“Feasibility of Structural Changes in delivering Micro Finance: A case study of Sitapur and Sultanpur Districts”

Conducted at: DRISHTEE FOUNDATIONPresented by:

Ravi AgarwalMSW (3rd Semester)

My Mentors

Mr. Satyan Mishra, MD, DRISHTEE

Ms. Pooja Bharech, Controller, Rural Finance, Drishtee Foundation

Dr. Ravindra Tripathi (internal guide), Assistant Professor, Department of Humanities and Social Sciences, Motilal Nehru National Institute of Technology

My Introduction

Ravi Agarwal

Educational Qualification:B.Sc (Physics, Chemistry, Mathematics) from University of Allahabad- (%marks: 69)

Master of Social Work (pursuing) from Motilal Nehru National Institute of Technology, Allahabad-(CPI:9.75, till 2nd Semester)

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Completed Projects:“To explore various Corporate Social Responsibility (CSR) schemes of different corporate houses with special reference to Allahabad district”

“Parent-child counseling: child’s behavior and development study”

“Distribution network of household appliance in rural areas with special reference to Allahabad district”

“Analysis of Microfinance in India”

Microfinance: an overview

Microfinance Definition:According to International Labor Organization (ILO), “Microfinance is an economic development approach that involves providing financial services through institutions to low income clients”.In India, Microfinance has been defined by “The National Microfinance Taskforce, 1999” as “provision of thrift, credit and other financial services and products of very small amounts to the poor in rural, semi-urban or urban areas for enabling them to raise their income levels and improve living standards”.

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Need in India:India is said to be the home of one third of the world’s poor; official estimates range from 26 to 50 percent of the more than one billion population.

About 87 percent of the poorest households do not have access to credit.

The demand for Microcredit has been estimated at up to $30 billion; the supply is less than $2.2 billion combined by all involved in the sector.

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Activities under Microfinance:Microcredit Micro savings Micro insuranceRemittances

Microfinance Lending Models:Individual lendingGroup lending

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The Status of Microfinance in India:Considerable gap between demand and supply for financial servicesMajority of poor are excluded from financial servicesAbout 56% of the poor still borrow from informal sources70% of the rural poor do not have a deposit account87% have no access to credit from formal sourcesLess than 15% of the households have any kind of insuranceNegligible numbers have access to health insurance (0.4%) and crop insurance (0.2%)

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Challenges to Indian Microfinance:Appropriate legal structures for the structured growth of MF operationsAbility to access loan funds at reasonably low rates of interestAbility to attract and retain professional and committed human resourcesDesign of MIS including user friendly software for tracking accounts and operationsAppropriate loan product for different segmentsAppropriate method for tackling delinquency

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Projections for the future:Annual growth rate of about 20% during the next five years75% of the total poor households of 80 million i.e., about 60 million will be reached in the next five yearsThe loan outstanding will consequently grow from the present level of 1600 crores to about 42000 crores

Objectives of the Study:

To understand Drishtee’s Individual Lending process of delivering Microfinance.

To inform all Kiosk Owner (KO) regarding changes that is going to be implemented in the ongoing process of Microfinance.

To obtain feedback from various KOs regarding changes that is going to be implemented in the present process of Microfinance.

Research Methodology

The study under reference is descriptive in nature and is based on feedbacks obtained from Kiosk Owners by the method of face-to-face interview. Details of research design are as follows:

Sample size: 17Target group: Kiosk OwnersMethod for obtaining feedbacks: face-to-face interviewSurvey location: Sitapur & Sultanpur district

On the basis of feedbacks obtained from Kiosk Owners feasibility of changes in the ongoing process will be checked

Changes proposed in the ongoing process….

New rate of interest New Loan Turnaround time No Loan Committee Meeting for loan approval of

loans Late Payment Fees More responsibilities for Kiosk Operators New method of calculating commission for Kiosk

Operators New method of calculating commission payout for

Kiosk Operators Rating of Kiosk Operator

Observations/Feedbacks

Sitapur District:Not happy with commission structure. They are receiving less commission for more responsibilities.Ready for accepting new appraisal process but demanding additional expenses apart from commissionStrict legal measures regarding repaymentLoan disbursal amount should increaseLoan turnaround time should decreaseNumber of EMIs should increaseMore LAF should be approved at a timeIf their cases are denied appropriate reasons should be givenNo need to repeat the whole process for 2nd time borrowers

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Sultanpur district:Commission structure: satisfactoryLoan Turnaround should decreaseNot in favor of new appraisal processLoan disbursal amount should increaseNumber of EMIs should increaseMore LAF should be approved at a timeIf their cases are denied, appropriate reasons should be givenNo need to repeat the whole process for 2nd time borrowers

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Personal loan should be provided to Kiosk Operators Ready to open account but it should be joint

account with Drishtee Few KOs are not in favor of opening an account as

bank is far from their home. Also there will be a lot of risk while going for cash withdrawal or deposition

In small town areas, bank do not provide more than Rs 25, 000 cash at a time. This will create problem in disbursement

Opinions & Recommendations

Old appraisal process should be retained No need to repeat the whole process for 2nd time

borrowers Joint account of Drishtee and KOs There should be no boundation that account should be

opened in SBI only Cheque book can be issued to those KOs who lives far

from the bank Sitapur Division: need to bring some innovative changes Sultanpur Division: no need to modify the existing process Drishtee should try to develop interest of KOs in MF. For

instance if a KO is having a good repayment record then more LAF will get approved on that basis (provided there is no discrepancy/ error in LAF).

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There is a need of staff having professional qualification like MSW/MBA especially for problematic areas of operation

Lack of trained staff Lack of motivated staff Need for Monitoring Officer

Conclusion

Finally it can be concluded that microfinance is playing a very vital role in becoming the low income clients or poor to be the part of the main stream economy. Drishtee’s efforts in this regard are worth appreciable. Drishtee process of delivering microfinance through individual lending is a step towards inclusive growth. In this study the structural changes which were proposed for the betterment of overall process of delivering microfinance were found feasible and can be implemented successfully.

Bibliography

NABARD Report “Status of Microfinance in India 2008-09” The Future of microfinance in India: by Sukhwinder Singh

Arora, Financial Sector Team, Policy Division Anil K Khandelwal, “Microfinance Development Strategy for

India”, Economic and Political Weekly, March 31, 2007 NABARD (1999). Task Force Report on Supportive Policy and

Regulatory Frame Work for Micro Finance, Mumbai, India NABARD (2005-06), Annual Report, www.nabard.org GOI (1991), The Committee on the Financial System www.microfinancegateway.org www.microcreditsummit.org www.microfinance.com www.drishteefoundation.org