Master HDFS. IFAD s experience with Rural Finance and Self-Help Groups in Asia

Transcription

1 Master HDFS IFAD s experience with Rural Finance and Self-Help Groups in Asia m.prayer@ifad.org

2 Objectives of the Presentation Explain relevance of micro-finance for IFAD Sharing IFAD s experience in Asia Focus on Self-Help Group Movement Identifying main issues Questions and Answers

3 Introduction An Indian statement says: a farmer is born in debt, lives in debt and dies in debt Small farmers have been considered riskier, expensive to serve, and of little importance, either economically or politically As an UN agency focused to assist the rural poor, IFAD had to address the issue of access to credit right from the outset

4 IFAD and Rural Finance IFAD focuses exclusively on reducing rural poverty Target groups are mainly small producers engaged in agricultural/non-agricultural activities in areas of widely varying potential IFAD has realised that access to rural finance is an essential tool for combating poverty The methodologies and strategies used to provide these services have evolved over time, as various approaches were tried, adopted, built on, or discarded.

5 Historical trend in IFAD s approach In 1980 IFAD approved two projects: The Grameen Bank Project in Bangladesh; The Small Farmers Development Programme in Nepal (bank staff as field workers) Conventional development banking models in Maldives (1989) and in Tonga, mainly to assist the banks to increase outreach in remote islands Credit Union model, like in the Solomon Islands (1988) Credit lines through Project Management Units, or through Rural Credit Cooperatives, in China Mobile banking systems In 1987: P4K in Indonesia: an interesting and cost effective approach, partnership between BRI and the agriculture extension workers of Ministry of Agriculture

6 IFAD and the Self-Help Group Movement 1988: Tamil Nadu Women s Development Project, designed by IFAD Basic model in line with SFDP (Nepal) and P4K (Indonesia) with two major changes: Groups were promoted by NGOs Group members composed of women only Provision was made for institutional capacity building of groups Groups would start by savings; no grants given Banks were asked to lend after assessing the groups Effective partnership with Myrada which started promoting Self-Help Affinity groups in 1984 and received support from NABARD in 1987 to test this innovation proved to be crucial

7 IFAD and Self-Help Group Movement (2) NABARD followed the implementation of the Tamil Nadu Project Reserve Bank of India approved the group-based lending programme where groups could act as financial intermediary Groups were given the freedom to set lending terms; The interest rate ceilings became irrelevant Average loan size from banks to groups increase significantly; consequently, Transaction costs reduced sharply 1992: NABARD starts a pilot project to form 500 groups Government of India invites IFAD to explore the possibility for a rural finance project

8 IFAD and Self-Help Group Movement (3) 1993 Maharashtra Rural Credit Project approved 1996 Rural Women s Development and Empowerment Project approved in 6 states upscaling Tamil Nadu Project 2000 National Micro-Finance Support Project: mainstreaming micro-finance by providing long term capital to apex body SHG-based Linkage Banking becomes the principal instrument for delivering financial services in all IFAD-assisted projects in India

9 IFAD and Self-Help Group Movement (4) While different financial service models are being tried in India, SHG model is the most prevalent and in fact overwhelms the Indian micro-finance industry. Around 4 million SHGs exist in India = around 70 million SHGs members = more than 300 million people indirectly involved Rate of growth of SHGs very high Government of India has accepted SHG methodology as an effective way of reaching the rural poor and has built the major features of this model into its poverty alleviation program

10 Selected Issues Direct cost of Self-Help Group promotion estimated indipendently by IFAD and DFID in India (US$ 13 per member) is reasonable Reduced amount of transaction costs on the part of the banks is very significant Unlike Grameen Bank model, the Self-Help Group externalises the transaction cost of the lender Self-Help Group model is by and large replicable but: Requires testing and adaptation to different socio-cultural environments It is more or less successful in relation to the existing social capital base

11 Selected Lessons Learned In order to increase access to credit by rural households, it is better to invest on the receiving side rather than the delivering side Poor are bankable, poor can save Shift from Access to Credit as an end in itself, to Management of Credit as an instrument of empowerment Credit is not enough; need to access non-financial services Importance of Group Assessment Methodology Repayments don t come from the asset financed Women SHGs are the best performing. This is largely due to: their capacities to manage finances and domestic economy; their knowledge of local markets; inner social capital endowments;

12 Proposals for Way Forward Investing in new financial services: savings micro-insurance remittances Rather than subsidizing interest rates, Governments could finance the social capital investments. Advantages: Enhanced self-reliance; Reduced dependence on credit Increased ownership Increased sustainability; No distortions on lending rates; reduced costs;