Transcript Slide 1

Microfinance and
Financial
Counseling skills &
Role of NGOs
Presentation at IIBF Seminar on
Financial Inclusion at Shimla
Prabhakara S.
Manager, Sa-Dhan Standards Team
20th October 2008
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)
Changing landscape of
Microfinance
Demand from over 100 million Poor and Vulnerable
Households in India (in $ Billion)
Over 200,000
crore Rs.
10x Growth
Factor
approx. 22,000
crore Rs.
Finance
Accessed by Poor
Households
(Sa-Dhan, 2008)
Finance
Needed by Poor
Households
(Intellecap 2007)
While there
has been
Significant
growth in
access to
finance in the
last decade,
there is still a
huge unmet
demand
Changing landscape of
Microfinance
Over 100
• NABARD’s SHG-bank linkage programme services an outstanding
portfolio of about INR 170b (3/08, Sa-Dhan Estimate); INR 35b savings million
Clients in
(3/07, NABARD).
2012-13
• Microfinance Institutions (MFIs) service outstanding portfolio of about INR
60b (3/08, Sa-Dhan Quick Data).33.5 million
clients in
2007-08
• Banks (credit) and Private Investors
(equity) are now financing fast
growing MFIs (22 MFIs with outstanding portfolio > INR 500m).
24.6 million
• GoI has appointed NABARD
to manage
the Microfinance Development &
Clients
in
Equity Fund (MFDEF) with2005-06
a volume of INR 2b; State Governments are
channeling funds into Microfinance (e. g. AP’s 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),
<1 million
education
(e. g. MaxWealth Trust, SKS)…
Clients
in
• Urban
Microfinance
becoming growth driver, e. g. Ujjivan,
2001-02
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
Profile of Un banked
1. Lack of access to services/products.
2. Lack of perception of the value of
availing of formal services/products.
3. Lack of information and knowledge of
services/products.
4. Inability to chose between alternate
services/products (also service
providers)
5. Most vulnerable to uncertainties
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
Importance
• Financial Institutions are successful when
looked from the client’s 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.
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.
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 borrower’s
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
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.
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
Some topics for
Financial Education
•
•
•
•
•
Financial Planning
Decisions on Borrowings
Savings
Spending
Making Investments
Outcome
Financial
Outcome of Financial
Education/Counseling
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
Role of NGOs: SaDhan
• 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
Role of NGOs
• Microfinance should be understood from the
client’s 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.
Thank you very much
I am looking forward to our
discussion
S. Prabhakara,
Manager, Sa-Dhan Standards Team
Email: [email protected]
Telephone: 011-65650787
www.sa-dhan.net