A case study of NABARD's Rural Innovation - SSRN papers

Co-operative Innovation: Influencing the Social economy, CANADA CONGRESS 2007 Prof. Vrajlal Sapovadia, B. K. School of Business Management, Gujarat University, Ahmedabad, India

Evaluating Effectiveness among Cooperatives vis-à-vis other Social Institutes – A case study of NABARD’s Rural Innovation Fund & Other Schemes Dr. Vrajlal Sapovadia ([email protected]) B.K. School of Business Management Gujarat University Ahmedabad, India Introduction National Bank For Agriculture & Rural Development (NABARD) is set up as an apex Development Bank by the Government of India with a mandate for facilitating credit flow for promotion and development of agriculture, cottage and village industries. The credit flow to agriculture activities sanctioned by NABARD reached Rs 1,574,800 million in 2005-2006. The overall GDP is estimated to grow at 8.4 per cent. The Indian economy as a whole is poised for higher growth in the coming years. Role of NABARD in overall development of India in general and rural & agricultural in specific is highly pivotal. Through assistance of Swiss Agency for Development and Cooperation, NABARD set up the Rural Infrastructure Development Fund. Under the RIDF scheme Rs. 512830 million have been sanctioned for 2,44,651 projects covering irrigation, rural roads and bridges, healthy and education, soil conservation, water schemes etc. Rural Innovation Fund is a scheme designed to support innovative, risk friendly, unconventional experiments in these sectors that would have the potential to promote livelihood opportunities and employment in rural areas. NABARD has designed and implemented successfully many other schemes for innovative projects, rural & agricultural development and micro financing. The assistance is extended to Individuals, NGOs, Cooperatives, Self Help Group, and Panchayati Raj Institutions who have the expertise and willingness to implement innovative ideas for improving the quality of life in rural areas. Through member base of 250 million, 600000 cooperatives are working in India at grass root level in almost every sector of economy. There are linkages between SHG and other type institutes with that of cooperatives. Over the past decade micro-finance has become a mainstream development activity. Microfinance is regarded as a central poverty alleviation strategy and a means of deriving economic growth and employment of small, micro & medium enterprises (SMME). A complex set of best practice models, and a network of active members and support of rural people in organized form (Vikas Volunter Vahinis-VVVs) and the active support of banks and National Bank for Agriculture and Rural Development (NABARD) in India have emerged to support a thriving industry. As a developing country, like India ought to be an ideal environment for micro-finance programmes seeking to reach the poor and attain financial sustainability. In India, more

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than 300 millions people live below the poverty line and therefore, showing positive growth rates and rigorous adherence to structural adjustment tests assertions made about micro-finance being a poverty alleviation strategy. In practice, India has shown overwhelmingly positive experiences of micro-finance. This paper seeks to address four key themes: the first, the role of National Bank for Agriculture and Rural Development in designing and implementing various schemes of agriculture and rural development. Secondly, to present overview of various schemes of rural development through innovative projects and the role of Rural Innovation Fund (RIF) and Rural Infrastructure Development Fund (RIDF) created by National Bank for Agriculture and Rural Development. The third theme of the paper highlights, whether micro-finance scheme is an appropriate pro-poor strategy in India and what are the major problems and issues in the microfinance in India. Under the fourth theme, the paper tests whether type of institutions under the scheme determines fate of recovery of credit extended? Or does it make any difference if borrower is individual, member of Self Help Group (SHG) or a Cooperative Society? The paper also focuses on the roles that National Bank for Agriculture and Rural Development and Cooperatives have played in supporting this sector both in terms of the policy, research and its implementation. The paper is structured in two parts: - the first part presents a role of National Bank for Agriculture and Rural Development in the development of various innovative schemes for the development of agriculture and rural sector of India and the second part covers the case studies and analysis of micro financing by cooperative banks independently or under schemes of NABARD. Methodology The approach taken was to trace the development of micro-finance at national level, looking specifically at the role of National Bank for Agriculture and Rural Development in the configuration of the sector and then the particular SHGs funded by the banks. Secondary research included the analysis of policy documents, overview of national level situation of microfinance and also few case studies, and literature reviews. Primary research relating to the microfinance overview and issues related to it was undertaken in Gujarat, India. In-depth key informant interviews were held with SHG members and the bankers and senior officials of National Bank for Agriculture and Rural Development. Genesis and Historical Background The Committee to Review Arrangements for Institutional Credit for Agriculture and Rural Development (CRAFICARD) set up by the RBI under the Chairmanship of Shri B Sivaraman in its report submitted to Governor, Reserve Bank of India on November 28, 1979 recommended the establishment of NABARD. The Parliament through the Act 61 of 81, approved its setting up.

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The Committee after reviewing the arrangements came to the conclusion that a new arrangement would be necessary at the national level for achieving the desired focus and thrust towards integration of credit activities in the context of the strategy for Integrated Rural Development. Against the backdrop of the massive credit needs of rural development and the need to uplift the weaker sections in the rural areas within a given time horizon the arrangement called for a separate institutional set-up. Similarly. The Reserve Bank had onerous responsibilities to discharge in respect of its many basic functions of central banking in monetary and credit regulations and was not therefore in a position to devote undivided attention to the operational details of the emerging complex credit problems. This paved the way for the establishment of NABARD. CRAFICARD also found it prudent to integrate short term, medium term and long-term credit structure for the agriculture sector by establishing a new bank. NABARD is the result of this recommendation. It was set up with an initial capital of Rs 100 crore, which was enhanced to Rs 2,000 crore, fully subscribed by the Government of India and the RBI. Mission Promoting sustainable and equitable agriculture and rural development through effective credit support, related services, institution building and other innovative initiatives. In pursuing this mission, NABARD focuses its activities on: Credit functions, involving preparation of potential-linked credit plans annually for all districts of the country for identification of credit potential, monitoring the flow of ground level rural credit, issuing policy and operational guidelines to rural financing institutions and providing credit facilities to eligible institutions under various programmes, Development functions, concerning reinforcement of the credit functions and making credit more productive, Supervisory functions, ensuring the proper functioning of cooperative banks and regional rural banks Objectives NABARD was established in terms of the Preamble to the Act, "for providing credit for the promotion of agriculture, small scale industries, cottage and village industries, handicrafts and other rural crafts and other allied economic activities in rural areas with a view to promoting IRDP and securing prosperity of rural areas and for matters connected therewith in incidental thereto". The main objectives of the NABARD as stated in the statement of objectives while placing the bill before the Lok Sabha were categorized as under: 1.

The National Bank will be an apex organisation in respect of all matters relating to policy, planning operational aspects in the field of credit for promotion of Agriculture, Small Scale Industries, Cottage and Village Industries, Handicrafts and other rural crafts and other allied economic activities in rural areas.


2.

The Bank will serve as a refinancing institution for institutional credit such as long-term, short-term for the promotion of activities in the rural areas.

3.

The Bank will also provide direct lending to any institution as may approved by the Central Government.

4.

The Bank will have organic links with the Reserve Bank and maintain a close link with in.

Major Activities • Preparing of Potential Linked Credit Plans for identification of exploitable potentials under agriculture and other activities available for development through bank credit. • Refinancing banks for extending loans for investment and production purpose in rural areas. • Providing loans to State Government/ Non Government Organizations (NGOs)/ Panchayati Raj Institutions (PRIs) for developing rural infrastructure. • Supporting credit innovations of Non Government Organizations (NGOs) and other non-formal agencies. • Extending formal banking services to the unreached rural poor by evolving a supplementary credit delivery strategy in a cost effective manner by promoting Self Help Groups (SHGs) • Promoting participatory watershed development for enhancing productivity and profitability of rainfed agriculture in a sustainable manner. • On-site inspection of cooperative banks and Regional Rural Banks (RRBs) and iff-site surveillance over health of cooperatives andRRBs. Promoting sustainable and equitable agriculture & rural development through effective credit support, related services, institution building and other innovative initiatives, NABARD is the apex institution, accredited with all matters concerning policy, planning and operations in the field of credit for agriculture and other economic activities in rural areas of India. NABARD is set up as an apex Development Bank with a mandate for facilitating credit flow for promotion and development of agriculture, small-scale industries, cottage and village industries, handicrafts and other rural crafts. It also has the mandate to support all other allied economic activities in rural areas, promote integrated and sustainable rural development and secure prosperity of rural areas. In discharging its role as a facilitator for rural prosperity NABARD is entrusted with


1. Providing refinance to lending institutions in rural areas 2. Bringing about or promoting institutional development and 3. Evaluating, monitoring and inspecting the client banks Besides this pivotal role, NABARD also: •

Acts as a coordinator in the operations of rural credit institutions

•

Extends assistance to the government, the Reserve Bank of India and other organizations in matters relating to rural development

•

Offers training and research facilities for banks, cooperatives and organizations working in the field of rural development

•

Helps the state governments in reaching their targets of providing assistance to eligible institutions in agriculture and rural development

•

Acts as regulator for cooperative banks and RRBs

Some of the milestones in NABARD's activities are: • With its effective overseeing and monitoring of the implementation of the Government of India's programme to double the flow of credit to agriculture over a three-year period from 2004-2005, the total disbursement of credit reached Rs 1,25,309 during 2004-2005. Ground level credit flow to agriculture and allied activities reached Rs 1,57,480 crore in 2005-2006. • Refinance disbursement to commercial banks, state cooperative banks, state cooperative agriculture and rural development banks, RRBs and other eligible financial institutions aggregated Rs 8,622.37 crore. • As on 31 January 2007 through the Rural Infrastructure Development Fund (RIDF), Rs,59,795.35 crore have been sanctioned for 2,31,702 projects covering irrigation, rural roads and bridges, health and education, soil conservation, drinking water schemes, etc. Developing among hosts of other infrastructures, RIDF will create 20971 schools, 6239 primary health centres and provide drinking water supply in 7267 villages • Watershed Development Fund, with cumulative sanctions of Rs.578.95 crore for 427 projects in 124 districts of 14 states, has created a People’s Movement in rural India. • Farmers now enjoy financial access and security through 582.50 lakh Kisan Credit Cards that have been issued through a vast rural banking network.


• District Rural Industries Project (DRIP) has generated employment for 23.34 lakh persons with 10.95 lakh units in 105 districts. NABARD at a Glance (Rs. in Crore = 10 million) Sources of Funds As at end March 2005

Net accretion

Uses of Funds As at end March

2006

2005

Capital

2,000

2,000

Reserves and Surplus

6,199

6,974

13,152

13,183

31 a) GoI Securities

1,511

1,522

11 b) ADFC Equity

56

77

17,204

20,813

NRC (LTO) Fund NRC (Stabilisation) Fund Deposits Bonds and Debentures

- Cash and Bank Balances 775

404

400

21 c) AFC Equity 3,609 d) SIDBI Equity

- 4 f) NCDEX Ltd. and MCX Ltd. g) Nabcons

3,927

2,998

4,296

-1,182

4,755

2,472

-2,283

16

16

-

1

1

-

48

48

-

60

60

-

4

6

2

5

5

-

248

452

204

-

216

216

- 1,800 a) Production and Marketing Credit

8,307

9,617

1,310

b) Conversion of Production Credit into MT Loans

365

267

- 98

808

2,492

1,684

3

1

-2

27,942

30,167

2,225

406

387

- 19

11

15

4

10,513

15,142

4,629

h) Mutual Funds, BVF, APIDC Borrowings from RBI

2006

5,478

Investment in

e) AICI Ltd. Borrowings from GoI

Net utilisation

- 929 i) Bills rediscounted

Loans and Advances Borrowings from Commercial Banks

Foreign Currency Loan

4,300

297

2,500

294

- 3 c) Liquidity Support d) MT Investment Credit (nonproject)

RIDF Deposits

9,169

13,975

Other Liabilities

1,616

1,676

4,806 e) MT and LT Project Loans f) LT Non-project Loans 60 g) Other Loans h) Loans out of RIDF

Other Funds Total

944

1,193

60,779

67,605

Fixed Assets

235

225

- 10

249 Other Assets

1,574

1,720

146

60,779

67,605

6,826

6,826 Total

Source: NABARD

ORG MARG STUDY Social Audit of RIDF supported Gokul Gram Yojana by ORG-MARG was carried out. Social Audit refers to a process of measuring and improving the social performance of a project. It attempts to assess the people's interest, priorities and perceptions to make the implementation process open and accountable to the people. The benefits of certain rural infrastructure projects had to be necessarily viewed from society's angle and for that


matter RIDF supported Gokul Gram Yojana projects implemented in Gujarat was subjected to social audit by an external agency, viz., ORG-MARG. Gokul Gram Yojana (GGY) providing 16 basic amenities, within a time period of five years (1995-2000) was conceptualised to seek people's participation right from its planning to monitoring and maintenance of the assets created under the scheme. NABARD sanctioned a loan of Rs.70 crores in March 2000 under RIDF-V for implementation of GGY where state government proposed construction of rural roads and primary schools. The main components of Gokul Gram Yojana being rural roads and primary schools, these infrastructure facilities supported under RIDF were selected for the study. The Agency covered six rural roads (3 each from Banaskantha and Rajkot districts) and eight primary schools (2 from Amreli, 3 from Banaskantha and 3 from Rajkot districts). The major findings and suggestions/recommendations of the report submitted by ORGMARG are as follows: A major proportion of the total expenditure was met through budgeted provision of Rural Development Department (including NABARD's share) and the rest through funds of other ongoing schemes in Banaskantha and Amreli districts. Most of the sample projects were completed within the proposed time. However, a few projects, which got delayed, late receipt of funds and internal conflicts at the village level emerged out as the main reasons for the time overrun. Also for a few of the projects, cost overrun due to additional number of works undertaken was observed. People in the project area appreciated the quality of roads by and large. Majority of people were satisfied with the present condition of the schoolrooms and with the quality of construction. Following table indicates sector wise credit extended in last 6 financial years. Purpose-wise Refinance Disbursements by NABARD under Investment Credit State/UT [Rs Lakh, equivalent to one tenth of million or hundred thousands] Non Farm Sector

Self Help Groups

Others

Grand Total

95675

Govt Sponsor ed program s 74406

102030

24493

28117

615817

3636

114454

68952

161590

39526

33795

668291

29203

3473

126795

51338

200740

62427

58180

741872

82751

25075

2325

94952

30306

236321

70544

134554

760529

29128

105480

23571

2563

108458

61033

254258

96808

108435

857746

63722

171296

32559

3849

92301

32195

228598

106772

76855

862237

Year

Minor Irrigati on

Land Develop ment

Farm Mechani sation

Plantatio n& Horticult ure

Fisheries

Animal Husban dry

200001 200102 200203 200304 200405 200506

62607

10436

190029

24598

3426

69106

13309

135889

28034

85498

24958

99260

65145

18556

68012 54090

Source: NABARD

Impact - Perceived benefits from schoolroom projects New schoolrooms provided sitting space to children and protection from heat, rains and cold. The attendance of children during hot and rainy seasons increased by 20-25 per cent, schoolroom also helped children to concentrate on studies without disturbance and


distraction, thereby improving the environment of education. Necessary books, equipments, maps, etc. could now be safely stored in schoolrooms. Perceived benefits from road projects The new roads provided clean look to the village, facilitated movements of commuters/vehicles during rainy season, facilitated frequent visits of vendors supplying vegetables, crockery, cloth, newspaper, milk, etc. Road has improved accessibility of people to the village resources like, dairy, cooperatives, post office, health centre, shops, etc. Internal road also saved time and efforts during rainy season by improving the portion of internal roads which was not usable earlier. Suggestions/Action Points DRDA as nodal agency may fix some standards for prioritising the project sites for the various phases of scheme implementation as to make the selection procedures more efficient and transparent. There is a need to involve women in the process of need identification to make the selection procedures participatory to greater extent and free from gender bias. Voluntary groups/women groups at the village level may bring awareness among the people to sustain the assets on long-term basis. Gram Panchayat may collect revenue from the community for maintaining the assets. Implementing agencies may maintain separate financial accounts by activities and sources of funding. A common platform to facilitate the different departments in converging all the programmes of the Government related to Rural Infrastructure is warranted to make the villages really 'Gokul Grams'. NABARD may continue to monitor these programmes at field level regarding physical progress of the schemes on quarterly basis and entrust the evaluation of the programme to a national level organisation to get an outsider's view. The Genesis of RURAL INFRASTRUCTURE DEVELOPMENT FUND (RIDF) In the Union Budget Speech 1995-96, Hon'ble Finance Minister announced that"Inadequacy of public investment in agriculture is today a matter of general concern. This is an area, which is the responsibility of States. But many States have neglected investment in infrastructure for agriculture. There are many rural infrastructure projects, which have been started but are lying incomplete for want of resources. They represent a major loss of potential income and employment to rural population Corpus and Sources of Funds RIDF-I was launched in 1995-96 with an initial corpus of Rs.2000 crore through contributions both from public and private sector having shortfall in the agricultural lending subject to a maximum of 1.5% of the shortfall of the net bank credit to


agriculture. Since 1996-97 i.e. RIDF-II, sources of deposits from commercial banks has been broad-based by including shortfall either in direct finance to agriculture and/or shortfall in priority sector lending. The tranche-wise size of corpus has been as under: Activities for Loans under the RIDF for 2006-07, Activities/Sectors financed under RIDF Earlier, only ongoing Irrigation, Flood Protection, Watershed Management projects were financed under RIDF-I as a 'last mile approach' to facilitate completion of the projects delayed on account of financial constraints. Primary and Secondary Schools, Primary Health Centers, Village Haats, Joint Forest Management, Terminal and Rural Market/Godowns, Rain Water Harvesting, Watershed development, flood protection, drainage, Cold Storage, Riverine Fisheries, Fishing Harbour & Jetties, Mini/Small Hydel Projects in Power Sector, Rural Drinking Water Supply Schemes, Village knowledge Centres, Modern abottoir, Seed/Agri./Hori. Farms, etc. are also being financed. In the Union Budget of 2006-07 the Government has announced the corpus fund under RIDF of Rs. 10000 crore to be implemented during 2006-07. The financing of rural Road & Bridge projects was started under RIDF. Subsequently, coverage of RIDF was broad-based in each tranche and at present, a wide range of activities is covered under the RIDF, such as Rural Roads; Rural Bridges; Minor Irrigation Projects/Micro Irrigation; Soil Conservation; Flood Protection; Watershed Development/Reclamation of waterlogged areas; Forest Development; Market Yard/Godown, Apna Mandi, rural haats and other marketing infrastructure; Cold storage, Public or Joint sector cold storage at various exit points; Seed/Agriculture/Horticulture Farms; Plantation and Horticulture; Grading and certifying mechanisms such as testing and certifying laboratories etc.; Community irrigation wells of irrigation purposes for the village as a whole; Fishing harbours/jetties; Riverine Fisheries; Animal Husbandry; Modern Abattoir; Medium Irrigation Projects; Mini Hydel Projects; Drinking Water; Infrastructure for Rural Education Institutions; Public Health Institutions(including mobile health clinics); Construction of toilet blocks in existing schools, where necessary, specially for girl students, so as to improve the amenities available in schools; "Pay & use" toilets in rural areas; Major Irrigation Project (only those projects already sanctioned and under execution); Village Knowledge Centres; Desalination plants in coastal areas; Small Hydel Projects (upto 10 MW); Infrastructure for Information Technology in rural areas Construction of Anganwadi Centres. The union budget also indicated that Rs. 4000 crore will be made available from RIDF for finding rural road component of Bharat Nirman Programme. And Specified prospects under Public Private Partnership (PPP) model will have access to RIDF. All new "project concepts" received from various State Governments are placed before the PSC for approval before accepting detailed projects from State Governments for financing. The rate of interest on various loans were ranging from 12 to 13 % before


2002 but now the rates of interest have been reduced and at present they are 6.5% per annum. Disbursements & Outstanding Total sanctions as on 31 March 2006 aggregated Rs. 51283.01 crore. The total cumulative disbursements as on 31 March 2006 were Rs. 31337.34 crore. ANNEXURE – I – RIDF at a glance (as on 31 March 2006) (Rs Crore, crore is equal to ten million) RIDF Tranche/ Year

Year

Corpus

RIDF I

1995-1996

2000

RIDF II

1996-1997

2500

RIDF III

1997-1998

2500

RIDF IV

1998-1999

3000

RIDF V

1999-2000

3500

RIDF VI

2000-2001

4500

RIDF VII

2001-2002

5000

RIDF VIII

2002-2003

5500

RIDF IX

2003-2004

5500

RIDF X

2004-2005

8000

RIDF XI

2005-2006

8000

RIDF XII

2006-2007

10000

TOTAL

60000 Source: NABARD

Differential Rate of Interest to Banks With a view to encouraging commercial banks to enhance flow of direct credit to agriculture, it is decided by RBI to link interest on bank contribution to RIDF to the extent of the shortfall of their agriculture lending vis-à-vis the targets of priority sector of 40 percent in general and 18% to agriculture sector in particular. The commercial banks get the interest on the parking of funds in kitty of RIDF funds. The Finance Departments of the State Governments act as Nodal Departments for operationalising RIDF. The project proposals are routed through the Finance Department only and no proposals are accepted directly from any other Department of the State Government. All other related items of work like submission of drawals applications under sanctioned projects, Release of loan, execution of documents, repayment of loans, etc., are attended to by Finance Departments of the State Governments. The repayment period of 5 years including a 2-year grace period was provided under RIDF scheme. The repayment period has, however, been extended to 7 years including a grace period of 2 years since RIDF and the same policy is continuing. The normal phasing (Project implementation Period) under RIDF-I was 2 years whereas under subsequent tranches of RIDF, it is 3 years. However, due to operational constraints,


phasing has to be normally extended for the tranche as a whole or for specific projects to enable the State Governments to complete the projects. NABARD sanctions the loans to the state Governments under RIDF Scheme and also monitor the loans, but the responsibilities of the monitoring the projects at grass root level is the responsibility of the State Governments. RURAL INNOVATION FUND (RIF) NABARD-SDC RURAL INNOVATION FUND (RIF) National Bank for Agriculture and Rural Development (NABARD) in association with Swiss Agency for Development and Cooperation (SDC) has constituted the "NABARD-SDC Rural Innovation Fund (RIF) " to, inter alia, support innovative projects in Farm, Non-Farm and Micro-Finance Sectors leading to creation of livelihood opportunities for the poor. NABARD invites proposals for funding support to innovative projects having the above objective. An illustrative list of areas is given below: • Biological & Engineering measure/techniques that improve productivity of water. • Design of economic and efficient water harvesting structures. • Efficient water use systems: low cost micro-irrigation technology/ micro tube irrigation technology, etc. • Diversification of farm activities - agro-forestry, silvipasture, agro-horticulture and animal husbandry etc. • Organic farming - bio-fertilisers and pesticides. • Development of location specific crops and agronomic practices. • Extension of technology- Agri-clinics, Agro Service Centres, e-Service Centres, including the feasibility of commodity trading/ Village Knowledge Centres. • Community farming. • Contract farming. • Insurance products for rainfed agriculture. • Banking through SHGs, VWCs and user teams, Joint Liability Groups, etc. • Portfolio approach to lending - basket of activities. • Development of small hand operated/ power operated tools/ implements that will support system diversification in rain fed farming/ crop husbandry. • Support for design, development, plan and adoption of traditional efficient water harvesting systems. • Support for documentation of farmers' innovations/indigenous technological knowledge. • Innovative rainwater harvesting for rural dwellings. • Rural energy from biomas, agri waste. • Techniques for increasing value of crop residues and non-crop biomass. • Community regulation of distribution and use of waste and energy. • Storage devices for agricultural and rural products. • Innovative methods of managing Common Property Resources. • Materials and designs for rural roads. • Rural sanitation and waste disposal.


1. What is RIF? Rural Innovation Fund (RIF) is a fund designed to support innovative, risk friendly, unconventional experiments in Farm, Non-Farm and micro-Finance sectors that would have the potential to promote livelihood opportunities and employment in rural areas. 2. What are the guiding principles for operations of RIF? • • •

The activities must have the rural poor in their focus and must be innovative, experimental and demonstrative in nature leading to replicability and commercial viability. The activities funded may involve development of new products, processes, prototypes, technology, patenting and extension support. Appropriate action research and studies contributing to better understanding of rural development issues, policy and process implementation may be undertaken.

3. What type of projects can be supported under RIF? •

• • •

All innovations and related activities in the Farm, Rural Non-Farm and MicroFinance sectors can have access to the RIF. Assistance from RIF will be available for all activities which are in keeping with the guiding principles of RIF and specifically those which Provide technology and skill up gradation, inputs supply and market support leading to promotion of viable enterprises, sustainable employment, infrastructure development, improved flow and access of credit to rural entrepreneurs. Undertake innovations so as to improve efficiency of credit delivery and other support services to the rural resource poor. Patenting innovations leading to commercialization of the idea through licensing or otherwise. a) These would include innovative proposals which aim at increasing productivity and profitability of operations of the farmers, artisans, handicraft persons and rural people in general, projects that help in reducing drudgery, improving access to market, projects that help better sanitation, health and hygienic conditions and environment in rural areas. b) Proposals, which improve rural credit, outreach. c) Proposals, which help in creating sustainable employment opportunities in rural India. d) Proposals that improve farm practices & help in conserving land fertility. e) Research studies for documenting the innovations already taking place in rural areas and examining issues concerned with rural cottage & village industries /farm sector / farming practices.

4. Preferred Sectors The following areas/ sectors will be considered for support from the Fund, to start with:


Dry land / rain fed farming, Innovative rainwater harvesting for rural dwellings, Rural energy from biomass/ agricultural wastes, Techniques for increasing the value of crop residues and non-crop bio mass, Community regulation of distribution and use of water and energy, Storage devices for agricultural and rural products, Innovative methods of managing Common Property Resources, Materials and designs for rural roads and Rural sanitation and waste disposal. Apart from this, activities trying to bring in more innovative approaches/ ideas with greater focus on the following areas will also be supported: Rural Entrepreneurship/ skill Development, marketing Strategy and Networking, Rural Housing and Habitat Development- Low cost and natural calamity resilient housing structures for providing safe habitat to rural population, Rural service sector, Financial inclusion, micro-Finance to micro-Entrepreneurship, Financial and technological model for Health Care and Hygiene, Evolving package of products on Rural Tourism and Culture, Rural Sanitation and Rural Haats in collaboration with Panchayat Raj Institutions 5. Who are eligible to apply under RIF? Individuals, NGOs, Community Based Organisations, SHGs, Farmer’s Club, Panchayati Raj Institutions and Corporates who have the expertise and willingness to implement innovative ideas for improving the quality of life in rural areas may apply. 6. What type of financial support is available under RIF? Support available under RIF can be in the form of loan / grant/ incubation fund support, or a mix of all the three components. The support would be need based, cost effective and dependent on the requirement of the project, also taking into account some financial involvement by the proposer. Micro-finance as a mainstream development intervention Micro-finance services include savings, thrift and credit schemes. The most popular product within the scope of micro-finance services has been micro-credit, which involves the distribution of small-scale loans to the poor peoples for commencing their selfemployment activities. However the terms micro-finance and micro-credit are often used interchangeably throughout the debates although they involve very different development interventions. Micro-finance services entail the broad range of financial products while micro-credit schemes target a single financial product. This distinction will emerge later on in this paper as a key debate between broad-based and minimalist models of support. The micro-finance literature has largely been situated in the context of SMME development. Access to credit, savings and other financial products are a vital component to enterprise promotion, employment creation, and poverty alleviation. The informal economy provides a useful framework to explore a range of interrelated, diverse and fluid activities operating in environments of instability and risk.


The poorest among poor members form the Self Help Group (SHG) preferably from the same community, same locality and also the common gender through voluntarily peer group self-selection method. The peer group is based on trust and thorough knowledge of each member’s life circumstances thus overcoming the absence of collateral and credit references. Loans are initially small in size, and increase as the groups successfully repay their loans. Overview of Micro Finance India The banking sector in India has shown tremendous progress and innovation after the 1970 and witnessed substantial amount of resources being earmarked towards meeting the credit needs of the poor. The banking network underwent an expansion phase without comparables in the world. Credit came to be recognized as a remedy for many of the ills of the poverty. Credit packages and programmes were designed based on the perceived needs of the poor. While the underlying objectives were laudable and substantial progress was achieved, credit flow to the poor, and especially to poor women, remained low. This led to initiatives that were institution led, that attempted to converge of the existing strengths of rural banking infrastructure and leverage this to better serve the unbanked poor. The pioneering efforts at this were made by NABARD, which was vested with an enviable task of framing appropriate policy for rural credit, provision of technical assistance backed liquidity support to banks, supervision of rural credit institutions & other development initiatives. NABARD during the early eighties conducted a series of research studies, which showed that despite having a wide network of rural bank branches that implemented specific poverty alleviation programmes & self-employment opportunities through bank credit for almost two decades, a very large number of the poorest of the poor continued to remain outside the fold of the formal banking system. It also showed that the existing banking policies, systems and procedures, deposit and loan products were perhaps not well suited to meet the most immediate needs of the poor. It also appeared that what the poor really needed was a better access to these services and products, rather than cheap subsidised credit. Against this background, a need was felt for alternative policies, systems and procedures, savings and loan products, other complementary services, and new delivery mechanisms, which would fulfill the requirements of the poorest, especially of the women members of such households. The emphasis therefore was on improving the access of the poor to MicroFinance (MF) rather than just micro-credit. The launching of its Pilot phase of the SHG (Self Help Group) Bank Linkage programme in February 1992 could be considered as a landmark development in banking with the poor. The SHG-informal thrift and credit groups of poor came to be recognised as bank clients under the Pilot phase. The strategy involved forming small, cohesive and participative groups of the poor, encouraging them to pool their thrift regularly and using the pooled thrift to make small interest bearing loans to members, and in the process learning the nuances of financial discipline. Subsequently, bank credit also becomes available to the Group, to augment its resources for lending to its members. It needs to be emphasised that NABARD sees the promotion and bank linking of SHGs not as a credit


programme but as part of an overall arrangement for providing financial services to the poor in a sustainable manner and also an empowerment process for the members of these SHGs. NABARD, however, also took a conscious decision to experiment with other successful strategies such as replicating Grameen, wholesaling funds through NGO-mFIs. The NABARD led Pilot Project commenced with the support of the Central Bank of the country, i.e., Reserve Bank of India, from 1992 onwards aimed at promoting and financing 500 SHGs across the entire country, the SHG- bank linkage strategy has come a long way. The strategy includes financing of SHGs promoted by external facilitators like NGOs, bankers, socially spirited individuals and government agencies, as also promotion of SHGs by banks themselves and financing SHGs directly by banks or indirectly where NGOs and similar organisations act as financial intermediaries as well. Shift to the New Paradigm i) The poor, perceived thrift as their strength as also as the bonding factor among themselves realized that timely and adequate credit was preferable and productive than subsidies and doles. They needed hassle-free delivery mechanisms. ii) NGOs, Acted as catalysts of change, Combined social and economic agenda with synergistic effect, Recognised sustainability as the core factor in development. iii) Banking system, Accepted SHG-bank linkage as a cost effective means of reaching the poor, accepted peer pressure as collateral substitute for excellent recovery of loans iv) Government, Formulated supportive policy framework, encouraged routing of social programmes through SHGs v) Reserve Bank of India, RBI policy pronouncements on micro Finance led to increased involvement of banks. Liberalised & deregulated interest rate structure for micro credit, leading to flexibility in lending rates. vi) NABARD, Provided inputs in capacity building for banks and partner agencies, promoted the idea of organising thrift and credit groups among the NGOs as an add-on activity and encouraged linking them with banks. Provided loanable funds to banks and financial support to eligible mFIs, to ease the fund flow position to the sector. Cumulatively, banks have lent Rs 39.04 billion (USD 867 million) to 1,079,091 SHGs (90% are women). NABARD has extended a refinance of Rs 7.06 billion (USD 156 million) to banks during 2003-04 bring the cumulative refinance amount to Rs 21.24 billion (USD 472 million). 35,294 branches of 560 banks (Commercial banks- 48; Regional Rural banks-196; & Cooperative banks - 316) situated in 563 districts in the 30 states of the country are participating in the programme. About 16 million poor households gained access to banking system through SHG bank linkage programme. Promotional grant assistance Grant assistance extended by NABARD to various agencies/ institutions for promotion & linkage of self-help groups during the year as well as cumulatively is given below:

Co-operative Innovation: Influencing the Social economy, CANADA CONGRESS 2007 Prof. Vrajlal Sapovadia, B. K. School of Business Management, Gujarat University, Ahmedabad, India Agency Number NGOs RRBs CCBs

221 23 28

2003-04 Amount(Rs million) 47.38 6.48 11.60

For prom linkage 37,268 7,895 14,750

&

Number 785 90 29

Cumulative Amount (Rs million) 151.22 27.58 12.40

For prom linkage 115,279 35,045 15,550 Source: NABARD

RRB- Regional Rural Bank; CCB- Central Cooperative Bank; Prom- promotion & linkage of groups, Capacity building initiatives. During 2003-04, about 26,200 bank officials, 7,300 NGO staff, 5,900 government officials and 159,000 Self help group members have been trained with grant support from NABARD. In addition, about 300 faculty members of various banks' training establishments were also trained. Cumulatively 687,000 persons have been trained through various SHG related capacity building programmes. The SHG Bank Linkage Programme spearheaded by NABARD in the microFinance Sector in India has yielded very significant results Sl.No. 1 2 3

Particulars No.of SHGs linked % of women groups No.of participating banks : i. Commercial Banks ii. Regional Rural Banks iii.Co-operative Banks

4 5 6 7 8 9 10 11 12 13

Bank Branches participating No. of States/Uts No. of districts covered No.of Partners Bank Loan Rs in billion Refinance Rs. in billion No.of poor households assisted (in million) Average Loan/SHG Rs. Average Loan/Family Rs.

Cumulative as on 31 March 2005 1,618,456 90 573 47 196 330 41,082 31 572 4323 68.98 30.92 24.25 42,621 3,044

Model Wise Linkage (Cumulative) (%) i. SHGs formed and financed by Banks ii. SHGs formed by other agencies but directly financed by banks iii. SHGs financed by banks using financial intermediaries

21 72 7 Source: NABARD

The models of micro-finance In India Though there are several models of micro finance in different countries, but in India three micro finance models are in practice: 1 Direct Financing to the member of SHG, 2. Financing by the bank through the NGO and 3. Financing to the Group as a whole for lending purpose to the group members by the group. All these models are in operation in India, but the third model has emerged as dominant model in India. There are two

&


schemes of SHG financing i.e. financing to SHG members with subsidy under SGSY Scheme and financing without subsidy. It is expected that the banks will provide the loans to SHGs on concessional interest rates, but practically almost all the banks charge around 12% interest from the SHG members. The picture of SHG financing is as under: Institutional Experiences Some of the institutions such as Bharatiya Agro Industries Foundation (BAIF), Development for Humane Action (DHAN) Foundation, Shri Kshethra Dharmasthala Rural Development Project (SKDRDP) etc shared their experiences in promotion of micro enterprises among SHG members. The experiences, though mostly are at the pilot stage, highlighted that: It is appropriate to introduce income-generating activities based on known skills, knowledge and resources. It is better to integrate with existing livelihood activities of group members. More emphasis needs to be laid on developing business skills than on providing backward and forward linkages. Micro enterprise development is not a standalone activity, but requires a combination of factors to enable growth as a business entity. It is both efficient and cost effective to promote farm sector micro enterprises because backward and forward linkages are locally available. Promotion of non-farm sector activities, particularly those in manufacturing sector, is a challenge for providing market linkages because significant sales turn over is required by each member to earn incomes which are even equivalent of minimum wages or to cross the poverty line. Entrepreneurship Development and Skill Building & Role of Technology: Identification of right SHG members for right type of training is crucial. Type of training may vary significantly from one group to another and even among members of the same group depending on various factors such as nature of enterprise, level of technology, products cycle, etc. Broadly three modules were identified: One-week module: This will have one-week program covering skill development of the SHG members, Two-week module: This will be a two weeks program covering skill development along with entrepreneurship aspects, Three-week module: This module will be of three weeks covering skill development, entrepreneurship aspects and market related aspects also. The existing modules adopted by various training institutions need revision and simplification. The revised training modules need to be developed in consultation with all the stakeholders. For ensuring quality of delivery of the training programmes, training manuals should be developed. Use of modern and appropriate technologies, particularly for quantum and quality production, standardization, packaging and better shelf life, etc. is crucial for promotion


of micro enterprises. This would require improving interface between SHG members and the technology providers, as it would facilitate adoption of modern and appropriate technologies by the groups. Linking to local and distant markets Market linkages were considered very crucial for promotion of micro enterprises. As globalisation is redefining local markets, it is important that linkages of SHG products are established to both local and distant markets. For achieving this, the groups made the following suggestions: • • • • • • •

Creation of local haats (markets) within 25 kms. radius of SHGs Establishing information kiosks to provide market intelligence Provision of ready and easy transportation facility Conducting market surveys for exploring distant markets Creation of storage facilities for improving the shelf- life of products Provision of business counseling and capacity building of partners Provision of escort & hand holding services are key for promotion of micro enterprises. It would require developing a cadre of barefoot micro enterprise counselors.

Self Help Group promoting institutions (SHPIs) are better placed in providing handholding services but most of the SHPIs are not well equipped to provide such facilities. The mechanism for building capacities of SHPIs was discussed and the suggestion was to identify one organization - having experience in promotion of micro enterprises -as nodal agency in each state and that agency can be used for building capacities of SHPIs. Computer based help line can be developed which entrepreneurs can access for seeking information of technology, markets etc. Assessing a Self Help Group For any financing institution, appraisal is very important for ensuring the utility of the loan and repayment of the loan. Bankers generally appraise the project and the borrower. In case of SHG financing, most of the project appraisal norms like assessing the cost benefit and profits will not be workable due to the peculiarities of SHG financing. For considering a loan application for financing the Financer has to evaluate the capacity and character of the prospective borrower. SHG’s also being customers have to be appraised before extending credit facilities. But then assessment of creditworthiness of a SHG is very different from that of an individual. SHGs are not to be assessed in terms of their ability to provide collateral or guarantees of net worth. The SHGs have to be assessed in terms of Group dynamics like cohesion, vibrancy, goal-oriented action, participation of members, democratic decision and collective leadership. The appraiser has to see whether the group is functioning, actually as a group, why the members have come together, whether it is for obtaining loan from bank or the group sees other purposes, what is the group discipline and whether it is sustainable.


The basic principles on which the SHGs function are: i. ii. iii. iv. v. vi. vii. viii. ix.

The members of the groups should be residents of the same area and must have an affinity. Homogeneity of relationship could be in terms of caste/ occupation/ gender or economic status (which is critical). Savings first, credit thereafter SHGs should hold regular meetings SHGs should maintain record of financial and other transactions They should have norms regarding membership, meetings etc. Group leaders should be elected by members and rotated periodically Transparency in operations of the group and participatory decision making The group should decide rates of interest on loans Group liability and peer pressure to act as substitutes for traditional collateral.

Self Help Groups- Success Stories The success stories discussed below, acknowledges source with thanks to http://www.nabard.org/microfinance/successstories.asp 1. ‘From No where to Some where’. It looked like the world had ended for Qamar Sultana Khan, when her husband deserted her a few years ago. She lived in Urali Devachi, Haveli Taluka, Pune, Maharashtra province of India. She was unemployed, unskilled, depressed and was an additional burden on her already poor parents. Faced with an uncertain future, Quamar started showing withdrawal symptoms, unwilling to interact even with known people. The persistence of a field worker of Gram Mahila va Balak Vikas Mandal, an NGO promoted by Bank of Maharashtra helped in introducing Quamar to the SHG fold and she joined Ganesh Bachat Gat (SHG) IN 1995. Initially, she had to borrow Rs. 20 (US $ 0.5) every month to even make the compulsory savings with the SHG. She picked up some sewing work from neighbours, fetching paltry sums at times. Break through for Qamar Sultana came, with an exposure programme by Swayam Siddha at Kolhapur in 1996, She picked up tailoring skills through the programme. The SHG gave her a loan to get a stitching machine. Bank of Maharashtra financed the SHG. In a period of 2 to 3 years, she started earning around Rs. 300 per month (US $ 7). Bleakness and uncertainty slowly yielded to hope and confidence in Quamar Sultana’s life. She started taking up useful activities like midwifery and postnatal help to the local women. She learned Rangoli block making and started producing artistic designs, which caught the fancy of a lady from the US who visited the village. Confident enough to forge friendship with a foreigner, Quamar Sultana even managed to sell Rangoli making kits to USA. “ I earned Rs. 50,000 (US $ 1,100) through rangoli kits !” Quamar Sultana told us, when we visited her in November 2002. Now, Qamar Sultana is an animator with an NGO. She earns a monthly income of Rs 1,500 (US $ 33), and has done up her house with a lick of fresh paint and with amenities like a gas stove!


2. Estranged wife gets justice; The SHG movement in one of the inaccessible areas of Orissa was initiated with the linking of 5 SHGs promoted by an NGO i.e. "Fellowship" in Bhadrak. Several poor women were motivated to form savings-cum-credit groups against all odds, which ranged from economic backwardness, lack of awareness and social customs, which impeded such practices. However, the NGO which was motivated by NABARD, persisted with the initiatives which resulted in 5 groups being formed and nurtured viz. Janani, Saheen, Sagar, Subhadra and Bhadrakali. These SHGs were linked to the banking system in October 1993 with a total credit assistance of Rs. 19,220 (US $ 420) from the Balasore Rural Bank. The small amount of loan advanced to each group did make one to wonder if this approach of frugal resource collation and marginal replenishment through a bank was an exercise in futility. One has to see to believe the impact!! When her husband who was working in far off Bombay abandoned Sasmita, one of the members of an SHG, she was forced to leave her husband's house with her two year old daughter. Her old parents with an alcoholic son found it difficult to take the additional burden of their daughter and granddaughter. It was a harrowing time for Sasmita and her parents. At times they did not have a square meal a day. But Sasmita wanted to keep her head high and in her lone battle for survival. The NGO- Fellowship, working in the area offered her some work in their literacy mission programme. This NGO has also been working in the social sector and they were reaching their target clients through groups of 15 to 20 members. The NGO helped her join one such group called Sagar Self-Help Group as a member and her joy knew no bounds when their group got the loan from the bank. All other members of SHG considered her request for loan as she was in deep financial duress. She opened a small retail shop of essential household items, which she used to sell on the verandah (front portion) of her hutment during her spare time. The profits she earned from the shop coupled with the salary she earned out of her work in the literacy mission programme helped her to accumulate reasonable resources to improve the quality of life. The second round of borrowing from the SHG enabled her to expand her business to local kiosk and take this as a prime activity. This visible transformation in Sasmita caught the eyes of her elusive husband who was very keen to patch up the bygone era and realized the potential in her and also the strength of a fairer gender. This late realization enabled a patch-up and family re-unification. Sasmita's father thanks the Self-Help Group for this reunion of her daughter with her estranged husband and subsequent restoration of healthy family ties. 3. Together we earn – Together we till; Kowaiphang Bodal is a SHG of 11 tribal women from a backward tribal hamlet of Harijoy Chowdhury Para of Jirania block, West Tripura district, Tripura, India formed in June 2002. Nurtured by a social intermediary the group mopped up reasonable sum of Rs 6,050 (US$ 135) in a span of 10 months, which they safely kept with the local rural bank branch at Bankimnagar. Subsequently, the SHG commenced internal lending and started earning from interest payments. Intrigued by its promptness, dynamism of the members and its creditworthiness of the SHG the local branch of Tripura Rural Bank sanctioned a credit limit to this SHG. This offer served as a major confidence booster to the otherwise shy tribal women. They then started


exploring the possibilities of starting income generating activities! A plot of about one acre land was hired on a one-time lease rent of Rs. 15,000 (US$ 333) to start agricultural operations – an activity which was familiar to all. The best raw material that the poor could give was labour, which they collectively put by tilling the land. In one cropping season they could harvest enough to repay the borrowing and save for the future with greater hopes!! Confidence begets confidence! Now Kowaiphang Bodal has even found additional avenues for putting their spare time to use. Every month, two members of the group, on a rotational basis, weave a Pachera (traditional tribal garment for the lower portion of the body) for sale. A Pachera for ceremonial use can fetch them a return as high as Rs. 600! When asked about the benefits of forming the SHG, Secretary, Radharani Deb Barma says that taking independent financial decisions, negotiating deals and pursuing income generating activities, activities which they could not even dream of a few months back were now made real by Kowaiphang Bodal. From simple ignorant women who could not even speak up for themselves they have metamorphosed into confident decision makers, investors and mentors to their families! 4. Gender power transforming villages: Mother Teresa SHG was formed with 20 women members under the guidance of an NGO, RUHSA in the year 1998 in Chennankuppam village of Vellore district of Tamil Nadu Province in India. The SHG has led to empowerment of the women members in this remote village. This emancipation process has also helped them to come out of the clutches of moneylenders. Here is one example of what the might of collective action can do. The local practices largely led by the feudal lords ensured that poor hardly be given a Patta - an ownership certificate for the land they owned. There was no system of issuing Patta lands (land title) in the village since the last 10 years. With unified women power and persistent persuasion with local village leaders and community leaders the SHG members ensured issuance of Patta land to 47 poor families in the village. Subsequently about 15 houses have been constructed with support from a Government programme, which had earlier bypassed the needy poor. The SHG members have also ensured that potable water connection is made available in the village as also good access road to the village. This SHG is now successfully managing a production unit for manufacturing Batik printed clothes, wall hangings, etc. which are being sold in the local markets as well as outside. 5. Seeking a socio-economic space from the realms of wilderness!! Vasugi SHG was formed in 1998 under the guidance of an NGO, RUHSA in Kavasambut village of Vellore district of Tamil Nadu province of India. Most of the members were beedi workers and dependent on moneylenders for their credit requirements. The SHG now actively participates in a number of activities in the village. Many of the members who used to put their thumb impression in place of signatures, have now learnt to put their signatures. One of the members, Jayanti is a widow with a daughter of 5 years. After the death of her husband, she was left with no one to support her. With the help of the SHG, Jayanti could get back her husband's share of property, which was her rightful due. She has also taken up a job and has become economically independent. The SHG is also


actively involved in health care activities in the village. It has acquired on lease 3 acres of land for cultivation of sugarcane. The grass and sugarcane leaves are used as fodder for milch animals. For this, the SHG has been sanctioned a loan of Rs. 2,00,000 (US$ 4400) from a local commercial bank branch. 6. Women entrepreneurs of Dhenkanal - Breaking traditional thoughts: Tensions prevail between Noopur and her husband Bansidhar primarily due to low income of the family. Bansidhar runs a shop, which does not draw enough customers, as the stock he keeps is limited. Noopur discusses her problem with some other women. These women, too, face the same problem. An enlightened person of the village tells Noopur about the formation of SHGs in many places for solving the day-to-day problems of women. She discusses the idea with other women and they decide to form an SHG called Laxmi Narayan SHG. SHG consist of 20 women members. They have no money to save. Hence, each member collects 4 kilos of rice per month per member and allows the needy members to borrow from the accumulated stock. The borrowing member is required to repay whatever she had borrowed along with 3 kilos of rice per quintal per month as interest. In 1996 they sold their stock for Rs. 7,000 (US$ 156) and switched over to cash savings of Rs. 25 per month per member. They continued to deposit the money in the local bank. Subsequently, Bank sanctioned a loan of Rs. 20,000 (US$ 220) against the accumulated savings of the group of Rs. 10,000 (US$ 110). The members borrow from the group at 3% monthly interest. Some of the members of the group have utilized the loans to increase the stocks of their own or husbands' small shops. They could make a profit of 30% to 40% from the extra stocks created form loans. Now they have started a joint betel nut processing business with the involvement of the group members to generate more income. 7. Women SHG show bankers the way! M. Latha is barely 27-years-old, but her village background and limited education do not make her shy away from handling all the intricacies involved in getting a loan of Rs. 300 thousand from a nationalised bank in her village, Perumanur, about 10 km from Salem town in Tamil Nadu. She is but a small peg in the micro credit revolution that is slowly but surely creating pockets of economic power and giving rural India women the opportunity to chart their own course of livelihood. Latha is the leader of a 20 member self-help group (SHG) in Salem district, where the Indian Bank hopes to disburse, by the end of this financial year, loans of about Rs. 60 million to about 1,200 SHGs. With Rs. 3,00,000 (US$ 6,600), her group has bought a tractor and is engaged in renting it out for all kinds of chores ranging from ploughing of fields to transporting of sand, bricks and other construction material. On an average, the group is able to rent out the tractor for about 20 days a month, at Rs. 300 (US $ 6) an hour. From the profits, it has already repaid Rs. 1,52,000 (US$ 3,300) lakh of the amount lent by Indian Bank at 12 per cent interest, on a monthly diminishing basis.


At the moment, Latha's group hires a driver, paying him Rs. 100 a day. "But since my group members and also bank officers are saying that I should learn to drive it, I'm taking driving lessons. I can drive it but need some more practice," says the woman not without awe in her voice, as she is about to take on what is definitely a man's job in her village. While her husband works as a daily wage labourer, she handles the group's finances, which includes the personal savings of its members and the repayment from the profit got through the tractor. The less advantaged members of her group, four or five at a time are employed in loading and unloading construction material and the group pays each a daily wage of Rs.50. So for these women, it is a double income. Explaining the working of the SHG concept, Mr M. Kanakasabai, Indian Bank's AGM, Salem, says the bank has done pioneering work in the field of micro credit through a pilot project in Dharmapuri district, launched in 1989. "At that time no banker came forward to lend to these women and there was no documentation model available. So we designed the documentation and started lending without security at a time when even NABARD had a question mark in its mind, and only later accepted it as a good model for the uplift of the masses," he said. But before the bank decides to lend, it watches closely an SHG piling up its savings, which can range from Rs. 10 (US$ 0.25) to even Rs. 50 (US$ 1.25) a week per member. It identifies an NGO that works with the group, monitoring its meetings, keeping the accounts and training the members on all aspects of micro credit. Once a group has saved Rs. 40,000 (US$ 900) to Rs. 50,000 (US$ 1,100) the bank moves in to provide three to four times the amount as loan. This amount can be broken up into smaller components and given to the group members, for activities like keeping milch animals, goats or sheep, running petty shops or tea stalls, making silver anklets, running tailoring units and the like. A part of the loan can even be given to individual members as "consumption loans" for medial treatment, children's education, marriage in the family or repairing the house. The finance component, which comes from the bank, has to be lent out strictly on 12 per cent interest to individual members. But the real profit for the group comes from the money lent out to members from its own savings at a whopping 24 per cent interest. Your scepticism that rural women can repay loans at such a hefty interest is countered by the refrain: "We used to borrow from moneylenders at much higher interest rates ... as high as 60 % to 100% p.a. And even then repay that money. In this case, it is much easier to repay the loan." Default is dealt with strictly - though allowed for a month or two under grounds of compassion decided by the group - and for "every day the repayment is delayed, the woman has to pay a fine of Rs.10" With such a hefty penalty, default is indeed rare. And, in times of distress, the woman also has her husband's earnings to dip into! In Moornahalli village, about 42 km from Dharmapuri town, a few groups have turned up to talk to us. Each group has its own uniform; a bright polyster saree in floral design; with the group leader donning a plain green sari. Most of them were, and some of them continue to be, daily wage labourers, but looking at their clothes and glittering jewelry,


and more than that the confidence they display when they answer your questions, they could be working women from any big city. Says Selvi, leader of one group, "A couple of years ago, we did not know what a bank or a pass book was, and would not dare to enter a bank. But now we can sit with these officers and discuss our loans". Saroja, a member of her group has taken a loan of Rs. 20,000 (US$ 440) for setting up a "tiffin kadai", which serves piping hot tea and idlis and vadais to her customers. "My husband helps me run the shop and we have no problem in repaying the instalments," she says happily. Depending on the quantum of the loan, the bank decides the monthly repayment sum. But going through the records maintained neatly by the groups in the villages of both Salem and Dharmapuri district it was surprising to find that most of the groups pay back the loan ahead of schedule. In Dharmapuri district the repayment is a mind-boggling cent percent and in Salem District it is an unbelievably high 98 per cent. To your persistent queries on how the repayment could be as magical as this, Mr. N. Balasubramanian, Manager (Agriculture) Dharmapuri, says simply, "How can we answer a question which we have been asking ourselves all the time?" But he is certainly not complaining, while coming out with answers such as "peer pressure", group dynamics" or "the woman not wanting to let down her group". But more heartening than the fact that these women are able to access bank credit, repay it in time, make a profit and plough the money back to the family, is the working of "group dynamics" on social evils like female infanticide in this belt notorious for killing of girl babies. Particularly in Dharmapuri district, group members take a pledge that no woman in their families will be allowed to commit female feticide or infanticide. This should be significant indeed in a milieu where many groups have both the mother-in-law and daughter-in-law as members! Moreover, many of these groups have exercised their economic and social clout to stop an incident or two in their respective villages. Evaluating Effectiveness among Cooperatives vis-à-vis other Social Institutes MicroFinance may be defined by the 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. The evaluation of the schemes of RIF, RIDF & micro financing may be done by two ways: 1. Evaluating impact on Cooperative/SHG members of the financing scheme 2. Evaluate the role of financing institutions in financing to SHGs/Cooperatives and the comparative study of the financing agencies i.e. commercial banks vs. cooperative banks.


3. Comparing repayment record amongst various borrower on basis of type of institutes The impact of micro-credit on poverty alleviation The studies conducted by the various research organizations including NABARD have shown the benefits of credit as a poverty alleviation strategy. It is found that more than 90% SHGs have been formed by the women members and the recent case studies conducted in Sabarkantha District and Ahmedabad District of Gujarat State have shown that women are able to successfully build their enterprises, sustain loan repayments, and begin to improve household conditions with positive improvements in nutrition, health and education. However, credit is also found to have had negative consequences for households and consumption purpose resulting in economic failure, debt traps and declining standards of living. It is found that for poor individuals especially below the poverty line credit were a vehicle for improved conditions and possibly a permanent relief from poverty. Poverty alleviation and financial sustainability An alternate means of micro-credit delivery is individual lending through groups. Such programmes either insists on collateral and credit guarantees and usually do not target the poor. Innovative approaches MFIs seeking institutional and financial sustainability are required to charge interest rates, which cover the costs of the capital and operational expenses, this being too costly for the very poor. In addition to the high transaction seek to provide individual loans without collateral and credit guarantees in order to service poorer clients. Institutions with a poverty alleviation focus have found that specific targeting strategies and support measures are required which prolong their dependence on donor support. Financial sustainability has become the dominant paradigm. Access to modest financial services and other forms of micro-enterprise support are considered key strategies to reduce poverty-providing the poor with opportunities for self-reliance through entrepreneurship and stabilizing the livelihoods of the poor during difficult times. Microfinance only has the potential to develop sustainable structures through which poor people can get greater access to resources. Facts & issues in credit extension The provision of micro-finance to the poor has been limited by two factors, the first of which is the perceived risk of lending to people who lack access to adequate collateral and credit references, and the second is the high transaction costs involved in administering small deposits and loans. Over the past two decades the major innovations have been in the development of models of financial provision, which overcome these constraints.


It is found that more than 95 % SHGs are formed by the women members. The SHGs formed by the women are managed well than the male SHGs. There is more than 98 % recovery ratio of loans in case of women SHGs, where as it 90 to 95% in case of male members. It is to be noted that more than 60% SHG under the SGSY scheme, wherein government has provided subsidy, have failed to repay the loans to the financing agencies, whereas the SHGs without subsidy schemes have more than 95% recovery. More than 50 % women SHGs have utilized the funds in entrepreneurial activities, whereas less than 20% SHGs have started the entrepreneurship activities. The women SHGs are well managed than the male SHGs. The women SHGs have higher saving rate and regular payment habits, on the other hand the men SHGs are most mismanaged. Higher rate of interest i.e. 12% to the SHG groups by the banks, on the other hand the banks get the refinance from the NABARD at 6%. For taking loans the banks insist collateral securities. For making documentation for loans the SHGs have to register the loan documents, wherein they have to pay the stamp duty on the loan amount. The most of the members are unaware about the benefits of SHGs. The Cooperative Banks and Cooperative societies have played more powerful role in the development of SHG and micro finance than the commercial banks. There are several reservations about micro-credit. First there is the critique that microcredit may not be an effective pro-poor strategy, second there are doubts about the ability of microcredit institutions to juggle the twin goals of institutional sustainability and poverty alleviation. Finally there are concerns that minimalist models such as microcredit are not sufficient to support the diverse needs of the informal economy. Role of Cooperatives Cooperatives are century old movement with massive network and have provided access to banking facilities to the sizeable section of rural and the urban poor. Cooperatives have been revolutionary institutions in providing credit to farmers at a cheap rate and substituting the role of moneylenders and other non-institutional supplies of credit from the rural scene. The development of cooperatives has been in leap and bounds. Considering their long history and their existence in India for more than hundred years, cooperatives institutions have served its customers significantly. The Urban Cooperative Banks have shown their mushroom growth and established themselves as peoples bank. Today these banks basically work towards providing cheap, easy and smooth credit access to the poor people and have contributed significantly in the shaping the life of the urban poor. As far as rural areas are concerned, the cooperatives have hundred percent penetrations in rural India through their network of Primary Agricultural Cooperative Credit Societies, meeting not only agricultural needs but supplying other allied and not agricultural requirements to the rural poor and the farmers as well. They enjoy unique selling proposition and that is their relationship banking. The managers of cooperatives know their customer personally and well aware of their need and aspirations from the institutions.


The share of cooperatives in financing the rural India and their growth trajectory shows that there are huge potential for this sector to expand their reach and cater the poor people especially in rural India through the massive network of cooperative societies. Today when commercial banks, private banks and foreign banks are moving from conventional banking to service based non-fund banking business; cooperatives enjoy a strategic position as far as catering the unbanked are concerned. Cooperatives can target the unbanked population and move forward from their member centric activities to public center activities without losing the ideology of cooperation and achieving the muchneeded viability. If this ideology which is considered as a root cause that has involved and given cooperatives their identity and is contributing significantly towards their sustenance. The lending targets for cooperatives are still directing credit to priority sectors of agriculture and the weaker section of the population. The NSSO has identified the very group for financial inclusions. If cooperatives are already catering the same group and why they are still out of the purview of banking facilities? The reason lies in the structure of cooperatives in India. Cheap and affordable credit is given by the PACS (Primary Agriculture Credit Society) in rural area but does not help in extending banking services and UCBs (Urban Cooperative Bank) are giving banking services but not extending cheap credit to the customers. Since the application of priority sector lending to cooperative banks from 1983, the sector has played a significant role in credit dispensation to the lower and middle-income groups. Linkages between members in form of SHG or PACS, cooperative bank & NABARD can play positive & developmental role. Suggestions: The development agencies should promote innovation in farm, non-farm sector which contribute overall rural & agricultural development. The innovation may be about system, managerial, business process or technical related issues. The credit should be extended on commercial basis, but should build program that enhance capacity of the participating members. Micro Enterprise/SHGs should undertake any legitimate economic activity and try to increase the income level as a micro enterprise. Only mature groups who are undertaking savings and lending activities regularly and smoothly - need to be covered for promotion of micro enterprises. A checklist needs to be prepared for identification of such groups. The special training programmes for Entrepreneurship development & skill building and exposure and role of technology should be organised. The facilities for linking to local and distant markets and help in providing backward and forward linkages should be provided by the NGO, Government or NABARD. Special Provision for business counseling and capacity building should be undertaken by Self Help Group Promoting Institutions (SHPI) and micro enterprise promotion agencies (MEPAs) partners.


Resource mapping of the region covering physical, financial and human resources, feasibility studies for identification of economic activities that are technical and financially viable in the region. Adopting participatory methods for helping the group members in selecting right type of economic activities (e.g., participatory assessment of what comes in and what goes out of a village). Many of the cooperatives are getting refinance form NABARD to lend at affordable rate however, this situation may not sustain in future. In due course the Cooperative Act should be amended and the entire cooperative banking would be brought under one umbrella and the problem of dual control would be solved. Low cost credit can only be given when low cost deposits are available. Today banks are running after collecting deposits. Some cooperatives are facing reputation risk in collecting deposits from public however; government should intervene and help cooperatives in meeting the credit needs of the poor and the unserved population and bring them under the ambit of banking services. Most people who are deprived from the banking services are forced to resort to non-institutional expensive and exploitative credit, paying very high interest rates. If such people were targeted they would comprise a good market for the cooperatives. There is a need for identifying such target group and meeting their needs for attaining better inclusions in future. Government’s role should be improving the fairness, transparency and efficiency of the cooperatives institutions and coordinate efforts to revitalize a powerful institution in future. Involvement of participating member in any type of organization is the most crucial factor in success of the entity. Peer pressure in SHG acts as catalyst in repayment of a loan. Subsidized loan tends to higher failure rate. It therefore suggests that loan should be granted on commercial basis, but the bank or developmental agency should support business process of the enterprise that increase efficiency and effectiveness of the social enterprise like cooperatives/SHGs. It should also design & deliver training program that motivate members to involve in the activities of the parent organization. Therefore credit should be extended to group of people incorporating a social formal or informal institute rather than an individual. Co-operative Innovation: Influencing the Social economy, CANADA CONGRESS 2007