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the insurance industry to reach the poor, and the considerable innovation in new product design and service delivery taking place. It reviews some lessons learnt from experience so far, and flags the issue raised by SEWA and others of the desirability of lower entry capital requirements for mutual organizations such as cooperatives that specialize in catering to the insurance requirements for the poor, similar to those that exist in other countries. A second constraint is crucial regulatory anomalies which constrain more widespread adoption of the partnership model, and uptake of the recently introduced Banking Correspondent models. The most important of these is the cap on small loans to the poor at the PLR. RBI needs to conjure up the necessary "political" will to lift this ceiling Chapter 5B reviews the experience of another of the "younger" microfinancial services, money transfers within the country. Huge flows of migrants criss-cross the country in search of a better life for themselves and their families, who mostly stay behind in their villages. Internal labour migration is increasing with differential rates of growth in different states, and pockets within states. The section discusses the need for a fast, low cost, convenient, safe, and widely accessible money transfer service and points out that at present options available to a poor migrant are limited. 21 One requirement for an MFI to meet the need for a money transfer service is a critical minimum number of migrants in the place of migration destination from a particular place of origin, which will almost invariably be a rural area. At least a dozen larger cities in India meet this condition, each of them for several groups of migrants from different parts of the country. It discusses how an MFI from the originating area can establish a base in the city or area of migration destination, or can tie up with an existing MFI or bank (under the Business Correspondent model). With the relaxation of constraints on the availability of on-lending and investment funds in the last couple of years, human resource development has become perhaps the most important challenge facing the sector. However the state of development of the training and capacity building sector is embryonic in relation to needs. Perhaps the most important need is to integrate class-room based training not only with continuing on-site mentoring and hand-holding over a period, but also with pre-training needs assessment. Chapter 6 - on Training and Capacity Building - discusses these and other issues. Chapter 7 reviews the availability and issues in commercial financing, both lending and investment. Section 7A describes the massive increase in commercial bank lending for the MFI model that has taken place though bulk lending and the partnership model. It also briefly describes innovative new financing mechanisms such as portfolio buy-outs and securitization. While lending growth is expected to continue, the rate of growth is constrained by the fact that MFIs with adequate capacity and systems have already largely been covered (although these are being joined by start-ups with huge borrowing requirements). There is thus a great need for strengthened training and capacity building services and institutions as discussed in Chapter 6. A second constraint is crucial regulatory anomalies which constrain more widespread adoption of the partnership model, and uptake of the recently introduced Banking Correspondent models. The most important of these is the cap on small loans to the poor at the prime lending rate (PLR). RBI needs to conjure up the necessary "political" will to lift this ceiling, if not altogether, to a much higher level that takes into account the transactions costs of efficient MFIs. Chapter 7B describes the new venture capital funds, including their special emphases in the choice of partners and actual as well as prospective investments. Since they all have social as well as financial goals, backed by considerable resources to provide grant funded technical assistance to investees, they are in a position to promote both, and the potential conflict between the two is much less acute in India than it may be abroad. The chapter discusses the demand for equity capital and the value that the new public sector investor, the MFDEF can bring to the sector in making smaller investments than are presently permitted to the foreign registered funds, and in investing in the not-for-profit segment of MFIs through forms of quasi-equity such as subordinated long term low interest loans. Finally, it proposes a modification in the existing foreign investment regulations for NBFCs, at least for microfinance- 18
Overview and Summary of Main Recommendations specific NBFCs, since MFIs do not always need equity injections in the minimum quantities laid down presently, which entail an inefficient use of equity funds. A modification of the regulations would enable smaller quantities of equity to be provided when needed. Chapter 8 is on "development" financing as opposed to commercial financing. Chapter 8A discusses apex financing institutions such as Friends of Women's World Banking (FWWB) and the Rashtriya Mahila Kosh (RMK), two organizations charged with growing the "seeds and saplings of the sector", and preparing them for commercial financing by the banks. FWWB is a private NGO, and RMK an NGO funded and controlled by the Department of Women and Child Development of the central government. Unfortunately this difference in ownership and control seems to have affected RMK's performance. It showed great promise in its early days when there was a dearth of funding for SHPIs and some of today's large SHPIs and MFIs, including the largest in the country, SHARE, were its partners. Unfortunately the documentation or ongoing monitoring does not exist to enable an evaluation of how successful RMK continues to be in nurturing small nascent MFIs. Its goal should be to incubate small organizations provided they are willing to take up microfinance "professionally" (target the truly poor, equip themselves with the necessary skills and systems, and set themselves the goal of achieving sustainability for the microfinance activity). In order to do so, RMK’s will have to greatly strengthen its own capacity to identify, appraise, monitor, and mentor such organizations, through third-party service providers if necessary. A thorough review of RMKs structure, operations and future strategy needs to be carried out since this is a publicly funded institution, with an important role to play. Chapter 8B reviews the important role that donors have played in the development of the sector, their diminishing role as a provider of funds, and their emerging priorities in filling the remaining gaps in the sector, including capacity building. Another gap, that of knowledge, is being filled by greatly stepped up research activity in the sector in the last few years. Chapter 9, describes some ongoing research in the sector, at the Centre for Microfinance, Institute of Financial Management and Research, Chennai, and has been written by researchers there. The CMF works with principal researchers at home and abroad, and provides support in terms of identification of sites, organization of data and execution of studies. While it represents one of the largest concentrations of research in the sector, and is collaborating with a number of MFIs in various action research projects, there was unfortunately not enough time to systematically review research ongoing elsewhere, much of which is scattered. However the findings of a number of useful studies have been discussed in the other chapters. The kind of research that appears to be most needed is careful field research of the type economic anthropologists do, which is very often the only way of collecting useful microeconmic data on the savings and credit behaviour of poor households and their enterprises. This requires time, but in the long run produces insights and understanding faster than the shorter studies that have typically been produced so far. 22 The kind of research that appears to be most needed is careful field research of the type economic anthropologists do, which is very often the only way of collecting useful microeconmic data on the savings and credit behaviour of poor households and their enterprises 19
Page 3: Microfinance in India A State of th
Page 6 and 7: List of Tables Page No Table 2.1 Gr
Page 8 and 9: Preface and Acknowledgements This r
Page 10 and 11: Abbreviations ABC ADB BC BF CAR CAG
Page 13 and 14: CHAPTER 1 Overview and Summary of M
Page 15 and 16: Overview and Summary of Main Recomm
Page 19: Overview and Summary of Main Recomm
Page 27: Overview and Summary of Main Recomm
Page 30 and 31: 1 1a 1b 2 2a 2b 2c 3 3a 3b 3c 4 4a
Page 32 and 33: The Light and Shades Study A major
Page 34 and 35: highest proportion of weak records
Page 36 and 37: their profitability after accountin
Page 38 and 39: allow the programme to grow organic
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Page 42 and 43: Endnotes 1 It is very hard to compa
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Page 46 and 47: linkages", 11 percent 3rd, and 5 pe
Page 48 and 49: References APMAS (AP Mahila Abhivru
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Page 55 and 56: Table 3.4 Comparative performance i
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Page 59 and 60: Progress Under the MFI Model 4 Howe
Page 61: Progress Under the MFI Model Refere
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The lack of contact and communicati
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Box 4.1 Continued 4. MFIs will coll
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Endnotes 1 There will be many disag
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19 The base suicide rate in AP is 1
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References APMAS, 2005, "A Report o
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(such as cattle and houses), and co
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The advantage of the provider model
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Some lessons learnt from experience
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Box 5.2 VimoSEWA: Synergies between
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86 Table 5.1 Main Feature of Health
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Endnotes 1 While the microinsurance
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16 A little less than a fifth of th
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29 The rationale for transfer progr
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Roth, James and Vijay Athreye, 2005
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Issues and priorities for action re
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Endnotes 1 See for instance CGAP (2
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100
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such as Chaitanya who soon became s
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money to support operational expens
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finance, and the microfinancial ski
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Box 6.1 Continued in experts and to
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Endnotes 1 In a sense it always was
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16 Examples are Margdarshak in Luck
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114
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Table 7:1 Commercial bank exposure
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The main constraints to the expansi
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further review, RBI has modified th
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9 Thus ICICI has sold some of its b
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B. Equity Investments by the Ventur
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Figure : The Bellwether triangle Lo
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Despite the weaknesses the public s
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Box 7.1 Continued foreign sources o
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Endnotes 1 At this point they will
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References ACCION, 2003, "The Servi
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SIDBI Foundation for Micro Credit (
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categories, depending on the amount
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The distribution of total disbursem
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Endnotes 1 It should be noted that
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B. Donor Participation in Indian Mi
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this has dropped to 8% on the curre
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and poor populations. More directly
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and expansion of available retailer
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11 SDC through various programs for
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154
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1.1 Impact evaluation of Spandana's
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in the loan tenure of 24 months. Th
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There are two main motivations of a
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compensation structures used by Ind
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Endnotes 1 By Annie Duflo, Anvesha
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29 The main components of direct tr
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