It’s not only about a Loan

At 3:20am, as I sway in the train taking me back to my home, I was relieved for how fulfilling the day was to see Indian women entrepreneurs taking charge of the situation in this part of India called Parbhani.

The purpose of my visit to Savitribai Phule Mutual Benefit Trust (SPMBT), Parbhani was:

• Pay a random visit and follow the day to day activities of SPMBT
• Interview beneficiaries, Self Help Group’s (SHG) secretary and cluster level representatives with discussion focussed towards micro finance and difference it has made on their lives
• Interview SPMBT staff (Field Executives, Management etc) to understand their role and level of participation in empowering women
• Bring transparency on fund usage when we disburse the first 30DF payment to SPMBT

As expected, my flight to Aurangabad airport was late by an hour, which further got delayed by another hour because of heavy air traffic at Mumbai airport. Fortunately, I had booked a taxi to take me to Parbhani that is almost 4 hours drive from Aurangabad. I am stating this because this caused me to change my initial agenda since I had lesser time at hand. To accommodate and make use of my time, I called SPMBT and arranged a group meeting with beneficiaries and the staff.

I grew up in a small place and women there are innately shy, or rather they are never taught to talk. Almost 70% of India must be following this culture of ‘being shy’. This place is no different, so I was amused when I communicated with beneficiaries. Whoa – these females can talk!! Could this be a by-product of micro finance activities in this area? I asked – and was told unequivocally by all 13 beneficiaries that it is a direct impact of initial 6 months of training they received from SPMBT staff as a part of forming a SHG and regularly held meetings after that at Village and District levels. Well, to add to that everyday operation of SHG like accounting, payments, disbursement etc and regular human contact must have ignited and sustained this entrepreneurial flame in these village women. I am impressed!

To understand and evaluate the direct impact of micro finance, I started asking them questions as I mention below. I received many responses, some direct answers to my questions, some digressed but important information. Following is the summary:

• How different it is to take loans from SPMBT as compared to taking loans from local moneylenders (Sahukars)

[Beneficiaries] You tell me, if 100-120% rate of interest is better or 22%? On top of an unaffordable loan terms, Sahukar uses very harsh recovery mechanisms (e.g. Barging in to house and taking valuables away).

• Why is the repayment rate high? Are there any caveats?

[Beneficiaries] There is a group ownership of the loan. If some member misses the repayment for any month, group informally meets, discusses and pays on behalf of the defaulter. Most of the times, group’s internal savings take care of such situation. Also, group members do not want to loose the only source of constant credit. It neever happened to them before that they get the loans when they need it – it is ‘readily’ available.

• What happens to the defaulters? Do SPMBT take any harsh action for recovery?

[SPMBT staff] Defaulters are rare. But there is a provision of penality in case of missed payment, which comprises of accumulation of daily interest at a predefined but reasonable rate.

• How does SPMBT help in the process?

[SPMBT staff, Beneficiairies] When a group of women decides to form a SHG, they undergo training for a period of 6 months monitored and taught by SPMBT’s staff. They learn SHG concept, involved accounting and appraisal process as a part of this training. SPMBT monitors the change and group’s understanding of the process, and once assured they mark the SHG as a capable one and ready to receive loans.

• Does SPMBT follow any methodology before sanctioning loans to the SHG?

[SPMBT staff, Beneficiairies] There are set of questions that the group needs to answer. Points are associated with answer choices of each question. Maximum points are 700 and groupd need to score at least 350 to be eligible for any kind of loan. One sample question: “What is the attendance percentage for monthly meetings for past 6 months?”

Before I continue to next questions, it is important to understand the hierarchy of operations:

SPMBT Operartions

• How do you monitor if the loan is being used for the purpose it is taken for?

[SPMBT staff] The monitoring happens at each level of the hierarchy starting from individuals, then SHG, village and district level. Field executives of SPMBT takes part in the monthly meeting of SHG to ensures that loans are being used for the purpose it is taken for.

• How would we (30DF) know if the money that is sent here is being used properly by SPMBT?

[SPMBT staff] Partly, answer from the last question is applicable here. Also, all families have cell phone/s. We can provide you with beneficiary contact information that 30DF can post either on the website or inform social investors through email. Investors can call to these numbers to directly speak with end beneficiaries. Also, we are open to any number of random audits by 30DF team.

This followed by an informal round of personal discussion and most responses aligned with what they have already told me in the group meetings. Unfortuately, because of lack of time, I could not go to the field and see them working. To conclude, it is definitely not so much about a loan as about empowering and producing women who can lead and help to bring a social change. Change that involves a woman to barg into a grampanchayat meeting and speak on the issues faced by the village!!

30$Finance: Investment 101 – How To Invest

A lot of potential investors have contacted us regarding the investment process. Today, I am going to help you with making an investment. All you guys need is a credit card or a PayPal account. Follow these illustrative steps and make your first social investment today. Thank you for your support.

Step 1: Register as an Investor

Click on “Investor Sign up”:

Enter your registration details:

Step 2: Login to your account

Step 3: Select an Entrepreneur / Beneficiary

Click on My 30DF in the Menu to browse entrepreneur/beneficiary profiles and select one.
Click on “Fund A Loan” to start your investment.

Step 4: Make an Investment, by using PayPal or a Credit Card.

Select your option: You can either invest at 2% or donate.
Enter your credit card details and you are done.

CONGRATULATIONS on becoming a Social Investor!

Q&A with a potential Investor

A) How will the farmers use the money you give them?

[Mandar] Each hosted profile on 30df has a description that clearly states the purpose of requiring a loan. So, some farmers would use it for irrigating land, some for buying seeds, some for starting a dairy etc

B) How does the money reach them?

[Mandar] Every month end we transfer the funds to our MFI partner’s bank account via Paypal wire transfer. We are making our first disbursement on Nov 30 (end of this month). Our MFI partner has loan officers who work for them. These loan officers get money from the MFI Bank A/c and then personally hand it over to the beneficiaries. The loan officer keeps track of every beneficiary via a printed form (date of disbursement, date of return, monthly amount paid paid, outstanding principal + interest etc) Loan officers collect bank loans from farmers on a monthly basis and then they will update a spreadsheet with the data. We will get the spreadsheet to audit. So, we will be able to keep track of your investment. Currently, we are developing this back end functionality (integration of paper based loan forms, excel spreadsheets, MFI database, 30df database). Once this integration is complete (hopefully by December 2009), we will be able to provide a deeper level of transparency to our investor.

C) Why do I see same amount for most of the farmers?

[Mandar] Most farmers get the same amount of loans (decided by our MFI partner) – This is because our MFI partner needs to simplify management of their funds disbursement and interest rate calculation. Its weird, but thats something our MFI partner decides, not us. We just host their profiles.

[Snehal] You must also understand the Self Help Group (SHG) model that micro finance institutes follow. SHG is a group of women who work together and take group ownership of the loan and makes sure that the woman who have taken a loan from MFI does return money on time. (This is one of the reason why the repayment rate is so high in micro finance industry). Now, MFI usually lend funds to the entire SHG and the loans more that often gets disbursed equally among the members of SHGs. This is the reason why you see same amount for many profiles on the website – because they belong to same SHG.

D) Will the farmers use money for the purpose they want or spend it in other ways ?

[Mandar] Nice question. May be farmers can get themselves drunk with the $’s we give them. But we have a better solution. If you look at the profiles hosted on 30df.org, you would realize that all our beneficiaries are women. Women are better suited to being small entrepreneurs, since they are better at running the financial show for their house + they will not squander our money. That was our basic premise to choose a good MFI partner. Hopefully, their husbands dont beat them up and run away with the funds. This is a major risk we have, but we have to live with it, considering our grass root involvement and the level of corruption, male dominance in a regional driven Indian society.

[Snehal] And history tells that empowering a women is best way to empower a family.

E) Instead of money be can provide them with such irrigation equipment which they can use for long term?

[Mandar] Nice idea. But our business model works on financial investment for now. Supply Chain and Logistics do not exist in India. Did you hear that before from someone Lets see. Currently focused on solidifying the financial model before we dive into anything else. This itself will take a complete year (full cycle of investment & return). I want to get this right before we dabble into anything else.

[Snehal] The premise on which the concept micro finance works and survives is that the fundamental problem is not so much of unaffordable loans as providing an easy and continuous access to credit itself. In simplistic terms, if we restrict ourselves in giving only say irrigation pumps, how impactful are we going to be!! Just think – having access to constant credit for informal, small and low income businesses; this luxury was never there for poor farmers. Micro finance makes it possible and 30df wants to help!

–Mandar & Snehal,

30 $ F (www.30df.org)

Vicious cycle of poverty

Before explaining what is the ‘vicious cycle of poverty’, I will start by throwing a graph at you. It summarizes the status of rural finance.

Above graph clearly indicate that lesser the land holding in rural area, lower is the access to formal financial institutions, typically this is the rural poor class of India.

Poverty for them, once started, is likely to continue because of certain set of factors or events unless there is outside intervention. These factors are together called vicious cycle of poverty.

Due to little landholding, the income generating ability of this class is low, further because of having little assets ownership, their ability to provide collateral for loans is limited, resulting in lower capital available for income generation. Further this leaves them no other resort than moneylenders who charge exorbitant rates to access credit in case of emergency, often resulting in further deterioration of their financial health.

As it can be observed, lack of capital & skills are the key reasons for perpetuation of poverty, hence attacking these reasons is the key to improving economic status of poor people and making them active players in mainstream economic activity. Access to affordable and timely credit is primary requirement to break out of this vicious cycle.

30DF is doing its bit to provide access to affordable and timely credit to the poorest of the poor.

30DF’s First Field Partner

‘Marathwada’ region in Maharashtra state is considered and rightly believed to be one of the most backward – socially and economically – region of the state. The parent organization of Savitribai Phule MFI (SPMBT), RDC (Rural Development Corporation, an NGO) addresses a large gamut of issues. The most prominent are Human Rights, Economic empowerment of Dalit, Land encroachment, Child right, gender equality and social justice, political participation and partnership in governance. RDC have set up SPMBT to address the need for access to formal banking sector for the impoverished through micro finance.

Well, of course, Microfinance is not a solution all the above mentioned problem – but we wanted to focus on the region to identify the working poor and establish a process to screen the neediest and the poorest.Our advisor, Lalit Khandare, put us in touch with Eknath Awad, who has initiated the Savitribai Phule MFI (SPMBT). The overall mission of SPMBT is to sensitize organizations and mobilize their actions towards betterment of the rural poor in Marathwada region who earn their livelihood by selling their labor. We were quite impressed by some of the goals they had set up for themselves, like:

• Initiating multiple developmental interventions (to reach the widest possible range of beneficiaries) as a tool to ensure the rights of the socially and economically backward community.
• Building peoples structures and enabling them to take charge of their own destinies.
• Actively involving women and youth to demand for the rights of the poor people.
• Advocating policy reform with the government, so that the measures instituted get legal support.
• Networking with the government, which has a widespread infrastructure that can be leveraged for better reach and impact.

Our interaction with SPMBT made us believe that they are equally passionate about their goals on the field, not just on paper. We needed a field partner with such kind of energy. Some of the results in last couple of years of operations for SPMBT are as follows:

Land	Statistics
Encroachment promotion and its Outreach to Villages	1100
Hectares of Gairan encroached	30,217.35 hectors
Ultra Poor families directly benefiting	24607
Land repair completed	1500 hac. In 85 villages
Water	7000 hectors
Villages reached through water source development activities	150
Number of SHGs promoted	2500
Number of women reached through SHGs and IGPs	4920
Number of Trade Unions [TU] Promoted	14
Number of people reached through TUs	8400

In all these numbers, one glaring disadvantage was the rate of interest the beneficiaries are paying on micro finance. It is around 22% annually. The reason behind such a high rate of interest is the source of money which is nothing but commercial banks and foreign investment. They charge 15-16% interest rate to the SPMBT and with the operations cost and everything, the beneficiary ends up paying 22% rate of interest on the micro loan.

For 30DF  SPMBT was the most appropriate choice for number of reasons including their expertise in  domain and common objectives of engaging poors in self employment. Through 30df, with the help of international social investor community we aim to reduce this high rate of interest to something very reasonable and affordable.

Welcome to 30df.org

Lot of initiatives have been incepted in last decade or so with a common goal of alleviating poverty in developing economies. There is substantial number of approaches taken by different people and organizations to address this problem. Martin Fisher, founder of KickStart, explains how cash based economy can be a viable and sustainable solution to poverty. Our personal interest lies in using technology to deal with problems of developing communities.

Microfinance is the extension of small loans to low-income people who do not qualify for traditional bank loans. It has been proven an effective tool in the ongoing struggle against poverty, by empowering the poor to better their situation through entrepreneurial activities. This method of poverty alleviation has affected hundreds of millions of impoverished families worldwide and continues to help the destitute and hopeless. E.g. Grameen bank in Bangladesh has been able to alleviate poverty for more than 7 million women through the use of microcredit.

Microfinance Institutes (MFIs) are the entities who seek to provide micro credit to low income households and informal businesses. In India, these are NGOs, not-for-profit bank intermediaries and few commercial banks.

We would like to welcome you to 30df.org, a microfinance initiative to alleviate poverty. Please visit 30df.org for more information