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Micro-Finance Program

self-help group
Update May 15, 2010: READ received a loan of approx. $240,00 from the State Bank of India, and on April 27, distributed it to 68 women self-help groups to help a total of 732 women can start small enterprises (average loan is $330).

The history of the Micro-Finance programs:

As explained here, READ is very interested in promoting sustainable development of underprivileged and marginalized families and communities. To achieve this goal, READ has been empowering marginalized and vulnerable rural women by organizing them into Self-Help Groups (SHG). These SHG started internal savings and micro-credit activities. The development of these self-help group was accredited and supported by the Tamilnadu Corporation for the Development of Women Ltd., (TNCDW) and the Council for Advancement of People`s Action and Rural Technology (CAPART) which provided training tools and financial support.

Because the amount of money that SHG members of a newly formed group can save each month is very small, it became very clear early on that there was a need for additional external funding to increase the amount of money that would be available for micro-loans.

For the first 5 groups that READ has formed, READ was soon able to mobilize a revolving fund from the DWCRA (Development of Women and Children in Rural Areas) agency, for a total amount of 600 US dollars per group.

In 2005, the Micro-Finance activities were expande thanks to grant support from the Alliance for Youth Achievement (AYA) Inc., USA.  Twenty women were provided with a micro-loan each of Rs. 5000 value (~ 100 US dollars); this was continued and expanded to another 50 women through the subsequent grants from AYA. In addition, READ’s sister organization Sahaya International gave Rs. 225,000 for a revolving loan program to construct toilets for women SHG members.

The success and creditworthiness of READ was appreciated by HDFC Bank which came forward to contribute Rs. 34,351,000 since the year 2007.  During February-March 2008, an additional Rs. 5,000,000 was secured from NDFS for micro-loans.  It achieved 99% prompt repayment so far and the remaining 1% constitutes delayed repayment and not total default.

The following statistics illustrate the Micro-Finance activity undertaken by READ:

MFI: summary of status up to March 31, 2008:
Source
Period from
Amount received and disbursed to clients in Rs.
Number of lender/ active clients
Number of SHG with lending clients
Amount repaid till date to the source banks/lenders
Balance outstanding with clients (Rs.)
HDFC Bank (loan)
July 2007 to March 2008
34,351,000
3384
188
8,078,556
26,272,444
NDFS (loan)
February 2008 to March 2008
5,000,000
401
28
172,700
4,827,300
 READ (Loan)
2005-2008
837,000
125
32
471,420
365,580

Total

 

Rs 40,188,000

3910

248

8,722,676

31,465,324


MFI : Summary for April 2008 to March 09
Source
Number of lender/active clients
Number of SHG with lending clients
Financial Assistance (FA) amount
Opening Balance
Total
Repayment
OSB
READ
144
6
1,984,500
 
 
680,840
1,303,660
HDFC
1282
83
14,430,000
28,439,140
26,044,924
5,151,786
19,185,936
NDFS
985
63
10,000,000
4,833,333
14,833,333
4,666,662
10,166,671

Total

2411

152

26,414,500

33,272,473

40,878,257

10,499,288

30,656,267

 

microfinance bank
loan paper

Loan sanction procedures:

The SHG members have previously already received awareness training on micro-financing. To avail a loan, they need to follow the following set of procedures:

  • Loan request letter will be given from the members --> SHG --> credit officer --> Branch manager --> Head office.
  • The branch manager list the groups for grading and only submits the eligible self help group forms to the Head office. After verification the forms are given to the loan committee.
  • The loan committee sanctions the loan amount to the group according to the performance of the group.
  • The loan agreement contains the information about the loan repayment schedule, interest rate; the form will be signed by the president, secretary and treasurer of the group.
  • Please note that the loans are given to the groups (who then disburse them to their applicant members) instead of directly giving loans to the individual members. This assures better oversight and high repayment rates due to the peer group structure of the program.
  • The group identity card, individual loan forms and individual identity card will be recorded. Know Your Customer (KYC) norms will be followed.

Loan statistics:

Average loan size
Rs.10,000 to 20,000 (approx. $200-$400)
Target for active loan borrowers
500 SHG within next six months
Loan repayment period    
12 – 24 months (by monthly installments)
Rate of interest charged
18%
Penalty for repayment default 
Penalty amount is charged for the unpaid amount default period as agreed during the time of lending
Loan goals:
    • Income Generating Loan
    • Educational Loan
    • Asset creation Loan
    • Housing Loan
Current activities for the loan used by the SHG members:
    • Handloom purchase and weaving
    • Cow purchase and milk vending
    • Cashew nut processing
    • Agriculture
    • Petty shop/business- grocery, tea shop
    • Vegetable vending
    • Tailoring machine

 

cashew nut processing
cashew nut processing
A self-help group processes cashew nuts as income-generating activity.

Future plans:

    • To provide micro finance to all women members in SHGs
    • To improve the women livelihood condition
    • To encourage all women to send their girl child to schools
    • To start a rural women bank (i.e., a bank licensed by the Reserve Bank of India)
    • To cover all women in social security(insurance)
    • To start women pension scheme.

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