AN ECONOMIC ANALYSIS OF
MICROFINANCE INSTITUTIONS LENDING IN
PRAKASAM DISTRICT OF ANDHRA
PRADESH
By
DAYAKAR GANDI
B.Sc. (Ag.)
THESIS SUBMITTED TO
ACHARYA N.G.RANGA AGRICULTURAL UNIVERSITY
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS
FOR THE AWARD OF THE DEGREE OF
MASTER OF SCIENCE IN AGRICULTURE
(AGRICULTURAL ECONOMICS)
CHAIRPERSON: Dr. G. RAGHUNADHA REDDY
DEPARTMENT OF AGRICULTURAL ECONOMICS
AGRICULTURAL COLLEGE, BAPATLA.
ACHARYA N.G. RANGA AGRICULTURAL UNIVERSITY
RAJENDRANAGAR, HYDERABAD – 500 030.
2012
DECLARATION
I, Mr. G.DAYAKAR hereby declare that the thesis entitled “AN
ECONOMIC ANALYSIS OF MICROFINANCE INSTITUTIONS LENDING
IN PRAKASAM DISTRICT OF ANDHRA PRADESH” submitted to the
Acharya N.G. Ranga Agricultural University for the degree of Master of Science in
Agriculture in the major field of Agricultural Economics is the result of the
original research work done by me. It is further declared that the thesis or any part
there of has not been published earlier in any manner.
Date :
(G.DAYAKAR)
I.D.No. BAM.10-35
CERTIFICATE
Mr. G.DAYAKAR has satisfactorily prosecuted the course of research and
that the thesis entitled “AN ECONOMIC ANALYSIS OF MICROFINANCE
INSTITUTIONS LENDING IN PRAKASAM DISTRICT OF ANDHRA
PRADESH” submitted is the result of original research work and of sufficiently
high standard to warrant its presentation to the examination. I also certify that the
thesis or part there of has not been previously submitted by him for a degree of
any university.
Date :
Place :
(G.RAGHUNADHA REDDY)
Major Advisor
Assistant Professor,
Department of Agricultural Economics,
Agricultural College ,
Bapatla.
CERTIFICATE
This is to certify that the Thesis entitled, “AN ECONOMIC ANALYSIS OF
MICROFINANCE INSTITUTIONS LENDING IN PRAKASAM DISTRICT OF
ANDHRA PRADESH” submitted in partial fulfillment of the requirements for the
degree of MASTER OF SCIENCE IN AGRICULTURE in the major field of
Agricultural Economics of the Acharya N.G. Ranga Agricultural University,
Hyderabad, is a record of the bonafide research work carried out by Mr. G. DAYAKAR,
under my guidance and supervision. The subject of the thesis has been approved by the
Student’s Advisory Committee.
No part of the thesis has been submitted for any other degree or diploma or has
been published. The published part has been fully acknowledged. All the assistance and
help received during the course of investigations have been duly acknowledged by the
author of the thesis.
(G. RAGHUNADHA REDDY)
Chairman of the Advisory Committee
Thesis Approved by the Student’s Advisory Committee.
Chairman :
Dr. G.RAGHUNADHA REDDY
Assistant Professor,
Department of Agricultural Economics,
Agricultural College ,
Bapatla.
Member :
Dr. D. VISHNU SANKAR RAO
Professor& Head,
Department of Agricultural Economics,
Agricultural College ,
Bapatla.
Member :
Dr. V. SRINIVASA RAO
Associate Professor and Head,
Department of Statistics & Mathematics,
Agricultural College,
Bapatla.
Date of final viva-voice:
AKNOWLEDGEMENT
“Drops of water hallow out a stone” this study is the outcome of help extended by
many hands.
Acknowledgement is written at last, placed at first and read the least, but still it is
the only opportunity to thank one and who are responsible in completion of the
task in time during the course of study and research.
With regardful memories……….
It would be all envisaging to offer salutions at the feet of the lord, who kindly
imbuted the energy & enthusiasm through ramifying paths of my thick & thin of
the efforts.
First and foremost, I would like to put on record of my heartfelt gratitude
to Dr.G.Raghunadha Reddy, Assistant professor, Department of Agricultural
Economics and esteemed chairman of my advisory committee, for his generous
help, inspiring guidance, timely advice, constant supervision, constructive
criticism, vivid encouragement & affectionate dealing throughout the period of
investigation & during preparation of the manuscript. I confess that it has been a
great fortune and profound privilege for me to be associated with him during my
master degree programme.
I feel inadequacy of words to express my deep sense of gratitude &
profound indebtedness to Dr.D.Vishnu Sankara Rao, professor and Head, Dept.
of Agriculture Economics, the respected member of my advisory committee of his
valuable advice, thought provoking and inspiring guidance, affectionate
encouragement generous help and co-operation during my course of study. He
played a pivotal role in my research and guided to conduct it systematically,
always smoothened many of my hardships & helped me to surge ahead even at a
stumbling blocks.
My diction does not seem to be rich enough to provide suitable words to
articulate my sincere and heartfelt gratitude to Dr. V.Srinivas Rao, Associate
Professor and Head, Department of Statistics and Mathematics, the distinguished
member of my advisory committee for his scholarly advice, sumptuous guidance,
constant encouragement & wise counseling which aided me in completing this
voluminous work.
I sincerely owe my deep sense of gratitude to distinguished faculties of our
department Sri.N. Ankamma Chowdary, Assistant Professor, Dr. K.N. Ravi
Kumar, Associate professor, Dr.K.S.R.paul, Assistant Research Officer, Cost of
Cultivation Scheme, Dr. Ch. Srilatha, Assistant professor, Dr.Y.Radha, Associate
Professor for their excellent teaching & co-operation extended to me during the
course of my study.
I offer the humblest mark of respect & love at the lotus feet of my revered
mother Sri Naga mani and Father Sri Jaya Paul , who always been a light of
energy & enthusiasm. With whose constant ambitious encouragement, support,
affection, sacrifice & blessings, I would not have come up to this stage.
My diction is too poor to translate the gratitude into words the love and
affection showered upon me by my dear brother Jayakar, my sister Dr. Leena
Grace & my cousin Krupakar without which it would not have been possible to
reach this stage.
Words fail to express my heartful gratitude to revered grandpas, Sri Israel,
and grandmas smt. Kotilingamma. Who had been role models of support, love &
affection who had done a lot to bring me to this level are inexpressible in words.
It is friends indeed who share our secrets. It is they who provide crutches
to the crumbling house of confidence & for bearance.
Fruit ful results would not have hastened without the moral support of my
best friends Anusha, Govardhan, Shameer, Raviteja, Ramesh, Jagan, Jayaram,
Mrudula, Mayuri, Siva parvathi, Karthik sudha. I wish to ackonowledge fo them
affection, care encouragement, endurance, help, & love bestowed upon me
throughout the course of my study & research.
It is my pleasure to extend my sincere thanks to my dear friends, Alekhya,
Deepika, Chaitu, Ashwin, Manendra, Gopi, Sravan, Vanoj, Madhu, Basavaraj,
Uday, Venkatesh, Sandeep, Neelambar, Reddy, Rushi, Bala krishna, Najitha,
Niveditha, Indulekha beloved seniors Sita Rambabu, Kishore, Bhanu, Vana
Prasad, Darwin, Vijay kumar, Mohan Rao, Praveen, Sravan, Ashok Babar,
Sandhya, Prabhu Gowda, Gowtam, Koteswara Rao, Tirumala Rao and dear
juniors Farukh, Jeevan, Samba, Srinivas, Siva Nageswara Rao, Rajula Naidu,
Venkatesh, Omkar, Venkata ramana, Ramanamma, Gowthami krishna and
Lavanya.
Iam very much thankful to record assistants, Smt.Saraswathamma &
attenders Sri. Nagireddy and Smt. Venkateswaramma for their help during my PG
programme in the department.
Finally I frankly admit that it is not possible to remember all that faces that
stood behind the façade at this juncture & omission of any names does not mean
lack of gratitudeness.
Date:
Place:
(DAYAKAR)
LIST OF ABBREVIATIONS AND SYMBOLS USED
%
: Per cent
∑
: Sum of
ADB
: Asian Developmental Bank
AP
: Andhra Pradesh
BC
: Backward class
BMI
: Body Mass Index
BPL
: Below Poverty Line
CEO
: Chief Execuitive Officer
CGAP
: Consultative Group to Assist the Poor
CMF
: Centre for Micro Finance
CPO
: Chief Planning Officer
DRDA
: District Rural Development Agency
DSL
: Debt Service Liability
DWCRA
: Development of Women and Children in Rural Areas
et al.
: and others
etc.,
: et cetera (and the rest)
Fig
: Figure
Ha
: hectare
i.e.
: That is
IKP
: Indira Kranthi Padham
JLG
: Joint Liability Group
KAWAD
: Karnataka Satershed Development Project
Kc
: Kendal’s Coefficient
km
: Kilo Meter
MACS
: Mutually Aided Cooperative Society
M-CRIL
: Micro Credit Rating International Ltd
MEPMA
: Mission for Elimination of Poverty in Municipal Areas
MF
: Marginal Farmer
MFI
: Microfinance Institutions
MFIN
: Micro Finance Institutions Network
MLR
: Multiple Linear Regression
mm
: Milli meter
NA
: Not Available
NABARD
: National Bank for Agriculture and Rural Development
NBFC
: Non Banking Finance Companies
NGO
: Non Government Organization
NII
: Net Incremental Income
NIRD
: National Institute of rural development
No.
: Number
NREGA
: National Rural Employment Guarantee Act
NS
: Non Significant
p.a
: Per Annum
PD
: Project Director
R2
: Co-efficient of Multiple Determinations
RBI
: Reserve Bank of India
RRB
: Regional Rural Banks
Rs.
: Rupees
SC
: Schedule Caste
SD
: Standard Deviation
SERP
: Society for Elimination of Rural Poverty
SGSY
: Swarnajayanthi Gram Swarojgar Yojana
SHG
: Self Help Group
Sig.
: Significance
ST
: Schedule Tribe
TDP
: Telugu Desam Party
Viz.,
: namely
LIST OF TABLES
Sl.No
Title
Page
No
3.1
Sample for the study
39
4.1
Administrative divisions of the district
60
4.2
Rainfall distribution of the district for the year 2009-2010
60
4.3
Minimum and Maximum temperatures of Prakasam district for the
year 2010
61
4.4
Population statistics of Prakasam district in 2000-01
63
4.5
Population particulars- 2001 census
64
4.6
Literacy level -2001 cencus
64
4.7
Distribution of population by workers and non workers
66
4.8
Land utilization pattern of Prakasam district in 2010
67
4.9
Cropping period
69
4.10
Irrigation sources available in Prakasam district
69
4.11
Agricultural implements & farm equipment particulars
70
4.12
Land holding in the district
70
4.13
Livestock and poultry population in the district
72
4.14
Bank branches in the district
72
4.15
Credits & Deposits in Banks
73
4.16
Details of SHG Bank linkage and Pavala vaddi scheme
73
4.17
List of MFIs operating in the district
75
4.18
Land utilization pattern in the selected mandals
77
4.19
Annual rainfall of selected mandals
79
4.20
Area of principle crops grown in selected mandals
80
4.21
Area irrigated by different sources in selected mandals
81
4.22
Livestock and poultry population of the selected mandals
81
4.23
Particulars under Indira Kranthi Padham (IKP)
82
5.1
Distribution of households according to age
85
5.2
Distribution of households according to level of literacy
85
5.3
Distribution of households according to social group
87
5.4
Distribution of households according to occupation
87
5.5
Distribution of households according to marital status and family
type
89
5.6
Distribution of households according to average monthly income
90
5.7
Distribution of respondents according to level of annual income
91
5.8
Impact of MFIs on income and employment of the members
93
5.9
Impact of MFIs on asset position and consumption of the members
96
5.10
Impact of MFIs on investment and savings of the members
99
5.11
Impact of MFIs on loan amount taken by the members
102
5.12
Results of Multiple linear regression
104
5.13
Particulars of borrowers in the selected MFIs
106
5.14
Recovery performance of the MFIs in the selected mandals
108
5.15
Source of credit for the beneficiaries after enactment of the
ordinance
112
5.16
Repayment performance of the beneficiaries after enactment of the
ordinance
114
5.17
Reasons for not repaying MFI loans
114
5.18
Results of Logistic regression
115
5.19
Impact of AP MFI ordinance on social empowerment of borrowers
119
5.20
Impact of AP MFI ordinance on economic empowerment of
borrowers
122
LIST OF ILLUSTRATIONS
Si.No
Title of the Figure
Page
No.
1
Sample for the study
39
2
Prakasam district map
58
3
Impact of MFIs on income and employment of the JLG members
94
4
Impact of MFIs on asset position and consumption of the JLG
members
97
5
Impact of MFIs on investment and savings of the JLG members
100
6
Impact of MFIs on loan amount taken by the JLG members
103
7
Particulars of borrowers in selected MFIs in the study area
109
8
Recovery performance of MFIs in the study area after enactment of
the ordinance
109
9
Source of credit for the borrowers after the enactment of ordinance
116
10
Repayment performance of the borrowers after the enactment of
ordinance
116
11
Reasons for not repaying MFI loans
117
12
Impact of AP MFI Ordinance on social empowerment of JLG
members
123
13
Impact of AP MFI Ordinance on economic empowerment of JLG
members
126
14
MFI loans-likes by JLG members
128
15
MFI loans –dislikes by JLG members
129
ABSTRACT
Name of the Author
:
DAYAKAR GANDI
Title of the Thesis
:
“AN ECONOMIC ANALYSIS OF
MICROFINANCE INSTITUTIONS
LENDING IN PRAKASAM DISTRICT
OF ANDHRA PRADESH”
Submitted for the award of
:
Master of Science in Agriculture
Faculty
:
Agriculture
Major field of the study
:
Agricultural Economics
Major Advisor
:
Dr. G. RAGHUNADHA REDDY
University
:
Acharya N. G. Ranga Agricultural
University.
Year of Submission
:
2012
The present study was carried out to assess the impact of Microfinance
institutions lending in Prakasam district of Andhra Pradesh.
The study was conducted in Prakasam district of Andhra Pradesh. Multi
stage sampling was followed for the study. Four mandals were selected based
on the highest volume of their business. Those are Ongole, Markapur, Chirala
and Kandukur. Based on the highest number of Joint liability groups operating,
two villages were selected from each mandal making a total number of 8
villages from four mandals. From each village 20 beneficiaries ware selected
making a total sample respondent 160. Data was collected with help of pretested interview schedule. To find out the impact of AP MFI Ordinance 2010 on
the beneficiaries and on the MFIs the paired t-test was done, which is a
statistical test for difference between before and after the AP MFI Ordinance
2010. Impact of AP MFI Ordinance on beneficiaries was carried out using logit
regression. Constraints analysis was worked out by Kendal’s co-efficient of
concordance.
Major portion of sample JLG members (36.85%) was in the group of 2635 years followed by the members in the age group of 36-45 years (29.3%), 1825 years (15.6%) and the members above 45 years constituted to the little extent
above 18.25 per cent. The distribution of respondents according to social groups
revealed that the proportion of members belonging to backward classes
accounted for 43 per cent followed by SCs/STs at 32 percent and remaining
were from forward castes. It revealed that agricultural labourers constituted a
major share of 25 per cent, followed by Wage labour (23%), self employed like
tailoring, pickle making, basket making etc.,(20.6%), cottage industry (15.6%),
nursery (7%), Govt. service (5%), kirana shop (5%) and poultry three per cent.
The impact in terms of percentage change in income (28.04%),
investment (40.08%), assets (65.04%), consumption (50%), employment days
(41.24%), savings (55.04%), and amount of loan taken (67.49%) by the
members after joining MFIs was increased and statistically significant.
Investment, savings, employment, assets, consumption and loan amount taken
were the major factors influencing the income level of the JLG members, as
indicated by the regression analysis and these explanatory variables explained
78.5 per cent of variation in income generation of members.
The overall index for social empowerment was 57.69 before the AP
MFI Ordinance 2010. And the overall index for social empowerment was 58.55
after the AP MFI Ordinance 2010. It shows that there was no social
empowerment in the beneficiaries. The overall index for economic
empowerment showed that before AP MFI Ordinance 2010 was 62.9 per cent
which was decreased to 49.5 per cent after the AP MFI Ordinance 2010.
Before AP MFI Ordinance 2010 there were 17 Microfinance institutions
in Prakasam district with 201311 numbers of borrowers. The total sanctioned
amount was 344 crores. After the AP MFI Ordinance 2010 there was only 7
MFIs were operating in the district with a huge decrease in the borrower’s size
i.e., 168267 with an outstanding of 164 crores.
After the AP MFI ordinance repayments to MFIs has drastically
decreased. Results showed that repayments have decreased from Rs. 244.68 to
Rs.25 per month per borrower. After that repayments with banks were also
observed to be decreased. MFI crisis is one of the reasons for the rise in
repayments of SHGs. Source of credit has shown negative impact on AP MFI
Ordinance 2010. Dependence on SHG and moneylenders was increased after the
ordinance. Abusive language and coercive practices by staff was decreased.
The ranking given to the constraints like weekly repayments, higher rate
of interest, no flexibility in repaying, group responsibility, multiple borrowing
reveals that these were the major problems faced by the JLG members.
The ranking given to the suggestions viz. proper selection of group
members by JLG group, proper identification of beneficiaries by MFIs,
reduction in the interest rates, group responsibility should not be there and
creating employment opportunities reveals that these were the major suggestions
given by the JLG members.
Chapter I
INTRODUCTION
Poverty remains to be one of the biggest policy concerns in India.
Amongst various measures to eradicate it, microfinance, of late, has provided a
ray of hope. The task force on supportive policy and regulatory framework for
microfinance constituted by NABARD defined microfinance as, the provision of
thrift, saving, credit and financial services and products of very small amount to
the poor in rural, semi-urban and urban areas for enabling them to raise their
income levels and improve their standard of living (Sen, 2008).
Microfinance as an industry evolved in all the third world countries
almost at the same time span. World over, it was getting widely recognized that
improving income levels of low income community is essential to improve their
well being besides the state sponsored welfare programmes.
One of the significant events that helped it gained prominence in the
1970s was through the efforts of Mohammad Yunus, a microfinance pioneer and
founder of the Grameen Bank of Bangladesh. In 2006, Prof. Yunus and Grameen
Bank were awarded a Nobel Peace Prize “for his effort to create economic and
social development from below” (Tiwari and Fahad, 2004).
During the 1970s and 1980s, the microenterprise movement led to the
emergence of NGO’s that provided small loans to the poor. In the 1990s, across
the world, a number of these institutions transformed themselves into formal
financial institutions in order to access and on-lend funds, thus enhancing their
outreach. Gradually, microfinance institutions emerged in 1990s and 2000s.
MFIs today differ in size and reached in serving a few thousand clients in their
immediate geographical area to hundreds of thousands, even millions in a large
number of geographical regions, through numerous branches. Traditional banks
serve a large client base with a large bouquet of products which includes many
sophisticated products. Their systems and processes are very complex to support
the requirements associated with their range of services. As a corollary, their
processes become too complex for low-income people to comply with.
Additionally, banks are not able to provide service the customers at their
doorstep. Therefore, if a low income customer like a wage labourer has to access
formal banking services, she/he would end up losing wages every time she/he
needs to visit a bank branch to get loan disbursement, make repayment or access
savings and drawls. Add to it the additional transport fare for the poor labourer.
Effectively, the banking system remains in-accessible to this customer segment.
Therefore, even if a bank branch exists, the customers would prefer to take loans
from MFIs.
In India, an MFI can operate as a non profit Non Governmental
Organization (NGO) such as a society, trust, credit cooperative or under a
regulated profit structure of Non-Banking Finance Company (NBFC), or even a
formal Commercial Bank. In India, provision of savings or thrift under for profit
structures is restricted by regulation to make it difficult to offer. Therefore, most
of the NBFC microfinance institutions offer micro credit and insurance linkages
with mainstream insurance service providers.
Microfinance Institutions in Andhra Pradesh
Microfinance has had a steep growth trajectory in India, with most of the
growth taking place in the south Indian state of Andhra Pradesh. In AP, the
Society for Elimination of Rural Poverty (SERP, 2011) has promoted around
0.95 million SHGs covering around 11.1 million clients, through a network of
1099 mandal level federations (sub-district level), and this enabled the
disbursement of approximately Rs.71 billion ($1.45 billion) as loans by the end
of March 2011. The MFI movement in India was largely initiated from within
AP, where some of the earliest MFIs starting their operations in the late 1990s.
Today, some of the largest MFIs in India have headquartered in AP. Many of
these MFIs touched annual growth rates of 80% in the three to four years by
October 2010. By November 2010, MFIs were reached 9.7 million borrowers
with Rs.72 billion outstanding (Microsave, 2011).
The unparalleled growth of MFIs, coupled with the efforts of the SHG
movement, meant in the shape that the average household debt in AP was the
highest in India. For instance, in November 2010 CGAP (Consultative Group to
Assist the Poor) estimated that the average household debt in AP was Rs.65,000,
compared to a national average of Rs.7,700. The high level of indebtedness in
the state was largely, a result of multiple lending happening in the sector. SHG
clients were often MFI clients and vice versa, and many customers would often
be members of more than one MFI and many were also borrowing from the
informal sector too (Microsave, 2011).
MFIs normally have a weekly collection schedule and better field level
monitoring systems. In an attempt to mitigate the problems that are associated
with information asymmetry and higher transaction costs, many MFIs have
adopted lending strategies, such as the "joint liability group lending" and
"dynamic incentive lending"(Besley and Coate, 1995; Conning, 1999; Lensink
and Hermes, 2007). As a result, this usually the clients chose to pay installments
on MFI loans, rather than SHG loans (which normally have a monthly
repayment frequency and minimal ground level monitoring). Unsurprisingly, this
started to have an adverse effect on the credit discipline of SHGs. The stage was
set for a conflict between the private sector MFIs and the state government and
its SERP programme. The first sign of trouble was the Krishna District crisis in
2005-06 where the district administration closed 50 branches of four leading
MFIs citing usurious interest rates, coercive collection practices and profiteering.
This issue was calmed down by the intervention of Reserve Bank of India (RBI)
and the central government, and assurances given by MFIs to abide by a code of
conduct (Shylendra, 2006).
Issue came to the fore again in October 2010, when the Government of
Andhra Pradesh promulgated an ordinance to protect the women SHGs from
exploitation by the MFIs in the state. In December 2010, the Ordinance was
enacted “The Andhra Pradesh Microfinance Institutions (Regulation of Money
lending) Act, 2010”. The events surrounding the enactment of the Act have
received widespread attention in India and among microfinance practitioners
across the globe. There has been large-scale media coverage on the factors that
led to the enactment of the Act and its likely impact on the sector (Government
of Andhra Pradesh, 2010).
The statement of objects and reasons of the Act states that, “The
Government of Andhra Pradesh has made rapid strides in the field of financial
inclusion of the rural & urban poor by organizing women self-help groups
(SHGs) and linking them with the banks for meeting their credit needs. Of late,
many individuals and entities have come up styling themselves as Micro-Finance
Institutions and are giving loans to SHGs at very high or usurious rates of
interest and are using inhuman coercive methods for recovery of the loans. This
has even resulted in suicides by many rural poor who have obtained loans from
such individuals or entities. In the larger public interest and to protect the poor
from exploitation, and to regulate the lending of monies to the SHGs by the
MFIs, the Government intends to bring into force a law containing the various
provisions stated in this Bill in order to check the illegal acts of these MFIs”.
The Act was a result of a combination of these factors. The stringent
provisions of the Act immediately resulted in near-total suspension of MFI’s
operations. The Act requires loan repayments to be made at Gram Panchayat
offices with a mandatory requirement of monthly repayment of loans, thereby
effectively negating the two significant advantages MFIs had: doorstep service
delivery and repayments in smaller amounts as well as time period of
repayments. The Act also requires MFIs to obtain prior approval from the
District Rural Development Agency (DRDA) before giving a loan to any SHG
member, effectively strangling new disbursements. The credit culture was
severely damaged once the local activists compounded the problem by
instructing clients not to repay MFI loans. To add to the troubles of MFIs, banks
across the country stopped loan disbursements to MFIs, effectively shutting
down MFI’s access to capital for on-lending. For MFIs depending on a cycle
based approach (continual access to credit being a motivator for clients to repay
in what is effectively unsecured lending), the inability to provide further credit
due to lack of funding from the banks proved to be the last nail in the coffin.
MFIs, which had boasted of recovery rates in excess of 95%, now found
themselves staring at repayment rates of 10%-15%. Likely write offs are
estimated to be around Rs. 2,500-3,000 crore. In the first half of 2010 -11, MFIs
had disbursed Rs. 5,000 crore to borrowers in Andhra Pradesh, but this had been
reduced to Rs. 8.5 crore by the second half of 2010-11. In early December 2010,
MFIN, the network of NBFC-MFIs reported that MFIs were not in a position to
collect about Rs.7,200 crore worth of outstanding loans in Andhra Pradesh, and
had missed the opportunity to lend about Rs.1,200 crore since October 2010
when the Ordinance was introduced. (Microsave, 2011). The operations came to
a virtual standstill, and continue to be so for longer time. In this context, the
present research was intended to study the affect of this ordinance on working of
MFIs as well as socio-economic impact at beneficiaries level.
Objectives of the study
The present study is designed to investigate the following objectives.
1. To study the evolution and activities of MFIs in the study area.
2. To study the process of working by MFIs after the AP MFIs Ordinance,
2010 and other regulatory acts by Government.
3. To study the socio-economic impact on the beneficiaries before and after
AP MFIs Ordinance 2010 and
4. To suggest the suitable measures for improving the micro financing
system.
Scope of the study
In India majority of the people live in rural areas and are engaged in
agriculture earning a subsistence wage. Development which had been focused on
them seems to have just passed by them. Finance is one of the most crucial
inputs for economic activity, growth and development. In recent years, finance
through Microfinance institutions (MFIs) has got tremendous attention.
Microfinance is an alternative source of credit for the poor who are considered as
non-bankable. This system not only provides credit, most important input for
development, to the poor section of the society, but also aimed at for capacity
building. Andhra Pradesh is the epicenter of the microfinance industry in India.
The state is home to five of India’s largest NBFC- MFIs. Many of these MFIs
grew at a rapid pace and proliferated across AP and other parts of India. MFIs
were alleged to have unethical practices, such as charging usurious interest rates,
using coercive collection practices and profiteering from the poor, in their
endeavor to grow rapidly. The Government of AP promulgated “The
Microfinance Institutions (Regulation of Money Lending) Ordinance”, in
October 2010 to clamp down these alleged practices. The Ordinance has
imposed regulations like compulsory registration of the MFIs with designated
authorities; requirements to make loan collections near local government
premises; and forcing MFIs to shift to monthly repayments. The Ordinance,
coupled with a huge negative publicity against MFIs, plunged the MFIs in deep
crisis, impeding their operations and resulting in drastic fall in loan collections
and disbursements.
In this background the present study was undertaken with the overall
objective of studying the impact of Andhra Pradesh Microfinance Institutions
(Regulation of Money Lending) Ordinance, 2010 on Microfinance institutions
and on beneficiaries of the study area and to suggest the policy related aspects
relavent for MFIs, Governments, Banks and beneficiaires.
Limitations of the study
The collection of data was based on personal interview. The study relied on
the respondent’s memory to gather information pertaining to certain variables
under study through utmost care was taken while collecting data, possibility of
some errors cannot be ruled out.
The study was confined to the particular study area, so generalization made
by present study may not be directly applicable to the other areas. This aspect
has to be born in mind while interpret the results.
Organization of Thesis:
The thesis has been organized under the following headings.
Chapter I: Introduction–General introduction highlighting the problem
statement along with the objectives, scope and limitations of the study are
presented.
Chapter II: Review of literature-In this chapter, an attempt was made to review
the concepts and past studies which hold relevance to the current problem
Chapter III: Materials and methods-In this chapter, sampling procedure, tools
employed for the analysis of the data, the terms and concepts used in the study
were given.
Chapter IV: Profile of Agro-economic features of study area- viz., district
physical
geographical,
agricultural,
climatic
and
infrastructural
facilities of the study region is discussed in this chapter of the study.
Chapter V: Results and discussion-The results obtained from the study,
presentation of data and the analytical tools described in chapter III were
presented in this chapter and discussed for their relevance and significance
Chapter VI: Summary and conclusions-The results were summarized and
Conclusions were drawn to make necessary policy suggestions for improving the
micro financing system.
Chapter II
REVIEW OF LITERATURE
This chapter presents a brief review of literature on the present problem of
study. It helps us to have a general background in the given field of study as it
provides an idea about the work done in the past. Further, it also helps in
providing guidelines to the present researchers, to formulate concepts for use in
the study and draw meaningful conclusions. Hence, every effort has been made
to review the relevant and updated literature having direct and indirect bearing on
this study. For better understanding, the literature has been reviewed under the
following heads:
1. Studies on working of Microfinance institutions.
2. Studies on factors responsible for the enactment of AP MFI Ordinance
2010.
3. Studies on consequences after the AP MFI Ordinance 2010.
4. Studies on socio-economic characteristics of JLG members.
5. Studies on opinions of the stakeholders.
6. Studies on problems related to JLGs and suggestions to overcome the
problems.
2.1 STUDIES ON WORKING OF MICROFINANCE INSTITUTIONS
Dadhich (2001) concluded that, the Oriental Bank Grameen Project has
established beyond an iota of doubt that properly designed and effectively
implemented micro finance can be a means not only to alleviate poverty and
empower women but also be a viable economic and financial proportion.
However, there is scope for further refinement. The positive and liberal approach
adopted by the central banking authority of the country will surely facilitate the
further improvement and development of micro finance system in India.
Madheswaran et al. (2001) stated that small amounts of loan, coupled
with financial discipline, ensure that loans are given more frequently and hence
credit needs for a variety of purposes and at shorter time intervals can be met.
This is a better mechanism to reduce poverty gradually, as against giving a onetime loan for a productive asset, which may not lead to sustained increase in
income.
Vatta and Singh (2001) reported that the provision of even very little
credit helps the poor to improve their income levels. Small amounts of loan,
coupled with financial discipline, ensure that loans are given more frequently and
hence credit needs for a variety of purposes and at shorter time intervals can be
met. This is a better mechanism to reduce poverty.
Kirkpatrik et al. (2002) defined that “Microfinance is a bit of a catch allterm. Very broadly, it refers to the provision of financial products targeted at
low-income groups. These financial services include credit, savings and
insurance products. A series of neologisms has emerged from the provision of
these services, name micro-credit, micro-savings and micro-insurance”.
Murray and Boros (2002) reported that microfinance gives access to
financial and non-financial services to low-income people, who wish to access
money for starting or developing an income generation activity. The individual
loans and savings of the poor clients are small. Microfinance came into being
from the appreciation that micro-entrepreneurs and some poorer clients can be
‘bankable’, that is, they can repay, both the principal and interest, on time and
also make savings, provided financial services are tailored to suit their needs.
Microfinance as a discipline has created financial products and services that
together have enabled low-income people to become clients of a banking
intermediary.
Nair (2002) in his study emphasized that two different approaches have
been identified in the evolution of the microfinance industry in India. One is the
Latin American model that may be called the 'commercial model' has recognized
from the outset the significance of analyzing with the formal financial system
rather than donors or targeted government programmes. Second one is the South
Asian model, largely drawing on the strategic and operational features of the
Grameen model, has its spotlight clearly on women and poverty.
Kamal (2003) concluded that microfinance institutions have good
potential to reach the rural poor and to address the basic issues of rural
development where the formal financial institutions have not been able to make
significant headway.
Rao et al. (2003) reported that microfinance is a financial service of small
quantity provided by financial institutions to the poor. These financial services
may include savings, credit, insurance, leasing, money transfer, equity
transaction, etc, that is, any type of financial service, provided to customers to
meet their normal financial needs: life cycle, economic opportunity and
emergency.
Barr (2005) defined Microfinance is a form of financial development that
has primarily focused on alleviating poverty through providing financial services
to the poor. Most people think of microfinance, if at all, as being about microcredit i.e. lending small amounts of money to the poor. Microfinance is not only
this, but it also has a broader perspective which also includes insurance,
transactional services, and importantly savings.
Sachs (2005) concluded that credit availability to credit-worthy yet lowasset households can be key to moving them out of poverty. Thus, credit
constraints are viewed as one of the main reasons that many households in
developing economies remain poor. In recent decades, however, many national
governments, agencies, and non-governmental organizations (NGOs) in
developing countries from around the world have attempted to ease credit
constraints on the poor by introducing formal financial institutions, particularly
micro finance institutions (MFIs), in the hope of mitigating world poverty.
Latifee (2006) reports on the breadth of programme outreach and
concludes that almost three-quarters of the total microfinance clients in India are
concentrated in just four southern states, namely Andhra Pradesh, Tamil Nadu,
Karnataka and Kerala. Large parts of Northern and North Eastern states have
remained underserved by the sector.
Srinivasan and Sriram (2006) concluded that a host of players have
entered microfinance space, each having a reason of its own. It is believed that,
Microfinance, unlike other developmental efforts, gives quick and tangible
results. Many NGOs that were early entrants gradually metamorphosed into full
fledged lenders, developmental professionals left their cushy careers to set up
microfinance firms. Even many banks have experimented with working
exclusively with self help groups and therefore have microfinance branches. The
players range from not-for profits organizations trying to achieve developmental
objective through microfinance to commercial banks that view microfinance as a
good, sound banking, a good source of deposits and low-risk mass lending.
Ghate (2007) reported that MFIs deliver loans of larger average size in a
more timely fashion because (i) they borrow in bulk from the banks for
relending, whereas SHGs have to wait for the last member in the group to repay
her loan to the group before the group can repay its loan to the bank, and (ii)
when they do get a loan, its size is tied to group savings, and depends on the
assessment of the local bank manager on the absorption capacity of the group for
a subsequent loan.
Hermes and Lensink (2007) reported that in an attempt to mitigate the
problems that are associated with information asymmetry and higher transaction
costs, many MFIs have adopted lending strategies, such as the "joint liability
group lending" and "dynamic incentive lending".
Khandelwal (2007) found that at present, micro lending to the
economically active poor both urban and rural is pegged at around Rs. 7,000
crore in the Indian banks' credit outstanding. As against this, according to even
the most conservative estimates, the total demand for credit requirements from
this part of Indian society is somewhere around Rs 2,00,000 crore. So, there is a
need for a mix of banks and other intermediaries who can help to meet this
demand-supply mismatch. This is a huge gap, which the Indian banking industry
alone can never be able to fill in. That is why more and more emphasis has now
been placed on providing finance through MFIs, NGOs and SHGs in India.
Pollinger et al. (2007) defined the term Micro Finance Institutions (MFIs)
as the financial institutions with a primary objective of making credit available to
that segment of the population which has been ignored by the commercial
banking system for not having collateral requirements or in other words not
bankable.
Sen (2008) concluded that for a country like India, poverty remains to be
one of the biggest policy concerns. Amongst various measures to eradicate it,
Microfinance, of late, has provided a ray of hope. The Task Force on Supportive
Policy and Regulatory Framework for Microfinance constituted by NABARD
defined microfinance as the provision of thrift, saving, credit and financial
services and products of very small amount to the poor in rural, semi-urban and
urban areas for enabling them to raise their income levels and improve their
standard of living.
Asian Development Bank (2009) defined MFI as an institution that
provides a broad range of financial services such as deposits, loans, payment
services, money transfers and insurance to poor and low-income households and
their microenterprises. MFIs target that part of the population which reel under
the poverty line or low income group that do not have enough money or assets to
sustain a proper stable livelihood. By stable, we mean being able to bear the
basic necessities of life, i.e. food, clothes, shelter.
Intellecap (2010) reported that the state of Andhra Pradesh (AP) has a
unique leadership position within Indian microfinance. The state government has
not only made significant investments in subsidizing financial inclusion through
SHG programs, but has, at least till now, also allowed the Grameen/JLG model
to flourish. It is thus not surprising that the four largest MFIs in India are based
in AP, alongside numerous other mid-sized MFIs.
Pallavi
and
Sinha (2010) indicated that
NGO-led micro-credit
programmes and institutions, such as Grameen Bank, have been successful in
reaching their target groups of poor more effectively than the state-led
programmes and institutions.
2.2 STUDIES ON FACTORS RESPONSIBLE FOR THE AP MFI
ORDINANCE 2010
Bourdieu (2005) argues that microcredit in AP was supplied to an extent of
saturation. This oversupply could sustain itself due to a phenomenon called
‘aspiration paradox’. The paradox is also observed in the case of poor households
as they very often fail to accurately assess and quantify their repayment
capabilities due to aspiration paradox. Thus, many poor households in AP took
advantage of the easy availability of credit and borrowed far beyond their
repayment capabilities from various microfinance sources. The MFIs, for their
part, offered multiple loans to the same borrower household without following
due diligence, as it served their business interests.
Shylendra (2006) identified that, there were three major allegations against
the MFIs (i) MFIs were charging exorbitant rates of interest. Not only that MFIs
charge absolutely high interest rate (upwards of 20 per cent), but their practices
like forced savings, applying a flat rate method and adding service and other
charges, over and above the annual interest rate, further exacerbate the cost. This
was leading to an overall high cost of borrowing for the poor, making MFIs rates
look almost usurious. (ii) MFIs were resorting to unethical ways of recovering
loans by confiscating title deeds, using intimidation and abusive language. (iii)
MFIs were aggressively poaching from government and banks to capture their
borrowers. They were luring the members of government supported SHGs by
liberally financing them, leading to multiple financing.
Ghate (2007) found that the most frequent response (90 per cent) for
problems with MFI procedures was weekly installments, just ahead of the high
rate of interest, and well ahead of "rigidity even in genuine cases" (19 per
cent)."More pressure and mental tension" on account of weekly repayment was
an important drawback also reported.
According to the state government, for the period from March to
November, the average number of workdays per household in Andhra under
NREGA fell from 62.7 in 2009-10 to 52.8 in 2010-11. The percentage of
households that got 100 days of work fell from 21.1% in 2009- 10 to 13.3% in
2010-11. The stir for a separate state of Telengana also affected the labour
market in real estate. The scarcity of labour had shown a negative impact on
MFIs. That’s why the repayments of MFIs were drastically decreased (PT
Education, 2010).
Government of Andhra Pradesh, (2010) stated that The AP Microfinance
Ordinance was promulgated on October 15, 2010 by the Andhra Pradesh
Government. The ordinance was built on the basis of four premises. 1. MFIs
charge usurious interest rates, if clients fail to pay on time, 2. MFIs use coercive
methods to collect the interest. 3. These practices are forcing the poor to commit
suicide. 4. MFIs make huge profits and have no social mission to help the poor.
India Microfinance Business News (2010) opined that experience of
microcredit interest rates in AP suggests that an absence of regulations on the
interest rate charged by MFIs tends to lead them towards charging exploitative
interest. MFIs in AP charged an effective interest rate of 50 percent to 84 percent
per annum if all the hidden charges are duly accounted for.
Intellecap (2010) indicated that the MFIs and the government-led SHG
program have coexisted for many years. However, the first signs of conflict
became visible in the period from 2005-07 when, buoyed by capital from a
partnership model launched initially by ICICI Bank, MFIs started to finance
customers more aggressively than before. A large number of these customers
were members of existing SHGs, and the first sign of tension appeared during
what is now referred to as the “Krishna Crisis”.
Microfinance Focus reported that in most of the suicide cases, the report
claims that borrowers were subjected to unbearable harassment by MFIs, the
report claims. Some examples: K. Venkatalkshmi of Devarapalli, Visakha
district, took a loan of Rs. 15000. “Her daughter (16 years) was harassed and
humiliated, asked the girl to do prostitution for repayment; she was kept in a
house under Lock, under wrongful confinement, and the girl committed suicide.”
Jayaramappa of Madakasira SC colony, Madakasira mandal, Ananthapoor
district, took Rs 64000 from three MFIs. On 3rd of October 2010 committed
suicide because of MFIs harassing his wife and abusing with filthy vulgar
language (Microfinance Focus, 2010).
The Economic Times (2010) reported that 30 people had committed
suicide in 45 days to escape microfinance agents. According to the Society for
Elimination of Rural Poverty, a government agency that compiled data on the
microfinance related deaths, more than 70 people had committed suicide in the
state between March and November 2010.
Roodman (2010) stated that with the development and success of MFIs in
India and especially in AP, tensions have grown between SHG programmes and
MFIs. The former accuse the latter of taking advantage and reap the fruits of the
work realized by SHG programmes. Before the development of MFIs in AP,
there were already a large number of SHG. When MFIs arrived in AP, they
“could just poach the SHG members, who were already screened for
creditworthiness, organized into groups, and accustomed to credit.
Richard and Dutta (2010) argue that the tight schedule of weekly
repayments put tremendous pressure on poor women. Most people didn‘t have a
stable income cycle to generate enough to repay every single week. It was
reported that a majority of the families that borrowed loans owned no property
and that more than 80 per cent borrowers were from non-farm sectors.
Anonymous, (2011) opined that loans were made too easily and interest
rates were opaque, leading some borrowers to a situation of excessive debt.
Collection practices were often aggressive. MFIs were accused of being
responsible for the suicides of desperate borrowers. In this tense context, the state
promulgated the Andhra Pradesh Microfinance Institutions ordinance on October
14, 2011.
Ashley and Feasley (2011) stated that an unhealthy competition brewed
among the MFIs and Government based SHG programme. Some MFIs pursued
multiple lending and coercive recovery practices even more vigorously and at the
same time SHGs became began to compete with for-profit MFIs.
These
conditions led to the creation of the MFI Bill.
Kumar (2011) observed that the microfinance sector has grown
significantly in the last five years; it is now facing a crisis for a number of
reasons. Microfinance institutions (MFIs) are under scrutiny due to their alleged
usage of coercive methods of recovery, multiple lending, over-borrowing and
high interest rates. Reeling under public outrage and media sensationalism and to
curb alleged malpractices in the microfinance sector, the Andhra Pradesh State
Government passed an ordinance which was later enacted in December 2010 as
the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending)
Act.
Microfinance Focus reported that multiple lending is one of the major
factors that led to the AP crisis persisted and the overlap of customers between
SHGs and MFIs (Microfinance Focus, 2011).
2.3 STUDIES ON CONSEQUENCES AFTER THE AP MFI ORDINANCE
2010
Bellman et al. (2010) reported that Andhra Pradesh slapped new
restrictions on the MFI industry that effectively shut it down. While a state court
order put the restrictions on hold and allowed the lenders back in the field this
week, close to half of all borrowers are continuing to avoid payments. State
officials say they are trying to protect the poor from usurious interest rates and
heavy-handed practices, which they say have triggered more than 70 suicides in
the state.
Government of Andhra Pradesh, (2010) stated that MFIs have to specify
their areas of operations, the rate of interest, and their system of operation and
recovery. Further, they cannot seek security from a borrower by way of pawn or
any other means. The Registering Authority may, at any time, either suo moto or
upon receipt of complaints by SHGs or the general public, cancels the
registration after assigning sufficient reasons. All repayment collections will take
place at the Panchayat Offices (Government of Andhra Pradesh, 2010).
Intellecap (2010) reported that the ordinance issued by the Government of
AP is ostensibly intended “to protect the women Self Help Groups”, who, the
preamble states, “are being exploited by private microfinance institutions through
usurious interest rates and coercive means resulting in their impoverishment and
in some cases leading to suicides.” The Ordinance makes it mandatory for all
private institutions engaged in micro-lending to register with the district
Registering Authority, the Project Director (PD) of District Rural Development
Agency (DRDA) for rural areas, and the PD of Mission for Elimination of
Poverty in Municipal Areas (MEMPA) for urban areas by November 15, 2010
(one month from the issuance of the ordinance).
Oxford analytica reported that, the shares of SKS Microfinance fell by
about 20% to 642 rupees (14.23 dollars) on Nov 18, 2010. The decline reflects
the crisis in the microfinance industry in Andhra Pradesh, which accounts for
over 35% of the domestic microcredit market and has the largest number of forprofit microfinance institutions in the country. Seen as an important tool for
alleviating poverty in a free market economy, the very future of microfinance is
now in doubt. (Oxford analytica, 2010).
Varun (2010) reported that political parties like TDP had been instructing
all villagers not to repay the loans. Companies like SKS could not afford this.
That month, SKS stock prices had plunged to a lifetime low of Rs. 559 (USD
12.4) at the Bombay Stock Exchange.
Legatum ventures (2011) reported that the Andhra Pradesh Government's
stated aim was to protect the poor and yet its actions have resulted in a 600-fold
decrease in financing to the very poorest of India’s citizens. This should make
everyone pause. The rural poor depend on access to consistent and dependable
finance to help smooth patchy income streams and avert financial crises. The AP
government’s actions have effectively shut off finance to these most vulnerable
of India’s citizens.
Live Mint observed that the microfinance industry in India is in the midst
of the most severe crisis in its 25 year history. The genesis of the crisis lies with
the actions taken by the government of the southern state of Andhra Pradesh in
October 2010, when it passed legislation effectively shutting down all private
sector microfinance institutions (MFIs) operating in the state. The impact of the
AP Act has the potential to affect 450 million people. Since the AP Act was
adopted, MFI disbursements in AP alone have diminished from Rs 5,000 crore
($1.13 billion) to a mere Rs 8.5 crore ($1.9 million), creating a severe shortage of
much needed finance to the rural poor, India’s most vulnerable citizens. (Live
Mint, 2011).
Microfinance Focus (2011) concluded that the SHG programme has
reported higher levels of default in AP. At the end of June 2011, about 228, 000
SHGs had defaulted on repayments (17 percent of linked groups) with loan
balances in these accounts amounting to Rs. 22.9 billion because of AP MFI
Ordinance.
Raja and Rajasekhar (2011) explained that the chief financial officer of
Spandana Sphoorty Financial, India's second largest microfinance institution has
prophesized as half of Spandana's (Rs 4,000) crore lending is to borrowers in
Andhra. Over the last three months (after the Ordinance upto January 2011), it
has not received a penny on about Rs 1,300 crore of those loans. The freeze is the
fallout of a state law that was drafted in the wake of borrower suicides, allegedly
because of coercive practices of MFIs. The law was intended to check MFI
excesses, but it has ended up checking all MFI activity.
Rajesh
(2011)
concluded
that
the microfinance
crisis in Andhra
Pradesh signals a deeper malaise in the regulatory architecture of the Indian
financial system’s unclear demarcation of regulatory jurisdictions. Unless
remedied, the symptoms of this problem are likely to arise again and elsewhere
in the system.
Sanjay (2011) stated that, the “great Indian microfinance crisis” has
shaken the world of microfinance. An industry that grew at 90% on an annual
basis from 2002-03 to 2009-10 was reduced to just 7% growth in 2010-11 with
its portfolio over the period October 2010 (when the crisis started) to September
2011 estimated by M-CRIL to fall by around 33%.
Sharma (2011) observed that the country's biggest MFI, SKS
Microfinance, recorded a loss of Rs 70 crore in the fourth quarter of 2010-11
against a net profit of Rs 63 crore for the same period in the previous year. So too
Spandana, which had a net profit of Rs 200 crore in March 2010, saw it whittle
down to Rs 10 crore a year later. Since then its financial situation has worsened,
with losses currently at Rs 50 crore and an outstanding debt of Rs 2,300 crore.
2.4 STUDIES ON SOCIO-ECONOMIC CHARACTERISTICS OF JLG
MEMBERS.
Economic Impact
Khandker (1998) concluded that microcredit programs were more costeffective in delivering financial services than state-controlled agricultural
development banks. Furthermore, he concluded that microcredit is more costeffective than formal rural financial intermediation, targeted food interventions
and rural infrastructure development projects in Bangladesh.
Puhazhendhi and Jayaram (1999) in their study to document and evaluate
the performance of informal groups in Chitradurga district of Karnataka and
Periyar district of Tamil Nadu found that members taking up more than one
activity increased from about 30 percent during pre-group formation to 53 per
cent during post group formation situation. They also reported that the average
annual net income per member during pre-group formation ranged from Rs.6,763
to Rs.9,157 while the average net income per member during post group
formation had ranged from Rs.10,531 and Rs.12,762. The increase in net
incremental income was reported to be 68 per cent for new groups whereas; it
was 100 per cent in stabilizing and stabilized groups.
Puhazhendhi and Satyasai (2000) found that about 59 per cent of the
sample households registered average net income per households in pre and post
group formation situation with Rs.20,177 and Rs.26,889 respectively. The
increase in net income was 40 per cent to the tune of Rs.6, 172 i.e. 33 per cent of
the pre-group formation income. They also observed that 93 per cent of the
incremental income was on account of increase in the average net income per
household having economic activity between the pre and post SHG situation and
remaining seven per cent on account of more number.
Dwarakanath (2001) reported that the DWCRA programme helped the
rural women to earn an additional monthly income ranging from Rs.250-Rs.2000
depending on entrepreneurial activities taken up by them.
Samara and Raman (2001) concluded that on an average, the SHGs have
Rs.226 as income with maximum reaching Rs.3,314 for some SHG. Certain
SHGs showed a loss in net income per member, the remaining SHGs registered
positive net income per member ranging from Rs.12.90 to Rs.533.94/-. To assess
the impact of SHGs on the income levels of members, two regression models
were specified to find out the major determinants of a) SHG-net income per
member, b) average monthly income and found out that resources generated in
current year, average educational levels, loan provided in current year,
percentage share of SHGs expenditure in the total income of SHGs and age of
SHGs showed expected signs.
Puhazhendhi (2002) observed that estimated average annual net family
income of member during the post linkage period for all the groups was Rs.4,
391, which was more than two times than that of the pre-linkage period. He also
reported that average ratio of Debt Service Liability (DSL) to net incremental
income (NII) worked out to be 0.60 and it was 0.81 respectively in good and
average performance groups.
Khandker (2003) carried out an exercise by estimating the effects of
micro-finance on consumption, poverty and non-land assets for participants, nonparticipants, and an average villager, assuming that micro-finance programs have
spillover (externality) effects. The results are resounding: micro-finance matters
a lot for the very poor borrowers and also for the local economy.
NABARD (2004) in a study on the impact of SHGs on economic
empowerment of its members in Ballir district, Uttar Pradesh reported that there
was an increase in the monthly income of each of the families by at least Rs.700
per month and this increase was solely due to the business that they were able to
do by virtue of taking loan after the activities of SHG started.
Savitha (2004) found that economic empowerment was high for
agricultural laborers (53.33%) followed by small farmers (26.67%) and landless
farmers (6.67%).
Sentil and Sekar (2004) revealed that income generation through SHG
members gained additional income and employment through SHGs.
Asokan (2005) reported that National Institute of rural development
(NIRD) conducted a study on micro enterprises, which are developed by SHGs
in Kerala. The characteristics of micro entrepreneurs under SHGs revealed that a
high proportion (90%) of them were unemployed prior to joining SHG and
tailoring was found to be the most preferred activity (47%). The study also found
that the average monthly turnover of micro project taken by members of SHGs
members was around Rs. 1917 and net profit worked out to be Rs. 700 per
month. This indicates a high level of profit i.e. 60 per cent of individual units
have investments less than Rs. 5,000
Ganesh (2005) reported that in Akola district of Maharashtra, with the
help of an SHG formed under SGSY in record time of one and half years, all the
families belonging to BPL status have been uplifted to “Owner of Brick Kiln”
status. Their net profit per 1000 bricks amount to Rs.550/- to Rs.650/approximately. And their turnover increased to more than Rs.3.5 lakhs.
Rao (2005) conducted a study in Azmer reported that the highest average
annual household income (Rs.45, 600) was from among respondents of papads
and pickles and lowest (Rs.38, 600) from respondents of chalk making activity.
And the micro enterprises roughly provided 117-mandays/respondent, which was
a great contribution.
Gangaiah et al. (2006) conducted a study in Karnataka on impact of SHGs
on income and employment generation. They reported that on an average the
loans received generated 184 person days of employment per household. Nonfarm activities generated higher number of person days of employment. Idly
shop, cloth business and tailoring generated 300 each and 240 person days of
employment. They also found that SHGs had favouarable impact in generation of
income in the village selected. The average income generated was Rs.19, 578/-.
Income generated in the selected activities showed that it was varied from
Rs.5000 per annum in case of idly shop to Rs.26, 541 in the case of agriculture.
Joseph and Easwaran (2006) conducted a study to identify the constraints
in functioning of SHGs and its impact on the members. It was found that 51.28
per cent of respondents had income between Rs.25, 000 to Rs.50, 000. Majority
of respondents had assets worth below Rs, 1 lakh and more than one-half of the
respondents as whole (51.28%) had assets below Rs.1 lakh. They also studied the
perceived impact of SHGs on tribal development. When the relationship between
the composition and impact of SHGs was examined, perceived impact of SHGs
was found to be significantly associated with three variables duration of
membership, member’s participation and perceived group cohesion.
Banerjee (2009) has shown that income regenerations through group
activities have improved the average income of group members but the
inequality of distribution of income is high among the group members than that
of the non-group members. Secondly, there has been a significant decline in the
medical expenditure and school dropout rate in the families of group members
than that of non-group members.
Srinatha (2009) carried out Paire t test analysis to study the factors
influencing the changes in income, employment, assets, investment, consumption
and loan amount taken before and after joining in SHGs. All the t static values
were statistically significant except assets. He carried out multiple linear
regression analysis to study the factors influencing the changes in the income of
the SHG members showed that all the factors were influenced the income of the
members significantly. All those factors enhanced the income of the members.
The contribution of the variables was 85 per cent.
Swain and Adel (2009) in their study have shown that in case of Indian
SHG members with longer participation in SHGs, members move away from
pure Agriculture as an income source towards other sources such as livestock
income. Training by NGOs positively affects asset creation.
Swain and Wallentin (2009) in their study using household survey data on
SHG from India adopted a general structural model where the latent women
empowerment and its latent components (economic factors and financial
confidence, managerial control, behavioural changes, education and networking,
communication and political participation and awareness) are measured using
observed indicators. They show that for SHG members, economic factors,
managerial control and behavioural changes are the most significant factors in
empowering women.
Imai et al. (2010) examined whether household access to microfinance
reduces poverty. Using national household data from India, treatment effects
model is employed to estimate the poverty-reducing effects of Micro Finance
Institutions (MFIs) loans for productive purposes, such as investment in
agriculture or non-farm businesses on household poverty levels. These models
take into account the endogenous binary treatment effects and sample selection
bias associated with access to MFIs.
Sarumathi and Mohan (2011) carried out Paired t test to know the
difference in mean income of respondents before and after joining SHG. The
mean salary after joining SHG is significantly higher than the mean salary before
joining SHG. Thus the microfinance is significantly increasing the salary of the
respondents.
Suresh and Mohan (2011) used Paired t test to test impact of asset holding
before and after joining in SHGs. The mean value of assets holding after joining
in the group is significantly higher than the mean value of assets holding before
joining in the group. Thus the impact of microfinance on SHG’s is effective in
habit of saving and purchasing new assets that leads to uplifting their standard of
living.
Manoharan and Pandian (2012) carried out paired t-test to assess the impact
of micro-credit on the economic conditions of SHG members. All the results
were statistically significant.
Social Impact
Hashemi and Morshed (1997) showed that the Grameen Bank not only
‘reduced poverty and improved the welfare of participating households, but also
enhanced the household’s capacity to sustain their gains over time. This was
accompanied by an increased caloric intake and better nutritional status of
children in households of Grameen Bank participants.”
Martin and Imran (1998) found that 86% of the crises experienced by his
study households were related to illness. It is this reality that has prompted
Grameen Bank to start an experimental health insurance programme, BRAC to
continue and extend its health programme, and almost all Microfinance NGOs in
Bangladesh to provide weekly health education at meetings and offer special
loans for clients to install tube wells and latrines. But microfinance institutions
are rarely, if ever, capable of delivering other key preventative health care
services like immunization services and reproductive health care. However, it is
worth pointing out that the client groups that meet regularly at the same place
and time, offer a tremendous opportunity for health (and indeed most other forms
of) outreach and extension work.”
Cloud et al. (1999) concluded that the women who received the loans
increased their income substantially, improved their families’ nutrition and
faithfully repaid their loans. They also had higher aspirations for their children’s
education and were more likely to reduce fertility.
Puhazhendhi and Jayaraman (1999) reported the impact of micro finance
on social front. They observed that 95 percent of group members were illiterate
during pre-group formation and only 35 percent of them were able to sign as a
result of group participation and 65 percent of them were able to sign during post
group formation. The literacy level of the family members also showed
significant improvement where 55 percent of them had graduated. The study
reported that about 67 percent of the sample household had effected
improvements in their houses with additional rooms, whereas about 20 percent of
them improved sanitation facilities in their houses. About 3 percent of the
members had replaced the thatched grass roof to local tiles. Regarding
consumption of food items, 32 percent of them were able to afford vegetables
and 30 percent of the members were holding food stock to manage during the
lean season. Radio was owned by 5 percent of the members, which improved the
perception of the members to a greater extent.
Handa (2000) concluded that microcredit increased incomes and basic
education both have a significant impact on number of births. The impact of an
increased income is less than that of education; however, the impact for
education only becomes significant after 6 years of schooling. Thus, a
microcredit program would have an immediate negative impact on births (and
would continue to have such an effect) while the impact of an education program
would only start to take effect after a period of 6 years (but the impact would be
larger). “Both income and education have significant negative effects on the
number of births, with the impact of education being larger than that of income.
Puhazhendhi and Satyasai (2000) in his study in Tamil Nadu observed that
only 38 percent of the members were able to sign during the pre-linkage period
but as a result of group formation the literate members increased considerably
and 85 percent of them learnt to sign after the group formation. About 27 percent
of the members had educated their children up to the school level during the post
linkage period. The study revealed that the members regularly started eating
wheat and rice, after group activities, which were earlier consumed by them
during festivals.
Krishna (2003) reported that empowerment means increasing the capacity
of individuals or groups to make effective development and life choices and to
transform these choices into desired actions and outcomes. It is by nature a
process and/or outcome. Social capital, on the other hand, features social
organisation such as networks, norms and inter-personal trust that facilitate
coordination and cooperation for mutual benefit.
Savitha (2004) conducted a study on Women empowerment and decision
making in agriculture by Sree Shakthi groups in Mysore district and reported that
the distribution of women according to social empowerment showed that
majority had medium social empowerment and 26.67 percent had high
empowerment.
Holvoet (2005) finds that in direct bank-borrower minimal credit, women
do not gain much in terms of decision-making patterns. However, when loans are
channelled through women’s groups and are combined with more investment in
social intermediation, substantial shifts in decision-making patterns is observed.
This involves a remarkable shift in norm-following and male decisionmaking to
more bargaining and sole female decision-making. She finds that the effects are
even more striking when women have been members of a group for a longer
period and especially when greater emphasis has been laid on genuine social
intermediation. Social group intermediation had further gradually transformed
groups into actors of local institutional change.
Anand (2006) used the Logit model, it confirm that an intervention of
microfinance through self-help groups played a significant role for the access to
healthcare services of the members of the households. It means that relationship
between the asset index and access to healthcare services is positive and
statistically significant at five per cent level of significance for the average asset
holding members. Though the probability of access to healthcare services by
people holding very poor household assets is high as compared to the very rich, it
is not statistically significant.
Dasaratharamaiah et al. (2006) reported that 10.0 per cent of beneficiaries
had income between Rs.7, 201 and above, 20.67 per cent had income between
Rs.4, 801 to 7,200 and 31.33 per cent have income Rs.3, 601 to 4,800 and 38.00
per cent had income below Rs.3, 600 per annum after implementation of
DWCRA. It was found that there were no persons without any income. It was
also found that 50 per cent of beneficiaries had less than 100 man days of
employment, 21.67 per cent of the beneficiaries had employment between 101 to
180 man days, 20.00 per cent of the beneficiaries have employment between 181
to 240 man days as against 8.33 per cent of the beneficiaries who had
employment between 241 and above man days of employment per annum.
Dolli (2006) conducted a study on sustainability of natural resources
management in watershed development project and found that for the members
of SHG in KAWAD project, improved income (66%), self employment
opportunities (66%), awareness (66%) and social contact (60%) were expressed
as major benefits, while in KWDP, awareness (53%), social contacts (53%) and
self employment opportunities (40%) were found to be major benefits.
Pitt et al. (2009) found that women’s credit has a large and statistically
significant impact on two of three measures of the health of both boy and girl
children. Credit provided to men has no statistically significant impact. A 10%
increase in (latent) credit provided to females increases the arm circumference of
their daughters by 6.3%, twice the increase that would be expected from a similar
proportionate increase in credit provided to men. Female credit also has a
significant, positive but somewhat smaller effect on the arm circumference of
sons. Female credit is estimated to have large, positive and statistically
significant effects on the height-forage of both boys and girls.” No statistically
significant effects were found for Body Mass Index (BMI).
Banerjee and Chandralekha (2010) used logistic regression model to isolate
the factors determining the employment status of the group member where it was
assumed that a group member with zero income is unemployed and allocating
her time between household activities and leisure. The dependent variable,
employment status takes the value one if the member is employed during 2009
survey or otherwise zero. The dummy variables are as follows: The socio
economic demographic variables includes religion, number of family member,
dummy related to education level of the group member, age of the SHG member,
and her employment category in 2005.
Parida and Sinha (2010) carried out logit model regression. It was used to
estimate the sustainability of SHGs. The results showed that all the explanatory
variables together have a significant impact on the dependent variable (i.e.,
sustainability), as the LR statistic is 391.11 and its p-value is 0.00, significant at
the 1 percent level. Among the explanatory variables, all except literacy and
mixed SHGs are statistically significant.
2.5 STUDIES ON OPINIONS OF THE STAKEHOLDERS
Mayoux (1997) argues that the impact of microfinance programmes on
women is not always positive. Women that have set up enterprises benefit not
only from small increases in income at the cost of heavier workloads and
repayment pressures. Sometimes their loans are used by men in the family to set
up enterprises, or sometimes women end up being employed as unpaid family
workers with little benefit. She further points that in some cases women’s
increased autonomy has been temporary and has led to the withdrawal of male
support. It has also been observed that small increases in women’s income are
also leading to a decrease in male contribution to certain types of household
expenditure.
Intellecap (2010) estimated that between 2008 and 2010 the number of
clients of MFIs grew by an average of 61% each year, with loan portfolios
growing 85% per year. The AP government-backed microfinance SHG program,
on the other hand, only grew its client base by 13.6% during the same period and
its loan portfolio by 28. “The MFI’s combination of door-step service, easy
credit, frequent small-value repayments and the group guarantee is attracting
borrowers – who are no longer so naïve that they cannot weigh the attractions of
these factors against the lower rates of government programs”.
Lenz (2010) argues that MFIs gradually “turned from ‘non-profit’ to
‘profit-making’ institutions, finding ‘for-profit’ micro financing, in some cases,
quite lucrative”.
Parmesh (2010) stated that Andhra Pradesh has the highest density and
intensity of engagement for both commercial banks and MFIs. The commercial
banks are providing credit to both SHGs and MFIs. This analysis shows that
there is an overlap of client base not only among different MFIs but also with the
commercial bank lending to SHGs. The problem is accentuated with
concentration of loan portfolios of MFIs in districts like East Godavari, West
Godavari, and Nalgonda. Warangal, Medak etc. which have ‘near saturation’
penetration under the SHG-Bank linkage model. Easy availability of credit made
poor households borrow indiscriminately from several MFIs and commercial
banks. Multiple loans to same households without proper due diligence and
sharing of credit information have ultimately lead to unsustainable debt burden.
Sriram (2010) concluded that, Andhra Pradesh which has the highest
concentration of MFIs and the largest exposure through the SHG-Bank linkage
model has responded with a heavy hand by passing an ordinance that has shifted
the discourse from the basic problem to a legal frame. This almost appears like
the government taking revenge on the competition with its monopolistic
regulatory power.
Anjaneyulu et al. (2011) reported that a senior DRDA official opined the
average lending to the groups has been on a rise as mentioned earlier. Bankers
are more than willing to lend higher amounts to SHGs if they have a good track
record. However, such growth is a result of improved systems and processes. The
impact of MFIs crisis would not be very significant in increased demand for
credit through SHGs. Since MFI loans were not actually required by their clients
hence there isn’t a vacuum that needs to be filled by SHGs/banks.
Micro save (2011) reported that branch manager of a leading MFI opined
that the reasons are political. The media has created a lot of hype around suicide
cases and attributed every suicide case to the so-called malpractices of MFIs. The
district and state level politicians also motivated the clients not to pay MFI loans
during their visits to settlements. The government feels threatened by MFIs since
they are competing with their SHG movement.
Legatum ventures (2011) reported that if the extremely serious assertions
of MFI wrongdoing are in fact not true, then this demands an answer to the
question “Where did these allegations come from?” Who could possibly gain
from shutting down the private sector MFI industry in Andhra Pradesh, and from
denying the rural poor access to their services? The answer is not difficult to
find. The number one competitor of private sector microfinance in AP is the
state-run microfinance business, SERP. Behind the scenes, the AP Act was
written and championed by SERP, the agency responsible for running the AP
government-backed microfinance SHG program. Evidence shows that SERP has
been losing the struggle to compete with private sector MFIs (Legatum ventures,
2011).
Taylor (2011) explained how the 2010 microfinance crisis in Andhra
Pradesh reveals significant fault lines that underlie this narrative. It argues that
the crisis of microfinance in Andhra Pradesh needs to be placed within the
context of severe agrarian dislocations stemming from the impact of trade
liberalization, drought cycles and a transformation of rural social relations. The
contradictions are most strikingly represented in increasing rural differentiation
and a generalized crisis of social reproduction among land-poor farmers and
landless labourers. A massive influx of microfinance - driven by both stateoperated programmes and private-sector institutions leveraged with cross-border
financial flows - found a ready clientele among various agrarian classes seeking
to bolster consumption and roll over debt in conditions of significant uncertainty
and distress. Yet in banking on this vulnerability, microfinance institutions
socialized the contradictions of rural Andhra Pradesh and have ultimately been
thrown into limbo through the unleashing of political and social forces
unforeseen in neoliberal narratives of agrarian change.
2.6 STUDIES ON PROBLEMS RELATED TO JLGS AND SUGGESTIONS
TO OVERCOME THE PROBLEMS
2.6.1 Problems Faced by Microfinance Providers
Kumaran (1997) concluded that passivity in self-help group is mainly on
account of irregularity in payment of savings and employment of loans, nonadherence to norms set by the group and lack of mutual trust and confidence
among members. Regular defaulting by some members resulted in dissolution of
some SHGs.
Prita (2001) studied the performance of Self Help Groups in Dharwad
district found that the major constraints faced by the members were difficulties in
diversification/ starting of activities (41.67%), misunderstanding among SHG's
members (38.17%), lack of space for storage of materials (28.24%) and
inadequate availability of raw material at the right time (16.03%).
Sentil and Sekhar (2004) stated that political interference in selection of
beneficiaries under peoples plan, lack of timely credit facilities, lack of adequate
credit, lack of adequate farm women oriented schemes and delay in operation of
development programmes were the major constraints perceived by the SHG
members.
Darlingselvi (2005) reported that from the study conducted in
kanyakumari district that the members came across certain difficulties in
marketing their products in time.
Rao (2005) reported that though problems varied across activities, social
taboos as also lack of communication skills came out to be major factors. Lack of
transportation, competition from established brands and lack of capital were
voiced by women.
Joseph and Eswaran (2006) identified the perceived constraints in the
functioning of SHGs and found that lack of government attention was first and
foremost problem i.e., 39 percent. High rate of interest was felt by 33.43 percent
of members, followed by insufficiency of loan for income generation, inability to
repay the loan etc.
Legatum ventures reported that in October 2010, with no warning or
consultation with stakeholders, the Government of Andhra Pradesh issued the
Andhra Pradesh Microfinance Institutions (Regulation of Money Lending) Act,
2010 effectively shutting down all private sector microfinance operations in the
state. The AP Act does not however apply to AP’s government-backed
microfinance business which directly competes with private sector MFIs. This
was a major blow to the entire microfinance industry as Andhra Pradesh, widely
regarded as the birthplace of private sector microfinance, accounts for over 40%
of all loans by MFIs across India according to some estimates (Legatum
ventures, 2011).
Rajesh
(2011)
indicated
that
the microfinance
crisis in Andhra
Pradesh signals a deeper malaise in the regulatory architecture of the Indian
financial system unclear demarcation of regulatory jurisdictions. Unless
remedied, the symptoms of this problem are likely to arise again and elsewhere
in the system.
2.6.2 Suggestions
Khandker (1996) has a review of the many Grameen studies and further
looks at its impact and sustainability. One important conclusion in that study
was that higher economic growth is needed to support Grameen Bank, but more
importantly, achieve the goal of moving the bank’s borrowers out of poverty.
The author states that “the government thus has an important role to play in
promoting and sustaining economic growth to reduce poverty on a sustainable
basis”.
Microfinance institutions alone are not what will sustain the micro
entrepreneur.
Lapenu (2002) argues that financial systems require state interventions to
correct market failures. The state needs to intervene to correct market failures
and strive for deepening and broadening of financial infrastructures through
measures aimed at institution building, as well as promulgation and
implementation of enabling regulatory and legislative mechanisms.
Meyer (2002) indicated that measuring financial sustainability requires that
MFIs maintain good financial accounts and follow recognized accounting
practices that provide full transparency for income, expenses, loan recovery, and
potential losses. One of the biggest problems in conducting this kind of study
with MFIs in India is that for want of mandatory disclosure requirements and
lack of dedicated legislation governing MFIs; it is very difficult to get reliable
and actionable data on the financials. The financial performance has been
compared on 22 different ratios. These ratios have been chosen again from the
reporting format of Mix Market. The reporting format broadly analyzes the
companies on six parameters of financial performance: Financial Structure,
Revenue, Expenses, Efficiency, Productivity and Risk. It covers three ratios viz.
Return on Assets, Return on Equity and Operational Self-Sufficiency.
Murray and Boros (2002) stated that majority of the microfinance
institutions offer and provide credit on a solidarity-group lending basis without
collateral. There is also a range of other methodologies that MFIs follow. Some
MFIs start with one methodology and later on move or diversify to another
methodology so that they do not exclude certain socio-economic categories of
clients. So it becomes important to have a basic understanding of methodologies
and activity of MFIs.
Basu and Srivastava (2005) claim that in an economy as vast and varied as
India’s; there is substantial scope for diverse microfinance approaches to coexist.
Private sector micro financiers need to acquire greater professionalism, and the
government can help by creating a flexible architecture for microfinance
innovations, including through a more enabling policy, legal and regulatory
framework.
Morduch (2005) argues that subsidies should be “time-limited and rulebound”. Otherwise, an institution could be sustainable using standard measures
but vulnerable to competition from new sources of credit. As the economic area
in which the clients of the institution operate grows new lenders are likely enter.
The data reported here shows that greater subsidies do lead to greater scale.
However, we must also control for the benefits a microfinance institution may
receive from changes in the overall economic conditions of the country in which
they operate.
Mahajan (2006) lists five fatal assumptions that underlie micro lending
and limit the ability of such institutions to decrease poverty: encouraging selfemployment over wage earnings, encouraging debt over savings, encouraging the
use of credit over entrepreneurship, encouraging debt to low income households,
and encouraging dependency through grants and subsidies.
Abrams et al. (2007) concluded that an increase in international support of
microfinance by development institutions is “crowding-out” private investment.
Development agencies are supporting the largest and most successful MFIs,
increasing their scale, and discouraging support of these institutions that should
be the primary market for private investors.
Ghate (2007) argued that to get smooth running of their operations MFIs
has to follow the following things: (i) to avoid over-financing of the same
household by different MFIs, (ii) make interest rates more transparent,
(iii) ensure that staff do not use abusive language or intimidation tactics while
collecting repayments, (iv) ensure high standards of corporate governance by
including on MFI boards eminent independent board members, and (v) stay in
touch with government authorities, banks and the media on a regular basis.
Alex (2008), CEO of the Grameen Foundation advances the idea of an
objective third party certification for the MFI sector. An independent overseeing
body would, together with the MFIs, establish credible certification criteria for
their actions and achievements. The result would be very similar to a fair trade
label for MFIs which claim to be double-bottom line organizations. Thus,
investors could acquire objective information on whether a specific MFI is
actively and effectively working to alleviate poverty; borrowers would know if a
specific MFI was truly committed to its social mission or only to short-term
profits; and governments could weigh off better if further regulations were
necessary.
Crabb (2008) describes the need for more empirical work on the
sustainability of MFIs. He points out. Empirical understandings of microfinance
will also be aided by studies that quantify the roles of the various mechanisms in
driving microfinance performance. The present study attempts to analyze and
compare the financial performance of the MFIs primarily from a sustainability
standpoint.
Pankaj and Agarwal (2010) concluded that most of the best performing
firms are following different business models in India. This is reflected in 13 out
of 22 parameters studied. However in other areas especially in risk coverage,
debt equity ratio, productivity, cost per borrower, operational self sufficiency etc
there exist a similarity between the firms performance. However the similitude in
performance is not due to a chance factor but a deliberate business model that
emanates from group lending and rural focus of MFIs operating in the Asian
subcontinent. They seem to be following a time tested way of doing business
which has sustained itself over the years. However the managerial capability as
reflected in productivity parameters etc is different as it is possible that
management of different MFIs are at different stages of the learning curve.
Micro save (2011) reported that every stakeholder (i.e. MFIs,
government, regulator, media and even clients themselves) played their part in
dismantling credit discipline. While MFIs need to become more transparent and
client friendly, regulators will have to come out with robust regulations,
government will have to support MFIs to build positive image, media will have
to be more responsible and supportive, and most importantly clients will have to
impose self-discipline for their own good.
Anjaneyulu et al. (2011) opined that grievance redressal procedures,
mandatory enrolment in credit bureaus and code of conduct enforcement through
industry associations are also essential. Better information sharing within the
industry through credit bureaus will go a long way in rebuilding credit discipline
– though some question their role as a “magic bullet” in this context. The draft
guidelines for MFIs seek to address most of these issues. Apart from state and
national level councils as proposed in bill, regulations should also consider
setting up grievance redressal bodies at district/mandal level for quicker redressal
of client complaints.
Yunus (2011) argues that the ultimate objective of micro-financiers is to
ensure financial inclusion and not making profit. When they start looking for
profit, they become loan-sharks’. He also argued that the so-called “double
bottom line” - making profits and serve a social cause - is possible. We do not
see the commercialization of the microfinance sector as a “terribly bad turn”.
Chapter III
MATERIAL AND METHODS
In this chapter an attempt was made to describe the detailed sampling
procedure for selection of district, mandal, village, Joint liability groups (JLGs),
mode of collection of data, concepts and terms used and various analytical tools
employed in achieving the objectives are discussed.
The methodology followed has been prescribed under the following
heads.
3.1 Sampling procedure adopted.
3.2 Nature and sources of the data.
3.3 Variables of the study and their measurement.
3.4 Analytical techniques employed.
3.5. Terms and concepts used.
3.1 SAMPLING PROCEDURE ADOPTED
Multi stage sampling was followed for the present study in order to select
the respondents as discussed under the following sub-heads.
3.1.1 Selection of District
Prakasam district of Andhra Pradesh was selected purposively as it is one
of the districts, having highest dry land area. Farmers and agricultural laboureres
of the district are resource poor as well as majority of areas are not having the
banking facilities and hence dependent on microfinance for agricultural and non
agricultural purposes. It is one of leading districts of micro financing activity,
having 221251 borrowers as on October 2010. The important reasons for this
tremendous response to Microfinance institutions (MFIs) are doorstep lending,
as they are not asking for securities and less time to get the loans.
3.1.2 Selection of the MFIs
Four MFIs operating in the district were selected based on their volume of
business. The four MFIs are Spandana, SKS, Share and L&T finance.
3.1.3 Selection of Mandals
Four mandals which are having highest business was selected. The
mandals which are having the highest volume of business are Ongole, Markapur,
Chirala and Kandukur respectively.
3.1.4 Selection of Village
Based on the highest number of Joint Liability Groups (JLGs) operating,
two villages are selected from each mandal making a total number of 8 villages
from four mandals.
3.1.5 Selection of Joint Liability Groups (JLGs)
The list of JLGs in the village was collected from the respective MFIs.
Out of the list, the required numbers of respondents were selected randomly to
know the various aspects pertaining to the micro financing activity. From each
village 20 beneficiaries were selected making a total of 160 sample respondents.
The respondents selected are from various occupations.
3.2 NATURE AND SOURCES OF DATA
For evaluating the objectives of the study the required primary data was
collected through personal interview method with the help of a structured
pretested schedule. The relating general information about the members, their
material possessions, investment pattern, and loan availed from micro financial
institutions, repayment pattern, internal loans, multiple borrowing income
position of the beneficiary, consumption pattern, generation of the employment,
opinion and constrains of JLGs were collected from the members. For collecting
group related data, apart from referring their books and registers, group leaders
and microfinance staff were interviewed for some of the factors like writing of
group records, group meetings, growth of JLGs, structure and functioning of
JLGs.
3.2.1 Primary data
The primary data on general information, economic aspects like asset
structure, loaning and employment patterns and social aspects such as
improvement in self-confidence, communication skills, behavioral changes etc,
cost of credit, sources of credit, credit utilization, income generating activities,
repayment performance, knowledge on AP MFI Ordinance 2010 and suggestions
as perceived by the respondents of Joint liability groups were collected through
survey method by personally interviewing the group members using well
structured and pre-tested schedules. In order to assess the impact of AP MFI
Ordinance 2010 “before and after” approach was followed. The field study was
conducted between Dec-2011 and Jan-2012.
3.2.2 Secondary Data
The secondary data consisting of Joint liability group status, borrowing
particulars and interest rates, repayment pattern etc., were collected from the
selected four leading Microfinance institutions of the district. Microfinance
institutions details such as network and coverage, their registration and some
details were collected from Project Director of District Rural Development
Agency (DRDA), Project Director of Mission for Elimination of Poverty in
Municipal Areas (MEPMA). The data pertaining to the Agro-Economic features
of the study area were collected from Chief planning officer (CPO), Prakasam
district and selected mandal Revenue offices and Agricultural offices.
3.3 VARIABLES FOR THE STUDY AND THEIR MEASUREMENT
A. Age:
Age was measured as the number of calendar years reported to have been
completed by the respondent at the time of interview. The respondents were
categorized into four groups based on their age.
Category
18-25
26-35
36-45
Above 45
Score
1
2
3
4
B. Marital status
The marital status of the respondents was classified into married,
unmarried and widow and scores were assigned.
Category
Score
Married
1
Unmarried
2
Widow
3
C. Education:
It refers to the number of years of formal schooling, successfully
completed by the respondents. The respondents were categorized into following
categories.
Category
Score
Illiterate(do not know read and write)
1
Functionally literate
2
Primary school
3
Secondary school
4
Above secondary school
5
D. Family type:
It refers to the classification of family as nuclear and joint family. The
respondents were categorized accordingly and expressed in number and
percentage.
i.
Nuclear family represents means family with single couple and unmarried
children.
ii.
Joint family indicates family with more than a couple and married
children living together. Narasalagi (1990) and Sankaragoudar (1991).
Category
Score
Joint
1
Nuclear
2
E. Caste:
Caste was operationlized as the caste to which one belongs at the time of
birth. Categorization of the variable was done as shown below.
Category
Score
SC/ST
1
Backward caste
2
Forward caste
3
F. Annual income:
The annual income of the respondents was worked out by taking into
account income from all income generating activities of JLGs and other subsidy
occupations per year. Categorization of annual income was done as follows.
Category
Score
Low income
Less than (mean-SD)
Medium income
Between (mean ± SD)
High income
High income (mean+SD)
G. Material possession/assets:
It includes the various assets of the respondents like the live stock assets
and the durable assets.
Category
Score
Low asset possession
Less than (mean-SD)
Medium asset possession
Between (mean ± SD)
High asset possession
High income (mean +SD)
H. Investment pattern of the beneficiary:
It shows the purpose for which the funds availed by the beneficiaries
(whether they are owned funds or borrowed funds). Borrowed funds include the
ones borrowed from bank as well as money lenders.
Category
Score
Low investment
Less than (mean-SD)
Medium investment
Between (mean ± SD)
High investment
High income (mean + SD)
I. Loan availed from the JLG:
The loans availed from the JLG; the interest rates, average loan availed
per member is recorded.
J. Consumption pattern:
The pattern of consumption of beneficiaries is recorded. This includes the
amount spent (Rs / year) on food, housinh, clothing, religious ceremonies and
marriages etc.
Category
Score
Low consumption
Less than (mean-SD)
Medium consumption
Between (mean ± SD)
High consumption
High income (mean+SD)
K. Generation of employment:
It refers to the days of employment generated through the various sources
like crop enterprises, diary, poultry, group activity and self-employment
activities.
Category
Score
Low employment
Less than (mean-SD)
Medium employment
Between (mean ± SD)
High employment
High income (mean + SD)
L. Income generating activities:
In the present study it refers to the various activities taken up by JLGs
and its members in order to increase their income. The kinds of income
generating activities were listed by getting response from beneficiaries and
frequencies and percentages were calculated.
M. Opinion of beneficiaries:
In the present study opinion about the functioning of JLGs and about
MFIs and IKP has been considered. The respondents were asked to give their
opinion on a two point continuum scale. Yes, No.
Category
Score
Yes
1
No
2
N. Borrowing experience of beneficiaries:
In the present study it refers to how many times borrowers got loan
facilities from MFIs. The respondents were categorized into following
categories. Those are only once, two times, three times, four times, five or more
than five times, ten or more than ten times etc.
Category
Score
One time
1
Two times
2
Three times
3
Four times
4
Five or more than five times
5
6
Ten or more than Ten times
O. Empowerment of beneficiaries:
It is divided into social empowerment and economic empowerment. It
refers to the extent of empowerment the beneficiaries have gained by linking
with MFIs on the social as well as economic conditions. The level of
empowerment in each case was measured by asking the respondents to give their
opinion on three continuum scale. It was quantified using the scoring pattern.
Category
Score
Increased
3
Decreased
2
Remained same
1
The impact of MFIs on member’s empowerment was assessed using the
above scoring pattern. The impact index was obtained by using formula.
Obtained index
Impact Index (%) = ----------------------------------- × 100
Maximum obtained score
3.4 Analytical tools employed:
For the purpose of fulfilling the objectives of the study, data were
analyzed by tabular presentation method were frequencies and percentages were
used, mean and standard deviation were used to categorize the sample.
Frequencies and Percentages
Frequencies and percentages were used to know the distribution pattern of
respondents according to variables under the study.
Percentages were used for standardization of size by calculating the
number of inviduals that would be under the given category, if the total number
of cases were 100.
Paired t-test
To find out the impact of AP MFI Ordinance 2010 on the beneficiaries
and on the MFIs the paired t-test was done, which is a statistical test for
difference between before and after the AP MFI Ordinance 2010. This test is in
line with Srinadha (2009), Sarumathi and Mohan (2011), Suresh and Mohan
(2011) and Manoharan and Pandian (2012).
Paired t-test =
d
s n
d = di
n
di = xi-yi
s = the sample standard deviation
Mean
The arithmetic mean is the quotient that results when the sum of all the
observations in the series was divided by the number of observations as follows
x=
∑
Where,
x = mean
∑x = sum of observations
n = number of respondents
Standard Deviation
It is defined as the square root of the sum of squared deviations of the
observations taken from the mean divided by the number of observations. It can
be symbolically denoted as:
σ=
∑x −
(∑ )
Where,
σ = Standard deviation
∑x2 = Sum of squares
n
= Number of items
Logit Model
In this present study logit model was used to know the impact of AP MFI
ordinance on beneficiaries of various Microfinance institutions. Here the
dependent variable is impact of MFI ordinance, a qualitative variable. The
responses recorded for dependent variable are 0 for ‘useful’ and 1 for not
‘useful’. Therefore, a univariate logit model was used to analyze the impact of
AP MFI ordinance on beneficiaries of various Microfinance institutions. The
logit model, which is based on cumulative logistic probability functions and it is
computationally easier to use than other types of model.
The logit model assumes that the underlying stimulus is a random
variable which predicts impact of AP MFI ordinance on beneficiaries of various
Microfinance institutions.
Conceptually, the behavior model used to examine factors influencing
impact of AP MFI ordinance on beneficiaries of various Microfinance
institutions given by
L = ln Pi/(1-pi) + bo +∑ bj Xji
Where L is the logit model, Pi is used to the beneficiaries whose response
is ordinance is not useful. (1-pi) used to the beneficiaries whose response is
ordinance is useful. We have selected some important factors for explaining the
impact of AP MFI ordinance. Those are source of credit, dependence on SHG,
dependence on money lenders, savings, change in the interest rates, change in
the recovery practices, repayment of existing loans, abusive language by staff
and coercive practices followed by the staff. In every independent variable there
were three categories i.e., increased, decreased and no change. Based on the
beneficiary’s response we have given scores for ‘increased’ it is 0, 1 for
‘decreased’ and 2 for ‘no change’.
The following logit model for impact of AP MFI ordinance was
estimated.
Impact(L) = β+ β1 source of credit + β2 dependence on SHG + β3 dependence on
money lenders + β4 savings + β5 change in the interest rates + β6 change in the
recovery practices + β7 repayment of existing loans + β8 abusive language by
staff + β9 coercive practices followed by the staff. Anand (2006), Banerjee and
Chandralekha (2010) and Parida and Sinha (2010).
Multiple Linear Regression (MLR) analysis
This technique was used in the present study by taking gross income(Y)
as dependent variable and X1, X2, X3, X4, X5and X6 as independent variables.
(Srinadha, 2009)
The linear regression model is as follows.
Y = a + b 1 x1 + b2 x2 + b3 x3 + b4x4 + b5 x5+ b6 x6
Y = Gross income of the JLG member household
Where,
a = intercept
b 1,b2, b 3,…. b6 = The partial regression coefficient represents the amount of
change in Y that can be associated with a unit change in x1 the remaining
independent variables held constant.
x1 = Investment of the members (Rs)
X2 =
Savings of the member (Rs)
X3 =
Employment of the members (labour days)
X4 =
Consumption expenditure of JLG member household (Rs)
X5 =
Average value of assets possessed by member household (Rs)
X6 =
Loan amount taken (Rs).
Kendall’s coefficient of concordance (w) test
To identify the problems in micro financing pretested schedules were
used to elicit information about rate of interest, wrong identification of members,
non cooperation among members, irregular meetings, weekly repayments,
collateral securities, multiple borrowing and approach followed in repayments
staff behavior etc. In the schedule, questions are grouped under the 13 headings
and farmers were asked to rank each of the constraints as per their importance.
The major constaint faced by beneficiary was given with rank 1, second major
constaint was given with 2, upto 13. After collecting data, the entire data has
been analyzed with the help of simple averages. Finally ranks were assigned to
each constraint ranging from one to thirteen (1-13). Once rankings were given
Kendall’s Coefficient of Concordance Test was used to know the significant
relation among all the problems faced by the beneficiaries. If there was
significant relation, then final ranking was assigned to constraints. (Kishore,
2009).
The Kendal’s Coefficient of Concordance (W) Test was applied to
determine the aggregate of respondents in ranking the constraints.
(  Rj) 2
 Rj  n
Kc 
1 2 3
k ( n  n)
12
2
K = No. of respondents assigning ranks.
N = No. of constraints ranked.
Rj = Total of column; j = 1 to 9.
Further 2 (chi-square) calculated value was at 2 = K (n-1) kc tested against 2
table value at (n-1) df.
3.5 TERMS AND CONCEPTS USED IN THE STUDY
1. Microfinance:
Microfinance is an economic development approach that involves
providing financial services, through institutions, to low-income clients, where
the market fails to provide appropriate services. The services provided by the
Microfinance Institutions (MFIs) include credit, saving and insurance services.
Many microfinance institutions also provide social intermediation services such
as training and education, organizational support, health and skills in line with
their development objectives.
2. Micro-credit:
It is a component of microfinance and is the extension of small loans to
entrepreneurs, who are too poor to qualify for traditional bank loans. Especially
in developing countries, micro-credit enables very poor people to engage in selfemployment projects that generate income, thus allowing them to improve the
standard of living for themselves and their families.
3. Micro finance Institutions (MFIs):
A microfinance institution is an organization, engaged in extending micro
credit loans and other financial services to poor borrowers for income generating
and self-employment activities. An MFI is usually not a part of the formal
banking industry or government. It is usually referred to as a NGO (NonGovernment Organization).
4. Empowerment:
Empowerment refers to increasing the spiritual, political, social and
economic strength of individuals and communities. It often involves in
developing confidence of the individual in his/her own capacities. It has different
meanings in different social, cultural and political contexts. It indicates the
expression of self-strength, control, self-power, self-reliance, freedom of choice
and life of dignity, in accordance with one’s values, capable of fighting for one’s
rights, independence, own decision making, being free, awakening, and
capability. Empowerment is relevant at the individual and collective level, and
can be economic, social, or political.
5. Economic empowerment:
In our research, we have also emphasized on economic empowerment. As
a consequence of economic empowerment, income, savings, employment and
self-employment increases and thus reducing unemployment and indebtedness.
As a result of this distress, sale of commodities and land also decreases, resulting
in the increase of assets and productive investment.
6. Social Empowerment:
Social empowerment refers mainly to the literacy rate and social
awareness, especially of women who are much oppressed in many parts of the
developing countries. We can say, in general, that is related to the participation
of people in different community and political institutions, mobility and
decision-making power, access to safe drinking water and sanitation coverage.
The other factors which result as the increase in social empowerment are
increase in contraceptive prevalence rate and access to public and common
property resources, and decrease in child and maternal mortality.
7. Poverty:
Poverty is a condition in which a person of community is deprived of the
basic essentials and necessities for a minimum standard of living. Since poverty
is understood in many senses, the basic essentials may be material resources
such as food, safe drinking water and shelter, or they may be social resources
such as access to information, education, health care, social status, political
power, or the opportunity to develop meaningful connections with other people
in society. According to the World Bank’s definition of poverty, “a condition of
life so characterized by malnutrition, illiteracy, and disease as to be beneath any
reasonable definition of human decency”.
8. Self-help group:
A self-help group can be defined as a voluntary association of the poor
with a common goal of social and economic empowerment. These groups
promote savings among members and use pooled resources to meet the emergent
needs of their members, including the consumption needs. Groups should ne
homogeneous, usually having 10-20 members and functioning purely on
democratic lines.
9. Non-government organization (NGO):
It is a voluntary organization established to assist the undertaking of
social intermediation, namely organizing the SHGs of micro enterprises
entrusting them to the interested banks and also borrow funds from financial
institutions for extending to SHGs.
10. SHG-Bank linkage:
It is a pilot project introduced in 1992 by NABARD for linking banks
with SHGs to encourage thrift and savings amongst the rural poor and to
supplement their credit needs through the banking system.
11. Joint Liability Groups (JLG).
Members of a joint liability group should self-select themselves; group
must not be formed by coercion or external influence. If any one or more
member(s) in a group defaults in repayment of a loan, then other group members
agree to jointly bear the responsibility of repaying such amount on behalf of the
member(s) who has/have defaulted.
12. Loan amount received:
The total amount provided to each JLG member by different banks,
NGOs, Government agencies etc., under the linkage programme is considered as
loan amount.
13. Cost of credit:
These are the credit acquisition cost, such as fee paid for documentation,
opportunity cost of time spent in negotiating the loan as well as loss of labour
wages for the borrower, travelling expenses, incidental and other legal other
illegal charges incurred etc., along with interest amount charged by the lending
institution.
14. Income generating activities:
These are the activities which earns a profitable amount of income such
as agricultural activities, sheep and goat rearing, poultry farming, dairy
enterprises, petty trading and all other business activities.
15. Petty traders:
They are mostly poor and earn their living by running by very small retail
outlets, which cater to the needs of villages.
16. Gross income:
It is calculated by summing up of the earnings by all the members in the
households from all sources i.e. from farm and non-farm activities and services
taken up by them during the year
17. Consumption expenditure:
It is the total expenses incurred on food, clothing, housing, health,
education, ceremonies etc., during the year.
18. Assets:
These are represented by considering the money value of all materials
possessed by the respondent such as agricultural machinery and implements,
bicycles, utensils etc., along with the value of livestock used in production
process.
19. Employment:
It was worked out by adding the days on which the JLG members were
employed in different activities, hired out labour days and total days spent for
household activities etc.,
20. Defaulter:
A person who failed to fulfill an obligation especially to repay the loan
taken from different lending agencies.
The Andhra Pradesh Microfinance Institutions (Regulation of Money
lending) Ordinance 2010
Objectives of the Ordinance:
The ordinance issued by the Government of AP is ostensibly intended “to
protect the women Self Help Groups”, who, the preamble states, “are being
exploited by private microfinance institutions through usurious interest rates and
coercive means resulting in their impoverishment and in some cases leading to
suicides.”
Key features:
1. MFIs have to specify the area of their operations, the rate of interest and
their system of operation and recovery while registering with the
registering authority.
2. The registering authority may, at any time, either suo moto or upon
receipt of complaints by Self-Help Groups (SHGs) or the general public
can cancel the registration of the MFI after assigning sufficient reasons.
3. The MFIs cannot seek collateral from a borrower by way of pawning or
any other security and they will now be required to display the rates of
interest rates charged by them in prominent places at their offices.
4. MFI’s cannot charge any other amount from the borrower except the
charge prescribed in the rules for submission of an application for grant of
a loan.
5. The ordinance also states that the amount of interest should not be in
excess of the principal amount.
6. MFI’s cannot extend a second loan unless the first loan has been fully
paid off.
7. The MFIs are required to submit a monthly statement to the registering
authority giving the list of loanees, the loan given to them and the amount
of interest charged on these new loans.
8. MFI clients can complain to the registering authority in case of any
problems and they can also call the grievance cell through a toll free
number – 15532.
9. The Ordinance also mandates that only those staff members with identity
cards can go for recovery and which can be done only in a public place.
This is to check the use of rowdy elements by MFI’s for loan recovery.
10. All those connected with errant MFI’s would be liable for punishment of
imprisonment for upto three years or a fine upto Rs. 1 lakh or both if they
resort to any coercive measures.
11. The Ordinance also mandates SHG members cannot take a second loan
without the permission of the registering authority.
Chapter IV
AGRO ECONOMIC FEATURES
The Agricultural economy is influenced by the existing socio-economic
features and infrastructural facilities available in the region such as demographic
features, roads and communication facilities, irrigation facilities, patterns of land
utilization, available farm implements, credit facilities, etc., Hence, in this
chapter, a brief survey of the important agro-economic features of Prakasam
district and selected mandals are presented with the objective of providing
necessary background for proper understanding of the district profile, problem
formulation and results of the study.
4.1 LOCATION
Prakasam district was constituted on 02-02-1970 comprising of Markapur
division from Kurnool district, Kandukur division from Nellore district and
Ongole division from Guntur district with head-quarter at Ongole. It was
subsequently renamed as Prakasam district in 1972 to cherish the found memory
of late Andhra Kesari Tanguturi Prakasam Panthulu who was born in the district.
The district is situated in tropical region between 140-57'-00'' to
160-17'-00'' on the northern latitude and 780 -43'-00'' to 800 -25'-00'' on the
eastern longitude. It is bounded on east by the Bay of Bengal, on the south partly
Nellore and Cuddapah districts, on the west by Kurnool district and on north
partly by Guntur and Mahaboobnagar district. The central portion of the district
contains large tracts of low shrubs jungle diversified with rocky hills and stony
plains which are distinctive features of the district.
The district occupies in an area of 17,626.Sq.Kms. It accounts for 6.41%
of the total area of the state and is ranked 4th in size. The area of the district is
much more in size when compared to other coastal district of Andhra Pradesh.
The district is having 102 kms of coastal line spread over in 10 mandals.
4.2 ADMINISTRATIVE SET UP
The district, for the purpose of administration has been divided into three
revenue division’s viz., Ongole, Kandukur, Markapur consisting a total of 56
mandals (Fig 1) and 1093 revenue villages. The particulars of the overall picture
of the administrative divisions are furnished in table 4.1
4.3 AGRO-CLIMATIC CONDITIONS
4.3.1 Climate
The sea breeze renders the climate moderate both in winter and summer
in the coastal area of the district. In the rest of the district, the heat in the summer
is severe, especially in the tracks adjoining the hills. The maximum and
minimum temperatures recorded in the district were 38.20c and 24050c
respectively. Generally, the maximum temperature is recorded during the
summer months, especially in April, May and June.
4.3.2 Rainfall
The district receives its rainfall mostly and predominantly from Southwest as well as North-east monsoon whose rainfall is 388.3mm and 393.7mm
respectively. The receipt of actual rainfall during 2009-10 from South-west
monsoon is 281.4mm, while 272.1mm from North-east monsoon. The
agricultural activity in the district is deplored owing to gambling of monsoons
and unreliable rainfall and much dependence on tanks and wells for irrigation.
Rainfall distribution of the district was given in table 4.2.
4.3.3 Temperature
The monthly mean maximum and minimum temperature for the years
2009-2010 were presented in Table 4.3. The highest temperature was recorded in
the month of June (39.90 0C) where as the lowest temperature was recorded in the
month of January (19.310C). The average highest temperature for the year was
recorded as 35.120C, where as the average lowest temperature was 24.44 0C.
4.4 DEMOGRAPHIC FEATURES
4.4.1 Population
As per 2001 census, population has been presented in table 4.4 & 4.5. The
total population of the district is 30,59,423. It accounts for 4.02 per cent of the
total population of the state and is ranked 14th in the size of population. The
female population of the district is 15,07,091 and this forms 49.67 per cent of the
district population and 4.02 per cent of the state female population.
The rural population of the district is 25,92,055 and it constitutes 84.72
per cent of the district population and 4.69 per cent to that of state rural
population. Similarly, the urban population of the district spread over in 9 towns
in 4,67,368 forming 15.28 per cent of the district population and 2.25 per cent of
the state population. The decennial growth of population in the district from
1991 census to 2001 census was 10.88 per cent. The density of population is 174
per Sq.Km as against the state 277 Sq.Km. The literacy rate of the district is
50.08 per cent which is lower than the state literacy rate of 61.55 per cent. The
sex ratio of the district is 972 females per 1000 males as against 978 of the state.
The number of main workers in Prakasam district was 15,37,544 forming 50.26
per cent of total population and 4.41 per cent of the state population.
The S.C. population of the district is 6,51,498 which is 21.29 per cent of
the district population and 4.87 per cent of the state S.C. population. Similarly,
the S.T. population of the district is 1,18,241 and it accounts for 3.86 per cent of
the district and 2.08 per cent of the state S.T. population.
4.4.2 Literacy Status
Minimum educational facilities are available in the district. The literacy
rate of the district is 56.26 per cent which is lower than the state literacy rate of
61.55 per cent. There are 3056 Primary schools, 506 Upper primary schools, 570
High schools, 158 Junior colleges and 65 Degree colleges are exist in the district.
In addition to these two Post graduate centers, one Law College 11 Polytechnic
colleges and 20 Engineering colleges are functioning in the district. Literacy
particulars were given in table 4.6.
4.5 OCCUPATIONAL DISTRIBUTION
The district has a work force of 1306772 (43% of the total population),
cultivators are 378494 (12% of the population) and agricultural labours are
673018 (22% of the total population), household industry constitutes 56469
members (2% of the total population) and other than household industry
constitutes 429563 members (14% of the total population). Occupational
distribution of the district was given in the table 4.7.
4.6 LAND UTILIZATION PATTERN
The total geographical area of the district was 17,62,600 ha. As per
2006-07 estimates, the area under forest cover was 4,42,499 ha which form
25.10 per cent of the total geographical area .The net area sown was 5,48,147 ha
and it constitutes 31.08 percent of the geographical area and the cultivable waste
accounted for 4.76 per cent.
It indicates that, there is a scope for further
expansion of cultivable area. The land not fit for cultivation, comprising barren
and uncultivable land formed 9.47 percent land put to non-agricultural land
formed 9.59 percent and miscellaneous tree crops and grooves formed 0.62
percent of the geographical area. The area under permanent pastures and grazing
lands accounts 61,725 ha which forms 3.52 percent. The area covered by both
current and other fallows was 2,77,709 ha and this constitutes 15.73 percent. The
extent of the area was sown more than once formed 7.12 percent of the net sown
area. The land utilization pattern indicated that expansion of cultivable area and
through multiple cropping. The cropping intensity of the district was 107.12
percent. The other details are given in the table 4.8.
4.7 CROPPING PATTERN
Crop cultivation was observed around the year during kharif, rabi and to
some extent in summer season in the study area. The usual crop rotations
followed in the area are presented in table 4.9.
Paddy was raised during Kharif season followed by pulses and fodder
crops in Rabi season. In dry lands single crop was taken up for one year. The
main dry land crops grown were bengalgram, ground nut, red gram, tobacco,
cotton and chillies.
4.8 IRRIGATION
The details of irrigation sources available in the district are presented in
the table 4.10 that the gross area irrigated is 1,88,270 hectares for both kharif and
Rabi seasons put together out of gross cropped area of 5,90,154 hectares which
constitute 33.48 per cent during the agricultural year, 2006-07 .The canal
irrigation accounts for 39.15 per cent and tanks for 10.55 per cent. Tube wells
occupy major irrigated area i.e., 36.73 per cent. Other wells and lift irrigation
contribute 4.27 per cent and 8.47 per cent, of the gross irrigated area,
respectively. The ground water irrigation constitutes 41 per cent over gross
irrigated area while the balances of 58.17 per cent irrigation being the surface
flow.
4.9 RIVERS
The main rivers flowing in the district are Gundlakamma, Musi,
Manneru, and Paleru. Besides there are small rivers viz., Thammaluru, Naguleru,
Gudiselaru, Varagavagu, Nallavagu, and Mangalavagu. The main source of
irrigation and drinking water is Gundlakamma river with a length of 220 Kms.
Cumbum tank built across this river.
4.10 AGRICULTURAL IMPLIMENTS AND FARM EQUIPMENT
A cursory look at Table 4.11 indicates that the farming in the district is
traditional, being mostly done with traditional implements like wooden plough
and bullock operated implements.
4.11 LAND HOLDING
The details of different sizes and number of holding operated under each
size are given in Table 4.12. It indicates that the majority of the holdings were in
the size group of below 0.5 ha which accounted for 20.68 percent to total
operated area followed by the size groups of 0.5 to 1 ha (21.85%) 1-2 ha
(25.85%) 2-3 ha (12.94%) and 3-4 ha (6.95%) etc.
It could be clearly seen from Table 4.12 that the marginal, small and
medium farmers together were holding major share in the total operated area.
4.12 ANIMAL HUSBANDRY
The livestock in the district consists cattle, buffalos, sheep, goat, horse,
pigs, poultry and others. The details were furnished in table 4.13.
4.13 TRANSPORT & COMMUNICATION FACILITIES
The district is having a total road length of 11024.10 kms. Out of which, a
length of 124.02 kms, the National Highway from Calcutta to Chennai is passing
through the district. The length of the roads maintained by roads and buildings
department is 1152.49 km, Village roads 7611.64 km. Bus transport is
maintained by APSRTC in the district by flying 710 buses. The total length of
railways is 227.00 km.
The district has wider communication network with 1025 post offices,
59 telephone exchanges with 35340 telephone connections.
4.14 FINANCIAL INSTITUTIONS
There are 310 Bank branches operating in Prakasam district. Out of these
223 belong to Commercial banks, 57 Regional Rural Banks and 29 Co-operative
Bank branches. The details of Bank branches are furnished in table 4.14.
The key indicator of all banks in the district was given in Table 4.15. It
indicates that the total deposits in all banks were Rs. 424481.33 lakhs where as
advances were Rs. 569071.7 lakhs. Out of which total advances given to priority
sector was Rs. 180007.85 lakhs. Among the priority sector, the loans advanced
to agriculture were Rs. 158288.89 lakhs followed by industries (Rs. 13500.95
lakhs) and services (Rs. 8713.03 lakhs).
4.15 STATUS OF SELF- HELP GROUPS IN PRAKASAM DISTRICT
20948 groups are functioning in Prakasam district. Mandal Indira Kranti
Padham training centers are established for conduct of regular training
programme for Self-Help Group members and leaders in the capacity building
and skill development. The details of SHGs are furnished in table 4.16.
4.16 STATUS OF MICROFINANCE INSTITUTIONS IN PRAKASAM
DISTRICT
17 MFIs were registered in Prakasam district under the AP MFI
Ordinance 2010. Out of 17 MFIs four MFIs were found big. Those are
Spandana, SKS, Share and L& T microfinance. MFIs are covering almost the
total district. There were 168267 borrowers in the district were getting benefits
from MFIs. The details of MFIs are furnished in the below table 4.17.
4.17 AGRO -ECONOMIC FEATURES OF SELECTED MANDALS
4.17.1 Ongole Mandal
The total geographical area of this mandal is 202 Sq.kms. This mandal is
formed by merging 19 villages. It is surrounded by Bay of Bengal in the East,
Santanutala padu mandal in West, Naguluppalapadu mandal in North, and
Tanguturu in South. This mandal comes under Ongole revenue division.
4.17.2 Markapur Mandal
The total geographical area of this mandal is 348 Sq.kms. This mandal
was formed by merging 23 villages. It is surrounded by Trlupadu mandal in East,
Dornala mandal in West, Donakonda, Pedda araveedu mandals in North and
Ardaveedu, Cumbum mandals in South. This mandal comes under Markapur
revenue division.
4.17.3 Chirala Mandal
The total geographical area of this mandal is 97 Sq.kms. This mandal was
formed by merging 5 villages. It is surrounded by Bay of Bengal in East,
Karamchedu mandal in West, Guntur district in South and Vetapalem mandal in
North. This mandal comes under Ongole revenue division.
4.17.4 Kandukur Mandal
The total geographical area of this mandal is 231 Sq.kms. This mandal
was formed by merging 20 villages. It is surrounded by Singarayakonda,
Ulavapadu mandals in East, Ponnaluru mandal in West, Zarugumalli mandal in
North and Valetivaripalem mandal in South. This mandal comes under
Kandukur revenue division.
4.18 LAND UTILIZATION PATTERN OF SELECTED MANDALS
The complete details of land utilization pattern in four selected mandals
are presented in table 4.18.
4.19 DEMOGRAPHIC FEATURES
As per 2001 census, the Ongole mandal has a total population of 196425,
out of which 99556 were males and 96869 were females with sex ratio of 953
females per thousand males. The density of population was 973 per sq.kms.
Markapuram mandal has a total population of 106863 with a male
population of 54669 and female population of 52194. The sex ratio was 955
females per thousand of males. The density of population was 307 per sq.kms.
Chirala mandal has a total population of 162897 with a male population
of 81754 and female population of 81143. The sex ratio was 933 females per
thousand of males. The density of population was 1687 per sq.kms.
Kandukur mandal has a total population of 79896 with a male population
ofb40297 and female population of 39599. The sex ratio was 983 females per
thousand of males. The density of population was 346 per sq.kms.
4.20
AGRO - -CLIMATIC FEATURES OF SELECTED MANDALS
4.20.1 Rainfall
The annual rainfall in Ongole, Markapur, Chirala and Kandukur mandals
were in given in table 4.19.
4.20.2 Cropping pattern
The major crops grown in the four selected mandals were given in
table 4.20.
4.21 IRRIGATION
The gross area irrigated during the year in Ongole, Markapur, Chirala and
Kandukur mandals were 1183 ha, 4051, 5578 and 3644 ha respectively. The
sources of irrigation for selected mandals were presented in table 4.21.
4.22 ANIMAL HUSBANDRY
The livestock and poultry population of the selected mandals were given
in table 4.22.
4.23 PARTICULARS UNDER INDIRA KRANTHI PADHAM (IKP)
The total number of beneficiaries under IKP and the amount sanctioned
for the selected mandals were given table 4.23.
Table 3.1 Sample for the study
Mandal
Villages
Ongole
Markapur
Chirala
Kandukur
Total
JLGs
Members
Trovagunta
10
20
Karavadi
10
20
Jammana palli
10
20
Rayavaram
10
20
Papayi palem
10
20
Burla vari palem
10
20
Machavaram
10
20
Kancharagunta
10
20
80
160
8
Table 4.1 Administrative Divisions of the District
S.No
Revenue
Division
No. of
Mandals
No. of
Villages
No. of Gram
panchayats
NonNotified
notified
No. of
municipalities
1
Ongole
20
258
45
317
2
2
Kandukur
24
600
10
471
1
3
Markapur
12
235
7
193
1
Total
56
1093
62
981
4
Source: Handbook of Statistics 2010, Chief Planning Officer, Prakasam District.
Table 4.2 Rainfall Distribution in the District for the year 2009-2010
S.No
1
Season
South-West Monsoon
Rainfall (in mm)
% to total
281.4
36.91
272.1
35.69
5.9
0.73
207.8
27.26
762.2
100.00
Peroid (June- September)
2
North – East Monsoon period
(october – December)
3
Winter period
(January – February)
4
Hot weather period
(March- May)
Total for the year
Source: Handbook of Statistics 2010, Chief Planning Officer, Prakasam District.
Table 4.3 Minimum and Maximum Temperature of Prakasam District-2010
S.No
Month
1
January
Mean Maximum
Temperature (0C)
31.5
2
February
33.1
21.6
3
March
35.1
23.8
4
April
37.8
26.0
5
May
39.7
26.8
6
June
39.9
27.8
7
July
37.6
28.0
8
August
36.6
26.5
9
September
35.7
26.3
10
October
35.2
24.8
11
November
31.0
23.1
12
December
29.3
20.6
Average for the year
35.1
24.4
Source: Director, Meteorological center, Hyderabad
Mean Minimum
Temperature(0C)
19.3
Table:4.4
Population statistics of Prakasam district in 2000-01.
S.No.
Item
Unit
Population
1.
Total population
Lakhs
30,59,423
2.
Male population
Lakhs
15.52
3.
Female population
Lakhs
15.07
4.
Density of population
Per Sq.Km.
174
5.
Females per thousands males
No.
972
6.
Rural population
Lakhs
25.92
7.
Rural population as a percentage
Percentage
84.72
Lakhs
4.67
Percentage
15.28
a) Total literates
Lakhs
15.32
b) Males
Lakhs
9.38
c) Females
Lakhs
5.94
11.
Main workers
Lakhs
13.07
12.
Marginal workers
Lakhs
2.31
13.
Non-workers
Lakhs
15.22
14.
Cultivators
Lakhs
3.60
15.
Agricultural labour
Lakhs
5.10
of total population
8.
Urban population
Urban population as a percentage
9.
of total population
10
Literates
Source: Handbook of Statistics 2010, Chief Planning Officer, Prakasam District.
Table:4.5 Population particulars – 2001 cencus
S.No
Particulars
Total
Persons
3059423
Male
1552332
1.
Female
1507091
2.
Density of Population (per Sq.Kms)
174
3.
Sex Ratio (female per thousand males)
971
Source: Handbook of Statistics 2010, Chief Planning Officer, Prakasam District.
Table:4.6 Literacy – 2001 cencus
S.No.
1.
Particulars
Literates
Persons
Male
Female
2.
Total
1532126
938482
593644
Literacy Rate
Persons
Male
Female
57.38
69.35
45.08
Source: Handbook of Statistics 2010, Chief Planning Officer, Prakasam District.
Table:4.7 Distribution of Population by Workers and Non workers. – 2001 cencus
S.No
Particulars
Total
1.
Total population
3059423
2.
Total main workers
1306772
% of main workers to total population
3.
Cultivators
% of cultivators to total population
4.
Agricultural labourers
% of Agricultural labourers
to total population
5.
Household industry
% of Household industry to total population
6.
Other than Household industry
% of other than Household industry to total
population
43
378494
12
673018
22
56469
2
429563
14
Source: Handbook of Statistics 2010, Chief Planning Officer, Prakasam District.
Table 4.8 : Land Utilization Pattern of Prakasam District in 2010.
S.
No
Particulars
% to total
Geographical
area
1.
Total geographical area
1762600
100
2.
Area under forests
442499
25.10
3.
Barren and uncultivable land
168545
9.47
4.
Land put to non-agricultural uses
168545
9.59
5.
Cultivable waste
83638
4.76
6.
Permanent pastures and grazing lands
61725
3.52
7.
Land under miscellaneous tree crops and
grooves not included in net sown area.
11033
0.62
8.
Current fallows
147767
8.39
9.
Other fallow lands
129942
7.37
548147
31.08 *
2631
0.17
11. Area sown more than once
42045
7.12 *
12. Gross cropped area
590154
107.12 **
10. Net area sown
a) Fish Ponds
*
Area
(in
hectares)
Percentage to net area sown
** Cropping intensity in percentage
Source : Hand Book of Statistics 2010, Chief Planning Officer, Ongole.
Table 4.9 Cropping period
Name of the Crop
Period
Wet Lands
Paddy
June-July to September - October
Crocolaria, Pulses
November –December to February – March
Vegetables
September – October to January – February
Dry Lands
Dry Paddy
January – July to September – October
Bengalgram
October to December
Groundnut
July-October to November
Tobacco
November to January – March
Cotton
June – July to October – November
Chillies
September – October to February - March
Source : Hand Book of Statistics 2010, Chief Planning Officer, Ongole.
Table 4.10: Irrigation sources available in Prakasam district in 2010
Area in hectares
S.No.
Source
% to total
Kharif
Rabi
Total
1.
Canals
25241
48480
73721
39.15
2.
Tanks
2648
17215
10863
10.55
3.
Tube wells and filter points
44292
24866
69158
36.73
4.
Other wells
3509
4535
8044
4.27
5.
Lift irrigation
6429
9520
15949
8.47
6.
Net area irrigated
83265
89866
173131
91.95
7.
Area irrigated more than once
-
15139
15139
8.05
8.
Total area irrigated
83265
105005
188270
100
Source : Hand Book of Statistics 2010, Chief Planning Officer, Ongole
Table 4.11 Agricultural Implements & Farm Equipment
S.No
Particulars
Number
1.
Wooden ploughs
24885
2.
Steel ploughs
9577
3.
Cultivators
26476
4.
Seed cum fertiliser drill/Seed drill
1543
5.
Sugarcane crushers
6.
Manually operated Sprayers and Dusters
22885
7.
Power operated Sprayers and Dusters
28815
27
Source : Hand Book of Statistics 2010, Chief Planning Officer, Ongole.
Table 4.12 Land Holding in the District
S.No
Holdings
Size- class
In ha
Operated area
Number
% to total
Number
% to total
1.
0-0.5
251391
55.64
74385
20.68
2.
0.05-1.0
103622
22.93
78593
21.85
3.
1.0-2.0
63560
14.07
93014
25.85
4.
2.0-3.0
19180
4.25
46554
12.94
5.
3.0-4.0
7245
1.60
24971
6.94
6.
4.0-5.0
3293
0.73
14571
4.05
7.
5.0-7.5
2404
0.53
14463
4.02
8.
7.5-10.0
696
0.15
5952
1.65
9.
10.0-20.0
412
0.09
5296
1.48
10.
Above 20
65
0.01
1930
0.54
451868
100.00
359729
100.00
Total
Source : Hand Book of Statistics 2010, Chief Planning Officer, Ongole.
Table 4.13 Livestock and Poultry Population in the District
S.No.
Particulars
Number
% to Total
A.
Livestock
1.
Cattle
115082
3.37
2.
Buffaloes
1318406
38.62
3.
Sheep
1494985
43.79
4.
Goats
436582
12.78
5.
Pigs
12855
0.37
6.
Others
35802
1.04
Total livestock
3413712
100.00
Poultry birds
1401908
-
B.
Source : Hand Book of Statistics 2010, Chief Planning Officer, Ongole
Table 4.14 Bank branches – (As on 31st March 2010)
S.No
Banks
Number of Branches
1.
Nationalised Banks
223
2.
Rural Banks
57
3.
Cooperative Banks
29
4.
Other banks
1
5.
Total
310
6.
Average population per bank branch
714
Source: Hand Book of Statistics 2010, Chief Planning Officer, Ongole.
Table 4.15 Credits & Deposits in Banks (As on 31st March 2010)
S.No
Perticulars
Total
(Rs in Lakhs)
1.
Total number of Bank branches in the District
310
2.
Deposits
424481.33
3.
Advances
569071.7
4.
Total priority sector
a. Agriculture
158288.89
b. Industries
13005.93
c. Services
8713.03
Source: Hand Book of Statistics 2010, Chief Planning Officer, Ongole
Table 4.16. Details of SHG Bank linkage and Pavala vaddi (As on 31st March 2010)
S.No.
1.
Particulars
SHG Bank linkage
No of SHGs
Amount
2.
Total
20948
29153.25
(Rs in Lakhs)
Pavala vaddi ( 25 Paise interest)
No of SHGs
Amount
Source: Project Director, DRDA/IKP, Ongole
28037
378.05
(Rs in Lakhs)
Table 4.17 List of MFIs operating in the District
(Rs. In Crores)
S.
No.
Name of the MFI
No.of
borrowers
No.of
SHGs
No.of
villages
No.of
Mandals
Total
Sanctioned
amount
Total
amount
so far
repaid
Outstanding
as on
24.06.2011
14002
8010
550
30
15.53
5.46
10.07
1
L & T finance
2
3
Gramasiri
Asmitha Microfin
Limited
Spread Society
463
50
8
4
0.40
0.17
0.23
8071
76
133
21
17.33
6.98
10.35
390
39
7
3
0.48
0.26
0.22
Grama siri rural
orientation for Women
2346
175
19
4
2.25
1.22
1.03
528
40
14
7
0.25
0.07
0.18
37675
39
442
51
91.12
38.59
52.53
252
92
13
3
0.37
0.35
0.02
300
30
1
1
0.35
0.17
0.18
1860
960
57
10
3.32
2.13
1.19
47486
2589
740
56
68.47
34.99
33.48
sneha urban and rural
development society
70
9
2
2
0.05
0.025
0.025
St'Ann's Social Service
Society
554
56
15
4
0.82
0.41
0.41
4
5
6
7
8
9
10
11
12
13
14
15
16
17
Grand
Share Microfin
Limited
Impact
Saadhana Microfin
society
Aware MACS LTD
SKS Microfinance
LTD
Sai Adarsha Finance &
Investments India PVT
LTd
SMVP
488
52
32
8
1.03
0.62
0.41
1738
172
4
3
1.94
0.54
1.40
Spandana spoorty
52044
12089
1502
56
103.81
50.88
52.93
0
0
0
0
0.00
0.00
0.00
168267
24478
3539
307.52
142.86
164.66
Gowthami Foundation
GRAND TOTAL
Source: Registering Authority/ Project Director, DRDA, Ongole.
Table 4.18 land utilization pattern in selected mandals
S.No.
Category
Ongole
( Area in
ha)
Markapur
( Area in
ha)
Chirala
( Area in
ha)
Kandukur
( Area in
ha)
20184
34760
10129
23066
0
5618
472
0
1.
Total Geographical area
2.
Forest area
3.
Barren & uncultivated
area
1851
3354
476
231
4.
Land put to non
Agricultural uses
5842
6223
1802
4386
5.
Cultivable waste land
192
1675
0
102
6.
Permanent pasture and
other grazing lands
0
683
139
98
7.
Other fallow
653
7231
84
1566
8.
Current fallows
27
34
8
1939
9.
Net area sown
11568
9930
6982
14730
Source: Hand Book of Statistics 2010, Chief Planning Officer, Ongole
Table 4.19 Annual Rainfall of selected mandals
(in mm)
Actual
S.No.
4.
Mandal
Normal
2007-08
2008-09
2009-10
1.
Ongole
1085.5
1111.3
926.3
1195.7
2.
Markapur
723.9
822.8
703.4
705.7
3.
Chirala
1016.1
123505
913.4
626.2
Kandukur
1146.0
1319.0
967.0
972.9
Source: Hand Book of Statistics 2010, Chief Planning Officer, Ongole.
Table 4.20 Area of Principle Crops Grown In Selected Mandals
(Area in ha)
S.No Name of the
crop
Ongole
Markapur
Chirala
Kandukur
1.
Paddy
1256
544
5282
2740
2.
Jowar
0
500
0
0
3.
Bajra
0
0
0
40
4.
Maize
0
250
290
0
5.
Ragi
0
20
0
0
6.
Horsegram
0
0
0
0
7.
Greengram
4
0
0
0
8.
Blackgram
138
0
184
255
9.
Redgram
13
1567
0
205
10.
Cotton
4
584
0
600
11.
Chillies
4
1162
8
40
12.
Groundnut
0
0
1112
60
13.
Coconut
0
0
2
0
14.
Castor
0
332
0
0
Source: Hand Book of Statistics 2010, Chief Planning Officer, Ongole
Table 4.21 Area irrigated by sources in selected mandals
( Area in ha)
S.No.
Source
1.
Canals
2.
Tanks
3.
Tube wells and filter points
4.
Drug wells
5.
Lift irrigation
6.
Net area irrigated
7.
Area irrigated more than
once
8.
Total area irrigated
Ongole
Markapur
Chirala
Kandukur
101
0
5282
0
120
0
0
2132
113
4025
0
1082
0
0
0
0
849
0
1229
0
1183
4025
5578
3216
0
26
0
428
1183
4051
5578
3644
Source: Hand Book of Statistics 2010, Chief Planning Officer, Ongole
Table 4.22 Livestock and Poultry population of the selected mandals. Livestock
cencus – 2007
S.No
A.
Particulars
(in Number)
Chirala
Kandukur
Ongole
Markapur
282
4609
1163
159
Livestock
1.
Cattle
2.
Buffaloes
18067
31156
26157
34980
3.
Sheep
12977
34185
21501
20268
4.
Goats
1652
9128
3960
5829
5.
Pigs
445
234
182
340
6.
Others
2168
563
66
561
35862
55024
26188
28334
Total livestock
B.
Poultry birds
Source : Hand Book of Statistics 2010, Chief Planning Officer, Ongole
Table 4.23 PARTICULARS UNDER INDIRA KRANTHI PADHAM (IKP) - 2010
S.No
Name of the Municipality
No.of Baneficiaries
Under IKP
Amount
Sanctioned
(Rs. In Lakhs)
1.
Ongole Municipality
17600
2315.2
2.
Markapur Municipality
5580
496.41
3.
Chirala Municipality
8916
805.75
4.
Kandukur Municipality
6732
568.8
Total
38828
4186.16
Source : Hand Book of Statistics 2010, Chief Planning Officer, Ongole
Chapter V
RESULTS AND DISCUSSIONS
This chapter highlights the results of investigation explained along with
discussion. The data collected from JLG members as well as various micro
financial institutions and other agencies were pooled and analyzed using
appropriate statistical tools. The results obtained are presented in this chapter
under the following heads.
5.1 General characteristics of the members of Joint Liability Groups.
5.2 Impact of Microfinance institutions.
5.3 Impact of AP MFI ORDINANCE 2010 on Microfinance institutions.
5.4 Impact of AP MFI ORDINANCE 2010 on members of Joint Liability
Groups.
5.5 Socio economic impact of beneficiaries before and after the AP MFI
ORDINANCE 2010.
5.6 Opinion of beneficiaries about MFI’s.
5.7 Opinion of MFI’s and non-government organization/bank.
5. 8 Problems and suggestions.
5.1 GENERAL CHARACTERISTICS OF THE MEMBERS OF JOINT
LIABILITY GROUPS
5.1.1 Age
The information on socio-economic characters of women organized as
Joint liability groups like age, marital status, educational qualification, family
type and caste are presented. The JLG members in the study area were
categorized into four age groups viz., 18-25, 26-35, 35-45 and above 45 years. It
reveals from the table 5.1 that the major portion of sample JLG members
(36.87%) was in the group of 26-35 years followed by the members in the age
group of 36-45 years (29.37%), 18-25 years (15.62%) and the members above 45
years constituted to the little extent above 18.25 per cent. Age is an important
variable with which social status is associated. The women of middle age group
are more efficient and responsible than their young counterparts. They aspire to
earn more from main as well as subsidiary occupation is the reason to find
majority of the members in middle age group. These results were in accordance
with the findings of Arundati (1987), Hemalathaprasad (1995), Dwarakanath
(2001) and Joseph and Easwaran (2006).
5.1.2 Level of Literacy
Education plays a vital role in development. It is a major component of
empowerment of the weak. While the level of education among the JLG
members influence the level of awareness and understanding of the management
aspects of JLGs, an analysis of the educational status of the households have
been worked out. Table 5.2 shows those about 24 per cent of the members were
illiterate. About 44 per cent of the sample can only sign. About 19 per cent had
completed their primary education up to 5 th standard, 4 per cent of them up to
secondary level i.e., 6th to 10th standard and six persons (3.75%) had studied up to
degree level. Majority of the members were educated and the reason might be
due to the availability of education facilities. Schools are located in the villages
and nearby. Educated women are an asset to the groups as they take care of the
maintenance of all records and documents of the group. These results were in
accordance with the findings of Ganesamurthy et al. (2000).
5.1.3 Social Group
The caste compositions of majority JLG member’s indicate the level of
homogeneity of the group. The distribution of respondents according to social
groups revealed that the proportion of members belonging to backward classes
accounted for 43 per cent followed by SCs/STs at 32 percent and remaining were
from forward castes.
JLGs encourage and aimed at improvement of their living status and
encourage persons living below poverty line to join JLG and it is the reason why
their enrolment in JLGs in the study area is more. From the above results it could
be concluded that the JLGs covered predominantly the weaker sections who were
socially and economically backward and who had a low levels of living
standards. These results were in accordance with the findings of Puhazhendi and
Jayaraman (1999), Datta and Raman (2001) and Puhazhendi and Satyasai (2000).
5.1.4 Occupational Status
The classification of members as shown in table 5.4 is based on the main
occupation that JLG had possessed. It was revealed that agricultural labourers
constituted a major share of 25 per cent, followed by wage labour (23%), self
employed like tailoring, pickle making, basket making etc.,(17.82%), cottage
industry (15.6%), nursery (7%), Govt. service (5%), kirana shop (3.8%) and
poultry three per cent.
The results indicated that majority of members were engaged in
agriculture and allied activities, because of the reason that the study area was
predominantly agri-based area and hence the people living in these areas were
majorly dependent on agriculture for their livelihood. The occupation chosen by
the JLG members depends on the availability of skills, demand for the product in
the market and availability of resources. The above findings are in conformity
with the findings of Puhazhendi and Jayaraman (1999) and Nedumaran et al.
(2001).
5.1.5 Marital Status
Marital status of women indicated that 88 percent of the members were
married as most of women belong to the group of middle age. Women tend to
leave their village once they are married and as JLG are a long term activity and
leaving the group in between could affect its progress. About eleven percent of
members were windows and the JLG movement could thereby make them self
reliant and self sufficient (Kumaran, 1997 and Sharada, 2001).
5.1.6 Family Type
It was noticed that 83 percent of members belong to nuclear family and
only 17 percent belong to joint family. The predominance of nuclear families is
due to urbanization and realization of advantages of nuclear family. The nuclear
families are a common feature even in rural areas and the study area is no
exception to this. The results are similar to Savitha (2004) and Bharthi (2005).
5.1.7 Average Monthly Income
The mean values of the household monthy income of JLG members from
different income generation activities after joining MFIs are presented in the
table 5.6. The highest income was generated from the Govt. services (Rs.
2975.54) followed by agriculture (Rs. 2013.45), wage labour (Rs. 1921.34), self
employed (Rs. 1542.78), kirana shop (Rs. 1234.12), nursery (Rs. 954.32), poultry
(Rs. 754.95) and cottage industry (Rs. 754.12).
5.1.8 Distribution of Respondents According to Level of Income
The frequency distribution of average annual income of sample
respondents was presented in the table 5.7 revealed that about 52.51 per cent
respondents were having income in the range of below Rs. 10000 before joining
the MFIs followed by 14.32 per cent in the income range of 10000-20000. About
70 per cent of the respondents were having an income less than Rs. 20000 before
joining the MFIs. This proportion had declined to 50.00 per cent after joining the
MFIs indicating a shift in the income distribution to higher slabs.
5.2 IMPACT OF MICRO FINANCE INSTITUTIONS
5.2.1
Impact on Income and Employment of the Members
Impact on income and employment of the members is presented in the
Table 5.8.
Income
It could be observed from the table that before joining MFIs 48.12 per
cent of the members belonged to low income group which was reduced to 33.12
per cent after joining MFIs. There was increase from 28.12 per cent to 36.87 per
cent in members belonging to medium income group after joining the MFIs. In
case of high income group there was an increase in the members from the 23.50
per cent to 30 per cent after joining the MFIs. The total percentage change in
income of members after joining MFI was 28 per cent. Therefore positive shift in
the income level of members after joining the MFIs was observed. The members
after joining MFIs could expand their activities by increasing their investments
through the loans obtained from MFIs. Some members before joining MFIs were
not involved in any income generating activities but after joining by
encouragement of NGO and other successful JLGs. The financial support, ease to
get and repay the loan collectively, training received etc; have made them to start
income generating activities. Most of the members who are involved in on-form
activities, after joining MFIs started dairying, which has given them additional
income. These results are similar to Puhazhendi (2002), Puhazhendi and
Jayaraman (1999) and Asoken (2005).
Employment
It is observed that 33.75 per cent of women who were under the low
employment category before joining the MFIs had been shifted to higher
employment category after joining the MFIs. A significant increase to 36.25 per
cent of the members belonged to the high employment category interms of
number of days of employment after joining the MFIs observed. The total
percentage change in the employment was 41.24, which showed that there was
significant difference in employment before and after joining the MFIs. Easy
access to credit has provided opportunities for understanding the advantages of
taking up of income generating activities by the respondents. This has resulted in
the increase in the employment opportunities at the household level. Therefore,
MFIs have helped the members to generate more employment in on farm as well
as off-farm activities by availing micro finance in post-MFI situation. The results
are in conformation with Dasaratharama ih et al. (2006) and Gangaiah et al.
(2006).
5.2.2 Impact on Asset Position and Consumption
The change in asset position and consumption pattern of the members
from joining MFIs to after joining MFIs are presented by categorizing the
members into low, medium and high category. Percentage change in asset and
consumption was calculated and paired t-test was applied to find if there was
significant change in the asset position and consumption pattern of the members.
Impact on asset position and consumption of the members is presented in the
Table 5.9.
Asset position
The consumption of assets would be a measure of the economic strength
of the MFIs members. In this study, assets means other than land and buildings
which were excluded from the analysis as the change in those assets cannot be
expected from micro finance interventions over a short span of time. It could be
observed that 54.35 per cent of the members who were in the low asset category
before joining MFIs had reduced to 25.64 per cent after joining the MFIs. The
members in the high asset category increased to 48.12 per cent from 15.62 per
cent after joining the MFIs. The total percentage change was 65.04, which
indicated that there was a significant difference in the asset position of the MFIs
members before and after joining MFIs.
The asset position of members could influence the activities like
investments, repayment of loans and it also influence the decision making
behavior of the respondents in terms of adoption of innovative ideas and
practices. Before joining the MFIs the members did not have opportunities to
save money or either earns an additional income which kept their asset position
low. But after joining JLGs they had opportunity to save, get additional income
and through the savings and profit obtained they could afford to purchase some
consumer durables, livestock and other household assets.
Consumption
It could be observed from the table 5.9 that 46.87 per cent of the women
who were under low consumption category before joining MFIs had decreased to
21.87 per cent after joining the MFIs. The members in high consumption
category increased from 24.37 per cent to 33.75 per cent after joining MFIs. The
total percentage change in consumption of the members was 50. The
participation of households in MFIs activities had significantly contributed to the
increase in their income and thereby raised their level of living and one of the
important indicators of the level of living has been the consumption expenditure.
The results were in line with Puhazhendi and Jayaraman (1999) and Gangaiah et
al. (2006).
5.2.3 Impact on Investment and Savings of the Members
The change in investment and savings before joining MFIs and after
joining MFIs are given in the Table 5.10 which is categorized as low, medium
and high category.
Investment
It is observed that 25.62 per cent of the members who were in high
category before joining the MFIs had increase to 33.12 per cent after joining the
MFIs. And there was a decrease from 44.32 per cent of members in low category
before joining the MFIs to 24.37 per cent after joining MFIs. The total
percentage change was 40.08. The positive change in the investment after joining
the MFIs is because the members had started income generating activities as they
get opportunity through MFIs to avail loan and to invest in income generating
activities.
Savings
It is observed from the table 5.10 that members in the high savings
category had increased from 27.51 per cent before joining MFIs to 47.51 per cent
after joining MFIs. There was a decrease from 40.26 per cent of members in low
category before joining the MFIs to 13.12 per cent after joining MFIs. The total
percentage change in savings was 55.04, which indicated that there was
significant difference in the savings. The results are in line with Puhazhendi and
Jayaraman (1999).
The concept of micro finance rests on the premise that members will
develop the habit of thrift/saving is an organized way when compared to the
situation that they are not the members of JLGs. Through the savings the poor
can avail credit from the MFIs for consumption or for emergency purpose, which
is generally not covered by formal credit system. The poor are caught in poverty
gap due to inadequate savings leading to low capital formation resulting in
stagnant real income levels. To break out of their cycle, the MFIs make available
investable capital to the poor as credit without seeking collateral securities.
Therefore MFIs assumed credit thrift and credit services emerged as one of the
effective methods for empowerment of poor women.
5.2.4 Amount of Loan Taken
It is observed from the table 5.11 that 26.87 per cent of the members who were in
high category before joining the MFIs had increase to 52.54 per cent after joining
the MFIs. And there was a decrease from 50.62 per cent of members in low
category before joining the MFIs to 16.87 per cent after joining MFIs. The total
percentage change was 67.49. The positive change in the amount of loan taken
after joining the MFIs is because the members were provided loans easily from
MFIs to invest in various income generating activities. Impact on amount of loan
taken by the members is presented in the Table 5.11.
5.2.5 Results of Multiple Linear Regression Analysis
The multiple linear regression analysis was used to assess the factors
influencing the charges in gross income of the JLG member households. The
independent variables viz., investment, savings, employment, average value of
assets, consumption expenditure and loan taken by the JLG members were
selected for analyzing the impact of micro finance through Microfinance
institutions on gross income of member households.
It is evident from the table 5.12 that the co-efficient of multiple
determinations (R2) was found to be significant at one per cent level of
probability indicating 78.85 per cent variation in the gross income generated after
joining MFIs which was explained by the variables included in the function. The
regression equation was found to be significant as indicated by F-value.
The estimate of the investment of the members showed that the income of
the JLG member is increased by 0.25 rupee for every one rupee increase in the
investment. The estimate of Assets indicated that an increase of one rupee in the
assets of the JLG members increases the income of the member by rupees 0.94.
The estimate of employment indicated that an increase in the employment of the
members by one day increases the income by Rs.34. The estimates of
consumption of the members showed that an increase in the consumption of the
member by rupees 0.44 for every one rupee increase in the income. All these
variables contributed positively to the gross income. The estimates of the loan
amount taken by the members showed that the income of the JLG member
increased by 0.18 rupees for every one rupee increase in the loan amount taken.
Savings of the members showing the non significant relationship with income.
The results are in line with Srinatha, (2009).
5.3
IMPACT OF AP MFI ORDINANCE 2010 ON MICROFINANCE
INSTITUTIONS
It could be observed from the table 5.13 that, before AP MFI Ordinance
2010 there were 17 Microfinance institutions in Prakasam district with 201311
numbers of borrowers. The total sanctioned amount was 344 crores. From the
table 5.13, it could be observed that after the AP MFI Ordinance 2010 there was
a huge decrease in the borrower’s size i.e., 168267 with an outstanding of 164
crores.
The numbers of borrowers in the four selected MFIs were given in the
table 5.13. From this table it could be seen that there was decrease in the
borrower’s size after the AP MFI Ordinance 2010. This was because the MFIs
have not given the fresh loans after the ordinance. This is because the
Government put restrictions on banks so that banks did not issue credit to the
MFIs. That’s why the MFIs were not having the enough money to issue fresh
loans. So the JLG members of MFIs were moved to other sources for their credit
needs.
The stringent provisions of the Act immediately resulted in near-total
suspension of MFIs operations. The Act requires loan repayments to be made at
Gram Panchayat offices with a mandatory requirement of monthly repayment of
loans, thereby effectively negating the two significant advantages MFIs had:
doorstep service delivery and repayments in smaller amounts. The Act also
requires MFIs to obtain prior approval from the District Rural Development
Agency (DRDA) before giving a loan to any SHG member, effectively strangling
new disbursements. These results were in accordance with Bellmen (2010), Live
mint (2011) and Legatum ventures (2011).
From the table 5.14, it could be observed that the recovery percentage to
the MFIs was drastically reduced. All the four MFIs in the selected area have
faced with the similar situation.
From the Fig.8, it could be observed that there was a continuous decrease
in the recovery percentage of MFIs. This was because the borrowers have
stopped the repayments. The reasons for the poor recovery are, MFIs have
changed their recovery mechanism after the ordinance. They are not pressurising
the borrowers to repay the loans as per the earlier (weekly) schedule. This was
because the Government of Andhra Pradesh have put some restrictions on the
recovery practices of MFIs such as the MFIs should not use abusive language or
coercive practices while collecting loans and the repayments should be made at
Gram panchayats strictly. These results were in accordance with (Kumar, 2011),
(Raja and Rajasekhar, 2011), (LiveMint, 2011) and (Microfinance focus, 2011).
The Act not only brought the changes in borrower’s size and repayments
but it also affected the various MFIs by way of huge decrease in employee’s
number. In Prakasam district there were 17 MFIs before Ordinance, but as on
December 2011 there were only 7 MFIs operating in the district. Nearly 10 MFIs
shut down their business of poor repayments and non availibility of credit from
Banks and they are not in a position to pay salaries to their employees. The
employees of many MFIs because jobless after the ordinance.
The threat of fines and imprisonment of directors and staff of MFI for
coercive action (which includes repeated visits to the customer for recovery of
dues) mentioned in the ordinance is being felt as a big disadvantage. MFIs
argued that, the directors onboard of banks including senior civil servants in
Ministry of finance or RBI can also be jailed if they visit their customers as a
branch manager or field officer of MFI visits their JLG member, (say, four times
a month). So the MFIs feel that the Government is discriminating between
formal bank staff and their staff.
The fast track courts are a good idea. MFIs by and large do not have
access to legal remedies against defaulters. The fast track court mechanism, if
implemented well, would provide millions of customers and the MFIs with a
judicial option for settlement of disputes.
5.4 IMPACT OF AP MFI ORDINANCE 2010 ON MEMBERS OF JOINT
LIABILITY GROUPS
5.4.1 Source of Credit
The propensity to borrow is very high in AP. CMFs (Centre for Micro
Finance) sample survey in AP brought out that 82 per cent of families had loans
from informal sources. The median number of loans taken by households was
four. The chances are that three out of four of these are from the informal sector.
Easy availability of credit made poor households borrow indiscriminately from
several MFIs and commercial banks. Multiple loans to same households without
proper due diligence and sharing of credit information have ultimately leaded to
unsustainable debt burden. The loan tenor and structure of weekly repayments
make it difficult to repay the loans.
The table 5.15 shows the interest rates followed by various credit sources
have been accessed by the clients. SHGs and MFIs have been the most prominent
sources of credit accessible to people in the study area. In case of SHGs, in order
to access loans from banks, group needs to save for first 6 months. The group can
use their savings for internal lending. Mostly loans obtained as part of the bank
linkage programme are unsecured. The group cannot access a new loan from
bank unless the old loan has been paid. Each group is linked to a village and
mandal level federation which has corpus funds that can be used for internal
lending in addition to the usual bank linkage loans. The interst rate is 3 per cent
if loan is paid on time, 12 -24 per cent for loans taken from internal resource
generation through savings and 12 per cent interest rate in case group takes loan
from the federation. MFIs usually charge higher interest rate compared to SHGs.
Interest rate charged by MFIs is 27%-45% (Including processing fee insurance –
credit linked/health). Although, MFIs charging high interest rates beneficiaries
showing interest because they deliver timely loans with the convenience of
repaying principal along with the interest (46%). Respondents opined that they
like the door step delivery model of MFIs. But after the ordinence MFIs has not
given the fresh loans because the Banks across the country stopped loan
disbursements to MFIs, effectively shutting down MFI’s access to capital for onlending.
From the table 5.16, we could observe that beneficiary’s source of credit
had decreased after the AP MFI ordinance. Out of all credit sources MFIs had
faced with a huge decrease. All the results are statistically significant. Results
shows that credit from chit funds has increased as its mean value before was
Rs.2584.373 and after it has increased to Rs.3198.125. MFIs show a great
decrease from Rs.16625 to Rs.437.5. Credit from SHG has a slight increase from
Rs. 23750 to Rs. 27328.12. Credit from money lenders and banks also increased
after the ordinance. The reduction in credits and borrowings from MFIs and
increase from SHGs, Banks and chit funds is a good sign for the benefit of the
poor. These results are in line with (Anjaneyulu et. al 2011).
5.4.2 Repayment Performance
After the AP MFI ordinance repayments to Microfinance institutions has
drastically reduced. From the table 517, results show that repayments have
decreased from Rs. 244.68 to Rs.25 per month. The repayments with banks were
also observed to be decreased slightly. MFI crisis is one of the reasons for the
rise in repayments of SHGs. This result is coincides with the results of
Anjaneyulu et al. (2011).
In pre-ordinance situation, the sample households were mostly dependent
on informal sources, particularly MFIs and money lenders for their credit needs.
They were availing loans at higher rates for shorter period of one year or less
than one year. Due to the unscrupulous recovery practices by informal agencies
and higher rates of interest, the borrowers were giving priority to repayment of
these loans as early as possible this also would ensure them getting loans in
future. Further, these were entry barriers for those members with poor repayment
of earlier loans from any source into the Self Help Groups or to JLGs. As a result
in the pre-Ordinance situation repayment was also observed to be a slight higher.
In post-ordinance, initially MFIs were able to convince the clients
regarding repayments by guaranteeing them of providing new loans. People
started repaying their loans, but since MFIs were not able to provide them fresh
loans, which finally resulted in a fall in recovery rates. Even if the clients
repaying, the local activists and political leaders are discouraging them.
5.4.3 Reasons for not Repaying MFI Loans
In the study 90% of the respondents said that they are willing to pay their
outstanding loans. However, such willingness to pay came contingent upon
getting fresh loans from MFIs. People would like to carry forward their
relationship with MFIs, given the fact that it is economical and convenient credit
option for them. Respondents argued that during the initial days after the crisis,
MFI staff used to promise fresh loans if clients paid their outstanding loan
amount. However, such promises were never fulfilled, and no new loans were
disbursed, even to those clients who had cleared off their debt. Taking a clue
from such examples, other people in the community who were willing to pay
stopped repaying their loans. From the table 5.18, the respondents (31%) cited
non-availability of fresh loans from MFIs as the major reason for not repaying
their existing loans. Respondents admitted that it is very difficult for them to
arrange for lump sum funds to clear off the outstanding loan of MFIs. They
would require fresh loans, which can be adjusted with the outstanding portion of
their previous loan. This would also give them working capital to invest in their
business while, at the same time, relieve them from the burden of repaying a
huge amount at one time.
Respondents opined that they came to know about the malpractices of
MFIs, i.e. charging exorbitant interest rates, harassing clients etc., through media
reports. They said they have personally not experienced any sort of harassment
from staff or come across suicide cases in their locality. They said that the
government has asked them not to repay MFI loans, by highlighting harassment
related cases in newspapers and news channels. Another prominent reason for
not repaying MFI loans is ‘demonstration effect’. Respondents argued that since
none of the members from the community are repaying, there is no incentive for
them to pay either, especially in the absence of fresh loans from MFIs
(Anjaneyulu et. al 2011).
5.4.4 Results of Logistic Regression
In this present study logit model was used to know the impact of AP MFI
ordinance on beneficiaries of various Microfinance institutions. Here the
dependent variable is impact of MFI ordinance, a qualitative variable. The
responses recorded for dependent variable are 0 for ‘useful’ and 1 for not
‘useful’. The variables are source of credit, dependence on SHG, dependence on
money lenders, savings, change in the interest rates, change in the recovery
practices, repayment of existing loans, abusive language by staff and coercive
practices followed by the staff. In every independent variable there were three
categories i.e., increased, decreased and no change. Based on the beneficiary’s
response we have given scores for ‘increased’ it is 0, 1 for ‘decreased’ and 2 for
‘no change’.
From the table 5.19, we could observe that, source of credit has shown
negative impact on AP MFI Ordinance 2010. Because of AP MFI Ordinance,
there were no fresh loans advanced by the MFIs in the study area. That’s why
beneficiaries source of credit decreased by the log odds of impact of AP MFI
Ordinance by -3.111. A unit increases in the dependence on SHG by the same
JLG beneficiary increase the log odds of impact of AP MFI Ordinance by
20.927. It is being observed that 67 per cent JLGs are also the members in the
active SHG groups in the study area. A unit increase in the dependence on
moneylenders by a beneficiary increased the log odds of impact of AP MFI
Ordinance by 19.058. It shows that borrowers were not able to get any benefits
from MFIs. So they are shifting to other sources for their credit needs. Savings of
beneficiaries have shown negative impact on ordinance by the log odds of 18.806. This is because the main credit source i.e., MFI lending was almost
stopped. The amount they are getting from income generating activities is even
not sufficient for their households needs. There was no money left with
respondents for savings. Increased rate of interest had not shown any impact by
MFI ordinance. Because MFIs have not changed their interest rates even after the
ordinance too.
Recovery pattern of due debts had shown negative impact with AP MFI
Ordinance by the log odds of -37.58. This was because after the ordinance there
were no weekly repayments by respondents in the study area. Loan collectors of
MFIs collecting the money whenever the people are giving. MFIs are not forcing
the people to repay the old debts. The earlier pattern which the MFIs were
following was completely changed after the ordinance. Repayments of existing
loans had shown negative impact with the AP MFI Ordinance by the log odds of
-39.366. By the excessive mass media coverage and pressure from the
government based SERP officials in the form of dissimination of information
through pamplets, the borrowers were not repaying the old debts. Apart from
that, the respondents observed a sudden change in the loan recovery practices of
MFIs due to the ordinance. The MFI staffs are not at all forcing the respondents
to repay. That’s why repayments were fallen down. Abusive language by the
employees of MFIs has not shown that much impact on AP MFI ordinance.
Coercive practices by employees were decreased after the AP MFI ordinance.
5.5 IMPACT OF MFIS ON EMPOWERMENT OF THE MEMBERS
5.5.1 Social Impact
The level of empowerment in each case was measured by asking the
respondents to give their opinion on three continuum scale. It was quantified
using the scoring pattern. The impact of MFIs on member’s empowerment was
assessed using the above scoring pattern. The impact index was obtained by
using formula.
Obtained index
Impact Index (%) = ------------------------------------ × 100
Maximum obtained score
The table 5.20 indicates the impact of AP MFI Ordinance 2010 on the
social empowerment of the members. Results showed that members had
increased their communication ability, mobility, voicing their concerns, health
awareness, decision making, and awareness about government policies. This
could be observed from the positive values of gain index. There was a decrease
in the respondent’s recognition in the community, education to children, leisure
time profitably utilized, extension participation, leadership qualities, and
involvement in social issues after the AP MFI Ordinance 2010.
The overall index for social empowerment was 57.69 before the AP MFI
Ordinance 2010. Where as, it was 58.55 after the Ordinance. It shows that there
was no social empowerment in the respondents. The major source of credit i.e.,
MFIs, activities were slowed down after the ordinance. So the all time available
disposable money in the hands of beneficiaries was decreased. Finally resulted in
negative impact in most of the aspects as shown in the table 5.19. Conversely
impact was positive and increased in communication ability, voicing their
concerns; awareness about government policies because of mass media coverage
and local leaders information dissemination.
5.5.2 Economic Impact
The table 5.21 indicates that the impact of AP MFI Ordinance 2010 on the
economic empowerment of the respondents. The index calculated for source of
credit before AP MFI Ordinance 2010 was 79.5 per cent which decreased to
48.12 after the AP MFI Ordinance 2010, showed a heavy decrease. The index for
other factors like women’s own income, food consumption pattern, savings per
month, family income, purchase of gold, purchase of immovable assets, access or
control over the financial resources were also decreased after the AP MFI
Ordinance 2010. The overall Gain index for economic empowerment before AP
MFI Ordinance 2010 was 62.9 per cent which was reduced to 49.5 per cent after
the AP MFI Ordinance 2010.
The aggregate measure of the overall impact of microfinance ordinance
encompasses social as well as economic aspects. Impact index indicates the
decrease in the socio-economic empowerment of the women. It could be inferred
that MFIs in general had succeeded in tuning and improving the socio-economic
status of the women, by way of providing microfinance, which is much needed to
the women in the study area even today. Finally, it was revealed that the women
empowerment was decreased because of AP MFI Ordinance 2010.
5.6 OPINIONS OF BENEFICIARIES ABOUT MFIs
5.6.1 MFI Loans- Likes
Timely Loans: Majority of the respondents (32%) rated timely loans as one of
the major advantages that MFIs could provide them vis-à-vis other formal
institutional sources like SHGs and banks. According to the respondents, it takes
a minimum of 7 days for MFIs to process a loan application, while the maximum
time taken could stretch up to 15 days. In addition, the interim loans (top-up loan
of a smaller amount provided while existing loan is still in force) were also
provided by MFIs in the study area after 15-25 weeks of the main general loan
which helps the respondents to meet the emergency requirements.
Convenient Installments: The option of paying interest along with the principal
installments helps people to repay the loans. In contrast, it is very difficult for the
clients to make a bullet repayment of the loan as is required for loans taken from
moneylenders. However, when respondents were asked to rate MFIs on the same
attribute during the relative preference ranking exercise, they rated MFIs ‘low’ as
the majority of them felt that weekly installments do not match their cash flows,
and they would rather prefer monthly installments, as in the case of loans taken
from SHGs or banks.
Low Interest Rates: 18 per cent of the respondents opined that MFI interest
rates are relatively lower (27%-45%) when compared with other costly informal
sources (36%-120%). It is interesting to note that interest rate of MFIs also
emerged as a major reason for dislike in equal number of sessions. The main
cause for interest rate as a dislike was lack of transparency in pricing of MFI
loans, which are expressed as “flat” interest rates along with other upfront(
processing charges, insurance) charges. With increased awareness levels among
the clients post Andhra crisis, respondents argued that although MFIs’ interest
rate looks low on paper once the rate is converted to diminishing basis and
upfront charges are included, the rate becomes as high as the one charged by
moneylenders.
Doorstep Delivery: MFI staff visits clients’ doorsteps for both disbursements
and collections. This saves time and money for the clients, which they can devote
to their business or household chores.
Insurance: Although most of the respondents were not able to explain terms and
conditions of insurance product of MFIs, but they feel that insurance was a
differentiating factor of MFIs. The respondents felt that protection of wage or
work loss due to the doorstep delivery. This is not possible with formal banking
system.
5.6.2 MFI Loans-Dislikes:
Group Responsibility: The major dislike felt by respondents (27%) was about
the group liability requirements of MFIs. Respondents said that because of
defaults by one or two members, the whole group has to suffer and members
have to contribute towards pending recoveries, which is spoiling the relationships
between members. The MFI staffs do not leave the collection centre, and make
other group members sit for long hours until the group can arrange to pay on
behalf of the defaulting member. Respondents opined that they have little choices
in choosing members for their groups. As a result, the existing members of a
group have to induct other non-interested or non-creditworthy member from the
village, to be able to comply with the group size requirements of the MFIs. The
situation is worse if the loan amount is high, or if a member defaults early in the
loan cycle. Respondents strongly believe that MFIs should introduce individual
loan products. While the clients are willing to help the MFI staff to recover dues
from delinquent members, they feel they should not be held financially
responsible for defaults committed by other members.
Flexibility in Repayments: Almost 15 per cent of the respondents argued that
MFIs are very rigid when it comes to recoveries. They do not provide even a
single day grace period for making repayments. MFI staff members do not leave
the clients’ doorsteps until they pay the amount due. In such situations, staff
members often resort to inappropriate language. Respondents said that every
other institution, be it SHG, banks or even moneylenders and daily financiers,
give them some grace period to arrange for funds. The respondents opined that
MFIs can charge late payment fees from them but should at least give them few
days to arrange for pending amount.
Transparency in Interest/Charges: The demand from borrowers for increased
transparency in interest rates and other charges is largely a result of increased
awareness evident after post Andhra crisis. Respondents admitted that they were
under the impression that MFIs were charging interest in the range of Rs.1.51.75/100 per month (12.5%-15% flat per annum). However, through media and
other external agencies, they have come to know that the effective interest rate
charged by MFIs is twice (25%-47% per annum) that of the rate mentioned in the
loan agreement. Clients want MFIs to come up with a transparent pricing
structure, clearly disclosing interest rates on a diminishing balance basis, along
with other upfront charges. Clients feel that such a measure will help them in
assessing the cost of credit from various formal and informal sources and will, in
turn, enable them to take decisions while choosing a particular source.
Respondents felt that they have been cheated for all these years by MFIs. In fact,
some respondents felt that MFIs should not insist on repayment of loans
outstanding as they have already collected huge amounts from them on the
previous loans.
High Interest Rates: Respondents were divided as far as interest rate issue is
concerned. 14 per cent of the respondents felt MFI interest rates to be on higher
side, while another 32% per cent of the respondents considered lower interest
rate to be an advantage for MFIs. While the latter half compared the interest rate
of MFIs with that of moneylenders, the former attributed high interest rate of
MFIs to lack of transparent pricing. Besides this, respondents also opined that
MFIs have steadily increased their interest rates during the last two to three
years. The fact that MFIs were charging interest in the range of Rs.2.5-3/100 per
month, (27%-47% including upfront charges) led a few groups to directly
compare services of MFIs with that of moneylenders.
Easy Availability of Loans: Respondents, about 13 per cent of the respondents,
opined that in order to avoid default by group members, MFI staff should do
Proper due diligence before sanctioning loans to group members. Respondent felt
that in many cases, the MFI staff members, despite being aware of the repayment
capacity of a borrower, sanctions loan much beyond her means. The easy
availability and options to get loans from several MFIs has, in the past, tempted
the clients to borrow for consumption purposes. This often led to excessive debt
burden on individual households. In order to repay these loans, the clients started
borrowing from other sources (other MFIs, daily/weekly money lenders) leading
to a debt trap. Some respondents said that government should allow only
2-3 MFIs to operate in a particular village. Some respondents also suggested a
system whereby MFIs should make it compulsory for borrowers to get a no
objection certificate from other MFIs operating in the area. The certificate should
clearly state the amount of loan that the concerned borrower had taken from the
other MFIs.
Weekly Repayments: The respondents were of the view that in addition to the
usual loan products; they should be provided the option for monthly repayments
as well. Repayment schedule essentially depends on individual’s cash flows. Due
to the dearth of monthly products from most MFIs, they are left with no option
but to go for weekly loans. As such, it becomes difficult for them to manage
frequent repayments. In addition, respondents who have petty businesses find
monthly recoveries more comfortable as funds remain invested in business for
longer periods, resulting in higher turnover.
Harassment by Staff: Although there has been much discussion of harassment
by MFI staff whilst making recoveries, this did not come out very much in the
discussions with respondents. In only 6% of the respondents opined that MFIs’
staff members used to harass them for recoveries. Respondents opined that, in
general, MFI staff members are professional and efficient. However, in case of
pending recoveries, they sometimes talk rudely. Some others said that even
though MFI staff members do not use bad words, they do not leave the centre
until they get the due installment from the members. They try to put pressure on
other group members because of the group liability clause, because of which, the
members start fighting amongst them. Against this background, 6 per cent of
respondents attributed harassment to the group liability condition rather than to
MFI staff behavior.
The majority of the respondents (32%) opined that the time taken for
processing loans is an important criterion for them. Untimely loans often defeat
the purpose for which they are intended. Respondents note that daily
moneylenders process the loan instantly. There is minimal or no documentation
required. Although it is an expensive source, and there are limitations on the
amount that can be borrowed from daily moneylenders, people still borrow from
them to meet their immediate credit requirements. Unlike traditional
moneylenders and pawnbrokers, money lending is the core business of daily
moneylenders; hence, they usually have enough liquidity to meet short term
credit requirements of borrowers. In the case of traditional money lenders and
pawnbrokers, it might take up to 1-2 days to get loans since traditional
moneylenders generally take some time to arrange for funds (since it is a
secondary business for them) or to verify the credibility of borrower. Also, in
case of secured loans from money lenders and pawnbrokers, it might take some
time for the borrower to arrange for collateral. In case of MFIs, it takes usually
1-2 weeks to sanction a loan. In addition, most MFIs give an option of second
loan after 15-25 weeks of repayment of existing loan. As far as SHGs and banks
are concerned, respondents have had bad experiences in getting the loans
sanctioned. It has taken 2-3 months from the date of application to get the loans
disbursed. People cite excessive bureaucratic procedures as one of the major
bottlenecks in dealing with such institutions.
Respondents relate ‘staff behavior’ to the conduct of the staff of the credit
institution in the event of delay or default. Respondents said that SHGs and IKP
staff behave with them in the most respectful manner. They only visit the village
and counsel the members about the benefits of prompt repayment. Respondents
rate pawnbrokers and banks similarly. In most cases, the loans taken from banks
are secured. Since both banks and pawnbrokers have collaterals, they do not
bother respondents so much as far as recoveries are concerned. Respondents rate
MFIs lower because of the repayment pressure that their staffs exercise in the
event of delay in repayments. When it comes to repayment, MFI staff is
perceived to be strict. Clients have a more negative opinion of moneylenders as
they ridicule defaulting members and ill-treat them in the community.
5.7 OPINIONS OF MFIS AND NON GOVERNMENT ORGANIZATION
(NGO)
5.7.1 Opinions of MFI Official
Extent of recoveries after the crisis:
Recoveries have gone down after the ordinance. As of now, MFIs were
able to recover only 5-6% of the total outstanding on any particular day. MFIs
portfolio outstanding was around Rs.8 crore (for branch) when the Ordinance
was introduced, since then (over 11 months) MFIs have been able to recover only
Rs.2.5 crore while no new loans have been disbursed during this time period. In
October 2010, recoveries were around 70% and this went down to 20-30% by
November/December 2010. The recoveries again went up to 50% in January
2011, but from there onwards it has fallen steadily (The Sakshi, 2012).
Main reason for the poor recoveries
Initially MFIs were able to convince the clients regarding repayments by
guaranteeing new loans. People started paying off their loans, but since MFIs
were not able to give them fresh loans, they stopped repaying. It has resulted in a
fall in recovery rates. Even for the clients who had been paying, local activists
and political leaders are discouraging them to repay their outstanding loans. The
people from whom MFIs have been able to manage recoveries were the ones
who had last few installments left to be paid at the time of crisis. Such clients did
not have much at stake as far as the outstanding amount was concerned; hence,
they paid remaining balances hoping to get fresh loans once normal MFI
operations are restored. Recovery rates have been very poor from clients who
had borrowed just 1-2 months before crisis. Earlier MFIs used to follow up with
all the clients, but now MFIs only visit those clients who are honest and repaying
the taken loans.
Problems faced by MFI staff
MFI staff members were threatened by local activists. There have been
few instances of MFI offices being ransacked by a mob of people. Also, in few
cases MFIs were called by clients to collect recoveries, but as soon as MFIs
reached there, they found media persons questioning MFIs and reporting
harassment cases in the next day’s newspaper.
Change in beneficiary’s attitude after the crisis
Clients who had large outstanding balance were taking advantage of the
situation. People say that they have been asked by the government not to pay
back loans taken from MFIs. Even for clients who were giving recoveries, MFIs
have to collect installments in parts. However, in spite of the crisis, people are
ready to pay MFIs on the condition that they disburse new loans.
Major reason for the Ordinance
The reasons are political. The media has created a lot of hype around
suicide cases and attributed every suicide case to the so-called malpractices of
MFIs. The district and state level politicians also motivated the clients not to pay
MFI loans during their visits to settlements. The government also felt threatened
by MFIs since they are competing with their SHG movement.
Strategies to be followed to cope up with the situation
MFIs are trying to retain their old staff and are converting them into
permanent employees from a contractual status. Whatever recoveries they have
been able to manage is because of business relationships that they have
maintained with the clients. Clients do not recognize MFIs; they only know their
staff and retaining them would help us a lot once the situation improves. MFIs
are planning to display interest reats at gram panchayat offices as per the
ordinance.
5.7.2 Opinion of IKP (SERP) Official
Impact of MFI crisis on SHGs
The ongoing MFI crisis is also one of the reasons rise in SHG repayment
rates. Earlier people used to get easy money from MFIs. MFI operations have
come to a halt in the last few months, resulting in higher level of dependency of
JLG members on SHG-bank linkage for meeting credit requirements. As a result
of this, members want to maintain good credit history with these institutions.
Groups which were defunct have started functioning again as members
recognized the importance of SHG as an institution.
Impact of MFI crisis on clients’ cash-flows
The crisis has not had a significant impact on the cash flows of the clients.
MFIs were giving easy money to people which their clients did not require. MFIs
were lending way beyond the requirements of a household. Hence, poor people
are not facing any problems even now in absence of MFIs. Whatever genuine
credit requirements they have are being met through SHGs. We have
communicated the same to members that is in case they require loans they need
not approach MFIs, they can directly come to us and we will meet their credit
requirements.
Impact of MFI crisis on demand for credit under IKP programme of
government
The average lending to the groups has been on a rise as mentioned earlier.
Bankers are more willing to lend higher amounts to SHGs if they have a good
track record. However, such growth is a result of improved systems and
processes. The impact of MFIs crisis would not be very significant in increased
demand for credit through SHGs. Since MFI loans were not actually required by
their clients hence there isn’t a vacuum that needs to be filled by SHGs/banks.
Future of MFIs considering the MFI crisis:
MFIs would be more relevant in some of the other states since banks are
not that active in those states. In AP, the situation is different and banks are more
than willing to lend to poor people, which makes MFIs’ presence irrelevant here.
MFIs need to improve their practices if they are to start their operations again.
They should lower their interest rates, communicate policies/procedures in a
transparent manner and should focus on individual lending to men because they
are the primary bread winners of the family. We created a good path in form of
SHG infrastructure and MFIs are trying to use these structured paths without
paying tolls. If MFIs want to support SHG federations, we could work in a
collaborative manner.
5.8 Problems and Suggestions
5.8.1 Analysis of problems faced by Joint Liability Group members with
MFIs
Different constraints were identified in the present study by using a pre
tested schedule and analyzed, ranked as per the preference of beneficiaries.
Constraints identified were:
1. Wrong identification of members
2. Non cooperation among members
3. Irregular meetings
4. Conflicts among the group
5. High interest rates
6. Weekly repayments
7. No flexibility in repayment
8. Collateral securities
9. Abusive language by staff
10. Coercive practices by employees
11. Group responsibility
12. Multiple borrowing
13. Persistent visit of staff to the defaulter’s houses
The beneficiaries linked with Microfinance institutions were asked to identify
the constraints and to verify the respondents are in agreement with each other.
Kendall’s Coefficient of concordance (w) test was applied and the results were
presented in Annexure 1.
Kc 
 Rj
2

( Rj) 2
n
1 2 3
k ( n  n)
12
= 0.167
kC was calculated to test the significance of the test.
2= 12 df = 160(13-1)*0.167 = 321.37
2 tab = 12 df = 2.33
Since the calculated value of 321.37 was greater than the table value of
2.33 at 5 per cent level of significance. It was concluded that the value was
significant and that all the interview beneficiaries were in agreement in ranking
the constraints for to make use of micro financing system effectively by the JLG
members. The ranking given to the constraints like weekly repayments, higher
rate of interest, no flexibility in repaying, group responsibility, multiple
borrowing reveals that these were the major problems faced by the JLG
members.
5.8.2 Analysis of suggestions given by Joint Liability Group members for
improving micro financing system
Different suggestions given by the respondents were collected, analyzed
and ranked as per the preferences revealed.
Suggestions given by the JLG members were
1.
Proper identification of group members JLG group
2.
Proper identification of beneficiaries by MFIs
3.
Reduction in the interest rates
4.
Loan amount should be raised
5.
Flexibility in repayment
6.
Group responsibility should not be there
7.
Provision of raw material, proper marketing and transportation facilities
8.
Conducting activity oriented training
9.
Creating employment opportunities.
The beneficiaries linked with Microfinance institutions were asked to
identify the suggestions and to verify the respondents are in agreement with each
other. Kendall’s Coefficient of concordance (w) test was applied and the results
were presented in Annexure 2.
Kc 
 Rj
2

( Rj) 2
n
= 0.2419
1 2 3
k (n  n)
12
kC was calculated to test the significance of the test.
2= 8 df = 160(9-1)*0.2419 = 309.65
2 tab = 8 df = 2.95
Since the calculated value of 309.65 was greater than the table value of
2.95 at 5 per cent level of significance. It was concluded that the value was
significant and that all the interview beneficiaries were in agreement in ranking
the suggestions to make use of micro financing system effectively by the JLG
members. The ranking given to the suggestions viz, proper selection of group
members by JLG group, proper identification of beneficiaries by MFIs, reduction
in the interest rates, group responsibility should not be there and creating
employment opportunities reveals that these were the major suggestions given by
the JLG members.
16000
14000
12000
10000
L&T
8000
SPANDANA
6000
SHARE
4000
SKS
2000
Nov/11
Oct/11
Sep/11
Aug/11
Jul/11
Jun/11
May/11
Apr/11
Mar/11
Feb/11
Jan/11
Dec/10
0
Fig 7. Particulars of borrowers in the selected MFIs
2000000
1800000
1600000
1400000
1200000
1000000
L&T
800000
600000
SPANDANA
400000
SKS
SHARE
Nov/11
Oct/11
Sep/11
Aug/11
Jul/11
Jun/11
May/11
Apr/11
Mar/11
Feb/11
Jan/11
Dec/10
200000
0
Fig 8. Recovery performance of the MFIs in the selected area.
Fig. 1: Prakasam district map
5.1 Distribution of households according to age of members.
Sl.No.
Age group
No. of members
Percentage
1
18 – 25
25
15.62
2
26 – 35
59
36.87
3
36 – 45
47
29.37
4
Above 45
29
18.12
160
100
Total
5.2 Distribution of households according to Literacy of members.
Sl.No.
Level of literacy
No. of members
Percentage
1
Illiterate
39
24.31
2
Functionally Literate
71
44.34
3
Primary
30
18.75
4
Secondary
14
8.75
5
Above secondary
6
3.75
160
100
Total
5.3 Distribution of households according to social group
Sl.No.
Social group
No. of members
Percentage
1
SC/STs
52
32.54
2
Backward class
69
43.13
3
Forward class
39
24.37
160
100
Total
5.4 Distribution of households according to Occupation
Sl.No.
Activity
No. of members
Percentage
1
Agriculture
40
25.00
2
Wage labour
37
23.12
3
Nursery
12
7.55
4
Embroidary work
12
7.55
5
Cottage industry
25
15.62
6
Pickle mahing
11
6.84
7
Basket making
10
6.25
8
Government service
5
3.12
9
Kirana shop
5
3.12
10
Poultry
3
1.87
160
100
Total
5.5 Distribution of households according to Marital status
Sl.No.
Category
No. of members
Percentage
141
88.12
1
Married
2
Unmarried
0
0
3
Widow
19
11.87
Total
160
100
Distribution of households according to Family type
1
Joint family
27
16.87
2
Nuclear family
133
83.12
Total
160
100
5.6 Distribution of households according to Average monthly income
No. of
Sl.No.
Activity
Percent
Range (Rs)
Average (Rs)
members
1756.41-
1
Agriculture
40
25.00
2013.45
3215.2
2
Wage labour
37
23.12
1543-2654
1921.34
3
Nursery
12
7.51
534.6-1464.2
954.32
4
Self employed
33
20.62
753-2103
1542.78
5
Cottage industry
25
15.62
695-812
754.12
5
3.12
2013-4012
2975.54
Government
6
service
7
Kirana shop
5
3.12
954-1345
1234.12
8
Poultry
3
1.87
375-1500
754.95
160
100.00
Total
5.7 Distribution of respondents according to level of Annual income:
Before MFI joining
Sl.No.
Income range
No. of
After MFI joining
Percent
change
No. of
%
members
%
members
1
Up to 10000
84
52.51
48
30.00
-22.51
2
10000-20000
23
14.32
32
20.04
5.68
3
20000-30000
22
13.75
31
19.32
5.55
4
30000-40000
26
16.21
36
22.54
6.29
5
Above 40000
5
3.12
13
8.12
5.00
Total
160
100.00
160
100.00
5.8 Impact of MFIs on income and employment of the members (n=160)
Before
Percent
difference
After
Sl.No. Categories
F
%
Mean
F
%
Mean
Income (Rs.)
1
Low
(<6455.24)
77
48.12
3898
53
33.12
5698
-15
2
Medium
(6455.24
to
35465.7)
45
28.12
18994
59
36.87
33210
8.75
3
High
(>35465.7)
38
23.45
39984
48
30
47982
6.25
Total
160
100
20958
160
100
28963
Mean
20960.62
28963.86
SD
14505.38
17260.68
8003.23
Employment (man days)
1
Low
(<69.49)
54
33.75
47
21
13.12
61
-20.625
2
Medium
(69.49 to
230.11)
75
46.87
152
81
50.62
221
3.75
3
High
(>230.11)
31
19.37
252
58
36.25
321
16.87
Total
160
100
150
160
100
201
Mean
149.80
201.23
SD
80.306
77.378
134.55
F – no. of members
5.9 Impact on asset position and consumption
Before
Sl.No
After
Categories
F
%
Mean
F
%
Mean
Percent
difference
Assets (Rs.)
1
Low
(<4139.57)
87
54.35
3582
41
25.64
3987
-28.75
2
Medium
(4139.57to
25508.56)
48
30
12851
42
26.26
23699
-3.75
3
High
(>25508.56)
25
15.62
28041
77
48.12
42129
32.54
Total
160
100
14824
160
100
23171
Mean
14824.08
23271.4
SD
10684.43
12703.06
8447.41
Consumption (expenditure/year)
1
Low(<9697.
08)
75
46.87
7845
35
21.87
8652
-25
2
Medium
(9697.08 to
24111.4)
46
28.75
15647
71
44.37
19102
15.62
3
High
(>24111.4)
39
24.37
27223
54
33.75
30051
9.37
Total
160
100
16905
160
100
19268
Mean
16904.28
19268.22
2363.93
SD
F – no. of members
7207.20
7698.99
5.10 Impact of MFIs on investment and saving of the members (n=160)
Before
Percent
difference
After
Sl.No. Categories
F
%
Mean
F
%
Mean
Investment(Rs.)
1
Low
(<4995.91)
71
44.3
3784
39
24.37
4487
-20
2
Medium
(4995.91 to
28781.43)
48
30
15531
68
42.5
17024
12.54
3
High (>
28781.43)
41
25.62
31347
53
33.12 33012
7.52
Total
160
100
16887
160
Mean
16888.92
100
18174
18179.56
1290.64
SD
11893.01
10060.34
Savings (Rs.)
1
Low
(<6976.17)
65
40.26
2968
21
13.12
4948
-27.5
2
Medium
(6976.17 to
12786.05)
51
31.87
7102
63
39.37 10698
7.54
3
High
(>12786.05)
44
27.51
13014
76
47.51 16998
20.00
Total
160
100
7694
160
Mean
7694.66
100
10881
10881.33
3902.18
SD
F – no. of members
5809.83
8475.60
5.11 Impact of MFIs on loan amount taken by members (n=160)
Before
Sl.No.
Percent
difference
After
Categories
F
%
Mean
F
%
Mean
2845
loan amount taken (Rs.)
1
Low
(<3113.31)
81
50.62
2315
27
16.87
2
Medium (
3113.31to
22946.89)
36
22.58
12102
49
30.62 21542
8.12
3
High
(>22946.89)
43
26.87
24701
84
52.54 35412
25.62
Total
160
100
13039
160
Mean
13030.01
100
-33.75
19933
19933.21
13465.66
SD
F – no. of members
9916.88
13199.30
5.12 Results of Multiple Linear Regression Analysis
Sl.No.
Variable
Notation Standard
error
Coefficient
t-value
4487.47
-23806.5
5.30*
1
Constant
Intercept
2
Investment
X1
0.09
0.25
2.66*
3
Savings
X2
0.10
0.05
0.55NS
4
Employment
X3
17.03
34.36
2.01**
5
Assets
X4
0.12
0.94
7.27*
6
Consumption X5
0.10
0.44
4.23*
7
Loan taken
0.07
0.18
2.43**
X6
F
R2
value value
95.11
Model = Y= -23806.5+0.25x1+0.058x2+34.36x3+0.94x4+0.44x5+0.18x6
Number of observations = 160
* Significant at one percent level
** Significant at five per cent level
NS non-significant
0.78
Table: 5.13Particulars of Borrowers in the selected MFIs
Month
L&T
SPANDANA
SHARE
SKS
Dec-10
1120
14296
11955
9965
Jan-11
1093
14296
11955
9930
Feb-11
1092
14296
11955
9870
Mar-11
1073
14296
11867
9836
Apr-11
1065
14296
11839
9740
May-11
1065
14296
11821
9689
Jun-11
1046
14296
11788
9669
Jul-11
1033
7916
11788
9649
Aug-11
1021
7916
11746
9634
Sep-11
990
7916
11734
9613
Oct-11
977
7916
11721
9591
Nov-11
950
7916
11701
9591
Source: Project director MEPMA, Ongole.
Table 5.14 Recovery performance of the MFIs in the selected mandals
Month
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
L&T
SPANDANA
SHARE
SKS
(Rs)
(Rs)
(Rs)
(Rs)
5632
43166
13912
82770
2397
45470
130515
87960
3859
56715
176648
295641
77225
69281
123548
289745
134502
161099
902256
278541
118339
110129
739670
435512
87954
120233
529812
264295
287391
81117
470544
166090
412445
158712
615423
153995
233809
283812
715059
119740
210206
165840
654389
252665
105481
151600
613249
310245
Oct-11
Nov-11
Source: Project director MEPMA, Ongole.
5.15 Product details of different service providers
Particulars
SHG
Bank (crop
loans)
MFIs
Money
lenders
Chit
funds
Interest rates 3%-12%
(per annum)
7%-13%
27%-45%
36%-120%
Amount (Rs)
Rs.5,00050,000 per
member
Depends upon
crop
Rs.5,00030,000 per
member
Upto
Rs.20,000Rs.2,00,000 2,00,000
Loan term
2-5years
Upto 3 years
50 weeks
Not
specified
18-24
months
Installments
Monthly
Bulleted (two
months from
date of
harvest)
Weekly
Monthly
interest
repayment.
Bullet
repayment
of principal
Monthly
Not
Colleteral
requirements needed
Hypothecation
of crops/
additional
security / third
party
guarantee
Group
Liability.
No
physical
collateral
required
Secured
and
unsecured
None
Loan type
Individual
(Cash Credit)
Individual Individual
(loans are
given to
individuals
within the
joint
liability of
groups)
Group
based
0%-60%
Individual
5.16 Source of Credit:
(n=160)
Source
of
credit
T table
value
1.97
Mean (Rs/ year)
Before
Percentage
After
Percentage Percent t cal
(Amount)
(Amount)
difference value
Chit
fund
2584.375
5.11
3198.12
7.02
1.91
-5.51
MFI
16625
32.92
437.5
0.96
-31.96
29.82
SHG
23750
47.03
27328.12
59.99
12.96
-7.78
Money
lenders
2787.5
5.52
5778.12
12.68
7.16
-8.79
Banks
4750
9.40
8812.5
19.34
9.94
-3.94
Total
50496.88
100.00
44907.50
100.00
5.17 Repayment performance:
Repayment
performance
(n=160)
Mean (Rs/ month)
T
table
value
1.97
Before
Percentage
After
Percentage Percent t cal
(Amount)
(Amount)
difference value
Chit fund
187.5
22.83
193.75
31.39
8.56
-2.95
MFI
244.68
29.79
25
4.05
-25.74
25.40
SHG
88.43
10.76
90.31
14.63
3.87
-5.03
Money
lenders
197.5
24.04
216.25
35.03
10.99
-5.83
Banks
103.12
12.55
91.87
14.88
2.33
2.32
Total
821.23
100.00
617.18
100.00
5.18 Reasons for not repaying MFI loans
SI.No
Categories
No. of members
Percentage
1
No new loans
51
31.82
2
Media reports
24
15
3
Nobody is paying
34
21.25
4
Pressure from the Political leaders
14
8.75
5
Mfi staff are not coming
26
16.25
6
Pressure from the external agents
11
6.87
Total
160
100
5.19 Results of Logistic Regression:
Sl.No
Particulars
B
S.E.
Wald
df
Significance
Exp(B)
1
Source of credit
-3.11
1.26
6.06
1
0.01NS
0.04
2
Dependence on
SHG
20.92
1.93
0.00
1
0.99*
1.22
3
Dependence on
moeylend
19.05
1.93
0.00
1
0.99*
1.89
4
Savings of the
members
-18.80
5.25
0.00
1
0.99*
0.00
5
Change in
interest rates
0.46
1.04
0.20
1
0.65*
1.59
6
Change
inrecovery
-37.58
3.86
0.00
1
0.99*
0.00
-39.36
3.86
0.00
1
0.99*
0.00
Practices
7
Repayment of
existing loans
8
Abusive
languege by
employees
2.91
1.85
2.47
1
0.11*
18.38
Coercive
practices by
employees
-2.73
1.67
2.64
1
0.10*
0.06
Constant
18.47
5.25
0.00
1
0.99*
1.05
9
NS- non significant, * 5% level of significance
5.20 Impact of AP MFI Ordinance 2010 on social empowerment of borrowers
(n=160)
S.No.
Variables
Before
After
Scores
Index
Scores
Index
Gain
index
1
Mobility
256
53.3
278
59.7
4.58
2
Recognition in community
301
62.7
287
59.9
-2.92
3
Education to children
352
73.3
335
69.7
-3.54
4
Access to health services
327
68.1
260
54.1
-13.94
5
Voicing your concern
285
59.3
378
78.7
19.38
6
Leisure time profitably
utilized
218
45.4
238
49.5
4.17
7
Decision making
236
49.1
294
61.2
12.08
8
Communication ability
280
58.3
291
60.6
2.29
9
Extension participation
249
51.8
237
49.3
-2.50
10
Awareness about
government policies
272
56.6
335
69.7
13.13
11
Leadership qualities
315
65.6
249
51.8
-13.75
12
Involvement in social issues
248
51.6
191
39.7
-11.88
58.5
0.59
Overall index
57.9
5.21 Impact of AP MFI Ordinance 2010 on Economic empowerment of
borrowers
(n=160)
Before
S.No
After
Scores
Index
Scores
Index
Gain
index
Variables
1
Access to credit
382
79.5
231
48.1
-31.4
2
Women’s oown income
261
54.3
218
45.4
-8.95
3
Food consumption pattern
278
57.9
261
54.3
-3.54
4
Savings/month
266
47.08
189
39.3
-7.708
5
Family income
347
72.2
289
60.2
-12.08
6
Purchase of gold
289
60.2
190
39.5
-20.62
7
Purchase of immovable
assets
347
72.8
289
60.2
-11.8
8
Assets/control over the
financial resources
287
59.7
234
48.7
-11.04
49.5
-13.41
Overall index
62.9
Chapter - VI
SUMMARY AND CONCLUSIONS
This chapter gives the summary of the findings of the present study and
the policy implications emerging from it.
Microfinance has been a development and economic tool which has
helped in bringing about financial inclusion in India. It has been viewed as an
important tool of women empowerment and to alleviate poverty. It has served
to provide financial services and credit to the unprivileged and unbanked
sector in India thereby bringing about financial inclusion. The loans provided
by microfinance institutions serve the low-income population in various ways
as follows: They provide working capital loans for business purposes. They
provide loans for accessing necessities such as food, clothes, shelter and
education. They serve as alternatives to the loans provided by money lenders.
Majority of the population in India belong to the unbanked sector.
Though India has a dense and a robust formal financial system, it has failed to
reach the deprived segment of the population. Next to China, India has the
highest size of unbanked population in the world. Thus, microfinance sector
aims to improve the living of the poor income households thereby providing
banking services to the deprived low income population. There are various
forms of microfinance institutions in India with various service models and
they provide products suitable to appropriate target segment which has proved
successful of improving the client’s economic status.
The MFI movement in India was largely initiated from within AP,
where some of the earliest MFIs starting their operations in the late 1990s.
Today, some of the largest MFIs in India are headquartered in AP. Many of
these MFIs touched annual growth rates of 80% in the three to four years to
October 2010. The unparalleled growth of MFIs, coupled with the efforts of
the SHG movement, meant that the average household debt in AP was the
highest in India. The high level of indebtedness in the state was largely, a
result of multiple lending happening in the sector. SHG clients were often
MFI clients and vice versa, and many customers would often be members of
more than one MFI and many were also borrowing from the informal sector
too.
As a result, this usually meant that clients chose to pay installments on
MFI loans, rather than SHG loans (which normally have a monthly repayment
frequency and minimal ground level monitoring). Unsurprisingly, this started
to have an adverse effect on the credit discipline of SHGs. The stage was set
for a conflict between the private sector MFIs and the state government and its
SERP programme. The first sign of trouble was the Krishna District crisis of
2005-06 where the district administration closed 50 branches of four leading
MFIs citing usurious interest rates, coercive collection practices and
profiteering. Issue came to the fore again in October 2010, when the
Government of Andhra Pradesh promulgated an ordinance to protect the
women SHGs from exploitation by the MFIs in the state. In December 2010,
the Ordinance was enacted into “The Andhra Pradesh Microfinance
Institutions (Regulation of Money lending) Act, 2010”. The events
surrounding the enactment of the Act have received widespread attention in
India and among microfinance practitioners across the globe. There has been
large-scale media coverage on the factors that led to the enactment of the Act
and its likely impact on the sector.
The stringent provisions of the Act immediately resulted in near-total
suspension of MFI’s operations. MFIs, which had boasted of recovery rates in
excess of 95%, after the Act found themselves staring at repayment rates of
10%-15%.
In this background the present study was undertaken with the overall
objective of studying the impact of AP MFI Ordinance 2010 with the
following objectives.
1. To study the evolution and activities of MFIs in the study area.
2. To study the process of working by MFIs after the AP MFIs
Ordinance, 2010 and other regulatory acts by Government.
3. To study the socio-economic impact on the beneficiaries before and
after AP MFIs Ordinance 2010 and
4. To suggest the suitable measures for improving the micro financing
system.
The study was carried out in Andhra Pradesh state during the year
2011-2012. The study was conducted in Prakasam district of Andhra Pradesh.
Four MFIs operating in the district were selected based on their volume of
business. Four mandals which are having highest business was selected. The
four MFIs are Spandana, SKS, Share and L&T finance. The mandals which
are having the highest volume of business are Ongole, Markapur, Chirala and
Kandukur. Based on the highest number of Joint liability groups operating,
two villages were selected from each mandal making a total number of 8
villages from four mandals. From each village 20 beneficiaries ware selected
making a total sample respondent 160.
The primary data were collected from JLGs through personal interview
method with the help of a structural pretested schedule. Impact of AP MFI
Ordinance on beneficiaries was carried out using logit regression. The socioeconomic conditions of the members were compared before and after the
ordinance paired t-test, frequency and percentage. Constraints analysis was
worked out by Kendal’s co-efficient of concordance.
Major findings of the study
Major portion of sample JLG members (36.85%) was in the group of
26-35 years followed by the members in the age group of 36-45 years
(29.3%), 18-25 years (15.6%) and the members above 45 years constituted to
the little extent above 18.25 per cent.
Twenty four per cent of the members were illiterate. About 44 per cent
of the sample can only sign. About 19 per cent had completed their primary
education up to 5 th standard, 4 per cent of them up to secondary level i.e., 6th
to 10th standard and six persons (3.75%) had studied up to degree level.
The distribution of respondents according to social groups revealed
that the proportion of members belonging to backward classes accounted for
43 per cent followed by SCs/STs at 32 percent and remaining were from
forward castes.
The classification of members based on the main occupation that JLG
had possessed. It revealed agricultural labourers constituted a major share of
25 per cent, followed by Wage labour (23%), self employed like tailoring,
pickle making, basket making etc. (20.6%), Cottage industry (15.6%), Nursery
(7%), Govt. service (5%), Kirana shop (5%) and Poultry three per cent.
It was noticed that 83 percent of members belong to nuclear family
and only 17 percent belong to joint family. Marital status of women indicated
that 88 percent of the members were married as most of women belonged to
the age group of middle aged.
The mean values of the household income of JLG members from
different income generation activities after joining MFIs are as follows. The
highest income was generated from the Govt services (Rs. 2975.54) followed
by agriculture (Rs. 2013.45), wage labour (Rs. 1921.34), self employed (Rs.
1542.78), kirana shop (Rs. 1234.12), nursery (Rs. 954.32), poultry (Rs.
754.95) and cottage industry (Rs. 754.12).
Before joining MFIs 48.12 per cent of the members belonged to low
income group which was reduced to 33.12 per cent after joining MFIs. There
was increase from 28.12 per cent to 36.87 per cent in members belonging to
medium income group after joining the MFIs. In case of high income group
there was an increase in the members from the 23.50 per cent to 30 per cent
after joining the MFIs.
There was significant percentage change in employment days of the
members after joining in MFIs. The percentage change noticed was 134.55.
It could be observed that 54.35 per cent of the member’s who were in
the low asset category before joining MFIs had reduced to 25.64 after joining
the MFIs. The members in the high asset category increased to 48.12 from
15.62 after joining the MFIs. The total percentage change was 65.04 per cent
and the t-value calculated was significant at 1 per cent level, which indicated
that there was a significant difference in the asset position of the MFIs
members before and after joining MFIs.
It could be observed that 46.87 per cent of the women who were under
low consumption category before joining MFIs had decreased to 21.87 per
cent after joining the MFIs. And the members in high consumption category
increased from 24.37 per cent to 33.75 per cent after joining MFIs. The total
percentage change in consumption of the members was 50.
The multiple linear regression analysis was used to assess the factors
influencing the charges in gross income of the JLG member households. The
independent variables viz. investment, savings, employment, average value of
assets, consumption expenditure and loan taken by the JLG members were
selected for analyzing the impact of micro finance through Microfinance
institutions on gross income of member households. The contribution of the
variables was 78.8 per cent.
Before AP MFI Ordinance 2010 there were 17 Microfinance
institutions in Prakasam district with 201311 numbers of borrowers. The total
sanctioned amount was 344 crores. After the AP MFI Ordinance 2010 there
was only 7 MFIs were operating in the district with a huge decrease in the
borrower’s size i.e., 168267 with an outstanding of 164 crores.
After the AP MFI ordinance Microfinance institutions repayments of
MFIs has drastically decreased. Results show that repayments have decreased
from Rs. 244.68 to Rs.25 per month. After that repayments with banks were
observed to be decreased. MFI crisis is one of the reasons for the rise in
repayments of SHGs.
Source of credit has shown negative impact on AP MFI Ordinance
2010. Dependence on SHG and moneylenders was increased after the
ordinance. Abusive language and coercive practices by staff was decreased.
The overall index for social empowerment was 57.69 before the AP
MFI Ordinance 2010. And the overall index for social empowerment was
58.55 after the AP MFI Ordinance 2010. It shows that there was no social
empowerment in the beneficiaries.
The overall index for economic empowerment showed that before AP
MFI Ordinance 2010 was 62.9 per cent which was decreased to 49.5 per cent
after the AP MFI Ordinance 2010.
The ranking given to the constraints like weekly repayments, higher
rate of interest, no flexibility in repaying, group responsibility, multiple
borrowing reveals that these were the major problems faced by the JLG
members.
The ranking given to the suggestions viz, proper selection of group
members by JLG group, proper identification of beneficiaries by MFIs,
reduction in the interest rates, group responsibility should not be there and
creating employment opportunities reveals that these were the major
suggestions given by the JLG members.
RECOMMENDATIONS
FOR BENEFICIARIES
Credit discipline
Multiple borrowing is the indiscipline found with borrowers.
Borrowers have to take the loans as per their capacity to repay the loans. One
member of SHG or JLG should not be the member of other JLG group or
SHGs.
Proper selection of group member
Beneficiaries should act strictly choosing members in their groups.
Because of defaults by one or two members, the whole group has to suffer.
Not only do the other members have to contribute towards pending recoveries,
but it also spoils relationships between members. The MFI staff members do
not leave the collection centre, and make other group members to sit for long
hours until the group can arrange to pay on behalf of the defaulting member.
Proper knowledge on MFI activities
Beneficiaries should have proper knowledge on interest rates, what is
the basis for fixing interest rates and the actual procedural formalities should
be followed by the MFIs as well as the actual practices by them in their field
level operations.
Borrowing should lead to economic prosperity:
Borrowing should be restricted to income generating activities only.
Loan amount not be more than the unit cost of income generating activities.
Proper assessment of increase in the working costs should done by borrower
and accordingly the extra loan requirements should be put forth to the MFI.
Once the loan amount was cleared, the further dose of loan should be taken by
borrower for the improvement of the expansion of the income generating
activities, which finally results in the proper direction of income generation
and employment generation.
FOR MFIs
Supervision and Monitoring by the MFI staff
The MFIs should be required to monitor the borrowers, whether they
are using the borrowed money for income generating activities or not. The
ultimate objective of micro finance is to ensure financial inclusion and not for
making profits.
Encourage the skill based activities
MFIs need to encourage the borrowers who are opting for skill based
activities like basket making, rearing exotic animals, pickle making repair
works, tailoring, cloth colouring etc. MFIs need to identify the skilled
beneficiaries and they may provide training facilities also. MFIs have to make
the skilled persons into clusters, MFIs are supposed to form clusters based on
their pattern of finance to some of these skill based activities and if they want
to set up a small scale unit, MFIs should encourage them.
Transparent Pricing
The lack of transparency by MFIs in communicating the effective cost
of loans has drawn lot of flak from regulators, media, government, and most
importantly, clients. Camouflaging effective interest rates by breaking down
the interest rates into multiple charges/fees and adopting opaque methods (flat
rate basis) to communicate these has been a common practice in the industry.
Even though the charges might be fair and clients may be willing to accept
them (as most MFI practitioners suggest), the need for communicating charges
in a transparent/standardized manner should be clear. The majority of the
respondents in the study understood the difference between flat rate interest
and diminishing balance rates. The awareness about these were created by the
media coverage that industry has received in the last year. The regulatory
norms should clearly define and prescribe the basis for calculation and
transparent disclosure of effective interest rates.
The MFIs should be required to abide by transparency of pricing
standards and disclose the actual cost of their services, thus helping potential
clients make an informed choice. As part of the microfinance transparency
initiative, close to 86 MFIs have shared their data for calculation of effective
interest rates. The same can be used as the basis for communicating interest
rate to the potential clients. In addition to this, complex products like
insurance schemes, are often bundled with loans and sold to clients without
communicating the terms and conditions. This is an avenue that MFIs have
often abused to secure higher commissions without providing much value to
the end user. In most of the cases, even MFI staff is unsure of product details.
Communication standards for such products should be defined by regulator
and, if possible, caps should be put on insurance fees that MFIs are eligible to
collect for providing such services. The study shows that effective interest
rates of most MFIs go up by 5%-15% if insurance is taken into consideration.
In addition to this, some MFIs also charge training fee on the name of
business development or livelihood services.
Product Development and Re-engineering Delivery Channels
In an effort to achieve exponential growth rates, the MFIs neglected the
feedback of the clients. This study shows the discomfort that clients have with
a mono-product offering, and its uniform group liability mechanism and
weekly recoveries. MFIs should institutionalise market research, customer
satisfaction monitoring and systematic product development systems, thereby
offering products that are market-led. Global experience demonstrates that a
shift towards individual lending products is inevitable in the long run. This
will also require refining delivery mechanisms is in addition to new product
development. The individual lending products in the future should be
developed to encourage the JLG members who are regular in repayments and
honest for income generating activities. MFIs will need to leverage technology
to optimise the value proposition for the clients and achieve competitive edge
through increased client loyalty and reduced operational costs. In some places
in the world, MFIs are shifting towards e/m-banking solutions to replace
routine field tasks like disbursements and collections with these technologydriven solutions. In the long run, implementing such solutions will lower the
operational cost for MFIs and make them more competitive and economical
for their target segment.
Differentiation, Brand Building and Customer Service
It is high time for MFIs to start making a name for themselves and
creating a positive market position for both microfinance services and the
individual institutions providing that service. Being only recognized as
“Monday MFI”, “Tuesday MFI” and so on, especially after 7-8 years of
operations, is a profound indictment of the players. It shows the level of
engagement that these institutions have had with their clients. Broadening the
bouquet of product and services will be crucial to achieve the much-needed
differentiation and building a loyal customer base. MFIs should not look at
their clients as merely a number in progress reports, but instead as an
ecosystem of individuals with dynamic needs that cannot be met by “one size
fits all” kind of a credit product. MFIs are expected to grow in the way that
develop the beneficiaries economically and socially by reducing the targets for
number of clients covered and profits collected.
Explore Opportunity to become Business Correspondent (BC) to Banks
MFIs can explore opportunity to become BCs of banks/s so that they
can use their existing resources (staff and knowledge) to provide a broader
range of financial services to their clients.
FOR REGULATORS
Robust Regulations
The unfolding of post Ordinance events highlights how institutions can
be destroyed in absence of overarching regulations. There has always been a
concern about the lack a common regulator for the industry, but stakeholders
have conveniently overlooked this in the light of massive growth the sector
witnessed in last five years. Microfinance as a sector did not have a regulator,
and different legal entities providing microfinance services had their own set
of regulations. The recent Ordinance by AP state government has made the
situation worse. Irrespective of the intentions, it has set a bad precedent for the
industry in general. The prospect of similar regulations in other states remains
a concern. Following the Malegam Committee recommendations, the RBI has
issued operational instructions on bank finance to MFIs, and the classification
of these loans as priority sector. The central government, too, has released a
draft MF bill that seeks to provide comprehensive regulatory powers to RBI
for the operations of MFIs. The Bill also gives powers to RBI to devise rules
on the conduct of business between MFIs and their clients, thus raising
concerns about the possible micro-management of MFIs, and the capacity (or
desire) of RBI to take on functions other than regulation and supervision.
There is a clear need for regulators to take a step back and create an
integrated, and ideally consolidated, set of regulations to replace what appears
to be a growing patchwork that invites regulatory arbitrage. The regulations
should be streamline the working pattern of MFIs, but not altogether removal
from field operations.
Fair Competition
The recent state government Act regulating MFIs in AP has created an
environment where the only institutional source of credit available to low
income market segment is through SHGs because of lack of MFIs finance.
While earlier people were spoilt for choice, now they are damaged for the lack
of it. As the current study suggests, many have already gone back to their
traditional exploiters i.e. moneylenders. Fair competition would be an
appropriate aim for the regulators drafting policies and procedures that govern
the sector.
Grievance Redressal Machinery & Credit Bureau:
Grievance redressal procedures, mandatory enrolment in credit bureaus
and code of conduct enforcement through industry associations are also
essential. Better information sharing within the industry through credit
bureaus will go a long way in rebuilding credit discipline. The draft guidelines
for MFIs seek to address most of these issues. Apart from state and national
level councils as proposed in bill, regulations should also consider setting up
grievance redressal bodies at district/mandal level for quicker redressal of
client complaints.
Reviving Credit Discipline
Experts say that the current crisis has done irreparable damage to the
credit discipline nurtured by MFIs in last 7-8 years. The findings of current
study corroborate this. Every stakeholder viz., MFIs, government, regulator,
media and even clients themselves played their role in dismantling credit
discipline. The situation now require a collective effort from all these actors to
revive the much-needed borrowings – repaying discipline that is core to the
success of financial services at all levels. While MFIs need to become more
transparent and client friendly, regulators will have to come out with workable
robust regulations, government will have to support MFIs to build positive
image, media will have to be more responsible and supportive, and most
importantly clients will have to impose self-discipline for their own good.
FOR THE STATE GOVERNMENT
Supervision by Government
The Government should form mandal level committees. The committee
should consists the officials from major MFIs operating in the area, DRDA
official, the bank manager of the area to whom the SHG members linked.
They altogether should conduct Gramsabha’s regularly. In such meetings
there is every possibility that the needy members may get selected as well as
identification of the earlier borrowers with respective MFIs cum SHGs may
identified. Due to the presence of all the stake holders, this finally results in
arresting of multiple borrowings and multiple memberships of borrowers.
Improve SHGs Efficiency Levels
Lack of competition from MFIs may be an opportunity for SHGs to
register growth and ensure higher recovery levels. However, in long run the
SHGs might lose the battle to the informal sources like moneylenders if the
system’s weaknesses are not addressed ina systematic way. Excessive delay in
sanctioning of loans, lack of products to meet different needs of borrowers,
improper monitoring structures resulting in poor recoveries etc. are daunting
challenges yet to be addressed. Besides this, the demand for 10% of loan as
fixed deposit, pressure to buy insurance policies, blocking savings in lieu of
loan repayments are some of the deeply unpopular practices that have been
prevalent in existing SHG-bank linkage programmes. In order to meet the
larger social goals that these institutions aim to achieve, it is critical that they
align their systems and processes with needs and aspirations of the segment
they intend to serve.
Alternative credit sources to SHGs
SHGs should be provided alternative sources of credit, as currently
SHGs completely depend on bankers for their funding. SHGs and staff of
SHG-Federations have been spending a lot of time to convince bankers to
offer loans. Many SHG members have to take loans at higher interest rates
from informal sources due to delay in approval of bank loans.
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APPENDICES
ANNEXURE I
Ranks assigned to the constraints faced by JLG members
Ran
ks
1
2
3
Ben
efici
ary
No
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
4
5
6
7
8
10
11
12
13
8
8
8
7
5
5
11
11
11
11
12
10
12
12
13
13
10
12
12
12
10
12
12
12
12
10
10
12
12
12
12
12
12
12
12
13
10
10
12
12
12
12
1
3
1
1
2
2
7
1
3
3
7
5
5
1
1
7
7
5
5
5
1
5
9
9
9
10
12
12
9
9
9
9
2
4
2
2
3
3
6
2
5
5
6
6
6
2
2
6
6
6
6
6
2
6
10
10
10
9
13
13
10
10
10
10
3
2
3
3
1
1
11
3
6
6
11
7
7
3
3
11
11
7
7
7
3
7
9
Constraints
6
5
5
11
7
7
5
6
6
6
4
1
4
4
8
8
5
4
4
4
5
11
11
4
4
5
5
11
11
11
4
11
5
6
6
5
6
6
6
5
5
5
8
8
8
8
4
4
8
8
8
8
8
8
8
8
8
8
8
8
8
8
8
8
7
7
7
6
11
11
7
7
7
7
13
9
13
13
12
12
9
13
13
13
9
13
13
13
13
9
9
13
13
13
13
13
11
11
11
4
8
8
8
8
8
8
7
11
7
7
6
6
2
7
1
1
2
3
3
7
7
2
2
3
3
3
7
3
1
1
1
2
3
3
1
1
1
1
9
12
9
9
10
10
12
9
9
9
12
9
9
9
9
12
12
9
9
9
9
9
2
2
2
3
4
4
2
2
2
2
10
13
10
10
9
9
13
10
10
10
13
10
10
10
10
13
13
10
10
10
10
10
3
3
3
1
2
2
3
3
3
3
5
7
5
6
11
11
3
5
7
7
3
1
1
6
5
3
3
1
1
1
5
1
4
4
4
8
1
1
4
4
4
4
6
6
6
5
5
5
4
6
11
11
4
2
2
5
6
4
4
2
2
2
6
2
13
13
13
12
9
9
13
13
13
13
11
5
11
11
7
7
1
11
2
2
1
4
4
11
11
1
1
4
4
4
11
4
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
63
65
66
67
68
69
70
71
72
73
74
75
76
77
4
4
5
4
11
5
11
4
4
4
11
8
1
8
8
1
4
8
2
4
4
4
3
2
4
3
7
4
2
6
6
7
6
6
5
11
6
6
6
6
6
6
5
3
11
8
8
8
8
8
8
8
8
8
8
8
4
8
4
4
8
8
4
8
8
8
8
13
8
8
13
13
8
8
5
5
5
5
5
6
5
5
5
5
1
5
5
6
4
5
13
13
9
13
13
9
13
13
13
13
13
12
9
12
12
9
13
13
12
12
13
13
8
13
13
8
8
13
13
7
7
6
11
7
11
7
7
1
1
5
7
1
7
2
6
7
7
2
1
3
2
3
7
1
7
3
6
11
2
2
3
1
1
5
7
1
7
7
1
7
7
4
7
1
8
8
8
8
13
8
8
8
8
4
8
8
8
8
8
4
9
9
12
9
9
12
9
9
9
9
9
10
12
10
10
12
9
9
10
10
9
9
12
9
9
12
9
9
9
1
1
4
4
2
2
4
1
7
3
3
1
11
1
7
2
10
10
13
10
10
13
10
10
10
10
10
9
13
9
9
13
10
10
9
9
10
10
10
10
10
10
10
10
10
2
2
3
2
1
1
2
2
2
2
4
2
3
2
6
3
5
5
3
7
1
3
1
5
7
6
1
11
7
6
6
11
6
6
6
6
6
6
6
5
6
6
1
6
5
3
3
2
3
4
4
3
3
3
7
7
3
2
3
11
1
6
6
4
11
2
4
2
6
11
5
2
5
6
7
7
5
5
5
1
5
5
5
11
6
5
11
2
5
6
4
4
1
1
3
3
1
4
4
8
2
4
4
4
5
8
11
11
1
2
4
1
4
11
2
11
4
7
5
3
3
4
11
11
11
11
7
11
5
11
11
5
11
11
11
13
13
13
12
8
13
9
13
13
13
12
12
13
13
9
12
12
12
10
12
12
10
12
12
12
12
12
13
10
13
13
10
12
12
13
13
12
12
9
12
12
9
12
12
12
11
11
11
7
11
7
6
11
11
11
11
11
7
11
1
7
1
1
7
3
5
7
5
1
3
1
5
2
3
1
1
2
7
3
3
1
11
1
2
7
1
2
6
1
7
12
12
12
13
9
12
10
12
12
12
13
13
12
12
10
13
2
2
6
5
6
6
6
2
5
2
6
3
4
11
11
7
2
2
4
2
3
2
1
4
2
1
5
2
4
9
9
9
9
12
9
13
9
9
9
10
10
9
9
12
10
3
3
11
6
7
11
7
3
6
3
7
1
2
5
5
6
3
7
7
3
2
3
4
3
3
4
3
3
3
10
10
10
10
10
10
12
10
10
10
9
9
10
10
13
9
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
7
3
1
6
6
6
6
6
6
6
5
5
5
7
5
5
5
11
6
6
6
6
6
6
5
5
11
7
7
5
6
6
6
5
7
5
13
12
12
9
13
13
13
9
13
6
4
2
1
5
5
5
1
5
5
6
7
6
6
6
7
6
5
5
5
1
5
5
5
6
6
5
6
6
6
5
5
5
6
6
6
5
5
5
4
6
11
11
4
2
11
2
3
5
7
1
1
5
7
1
7
6
7
5
7
6
7
6
1
1
5
7
1
7
7
7
6
11
11
7
7
7
7
7
11
7
7
6
6
2
7
1
1
2
3
8
8
8
8
8
8
4
8
8
8
8
13
2
8
8
8
8
4
8
4
8
8
8
8
8
8
4
8
8
8
8
8
8
8
8
8
8
4
4
8
8
8
8
8
8
3
7
5
3
1
7
3
3
1
11
1
1
11
1
1
1
1
2
7
3
3
1
11
1
1
1
2
3
3
1
1
1
1
1
3
1
1
2
2
7
1
3
3
7
5
4
6
6
4
2
2
2
4
2
3
2
3
8
2
2
4
2
3
2
2
4
2
3
2
2
2
3
4
4
2
2
2
2
2
4
2
2
3
3
6
2
5
5
6
6
2
11
7
7
3
3
7
7
3
2
3
2
3
3
3
3
3
1
3
7
7
3
2
3
3
3
1
2
2
3
3
3
3
3
2
3
3
1
1
11
3
6
6
11
7
1
5
11
2
4
4
8
2
4
4
4
4
4
4
4
2
4
8
4
8
2
4
4
4
4
4
8
1
1
4
4
4
4
4
1
4
4
8
8
5
4
4
4
5
11
9
9
13
12
12
13
13
12
12
13
13
8
9
13
13
12
13
12
13
13
12
12
13
13
13
13
12
9
9
13
13
13
13
13
9
13
11
7
7
1
11
2
2
1
4
5
1
4
11
11
11
11
11
11
7
11
11
1
11
11
11
11
7
11
11
11
11
7
11
11
11
7
5
5
11
11
11
11
11
5
11
6
11
11
3
5
7
7
3
1
10
10
12
13
13
12
12
13
13
12
12
12
10
12
12
13
12
13
12
12
13
13
12
12
12
12
13
10
10
12
12
12
12
12
10
12
12
13
13
10
12
12
12
10
12
12
12
9
10
10
9
9
10
10
9
9
9
12
9
9
9
9
10
9
9
10
10
9
9
9
9
10
12
12
9
9
9
9
9
12
9
9
10
10
12
9
9
9
12
9
13
13
10
9
9
10
10
9
9
10
10
10
13
10
10
10
10
9
10
10
9
9
10
10
10
10
9
13
13
10
10
10
10
10
13
10
10
9
9
13
10
10
10
13
10
123
124
125
126
127
128
129
130
131
132
133
134
135
136
137
138
139
140
141
142
143
144
145
146
147
148
149
150
151
152
153
13
13
13
9
9
13
13
13
13
13
13
13
9
13
13
9
13
13
13
13
13
12
9
12
12
13
12
12
13
13
8
2
5
6
4
4
2
2
2
6
2
6
6
4
11
2
4
2
6
11
5
2
5
6
7
7
5
1
5
5
5
11
3
7
7
2
2
3
3
3
7
3
7
7
2
1
3
2
3
7
1
7
3
6
11
2
2
1
5
7
1
7
7
8
8
8
8
8
8
8
8
8
8
8
8
8
8
8
8
8
8
8
8
8
4
8
4
4
4
8
8
8
8
13
5
1
1
7
7
5
5
5
1
5
1
1
7
3
5
7
5
1
3
1
5
2
3
1
1
3
3
1
11
1
2
6
2
2
6
6
6
6
6
2
6
2
2
6
5
6
6
6
2
5
2
6
3
4
11
11
2
4
2
3
2
1
7
3
3
11
11
7
7
7
3
7
3
3
11
6
7
11
7
3
6
3
7
1
2
5
5
7
7
3
2
3
4
11
4
4
5
5
11
11
11
4
11
4
4
5
4
11
5
11
4
4
4
11
8
1
8
8
8
2
4
4
4
3
4
11
11
1
1
4
4
4
11
4
11
11
1
2
4
1
4
11
2
11
4
7
5
3
3
11
11
11
7
11
5
1
6
5
3
3
1
1
1
5
1
5
5
3
7
1
3
1
5
7
6
1
11
7
6
6
6
6
6
6
6
6
154
155
156
157
158
159
160
Rj
13
13
8
8
13
12
13
1221
6
5
11
2
5
7
5
958
1
7
7
4
7
2
1
1182
8
8
13
13
8
4
4
1063
7
1
2
6
1
1
3
837
4
2
1
5
2
11
2
905
3
3
4
3
3
5
7
720
2
4
3
7
4
8
8
796
11
11
5
11
11
3
11
1381
5
6
6
1
6
6
6
1381
12
12
12
10
10
12
12
12
12
12
12
12
10
12
12
10
12
12
12
12
12
13
10
13
13
12
13
13
12
12
9
9
9
9
12
12
9
9
9
9
9
9
9
12
9
9
12
9
9
9
9
9
10
12
10
10
9
10
10
9
9
12
10
10
10
13
13
10
10
10
10
10
10
10
13
10
10
13
10
10
10
10
10
9
13
9
9
10
9
9
10
10
10
12
9
10
12
9
10
9
12
10
12
9
10
12
9
10
13
10
9
12
9
10
1465 1274 1377
ANNEXURE- II
Ranks assigned to the suggestions given by JLG members
Ranks
1
2
3
4
5
6
7
8
9
3
8
4
8
1
3
1
4
8
2
6
5
1
1
2
2
5
3
1
3
1
4
8
2
6
5
1
4
5
2
3
8
6
3
3
9
8
4
9
8
1
4
5
6
6
2
1
3
6
4
9
4
9
8
1
4
5
6
6
5
4
5
6
3
4
2
6
3
4
1
2
7
3
3
7
4
7
4
3
7
3
1
2
1
2
7
3
3
7
4
7
3
6
4
4
2
7
1
7
2
3
7
8
3
9
9
4
7
4
6
4
8
2
7
8
7
8
3
9
9
4
7
4
7
8
6
7
1
8
7
9
1
2
8
7
2
6
6
8
3
8
8
9
6
7
8
7
8
7
2
6
6
8
3
8
6
7
7
8
7
2
9
8
7
7
2
3
9
7
8
3
8
3
7
8
1
9
2
3
2
3
9
7
8
3
8
3
8
9
8
2
9
9
6
2
6
9
9
6
1
2
7
9
9
9
9
7
9
8
9
6
9
6
1
2
7
9
9
9
9
3
9
9
6
Beneficiary
Constraints
No
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
1
5
5
5
5
6
4
6
4
1
1
2
5
5
4
4
1
6
4
6
4
6
4
1
1
2
5
1
2
1
1
5
5
4
1
4
6
5
5
5
5
5
2
1
2
3
5
5
4
5
5
5
5
5
5
5
2
1
2
2
1
3
5
4
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
5
5
5
6
4
6
4
1
1
2
1
1
2
5
5
4
4
1
6
4
1
2
2
1
5
5
5
5
6
4
6
4
1
2
1
2
1
2
1
2
5
1
4
6
5
5
5
5
5
2
1
5
2
1
2
3
5
5
4
5
5
2
1
1
5
4
1
4
6
5
5
5
5
5
1
2
1
2
1
2
1
2
4
8
1
3
1
4
8
2
4
5
2
6
5
1
1
2
2
5
3
1
4
5
5
3
8
4
8
1
3
1
4
8
2
5
4
5
4
5
6
5
1
3
9
8
4
9
8
1
4
5
4
4
5
6
6
2
1
3
6
4
9
5
4
4
6
3
3
9
8
4
9
8
1
4
4
5
4
5
4
5
6
6
6
3
4
1
2
7
3
3
3
6
3
7
4
7
4
3
7
3
1
2
3
6
6
4
2
6
3
4
1
2
7
3
3
6
3
6
3
6
7
4
7
7
2
3
7
8
3
9
9
7
8
9
4
7
4
6
4
8
2
7
8
7
8
8
7
1
7
2
3
7
8
3
9
9
8
7
8
7
8
4
7
4
9
1
2
8
7
2
6
6
6
7
6
8
3
8
8
9
6
7
8
7
6
7
7
8
7
9
1
2
8
7
2
6
6
7
6
7
6
7
8
3
8
8
7
7
2
3
9
7
8
8
9
8
3
8
3
7
8
1
9
2
3
8
9
9
2
9
8
7
7
2
3
9
7
8
9
8
9
8
9
3
8
3
2
6
9
9
6
1
2
7
9
3
7
9
9
9
9
7
9
8
9
6
9
3
3
9
6
2
6
9
9
6
1
2
7
3
9
3
9
3
9
9
9
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
5
4
4
1
6
4
1
2
1
2
5
5
5
5
6
4
6
4
1
1
2
1
2
1
1
2
5
5
4
4
1
6
4
1
2
1
2
5
5
5
5
3
5
5
4
5
5
2
1
2
1
4
1
4
6
5
5
5
5
5
2
1
2
1
5
2
1
2
3
5
5
4
5
5
2
1
2
1
4
1
4
6
1
2
2
5
3
1
4
5
4
5
8
4
8
1
3
1
4
8
2
4
5
4
5
2
6
5
1
1
2
2
5
3
1
4
5
4
5
8
4
8
1
2
1
3
6
4
9
5
4
5
4
3
3
9
8
4
9
8
1
4
5
4
5
4
4
5
6
6
2
1
3
6
4
9
5
4
5
4
3
3
9
8
4
3
7
3
1
2
3
6
3
6
2
6
3
4
1
2
7
3
3
3
6
3
6
3
7
4
7
4
3
7
3
1
2
3
6
3
6
2
6
3
4
6
4
8
2
7
8
7
8
7
8
1
7
2
3
7
8
3
9
9
7
8
7
8
9
4
7
4
6
4
8
2
7
8
7
8
7
8
1
7
2
3
8
9
6
7
8
7
6
7
6
7
7
9
1
2
8
7
2
6
6
6
7
6
7
6
8
3
8
8
9
6
7
8
7
6
7
6
7
7
9
1
2
7
8
1
9
2
3
8
9
8
9
9
8
7
7
2
3
9
7
8
8
9
8
9
8
3
8
3
7
8
1
9
2
3
8
9
8
9
9
8
7
7
9
7
9
8
9
6
9
3
9
3
6
2
6
9
9
6
1
2
7
9
3
9
3
7
9
9
9
9
7
9
8
9
6
9
3
9
3
6
2
6
9
115
116
117
118
119
120
121
122
123
124
125
126
127
128
129
130
131
132
133
134
135
136
137
138
139
140
141
142
143
144
145
146
147
148
149
150
151
152
153
154
155
6
4
6
4
1
1
2
1
2
1
2
5
5
5
5
6
4
6
4
1
1
1
2
1
1
1
5
5
5
5
6
4
6
4
1
1
1
2
5
5
4
5
5
5
5
5
2
1
2
1
2
1
4
1
4
6
5
5
5
5
5
2
2
1
5
5
5
4
1
4
6
5
5
5
5
5
5
2
1
2
3
5
3
1
4
8
2
4
5
4
5
4
5
8
4
8
1
3
1
4
8
2
4
4
5
2
2
3
8
4
8
1
3
1
4
8
2
2
6
5
1
1
2
4
9
8
1
4
5
4
5
4
5
4
3
3
9
8
4
9
8
1
4
5
5
4
4
4
6
3
3
9
8
4
9
8
1
4
4
5
6
6
2
1
1
2
7
3
3
3
6
3
6
3
6
2
6
3
4
1
2
7
3
3
3
3
6
3
3
4
2
6
3
4
1
2
7
3
3
3
7
4
7
4
3
7
8
3
9
9
7
8
7
8
7
8
1
7
2
3
7
8
3
9
9
7
7
8
9
9
7
1
7
2
3
7
8
3
9
9
9
4
7
4
6
4
8
7
2
6
6
6
7
6
7
6
7
7
9
1
2
8
7
2
6
6
6
6
7
6
6
8
7
9
1
2
8
7
2
6
6
6
8
3
8
8
9
2
3
9
7
8
8
9
8
9
8
9
9
8
7
7
2
3
9
7
8
8
8
9
8
8
2
9
8
7
7
2
3
9
7
8
8
3
8
3
7
8
9
6
1
2
7
9
3
9
3
9
3
6
2
6
9
9
6
1
2
7
9
9
3
7
7
9
6
2
6
9
9
6
1
2
7
7
9
9
9
9
7
156
157
158
159
160
4
1
6
1
2
5
4
5
2
1
2
5
3
4
5
3
6
4
5
4
7
3
1
3
6
8
2
7
7
8
6
7
8
6
7
1
9
2
8
9
9
8
9
9
3
Rj
535
565
614
793
633
978
994
1034
1044