“formal financial institutions and microfinance - the...

Annual Microfinance India Conference Report, 2007

“Formal Financial Institutions and Microfinance - The Challenges of Depth and Breadth”

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Conference Report

Hotel Ashok, New Delhi"Formal Financial Institutions and Microfinance

The Challenges of Depth and Breadth"

9-10 October 2007



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Contents

1. Introduction 6

2. Inaugural Session 7

3. Technical Session I : State of the Sector Report 8

4. Technical Session II : Financial Inclusion 10

5. Breakaway Session III (a) : Priority Sector Norms and 12Microfinance : How are They Linked?

6. Breakaway Session III (b) : Downscaling Financial 13Services through Business Correspondents

7. Breakaway Session III (c) : RRBs and Cooperative Banks: 15Reforms, Mergers and Refinance - How does this Affect Their Roles?

8. Breakaway Session III (d) : The Role of Multinational 16and Private Sector Banks

9. Technical Session IV : Equity in Microfinance - do well, 18do good, or do both?

10. Special Session : What’s Wrong with Microfinance 20

11. Technical Session V : 15 Years of the SHG Movement: What Next? 20

12. Technical Session VI : Livelihood Finance - Challenges and Opportunities 22

13. Technical Session VII : Impact & Social Performance 24

14. Breakaway Session VIII (a) : Social Security - Micro Insurance, Pensions 25

15. Breakaway Session VIII (b) : Remittance & Money Transfers 26

16. Breakaway Session VIII (c) : ‘New’ Rural Housing 28

17. Breakaway Session VIII (d) : Technology in Microfinance - 29Past, Present and Future

18. Technical Session IX : Addressing the Regional Skew 31

19. Valedictory Session 33



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Inaugural sessionMr. P Chidambaram, Hon’ble Finance MinisterMs. Deirdre Boyd, Country Head, UNDPMr. R M Malla, Chairman, SIDBIMr. N S Sisodia, Former Secretary, Ministry ofFinanceMr. Remo Gautschi, Deputy Director General,SDCMr. Vipin Sharma, CEO, ACCESS DevelopmentServices.

State of the Sector ReportDr. Bimal Jalan, Member of Parliament, RajyaSabhaDr. Prabhu Ghate, Author, State of the SectorReportMr. Sanjay Sinha, Managing Director, M-CRIL,Mr. Rakesh Rewari, Deputy Managing Director,SIDBIMr. Rajesh Srivastava, MD, Rabo Bank

Financial InclusionMr. Vinod Rai, Secretary, Department ofFinancial Services, Ministry of FinanceMr. Vijay Mahajan, Chairman, BASIXMs. Soundara Kumar, CGM, SBIMr. Sandeep Dikshit, Member of Parliament, LokSabhaMs. Kate McKee, Senior Advisor, CGAP.

Breakaway Sessions - Addressing Outreach:Role of FFIs:

‘Priority Sector Norms’ and Microfinance: Howare They Linked?

Mr. Amitabh Verma, Joint Secretary, Ministryof FinanceMr. N Srinivasan, former CGM, NABARDMr. Ravindra Yadav, CEO, OBC Rural FoundationMr. V K Nagar, GM, Priority Sector Division,Punjab National BankMr. A Bhowmick, Chief Manager, Priority SectorDivision, Bank of India

Downscaling Financial Services throughBusiness Correspondents

Mr. H R Khan, Regional Director, RBIMr. Sidhharth Chowdri, Country Head, India,ACCIONMr. Kishore Kumar, Head- microfinance, HDFCBank

Ms. Maneesha Chadha, Assistant VicePresident, ABN AMROMr. S Kathiresan, CEO, KAS FoundationMr. K C Mallick, CEO, BISWA

RRBs and Cooperative Banks: Reforms,Mergers, and Refinance - How does this AffectTheir Roles?

Mr. K K Gupta, Chief General Manager, NABARDMr. G C Mishra, Chairman, Prathama BankMr. Sanjay Sinha, Managing Director, M-CRILMr. Ajay Nair, Consultant, World BankProf. B R Konda, Faculty, DCCB, BidarMr. Vipin Iswar, Chairman, Sarai Ranjan PACs,Samastipur

The Role of Multinational and Private SectorBanks

Mr. Alok Prasad, Country Director,Microfinance, CitibankMs. Robin Ratcliff, Vice President, ACCIONInternationalMr. Ranjan Ghosh, Regional Head (S Asia),Financial Institutions, Standard CharteredBankMr. Gregory Chen, Country Representative,Shore Bank, PakistanMr. Somak Ghosh, President, YesBank

Equity in Microfinance - do well, do good, ordo both ?

Mr. Vineet Rai, CEO ,AavishkaarMr. Mark Stoleson, President, LegatumCapital Mr. Vikram Akula, CEO, SKS MicrofinanceMs. Caitlin Baron, Country Director, MSDFMr. Alex Counts, CEO, GrameenFoundation Mr. Tor Gull, Managing Director, OIKO CreditMr. Blaine Stephens, Director of Analysis,MIX Market

15 Years of the SHG Movement: What Next?Mr.Y C Nanda, Ex. Chairman, NABARDMr. Aloysius Fernandez, Executive Director,MYRADAMr. Narendra Nath, Program Director, PRADANMs. Sudha Kothari, Chairperson, ChaitanyaMr. C S Reddy, CEO, APMAS

Resource persons for the conference



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Livelihood Finance - Challenges andOpportunities

Dr. Nachiket Mor, Deputy Managing Director,ICICI BankDr. Sankar Datta, Dean, Livelihood SchoolMr. Damodar Mall, CEO, Innovation &Incubation, Future GroupMr. Jawhar Sircar, Development Commissioner,MSME, Govt. of IndiaMr. Biswajit Sen, Consultant, World BankMr. M K Khanna, Member Planning Commission,Govt. of India

Impact & Social PerformanceMs. Kate McKee, Senior Advisor, CGAPMr. R M Nair, General Manager, SIDBIMs. Jayeshree Vyas, Managing Director, SewaBankDr. Smitha Premchandar, Founder, SamparkMs. Frances Sinha, Executive Director, EDA RuralSystemMs. Usha Padhi, Director, Mission Shakti,Government of OrissaMs. Annie Duflo, Research Head, CMF

Breakaway Sessions: Missing Services andProducts

Social Security: Micro Insurance, PensionsMs. Vijaylaxmi Das, CEO, FWWBMr. Marc Socquet, Senior Specialist in SocialSecurity, ILOMr. Francois Xavier Hay, Consultant to GTZMr. Anil Mehta, Director, Group Business, MaxNew York Life Insurance Co. LtdMr. Gautam Bhardwaj, Director, Invest IndiaEconomic Foundation

Remittance & Money Transfer

Mr. Sitaram Rao, Former CEO, SKS MicrofinanceMr. Gopinath, Director, Postal Staff CollegeIndiaMr. Kartik Mehta, Head-Microfinance, DCBMr. Rajiv Khandelwal, CEO, Aajeevika Bureau

‘New’ Rural HousingMr. R B Verma, Executive Director, NationalHousing BankMr. Ashish Karamchandani, CEO, Monitor IndiaMr. Harsh Moily, CEO, Moksha-yugMr. Bhramanand Hegde; Head of RuralOperations, Fullerton IndiaMs. Radhika Haribhakti, Director, DSP MerrillLynchMr. Arjun Murlidharan, CEO, Grama Vidiyal

Technology in MicroFinance: Past, Present andFuture

Mr. Wim Van Dar Beek, Partner, GoodwellInvestmentsDr. Pawan Bakshi, Head, M-Commerce, Bharti-AirtelMr. Mathew Titus, Executive Director, Sa-DhanMr. Maneesh Khera, CEO, FINOMr. C V Prakash, CEO, Gradatim Ventures

Addressing the Regional Skew

Dr. C Rangarajan, Chairman, EconomicAdvisory Council to Prime Minister of IndiaMs. Vasundhara Raje, Hon’ble Chief Ministerof RajasthanMr. Som Pal Shastri, Vice Chairman, StatePlanning Board of MPMs. Nirmala Buch, Chairperson, Mahila ChetnaManchMr. V. S. Vyas, Chairman, Institute ofDevelopment Studies, Jaipur

Valedictory SessionDr. C. Rangarajan, Chairman, EconomicAdvisory Council to Prime Minister of IndiaMr. Brij Mohan, Chairman, ACCESSDevelopment ServicesMr. N K Maini, CGM, SIDBIProf. Malcolm Harper, Professor Emeritus,Cranfield Institute of Management, UK

Resource persons for the conference



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The year 2007 was marked by another landmarkfor the microfinance sector in India with threemillion self help groups linked to the formalfinancial institutions and an outstanding loan ofRs. 10640 crores. The bulk of microfinance loansin India are linked to formal financial institutionsand this makes the Indian microfinance uniqueand distinct from microfinance programmes inother parts of the world. Given the extensive andimpressive institutional infrastructure of FFI’s inIndia, stipulations for priority sector lending andownership of 80% of all banking by thegovernment, perhaps not enough has been donefor greater financial inclusion in the sector. Thelarge part of rural as well urban poor continue tobe outside the ambit of formal banking. Andalthough impressive gains have been registeredin terms of SHG bank linkage, the sector stillcontinues to serve only about 10% of the poor inthe country and only about 8% of the totalestimated demand has been met.

The 2007 microfinance India conference, thereforefocussed this year on “the role of formal financialinstitutions and microfinance the challenges ofdepth and breadth”. This was the fourth eventorganised by the microfinance India platformwhich has been institutionalised within ACCESSDevelopment Services, having transitioned fromCare India. The conference this year attracted over850 delegates from within and outside India and90 resource persons constituting of thoughtleaders, senior policy makers, academicians andpractitioners contributed to the debate duringthe conference.

An added feature this year was the organising ofan Investment Fair in which ACCESS attempted tobring together leading private and social equityinvestors from across the world and potentialmicrofinance institutions seeking debt and equityfunds for growth and transformation. Over 22

investors and 59 investees participated in theInvestment Fair. This initiative was largelyorganised as a response to a growing trend inprivate and social investor’s interest inmicrofinance sector in India. During the year, twoof the largest global investments in microfinancewere made in India. To make the initiativemeaningful, ACCESS in collaboration with CARE,Grameen Foundation, MIX Market and Intellecaporganised investment readiness trainings foremerging MFI’s and helped to develop theirpitchbooks and business plans for possiblenegotiations with the invited investors.

Another feature of the microfinance Indiaconference was the setting up of Knowledge Fairduring the period of the conference. Severalstakeholders put up their booths to share anddisseminate their experiences among the delegatesattending the conference.

A significant accomplishment of microfinance Indiawas to bring out in time the second edition of theState of the Sector Report. Encouraged by a highlypositive response to the 2006 State of the SectorReport it is proposed to continue the initiative andbring out a comprehensive report on the sectoreach year. The 2007 State of the Sector Report wasreleased by the Hon’ble Finance Minister.

The conference organisers are extremely gratefulto the overwhelming support to the microfinanceIndia conference by many stakeholders from thesector. This year 18 sponsors supported theconference. These include two apex organisations,viz Nabard and SIDBI; two donor agencies, viz FordFoundation and SDC; the largest public sector bankin India, viz State Bank of India, other commercialbanks including ICICI Bank and Citibank; insurancecompany, Max New Year Life, and technologysolutions organisation, Gradatim Ventures.



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For institutions like SIDBI, “microfinance is apassion”. The Bank has made a paradigm shift fromfocusing on sustainability of social mission tosustainability of MFIs. To ensure increasedparticipation of formal financial institutions inmicrofinance, SIDBI has taken a leading position –commissioning ratings, providing transformationloans, playing a proactive role in formulating theMicrofinance Bill, supporting the setting up ofthe School of Microfinance Training in Mangaloreand creating a separate cell for the underservedstates in India.

Inaugural Session

The session was graced by the presence of Hon’bleFinance Minister Mr. P Chidambaram, Ms. DeirdreBoyd, Country Head, UNDP, Mr. R M Malla, Chairman,SIDBI, Mr. N S Sisodia, Former Secretary, Ministryof Finance, Mr. Remo Gautschi, Deputy DirectorGeneral, SDC, Mr. Vipin Sharma, CEO, ACCESSDevelopment Services

The annual Microfinance India conference wasattended by over 850 delegates, 90 sector leadersand 18 conference sponsors. It was also associatedwith the release of the State of the Sector Report.

Key highlights

One third of the world’s microfinance beneficiariesare in India, revealed by the fact that the totalcredit access has increased from Rs. 10 crores toRs. 18,000 crores and the SHG-Bank linkage modelhas outreach to 41 million households. Recenthighlights include the Microfinance Bill, NABARD’sequity fund, and the recent efforts to revitalisecredit cooperatives. However, there are still keychallenges like the quality of SHGs, overlap ofmemberships, regional skew, weak bank linkages,and poor capacity building.

However, to meet the needs and aspirations ofthe poor, in addition to financial / economicinclusion, social and political inclusion is alsoimportant. For formal financial institutions thischallenge of breadth can be met by upscaling andthis requires offering a range of products, the mostimportant being micro-insurance. Microfinanceshould also aim to reduce multiple vulnerabilitiesfor households and not just those pertaining towomen.

The Microfinance Bill will only regulate not-for-profit organisations that act as facilitators ofcredit and can collect savings from members. TheBill would bring legitimacy to this part of thesector. Banks too have a larger role to play bymaintaining “no frills accounts”, overdraftfacilities, and one time settlement schemes forsmall borrowers; they should also continue to workwith SHGs and NGOs as intermediaries.

Conclusion

Quality of SHGs and regional skew continue toappear as key challenges in microfinance and thisis an area that needs immediate attention.Innovative products are needed for financialinclusion of those un-reached and the poor. Thesector should promote exchange of best practicesand learning. The Microfinance India conferenceprovides a platform for the much needed exposure

A step in the right direction has been taken byGovernment of India with the formation ofCommittee on Financial Inclusion led by Dr. CRangarajan, Former Governor, Reserve Bankof India. Union Finance MinisterMr. P Chidambaram revealed that the InterimReport proposes the creation of two funds - theFinancial Inclusion Fund and Financial InclusionTechnology Fund - each with Rs. 500 crorecorpus.

I recognise that the Microfinance Bill is limitedbut it’s a beginning. I think passage of thisBill will bring legitimacy to the non-profit partof the sector and will greatly facilitate them inproviding credit to the poor. The for-profitinstitutions should also be regulated but whatform should that regulation take and who thatregulator should be is indeed a subject thatremains open for discussion. The fact thatthey have not been regulated does not meanthat the Bill that has been presented in theParliament should not be cleared.Mr. P Chidambaram, Hon’ble Finance Minister,

Government of India



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to underserved areas and this year the focus is onMadhya Pradesh and Rajasthan. The FinanceMinister concluded by saying that “I do not believeone size fits all, each initiative has to be measuredwith its own benefits”. There is a role for everystakeholder and it should be realised to its fullestextent to ensure maximum impact in terms of bothupscaling and downscaling.

Highlights

• One-third of world’s microfinance membersare in India

• SHG-Bank linkage credit access to 29,34,708SHG with cumulative loan disbursed to themto the tune of Rs. 18,145 crore

• SIDBI will host the Micro Credit Summit 2011in India

• The Microfinance Bill, NABARD’s equity fundand the recent efforts to revitalise creditcooperatives are positive developments.

Technical Session I: State of the SectorReport

Resource Persons: Dr. Prabhu Ghate, Author, Stateof the Sector Report, Mr. Sanjay Sinha, MD, M-CRIL, Mr. Rakesh Rewari, DMD, SIDBI, Mr. RajeshSrivastava, MD, Rabo Bank

Chair: Dr. Bimal Jalan, Member of Parliament, Rajya

Sabha

Key Highlights

• The year witnessed a phenomenal growth ofthe microfinance sector. While SHG modelalone experienced 31% growth, the MFIpromoted microfinance attained 42% growthduring the period. There are 37 millionborrowers created by all the models out ofwhich 26.3 million are covered through theirrespective SHGs.

• Having experienced horizontal growth, thesector needs to give equal stress for

enhancing the depth ofoutreach especially through SHGmethodology. While continuingto utilise the services of theNGOs, steps should be taken tobuild the capacity of the SHGs,grade them periodically,aggregate and provide themwith appropriate nurturingsupport so that they canachieve sustainability.

• Spreading the benefits ofmicrofinance programme to thepoorest of the poor has stillbeen a major challenge for theFrom (l to r) Mr. Vipin Sharma, CEO, ACCESS Development Services, Mr. N S Sisodia, Former Secretary, Ministry of

Finance, Dr. Prabhu Ghate, Author, State of the Sector Report, Mr. P Chidambaram, Hon’ble Finance Minister andMr. R M Malla, Chairman, SIDBI

As a sector, microfinance has shown very fastgrowth across the country in terms ofgeographical coverage, increased clientele,portfolio, institutional involvement etc.Increasingly more and more promotingorganisations, financial institutions, donors andclients are getting associated with theprogramme, mainly because of its contributionsto alleviating poverty and empowering women.In order to document the progress and alsothe emerging challenges in the sector,Microfinance India has taken initiatives inpreparing a State of the Sector Report annuallyand sharing it with various stakeholders in thesector. The second successive Sector Report wasreleased by Mr. P Chidambaram, Hon’ble FinanceMinister, Government of India during theconference this year.



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sector, as only 22% of them have beencovered so far. Concerted efforts from all thestakeholders are therefore required to attainthe real financial inclusion of this vulnerablegroup of people. MFIs must redouble theirefforts to cover the un-reached poor throughspecial projects, cross subsidisation fromprofits, innovative products etc.

• The sector experienced a slow pace in overalllending during the year as some of the majorlenders withheld their lending for atemporary period. The gaps, however, werepartly filled up by some other banks enteringinto microfinance and by the entry of privateequity firms.

• Gathering momentum for the proposedMicrofinance Bill has been apositive development in thesector, especially as it willintroduce thrift and facilitate anorderly growth. Hopefully the Billwill be passed and made law bythe next conference.

• The remarkable growth of themicrofinance sector could attractnot only public and privatefinancial institutions in thecountry but also foreigninvestors. The microfinancecommunity should encouragemobilisation of private equityfunds and CSR funds along with themainstream finance. The MFIs should issueBonds, if needed, to raise resources for thesector as this is being practiced by manyMFIs in other parts of the world. Rabo Bankconfirmed its interest and willingness to getinvolved in microfinance and to helpstrengthen the sector further in collaborationwith other stakeholders.

• Some of the key study outcomes of IndianMicrofinance Review 2007 were shared; theseconfirmed the findings of the sector report.One of the positive findings during the yearwas the decline in the PAR 60 days, whichindicated an improved portfolio quality in

the sector. The OER and monitoring costshave, however, experienced a hike. Thecontributions of the MFIs were appreciated,especially those of the NBFC promotedmicrofinance programmes (membership - 73%& portfolio - 71.3%), which have played akey role in the overall growth of the sector.

• Some of the underlying challenges in thesector were also highlighted. The regionalskew in terms of its programme coveragemeans that there are still many underservedareas, especially in the remote pockets, wherepeople hardly get any financial services.NGOs/CBOs should be encouraged andsupported to start their operations in theseun-reached and underserved areas. Also thequestion of transparency in disclosing theinterest rates and other service charges,inadequate quality HR and capacity buildinginputs, use of new technologies, the issueof regulation etc still pose great challengesfor the sector. All these together demand acollaborative effort by the stakeholders.

Government institutions like NABARD, SIDBIetc should create a credit enhancementstructure where they can enhance the bondsor instruments to be issued by the MFIs toraise money from public at large. This couldreally catalyse further investment in the sectorand ultimately lead to lowering of interestrates charged to the end borrowers.

Mr. Rakesh Srivastava, MD, Rabo Bank

Dr. Bimal Jalan, Member of Parliament, Rajya Sabha



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• Looking at the growth of the sector, all thestakeholders should ensure effectivemanagement with a thrust on the qualityaspect. Microfinance is a sensitiveprogramme, especially since it deals withpublic deposits and small loans for the poor;hence the stakeholders have to maintainutmost transparency in all the transactions.In view of the low affordability of the poor,there is need to improve the efficiency leveland to keep the cost of funds at a relativelylower level so that they can have easy accessto microfinance services.

deepening the growth in terms of its quality,portfolio, capacity building etc.

• Managing growth No doubt that growth isimportant which is also happening in themicrofinance sector at its own pace; it isequally important to manage thatappropriately through improved efficiency,quality HR, healthy portfolio and adoptionof new technologies.

• Reaching the unreached Despite the large-scale growth of the sector, a sizablepopulation of the poor is still deprived ofgetting the benefits of microfinanceservices. So, serious attempts must be madeby all the stakeholders to reach theunderserved areas and provide the servicesto the very poor through innovativemicrofinance products.

Technical Session II: Financial Inclusion

Resource persons: Mr. Vijay Mahajan, Chairman,BASIX, Ms. Soundara Kumar, CGM, SBI, Mr. SandeepDikshit, Member of Parliament, Lok Sabha, Ms. KateMcKee, Senior Advisor, CGAP.

Chair: Mr. Vinod Rai, Secretary, Department ofFinancial Services, Ministry of Finance.

Key highlights

The discussion on Financial Inclusion has gathereda different colour; it is no more solely about therural-urban divide, but rather increasingly also

about microfinance for the non-poor versus the poor. FinancialInclusion can be defined as nearuniversal access to wide scopeof financial services – startingfrom having a bank account,savings (most fundamental),insurance to reduce vul-nerability, credit (bothconsumption and investment),remittances, asset financing andmicro-pensions. There is acorrelation between access tothese financial services and

Way Forward

• Enactment of the Microfinance Bill All themicrofinance stakeholders shouldcollectively urge the government to enactthe proposed Microfinance Bill at the earliestso that the MFIs are in a better position toprovide financial services to the poor

• Enhancing the depth of outreach As SHGmodel has been widely adopted by many ofthe microfinance stakeholders and as it ismaking a fast progress, there is a need for

You can’t put external limits on the interestrates. The rates should be capped by thecompetition, by self-regulation and aboveall by the MFIs itself.

Dr. Bimal Jalan,Member of Parliament, Rajya Sabha

(l)Mr. Vijay Mahajan, Chairman, BASIX and (r) Mr. Vinod Rai, Secretary, Department of Financial Services,Ministry of Finance



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sustainability of the household and themicrofinance sector itself.

Outreach is a challenge and there are limitationsin terms of the role that existingbank branches can play infinancial inclusion. “Bankscannot do financial inclusionon their own with the existingbranches,” remarked Ms. SoundaraKumar, hence for largestcommercial bank such as SBI,the Business Correspondentmodel is very attractive.However, the Bank has not beenable to make much headway dueto operational difficulties likepayment systems, cashmanagement, MIS-technology compatibility.

to participate. There is a need to create servicesaround the clients and a need to develop productsrelevant to youth.

There is a need to distinguish between financialinclusion and inclusive growth. In fact,financial inclusion is one of the conditions tobe met for inclusive growth. Formal FinancialInstitutions feel that the existing bankingstructure may not be able to cater to theexpectations of financial inclusion, hencepartnerships would be necessary.

I offer five suggestions to enhance financialinclusion:• Establishing a supportive legal and

regulatory framework• Strengthening multiple institutions to

provide financial services to the poor• Developing new products and channels,

focused on the poor• Using technology to enable existing

financial institutions to be more inclusive• Building the capacity of the poor to use

financial services to improve their livesMr. Vijay Mahajan, Chairman, Basix

Really successful Financial Inclusion needscontribution from Public/Government Sector,Private Sector and Civil Societies. The waysshould be explored for greater coordinationamong the three to develop new products anddelivery channels.

Ms. Kate Mckee, Senior Advisor, CGAP

Conclusion

The focus of financial inclusion should be fromthe perspective of “Financial Value Chain”, hencethere is need for dynamism, institutional pluralism,stronger apex institutions and healthy competitionbetween NGOs/MFIs. For formal financialinstitutions, such as banks, partnerships with MFIs,NGOs, post offices and so on is the key. Improvingservice quality through new products that enableparticipation of more people will also lead tofinancial inclusion. The government’s position is

The Microfinance Bill will not be a productof the government but something which hasbeen crafted after getting 360 degree reviewfrom everyone involved in the sector and itseeks to be as comprehensive in structure aspossible.

Mr. Vinod Rai, Secretary, Department ofFinancial Services, Ministry of Finance

(l) Ms. Soundara Kumar, CGM, SBI and (r) Ms. Kate Mckee, Senior Advisor, CGAP

Financial Inclusion also entails development ofnew products and product delivery channels andthere is a need for improved service quality,transparency and inclusive growth with a focuson financial products that would help more people



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Main body of the discussion

Quantitative targets for priority sector wereintroduced in 1969 and the stipulation of 40%target was introduced in 1985. NarasimhamCommittee II and recent review by RBI InternalWorking Group in 2005 supported the continuationof the targeting. However, there are changes ineconomic environment – the service sector isexpanding rapidly and share of agriculture ascontribution to national income is declining.

Changes in lending norms have an impact onlending to priority sector and to small borrowers.For example, raising the ceiling limits of loans andunits led to a preference for larger loans; smallloan accounts declined by 26 lakhs between 1992and 2004. Similarly, ceilings on interest rates forsmall loans have led to shift to focusing on largeloans (average loan size Rs. 1.17 lakhs).

There is also a huge concern about quality ofcompliance to priority sector commitments, dueto the following reasons:

• Some states and regions are underfinanced• Agriculture sub-targets ensured sustained

share in flow, while small scale industriessector suffers

• Indirect finance and investment in bondsof SIDBI and NABARD are preferred

• Small loans are not a priority for banks• Monitoring requires improvement

However, banks too face limitations. These includestringent prudential standards, interest rate andpricing, collateral requirements, borrower selection,government sponsored programmes and networkand staffing constraints. Network constraints ofbanks make lending to microfinance an edge forpriority sector lending. Business correspondent

There are constraints of credit flow to sectorswhich support a large number of livelihoods.A bias exists, there is preference for industry,commerce, trade and security based financing.There is a need to realise the public value ofbanking services in India and credit as auniversal service obligation.

Priority sector loans by commercial banks – outstanding (Rs. crore)

1969 1991 2001 2005 2006 2007

Agriculture 162 16750 51922 125250 172292 230180

SSI 257 17181 56002 74588 90239

Others 22 8984 46490 181638 247379

Total 441 42915 154414 381476 509910 632647

very sensitive to the aspect of financial inclusion,the Microfinance Bill is getting a 360 degree reviewand the government would partner with good NGOsto reach the 36% of poor households that are notbeing served by the formal financial institutions.

Highlights

• Financial inclusion should help the poor toget empowered

• For Formal Financial Institutions, BusinessCorrespondent model is a promising prospectfor financial inclusion

• Equally important is to have good financialproducts that cater to the needs andexpectations of many

Breakaway Sessions III - AddressingOutreach: Role of FFIs:

Session III a: Priority Sector Norms andMicrofinance: How are They Linked?

Resource persons: Mr. N Srinivasan, former CGM,NABARD, Mr. Ravindra Yadav, CEO, OBC RuralFoundation, Mr. V K Nagar, GM, Priority Sector,PNB, Mr. A Bhowmick, Chief Manager, PrioritySector, Bank of India.

Chair: Mr. Amitabh Verma, Joint Secretary, Ministryof Finance.



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model is an ideal option that would facilitate banksand microfinance interface. Through microfinance,29 lakh SHGs have been covered under SHG-Banklinkage programme, with credit flow of Rs. 6,640crores last fiscal year. There are no shortcuts, “bankswill have to work hard to achieve targets” andbanks should consider lending to federationsunder micro-credit portfolios.

• Time to review targets under each sector• People and regional focus required• Inclusion objective to be integrated with

PSL• Tighter monitoring and effective

enforcement• Need for a sunset clause – with achievement

of full financial inclusion?

Highlights

• Banks must support vulnerable andunglamorous sectors

• Business correspondent model can help inBank and MFI interface to obtain betterresults for priority sector lending

Session III b - Downscaling Financial Servicesthrough Business Correspondents

Resource persons: Mr. Sidhharth Chowdri, CountryHead, India, ACCION, Mr. Kishore Kumar, Head, mF,HDFC Bank, Ms. Maneesha Chadha, AVP, ABN AMRO,Mr. S Kathiresan, CEO, KAS Foundation, Mr. K. C.Mallick, CEO, BISWA

Chair: Mr. H R Khan, Regional Director, RBI

Main Body

In order to reach out to the isolated poor, banksneed to create franchise branches run by business

The priority sector could now be redesigned totake on acquisition of new clients inunderserved areas as its mandate. The focusneed not be credit alone, but of financialservices.

Mr. N Srinivasan, former CGM, NABARD

Conclusion

While there are limitations and constraintsobserved in priority sectorlending, microfinance is not asubstitute to priority sectorlending. Microfinance loanvolumes are about 1% ofpriority sector lending portfolio.There is need to review targetsfor each economic sector. Theobjective of financial inclusionneeds to be integrated withpriority sector lending. Thereare 112,000 Primary AgriculturalCooperative Societies in India,micro-leasing model may help inreviving them and also fulfillingthe mandate of priority sectorlending. Mr. N Srinivasan, former CGM, NABARD



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correspondents in remote areas. These businesscorrespondents would be local NGOs that wouldform and promote SHGs, offer training and managegroup dynamics, as well as aggregate loanproposals, disburse and recover loans and preparethe MIS. The advantages of this model areindependence in decision making, human resourceflexibility, product innovation, participation ofstrategic partners, specific assistance programmesand a lower cost of capital.

Even private banks like ABN AMRO have adoptedthe business correspondent model, despite the factthat they are not bound by priority sector lendingnorms, because it is seen as a profitable model.HDFC Bank is a good example with approximately150 business correspondents across 14 states. Asan NGO which has utilised this model with ICICIBank, KAS Foundation had positive experiencesas a business correspondent extending servicesto 1.4 lakh people across 8 States of the country.

The panel identified the main risks to the banksinvolved: the first is the risk of loss of reputation,integrity and soundness, which can be mitigatedwith due diligence and by conveying qualitativeand quantitative parameters to the businesscorrespondent. The second is compliance/operational risk, which can be mitigated with theappropriate use of technology. The third is systemrisk that can be mitigated by setting exposurelimits. The last risk is the exit strategy/legal riskwhich can be mitigated by active involvement ofall stakeholders and legal advisers.

The panel also expressed some of the concerns thatNGOs have regarding the model. Firstly, banks arenot offering the business correspondents adequatecompensation for their services. Secondly, thehigh cost of the necessary technologyinterventions for the model may be overwhelmingfor the MFIs. While the poor are benefited withthis model, MFI’s may lose their identity.

Highlights

• The business correspondent model is apartnership based model that hassuccessfully allowed NGOs to help banks todownscale.

• The model creates several risks for the banksand the NGOs; however, the benefits areconsidered to outweigh the potential risks.Different strategies can ensure that the risksare effectively mitigated.

• The model’s success depends on use ofappropriate technologies, commitment fromall stakeholders, and modifications to theexisting regulatory environment.

Conclusion

The session detailed the history and key elementsof this model as well as some of the most importantchallenges, issues and success of the model. Severalrecommendations were made for the future, whichare as follows:

• The guidelines for business correspondentsshould be widened to include NBFCs andcorporates, which are currently barred

• The interest cap should be eliminated• A credit information bureau should be set

up• There needs to be active local government

support and facilitation, and a collaborativeapproach among FFIs

• There should be more of a reliance on IT toimprove reporting

• There is a need for commitment from thebank’s top management to the MFI

• Banks need to minimise response time delaysdue to operational inefficiency

• There is a need for greater utilisation ofbusiness correspondents for moneyremittance services

The business correspondent model evolved aftera comprehensive research study by RBI, whichled to the creation of the Khan Committee andRBI guidelines. The model was created toovercome problems that banks face in offeringtheir services to the poor. It was acknowledgedthat 41% of the people are currently consideredun-bankable due to poor infrastructure, highcost of branch expansion, high transactioncosts, cumbersome procedures, financialilliteracy, lack of customised products, lack ofcredit history of the poor and unfavourable stafforientation.



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Commitment action

• Greater use of businesscorrespondent model forremittance throughmobile

• Collaborative approach byall the MFIs

• Credit information bureauis a must

Session III c : RRBs andCooperative Banks: Reforms,Mergers, and Refinance - Howdoes this Affect Their Roles?

Resource Persons: Mr. G C Mishra, Chairman,Prathama Bank, Mr. Sanjay Sinha, MD, M-CRIL, Mr.Ajay Nair, Consultant, World Bank, Prof. B R Konda,Faculty, DCCB, Bidar, Mr. Vipin Iswar, Chairman,Sarai Ranjan PACs, Samastipur

Chair: Mr. K K Gupta, General Manager, NABARD

Key Highlights:

• Reaching rural communities through widercoverage: Having set out to operate close tothe community, the RRBs and Cooperativestry to provide much needed financial servicesto the women SHG members, marginal farmers,petty businessmen, vendors etc in theirrespective operational areas. Prathama Bank,the first RRB in India and the DCCB in Bidar,Karnataka State were highlighted as successfulexamples. The experiences abroad in countrieslike Brazil, Burkina Faso, Kenya & Sri Lankatoo have been quite positive in this regard.

• Generating internal resources to strengthenoperations: Mobilising savings or depositsfrom its members and public has been one ofthe important services that the RRBs andCooperatives offer to the common people.Having the bank branch at their villages or ata walking distance encourages the generalpublic to make their savings in the banks.

• Meeting the credit needs of members on apriority basis: The mobilised savings amounthas been largely used to meet the credit needsof members who seem to be happy with theservices of these institutions, as these areavailable in and around their local area andalso at a comparatively lower rate of interest.In addition, insurance services are also madeavailable to the members. Prathama Bank haseven issued Credit Cards for its SHG memberswith a maximum credit limit of Rs. 5 lakhs.

One of the core objectives of creating a chainof Regional Rural Banks and Cooperative Bankswas to provide much-needed banking servicesto people especially in the rural areas.Sponsored by various commercial banks, theystarted their operations in the rural pocketsand extended financial services to the ruralpopulation. In the process, some of themperformed very well but a majority of the RRBsand Cooperative Banks fell short of deliveringthe desired services because of variousreasons. Increased NPA due to large numberof defaults and its impact on the operatingcost is said to be a major factor that promptedthe merger of many of the RRBs and Cooperativesrecently.

The session on the RRBs & Cooperative banks wasstarted with an introductory note and discussionswere held on the experiences of banks, promotionof microfinance in different areas, internationalexperiences with cooperatives in differentcountries, field level realities and the nationalperspectives based on various study findings.



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One of the most encouraging trends inmicrofinance is that the world’s largest banksand insurers are becoming interested in theso-called ‘bottom of the pyramid’. Big businesshas so far largely ignored a huge number ofpeople who have very little money butnevertheless represent a potentially lucrativemarket. Their interest so far has been drivenby corporate social responsibility or communitydevelopment departments, not their core for-profit banking operations. However,multinationals, like Citibank, who believe thatmicrofinance can become a valid profit makingbusiness are entering the market; theirexperiences may encourage other private andmultinational banks to also penetrate themarket soon.

• Promoting Micro-enterprises along withMicrofinance: Considering micro-enterprisesas the next level of key services required bythe clients, RRBs and Cooperative Banks giveequal importance to promoting these amongtheir members. The borrowers are encouragedand trained to take up both farm and non-farm economic activities, thereby improvingtheir household incomes.

• Issues & Challenges Encountered: The keychallenges are with regard to their governance& management, growing NPA, higheroperational cost, lack of proper facilities touse new technologies, inadequate HR etcwhich have not only slowed down the growthbut also led the authorities to push for mergerand amalgamation of these institutions.

• Impact of the amalgamation: As theamalgamation and merger process is a recentone, its differential impacts on the sector havenot yet been fully felt. However, thequantitative reduction to 80 from nearly 200RRBs may affect their outreach as well as leadto a change in their previous lendingpriorities. On the positive side however, theprocess brings greater coordination,facilitates cross learning among differentbranches and also minimises operational cost.A suggestion was made to carry out a studyto document the impact of RRBs andCooperative Banks so far and also give pointersfor future perspectives after the amalgamationwas made.

the issues that emerge. Therefore, allstakeholders need to extend their maximumcooperation to strengthen the new structureand operations of these institutions.

• Harnessing Efficiency - Operatingindependently over the past so many years,each RRB and Cooperative Bank has gatheredrich experience. Based on the lessons learnt,new inputs can be provided to the existingHR for improving their efficiency so that thebank as a whole is able to deal withcompetition in the market.

• Re-working on NPA - Growing NPA in someof the RRBs and Cooperative Banks was nodoubt a big worry for the authority. In viewof this, possible solutions to this problemneed to be found and care needs to be takento keep NPAs in control in the future.

Session III d: The Role of Multinational andPrivate Sector Banks

Resource Persons: Ms. Robin Ratcliff, VicePresident, ACCION International, Mr. Ranjan Ghosh,Regional Head (South Asia), Financial Institutions,Standard Chartered Bank, Mr. Gregory Chen, CountryRepresentative, Shore Bank, Pakistan, Mr. SomakGhosh, President, Yes Bank

Chair: Mr. Alok Prasad, Country Director-Microfinance, Citibank

The logic behind amalgamation of RRB’s asproposed in reforms process based on theassumption that there are huge economies ofscale in the functioning of rural banks, whichmeans larger banks that can serve the needsof the poor, escapes me.

Mr. Sanjay Sinha, MD, M-CRIL

Way Forward

• Managing change - As the merger andamalgamation process is likely to continuefor some more time, the authority may takeproactive measures to deal with and manage



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The session was devoted to deliberating on therole of multinational and private sector banks indownscaling financial services to the financiallyun-reached.

Key Highlights

• The major issues discussed in the session werethe limited outreach by private andmultinational banks and the necessity ofdesigning a business proposition to attractall financial institutions to serve the sector.

• Since the nationalisation of banks, publicsector banks are into the space of maximumbanking but unfortunately the ‘bottom of thepyramid’ is still un-served and institutionallyexcluded.

• Micro-financing should be looked upon as alucrative business opportunity. The historicalimage of charitable industry needs to bereplaced by the image of profit makingfinancial service industry run by experiencedbusiness leaders.

• Standard Chartered Bank pointed out thatthere is high market growthpotential for private andmultinational banks inmicrofinance. However,there is a need to introducethe same process of grillingand disciplined conductthat the mainstreamfinancial market follows.

• Yes Bank stated that in 35years of microfinanceintervention, only 4-6 % ofthe potential market hasbeen explored. Theregulatory frameworkshould be designed suchthat it helps banksestablish specialised units of small financingto propel sectoral growth, instead ofimposing interest rate controls on small loans,which make it unprofitable for private banksto serve rural customers. Yes Bank informedthat its partnership with ACCION wouldprovide a platform to the bank to experiment

and do research on issues related to microfinance scale and inclusive growth.

• ACCION International made a presentation onhow ACCION operates and addresses the issueof scale and sustainability. They noted thatit was important to enhance efficiency withautomation, broaden product offerings andensure core banking systems.

• Shore Bank described itself as a doublebottom-line bank based in the USA, investingin the local community to create economicequity and a healthy environment. Theeffectiveness of the service company modelused in Latin America for delivery of a wholebouquet of microfinance products needs tobe verified.

• The Chair of the session summarised thediscussions, highlighting that pricing is anissue that the sector is facing for quite sometime and if operations need to be sustainable,funds should be accessed only at commercialrates.

From (l to r) Mr. Alok Prasad, Country Director - Microfinance, Citibank , Mr. Gregory Chen, Country Representative,Shore Bank, Pakistan and Mr. Somak Ghosh, President, Yes Bank

Commitment from board and management,strong internal champions, and alignment withthe bank’s core commercial strategy are keyfactors for success/sustainability for banks inmicrofinance space.

Mr. Alok Prasad,Country Director- Microfinance, Citibank



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Key Highlights

• Leading Indian MFIs, both large and smallachieved highest growth rates of anymicrofinance market globally

• Projected client outreach would be anastounding 48.7 million by year 2012.

• Projected portfolio growth would be 6.3billion US dollars

• Commercial debt and managed portfoliosfuelled growth in lending among leadingIndian MFIs, leaving no capital cushion andcreating unparalleled leverage

• Capital requirement in 2012 would be Rs.243 billion out of which Rs. 221 billionwould be infused through debts and the restRs. 21 billion would be equity investment

• Faced with rising cost offunds and legal provisioning ofloan loss, leading profitableMFIs maintained slim profitskeeping low interest rate forclients

Legatum Capital mentioned thatthey are in the market withbasic capital for the last twodecades. They noted that MFIsmust design their products andservices, including pricing, to

better suit the emerging needs of the clients.

The Grameen Foundation and SKS noted that whileprofit maximisation has always been a coreobjective of any MFI, organisations must giveequal attention to social performance and clientlevel sustainability. MFIs should use their profitsfor the client level education, capacity building,including in small and micro enterprises.

SKS explained that one way to accomplish the profitmission might be to raise the interest rates, butwith equal emphasis on enhancing institutionalefficiency so that ultimately costs of operationare reduced. Maintenance of utmost transparencyis required to educate promoters of theorganisations.

Conclusions

• Graduation from micro credit to the wholerange of microfinance services – The forumstrongly felt that private and multi-nationalbanks should think beyond institutionallinkage and address individual needs ofmicro-savings and micro insurance facilitiesas well.

• Capital market product can be brought intothe mF sector.

• Corporate governance could be explored.

• Challenge is to attain 75-80% penetrationwithin next 35 years.

• Regulator role is to be redefined.

• Reduction in cost of operation througheconomies of scale.

Technical Session IV: Equity in Microfinance - do well, do good, or do both?

Resource Persons: Mr. Mark Stoleson, President,Legatum Capital, Mr. Vikram Akula, CEO, SKSMicrofinance, Ms. Caitlin Baron, Country Director,MSDF, Mr. Alex Counts, CEO, Grameen Foundation,Mr. Tor Gull, Managing Director, OIKO Credit andMr. Blaine Stephens, Director of Analysis, MIXMarket

Moderator: Mr. Vineet Rai, CEO, Aavishkaar

Mix Market made a graphical presentation toanalyse the changing portfolio structure andemerging trends in equity investment, with thefollowing findings for Indian MFIs:

From ( l to r) Mr. Mark Stoleson, President, Legatum, Mr. Alex Counts, CEO, Grameen Foundation and Mr. Blaine Stephens,Director of Analysis, MIX Market



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The microfinance sector in India is attractinggreat interest from institutional, private andsocial equity investors. It’s felt that there isan investment gap in the Indian microfinancescenario, which could be due to lack of fundscoming from local sources. Since foreigninvestors find the Indian rural economy fartoo opaque and complex, acquiring equitystakes in existing MFIs possibly makes sense.The sector is also evolving from beingpredominantly grant driven to a stage whereit is looking forward to attracting commercialcapital. MFIs have successfully usedcommercial debt fund and are increasinglylooking forward to access private equity.Equity capital is essential to strengthen MFIbalance-sheets to satisfy capital adequacy norm.Equity investment is also required to upgradeinformation systems, hire and retain talentedmanagement staff and broaden productofferings.

I think there’s no conflict in social missionand for-profit mission if we think from aholistic perspective. Long term profitmaximisation schemes can lead to economiesof scale which can effectively serve the needsof more poor people.

Mr. Vikram Akula, CEO, SKS Microfinance

(l) Mr. Vikram Akula, CEO, SKS Microfinance and (r) Mr. Tor Gull, Managing Director, OIKO Credit

Do’s

Pick your investorextremely carefully

Decide what kind ofinvestor you want

Be doubtful on all termsand conditions

Invest in professionalentity

Negotiate well beforesigning agreement

Pick investor who waits forlong term benefits

Dont’s

Avoid investorswho are interestedin short term profitmaximisation

Avoid investorswho are interestedonly in profit

Investing in for-profit MFIs at this key stageof the sector building offers a uniqueopportunity to work closely withmanagement teams to help develop thesector’s ability to maximise both financial andsocial returns. The introduction of marketdiscipline and competition will bring greatercompetition, efficiency, lower costs, bettergovernance and best practices.Mr. Mark Stolesen, President, Legatum Capital

Conclusion• Corporate governance is a win-win situation

for both the investors and investees.Goodgovernance ensures a high degree of trustin external stakeholders

• Institutionalisation ofindependent managementboard is emerging to ensurethe MFIs attain theirmission objectives

• Professional managementensures high degree ofefficiency and man-oeuvrability

• Do’s and Don’ts for MFIs



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Special Session: ’What’s Wrongwith Microfinance’ by Prof. Malcolm Harper

The presentation highlighted the good and badof microfinance. Microfinance has brought formalfinancial services to about 100 million households,covering about half a billion people. Though theservices are limited in scope, and of very lowquality, but are (usually) better than nothing. Itis growing fast, and sometimes getting better, butthere is a lot wrong with it!

For its clients, microfinancepromotes debt, not thrift andoften excludes the poorest. Itdoes the least for the poorestwhom it does include, and infact can seriously injure them.Its empowerment effects areshort-lived and it is tooexpensive except for pettytrade, and particularly forfarming. It forces clients intotime-consuming and oppressivegroups and offers un-remunerative, inflexible andunsafe savings facilities. It ismonopolised by women, who employ themselvesbut do not create jobs.

The MFIs are unclear and confused about theiraims and their need for subsidy and “crowd out”banks and community-owned institutions. Mostof the MFIs are not transparent, and fall foul ofpoliticians’ need to protect their constituents fromusury

In the economies where it operates, it runscontrary to development history, which starts withsavings, and then proceeds to consumption credit.In Bangladesh, it has created a donor and debt-dependent petty trading economy. In Bosnia, it

Microfinance Sector suffers everywhere fromexaggerated expectations.

Malcolm Harper, Professor Emeritus,Cranfield Institute of Management, UK

has de-industrialised the economy and destroyedsocial capital.

Its impact is poorly measured, and opinion is basedon heart-warming stories of success, not onrigorous assessments of reality. It is not the servicethat poor people need most; it creates unviableself-employment rather than jobs, and can crowdout livelihood assistance. It does not includehousing finance or small business finance, andcrowds out institutions which might do so.

Technical Session V: 15 Years of the SHGMovement : What Next?

Resource persons: Mr. Aloysius Fernandez,Executive Director, MYRADA, Mr. Narendra Nath,Program Director, PRADAN, Ms. Sudha Kothari,Chairperson, Chaitanya, Mr. C S Reddy, CEO, APMAS

Chair: Mr.Y C Nanda, former Chairman, NABARD


SHG movement has grown and among theprominent factors are, thousands of institutions

Malcom Harper, Professor Emeritus, Cranfield Institute of Management, UK

Faced with rising costs of funds and loanloss provisioning, leading profitable IndianMFIs maintained slim profits, keeping lowinterest rates for clients.

Mr. Blaine Stephens,Director of Analysis, MIX Market



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promoting SHGs, capacity building incorporatedin SHG promotion and facilitation, importance ofSHG-Bank Linkage programme, acceptance of rulesand regulations of SHGs and continuation ofprogrammes by state governments even aftermultilateral programmes came to a close. But weneed to take a close look at the programme now.

The next logical step for the SHGmovement is formation ofFederations; there are alreadynearly 70,000 Federations ofwhich around 12 can be calledas Apex. Federations canprovide economies of scale,reduced transaction costs,livelihoods promotion, while alsoplaying a useful role in linkagep r o g r a m mes . H o w e v e r ,sustainability remains animportant issue for federations,as they continue to depend ontheir promoter.

“To convince Bankers was not easy. Self HelpGroups are not primarily credit institutions,but are for management of savings andcredit – in this people gained confidence”.While the next logical step for SHGmovement appears to be federations, thereis need to realise limitations of SHGs andpragmatically assess what federations cando.

Mr. Y.C. Nanda, ex Chairman, NABARD

SHGs have weakened, why?1. Government driven – target approach by

NABARD, subsidies under programmessuch as SJSRY are not well managed

2. Government is utilising funds allocated forcapacity building for other purposes

3. Assessment of SHG performance startedlate

4. Subsidies by social class and casteaffect group homogeneity

5. SHGs increasingly being used as politicalcapital by politicians

6. Using SHGs for state programme – lastlinkage, exhausting the potential ofSHGs

7. Some bankers are yet to be convinced8. There are different interpretations of

SHG – organisation and structure9. SHGs cannot eradicate poverty, while

financial institutions drive on this oneaspect

10. Stress on numbers and not on quality11. SHGs breaking - to cater to requirement

of government programmes that providelarger loans and MFIs selectivelyproviding loans to some SHG members.

Mr. Aloysius Fernandez,Executive Director, MYRADA

Definitions of a federation“An association of autonomous bodies unitingfor common perceived benefits”“Federation is a network, association, andcoalition of primary organisations to collectivelyachieve what they cannot do alone”

“An association of primary organisations. Primaryorganisations may federate to realise economiesof scale or to gain strength as an interest group”

Mr. Aloysius Fernandez, Executive Director, MYRADA



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Regional Spread of SHG Federations as on September 2007

No. of SHG Federations

Region/State Primary Secondary Apex Total

A Northern Region 121 26 0 147

B North Eastern Region 122 10 0 132

C Eastern Region 5,745 107 0 5,852

D Central Region 487 334 0 821

E Western Region 663 1 0 664

F Southern Region 59,172 2,093 22 61,287

All India Total 66,310 2,571 22 68,903

Conclusion

There is a greater need to recognise that SHGs area separate institution of people power that enablesthem to overcome obstacles. Key policy initiativesthat support SHG-Federation model are the NABARDcircular of 17 September 2007 and the 11th Plandocument. In order to ensure sustainability ofSHGs (and Federations), there is a need to focuson three aspects – governance (better control),credit linkage and promotion of second tierinstitutions that are people owned. The incomeenhancement potential of SHGs and federationsshould be explored.

Highlights

• Weak SHGs and unsustainable federationscontinue to be an issue

• States should provide demand based schemesfor federations

• No thorough studies on SHG movement

Technical Session VI: Livelihood Finance -Challenges and Opportunities

Resource Persons: Dr. Sankar Datta, Dean,Livelihood School, Mr. Damodar Mall, CEO,Innovation & Incubation, Future Group, Mr. JawharSircar, DC, MSME, Mr. Biswajit Sen, Consultant,World Bank, Mr. M K Khanna, Member, PlanningCommission, Govt of India

Chair: Dr. Nachiket Mor, Deputy Managing Director,ICICI Bank

With the growth of microfinance, many clientsare increasingly demanding a morecomprehensive package of livelihood services.As a response to this demand, some MFIs haveattempted to partly integrate the livelihoodservices with their on-going microfinanceprogramme; however, these efforts have notbeen given priority compared to their lendingactivities. Identifying various livelihoodopportunities in a planned manner, providingbusiness development services for the clients,and financing the livelihood programmes hasbeen done in a very limited way. Thus, there isa gross mismatch between the supply anddemand side of livelihoods services in the sector.

The session was devoted for deliberating on variouschallenges and opportunities of livelihoodsfinance.

Key Highlights

• While microfinance has been able to enhancethe household income of the poor to someextent, it has had very limited impacts ontheir overall livelihoods. This is mainlybecause the poor often live in areascharacterised by a lack of infrastructure andinvestment opportunities, and poor accessto market and market information. Inaddition, the poor often have no marketableskills. Microfinance, with its thrust onfinancial services, has not been able toaddress these problems significantly.



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• Therefore a separate set of interventions isrequired to create lasting impact on the lifeand livelihoods of the poor. Fortunately theenvironment too is changing to suitlivelihood financing. For example, a host ofprivate investors are investing ininfrastructure building in the rural areas,corporate houses are facilitating forward andbackward linkages, and local levelinstitutions like the Panchayats areengaging themselves with a wide range oflivelihood activities. Microfinance is apowerful tool that can guide the clients totake maximum advantage of the changingscenario.

• The Planning Commission informed theconference about the Government of India’s’Bharat Nirman Programme’. The programmehas substantial resources for building roads,community centers, market places, tele-connectivity etc. Capacity buildingprogrammes like training, exposures, skillupgradation etc can also be undertakenthrough the financial assistance of thisprogramme. MFIs and promoting institutionswere invited to work closely with thegovernment for creating sustainablelivelihoods opportunities for the poor.

• Future Group talked about the positiveexperiences that the company gathered increating various livelihood opportunities forthe urban poor dwelling in slums andoutskirts of the cities. The importance ofconducting market research, designing the

products to suit the demand, orienting theproducers with an emphasis on quality, anddeveloping tie-ups with the supply chainsto market the finished products wereemphasised. Future Group offered it’stechnical as well as marketing support tohelp MFIs re-design their programmes tofocus on livelihoods.

• Development Commissioner, MSME advisedMFIs to adopt the cluster developmentapproach with a well-knit BDS in theirlivelihood interventions, stressing theimportance of sustainability.

• Citing some of the positive impacts createdby the World Bank supported projects in MP,AP and other parts of the country, the MFIfraternity was encouraged to give equalimportance to building and sustainingvarious livelihood opportunities for theirrespective clientele.

All the stakeholders were complimented on thegrowth of the sector and urged to make organisedefforts for strengthening the livelihoods of the

poor. MFIs were encouraged tocome up with viable proposalsso that Banks would approvethem because credit alwaysfollows good proposals ratherthan proposals running aftercredit. Emphasis was given onthe institutional building of thepoor and effective deliverymechanism at the ground level.

(l) Dr. Nachiket Mor, Deputy Managing Director, ICICI Bank and (r ) Mr. M K Khanna, Member, PlanningCommission, Govt. of India

As no substantial investment has been madeto enhance the capability of the poor withregard to their livelihoods, this is high timethat institutional investments are made onthem. Microfinance as a powerful tool can takeinitiatives and show path on that.

Dr. Sankar Datta, Dean, Livelihood School



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Social impact is integral to the microfinancemovement. There is a need to create synergiesto promote economic activities for the urbanpoor. In terms of outreach of microfinance,the poor and very poor are still largely leftout. Provision of savings is important to bringthis category into the microfinance fold.

Technical Session VII: Impact & SocialPerformance

Resource persons: Mr. R M Nair, GM, SIDBI, Ms.Jayeshree Vyas, MD, Sewa Bank, Dr. SmitaPremchandar, Founder, Sampark, Ms. Frances Sinha,ED, EDA Rural System, Ms. Usha Padhi, Director,Mission Shakti, Government of Orissa

Chair: Ms. Kate McKee, Senior Advisor, CGAP

Given the opportunities and support systemsavailable for livelihood finance fromGovernment, Banks, Donors and othersupporting agencies, the MFIs & PACs musttake up the challenges of building an effectivedelivery channel at ground level to reach thebenefits to the poor.

Dr. Nachiket Mor,Deputy Managing Director, ICICI Bank

Way Forward

• Graduation from Microfinance to LivelihoodFinance - In response to the increasingdemand for livelihoods services by the clients,all the stakeholders involved in promotingmicrofinance should make collective effortsto design livelihood interventions for thepoor.

• Institutional building for sustainablelivelihoods - The poor are often fragmentedand dispersed and, hence, fail to negotiatewith the market forces. Aggregating them ingroups and building their own institutionslike PACs, Cooperatives, Federations etc willbring not only greater solidarity among thembut also enhance their bargaining power.

• Getting markets closer to the poor -Markets and market related information playa key role in any livelihood intervention, butunfortunately the poor have hardly anythingto offer in terms of quality products, scale,or durability that will attract markets. Thus,they never experience the benefits of themainstream markets. In view of that, thepromoting institutions should prepare,aggregate and educate the poor on marketdemand and provide them with inputs toproduce quality products with scales so thatmarket comes down to the poor.

• Coordination of efforts and resources - Allstakeholders should coordinate their effortsso as to ensure better impact andsustainability.

Key Highlights

SIDBI is engaged in a long term impact assessmentstudy, that clearly reveals the need to improveoutreach to the poor and very poor. To maximisesocial impact for this category of clients, savingsis regarded as an important product. To increasesocial impact there is also a need to constitute“multi disciplinary team”, such engagement canhappen in projects like the National RuralEmployment Programme.

There are also negative impacts of microfinance–indebtedness (where women’s burden increases)and humiliation in case of non repayment of loans.Various platforms like “Solutions Exchange” canbe used where MFIs/NGOs can register and forwardcase studies that help understand microfinanceimpact better. There is sometimes confusion onattribution of impact -”which brick did I donate?”(the donor dilemma).

The presentation of EDA Rural Systems includedpertinent and quick-fix aspects to enhance socialimpact. It was stressed that social performance isa management aspect that includes generatinguseful and practical data, adopting Sa-Dhan’s codeof conduct for MFIs, mission clarity on targetgroup and poverty definition, and undertakingsocial reporting together with financial reporting.

Thinking about social impact will begin with our



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concern and efforts in the following directions –employment, improving working conditions,building assets, housing, child care, health care,nutrition, leadership and children’s education. Thekey aspect would be how much the microfinanceinstitution can take up and where multidisciplinaryaction teams are required.

• Low on outreach to the poor and very poor• In terms of social impact we need to get

“chak de results”• Social Performance Assessment rating by EDA

Rural Systems reveal that average 30% ofnew clients are below poverty line, howeverthis ranges from lowest 13% to maximum68%

Breakaway sessions VIII: Missing servicesand products

Session VIII a: Social Security - MicroInsurance, Pensions

Resource persons: Mr. Marc Socquet, SeniorSpecialist in Social Security, ILO,Mr. Francois Xavier Hay,Consultant to GTZ, Mr. AnilMehta, Director, GroupBusiness, Max New York LifeInsurance Co. Ltd, Mr. GautamBhardwaj, Director, Invest IndiaEconomic Foundation

Chair: Ms. Vijaylaxmi Das, CEO,FWWB

Clients, particularly the 'poor', are increas-ingly resorting to loans from MFIs due to theiravailability at the doorstep, less cumbersomeprocedures, timely and easy processing andconvenient repayment terms.

Mr. R. M. Nair, Deputy General Manager, SIDBI

Conclusion

Lead studies reveal low outreach of microfinanceto the poor and very poor, who require specialtargeting and provision of flexible savings services.“Women SHGs cannot be panacea for all problems,but do help in poverty alleviation”. There is a needto have multi disciplinary teams by bringing incivil society-government programme coordination.Social impact enhancement needs specific measuresthat have to be proactively undertaken bymicrofinance practitioners and other stakeholders.There is a need to stress on social reporting alongwith financial reporting.

Highlights

• Social impact is integral to microfinancemovement

Mr. N K Maini, CGM, SIDBI

When we speak on social security, the mostimportant products that are missing are re-lated to medical care and maternity benefits.Social security benefit is a universal humanright propound.


Diversity is a feature of the Indian ethos and thisis reflected also in terms of social security orinsurance provision. In India, the Social AssistancePrograms for BPL households are operated undergovernment guidelines and the micro-insuranceprogrammes for the unorganised sector follow IRDA(regulatory authority). While both the programmestarget different sets of clients, they depend onthe same service providers. There is a doubt aboutsocial concern and objectives of the insuranceservice providers.



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The session discussions raised some concerns overrole of government and public policy per se insocial security provision. It was illustrated thatthe pension bill for Government of India is Rs.100,000 crore annually, and mechanisms can bedevised to make social security provision whenpeople are young. MFIs can play a role in collectingsmall amounts for retirement and they can be aground for mean test. It was felt that themicrofinance sector can work jointly with thegovernment.

Max New York Life Insurance Co. Ltd., highlightedthe role of public policy. It was insisted that thereis a need to have more insurance products thatcater to health needs in a holistic way and alsoneed to create infrastructure such as publichospitals. Dissemination of right to informationis important for creating awareness and enhancingaccess, and all goods should be driven by publicpolicy.

An important challenge in broad-basingsocial security arrangements to the MFIs andcooperatives who reach millions of lowincome workers across the country has beenthe heterogeneous IT and administrativecapacities of these MFIs and cooperatives.

Mr. Gautam Bhardwaj,Director, India Invest Economic Foundation

Conclusion

Both public and private sectors combined, thereare 22 players, the missing link is the rules of thegame. India is trying hard to offer social securityto its citizens, and the panel felt that this wasgood compared to several other countries that haveyet to think about it. There is need for public andprivate partnership.

Highlights

• 0.5% of GDP allocated to social securityprogrammes

• India will find a solution to its diversity

Session VIII b: Remittance & Money Transfer

Resource Persons: Mr. Gopinath, Director, PostalStaff College India, Mr. Kartik Mehta, Head-Microfinance, DCB, Mr. Rajiv Khandelwal, CEO,Aajeevika Bureau

Chair: Mr. Sitaram Rao, Former CEO, SKS Microfinance

Social Security Mechanisms

Mr. Anil Mehta, Director, Group Business, Max New York Life Insurance Co. Ltd With growing migration of the rural poor tourban centres, as well as the continuedmigration in search of employment to other ruralareas, the poor are in need of remittanceservices through which to send money back totheir families in the villages. While there havebeen some formal means available, like thegovernment's postal money order facility, thegap in the supply of these services is beingexplored by microfinance institutions, some ofwhom have designed innovative remittanceproducts for their clients.



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The session started with a deliberation onremittances and money transfer with anintroductory note. While DCB shared its experienceson remittances, Director, Postal staff College Indiatalked about the wider postal network and theirfacilities for money transfer. The CEO of AajeevikaBureau shared his organisational learning in theremittance process.

the poor in collaboration with NABARD, inwhich SHGs and microfinance institutions areinvolved to ensure easy and safe remittances.Insurance services are also being clubbed withremittance to meet the unforeseen risks.

• Remittance - an innovative and costeffective means - Despite the large-scalepresence of postal facilities, many of the

migrant labours who work in theinterior parts of the projects are notable to avail them. In order to helpthem in this regard, microfinanceinstitutions have opened their fieldoffices right at the project sites; theyfacilitate regular savings and remitthe deposits to the respective villageswithin a short span of 2-3 days. Themechanism helps save the time andwages on the part of migrant labour,and allows them to send money totheir family members in a safe andinexpensive manner.

• Involvement of Banks and otherstakeholders - Rendering effective remittanceservices for the poor migrants demands theinvolvement of all stakeholders in the process.As it involves transactions of cash, banks'association is quite inevitable. Use of newtechnologies in the process call for inputsfrom the IT professionals and softwarecompanies. Experiences like Adhikar in Orissa,Aajeevika Bureau of Rajasthan and on-goingprogrammes in other locations substantiatethe fact that remittance is a collective effort.

• Remittance is not a stand-alone service - Itwas also felt that to make remittance asuccessful initiative, other related programmesmust be undertaken simultaneously like healtheducation, insurance coverage, bankingservices, technical inputs of IT personnel andBDS for the family members of the migrantlabours.

• Issues & Challenges Encountered - Being arelatively recent development, remittance asa service is not yet organised or very well testedin the sector for replication and scaling up.Clients' education on the benefits of the

Mr. Sitaram Rao, former CEO, SKS Microfinance

Key Highlights

• Distressed migration among poor - As arough estimate, more than 20 million poorpeople migrate every year in search ofemployment opportunities. States like Orissa,Rajasthan, and Bihar experience large-scalemigration to Maharashtra, Gujarat, Punjab etc.A few alternatives available to send their moneyare the post offices, banks, friends andrelatives, informal private agencies. However,the access, convenience, timing, cost and riskfactors involved make the situation morecomplex.

• Indian Postal system offers the largestnetwork - The department of posts andtelegraphs offers the largest network facilityin the country for money transfer from oneplace to another. With nearly 155,699 postoffices (>89% in rural areas) with doorstepdelivery mechanism, it provides an easy andinexpensive money order facility for thegeneral public. It manages more than 96million money orders in a year. In addition,the Indian Postal Department has initiated apilot project in Tamil Nadu on remittances for



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• Use of New technology - In view of thedispersed geographical coverage and hugedemand for the service, use of technologicalinputs is strongly felt for better monitoringand management of the programmes.

Session VIII c: 'New' rural housing

Resource Persons: Mr. Ashish Karamchandani, CEO,Monitor India, Mr. Brahmanand Hegde, Head ofRural Operations, Fullerton India, Ms. RadhikaHaribhakti, Director, DSP Merrill Lynch, Mr. ArjunMurlidharan, CEO, Grama Vidiyal and Mr. HarshaMoily, CEO, Moksha-yug

Chair: Mr. R B Verma, Executive Director, NationalHousing Bank

There is a clear demand but no supply chain tocater to these needs of the masses, though thepeople are ready to pay for the services.

services and their responsibilities in theprocess is also inadequate at the moment. Newtechnologies are also needed. In addition,the availability of the services at present stilldoes not meet the demand.

Summarising the discussions, the chair of thesession provided his key observations. In view ofthe growing migration of the poor, all thestakeholders and especially MFIs were urged togive equal importance to remittance services,especially since it is a self-sustainable service.Highlighting the huge demand for the services,he called for a collective and concerted effort byall in the sector to enhance the supply side.

Year Transactions Payout Amount(Rs. Million)

2004-05 345,398 9,8802005-06 898,003 15,6602006-07 2,140,241 37,440

The basic objective of the session was to lookat the issues, opportunities and challenges forthe role of finance in rural housing and with itthe emotional, social and economic issues thatsurround the masses. It also discussed theimportance of locating sustainable and replicablerural housing models. And finally, whether MFIsare the right organisations to address the issueof rural housing.

With its largest postal network in the country,the Department of Posts & Telegraphs, Indiaoffers one of the safest, economic and qualityremittance services for both domestic as well asinternational customers and the poor can alsomake use of that.

Mr. Gopinath,Director, Postal Staff College India

Way Forward

• Effective coordination among thestakeholders - Remittance cannot succeedas a stand-alone service and an effectivecoordination among different players in theplanning process and delivery mechanism isrequired.

Key Highlights

• Quality of Rural Finance - Large demand butvery little credit from the sector, thus thechallenge would be to gauge the need of thepeople, which depends on the earnings andthe livelihoods variance. Since people needfinance for house repair and do spend a lot onit, there is scope for private players to make adent. In the context of the above, somequestions crop up:

- Is there a sizeable opportunity today?- Are MFIs the right kind of organisation

to address the issue?- If yes, then in what way would they

have to engage themselves?

We all are migrants in one - way or another.But when the poor migrate to far off places insearch of employment opportunities theyencounter multiple problems and lack ofremittance service is a key constraint amongthem.

Mr. Sitaram Rao,Former CEO, SKS Microfinance



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What Inhibits the FFIs

- Non performing loans are high- Banks are diversified in lot of other sectors- In rural areas, other infrastructure

development is given high priority- Micro housing finance has its relevance in

both mF and mortgage finance, thus it canbe called micro mortgage plan

The Dichotomy

- Housing needs come where there is a surplusin the household

- So, is this going to be acceptable to themasses? Can it be mass marketed? Can it be aprofitable venture?

- The opportunities are colossal but thesystems, products and processes need to bevery well defined and structured.

- Thus the crux of the challenge is to designappropriate products and processes

- If it has to be successful then the banks needto come in between the supply and demandand should not only restrict themselves inthe area of providing loans. Thus there hasto be a partnership and role demarcationbetween banks and MFIs and there has to berisk sharing between both the parties

- Lastly MFIs are good in networking but theyhave to re-orient themselves business-wise

- The larger MFIs can do it but the smaller onesmay not

Conclusion

MFIs that want to enter housing finance shouldget engaged but by doing the following:

• Graduating from group loan to individual loan• Experimenting with mid term loan ticket• Integrate systems to adhere to the new

business vertical• Establish risk mitigation strategies• Should start with a pilot• The MFIs can think of taking mortgage when

giving housing loan• Forming partnership between MFIs and banks• Group housing should be tried out with

partnership, which would be ideal. For examplefinancial institutions would provide finance,construction company would construct thehouse and MFIs would complement thepartnership and do monitoring of loan andconstruction and the risk would be lowered inthe process

Session VIII d: Technology in Microfinance -Past, Present and Future

Resource persons: Dr. Pawan Bakshi, Head,M-Commerce, Bharti-Airtel, Mr. Mathew Titus,Executive Director, Sa-Dhan, Mr. Maneesh Khera,CEO, FINO, Mr. C V Prakash, CEO, Gradatim

Chair: Mr. Wim Van Dar Bek, Partner, AavishkaarGoodwell

Main Body

The panel discussed possibilities of an E-LearningPlatform for remote learning to fill the gap that

A huge potential opportunity exists for banks/MFIs to provide housing loans to householdswith monthly income between Rs. 4,000-Rs.6,500. The need is high as many live in poorquality housing and they can afford loans ofRs. 50-80,000 with 5-7 year tenures. Thissegment will consist of 15 million householdsliving in "semi pucca" / "kucha" houses and16M households living in "pucca" housing,some of these would also like to upgrade.

Mr. Ashish Karamchandani,CEO, Monitor India

Issues & Challenges Encountered

- We need to build capabilities on the supplyside so that the institutions, who will besupplying the services, will get strengthened.

- The opportunities are huge but complex- The disadvantage of MFIs in the housing

context is the loan size being handled bythem; there are issues of capital structureand operational structure

- The housing business is complicated. MFIsare in the right position but they have toupgrade and change themselves in the areasof their structural change aspect



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to decide what technology to use and whichinterface. Secondly, there is the impact on costs,as the cost of operations shoot up by Rs. 60-70per SHG per transaction by using mobiletechnology. Right now mobile technology is usingairtime, but more suitable and cost effective planscan be devised for microfinance. Such plans wouldreduce costs while accelerating operations andoutreach. The third challenge is data ownership,the panelists suggested that there is a need toput up a repository of the data, but MFI's cannotown the data, because the privacy of customersmust be respected. The credit bureau, which isallowed to scan all the transactions by law, is agood model for the sector.

has arisen from the non availability of trainers.Remote learning can be used to deliver basic coursematerial, success stories and best practices. Thepanel members stressed that there is a need toshare credit information by creating an effectiveclient information exchange. The IT frameworkwould allow MFIs and other stakeholders to interactaccording to standard protocols and code sets.There is a need of engagement of all thestakeholders, employees, regulators and investors.FINO discussed a few hurdles in microfinance, suchas the information gap, the lack of use of KYCdata to have a foolproof identity, illiteratepopulace, lack of infrastructure, accessibility andreach. Offline solutions are already there, but onlinesolution is the next step to follow. Use of ISOtemplate cards is one option.

Airtel described the benefits of using smart phonesin the microfinance sector. These devices aremobile phones that can also be used to send data.Smart phones can be used at the point of sale, inorder to facilitate enrolment and provide doorstepservice to a larger number of people at a lowercost. Mobile phones can also be used as a BiometricAuthentication Tool to provide security and safetyto microfinance operations and can be used as atool to authorise financial transaction bycustomers.

Three main challenges were identified by thepanelists. The first is the problem of arriving at acommon technology standard. The sector needs

Conclusion

A few impediments in microfinance, such as theinformation gap, lack of use of KYC data, illiteratepopulace, lack of infrastructure and accessibilityand reach should be tackled. There is a need todevelop an IT platform where knowledge can beshared with all the stakeholders. A level ofstandardisation is required to achieve a low costIT enabled service. Mobile service providers shouldbe willing to evolve a technology for microfinanceoperations to cut high costs that are currentlyincurred due to the usage of current technologysuited for airtime.

Highlights

• The remote nature of microfinance operationsmeans that operations could become far moreefficient by using smart phones as a means tocollect data at the point of sale

India is one of the fastest-growing mobile phonemarkets in the world, adding 7 million newsubscribers a month. It is expected that we willcross 450 Million subscribers by 2010 but thereare a large number of different mobile phonedevices and it is a big challenge for MFIs/banksto offer mobile banking solution on any type ofdevice.

Mr. Pawan Bakshi,General Manager, M-commerce, Bharti Airtel

Role of technology in the microfinance sectoris large; the sector needs to understand itscurrent uses and ascertain areas oftechnological advancements. The use ofsoftware has brought increased efficiency inthe sector but still holds more potential forimprovement, for this standardisation insystems and processes is required. Usage ofsmart phones has just begun, but it still isnot a very cost effective mode as mobiletechnology is built around the business ofairtime. Biometric technology has cut a lot ofcredit risk, but it still is not very widely used.



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• Number of uncovered population andunderserved poor very large

• Slow spread of microfinance

Why we have to coordinate

• Wide variations in inter district coverage• Uncoordinated efforts - producing partial

impact• Limited response from banking sector• Huge unmet demand• Demand not estimated

Why there are positive factors

• A large untapped market• Low competition• Presence of institutions and service providers• Government committed to reduce poverty• Several projects for poverty reduction - DPIP,

MPRLP etc with strong microfinancecomponent

• Large national players too focusing on MP

Backdrop

• Hardly 30 SHGs linked per rural bank branch• 11 districts have less than 500 groups linked

and another 13 have less than 1,000• More than 2 lakh groups still unlinked, no

coordination between group promoters andbanks

• MFIs at a very nascent stage• Need to make right beginning to get good

results

The vision plan 2012 aims to include everyoneout of 4.26 million people in MP who areinstitutionally excluded. Long term impact offinancial inclusion would be impacting on povertythat would decrease from 37.4% to 32% in 2012.

The key strategies would be:

1. Create a conducive mF environment2. Raise the profile of mF and MFIs3. Integrate livelihoods with microfinance4. Welcome all partners by creating level playing

field and allocating role for each of thestakeholders

If the above is to be addressed then the efforts ofgovernment and financial institutions have to be

• There are concerns about the costs of usingtechnology on the field, however, leadingtechnology providers show a willingness toadapt their plans to make their services moreaffordable

• There are ethical concerns about what to dowith data that is collected, but there areexisting models that can be used which arenot invasive to people's privacy

Technical Session IX: Addressing theRegional Skew

Resource persons: Ms. Vasundhra Raje, Hon'bleChief Minister of Rajasthan, Mr. Som Pal Shastri,Vice Chairman, State Planning Board of MP,Ms. Nirmala Buch, Chairperson, Mahila ChetnaManch, Mr. V S Vyas, Director, Institute ofDevelopment Studies Jaipur

Chair: Dr. C Rangarajan, Chairman, EconomicAdvisory Council to Prime Minister of India

The session addressed the issues of the need for ashared long term vision for mF in the underservedstates, which would provide a comprehensiveperspective and enable the government and otherstakeholders to facilitate a systematic growth ofthe sector and provide all those involved with aroad map to follow to achieve a commondevelopment agenda. The main focus of thedeliberations was why there are imbalances infinancial inclusion; for example, Orissa has BPLpercentage of 47% as compared to nationalaverage of 27%, while the financial inclusion ratein Orissa is as low as 18%.

The session started with a presentation depictingmicrofinance vision for Madhya Pradesh by Vice-Chairman, State Planning Board, Government ofMP. The presentation discussed the positives thatthe State possesses in terms of microfinanceexpansion and inclusion of the marginalised. Thefollowing are the highlights:

Why we have to move fast

• Reduction of poverty levels visible but paceis slow

• Third poorest state in the country



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• Pointing out the regionalskew, she mentioned that 80 %of the groups formed areconcentrated in 30% districts,mostly in eastern part ofRajasthan. There is an urgentneed for expansion in otherdistricts

• SHGs can play an importantrole in mitigating socio-culturalimbalance and economicempowerment of the femalemembers leading to overalldevelopment of the state andthat of the country, because85% of SHG members are from

SC/ST and OBC category. Also 50% of themembers belong to BPL category. Socialawareness by SHGs has positive impact inimproving the IMR and MMR rate. InRajasthan IMR is 65 per thousand and MMRis 45 per thousand.

• One startling observation is that in spite ofnatural calamity like drought, when there areseveral drought prone districts in the state,it has faced only few cases of farmer suicide.Acceptability of animal husbandry as mainlivelihood rather than agri- based livelihoodsprovides cushion in tough times andresilience to external shocks

fully coordinated and should aim at totalintegration of government programme andinstitutional credit support, ultimately providingfull coverage to the poor.

Ms. Vasundhara Raje, Hon’ble Chief Minister of Rajasthan

Future plan and strategy

Key highlights for clear cut vision with regards tooutreach and impact of mF in the state are asfollows:

• 6,000 village facilitation centers to be handedover to women

The vision for 2012 for the state of MadhyaPradesh is "Ten million predominantly poorclients being served by a vibrant andsustainable microfinance sector in the stateby the year 2012, achieving the goals offinancial inclusion, improving access to financefor poor families and thereby opening livelihoodopportunities supported by necessary linkagesand capacity building".

Mr. Som Pal Shastri,Vice Chairman, State Planning Board, MP

Thereafter Hon'ble Chief Minister of Rajasthan,explained the situation in her state and alsodiscussed the needed actions to address the issuesof inclusion and development.

The following are the key highlights of her addressto the target audience:

• SHG bank linkage programme - state standingis 8th. State should iron out a strategicguideline for the road ahead

• Credit linked to an extent of Rs. 370 croreunder SHG bank linkage programme. There isstill unmet demand of SHGs formed; in factthere are 5.5 crore people who still need creditand other financial support

The challenges we face as far as coverage ofmicrofinance services is concerned are thepaucity of information that is going out, verylow financial literacy at grass roots and lackof skilled facilitators who can go out to peopleand make them join the movement.

Ms. Vasundhara Raje,Hon’ble Chief Minister of Rajasthan



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the credibility and setting examples of badpractices

• Without building capacity of the sector,infusion of money will paralyse the sector ashas happened in Government programmes inthe past

• Coordination and monitoring by Governmentagencies is strictly not acceptable

Some kind of institutional mechanism is suggestedthat would be autonomous and would take care ofthe above and the microfinance sector in the stateof MP and would take care of inclusive growthwith distinction and not by isolating it from thewhole.

Valedictory Session

Resource persons: Mr. Brij Mohan, Chairman, ACCESSDevelopment Services, Mr. N K Maini, CGM, SIDBI,Malcolm Harper, Professor Emeritus, CranfieldInstitute of Management, UK

Chair: Dr. C Rangarajan, Chairman, EconomicAdvisory Council to Prime Minister of India

The session captured the key highlights of theconference and lessons learnt. The eminent paneldiscussed what needs to be done in the ensuingyear. The conference was declared as a grandsuccess, with a renewed commitment to organisethe next Microfinance India Conference and to

• State level institute of SHGs, which would beone stop solutions for SHGs in the State

• Since civil society and banks are doing SHGpromotion, government should shift its rolefrom promoter to facilitator

• Training and capacity building areas are ahuge challenge, so, inter-departmentalsynergy to be promoted for holisticdevelopment of SHGs

• Goods produced by SHG are exempted fromsales tax

Convergence is required between majorstakeholders: NGO, Government, Banks, and basedon the above the strategy for growth would be asfollows:

• Quality groups to be promoted rather thanconcentrating only on quantity

• Groups promoted by NGOs to be fostered andnurtured strongly

• Credit should be affordable and effectivedelivery mechanism is to be designed fordownscaling services

• Micro credit is not for consumption but toimprove livelihoods of the individuals becauseit provides command on community resources

The comments on the microfinance vision plan ofMP recommended a vision for inclusive growth tobe adopted, because expansionwithout inclusion would notimprove things. Other pointsmade are:

• In the vision documentsocial, cultural andpolitical history of MP hasbeen overlooked which is ofparamount importance,because it distinguishesthe state perspectives fromother states wheremicrofinance culture isstrong

• Borrowers’ perspective isoverlooked in the state asmoney is pumped into theclusters without verifying

(l to r) Mr. V S Vyas, Chairman, Institute of Development Studies, Jaipur, Ms. Vasundhara Raje, Hon’ble ChiefMinister of Rajasthan, Mr. Vipin Sharma, CEO, Access Development Services, Dr. C Rangarajan, Chairman, EconomicAdvisory Council to Prime Minister of India, Mr. Som Pal Shastri, Vice Chairman, State Panning Board of MPand Ms. Nirmala Buch, Chairperson, Mahila Chetna Manch



34

There should be no conflictbetween social agenda andmicrofinance model and thereshould be no mission drift.Targeting equity investments,SIDBI has planned to reach 50more MFIs in the next year andadd to the current partnershipof 100 MFIs. There is also a needto address the regional skewwith aggregation of smallfarmers to gain a substantialvolume and provide the rawmaterial to companies likePepsiCo and Reliance Fresh.

Apex development financeinstitutions such as SIDBI

should focus on technology solutions formicrofinance. ACCESS Development Services wouldfocus on strengthening intermediaries, initiateregular studies that cut across methodologies andcarry forward the conference agenda of financialinclusion to inclusive growth.Two initiatives that will bring about a significant

surge forward of the micro finance sector willbe the growth of the bank-SHG linkageprogramme and the induction of individuals asbusiness correspondents. These will constitutethe main pillars of the future development ofbank related microfinance, even as other formsof microfinance institutions will continue togrow.

Dr. C. Rangarajan,Chairman, Economic Advisory Council

to the Prime Minister

Based on conference deliberations, weshould expect the following improvementsby 20081. The Bill should be improved in scope,

clarified and completed2. Business correspondent should take off as

expected3. Mechanisms to improve the quality of the

SHGs4. Improvement in measuring both the

bottom lines5. Livelihood promotion should be the major

agenda6. SHG movement and MFI movement should

move to cover the urban poor

Malcolm Harper, Professor Emeritus,Cranfield Institute of Management, UK

include new challenging topics such as LivelihoodsFinance. It was declared that next year theconference would be of three days and the thirdday would be entirely dedicated to Livelihoods.


Dr. C Rangarajan reiterated his faith in the Indianbanking system to accept the challenges offinancial inclusion, with nodal branches to takethis up on a priority and rural branches to gobeyond provision of credit. The microfinancelegislations and Business Correspondent Modelwould facilitate the efforts of banking sector. Themicrofinance NBFCs, 80% of whose assets are inprovision of micro-credit should fall in line withthe Microfinance Bill. Plurality of institutions isa fact to stay and hence "all legal forms should beencouraged".

Conclusion

Challenge is to have financial inclusion with aninclusive growth. The banking sector can play alead and proactive role in ensuring financialinclusion through SHG - Bank Linkage Programme

(l to r) Dr. C Rangarajan, Chairman, Economic Advisory Council to Prime Minister of India, Mr. Brij Mohan, Chairman,ACCESS Development Services and Mr. Som Pal Shastri, Vice Chairman, State Panning Board of MP



35

Other co-events:

Investment Fair: An added feature this year wasthe organising of a first of its kind "MicrofinanceInvestment Fair" in which ACCESS attempted to

and Business Correspondentmodel. There is a need for thecommercial banks to be moreconsiderate towards farmers. TheMicrofinance Bill should be ableto create an enablingenvironment for all themicrofinance service providers.SHG quality must improve, andall stakeholders need to worktowards it. Use of technologywould be a major driving forcein the future as it would reducecost, and there is a need to comeon a common platform for that.In livelihood activities, focusshould be given to have inclusive value chains.Urban poverty needs to be recognised and stepsshould be taken by the sector to reduce it.

Highlights

The Microfinance India Conference keeps addingdynamic features every year - this year onwardstwo underserved regions/states would receivespecial focus for a year (currently Rajasthan andMadhya Pradesh) and next year the very new andchallenging field of Livelihood Finance would beopen for exploration, debates and as a logical stepahead to microfinance provision.

bring together leading private and social equityinvestors from across the world and potentialmicrofinance institutions seeking debt and equityfunds for growth and transformation. Over 22investors and 59 investees participated in theInvestment Fair. This initiative was largelyorganised as a response to a growing trend inprivate and social investor's interest inmicrofinance sector in India. During the year, twoof the largest global investments in microfinancewere made in India. To make the initiativemeaningful, ACCESS, in collaboration with CARE,Grameen Foundation and Intellecap organisedinvestment readiness training for 59 emerging MFI'sand helped to develop their pitch-books andbusiness plans for possible negotiations with theinvited investors. MIX Market was the TechnicalAdvisor to the Investment Fair, which was verywell received by the Sector.

Knowledge Fair: Another feature of themicrofinance India conference was setting up of

Knowledge Fair during theperiod of the conference. 25national and internationalstakeholders put up theirbooths to share and disseminatetheir experiences among thedelegates attending theconference. Participants whoset up booths in the KnowledgeFair included banks, technologysolutions providers, technical



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Conference Reporting Team

Abhishek AnandKaushik GuptaMeenal Patole

Narendra Nayak

services companies andseveral internationalagencies linked tomicrofinance.

ACCESS MicrofinanceAlliance Launch:Mr. Rakesh Rewari, DeputyManaging Director, SIDBI,officially launched theACCESS MicrofinanceAlliance (AmFA) on thesecond day of theconference. Alliance hasattracted 110 MFIs acrossthe country with anaggregated outreach ofover 2.2 million clients and a current aggregateportfolio of Rs 78 billion.

It has been established as a strategic initiative tobring together microfinance institutions as acollective. The main objective of the AmFA is toaddress key issues of the institutions committedto the sector and help them in enhancingoperations in order to assist the poor in accessingmicrofinance services. It will focus on the followingkey agenda points:1. Provide structured training programmes

2. Facilitate funding support through mainstreamfinancial institutions and the LivelihoodsInnovation and Investment Fund (LIIF)

3. Create discussion forums among partners andother important stakeholders like banks anddevelopment institutions to address theemerging challenges and issues of microfinanceinstitutions in the sector

4. Build information relating to the sectorthrough website, newsletters and othercommunication

5. Enhance public reporting by microfinanceinstitutions

(l) Mr. Rakesh Rewari, Deputy Managing Director, SIDBI and (r) Mr. Vipin Sharma, CEO, ACCESSDevelopment Services

“formal financial institutions and microfinance - the...

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