Post on 13-Dec-2015
An approach to building sustainable SHG An approach to building sustainable SHG federations federations
Kalpana Pant with federations – 7Kalpana Pant with federations – 7thth August 2012 August 2012
Chaitanya – Empowering Women and
Youth
One of the earliest institutions to promote SHG women’s financial institution - 1991
Currently, 91000 families organised into SHGs/ clusters and federations in 1200 villages and 50 federations
A Resource organisation on self –help groups and federations in the country
Closely worked with the government – designing of MRCP (Swa-shakti, Swayamsiddha, CAIM, Tejaswini, Vasundhara)
Courses on SHG and micro finance with State Open University and TISS
Microfinance: Issues and Challenges of Non- community Based Approach
• Capital Adequacy and Commercial Investment- mobilizing capital to maintain debt equity ratio. Ownership transfer and often mission drift.
• Elimination of Saving Services - focus of MFs remain primarily on credit services.
• Drift in Community and Poverty Focus – Without participation of community greater possibility of mission drift
• Community Remains Mere Group of Customers -Social capital and social development process is alienated
Need of Community Based Microfinance Approach
• Empowering Community– participation of community in decision making is essential
• Community Ownership Retains Focus on Community and Poverty- Resources from community are invested to leverage funds
• Need Based Service Delivery – Extends thrift and credit services with social intervention support quite effectively.
• Strengthening Local Institutions for Local Development – To address context specific local development issues people’s institutions with resources can play crucial role.
• Eliminates Dependence and Risk Attached to Foreign and Commercial Investments – upholds the interest of people first.
Most Importantly…
An integration of financial as well as non financial services
Social intermediation helps cement the foundation of a micro finance programme – it builds ownership, networks, increases involvement and risk taking capacities
Genesis of the Federation
•SHGs started in 1989 in Chas area in Khed block of Pune District
•In 1991, 14 SHGs decided to come together and form a federation
•The federation was registered in 1993 under Societies’ registration Act 1860 and Bombay Public Trust Act 1950
Sustainability – what Do we Mean?
Key Aspects of sustainability
•Value orientation to avoid mission drift•Increased capacity of members to take
risk•New innovative ideas•Strong governance, community
ownership – •Networks and convergence •Conflict resolution •Role transformation of leadership •Members perceiving direct benefit
Financial Sustainability
Business Model-2011 calculations •Cost of promotion -Rs. 400 to 500 per year
per member over a period of 4 years for a federation with membership of 2500.
•Recurring cost – Rs. 50000 per month (2011 calculations)
•Easy to achieve with low cost of operations •Demonstrated with 15 sustainable
federations –trying different models of income in 35
5 Sustainability Model Projections5 Sustainability Model Projections
Financial Costs Paid to Bank
Model 1 & 2 15%
Model 5 0%
Interest Charged to Borrower
Model 1 & 2 –Direct
24%
Model 5 –interest free
12%
Loan Loss Provision Model 1 & 5 1%
Model 2 –BC 0.1%
Model 3 - NABARD 0.1%
Model 4 0%
Assumptions with INR 20000 & 10 InstallmentsAssumptions with INR 20000 & 10 InstallmentsLoan O/S Model 1 Model 2 Model 3 Model 4 Model 5
Indian Bank Yes Bank NABARD ICICI Bank Vasundhara
20000 150 150 200
9000 67.5 67.5 90
8000 60 60 80
7000 52.5 52.5 70
6000 45 45 60
5000 37.5 37.5 50
4000 30 30 40
3000 22.5 22.5 30
2000 15 15 20
1000 7.5 7.5 1000 400 10
Sub Total 487.5 487.5 1000 400 650
Less Loss 200 20 20 0 200
Total 287.5 287.5 980 400 450
Assumptions with INR 40000 & 20 InstallmentsAssumptions with INR 40000 & 20 Installments
Loan O/S Model 1 Model 2 Model 3 Model 4 Model 5
40000 300 300 2000 800 400
38000 285 285 380
36000 270 270 360
34000 255 255 340
32000 240 240 320
30000 225 225 300
28000 210 210 280
26000 190 190 260
24000 185 185 240
22000 165 165 220
20000 150 150 1000 200
18000 135 135 180
16000 120 120 160
14000 105 105 140
12000 90 90 120
10000 75 75 100
8000 60 60 80
6000 45 45 60
4000 30 30 40
2000 15 15 20
Sub Total 3150 3150 3000 800 4200
Less Loss 400 40 40 0 400
Total 2750 3110 2960 800
1. The most sustainable option is of course interest free loans where with a spread of 12% p.a.
2. The second best option in case the loan size demanded is small (less than Rs. 25000) is a 5% service charge as in NABARD’S WSHG programme
3. For larger loan sizes, interest spread instead of fees based on loan outstanding is a much better option as clear in the comparison with Yes Bank where the income is higher with limited risk of 10%
Projections Summary
4. Model of 2% service charge can be explored in case federations are dealing with loans of small sizes – but not for large loan sizes
5. Most banks only give partial payment (1%) and remaining after repayment – in case of default the 1% remaining is not paid
6. Need to negotiate with the banks for an increase in service charge in case of loans of longer duration
Reducing cost - Human Resources
•Shift over a period of four years from professional to local staff
•Recruited from the community – from operational villages
•Recommended by women’s groups•Primarily women – requires high
investment in capacity building
Jankar – Key to sustaianability Jankar – Key to sustaianability Developing Capabilities and Skills of Rural SHG Women to Address their Developing Capabilities and Skills of Rural SHG Women to Address their Self Identified NeedsSelf Identified Needs
• community resource persons – for capacity building, audit of SHGs as well as financial counseling
Profit distribution by GMSS
•20% of profits for social programmes – Dipti Arogya Nidhi –community health programme
•20% for livelihood promotion – capacity building and loan fund for cow project
•20% for Chirag technical support team•40% for other expenses (Older federations
want an office of their own!)
Challenges in Mobilising resources
•Regulatory issues – savings not legal except in Cooperatives
•Rating agencies not familiar with CBMFI•Capital Adequacy Ratio not sufficient •Portfolio at Risk relatively higher that
other models •MIS – not customised – federations cannot
afford •Internal audit and control – possible with
training of the federation office bearers