Happy New Year 2009

Every journey is an enlightening experience, an Ithaca in itself. These are but our sentiments as we reflect back on our brief association with you all for the blog http://microfinancenewz.blogspot.com/

In our endless pursuit to learn, understand, and suitably contribute to the blog, we have tried to comprehend and analyse things (within our limitations) as well as we could to make this blog as the most read on microfinance.

In the process we were helped by many without whose contributions it would have been difficult to get things in its right perspective. We are thankful to them (Amit, Prabhash, Vaibhav, Praveen, Shravan, & Rahul) and shall remain indebted to them.

The role of important and relevant postings is sine-qua-non for any blog to successfully prosper. We would like to thank all the contributors for faring so well in this respect. We would like to mention special gratitude towards all the visitors(Special thanks to Deepak, Nikhil, & Kalpana) for the huge response they have shown in the brief period of association in this regard.

Bihar Development Trust: A noble Initiative

Bihar Development Trust (BDT) follows Grameen model. BDT forms 5 women joint liability groups and federate it in center of 4-8 groups. These women save Rs.10 every BDTek. These women are eligible for loan up to Rs.8000 @18% per annum. have formed 400 women groups this year. BDT have disbursed Rs.43, 00,000 and outstanding of Rs.25, 00,000. BDT has disbursed loans to 600 women borrowers. Last year, BDT had disbursed Rs.85, 000 to 17 women. Our Microfinance programme has been supported by

Friends of Women World Banking, Ahmedabad

Rashtriya Gramin Vikas Nidhi, Patna

BASICS, Hyderabad

Trust Microfin Network, Lucknow

Indian Bank

SIDBI

SBI, Union Bank of India, AXIS Bank, Bank of India, UCO Bank, Corporation Bank, HDFC Bank, and MSDF will be our new partners in 2009 probably.

BDT plans to disburse to Rs. 50,000,000 to 5000 women borroBDTrs in 2009 calendar year with an outreach of 10000 members.

TUSSER SILK BDTAVERS LIVELIHOOD

BDT has organized 50 BDTavers of Lodipur Village in Nathnagar, Bhagalpur in producer company model. They have elected a director for the board of company. The producer company has been formed under unique partnership arrangement betBDTen BDTavers, BDT and Community Friendly Movement.

• BDT has supplied Rs.300, 000 worth silk stoles to Community Friendly Movement, Delhi.
• BDT has supplied 250 conference bags to IIMA.
• BDT has supplied 10 silk sarees with madhubani and manjusha painting on it to Kamdhenu Trust.
• BDT will be developing a production facilitation center which has dying, calendaring, ironing and packaging facilities at Lodipur village.

BDT will be targeting high end premium market of Delhi. Our Sarees are handmade and have customized folk painting depicting Ramayana and Mahabharata episodes. They are BDTaved to order only. It takes around 15 days to BDTave a saree. They cost in range of Rs.10000 and above.

FORD Foundation, Sir Dorab Ji Tata Trust and BASICS have shown interest in supporting this initiative. BDT hope to support 1000 BDTavers' livelihood in next two years.

FLOOD RELIEF

BDT did the flood relief work in Kharik Block, Naugachiya in Sep 2008. Around 11000 people BDTre supported with food grains and clothes with the support of CARE TODAY and concerned individuals. Our work was covered in INDIAN TODAY and AAJTAK.

DAIRY

It will be our new initiative in year 2009. BDT plan to supply milk to Kolkata market to institutional players. BDT will be creating a producer company. BDT will be setting up procurement centers and chilling plant. BDT will be financing 1000 buffalos with help of local cooperative banks and SBI.

BDT hopes to repeat what certain AMUL did 60 years ago linking Anand to Bombay Market. BDT will be linking Bhagalpur to Kolkata. BDT are planning to win over all possible obstacles and do it. BDT plan to link Patna and Bhagalpur under a milk route.

MANAGEMENT

BDT has been formed by two guys from IRMA and one guy from IMI New Delhi. BDT is now two year old in Bihar. Currently, BDT has a team of 22 people and volunteers. BDT has streamlined Microfinance operations and planning to scale it up in 2009. BDT is reaching around 3000 families with our initiatives.

SUPPORT US

In 2007 and 2008, more than 60 individuals have supported us with Rs.630, 000 in donations and BDT has returned Rs.40000 back to individuals. BDT need funds .Your funds will be returned to you after using it for 1-2 years. BDT need your BDTll wishes to make Bihar the most developed state of India. Please contact us on 9431609939 and 9470017752. All news are updated on http://www.bihardev.pbwiki.com/

BDT need networking support as BDTll as introduction to managers in public sectors banks in Bihar as BDTll as in all metros of India. BDT need phone numbers of DGM rank officers handling rural business on India in banks like SBI, UCO Bank, Corporation Bank, Bank of India, Indian Bank, Union Bank of India, Central Bank of India, IDBI Bank, HDFC Bank, Punjab National Bank etc.

BDT is thankful to people all over India and world who have supported this noble initiative for economic development of BIHAR. Without individual support from people all across Bihar, India and world, Bihar Development Trust cannot succeed. BDT will make you proud of your role in growing Bihar Development Trust. BDT need lot of mentoring and guidance to emerge as the most successful community based BDTalth creating organisation like AMUL.

India Needs Game Changer in Microfinance

SOURCE: BUSINESS TODAY

NANCY BARRY IS THE EX-HEAD OF THE WORLD Bank’s Global Industry Development Group and former President of Women’s World Banking. Over the last two years, Barry has built Enterprise Solutions to Poverty (ESP), which engages industry leaders and entrepreneurs in building inclusive growth strategies, both in India and other emerging markets. Forbes magazine has recognized her as one of the world’s most powerful women and U.S. News & World Report has dubbed her as one of America’s top 20 leaders. Here, Nancy shares her concerns about the evolution of the microfinance industry in India: The outreach that the Indian microfinance industry has achieved, through both the microfinance institutions (MFIs) and the Bank-Self Help Group (Bank-SHG) linkage model over the last 10 years, is impressive. Today, over 50 million poor women have access to very small loans. I believe this is the main accomplishment of the Indian microfinance sector over the last 10 years. However, there are issues that underly this accomplishment. First, both India and Bangladesh have problems rooted in the near exclusive reliance on group lending. The structures built are yielding tiny loans to millions of poor women and are not being leveraged to provide other financial products that build income and assets. Group lending is very powerful as a “startup” product, particularly for poor women, because it has built into it an empowerment component, a community component and a social component. The problem is that the SHG and Grameen-type group lending models have been used only to make very small loans. These groups involving 50 million poor women in India are organs that could be used to provide vital savings services, insurance services and housing finance. None of this has been done. The focus on microcredit—not microfinance— has been a very limited, superficial use of national grassroots outreach structures. Today, most Indian microfinance institutions are becoming loan dispensers, rather than financial intermediaries for the poor. Part of the problem lies with the group lending model in which group organisers are not comfortable making growth oriented loans or providing a range of savings, insurance and other financial products. Part of the problem also rests with the NBFC legal structure that many microfinance institutions have chosen, which does not enable MFIs to mobilise broad-based savings as a service or as a source of funds. As a result, MFIs have relied increasingly on foreign equity sources to fuel growth. Most of the foreign equity sources have no interest or capabilities in supporting MFIs in diversifying their product offerings to poor clients; rather, these sources increase the pressure on MFIs to make short term profits by focusing on dispensing more small loans. So, group lending business models keep the loans small, and legislation, MFI capabilities and the short-term profit push keep the
focus on microcredit. Also, some of the leading MFIs have moved the focus on building livelihoods to a mentality of a consumer lender, asking how much of the poor family’s purse or wallet they can gain by providing loans and consumer goods. What India needs are some game changers in microfinance, not more or bigger loan dispensers, fuelled by external funding. These game
changers will learn from SEWA Bank and BASIX and scale up some of the positive lessons of these grounded organisations. Enterprise Solutions to Poverty has engaged leading companies in India—including Tata, Reliance, ITC and Mahindra—as well as some emerging entrepreneurs— such as FabIndia, ICICI Foundation and SELCO. These companies are paving the way in mobilising large numbers of poor people as suppliers, distributors and consumers of asset building products. ESP has mobilised over 150 of the leading companies and emerging entrepreneurs of India, China, Mexico, Colombia, and most recently, in Brazil and Kenya. We are supporting these companies in building profitable and inclusive growth strategies geared to doubling the income and assets of over 50 million poor people by 2012.

Sa-Dhan’s Voluntary Mutual Code of Conduct for its Member MFIs

Source: Sa-Dhan, 2007. Core Values and Voluntary Mutual Code of Conduct for Micro Finance Institutions


In January 2007, Sa-Dhan issued a voluntary mutual code of conduct applicable to all the categories of member microfinance institutions.
Objectives

The member institutions agree to promote and strengthen the micro finance movement in the country by bringing the low income clients to the mainstream financial sector. They also agree to build progressive, sustainable and client centric micro finance institutions in the country to provide integrated financial services to the clients. Their aim should be to promote co-operation and co-ordination among micro finance institutions and other agencies to achieve higher operating standards and avoid unethical competition in order to serve the clients better.

Integrity

The member institutions agree to:

i) Act honestly, fairly and reasonably in conducting micro finance activities.
ii) Conduct micro finance activities by means of fair competition, not seeking competitive advantages through illegal or unethical micro finance practices. No officer, employee, agent or other person acting on their behalf shall take unfair advantage of anyone by manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair practice.
iii) Prominently display the core values and code of conduct on the notice board of head office and all branches and put systems in place to ensure compliance.
iv) Ensure that their staff and all persons acting for them or on their behalf, are trained or oriented to put these values into practice.


Transparency

The member institutions agree to:

i) Disclose to clients all the terms and conditions of the financial services offered in the language understood by the client.
ii) Disclose the source of funds, costs of funds and use of surpluses to provide truthful information to clients.
iii) Provide information to clients on the rate of interest levied on the loan, calculation of interest (monthly/ quarterly/half-yearly), terms of repayment and any other information related to interest rates and other charges.
iv) Provide information to clients on the rate of interest offered on the thrift services provided.
v) Provide information to clients related to the premium and other fees being charged on insurance and pension services offered as intermediaries.
vi) Provide periodical statements of the MFI’s accounts to the clients.
Fair Practices

Member institutions are committed to follow fair practices built on dignity, respect, fair treatment, persuasion and courtesy to clients. Member institutions agreed to:

i) Provide micro finance services to low income clients irrespective of gender, race, caste, religion or language.
ii) Ensure that the services are provided using the most efficient methods possible to enable access to financial services by low income households at reasonable cost.
iii) Recognise their responsibility to provide financial services to clients based upon their needs and repayment capacity.
iv) Promise that, in case of loans to individual clients below Rs. 25,000, the clients shall not be asked to hand over original land titles, house pattas, ration cards, etc., as collateral security for loans, except when obtaining copies of these for fulfilling “know your customers” norms of the Reserve Bank. Only in case of loan to individual clients of Rs 25,000 and above can obtain land titles, house pattas, vehicle RC books, as collateral security.
v) Interact with the clients in an acceptable language and dignified manner and spare no efforts in fostering clients’ confidence and long-term relationship.
vi) Maintain decency and decorum during the visit to the clients’ place for collection of dues.
vii) Avoid inappropriate occasions such as bereavement in the family or such other calamitous occasions for making calls/visits to collect dues.
viii) Avoid any demeanour that would suggest any kind of threat or violence.
ix) Emphasise using social collateral which includes various forms of peer assurance such as lending through groups and group guarantees at the village, hamlet or neighbourhood level, or guarantees by relatives, friends, neighbours or business associates; and explain clearly to clients what the obligations of social collateral are.


Governance

i) Observe high standards of governance, ensuring fairness, integrity and transparency by inducting persons with good and sound reputation, as members of board of directors. The MFI should ensure that the majority of the directors are independent directors and/or duly elected representatives of the community served, and that the board would be involved in all policy formulation and other important decisions.
ii) Ensure transparency in the maintenance of books of accounts and reporting/ presentation and disclosure of financial statements by qualified auditor/s.
iii) Put in the best efforts to follow the Audit and Assurance Standards issued by the Institute of Chartered Accountants of India (ICAI).
iv) Place before the board of directors, a compliance report indicating the extent of compliance with this voluntary mutual code of conduct, specifically indicating any deviations and reasons therefore, at the end of every half financial year.

Feedback/ Grievance Mechanisms

i) Establish effective and efficient feedback mechanism.
ii) Take steps to correct any errors and handle complaints speedily and efficiently. Wherever a complainant is not satisfied with the outcome of the investigation into her complaint, she should be notified of her right to refer the matter to the Ethics and Grievance Redressal Committee constituted by Sa-Dhan.

Change in regulatory focus in respect of NBFC

Source: Report on trend and progress of Banking in India 2007-08

Reserve Bank of India has brought up changes in the regulatory focus in respect of protecting the interests of the depositors.

Basics of Microfinance

What is microfinance?

Microfinance began as a financial system to provide poor families with very small loans (micro-credit) to help members sustain income-generating activities. Micro-credit came to fore-front in the 1970s, through the efforts of Mohammad Yunus, a microfinance pioneer and founder of the Grameen Bank of Bangladesh.
The definition of microfinance has since broadened, and includes savings, insurance, and money transfer vehicles; the industry has realized that those who do not have access to traditional formal financial institutions actually require and desire a variety of financial products.
Micro-credit has largely been directed by the non-profit sector, but recently we see, the emergence of “for-profit” MFIs. In India, these ‘for-profit’ MFIs are referred to as Non-Banking Financial Companies (NBFCs).

What is a Microfinance Institution (MFI)?

A microfinance institution is an organization that offers financial services to low income populations. Almost all give loans to their members, and many offer insurance, deposit and other services. Various types of institutions offer microfinance: NBFCs, NGOs, cooperatives, private commercial banks and sectors of government banks.
Some NGOs offer micro-credit as one slice amongst a host of non-financial development activities. MFIs opted instead to focus solely on microfinance, to develop the most efficient and effective mechanisms to deliver finance strength to the poor.
How does microfinance help the poor?

Microfinance plays an important role in fighting the multi-dimensional aspects of poverty. Microfinance increases household income, which leads to attendant benefits: increased food security, the building of assets, and an increased likelihood of educating one’s children.
Microfinance is also a means for self-empowerment. It enables the poor, especially women, to become economic agents of change - they increase income, become business-owners and reduce their vulnerability to external dependence.

When is microfinance not an appropriate tool?

Micro-credit is best-suited to those with entrepreneurial capability and opportunity. This translates to those poor who work in growing economies, and who can undertake activities that generate weekly stable incomes. Microfinance is inclusive of a much larger range of clients.
However, many poor do not fit within the current structure of microfinance. One reason for this is extremely poor people (destitute and homeless) lack a stable income. Without a stable income, it is difficult to make the weekly repayments that micro-credit requires. Credit requires a 98% “hit” rate to be successful, as high default rates undermine the very principles of lending.

Why do MFIs charge such high interest rates to poor people?

Micro Finance Industry is different in the sense, it meets the Customer in the Door step itself and serve them. The Training, on-site collection and weekly meetings are all cost to the Micro Finance institutions which adds up to the operations cost. Banks charge anywhere from 12 to 13.50 % interest and with this direct service costs to companies, Micro Finance institutions are forced to charge from 20 to 25 % to customers.

How do you know microfinance is making an impact?

Microfinance has gained popularity for several reasons. One, it is a much better alternative than the informal financial sector. In India for example, moneylenders charge rates of 36-72%. Secondly, members realize the value of assured long-term access to credit.
This access to finance allows women to increase income, which benefits the entire household. How do we know this? Our return on investment (ROI) calculations demonstrate that most borrowers earn anywhere from 25%-200% more than the interest rate charged, due to low infrastructure costs, no tax or legal costs, and the overall capital cost that is just a small percentage of the total cost.

Why doesn’t NBFC based MFI allow members to save?

Majority of the MFI being a Category “B” registered NBFC, RBI does not allow Category “B” companies to invite Deposits.

Why do you only lend to women?

Social development studies have demonstrated that women are much more likely to reinvest income into the household, for the benefit of the entire family.
Can microfinance be profitable?

Yes it can, as the report demonstrates.

Data from the Micro-Banking Bulletin reports that 63 of the world's top MFIs had an average rate of return, after adjusting for inflation and after taking out subsidies programs might have received, of about 2.5% of total assets. This lends to the hope that microfinance can be sufficiently attractive for investors, as well as the mainstream into the retail banking sector.

Reserve Bank Survey on MFI

In order to have a better understanding of the working of MFIs, regional offices of the Reserve Bank carried out a survey of MFIs operating in their areas of jurisdiction in November-December 2007. The objective of the study was to gain an insight into the activities of MFIs, especially in rural areas, to assess the financial services needs of the rural households and the informal products and processes that currently meet these needs. The study was aimed at gaining a better understanding of the operations of the MFIs and explore the possibility of linkages with banks resulting in extending banking outreach to the poor. In all, 77 MFIs were surveyed in the States of Karnataka, Orissa, Andhra Pradesh, Madhya Pradesh, Bihar, West Bengal, Kerala, Maharashtra, Rajasthan and Tamil Nadu. The survey was carried out through the lead district officers (LDOs) who held discussions with officials of district administration, branch managers, borrowers and MFIs.

The survey revealed that MFIs were adopting various models for micro finance such as through the SHGs, Grameen model/joint liability groups (JLGs) model, individuals as well as through cluster associations of the SHGs. The loan range varied widely across MFIs and across states. The loan range also varied across individuals and across SHGs. For individuals the loans ranged from as low as Rs.1,000 to Rs.20,000. For the SHGs, the range was between Rs.30,000 to Rs.2 lakh. The number of clients served by the MFIs varied significantly across the States and ranged from as low as 79 to more than 100,000. The average loan range per client was between Rs.4,000 to Rs.5,000 for individuals and between Rs.60,000 to Rs. 1.3 lakh for the SHGs. Majority of the loans given by the MFIs in the surveyed States were for work or occupation related purposes.

Occupation related loans ranged from 46 to 100 per cent of the total loans in most of the states. This was followed by other purposes like consumption, social events, health, travel and education. The duration of the loans ranged from 6 to 20 months. The interest rates charged by the MFIs were not uniform and varied widely across MFIs and across states. While some MFIs charged flat rates of interest, others charged diminishing rates. The flat rates ranged between 10-14 percent and the diminishing rates ranged between 10-27 percent. Besides, many MFIs charged flat processing fee in the rage of 1 to 1.5 per cent. Apart from the loans, some of the MFIs offered other services such as health insurance and life insurance. In many cases, asset insurance was compulsory, especially when it related to loans for animal husbandry. Almost all the MFIs reported good recovery percentage of the loans, i.e., more than 90 per cent. Most of the borrowers also reported that the MFIs adopted fair practices for recovery. The MFIs have a close monitoring system which ensures that there are minimum defaults. Only a few MFIs were providing performance related incentives to their staff.

Some of the parameters used for providing the incentives were:
(i) business turnover;
(ii) maintenance of clientele (low customer drop out rate);
(iii) reaching the annual target about number of customers;
(iv) recovery performance;
(v) percentage of insurance coverage; and
(vi) loan utilisation.

Only in the States of Karnataka and Andhra Pradesh, MFIs reported that the money lending legislations were applicable to them. In other States the MFIs reported that they were not bound by the money lending legislations. Almost in all States surveyed, the enforceability of money lending legislation was very poor. Commercial banks remained the most important source of funds for almost all the MFIs. Some of the MFIs also received funds from other financial and developmental institutions and donor agencies. The survey attempted to find out what additional support the MFIs expected from banks.
Some of the suggestions and expectations were:

(i) low interest loans;
(ii) loans for operational and infrastructure expenses;
(iii) flexible banking products;
(iv) continuous lending support;
(v) better customer service;
(vi) simplified access;
(vii) capacity building by banks;
(viii) IT and EDP support;
(ix) sharing establishment costs; and
(x) training.

Almost all the MFIs were willing to work as business correspondents (BC) of banks. One MFI however suggested that it was unwilling to work as a BC because it would lose focus on its core activity. Another MFI was unwilling to work as a BC because of the stringent conditions stipulated by banks for their BCs. In most of the States surveyed, district administration was not maintaining the details of MFIs in the district as it was not compulsory. Furthermore, there were only very few complaints against the MFIs received by the district administration. In Krishna district in Andhra Pradesh there were complaints against MFIs for charging high rates of interest and forcible loan recovery. In Madhya Pradesh also there were some complaints pertaining to high interest rates. The survey also attempted to obtain the response of clients with respect to the ease of availing loans from MFIs. Most of the borrowers surveyed reported that it was easy or a easy to get a loan from MFIs. Almost all the bank branch managers opined that MFIs were good customers of banks and they could be used as business facilitators or correspondents.

Recommendations of Rangarajan Committee on Micro Insurance

The Committee on Financial Inclusion (Chairman: Dr. C. Rangarajan), which submitted its report in January 2008, observed in its report that micro insurance should provide greater economic and psychological security to the poor as it reduces exposure to multiple risks and cushions the impact of a disaster. Micro insurance in conjunction with micro savings and micro credit could go a long way in keeping this segment away from the poverty trap and would truly be an integral component of financial inclusion.

The Committee suggested that in order to economise on costs and to increase the outreach of micro insurance to the poor, the insurers need to utilise existing Government organisations and NGOs, having greater acceptability among the financially excluded. In the opinion of the Committee, there is a need to emphasise linking of micro credit with micro insurance. Further, as it helps in bringing down the inherent risk cost of lending, NABARD should be regularly involved in issues relating to rural and micro insurance to leverage on its experience of being a catalyst in the field of micro credit. The Committee suggested that the technology platforms being envisaged to facilitate financial inclusion should enable micro insurance transactions also.
Towards this end, according to the Committee, there is a need to integrate the various modules - savings, credit, insurance, etc. - into the technology framework so that holistic inclusive efforts are possible in the rural areas.

The Committee observed that there are a large number of group life and health insurance schemes which are run by various central ministries and State Governments. The level of actual coverage in terms of claims preferred and settled in such schemes is disturbingly low. These schemes should be reviewed by an expert group set up by the Insurance Regulatory and Development Authority (IRDA).

Making specific recommendations about various insurance schemes available, the Committee observed that a wide range of products are available in life insurance category but penetration is really limited in rural areas. The procedural requirements at the time of entry and in case of claims settlement are cumbersome. The commission structure for agents is also heavily weighed in favour of getting new policies with very little incentive to service existing policies. In this regard, Micro Insurance
Guidelines (MIG) 2005 issued by IRDA has provided for equal commission throughout the life of a policy and this will now remove the disincentive in servicing existing policy holders.

As far as health insurance is concerned, the Committee observed that its penetration level was even much lower than life insurance. The two categories viz., critical illness and hospitalisation are the main product segments. Some State Governments have developed health insurance schemes which are still in very early stages. The Committee has recommended mutual health insurance models as a better alternative to the take care of existing situation. As regards crop insurance, the committee recommended that policies be evolved to make crop insurance universal, viz., applicable to all crops/regions and pricing actuarial. About asset insurance the Committee again recommended that involving local NGOs, MFIs and SHGs, among others, as distribution channels as well as facilitators of claims settlements would be quite useful.

Big Microfinance Players taking over clients of smaller players

Source: Live Mint

Mumbai: SKS Microfinance Pvt. Ltd, a non-banking finance company (NBFC) that operates in the microfinance space, is acquiring customers of smaller firms in the business that are finding it difficult to lend as they have no money.Microfinance refers to the business of lending money to poor or low-income clients. SKS founder and chief executive officer Vikram Akula sees consolidation in the industry as the liquidity crunch intensifies. Early this month, SKS raised $75 million (more than Rs375 crore today) from Sandstone Capital Llc.—the largest private equity investment in microfinance, globally. According to Akula, small and medium microfinance institutions (MFIs) are finding it difficult to raise funds. “In the current environment, capital is flowing to quality and this is affecting the small and medium MFIs,” he said. However, Mint could not independently verify this. “Banks are lending only to large MFIs. We are in a strong position. We are holding discussions with MFIs who are facing strain and helping them by taking over their clients,” said Akula. According to him, many small players may have to close shop as they have no money to lend. “In the next one year, we would see lesser number of MFIs,” Akula said. There are about 1,000 MFIs in India and close to 90% of these serve less than 10,000 clients each, according to a recent industry study. SKS caters to the needs of 3.4 million consumers through its 1,500 branches. Currently, microcredit extended by MFIs in India stands at $5 billion while the demand for microcredit in the country is $55 billion, said a recent World Bank report Maturing of Indian Microfinance. Akula said that the Reserve Bank of India (RBI) should permit NBFCs to act as business correspondents to enable credit penetration. RBI’s guidelines on business correspondents allow banks to use MFIs to market their deposit and loan products, but NBFCs are not allowed to do so. “The business correspondent restriction should be applied to NBFCs owned by banks and not for MFI-NBFCs. The loan ticket size can also be restricted to Rs25,000,” Akula said.

Bihar Development Trust: A noble Initiative

Bihar Development Trust (BDT) follows Grameen model. BDT forms 5 women joint liability groups and federate it in center of 4-8 groups. These women save Rs.10 every BDTek. These women are eligible for loan up to Rs.8000 @18% per annum. have formed 400 women groups this year. BDT have disbursed Rs.43, 00,000 and outstanding of Rs.25, 00,000. BDT has disbursed loans to 600 women borrowers. Last year, BDT had disbursed Rs.85, 000 to 17 women. Our Microfinance programme has been supported by

· Friends of Women World Banking, Ahmedabad

· Rashtriya Gramin Vikas Nidhi, Patna

· BASICS, Hyderabad

· Trust Microfin Network, Lucknow

· Indian Bank

· SIDBI

SBI, Union Bank of India, AXIS Bank, Bank of India, UCO Bank, Corporation Bank, HDFC Bank, and MSDF will be our new partners in 2009 probably.

BDT plans to disburse to Rs. 50,000,000 to 5000 women borroBDTrs in 2009 calendar year with an outreach of 10000 members.

TUSSER SILK BDTAVERS LIVELIHOOD

BDT has organized 50 BDTavers of Lodipur Village in Nathnagar, Bhagalpur in producer company model. They have elected a director for the board of company. The producer company has been formed under unique partnership arrangement betBDTen BDTavers, BDT and Community Friendly Movement.

· BDT has supplied Rs.300, 000 worth silk stoles to Community Friendly Movement, Delhi.

· BDT has supplied 250 conference bags to IIMA.

· BDT has supplied 10 silk sarees with madhubani and manjusha painting on it to Kamdhenu Trust.

BDT will be developing a production facilitation center which has dying, calendaring, ironing and packaging facilities at Lodipur village.

BDT will be targeting high end premium market of Delhi. Our Sarees are handmade and have customized folk painting depicting Ramayana and Mahabharata episodes. They are BDTaved to order only. It takes around 15 days to BDTave a saree. They cost in range of Rs.10000 and above.

FORD Foundation, Sir Dorab Ji Tata Trust and BASICS have shown interest in supporting this initiative. BDT hope to support 1000 BDTavers' livelihood in next two years.

FLOOD RELIEF

BDT did the flood relief work in Kharik Block, Naugachiya in Sep 2008. Around 11000 people BDTre supported with food grains and clothes with the support of CARE TODAY and concerned individuals. Our work was covered in INDIAN TODAY and AAJTAK.

DAIRY

It will be our new initiative in year 2009. BDT plan to supply milk to Kolkata market to institutional players. BDT will be creating a producer company. BDT will be setting up procurement centers and chilling plant. BDT will be financing 1000 buffalos with help of local cooperative banks and SBI.

BDT hopes to repeat what certain AMUL did 60 years ago linking Anand to Bombay Market. BDT will be linking Bhagalpur to Kolkata. BDT are planning to win over all possible obstacles and do it. BDT plan to link Patna and Bhagalpur under a milk route.

MANAGEMENT

BDT has been formed by two guys from IRMA and one guy from IMI New Delhi. BDT is now two year old in Bihar. Currently, BDT has a team of 22 people and volunteers. BDT has streamlined Microfinance operations and planning to scale it up in 2009. BDT is reaching around 3000 families with our initiatives.

SUPPORT US

In 2007 and 2008, more than 60 individuals have supported us with Rs.630, 000 in donations and BDT has returned Rs.40000 back to individuals. BDT need funds .Your funds will be returned to you after using it for 1-2 years. BDT need your BDTll wishes to make Bihar the most developed state of India. Please contact us on 9431609939 and 9470017752. All news are updated on www.bihardev.pbwiki.com

BDT need networking support as BDTll as introduction to managers in public sectors banks in Bihar as BDTll as in all metros of India. BDT need phone numbers of DGM rank officers handling rural business on India in banks like SBI, UCO Bank, Corporation Bank, Bank of India, Indian Bank, Union Bank of India, Central Bank of India, IDBI Bank, HDFC Bank, Punjab National Bank etc.

BDT is thankful to people all over India and world who have supported this noble initiative for economic development of BIHAR. Without individual support from people all across Bihar, India and world, Bihar Development Trust cannot succeed. BDT will make you proud of your role in growing Bihar Development Trust. BDT need lot of mentoring and guidance to emerge as the most successful community based BDTalth creating organisation like AMUL.

What led to financial crisis?

Unitus, the world leading PE player, describes what led to financial crisis. It describes the role of different palyers like central banks, investment banks, rating agencies etc.

Business Standard Says..

I always believe that as in Urban market, their is a scope for multiple micro credit institution to co-exist in Rural India. Rural India might not start shining, by initiatives like Pragati Bandhus, but in a state like Karnataka, where Farmer suicide is happening all the time, will certainly benefit from this.

A report on the Microfinance initiatives in Bihar

Bihar: Socio-economic and Banking profile

Bihar is a poor state with a huge deficit in institutions providing credit. The poverty ratio in Bihar is 42.5% which is very high in comparison to Pan India’s poverty ratio of 26%.

Socio-economic Profile	Bihar	India
Population	83 million	1029 million
Poverty ratio	42.56%	26%
Overall literacy rate	47.50%	65.20%
SC population	15.70%	16.20%
ST population	0.90%	8.20%
Avg. land holding	0.75 ha	1.57 ha
Human development index	0.367	0.472
Infrastructure development index	91.31	100

* Source:Census of India 2001, HDR 2001

Banking Network in Bihar*	Bihar	India
Total number of bank branches (Including RRBsand Co-operative Banks)	3735	73,836***
Bank branch per ‘000 population	25	16
Credit Deposit ratio	33.48 %	74.2 %#
Total number of new SHG Bank A/cs opened in 2007-08	6,873	NA
Total number of new SHG Bank credit linkages in 2007-08**	19,370	5,52,992
SHG savings with banks @	505.96 million (as on 31.3.2008)	35,127 million (as on 31.3.2007)
Total amount disbursed during 2007-08 under SHG- Bank linkage **	Rs. 1127.5mn	Rs. 42,275mn

*Source: 24th SLBC Review Meeting Report, 31st March 2008 ** Source: NABARD@ SLBC meeting July 2008 and Microfinance State of the Sector Report 2008

*** Bihar Economic Survey 2006-07, Govt. of Bihar.# RBI press release on 18 July 2008.

The Regional Skew: Microfinance penetration in selected states of India

The microfinance penetration in Bihar is a meager 0.3, which is even lesser then Punjab and Haryana, which are the comparatively prosperous states of India. The table below clearly shows that Microfinance institutions are largely skewed in Southern India.

State	MPI*	MPPI**
Andhra Pradesh	3.03	5.27
Karnataka	2.15	2.27
Tamil Nadu	2.18	2.66
Kerala	1.29	2.36
Bihar	0.3	0.2
Haryana	0.13	0.26
Punjab	0.08	0.27

*The intensity of penetration of microfinance (MPI) was computed by the dividing the share of the state in microfinance clients by the share of the state in population.

**MPPI was derived by dividing the share of the state in microfinance clients by the share of the state in population of poor.

Current Status of Microfinance: MFI Outreach in Bihar

Microfinance need to be taken professionally. The performance of NBFC based MFIs have shown the outstanding results in India. In Bihar too, majority of the NBFCs like SKS Microfinance, Casphor, ASSEFA have doubled their client base in a year.

Name of the organization	Year of start of operations	Legal Status	Total no. of Districts	Number of clients
SKS (Bihar)	2005	NBFC	33	84,444
Cashpor (Bihar)	1997	NBFC	4	70,621
ASSEFA (Bihar)	2005	NBFC	3	40,000
NIDAN	1996	SOCIETY	6	18,508
Gramin Jan Kalyan Parishad	2005	SOCIETY	1	12,602
Jan Jagaran Evam Punarwas Sansthan	2003	SOCIETY	2	3,070
Trust Microfin Services	1999	TRUST	2	2,812
Nav Jagriti	2002	SOCIETY	2	2,250
Mass care International	2003	SOCIETY	5	1,200
CDOT	2007	SOCIETY	1	580
Batika	2007	SOCIETY	2	300
Boarddev	1999	SOCIETY	2	296
Bihar Development Trust	2007	TRUST	2	200
Estimated TOTAL				236,343

* (Figures as on 31stMarch 2080)

Source: SA-DHAN, The Bharat Microfinance Report-Quick Data 2008 and MFI reports.

Potential Microfinance Clients

The population of Bihar is approximately 92.9 Million. The total number of household under below poverty line is 7.67 Million.

Estimate of No. of Poor Household in Bihar (2008)
Population of Bihar*	92.90 Million
Total No. of Households**	18.59 Million
No. of Rural Households (89.54% of total population)	16.65 Million
No. of Urban Households (10.46 % of total population)	1.94 Million
No. of Rural BPL (42.1% of rural population)	7 Million
No. of Urban BPL (34.6 % of urban population)	6,73,000
Total No of BPL Households	7.67 Million

*Assumed annual growth rate of 1.63% p.a. during 2001-08 as per national average for India 1991-2001, All India census data 2001.

** Assuming five person per Households.

*** Rural poverty ratio in rural Bihar is 42.1% for 2004-05 (Source: CSO, NSSO Survey Reports)

**** Rural poverty ratio in urban Bihar is 34.6% for 2004-05 (Source: CSO, NSSO Survey Reports)

Poverty Outreach of Microfinance in Bihar

The outreach of micro credit in Bihar is as low as 18.7%. Approximately 81.3 % of the rural population has no access to Credit.

Microfinance Outreach
A. SHG Coverage
Total No. of SHGs credit linked in the state [1]	92,008
Total Number of Household Covered ( 13 members/ household per SHG)	1,196,104
Percentage of BPL Households as SHG Members #	15.61%
B. MFI Coverage
Total No. of clients/households covered by MFIs (Assuming one client per household)*	2,36,343
Percentage of BPL Households as MFI Clients #	3.1 %
Percentage of Poor Households covered by Microfinance	18.7%

[1]Source: NABARD data for March 2008. Note: Total BPL households estimated to be 7.67million in 2008.

# assuming all SHG members and MFI clients are BPL

* Source: SADHAN, The Microfinance Quick Report, 2008 & MFI Reports.

Credit Demand of Poor Households in Bihar and the Supply Gap

As per the calculation, the total demand of micro credit in Bihar is Rs. 48,675 Million while the current supply is Rs. 2,128 Million. Thus the demand supply gap is around 96%.

Demand
Credit requirement per poor HH per Annum (Asumed)
a. Rural	Rs. 6,000
b. Urban	Rs. 10,000
Total Credit Demand for Rural BPL households per annum	Rs. 41,945 Million
Total Credit Demand for Urban BPL households per annum	Rs. 6,730 Million
Total Credit Demand for All BPL households per annum	Rs. 48,675 Million
Supply
Estimated Annual Credit Supply from Banks	Rs. 2,128 Million
Demand-Supply Gap	96%

* Includes Rs. 1,128 mn in SHG bank linkages and Rs. 1,000 mn by MFIs