Let us take a look at three microfinance institutions to get a sense of the space two from an India, and one from Bangladesh.
SHARE Microfin Limited (SML), set up by Udaia Kumar, was in the news recently because of the securitisation deal it struck with ICICI Bank. Here is more info on SML:
SML targets its programs at the poorest rural women in Andhra Pradesh. Services are available to the bottom 50% of women living below the poverty line. A housing index and asset holding criteria are used to select clients. In order to be eligible, a woman must have total asset holdings of less than US$500 and per capita family income of less than US$7.50 a month. A study conducted by the International Food Policy Research Institute found that 85% of SMLs clients are in the bottom 20% below the poverty line, reaffirming that the institution effectively targets the poorest of the poor.
SML has an authorized capital of US$3.3 million, of which US$1.2 million was contributed by 26,034 poor women clients. SMLs clients have also contributed 99% of total equity; only 1% is owned by outside sources. Two representatives of the shareholders, or the clients of SML, sit on the Board of Directors. This creates a unique situation: a microfinance institution which is truly owned and managed by poor women.
As of February 2002, SML had 57 branches operating in 13 districts. 105,696 members, all poor rural women formed 21,152 borrower groups. In total, over US$22.5 million has been disbursed since 1993 by SHARE and SML, with a repayment rate of 100%. SMLs operational self-sufficiency stands at 104%, with a financial self-sufficiency of 96%. By March of 2006, SML plans to have served 300,377 women at 150 branches with total loan disbursements of US$64,919,564. The non-quantitative results are impressive as well a recent UNDP study on the empowerment of women found that SML clients have become much more active in making family decisions, sending their children to school, and practicing proper hygiene.
SMLs loan methodology includes an initial village survey and public orientation meeting, followed by the formation of borrower groups of 5 women. A center consists of 35-40 members, while a branch works with 2,500 women in a 25-kilometer radius. Loans are disbursed on a 2:2:1 staggered schedule to maintain incentives for repayment. Loan products include general, seasonal, sanitary, family, and leasing loans with repayments made over one year. Consumption loans last for three months, while supplementary loans have a duration of six months. Small enterprise loans last two years, while housing loans can extend up to four years.
BASIX, set up by Vijay Mahajan, also operates mainly in southern India.
BASIX is working in 9533 villages spread over 46 districts in 10 states. As on September 30, 2003 BASIX group as a whole was working with 1.36 lakh borrowers and cumulative disbursed Rs 1917 million . The outstandings stood at Rs 603 million with above 90 percent on time repayment rate. Nearly 40 percent of the loans were to women.
A vast majority of the borrowers of BASIX are the rural poor, particularly the landless and women. BASIX lends to them to promote self-employment. However, all the poor do not want to be self-employed. Thus BASIX also lends to rural commercial farmers and non-farm enterprises, which generate much-needed wage employment for the rural poor.
BASIX has adopted an approach to micro finance that serves the needs of different segments of customers through different channels. Its varied lending methodologies are aimed at reaching the poor at reasonable transaction costs. BASIX loans can be classified into (i) direct loans and (ii) indirect loans. Direct loans are extended to rural producers through a network of village/mandal based Customer Service Agents (CSAs), mandal/district based Field Executives and district-town based Unit Offices. Indirect loans are extended through intermediaries such as seed production organisers, who in turn on-lend to rural producers in their network. BASIX also lends to self-help groups (SHGs) of women set up by non-governmental organisations (NGOs).
Next Week: As India Develops (continued)