January 2008 Vol 52 - Yojanayojana.gov.in/cms/(S(v1ioye4534ijobrqz1t5cc45... · 4 YOJANA January 2008 ECONOMIC INDICATORS ANNUAL INDICATORS Units 2000-01 2001-02 2002-03 2003-04 2004-05

YOJANA January 2008 1

January 2008 Vol 52

Chief Editor : Anurag Misra

Senior Editor : Dr Sapna N. Singh

Editor : Manogyan R. Pal

Joint Director (Prod) : N.C. Mazumder

Cover Design : Rajesh Sharma

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Website : www.publicationsdivision.nic.in

Let noble thoughts come to us from every side

Rig Veda

C O N T E N T S

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Disclaimer :The views expressed in various articles are those of the authors' and not necessarily of the government.The readers are requested to verify the claims made in the advertisements regarding career guidance books/institutions. Yojana does not own responsibilityregarding the contents of the advertisements.

EDITORIAL OFFICE : Yojana Bhavan, Sansad Marg, New Delhi Tel.: 23096738, 23717910, (23096666, 23096690, 23096696- Extn. 2509, 2510, 2565, 2566, 2511).Tlgm.: Yojana. Business Manager (Hqs.) : Ph :24367260, 24365609, 24365610

GIVE THE MAN CREDIT ........................................................... 7Interview : Muhammad Yunus

WORLD BANK REPORT :SOUTH ASIA ................................ 11

CREDIT NEEDS OF FARMERS ............................................... 13Maria Dooner and Santhosh Srinivasan

MICROINSURANCE IN INDIA ............................................... 17Anuradha Rajivan

TOWARDS LIVELIHOOD SECURITY ................................... 21Reema Nanavaty

ROLE OF SELF HELP GROUPS .............................................. 25H S Shylendra

HINDI-CHINI RURAL FINANCE ............................................ 29Sanjay Sinha

COMMERCIALISATION OF MICROFINANCE .................... 33M S Sriram

MF AND FINANCIAL INCLUSION ........................................ 37P M Mathew

ISSUES AND STRATEGIES ...................................................... 41N D George

HUMAN WELFARE AND RESEARCH INITIATIVE ............ 44S K Chugh

BEST PRACTICES MAKING DREAMS COME TRUE ........ 48P Dinakara Rao

MF DEVELOPMENT AND REGULATION............................ 51B Yerram Raju

THE MICROFINANCE BILL ................................................... 56Savita Shankar and Mukul G Asher

B-SCHOOL FOR RURAL WOMEN ......................................... 59Sandeep Kumar and Smita Anand

DO YOU KNOW ? WHAT IS MICROFINANCE? ............... 62

FOR RURAL DEVELOPMENT .............................................. 63V Vijay Anand

J&K WINDOW .....................................................................65

MAKING GROWTH MORE INCLUSIVE ............................... 68P Chidambaram

INDIAN MUTINY AND RAILWAYS ...................................... 70A Ramarao

EMPLOYMENT AND GROWTH ............................................ 74C Rangarajan

THE PATH OF MAHATMA .................................................... 77Pragya Paliwal Gaur

F.D ENGINEER ......................................................................... 79Krupa Patil

BUDGET HUMOUR ................................................................. 81K K Khullar

IN THE NEWS ......................................................................... 84

(Circulation) : pdjucir_ [email protected]

2 YOJANA January 2008


About the Issue

Access to social security is a fundamental human right. While the country isexperiencing faster growth in its Gross Domestic Product (GDP), a majorconcern is the balanced growth to bridge the gap between the rich and the

poor. According to RBI, over 40% of Indians do not even have bank accounts. TheNational Sample Survey 59th Round (2003) estimates reveal a disappointing factthat of the total cultivator households, only 27% have received credit from formalsources, and 22% from informal sources. The remaining 51% mostly marginalfarmers - have virtually no access to credit.

It is in this context that one needs to appreciate the role played by microfinanceinstitutions (MFIs), in collaboration with government, NGOs, social organizations etc, in poverty alleviation,employment generation, improvement of health and nutritional status, empowerment of women and theirhuman development. Microfinance is seen as provision of financial service to mostly low-income people,especially the poor and very poor who are without any tangible assets.

There are 41 microfinance programmes in operation in 17 countries, including Grameen Bank inBangladesh. Independent studies have shown that these MFIs have been instrumental in reducing poverty.The microfinance programme in India has been under implementation since 1993. However, concrete evidenceof poverty alleviation has been debated. In the case of SEWA, participants in such programmes havereported higher income, and this is especially so for women. The task of awareness on the human developmentaspects needs to be undertaken. There is a need for evaluation of existing microfinance programmes byindependent researchers. Panchayati Raj Institutions shall be involved right from village to district levels toimplement these programmes.

The government needs to have a new approach to make microfinance reach out to the poor and thepoorest of poor of the country like introducing finance and policies for tribal people etc. The suggestion ofthe Finance Minister is welcome urging industry to distribute the microfinance policies through the bankbranches as India has the fourth largest banking infrastructure in the world. India’s poor must have access tosocial and financial security.


ECONOMIC INDICATORSANNUAL INDICATORS Units 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08

(Proj.)

Population (as on 1 Oct) in crores 101.9 103.8 105.5 107.3 109 111 112.2

GDP at current market prices (new series) Rs.crore 21,02,375 22,81,058 24,58,084 27,65,491 31,26,596 35,67,177 41,25,725

GDP:Per Capita (current prices) Rupees 20,632 21,976 23,299 25,773 28,684 32,224 36,771

Gross domestic savings (current prices) % of GDPmp 23.7 23.5 26.4 29.7 31.1 32.4

Gross domestic capital formation (cur. pr) " 24.3 22.9 25.2 28.0 31.5 33.8

Central Govt. Gross Fiscal Deficit " 5.7 6.2 5.9 4.5 4.0 4.1 3.7

Sectoral shares (of GDPfc at current prices)

Agriculture & allied % of GDPfc 23.4 23.2 20.9 20.9 18.8 18.3 17.5

Industry " 26.2 25.3 26.4 26.1 27.5 27.6 27.9

Services " 50.5 51.5 52.7 52.9 53.7 54.1 54.6

Prices (Annual Average)

WPI of All commodities (wt 100.00) Apr 1993=100 155.7 161.3 166.8 175.9 187.2 195.5 206.1

CPI-IW General index: India Jul 2001=100 95.93 100.07 104.05 108.07 112.2 117.2 125.0

Agriculture: Production

Foodgrains mln. tns. 196.8 212.9 174.8 213.9 198.4 208.6 216.1 217.2

Cereals " 185.7 199.5 163.7 198.3 185.2 195.2 201.9 202.6

Rice " 85.0 93.3 71.8 88.5 83.1 91.8 92.8 93

Wheat " 69.7 72.8 65.8 72.2 68.6 69.4 74.9 75

Pulses " 11.1 13.4 11.1 14.9 13.1 13.4 14.2 14.6

Oilseeds " 18.4 20.7 14.8 25.2 24.4 28.0 23.9 27.3

Sugar cane " 296 297.2 287.4 233.9 237.1 281.2 345.3 365

Industry & Energy

"Index of industrial production (wt 100) Apr 1993=100 162.7 167.0 176.6 189 204.8 221.5 247.1(Annual Average) % change 5.1 2.6 5.8 7.0 8.4 8.2 11.5

Commercial energy production MTOE # 230.9 237.9 246.9 259.2 272 281.4

Electricity generation by public utilities bln. kwh 501.2 517.4 532.7 565.1 594.5 617.5 662.5

External Transactions

Exports US $ mln. 44147 43958 52823 63886 83502 103075 126246

Imports " 50056 51567 61533 78203 111472 149144 190438

Forex reserves (March-end) ^ " 39554 51049 71890 107448 135571 145108 191924

Foreign direct investments in India (net) " 4031 6125 5036 4322 5987 7661 19442

Portfolio investments in India (net) " 2760 2021 979 11356 9311 12494 7004

Rupee exchange rate Rs / USD 45.61 47.55 48.30 45.92 44.95 44.28 45.29

INDICATORS: MONTHLY Units Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov'06 '06 '06 '06 '06 '07 '07 '07 '07 '07 '07 '07 '07 '07 '07 '07

Prices

Wholesale price index 1993-94= 100 205.3 207.8 208.7 209.1 208.4 208.8 208.9 209.8 211.5 212.3 212.3 213.6 213.8 215.1 215.0 215.5

(All Commodities) % change 5.1 5.4 5.5 5.5 5.7 6.4 6.3 6.6 6.3 5.5 4.5 4.7 4.1 3.5 3.0 3.1

Agriculture

Actual rainfall (All-India) Millimetres 325 169 44 50 12 2 30 32 27 48 153 259 299 194 75

Dev. from normal rainfall Per cent 8 0 -47 33 -24 -92 32 14 -20 -31 8 0 -2 14 -22

Stock of Rice (Central pool) mln. tns. 7.8 6.0 12.5 12.1 12.0 12.6 14.0 13.2 13.5 12.6 10.6 6.7

Stock of Wheat (-do-) mln. tns. 6.7 6.4 6.0 5.6 5.4 5.4 5.1 4.6 11.6 13.3 12.8 10.9

Investments (CMIE CapEx database) Mar '01 Mar '02 Mar '03 Mar '04 Mar '05 Mar '06 Mar '07 Sep '07

"Project investments Rs.crore 14,28,449 15,12,975 14,10,828 15,28,611 19,73,426 28,12,111 44,77,398 51,59,875

outstanding (as on) project count 4,539 6,108 7,196 9,070 9,822 10,050 12,725 13,832

Note: (a) % change is year on year (y-o-y) basis; (b) # MTOE: Million Tonnes of Oil Equivalent; (c) ^ Total value of foreign currencies held by Govt. of India (excl. gold &SDRs); (d) * It is the sum total of the project costs of all the outstanding (Live) capital expenditure projects happening in the country. These projects may be under announced

or under-implementation stage.

Source: i3 (i-cube) at Planning Commission, New Delhi, Centre for Monitoring Indian Economy (CMIE)


am glad that Yojana has dedicated a special issue to the topic of microfinance.It is a crucial and timely intervention. In the past decades, the world hasrealized that the poor are bankable and poor women are the most trustworthy inproviding financial services. Overtime, the notion of micro-credit has broadened

into microfinance that includes not only savings and credit but also insurance andpension - I would also add housing. The challenge in future is that the low incomepeople are inclusive to financial systems.

Microfinance can be robustly sustainable. When the model is right, the growth ofmicrofinance is fast. Worldwide microfinance institutions have grown 13 to 15 percent, a year in the last decade (CGAP). Of course, not so much as mobile phonesubscribers - 60% per year from 1999 to 2004. Still, two-third of population (inIndia) does not have a basic bank account. It is an entry point that allows theperson/women to have money outside the household when the empowerment process startsas my experience of SEWA Cooperative Bank goes.

This fact has captured the attention of Governments, International FinancialInstitutions, philanthropists, social investors, mainstream bankers, even royaltyand celebrities. The drive is strong but is it strong enough to grow further and notdecline?

The factors of 'inclusive finance' are complex and difficult to predict.However, surely, in next several years, the client base will change for Banks andMFIs. The younger will be seeking financial services. More than half of ourpopulations today are children and teenagers who will be the future clients.Secondly, there will be more urban clients. By 2009, urban dwellers will be inmajority in our country. Thirdly, these young clients will be more connected andinformed as a result of communications technology. It also means that they will bemore easily influenced of outside forces, branding etc. However, unemployment ofyouths is a problem which will be more acute, youths will seek different ways ofearning. Will self employment be more attractive or less? These clients will be thefirst time entrepreneurs, particularly so in case of the youths from rural areas.Moreover, we are not sure whether the Government's involvement in microfinance willincrease or not.

All will depend on what happens in the mainstream financial sector, not just inMFIs. When global financial markets thrive or diversify, the poor consumers wouldbenefit. If the prior sneeze, the latter catch cold. How can the public and privateinternational community contribute to the increase in financial service access forunderserved people, that is the challenge.

I look forward to such further thought provoking contemporary topics being takenup in the Yojana which has a nationwide circulation in thirteen Indian languages. Iextend my good wishes to the commendable work put in by the Yojana team.

(ELA R Bhatt)Date : 5.11.07 SEWA, Ahmedabad

FOREWORD

I



MICROFINANCE

N CREATING theconcept of "microloans",Muhammad Yunuschanged the lives ofmillions of Bangladeshisand earned himself a

Nobel Prize. Grameen Bank,started in 1976, is today, lendingabout $800 million a year, with anaverage loan size of almost $130,the bank has 7 million borrowers -97 per cent of them women - andan unmatched 98 per cent loan-repayment rate. In an exclusiveinterview to Yojana, Prof.Muhammad Yunus discusseswide ranging issues onmicrofinance with AnuragMisra, Chief Editor (Yojana).

Yojana(Y) : How did the ideaof microfinance come in yourmind more than 30 years ago?

Muhammad Yunus (MY): Ifirst involved myself in fightingpoverty during the 1974 famine inBangladesh. I found that theeconomic theories I was teachingat the university, had little bearingon the reality around me. Iwanted to understand more aboutthe real life economics played outevery day in the villages wherepeople in my country lived.Fortunately, Chittagong University

Give the Man Credit

campus, where I worked, is rightnext to one of these villages,Jobra. If I could understand thelife of one single poor person,really understand, it would notonly be a big departure fromtraditional book learning, it mightenable me to accomplishsomething.

I discovered that very smallloans could make a significantdifference to a poor person's ability tosurvive.The firstloan Igave was$27 frommy ownpocket. Ilent it to people in the village. Idiscovered that they could repaythe amount very quickly by sellingtheir goods in the market. Beforethis, they used to take loans fromvillage loan-sharks with highinterest rates. In some cases, theinterest rates stood at a staggering10 per cent a week. However,banks were not interested in givingtiny loans to poor people and theyconsidered the poor to be badborrowers.

I

INTERVIEW

Who are the target clients ofmicrofinance? Is it the peoplewhom we call as the poorestamong poor or is it the peoplemarginally below poverty line?

MY It's simple. The less someonehas, the more interested we are inhim or her! We offer small loans toentrepreneurs who normal bankswould never grant loans to - thepoorest of the poor who have nocollateral whatsoever. Ninety sevenper cent of the borrowers arewomen. There is no bankingsecrecy at Grameen Bank, allbanking transactions are conductedin public. All our borrowers areowners of this Bank. The GrameenBank has to date lent more than 7million loans to clients, peoplewithout any collateral- and has a98% repayment rate. If you areshaking up the bottom, somethingis happening through that.

Critics always tell me that notevery poor person is capable ofbeing an entrepreneur. To challengethis notion, we even startedgranting loans to beggars. We hadthe idea that when beggars are goingfrom house to house to beg, theycan also go from house to houseoffering something, a product. Webegan three years ago, and today


100,000 beggars take part in thisprogram - with credits of 10 to 15dollars. That is incredible! They areso enthusiastic about developingideas with these tiny amounts ofmoney. People begin to develop assoon as they are given theopportunity to do so.

What challenges do you see intaking microfinance to urbanpoor as compared to ruralpoor?

MY Taking microfinance to theurban poor can be as successful--if not more successful compared tothe rural poor. This is because thereare more opportunities in urbanareas. There is more networking,people are more connected andthere is a greater potential to startoff a successful venture with asmall loan.

Will you please elaborate theconcept of Social BusinessEntrepreneurs?

MY I talk about a basic fault inthe system that we developed-whatis known as free market economyor a capitalist economy. In thecapitalist economic theoreticalframework, you have only one kindof business, business to makemoney. There's no other kind ofbusiness. And profit maximizationis the sole goal of business. So ifyou are in business, you areconcentrating on maximization ofyour profit. That's what the theorysays and that's what you try toachieve. And I think this is a verywrong way to interpret humanbeings. Human beings are notrobots or money-making machines.

Human beings are much biggerthan that. There are other aspects

like the caring human being, thesharing human being. These are notincluded in this theory. So the theoryis based on a very partial view ofhuman being.

In order to accommodate thewhole of human being-one firststep would be to create anotherkind of business: business to dogood to people without anyexpectation of any personal benefitout of it.

Social business will be a newkind of business introduced in themarket place with the objective ofmaking a difference to the world.Investors in the social businesscould get back their investmentmoney, but would not take anydividend from the company. Profitwould be reinvested in the companyto expand its outreach and improvethe quality of its product or service.A social business will be a non-loss, non-dividend company.

We began a social businesswith the famous multinationalcompany, Danone. Our jointventure company which is alreadyin operation brings nutrition to thepoor through a healthy yoghurtenriched with minerals andmicronutrients. When I met withFranck Riboud, the CEO ofDanone, in October 2005, hewanted to learn more about theidea behind the Grameen Bank,what interests people in this bank,why they are talking about it. Healso told me a little bit more aboutDanone. After a while, I askedhim: "Why don't we create abusiness called Grameen Danone?It would be a social company.Everything that is invested can betaken out of the company again -

but without dividends!" Riboudstood up, shook my hand and said:"Okay, let's do it." Riboud alsoagreed to the suggestion to waivethe right to all further futureprofits with the exception ofreturn on investment. At somepoint, Grameen Danone will thusbecome the property of thepoorest of the poor, just likeGrameen Bank. We have nowfounded an additional socialcompany, which will create a chainof eye-care hospitals which treatcataracts.

Do you think it is practical andviable enough to expectbusiness enterprises to run afinancial activity on no profit noloss basis?

MY This is not an imaginaryconcept. It is something that alreadyexists in many of our minds butwhich we haven't yet linked withthe idea of business management.

We have to determine how thegoals are reached, ensure that thecompanies are really sociallyoriented. All of this is possible - themost important thing is the systemof controls. Our task is to bringinvestors and social companiestogether.

All social businesses do not haveto run on a no profit no loss basis.There can be a second type ofsocial business where profits arebeing made but it is being returnedto the owners who are poor.

What is your stand on higherrate of interest being chargedby Microfinance institutions?

MY Microcredit programs have ahigher cost of administration


because of the small size of loans,and the intensive contact betweenlender and borrower. (Our stafftravel weekly to centers in thevillages to carry out loantransactions.) There are two typesof microcredit programs, which Ibelieve is important to distinguish.Type 1 : Poverty-focusedMicrocredit programs : Theseare poverty-focused, collateral-free, low interest microcreditprograms where interest rate doesnot exceed; a) cost of fund plusten per cent (green rate), b) costof fund plus fifteen percent(yellow rate). Type 2 : Profit-maximizing Micro-credit Programs:These are programs with interestrates above cost of fund plusfifteen per cent (red rate). Theseprograms are not really microcreditprograms, they are versions ofmoney-lending programs under thecover of micro-credit.

Can you suggest somemeasures to bring down thecost of borrowing for the endborrowers?

MY Cost to the end borrowerscan be decreased by microfinanceinstitutions starting off small. Theycan minimize costs by hiring alimited number of employees. Anexpensive office is not requiredand for example, they can usebikes rather than vehicles. Othernon-expensive methods will ensurea reduced cost for the endborrower.

The cost of borrowing is high.How do we tackle it?

MY As a thumb rule, the interestrate should be cost of funds plus10%. Microfinance, in general, is

expensive as MicrofinanceInstitutions (MFIs) have toadminister small size of loans.However, this cost will decreasewith economies of scale.

What role do you see for thegovernment and regulatorybodies as far as developmentand regulation of microfinancesector is concerned?

MY Microcredit programs workeverywhere because everywherepoor people find it difficult toaccess finance at terms that arereasonable. For microcreditprograms to work effectively, wehave to create an enablingenviroment for microcredit. Thisrefers to an appropriate legal andregulatory framework as well asappropriate funding mechanismsfor microcredit. Many countrieslike Bangladesh have put in placethis enabling legal framework andthe result is that microcredit isflourishing.

In some countries, microcreditorganizations are unable to mobilizedeposits prevents them frombecoming sustainable. Financialintermediaries should be free to settheir lending and deposit interestrates with an appropriate spreadbetween them to operate at asustainable level.

Can you suggest some policymeasures so that large numberof educated unemployed youthin a country like India comeforward and look at microfinance operations as a viablecareer option?

MY Microfinance is a sustainableoption as proved by Grameen Bank

in Bangladesh. Apart from theborrowers, the Bank itself is creatingemployment for about 25000 staff.Working in microfinance is a seriouscareer path for these employees.Since microfinance is sustainable,these jobs will not disappear.Similarly, microfinance operations inIndia will be creating viable,permanent, career options.

As we know, the remunerationis low in this sector. How doesone attract educated personsfor employment in this sector?

MY The remuneration is ascomparable in this sector to thegovernment level. We do not knowabout India , but in Bangladesh ,these jobs are well sought-aftersince these jobs are secure andlong-term.

What message would you liketo give to poor people, youth,entrepreneurs and othersections of the society?

MY I would like to convince youthand entrepreneurs worldwide tobecome innovative "socialentrepreneurs" and to derive theirentrepreneurial motivation morefrom contributing to solving theproblems of humanity than justmaximizing profits. And I amcertain that such companies canbe economically much moresuccessful as well because theybring out the best motivation intheir employees.

(Email : [email protected])

(The signature above is ofProf. Muhummad Yunus inBengali sent to Yojana.)



OUTH ASIA, themodern microfinancemovement was born inBangladesh in the 1970sas a response to the

prevailing poverty conditions amongits vast rural population. Astonishinggrowth rates in Bangladesh,particularly during the 1990s,created a new dimension formicrofinance worldwide asmicrofinance institutions grew toinclude millions of clients. For thefirst time, a substantial proportionof the low-income families of majordeveloping country were served bythe activity. The start of the twentyfirst century reinforced this trendas the Bangladesh numberscontinued to grow impressively. InIndia, a substantial microfinancesystem based on self-help groups(SHGs) developed. Other countriesof the region made slower and laterstarts but have since establishedactive microfinance sectors.

By 2005, microfinance coveredat least 35 million of some 270families in the region and met around15 per cent of the overall creditrequirements of low-incomefamilies. Coverage was particularlyimpressive in Bangladesh and SriLanka, where microfinance services

Archana Diwvedi

Self Help Groups VsMicro Credit Gap Between

Aims of Realityreached more than 60 per cent ofthe poor. In addition, the focus onengaging women as essentialcontributors to economic and socialwell-being has had important spillovereffects throughout the region. Evenin a socially conservative countrysuch as Afghanistan, microfinanceactivity has focused on women,thereby according them moreexplicit recognition as economicagents. In India, the SHG movementhas become the basis for programspromoting empowerment and overallimprovement of the status of womenin society. In Bangladesh,microfinance has become the basisof microenterprise promotion bysome of the large microfinanceinstitutions, although it also has beenextended to the "ultra poor" throughtargeted programs. In both Pakistanand Nepal, the potential ofmicrofinance demonstrated by theseexperiences has captured theattention of governments that havecreated specific legal frameworks tofacilitate its growth.

The era of organized sectorfinance in much of South Asia(Bangladesh, India, and Pakistan)is generally acknowledged to havestarted with the Cooperative CreditSocieties Act of 1904. The Act's

S

INSIGHTMICROFINANCE

World Bank Report :South Asia

objectives make it clear that thecooperative movement in SouthAsia was initiated to reach out tothose who were otherwise excludedby the formal financial system-farmers, artisans, and other personsof limited means. The failure ofcooperatives to serve this purposeadequately is noteworthy becausesome seven decades later, in the1970s, it was still thought necessaryto nationalize commercial banksthroughout the region, and the firstattempts were made to launchmicrofinance as we know it today.

Although the microfinancemovement in South Asia haspermanently changed the face of thefinancial sector through innovationand challenges to conventionalthinking, the limits of themicrofinance model become evidentwhen it comes to serving many morepoor people who are still excludedand to capturing a larger share ofthe financial service business of theexisting clientele. Recent researchshows that formal financingchannels meet only 15 per cent ofthe needs of the poor in South Asia,with the proportion ranging from 2per cent in Afghanistan to 55 percent in Bangladesh.


Outreach is highly variableacross the region. The six countriescan be classified into high(Bangladesh and Sri Lanka),medium (Nepal and increasinglyIndia), and low (Pakistan andAfghanistan) coverage levels.

Financing Structures

MFls essentially perform the roleof intermediating financialresources and services between (1)investors, banks, donors, anddepositors, and (2) the poor. Likeany other financial intermediary,MFls need risk capital that can beleveraged to add to their fundingbase for operations and on-lendingto low-income clients, eitherthrough debt finance or by raisingadditional deposits. Unlikecommercial financial institutions,MFls in South Asia have evolvedlargely from nonprofit entities.Given that the transaction costs ofmicrofinance delivery are high andaccount sizes are small, it typicallyhas taken three to seven years forleading MFls to become financiallystrong enough to attract commercialrisk capital. As a result, donorfunding has had to play the key roleof "venture capital" in stimulatingmicrofinance investment andpromoting microfinance markets.

To the extent that MFls addressmarket failure and help to developthe financial sector by providing newavenues for low-income clients toaccess financial services, this roleis justified and has a clear "publicgood" element.

The challenges everywhere aresurprisingly similar. MFls mustdevelop management capacity atevery level, which will enable themto run efficient operations to attractcommercial finance from equityinvestors, financial institutions, and

voluntary depositors in the longterm, thereby enabling microfinanceservices to reach increasingproportions of the large number oflow-income families in the region.

Five countries in South Asiaalready have national microfinanceassociations, while Sri Lanka is in theearly stages of a second attempt toform a viable national association. Allof these associations have taken onthe role of industry advocates withvarious degrees of skill and success.While the associations haveemerged out of the NGO-MFIssector, it is clear that they will haveto evolve if they are to keep-up withthe changes, increase their value tothe industry, and strengthen theirability to influence positive change.

South Asia is a worldwidepioneer in the field of MFI ratings;Micro-Credit Ratings InternationalLimited (M-CRIL), based in India,is one of the first three internationalmicrofinance raters. Since then,two corporate rating agencies haveentered the microfinance ratingbusiness, one in Pakistan and onein India. This puts South Asia in agood position to further facilitatelinks between MFls and investors.

Future Perspective

During the past 25 years, themicrofinance movement aschallenged conventional financialsector and government thinking, inthe process fundamentally alteringthe financial landscape. Today, itprovides most of the access tofinancial services available to low-income people in South Asia, but itis still largely a separate part of thefinancial system, with few examplesof direct service provision to thepoor by mainstream commercialinstitutions. Despite the growingdiscussion about the enthusiasm for

developing a seamless and inclusivefinancial sector, there is littleevidence that this has happened yet.

Over the next few years, mostof the growth in microfinance willcome from a few large, profitable,specialized institutions that mightin some ways rival small banks.These institutions will provide arange of diversified and flexibleproducts and will do more to reachout to even poorer people. Thesedominant institutions will makemore use of commercial funding,both debt and equity fromcommercial banks and the growingnumber of social investment funds.

Another step in the region'sfinancial liberalization could occurif the wider political and socialenvironment changes to recognizethat economies of scale exist infinancial service delivery. Cost isinversely proportional to the size ofthe accounts. Central banks andfinance professionals will need totake the lead to urge politicians andmedia to help change theconservative economicenvironment relative to the poor.Without such liberalization, theprocess of microfinance evolutionis likely to slow down as it hits thebarrier of sustainability, particularlyif the formal sector reaches a pointat which the marginal return tocorporate social responsibility fallsbelow the losses associated withmicrofinance service providers andlow-income clients. That point hasnot been reached yet, although inIndia some banks are alreadytesting its limits. As long asengagement with low-incomeclients in South Asia is largely amatter of social responsibility,financial inclusion will remain adream.


VER THE past sixyears, more than17,000 farmers havecommitted suicide inthe mineral richcotton belt of Central

India. After accumulatingmassive debt and losing theirland, farmers feel pressured totake their l ives by drinkingpesticide. Presently, thegovernment still searches for asolution to this problem, which isa partial result of poor cropquality and lack of access toformal credit.

In this article we explore the useof technology and microfinance toaddress the needs of indebtedfarmers in the rural regions of India.Capitalizing on resources within amulti- partnership framework, thefollowing analysis incorporatesessential elements to ensure accessto credit and the sustainableproduction of cotton in a highlyvolatile market. Innovative but risky,this endeavor provides anopportunity to reduce poverty andimprove the standard of living inthese rural regions.

Archana Diwvedi

Self Help Groups VsMicro Credit Gap BetweenAims of Reality

For many Indian farmers, it isinevitable to incur debt within everystage of the agricultural process.Recently, Vidarbha has been one ofthe worst affected regions, wheresuicides mostly occur amongsubsistence farmers who hold lessthan three acres of land. Thefollowing factors play critical rolesin this crisis:

� The region is dry and hasreceived less rainfall thanexpected based on historicalrainfall patterns.

� Cotton farmers are usinggenetically modified Bt cotton,which has been pushed throughalluring marketing strategies ofmultinationals and government.

� The input costs are relativelyhigh due to maintenance costsassociated with the purchase offertilizers and pesticides.

Since Bt cotton requires morerainfall than traditional varieties, ithas been a significant componentof the crisis. With the current lowlevel of rainfall, most farmers in this

O

SCOPEMICROFINANCE

The authors are graduate students of Gerald R. Ford School of Public Policy, University of Michigan, USA.

Maria DoonerSanthosh Srinivasan

Credit Needs of Farmers

One of the mostimportant factors

preventing theemergence of MFls

into this sector is therisk involved with

lending to this group


region have experienced cropfailure and thus, turn to borrowingfor sustainability. In most cases,farmers directly borrow cash fromlocal money lenders, who chargeoutrageous interest rates and forcethem to use their land as collateral.These middlemen also cheat thefarmers, who pay high prices forlow quality seeds, Once farmers areunable to repay their loans, theirentire land is seized.

In order to help the agriculturalindustry in India, the governmenthas enforced a Minimum SupportPrice (MSP) for cotton. Wheneverthe market price of cotton fallsbelow the MSP, the CottonCorporation of India (CCI) will buycotton from farmers at the MSP.However, in Maharashtra, aMonopoly Cotton ProcurementScheme (MCPS) is in place.

Under this scheme, only theMaharashtra State CooperativeCotton Growers MarketingFederation (MSCCGMF) is allowedto purchase cotton. The MSCCGMFnot only procures cotton at MSP, butalso promises a bonus to farmerswhenever it makes a profit. Due toa decrease in market price of cotton,this scheme produced anoverwhelming response fromfarmers. Unable to meet this demand,the federation fell behind onpayments and has been unable to payfarmers promptly. In desperate needof immediate cash, most farmersresort to & selling their output tomiddlemen, who buy it below theMSP.

Existing Mechanisms

In India, access to creditremains another significantchallenge for low incomehouseholds. Typically, the pooraccess credit through the informalsector, where monopolisticpractices frequently occur, and

interest rates can easily exceed100% per year. In addition tooutright discrimination, poorerhouseholds live in remote regions,have hardly any assets, and areviewed as being "unprofitable" byformal institutions.

Presently, commercial,cooperative, development, and regionalrural banks as well as a number ofprimary agricultural credit societiesrepresent India's banking system. Themain source of institutional credit forfarmers is agricultural cooperativesocieties, which charge an interest rateof approximately 13%. However, theloan recovery rate within thesesocieties is low, as only 30% of theloans are recovered. This has led to adecrease in the number of loansprovided and stricter collateralrequirements for approval, such as asteady stream of cash flow forborrowers, and a minimum level ofassets. As access to formal credit getsmore difficult, the farmers chooseprivate lenders due to quick cashtransactions and minimalconditionalities.

Of those who can get formalcredit, for every Rs 100 ($2.50)borrowed, Rs 80 ($1.80) goestowards servicing old loans, TheNational Sample Survey organization(NSSO) found in its recent surveythat 48.6% of rural farm householdswere indebted, which could be higherfor districts facing the crisis. Roughly80% of the farmers are previousdefaulters and thus, ineligible to applyfor fresh loans. A fact finding teamfrom India's Planning Commissionfound that the current outflow ofcredit was insufficient and the gapbetween need and availability wasfilled by private moneylenders whocompletely seized all profits.

Though banks, such as ICICI,have strived to increase lending andsavings to poor areas, many are nottargeted towards cotton farmers.

ICICI's popular model Savings First.Credit Later is largely aimed atwomen, who form savings groups.Through banks and financialeducation programs, these self-helpgroups become aware of theimportance of savings and areencouraged to save as much aspossible in order to receive a loan.Highly praised, these groups havebeen embraced as an idealmicrofinance framework for the poor

n addition to direct lending,ICICI has also been involvedin certain projects to improvethe agricultural industy. ICICI

finances MFIs, has set uppartnerships with ITC E- Choupaland other private organizations, anddiversifies lending risk through theuse of insurance options and otherderivatives. Presently, lTC's E-Choupal is establishing internetkiosks which can be used byagricultural farmers "to order highquality inputs access information onbest farming practices, prevailingmarket prices for their crops homeand abroad, and the weatherforecast." Through this initiative,ITC has helped farmers managetheir risk, increase the quality oftheir product, and increase theirmarket price. By using technology-based equipment, E-Choupal isquite successful as it is able to bringknowledge to the farmers, whichwas not previously available in thepast. Likewise, E-Choupal hasbrought access to financialinstruments to the farmers in India.

Through hedging, one canminimize risk and associated losseswith falling prices. The riskassociated with agriculturalcommodities, such as cotton crops,can be minimized through the useof the "commodity exchangemarket." This can occur when afarmer engages in a futures contractwith a customer. Due to the high

I


volatility of the crop price, bothparties will benefit if the price isheld constant through a contract.While the supplier is in fear that theprice will drop, the customer maybe afraid that the price may rise.Therefore, a futures contract canbe beneficial for both parties.".

How Can Microfinance Help?

In spite of the success ofmicrofinance in India, not manyMicrofinance Institutions (MFIs)have ventured in to this market. Yet,the lack of access to institutionalcredit for these farmers makes it apotential market for MFls to explore.Thus, MFls can make the informalsector more advantageous andwelcoming for the average farmer.

Currently, one of the mostimportant factors preventing theemergence of MFls into this sectoris the risk involved with lending tothis group. As mentioned earlier, theprominent model of microfinancefollowed in India is to link Self HelpGroups (SHGs) to commercialbanks to help increase direct accessto credit facilities for the poor. Whilethe Savings First, Credit Latermodel is successful, it appearsimpractical for these farmers.Presently, most of the farmers arealready in massive debt and theirasset holding is minimal. Due tooutstanding loan amounts, many ofthem are highly unlikely to repaymicroloans offered, let alone save.However, these risk factors can bemitigated by a more integratedapproach of credit access andinformation. Some components ofthe famous Grameen's model,which uses social pressure andcollective responsibility, may alsohelp when lending to these farmers.

Proposed Model

Based on a combination of thepreviously mentioned existing

mechanisms, our model strives tosubstantially reduce the riskassociated with providing credit inthis region. Primarily, our modelrelies on a Microfinance Institution(MFI) which can offer credit andtechnology to farming groupsthrough partnerships. Thus, theMFI's emergence into this marketwill heavily depend uponrelationships established withinthese communities, and tapping intosources, such as already existinggrassroots organizations that cancreate trust between the farmersand the MFI.

The microfinance institution willprovide a loan to a registeredgroup farmers who grow a varietyof different crops. The farmerswill have the freedom to choosetheir groups and each group willcontain roughly 12-15 farmers withan average land holding of twoacres per farmer. While the groupwill have the freedom to decide themanner in which the loan is to bedivided amongst its members, theMFI will provide advice andeducation on efficient ways offinancing and allocating funds.Through a mutual agreement withthe farmers, the MFI establishesits role as a sole buyer for theproduct. By promising to buy theproduct at the MSP the MFIprovides a steady stream of cashflow to the farmers. In turn, theMFI will sell the product in the openmarket for a profit. The farmersbenefit as they are waived of theprincipal borrowed and are onlycharged a monthly interest that ispayable once enough income isearned. Even after waiving theprincipal, the interest rate chargedby the MFI will be lower than theexisting informal interest rates.

The loan amount disbursed shouldbe used only to buy agricultural inputsand not for any other purpose. Dueto high amount of corruption andfake input dealers in the region, theMFI will identify a set of authorizeddealers who sell good quality inputs.The inputs may include seeds,fertilizers. pesticides and any otherproducts that may help improve theproductivity of the farmer.

Similar to previous ICICIefforts with ITC, the MFImust strike a partnership with

organizations that can successfullybuild rural technology. Ruralinformation kiosks can help farmersobtain timely advice on externalfactors that may affect theproductivity of their inputs. Thuscomputer can also be used by theMFI to provide all necessaryinformation to the groups and thiswill ultimately reduce costs involvedwith having frequent follow upmeetings (i.e.: online consulting).

The farmers will be charged aninterest on their loans. Nevertheless,they will not be required to servicethis interest until they obtain asustainable level of cash flow overtime, a savings requirement shouldbe implemented in order to ensurethe eventual repayment of the loanand mitigate risk. The group will beinformed of the interest accruedevery month. Since the principal iswaived the interest rate will be basedon the difference between the MSPand the market price received by theMFI.

By providing appropriate adviceon crop growing techniques, ourmodel attempts to keep theproduction cost below the MSP.Since most agriculture in this regionis dependant on rainfall, it isimportant that the farmers have goodinformation on the rainfall patternsand forecast to help them decide theexact timing to sow their seeds. Themain idea is that at the end of the


day the farmer will reap a profit byselling quality produce at the MSPand is able to repay the interestaccrued in the future. While waivingthe principal for the farmers, the MFIis able to make a profit by selling theproduct at market price, and receiveinterest from farmers' savings whichcan be reinvested in global financialmarkets.

Policy Implications

India is the third largest cottonproducer in the world behind Chinaand U.S. Cotton accounts for 25%of cultivable area in India but onlycontributes towards 14% of worldproduction. The efficiency ofcotton production is well below theother two countries. One of themain reasons for this inefficiencyis the poor quality of seedsavailable in the market and weakcrop management. Furthermore,many Indian cotton farmerspractice subsistence farming,which makes it difficult for themto compete with large commercialfarmers. Microfinance and

information technology can helpdiminish these problems and makeIndian cotton farmers morecompetitive in the world market.Through our proposed model,farmers will have access togenuine good quality seeds ratherthan the seeds offered byunscrupulous input dealers.

At the macroeconomic level,India's second largest cottonproducing state will improveproduction efficiency. Theinformation technology componentof the model will provide thefarmers with necessary informationon rainfall patterns and pestmanagement practices. Thefarmers will be able to contactagricultural institutes andconsultants through the informationkiosks in their villages. Withinformation on market prices, thefarmers will be able to sell their cropat competitive prices as well.Overall, efficient production andknowledge will better equip farmersto compete at the international level.

At a microeconomic level, thismodel will help reduce povertyamongst farmers. With the help ofthe MFI, the participating farmergroups will have access to creditunder a friendlier lending climate.Consequently, the microfinanceinstitution will help them increasetheir asset holdings over time, andmake them more attractive toformal financial institutions.

Caveats

This model has its limitationsand will be successful only if allcomponents are established. Theprimary condition is to strike apartnership with firms that arewilling to buy cotton from the MFI.The model also assumes that themarket price gained by the MFIwill always be above the MSP. Inorder to ensure this, the MFI mustsign a contract with its buyers inadvance to negate any marketfluctuations.

The MFI also needs to enterinto a partnership with aninformation technology serviceprovider, such as the "E-Choupal"initiative, in order to successfullyset up rural IT networks to connectfarmers with information. Inaddition, a necessary componentincludes an established purchaseagreement between the MFI andthe farmers.

Leveraging rural networks, theMFI should have local support toovercome any interruption orobstacles created by localmoneylenders currently in play.One way to ensure that the loansare spent as required is for the MFIto directly pay the input sellersrather than provide the group withthe loans. This will ensure greatercontrol for the MFI in establishingits operations.

(Email : [email protected])


ICROINSURANCEcan boost resourcesfor the rural poor,governments, andprivate sector. Theentire economy gains

as the insurance industry maturesfurther, as well. There is a robust needfor microinsurance in India's povertyreduction strategy. With insurance,the vulnerable can prepare for anadverse event before it occurs,instead of being paralysed by shocksafterwards. Microinsurance alsoincreases the likelihood that the pooreat well, have health access, and sendtheir children to school, since theywouldn't have to save as much foremergencies. Potential clients wouldtypically earn around $2 a day or evenless.

The market for microinsurance isenormous, and remains untapped - aswas the case with microcredit adecade back. The climate is now ripefor microinsurance in India, given thegreater policy stimuli, commercialinterests and a growing track recordof local successes. In short, India'smicroinsurance industry is poised fora quantum leap.These are some of

Anuradha Rajivan

Microinsurance in India

the key findings in a recent studypublished by the UNDP's Asia PacificRegional Centre in Colombo - BuildingSecurity for the Poor: Potential andProspects for Microinsurance in India.

One of the Study's aims was toflesh out realities the rural poor andinsurers face. The Study also soughtto delve into obstacles and successesto shed light on the way forward.Inputs from researchers, stakeholders,and the grassroots coalesced to formthis work. Sifting through availableliterature and learning from on-the-ground examples were part of themethodology. So were publicconsultations in rural areas of Orissa,Rajasthan and Tamil Nadu. This articlehighlights aspects of the Study whichmay be particularly useful for thosewith a growing interest inmicroinsurance.

Life insurance and otherendowment schemes are easier forinsurers to offer. Non-life insuranceencompasses risk management for awide range of shocks like livestock,milch animals, crops, health andaccident insurance, shocks involvingdisasters, for instance.

M

The author is an economist and member of the IAS, presently with UNDP’s Asia Pacific Regional Centre in Colombo.

MICROFINANCEPOTENTIAL

Microinsuranceis ready for

take-off in India.This is the time

for strategicsupport


The Study estimates the potentialmarket size for microinsurance inIndia to be between INR 62,000 and84,000 million. The potential for lifeinsurance is estimated to range fromINR15,393 to 20,141 million, whilenon-life ranges from INR46,911.70to 64,126.55 million. Conservatively,the non-life estimation is limited tofour types of coverage only - milchanimals, livestock, health and cropinsurance. The population used forthis estimation is 40-50% of thepotentially economically active andearning less than US$1 a day and50-70% of the potentiallyeconomically active and earningbetween US$1-2 a day. This isexpected to grow as microinsuranceis better understood and demandgrows with appropriate supply.

Insurance in India

The overall insurance industry inIndia is still at a rudimentary stageof development. Only 10 per centof India's population possesses someform of coverage. Of the total globalinsurance premium estimated atUS$ 3,426 billion, India's shareaccounted for an abysmal 0.73 percent, in 2005. This slots the size ofIndia's share of global premiums in19th place out of 88 countries.Table 1 illustrates the lack ofinsurance coverage in India andother South Asian countries.

Yet, in recent years, growth hasbeen rapid, initiating healthycompetition among public and privateplayers. For example, premiumsunderwritten by the insuranceindustry have nearly doubledbetween 2000 and 2004. TheReserve Bank of India relaxed entrybarriers in the industry to attractprivate players in 2000. Foreigncompanies were allowed to enter toa degree, as well, through jointpartnerships with Indian companies.

While insurance is needed by all,commercial insurance may not work

for all poor. There will always be thedestitute, the severely disabled orchronically ill, who will need othertypes of social support as well. Thosewith income streams to protect arelikely to be the early clients. Anoverwhelming majority of theinsurable population, even among themiddle classes, currently do notaccess insurance. This is even trueramong those at the bottom of theeconomic pyramid. Of a total

population of 1.2 billion, roughly one-third earns less than US$ 1 per dayand two-thirds earns under US$ 2per day. Insurance tends to becompulsory (e.g., vehicle insurance)or 'sold' rather than 'bought'. Theexception is health insurance, whichis bought. Various microinsuranceschemes cover around 5.2 millionpeople in India.

Developments and Regulations

Financing institutions encouragedrural microinsurance, primarily tohedge their own risks, while lendingto the poor under the requirementsof directed lending. Rural insuranceproducts tended to address the needsof the poor only incidentally -responding primarily to the needs oflending banks. Credit recipientsoften perceived it as part of the costof borrowing from banks, withoutfully understanding the concept ofinsurance or its benefits. Crop andanimal husbandry loans werecommonly covered. In 2002 the

Insurance Regulatory andDevelopment Authority (IRDA)established rural and social sectortargets for insurance companies. Allinsurers now need to comply withobligations towards the rural andsocial sectors in a phased manner.This information is currentlypublished and shared, encouragingcompliance. Non-compliance canlead to penalty and/or cancellationof licence. However, in practice,most companies have focussed on

the rural sector(rather than thesocial sector)preferring to sellinsurance forexpensive farmequipment suchas tractors,harvesters andcommercial dairyf a r m i n gmachines, usedby the relatively

well off.

The IRDA regulations of 2005mark a turning point, signallingpolicy support for the 'micro'segment of the insurance industry.They have enormously increasedthe pool of intermediaries andagents to bridge the gap betweencompanies and clients. Theregulations have also attempted toease distribution challenges andstreamline procedure. Theyrespond to issues among insurerssuch as training duration for agentsand commission structures. Overall,insurance companies, MFIs, andNGOs see these regulations asbeing highly favourable. However,residual concerns remain, likecriteria for the larger pool of agentsand the current capacity ofinsurance companies. Governmentis trying to jump start activity in thesector through the draft MicroFinancial Sector Bill, which includesinsurance and pension services. TheBill was sent to the Lok Sabha in

Population Excluded fromInsurance in South Asian Countries

Countries Excluded Population(Per cent) (Million)

India 90 950Bangladesh 93 134Pakistan 97 147Nepal 95 23Source: Mare Socquetl, 2005. ILO / STEP, MicroinsuranceWorkshop, Hyderabad.

Table 1


March 2007 and referred to theStanding Committee on Finance.

Risks

The rural poor have to grapplewith both adverse events and theirlimited capacity to weather shocks.Discussions among potential clientsin Orissa, Rajasthan and Tamil Nadurevealed the vast majority of the poordepend more on informal andtraditional support mechanisms and'doing without'. They turn topatrons, the extended family or areforced into migratory work. Relyingon informal support systems bindspeople with reciprocal obligationsand robs them of dignity. Thosearound the periphery of the povertyline are also vulnerable, as smallshocks can pull them into deeperpoverty. When the shocks arecovariant (affecting an entire area,like a flood or an earthquake) theinformal systems break down.Coping with risks and shocks withoutinsurance further limits potentialincome growth, savings and assets.

Illness is a major cause forconcern; it leads to loss of workdaysin addition to medical expenses. Forthose whose personal labour is theprimary source of livelihood, healthinsurance was among the toppriorities. After all, one episode of

illness can have a profound impacton their income, deplete savings orpressure them into debt.

Accidents like falling from acoconut tree or suffering a snake bite,(rather than road accidents), naturaldisasters, manmade disasters like riotsor fire, harvest failure, farm animalillness and death are some of the otherrisks that the rural poor face.

Risk perception and prioritizationare found to be highly locationspecific, with clear differences acrossareas which are tribal, coastal or riotprone. Table 2 shows the priorities ofvarious risks in these areas.

Key Areas

The review of recent literaturehelped in identifying six key areas,which need to be addressed topropel microinsurance forward:

� Demand and supply� Product design� Pricing� Distribution and outreach� Procedures� Regulation

Demand and Supply: There is amajor mismatch between whatinsurers offer and what the pooractually require. Currently, productscan sometimes be compulsory and

driven by the quota system imposedon insurers from rural and socialsector obligations. Even among thewell-off, there is an inadequateunderstanding of what insurance is;the 'contingency cover' aspect is oftenmixed with the 'investment' concept.Lack of demand may also be theresult of other institutional rigiditiessuch as credit constraints. Thoughlow by international standards, TamilNadu has a relatively well developedinsurance industry in contrast withRajasthan and Orissa.

Product Design: Standardizedproduct designs do not respond toclient needs, which tend to belocalized. Moreover, such productsare usually expensive, excludingaccess by low income households.More than half the products fordisadvantaged groups in India onlycovered a single risk. Most coveredlife, as this is a relatively simple entry-point product. Client perspectiveswere hardly incorporated. As aresult, Universal Health Insurancedidn't even manage to sell 1 per centof its expected 1,000,000 policies.Standardized products across a largecountry resulted in a low responsefrom clients. Offering separate,unbundled products, rather thancomprehensive packages, could offerbroader choice and stimulateenrolment. There are high drop outrates in many schemes as membersdo not get the benefits they need.

Pricing: Potential clients surveyedfor the study cited affordability ofpremiums as a reason for not buyinginsurance. Premiums tend to be highin the absence of adequate historicaldata on risks and claims experience.Absence of claims history results inprice being fixed on the basis ofremote macro aggregates on whichmargins are loaded. Individualinsurers hesitate to pool together theirclaims data, depriving the industry ofa valuable information source foractuarial pricing. In the early stages,

Prioritization of Insurance Demand by Location Based onRisk Assessment by the Poor in Orissa, Rajasthan, Tamil Nadu

Location type Priority 1 Priority 2 Priority 3 Priority 4(predominant)Tribal areas Health Life Not Not

identified identifiedDry areas Drought Health Life Not

identifiedCoastal areas Life Accident Business Health

assetsUrbanized rural Life Accident Health Householdareas assetsRural areas Life Accident Health LivestockRiot-prone areas Business Life Not Not

assets identified identifiedAreas along Accident Life Not Nothighways identified identified

Table 2


premiums alone may not be adequateto provide full risk cover whilemeeting cost; soft funding to coverstart-up costs could help.

Distribution and Outreach:Improving distribution to low-incomepopulations is critical. Someexamples of distribution for betteroutreach in rural areas exist,generally using intermediaries likenon-governmental organizations(NGOs) or microfinance institutions(MFIs) already working among thetarget population. Their financialviability seems to depend onavailability of soft funds for initialmarket penetration and developmentof distribution channels. Innovationsin delivery channels should not beruled out, meanwhile. Table 3 detailssome possible delivery channelswithin India for the industry.

Procedures: Unsuitable proceduresand rigidities can lower service qualityand increase operating costs. Theconsequent exclusion of potentialclients undermines marketdevelopment. For example, centralizedclaims settlement processes used byinsurance companies lead to delaysand client dissatisfaction. Proceduralinnovations can be critical in obtainingand retaining clients while improvingviability.

Regulation: Standard regulationsmay be unsuitable formicroinsurance. For example, India'sregulatory authority, the IRDA, did notgrant lower capital requirements evenfor those insurers willing to sell onlymicroinsurance policies. Policieshave been overly prescriptive,inhibiting innovation. Just as the poorhave no access to insurance,microinsurance institutions, typically,have no access to re-insurance undercurrent regulations.

Way Forward

Catalysing the market expansionfor microinsurance requires a long-term perspective, instead of a

narrower focus on short-term profits.Ultimately, all stakeholders benefitwhen consumer priorities intersectwith financial viability. The followingare some specific recommendations:

� External factors should be takeninto account to identifyconsumers. For example, it isdifficult to process livestockclaims in areas where there arenot enough veterinarians.

� Product design and pricingshould respond to consumerpriorities. Drought insurance ismore important to those in aridareas, for instance. Suchtailoring will increase the numberof clients and minimise dropouts.

� Distribution should be fused witheffective channels anddeepened in rural areas.

� The claims settlement processshould be improved to meetclient-needs.

� Databases on claims historyshould be built to root premiumsin actuarial calculations, betteraligning risks with pricing.

� A space for experimentationshould be made to test innovations,say, through a risk pool fund.

� Desirable features in productsshould be identified and

benchmarking encouraged. Forexample, it is useful to covertransportation as illness in ahealth insurance package. Alisting of desirable features byinsurance type may be seen inthe original Study.

� Competition should be encouragedbut monitored to prevent unethicalpractices. Such behaviour wouldbe harmful to the sector, as awhole, and deserves regulation.

� Lessons learned from India's longexperience with microcreditshould be used to minimise futureglitches with microinsurance. Acode of conduct for microcreditcould be adapted to riskmanagement, for example,microinsurance is ready for take-off in India; this is the time forstrategic support. There isheightened interest from variousstakeholders, combined with thepolicy impetus from the IRDA andthe Government of India. Betterrisk management can contributeto the country's goal of povertyreduction as well as achievinggender equity. Catalyzingmicroinsurance can result in a'win-win,' meeting the bottom-lines for social benefit andcommercial profit.

(E-mail: [email protected])

Possible Delivery Channels in Indiafor Microinsurance

Self-help groups linked to banks 1,618,476

Non-governmental organizations as developmentfacilitators (approx.) 200,000

Non-governmental organizations involved in microfinance 3,024

Rural and semi-urban commercial bank branches 33,388

Regional Rural Bank branches 14,446

Private fertilizer dealers 192,000

Primary Agricultural Cooperative Societies 105,735

Post offices in rural areas 138,756

Source: National Bank of Agriculture and Rural Developmentand Reserve Bank of India, Annual Report 2006

Table 3


MICROFINANCE

EWA IS a membership-based organization thattargets self employedwomen workers in theinformal sector (IS).Founded by Ela Bhatt in

1972, SEWA now reaches morethan 5,30,000 women in Gujaratalone with new initiatives in 5 otherstates. In a country where 93% ofworkforce is in the informal sector,these are women who earn a livingthrough their labor or smallbusinesses, with out any fixedemployer/employee relationship.They work in markets, homes, fields,along riverbanks and in the desert.Though these women constitute94% of the informal sector laborforce, their work is not accountedfor and therefore their efforts areinvisible. SEWA has been activelyorganizing these women for over 30years in an effort to generateawareness about their plight andhelp them reclaim their rights.

SEWA's goal is to ensure fullemployment and self-reliance for itsmembers. Full employment includeswork and income security as well

Reema Nanavaty

Towards Livelihood Security

as access to social security- whichis healthcare, childcare, shelter,insurance and food security.

The poor women workers in theinformal sector with low levels ofincome and assets, are ill preparedfor adverse shocks and accidentsthat are part of normal life. Theyare the first to be struck by risk,and have few tools or assets toprotect them. The loss of incomeearning opportunity and potentialfrom these shocks represents amajor threat to the welbeing of thepoor affecting long termproductivity of the poor. This is truefor most members of SEWA andmany other informal sector workersin India.

In addition to the trials andtribulations in everyday life,SEWA's members are always indanger of falling victim to a myriadof natural disasters. These naturaldisasters strike the poor first andthey suffer the most severedamage. Thus on one hand theirincome decreases in such situationsand on the other hand their debtburden increases to meet urgent

S

The author is Director, Self-Employed Women's Association (SEWA), Ahmedabad.

APPROACH

The IFSMepitomizes

SEWA's missionto provide

comprehensivesupport services

that can helpwomen escape

from the viciouscycle of poverty


needs pushing them further in thevicious circle of poverty.

Integrated Approach

The lives of the poor informalsector centre around their work andtheir families, but their lives are alsofull of insecurity.

Amidst all this insecurities to thepoor informal sector workers, thereis a need to ensure their livelihoods.In order to ensure the livelihoods ofthe informal sector workers, thereis a need for an integrated approachwhich is affordable to the poor. Thisapproach has to be cost effectiveso that it is accessible by the poor.

In SEWA's experience,providing livelihood securityinterventions such as insurance andbanking services, has been crucialin alleviating the problems ofinformal sector workers in thedisaster-prone areas. SEWA,realizes the difficulties theseinformal sector women face andhave designed programs andservices with their targetedaudience in mind.

Members are able to accessbanking, insurance, and worksecurity services through theirrespective self help group. Throughthis model, members assess howmuch they can contribute permonth. Savings and credit servicesare accessible to women throughthis innovative approach. As aresult, by depositing money ortaking out a loan, they are able toincrease their assets. Insurance ismade accessible through a similarlyflexible scheme. Women are ableto pay off premiums in incrementsdepending upon affordability.

Through another creative idea,women are able to providethemselves with their own worksecurity. By contributing a day'swages each month, they are ableto hedge against disasters thataffect their income. This worksecurity fund allows members toimmediately withdraw money tofund alternative employmentactivities.

Banking, insurance, and worksecurity interventions, which arebased on the integrated financialservices model, are successfulmechanisms in providing financialservices to informal sector women.However, currently, only a fractionof SEWA members are able torealize the benefits of this integratedprogram. Expanding the reach ofthese interventions is paramount.Presently, the Integrated FinancialServices Mechanism is operationalin all the nine districts. There are inall 983 mandals (groups) covering15450 members from all the ninedistricts.

The poor informal sectorworkers have to face work andincome insecurity. Amidst all theseinsecurities to the poor informalsector workers, there is a need toensure their livelihoods. In order toensure the livelihoods of theinformal sector workers, there is aneed for an integrated approachwhich is affordable to the poor. Themajor objective of the IntegratedFinancial Services is to ensure thelivelihoods of the informal sectorworkers by providing access tovarious social security services thatare affordable by the poor.

Long Term Objectives of theIntegrated Financial ServicesMechanism are :

� Providing sustained livelihoodsecurity to the families in thedisaster-prone districts.

� Taking advantage of economiesof scale by turning disaster intoa development opportunity.

� Reducing vulnerability and risksduring the natural calamities ofsuch kind in future.

� Helping in reducing forcedmigration from arid areas towater surplus areas.

� Providing opportunity thatreduces dependency on agro-based activities. Help thewomen shift victims fromprimary sector e.g. agricultureto secondary and tertiary sectoractivities.

� Creating regional developmentthrough both economic and eco-regeneration activities forwomen victims.

SEWA's Experience

On the basis of our integratedapproach, integrated groups haveemerged. These groups aredifferent from savings and creditgroups in the respect that thesegroups are involved in livelihoodassistance as well as the riskmitigation of the members. Thesegroups are involved in savings andcredit mobilization, insurance andwork/ income security fund. Underthe work security fund, themembers contribute a pre-decidedamount towards this fund. In timesof calamity or unemployment thecontributed amount may be used bythe members. This fund reduces thedependence of the members onexternal support and helps themface adverse situations withconfidence and dignity.


A very relevant impact of thisfund was seen in Kheda andVadodara districts in the month ofAugust when many parts of thedistricts were affected by thefloods.

The members in Kheda districtstarted contributing towards thework security fund since 2003 andin one year time they had a fund ofRs 46,100. During the monsoon of2004 the district experienced badfloods. Much relief was notavailable. However, the rural poorwomen and their households hadsuffered very badly. The houses ofthe members were destroyed andthey had lost their household itemsalso. They had no livelihood fordays together. As a result of waterclogging, diseases were widespreadin these areas.

Immediately, the districtassociation and its executivecommittee met and they resolvedto use the work security fund atthis hour of crisis to augment theneed for work as well as any othersupport required. The board of thedistricts association, based on thedamage assessment resolved toprovide relief support to themembers who were regularlycontributing towards the worksecurity fund with ration kits of upto

Rs 450/-. Each kit comprised of 10kg rice, 2 kg pulses, 2 kg groundnutoil, 1 kg moong dal, 1 kg moong, 2kg sugar, 250 gms tea leaves and1 kg chick peas. The members hadto repay in 18 months time. Thesekits were distributed to about 1033members. As a result thesemembers did not have to wait forrelief or aid. Following the floods,these members did not have anyemployment nor they had food inthe house. As a result of the kits,they were able to have one squaremeal a day. When the membersstarted their livelihood relatedactivities they repaid the moneythey had used for grains in monthlyinstalments. This also helps tokeep the fund intact. In addition tothis, due to the integrated financialservices scheme, the members alsogot insurance money. Also being apart of the integrated groups, theycould borrow loans for repairs oftheir houses. The members couldborrow their first loan for uptothree times the amount of theirsavings. About 200 members inKheda district borowed loans ofupto Rs 25,000 for repairs to theirhouses following the floods in2004.

Having seen the impact moremembers were encouraged to be a

part of the integrated groups.Themembers of the integrated groupsincreased from about 1000 in theyear 2004 to about 6000 in 2007.

As of now, in all 7079 membershave contributed an amount ofRs 12,01,944 towards the worksecurity fund. The districtassociation assist the group inconducting activities and also inrevolving the funds and its usage.Across all the 11 districts, there arein all 799 integrated groupscomprising of 12,309 members. Thetotal savings as in the incomesecurity fund by these groups areRs 10,67,175.

Conclusion

The various elements ofSEWA's integrated approachreaches members in differentways, at differing speeds andaccording to their own localneeds. The Integrated FinancialServices Mechanism (IFSM)epitomizes SEWA's mission toprovide comprehensive supportservices that can help womenescape from the vicious cycle ofpoverty. The challenge here ishow to design a financial packagethat provides long term securitywhich is managed professionallybut at the same time is cost-effective and affordable to thepoor.

(E-mail : [email protected] )

Rural roads, rural housingand rural drinking watersupply—three of the six

components of the UPAgovernment’s ambitious BharatNirman project, seem to be ontrack where achievement of

THREE AIMS OF BHARAT NIRMAN ON TRACK

targets is concerned. Going by thestatement made by Union Ministerof rural development RaghuvanshPrasad Singh in the Lok Sabhatargets are being achieved in whatwas conceived as a “time-boundbusiness plan by the government

for development of rural

infrastructure” which is to be

implemented between 2005-06

and 2008-09. All three

components come under the

purview of Mr Singh’s ministry.



MICROFINANCE

HE COUNTRY haswitnessed a rapid growthof self-help groups(SHGs) in the last onedecade or so. The SHGgrowth which has almost

assumed the form of a movementrepresents a massive grassroots levelmobilisation of poor rural women intosmall informal associations capableof forging links with formal systemsto help access financial and otherservices needed for their socio-economic advancement. Basically,SHGs are being promoted as a partof the microfinance interventionsaimed at helping the poor to obtaineasily financial services like savings,credit and insurance.

The promotion of SHGs in Indiabegan more formally in 1992 withthe launch of the SHG-BankLinkage Programme by NationalBank for Agricultural and RuralDevelopment (NABARD). Theprogramme's main aim was toimprove rural poor's access toformal credit system in a costeffective and sustainable mannerby making use of SHGs.

H S Shylendra

Role of Self Help Groups

A self-help group has beendefined as a small and informalassociation of poor havingpreferably similar socio-economicbackground and who have cometogether to realise some commongoals based on the principles of self-help and collective responsibility.SHGs become relevant because ofthe following reasons. First, a SHGworking on the principle ofsolidarity helps the poor to cometogether to pool their savings andaccess credit facilities. A SHG bytapping social capital like trust andreciprocation helps in replacingphysical collateral, a major hurdlefaced by the poor in obtainingformal credit. Then, through theprinciples of joint liability and peerpressure, a SHG ensures promptloan recovery from the members.In the process, a SHG helps thepoor, especially women, to establishtheir creditworthiness.

The second major role of SHGsis seen in terms of their potential toempower the women members.The participation in SHG and theaccess obtained to savings and

T

The author is Professor, Institute of Rural Management, Anand, Gujarat.

INSIGHT

Though SHGs havebegun to contribute

in improving theeconomicconditions

of the poor, theimpact does not

seem to beuniform


credit can play a transformationalrole for women, socially andeconomically. The access tosavings and credit helps a womenmember to take care of her family'sfinancial needs for consumption andproduction purposes. The ability tomeet such needs of the familywould enhance the standing of thewoman in the family leading tobetter gender relations. Thecontinued participation in SHG isfurther likely to enhance theawareness, skills and other abilitiesof the women resulting in buildingof individual self-esteem and ingetting due social recognition.

The SHG programme is nowmore than a decade old. There is aneed to explore: (i) to what extentSHGs have helped poor women toget access to savings and credit? (ii)to what extent the improved accessto financial capital has contributedtowards attaining goals like povertyalleviation and women'sempowerment? and (iii) what are thechallenges and constraints faced bySHGs in playing their expected role?

The primary role expected ofSHGs is one of improving for thepoor the access to savings andcredit. Studies available indicatethat as a result of the participationin SHGs, members have been ableto accumulate significant savings.In states like Andhra Pradesh, onan average, SHG members haveaccumulated individual savingsworth upto Rs 1800. In matureSHGs the average individualsavings has been as high asRs 10,000. Though in absoluteamount the savings is small, itbecomes significant when seenfrom the angle that bulk of the SHGmembers hail from poorercommunities unable to saveconveniently and safely earlier.Own savings can be handy and

useful in many ways. Many SHGsmembers even considerdevelopment of the habit of savingsas the major impact of theirparticipation in SHGs. There areevidence to indicate that using theopportunity of savings provided bythe SHGs, women are able to meetvarious life cycle needs like housing,education and marriage.

SHGs are also found helpingwomen to leverage the savings foraccessing credit. SHGs areutilising the savings mobilised to lendsmall loans internally among theirmembers. A significant number ofSHGs have now taken up internallending helpful for meeting urgentconsumption and social creditneeds. Based on the savingsaccumulated, SHGs are borrowingfrom banks and SHG federationsto meet bigger credit needs of themembers for production purposes.More and more SHGs are gettingcredit linked to banks which isincreasing the members' access toformal sources of credit.

Impact on Poverty

A foremost impact discernible isthe reduced dependence of SHGhouseholds on informal sources ofcredit. The members of the SHGshave been able to reduce theirdependence on moneylender verysignificantly. A study on SHGsreported a decline in the share ofmoneylender's loan from 66 to 15 percent for the members. In anotherstudy, nearly 51 per cent of themembers closed their old debt withthe moneylenders using SHG loans.The members at the same time havebeen able to generate a substantialsurplus for themselves due tocheaper interest paid on loans.

Through credit obtained fromSHGs, the members have madeefforts both to protect their familiesfrom various vulnerabilities as well

as build their economic base toescape from poverty. This is evidentfrom the fact that members aremaking use of SHG loans for diversepurposes. While use of loan forconsumption purpose still remains amajor item of utilisation, members areincreasingly using the SHG loans forsocial and productive needs. Healtheducation and housing are some ofthe areas members have begun toincreasingly channelise their loans.In Tamil Nadu, it was found thatnearly 14 per cent loan had beenused for housing purpose. In AndhraPradesh it was found that nearly 6per cent of the members had utilizedtheir loan for children's education.

SHG members are also usingquite significantly SHG loans forregular economic activities likeanimal husbandry, agriculture andpetty business. This is evident fromthe fact that nearly 74 per cent ofSHG members in Tamil Nadu haveinvested in creating various assetslike land, livestock, and householddurables after joining SHGs.

On the contrary, there are alsostudies which have found only alimited impact of SHGs. A studyconcluded that microfinance seemsto have played a more critical rolein facilitating clients to cope withsituations rather than deal with lifecycle events in a sustainablemanner. The economic impact ofSHGs has been more protectionalrather than promotional in nature.This is attributed to exclusion ofvery poor and the generalconstraints faced by poor in makinguse of loan for productiveinvestments. There are also someevidence to suggest that theparticipation in SHG has even ledto change for worse on manycounts.

Though SHGs have begun tocontribute in improving theeconomic conditions of the poor


households, the impact does notseem to be a uniform phenomenon.At the same time, there is noevidence to establish the fact thatthe positive impact noticed in someinstances are attributable towomen's involvement. However,going by the evidence availablefrom Bangladesh, it could beinferred that the involvement ofwomen might have made asignificant difference even in Indiawherever positive changes havebeen noticed.

Women's Empowerment

Given the widespread genderbias against women in variousfields, there are arguments thatinterventions like microfinance havethe potential to enhance women'scapabilities which can make asignificant difference to overalldevelopment of women. Those whohold the above view argue forsupporting microfinanceinterventions and tuning them tomeet the needs of womenspecifically. On the other hand,there are arguments thatmicrofinance interventions can atbest have only a very limited impactin empowering women.Interventions like microfinance areconstrained by the existing socio-cultural structures like patriarchy inorder for them to make a very asignificant impact on women. Undersuch circumstances women hardlyhave any control in deciding ordirecting loan use for purposes,which can enhance their individualeconomic position over thosedictated by familial requirements.Access to savings and credit cantake care of mainly the practicalneeds of women instead of meetingtheir strategic needs.

A study which looked at thechanges brought about by longer

association of members with theirSHGs concluded that: members ofthe old SHGs emerged as moreconfident, financially more secure,more in control of their lives, and ina stronger position vis-à-vis theirfamily members. The personalabilities, ownership of economicassets, development of skills, abilityto decide about self and extent ofparticipation in political sphere arelikely to improve for the better ifthe women members continue toparticipate in SHGs for a longerperiod.

At the same time, thereevidence which tell us thatmicrofinance and SHGs may notalways lead to transformationalimpact on women. A study foundthat women have certainly becomemore visible as microfinance clients,but being a clients does not translateautomatically into empowerment.The study found only mixedevidence about the role ofmicrofinance in either increasingwomen's economic activity orincreasing women's awareness,mobility and skill development orenhance women's status in thehousehold as income contributorsand decision makers . The study,however observed that betweendifferent models of microfinance,the SHG model seems to showbetter scope for developingwomen's opportunities and skills.

Challenges

What are the constraints andchallenges facing the SHGprogramme to contribute moreeffectively for poverty alleviationand empowerment?

A Problem of SHG Outreach:The SHG programmes show a veryskewed growth pattern in the

country. The programme is largelyconcentrated in southern region ofthe country. It is important that themicrofinance programmes spreadmore evenly so that the benefits areavailable especially in regionswhere the need is more accurate.This calls for increased investmentin SHG formation and developmentby banks and government. Theprogrammes have to orientthemselves to the needs of the verypoor as the existing SHG modelshave not been able to cover thissection significantly.

B Restrictive Policies ofFormal Agencies: The secondmajor constraint faced by SHGs isthe continued restrictive loanpolicies of the commercial banks.The commercial banks took a longtime to clearly recognise andinternalise the concept. The SHGmodel is primarily a savings basedmodel. The commercial banks havebeen following largely 1:4 savings-credit ratio prescribed more as anorm for lending. Even the loanterms are uniformly prescribed.SHGs having lower savings abilityfind the lending ratio highlyrestrictive. As a result, many SHGsare unable to access creditadequately. This is forcing SHGmembers to restrict loan size/periodand even distribute loan amountequally. There are instances of SHGmembers going back tomoneylenders. In many casesbanks are also not able to giveadequate time to SHGs forcingSHGs to operate more in wayswhich suit banks than the SHGs.If SHGs, whose strengths lies ininformality, have to make a betterimpact, the formal system has totune itself to the needs of SHGsand their members. This calls foradopting highly proactive and


innovative policies to deal with theSHGs.

C SHG Quality and Leadership:The performance of SHGs to a greatextent depends upon their qualityof governance and management.Available evidence clearly suggeststhat the quality of SHGs hassuffered due to their fast growth.In Andhra Pradesh which is one ofthe leading states in SHG formation,it was found that about one-thirdof SHGs were of unsatisfactoryquality with regard to theirorganisational and financialmanagement abilities. It is alsofound that as SHGs grow oldertheir quality further deteriorates.In many cases SHGs even breakdown or wind-up their operations.The major reasons attributed for thepoor quality of SHGs are: targetbased promotion of SHGs,inadequate training and capacitybuilding, and widespread illiteracyof the members. Continued andspecialized trainings can helpdevelop the abilities of SHGs inmaturing fully.

Another area of concern isSHG leadership. SHGs havenurtured some exceptional leaderswho have excelled both inmanaging their SHGs andcontributing to the sphere of villagedevelopment. But it is also foundthat SHG leaders have benefitedrelatively more from their SHGsboth financially and in terms ofdevelopment of individual abilitiesas compared to other members. Itis necessary that SHGs benefitother members in a similar way. Thepromoting agencies need to helpin broadbasing the leadership ofSHGs.

D Development of Skills andLinkages: The success of SHGs

in contributing to povertyalleviation and empowermentdepends on the ability of membersto take up newer and productiveinvestment activities. Even wherethere is positive impact, it has beenfound that SHG members haveutilised the loans mainly inconventional activities likeagriculture, animal husbandry andpetty business. Such aninvestment pattern has resultedmainly in women channelising theirloans to meet mainly the needs ofother household members.

This calls for separate policyinterventions wherein efforts aremade to develop the entrepreneurialskills of women and linkage toobtain technology, raw materialsand marketing channels. Policiesare required to reserve or showpreference in allotting variousschemes like PDS, mid-day mealand IT enabled services to SHGs.Training and exposure to SHGmembers on interventions managedby women should also become anessential part of the SHGdevelopment.

Conclusion

There is a massive mobilizationof women taking place as a resultof the SHG movement. The growthof SHGs incidentally has occurredduring the economic reformsperiod. The SHG movement has agood potential to serve both as ahuman face of the economicreforms as well as contributetowards women's emancipation.There is a major onus on all actorsinvolved in SHG promotion anddevelopment to further intensifytheir efforts in enabling SHGs toreach a mature stage. We need a

major investment in capacitybuilding of SHGs and proactivepolicies to help overcome theconstraints faced by SHGs tointegrate them fully into thedevelopmental programmes aimedat women's empowerment.


References

Das, Biswaroop (2005)Microfinance and Rural CreditMarkets: A Study of Clients UsingMicro-Credit in Gujarat andMaharashtra, Ahmedabad:Friends of Women's WorldBanking.

DHAN Foundation (2004) TheImpact of Kalanjiam CommunityBanking Programme, Madurai:Dhan Foundation.

MYRADA (2002) "Impact ofSelf-Help Groups on the SocialEmpowerment Status of WomenMembers in Southern India",Paper presented at the seminar onSHG-Bank Linkage Programme atNew Delhi on 25-26, November2002.

Puhazhendhi, V. and Badatya(2002) Self-Help Group BankLinkage Programme for RuralPoor in India: An ImpactAssessment, Mumbai: NABARD.

Reddy Raja (2005) A Study onSelf Help Group (SHG)- BankLinkage in Andhra Pradesh.Hyderabad: APMAS.

Sinha, Frances, et.al (2005)"Microfinance and GenderDevelopment: Assessing theImpact" in Gender andMicrofinance, Ahmedabad:Friends of Women's WorldBanking.


MICROFINANCE

S INDIA and China,compete for resourcesthe world over, it isuseful to pause forthought on the tender

under-belly of the two emerginggiant economies. The AsianDevelopment Bank estimates thatabout 173 million people wereliving on less than $1 a day in thePeople's Republic of China (PRC)in 2003, while 536 million peoplewere living on less than $2 a day.In India, NSSO data for 2003shows that around 35% of thepopulation (350 million people)lived on less than $1 per day. Therural sector in both countriescontinues to lag in terms of socio-economic development. Witheconomic growth, regional andintra-sectoral disparities in ruralsocio-economic development areincreasing and environmentalproblems - such as landdegradation, soil erosion, and thepollution of drinking water sources- and persistently high poverty in

Sanjay Sinha

Hindi-Chini Rural Finance

some rural areas remain. Eachcountry has significant andgrowing disparities also betweenurban and rural incomes andgovernments in both countries havebeen concerned to reduce thisdifference.

Along with agriculture, the rapidgrowth of rural non-farm activitiesduring the last two decades hasbecome one of the major driversof poverty reduction in China.Highly labor-intensive, household-based micro enterprises provideemployment for more than 80million rural residents in more than50 million households. In India, bycomparison, there are reported tobe 300 million workers in theinformal sector. To boostproductivity in agriculture andstimulate non-farm entrepreneurship,each country has emphasized theimportance of the rural financialsystem as part of the process ofpoverty reduction.

A

The author is Managing Director, Micro-Credit Ratings International Limited (M-CRIL) & Member, UN Advisors Group onInclusive Financial Sectors.

OPPORTUNITY

Hindi-Chinirural finance

needs the kind ofsympathetic andknowledgeable

action that has beenconspicuously

lacking


The rural financial system inChina and India has notablesimilarities, yet the differences arealso significant. Chineseeconomists and regulators classifytheir rural finance system along fivechannels: "policy" financialinstitutions, commercial banks,niche market financial institutions,cooperatives, and the informalsector. Given the fact that China isgenerally deemed to beeconomically ahead of India inevery way, from the poverty ratioto infrastructure, it is surprising todiscover that, in the organization ofthe rural financial system, India isactually more advanced.

"Policy" financial institutions isa uniquely Chinese way ofdescribing institutions such as theAgriculture Development Bank ofChina and the agricultural insurancecompany that are regarded as thefront-end of financial policies aimedat providing subsidized and directedservices to all sections of thepopulation. In India, we have theNational Bank of Agriculture andRural Development (NABARD) asa kind of policy financial institutionthough it functions at the wholesalelevel working through the publicsector commercial banks. And wenow have our own agriculturalinsurance company.

The operations of commercialbanks in rural China, as much as inrural India, are very much under theaegis of the public sector, thoughIndia's banks, unlike those of China,have the advantage of a wellestablished property system thatfacilitates collateralisation of loans.This is a major factor in theextension of credit, notwithstandingthe deficiencies and delays in ourlegal system. While China'scommercial banks have, since 1994,

gradually withdrawn from thecountryside as part of the reformprocess, India's have rationalizedand reformed but not actuallywithdrawn significantly.

It is in the next two channels -the niche market financialinstitutions and the cooperatives -that there are further realdifferences between the two ruralfinancial systems. China's nichefinancial institutions, its town andvillage banks, microcreditcompanies and NGO microfinanceinstitutions (MFIs) are eitherrecently formed or still in theprocess of being established.

For the town and villagebanks (TVBs), the limit onthe lending interest rate

capped at 2.3 times the base rateof the People's Bank of Chinameans the legally acceptable rateis no more than 11.5% at present- a rate that is likely to cripple theseinstitutions at birth. This isespecially so since the limitationof operations to one county meansthat the market extends to apopulation of no more than300,000 (perhaps 85,000 families)that also have a number of othertypes of institutions (commercialbanks, cooperatives amongstothers) able to provide financialservices in the same area.

In India, by contrast, there is anextensive network of regional ruralbanks that has been functioning fordecades, currently with over 14,000branches to supplement the 30,000or so rural branches of thescheduled commercial banks. Atthe same time non-bank financecompanies and NGO MFIs have,in recent years, become asignificant part of the rural financial

system. Information compiled bythe microfinance agency, M-CRIL,shows that some 58 of the leadingMFIs in India - 15 non-bankfinance companies (NBFCs), 6not-for-profit companies and 37NGOs - now provide microfinanceservices to around 5.6 millionclients with the leading ten aloneserving over 3.5 million people. Inaddition, the 2 million or so SHGslinked to banks serve some 25million people.

Similarly, China's network ofaround 32,000 rural creditcooperatives and its hierarchy of2,500 county and higher level unionsis left in the shade by India's 90,000and more cooperative outlets in ruralareas supported by a network ofsome 370 district and statecooperative banks cooperativebanks. Further, consolidation as thebuzzword of the reform process inChina has seen the increasingwithdrawal of the cooperativesystem from the village to thecounty level with an inevitablefocus on larger size customers tothe detriment of the average ruralresident.

There the difference ends,however, as India's cooperativesystem is as ridden with the ills ofgovernment control, issues of poorgovernance and obligations to actas the front-end of the subsidymechanism as that of China. It iswell known, this has crippled theefficacy of both systems in servingthe needs of poor rural residentswhile vitiating the credit culture inthe countryside. Only a smallcaveat here is the existence in anumber of Indian states of newcooperative laws that enable theestablishment of independent,


member-owned institutions, outsidethe ambit of government control.Unfortunately, except in the stateof Andhra Pradesh the effects ofthese new laws are yet to be widelyfelt and, even in AP, there haverecently been attempts toundermine the independence ofthese cooperatives.

In China, there are those whosee the TVB mechanism as athreat to the future of thecooperatives there since a bankingsystem with lower entry thresholdsmeans local competition for acooperative system still riddledwith political interference andrudimentary operating systems.However, these are issues andconcerns for the future as theTVBs are yet to start operationsin any significant way.

The fifth channel, the informalsector, exists in China as much asin India and moneylenders as wellas informal joint savings andcredit mechanisms flourish, asthey do anywhere in the world,apparently unworried by anyelement of official control orregulation.

The Chinese rural financesystem is largely ineffective as ofnow. Many of the institutionsengaged in rural finance are eithernew types of institutions - town andvillage banks and microfinancecompanies - or are, as indicatedabove, restricted in their ability toprovide widespread access tofinancial services by interest ratecaps. Such caps - formal orinformal - have been tried in manycountries and areas in variousforms. These countries include

Bangladesh, India, Sri Lanka andVietnam. In Bangladesh, theinterest rate cap takes the form ofa restriction on the on-lending rateimposed by the country's dominantwholesaler of on-lending funds, PalliKarma Sahayak Foundation(PKSF) that limits on-lending to amaximum rate of 12.5% (on a flatrate basis). In India, the limit is interms of a restriction on banks tomake "small value loans" at nomore than the banks' base lendingrate. This results (currently) in aneffective cap at 12.5%-13% (ondeclining balances). In Vietnam andThailand, the rate is imposed simplyby blanketing the countryside withsubsidized loans minimizing theeffective demand for sustainablefinancial services. In Thailand thereis also an effective cap of 15% onthe rate of interest charged on ruralloans.

Interest rate caps are introducedusually because its proponents -

politicians or administrators - wantto help the poorest sections of thepopulation. Such caps, however,achieve nothing but a distortion ofmarkets; they make it impossible forfinancial service providers in mostsituations to cover costs and resultin credit rationing with all thenegative implications for rentseeking. This occurs particularlyin the case of commercial banks,forced by directed creditrequirements to offer microfinanceproducts at low cost. At the sametime, a cap forces smaller ruralfinance institutions to focus oneasier markets such as those inurban areas, in densely populatedareas, and in more accessible areas,to the disadvantage of those livingfurther away from the major urbancenters and those in relativelysparsely populated regions such asnorthern and western China.Alternatively, such caps can forceinstitutions up-market, offeringlarger loans in order to reduce


average costs, generally avoidingthe more difficult clients with lowerincome levels who have a demandfor smaller size loans. The impactof such avoidance on the ability ofrural financial institutions to covercosts within the limits set by interestrate caps can be assessed from theexperience of microfinanceinstitutions in India.

Research on MFI performancein India shows that there is a veryclear downward trend in theoperating expense ratio (OER) ofMFIs as the loan size increases.The table (and the accompanyingfigure) show that MFIs with thesmallest size of loan disbursed (lessthan $70) record typical OERs of25% whereas larger categoriesreduce to 15% and even 12% forthe largest, above $240, category.There is some correlation with theage of an MFI since the newerMFIs tend to have smaller loansizes but an even strongercorrelation with the fast growinginstitutions that both incur highercosts when they are in their growthphase and have lower loan sizeson account of having largenumbers of new clients. As MFIsstabilize in terms of growth andbecome older institutions, theirOER declines as the costs ofgrowth (training staff, opening newbranches, reaching newgeographical areas) are morelimited while their average loansize increases as the number ofclients getting the fourth or fifthrepeat loan becomes quite high(perhaps 50-60%). Conversely,MFIs operating with larger loansizes are able to limit theiroperating expense ratios partly onthat account. Similarly, the smallvalue lending of commercial banks

(with average loan sizes almostfour times those of MFIs) is,inevitably, substantially cheaper toservice than that of MFIs and,thus, represents a different assetclass altogether.

Thus, interest rate caps limitrather than increase access tofinance producing precisely theopposite of the effects intended bythe proponents of such caps.Nevertheless, the diversity ofinstitutions for the rural financiallandscape is good for access tofinancial services.

At the same time, it is apparentthat, with the government of thePeople's Republic of China aimingto build a "new socialistcountryside" and the Governmentof India concerned to fosterincreasing economic inclusion, theopportunities for financialintermediation will grow. Whilepast interventions through directedcredit schemes failed in all thecountries of South Asia and in SEAsia as well, this was largely onaccount of interest rate caps aswell as a misallocation ofresources resulting from direct andindirect subsidies to the borrowers.While the caps rendered directedcredit products unviable for thefinancial system, subsidiesfostered political interference andrent seeking leading to thewidespread exclusion of targetgroups and hefty increases in thereal transaction costs paid bygenuine borrowers. Recentdevelopments in rural finance havebeen more encouraging and theexperience of Khan Bank in

Mongolia and of ACLEDA Bankin Cambodia shows that ruralfinance can be profitable as wellas competitive when conducted ina regulatory environment that isfacilitative rather than intrusive.

Despite the superior coverageof the Indian system, however, India(and China even less) has not beenable to find the harmonious blendnecessary to foster real financialinclusion. This is partly becausepolicy makers in both countries havetended to see rural finance as anecessary evil rather than anintegral part of the financial systemessential for fuelling the growth ofthe economy.

In both countries there has beenan inadequate appreciation of thefact that if you have "policy"financial institutions, it really oughtnot to be necessary to hobble nichemarket institutions with the burdenof interest rate caps. That a vibrantsystem of independent financialcooperatives is the most effectiveway of ensuring that depositservices reach low income families.And also, effectiveness of ruralfinance regulation develops overtime with transparent operationsand growing experience and therereally is no need to outsource it justbecause the designated financialservices regulator is presentlyunfamiliar with rural conditions.Financial inclusion will result froma harmonious and consistent blendof policies; piecemeal measuresonly generate confusion. Hindi-Chini rural finance needs the kindof sympathetic and knowledgeableaction that has been conspicuouslylacking so far.

(E-mail : [email protected] )


ISSUESMICROFINANCE

HILE ACTIVITIESthat could be termedas "microfinance"have been carriedout in the country for

a long time, this term seems to havecaught the fancy of several playersin the last few years and has beengetting media space and space inthe minds of the policy makers. Ifwe take the definition ofmicrofinance to be "provision offinancial services to people whootherwise did not have access toformal institutions due to smalltransaction size", we would thenrealize that several attempts bothby the state as well as the voluntarysector have been made in bringingthese services to the poor and thedisadvantaged with varying degreesof success.

There have been severalattempts made by the state forhaving inclusive financial services.However most of these initiativeshave been at creating structures

M S Sriram

Commercialisation of Microfinance

that should foster inclusive financialservices - some of which were tohave state partnered co-operativemovement, promotion of regionalrural banks and also offeringseveral schemes from the supplyside to meet the overall objectives.The schemes offered by the statehave in the past not only coveredloans [with and without subsidies],savings but have also extended thefacility of insurance to thedisadvantaged sections of thesociety at reasonable costs.However there are questions as tohow well these schemes haveactually touched the people whowere expected to be benefited fromthe schemes.

In the past three decades wesee that a low key revolution hasbeen happening in this space and itis suddenly gaining momentum inthe last four or five years. Therevolution is about getting the poorand disadvantaged, particularly thewomen organized into groups in

W

The author is Professor at IIM, Ahmedabad.

Microfinance hasattracted the

attention of severalprivate equity

players and moreand more funds arebeing pumped into

the sector


order to address their own issuespertaining to financial services.

While our own home-grownexperiment of forming self-helpgroups has had varying degrees ofsuccess across the country, wehave also seen a model inspired bythe Grameen Bank of Bangladeshtaking roots in the country. Unlikethe self-help group model, theGrameen model is simple, easy toreplicate and easy to scale.Therefore it is natural that it hasattracted the attention of severalplayers as it could reach theservices to a larger number ofpeople very quickly. Before gettinginto the issues pertaining to thesemodels, I will highlight thesignificant differences in thesemodels.

Self help groups are moreflexible than Grameen type groups- having a membership of 10 to 20women, they are almostindependent business entities andthey need not be embedded in afederation or linked to a bank. Theyare more in the nature of mutualsor micro-cooperatives operating asstand alone units with a choice ofassociation. Usually self-helpgroups start with savings as a pivotand do lending of the savedresources in a manner similar tothat of bishis. Only when theyreach a certain scale do they getlinked to an external agency suchas a bank for leveraging greatercredit. Even when the groupsassociate themselves with thebank, it is the group that is the entityin the books of the bank and notthe individual members. Havingtaken a bulk loan from the bank

the members decide from amongstthemselves as to who should get aloan, on what terms and tenor. Thusthese groups are largelydemocratically governed, selfmanaged and locally run. Thesegroups might seek the help of alocal NGO or resource persons tohelp them to deal with thetechnicalities of the operations. Itis very evident from the abovedescription that these groups areempowering because they leavethe fate and management of thegroup to the members themselves.Therefore it is to be assumed thatsuch methodology has a very slowprocess of growth and the failurerates could be much higher thanthe alternate methodology. Whilethe figures of formation of self helpgroups and their linkage to thebanks over the last three decadesappear to be impressive there havebeen valid questions raised aboutthe quality of the groups that appearin the national statistics.

On the other hand, Grameentype groups are promotedby agencies that follow the

Grameen methodology. The usualpractice is to do a wealth rankingto identify the poorest of thepopulation, organize the women ofsuch households into groups of fiveand consolidate them with eightgroups in a centre. Once suchgroups are formed and they passthe group test (which checks out thewomen's knowledge on theoperating philosophy of theorganisation, the terms of the loanas well as some social parameters)the microfinance institution that

operates on the Grameenmethodology starts giving loans.

Savings in such groups issecondary, partly due toregulatory considerations andpartly because the organizationsare basically credit-oriented.Apart from attending the meetingsand reciting the rules of theorganisation and transacting creditand repayment the women in suchgroups are hardly in any decision-making/account-keeping role. Themethodology is fairly standardizedwith loan sizes pre-specified,interest charged on a flat basis,installments being equal and theloan repayment term also beingfixed with a weekly interval fortransactions. Thus thisstandardization helps theorganizations running theGrameen type of programme toquickly replicate and rapidly openoffices and form groups. Thefocus is more on whether thewomen are ready to transactrather than on whether they areready to take charge of themanagement of their groups. Themanagement of the groups is doneexternally. Thus it is possible thatsuch groups grow very rapidly andkeep going as long as theorganisation is able to offer creditand the customers are in aposition to absorb credit. Unlikethe replicators the originalGrameen model in Bangladeshprovided the borrowers with anownership right in the organisationby offering and making eachborrower a shareholder. The


Indian replicators have adapted allbut the ownership principle intheir roll out.

The Grameen type ofmicrofinance activities haveconstantly justified the high interestrates that they charge. They arguethat formation of groups and takingcredit to the doorstep of theborrower involves fair amount offinancial resources and unlessthere is some other source ofincome to subsidise the costs, theyhave to be ported on to theborrowers. In any case most ofthese institutions stop acceptinggrants once they achieve a certainscale, and of late the commercialplayers who are entering this largemarket are coming in with asustainability requirement from dayone, without any subsidy. Theargument of the Grameen type ofmicrofinance institutions is that thesubsidies on group formation of theself-help groups are hiddenbecause they are usually absorbedby the institution that promotesthese groups and these institutionscould be grant funded. Thereforethe high interest rates [in somecases reaching near about 36-38%effective interest rates] have beenjustified.

While the self-help group alsocharges high interest rates whencompared to their borrowing andtransaction costs, this has largelybeen justified with the fact that thesurpluses actually remain within thegroup and could be potentiallydistributed back to the women atany point in time. Infact severalgroups do distribute a good dividendperiodically or pay back their

members in kind. However whenthe Grameen type of microfinanceinstitutions make profits, theseprofits go back to the investors - likein any privately owned firm. Thusthese microfinance institutions aretherefore similar to any commercialfinance company operating in aniche market where there arearbitrage opportunities for a formalsector financial institution tocome in.

As the methodology ofreplication of Grameen typeoperations has now been fairlystandardized and these operatorsenter areas where somepreparatory work on microfinancehas already been done, thedevelopmental costs are no longeras high as they used to be. Thesecond thing that we need toremember is that when many ofthese organizations started worktheir own borrowing costs werehigh because of the high interestrate regime. Now the interest rateshave also come down to moderatelevels. Thus it is evident that theGrameen type of organizationsinvolved in commercialmicrofinance seem to be makinggood profits. So much so,microfinance has attracted theattention of several private equityplayers and more and more fundsare being pumped into the sector.

While the investments to themicrofiance sector is mostwelcome, we should pause to seewhy all the investments are comingin only to companies that arefollowing a single methodology ofmicrofinance delivery. Is theresomething about the profitability of

the model that is attracting theprivate investments. Given that thefocus of microfinance has shiftedfrom players who were basicallyfrom the developmental field toplayers from the private sector,would there be greater pressureson continuing the delivery of greaterprofits? If so, are we movingtowards some microfinanceinstitutions in some areas chasingthe same set of clients with anoversupply of credit? If this ishappening it is a cause for worry.

A couple of years ago this issuewas raised in Andhra Pradesh andthe microfinance institutions madeit out to be a fight between thegovernment promoted self-helpgroup movement and the privatelyowned MFIs. However, the issuecannot be brushed aside as just anideological issue and has to beaddressed keeping in mind the costof delivery and a justifiable returnon investments. That interest ratescharged in Latin America and Sub-Saharan Africa are much higher orthat the money lenders arecharging high rates of interest areactually no justification to haveinterest rates that produce super-normal profits that could beat thebanking sector returns. Theorganizations involving themselvesin purveying credit to the poorpossibly should consider the set ofborrowers as long term customersthat lay golden eggs and not try tolook at very short term gains. Inthis regard the scramble forinvestment in microfinanceinstitutions, particularly from theprivate equity space is to be seenwith caution.

(Email: [email protected])


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MICROFINANCE

HE CONCEPT ofmicrofinance can best bedescribed by the title ofF.A.J. Bouman's book,"Small, Short and

Unsecured"(1990).The concept isunderstood as providing poor familieswith very small loans(microcredit) tohelp them engage in productiveactivities or grow their tiny businesses.Over time, microfinance has cometo include a broader range of servicescredit, savings, insurance etc. Asuccess indicator in microfinance liesin a 'credit-plus' approach, where thefocus has not only been on providingcredit, but to integrate it with otherdevelopmental activities. Today,microfinance is very much in theagenda of public policy, and it hasbeen increasingly used as a vehiclefor reaching the otherwiseunreachable poor in the country.

Despite its several positivecontributions, microfinance in Indiadid not produce miracles . Therealization of the fact that, despitethe introduction of microfinance,there has not been any major upsurgein credit off- take, prompted thesearch for new strategies of credit

P M Mathew

MF and Financial Inclusion

dispensation, leading to the newconcept of 'financial inclusion'. Moreprecisely, microfinance is a subsetof the wider agenda of financialinclusion. What do the new rubricsimply to the real economy of thecountry? This article addresses thiskey issue.

With the announcement of aseries of measures by the ReserveBank of India in its Credit Policy for2006-07,meant to include many of thehitherto excluded groups in thebanking net, the term 'financialinclusion' got enhanced currency inthe Indian financial circles. The Policyadvocated an active role for theConvener Banks of the State LevelBankers' Committees, (SLBCs) in allStates, and they were given theresponsibility of reaching 100 per centfinancial inclusion in at least onedistrict in their area of operation. Thisessentially means, enhancing thecoverage of bank accounts on acampaign mode, even by multiplyingthe number of 'no-frills accounts'.

Economic Rationale

The reforms in the financialsector in India were meant to meet

T

The author is Director, Institute of Small Enterprises & Development, Kochi.

IMPACT

Banks have tocome out of theirtraditional shells

and address issuesof local economic

development


two major objectives,ie, profitabilityof the financial institutions asbusiness entities; and serving theneeds of the real economy ( withdue consideration for the principlesof equity). But there are obviouscontradictions.

In the race for profitability, thereis an obvious need to reduceoperational costs. In the process,there is a natural exclusion ofseveral sections of the society fromthe financial net. Reducing theadverse consequences of suchexclusion, and bringing themaximum number of people underbanking net, is the key concern offinancial institutions throughout theworld today.In India, extending thereach of formal financial institutionsamong the poorest of the poorshould mean taking them out of theclutches of money lenders.

Financial inclusion is not an endin itself. Having a bank account, oran insurance coverage, ipso facto,does not mean an enhancement inthe economic position or well beingof a person. But it acts as afacilitator. To what extent does itfacilitate? An answer to thisquestion need to be sought in termsof the historical setting of the actualprocess of financial inclusion.

Financial sector reforms in Indiahave a history which is essentiallysupply- sided. By supply -sideintervention, it means the agendafor financing development as set bythe banking sector, rather than thedevelopment agenda of the countryusing banks as an instrument forchanellising resources. This ratherlop-sided development need to beexplained in terms of the hegemonyof public sector banks.

The second phase started withthe 1990s. Even with a scalarexpansion, it became difficult tomaintain the viability levels,especially in a context where theold- generation banks were forced

to compete with the new -generation ones. While thependulum moved from economiesof scale to unit level efficiency, thepublic sector banks were forced toadopt new strategies: this came intwo forms: (a) new technologies;and (b) downsizing / franchising.The emphasis on cost efficiency,naturally led to the elimination ofseveral unviable accounts.

Caught in the web ofprofitability- versus- viability, thebanking system in the country wasforced to take two new initiatives:(1) to franchise out all operationsthat are 'unviable' to a third party:the microfinance institutions. Aseven these attempts did not yield theresults expected, came the thruston 'financial inclusion'.

Building up a New Logic

Poverty is a well-known problemin most developing countries. Butwhat is needed is to developmechanisms that ensure that povertyis not exacerbated by lack of accessto financial services. People needinformation and advice when theyget into debt. Finance per se is notthe solution. Such information andguidance can best be delivered byappropriate mechanisms. If sucheffective mechanisms are put inplace, they in turn, reinforce thedemand for credit.

While attempting to reach thehitherto excluded sections through acampaign mode is a laudable initiative,the reality of Indian banking stillremains. On one hand, there is a highskewedness in financial assets infavour of urban households. Thelatest RBI figures also indicate thatthe 85 commercial banks,concentrated in urban centres,account for 78 per cent of India'sfinancial assets while cooperativebanks and regional rural banksaccount for only nine per cent andthree per cent, respectively. Thisexplains, to some extent, the rural

retrogression, which has its socialreflections in phenomena such asfarmers' suicides.

Large institutional interventions,such as in the form of microfinance, has had more of a

bandwagon effect than contributingto the dynamics of the economy.Large employment oriented ruralprogrammes still suffer largely frominadequacy of backward andforward linkages. The conventional"credit-technology-market" approachshould undergo a major change asagainst innovative organisationalinitiatives. It is in this context that therelevance of meaningful businessdevelopment services arises.

The RBI's initiatives also arelikely to yield much less of theirexpected benefits unless theprogramme is properly restructuredto make ripples in the micro-mesolayers of the productive system. Ona campaign mode, public sectorbanks are competing with eachother to achieve high targets. In theprocess, even the bare minimumthat is available with the poorersections of the society will besiphoned off as savings (an indirecteffect). But what is added to thelocal economy?

Some of the banks have comeforward with general purpose creditcards and artisan credit cardswhich offer collateral free smallloans. But does it actually help theinterests of the poor people,especially when globalisation tendsto exclude local economies.

For the poor man, finance iseverything as it saves him from day-to-day hardships. But for the planner,providing enough finance does notalways mean good economics. Goodeconomics demands that hebecomes capable of articulating hisfinancial needs. Financial needs ariseout of economic activities that aresustainable. For this, the poor neednot only capital but also real services.


It is this logic that underlies thesetting up of the financial inclusionfund, as also linking up such a fundwith initiatives for local economicdevelopment.

The Fundamental Question

In December,2005, the term'financial inclusion' was much incurrency with the media in thecountry. But with Dr C. Rangarajansubmitting his report to theGovernment of India, thecelebration got watered down. Thisraises some fundamental questions.Is financial inclusion a fad?

The very fact that even CentralBanks in countries like UK andWestern Europe are worried aboutlack of inclusiveness, brings us to theheart of the problem. That financialexclusion is more of a developmentalproblem. Text book theories ofdevelopment highlight theunderdevelopment of financial andcredit markets as a characteristicfeature of underdevelopment in theso called developing countries.

However, even in the so calleddeveloped countries, a large sectionof the society are deprived ofadequate access to the formalfinancial system. One explanationmay be culture itself. But the morecrucial explanation is theunderdevelopment in a local context.It is in this context that Amartya Sen'sconcept of 'entitlement' becomesrelevant. Supply -side interventionsneed not automatically lead to incomeopportunities; what is needed is the"space of functioning". Puttingtechnologies to work and using themis not simple and straightforward, butis embedded institutionally, culturallyand socially. Unless local economicdevelopment does not take place,credit off-take will not take place tothe extent we desire it. But localeconomic development in the contextof the capitalist West and thedeveloping countries mean twothings. It is this aspect that the Centralbanks and the governments shouldfocus first.

Financial inclusion is, as well linkedto the now fashionable concept of

Corporate Social Responsibility, thoughbanks in India are yet to grow to thatstage. Even then, is there a possibilityof making sense out of it? If so thebanks have to come out of theirtraditional shells and address issues oflocal economic development.Decentralisation and social capitalmeans the creation of a strong politicaland social infrastructure in India, forthe financial institutions to capitalize on.This advantage, I must say, banks inno other country can boast of .But thebanks need to come out of their age-old thinking and practices, and be readyto invest on innovations. Atleast thenew-generation banks have set the ballrolling. And that gives some hope.

Public sector banks would ratherthink of the potential inherent in the"bottom of the pyramid". The publicsector banks should better thinkbeyond the 'Community ServicesBanking' they are used to.Theobjectives of financial inclusion can,to some extent, be achievedthrough such initiatives.


CHANGING FACE OF RURAL WOMEN

Bhairavan Bai (in blue saree) leader of Self Help Group in Rajnandgaon, Chhattisgarh, workingwith the group members in the stone quarry for which they took mining lease.



MICROFINANCE

HE GREAT poet,William Shakespeare,wrote the above linesdrawing inspirationfrom the socio-

economic context of his times.The Socio-economic context, notonly of his country, but the entireworld has undergone tremendouschanges since then. Access tofinance at reasonable interestrates has become one of theessential pre-conditions, thoughnot a sufficient condition, forsuccessful entrepreneurship evenamong the poor. Successfulexperiments outside India such asthe Grameen Bank of Bangladeshdemonstrated how small groupsof poor women could becomesuccessful entrepreneurs througha combination of small savingsand microfinance. Various NGOsand Self-Help Groups in differentparts of the country have alsodemonstrated that microfinancecould be a powerful tool foralleviating poverty.

Issues and Strategies

While encouraging financialinclusion, we should also give dueweightage to equipping the poorwith the necessary skills to becomeefficient money managers andsuccessful entrepreneurs so as toavoid more and more people fallinginto debt traps and subsequently todeath traps. It is also the duty ofthe government to create acongenial environment conducive tothe growth of microenterprises byproviding the requiredinfrastructural facilities, technicaland marketing support.

In the background of the aboveintroductory observations, let'sexamine the major issues related tomicrofinance in India and putforward some suggestions foraddressing those issues.

The term 'microfinance' refersto a particular sub-set of financialservices which provides small loansto very poor families, most oftenwithout any collateral. The loan canbe for consumption, productionactivities or for small businesses.Of late, a range of financial servicesother than credit such as savings,

T

The author is Director, Planning Commission, New Delhi.

PERSPECTIVE

N D George

As the bankingsector is not able to

meet the entirecredit needs of thepoor, it is necessary

to encourage thegrowth of MFIs,

subject toappropriateregulation


micro-insurance etc. are alsoincluded under microfinance. Thecharacteristics of microfinance arethat the financial service is small inmagnitude and those who avail theservices are poor or very poor.

Why Microfinance?

The importance of micro-finance lies in the fact that theformal/institutional banking sectorhas not lived up to its socialresponsibility of meeting thefinancial needs of the poor due tovarious reasons such as (a) lack ofadequate branch network in therural areas, (b) the inability of thepoor to offer satisfactory collateralsfor the loans and (c) lack ofeducation and awareness among thepoor. This is in spite of the factthat India today has an extensivebanking infrastructure. The creditrequirement of the poor in India hasbeen estimated to be aroundRs 50,000 crore per annum.Against this requirement, the creditoutstanding of the poor with theformal banking sector is stated tobe Rs 5000 crore or ten per cent ofthe total demand. According to aSample Survey conducted by theWorld Bank and NCAER in 2003,in Andhra Pradesh and UttarPradesh, around 87 per cent ofmarginal farmers /landlesslabourers do not access credit fromthe formal banking sector. Most ofthe benefits of the so calledextensive banking infrastructurehave gone to the relatively better-off people; around 66 per cent oflarge farmers have a depositaccount and 44 per cent haveaccess to credit.

Linking SHGs with banks

The country has seen a minirevolution in formation of Self-HelpGroups (SHGs) in the recent past.

There are approximately 2.3 lakhSHGs in the country covering about35 million Below Poverty Line(BPL) households which is morethan 50% of the total numbers ofBPL households in the country. Onan average, an SHG will have 15-20 members. It has beendemonstrated that group lendingrather than individual lendingensures high rate of repayment asthe other members of the group actas catalysts for repayment of loans.The SHGs also act as a form of'Social Collateral'. Linking theSHGs to the banks has thus becomea workable way of channelisingmicrocredit to the poor. Accordingto RBI guidelines, banks can lendupto Rs 5 lakh to SHGs withoutinsisting on any sort of collateral.This model will also help inenhancing the savings by membersof the SHGs.

Microfinance Institutions

The last 15 years saw the entryof various types of MicrofinanceInstitutions in the rural credit sector.Most of these MFIs are based onthe Grameen Bank Model ofBangladesh. This model has thesolidarity groups at the base, eachof which comprising fiveborrowers. Eight Solidarity Groupsconstitute a 'Centre'. Ten Centresform a 'Cluster' and seven clustersform a branch. Several suchbranches constitute an MFI. MFIsin India register themselves eitheras Societies, Trusts, Non BankingFinancial Companies (NBFCs) oras Local Area Banks (LABs), andare governed by their respectiverules and regulations.

Agency model of MFI

As per this model, MFIs workas 'bank correspondents' or as'business facilitators' on behalf of

commercial banks and facilitatecredit delivery by identifying theborrowers, processing andsubmitting the applications to thebanks etc. The loan account will bemanaged by the bank. The MFIs,however, provide a first loan defaultguarantee equal to 8-15 per cent ofthe credit limit.

Bulk-Lending Model

Some of the larger MFIs adoptthis model. They access funds in theform of cheaper loans,subordinated debts, equity fromagencies such as the RashtriyaMahila Kosh, the SIDBIFoundation for Micro-FinanceDevelopment and Equity Fundunder NABARD etc. and re-lendthose funds in small amounts toborrowers.

Primary Agricultural CreditSocieties

In spite of all its deficiencies, theco-operative sector still plays amajor role in rural credit delivery.According to a recent study byWorld Bank and National Councilfor Applied Economic Research(NCAER), the Primary AgriculturalCredit Societies (PACS) accountfor about 30 per cent of micro-credit. They also have a vastnetwork of retail outlets and acombined membership of about 120million. However, a large numberof PACS are not functional andmost of those which are functioningare not able to meet the creditrequirements especially of theeconomically weaker sections.

The microfinance sector in Indiais at the threshold of massiveexpansion. However, the sectorfaces a large number of majorissues which need to be addressedso that a congenial environment iscreated for the continued growth of


the sector. There is a need tosubstantially scale-up creditdelivery to the poor. The SHGmovement has created a congenialenvironment for achieving thisobjective. What is needed istherefore to strengthen all theexisting mechanisms of micro-credit delivery such as the SHG-Bank linkage programme, thePACs, the MFIs and also bringingin new agencies such as the PostOffices to the micro-finance sector.There is also a need for appropriateregulation of the sector.

Rate of interest

There is a lot of debate on therates of interest charged by themicrofinance institutions which aremuch higher than the priority sectorlending rates of the commercialbanks and the interest rates chargedby the PACS. However, the interestrates charged by the MFIs, whichrange from 21 to 30 per cent perannum, are much lower than therates charged by the money lenders.The rate of interest depends on anumber of factors such as the costof funds, cost of delivery of credit,cost of collection of repayment,cost of providing for bad debts andprofit margins. The main reason forhigh interest rates of the MFIs istheir high operating cost especiallyin delivery of credit and collectionof repayment instalments becauseof geographical constraints in therural areas, scattered settlements,high cost of rural transport etc.

While introduction of IT-enabledtechnologies and other cost cuttinginnovations may bring down theoperating costs of MFIs, as a norm,the MFIs should be allowed tocharge cost-recovering interestrates as that is essential for thesustained growth of the MFI sector.It is therefore advisable not to put

a cap on the interest rate that canbe charged by the MFIs.

Traditionally portrayed asmodern day "Shylocks'', the moneylenders, however, play an importantrole in the rural credit market. Theadvantages of money lendersinclude their dominant presence inthe rural credit market, excellentknowledge base, informality andeasy access. The negatives includehigh interest rates, exploitativepractices and the illegal manner inwhich they operate. They have astranglehold on the rural poor astheir operations span the input,output, land, labour and land-leasemarkets which are all inter-locked.They are also able to attach landand other properties of theborrowers in case of default andhence quite often prefer default torepayment. Money lending being astate subject, various states haveenacted Money Lending Acts butwithout much success in regulatingthe informal banking sector. Themoney lenders, by virtue of theirinformal way of functioning andthrough their monopolistic oroligopolistic position in the villagecredit market, are alwayssuccessful in continuing with theirusurious practices, in spite of thelaw. Under these circumstances, itmay be pragmatic to legalise moneylending with adequate safeguardsfor preventing exploitation.

A Technical Group constitutedby the Reserve Bank of India underthe chairmanship of Shri S.C Guptato review legislations on moneylending has recently recommendedpassing of appropriate legislationsto transform money lenders into"Accredited Loan Providers'' andproviding incentives to registeredmoney lenders. While this thinkingis in the right direction, it is alsoequally important to bring inadequate regulation and safeguardsto prevent exploitation of the poor

by the money lenders.Establishment of a microfinanceOmbudsman at district levels wouldalso be useful in preventing usuriouspractices. It is also necessary toencourage SHG based grouplending as against individual lendingas the former empowers theborrowers.

The microfinance sector alsorequires a proper legal and regulatoryframework for its effectivefunctioning and development.Towards this objective, the CentralGovernment has prepared a 'MicroFinancial Sector (Development andRegulation)' Bill which is presentlyunder consideration by theParliament.

Conclusion

There is a need for substantialscaling up of microfinance whichincludes credit, savings andinsurance. As the banking sector isnot able to meet the entire creditneeds of the poor, it is necessary toencourage the growth of MFIs,subject to appropriate regulationwhich should not be too restrictive.As the money lenders are stilldominant in the rural credit sector,it is pragmatic to institutionalisethem with adequate safeguards toprevent exploitation of the poor.There is also a need to shift the focusfrom the quantity of credit to thequality of credit. In order to achievethis, emphasis should be given tocreation of adequate infrastructure,efficient extension services,processing and marketing facilitiesetc. Emphasis should also be givento SHG formation and group lendingrather than individual lending.Micro-finance Ombudsmen may beset up at district levels to decide oncomplaints regarding exploitativeand illegal practices by the lenders.



MICROFINANCE

UPIN HUMANWelfare and ResearchFoundation (LHWRF) isa Non- GovernmentalOrganisation registered

as a trust and is actively working inthe sector of rural development formore than 12 years. Since itsinception in 1988 in Rajasthan’sBharatpur district, it is working forthe accomplishment of its mission,which is aimed to promote theprocess of sustainable developmentthrough an approach ofparticipatory planning &management.

The outstanding work done bythe Foundation is uplift ofdowntrodden in Rajasthan. It cameto the notice of the Governmentof Madhya Pradesh, whichextended an invitation to theFoundation to undertake a similardevelopment programme inMadhya Pradesh. Thus, on theinvitation of Madhya PradeshGovernment, the Foundationlaunched its developmentprogramme in ten tribal villages

S K Chugh

Human Welfare andResearch Initiative

belonging to Obaidullaganj Blockin Raisen district. The Foundationwas entrusted with theresponsibility of implementingBarna milli watershed project inObaidullaganj block, Raisen districtunder the Rajeev Gandhi Missionfor Watershed Development. Theefficiency and effectiveness of theimplementation of Barna milli-watershed project resulted inFoundation being requested to takeup five more milli-watershedprojects in the State.

In Madhya Pradesh LHWRFis working in four districts namely-Raisen, Vidisha, Hoshangabadand Rajgarh towards improvingthe economic status of the peoplethrough interventions in naturalresource management, health andhygeine, education, socialinfrastructure, rural industriesdevelopment and womenempowerment.

The mission is "to promote aprocess of sustainable developmentthrough an approach of participatory

L

The author is with Lupin Human Welfare and Research Foundation, Bhopal.

SUCCESS STORY

It was felt thatwithout economic

empowerment of thepoor villagers it

would not bepossible to sustainthe developmental

initiatives


planning and management". Theobjectives of the Foundation are:

� To promote economicdevelopment of villagecommunities (agriculture, animalhusbandry, rural industries, ruraltechnologies, handicrafts andinfrastructure)

� To strengthen the process ofhuman resource development(women empowerment,community health, literacy andeducation, spiritual and culturalawakening, moral values andskill development)

� To restore ecological balance inthe rural environment (forestry,water resources, pasture lands,agricultural and otherwastelands, etc.)

During the implementation ofprojects it was felt that withouteconomic empowerment of the poorvillagers it would not be possible tosustain the developmentalinitiatives. Since these poor villagerson their own were also not efficientenough to avail loans from banksand other financial institutions henceLUPIN Foundation started aninitiative of direct credit support ofsmall loans of Rs 3000 to 5000under its microfinance supportactivity. The Foundation-approached organizations likeRashtriya Mahila Kosh for financialsupport to women SHGs on lowinterest rates and other banks likeHDFC, UTI , HFHI etc. forfinancial support to farmers, ruralyouth and other entrepreneurs.

LHWRF Bhopal started themicrofinance activity in the year2005 whereby Rs 35 lakh wasdistributed to about 125 SHGs withan average amount of Rs 5000/- toeach member of SHG. The poorwomen were quite excited to have

a sum of Rs 5000/- at a time in theirhands. It not only gave them thehonour and pride but they also cameup with their individual plans toinvest the money in a number ofproductive works like goatry orpoultry related activities, somechose to invest in horticultural andkitchen garden activity. Someothers invested for small groceryshops while others came up with theidea of taking up tailoring andready-made garment sellingconcept. The results were quiteencouraging and almost everymember was able to earn a goodlivelihood support and profit out oftheir investment.

The microfinance activitycoupled with socio-economicdevelopment initiatives of theFoundation has brought cascadingeffect on the life of these ruralpeople. They are not only havingbetter sources of income but theirchildren are going regularly to thevillage schools and even for higherstudies, their habitation has nowproper drainage support, safedrinking water is available in thevillage, their housing conditions hasimproved, their expenditure onmedicine has come down, theircattles are ensured and of betterquality and their farms are givinghigher yield per acre. In theGairatganj block of Raisen districtthe World Bank supported DPIPProject was being implemented byLUPIN in 25 villages since 2002under which the members ofCommon Interest Group (CIG)were given input support foragriculture and other livelihoodactivities. During the end of theproject LUPIN adopted thesevillages under its active support andall round development includingmicrofinance support. Thus thefamilies who were not able to meet

all the required support forenhancement of their livelihoodcould now avail further financialsupport for the same undermicrofinance support from theFoundation.

A Success Story

This is the story of Baijanti Bai,a poor woman of Sunpura villagesituated about 10 kms away fromVidisha district headquarter.Baijanti Bai was leading a miserablelife with her husband and threechildren. A family of five has noresource of her own except akuchha house and was dependenton her daily wage earning of Rs40.00 per day as agri-labour. Herhusband used to work as a wagelabour in the nearby small town ofVidisha but had not enough earningsto meet the needs of his family. Inthe year 2004 the village Sunpurawas adopted by LUPIN under itsholistic development programme.

Thereafter self help groups ofbelow poverty level families wereformed when Baijanti Bai came incontact with the LUPIN officialsand expressed her desire toestablish some small business of herown. She explained her inability ofadequate resources but confirmedof timely repayment, if given asuitable financial support. Lookingat the self-confidence anddetermination of the woman shewas asked to join a self-help groupof the village. As a member ofMahila Self Help group she wasinitially allowed a micro-creditsupport of Rs 5000.00 underRashtriya Mahila Kosh. She usedthis grant in establishing a small shopat her own kachha house andstarted selling small items ofvillagers daily requirement at a verysmall margin of profit. The villagers


also found it convenient to have asmall shop at their service in thevillage itself and now they wererelieved of walking down five topurchase those items.

Soon Baijanti Bai gained the faithand confidence of the villagers dueto her sweet and soft-spoken nature.In the mean time with her smallsavings she was also able to timelyrepay the loan amount. Now shewas looking for more items to beadded to the small hut and give it agood shape like that of a shop. Onceagain she approached the LUPINofficials and requested for further

support. Looking at herentrepreneurship, hard work anddetermination she was allowed asupport of Rs 15,000 underRashtriya Mahila Kosh main loanscheme. She was very happy toreceive the support and decided toopen a small shop or gumti. Withthis new set up she was not onlyable to cater to the various needsof the villagers but was also able tosupport her family in a better way.In these two years with this smallgumti, now she is earning a monthlyincome of Rs 3000. With this shehas not only repaid the loan amountbut has acquired a telephone

connection and set up a PCO thusconnecting the village with rest ofthe country. She has converted herkachha house into pucca andsending her children to school forbetter education. Now she canfulfill the dreams of her children forbetter education and better job.

She proudly explains the benefitsof joining SHG and is also promotingother members of the group as wellas other women of the village totake similar initiative in coming outof the clutches of poverty.


2006, 31 March : West Bengalgovernment signs a MoU withIndonesia’s Salem Group fordevelopment of infrastructure inthe state. Under this, a SEZ wasto be developed in Nandigram.

2007, 3 January : Violencebegins, people oppose theacquisition of agricultural land inNandigram and police resort tofiring.

4 January : CPI(M) demandsamendment in SEZ Act.

6 January : BhumiuchehedPratirodh Samiti formed to oppose.

9 January : TMC leader MamtaBanerji demands imposition ofPresident’s rule in the state.

14 March : 14 villagers killed inpolice action.

15 March : Calcutta High Courtorders CBI investigation in thekillings.

29 April : Violence breaks-upagain, Samiti and CPI(M)supporters clash.

8 May : Mamata ready for peacetalks.

24 May : All Party meeting fails toachieve anything.

30 July : Pratirodh Samiti calls forstate-wide bandh.

6 November : 2 killed in clashesbetween Pratirodh Samiti andCPI(M), PM expresses concern.

8 November : Attack on MedhaPatkar while going to Nandigram.

9 November : Governor GKGandhi lambasts ruling CPI(M) onNandigram issue.

10 November : Mamta announcesresignation from Lok Sabha.

11 November : Allies hold CPI(M)responsible.

12 November : Bengal bandh,CRPF manages to enterNandigram.

13 November : State governmenthands over report to the Governor.

What is the issue?Last year West Bengal

government signed an agreementwith the Salem Group of Indonesia.

Under this a chemical hub was tobe built on the SEZ in Nandigram.For this, 14 thousand acres of landwas required.

Salem Group wants 35thousand acres of land for itsprojects. Apart from SEZ, it wasgiven the responsibility fordeveloping 100 km long eastern linkHighway and constructing a bridgeon Haldi river between Haldia andNandigram.

• 40 thousand people weresupposed to be affected bytransfer of land inNandigram, but thegovernment felt thatemployment opportunitieswill increase and this willsupplement the Haldiaproject established earlier.

• There are two parties inNandigram case state and thepeople. But parties likeTrinamool Congress havecreated a role for themselvesin the issue.

FACTSHEET NANDIGRAM


YE

-1/0

8/5


BEST PRACTICES

USHEELAMMA, Aresident of Fatehnagar ,is earning aboutRs 5,000/- per monthregularly from the tea

stall business. She started with asmall loan of Rs 8,000/- availed 18months ago from the MaxWealthTrust, a microfinance institution(MFI) operating in the urban slumsof Hyderabad and Secunderabadin Andhra Pradesh. She is nowable to spend about Rs 55,000/-annually out of her family'searnings of Rs 60,000/- while therest goes towards her savings. Soradical is the change in her lifebecause of regular earnings,leading to higher savings, she isnow planning to purchase arefrigerator and other trade aidsfrom her enhanced income.

Susheelamma keeps saying "souseful this loan has been to me thatnot only has my lifestyle changedbut also it enabled me to think ofimproving my business.” Further, onthe economic front not only have

P Dinakara Rao

Making Dreams Come True

assets been purchased for the homebut emergency requirements arealso being met after meeting all thefamily's day to day expenses.

All this did not happen overnight.She was earlier engaged in manualwork as a daily labourer at thenearby construction site where sheused to earn Rs 1500/- per monthat irregular intervals.

She found the moneylender'strade practices as well as thebanking procedures complex,cumbersome and time consuming.Hence she preferredmicrofinance from an MFI. Whenshe heard of the microfinanceinterventions of the MaxWealthTrust through a friend of hers, thelong cherished dream of startinga small enterprise seemed withinher reach.

"This is the best route to getaway from this drudgery (givenmy present skill-set) andsupplement my husband's incomeso as to care for the three

S

The author is Senior Advisor, The Max Wealth Trust, Hyderabad.

As a group memberSusheelamma hasgained a place in

society outside thefour walls of her

home and sheintends to expandher enterprise with

more products

Sushleema at her tea stall


children as well as the elderlymother-in-law" she thought. Withthese thoughts in mind sheapproached the MFI with herproposal which was taken upimmediately and the process offunding was started.

She started off with a small loanof Rs 8000/- from the Max WealthTrust which was to be repaid at therate of Rs 180/- per week over aperiod of 50 weeks from her dailyearnings of Rs 200/-. Her dreamwhich had been to workindependently, came true thanks tothe loan she could get without anyhassles.

As a group memberSusheelama has gained a place insociety outside the four walls ofher home and she intends toexpand her enterprise with moreproducts on offer by investing ona fixed stall.

Selling fish

Swaroopa identified selling freshfish as an avenue for self-employment. Hers is probably theonly fish shop in the entire FatehNagar! Though unlettered with noother skills to speak of which wouldfetch her quick returns, shelaunched this enterprise followingthe fruitlessness of her manuallabour work.

Swaroopa is of the view that "itis the work which is more importantnot the strong odour of fish".

Her three children, two boys aswell as a young girl child are nowgoing to school. Not only this, herhusband helps her in this trade ofhers and at home too where she isrespected as an earning memberand her workload is also sharedwhere she is constantly encouragedto try her hand at newer things.Society too now looks upon her withrespect and she is able to participatein most social events withenthusiasm.

It was only a word of mouththat helped her come to know aboutmicrofinance. This was anopportunity presented to her tocome out of the clutches of povertyand she grabbed and nurtured itwhen she realized that TheMaxWealth Trust is lending smallamounts for income generatingactivities. The loan of Rs 6000/-from MaxWealth Trust, an MFI,provided the much needed workingcapital to start this enterprise. Fromearning about a mere Rs 50/- perday in a rather uncertain way, shenow earns approx. Rs 300/- perday. This increased prosperity withassured income has lifted her froma hand-to-mouth existence to a lifeof self sufficiency. This has alsomeant that she is now capable ofleading a life of dignity with a fewof her dreams coming true,especially education for herchildren and more food on thetable. The trade is now beingcarried on with active cooperationof her husband.

A substantial sum of aboutRs 4000/- now goes towards

savings out of her annual earningsof about Rs 90,000/-.after meetingthe expenses for her family on food,clothing, health, and education. Sheis thinking of buying some assets forher home like a moped for herhusband who fetches the fish fromthe wholesale market.

Though she feels the need toimprove her business, she is notunduly worried since, being regularin repayment, she knows that shecan avail a topup loan from TheMaxWealth Trust. Her focusremains on providing goodeducation for her children and later-on the marriage of her girl child.

The MaxWealth Trust

The MaxWealth Trust, promotedby the Institute of CharteredFinancial Analysts of India (ICFAI),is the latest entrant into the area ofmicrofinance. Within one year of itsexistence, the Trust has alreadyextended micro credit to the tuneof Rs 2.50 crore to about 3500women beneficiaries residing in theslums of Hyderabad &Secunderabad in Andhra Pradesh.The number of women beingassisted is growing at the rate ofabout 500 per month.

In its endeavour to help theunderprivileged, especially children,in urban slums, ICFAI has startedICFAI Republic Schools (IRS)which provide holistic education,virtually free of cost to the childrenof the underprivileged parents. Inaddition to providing education onpar with any good commercially runprivate schools, the IRS alsoprovides milk and milk supplementsin the mornings and free mid daymeals.Swaroopa at her fish stall


The idea of children going backto the same poverty ridden familyenvironment made ICFAI to thinkin terms of starting a Microfinanceentity to improve the economicwell being of the parents of IRSchildren. What had started, initiallyas a small MF enterprise to providesmall loans to the parents of IRSstudents, has now grown into a full-fledged MFI i.e., The MaxWealthTrust.

The concept of Microfinance tothe self help groups of women inrural areas is more than a decadeold. Lending of small amounts ofmoney to the poor, particularly tothe women in rural areas isrelatively an easy proposition. Ruralfolk, by and large are wedded totheir soil. Migration is relatively less.Except in times of natural calamitiessuch as droughts and floods, theirloan repayment intentions aregenerally above board. Wilfuldefault is relatively less.

Microfinance in urban areas isa different cup of tea. Frequentmigration from locality to locality insearch of livelihood is quitecommon. The urban attractionsentice the borrowers to squanderaway hard-earned money onluxuries. The repayment of loanstakes a back seat.

Being aware of the possiblepitfalls in microfinance associatedwith urban areas, MaxWealth Trusthas been treading the path rathercautiously. Several in-builtmeasures such as stringent creditappraisal techniques, pre & postsanction inspections, enforcing thegroup liability concept, loanutilization checks (LUC) andtransparency in dealings andcorporate governance have stood

the MaxWealth Trust in good steadso far. The recovery has been100% and on time till date.

Urban microfinance offersseveral positive features. Some ofthem are :

� Vast market for the products-Whether it is running a tea stall orkirana shop or tailoring shop, findinga customer is not an issue for theurban microfinance beneficiaryborrowers. In fact their income iseffort elastic. The more they workhard, the more they can earn.

� Opportunities to learn a newskill or trade are aplenty inurban areas-Any microfinancebeneficiary who is willing to learnnew skill/trade or explore thepossibility of starting a new venturecan easily find models in theneighbouring slums.

� The concept and generalrequirements about microfinance-are known to the borrowerclients. Since more than one microfinance institution may be operatingin a slum, the normal requirementsof micro finance are already knownand they also abide by them by andlarge.

� Out reach-An urban MFI cancover a large number of potentialloan clients in a small geographicalarea compared to a rural area. Thus,lesser time is spent in travelling fromone group to another group by theMFI field staff.

� Visible impact-Since themicrofinancing is done in aconcentrated area, the impact in theform of improved economic statusof the clients is more visible in anurban area as compared to a rural

area. After, say four to five cycles/years of availing a loan, severalvisible changes in the way a familylives may be noticed. The dwellingmay be improved from tin roof toan RCC home, separate toilet foreach household instead of acommon toilet, children going toschool instead of working etc.

� Active participation by menfolk-Yet another visible impactof microfinance one can observeis in respect of men folkshedding their lethargy andjoining the enterprise run bytheir women folk.

In Ambedkarnagar, a slum inHyderabad where the Trust MFIhas been operating for about 18months, several young and middleaged men interacted with the staffof the MFI and ventilated theirgrievances though, in a lighter vein.They stated that they were enjoyinga life of idleness, in a carefreemanner before their women folkstarted earning through one or theother income generating activitieswith financial assistance from theTrust. They used to simply whileaway their time in playing cards etc.The weekly instalment of Rs 180/-(for a loan of Rs 8,000/-) is requiredto be paid, let us say on everyTuesday. Pressure from the womenfolk on their men folk starts fromFriday to go for daily wage earningand accumulate Rs 180/- beforeMonday. The men folk, who haveall along been leading a carefree life,had to perforce go for daily wagework atleast for two days in a week.Thus gradually their lethargy startedevaporating. The men folk thankedthe Trust for making them to comeout of their self imposed cocoon ofidleness.

(E-mail : [email protected])


MICROFINANCE

N THE life cycle ofinstitutional building theeconomy has been steadilymoving from the preparatoryand exposure phases to a

reflection and reformation phase inthe Microfinance sector. This hasbeen fuelled by the urge for makingFinancial inclusion effective. Thissector grew as an effectiveinstrument for reducing poverty ledby the successful experiment inBangladesh, popularly known asGrameen Bank model. The successof this experiment lay in thedisbursement of collateral-free loansto the rural poor who have limitedaccess to formal financial institutions.The purpose of this article isprincipally to examine objectively thecontent of the Micro Finance SectorDevelopment and Regulation Bill,2007 proposed for presentation in thecurrent session of the Parliament.

SECTION I

Briefly put, the Indian economy'sconsistently good performanceduring the past few years has led to

B Yerram Raju

MF Development andRegulation

improvement in rating India as thesecond most attractive destinationfor investments next only to China.Still one-fifth of the world's poor livein India making it the core issue forthe future economic agenda. Theconventional supply side approach topoverty reduction with subsidies andcredit (Integrated RuralDevelopment Programme) resultedin failure due to uncheckedinefficiencies and irregularities inimplementation. We started lookingat alternate models. Several non-government and cooperativeorganizations initiated savings-and-thrift-led models of helping the poordemonstrating that the poor have anurge to save and enjoy the gains ofsuch savings through collective andmutually beneficial credit and microinsurance arrangements.

The different Models of Microfinanceare:

1) SHGs promoted and financedby banks

2) SHGs promoted by NGOs /Government Organizations andFinance by banks

I

The author is Director, Development and Research Services (P) Limited, Hyderabad.

MFBILL

There areinstitutionalmaladies and

systemic failures.These need

to be carefullyanalyzed andappropriately

tackled


3) SHGs promoted by and financedthrough NGOs by raising bankloans

4) The federated SHG approach

5) SHGs promoted by NGOs/Societies/ other organizations,and financed by MicrofinanceInstitutions.

6) SHGs promoted and financed byMFIs (Grameen ReplicatorApproach)

7) Individuals directly financed byMFIs

8) The Urban Corporation Bankingmodel

9) The Multi State CooperativeSolidarity group model

10) The NBFC approach

While the second modelabove formed about 72%,the first model worked

out to 21% of bank finance underSHG- Bank linkage programme.Growth under the MFI model hasbeen greatly facilitated by the sharpincrease in bank credit to MFIs. Awide range of banks are nowfinancing the sector, the privatesector banks lending mostly toMFIs, and the public sector banksthrough their wide network of ruralbank branches, mostly the SHGs.The private sector banks arefinancing MFIs both because theyregard it as good business, andbecause of priority sectorobligations. More and more publicsector banks are also viewing SHGfinancing as profitable, andundertaking it less and less becauseof moral persuasion fromgovernment and NABARD.

A recent development amongthe SHGs at some places is toorganize themselves into afederation at the village / mandal /district level for deriving benefits ofscale and the banks have alreadyrecognized the village levelfederation as a viable unit for

delivering financial assistance toindividual members through SHGs.The MFI model at fifth and sixthposition provide finance toindividuals through SHGs.

It is estimated that the microfinance sector has potential to growup to a level of Rs 400bn to 500bn,covering as many as 40 millionhouseholds (NABARD AnnualReport on SHGs:2007). While onone hand the systemic andinstitutional bottlenecks are alreadysurfacing the microfinance sector, onthe other hand the experts feel thatthe meagre level of average loanamount of Rs 4,000 to 5000 or aboutRs 10,000/- in bigger loan cases, willnot change the livelihood profile ofthe poor people until something isdone to invest in land, water, forest,livestock, human development itselfand also in the local infrastructure.Rural penetration of bank accountsis still around 18 per cent. There islimited access to insurance servicesin the rural areas. The two maingoals of microfinance are: outreachand sustainability.

We have basically two broadmodels of microfinance prevailing:those that borrow or raise equityfrom various sources for lending tothe 'poor' to pursue alternativelivelihood opportunities and those thatpromote savings and thrift as seedmoney for raising loans to enhancetheir existing livelihood opportunitiesor shift to alternate livelihoodopportunities. Expansion under bothmodels is, however, constrained bythe availability of resources for on-lending. State Governments likeAndhra Pradesh (AP) havedemonstrated that alternateinstitutional mechanisms couldenable the poor to cross the line ofpoverty through State facilitation.

The sector is evolving andmaturing born out of theexperiences of a large number ofenterprising and dynamicindividuals from diversebackgrounds. Around twelve tofifteen NBFCs, Companies underSection 25 of the Companies Act1956, about 500 NGOs and Trusts,and nearly as many cooperativesconstitute the microfinance sector.This discussion takes us to the twoimportant questions: What toregulate? Who would regulate?

The Issues

� Informality and sustainabilityAlmost all micro-enterprisesoperate outside the formal legalsystem, contributing towidespread informality. Theunorganized and informal firms atthe micro-level are moving moreinto services sector thanmanufacturing sector. Therefore,at a time when they are unlearningthe old and relearning new waysof doing things, easy access tofinance ensuring equal productiveopportunities for the poor isextremely important. Rules thatconstrain market entry andexpansion would have a chillingeffect.

� Enforcement Systems: TheUN document on UnleashingEntrepreneurship: MakingBusiness Work for the Poorsays: "Cruel and arbitraryinformal enforcement systemslimit the ability of entrepreneursto be productive as well. Localdebtor prisons and mafia-likepunishments can hurt anentrepreneur's full access tocrucial human inputs." A likesystem operating at the firm levelis more disastrous in the guise


of informality and easy access.Will self-regulatory mechanismbe the best option for MFI-growth and entrepreneursgetting a level playing field in themarket-led environment?

� Structural Issues: The longterm future of the micro-finance sector depends onMFIs being able to achieveoperational, financial andinstitutional sustainability. Someof the NBFCs operating needto reach the threshold levels ofequity prescribed by thefinancial regulator. Withoutdisturbing the flexibility in thestructure and content of MFIs,what conditions should theregulators prescribe for theirengagement in the activitiesthey are pursuing? Or should thestructures be subject to acritical scrutiny to ensure theobjectives they intend to servekeeping the safety, security andliquidity as the cardinalprinciples governing thedelivery of finance?

� Interest Rate RegulationOvercoming high transactioncosts for small volumes and thelarge cost of expanding reach isa major challenge.Microfinance is best viewed asa complement and not asubstitute for more equitablefinancial reform and corefinancial development. Thereare number of instances dottedall over the globe-Bangladesh,Afghanistan, Philippines andIndia, lately, where micro lendinghas not always been a happyoutcome. In the context of lesstransparent balance sheets of avariety of MFIs large-scaledefaults in microfinance go

unnoticed. Hedging highadministrative costs and loanlosses in interest rate risk covercould lead to excessive interestrates. In a liberalized financialenvironment what would be thebest means of regulating interestrates of the MFIs?

How do we establish channelsof communication for borrowersindependent of the regulator?Will an Ombudsman, going bythe experience of such institutionthus far provide a satisfactoryanswer?

Plurality in RegulatoryMechanism

There is a plurality inregulatory mechanism -RBI, GOIand State Governments. Howshould this plurality needaddressing as plurality by itself maybe required in terms of the rolesthat different agencies need todischarge? Can these issues not betackled by a dedicated regulatorywindow? Does it require a freshlegislation? These two importantquestions at this point when thelegislation is getting tabled mayapparently look too late. Better latethan never if we accept that theMicrofinance is a part of theFinancial System. It is a knownfact that the Reserve Bank of Indiais the super regulator for thefinancial system. Then why theRBI prefers to be distant from theoverall responsibility? It shouldstrongly believe that enduringenvironment for a thriving informalsector is critical for achievingfinancial inclusion.

Will the Microfinance SectorDevelopment and Regulation Bill2007 that has since been referredto Parliamentary StandingCommittee address the above

concerns adequately? Let meexamine this in the next section.

SECTION II

The Preamble to the Bill sets theobjective: "to provide for promotion,development and orderly growth ofthe microfinancial sector in rural andurban areas to facilitate universalaccess to integrated financialservices by the population nothaving banking facility and therebysecuring prosperity of such areasand regulation of the microfinanceorganizations (MFO) not beingregulated by any law for the timebeing in force and for mattersconnected therewith or incidentalthereto." It speaks of the sector andaffirms to regulate only the MFOs.It excludes from its purview HUFs,NBFCs, Section 25 Companies,scheduled banks including RRBspresumably because they arealready being regulated by the RBI.Which are the other entities claimedin the Bill as not being regulated byany Law? These are Societies,Trusts and Cooperatives. Thesethree forms are already covered bythe Societies Act, Trusts Act, andCooperative Acts of both the Centreand States and these Acts havebeen mentioned under the Chapteron DEFINITIONS. Therefore, thevery premise is wrong.

Eligible clients: The Billrecognizes only members of thegroups formed for microfinancepurpose as eligible clients. This, nodoubt, restricts the risk of anyfailure to a limited target group.The Bill also includes among others,the small farmers of two hectaresand less and women in general inthe eligibility category. Theexclusion of MFIs from thepurview of the Bill gives them theadvantage of having access tobetter-off client bases with larger


profit margins. Thus there is dangerof the institutions subject ofregulatory rigour of the Billbecoming unviable in the long run.

DEFINITIONS: In any Actunambiguous definitions areextremely important. Muchattention is often paid to definingwhat is or is not "microfinance"when establishing a legal andregulatory framework for microfinance. This Bill fails to performthe balancing act of defining interms broad enough to allow theindustry to grow and change torespond to the needs of its targetcustomer base, but not to be sogeneral as to become meaninglessand perhaps invite regulatoryarbitrage by financial playersseeking to "pass" as micro financeproviders. (ibid)

Section 2(c) defines "Financialassistance" as "any loan, advance,grant or any guarantee given or anyother credit facility extended in cashor kind with or without security orguarantee." Facility extended inkind becomes financial assistanceand this gets regulated. Section2(e)(i) is silent about the societiesthat are registered/incorporatedunder various state laws that havebeen enacted by several states forregistration of societies in theirrespective states (e.g. Rajasthan1958; Karnataka 1960; WestBengal 1961; Madhya Pradesh1973; Tamil Nadu 1975; Meghalaya1983; Andhra Pradesh 2001). Doesit mean that societies in these statesare excluded from the purview ofthis Bill, since the SocietiesRegistration Act 1860 is notapplicable in these states? The Billprovides to regulate only thoseGroups where the Individual Loanassistance does not exceedRs 50,000 for purposes other thanhousing and Rs 1.50 lakhs for

housing. NABARD actually wenton record at number of places thatself-help group effort is an add-onor incrementalistic and not a stand-alone effort to enhance thestandards of living of the poor. Howthese Rs 50000 and Rs 1.5 lakhs arearrived at? No clue exists in the Law.Pakistan Prudential Regulations onMicrofinance state that the MFI shallnot extend loans exceeding PakistanRupees One lakh.

Who would regulate?NABARD. NABARD has beenimplementing Self-Help group BankLinkage programme for the pastone and half decades and is alsoco-regulating the CooperativeBanks and RRBs. The Chairman,NABARD at its silver jubileecelebration in Hyderabad on the 4thJuly, 2007 said that it would shortlyset up MFI to demonstrate that it canbe profitable even at low rates ofinterest. Interested party should notbe the regulator. This is fundamentalprinciple in regulation although thereare of course, institutions andindividuals who may argue thatNABARD is already on suchregulatory course for cooperativesand RRBs and therefore there isnothing wrong in the Governmentvesting such power even for microfinance sector. The preamblecontains a reference to MFOs inurban areas while the NABARDAct preamble restricts its operationto Rural Areas. NABARD for thispurpose therefore would move intooperation in urban areas forregulation purpose. NABARD Actwould also be amended to providethe regulatory teeth to theorganization because the MFDR Billcannot seek to confer a powerprimarily absent in its mandatethrough an extra-territoriallegislation. The Bill would regulateonly thrift and savings-based

institutions and deliberatelyexcludes the donor-dependent andexclusive-credit purveyinginstitutions. This is a patent inequityin the Bill.

Chapter II specifies thecomposition of the Micro FinanceDevelopment Council to advise theNABARD - one more advisorybody for the NABARD. Itscomposition queerly provides forthe MFIs, the competitors of theMFOs to be in this Advisory Body.Can there be anything more oddthan this? Chapter III provides forRegistration of MFOs withNABARD - and this is mandatory.The 'liberalistic' economy ushers inlicense or permit raj once againthrough this Bill. Section 10 seeksto recognize those MFOs which arein operation for a minimum of threeyears and these MFOs would beextended the Certificate ofRegistration by NABARD andwould be, of course, subject to audit(Chapter IV). The Registrar ofCooperative Societies is givenresponsibility to scrutinize theReturns for submission to theRegulator. It would be odd to findthis official playing some role inmicro finance sector.

The Bill reveals that theNABARD is alreadyoperating Micro Finance

Development and Equity Fund.Hardly anybody knew about itsexistence. There is no evidence atleast on record that theorganizations that received this typeof assistance are better off thanothers in the conduct of their affairs.

The outreach of theseorganizations to the rural poor andstrengthening the thinking that thepoor have the urge and innate abilityto spur the growth of the Self-HelpGroup movement since the 1970s.


Despite its unequal spread in the country, more than50 lakh groups of various hues are operating in thiscountry. Informality is their strength. It is a fond hopethat wisdom would be brought to bear on the powersthat be to either modify the Bill in a manner that wouldaddress the key issues mentioned in Section 1adequately and appropriately or stop enacting the Billfor the time being. The Bill in the current form doesnot satisfy either development or regulatory aspects.

Conclusion

Players in microfinance sphere require beingdistinguished on several fronts: players with consistentlygood performance; players inadequately performing,players badly performing and some medium playerswho are entering new areas with confidence deservingencouragement. Those who committed mistakes shouldbe made to learn and quickly correct themselves.

There are institutional maladies and systemicfailures. These need to be carefully analyzed andappropriately tackled. These require a particular speedof correction and transparency so that they would notdecimate the structures affecting the interests of thepoor. Market-oriented business systems accommodatea variety of firms operating with a symbioticrelationship. When it is established that the outreachto the neglected sectors of population pursing limitedeconomic agenda, like the women, small and marginalfarmers, tenant farmers, non-farm micro enterprisesengaged in exploring livelihood opportunities etc., wouldbe possible only through MFIs, informal structures needto be preserved and protected to ensure financialinclusion. Some of the fundamentals of Regulationshould be worthy of recall. They are : 1. Do not regulatewhat cannot be supervised. Even carefully developedregulations will become irrelevant if effectivesupervision is not enforceable. 2. Safety, soundnessand sustainability should serve as foundation for a goodregulatory framework. 3. Micro finance supervisionrequires cultural change and NABARD is yet todemonstrate it notwithstanding the huge space it hascreated in SHG-Bank Linkage programme. 4. Considercreating a separate window for supervision of microfinance activity in the RBI fortress. Finally, thereshould be regulatory impact assessment as part of theAct that should be presented to both Houses ofParliament on the first day of the Budget Discussionsession. There is plenty of reason for hope.



MICROFINANCE

N RECENT times there hasbeen welcome recognitionof the need for greaterprofessionalism in the microfinance sector. Therealization that the sector

can potentially contribute toachieving the goal of financialinclusion has added urgency to theabove. It is in this context that theMicro Financial Sector(Development and Regulation) Bill,2007 (henceforth the Bill) wasintroduced in the Lok Sabha onMarch 20, 2007 as a first step intrying to regulate the sector.

There are two main deliverychannels for microfinance services.The first one is SHG (Self HelpGroup)-Bank Linkage Channel. Thiswas developed from field experimentsin the early 1990s by NABARD(National Bank for Agricultural andRural Development).

The second channel is the MicroFinance Institution (MFI). The firstMFI in India was set up in 1974, butthe momentum was achieved only

Savita ShankarMukul G Asher

The Microfinance Bill

during the 1990s. Initially the formalfinancial institutions were reluctantto be involved with the MFIs.

Increasing outreach hasunderlined the need for regulationto ensure further orderly growth. Inresponse to certain undesirablepractices with regard to interestrates and collection of some MFIs,Sa-dhan, the industry association ofMFIs, evolved in 2006 a voluntarycode of conduct for the sector.However the need for regulationfor the sector remained.

The microfinance sector facesother challenges as well on its roadto further growth. First, there isscope for substantially improving thequality and efficiency of servicedelivery by the organizationsproviding micro finance services.

Second, the microfinance sectorhas begun to offer insurance,pensions and remittance products.As more complex products also getadded to the MFI's suite,

I

The authors are : Research Scholar, LKY School of Public Policy, Singapore, and Professor Public Policy, National Universityof Singapore, respectively.

CHALLENGES

In its currentform, the Bill's

positive features aremore than

outweighedby the

deficiencies


professional management becomesvery important.

Third, increasing urbanizationposes new challenges andopportunities. India is urbanizing ata rate higher than the world average.A recent report by the UnitedNations Population Fund on "Stateof World Population, 2007" says by2030, 41% of India's population willbe urban. MFIs will hence need togear up to cater to the needs ofincreasing numbers of urban poor.

Fourth, there is disproportionatereliance on group lending. MFIs needto offer individual-based lendingoptions, particularly to cater to thegrowing urban segment. This willrequire focus on development ofappraisal skills and more modernmanagement information systems.

The regulation of the sectorshould encourage MFIs to meet thechallenges successfully.

MF Bill

The Bill seeks to promote andregulate MFOs (microfinanceorganizations). The definition ofMFOs "includes" societies, trusts andcooperatives. The Bill designatesNABARD as the regulator for thesector. Microfinance services aredefined to include credit, lifeinsurance, general insurance andpension services. While microcredithas been defined as loans notexceeding Rs 50,000 (Rs 1,50,000 incase of housing), the other serviceshave not been defined further.

The Bill has at least four positivefeatures. First, the Bill permitsMFOs to accept savings frommembers subject to their meetingcertain conditions. An MFO whichhas been in existence for at least threeyears, having net owned funds of at

least Rs.0.5 million and satisfactorymanagement can obtain registrationfrom NABARD and thereafter offersavings services. The non-availabilityof savings has been a major gap inthe services provided by the sector.Financial inclusion should involveboth savings and credit products. Theprovision of savings products willenable MFOs to offer a morecomplete suite of products to theircustomers. It will also enable MFOsto access an additional fundingsource.

Second, the Bill provides formandatory registration and periodicreport submission by all MFOs.seeking to accept deposits. TheseMFOs also need to submit regularlyannual audited financial statements.This has the potential to build a robustdatabase of the sector over time; andhelp institute greater professionalismin the functioning of MFOs.

Third, it provides for inspectionof MFOs by the regulatoryauthorities in case of complaints ofharmful practices. There is also amention that a dispute resolutionmechanism may be put in place.These steps can serve as importantconsumer protection steps in themicrofinance sector.

Fourth, contrary to the fears insome circles, the Bill does notintroduce interest rate caps whichcould have been damaging for thesector. Interest rates are a functionof risk, cost of funds and transactioncosts. Transaction costs in microfinance typically include cost ofgroup formation, group training andcost of weekly collections. Thecosts in these loans are higher thanin the case of corporate andpersonal loans because of the smallvalue of the loan and weeklycollection. Further the services are

provided at the customer's doorstepwhich again adds to cost.

Putting a cap on the rate ofinterest can lead to the exclusion ofcustomers whose profiles call forinterest rates in excess of the cap.In the context of microfinance, auniform interest rate would createincentives for MFOs to move awayfrom difficult and new geographieswhere transaction costs are higher.There is also the possibility that as aresult of the interest rate cap, MFOsmay be encouraged to repackageloan contracts by varying balances,fees and other aspects such thatsuch that effective interest ratesremain the same. Interest rate capscould also be detrimental in attractingcapital to the sector. Attractingcapital to the sector is critical so thatthe MFOs build scale and therebyreduce lending costs.

Disadvantages

There are several provisions inthe Bill which, however, inviteserious concern. First, the Billdesignates NABARD as theregulator. Of the two main channelsof delivery in the microfinancesector, NABARD has been activelyassociated with the former and hasrecently announced its entry into thelatter. The regulatory role willstrengthen its role relative to otherparticipants in the sector. Thissituation may not be beneficial forthe other participants and also for thecustomers who stand to gain if thereis healthy competition in the sector

Further, NABARD is already aregulator for Regional Rural Banks(RRBs) and cooperatives, bothsectors with serious operational andgovernance challenges. There areconcerns that NABARD's regulatorycapacity may be over stretched.


There are also legitimateconcerns that NABARD lacksexpertise to regulate and developMFOs in the urban sector as its rolehas been confined to rural areas andto agriculture. As mentioned earlier,urban microfinance is potentially ahigh growth segment which needsappropriate development.

Second, there is lack of clarityon the scope of the Bill. The Indianmicrofinance sector ischaracterized by a diversity of legalforms. The Bill defines an MFOas "including" societies, trusts andcooperatives, leading to varyinginterpretations. One possibleinterpretation is that the Bill doesnot include in its scope legal formsother than those mentioned. Thisimplies that NBFCs (Non BankingFinancial Companies) and Section25 companies (Not for profitcompanies) are excluded from itsscope. The largest 20 MFIs in Indiaaccount for around 90% of theloans outstanding and many of themare NBFCs. Another possibleinterpretation is that the definitionof MFO given in the Bill is not anexhaustive one and hence the Billdoes in fact cover NBFCs andSection 25 companies.

As a basic general principle,regulation should beuniform across all

institutional forms so as todiscourage regulatory arbitrage.This involves structuring operationsin such a manner that organizationcomes under the jurisdiction of aweaker regulator. Lack of clarityon the important aspect of scope ofthe Bill is a major drawbackhampering clear analysis of itsimpacts.

The Bill also includes insuranceand pensions as products provided

by the MFOs. But insurancecompanies are regulated by theIRDA (Insurance Regulatory andDevelopment Authority), and thepensions are proposed to beregulated by the Pension FundRegulatory and DevelopmentAuthority (PFRDA). The PFRDABill is waiting passage in theParliament. The jurisdictionalaspects need to be explicitlyaddressed in the Bill.

Third, the prudential normsprescribed for the deposits collectedby MFOs are inadequate. The Billhas introduced a single safeguardfor savings which is the requirementthat MFOs offering thrift need tocreate a reserve fund into whichthey should deposit 15% of their netprofit before dividend every year.The use of reserve fund as thesingle prudential norm has severelimitations. An MFO not makingprofit need not form the reservefund, leaving no safety net for thedepositors.

Further the reserve mechanismcovers only savings collectedthrough the group mechanism. Butdynamically one may expect MFOsto start offering individual loans andcollect individual savings. Therequirements of protection of thesesavings also need to be addressed.

The fourth serious concern isthat the Bill does not specify aprudential limit on the volume ofdeposits that an MFO can accept.The volume of deposits accepted bythe MFO should be linked with itsreserve fund or its capital. Thisanomaly may encourageundesirable elements to garnersavings based on NABARDregistration, which could be used tomislead customers into believingthat the Government wasguaranteeing these savings.

A fifth point is that promotion offinancial education which isessential for development of thissector has not been specificallyaddressed by the Bill. Though MFIsprovide some basic training tomembers, financial education byindependent outside agencies wouldhelp MFI customers make moreinformed choices with regard tofinancial products.

Conclusion

The Bill has certain positivefeatures which includes opening upthe possibility of savings servicesby MFOs, improving the databaseon the sector and introducing basicconsumer protection mechanisms.The Bill has also wisely refrainedfrom introducing interest rate caps.However, in its current form, theBill's positive features are morethan outweighed by thedeficiencies. The choice ofNABARD as the regulator andlack of adequate protection ofMFO savings could be detrimentalto the MFO customers and may infact run counter to the goal ofinclusive growth. The Billtherefore needs to be reworked toaddress the anomalies.

The aim of the regulation shouldbe to improve customer protectionand good governance and encourageMFOs to improve efficiency. Thiscould lead to cost of borrowingcoming down due to reduction intransaction costs and healthycompetition. A professionalregulatory structure is essential toinstill confidence in the sector'sstakeholders so that it is able to playa role in furthering the goals offinancial inclusion and socialentrepreneurship.



MICROFINANCE

CCESS TO financialservices alone is notenough for poor peopleto transform theireconomic activities into

profitable economic enterprises.Access to market, properinformation and technical andvocational training are as importantas money for the sustainable growthof this poorest section of the society.As said by Prof. Muhammad Yunus,"Training is extremely important forhelping people to get over theireconomic difficulties faster andsurer". To achieve this end, MannDeshi group has started 'Mann-Deshi Udyogini'-a business schoolfor rural women.

Mann Deshi group consists ofthree distinct organizations-MannDeshi Mahila Sahkari Bank, MannVikas Samajik Sanstha and MannDeshi Mahila Bachat GatFederation. Mann Deshi MahilaSahkari Bank is a regulatedcooperative bank, founded by a

Sandeep KumarSmita Anand

B-School for Rural Women

social activist, Chetna Gala Sinhain 1997. It is, in fact, the firstcooperative bank for and by womento get cooperative license fromReserve Bank of India. MannVikas Samajik Sanstha and MannDeshi Mahila Bachat GatFederation are non-profitorganizations, which are providingwide variety of non-financialservices to rural women. From thefirst day of its inception, the wholeorganization is working for theempowerment of poor andvulnerable women in ruralMaharashtra.

With the objective to imparttraining in technical, financial andmarketing skills to these ruralwomen and young girls without anyformal education, Mann Deshigroup in collaboration with HSBCBank, have launched a newprogram, Business School for RuralWomen, in 2006. Business Schoolfor Rural Women (BSRW)endeavors to provide poor rural

A

The authors are Consultants, Economic Advisory Council to the Prime Minister and the Planning Commission, respectively.

CAPACITY BUILDING

With its nobleobjective, uniquecourse contentand innovative

approach, BSRWis adding a new

chapter in the livesof poor rural women


women with entrepreneurial andmarketing skills to make them self-sufficient and confident. It isperhaps a unique B-School thatoffers professional training to peoplewithout any educational degree.The goal is to increase the economicstatus and living condition ofwomen and their families throughenhanced business opportunities.

Area of operation

BSRW initiated its operation inthe rural areas of Mann Taluka inSatara district of Maharashtra. Thefirst school was started in Vadujvillage, in December 2006. It startedoperating with just three rooms andthe total strength of students was150. However, it has now expandedits operations to some otherlocations in Maharashtra. They arealso planning to launch 'BusinessSchool on Wheels' to reach out toremote villages and to expand itscoverage.

The management as well asacademic and administrative workis coordinated by five members ofthe Business School ProgramCommittee. The whole operation isperformed with the help of fewpermanent staff and minimuminfrastructure. The trainingequipments are hired on rent so asto maintain flexibility in coursestructure as per the local needs anddemand. For promotion andmarketing of School in rural areas,the school completely relies on itsnetwork of self help groups. Sincethe fees charged by them is verylow, the idea is to keep the cost ofoperation to the minimum. Initialfinancial support for establishmentof the School was provided byHSBC Bank in the form of a grantof Rs. 7 lakhs. BSRW is aiming to

become self sufficient by phasingout grants in next four years. Theoperational cost will then be met byincome from diversified sources, asexpected and planned bymanagement of the school. To meetits fund requirement in the long run,the School is banking primarily onits partners and students. However,its main source of income will becontribution from Mann DeshiBank. Graduates from thisinstitution are expected to demandfinancial grants from the MannDeshi Bank to start their ownbusiness. This will increase theclient base of the bank. With theincrease in disbursement of loan, therevenue of the Bank is expected torise further. Three per cent of theloan revenue of the Bank,generated from the graduates of theschool, will again be pumped intoBSRW.

Course Description

In order to attain its objective ofempowering women, BSRW takesup a holistic approach in knowledgedelivery. The target students arethose girls and women who comefrom the most vulnerable sectionsof the rural society. There are nominimum qualification criteria orpre-decided time-frame forenrollment. One can join the courseon any given day in a year. Sincepaying capacity of the targetstudents is very low, the fee chargedfrom the students is minimal.Normally it ranges between Rs 150to Rs 600 per student for the entirecourse. There is also a provision ofgiving scholarship to very poor andneedy students, although in limitednumbers. The School offersmultitude of courses ranging fromgoat rearing and increasing qualityof milk to tailoring, bag making,

screen printing, selling of rechargecoupons etc. The length of thesecourses ranges from 1 week (shortterm courses) to 3 months (longterm course). The level of thesecourses varies from basic toadvanced, depending upon the needand demand of the students.Training related to technical/vocational skills, marketing skills andconfidence building are the threeintegral component of each coursein the School. Courses onvocational training are designed asper the existing demand in themarket. Financial trainingcomprises of guidance on accountkeeping, market information, settingup new business, loan applicationetc. The course is designed on thebasis of past ten years experienceof Mann Deshi Bank and deliveredby trained bank staff. SpokenEnglish, computer training etc. arepart of the confidence buildingcourse.

To give practical knowledgeand to further boost theirconfidence, there is provision of sixweeks internship for thesegraduates. Upon completion of thecourse, students are awarded withdiplomas. This diploma would actas a qualification certificate whileavailing bank loans, further advancetraining and while seekingemployment with alreadyestablished business. Although theschool does not provide any campusplacement opportunity, the coursesare so designed that one can easilyfind a suitable job after training. Forinstance, after successfulcompletion of nursing course fromthe School, they can easily get a jobin nearby hospital. In fact, the entirecourse is designed in accordancewith the need and circumstances ofthe women and the prevailing socio-economic conditions of that area.


Initiating such an innovativeprogram was not an easy task.The organization had to facenumber of hindrances in theprocess. Designing such a uniqueprogram was in itself a hugechallenge. The courses had to beinnovative and demand-driven tobe able to create employmentopportunities.

After getting positive responsefrom different quarters, themanagement of the School is full ofenergy and busy making futureplans. School administration isplanning to launch mobile classfacility 'Business School on Wheels',to reach out to people living in

remote areas. The school is alsoplanning to spread its operationsfurther to western Maharashtra andsouth Karnataka. New courses willbe introduced each year keeping inmind the needs and demand of localpeople.

Business School for RuralWomen (BSRW) is adding a newchapter in the lives of poor ruralwomen. The School, with its nobleobjective, unique course contentand innovative approach, hasreceived applause all across theworld. However, the School still hasto go a long way in order to realizeits full potential and desiredobjectives. The School will have tolook for alternative sources of

revenue in order to make it self-

sustainable. Besides, lot of support

is called for, from private as well

as public sector enterprises, in order

to make the course content always

relevant to the desired job market

and providing employment

opportunities to the graduates of the

school. Many such business

schools would be required if we

want to change the socio-economic

fabric of the country and take India

on high growth trajectory leading

towards prosperity for all in the

country.


(E-mail : [email protected])

PER CAPITA INCOME AT 1999-2000 PRICES(Rupees)

State 2003-04 2004-05 2005-06 State 2003-04 2004-05 2005-06

Andhra 18961 19884 21277 Mizoram 18555 18904 NA

Arunachal 17601 19506 20037 Nagaland 17958 18147 NA

Assam 13856 14351 14950 Orissa 11951 13329 NA

Bihar 6158 6771 6610 Punjab 26975 27873 28605

Jharkhand 11144 14343 14990 Rajasthan 15737 14947 15219

Goa 42206 45394 47507 Sikkim 18159 19332 20609

Gujarat 22387 23761 26543 Tamil Nadu 20672 22835 24308

Haryana 26353 28119 29887 Tripura NA NA NA

Himachal 24480 26054 27162 Uttar Pradesh 9993 10224 10637

J&K 14465 14850 NA Uttarakhand 17683 18780 20328

Karnataka 18284 20260 21829 West Bengal 18231 19174 20485

Kerala 22848 24217 25657 A & N Islands 27690 25462 27323

Madhya Pr. 11870 12011 12566 Chandigarh 56197 61723 67910

Chhattisgarh 13811 14710 16365 Delhi 43030 46270 49172

Maharashtra 25265 27040 29085 Pondicherry 40338 34863 36397

Manipur 13389 16482 17950 All-India GDP 18263 19297 20734

Meghalaya 17062 17790 18274

Source : Directorate of Economics & Statistics of state governments and Central StatisticalOrganisation

PER CAPITA INCOME AT 1999-2000 PRICES(Rupees)

State 2003-04 2004-05 2005-06 State 2003-04 2004-05 2005-06

Andhra 18961 19884 21277 Mizoram 18555 18904 NA

Arunachal 17601 19506 20037 Nagaland 17958 18147 NA

Assam 13856 14351 14950 Orissa 11951 13329 NA

Bihar 6158 6771 6610 Punjab 26975 27873 28605

Jharkhand 11144 14343 14990 Rajasthan 15737 14947 15219

Goa 42206 45394 47507 Sikkim 18159 19332 20609

Gujarat 22387 23761 26543 Tamil Nadu 20672 22835 24308

Haryana 26353 28119 29887 Tripura NA NA NA

Himachal 24480 26054 27162 Uttar Pradesh 9993 10224 10637

J&K 14465 14850 NA Uttarakhand 17683 18780 20328

Karnataka 18284 20260 21829 West Bengal 18231 19174 20485

Kerala 22848 24217 25657 A & N Islands 27690 25462 27323

Madhya Pr. 11870 12011 12566 Chandigarh 56197 61723 67910

Chhattisgarh 13811 14710 16365 Delhi 43030 46270 49172

Maharashtra 25265 27040 29085 Puducherry 40338 34863 36397

Manipur 13389 16482 17950 All-India GDP 18263 19297 20734

Meghalaya 17062 17790 18274

Source : Directorate of Economics & Statistics of state governments and Central StatisticalOrganisation


What is Micro Credit ?

Micro Credit is defined asprovision of thrift, credit and otherfinancial services and products ofvery small amount to the poor inrural, semi-urban and urban areasfor enabling them to raise theirincome levels and improve livingstandards. Micro Credit Institutionsare those which provide thesefacilities.

What are the interest ratesapplicable ?

The reform of the interest rateregime has constituted an integralpart of the financial sector reformsinitiated in our country in 1991. Inconsonance with this reformprocess, interest rates applicable toloans given by banks to micro creditorganizations or by the micro creditorganizations to Self-Help Groups/member-beneficiaries has been leftto their discretion. The interest rateceiling applicable to direct smallloans given by banks to individualborrowers, however, continues toremain in force.

What are the terms &conditions for accessing microcredit ?

Banks have been given freedomto formulate their own lendingnorms keeping in view the groundrealities. They have been asked todevise appropriate loan and savingsproducts and the related terms andconditions including size of the loan,unit cost, unit size, maturity period,grace period, margins, etc. Suchcredit covers not only consumptionand production loans for variousfarm and non-farm activities of the

poor but also include their other creditneeds such as housing and shelterimprovements.

What is a Self-Help Group ?

A Self-Help Group (SHG) is aregistered or unregistered group ofmicro entrepreneurs havinghomogenous social and economicbackground, voluntarily comingtogether to save small amountsregularly. They mutually agree tocontribute to a common fund andto meet their emergency needs onmutual help basis. The groupmembers use collective wisdomand peer pressure to ensure properend-use of credit and timelyrepayment thereof. In fact, peerpressure has been recognized as aneffective substitute for collaterals.

What are the advantages offinancing through SHGs ?

An economically poor individualgains strength as part of a group.Besides, financing through SHGsreduces transaction costs for bothlenders and borrowers. Whilelenders have to handle only a singleSHG account instead of a largenumber of small-sized individualaccounts, borrowers as part of aSHG cut down expenses on travel(to & from the branch and otherplaces) for completing paper workand on the loss of workdays incanvassing for loans.

6. What role does a NGO playin provision of Micro Credit ?

A Non-Governmental Organisation(NGO) is a voluntary organizationestablished to undertake social

intermediation like organizing SHGsof micro-entrepreneurs andentrusting them to banks for creditlinkage or financial intermediationlike borrowing bulk funds frombanks for on-lending to SHGs.

Is Foreign Investmentallowed in Micro Creditprojects ?

Government of India vide theirnotification dated August 29, 2000have included 'Micro Credit/RuralCredit' in the list of permitted non-banking financial company(NBFC) activities for beingconsidered for Foreign DirectInvestment (FDI)/OverseasCorporate Bodies (OCB)/Non-Resident Indians (NRI) investmentto encourage foreign participationin micro credit projects. Thiscovers credit facility at micro-levelfor providing finance to smallproducers and small microenterprises in rural and urbanareas.

What is the MicrofinanceDevelopment Fund ?

There is an urgent need formicro credit providers to shiftfrom a minimalist approach - thatis offering only financialintermediation - to an integratedapproach to poverty alleviationtaking a more holistic view of theclient including provision ofenterprise development serviceslike marketing infrastructure,introduction of technology anddesign development. In thiscontext, the setting up of theMicro Finance Development Fundmarks an important step.

WHAT IS MICRO CREDIT ?

DO YOU KNOW ?


MICROFINANCE

HE TERM MicroFinance refers to theprovision of financialservices to lower incomegroups, which alsoinclude self-employed

people. Grameen Bank inBangladesh introduced the conceptof microfinance and now it is aworld wide movement as it wasreplicated in different countries.This is the approach, which focuseson reducing poverty by providingservices and other services throughinstitutions that are funded byvarious donors and Governmentsubsidies.

To an access to institutionalcredit to the poor sections of thesociety, microfinance is one of themost sustainable and effective tool.Where microcredit refers toavailability of loans in smallquantities, microfinance has abroader meaning and it includesother financial services likes,savings insurance, etc.

Realizing the importance ofcredit in the development process,the Government and Reserve Bankof India have taken various steps in

Reema Nanavaty

For Rural Development

this regard and have encouragedbanks to make timely and adequatefinance available to poor foragriculture as well as alliedactivities making institutional creditto the poor.

Organizations like Myrada &NABARD have mademicrofinance an undividable part ofIndian rural development. Alsomany funding agencies and NGOsare involved in this work ofmicrofinance. There are also manyother small institutions that areworking extensively in the field ofmicrofinance.

Alongwith the NGOs thecorporate precipitation in this fieldhave given new radical direction tothis revolution of microfinance. Themost successful region of the microfinance is the southern part of India.Andhra Pradesh has become theexample in this issue. If we takeinto account the overall figure formicro finance in all over India thenaround 55% is only in AndhraPradesh.

There are many parts of India,which are performing very poorlyin case of microfinance, but at the

T

The author is Lecturer, Commerce, A.V.C. College, Mannampandal.

OPINION

V Vijay Anand

Expansion ofmicro-credit

programme byretaining all the

distinctivemanagerial aspectsis also a challengeto be squarely met


rate in which it is expanding, itsbranches will soon be reaching toeach and every household.

As per recent information ofNABARD, we can say that microfinance has proved as a boon forthe rural poor.

� More that 8.5 lakhs of SHGsmade and functioningsuccessfully in India.

� Innumerable of poor families gotsustainable financial servicethrough it.

� Besides the big donor agencieslike NABARD, SIDBI, etc.there are 2800 Partner NGOsworking extensively in this field.

� Many foreign agencies areworking comprehensively in thisfield like CARE-CASHE.

� Huge participation of corporateicons in microfinance are alsowitnesses like HLL's Project Sakti& ITC's Women empowermentProject.

Risk Management

As in any commercial activity,risk is inherent in microfinance,particularly when there are nocollaterals to fall back on. Today,the risk management inmicrofinance has assumed greatersignificance. As banks arepreparing to comply with relatedbase norms the port folio of micro-finance is primarily exposed tocredit risk. This is nothing butdefault/diminution in the creditamount released and operationalrisk ,which is the risk of lossresulting from inadequate or failedinternal process, people and systemor from external events. Anelement of market risk, which isprevalent in normal commercialactivity is significantly absent,perhaps owing to lower value of theproduct output which was marketedthrough retail arrangement. Theprimary risk type in microfinanceactivities is the operational risk.

As lending through SHG bycommercial banks is on theincreasing trend ,there is a need toadopt a robust portfolio approach isthis regard since the SHG lendingoutside the purview of individualcredit risk rating frame work willhelp in monitoring the outstandingSHG lending portfolio. There canbe no doubt that lenders may spreadtheir risk when they lend to thisparticular sector.

A study conducted by the Indianbanks special unit for microfinanceUsilampatti, covering southerndistricts of Tamil Nadu, revealedthat the identified factors havinghigh risk are clubbing too manygovernment programmes, higherthan required loan size, frequentswitchover of the field staff, lackof monitoring, non-transparentdeals devoid of good governance,etc. by the SHG/NGOs. Some ofthe risk-mitigating measures in themicrofinance through SHG are asfollows:

� Encourage short-term loans tobuild credit track record history.

� Better to maintain peer pressureby making the loan available onlyfor part of the SHG group so thatit is not shared by all in thegroup.

� SHGs to take up restructuringexercise.

� Migration from group toindividual loan after impartingcertain amount of training.

� Active SHG leaders are to beidentified as Field Official toprevent the staff turnover , butrotation of leaders should beensured.

� Transparency and goodgovernance are put in place forensuring end use of funds.

� Proper MIS is to be ensured forregular flow of information onthe functioning of the unitfinanced through micro financeso as to have close supervisionor monitoring.

� A structured risk assessmentmodel may be evolved tocapture the risk at least on ahalf-yearly basis.

� In a tie-up with a nationalinsurance company, micro-insurance product may beoffered to the SHGs as a coverto protect the life/non-life risks.

� Quality internal audit systemshould be put in place and theimportant needs to be explainedto the SHG members.

� Identify the auditable risks facedby MFIs and try to minimize thenon-auditable risks.

� Create industry-wise bench-marks on the basis of historicalperformances.

Value for Microfinance

There is a need to make micro-finance lending to MFIs anattractive business proposition forpotential lenders, as the hugedemand for financial services bythe poor can largely be satisfiedthrough mobilizing capital from theformal sector. In addition to credit /financial inputs injecting managerialinputs into the activities of the targetgroups would be required, as creditalone may not yield the expectedresults. This is possible only throughclose interaction with the targetgroups. Expansion of microcreditprogramme by retaining all thedistinctive managerial aspects isalso a challenge to be squarely met.

Conclusion

Microfinance is the key mantrafor a sustained and long-termeconomic growth in India. Thesame is in sharper focus today withthe Government taking keen interestto ensure a comprehensive andvisible uplift of rural people througheffective implementation of variousschemes. Therefore, it is clear thatthe Microfinance is most importantfactor to attain sustainable ruraldevelopment.

(E-mail: vijshow(a)@yahoo.com)


J&K WINDOWWOMEN FROM EITHER SIDE OF LoC DISCUSS PEACE

Over 50 women from bothsides of the line of Controlmet in Srinagar to discuss

the possibilities of finding commonground for pushing through peacemoves in the troubled state. Theycalled for widening the scope ofconfidence-building measures(CBMs) on both sides.

Organised by the Delhi-basedCentre for Dialogue andReconciliation (CDR) incollaboration with the womenstudies centres of Kashmir andJammu universities, the three-dayconference was inaugurated bySyeda Saiyidain Hameed,Member, Planning Commission.

She said the arrival of 17women activists from Pakistanand Pakistan-administeredKashmir showed that no powercould thwart the process ofinteraction.

"Dialogue is a must to resolvethe issues". Dr Hameed said therewas a need to ease travelrestrictions. Women and childrensuffered a lot in the last 18 yearsand the government is consciousof their plight, that is why PrimeMinister Manmohan Singhannounced that the scheme ofrehabilitation would be extendedeven to children of militants.

Referring to the Association ofParents of Disappeared Personsheaded by Parveena Ahangar,

Dr Hameed said the setting up ofthis forum was a strong messagefrom women that "repressioncannot be tolerated."

She said "Why are there nowomen when it comes todiscussions on the future of Jammuand Kashmir and India andPakistan? Why is there no genderparity and gender balance in thisarea?"

Naseema Jogezai from Pakistansaid that in a conflict situation,dialogue was must. In conflictzones, women were soft targets.

Dr Jogezai, who is also amember of Pakistan's KashmirCommittee, said it was not aquestion of religion when it cameto demanding rights. KashmiriPandits were part of Kashmiriethos. It is time to focus onsimilarities rather than differences,but Kashmir was the core issue ofcontention between India andPakistan. She said crossing theborder for the conference was like"a dream come true" for her andthe other women. "It is ironic thatMuslims and Hindus have so muchin common in Kashmir and yet thereis conflict."

Nighat Sahfi Pandi, chairpersonof the Srinagar-based HelpFoundation, spoke of the impact ofconflict on women and children.

"Misery and disaster have trans-territorial dimensions." Theseacted as binding factors in termsof social response.

"Experience has shown thatwhen women from states of Indiaforged unity on certain socialissues, their combined actionproved more fruitful and result-oriented than the sceptre of lawwidened by the state agencies formaintaining law and order."

Sushobha Barve, executivesecretary, CDR, said womenfrom both sides of the bordershould come together to think ofthe role they could play in thepeace process. Why, after threeyears of peace efforts, werewomen's voices not heard?Reciting an Urdu poem she wroteabout the future of Kashmir,Zahida Qasim Malik, a doctorfrom Mirpur, told the gatheringhow her family had left Poonchbecause of Partition. Both herparents died in their fortiesbecause of the sufferings ofdislocation. This visit enabled herto meet relatives she had not metfor decades. "But we are all partof a family," she said referring toJammu and Kashmir."Circumstances have divided usbut we will be united again."


SAFFRON BLOOMS IN VALLEY

Mollywood goes to Kashmir Warmth in Winter

The Jammu and KashmirGovernment is planningdrip irrigation for increasing

the production of apple, walnut,apricot and almond for which theState has a huge potential.

Indian Council of AgricultureResearch will help the State officialsdraft the irrigation plan. Dripirrigation, was a time-tested option

as it had yielded better results inAndhra Pradesh and Maharashtra.

Official figures suggest that theState produces 1,151,341 tonnesof apples over an area of 111,879hectares. Its productivity levels is10.1 tonne per hectare. ThoughHimachal has an area of 92,800hectares, it produces only 180,600tonnes annually given its low

productivity level at 1.93 tonneper hectare. Apple has been themain contributor in maintainingthe State’s economy with itsyearly turnover crossingRs 1,800 crore. The yield inwalnuts, almonds and apricotshas dwindled to less than half ofwhat other countries areproducing.

New J&K plan for apple revolution

famous the world over for thebest quality saffron.

� Kashmir is the only place inIndia, and one of the few placesin the world, where saffron - theworld’s most expensive spice-grows.

� Saffron has been grown inKashmir since the Mughal

� Villagers harvest saffronflowers at a field in Pampore,near Srinagar. Pampore is

period. It takes some 170,000flowers to get a kilogram of theprecious spice.

� Common variety saffron ispriced at Rs 800-900 per 10gram. The high quality onecosts anything betweenRs 1200 - 1300 per 10 gram.

Kashmiri fire pot vendors waitfor customers in Srinagar. Thekangree (fire pot) sale haspicked up as temperaturesdipped.

A New Wave : The Tamil film Boombas Bang Bang Kids,featuring Upendra and Ramya, being shot in a shikara at the

famous Dal Lake in Srinagar recently.



BELIEVE that you arequite familiar with India’searly experiments with asocialist model as well asour recent experience in

liberalisation and economicreforms. The first four decadesafter independence turned out to bea period of mixed results. Therewere some successes on theeconomic front. The GreenRevolution gave us a measure ofself-sufficiency in food.Wedeveloped a highly diversifiedindustrial base. The financial sectorexpanded rapidly and penetratedinto most parts of thecountry.However, the economyrecorded insipid rates of growth.

In the first 30 years, GDP grewat an average of about 3.5 per centper annum. There was animprovement in the eighties to anaverage of 5.6 per cent per annum.When even moderate growthbecame unsustainable, and therewas a threat of collapse,India madea decisive shift in 1991.In the nineyears ending 1999-2000, the

P Chidambaram

Making GrowthMore Inclusive

average growth rate of GDP was5.8 per cent a year. After atemporary setback, the averagegrowth during the last four years-2003-04 to 2006-07-has increasedto an impressive 8.6 per cent. 2006-07, in particular, was a splendid year.GDP grew at 9.4 per cent.The rateof industrial growth reached 10.9per cent. And the services sectormaintained its robust performanceand achieved a growth rate of 11per cent.

The upsurge in economic growthhas been accompanied by a markedincrease in the rate of savings andinvestment in the economy.Grossdomestic capital formation as aproportion of GDP increased to33.8 per cent in 2005-06 and isestimated to have increased furtherin 2006-07.Given the thrift habits ofthe Indian people, and growing sizeof the workforce, both savings andinvestment rates are expected toshow further improvement in theyears to come.The demographicprofile of India is working in our

I

OPINIONINDIA AT 60

The author is Union Finance Minister.

A high rate ofgrowth would havelittle meaning to the

poor unless thereis a visible

improvement intheir living and

working conditions


favour and the size of our working-age population exceeds, and willcontinue until 2030 or 2035 toexceed the number of dependentpersons.The domestic challenge isto make growth more inclusive.Twenty six per cent of thepopulation of India lives in poverty.Alarge number of people have limitedor no access to education orhealthcare.Basic services such asdrinking water, sanitation, electricity,road connectivity and housing arenot available to large sections of thepeople. A high rate of growth ofGDP would have little meaning tothe poor and the disadvantagedunless there is a visibleimprovement in their living andworking conditions.Hence there is

emphasis on inclusive growth andthe effort to devise programmes andplans that address the felt needs ofthe poor.

The external or global challengeis to integrate the Indian economywith the global economy and remaincompetitive.We recognise that theworld is an unequal-and sometimescruel place.We do not seekcharity.We seek an open, rule-basedsystem of world trade; we seekopen markets; we seek knowledgeand technology; and we stress thatnew forms of exploitation are aspernicious as colonialism that wasburied many decades ago.

India, within years of its birth,accepted responsibilities that other

countries of the world or internationalbodies placed on its shoulders.Indiawas a peace-keeper in many troubledareas; India was a mediator.Indiacautioned the countries againstdividing the world into two warringcamps and, therefore, advocated non-alignment and the five principles toend the Cold War. India at 60recognises that the world, after theCold War has ended, is a verydifferent place. Let me assure youthat India, today, is a more confidentnation and will play its part in globalaffairs.

(Excerpts from the speech ofFinance Minister P Chidambaramon ‘India at 60’, in Berlin onSeptember 18,2007)

February 08YOJANA

Next Issue

on

Human Trafficking

Eminent contributors include-Kiran Bedi, Madhu Kishwar, among others. The issue also covers

an interview with Nalini Jameela, author of ‘Autobiographyof a Sex Worker’.


S THE country celebratesthe Diamond Jubilee ofIndian Independence fromnearly 250 years of Britishrule in India, it also

observes, simultaneously, the 150thAnniversary of the Great IndianMutiny, first major struggle forindependence from British rule. Atthe same time, Indian Railwayscompleted, in April 2007, 154 yearsof service to the nation.

The first railway train ran in Indiaon the Great Indian PeninsularRailway's (GIP) line from Bombayto Thana on 16th April 1853. Sixteenmonths later, on 15th August 1854,the first train of the East IndianRailway (EIR) ran out of Howrahfor Hooghly, 38 km away and wasopened as far Panduah on 1stSeptember, 1854. "The occasion wasone of great novelty even toEuropeans and the Nativeimpression was quite favourable"writes a chronicler. In February 1855the line was opened to Raniganj"with due pomp and circumstance".

Indian Mutiny and Railways

A Ramarao

The author is former Chief Operating Superintendent of Railways.

From these humble beginnings,Indian Railways grew enormouslyto become the sole means oftransport and communication in thesub-continent; the "steel chains" bywhich the British Government heldthe country in bondage. Ironically,Indian Railways also played asignificant role, during theindependence movement, inbringing the country together, tobreak out of this same bondage.

After his return from SouthAfrica, Mahatma Gandhi used itextensively to learn first hand aboutthe country, before plunging into hismovement to awaken the peopleagainst slavery. People used trainsto travel, in large numbers and overlong distances, to see and hear theirbeloved national heroes. Those whopreferred to overthrow thegovernment by violent meansequated railways with Britishauthority and made it the target oftheir attacks.

When the nation redeemed its'tryst with destiny' on that historic

IMPACT1857

Amidnight of August 1947, Indianrailways were in shambles, ravagedby overuse during World War II,lacking inputs for essential repairsand replacements, and torn in threeby partition. Track, locomotives,coaches and wagons were eitheroveraged or outdated. Signallingand communications badly neededto be updated and modernised.

In independent India, railwayswere called upon to meet thechallenges of a resurgent nation. Tobegin with they had to shoulder thetask of transferring large sectionsof population displaced by partitionto safer places, strugglingsimultaneously with the vacuum inits personnel caused either byBritish servants returning home, or,by those deserting their posts tomigrate across the newly carvedout borders in the subcontinent. TheIndian railways rose to the taskmanfully. In less than a decade theywere helping in nationalreconstruction through successivefive year plans, becoming in due


course one of the most efficientorganisations under the government,equally reliable in peace and in war,the cornerstone of the infrastructureof the Indian economy.

The Mutiny was triggered offwhen a sepoy called MangalPandey shot and killed his Britishofficer in Barrackpore cantonmenton the 29th of March 1857, and achain reaction ensued covering amajor part of the British dominionsin North India. At this time, the totallength of railways in India wasabout 450 km with GIP Railwayline's extending from Bombay toKalyan and EIR's line from Howrahto Raniganj. Elsewhere, railwaylines were in different stages ofconstruction, including EIR'sstrategic line to connect Calcutta toPeshawar.

Much of the action during themutiny occurred in the jurisdictionof the EIR. At that time theBurdwan - Rajmahal line was beinglaid. It was to be extended toAllahabad via Mirzapore, and henceto Jubbulpore, where it would forma junction with GIP Railway. FromAllahabad the extension of the linetowards Delhi was being pushedthrough. Works had started on thebridge over the Sone, near Arrah,west of Patna. This would be thefirst major railway bridge over animportant river in India. It was tobe built with steel girders and have28 spans of 150 feet each, the totallength being 4.726 feet. There wasalso a proposal to erect a bridge overthe Hughli near Calcutta. The linefrom Agra towards Lahore wassurveyed by way of the right bankof the Jamuna and Delhi. Brickmaking, etc. was in progress on thissection when the Mutiny broke out.

In the light of our presentknowledge of the potential of Indianrailways as the bulwark of thecountry's defence, as well as itsvulnerability as the symbol of statepower, it is worth ponderingwhether, in those early years, thecolonialists realised - and utilized -the power of the railways to crushthe Mutiny, and also whether themutineers, and the local populacewhich supported them, understoodthe potential of this new form oftransport sufficiently to attack it tocripple the rulers' efforts to restoreorder.

When the Mutiny broke outthere was a strongattempt by the

Government of the East IndiaCompany to contain news of theinroads made by the mutineers.Lord Canning, the GovernorGeneral, imposed press censorship,ostensibly making no distinctionbetween the English and nativePresses. Publishers of severalEnglish newspapers owned andpublished by Indians, almostexclusively for circulation amongIndian readers namely, The Friendof India, Durbin, the Sultan - ul -Akbar, and the SamacharSudhabarshan were prosecuted.The press of 'Gulshan-i-Nau-baharwas seized; the Hurkaru waswarned and banned, temporarily.

British accounts of the Mutinyby well known writers, likeTrevelyan, Kaye, Malleson andHobart extol the valour of theBritish soldiers, highlight thecowardice or cruelty of the nativesand play down the extremebarbarity of the British army afterthe revolt was crushed. As for therailways, they only mention twoepisodes namely, 'The Defence of

Arrah' and the killing of a ChiefEngineer of the EIR, both of whichare described later in this article.

In a minute on "the mutinies",recorded by Sir Frederick Halliday,then Lieutenant-Governor ofBengal, the railway is mentionedonly once, in 'The Defence ofArrah'. In its report to theCompany's shareholders, the Boardof Directors of the EIR, whileadmitting that the company hadsuffered from the mutiny and lostsome valuable lives, maintained thatit had not sustained any seriousdamage, other than some delay incompletion of works.

The facts lie concealed in theinternal records of EIR and in thepersonal accounts of EIR'sengineers, in which the Mutinyfigures largely for, "outside the CivilService, the railway engineers werethe only other body of civiliansaffected by it".

Earlier, in 1856, EIR had a tasteof native ire at the policies andactions of the East India Company,with the outbreak of the SanthalRebellion, in the areas now inJharkhand state. The Rebellioncaused immense trouble to theengineers and contractors inBirbhum, Taljhari and Rajmahal,including loss of personal effects,as many bungalows were burntdown and sacked. At Rampur Hat,the European railway staff built astrong round tower into which theyretired when necessary. Severaltrains had to be run from Howrahto Raniganj with troops to quell theinsurrection.

As a result of the Mutiny,construction of EIR's lines wasdelayed by 2 to 3 years and new


projects had to be held back. Themutineers targeted the railways andcaused extensive damage, cuttingtelegraph wires, smashing bridgesand attempting to derail trains.

The Mutiny forced the EIR tochange the alignment of itsAllahabad-Delhi line to the left bankof the Jamuna via Aligarh andGhaziabad, as the British had lostcontrol of the area on the right bankaround Delhi, Mathura and Agra.The line from Delhi to Lahore hadalso to be abandoned to the PunjabRailway Company "although theline and the site for the, Sutlej bridgehad been fully surveyed by the EastIndian Railway Engineers." TheDelhi-Mathura line was opened bythe GIP only in 1884 and extendedto Agra as late as 1904. EIRreturned to its initially plannedalignment only in 1908, after a newbridge was built across the Jamunaat Agra.

In a letter to the Board ofDirectors the Agent of East IndianRailway admitted the attacks. "Themost important papers of the ChiefResident Engineer appear to havebeen saved" he wrote, "Vastquantities of property are beingrecovered but mostly damaged. About40,000 rupees worth of sal timbercollected for buildings has beenburnt….The massacre in Cawnporeis no longer doubted. There wereseveral of the Company's Engineersand inspectors there." In a subsequentcommunication the Agent furtheradmits that, "Express trains haveproved utterly unremunerative.Several attempts have been made tothrow them off the rails …..they aresuspended for the present…..everyeffort has been made to detect theparties endeavouring to throw the

trains off but without success….areward of Rupees 100 is beingoffered for information."

During the siege of Allahabad,railway works and engines wereamong the first things destroyed byMaulvi Liakat Ali and his men. Theybrought their guns to bear on theengines, battering them to pieces.John Hodgson, EIR's first ChiefMechanical Engineer was in the fortat the time, sick with cholera.Earlier on, Hodgson had arrangedto get coaches and wagonsmanufactured locally for theinauguration of the EIR when thoseordered from England were lost atsea. "Seeing this destruction of hisengines from the Fort may havehastened poor John Hodgson'sdeath", speculates a narrator.

All the Station works atAllahabad including theLocomotive and Carriage

Shops were destroyed and the riverflats etc. were damaged. When thetroops at Allahabad revolted, fifteenEuropeans (railway men and theirfamilies), climbed into an overheadwater tank and spent three days andnights in the open water-tank untilthey were relieved. Hodgson'ssuccessor could not take alocomotive out of Allahabad formore than ten miles, even after thesituation was eased somewhat atthe end of July; the work could beresumed only after a 400 strongEuropean force was stationed forprotection of the contractors andlabour. EIR's engineers in theMirzapur District had to flee intoChunar Fort in June 1857 and thework on the Tonse Bridge could notbe resumed till March 1858

In Bihar, Raja Kunwarsingh'smen damaged the bridges under

construction over the Sone Rivernear Arrah and the KaramnasaRiver further west. The bridgeworks over the Sone were damagedcompletely, the work force ranaway, and storehouses andworkshops were plundered andburnt. The British rebuilt them whenKunwarsingh retreated, only to bedestroyed for the second time whenhe reoccupied Shahabad. All theoutlying bungalows were alsodestroyed. This bridge could befinished only in December 1862.

Trouble in the Shahabad Districtand the neighbourhood continued forlong afterwards. Rebels overran thedistrict and destroyed the stationbuildings at Gahmar and Dildarnagarand fired the kilns prematurely. Evenas late as April 1859 the Company'sworks at Gahmar were attacked.The engineers from theneighbourhood of Monghyr retiredinto the fort there and requisitionedfor a few troops to hold the placewith. However, no troops could bespared. The engineers worked underthe constant threat that "Patna waslikely 'to go' at any moment".

In Rampur Hat, the Mutiny puta sudden stop to the works, and theInspectors and Contractors therehad to retire into the Round Towerbuilt during the Santhal Rebellionmentioned earlier.

In Bengal the Company'sservants at Raniganj and Howrahwere in a state of alarm during Mayand June 1857 and requested to besupplied with arms to protect theirfamilies. Many attempts were madeto derail trains carrying troops fromHowrah to Raniganj.

EIR estimated the loss due to themutiny as £ 42,000, but the total loss


due to delays, and escalation ofcosts was over 3 million pounds.

An episode called the 'Defenseof Arrah' received much publicityand a British railway engineerbecame one of the heroes of theMutiny. R Vicars Boyle was incharge of the Sone District includingthe Sone Bridge works. Late in July1857, Boyle, with two other railwayengineers and five British officials,hastily fortified a two storiedannexe to Boyle's railwaybungalow, originally intended to beused as a Billiards Room, andlodged the group in it, protected byfifty loyal Sikh soldiers. Theysuccessfully resisted the advance ofan invading party of mutineers forseven days, until they were relievedby a British force under Sir VincentEyre. Part of the battle for the reliefof this besieged group took placeon the railway embankment, 5 mileswest of Arrah. Eyre used some ofthe railway material to cross his gunsover the Banas Nala.

Vicars Boyle came to be knownas 'Victor' Boyle after this incident.He was awarded a jagir ofRs. 10,000 annually for life andRs. 5,000 for his successors inperpetuity. His progeny must bedrawing the pension to this day!

Another much publicizedincident concerning the railway wasthe murder of William Evans, ChiefEngineer of the Jubbulpore branchof EIR. In March 1859, whileEvans was camping out to lay thecentre line for the JubbulporeRailway, the encampment wassuddenly surprised and surroundedby about a thousand rebels. Evansand his assistant Limnell were

thrown off their horses and Evanswas speared and beheaded. Limnellwas made a prisoner but he wasalso killed after being forced tocarry Evans' head until he fell downexhausted.

The EIR lost many other officersand men in the Mutiny. There wereseveral engineers of EIR amongthose who were besieged atCawnpore. Though most of themwere untrained in warfare, theybecame useful shooters and somewere killed in action. A memorialtablet in Cawnpore church listssixteen officers and threesubordinates who lost their lives in'The Great Insurrection of 1857".

The native employees of EIRwho fought for the revolution haveremained unknown and unsung.

Despite its short length, therailway came in handy for quellingthe rebellion. The army took overthe railway's flats, used in bridgeconstruction, fitted them withlocomotives and paddles to turnthem into tugs. They were usedalong with other flats to transporttroops up the river. Forges and othermaterial were also taken from therailway.

When British reinforcementsfrom Madras landed in Calcutta,trains with troops were run toRaniganj. The journey wasdescribed as "tedious but notunpleasant, compared to the clumsy,cracking, lumbering bullockwagons, used for the remaining partof the journey".

An amusing incident is relatedin this connection. TheCommanding Officer Lt. Col. Neilarrived at Howrah just as a train

was about to leave. Thestationmaster, who was a sticklerfor punctuality, refused to detain thetrain for the troops on board.Thereupon Neil arrested and lockedup the stationmaster in his ownroom, assumed control of operationsand ordered the driver to run thetrain at his command.

Would it have made a differenceto the British authority if therailways had been commissionedearlier? It became a matter fordebate, considering that it hadtaken ten years for the first trainto run out of Howrah from theinitial proposal for a lineconnecting Calcutta withPeshawar via Delhi mooted asearly as 1844.

On this point Railway Timeswrote in October 1857,

'Had there been railways in theplaces of revolt, these railwayswould have been destroyed. Hadthe destruction of any particularrailway been impossible, there wouldhave been no revolt in that locality.Unless, therefore, India had beencovered with railways, and beenlikewise occupied by immense bodiesof troops to protect them, theexistence of a few trunk lines wouldhave availed little or nothing inquelling the outbreak. Had therebeen troops in India to protect all therailways that appear to be required,there would have been no revolt.But, as it was, there were no troopsto be conveyed even on thecomparatively few miles of line thatexist. It is idle, therefore, to speculateon what might have been had all thecircumstances under which themutiny broke out been changed.


C Rangarajan

Employment and Growth

SCENARIOECONOMY

HE LATEST andseventh quinquennialNSSO survey (61stRound) throws new lighton the employment and

unemployment scenario in thecountry. It shows a reversal of thedeclining trend in employmentgrowth rate which was witnessedearlier. Employment growth in-creased from an annual rate of0.98 per cent in the period 1993-94to 1999-00 to 2.89 per cent in theperiod 1999-2000 to 2004-05 (Table1). Interestingly, there was also anunprecedented acceleration in thelabour force growth rate from 1.03per cent to 2.93 per cent which wasabove the population growth rate.This could have had seriousimplications for the unemploymentscenario, had it not been for thesharp increase in the workforce, thatis employment.

The NSSO 55th Round hadshown a deceleration in the growthof employment from 2 per cent perannum in the period 1983 to 1993-

94 to less than one per cent perannum in the period 1993-94 to1999-00 and also an economy widedecrease in employment elasticityfrom 0.41 to 0.15. The results ledto major concerns regarding thephenomenon of "jobless growth"and scepticism on the ability ofeconomic growth to tackle theproblem of unemployment. It is thistrend which has been reversed. Inthe latest period, the aggregateemployment elasticity haspractically tripled from a low of 0.15to 0.48.

As per the NSS data, a sectoraldisaggregation of the workforceshows an expected decline in theshare of Agriculture and AlliedActivities in employment from 59.8per cent to 58.4 per cent betweenthe 55th and 61st NSS Round. Interms of absolute figures however,the sector absorbed almost half (30million) of the incrementalworkforce. The share of themanufacturing sector in employmenthas marginally declined from 12.1 percent to 11.7 per cent though inabsolute terms the workforce in the

But thecongruence of

labour force andworkforce by itselfdoes not guarantee

elimination ofpoverty

The author is Chairman, Economic Advisory Council to the Prime Minister.

T


sector increased by 5.5 million. Theservices sector improved its sharefrom 22.7 per cent to 23.4 per centadding 16.8 million workers in thefive-year period.

The survey shows that cuttingacross the rural-urban divide, theshare of self-employed workers hasincreased sharply with an offsettingdecline in the share of casuallabourers. According to ourestimate, there are about 260 millionpeople who are self- employed.This rise in self-employment hasbeen viewed by some as anindicator of the deterioration in thequality of employment based on theargument that the rise in jobs in thiscategory has been mainly in theunorganised sector where the wagerates are low.

What would be the employmentscenario in the coming years, if thetrend seen in the recent periodpersists? Projections were madeunder three sets of assumptions re-garding the behaviour of elasticitiesin the future. This gives us threealternative employment scenarios.

Under the first scenario, wepresume that the elasticities,calculated as per the industry wisedata on employment provided by the

NSSO for the period for 1999-00 to2004-05, will prevail for the next fewyears at the same level. With anemployment elasticity of 0.48 and alabour force growth rate of 2.93 percent, projections show that if GDPgrows at 9.1 per cent, the economywould have already achieved thelevel where labour force will equalthe workforce! This conclusion isunrealistic and hence there is a needto modify our assumptions whichbrings us to Scenario 2.

A closer look at the employmentelasticities reveals that the elasticityfor agriculture and allied sectors isvery high at 1.52 as compared tothe earlier trend. This does notappear to be sustainable. Hence forScenario 2, the elasticity ofemployment of agriculture and alliedactivities has been moderated to alower figure of 0.7 for the purposeof projections while other sectoralelasticities are kept unchanged.Keeping the labour force growthrate at 2.93 per cent and GDPgrowth rate at 9.1 per cent, theseprojections show that it will take upto 2009 to reach the point wherethe labour force will equal theworkforce (Table 2).

However, with an overall growthrate at 8.5 per cent and an

agricultural growth rate of 3 percent, the convergence of labourforce and workforce will happenonly in 2012. If the overall growthrate is kept at the same level andthe agricultural growth rate isreduced to two per cent, it will takeup to 2017 for the convergence tooccur.

The elasticities used in theseprojections are based on acomparison of data between the55th and the 61st NSS rounds. Ithas been suggested by some thatthe sharp growth of employmentin the recent period may bereflecting the statisticalphenomenon of a low base in 1999-2000. A longer-term period shouldtherefore be considered to get amore accurate picture ofemployment growth. Accordingly,we have computed the growthrates of labour force and sectoralemployment elasticities using alonger period - 1993-94 to 2004-05. Over the longer period, theaggregate elasticity drops to 0.29as compared to 0.48. Notably forthis long period both labour forcegrowth rate and employmentgrowth rate come down to 1.88 percent and 1.84 per centrespectively. These are much lowerthan the growth rates of 2.93 percent and 2.89 per cent experiencedin the recent period. In Scenario 3using the elasticities and the labourforce growth derived from thelonger period, a 9.1 per centgrowth rate of GDP would enablethe economy to reach the pointwhere labour force will equal theworkforce by 2008. Surprisingly,this result is only marginallydifferent from the one arrived atas per Scenario 2.

EMPLOYMENT AND UNEMPLOYMENT

UPSS1993-94 1999-00 2004-05 1993-04 1999-00

to 1999-00 to 2004-05

In million CAGR

Labour force 381.94 406.05 469.06 1.03 2.93

Workforce(Employment) 374.45 397.00 457.82 0.98 2.89

Number ofUnemployed 7.49 9.05 11.24 - -

As a proportion of labour force in per cent

Unemployment Rate 1.96 2.23 2.39 - -

Table 1


With a 9.0 per cent GDP growthrate, even under the very

EMPLOYMENT PROJECTION

Sector Employment Projected GDP Employment Projectedin Elasticity growth growth Employment

2004-05 rate rate 2009(million) (%) (%)

Agriculture, Forestry 267.57 0.70 3.73 2.61 296.62& Fishing

Mining & Quarrying 2.74 0.82 4.73 3.88 3.19

Manufacturing 53.51 0.34 10.90 3.71 61.9

Electricity Gas & 1.37 0.33 6.90 2.28 1.5Water Supply

Construction 25.61 0.88 12.07 10.62 38.35

Trade, Hotels &Restaurants,Transport, Storage 64.49 0.45 11.97 5.39 79.56& Communication

Financing, Insurance, 6.86 0.94 10.33 9.71 9.94Real Estate & BusinessServices

Community, Social & 35.67 0.28 7.60 2.13 38.81Personal Services

Total 457.82 0.36 9.13 3.29 529.87

Labour Force 469.06 - - - 526.50

Unemployment rate 2.39% - - - -

Labour Force growth 2.93% - - - -rate

Employment growth 2.89% - - - -rate

conservative assumptions, theeconomy will reach a level where

the workforce will match the labourforce within a short period. Growthwill be the major driving force inachieving a higher level ofemployment. The analysis of thedata thrown up by the Survey andProjections indicates that bulk of theincrease in employment hashappened in the informal sector andagriculture still accounts for a largepercentage of the workforce. Thistrend is a cause for concern as therelatively low wages and lack ofsocial security here translate into thephenomenon of 'working poor,' thatis, workers in the BPL households.In other words, the congruence oflabour force and workforce by itselfdoes not guarantee elimination ofpoverty. The new challenge is oneof improving total factor productivityin the informal sector and inagriculture so that there is asignificant improvement in theemoluments of those who areemployed, that is, in the quality ofemployment.

Table 2

Four billion low-incomeconsumers, a majority ofthe world’s population,

constitute the base of the economicpyramid (BOP). New empiricalmeasures of their aggregatepurchasing power and behaviour asconsumers suggest significantopportunities for market-basedapproaches to better meet theirneeds, increase their productivityand incomes, and empower theirentry into the formal economy.

At a time when “inclusivegrowth’ is takng centrestage inIndia, a report by the WorldResources Institute andInternational Finance Corporation

Innovative Marketing for the Relatively Poor

provides some food for thought. Thereport, “The Next four Billion”,focusses on developing a marketstrategy for the millions of peopleliving in relative poverty; what itcalls “base of the pyramid” (BOP).

It defines BOP as people withincomes below $3,000 in localpurchasing power. The report saysthat together as a group, the BOPhas substantial purchasing powerwith a global consumer market ofthe size of $5 trillion..

The report advocates buildingcustomised business solutions anddeveloping new products and servicesto meet the needs of these people. Itsays this method could be used to

reduce poverty, in place of thetraditional approach which is basedon the assumption that the poorcannot help themselves and henceneed charity or state assistance.

Though the idea is not new andhas been successfully implementedby Nobel laureate MuhammadYunus of Bangladesh through hisGrameen Bank concept, it needsto be replicated at a larger scaleto improve the various social andeconomic indicators throughgreater corporate partnership.Maybe a different public privatepartnership model is required forthis purpose.


O N -COOPERATIONand civildisobedience arebut different

branches of the same tree calledSatyagraha. It is my Kalpadrum-myJam-i-Jam the Universal Provider.Satyagraha is search for Truth; andGod is Truth, Ahimsa or non-violence is the light that reveals thatTruth to me. Swaraj for me is partof that truth. This Satyagraha didnot fail me in South Africa, Kheda,or Champaran and in a host of othercases I could mention. It excludesall violence or hate. Therefore, Icannot and will not hateEnglishmen. Nor will I bear theiryoke. I must fight unto death theunholy attempt to impose Britishmethods and British institutions onIndia. But I combat the attempt withnon violence. I believe in capacityof India to offer non-violent battleto the English rulers. Theexperiment has not failed.”

This extract from MahatmaGandhi’s Presidential address at

Pragya Paliwal Gaur

The Path of Mahatma

Belgaum on 26th December 1924highlights his commitment andtrust towards non-violence toachieve freedom for India andpeace in the world. That nonviolence even now can guide theentire world towards global peacewas witnesssed at the sixtysecond session of the UnitedNations General Assembly whenInternational Non Violence Daywas observed for the first time on2nd October 2007. This sessionwill always remain in the memoryof crores of Indian people withinthe country and other Indiansliving outside the country ashistoric and one that instilled afeeling of pride in every heart.On 2nd October, the GeneralAssembly of the United Nationspaid a collective tribute to theFather of Nation.

The United Nations GeneralAssembly for the first timeobserved Mahatma’s birthanniversary as International Day ofnon violence and resolved to

“N

CHALLENGESNON VIOLENCE

The author is Director (News), Doordarshan Kendra, Jaipur and had covered the event in New York.

The need ofthe hour is tostrive to adopt

Gandhiji’smethods to our

present daychallenges


propagate Mahatma’s message of truth, Non-Violence and peace amongst all the member countries.

Government of India tabled the resolution in theUnited Nations on 31st May and on 15th June 2007,the United Nations General Assembly unanimouslyadopted this resolution to observe and celebrateannually Mahatma Gandhi’s birthday as InternationalDay of Non-Violence. Adopting a text on theInternational Day of Non-Violence the Assemblydecided to observe the International Day with effectfrom the sixty-second session, on October 2 each year.The resolution was co-sponsored by 142 nations andthe wide sponsorship reflected the universal respectthat Mahatma Gandhi commanded.

The President of the United Nations GeneralAssembly Mr Srgan Kerim termed the occasion asthat of handing over the torch of non-violence to allthe nations and peace loving nations of the world. Hesaid that Gandhi’s message of rejection of violencehas as much relevance now as it did during his lifetime.The Secretary General of the United Nations, Mr Ban-ki-Moon said that there could be no better time tospread Mahatma’s message, “The United Nationswas created in the hope that humanity could not onlyend wars, it could eventually make them unnecessary.The founders hoped that our organization could helpstop violence by spreading a culture of peace,promoting tolerance and advancing human dignity.These same ideals sum up the legacy of MahatmaGandhi. In this way by incorporating non-violence intoeveryday life the Mahatma inspired countlessindividuals to lead better, more meaningful lives”.

The photo exhibition on Gandhi and GlobalAwakening organized by the Indian Council forCultural Relations at the UN Headquarters showcasedthe various movements and world leaders who havebeen influenced by Gandhi’s principles of non-violenceand Satyagraha.

A new beginning has been made at the sixtysecond session of the United Nations GeneralAssembly. The need of the hour is to strive to adoptGandhiji’s methods to our present day challenges withearnestness and perseverance.

(Email: [email protected])


Krupa Patil

F.D Engineer: A CentenarianTax Payer of India

BUDGET

The author is a freelance writer.

SK ANY FinanceMinister what he wouldexpect from taxpayers inIndia? Definite Answerwould be, every Indianhonestly pays taxes and

files his annual tax return all throughhis life. Happily, India has such ataxpayer who is 100 years old. Heis Mr F.D. Engineer of Pune. Sincethe time he became'taxpayer', MrE n g i n e e rmeticulously filed hisIT returns everyyear. This is certainlyunique when wewitness that thetaxpayers normallytry to evade their taxas much as possible.

Mr Engineer is affectionatelyknown as 'FD' among his friends.FD hit the newsline when newsmenlearnt that the Finance MinisterMr P Chidambaram personallywrote him a letter, congratulating himfor filing Income tax return at theage of 100. The Finance Ministeralso directed his department to speedup his tax return process and ensurethat final orders are issued to him asearly as possible. Considering the ageof FD, Finance Minister's words are

really very touchy and action is mostappropriate.

"Yojana" decided to publish FD'sbrief life sketch for the benefit of itsreaders. I called on Mr Engineerwith prepared questionnaire.Effectively, however, theconversation turned into a friendlychat. It was clear that FD is a well-

read person and hehas constructiveviews on variousaspects of Indianlife. There was alsoa pleasant revelationthat he has authoredtwo publications.

FD belongs to aParsi family in

Gujarat. Every one of us is awareof the contribution of Parsicommunity to India's economic andsocial development. No wonder thathe is influenced by generous Parsiculture even today. FD becameEngineering graduate and decided togo in for automobile business. Heselected Secunderabad in AndhraPradesh for this and established it incooperation with his friend. It iscertainly worth to not that FD wasactive in his business till age of 80.Thereafter, however, he shifted toPune in 1986-87. Since then he isstaying with his daughter Ms Zurie

AYojanagenuinely feelsthat FD's life

will 'enlighten'the so-calledtax evaders

in India as hehas proved a

brand ambassadorfor tax compliance.

The best way ofwishing Happy100th Birthday

to F.D. Engineeris to be honestin paying tax

to thegovernment


Modi who is 67. At SecunderabadFD was filling his annual IT returnsthrough his CA Mr Naoer Chenoy.This association countinues eventoday and Mr Chenoy files returnsfrom Secunderabad. In fact, it is MrChenoy who wrote a letter to MrChdambaram when FD filed thisyear's return at the age of 100. Pressreports have quoted Mr Chenoy'swords about his client as under:

"FD is a remarkable man. Byprofession he is an engineer butloves music very much. FD used totalk laser recordings of music rapes.FD always insisted on perfectionwhile filling returns. He used to firstask for draft return and, if noticed,used to point out anomalies in it"

I asked FD. What inspired him tofile returns all these years? Theanswer to this looks very simple butit reveals definite thought behind it.FD said, "Tax paying is the part oflife." Every taxpayer should performhis duty to the nation by honestlypaying his dues every year. On India'ssocio-economic situation, FD feelsthat lack of education is the major

handicap is not achieving fastereconomic growth. He expressed thatwe should have education system thatwould impart knowledge on Indianculture, spiritual philosophy andscience.

On spiritual aspect of humanlife. FD feels that every individualshould analyze his own thinkingbefore taking any action. Self-introspection makes man introvertand that provides him utmost self-satisfaction. On politics, his thoughtsare very clear. He observed thatBritish rulers intentionally dividedIndia by bringing religion intopolitics, Unfortunately, postIndependence politicians havecontinued to follow the same path.To support his argument, FD quotesSwami Vivekanand who had said"If India continues its quest for realDharma the religion will flourish butif it is used in the clash of politicsand social science, the real Dharmawill be destroyed."

Today's society is orientedtowards only lavish consumption.Everyone is just ignoring the values

of love, friendship and dialogue in life.Yet, FD is not pessimist. He believesthat love will bring people togetherand establish a very strong bondbetween individuals. This bond willlead to meaningful dialogue among allof us and will unite the society.

About his life, FD says that heis fully satisfied with the way it hadcome. He is happy because he wonthe battle with adverse situations hefaced. He feels that his faith ininspiration, honesty and innerspiritual strength gave him whateverhe aimed at. FD is of the view thathe lived a completely happy life.

FD's philosophy of life is reflectedin two books that he wrote. The firstone, "Enlightenment" came in themarket as early as 1950. Thus, whenFD himself is celebrating his 100thBirthday his brainchild is completing57 years. His next work is titled as"In search of Truth." It needs to benoted this books' second editions wasout when FD completed a grandcentury and his coincidence wouldprovide ultimate happiness to FD.

NOT SO TAXING(India does well on ease of payments and not so badly on most tax rates)

No. of hours Total Tax Rate (%)to pay tax Corporate Labour others Average

Brazil 2600 21.1 40.6 7.5 69.2Russia 448 14.0 31.8 5.7 51.4India 271 19.6 18.4 32.5 70.6China 872 19.9 46.0 8.0 73.9UK 105 21.3 11.3 3.2 35.7USA 325 27.1 9.6 9.5 46.2Korea 290 18.3 11.4 5.2 34.9Malaysia 166 19.1 15.6 1.4 36.0Indonesia 266 26.6 10.6 0.1 37.3

(Source : Paying Taxes 2008, World Bank/PricewaterhouseCoopers)(Courtesy : Business Standard)

INDIA SCORES

On the face of it, with aneffective tax rate of 70.6per cent, India's tax regime

does look very repressive.Admittedly, the PricewaterhouseCoopers study that has done theexercise for the World Bank hasused a definition which is differentfrom that used normally, but sincethis has been done for each country,the net effect is neutral. Yet, whenyou look at the data a bit closely,India is not doing that badly. Thanksto e-filing and other such measures,the total time to pay taxes in thecountry is around 271 hours whichis not too different from the EU orthe G8 average. If you look at theindividual taxes, such as those paid

by corporate or individuals, India issomewhere in the middle. Theproblem is really in 'other' taxeswhere India's 32.5% is way abovethe rest. Around 80 per cent of this,it transpires, is the Central Sales Tax

that is not vattable -the rest isproperty taxes and other state levies.So, if the CST falls to zero by 2010as planned, India's tax ranking couldgo up from the present 159 to around80.


UDGET SESSION ofParliament is consideredto be the most cheerlesssession. But when it ispunctuated with sparkles

of wit and ready repartee betweenthe treasury benches and theopposition, it becomes a livelysession glistening with jokes that arelong remembered. On suchoccasions not only old scores aresettled but also new accountsopened. When Nehru had topresent the Budget after the suddenresignation of TTK he omitted thedecimals and the dots in theallocations of different sectors ofdevelopment making the financialstatements look weird. When anMP pointed out that he replied withhis red-rose button-hole smile: ‘Inmatters of high finance, I am a birdof passage’.

Humour in Parliament lessenstension, lightens strain andbrightens the business of thebudget. It is said that if dissentdeepens democracy, humour uplifts

K K Khullar

Budget Humour

it. When Piloo Modi, a rarecombination of bulk and brain waspresent in the House, there neverwas a dull moment. A heavy-weightMP he often made light-weightremarks sending the House topeals of laughter. Once during abudget session when only asummary of the financialstatements was circulated, Modiinsisted that the whole report belaid on the table of the House. Thethen-Chairman of the Rajya Sabhapleaded that the bulk of the reportwas frightening. To which Mr.Modi replied: ‘I have never beenfrightened by the bulk.Undoubtedly he was the bulkiestand the wittiest member of theParliament. When someone calledhim a fool, he replied ‘Yes, I am afool who is licensed to make wiseremarks on the foolish deeds ofwise-men’. When the verymention of CIA made mouse ofmany a lion he had the guts tocarry a placard on his back saying‘I am a CIA agent’.

B

BUDGET

An annual budgetis the financial

horoscope of thecountry. It heals

with humour whatit hurts with wit


However, he was best when hecould laugh at himself. When an MPwent to the extent of calling Modia dog a ceaselessly barking at someimaginery shadow, he retorted:“You have found a dog in me and Ifeel so relieved for you are a pillarand I, as a dog, am always in searchof a tree-trunk or a pillar so that Ican ease myself leaving a scent thatI am within my own territory”. It issignificant that nobody resentedModi’s remarks for they werealways without malice.

When Rao Birendra Singh, theMinister of Agriculture whom nonecould out-wit on agriculturalmatters, particularly agriculturalstatistics exported 15000 tonnes ofsugar when it was so much neededin our own country, Modi stronglyresented. The Minister explained:‘Compared to your size, Mr Modi,the quantity is very small’ theirrestible Modi snapped back:‘Several things compared to my sizelook small, including you, Mr.Minister’.

Modi was unbeatable when thediscussion came to essentialcommodities, water scarcity orprice-rise of consumable items.When water supply in the SouthAvenue where MP’s reside wasdisrupted: Mr. A.G. Kulkarni raisedthe issue in the House and said thathe had discussions with the Ministerof Works and Housing who advisedhim to have a dry bath. Piloo Modirose to say: ‘for dry bath you neednot go to the bath-room’. Modi whomade a sad nation laugh almostevery day in the Parliament was aserious-minded person in his lifeoutside Parliament. The bestbudget, he said, was one whichsatisfied the house-wife because

she had to run the house. ‘Whatabout house-husbands’? askedsomeone. In such situations, moreoften than not, they run away fromsuch situations, was hischaracteristic reply. If Modi werealive today he would have given ussome good jokes on onions like thejokes of Fikr-Taunsvi, the Urdusatirist who wrote a daily column‘Piaz ke Chilke’(The Onion’s Skin)in daily ‘Milap’ ‘Count your onions’,he might have told our MP’s.

Over the years the Indian budgetis generally marked by threefeatures; a new Budget-Head, afew couplets in Urdu, Tamil orBengali depending on the choice ofthe FM and some economymeasures. In United States whenPresident Roosevelt was informedby the Chancellor of Exchequerthat 20 horses have been removedfrom the White House as a measureof economy, he casually enquired:‘Where have they been lodgednow? In Old Castle Sir’ came thereply, “will they eat less hay there?the President asked. There are alsosimilar jokes attributed to SardarPartap Singh Kairon, the CM of theerstwhile united Punjab abouteconomy measures. Asked whatmeasures he has taken to cut downunnecessary expenditure inadministration he replied: I have toldmy officers to use bicycle duringtheir tours in the district, learn typingand talk to people in mother-tongueor the local language’. A nonsenseCM he hated the humbug and thehypocrisy, his satire was biting.

An annual budget is the financialhoroscope of the country. It healswith humour what it hurts with wit.In 1957 during discussions on themotion of thanks on the President’s

Address on the eve of Budgetsession, A.B. Vajpayee stated thatif Chouen-Lai is coming to NewDelhi he is certainly not coming todiscuss weather. He is also notcoming here to explain the Chinesetechnique of planting and producingrice. Let us not delude ourselves.It is clear that the talks would beon border dispute. How far ourbeloved PM is prepared to discussthis matter. I fear that we want tobuy peace with the surrender ofAksai Chin.

This was proved prophetic in1962 when the Chinese invadedIndia. When Nehru described AksaiChin as a wasteful land where nota blade of grass grows, Mr.Mahavir Tyagi stood up andsaid:’Sir, not a single hair grows onmy head, does it mean that it shouldbe chopped off. The sarcasm of thecomment, so very telling that thewhole House applauded Tyagi.

Again when the FinanceMinister Dr Singh stated that hisbudget will change the direction ofthe winds, Vajpayee rose to say: butSir, can it be said with confidencewhether the change in the directionof the wind will help rowing the boatto the shore or will it lead to awhirlpool? Newton’s law, saidVajpayee, does not apply to prices.By Newton’s law what goes up,comes down. It is rather sad thatwhen Mr Vajpayee became thePM, the sarcasm vanished and thejokes became subdued.

The word ‘Budget’ is of Latinorgin which means a bag. Theancient Gals used to carry bagson their shoulders while going longjourneys in search of trade,commerce and other transactions.On return they would make


financial statements of profit andloss. And that is the origin of thebudget which means annualstatements of income andexpenditure. The Bag became aBriefcase in Victorian England.The briefcase which Gladstonecarried is still preserved in theBritish Parliament. The BritishFM introduces the budget sippingchampagne. In India it is ‘acquapura’ to stimulate economy. C.D.Deshmukh had a glass of milkbefore him which he seldomdrank, Morarji Desai hadsomething else while MadhuDandavate believed in a glass-lesslaunch of his budget.

A national budget in ademocracy like India must reflectthe aspirations of the people i.e. the‘demos’ as also the governmentalmeasures for social justice, equityand equality. While the first budgetin British Parliament was presentedin 1773, in India it was presentedfor the first time in 1860 by JamesWilson, the Finance Member of theViceroy’s Executive Council.Known as the Father of the IndianBudget he followed the Kautilyanprinciple that the best budget is onewhere income balancesexpenditure. The British budget-makers used to say that the Indian

budget can be a gamble in themonsoons. But things havechanged. It is not so even in tsunami.Indian budget is sound and stableand has withstood many ups anddowns.

India has a history of some livelybudgets over the years. FinanceMinisters such as C.D. DeshmukhMorarji Desai, V.P. Singh, MadhuDandavate. Going back to the dayswhen the Estate Duties Bill wasbeing passed the inimitable Gadgilrose from his seat and said: ‘I haveadvised all the rich people ofBombay to die before the Bill ispassed and becomes an Act. Whenasked what exactly was meant byEstate Duty, he replied, if you haveone coat in the summer and two inthe winter, you are liable to pay theEstate duty. ‘What about two wivesin succession’? That would beDeath-Duty’ was the immediateretort.

In recent times Yashwant Sinhawas known for his ‘Rolling Budget’as against the ‘Dream Budget’ ofour present Finance Minister.

Financial wit and budgetrepartee is not everybody’s cup oftea. It is not even everybody’s cupof coffee. But if it is tea, I will liketo have coffee and, it is coffee, I

will prefer tea is the reaction ofIndia’s Aam Aadmi’ who is neversatisfied. That is the beauty and thecompulsion of our democracy.Chidambaram’s Budget and LaluPrasad Yadav’s 4th Budget isdefinitely for the ‘Aam Aadmi’, thecommon man.

The Railway Budget providesmore lighter moments than theGeneral Budget. Many years agowhen Lal Bahadur Shastriannounced more and better facilitiesfor women passengers, someoneremarked that the Minister hasentered a wrong compartment. Buttoday that compartment is ourpriority compartment. There arealso jokes about the ‘ZenanaTickets’, ‘Half-Tickets’ and‘Without Tickets’, There is also‘Platform Humour’, ‘Humour onthe track’ and ‘Humour Offtrack’,

According to an ancient Indianproverb two visitations areabsolutely certain in life, the visit of‘Yam Raj’ (The Death Angle) andthe visit of ‘Kar Raj (The Tax-man), The former comes only oncein life, the latter every year with acopy of ‘Saral’ in one hand and the‘Refund Voucher’ in the other.Between the two hangs the belovedbudget.

(Courtesy: Kurukshetra)

Dear Reader,

In the run up to the Union Budget 08-09, this issue of Yojana carries a motivational story onIndia’s oldest income-tax payer—FD Engineer; alongwith a piece on Budget Humour. The nextissue will include Budget Basics and Budget Expectations, among others. As the Union Budget08-09 will be presented towards the end of February 08, the March 08 Special Issue on Budgetwill be a delayed one. Kindly bear with us.

Happy Reading!

- Chief Editor


The Union Cabinet has givenits approval for placing thedraft document of the 11th

Five year plan (2007-12) beforethe National Development Council(NDC).

With the Cabinet nod, thedocument has been circulated tochief ministers for the NDC.Once cleared by the NDC, thePlan would come into force fromApril 1.

It needs to be mentioned that as manyas 27 detailed national targets have

CABINET CLEARS DRAFT OF 11TH PLANbeen set with an aim to implementthem during the Plan period. In areasrelated to income and poverty, thetarget is to achieve an average 9 percent GDP growth in each of the fiveyears. Similarly, a 4 per cent growthis being targeted in the agriculturesector. The government has set atarget of generating 70 million newjobs along with bringing downunemployment among the educatedsegment to less than 5 per cent.

In the field of education, the 11thPlan target is to bring down dropout

rates from elementary school from52.2 per cent in 2003-04 to 20 percent by 2011-2012 as well asincreasing literacy rate for peopleabove 7 years of age to 85 per centby 2011-12.

In the area of health, the target isto reduce infant mortality rate to28 and maternal mortality rate to 1per 1,000 live births by the end ofthe Plan. Under the targets forwomen and child development, theplan is to raise the sex-ratio (forage group 0-6) to 935 by 2011-12.

Q2 GDP GROWTH SLOWS TO 8.9%Full-year outlook remains 9%

A slowdown in manufacturing saw gross domestic product (GDP)growth for the second quarter of the financial year slow to 8.9per cent against 10.2 per cent in the same period last year.

Data released by the statistics office saw manufacturing grow at itsslowest pace in the last two-and-a-half years, at 8.6 per cent. Growththis quarter was mainly on account of agriculture and services (see chart).

In terms of the first half (April to September 2007-08), the growthrate declined to 9.1 per cent from 9.9 per cent in the same period lastyear.

The Cabinet Committee onEconomic Affairs approvedthe cent per cent centrally-

sponsored scheme of post-matriculation scholarships forstudent belonging to minoritycommunities. It will involve anexpenditure of Rs 1,530 croreduring the 11th Plan.

Criteria

A total of 15 lakh scholarships

Scholarships for Students from Minority Communitieswill be given during the Plan periodfrom 2007-2012. They will beawarded to those fulfilling themerit-cum-means criteria andstudying in any registerededucational institution.

Of the 15 lakh scholarships, 30per cent had been reserved forwomen. And, all students comingfrom families with an annual incomebelow Rs 2 lakh will be eligible. The

cut-off mark for the matriculationlevel was set at 50 per cent.

Third Scheme

This is the third such schemeannounced this year for theeducational uplift of minorities. Thetwo schemes announced earlierare Coaching & Allied Scheme forMinority Communities Studentsand Merit-cum-Means ScholarshipScheme for Minority CommunitiesStudents.

IN THE NEWS

Documents

January 2008 Vol 52 - Yojanayojana.gov.in/cms/(S(v1ioye4534ijobrqz1t5cc45... · 4 YOJANA January 2008 ECONOMIC INDICATORS ANNUAL INDICATORS Units 2000-01 2001-02 2002-03 2003-04 2004-05