Chapter-VII Data Analysis and Interpretation

Transcription

1 Chapter-VII Data Analysis and Interpretation 16

2 CHAPTER-VII DATA ANALYSIS AND INTERPRETATION In order to arrive at a logical and constructive analysis of micro financing by commercial banks in Rajasthan six leading banks three each from nationalized and private sector banks namely State Bank of India (SBI), State Bank of Bikaner and Jaipur (SBBJ), Bank of Baroda (BOB), ICICI, HDFC and Axis bank Ltd. were selected and both type of sources of data collection i.e. primary and secondary have been employed for the analysis of hypothesis under the study. The Primary data was generated and analyzed by administering a questionnaire to the banks under study as lenders and the microfinance borrowers and clients to get the complete set of status from loan providers and its actual users. To start with after detailed discussions which bankers and other MF practioners a well structured and focused Questionnaire was administered as appended at Annexure -I & II for banks engaged in Micro financing and for Micro Financing clients/ borrowers. This exercise also comprised of in-depth interviews with microfinance institution managers, Government officials, bank employees, service providers, NGO's and the various beneficiaries. The sources of secondary data were various annual reports of RBI, NABARD, SIDBI and the banks under study as mentioned above. Also various articles, published reports, related web-sites, newspaper clippings, and journals have been referred along with other NGO's reports. The secondary data from the sector reports on microfinance by Access and centre for MF have also been consulted. I had also undertaken a field survey to understand the client's perspective and analyze the factors behind repayment and impact of credit and socio-economic well being of clients. Globalization and liberalisation of the Indian Economy and the interest of foreign banks to expand their presence in India through the in- organic route, have fuelled the growth of the banking Industry India has a well

3 Data Analysis Interpretation 253 balanced mix of Public and Private sector banks. While public sector banks provide stability to the banking system in the country. Private sector banks add the necessary dynamism to it. The banking system in India is dominated by scheduled commercial Banks (SCBs) with a Pan-India presence. As of March 2011, SCB's controlled most of the assets, with the rest being controlled by a large number of small Co-operative credit institutions with a very limited geographic reach. As per a banking survey reported by Business Standard's "Banking Annual" at the end of financial year India had 43 banks with 334 branches of Foreign Banks, 89 banks with 92,114 branches of all scheduled commercial banks, 26 banks with 75,779 branches of Public Sector banks and 20 banks with 16,001 branches of Private Banks respectively spread throughout the length and breadth of the country. Within the SCBs, public sector banks accounted for 71.9 percent of the assets and the rest was held by foreign banks and private sector banks. With an increasingly global footprint, the Indian banking industry has adopted certain global best practices such as International Financial Reporting standards (IFRS) and Basel II. As of March 31, 2011, all commercial banks in India, excluding RRB's and local area banks' have become Basel II compliant. India has now entered the era of online banking, e-commerce and m- commerce, which makes banking simple. Also the use of ATM's and credit cards has increased tremendously in the last few years. Also there has been a major change in the products offered by banks, from a few standards credit and deposit products to a number of customised offerings to suit the requirements of various categories of customers. Also with a network of around 70,000 branches, of which around 46,000 are in the rural and semiurban areas, microfinance has emerged as one of the most promising area for commercial banks, both in the private as well as public sector.

4 Data Analysis Interpretation 254 These banks under study have been actively involved in micro financing activities and promotion of livelihood. Under the microfinance initiatives Axis bank extends financial assistance to microfinance Institutions (MFIs). The Bank commenced lending to the micro finance sector in the year The bank extend credit facility to MFIs working for economic empowerment of micro-entrepreneurs and low income earners by providing financial services in a sustainable, ethical and profitable manner. The Bank primarily extends term loans and cash credit limits to established and well rated MFIs. These facilities are for on lending to their clients. The bank has micro finance partners in almost all the regions of the country with special focus on the underserved areas. The Bank also plans to reach out and make a positive impact on the poor through financial inclusion by providing specially designed, products and services in a commercially viable manner. This has lead to economic empowerment of the masses and has brought them into the national main stream. RBI had also issued directives to all banks both private and public sector to consider lending to MFI's and NGO's as part of 'priority sector' lending where in 40 percent of loans by commercial banks be reserved for priority sector and 18 percent of this to agricultural sector. The priority sector includes rural areas, small industries, exporting firms, housing and agriculture. ICICI bank was the first bank to have understood the business potential and importance of microfinance. We have in our country 26 government owned banks, more than 20 major private banks and over a lakh of cooperative and Scheduled Commercial bank branches. ICICI bank was the first bank to develop a unique partnership model to deliver small loans to the poor. ICICI entered the microfinance market in early With the unique linkage methodology, the bank was able to cover more than 3 lakh clients in the rural areas, with direct loans. The partnership model enabled the bank to use the expertise and networks of specialist institutions with long experience

5 Data Analysis Interpretation 255 of social and financial intermediation that too without taking the risk of actually lending money to them. Many of these institutions are financially weak, poorly capitalized and dependent on grant funds for their survival. In India, NABARD has been the forerunner and has been operating its version of micro-credit by lending to SHGs of rural women for several decades. It was in the seventies that NABARD had taken up a pilot project on SHG bank linkage. The great success of this project changed the traditional mindset and attracted the formal financial sector to join the movement. Presently NABARD promoted SHG-Bank linkage programme is the largest microfinance programme in the world. Also once the Micro Finance Institution (Development & Regulation) Bill is passed by the parliamentary panel it would be possible to not only lend but also to accept micro deposits and offer insurance, pension and money transfer services. It will also set a high limit (Rs five Lakh) for micro loans and proposes a restriction on interest rates that can be charged. Also a progressive move could be that MFIs are allowed to, or be obligated to, provide capacity building services to their borrowers. This could be on lines of the consulting provided by commercial banks to the MSME borrowers. In the traditional model of micro-credit, borrowers self organise into groups and each member are jointly liable for the loans of all group members. Loans disbursed are sequential, and typically, repayment begins one or two weeks after disbursal, with weekly repayment instalments over the period of a year. If any member defaults, the entire group is cut off from all future lending. From the MFI's financial viewpoint, microcredit has been very successful; even though borrowers do not post collateral, repayment rates are typically very high - more than 95 percent. Recent evidence, however also suggests that these same features may also contribute to some of the problems with microcredit. The rigid, high-frequency repayment schedules and joint

6 Data Analysis Interpretation 256 liability can dampen risk-taking. This therefore, prevents the use of microcredit in financing agricultural working capital. Financial literacy of the economically underprivileged is a key step towards ensuring financial inclusion within our country. Some financial service providers namely Ujjivan Financial Services and Parinaam Foundations etc., are striving towards financial inclusion of its customers across India with a variety of programmes like screening of "Sankalp" (a documentary film created by Ujjivan) and "Diksha" financial literacy programme created by Parinaam Foundation, a five module in-depth classroom training which is aimed at : 1) Creating an understanding of financial products and equipping them with tools to make informed decisions to take control of their financial well being. 2) Educate microfinance customers on their options for borrowings and savings, including assisting them to open saving accounts with banks and the ability to use ATM's. 3) To provide access to a diverse range of financial products such as loans of various types, pensions, cashless transactions, insurance, remittances etc. Agent Intermediated lending process has been the latest new approach to microfinance for agriculture sector in which the traders, shopkeepers and money lenders who interact with agriculturalists are appointed as agent of the MFI. Benefits of agent Intermediated Lending are: 1. Borrowers are liable only for their own land. 2. No incentive for contagious defaults. 3. No collateral requirement so that poor households can also access loan. 4. Borrowers who own less than 1.5 acres of cultivable land can avail loan.

7 Data Analysis Interpretation 257 Now it is an established fact that small steps towards educating the economically marginalised groups on modern banking facilities and financial products can substantially help them in financial inclusion. Now with the RBI announcing in 2011 a series of measures, like cap on interest rates being charged by MFI from borrowers, giving boost to NBFC etc., the Microfinance sector got a new lease of life. The result showed the loan portfolio going upward to Rs.21, 245 crore in as against Rs.839 crore in the year Also the equity investments have improved. During the year about 10 MFIs got funding from International Financial Institutions like the International Finance Corporation, the World Bank's private sector lending arm, and US-based non-profit Accion International, according to the annual report of Microfinance Institutions Network. The questionnaire as annexed at annexure - I and II was administered to the selected banks and microfinance borrowers with the help of field surveyors / investigators and through personal discussions with banks officials and borrowers by me, who had been the micro financing beneficiary. A total of 15 bank branches and 48 borrowers were surveyed apart from personal discussions with the stakeholders. The detailed analysis and interpretation of the data collected is summarized as below and by the help of pie and bar diagrams. It was observed at the outset that the level of education of the MFI clients and borrowers is very low due to which they are not able to understand the schemes and the benefit they can enjoy from these micro financing schemes. Annexure - III depicts the educational background of these borrowers. It was observed that 60% of the MF clients were uneducated or had a very basic education/knowledge. This was taken as one of the reason the slow growth and expansion of the MFI organization. The target population of MFI's is the rural people in Rajasthan who have either no - education or are

8 Data Analysis Interpretation 258 very less educated. Due to low education or at times due to illiteracy it was a great challenge to communicate with the group during this primary survey. For this basic reason it is also difficult for the MFIs employees to make these clients understand the policy and related details, which even leads to several challenges in the future like delayed payments and loan defaults as the clients realize the repercussions at a very later stage. Also it was observed that due to extreme poverty added to the lack of education, the MFI programme is often not able to reach to the real needy and the extremely poor population. Education levels were greatly viewed as one of the main barrier for the expansion of MFI programme of these commercial banks. The loan tenure was in the range of 0 to 7 years. Majority of these microfinance clients had opted for a three year term. Since many banks MF schemes are new to the target group its long term benefits or its negative impacts are still to be seen. The loan tenure was seen to be in line with the regulations regarding loan tenure for exceeding certain amount. Annexure - IV bar diagram outlines the loan sanction duration and the preferred loan tenure by MF borrowers. The primary survey showed that the loan amount by these borrowers was taken mostly below Rs. 40,000. This was also in line with the regulations that in the first leg of loan disbursement the amount disbursed was less than Rs. 35,000/-. Annexure - V shows the graphical presentation of these loan amount availed by the target group. These MF borrowers had availed these loans for varied purposes and with different motives, like better interest rates, status, new work or expansion of the existing work, better livelihood or for marriage/illness etc. During the survey it was learnt that same borrowers had multiple responses and increase in the status and getting more avenues of work was the primary impact of these micro-financing loans on these borrowers. Annexure - VI shows the

9 Data Analysis Interpretation 259 impact of micro-financing on the basis of above mentioned factors. It was found that majority of these clients have taken the loan for establishing new works, for buying new tools/machinery and thus resulted in increase of their status and better livelihood. Few other borrowers took loan because of a marriage or illness in the family. Surprisingly, better interest rate was not cited as a major impact during the survey which was the basic premise of Micro-financing. Also since operating costs are fairly high in micro-finance operations which results in high overall interest rates and reduces the difference in interest rates with normal lenders due to which the clients do not see difference in the interest rates as a major factor. The impact on the profitability of micro financed business of the borrowers was also studied as part of the survey. The survey results showed that for some clients there is no effect due to micro loans on the profitability of their business. The reason for this as reported was that in the first year these clients do not see any major effect as any new business or new machinery / tool bought will take time to give good results. Many of the respondents/clients also cited that since the repayment schedule and the interest are high, they start feeling the pressure as time passes. Also it was observed that certain borrowers took loans beyond their capacity to repay. Annexure VII shows the impact on profitability due to micro financing loans by the borrowers. These clients came to know about the bank schemes and other details as to how to avail these micro finance loans from various sources like their friends/neighbours, Bank/NBFC representatives, society heads, NGO, relatives and the like. Out of these neighbours, relatives and society heads were the major channel for the knowledge on micro financing and their benefits. It is therefore, required that banks and MF institutions should focus more on community based awareness programmes for expending their micro -

10 Data Analysis Interpretation 260 financing activities and increasing the reach to their needy clients. Annexure - VIII depicts the impact of various alternatives through which the word of mouth publicity of micro financing has reached the borrowers. The purpose of availing a microfinance loan differs from borrower to borrower. The reasons could be for household needs, work/business, building home, marriage, illness or even for repayment of previous loans. Majority of the clients have taken the loans for establishing new works, buying new tools/machinery or for the purpose of repair or building of a house. As also analysed earlier this has resulted in increase of status and for better living. Some borrowers also took these micro loans for the purpose of marriage or illness in the family. Annexure - IX shows the various purposes of loan by the MF borrowers of which loan for work/business was the most popular. On the other hand the bank survey also showed interesting conclusions. Under the survey 8 public sector banks and 7 private sector banks of the selected public and private banks under this study were identified and the questionnaire as per annexure- I was administered. The pie diagram on banks covered is as shown at annexure - X. These banks had various schemes for their micro finance borrowers, like the loans sanctioned through the SHG bank linkage, by opening no-frills accounts or through the micro financing Institutions (MFI) bank linkage models. Out of these the MFI-bank linkage model was the most popular among the participating banks and the borrowers. Annexure- XI outlines the various schemes being adopted by these banks under this study. As discussed in earlier chapters the financial services of the banks are for savings, credit or for insurance. Out of these the survey showed that savings was most popular followed by credit and then insurance. It was observed that the need for Insurance is still not very popular among the target

11 Data Analysis Interpretation 261 segment. Annexure - XII graphically describes the various desired financial services. One of the most important issues with all kind of banks either Public or Private is the issue of recovery and re-payments. It was observed that bad recovery are mostly due to migration of people/borrowers from one area to other, Over -Indebtness, employee default or due to crop failure. Annexure- XIII shows the impact of these issues on recovery of loans. It can be observed that majority of the bad recovery is due to crop failure. It was also shown by the survey that the Microfinance client's uses a combination of financial Instruments like the shopkeeper looks only for credit, while labour/wage earner is interested in insurance. The women's group looks at both saving and credit, while the drivers/taxi operator's looks at saving and insurance as their financial needs. Based on the survey and secondary data study the conclusions drawn and recommendations have been summarized in the following Chapter - VIII.