Micro Finance Model and its Impact Study

Village Immersion Program Report

By
Piyush Pallav Das G15098
Pranav Mehrotra G15099
Prashant Singh G15100
Rahul Bighane G15101
Rajdeep Basu-G15102
Raju Kumar - G15103

R
Date: 24-06-2015

Micro Finance Model and its Impact Study

PREFACE
M.K. Gandhi once remarked that soul of India resides in the villages. Nearly 60 percent of the
countrymen are still living in the villages. Development of any area depends upon the
development model we choose. Our country chose centralized planning in the early 50s and
later on shifted to mixed economy. In the process of the development, it was assumed that
benefit of the development would trickle down to the bottom and all of us would taste the
fruit of development. But it could not happen and condition of rural India marginally improved
since independence. Even existing banking system were not able to stand on the expectation
of the Government of India and Rural populace. In this backdrop, Micro Finance model was
adopted and injected life on the rural economy.
Micro Finance model is providing the micro credit/finance to those people who otherwise not
able to get it through traditional banking system. Ultimately, the goal of microfinance is to
give low income people an opportunity to become self-sufficient by providing a means of
saving, borrowing and insurance.

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Micro Finance Model and its Impact Study

Table of Contents
PREFACE.............................................................................................................................................. 2
1.

Objective of the study ..................................................................................................................... 4

2.

Introduction to Microfinance.......................................................................................................... 4

3.

Delivery Models of Microfinance .................................................................................................... 6

4.

Kalamandir (NGO) and Baharagora Village ..................................................................................... 7

5.

Survey Data and Findings ................................................................................................................ 8

6.

Challenges ....................................................................................................................................... 9

7.

Recommendations .......................................................................................................................... 9

8.

Conclusion ..................................................................................................................................... 11

9.

References .................................................................................................................................... 11

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Micro Finance Model and its Impact Study

1. Objective of the study

In India, there are so many micro lending services to the poor and hence many delivery
models institutions are working. Some are in very good condition and have been
developed over a period of time in terms of lending, training to their clients for saving
and access to financial services has been recognized as small level entrepreneurship.
Some are in bad condition and struggling for their existence.
The present study is about the microfinance program implemented by the NGO
Kalamandir in the village of Baharagora situated in the south east corner of Jharkhand,
India.
1. The main objective is to identify the main problems of microfinance program in
Baharagora.
2. The other objective is to survey the women of Baharagora, trying to understand
their problems and finding/suggesting solutions of the problems faced by the
MFI.

2. Introduction to Microfinance
Origin of the micro finance can be traced back to the beginning of the cooperative
movement in the Germany started in 1944. This movement was led by Raiffeisen
society. Enactment of the credit society act of 1904 could be considered as the
beginning of the Micro finance in India. Then came the a committee called as All India
Rural Credit Review committee based on their recommendation Small Farmer
Development Agency( SFDAs) were formed in each state. In 1975 Regional Rural Bank
(RRB) came into existence which is also known as Grameen bank or Poor Mans Bank.
All these institution failed to really affect the lives of poor positively because these
models could not generate sustainable income generating opportunities. In view of
this Hashim Committee was formed subsequently based on the recommendation of
this committee SwaarnJayanti Gram Swarojgar Yojana (SGSY) came into existence.
SGSY worked on the group approach also known as Self Help Groups (SHGs). SHG was
further linked to the Banks by the initiative taken by NABARD. NABARD is also
providing Revolving Fund Assistance to NGOs, SHG federations and Credit Union for
on-lending to SHGs and individual.
In all these schemes poor and disadvantaged section of people have been given the
small credit without any collateral. Since poor and disadvantaged people hardly have
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Micro Finance Model and its Impact Study

any collateral to show to the Banks so they automatically driven out from the
traditional banking system. They wanted to have credit but were unable to get it. In
this backdrop, government started new finance model which can actually give them
credit without any collateral and this is the main reason for the success of Micro
Finance model in India.

Micro Finance may be defined as "provision of thrift, credit and other financial services
and products of very small amounts to the poor in rural, semi urban or urban areas
for enabling them to raise their income levels and improve living standards. At
present, a large part of the micro finance activity is confined to credit only but it can
also be extended to insurance and social activities. Women constitute a vast majority
of users of micro-credit and savings services. Although males are also part of the micro
credit but their default rate is much higher than the female counterpart.
Real empowerment of women is only possible when they are economically
independent. Through this model women could utilized their potential and start a new
venture to support their family economically. Impact of micro finance is appreciable
in bringing confidence, courage, skill development and empowerment in women.
1. Change in social welfare policies and focus on economic development and job
creation at the macro level.
2. Encouragement of employment, including self-employment, as a strategy for
improving the lives of the poor.
3. Microfinance Loans are generally provided to low income group
4. Loan amount are generally low in amount.
5. Frequency to repay of EMIs are generally high, Weekly, Monthly etc.
6. Microfinance loans are generally provided without mortgage

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Micro Finance Model and its Impact Study

3. Delivery Models of Microfinance

Microfinance is a dynamic field and there is clearly no best way to deliver services to the
poor and hence many delivery models have been developed over a period of time.
1. Self Help Group Model: The SHG model has evolved in the NGO sector and works on
the belief that the poor can help themselves and the NGOs can provide networking
and education to them. Almost 90% of the SHGs in India are female only due to the
known fact that worlds poorest households tend to rely more heavily on income
generated by women of the house. The concept of SHGs is predominantly used in the
case of economically poor people, generally women, who come together to pool their
small savings and then use it among themselves. In India SHG is not limited to women
only but they are more participative than men. As per government mandate only
women who belong to either SC, ST or OBC community can form SHGs. They can
choose a woman accountant outside the group only when they are not literate enough
to keep a record of day to day transaction. They can lend in themselves also before
going to any bank. Sponsored Bank opens a bank account in the name of group and
lend them as per their financial capacity. In this model Whole group is responsible for
the repayment of the money. If any member defaults whole group has to pay the
price.
2. Federated Self Help Group Model: Federation of SHGs bring together several SHGs.
Compared to a single SHG, federation of SHGs have more than 1000 members. With
the help of federations, an NGO with limited resources can have an impact on a large
number of people.
3. Grameen Bank Model: The Grameen Bank model has been a case of exceptional
success in Bangladesh. Significant features of this model are low transaction costs, no
collateral, re-payment of loans in small and short interval and quick loan sanctions
with little or no paper works and no formalities.
4. Co-Operative Model: This model works on the principle that every community has
enough human and financial resources to manage their own financial institutions. The
members who own it are the members who use its services and can come from
different sections of same community like agriculture, retail, wholesale etc.

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Micro Finance Model and its Impact Study

4. Kalamandir (NGO) and Baharagora Village

Kalamandir aims to achieve "Social synergy and Human harmony through Arts and
Aesthetics". It works to promote tribal/folk/regional/cultural heritage and art forms. It plans
to act as a resource center to disseminate and exchange cultural ideas and ethos among
different linguistic/regional communities. Its main activities include
1. Artisan Support Programme
2. Support Program for Health Care, Sanitation, Drinking Water and Education.
3. Savings-Micro credit/finance and Insurance

Approximately 100 km from Jamshedpur & 200 km from Kolkata. Baharagora is a very
important hub for transport as NH 6passes through it. Located at the southern end of
Jharkhand, Baharagora became a block in the year 1956. With a population of 187,000, the
local language in the area is a blend of Bengali and Oriya.

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Micro Finance Model and its Impact Study

5. Survey Data and Findings

Below mentioned are some of our findings on the micro finance model followed by
Kalamandir:
1. Provides lower rate of interest @ 10% per annum compared to other Microfinance
and Banking institutes. They have a repayment cycle of 10 months. This not only
ensures that poor people get month at a cheaper rate but also ensures that there is
enough time for them to generate money from the business in order to repay the loan.
2. A Loan processing time generally takes place between 1-4 weeks depending on the
documents (Adhaar card, bank account etc.) that are in place. Kalamandir helps the
rural people in filling the documents and creating bank accounts for transfer of money
post approval of loan.
3. Loans are given to women in rural areas and they have a 100% return rate without any
default.
4. Kalamandir is setting up institute for training women in various business activities to
make them aware and self-sustained so that they can grow their business.
We surveyed 40+ women in 2 villages near Baharagora and below mentioned are
some of our findings:

Women are involved in various kinds of business like Pan shop, business clothing store,
electrical shop, paper business, tailoring, embroidery, poultry farm, buying and selling
bags, Mudi business, milk business etc.
Many of these women have been associated with Kalamandir for 1-2 years and have
taken money on a regular basis with zero rate of default. Money taken by these
women is usually 10000 INR. Some of them have also taken loans from other institutes
like BANDHAN etc. (high loans > 50k).
These women are very happy with their business as well as their relationship with
Kalamandir. They want more loans in order to grow their business and are confident
to repay them on time.
All these women have their bank accounts open and have their MNREGA card created.
However, some of them are not aware of the benefits provided under MNREGA or
other government schemes. (e.g. INDRA VAS or Direct Benefits )
The villages are developed and there is minimal water and electricity problem. Banks
and ATMs are situated nearby and can be easily accessible by the rural people.
They want more training program e.g. candle training, stitching, clay pots etc. in order
to increase their business. The training centers should be located near to the village
so that they can easily.

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Micro Finance Model and its Impact Study

6. Challenges
1. No or limited Knowledge of government schemes available to People in rural areas.
2. Skill development is a major issue for the development of rural areas, if proper training
programs can be provided to the people then not only it will help earn more money
but also make them self-sustain.
3. Limited visibility of the new product available in market which can maximize the profit,
generally people are restricting themselves to traditional good sales.
4. Limited Knowledge on whole sale market and accessibility of the market.
5. Most of the people are illiterate and that is why access to information on new product,
market and schemes are limited.

7. Recommendations
1. People in rural areas are not fully aware of the Government schemes that are
already in place and no one comes to inform government benefits in the village.
KALAMANDIR should make the people aware of the government schemes and
benefits.
2. Training Programs needed to be conducted on a regular basis in designated
training centers that are situated near the village so that it can be useful the rural
people. This will ensure that the training imparted is used by them in order to grow
their business.
3. Some members of SHGs are also taking loan from other institution even on higher
rates. M/s Kalamandir can also consider it as indicator to raise their fund because
peoples capacity to take and repay loan has gone up. Currently loan amount given
to women are less than or equal to 10000 INR and in order to grow their business
these women require more money. Provision should be made by M/s Kalamandir
to increase the loan amount without impacting the repayment time or interest
rate.
4. SHG group members and individual should also be given awareness training
regarding development schemes and program sponsored by government.
5. Some of the members are interested to study at night when they are free. NGO
can arrange teachers at night and educate them as per their requirement.
6. Presently, there is no distinctive regulatory framework for the MFIs in India.
Regulation o MFIs is largely in the purview of the state governments. So there is
a need of an exclusive regulation to regulate to MFIs in India.
7. Proper training for the clients should be organized in an efficient way so that they
could know each and every small things about their debt
8. Ensure the uniform distribution of micro financing in areas around Baharagora. the
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Micro Finance Model and its Impact Study

Name

Father/
Husband Name

Business/Activities Bank

1 Patpur

Tukatuk
Ray

Sunil Ray

Saree Sale

Central Bank of
India

30/05/2014

10000

2 Patpur

Mamta
Karan

Bikash Kumar

Umbrella Repair
Shop

Central Bank of
India

30/05/2014

10000

3 Patpur

Shika
Devi

Ajit Das

Tailoring Shop

Central Bank of
India

30/05/2014

10000

30/05/2014

10000

Village

Last Debit

Amount

Ruma
4 Baharagora Mahanty

Samir Mahanty

Rice Shop

Central Bank of
India

Aradhana
5 Baharagora Dutta

Nitai Dutta

Soap Business

Central Bank of
India

30/05/2014

10000

Bandita
6 Baharagora Mitra

Bablu Mitra

Rice Shop

Bank of India

30/05/2014

10000

Sima
7 Baharagora Nandi

Chittranjan
Nandi

Road Side Food

Vendor

State Bank of India

30/05/2014

10000

Asha
8 Baharagora Shaw

Kanai Shaw

Gift Shop

Central Bank of
India

2/6/2014

10000

Sephali
Devi

Raghu Das

Pan Shop

Central Bank of
India

2/6/2014

10000

10 Mohanpur

Ganga
Rani
Dalai

Shakti Dalai

Shoe Shop

Central Bank of
India

2/6/2014

5000

11 Mohanpur

Snehalata Lt. BalaiChand

Mannala Manna

Bag Making

Central Bank of
India

2/6/2014

5000

12 Mohanpur

Uma
Mandal

Chinmoy
Mandal

Mudi

Bank of India

2/6/2014

10000

Suvendu
Mohanty

Saree Shop

Bank of India

2/6/2014

10000

14 Patpur

Pratima
Saha

Pradip Saha

Grocery Shop

State Bank of India

30/05/2014

10000

15 Nayagram

Menka
Patra

Aboni Patro

Rice Shop

Bank of India

30/05/2014

10000

16 Nayagram

Mina
Nayak

Akul Nayak

Ladies Corner

Bank of India

30/05/2014

10000

17 Nayagram

Malika
Shit

Narayan Shit

Custome
Jewellery Hawker

Central Bank of
India

30/05/2014

10000

18 Patpur

Jayanti
Gope

Cycle Repair Shop

Central Bank of
India

30/05/2014

10000

9 Patpur

Madhavi
13 Baharagora Mohanty

Dhirendra Gope

Sample Survey data of villagers using Kalamandir Microfinance program

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Micro Finance Model and its Impact Study

8. Conclusion
On the above findings we observe that certain milestones have been achieved by the
Micro Finance institutions but much more can and need to be done in order to
improve the livelihood of rural population.
There is a urgent need for joint collaboration between NGO and Government
institute to not only provide adequate monetary help to rural people to become selfsustained but also to ensure that the rural people are aware of the government
schemes like NREGA etc. and should create awareness among villagers and provide
training on various fields such as stitching, embroidery, candle creation, bags etc.
that will help them create and expand their business

9. References
1. http://www.kala-mandir.org
2. https://en.wikipedia.org/wiki/Baharagora
3. www.globalenvision.org/library/4/1039
4. www.isid.ac.in/~tridip/Teaching/.../Readings/Morduch-JEL1999.pdf

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