State of Microfinance in J&K - KashmirCorps

Jammu & Kashmir: An Analysis
of Microcredit in the State
Report and Findings Based on a Visit from Summer 2009

Founded by Kashmiri-American students in 2006, KashmirCorps is an independent,
non-partisan, non-profit organization whose mission is to improve the welfare of
Kashmiri society through service and research.
KashmirCorps concluded its third annual Summer Public Service program, which
was held in Srinagar, Baramulla, and Budgam districts. For seven weeks, a
multicultural group of volunteers from Kashmir, the United States, India, and
Tanzania undertook sustainable projects in the areas of public health and economic
development. Together, they contributed over 2,000 hours of service to the people
of Kashmir.
Over the past three summers, KashmirCorps has matched 22 volunteers from several
countries as well as local volunteers with development projects in Kashmir. In
addition to promoting service, KashmirCorps introduces volunteers to the region’s
people, traditions, and natural beauty. Local volunteers and communities,
meanwhile, come into contact with citizens and ideas from abroad. As a result,
meals are shared, views are exchanged, and lasting friendships take root.
This report was researched, compiled, and authored by the following
KashmirCorps Summer 2009 participants
Kunal Lunawat | Natasha Somji | Farah Shah | Samia Nasser

Our sincere thanks to the following
people, without whom this report
would not have been possible:
Amit Wanchoo | CEO, Eaton Laboratories
Gurcharan Singh | J&K Environmental Expert
Danish Manzoor | Independent Journalist
Sameer Wazir | Finance Officer, Islamic University
Dr. Naheed Soz | Director of JKSWDC
Tahir Parvez | District Officer, JKSWDC
Amreen | District Officer, JKSWDC
Abdul Rauf | Vice President, J&K Bank
Mehraj Wani | J&K Bank
Aijaz Jilani | Associate Executive of Microfinance Department, J&K Bank
M. Latief | Business Development Department, J&K State Cooperative Bank
Shabana | J&K State Cooperative Bank
P.L. Negi | Assistant General Manager, J&K Branch, NABARD
Shabir Baba Chief Administrator and Founder of Human Welfare

LIST OF ABBREVIATIONS
GOI
J&K
JKSWDC
ICICI
ILFS
NABARD
RBI
SBI
SHG
Government of India
Jammu & Kashmir
Jammu & Kashmir State Women’s Development Corporation
Industrial Credit and Investment Corporation of India
Infrastructure Leasing and Financial Services Ltd.
National Bank for Rural and Agricultural Development
Reserve Bank of India
State Bank of India
Self-Help Group
4

“Microcredit is an idea
whose time has come”
Former UN Secretary General
Kofi Annan
TABLE OF CONTENTS
6 INTRODUCTION
Beginnings of Microcredit
Value of Findings
7 Outline of Report
Disclaimers
8 METHODOLOGY
Sampling Biases
10 MICROCREDIT AT THE INSTITUTIONAL LEVEL
12 MICROCREDIT AT THE GRASSROOTS LEVEL
Characteristics of Effective Loans
14 Future Obstacles Anticipated
15 RECOMMENDATIONS
16 CONCLUSION
18 APPENDIX I
Interview Guide for Financial Institutions Distributing Microcredit Capital
23 APPENDIX II
Interview Guide for Individual Clients on Loans
25 APPENDIX III
Interview Guide for Small Help Groups
5

INTRODUCTION
The Beginnings of Microcredit
The origins of microcredit go back centuries
in South Asia. Usually aligned along caste
and ethnic lines, and prominent among the
trader and merchant communities
surrounding major trading hubs , money
lenders were known by various names –
shroff, seth and sahukars – but performed
the same function 1 . They were in the
business of lending money to vendors of the
village, for small durations of three to six
months at exorbitant rates of interest 2 .
According to a Forbes Survey, 7 of the top
50 microfinancing firms in the world are
incorporated in India. Bandhan, a groupbased
microfinance operation that began in
West Bengal in 2002 secured the 2nd place
in this list 4 . While some estimates indicate
that microcredit in South Asia has truly
taken off, some believe that it is just the tip
of the iceberg – and that we are witnessing
the beginnings of a vastly unexplored
pyramid.
A vastly unorganized sector, microcredit in
rural South Asia has flourished due to lack
of adequate financial services. For example,
The Reserve Bank of India’s attempt to bring
money-lenders under the
purview of the government
and enforce stricter
regulations on this organic
industry has not yielded
much success. The Money
Lender’s Act, which is
supposed to be the doctrine
for all money-lenders, is
rarely followed or taken
seriously. Further, the
unitary structure of
governance and the
traditional nature of rural
societies of most South Asian nations has
rendered the enforcement capabilities of this
legislation ineffective 3 .
In India, institutional microcredit has taken
off since the IMF-driven reforms of the early
1990s. Some of the world’s largest
microfinancing firms are now offering
services in this country.
Value of Findings
“If we stop thinking of the poor
as victims or as a burden and
start recognizing them as
resilient and creative
entrepreneurs and value
conscious consumers, a whole
new world of opportunity will
open up.”
Dr. C.K. Prahalad. Distinguished
management expert at the University of
Michigan and author of The Fortune at the
Bottom of the Pyramid: Eradicating Poverty
Through Profits
In the politically unstable Kashmir Valley,
microcredit has had a short history with few
investors. The large
microfinance firms
currently operating across
South Asia have yet to
enter the Kashmiri market.
In addition, limited
research has been done
on the range of
organizations currently
employing microcredit in
this area. Recognizing
this, KashmirCorps has
conducted a basic,
ground-level survey of
microcredit organizations operating within
the Kashmir Valley – performing an analysis
of current operations, challenges, and the
potential for future growth. Evaluating
microcredit at both the institutional and
ground-level, this report will serve as a
survey of microcredit within the Kashmir
Valley and hopefully, a baseline to guide
future microcredit endeavors by potential
investors.
1 | http://www.gdrc.org/icm/suppliers/ml.html
2 | Das-Gupta, 1990:9-12
3 | http://www.gdrc.org/icm/suppliers/ml.html
4 | http://www.forbes.com/2007/12/20/microfinance-philanthropy-credit-biz-cz_ms_1220microfinance_table.html

Outline of the Report
The following report is divided into four
sections. Section One will provide an
overview of the methodology used to write
this report. Section Two will present an
overview of microcredit in Kashmir at the
institutional level in both qualitative and
quantitative terms. Section Three will
overview the state of microcredit from the
grassroots level through clients interviewed.
Section Four will compile all these results in
an analysis of microcredit in the Kashmir
Valley and provide recommendations for
future efforts.
Disclaimers
The researchers were only present in the
Kashmir Valley for six weeks; therefore,
while they attempted to extract as much
data about microcredit as possible, the time
limitation and political instability hampered
efforts. The researchers tried to report the
results from their interviews as accurately as
possible, but it should be noted that certain
sampling errors do exist with the applied
methodology. Every effort was taken to
address these issues and after a review,
KashmirCorps stands behind the findings of
this report.
7

METHODOLOGY
This report is based on a six-week study of
microcredit institutions within Kashmir at
both the institutional and ground levels.
However, the political climate made it
difficult for the researchers to utilize the full
six weeks as strikes and demonstrations
were commonplace. The evaluators divided
the research into four separate phases.
Phase One involved creating questionnaires
for surveying microcredit in Kashmir at both
the institutional and grassroots levels 5 .
Phase Two was the first phase of the
research: interviewing those involved in
microcredit at the institutional level. This
report focuses on the four main financial
institutions currently conducting microcredit
programs in the Kashmir Valley:
• Jammu & Kashmir Bank (J&K Bank)
• Jammu & Kashmir State Women’s
Development Corporation (JKSWDC)
• Jammu & Kashmir State Cooperative
Bank (J&K State Cooperative Bank)
• National Bank for Rural and
Agricultural Development (NABARD)
Contact was established with these
organizations through KashmirCorps’
networks, interaction with local community
members, and prior research. Phase Three
involved interviewing those who received
loans from the institutions in Phase Two.
For each of the financial institutions
interviewed, the researchers conducted
interviews with the clientele. In both Phases
Two and Three of the research, the
evaluators used open-ended, semistructured
interviews with the subjects;
while the questionnaires served as a general
but comprehensive guide for the
information that the evaluators were looking
for, the information gathered was based on
interaction during the interviews.
Sampling Biases
Sampling biases occurred in three different
forms. First, at the institutional level, those
interviewed were senior management of the
microcredit programs for their institution,
which, while lending their statements
legitimacy, came at the cost of transparency
and objective review.
Second, at the ground-level, it was only
possible for the researchers to access the
microcredit recipients through the financial
institutions themselves; only borrowers who
had positive experiences with the
institution’s services were interviewed.
Third, to access the borrowers, the
evaluators were accompanied by someone
from the financial institution distributing the
credit. In this manner, even if the recipients
were not content with their loans, they
would not always admit it in the presence of
someone from the financial institution (as
they would not want this to affect their
ability to obtain a loan in the future). When
the evaluators did not identify the
representative from the financial institution
during the interview, the level of
cooperation dropped. The evaluators
attempted to mitigate sampling biases to the
greatest extent possible.
5 | See Appendices I, II, and III

MICROCREDIT AT THE INSTITUTIONAL LEVEL
Financial Institutions Interviewed
The evaluators conducted interviews with various people involved in microcredit in four
major microcredit institutions. Table 1 presents some basic information about microcredit
loans from these institutions.
Table 1: Basic details on microcredit loans from financial institutions operating in the Kashmir
valley region.
10

Small help group working with the
Jammu & Kashmir State Women’s
Development Corporation

MICROCREDIT AT THE GRASSROOTS LEVEL
The evaluators conducted interviews with
customers of all four financial institutions,
interviewing both members from SHGs and
individual borrowers alike. Those surveyed
lived in various parts of Kashmir –
Ganderbal, Kangan, Kokernag, Zakura,
Sopore, etc. The effectiveness of the loans
differed according to each group
interviewed, but the elements below are
present in almost all the groups.
Characteristics of Effective Loans
1. Right Choice of Trade
It was found that loans aided the borrowers
the most when they were used toward the
production of a good that had an existing
market base. These goods not only had
production techniques that were easy to
learn – such as sozni or ari handicraft work
– but there was a niche for them in the
market. Groups that created products with
low production costs (cheap materials and
inexpensive labor) were the most successful
in repaying loans and providing basic
necessities. In the case of SHGs,
concentrating production on one good
allows for specialization and develops
workers with the necessary skills to produce
a good en masse. From the researchers’
observation, SHGs that chose to diversify
their product were largely ineffective due to
the lower quality goods and higher training
times.
2. Cooperation Between Members of SHG
The composition of the SHGs also was a
important factor in determining their
effectiveness.
SHGs with women of similar socioeconomic
backgrounds and levels of
education were the most effective in the
microfinance process. For example, with the
JKSWDC, the researchers visited SHGs that
where all members of a militancy-hit
village. Similar ages and the fact that they
were all neighbors created constant
interaction and an informal accountability
system. None of the members felt inferior to
another, they had shared experiences, and
were able to help each other to address
common problems. Thus, with clear lines of
communication, a shared experience of
hardship, and similar education levels, the
SHG was able to conduct the microfinance
process effectively.
3. Team Leader Capacity for SHGs
Each SHG has a team leader and an
accountant; it was essential that the women
who filled these
positions were
democratically
elected and had the
skills/education to
carry out their roles
effectively. After
observing numerous
SHGs, the most
effective groups had
periodic elections for Team leader identity card
the team leader and accountant positions.
Although illiteracy was high among these
groups, providing training to the team leader
and accountant was a valuable investment.
Training also provided a sense of
empowerment to the normally marginalized
members of these groups. Nonetheless,
effective management of SHGs by leaders
selected from amongst the group had the
greatest chance of success.
12

Characteristics of Effective Loans (cont.)
4. Constant Monitoring from Financial
Institution
For the loans to be most useful, it is essential
that an outside actor monitor the recipients
and the use of the loan, especially in the
initial stages once the loan is received.
Some financial institutions conducted this
monitoring and assistance as part of their
microfinance program. This guidance was
crucial in ensuring the loaned funds were
used properly and effectively. Some of the
hard lessons learned by the financial
institution were passed on to the recipients.
This proved effective in reducing default
rates and enhancing the microcredit process
between the loan recipients and the
financial institution. This mentoring was
most effective with new clients - allowing
the borrowers to become more familiar with
the process of repayment and microcredit in
general. In the case of SHGs, consistent
monitoring allows the members to become
acquainted with the concept of savings,
keeping accounts, leadership, and in some
cases providing literacy and emotional
support to marginalized groups.
5. Lower Interest Rates than Local
Moneylender
Many of the recipients interviewed
mentioned that they previously received
loans from a local moneylender at
exorbitant interest rates – usually
somewhere around 50 percent. Being the
only source of finance, moneylenders could
exploit the borrowers, leaving them in
constant debt. Microcredit, in many
instances, is successful in eliminating the
middleman by charging much lower interest
rates, allowing driven individuals with the
means to succeed and financial institutions
with a sustainable, community-oriented
profit. Shifting the financing of economic
activity to legitimate business also supports
local governance.
13

Future Obstacles Anticipated
1. Scarcity of Raw Materials
The researchers witnessed SHGs that were
functioning effectively, however one
particular example was endemic of the
challenges faced by SHGs. The JKSWDC
issued a microloan to a SHG in a part of
Srinagar. This SHG was able to weave jute
bags for sale within the region. The product
did have a market niche, however the raw
materials needed to produce jute bags had
to be imported by JKSWDC from a different
region. While this SHG was able to secure a
microloan, learn a skill, and produce a
marketable good, they were solely
dependent upon JKSWDC to import the raw
materials. Other SHGs also express their
concern regarding raw material obtainment.
Although most SHGs only need basic
materials, the geographic and political
landscape in the Kashmir Valley can create
severe resource shortages.
2. SHG Dependency on Financial
Institution
While monitoring SHGs is sometimes
necessary, many SHGs have become
entirely dependent on the financial
institution supporting them. The previously
mentioned case of jute bags is just one
example; other financial institutions provide
all the services for the SHGs including
account management, direct leadership, and
a market for their final products. These
actions do more harm than good by making
self sustainment impossible. The core issue
is the difficulty of finding a leader who is
willing to devote time and effort without
outside supervision or economic gain from
being in a leadership position.
3. Illiteracy
If the clients are illiterate, it is difficult for
them to understand many aspects of how
microcredit works and especially difficult
for them to maintain accounts. Within
SHGs, there are great difficulties when a
member is illiterate and must learn how to
maintain a ledger. If only some members of
a SHG are literate, they might attain a
dominant status as they can maintain the
accounts and usually have an easier time
understanding the functioning of the SHG.
The evaluators witnessed individuals and
SHG members who were illiterate having
the greatest number of problems with
microcredit loans.
4. Finding a Market
Some of the financial institutions provide a
market for their recipients in the form of
exhibitions or marketing. These markets are
generally outside the Kashmir Valley.
Transportation is arranged through the
financial institution. While this provides an
excellent opportunity for the clientele to
establish their own contacts and create
direct ties with customers for their products,
it may also result in complacency on the
part of the loan recipients in finding their
own customers. Additionally, many of the
products created by loan recipients and
SHGs do not take into account changes
within a market or focus on emerging
trends. While dependency on the financial
institutions is a concern, efforts to help
recipients find a viable market are critical to
the success of the microfinance effort.
14

RECOMMENDATIONS
Because microcredit is a relatively new
concept in Kashmir, it may take some time
before best practices are established.
Currently, the first rounds of individuals are
still taking out loans and most SHGs have
existed for less than five years. This mirrors
larger structural issues with microfinance;
being a new concept, even the original
projects have yet to bear tangible results.
Thus, it is difficult to establish how effective
microcredit will be within the next ten years
but based on observation, the researchers
have some recommendations for how
microcredit could become more effective in
the Kashmir Valley.
1. Establishing a Centralized Organization
for the Coordination of Microcredit
Operations
As mentioned earlier, no coordination exists
between the different microcredit
organizations operating within Kashmir.
This results in unsuccessful programs being
repeatedly attempted and best practices
have not been shared to the larger
microfinance community. In addition, job
skill training organizations such as the Craft
Development Institute have not been
included within the training process for loan
recipients. A centralized body that monitors
microcredit operations within the Kashmir
Valley would assist in coordinating various
operations within the region, thereby
achieving efficiency and disseminating
lessons learned.
2. Tracking Microcredit Clients
In order to gauge the effectiveness of any
program, it is necessary to evaluate the
effect it had on the loan recipients pre- and
post-implementation. Financial institutions
should keep track of how these groups are
performing after the loans have been
disbursed. In this manner, financial
institutions can evaluate their microcredit
programs, making adjustments where
necessary to make their programs more
effective.
3. Sustainable Knowledge Transfer
An initiative that seems to have worked
effectively with the JKSWDC involves the
training of just one member of a SHG in a
particular skill and allowing them to pass
this knowledge on to the rest of the SHG.
This is not only cost-effective because only
one person is trained at a time, it also
empowers the women. This ‘train the
trainer’ model is effective for three reasons;
it incentivizes personal development in a
meaningful way, allows SHG members to
earn additional income, and it promotes
self-sustainment of SHGs.
4. Bolstering Islamic Microfinance
The concept of Islamic finance – the idea
that banking should be in line with sharia
law – has achieved popularity in many
countries worldwide. Slowly, Islamic
finance is merging with microfinance to
create Islamic microfinance. The key aspect
of this concept is that loans should not have
any interest. This would greatly benefit
many of the clients, many of whom
complained that high interest rates made the
loan difficult to repay. Islamic microfinance
could be implemented in the Kashmir
Valley given the large Muslim population.
Additional inquiry is needed with regard to
this concept.
15

CONCLUSION
Microfinance in the Kashmir Valley is a
relatively new concept. The results of these
efforts will not be apparent in the near
future. However, the advantage of this late
implementation are the lessons learned from
microcredit programs in other areas.
Recognizing that the Kashmir Valley is
unique because of both geographical
location and political instability, it is
necessary to thoroughly plan execution of
microcredit programs to meet local needs
and conditions. While few financial
institutions distribute microcredit loans
within the Kashmir Valley, they operate in a
complex manner, often overlapping each
other in the services provided. To proceed
with microcredit in this region, it is
necessary to evaluate these existing
programs to find a niche for further
investment.
The researchers tried to maximize their six
weeks in Kashmir to comprehensively
evaluate the different microcredit programs
operating within the region. They found that
most microcredit programs work through
SHGs. Individual loans are rare and do not
receive the same attention. These SHGs are
effective because they usually focus on
women and provided the means to develop
a skill. Most SHGs are composed of
widows from the current conflict or
divorcees with no access to a source of
income; the formation of SHGs greatly
helped to empower these women.
Looking forward, there are three major
obstacles to microcredit in Kashmir:
First, the absence of communication
between different microcredit institutions
operating with the region. A coordination
effort between microcredit institutions and
job skill organizations would result in much
greater efficiency, widening the client base
through greater outreach and achieving
more in terms of both width and depth of
programs. Presently, with such few
microcredit operations in the Kashmir
Valley, centralizing operations would draw
more investors into this emerging market.
Second, self-sustainment of SHGs will be a
recurring issue. This is not something
isolated to the Kashmir Valley; microfinance
projects world-wide are also having
difficulty shifting the burden of managing
and running the SHGs from the outside
institution which originally setup the group
to members of the group.
Third, the political climate is will make
attracting investors a difficult task. Given the
ongoing conflict and insecurity within the
Kashmir Valley, outside investment has not
arrived to the area. This is in sharp contrast
to neighboring regions which have
experienced a large flow of investment and
attention. The political climate also impacts
the economic landscape – there are frequent
strikes, work stoppages, and even goods
shortages when vital transportation links
have been disrupted. This will be an
ongoing challenge for any microfinance
efforts within the Kashmir Valley.
16

Many women in Kashmir currently
earn a modest wage removing weeds
from the Dal Lake

APPENDIX I
Interview Guide for Financial Institutions Distributing Microcredit Capital
Interviewee:____________________
Date: ___ / ___ / ___
Interviewer:____________________
Location:______________________
As volunteers with the non-profit organisation KashmirCorps, we are presently undertaking a
study investigating and evaluating existing microcredit initiatives within the valley. We
understand that your organisation distributes microcredit loans, and would appreciate your
experience in aiding our study.
Attitude Checks: Commitment to Microcredit
1. What are the models used by banks for credit evaluation, contract enforcement and trust
building with the clients
• How is the clientele identified Particular income groups Industry
• How does your institution determine who receives the loans within these groups Self
Help Groups Joint Liability Groups
• How does your institution advertise their microcredit loans to the clientele
• What are the terms and conditions to obtain a loan
• What is the bank’s commitment to sustainable lending in rural areas
• Do the microcredit loans show up as assets in the banks balance sheet If yes, has this
affected accountability and transparency
2. Why did the bank decide to initiate micro financing in Kashmir
• When did the institution begin distributing microcredit loans
• What is the microcredit division’s mission statement in terms of distributing loans
• What role does the poor play in the creation of a strong financial sector How does
microcredit assist in this
• How do the recipients of the loans use the finances given to them
• What is the general mentality among the poor for receiving a loan Are they
optimistic
• Do you see the loans benefitting those from all income levels, or only those who need
a boost of capital for their already-established businesses How do you view those at
the bottom of the pyramid
• Did you use the ICICI Social Initiatives Group model in creating your microcredit
program
• What is the size of the loan portfolio What has been the growth rate in the
outstanding loan portfolio (how does this compare to the 2007-08 national average of
72%)
• What kind of needs assessment was performed prior to starting up the microcredit
initiative
18

APPENDIX I (Continued)
Microcredit Structure
1. What are some of the characteristics of the clientele for this institution
• Do the recipients have to be Kashmiri and how is this determined Can they be
seasonal workers from other states in India
• Is there a cut-off in terms of income-level for people who are allowed to receive
microcredit loans How do the clients provide this information
• What is the male / female ratio for recipients of the loans
• What industry does this institution make out loans to and in what proportion for each
industry
• What income-level are the loans made out to
• Where is most of the clientele located (cities, countryside, etc.)
• What has the repayment rate been in the past and does this differ across income level,
industry and gender
• Compared to the national average of 39% in 2007-08, hat has been the client
outreach growth for MFIs here What has been the mode of computing this figure and
are there measures to avoid double-counting
2. What are the characteristics of loans given out to the clientele described above
• Is there a subscription fee to enter a microcredit contract
• What is the maximum loan amount Does this differ by industry
• How long does it take between applying for a loan and getting it (administrative cost
time lag)
• What is the paperwork involved in applying for a loan
• Is there a limit to the number of loans one can ask for in a lifetime
• What is the interest rate on the loans Is there a cap on this
• Do you distinguish between loans made out to individuals and organizations If so,
which conditions change
• Is there a distinction made for the poor and ultra-poor living in the same area How
do you select clients based on this income-level
3. Are there any sector-specific approaches to microcredit in Kashmir
• If so, what sectors are included
• What is the justification for different loans for these sectors
• How does it differ by sector in terms of repayment rate (seasonal), amount of loan,
interest rate, etc.
• If these measures do not exist, why not
• Does microcredit limit itself to the profitable sectors
4. What is the structure of repayment for microcredit loans
• Has this structure encountered any problems
• What is the grace period for repayment What happens if the client defaults
• What percentage of the clients default on repayment Why do you think this is so
• Are there different repayment schemes by industry – e.g. for agriculture which is
seasonal
19

APPENDIX I (Continued)
Microcredit Structure (continued)
5. Do your micro financing operations emphasize on savings after the disbursement of
loans
• Is there a required savings rate If so, what is this
• How does the structure of savings as compared to lending work
6. How does microcredit in Kashmir address the question of reaching out to the rural
population
• Do they partner with local institutions such as Self Help Groups of Joint Liability
Groups
• If so, how has this partnership been beneficial and what are the problems with it
• How do you envision expanding to villages and smaller towns
7. To what sector do most of the loans go to
• What are they primarily used for
• Why are these sectors prioritized
8. How does the bank ensure that the loans are being used for productive purposes only
• Are there any non-monetary indicators or does it depend on the client’s ability to
repay
• Have the loans been a mere tool for easing liquidity problems Has there been the
creation of any tangible/ intangible fixed assets through these short-term loans
20

APPENDIX I (Continued)
Regulatory Norms
1. What are the regulatory norms enforced by the bank as recommended by the Reserve
Bank of India and other globally recommended principles on micro financing
• As per the Section 22 of the Banking Regulation Act, does the bank conform to the
regulation of opening 1 rural bank for every 3 urban banks In other words, are 25%
of its branches in rural areas as an agreement to the licensed issued to them
• Is 40 percent of the bank credit issued to priority sectors as per another RBI norm
• Is 18% of the bank credit issued to agricultural areas, with 13.5 percent directed to
farmers directly
Addressing Problems with Microcredit
1. What are the transaction costs involved in giving out a loan (Screening, administration of
loan, staff, etc.)
• Do you think these transaction costs are manageable or do they inhibit the quality and
quantity of the loan
• If this is high, how has it affected the amount and number of loans given out
• If this is high, have there been any policies in place to circumvent this What are
these
2. How has microcredit in Kashmir attempted to address the risk of moral hazard inherent in
giving out loans to people with fewer resources
• What happens if clients can repay but do not use the loan for what they stated they
would before taking it out Are there consequences
• What if they use the loan for what they originally intended but cannot repay Are
there consequences
• Is there a monitoring process, and, if so, what does it look like
• How has this problem affected the size of the loan
• What kind of screening is in place to select loan recipients
• Microcredit is used to help those who have no access to collateral. What kind of
security does your institution have if loan recipients default
• Have there been other, non-monetary schemes in place for lending such as buying
equipment instead of handing out cash sums and if not, would you consider this
What are the transaction costs of this
3. In many rural areas throughout India, there exists an informal money market in which
moneylenders charge high interest rates to the poor. To what extent has the informal
sector eroded the financing sector for rural households
• What are the problems with this informal sector
• How much of clientele is lost through the existence of the informal sector
• Why would clients prefer to receive loans from the formal sector How much lower
are interest rates
• What is the proportion of the total outstanding cash dues of rural households to the
informal sector
21

APPENDIX I (Continued)
Profitability of Loans
1. How profitable has microcredit been for your institution
• How much revenue does the Bank generate from these loans
• Does the risk of low repayment rates make it difficult for the bank to sustain
profitability
• We understand that large loans are required to aggregate large interest payments,
which is possible only through extensive outreach, increasing operating costs. What
is the bank’s take on this tradeoff between volume and operating cost
Use of Technology Today
1. Has technology played a role in microcredit in Kashmir, and, if so, how
• To what extent has the bank embraced technology in rural banking (handheld
devices for documentation, smart card readers, etc.)
• When was internet banking launched (1997 was the first year, courtesy ICICI)
• When was online bill payment launched (1999 was the first year, again by ICICI) and
is this used in microcredit at all
• Has the bank ever applied to the Financial Inclusion Technology Fund for stepping up
its technological operations in rural banking
• Has the bank had any collaboration for promoting technology in its rural branches
with specialized institutions like ILFS, Drishti or BASIX
• What is the bank’s involvement with the Institute of Development Banking Research
and Technology Has it sought its recommendations on custom-made software
solutions for enhancing the bank’s operations
• What has the bank’s appraisal of the new risks involved with the introduction of
technology in its micro financing operations
• Do you think the cost of investing in technology is worth the cost Do you think it
may be beneficial to do so
Future Goals
1. What are the major impediments for micro financing in Kashmir
• How do you see microcredit expanding in Kashmir in the future What is the future of
microcredit in the valley
• Why is there general apathy towards microcredit in Kashmir How do you think this
could be changed
• What are the policy changes that you would advocate for enabling the flow of loans
and ensuring productive micro financing
2. What problems has your institution encountered in terms of microcredit and how do you
plan to address this
• Do you see constraints for future development / expansion for your institution in terms
of microcredit What are these
• What are the priorities that you would set for your institution in terms of microcredit
22

APPENDIX II
Interview Guide for Individual Clients on Loans
Interviewee:____________________
Date: ___ / ___ / ___
Interviewer:____________________
Location:______________________
As volunteers with the non-profit organisation KashmirCorps, we are presently undertaking a
study investigating and evaluating existing microcredit initiatives within the valley. We
understand that you have accessed a microcredit loan in the past, and would like for you to
help us evaluate your experience.
Personal Information
Name:____________________ Occupation:____________________ Gender: M / F
Location: ______________________
Pre-loan Conditions
1. How did you find out about microcredit Do you think it is well-advertised in your area
2. Why did you decide to take out a loan What do you want to use this loan for
3. Did you have access to any other form of credit before taking out the loan (e.g.
moneylenders, informal credit, etc.) Did you use these Why not or why did you switch
to microcredit
4. Do you feel like all the information was explained beforehand
Accessing the Loan
1. Which institution did you get a loan from Why this institution
2. Was there any subscription fee for accessing the loan
3. What amount did you ask for Why this amount Did you get the amount you asked for
4. What paperwork did you have to fill in to obtain a loan What other barriers were there
in accessing the loan
5. What was the time-lag between applying for a loan and obtaining one Too long
6. Were all the funds released at the same time
Usefulness of Loan
1. What are you going to / are you using the loan for
2. Have you found the loan to be helpful Why or why not
3. Will you need additional loans What for
4. Did you need the entire initial amount that you requested at one time Would you prefer
this to broken down in two installments
23

APPENDIX II (Continued)
Repayment Scheme
1. What does the repayment scheme look like
2. How long do you have to repay
3. What is the interest rate Is this too high or are you able to repay
4. Do you think you will be able to repay on time If not, what are the consequences
5. How did you make the repayment Did you set aside money
6. Did the institution you took a loan from monitor how you spent it
7. Which installment was the easiest to repay Why
Evaluation of Loan
1. Would you take out another loan from the same institution Why or why not
2. Would you take out another loan at all Why or why not
3. If you were to take the same loan again, how would you spend it
4. What recommendations do you have for microcredit institutions in terms of their lending
policies
24

APPENDIX III
Interview Guide for Small Help Groups (SHG’s)
Interviewee:____________________
Date: ___ / ___ / ___
Interviewer:____________________
Location:______________________
As volunteers with the non-profit organization KashmirCorps, we are presently undertaking a
study investigating and evaluating existing microcredit initiatives within the valley. We
understand that your SHG has accessed a microcredit loan, and would like for you to help us
evaluate your experience.
SHG General Information
Name:____________________
Location:__________________
Year Started:____________________
Number of Members:_____________
Pre-SHG Formation Conditions
1. How did you find out about the concept of SHGs Do you think it is well-advertised in
your area
2. Why did you decide to become part of a SHG How do you think it will benefit you
3. Did you know the other members of your SHG beforehand Are you all from a similar
background Do you live in close proximity to each other
4. Did you have access to any other form of credit before this SHG (e.g. moneylenders,
informal credit, etc.) Did you use these Why not or why did you switch to SHGs
5. Do you feel like all the information about the operation of SHGs was explained
beforehand
SHG Operation and Function
1. How often are SHG members required to save In what amount
2. Are members of the group producing any good in particular If so, what good How did
the SHG members acquire the skills to produce this good Is there a market for this good
and where is it located How did you find out about this market
3. For what purposes are the internal loans used for What happens if a member cannot
repay the loan What penalty system is in place
4. If no member of the SHG takes out an internal loan, what happens to this money
5. Which people are allowed to access the account in the bank How is this done
6. Are there positions of authority What are these How did you decide who would take
up these positions
7. How many members of the SHG can read and write If there are some group members
who cannot, how are their needs taken care of Do they understand how the ledger
system works and the process of account
25

APPENDIX III (Continued)
SHG Operation and Function (continued)
8. Did you know how to do accounting before How did you learn how to keep a ledger
9. How often are meetings held Does everyone attend What happens if someone can’t
Is it easy for everyone to congregate
10. Are you being monitored by a financial institution If so, do you think you would be able
to function, at this stage, without them Do you think that at the end of the monitoring
period, you will have acquired the skills to function without the monitoring agency
Accessing the Loan
1. Has your SHG accessed a loan as yet If so, which institution did you get a loan from
Why this institution
2. Was there any subscription fee for accessing the loan
3. What amount did you ask for Why this amount Did you get the amount you asked for
4. What paperwork did you have to fill in to obtain a loan What other barriers were there
in accessing the loan
5. What was the time-lag between applying for a loan and obtaining one Too long
6. Were all the funds released at the same time
Usefulness of the Loan
1. What are you going to / are you using the loan for
2. Have you found the loan to be helpful Why or why not
3. Will you need additional loans What for
4. Did you need the entire initial amount that you requested at one time Would you prefer
this to broken down in two installments
Repayment Scheme
1. What does the repayment scheme look like
2. How long do you have to repay
3. What is the interest rate Is this too high or are you able to repay
4. Do you think you will be able to repay on time If not, what are the consequences
5. How did you make the repayment Did you set aside money
6. Did the institution you took a loan from monitor how you spent it
7. Which installment was the easiest to repay Why
Evaluation of SHGs and the Loan
1. Do you think the formation of SHGs has been helpful for you In what manner
2. What would you like to see different about the way that SHGs function
3. Would you take out another loan from the same institution Why or why not
4. Would you take out another loan at all Why or why not
5. If you were to take the same loan again, how would you spend it

Unlike similar yet larger organizations that charge upwards of $5,000 to volunteer abroad for
seven weeks during the Summer, KashmirCorps Volunteers are assessed a fraction – less than
five percent – of that amount. Funds for remaining expenses must be raised separately. To
support volunteer work and cross-culture exchange in Kashmir, please consider sending a
contribution to:
KashmirCorps
14104 Tattershall Place
Germantown, MD 20874 USA
Any amount is greatly appreciated and goes a long way toward advancing our work.
Founded by Kashmiri-American students in 2006, KashmirCorps is an independent,
nonpartisan, and nonprofit organization whose mission is to improve the welfare of Kashmiri
society through service and research
For more information, please visit our website at http://www.kashmircorps.org