Chapter 6 IMPACT OF INTEREST FREE INSTITUTIONS ON ECONOMIC...

260

Chapter 6IMPACT OF INTEREST FREE

INSTITUTIONS ONECONOMIC EMPOWERMENT

261

Chapter 6

Impact of interest free institutions on economic

empowerment

The interest free institutions working in Kerala are non commercial in nature

except an NBFC. These ventures were developed by social activists and organizations

to serve people from exploitation of interest. Major portion of the beneficiaries are

poor and marginalized. Due to absence of collateral most of them have no access to

banking sector. Therefore they depend on money lenders to meet urgent needs who

charged exorbitant rate of interest. Because of high interest burden, the poor have no

surplus income to save. More over they are perpetually in debt, due to several reasons

mentioned in chapter one. Interest free micro financing facilities developed in recent

years are a blooming light to the eyes of the poor. As mentioned in the previous

chapter, during the last 40 years considerable efforts have been made in the direction

of setting up such institutions in Kerala. In this chapter an in depth analysis of the

profile of clients of these institutions has been attempted.

6.1 District wise distribution of beneficiaries

The present study is based on 300 beneficiaries selected from the 30 units

working in eight districts of Kerala using simple random sampling procedure. On an

average ten clients of each institution have been surveyed in person to collect the

required information. Table 6.1 provides the distribution of beneficiaries selected

from each district. It reveals that 43% of the beneficiaries are from Malappuram

district. Calicut represents the second with 60 (20%) beneficiaries. The major share of

samples is from northern districts because the institutions are concentrated in these

districts.

262

Table 6.1

Distribution of sample beneficiaries in districts

District Beneficiaries Percentage

Kasargod 10 3.33

Kannur 22 7.33

Calicut 60 20

Malappuram 130 43.33

Palakkad 18 6

Thrissur 24 8

Ernakulam 14 4.67

Kollam 10 3.33

Thiruvananthapuram 12 4

Source: primary data

6.2 Socio economic Profile of the beneficiaries

In a study about economic and social impact of financial activity, socio

economic profile of the beneficiaries is very important. Major components considered

in this regard are religion, gender, marital, employment, education and income status

of beneficiaries. Table 6.2 reveals the important profile of beneficiaries.

6.2 a. Religious wise distribution of beneficiaries

Even though all institutions are run by Muslim organizations, 20% of the

clients are Hindus. In the existing financial assistance these institutions consider only

the trustworthiness of the clients, and not the community affiliation. About 80% of the

clients are Muslims because Muslims in general are averse to interest based dealings

as compared to other communities.

263

Table 6.2

Socio economic profile of beneficiaries

Profile of sample clients Category No of samples % in total

samples

Religion Hindu 63 21

Muslim 237 79

Others 0 0

Gender Male 157 52.33

Female 143 47.67

Marital status Married 287 95.67

Unmarried 13 4.33

Employment status Employed 179 59.67

Unemployed 121 40.33


6.2 b. Gender wise distribution of beneficiaries

There is no priority for men or women in issuing membership or loans in the

institutions. Few SHG models are concentrated only among women. When interest

based microfinance concentrating among women, interest free microfinance

institutions give preference to family. The comparative studies about these institutions

conclude that family consideration is more effective in utilizing funds for the purpose

of loan. (Habib Ahmad 2005) Interest free institutions in Kerala also follow more or

less the same method. It is observed that of the total beneficiaries 157 are males

while 143 are females. (52.33% and 47.67% respectively)

264

6.2 c. Marital status of beneficiaries

Though the interest free institutions are not giving any consideration on the

basis of marital status, majority of beneficiaries are married. 287 (95.67%) clients are

married. It reveals the financial needs of the married people, most of which is related

to living expenses, treatment, durable consumption items etc. are met by the interest

free institutions. Unmarried have needs but it is related generally to employment or

education which needs huge amount of money, which interest free institutions in

Kerala are normally not in a position to meet now.

6.2 d. Employment status of beneficiaries

Interest free institutions allow different types of loans to meet the financial

emergencies. Many clients are taking loans for employment purpose. In the total

clients 179 (59.67%) are employed, while unemployed represent 121 (40.33%).

Majority among unemployed beneficiaries are housewives (110); most of them do not

try for a job. Only 11 (3.67%) represents other unemployed. In the unemployed class

most are from the aged and not from the youth.

6.3 Status of age of beneficiaries

People from different age groups are come to take membership and loan from

IMFIs. Table 6.3 and the following chart show the distribution of beneficiaries

according to age.

265

Table 6.3

Age of beneficiaries

Age status Numbers of clients Percentage of total

Below 20 0 0

21-30 44 14.67

31-40 105 35

41-50 80 26.67

51-60 50 16.67

61 and

above

21 7

Total 300 100


Chart 6.1


.

0

20

40

60

80

100

120

Below 20

Num

ber

of b

enef

icia

ries

265

Table 6.3



Below 20 0 0

21-30 44 14.67

31-40 105 35

41-50 80 26.67

51-60 50 16.67

61 and

above

21 7

Total 300 100


Chart 6.1


.

Below 20 21-30 31-40 41-50 51-60 61 andaboveAge in years

265

Table 6.3



Below 20 0 0

21-30 44 14.67

31-40 105 35

41-50 80 26.67

51-60 50 16.67

61 and

above

21 7

Total 300 100


Chart 6.1


.

61 andabove

266

Table reveals that major portion of clients belong to the age group of 31 to 40

(35%). Those from 41 to 50 have the second place (26.67%). Twenty one (7%)

beneficiaries are above 60 years. There are no clients from the category of below 20

years. Mean age of beneficiaries is 42 years. This shows that more than 60% of clients

in interest free institutions are from the age group of 30 to 50 years. Infact this is the

age which needs more money to meet urgent financial needs like hospital expenses,

construction of houses, education of children etc.

6.4 Educational status of beneficiaries

The beneficiaries consist of people from all educational backgrounds. Though

more people are educated few illiterates are also found among beneficiaries. Refer

table 6.4.

Table 6.4

Educational status of beneficiaries

Educational status Numbers of

beneficiaries

Percentage of

total

Illiterate 5 1.67

Lower Primary 62 20.67

Upper Primary 62 20.67

High school and SSLC 119 39.67

Higher

secondary/diploma

37 12.33

Degree 11 3.67

Above degree 4 1.33

Total 300 100


The data reveal 5 (1.67%) respondents are illiterate. 124 (41.33%) beneficiaries

have only primary education. Those with lower primary education and upper primary

education are almost equal (20% each). Only 11 respondents (3.67%) have completed

degree.

267

6.5 Economic status of beneficiaries

Economic status of beneficiaries is examined in terms of the ownership of

land, house and other assets. Table 6.5 reveals the details of assets. Of the 300

respondents 261 (87%) own land, and 254 (84.67%) have their family home. Other

important assets include: 108 (36%) have jewellery items, 127 (42.33%) have durable

consumption goods like television, refrigerator etc, 58 (19.33%) have vehicles, 50

(16.67%) persons have business, 20 (6.67%) have shops, 23 (7.67%) have live stock,

7 (2.33%) have the labs or equipments and one person has other assets.

Table 6.5

Economic status of clients

Type of assets Numbers of Beneficiaries Percentage

Land 261 87

House 254 84.67

Livestock 23 7.67

Business 50 16.67

Lab/equipments 7 2.33

Shop 20 6.67

Durable consumption

goods

127 42.33

Jewellery 108 36

Vehicles 58 19.33

Others 1 0.33


6.6 Types of employment

The beneficiaries constitute employed and unemployed. The type of employment

included self employed, wage employed, government sector job and private sector

job. The unemployed are classified as house wives and other unemployed. Of the total

300 respondents 110 (36.67%) are housewives. Of the other 190 respondents 66

(22%) self employed, 76 (25.33%) wage employed, 22 (7.33%) doing private jobs,

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and 15 (5%) have government job. 11(3.67%) persons have no job. This job wise

distribution of respondents reveals the financial status of beneficiaries. Only 5% of

clients have government job. All others are doing casual jobs from which income is

very small. Therefore it is not able to meet the occasional expenditures like

purchasing of durable consumption goods, medical, educational and marriage

expenses in their life by their income. Therefore they depend on interest free

institutions. Table 6.6 and pie chart illustrate this.

Table 6.6

Types of employment of beneficiaries

Numbers of

Beneficiaries

Percentage

Self employed 66 22

Wage employed 76 25.33

Govt. job 15 5

Private job 22 7.33

No job 11 3.67

Housewife 110 36.67

300 100

Source: primary

Chart 6.2Types of employment

4%

37%

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Table 6.6


Numbers of

Beneficiaries

Percentage

Self employed 66 22


Govt. job 15 5

Private job 22 7.33

No job 11 3.67

Housewife 110 36.67

300 100

Source: primary


22%

25%

5%

7%

37%

Self employed

Wage employed

Govt. job

Private job

No. job

Housewife

268








Table 6.6


Numbers of

Beneficiaries

Percentage

Self employed 66 22


Govt. job 15 5

Private job 22 7.33

No job 11 3.67

Housewife 110 36.67

300 100

Source: primary


Wage employed

269

6.7 Family income of beneficiaries

Interest free institutions collect member’s savings as thrift and allowing small short

term loans. Though it is given very small loans, its clients include people of every

category of income. Table 6.7 reveals this. Of the total beneficiaries family income of

0.67% clients (2) is less than rupees one thousand. Seven (2.33%) beneficiaries

represent 1001 to 2000 category of income and 43 (14.33%) from 2001 to 3000.

Fifty six respondents (18.67%) represent the income group of 3001 to 4000.

Table 6.7

Family income of beneficiaries

Income status Numbers of

clients

Percentage of total

Up to 1000 02 0.67

1001-2000 07 2.33

. 2001-3000 43 14.33

. 3001-4000 56 18.67

. 4001-5000 71 23.67

. 5001-6000 46 15.33

. 6001-7000 23 7.67

. 7001-8000 20 6.67

. 8001-9000 15 5

9001-10000 7 2.33

. 10001 and

above

10 3.33

Total 300 100


When we take the poverty line determined by Planning Commission of India

2011 (It is now decided to review because of incapability of income) 26 per person

in a day is the minimum consumption expenditure in rural areas to become non poor.

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Table 6.7



clients

Percentage of total

Up to 1000 02 0.67

1001-2000 07 2.33

. 2001-3000 43 14.33

. 3001-4000 56 18.67

. 4001-5000 71 23.67

. 5001-6000 46 15.33

. 6001-7000 23 7.67

. 7001-8000 20 6.67

. 8001-9000 15 5

9001-10000 7 2.33

. 10001 and

above

10 3.33

Total 300 100





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Table 6.7



clients

Percentage of total

Up to 1000 02 0.67

1001-2000 07 2.33

. 2001-3000 43 14.33

. 3001-4000 56 18.67

. 4001-5000 71 23.67

. 5001-6000 46 15.33

. 6001-7000 23 7.67

. 7001-8000 20 6.67

. 8001-9000 15 5

9001-10000 7 2.33

. 10001 and

above

10 3.33

Total 300 100





270

Thus a five member family needs 3900 to meet their basic needs. When we consider

this as poverty line 36% of clients are come under poverty line. Income group of

4001 to 5000 represents 71 (23.67%) and 5001 to 6000 group represents 46

(15.33%). When we consider international poverty line of $ 1 a day per person these

group also come under poverty line; it means 75% of respondents are actually poor.

Interest free institutions are providing loans irrespective of income or

employment. But most of the clients coming for loans are from poor community

especially poorest of the poor. This is the feature of most of the interest free

microfinance institutions working in different parts of the world. Interest based

institutions are reluctant to give loans to poorest of the poor because of fear of default.

High interest rate is also a barrier to approach interest based financial institutions.

Interest free institutions provide small amount of loans to poor without any collateral

and without interest. Therefore poor community is considering interest free

microfinance institutions working in local areas as the right solution to solve their

problems. This explains why vast majority of the clients of interest free institution are

from the poor.

6.8 Types of savings of beneficiaries

Savings are very important indicator to measure the financial status of

beneficiaries. Poor people are generally having low savings rate because their excess

income over consumption is too less. Microfinance institutions and other financial

institutions are promoting the savings of the poor by different measures including

thrifts. The table 6.8 provides the details of savings of clients.

In the table, 251 beneficiaries have various type of savings in which 141

(47%) saved in thrift or pigmy accounts of microfinance institutions. 84 (28%) have

the saving accounts in commercial or co operative banks, 17 (5.67%) have chitty in

private institutions and nine persons have shares in interest free institutions. There is

270
















from the poor.











270
















from the poor.











271

no fixed account in banks to any of the members. Absence of fixed savings accounts

is the sign of financial status of beneficiaries and their attitude against interest. This

clearly shown financial inclusion of microfinance institutions; 47% have savings in

only this institutions. 16% of beneficiaries have no savings in any financial

institutions.

Table 6.8

Types of savings of beneficiaries

Types of savings Numbers of

Beneficiaries

Percentage

Pigmy/thrift 141 47

Savings account 84 28

Fixed account 0 0

Chitty 17 5.67

Shares 9 3

Total 251 83.67


6.9 Status of ownership of land

Ownership of land is another important indicator of financial status of

beneficiaries. Major portion of the clients are land less people or owned less amount

of land.

Table 6.9

Ownership of land of beneficiaries

Area of land Numbers of

Beneficiaries

Percentage

No land 39 13

Below 5 cents 145 48.33

5 to 10 cents 77 25.67

10 to 20 cents 24 8

20cents and above 15 5

Total 100


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Table 6.9 reveals the status of ownership of land of sample clients. Of the total

respondents, 39 (13%) have no land. 145 (48.33%) have the land but less than five

cents, 77 (25.67%) have the land in between 5 cents and 10 cents, 24 (8%) have the

land 10 cents to 20 and 15 persons have the land higher than 20 cents. As per the

norms of government of Kerala to determine the beneficiaries of poverty eradication

programmes, people come under less than five cents of land are poor. As per this

norm 184 (61.33%) out of 300 beneficiaries are come under poverty line. Only 13%

have the land more than 10 cents. This shows the pathetic economic condition of the

respondents.

6.10 Distribution of borrowers according to purpose of loan

As the study is related to poverty alleviation, purpose of loan is important. The

interest free institutions are allowing loans to various purposes. It constitutes the

productive purposes including farm inputs, working capital, employment and

education and other purposes including living expenses, house construction, treatment

etc. The gender wise classification of purpose of loan and its chi-square values are

also presented in table 6.10.

As we discussed above most of the beneficiaries are from down trodden classes

who consider interest free microfinance as a source of great relief to meet their

financial needs. Of the 300 respondents 78 (26%) used the loan amount to meet the

urgent living expenses or purchasing durable consumption goods. 55 (17.33%)

respondents used the loan as working capital for their existing businesses or to

purchase inputs in agricultural activities. 49 (16.33%) respondents took loans for

construction or repairing of their houses, and 32 (10.67%) used the loan for

repayment of old loan. 24 (8%) for employment, 26 (8.67%) for treatment, and 18

(6%) spent for education purposes. 12 (4%) persons are raised loans to meet expenses

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of marriages of family member, 4 persons (1.33%) for starting micro enterprises and

only 2 (.67%) persons are utilized the loan for purchasing vehicles.

Table 6.10

Purpose of loans and gender of beneficiaries

Purpose of loan Numbers of clients Percentage of

totalM F Total

Living expenses/durable

consumption

8 70 78 26

Working capital/farm inputs 35 20 55 18.33

Education 12 6 18 6

Employment 21 3 24 8

Treatment 12 14 26 8.67

House construction/repairing 27 22 49 16.33

Repayment of old loan 23 9 32 10.67

Vehicle 1 1 2 0.67

Micro enterprises 2 2 4 1.33

Marriage 5 7 12 4

Total 146 154 300 100


Pearson’s χ2 value=75.836, N=300, df=9, Asymp. Sig. (2-sided) =0.000

We find from the above table that loans are availed for productive purposes like

employment creation working capital, purchasing of agricultural inputs, education and

starting of micro enterprises. Those who took loan for these purposes account for one

third of the total beneficiaries. Needless to say such productive activities would lead

to increase in income and employment. Other purposes of loan like living expenses,

treatment, house construction or repair, vehicle purchasing, repayment of old loan and

marriage of relatives will also have a positive impact on the living condition of the

beneficiaries. Firstly all these loans reduce the vulnerability of the people. House

construction is a major purpose of loan, even though the amount and period of loan is

274

very small 16.33% of clients have taken loan for this. As major parts of beneficiaries

are extremely poor or moderately poor, their dream house is extremely modest one.

Many clients are in the habit of taking loans as 5000 to 10000 from interest free

institutions with intention of completing the house construction work piece meal.

Loans for house construction can be considered as productive, because it creates an

asset to the economy.

The loans for old debt repayment will reduce the interest burden and debt trap of

the people since most of the old loans are interest based loans. Meeting urgent

consumption needs including durable items like television, refrigerator, and other

instruments and expenses for the medical treatment of family members will also

increase living standard or reduce vulnerability of the beneficiaries. In summary all

the loans raised from interest free financial institutions have a positive impact on the

economy and it will help reduce poverty and increase living standard of the people.

Here the χ2 test between gender of beneficiaries and purpose of loan prove that

there is high statistical association between both variables. The χ2 value is 75.836 and

df is 9. The significance value is 0.000. The purpose of loan is influenced by the

gender of beneficiaries. While males took loans mostly for directly productive

purposes majority of loans by females are for meeting living expenses and the like.

6.11 Purpose of loan and occupation of beneficiaries

The following tables explain the association between occupation of

beneficiaries and purpose of loan. The result prove that the occupation of

beneficiaries of interest free units is influenced the purpose of loan. Here the χ2 value

is 150.54 and df is 36 for 300 beneficiaries. The significance value is 0.000. Therefore

it is proved a close statistical association in between purpose of loan and occupation

of beneficiaries. It means the purpose of loan is highly influenced by the occupation

of beneficiaries.

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of beneficiaries.

274


























of beneficiaries.

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Table 6.11

Purpose of loan and Occupation of beneficiaries

Occupation

TotalPurpose of loan

Self

employed

Wage

employed

Private

job

Govt.

job unemployed

Living exp/ Durable

consumption

3 5 1 1 69 79

Working cap/Agri.

inputs

23 8 8 3 12 54

Education 3 8 2 1 4 18

Employment 12 6 2 2 2 24

Treatment 4 7 2 1 12 26

House

construction/repairing

11 16 5 5 12 49

Repayment of old

loan

6 18 1 2 5 32

Vehicle 0 1 0 0 1 2

Micro enterprise 0 2 0 0 2 4

Marriage 5 5 1 0 1 12

Total 67 76 22 15 120 300


Pearson’s χ2 value= 150.55, N=300, df=36, Asymp.sig. (2-sided)=0.000

While the majority of self employed and wage employed beneficiaries took loan

mainly for productive purposes including working capital formation, agricultural

inputs, employment etc. the unemployed class mainly took loan for meeting their

urgent consumption needs.

276

6.12 Fulfillment of purposes

Any loan aims fulfillment of its purposes like generation of employment,

construction of house, education, treatment etc. But in practice there is also a chance

for non fulfillment. When the purposes of majority of beneficiaries are fulfilled the

venture is considered as a success. If not there may be some problems in the

implementation side of the project. Table 6.12 and chart represents the fulfillment

level of purposes of loans. While 220 (73.33%) has fulfilled their purpose fully, 70

beneficiaries (23.33%) fulfilled partially. But 3.33% clients (10 persons) responded

that they have not fulfilled their purpose of loan.

Table 6.12

Purpose of loan fulfilled or not

Numbers of clients Percentage of total

Fully fulfilled 220 73.33

Partially fulfilled 70 23.33

Not fulfilled 10 3.33

Total 300 100

Source: Primary data

6.13 If fully or partially fulfilled what types of purpose?

Table 6.13 classifies the types of purposes fulfilled by beneficiaries by interest

free loans. The purposes include productive and non productive. By fulfilling these

purposes may create employment, increase income or reduce debt trap or increase the

living standard.

277

Table 6.13

Purpose fulfilled by the clients

Purpose Numbers of clients Percentage of

total

Create employment 67 22.33

Increase income 73 24.33

Reduce debt burden 168 56

Avoid interest trap 156 52

Reduce vulnerability 162 54


When fully or partially fulfilled the purposes of 290 clients, it created 67

employments, increased income of 73 clients, reduced the debt burden of 168,

avoided the interest trap of 156 and reduced the vulnerability of 162 respondents.

When we take all this in percentage of sample size, employment is created to 22.33%

of respondents, income of 24.33% respondents increased, reduced the debt burden of

56%, avoid interest trap to 52% and reduce the vulnerability of 54%. This statistics is

actually the opinion of respondents so it shows the success of interest free institutions.

This means interest free institutions create very positive impact in the economy.

6.14 Reasons for non fulfillment of purpose of loan

Every project has a chance for non fulfillment of purposes. There are lots of

reasons for it. When identified the reasons and remove it the projects become success.

The loans of 10 persons from interest free institution is not fulfilled the purposes. Let

us identify the reasons for non fulfillment of purpose.

278

Table 6.14

Reason for non fulfillment of purposes

Reason Numbers of clients Percentage of total

Fewer amounts 8 2.67

Lack of supervision 0 0

Very short period 2 0.67

Total 10 3.33


It is found that 8 (2.67%) clients responded that it is because of small amounts

and two (0.67%) persons responded it is because of very short period of loans. Interest

free institutions are allowing very low amount as loan. If a person wants to construct a

house or wants to meet the medical treatment now needs huge amount of money. But

when the clients approach for loan these institutions grant maximum allowable

amount of money. But this amount is not enough to fulfill the need of the client.

Another reason is very short period of loan. The loans provided by most of the interest

free institutions are for very short period up to one year. This time period is not

enough in the case of poor households to meet their requirements.

6.15 Number of times taken loan

Beneficiaries of microfinance institutions are generally taking loans a number

of times. While wealthy people raise macro loans at one go for long duration to meet

their wants poor take micro loans in several installments. Therefore most of the

beneficiaries continue their contacts with interest free institutions for long period of

time.

279

Table 6.15

Number of times loan taken from IMFI

Number of times Numbers of

Beneficiaries

Percentage

Once 89 29.67

Twice 62 20.67

Thrice 58 19.33

Four times 29 9.67

Five times 23 7.67

More than five 39 13

Total 300 100


The above table and pie chart show that 89 (29.67%) respondents took loans only

once, 62 (20.67%) respondents took twice, 58 (19.33%) thrice and 29 persons

(9.67%) four times. Twenty three (7.67%) took loan five times and 39 (13%) more

than five times.

6.16 Change in monthly income of beneficiaries

The beneficiaries take loans for different purposes including productive as well as

for meeting emergency needs. Every loan creates its own impact on income of

beneficiaries. In some cases it directly meet the consumption needs of the people but

indirectly it may increase the income. A considerable number of loans are for

productive purposes which increase income. The following part of the study attempts

to identify the number of persons whose income increased and their socio economic

background.

280

Table 6.16

Number of persons increased their income

Numbers of clients Percentage of total

Persons increase their income 73 24.33

Persons who not increased 227 75.67

Total 300 100


Table reveals the number of respondents whose income increased. Of the total

300 clients 73 respondents (24.33%) income increased during the loan period. The

income of 227 (75.67%) persons has not changed.

6.16 a. Amount of increase in income

Table 6.17

Average increase in monthly income

Increase in income Numbers of clients Cumulative numbers

Up to 2000 33 (11%) 33 (11%)

2001-4000 18 (6%) 51 (17%)

4001-6000 8 (2.67%) 59 (19.67%)

6001-8000 2 (.67%) 61 (20.33%)

8001-10000 4(1.33%) 65 (21.67%)

10000 and above 8 (2.67%) 73 (24.33%)

Total 73 (24.33%


The size of increase in monthly income is a sign of poverty reduction among

the beneficiaries. While the income of a part of clients increased a less amount,

other’s income increased at high level. Table 6.17 reveals this. Table indicates that of

281

the total beneficiaries’ income of almost one forth increased. While twenty percent of

beneficiaries increased less than Rs. 6000 per month, around 5 percent increased more

than that amount.

6.16 b. Average increases in income and occupation of beneficiaries

Table 6.18 reveals the average increase in income and the significance level of

increase in income with occupation of beneficiaries. Every occupational group

increased their average income. Its t values and p values show that the income of all

occupational groups is significant. Refer the table 6.18.

Table 6.18

Table showing the mean difference in income in pre loan and post loan period

Occupation

categories

period N Mean

income in

Rs.

SD of

income in

Rs.

t stat p-value

one tail

Wage

employed

Pre loan 76 5368.421 2232.14 2.497 0.007

Post loan 5934.210 3496.04

Self

employed

Pre loan 63 6253.968 5046.46 4.361 0.000

Post loan 9165.079 7077.27

Private job Pre loan 22 5340.909 1984.38 3.530 0.001

Post loan 6454.545 1851.05

Govt. job Pre loan 15 5400.000 1594.63 2.085 0.028

Post loan 6466.666 2669.05

No job Pre loan 124 5643.548 2761.79 3.057 0.001

Post loan 5780.645 2751.16

Total Pre loan 300 5665.670 3189.162 5.668 0.000

Post loan 6614.000 4349.664


Table gives a broad picture of change in income in different occupational

categories. In the case of wage employed mean income increased from Rs. 5368.42 to

Rs. 5934.21. The p value is 0.007. It means there is a statistically significant relation

282

between increase in income and wage employed. The mean income of self employed

class has increased more from Rs. 6253.96 to Rs. 9165.07. The p value is 0.000. This

is statistically more significant. In the case of private job group and no job group p

value is 0.001. This also shows significant increase in income. In different job

category the significance is comparatively less to government job, p value is 0.028. In

the case of total groups high statistical significance is observed with p value of 0.000.

These results prove a significant impact of interest free loan on income of

beneficiaries.

6.16 c. Income category of beneficiaries whose income increased

Table 6.19

Family income of beneficiaries and increase in income

Income status Numbers of clients Beneficiaries who

increased income

Below 1000 03

57

0

21

1001-2000 07 3

. 2001-3000 20 8

. 3001-4000 27 10

. 4001-5000 44

90

12

19. 5001-6000 46 7

. 6001-7000 37

153

9

33

. 7001-8000 35 6

. 8001-9000 15 8

9001-10000 34 4

. 10001 and above 32 6

Total 300 73


Now we shall correlate the beneficiaries whose income increased with their

income level prior to availing loan. Refer table 6.19. Twenty one persons whose

income increased had an income level of less than Rs. 4000. As mentioned earlier

282








beneficiaries.


Table 6.19



increased income

Below 1000 03

57

0

21

1001-2000 07 3

. 2001-3000 20 8

. 3001-4000 27 10

. 4001-5000 44

90

12

19. 5001-6000 46 7

. 6001-7000 37

153

9

33

. 7001-8000 35 6

. 8001-9000 15 8

9001-10000 34 4

. 10001 and above 32 6

Total 300 73





282








beneficiaries.


Table 6.19



increased income

Below 1000 03

57

0

21

1001-2000 07 3

. 2001-3000 20 8

. 3001-4000 27 10

. 4001-5000 44

90

12

19. 5001-6000 46 7

. 6001-7000 37

153

9

33

. 7001-8000 35 6

. 8001-9000 15 8

9001-10000 34 4

. 10001 and above 32 6

Total 300 73





283

they belonged to BPL as per the norm of Indian planning commission. There is

therefore a clear case of poverty eradication. 19 persons from the income group of

4001 to 6000 also increased their income by taking interest free loan. According to

the norm of UN this class also falls under poverty line. Therefore this also can be

considered as case of poverty reduction.

6.16 d. Owner ship of land and increase income

Ownership of assets especially land is considered as an important indicator of

economic welfare. The table 6.20 reveals the relationship between increase in income

and ownership of land of beneficiaries.

Table 6.20The mean difference in income in pre-loan and post-loan period and ownership

of land

Area of

land

owned

period N Mean

income in

Rs.

SD of

income in

Rs.

t stat p-value

one tail

No land Pre loan 38 5955.26 3265.77 1.327 0.112

Post loan 6928.94 5668.54

Below 5

cents

Pre loan 146 5777.39 3801.10 4.861 0.000

Post loan 6941.09 4801.04

5 to 10

cents

Pre loan 77 5720.77 2348.70 2.630 0.005

Post loan 6298.70 3459.60

10 to 20

cents

Pre loan 24 5083.33 1691.84 2.967 0.003

Post loan 5937.50 1843.39

20 cents

and above

Pre loan 15 4533.33 1552.26 1.381 0.094

Post loan 5333.33 2319.69


Beneficiaries from all groups have increased their mean income. Its t values

and p values gives the significance level of each group to increase in income. There is

a statistically significant relation is observed between increase in income and

284

ownership of land. But those who owned less than 5 cents have more significant

relation with increase in income.

The mean income of beneficiaries who owned less than 5 cents of land had

increased from Rs. 5777.39 to 6941 and Standard Deviation of income from Rs.3801

to 4801. Here p value is 0.000. Therefore a high statistical significance is observed.

The beneficiaries from all land owned group is increased their income during loan

period. The p value of 5cents to 10 cents owned class is 0.005, and 10 to 20 cents

owned class is 0.003. Here also high significance is observed. The p value is

comparatively less to no land peoples, 0.112. Those people who owned more than 20

cents also not much increased their income with p value of 0.094. These observations

is leading to a conclusion that the net advantage from interest free loans has more

bagged by land owned beneficiaries less than 20 cents. Those who have no land and

who have more than 20 cents have less relation with income increase.

6.16 e. Education and increase in income

The association between educational category of beneficiaries and increase in

income is also important. Table 6.21 examines this. Every educational group except

illiterates had increased their mean income. Illiterate beneficiaries have not increased

their income by loan; therefore there is no significance. But there is a significant

association between all other educational categories and increase in income.

The high school-SSLC group has comparatively more significance to increase in

income with a p value of 0.000. The mean income of beneficiaries who completed

high school education increased from Rs. 5743.69 to 6978.15 during the loan period.

The standard deviation of income increased from 3363.48 during the pre loan period

to 4520 during the post loan period. The p-values for other groups are lower primary

0.002, upper primary 0.008 and higher secondary education 0.003. In these groups

285

also a highly significant association is observed. But in the case of more educated

people who completed degree the statistical association is comparatively less with p-

value of 0.094. It indicates that the education level of beneficiaries are influenced the

increased in income.

Table 6.21

The mean difference in income in pre-loan and post-loan period and education

status of beneficiaries

Educational status period N Mean

income

in Rs.

SD of

income

in Rs.

t stat p-value

one tail

Illiterate Pre loan 5 7300.00 248.99 nil nil

Post

loan

7300.00 248.99

Lower primary Pre loan 62 4846.77 1567.05 3.066 0.002

Post

loan

5419.35 1893.03

Upper primary Pre loan 62 5693.54 3126.24 2.437 0.008

Post

loan

6379.03 4424.86

High school/ SSLC Pre loan 119 5743.69 3363.48 4.438 0.000

Post

loan

6978.15 4520.39

Higher

secondary/diploma

Pre loan 37 6494.59 4739.43 2.911 0.003

Post

loan

6954.05 4717.02

Degree and above Pre loan 15 5766.66 1801.45 1.382 0.094

Post

loan

8566.66 7724.88


286

6.16 f. Purpose of loan and increase in income

It is expected that the purpose of loan will influence increase in income.

Loans utilized for productive purposes or for employment generation will have

generally a positive impact on income. Table 6.22 reveals the mean income of all

beneficiaries.

Table 6.22

The mean difference in income in pre-loan and post-loan period and

purposes of loan

Purpose of loan period N Mean

income

in Rs.

SD of

income

in Rs.

t stat p-value

one tail

Living exp/

durable

consumption

Pre loan 77 5575.32 3202.18 2.405 0.009

Post loan 5757.14 3159.46

Working capital/

farm inputs

Pre loan 53 5547.17 2859.30 5.139 0.000

Post loan 7915.09 5055.21

Education Pre loan 18 6111.11 2826.11 1.069 0.149

Post loan 7888.88 7315.49

Employment Pre loan 24 7395.83 7317.31 2.964 0.003

Post loan 10162.50 7986.34

Treatment Pre loan 26 5519.23 1596.75 2.208 0.018

Post loan 5807.69 1990.36

House

construction/

repairing

Pre loan 49 5357.14 1779.51 1.673 0.050

Post loan 5724.49 2266.29

Repayment of old

loan

Pre loan 32 5406.25 1738.73 1.968 0.029

Post loan 5656.25 1961.06

Marriage, vehicle

& others.

Pre loan 13 5730.77 1798.32 1 0.168

Post loan 6615.38 3021.82


287

However there exists significant relationship in the case of all categories of

purposes except education and marriage. The purpose of working capital formation

and farm inputs has more significant association with increase in income. Their mean

income increased from Rs. 5547.17 to Rs. 7915.09 and standard deviation of income

from Rs. 2859.3 to Rs. 5055.21. P value is 0.000. This is mainly due to all of these

loans are utilized for productive purposes only. The p value for living expense is

0.009 and employment is 0.003. Here also observed a high statistical association

between two variables. This is the result of reduction in vulnerability of beneficiaries

by taking loan for living expenses. The purposes like education and marriage is

comparatively less significant association with p-values of 0.149 and 0.168

respectively; because these loans are not increasing income directly. The p-values are

other groups are repayment of old loan 0.029, house construction 0.050 and treatment

0.018.

6.16 g. Age of beneficiaries and increase in income

Table 6.23 examines the association between age of beneficiaries and increase

in income. As we understood from previous discussions individuals from all age

groups are taking loans from interest free institutions and increased their income

though disproportionately. Here we examine, whether there is any relation between

increase in income and age of beneficiaries. It is found that the value of correlation co

efficient between increase in income and age is 0.0777. Statistically correlation is

insignificant. It indicates that the age of beneficiaries is not an influencing factor to

increase income.

288

Table 6.23

Age of beneficiaries and increase in income

Age of clients Number of

beneficiaries

Beneficiaries increased their

income

Below 20 0 0

21-30 44 12

31-40 105 35

41-50 80 14

51-60 50 8

61 and above 21 4

Total 300 73

Correlation value 0.0777

Source: primary data .

6.16 h. Increase in income and number of times of loan

As mentioned earlier, majority of beneficiaries of interest free institutions

taking loans many times to fulfill their objectives. We shall now examine the

relationship between number of times loan taken and increase in income. The value of

correlation co efficient is 0.098. That is to say the statistical relation is insignificant. It

indicates number of times of loan is not a factor to increase in income.

Table 6.24

Increase in income and number of times of loan

Number of times Numbers of Beneficiaries Beneficiariesincrease income

Once 89 10Twice 62 15Thrice 58 13Four times 29 13Five times 23 14More than five 39 8Total 300 73

Correlation value 0.098778


289

6.16 I. Personal factors and increase in income

The increase in income of a person may be affected by personal factors like age,

marital status religion and gender of beneficiaries. The regression analysis of these

factors with increase in income examines the association. Refer table 6.25.

Table 6.25

Regression analysis-Personal factors and increase in income

ANOVA

Model

Sum of

Squares df

Mean

Square F Sig.

1 Regression 2.017E+08 4 5.042E+07 6.470 .000

Residual 2.299E+09 295 7.793E+06

Total 2.501E+09 299

Coefficients

Model

Un standardized

Coefficients

Standardized

Coefficients

t Sig.B Std. Error Beta1 (Constant) 905.483 938.485 .965 .335

Age -34.655 15.559 -.129 -2.227 .027

Marital

status

574.340 817.260 .041 .703 .483

Religion 253.222 401.854 .035 .630 .529

Gender 1546.110 326.992 .268 4.728 .000


Regression model is Y=β0+β1X1+β2X2+β3X3+ β4X4

Here Y= increase in income, X1= age of beneficiaries,

X2= Marital status X3= Religion X4 = Gender

290

It is found that X4 is more associated with increase in income. The value is

0.000. But in all other cases significance level is too low. The regression value for age

with increase in income is 0.027 and marital status with increase in income is 0.0483.

The regression relation between religion and increase in income is 0.0529. This

analysis proves that gender of beneficiaries is more associated with increase in

income than other personal factors. Therefore it is to examine the association

between both in the table 6.26.

Table No. 6.26Gender and increase in income

Gender Clients increased income Clients not increasedincome

Total

Male 46 111 157

Female 27 116 143


The post test analysis given above shows 46 males in 157 beneficiaries and 27

females in 143 beneficiaries increased their income during the loan period.

6.17 Interest free loan and impact on employment

Creation of employment is a sign of poverty reduction in the society. When a new

employment is created in fulltime or part time, it will increase the income and it may

lead to poverty reduction. The following part of the study examines the impact of

interest free financial institutions on employment level of beneficiaries. Table 6.27

reveals the number of employment creation by the interest free institutions. Of the

total 300 sample clients full time employment is created to 15 persons (5%), part time

employment is created to 36 (12%) and self employment to 16 (5.33%). Totally 67

(22.33%) of employment is created in the society. This is very important impact of

interest free institution.

291

Table 6.27

Employment created by interest free loan

Type of employment Numbers of

Beneficiaries

Percentage

Full time employment 15 5

Part time employment 36 12

Self employment 16 5.33

Total 67 22.33


6.18 Other financial help and employment creation

Interest free financial institutions run by various social groups have different

types of lively hood programmes to reduce poverty and vulnerability among the

beneficiaries. Most of them are to convert the very poor to economically active. It

includes charitable donations, educational helps, other necessary goods and

compulsory charity known as zakah in Islamic terminology. All these flows from

haves to have notes will help reduce poverty and vulnerability in the society. Of the

300 beneficiaries surveyed 61 persons (20.33%) received zakah, 67 (22.33%)

charities, 39 (13%) educational help to the children and 36 (12%) necessary goods

from micro finance institutions.

Table 6.28 analyses association between other financial help and employment

generation. Clients who received these types of financial help had created the

employment. Seven beneficiaries who received zakah had created employment, its

chi-square value is 2.27 and p-value is 0.132. It denotes 60 persons who created

employment have not received zakah. 12 persons who generate employment by loan

had received charity from interest free institution. The χ2 value is 1.022 and p-value

292

is 0.312. Only nine persons who received the educational help for their children

generate employment. 58 persons who generate employment had not received

educational help. The χ2 value is 6.121 and p-value is 0.013. Only seven persons who

generate employment had received necessary good from institution. 60 persons who

generate employment had not received necessary good from institution. The χ2 value

is 6.325 and p-value is 0.042. In all these cases significance level is too less.

Educational help is comparatively more significant than others. Therefore the

association between employment generation and other financial help is less. It

indicates that not the other financial helps but the interest free loan itself is the main

reason to create the employment opportunities.

Table 6.28

Other financial help and employment creation

Type of other help

from IMFI

Employment

generation

Pearson Chi-square tests

Yes No χ2 df p-value

Zakath Yes 7 54 2.272 1 0.132

No 60 179

Charity Yes 12 55 1.022 1 0.312

No 55 178

Education

help

Yes 9 30 6.121 1 0.013

No 58 203

Necessary

good

Yes 7 29 6.325 2 0.042

No 60 204


293

6.19 Sources of other loans by the beneficiaries of IMFI

A part of beneficiaries of interest free institutions are also taking loans from

interest based conventional sources. Table 6.29 reveals this. More than half of

(52.33%) beneficiaries depended on other sources for meeting their loan demand.

This is because most of the interest free institutions are providing micro loans up to

5000 or maximum of 10000. Usually most of the institutions are providing less than

5000 as loans only that too for very short period of six months. But people need

higher amount in long durations for construction of house, marriage, starting of

business, working capital for enterprises and for getting employment in the country or

outside. No interest free institutions in the state are in a position to meet such

demands.

Table 6.29

Sources of other loans

Sources of other loans Numbers of clients Percentage of total

Co operative Bank 104 34.67

Commercial bank 31 10.33

Private Bank 4 1.33

Other Interest based MFI 8 2.67

Money lenders 10 3.33

No other loans 143 47.67

Total 300 100


Of the total 157 respondents who took loan from other sources majority of 104

(34.67%) depended on co operative banks. 31 beneficiaries (10.33%) on commercial

banks, 4 (1.33%) on private banks, 8 (2.67%) depend on other interest based

293











demands.

Table 6.29





Private Bank 4 1.33




Total 300 100





293











demands.

Table 6.29





Private Bank 4 1.33




Total 300 100





294

microfinance institutions and 10 persons (3.33%) on money lenders. Forty eight

percent of the beneficiaries exclusively depended on interest free institutions for

loans. This indicates financial inclusion function of interest free institutions.

6.20 Purpose of loans taken from other financial institutions and interest free

institutions

The purpose of loan taken from other sources include house, sanitation, land

purchase, employment etc. All these purposes need huge amount of money, most of

which are not possible to be met by small interest free institutions. It is interesting to

compare the purpose of loans taken by the same beneficiaries from interest based

institutions and interest free institutions. The table 6.30 reveals this.

Table 6.30

Purpose of loans from interest free institution and conventional institutions

Purpose of loan Loans from interest freeinstitution

Loans from conventionalinstitution

Numbers ofbeneficiaries

Percentage oftotal

Number ofbeneficiaries

Percentageof total

House,Sanitation, Land

52 17.33 72 24

Treatment,marriage

37 12.33 31 10.33

Employment,Education,agriculture, microenterprises etc.

102 34 37 12.33

Personal, Livingexpenses

77 25.67 12 4

Old loanrepayment

32 10.67 0 0

Total 300 100 152 50.67Source: primary data

295

In total beneficiaries, 152 (50.67%) depend on interest based institutions also for

credit. For the purposes like marriage, construction of house and treatment the

dependence on both institutions is almost same. But in productive loans like

employment and working capital formation, clients depend on interest free

institutions. Thirty four percent of loans from interest free institutions are for

employment or productive purposes but the corresponding percentage in the case of

conventional institutions is only 12.33%. This indicates that the productive potential

of interest free institutions is more than that of interest based institutions. When

10.67% of clients depend on interest free institutions for repayment of old loans,

conventional institutions have no such provision.

6.21 Satisfaction level of beneficiaries

If the customers of a financial institution consistently stick on to the same, it is an

indication that the customers are satisfied with its functioning. Otherwise they may

shift to some other institution. Refer table 6.31.

Table 6.31Satisfaction level of beneficiaries

Numbers of

Beneficiaries

Percentage

Procedure of project evaluation 27 9

Terms and condition of the institution 232 77.33

Duration of loan 119 39.67

Not satisfied 3 1


Table reveals why the respondents are satisfied with interest free financial

institution. Of the total 300 sample respondents 232 (77.33%) are satisfied with the

conditions stipulated by the institutions. Hundred and nineteen respondents are happy

296

with duration of the loan sanctioned. Twenty seven clients favored the project

evaluation procedure followed by the institution. Only one percent of the clients were

found to be unsatisfied with the working of the institutions.

6.22 Preference for interest free institutions

It has been observed in our survey that many of the beneficiaries had maintained

long contacts with the IMFIs in Kerala. Long business transaction with an institution

is indication of the customer’s preference for the institutions. Eighty four percent of

the beneficiaries preferred them as they do not charge any interest. Half of the

customers responded that it was easy availability of funds which tempted them to

borrow. Eleven percent of beneficiaries faced their due is quick asset creation. This

shows that absence of interest and easy available loans are main attraction of interest

free financial institution.

Table 6.32

Reasons for continuing business with IMFI

Numbers of

Beneficiaries

Percentage

Easy available funds 153 51

Non involvement of interest 250 83.67

High level of satisfaction 175 58.33

Easy asset creation 32 10.67

Others 0 0

Don’t want to continue 0 0


297

6.23 Opinion about the problem faced by IMFI

While interest free institutions are generally client friendly they also have been

facing several problems. The major problems reported by the sample institutions are

summarized in table 6.33.

Table 6.33

Problems of IMFI

Numbers of

Beneficiaries

Percentage

Default of loans 30 10

Recovery problem 44 14.67

Provision of guarantee 72 24

Lack of trained staff 115 38.33

Mobilisation of resources 81 27

Recurring expenses 55 18.33

Others 0 0


The problems in order of them magnitude are lack of trained staff (38%),

insufficient mobilization of resources (27%), provision of guarantee (24%) and

recurring expenses (18%). These problems font out that lack of professionalism is the

major drawback of these institutions. As mentioned elsewhere in this work, interest

free institutions are part of a massive movement spearheaded by social activists of

Kerala on a charity basis with a view to upbringing the living conditions of the poor

and the downtrodden in the society. The major reason for the perpetuation of the

problems stated above is the voluntary nature of these ventures. If proper

professionalism is injected most of these problems will vanish.

Default in loan repayment is another problem pointed out by beneficiaries. But

as understood from previous chapter the average percentage of default is as low as

298

0.031. Provision of guarantee is the collateral demanded by institutions to avail loan

to assure smooth repayment. It is either a gold ornament or deeds of their home. Even

poor women in Kerala have gold ornaments. Therefore this requirement is generally

not a problem in the society. If that is not possible, the institution itself developed an

alternative way such as bail by well known person in the society or mutual guarantee

by members. Therefore a collective pressure is coming on the borrowers to pay in

time. If this mechanism is not become success in any occasions other members

cooperates to solve the problem. For the same collective effort in the form of charity,

or zakah can be used.

The other problem raised by the respondents is lack of enough funds and

meeting recurring expenses. Mobilization of resources is not a problem to interest free

institution if the RBI is permitted functioning in a commercial manner. There is no

provision to receive savings without the license from RBI. If interest free institution

have a net work of SHGs it is possible to collect thrifts. But this is also a small

amount per week. Other sources of funds are donation and grants. Though most of the

institutions are developed by using these modes, it is not a sustainable way for the

growth of an institution. Therefore only way for the growth of capital is to approach

the government and reserve bank of India to get legal permission to collect savings

from the public. It needs the amendments in the current banking laws.

Meeting recurring expenses also a problem to some institutions. In the financial

sector a microfinance institution is considered sustainable only when it meets its own

recurring expenditure. Interest free institution also should meet the expenditure of its

own. For this one method is increase service charges. But these units are not

organized as a commercial venture and working with a social commitment, most of

the institutions are charging too less amounts as service charges. Therefore the

299

organizational set up of the institution should be developed and increase the income

sources of the institution other than interest. Then the problem of recurring expense is

solved.

6.24 Suggestion for improvement of institution

The suggestion made by the sample beneficiaries, for improving the

functioning are summed up in table 6.34. It is to be noted that each beneficiary has

given more than one suggestion. Forty percent of beneficiaries have suggested that the

organizational setup may be converted in to that of a cooperative credit society. Forty

three percent opined that these institutions by try to enroll more members by releasing

the existing rules and regulations. A little more than half of them mentioned the need

for creating greater awareness among the public about the evils of interest and the

working of the interest free institutions. One fourth of them wanted the institutions to

enhance the service charge for strengthening the financial soundness of these

institutions. Another 25% highlighted the need for increasing capital through shares.

Table 6.34Suggestion for improvement of institutions

Suggestions Numbers of

Beneficiaries

Percentage

Form a credit society 120 40

Enrol many 130 43.33

Give awareness to the public 142 47.33

Collect shares from beneficiaries 75 25

Collect nominal service charges 84 28

Special consideration to some clients 16 5.33

Others 3 1


Of these suggestions, that relating to change in legal mode of operation merits

some discussions. It is common knowledge that co operative set up is a mode of

300

operation to mobilize saving from the public. Presently most of the interest free

institutions operating in the state are not registered as cooperative credit societies and

hence they are facing serious constraints to mobilize savings from the public. The

reason is that as per state co operative act of Kerala, a co operative society cannot

mobilize savings without paying interest. A way out is to get registered such

institutions under the multi state co operative society, whose procedure are

comparatively much simple.

6.25 IMFI as a viable alternative

We have sought the opinion of the beneficiaries as to whether the IMFI are a

viable alternative or not. As high as 96% of the beneficiaries opined that these

institutions are viable alternative. This is indicative of the great potential in store for

interest free institutions in Kerala.

Table 6.35

Is IMFI is an alternative?

Numbers of

Beneficiaries

Percentage

Yes 289 96.33

No 3 1

No opinion 8 2.67

Total 300 100


301

Chart 6.3

IMFI is a viable alternative or not?

Now we have analyzed the impact of interest free micro institutions on its

beneficiaries. From various data it is understood that finance operation of these

institutions made positive results in the economic condition of beneficiaries. Also

analyzed the problems faced by these institutions. If necessary steps may taken by the

government to introduce separate legal framework for the smooth functioning of

interest free institutions it may become one of the solutions for poverty alleviation in

the state.

301

Chart 6.3








the state.

96%

1%3%0%

Yes

No

No opinion

301

Chart 6.3








the state.

No opinion

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