State of Microfinance in J&K - KashmirCorps

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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
Page 1 and 2: Jammu & Kashmir: An Analysis of Mic
Page 3 and 4: Our sincere thanks to the following
Page 5 and 6: “Microcredit is an idea whose tim
Page 7 and 8: Outline of the Report The following
Page 10 and 11: MICROCREDIT AT THE INSTITUTIONAL LE
Page 14 and 15: Future Obstacles Anticipated 1. Sca
Page 16 and 17: CONCLUSION Microfinance in the Kash
Page 18 and 19: APPENDIX I Interview Guide for Fina
Page 20 and 21: APPENDIX I (Continued) Microcredit
Page 22 and 23: APPENDIX I (Continued) Profitabilit
Page 24 and 25: APPENDIX II (Continued) Repayment S
Page 26: APPENDIX III (Continued) SHG Operat

State of Microfinance in J&K - KashmirCorps

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