Positive Contribution All The Way

Introduction to Micro Finance

Positive Contribution is the mool mantra of Citizenship and microfinance is nothing else but positive contribution all the way. A comprehensive look at Micro Finance and SBI in Micro Finance Market by N. Sridharan, the Chief Manager of the first and only micro-finance branch of  State Bank of India at Bhopal.

“Microfinance” is often defined as financial services for poor and low-income clients. In practice, the term is often used more narrowly to refer to loans and other services from providers that identify themselves as “microfinance institutions” (MFIs). These institutions commonly tend to use new methods developed over the last 30 years to deliver very small loans to unsalaried borrowers, taking little or no collateral. These methods include group lending and liability, pre-loan savings requirements, gradually increasing loan sizes, and an implicit guarantee of ready access to future loans if present loans are repaid fully and promptly.


Microfinance is defined as any activity that include the provision of financial services such as credit, savings, and insurance to low income individuals which fall just above the nationally defined poverty line, and poor individuals which fall below that poverty line, with the goal of creating social value. The creation of social value includes poverty alleviation and the broader impact of improving livelihood opportunities through the provision of capital for micro enterprise, and insurance and savings for risk mitigation and consumption smoothing. A large variety of actors provide microfinance in India, using a range of microfinance delivery methods. Since ICICI Bank in India, various actors have endeavored to provide access to financial services to the poor in creative ways. Government also has piloted national programs. NGOs have undertaken the activity of raising donor funds for on-lending, and some banks have partnered with public organizations or made small inroads themselves in providing such services. This has resulted in a rather broad definition of microfinance as any activity that target poor and low income individual for the provision of financial services. The range of activities undertaken in microfinance include group lending, individual lending, the provision of savings and insurance, capacity building, and agriculture business development services. Whatever the form of activity, however, the overarching goal that unifies all actors in the provision of microfinance is the creation of social value.



Microfinance Definition

According to International Labour Organization (ILO), “Microfinance is an economic development approach that involves providing services through institutions to low income clients.”

“The poor stay poor, not because they are lazy, because they have no access to capital.”

The dictionary meaning of ‘finance’ is management of money. The management of money denotes acquiring & using money. Micro Finance is buzzing word, used when financing for micro entrepreneurs. Concept of micro finance is emerged in need of meeting special goal to empower under-privileged class of society, women, and poor, downtrodden by natural reasons or by man-made reasons. The principles of Micro Finance are founded on the philosophy of cooperation and its central values of equality, equity and mutual self-help. At the heart of these principles are the concept of human development and the brotherhood of man expressed through people working together to achieve a better life for themselves and their children.

Traditionally micro finance was focused on providing a very standardized credit product. The poor, just like anyone else, (in fact need like thirst) need a diverse range of financial instruments to be able to build assets, stabilize consumption and protect themselves against risks. Thus, we see a broadening of the concept of micro financing.

More broadly, microfinance refers to a movement that envisions a world in which low-income households have permanent access to a range of high quality financial services to finance their income-producing activities, build assets, stabilize consumption, and protect against risks. These services are not limited to credit, but include savings, insurance, and money transfers.



A Long History of Social Banking

India has supported social banking for a long time. Policy directions to rapidly expand rural branches, mandate credit allocations for priority sectors (including agriculture), deliver large subsidy oriented credit programmes to serve marginal communities and poor households and control interest rates have been tried for over 35 years.

The new generation microfinance was slow in coming to India. Low levels of grants to microfinance institutions, an unfavourable policy environment, substantial traditional banking infrastructure and a search for context specific solutions has constrained rapid scale up. The first breakthrough emerged from policy support to enable informal self help groups of 15-20 members (mainly women) to transact with commercial banks. These groups build up and rotate savings amongst themselves, open bank accounts and take responsibility for lending and recovering money financed by banks. With the missionary zeal of the National Bank for Agriculture and Rural Development (NABARD), insights gained by NGOs, the increasing enthusiasm of bankers and politicians and emerging successes in repayment and social impacts, this national movement now encompasses 1.4 million such groups (over 20 million members).

At a time when many questioned the need for specialised microfinance institutions (MFIs) in India, the Small Industries Development Bank of India recognised the opportunity and started implementation of an ambitious national programme. Providing loan and capacity building support to MFIs and capacity building and rating support for sector development, this programme already supports 70 MFIs and has disbursed US$46 million.

Exciting Indian Microfinance-

A Task Force on Microfinance recognised in 1999 that microfinance is much more than microcredit, stating: "Provision of thrift, credit and other financial services and products of very small amounts to the poor in rural, semi-urban and or urban areas for enabling them to raise their income levels and improve living standards". The Self Help Group promoters emphasise that mobilising savings is the first building block of financial services.

For many years, the national budget and other policy documents have almost equated microfinance with promoting SHG links to the banks. The central bank notification that lending to MFIs would count towards meeting the priority sector lending targets for Banks offered the first signs of policy flexibility towards MFIs. One could argue that MFIs are small and insignificant, so why bother. The larger point is about policy space for innovation and diversity of approaches to meet large unmet demand. The insurance sector was partially opened to private and foreign investments during 2000. Over 20 insurance companies are already active and experimenting with new products, delivery methodologies and strategic partnerships.

Microfinance programmes have rapidly expanded in recent years. Some examples are:

• Membership of Sa-Dhan (a leading association) has expanded from 43 to 96 Community Development Finance Institutions during 2001-04. During the same period, loans outstanding of these member MFIs have gone up from US$15 million to US$101 million.

• The CARE CASHE Programme took on the challenge of working with small NGO-MFIs and community owned-managed microfinance organisations. Outreach has expanded from 39,000 to around 300,000 women members over 2001-05, Many of the 26 CASHE partners and another 136 community organisations these NGO-MFIs work with, represent the next level of emerging MFIs and some of these are already dealing with ICICI Bank and ABN Amro.

• In addition to the dominant SHG methodology, the portfolios of Grameen replicators have also grown dramatically. The outreach of SHARE Microfin Limited, for instance, grew from 1,875 to 86,905 members between 2000 and 2005 and its loan portfolio has grown from US$0.47 million to US$40 million.

Since banks face substantial priority sector targets and microfinance is beginning to be recognised as a profitable opportunity (high risk adjusted returns),[1] a variety of partnership models between banks and MFIs have been tested. All varieties of banks - domestic and international, national and regional - have become involved, and ICICI Bank has been at the forefront of some of the following innovations:

• Lending wholesale loan funds.

• Assessing and buying out microfinance debt (securitisation).

• Testing and rolling out specific retail products such as the Kissan (Farmer) Credit Card.

• Engaging microfinance institutions as agents, which are paid for loan origination and recovery, with loans being held on the books of banks.

• Equity investments into newly emerging MFIs.

• Banks and NGOs jointly promoting MFIs.

The 2005 national budget has further strengthened this policy perspective and the Finance Minister Mr P. Chidambram announced "Government intends to promote MFIs in a big way. The way forward, I believe, is to identify MFIs, classify and rate such institutions, and empower them to intermediate between the lending banks and the beneficiaries."

What is beginning to happen in microfinance can be seen from the perspective of what has happened to phones in India. With the right enabling environment, and intense competition amongst private sector players, mobile phones in India expanded by 160% during just one year 2003-04 (from 13 to 33 million). Mobile tariffs fell by 74% during the same period. While this is heady progress, there is a less heralded but even more powerful nationwide success on access. In the late eighties, the phone infrastructure was the monopoly of public sector institutions. Phones were difficult to get and even more difficult to use for those lacking ownership. Realisation that users need not own a phone to access one led to privatisation of the last mile - where a phone user could interface with a private sector provider using the public sector telecom infrastructure. Even with this policy change, today there are 2.5 million entrepreneurs selling local, national and international phone services through the length and breadth of India. Many of these are now graduating to sell internet services and could potentially be banking agents - that is the evolving story.

Savings services are needed by many more customers and as frequently as access to phone services. Many poor households value access to savings services and find new providers and arrangements, despite hearing of unreliable savings collectors or even occasionally falling prey to such arrangements. Many customers are rich, literate and lucky to have banks working for them. But many others lack access to safe, secure and accessible savings services for the short, medium and long terms.[2] In the past, many banks sent collectors to gather these savings but problems with monitoring, inability to tackle misappropriation and the rising aspiration of collectors to become permanent staff of public sector banks killed a useful service. The central bank has strictly forbidden commercial banks from using agents in collection of savings services. This is unfortunate as:

• Effective microfinance delivery is about managing transaction costs for providers and customers.

• A combination of agents and technology can play a powerful role in rightly aligning incentives for the collector and customers, while keeping transaction costs manageable for everyone.

• The banks can only open so many branches, and fixed and operating costs are high, apart from approvals still needed from the central bank to open new branches or close existing ones. The appointment of agents can keep costs manageable and offer greater flexibility[3] to Banks.

• Banking service may not be able to defy the commercial logic pursued by most other sectors where a variety of retailers provide services to customers, while companies focus on customer needs, product design, quality control, branding, logistics and distribution.

Fortunately, the 2005 Budget opened a small window in this area and the central bank annual policy recently confirmed discussions on this: "As a follow-up to the Budget proposals, modalities for allowing banks to adopt the agency model by using the infrastructure of civil society organisations, rural kiosks and village knowledge centres for providing credit support to rural and farm sectors and appointment of micro-finance institutions (MFIs) as banking correspondents are being worked out." But readers may note that between the budget and the annual policy statement, "credit" has again crept in as the key perceived need.


1. Working Models of Micro Finance in India:

There are basically two types of models for Micro Financing that are followed in India-

SHG - Bank Linkage Model: This model involves the SHGs financed directly by the banking agencies viz. Commercial Banks (Public Sector and Private Sector), Regional Rural Banks (RRBs) and Co-operative Banks.

MFI - Bank Linkage Model: This model covers financing of Micro Finance Institutions (MFIs) by banking agencies for on-lending to SHGs and others small borrowers covered under microfinance sector.



2. SELF HELP GROUP (SHG) BANK LINKAGE



Table 1: Overall Progress under Microfinance for the years 2006-07 and 2007-08

(Amounts in Rs. Crore)

Particulars Units 2006-07 2007-08 %age Growth

Savings Accounts of SHGs with Banks as on 31 March No. of SHGs Total 41,60,584 50,09,794 20.4

Out of which under SGSY 9,56,317 12,03,070 25.8

Amount Total 3,512.71 3,785.39 7.8

Out of which under SGSY 757.50 809.51 6.9

Bank loans disbursed during the year No. of SHGs Total 11,05,749 12,27,770 11.0

Out of which under SGSY 1,88,962 2,46,649 30.5

Amount Total 6,570.30 8,849.26 34.7

Out of which under SGSY 1,411.02 1,857.74 31.7

Bank loans outstanding with SGHs as on 31st March No. of SHGs Total 28,94,505 36,25,941 25.3

Out of which under SGSY 6,87,212 9,16,978 33.4

Amount Total 12,366.49 16,999.91 37.5

Out of which under SGSY 3,273.03 4,816.87 47.2

Bank loans disbursed to MFIs during the year No. of MFIs 334 518 55.1

Amount 1,151.56 1,970.15 71.1

Bank loans outstanding with MFIs as on 31st March No. of MFIs 550 1,109 101.6

Amount 1,584.48 2,748.84 73.5

Note: Actual number of MFIs provided with bank loans would be less as several MFIs have availed loans from more than one bank.



Savings of SHGs with Banks



As on 31 March 2008, total 50,09,794 SHGs were having savings bank accounts with the banking sector with outstanding savings of Rs.3,785.39 crore as against 41,60,584 SHGs having savings of Rs. 3512.71 crore as on 31 March 2007, thereby having growth rate of 20.4% and 7.8% respectively.

Thus, more than 7.01 crore poor households were associated with banking agencies under SHG Bank Linkage Program. As on 31 March 2008, the Commercial Banks had the maximum share of SHGs’ savings with 28,10,750 SHGs (56%) with savings amount of Rs.2,077.73 crore (55%) followed by Regional Rural Banks with savings bank accounts of 13,86,838 SHGs (27.7%) and savings amount of Rs.1166.49 crore (31%) and Co-operative Banks having savings bank accounts of 8,12,206 SHGs (16.2%) with savings amount of Rs.541.17 crore (14.3%).

The share under SGSY in the total savings was 12,03,070 SHGs forming 24% of the total SHGs having savings accounts in the banks.



Table 2: Savings of SHGs with Banks – Agency-wise position for the years 2006-07 and 2007-08

(Amount Rs. Crore)

Agency During the year Total SHGs’ Savings with the banks as on 31st March 2008 Per SHG Savings

(Rupees) Out of Total: SHGs savings with banks under SGSY

No. of SHGs % Share Amount % Share No. of SHGs Amount

Commercial Banks (Public & Private Sector) 2006-07 22,93,771 55.2 1,892.42 53.8 8,250 5,71,062 524.49

2007-08 28,10,750 56.1 2,077.73 54.9 7,394 7,65,775 527.02

% Growth 22.5 9.8 -10.4 34.1 0.5

Regional Rural Banks 2006-07 11,83,065 28.4 1,158.29 33.0 9,791 3,00,427 188.66

2007-08 11,86,838 27.7 1,166.49 30.8 8,411 3,57,004 210.83

% Growth 17.2 0.7 -14.1 18.8 11.8

Cooperative Banks 2006-07 6,83,748 16.4 462.00 13.2 6,914 84,828 44.35

2007-08 8,12,206 16.2 541.17 14.3 6,663 80,291 71.66

% Growth 18.8 17.1 -1.4 -5.3 61.6

Total 2006-07 41,60,584 100.0 3,521.71 100.0 8,469 9,56,317 757.50

2007-08 50,09,794 100.0 3,785.39 100.0 7,556 12,03,070 809.51

% Growth 20.4 7.8 -10.5 25.8 6.9


2.2 Bank loans disbursed to SHG
During the year 2007-08, the banks financed 12,27,770 SHGs, including repeat loan to existing SHGs, with bank loan of Rs.8,849.26 crore as against 11,05,749 SHGs with bank loan of Rs. 6,570.39 crore during 2006-07 with a growth rate of 11.03% (No. of SHGs) and 34.7% (Bank Loan disbursed). Out of the total loans disbursed during 2007-08, 2,46,649 (20%) were financed under SGSY with bank loan of Rs.1857.74 crore (21%) as against 1,88,962 SHGs (17%) with bank laon of Rs.1411.02 crore (21.5%) during 2006-07.

Table 3 : Bank loans disbursed to SHGs - Agency-wise for the years 2006-07 and 2007-08

(Amount Rs. crore)

Agency During the year Total SHGs’ Savings with the banks as on 31st March 2008 Per SHG Savings

(Rupees) Out of Total: SHGs savings with banks under SGSY

No. of SHGs % Share Amount % Share No. of SHGs Amount

Commercial Banks (Public & Private Sector) 2006-07 5,71,636 51.7 3,918.94 59.7 68,557 1,23,551 878.72

2007-08 7,35,119 59.9 5,403.90 61.0 73,511 1,60,674 1,103.70

% Growth 28.6 37.9 7.2 30.0 25.6

Regional Rural Banks 2006-07 3,81,199 34.5 2,052.73 31.2 53,849 48,653 407.91

2007-08 3,27,650 26.7 2,651.84 30.0 80,935 64,678 597.71

% Growth -14.0 29.2 50.3 32.9 46.5

Cooperative Banks 2006-07 1,52,914 13.8 598.72 9.1 39,153 16,758 124.39

2007-08 1,65,001 13.4 793.52 9.0 48,092 21,297 156.33

% Growth 7.9 32.5 22.8 27.1 25.7

Total 2006-07 11,05,749 100.0 6,570.39 100.0 59,420 1,88,962 1,411.02

2007-08 12,27,770 100.0 8,849.26 100.0 72,076 2,46,649 1,857.74

% Growth 11.0 34.7 21.3 30.5 31.7

Bank Loans outstanding against SHGs

As on 31 March 2008, a total of 36,25,941 SHGs were having outstanding bank loans of Rs.16999.90 crore as against 28,94,505 SHGs with bank loans of Rs.12,366.49 crore as on 31 March 2007 with a growth rate of 25.3%. It included 9,16,978 SHGs (25.3%) with outstanding bank loan of Rs.4,816.87 crore (28.05%) under SGSY as against 6,87,312 groups (23.7%) with outstanding bank loan of Rs.3,273.03 crore (26.5%) as on 31 March 2007.

Agency During the year Total SHGs’ Savings with the banks as on 31st March 2008 Per SHG Savings

(Rupees) Out of Total: SHGs savings with banks under SGSY

No. of SHGs % Share Amount % Share No. of SHGs Amount

Commercial Banks (Public & Private Sector) 2006-07 18,93,016 65.4 8,760.38 70.8 46,277 4,68,059 2,255.31

2007-08 23,78,847 65.6 11,475.47 67.5 48,240 6,38,283 3,225.92

% Growth 25.7 31.0 4.2 36.4 43.0

Regional Rural Banks 2006-07 7,29,255 25.2 2,801.76 22.7 38,419 1,72,012 807.76

2007-08 8,75,716 24.2 4,421.04 26.0 50,485 2,23,191 1,332.33

% Growth 20.1 57.8 31.4 29.8 64.9

Cooperative Banks 2006-07 2,72,234 9.4 804.35` 6.5 29,546 47,241 209.96

2007-08 3,71,378 10.2 1,103.39 6.5 29,711 55,504 258.62

% Growth 36.4 37.2 6.6 17.5 23.2

Total 2006-07 28,94,505 100.0 12,366.49 100.0 42,724 6,87,312 3,273.03

2007-08 36,25,941 100.0 16,999.90 100.0 46,884 9,16,978 4,816.87

% Growth 25.3 37.5 9.7 33.4 47.2


SBI in Micro Finance Market

Introduction:-

Opening of MF Branches:


The Micro Finance sector and more particularly MFIs have grown exponentially in the recent years with the entry of venture capital and private equity funds into this sector. We have been observing that some of the banks are opening specialized branches exclusively for handling micro finance business particularly Indian Bank which has more than 12 branches. Recently, SIDBI has also inaugurated 7 specialised Micro Finacne branches at Lucknow, Hyderabad, Chennai, Bangalore, Kolkatta and Bhubaneshwar and Guwahati.



In this connection, we advise that SBI is the market leader in micro finance, with more than 43% share as on 31.03.2008 among commercial Banks in SHG bank linkage programme.



With a view to expand our horizon in this sector, SBI Group started its first specialized branch for Micro Finance at its Bhopal LHO, under its Region No.1 office on 18th October 2008 and started its full functioning from 20th of November, 2008.



Mission of SBI for Micro Finance:-



MISSION: SBI has taken up SHG movement as a mission. A noble mission to reach those families who were hitherto having no access to the credit by any formal financial institution and, therefore, were depending on informal sources and moneylenders.



SWOT Analysis of SBI Micro Finance, Bhopal:-



Strengths

• Wide range of branch holding large customer base.

• Easy understanding of rural needs as branches are already established and under operations there.

• Easy access by those who really need Micro Financing.

• Being the first specialized branch on Micro Finance, focused attention is possible resulting in more financing under this scheme

Weakness



i) Our nearest competitor Indian Bank extends loan upto 10 times of TNW of the NGO, while we can go upto an extent of 8 times only.

ii) Other Private banks like ABNAMBRO, ICICI, HDFC does not have this cap.



Opportunities:



SBI is the first bank to open a specialized branch for financing to NGOs/MFIs in M.P and Chhattisgarh.

Indian bank has only recently opened an office. But its area of operation is limited to M.P. only.

All the leading NGOs/MFIs operating in M.P. has been romped in.

Threats



No threats from other FIs as SBI is the only bank which offers vide range of services to NGOs due to its vast network of branches in the rural areas.







Circulars and guidelines for Appraisal of a Proposal being received:-



1. Rating of NGO/MFI

• Internal Scoring as per scoring model has to be given.

• To become eligible for finance, NGO/MFI will have to obtain a minimum of 60 marks out of total of 100 & minimum marks obtained in respect if vital parameter numbers 3,5,8,10, & 13 stated in the scoring model.



2. Loans of Rs. 200 lacs and above

• Internal rating to be carried out apart from external rating agency.

• Valid Credit rating from Micro Credit agencies MCRIL, CRISIL, CARE, ICRA and Planet Finance. They must get top four rating from these Micro Credit rating agencies.



3. Basic requirements while applying for Loan:-

• Application as per prescribed format.

• NGO must be authorized for business of on lending.

• Audited financial statements for the last three years

• Information regarding MIS system maintained

• Information on Operational Self Sufficiency

• Financial self sufficiency

• Segment wise disbursement made

• Recovery%

• Analysis of overdues

• Internal control system prevalent in the organization



4. Documents prescribed by Bank:

(i) Arrangement letter, Articles of Agreement for hypothecation, Deed of Guarantee.



5. NGO/MFI should be continuously profit making since its inception.



6. On lending should be a part of business declaration otherwise has to be added to it before applying by getting permission from its registrar.



7. Portfolio Risk of NGO should be less than 5%.



8. Rate of interest charged by SBI: @SBAR. At present 11.75% pa



9. TOL/TNW is maximum permissible upto extent of 5, relaxable to 8 by CGM of the circle.



10. Margin: Nil



11. Security: Primary: Hypothecation of book debts created out of Bank loan

Collateral: For non NBFC- Nil . However, personal guarantee of promoters/directors and charge over other available assets to be explored.

12. Frequency of

loan: Need based repeat finance.



13. Repayment: 36 months in case of Term Loan. In case of CC, it is renewable every year.



14. a) Eligibility:



i. Societies registered under the Societies Registration Act 1860 or any other similar act

ii. Trusts registered under Public Trust Act 1920 or similar act

iii. Companies registered under Companies act 1956 including section 25 Companies

iv. Specialist and other cooperatives such as Mutually Aided cooperative societies and SHG federations/clusters registered under the Mutually Aided Cooperative Societies Act in AP and other relevant legislations in the respective states.

v. Any other type of institutions that offers micro finance and related services may be considered on merits

vi. NBFCs engaged in Micro Finance activity which are registered with RBI.



b) The NGOs/MFIs/NBFC falling under the above mentioned list should have partnerships with:



(i)_ A minimum of 50 SHGs /JLGs in case of an NGO/MFI on lending to SHGs/JLGs

ii) A minimum of 500 individuals in case of an NGO/MFI on lending to individuals

iii) SHG Federations/Clusters should have a minimum membership of 30 SHGs.



15) Monitoring mechanism:



a) Scrutiny of statements of loans disbursed, recoveries and outstanding position. In case of multiple borrowings from various banks/FIs, copies of the last statements submitted to other Banks FIs from whom borrowed to be obtained and perused.

b) Bank officials should have dialogue / interactions with the board members of the NGOs/MFIs to ascertain the proper functioning of the NGO/MFI.

c) Inspection of SHGs financed by the MFI on random sample basis with particular reference to compliance of the maximum interest rate being charged for on lending to SHGs as declared by the NGO in the agreement.



16 )Proposals received and sanctioned since inception of the branch:-



Name of theNGO/MFI Place Amount(Rs.)(in lacs)

Action for Social Develiopment (ASA) Bhopal 200.00 lacs

Samhita Rewa 500 .00lacs

Anupama Education Society Satna 75.00lacs

Lok Biradari Trust Indore 80.00 lacs

Samvedna Panna 65.00 lacs

Yukti Samaj Sewa Samiti Hoshangabad 25.00 lacs

Sewa Samiti Indore 60.00 lacs

Indo Mercantile Bank Maryadit Indore 18.00 lacs

Sambhav Samaj Sewa Samiti Gwalior 100.000 lacs

Bundelkhand Mahila Sehkari Samiti Chattarpur 50.00 lacs

Vikas Samiti Chindwara 70.00 lacs

Priysakhi Indore 50.00 lacs-

SOCH, Dongargarh Dongargarh 75.00 lacs

Total 1368.00 lacs



Total SHGs covered through NGOs/MFIs: 6386x10 = 63860 (members)

Total JLGs: -“- 2858 x5 = 14290 (members)



17) Direct fianancing to SHGs



No. of SHGs:- 61 Rs 15.52 lacs.: (610 members)





18) Sanctioning authority:



Upto Rs 75.00 lacs–Chief Manager, Micro Finance Branch, Bhopal.

Above Rs 75 lacs and Upto Rs. 2 crore by RM,R-!,RBO, Bhopal.

> Rs. 2 Crore -Network Credit Committee (2)



19) List of some Major Activities undertaken by the SHGs/JLGs/individuals financed by the NGOs/MFIs:



Grocery shop, Readymade, Cutlery, Poultry, Electronic goods, Fall-Piko, General store, Vegetable vending, tea stall, Cutpiece centre,mutton shop, tile cutting machine, fruit vending, tailoring, utensil shop, buffalo, cow rearing, garage, goatery, centering materials, tractor repair-spare parts, tent house, house repairing, red chili business, mobile repairing shop, bangle selling, bricks making, tent house, cycle repairing shop, saree selling, kabad vala, small restaurant, animal trading, broom making, peanut-gram cart, auto parts, beauty parlour, motor rewinding, hair saloon, plastic items, clay pottery , Zari work, furniture shop, carpentry, hand cart, shoe repairing, egg selling, plumbering, CD shop, papad badi mfg, computer/photo copy, bakery shop, imitation jewellery, embroidery, tiffin centre, manihari etc.



20)Average Loan Size:



It differs from Ngo to NGO. Normally it ranges from Rs 2500/- to Rs 50000/- per member



21) Rate of interest charged by MFI:



Fixed as well as reduced balance method; it varies from 15% to 18 %. Flat; it works out to 27% to 33% p.a. Some charges 15% to 18% at the reducing balance method.



22) Other charges:



1. Documentation charges @1% to 3% including insurance charges recovered at the time of sanction.

2. 10% security deposit – recovered at the time of sanction refunded at the time of closure or adjusted against final instalments.

3. Some cooperatives also recover Share money- returnable

23) Tenure of Loan:



The loan is repayable in 6 to 19 months according to the activity.



24) Insurance:



All borrowers are invariably insured with insurance agencies like LIC, Birla-Sunlife, ICICUI-Lombard for the amount of loan and for the period of loan.



(comparative chart viz-aviz SBI Life Micro Insurance product-Gramin Sakti enclosed)





25) Frequently asked questions:



a) Why people prefer to seek loan from MFIs/NGOs rather than Bank where rate of interest charged is far less?



Ans:

i) Easy accessibility (ii) less formalities (iii) provided at the spot (residence) (iv) recovery at the residence (v) weekly/bi-weekly instalments (vi) no proof for purchase of items/goods (vii) no quotation required (viii) no account required (ix) indifference (attitude) of the Bank officials/employees x) simple one page documentation xi) NO NOC from FIs required.





b) Why recovery is highest in these cases?



(i) It is due to the training imparted at the very beginning of formation of the group by the NGOs that the loan is not from any Bank/Govt and it should be repaid at any cost. Also, the importance of joint liability of other group members explained. Continuous follow up/contact by the field workers of the NGO. No shift from the recovery schedule at any cost. Strict Monitoring by the NGOs through weekly demand/collection schedule.



c) Is there any Risk financing MFIs?



The loan may be at risk because of the following factors. Key person leaving the NGO. Fraud committed by the field staff/recovery staff by embezzling the recovered amount, loan purportedly to have been made to non-existing persons. Multi financing by so many NGOs operating in the area due to competition, due to target etc. Due to political interference;



However, the NGOs/MFIs has provisioning for the eventuality at the rate of 1% to 3% of their loan portfolio.



So far, alll the NGOs/MFIs financed by the Branch, has no overdues even for more than 30 days, except in the case of Samhita Community Development Services, where also, the over due position is less than 2%. (their chart enclosed). Here also, they do not have any overdues financed out of SBI funds.





I- Other Activities undertaken by the Branch:-



Project work on “ MICRO FINANCE “ (summer project training for MBA students )

One student from Manipal Institute of Management , Manipal, Karnataka and another from Institute of Management ‘Chirst’ University, Bangalore have done project work on ‘Micro Finance’ under the guidance of the Branch Officials. Their project works have been highly appreciated by the respective universities/collages.



II- Special Initiative for Business Development:



(i) NGOs Meet on the inauguration day of the Branch i.e. on 18.10.2008 to procure Business proposals.

(ii) Organised a seminar on ‘Micro Finance” on 10.01.2009 – to discuss about the salient features of our scheme and help them prepare proposals etc.

(iii) Loan Mela organized at Mandideep for distributing Sanction letters to 30 SHGs located at various places of Raisen District.

(iv) NGOs meet organized on 25.09.2009 at Raipur for the benefit of NGOs located in Chhttisgarh State.

(v) SHGs meet at Chhindwara organized on 13.11.2009 for the distribution of loan amount and creation of awareness among the group members.

(vi) SHG meet at Indore on 26.11.2009 for distribution of loan amount and awareness creation programme for the women members of SHG groups.



III- Community Services initiatives under taken by the branch:



(i) Celebration of Children’s Day (14.11.2008)

The Branch celebrated “Bal Diwas” with physically challenged children affected by Bhopal Gas Tragedy since birth in the premises of Chinkari Trust, Berasia Road, Bhopal along with its members. Toffess were distributed during the occasion to the children. Local Media covered the event exclusively.



(ii) Eye Camp (03.12.2008)

Distributed medical kits to 16 economically backward persons in the eye camp organized by “Dhrishti” Sansthan, Bhopal a wing of Bhopal Charitable Hospital, on 03.12.2008 on the occasion of “World Diabled Day”. This has been given wide coverage by the media.

(iii) Empowerment of Women Camp (04.02.2009)

Organised a camp at the site of Mahasakti Sewa Kendra, Dwarka Nagar, Bhopal for the progress and empowerment of 150 gas affected women belonging to 15 SHGs. In this mela, sanction letters to 15 SHGs were distributed by Shri P.S.Ganesh, DGM (RB). Shri Mahesh Kochhar, AGM (SME), Bhopal was also present.



(iv) Inauguration of the first mini-outlet operated by SHGs at Boat Club, Bhopal.



The mini outlet operated by SHGs of Gas affected women artisans was inaugurated at the Boat Club by Shri P.S. Ganesh, DGM (RB)and Shri Sharma Sarkar, AGM-R_1, Bhopal on 21.02.2009. The shop was allotted by Madhya Pradesh Tourism Development Corporation, Bhopal for the sale of artistic handicraft products of SHG. All the groups were financed by the MF branch, Bhopal. Wide coverage was given to this event by Local media.



(v) Financial literacy work shop for SHGs(23.02.09)



A work shop was organized on “financial literacy” for the benefit of the members of SHGs. Around 100 SHGs from 48 districts of MP took part in the work shop.



(vi) Health Check-up Camp for the members of SHGs at Bhopal Haat.



150 members of SHGs belonging to different parts of Madhya Pradesh who were displaying their handicraft products at the “Bhopal Haat” were given free medical checkup by the LHO Bhopal medical team. This check up camp organized by Micro Finance Branch, Bhopal was widely acclaimed by all the SHG members and the public in general. The media has also covered the programme.



IV- Action Plan for the next four months:



We have fixed ourselves an ambitious goal to achieve a target of Rs 25 crores (sanctioned amount) by the end of March 2010. So far we have achieved nearly Rs 13.78 crores. We have already submitted proposals worth Rs 300 lacs for sanction. We have in the pipeline nearly 2 proposals for Rs 200 lacs which we hope to clear by the end of March, 2010.



Between February and March, 2010, we hope to get another Rs 10 crore worth proposals from the existing and new NGOs.



V- Highlights of Branch [performance:



Achievement: Budget for the year: Deposits: Nil

(09-10) Advances: Rs 4.80 crores

Acutal Rs 8.19 crores (upto Jan’10)

Profit Rs 15.00 lacs (upto Jan’10)

Recent Audit Rating: A+ (882/1000)

NPA: Zero

Growth over Last March: Rs743.88 lacs

Growth in % : 1431.44%



Within six months of opening of the branch, the branch has started earning profit. The Branch is posted with two dedicated officers who has not only earned names among the NGOs for prompt and efficient services, but also for training the developing NGOs on book keeping etc.



N.Sridharan
Chief Manager
Micro Finance Branch
Bhopal.

Email:nagrajansridharan@yahoo.com

Mobile:09826503821