well as the concept of joint liability. The Branch Manager ensure that each member of the group has participated in the questioning. He/she must also question the group members on the purpose of their loan and if these responses match the group verification form. Loan Application Process The Credit Officer collects photographs and proof of addresses from each member to begin the loan application process. If a member is missing any of the documents the process is cancelled. This enforces the joint liability concept and method. A family member is then asked to sign the application form. (Other arrangements can be made in extenuating circumstances for example as in the case of a widow living alone.) The loan form and group resolution are then filled out. All documents are then sent for processing. Loan Disbursement Process Finally the loans are ready for disbursement. The Branch Manager personally disbursed the laon at Branch Office to all members of JLG. Once again as before if all members are not present the meeting will be cancelled. A promissory note is signed by all members for the loan amounts attesting to their liability. Then loan cards(pass book) cards are disbursed along with funds. Each Client receives one passbook mentioning all the details of laon disbursed and their loan repayment
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schedule. The loan card/pass book will be notated and signed upon each payment. The loan card/passbook is for the clients records.

Loan Collection Process Lastly is the collection process. During regular group meetings, members will decide on loan disbursements and provide payments to the credit officer. The meetings allows for members to discuss any issues or problems they may be facing. It also allows the credit officer to discuss any bad debt and the general progress of the groups portfolio. The credit officer will take attendance and collect cash. Any cash that is short or late must be collected from the other members

CONCLUSIONS AND SUGGESTIONS Numerous traditional and informal system of credit that were already in existence before micro finance came into vogue. Viability of micro finance needs to be understood from a dimension that is far broader- in looking at its long-term aspects too .very little attention has been given to empowerment questions or ways in which both empowerment and sustainability aims may be accommodated. Failure to take into account impact on income also has potentially adverse implications for both repayment and outreach, and hence also for financial sustainability. An effort is made here to present some of these aspects to complete the picture.

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References 1. Asian Development Bank (ADB). 2000. Rural Asia Study: Beyond the Green Revolution.
Manila: ADB 2. In T. Fisher & M.S. Sriram (Eds.), Beyond micro-credit: Putting development back into microfinance 3. Klaus, M. E. (1999). Report of working group on savings mobilization, Bank Rakyat Indonesia (BRI). 4. Rhyne, E. (2001). Mainstreaming microfinance. Connecticut: Kumarian Press 5. Robinson, M. (2001). The microfinance revolution: Sustainable finance for the poor 6. Sinha, S. (2001). The role of central banks in microfinance in Asia and the Pacific. Manila: Asian Development Bank

7. Yunus, M. (2003). Some suggestions on legal framework for creating microcredit banks.
Dhaka: Grameen Bank. Journal of Microfinance 112 Volume

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