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Poverty and Sustainability:Achieving the double bottom line in Micro finance: 

Poverty and Sustainability: Achieving the double bottom line in Micro finance The Case of CYSD/Prayas (Koraput), India By Anup Dash, Utkal University, Bhubaneswar, India 2nd Imp-Act Global meeting, South Africa May 5-9, 2003

Revisiting the sustainability debate...: 

Revisiting the sustainability debate... Impasse over “sustainability Vs poverty reach” Heavy winds of “sustainability” paradigm Constricted definition of “good practice” “Rent seeking behavior” of MFIs Fear of “client drift” & loss of poverty focus

Major assertions of the paper: 

Major assertions of the paper Breaking the impasse: restructuring the debate From “exclusive” bottom-line to “double bottom-line” Financial sustainability: a necessary but not sufficient condition for MF to fulfill its objectives Good practice: from profits over poverty reach to profits after poverty reach

CYSD’s MF program: 

CYSD’s MF program CYSD is a poverty-focused NGDO MF program grounded on community development paradigm It is not a MF provider but a MF promoter It does not access “subsidised credit” for onlending operations – No financial intermediation It promotes the Self-Help Group (SHG) model of micro finance Micro finance is not just money Micro finance is not enough

Core philosophy of SHG: 

Core philosophy of SHG SHGs: not part of the CYSD’s organisational structure peoples’ institution embedded in the community not created for instrumental purpose, but have their own intrinsic value based on republican values of active citizenship Members are makers and shapers (not users and choosers as in other MF programs) pursue an arranged marriage between capitalism and democracy (income growth plus participation) of bi-dimensional character: economic and social

Core philosophy of SHG contd..: 

Core philosophy of SHG contd.. As an economic entity Engaged in financial (and social) intermediation Start with savings deposit (amount decided by the group) at regular meetings (frequency decided by group) Internal lending from own savings to the members for their credit needs Loan decisions (amount, period, rate of interest and repayment schedule, etc) made by the group Access external funds as they establish credit worthiness with growth and maturity

Core Philosophy of SHG contd..: 

Core Philosophy of SHG contd.. As a social entity It is a locus: for rebuilding new solidarities around common goals for expanding circles of support for poor women where obligations and expectations are restructured along civic sentiments and universalistic principles for a new social learning, and personal transformation from ethnos to demos

The SHGs (Intended Objectives): 

The SHGs (Intended Objectives) Self generate resources through member’s savings for meeting credit needs Stimulate the self-help potential of the poor women Function as a channel for efficient delivery of services and inputs Create an institutional space for the poor women to enhance their participation and articulate their voice

Promotion of SHG through: 

Promotion of SHG through Mobilising women (15 to 20 in number) from homogenous socio-economic backgrounds into SHGs facilitating processes for group evolution around felt needs and common goals supporting these groups to evolve their systems and processes (e.g, financial management systems, setting norms and standards for groups, management and governance of groups etc.) Increase knowledge and awareness of members

Promotion of SHG contd..: 

Promotion of SHG contd.. increasing the members’ as well as the groups’ capacities and skills (e.g, accounting, book keeping, cash handling, organising meetings, maintaining records, conflict resolution etc) linkage building (banks, markets) and networking and federating them as part of institutional development

CYSD program vs. other programs: 

CYSD program vs. other programs CYSD SHGs are different from…

The bigger picture of poverty: 

The bigger picture of poverty Significant variation along regional & rural/urban poverty incidence (6% Punjab, 48% Orissa) No significant reduction in poverty in Orissa (63% in 1960 to 48% in 2000) High regional disparity in poverty incidence (34 % in coastal Orissa, 82 % in Southern Orissa) High rural/urban difference in Southern Orissa (44% urban and 87% rural)

The bigger picture of poverty contd..: 

The bigger picture of poverty contd.. Rural southern Orissa - poorest region in India (87% below poverty level) High agrarian economy but low availability of agricultural wage employment (85 days in Orissa as against 137 days in India) Lowest wage rate in India (Rs.18/- as against Rs.21/- in India); Rs.15/- for women – about US$ 0.30 cents Extremely low literacy (24.64%) with high gender difference (39% men, 16% women) CYSD/Prayas operates in this poorest region of India (in the district of Koraput)

Poverty in local context: 

Poverty in local context Multiple and Cumulative (Geographical seclusion, Social exclusion, economic exploitation, and political disfranchisement) Chronic (share a history of deprivation transmitted across generations) Severe (Food insecurity, Indebtedness, very low asset base – human, social, productive)

Poverty in local context contd..: 

Poverty in local context contd.. People produce own food, labour for others, and gather forest produces – depending on seasons – for a living Economy not fully monetised Subsistence agriculture Lack of access to knowledge/skills of developed farming practices Soil erosion through surface run-off, loss of fertility

Poverty in local context contd..: 

Poverty in local context contd.. Agricultural produce doesn’t sustain beyond six months Wage labour not even for two months (at very low rates, Rs.15/- per day) Forest produce: Restricted access, Seasonal, no fair price, distress sale and exploitation by middle men and traders Entitlement failure

Coping Strategy: 

Coping Strategy Nutritional Deficiency, poor health, morbidity Indebtedness Disease Asset depletion and family breaking points

Local perceptions of poverty: 

Local perceptions of poverty Can’t afford to eat rice regularly Food stocks not enough to sustain for half a year Everybody in the family doesn’t get enough to eat Can’t afford footwear No Winter clothing Children often in half naked condition Sleeps on floor on bamboo mat House with mud walls and thatched roof; not strong enough to withstand heavy rains Can’t renew the thatching of house every year Can’t buy new clothes for family during festivals Can’t invite friends or relatives on festive occasions

Intensity of poverty: 

Intensity of poverty

Constraining Environment: 

Constraining Environment Operates in area of dispersed population, difficult terrain and poor communication systems Heavy demand for consumption loans Seasonality of occupational activities (members are extremely risk-averse) Extremely low absorptive capacity and lack of rural purchasing power Extremely low level of small scale economic activities (low risk, high return activities with minimum gestation period)  Per capita Bank credit in Koraput was only Rs. 450 (less than US $ 10) as per the Banking statistics (March 1992) of the Reserve Bank of India.

Constraining environment contd.. : 

Constraining environment contd.. Loan use for addressing ‘emergent need’: no distinction between ‘productive’ and ‘non-productive’ spending “Black box” nature of the extreme poor household makes it difficult to track the loan and trace its impact

Initial dilemma: 

Initial dilemma Conventional wisdom in MF Vs. realities of the poorest Repayment discipline Vs. overall participation Too much financial discipline would lead to high dropouts/exclusion of the poorest from the programme Limited opportunities for productive use of loan High risk of taking loans with a rigid repayment schedule Need for flexibility to reach the poorest Loans were allowed reasonable grace period Overall participation as a priority

The journey so far…: 

The journey so far… Initially the program was made flexible to better fit the realities of the poorest women Loans were allowed to have a reasonable grace period for members to pay High irregularity and arrears of loan repayment occurred. Arrears tolerated with the assumption that the poorest have the willingness, but not the ability to repay Increasing delinquency threatening to destroy the culture of repayment However, groups didn’t collapse

Redesigning the program: 

Redesigning the program Focus more intensively on capacity development of the group Go slow with credit and focus more on non-credit instruments for poverty alleviation Reduce feminisation of debt through Grain Banks Lately when income levels began improving, take up loan recovery more vigorously to deal with the issue of unresolved arrears

Program achievements: 

Program achievements 59.5% of the members report an increase in the total household income (48% of them attribute this increase in income to SHG) 60.6% report an improvement in the household diet About 20 per cent of the members can now store their produce for seeking better price in future, having moved up to a situation where they don’t have to distress sell 86.8% now get equal wage with men 12% now ensure minimum wages fixed by the government

Program achievements contd..: 

Program achievements contd.. 65.6% of the members don’t ever now go to the money lender (Others go to the money lender for loans only as a fourth priority ) SHG is the first source for borrowing for 97.5% of the members Credit needs for food grain is met through the grain banks for 70% of the member in distress situations Wider impacts in the form of collective action by the groups reflects growth in capacity of SHGs

Wider Impacts: 

Wider Impacts Collective action to demand and ensure basic services entitlements Access to Govt. schemes Convenient access to Public Distribution System (PDS) Collective action in protests/rallies Active participation in anti-liquor campaigns Rallies on World environment day, Literacy day Collective action for village development “Shramdaan” for developing village infrastructure (approach roads, avenue plantation,) Managing community assets (grain bank, tube well) Lobbying and accessing Govt. works for village

Achieving sustainability: 

Achieving sustainability Bank linkage Nine SHGs have been linked with the regional rural Bank Two of them have taken repeat loans from the bank (First loan: Rs.3,000 - Rs.4,000/- ; 2nd loan: Rs.10,000 - Rs.25,000/-)

Achieving sustainability contd..: 

Achieving sustainability contd.. Cost recovery Each SHG pays a regular contribution of Rs. 10 every month to meet the expenses (partly) of the federation SHG contribution towards the SHG and farmer melas (contributed about 22% of the total cost of the mela held in 2003) More than 80% contribution to the building of community centres (in the form of labour and material inputs) 50% contribution towards land development costs in agricultural program 20% contribution for installing of tubewells

Achieving Sustainability contd..: 

Achieving Sustainability contd.. Drive towards Maturity

Major learnings: 

Major learnings The life process of the poorest people in remote rural communities don’t move as fast as the logic of economy assumes Savings services are of greater importance than credit in a risky environment (savings as a strategy for ex ante risk management and withstand shock) Non-credit instruments for poverty alleviation are extremely important for the poorest, and can strengthen credit

Major learnings contd..: 

Major learnings contd.. It is dangerous to push money (credit) without appropriate institutions (strong groups) to manage it The poorest people don’t need excess protection, but better access to entitlements and enabling institutional support It is very important not to lose focus on sustainability

In Conclusion: 

In Conclusion CYSD/Prayas experience confirms that: microfinance can reach the bottom of the socio-economic pyramid generate processes (even among the poorest on the brink of survival) that do lead to sustainability make an impact at the extreme margins of the society

In Conclusion contd..: 

In Conclusion contd.. Issues for micro finance as an Industry: come out of the narrow economistic approach to a more holistic approach to welfare and well being revisit the concept of ‘Sustainability’ (shift the paradigm from institutional economics to a broader developmental focus) reset the sustainability goals on a more realistic and longer-term framework

Severity of poverty contd..: 

Severity of poverty contd.. (Source: CYSD Baseline Survey, 1997) * For the current plan period this is equivalent to Rs. 15,000.

Severity of poverty contd..: 

Severity of poverty contd..

Severity of poverty contd..: 

Severity of poverty contd.. Source: CYSD baseline Survey, 1995-96 Disabling Credit