Prabhakara S'

1
Microfinance and Financial Counseling skills
Role of NGOsPresentation at IIBF Seminar on
Financial Inclusion at Shimla

• Prabhakara S.
• Manager, Sa-Dhan Standards Team
• 20th October 2008

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Microfinance what is it?

• Microfinance services defined as providing
  financial assistance to an individual or an
  eligible client, either directly or through a
  group mechanism for an amount, not exceeding
  rupees fiftythousand in aggregate (Rs. 1,50,000
  if for housing purposes)

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Changing landscape of Microfinance
Demand from over 100 million Poor and Vulnerable
Households in India (in Billion)
Over 200,000 crore Rs.
While there has been Significant growth in access
to finance in the last decade, there is still
a huge unmet demand
10x Growth Factor
approx. 22,000 crore Rs.
Finance Needed by Poor Households (Intellecap
2007)
Finance Accessed by Poor Households (Sa-Dhan,
2008)
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Changing landscape of Microfinance

• NABARDs SHG-bank linkage programme services an
  outstanding portfolio of about INR 170b (3/08,
  Sa-Dhan Estimate) INR 35b savings (3/07,
  NABARD).
• Microfinance Institutions (MFIs) service
  outstanding portfolio of about INR 60b (3/08,
  Sa-Dhan Quick Data).
• Banks (credit) and Private Investors (equity) are
  now financing fast growing MFIs (22 MFIs with
  outstanding portfolio gt INR 500m).
• GoI has appointed NABARD to manage the
  Microfinance Development Equity Fund (MFDEF)
  with a volume of INR 2b State Governments are
  channeling funds into Microfinance (e. g. APs
  Indira Kranti Patham has lent annual average of
  Rs. 4,300 crore to SHGs)
• Development of credit services, examples are
  livelihood approach (e. g. BASIX,
  Dhan-Foundation, Sa-Dhan study 2008), insurance
  (e. g. BASIX), education (e. g. MaxWealth Trust,
  SKS)
• Urban Microfinance becoming growth driver, e. g.
  Ujjivan,

Over 100 million Clients in 2012-13
33.5 million clients in 2007-08
24.6 million Clients in 2005-06
lt1 million Clients in 2001-02
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Current Issues

• As the existing clients need higher higher loan
  amount as the loan cylcle graduates. Higher loan
  needs higher management skills.
• The clients already covered under the program may
  be better off. The new clients require more
  education
• Competition among MFIs, Govt Program NGO/MFIs
  MFIs and SHGs may target the SAME clientele.
  Clients would have a choice of financial services
  and of financial services providers
• Multiple borrowing
• Disintegration of SHG attracted towards forming
  grameen groups
• Signs of Declining in Recovery rates

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Profile of Un banked

• Lack of access to services/products.
• Lack of perception of the value of availing of
  formal services/products.
• Lack of information and knowledge of
  services/products.
• Inability to chose between alternate
  services/products (also service providers)
• Most vulnerable to uncertainties

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Financial Counseling

• Financial Counseling offers a meaningful
  solution for the clients (borrower) to gradually
  overcome their financial problem (debt) and
  improve their money management skills.
• Financial Literacy
• Financial Education
• Financial Counseling

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Importance

• Financial Institutions are successful when looked
  from the clients perspective.
• Understanding the poor and their life cycle needs
  allows us to understand their earning and
  expenditure patterns.
• The above understanding will help in developing
  curriculum of financial literacy for the
  clients.

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Purpose of Financial Counseling

• Examines ways to solve current financial problems
• Creates awareness about the costs of misusing a
  credit, improves financial management and
  develops realistic spending plans.
• Advises the distressed people to gain access to
  the formal financial system including banks.

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Types of Financial Counseling

• Ex-ante Counseling helps the borrower to decide
  upon the quantum of loans they can avail, based
  on their income profile and stream of cash flows.
  It attempts to influence the stability of the
  borrowers flow of income and expenses thereby
  lowering the probability of default.
• Ex-post Counseling occurs after a crisis event
  (when borrower has already defaulted one or two
  installments). It is curative in nature to
  prevent further default foreclosure

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Initiatives

• Bank led financial education
• RBI (CAB) and other banks websites
• Information on products services rural
  information kiosks, BCs
• Other information input/output prices, insurance
  products, weather information, health services
  etc.

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NGO Initiative

• Project on financial counseling service for poor
  self employed women started by SEWA in
  2001(project tomorrow)
• Purpose to develop test a financial curriculum
  to help participants to manage money
  productively, plan ways to increase assets,
  address life cycle events manage risks.
• Focused within Gujarat
• ISMW started 2005 with a commitment to spread it
  across the country.
• Many other NGOs initiated their work in the
  financial literacy education

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Some topics for Financial Education

• Financial Planning
• Decisions on Borrowings
• Savings
• Spending
• Making Investments

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Outcome of Financial Education/Counseling
Outcome of Financial Education/Counseling

• Ability to manage money
• Ability to take appropriate decisions for the
  future
• She/He may link his demand with that of
  products/services available in the system
• Now, the client himself demands for
  service/product
• Easy to link such clients with institutions. He
  will become responsive borrower.
• He demands financial information, uses the
  services
• Though there are some initiatives, there is a
  need for taking this agenda on a large scale
  involving NGOs others

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Role of NGOs Sa-Dhan

• initiated its efforts in facilitating financial
  literacy livelihood initiatives in developing
  trainers manual, materials for financial literacy
  etc.
• developed code of conduct for its member MFIs
• developed resource directory of trainers
• Other initiatives like meeting to discuss
  create awareness

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Role of NGOs

• Microfinance should be understood from the
  clients context. Otherwise it will become
  disastrous when size of loan increses.
• Nurturing, monitoring SHGs and extending
  handholding support to SHGs. Educating SHG in the
  area
• Implementation of code of conduct by Sa-dhan
  members
• Empowered to make/demand the desired services
• NGO should not be sympathized but should be
  empathized.

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Thank you very much

• I am looking forward to our discussion
• S. Prabhakara,
• Manager, Sa-Dhan Standards Team
• Email prabhakara_at_sa-dhan.org
• Telephone [phone]
• www.sa-dhan.net