potential of micro finance of j&k

Potential of micro finance of j&k( A COMPARATIVE STUDY )

Summer TrainingProject Report

On

Potential of micro finance of j&k

Submitted toSt.Soldier Management & Technical Institute Jalandhar

In Partial Fulfillment of the RequirementsFor the Degree of

Master of Business AdministrationJune – August 2009

Submitted by BILAL AHMAD

ST.SOLDIER MANAGEMENT & TECHNICAL INSTITUTE

JALANDHAR

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ACKNOWLEDGEMENT

I would like to acknowledge the invaluable

assistance extended by Mr.Reyaz Ahmad Mir,

Cluster II head Distt.BARAMULLA Who gave me

his kind permission to successfully complete the

project in his organization. I would like to pay

my heart full gratitude to Mr. Mohd Aslam and

Mr. Javid Ahmad Of Human Resource

Department of J&K Bank who provided me their

timely guidance to me at every step and also

provided to me all relevant and essential data

regarding my project report .I also feel a sense

of indebtedness to my reverent teacher MRS

PALKI SHARMA. who encouraged ,motivated and

guided to complete my project report .

Finally, I would also like to thank my parents

and friends who inspired me and encouraged

me to complete my project at J&K Bank in time.

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Bilal Ahmad

Table of Contents:I. EXECUTIVE SUMMARY……………………………………………………………………………….3

II.ACKNOWLEDGEMENT………………………………………………………………………………..6

III.ABSTRACT……………………………………………………………………………………………...7

IV.COMPANY PROFILE………………………………………………………………………………….8

V.INTRODUCTION.......................................................................................................................................10

V. MICROCREDIT …..……………………………………………………………………………………..11

VI.MICROFINANCE AND POVERTY ELLEVATION…………………………………………………12

VI.1.REQUIREMENT OF MICROFINANCE……………………………………………………12

VII.HOW DOES MICROFINANCE HELP POOR……………………………………………………..13

VIII. MICROFINANCE

INSTITUTIONS…………………………………………………………………..15

IX.GLOBAL SCENERIO OF

MICROFINANCE………………………………………………………….17

X.MICROFINANCE NETWORK

…………………………………………………………………………...19

X.I. KEY RESULTS OF MICROFINANCE……………………………………………………….23

XI.MICROFINANCE IN INDIA……………………………………………………………………………24

XI.1.PRESENT SCENARIO………………………………………………………………………….25

XI.2. POVERTY ELEVATION AND CONCEPTUALISATION…………………………………26

XII. MICROFINANCE IN JAMMU AND KASHMIR……………………………………………….…36

XII.1 OCCUPATIONAL PROFILE……………………………………………………………………

36

AN OVERVIEW OF CURRENT SCENARIO IN J & K………………………………………………..

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SUGESSTIONS………………………………………………………………………………………………59

CONLUSION………………………………………………………………………………………………….6

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BIBLOGRAPHY

Executive Summary

Indian banking system, which is among the largest banking networks in the world, did not reach most of the rural poor in India. About 70% of the Indian population from rural areas accounted for only 30% of bank deposits. The banks did not meet the credit requirements of the poor and they were forced to fall back on moneylenders for credit. Though the banks were nationalized, they perceived rural credit to be a high risk and high cost proposition. The rural borrowers were bogged down by elaborate procedures that were required to obtain loans.

The central bank in India, RBI, on its part, tried to cater to the needs of the rural poor by establishing regional rural banks and cooperative banks, but did not meet with success. In the early 1990s, to provide credit and savings services to the poor, microfinance was envisaged. It received further boost with involvement of several non-governmental organizations and microfinance institutions.

These efforts led to formation of Self Help Groups (SHGs), where poor from homogenous background formed into groups of around 20 each and pooled money that was lent to the needy in the group. By the mid 1990s, several mainstream banks began providing credit and savings facilities to SHGs that built credible financial discipline. The program was called SHG – Bank linkage program. Over the time, the banks provided other facilities like housing loans and micro insurance services to the poor.

There were for profit MFIs, mutual benefit MFIs and not for profit MFIs that participated actively in spreading microfinance initiatives across India. By 2004, there were around 1,000 MFIs in the country. Realizing underlying potential of microfinance, several commercial banks entered into partnership with MFIs. Both banks and MFIs stood to benefit from this association as banks could reach the interior part of the country and MFIs could access more funds and thus reach more people.

With the huge potential and low NPAs, several private and foreign banks, unveiled their plans to enter the Indian microfinance sector. The government and the RBI announced

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several measures to boost microfinance activities in the country. RBI allowed the NGOs involved in microfinance activities to raise External Commercial Borrowings upto US$ 5 million a year. With increase in competition and availability of funds, the Indian microfinance sector could be the ultimate beneficiary.

Still there are several poor, who were not under the purview of microfinance, the number of SHGs and microfinance programs did not have any major impact on poverty alleviation in the country. Only in some of the well-developed states in the country, SHGs and microfinance gained popularity. Lot of groundwork was required to spread microfinance activities in North and North East regions of the country.

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Objectives of the Research:

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

2. To find out existing Structure of Microfinance in World and in India

3. . To understand Policies adopted by different bank

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

Jammu & Kashmir

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

Source of Information:

Primary Source: Through Structured questions. Face to face interview.

Secondary Source: Records maintained by Bank. Websites.

Times of India.

Research Methodology: The study pertains to detailed understanding of concept of Microfinance, its need, Supply and regulatory methods adopted by various agencies. An exploratory research design was adopted to conducted research, method of selecting sample was convenience sampling. Field survey was carried out to collect the necessary data.

Data Used: Both Primary and Secondary Data were used. Websites, Departmental visits, newspapers, Survey magazines, Statistical digest etc were used to collect data.

Data Collection: Though most of the respondents were illiterate so Face to face interview was the main source of collecting data. Respondents were interviewed in a structured format.

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A Brief History of Banking

In the recent era, the story of "the Banks" commences with the development of the modern

banking system in Middle Ages Europe. At that time, disposable wealth was usually held in

the form of gold or silver bullion. For safety, such assets were kept in the custody of the

local goldsmith, he usually being the only individual who had a vault on his premises. The

goldsmith would issue a receipt for the deposit and, to undertake financial transactions, the

buyer would withdraw his gold and give it to the seller, who would then deposit it again,

frequently with the same goldsmith. As this was a time-consuming process, it became

common practice for people to simply exchange smiths' receipts when conducting financial

transactions.

As time passed, the goldsmiths began to issue receipts for specific values of gold, making

buying and selling easier still. The smiths' receipts thus became the first banknotes. The

goldsmiths, now fledgling bankers, noticed that at any one time only a small proportion of

the gold held with them was being withdrawn. So they hit upon the idea of issuing more of

the receipt notes themselves, notes that did not refer to any actual deposited wealth. By

giving these receipts to people seeking capital, in the form of loans, the goldsmiths could

use the money deposited with them by others to make money for themselves. It was found

that, for every unit of gold held by the goldsmith, ten times the sum could be safely issued

as notes without anyone usually becoming any the wiser. If a goldsmith held, say, 100

pounds of other people's gold in his vaults, he could issue banknotes to the value of 1000

pounds. As long as no more than 10 percent of the holders of those notes wanted their gold

at any one time, no one would realize the fraud being perpetrated. This practice, known as

"fractional reserve lending," continues to this day and is actually the backbone of the

modern banking industry. Banks typically loan ten times their actual financial holdings,

meaning 90% of the money they lend does not now, never has, and never will exist.

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Loans issued by the goldsmiths had to be paid back to them with interest, meaning non-

existent money slowly became converted to tangible assets in the form of goods and labor.

Should the loan be defaulted upon, the banker had the right to seize the defaulter's property.

As time passed, therefore, the goldsmiths became wealthier and wealthier. They had

devised a scheme to create money out of thin air and then convert this money into real

goods, labor, or property. A loan of money at 12% interest recouped not merely 12% for

the banker, but 112%, as it does to this day.

As the industrial era began, so the potential for furthering this scheme increased

exponentially. The goldsmiths were now fully-fledged bankers, and their ability to create

money out of thin air and then convert it into tangible assets enabled them to begin to

control whole industries to the point where the worlds of banking and industry became, to

all intents and purposes, seamless entities.

As the twentieth century dawned, the banking families hit upon a new means to

consolidate and increase their gains. They discovered that by periodically restricting the

money supply crashes within the emergent stock exchanges of the world could easily be

engineered. The most notable example of this was the famous Wall Street Crash of 1929.

What the history books usually fail to record is that, in a crash, wealth is not actually

destroyed, but merely transferred. The "Crash of '29" allowed the most powerful of the

banking and industrial families to absorb the weaker elements, generating even greater

levels of centralized control.

As the technological revolution progressed, so the buying up of TV stations and

newspapers allowed the creation and control of the mass media. This served to ensure that

only a portrayal of events that suited the interests of the elite banking families would get to

public attention - invariably one that all but denied their very existence.

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INTRODUCTION ABOUT BANK

In modern age, Banking constitutes the fundamental basis of economic growth. The term

bank is being used since long time but there is no clear conception regarding its beginning.

According to one viewpoint, in good old days, Italian moneylenders were known as Bane

chi or Banacheri, because these people kept special type of table to transact their business,

called Ban chi. Origin of the word bank belongs to the word Banchi or to the Greek word

Banque. Both these words refer to some kind of banking. According to another viewpoint,

bank originated from the German word (ital) Banque meaning Joint Fund.

Casa De SanGiorgio was the first bank to be established in 1148.

The First Public bank of Veanice. It was established in 1157.

As per Banking Regulation Act. 1949, “Banking” means:

“Accepting for the purpose of lending or investment of deposit of money from the public,

repayable on demand or otherwise and withdraw able by cheque, draft, order or

otherwise”

In simple words, bank refers to an institution that deals in money. This institution

accepts deposits from the people and gives loans to those who are in need. Besides dealing

in money, banks these days perform various other functions such as credit creation, agency

job and general service.

Bank, therefore, is such an institution, which accepts deposits from the people,

gives loans, creates credit and undertakes agency work.

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“Since the concept was born in Bangladesh almost three decades ago, microfinance has proved its value, in many countries, as a weapon against poverty and hunger. It really can change people’s lives for the better, especially the lives of those who need it most.”

Kofi A. Anan, the UN Secretary GeneralAbstract

More than subsidies poor need access to credit. Absence of formal employment make them non `bankable'. This forces them to borrow from local moneylenders at exhorbitant interest rates. Many innovative institutional mechanisms have been developed across the world to enhance credit to poor even in the absence of formal mortgage. By giving the world’s poor a hand up, not hand out, microfinance can help break the cycle of poverty in as little as a single generation. This project is based on detailed study of Microfinance, its various sources and its implementation. It has been evidenced worldwide that microfinance helps the poor to overcome poverty, and not through charity. It is a financial system that serves the poor with financial services in a most effective and productive wayKey Learnings: Potential unbanked customers in the bottom of the pyramid in India are estimated to range from 6-7 crore, with the propensity to consume credit worth Rs 40,000 crore As banks have so far managed to disburse only around Rs 3000 crore in the segment, the race is picking up momentum

On one side, Indian banks are financing large acquisition deals of large corporates. Simultaneously, they are trying to exploit the opportunity available among the millions of Indians at the bottom of the pyramid (BOP), who are not covered by formal banking system at present.

Nachiket Mor of ICICI Bank comments, “The financially excluded are a big opportunity

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HISTORY OF BANKING IN INDIA

Without a sound and effective banking system in India, it cannot have a healthy economy.

The banking system of India should not only be hassle free but it should be able to meet

new challenges posed by the technology and any other external and internal factors.

For the past three decades, India's banking system has had several outstanding

achievements to its credit. The most striking is its extensive reach. It is no longer confined

to only metropolitan or cosmopolitan areas in India. In fact, Indian banking system has

reached even to the remote corners of the country. This is one of the main reasons of India's

growth process.

The government's regular policy for Indian bank since 1969 has paid rich dividends

with the nationalization of 14 major private banks of India. Not long ago, an account holder

had to wait for hours at the bank counters for getting a draft or for withdrawing his own

money. Today, he has a choice. Gone are days when the most efficient bank transferred

money from one branch to other in two days. Now it is as simple as instant messaging or

dialing for a pizza. Money has become the order of the day.

The first bank in India, though conservative, was established in 1786. From 1786 till

today, the journey of Indian Banking System can be segregated into three distinct phases.

They are as mentioned below:

Phase 1:-Early phase from 1786 to 1969 of Indian Banks

Phase 2:-Nationalization of Indian Banks and up to 1991 prior to Indian banking

sector Reforms.

Phase 3:-New phase of Indian Banking System with the advent of Indian Financial

& Banking Sector Reforms after 1991.

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Phase I

The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and

Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of

Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency

Banks. These three banks were amalgamated in 1920 and Imperial Bank of India was

established which started as private shareholders banks, mostly Europeans shareholders.

In 1865, Allahabad Bank was established and first time exclusively by Indian, Punjab

National Bank Ltd. was set up in 1894 with headquarters at Lahore. Between 1906 and

1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank,

and Bank of Mysore were set up. Reserve Bank of India came in 1935.

During the first phase, the growth was very slow and banks also experienced periodic

failures between 1913 and 1948. There were approximately 1100 banks, mostly small. To

streamline the functioning and activities of commercial banks, the Government of India

came up with The Banking Companies Act, 1949 which was later changed to Banking

Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965). Reserve Bank of

India was vested with extensive powers for the supervision of banking in India as the

Central Banking Authority.

During those days public had lesser confidence in the banks. As a result deposit

mobilization was slow. However, the savings bank facility provided by the Postal

department was comparatively safer. Moreover, funds were largely given to traders.

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Phase II

Government took major steps in Indian Banking Sector Reform after independence. In the

1960’s a major portion of nationalization was carried out with nationalization of seven

banks forming subsidiaries of State Bank of India on 19th July 1960. It was the effort of the

then Prime Minister of India, Mrs. Indira Gandhi. Fourteen major commercial banks in the

country were nationalized.

Second phase of nationalization under Indian Banking Sector Reform was carried out in

1980’s with seven more banks. This step brought 80% of the banking segment in India

under Government ownership.

The following are the steps taken by the Government of India to Regulate Banking

Institutions in the Country:

1949: Enactment of Banking Regulation Act.

1955: Nationalization of State Bank of India.

1960: Nationalization of SBI subsidiaries.

1961: Insurance cover extended to deposits.

1969: Nationalization of 14 major banks.

1971: Creation of Credit Guarantee Corporation.

1975: Creation of regional rural banks.

1980: Nationalization of seven banks with deposits over 200 crore.

After the nationalization of banks, the branches of the public sector banks in India

experienced a rise of approximately 800% in deposits and advances took a huge jump by

11,000%.

Banking in the sunshine of Government ownership gave the public implicit faith and

immense confidence about the sustainability of these institutions.

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Phase IIIThis phase is characterized by introduction of many more products and facilities in the

banking sector due to various reform measures. In 1991, under the chairmanship of M

Narasimham, a committee of the same name was set up. Which worked for the

liberalization of banking practices?

The country was flooded with foreign banks and their ATM’s proliferation. Efforts were

started to give a satisfactory service to customers. Phone banking and net banking were

introduced. The entire system became more convenient and swift.

The financial system of India has shown a great deal of resilience. It is sheltered from any

crisis triggered by any external macroeconomics shock as other East Asian Countries

suffered. This is all due to a flexible exchange rate regime, the foreign reserves are high,

the capital account is not yet fully convertible, and banks and their customers have limited

foreign exchange exposure.

COMPOSITION OF THE BANKING SYSTEM IN INDIA AS AT THE BEGINNING OF NEW MILLENIUM

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

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

following categories:

PUBLIC SECTOR BANKS

o Reserve Bank of India

o State Bank of India and its 7 associate Banks

o Nationalized Banks (20 in number)

o Regional Rural Banks sponsored by Public sector Banks

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PRIVATE SECTOR BANKS

o Old Generation Private Banks o New Generation Private Banks

o Foreign Banks in India

o Local Area Banks

o Non Scheduled Banks

CO-OPERATIVE SECTOR BANKS

o State Co-operative Banks o Central Co-operative Banks

o Primary Agriculture Credit Societies

o Land Development Banks

o Urban Co-operative Banks

o State Land Development Banks

o Scheduled Co-operative Banks

DEVELOPMENT BANKS

o Industrial Finance Corporation of India (IFCI) o Industrial Development Bank of India (IDBI)

o Industrial Credit & Investment Corporation of India (ICICI)

o Industrial Investment Bank of India (IIBI)

o Small Industries Development Bank of India (SIDBI)

o National Bank for Agriculture & Rural Development (NABARD)

o Export-Import Bank of India

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Company Profile:

The Jammu and Kashmir Bank Limited

Founded 1938Headquarters IndiaNo. of locations 500 branches/officesIndustry Financial, Commercial BanksRevenue 20,595,000,000 (2007)Employees 6833Website http://www.jkbank.net/

Jammu & Kashmir Bank was founded on October 1,1938 and it commenced business from July 4, 1939. The Jammu & Kashmir Bank Limited has been the first of its nature and composition as a State owned bank in the country. The Bank was established as a semi State Bank with participation in capital by State and the public under the control of State Government. The Bank opened its first branch at Residency Road, Srinagar

The Jammu & Kashmir Bank is today one of the fastest growing banks in India with a network of more than 500 branches/offices spread across the country offering world class banking products/services to its customers. Today, the Bank has a status of value driven organization and is always working towards building trust with shareholders, customers, borrowers, regulators, employees and other diverse stakeholders, for which it has adopted a strategy directed to developing a sound foundation of relationship and trust aimed at achieving excellence, which of course, comes from the womb of good corporate governance. Good governance is a source of competitive advantage and a critical input for achieving excellence in all pursuits. J&K Bank considers good corporate governance as the

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http://www.jkbank.net/

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

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

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

http://en.wikipedia.org/w/index.php?title=Commercial_Banks&action=edit&redlink=1

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

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

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


sine qua non of a good banking system and has adopted a policy based on all the four pillars of good governance– transparency, disclosures, accountability and value.

The bank expanded its areas of operation and widened its credit base by financing schemes like integrated Rural Development Programmes (IRDP), SEED, PMRY, NRY and other self employment programmes sponsored by State and Central Governments. In 1976, the Jammu & Kashmir Bank became the first and only bank, which was permitted by the Reserve Bank of India to sponsor two regional banks, namely, Kamraz Rural Bank and Jammu Rural Bank.

Introduction:

“I made a list of people who needed just a little bit of money. And when the list was

complete, there were 42 names. The total amount of money they needed was $27. I was

shocked.”

— Muhammad Yunus, economist and founder of the Grameen Bank (on how microfinance

began).Microfinance refers to the provision of financial services to low-income clients, including the self-employed. The term also refers to the practice of sustainably delivering those services.More broadly, it refers to a movement that envisions “a world in which as many poor and

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

quality financial services, including not just credit but also savings, insurance, and fund

transfers.

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

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

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

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

Micro financial services are needed everywhere, including the developed world. However,

in developed economies intense competition within the financial sector, combined with a

diverse mix of different types of financial institutions with different missions, ensures that

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

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


most people have access to some financial services. Efforts to transfer microfinance

innovations such as solidarity lending from developing countries to developed ones have

met with little success. Microfinance can also be distinguished from charity. It is better to

provide grants to families who are destitute, or so poor they are unlikely to be able to

generate the cash flow required to repay a loan. This situation can occur for example, in

war zone or after a natural disaster.

There are various sources by which microfinance outreaches the final customer.

The flow of Microfinance can be shown as follows:

Origin of Microfinance:

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

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

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

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

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

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

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

Grameen Bank (which now serves over 7 million poor Bangladeshi women) has inspired

the world, it has proved difficult to replicate this success in practice. In nations with lower

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

customers has proven considerably more challenging. Microcredit came to prominence in

the 1980s, although subsidized credit programs to targeted communities date back to the

1950s and early experiments in Bangladesh, Brazil and a few other countries began in the

1970s. The important difference of microcredit was that it avoided the pitfalls of an earlier

generation of targeted development lending, by insisting on repayment, by charging interest

rates that could cover the costs of credit delivery and by focusing on client groups whose

alternative source of credit was the informal sector.

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

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

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

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

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

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

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

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

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


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

More than 2,900 delegates from 137 countries attended the Summit, held in Washington,

D.C., and launched a nine-year campaign to reach 100 million of the world’s poorest

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

financial and business services by the end of 2005.

Microcredit System:The four pillars of microfinance credit system (Fig. 1) are supply, demand for finance, intermediation and regulation. Whatever may the model of the intermediary institution, the end situation is accessibility of finance to poor. The following tables indicate the existing and desired situation for each component.

DEMAND

Existing Situation Desired Situation

fragmented

Undifferentiated

Addicted, corrupted by capital

Organized

Differentiated (for consumption,

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& subsidies

Communities not aware of rights and responsibilities

housing)

Deaddicted from capital & subsidies

Aware of rights and responsibilities

SUPPLY


Grant based (Foreign/GOI)

Directed Credit - unwilling and corrupt

Not linked with mainstream

Mainly focussed for credit

Dominated

Regular fund sources (borrowings/deposits)

Demand responsive

Part of mainstream (banks/FIs)

Add savings and insurance

Reduce dominance of informal, unregulated suppliers

INTERMEDIATION


Non specialized

Not oriented to financial analysis

Non profit capital

Not linked to mainstream FIs

Not organized

Specialized in financial services

Thorough in financial analysis

For profit

Link up to FIs

Self regulating

REGULATION


Focussed on formal service providers (informal not regulated)

regulating the wrong things e.g. interest rates

Multiple and conflicting (FCRA, RBI, IT, ROC, MOF/FIPB,

include/informal recognise e.g. SHGs

Regulate rules of game

Coherence and

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ROS/Commerce)

Negatively oriented

coordination across regulators

Enabling environment

Rapid growth of microcredit worldwide

The number of microcredit borrowers worldwide is expanding rapidly. In 2004, more than 66 million of the world's poorest people, 83% of them women, received small loans to start or expand small businesses. If all microcredit borrowers are included, not just those categorized as "poorest", the total is over 92 million. This is a huge increase from the estimated 7.6 million borrowers worldwide before the Microcredit Summit campaign began in 1997.

Micro-finance and Poverty Alleviation

Most poor people manage to mobilize resources to develop their enterprises and their dwellings slowly over time. Financial services could enable the poor to leverage their initiative, accelerating the process of building incomes, assets and economic security. However, conventional finance institutions seldom lend down-market to serve the needs of low-income families and women-headed households. They are very often denied access to credit for any purpose, making the discussion of the level of interest rate and other terms of finance irrelevant. Therefore the fundamental problem is not so much of unaffordable terms of loan as the lack of access to credit itself.

Requirement of Microfinance:

The lack of access to credit for the poor is attributable to practical difficulties arising from the discrepancy between the mode of operation followed by financial institutions and the economic characteristics and financing needs of low-income households. For example, commercial lending institutions require that borrowers have a stable source of income out of which principal and interest can be paid back according to the agreed terms. However, the income of many self employed households is not stable, regardless of its size. A large number of small loans are needed to serve the poor, but lenders prefer dealing with large loans in small numbers to minimize administration costs. They also look for collateral with a clear title - which many low-income households do not have. In addition bankers tend to consider low income households a bad risk imposing exceedingly high information monitoring costs on operation. Emphasis shifted from rapid disbursement of subsidized loans to prop up targeted sectors towards the building up of local, sustainable institutions to serve the poor. Microcredit has

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largely been a private (non-profit) sector initiative that avoided becoming overtly political, and as a consequence, has outperformed virtually all other forms of development lending. Indeed, since the 1980s, microfinance programs have improved upon original methodologies and extended beyond conventional thinking. First, microfinance demonstrated that poor people, and especially women, had excellent repayment rates (and often, rates that performed better than those in formal financial sectors). And second, that the poor were willing and able to pay interest rates that would allow the microfinance institutions (MFIs) to cover costs.

Traditionally microfinance was focused on providing a very standardized credit product. The poor, just like anyone else, need a diverse range of financial instruments to be able to build assets, stabilize consumption and protect themselves against risks. Indeed, in many developing countries, self-employment through microenterprise is often the only way to provide for families and the local environment. Thus, we see a broadening of the concept of microfinance---our current challenge is to find efficient and reliable ways of providing a richer menu of microfinance products.

The clients of microfinance:

The typical microfinance clients are low-income persons that do not have access to formal financial institutions. Their "microenterprises" represent an estimated 80% of the total enterprises in the world, 50% of urban enterprises and 20% of the GNP of their countries. Microfinance clients are typically self-employed, often household-based entrepreneurs. In rural areas, they are usually small farmers and others who are engaged in small income-generating activities such as food processing and petty trade. In urban areas, microfinance activities are more diverse and include shopkeepers, service providers, artisans, street vendors, etc. Microfinance clients are poor and vulnerable non-poor who have a relatively stable source of income. Access to conventional formal financial institutions, for many reasons, is inversely related to income: the poorer you are, the less likely that you have access. The poor often obtain financial services from informal financial relationships - credit can be available from commercial and non-commercial lenders, but often at very high interest rates; saving services can be available through savings clubs, credit associations and the like. As a result, the chances are that, the poorer you are, the more expensive or onerous informal financial arrangements. Moreover, informal arrangements may not suitably meet certain financial service needs or may exclude you anyway. Individuals in this excluded and under-served market segment are the clients of microfinance.

Microfinance generally targets poor women because they have proven to be reliable credit risks and when they have the financial means, they invest that money back into their families, resulting in better health and education, and stronger local economies. By providing access to financial services - loans and responsibility for repayment, maintaining savings accounts, providing insurance - microfinance programs send a strong message to households and communities. Studies have shown that women become more assertive and

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confident, have increased mobility, are more visible in their communities and play stronger roles in decision making.

How does microfinance help the poor ?

Microfinance brings the power of credit to the grassroots by way of loans to the poor, without requirement of collateral or previous credit record. Experience shows that microfinance can help the poor to increase income, build viable businesses, and reduce their vulnerability to external shocks. It can also be a powerful instrument for self-empowerment by enabling the poor, especially women, to become economic agents of change.

Poverty is multi-dimensional, and by providing access to financial services, microfinance plays an important role in the fight against the many aspects of poverty. Access to credit allows poor people to take advantage of economic opportunities - for their homes, their domestic environments and their communities. For instance, income generation from a business helps not only the business activity expand but also contributes to household income and its attendant benefits on food security, children's education, etc. Moreover, for women who, in many contexts, are secluded from public space, transacting with formal institutions can also build confidence and empowerment.Recent research has revealed the extent to which individuals around the poverty line are vulnerable to shocks such as illness of a wage earner, weather, theft, or other such events. These shocks produce a huge claim on the limited financial resources of the family unit, and, absent effective financial services, can drive a family so much deeper into poverty that it can take years to recover.

Microfinance services are provided by three types of sources:

Formal institutions Semi-formal institutions such as NGOs Informal sources such as money lenders and shopkeepers

Institutional microfinance includes microfinance services provided by both formal and semiformal institutions.Microfinance institutions (MFIs) are institutions whose major business is the provision of microfinance services.

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What is an MFI (Microfinance Institution)?

Quite simply, a microfinance institution is an organization that offers financial services to the very poor. Most MFIs are non-governmental organizations committed to assisting some sector of the low income population.

It is important to note that MFIs are not the only entities serving the financial needs of micro entrepreneurs. Commercial banks, cooperatives and savings institutions all have important roles to play in serving this market.Over the last ten years, however, successful experiences in providing finance to small entrepreneur and producers demonstrate that poor people, when given access to responsive and timely financial services at market rates, repay their loans and use the proceeds to

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increase their income and assets. This is not surprising since the only realistic alternative for them is to borrow from informal market at an interest much higher than market rates. Community banks, NGOs and grassroot savings and credit groups around the world have shown that these microenterprise loans can be profitable for borrowers and for the lenders, making microfinance one of the most effective poverty reducing strategies.

To be successful, financial intermediaries that provide services and generate domestic resources must have the capacity to meet high performance standards. They must achieve excellent repayments and provide access to clients. And they must build toward operating and financial self-sufficiency and expanding client reach. In order to do so, microfinance institutions need to find ways to cut down on their administrative costs and also to broaden their resource base. Cost reductions can be achieved through simplified and decentralized loan application, approval and collection processes, for instance, through group loans which give borrowers responsibilities for much of the loan application process, allow the loan officers to handle many more clients and hence reduce costs (Otero et al. 1994).

Microfinance institutions can broaden their resource base by mobilizing savings, accessing capital markets, loan funds and effective institutional development support. A logical way to tap capital market is securitization through a corporation that purchases loans made by microenterprise institutions with the funds raised through the bonds issuance on the capital market. There is atleast one pilot attempt to securitize microfinance portfolio along these lines in Ecuador. As an alternative, BancoSol of Bolivia issued a certificate of deposit which is traded in Bolivian stock exchange. In 1994, it also issued certificates of deposit in the U.S. (Churchill 1996). The Foundation for Cooperation and Development of Paraguay issued bonds to raise capital for microenterprise lending (Grameen Trust 1995). Savings facilities make large scale lending operations possible. On the other hand, studies also show that the poor operating in the informal sector do save, although not in financial assets, and hence value access to client-friendly savings service at least as much access to credit. Savings mobilization also makes financial institutions accountable to local shareholders. Therefore, adequate savings facilities both serve the demand for financial services by the customers and fulfill an important requirement of financial sustainability to the lenders. Microfinance institutions can either provide savings services directly through deposit taking or make arrangements with other financial institutions to provide savings facilities to tap small savings in a flexible manner (Barry 1995).

Convenience of location, positive real rate of return, liquidity, and security of savings are essential ingredients of successful savings mobilization (Christen et al. 1994). Governments should provide an enabling legal and regulatory framework which encourages the development of a range of institutions and allows them to operate as recognized financial intermediaries subject to simple supervisory and reporting requirements. Usury laws should be repelled or relaxed and microfinance institutions should be given freedom of setting interest rates and fees in order to cover operating and finance costs from interest revenues within a reasonable amount of time. Government could also facilitate the process of transition to a sustainable level of operation by providing support to the lending institutions in their early stage of development through credit enhancement mechanisms or subsidies.

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One way of expanding the successful operation of microfinance institutions in the informal sector is through strengthened linkages with their formal sector counterparts. A mutually beneficial partnership should be based on comparative strengths of each sectors. Informal sector microfinance institutions have comparative advantage in terms of small transaction costs achieved through adaptability and flexibility of operations (Ghate et al. 1992). They are better equipped to deal with credit assessment of the urban poor and hence to absorb the transaction costs associated with loan processing. On the other hand, formal sector institutions have access to broader resource-base and high leverage through deposit mobilization (Christen et al. 1994).

Therefore, formal sector finance institutions could form a joint venture with informal sector institutions in which the former provide funds in the form of equity and the later extends savings and loan facilities to the urban poor. Another form of partnership can involve the formal sector institutions refinancing loans made by the informal sector lenders. Under these settings, the informal sector institutions are able to tap additional resources as well as having an incentive to exercise greater financial discipline in their management. Microfinance institutions could also serve as intermediaries between borrowers and the formal financial sector and on-lend funds backed by a public sector guarantee (Phelps 1995). Business-like NGOs can offer commercial banks ways of funding micro entrepreneurs at low cost and risk, for example, through leveraged bank-NGO-client credit lines. Under this arrangement, banks make one bulk loan to NGOs and the NGOs packages it into large number of small loans at market rates and recover them (Women's World Banking 1994). There are many on-going researches on this line but context specific research is needed to identify the most appropriate model. With this in mind we discuss various possible alternatives of formal-informal sector linkages in India.

While a census of NGOs in micro-finance is yet to be carried out, there are perhaps 250-300 NGOs, each with 50-100 Self Help Groups (SHG). Few of them, not more than 20-30 NGOs have started forming SHG Federations. There are also agencies which provide bulk funds to the system through NGOs. Thus organisations engaged in micro finance activities in India may be categorised as Wholesalers, NGOs supporting SHG Federations and NGOs directly retailing credit borrowers or groups of borrower.

The Wholesalers will include agencies like NABARD, Rashtriya Mahila Kosh-New Delhi and the Friends of Women's World Banking in Ahmedabad. Few of the NGOs supporting SHG Federations include MYRADA in Bangalore, SEWA in Ahmedabad, PRADAN in Tamilnadu and Bihar, ADITHI in Patna, SPARC in Mumbai, ASSEFA in Madras etc. While few of the NGOs directly retailing credit to Borrowers are SHARE in Hyderabad, ASA in Trichy, RDO Loyalam Bank in Manipur

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Microfinance Outreach -Global Scenario :

The microfinance sector has grown over time with more and different types of actors becoming involved, with increasing numbers of geographic regions around the world being serviced, with new types of products and services being developed, and with new ideas and technologies to support it.The global picture regarding microfinance outreach is quite impressive. From a mere 7.6 million poorest families in 1997, the Microcredit Summit Campaign reported an outreach of more than 92 million clients by December 31, 2004. This number includes 66.6 million families who wereamong the poorest when they started with a program. Of these 66.6 million poorest clients, 55.7 million or 83.6 percent were served by the 52 largest individual institutions, all with 100,000 or more clients. The number of microcredit borrowers worldwide is expanding rapidly. In 2004, more than 66 million of the world's poorest people, 83% of them women, received small loans to start or expand small businesses. If all microcredit borrowers are included, not just those categorized as "poorest", the total is over 92 million. This is a huge increase from the estimated 7.6 million borrowers worldwide before the Microcredit Summit campaign began in 1997Among these largest MFIs, 79% are in Asia, 17% are in Africa and only 4% are in Latin America.Of the 3,164 institutions that had reported to the Microcredit Summit Campaign by December 31, 2004, 1628 were in Asia, 994 in Africa, 388 in Latin America and Caribbean, 48 in North America, 34 in the Middle East, 72 in Europe and the Newly Independent States (NIS). The increase in the number of institutions reporting, from 618 in 1997 to 3164 in 2004, isdefinitely an indication of an impressive growth in the field of microfinance.

Of the over 92 million people reached by the end of 2004, 81.5 million were in Asia, 7 million in Africa and 3.8 million in Latin America and the Caribbean. Only 5.2 million of the 61.5 million poorest families in Africa and the Middle East were covered by microfinance programs by the end of 2004. Asia, which is home to some 67 percent of the world’s people living on less than US$ 1 a day can therefore rightfully boast of a vibrant microfinance sector.In Asia, Bangladesh distinguishes itself by reaching more than 75 percent of poor families with microfinance. It is home to 31 percent of the largest programs in the world, who have individually reached more than 100,000 clients. MFPs in Bangladesh reached over 18 million poorest clients by the end of 2004. The intensity and density of microfinance is greater in

Bangladesh than in any other country. The pioneering role of Grameen Bank; the bold initiative of NGO-MFIs; the participation of banks; the implementation of Government programs like BRDB, PDBP, etc.; the operation of PKSF; and the strong commitment and competitive spirit of the major players in the field have largely contributed to such a development of microfinance in Bangladesh.

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Country MFI/BANK ACTIVITY FOCUSBangladesh Grameen Bank Micro lending WomenUSA Citi and Banamex shared-credit card

(bi-national Card program)

Underserved markets in Texas.

Philippines ADB Microfinance bank

Partners earning less than $1 a day

Pakistan Khushhali Bank Invested $400million


Sri-Lanka Cooperative rural Bank/SEEDS

Environmentally-friendly, clean energy technologies and modern lighting to enable productivity after dark.

Sudan Sudan Microfinance institution (SUMI)

Murabaha, The Salam, the Musharaka and the Mudaraba


Pennsylvania Green Microfinance (GMf)

Germany DMI MicroEnergy International (ME)

Nepal NIRDHAN

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In recent years, small banks have begun to penetrate the microfinance industry in several countries. In the 1990s, only a few rural banks were involved in microfinance in the Philippines, but by the end of 2004 with assistance from ADB and other funding agencies over 175 had entered the industry and were reaching over 500,000 poor households. Their share was over 40% of the total market served by microfinance institutions in the country. In Indonesia, people's credit banks have been making a concerted effort to expand their operations to cover poor and low-income households. The cooperative rural banks in Sri Lanka have also evidently increased their role in microfinance services in recent years. In a few Asian countries, new microfinance banks and nonbanking financial institutions have appeared. In Azerbaijan, a specialized microfinance bank was established recently. In the Philippines, the Micro Enterprise Bank was established in October 2001 to serve poor and low-income households in Mindanao. Khushhali Bank in Pakistan is another newcomer to the industry and an interesting public-private partnership. It was established in August 2000 with a paid-up capital of $30 million subscribed by 12 domestic private sector commercial banks, 2 foreign commercial banks, and 2 state owned commercial banks. Timor-Leste established the Instituiçäo de Microfinanças de Timor-Leste as a regulated nonbank financial institution with assistance provided by ADB's Microfinance Development Project. The institution has filled a vacuum in the microfinance industry in this new nation. Papua New Guinea also established a new microfinance bank in 2004 with ADB support. The First Microfinance Bank of Tajikistan began operations in July 2004 as the country's first full-service microfinance bank. Afghanistan also established a new microfinance bank in 2003.

In most Asian countries, cooperatives were originally established to serve poor and low-income households, but they gradually dropped the poor and focused on the nonpoor. With support from ADB and other funding agencies, many cooperatives have recently begun to make headway in the sustainable provision of microfinance services.

A case in point is the growing involvement of credit unions in the microfinance industry in the Philippines. In the Kyrgyz Republic and Viet Nam, ADB assisted in the development of credit unions and expanded their outreach to the low-income population, and in Sri Lanka, the Rural Finance Sector Development Project focuses on improving the microfinance operations of the cooperative rural banks.

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GLOBAL PRESENCE

MICROFINANCE NETWORK:

The Microfinance Network is a global association of institutions committed to improving the quality of life of the poor through the provision of credit, savings instruments and other financial services. The members of the Network believe in the establishment of sustainable and profitable institutions that operate on commercial principles and serve large volumes of clients who are not currently served by traditional financial institutions.The Network's mission is to:

a) Promote the financial systems approach to micro-sector finance among policy makers, donors and practitioners;

b) Facilitate the process of transformation of microfinance organizations into formal financial institutions and provide Network members with access to information and expertise that increases their knowledge about best practices in micro-sector finance and accelerates their process of transformation into formal financial institutions;

c) Promote microfinance institutions that advocate commercial principles in order to sustainably realize social goals; and

d) Influence the broader microfinance community and financial system to operationalize social and commercial values.

KEY STATISTICS ON PARTNERS/MEMBERS/AFFILIATESdata as of 2006-10-30

Total number of partners : 37

Description of partners : The Microfinance Network considers membership for microfinance institutions in the forefront of microfinance, as measured by their level of financial self-sufficiency, scale of operations and demonstrated leadership in the field.

The Network aims to maintain diversity among membership from the various regions of the world, as well as a balance among the type of institutions that comprise the Network.

Partner legal statu

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Number of partners in each region :

7 Africa

2 East Asia and the Pacific

5 Eastern Europe and Central Asia

11 Latin America and The Caribbean

4 Middle East and North Africa

3 North America

4 South Asia

1 Western Europe

37 Total

National presence : Armenia, Bangladesh, Benin, Bolivia, Bosnia and Herzegovina, Canada, Chile, Colombia, Dominican

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Republic, Egypt, India, Indonesia, Jordan, Kenya, Kyrgyzstan, Mali, Mexico, Morocco, Nicaragua, Pakistan, Peru, Philippines, Poland, South Africa, Tanzania, Tunisia, Uganda, United Kingdom, United States

Some of the Examples of Microfinance worldwide are

Grameen-Veolia Water deal to help Bangladesh;

Nobel laureate Muhammad Yunus unveiled a deal between his Grameen bank and French group Veolia Environment to provide clean water to poor rural communities in Bangladesh.

The Bangladeshi economist also sought support from President Nicolas Sarkozy for creating more microcredit schemes to fight poverty, particularly in Africa. Sarkozy told Yunus that France would continue and step up its efforts to provide access to loans to the poor and noted that more than a third of France's African aid funding was now directed toward microfinance.

After discussions with Sarkozy, Yunus sat down with top business leaders at the Elysee including billionaire Vincent Bollore and announced the creation of the new joint company with Veolia Environment. Called Grameen-Veolia Water, the company will operate several water treatment plants in Bangladeshi villages, with the goal of bringing clean water to 100,000 people.The project represents investments worth 500,000 euros (790,000 dollars).

The MIX 2007 Top 100 MFIs Report;

The Microfinance Information exchange (MIX) has released the 2007 Global 100: Rankings of Microfinance Institutions report. It is a ranking of the top performing microfinance institutions (MFIs) throughout the developing world, based on data from

MIX's publicly available database. The composite rankings are based on a number of criteria and were developed in an effort to present the leading, most well-rounded institutions.

The MIX Global 100 highlights leading microfinance institutions through the lens of various aspects of performance. The MIX Global 100 by category offers a snapshot of MFI results, identifying the leading performers in each of seven categories within outreach, scale, profitability, efficiency, productivity and portfolio quality. In order to widen the lens of financial service provision, outreach and scale tables include separate rankings for

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deposit mobilizing institutions. This year’s rankings of efficiency also use a new measure to minimize the influence of loan size and neutralize differences across country environments in ranking MFI transaction costs.

The 2007 MIX Global 100 surveyed 820 institutions, an increase of nearly 40 percent over the 2006 sample set. Leading performers were drawn from a diverse sample of MFI that served over 53 million borrows with over USD 24 billion in loans and held USD 15 billion in deposits from 64 million microfinance clients.

eBay launches MicroPlace.com investment site;

MicroPlace, purchased in March 2007 by eBay Inc., has announced the launch of a new website that provides the first online marketplace for individuals to invest in microfinance and earn a financial and social return.

This is a very interesting and encouraging service as it allows anyone to participate in making a positive social impact thru personal investments. To date many of the

microfinance funds and vehicles on the market have been investment tools for institutions, other funds, VC's or high-net worth individuals. Using the new site, investors can purchase microfinance securities with as little as $100 using eBay's PayPal service or a U.S. bank checking account, and have the option to direct their investment to a specific country and microfinance institution in the developing world.

How it works:

1) Set up an account and then purchase investments on MicroPlace.com from security issuers, who are responsible for making interest and principal payments to you. 2) The security issuers adds your funds to loans given to lending organizations (such as Microfinance Institutions), who in turn use those funds to provide loans to their end-borrowers. 3) The end-borrowers are generally self-employed poor, usually working in commercial activities, agriculture, fishing or craftspeople. They earn just enough to survive and use small loans to start or expand their businesses. The majority of them are women who in turn use earned revenues for household expenses, such as clothing, medical and education fees. As loans are repaid, security issuers are able to provide you with a financial return.

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MicroPlace plans to make money by charging issuers to list. "We aspire to break-even, and if and when we reach profitability, eBay intends to reinvest any profits back into its own social initiatives," said Tracey Pettengill Turner, Founder and General Manager of MicroPlace.

MicroPlace thus far has partnered with OikoCredit USA and the Calvert Foundation to offer its first securities, which mature in two to four years and yield between 1.5% to 3% a year. Prospectuses are available online as well as financial reports of the local lending institutions, and MicroPlace is registered as a broker-dealer with the Securities and Exchange Commission (SEC). There are over 80 funds available on the market today investing in microfinance activities in developing countries. As the service grows we anticipate a growing range of securities to become available as investment options on microplace.com.

A great opportunity to invest part of your savings towards making a social impact in areas that need it most.

Posted by Angelo SantaMaria on Friday, 26 October 2007 in MF Investment, MFI News, Technology, US | Permalink | Comments (0) | TrackBack (0)

Microcredit Summit Campaign: Phase II Goals

In April 2005, the Microcredit Summit Campaign announced the extension of the Campaign up to 2015 at the Latin America/Caribbean Region Microcredit Summit in Santiago, Chile. Phase II of the Campaign, from 2006-2015, has two goals.

The first goal is to ensure that 175 million of the world’s poorest families, especially the women receive credit for self-employment and other financial and business services by the end of 2015.

The second goal of the campaign is to ensure that 100 million of the world’s poorest families move from below US$ 1 a day adjusted for Purchasing Power Parity (PPP) to above US $ 1 a day adjusted for PPP, by the end of 2015. With an average of 5 people per family, it can be estimated that 500 million poor would rise above US$ 1 a day, implying the near accomplishment of the Millennium Development Goal of halving

absolute poverty. This is exactly the kind of progress needed to reach the Millennium Development Goals (MDGs).The task at hand is to make adequate institutional and policy preparations to ensure that the MDGs and the two new goals set by the Microcredit Summit Campaign are achieved on time. Based on the lessons learnt and successes enjoyed so far, this is the time to intensify the efforts to get to the goals as planned. It is therefore very important to project the possible who, what, when, where, why and how of microfinance expansion over the next ten years.

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Development of Microfinance;

In envisioning the future of microfinance, it is important to know the background of the microfinance movement, who took the initiatives, who supported the cause, and what opportunities and constraints it has faced. Poverty-focused microfinance came into existence as a private initiative, growing almost unnoticed through a process of learning by doing. Muhammad Yunus and other pioneers took the initiative based on an inner urge and then succeeded in developing a sustainable microfinance system that brought financial services to the doorsteps of the poor, especially to the poorest women who were always considered unbankable. Microcredit is the result of empathy for human suffering, continuous thinking and innovative efforts.

Key Results of microfinance;

World Bank Releases First Ever Data on Access to Financial Services Worldwide By Sidney Povall, Robert F. Wagner School of Public Service, New York University "In terms of what explains outreach, we find that geographic access to banking services is positively correlated with population density and access to and use of banking services are higher in larger economies…In addition our regression analysis suggests that other country characteristics as well as policy variables are also correlated with outreach. Specifically we find that a better communication and transportation infrastructure is associated with greater outreach. Countries with better developed institutions enjoy greater levels of outreach". The collection efforts and subsequent paper focused on measuring access to financial services by capturing data on banking branch and ATM penetration for a geographic area relative to population density, as well as measuring the number of deposit accounts and loans relative to the population and average loan size relative to GDP per capita. The resulting data showed that the indicators accurately predicted household and firm use of banking services. For example, data collected from surveys indicates that Bangladesh has 4.47 bank branches per 100,000 people, 54.73 loan accounts and 228.75 deposit accounts, while Spain has 95.87 bank branches per 100,000 people, 556.48 loan accounts and 2,075.96 deposit accounts. The data specify: "Both cross-country and firm-level regression indicate that firms in countries with higher branch and ATM penetration and more extensive use of loans report lower financing obstacles". The report also details results around data analysis efforts of cross-country variations in levels of outreach attempting to learn if the size of an economy has any affect on the level of financial services penetration and outreach. The analysis yielded interesting results. Correlation and regression results indicated that larger economies have greater levels of outreach. For example, the team was able to accurately predict the percentage of households who have bank accounts using this data and actual household deposit account data previously collected. It found that in Pakistan, .122 of households had deposit accounts while their regression predicted .101. The report goes on to suggest that this indicates that scale economies may be helpful in effectively providing banking services.

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The final part of the report examines correlations between variations in outreach levels and cross-country differences in the perception firms have about the level financing constraints they face. The paper outlines the findings as showing, "that higher branch and ATM penetration and wider use of loan services are associated with lower financing obstacles, even after we control for a standard measure of financial sector depth". For example, increasing the number of ATM branches from the 25th to the 75th percentile decreases the probability that such firms will rate financing as a major constraint to growth by 3/8 percentage point for ATM's per population and ½ a percentage point for ATM's per area.The report concludes by expressing the authors' desires that it be a first step in "developing consistent and comparable cross-country indicators of banking system outreach", and that the findings of the research team be the start of regular assessment of the indicators so that the debate about access to financial services can be informed about its effects and determinants

Microfinance in India:

“Money, says the proverb makes money. When you have got a little, it is often easy to get more. The great difficulty is to get that little.”Adams Smith.

Today India is facing major problem in reducing poverty. About 250 million people in India are under below poverty line. With low per capita income, heavy population pressure , prevalence of massive unemployment and underemployment , low rate of capital formation , misdistribution of wealth and assets , prevalence of low technology and poor economics organization and instability of output of agriculture production and related sectors have made India one of the poor countries of the world.

Some 30 million women have formed 2.2 million small businesses and another 400,000 are expected to be in place by March, 2007, according to the National Bank of Agriculture and Rural Development. About $2.48 billion has been extended to these groups, which predominantly run by women, over the last decade (source Economic times)

Present Scenario of India:

India falls under low income class according to World Bank. It is second populated country in the world and around 70 % of its population lives in rural area. 60% of people depend on agriculture, as a result there is chronic underemployment and per capita income is only $ 326.2. This is not enough to provide food to more than one individual. The obvious result is abject poverty, low rate of education, low sex ratio, and exploitation. The major factor account for high incidence of rural poverty is the low asset base. According to Reserve Bank of India, about 51 % of people house possess only 10% of the total asset of India .This has resulted low production capacity both in agriculture (which contribute around 22-25% of GDP) and Manufacturing sector. Rural people have very low access to institutionalized credit (from commercial bank).

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According to World Bank, out of the worlds total population of 6 billion, a total of 1.2 billion people, live on wages less than $1 (INR 60) per day; of which, the majority live in Asia. Almost 40% of the population of the South Asia region is poverty stricken. Further to this, India alone is said to host about one third of the worlds poor.

The estimates from Government of India, show that over 250 million people are left without proper access to credit despite a network of 33000 rural and semi urban branches of commercial banks, 14000 branches of Regional Rural Banks and 92000 outlets of cooperatives. The poorest people very often do not comply with the norms that banks lay down for credit seekers. They neither have salary certificates or the required collateral to show as security against the loan. Under such circumstances, the poorest citizens access credit mostly from informal finance providers who charge very high rate of interest. Non payment of principal or interest by the credit seekers invites various kind of exploitation for him and his family.

To date in India, only an estimated 5 million poor people (mostly rural women) benefit from microfinance services, leaving a vast unmet demand for developing credit, savings and insurance activities which is termed as microfinance services targeted a sector referred to as non-bankable even till date.

Source: GOI Survey, September 1998

Around 75% of all micro credit activity in the country is concentrated in the four southern states of Andhra Pradesh, Karnataka, Kerala and Tamil Nadu

Source: Government of India Survey 2006

As designed by NABARD, the women who benefit from microfinance are able to access the microfinance services by forming groups of 5 to 20 women, called self-help groups ("SHGs"). The group is intended to act as a semi-guarantor by making sure that each member repays her loan in the stipulated time thereby positively contributing to the groups credit-worthiness. SHGs are either linked to NGOs or to local banks. From the banks they can access funds @ 2-3% a month and through NGOs providing micro-credit @ 15 to 20 % per annum. There is a possibility of generating a credit demand of 25 billion Indian Rupees from savings from the poor in the short term.

Source GOI Survey, September 1998

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Poverty alleviation programmes and conceptualization of Microfinance

India has supported social banking for a long time. Policy directions to rapidly expand rural branches, mandate credit allocations for priority sectors (including agriculture), deliver large subsidy oriented credit programmes to serve marginal communities and poor households and control interest rates have been tried for over 35 years.

The new generation microfinance was slow in coming to India. Low levels of grants to microfinance institutions, an unfavourable policy environment, substantial traditional banking infrastructure and a search for context specific solutions has constrained rapid scale up. The first breakthrough emerged from policy support to enable informal self help groups of 15-20 members (mainly women) to transact with commercial banks. These groups build up and rotate savings amongst themselves, open bank accounts and take responsibility for lending and recovering money financed by banks. With the missionary zeal of the National Bank for Agriculture and Rural Development (NABARD), insights gained by NGOs, the increasing enthusiasm of bankers and politicians and emerging successes in repayment and social impacts, this national movement now encompasses 1.4 million such groups (over 20 million members).

At a time when many questioned the need for specialised microfinance institutions (MFIs) in India, the Small Industries Development Bank of India (SIDBI) recognized the opportunity and started implementation of an ambitious national programme. Providing loan and capacity building support to MFIs and capacity building and rating support for sector development, this programme already supports 70 MFIs and has disbursed US$46 million. Microfinance has been perceived as an alternative tool of providing financial services to poorclientele in India. SEWA (Self Employed Women Association) Bank is the oldest microfinance organisation in the country. The Community Based Organisations (CBOs) and NonGovernmental Organizations (NGOs) initiated the microfinance movement and the formalfinancial Sector joined in at a later stage. The popular mode of delivering microfinance in Indiais Self Help Groups (SHGs) . Initially, NGO-MFIs motivated poor to form SHGs andsupported them to manage their savings and internal lending activities within the SHG. In theyear 1992, NABARD initiated a pilot project on SHG-Bank Linkage programme in India. Forthis pilot project, Southern States in India were chosen. NABARD took up this programme on afull-fledged manner in 1998 after experiencing an immense success of the pilot project. NowSHG-Bank Linkage Programme is the largest microfinance programme in the world. Within aspan of 15 years, the outreach of this programme had increased to 2.24 million credit linked

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SHGs in the year 2006 from 255 credit linked SHGs in the year 1992. In the present Indianmicrofinance sector, Commercial Banks, Regional Rural Banks, Cooperative Banks, Non Banking Financial Companies (NBFCs) and NGOs are involved in offering microfinance services to the poor.Microfinance movement in India can be divided into two phases. In the first phase of thisMovement, it was found that NGOs and CBOs took the initiative of group formation. TheyNurtured these SHGs and provided micro-credit. In this phase most of the programmes were sponsored by national and international donor agencies. In the second phase, Micro-CreditMovement transformed to a broader level of intervention and came to be recognised asMicrofinance movement. Formal financial Institutions have joined this movement along withNGOs and CBOs. Apart from credit, the provision of other financial products like insurance andmicro savings is also carried out. It is important to note that that in the nascent stage it themovement was considered as a poverty lending exercise and now in the present stage it has

transformed into a profit earning financial business.

What is Exciting about Indian Microfinance? A Task Force on Microfinance recognised in 1999 that microfinance is much more than microcredit, stating: "Provision of thrift, credit and other financial services and products of very small amounts to the poor in rural, semi-urban and or urban areas for enabling them to raise their income levels and improve living standards". The Self Help Group promoters emphasize that mobilising savings is the first building block of financial services.

For many years, the national budget and other policy documents have almost equated microfinance with promoting SHG links to the banks. The central bank notification that lending to MFIs would count towards meeting the priority sector lending targets for Banks offered the first signs of policy flexibility towards MFIs. One could argue that MFIs are small and insignificant, so why bother. The larger point is about policy space for innovation and diversity of approaches to meet large unmet demand. The insurance sector was partially opened to private and foreign investments during 2000. Over 20 insurance companies are already active and experimenting with new products, delivery methodologies and strategic partnerships.

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

Membership of Sa-Dhan (a leading association) has expanded from 43 to 96 Community Development Finance Institutions during 2001-04. During the same period, loans outstanding of these member MFIs have gone up from US$15 million to US$101 million.

The CARE CASHE Programme took on the challenge of working with small NGO-MFIs and community owned-managed microfinance organisations. Outreach has expanded from 39,000 to around 300,000 women members over 2001-05, Many of the 26 CASHE partners and another 136 community organisations these NGO-

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MFIs work with, represent the next level of emerging MFIs and some of these are already dealing with ICICI Bank and ABN Amro.

In addition to the dominant SHG methodology, the portfolios of Grameen replicators have also grown dramatically. The outreach of SHARE Microfin Limited, for instance, grew from 1,875 to 86,905 members between 2000 and 2005 and its loan portfolio has grown from US$0.47 million to US$40 million.

Since banks face substantial priority sector targets and microfinance is beginning to be recognised as a profitable opportunity (high risk adjusted returns),[1] a variety of partnership models between banks and MFIs have been tested. All varieties of banks - domestic and international, national and regional - have become involved, and ICICI Bank has been at the forefront of some of the following innovations:

Lending wholesale loan funds.

Assessing and buying out microfinance debt (securitisation).

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

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

Equity investments into newly emerging MFIs.

Banks and NGOs jointly promoting MFIs.

The 2005 national budget has further strengthened this policy perspective and the Finance Minister Mr P. Chidambram announced "Government intends to promote MFIs in a big way. The way forward, I believe, is to identify MFIs, classify and rate such institutions, and empower them to intermediate between the lending banks and the beneficiaries."

Savings services are needed by many more customers and as frequently as access to phone services. Many poor households value access to savings services and find new providers and arrangements, despite hearing of unreliable savings collectors or even occasionally falling prey to such arrangements. Many customers are rich, literate and lucky to have banks working for them. But many others lack access to safe, secure and accessible savings services for the short, medium and long terms. In the past, many banks sent collectors to gather these savings but problems with monitoring, inability to tackle misappropriation and the rising aspiration of collectors to become permanent staff of public sector banks killed a useful service. The central bank has strictly forbidden commercial banks from using agents in collection of savings services. This is unfortunate as:

Effective microfinance delivery is about managing transaction costs for providers and customers.

A combination of agents and technology can play a powerful role in rightly aligning incentives for the collector and customers, while keeping transaction costs manageable for everyone.

The banks can only open so many branches, and fixed and operating costs are high, apart from approvals still needed from the central bank to open new branches or

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close existing ones. The appointment of agents can keep costs manageable and offer greater flexibility to Banks.

Banking service may not be able to defy the commercial logic pursued by most other sectors where a variety of retailers provide services to customers, while companies focus on customer needs, product design, quality control, branding, logistics and distribution.

Fortunately, the 2005 Budget opened a small window in this area and the central bank annual policy recently confirmed discussions on this: "As a follow-up to the Budget proposals, modalities for allowing banks to adopt the agency model by using the infrastructure of civil society organisations, rural kiosks and village knowledge centres for providing credit support to rural and farm sectors and appointment of micro-finance institutions (MFIs) as banking correspondents are being worked out." But readers may note that between the budget and the annual policy statement, "credit" has again crept in as the key perceived need.

New Entries ;

In the middle of all this, what is interesting about India is that its biggest commercial lenders such as ICICI, HDFC, SBI, UTI etc. to name a few have diverted their funds and attention to this sector in a big way. MNCs like ABN Amro, Standard Chartered, HSBC and the Citigroup are also moving into this sector.

Clearly what drives these institutions is not social responsibility alone. There is a bigger gain involved. What attracts them is a huge market opportunity here with 30% of India’s 1 Billion+ population still living below the Poverty Line and these banks realize that lending to credit worthy rural borrowers is a lucrative business proposition.

As per Ranjan Ghosh, who heads Financial Institutions for India and South Asia at Standard Chartered Bank, "With fewer defaulters in this sector, clearly the risk return rate is acceptable to the banks. We look at it as an investment."

And may be that is why Nachiket Mor of ICICI spends so much of time in India's economically depressed rural hinterland looking for prospective borrowers.So all in all it’s a good business for Indian banks, given the diminishing market for lending to companies and consumers in cities.

ICICI Bank is one bank that has developed a very clear strategy to expand the provision of financial products and services to the poor in India as a profitable activity.

ICICI Bank's micro credit initiatives involve provision of basic banking services like savings and withdrawal along with micro-investment products like mutual funds and insurance. This provides poor people with safer avenues for saving with little volatility or risk.

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Its structures also include buying the microfinance portfolios of MFIs either on a selective basis or buying the complete loans of a branch or a particular area along with partnership arrangements with MFIs. This helps leveraging the operational strength of NGO/MFI with the financial strength of ICICI Bank. In the world's largest securitization deal, ICICI Bank purchased a portfolio of 42500 loans worth US$ 4.3 million from Share Microfin Limited in 2004.

In the Public Sector SBI is doing a commendable job in this area with its innovative products like Project Uptech, SBI Life ‘Shakti’, Sahayog Niwas, Agri SBU, Contract Farming and Kisan Credit Cards.

As has been mentioned earlier Indian Microfinance Industry is increasingly attracting the global attention. Unitus is a case in point. Started in early 2000 by a group of friends with a common mission of poverty alleviation, it is based in Redmond, Washington, with an office in Bangalore. Unitus works in Latin America and Southern Africa, but with one third of the world's population in India, its focus has naturally turned to India.

The structure that Unitus is using is based on what it calls its "accelerator" model, which basically implies acceleration of outreach. To address gaps, Unitus uses three different capital instruments, namely Grant, Debt and finally Equity. Working typically with MFIs, which are NGOs or have originally been NGOs, Unitus first uses grant funds to build the infrastructure in the MFI.

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

made a Rs 11 crore (Rs 110 million) investment in SKS Microfinance in India. The money would be used to access commercial debt and scale outreach from SKS's current 200,000 clients to 700,000 clients by 2006-07.

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In short what the bigger institutions do is partner with microfinance specialists across India who have knowledge of the local villages and can identify worthy borrowers.

Another very interesting phenomenon that is associated with this industry is the creation of a secondary market over time. Under this the Micro loans would be bundled together into larger Bond issues which will be tradable among the Indian and the Global Investors taking Micro lending to a higher level.

The Challenges;

All this sounds like a nice combination of corporate interests, fulfillment of social needs and a panacea for India’s balanced development. But this system is not free of complications and challenges.

There have been allegations time and again that microlenders structure their loans with hidden costs to exploit borrowers. The suicides of about a dozen women caught in this kind of a debt trap in Andhra Pradesh illustrates this point. The Government Inspectors had also pointed out four Organizations namely Spandana, Asmita, Umdama Pottu Pedatha and Share Microfin of charging interest rates as high as 40% to 50 %.

On the one hand, the industry is trying to grapple with problems of sudden growth, while, on the other, global social venture funds think that impact needs to be maximized and that institutions with the right professional leadership, governance, and systems need to be supported.

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The biggest challenge is to develop a systematic growth mode which can cater to the accelerating demand. In this scenario the two main hindrances to the growth of MFIs are ‘lack of capital’ and ‘lack of capacity’.

Most MFIs are unregulated non-profit organisations, which prevents them from building an equity base. Through a combination of grants, equity and debt, it is possible to transform them into regulated financial institutions with an equity base that then allows MFIs to bolster their balance sheet and access local capital markets. Lack of capacity can be attributed to a variety of factors such as weak corporate governance, lack of management depth, absence of management and strategic planning systems and insufficient business infrastructure.

Another very inherent issue is that the focus of bigger funding organizations is always on mature MFIs, forcing young and mid-tier MFIs to look for capital from local sources, primarily grants. This focus on mature MFIs may be stalling industry growth as only a small percentage (1-2%) of MFIs is sustainable. So provisions have to be made to absorb some initial risk while the MFI develops a track record, relationships and credibility. Along with this what is required is upfront, longer-term involvement. And finally, there is a need for MFIs to work with policymakers on current regulations that limit options for MFIs and investors. Like in India, most MFIs are still NGOs and so they can accept local debt but not equity, and at the same time foreign investors have limited opportunities for investment in the sector.

Many policies were adopted by different banks in India to outreach people which are:

Penetrating the market:

Since a large part of the addressable market is yet to be tapped, banks have chalked out aggressive targets for this market. Further, they are attempting various innovative strategies. While the exact business targets of ICICI Bank and HDFC Bank, the pioneers in this segment, are not available. Others like ABN Amro Bank, Standard Chartered Bank, Development Credit Bank (DCB), Yes Bank and J&K Bank have plans ranging from Rs 300-500 crores to be achieved over the next 3-5 years.

CHART SHOWING MICROFINANCE IN VARIOUS BANKS OF INDIA:

According to one estimate, there are about one million self-help groups in the country and about Rs 2,000 crore of institutional credit has gone to them. A number of banks have entering into agreements with NGOs and microfinance agencies to lend to the self help groups, where typically the largest loan size could be only about Rs 30,000.

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The sector is serviced by two parallel systems. The bank-SHG linkage programme is the over-arching model with an outreach of close to two million SHGs, 75% of which are in the four southern states. Public sector banks with rural outlets are the funders of this system, spearheaded by Nabard. It covers around 30 million women and has around Rs 8,000 crore in outstandings.

The second system is that of private MFIs supported by new generation private banks and Sidbi, essentially entities which do not have retail channels in rural areas. Within this there are two models: one where MFIs borrow money from banks and lend directly; and two where MFIs work in partnership with banks where they become direct sales agents (DSAs) and the loans sit on the banks' accounts. Close to 70% of the market serviced by MFIs is also in the four southern states with total outstandings of around Rs 2,500 crore.

BANK STRATEGY ADOPTED

INVESTMENT MADE

ACTIVITY PROCESS NAME

FOCUS AREA

ICICI MFI’S 9.98 Billion $538million outstandingMicroloan

Insurance, Credit, Smart card, Kiosks

MICRO FINANCE FACTORY

Andhra Pradesh, UP

YES BANK

DIRECT INVOLMENT/ACCION( has presence in 23Countries)

20 crore Credit, savings, insurance and remittance

YES MICRO FINANCE

Mumbai slum dwellers

ABN AMRO

23 MF partners $23 million outstanding loan

Credit ABNAMRO INDIA

Assam & Bihar

HDFC NGO’S 50 Crore 100% Growth

Personal Loans

MOBILE BANKING

Mumbai, Haryana

SBI M FI’S/NGO’S SHAKTI/ UPTECH

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Share of various Banks :

The share of various banks can be given as shown as in chart below:

Use of intermediaries:

The well-tested approach so far is the wholesale lending through intermediaries like micro-finance institutions (MFIs) and non-government organisations (NGOs). This channel, particularly the MFI route, offers various advantages like a good distribution network, taking over risks of defaults and still assuring a minimum spread of 2-3 % for the banks. ICICI Bank, which has decided not to set up further microfinance branches, has established relationships with 210 MFIs. Similarly, HDFC Bank is partnering w ith nearly 75 MFIs and an equal number of NGOs. Standard Chartered and ABN Amro also have started adopting the model. Almost all these banks are aiming to enlarge such partnerships further in the coming months. Sanjay Nayar of Citibank remarks, “We will have to go down further … through alliance partners, local area banks and large corporates entering big retailing and contract farming.” Innovative models:

Going beyond the plain vanilla tie-up, many banks are trying out various innovative approaches in their partnering with MFIs. An example is the ‘microfinance factory’ envisioned by ICICI Bank. The mandate of this ‘factory’ is to develop and nurture new MFI models and also extend support to entrepreneurs. Brahmanand Hegde of the bank explains, “The microfinance factory aims to provide all the building blocks critical to MFIs, such as seed capital, operation models, product development, technology support and human resource training”. ICIC bank has also come out with a franchisee model called ‘IntelleCash’. This will provide fee-based mentoring and support systems for start-ups. Likewise, ABN Amro has established the ABN Amro India Foundation, through which it is aiming to develop capabilities among new MFIs in the underserved states like Assam, Bihar and UP.

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Direct involvement:

Yes Bank, which started partnering with MFIs, would be pursuing further opportunities through the ‘direct intervention’ approach. Somak Ghosh of Yes Bank explains, “There are not enough organisations (MFIs) that have achieved the scale that would enable us to grow. Hence we decided to get into this business all by ourselves.” In December 2006, it floated the Yes Microfinance India, an exclusive division that would focus on developing customised microfinance products. In this endeavour, it will derive strategic support from Accion International, a specialist in designing sustainable business models particularly for the BOP customers in urban areas. Yes Bank started the business in July 2007, by providing individual loans to slum dwellers in Mumbai. It is planning to expand its operations to Delhi in the next 18 months.

Niche marketing:

Some banks want to stick to single niche geography for the present. J&K Bank feels that as it has remarkable domain knowledge and excellent understanding of the local systems than other players, Jammu and Kashmir would be the focus state initially. Similarly, DCB is planning to partner with the Aga Khan Rural Support Programme run in the state by the Aga Khan Foundation, the founder of DCB to make an intensive foray into the villages in Gujarat. . HDFC, for its self-help group (SHG) initiative through dedicated SHG branches, will be concentrating in Tamil Nadu only.

Alternate channels:

In an innovative initiative, J&K Bank partnered with the local state administration in the issue of ration cards. The bank undertook the project keeping in mind two benefits. Firstly, the exercise would be useful in collecting significant information about local households. Secondly, by sending product pamphlets and forms along with the ration card, the exercise could be used as publicity as well as direct marketing opportunity for the bank. The bank found that out of the 21 lakh families to which ration cards were distributed, about six lakh fell under the BOP segment. Haseeb Drabu, chairperson of the bank, comments, “The data is very important and is helping us reach prospective micro-finance customers”. Finally…

Though Indian banks and multinational banks seem to be eyeing the microfinance segment with equal interest, Indian banks are exploring more innovative avenues. Sanjay Sinha of M-CRIL observes, “Indian banks would certainly continue to play a strong role in their partnerships with MFIs, besides developing their own direct micro-finance offerings”.

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Challenges Remain:

A World Bank study assessing access to financial institutions found that amongst rural households in Andhra Pradesh and Uttar Pradesh, 59% lack access to deposit account and 78% lack access to credit. Considering that the majority of the 360 million poor households (urban and rural) lack access to formal financial services, the numbers of customers to be reached, and the variety and quantum of services to be provided are really large. Vijay Mahajan, Managing Director of BASICS, estimated that 90 million farm holdings, 30 million non-agricultural enterprises and 50 million landless households in India collectively need approx US$30 billion credit annually. This is about 5% of India's GDP and does not seem an unreasonable estimate.

A tiny segment of this US$30 billion potential market has been reached so far and this is unlikely to be addressed by MFIs and NGOs alone. Reaching this market requires serious capital, technology and human resources. However, 80% of the financial sector is still controlled by public sector institutions. Competition, consolidation and convergence are all being discussed to improve efficiency and outreach but significant opposition remains; for example, the All India Bank Employees Association has threatened to strike if the Government proceeds with its policy of reducing its capital in public sector banks, merging public sector banks or even enhancing Foreign Direct Investments in Indian private banks.

Many speakers at the Microfinance India conference talked about the significant and growing gap between surging growth in South India, which contrasts with the stagnation in Eastern, Central and North Eastern India. Microfinance on its own is unlikely to be able to address formidable challenges of underdevelopment, poor infrastructure and governance.

The Self Help Group movement is beginning to focus on issues of quality and there were some interesting discussions on embedding social performance monitoring as a part of the regular management information systems.

At the time of the conference, a leading and responsible MFI was being investigated by the authorities for charging "high" rates of interest. Per unit transaction costs of small loans are high but many opinion leaders still persist with the notion poor people cannot be charged rates that are higher than commercial bank rates. The reality of the high transaction costs of serving small customers, their continuing dependence on the informal sector, the fact that most bankers shy away from retailing to this market as a business opportunity, and the poor quality of services currently provided does not figure prominently in this discourse. While the central bank has deregulated most interest rates, including lending to and by MFIs, interest rates restrictions on commercial bank for retail loans below US$5,000 (all microfinance and beyond) remain and caps on deposit rates also discourage sharing transaction costs with customers.But most conference participants accepted the imperatives to build sustainable institutions.

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There is still lot of policy focus on what activities are and are not allowed and not enough operational freedom as yet for banks and financial institutions to design and deliver programmes, and be responsible for their actions. Prescriptions and detailed circulars often limit organisational innovation and market segmentation. As Nachiket Mor of ICICI Bank said at the conference, if the right indicators are monitored and operational freedom and incentives are clear, both public and private banks have the capacity to rapidly address the remaining challenges

JAMMU AND KASHMIR:

Jammu and Kashmir is the North Western State of India. The state endowed with natural resources and competitive advantage with geographical area 222236.Sq.Kms including an area of 120847.Sq.Kms under unlawful occupation of China and Pakistan, leaving thereby an area of 101387.Sq.Kms. on this side of country accounting for 3.20% of country’s area and 19th populous state with10143700 population as per census 2001.

Occupational Profile Tourism

Agriculture and Allied activities

Horticulture

Fisheries

Industries

Carpets

Namdas

Papier Machie

Chain Stitch and Crewel Furnishings

Saffron, Walnuts, Almonds, Honey

Silks, Tweeks

Pherans

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Shawls

Basketry

Walnut Wood

Copper and Silverware

Agriculture:

Agriculture is the vital component of primary sector, therefore, occupies an important place in every economy especially in Agrarian economies. The performance of Agriculture forms the basis of growth and development of an economy since it has multiplier effect across the economy. The J&K State is basically agrarian in nature.

As per census 2001, 18.38 lakh person comprising 15.92 lakh cultivators and 2.46 lakh agricultural labourer depend directly on agriculture for subsistence forming 49% of the total work force. The agriculture and allied sectors contribute about 27% to Gross State Domestic Product estimated at constant price as per advance estimate for the year 2004-2005.

Land use pattern in J&K State

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Use of Land (source Economic Survey J&K)

Horticulture:

As per horticulture census conducted in 1999-200, 84804.159 hectares of area is under all fruits, 54.97% of area is under Apple and 22.14% under walnut.

8.24 lakh metric tones of fruits (both dry and fresh) were exported from J&K to outside state in2005-06 which has slowed down by 7.79% against the figures for 2004-05. As per estimates of horticulture department around 20 lakh people are directly or indirectly employed in this sector.Fisheries: The total fisherman population in state is around 31000 having a length of 27781 Km of river/streams which facilitate the farming of more than 40 million tones of fish. Out of total 27781 Km under fisheries the state has only 0.07 hectares under reservoir area

Industries

The contribution of industries sector to the State’s Economy stands meager at 6%. The Jammu and Kashmir is lacking large scale industries and industrial scenario is occupied by small scale and cottage industries. The SSI unit in the state has increased from 42808 in 2001 to 48224 in 2006 and employment generated through these units has increased from 1.9 lakh in 2001-02 to 2.19 lakh in 2006

Tourism Industry:

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Tourism is one of the most important industries in J&K especially we have a specially won recognition for Pilgrim Boards. About 450 thousand Yatries visit state every year and 600 other tourists visit valley every year

Carpet:

A Carpet is a life long investment-it may well be the single most expensive purchase during your trip to Kashmir. Kashmiri carpets are world renowned for two things- they are hand made and they are always knotted, never tufted. It is extremely instructive to watch a carpet being made- your dealer can probably arrange it for you. Stretched tightly on a frame is the warp of Carpet. The weft threads are passed through, the ‘talim’ or design and color specifications are then worked out on this: a strand of yarn is looped through the warp & weft, knotted and then cut. The yarn used normally is silk, wool or silk and wool. Woolen carpets always have a cotton base (Warp & Weft),

The finest of Kashmiri carpets are available at major showrooms.

The soothing blend of colours makes the Kashmiri carpet a prized possession.

silk usually have cotton base. Sometimes however, the base is also silk in which case you will see that the fringe is silk; the cost increases proportionately. Occasionally, carpets are made on a cotton base, mainly of woolen pile with silk yarn used as highlights on certain motifs. When the dealer specifies the percentage of each yarn used, he is taking into account the yarn used for the base too. Therefore, a carpet with a pure silk pile may be referred to as a 80% silk carpet.

Carpet weaving in Kashmir was not originally indigenous but is thought to have come in by way of Persia. Till today most designs are distinctly Persian with local; variations. One example, however, of a typical Kashmiri design is the tree of life. Persian design not withstanding, any carpet woven in Kashmir is referred to as Kashmiri. The color-way of Carpet, and its details differentiate it from any other carpet. And while on the subject of colors, it should be kept in

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mind that although the colors of Kashmiri carpets are more subtle and muted than elsewhere in the country, only chemical dyes

are used-vegetable dyes have not been available now for hundred years.

The knotting of the carpet is the most important aspect, determining its durability and value, in addition to its design. Basically, the more knots per square inch, the greater its value and durability. Also there are single and double knotted carpets. You can quiet easily identify one from the other on the reverse of the carpet. The effect that it has on the pile, too, is important- a double knotted carpet has a pile that bends when you brush it one way with your hand, and stands upright when it is brushed in other direction. A Single knotted carpet is fluffier and more resistant to touch.

On the loom, a beautiful carpet is woven.

A kashmiri weaving crew-embroidery

Namdas

Far less expensive are these colorful floor coverings made from woolen and cotton fiber which has been manually pressed into shape. Prices vary with the percentage of wool- a Namda containing 80% wool being more expensive than one containing 20% wool. Chain stitch embroidery in woolen and cotton thread is worked on these rugs.

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Papier Mache

At first glance, all Papier Mache` objects look roughly the same, and the price differential seems almost unreasonable. However, besides at least three different grades of Papier` Mache`, some is actually cardboard or wood! The idea, however, is not to hood-wink the unwary, but to provide a cheaper product for someone who wants the look of Papier Mache` .

To make Papier Mache`, first paper is soaked in water till it disintegrates. It is then pounded, mixed with an adhesive solution, shaped over moulds, and allowed to dry and set before being painted A papier mache replica

of samovar.

A rich display of papier machie in a Srinagar shop.

and varnished.

Paper that has been pounded to pulp has the smoothest finish in the final product. When the pounding has not been thorough, the finish is less smooth.

The designs painted on objects of Papier Mache` are brightly colored. They vary in artistry and the choices of colors, and it is

not difficult to tell a mediocre piece from an excellent one. Gold is used on most objects, either as the only color, or as the highlight for certain motifs, and besides the finish of the product, it is the quality of the gold used which determines the price. Pure Gold leaf which has the unmistakable luster, is far more expensive than bronze dust or gold poster paint. It also has much longer life and will never fade or tarnish.

Varnish which is applied to the finished product, imparts a high gloss and smoothness which increases with every coat.

Cardboard, usually indistinguishable from Papier Mache`, gives slightly when pressed firmly. Otherwise the only

A wall plate displays the glowing colours of papier mache art.

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A papier mache replica of a samovar.

difference is in the price, cardboard being cheaper than Papier Mache`.

Chain Stitch and Crewel Furnishings

Because of the high quality of embroidery done on wall hangings and rugs, Kashmiri crewel work is in great demand all over the world.

Chain stitch, be it in wool, silk or cotton, is done by hook rather than any needle. The hook is referred to as ari, and quality for quality, hook work covers a much larger area than needle work in the same amount of time.

All the embroidery is executed on white cotton fabric, pre-shrunk by the manufacturers. The intrinsic worth of each piece lies in the size of the stitches and the yarn used. Tiny stitches are used The art of crewel embroidery

can result in creative wall hangings.

to cover the entire area-the figures or motifs are worked in striking colors; the background in a single color, made up of a series of coin sized concentric circles which impart dynamism and a sense of movement to a design. The background fabric should not be visible through the stitches.

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Craftsmen work on a rug patterning crewel-embroidery

Crewel is basically similar to chain stitch. It is also Chain stitch done on White background,

but here the motifs, mainly stylish flowers, do not cover the entire surface, and the background is not embroidered upon. Wool is almost invariably used in Crewel work and color ways are not as elaborate as in Chain stitch. They make excellent household furnishings being hand or machine washable.

Saffron, Walnuts, Almonds, Honey

Pampore, outside Srinagar, is the only place in the world besides Spain where saffron is grown. The crocus Sativus which blooms for a brief month in the year, has six golden stamens and one crimson one. It is the crimson Stamen which when collected and dried is referred to as the most expensive spice in the world. Sealed jars of this Spice, with the Government laboratory’s stamp approval, are available all over Srinagar. When

Plucking of Saffron

buying loose saffron, sampling one strand is enough, for the flavor and fragrance of saffron are unmistakable.

The climate of Kashmir is ideal for walnut and almond trees which grow here in abundance. Natural honey too, is a produce of the apiaries which abound in the state.

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Silk warm

Silks, Tweeks

Sericulture and tweed weaving are more important industries in Kashmir, with departments of the State got. Closely monitoring the process. Interestingly, just as little or no raw-material for tweek comes from Kashmir, almost no weaving and printing of silk is done in the state. However, the cocoon reared in Kashmir is of the superior quality, yielding an extremely fine fiber, and any silk woven from this thread becomes known. The

fineness of the yarn lends itself particularly well to the weaves known as ‘chinon’ and ‘crepe de chine’, in addition to the universally recognized silk weave.

Tweed on the other hand is woven in Kashmir with pure, never blended, wool. The resultant fabric, made with imported know-how, compares favorably with the best in the world. It is available by the length occasionally as ready to wear garments.

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Pherans

This garment, somewhere between a coat and a cloak, is eminently suited to the Kashmiri way of life, being loose enough to admit the inevitable brazier of live coals which is carried around in much the same way as a hot water bottle, Men’s pherans are always made of tweed or coarse wool; women’s pherans, somewhat more stylized, are most commonly made of raffel, which splashes of ari or hook embroidery at the throat, cuffs and edges. The quality of embroidery and thickness of the raffel determines the price.

Shawls

There are three fibers from which the Kashmiri shawls are made- wool, Pashmina nad shahtoosh. The prices of three cannot be compared – woolen shawls being within the reach of the most modest budget, and Shahtoosh being a once-in-a-lifetime purchase.

Woolen shawls are popular because of the embroidery Passing a fine shahtoosh shawl through a

ring.

Shawls are a 'must' buy in the shops of Kashmir.

worked on them which is a special to Kashmir. Both embroidery and the type of wool used causes differences in price. Wool woven in Kashmir is raffel and is 100% pure. Many kinds of embroidery are worked on shawls – ‘sozni’ or needlework is generally done in a panel along the sides of the shawl. Motifs, usually abstract designs or stylized paisleys and flowers are worked in one or two, occasionally three colors, all subdued.

Another type of needle embroidery is popularly known as Papier Mache` work because of the design and the style in which it is executed. This is done either in broad panels or either side of the breadth of a shawl, or covering the entire surface of a stole.

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Another type of embroidery is ari or hook embroidery; motifs are well-known flower design finely worked in concentric rings of chain stitch.

Pashmina is unmistakable for its softness. Pashmina yarn is spun from the hair of the ibex found at 14,000 ft above the sea level, although pure pashmina is expensive, the cost is sometimes brought down by blending it with rabbit fur or with wool.

Shahtoosh , the legendary ‘ring shawl’ is incredible for its lightness, softness and warmth. The astronomical price it commands in the market is due to the scarcity of raw-material. High in the plateaux

Embroidering a shawl by natural light

of Tibet and the eastern part of Ladakh, at an altitude of above 5,000 meters, roam Pantholops Hodgosoni or Tibetan antelope. During grazing, a few strands of the downy hair from the throat are shed and it is these which are painstakingly collected until there are enough for a shawl. Yarn is spun either from shahtoosh alone, or with pashmina, bringing down the cost somewhat. In the case of pure shahtoosh too, there are many qualities-the yarn can be spun so skillfully as to resemble a strand of silk. Not only are shawls made from such fine yarn extremely expensive, they can only be loosely woven and are too flimsy for embroidery to be done on them. Unlike woolen or Pashmina shawls, Shahtoosh is seldom dyed-that would be rather like dyeing gold! Its natural color is mousy brown, and it is, at the most, sparsely embroidered.

A wicker-worker designing baskets for the discerning buyer.

Basketry

Willow rushes that grow plentifully in marshes and lakes in Kashmir are used to make charmingly quaint objects, ranging from shopping baskets and lampshades to tables and chairs, all generally in expensive. To increase their life-span, unvarnished products should be chisen and frequentle sprayed with water, particularly in hot, dry climates, to prevent them from brittle.

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Walnut Wood

Kashmir is the only part of India where the walnut tree grows. Its color, grains and inherent sheen are unique and unmistakable, and the carving and fret work that is done on this wood is of a very superior quality. There are two types of walnut trees – the fruit bearing species whose wood is so well- known, and one which bears no fruit and A walnut table with traditional carving

A walnut table with traditional carving

is locally known as ‘zangul’. Zangul has none of the beauty of walnut wood, being much less strong and possessing no grain, and will not be dealt with here.

The walnut wood is almost black, and the grain here is much more pronounced than the wood of the trunk which is lighter in color. The branches have the lightest color, being almost blonde, and have no noticeable grain. The intrinsic worth of the wood from each part of the tree differs- that from the root being the most expensive and the branches having the lowest price.

When a dealer buys a whole tree and leaves it to the season, a part of his capital becomes blocked for that period and this will naturally be reflected in the cost of his product. A cheaper product, on the other hand, is liable to warp, or in case it is taken to warmer climes, will crack or shrink.

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Knots on any tree are natural and inevitable, but as their appearance is commonly thought to mar the beauty and smoothness of the finished product, knots are usually concealed skillfully in the sawing, as it is difficult, though not impossible, to mask them while carving.

Carving is the demonstration of the carver’s skill, and walnut is eminently suitable for this, being one of the strongest varieties of wood. There are several varieties of carving-deep carving usually with dragon or lotus flower motifs, two inches deep or more; shallow carving, half an inch deep done all over the flat surface; open or lattice work, usually depicting the Chinar motif.; and most popularly, semi carving, which is a thin panel along the rim of a surface, with perhaps a Centre motif. The advantage of the semi-carving is that it allows the grain of wood to be displayed, together with the carver’s skill. Naturally deep carving with all the skill and labor required, is the most expensive.

Wax polishing brings out the sheen inherent in walnut wood, and is by far the most popular finish. Because varnish obscures the grain of the wood and alters its hue, it is seldom used. When choosing objects made from walnut wood, keep in mind that the type of carving and part of the tree used will affect the price.

Copper and Silverware

The old city abounds with shops where objects of copper line the walls, the floor and even the ceiling made generally for the local market. Craftsmen can often be seen engraving objects of household utility-samovars, bowls, plates and trays. Floral, stylized, geometric, leaf and sometimes calligraphic motifs are engraved or embossed on copper, and occasionally silver, to cover the entire surface with intricate designs which are then oxidized, the better to stand out from the background. The work known as ‘naqash’ determines the price of the object, as does the weight.

CURRENT SCENARIO OF MICROFINANCE IN J&K

The J&K State is 19th populous state of Country .However stands second last in case of literacy positioned after Bihar. We also stand in the bottom four in case of employment. Still only 3.8% of our population is below poverty line, which shows that people here are skilled in various craftsmanship and so self made which again depict huge potential for micro enterprises in J&K. According to one survey we have 27 Handicraft Federation in J&K with around 270 SHG’sand 2700 members

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JK Bank launches microfinance in Jammu

Jammu Feb 25, 2007 (Kashmir Newz Desk):

Under its microfinance programme, Jammu and Kashmir Bank has started an ambitious programme to provide hassle free financial assistance to small businesses, like artisans, agri-business activities and others at cheaper rates.

Deputy Governor Reserve Bank of India, Ms. Usha Thorat, appreciated the role of J&K Bank in reaching out to masses with financial solutions under its microfinance programme. She was speaking on the launching ceremony of the J&K Bank’s microfinance programme in Jammu today.

The chief guest on the occasion, Thorat, disbursed loans with a ticket size of Rs. 2,000 to Rs. One lakh to 42 vegetable and fruit vendors on the spot. Overall loan disbursement to the tune of Rs.23.24 lakh was made on the occasion.

J&K Bank chairman, Dr. Haseeb A. Drabu, while speaking on the occasion said that the Bank shall be putting every effort to bring unbanked people in the ambit of banking through its ‘Reaching Out to All Programme’.

“We have been developing customized products for small businesses, artisans and people carving out their livelihood from agri-business activities and offer these products to them at cheaper rates. In the first stage, we launched the financial inclusion programme in R S Pura

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Microfinance is in


in Jammu and Ganderbal in Srinagar where we have opened accounts of people even with small means through our no-frill account – S/B Ujala Scheme. Through our focused attention on J&K State, this programme shall be extended to other parts in phases,” said Dr. Haseeb Drabu.

He further stated that the Banks shall be extending hassle free small loans to these segments of people through tailor-made products at cheaper rates.

Ms. Thorat, RBI Deputy Governor, in her speech lauded the bank’s efforts in reaching to unbanked people and appreciated the model of microfinance programme of the bank. While speaking about the benefits of this programme, Ms. Thorat asked the beneficiaries to utilize the loan amount for the purpose it has been granted.

She said, “The beneficiaries should take full advantage of the bank’s microfinance scheme to enhance their income generation capacity. But at the same time, they must repay the loan within the stipulated time and help the bank to make it purposeful for others.”

She also appreciated the IT solutions adopted by the bank for the benefits of its customers.

Ms. Thorat later visited the beneficiaries’ units and took stock of activities related to their day-to-day business.

SRINAGAR DISTRICT

Introduction;

Srinagar district is situated in the centre of Kashmir Valley, is surrounded by five districts.In the north it is flanked by Kargil,in the South by Pulwama,in the north-west by Budgam. The capital city of Srinagar,is located 1730 metres above sea level.The district with a population of around 9,00,000 souls(1991- census), is sperad over an area of 2228 Sq.Kms.It comprises three tehsils/ towns viz Srinagar, Ganderbal and Kangan, four blocks (Srinagar, Ganderbal, Kangan and Leh), besides 175 villages.The population density in the district Srinagar is 401 per Square Kilometer which is highest in the state. The literacy rate of the district was 33.80%in 1981.

According to a popular legend which is mentioned in Kalhana's Rajtaringini Kashmir valley was a vast lake. Kashyap Rishi drained out the water and made it habitable. It is said that originally Yakshas, and Pisacas tribes inhabited the valley at the higher reaches and did not allow the inhabitants of the valley to live in peace. King Ashok brought Budhism to Kashmir

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which was strengthened by Kanishka. In 6th century Huns came to rule the valley and Mihirkul was one of the infamous Hun ruler. The area attained freedom in 530 AD which was shortlived.

According to Sir Aurel Stein the famous interpretor of Kalhana the chronicler of Kashmir the city of Srinagar had big market and mansions made of wood touching the clouds. Hieun-tsang the famous Chinese traveler visited Srinagar and has described it his memoirs.

At a Glance

Educational Institutions

955

Colleges/polytechnics 10universities 2Road length 1296 KmsArea 2228 sq. kmsPopulation 9,00,000 (1991)Population Density KmVillages 175(7 uninhabited)Tehsil 3Towns 3Panchayats 93Blocks 4Live-Stock Population

2.50 lakhs

Gross Area sown 0.24 lakh hect.Forests 660.50 sqkmVillages electrified 168Villages with drinking water

168

Literacy rate 33.31

IDENTIFIED CLUSTERS:

The identified Handicraft clusters according to their constituency as per survey of the Kashmir Handicrafts Artisans Cluster is as given below:

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IDDGAH CONSTITUENCY

KANI HAMA ARATH CONSTITUENCY

BATMALOO CONSTITUENCY

DARGAH CONSTITUENCY

KHANYAR CONSTITUENCY.

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IDENTIFIED CLUSTER

NUMBER OF PEOPLE INVOLED

AREA OF CONCENTRATION

Aari Emb 4000 families Noor Bagh, Wangan pora, Pal-pora, Ali Kadal, Idd gah

Sozni Emb 1500 families SameCrewel Aari Emb

1730 Same

Carpet 1100 Artisans

Same

Wood Carving 50 families SamePaper Machie 6500 SameFur 150 Same

IDENTIFIED CLUSTER


Aari Emb 7500 ArtisansSozni Emb 4500 ArtisansKani Shawl 250 Artisans

IDENTIFIED CLUSTER


Aari Emb 2500 ArtisansTapistry 90 ArtisansCrewel Aari Emb

6500 Artisans

Wood Carving 190 ArtisansLeather 450 ArtisansFur 900 Artisans

IDENTIFIED CLUSTER


Zari Emb 400 ArtisanSozni Emb 7000 ArtisansWillow Work 300 ArtisansCarpet 7500 ArtisansPaper machie 300 ArtisansIDENTIFIED CLUSTER


Aari Emb 5300 ArtisanSozni Emb 250 ArtisanCrewel Aari Emb

250 Artisans

Carpet 700 ArtisansWood Carving NilPaper machie 300 Artisans


TOTAL IDENTIFIED CLUSTERS IN KASHMIR VALLEYS.No IDENTIFIED

CLUSTERNUMBER OF PEOPLE INVOLED

VOLUME OF BUSINESS GENERATED

AREA OF CONCENTRATION

1 BAT CLUSTER AWANTIPUR2 LEATHER

CLUSTER450 ARTISANS

DOWNTOWN AREA

3 FOOD PARK 19 UNITS KHANMOH4 CARPETS 12000

FAMILIES5 PAPER MACHIE 9300

ARTISANSDARGAH & DOWNTOWN

6 SOZNI EMBODIERY

14750 ARTISANS

ZAZUN,BADAM PORA, UP-TOWN

7 CREWEL EMB 8500 ARTISANS

1.50 CRORE DOWNTOWN

8 AARI EMB 20000 FAMILIES

DOWNTOWN &UPTOWN

9 WILLOW WORK 300 FAMILIES

GANDERBAL, DARGAH

10 ZARI EMB 400 FAMILIES

11 WOOD CARVING 215 FAMILIES

DOWNTOWN

12 KANI SHAWL 500 ARTISANS

DOWNTOWN

13 TAPISTRY 90 ARTISANS

BATMALOO

As per survey of Kashmir handicrafts Artisans cluster of (SHG) FIC LTD.

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The Path Ahead ;

Successful microfinance can be defined by three main characteristics: sustainability, outreach, and impact. Sustainability refers to the ability of a program to continue over time, preferably without ongoing subsidies. Outreach refers to the number of clients reached and targeting of the poor. Impact refers to the ability of a program to assist poor households and individuals to move out and remain out of poverty, and that is the ultimate objective of microfinance provision.

Enterprise growth is much more than just providing credit, it is also about financing a viable business idea. The importance of partnerships between the public and the private sector, as well as between social entrepreneurship groups and microfinance institutions thus becomes critical.

Care has to be taken that borrowed funds feed into a new business. No matter how the loan is described on paper, many families use the money to finance the purchase of a new motorbike or to pay the family doctor.

At the same time MFIs can help to facilitate capacity building consultancy projects to improve MIS/Accounting, technology and human resources. This emphasis on Management Information Systems (MIS) as well as the innovative use of technology (virtual branches, ATMs, credit and debit cards) is extremely crucial.

All this will lead to reduction in costs to clients and the institutions, building new distribution channels, helping clients build assets (not just debt), as well asmobilizing banks and capital markets for microfinance.

Suggestions

Suggestions 1:

People need to be informed about various options of accessing credit and benefits of savings through MFI’S and methods of availing these funds i.e. marketing is required. Outreach to the low income group is required. This May require some microfinance awareness programs which may involve skilled and dedicated staff. A Replica of Grameen Bank with some added features such as micro Saving and micro Insurance is must to bring poor out of this poverty trap.

Suggestions II :

Other possible is to increase the flow of funds to informal lenders to supplement their own funds. The formal sector will take advantage of the lower transaction costs and risk premia of the informal sector so as to reach the low income group borrowers beyond the profitable reach of the formal sector. As for the beneficiaries, inspite of the

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transaction cost of the formal and the informal sector being transferred on to them, the cost of borrowing will remain low as compared to what exists through money lenders.

In addition, access to the formal sector funds could promote competition within the informal sector and check the exhorbitant profits being made in this sector. It also promotes allocative efficiency by offering a broader choice for the productive use of savings by beneficiaries, irrespective of which sector they are mobilised by.

In the process, the intermediaries would also charge additional fees to borrowers to cover their costs. It would also aid them in strengthening themselves. However, it would be aimed to make the funds reach the beneficiaries at applicable rates of the two institutions.

The intermediaries would accept the savings from groups as collaterals and would transfer the same to the formal sector for getting the deposits serviced better. Thus the two way flow of funds would benefit both the formal and informal sector.

The beneficiaries would benefit as the cost of borrowing would be low for them and their savings would be safe and would be serviced better.

An analysis of community-based finance systems highlights the high establishment costs of NGOs. They suggest that loan service costs are lower amongst co-operative societies, as compared to NGO-linked CBFIs, because of decentralized loan administration and availability of voluntary staff. The NGO-linked CBFI operations are generally supported by grants from national and international donor agencies.

NGO-linked CBFIs must aim at an adequate scale of operation and while it may be supported by grants to meet establishment costs in the initial period, dependency on such grants should be reduced over time. An adequate interest rate spread must be available to meet the transactions costs. CBFIs should be able to recover all costs through its financial operations, by building up their capacity for financial management, through training and interaction with the Formal sector institutions.

SUGGESTION III: Since it is now being felt that the existing structures are inadequate to meet the housing and economic credit needs of the participating community, an Institution that would combine the strengths of an NGO and the expertise of a financial institution, with participation from the community will be appropriate.

Thus, the concept of Development Association for Savings and Credit (DASC) could be utilised to address the issue of providing better access to housing finance and economic loans for the participating community in the project area. The DASC is built on the strength of the informal groups to create and improve access to skills, resources and markets. These Groups mobilize savings from their constituent members and other formal/informal sources. The funds mobilized are thus used for meeting the credit needs of the members.

The DASC will be initiated with the objective to create an alternate, self-sustainable, community based financial organization appropriate to meet the shelter development

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and livelihood needs of the weaker section belonging to the rural community.

The long term goal of DASC may include:

Establishment of a resource centre for shelter and livelihood development for the weaker sections of the society.

Demonstration of a viable community based credit system in operation where the communities have access to and control over financial resources based on their own strength.

Developing group based approach as a sustainable development paradigm for community development.

OVER ALL CREDIT IN DIFFERENT SECTORS BY ALL THE

BANKS:-

The over all credits in different sectors shows that transportation is the main sector among

all the sectors which constitutes about one third of the total credits in the town. The

percentage of different sectors by all the banks is as shown in the chart.

CREDITS IN DIFFERENT SECTORS BY ALL THE BANKS

05

10152025303540

PE

RC

EN

TAG

E

Series1

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The above graph shows that transport is the main sector which shares a credit facility of 37

% of the total credit, term loans and others has about 20 % of the total credit and the

remaining each sectors constitutes less than 10 % of the credit

FINDINGS

During the survey of the town the main findings are as under

The J&K Bank is the only Bank in the state having about more than one third of

the total credit share in the town. In other words we can say J

&K Bank is having monopoly in the town.

The J&K Bank is the only in the district which has ptovided the credit to the

Tourism industry.

Education has not been properly served by any bank of the district

The agriculture and the horticulture has not properly encouraged by the J& K Bnak

The transportation is the main sector in which J7K Bank and other banks has

The maximum credit

The potential in the under – financed productive sectors like, horticulture,

commodities and in the artisan sector has not been properly taped by the J&K

Bank.

While complicated structured products and derivatives have been designed by the J

& K Bank, little attention has been paid to create simple financial products on the

basis of customer requirements, their income generating patterns, the phases in

their business, their inter-temporal repayment capabilities and the leveraging of

business rather than their assets

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The people are not still aware of the new products of the J & K Bank. These new

schemes include Budshah primary Education Finance J K Bank Zafran Finance, JK

Bank Khatamband Finance, JK Bank Craft Development Finance, JK Bank

Dastakar Finance, JK Bank Giri Finance, JK Bank Commercial Premises Finance

and many other such schemes.

The J & K Bank has still not initiated the credit counseling centers in the town, so

many of the people are not sill having sufficient and complete information about

the credit facilities of the JK Bank.

Some people are in confusion over the interest rates of the credits provided to them

by the different banks

Transport is the main economic sector of the town which has consumed about 12

crores of the total credit in the town which is about 14 percent of the total credit

provide by all the banks

Arts and Dastakar finance has been totally ignored in the town which are associate

with the history of the Kashmir.

JK Bank is the only bank in the town which provides finance to the Tourism

Industry and has thus helped the Tourism Department of the state in the promotion

of the tourism

There are also some reports of over charging while applying for the credit facility

to the Bank.

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SUGGESTIONS;

The agriculture and the horticulture should be given prompt attentions and new

schemes regarding these sectors should be implemented the fruit grower and the

farmer could get more benefits from the scheme

The J&K Bank should adopt an integrated approach to agriculture financing by

addressing an entire chain from production to consumption with a deep sectoral

focus. The Bank should also include credit facilities to cold storage and

warehouses.

The J&K Bank should also focus on financing of post harvest, infrastructure such as

grading, packing facility, cold storage and fruit juice manufacturing and other such

facilities

Education should be given prompt attention and new schemes should be developed

for this purpose

The J&K Bank should now follow intensive lending rather than extensive lending ,

the process of intensive lending builds the network of financial intermediation and

then leverages these for extensive lending.

Credit counseling centers should be created so that customers can get complete and

adequate information about the different products adopted by the JK Bank and the

interest rates

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The people should be informed about the new schemes of the JK Bank such as.

Budshah primary Education Finance J K Bank Zafran Finance, JK Bank

Khatamband Finance, JK Bank Craft Development Finance, JK Bank Dastakar

Finance, JK Bank Giri Finance, JK Bank Commercial Premises Finance and many

other such schemes and the best use of these schemes to their customers so that

maximum profit can be generated by using these schemes by a customer

The tradition arts and dastakar should be financed with the new schemes of the JK

Bank so that the traditional economic sector of the state can be boosted and can be

retained in its original form which it has lasted from past few years.

The JK Bank should strength its operations department so that while applying for

the credit facility in the JK Bank it should not take more time

There are still some sectors such as saw mills in which J&K Bank doesn’t provide

credit facility, due to which these sectors are lagging behind in the valley. Therefore

JK Bank should take some steps towards such industries so that losses in these

sectors can be minimized.

The JK Bank should develop customer oriented strategy so that the losted

customers can be attracted.

The JK Bank should focus on turn over lending rather on asset lending

The JK Bank should develop rural strategy for capacity building and offering of

new financial services.

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LIMITATIONS OF THE STUDY

However, every care has been taken to make this report authentic in every sense. Yet, there

were a few uncomfortable factors, which might have had their influence on the final report.

It is said,” nothing is perfect” and if this quote is true I am sure there would be few

shortcomings in this project also. Sincere efforts have been made to eliminate due to the

limitations of the study. These are:

The study was to be completed in a short time; the time factor put a considerable

limit on the scope and the extensiveness of the study.

Because of the diversity of nature of respondents the findings of the survey could

not be generalized.

Some of the respondents gave ambiguous replies for certain questions or omitted the responses to some of them. The interpretation of some responses become difficult and could generate wrong results.

The survey was conducted only to Baramulla district

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Conclusion;

Some valuable lessons can be drawn from the experience of successful Microfinance operation. First of all, the poor repay their loans and are willing to pay for higher interest rates than commercial banks provided that access to credit is provided. The solidarity group pressure and sequential lending provide strong repayment motivation and produce extremely low default rates. Secondly, the poor save and hence microfinance should provide both savings and loan facilities. These two findings imply that banking on the poor can be a profitable business. However, attaining financial viability and sustainability is the major institutional challenge. Deposit mobilization is the major means for microfinance institutions to expand outreach by leveraging equity (Sacay et al 1996). In order to be sustainable, microfinance lending should be grounded on market principles because large scale lending cannot be accomplished through subsidies.

The absence of savings has unfortunately been one of the distinguishing features of Indian microfinance and prevents it from providing a financial service to the poor which is as valuable to them as microcredit,” the report outlines.There are strong synergies between microinsurance and microcredit. Insurance offers safeguards to assets created under microcredit programmes. It also protects savings from being wiped out by shocks arising out of sickness, death, accidents or droughts

A main conclusion of this project is that microfinance can contribute to solving the problem of inadequate housing and urban services as an integral part of poverty alleviation programmes. The challenge lies in finding the level of flexibility in the credit instrument that could make it match the multiple credit requirements of the low income borrowers without imposing unbearably high cost of monitoring its end-use upon the lenders. A promising solution is to provide multi-purpose loans or composite credit for income generation, housing improvement and consumption support. Consumption loan is found to be especially important during the gestation period between commencing a new economic activity and deriving positive income. Careful research on demand for financing and savings behavior of the potential borrowers and their participation in determining the mix of multi-purpose loans are essential in making the concept work (tall 1996).

Eventually it would be ideal to enhance the creditworthiness of the poor and to make them more "bankable" to financial institutions and enable them to qualify for long-term credit from the formal sector. Microfinance institutions have a lot to contribute to this by building financial discipline and educating borrowers about repayment requirements.

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Questionnaire

Q NO.1:- What is total amount of credit your bank has offered during the current financial year?

(a) Below 1 crore (b) 1-2 crore (c) 2-3 crore (d) Above 3 crore

Q NO.2:- What are the various credit schemes offered by your Banks in

district Anantnag?

(a) Transportation(b)Business(c) SSI(d)Education (e) Agriculture(f) Term loans (g)Tourism(h)Housing(i) Others

Q NO.3:- How many loans you have given during current financial year?

(a) 1-5(b)5-10(c) 10-15(d)15 above

Q NO.4:- Are your customers regularly paying the installments?

(a) Yes (b) No

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Q NO.5:- How many defaults cases your bank has faced during the current financial year?

(a) 1-5(b)5-10(c) 10-15(d)Above 15

Q NO.6:- What is the main reason behind non reoaying of loan installements according to your view?

Q NO.7:- How much time does your bank give to defaulters to take over their mortgage?

(a) 1 years(b)2 years (c) 3 years (d)4 years

Q NO.8:- Does you charge the same interest rates to defaulters or not?

(a) Yes (b) No

Q.9: whether your bank charge increased or decreased rate of interest to the defaulters ?

(a) Increased rate (b) Reduced rate

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Q10. What is your Occupation?………………………………………………………………………………………………………………………………………………………………………………

Q11. How many people in your family are involved in this business?………………………………………………………………………………………………………………………………………………………………………………

Q12. How many families are involved in this business?………………………………………………………………………………………………………………………………………………………………………………

Q13. What is your monthly income?………………………………………………………………………………………………………………………………………………………………………………

Q14. How do you Finance your business?………………………………………………………………………………………………………………………………………………………………………………

Q15. What are your expectations from various Govt. Agencies and Banks?………………………………………………………………………………………………………………………………………………………………………………

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ANALYSIS & INTERPRETATION;

After surving everthing ,I found most of the rural area people are having maintained account in the j&k bank, the total of about 70% people are having accont in bank , this is because they feel location play an important role and j&k bank branches are located in their areas and remaining 30% feel that no branches are available in their areas. Most of the people who are included in microfinance dept. believe that j&k bank is helping them in every field by providing loans and different schemes and allowing subsidies on various schemes .This is done because j&k bank is increasing scope of microfinance and field for its customers and this is helping j&k bank to increase its customer number and regain switch off customers .So, overall j&k bank in recent years had increased its market share and customers upto great extent as j&k bank know after looking survey had taken into view the location which had increased their compatibility and have given them competitive edge over others.

BIBLOGRAPHY

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Books Consulted : Economic Survey of J&K State 2006-07. Statistical Digest of J&K State 2005-06.

Organizations Consulted (For Primary Data): Directorate of Industrial center (Lalchowk) Directorate of Industrial center (Budgam) The Kashmir Handicrafts Federation Industrial Cooperative Ltd.

Secondary Data:

Economic Times.Times of Indiawww.google.co.inwww.jammukashmir.nic.inwww.rbi.orgwww.basel.com

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http://www.basel.com/

http://www.rbi.org/

http://www.jammukashmir.nic.in/

http://www.google.co.in/

potential of micro finance of j&k

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