Description
Financial inclusion or inclusive financing is the delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of society, in contrast to financial exclusion where those services are not available or affordable.
Working Paper No.113/2011
Financial Inclusion, Empowerment and Poverty Alleviation: An Alternative State-led Microfinance and Microenterprise Model of Kudumbashree in India
Deepika M G Sigi M D
Amrita School of Business Amrita Vishwa Vidyapeetham, University Amritanagar, Ettimadai Coimbatore - 641 112 Tamil Nadu, India November 2011
The main objective of the Working Paper series of Amrita School of Business is to help faculty members, research sta?, doctoral and MBA students to speedily share their research ?ndings with professional colleagues and to test out their research ?ndings at the pre-publication stage.
The views expressed are entirely those of the author/s and do not in any way reflect the views of the institutions with which they are associated.
Copyright © Amrita School of Business Amrita Vishwa Vidyapeetham, University Amritanagar, Ettimadai Coimbatore - 641 112 Tamil Nadu, India Telephone: +91-422-268 5000, Extn. 5430 Fax:+91(422)2656 274 Email: [email protected] website:http://amrita.edu/asb Published November 2011
Financial Inclusion, Empowerment and Poverty Alleviation: An Alternative State-led Microfinance and Microenterprise Model of Kudumbashree in India
Deepika M G* and Sigi M D** Abstract
Kudumbashree, the state poverty eradication mission initiated by the government of Kerala in India is an alternative to the commercial model of microfinance institutions in the country. The study examines this model of microfinance institution and the role of the state in implementation of microfinance activities and examines its impact on poverty alleviation in the state of Kerala in India. The microenterprise model of Kudumbashree provides a classic example of a tripartite linkage model. The functioning of enterprises is made effective due to the strong linkages created in the Kudumbashree network of state, community and financial organizations facilitated through the state. The success of Kudumbashree’s thrift and credit operations proved that the poor could save money and were trustworthy in banking operations. The microenterprises of the program have created sufficient evidence of enhancing the financial viability of the microfinance institutions created through the SHG model under the Kudumbashree network. The model can therefore be seen as a strong alternative to the commercial MFIs who are now criticised to be functioning strongly under a profit motive deviating from the intended objective of serving the poor and making them self sustainable.
Key Words : Microfinance, microenterprise, tripartite linkage, state, local self governance, poverty, financial viability
* Faculty, Amrita School of Business, Kasavanahalli, off sarjapur road, Bangalore, email: [email protected] * Faculty, PU College, Christ University, Hosur Road, Bangalore- 560 029. email: [email protected]
Financial Inclusion, Empowerment and Poverty Alleviation: An Alternative State-led Microfinance and Microenterprise Model of Kudumbashree in India
Introduction
There is a near consensus view in the abundant flow of microfinance literature that microfinance is an effective tool to address the issue of poverty and has been somewhat successful in transforming the lives of millions of world population. In India, one can examine three types of models in the microfinance industry. The SHG Bank Linkage Model which accounts for about 58% of the outstanding loan portfolio, Non Banking Finance Companies accounting for about 34% of the outstanding loan portfolio and remaining account for the trusts, societies, etc including the Primary agricultural co-operative societies (RBI, 2011, Malegam committee Report). However, critics point to the loopholes in the existing microfinance institutions that divert them from meeting their intended objectives. There is growing criticism on these programs’ reach to the chronically poor, the financial sustainability of the institutions, the extent to which the institutions make the poor self sustaining, etc. One can observe three distinct phases in the growth of MFI institutions in India (Shriram, 2010). First was when the development sector discovered the methodology of reaching loans to the poor through a scalable mode, second when MFIs reached the scale and morphed into commercial organization and third when mainstream institutions took to microfinance as business. Although the outreach of the MFIs has increased substantially, the predominant commercial model of microfinance has encountered hostility of poor borrowers in many cases because of their high lending rates and coercive recovery practices. Yet another criticism on the commercial model of microfinance is the depth of reach of the program to the chronically poor and also its impact on poverty alleviation. As many studies show, a good number of MFIs unfortunately have not reached very far down the poverty spectrum, either in absolute terms or relative to other income categories (Hulme, 1999, Cohen and Sebstad, 2000, Woller, 2002). Instead customers in these MFIs tend to be clustered around the poverty line, being predominantly ‘moderately poor’. Woller (2002) cites many reasons behind the widespread exclusion of the very poor from microfinance programs. One of the prominent reasons cited has been the generalised problem of ‘marketing failure’ which is defined as a failure to integrate sound marketing practices into organizational design and strategy or the absence of a market orientation among MFIs and within the industry in general. Similarly, many MFI programs’ credit alone
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approach has been cited by many authors as a serious limitation of the organizations contributing to their failure (Zeller and Richard, 2002; Shetty, 2008; Shashi, 2010). It is now seen that in the absence of advice on the markets to serve and the products to make for buyers in the output markets, the entrepreneurial efforts of the poor are less likely to succeed. The provision of bundling both credit and consulting services could enhance borrower’s chances of repayment and success. An alternative to the commercial model of microfinance is the Kudumbashree program initiated in 1998 by the government of Kerala in India. The women centred microcredit centres of Kudumbashree, used a combination of indicators to identify the poor women for microcredit programs (Ajit, Sunil and Raman, 2006). In this sense Kudumbashree program represents an alternative delivery to the commercial model and embraces a number of elements; microfinance, microenterprises, education, training, insurance, etc. By and large the program is hailed as a success because of its high (94.5%) repayment rates (Govt of Kerala, 2005). This study examines this alternative model of microfinance institution and the role of the state in implementation of microfinance activities and examines its impact on poverty alleviation in the state of Kerala in India. The first section of the article gives an introduction to the paper and raises issues that are dealt under the study. The second section highlights the objectives and methodology of the study, the third section explains the structure of Kudumbashree and the role of state in implementation of the program. Remaining sections analyse the extent and reach of the program to the poor, its impact on poverty alleviation, the linkages between the community, state and financial institutions in the functioning of microenterprises which is claimed to be the hallmark of the program contributing to its success. Objectives and Methodology 1. To analyse the state led Kudumbashree microfinance model and its liaison with the state and community in implementation of the program. 2. To examine the reach of the program to the poor and its impact on poverty alleviation. 3. To examine Kudumbashree’s microenterprise model, its linkages with different organizations and its role in enhancing the financial viability of microfinance institutions under the program. The study relies on both the primary and the secondary data for analysis. Past literature in the area, annual reports of Kudumbashree and information from Kudumbashree website were useful secondary sources of information. Group discussion be6
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tween selected members of SHGs complimented in understanding the structure and functions of microfinance institutions. Government officials and members of NGOs were interviewed to understand the functioning of the model and their involvement in the program. In order to analyze the role of microfinance in poverty alleviation, we used an interview method through questionnaires being distributed to members of microfinance groups in rural and urban areas. Chalakudy municipality and Pariyaram Panchayat in Kerala (state in India) were chosen to represent the urban and rural areas3. From Chalakudy municipality a convenience sample of 12 SHG units comprising 220 members were chosen and from Pariyaram Panchayat we took the sample 14 SHG units comprising of 190 members. A well prepared questionnaire with questions pertaining to income, their perception on change in standard of living, assets, decision making, savings, etc was distributed to collect information regarding role of microfinance in poverty alleviation. The State led Kudumbashree Model The big bang of decentralization of government in the state of Kerala in India came in two bursts in transfer of powers to local governments. First in October 1995 when the decision to transfer most of the development institutions to local governments along with staff was made and the second in August 1996 when the decision to transfer about a third of State Plan resources to local governments was announced and the People’s Plan Campaign launched. Alongside it was decided to universalize the Anti-Poverty Program of the State under the name of Kudumbashree. Kudumbashree the State Poverty Eradication Mission (SPEM) was launched by Government of Kerala in 1998 with the active support of Government of India and NABARD for wiping out absolute poverty within a period of 10 years.(Kudumbashree Annual Administration Report, 2009-2010) The project is implemented through Local Self Governments empowered by the 73rd and 74th Constitutional amendments. The slogan of the Mission is “Reaching out to families through women and reaching out to community through families”. Today 3.6 million women participate in the Kudumbashree movement in the state cutting across political ideologies and religious faiths. Through the Community Development Society (CDS) system 36 lakh women of State have been organized into 1,82,969 grass root level Neighborhood groups. Apart from thrift mobilization and informal banking, the CDS structure has given birth to 29,436 vibrant microenterprises. This anti poverty program had evolved through a long phase of experimentation. The Urban Basic Services for the Poor (UBSP) implemented in Alappuzha Municipality in 1992 focused on a community based and participatory approach to planning and
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Panchayats and municipalities are bodies of the local self government in India
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implementing poverty reduction program. This was when the 9 point index for identifying families at risk of poverty was first evolved. The promising initiative prompted government to pilot the approach in Malappuram district of Kerala, in November 1994 under the Community Based Nutrition Program (CBNP implemented with UNICEF support). Almost simultaneously universal coverage of the program was decided upon for urban areas in December 1994. The Kudumbashree network had developed across the state in three phases. By March 2002, the entire state was brought under the Kudumbashree network. The Mission of Kudumbashree is: To eradicate absolute poverty in ten years through concerted community action under the leadership of local governments, by facilitating organization of the poor for combining self-help with demand-led convergence of available services and resources to tackle the multiple dimensions and manifestations of poverty holistically. The major strategies of Kudumbashree can be highlighted as follows1. 2. 3. 4. 5. 6. 7. 8. 9. Identification of poor families using a non-monitory poverty index Organizing the poor to a 3 tier Community Based Organization (CBO) Empowerment of women through Community Based Organizations’. Formation of Informal Bank of Poor women operating round the clock throughout the year, starting from thrift & credit operations Formation of micro-enterprises. Convergent Community Action. Strong liaison with LSGs Intervention in Anti Poverty Sub Plan, Women Component Plan, Local Economic Development of local self governments Community monitoring mechanism for local development
Structure of Kudumbashree The program is structured under three tiers starting from the grassroots to the block levels called the three tier community Based organizations (CBO) Neighbourhood Group (NHG) The lowest tier constitutes the Neighborhood Group (NHG) consisting of 20-40 women members selected from economically backward families. Meetings are convened on a weekly basis in the houses of NHG members. In the weekly meeting all members bring their thrift, which will be collected and recycled to the system by way of sanctioning loans. Micro plans for addressing poverty issues are also prepared after taking stock of the situation. In each Neighborhood Group from among the poor
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women five volunteers are selected for undertaking various functional activities. Community Health Volunteer, Income generation activities volunteer, Infrastructure Volunteer, Secretary and the President. Area Development Society (ADS) The second tier is the Area Development Society, which is formed at ward level by federating all the NHGs in the ward. The activities and the decision in the ADS are decided by the representatives of the women elected from various NHGs. The Area Development Society functions through three bodies viz, General Body - consisting of all President/Chairpersons, Secretaries & 3 sectional volunteers such as Health, Income Generation and Infrastructure volunteers of federated NHGs. The Governing Body is constituted by electing a President, Secretary and five members committee from among the General Body. The third body is the one which has a linkage with the LSG in both the rural and urban areas. In grama panchayat in the rural area, the ward member is the Patron of the ADS. In Urban Local Bodies a separate Monitoring & Advisory Committee is constituted with ward Counsellor as chairperson. Community Development Society (CDS) At the Panchayat / Municipal level a Community Development Society (CDS), a registered body under the Charitable Societies Act is formed by federating various ADSs. The CDS too has three distinct bodies viz, the General Body, the Governing body and the body in Linkage with the LSG at rural and urban areas. The General Body consists of all ADS Chairpersons and ADS Governing Body members along with representatives of Resource Persons, Officers of the Local Body who are involved in implementing various Poverty Alleviation and Women Empowerment Program. Similarly, the Governing body consists of president, vice president, members and selected committee members. Other government officials of the LSG with stake in poverty reduction are ex-officio members. State-community Nexus: Reason behind widespread implementation of the program It is the proximity of the CBO with local governments that makes Kudumbashree unique. Most of the government interventions in the area of poverty reduction and women’s development use the CDS net work. It is therefore seen integral to the functioning of local governments in Kerala. The three tier community Based organizations maintain a separate body to function in liaison with the LSGs. The LSGs derive the powers from the constitution for monitoring and guiding the community structure which is functioned through the Social Welfare Standing Committee. The CDS at
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the same time have built in a formal mechanism to bring together the LSG and the community through the CDS evaluation committee. The Kudumbashree CBO network is present across almost the entire state. Its presence is felt in 999 Gram Panchayats, 53 municipalities and 5 corporations in Kerala (www.kudumbashree.org). The program is also at the heart of many action research models developed by local governments. Any community effort coordinated by the Local Self Government (LSGs) like destitute rehabilitation, universalizing take home ration, introducing computer education in schools, etc uses the Kudumbashree network. As like local self governments the linkage program plays a major role in the development of society. The CDS works in close liaison with the LSG and serves as both dissemination organ for government programs and as enunciator of community needs in governance issues. Some of the important functions of CDS includes, linkage banking co-ordination, information dissemination, CBO strengthening activity, facilitating income generating activity, identification of the poor for LSG led development program, articulation of community demand for development, LSG plan intervention on different issues and facilitation of centrally sponsored schemes for development. Though the community structure of Kudumbashree is embedded in the local self government, it has an autonomous functional character of its own. General Body of CDS consists of executive committee members of all ADS in the LSG area. Executive committee consists of elected members from the General Body-one per ADS, not more than five women LSG members, two CDS members co-opted by the committee. The Evaluation Committee of the CDS is chaired by the President of the Gram Panchayat. The Evaluation Committee serves as the platform for bringing about convergence in the implementation of development activities in the LSG. It approves the CDS Action plan, and ensures that the activities proposed in the Action Plan find place in the allocation plans of the LSG and line departments and credit plans of financial institutions. The ADS shall be responsible for the implementation of the centrally sponsored schemes like National Rural Employment Guarantee Scheme (NREGS) which works in its area. The CDS system acts as a subsystem of the local government and takes decentralisation of power further down to the grassroot level. The Kudumbashree program is built in the system of Local Self Governance in Kerala. The widespread effective implementation of the program throughout the state is therefore linked to the success of Local self governance in India. The experiments of democratic decentralisation in Kerala represent one of the latest episodes of the history of democratization of Kerala society (Kerala Development Report, 2008). As explained by Dreze and Sen (1989) studies on Kerala model of development generally attribute its success to the legacy of ‘public action’. The executive Director of Kudum10
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bashree T K Jose told in an interview to the Hindu, “.......the SHGs supported by the mission were able to provide income, employment and enterprise to so many poor only in the context of decentralised governance. Decentralisation offered Kudumbahsree the opportunity of accessing funds from several sources throughout the Panchayats. Similarly, Kudumbashree has played a responsible role in decentralisation in Kerala, ensuring participationin the grama sabhas4, helping panchyats through meticulous and rational selection of beneficiaries and by setting directions for the decentralisation process in itself. Kudumbahsree taps 75% of its resources from the funds of the decentralised LSGs meant for women and the poor and targets it through the women SHGs. If the Kerala decentralisation program’s achievement has been pro poor, a lot of credit should go to the intervention of women SHG members in the grama sabhas” (The Hindu January 2, 2005). As explained by Isaac (2010) Kerala is one state in India that has been successful in achieving a perceptible reduction in poverty. This success has been realised through a holistic approach emphasising structural changes such as land reforms, reforms in health education and more importantly through the community participation through the Kudumbashree program. The dramatic reduction of poverty in Kerala has not simply been because of targeted poverty alleviation program, but rather owing to larger social processes. Financial Inclusion through SHGs The SHG Bank Linkage of Kudumbashree The SHG Bank linkage model and the commercial MFI model represent the two prominent microfinance models in India. Commercial models are funded and run by private institutions largely for a business purpose but might incorporate the role of NGOs, NBFCs, charities and co-operatives. The SHG Bank linkage model usually run by a social intermediary was introduced in 1991-92 with a pilot project of linking 500 SHGs with banks which now has grown to more than 3 million in India. The Kudumbashree’s microfinance model comes under the Bank SHG model where the social intermediary is the neighbourhood groups (NHG). The main difference between the SHG and NHG is that SHGs are non-governmental, informal organizations promoted by the government for the upliftment of the poor whereas the NHG model of Kudumbashree is embedded in the local self government of Kerala. NHGs act as an effective MFI and are the grassroot level unit of the poor women.
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Grassroot body of the local self governance in India
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Kudumbashree promotes Neighbourhood Groups (NHGs) of 10-20 poor women members as an interface between poor women, banks and government agencies. NHGs are instrumental in thrift mobilization, encouraging the poor to save and to avail low cost formal credit. They facilitate easy and timely credit to the un-reached. The amount of loan to members and the purpose for which the loan should be utilized are decided by the NHG. The repayment is collected weekly during the NHG meetings. Funds at NHG is made up of membership fees, interest and penal interest earned from lending to members, donations, receipts from activities, etc. NHGs maintain a thrift account with a local bank. It is estimated that the thrift mobilized is on an average Rs 40 per month per member. Bank linkage is obtained only for the graded groups, where grading is done based on NABARD (National Bank for Agricultural and Rural Development) grading norms. Records are well maintained on all aspects of thrift, lending, funds etc. Overall, during the period from 2000 April to November 2006, the number of NHGs in rural areas registered a growth of 464 per cent with a simple average growth rate of 77 per cent per annum. The corresponding increase in number of families was 386 per cent with a simple average annual growth of 64 per cent. Although the overall growth of NHGs in urban areas was only 59 per cent and that of number of families 163 per cent, it is also striking because all the municipalities were covered even before the KDS project was launched. The number of NHGs per Gram Panchayat increased from 29 in March 2001 to 165 in November 2006(www.kudumbahsree.org). Accountability, Training and Incentives Accounts of NHG are audited by the Kudumbashree Accounting and Auditing Service Society. Members from the NHG alone or along with members of other NHGs form activity groups for micro enterprises, joint liability groups etc. In some cases, CDS borrows from the bank bulk loan for on lending to eligible NHGs. In Bulk linkage, CDS charges 1 or 2 percentage points more than the bank’s interest rate. A certain date is fixed by the bank within which NHGs are required to repay the amount to CDS. CDS in turn pays the collected amount to bank. The Bank Linkage programme has helped the NHGs to augment their existing resources mobilized through thrift. Matching grant is an incentive provided to NHGs. This grant linked to amount of thrift mobilized, performance of NHG in the grading and loan availed from banks. Special trainings for CDS Chairpersons, Micro Finance Subcommittee, Accountants, NHG Secretaries and resource persons are organised. CDS executive committee is trained to assess ward level status of Grading, Linkage and Matching grant. Block level micro finance resource person were positioned to give assistance to NHGs to prepare matching grant applications. Special campaigns in Grama Panchayats which had not availed of matching grant were conducted. Kudumbashree has chalked out
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a comprehensive Financial Literacy Plan in order to provide a platform for NHGs to be aware of and benefit from formal banking services. As per the interest subsidy scheme, all commercial and cooperative banks that are prepared to lend to Kudumbashree NHGs under the linkage banking programme at 9% or below, are participants in the scheme. The SHG programs of Kudumbashree has an element of subsidy which is back loaded in the repayment schedule in the sense that members of NHGs receive the subsidy only after the full repayment of bank loans sans the subsidy amount (Ajit, Sunil and Raman, 2006). This is presumably to prevent wilful defaults at the initial stage. The Bank NHG borrower model of Kudumbashree is the most cost effective for the ultimate borrower. Most of the time, on lending is done without any margin being loaded to the lending rates by the NHG. Even in cases where the NHG charges 1-2% margin, this money goes to the corpus fund of the NHG. In many NHGs profits earned out of the lending are distributed to the household members as dividends (Ajit, Sunil and Raman, 2008). Kudumbashree has entered into an agreement with C-DAC to develop a digitized MIS which would be uploaded from each CDS. The software development is funded by the Ministry of IT, Government of India. The first 2 modules to be developed and tested in the field were the general information and micro finance modules. Survey results on the opinion about the SHG program Of the usable sample of 410 members in rural and urban areas, 78 percent in urban areas and 82 percent in rural areas answered that the present structure of microfinance helped them to transform information easily and increase the social net work of members. Other than a small percent of non respondent category all the members pointed out one or the other positive aspects of existing structure. 5.6 percent of members felt that 20 people membership in SHG is small for various types of group activity, to get more income from various incomes generating activities it should add more people. 14.4 percent of members opined Kudumbashree should give some relaxation of time to repay the loan. From these opinions we know that there are some inconveniences existing in microfinance structure. Even though 20 percent of members opined there is some inconvenience, they felt that it is to a large extent adaptable. The views provided by the SHG members provide for a first hand opinion on the reach of the program to the poor and its positive impact on their lives. Kudumbashree and Poverty alleviation Identifying the poor The women centred microcredit centres in Kudumbashree used a combination of indicators to identify the poor women for microcredit programs. Rather than judging
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poverty using income or consumption level of the family, they used a multidimensional approach to isolate the participants. As described by Ajit, Sunil and Raman (2006), the Kudumbashree methodology is believed to be superior to the conventional head count ratio as it captures the multidimensional characteristics of poverty and leads to the identification of the most vulnerable families. To identify the poor, Kudumbashree carried out a baseline survey with the help of local governments. Women constrained to having access to the wage labour market and being restrained from an equitable share of power in household decision making processes were identified using 4 or more of the nine non-monetary psychosocial indicators (see Appendix 1). Kudumbashree has developed an innovative methodology to identify the poor using non-economic parameters and has organized the poor under a well networked Community Based Organization (CBO). The non-economic parameters are transparent and simple that can be used by the community. There is representation to the BPL families right at the NHG levels. Either the president or the secretary of the NHG has to be from the BPL family. With the growth of NHGs especially in the rural areas over the last decade, the number of poor families enrolled in the program has substantially increased. The number of poor families technically identified as poor based on the 4/9 criteria as per official records is heading towards 3.8 million in a state with only around 7.5 million households. Thus the poor households work out easily to more than 50 per cent of the total households. The percentage of NHG households covered to the total households in the Gram Panchayats which was 13 per cent in March 2001 rose to 63.54 per cent in November 2006. It ranged from 45 per cent in Kollam district to 90 per cent in Kannur district. These percentages of poor seem to be an untenable number. As per the NSS 61st round, the percentage of population below the official poverty line in 2004-05 works out to 13.2 per cent for rural areas and 20.16 per cent for urban areas of Kerala (Himanshu, 2007). The poverty line under this methodology would certainly stand much above (if measured in income terms of the families) than under any of the existing approaches. The chances of inclusion of vulnerable families, therefore stands to be much higher in the Kudumbashree methodology than in the conventional income or consumption approach of measurement of poverty. Since the program is targeted through the community based organizations the awareness created of the program and its target to the extreme poor also stands much higher. Income generation through SHGs and its impact on poverty Income generation is one of the prime responsibilities of every Kudumbashree SHG. These SHG units of urban and rural areas are engaged in various income generating activities like agriculture, business, production, selling & marketing of processed food, etc.
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Unemployment is one of the major social problems in India and the voluntary unemployment is very common among the women in India. These types of activities of SHG groups act an important tool to reduce the problem of poverty and unemployment both in rural and urban areas of Kerala as these activities gave them a regular income. The survey results (in Table 1) revealed that the incomes from various activities not only made them economically independent but also helped them to elevate the standard of living of the family. 44.4 percent of total sample ascertained that they reaped regular income from SHG activities, 42.4 percent answered that it served them partially, only 13. 2 percent answered that it does not add much to their income.
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If we examine the sample across age groups, the program’s reach to meet the expenses of the family is the highest in the age group between 45 to 55 years. This shows the achievement of the program in reaching to the old age groups who are left with lesser alternatives otherwise. Table 3 below also shows that fact that more clearly, i.e. 45.6 percent of members feel that SHG participation helped them to reach present better situation whereas 36.6 percent of members feel SHG participation has partially helped them to reach the present better situation. Table 4 gives a glance over thrift amount paid by members in the SHGs. 38.3 percent of members paid Rs 50 to Rs. 100 per week as a thrift amount. In urban area 40 percent of members paid below Rs. 50 as thrift amount weekly whereas 44.1percent paid an amount between Rs 50 to 100 as a thrift amount. In rural area 37.4 percent of members paid an amount between Rs 100 to 200 and 31.6 percent members paid between Rs 50 to Rs.100 weekly as thrift amount. Only 15.3 percent of rural members had paid below Rs 50 rupees as a thrift amount. If we make a comparison in the payment of thrift amount between urban and rural areas, rural areas have a better picture of thrift.
Table 4: Thrift savings among SHG Members across Areas of Study
Weekly payments B/w 50 to 100 RS 97 44.1% 23.7% 60 31.6% 14.6% 157 38.3% B/w 100 to 200 RS 26 11.8% 6.3% 71 37.4% 17.3% 97 23.7% B/w 200 to 300 RS 8 3.6% 2.0% 22 11.6% 5.4% 30 7.3% B/w 300 to 400 Rs 1 .5% .2% 6 3.2% 1.5% 7 1.7% B/w 400 To 500 RS 0 .0% .0% 2 1.1% .5% 2 .5%
Area of Study
Urban % within Area Of study % of Total Rural % within Area Of study % of Total
Below 50 RS 88 40.0% 21.5% 29 15.3% 7.1% 117 % of Total 28.5%
Total 220 100.0% 53.7% 190 100.0% 46.3% 410 100.0%
Total
Table 5 shows that a large majority of members of SHGs have utilised the loan amount from the units. In the year 2009 63.9 percent of members had taken loan. In urban area Kudumbashree has charged an interest rate of 10 % whereas in rural area Kudumbashree has charged 6 percent interests rate monthly. 36.8 percent of members had taken loan amount between Rs 5,000 to 10,000 and 29.8 percent of members had taken loan below Rs 5000. Between Rs 10,000 to 20,000 19.5% members had taken loan and only 4 represented in the sample above Rs. 40000. This also clearly indicates active participation of members in SHG activities.
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Table 5: Loan Amount Taken from SHG across Areas of Study
Loan Amount B/w 5000 To 10000 102 46.4% 24.9% 49 25.8% 12.0% 151 36.8% B/w 10000 To 20000 30 13.6% 7.3% 50 26.3% 12.2% 80 19.5% B/w 20000 To 30000 11 5.0% 2.7% 34 17.9% 8.3% 45 11.0% B/w 30000 To 40000 4 1.8% 1.0% 4 2.1% 1.0% 8 2.0%
Area of Study
Urban % within Area Of study % of Total Rural % within Area Of study % of Total
Below 5000 72 32.7% 17.6% 50 26.3% 12.2% 122 % of Total 29.8%
Above 40000 1 .5% .2% 3 1.6% .7% 4 1.0%
Total 220 100% 53.7% 190 100% 46.3% 410 100%
Total
Table 5: Loan Amount Taken from SHG across Areas of Study
Loan Amount B/w 5000 To 10000 102 46.4% 24.9% 49 25.8% 12.0% 151 36.8% B/w 10000 To 20000 30 13.6% 7.3% 50 26.3% 12.2% 80 19.5% B/w 20000 To 30000 11 5.0% 2.7% 34 17.9% 8.3% 45 11.0% B/w 30000 To 40000 4 1.8% 1.0% 4 2.1% 1.0% 8 2.0%
Area of Study
Urban % within Area Of study % of Total Rural % within Area Of study % of Total
Below 5000 72 32.7% 17.6% 50 26.3% 12.2% 122 % of Total 29.8%
Above 40000 1 .5% .2% 3 1.6% .7% 4 1.0%
Total 220 100% 53.7% 190 100% 46.3% 410 100%
Total
Note:1= Purchase of consumer durables, 2=Consumption, 3=marriage, 4=house repair,5= productive investment, 6=repayment of past loans,7=purchase of consumer durables & productive investment, 8=productive investment & repayment of past loans.
The loan amount taken from Kudumbashree has been used for various purposes like purchase of consumer durables, consumption, marriage, house repair and productive investment etc. Most of the members have sed this loan amount for productive investments i.e. 59.3 percent of members. 7.3 percent members used the loan
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amount to repay the past loans and 12.4 percent members used it for purchase of consumer durables & productive investment.
Members of SHG repay the loan bi weekly, tri weekly and monthly. 74 .6 percent of members had repaid the loan amount weekly and only 4.6 percent of members repaid monthly. In urban area 68.2 percent members repaid weekly whereas in rural area 82.1 percent members are repaying the loan weekly. The loan repayment schedule as seen at a macro picture also speaks of a high repayment rate of 94 percent. Also repayment in the rural areas is higher as compared to repayment in urban areas. The reason cited by one of the earlier studies (Ajit, Sunil and Raman, 2008) showed that microenterprises in the agricultural sector have a repayment rate of 94 percent while activities related to the industry and service sector have a relatively low repayment rate of 84 percent and 90 percent respectively. The high repayment rate among agricultural microenterprises brings into focus the role of marketing in the whole process. Agricultural products are generally traded locally as they have ready markets in rural communities. On the other hand, non agricultural products are not readily tradable or marketable. They face severe competition from existing organized retail outlet. Therefore, for non-agricultural activities group repayment record is handicapped by marketing constraints. To make profits from these non-tradable goods or services is the major challenge faced by micro-credit enterprises. The study suggests for a good understanding of the dynamics of micro credit programs with an analysis of labour, credit and product markets in a unified framework.
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Other than SHGs of Kudumbashree in Kerala other options for credit are available like that of money lenders, commercial banks, cooperative banks, chit fund etc. The survey reveals that members of SHG have also taken loan from these sources to meet their small and big financial needs. The sample interestingly revels that 57.6 percent of members have actually not borrowed from any other sources other than SHGs. That point somehow speaks of the success of SHG activities. In urban area 14.5 percent of members are taken loan from money lenders but in rural area only 2.6 percent of members had borrowed from money lenders which is a contrasting picture as compared to the rest of India. Among these 25.9 percent members had regularly repaid the loan which is taken from outside sources. Members also revealed that they prefer loans from SHGs because of low interest rate, subsidy & fewer formalities for the loan. From these analyses we can assess that SHG `s thrift and credit activities had played a crucial role in meeting the financial requirements of members and microfinance has became a powerful tool in the state of Kerala in addressing the problem of poverty of the people. Microenterprise Linkage model: Enhancing Financial Viability of SHGs It is now a much hailed argument that poverty alleviation strategies should focus on improving individual well being by improving the capability of the poor to function in the society. To put it in other way, the poor will satisfy their consumption needs by focussing not on their own needs but on the needs of others. It has also been proved true that in the absence of advice on the markets to serve and the products to make for buyers in the output markets, the entrepreneurial efforts of the poor are less likely to succeed. It is therefore essential that the provision of consulting services by finan-
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cial service providers need to bundle both credit and consulting services or rely on specialist organizations in the value adding chain to provide the consulting services. This would largely enhance the borrower’s chances of repayment and success in their enterprises (Shashi, 2010). Kudumbashree views micro enterprise development as an opportunity for providing gainful employment to the people below poverty line and thereby improving their income and living standard. Micro enterprises facilitated by Kudumbashree fall under the banner of Rural Micro Enterprise (which takes after the SGSY pattern), Yuvasree (which caters to educated youth), and the SJSRY program (which is implemented through the agency of Kudumbashree). The Rural Micro Enterprises (RME) Programme was initiated to help women to set-up Individual and Group enterprises. The minimum number of people required for a group enterprise is five. The initiatives of microenterprises under Kudumbashree are explained in Appendix 2. Group enterprise projects varied from Rs 2,50,000 or above. Subsidy per group of Rs 1,00,000 (or 50% of the project cost or whichever is less) is provided. The primary and ancillary resources met for the smooth functioning of the program monetarily and through non monetary consulting services are noteworthy. One of the major issues faced by microenterprises is the shortage of working capital due to delay in payments by wholesalers and departments. Revolving fund is provided to meet urgent requirement of working capital. Similarly crisis management fund is provided to prevent the unpredictable negative event from escalating into a bigger problem. The said fund is also intended for networking enterprises of similar nature for utilising economies of scale and for ensuring effective marketing linkage. Members from the NHG alone or along with members of other NHGs form activity groups for micro enterprises, joint liability groups etc. The microenterprise model of Kudumbahsree provides a classic example of a tripartite linkage model of an enterprise. The functioning of enterprises are made possible due to the strong linkages created in the Kudumbashree network of community, state and financial and donor institutions who are again linked through the state. Activities on microenterprises are functional at every tier, the NGH, ADS and the CDS levels which are linked to the local self governments. Formation of activity group begins at the NGH level and passes to the ADS and CDS levels depending on the number of NHGs and ADSs being co-ordinated. Financial assistance to Microenterprises (MEs) is decided in the CDS. If an NHG wants to link with banks for loan, they have to submit their application to CDS and the CDS will audit the assets and liabilities and issue certificate to the bank for verification. This itself provides a kind of guarantee for a bank. When the linkage with banks exposed inadequate accounting procedures in the NHGs, the mission organised a two week training programme in book keeping
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and accounting at the Area development society levels. The training program enabled women to understand banking practices better and helped them in managing their micro enterprises effectively. The continuous training programs of Kudumbahsree are also organized with the support from UNICEF, the government, NABARD and other organizations linked through the state. Either a government body or a consulting organization hired by the Kudumbahsree may be involved in the required training program. The mission is also beautifully linked to the functioning of the centrally sponsored scheme like that of NREGS (National Rural Employment Guarantee Scheme) which is functioning more efficiently due to its linkage to Kudumbashree network. One of Kudumbashree’s micro enterprises Ksheera Sagaram in Nedumkandam block panchayat in Idukki district of Kerala has received state wide attention on attaining self-sufficiency in milk production. K Madhu, district co-ordinator of Kudumbashree mission told in an interview to the Hindu that many factors contributed to the success of the project (The Hindu, 2011). The convergence of different spheres of dairy sector, setting up of biogas plants, introduction of new cattle grass, hybrid varieties of cattle, quality in the milk supplied all together contributed to the success. The Ksheerasagaram project launched during 2009-10 has 675 small holder dairy units under 5 kudumbashree units each producing around 10,000 litres of milk a day. The units purchased the cows and constructed the cattle sheds utilising bank loans and each units are on average making a profit of RS. 10,000 a month, after all the costs and repayment of loan instalments. In another Nature fresh program, hands on facilitation by the veterinary surgeon and the dairy development officer on matters of feed, disease management, hygiene control etc were provided. Two wheeler vehicles have been provided to the marketing group through loans. It is noteworthy that hygienic management and fresh supply has enabled the project to charge a premium price for the milk for its freshness, and demand continues to outstrip supply. Another interesting case is that of Nutrimix initiative of Kudumbashree set up in 2006 which had to close due to lack of orders (www.kudumbahsree.org) but later succeeded due to collaboration. 20 Nutrimix units were functioning in different grama panchayats with a loan of Rs 11,500 each, a subsidy of Rs. 50,000 and Rs 10,000 as member contribution totalling an investment of Rs. 1,75,000. Four of those units were functioning in a very competitive manner. There was soon a setback and their products went unsold. In January 2007, the Kudumbashree district mission directed the Nenmeni CDS office to bring the members of 4 units as a collective. The district mission provided consistent support with several training programs. Revolving fund was used to buy 10 cents of land. Products were diversified to enhance the revenue sources to make the enterprise more financially viable. The members of the group now feel that it is the strength of the group that brought about a turnaround and they are now in a position to compete with any companies in the product categories.
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Collective farming under Kudumbashree is again a case of success attributed due to the convergence of different departments of the state. A typical farming group is formed consisting of 4-10 members. These groups are now organized as Joint Liability Groups (JLG) to make available institutional credit and also for proper monitoring. The group cultivates in one of the three types of land viz, own, leased or Government land. Majority of women groups take up land in lease for cultivation. Eligible assistance is made available from all the converging partners. A campaign for panchayat and NREGS linkage in 2009-10 saw an exponential increase in women talking up agriculture as activity groups. The focus was on rice and vegetables, and a double benefit of livelihood and food security made collective farming a popular intervention with over 2.3 lakh women taking up agriculture. The State Government supported farming groups organized as Joint Liability groups through interest subsidy. Five per cent subsidy is provided for the interest rate on loans taken as crop loan from the banks. Credit sources such as primary Agricultural Cooperative societies, nationalised banks and other private banks were other important supporting agencies for the collective farming groups. PACS provide interest free loans for selected crops and play an important role in the farming by these women groups. Nationalised banks and some private banks provide crop loan for the group at 7 percent. Out of this 7 percent, 5 percent is provided as interest subsidy from Kudumbashree and hence the group gets the loan at a low interest rate. If the group is able to leverage the 2% interest subsidy available from GOI for prompt repayment, it would in effect become an interest free loan. A successful case of integration of NREGS with the panchayat and Kudumabshree support is that of Perambra, where 140 acres of land which was lying fallow for the past 25 years was brought under cultivation by 35 farming groups. Krishibhavan5 supports farming groups by providing subsidy for seeds and fertilizers. Soil sample testing is one of the activities done by the Krishi Bhavans for the groups. The success of Kudumbashree thrift and credit operations proved that the poor could save money and were trustworthy in banking operations. This is a remarkable achievement when the nationalised banks in Kerala have a total of Rs 18 billion as non-performing assets. Banks have graded 86,911 NHGs for linkage and 58, 298 NHGs are linked and Rs 2, 304.8 million has been disbursed as loans. As many as 19 CDSs in the state have mobilised thrift above Rs 10 millions which they are proud of. Many Kudumbashree NHGs have created role models from micro finance to micro capital leading to micro enterprises (End of the rainbow, www.kudumbahsree.org). The microenterprises have created sufficient evidences of enhancing the financial viability of the microfinance institutions created through the SHG model under the Kudumbashree network.
5
Agriculture department of government of India
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Conclusion ‘Kudumbashree’ the state poverty eradication mission initiated by the government of Kerala in India can be seen as a strong alternative to the commercial model of microfinance institutions in the country. The women centred microcredit centres of Kudumbashree used a combination of indicators to identify the poor women for microcredit programs. The Kudumbashree methodology of identifying the poor is believed to be superior to the conventional head count ratio as it captures the multidimensional characteristics of poverty and leads to the identification of the most vulnerable families. The activities of SHG groups under the program have acted as an important tool to reduce the problem of poverty and unemployment both in rural and urban areas of Kerala. The survey results of the study revealed that the incomes from various activities not only made them economically independent but also helped them to elevate the standard of living of the family. The results also revealed the positive picture of the program where a good percentage of the loan amount has been used for productive investments unlike in most of other microfinance programs in the country. The microenterprise model of Kudumbashree provides a classic example of a tripartite linkage model. The functioning of enterprises is made possible due to the strong linkages created in the Kudumbashree network of community, state and financial organizations facilitated through the state. Activities on microenterprises are functional at every tier, the NGH, ADS and the CDS levels which are linked to the local self governments. The mission is also beautifully linked to the functioning of some of the centrally sponsored schemes like NREGS which is functioning more efficiently in Kerala due to its linkage to Kudumbashree network. The success of Kudumbashree thrift and credit operations proved that the poor could save money and were trustworthy in banking operations. The microenterprises have created sufficient evidence of enhancing the financial viability of the microfinance institutions created through the SHG model under the Kudumbashree network.
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References Ajit, D, Sunil R and Raman K R (2008), Microcredit and repayment rates: A Case study of Kudumbashree microenterprise program in Kerala. Paper presented in Conference on Money and Finance, January 18-19, 2008, IGIDR Mumbai Cohen M and Sebstad J (2000), “Microfinance Risk Management and Poverty, AIMS Paper, Management Systems International Dreze, J and A Sen (1989), Hunger and Public Action, Oxford Clarendon Press Government of Kerala (2005), Human Development Report, Thiruvanathapuram, State Planning Board. Himanshu ( 2007), “Recent Trends in Poverty and Inequality: Some Preliminary Results”, Economic and Political Weekly, February , 10, 2007. Hulme D (1999), Client Exits from East African Microfinance Institutions, Microsave Africa, Kampala. Isaac, T M Thomas (2010), “Kudumbashree Microcredit Alternative”, SCMS Journal of Indian Management, January-March, 2010. Kerala Development Report (2008), Planning Commission, Government of India Kudumbashree Annual Administration Report (2009-10). www.kudumbashree.org Kudumbashree website, www.kudumbahsree.org Reserve Bank of India (2011), Report of the Sub-committee of the central Board of Directors of Reserve Bank of India to Study Issues and Concerns in the MFI Sector, January, 2011. Shashi, C M (2010), “The make buy decision in marketing financial Services for poverty alleviation”, Journal of Financial Services Marketing, Vol 15. Shetty, Naveen K (2008), “ Microfinance for Microenterprise Development: An Inquiry for a New Paradigm”, Icfai Journal of Financial Economics, Vol VI, No1. Shriram, M S (2010), “Commercialisation of Microfinance in India: A Discussion of the Emperor’s Apparel”, Economic and Political Weekly, June 12, 2010, Vol XLV No 24. Sigi, M D, Deepika M G and Amalendu Jyotishi (2011) “Role of Microfinance in Poverty Alleviation and Women Empowerment: The case of Kudumbashree in Kerala” presented in the International Conference on Microfinance, University of Pondicherry, 27-29 January, 2011. The Hindu, 2011, “Kudumbashree’s dairy project scripts a success in Idukki”, The Hindu, July 28, 2011. Woller, Gary (2002), “From Market Failure to Marketing Failure: Market Orientation as the Key to deep outreach in Microfinance”, Journal of International Development, 14, 305-324
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Zeller, Manfred and Richard L Meyer (2002), “Improving the Performance of Microfinance: Financial Sustainability, Outreach and Impact”, pp 1-15, in The Triangle of Microfinance: Financial Sustainability, Outreach and Impact, edited by Manfred Zeller and Richard L Meyer, The John Hopkins University Press, Maryland.
Appendix
Appendix 1: Risk factors for Identifying the poor Identification of the poor is one of the prime requisites for the implementation of the projects. The following risk factors are considered for identifying the poor. Families with any four factors present of the nine are identified as poor. 1. 2. 3. 4. 5. 6. 7. 8. 9. No land/Less than 5 cents of Land No House/ Dilapidated House No Sanitary latrine No access to safe drinking water within 150 metres. Women headed household/Presence of a widow, divorce/abandoned lady/ unwed mother No regularly employed person in the family, Socially disadvantaged groups(SC/ST) Presence of mentally or Physically challenged person/chronically ill member in the family Families without colour T V
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Appendix 2. Microenterprise activities of Kudumbashree
Santhwanam A collaborative effort of Kudumbashree, HAP (Health Action for People-An NGO) and SBI (State Bank of India).This seeks to facilitate identification of and monitoring of life style diseases in the community. The home based screening system makes the measurements/estimations in Height, Body weight, Body Mass index, Body fat, Blood pressure and Blood glucose. Under the title of ‘Clean Kerala Business’. women from the poor families of Kudumbashree are engaged in door to door household waste collection and transport to the transit points fixed by the Urban Local Bodies. This produces a baby food supplement developed by Central Plantation Crops Research Institute (CPCRI) Kasaragod. The program has identified 560 groups throughout the state for this purpose, out of which, 272 have already started production. Food for ‘The Take Home Ration Scheme’ is provided to the Anganawadi network by the Amrutham units. Much of the data entry work taken up by Government departments is being out sourced to these units which give employment to over 2500 poor women. “Samagra” looks at creating Local Production Marketing Networks, systematizing procurement mechanisms providing better technology and management options and improving product quality by establishing production protocols. The focus is on developing all the backward and forward linkages for a single product or produce. Lease land farming is a scheme for the landless poor women of Kudumbashree Neighborhood Groups which has helped to increase the food productivity of an area by bringing fallow lands under cultivation. Starting with paddy, NHGs have expanded into vegetable cultivation, Banana, tapioca, horticultural crops and even tea.
Solid waste management Amrutham Food Supplement
IT and ITES
Samagra
Lease Land FarmingHaritashree
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Appendix 3: Community Based Activities under Kudumbashree
Ashraya Destitute Identification Rehabilitation and Monitoring Project for the rehabilitation of destitute families. The State Government’s assistance of Rs 10 Lakh per LSG was a Challenge fund for extending support to local governments that take up the implementation of the project. Buds is a Special school for mentally & physically challenged children. It caters the developmental, social, and emotional needs of children whose needs were formerly were often ignored or neglected. They are being provided with necessary medical attention, physical and mental therapy, mobility equipment, hearing aids, individual vocational and educational training, and skills to enable them to be independent. Balasabhas are grass root level groups of the children from NHG families. The concept came from experiences in the field when children used to accompany their mothers to the NHG meetings and they began to have their informal children NHG meetings. The mission organizes the children into Balasabhas as a part of its holistic approach to provide opportunities for personal growth and realization of talent. Capacity building to improve the employability of educated youth from poor families is a major challenge that has to be undertaken by the State. The Government of India through the special SGSY stream sanctioned an innovative project for this purpose. The Finishing School project is designed by Dr. Reddy’s Foundation, Hyderabad. Gender Resource Center focuses on addressing gender concerns, and capacitating Kudumbashree NHGs and LSG representatives to develop gender sensitive policies and to prioritize gender sensitive action. In its 11th Five Year Plan the state government chose the Kudumbashree NHGs as the main forum for social audit. This was started in the districts where the NREGA programs are being implemented. The quality of the work, the labor card distribution system, the wages and the time period etc would be audited and the report would be presented in Grama Sabhas. Kudumbashree gives prime importance to training and initiated a series of efforts in this regard. There are mainly two broad categories of training viz. (1.) For team building and social mobilization and (2) for skill development. Major training areas fall into 4 types viz, enterprise related, micro finance related, social development related and gender development related. An indicative list of the areas where training related to micro enterprises is given below: a. General orientation training program for the elected representatives in LSGs, line department officials, CDS functionaries and entrepreneurs, b. Identification and training of Microenterprise consultants, c. Skill Development training for entrepreneurs, d. Special emphasis on marketing and accounting training inputs , e. Performance improvement and product diversification training to entrepreneurs, f. Training for implementing standardization protocols and brand development. g. Quality management inputs and business counselling.
Buds
Balasabha
Finishing School
Gender Resource centre
Social Audit
Training
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doc_204635562.pdf
Financial inclusion or inclusive financing is the delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of society, in contrast to financial exclusion where those services are not available or affordable.
Working Paper No.113/2011
Financial Inclusion, Empowerment and Poverty Alleviation: An Alternative State-led Microfinance and Microenterprise Model of Kudumbashree in India
Deepika M G Sigi M D
Amrita School of Business Amrita Vishwa Vidyapeetham, University Amritanagar, Ettimadai Coimbatore - 641 112 Tamil Nadu, India November 2011
The main objective of the Working Paper series of Amrita School of Business is to help faculty members, research sta?, doctoral and MBA students to speedily share their research ?ndings with professional colleagues and to test out their research ?ndings at the pre-publication stage.
The views expressed are entirely those of the author/s and do not in any way reflect the views of the institutions with which they are associated.
Copyright © Amrita School of Business Amrita Vishwa Vidyapeetham, University Amritanagar, Ettimadai Coimbatore - 641 112 Tamil Nadu, India Telephone: +91-422-268 5000, Extn. 5430 Fax:+91(422)2656 274 Email: [email protected] website:http://amrita.edu/asb Published November 2011
Financial Inclusion, Empowerment and Poverty Alleviation: An Alternative State-led Microfinance and Microenterprise Model of Kudumbashree in India
Deepika M G* and Sigi M D** Abstract
Kudumbashree, the state poverty eradication mission initiated by the government of Kerala in India is an alternative to the commercial model of microfinance institutions in the country. The study examines this model of microfinance institution and the role of the state in implementation of microfinance activities and examines its impact on poverty alleviation in the state of Kerala in India. The microenterprise model of Kudumbashree provides a classic example of a tripartite linkage model. The functioning of enterprises is made effective due to the strong linkages created in the Kudumbashree network of state, community and financial organizations facilitated through the state. The success of Kudumbashree’s thrift and credit operations proved that the poor could save money and were trustworthy in banking operations. The microenterprises of the program have created sufficient evidence of enhancing the financial viability of the microfinance institutions created through the SHG model under the Kudumbashree network. The model can therefore be seen as a strong alternative to the commercial MFIs who are now criticised to be functioning strongly under a profit motive deviating from the intended objective of serving the poor and making them self sustainable.
Key Words : Microfinance, microenterprise, tripartite linkage, state, local self governance, poverty, financial viability
* Faculty, Amrita School of Business, Kasavanahalli, off sarjapur road, Bangalore, email: [email protected] * Faculty, PU College, Christ University, Hosur Road, Bangalore- 560 029. email: [email protected]
Financial Inclusion, Empowerment and Poverty Alleviation: An Alternative State-led Microfinance and Microenterprise Model of Kudumbashree in India
Introduction
There is a near consensus view in the abundant flow of microfinance literature that microfinance is an effective tool to address the issue of poverty and has been somewhat successful in transforming the lives of millions of world population. In India, one can examine three types of models in the microfinance industry. The SHG Bank Linkage Model which accounts for about 58% of the outstanding loan portfolio, Non Banking Finance Companies accounting for about 34% of the outstanding loan portfolio and remaining account for the trusts, societies, etc including the Primary agricultural co-operative societies (RBI, 2011, Malegam committee Report). However, critics point to the loopholes in the existing microfinance institutions that divert them from meeting their intended objectives. There is growing criticism on these programs’ reach to the chronically poor, the financial sustainability of the institutions, the extent to which the institutions make the poor self sustaining, etc. One can observe three distinct phases in the growth of MFI institutions in India (Shriram, 2010). First was when the development sector discovered the methodology of reaching loans to the poor through a scalable mode, second when MFIs reached the scale and morphed into commercial organization and third when mainstream institutions took to microfinance as business. Although the outreach of the MFIs has increased substantially, the predominant commercial model of microfinance has encountered hostility of poor borrowers in many cases because of their high lending rates and coercive recovery practices. Yet another criticism on the commercial model of microfinance is the depth of reach of the program to the chronically poor and also its impact on poverty alleviation. As many studies show, a good number of MFIs unfortunately have not reached very far down the poverty spectrum, either in absolute terms or relative to other income categories (Hulme, 1999, Cohen and Sebstad, 2000, Woller, 2002). Instead customers in these MFIs tend to be clustered around the poverty line, being predominantly ‘moderately poor’. Woller (2002) cites many reasons behind the widespread exclusion of the very poor from microfinance programs. One of the prominent reasons cited has been the generalised problem of ‘marketing failure’ which is defined as a failure to integrate sound marketing practices into organizational design and strategy or the absence of a market orientation among MFIs and within the industry in general. Similarly, many MFI programs’ credit alone
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approach has been cited by many authors as a serious limitation of the organizations contributing to their failure (Zeller and Richard, 2002; Shetty, 2008; Shashi, 2010). It is now seen that in the absence of advice on the markets to serve and the products to make for buyers in the output markets, the entrepreneurial efforts of the poor are less likely to succeed. The provision of bundling both credit and consulting services could enhance borrower’s chances of repayment and success. An alternative to the commercial model of microfinance is the Kudumbashree program initiated in 1998 by the government of Kerala in India. The women centred microcredit centres of Kudumbashree, used a combination of indicators to identify the poor women for microcredit programs (Ajit, Sunil and Raman, 2006). In this sense Kudumbashree program represents an alternative delivery to the commercial model and embraces a number of elements; microfinance, microenterprises, education, training, insurance, etc. By and large the program is hailed as a success because of its high (94.5%) repayment rates (Govt of Kerala, 2005). This study examines this alternative model of microfinance institution and the role of the state in implementation of microfinance activities and examines its impact on poverty alleviation in the state of Kerala in India. The first section of the article gives an introduction to the paper and raises issues that are dealt under the study. The second section highlights the objectives and methodology of the study, the third section explains the structure of Kudumbashree and the role of state in implementation of the program. Remaining sections analyse the extent and reach of the program to the poor, its impact on poverty alleviation, the linkages between the community, state and financial institutions in the functioning of microenterprises which is claimed to be the hallmark of the program contributing to its success. Objectives and Methodology 1. To analyse the state led Kudumbashree microfinance model and its liaison with the state and community in implementation of the program. 2. To examine the reach of the program to the poor and its impact on poverty alleviation. 3. To examine Kudumbashree’s microenterprise model, its linkages with different organizations and its role in enhancing the financial viability of microfinance institutions under the program. The study relies on both the primary and the secondary data for analysis. Past literature in the area, annual reports of Kudumbashree and information from Kudumbashree website were useful secondary sources of information. Group discussion be6
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tween selected members of SHGs complimented in understanding the structure and functions of microfinance institutions. Government officials and members of NGOs were interviewed to understand the functioning of the model and their involvement in the program. In order to analyze the role of microfinance in poverty alleviation, we used an interview method through questionnaires being distributed to members of microfinance groups in rural and urban areas. Chalakudy municipality and Pariyaram Panchayat in Kerala (state in India) were chosen to represent the urban and rural areas3. From Chalakudy municipality a convenience sample of 12 SHG units comprising 220 members were chosen and from Pariyaram Panchayat we took the sample 14 SHG units comprising of 190 members. A well prepared questionnaire with questions pertaining to income, their perception on change in standard of living, assets, decision making, savings, etc was distributed to collect information regarding role of microfinance in poverty alleviation. The State led Kudumbashree Model The big bang of decentralization of government in the state of Kerala in India came in two bursts in transfer of powers to local governments. First in October 1995 when the decision to transfer most of the development institutions to local governments along with staff was made and the second in August 1996 when the decision to transfer about a third of State Plan resources to local governments was announced and the People’s Plan Campaign launched. Alongside it was decided to universalize the Anti-Poverty Program of the State under the name of Kudumbashree. Kudumbashree the State Poverty Eradication Mission (SPEM) was launched by Government of Kerala in 1998 with the active support of Government of India and NABARD for wiping out absolute poverty within a period of 10 years.(Kudumbashree Annual Administration Report, 2009-2010) The project is implemented through Local Self Governments empowered by the 73rd and 74th Constitutional amendments. The slogan of the Mission is “Reaching out to families through women and reaching out to community through families”. Today 3.6 million women participate in the Kudumbashree movement in the state cutting across political ideologies and religious faiths. Through the Community Development Society (CDS) system 36 lakh women of State have been organized into 1,82,969 grass root level Neighborhood groups. Apart from thrift mobilization and informal banking, the CDS structure has given birth to 29,436 vibrant microenterprises. This anti poverty program had evolved through a long phase of experimentation. The Urban Basic Services for the Poor (UBSP) implemented in Alappuzha Municipality in 1992 focused on a community based and participatory approach to planning and
3
Panchayats and municipalities are bodies of the local self government in India
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implementing poverty reduction program. This was when the 9 point index for identifying families at risk of poverty was first evolved. The promising initiative prompted government to pilot the approach in Malappuram district of Kerala, in November 1994 under the Community Based Nutrition Program (CBNP implemented with UNICEF support). Almost simultaneously universal coverage of the program was decided upon for urban areas in December 1994. The Kudumbashree network had developed across the state in three phases. By March 2002, the entire state was brought under the Kudumbashree network. The Mission of Kudumbashree is: To eradicate absolute poverty in ten years through concerted community action under the leadership of local governments, by facilitating organization of the poor for combining self-help with demand-led convergence of available services and resources to tackle the multiple dimensions and manifestations of poverty holistically. The major strategies of Kudumbashree can be highlighted as follows1. 2. 3. 4. 5. 6. 7. 8. 9. Identification of poor families using a non-monitory poverty index Organizing the poor to a 3 tier Community Based Organization (CBO) Empowerment of women through Community Based Organizations’. Formation of Informal Bank of Poor women operating round the clock throughout the year, starting from thrift & credit operations Formation of micro-enterprises. Convergent Community Action. Strong liaison with LSGs Intervention in Anti Poverty Sub Plan, Women Component Plan, Local Economic Development of local self governments Community monitoring mechanism for local development
Structure of Kudumbashree The program is structured under three tiers starting from the grassroots to the block levels called the three tier community Based organizations (CBO) Neighbourhood Group (NHG) The lowest tier constitutes the Neighborhood Group (NHG) consisting of 20-40 women members selected from economically backward families. Meetings are convened on a weekly basis in the houses of NHG members. In the weekly meeting all members bring their thrift, which will be collected and recycled to the system by way of sanctioning loans. Micro plans for addressing poverty issues are also prepared after taking stock of the situation. In each Neighborhood Group from among the poor
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women five volunteers are selected for undertaking various functional activities. Community Health Volunteer, Income generation activities volunteer, Infrastructure Volunteer, Secretary and the President. Area Development Society (ADS) The second tier is the Area Development Society, which is formed at ward level by federating all the NHGs in the ward. The activities and the decision in the ADS are decided by the representatives of the women elected from various NHGs. The Area Development Society functions through three bodies viz, General Body - consisting of all President/Chairpersons, Secretaries & 3 sectional volunteers such as Health, Income Generation and Infrastructure volunteers of federated NHGs. The Governing Body is constituted by electing a President, Secretary and five members committee from among the General Body. The third body is the one which has a linkage with the LSG in both the rural and urban areas. In grama panchayat in the rural area, the ward member is the Patron of the ADS. In Urban Local Bodies a separate Monitoring & Advisory Committee is constituted with ward Counsellor as chairperson. Community Development Society (CDS) At the Panchayat / Municipal level a Community Development Society (CDS), a registered body under the Charitable Societies Act is formed by federating various ADSs. The CDS too has three distinct bodies viz, the General Body, the Governing body and the body in Linkage with the LSG at rural and urban areas. The General Body consists of all ADS Chairpersons and ADS Governing Body members along with representatives of Resource Persons, Officers of the Local Body who are involved in implementing various Poverty Alleviation and Women Empowerment Program. Similarly, the Governing body consists of president, vice president, members and selected committee members. Other government officials of the LSG with stake in poverty reduction are ex-officio members. State-community Nexus: Reason behind widespread implementation of the program It is the proximity of the CBO with local governments that makes Kudumbashree unique. Most of the government interventions in the area of poverty reduction and women’s development use the CDS net work. It is therefore seen integral to the functioning of local governments in Kerala. The three tier community Based organizations maintain a separate body to function in liaison with the LSGs. The LSGs derive the powers from the constitution for monitoring and guiding the community structure which is functioned through the Social Welfare Standing Committee. The CDS at
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the same time have built in a formal mechanism to bring together the LSG and the community through the CDS evaluation committee. The Kudumbashree CBO network is present across almost the entire state. Its presence is felt in 999 Gram Panchayats, 53 municipalities and 5 corporations in Kerala (www.kudumbashree.org). The program is also at the heart of many action research models developed by local governments. Any community effort coordinated by the Local Self Government (LSGs) like destitute rehabilitation, universalizing take home ration, introducing computer education in schools, etc uses the Kudumbashree network. As like local self governments the linkage program plays a major role in the development of society. The CDS works in close liaison with the LSG and serves as both dissemination organ for government programs and as enunciator of community needs in governance issues. Some of the important functions of CDS includes, linkage banking co-ordination, information dissemination, CBO strengthening activity, facilitating income generating activity, identification of the poor for LSG led development program, articulation of community demand for development, LSG plan intervention on different issues and facilitation of centrally sponsored schemes for development. Though the community structure of Kudumbashree is embedded in the local self government, it has an autonomous functional character of its own. General Body of CDS consists of executive committee members of all ADS in the LSG area. Executive committee consists of elected members from the General Body-one per ADS, not more than five women LSG members, two CDS members co-opted by the committee. The Evaluation Committee of the CDS is chaired by the President of the Gram Panchayat. The Evaluation Committee serves as the platform for bringing about convergence in the implementation of development activities in the LSG. It approves the CDS Action plan, and ensures that the activities proposed in the Action Plan find place in the allocation plans of the LSG and line departments and credit plans of financial institutions. The ADS shall be responsible for the implementation of the centrally sponsored schemes like National Rural Employment Guarantee Scheme (NREGS) which works in its area. The CDS system acts as a subsystem of the local government and takes decentralisation of power further down to the grassroot level. The Kudumbashree program is built in the system of Local Self Governance in Kerala. The widespread effective implementation of the program throughout the state is therefore linked to the success of Local self governance in India. The experiments of democratic decentralisation in Kerala represent one of the latest episodes of the history of democratization of Kerala society (Kerala Development Report, 2008). As explained by Dreze and Sen (1989) studies on Kerala model of development generally attribute its success to the legacy of ‘public action’. The executive Director of Kudum10
Deepika and Sigi: Financial inclusion
bashree T K Jose told in an interview to the Hindu, “.......the SHGs supported by the mission were able to provide income, employment and enterprise to so many poor only in the context of decentralised governance. Decentralisation offered Kudumbahsree the opportunity of accessing funds from several sources throughout the Panchayats. Similarly, Kudumbashree has played a responsible role in decentralisation in Kerala, ensuring participationin the grama sabhas4, helping panchyats through meticulous and rational selection of beneficiaries and by setting directions for the decentralisation process in itself. Kudumbahsree taps 75% of its resources from the funds of the decentralised LSGs meant for women and the poor and targets it through the women SHGs. If the Kerala decentralisation program’s achievement has been pro poor, a lot of credit should go to the intervention of women SHG members in the grama sabhas” (The Hindu January 2, 2005). As explained by Isaac (2010) Kerala is one state in India that has been successful in achieving a perceptible reduction in poverty. This success has been realised through a holistic approach emphasising structural changes such as land reforms, reforms in health education and more importantly through the community participation through the Kudumbashree program. The dramatic reduction of poverty in Kerala has not simply been because of targeted poverty alleviation program, but rather owing to larger social processes. Financial Inclusion through SHGs The SHG Bank Linkage of Kudumbashree The SHG Bank linkage model and the commercial MFI model represent the two prominent microfinance models in India. Commercial models are funded and run by private institutions largely for a business purpose but might incorporate the role of NGOs, NBFCs, charities and co-operatives. The SHG Bank linkage model usually run by a social intermediary was introduced in 1991-92 with a pilot project of linking 500 SHGs with banks which now has grown to more than 3 million in India. The Kudumbashree’s microfinance model comes under the Bank SHG model where the social intermediary is the neighbourhood groups (NHG). The main difference between the SHG and NHG is that SHGs are non-governmental, informal organizations promoted by the government for the upliftment of the poor whereas the NHG model of Kudumbashree is embedded in the local self government of Kerala. NHGs act as an effective MFI and are the grassroot level unit of the poor women.
4
Grassroot body of the local self governance in India
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Kudumbashree promotes Neighbourhood Groups (NHGs) of 10-20 poor women members as an interface between poor women, banks and government agencies. NHGs are instrumental in thrift mobilization, encouraging the poor to save and to avail low cost formal credit. They facilitate easy and timely credit to the un-reached. The amount of loan to members and the purpose for which the loan should be utilized are decided by the NHG. The repayment is collected weekly during the NHG meetings. Funds at NHG is made up of membership fees, interest and penal interest earned from lending to members, donations, receipts from activities, etc. NHGs maintain a thrift account with a local bank. It is estimated that the thrift mobilized is on an average Rs 40 per month per member. Bank linkage is obtained only for the graded groups, where grading is done based on NABARD (National Bank for Agricultural and Rural Development) grading norms. Records are well maintained on all aspects of thrift, lending, funds etc. Overall, during the period from 2000 April to November 2006, the number of NHGs in rural areas registered a growth of 464 per cent with a simple average growth rate of 77 per cent per annum. The corresponding increase in number of families was 386 per cent with a simple average annual growth of 64 per cent. Although the overall growth of NHGs in urban areas was only 59 per cent and that of number of families 163 per cent, it is also striking because all the municipalities were covered even before the KDS project was launched. The number of NHGs per Gram Panchayat increased from 29 in March 2001 to 165 in November 2006(www.kudumbahsree.org). Accountability, Training and Incentives Accounts of NHG are audited by the Kudumbashree Accounting and Auditing Service Society. Members from the NHG alone or along with members of other NHGs form activity groups for micro enterprises, joint liability groups etc. In some cases, CDS borrows from the bank bulk loan for on lending to eligible NHGs. In Bulk linkage, CDS charges 1 or 2 percentage points more than the bank’s interest rate. A certain date is fixed by the bank within which NHGs are required to repay the amount to CDS. CDS in turn pays the collected amount to bank. The Bank Linkage programme has helped the NHGs to augment their existing resources mobilized through thrift. Matching grant is an incentive provided to NHGs. This grant linked to amount of thrift mobilized, performance of NHG in the grading and loan availed from banks. Special trainings for CDS Chairpersons, Micro Finance Subcommittee, Accountants, NHG Secretaries and resource persons are organised. CDS executive committee is trained to assess ward level status of Grading, Linkage and Matching grant. Block level micro finance resource person were positioned to give assistance to NHGs to prepare matching grant applications. Special campaigns in Grama Panchayats which had not availed of matching grant were conducted. Kudumbashree has chalked out
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a comprehensive Financial Literacy Plan in order to provide a platform for NHGs to be aware of and benefit from formal banking services. As per the interest subsidy scheme, all commercial and cooperative banks that are prepared to lend to Kudumbashree NHGs under the linkage banking programme at 9% or below, are participants in the scheme. The SHG programs of Kudumbashree has an element of subsidy which is back loaded in the repayment schedule in the sense that members of NHGs receive the subsidy only after the full repayment of bank loans sans the subsidy amount (Ajit, Sunil and Raman, 2006). This is presumably to prevent wilful defaults at the initial stage. The Bank NHG borrower model of Kudumbashree is the most cost effective for the ultimate borrower. Most of the time, on lending is done without any margin being loaded to the lending rates by the NHG. Even in cases where the NHG charges 1-2% margin, this money goes to the corpus fund of the NHG. In many NHGs profits earned out of the lending are distributed to the household members as dividends (Ajit, Sunil and Raman, 2008). Kudumbashree has entered into an agreement with C-DAC to develop a digitized MIS which would be uploaded from each CDS. The software development is funded by the Ministry of IT, Government of India. The first 2 modules to be developed and tested in the field were the general information and micro finance modules. Survey results on the opinion about the SHG program Of the usable sample of 410 members in rural and urban areas, 78 percent in urban areas and 82 percent in rural areas answered that the present structure of microfinance helped them to transform information easily and increase the social net work of members. Other than a small percent of non respondent category all the members pointed out one or the other positive aspects of existing structure. 5.6 percent of members felt that 20 people membership in SHG is small for various types of group activity, to get more income from various incomes generating activities it should add more people. 14.4 percent of members opined Kudumbashree should give some relaxation of time to repay the loan. From these opinions we know that there are some inconveniences existing in microfinance structure. Even though 20 percent of members opined there is some inconvenience, they felt that it is to a large extent adaptable. The views provided by the SHG members provide for a first hand opinion on the reach of the program to the poor and its positive impact on their lives. Kudumbashree and Poverty alleviation Identifying the poor The women centred microcredit centres in Kudumbashree used a combination of indicators to identify the poor women for microcredit programs. Rather than judging
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poverty using income or consumption level of the family, they used a multidimensional approach to isolate the participants. As described by Ajit, Sunil and Raman (2006), the Kudumbashree methodology is believed to be superior to the conventional head count ratio as it captures the multidimensional characteristics of poverty and leads to the identification of the most vulnerable families. To identify the poor, Kudumbashree carried out a baseline survey with the help of local governments. Women constrained to having access to the wage labour market and being restrained from an equitable share of power in household decision making processes were identified using 4 or more of the nine non-monetary psychosocial indicators (see Appendix 1). Kudumbashree has developed an innovative methodology to identify the poor using non-economic parameters and has organized the poor under a well networked Community Based Organization (CBO). The non-economic parameters are transparent and simple that can be used by the community. There is representation to the BPL families right at the NHG levels. Either the president or the secretary of the NHG has to be from the BPL family. With the growth of NHGs especially in the rural areas over the last decade, the number of poor families enrolled in the program has substantially increased. The number of poor families technically identified as poor based on the 4/9 criteria as per official records is heading towards 3.8 million in a state with only around 7.5 million households. Thus the poor households work out easily to more than 50 per cent of the total households. The percentage of NHG households covered to the total households in the Gram Panchayats which was 13 per cent in March 2001 rose to 63.54 per cent in November 2006. It ranged from 45 per cent in Kollam district to 90 per cent in Kannur district. These percentages of poor seem to be an untenable number. As per the NSS 61st round, the percentage of population below the official poverty line in 2004-05 works out to 13.2 per cent for rural areas and 20.16 per cent for urban areas of Kerala (Himanshu, 2007). The poverty line under this methodology would certainly stand much above (if measured in income terms of the families) than under any of the existing approaches. The chances of inclusion of vulnerable families, therefore stands to be much higher in the Kudumbashree methodology than in the conventional income or consumption approach of measurement of poverty. Since the program is targeted through the community based organizations the awareness created of the program and its target to the extreme poor also stands much higher. Income generation through SHGs and its impact on poverty Income generation is one of the prime responsibilities of every Kudumbashree SHG. These SHG units of urban and rural areas are engaged in various income generating activities like agriculture, business, production, selling & marketing of processed food, etc.
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Unemployment is one of the major social problems in India and the voluntary unemployment is very common among the women in India. These types of activities of SHG groups act an important tool to reduce the problem of poverty and unemployment both in rural and urban areas of Kerala as these activities gave them a regular income. The survey results (in Table 1) revealed that the incomes from various activities not only made them economically independent but also helped them to elevate the standard of living of the family. 44.4 percent of total sample ascertained that they reaped regular income from SHG activities, 42.4 percent answered that it served them partially, only 13. 2 percent answered that it does not add much to their income.
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Deepika and Sigi: Financial inclusion
If we examine the sample across age groups, the program’s reach to meet the expenses of the family is the highest in the age group between 45 to 55 years. This shows the achievement of the program in reaching to the old age groups who are left with lesser alternatives otherwise. Table 3 below also shows that fact that more clearly, i.e. 45.6 percent of members feel that SHG participation helped them to reach present better situation whereas 36.6 percent of members feel SHG participation has partially helped them to reach the present better situation. Table 4 gives a glance over thrift amount paid by members in the SHGs. 38.3 percent of members paid Rs 50 to Rs. 100 per week as a thrift amount. In urban area 40 percent of members paid below Rs. 50 as thrift amount weekly whereas 44.1percent paid an amount between Rs 50 to 100 as a thrift amount. In rural area 37.4 percent of members paid an amount between Rs 100 to 200 and 31.6 percent members paid between Rs 50 to Rs.100 weekly as thrift amount. Only 15.3 percent of rural members had paid below Rs 50 rupees as a thrift amount. If we make a comparison in the payment of thrift amount between urban and rural areas, rural areas have a better picture of thrift.
Table 4: Thrift savings among SHG Members across Areas of Study
Weekly payments B/w 50 to 100 RS 97 44.1% 23.7% 60 31.6% 14.6% 157 38.3% B/w 100 to 200 RS 26 11.8% 6.3% 71 37.4% 17.3% 97 23.7% B/w 200 to 300 RS 8 3.6% 2.0% 22 11.6% 5.4% 30 7.3% B/w 300 to 400 Rs 1 .5% .2% 6 3.2% 1.5% 7 1.7% B/w 400 To 500 RS 0 .0% .0% 2 1.1% .5% 2 .5%
Area of Study
Urban % within Area Of study % of Total Rural % within Area Of study % of Total
Below 50 RS 88 40.0% 21.5% 29 15.3% 7.1% 117 % of Total 28.5%
Total 220 100.0% 53.7% 190 100.0% 46.3% 410 100.0%
Total
Table 5 shows that a large majority of members of SHGs have utilised the loan amount from the units. In the year 2009 63.9 percent of members had taken loan. In urban area Kudumbashree has charged an interest rate of 10 % whereas in rural area Kudumbashree has charged 6 percent interests rate monthly. 36.8 percent of members had taken loan amount between Rs 5,000 to 10,000 and 29.8 percent of members had taken loan below Rs 5000. Between Rs 10,000 to 20,000 19.5% members had taken loan and only 4 represented in the sample above Rs. 40000. This also clearly indicates active participation of members in SHG activities.
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Table 5: Loan Amount Taken from SHG across Areas of Study
Loan Amount B/w 5000 To 10000 102 46.4% 24.9% 49 25.8% 12.0% 151 36.8% B/w 10000 To 20000 30 13.6% 7.3% 50 26.3% 12.2% 80 19.5% B/w 20000 To 30000 11 5.0% 2.7% 34 17.9% 8.3% 45 11.0% B/w 30000 To 40000 4 1.8% 1.0% 4 2.1% 1.0% 8 2.0%
Area of Study
Urban % within Area Of study % of Total Rural % within Area Of study % of Total
Below 5000 72 32.7% 17.6% 50 26.3% 12.2% 122 % of Total 29.8%
Above 40000 1 .5% .2% 3 1.6% .7% 4 1.0%
Total 220 100% 53.7% 190 100% 46.3% 410 100%
Total
Table 5: Loan Amount Taken from SHG across Areas of Study
Loan Amount B/w 5000 To 10000 102 46.4% 24.9% 49 25.8% 12.0% 151 36.8% B/w 10000 To 20000 30 13.6% 7.3% 50 26.3% 12.2% 80 19.5% B/w 20000 To 30000 11 5.0% 2.7% 34 17.9% 8.3% 45 11.0% B/w 30000 To 40000 4 1.8% 1.0% 4 2.1% 1.0% 8 2.0%
Area of Study
Urban % within Area Of study % of Total Rural % within Area Of study % of Total
Below 5000 72 32.7% 17.6% 50 26.3% 12.2% 122 % of Total 29.8%
Above 40000 1 .5% .2% 3 1.6% .7% 4 1.0%
Total 220 100% 53.7% 190 100% 46.3% 410 100%
Total
Note:1= Purchase of consumer durables, 2=Consumption, 3=marriage, 4=house repair,5= productive investment, 6=repayment of past loans,7=purchase of consumer durables & productive investment, 8=productive investment & repayment of past loans.
The loan amount taken from Kudumbashree has been used for various purposes like purchase of consumer durables, consumption, marriage, house repair and productive investment etc. Most of the members have sed this loan amount for productive investments i.e. 59.3 percent of members. 7.3 percent members used the loan
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amount to repay the past loans and 12.4 percent members used it for purchase of consumer durables & productive investment.
Members of SHG repay the loan bi weekly, tri weekly and monthly. 74 .6 percent of members had repaid the loan amount weekly and only 4.6 percent of members repaid monthly. In urban area 68.2 percent members repaid weekly whereas in rural area 82.1 percent members are repaying the loan weekly. The loan repayment schedule as seen at a macro picture also speaks of a high repayment rate of 94 percent. Also repayment in the rural areas is higher as compared to repayment in urban areas. The reason cited by one of the earlier studies (Ajit, Sunil and Raman, 2008) showed that microenterprises in the agricultural sector have a repayment rate of 94 percent while activities related to the industry and service sector have a relatively low repayment rate of 84 percent and 90 percent respectively. The high repayment rate among agricultural microenterprises brings into focus the role of marketing in the whole process. Agricultural products are generally traded locally as they have ready markets in rural communities. On the other hand, non agricultural products are not readily tradable or marketable. They face severe competition from existing organized retail outlet. Therefore, for non-agricultural activities group repayment record is handicapped by marketing constraints. To make profits from these non-tradable goods or services is the major challenge faced by micro-credit enterprises. The study suggests for a good understanding of the dynamics of micro credit programs with an analysis of labour, credit and product markets in a unified framework.
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Other than SHGs of Kudumbashree in Kerala other options for credit are available like that of money lenders, commercial banks, cooperative banks, chit fund etc. The survey reveals that members of SHG have also taken loan from these sources to meet their small and big financial needs. The sample interestingly revels that 57.6 percent of members have actually not borrowed from any other sources other than SHGs. That point somehow speaks of the success of SHG activities. In urban area 14.5 percent of members are taken loan from money lenders but in rural area only 2.6 percent of members had borrowed from money lenders which is a contrasting picture as compared to the rest of India. Among these 25.9 percent members had regularly repaid the loan which is taken from outside sources. Members also revealed that they prefer loans from SHGs because of low interest rate, subsidy & fewer formalities for the loan. From these analyses we can assess that SHG `s thrift and credit activities had played a crucial role in meeting the financial requirements of members and microfinance has became a powerful tool in the state of Kerala in addressing the problem of poverty of the people. Microenterprise Linkage model: Enhancing Financial Viability of SHGs It is now a much hailed argument that poverty alleviation strategies should focus on improving individual well being by improving the capability of the poor to function in the society. To put it in other way, the poor will satisfy their consumption needs by focussing not on their own needs but on the needs of others. It has also been proved true that in the absence of advice on the markets to serve and the products to make for buyers in the output markets, the entrepreneurial efforts of the poor are less likely to succeed. It is therefore essential that the provision of consulting services by finan-
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cial service providers need to bundle both credit and consulting services or rely on specialist organizations in the value adding chain to provide the consulting services. This would largely enhance the borrower’s chances of repayment and success in their enterprises (Shashi, 2010). Kudumbashree views micro enterprise development as an opportunity for providing gainful employment to the people below poverty line and thereby improving their income and living standard. Micro enterprises facilitated by Kudumbashree fall under the banner of Rural Micro Enterprise (which takes after the SGSY pattern), Yuvasree (which caters to educated youth), and the SJSRY program (which is implemented through the agency of Kudumbashree). The Rural Micro Enterprises (RME) Programme was initiated to help women to set-up Individual and Group enterprises. The minimum number of people required for a group enterprise is five. The initiatives of microenterprises under Kudumbashree are explained in Appendix 2. Group enterprise projects varied from Rs 2,50,000 or above. Subsidy per group of Rs 1,00,000 (or 50% of the project cost or whichever is less) is provided. The primary and ancillary resources met for the smooth functioning of the program monetarily and through non monetary consulting services are noteworthy. One of the major issues faced by microenterprises is the shortage of working capital due to delay in payments by wholesalers and departments. Revolving fund is provided to meet urgent requirement of working capital. Similarly crisis management fund is provided to prevent the unpredictable negative event from escalating into a bigger problem. The said fund is also intended for networking enterprises of similar nature for utilising economies of scale and for ensuring effective marketing linkage. Members from the NHG alone or along with members of other NHGs form activity groups for micro enterprises, joint liability groups etc. The microenterprise model of Kudumbahsree provides a classic example of a tripartite linkage model of an enterprise. The functioning of enterprises are made possible due to the strong linkages created in the Kudumbashree network of community, state and financial and donor institutions who are again linked through the state. Activities on microenterprises are functional at every tier, the NGH, ADS and the CDS levels which are linked to the local self governments. Formation of activity group begins at the NGH level and passes to the ADS and CDS levels depending on the number of NHGs and ADSs being co-ordinated. Financial assistance to Microenterprises (MEs) is decided in the CDS. If an NHG wants to link with banks for loan, they have to submit their application to CDS and the CDS will audit the assets and liabilities and issue certificate to the bank for verification. This itself provides a kind of guarantee for a bank. When the linkage with banks exposed inadequate accounting procedures in the NHGs, the mission organised a two week training programme in book keeping
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and accounting at the Area development society levels. The training program enabled women to understand banking practices better and helped them in managing their micro enterprises effectively. The continuous training programs of Kudumbahsree are also organized with the support from UNICEF, the government, NABARD and other organizations linked through the state. Either a government body or a consulting organization hired by the Kudumbahsree may be involved in the required training program. The mission is also beautifully linked to the functioning of the centrally sponsored scheme like that of NREGS (National Rural Employment Guarantee Scheme) which is functioning more efficiently due to its linkage to Kudumbashree network. One of Kudumbashree’s micro enterprises Ksheera Sagaram in Nedumkandam block panchayat in Idukki district of Kerala has received state wide attention on attaining self-sufficiency in milk production. K Madhu, district co-ordinator of Kudumbashree mission told in an interview to the Hindu that many factors contributed to the success of the project (The Hindu, 2011). The convergence of different spheres of dairy sector, setting up of biogas plants, introduction of new cattle grass, hybrid varieties of cattle, quality in the milk supplied all together contributed to the success. The Ksheerasagaram project launched during 2009-10 has 675 small holder dairy units under 5 kudumbashree units each producing around 10,000 litres of milk a day. The units purchased the cows and constructed the cattle sheds utilising bank loans and each units are on average making a profit of RS. 10,000 a month, after all the costs and repayment of loan instalments. In another Nature fresh program, hands on facilitation by the veterinary surgeon and the dairy development officer on matters of feed, disease management, hygiene control etc were provided. Two wheeler vehicles have been provided to the marketing group through loans. It is noteworthy that hygienic management and fresh supply has enabled the project to charge a premium price for the milk for its freshness, and demand continues to outstrip supply. Another interesting case is that of Nutrimix initiative of Kudumbashree set up in 2006 which had to close due to lack of orders (www.kudumbahsree.org) but later succeeded due to collaboration. 20 Nutrimix units were functioning in different grama panchayats with a loan of Rs 11,500 each, a subsidy of Rs. 50,000 and Rs 10,000 as member contribution totalling an investment of Rs. 1,75,000. Four of those units were functioning in a very competitive manner. There was soon a setback and their products went unsold. In January 2007, the Kudumbashree district mission directed the Nenmeni CDS office to bring the members of 4 units as a collective. The district mission provided consistent support with several training programs. Revolving fund was used to buy 10 cents of land. Products were diversified to enhance the revenue sources to make the enterprise more financially viable. The members of the group now feel that it is the strength of the group that brought about a turnaround and they are now in a position to compete with any companies in the product categories.
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Collective farming under Kudumbashree is again a case of success attributed due to the convergence of different departments of the state. A typical farming group is formed consisting of 4-10 members. These groups are now organized as Joint Liability Groups (JLG) to make available institutional credit and also for proper monitoring. The group cultivates in one of the three types of land viz, own, leased or Government land. Majority of women groups take up land in lease for cultivation. Eligible assistance is made available from all the converging partners. A campaign for panchayat and NREGS linkage in 2009-10 saw an exponential increase in women talking up agriculture as activity groups. The focus was on rice and vegetables, and a double benefit of livelihood and food security made collective farming a popular intervention with over 2.3 lakh women taking up agriculture. The State Government supported farming groups organized as Joint Liability groups through interest subsidy. Five per cent subsidy is provided for the interest rate on loans taken as crop loan from the banks. Credit sources such as primary Agricultural Cooperative societies, nationalised banks and other private banks were other important supporting agencies for the collective farming groups. PACS provide interest free loans for selected crops and play an important role in the farming by these women groups. Nationalised banks and some private banks provide crop loan for the group at 7 percent. Out of this 7 percent, 5 percent is provided as interest subsidy from Kudumbashree and hence the group gets the loan at a low interest rate. If the group is able to leverage the 2% interest subsidy available from GOI for prompt repayment, it would in effect become an interest free loan. A successful case of integration of NREGS with the panchayat and Kudumabshree support is that of Perambra, where 140 acres of land which was lying fallow for the past 25 years was brought under cultivation by 35 farming groups. Krishibhavan5 supports farming groups by providing subsidy for seeds and fertilizers. Soil sample testing is one of the activities done by the Krishi Bhavans for the groups. The success of Kudumbashree thrift and credit operations proved that the poor could save money and were trustworthy in banking operations. This is a remarkable achievement when the nationalised banks in Kerala have a total of Rs 18 billion as non-performing assets. Banks have graded 86,911 NHGs for linkage and 58, 298 NHGs are linked and Rs 2, 304.8 million has been disbursed as loans. As many as 19 CDSs in the state have mobilised thrift above Rs 10 millions which they are proud of. Many Kudumbashree NHGs have created role models from micro finance to micro capital leading to micro enterprises (End of the rainbow, www.kudumbahsree.org). The microenterprises have created sufficient evidences of enhancing the financial viability of the microfinance institutions created through the SHG model under the Kudumbashree network.
5
Agriculture department of government of India
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Conclusion ‘Kudumbashree’ the state poverty eradication mission initiated by the government of Kerala in India can be seen as a strong alternative to the commercial model of microfinance institutions in the country. The women centred microcredit centres of Kudumbashree used a combination of indicators to identify the poor women for microcredit programs. The Kudumbashree methodology of identifying the poor is believed to be superior to the conventional head count ratio as it captures the multidimensional characteristics of poverty and leads to the identification of the most vulnerable families. The activities of SHG groups under the program have acted as an important tool to reduce the problem of poverty and unemployment both in rural and urban areas of Kerala. The survey results of the study revealed that the incomes from various activities not only made them economically independent but also helped them to elevate the standard of living of the family. The results also revealed the positive picture of the program where a good percentage of the loan amount has been used for productive investments unlike in most of other microfinance programs in the country. The microenterprise model of Kudumbashree provides a classic example of a tripartite linkage model. The functioning of enterprises is made possible due to the strong linkages created in the Kudumbashree network of community, state and financial organizations facilitated through the state. Activities on microenterprises are functional at every tier, the NGH, ADS and the CDS levels which are linked to the local self governments. The mission is also beautifully linked to the functioning of some of the centrally sponsored schemes like NREGS which is functioning more efficiently in Kerala due to its linkage to Kudumbashree network. The success of Kudumbashree thrift and credit operations proved that the poor could save money and were trustworthy in banking operations. The microenterprises have created sufficient evidence of enhancing the financial viability of the microfinance institutions created through the SHG model under the Kudumbashree network.
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References Ajit, D, Sunil R and Raman K R (2008), Microcredit and repayment rates: A Case study of Kudumbashree microenterprise program in Kerala. Paper presented in Conference on Money and Finance, January 18-19, 2008, IGIDR Mumbai Cohen M and Sebstad J (2000), “Microfinance Risk Management and Poverty, AIMS Paper, Management Systems International Dreze, J and A Sen (1989), Hunger and Public Action, Oxford Clarendon Press Government of Kerala (2005), Human Development Report, Thiruvanathapuram, State Planning Board. Himanshu ( 2007), “Recent Trends in Poverty and Inequality: Some Preliminary Results”, Economic and Political Weekly, February , 10, 2007. Hulme D (1999), Client Exits from East African Microfinance Institutions, Microsave Africa, Kampala. Isaac, T M Thomas (2010), “Kudumbashree Microcredit Alternative”, SCMS Journal of Indian Management, January-March, 2010. Kerala Development Report (2008), Planning Commission, Government of India Kudumbashree Annual Administration Report (2009-10). www.kudumbashree.org Kudumbashree website, www.kudumbahsree.org Reserve Bank of India (2011), Report of the Sub-committee of the central Board of Directors of Reserve Bank of India to Study Issues and Concerns in the MFI Sector, January, 2011. Shashi, C M (2010), “The make buy decision in marketing financial Services for poverty alleviation”, Journal of Financial Services Marketing, Vol 15. Shetty, Naveen K (2008), “ Microfinance for Microenterprise Development: An Inquiry for a New Paradigm”, Icfai Journal of Financial Economics, Vol VI, No1. Shriram, M S (2010), “Commercialisation of Microfinance in India: A Discussion of the Emperor’s Apparel”, Economic and Political Weekly, June 12, 2010, Vol XLV No 24. Sigi, M D, Deepika M G and Amalendu Jyotishi (2011) “Role of Microfinance in Poverty Alleviation and Women Empowerment: The case of Kudumbashree in Kerala” presented in the International Conference on Microfinance, University of Pondicherry, 27-29 January, 2011. The Hindu, 2011, “Kudumbashree’s dairy project scripts a success in Idukki”, The Hindu, July 28, 2011. Woller, Gary (2002), “From Market Failure to Marketing Failure: Market Orientation as the Key to deep outreach in Microfinance”, Journal of International Development, 14, 305-324
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Zeller, Manfred and Richard L Meyer (2002), “Improving the Performance of Microfinance: Financial Sustainability, Outreach and Impact”, pp 1-15, in The Triangle of Microfinance: Financial Sustainability, Outreach and Impact, edited by Manfred Zeller and Richard L Meyer, The John Hopkins University Press, Maryland.
Appendix
Appendix 1: Risk factors for Identifying the poor Identification of the poor is one of the prime requisites for the implementation of the projects. The following risk factors are considered for identifying the poor. Families with any four factors present of the nine are identified as poor. 1. 2. 3. 4. 5. 6. 7. 8. 9. No land/Less than 5 cents of Land No House/ Dilapidated House No Sanitary latrine No access to safe drinking water within 150 metres. Women headed household/Presence of a widow, divorce/abandoned lady/ unwed mother No regularly employed person in the family, Socially disadvantaged groups(SC/ST) Presence of mentally or Physically challenged person/chronically ill member in the family Families without colour T V
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Appendix 2. Microenterprise activities of Kudumbashree
Santhwanam A collaborative effort of Kudumbashree, HAP (Health Action for People-An NGO) and SBI (State Bank of India).This seeks to facilitate identification of and monitoring of life style diseases in the community. The home based screening system makes the measurements/estimations in Height, Body weight, Body Mass index, Body fat, Blood pressure and Blood glucose. Under the title of ‘Clean Kerala Business’. women from the poor families of Kudumbashree are engaged in door to door household waste collection and transport to the transit points fixed by the Urban Local Bodies. This produces a baby food supplement developed by Central Plantation Crops Research Institute (CPCRI) Kasaragod. The program has identified 560 groups throughout the state for this purpose, out of which, 272 have already started production. Food for ‘The Take Home Ration Scheme’ is provided to the Anganawadi network by the Amrutham units. Much of the data entry work taken up by Government departments is being out sourced to these units which give employment to over 2500 poor women. “Samagra” looks at creating Local Production Marketing Networks, systematizing procurement mechanisms providing better technology and management options and improving product quality by establishing production protocols. The focus is on developing all the backward and forward linkages for a single product or produce. Lease land farming is a scheme for the landless poor women of Kudumbashree Neighborhood Groups which has helped to increase the food productivity of an area by bringing fallow lands under cultivation. Starting with paddy, NHGs have expanded into vegetable cultivation, Banana, tapioca, horticultural crops and even tea.
Solid waste management Amrutham Food Supplement
IT and ITES
Samagra
Lease Land FarmingHaritashree
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Appendix 3: Community Based Activities under Kudumbashree
Ashraya Destitute Identification Rehabilitation and Monitoring Project for the rehabilitation of destitute families. The State Government’s assistance of Rs 10 Lakh per LSG was a Challenge fund for extending support to local governments that take up the implementation of the project. Buds is a Special school for mentally & physically challenged children. It caters the developmental, social, and emotional needs of children whose needs were formerly were often ignored or neglected. They are being provided with necessary medical attention, physical and mental therapy, mobility equipment, hearing aids, individual vocational and educational training, and skills to enable them to be independent. Balasabhas are grass root level groups of the children from NHG families. The concept came from experiences in the field when children used to accompany their mothers to the NHG meetings and they began to have their informal children NHG meetings. The mission organizes the children into Balasabhas as a part of its holistic approach to provide opportunities for personal growth and realization of talent. Capacity building to improve the employability of educated youth from poor families is a major challenge that has to be undertaken by the State. The Government of India through the special SGSY stream sanctioned an innovative project for this purpose. The Finishing School project is designed by Dr. Reddy’s Foundation, Hyderabad. Gender Resource Center focuses on addressing gender concerns, and capacitating Kudumbashree NHGs and LSG representatives to develop gender sensitive policies and to prioritize gender sensitive action. In its 11th Five Year Plan the state government chose the Kudumbashree NHGs as the main forum for social audit. This was started in the districts where the NREGA programs are being implemented. The quality of the work, the labor card distribution system, the wages and the time period etc would be audited and the report would be presented in Grama Sabhas. Kudumbashree gives prime importance to training and initiated a series of efforts in this regard. There are mainly two broad categories of training viz. (1.) For team building and social mobilization and (2) for skill development. Major training areas fall into 4 types viz, enterprise related, micro finance related, social development related and gender development related. An indicative list of the areas where training related to micro enterprises is given below: a. General orientation training program for the elected representatives in LSGs, line department officials, CDS functionaries and entrepreneurs, b. Identification and training of Microenterprise consultants, c. Skill Development training for entrepreneurs, d. Special emphasis on marketing and accounting training inputs , e. Performance improvement and product diversification training to entrepreneurs, f. Training for implementing standardization protocols and brand development. g. Quality management inputs and business counselling.
Buds
Balasabha
Finishing School
Gender Resource centre
Social Audit
Training
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