Internship Report Finance

Summer Internship 2010
Study on potential of Micro financing to the SHGs/VDCs through development of community finance organization (CFOs) in selected districts of MPDPIP
(Project report submitted in partial fulfilment of Post Graduate Diploma in Forest
Management)
Project Report Submitted To Mrs. Anju Bhadoria (Administration Coordinator)
(Panchayat and Rural Development Department, MP)
Submitted By Navneet Thind IIFM Bhopal

DECLARATION BY ORGANISATION
This is to certify that the Project Report entitled Study on potential of Micro Financing to the SHGs/VDCs through development of community finance organization (CFOs) in selected districts of MPDPIP done by Ms Navneet Thind (PFM 2009-2011) for MPDPIP is an original work. This has been carried out as Summer Internship under my guidance for partial fulfilment of Post Graduate Diploma in Forest Management at Indian Institute of Forest Management, Bhopal.
Place: Bhopal Date: 14th June, 2010
Mrs. Anju Bhadoria (Administration Coordinator, MPDPIP)

DECLARATION
I, Navneet Thind, do hereby declare that the project entitled Study on potential of Micro Financing to the SHGs/VDCs through development of community finance organization (CFOs) in selected districts of MPDPIP is an original work. The contents of this project report reflects the work done by me during the Summer Internship component of the Post Graduate Diploma in Forest Management of the Indian Institute of Forest Management, Bhopal from 5th April 2009 to 11th June 2009 with MPDPIP.
Place: MPDPIP, Bhopal Date: 16 June 2010
(Navneet Thind) PFM 2009-2011
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Contents
DECLARATION BY ORGANISATION ........................................................................................... i DECLARATION .............................................................................................................................. ii EXECUTIVE SUMMARY ............................................................................................................... 1 ACKNOWLEDGEMENT ................................................................................................................. 3 LIST OF ACRONYMS ..................................................................................................................... 4 LIST OF TABLES ............................................................................................................................ 6 LIST OF FIGURES:.......................................................................................................................... 7 CHAPTER-1: INTRODUCTION ...................................................................................................... 8 1.1 ABOUT MPDPIP .................................................................................................................. 8 1.1.1Vision:................................................................................................................................ 8 1.1.2 Mission: ............................................................................................................................ 8 1.1.3 About MPDPIP-I: ............................................................................................................... 9 1.1.4 About MPDPIP-II: ............................................................................................................ 10 1.1.5 About Producer companies: ............................................................................................ 10 1.2 ABOUT PROJECT:............................................................................................................... 11 1.2.1 Background ..................................................................................................................... 11 1.2.2 Objectives: ...................................................................................................................... 13 CHAPTER-2: LITERATURE REVIEW.......................................................................................... 14 2.1 What is microfinance? ........................................................................................................... 14 2.2Various Credit Lending Models .............................................................................................. 14 2.3 The SHG model in detail........................................................................................................ 16 2.4 SHG Bank linkage: ................................................................................................................ 17 2.5 Micro finance and SHGs in Madhya Pradesh ......................................................................... 18 2.6 Mutual Added Cooperative Society Act: ................................................................................ 20 CHAPTER-3: SHG FEDERATIONS .............................................................................................. 21 3.1 What is a SHG federation? ..................................................................................................... 21 3.2 Need of SHG Federations ...................................................................................................... 21 3.3 Evolution of SHGs and Federations ....................................................................................... 22 3.4 Objectives and Activities of Federations ................................................................................ 23 3.4.1 Financial Support Services: .............................................................................................. 23 3.4.2 Non-Financial support services ........................................................................................ 23 3.5 Indira Kranti Patham (IKP): An Example and Paradigm for the SHG Federations: ................. 24
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CHAPTER-4: RESEARCH METHODOLOGY .............................................................................. 29 4.1 Sampling: .............................................................................................................................. 29 4.2 Data Collection ...................................................................................................................... 31 4.3 Tools of Data Collection ........................................................................................................ 31 4.3.1 Questionnaire: ................................................................................................................ 31 4.3.2 Personal interviews: ........................................................................................................ 31 4.3.3 Field observation:............................................................................................................ 32 4.4 Constraints: ........................................................................................................................... 32 CHAPTER-5: FINDINGS AND ANALYSIS .................................................................................. 33 5.1 Overall status of MPDPIP-II: ................................................................................................. 33 5.2 Extent of Micro financing: ..................................................................................................... 33 5.3 Source of Income for Community members: .......................................................................... 36 5.4 Demand of loan for various activities: .................................................................................... 37 5.5 Certain Hurdles in MPDPIP-II:................................................................................................. 38 CHAPTER-6: COMMUNITY FINANCE ORGANIZATION ......................................................... 39 6.1 What is a CFO? ..................................................................................................................... 39 6.2 Objectives of CFO: ................................................................................................................ 39 6.3 Need of CFO: ........................................................................................................................ 39 6.4 Functions of CFO: ................................................................................................................. 39 6.5 Benefits of CFO:.................................................................................................................... 40 6.6 Proposed structure of CFO: .................................................................................................... 41 6.7 Flow of Funds after Development of CFOs: ........................................................................... 42 CHAPTER 7: SUMMARY AND CONCLUSIONS ......................................................................... 44 CHAPTER 8: RECOMMENDATIONS .......................................................................................... 46 8.1 For ascertaining the Status of SHGs and VDCs to form a CFO: .............................................. 46 8.2 For development of CFOs: ...................................................................................................... 46 8.3 For a successful and more effective MPDPIP-II : ..................................................................... 47 BIBLIOGRAPHY ........................................................................................................................... 49 APPENDICES ................................................................................................................................ 51 APPENDIX I............................................................................................................................... 51 APPENDIX-II ............................................................................................................................. 57 APPENDIX-III ............................................................................................................................ 58
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EXECUTIVE SUMMARY
MPDPIP is a large poverty-alleviation programme, started in 2000, that now covers over 5000 selected villages in 14 districts of Madhya Pradesh. The MPDPIP is an ambitious project of the Government of Madhya Pradesh aimed at combating poverty through empowering the people and by improving the governance. It is funded by World Bank. Initially in MPDPIP-I (2001-2008) about 3000 villages of 53 blocks of 14 districts of the State were covered to bring change in the social and economic status of the vulnerable poor people. Members from the targeted family formed the Common Interest Group (CIG) on the basis of common activity. Project Facilitation Team (PFT) at a sub-block level was set up in a cluster of 30-40 villages. It was a multidisciplinary team with experts of various subjects. Continuous training, guidance and solutions to problems have been given by the PFT to CIGs of their working area. Village Development Committees (VDC) were formed by organizing the members of the CIG at village level. The flow of fund was then from project to DPSU to CIG. MPDPIP-I was quite successful in achieving its objectives to some extent. After completion of MPDPIP-I in 2008, the implementation of MPDPIP-II is started in 2009. It is a five year project. It is different from MPDPIP-I in the many aspects like that in MPDPIP-I, CIGs were formed while in MPDPIP-II, SHGs are being formed. Also there is a basic difference between the approaches of these two phases, like in the MPDPIP-I all the money was given to CIG members as grant but in MPDPIP no money is being provided as a grant to SHG members. In MPDPIP-II first the SHGs are formed and then the matured SHGs are federated into next hierarchal structure i.e. VDC, a village level organization. At least three mature SHGs are required to form a VDC. After this when VDC gets mature enough, then a cluster level organization called CFO is proposed to be formed that will be the federation of 30-40 VDCs at cluster level. One member of the working committee of VDC will be a member of CFO. The total cost of project is $110 Million. The study was aimed to provide the information about the current status of the project in two districts i.e. Shivpuri and Rajgarh. For this purpose both the primary as well as secondary data was collected. Both types of data was collected to assess the quantity and quality of SHGs and VDCs that were formed before March 2010 and to know the extent of micro financing being done at the SHG and VDC level till March 2010.To collect the primary data regarding the current status of MPDPIP-II, the sampling was done to select the target audience. Then various tools like questionnaire, interview and observation were used to collect the information. The target audience for the questionnaire was SHG 1

members and VDC members. The focus of the questionnaire was to gather the information regarding various things like to know the background of the members, to identify their needs, to know their expectations from the project, to know the details of their respective SHGs and VDCs, and to know the extent of micro finance being followed at the SHG and the VDC level. The interviews were held with the District Project Managers of the two districts and also with the PFT coordinators who were working in the any of the two selected districts. The main focus of interview was to identify the scope of CFOs. That means to identify whether a CFO is feasible to form and whether it will be successful. Also the discussion was done regarding the proposed structure of a CFO. Based on the discussion a structure is proposed for the CFOs in the report. Moreover the discussion was also done to establish the relationship between the SHGs, VDCs and CFOs especially to ascertain the flow of funds between them. Secondary data was collected from the district offices of the both the districts i.e. Shivpuri and Rajgarh. Although the analysis was done by considering both the types of data i.e. primary and secondary, but conclusions drawn were mostly based on secondary data because certain limitations were encountered while collecting the primary data, like extreme temperature, remoteness of villages etc. Due to these reasons adequate number of target members could not be covered. Based on the research conducted it can be concluded that, to fill the needs and demands of the community members, some other options should be explored so that more financial assistance can be provided to them. In this regard CFO is a good option. CFO will be the organization of 30-40 VDCs at cluster level, which will be established when most of the proposed VDCs get formed. One member of the working committee of VDC will be a member of CFO. CFOs will be formed when VDCs get mature enough to sustain it. CFO will register under Mutual Added Cooperative Society Act.It may link with private and public sector banks, NABARD, Rashtriya Mahila Kosh (RMK), venture capitals, insurance companies and other financial institutions to provide financial services to community. After the development of CFOs the flow of fund will be from CFO-VDC-SHG-SHG member. The research study concludes by giving certain recommendations to make MPDPIP-II a successful project which broadly includes to provide education and training to community members, to give more emphasis on agriculture sector and to increase livelihood opportunities for them. Moreover in the report it is also mentioned that formation of CFO is a good concept but it should be established at a right time, which means when the community members become able to sustain it. Certain recommendations are also mentioned in the end regarding the conditions which should be fulfilled by VDCs to form CFO. The most important one is the formation of about 80-90 percent of target VDCs in a particular cluster. Apart from these, self-dependence and decision making skills need to be developed in the members.
ACKNOWLEDGEMENT
I express my sincere gratitude to Mrs. Anju Bhadoria (Administration coordinator, MPDPIP) and Prof. H. P. Dikshit (Director General, School of Good Governance and Policy Analysis) for providing me an opportunity to work on this project. I am very grateful for their constant support and guidance throughout the duration of the entire project. I express my sincere thanks to Dr. R. B. Lal (Director, Indian Institute of Forest Management) and our present summer internship coordinator, Mr. CVRS Vijay Kumar (Faculty, Indian Institute of forest Management) for their guidance and support. I also express my thanks to Prof. P. K. Biswas (Faculty Indian Institute of Forest Management, Bhopal) and Mr. Amit Singh (Microfinance Coordinator) for their encouragement and guidance. Lastly, I thank my parents, family members and friends for their constant support in my endeavour.
(Navneet Thind)

LIST OF ACRONYMS
ITEM NEEDED
APDPIP APMAS APRPRP CBO CFO CIF CIG DPMU IKP JLG MFI MIS MPDPIP MS MYRADA NABARD NGO NWF PFT PRADAN SAPAP SBLP SGPA
Andhra Pradesh District Poverty Initiative Project Andhra Pradesh Mahila Abhivruddhi Society Andhra Pradesh Rural Poverty Reduction Program Community Based Organization Community Finance Organization Common Investment Fund Common Interest Group District Project Management Unit Indira Kranthi Patham Joint Liability Group Micrifinance Institutions Management Information System Madhya Pradesh District Poverty Initiatives Mandal Samakhya Mysore Resettlement and Development Agency National Bank for Agriculture and Rural Department Non Governmental Organization National Women Fund Project Facilitating Team Professional Assistance For Development Action South Asia Poverty Alleviation Project SHG-Bank Linkage Program School of Good Governance and Policy Analysis
SHG
Self Help Group

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SME SGSY SPIA UNDP VDC VO ZS Small Business Enterprises Swaranjayanti Gram Swarojgar Yojana Sub Project Implementing Agency United Nations Development Programme Village Development Committee Village Organization Zila Samakhya

LIST OF TABLES
Table 1: Details of project area to be covered under MPDPIP-II ...................................................... 12 Table 2: Targets to be achieved in MPDPIP-II ................................................................................. 13 Table 3: Data regarding SHG bank linkage program ........................................................................ 18 Table 4: Agency-wise number of SHGs formed in the State (200506) ............................................... 19 Table 5: Legal forms of MFIs .......................................................................................................... 20 Table 6: Various phases of SHG evolution....................................................................................... 22 Table 7: Description of sampled VDCs and SHGs ........................................................................... 30 Table 8: Data for two Districts ......................................................................................................... 30 Table 9: Loan disbursement details .................................................................................................. 34 Table 10: Loan repayment details of SHG members......................................................................... 35 Table 11: Loan repayment details of SHGs ...................................................................................... 35

LIST OF FIGURES:
Figure 1: Project area of MPDPIP ...................................................................................................... 8 Figure 2: Conceptual framework of IKP .......................................................................................... 25 Figure 3: Financing model of IKP [Source- (Rani, 2008)] ................................................................ 26 Figure 4: Sources of Income ............................................................................................................ 36 Figure 5: Demand of Loan for Various Activities............................................................................. 37 Figure 6: Proposed structure of a CFO ............................................................................................. 41 Figure 7: Financial Model after development of CFOs ..................................................................... 42

CHAPTER-1: INTRODUCTION
1.1 ABOUT MPDPIP
MPDPIP is a large poverty-alleviation programme, started in 2000, that now covers over 5000 selected villages in 14 districts of Madhya Pradesh.
Figure 1: Project area of MPDPIP

The programme works with the poorest in selected villages, after conducting a wealth ranking and taking the villagers into confidence. In some villages, MPDPIP implements the programme directly, with the help of 100-150 Project Facilitation Teams (PFTs) in all the fourteen districts.
1.1.1Vision:
The DPIP is an ambitious project of the Government of Madhya Pradesh aimed at combating poverty through empowering the people and by improving the governance.
1.1.2 Mission:
MPDPIP wants to provide sustainable livelihoods to extremely poor people residing in the selected fourteen districts of the project. It also includes establishment of self-governed community organisations like CFOs that may become able to meet expenses of all the community members at their own but in a sustainable manner. For this, it is essential to follow certain things like: o To empower the active groups of disadvantaged people. 8

o o To create income security opportunities for the rural poor To promot more effective and accountable village institutions including the Gram Panchayats. o o o To encourage effective demand based approaches for development. To enhance participation of the rural poor in economic activities. To do skill enhancement of the community members for taking up higher value employment o o Increase income of the project target households through assets and market linkages. To organise the people into a self sustaining and self governing body.
1.1.3 About MPDPIP-I:

Madhya Pradesh District Poverty Initiatives Project (MPDPIP) was initially implemented in about 3000 villages of 53 blocks of 14 districts of the State, to bring change in social and economic status of the vulnerable. The Project was executed from March 2001 to June 2008. It targeted the poor within a village based on Wealth Ranking Process. Members from the targeted family formed the Common Interest Group (CIG) on the basis of common activity and social cohesiveness with a minimum of 5 members. Common Interest Groups had the Liberty to select and implement the demand driven activity. These groups were provided requisite technical support including basic infrastructure, working capital, linkages with market and banks for successful implementation of their sub-projects. Due to selection of similar kind of activity by the CIGs, activity based cluster has developed. In these federations like bank, market and technical linkages have made available. Project Facilitation Team (PFT) at a sub-block level was set up in a cluster of 30-40 villages. It was a multidisciplinary team with experts of various subjects. Continuous training, guidance and solutions to problems have been given by the PFT to CIGs of their working area. To implement the sub project for the operation of the economic activity, the project transferred the grant fund directly from District Project Support Unit to the accounts of CIGs in a single tranche. This enabled CIGs to implement the economic activity in scheduled time qualitatively and in less cost. Village Development Committee (VDC) has been formed by organizing the members of the CIG at village level. VDC formed a corpus called Apna Kosh from the project fund and their regular savings. Apna Kosh is being used for micro finance activities by the VDC. Local Youths were provided training in various fields and have been developed as service providers. Due to this, able persons are available at local level that are providing their services in document maintenance, in agriculture and other land based activities, poultry, handloom, grocery and in other service areas.

Success of the first phase is apparent through its effective evaluation and from the reports of economic analysis of the activities. By taking benefits from the above experiences of the first phase of the project, strategy was prepared for the implementation of the second phase of the project.
1.1.4 About MPDPIP-II:

The objective of the Second Madhya Pradesh District Poverty Initiatives Project (MP-DPIP II) is to improve the capacity and opportunities for the targeted rural poor to achieve sustainable livelihoods. There are four components to the project, the first component being social empowerment and institution building. The objective of this component is to empower the poor by helping to organize themselves into Self-Help Groups (SHG) and federate into higher levels of institutions such as Village Development Committee (VDC), cluster-level organizations, and producer collectives and then to federate VDCs into community finance organizations (CFOs). The second component is the livelihoods investment support. The objective of this component is to develop the capacity of SHG to start livelihood initiatives, and to strengthen their business operations through producer based federations. Mechanisms to identify and support innovative approaches to help the rural poor to organize themselves around livelihood based businesses will also be supported in this component. The third component is the employment promotion support. The objective of this component is to enable the project beneficiaries to capture new employment opportunities arising out of the overall growth of the Indian economy through the establishment of a structured mechanism for skill development and job creation. Finally, the fourth component is the project implementation support. The component will facilitate various governance, implementation, coordination, learning, and quality enhancement efforts in the project.
1.1.5 About Producer companies:

Apart from formation of SHGs and VDCs, MPDPIP is also facilitating the establishment of producer companies in the project areas. The initiative of formation of producer companies was taken during the MPDPIP-I and is continued till now. Till 2007, seventeen producers companies have been registered in the fourteen districts where project is being implemented. Vision: To improve rural livelihood especially of small and marginal farmers by upward integration of their institutions with agribusiness trade and industry. Mission: To enhance income of shareholders (small and marginal farmers) by developing dynamic functional linkages with agribusiness trade and industry and develop support system to enable farmers' and their institution to thrive independently in the competitive agribusiness environment.
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Main Objectives: o To carry on the production, procurement, marketing, selling, storage, processing, packaging, distribution and trading of all agriculture and other produce. o Address value chain management in sectors like seeds, food and non-food crops, vegetables and other perishables. o Strengthen backward and forward linkages to induce market driven agriculture with Primary Producers
1.2 ABOUT PROJECT:
1.2.1 Background
The report mainly focuses on the certain aspects of ongoing project of MPDPIP i.e. MPDPIPII. It aims to study the potential of micro financing to the SHGs/VDCs through development of
community finance organization (CFOs) in Shivpuri and Rajgarh districts of MP. It is also mentioned earlier that in MPDPIP-II first the formation of SHGs takes place and then that of the VDCs. The beneficiaries involved in this project i.e. in MPDPIP-II are mainly SHG members. They get the required financial assistance either from their respective SHG savings or from the project fund through VDCs. Sometimes they require more money that is beyond the scope of the project, they do not have any resources. So the report targets to explore certain options for them in this regard. One option is the formation of CFO. CFO is projected to be the organization of 30-40 VDC at cluster level. Only one member of a VDC will be a part of the CFO.
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The details regarding the project area of MPDPIP-II are given in the following table: Table 1: Details of project area to be covered under MPDPIP-II
No. Blocks 2 3 4 4 7 4 5 6 2 2 3 4 3 4 53 of Total Gram Total Villages 333 554 741 491 1869 901 389 468 410 456 593 1186 388 974 9753
S.No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14
Districts. Damoh Sagar Shivpuri Panna Rewa Sidhi Chhatarpur Tikamgarh Raisen Vidisha Narsinghpur Rajgarh Shajapur Guna TOTAL
Panchayats 124 188 308 228 642 362 206 294 122 154 249 392 179 342 3790
Total PFT 8 14 20 13 46 22 13 12 10 11 15 31 12 26 253
As mentioned earlier that the duration for the implementation of MPDPIP-II is five years, so accordingly phase wise targets for the project are framed for the project as mentioned following table. in the
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Table 2: Targets to be achieved in MPDPIP-II PARTICULARS Village Entry Establishment of PFT SHG Formation (New ) Restructuring of CIGs as SHGs VDC Formation 1st Year 3000 255 1000 2000 25 Producer Organization (existing) 0 Ajeevika 5 5 1500 2nd Year 3000 15000 5000 2000 3rd Year 3753 12000 3000 3000 4th Year 7000 1000 2000 5th Year Total 9753 255 35000 10000 7000 35
Establishment Kendra
of
5000
600 5000 20000
600 15000 20000
300 15000 10000
Skill Up grading and Training Placement Facilitation Services
5000 5000
40000 60000
1.2.2 Objectives:
The deliverables for the project include: To assess the current status of Self Help Groups and Village Development Committees and to ascertain whether these are mature enough to form a CFO. If not then to ascertain the status for them to form a CFO. To propose a structure and framework for CFOs.
To establish the relationships among the SHGs, VDCs and CFOs specifically to ascertain the fund flow between them.
To recommend the steps that the project should follow to promote CFOs.
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CHAPTER-2: LITERATURE REVIEW
2.1 What is microfinance?
The term refers to the provision of financial services to low-income clients, including the selfemployed. Financial services generally include savings and credit. However, some microfinance organizations also provide insurance and payment services. In addition to financial intermediation, many MFIs also provide social intermediation services such as group formation, development of self confidence, and training in financial literacy and management capabilities among members of a group. Thus the definition of microfinance often includes both financial intermediation and social intermediation. Microfinance is not simply banking, it is a development tool. Microfinance activities usually involve: Small loans, typically for working capital. Informal appraisal of borrowers and investments. Collateral substitutes, such as group guarantees or compulsory savings. Access to repeat and larger loans, based on repayment performance. Streamlined loan disbursement and monitoring. Secure savings products.
MFIs can be nongovernmental organizations (NGOs), savings and loan cooperatives, credit unions, government banks, commercial banks, or nonbank financial institutions. The people who require the micro finance are typically self-employed, low-income entrepreneurs in both urban and rural areas. Clients are often traders, street vendors, small farmers, service providers (hairdressers, rickshaw drivers), and artisans and small producers, such as blacksmiths and seamstresses. Usually their activities provide them stable source of income (often from more than one activity). Although they are poor, they are generally not considered to be the "poorest of the poor." (Ledgerwood, 1999)
2.2Various Credit Lending Models

Microfinance institutions are one of the oldest financial institutions in the world, but like all the other things in the world, with time they have adapted to various kinds of changes, and have started using various credit lending models. The Microfinance community has divided itself into hierarchies. Some of the popular microfinance credit lending models adopted across the world is: 14

Associations: In this type of model, a target community forges together to form an association through which a variety of microfinance activities are carried out. The microfinance activities may also include savings. The associations may comprise of youth, women, or be formed around cultural, religious, or political issues. In some of the countries a legal body can also form an association. These legal associations have certain advantages, like collection of insurance, fees, tax breaks, and provide other protective measures. Community banking: This financing model considers the whole community as one unit and facilitates the establishment of semi-formal and formal institutes through which microfinance are administered. Usually NGOs and other similar organizations take it upon themselves to form such institutions, and also educate the community members in diverse financial activities. Co-operatives: A co-operative is an independent association of people who come together voluntarily to meet their mutual economic, social and cultural aspirations and needs through a egalitarian controlled enterprise. Sometimes the cooperatives also include savings activities and memberfinancing as well. Credit Unions: A credit union is a member-driven unique self-help financial institute comprising of members of a specific group like labour unions or a social fraternity who assent to save money and make loans to each other out of that fund at reasonable interest rates. A credit union membership is free to all, and it follows a democratic approach in electing the director as well as the committee representatives. Grameen model or JLG model: The Grameen model is the most popular model which is practised by so many MFIs all around the world. The grameen model entails that a bank unit be composed with a field manager and a set of bank staff covering a specified area, like 15 to 20 villages. The banking service starts when the manager and the staff familiarize themselves with the native people and explain to them the intent, functions motives, and mode of operation. Finally, groups comprising of five future borrowers are formed, out of which only two people get the loan initially, and if within fifty weeks they return the principal amount along with interest, as per the banking rules, the other members become eligible as well for taking loans. This is done, so that there is a collective liability on the group, which serves as guarantee against the loan as risk factor is so high. Group: This model is based on overcoming individual shortcomings by the aggregated accountability and security engendered by the formation of a group of these individuals. This collective approach also helps in educating and building awareness, collective negotiation powers, peer pressure etc. 15

Individual: This is the simplest and the oldest credit lending model where small loans are given straight to the borrower. In most cases such loans are accompanied by socio-economic services like education and skill development. Intermediaries: As the name suggests this model is a go-between organization operating between the lender and borrower. They play a critical role of creating credit cognizance like starting savings programs and thus raising the credibility of the borrowers to a sufficient level. These intermediaries can be NGOs, individuals, commercial banks etc. Non-Governmental Organizations: NGOs are very active in the field of micro-credit, be it creating consciousness of the importance of micro-credit, or developing tools and resources to monitor and identify righteous practices. The NGOs have also created many opportunities to help people learn all about micro-credit practices and principles through organizing workshops, seminars, training programs etc.. Rotating Savings and Credit Associations: A group of people join together and make periodic cyclical contributions to a common fund that is given to a member in a lump sum. After receiving the amount the member starts paying back by making regular contributions. Bidding or lottery makes the decision about whom the money should go to. Small Business Enterprises (SME): They get loans from micro-credit programs for creating employment, increasing income etc. The micro credit is either provided directly to the SME or as a part of a bigger SME development program. Village Banking: This is a community based banking. In this 25-50 low income individuals who seek self-employment come together to collect funds and give loans. The initial capital is generally arrived from outside, but the members follow a democratic approach in operation and moral collateral for repayment ( (Lending-models.).
2.3 The SHG model in detail

The self help group model has evolved in the NGO sector. A variety of models arise out of NGO nurturing among which SHGs have become the most popular. SHGs are small informal groups comprising of membership of 10-20 persons. The members of SHGs are either exclusively male or exclusively female. The members are self selected with a liberty to choose their group depending on their level of affinity with the other potential members. The group meets regularly at an appointed time and place and carries out its financial transactions of savings and 16

credit. The roles and norms of the group are determined by the members themselves. The NGO provides them with support services, training and developing linkages. However, there are certain features of SHG that need to be looked into:

The group promotion process is long and the poor have to wait for long periods. The amounts available in the beginning are very small and all the members cannot take loans at the same time.
The functioning of the group relies completely on group dynamics which are very difficult to build in.
Conflicts arise on seemingly trivial reasons which can lead to the break-down of the group and it is difficult to rebuild it.
Despite these few disadvantages SHG still is a popular model for micro finance in India.
2.4 SHG Bank linkage:

The SHG - Bank Linkage Programme is one of the most important and famous model for delivering financial services to the poor in a sustainable manner (financial report). The SHG Bank Linkage Programme (SBLP) was started as an Action Research Project in 1989 which was the offshoot of a NABARD initiative during 1987 through sanctioning Rs. 10 lakh to MYRADA as seed money assistance for experimenting Credit Management Groups. In the same year the Ministry of Rural Development provided PRADAN with support to establish self-help groups in Rajasthan. The SBLP covered about 9.6 million persons in 2006-07, of which ninety percent were women, and about half of them were poor. The total number of SHG members who have ever received credit through the programme has grown to 41 million persons.
The table given below shows the Progress of SHG bank linkage program in India.
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Table 3: Data regarding SHG bank linkage program
Year
No. of SHG % linked
change Loan amount Change over %
change
over previous in Rs. Cr. year
previous year over previous in Rs. Cr. year

100 290 132 84 92
1992-03 1993-04 1994-05 1995-06 1996-07 1997-08 1998-09 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
255 620 2,122 4,757 8,598 14,317 32,995 114,775 263,825 461,478 717,360 1,079,091 1,618,456 2,238,565 2,924,973 143 242 124 81 67 130 248 130 75 55 50 50 38 31 57 193 481 1,026 2,049 3,904 6,900 11,398 18,041 136 288 545 1,023 1,855 2,996 4,498 6,643
112 239 149 113 100 91 77 65 58
Source: NABARD Report 2007
2.5 Micro finance and SHGs in Madhya Pradesh

Since MPDPIP-II is being implemented in the Madhya Pradesh, so it better to have detailed understanding of microfinance and SHGs in the state, particularly in relation to each other. Various programs have been implemented in state to encourage microfinance. Many of thes programs followed the SHG model of microfinance. Micro financesmall credit delivered to people through a whole new set of delivery agencies and tools, and a new set of systems and standardshas become the principal strategy for providing credit to the poor, the small farmers, the small artisans and rural manufacturers and service units. There are two distinct advantages that micro finance as a tool possesses in banking terms. One is that it reduces transaction costs for delivering small credit. In case of large financial/banking agencies, delivering small credit has high transaction costs, but micro finance cuts that out. Banks or financial agencies deliver credit in large sums to groups which in turn make them into micro finance whilst lending amongst themselves. The micro finance activity in MP, at present, covers more than four lakhs SHGs formed by different organizations such as government departments, NGOs, banks and NABARD (National Bank For Agriculture And Rural Development).Of these, the total number of SHGs financed by banks (as on March 2005) stood at only 45105 (excluding the groups promoted under the 18

principal poverty alleviation scheme called the Swarnajayanti Gram Swarozgar Yojana, SGSY groups), with a cumulative bank loan of Rs 110 crore. This enables an estimated 9.02 lakh poor households in the state gain access to micro finance from the formal banking system. 47 NGOs have been sanctioned grant assistance of Rs 90 lakhs for credit linkage of 6290 SHGs in 20 districts. The institutional credit for the SHG linkage programme for 200607 is estimated at Rs 56.44 crore. All the 19 RRBs operating in the state have participated in the SHGbank linkage programme. As on 31st March 2005, RRBs had credit linked 17678 SHGs and provided them bank loans to the tune of Rs 34.89 crore (NABARD 200607). Apart from government departments, around 120 NGOs are involved in SHG promotion in 28 districts of the state. The number of SHGs credit-linked in the state has increased from 74 SHGs with bank loans of Rs 14.34 lakh in 199798 to 45105 SHGs involving bank loan of Rs 10968.74 lakh in 200405. These SHGs were credit-linked by 18 CBs, 19 RRBs,and 21 DCCBs spread over all districts in MP. Although, all the districts of MP have been covered under the SHGbank linkage programme, there is wide disparity across different regions ( MPDPIP implementation plan).
Table 4: Agency-wise number of SHGs formed in the State (200506)
S.No 1 2 3 4 5
AGENCY Zilla Panchayat Rajiv Gandhi Watershed Mission Mahila Bal Vikas Padhana Badhana Andolan NGOs/Bank Total
NO. OF SHGs FORMED 233113 11130 77463 63488 19374 404568
Both the central and state governments have been implementing a number of development schemes in MP. Some of these schemes have a credit component, and aim at poverty alleviation by providing affordable credit to poor households. It is envisioned that when deployed in viable enterprises (individual as well as group-based), this financial support will reap incomes that will enable the beneficiaries to access a basket of goods and services (including the nutritional minimum) to fulfil their basic subsistence needs. The various schemes include Swarnajayanti Gram Swarozgar Yojana (SGSY), Pradhan Mantri Rozgar Yojana (PMRY), Swarna Jayanti Shahri Rozgar Yojana (SJSRY), Margin Money Scheme of Khadi Village and Industries Commission (KVIC), Special Schemes for Women and SC/STs and many more schemes. 19

2.6 Mutual Added Cooperative Society Act:
Since it is proposed that CFOs will be registered under the mutually added cooperative society act, so it is essential to know the scope and other aspects of this act. According to Act no. 30 of 1995 the mutually added cooperative society act can be defined as An Act to provide for the voluntary formation of cooperative societies as accountable, competitive, self reliant business enterprises, based on thrift, self-help and mutual aid and owned, managed and controlled by members for their economic and social betterment and for the matters connected therewith or incidental thereto. The State Cooperative Acts did not provide for an enabling framework for emergence of business enterprises owned, managed and controlled by the members for their own development. Several State Governments therefore enacted the Mutually Aided Co-operative Societies (MACS) Act for enabling promotion of self-reliant and vibrant co-operative Societies based on thrift and self-help. One example of this concept is Andhra Pradesh Mutually Aided Cooperative Societies Act 1995. MACS enjoy the advantages of operational freedom and virtually no interference from government because of the provision in the Act that societies under the Act cannot accept share capital or loan from the State Government. Many of the SHG federations, promoted by NGOs and development agencies of the State Government, have been registered as MACS. Reserve Bank of India, even though they may be providing financial service to its members, does not regulate MACS (APMACS Act Pdf). MACS is a part of mutually benefit MFI. Apart from this there are two more legal forms of MFIs. All the legal forms of MFIs are discussed in the following table (microfinance/mf_institution). Table 5: Legal forms of MFIs Types of MFIs Not for Profit MFIs Legal Acts under which Registered Societies Registration Act, 1860 or similar Provincial Acts Indian Trust Act, 1882(For NGOs). Section 25 of the Companies Act, 1956 (For Non-profit Companies) Mutually Aided Cooperative Societies Act enacted by State Government
Mutual Benefit MFIs (Mutually Aided Cooperative Societies (MACS) and similarly set up institutions) For Profit MFIs (Non-Banking Financial Companies)
Indian Companies Act, 1956 Reserve Bank of India Act, 1934
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CHAPTER-3: SHG FEDERATIONS
Since CFOs will be a federation of VDCs at cluster level and in turn a VDC is also a federation SHGs, so it is essential to understand the various aspects of SHG federation.
3.1 What is a SHG federation?

According to dictionary, the meaning of federation is an association of autonomous bodies uniting together for a common perceived benefit. A federation is an association of primary organizations. Primary organizations may federate to realize economies of scale or to gain strength as an interest group. Like in the given case VDC is a federation of SHGs that are the primary groups. A VDC is a village level federation of SHGs. In case of CFO, VDCs will be the primary entities and a CFO will be a cluster level federation of VDCs.
3.2 Need of SHG Federations

The emergence and need of SHG federations lies in the limitations that are faced by SHGs. The limitation of SHGs which gave rise to SHG federation is as follows: 1) Inability to take up larger issues of gender and social inequality and women empowerment, etc: It is a well known and established fact that micro-finance is a necessary but not sufficient condition for the promotion of livelihoods. Livelihood promotions need procurement of inputs, organizing many support services and marketing of output. A small group of 10 to 20 members, illiterate and uninformed, cannot take up these complex tasks.
2) Inability to Address the Larger Issues: Though SHGs have contributed to social issues like women's mobility, interactions with the outside world, access to financial resources, and leadership qualities, to some extent they are unable to address the issues like women empowerment and social and gender equity.
3) Promoters Limitations: Any outside agency has limitations to get involved in community development work perpetually and at an ever increasing scale. The limitations include staff, financial resources, etc. Further facilitation by outside agencies is more expensive. As a result the promoters reduce their level of support at some point of time. This results in the quality of SHGs is coming down with age. Even in new areas, where the program is implemented in a target-oriented approach quality is suffering.
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4) Inability of Bankers to Understand and Accommodate SHGs' Needs: In many states and regions, particularly in under serviced states, banks are unable to understand fully the commercial importance of SHG lending and they feel that the SHG lending is being carried to fulfill the social obligations and/ or official targets. Even, when the banks realized the potentials of SHG, they could not attend the SHG needs as required because of staff shortage, mind set and procedural bottlenecks. The net result of different actions of banks is that groups face three big uncertainties, viz. Whether they get loan or not Whether they get the amount requested or not When they get loan or how much time it takes for them to get a loan To overcome all these shortcomings and limitations, the concept of SHG federation was evolved. The NGO promoters initiated 'SHG federations' to provide financial and non-financial services to the groups. They became successful to a large extent. For example UNDPs South Asia Poverty Alleviation Project was started in 1994 in Andhra Pradesh and was implemented in 20 mandals spread across three districts. SHGs in each Mandal were federated into a Mandal Samakhya as a three-tier structure of SHG-VO-MS and were registered under APMACS act. The project proved to be extremely successful. Following the UNDP's successful piloting of SHG federation model under the SAPAP in Andhra Pradesh, the state government adopted and improved the model in its cherished Indira Kranti Patham (IKP). Many state governments also followed the SHG federation strategy to promote SHGs. Federations are successful in addressing most of the above limitations faced by the SHGs in the country. Many secondary stakeholders are coming forward to partner with them. NABARD, through its circular dated 14th September 2007, started to provide financial support (grants) for the promotion and strengthening of SHG federations (Reddy, et al., 2007).
3.3 Evolution of SHGs and Federations

The evolution of SHG and their federation s not a onetime success, but it can be divided into six phases. o Many experiments were done ( like MYRADA did), several failures occurred and then , a few grand successes were observed. o Initially non-financial federations of about 20-30 SHGs,(managed by SHG members themselves) were formed. o Then some financial federations of about 100-150 SHGs in a compact area were formed that were more professional and usually managed by hired outsiders or the NGO. The federations are very complex to handle, so long-term training and handholding is required. The various phases of evolution are listed below. Table 6: Various phases of SHG evolution 22

[ (Karmakar, 2008) and (Reddy C. S., Seminar_Conference) ]
Phase I: NGOs promote women SHGs as an alternative to mainstream financial services to reach segments of society. Phase II: NABARD takes the lead in partnering with NGOs, particularly MYRADA, to pilot the known SHG-bank linkage model. Phase III: State Governments, particularly in the South, take a proactive role in the promotion of SHGs in a big way, by way of revolving loan funds and other support. Phase IV: SHG-Bank linkage reaches the scale of over a million bank-linked SHGs. Phase V: SHG federations emerge to sustain the SHG movement and to provide value-added services. Phase VI: SHGs and SHG federations gained widespread recognition to be partners of various mainstream agencies such as financial institutions, corporate sector, and government wellun-reached
3.4 Objectives and Activities of Federations

The various activities and objectives of federation can be categorised into two heads:
3.4.1 Financial Support Services: The main objective of federation is to make the required
fund available for its federated SHGs. The finance related activities may include: a) To provide the life and loan insurance services to SHG members. To arrange these services at SHG level is not feasible. b) To provide credit, especially multiple credit line. c) To provide savings facilities, especially voluntary savings.
3.4.2 Non-Financial support services: The non financial activities can include one or more
of the following activities: a) Training and hand holding in book-keeping and accounting. b) Direct provision of accounting services. c) Ongoing quality monitoring. d) Periodic grading or quality assessment. e) Annual auditing. f) Conflict resolution and problem solving within and between groups. g) Promoting new groups. i) Awareness building and advocacy of social issues. j) livelihood promotion activities if the funding is available (Ghate, 2008).
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3.5 Indira Kranti Patham (IKP): An Example and Paradigm for the SHG Federations:
The concept of MPDPIP-II is new for the people of the state but a same kind of project has been already executed in the state of Andhra Pradesh known as IKP. The approach of MPDPIP-II is very much similar to project IKP which is being implemented in Andhra Pradesh since year 2000.The mission and vision of both the projects are also very much same. The concept of CFO in MPDPIP-II is like that of Mandal Samakhya in IKP. So to get a better understanding of MPDPIP-II and to develop a conceptual framework for CFOs, it is good to have a detailed study of the project IKP. IKP is a combination of two projects: 1. Andhra Pradesh District Poverty Initiative Project (A.P.D.P.I.P) from the year 2000 to Dec 2006 (completed) 2. Andhra Pradesh Rural Poverty Reduction Programme (A.P.R.P.R.P) from the year 2002 to Sept 2009 (ongoing). In the year 2005, the scope of the 2 projects was expanded to cover all mandals and all villages of the state and the comprehensive programme was named as Indira Kranthi Patham (IKP). The model has been adapted from (Reddy M. S., 2007) and (Rani, 2008). Objective: The objective of Indira Kranthi Padham is to enable the rural poor, particularly the poorest of the poor in AP to improve their livelihoods and quality of life by facilitating formation of self-sustainable institutions of the poor. Brief description of the scheme: IKP model was started in year 2000, so it now builds on more than a decade long, state wide rural womens self-help movement. The focus of this model is on providing an institutional structure and developing a framework for sustaining it for comprehensive poverty eradication. It is the single largest poverty reduction project in South Asia. The project mandate is to build strong institutions of the poor and enhance their livelihood opportunities so that the vulnerabilities of the poor are reduced by many times. Community Investment Fund (CIF) is the major component of the project, which is provided to the SHGs/ VOs/ MSs to support wide range of activities for socioeconomic empowerment of the Poor. The project therefore helps in creating the self-managed grassroots level institutions of the poor, namely Women thrift and credit S.H.Gs, their federations - Village Organizations (VOs) and Mandal Samakhyas (MSs). It also takes care of many other things like: Support investments in sub-projects proposed by SHGs, VOs, and MSs. Improve access to education for girls to reduce the incidence of child labor among the poor. Support to disabled persons through social mobilization and access to livelihoods opportunities. 24

Build capacities of established local institutions, especially the Gram Sabha/Gram Panchayat and line departments, to operate in a more inclusive manner in addressing the needs of the poor. Achieve convergence of all anti-poverty programs, policies, projects and initiatives at state, district, mandal and village levels.
Figure 2: Conceptual framework of IKP
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Figure 3: Financing model of IKP [Source- (Rani, 2008)]
Community Investment Fund (CIF): The Community Investment Fund is one of the most key components of IKP Project. CIF funds come from the SGSY scheme. Earlier CIF was also funded by world bank when it was known as APDPIP (2000-2006).The CIF provides resources to the poor communities for use as means to improve their livelihoods. This component supports the communities in prioritizing livelihoods needs by investments in sub-projects proposed and implemented by the community (SHGs / V.Os / Mandal Samakhyas (MS) and other Common interest groups). There are three types of subprojects namely (a) Income Generation, (b) Productive physical infrastructure and (c) Social development. The bulk of the C.I.F budget is for income generation. Out of the total IKP project budget, CIF is the most important component that determines the level of employment generation for the poor. CIF acts as a catalyst in capital formation at all levels including SHG, VO and MS and offers great leverage for raising bank funds. Under micro plan based intervention strategy, CIF is a loan from MS to VO and from VO to SHG for implementing micro plans of SHGs, collective marketing and food security initiatives. However, it is a grant to VO in case of implementing social development and infrastructure development activities. District Project Management Unit (DPMU) releases the CIF to Mandal Samakhyas in installments up to their mandal entitlement. 26

Organization It is implemented by Society for Elimination of Rural Poverty (SERP), Dept of Rural Development, Government of AP. SERP is an autonomous society registered under the Societies Act, and implements the project through District Rural Development Agencies (DRDAs) at the District level.
Key features of the micro planning process: Mandal Samakhya (MS) as the Sub-project Implementing agency (SPIA) support Village Organizations (VOs) for implementing their micro plans and assume the responsibility of appraisal, sanction and disbursement, follow up, monitoring, recycling of recovered CIF, procurement etc. MS itself implement certain activities on its own which have influence on more than one village (for example food security and marketing interventions taken up, social development activities and Physical infrastructure created for the benefit of more than one village). Zilla Samakhya (ZS) is the SPIA for activities, which have influence on more than one mandal, for example, insurance. The grassroots level organization is the SHGs. Two members from each SHG are part of the village organization. About 200 SHGs comprise the village organization. The village organization is at the level of the panchayat. . The village organizations are coordinated by Mandal Mahila Samakhyas. The Mandal Mahila Samakhya is the basic financial agency. Federation of Mandal Mahila Samakhya is the Zilla Samakhya. Some funding goes through the Zilla Samakhya but most go through Mandal Samakhya. The Mandal Mahila Samakhya and Zilla Mahila Samakhya are funded by DRDA for institution building. Assistant project manager is a facilitator for two Mandal Mahila Samakhyas. The Assistant project manager also attends VOs meetings occasionally. At the Zilla Mahila Samakhya, there is a Zilla Manager. A Community Coordinator is appointed for about 10-12 village organizations. DRDA has area coordinators or assistant project officers (APO) at the block level. Usually about 5 Mandals are covered by the APO. The APO attends all the 5 or 6 MMS meetings. They help in facilitating these meetings. They explain the policies and rules and also schemes. The area coordinator who is an APO reports to the project director. The area coordinator has an office cum residence at one of these locations. The role of Mandal Development Officer is very limited. The community facilitator is the one who certifies in most situations. Services of Village Organization: To encourage the SHGs to take up the social issues To provide financial support to members through SHG by extending loan To provide required technical training for livelihood activities To identify and train personnel for SHGs & VOs for book keeping Continuous monitoring through Committees
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Services of Mandal Mahila Samakhya: Provide CIF to VOs to implement the Micro plans of member SHGs Capacity building activities that include organizing trainings to SHGs, VOs and staff of CBOs Continuous monitoring of VOs through Committees Collaboration with Line Departments & Others The Mandal Samakhya is responsible to develop required social capital (SHG book keepers & Community activists identified from Community) to run the community based organizations with the help of MS staff (Reddy M. S., 2007) and (Rani, 2008). The above mentioned plan has been used to propose the structure and the functions of CFO.
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CHAPTER-4: RESEARCH METHODOLOGY
4.1 Sampling:
The study was conducted in the Shivpuri and Rajgarh districts of Madhya Pradesh. It was almost impossible to cover the entire population as time was the curtailing factor, so the method of sampling survey was employed. And according to the requirement of this study the sampling used was multistage cluster sampling. Cluster sampling was used because population was large and geographically dispersed. The various sampling stages are as follows:
Stage 1: Sampling Frame- Districts(14) Stage 2: Simple Random sampling used to select the two districts. Stage 3: Sampling frame Blocks (4 in Shivpuri and 5 in Rajgarh) Stage 4: Simple random sampling used to select one block from every selected district. Stage 5: Sampling frame PFTs or Sub Blocks (9 in Shivpuri and 14 in Rajgarh) Stage 6: Convenient sampling used to select two PFTs or sub blocks from the selected blocks of the selected districts. Stage 7: Sampling Frame-SHGs/VDCs Stage 8: Convenient sampling done to select 10 VDCs and 20 SHGs from each selected Sub blocks of the selected blocks of the selected districts. Stage 9: Sampling Frame-SHG/VDC Members. Stage 10: Random Sampling used to select two or three members from the each selected SHG/ VDC of the selected Sub blocks of the selected blocks of the selected districts.
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Table 7: Description of sampled VDCs and SHGs
Name District
of Name Block
of Name of Sub- Number of Number block VDCs selected of
Total number
SHGs of respondents VDCs SHGs

20 40
selected
Shivpuri
Pichchore
Pichchore
10
20
Bhauti
10
20
20
40
Rajgarh
Biaora
Barkheda
10
20
20
40
Dhakora
10
20
20
40
Total
40
80
80
160
Table 8: Data for two Districts
Particulars (Till March 2010)

Total number of VDCs formed Total number of SHGs formed Total number of PFTs formed Total number of Blocks Recognized
Shivpuri
53 349 9 4
Rajgarh
89 771 14 5
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4.2 Data Collection
Data was collected from both primary and secondary sources. Primary data was collected through the field visit to the two districts with the help of PFT members. Also the researcher interviewed and discussed various aspects of MPDPIP-II related to microfinance with many higher and field officers who are working in the department. PFT members and other post holders of MPDPIP-II have been interviewed by the researcher to gain the knowledge. Secondary data was collected through the visit to district offices and by studying various plans of MPDPIP. Additional data was also collected by interaction with resourceful people from the department and district office. The related documents were reviewed for collection of socio economic data about the villagers and also of obtaining factual data about the villages. Secondary data was also
collected with the help of various resources like Google.
4.3 Tools of Data Collection

Data was collected by conducting survey method using various tools like Questionnaire, Interview and Observation. Questionnaires were designed for this purpose, which were purely close ended. Random sampling method was used for the questionnaires to get filled. Separate questionnaires were designed for SHGs and VDCs with required pre-testing.
4.3.1 Questionnaire:
As a part of quantitative data collection, a set of questionnaire was prepared and accordingly data was collected from the members of SHGs and VDCs. The questionnaire was pretested and due care was taken to wipe out all the hypothetical words and anomalies.
4.3.2 Personal interviews:

Interviews were taken to acquire information mainly from two set of people The researcher interviewed members of PFTs, particularly Coordinator of respective PFTs to gain insight into the issues, problems and working of SHGs and VDCs. This tool was used when direct communication was required and where researcher can inquire respondents about the project and its concept. The interviewees were interviewed for acquired information about the following aspects: Current scenario of MPDPIP-II. About regularity of SHG and VDC meetings. Interloaning amongst them.
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Objectives achieved till now. Plan for future.
4.3.3 Field observation:

Observation always plays a vital role in the conduction of research. Researcher stayed at all villages which made it easy to analyze the processing and the perception of people regarding the project. Several meetings of SHGs and VDCs were observed in various villages and also attended tours with PFT coordinators and members of the two districts. During this, the following aspects of groups were studied:Attendance of members of the SHGs and VDCs reasons of absence and lack of motivation. Different activities for which the loan was required by people. Fund flow mechanism and account maintenance. The savings were done by SHG members and SHGs. The expectations of the SHGs and the VDCs from the Project. Extent of inter loaning among SHGs and VDCs.
4.4 Constraints:
There were various reasons due to which adequate sampling could not be done and so a sufficient number of target people could not be covered. o The summer season was a big constraint due to which only limited number of SHGs and VDCs were visited. o The accessibility was another reason. Most of the villages were located in very remote locations as compared to city that resulted in the field visit to few villages only. Also because of this reasons the convenient sampling was used instead of random sampling for selecting the villages which were to be covered. o o The lack of proper and timely conveyance also proved to be a reason. Time required to interact with the respondents was not sufficient as they were supposed to be busy the whole day in their work. Sometimes they were not available even to interact. They were free only in the morning to fill the questionnaires.
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CHAPTER-5: FINDINGS AND ANALYSIS
5.1 Overall status of MPDPIP-II:
Most of the SHGs and VDCs formed in MPDPIP II are in very early phase. Many of the VDCs of the first phase of the project are also working. The formation of various other SHGs and VDCs is also in progress. PFT members are there to monitor the progress of existing SHGs and VDCs and formation of new SHGs and VDCs. They are making sure that all the members of SHGs and VDCs should understand the basic objective of project. They also monitor that regular meeting of SHGs and VDCs should be held. A SHG organizes four meeting in a month, while two meeting of respective VDCs are held. If anyone goes absent without any prior information then that member has to give Rs. Five to ten as punishment. Various concepts of microfinance are being followed at both the levels.
5.2 Extent of Micro financing:

As far as micro financing is concerned, it has been just started amongst the community members. The members are learning and following the basic concepts of microfinance. Like the very first concept of microfinance is savings. For the first 2-3 months after the formation of SHG, the members follow just the practice of savings. Initially they start with a very minimal amount of Rs. 5 but after 56 months they start saving Rs.10-20 per meeting. That means an SHG is able to save Rs. 400-800 in a month. The total amount of savings varies from SHG to SHG due to varied number of members and per SHG saving. After 2-3 months of their formation the inter loaning among SHGs gets start. The amount of loan taken differs from person to person. Based on the research it is found that the member have taken loan of Rs.500-5000 from the savings as per their requirements. After 3 months, grading of SHG is done to ensure whether it will be a feasible group in the future. After this a seed loan of Rs 1000 is being provided to SHG members by the VDC, as per the demand. According to the demand of SHGs, the VDCs send application for funds to district. The fund given to VDC is grant while when it is given to SHG, it becomes a loan. A seed loan of Rs. 1000 is provided to SHG members to check whether they are able to repay it on time. Till now most of the SHG members have repaid their seed loans. After repayment the loan becomes a property of VDC. Now any SHG member can take that amount as a loan. Whenever a SHG members demands for a loan it is first seen that whether the demand can be filled from the SHG savings and then the demand goes to VDC. Only
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some of the VDC have circulated the money as loan. Also every SHG transfers Rs. 50 from its saving to Apna kosh of VDC which is also used for loaning purpose. Till now, 90% of the SHG members who are surveyed have retuned their seed loan and now they have applied for livelihood loan. The amount of livelihood loan depends on the demand. The demand of loan has been forwarded to district office by VDC. Apart from new VDCs, the SHG members are taking loans from old VDCs, if they exist in that particular area. The rate of interest charged by VDCs to SHGs is six percent while that of paid by SHG members is twelve percent. The ratio of repayment till now is cent percent. All the members have repaid there loan in between 1-6 months after taking the loan. The loan taken is generally for consumption activities like to buy food items, medicines etc. While sometimes it was also used for income generating activities. Sometimes it was also taken for activities like marriage and due to natural calamities. The following table shows the loan disbursement for the month of March in the two districts. The data is retrieved from MIS of March month, retrieved from the two district offices of DPIP. Table 9: Loan disbursement details
Amount of loan Total amount of loan given to SHG by VDC (Rs.) Shivpuri Rajgarh 646000 529000
613750 736405
Total amount loan given to SHG member's by SHG (Rs.)
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The loan repayment details of SHG members are given in following table: Table 10: Loan repayment details of SHG members
From Member's to SHG (for March 2010) Amount (principal) to be collected in current month (Rs.) Shivpuri Rajgarh
162686 144550
Actual amount collected (Principal) (Rs.)
131000 131000 0 0 1687 0 1687

1687 100%
591855
Total Amount out standing (Principal) (Rs.)
24636
Amount in arears (Principal due but not received) (Rs.)
7087
Interest Amount to be collected in current month (Rs.)
1095
Interest (overdue) to be collected (Rs.)
7737
Total interest to be collected (Rs.)
5794
Actual Interest Amount Collected (Rs.)
89%
Repayment Rate (%)
The loan repayment details of SHG are given in following table: Table 11: Loan repayment details of SHGs
From SHG to VDC (for March 2010) Amount (principal) to be collected in current month (Rs.) Shivpuri Rajgarh
75561 77810
Actual amount collected (Principal) (Rs.)
131000 131000 0 0 843 0 843

843 100%
535940
Total Amount out standing (Principal) (Rs.)
3651
Amount in arears (Principal due but not received) (Rs.)
3150
Interest Amount to be collected in current month (Rs.)
-45
Interest (overdue) to be collected (Rs.)
3105
Total interest to be collected (Rs.)
3185
Actual Interest Amount Collected (Rs.)
100%
Repayment Rate (%)
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5.3 Source of Income for Community members:
Amongst the community persons surveyed, most of the members belong to agriculture based activities. Some others were found to be labourers and only a few were from industry or marketing activities.
Source of Income
5% 5%
20%
Agriculture Labour Industry or Marketing Others 70%
Figure 4: Sources of Income
From the given pie-chart it can be easily concluded the most of the community members are dependent on agriculture activities for their livelihood. After then it is the number of labourers which dominates. However, more than half of the labourers are dependent on agricultural activities for their income. Very few are involved in industry and marketing related activities. From this data it can be concluded that MPDPIP-II should consider farmers as its priority and so provide more infrastructure to them.
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5.4 Demand of loan for various activities:
The demand of loan was given for various activities or reasons. Majorly the loan was distributed for consumption activities. Consumption activities may include expenses on necessities like grocery items etc. Other major reason was found to be income generation activities which mean investment on things which are source of income like investment on opening shops, buying fertilizers and seeds etc. Other reasons for demand were like marriage, death of a person in a family etc. The following pie chart shows the distribution of loan for various activities as required by the members.
Demand of Loan for various activities
20% Consumption Activities(Regular Basis) 50% Income generation Activities Other Consumption Activities 30%
Figure 5: Demand of Loan for Various Activities
The chart clearly shows that the demand of loan is very much dominated by the consumption activities like food, health, medicines etc. It is so because most of the community members in the state are so poor that they do not even have money to get good food and health services. After consumption, second category is of income generation activities. In income generation the major part of loan is required for agriculture activities like agriculture inputs or equipments, development of irrigation facility, agriculture land improvement. Under income generation other activities like dairy, poultry and animal husbandry are also included. Apart from these loan is also being provides to start a 37

small business like to develop a shop etc. Others include loan for more or less consumption activities but they are different the sense that they are not usual demands like demand of loan for marriage, for submission of school fees of children etc.
5.5 Certain Hurdles in MPDPIP-II:

During the field visit to two districts, it was observed that the people are not able to absorb the concept of MPDPIP-II so easily, especially in the villages where MPDPIP-I was implemented. This is because in first phase it was happened that the fund was distributed amongst community members as a grant but in phase two the money is being provided to the members as a loan instead of being given as grant. In MPDPIP-II the money given is a grant at VDC level but community members cannot take it as a grant, but they have to take it as loan. It means the project fund cannot be given as a grant to SHG members but it can be given as a loan only. In MPDPIP-I, the Rs. 20,000 was given to each CIG member as a grant which they were free to use for any purpose like they used it for income generation activities, consumption purposes. So when MPDPIP-II was started in various districts, people thought that it would be something similar to MPDPIP-I. So they thought they will get some more money without any liability. So initially they were very confused whether to become a part of this project. But later on after the initiatives of PFT coordinators and other members they somehow became confident about the concept of the project.
38

CHAPTER-6: COMMUNITY FINANCE ORGANIZATION
6.1 What is a CFO?
CFO will be the organization of 30-40 VDCs at cluster level, which will be formed when most of the proposed VDCs get formed. One member of the working committee of VDC will be a member of CFO. CFOs will be formed when VDCs get mature enough to sustain it. CFO will register under Mutual Added Cooperative Society Act. Each institution shall have its own subject matter subcommittees to cater to the needs of its members. CFO may link with private and public sector banks, NABARD, Rashtriya Mahila Kosh (RMK), venture capitals, insurance companies and other financial institutions to provide financial services to community. It is a proposed model. Till now no CFO has been formed.
6.2 Objectives of CFO:

According to demands of community and SHGs, the Community Financial Organization will be formed to fulfil the following objectives: To fulfil loan needs, insurance needs of SHGs and for other remittance services. To do the work of coordination and establishment of linkages with financial and insurance organizations.
6.3 Need of CFO:

Generally the amount needed by the members of SHGs is more than the available community fund i.e. project fund and savings, if we see from the point of view of sustainable livelihood of the members that is the core objective of this project. Additional financial needs of SHGs can be fulfilled through the formation of Community Financial Organization. CFO through its linkages can get the loans from banks and other institutions like National Women Fund, NABARD and can create a collective fund for the federation and can make funds available to different groups according to their need.
6.4 Functions of CFO:

Provide VDC with technical assistance, capacity building and facilitate convergence between CBOs and different agencies of development like local governments and line agencies. Arrange bulk finance for the VDC from commercial banks and support formation and promotion of livelihood based organisations and activities requiring linkages with commercial sector organisations. Facilitate access to a broad range of financial services particularly credit, insurance, and remittances services. 39

6.5 Benefits of CFO:
o Microfinance institution (MFI): Unlike VDCs, a CFO will act as a legal entity i.e. it will fulfil all the requirements of becoming a legal organization. . It will be registered under the Mutual Added Cooperative Society Act. It will not face any limitations as faced by SHGs and VDCs. Being a MFI it will then be able to get the loans from the banks and other institutions like National Women Fund, NABARD and can make funds available to all the members according to their need. To provide legal status to each and every VDC is a very cumbersome process. Moreover it will take so much of time and money to make all the VDCs a legal entity. o Independent organization: CFO will act as an independent organization in which the decision makers will be the community members themselves. Thus it will be an organization for the community members and by the community members. As the project will get over after 5 year i.e. in year 2014, then CFO can act as governing body. Also as an organization it would then be able to meet all the administrative expenses on itself. Moreover it would also become able to pay the salary of the staff and other individuals. As it will be an independent organization, so it can also hire consultants whenever required. o Better management of funds: The basic purpose of a CFO is ultimately to do the better management of funds. Like as (from secondary data) sometimes happen that the demand of loan in a particular VDC becomes so high that it just could not suffice everybodys need but on the other hand at the same time it happens that some VDCs have so much amount in their account or sitting idle because the SHGs associated with that VDCs do not require that much amount of loan. So the amount remains unutilized for some period of time. But if the VDCs can be brought under the same head i.e. CFO, then this unutilized fund can be utilized in a better way. o Broad spectrum: As a cluster level organization it would be feasible for a CFO to implement certain activities on its own which have influence on more than one village like food security and marketing interventions, social development activities and Physical infrastructure created for the benefit of more than one village. Also insurance of the loans can be done easily through CFOs.
o Big and Powerful: To have a greater voice in the development of a local area. It is a fact that
when small things are joined, then they become more powerful and effective. Same is the case with VDCs, when the village level federations will form a cluster level organization i.e. CFO, then they will have stronger, greater and louder voice which will reach in all the directions. The banks and other big funding agencies will also listen to them and can provide loans and insurance on the demand of these people.
40

6.6 Proposed structure of CFO:
All the members of concerned VDC members at a cluster level will become a part of the general body of the CFO. Then one member form each VDC will be elected by that committee as its representative for the Executive body of the CFO. Among these members, the required offices bearers will be elected for the proper functioning of the CFO. The office bearers will include President, VicePresident, Secretary and Two Bank Signatories. The PFT members will help the VDC members to
establish a CFO. They can also help them in sustaining the CFO, if required.
General Body
Executive Body
PFT
President Vice president Secretary Two bank signatories
Various committees
For monitoring of VDC
For loans and Microfinance
For Bank Linkage
For providing training etc.
For monitoring of sub-projects
Figure 6: Proposed structure of a CFO
41

6.7 Flow of Funds after Development of CFOs:
The flow of funds after development of CFOs will be like CFO-VDC-SHG-SHG member. The demand for funds will be given by SHG members to SHGs and SHGs will try to fulfil that need by the savings of SHG members available in its account. If that amount is not sufficient then that demand will be forwarded to VDC by that SHG. The VDC will try to fulfil that demand with the help of amount available in Apna Kosh. If that amount proves to be insufficient, then that demand will be sent to CFO by VDC. For sometime CFO may take help from DPSU in this regard but after some period of time when CFO will become self sustaining, then it can suffice the demand of funds at its own level. Then CFO will fulfil this demand with the help money derived from various other sources like commercial banks, NABARD, RMS, etc based on the type of demand.
CFO
Demand for Loan/Funds
VDC
Apna Kosh
Process of credit lending through development of CFOs:

42
Flow of Funds
SHG Member
SHG
SHG Member SHG Member
SHG Savings
Figure 7: Financial Model after development of CFOs

Based on some earlier models like IKP, the process of implementation of project fund and other resources can be described as below. o First of all a micro credit plan can be prepared by the members of Self Help groups (SHGs) based on their skills and taking into account all the available resources. Then the SHGs can be facilitated by the VDC to prepare a list of all the members along with their loan requests indicating the purpose or activity for which the loan is required along with the loan amount. After this the members will be facilitated to prepare the list of feasible activities (activities that are the most important and can be implemented at that time) to be undertaken and the cost of implementation of these activities will be computed. Finally the group would appraise the loan request and determine the loan terms such as amount of loan, instalment amount, repayment period etc. After this the final Micro Credit Plan will be prepared. This plan will be termed as Small level credit plan (SLCP). o After the plan is prepared and becomes ready to implement, it should be sent to VDCs for appraisal. The appraisal is based on the regularity of the savings of the group, lending of the funds internally, proper maintenance of accounts, regularity of meetings, etc. o The VDC then also can prepare a list of activities that are beneficial to the community members of the village such as food security, social development, infrastructure, etc. These along with micro plans prepared by SHGs will become a Village Level Credit Plan (VLCP). It means that Village Level Micro Pan will be a summation of both the things i.e., one is the small level credit plan prepared by the SHGs and other one is the list of activities identified by VDC itself. o The VLCP will then be ready to get approved by CFO. For this the VLCP will be sent to cluster level Appraisal by CFO. Finally the appraisal is sent to District Project Support Unit for release of funds. o The fund amount will be given as a grant to CFO. CFO will allocate this as a loan to VDCs at a certain rate of interest, dependent on various factors at that particular point of time in future. Then VDC will allocate this as a loan to SHG at an interest rate that will be somewhat higher than that of charged by CFO to VDCs. And finally the SHG release the funds to individual SHG members as loan. For the members, the rate of interest will be further raised by certain margin.SHG members will repay this amount to SHGs within a predefined period. SHGs will further repay it to VDC within certain duration and then VDCs will finally repay it to CFO. The implementation of the plans by members will be monitored by the VDCs. o Then some sort of certificates like proper fund utilization certificates can be prepared by the SHGs, VDCs, and CFOs to apply for funds in future. And this process of credit lending will be followed till the time community members need loan for income generating activities.
43

CHAPTER 7: SUMMARY AND CONCLUSIONS
MPDPIP-II is being implemented in fourteen districts of MP. Its implementation was started in September 2009. It is a five year project. Likewise other districts it is being also implemented in SHIVPURI and RAJGARH districts of MP. Based on the survey done in these two districts it can be said that the project is in its nascent phase at both the places. In most of the villages only certain percentage of target SHGs and VDCs have been formed. Majority of them are in very early phase i.e. they are not even fully aware about the concepts of microfinance. But the PFT staff and other members associated with the project are helping them in absorbing the concept. Now each SHG has started saving about Rs.400-800 per month. Rs.50 from these saving is being transferred to Apna kosh of respective VDC. The savings are either kept by any of the members of SHG or if amount becomes large then it is deposited in the bank. The two bank signatories take care of that. Till now seed loan of Rs.1000 has been provided to most of the SHGs through the VDCs and demand for livelihood loan is also in progress. Most of the members have submitted the demand for livelihood loan. The livelihood loan will be given in the two or three instalments of required amount. To some extent inter loaning has also been started in the SHGs. Firstly the demand of any SHG member is fulfilled by the SHG savings, if savings are not sufficient then demand is send to VDCs. Till now VDC can fulfil the demand only from Apna kosh and the money of seed loan which has been repaid to VDCs. This money keeps on circulating among VDCs and SHGs. The rate of interest charged by VDCs on loan amount is six percent while that of charged by SHGs on SHG members is twelve percent. Almost, all of the SHGs are either newly formed or are in the phase of formation. Same is the case with VDCs. Also most of the women are uneducated and illiterate. Thus at this point of time it is not feasible to form any CFO. So at present all the members should be trained for that purpose and when they become mature enough to sustain a CFO, then only it should be formed. A CFO may probably become functional after one to two years from now. Now when a CFO becomes actually functional then the flow of demand will be from SHG to VDC and then from VDC to CFO. Finally from CFO to district level if it is not sufficed at CFO level. On the other hand flow of funds will be from district to CFOs and then from CFOs to VDCs, and finally from VDCs to SHGs. By maturity of SHGs and VDCs here it is meant the state when the members of both these groups will understand the concepts of microfinance completely and can apply accordingly. It also means the 44

state when these people will become capable of taking decisions for them. The CFO will be an organisation which will work for community people and will also be ruled by those people. It will also be a governing body. All the PFT members are supposed to be a part of this body. When CFOs will become self sustaining then they may also become able to provide compensation for all the administrative expenses on their own. It can be said that a CFO will act as a MFI which will have various source of funds like NABARD, other commercial banks etc. It will help in meeting the needs of its community members at a lower cost. The CFO would be a federation of VDCs. So the structure of a CFO should be like that, first a general body should be formed consisting of all the members of the concerned VDCs. Then an Executive body should be formed having one representative from each of the VDCs. From this executive body the office bearers will be selected by the consensus of all the members of executive body. The PFT members can help them in that process. Office bearers will include The President, The Vice-President, The Secretary and Two Bank Signatories. Under the supervision of these members various committees will be formed to carry out the different tasks like one committee can be formed for monitoring of VDC. Some other committees can be formed for taking care of the other sub projects associated with the project. In the end it can be concluded that to form a CFO is a good option but it should be formed at a right time. The various indicators for forming a CFO are progress of project, enough demand of fund, and sense of belongingness between the members.
45

CHAPTER 8: RECOMMENDATIONS
Based on the discussion done so far the following suggestions can be recommended for the progress of the project i.e. MPDPIP-II and for the successful establishment of the CFOs.
8.1 For ascertaining the Status of SHGs and VDCs to form a CFO:
Since the CFO will be a federation of VDCs, so it is essential to ascertain the status of VDCs to form a CFO. One more thing which is to be kept in mind while deciding the status of VDCs to form a CFO is that ultimately CFO will be governed by the selected members of VDCs. The various things which can be suggested in this regard are as follows. o Capacity Building of community members: It is an essential requirement which needs to be fulfilled before starting the formation of CFO. o o Awareness: CFO can be formed only when all the members are clear about its objectives. Training and Knowledge: These two are very much essential from the point of view of governance. As governance of a CFO will be in the hands of some selected community members, so they must have some skills regarding this. Training regarding administrative work is very important because it is assumed that community will be solely responsible for running the administration department. o Self Dependence: The members should become self dependent so that can take their own decisions and can contribute their best for making the CFOs a successful federation. o Sense of Responsibility and Belongingness: The community members initially do not realize their responsibilities for the federation, so they must be given some tasks to develop a sense of responsibility in them. Like their sense of responsibility can be checked by monitoring their presence in the regular SHG meetings and VDC meetings. Also in a CFO, various villages will come together to achieve some common goals, so some sense of belongingness should be developed between the people of all these villages. o About 80-90 percent VDCs should be formed: Since the CFO will be a federation of 30-40 villages at the cluster level, so at least 80-90 percent VDCs in that particular cluster should be formed.
8.2 For development of CFOs:

1) Education and Literacy: Majority of the members are uneducated and illiterate, so it takes too much of time to make them aware of the various concepts associated with the project. Sometimes it happens that the book keeper that is a member of a SHG who maintains the records of all the meetings 46

of that SHG is not found easily, because only a few females are found to be educated in villages. So some education related initiative is desired to be taken for faster progress of project. 2) Making the concepts of MPDPIP-II more clear: As it is also mentioned earlier that the community members become confused when they compare MPDPIP-II with that of MPDPIP-I. They should be made aware about the strategy of MPDPIP-II in a more suitable and convenient way, particularly in the villages where MPDPIP-I was implemented. 3) Awareness regarding CFOs: The community members should be made aware regarding the concepts, structure and functions of a CFO so that they can become mentally prepared for these CFOs, before they are actually formed. 4) CFO should be formed after 1-2 years: Till now even the target of formation of all the SHGs and VDCs has not been received. So the process of formation of CFO should be started after sometime. At least when the ninety percent of the targeted SHGs and VDCs are formed then only the concept of CFOs should be implemented. 5) Rate of Interest: In CFO, various departments are supposed to be formed depending upon the different types of activities for which loan is required. While providing the loan for different activities, different rate of interest should be charged for various activities based on the risk factor i.e. how many chances are there of repayment. 6) Arranging informal meetings for VDCs: Before actually forming a CFO, it will be a good initiative to arrange some informal meeting for all the VDCs of a predefined cluster. The PFT coordinators can take initiative of arranging these meetings to develop a good understanding amongst all of them in advance. These meeting will also help in establishing a sense of belongingness among the community members.
8.3 For a successful and more effective MPDPIP-II :
1) Different repayment schedule for agriculture based people: From the observations it is clear that the about 70% of the community members are dependent on agriculture activities. The income generated by people in this sector is dependent on the season of cultivation, it cannot be earned monthly. So they should be given some leverage regarding the repayment of the loan, like they should be asked to repay only a small part of the principal amount along with a minimal interest amount on monthly basis while major portion of the loan should be taken back at the end of any productive season. 47

2) More emphasis on agriculture sector: Again it is very much evident that about 70-80% of the community members are dependent on agricultural activities for their livelihood and income. So some extra attention needs to be paid in this regard. They should be given some more funds for improving the quality of lands so that they can increase the productivity of lands. Also the various inputs like seeds, fertilizers should be made easily available for them. 3) Promotion of small scale industries: Since many members are either landless or they depend on seasonal labour for their income, so small scale industries is a good option in this regard. Small scale industries may include industries for candle manufacturing, toy making etc. 4) Regular monitoring: Last but not least regular monitoring and assessment of SHGs and VDCs should be done to check their progress. It can also be done to assess their needs and demands.
48

BIBLIOGRAPHY
(n.d.). Retrieved April 25, 2010, from www.dpipmp.mp.gov.in: http://www.dpipmp.mp.gov.in/english/index.htm AP_presentation. (n.d.). Retrieved April 27, 2010, from www.rural.nic .in: www.rural.nic .in/world_bank/AP_presentation APMACS Act Pdf. (n.d.). Retrieved May 23, 2010, from www.cdf-sahavikasa.net: http://www.cdfsahavikasa.net/APMACS%20Act.pdf financial report. (n.d.). Retrieved April 30, 2010, from www.nabard.org: (http://www.nabard.org/pdf/report_financial/Chap_VII.pdf) garibi-hatao-yojana.asp. (n.d.). Retrieved May 10, 2010, from Cardindia website: http://www.cardindia.net/garibi-hatao-yojana.asp Ghate, P. (2008). Microfinance in India : A State of Sector Report, 2007. New Delhi: SAGE Publications India Pvt Ltd. Karmakar, K. G. (2008). Microfinance in India. New Delhi: SAGE Piblications India Pvt Ltd. Ledgerwood, J. (1999). Microfinance Handbook: An Institutional and Financial Prospective (Pdf). Retrieved from books.google.co.in: http://books.google.co.in/books?id=luaAHdTKMM8C&dq=MICROFINANCE+HANDBOOK&printsec=fr ontcover&source=bn&hl=en&ei=qswXTIC8GsyRrAe9o3gCg&sa=X&oi=book_result&ct=result&resnum=4&ved=0CCYQ6AEwAw#v=onepage&q&f=false Lending-models. (n.d.). Retrieved from www.financialinvestmentplanner.com: www.financialinvestmentplanner.com/Economy_Microeconomics_Lending-models.html Loans-articles. (n.d.). Retrieved June 5, 2010, from www.articlesbase.com: http://www.articlesbase.com/loans-articles/status-of-different-micro-finance-models-in-india2302626.html microfinance/mf_institution. (n.d.). Retrieved May 25, 2010, from www.nabard.org: http://www.nabard.org/microfinance/mf_institution.asp Nabard annual report 2008-2009. (2009, July 1). Retrieved June 7, 2010, from www.nabard.com: http://www.nabard.org/fileupload/DataBank/AnnualReports/Annual_Report_20082009_ENGLISH_100809.pdf Nabard Annual Reports. (n.d.). Retrieved June 9, 2010, from www.nabard.com: http://www.nabard.org/fileupload/AnnualReportsDisplay.aspx Rani, P. U. (2008, Feburary 22). IKP_APMAS_National_Conf.pdf. Retrieved May 20, 2010, from www.rd.ap.gov.in: http://www.rd.ap.gov.in/IKP_IBCB/IKP_APMAS_National_Conf.pdf
49

Reddy, C. S. (n.d.). Seminar_Conference. Retrieved from www.ifmr.ac.in: www.ifmr.ac.in/cmf/seminars_conferences/2008/CS%20Reddy.ppt Reddy, C. S., Rao, G. B., Ramalakshmi, S., Samatha, V., Vanaja, S., Krishna, M. K., et al. (2007, October). SHGfinalbook.pdf (SHG Federations in India). Retrieved June 4, 2010, from www.apmas.org: http://www.apmas.org/pdf/SHGfinalbook.pdf Reddy, M. S. (2007, December). IMPROVING PRO-POOR SERVICE DELIVERY IN DEPARTMENTS WITH LARGE PUBLIC INTERFACE (Pdf). Retrieved May 15, 2010, from www.cgg.gov.in: http://www.cgg.gov.in/workingpapers/Improving pro-poor service delivery in departments with large public interface rural development.pdf SHG federation (National Workshop on SHG Federation). (n.d.). Retrieved June 8, 2010, from rural.nic.in: http://rural.nic.in/latest/SHG_federation_%2026.05.08.pdf Srinivasan, N. (2009). Microfinance in India: State of the Sector Report 2008. New Delhi: Sage Publications India Pvt Ltd. statestoriesdetail. (n.d.). Retrieved May 2010, from www.empowerpoor.org/: http://www.empowerpoor.org/statestoriesdetail.asp?report=584&state=Madhya%20Pradesh
50

APPENDICES
APPENDIX I
QUESTIONNAIRE-I FOR SHG MEMBERS
Name: Age: 1. How many members are in your SHG? a) 10-13 b) 14-17 c) 18-20
Village:
2. Which type of activity are you involved in? a) Agriculture based activity b) Labour c) Industry or Marketing d) Any other
3. For what purpose loan is required? a) Production/income generation. b) Consumption. c) Any other need like marriage etc.
4. Whether VDC of your concerned village is created? a) Yes B) No
If yes then, 5. How many SHGs are involved in your concerned VDC? a) <15 b) 16-25 c) 26-35 d) >36 6. Does any loan is provided by VDC till now? If yes then how much? 51

a) Yes b) No 7. If Yes in Q.6 then what is the interest rate at which loan is being given to SHGs (VDC members)? a) 5% b) 6-9% c) 10-12% d) >13% 8. What is the interest rate at which money is lend (internal loan) to the SHG members? a) <10% b) 11-15% c) 16-20% d) >20%
9. What is the repayment period? a) <6 months b) 6-12 months c) 12-24 months d) > 24 months
10. What is the gap created i.e. difference between the loan you get and that you actually require for any of the activities? a) <1000 b) 1000-4999 c) 5000-10000 d) >10000
11. Are you able to fill this gap from somewhere i.e. whether you take loan from elsewhere? a) Yes b) No 12. If yes (in Q.7), then from where? a) Banks b) MFIs c) Relatives d) Any other 52

13. What is the rate of interest if loan is taken from elsewhere? a) <10% b) 11-15% c) 16-20%
14. Whether you need to mortgage something against the loan in the above case? (what) a) Yes b) No
14. What are the average savings of your SHG? a) <100 b) 100-499 c) 500-999 d)>1000
53

QUESTIONNAIRE-II
FOR VDC MEMBERS
Name: Age: 1. When did the VDC formed?
District: Gender:
2. Whether the meetings of VDC members held regularly? a) Yes b) No
3. Whether all the VDC members turn up in all the meeting? a) Yes b) No
4. If no in Q.3, then Why? a) Personal reasons b) Distance is a problem c) Do not give it much importance d) Any other
5. How many SHGs are involved in your concerned VDC? a) <30 b) 31-40 c) >40
6. At what rate of interest VDC provides loan to SHGs? a) <5% b) 5-10% c) >10%
7. For what purpose/reasons the loan is required by SHGs? a) Production/Income generation b) Consumption c) Both of them (then what is the ratio between the two) 54

d) Any other reason like marriage etc
8. What is the recovery rate, if the loan is provided till now? a) <80% b) 81-90% c) 91-95% d) >95%
9. Where is the repayment period? a) <6 months b) 6-12 months c) 12-24 months d) > 24 months
10. Whether VDC is able to fulfil the needs/requirement of all the SHGs or SHG members? a) Yes b) No 11. If not, then what is the excess demand or gap is created (on an average)? a) <5000 b) 5000-10000 c) >10000
12. What is the maximum monetary requirement that a VDC can fulfil for a family with the help of project fund (approx)? a) 5000 b) 10000 c) 15000 d) 20000
13. What are the sources of fund for VDCs except Project, if any? a) NABARD b) Other Banks c) Any other sources
14. If there is any other source then what is the problem faced by VDC in getting the loan from external agencies? 55

a) Legal obligations b) Any other reason
15. What can be the solution of this problem (in Q.14)? a) To provide a legal status to VDCs b) To create an organisation like CFO.
16 Whether there is any need of CFOs? a) Yes b) No 17. If Yes in Q.14, then why? Or what are the benefits? a) To fill the gap b) Less cost and less time required but more clients are covered c) Centralized body d) VDCs no more need to contact any other organization for financial assistance e) Any other.
56

APPENDIX-II
Interview conducted with Mr. Gagan Saxena (DPM of Shivpuri District, MPDPIP) and Mr. Arvind Bhargav (DPM of Rajgarh district, MPDPIP) : Interviews cum discussion were conducted with Mr. Gagan Saxena on 5th of May and with Mr. Arvind Bhargav on 17th of May, over the current status of MPDPIP-II and on the development and structure of CFO. Some of the major highlights of both the interviews are:
o Objectives and targets to be achieved in the district under the MPDPIP-II. o Current scenario of project in the districts i.e. how many targets were achieved at the time of discussion. o About the producer companies formed during MPDPIP-I and MPDPIP-II. o Other projects implemented in the state. o Status of SHGs and VDCs formed in the state. o Present scenario of micro finance in the project. o Institutional structure of MPDPIP. o Conceptual framework of MPDPIP. o Other sub projects being implemented in the state. o Need of CFOs. o Proposed structure of CFOs. o Fund flow between SHGs, VDCs and CFOs. o Functions and benefits of a CFO.
57
APPENDIX-III
As the development of CFO is a very important part of this project to make it self-sustaining. So some essential steps are listed in following table for the formation and development of CFOs that are supposed to be followed by the project unit. STEPS REQUIREMENTS
STEP-1
To make the community members aware about the concept of CFOs in advance i.e. to convince those about the benefits can be derived after the formation of CFOs.
STEP-2
To Make them literate and educated, that means some initiatives should be taken to provide them education. Some part of project fund can be used for this purpose. Since CFOs have to deal with lot of funds and money to be derived from various sources, so a person need to be having some knowledge in this regard.
STEP-3 STEP-4
To help in building decision making skills in them. To help the VDC members in selecting a suitable representative, who will become a member of the CFO. Also to organise a fair election process in this regard.
STEP-5
The selected representatives of all the VDCs of a cluster will become a part of the general body of the CFO. Now next task for the project team will be to help the member of this elected general body to form a executive committee which will consist of five members-The president, The Vice President, The Secretary and The two bank signatories.
STEP-6
Now the next step will be to provide some additional training to the members of the executive committee, especially to The two selected bank signatories who will be having the responsibility to deal with lots of financial transactions. For some time the PFT member will assist them in this regard till they develop command over all these thing.
58

STEP-7
Before starting any activities a CFO will have to become a legal body. For this, the project team will register the CFO as a cooperative under Mutual Added Cooperative Society Act. The act will provide the CFO a MFI status.
STEP-8
After registering under Mutual Added Cooperative Society Act, a CFO can start process of financial intermediation. IN this regard the CFO will build relations with various institutions like NABARD, RMK etc. These organizations will provide funds to the CFO.
STEP-9
Various committees will be formed under the supervision of Executive Committee to take care of various departments. Like their will be one committee to monitor the VDCs, other one to take care of various subproject undergoing along the project.
STEP-10
Lastly Project team and PFT members will help in making a self governing and self sustaining body.
STEP-11
Project will get over by 2014 leaving CFO as an independent body.
59
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Summer Internship 2010

Project Report Submitted To Mrs. Anju Bhadoria (Administration Coordinator)

(Panchayat and Rural Development Department, MP)

Submitted By Navneet Thind IIFM Bhopal

Summer Internship 2010

Place: Bhopal Date: 14th June, 2010

Mrs. Anju Bhadoria (Administration Coordinator, MPDPIP)

Summer Internship 2010

Place: MPDPIP, Bhopal Date: 16 June 2010

(Navneet Thind) PFM 2009-2011

Summer Internship 2010

Summer Internship 2010

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Self Help Group

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Figure 1: Project area of MPDPIP

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1.1.3 About MPDPIP-I:

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1.1.4 About MPDPIP-II:

1.1.5 About Producer companies:

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1.2 ABOUT PROJECT:

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Total PFT 8 14 20 13 46 22 13 12 10 11 15 31 12 26 253

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600 5000 20000

600 15000 20000

300 15000 10000

Skill Up grading and Training Placement Facilitation Services

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2.2Various Credit Lending Models

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2.3 The SHG model in detail

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2.4 SHG Bank linkage:

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No. of SHG % linked

change Loan amount Change over %

over previous in Rs. Cr. year

previous year over previous in Rs. Cr. year

112 239 149 113 100 91 77 65 58

Source: NABARD Report 2007

2.5 Micro finance and SHGs in Madhya Pradesh

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Table 4: Agency-wise number of SHGs formed in the State (200506)

NO. OF SHGs FORMED 233113 11130 77463 63488 19374 404568

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Indian Companies Act, 1956 Reserve Bank of India Act, 1934

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3.1 What is a SHG federation?

3.2 Need of SHG Federations

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3.3 Evolution of SHGs and Federations

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3.4 Objectives and Activities of Federations