Releasing the “State of India’s Livelihoods (SOIL) Report 2009″, the second in series prepared by ACCESS Development Services, the minister underscore the need for sustainable progress in rural sector.
Ms Sangma, the youngest member of the Indian council of ministers, also pointed out the need for providing market access to the rural population and sought the private sector to take lead in it.

Keeping aside her prepared speech, Ms Sangma said the government’s popular rural employment guarantee program NREGA has seen increasing criticism but assured to make it more effective and transparent soon. Further, she said NREGA will eventually be transformed from its current wage-based employment program to self-employment program for the rural people.
To achieve this objective, the government has been holding Saras Melas every year providing platform to rural artisans and farmers to exhibit and sell their articles or produce. But these are short term programs and invited the private sector, especially practioners in the field to facilitate rural employment on sustainable basis.
The SOIL report weighed both positive and negative trends in the sector especially from the NREGA program last year and noted major concerns in the light of global crisis as well.

The report said the NREGA with sufficient cash inflow succeeded to cap migration of rural population but nonetheless, it was beset with reports of corrpution and transparency during implementation.

First, the experiment with the no-frills accounts which the country’s central bank RBI has pushed ahead faced failure.
Now the BC model, which has the ability to serve the poor in rural and remote areas, has no inherent demerits but the implementation mechanism requires openness, according to speakers at the microfinance India Summit 2009 being held in New Delhi.

“There is no fundamental problem per se but operating and upgrading IT infrastructure is more important,” said Manohara Raj, head of Microfinance at HDFC Bank.

Bankers have expressed concerns over legal requirements which may slow down the pace while telecom representatives were confident to implement the model with less legal requirements like opening banks and then carry out cashless transactions.

Finally, the shot came from Vikram Akula, SKS Microfinance chairman, who was clearly against the RBI’s restrictive policies. “Allow MFI/NBFCs to be BC agents. If RBI is intellectually honest, it should allow us to be business correspondent agents. It will reduce risks involved in cash transactions in rural areas,” he added.

VIJAY MAHAJAN, AN ICON

Born on Oct.1, 1954, Vijay Mahajan graduated from the Indian Institute of Technology, Delhi and  joined Philips as a marketing executive. After a four-year stint, he joined the Indian Institute of Management, Ahmedabad. After graduating from IIM-A in 1981, he started working in the rural development field in Bihar, the poorest state of eastern India. In 1983, he established an NGO, PRADAN which works with over 120,000 poor households, promoting livelihoods and community institutions.

In 1996, Mr Mahajan set up BASIX as a “new generation livelihood promotion institution”. Till March 2008, BASIX had helped support the livelihoods of over a million poor households in the agriculture, allied and non-farm sectors by extending micro-credit worth over Rs 1,200 crore (US$300 million). BASIX goes well beyond micro-credit to offer a “triad” of livelihood promotion services including savings and insurance services, agricultural/business development services and institutional development services to rural producers and their
groups.

Mr Mahajan was a member of the Raghuram Rajan Committee on Financial Sector Reforms and the Rangarajan Committee on Financial Inclusion. He is a member of the Insurance Regulatory and Development Authority (IRDA) and the Rajasthan Mission on Livelihoods. He serves on the Boards of ASSEFA, Gram Vikas, ARAVALI, DSC and the Institute of Rural Management, Anand (IRMA), and on the Executive Committee of the
Consultative Group to Assist the Poor (CGAP), a global microfinance body.
In 2002, he was selected as one of the 60 “Outstanding Social Entrepreneurs” at the World Economic Forum (WEF), Davos. In 2003, he was conferred the Distinguished Alumnus Award by the IIT, Delhi.
In 2008, Mr. Mahajan was elected as a Member of the Ashoka Fellowship, a global association of leading social entrepreneurs. Vijay was also selected in India’s 50 Most Powerful People 2009 by the Business Week.

Mr Mahajan has been an advisor to the Planning Commission, Government of India, the state governments of Andhra Pradesh, Karnataka, Madhya Pradesh, Rajasthan and Sikkim, and to the RBI and NABARD. Vijay has co-authored a book “The Forgotten Sector” on rural, non-farm sector in India. He has published over 50 articles on rural livelihood, development and micro-finance in international journals.

Mr Mahajan was a member of the Raghuram Rajan Committee on Financial Sector Reforms, chaired by Raghuram Rajan and also of the Rangarajan Committee on Financial Inclusion.Vijay serves on the Insurance Regulatory and Development Authority, the Micro Finance Development and Equity Fund. He is the Principal Advisor to the Government of Rajasthan on Livelihoods. He serves on the Boards of Association for Sarva Seva Farms (ASSEFA), Gram Vikas, ARAVALI, Development Support Centre (DSC) and on the Executive Committee of the CGAP, a global consortium on microfinance.

BANDHAN MICROFINANCE

Kolkata-based microfinance institution Bandhan has many credits to its name. Apart from diversifying its microfinance loans into every possible stream, it hit headlines recently with its new product for the unemployed youth called “Employing the Unemployed”.
In less than eight years, Bandhan has emerged as one of the the largest microfinance institution in India and was ranked second in the world by Forbes magazine in its first ever listing of the world’s top 50 microfinance institutions (MFIs).  Bandhan’s steep rise in volume and reach is often attributed to its variety of products within the microfinance sphere.
Last year, it launched free schools in villages for underprivileged children up to the age of 14 years, who couldn’t ever go to school or had to drop out because their parents couldn’t afford to educate them.
Bandhan – meaning “togetherness” – offers microfinance services to poor women in the state of West Bengal. Founded by Mr. Chandra Shekhar Ghosh in November 2000, Bandhan started operations in 2002 and is currently registered with the Reserve Bank of India (RBI) as a non-banking finance company (NBFC).

Speaking on the occasion Pierre Hedel, Managing Director Rabobank Foundation said, “with a market share of 150 million farmers, the Indian microfinance sector is considerably more developed compared with other emerging countries. In the past couple of years, Rabobank Foundation and Rabo India Finance Limited have done considerable work in this sector.”
Rabobank Foundation, the knowledge partner of the Microfinance India Summit 2009 has commissioned the study, “Community-Owned Microfinance Institutions: Enabling double bottom-line impact”.
Vipin Sharma, CEO of ACCESS Development Services, said, ”community based microfinance organisations have a new meaning in the current sectoral context where’s there’s overdue emphasis on commercialization of the sector and rapid scale. “

Gregory Chen (Regional Coordinator, CGAP) observes that relevant policy needs to evolve as quickly as the microfinance sector. “Today’s policies reflect the thoughts and practices of the past. Policies today should be scripted so that they support future growth,” he explained while indicating that the Government was moving in a positive direction.

The subject of policy led easily into the slow-pace of the development of a business correspondent model for MFIs. “The key thing to keep in mind is relative risk: will MFIs, as business correspondents provide a safer alternative to the saving options currently available to the poor?” he points out.

With MFIs rising in efficiencies, they become ideal channels for several schemes that the Government currently drives. As he simply put it – “The Government can play an effective role as an architect in laying the framework for these schemes. Leave the delivery to MFIs.”

Can you share your perspective on L&T Microfinance growth and expansion strategy across India?

L&T Finance, which has grown from a Rs 700-crore to a Rs 5000-crore company,  provides a range of financial services such as tractor and construction equipment financing across rural areas. We entered the microfinance sector in 2008 and currently, we are adding 70,000 to 75,000 clients each month.  Our gross loan portfolio has grown to Rs 450 crore.

L&T Microfinance has primarily focused on the South Indian markets since it was established in 2008. Is the MFI foraying into Orissa and Gujarat due to the saturation of the microfinance market in South India?

The saturation of microfinance markets in South India is much hyped. Many districts in coastal Andhra Pradesh and Tamil Nadu do not have a high concentration of MFIs. The concentration of MFIs is higher urban areas – take for instance, the outskirts of Chennai.    Rural financing remains our core competency and there’s much scope for growth in the villages of South India. L&T Microfinance has gained prominence in Andhra Pradesh and Tamil Nadu, and it has also made in-roads into Maharashtra and Karnataka.  We are foraying into states such as Orissa in order to establish a pan-India presence.

The Indian microfinance sector, according to industry experts, is entering a consolidation mode. Are you planning to acquire regional MFIs to establish a pan-India presence?

L&T Finance is part of a nationally reputed conglomerate. We will continue to adopt an organic growth strategy to enter new markets and there are no plans for takeovers.

Are you exploring the possibilities of tapping private equity?

We have the financial backing of our parent company and private equity funding is not needed.  However,  we may scout for opportunities in the future to enhance technical expertise through private equity investment.

Are you providing business development services for micro-entrepreneurs?

We are doing a pilot study on livelihood models to foster micro-entrepreneurship. L&T Microfinance needs a critical mass of clients before rolling out business development services.

Is L&T Microfinance also reaching out to micro-entrepreneurs who are graduating into the SME category?

The Gram Bandhu scheme has been developed for joint liability groups.  Micro-entrepreneurs who can graduate into the SME category may avail of the Udyog Bandhu scheme. However, it will take at least a few years to make a substantial number of Gram Bandhu clients graduate into Udyog Bandhu scheme.

Do you have a social performance management system in place?

A critical mass of clients is needed before we implement a SPM system. We are still concentrating on establishing our presence across the country.

The debate on mission drift in the microfinance sector has intensified in recent times. How does L&T Microfinance strike a balance between its social mission and financial targets?

As a publicly listed company, Larsen and Toubro has contributed to nation building. L&T Microfinance’s mission statement has a strong thrust on socio-economic empowerment.  Socio-economic change cannot be brought about by merely providing loans to women micro-entrepreneurs.  L&T Microfinance implements CSR projects in the villages in which it is operating. We have provided education and sanitation facilities to empower rural communities.

Microfinance Focus: Has the growing commercialization of microfinance institutions impacted the MFIs’ commitment to address alleviating poverty as their primary objective?

Irrespective of its impact, I believe that commercialization is necessary. An institution cannot become sustainable until it is commercialized. Subsidy can never give sustainability, it will only give dependence – all of us are aware of this, but tend to ignore this sometimes. In order to alleviate the large scale poverty in a big country like India, the institutions ought to scale up. We must remember that ‘Small is beautiful but big is necessary!’And if one scales up, commercialization is bound to happen. If a MFI is looking at making a significant contribution towards poverty alleviation, then it has to increase its volume. Cost effectiveness and efficiency is also taken care of when one increases its volume.

The commitment concern is being raised as some commercial minded people are entering the sector since they are allured by the immense scope of growth and success of the microfinance sector. I think I agree that the growing commercialization does have a hit on the commitment, for instance, the PE investors push for higher profits – and this does have an impact. But at the same time it may not be right for us to hold them responsible totally for this growing commercialization. There are other factors also that play behind this. But it all depends on the leader, I guess. His mindset and inclination to work for the poor has to be on the right track. If the leader is committed to alleviate poverty as its primary objective then the institution shall also be unswerving to its goal.

* MFI’s have recorded about 8.5 million clients during the year 2008-09, a growth of 60% over the previous year.
* More than 50 percent of low income households are covered by some form of microfinance product
* The total outstanding microfinance loans posted a growth rate of 30% or 359.39 billion over the last year’s level of Rs 229.54 billion.
* The overall coverage of the sector is estimated to have reached 76.6 million against 59 Million last year.

* The SHG loan outstanding has increased by Rs. 71.5 billion with an addition of 6.9 million clients.
* At the current growth rates, MFIs might outstrip the SBLP in portfolio volumes soon.
* Some parts in Karnataka faced entrenched default constituting a portfolio share of less than 0.5%.
* MFIs so far reached 234 of the 331 poorest districts identified by the government.
* SBLP regstered a decline of number of women SHGs from 82.5% in March 2007 to 80.4% in March 2008.
* The microfinance penetration index shows especially in Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh compared to extraordinary levels reached in Andhra Prades, Karnatana and Tamil Nadu.

While last year’s report focused on the increased risk in the sector, this years’ report takes stock of the uninterrupted growth rate of the sector despite several internal and external adversities.