TURNING THE TIDE: ENABLING POVERTY REDUCTION

It is rare to find a woman shoulder the responsibility of farming. It is usually the male counterpart who takes up the farm responsibility, but it is not so in the life of Kamatchi. She owns around 4.5 acres of rainfed land, and lives with her husband and their two sons in Sengapadai village of Madurai district, Tamil Nadu. As Kamatchi says, “He (her husband) never has once stepped on the land for farming.” She has to run the family all alone with the income she earns from the farm and from the income she earns as a coolie. Further, vagaries of monsoon and lack of effective coping mechanism, farming itself is loosing its lustre as viable livelihood option for many in this area. Adding to this, lack of suitable financial services pushes resource-poor farmers like Kamatchi into the depths of poverty.

She says, “… one has to walk four to five times to their house (the well-offs and moneylenders) to get a loan for urgent needs. They didn’t trust us for we are from Kallar community, and even if one could get a loan, it was at the exorbitant rate of 5 to 10%.” She was unable to enterprise herself due to such lack of support and an enabling environment.

A Ray of Hope

It was during this time that Kamatchi joined the Kaliamman Uzhavar khulu (or rainfed farmers’ groups) promoted DHAN Foundation in that area. With a bit of hope in her heart, she plunged ahead, and the group helped her all along the way. The group, thus formed, proved to be a safe platform to save, to access timely credit services. This helped her meet various household needs and supported her in farming activities.

An Array of Achievements

As of today, she has a total savings of Rs.5600 in the group, and had availed a total loan amount of Rs.70191 from her group, with the current loan outstanding of Rs.21360. “In earlier days, none of the banks cared us of our credit needs. Now, the bankers they themselves invite us to take loan from their bank, for they know our group’s credibility and discipline, and trust us,” says Kamatchi. And these loans were used for variety of purposes like to purchase goats and a milch animal. She also got a loan of Rs.15000 to purchase an acre of rainfed land and to purchase oil engine to pump water. She has recently taken a loan of Rs.12000 to construct a farm house in her land. Apart from this she has taken a variety of loans for various consumption needs like medical expenses, marriage expenses, outside debt redemption and household expenses. Further, time and time again, she had also taken loans for working capital requirement of her farm activities.

As part of the watershed project, an amount of Rs.54146 was invested in her land for the construction of farm ponds and to plant dryland horticulture crops in 0.75 acres of her land. The farm pond harvests around 14.4 lakhs litres of rainwater, and with that, she cultivates around 1 acres of paddy, and gets an yield of 1400 kg of paddy that is used for household consumption.

In the past five and half-years, Kamatchi found that little spark in herself, and with the support from the group, she had made major changes in her life and livelihood. The various intervention activities resulted in the following outcomes in the lives and livelihood of Kamatchi and her family.

·         Increased income

o    Brought more area under cultivation

o    Brought more area under irrigation

·         Reduced vulnerabilities and risks

o    Increased land holding size

o    Increased food security by increased paddy cultivation

o    Crop diversification with cultivation of dryland horticulture crops

o    Reduced vulnerabilities to risks–insured in human life insurance programme, and also insured goats

o    Reduced dependency on money lenders and increased access to mainstream financial institutions

·         Increased fixed asset holdings, and asset value appreciation

o    Conversion of rainfed to irrigated land

o    Purchase of land

o    Invested in farm assets like oil engine

o    Purchase of livestock–goat rearing and milch animal purchase

Beacon of Hope

Thus, DHAN Foundation and the group promoted by DHAN, had increased Kamatchi’s access to institutional credit facilities, and reduced dependency on money-lenders. There has been an increased level of awareness and social respect that she had gained. She speaks to bankers to get loan for her group; “Now the bankers, themselves, approach us; we have shown our trustworthiness,” she says.

With the additional income from the farm, she had further invested in purchasing a pair of cattle, and a bullock cart; she is also planning to complete her little farm house. This shows a positive trend in moving towards a farming-based livelihood options, which was once a not so dependable source of income. She has gained confidence to face the future.

Through the support rendered by DHAN Foundation, and with the confidence in her heart, Kamatchi proved it could be done–to come out of poverty with a sustainable source of income. She is now a beacon of hope, and a source of inspiration, for her own villagers and the community at large.

Source:-Dhan Foundation

India: Microfinance and Its Emerging Challenges

The recent debate on the rise and regulation of Micro Finance Institutions (MFIs) has put the focus squarely on the neo-liberal model of microfinance, being followed by the government since the beginning of the economic reforms. The early 1990s saw the emergence of microfinance as a major strategy of poverty alleviation by the neo-liberal state, especially in the wake of the reduction of public spending on welfare programs. The formation of self-help groups (SHGs) and their links with banks and government schemes was seen as a way of offsetting the problems of the limited outreach and of mobilizing capital for self-employment and other income generation programs. Many of these schemes targeted poor women, who were largely dependent on the informal sector credit from moneylenders. Thus the self-help groups formed under the bank linkage program attracted many women and more than 70 per cent of the bank and government linked groups were formed by women.

Perspectives on the SHGs

It was for this reason that the democratic movement and its organizations were not only forced to take this development seriously, but also develop their own perspective on SHG formation, while recognizing the limitation of the neo-liberal model of microfinance. The main critique of the neo-liberal model was built around the fact that it was largely designed to mobilize the savings of the poor for providing liquidity to banks and also for mobilizing the savings for self-employment programs in which the government had started to invest less and less money. In this situation, the formation of the SHGs was becoming a way of absolving the state of its own responsibility towards poverty alleviation programs. At the same time, many communal organizations and profit seeking commercial enterprises had also started to use these SHGs for their own narrow ends.

In stark contrast to this, the alternative perspective of the Left led governments saw the SHGs as a way of increasing the outreach of the government as well as channelling the government funds to the people. For example, the Kutumbashree, neighborhood micro-credit program of the Kerala government, linked the panchayat development with the organization and livelihood security of women. In West Bengal too, SHGs were given loans at subsidized, low interest rates, and they also received adequate training and marketing support. This showed that the democratic movement’s model of SHGs was concentrated on the democratization of governance rather than on the withdrawal of government support. By the same measure, democratic organizations working for women’s rights saw the formation of SHGs (for instance, MALAR federation in Tamilnadu) as providing a window of opportunity to mobilize women on social, economic and political issues.

Roots of the Rise of MFIs

The recent rise and growth of micro finance institutions has only made such SHGs all the more vulnerable in the present scenario of economic distress. According to the State of the Microfinance Sector report of the ACCESS alliance, the MFI operations expanded by 13 times in four years to end the year 2009 at Rs 117.9 billion ($2.6 billion) in outstanding loans. Of its 26.6 million borrowers, poor women and disadvantaged sections form one of the largest sections of the clientele. Whereas there was only one for-profit MFI in the country in the middle of the 1990s, this number had spiraled to 149 registered micro finance institutions by 2009. Of these, about 11 per cent of the large micro finance companies had a disproportionally larger share in the credit market, having 82 percent of the clients and controlling about 88 per cent of the loan portfolio. This reveals the emergence of new corporate entities and private finance companies who have started to exploit the credit needs of the poor by charging high interest rates. An investigation by a report from the Down to Earth magazine in Andhra Pradesh revealed that whereas bank linked self-help groups were charging interest rates of about 15 percent from their borrowers, the interest rates charged by the MFIs were at about 60 per cent. This clearly showed that a space had been created for exploitative financial intermediaries for entering the rural and urban credit markets.

That this phenomenon was linked to the refusal of public sector banks and the state to extend the outreach of its formal credit infrastructure is evident from the fact that most of the MFIs are concentrated in the 256 districts where the poor have a demand for credit, but the formal banking system is not able to meet this demand. Of this Andhra Pradesh and Karnataka have the greatest density of micro finance institutions, and more than 50 percent of the outstanding loans are in the southern states.

This meteoric rise of the MFIs has its roots in the liberalization of the banking system and its failure to meet the demands of the rural poor, especially women. Initially the MFIs were started in response to the program of financial inclusion. The SHG-bank linkage program was started by the National Bank for Agriculture and Rural Development (NABARD) where non-government organizations (NGOs) and not-for-profit institutions played an intermediary role in promoting and facilitating the link between self-help groups and banks. Thus many MFIs started as not-for-profit NGOs and then began to expand their operations to make direct contact with the clients. Thus SKS Microfinance (which is the largest MFI in the country today) started as a not-for-profit institution and converted itself into a non-banking financial company in 2004. Similarly, Sampdana, another of the MFI giants, started with 500 clients and increased its clientele to about 3 lakh (300,000) in the period between 1998 and 2004 when it became another for-profit company. This conversion of not-for-profit institutions into MFIs was a result of a state policy that increasingly facilitated the penetration of big private capital in this sector. International institutions like the World Bank supported the funders of the MFIs like Basix and the NGOs like PRADAN and SEWA in order to facilitate the demise of public sector banking.

Weakness of the Neoliberal Model

Such policies only exposed the weakness and inability of the current government and bank driven programs to meet these challenges. Women participating in the bank linkage program faced difficulties in getting access to bank credit despite the fact that it is they who had formed the SHGs. Thus around one lakh SHGs under the bank linkage scheme are yet to be credit linked even though they have formed the group under the linkage scheme. Further, the bank linkage scheme itself operates in two ways: first where the SHGs are supported directly through the banks on the one hand and, second, where banks lend to the MFIs for onward lending to the SHGs. They believe that this will only increase their outreach. But it is precisely this strategy which has also created the space for a replacement of the banks with the MFIs in some regions. Thus NABARD’s own report on the Status of Microfinance, 2009-2010 shows that while the rate of growth of direct bank support to the MFIs went up by 8.1 percent during the last year, direct support to the SHGs only went up by around six percent. This shows that the banks found it easier to give bulk loans to the MFIs rather than strengthen their direct links with the SHGs. Further, the ACCESS alliance report shows that the operation of the MFIs expanded by 83 percent in the last two years whereas the expansion of banking operations was only half that rate. This shows that the roots of rise of the MFIs lie in the slow growth of public sector banking and their reluctant and tenuous links with the SHGs.

The second important factor that led to the rise of the MFIs was the failure of the poverty alleviation programs that relied on the SHGs as the main mobilization strategy. The Andhra example is well known in this regard. Here the withdrawal of low interest rate based self-employment programs has led to the increasing operation of the MFIs. Further, in governmental schemes like the SGSY or the Urban Self-Employment Schemes, subsidies were linked to the ability of the SHGs to get loans from banks. The design of many of these schemes was such that applicants had to get their loans sanctioned before they could avail of even the inadequate and reduced subsidy (which in most cases did not exceed 35 per cent of the entire project). This was accompanied by inadequate infrastructural, training and marketing support for such employment opportunities. Thus, even though many of these schemes were targeted at the poorest of the poor (those below the poverty line), the rural and urban poor were not able to avail of these schemes adequately. For example, the government of Delhi was able to make only about 500 SHGs and train 3,000 women in one decade of its Shahri Swarozgar Yojana. Thus, along with other macro economic factors, the failure to provide work to the rural and urban poor also made them more and more vulnerable to the MFIs as well as informal sources of credit to meet their daily needs.

Need to Resist the Current Trend

The pressure being applied by the MFIs to resist the regulation should be seen in this context. Their political influence is reflected in the fact that the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Act (passed in December 2010) has no caps on interest rates. This once again shows that the government is willing to let the micro finance institutions do business as usual and manipulate the urban and rural poor for maximizing their profits. Needless to say, this trend needs to be countered and linked to the larger fight against neo-liberal policies and the increased social security for the urban and rural poor.

The democratic movement has been raising demands based on their experience with women’s SHGs and the government programs of the Left ruled states. It recognizes that the MFIs can only be countered if the government supports the SHGs through increased subsidies and low interest credits. The direct links of public sector banks with rural and urban poor and their SHGs need to be strengthened by expansion of the banking infrastructure and provisioning of low interest rate credit at a repayment rate of four percent. In such cases, the government may require to provide interest subsidies to these groups. But along with this, political mobilization for the regulation of the MFIs needs to be strengthened. For-profit NGOs and MFIs need to be stopped from expanding their operations in this sector on an urgent basis. It is no surprise that the finance minister has already stated that the government does not want to ‘strangulate’ the micro finance sector. The intention of the government is thus clear and large scale political mobilization is urgently required to stop its devious and anti-people design.

Source:-People's Democracy

When techies turn teachers...

Some hundreds of children smile. Meet five city geeks who decided to lead by example when it came to giving lessons in kindness

Charity is one thing, and chapters in self-reliance, another. Thankfully, five young men in town know the difference. Ajit Kumar Singh, an employee of Adobe Systems, Hemant Roy, with BrickRed Technologies, Izhar Arman, with Pitney Bowes, Anindit Sinha, with BirlaSoft and Prashant Kumar Roy were determined to take up a challenge that most would only talk about and not tread on. All of them had a common mission quality education in rural India. This gave birth to their NGO Aarambh in June 2008. Now, their humble beginning has resulted in two full-fledged schools in otherwise backward areas of Bihar, with over 200 students.

Predictably, the journey wasn't easy. There were times when there was no money to pay to the teachers, when parents refused to send their kids, and a lack of basic amenities in study areas. But the five stood thick.

When their first school was set up in Derhgaon, a remote village in the Rohtas district of Bihar, it had 20 students and one teacher. Today, the same school boasts of 150 students and six teachers with classes I to VII, and operates in two shifts, in an open space provided by the villagers. Aarambh's second school was started in Maheshwara village, Begusarai (Bihar) in October 2008. Sixty students and three teachers make the rented place a temple of knowledge.

As all the founder members are working professionals, they make it a point that no matter how small their efforts are, the project is given the best in terms of time, money and ideas to help the under-privileged. Hailing from different places in Bihar and Jharkhand, they make it a point to visit both the schools once in every three months, turnwise. Teachers are given professional training so that they match up to optimum educational standards.

Funds ke funde

The youngsters are still battling with basic problems, standing strong in the face of each. "In summer, there are hot winds, and in monsoon, heavy downpours. Due to all this, school hours have to be cut short, and even shutters pulled down. A building is now a must, open spaces aren't enough. We haven't been able to manage the funds yet, and hope conscientious corporates will come forth," said Ajit Kumar Singh, the president of the organisation.

The evangelists feel that the biggest hurdle in their giant step is the finance. "We make it a point to save a certain percentage of our income every month for this cause. But this contribution is just not enough to run the school smoothly. We tried to gather some funds from the government and private organisations, but in vain," said Hemant Kumar Roy, secretary, Aarambh.

According to estimates, India will have the largest youth population in the world in the coming years, with a multiple increase in unskilled and/or illiterate unless proper education is facilitated. Experts have warned that if this young energy is not channelised properly, one can only imagine the danger looming large over the country.

Source:-

www.aarambh.net

A bandhu they can bank on

The tiny drops promise to swell into an ocean of profit, as FINO handholds the poor to deposit their faith and money in the banking system..

Every pie counts: Sushma Devi deposits her husband's savings into her bank account using a smart card. - Rasheeda Bhagat

For many of us who effortlessly shop for things, transfer money or pay utility bills with a click of the mouse, it is virtually impossible to even imagine the trauma the illiterate, the rural and the lower middle-classes face in doing these simple tasks. Mind you, these are not the abjectly poor; they make a decent income.

So, at the office of FINO (Financial Information and Networks Organisation) Ltd at Dharavi, touted as Asia's biggest slum, in Mumbai, the sense of empowerment was palpable as Sushma Devi walked in with her month-old baby in her arms, and her three-year-old daughter clutching her finger.

She proceeded to the counter where Shahida, a FINO banking correspondent or bandhu, was seated with a small hand-held device into which went the woman's biometric or smart card bearing her bank account details. The machine confirmed her identity after she placed her index finger on the monitor, and she put Rs 300 into her account. The money came from her husband's earnings and it was great to note that it went into the wife's bank account!

The transaction took barely a minute. Sunita Singh, who runs a small business nearby, came in next to deposit Rs 5,000 in the Union Bank of India account of one of her workers. “This money will be withdrawn by his parents living in a small town in UP. He sends them Rs 5,000 every month like this,” she said.

Arvind, a fruit seller, followed. He sells cut fruits on his handcart; “it is Ramzan, and in the evenings there is brisk business. I'm making good money, so I'm putting this (Rs 1,000) into my account before I spend it,” he grinned. This month has been good and he has already saved Rs 6,000.

Manish Khera, FINO's CEO, who in 2006 quit his secure job as a joint general manager at ICICI Bank, Mumbai, to set up the organisation, watches with quiet pride the efficient working of the system where money is either put in or withdrawn.

“We saw that banking in general is concentrated on the urban middle-class and we were not really serving the masses. And it was not even a niche bank.” The bulk of the customers living in remote places and the expensive physical infrastructure to reach them were major obstacles preventing such customers from engaging with banks.

He looked around at global initiatives to solve this problem; the Brazilian model of business correspondent (BC) was just taking off, and there were initiatives happening in South Africa and Indonesia.

So he zeroed in on the idea of the BC (today FINO has over 10,000); “instead of banks setting up branches, the agent or bandhu goes to the doorstep of the client and with little or shared physical infrastructure the business model becomes feasible.”

Government payouts

Over 90 per cent of FINO's 18.5 million clients are in rural India, and “as we talk, 50,000 additional clients will come in today,” he says.

The biggest component of FINO, which operates in 23 States and 80 districts, comprises Government payouts, social security pensions, health insurance for the BPL (RSBY or Rashtriya Swasthiya Bima Yojana) and NREGA. “In rich States such as Haryana and Punjab, where NREGA hasn't really taken off as the private players pay more, we execute social security pensions in a big way,” says Khera. The Haryana government pays a monthly old-age pension of Rs 700 to the BPL, and FINO has over one million of these customers.

But its biggest customer-base — 9 million — comes in the RSBY category, where the Government provides cashless insurance to people in the BPL category. The Government pays the premium and servicing is by private or public insurance companies. The annual cover is up to Rs 30,000. “Our job is to issue cards to the customer, install devices in hospitals where customers can get healthcare facilities using their smart cards. We provide the technology and the insurance company pays us for the service.”

Next comes NREGA with 5 million customers; the bulk in Andhra Pradesh, where FINO works well with the State government, followed by Madhya Pradesh and Rajasthan. Those who earlier shunned NREGA work, either because of delayed payment or partial payment as the money was siphoned off, are getting into the FINO system as full payment is assured on the third day. With 1.5 million new NREGA customers every month, by the end of this financial year, the total will exceed 10 million.

Encouraging savings

So, is FINO encouraging the poor and the lower middle-classes to save?

Yes, “a subtle shift” is happening, he says. “With NREGA-like people being our larger customer base… earlier they used to get the money and spend it. Now, with a bank account they think they should retain a little money for times of need.”

On the recently started remittances model, mainly domestic and foreign on a pilot basis, he says that unlike in other money transfer systems, the advantage of a bank account is that beneficiaries don't have to withdraw all money at one go; some might even save a portion. Ultimately, when the banks see some money remaining in the account, they might offer them other financial products like loans. In domestic remittances, which average around Rs 5,000 a quarter, money goes from urban centres such as Mumbai, Delhi and Surat to villages in poorer States like Bihar, MP and Orissa which witness a lot of migration.

But are banks really interested in micro-customers dealing in tiny sums?

“Yes and no; today there is a systemic push on the banks to reach these people. Deputy RBI Governor Dr K.C. Chakraborty did a great thing by recently getting all banks to submit a formal financial inclusion plan approved by their boards. Having given something formally to the RBI which is being monitored, there is pressure on them to comply.”

He adds: “If you go into the maps of this business, it makes money. Only you have to be persistent, have a large base and the right products for the customers, so some banks are now also pursuing this as a profit motive, because though each customer brings very small sums, the aggregate value adds up.”

Like in Mumbai alone, FINO's daily cash collection is Rs 2 crore. The next step, says Khera, who hopes to come out with an IPO by 2013, is to convert his customers' smart card into “something like an India Card, which like Visa or MasterCard, can be used for purchases, paying utility bills etc. The possibilities are immense.”

FINO's first target is 25 million customers in five years. “We'll do that before the deadline, and our next milestone is 100 million in the following five years,” adds Khera.

Engaging the farm sector

The organisation, which recently won the Financial Times Sustainable Banking award in the ‘Achievement in Banking at Base of the Pyramid' category, is now forging a partnership with the farm sector. “We have opened bank accounts of all the farmers who supply milk to the NDDB. Along with a savings bank account they get bank loans and cattle insurance, all coupled in a single product.” It has started in Gujarat and UP and will expand to other States soon.

Verghese, a FINO client, runs a watch repair shop in Dharavi.

Verghese, who has a tiny watch repair shop in Dharavi, now banks on FINO to send his family in Kanyakumari a monthly allowance. “But I hope they will soon hel me get a loan to expand my business,” he says

At the FINO office, Arvind, the fruit seller, completes his transaction and says, “This is so much quicker than a bank, where you have to first fill a form, take a token and then wait for the sahibs to return from their coffee break! And then they'll tell us ‘ aaj computer me gadbad hei!' (Today the computer is not working.)”

I next watch Pervez withdraw the entire amount of Rs 17,400 from his SB account for expenses related to his brother's wedding. Arun Mandal, a civil works supervisor, comes in to send Rs 3,000 to his parents in Jharkhand.

But what brings tears to the eye is 16-year-old Pintu Kumar, who works as an electrician in Mumbai, sending Rs 2,000 to his parents at Satsena village in UP. “I left my school two years ago to come here; my boss taught me the work and I'm happy to send money regularly to my parents from here,” he says cheerfully.

Source:-FINO

Potential of financial literacy

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In India, financial literacy is seen as an adjunct to the financial inclusion exercise. However, its role in addressing the aspirations of an emerging economy deserves recognition.

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Tanushree Mazumdar

At a recently held workshop on financial literacy, organised by the Reserve Bank of India (RBI) and the Organisation for Economic Co-operation and Development (OECD), it was interesting to note that even developed countries were grappling with the issue.

There was, however, a difference in the thrust of financial literacy/education drives in these countries vis-à-vis developing countries like India. So far, in India, the emphasis has largely been on financially educating the rural poor and illiterate. Whether it is the business correspondent/business facilitator (BC/BF) model or the technology-driven banking model that the regulators and banks are currently encouraging, the main focus remains the rural poor.

These models have a two-pronged focus: include the financially excluded in the mainstream financial system and financially educate the rural masses about banks, their products, services, procedures, and so on.

In developed countries (OECD to be precise), there is greater focus on educating an average family — helping it balance its budget, build assets, save for children's education and retirement planning. Financial literacy there takes the form of guiding consumers through the maze of complex financial products, taking confident financial decisions and safeguarding their financial interests, and resisting marketing pitches of financial companies by asking the right questions.

There is another difference in the objectives of financial education programmes in the developed and developing countries. In the developed countries, financial literacy is linked to consumer protection.. Better information disclosure, they believe, would go a long way in strengthening regulatory standards for consumer protection.

In India, financial literacy is seen as a means to achieve financial inclusion. The thrust is on rural areas. This is not surprising, given that 5.7 lakh out of the six-lakh villages don't have a bank branch. There is, however, a strong case for extending the efforts of financial inclusion to urban areas as well. The Economic Survey 2009-10, quoting the NSS 61 {+s} {+t} Round, says that poverty ratio in urban areas is 25.7 per cent which is only somewhat lower than the 28.3 per cent poverty ratio in rural areas.

LIVELIHOOD NEEDS

What will help financial inclusion is not financial literacy per se but linking people's livelihood needs with banking services. For example, the Aryavrat Gramin Bank in Uttar Pradesh achieved 100 per cent financial inclusion in some hamlets in UP through its tie-up with a corporate to sell solar powered lamps. The Kisan Mitra Scheme of Punjab National Bank achieved 100 per cent financial inclusion in 40 villages by linking bank finance to farming needs.

There is also the example of a pilot project in Warangal district of Andhra Pradesh, where pension payments and payments under NREGS were made through direct credit to bank accounts.

If people need banks for saving or receiving income or for remittances or loans they will avail of such banking services. In such cases, financial literacy becomes only the catalyst and not the main driving force behind financial inclusion.

Financial literacy can achieve a larger goal: that of empowering the consumer to take financial decisions confidently. And it need not be restricted to rural areas.

Urban areas in India may not be too different from developed countries in terms of the aspirations of people and the challenges they face. Some lessons from OECD countries can then be drawn for our own financial literacy programme.

Countries such as Malaysia, Singapore, and the Philippines include financial education as a part of school education. Money sense (like civic sense) is best inculcated in people as early as possible. The pilot project in Karnataka where financial education is being implemented in schools is a good step, and the outcome of the project will help in the strategising of financial education and roll-out in other States.

LITERACY STRATEGIES

In New Zealand, as a part of its financial literacy strategy, topics have been classified into three levels: everyday (financial products, services, inflation, etc.), occasional (wills, mortgage, etc.) and specialist (derivatives, portfolio management, etc.). We could think of a financial literacy strategy along similar lines.

Delivery of financial literacy is going to be the greatest challenge in India, not the least because of its geographical spread and diversity in languages. Just as banks have started offering credit counselling services, some authority has to take the responsibility of offering financial counselling. This cannot be left to the banks or other financial institutions, because there could be a conflict of interest.

Besides, financial counselling would involve, among other things, providing at one place, information about products and their charges across all banks, mutual funds, insurance companies, and so on. A centralised/impartial authority has to take charge of this task to assure uniformity in delivery and credibility of content.

May be, this is something that the proposed Financial Stability and Development Council can think about. After all, lack of financial education is said to be at the bottom of the recent global crisis and financial instability.

(The author is a former Deputy Director, Academic Affairs, Indian Institute of Banking & Finance, Mumbai. The views are personal.)

Innovations in Rural India

This article presents the various rural innovations in the country. It further

points out the need to have more frequent innovations in the rural sector to

make India shine in the real sense.

Innovation is the key to survival in this fast-moving generation where nothing is static except change. It is applicable to each and every aspect of human life irrespective of where you reside and what you do on this globe. You have to innovate, i.e., make proper adjustments and changes according to the growing needs and demands of the environment to be a part of this environment.

Any development is not possible without taking the rural masses into account. This is all the more necessary in the case of India, a billionaire country—no not in terms of money, but in terms of its population. Thus innovations affecting the rural population are at the heart of any developmental process in India where the majority of the population lives in villages. Agriculture has been the mode of employment of over 70% of its population. The agricultural sector contributes around 30% of the country’s GDP. Hence, it is quite obvious that for India to shine, rural India must shine as well; otherwise the country’s overall growth would fall well short of its potential. It’s more than half a century since we gained independence, yet there has not been satisfactory improvement in the rural sector. Some of reasons behind this are natural like the inconsistent monsoons and diverse climatic conditions, but most of them are man-made reasons, such as the middlemen standing between the farmers and the market and making away with the profits.

Despite all these ills, there has been a silver lining in the rural sector in the form of Amul, ITC e-Choupal, Parry IndiaAgrline to name a few. Further, this article discusses the evolution of a few innovative processes that have centered on agricultural and allied activities in rural India. It discusses, at length, the evolution and structure of the Amul pattern of cooperative farming, ITC e-Choupal and Parry IndiaAgriline—three important innovations that have brought the rural economy closer to its target markets, also releasing its capacity for overall development.

Amul

In the 1950s, the life of farmers in the Kaira district of Gujarat was as miserable as that of its counterparts in other parts of India. These farmers were frustrated with the erratic climatic conditions, lack of proper infrastructure and the continuous exploitation of strong middlemen who reaped the benefits of their hard toil. Though they had the resources of making additional income from milk and other dairy products, due to the absence of a proper distribution network, farmers were forced to sell these products at throwaway prices to the usual traders and the strong middlemen who controlled the marketing channels. The continuous exploitation by these traders led these farmers to a win-lose situation. Then, the farmers realized that this exploitation cannot be stopped until and unless they pooled in their resources and marketed their own products. This led to the formation of Amul.

Today, Amul has become a household name. With the support of professional organizations and other NGO’s, what started with a cooperative movement in Anand in the 1940s has grown from one village to around 10,755 villages; from a few liters of milk to 6 million liters of milk a day and various other milk products; and the most important point, from a few farmers to more than two million farmers spreading all across Gujarat. It has become a firm which is collectively owned and controlled by the farmers. The logistics adopted by Amul in collecting more than 6 million liters of milk per day from 10,755 village cooperative societies spread throughout Gujarat and then processing it to produce the final packaged milk and milk products have set new standards in logistics management in the country. Amul is a pattern of cooperative farming which is collectively owned, operated and controlled by the farmers.

ITC e-Choupal

E-choupal is an innovative way of applying new technologies for the poor farmers by ITC—one of India’s leading corporate houses which had a diversified product portfolio encompassing cigarettes and tobacco, packaging, specialty papers, paperboards, hotel, retailing, IT and agri-exports. ITC’s e-Choupal helps the farmers to take decisions regarding when and whom to sell their products in order to gain more profits with the help of the Internet by analyzing the ratings of different mandis. The echoupal initiative was aimed at network villages through the Internet in order to procure agricultural products from the farmers for export purposes in an efficient and effective manner. E-choupal has enabled farmers to sell their produce more conveniently and at

much better prices than what they used to sell to the private traders and the middlemen. Starting with just six e-choupals in Madhya Pradesh in June 2000, ITC has successfully managed to establish over 1,200 echoupal centers in almost 6,500 villages in India by December 2002. It has educated the poor and uneducated farmers on how to conduct e-commerce transactions with ease and to get themselves out of the clutches the middleman. Echoupal has helped farmers in pricing their crops and taking decisions on when and where to sell their produce to get more profits. Similarly, ITC in its e-Choupal initiative offers additional services like selling seeds, fertilizers and crops insurance to support its profitability.

Parry IndiaAgriline

In order to bridge the structural void of the villagers of the Cuddalore district of Tamil Nadu, EID Parry, an agricultural company in Tamil Nadu, set up a first-of-its-kind portal—indiaagriline.com— through which farmers can access both personalized and general information on a host of topics related to agriculture and allied activities. The portal provided detailed information on six crops which included sugar, banana, cashew, tapioca and groundnut. The exhaustive and detailed information ranged from farm practices and farm advisory services to pricing details for different crops in the nearby markets, weather forecasts, etc. Personalized information like the payment details of a sugar company to farmers could also be accessed on the system once a farmer registered himself with the kiosk. Bridging the digital gap not only eased the flow of information of all kinds but also facilitated market transactions, industry competitiveness, new innovations and positive social transformations. The credit for this technological breakthrough can be attributed to the joint efforts of EID Parry and n-Logue Technologies.

Parry IndiaAgriline is devoted at improving the life of the farmer by bringing technology to his doorstep and acquainting him with information that would help him increase productivity and enhance his lifestyle. Experts are convinced that this new value addition in supply chain management of agriculture products will have a great impact on the growth of the rural economy

Conclusion

It’s true that India lives in her villages. Rural India holds great potential for development as it is the source of livelihood for more than two-third of the country’s population. Exploitation by the private traders and middlemen accompanied with the farmers’ lack of information on issues pertaining to their livelihood are serious obstacles on the path of rural development. There is a need to take strong steps so that the primary producers in agriculture could break the shackles of the middlemen and become self-dependent and strong. Slowly, but steadily, the farmers are realizing the importance and potential of technology in their farming process.

Undoubtedly, the story of Amul, ITC E-choupal and Parry IndiaAgriline are phenomenal and mind-blasting. But such a large country with only a couple of attempts in innovating the rural sector seems like an , ‘oasis in a vast

desert’. Now it is the role of government and social organizations to make farmers aware of the need and potential of technology in agriculture. If the farmers of Gujarat, Madhya Pradesh and Tamil Nadu can do it, then there is no reason why the farmers of other places cannot.

In this dynamic and ever-changing market environment, farmers in India should be abreast of the latest information for their agricultural inputs. One or two successful stories won’t solve the purpose for you. It needs a revolution in the rural sector. Greater transparency in the farming process is the need of the hour. The faster the government and farmers understand and realize it, the better for them and more importantly for India to shine properly

Financial inclusion can only be brought about through literacy

The year 1969 was a turning point in the Indian banking history as thrust on nationalization was given so that strategy of social development and economic growth could take place simultaneously thereby enabling the country as diversified as India, wellknitted and connected.

It was a big leap by the Government at that point of time as banks were the medium which people interfaced on a day-to-day basis and also Government could reach out to the poorest of the poor. This was exactly what nationalization of banks would have wished for but LPG (liberalization, privatization and globalization) revolution in 1991 gave a tryst with destiny to those laudable dreams of bank nationalization.

In consequence of the revolution, banks have more or less become more urban centric and as a result 'finance' a tasteful subject to every human being is denied to the majority and catered to prolific minority only. Taking note of the seriousness and concern for expansiveness of banking industry which is the back bone of Indian economy, the current Finance Minister of India recently stressed upon the need and felt that fresh licenses to the banks must be given only if they could show their mapping in rural India, which is vital for 'inclusive growth' of India.

A look at the statistics shows how commercial banks are really 'commercial'. 72.2 per cent of country's population is catered by 30 per cent of the bank branches, 51.4 per cent of farmer households are excluded from financial services, geographically only 5.2 per cent of the six lakh villages have bank branches, 80 per cent of Indian population do not have life or health insurance and above majority of population in India are either financially at risk or not exposed to finance.

There is prosperity at one end with too much exposure to risk and on the other there is poverty with all risks. Unless social development takes place, there cannot be economic growth and these twin aspects are the two sides of a coin and have to be transacted at the same time in far-flung , remote areas of the country.

Financial inclusion is not something new; it is a worldwide phenomenon and gained its momentum in India in early 2000's. Banks in India were earlier adopting villages for rural development but the exercise was not an enthusiastic success. The private sector banks are also more urban customer oriented and targeted on I-banking to tap more clienteles.

Financial inclusion is provisioning accessibility of financial services to the poorest of the poor at an affordable cost. The question is who shall provide? What shall be provided? How shall it be done? And more important who will be the service provider? The 20th Skoch Summit held in July, 2009 at Mumbai on its finding on "National study on speeding Financial Inclusion" is interesting and worth emulating.

What is hampering the fostering of financial inclusion? Financial inclusion is not just multiplying bank accounts, where accounts remain inactive or having a minimum balance of Rs 176! What is most important is inculcating the sense or awareness of financial literacy among the rural masses and extending the affordable financial products or services to them at a subsidy or at an affordable cost.

The cost has to ultimately be borne either by the banks or by the State but the fact that should be highlighted is that it is not provided just like freemeal scheme or any other scheme of the Government. Reaching out to masses in the remote corners of the country, extending technology banking, enabling cash to reach the bank accounts of such masses, marketing, educating rural customers and seeing a viable business model in the future should be the mission and vision of fostering financial inclusion in the country.

However, easier said, the more are the practical difficulties. The banking industry cannot see it as a viable model unless it is profitable and therefore, the 'financial inclusion' should be made as the national agenda.

The practical problem in this agenda is how to create 'demand and supply' effect to the accounts through which those who have been 'excluded' can be 'included'. Most of the output (if at all) generated by the rural masses is mostly farm products or services, where marketing facilities and price are not competitive or in most of the cases it is a mis-match.

Therefore, efforts should be made to take the commodity market to the rural people and logistics should be made for the distribution system all across the country and the cash output so generated by the marketing system should be tapped by the banks through tech-bank and minimum amount savings generated out of such transaction should be enabled to flow into the capital market preferably though mutual funds. This will pave way for those who have been excluded from the financial exclusion, promoting saving thrift, scope for wealth creation and above all financial literacy.

The participation of the population in the retail capital market is just 2 per cent and therefore the main stream including the ruralurban population are either isolated or at a financial risk because of poor saving or alarming spending habits. Banks through their correspondents should therefore start campaign educating the rural and poor masses not just for opening bank accounts to meet their targets, but help them grow by diverting such surpluses to other expanded investible sectors of the economy.

It is a holistic exercise where banks have to rope in other agencies functioning in direct liaison with the people in rural areas particularly post offices which serve as connecting link. The use of 'UID' should facilitate the faster exercises as data can easily be populated and cumbersome banking procedures can be dispensed with in the process of financial inclusion.

Mobile banking , bio-metric banking, commodity banking, cash vouchers , etc., are those viable channels that can add sizeable population to the financial inclusion. Technology is rapidly changing and mindset of man is a thing of the past. When mobile population could rise in geometric proportions all across the world, at least working models should be developed to increase rural banking in mathematical proportions as well.

The year 1969 is remembered for yet another remarkable achievement in the history for the mankind. It looks strange to relate two events, but facts tell. In the same year when bank nationalization process started, there was yet another small step to connect to the mankind. Neil Armstrong landed on the moon. His words were, 'That one small step for man, one giant leap for mankind'.

Forty years later, change is fast happening in space technology. Man is trying to reach Mars, but banking is yet to penetrate into masses. It is not just a Government's endeavour for after all Government is for, by and the people. Let us all join together to make 'Farm India' as 'Finance India'.

(The writer, Dr P T Giridharan, is Joint Director, Institute of Chartered Accountants of India)