Founded in 2005, the report presents the different research studies, which CMF has undertaken over the years in the area of financial services for the poor. The report, organised thematically, under its broad focus areas of “Financial Inclusion”, “Livelihoods” & “Social Objectives”, describes the organisation’s current work and summarises key findings from completed studies. The report also identifies potential areas for future research and recommends ways that financial services practice could evolve to meet the needs of low-income households.

Some of the studies that are profiled in the report include:

• Miracle of Microfinance? Evidence from a Randomized Evaluation
• The Impact of Access to Finance in Rural Tamil Nadu: Evidence from a Randomized Control Trial
• The Economic Returns to Social Interaction: Experimental Evidence from Microfinance
• Targeting the Hard-Core Poor: An Impact Assessment
• Measuring the Impact of Providing Futures and Spot Prices of Crops to Farmers

To read the full report click here.

The 5 thematic sessions of the conference are:

• Government’s New Rural Employment Generating Initiatives and Programmes
• The psychology behind mass default in joint liability loans
• Way Forward: Future of Financial Services for the Poor
• Financial Literacy: Can financial literacy accelerate financial inclusion and help customers make rational decisions?
• Financing Microfinance: Scope and opportunities

The Andhra Pradesh government while promulgating the MFI Ordinance also stated that it has a mandate to disburse INR 100,000 crores bank loans to SHG women members by 2014 to bring 10 million families out of poverty indicating government’s strong belief in serving the needs of the poor through Self Help Group (SHG) model.

The SHG model has been regarded as an instrument for the empowerment of poor and marginalized sectors as SHGs enable women to their savings and to access the credit which banks are willing to lend. Andhra Pradesh has been proactive about taking an initiative of total financial inclusion through SHGs. Recently, the groups had been given large loans up to INR 0.75 million in order to help them discharge all their other loan liabilities and replace it with the low cost loans from the banking system. Study found that even though SHG members discharged other loans taken at higher rates of interest immediately, however, after 9-15 months, these members had incurred new debts outside the SHGs. The more alarming concern has been the increased levels of default. SOS 2010 report indicates that AP banks typically mentioned recovery levels of between 80-85 percent of loans. On an outstanding loan level of more than Rs 100 billion in the state of AP, a 15% default is highly significant.

While there has been an extensive discussion on the Ordinance and its impact on the Microfinance Industry itself on this blog and on the India Development Blog, we thought it would be interesting to observe if the SHG bank linkage programme has actually kept pace with increased after the MFI industry came to a grinding halt in the state.

The Centre of Microfinance at IFMR Research conducted a study under the Microfinance Researchers Alliance Program (MRAP) to understand how SHG Bank Linkage Programme is performing in Andhra Pradesh and to understand if the SHG model is meeting the demand of the clients especially after AP crisis.

We present below some of our findings from the study.

This study involves interviews with 20 bank branch managers (both commercial and regional rural banks) in 3 randomly-chosen districts of AP (Medak, Mahabubnagar, and Kadapa) with the client base of not less than 50 SHG groups.  We have directly visited and collected data from 20 bank branches of the following 8 banks.

Data collection

We collected data from the abovementioned 20 branches focusing on the following topics:

1. Monthly SHG loan outstanding and the number of SHGs in FY 2010-2011
2. Annual SHG savings and the number of SHGs in FY 2009-2010 and FY 2010-2011
3. Total loan outstanding and number of SHGs as of March 2010
4. Total loan outstanding and number of SHGs as of March 2011
5. Irregular balance (Reschedule and NPA) and number of SHGs as of March 2010
6. Irregular balance (Reschedule and NPA) and number of SHGs as of March 2011

The biggest limitation of this study is not able to collect data on all of the abovementioned topics from 20 bank branches due to the difficulties reaching some data at some bank branches.  Hence, some of the sections in the report are analyzed based on data collected from less than 20 bank branches.

We also collected data from 59 branches of Andhra Pragathi Grameena Bank (APGB) in Kadapa district. For this report, we analyzed that data seperately to understand how this particular Regional Rural Bank is performing in Kadapa district.

Data Findings

Savings

We collected annual two years (FY 2009-10 and FY 2010-11 ) data on total number of SHGs that are saving with the bank branches and their total savings amount from 13 branches of five banks (State Bank of Hyderabad-2 branches, Andhra Pradesh Grameen Vikas Bank-4 branches, Andhra Bank-2 branches, Canara Bank-1 branch, Andhra Pragati Grameen Bank-4 branches.  Out of 13 bank branches, 8 are Regional Rural Banks (RRBs) and 5 are Commercial Banks.

Figure 1 below shows that compared to the FY 2009-10, there is a moderate increase in both SHG savings amount and the number of SHG saving accounts in FY 2010-11.  Even though there is an increase of 7.6% in the total number of SHG accounts in FY 2010-11, when it comes to savings amount, there is an insignificant increase of 0.3% only.

The data also shows that the average savings amount per group has improved for Commercial Banks compared to Regional Rural Banks.

From annual savings data of 59 bank branches of a Regional Rural Bank in Kadapa district, we found that there is an increase of 34% in savings amount even though the number of SHG account holders has decreased by 10% in FY 2010-11.  The average savings amount per group has increased by almost by 49%.

Credit Linkage

In order to understand the growth in SHG credit linkage from FY 2009-10 to FY 2010-11, we collected data on loans outstanding and the number of SHGs provided with loans from 16 branches out of which 6 are Commercial Banks (Canara Bank, Syndicate Bank, State Bank of Hyderabad and Andhra Bank) and 10 are Regional Rural Banks (Andhra Pradesh Grameen Vikas Bank and Andhra Pragati Grameen Bank).

When we analyzed data from 6 Commercial Bank branches and 16 Regional Rural Bank branches separately, we found that even though the margin of increase in the number of SHG accounts is similar for both types of bank branches, there is a huge difference in the margin of increase in SHG loan outstanding between commercial and Regional Rural Bank branches. When there is an increase of 10% in SHG loan outstanding for Commercial Bank branches, Regional Rural Bank branches have substantially increased its loan disbursement as there is an increase of 35%.

Similar analysis of 59 bank branches of a Regional Rural Bank in Kadapa district shows that even though the cumulative number of SHGs linked with the branches of this particular Regional Rural Bank has decreased by 10%, the total outstanding loan has increased by 16% in FY 2010-1. The average loan size has also increased from Rs. 81,085 to Rs 103,832 in FY 2010-11.

Seasonal Difference in Loan Disbursement

We collected month wise loan disbursement data from 20 bank branches out of which 12 are Regional Rural Bank branches (Andhra Pradesh Grameen Vikas Bank, Andhra Pragati Grameena Bank) and 8 are Commercial Bank branches (State Bank of Hyderabad,  State Bank of India, Andhra Bank, Canara Bank, Syndicate Bank, Central Bank of India).

Figure 5 shows the seasonal trend in loan disbursement from 20 bank branches.  The spike in March might explain that in order to receive priority sector lending commitment, banks increase the loan disbursement towards the end of the year to meet the specific target. The other spike can be observed in the period between July and September.  Most of agricultural activities seem to flourish during monsoon season, which is usually from July to September. This might show that SHG loans from these bank branches might be helping farmers meet the seasonal difference in their demand for finance.

Irregular Balance Data

13 bank branches provided data on irregular balance (both Reschedule and Non Performing Asset (NPA)) data for the last two fiscal years. Out of these bank branches, 9 are Regional Rural Bank branches and 4 are Commercial Bank branches. For this report, we first analysed Rescheduled and Non Performing Asset (NPA) data separately, and then we combined data and compared the performance of the branches in the last two years.

Reschedule Data:

As seen in Figure 6, in the FY 2009-10, 8.9% of the total SHG loan outstanding amount was rescheduled. This payment was delayed by 8.2% of the total SHG borrowers. The data shows that the situation improved in FY 2010-11 as only 5.3% of total loan outstanding was delayed in payment by 7.6% of the total number of SHG borrowers.

NPA Data:

As seen in Figure 7, in FY 2009-10, 4.7% of the total loan outstanding was considered Non Performing Asset and almost 3.7% of the total number of SHG borrowers defaulted this amount. Interestingly, the margin on the total number of SHG defaulters increased from 3.7% to 4.4% in FY 2010-11, even though the total loan outstanding amount drastically decreased from 4.7% to 3.1%

Reschedule and NPA Data together:

While combining both NPA and reschedule data together, we found that even though there is a slight increase from 11.9% to 12% of the total SHG borrowers that have been defaulting or delaying the payment from FY 2009-2010 to FY 2010-11, there is a significant drop in irregular balance amount from 13.6% to 8.3%.

When we looked at the irregular balance data of 59 bank branches of APGB , we found that the overall the irregular balance has increased this year from 5.6% of the total SHG loan outstanding in  FY 2009-10 to 5.9% of the total SHG loan outstanding in FY 2010-11 as can be seen in Figure 9.

 The interesting fact is that even though there is an increase in irregular balance, the total number of SHGs that have delayed or defaulted has drastically gone down from 7.1% to 5.8%. When we looked at NPA and reschedule data separately, we found that the situation has slightly worsen in FY 2010-11 compared to FY 2009-10  when it comes to NPA as the percentages of both the SHG defaulters and the total amount have slightly increased as seen in Figure 10.

 When it comes to reschedule amount, even though the percentage of the total number of SHG has increased, the percentage of the total rescheduled amount has decreased as seen in Figure 11.

To address these issues, and bridge the gap between practice and research and within the research community, the Centre for Microfinance (CMF) has launched a research capacity development programme called the Microfinance Researchers Alliance Program (MRAP) funded by Ford Foundation.  Stressing the need for better research, Justin Oliver, Executive Director, CMF, says, “Excellent research is essential to inform the microfinance industry, encourage innovation, affect policy, and maximize the impact of initiatives”.

Launched in November 2008, with 19 researchers from across the country, the key objectives of the program are:

•    To build research capacity among Indian researchers who are conducting or are interested in conducting research in microfinance.

•    To build a strong network of Indian researchers working on these issues and translate individual knowledge into a sector-wide knowledge base.

•    To foster “knowledge partnerships” between researchers and microfinance institutions and promote research-practice dialogues.

MRAP provides a platform where selected researchers are given training on various aspects that would help deliver better research output. This training is in the form of helping to frame the right research questions, research methodologies, developing questionnaires, undertaking field visits, workshops and importantly providing feedback as regards their research progress by way of a seminar. Also, through MRAP, CMF has launched an initiative that provides financial assistance to selected MRAP participants to conduct a field-based study on the status of microfinance in a particular region. This initiative, which draws inspiration from the State of the Sector Report, authored by N Srinivasan, aims to unearth new research questions for future research projects.

Recently, to track the progress of and offer suggestions to the researchers on their research studies, MRAP organized a seminar on August 6th, 2010, at IFMR’s office. The one-day seminar brought together all the researchers pursuing diverse projects under a single roof, along with N. Srinivasan, Bindu Ananth, President, IFMR Trust and Justin Oliver. The research studies presented ranged from a case study on “Why the clients default” to studies on Self-help groups and “An overview of microfinance in Assam”.

Dr Mani Nandhi’s study on” Why the clients default”, based on sample data, aimed to find the actual number of defaulter clients in relation to repayment clients, and dwelled on finding the reasons as to why clients default and the costs accruing to group members in the face of such defaults. The study shows that the proportion of defaulter clients to repayment clients is approximately 22%, with reasons for default being multifold, and among them, wilful default being most prevalent.

How then does an MFI possess a 100% On Time Repayment Record? Dr Nandhi says in her study that on the spot repayment is ensured by the centre manager by enforcing deadlines and constantly reminding clients about their “Joint Liability”. Also the processes of loan collection and repayment are well structured with staff incentives included. The study concludes that though MFIs have a good business model in place, they need to exhibit a human face and focus on the bottom line.

View the presentation below:

Later, an interesting presentation by Dr Debabrata Das focused on answering the status of microfinance in Assam and detailed the different practices and business models of MFIs working in Assam. The state has been witnessing rapid growth in microfinance reflected in the increase in the number of providers and high demand for credit.  However, he observed that there is a disconnect between demand and supply especially in the rural areas.

View the presentation below:

All the presentations can be downloaded here.

The seminar made way for healthy exchange of dialogue and suggestions, led not just by the experts, but also among the researchers. It concluded with Bindu suggesting to the researchers that they would do well to choose narrower questions when undertaking research.  A point, which N Srinivasan, also reiterated, in addition to suggesting that researchers should set aside their biases while undertaking their studies.

After a lot of research and some excellent recommendation from Anupama Joshi (CEO, Sahastradhara KGFS), Lakshmi Krishnan and Deeptha Umapathy  (Program Heads at CMF) zeroed in on Kanatal Resorts, Uttarakhand as the site for CMFs most recent research associate-birthday bash meeting. Located amidst the picturesque Tehri-Garwhal hills, Kanatal is a site for sore eyes and a panacea for the tired soul and body.

The drive up to Kanatal

After a half day of deliberations and updates on various research projects that CMF is leading across the country, Anupama Joshi closed the first day meeting with a brief presentation on Sahastradhara KGFS (SKGFS) – entity aimed at underserved rural areas of Uttarakhand. Ms. Joshi’s presentation highlighted some of the challenges faced in serving the hills, namely –

• Due to the extremely low population densities, SKGFS has had to relax its service radius and population number criterion from other KGFS ventures in the plains (DKGFS and PKGFS).
• Due to the hilly terrain and larger distances between the service provider and the served, technology is much more relevant in attracting and retaining clients. SKGFS has evolved a financial delivery model that is hybrid of branch-based and doorstep delivery.
• Compared to the plains, women’s participation is extremely low (probably due to a potent combination of travel difficulty and household/farm-related chores).
• Credit culture is low, and traditional JLGs do not work well. Financial trust among villagers who are even related to each other is not high.

SKGFS and CMF staff at Jadipani branch

To help understand these issues better, SKGFS invited CMF to its Jadipani branch the following day. After a brief introduction to operations, CMFers split into groups of 5-8 and ventured into nearby villages to hold brief discussions with local households. Each CMF team was ably led by an SKGFS wealth manager who played the role of a guide and host to perfection. CMFers huffed and puffed along the hilly tracks very quickly humbled by the terrain, further adding to the appreciation of the work that wealth managers and SKGFS is doing.

Projjal talking to Mr. Govindram and his wife.

The different CMF teams interviewed about 16 households in total. Post-visit here are some key observations from our group (Stuti, Deepti, Shreyas, Srikumar and Sushanta) –

Socio-economic conditions and access to finance:

1. The sanitation conditions and quality of the house structures were much better in Jadipani than much of India. Anecdotally, it seems that people invest a lot in making their houses better.
2. Most of the households we visited had some members in army which had helped them keep a decent standard of living because of the pensions provided by the Government. We noticed that pensions were the bulk of the income for many households.
3. Most households had access to bank accounts (according to the Branch Manager of Uttarakhand Grameen Bank, 700 households in a radius of 5kms had bank accounts. He estimated that the total population in the radius to be 2000). 70% of these accounts however were NREGA-disbursement accounts, with voluntarily created savings-accounts in the minority.
4. Savings is a space where private players can enter as the living standard in the region suggests that significant savings can be mobilized. Villagers currently invest on their house and in jewelry.
5. Almost all households had younger members who had left the village for better livelihood. The younger members were remitting money back home either through the post office or through acquaintances. We suggest that villagers’ interest in efficient remittance services be explored.
6. Agriculture is a primary source of work, although contribution to income is low due to poor rainfall in non-monsoon seasons over the last three years. This is unfortunate and easily remediable because the region still receives rainfall in the monsoon months. Loans for water-harvest tanks can help push up agricultural productivity significantly. A lot of the landscape is barren due to deforestation, thus loans for plantation can potentially help increase incomes and improve local ecosystem as well. Also the region grows apples and potatoes as cash crops, however there are a few insurance companies that provide cover for these crops. Households generally seemed to be interested in this kind of financial service but due to geographical constraints list of service getters remains limited to the ones living close to the market/road.
7. As mentioned in Anupama Joshi’s presentation, women seem to participate very actively in economic roles, but their say in financial decisions is low. Reasons for this low participation maybe a combination of culture and hard terrain. If hard terrain were the principal reason (which I suspect), technology and service at the doorstep or at the farm can improve the situation greatly. On a related note, could the fact that most JLGs are male groups be a cause for JLG under performance? Would carefully nurtured women’s groups perform better?

The Jadipani visit has thrown up many research and operational questions that need to be answered quickly, for financial inclusion in the hills to be a reality. Hopefully the initial steps that SKGFS has taken on the service delivery side and research studies that CMF is starting in Uttarakhand, will soon shed light on straightforward questions that need very innovative answers.

—
Ajaykumar Tannirkulam, CMF, contributed this post. Photo credit: Projjal Saha, Sushmita Meka and Srikumar

Among the varied things that were discussed in the conference, the underlying and oft repeated theme was microfinance sector’s need for effective research, which was well articulated by many participants. For example, Dr. Nachiket Mor felt that because the rapidly growing microfinance industry in India is quite different from the rest of the world in many ways (in terms of loan size, involvement of the banking industry etc), its challenges are also unique, and to address them effective research can play a crucial role.

Another important point was raised by Mr. Mathew Titus, who observed that to promote high quality research in the country there has been little or no funding to build a cadre of professionals who are capable of understanding the field realities and doing good research.

I have described some of the research works pertaining to microfinance that were discussed during the conference:

• Impact of Microfinance

Professor Abhijeet Banerjee of MIT presented the results of a randomized evaluation of Spandana’s microfinance programme in Hyderabad.  The main conclusions from the study were – microfinance has no clear impact on women empowerment, health or education; the accessibility to microfinance helps in setting up of new businesses; investing in durable goods by those who have existing businesses and more consumption by those who do not intend to start new business.

Results such as no impact on women empowerment, health and education might disappoint microfinance enthusiasts who think that microfinance is an antidote to many social and economic problems of the poor. However, one needs to understand that impact on health, education and women empowerment needs sustained interventions over a longer period.

Mr. B.B.  Mohanty of NABARD took forward the Impact session by highlighting the enhanced financial access of the poor, especially of the women, due to the SHG-Bank linkage programme promoted by NABARD. He made an interesting point that SHG members should graduate after a certain time period and become clients of regular banking system. While I agree with him that low-income people should come into mainstream, I disagree that there should be an exit from the programme. SHG programme is not just meant for micro credit, rather it is a social movement providing poor women a platform for addressing the social and economic problems, and giving them solidarity and strength so that their voices can be heard.

• Microfinance, Social Capital and Empowerment

Professor Rohini Pandey of Harvard University shared her research done with VWS, Kolkata, which revolved around the question of whether social interactions facilitate cooperative behavior among group members.

The research, done in an urban setting, revealed that after group formation women develop trust among each other and participate in social events. Opportunity for such association was absent for women before microfinance group formation. The results surely strengthen our belief that microfinance groups are not just credit associations; rather their role clearly goes beyond the financial transactions.

• Microfinance and Government Programs

The findings of CMF research conducted on the impact of participation in MGREGA (Mahatma Gandhi Rural Employment Guarantee Act) in Andhra Pradesh were presented in this session.

Important findings of the study are – MGREGA helps participants cope with stress periods such as those caused by bad weather; no difference in wages based on caste and gender; and getting a job card to avail the scheme is not a hurdle for people.

I wished the study could be extended to some other states to give us a comparative analysis of the impact of MGREGA in other places, as we often hear about the mismanagement and misappropriation of the scheme in various states. But it was heartening to see many positive results of the scheme in Andhra Pradesh.

• Tailoring Financial Services to Meet the Needs of the Poor

Professor Rohini Pandey presented another interesting research addressing the question of ‘what are the results of using a flexible credit repayment product for clients’.

The experiments examined differences from moving weekly (frequent) to monthly (less frequent) repayment, and effect of introducing grace period of two months before the repayment starts. Bindu Ananth of IFMR trust provided practitioners’ perspective emphasizing that the structure of the loan is crucial, and getting the lenders and savers together is very important while designing the financial products.

• Portfolios of the Poor

Professor Jonathan Morduch gave insights on how poor survive on less than $2 a day from his very famous book Portfolios of the Poor.

He said poor face triple whammy of low income, irregular/unpredictable income and lack of inappropriate tool to deal with the ups and downs of life; however, the poor are active money managers and they can and do save. He mentioned about the SEED Savings Account in Philippines and some Grameen Bank II products as good example of suitable products to the poor, and urged to scale up/learn from these ideas.

Anil SG from IFMR Trust made an interesting presentation on similar lines. By taking an example of a typical low-income household, Anil showed the volatility in cash flow, and the dreams and fears of the household. He through the LIWE (Life Wealth Envelop) tool explained what different types of risks households face and what can be the financial strategies for managing various risks.

• Competition, Multiple Borrowing and Information Sharing among MFIs

As we all know that nearly Rs. 600 million MFIs loan was reportedly involved in defaults in Kolar (Karnataka); the Kolar case was one of the important points of discussion in the conference. From a study on the Kolar case done by Mr. N. Srinivasan, factors such as clients’ behavior and MFIs’ practices were found responsible for the crisis. It was also discussed that the Kolar crisis resulted out of a Fatwa issued by a religious group. This was a larger risk that is beyond a MFIs’ capability to deal with.

The conference raised some of the very important issues prevailing in the microfinance industry and gave a platform to various stakeholders such as academicians, practitioners and policy makers to learn from the various experiments and discuss the policy implications.

PS: For notes and presentations from the conference click here

–
Anita Sharma, from IFMR Trust contributed to this post.

The research findings were presented by Prof. Esther Duflo to a packed audience at the IFMR campus on July 9th, 2009.

Prof. Esther Duflo presenting the study

According to her, the need for such an evaluation was necessitated by the fact that microfinance is often subsidized and there is a problem of self-control, which can if not dealt with, lead to a debt-trap.

Audience in rapt attention

Some of the key findings which she summed up with were:

• Take-up of MFI loans is lower than is often predicted – this matters for planning sample sizes and it also suggest that microcredit is not for everyone.
• Microcredit does have impacts and they differ for different households.

To know more about the research study please click here.