a study with special reference to dakshina kannada district
TRANSCRIPT
UGC MINOR RESEARCH PROJECT
GOVERNANCE OF MICROFINANCE
INSTITUTIONS- A STUDY WITH SPECIAL
REFERENCE TO DAKSHINA KANNADA DISTRICT
FINAL REPORT
Submitted To:
UNIVERSITY GRANTS COMMISSION
South Western Regional Office, Bangalore
Principal Investigator:
Mrs. Sarika., M.Com.
Lecturer, Dept of Commerce, SDM College, Ujire, DK District, Karnataka
2013-14
CERTIFICATE
This is to certify that a copy of the final report of Minor
Research Project entitled “Governance of Microfinance
Institutions- A study with special reference to Dakshina
Kannada District” by Mrs. Sarika., of Department of
Commerce, SDM College, Ujire has been kept in the library
of Commerce Department and an executive summary of the
report has been posted on the website of the College.
Principal
i
ACKNOWLEDGEMENT
It is my privilege to express my sincere gratitude to the management of SDM
Educational Society, especially the President, Vice President, Secretaries and the
Principal Dr. B Yashovarma for their whole hearted support in completion of this
research work.
I extend my sincere gratitude to the University Grants Commission, particularly
Joint Secretary and Regional Head, S.W.R.O, Bangalore for granting me the
research project and encouraging me to pursue the research.
I would like to express my deepest gratitude to Dr. P. N. Udayachandra, my
Minor Research Project Guide and Head, Dept of Commerce, SDM College,
Ujire for his invaluable support, guidance and insights throughout my study and
for allowing me to complete the project with required degree of freedom all
through the project period.
I am greatly thankful to Mr. Muruganandan S. & Mr. Chidananda for extending
their help in statistical analysis and interpretation of data of the project
undertaken.
I would also like to express my sincere appreciation and gratefulness to the
Microfinance institutions and I am also greatly indebted to all the respondents of
the MFIs for positively responding to my questionnaire and interactions.
I am thankful to all my colleagues in the Department of Commerce for their
timely co-operation and help in completing this project with reasonable care and
diligence.
My inspiration and the source for what I am today are my parents & family. It is
their blessings & love which made me complete this project.
My sincere thanks are due to all my friends who have given constant support and
stood by my side during ups and downs of my life.
I humbly extend my gratitude to the teaching and non teaching staff of SDM
College for being supportive.
Finally, I am thankful to everyone who helped me directly and indirectly in
completing this project.
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TABLE OF CONTENTS
Acknowledgement i.
Contents ii.
List of Tables And Graphs iii.
List of Figures iv.
Chapter I. Introduction and Design of the Study - 01
Chapter II. Review of Literature - 13
Chapter III. Regional (DK District) Profile - 20
Chapter IV. Microfinance Institution’s Profile - 27
Chapter V. Research Methodology - 37
Chapter VI. Results & Discussion - 41
Chapter VII. Summary & Conclusion - 70
Bibliography - 79
Annexure - 83
iii
LIST OF TABLES AND GRAPHS
Table No. Title Page No. 3.1 Details of SHG Loans (in Rupees) - DK District 24
3.2 Micro Credit in DK District 25
4.1 No. of loans availed for various purposes under micro-credit
through SKDRDP
31
6.1 Respondents Position in the Family 42
6.2 Level of Education of the Respondents 43
6.3 Services availed by the Respondents 44
6.4(a) Descriptive Statistics - Quality of Service of Microfinance
Institutions
45
6.4(b) ANOVA - Quality of Service of Microfinance Institutions 46
6.5 Utilisation of Loans by the Respondents 46
6.6 ANOVA - Utilisation of loans by the Respondents 48
6.7 Measures for Repayment of Loans in time by the
Respondents
49
6.8 ANOVA - Measures of Repayment of Loans 50
6.9 Status of Loans of the Respondents 51
6.10 Suitable Repayment Periods 52
6.11 Grievance Redressal Systems 53
6.12 Awareness on Grievance Redressal Mechanism 53
6.13 ANOVA - Satisfaction on Grievance Redressal System 54
6.14 Challenges faced in Accessing MFIs Services (Garret
Ranking)
55
6.15 Nature of services offered by MFIs 56
6.16 Performance indicators 57
6.17(a) Assessing of Performance of Board of Directors and
Managers
58
6.17(b) Assessing and Evaluation of performance 58
6.18(a) Measures to maintain transparency and avoid conflicts of
interest
59
6.18(b) Frequency of measures taken 59
6.19(a) Board assess its own performance 60
6.19(b) Frequency of assessing its own performance 61
6.20 Frequency of assessing its own performance 62
6.21 Problems Faced in Reaching the Targets (Garret Ranking) 63
6.22 Practices of Auditing followed by MFIs 63
6.23 Automation of Accounting System in MFIs 64
6.24 Services provided to the Customers 65
6.25 Percentage of Loan Repayment 66
6.26 Measures for Repayment of Loans in Time from Borrowers 66
6.27 Grievance Redressal Systems 67
6.28 Technique used for Grievance Redressal Systems 68
iv
LIST OF FIGURES
Figure No. Title Page No. 1. Family Position of the Respondents (Percentage) 43
2. Level of Education of the Respondents (Percentage) 44
3. Financial Services Availed by the Respondents
(Percentage)
45
4. Utilisation of loans by the Respondents (Percentage) 47
5. Measures of Repayment of Loans (Percentage) 49
6. Status of Respondents Loan (Percentage) 51
7. Status of Respondents Loan (Percentage) 52
8. Awareness on Grievance Redressal Mechanism
(Percentage)
54
9. Nature of Services offered by MFIs (Percentage) 57
10. Frequency of Measures Taken (Percentage) 60
11. Board Assess its Own Performance (Percentage) 61
12. Frequency of assessing Performance by MFIs (Percentage) 62
13. Auditing Practices by MFIs (Percentage) 64
14. Measures for Repayment of Loans in Time from Borrowers
(Percentage)
15. Technique used for Grievance Redressal Systems
(Percentage)
68
1
CHAPTER – I INTRODUCTION AND DESIGN OF THE STUDY
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CHAPTER I
INTRODUCTION AND DESIGN OF THE STUDY
1.1 Introduction
From a global perspective, it is surmised that in the aftermath of the
global financial crisis, microfinance has begun to enter a more mature and
sustainable growth phase. Followed by the rapid expansion over the years, the
focus of the microfinance sector has turned towards accelerating the
improvements in governance, responsible finance practices and regulatory
capacity. Further, risk management, which has become a post-crisis priority for
all financial institutions, has improved considerably in the microfinance sector,
which is essential, given that it is offering an increasingly diversified range of
innovative financial services to the poor. Besides taking advantage of new
opportunities, microfinance is well positioned to take further advantage of
technological and market developments.
Indian microfinance has also been showing mild signs of recovery on
account of improving regulatory environment and improvement in governance.
The number of savings linked SHGs increased to about 7.96 million with the
member base of 104 million. The provisional data available from NABARD for
the year 2011–12 shows that the number of SHGs provided with bank loans was
4.36 million, which is about 9 per cent less than the previous year’s performance.
However, the outstanding loan amount recorded an increase of 19 per cent during
the above period. In terms of incremental loans outstanding the SBLP added
57.23 billion.
3
The total client outreach of MFIs was recorded at 26.6 million with a
gross loan portfolio of 209.13 billion. Both the clients outreach and loan portfolio
recorded negative growth in this year. The growth rate in client outreach came
down by 15.7 per cent in the year 2011–12 as against an increase of 19.1 per cent
recorded in the previous year. However, the gross loan portfolio has remained
almost stagnant, registering a marginal fall of 3 per cent. Customer outreach has
recorded a relatively higher deceleration in growth rate as compared to the loan
outstanding, which suggests that MFIs are unable to service existing customers
and perhaps not acquiring new customers. This trend could be attributed to the
liquidity crisis which affected the MFIs during the second half of the year 2010–
11, but remained almost unchanged for the entire year 2011–12. Both SBLP and
MFIs put together achieve outreach of 83.4 million clients during 2011–12,
which is less by 11.6 per cent of their customer base in the previous year. The
degree of deceleration was pronounced more among MFIs (–15.7 per cent) than
SBLP (–9.5 per cent).
The overlapping of customers between MFIs and SBLP is the prevailing
phenomenon, which is still continuing. As it was done during the earlier years,
while adjusting the overlap, 11 a 10 per cent reduction has been made in respect
of the number of members of SHGs and a 35 per cent reduction in respect of
customers of MFIs. After the adjustment of overlap, the number of customers of
microfinance is estimated to have increased by 12.5 per cent1, which is much
higher than the growth rate of last year.
1 Venugopalan Puhazhendhi (2012). Microfinance India State of the Sector Report. Sage
Publications.
4
The History of Microfinance
The history of micro credit is traced back to the early 1700s when
Jonathan Swift, an Irishmen, had the idea to create a banking system that would
reach the poor. He created the Irish Loan Fund, which gave small short term
loans to the poorest people in Ireland who were not being served by commercial
banks, in hopes of creating wealth in the rural areas of Ireland. This idea took
years to catch on, but then grew quickly and expanded globally. By the 1800’s,
the Irish Loan Fund had over 300 banks for the poor and was serving over 20%
of the Irish population. In the 1800s similar banking systems showed up all
across Europe targeting the rural and urban poor. Friedrich Wilhelm Raiffeisen of
Germany realized that the poor farmers were being taken advantage of by loan
sharks. He acknowledged that under the current lending system, the poor would
never be able to create wealth; they would be stuck in a cycle of borrowing and
repaying without ever making personal economic development. He founded the
first rural credit union in 1864 to break this trend. This system was different than
previous banks because it was owned by its members, provided reasonable
lending rates and was created to be a sustainable means of community economic
development.
The idea of credit unions spread globally and by the end of the 1800s,
these micro credit systems had spread all the way from Ireland to Indonesia. At
the turn of the century similar systems were opening in Latin America. Whereas
in Europe the credit unions were owned by its members, in Latin America the
institutions were owned by the government or private banks and were not as
efficient as they were in Europe. In the 1950’s donors and government subsidies
5
were used to fund loans primarily for agricultural workers to stimulate economic
growth but these efforts were short lived. The loans were not reaching the poorest
farmers; they were often ending up in the hands of the farmers who were better
off and didn’t need the loans as critically as others. Funds were being lent out
with an interest rate much below the market rate and there were not enough funds
to make this viable long term. These loans were rarely being repaid, so the banks’
capital was depleting quickly and when the subsidized funds ran out, there was
no more money to pump into the agricultural economy in the form of micro
credit.
In the 1970s the biggest developments in micro finance occurred.
Grameen Bank in Bangladesh started off as an action based research project by a
professor who conducted an experiment credit program. This nonprofit program
dispersed and recovered thousands of loans in hundreds of villages. The professor
tried to extend this idea to other bankers in Bangladesh, but they were afraid that
it was too risky as a business and turned down the offer. Grameen Bank is now
one of the world’s largest micro finance institutions with over 4 million lenders.
By the 1990’s lenders had learned how to increase loan repayment rates enough
to make micro finance institutions sustainable. They targeted women as
borrowers and gave them money to invest in businesses that would increase their
income and charged very low interest rates so the borrowers could pay back their
loans and still have money, i.e. create wealth, for themselves. This is when the
term micro finance was coined to replace micro credit, because the new
institutions were doing more than making loans; they were offering other
financial services to the poor like savings accounts, insurance and money
transfers.
6
Aforementioned, banks are increasingly becoming commercialized. The
first commercial microfinance institution was founded in Bolivia in 1992. The
founders of this commercial MFI were originally the founders of a nonprofit MFI
in 1986 called PRODEM. PRODEM grew so rapidly that after 2 years, it had
more people desiring loans than they could support. They then created BancoSol
to meet the growing needs of the borrowers in Bolivia and became the first ever
MFI to issue dividends. Nonprofit micro finance institutions are successful, but
reach a capacity of lending when they run out of donations. There are currently
over 10,000 micro finance institutions serving 16 million people. The trend now
in 2010 is shifting away from donating to nonprofits and towards investing in
commercial micro finance institutions.
Recent Developments in Microfinance Sector
There has, however, been a sudden downturn in the prospects of the
sector in the second half of 2010-11 owing to reported excesses of some MFI
institutions and the consequent legislative response by a state government. On the
back of these developments, the MFI segment has taken a severe beating with
rising delinquency ratios and downgrades by rating agencies. Lenders have
turned wary leading to drying up of funding channels seriously impinging on the
business. It is reported that disbursements by MFIs in Andhra Pradesh
plummeted significantly in the second half of 2010–11. The recovery rates that
were 99 per cent reportedly fell to a meagre 10 per cent, leading to huge NPAs
which is causing significant stress on the functioning of MFIs. While the loans
given to MFIs during 2010–11 declined to Rs. 8448.96 crore from Rs. 10,728.50
7
crore in 2009–10, the amount of outstanding loans reduced from Rs. 13,955.75
crore in 2009–10 to Rs. 13,730.62 crore in 2010–11.
Many analysts attribute the current crisis to the irrational exuberance of
some MFIs who entered the segment with the sole emphasis on business growth
and bottom lines. They perhaps did not take due cognisance of the vulnerability
of the borrowers and the potential socio-political ramifications their aggressive
approach could possibly lead to. The competition among MFIs led to these
institutions chasing the same set of borrowers, by free riding on SHGs and
loading them with loans that borrowers, possibly, could not afford. It is reported
that as at the end of March 2010, the number of loan accounts per poor household
in Andhra Pradesh was on an average more than 10. In their eagerness to grow
business, the institutions had given a go by to the conventional wisdom and good
practices such as due 1 1 crore = 10 millions BIS central bankers’ speeches 3
diligence in lending and ethical recovery practices. Over-indebtedness of the
borrowers led to difficulties in repayments and the forced recoveries by some
MFIs led to public uproar and the subsequent intervention by the state
government.
The legislation enacted by the Andhra Pradesh Government has brought
the customer protection issues to the centre stage. The legislation stipulated
mandatory registration of MFIs, disclosure of effective interest rate to the
borrowers, ceilings on the interest rates and strict penalties for coercive recovery
practices. One of the fall outs of these developments has been the severe dent in
the MFI business due to dwindling resources. Reserve Bank constituted a
Committee (Chairman: Shri Y H Malegam) to study issues and concerns in the
8
MFI sector. The Committee examined the issues and made recommendations to
address the present concerns. Some of the significant recommendations are as
under:
i. Creation of a separate category of NBFCs operating in the microfinance sector
to be designated as NBFC-MFIs.
ii. Imposition of a margin cap and interest rate cap on individual loans;
iii. Requirement of transparency in interest charges;
iv. Lending by not more than two MFIs to individual borrowers;
v. Creation of one or more credit information bureaus;
vi. Establishment of a proper system of grievance redressal procedure by MFIs;
vii. Creation of one or more “social capital funds”;
viii. Continuation of categorisation of bank loans to MFIs, complying with the
regulation laid down for NBFC-MFIs, under the priority sector, etc.
The recommendations of the Committee have brought out clarity in
regulation of MFIs and led to the containment of the crisis without domino effect.
Based on the recommendations of the Malegam Committee, the Reserve Bank of
India has issued detailed guidelines permitting categorisation as priority sector
advance, of bank credit to certain eligible MFIs. Such eligibility is linked to core
features of microfinance, such as, lending of small amounts to borrowers
belonging to low income groups, without collaterals, with flexible repayment
schedules and with particular emphasis on measures to curb over-indebtedness.
Margin caps and interest rate caps have also been stipulated to ensure protection
9
of borrowers. Subsequently, the Reserve Bank of India created a separate
category of NBFCs dealing in microfinance – NBFC-MFI and issued
comprehensive guidelines covering, inter alia, fair practices in lending such as
transparency in interest rates, non-coercive methods of recovery, measures to
contain multiple lending and over-indebtedness.
Government of India has come out with The Microfinance Institutions
(Development and Regulation) Bill, 2011 which, among other things, envisages
the Reserve Bank of India as the sole regulator of microfinance sector covering
all forms of MFIs in addition to NBFC – MFIs which are presently being
regulated by the Reserve Bank. The Bill has been circulated among various
stakeholders for their views.
Key Lessons and the way forward
Having briefly covered the background to the current state of affairs let
me now focus on some of the specific issues that need to be examined to address
the current impasse. While a number of reasons have been attributed for the
turmoil in the sector, such as, unjustified high rates of interest, lack of
transparency in interest rate and other charges, multiple lending and over-
borrowing, coercive methods of recovery, etc,. I would consider the governance
deficit coupled with people risk, process risk and relationship risk as the more
critical factors that have precipitated the turmoil and need to be addressed. MFIs
need to seriously examine 4 BIS central bankers’ speeches their governance
systems and align their practices with the overall objective of microfinance which
is to facilitate financial inclusion and empower poor.
10
1.2 Relevance of the Study/ Statement of Problem
Microfinance, involving extension of small loans and other financial services
to low income groups, is a very important economic conduit designed to facilitate
financial inclusion and assist the poor to work their way out of poverty. It has the
potential to fill the critical gap left by formal financial institutions in providing
financial services to low income groups. Mainstream institutions shied away from
providing financial services to the poor considering them unviable owing to high
costs involved in reaching out to the unbanked/under banked areas where there is not
enough scale of operations due to low numbers and low value of transactions.
Microfinance became a leading and effective strategy for poverty alleviation
with the potential for far-reaching impact in transforming the lives of poor people. It
is argued that microfinance can facilitate the achievement of the Millennium
Development Goals (MDGs) as well as national policies that target poverty
reduction, empowerment of women, assisting vulnerable groups, and improving
standards of living. But in recent times the role of microfinance has become
controversial, with various sections raising objections and criticisms in this regard2.
It also found that the unethical and extortionist practices by MFIs led to arguably a
draconian measure in its home turf Andhra Pradesh halting the industry in its tracks3.
The Private MFIs in India, barring a few exceptions, are still fledgling efforts and are
therefore unregulated. So, the present study focuses on assessing the governance of
micro-finance institutions.
2 Sibghatullah Nasir, Microfinance in India: Contemporary Issues and Challenges; Middle-East
Journal of Scientific Research 15 (2): 191-199, 2013; ISSN 1990-9233 3 Chakrabarti, R. and S. Ravi, 2011. At the crossroads: microfinance in India. Money and Finance,
Forthcoming.
11
1.3 Need for the Study (Research Gap)
MFIs, are expected to be transparent in their policies, systems, procedures,
and transactions, which call for good governance and accountable to the
stakeholders. The present study aims at understanding the key issues of good
governance, which has a direct impact on the all the stake holders starting from the
investors, promoters, managers of microfinance institutions as well as to the
regulators and the public in general they serve. Hence with this background this
study was undertaken with the following objectives.
1.4 Objectives
1. Assessing the performance of MFI’s in terms of loan disbursement to
SHG members in selected MFI’s of Dakshina Kannada District.
2. Evaluating the governance issues relating to transparency &
accountability of the institutions.
3. Developing a score card for MFI governance assessment.
1.5 Scope and Limitation of the study
The study was undertaken in the selected Micro finance Institutions
identified for the study in Dakshina Kannada district of Karnataka. The main focus
of the study was to draw the inferences on the governance issues prevailing in the
MFI’s and other administrative issues concerning the effective management of the
micro finance institutions. The information by the researcher is sought through
questionnaire, through meeting the respondents personally. The study also covers the
attributes for institutional performance and the impact on the growth by specialized
institutions like SKDRDP from the institutional point of view. But the study is not
12
out of the limitations. Respondents, while expressing their views on the issues
covered, the probability of an element of subjectivity creeping into the responses
could not be ruled out. But an attempt is made to reduce such effects to the minimum
by providing the necessary clarification where ever it is required. The major
limitation was getting Micro Finance Institutions with large scale operations having a
structured management.
1.6 Organization of the study
The present study is divided into eight chapters in order to attain the
research objective. The eight chapters are as follows:
Chapter I - deals with the introduction and design of the study
Chapter II - deals with the review of earlier literatures
Chapter III - deals with the overview of Regional (DK District) Profile.
Chapter IV - deals with the overview of Institutional (MFI) Profile.
Chapter V – presents the Methodology adopted for the study.
Chapter VI – presents the Results and Discussions of the study.
Chapter VII – presents the Summary & Conclusion for the study.
13
CHAPTER – II REVIEW OF LITERATURE
14
Chapter II
Review of Literature
A review of the past studies is useful to understand the various aspects of
the problem taken up for research, to plan the current study, to define concepts,
hypotheses and scope, to select tools of analysis and to analyse the research
problem effectively. Hence, several studies relating to Microfinance are reviewed
and a brief account of the review is presented in this chapter. Microfinance is a
rising concept around the world; several researchers have studied about the extent
of microfinance in financial inclusion, poverty alleviation etc. However, the
researcher went through the available studies as far as possible to obtain a clear
theoretical background for the present study. The findings of the literature review
are briefly reproduced below.
Morduch (1999) 4 The need of microfinance comes from the disadvantaged
sections of the society - who are unable to access to services of formal sector
financial intermediaries - and is typically excluded from the formal banking
system for lack of survival.
Madhubala,S.(2014)5 Various agencies, non-government organisations (NGOs),
government bodies and microfinance institutions (MFIs) are promoting SHGs to
achieve their objectives – spread of education, awareness about social rights and
alleviation of poverty etc.
4 Morduch, J., 1999. The Microfinance Promise. Journal of Economic Literature, 37(4): 1569-
1614. 5 Madhubala, S. (2014). Comparative Study of Microfinance Activities of Self-Help Groups in
Urban India. Africa Development and Resources Research Institute Journal, Vol. 5, No. 5(2), Pp.
54-73.
15
Dr. Patel, A (2004) 6There is a need for well-organized and committed micro
finance institutions for channelizing credit and making it available to the poor
households individually or in groups in India.
Padmalochan Mahanta et.al (2012) 7Lending to the poor through microcredit is
not the end of the problem but beginning of a new era. If effectively handled, it
can create miracle in the field of poverty alleviation. But it must be bundled with
capacity building programs. Government cannot abdicate its responsibility of
social and economic development of poor and down trodden. In absence of any
special skills with the clients of microcredit, the fund is being used in
consumption and procurement of non-productive assets. Hence it is very
important to provide skills development training program like handicraft,
weaving, carpentry, poultry, goat rearing, masonry, bees farming, vegetable
farming and many other agricultural and non agricultural training. Government
has to play proactive role in this case. People with some special skills have to be
given priority in lending microcredit. These clients should also be provided with
post loan technical and professional aid for success of their microenterprises. If
government and MFIs act together then microcredit can play a great role in
poverty alleviation.
Oliver Muller (2013) 8MFIs operating under high-quality local institutions and
governance outcomes are more likely to be profitable and sustainable.
6 Dr. Patel, A., “Micro-Credit and Role of Banks; Need for initiatives and commitment”,
Kurukshetra, February 2004, P: 4-10. 7Padmalochan Mahanta et.al, Status of Microfinance in India - A Review International Journal of
Marketing, Financial Services & Management Research 1(11), November 2012, ISSN 22773622 -
Available Online at www.indianresearchjournals.com 8 Oliver Müller The Impact of External Governance Quality on the Economic Success of
Microfinance Institutions; Int. J. of Monetary Economics and Finance, 2013 Vol.6, No.2/3,
pp.116 – 149
16
Wolday Amha (2008) 9found some key elements for sound corporate
governance in an microfinance institutions such as:
a) A well articulated corporate strategy against which the overall success and the
contribution of individuals can be measured.
b) Setting and enforcing clear assignment of responsibilities, decision making
authority and accountabilities that is appropriate for the risk profile.
c) A strong financial risk management function (independent of business lines),
adequate internal control system (including internal and external audit function),
and functional process design with the necessary checks and balances.
d) Corporate values, codes of conduct and other standards of appropriate
behavior and effective system used to insure compliance. This includes special
monitoring of the risk exposures of MFIs where conflicts of interest are expected
to appear (e.g. relationships with affiliated parties).
e) Financial and managerial incentives to act in an appropriate manner offered to
the board of management and employees including compensation, promotion and
penalties (I,e. compensation should be consistent with the MFIs objective
performance and ethical values).
f) Transparency and appropriate information flows internally and to the public
(adopted from Van Greuning et al 2003).
Haileslasie Tadele, P. Madhu Sudana Rao (2014) 10
The board should maintain
a sound control and risk management framework to make strategic decisions.
Every member of the board should internalize the framework and the risk model
should be designed to accommodate such changes. Proper monitoring and control
9 Wolday Amha, Corporate Governance of the Deposit Taking Microfinance Institutions (MFIs)
in Ethiopia; Occasional paper -no. 23; Association of Ethiopian Microfinance Institutions, Addis
Ababa, Ethiopia : 2008 10
Haileslasie Tadele, P. Madhu Sudana Rao; Journal of Business Management & Social Sciences
Research (JBM&SSR) ISSN No: 2319-5614 Volume 3, No.1, January 2014
17
of activities are the bases for ethical growth and sustainability of MFIs. They
found different types of financial needs of small borrowers such as:
a) Lifecycle Needs: such as weddings, funerals, child-birth, education,
homebuilding, widowhood and old age.
b) Personal Emergencies: such as sickness, injury, unemployment, theft,
harassment or death.
c) Disasters: such as fires, floods, cyclones and man-made events like war or
bulldozing of dwellings.
d) Investment Opportunities: expanding a business, buying land or equipment,
improving housing, se-curing a job (which often requires paying lump sum
amount).
Hartarska, V. and Mersland, R. (2009) 11
Good governance is important for
traditional corporations. But it is not fully applicable to microfinance institutions
as the objectives, operations; composition and market of MFIs are not same as
that of conventional counterparts.
Shahadat Hossain (2013)12
External stakeholder orientation in board does not
ensure financial performance rather than social performance. Regulation and
supervision, external rating, external auditing and reporting, international
orientation and professional affiliation do not help in increasing profitability,
however, sometimes help in deeper outreach. Competition worsens MFIs
financial performance but sometimes improve organizational efficiency.
11
Hartarska, V. and Mersland, R. (2009). Which Governance Mechanisms Promote Efficiency in
Reaching Poor Clients? Evidence from Rated Microfinance Institutions. European Financial
Management, accessed from: doi: 10.1111/j.1468-036X.2009.00524.x. 12
Shahadat Hossain, Research Journal of Finance and Accounting ISSN 2222-1697 (Paper) ISSN
2222-2847 (Online) Vol.4, No.14, 2013
18
Marguerite S. Robinson 13
Microfinance does not end poverty. For that, many
other tools are needed as well. But commercial microfinance increases the
options and the self-confidence of large numbers of poor households by
providing them with a set of financial instruments savings, credit, and other
products. These products are designed and implemented so that clients can
customize their use in ways that meet their own particular needs. This approach
helps such people to expand and diversify their enterprises and decrease risks, to
store their excess liquidity safely and obtain returns on their savings, and to hold
savings accounts that are legally recognized assets. Often the quality of their lives
gradually improves. Women develop enterprises, hold savings in their own
names, contribute to the household economy and gain in experience and
confidence. Children are sent to school, and child labor may decrease. Housing
and health improve. And some of those who expand their economic activities
create jobs for others, providing employment to some of the extremely poor.
Ghate, Prabhu (2006) 14
As there is no law or regulation in India requiring
organizations which provide micro-credit to formally register as microfinance
institutions it is impossible to assess the share of the total market for micro-credit
loans these MFIs together represent. Some observers estimate that there may be
as many as 800 organizations currently providing micro-credit services in India.
CMF (2007) 15
A study summarizes that yet, anecdotal accounts from
practitioners strongly suggest that while there are a large number of organizations
13
Marguerite S. Robinson, Mobilizing Savings from the Public Basic Principles and Practices;
SPEED-USAID; P-44 14
Ghate, Prabhu. 2006. Microfinance in India: A State of the Sector Report, 2006. Delhi:
Microfinance India. Available Online -
http://microfinancenetwork.typepad.com/blog/files/sector_report1.pdf 15
CMF Focus Note: The Geographic Distribution of Microfinance Services in India, 2007
www.ifmr.ac.in/cmf
19
engaged in micro-credit activities, most of these micro-lenders are extremely
small and together make up only a small portion of the overall micro-credit
market. The steep drop-off in client numbers after the ten largest MFIs lends
credence to this claim. In this study in the year 2007, of the top 20 Districts by
MFI Penetration Dakshina Kannada stands 3rd
in terms of Microfinance
penetration in the female population (with a Total Female Population of 1042739
& a Total number of Active Borrowers 177315 with MFI Penetration 17.00%).
The same study also reports that in India, Dakshina Kannada district lists in the
top 20 fastest growing districts by absolute growth in MFI penetration amounting
to 5.71% making it the 12th
fastest growing districts by absolute growth in MFI
penetration in India.
Ghate, Prabhu (2007) 16
MFI penetration in South India, and in particular
Andhra Pradesh, dominates in terms of MFI presence. Two of the top five states
in terms of overall MFI penetration and three of the top five states in terms of
MFI and SHG combined penetration (excluding Pondicherry) are all in the South.
Moreover, with the notable exception of Krishna and Guntur districts in AP,
growth remained strong throughout the South over the year 2006 to 2007.
Several researchers conducted research on microfinance concept by
measuring the extent, need and importance of microfinance for the beneficiaries.
The present study aims at understanding the key issues of good governance,
which has a direct impact on the all the stake holders starting from the investors,
promoters, managers of microfinance institutions as well as to the regulators and
the public in general they serve.
16
Ghate, Prabhu. 2007. Consumer Protection in Indian Microfinance: Lessons from Andhra
Pradesh and the Microfinance Bill. Economic and Political Weekly;
http://www.epw.org.in/epw/user/loginArticleError.jsp?hid_ artid=10446
20
CHAPTER – III REGIONAL (DAKSHINA KANNADA
DISTRICT) PROFILE
21
Chapter III
REGIONAL (DAKSHINA KANNADA DISTRICT) PROFILE
3.1 Dakshina Kannada District Overview
Karnataka, located in the southern part of India is one of the developed
states being the seventh largest GDP producing states in India. Karnataka is the
9th most populous state in India with 61 million people, which can be attributed
to migration. Inspite of showing rapid signs of development, its literacy rate is
only 75%. Sex ratio stands at 973 female per 1000 male which is 20 point above
national average17
. One of the primary causes for growth in Karnataka is its
investment in infrastructure facilities and creation of job opportunities.
An official Census 2011 detail of Dakshina Kannada, a district of
Karnataka was released by Directorate of Census Operations in Karnataka. It
enumerated the following details for Dakshina Kannada District of Karnataka.
3.2 Dakshina Kannada District Population 2011
In 2011, Dakshina Kannada had population of 2,089,649 of which male
and female were 1,034,714 and 1,054,935 respectively. In 2001 census, Dakshina
Kannada had a population of 1,897,730 of which males were 938,434 and
remaining 959,296 were females. Dakshina Kannada District population
constituted 3.42 percent of total Maharashtra population. In 2001 census, this
figure for Dakshina Kannada District was at 3.59 percent of Maharashtra
population.
17
http://www.census2011.co.in/census/state/karnataka.html
22
3.3 Dakshina Kannada District Population Growth Rate
There was change of 10.11 percent in the population compared to
population as per 2001. In the previous census of India 2001, Dakshina Kannada
District recorded increase of 14.59 percent to its population compared to 1991.
3.4 Dakshina Kannada District Density 2011
The initial provisional data released by census India 2011, shows that
density of Dakshina Kannada district for 2011 is 430 people per sq. km. In 2001,
Dakshina Kannada district density was at 416 people per sq. km. Dakshina
Kannada district administers 4,861 square kilometers of areas.
3.5 Dakshina Kannada Literacy Rate 2011
Average literacy rate of Dakshina Kannada in 201118
were 88.57
compared to 83.35 of 2001. If things are looked out at gender wise, male and
female literacy were 93.13 and 84.13 respectively. For 2001 census, same figures
stood at 89.70 and 77.21 in Dakshina Kannada District. Total literate in Dakshina
Kannada District were 1,666,323 of which male and female were 864,019 and
802,304 respectively. In 2001, Dakshina Kannada District had 1,391,738 in its
district.
3.6 Dakshina Kannada Sex Ratio 2011
With regards to Sex Ratio in Dakshina Kannada, it stood at 1020 per 1000
male compared to 2001 census figure of 1022. The average national sex ratio in
India is 940 as per latest reports of Census 2011 Directorate. In 2011 census,
18
Dakshina Kannada District: Census 2011 data http://www.census2011.co.in/census/district/252-
dakshina-kannada.html
23
child sex ratio is 947 girls per 1000 boys compared to figure of 952 girls per 1000
boys of 2001 census data.
3.7 Dakshina Kannada Child Population 2011
In census enumeration, data regarding child under 0-6 age were also
collected for all districts including Dakshina Kannada. There were total 208,297
children under age of 0-6 against 228,060 of 2001 census. Of total 208,297 male
and female were 106,985 and 101,312 respectively. Child Sex Ratio as per census
2011 was 947 compared to 952 of census 2001. In 2011, Children under 0-6
formed 9.97 percent of Dakshina Kannada District compared to 12.02 percent of
2001. There was net change of -2.05 percent in this compared to previous census
of India.
3.8 Dakshina Kannada District Urban Population 2011
Out of the total Dakshina Kannada population for 2011 census, 47.67
percent lives in urban regions of district. In total 996,086 people lives in urban
areas of which males are 493,230 and females are 502,856. Sex Ratio in urban
region of Dakshina Kannada district is 1020 as per 2011 census data. Similarly
child sex ratio in Dakshina Kannada district was 942 in 2011 census. Child
population (0-6) in urban region was 97,221 of which males and females were
50,053 and 47,168. This child population figure of Dakshina Kannada district is
10.15 % of total urban population. Average literacy rate in Dakshina Kannada
district as per census 2011 is 92.12 % of which males and females are 95.50 %
and 88.83 % literates respectively. In actual number 828,007 people are literate in
urban region of which males and females are 423,215 and 404,792 respectively.
24
3.9 Dakshina Kannada District Rural Population 2011
As per 2011 census, 52.33 % population of Dakshina Kannada districts
lives in rural areas of villages. The total Dakshina Kannada district population
living in rural areas is 1,093,563 of which males and females are 541,484 and
552,079 respectively. In rural areas of Dakshina Kannada district, sex ratio is
1020 females per 1000 males. If child sex ratio data of Dakshina Kannada district
is considered, figure is 951 girls per 1000 boys. Child population in the age 0-6 is
111,076 in rural areas of which males were 56,932 and females were 54,144. The
child population comprises 10.51 % of total rural population of Dakshina
Kannada district. Literacy rate in rural areas of Dakshina Kannada district is
85.33 % as per census data 2011. Gender wise, male and female literacy stood at
90.97 and 79.83 percent respectively. In total, 838,316 people were literate of
which males and females were 440,804 and 397,512 respectively.
SHG Loans – DK District
Table 3.1: Details of SHG Loans (in Rupees) - DK District
25
Micro Credit in DK District
Table 3.2: Micro Credit in DK District
Status of SHG-BLP: MYRADA, considered as the pioneer of the Self
Help group concept, invented itself in the state of Karnataka. Since early 1980s,
the SHGs are being promoted and nurtured by the NGOs across the states.
Additionally, government sponsored programs like Stree Sakthi and SGSY have
contributed significantly in promotion of the SHGs across the state. Karnataka is
one of the leading performers in SHG-BLP with about 6.29 lakh SHGs having
saving bank linkages with a total deposit of INR 1, 00, 212.87 lakh. Among the
major States, SHGs in Karnataka maintain the highest savings balance of over
26
INR 16,000 per SHG. While number of SHGs having outstanding loans has
declined across the country in year 2010-11, Karnataka maintained its status.
Further, Karnataka has the highest average loan outstanding among SHGs with
INR 1.30 lakh per SHG, whereas the national average is about INR 0.83 lakh per
SHG and average loan outstanding is about INR 1.07 lakh per SHG in southern
region. The NPA against bank loans to SHGs in the state is very low at 3.35% as
compared to national figure of 6.09%. While, there are examples where SHGs in
Karnataka have engaged in livelihood activities, technology intervention in SHG
activities has not been observed much. SHGs in Karnataka are linked with
NABARD, wherein NABARD directly promotes and finances their activities.
27
CHAPTER – IV MICROFINANCE INSTITUTION’S PROFILE
28
Chapter IV
MICROFINANCE INSTITUTION’S PROFILE
Several micro financial institutions are emerged in the DK district for the
development of vulnerable people in this district. The profile of microfinance
institutions are shown as follows:
4.1 Shri Kshethra Dharmasthala Rural Development Project
Shri Kshethra Dharmasthala Rural Development Project, popularly
known as SKDRDP, is a charitable trust promoted by Dr. D. Veerendra
Heggade. SKDRDP concentrates on the empowerment of rural women by
organizing Self-help Groups (SHGs) on the lines of Joint Liability Groups (JLBs)
of Bangladesh and provides infrastructure and finance through micro credit for
the rural people.
The Shri Kshetra Dharmasthala Rural Development Project encompasses all
aspects of enriching the rural life. It is currently engaged in developmental
activities in Dakshina Kannada, Udupi, Uttara Kannada, Coorg, Shimoga,
Chickmagalur, Dharwad, Haveri, Gadag, Tumkur, Belgaum, Mysore,
Chamarajnagar, Koppal, Davangere, Chitradurga, Hassan, Mandya, Bangalore
Rural, Bellary, Raichur and Bagalkote districts operating in 25,000 villages
covering more than 28,19,500 families. SKDRDP is active with its Community
Development Programs throughout the state. The core strengths of the
organization are the blessings of its promoters, dedicated band of workers, good
will of the stakeholders and above all a comprehensive program to better the
living environment of the chosen areas. During the year SKDRDP has extended
29
its area of operation to six more districts viz., Hassan, Mandya, Bangalore Rural,
Bellary, Raichur and Bagalkote.
SKDRDP (R.) is registered under the Charitable Trust Act of 1920 in the
office of Sub-Registrar, Government of Karnataka, Belthangady Taluk, Dakshina
Kannada District in the year 1991.
SKDRDP began to play its role in transfer of technology, providing
infrastructure, and providing finance through micro credit. Besides this, the
project concentrated on the empowerment of rural women and hence began
'Jnanavikasa Program'. In response to the social needs of the area the SKDRDP
innovated into activities like Janajagruthi, Community Development, and Siri etc.
A village level worker known as 'Sevaniratha' would approach the stakeholder
families, sit with them to prepare a five year development plan and assist them to
implement the same. The Dharmasthala temple has given the required material
support like equipment's, seed materials on a charity basis. In keeping with the
HR policy of the organization, the supervisory staffs were promoted from the
sevaniratha cadre in the prevailing areas. This provided a great opportunity for
the youngsters to show their organizational skills in the new area.
In order to give opportunities to the housewives and unemployed young
women in rural areas who have time and inclination to do social work, SKDRDP
has developed a new cadre called the Sevaprathinidhi, who work in their spare
time and support the SHG movement in the village. Most sevaprathinidhis are
women and this has positively affected women men ratio in the organization.
30
Large quantities of rice were distributed during the initial decades as a
compensation for the families while they worked in their own lands. the concept
of 'Food for Work' was implemented by SKDRDP, with a view to develop the
lands. Thus the initial decade of SKDRDP can be considered as the charity
phase.
In the early 90s, on review of the project, it was realised that mere charity
does not give the desired result. Hence SKDRDP adopted the self-help mode by
organizing Self-help Groups (SHGs), more on the lines of Joint Liability Groups
(JLBs) of Bangladesh.
SKDRDP as a BC and BF of the banks: SKDRDP took an active part in
implementing the Financial Inclusion plan of the government of India by working
as Banking Correspondent and Business Facilitator (BC and BF) in several
districts of Karnataka. Under the programme SKDRDP is promoting Self Help
groups enabling the poor people in the remote villages to access banking facilities
at their door steps. SKDRDP is BC and BF to State Bank of India in Dharwad,
Gadag and Haveri districts, Union Bank of India in Gokak, Davangere, Koppala,
Chamarajnagar, Mysore and Kasargod districts, Canara Bank in Chitradurga
district, Corporation bank in Tumkur, Belgaum, Mandya and Hassan districts,
Rathnakar bank in Bagalkote district, IDBI bank in Raichur and Bangalore Rural
and Pragathi Grameen Bank in Bellary districts.
SKDRDP initiated a micro-financing scheme known as Pragathinidhi in
1996, which provides loans to members to help promote their livelihoods or
develop infrastructure. The main features of Pragathinidhi include the provision
of adequate funds without any administrative formalities, a convenient tenure,
31
easy accessibility and easy weekly repayment installments. The funds required
for lending are sourced from bank loans or the savings of the members which are
deposited with the group's account.
In 2003, with plans to extend Pragathinidhi on a larger scale, SKDRDP
reinvigorated the program with systematic procedures. The group can now take
loans for agricultural purposes, infrastructure development, non-formal sector
development activities and group enterprises.
Table 4.1 No. of loans availed for various purposes under micro-credit
through SKDRDP
Purpose No. of loans 2013-14 Since inception
Agricultural Development Program 117,859 794,498
Irrigation Program 20,507 197,962
Housing and Sanitation 157,421 1,083,922
Self Employment 110,530 648,160
Other Programs 425,511 2,855,573
Total 831,828 5,580,115
4.2 VIMUKTI
Dayalbagh Rural Development Programs is an entity of Social work in
Belthangady Taluk. Since 1969 it has initiated its effort for the development of the
economically poor and the backward people, irrespective of their caste and creed.
Ever since, it has been working without stop for the development of the poor by
considering the different issues, programs based on the need of the people at
different stages. Integral development of the family is the goal. Development of the
32
family, a major part of it can be realized through the women. Hence keeping the
concept of Self Help Group the project has started to form the SHGs and as a result
of our efforts the first group was started on 26th Feb. 1999. This provided a impetus
for formation of SHGs and within a year 100 groups were formed in 28 villages of
Belthangady Taluk. As a result of the coming together, the SHGs arose and the
VIMUKTI WOMEN'S FEDERATION of over 2000 women was inaugurated on
26th February 2000.Today the federation has 19 units of 150 Self Help Groups who
function on their own leadership and maintain micro finance activity, financial
savings over a crore rupees and making a loan transaction of above three crores.
Programs on Health, Education, seminars, training, awareness programs and
entrepreneurial activities are undertaken by the women as the empowerment process.
4.2.1 VIMUKTI SHG FEDERATION
Formation, nurture, promotion and strengthening of the SHGs are the main
activity of the society for the last 10 years. The SHGs are the basic structure for all
the developmental activities of the society. Under the patronage of Vimukti there are
150 SGHs in 33 villages. The total number of members of women has crossed 3000.
At present all the SHGs are functioning under the banner of VIMUKTI.
4.2.2 THE STRUCTURE OF THE FEDERATION
The Clusters are the bridge between the SHGs and the Federation. Once in 3
months, the cluster meetings are organized to share their problems and their
achievements. The SHGs meet with the intention of the overall development of the
members and to share their problems. There is common discussion among the SHGs.
During the meeting the project team will give the possible solution for their
problems, appraise their achievements and give some awareness on related topics.
33
The Vimukti women federation is growing and extending its branches day by day.
The women have realized that the collective action leads to better and lasting results.
Hence the women take a very active role in the developmental issues and other
related topics.
Ongoing training and awareness programs on health, education, self
employment and other micro finance activities motivate the members to develop
their families as well as the community.
All the developmental work is financially supported by the Child Fund India.
Vimukti was affiliated to CFI in the year 2000 and now 800 children are benefiting
directly. This organization has no caste, creed, religion or color barrier. Everybody is
equal when it comes to help child, family or community. The main mission
statement of CHILD FUND INDIA is that ''it creates an environment of hope and
respect for needy children of all cultures and belief in which they have opportunities
to achieve their full potential, and provides tools for positive change to children,
families and communities. The organization receives support not from the rich but
from the middle class people and students from America, Canada, Germany and
some other Asian Counties. It is their sacrifice, generosity; love for the unfortunate
has kindled the hearts of millions of children all over the world. The programs are
divided into 6 sectors like Health and Sanitation, Nutrition, Early Childhood
Development, Basic Education, Child Participation and Protection, Livelihood and
Economic Enhancement programs.
4.3 NAVODAYA SELF HELP GROUP PROJECT
Navodaya Self Help Group project has been set up under the auspices of
SCDCC Bank Ltd, Mangalore in 29th January 2000 with the far reaching vision of
34
Sri M. N. Rajendra Kumar, at Sural of Karkal Taluk, with the main objective of
empowerment of Rural poor for their Socio Economic Development to make them
able and capable by developing them Socio Economically.
Navodaya Grama Vikas Charitable Trust @ was started on 1.10.2004 by its
Managing Trustee Dr.M.N. Rajendra Kumar, a dynamic leader of co-operative
movement and President of S.C.D.C.C Bank. At present the NGVCT has formed
27,618 consisting 2,80,508 members in 5 districts viz. D.K, Udupi, Dharwad, Uttar
Kannad & Shimoga Districts. Out of them 72% are women members actively
participating in its developmental activities. The total savings of the groups is
approximately 100 crores.
4.3.1 Objectives
Formation of SHG for the socio- economic, development and cultural
programmes for the development of rural people.
Training the rural unemployed youth, especially the women to make them
self-reliant.
Formation of training centers for the self-employment.
Organizing unemployed youths and encouraging them to take up self-
employment.
Formation of self help groups in rural areas state wide and developing
their economic, social and culture status through appropriate programmes.
In order to provide overall health protection to the Navodaya Self Help
Group members. Introducing Chaitanya Health Insurance Scheme.
35
Conducting awareness programme on the availability of economic and
other help from various women's development programmes for the self
employment.
Personality development programme.
To conduct free Health checkup camps for health care of the rural poor.
To help the financially poor patients suffering from cancer, cardiac
disease, kidney failure etc.
Opening of Educational institution to impart good and higher education
for the children of rural poor.
To promote and preserve art and culture and to specially encourage their
own immense folk heritage.
Awareness and training to preserve and protect the herbal plants of great
medicinal value.
To promote self employment opportunities and encourage skill training
with a view to tap alternative source of income.
Establishment of job oriented training centers for the rural unemployed
youth.
4.3.2Philosophy
Make the rural populace able and capable to earn live hood with self respect
and to ovate their Self Help Groups, there by brining unity, empowerment,
discipline and self respect within the reach. Types of Training Programmes
organized by NGVCT for Self Help Group Members: Rural Entrepreneurship
Development programme (REDP) consisting of:
1. Agriculture & Allied Activity.
2. Dairy farming.
36
3. Bee Keeping.
4. Horticulture.
5. Mushroom cultivation.
6. Dress Designing.
7. Agarbathi Manufacturing.
8. Screen Printing.
9. Vermiculture.
4.3.3 Programs for Self Help Groups:
Programs for self help groups consist of basic orientation to members for
formation of group. Maintains of books of accounts, credit management, capacity
Building, skill to carry out group member etc. These programs are provided at the
doorsteps of the members of SHG's.
4.4 Dakshina Kannada Rural Development Society (DKRDS)
The Dakshina Kannada Rural Development Society Registered, Belthangady is the
official Social work department of the diocese of Belthangady. Dakshina Kannada
Rural Development Society works for Women Empowerment Women In Micro
Enterprise Child Rights Promotion HIV/AIDS Mitigation Farmers Empowerment
Poor Girls Marriage Fund IDEA project. Dakshina Kannada Rural Development
Society also works in Key Issues: Agriculture, Children, Civic Issues, Disaster
Management, Education & Literacy, Environment & Forests, Health & Family
Welfare, HIV/AIDS, Housing, Human Rights, Micro Finance (SHGs), Panchayati
Raj, Right to Information & Advocacy, Rural Development & Poverty Alleviation,
Vocational Training, Women’s Development & Empowerment, and Youth Affairs.
37
CHAPTER – V RESEARCH METHODOLOGY
38
CHAPTER V
RESEARCH METHODOLOGY
The present study is a cross sectional study which explores the governance of
microfinance institutions from both points of view the beneficiaries as well as the
providers. This section presents the research methods that are used in order to attain
the goal of the research study. The primary objective of the study is to assess the
governance of micro-finance institutions.
5.1 Geographical Area Covered
The study was undertaken in the selected Micro finance Institutions
identified for the study in Dakshina Kannada district of Karnataka.
5.2 Sampling Technique
Sampling is intended to gain information about population. Thus it is critical
at the outset to identify the population properly and accurately. It is very important to
determine how researchers will choose their samples; there are several methods
where researchers choose samples based on their research purposes.
It is noteworthy to determine the research population before discussing
sampling issues. Without understanding the research population, researchers can not
conduct their empirical studies and results will not appear. The population for the
current study is the selected Micro Finance Institutions which offer Micro
Finance facilities to the poor. Representatives of MFI’s, Members of SHG’s and
Employees of the Institutions are taken as respondents for the current study.
Systematic Random Sampling Technique was used for collection of data.
39
Data was collected from respondents who hold Key posts in Microfinance
Institutions in Dakshina Kannada District like managers/office bearers. A
total of 20 respondents from various MFI’s were available for assessment.
Data was also collected from respondents who were associated with
MFI’s in Dakshina Kannada District as beneficiaries through Self Help
Groups. A total of 90 respondents were available for assessment.
5.3 Data Sources:
For the present study the researcher has used both primary and secondary
data to attain the research goals of the study. As the study concentrates on both
side service providers and their beneficiaries the researcher has used two separate
structured questionnaires were used and data were collected.
Questionnaire for respondents who hold Key posts in Microfinance
Institutions in Dakshina Kannada District like managers/office bearers.
(See Annexure).
Questionnaire for respondents who were associated with MFI’s in
Dakshina Kannada District as beneficiaries through Self Help Groups.
(See Annexure).
Secondary data were collected from various knowledge base including
journals, periodicals, microfinance books, reports and relevant websites.
5.4 Method
To assess the present governance methods of the selected MFI’s in
Dakshina Kannada District a cross sectional Study was designed and a onetime
data through separate questionnaires was collected from both MFI’s and SHG
40
members who are the beneficiaries of MFI’s. The data so collected was assessed
for presence of good governance practices in the institutions.
The questionnaires were designed to suit the needs of the study. The
respondents were explained about the study and were asked for consent before
collecting data. The questionnaires were administered to the respondents and
suitable clarifications given when asked. The investigator remained passive and
unbiased for the responses collected. Thus data collected from the questionnaires
were tabulated in Microsoft Excel for Data evaluation.
5.5 Statistical Tools and Techniques used for the study
To analyze the governance practiced in Micro Finance Institutions, tools
like Descriptive Statistics (Frequency, Mean, and Standard Deviation), ANOVA
and Garret Ranking are used in order to prove the hypotheses. Statistical analysis
has been done using SPSS. In order to draw suitable conclusions with meaningful
analysis, interpretation of data is made using tables and graphs.
41
CHAPTER – VI RESULTS & DISCUSSION
42
CHAPTER VI
RESULTS AND DISCUSSIONS
In this chapter the researcher has analysed and discussed how far the
customers are benefited from the Microfinance institutions and also assessed the
governance of microfinance institutions. This chapter is segregated into two
sections such as:
i. Beneficiaries of Microfinance Institutions (MFIs)
ii. Governance of Microfinance Institutions (MFIs)
SECTION I
6.1 BENEFICIARIES OF MICROFINANCE INSTITUTIONS
Basic Information of the respondents
The basic information’s of the microfinance beneficiaries are shown as
follows:
6.1.1 RESPONDENTS POSITION IN THE FAMILY
Table no. 6.1 Respondents Position in the Family
Level of Education Frequency Percentage
Head 8 8.9
Spouse 64 71.1
Dependent 18 20
Any other specify - -
Total 90 100
Source: Interview Schedule
43
Figure 1 Family Position of the Respondents (Percentage)
From the above table 6.1 shows the respondents position in the family.
The result reveals that majority (64 out of 90) 71.1 per cent of the sample
respondents are Spouses, 20 per cent (18 out of 90) of the respondents are
dependent, and 8.9 per cent (08 out of 90) of the respondents head in their family.
6.1.2 LEVEL OF EDUCATION OF THE RESPONDENTS
Table no. 6.2 Level of Education of the Respondents
Level of Education Frequency Percentage
Illiterate 14 15.6
Sec. Certificate 08 8.9
Diploma 20 22.2
Bachelor 48 53.3
Masters - -
Total 90 100
Source: Interview Schedule
From the above table 6.2 shows the level of education of the
sample respondents. The result reveals that majority (48 out of 90) 53.3 per cent
8.9 %
71.1%
20%
0
10
20
30
40
50
60
70
80
Head Spouse Dependent
44
of the sample respondents completed their Bachelor degree, 22.2 per cent (20 out
of 90) of the respondents are diploma holders, 15.6 per cent (14 out of 90) of the
respondents are illiterates and 8.9 per cent (08 out of 90) of the respondents
education is at secondary level.
Figure 2 Level of Education of the Respondents (Percentage)
6.1.3 SERVICES AVAILED BY THE RESPONDENTS
Table no.6.3 Services availed by the Respondents
Microfinance Services
Frequency Percentage
Yes 55 61.1
No 35 38.1
Total 90 100
Banking Services
Yes 60 66.7
No 30 33.3
Total 90 100
Source: Interview Schedule
15.6%
8.9%
22.2%
53.3%
0
10
20
30
40
50
60
illiterate Secondary Diploma Bachelor degree
45
Figure 3 Financial Services Availed by the Respondents (Percentage)
From the above table 6.3 shows Microfinance Services availed by the
Respondents. The result reveals that majority (55 out of 90) 61.1 per cent of the
sample respondents availed the services provided by the microfinance institutions
and 38.1 per cent (35 out of 90) of the respondents did not avail all services
provided by the microfinance institutions.
Majority (60 out of 90) 66.7 per cent of the sample respondents availed
the full services provided by the banks and 33.3 per cent (30 out of 90) of the
respondents did not avail the banking services provided by the banking
institutions.
6.1.4 QUALITY OF SERVICE OF MICROFINANCE INSTITUTIONS
Table no. 6.4(a) Descriptive Statistics
N Mean Std.
Deviation Std. Error
95% Confidence Interval for
Mean
Lower Bound Upper Bound
illiterate 14 3.9286 .61573 .16456 3.5731 4.2841
literate 68 3.7500 1.02760 .12462 3.5013 3.9987
Secondary 8 4.0000 .92582 .32733 3.2260 4.7740
Total 90 3.8000 .96221 .10143 3.5985 4.0015
Source: Interview Schedule
61.1%
66.7%
38.1% 33.3%
0
10
20
30
40
50
60
70
80
Microfinance Banking Services
Yes
No
46
The above table 6.4(a) reveals the descriptive statistics for quality of
service availed from microfinance institutions among the different education
level of customers. The result reveals that the overall mean score is 3.80 (illiterate
3.92, literate 3.75, and Secondary 4.00), which clearly states that all levels of
customers agreed that microfinance institutions are providing quality service to
them.
Ho: There is no significant difference on quality of service availed from
Microfinance institutions among customers.
Table no. 6.4(b) ANOVA
Sum of
Squares
df Mean
Square
F Sig.
Between
Groups 5.136 3 1.712 1.905 .135
Within Groups 77.264 86 .898
Total 82.400 89
5 per cent significant level
The above table 6.4(b) shows the analysis of variance for test whether
there is any significant difference on the quality of service among the customers.
The result reveals that the p.value .135 is greater than the 5 per cent significant
level. So, the null hypothesis is accepted. Hence, there is no significant difference
on quality of service availed from Microfinance institutions among customers.
6.1.5 UTILISATION OF LOANS BY THE RESPONDENTS
Table no 6.5 Utilisation of Loans by the Respondents
Frequency Percentage
Consultation Yes 90 100
No - -
Total 90 100
Loans used for intend
purpose Always 80 88.88
Always not 10 11.12
47
Total 90 100
Improved living condition Yes 56 62.22
No 34 37.78
Total 90 100
Received any training before
getting loan Yes 42 46.67
No 48 53.33
Total 90 100
Supervision on loan
utilization
Yes 46 51.11
No 44 48.89
Total 90 100
Supervision on loan
repayment Yes 90 100
No - -
Total 90 100
Source: Interview Schedule
Figure 4 Utilisation of loans by the Respondents (Percentage)
The above table 6.5 shows the opinions and utilisation of loans by the
respondents provided by the microfinance institutions. The survey result shows
that all respondents (100 per cent) are consulted with the institutions to make
their MFIs policy directions based on their need.
Majority 88.88 per cent (80 out of 90) of the respondents used loans for
intended purposes (i.e. used loans for the purpose they availed) and 11.12 per
Yes
No 0
20
40
60
80
100
100% 88.88%
62.22%
46.67% 51.11%
100%
0% 11.12%
37.78% 53.33% 48.89%
0%
48
cent (10 out of 90) of the respondents did not use the loans properly for the
purpose they availed from the microfinance institutions.
Majority 62.22 per cent (56 out of 90) of the respondents living conditions
improved due to the credit scheme of the microfinance institutions and 37.38 per
cent (34 out of 90) of the respondents felt that the credit scheme provided by the
microfinance institutions did not improve their living conditions.
Majority 53.33 per cent (48 out of 90) of the respondents did not receive
any sort of training before receiving loans from the microfinance institutions and
46.67 per cent (42 out of 90) of the respondents received training before
receiving loans from the respective microfinance institutions.
Majority 51.11 per cent (46 out of 90) of the respondents portrayed that
they availed supervision from the microfinance institutions for the utilisation of
the loans received and 48.89 per cent (44 out of 90) of the respondents said that
they were not supervised for the utilisation of the loans received from the
microfinance institutions.
The result also reveals that all (100 per cent) the respondents were
supervised by the microfinance institutions for their repayment of the loans.
Ho: There is no significant difference on utilisation of loans among the
customers.
Table no. 6.6 ANOVA
Sum of
Squares
Df Mean
Square
F Sig.
Between
Groups 48.214 3 16.071 2.212 .023
Within Groups 624.774 86 7.264
Total 672.988 89
5 per cent significant level
49
The above table 6.6 shows the ANOVA for testing whether there is any
difference on utilisation of loans among the customers. The ANOVA result
reveals that the p.value 0.23 is lesser than the 5 per cent significant level. So, the
null hypothesis is rejected. Hence, there is a significant utilisation of loans
availed from microfinance institution among customers.
6.1.6 MEASURES FOR REPAYMENT OF LOANS
Table no 6.7 Measures for Repayment of Loans in time by the Respondents
Measures Frequency Percentage
Claim against personal
wealth
Yes 61 67.8
No 29 32.2
Total 90 100
Claim against guarantors Yes 51 56.7
No 39 43.3
Total 90 100
Social sanction (loss of
status) Yes 90 100
No - -
Total 90 100
Fear of Losing Future
loans
Yes 40 44.4
No 50 55.6
Total 90 100
Source: Interview Schedule
Figure 5 Measures of Repayment of Loans (Percentage)
Yes
No 0
20
40
60
80
100
Claim against
personal
wealth
Claim against
guarantors Social sanction
(loss of status) Fear of Losing
Future loans
67.8%
56.7%
100%
44.4%
32.2% 43.3%
0%
55.6%
50
The above table 6.7 shows the measures used to repay the loans by the
respondents. The result reveals that majority 67.8 (61 out of 90) per cent of the
respondents claim against personal wealth for repayment of loans in time and
32.2(29 out of 90) per cent of the respondents were not claimed against personal
wealth for repayment of loans in time.
Majority 56.7 (51 out of 90) per cent of the respondents claim against
guarantors for repayment of loans in time and 43.3 (39 out of 90) per cent of the
respondents were not claimed against guarantors for repayment of loans in time.
The result also reveals that all the respondents accepted that measures of
Social Sanction (loss of status) for their repayment of the loans in time.
Majority 44.44 (40 out of 90) per cent of the respondents repay their loans
in time because they have the fear of losing future loans (i.e. they repay their
loans to avail more loans) and 55.6 (50 out of 90) per cent of the respondents
doesn’t have any fear of losing future loans while they repay their loans in time.
Ho: There is no significant difference on measuring repayment of loans in time
among the customers.
Table 6.8 ANOVA
Sum of
Squares
Df Mean
Square
F Sig.
Between
Groups 48.087 3 16.029 2.406 .073
Within Groups 572.902 86 6.662
Total 620.989 89
5 per cent significant level
The above table 6.8 shows the analysis of variance to test whether there is
any significant difference on measuring repayment of loans in time among the
customers. The result reveals that the p.value .073 is greater than the 5 per cent
51
significant level. So, the null hypothesis is accepted. Hence, there is no
significant difference on measuring repayment of loans in time among the
customers.
6.1.7 RESPONDENTS STATUS OF LOANS
Table no 6.9 Status of Loans of the Respondents
Status Frequency Percentage
Fully repaid
Yes 82 91.1
No 08 8.9
Total 90 100
Repayment on
schedule
Yes 67 74.4
No 23 25.6
Total 90 100
Repayment in
arrears
Yes 18 20
No 72 80
Total 90 100
Source: Interview Schedule
Figure 6 Status of Respondents Loan (Percentage)
The above table 6.9 shows the status of loans of the respondents who
availed from the microfinance institutions. The result reveals that majority 91.1
(82 out of 90) per cent of the respondents fully repaid their loans and only 8.9 (08
out of 90) per cent of the respondents have not fully repaid their loan they availed
from microfinance institutions.
0 20 40 60 80 100
Repayment in Arrears
Repayment on Schedule
Fully Repaid
20%
74.4%
91.1%
80%
25.6%
8.9%
No
Yes
52
Majority 74.4 per cent of the respondents repaid their loans on schedule
fixed by the microfinance institutions and 25.6 per cent of the respondents did not
repay their loans on the scheduled time.
Majority 80 per cent of the respondents repaid their loans without arrears
and 20 per cent of the respondents repaid their loans in arrears.
6.1.8 REPAYMENT PERIODS
Table no 6.10 Suitable Repayment Periods
Repayment Periods Frequency Percentage
Suitable Repayment
periods Yes 88 97.8
No 02 2.2
Total 90 100
Source: Interview Schedule
Figure 7 Status of Respondents Loan (Percentage)
The above table 6.10 reveals that majority 97.8 per cent of the
respondents felt that they availed suitable time period for repayment of their
loans and only 2.2 per cent of the respondents felt that the time period to repay
97.8%
2.2%
0
20
40
60
80
100
120
Yes No
53
the loans is not suitable and they need to increase the time period for their
repayment.
6.1.9 GRIEVANCE REDRESSAL SYSTEMS
Table no 6.11 Grievance Redressal Systems
Frequency Percentage
Grievance
Redressal Systems
Yes 90 100
No - -
Total 90 100
Source: Interview Schedule
The above table 6.11 shows whether the microfinance institutions have
proper grievance redressal systems. The result reveals that all respondents have
agreed that microfinance institutions have proper grievances redressal systems to
overcome grievances faced by them while they perceive financial services from
the microfinance institutions.
6.1.10 AWARENESS ON GRIEVANCE REDRESSAL MECHANISM
Table no 6.12 Awareness on Grievance Redressal Mechanism
Awareness Aware Neutral Unaware Total
Are you aware that you can
submit a complaint mentioning
about your grievances if any, with
regard to services on MFIs
60
(66.68)
30
(33.32) -
90
(100)
Dou you know to whom to submit
your complaint
32
(35.56)
55
(61.11)
03
(3.33)
90
(100)
Source: Interview Schedule
The above table 6.12 shows the awareness level of customers towards
grievance redressal system in Microfinance institutions. The result reveals that
majority 66.68 per cent of the respondents are fully aware of grievance redressal
system for submitting their complaints regarding the services provided by the
54
institutions and 33.32 per cent of the respondents had neutral level of awareness
towards grievance redressal system in microfinance institutions.
Figure 8 Awareness on Grievance Redressal Mechanism (Percentage)
The result also reveals that majority 61.11 per cent of the respondents are
having neutral level of awareness about to whom they want to submit their
complaints, 35.56 per cent of the respondents are fully aware of it and 3.33 per
cent of the respondents are not aware to whom they had to submit their
complaints regarding the services they consumed.
6.1.11 SATISFACTION ON GRIEVANCE REDRESSAL SYSTEM
Ho: There is no significant difference on satisfaction of grievances redressal
systems among customers.
Table no. 6.13 ANOVA
Sum of
Squares
Df Mean
Square
F Sig.
Between
Groups 9.208 3 3.069 3.447 .020
Within Groups 76.581 86 .890
Total 85.789 89
5 per cent significant level
Aware
Neutral
Unaware
0
10
20
30
40
50
60
70
Submit your
complaint to whom to submit
66.68%
35.56%
33.32
61.11%
0% 3.33%
55
The above table 6.13 shows the analysis of variance to test whether there
is any significant difference on satisfaction of grievances redressal systems
among the customers. The ANOVA result reveals that the p.value .020 is less
than the 5 per cent significant level. So, the null hypothesis is rejected. Hence,
there is a significant difference on satisfaction of grievances redressal systems
among customers.
Challenges faced in accessing MFIs Services
Table no 6.14 Challenges faced in Accessing MFIs Services (Garret Ranking)
Challenges Mean Score Rank
Lack of security 48.02 5
Few MFIs 47.21 6
High Interest Rate 41.45 11
Short repayment period 45.76 9
Getting trust worthy group members 46.78 7
Strict/inflexible terms 44.98 8
Weekly repayment-hard to raise money on a
weekly basis 50.28 2
Small amounts given at a time 52.40 1
Long procedure 50.12 3
Lack of investment opportunities 44.68 10
Too much paper work 48.34 4
Initial expenses too high yet not catered for
during loan repayment 39.65 12
Money is deducted yet interest has to be paid 34.34 13
Source: Interview Schedule
The above table 6.14 shows the challenges faced by the respondents in
accessing MFIs Services. The garret ranking results reveals that small amount
given at a time stands first rank with a mean score of 52.40, weekly repayment –
hard to raise money on a weekly basis ranked second by the respondents with a
mean score of 50.28, long procedure ranked third with a mean score of 50.12, too
much paper work ranked fourth with a mean score of 48.34, lack of security
56
ranked fifth with a mean score of 48.02, Few MFIs ranked sixth, getting trust
worthy group members ranked seventh, strict/inflexible terms ranked eighth with
a mean score value of 48.02,47.21,46.78 and 44.98 respectively. Short repayment
period ranked ninth with a mean score of 45.76, lack of investment opportunities
ranked tenth with a mean score of 44.68, high interest rate ranked eleventh with a
mean score of 41.45, Initial expenses too high yet not catered for during loan
repayment was ranked twelve, Money is deducted yet interest has to be paid
ranked thirteenth with a mean score value of 39.54 and 34.34 respectively.
It is concluded that the respondent’s opinion that a small amount given at
a time was a major challenge faced in accessing MFIs Services.
SECTION II
6.2 MICROFINANCE INSTITUTIONS
In this section we discuss the governance of Microfinance institutions.
6.2.1 NATURE OF SERVICES OFFERED
Table 6.15 Nature of services offered by MFIs
Savings
Frequency Percentage
Yes 20 100
No - -
Total 20 100
Insurance
Yes 20 100
No - -
Total 20 100
Loans
Yes 20 100
No - -
Total 20 100
Remittances
Yes 18 90
No 02 10
Total 20 100
SHG Promotion
Yes 19 95
No 01 05
Total 20 100
Source: Interview Schedule
57
Figure 9 Nature of Services offered by MFIs (Percentage)
The above table 6.15 shows the nature of service offered by the
microfinance institutions. The result reveals that all the twenty microfinance
institutions are offering savings, insurance, loan facilities to the customers, 90 per
cent of the institutions are providing remittances and 95 per cent of the
institutions are offering SHG promotional activities.
6.2.2 PERFORMANCE INDICATORS TO MEASURE THE
EFFECTIVENESS OF MANAGEMENT
Table no. 6.16 Performance indicators
Performance Indicators
Frequency Percentage
Yes 20 100
No - -
Total 20 100
Source: Interview Schedule
The above table 6.16 shows whether the microfinance institutions have
any measures to evaluate the performance and effectiveness of the management.
The result reveals that all twenty microfinance institutions have unique
performance indicators to measure the effectiveness of management.
Yes
No 0
50
100 100% 100% 100%
90% 95% 0 0 0 10%
5%
58
6.2.3 ASSESSING OF PERFORMANCE OF BOARD OF DIRECTORS
AND MANAGERS
Table no. 6.17(a) Assessing of Performance of Board of Directors and
Managers
Performance of board
of directors and
managers
Frequency Percentage
Yes 20 100
No - -
Total 20 100
Source: Interview Schedule
The above table 6.17(a) shows whether the microfinance institutions
regularly assess the performance of board of directors and their managers. The
result reveals that all twenty microfinance institutions are regularly assessing and
evaluating the performance of board of directors and managers.
6.2.4 FREQUENCY OF EVALUATION OF PERFORMANCE OF BOARD
OF DIRECTORS AND MANAGERS
Table no. 6.17(b) Assessing and Evaluation of performance
Evaluation of
Performance
Frequency Percentage
Weekly 05 25
Monthly 06 30
Quarterly 05 25
Half yearly 04 20
Annually - -
Total 20 100
Source: Interview Schedule
The above table 6.17(b) shows the frequency of assessing the
performance of board of directors and their managers of microfinance
institutions. The result reveals that majority 30 per cent of the institutions assess
the performance of their board of directors and managers every month, 25 per
cent of the institutions assess the performance weekly and quarterly respectively
59
and 20 per cent of the microfinance institutions assess and evaluate the
performance of board of directors and managers every six months.
6.2.5 MEASURES TO MAINTAIN TRANSPARENCY AND AVOID
CONFLICTS OF INTEREST
Table no. 6.18(a) Measures to maintain transparency and avoid conflicts of
interest
Measures
Frequency Percentage
Yes 20 100
No - -
Total 20 100
Source: Interview Schedule
The above table 6.18(a) shows whether the microfinance institutions took
any measures to maintain transparency as well as to avoid any conflicts of
interest. The result reveals that all twenty microfinance institutions took
appropriate measures to maintain transparency and to avoid any conflicts of
interest arising.
6.2.6 FREQUENCY OF MEASURES TAKEN
Table no. 6.18(b) Frequency of measures taken
Frequency of measures
taken
Frequency Percentage
Rarely - -
Often 06 30
Very often 12 60
Whenever required 02 10
Total 20 100
Source: Interview Schedule
60
Figure 10 Frequency of Measures Taken (Percentage)
The above table 6.18(b) shows the frequency of measures taken by
microfinance institutions to maintain the transparency and to avoid conflicts of
interest. The result reveals that majority 60 per cent of the institutions took
measures very often, 30 per cent of the institutions are took measures often and
10 per cent of the microfinance institutions took measures whenever required to
avoid conflicts of interest and to maintain their transparency in providing
services.
6.2.7 BOARD ASSESS ITS OWN PERFORMANCE
Table no. 6.19(a) Board assess its own performance
Assess its own
performance
Frequency Percentage
Yes 19 95
No 01 05
Total 20 100
Source: Interview Schedule
0
20
40
60
Rarely Often
Very Often Whenever
Required
0
30%
60%
10%
61
Figure 11 Board Assess its Own Performance (Percentage)
The above table 6.19(a) shows whether the board assesses its own
performance in achieving its goals. The result reveals that majority 95 per cent of
the microfinance institutions board assess their own performance in order to
measure the target they achieved and 05 per cent do not assess their own
performance.
6.2. 8 FREQUENCY OF ASSESSING ITS OWN PERFORMANCE
Table no. 6.19(b) Frequency of assessing its own performance
Meetings
Frequency Percentage
Monthly 09 47.37
Quarterly 06 31.58
Half yearly 03 15.79
Annually 01 5.26
Total 19 100
Source: Interview Schedule
95%
5%
Assess Own Performance
Yes
No
62
Figure 12 Frequency of assessing Performance by MFIs (Percentage)
The above table 6.19(b) shows the frequency of assessing their
performance. The result reveals that majority 47.37 per cent of the boards assess
their performance monthly, 31.58 per cent of the institutions boards assess their
performance quarterly, 15.79 per cent assess every six months once and only 5.26
per cent of the microfinance institutions boards assess their own performance
yearly.
6.2.9 FREQUENCY OF MEETINGS CONDUCTED IN THE
INSTITUTIONS
Table no. 6.20 Frequency of assessing its own performance
Meetings
Frequency Percentage
Bimonthly - -
Monthly 20 100
Quarterly - -
Half yearly - -
Annually - -
Total 20 100
Source: Interview Schedule
47.37%
31.58%
15.79%
1.2%
Frequency
Monthiy
Quarterly
Half Yearly
Annually
63
The above table 6.20 shows the frequency of meetings conducted by the
institutions. The result reveals that all twenty microfinance institutions conduct
their meetings monthly for the upliftment of their services.
6.2.10 PROBLEMS FACED BY MFIS IN REACHING OUT THE
TARGETS
Table no. 6.21 Problems Faced in Reaching the Targets (Garret Ranking)
Problems faced Mean Score Rank
Security Reasons 14.12 5
Travel time to clients 12.22 6
Lack of business opportunities 20.34 1
Lack of basic infrastructure 19.41 2
Inadequate information about clients 16.74 3
Lack of trained personnel 10.24 7
Inadequate financial resources 14.39 4
Source: Interview Schedule
The above table 6.21 shows the problems faced by the microfinance
institutions in reaching the target. The Garret Ranking result reveals that majority
of the institutions opined that lack of business opportunity is a major problem
faced by them with a mean score of 20.34 followed by lack of basic infrastructure
(mean score 19.41), Inadequate information about the clients (16.74), inadequate
financial resources (14.39), Security reasons (14.12), travel time to clients (12.22)
and lack of trained personnel (10.24).
6.2.11 PRACTICES OF AUDITING BY MFIs
Table no. 6.22 Practices of Auditing followed by MFIs
External Auditor
Frequency Percentage
Yes 08 40
No 12 60
Total 20 100
Internal Audit System
Yes 17 85
No 03 15
Total 20 100
64
Staff in charge of
internal audit
Yes 15 75
No 05 25
Total 20 100
Source: Interview Schedule
Figure 13 Auditing Practices by MFIs (Percentage)
The above table 6.22 shows the auditing practices followed by the
Microfinance institutions. The result reveals that majority 60 per cent of the
institutions doesn’t depend on external auditors, 85 per cent of the institution
practices internal audit system and 75 per cent of the institutions audit their
accounts with help of full time staff in charge of internal audit.
6.2.12 AUTOMATION OF ACCOUNTING SYSTEM
Table no. 6.23 Automation of Accounting System in MFIs
Automation
Frequency Percentage
Fully Automated 20 100
Partially - -
Manual - -
Any others - -
Total 20 100
Source: Interview Schedule
40%
85%
75%
60%
15%
25%
0
10
20
30
40
50
60
70
80
90
External Auditor Internal Audit System Staff in charge of
internal audit
Yes
No
65
The above table 6.23 shows the accounting system used by the
microfinance institutions. The result reveals that all the twenty institutions
accounting system is fully automated.
6.2.13 SERVICES PROVIDED TO THE CUSTOMERS
Table no. 6.24 Services provided to the Customers
Frequency Percentage
Consultation Yes 20 100
No - -
Total 20 100
Loans used for intend purpose Always 20 100
Always not - -
Total 20 100
Improved living condition Yes 20 100
No - -
Total 20 100
Training customers before
getting loan Yes 18 90
No 02 10
Total 20 100
Supervision on loan utilization Yes 20 100
No - -
Total 20 100
Supervision on loan repayment Yes 20 100
No - -
Total 20 100
Source: Interview Schedule
The above table 6.24 shows the services provided by the microfinance
institutions to their customers. The result reveals that all the twenty institutions
provided consultation services to their customers regarding the services such as
loans, insurance etc., they claim that the loans received by the customers are
utilised for the intended purpose and also improves the living condition of the
customers.
Majority 90 per cent of the institutions are providing training to their
customers before issuing the loans, all twenty institutions are effectively
participating in the supervision on loan utilisation and loan repayment of
customers.
66
6.2.14 PERCENTAGE OF LOAN REPAYMENT
Table no. 6.25 Percentage of Loan Repayment
Percentage of Loan
Repayment
Frequency Percentage
Less than 30 per cent - -
30-60 per cent 20 100
More than 60 per cent - -
Total 20 100
Source: Interview Schedule
The above table 6.25 shows the percentage of loans repaid by the
customers. The result reveals that all twenty microfinance institutions claim that
30-60 per cent of the loans are repaid by the customers.
6.2.15 MEASURES FOR REPAYMENT OF LOANS FROM
BORROWERS
Table no 6.26 Measures for Repayment of Loans in Time from Borrowers
Measures Frequency Percentage
Claim against personal
wealth
Yes 19 95
No 01 05
Total 20 100
Claim against guarantors Yes 17 85
No 03 15
Total 20 100
Social sanction (loss of
status) Yes 07 15
No 13 85
Total 20 100
Fear of Losing Future
loans
Yes 16 80
No 04 20
Total 20 100
Penalty for single term
default Yes 01 05
No 19 95
Total 20 100
Source: Interview Schedule
67
Figure 14 Measures for Repayment of Loans in Time from Borrowers
(Percentage)
The above table 6.26 shows the measures used by the institutions for
repayment of loans from borrowers. The result reveals that 95 per cent of the
institutions claim against the personal wealth and 85 per cent of the institutions
also claim against guarantors for loan repayments.
Majority 85 per cent of the institutions are not using the social sanction as
a measure for loan repayment from the borrowers and 95 per cent of the
institutions are not charging penalty for the single term default from the
borrowers.
6.2.16 GRIEVANCE REDRESSAL SYSTEMS
Table no 6.27 Grievance Redressal Systems
Frequency Percentage
Grievance
Redressal Systems
Yes 20 100
No - -
Total 20 100
Source: Interview Schedule
Yes
No 0
20
40
60
80
100
Claim
against
personal
wealth
Claim
against
guarantors
Social
sanction
(loss of
status)
Fear of
Losing
Future
loans
Penalty for
single term
default
95%
85%
15%
80%
5%
5% 15%
85%
20%
95%
68
The above table 6.27 shows whether the microfinance institutions have
proper grievance redressal systems. The result reveals that all microfinance
institutions have proper grievances redressal systems to overcome grievances
faced by customers while they perceive financial services from the microfinance
institutions.
Table no 6.28 Technique used for Grievance Redressal Systems
Frequency Percentage
Feed back Yes 19 95
No 01 5
Total 20 100
Written complaint Yes 20 100
No - -
Total 20 100
Suggestion Box Yes 16 80
No 04 20
Total 20 100
Resolution
Monitoring System
Yes 18 90
No 02 10
Total 20 100
Source: Interview Schedule
Figure 15 Technique used for Grievance Redressal Systems (Percentage)
Yes
No 0 10 20 30 40 50
60
70
80
90
100
Feedback Written
Complaint Suggestion
box Resolution
Monitoring
System
95% 100%
80% 90%
5% 20%
10%
69
The above table 6.28 shows the techniques used by the microfinance
institutions for grievance redressal mechanism. The result reveals that 95 per cent
of the institutions are getting feedback from customers to overcome the
grievances faced by the customers, all twenty are getting written complaint from
the customers, 80 per cent of the institutions have suggestion box for receiving
grievances and 90 per cent of the institutions used the resolution monitoring
system for receiving grievances from the customers.
70
CHAPTER – VII SUMMARY & CONCLUSIONS
71
CHAPTER VII
SUMMARY & CONCLUSION
Inclusive growth always received special emphasis in the Indian policy
making. Government of India and the Reserve Bank of India has taken several
initiatives to expand access to financial systems to the poor. Some of the salient
measures are nationalization of banks, prescription of priority sector lending,
differential interest rate schemes for the weaker sections, development of credit
institutions such as Regional Rural Banks, etc. Despite the policy efforts, gap
remains in the availability of financial services in rural areas. The dependence of
the rural poor on money lenders continues, especially for meeting emergent
requirements. Such dependence is more pronounced in the case of marginal
farmers, agricultural labourers, petty traders and rural artisans belonging to
socially and economically backward classes and tribes whose capacity to save is
too small.
It is in this backdrop that microfinance emerged in India. The Self-Help
Group (SHG)-Bank Linkage Program (SBLP) which was launched in 1992 on a
pilot basis soon grew significantly. As per the latest estimates, SHGs enable 97
million poor households’ access to sustainable financial services from the
banking system and have an outstanding institutional credit exceeding Rs. 31,200
crore as at the end March 2011. SBLP is considered to be the fastest growing
microfinance initiative in the world. The other model of microfinance, i.e. MFI
model comprising of various entities, such as, non-banking financial companies
(NBFCs), non-governmental organisations (NGOs), trusts, cooperatives, etc. has
also been growing significantly in the recent years.
72
WHY MICROFINANCE?
“Lack of access to credit is generally seen as one of the main reasons
why many people in developing economies remain poor” (Hermes and
Lensink 2007).
Even today the discussion about what defines a microcredit is still going
on. Some definitions point to their lending mechanisms as one of its most
characteristic features, “group lending is not the only mechanism that
differentiates microfinance contracts from standard loan contracts. The programs
[...] also use dynamic incentives, regular repayment schedules, and collateral
substitutes to help maintain high repayment rates” (Morduch, 1999). Other
definitions, like the one agreed during the Microfinance Summit in 1997 put the
stress into poorness and self-employment, as microcredit’s are defined as
“programmes extend small loans to very poor people for self-employment
projects that generate income, allowing them to care for themselves and their
families” (Srinivas, 1997).
Evidently, microfinance programmes have become one of the most
important interventions in developing countries’ efforts to reduce poverty. There
has been a huge growth of MFIs in terms of numbers and size of organisations,
numbers of clients and provision of subsidised donor funding in many developing
countries. A large proportion of these organisations include poverty reduction in
their mission or objectives. Hence, there is a need to understand and improve the
impact of MFIs as a key premise to successful poverty reduction. Until recently,
however, most MFIs did not measure the impact of their work, nor did they
73
establish whether there were ways in which they could improve the impact they
had on the clients they sought to serve.
MICROFINANCE INSTITUTIONS
Microfinance has been growing rapidly with $25Bn currently at work in
microfinance loans. Microfinance is a general term to describe financial services
to low-income individuals or to those who do not have access to typical banking
services. Microfinance is a broad category of services including microcredit.
Microcredit is provision of credit services to poor clients. Although microcredit is
one of the aspects of microfinance, critics attack microcredit referring to it
indiscriminately as either 'microcredit' or 'microfinance'.
GOVERNANCE IN MFIs
Governance, as we all know, is essentially about doing business and
maximizing shareholders’ wealth legally, ethically and on a sustainable basis.
Being fair and to be seen as being fair to all the stakeholders without
discrimination or bias, is the test for good governance. Governance system
represents the value framework, the ethical framework and the moral framework
as also the legal framework under which business decisions are taken.
Governance would encompass self regulation both at the individual entity level
and at industry level through the SRO mechanism. These two would form the
first line of defence with the regulatory framework providing the backstop. In the
absence of effective self regulation, the regulatory framework becomes more
prescriptive which raises costs to regulators and supervisors in administering the
regulatory framework and also increases compliance costs to the regulated
entities. This clearly is a suboptimal solution. The considerable intellectual
74
appeal of principles based regulation which had committed proponents is a case
in point. In the wake of the subprime crisis of 2008, it has yielded considerable
ground to the proponents of rules based regulation. Let me clarify that principles
based regulations and rules based regulations are not binary choices. What
distinguish them are the less or more prescriptive regulations.
Governance is based on the basic tenets of transparency and
accountability. Transparency in decision-making provides comfort to all stake
holders and accountability which follows from transparency fixes responsibilities
for actions taken or not taken. Together they safeguard the interests of the
stakeholders in the organization.
There were serious deficiencies observed in the governance framework of
some of the MFIs. The corporate governance issues in the MFI sector were
exacerbated by some of the “for profit” MFIs, dominated and controlled by
promoter shareholders which led to inadequate internal checks and balances over
executive decision making and conflict of interests at various levels. Other
undesirable practices such as connected lending, excessively generous
compensation practices for senior management, founders/ directors and failure of
internal controls leading to frauds precipitated the crisis. Some of the MFIs
chased high growth trajectory at the expense of corporate best practices. The
listing and trading of the shares of the “for profit” MFIs generated a set of
incentives which attracted capital looking for high returns whereas the capital
suited for catering to the needs of the poor has to be patient capital. This
disconnect led to further worsening of the situation. What is more disturbing is
that there were enough warning signals of trouble in making over an extended
period of time but the MFIs, at least some of them, carried away by their
75
immediate success, failed to pay heed. These events have been narrated by Dr. Y
V Reddy, former Governor, Reserve Bank of India in an article titled
“Microfinance Industry in India: Some thoughts” in Economic and Political
Weekly (EPW) (October 8, 2011). Relating the events in Andhra Pradesh, he has
stated that Government of Andhra Pradesh always had discomfort with the
NBFC-MFIs and every effort was made by the Reserve Bank of India to
introduce a voluntary code of conduct. Resolution in this regard was thought to
have been achieved in 2007. In retrospect, Dr. Reddy says that perhaps the trust
that Reserve Bank placed in the commitment of MFIs was misplaced and, given
the track record, the Reserve Bank should have insisted on enforceable regulation
and not been content with an advisory role. Dr. Reddy’s observations lead to
another very important tenet of corporate governance i.e. the need to pay
attention to the feedback loops, particularly the negative feedback loops and to
take mid-course corrective actions. Those who fail to do so, end up paying a
heavy price.
FINDINGS
In the present study, on the basis of primary & secondary data and interactions
with the MFIs and SHG members the researcher recorded the following findings:
SHG Members findings:
Not only heads of the family but also spouses/ dependents and mainly females
were major beneficiaries of the SHGs and also the majority was educated. Both
Microfinance and Banking services were availed by majority of the respondents.
Majority of respondents irrespective of their educational status agreed that their
MFI’s provided quality service. The loans were used for the purpose they were
76
availed and their living conditions improved, majority of who did not receive a
formal training from their MFIs before availing loan and all the respondents were
supervised by the microfinance institutions for their repayment of the loans. The
measures taken for repayment of loan were satisfactory and acceptable to the
SHG members. The status of loan repayment satisfactory but there is still a need
for measures in improving the status. The majority of SHG members felt that
suitable time frame for repayment period existed, although some felt they
required more time. Further the responses revealed that a satisfactory grievance
redressal system existed in the MFIs but a considerable number of respondents
were not aware of the existence of grievance redressal system. A small amount of
lending given at a time was a major challenge faced in accessing MFIs Services
by the SHG members.
Microfinance institutional findings:
Of the 20 Microfinance institutions who responded offered savings, insurance,
loan facilities, remittances and SHG promotional activities to the customers and
unique performance indicators to measure the effectiveness of management were
present. Performance of board of directors and managers was done periodically &
appropriate measures to maintain transparency and to avoid any conflicts of
interest arising but they were not done in the same time frame in all the MFIs.
Monthly meetings were conducted in MFIs to assess their own performance and
auditing either internal or external was practiced. All the MFIs did not have an
external auditing procedure incorporated. All had a fully automated accounting
system. They took fair measures for loan repayment monitoring as reported and
provided services like consultation, grievance redressal system. The loan
repayment was only satisfactory and not to the expected levels.
77
Majority of the institutions opined that lack of business opportunity is a major
problem faced by them followed by lack of basic infrastructure.
SUGGESTIONS
On the basis of the research undertaken, the data collected through secondary and
primary data
Following suggestions are recommended.
1. MFIs are expected to render services to the rural poor. Most of the MFIs
suffer from late loan repayment problems and need to improve the
techniques or device newer methods for effective recovery.
2. Creation of opportunities of Self employment from the financial service
SHG members receive should be focused for longer financial stability of
the poor.
3. Client friendly approaches can be further implemented with emphasis on
providing more financial support and training.
4. Proper education and information to clients should be emphasized.
5. Efficient performance and increased transparency needs more effective
Governance in MFIs.
6. Governance should be effectively implemented in all the institutions. This
can be possible by properly educating the MFIs.
7. Revising existing and establishing proper regulatory mechanisms through
regulatory bodies is a necessity.
78
CONCLUSION
Microfinance institutions (MFIs) gaining importance in the rural population have
expanded their outreach resulting in a need for ensuring effective management.
Although governance strategies exist a need for added input and involvement by
the board of managements of MFIs, regulatory mechanisms through regulatory
bodies, a client friendly environment is essential to achieve the basic objectives
of Microfinance. Deposits from savers and investors, loan recovery in a
scheduled time frame need to be prioritized by MFIs. The need for responsible
behavior from the SHG members is also required.
79
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ANNEXURE
83
ANNEXURE
QUESTIONNAIRES
GOVERNANCE OF MICROFINANCE INSTITUTIONS- A STUDY WITH
SPECIAL REFERENCE TO DAKSHINA KANNADA DISTRICT
-----------------------------------------------------------------------------------------------------------
MICROFINANCE BENEFICIARY QUESTIONNAIRE
-----------------------------------------------------------------------------------------------------------
Date: - - 2014
1. General Information
a) Name of the Individual :
b) Head of family (Name) :
c) Position in the family : Head/ Spouse/ Dependant/Any Other -
Specify………
d) Address :
e) Contact Details :
f) Level of Education : Illiterate/ Literate/ Sec. Certificate/ Diploma/
Bachelor/ Masters
2. Basic Information :
S. No Name of MFI/
SHG
Year of
membership Occupation Other Information
Month Year
01.
3. Microfinance :
S. No Microfinance services/ facility Availed
if Any
Bank/ Other Loan facility Availed if
Any
(Y/ N) Details (Y/ N) Details
4. Any other Information :
84
5. Are you consulted to make your MFI’s policy directions responsive to your
needs?
YES / NO – Details:
6. Are loans used for intended purpose?
Always / Not always – Details:
7. Have living conditions improved due to the credit scheme
YES / NO – Details:
8. Whether you received any training before receiving loan
YES / NO – Details:
9. Whether there is supervision on loan utilization
YES / NO – Details:
10. Whether there is supervision on loan repayment
YES / NO – Details:
11. What are the measures for you to repay loan in time
a) Claim against personal wealth YES / NO
b) Claim against guarantors YES / NO
c) Social sanction (loss of status) YES / NO
d) Fear of Losing Future loans YES / NO
12. What is the status of the loans?
a) Fully repaid YES / NO
b) Repayment on schedule YES / NO
c) Repayment in arrears YES / NO
13. Is Repayment period suitable
YES / NO – Details:
14. Does your MFI have a grievance Redressal System
YES / NO – Details:
85
15. Awareness on grievance Redressal System Mechanism
Awareness Aware Neutral Unaware Total
Are you aware that you can submit a
complaint mentioning about your
grievances if any, with regard to
services on MFIs
Dou you know to whom to submit
your complaint
16. Satisfaction towards MFIs Grievance Redressal System
a) Highly satisfied b) Satisfied c) Neutral d) Dissatisfied e) Highly
dissatisfied
17. Challenges faced in accessing MFIs Services (Rank the items)
Challenges Rank
Lack of security
Few MFIs
High Interest Rate
Short repayment period
Getting trust worthy group members
Strict/inflexible terms
Weekly repayment-hard to raise money on a weekly basis
Small amounts given at a time
Long procedure
Lack of investment opportunities
Too much paper work
Initial expenses too high yet not catered for during loan repayment
Money is deducted yet interest has to be paid
18. What do you think about the Best Practices of your group - Explain Briefly
Any other Information :
86
GOVERNANCE OF MICROFINANCE INSTITUTIONS- A STUDY WITH
SPECIAL REFERENCE TO DAKSHINA KANNADA DISTRICT
-----------------------------------------------------------------------------------------------------------
MICROFINANCE INSTITUTIONAL QUESTIONNAIRE
-----------------------------------------------------------------------------------------------------------
Date: - - 2014
1. General Information
a) Name of the Respondent:
b) Present Designation:
c) Name of the Organization:
d) Address:
e) Telephone(area code) __________ (Office)_________________
(Cell)___________________
f) E-mail Address : ________________________
g) Website : __________________
h) Year of establishment : ___________________
Any other Information :
87
2. Nature of Services offered by your institution
a) Savings Yes No
b) Insurance Yes No
3. Whether the institution has performance indicators to measure the effectiveness of
management –
YES / NO – Details:
4. Whether the institution regularly assesses and evaluates the performance of board of
directors and manager?
YES / NO – Details:
Frequency of assessing performance
a) Weekly b) Monthly c) Quarterly d) Half yearly e)
Annually
5. Whether measures are taken by the institution to maintain transparency and avoid
conflicts of interest
YES / NO – Details:
Frequency of measures taken
a) Rarely b) Often c) Very often d) Whenever required
6. Whether the board assesses its own performance
YES / NO – Details:
Frequency of measures taken
a) Monthly b) Quarterly c) Half yearly d) Annually
7. How frequently the meetings are conducted in the institution
a) Weekly
b) Bimonthly
c) Monthly
d) Quarterly
e) Half- Yearly
88
8. Who are the parties involved in decision making process (Tick the appropriate)
a) Board of Trustees
b) Board of Directors
c) Managers
d) Any Other (Specify)
9. Problems faced in reaching targets(Rank the items)
Problems faced Rank
Security Reasons
Travel time to clients
Lack of business opportunities
Lack of basic infrastructure
Inadequate information about clients
Lack of trained personnel
Inadequate financial resources
10. Which of the following practices does your institution follow in relation to audits?
a) Employs services of an external auditor YES/ NO
b) Internal audit system is practiced YES/ NO
c) Full time staff in charge of Internal audit YES/ NO
11. Whether the Accounting System is Automated (Tick the appropriate- Give Details)
a) Fully Automated
b) Partially
c) Manual
d) Any other (Specify)
12. Do you consult clients to make your MFI’s policy directions responsive to their
needs?
YES / NO – Details
13. Are loans used for intended purpose?
YES / NO – Details:
14. Whether the living conditions improved due to the credit scheme
YES/ NO – Details:
89
15. Whether the respondents received any training before receiving loan
YES/ NO – Details:
16. Whether there is supervision on loan utilization
YES/ NO – Details:
17. Whether there is supervision on loan repayment
YES/ NO – Details:
18. What are the measures for borrowers to repay loan on time
a) Claim against personal wealth YES/ NO
b) Claim against guarantors YES/ NO
c) Social sanction (loss of status) YES/ NO
d) Fear of Losing Future loans YES/ NO
e) No reasons YES/ NO
19. What is the Minimum & Maximum Penalty rate for single term Default
YES/ NO – Details:
20. Percentage of loan repayment
d) Less than 30
e) 30-60
f) More than 60
21. Do you have a Grievance Redressal System
YES/ NO – Details:
22. Technique Used for Grievance Redressal System
a) Feedback Yes No
b) Written Complaint Yes No
c) Suggestion Box Yes No
d) Resolution Monitoring System Yes No
23. What are the Best Practices of your institution with respect to governance- Explain
Briefly
24. Any other information