Strategies for Poverty Alleviation through DoveTailing the Potential of Microfinance Practices with

1
Strategies for Poverty Alleviation through
Dove-Tailing the Potential of Microfinance
Practices with Non-Timber Forest Products from
Dipterocarps Lessons from India
Prof. B.P. Pethiya, Indian Institute of Forest
Management, Bhopal 462 003 (INDIA). Email-
pethiya_at_iifm.ac.in
2
Poverty and expected role of Forests
Your views!
3
How could the poverty be alleviated ?

• To whom we consider poor ?
• Are the persons below poverty line, based on
  family income
• Reasons for low income ?
• Not economically active due to absence of
  productive assets
• Think of action required ?
• Make them economic active How?
• What about finance required ?
• Look far financial resources

4

• IS FORST AN ECONOMIC ASSET FOR POOR ?
• Major environmental asset and as secondary
  economic asset
• Economic assets for poor Pre-requisites Funds
  and appropriate technology
• Poverty Government programs and non
  accessibility to formal lending options
• Alternative strategies for poverty alleviation-
  dove-tailing potential of microfinance practices
  with NTFPs from dipterocarps based on the
  experience from India.

5

• NTFPS FROM DIPTEROCARPS IN INDIA
• Timber has become the most important economic
  product from dipterocarps
• Does not have much impact on rural communities.
• Appreciation to their value to rural communities
• Concentration in two main regions, South Asia and
  Southeast Asia.
• Shorea robusta (local name Sal) tree yields many
  of these products.

6

• Leaves- good source of income to the tribal in
  India
• Sal is important producer of oleoresin in India.
• (Used as a lubricant and in soap
  making)
• Cinnamomum camphora found in North East India ,
  yields camphor

7

• Leaves and bark of several dipterocarps are a
  source of tannin.
• Few dipterocarps (Shorea roxburghii )
  particularly are known to host the lac
  insect (Lacifer lacca),
• Minor products derived from the wood - firewood
  and for making charcoal.
• ( Briquetted charcoal and sawdust are good
  fuels for domestic and industrial purposes)

8

• POVERTY ALLEVIATION THROUGH NTFP VALUE ADDITION
• Value addition options.
• Based on traditional knowledge
• Enough scope to augment the value addition by
  improving efficiency and productivity- Pre Post
  harvest care

9

• Lack of choices for
• microfinancial assistance
• Seasonality of NTFPs and un-accessibility to
  formal lending system
• Exploitation- exorbitantly high interest rate,
  Distress sale of NTFPs without value addition
• Experiment of providing microfinance advances
  repayment in small installments, suitable to
  their cash in flow got rid of exploitation.

10

• Study also proves that
• provision of microfinance facilitated
• Adoption of appropriate technology,
• Conserving the environment (with specific
  reference to NTFP),
• Relieved forest dwellers from vicious circle of
  exploiters

11

• Low share of poor in trade chain of plates made
  from leaves of Sal (dipterocarp family)
• In India, especially in eastern part, the leaves
  of Sal are being used for making plates and cigar
  wrappers.
• Similarly, the parts of the trees like barks of
  some species of dipterocarps trees are used for
  medicinal purposes.
• At present, the value addition gives pittance to
  tribals and huge profit to traders ( 7,700 )

12

• Export of Sal leaf plates is rising - due to
  eco-friendly, hygienic and biodegradable with
  least risk to cause pollution.
• In case of wood resin (jhuna) the profit margin
  ranges from 400 to 700 .
• Maximum benefit to the producers-
• advance machine with lamination facility which
  not only improve the earnings but also enables
  them to form their groups for their economic
  empowerment and sustainability.
• Already some groups in Ghatgaon and Banspal block
  have taken lead

13

• Prospects for value addition options for
  enhancing income of poor
• Forest dependant poverty stricken people do not
  have hoarding capacity
• Tendency to enhance immediate gain by increasing
  quantity without bothering about future
  reduction in productivity.
• Scope for enhancing value addition simply by
  minimizing the wastage by proper extension
  involving NGOs.
• Advance trading of NTFPs
• NTFP traders have accessibility to the market,
  information and infrastructure which otherwise is
  not availability to the poor.

14

• STRATEGIC OPTIONS THROUGH
• POTENTIAL OF DOVE-TAILING
• MICROFINANCE
• WITH
• DIPTEROCARPS NTFP VALUE ADDITION

15
Great potential for microfinance to play a
pivotal role
Distress sale
Lack of Financial support to acquire the
technology due to lack of physical collateral
Primary NTFP collectors are being exploited
on many fronts
Lack of value addition skill, awareness
Lack of awareness non-availability to appro
technology for value addition
Lack of Local institutional support for
forward linkages
16
(No Transcript)
17

• Providing MF based on social collateral by
  formation and linking SHGs to CBs
• Microfinance includes the entire range of
  financial services ( Savings, Credit Insurance)
  
• In India, about one-third of rural people are not
  covered by banks- considered individually as
  unbankable.
• Now CBs are encouraged by the NABARD to finance
  the SHGs without collateral.
• To facilitate the poor, NABARD has also
  simplified the guidelines for CBs.

18

• The NTFP collectors can form SHGs for such
  purpose.
• The SHGs mostly women groups, who have felt the
  urge to come together to tackle socio-economic
  problems through group action.
• In India, more than 95 are women SHGs, which are
  linked to CBs for obtaining MF .
• The Bank-SHG route leads to empowerment of the
  poor people and, therefore, after sometime, the
  SHGs need no external support to continue with
  its activities.

19
Meaning of Self Help Groups ( SHGs)

• Homogeneous - common problems Cohesiveness
• Size- Small, 10 to 20, mutual trust, transparent
  decisions
• Inculcate Savings habit (thrift) - Pooled saving
  is bankable, inter loaning
• Poor should learn- all resources including
  financial resources have a cost and thus required
  financial discipline

20

• Change in mindset - caused and will lead the
  movement to gain the desired momentum in SHG-Bank
  linkage programme .
• Medium of SHGs - powerful social collateral, very
  high degree of impact efficiency without much of
  costs to the financial intermediaries.
• Donor agencies - facilitate the community
  structures to establish common funds before
  withdrawal..
• The SHG- Bank linkage Model- II lt
  NABARD-Bank-SHGgt, where Bank directly financing
  SHGs with NGOs acting as facilitator, is the
  most popular model.

21
SHG BANK LINKAGE MODEL - I
FORMING AND NURTURING
Bank

• SHGs

SAVINGS
CREDIT LINKED TO SAVINGS
Members
22
SHG BANK LINKAGE MODEL - II
NGO, GO, Federation of SHGs
FORMING, NURTURING MONITORING
Bank

• SHGs

CREDIT LINKED TO SAVINGS
SAVINGS
Members
23
SHG BANK LINKAGE MODEL - III
NGO, Federation of SHGs
FORMING, NURTURING, MONITORING
WHOLESALE CREDIT
CREDIT
SAVINGS ?
Bank

• SHGs

SAVINGS ?
Members
24

• Promoting organizations to develop appropriate
  technology for dipterocarps NTFPs
• Technology Information, Forecasting and
  Assessment Council (TIFAC) is an autonomous
  organisation aimimg to formulate preferred
  technology options for India.
• Technology for moulding Sal leaf plates and
  bowls by using biomass as alternative energy
  source have been developed by IIT, Kharagpur
  (IITK) and promoted by TIFAC.
• Moulded leaf plates are excellent replacement for
  conventional plates and bowls made of stone/
  clay/ glass/ plastic/ metal.
• Now made it suitable to rural areas by using
  abundantly available biomass as an energy source
  alternative to electricity.

25

• The salient features of the technology are
  Simplicity, Affordability, Portable nature of the
  device, Less drudgery to operators, and Locally
  available raw materials.
• This technology is applicable in the
  Sal-dominating forested areas in Southern and
  South eastern countries of Asia.
• This technology can be used by a person
  irrespective of gender and age (12-72 years)
  successfully.

26
Non conventional energy press for mounding sal
(Shorea robusta) plates
27
Sal plates produced with non-conventional press
28
Training for manual press for mounding sal
(Shorea robusta) plates
29
(No Transcript)
30
(No Transcript)
31
(No Transcript)
32

• Augmenting horizontal integration of MF with
  adoption of appropriate value addition technology
  for promotion of dipterocarps NTFP based micro
  enterprises
• The NTFP based micro enterprises are neutral to
  scale, particularly when restricted to primary
  processing technology.
• Secondary processing technology- principle of
  economies of scale has to be taken into
  consideration.
• SHGs based model cannot reach the ultimate end
  consumer due to small scale of operation.
• Necessity to create either a two tier or three
  tier structure by way of forming the clusters
  and/or federations of SHGs to have a better
  accessibility of the up country market with
  economies of scale.

33

• Role of NGOs- critical in educating members of
  SHGs about the formation of cluster and
  federation, alongwith imparting the proper
  training for managing the institution.
• Observed that appropriate technologies developed
  for NTFP value additions at primary level
  targeting poor also requires horizontal
  integration with MF apart from the institutional
  support.
• Observed that majority (in over all, 71) of the
  respondents surveyed have shown their willingness
  to adopt NTFP value addition technologies,
  subject to the availability of the MF.
• Model for adoption of appropriate technology for
  NTFP valuation with microfinance-

34
HORIZONTAL INTEGRATION
Higher revenue generation through accessing
up-country market
VERTICAL INTEGRATION
Adoption of Appropriate Technology
Micro finance for NTFP based Micro enterprise
Value Addition
Imparting Training by NGO/FD
Storage and Post Harvest Care
Imparting Training by IITK
Harvesting and Collection
Imparting Training by NGO/FD
Imparting Training by NGO/FD
Pre-Harvesting Care
Provision of Micro finance for Consumption Needs
of Poor
Formation of Groups
Institutional Support
Forest Dwellers
Fig.1 Model for adoption of appropriate
technology for NTFP valuation with microfinance
provisions
35

• Taking advantage of Community Participation
  experience of JFMCs in formation of SHGs
• The involvement of the community participation
  through group approach has been a very successful
  model in India .
• The JFMCs have been converted into SHGs.
• These SHGs have been provided access to the MF
  without physical security through Bank linkage
  program.
• At primary level, simple technology like making
  plates and bowls can be taken up.
• At intermediate level, further processing like
  making cigar wrappers and herbal medicines can be
  taken up. In complex processing, big plants for
  medicinal purpose can be thought off.

36

• Involving Non Government Organizations (NGOs) /
  Voluntary Agencies
• Role of NGOs / Voluntary Agencies are very
  crucial in forming SHGs by extending awareness
  amongst the poor.
• NGOs can also interact with government forest
  department officials and facilitate the formation
  of SHGs amongst the members of existing JFMCs.
• NGOs can help SHGs to take loan under SHG-Bank
  linkage programme for microfinance , which can
  be used, for setting-up the micro-enterprises
  based on NTFP, with appropriate technology.
• It was observed that number of respondents
  mentioned about their apprehension for the
  availability of market for such value added NTFP
  products.

37

• Not much problem in selling NTFP either in raw
  form or having very little value addition using
  primitive technology.
• Forward linkages for marketing of value added
  NTFP products also to be considered along with
  providing accessibility to microfinance.
• For achieving objectives in more efficient and
  effective way, strategically, there has to be
  involvement of NGOs.
• Catalyst role has to be played by some voluntary
  agencies/ NGO to provide the required market
  linkages for success.

38

• Creating a three tier institutional mechanism
• Need of institutional mechanism to support and
  co-ordinate the whole NTFP value addition network
  thereby enable them to reap the value addition
  and micro credit fruits.
• In addition to the Sal leaves, Sal seeds gives
  the Sal seed fat from the Sal seed kernel.
• Crude Sal oil and the oil cake has byproduct.
• The Sal seed oil can have various grades like
  refined grade suitable for edible purpose,
  whereas the grade I is suitable for making
  Vanaspati (hydrogenated fat).

39

• Similarly, the grade II Sal seed oil is meant for
  industrial purposes.
• Local people are using the Sal seed fat for
  cooking purposes also and some are using as a
  substitute for coca butter.
• The solvent extraction for Sal seed oil can be
  taken by the federation and not by SHGs.
• The fund requirements will also be very high
  which may be either covered by old and matured
  microfinance institutions or from formal lending
  institutions.

40

• Three tier institution and possible type of value
  addition micro enterprise for NTFPs from Sal-
  are summarized in following slide.

41
Three Tier Institutional mechanism and possible
type of value addition ME for NTFP from Sal
Solvent oil Extraction
Federation
Level-4

• Fully automatic NTFP ME

Level-3
Cluster
Cluster
Mechanized Sal Plate m/c
Level-2
SHG
SHG
SHG
Manually operated ME
Level-1
Member
Member
Member
Member
42

• Determining pre-requisites for NTFP based micro
  enterprise
• Minimum viable quantum of NTFP and infrastructure
  to utilize the potential of MF to the fullest
  potential.
• Assessment of capacity building needs and to
  identify institutions who can impart the
  required training.
• Pre-mature formation of federations to be checked.

43

• EXAMPLE OF ADOPTING DIPTEROCARPS BASED NTFPS
  VALUE ADDITION TECHNOLOGY WITH MF PROVISIONS
• Can be inferred from financial analysis that, if,
  on an average a member can earn Rs. 60 per day.
• Assuming for 5 yrs life, pay back period would
  be less than 2 yrs , NPV _at_ 20 Rs. 48,500/- and
  IRR is 83, can cover the risk involved and
  inflation.
• Role of MF in poverty alleviation is clearly
  evident - five members of SHG, take a MF loan of
  Rs. 6000/- each for 5 yrs. _at_ 12 PA, then the
  annual installment will be only Rs. 1665/-per
  member for 5 yrs, inclusive of int and repayment
  of principal amount,
• Where as surplus would be of Rs 5250/- per
  member, in addition to labour charge of Rs. 30/-
  per day.

44

• CONCLUSIONS
• Alternative strategies for poverty alleviation
  through dove-tailing potential of MF practices
  with value addition options for NTFPs from
  Dipterocarps can be formed, based on experiences
  from India in order to promote the socio-economic
  role of forests, particularly to address the
  subsistence economic needs.
• Accessibility to capital without physical
  collateral and adoption of developed technology
  of value additions will lead to augment their
  livelihood options.

45

• Dove-tailing of microfinance will also arrest the
  undue competition amongst poor forest dwellers
  leading to premature and unsustainable harvest of
  NTFPs from Dipterocarps for immediate financial
  gains.

46
Thank you for your attention!