Microfinancial Analysis of j&k Grameen Bank2

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A project report on

“MICROFINANCIAL ANALYSIS”

OF J&K GRAMEEN BANK

Submitted in partial fulfilment for the degree of

Masters in Business Administration-Financial Management

PROJECT COORDINATOR SUBMITTED BY: Rahul Rangotra Aijaz Ahmad Bhat

Asstt. Professor 05_MBAFM-10

DEPTT. OF MANAGEMENT STUDIES, Session 2010-2012

BABA GHULAM SHAH BADSHAH UNIVERSITY

RAJOURI



CERTIFICATE BY THE GUIDE

Certified that this project report is based on original study

conducted by Mr.Aijaz Ahmad Bhat under my guidance. He has

attended all the required guidance sessions held.

This project report has not formed a basis for the award of any

other degree\ diploma of any University or institution.

Signature of the Guide

Rahul Rangotra



STUDENT DECLARATION

I hereby declare that this project report titled “MICROFINANCIAL

ANALYSIS BY J&K GRAMEEN BANK ” has been written by me in the year

2011-2012 under the valuable guidance of my guide and the lecturers of the

university in partial fulfilment for the award of the degree of Masters in

Business Administration-Financial Management from Baba Ghulam Shah

Badshah University..

I also declare that this project is the result of my own effort and has

not been submitted in part or full towards any other degree or diploma or

fellowship.

Date:

Place: RAJOURI



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ACKNOWLEDGEMENT

It is a privilege that I had been given the opportunity to complete a project

report on micro financial analysis of J&K Grameen Bank -A study conducted

with particular reference to Kashmir valley as a part of our syllabus for the

fulfilment of Masters in Business Administration-Financial Management course

conducted by Baba Ghulam Shah Badshah University. I would like to thank my

Dean Prof. Dost Mohammad who has given me the opportunity to do the

project.

I also take this opportunity to thank my Rahul Rangotra and all the other

faculty members of the Dept. of Management Studies, Baba Ghulam Shah

Badshah University for their valuable support, advice, encouragement,

assistance and guidance in the completion of this project report.

I express my immense thanks and gratitude to other faculty members, my

parents, my friends and my classmates for their moral support. I express my

gratitude towards all those silent benefactors who have supported and backed

me all the way in the preparation of this project

Aijaz Ahmad Bhat



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1. To objective of the research is to understand concept of Microfinance.

2. To find out existing Structure of Microfinance in World and in India 3. .To understand Policies adopted by different bank

4. The main objective of the research is to find out Potential of Microfinance in Jammu

& Kashmir

5. To understand Microfinance structure in J&K Bank and to Find out Flaws if any.

Primary Source:

Through Structured questions.

Face to face interview.

Secondary Source:

Records maintained by Bank.

Websites.

The Economic Times.

Times of India.

The study pertains to detailed understanding of

concept of Microfinance, its need, Supply and regulatory methods adopted by various

agencies. An exploratory research design was adopted to conducted research, method of

selecting sample was convenience sampling. Field survey was carried out to collect the

necessary data.

Both Primary and Secondary Data were used. Websites, Departmentalvisits, newspapers, Survey magazines, Statistical digest etc were used to collect data.



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Table of Contents:

(1)CHAPTER 1

(A)Company profile……………………………………………………………………………………….........8

(B)Introduction to grameen bank…………….………………………………………………………………...9

(C) Chairman’s message…………..………………..………………………………………………………….10

(D)Board of directors….……………………………………………………………………………………….16(E) Banking sector in India…….…….….…………………………………………………………………….17

(F)Composition of Indian banking system….….……......………………………………………………….18

CHAPTER 2……………………..........................

(A)Introduction To Microfinance……………………………………..…………………….21

(B)Orgin Of Microfinance……………..……………………………………….……………………………22

(C) Microcredit System……………………………………………………………..………………………..24

(D)Microcredit Lending Modals ……………………….……………………….………………………….26

(F)Reduction Of Poverty……………………………………………………………………………………31

(E)Requirement Of Microfinance…………………………………………………………………………35

(G)Microcredit And Grameen Bank………………………………………….……………………………39

(H)Microfinance In India …………………………………………………………………………………...47

CHAPTER 3

(A)Microfinance In J&K………………………………………………………………………………….…60

(B)Role Of J&K Grameen Bank……………………………………………………………………………60

(C)Schemes’ Provided By J&K Bank………………………………………………………………………62



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(D)Current Scenario Of Microfinance In J&K……………………………………..……………………..67

CHAPTER 4

(A)DATA INTERPRETATION……………………………………………………..……………………….76

SUGESSTIONS…………………………………………………………..……………………………………94

CONLUSION………………………………………………….……………………………………………….97

BIBLOGRAPHY



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CHAPTER 1

COMPANY PROFILE



9

TO



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Chairman’s message

It gives me immense pleasure in heading the family of J&K Grameen Bank,sponsored by J&K Bank, comprising a team of dedicated, hardworking, andhighly aspiring employees. The J&K Grameen Bank is one of the PremierBanks in the state of Jammu & Kashmir with a network of 174 branches. Thearea of operation of the bank is spanned across all three regions of the state.

The success of J&K Grameen Bank can be attributed to our ability tocontinually identify, evolve and respond to the changing demands across thestate of J&K and reach out to the far flung/remotest corners for providingvarious banking services to the unbanked areas, thereby fulfilling ourcommitment of Corporate Social Responsibility.

Our values of respect, service and involvement remain consistent. These valuesare embraced by our staff members who have played a major role in our successso far. These values will continue to do so in going forward.

The track record of consistent growth of the Bank is indeed a satisfying

achievement for any organization. Still there is enough untapped potentialavailable waiting to be exploited. Bank is required to broad base its clientelethrough expanding reach and spread by way of Financial Inclusion of unbanked/underprivileged population. Our special emphasis and effort arewarranted to give a big boost to our CD Ratio. Technological advancement inthe form of 100% coverage under CBS will also provide us ample opportunitiesto offer class services to our customers. I wish every member of this family aprosperous life.

Our slogan for 2010-11 „ BANKING THE UNBANKED‟



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HISTORY OF J&K GRAMEEN BANK

Two Regional Rural Banks sponsored by J&K Bank in J&K State namely Kamraz Rural

Bank and Jammu Rural Bank have been amalgamated and will now operate under a single

new, Regional Rural Bank-―J&K Grameen Bank‖ from July 1, 2009. The area of operation of

J&K Grameen Bank shall be located at Jammu.

After a three year wait for Union finance ministry‘s nod, J&K‘s two regional rural banks

(RRBs) merged to become J&K Grameen Bank. The new entity that will be headquartered at

Jammu will have a network of 172 branches across the state.

Unlike Jammu Rural Bank (JRB) that has its network in the length and breadth of Jammu, the

Karmraz Rural Bank (KRB) is restricted to the north Kashmir district of Baramulla, Kupwara

and Bandipora. A new set up may help it extend services to hitherto ‗out of bound belts‘.

JRB and KRB are sponsored by the J&K Bank that holds 15 percent of their shares. The

remaining equity of the twin entities is with central and state governments at 50 and 35

percent respectively.

―The proposal (of merger) came a bit late. But it is a good development,‖ Dr HaseebDrabu,

chairman and chief executive of the J&K Bank said. It was during his stint as economic

adviser to J&K government that state government approved disinvestment in the two RRBs

and assigned its equity to the JK Bank (otherwise owned by it to the tune of 53 percent) to

pave way for the merger.

―J&K Grameen Bank will revolutionise mainstay of our economy and will have its main

focus on agriculture lending and rural lending. There will be deepening of financial inclusion

in the rural sector and enlarging outreach for empowering rural population with variety of

banking services. The new formation will ensure much needed credit delivery to promote

agriculture production and other productive and employment generating enterprises in the

state,‖ said Drabu.

Apart from reach, the new bank has huge deposit base as well. Together, the two banks have



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Rs 1090.61 crores of deposits against which their joint loan book is only Rs 359.73 crores. If

the two banks get a proper micro-finance business model, the two have the capacity of

changing the fate of thousands of people from underprivileged and ‗un- bankable‘ class of

population given their reach.

Interestingly, there was resistance for merger from inside both banks. JRB officials said that

their bank was performing better and earning profit, and that its prospects would get marred

as the losses of KRB would add up. For the sake of argument, the KRB for the first time in

last 28 years has showed profit, though not that big. KRB officials were averse to the idea

saying the merger would impose a JRB bureaucracy over them as the new bank would be

headquartered at Jammu. J&K Bank is yet to send a CEO to the new bank and insiders say it

may take some time.

―The personnel running these banks need to be trained in better

management of the micro-credit schemes and the political interventions must end to permit

them prosper,‖ said an executive of JK Bank who has experience in the micro-credit. He said

the bank has drafted a plan to run the new entity on professional lines.

After the notification was issued by the federal finance ministry, undertaking of the two

banks stand transferred to the new entity. These include assets, rights, powers, authorities and

privileges and all property movable and immovable, cash balance, reserve funds, and

investments. However, the services of all the employees of the two RRBs – over 800 – shall

continue at the same remuneration and on the same terms and conditions of service, which

they were getting or, as the case may be, by which they were governed immediately before

the effective date of amalgamation. J&K Bank has already released the new entity‘s logo.

RRBs were created in 1975. Over the last three decades, more then 90 of 196 RRBs with

14,446 branches across India are running in losses with some of them having their capital

base eroded totally. A number of committees have reviewed their performance and made

recommendations. It was one such committee that recommended the merger of RRBs at state

level on basis of sponsor banks. Apart from bringing in efficiency and transparency, the idea

is aimed at helping these small entities to grow in size and have economies of scale that

eventually would help them to compete. In the next stage, RRBs sponsored by different banks

would be merged at the state level.

J&K has three RRBs of which two are sponsored by JKB and one by SBI. The state is



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interested in merging all small banks – both rural and cooperative banks – to create a chain

that would specifically serve agricultural and marginal section of the society under the JK

Bank, so far state‘s lone success story on banking front.

J&K Grameen formed: Notification of amalgamation of kamraz rural

bank and Jammu Rural Bank

A pioneering initiative by J&K Bank today facilitated the state‘s maiden banking sector

merger culminating into the establishment of J&K Grameen Bank.

Two Regional Rural Banks sponsored by J&K Bank in J&K State namely Kamraz Rural

Bank and Jammu Rural Bank have been amalgamated and will now operate under as single

new Regional Rural Bank - ―J&K Grameen Bank‖ from July 1, 2009. The area of operation

of J&K Grameen Bank shall be the combined area of operation of amalgamated RRBs. The

head office of the bank shall be located at Jammu.

A notification to this effect was issued today by GOI Ministry of Finance, Department of

Financial Services, Government of India while exercising the powers conferred by sub-

section (1) of section23A of the Regional Rural Banks Act, 1976 (21 of 1976) (hereafter

referred to as ―the Act‖). According to the notification, from the effective date of amalgamation, the transferor RRBs viz. Kamraz Rural Bank and Jammu Rural Bank shall

cease to carry on the business and the transferee RRB i.e. J&K Grameen Bank shall come

into existence and commence its business w.e.f. from the date of publication of the

notification.

While commenting on the amalgamation of KRB and JRB, Dr.Haseeb A. Drabu, Chairman

and Chief Executive of J&K Bank said that the consolidated new strong RRB in the State

(J&K Grameen Bank) would pave way for enhancing economic development in the State.

―J&K Grameen Bank will revolutionize mainstay of our economy and will have its main

focus on agriculture lending and rural lending. There will be deepening of financial

inclusion in the rural sector and enlarging outreach for empowering rural population with

variety of banking services. The new formation will ensure much needed credit delivery to

promote agriculture production and other productive and employment generating

enterprises in the state,‖ said Dr.Haseeb A Drabu.

Introducing an entirely new financial architecture in the State, Grameen Bank would



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function on the same technological platform as is available to the customers of the J& K

Bank with state-of-the-art business transaction facilities,‖ told J& K Bank Chairman Dr

HaseebDrabu, who piloted the landmark move. According to Drabu, J& K Grameen Bank

would pave the way for speeding up inclusive economic development in the State withfocus on micro lending. ― The J&K Grameen Bank will revolutionize mainstay of the

State‘s economy with focus on micro- lending in agriculture, horticulture and handicraft

sectors,‖ he said and added there will be deepening of financial inclusion in the rural sector

and enlarging outreach for empowering rural population with variety of banking services.

The new formation will ensure much needed credit delivery to promote agriculture

production and other productive and employment generating enterprises,‖ Dr Drabu said.

Meanwhile, following the amalgamation, the undertakings of the Kamraz Rural Bank and

Jammu Rural Bank shall stand transferred to and shall vest to the ‗J&K Grameen Bank‘.

The undertakings shall include assets, rights, powers, authorities and privileges and all

property movable and immovable, cash balance, reserve funds, investments and all other

rights and interests in or arising out of such property, as are immediately before the

commencement of the notification.

If, on the effective date of amalgamation, any suit, appeal or other proceedings of

whatsoever nature in relation to any business of the transferor Regional Rural Banks are

pending by, or against to, the transferor Regional Rural Banks, the same shall not abate, be

discontinued or be, in any way, prejudicially affected by reason of the transfer of the

undertaking of the transferor Regional Rural Banks or of anything contained in the

notification but the suit, appeal or other proceedings may be continued, prosecuted and

enforced by, or against, the transferee Regional Rural Bank.

According to the notification, in respect of every savings banks account or current account

or any other deposit account including a fixed deposit, cash certificate, monthly deposit,

deposit payable at call or short notice or any other deposits by whatever name called with

the transferor Regional Rural Bank, the transferee Regional Bank shall open with itself on

the effective date of amalgamation a corresponding and similar account in the name of

respective holder(s) thereof crediting thereto full amount including interest by the extent

payable.

All contracts, deeds, bonds, agreements, guarantees, powers of attorney, grants of legal

representation and other instruments of whatsoever nature subsisting or having effect



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immediately before the commencement of this notification and to which the transferor

Regional Rural Banks are a party or which are in favour of the transferor Regional Banks

shall be in full force and effect against or in favour of the transferee Regional Rural Bank

(J&K Grameen Bank) and may be enforced or acted upon fully and effectively, says thenotification.

The services of all the employees of the transferor Regional Banks (excepting such of them

as not being workmen within the meaning of the Industrial Disputes Act, 1947) shall

continue in the transferee Regional Rural Bank at the same remuneration and on the same

terms and conditions of service, which they were getting or, as the case may be, by which

they were governed immediately before the effective date of amalgamation.

Background of Grameen Bank

J&K Grameen Bank (JKGB), was established on 30th June 2009 after amalgamation of two

erstwhile RRBs viz. JRB and KRB in accordance with GOI Notification dated 30th June

2009 issued under sub- section (1) of section 23A of the RRB Act, 1976 (21 of 1976). The

area of operation of the back is extended to 11 Districts, besides some parts of District

Srinagar and Ganderbal of J&K State with its office situated at Jammu.The network of the

bank consist of two Regional Offices, Six Area Offices and 176 branches with 7 extension

counters. The main objective of the Bank is to improve the economy of rural, semi-urban &

urban centers.



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BOARD OF DIRECTORS

S.No NameDesignation/ Address

1 Mr.Raja Abdul Lateef Chairman

2 Mr.C. SahooAsstt. Gen.Manager

RPCD R.B.I. Jammu

3 Mr.G.H. Khidir Dy. General ManagerNABARD, Jammu

4 Mr.Shafiq Ahmad Raina

Special Secretary

Agriculture Department

Govt. of J&K

5 Mr.MushtaqSidiqui

Special Secretary

Finance DepartmentGovt. of J&K

6 Mr.S.S. Nathyal

Vice President (S&C)

J&K Bank Ltd.

Zonal Office

Gurgaon, Haryana

7 Mr.B.A. Lone

Vice President

J&K Bank Ltd.

Corporate Headquarters

M.A. Road, Srinagar



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The Banking Sector in India

The Banking system in India is significantly different from that of other Asian nations

because of the country‘s unique geographic, social, and economic characteristics. India has a

large population and land size, a diverse culture, and extreme disparities in income, which are

marked among its regions. There are high levels of illiteracy among a large percentage of its

population but, at the same time, the country has a large reservoir of managerial and

technologically advanced talents. Between about 30 and 35 percent of the population resides

in metro and urban cities and the rest is spread in several semi-urban and urban Centres. The

country‘s economic policy framework combines socialistic and capitalistic features with a

heavy bias towards public sector investment. India has followed the path of growth-led

exports rather than the ―exported growth‖ of other Asian economies, with emphasis on self -

reliance through import substitution. These features are reflected in the structure, size and

diversity of the country‘s banking and financial sector. The banking system has had to serve

the goals of economic policies enunciated in successive five year development plans,

particularly concerning equitable income distribution, balanced regional economic growth,

and the reduction of elimination of private sector monopolies in trade and industry. In order

for the banking industry to serve as an instrument of state policy, it was subjected to various

nationalization schemes in different phases (1955, 1969, and 1980). As a result, banking

remained internationally isolated (few Indian banks had presence abroad in international

financial centres) because of preoccupations with domestic priorities, especially massive

branch expansion and attracting more people to the system. Moreover, the sector has been

assigned the role of providing support to other economic sectors such as agriculture, small-

scale industries, exports and banking activities in the developed commercial centres (i.e.,

metro, urban, and a limited number of semi-urban centres). The banking system‘s

international isolation was also due to strict branch licensing controls on foreign banksalready operating in the country as well as entry restrictions facing new foreign banks. A

criterion of reciprocity is required for any Indian bank to open an office aboard. These

features have left the Indian banking sector with weakness and strengths. A big challenge

facing Indian banks is how, under the current ownership structure, to attain operational

efficiency suitable for modern financial intermediation. On the other hand, it has been

relatively easy for the public sector banks to recapitalize, given the increases in

nonperforming assets (NPA‘s), as their Government dominated ownership structure has

reduced the conflicts of interest that private banks would face.



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COMPOSITION OF THE INDIAN BANKING SYSTEM IN INDIA

At present, the number of nationalized bank is 20. Several foreign banks were allowed to

operate as per the guidelines of RBI. At present the banking system can be classified in

following categories:

Public Sector Banks:

RBI

SBI and its 7 associate bank

Nationalized bank (20 in No.)

RRB‘s sponsored by public sector banks.

Local area banks.

Non scheduled banks.

Cooperative Sector Banks:

State Cooperative banks.

Central Cooperative banks.

Primary agriculture credit societies.

Land development banks.

Urban Cooperative banks.

State land development banks.

Scheduled Cooperative banks.



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Development banks:

Industrial finance cooperation of India (IFCI).

Industrial development bank of India.(IDBI).

Industrial credit and investment cooperation of India (ICICI)

Industrial investment bank of India. (IIBI)

Small industries development bank of India (SIDBI).

National bank of agriculture and rural development (NABARD).

Export import bank of India.

Private Sector Banks:

Old generation private banks.

New generation private banks.

Foreign banks in India.



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CHAPTER 2

INTRODUCTION TO MICROFINANCE



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MICROFINANCE

Microfinance refers to the provision of financial services to low-income clients,

including the self-employed. The term also refers to the practice of sustainably

delivering those services.

More broadly, it refers to a movement that envisions ―a world in which as many poor

and near-poor households as possible have permanent access to an appropriate range

of high quality financial services, including not just credit but also savings, insurance,

and fund transfers.

Theoretically, microfinance encompasses any financial service used by poor people,

including those they access in the informal economy, such as loans from a village

moneylender. In practice however, the term is usually only used to refer to institutions

and enterprises whose goals include both profitability and reducing the poverty of their

clients. Micro financial services are needed everywhere, including the developed

world. However, in developed economies intense competition within the financial

sector, combined with a diverse mix of different types of financial institutions with

different missions, ensures that most people have access to some financial services.

Efforts to transfer microfinance innovations such as solidarity lending from developing

countries to developed ones have met with little success. Microfinance can also be

distinguished from charity. It is better to provide grants to families who are destitute,

or so poor they are unlikely to be able to generate the cash flow required to repay a

loan. This situation can occur for example, in war zone or after a natural disaster.

There are various sources by which microfinance outreaches the final

customer. The flow of Microfinance can be shown as follows:

http://en.wikipedia.org/wiki/Financial_institutions

http://en.wikipedia.org/wiki/Solidarity_lending

http://en.wikipedia.org/wiki/Charity

http://en.wikipedia.org/wiki/Charity

http://en.wikipedia.org/wiki/Solidarity_lending

http://en.wikipedia.org/wiki/Financial_institutions



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Origin of Microfinance

The origin of microfinance is often dated as late as the 1970s. Over the past centuries

practical visionaries from the Franciscan monks who founded the community-oriented

pawnshops of the fifteenth century, to the founder of the credit union movement in the

nineteenth century (Friedrich Wilhelm Raiffeisen) and the founders of the microcredit

movement in the 1970s (such as Muhammad Yunus) have tested practices and built

institutions designed to bring the kinds of livelihood opportunities and risk management tools

that financial services provide to the doorsteps of poor people. While the success of Grameen

Bank (which now serves over 7 million poor Bangladeshi women) has inspired the world, it

has proved difficult to replicate this success in practice. In nations with lower population

densities, meeting the operating costs of a retail branch by serving nearby customers has

proven considerably more challenging. Microcredit came to prominence in the 1980s,

although subsidized credit programs to targeted communities date back to the 1950s and early

experiments in Bangladesh, Brazil and a few other countries began in the 1970s. The

important difference of microcredit was that it avoided the pitfalls of an earlier generation of

targeted development lending, by insisting on repayment, by charging interest rates that could

cover the costs of credit delivery and by focusing on client groups whose alternative source

of credit was the informal sector.

In February 1997, RESULTS Educational Fund convened the first Microcredit Summit . More

than 2,900 delegates from 137 countries attended the Summit, held in Washington, D.C., and

launched a nine-year campaign to reach 100 million of the world‘s poorest families,

especially the women of those families, with credit for self-employment and other financial

and business services by the end of 2005.

http://en.wikipedia.org/wiki/Franciscan

http://en.wikipedia.org/wiki/Pawnbroker

http://en.wikipedia.org/wiki/Credit_union

http://en.wikipedia.org/wiki/Friedrich_Wilhelm_Raiffeisen

http://en.wikipedia.org/wiki/Microcredit

http://en.wikipedia.org/wiki/Muhammad_Yunus

http://en.wikipedia.org/wiki/Grameen_Bank




http://en.wikipedia.org/wiki/Muhammad_Yunus

http://en.wikipedia.org/wiki/Microcredit

http://en.wikipedia.org/wiki/Friedrich_Wilhelm_Raiffeisen

http://en.wikipedia.org/wiki/Credit_union

http://en.wikipedia.org/wiki/Pawnbroker

http://en.wikipedia.org/wiki/Franciscan



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13

Four approaches to establishingMicrofinance services – adopted to the specific financial sector deficiencies

„Down- scaling“ Supporting commercial

banks to serve the

micro segment

„Up- grading“

Transformation of acredit NGO into a fully-

fledged micro bank

„Linking“

Connect MicrofinanceInstitutions with the

national or international

capital market

„Greenfielding “ Foundation of a new

Microfinance Institution

(MFI)



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Microcredit System:

The four pillars of microfinance credit system (Fig. 1) are supply, demand for finance,

intermediation and regulation. Whatever may the model of the intermediary

institution, the end situation is accessibility of finance to poor. The following tables

indicate the existing and desired situation for each component.

DEMAND

Existing Situation Desired Situation

fragmented

Undifferentiated

Addicted, corrupted by capital& subsidies

Communities not aware of rights and responsibilities

Organized

Differentiated (forconsumption,housing)

Deaddicted fromcapital & subsidies

Aware of rights and

responsibilities

SUPPLY


Grant based(Foreign/GOI)

Directed Credit -unwilling andcorrupt

Not linked withmainstream

Mainly focussed forcredit

Dominated

Regular fund sources(borrowings/deposits)

Demand responsive

Part of mainstream (banks/FIs)

Add savings and insurance

Reduce dominance of informal, unregulated suppliers



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INTERMEDIATION


Non specialized

Not oriented to financialanalysis

Non profit capital

Not linked to mainstreamFIs

Not organized

Specialized in financialservices

Thorough in financialanalysis

For profit

Link up to FIs

Self regulating

REGULATION


Focussed on formal serviceproviders (informal not regulated)

regulating the wrong things e.g.

interest rates Multiple and conflicting (FCRA,

RBI, IT, ROC, MOF/FIPB,ROS/Commerce)

Negatively oriented

include/informalrecognise e.g.SHGs

Regulate rules of

game Coherence and

coordinationacross regulators

Enablingenvironment



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Microfinance Lending Models (Types of MFIs)

Microfinance itself is a credit lending model, and within this lending model exist severalsubcategories, i.e. microfinance lending models, which differ in terms of where their funds

are sources from, and how the money is governed. This post briefly mentions each lending

model (explained in detail at GDRC‘s website) and lists microfinance providers that follow

these models.

Microfinance Lending Model 1: Associations

An association is formed by the poor in the target community to offer microfinance services

(micro-savings, micro-credit, micro-insurance, etc.) to themselves. The association, which

can form on the basis of gender, religion, or political and cultural orientation of its members,

then gathers capital and intermediates between banks, MFIs and its members.

Example: Self Help Groups, SHGs (India)

Microfinance Lending Model 2: Bank Guarantees

A donor or government agency guarantees micro loans made by a microfinance/ commercial

bank to an individual or group of borrowers. Compulsory deposits by borrowers in such

banks are also included in this model.

Examples: Africap Microfinance Fund (Mauritius), Bellwether Microfinance Fund (India),

Latin America Bridge Fund, Microfinance Credit Guarantee Facility (Pakistan)



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Microfinance Lending Model 3: Community Banking/Grameen Bank/Village Banking

Community Banks/Village Banks are formal versions of ‗associations‘ and are created by

members of a target community who wish to improve their living standards and to generate

employment. By offering microfinance services, these banks seek to develop their

communities.

Guarantees are provided by social collateral (peer-pressure) as services are distributed

through 5-member groups where each member‘s eligibility for loans is based on his/her

peer‘s performance.

Examples: Grameen Bank (Bangladesh), MuCoBa (Tanzania)

Microfinance Lending Model 4: Cooperatives

Cooperatives are very much like ‗Associations and community Banks, except that their

ownership structure does not include the poor. A group of middle or upper class individuals

may form a Co-op to offer microfinance services to the poor.

Examples: Co-operative Bank (England), Cooperative Rural Bank of Bulacan (Philippines)



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Microfinance lending Model 5: Credit Unions

In a Credit Union, members of a target community gather their money and make loans to one

another at low interest rates. Compared to community banks, credit unions are smaller and

non-profit oriented, charging interest rates that merely allow sustainability (read 10

determinants of interest rates in microfinance).

The role of Grameen Bank is not limited to any one sectors of the society or economy

in the Kashmir region, but the Grameen Banks are playing a vital role in over all

development of the Rural economy of the region to improve the life style and standard of the

common masses. Grameen Banks are providing financial assistance to every sector of thesociety throughout the region through their various organized schemes most importantly

through Govt. sponsored schemes, specifically developed by the Govt. of India, Reserve

Bank of India and National Bank for agriculture and Rural Development, besides various

schemes of the Banks developed at their own level. The implementation of these schemes is

being supervised and regulated by Govt. of India and NABARD through the lead Band

Department and the assessment of implementation of these schemes is being done through

BLBC‘s, DLRC‘s and SLBC‘s.

Since we have analysed and evaluated the business portfolio of J&K Grameen Bank,

which has its Headquarter in Jammu and Regional Headquarter of Kashmir region at Sopore

Barramulla. We reproduce the business portfolio most importantly the lending portfolio of

J&K Grameen Bank, Regional Office Sopore, which it has implemented and provided

assistance to the Rural masses of the Kashmir region through its various financial schemes.

The figures seems to be very impressive and are given in Annexure-I

Since during the current financial scenario the Govt. of India is very forcefully being

supervising the implementation of microfinance schemes in the down trodden and under

privileged segments of the society, the Bank under reference has also put in their reasonable

part of the lending into this sector. The Bank is further taking very impressive steps to speed

up the financial inclusion schemes of the Govt. through the issuance of small segment credit

cards popularly known as General Credit Cards, Kissan Credit Cards. Bothe these schemes

have played a very vital role in improving the financial position of the Rural finance schemes

the Bank is issuing GCCs to all the individual families with an initial credit limit of Rs.25000/- to meet out their domestic expenses either or spent the money for purchase of inputs



29

for cash crop growing, besides the Bank is issuing KCCs to the same segment of people with

a credit limit ranging from Rs. 5000/- to Rs. 3,00,000/- to be used by the farmers for purchase

of seeds, fertilizers, pesticides and other agriculture equipments required as per necessity for

growing crops, agriculture and other domestic requirements in both the cases the funds so

allocated rather financed to the borrowers or being utilized as revolving funds which a

borrower can regularly withdraw and deposit during a particular period of time as would be

decided by the Bank with a minimum ceiling of 6 months i.e. single crop or one year i.e.

double crop depending upon the seasonality of the crops. As said earlier here in above the

Bank has done very impressive work under the schemes and the data of microfinance

portfolio so analysed is reproduced here under, the figures belong to ending March, 2011.

Microfinance Lending Model 6: Non-Governmental Organizations (NGOs)

Unlike community-based models, NGOs are ‗external organizations‘ and their activities

range from offering microfinance services (loans, insurance, savings, etc.) to improving

credit rating of the poor, training, education and research. NGOs may also act as

intermediaries between the poor and donor agencies (UN, ADB, World Bank) and operate

locally, as well as globally (through a physical or online presence).

Examples: ACCION international (Headquarters in USA), KIVA (Headquarters in USA),

Kashf Foundation (Pakistan)



30

Microfinance Lending Model 7: For-profit Banks

Commercial Banks, as well as specialized Microfinance Banks offer various financial

services to the poor but the main purpose may be to secure a high return on investment.

Unlike other models, the aim is social development as well as financial progress, beyond

institutional sustainability. Read about a bank that exploited the poor under the guise of

microfinance.

Examples: Bank Compartamos (Mexico), Khushali Bank (Pakistan)

Microfinance Lending Model 8: ROSCAs Rotating Savings and Credit Associations

(ROSCAs)

ROSCAs are small groups, typically composed of women, where each member makes

‗regular cyclical contributions into a common fund‖, which is given entirely to one member

at the start of each cycle (weekly, monthly, quarterly). The benefit of this model is the

matching of a client‘s cash flows with the loan, the ability to structure the deal without

interest rates, and the absence of over-head costs.

Examples: Say, a groups of 10 women come together in January and pitch in S7 each,

making a total of S70, and this sum is given to Member A for the month. In February, another

S70 is gathered and given to Member B, and the cycle continues for 10 months (10

Members). No interest is charged, and social collateral ensure



31

Breaking the vicious cycle of poverty through

microcredit

The Grameen Bank is based on the voluntary formation of small groups of five people to

provide mutual, morally binding group guarantees in lieu of the collateral required by

conventional banks. At first only two members of a group are allowed to apply for a loan.

Depending on their performance in repayment the next two borrowers can then apply and,

subsequently, the fifth member as well.

The assumption is that if individual borrowers are given access to credit, they will be able to

identify and engage in viable income-generating activities - simple processing such as paddy

husking, lime-making, manufacturing such as pottery, weaving, and garment sewing, storage

and marketing and transport services. Women were initially given equal access to the

schemes, and proved not only reliable borrowers but astute entrepreneurs. As a result, they

have raised their status, lessened their dependency on their husbands and improved their

homes and the nutritional standards of their children. Today over 90 percent of borrowers are

women.

Intensive discipline, supervision, and servicing characterize the operations of the Grameen

Bank, which are carried out by "Bicycle bankers" in branch units with considerable delegated

authority. The rigorous selection of borrowers and their projects by these bank workers, the

powerful peer pressure exerted on these individuals by the groups, and the repayment scheme

based on 50 weekly instalments, contribute to operational viability to the rural banking

system designed for the poor. Savings have also been encouraged. Under the scheme, there is

provision for 5 percent of loans to be credited to a group find and Tk 5 is credited every week

to the fund.

The success of this approach shows that a number of objections to lending to the poor can be

overcome if careful supervision and management are provided. For example, it had earlier

been thought that the poor would not be able to find remunerative occupations. In fact,

Grameen borrowers have successfully done so. It was thought that the poor would not be able



32

to repay; in fact, repayment rates reached 97 percent. It was thought that poor rural women in

particular were not bankable; in fact, they accounted for 94 percent of borrowers in early

1992. It was also thought that the poor cannot save; in fact, group savings have proven as

successful as group lending. It was thought that rural power structures would make sure thatsuch a bank failed; but the Grameen Bank has been able to expand rapidly. Indeed, from

fewer than 15,000 borrowers in 1980, the membership had grown to nearly 100,000 by mid-

1984. By the end of 1998, the number of branches in operation was 1128, with 2.34 million

members (2.24 million of them women) in 38,957 villages. There are 66,581 centres of

groups, of which 33,126 are women. Group savings have reached 7,853 million taka

(approximately USD 162 million), out of which 7300 million taka (approximately USD 152

million) are saved by women.

It is estimated that the average household income of Grameen Bank members is about 50

percent higher than the target group in the control village, and 25 percent higher than the

target group non-members in Grameen Bank villages. The landless have benefited most,

followed by marginal landowners. This has resulted in a sharp reduction in the number of

Grameen Bank members living below the poverty line, 20 percent compared to 56 percent for

comparable non-Grameen Bank members. There has also been a shift from agricultural wage

labour (considered to be socially inferior) to self-employment in petty trading. Such a shift in

occupational patterns has an indirect positive effect on the employment and wages of other

agricultural waged labourers. What started as an innovative local initiative, "a small bubble of

hope", has thus grown to the point where it has made an impact on poverty alleviation at the

national level ".

Most poor people manage to mobilize resources to develop their enterprises and their

dwellings slowly over time. Financial services could enable the poor to leverage their

initiative, accelerating the process of building incomes, assets and economic security.

However, conventional finance institutions seldom lend down-market to serve the needs of

low-income families and women-headed households. They are very often denied access to

credit for any purpose, making the discussion of the level of interest rate and other terms of

finance irrelevant. Therefore the fundamental problem is not so much of unaffordable terms

of loan as the lack of access to credit itself.



33

THE VICIOUS CYCLE OF POVERTY



34

Promise to poor

MICROFINANCE

Unlocking household labour that had been locked up due to liquidity constraints

High

ProductivityHigh

Incomes

Household demand for

goods and services

Improved

Nutrition

Better

HealthcareBetter

Education

Escape from Poverty



35

Requirement of Microfinance:

The lack of access to credit for the poor is attributable to practical difficulties arising from the

discrepancy between the mode of operation followed by financial institutions and the

economic characteristics and financing needs of low-income households. For example,

commercial lending institutions require that borrowers have a stable source of income out of

which principal and interest can be paid back according to the agreed terms. However, the

income of many self employed households is not stable, regardless of its size. A large number

of small loans are needed to serve the poor, but lenders prefer dealing with large loans in

small numbers to minimize administration costs. They also look for collateral with a clear

title - which many low-income households do not have. In addition bankers tend to consider

low income households a bad risk imposing exceedingly high information monitoring costson operation.

Emphasis shifted from rapid disbursement of subsidized loans to prop up targeted sectors

towards the building up of local, sustainable institutions to serve the poor. Microcredit has

largely been a private (non-profit) sector initiative that avoided becoming overtly political,

and as a consequence, has outperformed virtually all other forms of development lending.

Indeed, since the 1980s, microfinance programs have improved upon original methodologies

and extended beyond conventional thinking. First, microfinance demonstrated that poor

people, and especially women, had excellent repayment rates (and often, rates that performed

better than those in formal financial sectors). And second, that the poor were willing and able

to pay interest rates that would allow the microfinance institutions (MFIs) to cover costs.

Traditionally microfinance was focused on providing a very standardized credit product. The

poor, just like anyone else, need a diverse range of financial instruments to be able to build

assets, stabilize consumption and protect themselves against risks. Indeed, in manydeveloping countries, self-employment through microenterprise is often the only way to

provide for families and the local environment. Thus, we see a broadening of the concept of

microfinance---our current challenge is to find efficient and reliable ways of providing a

richer menu of microfinance products.



36

The clients of microfinance:

The typical microfinance clients are low-income persons that do not have access to formal

financial institutions. Their "microenterprises" represent an estimated 80% of the total

enterprises in the world, 50% of urban enterprises and 20% of the GNP of their countries.

Microfinance clients are typically self-employed, often household-based entrepreneurs. In

rural areas, they are usually small farmers and others who are engaged in small income-

generating activities such as food processing and petty trade. In urban areas, microfinance

activities are more diverse and include shopkeepers, service providers, artisans, street

vendors, etc. Microfinance clients are poor and vulnerable non-poor who have a relatively

stable source of income.

Access to conventional formal financial institutions, for many reasons, is inversely related to

income: the poorer you are, the less likely that you have access. The poor often obtain

financial services from informal financial relationships - credit can be available from

commercial and non-commercial lenders, but often at very high interest rates; saving services

can be available through savings clubs, credit associations and the like. As a result, the

chances are that, the poorer you are, the more expensive or onerous informal financial

arrangements. Moreover, informal arrangements may not suitably meet certain financial

service needs or may exclude you anyway. Individuals in this excluded and under-served

market segment are the clients of microfinance.

Microfinance generally targets poor women because they have proven to be reliable credit

risks and when they have the financial means, they invest that money back into their families,

resulting in better health and education, and stronger local economies. By providing access to

financial services - loans and responsibility for repayment, maintaining savings accounts,providing insurance - microfinance programs send a strong message to households and

communities. Studies have shown that women become more assertive and confident, have

increased mobility, are more visible in their communities and play stronger roles in decision

making.



37

How does microfinance help the poor?

Microfinance brings the power of credit to the grassroots by way of loans to the poor, without

requirement of collateral or previous credit record. Experience shows that microfinance can

help the poor to increase income, build viable businesses, and reduce their vulnerability to

external shocks. It can also be a powerful instrument for self-empowerment by enabling the

poor, especially women, to become economic agents of change.

Poverty is multi-dimensional, and by providing access to financial services, microfinance

plays an important role in the fight against the many aspects of poverty. Access to credit

allows poor people to take advantage of economic opportunities - for their homes, their

domestic environments and their communities. For instance, income generation from a

business helps not only the business activity expand but also contributes to household incomeand its attendant benefits on food security, children's education, etc. Moreover, for women

who, in many contexts, are secluded from public space, transacting with formal institutions

can also build confidence and empowerment.

Recent research has revealed the extent to which individuals around the poverty line are

vulnerable to shocks such as illness of a wage earner, weather, theft, or other such events.

These shocks produce a huge claim on the limited financial resources of the family unit, and,

absent effective financial services, can drive a family so much deeper into poverty that it cantake years to recover.

Microfinance services are provided by three types of sources:

Formal institutions

Semi-formal institutions such as NGOs

Informal sources such as money lenders and shopkeeper .



38



39

Microcredit and Grameen Bank

The word "microcredit" did not exist before the seventies. Now it has become a buzz-word

among the development practitioners. In the process, the word has been imputed to mean

everything to everybody. No one now gets shocked if somebody uses the term "microcredit"

to mean agricultural credit, or rural credit, or cooperative credit, or consumer credit, credit

from the savings and loan associations, or from credit unions, or from money lenders. When

someone claims microcredit has a thousand year history, or a hundred year history, nobody

finds it as an exciting piece of historical information. I think this is creating a lot of

misunderstanding and confusion in the discussion about microcredit. We really don't know

who is talking about what. I am proposing that we put labels to various types of microcredit

so that we can clarify at the beginning of our discussion which microcredit we are talking

about. This is very important for arriving at clear conclusions, formulating right policies,

designing appropriate institutions and methodologies. Instead of just saying "microcredit" we

should specify which category of microcredit.

A broad classification of microcredit:

A)Traditional informal microcredit (such as, moneylender's credit, pawn shops, loans from

friends and relatives, consumer credit in informal market, etc.)

B) Microcredit based on traditional informal groups (such as, Tontin, Susu, ROSCA, etc.)

C) Activity-based microcredit through conventional or specialised banks (such as,

agricultural credit, livestock credit, fisheries credit, handloom credit, etc.)

D) Rural credit through specialised banks.

E)Cooperative microcredit (cooperative credit, credit union, savings and loan associations,

savings banks, etc.)

F) Consumer microcredit.

G) Bank-NGO partnership based microcredit.

H) Grameen type microcredit or Grameen credit



40

. I) other types of NGO microcredit.

J) Other types of non-NGO non-collateralized microcredit.

This is a very quick attempt at classification of microcredit just to make a point. The point is

— every time we use the word "microcredit" we should make it clear which type (or cluster

of types) of microcredit we are talking about. Otherwise we'll continue to create endless

confusion in our discussion. Needless to say that the classification I have suggested is only

tentative. We can refine this to allow better understanding and better policy decisions.

Classification can also be made in the context of the issue under discussion. I am arguing that

we must discontinue using the term "microcredit" or "microfinance" without identifying its

category. Microcredit data are compiled and published by different organizations. We findthem useful. I propose that while publishing these data we identify the category or categories

of microcredit each organization provides. Then we can prepare another set of important

information — number of poor borrowers, and their gender composition, loan disbursed, loan

outstanding, balance of savings, etc. under each of these categories, country wise, region

wise, and globally.



41

General features of Grameen credit are :

a) It promotes credit as a human right.

b) Its mission is to help the poor families to help themselves to overcome poverty. It is

targeted to the poor, particularly poor women.

c) Most distinctive feature of inistutional microcredit is that it is not based on any collateral,

or legally enforceable contracts. It is based on "trust", not on legal procedures and system.

D )It is offered for creating self-employment for income-generating activities and housing for

the poor, as opposed to consumption.

e) It was initiated as a challenge to the conventional banking which rejected the poor by

classifying them to be "not creditworthy". As a result it rejected the basic methodology of the

conventional banking and created its own methodology.

f) It provides service at the door-step of the poor based on the principle that the people should

not go to the bank, bank should go to the people.

g) In order to obtain loans a borrower must join a group of borrowers.

h) Loans can be received in a continuous sequence. New loan becomes available to a

borrower if her previous loan is repaid.

i) All loans are to be paid back in instalments (weekly, or bi-weekly).

j) Simultaneously more than one loan can be received by a borrower.

k) It comes with both obligatory and voluntary savings programmes for the borrowers.

Generally these loans are given through non-profit organizations or through institutions

owned primarily by the borrowers. If it is done through for-profit institutions not owned by

the borrowers, efforts are made to keep the interest rate at a level which is close to a level

commensurate with sustainability of the programme rather than bringing attractive return for

the investors. Grameen credit's thumb-rule is to keep the interest rate as close to the market

rate, prevailing in the commercial banking sector, as possible, without sacrificing sustain-



42

ability. In fixing the interest rate market interest rate is taken as the reference rate, rather than

the moneylenders' rate. Reaching the poor is its non-negotiable mission. Reaching

sustainability is a directional goal. It must reach sustainability as soon as possible, so that it

can expand its outreach without fund constraints. Grameen credit gives high priority on

building social capital. It is promoted through formation of groups and centres, developing

leadership quality through annual election of group and centre leaders, electing board

members when the institution is owned by the borrowers. To develop a social agenda owned

by the borrowers, something similar to the "sixteen decisions", it undertakes a process of

intensive discussion among the borrowers, and encourages them to take these decisions

seriously and implement them. It gives special emphasis on the formation of human capital

and concern for protecting environment. It monitors children's education; provide

scholarships and student loans for higher education. For formation of human capital it makes

efforts to bring technology, like mobile phones, solar power, and promote mechanical power

to replace manual power. Grameen credit is based on the premise that the poor have skills

which remain unutilised or under-utilised. It is definitely not the lack of skills which make

poor people poor. Grameen believes that the poverty is not created by the poor; it is created

by the institutions and policies which surround them. In order to eliminate poverty all we

need to do is to make appropriate changes in the institutions and policies, and/or create new

ones. Grameen believes that charity is not an answer to poverty. It only helps poverty to

continue. It creates dependency and takes away individual's initiative to break through the

wall of poverty. Unleashing of energy and creativity in each human being is the answer to

poverty. Grameen brought credit to the poor, women, the illiterate, the people who pleaded

that they did not know how to invest money and earn an income. Grameen created a

methodology and an institution around the financial needs of the poor, and created access to

credit on reasonable term enabling the poor to build on their existing skill to earn a better

income in each cycle of loans. If donors can frame category wise micro credit policies they

may overcome some of their discomforts. General policy for microcredit in its wider sense, is

bound to be devoid of focus and sharpness



43

Credit Delivery System

Grameen Bank Credit Delivery means taking credit to the very poor in their villages by

means of the essential elements of the Grameen credit delivery system. Grameen Bank credit

delivery system has the following features:

1)There is an exclusive focus on the poorest of the poor. Exclusivity is ensured by: i)

establishing clearly the eligibility criteria for selection of targeted clientele and adopting

practical measures to screen out those who do not meet them

ii) In delivering credit, priority has been increasingly assigned to women

iii) The delivery system is geared to meet the diverse socio-economic development needs of

the poor

2) Borrowers are organized into small homogeneous groups. Such characteristics facilitate

group solidarity as well as participatory interaction. Organizing the primary groups of five

members and federating them into centres has been the foundation of Grameen Bank's

system. The emphasis from the very outset is to organisationally strengthen the Grameen

clientele, so that they can acquire the capacity for planning and implementing micro leveldevelopment decisions. The Centres are functionally linked to the Grameen Bank, whose

field workers have to attend Centre meetings every week.

3) Special loan conditionality‘s which are particularly suitable for the poor. These include:

i) Very small loans given without any collateral

ii) Loans repayable in weekly instalments spread over a year

iii) Eligibility for a subsequent loan depends upon repayment of first loan

iv) Individual, self chosen, quick income generating activities which employ the skills that

borrowers already posses

v) Close supervision of credit by the group as well as the bank staff

vi) Stress on credit discipline and collective borrower responsibility or peer pressure



44

vii) Special safeguards through compulsory and voluntary savings to minimise the risks that

the poor confront

viii) Transparency in all bank transactions most of which take place at centre meetings.

(4) Simultaneous undertaking of a social development agenda addressing basic needs of the

clientele. This is reflected in the "sixteen decisions" adopted by Grameen borrowers. This

helps to:

i) Raise the social and political consciousness of the newly organized groups

ii) Focus increasingly on women from the poorest households, whose urge for survival has

a far greater bearing on the development of the family

iii) Encourage their monitoring of social and physical infrastructure projects - housing,

sanitation, drinking water, education, family planning, etc.

5: Design and development of organization and management systems capable of

delivering programme resources to targeted clientele.

The system has evolved gradually through a structured learning process that involves trials,

errors and continuous adjustments. A major requirement to operationalize the system is the

special training needed for development of a highly motivated staff, so that the decision

making and operational authority is gradually decentralized and administrative functions are

delegated at the zonal levels downwards.

6: Expansion of loan portfolio to meet diverse development needs of the poor.

As the general credit programme gathers momentum and the borrowers become familiar

with credit discipline, other loan programmes are introduced to meet growing social and

economic development needs of the clientele. Besides housing, such programmes include:

i) Credit for building sanitary latrines

ii) Credit for installation of tube wells that supply drinking water and irrigation for kitchen

gardens



45

iii) Credit for seasonal cultivation to buy agricultural inputs

iv) Loan for leasing equipment / machinery, ie., cell phones purchased by Grameen Bank

members

v) Finance projects undertaken by the entire family of a seasoned borrower.

The underlying premise of Grameen is that, in order to emerge from poverty and remove

themselves from the clutches of usurers and middlemen, landless peasants need access to

credit, without which they cannot be expected to launch their own enterprises, however small

these may be. In defiance of the traditional rural banking postulate whereby "no collateral (in

this case, land) means no credit", the Grameen Bank experiment set out to prove -

successfully - that lending to the poor is not an impossible proposition; on the contrary, it

gives landless peasants the opportunity to purchase their own tools, equipment, or other

necessary means of production and embark on income-generating ventures which will allow

them escape from the vicious cycle of "low income, low savings, low investment, low

income". In other words, the banker's confidence rests upon the will and capacity of the

borrowers to succeed in their undertakings. The mode of operation of Grameen Bank is as

follows. A bank branch is set up with a branch manager and a number of centre managers and

covers an area of about 15 to 22 villages. The manager and the workers start by visiting

villages to familiarise themselves with the local milieu in which they will be operating and

identify the prospective clientele, as well as explain the purpose, the functions, and the mode

of operation of the bank to the local population are small, but sufficient to finance the micro-

enterprises undertaken by borrowers: rice-husking, machine repairing, purchase of rickshaws,

buying of milk cows, goats, cloth, pottery etc. The interest rate on all loans is 16 percent. The

repayment rate on loans is currently - 95 per cent - due to group pressure and self-interest, as

well as the motivation of borrowers. Although mobilization of savings is also being pursued

alongside the lending activities of the Grameen Bank, most of the latter's loanable funds are

increasingly obtained on commercial terms from the central bank, other financial institutions,

the money market, and from bilateral and multilateral aid organization. Groups of five

prospective borrowers are formed; in the first stage, only two of them are eligible for, and

receive, a loan. The group is observed for a month to see if the members are conforming to

the rules of the bank. Only if the first two borrowers begin to repay the principal plus interest

over a period of six weeks, do the other members of the group become eligible themselves for

a loan.





47

Microfinance in India:

“ Money, says the proverb makes money. When you have got a little, it is often easy to get

more. The great diff iculty is to get that little.”Adams Smith.

Today India is facing major problem in reducing poverty. About 250 million people in India

are under below poverty line. With low per capita income, heavy population pressure,

prevalence of massive unemployment and underemployment, low rate of capital formation,

misdistribution of wealth and assets , prevalence of low technology and poor economics

organization and instability of output of agriculture production and related sectors have made

India one of the poor countries of the world.

Some 30 million women have formed 2.2 million small businesses and another 400,000 are

expected to be in place by March, 2007, according to the National Bank of Agriculture and

Rural Development. About $2.48 billion has been extended to these groups, which

predominantly run by women, over the last decade (source Economic times)

Present Scenario of India:

India falls under low income class according to World Bank. It is second populated country

in the world and around 70 % of its population lives in rural area. 60% of people depend on

agriculture, as a result there is chronic underemployment and per capita income is only $

326.2. This is not enough to provide food to more than one individual. The obvious result is

abject poverty, low rate of education, low sex ratio, and exploitation. The major factor

account for high incidence of rural poverty is the low asset base. According to Reserve Bank

of India, about 51 % of people house possess only 10% of the total asset of India .This has

resulted low production capacity both in agriculture (which contribute around 22-25% of

GDP) and Manufacturing sector. Rural people have very low access to institutionalized credit

(from commercial bank).

According to World Bank, out of the world‘s total population of 6 billion, a total of 1.2

billion people, live on wages less than $1 (INR 60) per day; of which, the majority live in



48

Asia. Almost 40% of the population of the South Asia region is poverty stricken. Further to

this, India alone is said to host about one third of the world‘s poor.

The estimates from Government of India show that over 250 million people are left without

proper access to credit despite a network of 33000 rural and semi urban branches of

commercial banks, 14000 branches of Regional Rural Banks and 92000 outlets of

cooperatives. The poorest people very often do not comply with the norms that banks lay

down for credit seekers. They neither have salary certificates or the required collateral to

show as security against the loan. Under such circumstances, the poorest citizens access

credit mostly from informal finance providers who charge very high rate of interest. Non

payment of principal or interest by the credit seekers invites various kind of exploitation for

him and his family.

To date in India, only an estimated 5 million poor people (mostly rural women) benefit from

microfinance services, leaving a vast unmet demand for developing credit, savings and

insurance activities which is termed as microfinance services targeted a sector referred to as

non-bankable even till date.

Source: GOI Survey, September 1998

Around 75% of all micro credit activity in the country is concentrated in the four southern

states of Andhra Pradesh, Karnataka, Kerala and Tamil Nadu

Source: Government of India Survey 2006

As designed by NABARD, the women who benefit from microfinance are able to access themicrofinance services by forming groups of 5 to 20 women, called self-help groups

("SHGs"). The group is intended to act as a semi-guarantor by making sure that each member

repays her loan in the stipulated time thereby positively contributing to the group‘s credit-

worthiness. SHGs are either linked to NGOs or to local banks. From the banks they can

access funds @ 2-3% a month and through NGOs providing micro-credit @ 15 to 20 % per

annum. There is a possibility of generating a credit demand of 25 billion Indian Rupees from

savings from the poor in the short term.



49

Poverty alleviation programmes and conceptualization of Microfinance

India has supported social banking for a long time. Policy directions to rapidly expand rural

branches, mandate credit allocations for priority sectors (including agriculture), deliver large

subsidy oriented credit programmes to serve marginal communities and poor households and

control interest rates have been tried for over 35 years.

The new generation microfinance was slow in coming to India. Low levels of grants to

microfinance institutions, an unfavourable policy environment, substantial traditional banking

infrastructure and a search for context specific solutions has constrained rapid scale up. The

first breakthrough emerged from policy support to enable informal self help groups of 15-20

members (mainly women) to transact with commercial banks. These groups build up and

rotate savings amongst themselves, open bank accounts and take responsibility for lending

and recovering money financed by banks. With the missionary zeal of the National Bank for

Agriculture and Rural Development (NABARD), insights gained by NGOs, the increasing

enthusiasm of bankers and politicians and emerging successes in repayment and social

impacts, this national movement now encompasses 1.4 million such groups (over 20 million

members).

At a time when many questioned the need for specialised microfinance institutions (MFIs) in

India, the Small Industries Development Bank of India (SIDBI) recognized the opportunity

and started implementation of an ambitious national programme. Providing loan and capacity

building support to MFIs and capacity building and rating support for sector development,

this programme already supports 70 MFIs and has disbursed US$46 million.

Microfinance has been perceived as an alternative tool of providing financial services to poor

Clientele in India. SEWA (Self Employed Women Association) Bank is the oldest

microfinance organisation in the country. The Community Based Organisations (CBOs) and

Non

Governmental Organizations (NGOs) initiated the microfinance movement and the formal

Financial Sector joined in at a later stage. The popular mode of delivering microfinance in

India

is Self Help Groups (SHGs) . Initially, NGO-MFIs motivated poor to form SHGs and



50

Supported them to manage their savings and internal lending activities within the SHG. In the

Year 1992, NABARD initiated a pilot project on SHG-Bank Linkage programme in India.

For

this pilot project, Southern States in India were chosen. NABARD took up this programme

on a

Full-fledged manner in 1998 after experiencing an immense success of the pilot project. Now

SHG-Bank Linkage Programme is the largest microfinance programme in the world. Within

a

span of 15 years, the outreach of this programme had increased to 2.24 million credit linked

SHGs in the year 2006 from 255 credit linked SHGs in the year 1992. In the present Indian

Microfinance sector, Commercial Banks, Regional Rural Banks, Cooperative Banks, Non

Banking Financial Companies (NBFCs) and NGOs are involved in offering microfinance

services to the poor.

Microfinance movement in India can be divided into two phases. In the first phase of this

Movement, it was found that NGOs and CBOs took the initiative of group formation. They

Nurtured these SHGs and provided micro-credit. In this phase most of the programmes were

sponsored by national and international donor agencies. In the second phase, Micro-Credit

Movement transformed to a broader level of intervention and came to be recognised as

Microfinance movement. Formal financial Institutions have joined this movement along with

NGOs and CBOs. Apart from credit, the provision of other financial products like insurance

and

Micro savings is also carried out. It is important to note that that in the nascent stage it the

movement was considered as a poverty lending exercise and now in the present stage it has

transformed into a profit earning financial business



51

Features Of Indian Microfinance:

A Task Force on Microfinance recognised in 1999 that microfinance is much more than

microcredit, stating: "Provision of thrift, credit and other financial services and products of

very small amounts to the poor in rural, semi-urban and or urban areas for enabling them to

raise their income levels and improve living standards". The Self Help Group promoters

emphasize that mobilising savings is the first building block of financial services.

For many years, the national budget and other policy documents have almost equated

microfinance with promoting SHG links to the banks. The central bank notification that

lending to MFIs would count towards meeting the priority sector lending targets for Banks

offered the first signs of policy flexibility towards MFIs. One could argue that MFIs are small

and insignificant, so why bother. The larger point is about policy space for innovation and

diversity of approaches to meet large unmet demand. The insurance sector was partially

opened to private and foreign investments during 2000. Over 20 insurance companies are

already active and experimenting with new products, delivery methodologies and strategic

partnerships.

Microfinance programmes have rapidly expanded in recent years. Some examples are:

Membership of Sa-Dhan (a leading association) has expanded from 43 to 96

Community Development Finance Institutions during 2001-04. During the same

period, loans outstanding of these member MFIs have gone up from US$15 million to

US$101 million.

The CARE CASHE Programme took on the challenge of working with small NGO-

MFIs and community owned-managed microfinance organisations. Outreach has

expanded from 39,000 to around 300,000 women members over 2001-05, Many of

the 26 CASHE partners and another 136 community organisations these NGO-MFIs

work with, represent the next level of emerging MFIs and some of these are already

dealing with ICICI Bank and ABN Amro.

In addition to the dominant SHG methodology, the portfolios of Grameen replicators

have also grown dramatically. The outreach of SHARE Microfin Limited, for

instance, grew from 1,875 to 86,905 members between 2000 and 2005 and its loan

portfolio has grown from US$0.47 million to US$40 million.



52

Since banks face substantial priority sector targets and microfinance is beginning to be

recognised as a profitable opportunity (high risk adjusted returns),[1] a variety of partnership

models between banks and MFIs have been tested. All varieties of banks - domestic and

international, national and regional - have become involved, and ICICI Bank has been at the

forefront of some of the following innovations:

Lending wholesale loan funds.

Assessing and buying out microfinance debt (securitisation).

Testing and rolling out specific retail products such as the Kissan (Farmer) Credit

Card.

Engaging microfinance institutions as agents, which are paid for loan origination andrecovery, with loans being held on the books of banks.

Equity investments into newly emerging MFIs.

Banks and NGOs jointly promoting MFIs.

The 2005 national budget has further strengthened this policy perspective and the Finance

Minister Mr P. Chidambaram announced "Government intends to promote MFIs in a big

way. The way forward, I believe, is to identify MFIs, classify and rate such institutions, and

empower them to intermediate between the lending banks and the beneficiaries."

Savings services are needed by many more customers and as frequently as access to phone

services. Many poor households value access to savings services and find new providers and

arrangements, despite hearing of unreliable savings collectors or even occasionally falling

prey to such arrangements. Many customers are rich, literate and lucky to have banks

working for them. But many others lack access to safe, secure and accessible savings services

for the short, medium and long terms. In the past, many banks sent collectors to gather these

savings but problems with monitoring, inability to tackle misappropriation and the rising

aspiration of collectors to become permanent staff of public sector banks killed a useful

service. The central bank has strictly forbidden commercial banks from using agents in

collection of savings services. This is unfortunate as:

Effective microfinance delivery is about managing transaction costs for providers and

customers.

http://c/Users/sehnan/Downloads/l






53

A combination of agents and technology can play a powerful role in rightly aligning

incentives for the collector and customers, while keeping transaction costs

manageable for everyone.

The banks can only open so many branches, and fixed and operating costs are high,

apart from approvals still needed from the central bank to open new branches or close

existing ones. The appointment of agents can keep costs manageable and offer greater

flexibility to Banks.

Banking service may not be able to defy the commercial logic pursued by most other

sectors where a variety of retailers provide services to customers, while companies

focus on customer needs, product design, quality control, branding, logistics and

distribution.

Fortunately, the 2005 Budget opened a small window in this area and the central bank annual

policy recently confirmed discussions on this: "As a follow-up to the Budget proposals,

modalities for allowing banks to adopt the agency model by using the infrastructure of civil

society organisations, rural kiosks and village knowledge centres for providing credit support

to rural and farm sectors and appointment of micro-finance institutions (MFIs) as banking

correspondents are being worked out." But readers may note that between the budget and the

annual policy statement, "credit" has again crept in as the key perceived need.



54

New Entries

In the middle of all this, what is interesting about India is that its biggest commercial lenders

such as ICICI, HDFC, SBI, UTI etc. to name a few have diverted their funds and attention to

this sector in a big way. MNCs like ABN Amro, Standard Chartered, HSBC and the

Citigroup are also moving into this sector.

Clearly what drives these institutions is not social responsibility alone. There is a bigger gain

involved. What attracts them is a huge market opportunity here with 30% of India‘s 1

Billion+ population still living below the Poverty Line and these banks realize that lending tocredit worthy rural borrowers is a lucrative business proposition.

As per Ranjan Ghosh, who heads Financial Institutions for India and South Asia at Standard

Chartered Bank, "With fewer defaulters in this sector, clearly the risk return rate is acceptable

to the banks. We look at it as an investment."

And may be that is why NachiketMor of ICICI spends so much of time in India's

economically depressed rural hinterland looking for prospective borrowers.

So all in all it‘s a good business for Indian banks, given the diminishing market for lending to

companies and consumers in cities.

ICICI Bank is one bank that has developed a very clear strategy to expand the provision of

financial products and services to the poor in India as a profitable activity.

ICICI Bank's micro credit initiatives involve provision of basic banking services like savings

and withdrawal along with micro-investment products like mutual funds and insurance. This

provides poor people with safer avenues for saving with little volatility or risk.

Its structures also include buying the microfinance portfolios of MFIs either on a selective

basis or buying the complete loans of a branch or a particular area along with partnership

arrangements with MFIs. This helps leveraging the operational strength of NGO/MFI with

the financial strength of ICICI Bank. In the world's largest securitization deal, ICICI Bank

purchased a portfolio of 42500 loans worth US$ 4.3 million from Share Microfin Limited in



55

2004.

In the Public Sector SBI is doing a commendable job in this area with its innovative products

like Project Uptech, SBI Life ‗Shakti‘, SahayogNiwas, Agri SBU, Contract Farming and

Kisan Credit Cards.

As has been mentioned earlier Indian Microfinance Industry is increasingly attracting the

global attention. Unitus is a case in point. Started in early 2000 by a group of friends with a

common mission of poverty alleviation, it is based in Redmond, Washington, with an office

in Bangalore. Unitus works in Latin America and Southern Africa, but with one third of the

world's population in India, its focus has naturally turned to India.

The structure that Unitus is using is based on what it calls its "accelerator" model, which

basically implies acceleration of outreach. To address gaps, Unitus uses three different capital

instruments, namely Grant, Debt and finally Equity. Working typically with MFIs, which are

NGOs or have originally been NGOs, Unitus first uses grant funds to build the infrastructure

in the MFI.

Unitus Equity Fund, along with SIDBI, VinodKhosla and other social venture capitalists

made a Rs 11 crore (Rs 110 million) investment in SKS Microfinance in India. The money

would be used to access commercial debt and scale outreach from SKS's current 200,000

clients to 700,000 clients by 2006-07.



56

In short what the bigger institutions do is partner with microfinance specialists across India

who has knowledge of the local villages and can identify worthy borrowers.

Another very interesting phenomenon that is associated with this industry is the creation of a

secondary market over time. Under this the Micro loans would be bundled together into

larger Bond issues which will be tradable among the Indian and the Global Investors taking

Micro lending to a higher level.



57

The Challenges

All this sounds like a nice combination of corporate interests, fulfilment of social needs and a

panacea for India‘s balanced development. But this system is not free of complications and

challenges.

There have been allegations time and again that microlenders structure their loans with

hidden costs to exploit borrowers. The suicides of about a dozen women caught in this kind

of a debt trap in Andhra Pradesh illustrate this point. The Government Inspectors had also

pointed out four Organizations namely Spandana, Asmita, UmdamaPottuPedatha and Share

Micro fin of charging interest rates as high as 40% to 50 %.

On the one hand, the industry is trying to grapple with problems of sudden growth, while, on

the other, global social venture funds think that impact needs to be maximized and that

institutions with the right professional leadership, governance, and systems need to be

supported.

The biggest challenge is to develop a systematic growth mode which can cater to the

accelerating demand. In this scenario the two main hindrances to the growth of MFIs are

‗lack of capital‘ and ‗lack of capacity‘.

Most MFIs are unregulated non-profit organisations, which prevents them from building an

equity base. Through a combination of grants, equity and debt, it is possible to transform

them into regulated financial institutions with an equity base that then allows MFIs to bolster

their balance sheet and access local capital markets. Lack of capacity can be attributed to a

variety of factors such as weak corporate governance, lack of management depth, absence of

management and strategic planning systems and insufficient business infrastructure.

Another very inherent issue is that the focus of bigger funding organizations is always on

mature MFIs, forcing young and mid-tier MFIs to look for capital from local sources,

primarily grants. This focus on mature MFIs may be stalling industry growth as only a small



58

percentage (1-2%) of MFIs is sustainable. So provisions have to be made to absorb some

initial risk while the MFI develops a track record, relationships and credibility. Along with

this what is required is upfront, longer-term involvement. And finally, there is a need for

MFIs to work with policymakers on current regulations that limit options for MFIs and

investors. Like in India, most MFIs are still NGOs and so they can accept local debt but not

equity, and at the same time foreign investors have limited opportunities for investment.



59

Chapter 3

Microfinance in Jammu and Kashmir:



60

Microfinance in J&K

Jammu and Kashmir is the North Western State of India. The state endowed with natural

resources and competitive advantage with geographical area 222236.Sq.Kms including an

area of 120847.Sq.Kms under unlawful occupation of China and Pakistan, leaving thereby an

area of 101387.Sq.Kms. on this side of country accounting for 3.20% of country‘s area and

19th populous state with10143700 population as per census 2001 .The main occupation of

people of Kashmir is mainly dependent on agriculture and on cottage industries hence the

people are associated occupations like tourism,agriculture,horticulture ,fisheries ,carpet

weaving, paper machie ,chain stitch ,crewel furnishings ,saffron almonds,serviculture,etc

Role of J&K Grameen Bank

The role of Grameen Bank is not limited to anyone sectors of the society or economy in

the Kashmir region, but the Grameen Banks are playing a vital role in the overall

development of the rural economy of the region to improve the life style and standard of

the comman masses. Grameen Banks are providing financial assistance to every sector of

the society throughout the regionthrough their various organised schemes most

importantly through Govt.Sponsered schemes, specifically developed by the govt of India,

Reserve Bank of India, National Bank for Agriculture and Rural Development, besides

various schemes of the banks developed at their own level. The implementation of these

schemes is being supervised and regulated by Govt.of India and NABARD through the

lead Bank Department and assessment of implementation of these schemes is being done

through BLBC‘s,DLRC‘s and SLBC‘s.

Since during the current financial scenario the Govt of India is very forcefully being

supervising the implementation of Micro Finance Schemes in the down trodden and under

privileged segments of the society, the bank under reference has also put in their

reasonable Part of the lending into this sector. The Bank is further taking very impressive

steps to speed up the financial inclusion Schemes of the Govt through the issuance of

small segment credit cards popularly known as General Credit Cards, Kissan Credit Cards,

Both these schemes have played a very vital role in improving the financial position of the

rural people at grass root level. Under the Micro Finance schemes the Bank is issuing

GCC,s to all the individual families with an initial credit limit of Rs 25000 to meet out

their domestic expenses either or spent the money for purchase of inputs for cash crop

growing, besides the bank is issuing KCC;s to the same segment of people with a credit



61

limit ranging from Rs5000 to Rs 30000, to be used by the farmers for purchase of seeds,

fertilizers, pesticides and other agricultural equipments required as per necessity for

growing crops agriculture and other domestic requirements. In both the cases the funds so

allocated rather financed to the borrowers or being utilized as revolving funds which a

borrower can regularly withdraw and deposit during a particular period of time as would

be decided by the bank with a minimum ceiling of 6 months i.e Single Crop Season or one

year i.e double crop depending upon the seasonality of the crops.



62

Loans Schemes provided by J&K Grameen Bank for General Public

(1) PRIORITY SECTOR ADVANCES

Agriculture

a)ST(CropLoan)

b)KCC

c)Thrashers

d)Bullocks

e)Pump set

f)Tractor

Allied Agriculture

a)Dairy

b)Sheep

c)Goat

d)Horse Cart

e)Bullock Cart

f)Pack Animal

g)Piggery

h)Bee Keeping

i)poultry

j)Fishery

k)Sericulture

l)Mashroom

m)Small Road Transport (Agriculture)

n)Rice Mill/ Flour Mill

Total Agri& Allied Activities(1+2)



63

a)Loans to Rural Artison/Village

& Cottage/Tiny Industries

b)Loan to SSI

c)Housing Loan General Public

d)Loan to SHG/NGO

e)Small Road Transport(Non-Agriculture)

f)Retail trade/small Business

g)Loans to Professisonal/Self Emp.

h)Cash Credit Limit

i)Secured OverDraft SOD j)Education loans

k)General Credit Card(GCC)

(2)NON PRIORITY SECTOR.

a)Term Loan to Agri. & Allied

Act.

b)Trade /Small business

c)Cash Credit Limit

d)Secured Over Draft

e)Consumer Loan to G.Public

f)Car Loan

g)Personal Loan

h)Conveyance/M.cycle Loan

i)Mortgage Loan

i)Bank Building Loan

(3)Loan Against Deposits



64

Staff Loans

a)Personal Loans

b)Car Loans

c)Conveyance Loan

d)Housing Loan

e)Mortgage Loan

f)Bridging Loan

g)Consumer Loans

Agriculture:

Agriculture is the vital component of primary sector, therefore, occupies an important place

in every economy especially in Agrarian economies. The performance of Agriculture forms

the basis of growth and development of an economy since it has multiplier effect across the

economy. The J&K State is basically agrarian in nature.

As per census 2001, 18.38 lakh person comprising 15.92 lakh cultivators and 2.46

lakh agricultural labourer depend directly on agriculture for subsistence forming 49% of the

total work force. The agriculture and allied sectors contribute about 27% to Gross State

Domestic Product estimated at constant price as per advance estimate for the year 2004-

2005.

The various types of agricultural practices done in J&K is as:

(a) Farmining.

(b) Horticulture.

(c) Apple growers, walnut growers & other dry fruit growers.

(d) Sericulture.

(e) Mushroom culture.

(f) Pisiculture.

(g) Apiculture etc..



65

Land use pattern in J&K State

Use of Land (source Economic Survey J&K)

Horticulture:

As per horticulture census conducted in 1999-200, 84804.159 hectares of area is under all

fruits, 54.97% of area is under Apple and 22.14% under walnut.

8.24 lakh metric tones of fruits (both dry and fresh) were exported from J&K to

outside state in2005-06 which has slowed down by 7.79% against the figures for 2004-05. As

per estimates of horticulture department around 20 lakh people are directly or indirectly

employed in this sector.

0

10

20

30

40

50

60

70

Area under

forest

Area not

available for

cultivation

Other

uncultivable

Land

Follow Land Net area

Sown

2003-04

2004-05

2005-06



66

Fisheries:

The total fisherman population in state is around 31000 having a length of 27781 Km of

river/streams which facilitate the farming of more than 40 million tones of fish. Out of total

27781 Km under fisheries the state has only 0.07 hectares under reservoir area

Industries

The contribution of industries sector to the State‘s Economy stands meager at 6%. TheJammu and Kashmir is lacking large scale industries and industrial scenario is occupied by

small scale and cottage industries. The SSI unit in the state has increased from 42808 in 2001

to 48224 in 2006 and employment generated through these units has increased from 1.9 lakh

in 2001-02 to 2.19 lakh in 2006

Tourism Industry:

Tourism is one of the most important industries in J&K especially we have a specially won

recognition for Pilgrim Boards. About 450 thousand Yatries visit state every year and 600

other tourists visit valley every year



67

CURRENT SCENARIO OF MICROFINANCE IN J&K

The J&K State is 19th populous state of Country .However stands second last in case of

literacy positioned after Bihar. We also stand in the bottom four in case of employment. Still

only 3.8% of our population is below poverty line, which shows that people here are skilled

in various craftsmanship and so self made which again depict huge potential for micro

enterprises in J&K.

According to one survey we have 27 Handicraft Federation in J&K with around 270 SHG‘s

and 2700 members

Bank launches microfinance in Jammu

Under its microfinance programme, Jammu and Kashmir

Bank has started an ambitious programme to provide hasslefree financial assistance to small businesses, like artisans,

agri-business activities and others at cheaper rates.

Deputy Governor Reserve Bank of India, Ms.UshaThorat,

appreciated the role of J&K Bank in reaching out to masses

with financial solutions under its microfinance programme.

She was speaking on the launching ceremony of the J&K

Bank‘s microfinance programme in Jammu today.

The chief guest on the occasion, Ms Throat, disbursed loans

with a ticket size of Rs. 2,000 to Rs. One lakh to 42 vegetable and fruit vendors on the spot.

Overall loan disbursement to the tune of Rs.23.24 lakh was made on the occasion.

J&K Bank chairman, Dr.Haseeb A. Drabu, while speaking on the occasion said that the Bank

shall be putting every effort to bring unbanked people in the ambit of banking through its

‗Reaching Out to All Programme‘.

Microfinance is in



68

―We have been developing customized products for small businesses, artisans and people

carving out their livelihood from agri-business activities and offer these products to them at

cheaper rates. In the first stage, we launched the financial inclusion programme in R S Pura in

Jammu and Ganderbal in Srinagar where we have opened accounts of people even with small

means through our no-frill account – S/B Ujala Scheme. Through our focused attention on

J&K State, this programme shall be extended to other parts in phases,‖ said Dr.HaseebDrabu.

He further stated that the Banks shall be extending hassle free small loans to these segments

of people through tailor-made products at cheaper rates.

Ms.Thorat, RBI Deputy Governor, in her speech lauded the bank‘s efforts in reaching to

unbanked people and appreciated the model of microfinance programme of the bank. Whilespeaking about the benefits of this programme, Ms.Thorat asked the beneficiaries to utilize

the loan amount for the purpose it has been granted.

She said, ―The beneficiaries should take full advantage of the bank‘s microfinance scheme to

enhance their income generation capacity. But at the same time, they must repay the loan

within the stipulated time and help the bank to make it purposeful for others.‖

She also appreciated the IT solutions adopted by the bank for the benefits of its customers.

Ms.Thorat later visited the beneficiaries‘ units and took stock of activities related to their

day-to-day business.

Awareness programme by J&K Grameen bank

With the objective of providing greater Financial Inclusion to the unbanked people, J&K

Grameen Bank has organized one day Awareness programme at village (cluster level for

village Sarwal and GurahManhasan) block Khour, with NABARD Financial assistance and

support.

Rohit Mishra Deputy General Manager NABARD Jammu, who was the chief guest on the

occasion, inaugurated the Awareness programme.



69

While speaking on the occasion, he congratulated General Manager JKGB for taking keen

interest in Financial Inclusion programme and also in rural development through Institutional

credit.

He stressed that reaching out to un-reached segment of the population and providing basic

financial services is the need of the hour.

He also highlighted the policies and programmes of NABARD for facilitating Financial

Inclusion programme.

Mohit Kumar Vij, General Manager J&K Grameen Bank, while speaking on the occasion, he

impressed upon the gathering to come forward to open the accounts in JKGB and avail

benefits from the various schemes of the bank so that the large chunk of population living

below the poverty line can join the main stream.

He outlined the Financial Inclusion concept and said that bank is regularly organizing such

type of programmes for imparting education to the general masses more particularly to the

financially excluded peoples.Earlier H.S Sambyal Area Manager Jammu formally welcomes

the guests and participant to the programme. He also apprised the gathering about the policies

and programmes of the bank .

JK Grameen Bank organises Kissan credit fair

The J&K Grameen Bank organized a Kissan Credit Fair. The Bank on the occasion

distributed loan among farmers at Kralgund in north Kashmir‘s Kupwara district, it said in a

statement. Giving details it said Rs 60 lakh were disbursed among 70 consumers under

different schemes of central government meant for weaker sections of society and financially

weak farmers for earning livelihood. General Manager, Grameen Bank Muhammed,

Altaf Bhat asked the farmers to avail benefits of these schemes. Area manager GB,

Khursheed Ahmed Shah apprised people about these schemes.



70

J&K Grameen Bank, NABARD launch Lord Krishna

Farmers’ Club

4J&K Grameen Bank, Branch Office, Rajbagh, with the assistance of NABARD launched a

Farmers Club namely Lord Krishna Farmers' Club at village KarandiKalan in Kathua district

today. The club is charged to arrange hassle free credit for the villagers by maintaining better

borrowing relationship and shall function as a bridge between the farmers and the bank. The

function was chaired by S L Sukhdevya Chief General Manager NABARD, AmanKalsotra

DDM NABARD Kathua. M K Viz General Manager J&K Grameen Bank, M L Sharma Area

Manager J&K Grameen Bank, Area Office Kathua and other representatives of the Banks andGovernment Departments like Agriculture, Animal husbandry, and Rural Development also

graced the occasion.M.KViz General Manager of the Grameen Bank explained the farmers

about the loan scheme of the bank. He also informed the gathering that these farmer clubs are

generally formed in the service area of the bank under Farmers' Club Programme of

NABARD for creating a suitable climate in the village for proper use of loans, recycling of

funds and bringing about improvements in their day to day life. It was disclosed that the club

shall arrange interface with subject matter specialists in various fields of agriculture for

technical know-how for improving agricultural productivity. It would also undertake the

development activities like community works, education, health, environment and natural

resources management in the area and all other activities. About 50 farmers participated in

the function. Chief General Manager NABARD also distributed Kissan Credit Cards to the

farmers of the village. The representatives of the line department informed the villagers about

their respective schemes and assured them to extend every support and help for their

development.



71

J&K Grameen Bank inaugurates Farmers’ Club

The J&K Grameen Bank inaugurated a Farmers‘ Club at Tragbal in Varmul. The club has

been named after a spiritual personality of the area Baba Hamidullah.

The club was inaugurated by Chairman Grameen Bank, Raja Abdul Lateef in presence of a

well attended gathering comprising locals of the area. General Manger, Muhammad

AltafBhat and Abid Ahmad Area Manager of Grameen Bank, were present at the function.

Lateef in his address stressed the need for creation of such clubs. ―The farmers‘ clubs serve

as informal forums at grassroots. They are organized by rural branches of banks throughout

the country to provide package of initiatives helping transfer of technology, improving input

use efficiency and promoting investments in agriculture both in private and in public sectors

and creating a favourable and enabling economic environment,‖ he said.

He said the clubs were organized with the support and financial assistance of NABARD for

the mutual benefit of the banks concerned and rural people.

He said opening of today‘s club was a beginning towards bringing in benefits to ―our farmers

which their counterparts in other states are already enjoying.‖

―More such clubs will be established and organized in near future,‖ he assured. Bhat said the development in rural areas through credit, technology transfer, awareness and

capacity building was the main focus of the farmers‘ club.

He said the farmers‘ club programme was the appropriate and most suitable strategy initiated

by NABARD under which location specific skill and knowledge based technologies to

promote greater value addition to agriculture produce and forge new partnerships between

public institutions, technology users and the corporate sector was envisaged and adhered to.

He said the Grameen Bank was committed to economic uplift and prosperity of the farmers

who had been facing problems in absence of such clubs while dealing with the financial

institutions and banks



72

Introduction to Srinagar District

Srinagar district is situated in the centre of Kashmir Valley, is surrounded by five districts. In

the north it is flanked by Kargil,in the South by Pulwama,in the north-west by Budgam. The

capital city of Srinagar is located 1730 metres above sea level. The district with a population of

around 9,00,000 souls(1991- census), is sperad over an area of 2228 Sq.Kms.It comprises three

tehsils/ towns viz Srinagar, Ganderbal and Kangan, four blocks (Srinagar, Ganderbal, Kangan

and Leh), besides 175 villages.The population density in the district Srinagar is 401 per Square

Kilometer which is highest in the state. The literacy rate of the district was 33.80%in 1981.

According to a popular legend which is mentioned in Kalhana'sRajtaringini Kashmir valley

was a vast lake. Kashyap Rishi drained out the water and made it habitable. It is said that

originally Yakshas and Pisacas tribes inhabited the valley at the higher reaches and did not

allow the inhabitants of the valley to live in peace. King Ashok brought Budhism to Kashmir

which was strengthened by Kanishka. In 6th century Huns came to rule the valley and Mihirkul

was one of the infamous Hun ruler. The area attained freedom in 530 AD which was

shortlived.

According to Sir Aurel Stein the famous interpretor of Kalhana the chronicler of Kashmir the

city of Srinagar had big market and mansions made of wood touching the clouds. Hieun-tsang

the famous Chinese traveler visited Srinagar and has described it his memoirs.

At a Glance

Educational

Institutions 955

Colleges/polytechnics 10

universities 2

Road length 1296 Kms

Area 2228 sq. kms

Population 9,00,000 (1991)

Population Density Km



73

Villages 175(7 uninhabited)

Tehsil 3

Towns 3

Panchayats 93

Blocks 4

Live-Stock

Population 2.50 lakhs

Gross Area sown 0.24 lakh hect.

Forests 660.50 sqkm

Villages electrified 168

Villages with

drinking water 168

Literacy rate 33.31

TOTAL IDENTIFIED CLUSTERS IN KASHMIR VALLEY

S.No IDENTIFIED

CLUSTER

NUMBER

OF

PEOPLE

INVOLED

VOLUME OF

BUSINESS

GENERATED

AREA OF

CONCENTRATION

1 BAT CLUSTER AWANTIPUR2 LEATHERCLUSTER

450ARTISANS

DOWNTOWN AREA

3 FOOD PARK 19 UNITS KHANMOH

4 CARPETS 12000FAMILIES

5 PAPER MACHIE 9300ARTISANS

DARGAH &DOWNTOWN

6 SOZNIEMBODIERY

14750ARTISANS

ZAZUN,BADAMPORA, UP-TOWN

7 CREWEL EMB 8500ARTISANS

1.50 CRORE DOWNTOWN



74

8 AARI EMB 20000FAMILIES

DOWNTOWN &UPTOWN

9 WILLOW WORK 300FAMILIES

GANDERBAL,DARGAH

10 ZARI EMB 400

FAMILIES11 WOOD CARVING 215

FAMILIESDOWNTOWN

12 KANI SHAWL 500ARTISANS

DOWNTOWN



75

Chapter 4

DATA INTERPRETATION



76

Statement of Scheme Wise Loans And Advances Disbursed /Outstanding’s

Viz a Viz NPA And Provisioning There Of As On: 31-03-2011.

J&K Grameen Bank Branch Office Tilgam Baramulla

Loans disbursed2010-2011

Advancesoutstanding31-03-2011

NPA

S.No Scheme /Sector No. Of Accounts

Amount No. Of Accounts

Amount Amountof NPA

Amount Of NPAProvision

TotalProvision OnAdvances

1 ST CropLoan(KCC) 188 29115 119 14359 497 149 184

2 T?L ForAgriculture&AlliedActivities

xxx xxx 20 5361 480 480 487

3 Rural Artisan /SSI/ villageindustries

12 527 54 2121 57 57 62

4 Transport 1 324 9 2496 xxx xxx 06

5 Retail Trade /SmallBusinesss

8 820 57 5731 153 46 68

6 General CreditCard (GCC)

xxx xxx 3 23 xxx xxx xxx

7 Self HelpGroup(SHG)

xxx xxx xxx xxx xxx xxx xxx

8 Others(non prioritysectors)

48 3735 90 6338 43 43 68

Total 257 34521 352 36429 3377 775 857



77

0

5000

10000

15000

20000

25000

30000

35000

0

20

40

60

80

100

120

140

160

180

200

No. Of Accounts

Column1

Amount



78

ADVANCES OUTSTANDING AS ON 31-03-2011

NPA PROVISIONS

119

20

54

9

57

3 0

90

0

2000

4000

6000

8000

10000

12000

14000

16000

0

20

40

60

80

100

120

140

No. Of Accounts

Amount

0

100

200

300

400

500

600

0

100

200

300

400

500

600

Amount of NPA

Amount Of NPA Provision

Total Provision On Advances



79

Asset Classification And Provisioning

.

s.no ASSETS %age of provision

1 STANDARD ASSET 0.65

2 SUBSSTANDARD ASSET 10

3 DOUBTFUL ASSET UPTO 1 YEAR 20

4 DOUBTFUL ASSET UPTO 2 year 30


6 UNSECURED PORTION 100

7 LOSS ASSET 100

0.6510

2030

100

100

100

Assets & Thier %age of provision

STANDARD ASSET

SUBSSTANDARD

ASSETDOUBTFUL ASSET

UPTO 1 YEARDOUBTFUL ASSET

UPTO 2 yearDOUBTFUL ASSET

UPTO 3 yearUNSECURED

PORTIONLOSS ASSET



80

Comprative Business Profile Of Last Five Years.

J&K GRAMEEN BANK

B/O:Tangmarg(Baramulla)

S no particulars Year

2006_07

Year 2007-

_08

Year

2008_09

Year

2009_10

Year

2010_11

1 deposits 335 401 433 470 520

2 Advances outstanding 46 106 162 183 254

3 C.D ratio 26 26 37 39 49

4 Disbursement target 115 174 156 229 294

5 Disbursement made 17 54 85 82 121

6 NPA (gross) 0.28 1.04 xxx 2.30 10.76

7 Recovery in NPA xxx 0.28 1.04 xxx 0.61



81

Chart Showing Comprative Business Profile of Last Five Years.

335

4626

115

170.28 0

401

106

26

174

54

1.04 0.28

433

162

37

156

85

0 1.040

50

100

150

200

250

300

350

400

450

500

deposits Advances

outstanding

C.D ratio Disbursement

target

Disbursement

made

NPA (gross) Recovery in

NPA

Year 2006_07

Year 2007_08

Year 2008_09

470

183

39

229

82

2.3 0

520

254

49

294

121

10.76 0.610

100

200

300

400

500

600

Year 2009_10

Year 2010_11

Series 3



82



J&K GrameenBank Branch Office Tangmarg (Baramulla)



NPA



Amount Amountof NPA



1 ST CropLoan(KCC) 107 5340 90 4370 xxx xxx 11


1 30 5 1230 xxx xxx 03


6 220 25 757 xxx xxx 02

4 Transport 3 935 16 2969 324 32 39


13 2200 85 10345 752 75 113

6 General CreditCard (GCC)





20 3366 62 5597 xxx xxx 22

Total 152 12091 283 25358 1076 1076 190



83



0

2000

4000

6000

8000

10000

12000

0

10

20

30

40

50

60

70

80

90

100

No. Of Accounts

Column1

Amount



84

LOANS DISBURSED IN 2010-2011

90

5

25

16

85

0 0

62

0

2000

4000

6000

8000

10000

12000

0

10

20

30

40

50

60

70

80

90

100

No. Of Accounts

Column1

Amount



85


.








7 LOSS ASSET 100


0.65

10

20

30

100

100

100

Assets & Thier %age of provision

STANDARD ASSET

SUBSSTANDARD ASSET

DOUBTFUL ASSET UPTO

1 YEARDOUBTFUL ASSET UPTO

2 year

DOUBTFUL ASSET UPTO

3 year



86

J&K GRAMEEN BANK

B/O:N.C SOPORE (Baramullla)

S no particulars Year

2006_07

Year 2007-

_08

Year

2008_09

Year

2009_10

Year

2010_11

1 deposits 434 505 491 618 675

2 Advances outstanding 184 239 297 476 736

3 C.D ratio 42 47 60 77 109

4 Disbursement target 75 124 144 232 305

5 Disbursement made 113 146 152 291 351

6 NPA (gross) 1.73 2.08 13.65 15.60 22.81

7 Recovery in NPA 0.39 0.46 0.67 1.17 1.84



87

Graph Showing Comprative Business Profile For Year 2006-2008

Graph Showing Comprative Business Profile For Year 2009-2010

434

184

4275

113

1.73 0.39

505491

297

60

144 152

13.65 0.670

100

200

300

400

500

600

Year 2006_07

Year 2007_08

Year 2008_09

618

476

77

232

291

15.6 1.17

675

736

109

305351

22.81 1.840

100

200

300

400

500

600

700

800

Year 2009_10

Year 2010_11



88

Statement of Scheme Wise Loans And Advances Disbursed /Outstanding’s Viz a Viz

NPA And Provisioning There Of As On: 31-03-2011.

J&K GrameenBank Branch Office New Colony (Sopore)



NPA



Amount Amountof NPA



1 ST CropLoan(KCC) 32 12100 45 14817 131 13 50


5 263 8 488 25 05 06


1 160 7 214 77 08 09

4 Transport 7 1945 27 5720 308 31 45


32 7200 100 22524 1523 228 312

6 General CreditCard (GCC) xxx xxx 12 139 38 38 39




63 13401 148 29717 29717 36 154

Total 140 35069 347 73619 73619 359 615



89

Loans disbursed 2010- 2011

Advances outstanding31-03-2011

32

5

1

7

32

0 0

63

0

2000

4000

6000

8000

10000

12000

14000

16000

0

10

20

30

40

50

60

70

No. Of

Accounts

Column1

Amount

45

8 7

27

100

12

0

148

0

5000

10000

15000

20000

25000

30000

35000

0

20

40

60

80

100

120

140

160

No. Of Accounts

Column1

Amount



90

NPA Provision And Advances

0

5000

10000

15000

20000

25000

30000

35000

0

50

100

150

200

250

300

350

Amount Of NPA Provision

Total Provision On Advances

Amount of NPA



91


.








7 LOSS ASSET 100

0.65

1020

30

100 100 100

0

20

40

60

80

100

120Assets & Thier %age of provision

%age of provision





93


0

100

200

300

400

500

600

700

800

Year 2006_07

Year 2007_08

Year 2008_09

Year 2009_10



94

Suggestions

Suggestions 1:

People need to be informed about various options of accessing credit and benefits of savings

through MFI‘S and methods of availing these funds i.e. marketing is required. Outreach to

the low income group is required. This May require some microfinance awareness programs

which may involve skilled and dedicated staff. A Replica of Grameen Bank with some added

features such as micro Saving and micro Insurance is must to bring poor out of this poverty

trap.

Suggestions II:

Other possible is to increase the flow of funds to informal lenders to supplement their

own funds. The formal sector will take advantage of the lower transaction costs and risk

premia of the informal sector so as to reach the low income group borrowers beyond the

profitable reach of the formal sector. As for the beneficiaries, inspite of the transaction

cost of the formal and the informal sector being transferred on to them, the cost of

borrowing will remain low as compared to what exists through money lenders.

In addition, access to the formal sector funds could promote competition within the

informal sector and check the exhorbitant profits being made in this sector. It also

promotes allocative efficiency by offering a broader choice for the productive use of

savings by beneficiaries, irrespective of which sector they are mobilised by.

In the process, the intermediaries would also charge additional fees to borrowers to cover

their costs. It would also aid them in strengthening themselves. However, it would be

aimed to make the funds reach the beneficiaries at applicable rates of the two institutions.

The intermediaries would accept the savings from groups as collaterals and would

transfer the same to the formal sector for getting the deposits serviced better. Thus the

two way flow of funds would benefit both the formal and informal sector.

The beneficiaries would benefit as the cost of borrowing would be low for them and their

savings would be safe and would be serviced better.

An analysis of community-based finance systems highlights the high establishment costs

of NGOs. They suggest that loan service costs are lower amongst co-operative societies,



95

as compared to NGO-linked CBFIs, because of decentralized loan administration and

availability of voluntary staff. The NGO-linked CBFI operations are generally supported

by grants from national and international donor agencies.

NGO-linked CBFIs must aim at an adequate scale of operation and while it may besupported by grants to meet establishment costs in the initial period, dependency on such

grants should be reduced over time. An adequate interest rate spread must be available to

meet the transactions costs. CBFIs should be able to recover all costs through its financial

operations, by building up their capacity for financial management, through training and

interaction with the Formal sector institutions.

SUGGESTIONIII:

Since it is now being felt that the existing structures are inadequate to meet the housing and

economic credit needs of the participating community, an Institution that would combine the

strengths of an NGO and the expertise of a financial institution, with participation from the

community will be appropriate.

Thus, the concept of Development Association for Savings and Credit (DASC) could be

utilised to address the issue of providing better access to housing finance and economic

loans for the participating community in the project area. The DASC is built on the

strength of the informal groups to create and improve access to skills, resources and

markets. These Groups mobilize savings from their constituent members and other

formal/informal sources. The funds mobilized are thus used for meeting the credit needs

of the members.

The DASC will be initiated with the objective to create an alternate, self-sustainable,

community based financial organization appropriate to meet the shelter development and

livelihood needs of the weaker section belonging to the rural community.

The long term goal of DASC may include:

Establishment of a resource centre for shelter and livelihood

development for the weaker sections of the society.

Demonstration of a viable community based credit system inoperation where the communities have access to and control over



96

financial resources based on their own strength.

Developing group based approach as a sustainable development

paradigm for community development.



97

Conclusion

Some valuable lessons can be drawn from the experience of successful Microfinance

operation. First of all, the poor repay their loans and are willing to pay for higher interest

rates than commercial banks provided that access to credit is provided. The solidarity

group pressure and sequential lending provide strong repayment motivation and produce

extremely low default rates. Secondly, the poor save and hence microfinance should

provide both savings and loan facilities. These two findings imply that banking on the

poor can be a profitable business. However, attaining financial viability and sustainability

is the major institutional challenge. Deposit mobilization is the major means for

microfinance institutions to expand outreach by leveraging equity (Sacay et al 1996). In

order to be sustainable, microfinance lending should be grounded on market principles

because large scale lending cannot be accomplished through subsidies.

The absence of savings has unfortunately been one of the distinguishing features of Indian

microfinance and prevents it from providing a financial service to the poor which is as

valuable to them as microcredit,‖ the report outlines.There are strong synergies between

microinsurance and microcredit. Insurance offers safeguards to assets created under

microcredit programmes. It also protects savings from being wiped out by shocks arising out

of sickness, death, accidents or droughts

A main conclusion of this project is that microfinance can contribute to solving the

problem of inadequate housing and urban services as an integral part of poverty

alleviation programmes. The challenge lies in finding the level of flexibility in the credit

instrument that could make it match the multiple credit requirements of the low income

borrowers without imposing unbearably high cost of monitoring its end-use upon the

lenders. A promising solution is to provide multi-purpose loans or composite credit for

income generation, housing improvement and consumption support. Consumption loan is

found to be especially important during the gestation period between commencing a new

economic activity and deriving positive income. Careful research on demand for

financing and savings behavior of the potential borrowers and their participation in

determining the mix of multi-purpose loans are essential in making the concept work (tall

1996).

Eventually it would be ideal to enhance the creditworthiness of the poor and to make

them more "bankable" to financial institutions and enable them to qualify for long-term



98

credit from the formal sector. Microfinance institutions have a lot to contribute to this by

building financial discipline and educating borrowers about repayment requirements.



BIBLIOGRAPHY:

ARTICLES/JOURNALS/BOOKS

Annual report of J& Grameen Bank 2010-2011

Articles from Greater Kashmir (Daily Newspaper).

Business line.

Business today.

Economic times.

Articles from Rising Kashmir (Daily Newspaper).

WEBSITES

www.jkgb.net

www.google.com

www.khoj.com

www.rbi.org

http://www.jkgb.net/


http://www.google.com/


http://www.khoj.com/


http://www.rbi.org/

http://www.rbi.org/

http://www.rbi.org/




Documents

Microfinancial Analysis of j&k Grameen Bank2