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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

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
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
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
slide17
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)
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