MFImodels
From Udaimicrofin
Contents |
Microfinance Models in India
A variety of approach has been proposed and employed to help the poor section of society all over the world. In the field of microfinance, there is no best way to support the poor section and hence multiple models exist. In Indian context, the MFI models can be broadly categorised into following categories:
Self Help Groups
- 10-20 member groups (mostly women), from poor (Below Poverty Line (BPL)) sections
- Service focus is on savings and credit
- The groups loans to members from their own savings, external loans are taken from banks, where the group is jointly liable
- Interest rates comprise of bank rates (usually 5-10%), plus a profit share. The effective interest is around 20% (too high?). The initial loans size is around Rs 5000-10000
- Monthly meetings to discuss outstanding issues. Monthly saving deposits at around Rs 20-100/month. (Expand on this)
Federated Self Help Groups
- Federation of different Self Help Groups to expand the financial services provided by a single SHG and overcome the limitations of individual SHGs
- It is a three-tier structure - the lowest tier is the SHG (basic unit), the middle tier is cluster (a cluster is comprised of two members of SHGs in the federation) and the topmost tier is an executive body (10-15 members)
- Forming a federation allows them to have paid staff members, enable SHGs to access external funds, promoting new SHGs, facilitate inter group exchange
- Some notable examples are PRADAN, Chaitanya, SEWA and federations promoted by Dhan Foundation (SPMS)
Grameen Replicators
- 5-10 members each (mostly women), coming together for taking a joint loan from MFIs, assuming joint liability
- Focus on regular cycle credit for starting a microenterprise
- Effective interest rates at around 20-30%
- Weekly meetings with deposits of around Rs 5-25/week
Cooperative Models
- Works on the principle that every community has human and financial resources to manage their own financial institutions
- An organization of such kind is owned by its members and is comprised of people from different sectors like agriculture, health, wholesale and retail etc.
- By netwroking, small local financial institutions scale up and are sustainable while locals maintain ownership and control over their institution
- A classic example is Canadian Co-operative Association (CCA) and Sahavikasa in India
Individual Banking
- Individual clients receive loans on conditions of minimum savings deposit
- Loans to both poor and non poor, with flexible savings deposits, at effective interest rates of 20-35%
Self Help Groups
Role of SHGs in Community
- Politics: Members regularly run for office in village and local panchayats
- Society: Most SHGs are affinity groups, similar castes or religions. One third of SHGs are multicultural, mostly NGO promoted groups
- Social justice: A few incidents of domestic and sexual violence
- Community Action: 30% SHGs involved in community action, infrastructure improvement, stopping alcohol sale etc.
Sustainability
Many SHGs do not keep proper records of their saving and transactions, making it harder to assess the impact of the MFI and involvement. This is partly a problem of the MFI volunteers and partly due to the SHGs themselves. Paid office bearers tend to keep better records. Also since mostSHG members are poorly educated, this increases the problem of accurate and regular book-keeping. Computerisation of records has helped to some extent, but still a lot of hand holding is required by the MFI volunteers and administrative people.
Another consideration is of equity. Most SHGs are however are aware of this. Most members usually contribute to their own capability, instead of each member donating equal amounts.
Loan defaults is an issue. As many as 28% SHGs according to EDA's survey were 12 months or behind in their repayment schedule. Group leaders and members alike were defaulters. Also southern states had higher incidents of loan defaults.
Many SHGs do not have proper financial statements. Also many members did not know of their own SHG's financial status, even though might be involved in the loan decision making process.
