Methods Of Micro Finance Methods Of Micro Finance

SHGS /JLGS / Farmer SHGS /JLGS / Farmer ClubsClubs

Dr Shikha Dr Shikha TripathiTripathi

Credit - Financial Inclusion orCredit - Financial Inclusion orPoverty Alleviation??Poverty Alleviation??

High transaction costsLengthy documentationMonitoring costsHigh defaults Collateralised LendingLeakages of subsidised

resources

The Solution … Group ApproachThe Solution … Group Approach

SHG Bank Linkage ProgrammeSHG Bank Linkage Programme

Encourage thrift- Micro DepositsEncourage thrift- Micro Deposits

Use social dynamics / peer pressure Use social dynamics / peer pressure

as Social Collateralas Social Collateral

Pool individual needs for CreditPool individual needs for Credit

Simplify processes for Lending Simplify processes for Lending

Link with the banking system for Link with the banking system for

synergysynergy

SHG Bank Linkage ProgrammeSHG Bank Linkage Programme

Aim:

1.Micro-deposits

2.Micro-credit

3.Micro Enterprise

4.Members of SHGs to graduate to

Individual A/c holders in banks

The Core Strategy of SHG-Bank The Core Strategy of SHG-Bank Linkage ProgrammeLinkage Programme

Basic human feeling of Self Worth at its Core

Building financial capabilities and self confidence in the rural poor, through internal savings and lending from the owned funds of the SHGs.

The Core Strategy of SHG-The Core Strategy of SHG-Bank Linkage Bank Linkage (Contd..)(Contd..)

Leveraging the strength of the formal banking system and the flexibility of informal Self Help Groups (SHGs) in providing adequate financial services to the rural poor.

Micro Micro financefinance

SHG Approach Individual Approach

SHG Bank Linkage Model MFI Bank Linkage Model

SHGs promoted & Financed by bank

SHGs promoted by NGO and Financed by banks

SHGs promoted by MFI

Bulk loan from Bank for

on-lending to SHGs

By Banks On-lending by MFIs

Micro-enterprisesMicro-enterprises

Who Forms SHGs ?Who Forms SHGs ?

VVVVVVClubsClubs

IndividualsIndividuals

NGOs/NGOs/mFIsmFIs

SHGs/SHGSHGs/SHGFederationsFederations

BanksBanks

Govt Govt AgenciesAgencies

SHPIsSHPIs

Design features of SHGsDesign features of SHGs

Self-selection Self-selection Focus on women (85% of SHGs) Focus on women (85% of SHGs) Savings first and credit later Savings first and credit later Group financed only after 6 monthsGroup financed only after 6 months Intra group appraisal systems and Intra group appraisal systems and

prioritizationprioritization Shorter repayment terms Shorter repayment terms Market rates of interest Market rates of interest Progressive lending Progressive lending Maintenance of accounts by SHGsMaintenance of accounts by SHGs Developing a relationship with BanksDeveloping a relationship with Banks FLEXIBILITY IN APPROACHFLEXIBILITY IN APPROACH

A homogeneous group of about 15 to 20A homogeneous group of about 15 to 20 Every member to save a small amount Every member to save a small amount

regularly. Pooled savings kept in a regularly. Pooled savings kept in a savings bank account in SHG’s namesavings bank account in SHG’s name transaction costs of both the poor and transaction costs of both the poor and

bank reduced !bank reduced ! SHG to use pooled thrift to give interest SHG to use pooled thrift to give interest

bearing loans to members – decisions bearing loans to members – decisions taken in group meetingstaken in group meetings Every member learns prioritisation Every member learns prioritisation

and financial discipline. Their and financial discipline. Their capacities to thinkcapacities to think and handle larger and handle larger resources improves!resources improves!

The Self Help Group (SHG). . What is it ?The Self Help Group (SHG). . What is it ?

Depending on the SHG’s maturity, bank Depending on the SHG’s maturity, bank gives loan to the SHG as a multiple of gives loan to the SHG as a multiple of the pooled savings. Bank loan added to the pooled savings. Bank loan added to the SHG kitty.the SHG kitty. Adequate & sustained access to Adequate & sustained access to

financial services!financial services!

The Self Help Group (SHG). . What is it ? The Self Help Group (SHG). . What is it ? (contd..)(contd..)

MEMBERSHIP FEESMEMBERSHIP FEES

THRIFT COLLECTIONSTHRIFT COLLECTIONS

NGO/GO CONTRIBUTIONNGO/GO CONTRIBUTION

LOAN REPAYMENTSLOAN REPAYMENTS

FINES & PENALTIESFINES & PENALTIES

BANK LOANSBANK LOANS

Group FundsGroup Funds

Surplus so generated remains with the groupSurplus so generated remains with the group

MODE OF FUNCTIONING OF SHGsMODE OF FUNCTIONING OF SHGs

Function democratically

2-3 office bearers2-3 office bearers

Rotation of office bearersRotation of office bearers

Periodical meetingsPeriodical meetings

Decisions regarding thrifts loans Decisions regarding thrifts loans

interest interest rate etc in the meeting rate etc in the meeting

TYPES OF CREDITTYPES OF CREDIT

Term loans in multiple of thrifts Term loans in multiple of thrifts mobilized-4 times or more - mobilized-4 times or more - increasing graduallyincreasing gradually

Repayable in 3 or more yearsRepayable in 3 or more yearsCash Credit limit/revolving credit Cash Credit limit/revolving credit

limit of 4 times or more of group’s limit of 4 times or more of group’s expected savings in 3 yearsexpected savings in 3 years

Progress – 2008-09Progress – 2008-09

SHG Savings with Banks : No. of SHGs SHG Savings with Banks : No. of SHGs – 6,121,147, Amount : INR 55.46 billion– 6,121,147, Amount : INR 55.46 billion

Bank Loans disbursed to SHGs : No. of Bank Loans disbursed to SHGs : No. of SHGs – 1,609,586 Amount : INR 122.53 SHGs – 1,609,586 Amount : INR 122.53 billionbillion

Bank Loans outstanding with SHGs: Bank Loans outstanding with SHGs: No. of SHGs – 42,24,338 Amount : INR No. of SHGs – 42,24,338 Amount : INR 226.80 billion226.80 billion

Refinance to banks for SHG Financing Refinance to banks for SHG Financing – INR 26.20 billion– INR 26.20 billion

JOINT LIABILITY GROUPJOINT LIABILITY GROUP

Informal group comprising 4-10 Informal group comprising 4-10 individuals.individuals.

For the purpose of availing bank loan For the purpose of availing bank loan against mutual guarantee.against mutual guarantee.

JLG members to engage in similar JLG members to engage in similar type of economic activities either in type of economic activities either in Farm & Non farm sector.Farm & Non farm sector.

Simple management with little or no Simple management with little or no financial administration within the financial administration within the group.group.

OBJECTIVEOBJECTIVE To augument flow of credit to farmers & To augument flow of credit to farmers &

Micro-entrepreneurs artisans in Farm & Micro-entrepreneurs artisans in Farm & Non farm Sector Activities.Non farm Sector Activities.

To serve as collateral substitute for loans.To serve as collateral substitute for loans. To build mutual trust & confidence To build mutual trust & confidence

between bank & the target group. between bank & the target group. To minimise the risks in loan portfolio for To minimise the risks in loan portfolio for

the bank through group & cluster. the bank through group & cluster. To provide food security to vulnerable To provide food security to vulnerable

section by enhanced production, section by enhanced production, productivity & livelihood promotion productivity & livelihood promotion through JLG mechanismthrough JLG mechanism

Criteria for selection of JLG membersCriteria for selection of JLG members

Members to be of similar Socio- economic Members to be of similar Socio- economic status, background & carrying out same status, background & carrying out same economic activity.economic activity.

Members carrying out either farming or Members carrying out either farming or Non Farm activities & agreeing to Non Farm activities & agreeing to function as JLG.function as JLG.

Members to be from the same village/ Members to be from the same village/ area/ neighbourhood & trust each other. area/ neighbourhood & trust each other.

Members defaulting to any other formal Members defaulting to any other formal financial institution, in the past, debarred financial institution, in the past, debarred to be member of Group.to be member of Group.

Only one member from same family in the Only one member from same family in the same JLG.same JLG.

Size of the JLG – 4 to 10 farmersSize of the JLG – 4 to 10 farmers

Formations of JLGs byFormations of JLGs by Banks, PACS, other Coop., Govt. Banks, PACS, other Coop., Govt.

Depts.Depts. NGOs, Panchayati Raj Institutions, NGOs, Panchayati Raj Institutions, KVKs, State Agriculture Univ., Agri. KVKs, State Agriculture Univ., Agri.

Tech. Management Agency (ATMA) Tech. Management Agency (ATMA) Farmers Clubs, Farmers Associations, Farmers Clubs, Farmers Associations, Producers Associations, Artisans Producers Associations, Artisans

Guilds, Dept. of SSI/ Agro Industries Guilds, Dept. of SSI/ Agro Industries etcetc

MFIsMFIs

Savings by JLGSavings by JLG

Primarily to be a credit group. Primarily to be a credit group.

Voluntary savings.Voluntary savings.

JLG members to be encouraged JLG members to be encouraged

to open “no frills” accounts. to open “no frills” accounts.

JLG ModelsJLG ModelsModel “A”Model “A” Financing individuals in Financing individuals in

the group the group All members to execute All members to execute

one inter-se document one inter-se document making each one jointly making each one jointly & severally liable for & severally liable for repayment.repayment.

Financing bank to Financing bank to assess credit assess credit requirement. requirement.

Mutual agreement & Mutual agreement & consensus among consensus among member on the quantum member on the quantum of loan of loan

Model “B”Model “B”o Financing the groupsFinancing the groupso JLG to function as JLG to function as one borrowing unit. one borrowing unit. o JLG eligible for JLG eligible for acquiring one loan. acquiring one loan. o If the member want to If the member want to save, SB A/c can be save, SB A/c can be opened in the name of opened in the name of the JLG.the JLG.o All members to All members to execute one inter-se execute one inter-se document making each document making each one jointly & severally one jointly & severally liable for repayment.liable for repayment.

Important factors in JLG approachImportant factors in JLG approach

Concept depends heavily on mutual trust & peer pressure.

Quality of group leadership is important for sustainability of JLG.

Purpose of creditPurpose of credit

Flexible credit product.

For crop production, consumption, working capital, marketing & other productive purpose both in Farm & Non Farm Sector.

Loan limitLoan limit

Maximum loan upto Rs. 50000/- per individual under both model “ A” and model “B”.

Rate of InterestRate of Interest

As decided by Banks

Incentive for prompt repayment to be considered by banks.

Margin & Security normsMargin & Security norms

No collaterals to be insisted No collaterals to be insisted upon.upon.

Margins as per usual norms Margins as per usual norms may be applied.may be applied.

DocumentsDocuments

Introduction form Application cum appraisal

form . Mutual guarantee & DP note.

Personal accident InsurancePersonal accident Insurance

Banks may consider Banks may consider covering JLG member covering JLG member under personal accident under personal accident insurance.insurance.

Incentive for Promotion of JLGs Incentive for Promotion of JLGs from NABARDfrom NABARD

Grant assistance to eligible Grant assistance to eligible institutions @ Rs. 2000/- per JLG institutions @ Rs. 2000/- per JLG over a period of three years.over a period of three years.

Grant is for formation, nurturing Grant is for formation, nurturing & financing of JLG.& financing of JLG.

Capacity Building programmes & Capacity Building programmes & publicity material expenses also publicity material expenses also supported by NABARD.supported by NABARD.

Monitoring & ReviewMonitoring & Review

Banks to monitor at regular intervals.

Periodic report to be sent to RBI/ NABARD on half yearly basis (31 March/30 September)

JLG – SHG DifferenceJLG – SHG Difference

FACTORSFACTORS JLGJLG SHG SHG

Group size 4-10 members 05-20 members per SHG

Type of members

Exclusively of Farmers, Oral Lessees, Share croppers, artisans, entrepreneurs

Only very poor members

Savings A Credit Group - Savings optional

Savings-cum-Credit Groups

SHG – JLG Difference SHG – JLG Difference (Contd..)(Contd..)

FactorFactor JLGJLG SHGSHG

Loaning Either Singly or Jointly by JLG by financing bank

Only to SHG by financing bank

Maximum loan amount

Restricted to Rs.50,000/- per Individual (both under Model A or B)

No such upper limit since linked to total savings etc. Of group

SB A/c JLG members to be encouraged to open INDIVIDUAL ‘No Frill Accounts’

Group Bank A/c of SHG

Others To serve as a conduit for technology transfer, facilitate access to market information, carry out activities like soil testing, training, health camps to its members

May attempt, no such bar.

Farmer's Club ProgrammeFarmer's Club Programme

MissionMission

Development in rural areas Development in rural areas through credit, technology through credit, technology transfer, awareness and transfer, awareness and capacity building.capacity building.

Farmers’ Clubs are grassroot level informal forums of farmers.

Such Clubs are organised by rural branches of banks with the support and financial assistance of NABARD.

With the enhancement of the programme, other agencies like NGO, VAs, KVKs, etc. are also now included as agencies included in the formation and promotions of FCs.

The Programme was launched by

NABARD in November 1982 to

propagate the five principles of

“Development through Credit”.

The five principles are:The five principles are:

1. Credit must be used in accordance with the most suitable methods of science and technology.

2. The terms and conditions of credit must be fully respected.

3. Work must be done with skill so as to increase production and productivity.

4. A part of the additional income created by credit must be saved.

5. Loan installments must be repaid in time and regularly so as to recycle credit.

“VVV Programme” was rechristened as “Farmers’ Club Programme” in 2005 by revisiting its earlier mission.

FunctionsFunctionsThe broad functions of the Farmers’ Clubs as

envisaged are as follows  : Coordinate with banks to ensure credit flow among

its members and enhance better bank borrower relationship,

Organise minimum one meeting per month and depending upon the need, there would be 2-3 meetings per month. Non-members can also be invited to attend the meetings,

Interface with subject matter specialists in the various fields of agriculture and allied activities etc., extension personnel of Agriculture Universities, Development Departments and other related agencies for technical know how upgradation.

For guest lectures, even experienced farmers who are non members from the village/ neighbouring villages could be invited,

Functions Functions (contd..)(contd..)

Liaison with Corporate input suppliers to purchase bulk inputs on behalf of members,

Organise/facilitate joint activities like value addition, processing, collective purchase of inputs and farm produce marketing, etc.; for the benefit of members. They can also sponsor / organise SHGs,

Undertake socio-economic developmental activities like community works, education, health, environment and natural resource management etc.

Market rural produce and products

NABARD’s support to Farmer ClubsNABARD’s support to Farmer Clubs

NABARD’s policy support for Farmers’ Club Programme lays stress on linking technologies with farmers’ club members and also facilitating market access through the following mechanism: Capacity building of members of Farmers’

Clubs including leadership training. Linkage with technology/markets Self Help Groups (SHGs)/Joint Liability

Groups (JLGs) formation Forming Federations of Farmers’

Clubs/Producers’ Groups/Companies

Benefits of Farmers' Club to Bank BranchBenefits of Farmers' Club to Bank Branch

The formation of Farmers’ Club lead to better Banker-Borrower relationship in the area. An Evaluation study of Farmers’ Club Programme (FCP) carried out by IIM, Lucknow has brought out the following advantages of FCs to bank branches:

Increase in deposits. Increase in the credit flow and diversification

of lending. Generation of new business avenues. Increase in the recoveries and decline in the

non-performing assets. Reduction in the transaction costs of

financial institutions/ Banks.

Socio economic development of the village A win-win situation both for the banker and

borrower Besides benefit to banks, the Farmers’

Club has also been instrumental in certain social welfare measures like free eye check-up camp, Animal Health Care Camp, Mass vaccination camp, community works like road, check-dams, afforestation, etc.

Enhancement in bargaining power for bulk purchase of inputs and marketing of their produce

Other BenefitsOther Benefits

Who can form Farmers' ClubsWho can form Farmers' Clubs

All Institutional Agencies (Commercial Banks, Cooperative Banks and Regional Rural Banks) and all grassroot level organisations (NGOs, PRIs, State Agricultural Universities, KVKs, Post Offices etc.) are eligible to form Farmers’ Clubs

The Set UpThe Set Up Farmers’ Club is an informal forum in villages. Can be promoted in a village / cluster of villages,

generally in the Operational Area of a Bank. It should have minimum of 10 members, no upper

limit in the membership is envisaged. Every Club would have three office bearers - One

Chief Coordinator/Volunteer/ President, the other Associate Coordinator/Volunteer/ Vice President and a cashier.

The office bearers would be elected by Club Members on a democratic basis for a term to be decided by the Club.

Office bearers should be residents of the area of the operation of the club. No NGO/FC promoting agency representative can be office bearer of the club.

Functions of the Office bearersFunctions of the Office bearers

The main functions would be to convene meetings, to arrange meetings with experts, maintenance of Books of

Accounts, coordination with Bank, Line

Deptts. of the State Governments, maintaining proper liaison with all

concerned.

MembershipMembership All villagers except willful defaulters

can become members of the club. The club must make endeavour to

raise their own resources by way of contribution from members,

undertaking certain business services such as bulk procurement of inputs and collective marketing of agricultural produce,

agents for insurance and other services etc.

Steps in the formation of  Farmers’ ClubsSteps in the formation of  Farmers’ Clubs

Bank branch can promote the clubs directly or engage Farmers’ Club promoting agencies like Krishi Vigyan Kendras (KVKs), Agriculture Universities, NGOs, Corporates, etc.

All grassroot level organisations (NGOs, PRIs, State Agricultural Universities, KVKs, ATMA, Post Offices etc.) are eligible to form Farmers’ Clubs

Select a village/ cluster of villages suitable for launching Clubs in the operational area of the bank branch.

Identify a few progressive farmers and borrowers with good track record of proper loan utilisation, aptitude and capacity for team work. (Success of the Club hinges on the right choice of members).

Steps in the formation of  Farmers’ ClubsSteps in the formation of  Farmers’ Clubs(contd..)(contd..)

Encourage the members to select a Chief Coordinator/Volunteer/President and an Associate Coordinator/Volunteer/Vice President and a Cashier. This will ensure collective leadership and continuance of the Club.

Provide orientation training to them with the help of NABARD (Regional Office / DDM or trained officers from the bank) before launching.

Encourage members to convene monthly meeting regularly, guide them to have meaningful discussion and take necessary follow up action.

Motivate members them to identify credit and non-credit needs (training, socio-economic, village infrastructure, etc.), prepare a plan of action and accordingly arrange for expert talks, counselling, need-based activities, etc. with the help of Government Departments and other agencies concerned.

Ensure that the members maintain Membership Register, Meeting Register, Minutes Book and Books of accounts .

Evolve a performance parameter and measure the Clubs’ contribution annually.

Use Club as a tool in aid of branch not only in the matter of credit and recovery but also in facilitating promotion of SHGs, micro credit, Financial Inclusion and convergence of services.

Steps in the formation of  Farmers’ ClubsSteps in the formation of  Farmers’ Clubs (contd..) (contd..)

Rating of Farmers ClubsRating of Farmers Clubs

To facilitate the graduation of farmers’ Clubs into Federations of Farmers’ Clubs or Producers’ Groups/ Companies, it would be desirable for the sponsoring agencies to rate the Farmers’ Clubs as per prescribed parameters.

INCENTIVESINCENTIVES

Awards to Best Working Clubs:

Awards would be given to be provided to best working clubs at the district, state and national levels, based on the rating norms.

Capacity Building for Adoption of Technology (CAT):

NABARD’s Capacity Building for Adoption of Technology (CAT) programme may be used for the benefit of farmers’ club members for training and exposure visits within and outside the State.

Financial Support from NABARDFinancial Support from NABARDNABARD assistance to all agencies will uniformly be @Rs.10,000/- per club per year for a period of 3 years whether they are institutional or other agencies and the region concerned. Assistance will be towards the following minimum & mandatory expenses:

Formation & Maintenance Expenses 2,000/-Formation & Maintenance Expenses 2,000/- Base Level Orientation Training Base Level Orientation Training 5,000/- 5,000/-

Programme (BLOTP)Programme (BLOTP) Meet with Experts (2 ProgrammesMeet with Experts (2 Programmes 3,000/- 3,000/-

in a year) in a year) TotalTotal 10,000/-10,000/-

NGOs/KVKs will be provided with an incentive of Rs.2,000/- per club out of the total assistance of Rs.10,000/- per club per annum.

NGOs/KVKs who are operating in hilly/remote/naxal affected areas, will be provided with additional incentive of Rs.3,000/- per club for a period of  3 years over and above Rs.10,000/- referred to above.

Revival Package of Assistance for Revival Package of Assistance for Dormant ClubsDormant Clubs

In order to revive the dormant/defunct FCs, NABARD has introduced a revival package.

The assistance may be used towards meeting the revival cost including arranging exposure visits for members of such dormant clubs as well as concerned branch managers.

Package of assistance may be extended to NGOs/VAs for revival of clubs promoted by banks.

THANK THANK YOUYOU