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Business & Development Correspondent Model adopted by NABFINS –
Viability Study
1
FOREWORD
Business Correspondent Model (BC Model) or the third party agent model of banking, is one of the several measures introduced by RBI to achieve the larger goal of financial inclusion in India. This model has been introduced by the RBI in 2006 on the recommendations of the Khan Committee report and it permits banks to appoint third party agents to offer banking and financial services on their behalf. A wide range of institutions and individuals can work as Business Correspondents on behalf of the banks. BCs operate in urban and rural areas where banks do not have their branches. NABFINS, a subsidiary of NABARD, has adopted a Business & Development Correspondent (B
& DC) Model for undertaking microfinance activities, which has attracted around 200 B & DCs
throughout the country. This model is different from that adopted by many banks in the
sense that since NABFINS is a non-deposit taking NBFC, the B & DCs here are not involved in
deposit mobilisation or remittance activities. The B & DCs are involved mainly in lending
activity of NABFINS. In the model adopted by banks, the BCs are like extension of their
branches. However, the NABFINS B & DCs are not extension of its system but partnership
with independent institutions, besides the major activity of lending.
Bankers Institute of Rural Development (BIRD) undertook the study to assess the costs and
revenues for the B & DCs and thereby the viability of the B & DC model adopted by NABFINS.
The study was conducted by Shri U.D.Shirsalkar, DGM/FM, BIRD, Lucknow and Shri K. Bharath
Kumar, DGM/FM, BIRD, Mangalore.
BIRD places on record its appreciation of the work done by NABFINS in fulfilling the credit
needs of the poor people (especially women from rural areas) and thank NABFINS for giving
BIRD this opportunity to study the B & DC model from close quarters. Our thanks are due to
Padmashri Shri Aloysius P. Fernandez, Chairman, Shri V. Maruthi Ram, Managing Director, Mr.
Ashutosh Kumar, Chief Executive Officer, Mrs. Suseela Chintala, GM, Mr. B. Satish Rao, DGM
and all other staff members of NABFINS at HO Bangalore and at district offices for supporting
us in conducting this study.
We hope the study findings will be useful in getting an insight into the B & DC model of
NABFINS and initiating remedial action, wherever necessary, to increase the business of
NABFINS.
K.K.Gupta
Director
BIRD, Lucknow
31 October 2014
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Contents Executive Summary …………………………………………………………………………………………………..3 Chapter 1 – Financial Inclusion and the Business Correspondent Model………………….…7 Chapter 2 – Business & Development Correspondent Model of NABFINS………………….11 Chapter 3 – Analysing the B & DC Model……………………………………………………………….….16 Chapter 4 – SWOT Analysis of the Model………………………………………………………………….30 Chapter 5 – Major Challenges, Issues and Risks in NABFINS Model……………………..……32 Annexures………………………………………………………………………………………………………………..38
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EXECUTIVE SUMMARY
It is important that poor families are able to access a wide range of financial services and invest in livelihood generating opportunities to improve their standard of living. The Business Correspondent (BC) Model was initiated by the Reserve Bank of India (RBI) in 2006 to promote financial inclusion in India. Under this framework, banks are permitted to use the services of third party agents as BCs to provide banking and financial services, such as credit and savings, on their behalf. A large number of organisations have begun working as BCs for banks since inception of the BC model. However, while some of these organisations have witnessed business growth in terms of client outreach, many are struggling to remain financially viable. NABARD Financial Services Limited (NABFINS) is a subsidiary of National Bank for Agriculture and Rural Development (NABARD) with equity participation from NABARD, Government of Karnataka, Canara Bank, Union Bank of India, Bank of Baroda, Dhanalakshmi Bank and Federal Bank. It is a non-deposit taking NBFC registered with Reserve Bank of India and has permission to operate throughout India. The main objectives of the Company are to provide financial services in two broad areas of agriculture and microfinance. NABFINS operates with a mission of ‘Business with Growth’ and with a view to achieving this mission has partnered with Business Correspondents’ across the country. NABFINS call them Business & Development Correspondents (B & DC) since they are involved in providing other support / development services in areas like improving quality of soil, management of water, creating an environment to support dry-land agriculture, sustainable farming, animal care, asset maintenance, etc., which help to reduce the risk of the borrower and make the credit productive and efficient. NABFINS, for undertaking microfinance activities, has adopted the B & DC Model which has
attracted around 200 B & DCs throughout the country. This model is different from that
adopted by many banks in the sense that since NABFINS is a non-deposit taking NBFC, the B
& DCs here are not involved in deposit mobilisation or remittance activities. The B & DCs are
involved mainly in lending activity of NABFINS. In the model adopted by banks, the BCs are
like extension of their branches. However, the NABFINS B & DCs are not extension of its
system but a partnership with independent institutions, for undertaking the activity of
lending. The study was undertaken to assess the costs and revenues for the B & DCs and
thereby the viability of the B & DC Model adopted by NABFINS.
The report has been structured in the way that Chapter 1 provides a brief background behind
introduction of Financial Inclusion and Business Correspondent model by the Reserve Bank of
India and the salient features of the model. It also lists out the objectives, scope,
methodology and limitations of our study. Chapter 2 gives details of the Business &
Development Correspondent Model adopted by NABFINS. Chapter 3 analyses the B & DC
Model of NABFINS commenting upon selection of NGOs to act as B & DCs, capacity building
of B & DC staff, Gradation of SHGs, disbursement and recovery of loans, Post-disbursement
monitoring, commission structure of NABFINS, costs, volumes & viability, management
information system and clients’ perspective on the model. Chapter 4 indicates the SWOT
analysis of the model. The final chapter summarises findings and dwells on challenges, key
issues and risks in the Model.
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KEY FINDINGS
NABFINS adopts a critical process for selecting and empanelling the B & DCs which
begins at the district office level.
NABFINS was doing capacity building of B & DC staff by imparting a one day ‘Policy
Orientation Training’ conducted by district officials of NABFINS and thereafter by
conducting a three day programme covering aspects like SHG concept, Book Keeping,
Records Maintenance, loan documentation, route planning, operations using excel
sheet, etc.
SHGs were promoted under different schemes like – (i) SHPI scheme of NABARD (ii)
SHPI scheme of NABFINS (iii) Promoted by the organisation from its own resources or
under any other government programme. NABFINS adopted all the three models for
financing to SHGs. The three principals followed by NABFINS were – (i) Need based
financing (ii) Adequate financing and (iii) Doorstep delivery with transparency.
NABFINS staff at district level had put these principals into practice while selecting,
grading and financing the SHGs.
NABFINS was grading the groups based on parameters like monthly savings of
members, internal loaning, group administration, monthly meetings, attendance in
meetings, financial transactions, record maintenance, repayment of internal lending,
number of members availing loans, number of members repaying regularly, asset
quality, etc., and based on gradation, a decision on financing the group or otherwise
was taken.
Repayment of loans was done on a monthly basis by adopting equated instalment
method. The repayment period kept by NABFINS was minimum 12 months and
maximum 36 months.
Every district office of NABFINS was maintaining separate Disbursement Accounts and
Recovery Account. To facilitate remittance of funds by B & DCs NABFINS maintained
Recovery Account in five different banks viz., SBI, SBM, Indian Bank, Canara Bank and
UBI.
NABFINS was offering commission of 1% on disbursement of loans and 1% on amount
recovered, to the B & DCs. Most of the B & DCs expressed that the commission paid
was adequate.
B & DCs were leveraging on their existing infrastructure for implementing NABFINS
project. As such there was no additional cost involved on infrastructure to any of the
B & DCs on account of NABFINS project.
Most of the B & DCs were not maintaining income and expenditure details on account
of NABFINS project separately.
Except in three B & DCs (READS, Tumkur, CREDITI, Mysore and St. Thomas CET, Erode)
which had reportedly generated a negative surplus in the first year of project
implementation, most of the other B & DCs had generated surplus due to
implementation of NABFINS project.
Income from NABFINS project was in the range of 1.7% to 71% of the total income of
the B & DCs. Further, the expenditure on account of NABFINS project was observed to
be in the range of 1.9% to 67%.
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In case of B & DCs where the data for more than one year was available, the share of
income from and expenditure on account of NABFINS project was found to be
progressively increasing indicating more volume of business with NABFINS.
SAMARASA, Bidar, however, reported a negative surplus in second and third year after
having a marginally positive surplus in the first year.
Recovery was 100% in most of the B & DCs visited. However, in some places, B & DCs
faced recovery problems due to various reasons.
The Management Information System (MIS) in most of the B & DCs was found to be
weak.
Members of all SHGs visited expressed that they were very happy with NABFINS
project since the procedures involved were simple, loans were timely, delivered at
their doorstep and recovery effected in their meetings.
The B & DC model adopted by NABFINS has resulted in rapid growth of the
organisation. However, NABFINS is heavily dependent for its business on B & DCs.
Although due care is taken at the time of selection and empanelment of B & DCs, the
quality of all B & DCs was not same. Further, the flip side of the model is that the same
B & DCs may migrate to other agencies for higher commission.
Signs of fatigue have started appearing in some B & DCs from Karnataka associated
with NABFINS for three / four years where group members have defaulted in
repayment of loan and some of these loans have become NPA. Default by groups was
also observed in Kamargaon village of Washim district of Vidarbha.
In order to dilute the dependence on B & DCs, a diversified model of lending (viz.,
direct lending to SHGs) may also be adopted by NABFINS. Selectively, direct financing
may be resorted to particularly in areas where adequate B & DCs are not available.
This may be started on a pilot basis. This will reduce dependence on B & DCs and also
put pressure on them that if they did not perform satisfactorily, NABFINS could
directly chip in for lending to SHGs.
Most of the B & DCs visited did not show data separately on Income & Expenditure
due to NABFINS project in their final accounts. In case of some B & DCs, the income
from NABFINS project formed almost 60% of the total income suggesting thereby that
the project was crucial to the B & DC. However, the Income & Expenditure Account
did not reveal income separately from NABFINS project.
The success of NABFINS programme largely depends on new SHGs formed by B & DCs
which will become potential borrowers in future for NABFINS. The progress in
promotion of SHGs by some of the B & DCs was not satisfactory. No targets were
given by some B & DCs to staff for promotion of new SHGs. Therefore scaling up
business operations with such B & DCs may suffer once the existing stock of SHGs is
covered. It is therefore necessary that B & DCs always make efforts for promotion of
new SHGs and give information on this on a regular basis to NABFINS. However, no
information is available with NABFINS on new SHGs formed by B & DCs. There is
therefore a need to introduce a return to be furnished by B & DC to NABFINS indicating
the progress of SHG promotion, periodically.
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NABFINS had supplied Point of Sale (PoS) machines to all B & DCs for issuing receipts
on the spot to SHGs making repayment, to ensure transparency in dealing. However,
PoS machines supplied by NABFINS were not functioning satisfactorily at many places.
Receipts not getting generated and paper getting stuck up in the machine were the
common problems. There were connectivity / poor signal issues too which resulted in
differences in details like payment due date, manual date of receipt, PoS collection
date, etc.
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Chapter 1
Financial Inclusion and the Business Correspondent Model
Indian economy in general and banking services in particular have made rapid strides in the recent past. However, a sizeable section of the population, particularly the vulnerable groups, such as weaker sections and low income groups, continue to remain excluded from even the most basic opportunities and services provided by the financial sector. In order to address the issues of financial inclusion, the Government of India had constituted a “Committee on Financial Inclusion” under the Chairmanship of Dr. C. Rangarajan. The Committee submitted its final report in January 2008. As per the Committee Report, access to finance by the poor and vulnerable groups is a prerequisite for poverty reduction and social cohesion. This has to become an integral part of our efforts to promote inclusive growth. In fact, providing access to finance is a form of empowerment of the vulnerable groups. Financial inclusion denotes delivery of financial services at an affordable cost to the vast sections of the disadvantaged and low-income groups. The various financial services include credit, savings, insurance, payments and remittance facilities. The objective of financial inclusion is to extend the scope of activities of the organized financial system to include within its ambit people with low incomes. Through graduated credit, the attempt must be made to lift the poor from one level to another so that they come out of poverty. The NSSO data reveal that 45.9 million farmer households in the country (51.4%), out of a total of 89.3 million households do not access credit, either from institutional or non-institutional sources. Further, despite the vast network of bank branches, only 27% of total farm households are indebted to formal sources (of which one-third also borrow from informal sources). Farm household not accessing credit from formal sources as a proportion to total farm households is especially high at 95.91%, 81.26% and 77.59% in the North Eastern, Eastern and Central Regions respectively. Thus, apart from the fact that exclusion in general is large, it also varies widely across regions, social groups and asset holdings. The poorer the group, the greater is the exclusion.
The Rangarajan Committee has defined Financial Inclusion as "the process of ensuring access
to financial services and timely and adequate credit where needed by vulnerable groups such
as weaker sections and low income groups at an affordable cost.”
What is the Business Correspondent Model?
Business Correspondent Model (BC Model) or the third party agent model of banking, is one
of the several measures introduced by RBI to achieve the larger goal of financial inclusion in
India. This model has been introduced by the RBI in 2006 on the recommendations of the
Khan Committee report and it permits banks to appoint third party agents to offer banking
and financial services on their behalf. A wide range of institutions and individuals can work as
business correspondents on behalf of the banks. BCs operate in urban and rural areas where
banks do not have their branches. Technology service providers have a critical role to play in
this model, as they reduce the cost per transaction and serve as a link between the bank, BC
and the customer. BCs either use the Smart Card Based Kiosk model or the Mobile handset-
based model. They work on a commission basis and are paid by the bank.
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In January 2006, the RBI issued detailed guidelines on the Business Correspondent Model
which were subsequently revised in September 2010. The salient features of RBI guidelines
are as under.
The banks may engage the following individuals / entities as BC
o Individuals like retired bank employees, retired teachers, retired government
employees and ex-servicemen, individual owners of kirana / medical / Fair
Price shops, individual Public Call Office (PCO) operators, agents of Small
Savings Schemes of Government of India / Insurance Companies, individual
who own petrol pumps, authorised functionaries of well-run Self Help
Groups (SHGs) which are linked to banks, any other individual including those
operating Common Service Centres (CSCs);
o NGOs/MFIs set up under Societies / Trust Acts and Section 25 Companies;
o Cooperative Societies registered under Mutually Aided Cooperative Societies
Act / Cooperative Societies Acts of States / Multi State Cooperative Societies
Act;
o Post Offices; and
o Companies registered under the Indian Companies Act, 1956 with large and
widespread retail outlets, excluding Non-Banking Financial Companies
(NBFCs)
While a BC can be a BC for more than one bank, at the point of customer interface,
a retail outlet or a sub-agent of a BC shall represent and provide banking services of
only one bank. The banks are fully responsible for the actions of the BCs and their
retail outlets / sub-agents.
The scope of activities of a BC may include (i) identification of borrowers; (ii)
collection and preliminary processing of loan applications including verification of
primary information / data; (iii) creating awareness about savings and other
products and education and advice on managing money and debt counselling; (iv)
processing and submission of applications to banks; (v) promoting, nurturing and
monitoring of Self Help Groups / Joint Liability Groups / Credit Groups /others; (vi)
post-sanction monitoring; (vii) follow-up for recovery, (viii) disbursal of small value
credit, (ix) recovery of principal / collection of interest (x) collection of small value
deposits (xi) sale of micro insurance / mutual fund products / pension products /
other third party products and (xii) receipt and delivery of small value remittances /
other payment instruments.
The activities to be undertaken by the BCs would be within the normal course of the
bank’s banking business, but conducted through the BCs at places other than the
bank premises / ATMs
The banks may pay reasonable commission / fee to the BC, the rate and quantum of
which may be reviewed periodically. The agreement with the BC should specifically
prohibit them from charging any fee to the customers directly for services rendered
by them on behalf of the bank
9
Agent banking models are using a variety of new technologies as delivery channels, the most
common of which are Point-of-Sale (POS) enabled devices and mobile phones for securing
and processing transactions.
About NABARD Financial Services (NABFINS)
NABARD Financial Services Limited (NABFINS) is a subsidiary of National Bank for Agriculture
and Rural Development (NABARD) with equity participation from NABARD, Government of
Karnataka, Canara Bank, Union Bank of India, Bank of Baroda, Dhanalakshmi Bank and Federal
Bank. It is a non-deposit taking NBFC registered with the Reserve Bank of India and has
permission to operate throughout India. The main objectives of the Company are to provide
financial services in two broad areas of agriculture and microfinance. NABFINS provides credit
and other facilities for promotion, expansion, commercialisation and modernisation of
agriculture and allied activities. NABFINS also engages in the business of providing micro
finance services (with or without thrift) and other facilities to needy and disadvantageous
sections of the society for securing their prosperity in both rural and urban areas.
NABARD, which pioneered the world’s largest microfinance movement, while promoting
NABFINS has envisaged that NABFINS shall evolve into a Model Microfinance Institution to
set standards of governance among the MFIs, operate with exemplary levels of transparency
and operate at reasonable / moderate rates of interest.
About the Study
Since inception of the BC model, a large number of organisations are now working as BCs/BFs
for banks and, while these agencies are experiencing business growth in terms of client
outreach and transaction volumes, many are struggling to remain financially viable. Even
though the current model seems to be unviable for most BCs, a large majority of BCs continue
to believe that this model has the potential to thrive in the long run by expanding the existing
client base and adding value added services.
NABFINS, for undertaking microfinance activities, has adopted a Business & Development
Correspondent (B & DC) Model which has attracted around 200 B & DCs throughout the
country. This model is different from that adopted by many banks in the sense that since
NABFINS is a non-deposit taking NBFC, the B & DCs here are not involved in deposit
mobilisation or remittance activities. The B & DCs are involved mainly in lending activity of
NABFINS. In the model adopted by banks, the BCs are like extension of their branches.
However, the NABFINS B & DCs are not extension of its system but partnership with
independent institutions, besides the major activity of lending. The study was undertaken to
assess the costs and revenues for the B & DCs and thereby the viability of the B & DC Model
adopted by NABFINS.
Scope and Objectives of the Study
The study attempted to understand the financial viability of the B & DCs in order to assess the
feasibility of the model adopted by NABFINS. The study also attempted to understand the
SHGs’ perspective and their satisfaction level. The objectives of the study were as under:
10
To study the different components of establishment and operation costs for the B &
DCs;
To study the commission structure offered by NABFINS to B & DCs and how does it
affects the operations of the B & DCs;
Whether the B & DC activity is a viable for the B & DCs;
The major challenges, issues and risks faced by NABFINS and B & DCs;
Whether the members of SHGs are satisfied with the services offered by NABFINS
through the B & DCs.
Methodology
The methodology adopted for the study was as under:
Visit to NABFINS office and discussions with NABFINS officials on various issues
related to the B & DC model adopted;
Visit to some of the B & DCs associated with NABFINS in the states of Tamil Nadu,
Karnataka, Andhra Pradesh and Maharashtra to understand the functioning of the
B & DCs, costs, revenues, volumes, etc.
Limitations and challenges of the study
Some of the B & DCs were unwilling or unable to share their financial data. This made
it difficult for the study team to comment on the viability of the model at the level of
all B & DCs visited.
The wide geographical coverage of the study, covering many districts in multiple states
led to many logistic challenges and was extremely time consuming.
11
Chapter 2
Business & Development Correspondent Model of NABFINS
Introduction
NABFINS operates with a mission of ‘Business with Growth’ and with a view to achieving this
missions has partnered with Business Correspondents’ across the country. In fact NABFINS
call them Business & Development Correspondents (B & DC) since they are involved in
providing other support / development services in areas like improving quality of soil,
management of water, creating an environment to support dry-land agriculture, sustainable
farming, animal care, asset maintenance, etc., which help to reduce the risk of the borrower
and make the credit productive and efficient. NABFINS selects and appoints those
development organisations as B & DCs which have good community engagement and
experience in working through the SHG model.
NGOs registered under different legal forms such as societies, trusts and Section 25
companies, other institutions like registered SHG Federations, producers’ collectives, farmers’
cooperatives, milk cooperatives, etc., and any other similar organisations which shall be
approved by the designated approving authorities can be considered as a B & DC for NABFINS.
Before an organisation could be considered as B & DC of NABFINS, it is necessary that:
It is registered for a minimum period of two years. This period could be relaxed based
on the critical assessments and approval from the authorised committee of NABFINS;
Any entity engaged in lending operations or activities unacceptable to NABFINS shall
not be considered eligible as B & DC, irrespective of its being qualifying in other
criteria;
NBFCs and individuals are not considered eligible to act as a B & DC of NABFINS.
Partners in the model and their role
In the B & DC model adopted by NABFINS, there are two major partners viz., NABFINS and
the B & DC. The technology provider also plays some role in the model. The Role of each
partner in the B & DC Model of NABFINS is indicated in Annexure - III
Selection & Empanelment Process
NABFINS adopts a critical process for selecting and empanelling the B & DCs which begins at
the district office level. The district office of NABFINS collects information on different
organisations working with community in group mode, from the concerned DDM, NABARD,
local Panchayat office, district collectorate and other development departments of the
Government, among others. No separate marketing of NABFINS scheme is done to attract
the B & DCs. The District Manager (DM) of NABFINS appraises the organisation based on
certain parameters. The other staff of the district office along with the DM also makes series
of random field visits to assess the quality of groups and the community involvement of the
organisation. While selecting an NGO as B & DC, the functioning of management, area of
operation, qualifications of the Chief Functionary, financial results from Balance Sheet for last
three years, etc., are taken into account.
12
Once the district team is satisfied with the initial observations, the district in charge
recommends the organisation for empanelment to Head Office. After the verification and
analysis of the registration documents and activities of the organisation at the Head Office, a
senior level team from the HO pays a visit to the organisation office and visits their groups on
a random basis. The team verifies the available information, collected earlier by the district
team, and collects additional information on the functioning of the organisation. If a decision
is taken to empanel the organisation as B & DC of NABFINS, a proper communication is sent
to the organisation and the senior representatives of the organisation, along with the
organisation head, are called for a final discussion with the senior management of NABFINS
/BC empanelment meeting at its head office. During this empanelment meeting, the district
team feedback as also secondary source feedback on the B & DC is also taken into account.
Further, the roles and responsibilities of the B & DC are clearly informed to the B & DC during
this meeting.
On satisfactory discussion, the B & DC agreement is signed by the organisation and NABFINS
for an initial fixed term of three years. The Stamp Duty payable for the agreement differs from
state to state. Security deposit of Rs.50000/- is taken by NABFINS from each B & DC at the
time of signing of the agreement. As per the terms of the agreement, the deposit amount is
refunded to the B & DC after all obligations are fulfilled (even if the agreement period is over).
The security deposit is not necessarily taken upfront. It could be paid by the B & DC in
instalments also or could be deducted from the commission payable to the B & DC. Interest
at mutually agreed rate of interest is paid to the B & DC on the deposit at the end of the
agreement period.
NABFINS work related staff list is subsequently obtained from the B & DC. NABFINS provides
accidental insurance / fidelity insurance / cash-in-transit insurance and ID cards to them.
The main responsibilities of the B & DC are as under:
Organise people (usually women) to form SHGs and train them on the SHG concept;
Train the leaders and other members on the group dynamics of SHGs;
Impart financial discipline among group members by encouraging regular savings and
facilitating timely repayments for their internal lending and to external agencies;
Impart leadership qualities among the members;
Train groups in accounting and bookkeeping and ensure proper maintenance of books
by SHGs.
NABFINS has also stipulated a list of activities and duties to be performed by the B & DCs.
Some of these related to the loan business of NABFINS are as under:
Aggregation of loan proposals for SHGs to be linked to NABFINS, documentation,
disbursement of the loan to individual SHG members and ensuring appropriate end
use of the loan;
Collection of interest and principal payable by SHGs to NABFINS as per the loan
repayment schedule and at an annual rate mutually agreeable from time to time;
13
Handling the cash flows between NABFINS to SHGs in the form of disbursements and
from SHGs to NABFINS in the form of recoveries;
The B & DC shall not collect service charge in any form from SHGs towards meeting
the expenses incurred in discharging its duties;
While B & DCs render their service to NABFINS, they shall not render similar services
as a B & DC to any other person, bank, NBFC or similar institutions in the areas
mutually agreed upon by the parties.
Agency withdrawal
During discussions with NABFINS officials, it was gathered that some of the B & DCs, after
diversifying their business, have left NABFINS. However, this number was negligible and most
of the B & DCs continued their association with NABFINS and there were no agency
withdrawal symptoms. However, it was agreed that there was no control of NABFINS in case
an agency decides to withdraw.
SHG & JLG Loan under B & DC Model
As and when the eligible group requires loan it approaches the B & DC. The B & DC staff
discuss with the groups and either ask the individual members to fill the survey sheet by
themselves or fill the same for the members in their presence. Once the individual household
survey sheets are filled and the group representatives and members’ identities and address
proofs are verified and collected, the B & DC sends the list of these groups, along with the
recommendation letter, for credit linkage, to the concerned district office of NABFINS. Any of
the below mentioned documents are taken as photo ID and address proof.
Voter’s identity card
Ration card with photo
Driving licence
Letter issued by the UIDAI containing details of name, address and Aadhaar number
Certification from the village sarpanch or the B & DC on the photo and address of
individual members
Grading of Groups
Groups nurtured and monitored by the B & DC for at least six months are included in the
loyalty list of the B & DC. Preparation of loyalty list and its submission to NABFINS has been
stipulated to ensure that the B & DC does not add to the list and submit request for loans to
SHGs not visited by NABFINS staff. Additions / deletions to the loyalty list by B & DC is
permitted. However, the new SHGs added to the list will be visited by NABFINS staff before
taking decision on financing them. The district team verifies the available group details.
After the initial verification, the groups are visited by the Financial Service Officer (FSO) of
NABFINS on a mutually agreed date and time. Both the FSO and the concerned B & DC staff
meet all the group members (including the non-borrowing members) at their usual meeting
place. The first meeting for grading consists of four distinct phases:
Know Your Customer (KYC) Phase
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Survey Sheet Verification Phase
Record Verification Phase
Grading Phase
Gradation of groups requiring loan upto Rs. 5.00 lakh is done by the FSO from the district
office of NABFINS. Gradation is done by FSO and the District Manager (DM) in case the loan
requirement is more than Rs. 5.00 lakh. Gradation exercise takes place in SHG’s meeting and
all members are required to be present during the gradation exercise. Groups are not
considered eligible for lending from NABFINS if there is no internal lending or there is default
continuously by any member in depositing the saving amount / repayment of dues.
Processing and Sanctioning of Loan
After the grading sheet, survey sheets and KYC copies of the group members are prepared,
the loan proposal along with the mutually agreed repayment schedule, is prepared in the
district office. In the repayment schedule, the processing fee and service tax are mentioned
for collection along with the initial instalments. Soft copy of loan proposal of five to seven
groups of one B & DC, which is scheduled to be disbursed on a single date, is forwarded to
the approvers at head office. Once the loan is approved at head office, fund transfer to the
district disbursement account is made as per the plan.
A day prior to the disbursement, the district team informs the local bank branch for the cash
requirement. At the same time, the district team informs the B & DC, which, in turn, informs
the group members about the date and time of disbursement.
Cash Disbursement Process
On the scheduled date and time, the DM, along with the concerned FSO and the B & DC staff,
carries the cash in a GPS-enabled four-wheeler to the group’s meeting place. During the
meeting, all group members, the DM, the concerned FSO and the B & DC staff must be
present. The disbursement process consists of the following phases:
Group Genuineness and Cohesion Assessment
FSO Work Verification
Documentation and Communication
Cash Disbursement
Technology
Handheld / Point of Sale (PoS) machines are given to B & DCs. These machines are used only
to issue receipts whenever recovery is effected from the group. Receipt from PoS machine is
issued in addition to the hand-written receipts.
Repayment Process
NABFINS generates a monthly demand sheet and forwards it to the respective B & DC in
advance for each day’s collection. The repayment dates are based on the group meeting date
or as per the group’s convenience. The repayment amount – as per schedule – is collected
by the B & DC staff from the group’s door step or as per the convenience of the group (as
15
decided by the group) and deposited in NABFINS accounts in one of the designated banks on
the same day or at the most on next day, in case the banking hours are over.
16
Chapter 3
Analysing the B & DC Model
As part of the study 18 B & DCs from 12 districts were visited. The details of the District
Offices of NABFINS, B & DCs and SHGs visited are indicated in Annexure – I. During the course
of the study, different components of establishment and operation costs for the B & DCs,
commission structure of NABFINS and viability of the activity for the B & DCs were studied.
The following observations are made:
Selection of NGOs to act as B & DCs
It was noticed in all the districts visited that NABFINS had selected the NGOs registered under
the respective State Societies Registration Acts or Indian Trust Act to act as B & DC. Of the B
& DCs visited, the NGO having oldest registration was GUARD, Mysore (1983-84) while Centre
for Rural Education Development and Innovative Technologies of India, Mysore was
registered in 2007. These NGOs were working in fields of women empowerment, watershed
development programmes, High Risk Groups (HIV / AIDS) programmes, programmes of
Ministry of Food Processing, programmes of Women & Child Development Departments,
Programmes of Action Aid India – violence against women – development of community
leaders, capacity building of elected representatives under UNDEP programmes, protecting
property rights of women under IFES Project, House for Houseless Programme supported by
the Swiss Development Cooperation, NREGS, Sarva Shiksha Abhiyan, etc. As part of entry
point programmes, in some of these projects, the NGOs had promoted women SHGs. While
selecting the NGOs, NABFINS had followed the procedure indicated in earlier pages. As on
the date of the visit, 198 B & DCs were associated with NABFINS.
Capacity Building of NGO staff
After empanelment of NGO to act as B & DC of NABFINS, the staff of B & DC engaged in
NABFINS project was imparted a one day ‘Policy Orientation Training’ by district officials of
NABFINS in which the process of linking of SHGs, operations of PoS machine, identification of
fake notes, Do’s and Don’ts of the project were explained. This programme is conducted in
NGOs office. Thereafter, a three day programme covering aspects like SHG concept, Book
Keeping, Records Maintenance, loan documentation, route planning, operations using excel
sheet, calculation of interest on loans at reducing balance method, monthly repayment
schedule, etc., is conducted by NABFINS HO officers. All the B & DCs visited expressed
satisfaction on the conduct and contents of these programmes. Expenditure details on
capacity building of B & DC staff were not available at the district offices of NABFINS.
Efforts made to popularise the model
NABFINS staff at the district level constantly looked out for good working NGOs for partnering
with NABFINS as B & DC. Besides, the staff also remained in touch with DDM, NABARD, LDM
and Development Departments of Government to identify new partners. HO of NABFINS also
interacted with MCID at NABARD, ROs to identify new partners for expansion of their B & DC
network.
17
Gradation of SHGs, disbursement and recovery of loans
All B & DCs visited during the study were preparing a loyalty list of SHGs and submitting the
same to district offices of NABFINS. The loyalty list included SHGs in existence and operating
as per the norms for a minimum period of six months. NABFINS was insisting on submission
of loyalty list to ensure that the loan proposals of SHGs included in the loyalty list only were
sanctioned. B & DCs were modifying the loyalty list as and when any new SHGs were
promoted but approval to the modified list was granted only after the NABFINS staff visited
the newly included SHGs.
SHGs were promoted under different schemes like – (i) SHPI scheme of NABARD (ii) SHPI
scheme of NABFINS (iii) Promoted by the organisation from its own resources or under any
other government programme. NABFINS adopted all the three models for financing to SHGs.
The three principals followed by NABFINS were – (i) Need based financing (ii) Adequate
financing and (iii) Doorstep delivery with transparency. NABFINS staff at district level had put
these principals into practice while selecting, grading and financing the SHGs. NGOs having
more than 400 groups were not considered eligible for assistance under NABFINS SHPI
project.
NABFINS was grading the groups based on parameters like monthly savings of members,
internal loaning, group administration, monthly meetings, attendance in meetings, financial
transactions, record maintenance, repayment of internal lending, number of members
availing loans, number of members repaying regularly, asset quality, etc., and based on
gradation, a decision on financing the group or otherwise was taken. For loan requirement
upto Rs.5.00 lakh, gradation was done by FSO and for loans beyond Rs.5.00 lakh, it was done
by FSO and District Manager of NABFINS together as per the norms. All members of the
groups were required to be present at the time of gradation and the gradation exercise was
usually carried out during meeting of SHGs. The groups did not get any credit for gradation in
case they had not resorted to internal lending or a member had defaulted for more than three
months for depositing saving amount or repayment of internal loan. Each group had to score
minimum 70% marks to become eligible for NABFINS loan. After formation of the group,
minimum six months period had to lapse for the group to become eligible for loan. Other
eligibility criteria stipulated for groups was internal lending, proper book keeping, members’
attendance in meetings, recovery performance, etc. NABFINS was also undertaking critical
rating of SHGs before sanction of loan. It was observed that this practice was followed in all
the NABFINS offices visited.
Groups receiving satisfactory gradation were considered eligible for lending. For this purpose,
a request letter/sponsorship letter was submitted by the B & DC indicating the requirement
of groups. In each sponsorship letter usually proposals of seven to eight groups were
included. In order to arrive at the amount of loan eligibility of the group, the concept of
surplus (Income less Expenditure) was adopted. Surplus was calculated member-wise and
thereafter group-wise. Half of the surplus multiplied by the tenure of the loan (12 months or
24 months as per the convenience of the groups) would be the maximum loan eligibility of
the group. Other criteria for deciding the loan eligibility was the quantum of savings and
18
internal lending. The maximum loan eligibility was however restricted to the surplus worked
out as indicated above. This practice was followed in most of the districts visited.
In many cases, the groups availing loans from NABFINS had earlier availed loans from banks
or from moneylenders. All the groups visited had unanimously mentioned that the NABFINS
system of lending was better and that they did not prefer bank loan any longer due to
following reasons.
Delay in sanction of loans;
Long processes involved in sanction;
Members had to visit the bank branch several times;
Lengthy documentation; and
Some groups were not able to fulfil the requirements of banks
NABFINS loan was preferred on account of following reasons.
In NABFINS project, there was doorstep delivery of the loan amount. Further, recovery
was also effected in the village of SHGs. There was thus no loss of wages on these
counts;
Comparatively easier procedures;
NABFINS loans available in a short period of time;
Disbursement in the presence of all members. This ensures full transparency;
Quantum of loan was comparatively more;
Cash payment to all members;
Proper follow-up, counselling etc., from the B & DC staff. So, issues related to non-
payment of dues did not arise;
Monthly repayment keeps the group alert. Therefore the possibility of the loan turning
NPA was less; and
Timely assistance for farming operations
NABFINS HO would sanction the loan amount to SHGs. Disbursement of loan to SHGs was
done in two ways. In some cases, the amount was directly being credited by NABFINS, HO to
the account of concerned SHGs from which the SHGs would withdraw for disbursement
amongst members. The other system was to remit the loan amount to the district office of
NABFINS. The district office would withdraw cash and disburse the loans to SHGs at their
doorstep in the presence of all members, representatives of the B & DC and NABFINS staff.
Loans were usually disbursed within a period of seven days from gradation. In most of the
places visited, the system of cash disbursement in SHG villages was followed. The activities
for which loans were availed by SHGs included animal husbandry, crop production, other
income generating activities, house repairs, construction of house, tailoring, candle making,
beauty parlour, vegetable vending, purchase of auto rickshaw, stone polishing, agarbathi
making, garment making, fruit vending, education, etc. Disbursement of loan was being made
in a special meeting conducted by SHGs during which all members must compulsorily remain
present. Groups were required to pass a special resolution for availing loan and paste the
repayment schedule in minute books. NABFINS charged interest @ 15% (for loan upto Rs.
3.00 lakh), 16% (for loans above Rs.3.00 lakh and upto Rs. 5.00 lakh) and 16.75% (for loan
19
amount beyond Rs.5.00 lakh). Processing fee of 1% on total amount disbursed and service
tax @ 12.36% on processing fee was being recovered from the SHGs along with the first
instalment. District offices in Karnataka financed 75 to 80 groups per month whereas the
number groups financed per month was lower in Vidarbha region of Maharashtra where most
of the B & DCs had been associated with NABFINS for last one year or so.
On the basis of group visits made, it can be said that the average loan size per group in this model was substantially higher than the bank linkage model. This was due to the fact that NABFINS was also catering to the ‘better-off’ groups in the SHG space. These groups had the appetite to absorb higher dose of credit which in turn was invested in their income generation activities resulting in a steady cash flow, prompt repayments and repeat linkages. This cycle of borrowing and prompt repayment will help both the B & DCs and NABFINS to earn higher commission and better bottom-line respectively.
Repayment of loans was done on a monthly basis by adopting equated instalment method.
The repayment period kept by NABFINS was minimum 12 months and maximum 36 months.
Groups would indicate the date in each month convenient to them on which the repayment
from all members would be collected and the sum handed over to the representative of B &
DC. Generally repayment was effected on the date of meeting of the groups. Representatives
of B & DC would collect the amount of recovery from all groups repaying on same date in
manner indicated above and issue receipt generated by PoS machine to the group. As on the
date of visit, the system of issue of receipts generated by PoS machine as well as manual
receipts was being followed. It was gathered that NABFINS would shift entirely to the system
of PoS receipts from October 2014 onwards. The amount of recovery collected from all groups
in a day by the B & DC was required to be deposited in NABFINS accounts maintained with
designated banks.
The Flow Chart of lending and recovery process at B & DC level is indicated in Annexure-II
In order to avail more quantum of loan, tendency amongst groups to pre-close the loan
accounts was increasing. This was being discouraged by NABFINS. In case the loan was pre-
closed one or two months in advance, second loan was being considered, not otherwise.
NABFINS also allowed custom repayment period in which smaller instalments in certain
months when the income was less and larger instalments in other months depending on
income stream of groups, was allowed.
Every district office of NABFINS was maintaining separate Disbursement Account and
Recovery Account. To facilitate remittance of funds by B & DCs, NABFINS maintained
Recovery Account in five different banks viz., State Bank of India, State Bank of Mysore, Indian
Bank, Canara Bank and Union Bank of India.
As per the agreement, B & DC should insure against loss of cash in transit and damage to cash
by way of fire and other ways in office premises. However, none of the B & DC visited was
aware of this clause in agreement and had not made any insurance arrangements. It was
gathered that NABFINS had made arrangements for providing insurance cover for 24 hours
for cash in transit. However, none of the B & DCs visited were aware of this arrangement. On
20
some occasions, due to bank holidays or reaching the HQ after banking hours, the B & DC was
required to keep the cash recovered in its office beyond 24 hours for which no insurance
cover was available.
Post-Disbursement Monitoring
As per the policy, NABFINS staff was required to undertake post-disbursement and follow-up
visits to groups once in a quarter. However, this was not happening in all the places due to
staff shortage. NABFINS staff was able to visit the groups only two / three times during the
tenure of loan. The post-disbursement monitoring needs to be strengthened
Commission
NABFINS was offering commission of 1% on disbursement of loans and 1% on amount
recovered, to the B & DCs. No other commission for services like opening of account, deposit
and withdrawal facilitation etc., was paid as the B & DCs did not offer these services. Most of
the B & DCs expressed that the commission paid was adequate.
Point of Sale Machines
NABFINS had supplied Point of Sale (PoS) machines to all B & DCs for issuing receipts on the
spot to SHGs making repayment to ensure transparency in dealing. Apparent Technologies,
Chennai is the technology service provider for supply and maintenance of PoS machines.
Details like Group ID, loan account number, amount of recovery etc., were entered into the
machines. B & DCs were also required to upload the data available on PoS machine to the
NABFINS server at the end of the day so that the daily transactions of recovery from SHGs and
remittance of recovery amount to NABFINS account would get reflected in NABFINS records.
At many places visited, the B & DCs complained of poor connectivity / signal problems
resulting in their inability to issue on the spot receipts to SHGs. As NABFINS was planning to
totally do away with manual receipts from October 2014 onwards, the issue of poor
connectivity needs to be looked into. Different PoS machines were supplied to district offices
of NABFINS for uploading the details of disbursements on NABFINS server.
The role of each partner in the B & DC model is indicated in Annexure-III
Benefits to the partners in this model
Benefits to B & DC
i. B & DCs in their earlier avatar as SHG promoting institutions had promoted and nurtured the groups over a period of time.
ii. Originally some of these groups were credit linked to banks. iii. These NGOs did not get any commission from the banks for handholding the groups. iv. With the advent of NABFINS, the B & DCs were able to earn a commission of 2% on
the loan/recovery amount, which they would not have got in the event of bank linkage.
v. Higher quantum of loans from NABFINS (loans from NABFINS were not linked to the corpus) resulted in higher commission to B & DCs
21
Benefit to groups
i. The groups were getting both disbursement and recovery services at their doorstep. Hence, the group members saved on travel expenses besides not sacrificing their opportunity to earn daily wages.
ii. Since the loan size was not linked to the savings of the groups, they always got a higher quantum of loan.
iii. The waiting period from submission of loan application to loan disbursement was only 7-10 days.
iv. Interaction with the groups revealed that they did not face any hassles either in the first or subsequent credit linkages.
Benefit to NABFINS
i. At the time of entering agreement with NABFINS, the B & DC was required to submit a loyalty list of groups which it would bring into NABFINS fold. As a result, NABFINS enjoyed a captive customer base.
ii. Identification of groups which were eligible for credit linkage was done by the B & DC. iii. The B & DC, for payment of commission, was committed to recover both the principal
and interest amount on the agreed date from the groups and remit it into NABFINS current account, thus eliminating the botheration of collection, cash handling and remittance to HO.
Costs, Volumes and Viability of B & DCs
During the course of the study, 18 B & DCs were visited (details given in Annexure I). It was
observed as under:
B & DCs were leveraging on their existing infrastructure for implementing NABFINS
project. As such there was no additional cost involved on infrastructure to any of the
B & DCs on account of NABFINS project.
From some of the B & DCs, the position on total staff, staff recruited / engaged for
NABFINS work etc., was collected and the details are indicated in the following table.
Table – 1
Details of staff deployed by B & DCs for NABFINS project
Sr.No. Name of the B & DC District Total staff
Staff looking after
NABFINS work
Remarks
1 Group for Urban & Rural Development (GUARD)
Mysore 7 5 2 persons recruited for NABFINS project
2 Tribal and Rural Development Organisation (TARDO)
Mysore 10 4 No fresh recruitment
3 Centre for Rural Education Development and Innovative Technologies of India (CREDIT-I)
Mysore 6 3 No fresh recruitment
22
4 Jnana Chiguru Community Managed Resource Centre (CMRC)
Hunsuru 4 4 No fresh recruitment
5 The Rural Economic Agriculture Development Society (READS)
Tumkur 10 5 5 persons recruited for NABFINS project
6 KSERDS Bidar 5 5 No fresh recruitment
7 SAMARASA Bidar 14 5 2 persons recruited for NABFINS project
8 Rashtriya Yuva Kranti Bahuuddeshiya Mahila Vikas Sanstha
Wardha 5 5 1 person recruited after NABFINS
project
9 Aniket Bahuuddeshiya Samajik Shikshan Sanstha
Yavatmal 13 9 2 persons recruited for NABFINS project
10 Ashray Sevabhavi Society, Morshi Amravati 8 8 No fresh recruitment
11 Manoday Samaj Kalyan Sanstha, Kamargaon, Washim
Washim 10 6 No exclusive recruitment for NABFINS project
12 Navnirman Mahila Bahuuddeshiya Sanstha, Akola
Akola 25 5 5 persons recruited
13 Tejaswini Bahuuddeshiya Sevabhavi Vikas Sanstha, Hingna, Nagpur
Nagpur 21 4 4 persons recruited
14 Society of Noble Oath and Welfare (SNOW), Chittoor
Chittoor 22 7 No fresh recruitment
15 Centre for Education and Environmental Development (CEED)
Erode 11 9 No fresh recruitment
16 St. Thomas Charitable and Education Trust (STCET)
Erode 26 9 No fresh recruitment
17 Udhagamandalam Social Services Society (USSS)
Nilgiris 54 45 No fresh recruitment
18 Yuvaparivartan Trust Nilgiris 22 7 No fresh recruitment
It may be seen from the Table-1 that while ten B & DCs reported that there was no fresh
recruitment on account of NABFINS project, in remaining B & DCs fresh recruitment was
reportedly made exclusively for NABFINS project. It was observed during discussions that,
although some B & DCs had indicated that there were staff members looking after NABFINS
project work exclusively, in reality the staff was also involved in work related to other projects.
In some cases the staff earlier recruited for some other project was now drafted for NABFINS
project work after the earlier project closed. Such staff was not recruited for NABFINS work
but the B & DCs mentioned that their contract would have been terminated had they not
received approval for the NABFINS project.
23
Of the 18 B & DCs visited very few maintained data on expenditure and income on account of
NABFINS project separately. In other cases the B & DCs were not showing this data separately
for NABFINS project and therefore the details of income and expenditure, as told by the B &
DC staff, were noted. The details were as given in Table-2
Table-2
Details of Net Surplus to B & DCs from NABFINS project
(Amount in Rs.)
Sr.No.
Name of the B & DC Total Income Income due to
NABFINS project
Total expenditure
Expenditure on a/c of NABFINS project
Net surplus due to
NABFINS project
1 GUARD, Mysore
June 2013- July 2014 NA 1047185 NA 416000 631185
2 TARDO, Mysore
2013-14 NA 780000 NA 600000 180000
3 CREDITI, Mysore
2013-14 NA 636872 NA 852000 (-) 215128
4 CMRC, Hunsuru, Mysore
2011-12 300093 0 300924 0 NA
2012-13 501445 0 397328 0 NA
2013-14 742431 61425 765976 15750 45675
5 READS, Tumkur
2010-11 5136630 179800 5086979 180000 (-)200
2011-12 5380467 621098 5348481 450365 170733
2012-13 6467225 852516 6330219 792638 59878
2013-14 12035701 1470012 12137968 978000 492012
6 KSERDS, Bidar
2011-12 542606 335870 521871 258640 77230
2012-13 602968 404465 552306 338900 65565
2013-14 No details available with the NGO. Figures reportedly given to the auditor
7 SAMARASA, Bidar
2011-12 2182132 38475* 1794648 35000 3475
2012-13 2039039 310860* 2370510 *323500 (-)12640
2013-14 2455310 750963* 2304969 601462 (-)149501
8 RYKBMVS, Wardha The B & DC could not give details of Income & Expenditure Account and Balance Sheet for the years 2012-13 and 2013-14.
9 ABSSS, Yavatmal
2012-13 922575 97959 852466 73800 24159
2013-14 Details not available
10 ASS, Morshi, Amravati
2012-13 801010 58526 768529 58000 526
2013-14 Details not available
11 MSKS, Kamargaon, Washim
2012-13 1021948 NA 912010 NA
24
2013-14 Details not available
12 NMBS, Akola No details of Income & Expenditure, Receipts & Payments and Balance Sheets for previous years as well
as for 2013-14 were available with the B & DC
13 TBSVS, Hingna, Nagpur NABFINS project commenced in September 2013. Details of Income & Expenditure for 2013-14 not available
14 SNOW, Chittoor
2013-14 16123103 623698 6925885 459000 164698
15 CEED, Erode
2010-11 1229073 204476 1213999 64000 140476
2011-12 1334426 667904 1323771 586875 81029
2012-13 1688178 1204458 1672023 1128792 75666
2013-14 Details not available
16 St. Thomas CET, Erode
2010-11 4124137 58650 2946412 125463 -66813
2011-12 7012519 340000 6655506 264243 75757
2012-13 14700943 404816 14024025 276529 128287
2013-14 13071900 584556 11802474 290348 294208
17 Udhagamangalam SSS, Nilgiris
2011-12 10514992 727206 8443611 489425 237781
2012-13 17137411 1678430 14355915 1448950 229480
2013-14 Details not available
18 Yuvaparivartan, Nilgiris
2012-13 NA Audited account statements not made available
2013-14 NA *There was no mention about NABFINS funding in the audited Income & Expenditure A/ C and Receipts &
Payments Account. Commission received from NABFINS was indicated under income as “Administrative cost”.
Discussions with NABFINS staff at HO revealed that for a group size of 15, the average income
and expenditure for a B & DC would work out as under:
Table – 3
Average Income & Expenditure of B & DC
Average size of the group : 15
No of groups financed in two years – 100, Average size of loan per group – 3.70 lakh
Expenditure Income
Particulars Amount Particulars Amount
Travelling expenses – 3 visits in a month @ Rs.100 per visit – 72 visits in two years – for two persons
14400 Commission received on disbursement of Rs.3.7 crore
370000
Salary for two years - @ Rs.5000/- per head per month for two persons
240000 Commission received on recovery of Rs.3.7 crore
370000
Administrative Expenses 50000
Miscellaneous Expenses 15000
Total Expenditure 305000 Total Income 740000
Excess of Income over Expenditure 435000
25
The following observations are made
In some B & DCs the NABFINS projects were taken up in the year 2013-14. Hence
income and expenditure due to NABFINS project vis-à-vis total income and
expenditure of the B & DC could not be assessed.
Some of the B & DCs (especially from Vidarbha region of Maharashtra) were not
maintaining data on income and expenditure, balance sheet etc., due to which it was
not possible to comment upon impact on income and expenditure for these B & DCs
due to NABFINS project.
In many places, the Balance Sheets for 2013-14 were yet to be prepared. The relevant
data was reportedly given by the B & DCs to Chartered Accountants for preparing the
final accounts. Copy of the data submitted to CA was not available in B & DC records.
Most of the B & DCs were not maintaining income and expenditure details on account
of NABFINS project separately. These details were therefore worked out separately by
taking into account different items of expenditure incurred for NABFINS project and
income from commission received on disbursement and recovery as informed by the
staff of B & DCs.
Except in three B & DCs (READS, Tumkur, CREDITI, Mysore and St. Thomas CET, Erode)
which had reportedly generated a negative surplus of Rs.200, Rs.215128 and Rs.66813
respectively in the first year of project implementation, most of the other B & DCs had
generated surplus ranging between Rs.526 and Rs.631185 due to implementation of
NABFINS project. In the case of READS, Tumkur and St. Thomas CET, Erode which
reported a negative surplus in the first year as mentioned above, the project
generated surplus from second year onwards. The same is expected to happen in case
of CREDITI, Mysore when the NABFINS business in subsequent years goes up.
SAMARASA, Bidar reported a negative surplus in second and third year after having a
marginally positive surplus in the first year.
In case of six B & DCs (READS, Tumkur, KSERDS, Bidar, SAMARASA, Bidar, CEED, Erode,
St. Thomas CET, Erode and Udhamangalam SSS, Nilgiris) where data on income and
expenditure was available for more than one year, it was noted that, in case of
KSERDS, the net surplus dropped by 15% in the second year while in case of READS it
came down by 65% in the third year but went up by 72% in the fourth year. Net
surplus from NABFINS project came down by 42% and 6.6% in second and third
respectively in case of CEED, Erode whereas it went up by 69% and 129% in the third
and fourth year respectively in case of St. Thomas CET, Erode. In case of
Udhamangalam SSS, Nilgiris, the net surplus went down by 3.5% in the second year.
In case of SAMARASA, Bidar, the negative surplus due to NABFINS project reportedly
increased by 263% and 1083% in second and third year respectively.
Nine B & DCs had generated a positive surplus in the first year of project
implementation, three had a negative surplus in the first year while position in respect
of remaining six B & DCs could not be assessed since account details were not made
available.
The details of income and expenditure for B & DC on account of NABFINS project and
their share in total income and expenditure are given in Annexure-IV. As may be
26
observed therefrom, income from NABFINS project was in the range of 1.7%
(SAMARASA, Bidar – 2011-12) to 71% (CEED, Erode – 2012-13) of the total income of
the B & DCs. Further, the expenditure on account of NABFINS project was observed to
be in the range of 1.9% (SAMARASA, Bidar – 2011-12) to 67% (CEED, Erode – 2012-
13).
In case of B & DCs where the data for more than one year was available, the share of
income from and expenditure on account of NABFINS project was found to be
progressively increasing in most B & DCs indicating more volume of business with
NABFINS. This trend was, however, not observed in case of READS for the year 2013-
14 in which case both income from as also expenditure on account of NABFINS project
was observed to have come down marginally. The project is therefore found to be
viable in case of most of the B & DCs visited.
B & DCs which implemented the project for two / three years mentioned that in the
beginning, expenditure was more compared to the income since more cost was
incurred on SHG promotion, capacity building of SHGs, staff salaries, etc. In
subsequent years, when the number of SHGs financed went up, the viability of the B
& DC also improved. As regards minimum number of SHGs required to be credit linked
and minimum quantum of loan per SHG that may be disbursed to achieve viability, the
views were different. It was however generally accepted that with lending to 50
groups with a group loan size of Rs.2.5 lakhs and financing to 10-15 groups each
month, the B & DC may be in a position to achieve viability within a period of five to
six months. In Maharashtra, the groups were scattered and hence B & DCs were
required to incur more expenditure which delayed achievement of viability. However,
in case of a state like Tamil Nadu the groups were concentrated which reduced the
expenditure of B & DC and resulted in achieving viability in a shorter period with less
quantum of business.
Bulk of the expenditure of the B & DCs in respect of NABFINS work was towards staff salary and travelling expenses for monitoring and recoveries. While the staff salary shall be more or less fixed except for slight increase, travelling expenses of staff may show an increase due to increase in travel as more and more groups get linked with NABFINS. The B & DCs will also benefit in increased commission as more groups migrate from banks to NABFINS for their credit needs.
In the present model, the issue of sustainability of NABFINS was tied to the B & DC
network. The present model (in the absence of any other business vertical) had to
grow both wider and deeper and this aspect was critical to the growth and profitability
of NABFINS. As the B & DCs brought in more and more groups to NABFINS’ fold for
credit linkage, their commission recorded an upward growth besides resulting in the
growth of business of NABFINS and bottom-line.
The cost of funds for NABFINS was reportedly 7.75%. NABFINS was maintaining a
margin of 4.75% for lending to B & DCs.
Recovery of Loans
Repayment of loans by SHGs commenced one month after the date of disbursement. In case
of disbursements made during the period 25th to 30th of a month, the repayment commenced
27
from any date convenient to the groups from 1st onwards of next month. The minimum and
maximum amount of loans granted to SHGs were Rs.2.0 lakh and Rs.10 lakh (Rs.50000/- per
member as per RBI instructions). The minimum and maximum repayment period fixed was 12
months and 36 months respectively.
Recovery was 100% in most of the B & DCs visited. However, at some places B & DCs faced
recovery problems as mentioned below.
150 SHGs in Tumkur district defaulted in payment of dues amounting to Rs.47 lakhs
to NABFINS for more than 90 days. Of this, some amount was reportedly recovered
after March 2014. However, the district office of NABFINS was not in a position to
give these details.
Major reason for default was disintegration of groups, multiple borrowings from
various institutions, multiple membership in various groups, wilful default, death
of a member (other members not willing to pay the dues of deceased member),
migration, influence of defaulted group on other groups etc. Interestingly, the
default had occurred in case of old groups and in second or subsequent cycle of
loan. The period of default was less than a year. This brings in focus the
requirement of more vigorous follow-up on the part of B & DC and NABFINS district
office staff.
In a few cases, the B & DC staff (KIDS, Tumkur) had collected the recovery amount
from SHGs, issued receipts to them but misappropriated the amount instead of
crediting it to NABFINS account. A sum of around Rs.4.00 lakh was involved in this
fraud. The B & DC had paid some amount and remaining amount was reportedly
being recovered from the B & DC’s commission amount.
B & DCs like KIDS, SWARDS and ASSDT from Karnataka faced problems of recovery
from SHGs. NABFINS had issued notices to the defaulting members. The B & DCs
also on their part issued individual notices. However, NABFINS had not proceeded
legally against any of the SHGs for recovery of dues. Business with these B & DCs,
though reduced, had not been totally stopped by NABFINS.
As per the business model, NABFINS was in partnership with the B & DC. It could
not, however, proceed legally against B & DC in case of default.
Earlier, loans were also issued to JLGs. However, this had been stopped due to
recovery issues.
Management Information Systems
The Management Information System (MIS) in most of the B & DCs was found to be weak as
may be observed from the following details.
As per the agreement, B & DCs were responsible for maintaining the MIS specially
pertaining to loans provided by NABFINS and provide the same on monthly basis in
prescribed formats to the NABFINS. The basic details about the members of the
groups in terms of Know Your Customer (KYC) norms of RBI should be made available
to the NABFINS. However, no MIS was regularly being submitted by B & DCs to district
offices of NABFINS.
28
Earlier B & DCs were furnishing recovery details to district offices of NABFINS. But
there were reconciliation issues. Hence, the district offices have now taken up this
job.
Details of regular visits to SHGs by the B & DC staff are not available in NABFINS district
offices. There is no such statement prescribed by NABFINS for this purpose.
In some of the B & DCs visited, the audited Balance Sheets and Income & Expenditure
Accounts were not submitted to the NABFINS office regularly.
Demand Vs. Collection report was obtained by the district offices twice a month (for
1st to 15th by 16th of the month and for 16th to 25th by 26th of the month) from the B &
DCs. District offices of NABFINS submit this information to HO on 20th and 1st of every
month. Apart from this, no other statement / return is submitted by B & DC on a
regular basis to the district offices.
Business growth of NABFINS depends largely on the new SHGs formed by the B & DCs.
It is therefore necessary that NABFINS collect the data of new SHGs formed on a
regular basis. However, no return in this regard was prescribed for B & DCs.
B & DCs were facing high staff attrition. This affected NABFINS lending. NABFINS staff
at district level was not kept informed of staff movement by the B & DCs. With a view
to assessing the impact of B & DC staff movement on business, it is necessary that
NABFINS prescribe a regular statement of staff movement to be submitted by B & DC
staff on a quarterly basis.
Client perspective
NABFINS BC model involves financing to SHGs with B & DCs acting as partners in the project.
It is therefore necessary to understand the views of the members of SHGs on the model.
During the course of the study, 18 B & DCs and 24 SHGs from 11 districts were visited. The
following observations are made.
All B & DCs expressed satisfaction on NABFINS project and were willing to continue
with the project.
Members of all SHGs visited expressed that they were very happy with NABFINS
project since the procedures involved were simple, loans were timely, delivered at
their doorstep and recovery effected in their meetings which obviated the need of
visiting bank branch and lose a day’s wages. The B & DCs were building up capacities
of SHGs in areas like group dynamics, conduct of meetings, rules, regulations & goal
setting, documentation / book keeping, conflict resolution & leadership qualities,
gender equity, linkage & credit management, etc. Cost of such training programmes
was supported by NABARD and NABFINS under their respective SHPI projects. SHGs
expressed satisfaction on the capacity building measures.
As the purpose of loan was flexible, the members were able to utilise the loan amount
for any purpose they deemed fit for which loans will not be normally available from
banks.
The activities for which loans were availed by SHGs included animal husbandry, crop
production, other income generating activities, house repairs, construction of house,
tailoring, candle making, beauty parlour, vegetable vending, purchase of auto
29
rickshaw, stone polishing, agarbathi making, garment making, fruit vending,
education, etc. NABFINS followed the philosophy that repayment capacity rather
than the purpose was important. However the expectation is that 75% of the loans
should go for production purposes.
Most members expressed that they did not face any difficulty in making repayment
since the due date was known in advance. The SHGs also expressed satisfaction about
the services offered by the B & DCs.
As per the NABFINS norms all members should be present on the date of gradation
as well as on the date of disbursement. Details like rate of interest, repayment period,
processing charges, repayment instalment, etc., were read out to the members on
disbursement date. This ensured transparency and members were satisfied on this.
None of the groups were willing to shift loyalty from NABFINS to banks since they felt
that the B & DCs and NABFINS were taking good care of their requirements. Some of
the groups had earlier availed loans from other MFIs operating in their areas.
However, MFIs effected weekly recovery which was found to be inconvenient to
members. Further, their quantum of loan was also less compared to that given by
NABFINS.
Most of the SHGs expressed that the quantum of loan disbursed by NABFINS was low
and demanded more amount. In a bid to become eligible for second loan of higher
quantum, many SHGs were willing to pre-pay their existing loans.
In some groups 80% of the members did not have insurance cover. Many members
desired that other services like insurance may also be made available to them. In case
of groups promoted under NABARD SHPI project (Divyajyoti, Nagpur), micro
insurance of each member (By taking Rs.60/- from each member) was taken. This
gave members cover of Rs. 1.00 lakh in case of accidental death.
Rate of interest charged by the groups from members varied from place to place and
was in the range of 2% to 3% per month. In some cases, the groups were charging
interest from members at the same rate at which they availed loan from NABFINS.
Most of the groups had maintained record of savings, meetings conducted, internal
lending, etc.
In case of e-payment of loan amount to SHGs’ account, some groups expressed that
banks delayed payment of amount from their account on one pretext or the other.
Banks were not willing to pay the entire amount in one instalment. As a result the
groups were required to make several visits to the banks for withdrawal of loan
amount.
30
Chapter 4
SWOT Analysis of the Model
Strength
The greatest strength of NABFINS is that it has been promoted by one of the premier Development Financial Institutions in the country, i.e., NABARD. Further, Government of Karnataka, Canara Bank, Union Bank of India, Federal Bank and Dhanlaxmi Bank are its shareholders.
NABFINS is eligible for refinance from NABARD at a competitive rate which is lesser than the rate at which MFIs mobilise resources from banks.
The Board of the company has eminent people having good experience in development finance, rural lending, civil service, etc.
Due to its close proximity to NABARD, NABFINS is better placed to identify good working NGOs as BDCs for its operations.
Weakness
The affairs of the company are managed by people on deputation and staff engaged on contract basis. As a result, people in the organization may lack the feeling of corporate citizenship.
The size of the balance sheet of NABFINS as on 31 March 2013 was of the order of Rs.540 crore out of which borrowings from NABARD amounted to Rs.406 crore. This showed a heavy dependence on NABARD’s refinance as a source of funds for its business.
NABFINS had adopted the method of cash disbursement to the groups at their doorstep. Cash, after withdrawal from bank in district headquarters was transferred to a village for disbursement in a four wheeler. Groups were located far and wide and the four wheeler was required at times to travel more than 50 kms to reach the village. There was risk of an ‘inside job’ or robbery on the way.
Opportunities
Reluctance on the part of the banks in granting higher dose of credit to groups.
The cost of borrowings of MFI, lack of transparency in rate of interest charged by them and their collection methods work in favour of NABFINS.
Most of B & DCs of NABFINS were also associated with NABARD in implementation of one or other development programmes like watershed development, tribal development, JLGPI, etc. This resulted in constant monitoring of the NGO by DDM/RO, NABARD.
Among the B & DCs, NGOs partnering with NABARD were in majority. They bring with them the community they are working for as the clientele of NABFINS.
Whether it is SHG-BLP or MFIs’ lending to groups, much of the activity is centered in the southern part of the country. The rest of the country is a virgin market for NABFINS.
31
Threats / Challenges
Threat of B & DCs leaving NABFINS and migrating to another agency in the event of getting higher commission.
Due to the very nature of hiring staff on contract basis, there is a threat of staff attrition.
State driven models like SERP in A.P., MagalirThittam in T.N. are competing with NABFINS for the same set of clients.
There is clear and future danger of competition from NRLM as the scheme is attractive because of interest subvention and subsidy, though it is yet to be rolled out across the country.
32
Chapter 5
Major Challenges, Issues and Risks in NABFINS Model
Ever since NABARD launched the SHG-Bank linkage programme in 1992, the number of SHGs
in rural areas has gone up many folds. NABARD assists NGOs/Banks to act as SHPI for
promotion and capacity building of SHGs and releases grant for this purpose. The idea was to
promote more and more SHGs in rural areas, assist in their capacity building and finally link
them to banks so that small credit needs of SHGs are met and banks also benefit from regular
paying customers. The SHG model was also adopted in implementation of different
government programmes resulting in increase in number of SHGs. Though banks in some
areas extend finance to SHGs, in many places they are reluctant to do so due to the fear of
the loans turning into NPAs. During the course of the study, it was observed that the SHGs
preferred to look for other options of loan rather than approach banks due to following
reasons.
Many visits were required to be made to the bank for getting the loan sanctioned;
Banks insisted on fixed deposits and sometimes loan amount was disbursed after
deducting a sum towards fixed deposit;
There was no regular monitoring and follow-up of loans on the part of bank staff;
Quantum of loan sanctioned was less;
All members had to complete KYC formalities and had to be present in the branch at
the time of disbursement which was difficult;
SHGs found it difficult to complete the documentation formalities of banks.
Under such scenario, many micro Finance Institutions (mFIs) were set up to meet the urgent
and small credit needs of SHGs. NABFINS extends loans to SHGs by partnering with reputed
NGOs which act as Business & Development Correspondents (B & DCs) of NABFINS. The B &
DCs are not an extension of NABFINS, rather they act as partners. NABFINS earns a margin of
4.75% in this business and the B & DC model plays a very important role in NABFINS margin.
NABFINS believes that financial literacy should come before financing and therefore looks out
for partners who can play the role of spreading the financial literacy as also help in extending
finance. NABFINS aptly names such NGOs as Business & Development Correspondents rather
than calling them Business Correspondents. Day by day the NGOs involved in implementation
of developmental programmes are finding it difficult to get foreign funding, the donations are
coming down which is compelling the NGOs to look out for some other sources of funding to
implement their programmes. These NGOs are slowly moving towards NABFINS to do the
business.
During the course of the study, discussions were held with the representatives of 18 B & DCs
and 24 SHGs and their functioning studied closely. The following observations are made.
33
Scope for meeting credit needs of SHGs by adopting the B & DC model
Members of SHGs need small amount loans to carry out mainly farming operations and do
petty businesses in their villages. There is a huge potential for lending to SHGs. In the absence
of pro-active steps from formal credit channels like banks, the poor have no option but to
approach the moneylender, agricultural input traders, the local gold smith(for taking loans
against mortgage of gold ornaments) etc., to meet their requirement. This becomes a very
costly proposition to the poor. Thus, there is a need for institutions like NABFINS to meet the
credit requirement of the poor by following minimum required formalities. NABFINS is
fulfilling this requirement by way of partnering with B & DCs.
Positive features
NABFINS’ model has helped the groups to avail higher quantum of loans vis-à-vis bank linkage besides availing the same at their doorstep.
The entire operation of NABFINS is thoroughly transparent. Groups are aware about the interest they pay, the difference between interest calculated by adopting the reducing balance method and flat rate of interest method.
Audited account statements of B & DCs reveal that their incomes have risen after joining hands with NABFINS.
Interaction with the B & DCs and the staff in the district offices of NABFINS revealed that the company is very strict while rating the groups. There are instances where the groups were not able to pass the grading test. Though there is a demand by both the groups and B & DCs to relax the grading system, it is appreciable that the company has continued with the system of strict grading.
A few B & DCs expressed that NABFINS should extend insurance, both life and general, as a risk mitigation measure.
Challenges and Issues
The B & DC model adopted by NABFINS has resulted in rapid growth of the
organisation. However, NABFINS is heavily dependent for its business on B & DCs.
Although due care is taken at the time of selection and empanelment of B & DCs, the
quality of all B & DCs was not same. Further, the flip side of the model is that the same
B & DCs may migrate to other agencies for a higher commission.
Some of the B & DCs were found to be so casual in approach that they did not even
bother to furnish the information needed for the study although the formats were
supplied to them much in advance. The Executive Director of KSERDS, Bidar even did
not know the number of SHGs promoted by his organisation. At some places the staff
of NABFINS failed to put adequate pressure on B & DCs for submission of information.
Signs of fatigue have started appearing in some B & DCs from Karnataka associated
with NABFINS for three / four years where group members have defaulted in
repayment of loan and some of these loans have become NPA. Default by groups was
also observed in Kamargaon village of Washim district of Vidarbha.
34
The staff attrition rate in B & DCs is quite high and B & DCs have no control on this.
Some of the B & DC staff in Karnataka committed fraud by recovering amount from
SHGs but not depositing it in NABFINS account. The role of B & DC is only a supporting
one and NABFINS cannot proceed legally against the staff of B & DC in case repayment
does not come through.
In case NABFINS stops business with any of the B & DC, there is a likelihood that the B
& DC would not make efforts for recovery of existing dues. Therefore, business with
such B & DCs had to be continued. NABFINS dependence on such B & DCs for business
is a huge risk.
NABFINS had started direct lending to SHGs. Around 30-40 SHGs were given loans.
But this could not be scaled up as SHGs were in clusters and NABFINS did not have
enough staff to have a closer monitoring of loans. The experience of direct lending
was, however, good and NABFINS ensured full recovery of these loans. In order to
dilute the dependence on B & DCs, it is felt that a diversified model of lending (viz.,
direct lending referred to above) may also be adopted by NABFINS. Selectively, direct
financing may be resorted to particularly in areas where adequate B & DCs are not
available. This may be started on a pilot basis. This will reduce dependence on B & DCs
and also put pressure on B & DCs that if they did not perform satisfactorily, NABFINS
could directly chip in for lending to SHGs. For this purpose, additional staff at NABFINS
office may be required.
As of now, there are no targets given to the District Manager / FSO of NABFINS for
disbursement and recovery of loans. They only submit work plan report and work
done report on a monthly basis. With a view to ensuring quality in lending, only need
based disbursements may be continued. However, targets of recovery for NABFINS
staff can be kept. In absence of any such targets for NABFINS staff, recovery largely
remains a concern of B & DC.
The district offices visited did not maintain information on cumulative disbursements
made to the B & DCs. A system needs to be introduced whereby this information is
made available at the district offices also.
Some of the B & DCs visited did not show data separately on Income & Expenditure
due to NABFINS project in their final accounts. In case of some B & DCs, the income
from NABFINS project formed almost 60% of the total income suggesting thereby that
the project was crucial to the B & DC. However, the Receipts & Payments and Income
& Expenditure Accounts did not reveal income separately from NABFINS project.
In order to monitor the functioning of district offices of NABFINS, a system of
structured review meetings for District Managers with a fixed periodicity needs to be
introduced.
As per the agreement, NABFINS has the right to conduct audits of B & DCs. However,
no such audits were conducted so far.
District offices of NABINS did not maintain data on expenditure incurred on capacity
building of B & DC staff.
Apparent Microfinance Manager – A web based application adopted by NABFINS
needs to be updated. At present, it fails to show the correct figures of loan balance,
35
principal balance, principal due, interest due, etc. This results in inability of the district
office to calculate the total balance due as on date and inform the group in case the
group desires pre-closure of the account.
There was a need to have more control on B & DCs by putting conditions like (i) one
staff member should not handle more than 100 SHGs to have effective monitoring
over SHG accounts (ii) PoS machine data updation should be done on a day to day
basis and correct report on collection, remittance and outstanding given to the district
office.
Hi-Mark Credit Information Services operates world’s largest rural and microfinance
database. It operates a system akin to CIBIL for microfinance activities. NABFINS
should have access to the data maintained by Hi-Mark to have idea on credit availed
by groups / members from different microfinance institutions to have an
understanding on the risk perception about groups.
In some places, the staff meant for implementation of NABFINS project had not
attended group meetings regularly, thereby losing touch with the groups. This is not
being monitored by NABFINS staff in the districts regularly.
A system of early warning signals in respect of certain groups / certain B & DCs on the
basis of repayments needs to be introduced. This is not being done at present.
The success of NABFINS programme largely depends on new SHGs formed by B & DCs
which will become potential borrowers in future for NABFINS. The progress in
promotion of SHGs by some of the B & DCs was not satisfactory. No targets were
given by some B & DCs to their staff for promotion of new SHGs. Therefore scaling up
business operations with such B & DCs may suffer once the existing stock of SHGs is
covered. It is therefore necessary that B & DCs always make efforts for promotion of
new SHGs and give information on this on a regular basis to NABFINS. However,
except for recovery details, there is no regular flow of information from B & DCs to
NABFINS district office. No information is available with NABFINS on new SHGs formed
by B & DCs. There is therefore a need to introduce a return to be furnished by B & DC
to NABFINS indicating the progress of SHG promotion periodically.
NABFINS faced competition from other agencies like SKDRDP, SPANDANA, JANLAXMI,
SHARE, GRAMSHAKTI, SKS etc., which were also providing small loans to members of
SHGs / JLG / individuals. However, NABFINS was in an advantageous position vis-à-vis
some of these agencies in that the agencies did not make doorstep delivery of loans
and SHGs were required to repay the instalment of loans at their branches. Further,
issues like weekly repayment, compulsory attendance in the recovery meetings
(generally held in the mornings), more rate of interest, less quantum of loan, use of
harsh language if not paid in time, MFI insisting on buying certain items like solar
lighting system in case loan beyond a certain amount is availed, etc., also dissuade
members from availing loans from MFIs. Banks like HDFC, ICICI also operate in the
field. Their terms & conditions are relaxed. ICICI disburses loans to groups even if the
earlier loan is not fully repaid. While for new groups the minimum period of six months
stipulated by NABFINS may continue, this period may be reduced for old groups.
36
KSERDS, Bidar resorted to the practice of recovering loan instalment from one SHG
but showing it as recovery of other SHG to meet the shortfall in recovery on the
previous day. At the end of the month, the B & DC was reportedly depositing the
shortfall from its pocket thus giving a wrong picture of full recovery from groups. The
PoS receipts were generated but not given to the SHGs. The local staff of NABFINS
was not aware of these practices.
In case NABFINS staff is transferred from one place to another, the practice of
outgoing person tallying disbursement and recovery while handing over the charge to
the new incumbent needs to be introduced. Otherwise the possibility of B & DC staff
retaining with itself the amount recovered from SHGs exists (This has happened in
Yavatmal).
The accounting procedures adopted by NABFINS at HO and district offices needs to be
reviewed. The demand for recovery raised by HO does not tally with the details
available in the district office.
PoS machines supplied by NABFINS were not functioning satisfactorily at many places.
Receipts not getting generated and paper getting stuck up in the machine were the
common problems. There were connectivity / poor signal issues too which resulted in
differences in details like payment due date, manual date of receipt, PoS collection
date, etc. The district offices were not able to sort out this problem.
Sometimes there was delay of 1 or 2 days in remittance of recovery funds to NABFINS
account due to reasons like banking hours getting over, bank holiday etc. In such a
case the amount is kept in the office of B & DC. NABFINS has reportedly made
arrangements to provide cash in transit insurance cover for 24 hours. However, the
terms of insurance are not advised to the B & DC. These should be advised to enable
the B & DC to follow them scrupulously.
There are no regular review meetings between B & DCs and NABFINS district office.
This needs to be introduced.
While the model is successful, NABFINS has to develop alternate verticals for its business diversification, viz., financing Producers’ Companies, etc.
NABFINS has to evolve a strategy to strike partnership with NRLM and NULM so that it is not swamped when these programmes are rolled out across the entire country.
As in any business, risks are embedded in both B & DCs and groups. While the groups are rated by the company during first and repeat linkages, NABFINS has to evolve a method to rate its B & DCs at periodical intervals.
NABFINS has to adopt default forecasting of each and every B & DC in its fold to mitigate repayment risks.
The average loan size of NABFINS is about Rs.3.7 lakhs. As the company grows, the average loan size would also grow. Therefore, the company should pay adequate attention to the end use of the loan, review of the groups, constant monitoring of recovery and hedging the risk of default by spreading itself across different geographies and business verticals.
NABFINS method of disbursing cash at the door step is inherent with several risks. To avoid such risks the company has to migrate from the present system to electronic mode of payments.
37
Loans to groups are not based on their corpus but depending on the projected cash flow of the households. Therefore, the loans availed have to be used only for the purpose it is meant for. Hence, strict monitoring of end use of loans assumes greater importance in this scenario.
The company depends on NABARD for its entire lending portfolio. The company should explore the market for other sources of funding while keeping in view that its present margins are not affected.
Apart from the top management of the company, the entire staff is on contractual basis. The company may have to revisit this policy so as to bring in a sense of ‘corporate citizenship’ within the organization.
38
Annexure-I
District Offices, B & DCs and SHGs visited during the course of the study
District offices of NABFINS
Sr.No. Date District Office No of staff posted
1 12 August 2014 Mysore 4
2 14 August 2014 Tumkur 9
3 15 August 2014 Bidar 2
4 20 August 2014 Yavatmal 2
5 21 August 2014 Amravati 6
6 25 August 2014 Nagpur 1
7 12 August 2014 Chittoor 2
8 08 September 2014 Erode 8
9 10 September 2014 Nilgiris 1
Business & Development Correspondents (B & DCs)
Sr.No. Date District Name of the B & DC
1 12 August 2014 Mysore Group for Urban & Rural Development (GUARD)
2 12 August 2014 Mysore Tribal and Rural Development Organisation (TARDO)
3 12 August 2014 Mysore Centre for Rural Education Development and Innovative Technologies of India (CREDIT-I)
4 13 August 2014 Hunsuru
Jnana Chiguru Community Managed Resource Centre (CMRC)
5 14 August 2014 Tumkur The Rural Economic Agriculture Development Society (READS)
6 15 August 2014 Bidar KSERDS
7 16 August 2014 Bidar SAMARASA
8 19 August 2014 Wardha
Rashtriya Yuva Kranti Bahuuddeshiya Mahila Vikas Sanstha
9 20 August 2014 Yavatmal
Aniket Bahuuddeshiya Samajik Shikshan Sanstha
10 21 August 2014 Amravati
Ashray Sevabhavi Society, Morshi
11 22 August 2014 Washim
Manoday Samaj Kalyan Sanstha, Kamargaon, Washim
12 23 August 2014 Akola Navnirman Mahila Bahuuddeshiya Sanstha, Akola
13 26 August 2014 Nagpur Tejaswini Bahuuddeshiya Sevabhavi Vikas Sanstha, Hingna, Nagpur
14 12 August 2014 Chittoor Society of Noble Oath and Welfare (SNOW)
15 08 September 2014 Erode Centre for Education and Environmental Development (CEED)
16 09 September 2014 Erode St. Thomas Charitable and Education Trust (STCET)
17 10 September 2014 Nilgiris Udgamandalam Social Service Society (USSS)
18 11 September 2014 Nilgiris Yuvaparivartan Trust
39
Self Help Groups
Sr.No. Date District Name of the SHG
1 14 August 2014 Tumkur Nayamatbi NABFINS Mahila Susahaya Sangha
2 16 August 2014 Bidar (i) Ruthulu Mahila Swayam Sahay Group (ii) Sampige Swayam Sahay Group
3 19 August 2014 Wardha Rani Mahila Bachat Gat
4 20 August 2014 Yavatmal (i) Jai Ambe Mahila Bachat Gat (ii) Anusaya Mahila Bachat Gat (iii) Gita Mahila Bachat Gat (iv) Sairam Mahila Bachat Gat
5 21 August 2014 Amravati (i) Dnyaneshwar Mahila Bachat Gat (ii) Sant Goroba Mahila Bachat Gat
6 22 August 2014 Washim Mauli Swayam Sahayata Bachat Gat, Kamargaon
7 23 August 2014 Akola (i) Pragati Mahila Bachat Gat, Malkapur Khadki, Akola
(ii) Adarsha Mahila Bachat Gat, Dabki Road, Akola
8 26 August 2014 Nagpur Divyajyoti Mahila Bachat Gat, Hingna, Nagpur
9 08 September 2014 Erode (i) Namnadu Women SHG (ii) Kathiravan Women SHG (iii) Jaisakthi Women SHG
10 09 September 2014 Erode (i) Sri Kamachiamman Women SHG (ii) Sri Lakshmi Women SHG (iii) Vinmeen Women SHG
11 10 September 2014 Nilgiris (i) Imayam Women SHG (ii) Alaigal Women SHG (iii) Talent Women SHG
12 12 August 2014 Chittoor Mabu Subani 1 Women SHG
40
Annexure - II
Lending and Recovery Process at B & DC level – Flow Chart
Promotion of
SHGs by B & DC
Gradation of
SHGs by B & DC
Visit by
NABFINS
district officials
to SHGs
Prrepaomotion
of SHGs by B &
DC
Submission of
loan proposal
to NABFINS
district office
SHGs by B & DC
B & DC receives
1% commission
on recovered
amount
Gradation of
groups by
NABFINS
Deposit of
recovery
amount by B &
DC in NABFINS
account
Sanction of loan
by NABFINS, HO
Recovery of
loan
installments by
B & DC from
SHGs in
monthly
meetings. B &
DC issues
receipts
generated by
PoS machines
to SHGs
B & DC receives
commission of
1% of
disbursement
Loan
disbursement
by NABFINS
along with B &
DC staff in SHG
village.
NABFINS uses
PoS machines
for
disbursement
transactions
Withdrawal of
amount by
NABFINS
district office
for
disbursement
or e- credit to
SHG accounts
41
Annexure - III
Role of each partner in the B & DC Model of NABFINS
Promotion of SHGs
Capacity Building of SHGs
Gradation of SHGs
Preparation of Loyalty
List of SHGs
Submission of loan
proposal to NABFINS
Disbursement of loans to
SHG members with
NABFINS staff
Continuous liaison with
SHGs
Recovery of loan
installments from SHGs
and depositing the
amount in NABFINS
account
Identification of NGOs for
empanelment as B & DCs
Capacity Building of B &
DC staff
Gradation of SHGs along
with B & DC staff
Sanction of loan
proposals as per the
loyalty list submitted by B
& DCs
Disbursement of loans at
the doorstep of SHGs,
along with B & DC staff
Monitoring the activities
of SHGs
Monitoring repayments
from SHGs and credit
thereof by B & DC to
NABFINS Account
Supply PoS Machines
to NABFINS
Updation of
disbursement details
in NABFINS server
Updation of recovery
details on NABFINS
server
B & DC NABFINS TECHNOLOGY PROVIDER
42
Annexure-IV
Details of Income from and Expenditure on account of NABFINS project
(Amount in Rs.)
Sr.No.
Name of the B & DC
Total Income
Income due to
NABFINS project
Percentage to total income
Total expenditure
Expenditure on a/c of NABFINS project
Percentage to total
expenditure
1 CMRC, Hunsuru, Mysore
2013-14 742431 61425 8.2 765976 15750 2.0
2 READS, Tumkur
2010-11 5136630 179800 3.5 5086979 180000 3.5
2011-12 5380467 621098 11.5 5348481 450365 8.4
2012-13 6467225 852516 13.2 6330219 792638 12.5
2013-14 12035701 1470012 12.2 12137968 978000 8.0
3 KSERDS, Bidar
2011-12 542606 335870 61.9 521871 258640 49.6
2012-13 602968 404465 67.0 552306 338900 61.4
4 SAMARASA, Bidar
2011-12 2182132 38475 1.7 1794648 35000 1.9
2012-13 2039039 310860 15.2 2370510 323500 13.6
2013-14 2455310 750963 30.6 2304969 601462 29.1
5 ABSSS, Yavatmal
2012-13 922575 97959 10.6 852466 73800 8.6
6 ASS, Morshi, Amravati
2012-13 801010 58526 7.3 768529 58000 7.5
7 SNOW, Chittoor
2013-14 16123103 623698 3.9 6925885 459000 6.6
8 CEED, Erode
2010-11 1229073 204476 16.6 1213999 64000 5.2
2011-12 1334426 667904 50.1 1323771 586875 44.3
2012-13 1688178 1204458 71.3 1672023 1128792 67.5
9 St. Thomas CET, Erode
2010-11 4124137 58650 1.4 2946412 125463 4.2
2011-12 7012519 340000 4.8 6655506 264243 4.0
2012-13 14700943 404816 2.7 14024025 276529 2.0
2013-14 13071900 584556 4.5 11802474 290348 2.5
10 Udhagamandalam SSS, Nilgiris
2011-12 10514922 727206 6.9 8443611 489425 5.8
2012-13 17137411 1678430 9.8 14355915 1448950 10.1
