Deepening microfinance
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Deepening Microfinance. Tata-Dhan Academy 04.03.2010. Context. Micro finance for poverty reduction. Context Millennium Development Goals - an appropriate framework for micro finance industry to address poverty and development issues Scope for Beyond MDGs

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Deepening microfinance

Deepening Microfinance

Tata-Dhan Academy

04.03.2010


Deepening microfinance

Context


Micro finance for poverty reduction

Micro finance for poverty reduction

Context

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

  • Scope for Beyond MDGs

  • Characterizing poverty and development issues

  • Contextualizing microfinance

    • Micro credit microfinance development finance


Poverty reduction household

Poverty reduction - Household

  • Outreaching poorest of the poor

  • Ensuring food security

  • Providing security of shelter

  • Promoting educational security

  • Providing health security

  • Promoting and sustaining income security

  • Sustaining social security

  • Ensuring gender equality and equity

  • Protecting from risks and vulnerabilities


Poverty reduction large scale phenomena

Poverty reduction – large scale phenomena

  • Disaster situations

  • Mass migration

  • Climate change

  • Sectoral development – agriculture, business development, service sector, processing, manufacturing, marketing, etc

  • Remoteness and isolations

  • Conservation – common property resources and energy

  • Narrow skill base

  • Infrastructure – electricity, communication, transport, water, drainage, services (health, education etc)

  • Diseases out breaks

  • Social and cultural issues related to children, adolescent girls, women, men, physically and mentally challenged

  • Political environment

  • Any localized issues


Deepening microfinance

Available experience


Current status

Current status

  • microfinance has only reached about 10% of its potential market so far

  • microfinance is now a tested business model offers variety of financial products such as savings account, productive loans including working capital loans, micro insurance, and even housing finance.

  • Still evolution continues through experimentation

  • Established social capitals: SHG - federation, cooperatives, trade-unions, NHG – PRIs, SHG – PLFs etc

  • Conceptualized into different phases


Microfinance components

Microfinance components

  • Social capital

  • Financial services

    • Micro savings, micro credit, micro insurance, remittance transfers and payment services

  • Livelihoods promotion and development

  • Beyond microfinance (Civic intermediation)


  • Deepening microfinance social capital

    Deepening microfinance - Social capital

    Structure

    • Self Help Groups and Cooperatives with mutual concept

    • Apex bodies: federations and associations of cooperatives

    • Distinct governance and executive systems

      Systems

    • Simple to complex operational systems such as accounts, audit, meetings, byelaws, policies and procedures, and management information, monitoring and evaluation, impact assessment etc

    • External linkages – banks, PRIs, networks, government and private service providers, and other local informal and formal associations

    • Institutional building processes: defined goals and objectives, HR processes, growth and development related mechanisms, sustainability areas such as financial, institutional and development


    Deepening microfinance financial

    Deepening microfinance - Financial

    Savings

    • Diversified savings products: voluntary, purpose oriented, compulsory, need based, cash and kind

    • Incentives: with or without interest on savings, withdrawal/non withdrawal savings, flexibility

    • Security: deposit in the bank, rotate among the members as loans, temporary tapping in S/B account, keep it in the apex bodies, as investments etc

      Credit

    • lending policies

    • Loan products-consumption, productive, housing and basic amenities etc

    • using savings only or with external funds for lending

    • Appraisals, loan graduation, credit absorption, term or multiple loans, ROC

    • Repayment – flexible or fixed amounts, period, monitoring/lack of monitoring PAR at group/cooperatives, follow-up by banks or federations or promoters, loan cards etc


    Deepening microfinance financial1

    Deepening microfinance - Financial

    • Collaboration with government: SGSY

    • Handling subsidized credit, revolving funds, grants etc

    • Financial inclusion and financial literacy

    • Linkages – different models, BC and BF

    • Cost coverage (financial sustainability)

    • Multiple sources of funding and cross subsidization

    • Promotional cost

    • Corpus creation

    • Creation of development funds


    Deepening microfinance financial2

    Deepening microfinance - Financial

    Micro Insurance

    • Different models: Partner agent model, community based model

    • Products: life, livestock, health, and weather index

    • Micro pension: concept phase

    • Reinsurance

    • Policy to facilitate promotion of pro-poor products by formal insurance companies

    • Capacity building: concepts, principles, product design and administration, insurance literacy and piloting


    Deepening microfinance livelihoods intermediation

    Deepening microfinance – Livelihoods intermediation

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

    • Individual activities, PPGs, group activities

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

    • Livelihoods framework: Basix, DHAN, PRADAN

    • Localized efforts

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

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

    • Experimenting value chain

    • Migration – as livelihood option


    Deepening civic intermediation

    Deepening: Civic intermediation

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

    • De-addiction

    • Education: remedial, model schools, evening schools

    • Slum development: drainage, sanitation, road and other infrastructure

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

    • Conservation and management: coastal resources

    • Gender and development

    • Mainstreaming disaster management

    • Human rights

    • Old age, disabled, ultra poor who are excluded


    Deepening microfinance

    Areas for deepening


    Areas for deepening

    Areas for deepening

    Social capital (SHGs and Cooperatives)

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

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

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

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

    • Local networking – banks, govt and development organizations


    Deepening microfinance

    • Setting standard by practice and develop benchmark as a model

    • Mechanisms to ensure homogeneity and reach of equitable benefits

    • Positioning social capital as a development organization: clear institutional framework, purpose clarity with governance and executive system

    • Defined mission and vision for the organizations

    • Institutionalizing democratic process in SHGs and cooperatives

    • Satellite groups/cooperatives in remote areas


    Financial intermediation

    Financial intermediation

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

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

    • Individual subsidy to institutional subsidy

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

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


    Financial intermediation1

    Financial intermediation

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

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

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

    • Strengthen the demand driven credit service

    • Corpus creation for sustainability


    Livelihood intermediation

    Livelihood intermediation

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

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

    • Wage based permanent job and assets creation

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

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

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

    • Attention on building local economy vibrant


    Civic intermediation

    Civic intermediation

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

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

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

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

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


    Deepening microfinance

    • Connecting Microfinance and MDGs for further deepening


    Deepening microfinance

    Thank you


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