A project report on

MICROFINANCIAL ANALYSIS
OF

J&K GRAMEEN BANK

Submitted in partial fulfilment for the degree of Masters in Business Administration-Financial Management

PROJECT COORDINATOR
Rahul Rangotra Asstt. Professor DEPTT. OF MANAGEMENT STUDIES,

SUBMITTED BY:
Aijaz Ahmad Bhat 05_MBAFM-10 Session 2010-2012

BABA GHULAM SHAH BADSHAH UNIVERSITY

RAJOURI

CERTIFICATE BY THE GUIDE

Certified that this project report is based on original study conducted by Mr.Aijaz Ahmad Bhat under my guidance. He has attended all the required guidance sessions held. This project report has not formed a basis for the award of any other degree\ diploma of any University or institution.

Signature of the Guide

Rahul Rangotra

STUDENT DECLARATION
I hereby declare that this project report titled MICROFINANCIAL ANALYSIS BY J&K GRAMEEN BANK has been written by me in the year 2011-2012 under the valuable guidance of my guide and the lecturers of the university in partial fulfilment for the award of the degree of Masters in Business Administration-Financial Management from Baba Ghulam Shah Badshah University..

I also declare that this project is the result of my own effort and has not been submitted in part or full towards any other degree or diploma or fellowship.

Date:

Place: RAJOURI

ACKNOWLEDGEMENT

It is a privilege that I had been given the opportunity to complete a project report on micro financial analysis of J&K Grameen Bank -A study conducted with particular reference to Kashmir valley as a part of our syllabus for the fulfilment of Masters in Business Administration-Financial Management course conducted by Baba Ghulam Shah Badshah University. I would like to thank my Dean Prof. Dost Mohammad who has given me the opportunity to do the project. I also take this opportunity to thank my Rahul Rangotra and all the other faculty members of the Dept. of Management Studies, Baba Ghulam Shah Badshah University for their valuable support, advice, encouragement, assistance and guidance in the completion of this project report. I express my immense thanks and gratitude to other faculty members, my parents, my friends and my classmates for their moral support. I express my gratitude towards all those silent benefactors who have supported and backed me all the way in the preparation of this project

Aijaz Ahmad Bhat

Objectives of the Research:

1. To objective of the research is to understand concept of Microfinance. 2. To find out existing Structure of Microfinance in World and in India 3. .To understand Policies adopted by different bank 4. The main objective of the research is to find out Potential of Microfinance in Jammu & Kashmir 5. To understand Microfinance structure in J&K Bank and to Find out Flaws if any.

Source of Information:
Primary Source:
Through Structured questions. Face to face interview.

Secondary Source:
Records maintained by Bank. Websites. The Economic Times. Times of India. The study pertains to detailed understanding of

Research Methodology:

concept of Microfinance, its need, Supply and regulatory methods adopted by various agencies. An exploratory research design was adopted to conducted research, method of selecting sample was convenience sampling. Field survey was carried out to collect the necessary data.

Data Used:

Both Primary and Secondary Data were used. Websites, Departmental

visits, newspapers, Survey magazines, Statistical digest etc were used to collect data.

Table of Contents:

(1)CHAPTER 1
(A)Company profile.........8 (B)Introduction to grameen bank....9 (C) Chairmans message.....10 (D)Board of directors..16 (E) Banking sector in India....17 (F)Composition of Indian banking system.........18

CHAPTER 2..........................
(A)Introduction

To Microfinance...21

(B)Orgin Of Microfinance...22
(C) Microcredit System....24

(D)Microcredit Lending Modals ...26 (F)Reduction Of Poverty31 (E)Requirement Of Microfinance35 (G)Microcredit And Grameen Bank.39 (H)Microfinance In India ...47

CHAPTER 3
(A)Microfinance In J&K.60 (B)Role Of J&K Grameen Bank60 (C)Schemes Provided By J&K Bank62

(D)Current Scenario Of Microfinance In J&K....67

CHAPTER 4
(A)DATA INTERPRETATION...76 SUGESSTIONS..94 CONLUSION..97 BIBLOGRAPHY

CHAPTER 1

COMPANY PROFILE

TO

Chairmans message

It gives me immense pleasure in heading the family of J&K Grameen Bank, sponsored by J&K Bank, comprising a team of dedicated, hardworking, and highly aspiring employees. The J&K Grameen Bank is one of the Premier Banks in the state of Jammu & Kashmir with a network of 174 branches. The area of operation of the bank is spanned across all three regions of the state. The success of J&K Grameen Bank can be attributed to our ability to continually identify, evolve and respond to the changing demands across the state of J&K and reach out to the far flung/remotest corners for providing various banking services to the unbanked areas, thereby fulfilling our commitment of Corporate Social Responsibility. Our values of respect, service and involvement remain consistent. These values are embraced by our staff members who have played a major role in our success so far. These values will continue to do so in going forward. The track record of consistent growth of the Bank is indeed a satisfying achievement for any organization. Still there is enough untapped potential available waiting to be exploited. Bank is required to broad base its clientele through expanding reach and spread by way of Financial Inclusion of unbanked/underprivileged population. Our special emphasis and effort are warranted to give a big boost to our CD Ratio. Technological advancement in the form of 100% coverage under CBS will also provide us ample opportunities to offer class services to our customers. I wish every member of this family a prosperous life.

Our slogan for 2010-11

BANKING THE UNBANKED

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HISTORY OF J&K GRAMEEN BANK

Two Regional Rural Banks sponsored by J&K Bank in J&K State namely Kamraz Rural Bank and Jammu Rural Bank have been amalgamated and will now operate under a single new, Regional Rural Bank-J&K Grameen Bank from July 1, 2009. The area of operation of J&K Grameen Bank shall be located at Jammu. After a three year wait for Union finance ministrys nod, J&Ks two regional rural banks (RRBs) merged to become J&K Grameen Bank. The new entity that will be headquartered at Jammu will have a network of 172 branches across the state.

Unlike Jammu Rural Bank (JRB) that has its network in the length and breadth of Jammu, the Karmraz Rural Bank (KRB) is restricted to the north Kashmir district of Baramulla, Kupwara and Bandipora. A new set up may help it extend services to hitherto out of bound belts. JRB and KRB are sponsored by the J&K Bank that holds 15 percent of their shares. The remaining equity of the twin entities is with central and state governments at 50 and 35 percent respectively. The proposal (of merger) came a bit late. But it is a good development, Dr HaseebDrabu, chairman and chief executive of the J&K Bank said. It was during his stint as economic adviser to J&K government that state government approved disinvestment in the two RRBs and assigned its equity to the JK Bank (otherwise owned by it to the tune of 53 percent) to pave way for the merger. J&K Grameen Bank will revolutionise mainstay of our economy and will have its main focus on agriculture lending and rural lending. There will be deepening of financial inclusion in the rural sector and enlarging outreach for empowering rural population with variety of banking services. The new formation will ensure much needed credit delivery to promote agriculture production and other productive and employment generating enterprises in the state, said Drabu.

Apart from reach, the new bank has huge deposit base as well. Together, the two banks have

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Rs 1090.61 crores of deposits against which their joint loan book is only Rs 359.73 crores. If the two banks get a proper micro-finance business model, the two have the capacity of changing the fate of thousands of people from underprivileged and un-bankable class of population given their reach.

Interestingly, there was resistance for merger from inside both banks. JRB officials said that their bank was performing better and earning profit, and that its prospects would get marred as the losses of KRB would add up. For the sake of argument, the KRB for the first time in last 28 years has showed profit, though not that big. KRB officials were averse to the idea saying the merger would impose a JRB bureaucracy over them as the new bank would be headquartered at Jammu. J&K Bank is yet to send a CEO to the new bank and insiders say it may take some time. The personnel running these banks need to be trained in better management of the micro-credit schemes and the political interventions must end to permit them prosper, said an executive of JK Bank who has experience in the micro-credit. He said the bank has drafted a plan to run the new entity on professional lines.

After the notification was issued by the federal finance ministry, undertaking of the two banks stand transferred to the new entity. These include assets, rights, powers, authorities and privileges and all property movable and immovable, cash balance, reserve funds, and investments. However, the services of all the employees of the two RRBs over 800 shall continue at the same remuneration and on the same terms and conditions of service, which they were getting or, as the case may be, by which they were governed immediately before the effective date of amalgamation. J&K Bank has already released the new entitys logo. RRBs were created in 1975. Over the last three decades, more then 90 of 196 RRBs with 14,446 branches across India are running in losses with some of them having their capital base eroded totally. A number of committees have reviewed their performance and made recommendations. It was one such committee that recommended the merger of RRBs at state level on basis of sponsor banks. Apart from bringing in efficiency and transparency, the idea is aimed at helping these small entities to grow in size and have economies of scale that eventually would help them to compete. In the next stage, RRBs sponsored by different banks would be merged at the state level. J&K has three RRBs of which two are sponsored by JKB and one by SBI. The state is

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interested in merging all small banks both rural and cooperative banks to create a chain that would specifically serve agricultural and marginal section of the society under the JK Bank, so far states lone success story on banking front.

J&K Grameen formed: Notification of amalgamation of kamraz rural bank and Jammu Rural Bank
A pioneering initiative by J&K Bank today facilitated the states maiden banking sector merger culminating into the establishment of J&K Grameen Bank. Two Regional Rural Banks sponsored by J&K Bank in J&K State namely Kamraz Rural Bank and Jammu Rural Bank have been amalgamated and will now operate under as single new Regional Rural Bank - J&K Grameen Bank from July 1, 2009. The area of operation of J&K Grameen Bank shall be the combined area of operation of amalgamated RRBs. The head office of the bank shall be located at Jammu. A notification to this effect was issued today by GOI Ministry of Finance, Department of Financial Services, Government of India while exercising the powers conferred by subsection (1) of section23A of the Regional Rural Banks Act, 1976 (21 of 1976) (hereafter referred to as the Act). According to the notification, from the effective date of amalgamation, the transferor RRBs viz. Kamraz Rural Bank and Jammu Rural Bank shall cease to carry on the business and the transferee RRB i.e. J&K Grameen Bank shall come into existence and commence its business w.e.f. from the date of publication of the notification. While commenting on the amalgamation of KRB and JRB, Dr.Haseeb A. Drabu, Chairman and Chief Executive of J&K Bank said that the consolidated new strong RRB in the State (J&K Grameen Bank) would pave way for enhancing economic development in the State. J&K Grameen Bank will revolutionize mainstay of our economy and will have its main focus on agriculture lending and rural lending. There will be deepening of financial inclusion in the rural sector and enlarging outreach for empowering rural population with variety of banking services. The new formation will ensure much needed credit delivery to promote agriculture production and other productive and employment generating enterprises in the state, said Dr.Haseeb A Drabu. Introducing an entirely new financial architecture in the State, Grameen Bank would

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function on the same technological platform as is available to the customers of the J& K Bank with state-of-the-art business transaction facilities, told J& K Bank Chairman Dr HaseebDrabu, who piloted the landmark move. According to Drabu, J& K Grameen Bank would pave the way for speeding up inclusive economic development in the State with focus on micro lending. The J&K Grameen Bank will revolutionize mainstay of the States economy with focus on micro- lending in agriculture, horticulture and handicraft sectors, he said and added there will be deepening of financial inclusion in the rural sector and enlarging outreach for empowering rural population with variety of banking services. The new formation will ensure much needed credit delivery to promote agriculture production and other productive and employment generating enterprises, Dr Drabu said. Meanwhile, following the amalgamation, the undertakings of the Kamraz Rural Bank and Jammu Rural Bank shall stand transferred to and shall vest to the J&K Grameen Bank. The undertakings shall include assets, rights, powers, authorities and privileges and all property movable and immovable, cash balance, reserve funds, investments and all other rights and interests in or arising out of such property, as are immediately before the commencement of the notification. If, on the effective date of amalgamation, any suit, appeal or other proceedings of whatsoever nature in relation to any business of the transferor Regional Rural Banks are pending by, or against to, the transferor Regional Rural Banks, the same shall not abate, be discontinued or be, in any way, prejudicially affected by reason of the transfer of the undertaking of the transferor Regional Rural Banks or of anything contained in the notification but the suit, appeal or other proceedings may be continued, prosecuted and enforced by, or against, the transferee Regional Rural Bank. According to the notification, in respect of every savings banks account or current account or any other deposit account including a fixed deposit, cash certificate, monthly deposit, deposit payable at call or short notice or any other deposits by whatever name called with the transferor Regional Rural Bank, the transferee Regional Bank shall open with itself on the effective date of amalgamation a corresponding and similar account in the name of respective holder(s) thereof crediting thereto full amount including interest by the extent payable. All contracts, deeds, bonds, agreements, guarantees, powers of attorney, grants of legal representation and other instruments of whatsoever nature subsisting or having effect

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immediately before the commencement of this notification and to which the transferor Regional Rural Banks are a party or which are in favour of the transferor Regional Banks shall be in full force and effect against or in favour of the transferee Regional Rural Bank (J&K Grameen Bank) and may be enforced or acted upon fully and effectively, says the notification. The services of all the employees of the transferor Regional Banks (excepting such of them as not being workmen within the meaning of the Industrial Disputes Act, 1947) shall continue in the transferee Regional Rural Bank at the same remuneration and on the same terms and conditions of service, which they were getting or, as the case may be, by which they were governed immediately before the effective date of amalgamation.

Background of Grameen Bank

J&K Grameen Bank (JKGB), was established on 30th June 2009 after amalgamation of two erstwhile RRBs viz. JRB and KRB in accordance with GOI Notification dated 30th June 2009 issued under sub- section (1) of section 23A of the RRB Act, 1976 (21 of 1976). The area of operation of the back is extended to 11 Districts, besides some parts of District Srinagar and Ganderbal of J&K State with its office situated at Jammu.The network of the bank consist of two Regional Offices, Six Area Offices and 176 branches with 7 extension counters. The main objective of the Bank is to improve the economy of rural, semi-urban & urban centers.

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BOARD OF DIRECTORS

S.No 1

Name Mr.Raja Abdul Lateef

Designation/ Address Chairman Asstt. Gen.Manager

Mr.C. Sahoo

RPCD R.B.I. Jammu Dy. General Manager NABARD, Jammu Special Secretary

Mr.G.H. Khidir

Mr.Shafiq Ahmad Raina

Agriculture Department Govt. of J&K Special Secretary

Mr.MushtaqSidiqui

Finance Department Govt. of J&K Vice President (S&C)

Mr.S.S. Nathyal

J&K Bank Ltd. Zonal Office Gurgaon, Haryana Vice President

Mr.B.A. Lone

J&K Bank Ltd. Corporate Headquarters M.A. Road, Srinagar

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The Banking Sector in India

The Banking system in India is significantly different from that of other Asian nations because of the countrys unique geographic, social, and economic characteristics. India has a large population and land size, a diverse culture, and extreme disparities in income, which are marked among its regions. There are high levels of illiteracy among a large percentage of its population but, at the same time, the country has a large reservoir of managerial and technologically advanced talents. Between about 30 and 35 percent of the population resides in metro and urban cities and the rest is spread in several semi-urban and urban Centres. The countrys economic policy framework combines socialistic and capitalistic features with a heavy bias towards public sector investment. India has followed the path of growth-led exports rather than the exported growth of other Asian economies, with emphasis on selfreliance through import substitution. These features are reflected in the structure, size and diversity of the countrys banking and financial sector. The banking system has had to serve the goals of economic policies enunciated in successive five year development plans, particularly concerning equitable income distribution, balanced regional economic growth, and the reduction of elimination of private sector monopolies in trade and industry. In order for the banking industry to serve as an instrument of state policy, it was subjected to various nationalization schemes in different phases (1955, 1969, and 1980). As a result, banking remained internationally isolated (few Indian banks had presence abroad in international financial centres) because of preoccupations with domestic priorities, especially massive branch expansion and attracting more people to the system. Moreover, the sector has been assigned the role of providing support to other economic sectors such as agriculture, smallscale industries, exports and banking activities in the developed commercial centres (i.e., metro, urban, and a limited number of semi-urban centres). The banking systems international isolation was also due to strict branch licensing controls on foreign banks already operating in the country as well as entry restrictions facing new foreign banks. A criterion of reciprocity is required for any Indian bank to open an office aboard. These features have left the Indian banking sector with weakness and strengths. A big challenge facing Indian banks is how, under the current ownership structure, to attain operational efficiency suitable for modern financial intermediation. On the other hand, it has been relatively easy for the public sector banks to recapitalize, given the increases in nonperforming assets (NPAs), as their Government dominated ownership structure has reduced the conflicts of interest that private banks would face.
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COMPOSITION OF THE INDIAN BANKING SYSTEM IN INDIA

At present, the number of nationalized bank is 20. Several foreign banks were allowed to operate as per the guidelines of RBI. At present the banking system can be classified in following categories: Public Sector Banks: RBI SBI and its 7 associate bank Nationalized bank (20 in No.) RRBs sponsored by public sector banks. Local area banks. Non scheduled banks.

Cooperative Sector Banks: State Cooperative banks. Central Cooperative banks. Primary agriculture credit societies. Land development banks. Urban Cooperative banks. State land development banks. Scheduled Cooperative banks.

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Development banks:

Industrial finance cooperation of India (IFCI). Industrial development bank of India.(IDBI). Industrial credit and investment cooperation of India (ICICI) Industrial investment bank of India. (IIBI) Small industries development bank of India (SIDBI). National bank of agriculture and rural development (NABARD). Export import bank of India.

Private Sector Banks: Old generation private banks. New generation private banks. Foreign banks in India.

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CHAPTER 2

INTRODUCTION TO MICROFINANCE

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MICROFINANCE
Microfinance refers to the provision of financial services to low-income clients, including the self-employed. The term also refers to the practice of sustainably delivering those services. More broadly, it refers to a movement that envisions a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers. Theoretically, microfinance encompasses any financial service used by poor people, including those they access in the informal economy, such as loans from a village moneylender. In practice however, the term is usually only used to refer to institutions and enterprises whose goals include both profitability and reducing the poverty of their clients. Micro financial services are needed everywhere, including the developed world. However, in developed economies intense competition within the financial sector, combined with a diverse mix of different types of financial institutions with different missions, ensures that most people have access to some financial services. Efforts to transfer microfinance innovations such as solidarity lending from developing countries to developed ones have met with little success. Microfinance can also be distinguished from charity. It is better to provide grants to families who are destitute, or so poor they are unlikely to be able to generate the cash flow required to repay a loan. This situation can occur for example, in war zone or after a natural disaster. There are various sources by which microfinance outreaches the final customer. The flow of Microfinance can be shown as follows:

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Origin of Microfinance

The origin of microfinance is often dated as late as the 1970s. Over the past centuries practical visionaries from the Franciscan monks who founded the community-oriented pawnshops of the fifteenth century, to the founder of the credit union movement in the nineteenth century (Friedrich Wilhelm Raiffeisen) and the founders of the microcredit movement in the 1970s (such as Muhammad Yunus) have tested practices and built institutions designed to bring the kinds of livelihood opportunities and risk management tools that financial services provide to the doorsteps of poor people. While the success of Grameen Bank (which now serves over 7 million poor Bangladeshi women) has inspired the world, it has proved difficult to replicate this success in practice. In nations with lower population densities, meeting the operating costs of a retail branch by serving nearby customers has proven considerably more challenging. Microcredit came to prominence in the 1980s, although subsidized credit programs to targeted communities date back to the 1950s and early experiments in Bangladesh, Brazil and a few other countries began in the 1970s. The important difference of microcredit was that it avoided the pitfalls of an earlier generation of targeted development lending, by insisting on repayment, by charging interest rates that could cover the costs of credit delivery and by focusing on client groups whose alternative source of credit was the informal sector. In February 1997, RESULTS Educational Fund convened the first Microcredit Summit. More than 2,900 delegates from 137 countries attended the Summit, held in Washington, D.C., and launched a nine-year campaign to reach 100 million of the worlds poorest families, especially the women of those families, with credit for self-employment and other financial and business services by the end of 2005.

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Four approaches to establishing Microfinance services

adopted to the specific financial sector deficiencies

Greenfielding Foundation of a new Microfinance Institution (MFI) Down-scaling Supporting commercial banks to serve the micro segment Linking Connect Microfinance Institutions with the national or international capital market Up-grading Transformation of a credit NGO into a fullyfledged micro bank

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Microcredit System:
The four pillars of microfinance credit system (Fig. 1) are supply, demand for finance, intermediation and regulation. Whatever may the model of the intermediary institution, the end situation is accessibility of finance to poor. The following tables indicate the existing and desired situation for each component.

DEMAND
Existing Situation fragmented Undifferentiated Addicted, corrupted by capital & subsidies Communities not aware of rights and responsibilities Desired Situation Organized Differentiated (for consumption, housing) Deaddicted from capital & subsidies Aware of rights and responsibilities

SUPPLY
Existing Situation Grant based (Foreign/GOI) Directed Credit unwilling and corrupt Not linked with mainstream Mainly focussed for credit Dominated
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Desired Situation

Regular fund sources (borrowings/deposits) Demand responsive Part of mainstream (banks/FIs) Add savings and insurance Reduce dominance of informal, unregulated suppliers

INTERMEDIATION
Existing Situation Non specialized Not oriented to financial analysis Non profit capital Not linked to mainstream FIs Not organized Desired Situation Specialized in financial services Thorough in financial analysis For profit Link up to FIs Self regulating

REGULATION
Existing Situation Focussed on formal service providers (informal not regulated) regulating the wrong things e.g. interest rates Multiple and conflicting (FCRA, RBI, IT, ROC, MOF/FIPB, ROS/Commerce) Negatively oriented Desired Situation include/informal recognise e.g. SHGs Regulate rules of game Coherence and coordination across regulators Enabling environment

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Microfinance Lending Models (Types of MFIs)

Microfinance itself is a credit lending model, and within this lending model exist several subcategories, i.e. microfinance lending models, which differ in terms of where their funds are sources from, and how the money is governed. This post briefly mentions each lending model (explained in detail at GDRCs website) and lists microfinance providers that follow these models.

Microfinance Lending Model 1: Associations

An association is formed by the poor in the target community to offer microfinance services (micro-savings, micro-credit, micro-insurance, etc.) to themselves. The association, which can form on the basis of gender, religion, or political and cultural orientation of its members, then gathers capital and intermediates between banks, MFIs and its members.

Example: Self Help Groups, SHGs (India)

Microfinance Lending Model 2: Bank Guarantees

A donor or government agency guarantees micro loans made by a microfinance/ commercial bank to an individual or group of borrowers. Compulsory deposits by borrowers in such banks are also included in this model.

Examples: Africap Microfinance Fund (Mauritius), Bellwether Microfinance Fund (India), Latin America Bridge Fund, Microfinance Credit Guarantee Facility (Pakistan)

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Microfinance Lending Model 3: Community Banking/Grameen Bank/Village Banking

Community Banks/Village Banks are formal versions of associations and are created by members of a target community who wish to improve their living standards and to generate employment. By offering microfinance services, these banks seek to develop their communities. Guarantees are provided by social collateral (peer-pressure) as services are distributed through 5-member groups where each members eligibility for loans is based on his/her peers performance. Examples: Grameen Bank (Bangladesh), MuCoBa (Tanzania)

Microfinance Lending Model 4: Cooperatives

Cooperatives are very much like Associations and community Banks, except that their ownership structure does not include the poor. A group of middle or upper class individuals may form a Co-op to offer microfinance services to the poor. Examples: Co-operative Bank (England), Cooperative Rural Bank of Bulacan (Philippines)

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Microfinance lending Model 5: Credit Unions

In a Credit Union, members of a target community gather their money and make loans to one another at low interest rates. Compared to community banks, credit unions are smaller and non-profit oriented, charging interest rates that merely allow sustainability (read 10 determinants of interest rates in microfinance). The role of Grameen Bank is not limited to any one sectors of the society or economy in the Kashmir region, but the Grameen Banks are playing a vital role in over all development of the Rural economy of the region to improve the life style and standard of the common masses. Grameen Banks are providing financial assistance to every sector of the society throughout the region through their various organized schemes most importantly through Govt. sponsored schemes, specifically developed by the Govt. of India, Reserve Bank of India and National Bank for agriculture and Rural Development, besides various schemes of the Banks developed at their own level. The implementation of these schemes is being supervised and regulated by Govt. of India and NABARD through the lead Band Department and the assessment of implementation of these schemes is being done through BLBCs, DLRCs and SLBCs. Since we have analysed and evaluated the business portfolio of J&K Grameen Bank, which has its Headquarter in Jammu and Regional Headquarter of Kashmir region at Sopore Barramulla. We reproduce the business portfolio most importantly the lending portfolio of J&K Grameen Bank, Regional Office Sopore, which it has implemented and provided assistance to the Rural masses of the Kashmir region through its various financial schemes. The figures seems to be very impressive and are given in Annexure-I Since during the current financial scenario the Govt. of India is very forcefully being supervising the implementation of microfinance schemes in the down trodden and under privileged segments of the society, the Bank under reference has also put in their reasonable part of the lending into this sector. The Bank is further taking very impressive steps to speed up the financial inclusion schemes of the Govt. through the issuance of small segment credit cards popularly known as General Credit Cards, Kissan Credit Cards. Bothe these schemes have played a very vital role in improving the financial position of the Rural finance schemes the Bank is issuing GCCs to all the individual families with an initial credit limit of Rs. 25000/- to meet out their domestic expenses either or spent the money for purchase of inputs
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for cash crop growing, besides the Bank is issuing KCCs to the same segment of people with a credit limit ranging from Rs. 5000/- to Rs. 3,00,000/- to be used by the farmers for purchase of seeds, fertilizers, pesticides and other agriculture equipments required as per necessity for growing crops, agriculture and other domestic requirements in both the cases the funds so allocated rather financed to the borrowers or being utilized as revolving funds which a borrower can regularly withdraw and deposit during a particular period of time as would be decided by the Bank with a minimum ceiling of 6 months i.e. single crop or one year i.e. double crop depending upon the seasonality of the crops. As said earlier here in above the Bank has done very impressive work under the schemes and the data of microfinance portfolio so analysed is reproduced here under, the figures belong to ending March, 2011.

Microfinance Lending Model 6: Non-Governmental Organizations (NGOs)

Unlike community-based models, NGOs are external organizations and their activities range from offering microfinance services (loans, insurance, savings, etc.) to improving credit rating of the poor, training, education and research. NGOs may also act as intermediaries between the poor and donor agencies (UN, ADB, World Bank) and operate locally, as well as globally (through a physical or online presence). Examples: ACCION international (Headquarters in USA), KIVA (Headquarters in USA), Kashf Foundation (Pakistan)

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Microfinance Lending Model 7: For-profit Banks

Commercial Banks, as well as specialized Microfinance Banks offer various financial services to the poor but the main purpose may be to secure a high return on investment. Unlike other models, the aim is social development as well as financial progress, beyond institutional sustainability. Read about a bank that exploited the poor under the guise of microfinance. Examples: Bank Compartamos (Mexico), Khushali Bank (Pakistan)

Microfinance Lending Model 8: ROSCAs Rotating Savings and Credit Associations (ROSCAs)

ROSCAs are small groups, typically composed of women, where each member makes regular cyclical contributions into a common fund, which is given entirely to one member at the start of each cycle (weekly, monthly, quarterly). The benefit of this model is the matching of a clients cash flows with the loan, the ability to structure the deal without interest rates, and the absence of over-head costs. Examples: Say, a groups of 10 women come together in January and pitch in S7 each, making a total of S70, and this sum is given to Member A for the month. In February, another S70 is gathered and given to Member B, and the cycle continues for 10 months (10 Members). No interest is charged, and social collateral ensure

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Breaking the vicious cycle of poverty through microcredit

The Grameen Bank is based on the voluntary formation of small groups of five people to provide mutual, morally binding group guarantees in lieu of the collateral required by conventional banks. At first only two members of a group are allowed to apply for a loan. Depending on their performance in repayment the next two borrowers can then apply and, subsequently, the fifth member as well.

The assumption is that if individual borrowers are given access to credit, they will be able to identify and engage in viable income-generating activities - simple processing such as paddy husking, lime-making, manufacturing such as pottery, weaving, and garment sewing, storage and marketing and transport services. Women were initially given equal access to the schemes, and proved not only reliable borrowers but astute entrepreneurs. As a result, they have raised their status, lessened their dependency on their husbands and improved their homes and the nutritional standards of their children. Today over 90 percent of borrowers are women.

Intensive discipline, supervision, and servicing characterize the operations of the Grameen Bank, which are carried out by "Bicycle bankers" in branch units with considerable delegated authority. The rigorous selection of borrowers and their projects by these bank workers, the powerful peer pressure exerted on these individuals by the groups, and the repayment scheme based on 50 weekly instalments, contribute to operational viability to the rural banking system designed for the poor. Savings have also been encouraged. Under the scheme, there is provision for 5 percent of loans to be credited to a group find and Tk 5 is credited every week to the fund.

The success of this approach shows that a number of objections to lending to the poor can be overcome if careful supervision and management are provided. For example, it had earlier been thought that the poor would not be able to find remunerative occupations. In fact, Grameen borrowers have successfully done so. It was thought that the poor would not be able

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to repay; in fact, repayment rates reached 97 percent. It was thought that poor rural women in particular were not bankable; in fact, they accounted for 94 percent of borrowers in early 1992. It was also thought that the poor cannot save; in fact, group savings have proven as successful as group lending. It was thought that rural power structures would make sure that such a bank failed; but the Grameen Bank has been able to expand rapidly. Indeed, from fewer than 15,000 borrowers in 1980, the membership had grown to nearly 100,000 by mid1984. By the end of 1998, the number of branches in operation was 1128, with 2.34 million members (2.24 million of them women) in 38,957 villages. There are 66,581 centres of groups, of which 33,126 are women. Group savings have reached 7,853 million taka (approximately USD 162 million), out of which 7300 million taka (approximately USD 152 million) are saved by women.

It is estimated that the average household income of Grameen Bank members is about 50 percent higher than the target group in the control village, and 25 percent higher than the target group non-members in Grameen Bank villages. The landless have benefited most, followed by marginal landowners. This has resulted in a sharp reduction in the number of Grameen Bank members living below the poverty line, 20 percent compared to 56 percent for comparable non-Grameen Bank members. There has also been a shift from agricultural wage labour (considered to be socially inferior) to self-employment in petty trading. Such a shift in occupational patterns has an indirect positive effect on the employment and wages of other agricultural waged labourers. What started as an innovative local initiative, "a small bubble of hope", has thus grown to the point where it has made an impact on poverty alleviation at the national level ".

Most poor people manage to mobilize resources to develop their enterprises and their dwellings slowly over time. Financial services could enable the poor to leverage their initiative, accelerating the process of building incomes, assets and economic security. However, conventional finance institutions seldom lend down-market to serve the needs of low-income families and women-headed households. They are very often denied access to credit for any purpose, making the discussion of the level of interest rate and other terms of finance irrelevant. Therefore the fundamental problem is not so much of unaffordable terms of loan as the lack of access to credit itself.
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THE VICIOUS CYCLE OF POVERTY

The poor have low labour productivity

Low income s

Low household demand for goods and services

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Promise to poor

Unlocking household labour that had been locked up due to liquidity constraints

MICROFINANCE High Productivity High Incomes

Household demand for goods and services

Improved Nutrition

Better Healthcare

Better Education

Escape from Poverty

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Requirement of Microfinance:
The lack of access to credit for the poor is attributable to practical difficulties arising from the discrepancy between the mode of operation followed by financial institutions and the economic characteristics and financing needs of low-income households. For example, commercial lending institutions require that borrowers have a stable source of income out of which principal and interest can be paid back according to the agreed terms. However, the income of many self employed households is not stable, regardless of its size. A large number of small loans are needed to serve the poor, but lenders prefer dealing with large loans in small numbers to minimize administration costs. They also look for collateral with a clear title - which many low-income households do not have. In addition bankers tend to consider low income households a bad risk imposing exceedingly high information monitoring costs on operation. Emphasis shifted from rapid disbursement of subsidized loans to prop up targeted sectors towards the building up of local, sustainable institutions to serve the poor. Microcredit has largely been a private (non-profit) sector initiative that avoided becoming overtly political, and as a consequence, has outperformed virtually all other forms of development lending. Indeed, since the 1980s, microfinance programs have improved upon original methodologies and extended beyond conventional thinking. First, microfinance demonstrated that poor people, and especially women, had excellent repayment rates (and often, rates that performed better than those in formal financial sectors). And second, that the poor were willing and able to pay interest rates that would allow the microfinance institutions (MFIs) to cover costs.

Traditionally microfinance was focused on providing a very standardized credit product. The poor, just like anyone else, need a diverse range of financial instruments to be able to build assets, stabilize consumption and protect themselves against risks. Indeed, in many developing countries, self-employment through microenterprise is often the only way to provide for families and the local environment. Thus, we see a broadening of the concept of microfinance---our current challenge is to find efficient and reliable ways of providing a richer menu of microfinance products.

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The clients of microfinance:

The typical microfinance clients are low-income persons that do not have access to formal financial institutions. Their "microenterprises" represent an estimated 80% of the total enterprises in the world, 50% of urban enterprises and 20% of the GNP of their countries. Microfinance clients are typically self-employed, often household-based entrepreneurs. In rural areas, they are usually small farmers and others who are engaged in small incomegenerating activities such as food processing and petty trade. In urban areas, microfinance activities are more diverse and include shopkeepers, service providers, artisans, street vendors, etc. Microfinance clients are poor and vulnerable non-poor who have a relatively stable source of income. Access to conventional formal financial institutions, for many reasons, is inversely related to income: the poorer you are, the less likely that you have access. The poor often obtain financial services from informal financial relationships - credit can be available from commercial and non-commercial lenders, but often at very high interest rates; saving services can be available through savings clubs, credit associations and the like. As a result, the chances are that, the poorer you are, the more expensive or onerous informal financial arrangements. Moreover, informal arrangements may not suitably meet certain financial service needs or may exclude you anyway. Individuals in this excluded and under-served market segment are the clients of microfinance.

Microfinance generally targets poor women because they have proven to be reliable credit risks and when they have the financial means, they invest that money back into their families, resulting in better health and education, and stronger local economies. By providing access to financial services - loans and responsibility for repayment, maintaining savings accounts, providing insurance - microfinance programs send a strong message to households and communities. Studies have shown that women become more assertive and confident, have increased mobility, are more visible in their communities and play stronger roles in decision making.

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How does microfinance help the poor?

Microfinance brings the power of credit to the grassroots by way of loans to the poor, without requirement of collateral or previous credit record. Experience shows that microfinance can help the poor to increase income, build viable businesses, and reduce their vulnerability to external shocks. It can also be a powerful instrument for self-empowerment by enabling the poor, especially women, to become economic agents of change. Poverty is multi-dimensional, and by providing access to financial services, microfinance plays an important role in the fight against the many aspects of poverty. Access to credit allows poor people to take advantage of economic opportunities - for their homes, their domestic environments and their communities. For instance, income generation from a business helps not only the business activity expand but also contributes to household income and its attendant benefits on food security, children's education, etc. Moreover, for women who, in many contexts, are secluded from public space, transacting with formal institutions can also build confidence and empowerment. Recent research has revealed the extent to which individuals around the poverty line are vulnerable to shocks such as illness of a wage earner, weather, theft, or other such events. These shocks produce a huge claim on the limited financial resources of the family unit, and, absent effective financial services, can drive a family so much deeper into poverty that it can take years to recover. Microfinance services are provided by three types of sources: Formal institutions Semi-formal institutions such as NGOs Informal sources such as money lenders and shopkeeper.

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38

Microcredit and Grameen Bank

The word "microcredit" did not exist before the seventies. Now it has become a buzz-word among the development practitioners. In the process, the word has been imputed to mean everything to everybody. No one now gets shocked if somebody uses the term "microcredit" to mean agricultural credit, or rural credit, or cooperative credit, or consumer credit, credit from the savings and loan associations, or from credit unions, or from money lenders. When someone claims microcredit has a thousand year history, or a hundred year history, nobody finds it as an exciting piece of historical information. I think this is creating a lot of misunderstanding and confusion in the discussion about microcredit. We really don't know who is talking about what. I am proposing that we put labels to various types of microcredit so that we can clarify at the beginning of our discussion which microcredit we are talking about. This is very important for arriving at clear conclusions, formulating right policies, designing appropriate institutions and methodologies. Instead of just saying "microcredit" we should specify which category of microcredit.

A broad classification of microcredit:

A)Traditional informal microcredit (such as, moneylender's credit, pawn shops, loans from friends and relatives, consumer credit in informal market, etc.) B) Microcredit based on traditional informal groups (such as, Tontin, Susu, ROSCA, etc.) C) Activity-based microcredit through conventional or specialised banks (such as, agricultural credit, livestock credit, fisheries credit, handloom credit, etc.) D) Rural credit through specialised banks. E)Cooperative microcredit (cooperative credit, credit union, savings and loan associations, savings banks, etc.) F) Consumer microcredit. G) Bank-NGO partnership based microcredit. H) Grameen type microcredit or Grameen credit

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. I) other types of NGO microcredit. J) Other types of non-NGO non-collateralized microcredit. This is a very quick attempt at classification of microcredit just to make a point. The point is every time we use the word "microcredit" we should make it clear which type (or cluster of types) of microcredit we are talking about. Otherwise we'll continue to create endless confusion in our discussion. Needless to say that the classification I have suggested is only tentative. We can refine this to allow better understanding and better policy decisions. Classification can also be made in the context of the issue under discussion. I am arguing that we must discontinue using the term "microcredit" or "microfinance" without identifying its category. Microcredit data are compiled and published by different organizations. We find them useful. I propose that while publishing these data we identify the category or categories of microcredit each organization provides. Then we can prepare another set of important information number of poor borrowers, and their gender composition, loan disbursed, loan outstanding, balance of savings, etc. under each of these categories, country wise, region wise, and globally.

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General features of Grameen credit are :

a) It promotes credit as a human right. b) Its mission is to help the poor families to help themselves to overcome poverty. It is targeted to the poor, particularly poor women. c) Most distinctive feature of inistutional microcredit is that it is not based on any collateral, or legally enforceable contracts. It is based on "trust", not on legal procedures and system. D )It is offered for creating self-employment for income-generating activities and housing for the poor, as opposed to consumption. e) It was initiated as a challenge to the conventional banking which rejected the poor by classifying them to be "not creditworthy". As a result it rejected the basic methodology of the conventional banking and created its own methodology. f) It provides service at the door-step of the poor based on the principle that the people should not go to the bank, bank should go to the people. g) In order to obtain loans a borrower must join a group of borrowers. h) Loans can be received in a continuous sequence. New loan becomes available to a borrower if her previous loan is repaid. i) All loans are to be paid back in instalments (weekly, or bi-weekly). j) Simultaneously more than one loan can be received by a borrower. k) It comes with both obligatory and voluntary savings programmes for the borrowers. Generally these loans are given through non-profit organizations or through institutions owned primarily by the borrowers. If it is done through for-profit institutions not owned by the borrowers, efforts are made to keep the interest rate at a level which is close to a level commensurate with sustainability of the programme rather than bringing attractive return for the investors. Grameen credit's thumb-rule is to keep the interest rate as close to the market rate, prevailing in the commercial banking sector, as possible, without sacrificing sustain41

ability. In fixing the interest rate market interest rate is taken as the reference rate, rather than the moneylenders' rate. Reaching the poor is its non-negotiable mission. Reaching sustainability is a directional goal. It must reach sustainability as soon as possible, so that it can expand its outreach without fund constraints. Grameen credit gives high priority on building social capital. It is promoted through formation of groups and centres, developing leadership quality through annual election of group and centre leaders, electing board members when the institution is owned by the borrowers. To develop a social agenda owned by the borrowers, something similar to the "sixteen decisions", it undertakes a process of intensive discussion among the borrowers, and encourages them to take these decisions seriously and implement them. It gives special emphasis on the formation of human capital and concern for protecting environment. It monitors children's education; provide scholarships and student loans for higher education. For formation of human capital it makes efforts to bring technology, like mobile phones, solar power, and promote mechanical power to replace manual power. Grameen credit is based on the premise that the poor have skills which remain unutilised or under-utilised. It is definitely not the lack of skills which make poor people poor. Grameen believes that the poverty is not created by the poor; it is created by the institutions and policies which surround them. In order to eliminate poverty all we need to do is to make appropriate changes in the institutions and policies, and/or create new ones. Grameen believes that charity is not an answer to poverty. It only helps poverty to continue. It creates dependency and takes away individual's initiative to break through the wall of poverty. Unleashing of energy and creativity in each human being is the answer to poverty. Grameen brought credit to the poor, women, the illiterate, the people who pleaded that they did not know how to invest money and earn an income. Grameen created a methodology and an institution around the financial needs of the poor, and created access to credit on reasonable term enabling the poor to build on their existing skill to earn a better income in each cycle of loans. If donors can frame category wise micro credit policies they may overcome some of their discomforts. General policy for microcredit in its wider sense, is bound to be devoid of focus and sharpness

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Credit Delivery System

Grameen Bank Credit Delivery means taking credit to the very poor in their villages by means of the essential elements of the Grameen credit delivery system. Grameen Bank credit delivery system has the following features: 1)There is an exclusive focus on the poorest of the poor. Exclusivity is ensured by: i) establishing clearly the eligibility criteria for selection of targeted clientele and adopting practical measures to screen out those who do not meet them ii) In delivering credit, priority has been increasingly assigned to women iii) The delivery system is geared to meet the diverse socio-economic development needs of the poor 2) Borrowers are organized into small homogeneous groups. Such characteristics facilitate group solidarity as well as participatory interaction. Organizing the primary groups of five members and federating them into centres has been the foundation of Grameen Bank's system. The emphasis from the very outset is to organisationally strengthen the Grameen clientele, so that they can acquire the capacity for planning and implementing micro level development decisions. The Centres are functionally linked to the Grameen Bank, whose field workers have to attend Centre meetings every week. 3) Special loan conditionalitys which are particularly suitable for the poor. These include: i) Very small loans given without any collateral ii) Loans repayable in weekly instalments spread over a year iii) Eligibility for a subsequent loan depends upon repayment of first loan iv) Individual, self chosen, quick income generating activities which employ the skills that borrowers already posses v) Close supervision of credit by the group as well as the bank staff vi) Stress on credit discipline and collective borrower responsibility or peer pressure
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vii) Special safeguards through compulsory and voluntary savings to minimise the risks that the poor confront viii) Transparency in all bank transactions most of which take place at centre meetings. (4) Simultaneous undertaking of a social development agenda addressing basic needs of the clientele. This is reflected in the "sixteen decisions" adopted by Grameen borrowers. This helps to: i) Raise the social and political consciousness of the newly organized groups ii) Focus increasingly on women from the poorest households, whose urge for survival has a far greater bearing on the development of the family iii) Encourage their monitoring of social and physical infrastructure projects - housing, sanitation, drinking water, education, family planning, etc. 5: Design and development of organization and management systems capable of delivering programme resources to targeted clientele. The system has evolved gradually through a structured learning process that involves trials, errors and continuous adjustments. A major requirement to operationalize the system is the special training needed for development of a highly motivated staff, so that the decision making and operational authority is gradually decentralized and administrative functions are delegated at the zonal levels downwards. 6: Expansion of loan portfolio to meet diverse development needs of the poor. As the general credit programme gathers momentum and the borrowers become familiar with credit discipline, other loan programmes are introduced to meet growing social and economic development needs of the clientele. Besides housing, such programmes include: i) Credit for building sanitary latrines ii) Credit for installation of tube wells that supply drinking water and irrigation for kitchen gardens

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iii) Credit for seasonal cultivation to buy agricultural inputs iv) Loan for leasing equipment / machinery, ie., cell phones purchased by Grameen Bank members v) Finance projects undertaken by the entire family of a seasoned borrower. The underlying premise of Grameen is that, in order to emerge from poverty and remove themselves from the clutches of usurers and middlemen, landless peasants need access to credit, without which they cannot be expected to launch their own enterprises, however small these may be. In defiance of the traditional rural banking postulate whereby "no collateral (in this case, land) means no credit", the Grameen Bank experiment set out to prove successfully - that lending to the poor is not an impossible proposition; on the contrary, it gives landless peasants the opportunity to purchase their own tools, equipment, or other necessary means of production and embark on income-generating ventures which will allow them escape from the vicious cycle of "low income, low savings, low investment, low income". In other words, the banker's confidence rests upon the will and capacity of the borrowers to succeed in their undertakings. The mode of operation of Grameen Bank is as follows. A bank branch is set up with a branch manager and a number of centre managers and covers an area of about 15 to 22 villages. The manager and the workers start by visiting villages to familiarise themselves with the local milieu in which they will be operating and identify the prospective clientele, as well as explain the purpose, the functions, and the mode of operation of the bank to the local population are small, but sufficient to finance the microenterprises undertaken by borrowers: rice-husking, machine repairing, purchase of rickshaws, buying of milk cows, goats, cloth, pottery etc. The interest rate on all loans is 16 percent. The repayment rate on loans is currently - 95 per cent - due to group pressure and self-interest, as well as the motivation of borrowers. Although mobilization of savings is also being pursued alongside the lending activities of the Grameen Bank, most of the latter's loanable funds are increasingly obtained on commercial terms from the central bank, other financial institutions, the money market, and from bilateral and multilateral aid organization. Groups of five prospective borrowers are formed; in the first stage, only two of them are eligible for, and receive, a loan. The group is observed for a month to see if the members are conforming to the rules of the bank. Only if the first two borrowers begin to repay the principal plus interest over a period of six weeks, do the other members of the group become eligible themselves for a loan.
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Method of Action
The Grameen Bank's Method of action can be illustrated by the following principles: 1. Start with the problem rather than the solution: a credit system must be based on a survey of the social background rather than on a pre-established banking technique. 2. Adopt a progressive attitude: development is a long-term process which depends on the aspirations and commitment of the economic operators. 3. Make sure that the credit system serves the poor, and not vice-versa: credit officers visit the villages, enabling them to get to know the borrowers. 4. Establish priorities for action via-a-vis to the target population: serve the most povertystricken people needing investment resources, who have no access to credit. 5. At the beginning, restrict credit to income-generating production operations, freely selected by the borrower. Make it possible for the borrower to be able to repay the loan. 6. Lean on solidarity groups: small informal groups consisting of co-opted members coming from the same background and trusting each other. 7. Associate savings with credit without it being necessarily a prerequisite. 8. Combine close monitoring of borrowers with procedures which are simple and standardised as possible. 9. Do everything possible to ensure the system's financial balance. 10. Invest in human resources: training leaders will provide them with real development ethics based on rigour, creativity, understanding and respect for the rural environment

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Microfinance in India:
Money, says the proverb makes money. When you have got a little, it is often easy to get more. The great difficulty is to get that little.Adams Smith. Today India is facing major problem in reducing poverty. About 250 million people in India are under below poverty line. With low per capita income, heavy population pressure, prevalence of massive unemployment and underemployment, low rate of capital formation, misdistribution of wealth and assets , prevalence of low technology and poor economics organization and instability of output of agriculture production and related sectors have made India one of the poor countries of the world. Some 30 million women have formed 2.2 million small businesses and another 400,000 are expected to be in place by March, 2007, according to the National Bank of Agriculture and Rural Development. About $2.48 billion has been extended to these groups, which predominantly run by women, over the last decade (source Economic times)

Present Scenario of India:

India falls under low income class according to World Bank. It is second populated country in the world and around 70 % of its population lives in rural area. 60% of people depend on agriculture, as a result there is chronic underemployment and per capita income is only $ 326.2. This is not enough to provide food to more than one individual. The obvious result is abject poverty, low rate of education, low sex ratio, and exploitation. The major factor account for high incidence of rural poverty is the low asset base. According to Reserve Bank of India, about 51 % of people house possess only 10% of the total asset of India .This has resulted low production capacity both in agriculture (which contribute around 22-25% of GDP) and Manufacturing sector. Rural people have very low access to institutionalized credit (from commercial bank). According to World Bank, out of the worlds total population of 6 billion, a total of 1.2 billion people, live on wages less than $1 (INR 60) per day; of which, the majority live in
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Asia. Almost 40% of the population of the South Asia region is poverty stricken. Further to this, India alone is said to host about one third of the worlds poor. The estimates from Government of India show that over 250 million people are left without proper access to credit despite a network of 33000 rural and semi urban branches of commercial banks, 14000 branches of Regional Rural Banks and 92000 outlets of cooperatives. The poorest people very often do not comply with the norms that banks lay down for credit seekers. They neither have salary certificates or the required collateral to show as security against the loan. Under such circumstances, the poorest citizens access credit mostly from informal finance providers who charge very high rate of interest. Non payment of principal or interest by the credit seekers invites various kind of exploitation for him and his family. To date in India, only an estimated 5 million poor people (mostly rural women) benefit from microfinance services, leaving a vast unmet demand for developing credit, savings and insurance activities which is termed as microfinance services targeted a sector referred to as non-bankable even till date. Source: GOI Survey, September 1998 Around 75% of all micro credit activity in the country is concentrated in the four southern states of Andhra Pradesh, Karnataka, Kerala and Tamil Nadu Source: Government of India Survey 2006

As designed by NABARD, the women who benefit from microfinance are able to access the microfinance services by forming groups of 5 to 20 women, called self-help groups ("SHGs"). The group is intended to act as a semi-guarantor by making sure that each member repays her loan in the stipulated time thereby positively contributing to the groups creditworthiness. SHGs are either linked to NGOs or to local banks. From the banks they can access funds @ 2-3% a month and through NGOs providing micro-credit @ 15 to 20 % per annum. There is a possibility of generating a credit demand of 25 billion Indian Rupees from savings from the poor in the short term.

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Poverty alleviation programmes and conceptualization of Microfinance

India has supported social banking for a long time. Policy directions to rapidly expand rural branches, mandate credit allocations for priority sectors (including agriculture), deliver large subsidy oriented credit programmes to serve marginal communities and poor households and control interest rates have been tried for over 35 years. The new generation microfinance was slow in coming to India. Low levels of grants to microfinance institutions, an unfavourable policy environment, substantial traditional banking infrastructure and a search for context specific solutions has constrained rapid scale up. The first breakthrough emerged from policy support to enable informal self help groups of 15-20 members (mainly women) to transact with commercial banks. These groups build up and rotate savings amongst themselves, open bank accounts and take responsibility for lending and recovering money financed by banks. With the missionary zeal of the National Bank for Agriculture and Rural Development (NABARD), insights gained by NGOs, the increasing enthusiasm of bankers and politicians and emerging successes in repayment and social impacts, this national movement now encompasses 1.4 million such groups (over 20 million members). At a time when many questioned the need for specialised microfinance institutions (MFIs) in India, the Small Industries Development Bank of India (SIDBI) recognized the opportunity and started implementation of an ambitious national programme. Providing loan and capacity building support to MFIs and capacity building and rating support for sector development, this programme already supports 70 MFIs and has disbursed US$46 million. Microfinance has been perceived as an alternative tool of providing financial services to poor Clientele in India. SEWA (Self Employed Women Association) Bank is the oldest microfinance organisation in the country. The Community Based Organisations (CBOs) and Non Governmental Organizations (NGOs) initiated the microfinance movement and the formal Financial Sector joined in at a later stage. The popular mode of delivering microfinance in India is Self Help Groups (SHGs) . Initially, NGO-MFIs motivated poor to form SHGs and

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Supported them to manage their savings and internal lending activities within the SHG. In the Year 1992, NABARD initiated a pilot project on SHG-Bank Linkage programme in India. For this pilot project, Southern States in India were chosen. NABARD took up this programme on a Full-fledged manner in 1998 after experiencing an immense success of the pilot project. Now SHG-Bank Linkage Programme is the largest microfinance programme in the world. Within a span of 15 years, the outreach of this programme had increased to 2.24 million credit linked SHGs in the year 2006 from 255 credit linked SHGs in the year 1992. In the present Indian Microfinance sector, Commercial Banks, Regional Rural Banks, Cooperative Banks, Non Banking Financial Companies (NBFCs) and NGOs are involved in offering microfinance services to the poor. Microfinance movement in India can be divided into two phases. In the first phase of this Movement, it was found that NGOs and CBOs took the initiative of group formation. They Nurtured these SHGs and provided micro-credit. In this phase most of the programmes were sponsored by national and international donor agencies. In the second phase, Micro-Credit Movement transformed to a broader level of intervention and came to be recognised as Microfinance movement. Formal financial Institutions have joined this movement along with NGOs and CBOs. Apart from credit, the provision of other financial products like insurance and Micro savings is also carried out. It is important to note that that in the nascent stage it the movement was considered as a poverty lending exercise and now in the present stage it has transformed into a profit earning financial business

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Features Of Indian Microfinance:

A Task Force on Microfinance recognised in 1999 that microfinance is much more than microcredit, stating: "Provision of thrift, credit and other financial services and products of very small amounts to the poor in rural, semi-urban and or urban areas for enabling them to raise their income levels and improve living standards". The Self Help Group promoters emphasize that mobilising savings is the first building block of financial services. For many years, the national budget and other policy documents have almost equated microfinance with promoting SHG links to the banks. The central bank notification that lending to MFIs would count towards meeting the priority sector lending targets for Banks offered the first signs of policy flexibility towards MFIs. One could argue that MFIs are small and insignificant, so why bother. The larger point is about policy space for innovation and diversity of approaches to meet large unmet demand. The insurance sector was partially opened to private and foreign investments during 2000. Over 20 insurance companies are already active and experimenting with new products, delivery methodologies and strategic partnerships. Microfinance programmes have rapidly expanded in recent years. Some examples are: Membership of Sa-Dhan (a leading association) has expanded from 43 to 96 Community Development Finance Institutions during 2001-04. During the same period, loans outstanding of these member MFIs have gone up from US$15 million to US$101 million. The CARE CASHE Programme took on the challenge of working with small NGOMFIs and community owned-managed microfinance organisations. Outreach has expanded from 39,000 to around 300,000 women members over 2001-05, Many of the 26 CASHE partners and another 136 community organisations these NGO-MFIs work with, represent the next level of emerging MFIs and some of these are already dealing with ICICI Bank and ABN Amro. In addition to the dominant SHG methodology, the portfolios of Grameen replicators have also grown dramatically. The outreach of SHARE Microfin Limited, for instance, grew from 1,875 to 86,905 members between 2000 and 2005 and its loan portfolio has grown from US$0.47 million to US$40 million.
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Since banks face substantial priority sector targets and microfinance is beginning to be recognised as a profitable opportunity (high risk adjusted returns),[1] a variety of partnership models between banks and MFIs have been tested. All varieties of banks - domestic and international, national and regional - have become involved, and ICICI Bank has been at the forefront of some of the following innovations: Lending wholesale loan funds. Assessing and buying out microfinance debt (securitisation). Testing and rolling out specific retail products such as the Kissan (Farmer) Credit Card. Engaging microfinance institutions as agents, which are paid for loan origination and recovery, with loans being held on the books of banks. Equity investments into newly emerging MFIs. Banks and NGOs jointly promoting MFIs.

The 2005 national budget has further strengthened this policy perspective and the Finance Minister Mr P. Chidambaram announced "Government intends to promote MFIs in a big way. The way forward, I believe, is to identify MFIs, classify and rate such institutions, and empower them to intermediate between the lending banks and the beneficiaries."

Savings services are needed by many more customers and as frequently as access to phone services. Many poor households value access to savings services and find new providers and arrangements, despite hearing of unreliable savings collectors or even occasionally falling prey to such arrangements. Many customers are rich, literate and lucky to have banks working for them. But many others lack access to safe, secure and accessible savings services for the short, medium and long terms. In the past, many banks sent collectors to gather these savings but problems with monitoring, inability to tackle misappropriation and the rising aspiration of collectors to become permanent staff of public sector banks killed a useful service. The central bank has strictly forbidden commercial banks from using agents in collection of savings services. This is unfortunate as: Effective microfinance delivery is about managing transaction costs for providers and customers.
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A combination of agents and technology can play a powerful role in rightly aligning incentives for the collector and customers, while keeping transaction costs manageable for everyone.

The banks can only open so many branches, and fixed and operating costs are high, apart from approvals still needed from the central bank to open new branches or close existing ones. The appointment of agents can keep costs manageable and offer greater flexibility to Banks.

Banking service may not be able to defy the commercial logic pursued by most other sectors where a variety of retailers provide services to customers, while companies focus on customer needs, product design, quality control, branding, logistics and distribution.

Fortunately, the 2005 Budget opened a small window in this area and the central bank annual policy recently confirmed discussions on this: "As a follow-up to the Budget proposals, modalities for allowing banks to adopt the agency model by using the infrastructure of civil society organisations, rural kiosks and village knowledge centres for providing credit support to rural and farm sectors and appointment of micro-finance institutions (MFIs) as banking correspondents are being worked out." But readers may note that between the budget and the annual policy statement, "credit" has again crept in as the key perceived need.

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New Entries

In the middle of all this, what is interesting about India is that its biggest commercial lenders such as ICICI, HDFC, SBI, UTI etc. to name a few have diverted their funds and attention to this sector in a big way. MNCs like ABN Amro, Standard Chartered, HSBC and the Citigroup are also moving into this sector.

Clearly what drives these institutions is not social responsibility alone. There is a bigger gain involved. What attracts them is a huge market opportunity here with 30% of Indias 1 Billion+ population still living below the Poverty Line and these banks realize that lending to credit worthy rural borrowers is a lucrative business proposition.

As per Ranjan Ghosh, who heads Financial Institutions for India and South Asia at Standard Chartered Bank, "With fewer defaulters in this sector, clearly the risk return rate is acceptable to the banks. We look at it as an investment." And may be that is why NachiketMor of ICICI spends so much of time in India's economically depressed rural hinterland looking for prospective borrowers. So all in all its a good business for Indian banks, given the diminishing market for lending to companies and consumers in cities.

ICICI Bank is one bank that has developed a very clear strategy to expand the provision of financial products and services to the poor in India as a profitable activity.

ICICI Bank's micro credit initiatives involve provision of basic banking services like savings and withdrawal along with micro-investment products like mutual funds and insurance. This provides poor people with safer avenues for saving with little volatility or risk.

Its structures also include buying the microfinance portfolios of MFIs either on a selective basis or buying the complete loans of a branch or a particular area along with partnership arrangements with MFIs. This helps leveraging the operational strength of NGO/MFI with the financial strength of ICICI Bank. In the world's largest securitization deal, ICICI Bank purchased a portfolio of 42500 loans worth US$ 4.3 million from Share Microfin Limited in
54

2004.

In the Public Sector SBI is doing a commendable job in this area with its innovative products like Project Uptech, SBI Life Shakti, SahayogNiwas, Agri SBU, Contract Farming and Kisan Credit Cards.

As has been mentioned earlier Indian Microfinance Industry is increasingly attracting the global attention. Unitus is a case in point. Started in early 2000 by a group of friends with a common mission of poverty alleviation, it is based in Redmond, Washington, with an office in Bangalore. Unitus works in Latin America and Southern Africa, but with one third of the world's population in India, its focus has naturally turned to India.

The structure that Unitus is using is based on what it calls its "accelerator" model, which basically implies acceleration of outreach. To address gaps, Unitus uses three different capital instruments, namely Grant, Debt and finally Equity. Working typically with MFIs, which are NGOs or have originally been NGOs, Unitus first uses grant funds to build the infrastructure in the MFI.

Unitus Equity Fund, along with SIDBI, VinodKhosla and other social venture capitalists made a Rs 11 crore (Rs 110 million) investment in SKS Microfinance in India. The money would be used to access commercial debt and scale outreach from SKS's current 200,000 clients to 700,000 clients by 2006-07.

55

In short what the bigger institutions do is partner with microfinance specialists across India who has knowledge of the local villages and can identify worthy borrowers.

Another very interesting phenomenon that is associated with this industry is the creation of a secondary market over time. Under this the Micro loans would be bundled together into larger Bond issues which will be tradable among the Indian and the Global Investors taking Micro lending to a higher level.

56

The Challenges

All this sounds like a nice combination of corporate interests, fulfilment of social needs and a panacea for Indias balanced development. But this system is not free of complications and challenges.

There have been allegations time and again that microlenders structure their loans with hidden costs to exploit borrowers. The suicides of about a dozen women caught in this kind of a debt trap in Andhra Pradesh illustrate this point. The Government Inspectors had also pointed out four Organizations namely Spandana, Asmita, UmdamaPottuPedatha and Share Micro fin of charging interest rates as high as 40% to 50 %.

On the one hand, the industry is trying to grapple with problems of sudden growth, while, on the other, global social venture funds think that impact needs to be maximized and that institutions with the right professional leadership, governance, and systems need to be supported.

The biggest challenge is to develop a systematic growth mode which can cater to the accelerating demand. In this scenario the two main hindrances to the growth of MFIs are lack of capital and lack of capacity.

Most MFIs are unregulated non-profit organisations, which prevents them from building an equity base. Through a combination of grants, equity and debt, it is possible to transform them into regulated financial institutions with an equity base that then allows MFIs to bolster their balance sheet and access local capital markets. Lack of capacity can be attributed to a variety of factors such as weak corporate governance, lack of management depth, absence of management and strategic planning systems and insufficient business infrastructure.

Another very inherent issue is that the focus of bigger funding organizations is always on mature MFIs, forcing young and mid-tier MFIs to look for capital from local sources, primarily grants. This focus on mature MFIs may be stalling industry growth as only a small
57

percentage (1-2%) of MFIs is sustainable. So provisions have to be made to absorb some initial risk while the MFI develops a track record, relationships and credibility. Along with this what is required is upfront, longer-term involvement. And finally, there is a need for MFIs to work with policymakers on current regulations that limit options for MFIs and investors. Like in India, most MFIs are still NGOs and so they can accept local debt but not equity, and at the same time foreign investors have limited opportunities for investment.

58

Chapter 3

Microfinance in Jammu and Kashmir:

59

Microfinance in J&K
Jammu and Kashmir is the North Western State of India. The state endowed with natural resources and competitive advantage with geographical area 222236.Sq.Kms including an area of 120847.Sq.Kms under unlawful occupation of China and Pakistan, leaving thereby an area of 101387.Sq.Kms. on this side of country accounting for 3.20% of countrys area and 19th populous state with10143700 population as per census 2001 .The main occupation of people of Kashmir is mainly dependent on agriculture and on cottage industries hence the people are associated occupations like tourism,agriculture,horticulture ,fisheries ,carpet weaving, paper machie ,chain stitch ,crewel furnishings ,saffron almonds,serviculture,etc Role of J&K Grameen Bank The role of Grameen Bank is not limited to anyone sectors of the society or economy in the Kashmir region, but the Grameen Banks are playing a vital role in the overall development of the rural economy of the region to improve the life style and standard of the comman masses. Grameen Banks are providing financial assistance to every sector of the society throughout the regionthrough their various organised schemes most importantly through Govt.Sponsered schemes, specifically developed by the govt of India, Reserve Bank of India, National Bank for Agriculture and Rural Development, besides various schemes of the banks developed at their own level. The implementation of these schemes is being supervised and regulated by Govt.of India and NABARD through the lead Bank Department and assessment of implementation of these schemes is being done through BLBCs,DLRCs and SLBCs. Since during the current financial scenario the Govt of India is very forcefully being supervising the implementation of Micro Finance Schemes in the down trodden and under privileged segments of the society, the bank under reference has also put in their reasonable Part of the lending into this sector. The Bank is further taking very impressive steps to speed up the financial inclusion Schemes of the Govt through the issuance of small segment credit cards popularly known as General Credit Cards, Kissan Credit Cards, Both these schemes have played a very vital role in improving the financial position of the rural people at grass root level. Under the Micro Finance schemes the Bank is issuing GCC,s to all the individual families with an initial credit limit of Rs 25000 to meet out their domestic expenses either or spent the money for purchase of inputs for cash crop growing, besides the bank is issuing KCC;s to the same segment of people with a credit
60

limit ranging from Rs5000 to Rs 30000, to be used by the farmers for purchase of seeds, fertilizers, pesticides and other agricultural equipments required as per necessity for growing crops agriculture and other domestic requirements. In both the cases the funds so allocated rather financed to the borrowers or being utilized as revolving funds which a borrower can regularly withdraw and deposit during a particular period of time as would be decided by the bank with a minimum ceiling of 6 months i.e Single Crop Season or one year i.e double crop depending upon the seasonality of the crops.

61

Loans Schemes provided by J&K Grameen Bank for General Public

(1)

PRIORITY SECTOR ADVANCES

Agriculture

a)ST(CropLoan) b)KCC c)Thrashers d)Bullocks e)Pump set f)Tractor Allied Agriculture

a)Dairy b)Sheep c)Goat d)Horse Cart e)Bullock Cart f)Pack Animal g)Piggery h)Bee Keeping i)poultry j)Fishery k)Sericulture l)Mashroom m)Small Road Transport (Agriculture) n)Rice Mill/ Flour Mill Total Agri& Allied Activities(1+2)

62

a)Loans to Rural Artison/Village & Cottage/Tiny Industries b)Loan to SSI c)Housing Loan General Public d)Loan to SHG/NGO e)Small Road Transport(Non-Agriculture) f)Retail trade/small Business g)Loans to Professisonal/Self Emp. h)Cash Credit Limit i)Secured OverDraft SOD j)Education loans k)General Credit Card(GCC)

(2)NON PRIORITY SECTOR.

a)Term Loan to Agri. & Allied Act. b)Trade /Small business c)Cash Credit Limit d)Secured Over Draft e)Consumer Loan to G.Public f)Car Loan g)Personal Loan h)Conveyance/M.cycle Loan i)Mortgage Loan i)Bank Building Loan

(3)Loan Against Deposits

63

Staff Loans a)Personal Loans b)Car Loans c)Conveyance Loan d)Housing Loan e)Mortgage Loan f)Bridging Loan g)Consumer Loans

Agriculture:
Agriculture is the vital component of primary sector, therefore, occupies an important place in every economy especially in Agrarian economies. The performance of Agriculture forms the basis of growth and development of an economy since it has multiplier effect across the economy. The J&K State is basically agrarian in nature. As per census 2001, 18.38 lakh person comprising 15.92 lakh cultivators and 2.46 lakh agricultural labourer depend directly on agriculture for subsistence forming 49% of the total work force. The agriculture and allied sectors contribute about 27% to Gross State Domestic Product estimated at constant price as per advance estimate for the year 20042005. The various types of agricultural practices done in J&K is as: (a) Farmining.

(b) Horticulture. (c) Apple growers, walnut growers & other dry fruit growers.

(d) Sericulture. (e) (f) Mushroom culture. Pisiculture.

(g) Apiculture etc..

64

Land use pattern in J&K State

70 60 50 40 2003-04 30 20 10 0 Area under forest Area not available for cultivation Other uncultivable Land Follow Land Net area Sown 2004-05 2005-06

Use of Land (source Economic Survey J&K)

Horticulture:
As per horticulture census conducted in 1999-200, 84804.159 hectares of area is under all fruits, 54.97% of area is under Apple and 22.14% under walnut. 8.24 lakh metric tones of fruits (both dry and fresh) were exported from J&K to outside state in2005-06 which has slowed down by 7.79% against the figures for 2004-05. As per estimates of horticulture department around 20 lakh people are directly or indirectly employed in this sector.

65

Fisheries:
The total fisherman population in state is around 31000 having a length of 27781 Km of river/streams which facilitate the farming of more than 40 million tones of fish. Out of total 27781 Km under fisheries the state has only 0.07 hectares under reservoir area

Industries

The contribution of industries sector to the States Economy stands meager at 6%. The Jammu and Kashmir is lacking large scale industries and industrial scenario is occupied by small scale and cottage industries. The SSI unit in the state has increased from 42808 in 2001 to 48224 in 2006 and employment generated through these units has increased from 1.9 lakh in 2001-02 to 2.19 lakh in 2006

Tourism Industry:

Tourism is one of the most important industries in J&K especially we have a specially won recognition for Pilgrim Boards. About 450 thousand Yatries visit state every year and 600 other tourists visit valley every year

66

CURRENT SCENARIO OF MICROFINANCE IN J&K

The J&K State is 19th populous state of Country .However stands second last in case of literacy positioned after Bihar. We also stand in the bottom four in case of employment. Still only 3.8% of our population is below poverty line, which shows that people here are skilled in various craftsmanship and so self made which again depict huge potential for micro enterprises in J&K. According to one survey we have 27 Handicraft Federation in J&K with around 270 SHGs and 2700 members

Bank launches microfinance in Jammu

Under its microfinance programme, Jammu and Kashmir Bank has started an ambitious programme to provide hassle free financial assistance to small businesses, like artisans, agri-business activities and others at cheaper rates. Deputy Governor Reserve Bank of India, Ms.UshaThorat, appreciated the role of J&K Bank in reaching out to masses with financial solutions under its microfinance programme. She was speaking on the launching ceremony of the J&K Banks microfinance programme in Jammu today. The chief guest on the occasion, Ms Throat, disbursed loans with a ticket size of Rs. 2,000 to Rs. One lakh to 42 vegetable and fruit vendors on the spot. Overall loan disbursement to the tune of Rs.23.24 lakh was made on the occasion. J&K Bank chairman, Dr.Haseeb A. Drabu, while speaking on the occasion said that the Bank shall be putting every effort to bring unbanked people in the ambit of banking through its Reaching Out to All Programme.
67

Microfinance is in

We have been developing customized products for small businesses, artisans and people carving out their livelihood from agri-business activities and offer these products to them at cheaper rates. In the first stage, we launched the financial inclusion programme in R S Pura in Jammu and Ganderbal in Srinagar where we have opened accounts of people even with small means through our no-frill account S/B Ujala Scheme. Through our focused attention on J&K State, this programme shall be extended to other parts in phases, said Dr.HaseebDrabu. He further stated that the Banks shall be extending hassle free small loans to these segments of people through tailor-made products at cheaper rates. Ms.Thorat, RBI Deputy Governor, in her speech lauded the banks efforts in reaching to unbanked people and appreciated the model of microfinance programme of the bank. While speaking about the benefits of this programme, Ms.Thorat asked the beneficiaries to utilize the loan amount for the purpose it has been granted. She said, The beneficiaries should take full advantage of the banks microfinance scheme to enhance their income generation capacity. But at the same time, they must repay the loan within the stipulated time and help the bank to make it purposeful for others. She also appreciated the IT solutions adopted by the bank for the benefits of its customers. Ms.Thorat later visited the beneficiaries units and took stock of activities related to their day-to-day business.

Awareness programme by J&K Grameen bank

With the objective of providing greater Financial Inclusion to the unbanked people, J&K Grameen Bank has organized one day Awareness programme at village (cluster level for village Sarwal and GurahManhasan) block Khour, with NABARD Financial assistance and support.

Rohit Mishra Deputy General Manager NABARD Jammu, who was the chief guest on the occasion, inaugurated the Awareness programme.

68

While speaking on the occasion, he congratulated General Manager JKGB for taking keen interest in Financial Inclusion programme and also in rural development through Institutional credit. He stressed that reaching out to un-reached segment of the population and providing basic financial services is the need of the hour.

He also highlighted the policies and programmes of NABARD for facilitating Financial Inclusion programme. Mohit Kumar Vij, General Manager J&K Grameen Bank, while speaking on the occasion, he impressed upon the gathering to come forward to open the accounts in JKGB and avail benefits from the various schemes of the bank so that the large chunk of population living below the poverty line can join the main stream.

He outlined the Financial Inclusion concept and said that bank is regularly organizing such type of programmes for imparting education to the general masses more particularly to the financially excluded peoples.Earlier H.S Sambyal Area Manager Jammu formally welcomes the guests and participant to the programme. He also apprised the gathering about the policies and programmes of the bank.

JK Grameen Bank organises Kissan credit fair

The J&K Grameen Bank organized a Kissan Credit Fair. The Bank on the occasion distributed loan among farmers at Kralgund in north Kashmirs Kupwara district, it said in a statement. Giving details it said Rs 60 lakh were disbursed among 70 consumers under different schemes of central government meant for weaker sections of society and financially weak farmers for earning livelihood. General Manager, Grameen Bank Muhammed, Altaf Bhat asked the farmers to avail benefits of these schemes. Area manager GB, Khursheed Ahmed Shah apprised people about these schemes.

69

J&K Grameen Bank, NABARD launch Lord Krishna Farmers Club

4 J&K Grameen Bank, Branch Office, Rajbagh, with the assistance of NABARD launched a Farmers Club namely Lord Krishna Farmers' Club at village KarandiKalan in Kathua district today. The club is charged to arrange hassle free credit for the villagers by maintaining better borrowing relationship and shall function as a bridge between the farmers and the bank. The function was chaired by S L Sukhdevya Chief General Manager NABARD, AmanKalsotra DDM NABARD Kathua. M K Viz General Manager J&K Grameen Bank, M L Sharma Area Manager J&K Grameen Bank, Area Office Kathua and other representatives of the Banks and Government Departments like Agriculture, Animal husbandry, and Rural Development also graced the occasion.M.KViz General Manager of the Grameen Bank explained the farmers about the loan scheme of the bank. He also informed the gathering that these farmer clubs are generally formed in the service area of the bank under Farmers' Club Programme of NABARD for creating a suitable climate in the village for proper use of loans, recycling of funds and bringing about improvements in their day to day life. It was disclosed that the club shall arrange interface with subject matter specialists in various fields of agriculture for technical know-how for improving agricultural productivity. It would also undertake the development activities like community works, education, health, environment and natural resources management in the area and all other activities. About 50 farmers participated in the function. Chief General Manager NABARD also distributed Kissan Credit Cards to the farmers of the village. The representatives of the line department informed the villagers about their respective schemes and assured them to extend every support and help for their development.

70

J&K Grameen Bank inaugurates Farmers Club

The J&K Grameen Bank inaugurated a Farmers Club at Tragbal in Varmul. The club has been named after a spiritual personality of the area Baba Hamidullah. The club was inaugurated by Chairman Grameen Bank, Raja Abdul Lateef in presence of a well attended gathering comprising locals of the area. General Manger, Muhammad AltafBhat and Abid Ahmad Area Manager of Grameen Bank, were present at the function. Lateef in his address stressed the need for creation of such clubs. The farmers clubs serve as informal forums at grassroots. They are organized by rural branches of banks throughout the country to provide package of initiatives helping transfer of technology, improving input use efficiency and promoting investments in agriculture both in private and in public sectors and creating a favourable and enabling economic environment, he said. He said the clubs were organized with the support and financial assistance of NABARD for the mutual benefit of the banks concerned and rural people. He said opening of todays club was a beginning towards bringing in benefits to our farmers which their counterparts in other states are already enjoying. More such clubs will be established and organized in near future, he assured. Bhat said the development in rural areas through credit, technology transfer, awareness and capacity building was the main focus of the farmers club. He said the farmers club programme was the appropriate and most suitable strategy initiated by NABARD under which location specific skill and knowledge based technologies to promote greater value addition to agriculture produce and forge new partnerships between public institutions, technology users and the corporate sector was envisaged and adhered to. He said the Grameen Bank was committed to economic uplift and prosperity of the farmers who had been facing problems in absence of such clubs while dealing with the financial institutions and banks

71

Introduction to Srinagar District

Srinagar district is situated in the centre of Kashmir Valley, is surrounded by five districts. In the north it is flanked by Kargil,in the South by Pulwama,in the north-west by Budgam. The capital city of Srinagar is located 1730 metres above sea level. The district with a population of around 9,00,000 souls(1991- census), is sperad over an area of 2228 Sq.Kms.It comprises three tehsils/ towns viz Srinagar, Ganderbal and Kangan, four blocks (Srinagar, Ganderbal, Kangan and Leh), besides 175 villages.The population density in the district Srinagar is 401 per Square Kilometer which is highest in the state. The literacy rate of the district was 33.80%in 1981. According to a popular legend which is mentioned in Kalhana'sRajtaringini Kashmir valley was a vast lake. Kashyap Rishi drained out the water and made it habitable. It is said that originally Yakshas and Pisacas tribes inhabited the valley at the higher reaches and did not allow the inhabitants of the valley to live in peace. King Ashok brought Budhism to Kashmir which was strengthened by Kanishka. In 6th century Huns came to rule the valley and Mihirkul was one of the infamous Hun ruler. The area attained freedom in 530 AD which was shortlived. According to Sir Aurel Stein the famous interpretor of Kalhana the chronicler of Kashmir the city of Srinagar had big market and mansions made of wood touching the clouds. Hieun-tsang the famous Chinese traveler visited Srinagar and has described it his memoirs. At a Glance Educational Institutions Colleges/polytechnics universities Road length Area Population Population Density 955 10 2 1296 Kms 2228 sq. kms 9,00,000 (1991) Km

72

Villages Tehsil Towns Panchayats Blocks Live-Stock Population Gross Area sown Forests Villages electrified Villages with drinking water Literacy rate

175(7 uninhabited) 3 3 93 4 2.50 lakhs 0.24 lakh hect. 660.50 sqkm 168 168 33.31

TOTAL IDENTIFIED CLUSTERS IN KASHMIR VALLEY

S.No IDENTIFIED CLUSTER

NUMBER OF PEOPLE INVOLED

450 ARTISANS 19 UNITS 12000 FAMILIES 9300 ARTISANS 14750 ARTISANS 8500 ARTISANS

VOLUME OF BUSINESS GENERATED

AREA OF CONCENTRATION

1 2 3 4 5 6 7

BAT CLUSTER LEATHER CLUSTER FOOD PARK CARPETS PAPER MACHIE SOZNI EMBODIERY CREWEL EMB

AWANTIPUR DOWNTOWN AREA KHANMOH

1.50 CRORE

DARGAH & DOWNTOWN ZAZUN,BADAM PORA, UP-TOWN DOWNTOWN

73

8 9 10 11 12

AARI EMB WILLOW WORK ZARI EMB WOOD CARVING KANI SHAWL

20000 FAMILIES 300 FAMILIES 400 FAMILIES 215 FAMILIES 500 ARTISANS

DOWNTOWN & UPTOWN GANDERBAL, DARGAH

DOWNTOWN DOWNTOWN

74

Chapter 4

DATA INTERPRETATION

75

Statement of Scheme Wise Loans And Advances Disbursed /Outstandings Viz a Viz NPA And Provisioning There Of As On: 31-03-2011.

J&K Grameen Bank Branch Office Tilgam Baramulla

Loans disbursed 2010-2011

Advances outstanding31-03-2011 No. Of Account s

NPA
Amount of NPA Amount Of NPA Provision
Total Provision On Advances

S.No

Scheme /Sector

No. Of Accoun ts

Amount

Amount

1 2 3 4 5 6 7 8

ST CropLoan(KCC)
T?L For Agriculture&Allied Activities Rural Artisan /SSI/ village industries

188 xxx 12 1 8 xxx xxx 48 257

29115 xxx 527 324 820 xxx xxx 3735 34521

119 20 54 9 57 3 xxx 90 352

14359 5361 2121 2496 5731 23 xxx 6338 36429

497 480 57 xxx 153 xxx xxx 43 3377

149 480 57 xxx 46 xxx xxx 43 775

184 487 62 06 68 xxx xxx 68 857

Transport
Retail Trade /Small Businesss

General Credit Card (GCC)

Self Help Group(SHG) Others(non priority sectors)

Total

76

200 180 160 140 120 100 80 60 40 20 0

35000 30000 25000 20000 15000 10000 5000 0

No. Of Accounts Column1 Amount

77

ADVANCES OUTSTANDING AS ON 31-03-2011

140 120 100 80 60 40 20 20 0 9 3 0 54 57 119 90

16000 14000 12000 10000 8000 6000 4000 2000 0

No. Of Accounts Amount

NPA PROVISIONS
600 500 400 300 200 100 0 600 500 400 300 200 100 0

Amount of NPA Amount Of NPA Provision Total Provision On Advances

78

Asset Classification And Provisioning

. s.no 1 STANDARD ASSET ASSETS %age of provision 0.65

2 3 4 5 6

SUBSSTANDARD ASSET DOUBTFUL ASSET UPTO 1 YEAR DOUBTFUL ASSET UPTO 2 year DOUBTFUL ASSET UPTO 3 year UNSECURED PORTION

10 20 30 100 100

LOSS ASSET

100

Assets & Thier %age of provision

100

STANDARD ASSET SUBSSTANDARD ASSET DOUBTFUL ASSET UPTO 1 YEAR DOUBTFUL ASSET UPTO 2 year DOUBTFUL ASSET UPTO 3 year UNSECURED PORTION LOSS ASSET

100 100 30 20 10 0.65

79

Comprative Business Profile Of Last Five Years.

J&K GRAMEEN BANK B/O:Tangmarg(Baramulla) S no particulars Year 2006_07 335 Year 2007_08 401 Year 2008_09 433 Year 2009_10 470 Year 2010_11 520

deposits

Advances outstanding

46

106

162

183

254

C.D ratio

26

26

37

39

49

Disbursement target

115

174

156

229

294

Disbursement made

17

54

85

82

121

NPA (gross)

0.28

1.04

xxx

2.30

10.76

Recovery in NPA

xxx

0.28

1.04

xxx

0.61

80

Chart Showing Comprative Business Profile of Last Five Years.

500 450 401 400 350 300 250 200 150 106 100 50 0 deposits Advances outstanding C.D ratio DisbursementDisbursement NPA (gross) Recovery in target made NPA 46 26 26 37 54 17 0.28 1.04 0 0 0.281.04 162 115 85 174 156 Year 2006_07 Year 2007-_08 Year 2008_09 335 433

600 520 500 470 400 300 200 100 0 183 121 39 49 82 2.310.76 0 0.61 294 254 229 Year 2009_10 Year 2010_11 Series 3

81

Statement of Scheme Wise Loans And Advances Disbursed /Outstandings Viz a Viz NPA And Provisioning There Of As On: 31-03-2011.

J&K GrameenBank Branch Office Tangmarg (Baramulla)

Loans disbursed 2010-2011

Advances outstanding31-03-2011 No. Of Account s

NPA
Amount of NPA Amount Of NPA Provision
Total Provision On Advances

S.No

Scheme /Sector

No. Of Accoun ts

Amount

Amount

1 2 3 4 5 6 7 8

ST CropLoan(KCC)
T?L For Agriculture&Allied Activities Rural Artisan /SSI/ village industries

107 1 6 3 13 xxx xxx 20 152

5340 30 220 935 2200 xxx xxx 3366 12091

90 5 25 16 85 xxx xxx 62 283

4370 1230 757 2969 10345 xxx xxx 5597 25358

xxx xxx xxx 324 752 xxx xxx xxx 1076

xxx xxx xxx 32 75 xxx xxx xxx 1076

11 03 02 39 113 xxx xxx 22 190

Transport
Retail Trade /Small Businesss

General Credit Card (GCC)

Self Help Group(SHG) Others(non priority sectors)

Total

82

Statement of Scheme Wise Loans And Advances Disbursed /Outstandings Viz a Viz NPA And Provisioning There Of As On: 31-03-2011.

100 90

12000

10000 80 70 8000 60 50 40 4000 30 20 2000 10 0 0 6000

No. Of Accounts Column1 Amount

83

LOANS DISBURSED IN 2010-2011

100 90 90 80 70 62 60 50 40 85

12000

10000

8000

6000

No. Of Accounts 4000 Column1 Amount 16 2000 25

30 20 10 0

5 0 0 0

84

Asset Classification And Provisioning

. s.no 1 2 3 4 5 6 7 STANDARD ASSET SUBSSTANDARD ASSET DOUBTFUL ASSET UPTO 1 YEAR DOUBTFUL ASSET UPTO 2 year DOUBTFUL ASSET UPTO 3 year UNSECURED PORTION LOSS ASSET ASSETS %age of provision 0.65 10 20 30 100 100 100

Assets & Thier %age of provision

0.65 10 20 100 30 STANDARD ASSET SUBSSTANDARD ASSET DOUBTFUL ASSET UPTO 1 YEAR DOUBTFUL ASSET UPTO 2 year DOUBTFUL ASSET UPTO 3 year

100 100

Comprative Business Profile Of Last Five Years.

85

J&K GRAMEEN BANK B/O:N.C SOPORE (Baramullla) S no particulars Year 2006_07 434 Year 2007_08 505 Year 2008_09 491 Year 2009_10 618 Year 2010_11 675

deposits

Advances outstanding

184

239

297

476

736

C.D ratio

42

47

60

77

109

Disbursement target

75

124

144

232

305

Disbursement made

113

146

152

291

351

NPA (gross)

1.73

2.08

13.65

15.60

22.81

Recovery in NPA

0.39

0.46

0.67

1.17

1.84

86

Graph Showing Comprative Business Profile For Year 2006-2008

600 500 400 300 200 100 0 184 144 42 60 75 113 1.73 13.65 0.39 0.67 297 Year 2006_07 Year 2007-_08 Year 2008_09 505 491 434

152

Graph Showing Comprative Business Profile For Year 2009-2010

800 700 600 500 400 300 200 100 0 77 109 15.6 22.811.17 1.84 232 476 305 291 351 Year 2009_10 Year 2010_11 675 618 736

87

Statement of Scheme Wise Loans And Advances Disbursed /Outstandings Viz a Viz NPA And Provisioning There Of As On: 31-03-2011.

J&K GrameenBank Branch Office New Colony (Sopore)

Loans disbursed 2010-2011

Advances outstanding31-03-2011 No. Of Account s

NPA
Amount of NPA Amount Of NPA Provision
Total Provision On Advances

S.No

Scheme /Sector

No. Of Accoun ts

Amount

Amount

1 2 3 4 5 6 7 8

ST CropLoan(KCC)
T?L For Agriculture&Allied Activities Rural Artisan /SSI/ village industries

32 5 1 7 32 xxx xxx 63 140

12100 263 160 1945 7200 xxx xxx 13401 35069

45 8 7 27 100 12 xxx 148 347

14817 488 214 5720 22524 139 xxx 29717 73619

131 25 77 308 1523 38 xxx 29717 73619

13 05 08 31 228 38 xxx 36 359

50 06 09 45 312 39 xxx 154 615

Transport
Retail Trade /Small Businesss

General Credit Card (GCC)

Self Help Group(SHG) Others(non priority sectors)

Total

88

Loans disbursed 2010- 2011

70 60 50 40 30 20 10 0 5 7 1 0 0 0 No. Of Accounts Column1 32 32 63 16000 14000 12000 10000 8000 6000 4000 2000

Amount

Advances outstanding31-03-2011
160 140 120 100 80 60 40 20 0 8 7 15000 45 27 12 0 0 10000 5000 100 148 35000 30000 25000 20000

No. Of Accounts Column1 Amount

89

NPA Provision And Advances

350

35000

300

30000

250

25000

200

20000

150

15000

100

10000

50

5000

Amount Of NPA Provision Total Provision On Advances Amount of NPA

90

Asset Classification And Provisioning

. s.no 1 2 3 4 5 6 7 STANDARD ASSET SUBSSTANDARD ASSET DOUBTFUL ASSET UPTO 1 YEAR DOUBTFUL ASSET UPTO 2 year DOUBTFUL ASSET UPTO 3 year UNSECURED PORTION LOSS ASSET ASSETS %age of provision 0.65 10 20 30 100 100 100

120 100 80 60 40

Assets & Thier %age of provision

100 100 100

30 20 10 0.65 %age of provision

20 0

91

Comprative Business Profile Of Last Five Years.

J&K GRAMEEN BANK B/O:Panzinara(Srinagar) S no particulars Year 2006_07 302 Year 2007- Year _08 2008_09 410 523 Year 2009_10 681 Year 2010_11 861

deposits

2 3

Advances outstanding C.D ratio

38 27

66 74

71 08

105 48

148 41

Disbursement target

42

99

123

116

130

Disbursement made

12

41

34

66

85

NPA (gross)

2.33

1.64

2.59

2.07

163

Recovery in NPA

0.68

2.40

0.13

0.52

0.44

92

Comprative Business Profile Of Last Five Years.

800

700

600

500

400

300

200

100

Year 2006_07 Year 2007-_08 Year 2008_09 Year 2009_10

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Suggestions
Suggestions 1: People need to be informed about various options of accessing credit and benefits of savings through MFIS and methods of availing these funds i.e. marketing is required. Outreach to the low income group is required. This May require some microfinance awareness programs which may involve skilled and dedicated staff. A Replica of Grameen Bank with some added features such as micro Saving and micro Insurance is must to bring poor out of this poverty trap.

Suggestions II: Other possible is to increase the flow of funds to informal lenders to supplement their own funds. The formal sector will take advantage of the lower transaction costs and risk premia of the informal sector so as to reach the low income group borrowers beyond the profitable reach of the formal sector. As for the beneficiaries, inspite of the transaction cost of the formal and the informal sector being transferred on to them, the cost of borrowing will remain low as compared to what exists through money lenders. In addition, access to the formal sector funds could promote competition within the informal sector and check the exhorbitant profits being made in this sector. It also promotes allocative efficiency by offering a broader choice for the productive use of savings by beneficiaries, irrespective of which sector they are mobilised by.

In the process, the intermediaries would also charge additional fees to borrowers to cover their costs. It would also aid them in strengthening themselves. However, it would be aimed to make the funds reach the beneficiaries at applicable rates of the two institutions. The intermediaries would accept the savings from groups as collaterals and would transfer the same to the formal sector for getting the deposits serviced better. Thus the two way flow of funds would benefit both the formal and informal sector. The beneficiaries would benefit as the cost of borrowing would be low for them and their savings would be safe and would be serviced better. An analysis of community-based finance systems highlights the high establishment costs of NGOs. They suggest that loan service costs are lower amongst co-operative societies,
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as compared to NGO-linked CBFIs, because of decentralized loan administration and availability of voluntary staff. The NGO-linked CBFI operations are generally supported by grants from national and international donor agencies. NGO-linked CBFIs must aim at an adequate scale of operation and while it may be supported by grants to meet establishment costs in the initial period, dependency on such grants should be reduced over time. An adequate interest rate spread must be available to meet the transactions costs. CBFIs should be able to recover all costs through its financial operations, by building up their capacity for financial management, through training and interaction with the Formal sector institutions.

SUGGESTIONIII: Since it is now being felt that the existing structures are inadequate to meet the housing and economic credit needs of the participating community, an Institution that would combine the strengths of an NGO and the expertise of a financial institution, with participation from the community will be appropriate. Thus, the concept of Development Association for Savings and Credit (DASC) could be utilised to address the issue of providing better access to housing finance and economic loans for the participating community in the project area. The DASC is built on the strength of the informal groups to create and improve access to skills, resources and markets. These Groups mobilize savings from their constituent members and other formal/informal sources. The funds mobilized are thus used for meeting the credit needs of the members. The DASC will be initiated with the objective to create an alternate, self-sustainable, community based financial organization appropriate to meet the shelter development and livelihood needs of the weaker section belonging to the rural community. The long term goal of DASC may include: Establishment of a resource centre for shelter and livelihood development for the weaker sections of the society. Demonstration of a viable community based credit system in operation where the communities have access to and control over
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financial resources based on their own strength. Developing group based approach as a sustainable development paradigm for community development.

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Conclusion
Some valuable lessons can be drawn from the experience of successful Microfinance operation. First of all, the poor repay their loans and are willing to pay for higher interest rates than commercial banks provided that access to credit is provided. The solidarity group pressure and sequential lending provide strong repayment motivation and produce extremely low default rates. Secondly, the poor save and hence microfinance should provide both savings and loan facilities. These two findings imply that banking on the poor can be a profitable business. However, attaining financial viability and sustainability is the major institutional challenge. Deposit mobilization is the major means for microfinance institutions to expand outreach by leveraging equity (Sacay et al 1996). In order to be sustainable, microfinance lending should be grounded on market principles because large scale lending cannot be accomplished through subsidies. The absence of savings has unfortunately been one of the distinguishing features of Indian microfinance and prevents it from providing a financial service to the poor which is as valuable to them as microcredit, the report outlines.There are strong synergies between microinsurance and microcredit. Insurance offers safeguards to assets created under microcredit programmes. It also protects savings from being wiped out by shocks arising out of sickness, death, accidents or droughts A main conclusion of this project is that microfinance can contribute to solving the problem of inadequate housing and urban services as an integral part of poverty alleviation programmes. The challenge lies in finding the level of flexibility in the credit instrument that could make it match the multiple credit requirements of the low income borrowers without imposing unbearably high cost of monitoring its end-use upon the lenders. A promising solution is to provide multi-purpose loans or composite credit for income generation, housing improvement and consumption support. Consumption loan is found to be especially important during the gestation period between commencing a new economic activity and deriving positive income. Careful research on demand for financing and savings behavior of the potential borrowers and their participation in determining the mix of multi-purpose loans are essential in making the concept work (tall 1996). Eventually it would be ideal to enhance the creditworthiness of the poor and to make them more "bankable" to financial institutions and enable them to qualify for long-term
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credit from the formal sector. Microfinance institutions have a lot to contribute to this by building financial discipline and educating borrowers about repayment requirements.

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BIBLIOGRAPHY:

ARTICLES/JOURNALS/BOOKS Annual report of J& Grameen Bank 2010-2011 Articles from Greater Kashmir (Daily Newspaper). Business line. Business today. Economic times. Articles from Rising Kashmir (Daily Newspaper).

WEBSITES www.jkgb.net www.google.com www.khoj.com www.rbi.org

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