A Report on the Prospects and limitation of microfinance institutions in Indian farming sector

Submitted to:

Mr. Anup Singh (C.E.O.)

Sonata Finance Private Limited

1/1 A, Rai Bahadur Ram, Charan Das Road

Balrampur house, Allahabad (UP) -211002

Submitted by:

Vinay Kumar Mishra

MBA-Rural Development 3rd semester

Govind Ballabh Pant Social Science Institute, Allahabad

(A constituent Institute of University of Allahabad)

Contents

1

Topic name Page no.

Acknowledgement 3

Executive Summary 4

Introduction 5-6

Literature Review 7-12

Objective of the study 13

About the organization 14-19

Research methodology 20

Questioner used for survey 21-25

Findings 26-31

Case studies 32-33

Conclusion 34-35

Suggestions 36-37

Summary 38

Acknowledgement

2

This evaluation study is a humble effort to understand the concept of Joint liability Group in

Micro Finance Institution. The study would not have been completes without the priceless

support of those involved in the study.

It was essentially programme to find Prospective and limitation of microfinance institution in

Indian farming sector. First, I would like to express my deepest gratitude to Mr.Anup Singh of

Sonata Finance Private Limited (Allahabad) for their continual involvement in our work. I

extend my highest indebtedness to Mr. Ashish Kumar Area manager. I am also thankful to other

staff member of Sonata Finance Private Limited for support whenever we needed it.

I would like to thanks Professor Pradeep Bhargava Director Govind Ballabh Pant Social Science

Institute, Allahabad for his motivational and guiding support during the period of summer

internship.

I also like to thank Dr.Sunit Singh Co-ordinatotar MBA (Rural Development), G.B.Pant Social

Science Institute Allahabad, whose valuable academic guidance and suggestions have always

been helpful to me during the internship period. I am grateful to Mrs. Rewa Singh for scheduling

our visit to Sonata Finance Private Limited.

My heartfelt thanks to all volunteers who gave their time and support in our endeavor to collect

information. Indeed, without their support tasks would not have been complete. In the Last but

not the least, I would like to thanks Mr. Ajay Singh Branch Manager (Phoolpur) who

accompanied me and provided Cooperation & necessary support in smoothly conduct of study.

Executive Summary

3

Three out of four poor people live in rural areas, and the majority of rural inhabitants depend on

agriculture. Access to appropriate financial services is a critical factor for agricultural

development in the India Yet, due to the specific constraints that come with financing agriculture

(reaching isolated rural areas, working with highly seasonal activities, agro-climatic risks, price

variations, etc.) The financial sector seeks to increase impact on agricultural finance by adapting

microfinance “models” (cooperatives, village banks, self-help groups and solidarity guarantees)

to the specificities of agriculture, by developing innovative products and methodologies that help

reduce vulnerability of rural households improve the management of agricultural risks and

encourage agricultural investment.

Efficient financial systems are vital for the prosperity of community and nation as whole. To

ensure that poor people are included in the benefits of development, it is necessary that these vast

numbers have consistent access to financial services, access that can translate into a key element

of economic growth and poverty alleviation. My study tried to find Prospects and limitation of

Microfinance Institutions in Indian Farming sector. In our endeavor, we found that it has become

one of the most important tools for increased the production of crops. Microfinance Institution

provides the loan in every season during the year so farmers fulfill their requirement in right

time. Microfinance Institution is doing well for women empowerment. The element of

participation, Kinship and peer-group control over group proceedings were something that poor

always believed.

Introduction

4

Microcredit is the extension of very small loans to the unemployed, to poor entrepreneurs and to

others livening in poverty who are not considered bankable. These individuals lack collateral,

steady employment and a verifiable credit history therefore cannot meet even the minimal

qualifications to gain access to traditional credit. Microcredit is a part of microfinance, which is

the provision of a wider range of financial services to the very poor.

The concept of sustainability has viewed from broader perspective and multiple dimensions.

These include eco-social and political Micro Enterprise with various sub-systems for balanced

development. Eradication of poverty is ultimate goal of sustainable ultimate goal of sustainable

development. Poverty stems from numbers of factors, which are region specific and linked to

socio-economic conditions and contextual dimensions. Strategy towards poverty incorporates

multiple initiatives that require a comprehensive framework encompassing physical, structural,

economic, social and political aspects. There is growing evidence across the globe regarding the

role of rural financial services for alleviation of food insecurity and poverty.

Joint liability Groups (JLG`s) based on “capitalization of honesty “has been defined as “small

and informal association of poor having preferably of similar socio-economic background and

who come together to realize some common goals based on principle of self- help and collective

responsibility”. JLG`s becomes relevant because of following reasons:

A JLG`s working on the principle of solidarity helps the poor together to pool their

savings and access credit facilities.

A JLG`s is important tool for empowering the women members.

The participation in JLG`s and access obtain to savings and credit can play a transformational

role for women, socially and economically. The continued participation in JLG`s is further

likely to enhance the awareness, skills and other abilities of women resulting in building of

individual self-esteem and in getting due social recognition .Essentially JLG is based on

unleashing the energy of its people and get them to perform. Sonata started out as a facilitating

agency for empowering poor rural communities by operating watershed projects. Sonata has

continued it is in member villages resulting in improvement of agriculture activities on marginal

lands and the reclamation of wastelands. Sonata quickly observed that savings and credit

programs held the greatest potential for improving the economic status of large number of rural

women and they made this their main program activity. Sonata now focused to provide

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individual loan. Rural households that are partially or entirely reliant on agricultural income face

many risks. Climatic (drought, flooding, cyclones, etc.) and market risks (price instability,

payment conditions at harvest time) are among those that render rural households particularly

vulnerable. They can be individual or covariant, i.e. they can effect an entire population in a

given zone simultaneously. Individual risks include unforeseen events (sickness, marriage, death,

travel) that compromise the proper functioning of agricultural operations or expose the

household to extraordinary expenses. For farmers, these kinds of incidents or accidents translate

into reduced harvests, cash flow difficulties, and loss of production tools, hunger or even famine.

Farmers and rural institutions in general have always sought out strategies to reduce these rises

to limit their negative effects on income. The strategies may be preventive, withdrawing children

from school, borrowing money formal or informal moneylenders. While these forms of risk

management can be effective in some situations, they are rarely effective when confronted with

covariant risks. This Study aims to better understanding of the vulnerability of rural households.

It will analyze the difficulties that come with setting up insurance systems and assess the

potential of existing agriculture insurance products to help improve the risk management of

southern farm

Literature Review

6

Microfinance: Microfinance services are financial services that poor people desire and are

willing to pay for, the term also refers to the practice of sustainably delivering those services.

More broadly, it refers to a movement that envisions “a world in which many poor and near poor

house holds as possible has permanent access to an appropriate range of high quality financial

services, including not just credit but also savings, insurance, and fund transfers.”

1. How can microfinance services are better organize to respond to the specificities of

agriculture?

The growth of microfinance has emerged out of the failure of development financial institutions

and national commercial banks to sustainable meet the needs of poor rural populations in

developing Countries. Conventional banks have thus far proven unable to finance agriculture and

rural activities due to difficult Micro Enterprise environments where small transaction size

combined with insufficient institutional and physical infrastructure increase transaction costs.

While all microfinance institutions share the characteristic of small-scale transactions, their

organizational structures and level of formality widely vary: from mutuality models, saving and

credit cooperatives, Self-Help Groups and non-government organizations that have transformed

into formal financial institutions.

Each of these approaches has strengths and weaknesses in terms of targeting the poorest, offering

adequate products and covering operational costs. Hence, financial cooperatives and mutuality

Entities often federate to offer a wider range of services and reduce costs, for had better reach

more populations that are isolated. In light of such diversity, is it possible that one particular

institutional model is better adapted to financing agricultural activities than another? For

example, does the concentration of mutuality systems in agricultural contexts offer a key for

better understanding the specificities of financing? Agriculture and overcoming the difficulties

inherent to this sector, nevertheless is the institutional focus relevant? Isn’t it better to enlarge the

focus towards to the adopted approach (agro Micro Enterprise, faire trade, etc) or according to

developed interactions with others actors in agriculture (such as farmers organizations) as well as

according to financial products’ quality?

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2. Respond to agricultural finance Needs through innovation:

Financing family farms and producer organizations involves many particularities: unreliable

harvests, low profitability of activities financed, climactic risks, epidemics and unstable selling

conditions (“Imperfect” market conditions, price variations that depend on local economic agents

and international markets).

The financing required for agricultural activities is highly diversified in terms of amounts and

terms. Seasonality of activities and income flows makes financing even more difficult, since the

monetary income for reimbursement is irregular. This requires financial agents to adapt their

credit procedures to the agricultural calendar. Finally, assessing repayment capacity of a

borrower is often challenging, given lack of separation between the farm and household finances.

In light of these difficulties, the microfinance and agriculture sectors are innovating to better

respond to the specific needs of agriculture. This study seeks to demonstrate their creativity and

will address the potential for different forms of innovation to better-fit farmer’s needs, including

1. Products and procedures

2. Non-financial tools such as marketing, communication information systems, etc.

3. What agriculture-related non-financial services would increase the impact of

microfinance?

The profession of farming involves combining a variety of factors to produce one or more

outputs, and to add value to the resulting products. The economic result of this activity,

fundamental for the Farmer depends largely on his or her capacity to access simultaneously and

coherently these factors. These factors include such as technical expertise management capacity,

information and economic techniques. the physical, such as land, equipment and inputs; the

organizational such as mutual organizations to purchase, sell and manage equipment; and finally,

financial factors which are somewhat particular since they directly and/or indirectly effect access

to most of the other factors, and the access conditions to the other factors determine the financial

factors’ own effectiveness.

Indeed, access to finance is not enough to make these other factors both available in quantity and

quality and efficient. This observation raises the following questions: Must microfinance limit

itself to financing or should it consider non-financial services that are appropriate to enhance its

8

own effectiveness? What are the limitations and/or strengths of microfinance that justify the

choice?

4. What are the roles of professional agricultural organizations in microfinance?

The gradual reduction of state intervention over the last twenty years has considerably

diminished support services for agriculture (input provision, commercialization, advisory,

financing, information, etc. Consequently, professional agricultural organizations (PAOs) have

emerged in force in most southern countries with a dual mission: to defend the interests of

agriculture and provide the support Services farmers need to develop and modernize their

operations. Access to adequate financial services continues to be a major problem for most

PAOs. The demand for such services is particularly complex as it is two fold: PAOs are not only

confronted with the financial needs of their members, but their own (financing input stocks,

working capital for commercialization activities, equipment, buildings, etc.).

Despite twenty years of “rural financial market” development, the agricultural sector in general

and agricultural organizations in particular has yet to integrate fully into these markets. How do

formal financial intermediaries currently assess this demand? Has the gradual consolidation of

rural microfinance finance institutions, the increasing interest of commercial banks in the rural

sector and the “rebirth” of development and solidarity banks created a new forum for

partnerships with PAOs?

5. What public policies can expand the role of Microfinance in agriculture?

This part will discuss the public policies necessary to developing efficient agricultural

microfinance.

Three aspects will be address.

1) Public policies that enables for the development of efficient financing for agriculture via

microfinance.

2) The role of national and international public authorities and funds in reducing interest rates on

agricultural loans, often poorly adapted to the real profitability of agricultural activities.

9

3) The role of government has changed considerably since the paradigm of financial

liberalization has emerged, accompanied by the growth of microfinance. Public authorities are

increasingly implementing programs designed to compensate for market failures in the name of

“financial inclusion”, by encourage private players namely microfinance institutions to broaden

outreach (rural areas, family farming, etc.).Sometimes, governments would like to go even

further, establishing direct or indirect public intermediaries. However, will this new generation

of solidarity and agricultural development banks learn the lessons from the agricultural bank

failures of the 1970-80s?

6. Under what conditions is agricultural Microfinance financially viable?

Agricultural activities present many particularities: considerable volumes of financing,

seasonality that leads to cash flow problems, high production risks (due to climate) and sales

risks (due to unstable Price & markets). The risk of borrower default is particularly high. In

addition, financing agricultural activities engenders contextual constraints and costs: the

inaccessibility of rural areas, insufficient Infrastructure, low population density, etc. At the same

time, the low profitability of agricultural activities makes it difficult for financial institutions to

apply sustainable interest rates that cover costs and moderate the high risks of agricultural

lending. Yet interest rates should not be a burden to micro-entrepreneurs nor wear away profit

margins excessively. The microfinance sector’s emphasis on sustainability challenges

agricultural finance providers to adopt strategies that will ensure financial viability, so as not to

pollute the financial sector with inefficient institutions. This study will analyze the conditions

necessary for microfinance institutions financing agriculture to achieve sustainability.

Participants will present and analyze the strategies used to confront the various risks discussed.

The different forms of financing adopted by “agricultural” microfinance institutions will be

assess.

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7. Institutions moving into rural finance for Agriculture:

Microfinance institutions (MFIs) have tended to avoid less densely populated or diversified rural

areas, and financing of seasonal or long enter crop and livestock activities. However, a few

innovative MFIs have recently led the way in adapting their operations and products expand into

agricultural lending. Techniques used have included tailoring procedures and products to

agricultural seasonal needs, applying risk management techniques & adopting new technologies.

Successful MFIs have important strengths, such as financial sustainability, excellent portfolio

quality, financial products that fit diverse client needs, and a clear commitment and orientation to

the poor. Prudent risk management techniques can increase the outreach of MFIs to less affluent,

more remote rural areas and more diversified farmers. Rural financial services have benefited

significantly from treating the rural household as a unit with diverse activities and sources of

income and financing, instead of maintaining a narrow focus on agricultural credit. However,

financing for agriculture still tends to fall outside the scope of the mainstream microfinance

industry. Rural areas that are not densely populated, or that are dependent on a few principal crop

and livestock activities, tend to be avoiding by MFIs, because of higher transaction costs, price

and yield risks, seasonality, and collateral limitations in the agricultural sector. Conventional

microcredit relies heavily on short-term loans with frequent, regular repayments, which does not

fit well with seasonal crop production or livestock production.

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Objective of the study

Project Title: Launching Individual loans to the Indian farming sector by Microfinance

Institutions: Prospects and limitations

About the study: The study explores the viability of individual loans in the farming sector

advanced to member of a joint liability Group created by MFIs for non-farm Income Generation

activities. The study find that Individual loans in the farming sector could be viable if (a)

members of JLG complete at least 4 cycles of repayment, (b) the income generated from non-

farm activities is regular and increasing; and (c) there are other sources of Income Such as

NREGA. The studies also find that a successful JLG could consider for joint loans in the farming

sector.

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About the organization

Sonata Finance Private Limited:

SONATA Finance Private Ltd (Sonata) is a microfinance company registered as an NBFC under

Reserve Bank of India Section 45 IA. Sonata began microfinance operations in January 2006

with its head office at Allahabad, Uttar Pradesh. In the month of August 2007, it acquired the

microfinance portfolio of Jeevika Livelihoods Support Organization based at Jabalpur in M.P.

establishing its outreach to two major states in Central India.

Vision: The vision of Sonata is “to help build a society that contains an opportunity to develop

the minimal socio-economic conditions needed to live a life of dignity.” To work towards this

vision, the three main goals of Sonata are:

Providing financial resources to enable poor women to come out of poverty and

connected with formal financial institutions.

Providing returns to its investors to make it an attractive investment opportunity.

Sonata offers income generation and emergency loan products complimented with loan

linked insurance.

Sonata Over view:

Particulars Urban Rural Total

Branches (Nos.) 14 16 30

Loan Clients (Nos.) 30,137 41,961 72,098

Amount Loan Outstanding (INR Cr) 17.4 24.6 42.0

Portfolio At Risk (%) 1.39 0.13 0.72

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Product of Sonata: Sonata offers credit products with linked life insurance for the period of

loan. The average loan sizes of clients in different cycle of loan are available in the table below:

Loan cycle Amount of Installments (Rs.) Loan amount (Rs.) No. of terms

L1 200 8500 50

L2 250 10500 50

L3 300 12700 50

L4 350 14900 50

Induction and Training Programme: A two days Induction and Training programme held to

welcome the new employees of Sonata Family. A two days Orientation and Training programme

was conduct for the promoted field staff.

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Survey of Villages/Slums

Projection Meeting

Formation of Groups

Training of Groups-7days

Meeting Start

Group Structure: There are 10 to 20 members in every group from them on member chosen as group Pradhan

Pradhan- Pradhan of the group is the one who keeps the records of the group. The Pradhan is

the best owed with the responsibility of collecting the money from the Group members and

depositing it in the Branch of Sonata in Phoolpur or Deposited in the favor of Sonata Finance

Private limited Phoolpur. The Pradhan of the group changes after definite period.

Members- The other members of the group are actively involved in the working of the group.

They work in cohesion and repay the loan installments on time. It could be necessary for

members to attain the weekly meeting by which Staff member of company decide for their next

Loan.

Business Development Activist:

Main work of Business Development Activist (BDA) is group forming and providing basic

education to newly formed group so that they may able to do their signature and gives one week

training to the newly formed group. Before forming groups, he uses to conduct 3-4 meeting with

different communities and trying to find group having same economic background. After finding

his desired group, he tells to B.E. (Business Executive), Unit manager and Branch Manager also

conduct a meeting with the group. After approval of branch manager, the group selected as JLG.

Business Executive:

Business Executive (B.E.) is the backbone of organization. His professional as well as personal

activities in the field reflects image of organization. Major works of Business Executives are as

follows-

Loan recovery

Create a peer pressure group by which the group members will be able to return their loan in

time

Trying to complete the target set by company

Conduct weekly meeting of Center.

Pass out the Group for Loan on the basis of their socio economic condition and their past

record of financial activities after BDA Completed their task

15

Cashier: The role of cashier is collect the Installment of loan whoever come in Branch office

and provide them receipt. Some times on the absence of many B.E., he also goes in field and

conduct the meeting.

Unit Manager: Unit manager is the head of Branch Unit. He can manage all the activities under

unit. He can plan with manager for extension of unit. He can responsible person for recovery of

loan under their unit.

Branch Manager: Branch manager is the head of Branch. He can manage all the activities under

Branch .Works of Branch manager are as follows-

To appraise the performance of the Branch staff in a timely and fair manner and ensure

safekeeping of the filled Appraisal forms and ensure the punctuality and regular attendance

of the staff

To sanction staff leave and ensure proper maintenance of leave/ service /contract records of

each employee

To ensure that the Branch programmes are plan as per the Association’s Strategic Plan.

To supervise all the Projects implemented by the Branch.

To ensure that the Accounts Officer is maintaining proper books of accounts like daily

verification of cash in hand, daily entry of cash & bank vouchers, Bank Reconciliation

statements, accounting of Receipts / Payments correctly.

To prepare the Annual Programme and Budget (APB) and Annual Report of the Branch with

the help of the Accountant and concerned unit heads, supported by the volunteers.

Area Manager:

To ensure all Audits take place smoothly and all statutory requirements by law applicable to

the branch met appropriately, wherever applicable.

To ensure timely submission of various periodical reports, highlights of the previous months

reports.

To prepare Project Proposals and submitted to the Head office, to help in the implementation

of special Projects sanctioned to the Branch.

16

Pilot testing on individual Loan Product:

Sonata, since its inception has been offering single product of "group loan". Eventually, the need

felt to offer a product to the client, which was the demand of need and time. Sonata partnered

with Micro save to pilot test their "Individual Loan Product" from Allahabad, in order to test the

feasibility. The pilot test would be commencing from 1st December’2008.

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Research Methodology

The survey was conduct through random sampling and chose locations. These locations had

more than 150 Center. We selected thirty Center based on random sampling and then five

members from each group again based on random sampling. The questionnaire was design in the

English language. The aim of the study was to examine patterns of change over time in several

domains of impact. These include:

1. Livelihood base-income earning sources, work assets and conditions, livelihood practices and

Agriculture Sector.

2. Savings and Debt positions, debt levels, house holds savings levels, use of microfinance

loans.

Tools for Primary Data collection: The tool for Data collection was the questionnaire.

Questionnaires were prepared to capture socio-economic profile of the members, to find patterns

of loans taken from the group, asset created and their level of information about schools,

Knowledge about MFI, Banks etc. The Questionnaire had questions were close ended. The

schedules were conducted one-by-one in the sample area.

Semi structured interview

Transect walk with community and staff members of organization

Prepare a Questioner with 6 helpers

Study based on Birds and warms eye view

Use the PRA/PLA Tools

Use the techniques of Rapport Buildings

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Questioner used for survey

Impact assessment of Group (Sonata Finance Private Limited) in Phoolpur Branch

districts of Allahabad

1. General details of respondent:

Name of Client-

Father’s name /Husband name-

Village Name-

District Name-

State Name-

Age

Educational status-

(a) literate (b) Illiterate

If Educate then: (a) Primary

(b) Metric(c) High school

(d) Intermediate (e) Technical

(f) Graduate  (g) Postgraduate

Sex : (a )Male (b)Female

2. Demographics:

Religion-

Caste  :  ST / SC / OBC / General /Other

Marital Status -Unmarried /Married /Widow

/Divorced

Physical Disability  : Yes / No

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(3)   Family Details of the Client:

Name of the family Head -

Total member in family -

Type of Family  -  Joint / Nuclear / Single

Total members in a family -

No of earning member

(4) Livelihood base:

Size of Land holdings  :

(Acres/Bisswa/ Hectare/ Square feet/Bigha)

Type of Land (i) Fertile (ii) Non fertile iii) Waste

(iv) Dry (v) Some land fertile and some not fertile

Do you come under the BPL Family (a)Yes /(b) No

Annual income from all sources         :

(5) Give details about assets position:

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Assets position Pre(sonata finance

private limited)

Post(sonata finance

private limited)

No. of Cow

No. of buffaloes

No. of Goats

No. of sheep

No. of poultry

No. of work animals

No. of Consumer

durables like Stove

No. of Sewing machines

No. of Bicycle

No. of TV

No. of Transistor

No. of Watch

(6)Give details about assets creation Post MFI:

(i)  Domestic assets (House, pumps, televisions, cycles and radios)--

Increase/Decrease/No change

(ii) Productive assets (Land, Shop, animal, Rickshaw, Tractor etc)--

Increase/Decrease/No change

(7) Occupation of Group members:

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Sources of income :

(i)Agriculture (ii) Micro Enterprise(small scale Business)(iii) Dairy (iv)

Poultry(v)Others (vi) Daily labor

Have you received the training from MFI for the activity

chosen?    (Yes/No)

Has your monthly net income increased after taken loan under MFI?

(Yes/No)

If yes then specify the pattern of increase in income

(i)  less than Rs.250(ii) Between Rs.250 to 500

(iii)Between Rs.500 to 1500 (iv) More than Rs.1500

Do you think that the employment opportunities For your family has been

increased Post Sonata Finance Private Limited?(Yes/No)

If no then Reason:

(a) Lack of financial assistance from their groups

(b) Lack of proper awareness

  (c)  If others (than please specify)

Are you involved in some kind of Micro Enterprise activities?

(Yes/No)

If yes than please give the following details :Name of your

Micro Enterprise

Micro Enterprise Establishment year

Total Income from Your Micro Enterprise (Yearly)

Timing of Micro Enterprise

Name of product that you product Market Place

How many Person involve in your Micro Enterprise

(8) Impact assessment of on Social condition of the members:

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What do you think about the effectiveness of Loan under SONATA (i)

Useful(in terms of improvement in your Social status)

(ii)Useful (for start new Micro-Enterprises/IGAs and up gradation of pursuing

I.L.)

Increase Self confidence (Post –Sonata Finance Private Limited)

(Yes-1, No-2)

How is the treatment the family members to The respondent?

(Usual -1, more respectful-2)

How many officials She communicate in the meetings

(Freely talk-1,sometimes talk-2,Talk only if asked-3 ,does not talk-4)

Awareness of Anganwadi

Where is School?

Up to which standard

Do you attend GS meeting?

Have you fought election?

Where is bank?

Heard about NREGA

Wage rate of NREGA

Where is PHC?

Knowledge about JSY

Findings

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1. Average age: The average age among the sampled women members is 30 years. 2. Marital

status: for the sampled respondents' represents 90 percent married, widows were 8 percent and

Unmarried were 2 percent.

3. Education, literacy, and Skills: Sampled results points literacy rate as merely 35

percent .Only 4 women out of sampled members had passed Graduation, 20 was Intermediate, 30

were passed out high school and in which 3 of them are teacher in private school.

4. Livelihood base: Agriculture is the mainstay of their livelihood for nearly seventy percent of

our population so with the respondents. When farmers of the country as a whole are suffering

due to one reason or other how can poorest of the poor respondents left. Lack of Education

combined with low productivity and because of dry-land region and small size of land; they are

living in very position of destitution. As such apart from little produce taken from their field,

they move to relatively developed regions. Livestock are poor in terms of milk capacity.

5. Annual income: Average annual income of the respondent is 30,000. This figure may

overstate, as we have put our assumption based on their response.

6. Average size of family: With average, size of family approximately seven

7. Per-capita income comes: The per-capita income comes out to be near 31thousand yearly.

8. Land Size: The land size of the farmers having less than four hectares (10beegha) of land are

not financially viable, if they depend wholly on income from the land. Thus 90 percent of

farmers in India are not financially viable. This region being dry-land region combined with

average size of land holding of our sample four and half, population represent core poor section

of society.

9.Occupation of members: On the basis of questioner it was found that 15%Clients involve in

Agriculture sector ,25%clients whose have his own micro enterprises, 30% Clients belongs to

dairy activity, 5%Clients belong to Poultry Farming,15%Clients work as daily labor and

10%Clients involve in other type of activities.

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Agriculture15%

Micro Enterprise25%

Dairy 30%

Poultry5%

Daily labor 15%

Others 10%

Occupation of members

AgricultureMicro Enterprise Dairy PoultryDaily labor Others

10. Occupation of Respondent and their monthly Income: Based on questioner it found that

more than 50 percent people from Daily Labor have their monthly income between 1500-2500.

On the other hand the respondents have their own Micro Enterprise, have maximum number of

people with monthly income more than Rs.3500

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Table showing occupation of Respondent and its monthly income

16 7 4 3 30

59.3% 43.8% 30.8% 25.0% 44.1%

1 1 1 0 3

3.7% 6.3% 7.7% .0% 4.4%

9 8 8 8 33

33.3% 50.0% 61.5% 66.7% 48.5%

1 0 0 1 2

3.7% .0% .0% 8.3% 2.9%

27 16 13 12 68

100% 100% 100% 100% 100%

Daily labour

Company worker

Small scale bussiness

Unemployed

Occupation

Total

1500-2500

2500-3500

3500-5000

Above5000

Calculated monthly income of thefamily

Total

11. Respondent heard about MFI: This is good that 81% respondents have heard about MFI.

However, a majority thinks that it is only a group of women. There are also groups of respondent

who think MFI can avail loan.

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12. Membership terms: 30 percent, had less than one-year term, 28 percent had membership of

more than one year and less than two years, and 26 percent had membership of more two year

and less than three years while 16percent had membership of more than three years.

13. Present Need for Credit: Credit is also an essential need. The 35% respondents said they

need credit to expand an existing Micro Enterprise, while the 65% need it to start a new one. The

reason is palpable, Avalahali has good scope for Micro Enterprise and therefore most of the

people want to do their own Micro Enterprise, rather than to work at other places as daily

laborers. Maximum number of respondent thinks that the Micro Enterprise of cloth or general

store is profitable. We noticed in our field visits that all the markets we visited had had

maximum number of cloth shops. The general stores have items of the daily uses. Therefore, this

is also a good option. Besides these two, we have different type of views from the respondent.

14. Activities: The members of JLG of Sonata Finance belong to the poor sections of the society.

Earlier, they had no source of income generation but after joining the Sonata JLG their quality of

life has greatly improved. The group takes loan from Sonata Microfinance on regular intervals to

invest it into their microenterprises. The group members have invested the loan given by the Co.

in the following activities-buffalo purchasing, vegetable selling, “pan shop”, bangles trading,

general store,” rickshaw purchasing”, tea shop, sweets shop, PCO centre, book binding shop etc.

15. Timeline of Activities: Meeting of group members with B.E. is scheduled every weak not

Sunday and time for meeting is deciding by group and collection of loan installments have done

by Pradhan at one day before of meeting.

16. Culture of Group: The group works on the concept of joint liability group which means that

if a client of a group is not able to repay his/her installment due to some reason in time then it

would be the liability of the other members of the group to repay his/her installment. The group

has positive attitude towards their group and organization.

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17. Leadership Style: The joint liability group of Sonata microfinance at every Center is much

strong, women having same economic background. There are 10 to 20 members in-group

including Pradhan of the group. Center Pradhan has excellent team leadership style as seldom

any disputes occur within the group ever since its formation.

18. Women’s Role in Group: Group member’s (all women) have mutual understanding and

they work on joint liability Concept. The women in the group take active participation in the

group meetings and hence it can be say that their role in the organization is paramount. The

women fulfill the criteria of basic education.

19. Achievements of the Branch: The Branch has been running successfully since its inception.

Achievements of Branch are as follows-

The members can now fulfill their basic requirements of food, clothing and shelter

Mutual understanding among the group

Reduction of social disparities

Women empowerment is a major achievement. The group members feel that they have

earned prestige in the society and importance in their homes after joining the group

Women empowerment

Promoting income generation activities with the help of Sonata Microfinance

Many women members have been given basic education and use their signature instead

of thumb impressions

20. Strengths of the Group:

Their joint liability among group members

Cooperation between members

21. Weakness and Constraints: According to the Group members, the biggest weakness as well

as the constraint of this program is its system of weekly payment of loan installments.

22. Opportunities: If group members complete their four cycles of loan then they can take

individual loans up to Rs.40, 000. This would give them an opportunity to set up their own

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enterprises and develop entrepreneurial skills existing among the group members and their

families.

Case studies

Case study: 1

A client name Usha her age is 21. One year ago She did marry .She joined the group 6 months

ago and taken Rs8600 loan from sonata, and bought a cow. She repays her 20 Installments at

time but one month before, she is quarrel with her husband for some daily work. She returned to

her father house. Usha husband went to his father in laws house so many times and says for

returning then she was not ready for come back so her husband was very disappointed. One day

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on the time of Meeting day he come in meeting and told his problem to business executive and

Group members then the B.E. suggested a way i.e. if all the members of group will go to meet

with Usha and try to compromise between them then definitely she will return back . Finally, her

Husband arranged a vehicle and all the group members went together then by the help of

community pressure and Peer pressure group, she was ready for Return back to her Husband

house. Present time they are living together and enjoy their marriage life and them thanks to

Sonata bank for their kindly support.

Case study: 2

A client name Sangita her age is 32. She joined the group 2 years ago. In that period, she was a

bidi maker and find order and raw material through mediator. She was doing work hole day but

earn only Rs 50 to 60 In that period so she decided to take contact her self for which she taken

loan from Sonata and taken order herself and make a team for completing the assigned

task .Now She completed her four loan cycle and present time she earn Rs.150 to 200 Daily.

Present time she is owner of her own enterprise and under her six women is doing work, and

earns money Rs.70to80 daily. Now she is eligible for Individual loan and He want to open whole

supplier shop in Phoolpur Market.

Case Study: 3

A client name Vimala her age is 19. She and her husband were lazy .They were totally depend on

their father and mother .Vimala and her husband were not doing any work on that time.5 month

ago Vimala father in-law and mother in-law were die. She and her Husband was surrounded by

many economical problem then 3 month ago, She joined the group and take loan Rs.8600 from

Sonata and bought a buffalo and Vimala was stating the selling the milk to dairy man and earn

money but she was not find much money to repay the weekly installment of loan. The B.E of

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Sonata provided knowledge to her husband and told them about NREGS wage rate and work.

Vimala Husband applied for job card and applies for job within 15 days he fined job in his

village and start to doing work. Present time he is doing work under NREGS and repay their

installment in time. Now Vimala and her husband are very happy.

Case Study: 4

I want to describe process of a Sonata death claim by a case study -A client name Sangeeta 27

year old woman and her husband name Ashok Kumar Yadav 30 year old lived In Ishipur

(Malava khurd) village. They had one son name shivam, 10year old and one daughter name

Shaloo 12 year old. Sangeeta become a member of group and take loan from Sonata. One day

(20/06/09) night she and her husband were sleeping, in mid night, Sangeeta realize any thieve

has entered in her house. She walkup and search out Chimany(small lamp) for light but oil was

poured and fire has been catch her clothes so she would burning, her husband come and try to

save him but fire has also catch him and Ashok would also burning and both were die. However,

till now (20th july2009) death claim could not find her family. Above case, reflect negative image

of company so it would be require more focus and try to reduce these types of problems.

Conclusion

From this study, we can conclude that an overall development in their regions by the

organizations like Sonata Microfinance is working to bring about a sustainable uplift in the

income of the rural population. Public investments can help microfinance providers meet the

challenges of financing for agriculture. These require adaptations to conventional financial

products and delivery mechanisms, including the following:

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1. Matching disbursements and repayment to agricultural production cycles: Flexibility in

loan Disbursement and repayment needed, with finance made available when farmers need it and

repayments matching income from produce sales.

2.Flexibility in collateral requirements: Land may hold little value as collateral, as land-use

rights may be difficult to prove, clients may not own land, land markets may be weak, or cost of

registering land as collateral may be high.

3. Investments in rural finance for agriculture: Livestock, personal guarantors, land without a

title, household items, and Micro Enterprise equipment. Since women may be disadvantage.

4. Using technology: Technological innovations can increase operational efficiency and lower

costs of operating in rural areas, while improving financial services available to rural clients.

ATMs, point-of-sale machines, and smart/debit cards provide flexible payment options are more

convenient to client accounts.

5. Flexible delivery mechanisms: This Mechanisms also holds potential for rural women whose

opportunity cost of Engaging in financial transactions, due to time constraints, not only involves

lost income but also internal household substitutions (for example, child labor for female labor).

6. Risk management techniques: principal factor discouraging MFI lending to small farmers is

the systemic risk inherent in much smallholder agriculture. Most MFIs that have successfully

moved into agricultural lending have used a diversification strategy to reduce lending risk, both

in their portfolio and at the household level.

7.Policy environment: Expansion by sustainable microfinance providers into financing for

agriculture will ultimately be limited by underlying constraints arising from poor infrastructure,

high-risk or low-return agriculture, deficient client information, poorly functioning property

registries and markets, and policy biases/distortions

8. Services for the poor: Even those MFIs that have successfully expanded into financing for

agriculture have mostly been limited to farmers with diversified household incomes in less-

remote areas.

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9. Investments in rural finance for agriculture: Risk management strategy although effective,

it has a clear drawback, from a poverty reduction.

10. Term finance: Term finance is more costly and risky than short-term finance, since it ties up

larger amounts of money for longer periods, and requires the mobilization of long-term funding.

It requires screening that is more careful and selection of borrowers, increasing transaction costs.

11. Liquidity management: Disbursement in several installments over a cropping period,

repayments at harvest, and a lean time characterized by repeated requirements for cash, all

present a liquidity management challenge to providers.

Suggestions

It would be require a big meeting or seminar of star clients. This type of meeting would

hold three times in a year in which 20 clients would call from every Branch for

participate in seminar.

If a magazine would be, publish based on their interview in which details of client like

their socio economic background would be mention in the magazine.

The success story of star clients would be mention in magazine

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A power point presentation would be show in seminar by which the unknown client

would be aware and much emphasis towards Sonata.

Meeting and Magazines would reflect the strength of the organization as grassroots level.

The present life insurance structure has very weak because so many death claims has in

Pending.

If we compare Insurance Sector of Sonata with other MFIs then it would find that Sonata

does not provide any Emergency support to client family on the death time.

If we sea the death claim of other MFIs like Grameen Koota and S.K.S then These MFIs

they don`t take the remaining Installments and also provide Rs.1000 on that day and try

to effort as soon as possible for return the Amount of death claim.

The Company should try to increase the time limit of the repayment of loans.

Principal lessons learned for supporting MFIs to move into agricultural finance are;

limiting the length of loans to agricultural smallholders. However, this can result in a lack

of term finance important to agriculture, for such investments as tree crops, erosion

control, some livestock activities, and equipment and machinery.

Testing a new rural market before investing in a branch office, this reduces the risks

involved in expanding rural finance outreach. Rural branches are set up only if the

portfolio size merits the investment in infrastructure and human capital.

Flexible disbursement and repayment schedules are the method to successful agricultural

lending, although they may increase default risk and present liquidity management

challenges.

It can also restrict access to financial services for farm households dependent on

agriculture. Nonfinancial interventions to improve market access and infrastructure may

make these clients more attractive in the longer term.

Technology can help lower costs and expand rural finance operations, but a careful cost

benefit analysis should first be conducted, and the MFI’s management information

system (MIS) may first need to be upgraded.

The conditions needed to create a more efficient and effective overall environment for

farmers that will permit the optimal use of microfinance.

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Summary

Increased MFI activity is more difficult in rural areas and in financing agriculture, results in

increased competition, higher volumes of finance, and a wider range of financial services

available to farmers and their households. The rapid growth of the agriculture portfolio of MFIs

suggests that there was significant unmet demand for financing for agriculture. MFIs can offer

credit not just for agriculture but also for nonfarm, household, and emergency needs, as well as

savings and transfer payment services (if they are appropriately licensed). Increased competition

between financial service providers operating in rural areas (such as product-market credit

providers, moneylenders, and credit unions) can lead to more favorable and transparent terms of

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access for the poor. Good practice MFIs can also bring a commitment to efficiency, transparency

in reporting, high portfolio quality, and sustainability

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