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• How did Micro Finance emerge?
    

• The process
    

• Our specificity: Interest Sharing System
    

• A growing market
    

• Need for search of new Donors
    

• Micro-Finance and Micro- Enterprises Development

How did Micro Finance emerge?

Micro finance is emerging as a major tool to reduce poverty in many countries as it helps in the creation and expansion of micro-enterprises by poor people. Significant work has been done by Micro finance Institutions (MFIs) in developing concepts and methods to provide financial services to the poor in a manner that is beneficial to both i.e. to the poor as well as to the MFIs. Many MFIs are adopting strategies to deliver micro finance in a sustainable manner but the fact is that a large number of them are still dependent on concessional funding for carrying out their operations.

The process

OUTREACH, since its establishment, has been conducting developmental work through Community Based organisation i.e., SHGs, CLAs (Cluster Level Association -Federation of 10-15 SHGs) and user groups. As it aims for the sustainability of the programmes, which are managed by the client community, it follows such an approach.

WOMEN’S GROUP ORGANISATIONAL STRUCTURE

• It has 1400 women SHGs i.e., 25000 members and 50 CLAs. 
• They have an owned fund of Rs. 30 million, raised through small weekly savings and lending activity among themselves on a service charge basis of their own. 
• Their funds have been rotated 2.5 times for the said purpose.

Though the SHG concept is picking up fast in our country and policies are favorable to Banks and other financial institutions for the linkage of SHGs, the financial assistance to the poor through SHGs has only less of a catch. In the past years, OUTREACH could only link 309 SHGs with the Banks and mobilized Rs. 30 million. Also, their support is not adequately meeting the members growing financial needs (only around 30 % of their financial needs were met) This produced inadequate returns and the inability to meet their deficits. Since this is the situation, as the poor members are not adequately assisted by the Banks for income generation activities and also with the view to cover the remaining SHGs’ financial needs OUTREACH decided to enter the Micro Finance Venture.

• It has decided to mobilize funds from inside and outside the country sources in the form of grants , soft loans as well as regular loans from banks, apex financial institutions and other developmental institutions.

• It has mobilized a loan fund of Rs. 5 million from SIDBI (Small Industries Bank of India) and started its Micro Finance business in August 2000.

As OUTREACH had some constraint with the guidance of SIDBI for lending, that is, loan should only be advanced for Non-Land based activities and as its clients are mostly based on land based sources of income it approached Ford Foundation and availed of a working capital of Rs. 5 million. 
Up until now (from August 2000- July 2001), as it is an initial start of banking activity for OUTREACH, 

• It lent up to Rs. 8,5 million to its clients for land based and non- land based income generation activities,
• The loans range from Rs. 5000/- to 50,000/- to individual clients based on the nature of the enterprise.

Illustration of process of lending:

1. Collect and consolidate requirements of agricultural inputs from members
2. Plan development programmes eg. Watershed
3. Solve SHGs problems
4. Purchase and supply inputs to SHGs in bulk
5. Appraise and recommend to OUTREACH for funding
6. Represent village/members needs in Government and other forums, eg. Electricity, water etc.,
7. Arrange and organize for SHGs training (skill training)
8. Represents and lobbies with institutions
9. Feeds information and news, eg. Government programmes such as immunization and welfare activities etc.
10. Promotion of individual and group enterprises
11. Encourage Community Action and Social Action Programs like road construction, drinking water etc.
12. Mobilization of resources from various sources (i.e Finance & Services)

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For the sustainability of the Community Managed Micro Finance program, as an initiation to the empowerment of the community, OUTREACH has also introduced the concept of the Interest sharing system from the beginning of the programme:
That is, OUTREACH, SHG, CLA and SIDBI receive interests of 4 %, 4%, 5% and 11%respectively.
By this approach:

• CBOs have taken full responsibility of the programme: from the selection of clients to recovery of loans to conduct impact study of the intervention of the programme.
• It has ensured 100% repayment
• It has made a provision to raise corpus fund in SHGs and CLAs to meet its operational costs.

Outreach has a supportive and facilitative role:

• It raises funds for specific projects
• Funds channelised through CLA to respective SHGs
• Groups enter into agreements with members on loans

Illustration of the relationships among OUTREACH - CLAs – SHGS
(figures is as on March 2001)

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As is well known, grant money for Micro finance operations is limited and is not available to meet the growing demand. Therefore, it is imperative that sustainability of Micro finance operations becomes critical for continued provisioning of financial services to the poor. MFIs are to critically review their loan and saving products, strategies, systems and procedures, human resource management and other related issues and bring in innovative changes to make Micro finance operation sustainable. Indeed, for many MFIs this would mean a hard look at the way they conduct business.

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As there is an increase in the demand for higher credit from its existing matured clients for increasing returns from their enterprises as there is also a steady increase in the no. of SHGs and CLAs every month in OUTREACH’s field projects the fund what it that it has, is inadequate to meet its business needs.

In addition as it has the aim of establishing a model of Community Managed Micro Finance programme, by CLAs, and as they want to have infrastructure like buildings, equipment like computers and conveyance for its staff like mopeds ( add to that the cost of personnel the cost of enriching skills in banking systems etc..), OUTREACH needs to have a “Capacity Building” fund. For this purpose, it needs a loan fund with a low rate of interest, of Rs. 30 million and a capacity Building grant fund of Rs. 3 million for a 2 year period.

Conclusion: As OUTREACH has very strong community based organisations (SHGs & CLAs) and committed staff in the field as well as at Head office, if a donor supports its requirements, it will definitely create a model of a People Managed Banking system in this country which could be replicable. 

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Enterprise development for economic sustainability is one of the off shoots of CLAs and SHGs. The programme brings the rural entrepreneur to the forefront and makes him/her a viable force, which is in tune with Outreach’s objective of facilitating the growth of SHGs/CLAs into Community Based Development Organizations (CBOS). Outreach has been supporting the upcoming SHG entrepreneurs and other members with the requisite information and linkages with relevant institutions such as Government departments, Financial Institutions such as SIDBI and local banks. The prominent features of the programme are 

• So far, 3146 women members from 771 SHGs have been assisted for income generation/ enterprise activities, with an average loan size of Rs.10,500/-

• 52 types of enterprises (Land Based – 8 and Non-Land Based – 44)have been undertaken by women members with the assistance from Outreach Micro Finance venture.

• 22 Outreach staff, 2031 SHG and CLA members have been trained on Micro finance, Micro enterprises, Crop Insurance and CBO Management. As a result of this, they have gained confidence.
  

Funds status for Outreach-Micro Finance venture, as on March 2003 (in lakhs)

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