Microfinance and Poverty in Kerala: An Empirical Investigation

Chapter III Microfinance and Poverty in Kerala: An Empirical Investigation 3.0 Introduction Microfinance has been hailed worldwide as one of the most effective tools for poverty alleviation. The provision of financial services to the poor people who have no access to formal banks enables them to take advantage of the economic opportunities to improve their livelihoods and to cope with the shocks and uncertainties they may go through. An attempt has been made in this chapter to estimate the impact of microfinance on poverty. In the first part of the chapter, the links between microfinance and poverty is presented. In the second part of the chapter, an empirical analysis of the effects of microfinance on the poverty of the households of microfinance clients is made on the basis of the primary data collected. A. Theoretical Link between Microfinance and Poverty 3.1 Microfinance as a Tool to Poverty Reduction Microfinance delivers a wide range of financial services such as credit, savings, insurance facilities to the poor with no access to formal banks for initiating IGAs and thereby, to augment their income security and well-being. It has assumed great significance in all the developing countries as a vital instrument to break the vicious circle of poverty which is characterized by low incomes, low savings and low investments. Microfinance has produced new opportunities for work and earning, coupled with enhanced skills in the economic spheres as well as brought chances for leadership, control and decision-making, and the poor can now claim to a space of their own in the economic arena 1. It is, therefore, viewed as a tool to address the overall development of the poor. 73

Microfinance groups can target the poor in a better way as the jointliability necessitates these groups to be small, so that members have incentives to take part in selection, monitoring, and in ensuring the repayment of loans. The group also influences the members to select the safe activity 2. Microfinance programmes can cover a range of financial services that attempt to meet the needs of the poor people, both protecting them from fluctuating incomes and other shocks, and serving to promote their incomes and livelihoods 3. The link that exists between credit and poverty reduction is from new investments to the pattern of income change to poverty alleviation. Such a positive relationship depends on the profitability of the projects undertaken by the credit and their ability to generate direct and indirect employment 4. By providing financial services to the poor, microfinance can facilitate them to build up assets and to take up their own economic activities, which would yield incremental income and employment to move out of poverty. Access to microfinance is also expected to give stability to the poor in times of external stocks and fluctuations. Thus, microfinance is expected to play both promotional and protection roles in poverty alleviation. The contribution of microfinance to poverty-reduction takes place mainly through improvement in the assets base, employment and income levels, reduced dependence on money-lenders and diversification of occupation. As a consequence, the clients would experience an improvement in their living standards, which is reflected in improvement in consumption levels, housing, clothing, and education 5. The provision of financial services and skill-training to the poor helps more especially to the extent that women could become a means of providing opportunities to be self-reliant and play active roles in their households, communities, and the economy as a whole. 6 World Bank identified two ways by which the rendering of financial services in general and microfinance in particular can have an impact on poverty. Firstly, microfinance programme can improve poor people s economic activities by making investment in affordable assets and thereby aiding them, to engage in profitable business activities. This is reckoned as the income-generating effect. The second effect of microfinance, the vulnerability effect, is based on the 74

assumption that the access to financial services can serve to strengthen poor household s risk management and reduce their vulnerability due to shocks such as illness, income volatility, price fluctuations or national disasters 7. The incomegenerating effect is intended to move households from below-poverty-line position to an above-poverty-line situation by offering investment loans. The success of such income-generating programmes of the poor depends on their skill, entrepreneurship as well as local economic conditions 8. The vulnerability effect, on the other hand, aims at bringing down income-fluctuation effect by giving loans for meeting emergencies. Hence, microfinance has offered a viable way for its clients to rout out of poverty 9. Many empirical studies prove that microfinance can help to reduce poverty substantially. In Bangladesh, five percent of the Grameen Banks clients graduated out of poverty every year through the participation in microfinance programmes and they were able to sustain these benefits overtime 10. In India, the annual poverty reduction rate of 10 percent was found at the All-India-level consequent to the microfinance intervention in 2006 11. It is also reported that half of the clients participating in microfinance programmes run by SHARE graduated out of poverty 12. In Brazil, microfinance programme enabled almost 15.7 million people to work in the rural economy as micro-entrepreneurs and 93 percent of them run profitable businesses 13. Microfinance intervention has not only contributed significantly towards direct poverty alleviation of the participating households but also resulted indirectly in reducing overall poverty of villages or areas in which they have been implemented 14. Microfinance offers small amounts of loan more frequently for different purposes, which acts as a better mechanism to reduce poverty gradually, as against a one-time loan for a productive asset, which may not contribute to sustained increase in income 15. Microfinance imparts various training programmes to the poor, which help them to acquire entrepreneurial and managerial skills. Most microfinance programmes, at the beginning organize training courses to the clients in skills development, business, finance, agriculture, health and family planning. Such endeavours are extremely helpful in 75

reducing their poverty conditions 16. It can also convey information to the clients about various alternatives of livelihood projects viable in their locality in tune with their capacities. The selection of feasible livelihood projects, its timely monitoring and evaluation are indispensable to materialize the objectives of microfinance. The livelihoods generated by microcredit intervention have to be sustainable over a long period of time so that the poor can then be free from a cycle of availing repeated loans year after year. Otherwise, the breaking of the vicious circle of poverty will implicate a shift into another cycle of formalized indebtedness 17. The group-based microfinance interventions offer platform for its members to share and exchange experiences, to discuss problems and to prepare micro-plans for poverty alleviation. It also facilitates them to graduate to enter the mainstream market economy. Microfinance helps to activate the latent potential of the poor and mobilizes their collective and organized strength to participate actively at diverse levels in the planning, implementation and monitoring of various development programmes of the State and thereby strengthens its impact on poverty reduction. B. Empirical Estimation of the Impact of Microfinance on Poverty In this section the impact of microfinance on poverty is assessed primarily by comparing the socio-economic conditions of households of microfinance clients during the pre and post microfinance intervention periods and also comparing them with those of the non-participant households relying on the sample data. 3.2. Sample Details The sample survey covered 375 households belonging to participants and non-participants of microfinance programme spread over six Panchayats of Kottayam, Idukki and Wayanad districts. The selection of sample households was made on the basis of stratified random sampling method. The sample size was determined on the basis of the principle of proportional allocation. 76

Table 3.1 Details of Sample Units District Kottayam Idukki Wayanad Panchayats Participants Kudumbashree NGO Nonparticipants Ettumanoor 60-15 75 Madapally - 40 10 50 Pampadumpara 60-15 75 Karunapuram - 40 10 50 Nenmeni 60-15 75 Poothady - 40 10 50 75 375 3.3 Socio Economic Profile of Respondents In this section the socio-economic profile of respondents is analyzed. 3.3.1 Age Composition The success of any organization depends upon the age-structure of its members. It is the members age that determines the level of participation and also their economic behaviour. Table 3.2 Age of Respondents Participation wise Age Group Up to 30 31-40 41-50 51-60 Above 60 No. of Respondents Participants NGO Kudumbashree 4 12 16 (3.3%) (6.7%) (5.3%) 44 75 119 (36.7%) (41.7%) (39.7%) 46 62 108 (38.3%) (34.4%) (36%) 24 (20%) 2 (1.7%) 16 (14.4%) 5 (2.8%) 50 (16.7%) 7 (2.3%) Non-participants Nil 24 (32%) 29 (38.7%) 20 (26.7%) 2 (2.7%) 75 77

The data pertaining to the age of respondents reveals that the highest proportion of participant members was in the age groups of 31-40 years, followed by the members in the age group of 41-50 years. It can also be observed that the participant group is younger as compared to the non-participant groups. Among the non-participants, no one is found below 30 years of age. Respondents with below 40 years of age were found to be more in the Kudumbashree group. NGO group has the highest proportion of respondents with above 50 years of age. 3.3.2 Religion All the respondents have religious belief and belong to any one of the religions namely, Hindu, Christian and Muslim. Religion of the respondents is given below. Table 3.3 Religion of the Respondents - Participation wise No. of Respondents Religion Participants NGO Kudumbashree Nonparticipants Hindu 46 (38.3%) 114 (63.4%) 160 (53.4%) 49 (65.4%) Christian 70 (58.4%) 42 (23.3%) 112 (37.2%) 25 (33.3%) Muslim 4 (3.3%) 24 (13.3%) 28 (9.4%) 1 (1.3%) 75 Majority of the participants and non-participants of microfinance programme belong to Hindu religion. Their number is dominant in the nonparticipant group. An interesting finding is that more than half of the clients of the NGO groups (58.3%) belong to Christian religion. This is because that these groups have been developed and promoted by the Christian NGOs. So it is likely 78

to have more Christian beneficiaries, despite the fact that the membership is open to all. There are more Muslim participants in the Kudumbashree group than in the NGO group. 3.3.3 Caste The caste system is one of the unique features of Indian social structure. Microfinance programme is introduced mainly to serve the deprived sections of the society to achieve faster progress with their active involvement. Table 3.4 Participation wise Distribution of Respondents According to Caste Caste SC/ST OBC General No. of Respondents Participants NGO Kudumbashree 8 (6.7%) 38 (31.7%) 74 (61.7%) 23 (12.8%) 81 (45%) 76 (42.2%) 31 (10.3%) 119 (39.7%) 150 (50%) Nonparticipants 17 (22.6%) 29 (38.7%) 29 (38.7%) 75 The proportionate number of scheduled caste and scheduled tribe is relatively high among the non-participants. It indicates that their participation in microfinance programme is comparatively low. Half of the participant households belong to general category and major share of it is from the NGO group. The proportion of SC/ST and OBC members is reported to be high among the Kudumbashree group as compared to the NGO group. The association between caste of the participants of microfinance programme and microfinance type is statistically examined using the chi-square test. Since the value of chi-square statistic is 19.807 and significant at 5% level. 79

Hence, there is association between caste of the participants and microfinance type. 3.3.4 Level of Education Education is viewed as a powerful instrument for social change. It is an efficacious tool for bringing about change in the attitudes and aspirations of people and also serves them to reach their full potential. Table 3.5 Participation wise Distribution of Respondents According to Education Education illiterate No. of Respondents Participants NGO Kudumbashree Nil 1-4 th 27 (22.5%) 5 th - SSLC Plus two Degree and above 78 (65%) 15 (12.5%) Nil 3 (1.7%) 27 (15%) 109 (60.6%) 31 (17.2%) 10 (5.5%) 3 (1%) 54 (18%) 187 (62.3%) 46 (15.3%) 10 (3.4%) Nonparticipants 1 (1.3%) 29 (38.7%) 43 (57.3%) 2 (2.7%) Nil 75 The percentage of members with primary level of education is reported to be the highest in the non-participant group. Degree-qualified women are found only among the participant group and all of them are from the Kudumbashree group. No illiterate member is reported among the participants of NGO group. 3.3.5 Size of the Family The size of the family has a vital importance as it affects the quality of life and socio-economic well-being of the family. Generally, larger the size of the 80

family, relatively smaller will be the per capita share of basic needs for the family and vice versa. Table 3.6 Participation wise Distribution of Respondents According to Family Size Family Size Participants No. of Households NGO Kudumbashree Nonparticipants 2 5 (4.16%) 9 (5%) 14 (4.6%) 3 (4%) 3 23 (19.16%) 30 (16.67%) 53 (17.7%) 4 (5.3%) 4 39 (32.5%) 65 (36.11%) 104 (34.7%) 33 (44%) 5 31 (28.83%) 52 (28.89%) 83 (27.7%) 30 (40%) 6 and above 22 (18.33%) 24 (13.33%) 46 (15.3%) 5 (6.7%) 75 More than half of the respondents both in the participant and nonparticipant groups reported that their family size is between four and five. The size of more than six members is found more in the participant group and bulk of them belong to the NGO group. 3.3.6 School/College-going Children in the Family It may be seen from table 3.7 that only 6 percent of the participant households and 1.3 percent of the non-participant households have no school/college-going children. Whereas, majority of both the participant and the non-participant households have two school/college-going children. One school/college going child is dominant among the non-participant households. 81

Table 3.7 School/College-going Children - Participation wise No. of School/College - going Children No. of Households Participants NGO Kudumbashree Nonparticipants Nil 7 (5.8%) 11 (6.1%) 18 (6%) 1 (1.3%) 1 32 (26.67%) 48 (26.67%) 80 (26.67%) 26 (34.67%) 2 60 (50%) 94 (52.22%) 154 (51.33%) 38 (50.67%) 3 21 (17.5%) 27 (15%) 48 (16%) 10 (13.33%) 75 Source: Primary Data The percentage of three school/college-going children is more prominent among the households of microfinance clients. 3.3.7 Dependency Burden The living condition of family to a greater extent depends upon the number of earning members and the dependents in the family. There is an inverse relation between number of the dependents and the standard of living of the family. 82

Table 3.8 Number of Dependents per Family - Participation wise No. of Dependents No. of Households Participants NGO Kudumbashree Nonparticipants 0 7 (5.8%) 11 (6.1%) 18 (6%) 1 (1.3%) 1 20 (16.67%) 35 (19.4%) 55 (18.3%) 4 (5.3%) 2 39 (32.5%) 74 (41.1%) 113 (37.67%) 24 (32%) 3 29 (24.2%) 49 (27.2%) 78 (26%) 25 (33.3%) 4 and above 25 (20.9%) 11(6.2%) 36(12%) 21(28%) 75 Source: Primary Data The dependency burden among the non-participant households is comparatively higher. The microfinance type wise analysis indicates that participant households in the NGO groups have greater number of the dependents in the family. 3.3.8 Occupation Occupation seems to be a prominent factor in determining the level of family income and welfare. Everyone strives for a highly remunerative occupation to derive maximum income. 83

Table 3.9 Participation wise Distribution of Respondents According to Occupation Occupation Agriculture Animal Husbandry Self-employed No. of Respondents Participants NGO Kudumbashree 19 (15.8%) 61 (50.8%) 40 (33.4%) 14 (7.8%) 79 (43.9%) 87 48.3%) 33 (11%) 140 (46.67%) 127 (42.23%) Wage labourers Nil Nil Nil Unemployed Nil Nil Nil Housewives Nil Nil Nil Nonparticipants 8 (10.67%) 4 (5.3%) 3 (4%) 20 (26.67%) 35 (46.7%) 5 (6.6%) 75 All the microfinance clients could find some occupation with the help of microfinance. A good many of them are engaged in animal husbandry (46.67%). It can be observed that proportion of participant members working in the agriculture sector is comparatively low (11%). Nearly 47 percent of the nonparticipant members are unemployed. This might be because of limited employment opportunities on account of their poor education and skill and also lack of proper guidance and support. Majority of the members belonging to Kudumbashree group are self-employed (48.3%). The number of members who are engaged in agriculture is the highest among the NGO group. 3.3.9 Household Income Family income is generally regarded as a principal measure of the general well-being of the family. The size of household income is determined by its 84

resource endowment in the form of land and other assets and number of earning members in the family. One of the major motives behind the active participation of the poor in the microfinance programme is to improve their family income. Table 3.10 Monthly Income of the Households - Participation wise Family Income per Month (in `) Upto 2000 2001-4000 4001-6000 6001-8000 Above 8000 No. of Households Participants NGO Kudumbashree 21 36 57 (17.5%) (20%) (19%) 67 55 122 (55.8%) (30.6%) (40.7%) 24 42 66 (20%) (23.3%) (22%) 4 32 36 (3.3%) (17.8%) (12%) 4 15 19 (3.3%) (8.3%) (6.3%) Nonparticipants 53 (70.7%) 22 (29.3%) Nil Nil Nil 75 An overwhelming majority of the non-participant households (70.7%) have monthly income below `2,000. This may be attributed to their poor resource endowment and lack of regular employment. It is also observed that there are no households among the non- participants having monthly income above `4,000. However, more than forty percent (40.3%) of the participant households are found to be in the monthly income above `4,000. Kudumbashree has the largest number of such households. It indicates that participant households are able to undertake IGAs through better access to credit and subsequently increase their household income. 85

3.3.10 Per capita Income Per capita income is a crucial indicator of the average standard of living of individual members of the family. The poor family has low per capita income, and therefore, their living standard will be wretched. A rise in per capita income will lead to a better standard of living. Table 3.11 Per capita Monthly Income - Participation wise Per capita Income (in `) Upto 400 401-600 601-800 801-1000 1001-0 Above 0 No. of Households Participants NGO Kudumbashree 13 14 27 (10.8%) (7.8%) (9%) 26 31 57 (21.7%) (17.2%) (19%) 30 19 49 (25%) (10.6%) (16.3%) 21 28 49 (17.5%) (15.6%) (16.3%) 9 21 30 (7.5%) (11.7%) (10%) 21 67 88 (17.5%) (37.2%) (29.3%) Nonparticipants 37 (45.3%) 37 (49.3%) 4 (5.3%) Nil Nil Nil 75 Nearly 95 percent of non-participant households belong to per capita monthly income below `600. Moreover, there is no one among the nonparticipant group having per capita monthly income above `800. Whereas, a large number of the participant households (39.3%) have per capita monthly income above `1000. This can be due to higher income generated through microfinance by taking up some economic activities. The analysis on the basis of 86

microfinance type shows that per capita monthly income is significantly higher in the case of the members of Kudumbashree group than those of the NGO group. 3.3.11 Land Holdings Land is a major source of wealth. It is the size of the land holdings that primarily determines the wealth of the household. Land can also be treated as a security against abject situation of poverty and a better means to access credit. Table 3.12 Participation wise Distribution of Respondents According to Size of Land Holding Size of Land Holding No. of Households Participants NGO Kudumbashree Nonparticipants Upto 10 cents 36 (30%) 66 (36.7%) 102 (34%) 37 (49.3%) 11-20 cents 20 (16.7%) 33 (18.3%) 53 (17.67%) 22 (29.3%) 21-30 cents 18 (15%) 17 (9.4%) 35 (11.67%) 8 (10.67%) 31-40 cents 8 (6.7%) 9 (5%) 17 (5.67%) 5 (6.67%) 41-50 cents 10 (8.3%) 10 (5.6%) 20 (6.67%) 3 (4%) Above 50 cents 28 (23.3%) 45 (25%) 73 (24.3%) Nil 75 Participant households are better in terms of size of land holdings. The proportion of households with below 10 cents of land is dominant among the 87

non-participant households. Another important finding is that only the participant households possess above 50 cents of land. 3.3.12 Types of Houses Shelter is one of the three basic necessities of life. The living condition of a particular household is indicated by the type of the house it possesses.. Table 3.13 Participation wise Distribution of Respondents According to Type of House No. of Households Type of House Participants NGO Kudumbashree Nonparticipants Homeless 2 (1.7%) 5 (2.8%) 7 (2.3%) 1 (1.3%) Hut 1 (0.8%) Nil 1 (0.33) Nil Tiled/Sheet 95 (79.2%) 123 (68.3%) 218 (72.67%) 64 (85.3%) Concrete 22 (18.33%) 52 (28.9%) 74 (24.7%) 10 (13.34%) 75 Majority of the participant as well as the non-participant households own tiled/sheet roofed houses and their number is greater among the non-participants. The participants are ahead of the non-participants in terms of the possession of concrete houses. Greater number of them is seen among the Kudumbashree groups. 3.3.13 Basic Amenities Basic amenities are indispensable to ensure better quality of life of the people. The comfort of people s life depends upon the extent of amenities they own. The provision of basic amenities to everyone remains a great challenge in 88

India. Under the microfinance programme, greater emphasis is placed on ensuring basic amenities like safe drinking water, sanitary latrine and improved shelter to its clients. Table 3.14 Participation wise Distribution of Respondents According to possession of Basic Amenities Basic Amenities No. of Households Participants NGO Kudumbashree Nonparticipants Safe drinking water 60 (50%) 105 (58.3%) 165 (55%) 24 (32%) Sanitary latrine 106 (88.3%) 170 (94.4%) 276 (92%) 72 (96%) Electricity 112 (93.3%) 169 (93.9%) 281 (93.7%) 67 (89.3%) L.P.G 81 (67.5%) 123 (68.3%) 204 (68%) 24 (32%) Land phone 63 (52.5%) 103 (57.2%) 166 (55.3%) 11 (14.7%) Mobile phone 92 (76.7%) 158 (87.8%) 250 (83.3%) 63 (84%) The data above reveals that lack of safe drinking water is the major problem confronted by all the households. However, this problem is more acute among the households of non-participant group. The participant households are better placed in terms of availability of L.P.G, electricity and land phone. The microfinance type wise analysis signifies that households belonging to the Kudumbashree group are more privileged in terms of the possession of most of these amenities. It is clear from the analysis that the participation in the microfinance programme facilitated the beneficiaries to access more amenities. 89

3.4 Details of Participation in Microfinance Programme 3.4.1 Years of Participation Longer duration of participation by the clients in microfinance programme enables them to derive maximum benefits through their active involvement and making its optimum use. It also provides opportunities to correct the past mistakes. Table 3.15 Years of Participation in Microfinance Programme Years of Participation No. of Clients NGO Kudumbashree 5 16 (13.3%) 8 (4.4%) 24 (8%) 6 2 (1.7%) 29 (16.1%) 31 (10.3%) 7 4 (3.3%) 9 (5%) 13 (4.3%) 8 2 (1.7%) 53 (29.4%) 55 (18.3%) 9 5 (4.2%) 81 (45%) 86 (28.7%) 10 14 (11.7) Nil 14 (4.7%) 11 17 (14.2%) Nil 17 (57%) Above 11 60 (50%) Nil 60 (20%) It can be seen that all the participant respondents have more than five years of participation in the microfinance programme. The duration of participation is longer in the case of members of the NGO group. Half of the 90

members from the NGO group have more than eleven years of participation. However, majority of the Kudumbashree members (45%) have nine years of participation in the microfinance programme. Among the clients of Kudumbashree programme, nobody has more than nine years of participation. 3.4.2 Frequency of SHG/NHG Meeting Regular meeting of microfinance group is essential to ensure better participation of clients in the programme. The sample survey conducted by the researcher has revealed that meeting on weekly basis was reported to be common among all the groups under the NGOs and Kudumbashree. The group met once in a week at the residence of one of the members of the group. The imposition of fine (ranging from ` 2 to `10) for absence in the meeting resulted almost full attendance in the meeting. The collection of thrift fund, repayment of old debts, disbursement of loans and selection of the beneficiaries for various schemes of the programme are the major transactions done during the meeting. The meeting also provides a platform for the members to discuss their common problems and to try to find their solutions. 3.4.3 Depth of Outreach of Microfinance Programme Outreach of microfinance programme signifies the number of persons now served by the microfinance programme who were previously denied access to formal financial services. Under the depth of outreach, the study examines the ability of microfinance programmes to reach various economic and social sections of the society. In the present study, the depth of outreach of microfinance programme is assessed on the basis of certain indicators such as percentage of participant households with no formal credit and savings in the pre-microfinance period and proportion of SC/ST and OBC households, BPL households and women-headed households participating in the programme. 91

Table 3.16 Depth of Outreach of Microfinance Programme Client Households Frequency Percentage No formal credit 186 62 No formal savings 296 98.67 SC/ST 31 10.3 OBC 119 39.7 BPL 100 Women-headed 41 13.7 The data furnished above indicates that the majority of the participant households did not have access to formal banking services in the premicrofinance period. It is also evident that SC/ST and OBC families constitute half of the microfinance clients, and this fact tends to reflect the active participation of weaker sections of the society in the programme. The ability of microfinance programme to reach the poor is apparent as all the participant households had belonged to BPL category before the intervention of microfinance programme. Figure 3.1 Depth of Outreach of Microfinance Programme 92

3.4.4 Determinants of Participation in Microfinance Programme The extent of participation by members in the microfinance programme is represented by the cumulative amount of borrowings availed from microfinance programme. The level of participation of clients in the microfinance programme is determined by a host of factors. The main factors influencing their level of participation considered by the study are their age, level of education, caste, family size, BPL/APL family, women-headed family, and duration of participation. It is estimated by employing the regression model adopted by Pitt and Khandker: C ij = c X ij + ijc ---------------- (1) Where, C ij is the total amount of borrowings from microfinance programme. X ij is the vector of household characteristics such as age, level of education, caste, family size, BPL/APL family, women-headed family, and duration of participation in the microfinance programme. ijc is the random error. Seven dummy variables are introduced in the regression model to represent the level of education and caste of the respondents. The four dummies representing the level of education are: 1. edudum1 (1 to 4 years of schooling), 2. edudum2 (5 to 10 years of schooling), 3. edudum3 (+2/pre-degree), and 4. edudum4 (Degree and above). The caste of the respondents is given by: 1. scdum (SC/ST category), 93

2. obcdum (OBC category), and 3. gendum (General category). Table 3.17 Determinants of Participation in Microfinance Programme: Regression Estimates Explanatory Variables Regression Co-efficient t value Significance Constant 101317.3 5.164.000 Age -554.844-2.027.043 edudum1-4620.931 -.342.733 edudum2-6789.141 -.541.589 edudum3-287.293 -.022.983 scdum -39197.3-5.534.000 obcdum -27590.9-5.464.000 BPL family -25380.9-4.608.000 Family size -1885.584-1.019.309 Women-headed family 1000.515.155.877 Duration of participation 7568.550 12.497.000 R 2.591 No. of observations Dependent variable: borrowings The variables, which appear significant from the above regression estimates, are age and caste of the participant, BPL family and duration of participation in microfinance programme. The co-efficient of age turns out to be negative, showing that higher age of client reduces total borrowings from microfinance programme. The caste of the client appears to be a constraint to the amount a household borrows. The borrowings of SC/ST and OBC households are significantly lower than the households belonging to general category. The borrowing of the BPL family is seemed to be less than the APL family by 94

`25,381. Additionally, a one-year-increase in duration of participation in the microfinance programme raises the total borrowings from the microfinance by `7,569. It could be noted that the multiple regression co-efficient R 2 is 0.591, signifying that 59.1 percent of variations in total borrowings of the clients is explained by the above independent variables. 3.4.5 Savings in SHGs/NHGs Microfinance promotes the habit of thrift and facilitates its members to save regularly in their respective SHGs/NHGs. The pooled thrift is utilized to disburse small interest bearing loans (thrift loan) among its members. The amount of borrowing by a member depends upon her total savings in the group. The size of bank loan obtained by the group also depends on the accumulated savings of the group. Table 3.18 Savings in SHGs/NHGs by Microfinance Type Saving Group (in `) Upto 2000 No. of Clients NGO Kudumbashree 4 (3.3%) 18 (10%) 22 (7.3%) 2001-5000 10 (8.3%) 73 (40.6%) 83 (27.7%) 5001-8000 46 (38.3%) 49 (27.2%) 95 (31.7%) 8001-11000 38 (31.7%) 26 (14.44%) 64 (21.3%) Above 11000 22 (18.3%) 14 (7.78%) 36 (12%) All the participant members have some savings in their respective groups. The proportion of clients having savings less than `2,000 in SHG/NHG is very small and most of them are from the Kudumbashree groups. Nearly 65% of the 95

participant members have savings more than `5000 in their groups. Higher amount of savings is found among the members of the NGO groups. This is due to longer duration of their participation in the microfinance programme and relatively higher amount of savings per week. The association between the amount of savings in SHGs and the microfinance type is statistically tested by employing chi-square tests. The value of chi-square statistic is 50.865, which is significant at 1% significance level. Hence, there is an association between the amount of savings and the type of microfinance programme. 3.4.6 Weekly Savings in SHGs/NHGs The collection of savings is made during the weekly meetings of the group. The amount of savings per member may be varied across the groups depending on their capacity to save and on the age of the group. Table 3.19 Weekly Savings in SHGs/NHGs by Microfinance Type wise Weekly Savings (in ` ) 10 20 25 Above 25 No. of Clients NGO Kudumbashree 16 (13.3%) 66 (55%) 9 (7.5%) 29 (24.2%) 67 (37.2%) 52 (28.9%) 40 (22.2%) 21 (11.7%) 83 (27.7%) 118 (39.3%) 49 (16.3%) 50 (16.7%) The highest number of members (39.3%) are reported to have weekly savings of `20 and bulk of them (55%) are from the NGO groups. The percentage of members with `10 as weekly savings is dominant among the Kudumbashree groups. Since the value of chi-square statistic is 43.636, which is significant at 96

1% level of significance, there is association between amount of weekly savings and the type of microfinance programme. 3.4.7 Source of Weekly Saving Fund Microfinance programme contributes to raise the savings capacity of the participating households. It is very important to know the source of weekly savings in the microfinance groups as it will indicate whether the weekly saving fund is mobilized out of their earnings or it is obtained from the husband/family. Table 3.20 Source of Weekly Saving Fund in SHGs/NHGs by Microfinance Type wise Source of Weekly Saving Fund No. of Clients NGO Kudumbashree Own earnings 108 (90%) 152 (84.4%) 260 (86.7%) From husband/family 12 (10%) 28 (15.6%) 40 (13.3%) An overwhelming majority of the members (86.7%) found their weekly saving fund out of their earnings. The dependence on husband/family for weekly saving fund is reported to be more among the members of Kudumbashree group (Table 3.20). 3.4.8 Borrowings from Microfinance Microfinance enables its members, especially the poor to access easy and cost-effective credit without any collateral. They can avail themselves of mainly three sources of loans, namely thrift loan disbursed out of the pooled savings of the group, bank linkage loan and loan taken from banks for undertaking IGAs. The provision of credits through these sources helps them to meet their credit needs to a great extent. 97

Table 3.21 Borrowing from Microfinance Type of Loan Thrift Loan Linkage Loan IGA Loan Amount of Loan (in ` ) NGO Kudumbashree NGO Kudumbashree NGO Kudumbashree No loan Nil Nil Nil Upto 20000 20001-40000 40001-60000 60001-80000 Above 80000 9 (7.5%) 58 (48.3%) 29 (24.2%) 21 (17.5%) 3 (2.5%) 53 (29.4) 77 (42.8%) 34 (18.9%) 11 (6.1%) 5 (2.8%) 62 (20.67%) 135 (45%) 63 (21%) 32 (10.7%) 8 (2.6%) 9 (7.5%) 11 (9.26%) 37 (30.8%) 39 (32.5%) 16 (13.3%) 8 (6.7%) 38 (21.1%) 63 (35%) 47 (26.1%) 21 (11.7%) 3 (1.7%) 8 (4.4%) 47 (15.7) 74 (24.7%) 84 (28%) 60 (20%) 19 (6.3%) 16 (5.4%) Nil Nil Nil 60 (50%) 45 (37.5%) 9 (7.5%) 3 (2.5%) 3 (2.5%) 54 (30%) 87 48.3%) 6 (3. 3%) 11 (6.1%) 22 12.3% 114 (38%) 132 (44%) 15 (5%) 14 (4.7%) 25 8.4% The data above reveals that all clients of microfinance availed themselves of both thrift loan and loan for income generating activity. Among the borrowers, the highest number of them have taken loans in the range of `20,001 40,000 from all the above three sources. An important finding is that some of the clients have not yet received bank linkage loan. The vast majority of them belong to the Kudumbashree group. This is on account of the failure of their groups to fulfil the eligibility conditions put forward by NABARD to get linkage loan from banks. Kudumbashree clients have availed themselves of greater volume of credit for IGAs as compared to the members of the NGO groups. 98

Figure 3.2 Borrowing from Microfinance Table 3.22 Group Statistics of Average Loan Amount per Year- Microfinance Type wise Variable Microfinance type Mean ( in `) Standard Deviation NGO 11818.98 7494.351 Average loan per year Kudumbashree 11706.49 6077.393 11751.48 6668.424 On an average, the participant household borrowed a total of `11751 per year. The average household loan per year is almost the same among the NGO groups and the Kudumbashree groups (Table 3.22). The average number of loans taken by the participant household is 12.69. 3.4.9 Interest Rates One of the burning issues of the microfinance is that the interest rates charged on its loans are disbursed to its clients. It is widely acknowledged that interest rates charged by microfinance organizations are higher than those offered by the banking system owing to the high cost of their operation and for the 99

purpose of earning more profit. The impact of microfinance also relies on the interest rates charged on its loans given to the members. Interest Rates (%) Table 3.23 Interest Rates Charged on Microfinance Loans Thrift Loan 5 - NGO Linkage Loan 38 (34.23%) No. of Borrowers IGA Loan 36 (30%) Thrift Loan 9 - - - - 10 - - 11-12 13-38 (34.23%) 33 (29.73%) 2 (1.8%) 111 4 (3.33%) 40 (33.33%) 40 (33.34%) Kudumbashree Linkage Loan IGA Loan - - - - - - - 7 (4.93%) 18 (12.68%) 68 (47.88%) 19 (13.38%) 30 (21.12%) 142 8 (5.63%) 11 (6.11%) 52 (28.88%) 55 (30.55%) 54 (30%) It could be observed from table 3.23 that the interest rates imposed on microfinance loans range between 5 to 13 percent per annum. The interest rate on thrift loan is 12 percent both for the NGO and Kudumbashree borrowers. The interest earnings of such loans are distributed annually among the members of SHG/NHG after auditing since these loans are disbursed out of the pooled savings of the members of SHG/NHG. The interest rates charged on linkage and IGA loans are comparatively higher for the borrowers of the Kudumbashree group. The majority of the members of the NGO group availed themselves of linkage and IGA loans at 5% of interest. These loans are provided by the Peermedu Development Society (PDS), the major NGO of Idukki district by 100

using the concessionary loans taken from the Backward Classes Development Corporation. 3.4.10 Utilization of Loan The actual use of loans taken is a critical factor which determines the economic benefits of microfinance programme. The present study analyses the use of thrift and linkage loans and excludes loans taken for IGAs since it is entirely utilized for productive purpose. The thrift and linkage loans are utilized for productive as well as unproductive purposes. The loans used for productive purposes consisted of agriculture, livestock, petty business, and all other incomegenerating activities. The use of loans other than these is treated as unproductive which include basic consumption needs, education, medical treatment, house construction and house improvement, repayment of debts, purchase of household appliances and expenditure for marriages. Purposes Table 3.24 Utilization of Loan - Microfinance Type wise No. of Clients Borrowed NGO Kudumbashree Productive 98 (81.7%) 59 (32.8%) 157 (52.3%) Unproductive 22 (18.3%) 121 (67.2%) 143 (47.7%) It can be noticed from the data furnished above that more than half of the clients (52.3%) utilized both thrift and linkage loans for productive purposes. Unproductive use of credit is quite high (67.2%) among the members of the Kudumbashree group. 101

Figure 3.3 Utilization of Loan - Microfinance Type wise Chi-square test is employed to test the association between taking productive loans and microfinance type. The value of chi-square statistic is 68.986 which is significant at 1% level of significance. Hence, taking productive loans and microfinance type are associated. 3.4.11 Repayment of Loan Under microfinance programme, loans are provided primarily to the poor and the marginalized sections of the society without any collateral. Therefore, their repayment behaviour is the major determinant of the success of microfinance programme. Table 3.25 Repayment of Loan - Microfinance Type wise Repayment Behaviour No. of Clients NGO Kudumbashree Prompt repayment 116 (96.7%) 167 (92.8%) 283 (94.3%) Defaults 4 (3.3%) 13 (7.2%) 17 (5.7%) 102

It is evident that nearly 95 percent of borrowing clients had promptly repaid their loan. A default on the repayment of loans was reported to be the highest among the Kudumbashree clients (Table 3.25). Figure 3.4 Repayment of Loan - Microfinance Type wise 3.4.12 Fulfilment of Loan Requirement People need credits for various purposes at different periods of time. It is, therefore, vitally important to know to what extent the credit requirements of the clients are met by their SHGs/NHGs. Table 3.26 Fulfilment of Loan Requirement- Microfinance Type wise Requirement of Loan No. of Clients NGO Kudumbashree Fully met by SHG/NHG 105 (87.5%) 140 (77.8%) 245 (81.7%) Partially met by SHG/NHG 15 (12.5%) 40 (22.2%) 55 (18.3%) 100%) 103

Vast majority (81.7%) of the client s loan requirements were completely fulfilled by their SHGs/NHGs. The proportion of households, whose credit needs were not fully met by microfinance, was found to be more (22%) in the Kudumbashree groups (Table 3.26). 3.4.13 Income Generating Activities Easy access of credit offers opportunities for the microfinance clients to take up various types of economic activities with the objective of improving their income. The activities undertaken by the clients are grouped into four namely, agriculture, animal husbandry, manufacturing and service. The activities under agriculture include lease land farming, group farming, and mushrooms cultivation. Under manufacturing, the activities taken up are curry powder making, bag making, spinning, ready-made clothes, bakery, sanitary napkin, handicrafts, and health mix (nutrimix). Tailoring, laundry, direct marketing and petty shop are the activities which come under the service sector. Animal husbandry includes cow, goat and pig rearing and poultry farming. Table 3.27 Type of Income Generating Activity Undertaken- Microfinance Type wise Type of Activity Undertaken Agriculture Animal husbandry Manufacturing Service No. of Clients NGO Kudumbashree 19 (15.8%) 61 (50.8%) 15 (12.5%) 25 (20.8%) 14 (7.8%) 79 (43.9%) 56 (31.1%) 31 (17.2%) 33 (11%) 140 (46.7%) 71 (23.7%) 56 (18.7%) Majority of the clients are engaged in animal husbandry with 46.7% followed by manufacturing with 23.7%. The number of clients working in the 104

agriculture is the lowest with 11% and most of them are from the NGO groups. In manufacturing sector, the Kudumbashree clients have dominance(31.1%) in comparison with the members of NGO groups. Figure 3.5 Type of Income Generating Activity Undertaken- Microfinance Type wise 3.4.14 Level of Income Generation Microfinance aims at helping the poor to achieve greater levels of income by starting economic activities mainly through the provision of credits. The extent of income generation relies upon the type of the activity undertaken and its market potential. 105

Table 3.28 Level of Monthly Income Generation- Microfinance Type wise Income Generation Group (in ` ) No. of Clients NGO Kudumbashree Upto 1000 35 (29.2%) 57 (31.7%) 92 (30.7%) 1001-2000 31 (25.8%) 35 (19.4%) 66 (22%) 2001-0 33 (27.5%) 42 (23.3%) 75 (25%) 1-4000 10 (8.3%) 15 (8.3%) 25 (8.3%) 4001-5000 5 (4.2%) 6 (3.3%) 11 (3.7%) Above 5000 6 (5%) 25 (13.9%) 31 (10.3%) It can be observed that 30.7% of clients have a monthly income generation of below `1000. The economic activity generates a monthly income of above `0 for 22.3 percent of the clients (Table 3.28). The percentage of clients with monthly income generation of more than `5000 constitutes 10.3% of the beneficiaries and good many of them belong to the Kudumbashree group. 106

Figure 3.6 Level of Monthly Income Generation- Microfinance Type wise 3.4.15 Supports from Microfinance Organization In addition to better access of credits, the microfinance clients received various types of support for starting and running their income generating activities from their microfinance organization in the form of financial assistance and subsidy, training on product manufacturing technology and financial management, marketing of product and monitoring and follow-up action. The provision of such services must have created impact on the performance of their activities. Table 3.29 Supports from Microfinance Organization Type of Support No. of Clients NGO Kudumbashree Financial assistance and subsidy 48 (40%) 166 (92%) 214 (71.3%) Imparting training 68 (56.7%) 136 (75.6%) 204 (68%) Marketing of product 34 (28.3%) 78 (43%) 112 (37.3%) Monitoring and follow up action 98 (81.67%) 102 (56.67%) 200 (66.67%) 107

It is evident from table 3.29, that microfinance organizations are very supportive to the clients in running their economic activities. Among the various supports, financial assistance and subsidy accounted for the highest number of clients with 71.3 percent followed by training with 68 percent. Figure 3.7 Supports from Microfinance Organization 3.4.16 Effectiveness of Training Programmes Microfinance organizations provided various types of training to its clients for capacity building, and sharpening their skills and thereby to equip them to undertake various IGAs. Table 3.30 Effectiveness of Training Programmes Effectiveness of Training Effective Not effective No. of Clients NGO Kudumbashree 55 (80.88%) 13 (19.12%) 68 117 (86.02%) 19 (13.98%) 136 172 (84.31%) 32 (15.69%) 204 Source: Primary Data 108

An overwhelming majority of the clients (84.3%) opined that the training imparted was very useful in their day-to-day life as well as in running economic activities. It is also observed that 32 percent of the clients have not yet received any training and good many of them are from the NGO group. 3.5 Impact of Microfinance An attempt has been made in this section to analyze the impact of microfinance programme on the socio-economic conditions of the households of microfinance clients. The impact estimation is done by comparing the living conditions of the participant households with the non-participant households and also through the comparison of the socio-economic conditions of the households of microfinance clients during the pre and post microfinance situations. The study also fitted a multiple regression model adopted by Kondo et al. (2008), to analyze the impact of microfinance. The model is: Y i j = F [β 1 X i j + β 2 M i j + β 3 T i j + ε i j ] Where, Y i j is the household outcome of interest. X ij is the household characteristics namely age, level of education, caste, family size, BPL family and women-headed family M i j is the membership dummy; 1, if participant household; 0, otherwise. β 1, β 2, and β 3 are unknown parameters T i j is treatment variable Three treatment variables are used to assess the impact of microfinance on household welfare. They are: (a) Take up programme loan (1 = yes, 0 = otherwise) (b) Duration of participation (c) Average borrowing per year of membership The impact of microfinance intervention is estimated with reference to the following outcome variables, which are employed as dependent variables in the above impact estimation model. 109

(i) Household monthly income (ii)household per capita monthly income (iii) per capita monthly expenditure on food (iv) per capita monthly expenditure on nonfood and (v) per capita total monthly expenditure. 3.5.1. Impact of Microfinance on Employment The major objective of the microfinance programme is to create employment for the poor and the weaker sections of the society by empowering them to take up economic activities. It views income-generating activities as opportunities for providing gainful employment to the poor by which they can improve their income and standard of living. Table 3.31 Occupation During Pre and Post Microfinance Periods Occupation Category Pre-microfinance period Post-microfinance period Yes No Yes No Participants 110 (36.7%) 190 (63.3%) Nil Nonparticipants - - - 35 (46.7%) 40 (53.3%) 75 It is interesting to note that majority of the microfinance participants (63.3%) were unemployed during the pre-microfinance period. However, in the post-microfinance period, all of them could find some employment in the economic activities undertaken by them with the help of microfinance. The employment generation capacity of microfinance is more evident as more than half of the non-participants (53.3%) have no employment at all. 110

Figure 3.8 Occupation During Pre and Post Microfinance Periods Table 3.32 Days of Employment per Month During Pre and Post Microfinance Periods Days of Employment per Month Nil 1-7 8-14 15-21 Pre-microfinance period No. of Participants Employed Post-microfinance period NGO Kudumbashree NGO Kudumbashree 77 (64.2%) 11 (9.17%) 28 (23.33%) 4 (3.33%) 113 (62.8%) 13 (7.2%) 45 (25%) 9 (5%) 190 (63.33%) 24 (8%) 73 (24.33%) 13 (4.33%) 22-28 Nil Nil Nil Nil Nil Nil Nil Nil Nil 4 (3.33%) 26 (21.6%) 90 (75%) 14 (7.78%) 13 (7.22%) 153 (85%) 18 (6%) 39 (13%) 243 (81%) During the pre-microfinance period only 36.7 percent of the participant respondents had some occupation and good many of them were employed for less than 14 days per month. None of them could find employment for more than 21 days in a month. However, an overwhelming majority of the clients (81%) got employment for more than 21 days per month during post-microfinance situation. 111

Thus, microfinance programme has created employment opportunities for its beneficiaries substantially. 3.5.2 Impact on Income The underlying objective of microfinance is to provide greater levels of income and livelihood securities to its clients at the household level. The inception of economically viable activities serves as a vital tool to raise the income of the participating households and allowing them to improve their welfare. Table 3.33 The Effect of Microfinance on Household Monthly Income - Regression Estimates Explanatory Variables Regression Co-efficient t value Significance Constant 5699.179 6.687.000 Average amount of borrowing per year.079 5.660.000 Duration of participation -17.079 -.408.683 Age 29.980 2.689.008 Edudum1-2037.160-3.986.000 Edudum2-1779.492-3.833.000 Edudum3-1542.090-3.141.002 Scdum -33.695 -.106.916 Obcdum 990.372 4.957.000 BPL family -3400.07-16.182.000 Family size 135.210 1.871.062 Women-headed family 143.884.580.562 R 2.605 Number of observations 375 Dependent variable: Household monthly income The regression estimates show that variables such as age and education of the client, OBC category, BPL family and average amount of borrowing per year are found to be significant. 112

The positive impact of credit on household income is indicated by the statistically significant (at 1% significance level) regression co-efficient of average amount of borrowing per year. The value of the co-efficient suggests that a 10 percent increase in borrowing per year from microfinance programme raises the household monthly income of the client by 7.9%. It shows that microfinance programme enhances household income significantly and positively. The APL households are predicted to have `3400 more monthly income compared to the BPL households. The level of education has a positive role in providing higher income for the households. The participants with higher education are likely to contribute more to their household income in comparison with the clients having less education. The co-efficient of multiple correlation R 2 is.605, showing that 60.5 percent of variation in the household monthly income is explained by the above independent variables. 113